United States
Securities and Exchange Commission
Washington, DC 20549
10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Ex-
change Act of 1934 For The Period Ended March 31, 1994.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Transition Period from to
------- -------
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 I.D. No.)
incorporation or organization)
10 West Broad Street, Souderton, Pennsylvania 18964
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 215-721-2400
------------
Not applicable
- - ---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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 90 days. Yes X . No .
--- ---
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $5 par value 3,137,016
- - -------------------------- --------------------------
(Title of Class) (Number of shares outstand-
ing at March 31, 1994)
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Note to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Financial Information
The consolidated financial statements include the accounts of Univest Cor-
poration of Pennsylvania (Univest) and its wholly owned subsidiaries, in-
cluding Union National Bank and Trust Company (Union) and Pennview Savings
Bank (Pennview), collectively referred to herein as the "Banks." The
condensed consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote dis-
closures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The accompanying condensed
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary to present a fair statement of the results
and condition for the interim periods presented. It is suggested that
these condensed financial statements be read in conjuction with the finan-
cial statements and the notes thereto included in the registrant's Annual
Report on Form 10-K for the year ended December 31, 1993, which has been
filed with the Securities and Exchange Commission.
Note 2. Investment Securities
Securities effective January 1, 1994, Univest Corporation adopted Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity 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 share-
holders' equity. Prior to the adoption of SFAS No. 115, securities avail-
able for sale were carried at the lower of cost or fair value.
Gains and losses on sales of securities are generally computed on a specific
security basis.
<TABLE>
UNIVEST CORPORATION OF PENNSYLVANIA AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<CAPTION>
(UNAUDITED) (SEE NOTE)<F1>
MARCH 31, 1994 DECEMBER 31,1993
-------------- ----------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $40,692,398 $34,701,868
TIME DEPOSITS WITH OTHER BANKS 3,324,522 3,299,273
INVESTMENT SECURITIES HELD-TO-MATURITY 99,049,110 91,056,109
(MARKET VALUE $98,100,000 AT 3/31/94
AND $91,405,253 AT 121/31/93)
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 41,106,005 48,270,752
(MARKET VALUE $48,714,712 AT 12/31/93)
FEDERAL FUNDS SOLD AND OTHER SHORT 14,290,446 12,678,108
TERM INVESTMENTS
MORTGAGE LOANS HELD FOR SALE 5,707,200 8,916,100
LOANS 577,703,308 570,782,161
LESS: RESERVE FOR POSSIBLE LOAN (8,087,967) (7,198,213)
----------- -----------
NET LOANS 569,615,341 563,583,948
OTHER ASSETS 29,295,925 27,380,909
----------- -----------
TOTAL ASSETS $803,080,947 $789,887,067
=========== ===========
LIABILITIES
DEMAND DEPOSITS, NON INTEREST BEARING $104,541,701 $103,058,755
DEMAND DEPOSITS, INTEREST BEARING 162,340,638 165,429,430
REGULAR SAVINGS DEPOSITS 128,863,728 123,675,277
TIME DEPOSITS 273,653,315 276,687,978
----------- -----------
TOTAL DEPOSITS 669,399,382 668,851,440
SHORT-TERM BORROWINGS 34,267,003 29,278,589
OTHER LIABILITIES 14,858,819 8,607,251
LONG-TERM DEBT 10,005,457 10,277,129
----------- -----------
TOTAL LIABILITIES 728,530,661 717,014,409
SHAREHOLDERS' EQUITY
COMMON STOCK 15,716,728 15,716,728
ADDITIONAL PAID-IN CAPITAL 8,090,128 8,090,128
RETAINED EARNINGS 50,892,951 49,215,323
TREASURY STOCK (149,521) (149,521)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 74,550,286 72,872,658
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $803,080,947 $789,887,067
=========== ===========
<FN>
<F1>NOTE: THE BALANCE SHEET AT DECEMBER 31, 1993 HAS BEEN DERIVED FROM THE
AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE
INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRIN-
CIPLES FOR COMPLETE FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
UNIVEST CORPORATION OF PENNSYLVANIA AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS
TAXABLE INTEREST AND FEES ON LOANS $10,909,300 $10,814,607
EXEMPT FROM FEDERAL INCOME TAXES 463,188 554,053
----------- -----------
TOTAL INTEREST AND FEES ON LOANS 11,372,488 11,368,660
INTEREST AND DIVIDENDS ON
INVESTMENT SECURITIES 1,524,366 2,236,203
INTEREST ON TIME DEPOSITS WITH OTHER BANKS 44,840 45,038
OTHER INTEREST INCOME 87,488 84,185
----------- -----------
TOTAL INTEREST INCOME 13,029,182 13,734,086
----------- -----------
INTEREST EXPENSE
INTEREST ON DEPOSITS 4,555,380 5,635,554
OTHER INTEREST EXPENSE 426,593 345,479
----------- -----------
TOTAL INTEREST EXPENSE 4,981,973 5,981,033
----------- -----------
NET INTEREST INCOME 8,047,209 7,753,053
PROVISION FOR LOAN LOSSES 645,000 645,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,402,209 7,108,053
----------- -----------
OTHER INCOME 1,472,513 1,182,221
LOSSES ON SALES OF SECURITIES (26,870) -
GAINS ON SALES OF MORTGAGES 609 149,577
----------- -----------
TOTAL OTHER INCOME 1,446,252 1,331,798
OTHER EXPENSES
SALARIES AND BENEFITS 3,077,045 2,821,536
OTHER EXPENSE 2,652,343 2,464,326
----------- -----------
TOTAL OTHER EXPENSES 5,729,388 5,285,862
----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE 3,119,073 3,153,989
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
APPLICABLE INCOME TAXES 951,845 935,546
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE 2,167,228 2,218,443
IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE, NET OF INCOME TAX BENEFIT
OF $293,831 (570,379)
------------ ------------
NET INCOME $ 2,167,228 $ 1,648,064
============ ============
PER COMMON SHARE DATA <F1>:
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE $ 0.69 $ 0.71
IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING $ (0.18)
PRINCIPLE
NET INCOME $ 0.69 $ 0.53
CASH DIVIDENDS DECLARED $ 0.15 $ 0.14
<FN>
<F1> PER SHARE INFORMATION IS BASED ON THE WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING OF 3,137,016 FOR BOTH PERIODS.
</TABLE>
<TABLE>
Univest Corporation of Pennsylvania
Consolidated Statement of Cash Flows (Unaudited)
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 1994 MARCH 31, 1993
<S> <C> <C>
Cash flows from operating activities
Net income $2,167,228 $1,648,064
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses in excess
of net charge-off 889,754 468,181
Depreciation of premises and equipment 353,486 313,029
Cumulative effect of a change in
accounting principle 570,379
Premium amortization on investment
securities and time deposits 160,409 73,713
Deferred income tax (benefit) 116,851 (134,248)
Realized loss on investment securities 26,870
Realized gains on sales of mortgages (609) (149,577)
(Decrease) increase in net deferred
loan fees (69,242) 152,385
Increase in interest receivable and
other assets (1,991,419) (374,256)
Increase in accrued expenses and other
liabilities 6,552,342 841,725
----------- ----------
Net cash provided by operating activities 8,205,670 3,409,395
Cash flows from investing activities
Purchases of time deposits (25,249)
Proceeds from maturing time deposits 113,033
Proceeds from sale of securities
available for sale 7,246,544
Proceeds from maturing securities
held to maturity 9,976,454 37,631,540
Proceeds from maturing securities
available for sale 11,015,139
Purchases of investment securities
held to maturity (21,711,838) (17,706,340)
Purchase of investment securities
available for sale (7,570,693)
Net increase in federal funds sold
and other short-term investments (1,612,338) (11,883,561)
Net decrease in loans held for sale 3,208,900 899,300
Proceeds from sales of mortgages 8,221,216 3,844,200
Net increase in loans (15,072,512) (8,850,923)
Capital expenditures (277,083) (646,520)
------------ ----------
Net cash used in investing activities (6,601,460) 3,400,729
Cash flows from financing activities
Net increase (decrease) in deposits 547,942 (13,097,591)
Net increase (decrease) in short-term
borrowings 4,988,414 (1,965,566)
Proceeds from long-term debt 4,000,000
Cash dividends (878,364) (784,254)
Repayments of long-term debt (271,672) (1,000,000)
----------- -----------
Net cash provided by financing activities 4,386,320 (12,847,411)
Net increase (decrease in cash and
due from banks 5,990,530 (6,037,287)
Cash and due from banks at beginning
of period 34,701,868 34,852,819
----------- -----------
Cash and due from banks at end of period $40,692,398 $28,815,532
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,009,330 $6,330,109
Income taxes $51,140 $315,574
</TABLE>
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Shareholders' equity totaled $74,550,286 at March 31, 1994. This repre-
sents an increase of 2.30% or $1,677,628 over the $72,872,658 reported at
December 31, 1993. The need for continued growth in shareholders' equity
and its importance is clearly understood, and for that reason, management
looks to shareholders for continued support. Stable earnings and a con-
tinued conservative dividend payout ratio are needed to provide the equity
growth for the future.
Interest and fees on loans increased $94,693 or 0.88% from $10,814,607
at March 31, 1993 to $10,909,300 at March 31, 1994. The increase was mainly
due to a slight increase in volume. Interest and fees exempt from federal
income tax declined from $554,053 at March 31, 1993 to $463,188 at March 31,
1994. The decrease of $90,865 was due to lower volume.
Interest and dividends on investment securities show a decrease of
31.83% or $711,837 from $2,236,203 at March 31, 1993 to $1,524,366 at March
31, 1994. The decrease was due to decreased yields and decreased volume in
the investment portfolio.
Interest on time deposits represents the Corporation's investment in
other bank certificates of deposits (CDs). Income on these CDs remains
stable, $45,038 at March 31, 1993 and $44,840 at March 31, 1994.
Other interest consists mainly of income received on Federal Funds
sold, which is the resulting daily investment activity that can be volatile
in both interest yield and volume. First quarter 1994 shows $87,488 as com-
pared to $84,185 or an increase of $3,303 from results of first quarter
1993. The change was due to slightly higher yields in first quarter 1994.
Total interest expense decreased 16.70% or $999,060 to $4,981,973 at
March 31, 1994 from $5,981,033 at March 31, 1993. The decrease was
primarily due to decreased interest rates being paid on deposits.
The asset/liability management process continues with its goal of
providing stable, reliable earnings through varying interest rate environ-
ments. The results from the first quarter ended March 31, 1994 show net in-
terest income of $8,047,209 which was an increase of $294,156 or 3.79% over
the $7,753,053 reported for the same period in 1993. Management recognizes
that with a relatively short term investment portfolio and a significant
floating rate loan portfolio (loans mainly tied to prime rate), it is un-
realistic to expect constant improvement to net interest income throughout
all economic rate cycles.
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 composi-
tion of the loan portfolio.
Each credit on the Company's internal loan "watchlist" is evaluated
periodically to estimate potential losses. In addition, minimum estimates
for each category of watchlist credits also are provided based on
management's judgment which considers past loan loss experience and other
factors. For installment and real estate mortgage loans, specific alloca-
tions are based on past loss experience adjusted for recent portfolio
growth and economic trends. The total reserves resulting from this analysis
are "allocated" reserves. The amounts specifically provided for individual
loans and pools of loans are supplemented by an unallocated amount for loan
losses. This unallocated amount is determined based on judgments regarding
risk of error in the specific allocation, and other potential exposure in
the loan portfolio, which is not easily identifiable.
The allowance for loan losses is determined through a quarterly evalua-
tion 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 com-
mitments, and any significant change in the charge-off activity - all of
which may cause the provision to fluctuate. For the quarters ended March
31, 1993 and March 31, 1994 the provision was $645,000. Total nonaccrual
loans at March 31, 1994 of $6,805,880 are mainly real estate related which
have slowed in performance due to the economy. Nonaccrual loans at March
31, 1993 totaled $12,250,751. The large decrease was due to approximately
$2,000,000 of commercial and 1 to 4 family residential real estate loans
being returned to performing status, approximately $3,400,000 being either
totally or partially charged off and one commercial real estate loan of ap-
proximately $2,000,000 along with one residential mortgage of $400,000 being
transferred to "Other Real Estate Owned." These amounts are recorded in
"Other Assets" at the lower of cost or fair market value in the accompany-
ing consolidated balance sheets. For the quarter ended March 31, 1994 non-
accrual loans resulted in lost interest income of $178,721 as compared to
$231,723 for the quarter ended March 31, 1993. Giving consideration to the
current state of the economy and the related performance issues toward com-
mercial real estate loans, it is possible that additional increases to the
loan-loss reserve will occur. Based on a comprehensive evaluation, manage-
ment has determined that the level of the reserve is adequate at this time.
At March 31, 1994, the Corporation has no material commitments to lend addi-
tional funds with respect to nonperforming loans. In management's evalua-
tion of the loan portfolio risks, any significant future increases in non-
performing loans is dependent to a large extent on the economic environ-
ment. In a deteriorating or uncertain economy, management applies more con-
servative assumptions when assessing the future prospects of borrowers and
when estimating collateral values. This may result in a higher number of
loans being classified as nonperforming.
At March 31, 1994, the reserve for loan losses is 1.40% of total loans
as compared to 1.26% at December 31, 1993.
Management and the boards of directors of the Company and affiliates
evaluate existing practices and procedures on an ongoing basis. In addi-
tion, regulators often make recommendations during the course of their ex-
aminations that relate to the operations of the Company and its affiliates.
As a matter of practice, management and the boards of directors of the Com-
pany and its subsidiaries consider such recommendations promptly.
In May 1993, the Financial Accounting Standards Board issued FAS 114
"Accounting by Creditors for Impairment of a Loan." FAS 114, which becomes
effective for fiscal years beginning after December 15, 1994, requires im-
pairment of a loan be measured based on the present value of expected fu-
ture cash flows discounted at the loan's effective interest rate. Univest
is currently evaluating the impact from adoption of this standard.
Other income which is non-interest related consists mainly of general
fee income, trust department commissions, and other miscellaneous non-
recurring types of income. Since these types of income are not tied
directly to volume or rate structure, noticeable fluctuations may occur on
a quarterly basis. For the first quarter ended March 31, 1994, other income
totaled $1,472,513 which is $290,292 or 24.55% more than the $1,182,221
reported for the quarter ended March 31, 1993. The increase was due to in-
creased trust department commissions.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Invest-
ments in Debt and Equity Securities," effective for fiscal years beginning
after December 15, 1993. Under the new rules, which were adopted by the
Corporation as of January 1, 1994, debt securities that the Corporation has
both the positive intent and ability to hold to maturity are carried at
amortized cost. All other debt securities and all marketable equity
securities are classified as available-for-sale or trading and carried at
fair value. Unrealized holding gains and losses on securities classified
as available-for-sale are carried as a separate component of shareholders'
equity. Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
Previously the company classified most debt securities as held for in-
vestment and carried them at amortized cost. The $91,056,109 recorded as
held for investment at December 31, 1993 was transferred to the held-to
maturity account as of January 1, 1994 in accordance with the new rule.
Accordingly, the $48,270,752 recorded as held-for-sale and carried at lower
of cost or market at December 31, 1993 was transferred to available-for-
sale as of January 1, 1994 and resulted in an increase of approximately
$300,000 in shareholders' equity at that date, representing the unrealized
appreciation, net of taxes, of the company's investment in debt and equity
securities determined to be available-for-sale.
During the quarter ended March 31, 1994 securities totaling ap-
proximately $7,200,000 were sold from the available-for-sale account and a
net loss of $26,870 was recorded. The Corporation did not record any gain
or loss for the first quarter ended March 31, 1993. The total of debt and
equity securities held in the available-for-sale account as of March 31,
1994, is $41,106,005. The unrealized loss of $19,048 net of taxes is re-
corded as a separate component of shareholders equity. The Corporation has
not designated any of its securities as trading for the quarter ended March
31, 1994.
Gains on the sale of mortgages amounted to $609 in the first quarter
ended March 31, 1994, as compared to $149,577 for the first quarter of 1993.
The decrease was due to the decrease in mortgage lending, especially in the
area of refinancing and an increase in long-term rates. Total sales for the
first quarter ended March 31, 1994, resulted in gains of approximately
$90,600. However, in order to record mortgage loans classified as held-for-
sale at lower of cost or market on the accompanying balance sheets, a charge
of approximately $90,000 was necessary. In the second quarter of 1994, a
corporate decision was made to discontinue holding loans for sale. All long-
term fixed rate loans that are not granted for a third party by prior comm-
itment will be held in portfolio. The Corporation has both the intent and
ability to hold these loans until maturity.
Other expenses make up the operating cost of the Corporation, includ-
ing but not limited to salaries and benefits, equipment, data-processing
and occupancy costs. This category is usually referred to as noninterest
expense and receives continuing management attention in an attempt to con-
tain and minimize the growth of the various expense categories, while en-
couraging technological innovation in conjunction with the expansion of the
Corporation. The quarter ended March 31, 1994, totals $5,729,388 which is
8.39% or $443,526 more than the $5,285,862 reported at March 31, 1993. The
increase was mainly due to normal salary and staff increases along with in-
creasing benefits expense. Net occupancy costs, especially utilities and
maintenance, increased due to the severe weather conditions.
Effective January 1, 1993, Univest adopted Statement of Financial Ac-
counting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (FAS 106). FAS 106 requires that employers
accrue the costs associated with providing postretirement benefits during
the active service periods of employees, rather than previously accepted
accounting practice of recognizing these costs on a pay-as-you-go basis. As
permitted under FAS 106, Univest elected to recognize immediately a one-
time, non-cash charge for the January 1, 1993 transitional liability of
$864,000, $570,000 after-tax, as the cumulative effect of a change in ac-
counting principle.
An income tax provision is shown for the quarter ended March 31, 1994
of $951,845 and for the quarter ended March 31, 1993 of $935,546 with effec-
tive tax rates of 30.5 % and 30.0 %, respectively. If the Corporation's in-
come which is exempt from federal income tax (or "nontaxable income") con-
tinues to decline, it is anticipated that the Corporation's effective tax
rate will continue to increase.
PART II. OTHER INFORMATION
Item 1. Legal proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--Not Applicable
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K--None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Univest Corporation of Pennsylvania
-----------------------------------
(Registrant)
Merrill S. Moyer
Date 4/28/94 -----------------------------------
Merrill S. Moyer, Chairman
Wallace H. Bieler
Date 4/28/94 ----------------------------------------
Wallace H. Bieler, Senior Vice President
and Chief Financial Officer
