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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File number 0-7617
----------------- ------
UNIVEST CORPORATION OF PENNSYLVANIA
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1886144
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
14 North Main Street
Souderton, Pennsylvania 18964
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 721-2400
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5 par value 3,816,873
- -------------------------- -----------------------------
(Title of Class) (Number of shares outstanding
at 2/28/98)
The approximate aggregate market value of voting stock held by non
affiliates of the registrant is $200,788,848 as of February 28, 1998.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. ( )
Parts I and Part III incorporate information by reference from the
proxy statement for the annual meeting of shareholders on April 7, 1998. Parts
I, II, and IV incorporate information by reference from the annual report to
shareholders for the year ended December 31, 1997.
PAGE 1 OF 25
PART I
Item 1. Business
General
Univest Corporation of Pennsylvania ("Univest") is a Pennsylvania
corporation organized in 1973 and registered as a bank holding company pursuant
to the Bank Holding Company Act of 1956. It owns all of the capital stock of
Union National Bank and Trust Company ("Union National Bank"), Pennview Savings
Bank, Univest Realty Corporation, Univest Leasing Corporation, Univest Mortgage
Company, Univest Financial Planning Corporation, Univest Insurance Company, and
Univest Electronic Services Corporation.
Union National Bank is engaged in the general commercial banking
business and provides a full range of banking services and trust services to its
customers. Pennview Savings Bank is engaged in attracting deposits from general
public and investing such deposits primarily in loans secured by residential
properties and consumer loans. The Realty Corporation was established to obtain,
hold and operate properties for the holding company and its subsidiaries. Both
the Leasing Corporation and Univest Mortgage Company are inactive. Univest
Insurance Company offers credit-related reinsurance plans. Univest Electronic
Services Corporation was established to provide data processing services to
Union National Bank in Souderton and other subsidiaries of Univest Corporation
of Pennsylvania.
Union National Bank and Trust Company, with its head office in
Souderton, Montgomery County, serves the area through twenty-six (26) banking
offices, one off-premises automated teller machines and provides banking and
trust services to the residents and employees of ten retirement homes. Fifteen
banking offices are in Montgomery County and eleven banking offices are in Bucks
County. One off-premises automated teller machine is located in Montgomery
County.
Pennview Savings Bank conducts operations through five (5) full-service
offices located in Souderton, Hatfield, Franconia, Silverdale and
Montgomeryville, Pennsylvania and provides banking services to the residents and
employees of two retirement homes.
As of January 31, 1998, Univest and its subsidiaries employed four
hundred and forty-one (441) persons.
Competition
Univest's service areas are characterized by intense competition for
banking business among commercial banks, savings and loan associations, savings
banks and other financial institutions. Each of the Corporation's subsidiary
banks actively compete with such banks and financial institutions for local
retail and commercial accounts, in Bucks and Montgomery Counties, as well as
other financial institutions outside their primary service area.
In competing with other banks, savings and loan associations, and other
financial institutions, Union National Bank and Pennview Savings Bank seek to
provide personalized services through management's knowledge and awareness of
their service area, customers and borrowers.
Other competitors, including credit unions, consumer finance companies,
insurance companies and mutual funds, compete with certain lending and deposit
gathering services offered by Union National Bank and Pennview Savings Bank.
Supervision and Regulation
Union National Bank is subject to supervision and is regularly examined
by the Office of the Comptroller of the Currency. Also, Union National Bank is
subject to examination by the Federal Deposit Insurance Corporation and by the
2
Federal Reserve System. Pennview Savings Bank is regulated by the Federal
Deposit Insurance Corporation and by the Department of Banking of the
Commonwealth of Pennsylvania.
Univest is subject to the provisions of the Bank Holding Company Act of
1956, as amended, and is registered pursuant to its provisions. The Act
prohibits the acquisition by a bank holding company of a direct or indirect
ownership of more than five percent of the voting shares of any bank within the
United States without prior approval of the Board of Governors of the Federal
Reserve System, and also prohibits the granting of such approval in respect to
any bank within the United States located outside of the state where the bank
holding company's principal operations are conducted, unless the acquisition is
specifically authorized by the statutes of the state in which the bank is
located. With certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank, and from engaging directly
or indirectly in businesses unrelated to the business of banking, or managing,
or controlling banks. Under the Bank Holding Company Act Amendments of 1970,
which became effective on December 3, 1970, the Federal Reserve Board may
approve the acquisition by bank holding companies of non bank subsidiaries to
engage in activities that are closely related to banking and are in the public
interest. The amendments include a provision which prohibits banks, bank holding
companies and subsidiaries from engaging in tie-in arrangements. Bank tie-ins
involving a loan, discount, deposit, or trust service are specifically exempted,
and the Federal Reserve Board is authorized to make exceptions by regulations.
As a bank holding company, Univest is subject to the reporting
requirements of the Board of Governors of the Federal Reserve System, and
Univest, together with its subsidiaries, is subject to examination by the Board.
The Federal Reserve Act limits the amount of credit which a member bank may
extend to its affiliates, and the amount of its funds which it may invest in or
lend on the collateral of the securities of its affiliates. Under the Federal
Deposit Insurance Act, insured banks are subject to the same limitations.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act ("FDICIA") was enacted, which substantially revised the bank regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to
take "prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements in order to minimize losses to the FDIC.
FDICIA establishes five capital tiers: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically undercapitalized" and imposes significant restrictions on the
operations of a bank that is not at least adequately capitalized. A depository
institution's capital tier will depend upon where its capital levels are in
relation to various relevant capital measures, which will include a risk-based
capital measure, a leverage ratio capital measure and certain other factors.
Under the requirements, Univest has Tier I capital ratios of 14.1% and 14.3%,
and total risk-based capital ratios of 15.2% and 15.5% at December 31, 1997 and
1996, respectively. These ratios place Univest in the "well-capitalized"
category under regulatory standards.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal banking
regulators within 15 days of any material events that affect the capital
position of the institution.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, a
3
maximum ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly traded
shares (if feasible) and such other standards as the agency deems appropriate.
FDICIA also contains a variety of other provisions that affect the
operations of the Corporation, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, certain
restrictions on investments and activities of state-chartered insured banks and
their subsidiaries and limitations on credit exposure between banks.
Finally, FDICIA limits the discretion of the FDIC with respect to
deposit insurance coverage by requiring that, except in very limited
circumstances, the FDIC's course of action in resolving a problem bank must
constitute the "least costly resolution" for the Bank Insurance Fund ("BIF") or
the Savings Association Insurance Fund ("SAIF"), as the case may be. The FDIC
has interpreted this standard as requiring it not to protect deposits exceeding
the $100,000 insurance limit in more situations than was previously the case. In
addition, FDICIA prohibits payments by the FDIC on uninsured deposits in foreign
branches of U.S. banks and will severely limit the "too big to fail" doctrine
under which the FDIC formerly protected deposits exceeding the $100,000
insurance limit in certain failed banking institutions.
Implementation of FDICIA has not had a material impact on the business
or operations of the Corporation.
Credit and Monetary Policies
Union National Bank is affected by the fiscal and monetary policies of
the federal government and its agencies, including the Federal Reserve System.
An important function of the policies is to curb inflation and control
recessions through control of the supply of money and credit. The Federal
Reserve System uses its powers to regulate reserve requirements of member banks,
the discount rate on member-bank borrowings, interest rates on time and savings
deposits of member banks, and to conduct open-market operations in United States
Government securities to exercise control over the supply of money and credit.
The policies have a direct effect on the amount of bank loans and deposits and
on the interest rates charged on loans and paid on deposits, with the result
that the policies have a material effect on bank earnings. Future policies of
the Federal Reserve Bank System and other authorities cannot be predicted, nor
can their effect on future bank earnings be predicted.
Pennview Savings Bank and Union National Bank are members of the
Federal Home Loan Bank System which consists of 12 regional Federal Home Loan
Banks, with each subject to supervision and regulation by the newly created
Federal Housing Finance Board. The Federal Home Loan Banks provide a central
credit facility primarily for member institutions. The Banks, as members of the
Federal Home Loan Bank of Pittsburgh, are required to acquire and hold shares of
capital stock in that Federal Home Loan Bank in an amount equal to at least 1%
of the aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the Federal Home Loan Bank of Pittsburgh,
whichever is greater.
Market Risk
When used or incorporated by reference in disclosure documents, the
words "anticipate," "estimate," "expect," "project," "target," "goal" and
similar expressions are intended to identify forward-looking statements within
the meaning of section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions,
including those set forth below. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected
or projected. These forward-looking statements speak only as of the date of the
document. The Corporation expressly disclaims any obligation or undertaking to
publicly release any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Corporation's expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
4
Market risk is the risk of loss from adverse changes in market prices
and rates. In the course of its lending and deposit taking activities, Univest
is subject to changes in the economic value and/or earnings potential of these
assets and liabilities due to changes in interest rates. Univest's
Asset/Liability Management Committee (ALMC) manages interest rate risk in a
manner so as to provide adequate and predictable earnings. This is accomplished
through the establishment of policy limits on maximum risk exposures, as well as
the regular and timely monitoring of reports designed to quantify risk and
return levels.
Univest uses both GAP and simulation techniques to quantify its
exposure to interest rate risk. The company uses GAP techniques to identify and
monitor long term rate exposure and uses a simulation model to measure the short
term rate exposures. The company runs various earnings simulation scenarios to
quantify the effect of declining or rising interest rates on the net interest
margin over a 1 year horizon. The simulation uses existing portfolio rate and
repricing information, combined with assumptions regarding future loan and
deposit growth, future spreads, prepayments on residential mortgages, and the
discretionary pricing of non-maturity assets and liabilities. The Corporation is
permitted to use interest rate swaps and interest rate caps/floors with indices
that correlate to on-balance sheet instruments, to modify its indicated net
interest sensitivity to levels deemed to be appropriate based on the
corporation's current economic outlook. The effect of the interest rate swaps
that the bank uses to reduce its earnings volatility due to rate risk are also
included in the results of the simulation.
At December 31, 1997, the simulation, based upon forward-looking
assumptions, projects that Univest's greatest interest margin exposure to
interest rate risk would occur if interest rates decline from present levels.
Given the assumptions, a 200 basis point parallel shift in the yield curve
applied on a ramp-down basis would cause Univest's interest margin, over a 1
year horizon, to be approximately 2.5% less than it would be if market rates
would remain unchanged. Policy limits have been established which allow a
tolerance for no more than approximately a 3.5% negative impact to the interest
margin resulting from a gradual 200 basis point parallel yield curve shift over
a forward looking 12 month period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Net Interest Income" in the
Annual Report and the Interest Rate Sensitivity Analysis on page 16.
Interstate Banking
Legislation was passed, and signed by President Clinton on September
29, 1994, which will eliminate many currently existing restrictions on
interstate banking. The legislation will authorize interstate acquisition of
banks by bank holding companies without geographic limitations one year after
enactment. Beginning June 1, 1997, the legislation will allow interstate
branching in states that have not passed legislation prohibiting interstate
branching, except that de novo branching or acquisition of a branch in another
state without acquisition of the entire bank will only be permitted if expressly
permitted by the law of the state in which such branch would be located.
Interstate branching prior to June 1, 1997, will be possible in states that pass
laws affirmatively authorizing such interstate branching. The effect of this
legislation on Univest cannot be predicted at this time.
Statistical Disclosure
Univest was incorporated under Pennsylvania law in 1973 for the purpose
of acquiring the stock of Union National Bank and subsequently to engage in
other business activities permitted under the Bank Holding Company Act. On
September 28, 1973, pursuant to an exchange offer, Univest acquired the
outstanding stock of Union National Bank and on August 1, 1990 acquired the
stock of Pennview Savings Bank. The following financial data appearing on pages
6 through 17 reflects consolidated information. Where averages are reported,
daily information has been used for all subsidiaries.
5
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
($ in thousands)
1997 1997/1996
Average Income/ Avg. Volume Rate Average
ASSETS: Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
Cash and due from banks $ 29,244 $ 30,866
Time deposits with other banks 1,522 $ 83 5.5 $ 51 $ 2 $ 53 588
U.S. Government obligations 199,733 12,274 6.1 (709) (214) (923) 213,981
Oblig. of states & political sub. 4,728 219 4.6 35 12 47 3,967
Other securities 36,547 2,372 6.5 1,322 16 1,338 16,278
Federal Reserve bank stock 761 46 6.0 1 0 1 752
Federal funds sold and other
short-term investments 4,204 223 5.3 7 (4) 3 4,083
-------- ------ --------
Total investments 245,973 15,134 6.2 239,061
-------- ------ ---- --------
Commercial loans 137,520 12,632 9.2 1,239 (124) 1,115 124,372
Real estate loans 361,089 31,612 8.8 (245) 363 118 363,050
Installment loans 75,395 6,373 8.5 1,157 (61) 1,096 61,190
Home equity loans 15,300 1,647 10.8 (127) 16 (111) 16,393
Municipal loans 36,545 2,059 5.6 389 (268) 121 29,827
-------- ------ --------
Gross loans 625,849 54,323 8.7 594,832
------ ----
Less: valuation reserve (10,159) (9,582)
-------- --------
Net loans 615,690 585,250
-------- --------
Property and equipment, net 16,761 16,436
Other assets 20,047 17,656
-------- --------
Total assets $929,237 $889,857
======== ========
(TABLE RESTUBBED FROM PREVIOUS PAGE)
1996 1996/1995 1995
Income/ Avg. Volume Rate Average Income/ Avg.
ASSETS: Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
Cash and due from banks $ 30,645
Time deposits with other banks $ 30 5.1 $ 9 $ (2) $ 7 406 $ 23 5.7
U.S. Government obligations 13,197 6.2 2,402 349 2,751 174,355 10,446 6.0
Oblig. of states & political sub. 172 4.3 64 (10) 54 2,535 118 4.7
Other securities 1,034 6.4 87 (29) 58 14,697 976 6.6
Federal Reserve bank stock 45 6.0 0 0 0 746 45 6.0
Federal funds sold and other
short-term investments 220 5.4 (343) (53) (396) 10,527 616 5.9
------ -------- ------
Total investments 14,668 6.1 202,860 12,201 6.0
------- ---- --------- ------ ----
Commercial loans 11,517 9.3 (6,162) - (6,162) 190,451 17,679 9.3
Real estate loans 31,494 8.7 5,914 586 6,500 292,751 24,994 8.5
Installment loans 5,277 8.6 674 (54) 620 53,702 4,657 8.7
Home equity loans 1,758 10.7 (219) (93) (312) 18,501 2,070 11.2
Municipal loans 1,938 6.5 101 (85) 16 28,415 1,922 6.8
------ -------- ------
Gross loans 51,984 8.7 583,820 51,322 8.8
------ ---- ------ ----
Less: valuation reserve (8,965)
--------
Net loans 574,855
--------
Property and equipment, net 14,857
Other assets 20,409
------
Total assets $844,032
========
6
1997 1997/1996
LIABILITIES: Average Income/ Avg. Volume Rate Average
Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
Demand deposits $118,960 $107,993
--------- ---------
Interest checking deposits 73,521 $ 991 1.3 $ (6) $ - $ (6) 73,973
Money market savings 77,013 2,617 3.4 475 319 794 63,849
Regular savings 128,546 3,183 2.5 51 0 51 126,118
Certificates of deposit 312,517 17,556 5.6 (83) - (83) 313,867
Time open & club accounts 44,447 2,269 5.1 246 40 286 39,576
------- -------
Total time, int., and inv.
checking deposits 636,044 26,616 4.2 617,383
-------- ------- --- --------
Total deposits 755,004 725,376
-------- --------
Federal funds purchased 3,541 203 5.7 (51) 9 (42) 4,433
Loans & securities sold under
agreement to repurchase 49,133 1,608 3.3 160 - 160 44,001
Other borrowings 8,592 485 5.6 56 15 71 7,612
Subordinated notes - - 0.0 0 - - -
-- -- --
Total borrowings 61,266 2,296 3.7 56,046
------- ------ --- -------
Accrued expenses & other liab. 11,787 14,939
------- -------
Total liabilities 828,057 796,361
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 19,636 19,636
Capital surplus 34,539 34,545
Retained earnings 47,005 39,315
------- -------
Total shareholders' equity 101,180 93,496
-------- -------
Total liabilities and share-
holders' equity $929,237 $889,857
========= =========
Weighted avg. yield on interest-earning assets 8.0%
Weighted avg. rate paid on interest-bearing liab. 4.1%
Net yield 4.7%
(RESTUBBED FROM PREVIOUS PAGE)
1996 1996/1995 1995
LIABILITIES: Income/ Avg. Volume Rate Average Income/ Avg.
Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
Demand deposits $ 99,547
--------
Interest checking deposits $ 997 1.3 $ 23 $ (292) $ (269) 72,886 $ 1,266 1.7
Money market savings 1,823 2.9 (113) 0 (113) 67,858 1,936 2.9
Regular savings 3,132 2.5 53 0 53 125,419 3,079 2.5
Certificates of deposit 17,639 5.6 872 599 1,471 299,498 16,168 5.4
Time open & club accounts 1,983 5.0 444 (61) 383 30,576 1,600 5.2
------- ------
Total time, int., and inv.
checking deposits 25,574 4.1 596,237 24,049 4.0
------- --- -------- ------- ---
Total deposits 695,784
-------
Federal funds purchased 245 5.5 185 (7) 178 1,093 67 6.1
Loans & securities sold under
agreement to repurchase 1,448 3.3 212 (38) 174 37,760 1,274 3.4
Other borrowings 414 5.4 125 21 146 5,338 268 5.0
Subordinated notes - 0.0 0 (305) (305) 2,986 305 10.2
-- ------ ----
Total borrowings 2,107 3.8 47,177 1,914 4.1
------ --- ------- ------ ---
Accrued expenses & other liab. 15,979
------
Total liabilities 758,940
-------
SHAREHOLDERS' EQUITY:
Common stock 15,727
Capital surplus 8,163
Retained earnings 61,202
------
Total shareholders' equity 85,092
------
Total liabilities and share-
holders' equity $844,032
========
Weighted avg. yield on interest-earning assets 8.0% 8.1%
Weighted avg. rate paid on interest-bearing liab. 4.1% 4.0%
Net yield 4.7% 4.8%
7
Note: (1) For rate calculation purposes, average loan categories include
unearned discount.
(2) Nonaccrual loans have been included in the average loan balances.
(3) Certain amounts have been reclassified to conform with the
current-year presentation.
(4) Included in interest income are loan fees of $1,253 for 1997,
$1,364 for 1996 and $1,310 for 1995.
(5) Table I has not been tax equated.
* The change due to the volume/rate variance and average volume and percent
roundings have been allocated to volume.
8
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE II. INVESTMENT PORTFOLIO (BOOK VALUE)
(Thousands of Dollars)
CARRYING AMOUNT OF INVESTMENT SECURITIES
December 31, December 31, December 31,
1997 (a) 1996 (a) 1995 (a)
------------ ------------ ------------
U. S. Treasury, government corporations and agencies $ 195,048 $ 213,360 $ 206,117
State and political subdivisions 4,676 4,980 3,873
Mortgage-backed securities 53,996 18,529 9,256
Other 4,445 5,344 5,273
--------- --------- ---------
Total $ 258,165 $ 242,213 $ 224,519
========= ========= =========
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1997 1996 1996 1995 1995
Amount (a) Yield (b) Amount (a) Yield (b) Amount (a) Yield (b)
------------ ------------ ------------ ------------ ------------ ------------
1 Year or less $ 69,916 5.88% $ 73,215 6.50% $ 52,749 5.85%
1 Year - 5 Years 136,317 6.19% 155,662 6.06% 159,807 6.19%
5 Years - 10 Years 11,652 6.54% 6,784 6.09% 5,315 5.65%
After 10 Years 40,280 6.51% 6,552 6.16% 6,648 6.44%
--------- ---- --------- ---- --------- ----
Total $ 258,165 6.17% $ 242,213 6.20% $ 224,519 6.10%
========= ==== ========= ==== ========= ====
Refer to Note 3 to the consolidated financial statements.
a. Held to maturity and available for sale portfolios are combined.
b. Weighted average yield is calculated by dividing income, which has not been
tax equated on tax-exempt obligations, within each maturity range by
outstanding amount of the related investment.
9
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART A. TYPES OF LOANS
(Thousands of Dollars)
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
Real estate Loans
Construction and land development $ 30,951 $ 34,733 $ 54,840 $ 50,954 $ 60,437
Secured by 1-4 family residential properties 217,782 217,631 216,180 221,098 200,018
Other real estate loans 189,251 178,644 157,925 160,234 164,304
Commercial and industrial loans 138,812 124,788 120,692 114,103 115,375
Loans to individuals 53,500 47,466 40,648 36,810 34,130
All other loans 6,143 5,821 4,084 5,639 4,402
-------- -------- -------- -------- --------
Total loans $636,439 $609,083 $594,369 $588,838 $578,666
======== ======== ======== ======== ========
10
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO,
PART B. MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(Thousands of Dollars)
The commercial mortgages and Industrial Development Authority mortgages
that are presently being written at both fixed and floating rates of interest
are written for a three (3) year term with a monthly payment based on a fifteen
(15) year amortization schedule. At each three-year anniversary date of the
mortgages, the interest rate is renegotiated and the term of the loan is
extended for an additional three years. At each three-year anniversary date of
the mortgages, the Bank also has the right to require payment in full. These are
included in the "Due in One to Five Years" category on issue. The borrower has
the right to prepay the loan at any time.
The residential mortgages are presently being written on a one (1) or three
(3) year rollover basis. The monthly payment on these mortgages is based on a
thirty (30) year amortization schedule, unless the borrower requests a shorter
payout period. These are included in the "Due in One to Five Years" category on
issue. Fixed rate residential mortgages are also being written for terms of 15
and 30 years and are included in the "Due in over Five Years" category.
As of December 31, 1997 Due in One Due in One Due in Over
Year or Less to Five Years Five Years Total
------------ ------------- ----------- ----------
Real estate loans
Construction and land development $ 19,611 $ 11,340 $ -- $ 30,951
Secured by 1-4 family residential properties 70,082 83,873 63,827 217,782
Other real estate loans 75,955 52,466 60,830 189,251
Commercial and industrial loans 110,653 21,725 6,434 138,812
Loans to individuals 19,428 30,156 3,916 53,500
All other loans 3,070 2,447 626 6,143
-------- -------- -------- --------
Total loans $298,799 $202,007 $135,633 $636,439
======== ======== ======== ========
Loans with a predetermined interest rate $ 73,281 $119,989 $131,732 $325,002
Loans with a floating or variable interest rate 225,518 82,018 3,901 311,437
-------- -------- -------- --------
$298,799 $202,007 $135,633 $636,439
======== ======== ======== ========
11
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART C. RISK ELEMENTS
(Thousands of Dollars)
Nonaccrual, Past-Due and Restructured Loans and Other Assets
Performance of the entire loan portfolio is reviewed on a regular basis by
bank management and loan officers. A number of factors regarding the borrower,
such as overall financial strength, collateral values, and repayment ability,
are considered in deciding on what actions should be taken when determining the
collectibility of interest for accrual purposes.
Potential Problem Loans
When collectibility of interest and/or principal on a particular loan is
questionable, the loan is placed on nonaccrual status. If, at the time a
decision is made to cease accruing interest, it is determined that the
collection of previously accrued but unpaid interest is uncertain, a stipulated
amount is charged against current income. Conversly, if a loan on nonaccrual
status is paid in full, including interest, a credit is made to current income.
The $3,342 of nonaccruing and restructured loans in 1997 includes $664 which
although nonaccruing is performing on current contractual status. If nonaccrual
loans had been performing in accordance with their contractual terms, additional
income of $187 would have been recorded in 1997. Interest income of $94 was
recognized on these loans. In management's evaluation of the loan portfolio
risks, any significant future increases in nonperforming loans are dependent to
a large extent on the economic environment, or specific industry problems.
Loan Concentrations
At December 31, 1997, there were no concentrations of loans exceeding 10%
of total loans other than disclosed in Table III, Part A.
Other Assets
At December 31, 1997, $250 in Other Real Estate Owned was classified as
nonperforming. This amount represents all Other Real Estate Owned as of
December 31, 1997.
1997 1996 1995 1994 1993
Principal Principal Principal Principal Principal
Balance Balance Balance Balance Balance
--------- --------- --------- --------- ---------
Nonaccruing loans $3,136 $4,671 $5,855 5,149 $6,991
====== ====== ====== ====== ======
Accruing loans 90 days or more past due:
Real estate loans
Construction and land development -- -- -- -- --
Secured by 1-4 family dwellings 308 373 234 76 87
Other real estate 36 12 93 172 36
Commercial and industrial loans 21 19 -- -- 67
Loans to individuals 159 180 174 247 108
All other loans -- -- -- -- --
------ ------ ------ ------ ------
Total loans, 90 days or more past due 524 584 501 495 298
====== ====== ====== ====== ======
Restructured loans, not included above 206 281 352 422 --
====== ====== ====== ====== ======
12
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE IV. SUMMARY OF LOAN LOSS EXPERIENCE
(Thousands of Dollars)
Management believes the allowance for loan losses is maintained at a
level which is adequate to absorb potential losses in the loan portfolio.
Management's methodology to determine the adequacy of and the provisions to the
allowance considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the volume, growth, and composition of the
loan portfolio.
The allowance for loan losses is determined through a quarterly
evaluation of reserve adequacy which takes into consideration the growth of the
loan portfolio, the status of past-due loans, current economic conditions,
various types of lending activity, policies, real estate and other loan
commitments, and significant changes in the charge-off activity. Loans are also
reviewed for impairment based on discounted cash flows using the loans' initial
effective interest rate or the fair value of the collateral for certain
collateral-dependent loans as provided under FAS 114, which was adopted by the
Corporation effective January 1, 1995. Any of the above factors may cause the
provision to fluctuate.
As the accompanying table indicates, the amount of loan loss provision
charged to expense for 1997 was $1,310 compared to $1,045 in 1996 and $1,895 in
1995.
13
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Average amount of loans outstanding $617,082 $590,144 $583,398 $585,644 $563,678
Loan loss reserve at beginning of period $ 9,801 $ 8,854 $ 8,876 $ 7,198 $ 8,240
Charge-offs:
Real estate loans 552 990 1,842 701 1,367
Commercial and industrial loans 319 20 416 615 2,270
Loans to individuals 286 175 236 127 215
Home equity -- -- -- -- --
Other -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs: 1,157 1,185 2,494 1,443 3,852
======== ======== ======== ======== ========
Recoveries:
Real estate loans 167 458 316 146 139
Commercial and industrial loans 78 529 157 816 9
Loans to individuals 66 76 75 170 114
Home equity -- -- -- -- --
Other 5 24 29 39 68
-------- -------- -------- -------- --------
Total recoveries: 316 1,087 577 1,171 330
======== ======== ======== ======== ========
Net charge-offs: 841 98 1,917 272 3,522
Additions to loan loss reserve 1,310 1,045 1,895 1,950 2,480
Loan loss reserve at end of period $ 10,270 $ 9,801 $ 8,854 $ 8,876 $ 7,198
======== ======== ======== ======== ========
Loan type Loan type Loan type Loan type Loan type
as % as % as % as % as %
Amount in reserve by category: of loans of loans of loans of loans of loans
-------- -------- -------- -------- --------
Real estate loans 68.8 $ 3,511 70.8 $3,146 72.2 $ 817 73.4 $2,999 73.4 $2,468
Commercial and industrial loans 21.8 610 20.5 1,332 20.3 2,459 19.4 2,495 19.9 2,384
Loans to individuals 8.4 617 7.8 354 6.8 347 6.3 490 5.9 402
All other loans 1.0 11 0.9 11 0.7 11 1 15 0.8 538
Unallocated portion 5,521 4,958 5,220 2,876 1,406
------- ------ ------- ------ ------
Total $10,270 $9,801 $ 8,854 $8,875 $7,198
======= ====== ======= ====== ======
Ratio of Net charge-offs versus average loans 0.1% 0.0% 0.3% 0.0% 0.6%
Total cash-basis and nonaccrual loans of $3,136 at December 31, 1997, were
generally comprised of $1,356 in residential real estate loans and $1,780 in
commercial real estate loans.
14
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE V. DEPOSITS
(Thousands of Dollars)
1997 1996 1995
---- ---- ----
A. Average: Noninterest-bearing demand deposits $ 118,960 $ 107,993 $ 99,547
Interest checking 73,521 73,973 72,886
Money Market savings 77,013 63,849 67,858
Saving deposits 128,546 126,118 125,419
Time deposits 356,964 353,443 330,074
--------- --------- ---------
Total $ 755,004 $ 725,376 $ 695,784
========= ========= =========
Due 3 months Due 3 - 6 Due 6 - 12 Due over
or less months months 12 months
------- ------ ------ ---------
B. Year-end balance: ($100 or more) outstanding as of
December 31, 1997
Certificates of deposit $ 1,700 $ 1,463 $6,578 $ 10,834
Other time deposits $ 25,778 $ 6,678 $ 618 $ 1,520
Note: Univest and its subsidiaries do not have any foreign offices or foreign
deposits
TABLE VI. RETURN ON EQUITY AND ASSETS (RATIOS)
(Shown as percentages)
1997 1996 1995
---- ---- ----
Return on assets 1.4 1.4 1.3
Return on equity 13.0 12.9 13.2
Dividend payout ratio 28.2 23.1 24.9
Equity to assets ratio 10.9 10.5 10.1
15
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INTEREST RATE SENSITIVITY ANALYSIS
(Thousands of dollars)
Within 1 - 5 Over
1 Year Years 5 Years
------ ----- -------
Rate Sensitive Interest Earnings Assets
Federal funds sold $ 2,000 $ -- $ --
Investment securities 100,696 157,126 6,254
Loans 357,182 241,361 36,110
Hedging instruments (30,000) 30,000 --
-------- -------- --------
$429,878 $428,487 $ 42,364
Rate Sensitive Liabilities
Interest bearing deposits 362,991 298,846 812
Borrowed funds 58,544 -- --
Net non-interest bearing funds (a) -- -- 179,536
-------- -------- --------
421,535 298,846 180,348
Excess interest-earning assets (liabilities) 8,343 129,641 (137,984)
Cumulative excess interest earning assets (liabilities) 8,343 137,984 --
======== ======== ========
Notes to interest sensitivity analysis:
(a) Net non-interest bearing funds is the sum of non-interest bearing
liabilities and shareholders equity minus non-interest earning assets.
16
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE VII. SHORT TERM BORROWINGS
(Thousands of Dollars)
LOANS AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
1997 1996 1995
---- ---- ----
Balance at December 31 $48,389 $48,661 $45,657
Weighted average interest rate at year end 3.3% 3.3% 3.4%
Maximum amount outstanding at any month's end $58,521 $53,109 $45,657
Average amount outstanding during the year $49,133 $44,001 $37,760
Weighted average interest rate during the year 3.3% 3.3% 3.4%
17
Item 2. Properties
Univest and its subsidiaries occupy thirty-one properties in Montgomery
and Bucks Counties in Pennsylvania, which are used principally as banking
offices. Note 6, appearing on page 22 of the Annual Report to Shareholders
(Exhibit 13), is hereby incorporated in this item.
Item 3. Legal Proceedings
There are no proceedings pending other than the ordinary routine
litigation incident to the business of the corporation.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference from the 1997 Annual Report to Shareholders
(Exhibit 13), pages 40-41. Dividend and other restrictions are incorporated by
reference from Note 16 of the 1997 Annual Report to Shareholders (Exhibit 13),
pages 27 and 28. The number of shareholders as of February 28, 1998, was 1,918.
Item 6. Selected Financial Data
Incorporated by reference from the 1997 Annual Report to Shareholders
(Exhibit 13), page 33.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference from the 1997 Annual Report to Shareholders
(Exhibit 13), pages 34 through 39. Dividend and other restrictions are
incorporated by reference from Note 16 of the 1997 Annual Report to Shareholders
(Exhibit 13), pages 27 and 28.
Item 7 (a). Qualitative and Quantitative Disclosures About Market Risk
The information contained under "Business - Market Risk" in Part I of
this Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated balance sheets of the registrant at December 31, 1997 and
1996, and consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years ended December 31, 1997, and the
independent auditors' report thereon are incorporated by reference from the 1997
Annual Report to Shareholders (Exhibit 13), pages 13 through 16.
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
18
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
Executive Officers
The names and ages of all executive officers of Univest are as follows:
Principal Occupation
Officer Title during past 5 years Age
Merrill S. Moyer Chairman Chairman and Chief Executive 64
Officer of the Corporation and
Chairman of Union National Bank
Norman L. Keller Executive Vice President and CEO of Pennview 60
President Savings Bank and Executive
Vice President of the Corporation
Marvin A. Anders Vice Chairman Vice Chairman of the Corporation 58
and Union National Bank
William S. Aichele President President of the Corporation 47
and President and CEO of
Union National Bank
Wallace H. Bieler Executive Vice Executive Vice President 52
President and CFO of the Corporation
and Union National Bank
There is no family relationship among any of the executive officers of Univest.
Item 11. Executive Compensation
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
Item 13. Certain Relationships and Related Transactions
During 1997, the Corporation and its subsidiaries paid $568,568 to H.
Mininger & Son, Inc. for building expansion projects which were in the normal
course of business on substantially the same terms as available from others. H.
Ray Mininger, Alternate Director, is president of H. Mininger & Sons, Inc.
19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) 1. & 2. Financial Statements and Schedules
The financial statements listed in the accompanying index
to financial statements are filed as part of this annual
report.
3. Listing of Exhibits
The exhibits listed on the accompanying index to exhibits
are filed as part of this annual report.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1997.
(c) Exhibits - The response of this portion of item 14 is submitted as
a separate section.
(d) Financial Statement Schedules - none.
20
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[Item 14(a)]
Annual Report
to Shareholders*
----------------
Report of Independent Auditors 32
Consolidated balance sheets at 13
December 31, 1997 and 1996
Consolidated statements of income for each of the 14
three years in the period ended December 31, 1997
Consolidated statements of changes in shareholders' equity 15
for each of the three years in the period ended
December 31, 1997
Consolidated statements of cash flows for 16
each of the three years in the period ended
December 31, 1997
Notes to consolidated financial statements 17-31
Financial statement schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
* Refers to page numbers in the Annual Report to Shareholders for 1997 (Exhibit
13) which is incorporated by references.
21
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-02513) pertaining to the Univest 1996 Employee Stock Purchase Plan
of Univest Corporation of Pennsylvania and in the related Prospectus, in the
Registration Statement (Form S-8 No. 333-24987) pertaining to the Univest
Corporation of Pennsylvania 1993 Long Term Incentive Plan and in the related
Prospectus, and in the Registration Statement (Form S-3 No. 333-02509)
pertaining to the Univest Dividend Reinvestment and Stock Purchase Plan of
Univest Corporation of Pennsylvania of our report dated January 28, 1998, with
respect to the consolidated financial statements of Univest Corporation of
Pennsylvania included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 24, 1998
22
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
INDEX TO EXHIBITS
[Item 14(a)]
Description
-----------
(3) Articles of Incorporation and By-Laws
Articles of Incorporation and Charter are incorporated by reference to
the 1973 Form 10-K.
(4) Instruments Defining the Rights of Security Holders, Including Debentures
Specimen Copy of Common Stock is incorporated herein by reference to
the 1973 Form 10-K.
(10) Material Contracts - Not Applicable.
(11) Statement Re Computation of Per Share Earnings - See Footnote 13 in
Item (13).
(12) Statements Re Computation of Ratios - Not Applicable.
(13) Annual Report to Shareholders
(18) Letter Re Change in Accounting Principles - Not Applicable.
(19) Previously Unfiled Documents - Not Applicable.
(21) Subsidiaries of the Registrant
(23) Consent of independent auditors
(24) Power of Attorney - Not Applicable.
23
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
EXHIBIT
[Item 14(c)]
Subsidiaries
------------
(1) Union National Bank and Trust Company is chartered in the Commonwealth of
Pennsylvania.
(2) Pennview Savings Bank is chartered in the Commonwealth of Pennsylvania.
(3) Univest Leasing Corporation is chartered in the Commonwealth of
Pennsylvania.
(4) Univest Realty Corporation is chartered in the Commonwealth of Pennsylvania.
(5) Univest Mortgage Company is chartered in the Commonwealth of Pennsylvania.
(6) Univest Financial Planning Company is chartered in the Commonwealth of
Pennsylvania.
(7) Univest Insurance Company is chartered in the State of Arizona.
(8) Univest Electronic Services Corporation is chartered in the Commonwealth of
Pennsylvania.
All the subsidiaries do business under the above names.
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIVEST CORPORATION OF PENNSYLVANIA
Registrant
By: /s/ Robert H. Schong
---------------------------------
Robert H. Schong
Secretary, March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Merrill S. Moyer /s/ James L. Bergey
- -------------------------------------------------- ---------------------------------
Merrill S. Moyer James L. Bergey
Chairman and Director, March 25, 1998 Director, March 25, 1998
/s/ Marvin A. Anders /s/ Harold M. Mininger
- -------------------------------------------------- ---------------------------------
Marvin A. Anders Harold M. Mininger
Vice Chairman, March 25,1998 Director, March 25, 1998
/s/ Wallace H. Bieler /s/ Paul G. Shelly
- ------------------------------------------------- ---------------------------------
Wallace H. Bieler Paul G. Shelly
Executive Vice President and CFO, March 25, 1998 Director, March 25, 1998
/s/ Charles H. Hoeflich /s/ R. Lee Delp
- -------------------------------------------------- ---------------------------------
Charles H. Hoeflich R. Lee Delp
Chairman Emeritus, March 25, 1998 Director, March 25, 1998
/s/ Norman L. Keller /s/ Clair W. Clemens
- -------------------------------------------------- ---------------------------------
Norman L. Keller Clair W. Clemens
Executive Vice President, March 25, 1998 Director, March 25, 1998
/s/ John U. Young /s/ Thomas K. Leidy
- -------------------------------------------------- ---------------------------------
John U. Young Thomas K. Leidy
Director, March 25, 1998 Director, March 25, 1998
25
Consolidated Financial Highlights
(in thousands, except per share data)
Percentage
1997 1996 Change
------------------------------------------------------------------------------------------------------------------------
Earnings
Net interest income............................................ $ 40,628 $ 39,001 4.2%
Income before income taxes..................................... 19,164 17,066 12.3
Applicable income taxes........................................ 5,987 5,028 19.1
Net income..................................................... 13,177 12,038 9.5
Per Share*
Average shares outstanding..................................... 7,730 7,820 (1.2)
Income before income taxes..................................... $ 2.47 $ 2.18 13.3
Applicable income taxes........................................ $ .77 $ .64 20.3
Net income:
Basic.......................................................... $ 1.70 $ 1.54 10.4
Diluted........................................................ $ 1.69 $ 1.54 9.7
Book value..................................................... $ 13.64 $ 12.51 9.0
Balance Sheets
Investments.................................................... $ 258,165 $ 242,213 6.6
Net loans...................................................... 625,293 597,268 4.7
Deposits....................................................... 792,868 733,768 8.1
Shareholders' equity........................................... 104,604 97,267 7.5
Assets......................................................... 973,157 912,459 6.7
- -------------------------------------------------------------------------------------------------------------------------------
* Per share amounts and shares outstanding have been adjusted to reflect all
stock dividends and stock splits declared through January 1998.
1
Consolidated Balance Sheets
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
1997 1996
----------------------------------
Assets
Cash and due from banks................................................................... $ 33,352 $ 38,934
Time deposits with other banks............................................................ 5,001 360
Investment securities held to maturity (market value
$142,205 and $173,013 at December 31,
1997 and 1996, respectively)............................................................ 141,972 172,785
Investment securities available for sale.................................................. 116,193 69,428
Federal funds sold and other short-term investments....................................... 2,000 69
Loans..................................................................................... 635,563 607,069
Less: Reserve for possible loan losses.................................................. (10,270) (9,801)
----------------------------------
Net loans............................................................................. 625,293 597,268
----------------------------------
Premises and equipment, net............................................................... 16,604 16,843
Accrued interest and other assets......................................................... 32,742 16,772
==================================
Total assets.......................................................................... $ 973,157 $ 912,459
==================================
Liabilities
Demand deposits, noninterest bearing...................................................... $ 129,892 $ 122,087
Demand deposits, interest bearing......................................................... 176,115 138,953
Savings deposits.......................................................................... 127,965 125,483
Time deposits............................................................................. 358,896 347,245
----------------------------------
Total deposits........................................................................ 792,868 733,768
----------------------------------
Securities sold under agreements to repurchase............................................ 48,389 48,661
Other short-term borrowings............................................................... 1,157 12,055
Accrued expenses and other liabilities.................................................... 17,064 13,633
Long-term debt............................................................................ 9,075 7,075
----------------------------------
Total liabilities..................................................................... 868,553 815,192
----------------------------------
Shareholders' equity
Common stock, $5 par value; 12,000,000 shares authorized at December 31, 1997
and 1996 and 7,854,322 and 3,927,161 shares issued at December 31, 1997 and
1996 and 7,671,305 and 3,888,594 shares outstanding at
December 31, 1997 and 1996, respectively................................................ 39,272 19,636
Additional paid-in capital................................................................ 14,908 34,544
Retained earnings......................................................................... 53,691 44,260
Net unrealized securities gains........................................................... 350 18
Treasury stock, 183,017 shares at cost at December 31, 1997 and
38,567 shares at cost at December 31, 1996.............................................. (3,617) (1,191)
----------------------------------
Total shareholders' equity............................................................ 104,604 97,267
----------------------------------
Total liabilities and shareholders' equity................................................ $ 973,157 $ 912,459
==================================
See accompanying notes to consolidated financial statements.
2
Consolidated Statements of Income
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1997 1996 1995
----------------------------------------------------
Interest income
Interest and fees on loans:
Taxable............................................................... $ 52,264 $ 50,046 $ 49,400
Exempt from federal income taxes...................................... 2,059 1,938 1,922
----------------------------------------------------
Total interest and fees on loans........................................ 54,323 51,984 51,322
Interest and dividends on investment securities:
U.S. Government obligations........................................... 12,274 13,197 10,445
Obligations of state and political subdivisions....................... 219 172 118
Other securities...................................................... 2,418 1,079 1,021
Interest on time deposits with other banks.............................. 83 30 23
Interest on federal funds sold.......................................... 223 220 616
----------------------------------------------------
Total interest income............................................... 69,540 66,682 63,545
----------------------------------------------------
Interest expense
Interest on demand deposits............................................. 3,608 2,820 3,202
Interest on savings deposits............................................ 3,183 3,132 3,078
Interest on time deposits............................................... 19,825 19,622 17,769
Interest on long-term debt.............................................. 425 358 314
Interest--all other...................................................... 1,871 1,749 1,600
----------------------------------------------------
Total interest expense.............................................. 28,912 27,681 25,963
----------------------------------------------------
Net interest income........................................................ 40,628 39,001 37,582
Provision for loan losses.................................................. 1,310 1,045 1,895
----------------------------------------------------
Net interest income after provision for loan losses........................ 39,318 37,956 35,687
----------------------------------------------------
Other income
Trust................................................................... 2,695 2,290 2,032
Service charges on demand deposits...................................... 1,924 1,814 1,629
Gains (losses) on sales of securities................................... 95 (9) (66)
Gains on sales of mortgages............................................. 95 43 101
Other................................................................... 3,078 2,091 2,399
----------------------------------------------------
Total other income.................................................. 7,887 6,229 6,095
----------------------------------------------------
Other expenses
Salaries and benefits................................................... 15,476 14,461 13,320
Net occupancy........................................................... 2,178 2,073 1,856
Equipment............................................................... 2,500 2,428 1,898
Other................................................................... 7,887 8,157 8,484
----------------------------------------------------
Total other expenses................................................ 28,041 27,119 25,558
----------------------------------------------------
Income before income taxes................................................. 19,164 17,066 16,224
Applicable income taxes.................................................... 5,987 5,028 4,997
----------------------------------------------------
Net income $ 13,177 $ 12,038 $ 11,227
====================================================
Net income per share:
Basic.................................................................... $ 1.70 $ 1.54 $ 1.43
====================================================
Diluted.................................................................. $ 1.69 $ 1.54 $ 1.43
====================================================
See accompanying notes to consolidated financial statements.
3
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Additional Securities
Common Paid-in Retained Gains (Losses) Treasury
Stock Capital Earnings Stock Total
------------------------------------------------------------------------------
Balance at December 31, 1994..................... $ 15,717 $ 8,090 $ 56,983 $(482) $ (150) $ 80,158
Change in unrealized gains and (losses) on
investment securities available for sale,
net of income taxes of $394................. 743 743
Cash dividends declared ($.355 per share)..... (2,792) (2,792)
25% stock dividend payable March 1, 1996,
1,568,508 shares at fair market value....... 3,921 26,469 (30,390) -
Net income for 1995........................... 11,227 11,227
------------------------------------------------------------------------------
Balance at December 31, 1995..................... 19,638 34,559 35,028 261 (150) 89,336
Change in unrealized gains and (losses) on
investment securities available for sale,
net of income taxes of $(135)............... (243) (243)
Cash dividends declared ($.355 per share)..... (2,773) (2,773)
Cash paid in lieu of fractional shares........ (2) (15) (17)
Stock issued under dividend reinvestment
and employee stock purchase plans........... (2) 249 247
Exercise of stock options..................... (31) 140 109
Acquisition of treasury stock
(88,182 shares)............................. (1,430) (1,430)
Net income for 1996........................... 12,038 12,038
------------------------------------------------------------------------------
Balance at December 31, 1996..................... 19,636 34,544 44,260 18 (1,191) 97,267
Change in unrealized gains on investment
securities available for sale, net of
income taxes of $179........................ 332 332
Cash dividends declared ($0.48 per share)..... (3,707) (3,707)
100% stock dividend payable May 1, 1998....... 19,636 (19,636) -
Stock issued under dividend reinvestment
and employee stock purchase plans........... (7) 863 856
Exercise of stock options..................... (32) 91 59
Acquisition of treasury stock
(151,964 shares)............................ (3,380) (3,380)
Net income for 1997........................... 13,177 13,177
------------------------------------------------------------------------------
Balance at December 31, 1997..................... $ 39,272 $ 14,908 $ 53,691 $ 350 $ (3,617) $104,604
==============================================================================
See accompanying notes to consolidated financial statements.
4
Consolidated Statements of Cash Flows (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1997 1996 1995
----------------------------------------------------
Cash flows from operating activities
Net income.............................................................. $ 13,177 $ 12,038 $ 11,227
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses in excess of (less than) net charge-offs.... 469 947 (22)
Depreciation of premises and equipment................................ 2,407 2,239 1,725
Discount accretion on investment
securities and time deposits........................................ (412) (613) (346)
Deferred (benefit) income tax......................................... (162) (119) 353
Realized (gains) losses on investment securities...................... (95) 9 66
Realized gains on sales of mortgages.................................. (95) (43) (101)
Decrease in net deferred loan fees.................................... (497) (116) (258)
Decrease (increase) in interest receivable and other assets........... 717 (604) 1,115
Increase (decrease) in accrued expenses and other liabilities......... 3,350 (2,445) 2,069
----------------------------------------------------
Net cash provided by operating activities........................... 18,859 11,293 15,828
Cash flows from investing activities
Proceeds from maturing time deposits.................................... - 96 45
Proceeds from maturing securities held to maturity...................... 75,289 48,528 47,288
Proceeds from maturing securities available for sale.................... 9,471 6,380 5,873
Proceeds from sales of securities available for sale.................... 24,024 10,991 14,994
Purchases of time deposits.............................................. (4,641) - -
Purchases of investment securities held to maturity..................... (44,144) (52,329) (76,059)
Purchases of investment securities available for sale................... (79,576) (31,039) (13,138)
Premium paid to purchase Bank-Owned Life Insurance...................... (15,000) - -
Net (increase) decrease in federal funds sold and
other short-term investments.......................................... (1,931) 16,458 (9,679)
Proceeds from sales of mortgages........................................ 8,667 10,356 8,276
Net increase in loans................................................... (36,569) (31,295) (13,109)
Capital expenditures.................................................... (2,168) (2,882) (3,976)
----------------------------------------------------
Net cash used in investing activities............................... (66,578) (24,736) (39,485)
Cash flows from financing activities
Assumption of deposits.................................................. 14,186 - 11,916
Net increase in deposits................................................ 43,227 8,741 13,470
Net (decrease) increase in short-term borrowings........................ (11,170) 13,904 1,889
Proceeds from long-term debt............................................ 2,000 7,000 -
Purchases of treasury stock............................................. (3,380) (1,430) -
Stock issued under dividend reinvestment and
employee stock purchase plans......................................... 856 249 -
Proceeds from exercise of stock options................................. 59 109 -
Cash dividends.......................................................... (3,641) (3,087) (2,541)
Repayments of long-term debt............................................ - (4,010) (5,353)
----------------------------------------------------
Net cash provided by financing activities........................... 42,137 21,476 19,381
----------------------------------------------------
Net (decrease) increase in cash and due from banks...................... (5,582) 8,033 (4,276)
Cash and due from banks at beginning of year............................ 38,934 30,901 35,177
----------------------------------------------------
Cash and due from banks at end of year $ 33,352 $ 38,934 $ 30,901
====================================================
Supplemental disclosures of cash flow information Cash paid during the year for:
Interest.............................................................. $ 28,425 $ 27,058 $ 23,899
Income taxes.......................................................... $ 5,975 $ 5,100 $ 4,290
See accompanying notes to consolidated financial statements.
5
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
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Note 1. Summary of Significant Accounting Policies
Organization
Univest Corporation of Pennsylvania (the Corporation) through its wholly
owned subsidiaries, Union National Bank and Trust Company (Union) and Pennview
Savings Bank (Pennview), is engaged in domestic commercial and retail banking
services and provides a full range of banking and trust services to its
customers. Union and Pennview serve the Montgomery and Bucks Counties of
Pennsylvania through 31 banking offices and provide banking and trust services
to the residents and employees of 12 retirement communities.
Principles of Consolidation
The consolidated financial statements include the accounts of Univest
Corporation of Pennsylvania and its wholly owned subsidiaries, including Union
National Bank and Trust Company and Pennview Savings Bank, collectively referred
to herein as the "Banks." All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment Securities
Securities are classified as investments and carried at amortized cost if
management has the positive intent and ability to hold the securities to
maturity. Securities purchased with the intention of recognizing short-term
profits are placed in the trading account and are carried at market value.
Securities not classified as investment or trading are designated securities
available for sale and carried at fair value with unrealized gains and losses
reflected in shareholders' equity. The accumulated net unrealized gain on
available-for-sale securities included in retained earnings was $350 at December
31, 1997 and $18 at December 31, 1996.
Gains and losses on sales of securities are generally computed on a specific
security basis.
Loans
Loans are stated at the principal amount less net deferred loan fees and
unearned discount. Interest income on commercial, consumer, and mortgage loans
is recorded on the outstanding balance method, using actual interest rates
applied to daily principal balances. Unearned discount on installment loans for
Pennview Savings Bank is recognized in income using the actuarial method, which
materially approximates the interest method. Accrual of interest income on loans
ceases when collectibility of interest and/or principal is questionable. If it
is determined that the collection of interest previously accrued is uncertain,
such accrual is reversed and charged to current earnings. Thereafter, income is
only recognized as payments are received for loans on which there is no
uncertainty as to the collectibility of principal.
Loan Fees
Fees collected upon loan origination and certain direct costs of originating
loans are deferred and recognized over the contractual lives of the related
loans as yield adjustments. Upon prepayment or other disposition of the
underlying loans before their contractual maturities, any associated unamortized
fees or costs are recognized.
Derivative Financial Instruments
The Company uses interest-rate swap agreements to synthetically manage the
interest-rate characteristics of its floating-rate loan portfolio to a more
desirable fixed-rate basis.
Interest-rate differentials to be paid or received as a result of
interest-rate swap agreements are accrued and recognized as an adjustment of
interest income related to the designated floating-rate loans. Recorded amounts
related to interest-rate swaps are included in other assets or liabilities. The
fair values of interest-rate swap agreements are not recognized in the financial
statements.
Realized and unrealized gains or losses at the time of maturity,
termination, sale, or repayment of a derivative contract or designated item are
recorded in a manner consistent with the original designation of the derivative
in view of the nature of the termination, sale, or repayment transaction.
Amounts related to interest-rate swaps are deferred and amortized as an
adjustment to interest income over the original period of interest exposure,
provided the designated asset continues to exist or is probable of occurring.
Realized and unrealized changes in fair value or derivatives designated with
items that no longer exist or are no longer probable of occurring are recorded
as a component of the gain or loss arising from the disposition of the
designated item.
Reserve for Possible Loan Losses
The reserve for loan losses is based on management's evaluation of the loan
portfolio under current economic conditions and such other factors which deserve
recognition in estimating possible loan losses. This evaluation is inherently
subjective as it requires material estimates including the amounts and timing of
future cash flows expected to be received on impaired loans that may be
susceptible to significant change. Additions to the reserve arise from the
provision for loan losses charged to operations or from the recovery of amounts
previously charged off. Loan charge-offs reduce the reserve. Loans are charged
off when there has been permanent impairment.
6
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
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The Corporation adopted Statement of Financial Accounting Standard ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," and Statement No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," effective January 1, 1995. As a result of applying the rules,
certain impaired loans are reported at the present value of expected future cash
flows using the loan's initial effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of these standards
did not have any impact on the Corporation's financial position or results of
operations.
Premises and Equipment
Land is stated at cost, and bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on the straight-line
method and charged to operating expenses over the estimated useful lives of the
assets (bank premises and improvements - average life 25 years; furniture and
equipment - average life 10 years).
Other Real Estate Owned
Other real estate owned represents properties acquired through customers'
loan defaults, and is included in accrued interest and other assets. The real
estate is stated at an amount equal to the loan balance prior to foreclosure,
plus costs incurred for improvements to the property, but no more than the fair
market value of the property, less estimated costs to sell.
Stock Options
The Corporation grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Corporation has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123)
requires use of option valuation models in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, however, the effect of applying SFAS No. 123 to the
Corporation's stock-based awards results in net income and earnings per share
that are not materially different from amounts reported.
Dividend Reinvestment and Employee Stock Purchase Plans
In April 1996, the shareholders approved the Univest Dividend Reinvestment
Plan (the "Reinvestment Plan") and the 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). 500,000 shares of common stock are available for issuance
under each of the plans. Employees may elect to make contributions to the
Purchase Plan in an aggregate amount not less than 2% nor more than 10% of such
employee's total compensation. These contributions are then used to purchase
stock during an offering period determined by the Corporation's Administrative
Committee. The purchase price of the stock is established by the Administrative
Committee provided, however, that the purchase price will not be less than 85%
of the lesser of the market price on the first day or last day of the offering
period.
During 1997 and 1996, 36,134 and 13,034 shares, respectively, were issued
under the Reinvestment Plan, with 450,832 shares available for future purchase
as of December 31, 1997. During 1997 and 1996, 5,614 and 2,602 shares,
respectively, were issued under the Purchase Plan, with 491,784 shares available
for future purchase as of December 31, 1997.
Income Taxes
Deferred income taxes are provided on temporary differences between amounts
reported for financial statement and tax purpos