United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 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 June 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _____ to _____.
UNIVEST CORPORATION OF PENNSYLVANIA
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of 23-1886144
incorporation of organization) (IRS Employer Identification No.)
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 7,550,145
(Title of Class) (Number of shares outstanding
at 6/30/98)
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 1
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 1998 and 1997 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information: 14
Other Information
Part III. Financial Data Schedule 16
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE)
June 30, 1998 December 31, 1997
-------------- -----------------
(In thousands)
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $ 29,286 $ 33,352
INTEREST BEARING DEPOSITS WITH OTHER BANKS 19,023 5,001
INVESTMENT SECURITIES HELD-TO-MATURITY 146,830 141,972
(MARKET VALUE $147,176 AT 6/30/98
AND $142,205 AT 12/31/97)
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 118,861 116,193
FEDERAL FUNDS SOLD AND OTHER
SHORT TERM INVESTMENTS 19,600 2,000
LOANS 651,231 635,563
LESS: RESERVE FOR POSSIBLE LOAN LOSSES (10,375) (10,270)
----------- -----------
NET LOANS 640,856 625,293
----------- -----------
OTHER ASSETS 49,013 49,346
----------- -----------
TOTAL ASSETS $ 1,023,469 $ 973,157
=========== ===========
LIABILITIES
DEMAND DEPOSITS, NON INTEREST BEARING $ 132,861 $ 129,892
DEMAND DEPOSITS, INTEREST BEARING 207,769 176,115
SAVINGS DEPOSITS 134,743 127,965
TIME DEPOSITS 357,188 358,896
----------- -----------
TOTAL DEPOSITS 832,561 792,868
SHORT-TERM BORROWINGS 58,507 49,546
OTHER LIABILITIES 18,209 17,064
LONG-TERM DEBT 9,075 9,075
----------- -----------
TOTAL LIABILITIES 918,352 868,553
SHAREHOLDERS' EQUITY
COMMON STOCK 39,272 39,272
ADDITIONAL PAID-IN CAPITAL 14,908 14,908
RETAINED EARNINGS 58,462 53,691
ACCUMULATED OTHER COMPREHENSIVE INCOME 413 350
TREASURY STOCK (7,938) (3,617)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 105,117 104,604
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,023,469 $ 973,157
=========== ===========
</TABLE>
NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31,1997 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.
1
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS
TAXABLE INTEREST AND FEES ON LOANS $13,290 $13,104 $26,254 $25,622
EXEMPT FROM FEDERAL INCOME TAXES 604 501 1,187 989
------- ------- ------- -------
TOTAL INTEREST AND FEES ON LOANS 13,894 13,605 27,441 26,611
INTEREST AND DIVIDENDS ON
INVESTMENT SECURITIES 4,023 3,820 7,878 7,439
OTHER INTEREST INCOME 279 31 468 63
------- ------- ------- -------
TOTAL INTEREST INCOME 18,196 17,456 35,787 34,113
------- ------- ------- -------
INTEREST EXPENSE
INTEREST ON DEPOSITS 7,405 6,604 14,466 12,965
OTHER INTEREST EXPENSE 570 572 1,110 1,094
------- ------- ------- -------
TOTAL INTEREST EXPENSE 7,975 7,176 15,576 14,059
------- ------- ------- -------
NET INTEREST INCOME 10,221 10,280 20,211 20,054
PROVISION FOR LOAN LOSSES 275 370 608 580
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,946 9,910 19,603 19,474
OTHER INCOME 2,574 1,794 5,169 3,618
GAINS ON SALES OF SECURITIES 12 13 12 58
------- ------- ------- -------
TOTAL OTHER INCOME 2,586 1,807 5,181 3,676
OTHER EXPENSES
SALARIES AND BENEFITS 3,880 3,733 7,728 7,507
OTHER EXPENSES 3,493 3,183 6,803 6,450
------- ------- ------- -------
TOTAL OTHER EXPENSES 7,373 6,916 14,531 13,957
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 5,159 4,801 10,253 9,193
APPLICABLE INCOME TAXES 1,508 1,518 3,042 2,897
------- ------- ------- -------
NET INCOME $ 3,651 $ 3,283 $ 7,211 $ 6,296
======= ======= ======= =======
PER COMMON SHARE DATA:
NET INCOME PER SHARE:
BASIC $ 0.48 $ 0.42 $ 0.95 $ 0.81
DILUTED $ 0.48 $ 0.42 $ 0.94 $ 0.81
CASH DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.115 $ 0.275 $ 0.23
</TABLE>
2
<PAGE>
Univest Corporation of Pennsylvania and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the six months ended,
(in thousands)
June 30, 1998 June 30, 1997
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,211 $ 6,296
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses in excess of net charge-offs 105 406
Depreciation of premises and equipment 1,268 1,199
Discount accretion on investment securities (129) (256)
Deferred tax benefit (334) (185)
Realized gains on investment securities (12) (58)
Realized gains on sales of mortgages (156) (37)
Decrease in net deferred loan fees (36) (231)
Increase in interest receivable and other assets (210) (5,120)
Increase in accrued expenses and other liabilities 1,265 369
-------- --------
Net cash provided by operating activities 8,972 2,383
Cash flows from investing activities:
Proceeds from sales of securities available for sale 6,011 20,987
Proceeds from maturing securities held to maturity 31,846 35,636
Proceeds from maturing securities available for sale 13,106 4,308
Purchases of time deposits (1,599) (553)
Purchases of investment securities held to maturity (36,638) (13,177)
Purchases of investment securities available for sale (21,613) (42,497)
Net increase in federal funds sold and
other short-term investments (30,023) (1,331)
Proceeds from sales of mortgages 13,566 3,160
Net increase in loans (29,042) (36,002)
Capital expenditures (725) (896)
-------- --------
Net cash used in investing activities (55,111) (30,365)
Cash flows from financing activities:
Net increase in deposits 39,693 35,129
Net increase (decrease) in short-term borrowings 8,961 (10,577)
Purchases of treasury stock (5,518) (1,406)
Stock issued under dividend reinvestment and
employee stock purchase plans 577 392
Proceeds from exercise of stock options 275 59
Cash dividends (1,915) (1,787)
-------- --------
Net cash provided by financing activities 42,073 21,810
Net decrease in cash and due from banks (4,066) (6,172)
Cash and due from banks at beginning of period 33,352 38,934
-------- --------
Cash and due from banks at end of period $ 29,286 $ 32,762
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,561 $ 14,077
Income taxes $ 3,366 $ 2,975
</TABLE>
3
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Financial Information
The accompanying condensed 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. Operating results for the six-month period ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. 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, 1997, which has been filed with the Securities and
Exchange Commission.
Note 2. Per Share Data
The following weighted average shares were used for the computation of earnings
per share:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted Average Shares 7,601,829.8 7,744,627.6 7,622,976.4 7,753,379.0
</TABLE>
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings per Share, which was adopted on December 31, 1997 by
the Corporation. At that time, the Corporation changed the method currently used
to compute earnings per share and restated all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options is excluded.
Note 3. Stock Split
On January 28, 1998 the Corporation's board of directors declared a 100% stock
dividend in the form of a stock split which was paid on May 1, 1998, to
shareholders of record as of April 14, 1998. All share and per share amounts
have been retroactively adjusted to give effect to the stock split.
Note 4. Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board (FASB) issued Statement No.
128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per
4
<PAGE>
share excludes any dilutive effects of options, warrants, and convertible
securities. All earnings per share amounts for all periods have been presented,
and where appropriate, restated to conform to the SFAS No. 128 requirements. The
Financial Accounting Standards Board (FASB) has issued Statement No. 129,
"Disclosure of Information about Capital Structure" (SFAS No. 129), which is
applicable to all companies. SFAS No. 129 consolidates the existing guidance in
authoritative literature relating to a company's capital structure. SFAS No. 129
is effective for financial statements for periods ending after December 15,
1997. The adoption of this standard did not have any impact on the Corporation's
financial statements.
As of January 1, 1998, the Corporation adopted Statement No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Corporation's net income or
shareholders' equity. SFAS No. 130 requires unrealized gains or losses on the
Corporation's available- for-sale securities which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130. The following shows the
comprehensive income for the periods stated:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $3,651 $3,283 $7,211 $6,296
Change in unrealized gain on available
for sale investment securities 116 527 63 19
------ ------ ------ ------
Total comprehensive income $3,767 $3,810 $7,274 $6,315
====== ====== ====== ======
</TABLE>
In June 1997, Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information" became effective for fiscal periods beginning after
December 15, 1997, with early adoption permitted. The Corporation is currently
evaluating the additional disclosure requirements this statement is expected to
have on the Corporation's financial statements.
The FASB has recently issued Statement No. 132, Employers' "Disclosures about
Pensions and Other Postretirement Benefits", (SFAS No. 132) which is effective
for financial statements issued for periods beginning after December 31, 1997.
SFAS No. 132 does not change the recognition or measurement associated with
pension or postretirement plans. It standardizes certain disclosures, requires
additional information about changes in the benefit obligations and about change
in the fair value of plan assets to facilitate analysis, and it eliminates
certain disclosures that were not deemed useful.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), which is required to be
adopted in two years beginning after June 15, 1999. The Statement will require
the Corporation to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Corporation has not yet determined what
the effect of Statement 133 will be on the earnings and financial position of
the Corporation.
5
<PAGE>
Item 2.
Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Net Income
Net income for the three months ended June 30, 1998 increased 12.1% or $0.4
million from $3.3 million for the three months ended June 30, 1997 to $3.7
million for the three months ended June 30, 1998. The increase was due mainly to
an increase in other income. Net income also increased $0.9 million or 14.3% to
$7.2 million for the six months ended June 30, 1998 as compared to $6.3 million
for the six months ended June 30, 1997. The increases for both the three and six
month periods were due to an increase in other income.
Net Interest Income
Interest and fees on loans increased $0.3 million from $13.6 million for
the three months ended June 30, 1997 to $13.9 million for the three months ended
June 30, 1998. For the six months ended June 30, 1998, interest and fees on
loans increased $0.8 million from $26.6 million at June 30, 1997 to $27.4
million at June 30, 1998. The increase in both periods was due to increased loan
volume.
Interest on investment securities increased $0.2 million from $3.8 million
for the three month period ended June 30, 1997 to $4.0 million for the three
month period ended June 30, 1998. The increase was due to higher average volume.
For the six months ended June 30, 1998 interest on investments increased by $0.5
million from $7.4 million for the six months ended June 30, 1997 to $7.9 million
for the same period in 1998. This increase is also attributed to higher average
volume for the period.
Interest expense increased from $7.2 million for the three months ended
June 30, 1997 to $8.0 million for the three months ended June 30, 1998, an
increase of $0.8 million. Interest expense increased $1.5 million from $14.1
million for the six months ended June 30, 1997 to $15.6 million for the six
months ended June 30, 1998. The increase in both periods is attributed to volume
and rate increases in certain types of money market accounts and special
certificates of deposit for Individual Retirement Accounts.
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 earnings 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. Six
months ended June 30, 1998 shows net interest income of $20.2 million which is a
$0.2 million increase over the $20.0 million
6
<PAGE>
recorded for the six months ended June 30, 1997. The increase in net interest
income for the six months ended June 30, 1998 was attributed to growth in net
interest earning assets of $2.5 million and was offset by a decline in the net
interest margin. Average interest earning assets increased by $59.4 million for
the six month period ended June 30, 1998, as compared to the prior year. Average
interest bearing liabilities increased by $57.0 million for the six month period
ended June 30, 1998 as compared to the prior year. Average earning assets grew
mainly due to commercial loan growth and average interest bearing liabilities
grew due to increased deposits. The increase in net interest income resulting
from the increase in net interest earning assets was offset by a decline in
interest rate margin of 27 basis points to 4.39% in June 1998 from 4.66% in June
1997.
The following demonstrates the aforementioned effects:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
6/30/98 6/30/97
------- -------
AVG. BALANCE RATE AVG. BALANCE RATE
----------------- -----------------
<S> <C> <C> <C> <C>
Interest Earnings Assets $920,738 7.77% $861,326 7.92%
Interest Bearing Liabilities 743,833 4.19% 686,889 4.09%
Net Interest Income 20,211 20,054
Net Interest Spread 3.59% 3.83%
Net Interest Margin 4.39% 4.66%
</TABLE>
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 rates calculated on an agreed upon notional
principal amount. Because of 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.
At June 30, 1998, June 30, 1997 and December 31, 1997, $50.0 million in
notional amount of "Pay Floating, Receive Fixed" swaps were outstanding. The net
payable or receivable from interest rate swap agreements is accrued as an
adjustment to interest income. The $50.0 million in notional amount interest
rate swaps outstanding at June 30, 1998 expire as follows: $20.0 million in
notional principal amount in first quarter 1999, $10.0 million in notional
principal amount in third quarter 1999, $10.0 million in first quarter 2000 and
$10.0 million in second quarter 2000. The impact of interest rate swaps on net
interest income for the quarter ended June 30, 1998 was a positive $22
7
<PAGE>
thousand as compared to a positive $18 thousand for the quarter ended June 30,
1997. For the six months ended June 30, 1998 the impact was a positive $40
thousand as compared to a positive $44 thousand for the six months ended June
30, 1997.
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 June
30, 1998 the market value of interest-rate swaps in a favorable position was $95
thousand. There were no interest rate swaps with the market value in an
unfavorable position.
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 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 SFAS 114. Any of the above criteria may
cause the provision to fluctuate. For the three and six months ended June 30,
1998, the provisions for loan losses were $0.3 million and $0.6 million
respectively. For the three and six months ended June 30, 1997 the provisions
were $0.4 million and $0.6 million respectively.
At June 30, 1998, the recorded investment in loans that are considered to
be impaired was $3.1 million (all of which were on a non-accrual basis); the
related allowance for credit losses for those loans was $611 thousand. At June
30, 1997, the recorded investment in loans considered to be impaired was $2.2
million and the related allowance for credit losses for these loans was $578
thousand.
Generally, a loan (including a loan impaired) is classified as non-accrual
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 non-accrual 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 non-accrual 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
8
<PAGE>
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, non-accrual and restructured loans at June 30, 1997 and 1998, was $4.6
million and consist mainly of real estate related commercial loans. For the
quarter ended June 30, 1998, non-accrual loans resulted in lost interest income
of $100 thousand as compared to $67 thousand for the quarter ended June 30,
1997. For the six months ended June 30, 1998 lost interest totaled $176 thousand
as compared to $146 thousand for the same period in 1997. At June 30, 1998, 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. The
Corporation is currently in the process of evaluating potential loss exposure
for large commercial credits based on the results of a questionnaire dealing
with Year 2000 readiness. Completion of this process is expected by the end of
the third quarter. The impact this analysis will have on the reserve is not
known at this time.
At June 30, 1998, and December 31, 1997, the reserve for loan losses
remained constant at 1.6% of total loans.
The Corporation, at June 30, 1998, has a total of $234 thousand of Other
Real Estate Owned ("OREO") consisting of three commercial properties. This
amount is recorded in "Other Assets" at lower of cost or fair market value in
the accompanying consolidated balance sheets.
Other Income
Other income which is non-interest related consists mainly of general fee
income, trust department fee income, and other miscellaneous non-recurring types
of income. It also includes various types of service charges, such as ATM fees,
and for 1998, increases in the cash surrender value of Bank-Owned Life Insurance
(BOLI). Other income increased $0.8 million or 44.4% from $1.8 million for the
three months ended June 30, 1997 to $2.6 million for the three months ended June
30, 1998. The increase is attributed to a $0.2 million increase in the net cash
surrender value of a $15.0 million Bank Owned Life Insurance Policy, along with
trust income, which continues to be a major source of non-interest income. Trust
income for the three months ended June 30, 1998 of $0.7 million was $0.1 million
or 16.7% more than the $0.6 million reported for the three months ended June 30,
1997. Fee income, mainly due to increases in various other transaction fees and
deposit service fees, increased from $0.9 million for the three months ended
June 30, 1997 to $1.3 million for the three months ended June 30, 1998, an
increase of $0.4 million or 44.4% Other income for the six months ended June 30,
1998 increased $1.5 million or 40.5% from $3.7 million for the six months ended
June 30, 1997 to $5.2 million for the six months ended June 30, 1998. The
increase is attributed to a $0.4 million increase in the net cash surrender
value of a $15.0 million Bank Owned Life Insurance Policy and trust income.
Trust income for the six months ended June 30, 1998
9
<PAGE>
of $1.7 million was $0.3 million or 21.4% more than the $1.4 million reported
for the six months ended June 30, 1997. Fee income, mainly due to increases in
various other transaction fees and deposit service fees, increased from $1.7
million for the six months ended June 30, 1997 to $2.5 million for the six
months ended June 30, 1998, an increase of $0.8 million or 47.1%.
During the quarter and six months ended June 30, 1998, investment
securities totaling approximately $6 million were sold from the available for
sale portfolio resulting in a net gain of $12 thousand. Those securities were
sold to provide future yield enhancement and extend maturities. During the
quarter ended June 30, 1997, securities totaling approximately $7 million were
sold resulting in a net gain of $13 thousand. For the six months ended June 30,
1997, gains on sale of securities total $58 thousand.
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 net
of taxes and included in Accumulated Other Comprehensive Income. 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 June 30, 1998, is $118.9 million as compared to $116.2 million at
December 31, 1997. At June 30, 1998, a net unrealized gain of $413 thousand was
recorded, compared to a net unrealized gain of $350 thousand at December 31,
1997.
Other Expense
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. Other expenses
increased from $6.9 million for the quarter ended June 30, 1997 to $7.4 million
for the quarter ended June 30, 1998. For the six months ended June 30, 1998
other expenses increased 3.6% or $0.5 million from $14.0 million at June 30,
1997 to $14.5 million at June 30, 1998. Increases is both periods are due to
normal salary increases, and other expenses such as advertising, community
relations, intangible expenses and software expenses.
Year 2000
As reported in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 1977 a Year 2000 committee has been established. This group
represents most areas of the Corporation and has developed a plan, inventoried
software, identified hardware, contracts, and insurance issues all of which are
under review.
10
<PAGE>
In April, 1998, the Corporation implemented a detailed testing schedule for
mission-critical systems, which is expected to be substantially complete by
December 31, 1998. In early 1999, the Corporation will conduct external testing
with third parties, including ATMs, major customers, other financial
institutions, payment systems providers, etc. This testing is expected to be
completed by June 30, 1999.
The Corporation has initiated communications with all of its significant
suppliers and customers. This will enhance the level of understanding and help
to identify significant areas of third-party risk. These critical business areas
may require contingency plans, which are now under study.
The Year 2000 project cost is estimated at approximately $0.4 million in
1998. Total cost for the first six months ended June 30, 1998 was not material
to the Corporation's results of operations. The cost of the project and the date
on which the Corporation believes it will complete the project are based on best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ from those anticipated.
Tax Provision
An income tax provision of $1.5 million was recorded for the quarter ended
June 30, 1998 and June 30, 1997. The effective tax rates were 29.2% and 31.6%
respectively. For the six months ended June 30, 1998 the provision was $3.0
million as compared to $2.9 million for the six months ended June 30, 1997 with
effective tax rates of 29.7% and 31.5% respectively. The effective tax rates
reflects the benefits of tax credits generated from investments in low-income
housing projects, tax-free income from investment in securities, loans and
bank-owned life insurance.
Financial Condition
Total assets increased $50.3 million or 5.2% from $973.2 million at
December 31, 1997 to $1,023.5 million at June 30, 1998. Net loans and
investments increased $15.6 million and $21.5 million respectively. Deposits
increased $39.7 million mainly due to increased activity in certain types of
money market accounts with higher rates being paid.
Shareholders' equity increased to $105.1 million at June 30, 1998 from
$104.6 million at December 31, 1997, an increase of $0.5 million or .5% Book
value per share increased from $13.64 at December 31, 1997 to $13.92 at June 30,
1998. An increase of $.28 per share or 2.1%.
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation of
primary
11
<PAGE>
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. All earnings
per share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS No. 128 requirements.
The Financial Accounting Standards Board (FASB) has issued Statement No.
129, "Disclosure of Information about Capital Structure" (SFAS No. 129), which
is applicable to all companies. SFAS No. 129 consolidates the existing guidance
in authoritative literature relating to a company's capital structure. SFAS No.
129 is effective for financial statements for periods ending after December 15,
1997. The adoption of this standard did not have any impact on the Corporation's
financial statements.
As of January 1, 1998, the Corporation adopted Statement No. 130,
"Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its components.
However, the adoption of this Statement had no impact on the Corporation's net
income or shareholders' equity. SFAS No. 130 requires unrealized gains or losses
on the Corporation's available-for-sale securities which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirement of SFAS No. 130. The following shows the
comprehensive income for the periods stated:
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $3,651 $3,283 $7,211 $6,296
Change in unrealized gain on available
for sale investment securities 116 527 63 19
------ ------ ------ ------
Total comprehensive income $3,767 $3,810 $7,274 $6,315
====== ====== ====== ======
</TABLE>
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement becomes
effective for fiscal periods beginning after December 15, 1997, with early
adoption permitted. The Corporation is evaluating the additional disclosure
requirements this Statement is expected to have on the Corporation's financial
statements.
The FASB has recently issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS No 132) which is
effective for financial statements issued for periods beginning after December
31, 1997. SFAS No. 132 does not change the recognition or measurement associated
with pension or postretirement plans. It standardizes certain disclosures,
requires additional information
12
<PAGE>
about changes in the benefit obligations and about change in the fair value of
plan assets to facilitate analysis, and it eliminates certain disclosures that
were not deemed useful.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), which is required to be
adopted in years beginning after June 15, 1999. The Statement will require the
Corporation to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Corporation has not yet determined what
the effect of Statement 133 will be on the earnings and financial position of
the Corporation.
13
<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
Exhibit 27 - Financial Data Schedule
No reports on Form 8-K were filed during the quarter for which this
report is filed.
14
<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: 7/21/98 /s/ Merrill S. Moyer
------- --------------------
Merrill S. Moyer, Chairman
Date: 7/20/98 /s/ Wallace H. Bieler
------- ---------------------
Wallace H. Bieler, Executive Vice President
and Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000102212
<NAME> Univest Corporation of Pennsylvania
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 29,286
<INT-BEARING-DEPOSITS> 19,023
<FED-FUNDS-SOLD> 19,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 118,861
<INVESTMENTS-CARRYING> 146,830
<INVESTMENTS-MARKET> 147,176
<LOANS> 651,231
<ALLOWANCE> 10,375
<TOTAL-ASSETS> 1,023,469
<DEPOSITS> 832,561
<SHORT-TERM> 58,507
<LIABILITIES-OTHER> 18,209
<LONG-TERM> 9,075
0
0
<COMMON> 39,272
<OTHER-SE> 65,845
<TOTAL-LIABILITIES-AND-EQUITY> 1,023,469
<INTEREST-LOAN> 27,441
<INTEREST-INVEST> 7,878
<INTEREST-OTHER> 468
<INTEREST-TOTAL> 35,787
<INTEREST-DEPOSIT> 14,466
<INTEREST-EXPENSE> 15,576
<INTEREST-INCOME-NET> 20,211
<LOAN-LOSSES> 608
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 14,531
<INCOME-PRETAX> 10,253
<INCOME-PRE-EXTRAORDINARY> 10,253
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,211
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 4.51
<LOANS-NON> 4,462
<LOANS-PAST> 555
<LOANS-TROUBLED> 166
<LOANS-PROBLEM> 56
<ALLOWANCE-OPEN> 10,270
<CHARGE-OFFS> 697
<RECOVERIES> 194
<ALLOWANCE-CLOSE> 10,375
<ALLOWANCE-DOMESTIC> 10,375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,826
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000102212
<NAME> Univest Corporation of Pennsylvania
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,762
<INT-BEARING-DEPOSITS> 913
<FED-FUNDS-SOLD> 1,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,749
<INVESTMENTS-CARRYING> 150,551
<INVESTMENTS-MARKET> 151,216
<LOANS> 640,179
<ALLOWANCE> 10,207
<TOTAL-ASSETS> 940,779
<DEPOSITS> 768,897
<SHORT-TERM> 50,139
<LIABILITIES-OTHER> 13,823
<LONG-TERM> 7,075
0
0
<COMMON> 19,636
<OTHER-SE> 81,209
<TOTAL-LIABILITIES-AND-EQUITY> 940,779
<INTEREST-LOAN> 26,611
<INTEREST-INVEST> 7,439
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 34,113
<INTEREST-DEPOSIT> 12,965
<INTEREST-EXPENSE> 14,059
<INTEREST-INCOME-NET> 20,054
<LOAN-LOSSES> 580
<SECURITIES-GAINS> 58
<EXPENSE-OTHER> 13,957
<INCOME-PRETAX> 9,193
<INCOME-PRE-EXTRAORDINARY> 9,193
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,296
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
<YIELD-ACTUAL> 4.82
<LOANS-NON> 4,152
<LOANS-PAST> 356
<LOANS-TROUBLED> 244
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,801
<CHARGE-OFFS> 334
<RECOVERIES> 160
<ALLOWANCE-CLOSE> 10,207
<ALLOWANCE-DOMESTIC> 10,207
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,516
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000102212
<NAME> Univest Corporation of Pennsylvania
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 39,288
<INT-BEARING-DEPOSITS> 389
<FED-FUNDS-SOLD> 219
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,288
<INVESTMENTS-CARRYING> 182,124
<INVESTMENTS-MARKET> 181,501
<LOANS> 595,502
<ALLOWANCE> 9,668
<TOTAL-ASSETS> 904,108
<DEPOSITS> 737,198
<SHORT-TERM> 48,225
<LIABILITIES-OTHER> 18,175
<LONG-TERM> 7,075
0
0
<COMMON> 19,636
<OTHER-SE> 73,799
<TOTAL-LIABILITIES-AND-EQUITY> 904,108
<INTEREST-LOAN> 25,731
<INTEREST-INVEST> 6,949
<INTEREST-OTHER> 168
<INTEREST-TOTAL> 32,848
<INTEREST-DEPOSIT> 12,679
<INTEREST-EXPENSE> 13,626
<INTEREST-INCOME-NET> 19,222
<LOAN-LOSSES> 530
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 13,104
<INCOME-PRETAX> 8,717
<INCOME-PRE-EXTRAORDINARY> 8,717
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,031
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 4.85
<LOANS-NON> 3,402
<LOANS-PAST> 1,086
<LOANS-TROUBLED> 317
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,854
<CHARGE-OFFS> 502
<RECOVERIES> 786
<ALLOWANCE-CLOSE> 9,668
<ALLOWANCE-DOMESTIC> 9,668
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,234
</TABLE>
