<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Period Ended March 31, 1997.
---------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From to .
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UNIVEST CORPORATION OF PENNSYLVANIA
-----------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1886144
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
10 West Broad Street, Souderton, Pennsylvania 18964
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(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
- --------------------------
(Title of Class) 3,876,984
---------
(Number of shares outstanding
at 3/31/97)
<PAGE>
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
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 10-K
for the year ended December 31, 1996, which has been filed with the Securities
and Exchange Commission.
2. Per Share Data
The following average shares were used for the computation of earnings per
share:
For the Three Months
Ended March 31,
1997 1996
Average Shares 3,881,113.8 3,920,830.6
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Corporation will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary earnings per share and fully diluted earnings per share
for these quarters is not expected to be material.
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (SEE NOTE)
March 31, 1997 December 31, 1996
-------------- -----------------
(In thousands)
ASSETS
CASH AND DUE FROM BANKS $ 32,356 $ 38,934
INVESTMENT SECURITIES HELD-TO-MATURITY 163,579 173,145
(MARKET VALUE $162,474 AT 3/31/97
AND $173,373 AT 12/31/96)
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 82,373 69,428
FEDERAL FUNDS SOLD AND OTHER
SHORT TERM INVESTMENTS -- 69
LOANS 613,028 607,069
LESS: RESERVE FOR POSSIBLE LOAN LOSSES (9,884) (9,801)
--------- ---------
NET LOANS 603,144 597,268
OTHER ASSETS 35,235 33,615
--------- ---------
TOTAL ASSETS $ 916,687 $ 912,459
========= =========
LIABILITIES
DEMAND DEPOSITS, NON INTEREST BEARING $ 115,553 $ 122,087
DEMAND DEPOSITS, INTEREST BEARING 149,684 138,953
REGULAR SAVINGS DEPOSITS 131,318 125,483
TIME DEPOSITS 354,669 347,245
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TOTAL DEPOSITS 751,224 733,768
SHORT-TERM BORROWINGS 45,258 60,716
OTHER LIABILITIES 14,695 13,633
LONG-TERM DEBT 7,075 7,075
--------- ---------
TOTAL LIABILITIES 818,252 815,192
SHAREHOLDERS' EQUITY
COMMON STOCK 19,636 19,636
ADDITIONAL PAID-IN CAPITAL 34,544 34,544
RETAINED EARNINGS 46,369 44,260
NET UNREALIZED SECURITIES GAINS (LOSSES) (489) 18
TREASURY STOCK (1,625) (1,191)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 98,435 97,267
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 916,687 $ 912,459
========= =========
NOTE: THE BALANCE SHEET AT DECEMBER 31,1996 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.
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
1997 1996
(In thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS
TAXABLE INTEREST AND FEES ON LOANS $12,518 $12,327
EXEMPT FROM FEDERAL INCOME TAXES 488 497
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TOTAL INTEREST AND FEES ON LOANS 13,006 12,824
INTEREST AND DIVIDENDS ON
INVESTMENT SECURITIES 3,619 3,390
OTHER INTEREST INCOME 32 108
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TOTAL INTEREST INCOME 16,657 16,322
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INTEREST EXPENSE
INTEREST ON DEPOSITS 6,361 6,323
OTHER INTEREST EXPENSE 522 470
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TOTAL INTEREST EXPENSE 6,883 6,793
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NET INTEREST INCOME 9,774 9,529
PROVISION FOR LOAN LOSSES 210 315
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,564 9,214
OTHER INCOME 1,824 1,619
GAINS ON SALES OF SECURITIES 45 10
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TOTAL OTHER INCOME 1,869 1,629
OTHER EXPENSES
SALARIES AND BENEFITS 3,774 3,449
OTHER EXPENSES 3,267 3,083
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TOTAL OTHER EXPENSE 7,041 6,532
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INCOME BEFORE INCOME TAXES 4,392 4,311
APPLICABLE INCOME TAXES 1,379 1,327
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NET INCOME $ 3,013 $ 2,984
======= =======
PER COMMON SHARE DATA:
NET INCOME $ 0.78 $ 0.76
CASH DIVIDENDS DECLARED $ 0.23 $ 0.16
</TABLE>
<PAGE>
Univest Corporation of Pennsylvania and Consolidated Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the three months ended,
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,013 $ 2,984
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses in excess of net charge-offs 83 221
Depreciation of premises and equipment 609 537
Discount accretion on investment securities (142) (149)
Deferred (tax benefit) income tax (9) 118
Realized gains on investment securities (45) (10)
Realized gains on sales of mortgages (21) (13)
(Decrease) increase in net deferred loan fees (149) 72
Increase in interest receivable and other assets (1,528) (1,336)
Increase (decrease) in accrued expenses and other liabilities 1,348 (576)
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Net cash provided by operating activities 3,159 1,848
Cash flows from investing activities:
Proceeds from maturing time deposits - 127
Proceeds from sales of securities available for sale 15,975 3,019
Proceeds from maturing securities held to maturity 21,059 9,484
Proceeds from maturing securities available for sale 2,038 1,175
Purchases of time deposits (188) -
Purchases of investment securities held to maturity (11,177) (13,809)
Purchases of investment securities available for sale (31,680) (4,126)
Net decrease in federal funds sold and other short-term investments 69 15,293
Proceeds from sales of mortgages 1,512 3,134
Net increase in loans (7,301) (9,975)
Capital expenditures (701) (443)
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Net cash (used in) provided by investing activities (10,394) 3,879
Cash flows from financing activities:
Net increase in deposits 17,456 3,585
Net decrease in short-term borrowings (15,458) (3,998)
Proceeds from long-term debt - 3,500
Purchases of treasury stock (661) -
Stock issued under dividend reinvestment and employee stock purchase plans 195 -
Proceeds from exercise of stock options 20 -
Cash dividends (895) (1,209)
Repayments of long-term debt - (4,010)
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Net cash provided (used in) by financing activities 657 (2,132)
Net (decrease) increase in cash and due from banks (6,578) 3,595
Cash and due from banks at beginning of period 38,934 30,901
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Cash and due from banks at end of period $32,356 $34,496
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $6,918 $5,902
Income taxes $65 $0
</TABLE>
<PAGE>
Management's Discussion And Analysis
of Financial Condition and
Results of Operations
General
Total assets increased $4.2 million from $912.5 million at December 31,
1996, to $916.7 milion at March 31, 1997. Cash and due from banks decreased by
$6.6 million while net loans and investments increased $5.9 million and $3.4
milion respectively. Deposits increased $17.5 million, mainly due to increased
activity in interest bearing demand deposits, regular savings, and time deposits
offset by a seasonal decrease in non-interest bearing demand deposits. The
increase in deposits was offset by a decrease of $15.5 million in short-term
borrowings due to normal business cycle volatility in the corporate daily sweep
repurchase account and repayment of Federal Funds purchased.
Shareholders' equity increased $1.1 million from $97.3 million at
December 31, 1996, to $98.4 million at March 31, 1997. Book value per share
increased from $25.01 at December 31, 1996 to $25.39 at March 31, 1997, an
increase of $.38 per share.
Net income for the three months ended March 31, 1997 remained constant
at $3.0 million. Net interest income and other income showed increases while
other expenses also increased.
Interest and fees on loans increased $182 thousand, mainly due to
increased volume offset by lower interest rates. The prime rate, which decreased
from 8.50% to 8.25% in February 1996 remained constant at 8.25% from March 1996
until March 1997. The rate increased to 8.50% on March 26, 1997; however, the
change has no impact on first quarter earnings.
Interest on investment securities increased from $3.4 million at March
31, 1996, to $3.6 million at March 31, 1997, or $200 thousand. This increase is
attributed mainly to both higher volume and yield.
Interest expense remained fairly constant going from $6.8 million at
March 31, 1996, to $6.9 million at March 31, 1997. The increase was due to
volume.
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
<PAGE>
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, 1997, shows net
interest income of $9.8 million which is a $300 thousand increase over the $9.5
million recorded for first quarter ended March 31, 1996. Increases in net
interest income were generated more by volume rather than rate because the net
interest spread for the first quarter of 1997 decreased by 10 basis points and
the net interest margin decreased by 7 basis points versus first quarter 1996
results.
The following table illustrates the aforementioned effects:
1st QUARTER 1997 1st QUARTER 1996
AVG. BALANCE RATE AVG. BALANCE RATE
----------------- -----------------
Interest Earnings Assets $847,311 7.86% $816,150 8.00%
Interest Bearing Liabilities 676,319 4.07% 661,499 4.11%
Net Interest Income 9,774 9,529
Net Interest Spread 3.79% 3.89%
Net Interest Margin 4.61% 4.67%
The Corporation is permitted to use interest-rate swap agreements which
convert a portion of its floating rate commercial loans to a fixed 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 first quarter of 1997, the Corporation entered into $20.0
million of "Pay Floating, Receive Fixed" swaps. The net payable or receivable
from interest rate swap agreements is accrued as an adjustment to interest
income. At December 31, 1996, $30.0 million in notional amount interest rate
swaps were outstanding. These swaps are also "Pay Floating, Receive Fixed." The
contracts entered into by the Corporation expire as follows: $10.0 million in
notional principal amount in August 1997, $20.0 million in notional principal
amount in March 1998, and $20.0 million in notional principal amount in first
quaarter 1999. The impact of interest rate swaps on net interest income for the
quarter ended March 31, 1997, was a positive $26 thousand and for the quarter
ended March 31, 1996, a positive $12 thousand.
<PAGE>
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, 1997, the market value of interest-rate swaps in a favorable value
position was $22 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 FASB Statement 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, 1997, the
provision was $210 thousand and for the quarter ended March 31, 1996, the
provision was $315 thousand.
The allowance for credit losses related to loans that are considered
impaired in accordance with FASB 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, 1997, the recorded
investment in loans that are considered to be impaired under FASB Statement 114
was $2.8 million (all of which were on a nonaccrual basis); the related
allowance for credit losses for those loans was $480 thousand. For the three
months ended March 31, 1997, the Corporation did not recognize any interest
income on those impaired loans. At March 31, 1996, the recorded investment in
loans considered to be impaired was $3.3 million and the related allowance for
credit losses for these loans was $665 thousand.
Generally, a loan (including a loan impaired under FASB 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
<PAGE>
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 period 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, 1997, were $4.6 million and consist mainly of real
estate related commercial loans. Cash basis and nonaccrual loans at March 31,
1996, totaled $5.2 million. For the quarter ended March 31, 1997, nonaccrual
loans resulted in lost interest income of $79 thousand as compared to $80
thousand for the quarter ended March 31, 1996. At March 31, 1997, the
Corporation had no 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, or specific industry problems.
At March 31, 1997, and December 31, 1996, the reserve for loan losses
remained constant at 1.6% of total loans.
At March 31, 1997, the Corporation has $708 thousand of Other Real
Estate Owned ("OREO") consisting of one commercial property ($400 thousand) and
four single family residences ($308 thousand). This amount is recorded in "Other
Assets" at the lower of cost or fair market value in the accompanying
consolidated balance sheets.
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 $200 thousand or 12.5% from $1.6 million
at March 31, 1996, to $1.8 million at March 31, 1997. The increase was due
mainly to increased trust department commissions resulting from increases in the
market value of assets under management and increases in the volume of trust
accounts. Increases also occurred in fee income.
Gains on sales of securities increased from $10 thousand for the
quarter ended March 31, 1996, to $45 thousand for the quarter ended March 31,
1997. During first quarter 1997, securities totaling approximately $16 million
were sold from the available for sale portfolio at a net gain of $45 thousand.
Those securities were sold to provide future yield enhancement and extend
maturities.
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 avilable-for-sale account as of March 31, 1997, is
$82.3 million as compared to $69.4 million at December 31, 1996. At March 31,
1997, a net unrealized
<PAGE>
loss of $489 thousand was recorded, compared to a net unrealized gain of $18
thousand at December 31, 1996. This change was due to the increase in 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 non-interest
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, 1997, totals $7.0 million which is 7.7% or $0.5
million more than the $6.5 million shown for March 31, 1996. The increase was
due mainly to salary and staff increases, and occupancy and equipment costs, due
to the opening of five additional office locations since March 1996, and the
installation of a new computer system in May 1996. Other expenses such as
marketing, advertising, and consultant fees also increased when comparing
quarter ended March 31, 1997, with quarter ended March 31, 1996.
An income tax provision of $1.4 million is shown for the quarter ended
March 31, 1997 and $1.3 million for the quarter ended March 31, 1996. The
provision for income taxes for the quarter ended March 31, 1997, and March 31,
1996, was at effective rates of 31.4% and 30.8% respectively.
<PAGE>
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
<PAGE>
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 4/21/97 /s/ Merrill S. Moyer
------------------ -------------------------------------------
Merrill S. Moyer, Chairman
Date 4/21/97 /s/ Wallace H. Bieler
------------------ -------------------------------------------
Wallace H. Bieler, Senior Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 32,356
<INT-BEARING-DEPOSITS> 548
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,373
<INVESTMENTS-CARRYING> 163,031
<INVESTMENTS-MARKET> 161,926
<LOANS> 613,028
<ALLOWANCE> 9,884
<TOTAL-ASSETS> 916,687
<DEPOSITS> 751,224
<SHORT-TERM> 45,258
<LIABILITIES-OTHER> 14,695
<LONG-TERM> 7,075
0
0
<COMMON> 19,636
<OTHER-SE> 78,799
<TOTAL-LIABILITIES-AND-EQUITY> 916,687
<INTEREST-LOAN> 13,006
<INTEREST-INVEST> 3,619
<INTEREST-OTHER> 32
<INTEREST-TOTAL> 16,657
<INTEREST-DEPOSIT> 6,361
<INTEREST-EXPENSE> 522
<INTEREST-INCOME-NET> 9,774
<LOAN-LOSSES> 210
<SECURITIES-GAINS> 45
<EXPENSE-OTHER> 7,041
<INCOME-PRETAX> 4,392
<INCOME-PRE-EXTRAORDINARY> 4,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,013
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
<YIELD-ACTUAL> 4.78
<LOANS-NON> 4,611
<LOANS-PAST> 786
<LOANS-TROUBLED> 263
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,801
<CHARGE-OFFS> 225
<RECOVERIES> 98
<ALLOWANCE-CLOSE> 9,884
<ALLOWANCE-DOMESTIC> 9,884
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,312
</TABLE>
