United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Period Ended March 31, 1996
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 of 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
required 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 3,920,831
_______________________________ ____________________________
(Title of Class) (Number of shares outstanding at 3/31/96)
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Financial Information
The consolidated financial statements include the accounts of Univest
Corporation of Pennsylvania (Univest) and its wholly owned subsidiaries,
including 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
disclosures 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 conjunction with the financial statements and the notes thereto
included in the registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, which has been filed with the Securities and Exchange
Commission.
UNIVEST CORPORATION OF PENNSYLVANIA AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE)<F1>
MARCH 31, 1996 DECEMBER 31, 1995
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 34,496 $ 30,901
INVESTMENT SECURITIES HELD-TO-MATURITY 173,221 168,895
(MARKET VALUE $173,572 AT 3/31/96
AND $170,665 AT 12/31/95)
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 55,632 56,080
FEDERAL FUNDS SOLD AND OTHER
SHORT TERM INVESTMENTS 1,234 16,527
LOANS HELD FOR SALE 1,127 -
LOANS 591,626 585,971
LESS: RESERVE FOR POSSIBLE LOAN LOSSES (9,075) (8,854)
NET LOANS 582,551 577,117
OTHER ASSETS 33,610 32,368
TOTAL ASSETS $881,871 $881,888
LIABILITIES
DEMAND DEPOSITS, NON INTEREST BEARING $105,161 $100,300
DEMAND DEPOSITS, INTEREST BEARING 141,455 154,642
REGULAR SAVINGS DEPOSITS 126,538 122,683
TIME DEPOSITS 355,458 347,402
TOTAL DEPOSITS 728,612 725,027
SHORT-TERM BORROWINGS 42,814 46,812
OTHER LIABILITIES 15,458 16,628
LONG-TERM DEBT 3,575 4,085
TOTAL LIABILITIES 790,459 792,552
SHAREHOLDERS' EQUITY
COMMON STOCK 19,636 19,638
ADDITIONAL PAID-IN CAPITAL 34,545 34,559
RETAINED EARNINGS 37,385 35,028
NET UNREALIZED SECURITIES GAINS (LOSSES) (4) 261
TREASURY STOCK (150) (150)
TOTAL SHAREHOLDERS' EQUITY 91,412 89,336
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $881,871 $881,888
</TABLE>
[FN]
<F1>NOTE: THE BALANCE SHEET AT DECEMBER 31, 1995 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
PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS.
UNIVEST CORPORATION OF PENNSYLVANIA AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1996 1995
(In thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS
TAXABLE INTEREST AND FEES ON LOANS $12,327 $12,082
EXEMPT FROM FEDERAL INCOME TAXES 497 515
-------- --------
TOTAL INTEREST AND FEES ON LOANS 12,824 12,597
INTEREST AND DIVIDENDS ON
INVESTMENT SECURITIES 3,390 2,822
OTHER INTEREST INCOME 108 38
------- -------
TOTAL INTEREST INCOME 16,322 15,457
------- -------
INTEREST EXPENSE
INTEREST ON DEPOSITS 6,323 5,539
OTHER INTEREST EXPENSE 470 515
------- -------
TOTAL INTEREST EXPENSE 6,793 6,054
------- -------
NET INTEREST INCOME 9,529 9,403
PROVISION FOR LOAN LOSSES 315 422
------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 9,214 8,981
------- -------
OTHER INCOME 1,619 1,474
GAINS (LOSSES) ON SALES OF SECURITIES 10 (1)
------- -------
TOTAL OTHER INCOME 1,629 1,473
OTHER EXPENSES
SALARIES AND BENEFITS 3,449 3,371
OTHER EXPENSE 3,083 3,058
------- -------
TOTAL OTHER EXPENSES 6,532 6,429
------- -------
INCOME BEFORE INCOME TAXES 4,311 4,025
APPLICABLE INCOME TAXES 1,327 1,232
------- -------
NET INCOME $2,984 $2,793
======= =======
PER COMMON SHARE DATA (1)<F1>:
NET INCOME $0.76 $0.71
CASH DIVIDENDS DECLARED $0.16 $0.136
</TABLE>
[FN]
<F1>(1) PER SHARE DATA HAS BEEN RESTATED TO GIVE EFFECT TO A TWENTY-FIVE
PERCENT STOCK DIVIDEND DECLARED ON NOVEMBER 22, 1995 TO SHAREHOLDERS OF
RECORD AS OF FEBRUARY 15, 1996, AND WAS PAID ON MARCH 1, 1996.
Univest Corporation of Pennsylvania
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION> 3 Months 3 Months
Ended Ended
March 31, 1996 March 31, 1995
Cash flows from operating activities
<S> <C> <C>
Net income $2,984 $2,793
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses in excess of (less than) net charge-offs 221 (253)
Depreciation of premises and equipment 537 395
Discount accretion on investment securities (149) (69)
Deferred income tax 118 167
Realized (gains) losses on investment securities (10) 1
Realized gains on sales of mortgages (13) (2)
Increase (decrease) in net deferred loan fees 72 (100)
Increase in interest receivable and other assets (1,336) (685)
Decrease in accrued expenses and other liabilities (576) (1,318)
Net cash provided by operating activities 1,848 929
Cash flows from investing activities
Proceeds from maturing time deposits 127 158
Proceeds from sales of securities available for sale 3,019 3,002
Proceeds from maturing securities held to maturity 9,484 10,738
Proceeds from maturing securities available for sale 1,175 2,186
Purchases of investment securities held to maturity (13,809) (716)
Purchases of investment securities available for sale (4,126) -
Net decrease (increase) in federal funds sold and other short-term investments 15,293 (4,422)
Net increase in loans held for sale (1,127) (414)
Proceeds from sales of mortgages 3,134 344
Net (increase) decrease in loans (8,848) 344
Capital expenditures (443) (724)
Net cash provided by investing activities 3,879 10,496
Cash flows from financing activities
Net increase (decrease) in deposits 3,585 (964)
Net decrease in short-term borrowings (3,998) (10,978)
Proceeds from long-term debt 3,500 -
Cash dividends (1,209) (941)
Repayments of long-term debt (4,010) (23)
Net cash used in financing activities (2,132) (12,906)
Net increase (decrease) in cash and due from banks 3,595 (1,481)
Cash and due from banks at beginning of period 30,901 35,177
Cash and due from banks at end of period $34,496 $33,696
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $5,902 $5,286
Income taxes $0 $39
</TABLE>
Management's Discussion and Analysis
of Financial Condition and
Results of Operations
General
Total assets remained constant at $881.9 million at March 31, 1996
when compared to December 31, 1995. Cash and due from banks increased by
$3.6 million, net loans increased by $5.4 million and investment securities
held to maturity increased $4.3 million. These increases were offset by a
decrease of $15.2 in federal funds sold. Deposits increased by $3.6
million mainly due to higher rates on time deposits offset by a seasonal
decrease in demand deposits. Short term borrowings, which are primarily
corporate daily sweep repurchase accounts, also decreased due to normal
business cycle volatility by $4.0 million comparing March 31, 1996 to
December 31, 1995.
Shareholders' equity increased $2.1 million or 2.4% from $89.3 million
at December 31, 1995 to $91.4 million at March 31, 1996. Cash dividends
increased $0.024 per share from $0.136 for the three months ended March 31,
1995 to $0.16 at March 31, 1996.
Net income for the three months ended March 31, 1996 increased 7.1% or
$0.2 million from $2.8 million at March 31, 1995 ($0.71 per share) to $3.0
million ($0.76 per share) at March 31, 1996. The increase was mainly due to
increased net interest income and increased other income offset by
increased other expenses.
Interest and fees on loans increased $0.2 million from $12.6 million
at March 31, 1995 to $12.8 million at March 31, 1996. The increase was due
mainly to increased loan volume offset by decreased rates. Prime rate
decreased from 9.00% at March 31, 1995 to 8.25% at March 31, 1996.
Interest on investment securities increased $0.6 million or 21.4% from
$2.8 million at March 31, 1995 to $3.4 million at March 31, 1996. This
increase was due to increased volume in the investment portfolio.
Interest expense increased $0.7 million from $6.1 million at March 31,
1995 to $6.8 million at March 31, 1996. This increase resulted from
increased volumes and rates.
The asset/liability management process continues with its goal of
providing stable, reliable earnings through varying interest rate
environments. Net interest income is the amount by which interest income
on earning assets exceeds interest paid on interest bearing liabilities.
The amount of net interest income is affected by changes in interest rates,
account balances or volume, and the mix of earning assets and interest
bearing liabilities. First quarter ended March 31, 1996 shows net interest
income of $9.5 million which is a $0.1 million increase over the $9.4
million recorded for first quarter ended March 31, 1995. Increases in net
interest income were generated more by volume rather than rate because the
net interest spread for the first quarter of 1996 decreased by 30 basis
points and the net interest margin decreased by 22 basis points versus
first quarter 1995 results.
The following demonstrates the aforementioned effects:
<TABLE>
<CAPTION>
1st QUARTER 1996 1st QUARTER 1995
AVG. BALANCE RATE AVG. BALANCE RATE
<S> <C> <C> <C> <C>
Interest Earning Assets $816,150 8.00% $769,422 8.04%
Interest Earning Liabilities $661,499 4.11% $629,696 3.85%
Net Interest Income $ 9,529 $ 9,403
Net Interest Spread 3.89% 4.19%
Net Interest Margin 4.67% 4.89%
</TABLE>
The Corporation is permitted to use interest-rate swap agreements
which convert a portion of its floating rate commercial loans to a fixed
rate basis, thus reducing the impact of interest changes on future income.
In these swaps, the Corporation agrees to exchange, at specified intervals,
the difference between fixed and floating-interest amounts calculated on an
agreed upon notional principal amount. Because the Corporation's interest-
earning assets tend to be short-term floating rate instruments while the
Corporation's interest-bearing liabilities tend to be longer-term fixed
rate instruments, interest rate swaps in which the Corporation pays a
floating rate and receives a fixed rate are used to reduce the impact of
changes in interest rates on the Corporation's net interest income.
During the third quarter of 1995 and first quarter of 1996 $30 million of
"Pay Floating" swaps were entered into by the Corporation. The net payable
or receivable from interest-rate swap agreements is accrued as an
adjustment to interest income. No interest rate swaps were outstanding at
March 31, 1995 and $10.0 million were outstanding at December 31, 1995.
The contracts entered into by the Corporation in 1995 and first quarter
of 1996 expire as follows: $10 million in August 1997 and and $20 million in
March 1998. The impact of the interest rate swaps on net interest income
during the first quarter 1996 was not material.
The Corporation's current credit exposure on swaps is limited to the
value of interest-rate swaps that have become favorable to the Corporation.
As of March 31, 1996, the market value of interest-rate swaps in a favorable
value position was $31 thousand. The market value of interest-rate swaps
in an unfavorable position totaled $104 thousand. Credit risk also exists
when the counterparty to a derivative contract with an unrealized gain fails
to perform according to the terms of the agreement.
ASSET QUALITY
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 change 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 for under FAS
114, which was adopted by the Corporation effective January 1, 1995. Any
of the above criteria may cause the provision to fluctuate. For the quarter
ended March 31, 1996, the provision was $315 thousand and for the quarter
ended March 31, 1995 the provision was $422 thousand.
Effective January 1, 1995, the Corporation adopted Financial
Accounting Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan." Under the new standard, the allowance for credit
losses related to loans that are identified for evaluation in accordance
with Statement 114 is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of collateral for certain
collateral dependent loans. At March 31, 1996 the recorded investment in
loans that are considered to be impaired under Statement 114 was $3.3
million (all of which were on a nonaccrual basis); the related allowance
for credit losses for those loans is $665 thousand. For the three months
ended March 31, 1996 the Corporation did not recognize any interest income
on those impaired loans. At March 31, 1995, the recorded investment in
loans considered to be impaired was $3.9 million and the related allowance
for credit losses for these loans was $479 thousand.
Generally, a loan (including a loan impaired under Statement 114) is
classified as nonaccrual and the accrual of interest on such loan is
discontinued when the contractual payment of principal or interest has
become 90 days due or management has serious doubts about the further
collectibility of principal or interest, even though the loan is currently
performing. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is placed
on nonaccrual status, unpaid interest credited to income in the current
year is reversed and unpaid interest accrued in prior years is charged
against "other expense." Interest received on nonaccrual loans generally
is either applied against principal or reported as interest income,
according to management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms for
a reasonable periods of time and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. Total cash basis
and nonaccrual loans at March 31, 1996 were $5.2 million and consist mainly
of real estate related commercial loans which have slowed in performance
due to local economic conditions. Cash basis and nonaccrual loans at March
31, 1995 totaled $7.1 million. For the quarter ended March 31, 1996
nonaccrual loans resulted in lost interest income of $80 thousand as compared
to $126 thousand for the quarter ended March 31, 1995. At March 31, 1996 the
Corporation had no material commitments to lend additional funds with
respect to nonperforming 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.
At March 31, 1996 the reserve for loan losses is 1.53% of total loans
as compared to 1.51% at December 31, 1995.
As of March 31, 1996 the Corporation has approximately $0.6 million of
Other Real Estate Owned ("OREO") consisting of one commercial property and
one single family residence. This amount is recorded in "Other Assets" at
the lower of cost or fair market value in the accompanying consolidated
balance sheets. Included in other operating expenses for the three months
ended March 31, 1996 were provisions for OREO write-down of $50 thousand as
compared to $150 thousand for the three months ended March 31, 1995.
OTHER
Effective January 1, 1996 the corporation adopted Statement of
Financial Accounting Standard ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights." SFAS No. 122 requires capitalization of the cost of
mortgage servicing rights when the company intends to retain the servicing
rights and sell the related loans or when the company purchases servicing
rights but not the related loans. SFAS No. 122 also addresses how
servicing assets should be evaluated for impairment. The adoption of SFAS
No. 122 did not have a material impact on the Corporation's financial
position and results of operations for the quarter ended March 31, 1996 and
is not expected to have a material impact in the future.
All thirty year fixed rate first residential mortgage loans that are
classified as "Held for Sale" are recorded at the lower of cost or market
on the accompanying statement of condition.
Other income which is non-interest related consists mainly of general
fee income, trust department commissions, and other miscellaneous non-
recurring types of income. Other income increased $0.1 million from $1.5
million at March 31, 1995 to $1.6 million at March 31, 1996. The increase
was mainly due to increased trust department commissions and service
charges on demand accounts.
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. The
total debt and equity securities held in the available-for-sale account as
of March 31, 1996 is $55.6 million as compared to $56.0 million at December
31, 1995. At March 31, 1996 a net unrealized loss of $3 thousand was
recorded, compared to a net unrealized gain of $261 thousand at December
31, 1995. This change was due to the increase in short-term rates during
the period.
Other expenses make up the operating costs of the Corporation,
including but not limited to salaries and benefits, equipment, data-
processing and occupancy costs. This category is usually referred to as
noninterest expense and receives ongoing management attention in an attempt
to contain and minimize the growth of the various expense categories, while
encouraging technological innovation in conjunction with the expansion of
the Corporation. The quarter ended March 31, 1996 totals $6.5 million,
which is only 1.6% or $0.1 million more than the $6.4 million shown for
March 31, 1995. The increase was due mainly to normal salary and staff
increases which increased $78 thousand and occupancy and equipment expenses
that increased approximately $400 thousand. These increases were due to
the opening of four additional locations, the expansion to larger
facilities of two locations, equipment for the conversion to a new computer
system and snow removal. These increases were offset by a reduction of
$100 thousand in the provision for losses on other real estate owned. The
increased occupancy costs were also offset by a reduction of approximately
$300 thousand due to the reduction of Federal Deposit Insurance Corporation
(FDIC) premiums paid by Union National Bank. Due to the Bank Insurance
Fund (BIF) reaching it's 1.25% reserve requirement, members of the BIF
began paying a minimum annual premium of $2 thousand in the first quarter
1996. Union paid 23 basis points in the first quarter 1995.
During 1995, Congress considered legislation that would recapitalize the
Savings Association Insurance Fund ("SAIF"), of which Pennview Savings Bank
is a member, by requiring financial institutions to pay a one-time assessment,
estimated to be $.85 per $100 of SAIF-insured deposits. The impact on the
Corporation if such legislation were enacted would be a one time fee of
approximately $1.1 million, before any tax effect. It is contemplated that
once SAIF is recapitalized, continuing premiums would be reduced substantially
from present levels of .23% of deposits to as low as .04%. No assurance can
be given, however as to whether a recapitalization plan will be implemented
or what its final provisions will be.
An income tax provision of $1.3 million is shown for the quarter ended
March 31, 1996 and $1.2 million for the quarter ended March 31, 1995.
Effective tax rates remained fairly consistent at 30.8% and 30.6%
respectively.
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
Date: 4/29/96 Merrill S. Moyer, Chairman
Date: 4/29/96 Wallace H. Bieler, Senior Vice
President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 34,496
<INT-BEARING-DEPOSITS> 329
<FED-FUNDS-SOLD> 1,234
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 55,632
<INVESTMENTS-CARRYING> 172,892
<INVESTMENTS-MARKET> 173,572
<LOANS> 591,626
<ALLOWANCE> 9,075
<TOTAL-ASSETS> 881,871
<DEPOSITS> 728,612
<SHORT-TERM> 42,814
<LIABILITIES-OTHER> 15,458
<LONG-TERM> 3,575
<COMMON> 19,636
0
0
<OTHER-SE> 71,776
<TOTAL-LIABILITIES-AND-EQUITY> 881,871
<INTEREST-LOAN> 12,824
<INTEREST-INVEST> 3,390
<INTEREST-OTHER> 108
<INTEREST-TOTAL> 16,322
<INTEREST-DEPOSIT> 6,323
<INTEREST-EXPENSE> 6,793
<INTEREST-INCOME-NET> 9,529
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 6,532
<INCOME-PRETAX> 4,311
<INCOME-PRE-EXTRAORDINARY> 4,311
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,984
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 4.85
<LOANS-NON> 5,114
<LOANS-PAST> 704
<LOANS-TROUBLED> 334
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,854
<CHARGE-OFFS> 343
<RECOVERIES> 249
<ALLOWANCE-CLOSE> 9,075
<ALLOWANCE-DOMESTIC> 9,075
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,276
</TABLE>
