<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File number 0-7617
----------------- ------
UNIVEST CORPORATION OF PENNSYLVANIA
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1886144
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
14 North Main Street
Souderton, Pennsylvania 18964
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 721-2400
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5 par value 3,816,873
- -------------------------- -----------------------------
(Title of Class) (Number of shares outstanding
at 2/28/98)
The approximate aggregate market value of voting stock held by non
affiliates of the registrant is $200,788,848 as of February 28, 1998.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this form 10-K. ( )
Parts I and Part III incorporate information by reference from the
proxy statement for the annual meeting of shareholders on April 7, 1998. Parts
I, II, and IV incorporate information by reference from the annual report to
shareholders for the year ended December 31, 1997.
PAGE 1 OF 25
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PART I
Item 1. Business
General
Univest Corporation of Pennsylvania ("Univest") is a Pennsylvania
corporation organized in 1973 and registered as a bank holding company pursuant
to the Bank Holding Company Act of 1956. It owns all of the capital stock of
Union National Bank and Trust Company ("Union National Bank"), Pennview Savings
Bank, Univest Realty Corporation, Univest Leasing Corporation, Univest Mortgage
Company, Univest Financial Planning Corporation, Univest Insurance Company, and
Univest Electronic Services Corporation.
Union National Bank is engaged in the general commercial banking
business and provides a full range of banking services and trust services to its
customers. Pennview Savings Bank is engaged in attracting deposits from general
public and investing such deposits primarily in loans secured by residential
properties and consumer loans. The Realty Corporation was established to obtain,
hold and operate properties for the holding company and its subsidiaries. Both
the Leasing Corporation and Univest Mortgage Company are inactive. Univest
Insurance Company offers credit-related reinsurance plans. Univest Electronic
Services Corporation was established to provide data processing services to
Union National Bank in Souderton and other subsidiaries of Univest Corporation
of Pennsylvania.
Union National Bank and Trust Company, with its head office in
Souderton, Montgomery County, serves the area through twenty-six (26) banking
offices, one off-premises automated teller machines and provides banking and
trust services to the residents and employees of ten retirement homes. Fifteen
banking offices are in Montgomery County and eleven banking offices are in Bucks
County. One off-premises automated teller machine is located in Montgomery
County.
Pennview Savings Bank conducts operations through five (5) full-service
offices located in Souderton, Hatfield, Franconia, Silverdale and
Montgomeryville, Pennsylvania and provides banking services to the residents and
employees of two retirement homes.
As of January 31, 1998, Univest and its subsidiaries employed four
hundred and forty-one (441) persons.
Competition
Univest's service areas are characterized by intense competition for
banking business among commercial banks, savings and loan associations, savings
banks and other financial institutions. Each of the Corporation's subsidiary
banks actively compete with such banks and financial institutions for local
retail and commercial accounts, in Bucks and Montgomery Counties, as well as
other financial institutions outside their primary service area.
In competing with other banks, savings and loan associations, and other
financial institutions, Union National Bank and Pennview Savings Bank seek to
provide personalized services through management's knowledge and awareness of
their service area, customers and borrowers.
Other competitors, including credit unions, consumer finance companies,
insurance companies and mutual funds, compete with certain lending and deposit
gathering services offered by Union National Bank and Pennview Savings Bank.
Supervision and Regulation
Union National Bank is subject to supervision and is regularly examined
by the Office of the Comptroller of the Currency. Also, Union National Bank is
subject to examination by the Federal Deposit Insurance Corporation and by the
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Federal Reserve System. Pennview Savings Bank is regulated by the Federal
Deposit Insurance Corporation and by the Department of Banking of the
Commonwealth of Pennsylvania.
Univest is subject to the provisions of the Bank Holding Company Act of
1956, as amended, and is registered pursuant to its provisions. The Act
prohibits the acquisition by a bank holding company of a direct or indirect
ownership of more than five percent of the voting shares of any bank within the
United States without prior approval of the Board of Governors of the Federal
Reserve System, and also prohibits the granting of such approval in respect to
any bank within the United States located outside of the state where the bank
holding company's principal operations are conducted, unless the acquisition is
specifically authorized by the statutes of the state in which the bank is
located. With certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank, and from engaging directly
or indirectly in businesses unrelated to the business of banking, or managing,
or controlling banks. Under the Bank Holding Company Act Amendments of 1970,
which became effective on December 3, 1970, the Federal Reserve Board may
approve the acquisition by bank holding companies of non bank subsidiaries to
engage in activities that are closely related to banking and are in the public
interest. The amendments include a provision which prohibits banks, bank holding
companies and subsidiaries from engaging in tie-in arrangements. Bank tie-ins
involving a loan, discount, deposit, or trust service are specifically exempted,
and the Federal Reserve Board is authorized to make exceptions by regulations.
As a bank holding company, Univest is subject to the reporting
requirements of the Board of Governors of the Federal Reserve System, and
Univest, together with its subsidiaries, is subject to examination by the Board.
The Federal Reserve Act limits the amount of credit which a member bank may
extend to its affiliates, and the amount of its funds which it may invest in or
lend on the collateral of the securities of its affiliates. Under the Federal
Deposit Insurance Act, insured banks are subject to the same limitations.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act ("FDICIA") was enacted, which substantially revised the bank regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to
take "prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements in order to minimize losses to the FDIC.
FDICIA establishes five capital tiers: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically undercapitalized" and imposes significant restrictions on the
operations of a bank that is not at least adequately capitalized. A depository
institution's capital tier will depend upon where its capital levels are in
relation to various relevant capital measures, which will include a risk-based
capital measure, a leverage ratio capital measure and certain other factors.
Under the requirements, Univest has Tier I capital ratios of 14.1% and 14.3%,
and total risk-based capital ratios of 15.2% and 15.5% at December 31, 1997 and
1996, respectively. These ratios place Univest in the "well-capitalized"
category under regulatory standards.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal banking
regulators within 15 days of any material events that affect the capital
position of the institution.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, a
3
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maximum ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly traded
shares (if feasible) and such other standards as the agency deems appropriate.
FDICIA also contains a variety of other provisions that affect the
operations of the Corporation, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, certain
restrictions on investments and activities of state-chartered insured banks and
their subsidiaries and limitations on credit exposure between banks.
Finally, FDICIA limits the discretion of the FDIC with respect to
deposit insurance coverage by requiring that, except in very limited
circumstances, the FDIC's course of action in resolving a problem bank must
constitute the "least costly resolution" for the Bank Insurance Fund ("BIF") or
the Savings Association Insurance Fund ("SAIF"), as the case may be. The FDIC
has interpreted this standard as requiring it not to protect deposits exceeding
the $100,000 insurance limit in more situations than was previously the case. In
addition, FDICIA prohibits payments by the FDIC on uninsured deposits in foreign
branches of U.S. banks and will severely limit the "too big to fail" doctrine
under which the FDIC formerly protected deposits exceeding the $100,000
insurance limit in certain failed banking institutions.
Implementation of FDICIA has not had a material impact on the business
or operations of the Corporation.
Credit and Monetary Policies
Union National Bank is affected by the fiscal and monetary policies of
the federal government and its agencies, including the Federal Reserve System.
An important function of the policies is to curb inflation and control
recessions through control of the supply of money and credit. The Federal
Reserve System uses its powers to regulate reserve requirements of member banks,
the discount rate on member-bank borrowings, interest rates on time and savings
deposits of member banks, and to conduct open-market operations in United States
Government securities to exercise control over the supply of money and credit.
The policies have a direct effect on the amount of bank loans and deposits and
on the interest rates charged on loans and paid on deposits, with the result
that the policies have a material effect on bank earnings. Future policies of
the Federal Reserve Bank System and other authorities cannot be predicted, nor
can their effect on future bank earnings be predicted.
Pennview Savings Bank and Union National Bank are members of the
Federal Home Loan Bank System which consists of 12 regional Federal Home Loan
Banks, with each subject to supervision and regulation by the newly created
Federal Housing Finance Board. The Federal Home Loan Banks provide a central
credit facility primarily for member institutions. The Banks, as members of the
Federal Home Loan Bank of Pittsburgh, are required to acquire and hold shares of
capital stock in that Federal Home Loan Bank in an amount equal to at least 1%
of the aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the Federal Home Loan Bank of Pittsburgh,
whichever is greater.
Market Risk
When used or incorporated by reference in disclosure documents, the
words "anticipate," "estimate," "expect," "project," "target," "goal" and
similar expressions are intended to identify forward-looking statements within
the meaning of section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions,
including those set forth below. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, expected
or projected. These forward-looking statements speak only as of the date of the
document. The Corporation expressly disclaims any obligation or undertaking to
publicly release any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Corporation's expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
4
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Market risk is the risk of loss from adverse changes in market prices
and rates. In the course of its lending and deposit taking activities, Univest
is subject to changes in the economic value and/or earnings potential of these
assets and liabilities due to changes in interest rates. Univest's
Asset/Liability Management Committee (ALMC) manages interest rate risk in a
manner so as to provide adequate and predictable earnings. This is accomplished
through the establishment of policy limits on maximum risk exposures, as well as
the regular and timely monitoring of reports designed to quantify risk and
return levels.
Univest uses both GAP and simulation techniques to quantify its
exposure to interest rate risk. The company uses GAP techniques to identify and
monitor long term rate exposure and uses a simulation model to measure the short
term rate exposures. The company runs various earnings simulation scenarios to
quantify the effect of declining or rising interest rates on the net interest
margin over a 1 year horizon. The simulation uses existing portfolio rate and
repricing information, combined with assumptions regarding future loan and
deposit growth, future spreads, prepayments on residential mortgages, and the
discretionary pricing of non-maturity assets and liabilities. The Corporation is
permitted to use interest rate swaps and interest rate caps/floors with indices
that correlate to on-balance sheet instruments, to modify its indicated net
interest sensitivity to levels deemed to be appropriate based on the
corporation's current economic outlook. The effect of the interest rate swaps
that the bank uses to reduce its earnings volatility due to rate risk are also
included in the results of the simulation.
At December 31, 1997, the simulation, based upon forward-looking
assumptions, projects that Univest's greatest interest margin exposure to
interest rate risk would occur if interest rates decline from present levels.
Given the assumptions, a 200 basis point parallel shift in the yield curve
applied on a ramp-down basis would cause Univest's interest margin, over a 1
year horizon, to be approximately 2.5% less than it would be if market rates
would remain unchanged. Policy limits have been established which allow a
tolerance for no more than approximately a 3.5% negative impact to the interest
margin resulting from a gradual 200 basis point parallel yield curve shift over
a forward looking 12 month period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Net Interest Income" in the
Annual Report and the Interest Rate Sensitivity Analysis on page 16.
Interstate Banking
Legislation was passed, and signed by President Clinton on September
29, 1994, which will eliminate many currently existing restrictions on
interstate banking. The legislation will authorize interstate acquisition of
banks by bank holding companies without geographic limitations one year after
enactment. Beginning June 1, 1997, the legislation will allow interstate
branching in states that have not passed legislation prohibiting interstate
branching, except that de novo branching or acquisition of a branch in another
state without acquisition of the entire bank will only be permitted if expressly
permitted by the law of the state in which such branch would be located.
Interstate branching prior to June 1, 1997, will be possible in states that pass
laws affirmatively authorizing such interstate branching. The effect of this
legislation on Univest cannot be predicted at this time.
Statistical Disclosure
Univest was incorporated under Pennsylvania law in 1973 for the purpose
of acquiring the stock of Union National Bank and subsequently to engage in
other business activities permitted under the Bank Holding Company Act. On
September 28, 1973, pursuant to an exchange offer, Univest acquired the
outstanding stock of Union National Bank and on August 1, 1990 acquired the
stock of Pennview Savings Bank. The following financial data appearing on pages
6 through 17 reflects consolidated information. Where averages are reported,
daily information has been used for all subsidiaries.
5
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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
($ in thousands)
<TABLE>
<CAPTION>
1997 1997/1996
Average Income/ Avg. Volume Rate Average
ASSETS: Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 29,244 $ 30,866
Time deposits with other banks 1,522 $ 83 5.5 $ 51 $ 2 $ 53 588
U.S. Government obligations 199,733 12,274 6.1 (709) (214) (923) 213,981
Oblig. of states & political sub. 4,728 219 4.6 35 12 47 3,967
Other securities 36,547 2,372 6.5 1,322 16 1,338 16,278
Federal Reserve bank stock 761 46 6.0 1 0 1 752
Federal funds sold and other
short-term investments 4,204 223 5.3 7 (4) 3 4,083
-------- ------ --------
Total investments 245,973 15,134 6.2 239,061
-------- ------ ---- --------
Commercial loans 137,520 12,632 9.2 1,239 (124) 1,115 124,372
Real estate loans 361,089 31,612 8.8 (245) 363 118 363,050
Installment loans 75,395 6,373 8.5 1,157 (61) 1,096 61,190
Home equity loans 15,300 1,647 10.8 (127) 16 (111) 16,393
Municipal loans 36,545 2,059 5.6 389 (268) 121 29,827
-------- ------ --------
Gross loans 625,849 54,323 8.7 594,832
------ ----
Less: valuation reserve (10,159) (9,582)
-------- --------
Net loans 615,690 585,250
-------- --------
Property and equipment, net 16,761 16,436
Other assets 20,047 17,656
-------- --------
Total assets $929,237 $889,857
======== ========
</TABLE>
<PAGE>
(TABLE RESTUBBED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
1996 1996/1995 1995
Income/ Avg. Volume Rate Average Income/ Avg.
ASSETS: Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks $ 30,645
Time deposits with other banks $ 30 5.1 $ 9 $ (2) $ 7 406 $ 23 5.7
U.S. Government obligations 13,197 6.2 2,402 349 2,751 174,355 10,446 6.0
Oblig. of states & political sub. 172 4.3 64 (10) 54 2,535 118 4.7
Other securities 1,034 6.4 87 (29) 58 14,697 976 6.6
Federal Reserve bank stock 45 6.0 0 0 0 746 45 6.0
Federal funds sold and other
short-term investments 220 5.4 (343) (53) (396) 10,527 616 5.9
------ -------- ------
Total investments 14,668 6.1 202,860 12,201 6.0
------- ---- --------- ------ ----
Commercial loans 11,517 9.3 (6,162) - (6,162) 190,451 17,679 9.3
Real estate loans 31,494 8.7 5,914 586 6,500 292,751 24,994 8.5
Installment loans 5,277 8.6 674 (54) 620 53,702 4,657 8.7
Home equity loans 1,758 10.7 (219) (93) (312) 18,501 2,070 11.2
Municipal loans 1,938 6.5 101 (85) 16 28,415 1,922 6.8
------ -------- ------
Gross loans 51,984 8.7 583,820 51,322 8.8
------ ---- ------ ----
Less: valuation reserve (8,965)
--------
Net loans 574,855
--------
Property and equipment, net 14,857
Other assets 20,409
------
Total assets $844,032
========
</TABLE>
6
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<TABLE>
<CAPTION>
1997 1997/1996
LIABILITIES: Average Income/ Avg. Volume Rate Average
Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $118,960 $107,993
--------- ---------
Interest checking deposits 73,521 $ 991 1.3 $ (6) $ - $ (6) 73,973
Money market savings 77,013 2,617 3.4 475 319 794 63,849
Regular savings 128,546 3,183 2.5 51 0 51 126,118
Certificates of deposit 312,517 17,556 5.6 (83) - (83) 313,867
Time open & club accounts 44,447 2,269 5.1 246 40 286 39,576
------- -------
Total time, int., and inv.
checking deposits 636,044 26,616 4.2 617,383
-------- ------- --- --------
Total deposits 755,004 725,376
-------- --------
Federal funds purchased 3,541 203 5.7 (51) 9 (42) 4,433
Loans & securities sold under
agreement to repurchase 49,133 1,608 3.3 160 - 160 44,001
Other borrowings 8,592 485 5.6 56 15 71 7,612
Subordinated notes - - 0.0 0 - - -
-- -- --
Total borrowings 61,266 2,296 3.7 56,046
------- ------ --- -------
Accrued expenses & other liab. 11,787 14,939
------- -------
Total liabilities 828,057 796,361
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 19,636 19,636
Capital surplus 34,539 34,545
Retained earnings 47,005 39,315
------- -------
Total shareholders' equity 101,180 93,496
-------- -------
Total liabilities and share-
holders' equity $929,237 $889,857
========= =========
Weighted avg. yield on interest-earning assets 8.0%
Weighted avg. rate paid on interest-bearing liab. 4.1%
Net yield 4.7%
</TABLE>
<PAGE>
(RESTUBBED FROM PREVIOUS PAGE)
<TABLE>
<CAPTION>
1996 1996/1995 1995
LIABILITIES: Income/ Avg. Volume Rate Average Income/ Avg.
Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 99,547
--------
Interest checking deposits $ 997 1.3 $ 23 $ (292) $ (269) 72,886 $ 1,266 1.7
Money market savings 1,823 2.9 (113) 0 (113) 67,858 1,936 2.9
Regular savings 3,132 2.5 53 0 53 125,419 3,079 2.5
Certificates of deposit 17,639 5.6 872 599 1,471 299,498 16,168 5.4
Time open & club accounts 1,983 5.0 444 (61) 383 30,576 1,600 5.2
------- ------
Total time, int., and inv.
checking deposits 25,574 4.1 596,237 24,049 4.0
------- --- -------- ------- ---
Total deposits 695,784
-------
Federal funds purchased 245 5.5 185 (7) 178 1,093 67 6.1
Loans & securities sold under
agreement to repurchase 1,448 3.3 212 (38) 174 37,760 1,274 3.4
Other borrowings 414 5.4 125 21 146 5,338 268 5.0
Subordinated notes - 0.0 0 (305) (305) 2,986 305 10.2
-- ------ ----
Total borrowings 2,107 3.8 47,177 1,914 4.1
------ --- ------- ------ ---
Accrued expenses & other liab. 15,979
------
Total liabilities 758,940
-------
SHAREHOLDERS' EQUITY:
Common stock 15,727
Capital surplus 8,163
Retained earnings 61,202
------
Total shareholders' equity 85,092
------
Total liabilities and share-
holders' equity $844,032
========
Weighted avg. yield on interest-earning assets 8.0% 8.1%
Weighted avg. rate paid on interest-bearing liab. 4.1% 4.0%
Net yield 4.7% 4.8%
</TABLE>
7
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Note: (1) For rate calculation purposes, average loan categories include
unearned discount.
(2) Nonaccrual loans have been included in the average loan balances.
(3) Certain amounts have been reclassified to conform with the
current-year presentation.
(4) Included in interest income are loan fees of $1,253 for 1997,
$1,364 for 1996 and $1,310 for 1995.
(5) Table I has not been tax equated.
* The change due to the volume/rate variance and average volume and percent
roundings have been allocated to volume.
8
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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE II. INVESTMENT PORTFOLIO (BOOK VALUE)
(Thousands of Dollars)
<TABLE>
<CAPTION>
CARRYING AMOUNT OF INVESTMENT SECURITIES
December 31, December 31, December 31,
1997 (a) 1996 (a) 1995 (a)
------------ ------------ ------------
<S> <C> <C> <C>
U. S. Treasury, government corporations and agencies $ 195,048 $ 213,360 $ 206,117
State and political subdivisions 4,676 4,980 3,873
Mortgage-backed securities 53,996 18,529 9,256
Other 4,445 5,344 5,273
--------- --------- ---------
Total $ 258,165 $ 242,213 $ 224,519
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1997 1996 1996 1995 1995
Amount (a) Yield (b) Amount (a) Yield (b) Amount (a) Yield (b)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1 Year or less $ 69,916 5.88% $ 73,215 6.50% $ 52,749 5.85%
1 Year - 5 Years 136,317 6.19% 155,662 6.06% 159,807 6.19%
5 Years - 10 Years 11,652 6.54% 6,784 6.09% 5,315 5.65%
After 10 Years 40,280 6.51% 6,552 6.16% 6,648 6.44%
--------- ---- --------- ---- --------- ----
Total $ 258,165 6.17% $ 242,213 6.20% $ 224,519 6.10%
========= ==== ========= ==== ========= ====
</TABLE>
Refer to Note 3 to the consolidated financial statements.
a. Held to maturity and available for sale portfolios are combined.
b. Weighted average yield is calculated by dividing income, which has not been
tax equated on tax-exempt obligations, within each maturity range by
outstanding amount of the related investment.
9
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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART A. TYPES OF LOANS
(Thousands of Dollars)
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Real estate Loans
Construction and land development $ 30,951 $ 34,733 $ 54,840 $ 50,954 $ 60,437
Secured by 1-4 family residential properties 217,782 217,631 216,180 221,098 200,018
Other real estate loans 189,251 178,644 157,925 160,234 164,304
Commercial and industrial loans 138,812 124,788 120,692 114,103 115,375
Loans to individuals 53,500 47,466 40,648 36,810 34,130
All other loans 6,143 5,821 4,084 5,639 4,402
-------- -------- -------- -------- --------
Total loans $636,439 $609,083 $594,369 $588,838 $578,666
======== ======== ======== ======== ========
</TABLE>
10
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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO,
PART B. MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
(Thousands of Dollars)
The commercial mortgages and Industrial Development Authority mortgages
that are presently being written at both fixed and floating rates of interest
are written for a three (3) year term with a monthly payment based on a fifteen
(15) year amortization schedule. At each three-year anniversary date of the
mortgages, the interest rate is renegotiated and the term of the loan is
extended for an additional three years. At each three-year anniversary date of
the mortgages, the Bank also has the right to require payment in full. These are
included in the "Due in One to Five Years" category on issue. The borrower has
the right to prepay the loan at any time.
The residential mortgages are presently being written on a one (1) or three
(3) year rollover basis. The monthly payment on these mortgages is based on a
thirty (30) year amortization schedule, unless the borrower requests a shorter
payout period. These are included in the "Due in One to Five Years" category on
issue. Fixed rate residential mortgages are also being written for terms of 15
and 30 years and are included in the "Due in over Five Years" category.
<TABLE>
<CAPTION>
As of December 31, 1997 Due in One Due in One Due in Over
Year or Less to Five Years Five Years Total
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate loans
Construction and land development $ 19,611 $ 11,340 $ -- $ 30,951
Secured by 1-4 family residential properties 70,082 83,873 63,827 217,782
Other real estate loans 75,955 52,466 60,830 189,251
Commercial and industrial loans 110,653 21,725 6,434 138,812
Loans to individuals 19,428 30,156 3,916 53,500
All other loans 3,070 2,447 626 6,143
-------- -------- -------- --------
Total loans $298,799 $202,007 $135,633 $636,439
======== ======== ======== ========
Loans with a predetermined interest rate $ 73,281 $119,989 $131,732 $325,002
Loans with a floating or variable interest rate 225,518 82,018 3,901 311,437
-------- -------- -------- --------
$298,799 $202,007 $135,633 $636,439
======== ======== ======== ========
</TABLE>
11
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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART C. RISK ELEMENTS
(Thousands of Dollars)
Nonaccrual, Past-Due and Restructured Loans and Other Assets
Performance of the entire loan portfolio is reviewed on a regular basis by
bank management and loan officers. A number of factors regarding the borrower,
such as overall financial strength, collateral values, and repayment ability,
are considered in deciding on what actions should be taken when determining the
collectibility of interest for accrual purposes.
Potential Problem Loans
When collectibility of interest and/or principal on a particular loan is
questionable, the loan is placed on nonaccrual status. If, at the time a
decision is made to cease accruing interest, it is determined that the
collection of previously accrued but unpaid interest is uncertain, a stipulated
amount is charged against current income. Conversly, if a loan on nonaccrual
status is paid in full, including interest, a credit is made to current income.
The $3,342 of nonaccruing and restructured loans in 1997 includes $664 which
although nonaccruing is performing on current contractual status. If nonaccrual
loans had been performing in accordance with their contractual terms, additional
income of $187 would have been recorded in 1997. Interest income of $94 was
recognized on these loans. In management's evaluation of the loan portfolio
risks, any significant future increases in nonperforming loans are dependent to
a large extent on the economic environment, or specific industry problems.
Loan Concentrations
At December 31, 1997, there were no concentrations of loans exceeding 10%
of total loans other than disclosed in Table III, Part A.
Other Assets
At December 31, 1997, $250 in Other Real Estate Owned was classified as
nonperforming. This amount represents all Other Real Estate Owned as of
December 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
Principal Principal Principal Principal Principal
Balance Balance Balance Balance Balance
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $3,136 $4,671 $5,855 5,149 $6,991
====== ====== ====== ====== ======
Accruing loans 90 days or more past due:
Real estate loans
Construction and land development -- -- -- -- --
Secured by 1-4 family dwellings 308 373 234 76 87
Other real estate 36 12 93 172 36
Commercial and industrial loans 21 19 -- -- 67
Loans to individuals 159 180 174 247 108
All other loans -- -- -- -- --
------ ------ ------ ------ ------
Total loans, 90 days or more past due 524 584 501 495 298
====== ====== ====== ====== ======
Restructured loans, not included above 206 281 352 422 --
====== ====== ====== ====== ======
</TABLE>
12
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE IV. SUMMARY OF LOAN LOSS EXPERIENCE
(Thousands of Dollars)
Management believes the allowance for loan losses is maintained at a
level which is adequate to absorb potential losses in the loan portfolio.
Management's methodology to determine the adequacy of and the provisions to the
allowance considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the volume, growth, and composition of the
loan portfolio.
The allowance for loan losses is determined through a quarterly
evaluation of reserve adequacy which takes into consideration the growth of the
loan portfolio, the status of past-due loans, current economic conditions,
various types of lending activity, policies, real estate and other loan
commitments, and significant changes in the charge-off activity. Loans are also
reviewed for impairment based on discounted cash flows using the loans' initial
effective interest rate or the fair value of the collateral for certain
collateral-dependent loans as provided under FAS 114, which was adopted by the
Corporation effective January 1, 1995. Any of the above factors may cause the
provision to fluctuate.
As the accompanying table indicates, the amount of loan loss provision
charged to expense for 1997 was $1,310 compared to $1,045 in 1996 and $1,895 in
1995.
13
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $617,082 $590,144 $583,398 $585,644 $563,678
Loan loss reserve at beginning of period $ 9,801 $ 8,854 $ 8,876 $ 7,198 $ 8,240
Charge-offs:
Real estate loans 552 990 1,842 701 1,367
Commercial and industrial loans 319 20 416 615 2,270
Loans to individuals 286 175 236 127 215
Home equity -- -- -- -- --
Other -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs: 1,157 1,185 2,494 1,443 3,852
======== ======== ======== ======== ========
Recoveries:
Real estate loans 167 458 316 146 139
Commercial and industrial loans 78 529 157 816 9
Loans to individuals 66 76 75 170 114
Home equity -- -- -- -- --
Other 5 24 29 39 68
-------- -------- -------- -------- --------
Total recoveries: 316 1,087 577 1,171 330
======== ======== ======== ======== ========
Net charge-offs: 841 98 1,917 272 3,522
Additions to loan loss reserve 1,310 1,045 1,895 1,950 2,480
Loan loss reserve at end of period $ 10,270 $ 9,801 $ 8,854 $ 8,876 $ 7,198
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Loan type Loan type Loan type Loan type Loan type
as % as % as % as % as %
Amount in reserve by category: of loans of loans of loans of loans of loans
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans 68.8 $ 3,511 70.8 $3,146 72.2 $ 817 73.4 $2,999 73.4 $2,468
Commercial and industrial loans 21.8 610 20.5 1,332 20.3 2,459 19.4 2,495 19.9 2,384
Loans to individuals 8.4 617 7.8 354 6.8 347 6.3 490 5.9 402
All other loans 1.0 11 0.9 11 0.7 11 1 15 0.8 538
Unallocated portion 5,521 4,958 5,220 2,876 1,406
------- ------ ------- ------ ------
Total $10,270 $9,801 $ 8,854 $8,875 $7,198
======= ====== ======= ====== ======
Ratio of Net charge-offs versus average loans 0.1% 0.0% 0.3% 0.0% 0.6%
</TABLE>
Total cash-basis and nonaccrual loans of $3,136 at December 31, 1997, were
generally comprised of $1,356 in residential real estate loans and $1,780 in
commercial real estate loans.
14
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE V. DEPOSITS
(Thousands of Dollars)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
A. Average: Noninterest-bearing demand deposits $ 118,960 $ 107,993 $ 99,547
Interest checking 73,521 73,973 72,886
Money Market savings 77,013 63,849 67,858
Saving deposits 128,546 126,118 125,419
Time deposits 356,964 353,443 330,074
--------- --------- ---------
Total $ 755,004 $ 725,376 $ 695,784
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Due 3 months Due 3 - 6 Due 6 - 12 Due over
or less months months 12 months
------- ------ ------ ---------
<S> <C> <C> <C> <C>
B. Year-end balance: ($100 or more) outstanding as of
December 31, 1997
Certificates of deposit $ 1,700 $ 1,463 $6,578 $ 10,834
Other time deposits $ 25,778 $ 6,678 $ 618 $ 1,520
</TABLE>
Note: Univest and its subsidiaries do not have any foreign offices or foreign
deposits
TABLE VI. RETURN ON EQUITY AND ASSETS (RATIOS)
(Shown as percentages)
1997 1996 1995
---- ---- ----
Return on assets 1.4 1.4 1.3
Return on equity 13.0 12.9 13.2
Dividend payout ratio 28.2 23.1 24.9
Equity to assets ratio 10.9 10.5 10.1
15
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INTEREST RATE SENSITIVITY ANALYSIS
(Thousands of dollars)
<TABLE>
<CAPTION>
Within 1 - 5 Over
1 Year Years 5 Years
------ ----- -------
<S> <C> <C> <C>
Rate Sensitive Interest Earnings Assets
Federal funds sold $ 2,000 $ -- $ --
Investment securities 100,696 157,126 6,254
Loans 357,182 241,361 36,110
Hedging instruments (30,000) 30,000 --
-------- -------- --------
$429,878 $428,487 $ 42,364
Rate Sensitive Liabilities
Interest bearing deposits 362,991 298,846 812
Borrowed funds 58,544 -- --
Net non-interest bearing funds (a) -- -- 179,536
-------- -------- --------
421,535 298,846 180,348
Excess interest-earning assets (liabilities) 8,343 129,641 (137,984)
Cumulative excess interest earning assets (liabilities) 8,343 137,984 --
======== ======== ========
</TABLE>
Notes to interest sensitivity analysis:
(a) Net non-interest bearing funds is the sum of non-interest bearing
liabilities and shareholders equity minus non-interest earning assets.
16
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE VII. SHORT TERM BORROWINGS
(Thousands of Dollars)
LOANS AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at December 31 $48,389 $48,661 $45,657
Weighted average interest rate at year end 3.3% 3.3% 3.4%
Maximum amount outstanding at any month's end $58,521 $53,109 $45,657
Average amount outstanding during the year $49,133 $44,001 $37,760
Weighted average interest rate during the year 3.3% 3.3% 3.4%
</TABLE>
17
<PAGE>
Item 2. Properties
Univest and its subsidiaries occupy thirty-one properties in Montgomery
and Bucks Counties in Pennsylvania, which are used principally as banking
offices. Note 6, appearing on page 22 of the Annual Report to Shareholders
(Exhibit 13), is hereby incorporated in this item.
Item 3. Legal Proceedings
There are no proceedings pending other than the ordinary routine
litigation incident to the business of the corporation.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference from the 1997 Annual Report to Shareholders
(Exhibit 13), pages 40-41. Dividend and other restrictions are incorporated by
reference from Note 16 of the 1997 Annual Report to Shareholders (Exhibit 13),
pages 27 and 28. The number of shareholders as of February 28, 1998, was 1,918.
Item 6. Selected Financial Data
Incorporated by reference from the 1997 Annual Report to Shareholders
(Exhibit 13), page 33.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference from the 1997 Annual Report to Shareholders
(Exhibit 13), pages 34 through 39. Dividend and other restrictions are
incorporated by reference from Note 16 of the 1997 Annual Report to Shareholders
(Exhibit 13), pages 27 and 28.
Item 7 (a). Qualitative and Quantitative Disclosures About Market Risk
The information contained under "Business - Market Risk" in Part I of
this Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated balance sheets of the registrant at December 31, 1997 and
1996, and consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years ended December 31, 1997, and the
independent auditors' report thereon are incorporated by reference from the 1997
Annual Report to Shareholders (Exhibit 13), pages 13 through 16.
Item 9. Change in and Disagreements with Accountants on Accounting and
Financial Disclosures
None
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
Executive Officers
The names and ages of all executive officers of Univest are as follows:
<TABLE>
<CAPTION>
Principal Occupation
Officer Title during past 5 years Age
<S> <C> <C> <C>
Merrill S. Moyer Chairman Chairman and Chief Executive 64
Officer of the Corporation and
Chairman of Union National Bank
Norman L. Keller Executive Vice President and CEO of Pennview 60
President Savings Bank and Executive
Vice President of the Corporation
Marvin A. Anders Vice Chairman Vice Chairman of the Corporation 58
and Union National Bank
William S. Aichele President President of the Corporation 47
and President and CEO of
Union National Bank
Wallace H. Bieler Executive Vice Executive Vice President 52
President and CFO of the Corporation
and Union National Bank
</TABLE>
There is no family relationship among any of the executive officers of Univest.
Item 11. Executive Compensation
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 7, 1998.
Item 13. Certain Relationships and Related Transactions
During 1997, the Corporation and its subsidiaries paid $568,568 to H.
Mininger & Son, Inc. for building expansion projects which were in the normal
course of business on substantially the same terms as available from others. H.
Ray Mininger, Alternate Director, is president of H. Mininger & Sons, Inc.
19
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a) 1. & 2. Financial Statements and Schedules
The financial statements listed in the accompanying index
to financial statements are filed as part of this annual
report.
3. Listing of Exhibits
The exhibits listed on the accompanying index to exhibits
are filed as part of this annual report.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1997.
(c) Exhibits - The response of this portion of item 14 is submitted as
a separate section.
(d) Financial Statement Schedules - none.
20
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[Item 14(a)]
<TABLE>
<CAPTION>
Annual Report
to Shareholders*
----------------
<S> <C>
Report of Independent Auditors 32
Consolidated balance sheets at 13
December 31, 1997 and 1996
Consolidated statements of income for each of the 14
three years in the period ended December 31, 1997
Consolidated statements of changes in shareholders' equity 15
for each of the three years in the period ended
December 31, 1997
Consolidated statements of cash flows for 16
each of the three years in the period ended
December 31, 1997
Notes to consolidated financial statements 17-31
</TABLE>
Financial statement schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
* Refers to page numbers in the Annual Report to Shareholders for 1997 (Exhibit
13) which is incorporated by references.
21
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-02513) pertaining to the Univest 1996 Employee Stock Purchase Plan
of Univest Corporation of Pennsylvania and in the related Prospectus, in the
Registration Statement (Form S-8 No. 333-24987) pertaining to the Univest
Corporation of Pennsylvania 1993 Long Term Incentive Plan and in the related
Prospectus, and in the Registration Statement (Form S-3 No. 333-02509)
pertaining to the Univest Dividend Reinvestment and Stock Purchase Plan of
Univest Corporation of Pennsylvania of our report dated January 28, 1998, with
respect to the consolidated financial statements of Univest Corporation of
Pennsylvania included in this Annual Report (Form 10-K) for the year ended
December 31, 1997.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 24, 1998
22
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
INDEX TO EXHIBITS
[Item 14(a)]
Description
-----------
(3) Articles of Incorporation and By-Laws
Articles of Incorporation and Charter are incorporated by reference to
the 1973 Form 10-K.
(4) Instruments Defining the Rights of Security Holders, Including Debentures
Specimen Copy of Common Stock is incorporated herein by reference to
the 1973 Form 10-K.
(10) Material Contracts - Not Applicable.
(11) Statement Re Computation of Per Share Earnings - See Footnote 13 in
Item (13).
(12) Statements Re Computation of Ratios - Not Applicable.
(13) Annual Report to Shareholders
(18) Letter Re Change in Accounting Principles - Not Applicable.
(19) Previously Unfiled Documents - Not Applicable.
(21) Subsidiaries of the Registrant
(23) Consent of independent auditors
(24) Power of Attorney - Not Applicable.
23
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
EXHIBIT
[Item 14(c)]
Subsidiaries
------------
(1) Union National Bank and Trust Company is chartered in the Commonwealth of
Pennsylvania.
(2) Pennview Savings Bank is chartered in the Commonwealth of Pennsylvania.
(3) Univest Leasing Corporation is chartered in the Commonwealth of
Pennsylvania.
(4) Univest Realty Corporation is chartered in the Commonwealth of Pennsylvania.
(5) Univest Mortgage Company is chartered in the Commonwealth of Pennsylvania.
(6) Univest Financial Planning Company is chartered in the Commonwealth of
Pennsylvania.
(7) Univest Insurance Company is chartered in the State of Arizona.
(8) Univest Electronic Services Corporation is chartered in the Commonwealth of
Pennsylvania.
All the subsidiaries do business under the above names.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIVEST CORPORATION OF PENNSYLVANIA
Registrant
By: /s/ Robert H. Schong
---------------------------------
Robert H. Schong
Secretary, March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C>
/s/ Merrill S. Moyer /s/ James L. Bergey
- -------------------------------------------------- ---------------------------------
Merrill S. Moyer James L. Bergey
Chairman and Director, March 25, 1998 Director, March 25, 1998
/s/ Marvin A. Anders /s/ Harold M. Mininger
- -------------------------------------------------- ---------------------------------
Marvin A. Anders Harold M. Mininger
Vice Chairman, March 25,1998 Director, March 25, 1998
/s/ Wallace H. Bieler /s/ Paul G. Shelly
- ------------------------------------------------- ---------------------------------
Wallace H. Bieler Paul G. Shelly
Executive Vice President and CFO, March 25, 1998 Director, March 25, 1998
/s/ Charles H. Hoeflich /s/ R. Lee Delp
- -------------------------------------------------- ---------------------------------
Charles H. Hoeflich R. Lee Delp
Chairman Emeritus, March 25, 1998 Director, March 25, 1998
/s/ Norman L. Keller /s/ Clair W. Clemens
- -------------------------------------------------- ---------------------------------
Norman L. Keller Clair W. Clemens
Executive Vice President, March 25, 1998 Director, March 25, 1998
/s/ John U. Young /s/ Thomas K. Leidy
- -------------------------------------------------- ---------------------------------
John U. Young Thomas K. Leidy
Director, March 25, 1998 Director, March 25, 1998
</TABLE>
25
<PAGE>
Consolidated Financial Highlights
(in thousands, except per share data)
<TABLE>
Percentage
1997 1996 Change
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings
Net interest income............................................ $ 40,628 $ 39,001 4.2%
Income before income taxes..................................... 19,164 17,066 12.3
Applicable income taxes........................................ 5,987 5,028 19.1
Net income..................................................... 13,177 12,038 9.5
Per Share*
Average shares outstanding..................................... 7,730 7,820 (1.2)
Income before income taxes..................................... $ 2.47 $ 2.18 13.3
Applicable income taxes........................................ $ .77 $ .64 20.3
Net income:
Basic.......................................................... $ 1.70 $ 1.54 10.4
Diluted........................................................ $ 1.69 $ 1.54 9.7
Book value..................................................... $ 13.64 $ 12.51 9.0
Balance Sheets
Investments.................................................... $ 258,165 $ 242,213 6.6
Net loans...................................................... 625,293 597,268 4.7
Deposits....................................................... 792,868 733,768 8.1
Shareholders' equity........................................... 104,604 97,267 7.5
Assets......................................................... 973,157 912,459 6.7
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Per share amounts and shares outstanding have been adjusted to reflect all
stock dividends and stock splits declared through January 1998.
1
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
1997 1996
----------------------------------
<S> <C> <C>
Assets
Cash and due from banks................................................................... $ 33,352 $ 38,934
Time deposits with other banks............................................................ 5,001 360
Investment securities held to maturity (market value
$142,205 and $173,013 at December 31,
1997 and 1996, respectively)............................................................ 141,972 172,785
Investment securities available for sale.................................................. 116,193 69,428
Federal funds sold and other short-term investments....................................... 2,000 69
Loans..................................................................................... 635,563 607,069
Less: Reserve for possible loan losses.................................................. (10,270) (9,801)
----------------------------------
Net loans............................................................................. 625,293 597,268
----------------------------------
Premises and equipment, net............................................................... 16,604 16,843
Accrued interest and other assets......................................................... 32,742 16,772
==================================
Total assets.......................................................................... $ 973,157 $ 912,459
==================================
Liabilities
Demand deposits, noninterest bearing...................................................... $ 129,892 $ 122,087
Demand deposits, interest bearing......................................................... 176,115 138,953
Savings deposits.......................................................................... 127,965 125,483
Time deposits............................................................................. 358,896 347,245
----------------------------------
Total deposits........................................................................ 792,868 733,768
----------------------------------
Securities sold under agreements to repurchase............................................ 48,389 48,661
Other short-term borrowings............................................................... 1,157 12,055
Accrued expenses and other liabilities.................................................... 17,064 13,633
Long-term debt............................................................................ 9,075 7,075
----------------------------------
Total liabilities..................................................................... 868,553 815,192
----------------------------------
Shareholders' equity
Common stock, $5 par value; 12,000,000 shares authorized at December 31, 1997
and 1996 and 7,854,322 and 3,927,161 shares issued at December 31, 1997 and
1996 and 7,671,305 and 3,888,594 shares outstanding at
December 31, 1997 and 1996, respectively................................................ 39,272 19,636
Additional paid-in capital................................................................ 14,908 34,544
Retained earnings......................................................................... 53,691 44,260
Net unrealized securities gains........................................................... 350 18
Treasury stock, 183,017 shares at cost at December 31, 1997 and
38,567 shares at cost at December 31, 1996.............................................. (3,617) (1,191)
----------------------------------
Total shareholders' equity............................................................ 104,604 97,267
----------------------------------
Total liabilities and shareholders' equity................................................ $ 973,157 $ 912,459
==================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans:
Taxable............................................................... $ 52,264 $ 50,046 $ 49,400
Exempt from federal income taxes...................................... 2,059 1,938 1,922
----------------------------------------------------
Total interest and fees on loans........................................ 54,323 51,984 51,322
Interest and dividends on investment securities:
U.S. Government obligations........................................... 12,274 13,197 10,445
Obligations of state and political subdivisions....................... 219 172 118
Other securities...................................................... 2,418 1,079 1,021
Interest on time deposits with other banks.............................. 83 30 23
Interest on federal funds sold.......................................... 223 220 616
----------------------------------------------------
Total interest income............................................... 69,540 66,682 63,545
----------------------------------------------------
Interest expense
Interest on demand deposits............................................. 3,608 2,820 3,202
Interest on savings deposits............................................ 3,183 3,132 3,078
Interest on time deposits............................................... 19,825 19,622 17,769
Interest on long-term debt.............................................. 425 358 314
Interest--all other...................................................... 1,871 1,749 1,600
----------------------------------------------------
Total interest expense.............................................. 28,912 27,681 25,963
----------------------------------------------------
Net interest income........................................................ 40,628 39,001 37,582
Provision for loan losses.................................................. 1,310 1,045 1,895
----------------------------------------------------
Net interest income after provision for loan losses........................ 39,318 37,956 35,687
----------------------------------------------------
Other income
Trust................................................................... 2,695 2,290 2,032
Service charges on demand deposits...................................... 1,924 1,814 1,629
Gains (losses) on sales of securities................................... 95 (9) (66)
Gains on sales of mortgages............................................. 95 43 101
Other................................................................... 3,078 2,091 2,399
----------------------------------------------------
Total other income.................................................. 7,887 6,229 6,095
----------------------------------------------------
Other expenses
Salaries and benefits................................................... 15,476 14,461 13,320
Net occupancy........................................................... 2,178 2,073 1,856
Equipment............................................................... 2,500 2,428 1,898
Other................................................................... 7,887 8,157 8,484
----------------------------------------------------
Total other expenses................................................ 28,041 27,119 25,558
----------------------------------------------------
Income before income taxes................................................. 19,164 17,066 16,224
Applicable income taxes.................................................... 5,987 5,028 4,997
----------------------------------------------------
Net income $ 13,177 $ 12,038 $ 11,227
====================================================
Net income per share:
Basic.................................................................... $ 1.70 $ 1.54 $ 1.43
====================================================
Diluted.................................................................. $ 1.69 $ 1.54 $ 1.43
====================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Additional Securities
Common Paid-in Retained Gains (Losses) Treasury
Stock Capital Earnings Stock Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994..................... $ 15,717 $ 8,090 $ 56,983 $(482) $ (150) $ 80,158
Change in unrealized gains and (losses) on
investment securities available for sale,
net of income taxes of $394................. 743 743
Cash dividends declared ($.355 per share)..... (2,792) (2,792)
25% stock dividend payable March 1, 1996,
1,568,508 shares at fair market value....... 3,921 26,469 (30,390) -
Net income for 1995........................... 11,227 11,227
------------------------------------------------------------------------------
Balance at December 31, 1995..................... 19,638 34,559 35,028 261 (150) 89,336
Change in unrealized gains and (losses) on
investment securities available for sale,
net of income taxes of $(135)............... (243) (243)
Cash dividends declared ($.355 per share)..... (2,773) (2,773)
Cash paid in lieu of fractional shares........ (2) (15) (17)
Stock issued under dividend reinvestment
and employee stock purchase plans........... (2) 249 247
Exercise of stock options..................... (31) 140 109
Acquisition of treasury stock
(88,182 shares)............................. (1,430) (1,430)
Net income for 1996........................... 12,038 12,038
------------------------------------------------------------------------------
Balance at December 31, 1996..................... 19,636 34,544 44,260 18 (1,191) 97,267
Change in unrealized gains on investment
securities available for sale, net of
income taxes of $179........................ 332 332
Cash dividends declared ($0.48 per share)..... (3,707) (3,707)
100% stock dividend payable May 1, 1998....... 19,636 (19,636) -
Stock issued under dividend reinvestment
and employee stock purchase plans........... (7) 863 856
Exercise of stock options..................... (32) 91 59
Acquisition of treasury stock
(151,964 shares)............................ (3,380) (3,380)
Net income for 1997........................... 13,177 13,177
------------------------------------------------------------------------------
Balance at December 31, 1997..................... $ 39,272 $ 14,908 $ 53,691 $ 350 $ (3,617) $104,604
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................................. $ 13,177 $ 12,038 $ 11,227
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses in excess of (less than) net charge-offs.... 469 947 (22)
Depreciation of premises and equipment................................ 2,407 2,239 1,725
Discount accretion on investment
securities and time deposits........................................ (412) (613) (346)
Deferred (benefit) income tax......................................... (162) (119) 353
Realized (gains) losses on investment securities...................... (95) 9 66
Realized gains on sales of mortgages.................................. (95) (43) (101)
Decrease in net deferred loan fees.................................... (497) (116) (258)
Decrease (increase) in interest receivable and other assets........... 717 (604) 1,115
Increase (decrease) in accrued expenses and other liabilities......... 3,350 (2,445) 2,069
----------------------------------------------------
Net cash provided by operating activities........................... 18,859 11,293 15,828
Cash flows from investing activities
Proceeds from maturing time deposits.................................... - 96 45
Proceeds from maturing securities held to maturity...................... 75,289 48,528 47,288
Proceeds from maturing securities available for sale.................... 9,471 6,380 5,873
Proceeds from sales of securities available for sale.................... 24,024 10,991 14,994
Purchases of time deposits.............................................. (4,641) - -
Purchases of investment securities held to maturity..................... (44,144) (52,329) (76,059)
Purchases of investment securities available for sale................... (79,576) (31,039) (13,138)
Premium paid to purchase Bank-Owned Life Insurance...................... (15,000) - -
Net (increase) decrease in federal funds sold and
other short-term investments.......................................... (1,931) 16,458 (9,679)
Proceeds from sales of mortgages........................................ 8,667 10,356 8,276
Net increase in loans................................................... (36,569) (31,295) (13,109)
Capital expenditures.................................................... (2,168) (2,882) (3,976)
----------------------------------------------------
Net cash used in investing activities............................... (66,578) (24,736) (39,485)
Cash flows from financing activities
Assumption of deposits.................................................. 14,186 - 11,916
Net increase in deposits................................................ 43,227 8,741 13,470
Net (decrease) increase in short-term borrowings........................ (11,170) 13,904 1,889
Proceeds from long-term debt............................................ 2,000 7,000 -
Purchases of treasury stock............................................. (3,380) (1,430) -
Stock issued under dividend reinvestment and
employee stock purchase plans......................................... 856 249 -
Proceeds from exercise of stock options................................. 59 109 -
Cash dividends.......................................................... (3,641) (3,087) (2,541)
Repayments of long-term debt............................................ - (4,010) (5,353)
----------------------------------------------------
Net cash provided by financing activities........................... 42,137 21,476 19,381
----------------------------------------------------
Net (decrease) increase in cash and due from banks...................... (5,582) 8,033 (4,276)
Cash and due from banks at beginning of year............................ 38,934 30,901 35,177
----------------------------------------------------
Cash and due from banks at end of year $ 33,352 $ 38,934 $ 30,901
====================================================
Supplemental disclosures of cash flow information Cash paid during the year for:
Interest.............................................................. $ 28,425 $ 27,058 $ 23,899
Income taxes.......................................................... $ 5,975 $ 5,100 $ 4,290
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
Organization
Univest Corporation of Pennsylvania (the Corporation) through its wholly
owned subsidiaries, Union National Bank and Trust Company (Union) and Pennview
Savings Bank (Pennview), is engaged in domestic commercial and retail banking
services and provides a full range of banking and trust services to its
customers. Union and Pennview serve the Montgomery and Bucks Counties of
Pennsylvania through 31 banking offices and provide banking and trust services
to the residents and employees of 12 retirement communities.
Principles of Consolidation
The consolidated financial statements include the accounts of Univest
Corporation of Pennsylvania and its wholly owned subsidiaries, including Union
National Bank and Trust Company and Pennview Savings Bank, collectively referred
to herein as the "Banks." All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Investment Securities
Securities are classified as investments and carried at amortized cost if
management has the positive intent and ability to hold the securities to
maturity. Securities purchased with the intention of recognizing short-term
profits are placed in the trading account and are carried at market value.
Securities not classified as investment or trading are designated securities
available for sale and carried at fair value with unrealized gains and losses
reflected in shareholders' equity. The accumulated net unrealized gain on
available-for-sale securities included in retained earnings was $350 at December
31, 1997 and $18 at December 31, 1996.
Gains and losses on sales of securities are generally computed on a specific
security basis.
Loans
Loans are stated at the principal amount less net deferred loan fees and
unearned discount. Interest income on commercial, consumer, and mortgage loans
is recorded on the outstanding balance method, using actual interest rates
applied to daily principal balances. Unearned discount on installment loans for
Pennview Savings Bank is recognized in income using the actuarial method, which
materially approximates the interest method. Accrual of interest income on loans
ceases when collectibility of interest and/or principal is questionable. If it
is determined that the collection of interest previously accrued is uncertain,
such accrual is reversed and charged to current earnings. Thereafter, income is
only recognized as payments are received for loans on which there is no
uncertainty as to the collectibility of principal.
Loan Fees
Fees collected upon loan origination and certain direct costs of originating
loans are deferred and recognized over the contractual lives of the related
loans as yield adjustments. Upon prepayment or other disposition of the
underlying loans before their contractual maturities, any associated unamortized
fees or costs are recognized.
Derivative Financial Instruments
The Company uses interest-rate swap agreements to synthetically manage the
interest-rate characteristics of its floating-rate loan portfolio to a more
desirable fixed-rate basis.
Interest-rate differentials to be paid or received as a result of
interest-rate swap agreements are accrued and recognized as an adjustment of
interest income related to the designated floating-rate loans. Recorded amounts
related to interest-rate swaps are included in other assets or liabilities. The
fair values of interest-rate swap agreements are not recognized in the financial
statements.
Realized and unrealized gains or losses at the time of maturity,
termination, sale, or repayment of a derivative contract or designated item are
recorded in a manner consistent with the original designation of the derivative
in view of the nature of the termination, sale, or repayment transaction.
Amounts related to interest-rate swaps are deferred and amortized as an
adjustment to interest income over the original period of interest exposure,
provided the designated asset continues to exist or is probable of occurring.
Realized and unrealized changes in fair value or derivatives designated with
items that no longer exist or are no longer probable of occurring are recorded
as a component of the gain or loss arising from the disposition of the
designated item.
<PAGE>
Reserve for Possible Loan Losses
The reserve for loan losses is based on management's evaluation of the loan
portfolio under current economic conditions and such other factors which deserve
recognition in estimating possible loan losses. This evaluation is inherently
subjective as it requires material estimates including the amounts and timing of
future cash flows expected to be received on impaired loans that may be
susceptible to significant change. Additions to the reserve arise from the
provision for loan losses charged to operations or from the recovery of amounts
previously charged off. Loan charge-offs reduce the reserve. Loans are charged
off when there has been permanent impairment.
6
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
The Corporation adopted Statement of Financial Accounting Standard ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," and Statement No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," effective January 1, 1995. As a result of applying the rules,
certain impaired loans are reported at the present value of expected future cash
flows using the loan's initial effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of these standards
did not have any impact on the Corporation's financial position or results of
operations.
Premises and Equipment
Land is stated at cost, and bank premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on the straight-line
method and charged to operating expenses over the estimated useful lives of the
assets (bank premises and improvements - average life 25 years; furniture and
equipment - average life 10 years).
Other Real Estate Owned
Other real estate owned represents properties acquired through customers'
loan defaults, and is included in accrued interest and other assets. The real
estate is stated at an amount equal to the loan balance prior to foreclosure,
plus costs incurred for improvements to the property, but no more than the fair
market value of the property, less estimated costs to sell.
Stock Options
The Corporation grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Corporation has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123)
requires use of option valuation models in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, however, the effect of applying SFAS No. 123 to the
Corporation's stock-based awards results in net income and earnings per share
that are not materially different from amounts reported.
Dividend Reinvestment and Employee Stock Purchase Plans
In April 1996, the shareholders approved the Univest Dividend Reinvestment
Plan (the "Reinvestment Plan") and the 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). 500,000 shares of common stock are available for issuance
under each of the plans. Employees may elect to make contributions to the
Purchase Plan in an aggregate amount not less than 2% nor more than 10% of such
employee's total compensation. These contributions are then used to purchase
stock during an offering period determined by the Corporation's Administrative
Committee. The purchase price of the stock is established by the Administrative
Committee provided, however, that the purchase price will not be less than 85%
of the lesser of the market price on the first day or last day of the offering
period.
During 1997 and 1996, 36,134 and 13,034 shares, respectively, were issued
under the Reinvestment Plan, with 450,832 shares available for future purchase
as of December 31, 1997. During 1997 and 1996, 5,614 and 2,602 shares,
respectively, were issued under the Purchase Plan, with 491,784 shares available
for future purchase as of December 31, 1997.
Income Taxes
Deferred income taxes are provided on temporary differences between amounts
reported for financial statement and tax purposes in accordance with SFAS No.
109, "Accounting for Income Taxes."
Intangible Assets
The purchase price of Pennview in excess of the fair value of the net assets
acquired was recorded as goodwill and is being amortized on a straight-line
basis over a 15-year period. At December 31, 1997, the unamortized balance is
approximately $1.3 million ($1.5 million at December 31, 1996), net of
accumulated amortization of approximately $1.4 million ($1.2 million at December
31, 1996). Other intangible assets, net of accumulated amortization, include
core deposit intangibles, and are being amortized over their estimated useful
lives ranging from seven to ten years. At December 31, 1997, the unamortized
balance is approximately $2.4 million ($900 at December 31, 1996), net of
accumulated amortization of approximately $600 ($400 at December 31, 1996.)
7
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Retirement Plan
Substantially all employees are covered by a noncontributory retirement
plan. The plan provides benefits based on a formula of each participant's final
average pay. The amount funded is not more than the maximum amount deductible
for federal income tax purposes. In addition, Univest sponsors a 401(k) deferred
salary savings plan, which is a qualified defined contribution plan, and which
covers all employees of Univest and its subsidiaries, and provides that the
Corporation make matching contributions as defined by the plan.
Postretirement Benefits Other Than Pensions
The Corporation provides certain postretirement health care and life
insurance benefits for retired employees. The Corporation accrues the costs
associated with providing these benefits during the active service periods of
employees in accordance with Statement of Financial Accounting Standard No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
No. 106).
Statement of Cash Flows
Univest has defined those items included in the caption "Cash and due from
banks" as cash and cash equivalents.
Trust Assets
Assets held by Union in a fiduciary or agency capacity for its customers are
not included in the consolidated financial statements since such items are not
assets of Union. Trust service income is reported on a cash basis. Reporting
such income on a cash basis instead of the accrual basis does not materially
affect net income or financial position.
Stock Split
On January 28, 1998 the Corporation's board of directors declared a 100%
stock dividend in the form of a stock split to be 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.
Recent Accounting Pronouncements
Effective January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standard No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." (SFAS No. 125) provides
new accounting and reporting standards for sales, securitizations, and servicing
of receivables and other financial assets, for certain secured borrowings, and
collateral transactions, and for extinguishments of liabilities. The adoption of
Statement 125 did not to have a material impact on the Corporation's financial
condition or results of operations.
In 1997, the Financial Standards Board 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 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 Company does not believe the adoption of this standard will have any
impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Both Statements become effective for fiscal periods
beginning after December 15, 1997, with early adoption permitted. The Company is
evaluating the additional disclosure requirements these Statements are expected
to have on the Company's financial statements.
Note 2. Restrictions on Cash and Due from Bank Accounts
Union is required to maintain reserve balances with the Federal Reserve
Bank. The average amount of those reserve balances for 1997 was $1.1 million and
for 1996 was $3.8 million.
8
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Note 3. Investment Securities
Securities with a market value of $161.6 million and $101.5 million at
December 31, 1997 and 1996, respectively, were pledged to secure public deposits
and for other purposes as required by law. The following table shows the
amortized cost and approximate market value of the held-to-maturity securities
and available-for-sale securities at December 31, 1997 and 1996, by maturity
within each type:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------------- -----------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized UnrealizedUnrealized Market
Held-to-Maturity Securities Cost Gains Losses Value Cost Gains Losses Value
------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury, government
corporations and agencies
obligations:
Within 1 year................ $ 42,903 $ 28 $ (67) $ 42,864 $ 58,448 $ 421 $ (2) $ 58,867
1 to 5 years................. 85,215 311 (83) 85,443 95,510 234 (391) 95,353
------------------------------------------------- -----------------------------------------
128,118 339 (150) 128,307 153,958 655 (393) 154,220
------------------------------------------------- -----------------------------------------
State and political subdivisions:
Within 1 year................ 980 2 - 982 265 - - 265
1 to 5 years................. 3,696 43 - 3,739 4,715 29 (5) 4,739
------------------------------------------------- -----------------------------------------
4,676 45 - 4,721 4,980 29 (5) 5,004
------------------------------------------------- -----------------------------------------
Mortgage-backed securities:
1 to 5 years................. 6,309 21 (8) 6,322 9,337 30 (66) 9,301
5 to 10 years................ 2,469 - (18) 2,451 3,110 - (28) 3,082
------------------------------------------------- -----------------------------------------
8,778 21 (26) 8,773 12,447 30 (94) 12,383
------------------------------------------------- -----------------------------------------
Other:
1 to 5 years................. 200 - - 200 1,200 - - 1,200
5 to 10 years................ 200 4 - 204 200 6 - 206
------------------------------------------------- -----------------------------------------
400 4 - 404 1,400 6 - 1,406
------------------------------------------------- -----------------------------------------
Total........................... $ 141,972 $ 409 $ (176) $ 142,205 $172,785 $ 720 $ (492) $ 173,013
================================================= =========================================
Securities Available for Sale
U.S. Treasury, government
corporations and agencies
obligations:
Within 1 year................ $ 25,963 $ 70 $ - $ 26,033 $ 14,489 $ 24 $ (11) $ 14,502
1 to 5 years................. 40,621 284 (8) 40,897 44,824 166 (90) 44,900
------------------------------------------------- -----------------------------------------
66,584 354 (8) 66,930 59,313 190 (101) 59,402
------------------------------------------------- -----------------------------------------
Mortgage-backed securities:
5 to 10 years................ 8,919 77 (13) 8,983 3,516 - (42) 3,474
Over 10 years................ 36,106 216 (87) 36,235 2,627 - (19) 2,608
------------------------------------------------- -----------------------------------------
45,025 293 (100) 45,218 6,143 - (61) 6,082
------------------------------------------------- -----------------------------------------
Other:
Over 10 years................ 4,045 - - 4,045 3,944 - - 3,944
------------------------------------------------- -----------------------------------------
4,045 - - 4,045 3,944 - - 3,944
------------------------------------------------- -----------------------------------------
Total........................... $ 115,654 $ 647 $ (108) $ 116,193 $ 69,400 $ 190 $ (162) $ 69,428
================================================= =========================================
</TABLE>
9
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
During the year ended December 31, 1997, available-for-sale debt securities
with a fair value at the date of sale of $24,024 were sold ($10,981 in 1996).
Gross realized gains on such sales totaled $102 during 1997 ($12 in 1996 and $0
in 1995), and the gross realized losses totaled $7 during 1997 ($21 in 1996 and
$66 in 1995). The net adjustment to unrealized holding gains on
available-for-sale securities included as a separate component of shareholders'
equity totaled $350 in 1997 and $18 in 1996.
Unrealized losses in investment securities at December 31, 1997 and 1996 do
not represent permanent impairments.
At December 31, 1997 and 1996, there were no investments in any single
non-federal issuer representing more than 10% of shareholders' equity.
Note 4. Loans
The following is a summary of the major loan categories:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------------------------------
<S> <C> <C>
Real estate--construction.................................................................... $ 30,951 $ 34,733
Real estate--commercial...................................................................... 189,251 178,644
Real estate--residential..................................................................... 217,782 217,631
Commercial and industrial.................................................................... 138,812 124,788
Loans to individuals......................................................................... 53,500 47,466
All other.................................................................................... 6,143 5,821
----------------------------------
Total loans.................................................................................. 636,439 609,083
Less: Unearned income........................................................................ (876) (2,014)
----------------------------------
$ 635,563 $ 607,069
==================================
</TABLE>
At December 31, 1997, loans to directors and executive officers of Univest and
companies in which directors have an interest aggregated $9,825. These loans
have been made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the same
time for comparable transactions with customers and did not involve more than
the normal risk of collectibility or present other unfavorable terms. The
summary of activity for the past year is as follows:
<TABLE>
<CAPTION>
Balance at Amounts Balance at
January 1, 1997 Additions Collected December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$12,480 $6,606 $9,261 $9,825
</TABLE>
Note 5. Reserve for Possible Loan Losses
A summary of the transactions in the reserve for possible loan losses is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year............................................... $ 9,801 $ 8,854 $ 8,876
Provision charged to operating expenses.................................... 1,310 1,045 1,895
Recoveries................................................................. 316 1,087 577
Loans charged off.......................................................... (1,157) (1,185) (2,494)
----------------------------------------------------
Balance at end of year..................................................... $ 10,270 $ 9,801 $ 8,854
====================================================
</TABLE>
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan,"
(SFAS No.114) and Statement No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosures" (SFAS No. 118). Under SFAS No. 114,
the allowance for credit losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 is based on discounted cash flows
using the loans' initial effective interest rate or the fair value of collateral
for certain collateral-dependent loans. Included in the total impaired loans is
$652 ($1,375 at December 31, 1996) against which $204 ($495 at December 31,
1996) of the allowance for loan losses is allocated. SFAS No. 118 amended SFAS
No. 114's income recognition policy and clarifies SFAS No. 114's disclosure
requirements. At December 31, 1997, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $1,197, all of which were on a
10
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- -------------------------------------------------------------------------------
nonaccrual basis, ($2,640 at December 31, 1996). The average recorded investment
in impaired loans during the year ended December 31, 1997 was approximately
$2,360 ($2,823 at December 31, 1996). For the year ended December 31, 1997, the
Corporation recognized $94 in interest income on those impaired loans ($93 at
December 31, 1996).
At December 31, 1997, the total of nonaccrual and restructured loans was
$2,066 ($3,713 at December 31, 1996). If these loans had been performing in
accordance with their contractual terms, additional interest income of $187,
$275, and $530 would have been recorded in 1997, 1996, and 1995, respectively.
In addition, Pennview had first residential mortgage loans of $1,276 at December
31, 1997 ($1,239 at December 31, 1996) which were over 90 days delinquent.
The total of the real estate owned at December 31, 1997 was $250 ($553 at
December 31, 1996). Other expenses for 1996 include costs of $225 associated
with the write-down of other real estate owned. No such costs were incurred for
the year ended December 31, 1997.
Note 6. Premises and Equipment
<TABLE>
<CAPTION>
December 31,
1997 1996
----------------------------------
<S> <C> <C>
Land and land improvements................................................................... $ 3,288 $ 3,261
Premises and improvements.................................................................... 16,016 15,066
Furniture and equipment...................................................................... 17,210 16,569
----------------------------------
36,514 34,896
Less: accumulated depreciation............................................................... (19,910) (18,053)
----------------------------------
$ 16,604 $ 16,843
==================================
</TABLE>
As of December 31, 1997, Univest and its subsidiaries were obligated under
noncancelable leases for various premises and equipment. A summary of the future
minimum rental commitments under noncancelable operating leases net of related
sublease revenue is as follows: 1998-$473; 1999-$472; 2000-$430; 2001-$324;
2002-$183. Rental expense charged to operations was $487, $350, and $232 for
1997, 1996, and 1995, respectively.
Note 7. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The assets and
liabilities giving rise to the Corporation's deferred tax liabilities and assets
as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------
<S> <C> <C>
Deferred tax assets:
Loan loss................................................................................. $ 3,470 $ 3,119
Deferred compensation..................................................................... 257 275
Deferred fee income....................................................................... - 118
Postretirement benefits................................................................... 413 385
----------------------------------
4,140 3,897
Deferred tax liabilities:
Accretion................................................................................. 284 406
Retirement plans.......................................................................... 214 188
Depreciation.............................................................................. 327 454
Intangible assets......................................................................... 325 351
Deferred fee income....................................................................... 223 -
Mark-to-market adjustment................................................................. 73 34
Other..................................................................................... 473 233
----------------------------------
Net deferred tax assets...................................................................... $ 2,221 $ 2,231
==================================
</TABLE>
<PAGE>
The provision for federal and state income taxes included in the
accompanying consolidated statements of income consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Currently payable.......................................................... $ 6,149 $ 5,147 $ 4,644
Deferred................................................................... (162) (119) 353
----------------------------------------------------
$ 5,987 $ 5,028 $ 4,997
====================================================
11
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
The effective tax rates are less than the statutory federal rate of 35%
because interest on loans and investment securities of state and political
subdivisions is exempt from income tax. Deferred federal income taxes (tax
benefits) arise from timing differences in the recognition of income and
expenses for tax and financial reporting purposes.
Pennview is permitted to deduct an annual addition to a tax reserve for bad
debts, which differs from the method used for financial accounting purposes. As
of December 31, 1997, Pennview has taken approximately $2,596 in bad debt
deductions for which no deferred income taxes have been provided, since
management does not intend to use the reserve for purposes other than to absorb
bad debt losses.
Note 8. Retirement Plan
Net pension expense recognized in 1997, 1996, and 1995 amounted to $165,
$360, and $185, respectively, and is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during the period............................. $ 539 $ 553 $ 364
Interest cost on projected benefit obligation.............................. 887 824 733
Actual return on plan assets............................................... (2,702) (1,513) (2,240)
Net amortization and deferral.............................................. 1,441 496 1,328
----------------------------------------------------
$ 165 $ 360 $ 185
====================================================
</TABLE>
Assumptions used to measure the projected benefit obligation and the
expected return on assests included in net periodic pension costs are set forth
in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Discount rate.............................................................. 7.25% 6.75% 8.50%
Increase in compensation levels............................................ 8.50% 8.50% 8.50%
Expected long-term return on assets........................................ 5.60% 5.60% 5.60%
</TABLE>
The funded status is reconciled to prepaid pension expense recognized in the
financial statements at December 31, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------
<S> <C> <C>
Fair value of plan assets.................................................................... $ 15,085 $ 12,270
Actuarial present value of benefit obligations:
Vested 9,738 8,874
Nonvested................................................................................. 491 473
----------------------------------
Accumulated benefit obligation............................................................... 10,229 9,347
Effect of projected future salary increase................................................... 2,478 2,560
----------------------------------
Projected benefit obligation................................................................. 12,707 11,907
----------------------------------
Plan assets in excess of projected benefit obligation........................................ 2,378 363
Unrecognized net asset at transition......................................................... (378) (504)
Unrecognized prior service costs............................................................. (609) (685)
Unrecognized net (gain) loss................................................................. (604) 1,086
----------------------------------
Prepaid pension expense...................................................................... $ 787 $ 260
==================================
Assumed discount rate for obligation......................................................... 7.00% 7.25%
Assumed salary increase rate................................................................. 5.10% 5.60%
</TABLE>
The unrecognized net asset at transition is being amortized on the
straight-line method over 15 years. Plan assets include marketable equity
securities, corporate and government debt securities, and certificates of
deposit.
Pension expense for the 401(k) deferred salary savings plan for the years
ended December 31, 1997, 1996, and 1995 was $243, $224, and $203, respectively.
Note 9. Other Postretirement Benefit Plans
The Corporation provides certain postretirement health care and life insurance
benefits for retired employees. The liability for these postretirement benefits
is unfunded. Statement of Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106)
establishes the accounting for postretirement benefits. SFAS No. 106 requires
that employers accrue the costs associated with providing postretirement
benefits during the active service periods of employees.
12
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
The liability for postretirement benefits included in other liabilities at
December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................................................. $ (766) $ (705)
Fully eligible active plan participants................................................... (38) (35)
Other active plan participants............................................................ (372) (342)
Unrecognized net loss........................................................................ 138 91
----------------------------------
Accrued postretirement benefit cost.......................................................... $ (1,038) $ (991)
==================================
</TABLE>
Net periodic postretirement benefit cost for the years ended December 31, 1997,
1996, and 1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during the period............................. $ 19 $ 20 $ 13
Interest cost on accumulated postretirement benefit obligation............. 78 73 68
Net amortization and deferral of plan assets............................... - 3 -
----------------------------------------------------
$ 97 $ 96 $ 81
====================================================
</TABLE>
For measurement purposes, an 8.0 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed in 1997; the rate was
assumed to decrease gradually by 1/2 percent per year, reaching 5 percent in
2003 and after. The health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by 1 percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1997 by $67 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by $5.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.00 percent and 7.25 percent, at December
31, 1997 and 1996, respectively, and the assumed salary increase rate was 5.10
percent and 5.60 percent at December 31, 1997 and 1996, respectively.
Note 10. Long-Term Incentive Plan
The Corporation adopted the 1993 Long-Term Incentive Plan, whereby the
Corporation may grant options to employees to purchase up to 500,000 shares of
common stock. The plan provides for the issuance of options to purchase common
shares at prices not less than 100 percent of the fair market value at the date
of option grant. Options are exercisable as to 33 percent of the optioned shares
each year from the date of grant for a period not exceeding six years. 334,742
common shares were available for future options at December 31, 1997.
Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
Shares Option Price
Under Option Per Share
----------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994......... 62,500 $13.60
Granted.................................. 109,626 15.50
Exercised................................ - -
----------------------------------------------------
Outstanding at December 31, 1995......... 172,126 13.60 - $15.50
Granted.................................. - -
Exercised................................ (8,034) 13.60
----------------------------------------------------
Outstanding at December 31, 1996......... 164,092 13.60 - 15.50
Granted.................................. 5,500 30.00
Exercised................................ (4,334) 13.60
----------------------------------------------------
Outstanding at December 31, 1997......... 165,258 $13.60 - $30.00
====================================================
</TABLE>
<PAGE>
Note 11. Time Deposits
The aggregate amount of certificates of deposit in denominations of $100 or
more was $20,575 at December 31, 1997, and $22,169 at December 31, 1996, with
interest expense of $1,176 for 1997, and $1,111 for 1996. Other time deposits in
denominations of $100 or more were $34,594 at December 31, 1997, and $30,514 at
December 31, 1996, with interest expense of $2,139 for 1997 and $1,740 for 1996.
13
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Note 12. Long-Term Debt
At December 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
Description 1997 1996 Interest Rate Maturity
- ---------------------------------------- ---------------- ----------------- ---------------------------------- -------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank Advance $ 3,500 $ 3,500 5.35% (variable based on a May 2001
fed funds index)
Federal Home Loan Bank Advance 3,500 3,500 5.31% (variable based on a March 2001
fed funds index)
Federal Home Loan Bank Advance 75 75 4.00% September 2006
Federal Home Loan Bank Advance 2,000 - 5.47% (variable based on a September 2002
3 month LIBOR index)
================ =================
$ 9,075 $ 7,075
================ =================
</TABLE>
Advances from the Federal Home Loan Bank are collateralized by Federal Home
Loan Bank stock and substantially all first mortgage loans of Pennview. The
advances are subject to a prepayment fee in the event of repayment of the
advance in whole or in part prior to maturity.
Note 13. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share - income
available to common shareholders............... 13,177 12,038 11,227
Denominator:
Denominator for basic earnings per share -
weighted-average shares........................ 7,730 7,820 7,842
Effect of dilutive securities:
Employee stock options...................... 45 15 16
---------------------- ---------------------- ---------------------
---------------------- ---------------------- ---------------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions............................ 7,775 7,835 7,858
====================== ====================== =====================
Basic earnings per share........................... $ 1.70 $ 1.54 $ 1.43
====================== ====================== =====================
Diluted earnings per share......................... $ 1.69 $ 1.54 $ 1.43
====================== ====================== =====================
</TABLE>
For additional disclosures regarding the employee stock options, see Note 10.
Note 14. Financial Instruments with Off-Balance-Sheet Risk and Commitments
Loan commitments are made to accommodate the financial needs of the
Institutions' customers. Standby letters of credit commit the Institutions to
make payments on behalf of customers when certain specified future events occur.
They primarily are issued to support commercial paper, medium- and long-term
notes and debentures, including industrial revenue obligations. Historically,
substantially all standby letters of credit expire unfunded. Both arrangements
have credit risk essentially the same as that involved in extending loans to
customers and are subject to the Institutions' normal credit policies.
Collateral is obtained based on management's credit assessment of the customer.
14
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
The Banks offer commercial, mortgage, and consumer credit products to their
customers in the normal course of business which are detailed in Note 4. These
products represent a diversified credit portfolio and are generally issued to
borrowers within the Banks' branch office systems in eastern Pennsylvania. The
ability of the customers to repay their credit is, to some extent, dependent
upon the economy in the Banks' market areas.
The Banks also control their credit risks by limiting the amount of credit
to any business, institution, or individual, but as of December 31, 1997, the
Banks have identified the due from banks' balance as a significant concentration
of credit risk because it contains a balance due from a single depository
institution in the amount of $16,864 which is unsecured. Management evaluates
the creditworthiness of the institution on at least a quarterly basis in an
effort to monitor its credit risk associated with this concentration.
The following schedule summarizes the Corporation's off-balance-sheet financial
instruments:
<TABLE>
<CAPTION>
Contract or
Notional Amount
--------------------------
<S> <C>
Financial instruments representing credit risk:
Commitments to extend credit................................ $163,011
Standby letters of credit or commercial letters of credit... 22,366
Interest rate swaps, notional principal amount.............. 50,000
</TABLE>
The Corporation may enter into interest-rate swaps in managing its
interest-rate risk. 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.
At December 31, 1997, $50.0 million in notional interest-rate swaps were
outstanding as compared to $30.0 million outstanding at December 31, 1996. The
contracts entered into by the Corporation expire as follows: $20.0 million in
notional principal amount in March 1998, $20.0 million in notional principal
amount in first quarter 1999, and $10.0 million in third quarter 1999. The
impact of the interest-rate swaps on net interest income for the year ended
December 31, 1997 was a positive $74 thousand and for the year ended December
31, 1996 a positive $69 thousand.
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
December 31, 1997, the market value of interest-rate swaps in a favorable value
position was $119 thousand, while the market value of interest-rate swaps in an
unfavorable position totaled $4 thousand. At December 31, 1996, the market value
of interest-rate swaps in a favorable position was $38 thousand, while the
market value of interest-rate swaps in an unfavorable position totaled $6
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.
<PAGE>
Note 15. Fair Values of Financial Instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS No. 107), requires all entities to
disclose the estimated fair value of its financial instruments whether or not
recognized in the balance sheet. For Univest, as for most financial
institutions, substantially all of its assets and liabilities are considered
financial instruments as defined in SFAS No. 107. Many of the Corporation's
financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction. It is also the Corporation's general practice and intent to hold
its financial instruments to maturity and to not engage in trading or sales
activities other than residential mortgage loans held for sale and those
investment securities classified as available for sale. Significant estimations
and present value calculations, which are significantly affected by the
assumptions used, including the discount rate and estimate of future cash flows,
were used by the Corporation for the purposes of this disclosure.
Estimated fair values have been determined by the Corporation using the best
available data, and an estimation methodology suitable for each category of
financial instruments. For those loans and deposits with floating interest
rates, it is presumed that estimated fair values generally approximate the
recorded book balances. Various methodologies are described in the accompanying
notes.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of
readily available active secondary market valuations for many of the financial
instruments. This lack of uniform valuation methodologies also introduces a
greater degree of subjectivity to these estimated fair values. Certain estimated
fair values cannot be substantiated by comparison to independent valuation
sources and, in many cases, might not be realized in immediate settlement of the
instrument.
15
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
The following table represents the estimates of fair value of financial
instruments:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------------------- --- ----------------------------------------
Carrying or Carrying or
Notional/Contract Fair Notional/Contract Fair
Amount Value Amount Value
-------------------- ------------------ --- --------------------- ------------------
<S> <C> <C> <C> <C>
Assets:
Cash and short-term assets............... $ 40,353 $ 40,353 $ 39,363 $ 39,363
Investment securities.................... 258,165 258,398 242,213 242,441
Net loans................................ 625,293 626,069 597,268 596,729
Liabilities:
Demand deposits and savings deposits..... 433,972 433,972 386,523 386,523
Time deposits............................ 358,896 359,902 347,245 351,250
Short-term borrowings.................... 49,546 49,546 60,716 60,716
Long-term debt........................... 9,075 9,075 7,075 7,075
Off-Balance-Sheet:
Commitments to extend credit............. 163,011 (196) 159,935 (219)
Letters of credit........................ 22,366 (336) 18,671 (280)
Interest-rate swap, notional principal
amount................................. 50,000 115 30,000 32
</TABLE>
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and due from banks and short-term investments: The carrying amounts
reported in the balance sheets for cash and due from banks, time deposits with
other banks, and federal funds sold and other short-term investments
approximates those assets' fair values.
Investment securities (including mortgage-backed securities): Fair values
for investment securities are based on quoted market prices.
Loans: For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Off-balance-sheet instruments: Fair values for the Corporation's
off-balance-sheet instruments are based on the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on demand at
the reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of securities sold under
repurchase agreements, and other short-term borrowings approximate their fair
values.
Long-term debt: The fair values of the Corporation's long-term borrowings
(other than deposits) are estimated using discounted cash flow analyses, based
on the Corporation's current borrowing rates for similar types of borrowing
arrangements.
Note 16. Regulatory Matters
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks' capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
16
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). At December 31, 1997, the Banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Office of
Comptroller of the Currency and Federal Deposit Insurance Corporation (FDIC)
categorized the Banks as well-capitalized under the regulatory framework for
prompt corrective action. To be categorized as well-capitalized, the Banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Institutions' category.
The Banks' actual capital amounts and ratios are also presented in the
following table.
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------- ----------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------- ----------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk-Weighted Assets):
Consolidated $ 109,541 15.2% $ 57,532 8.0% $ 71,916 10.0%
Union National Bank 87,883 14.0% 50,256 8.0% 62,820 10.0%
Pennview Savings Bank 15,292 18.4% 6,666 8.0% 8,332 10.0%
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 101,399 14.1% $ 28,766 4.0% $ 43,149 6.0%
Union National Bank 80,874 12.9% 25,128 4.0% 37,692 6.0%
Pennview Savings Bank 14,462 17.4% 3,333 4.0% 4,999 6.0%
Tier I Capital (to Average Assets):
Consolidated $ 101,399 10.9% $ 37,065 4.0% $ 46,331 5.0%
Union National Bank 80,874 10.3% 31,489 4.0% 39,362 5.0%
Pennview Savings Bank 14,462 10.7% 5,396 4.0% 6,746 5.0%
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets):
Consolidated $ 102,200 15.5% $ 52,870 8.0% $ 66,088 10.0%
Union National Bank 80,858 14.1% 45,750 8.0% 57,188 10.0%
Pennview Savings Bank 14,769 17.9% 6,599 8.0% 8,248 10.0%
Tier I Capital (to Risk-Weighted Assets):
Consolidated $ 94,765 14.3% $ 26,435 4.0% $ 39,653 6.0%
Union National Bank 74,533 13.0% 22,875 4.0% 34,313 6.0%
Pennview Savings Bank 13,856 16.8% 3,299 4.0% 4,949 6.0%
Tier I Capital (to Average Assets):
Consolidated $ 94,765 10.7% $ 35,487 4.0% $ 44,359 5.0%
Union National Bank 74,533 10.1% 29,536 4.0% 36,920 5.0%
Pennview Savings Bank 13,856 9.8% 5,667 4.0% 7,084 5.0%
</TABLE>
Dividend and Other Restrictions
The approval of the Comptroller of the Currency is required for a national
bank to pay dividends if the total of all dividends declared in any calendar
year exceeds the bank's net profits (as defined) for that year combined with its
retained net profits for the preceding two calendar years. Under this formula,
Union can declare dividends in 1998 without approval of the Comptroller of the
Currency of approximately $16,191 plus an additional amount equal to the Bank's
net profits for 1997 up to the date of any such dividend declaration.
The Federal Reserve Act requires that extension of credit by the Bank to
certain affiliates, including Univest (parent), be secured by readily marketable
securities, that extension of credit to any one affiliate be limited to 10% of
the Bank's capital and surplus as defined, and that extensions of credit to all
such affiliates be limited to 20% of Union's capital and surplus.
17
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Note 17. Parent Company Financial Information
Condensed financial statements of Univest, Parent Company only, follow:
Balance Sheets
<TABLE>
<CAPTION>
December 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Assets:
Deposits with bank subsidiary............................................................. $ 556 $ 27
Loan to non-bank subsidiary............................................................... - 275
Investments in U.S. Government obligations held to maturity............................... 1,000 2,638
Investments in subsidiaries, at equity in net assets:
Banks................................................................................... 99,482 90,891
Non-banks............................................................................... 5,543 5,423
Other assets.............................................................................. 1,969 2,332
================ =================
Total assets.......................................................................... $ 108,550 $ 101,586
================ =================
Liabilities:
Dividends payable......................................................................... $ 961 $ 895
Other liabilities......................................................................... 2,985 3,424
---------------- -----------------
Total liabilities..................................................................... 3,946 4,319
---------------- -----------------
Shareholders' equity......................................................................... 104,604 97,267
================ =================
Total liabilities and shareholders' equity............................................ $ 108,550 $ 101,586
================ =================
Statements of Income
Year ended December 31,
1997 1996 1995
----------------- ---------------- -----------------
<S> <C> <C> <C>
Dividends from banks....................................................... $ 5,150 $ 4,723 $ 5,251
Other income............................................................... 7,695 6,973 6,479
----------------- ---------------- -----------------
Total operating income.................................................. 12,845 11,696 11,730
Operating expenses......................................................... 8,105 7,566 6,675
----------------- ---------------- -----------------
Income before income tax benefit and equity in
undistributed income of subsidiaries.................................... 4,740 4,130 5,055
Applicable income tax (benefit) expense.................................... (57) (133) (27)
----------------- ---------------- -----------------
Income before equity in undistributed income of subsidiaries............... 4,797 4,263 5,082
Equity in undistributed income (loss) of subsidiaries:
Banks................................................................... 8,260 7,744 6,205
Non-banks............................................................... 120 31 (60)
----------------- ---------------- -----------------
================= ================ =================
Net income................................................................. $ 13,177 $ 12,038 $ 11,227
================= ================ =================
</TABLE>
18
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
----------------- ---------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................................. $ 13,177 $ 12,038 $ 11,227
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries.................. (8,380) (7,775) (6,145)
Increase in other assets............................................ (135) (1,000) (750)
Depreciation of premises and equipment.............................. 498 392 253
(Decrease) increase in other liabilities............................ (438) 1,098 338
----------------- ---------------- -----------------
Net cash provided by operating activities......................... 4,722 4,753 4,923
Cash flows from investing activities
Proceeds from maturities of securities held to maturity................. 2,638 1,999 5,838
Purchases of investment securities held to maturity..................... (1,000) (2,638) (1,999)
Investment in non-bank subsidiaries..................................... - - (1,160)
----------------- ---------------- -----------------
Net cash provided by (used in) investing activities............... 1,638 (639) 2,679
Cash flows from financing activities
Purchases of treasury stock............................................. (3,380) (1,430) -
Stock issued under dividend reinvestment and
employee stock purchase plans......................................... 856 249 -
Proceeds from exercise of stock options................................. 59 109 -
Repayment from subsidiary............................................... 275 - -
Repayment of subordinated note.......................................... - - (5,000)
Cash dividends.......................................................... (3,641) (3,087) (2,541)
----------------- ---------------- -----------------
Net cash used in financing activities............................. (5,831) (4,159) (7,541)
----------------- ---------------- -----------------
Net increase (decrease) in deposits with bank subsidiary................ 529 (45) 61
Deposits with bank subsidiary at beginning of year...................... 27 72 11
================= ================ =================
Deposits with bank subsidiary at end of year............................ $ 556 $ 27 $ 72
================= ================ =================
</TABLE>
During 1997, 1996, and 1995, the parent company made income tax payments of
$5,975, $5,100, and $4,250, respectively, and made interest payments of $0, $0,
and $305, respectively.
19
<PAGE>
Notes to Consolidated Financial Statements (Cont.)
(dollars in thousands, except share data)
- --------------------------------------------------------------------------------
Note 18. Quarterly Data (Unaudited)
The unaudited results of operations for the quarters for the years ended
December 31, 1997 and 1996 were as follows:
1997 Quarterly Financial Data
<TABLE>
<CAPTION>
December 31 September 30 June 30 March 31
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Interest income........................................... $ 17,935 $ 17,492 $ 17,456 $ 16,657
Interest expense.......................................... 7,552 7,301 7,176 6,883
---------------- ----------------- ---------------- -----------------
Net interest income.................................. 10,383 10,191 10,280 9,774
Provision for loan losses................................. 415 315 370 210
---------------- ----------------- ---------------- -----------------
Net interest income after provision for loan losses.. 9,968 9,876 9,910 9,564
Other income.............................................. 2,095 2,116 1,807 1,869
Other expenses............................................ 7,418 6,666 6,916 7,041
---------------- ----------------- ---------------- -----------------
Income before income taxes................................ 4,645 5,326 4,801 4,392
Applicable income taxes................................... 1,437 1,653 1,518 1,379
================ ================= ================ =================
Net income........................................... $ 3,208 $ 3,673 $ 3,283 $ 3,013
================ ================= ================ =================
Per share data:
Net income:
Basic................................................ $ .42 $ .47 $ .42 $ .39
================ ================= ================ =================
Diluted.............................................. $ .41 $ .47 $ .42 $ .39
================ ================= ================ =================
================ ================= ================ =================
Dividends per share ................................... $ .125 $ .125 $ .115 $ .115
================ ================= ================ =================
1996 Quarterly Financial Data
December 31 September 30 June 30 March 31
---------------- ----------------- ---------------- -----------------
Interest income........................................... $ 16,985 $ 16,849 $ 16,526 $ 16,322
Interest expense.......................................... 7,050 7,005 6,833 6,793
---------------- ----------------- ---------------- -----------------
Net interest income.................................. 9,935 9,844 9,693 9,529
Provision for loan losses................................. 200 315 215 315
---------------- ----------------- ---------------- -----------------
Net interest income after provision for loan losses.. 9,735 9,529 9,478 9,214
Other income.............................................. 1,648 1,452 1,500 1,629
Other expenses............................................ 6,858 7,157 6,572 6,532
---------------- ----------------- ---------------- -----------------
Income before income taxes................................ 4,525 3,824 4,406 4,311
Applicable income taxes................................... 1,406 936 1,359 1,327
================ ================= ================ =================
Net income........................................... $ 3,119 $ 2,888 $ 3,047 $ 2,984
================ ================= ================ =================
Per share data:
Net income:
Basic................................................ $ .40 $ .37 $ .39 $ .38
================ ================= ================ =================
Diluted.............................................. $ .40 $ .37 $ .39 $ .38
================ ================= ================ =================
================ ================= ================ =================
Dividends per share.................................... $ .115 $ .08 $ .08 $ .08
================ ================= ================ =================
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
20
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
Board of Directors and Shareholders
Univest Corporation of Pennsylvania
We have audited the accompanying consolidated balance sheets of Univest
Corporation of Pennsylvania as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Univest
Corporation of Pennsylvania at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 28, 1998
21
<PAGE>
<TABLE>
<CAPTION>
Five-Year Performance Highlights
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Basic Earnings Per Share* Average Deposits (Millions of Dollars)
_______________________________________________ ____________________________________________________
INSERT CHART HERE INSERT CHART HERE
_______________________________________________ ____________________________________________________
Average Loans Income Before Change in Accounting Principle
(Millions of Dollars) (Millions of Dollars)
_______________________________________________ ____________________________________________________
INSERT CHART HERE INSERT CHART HERE
_______________________________________________ ____________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Financial Data
(In Thousands, except per share data)
Year ended December 31,
1997 1996 1995 1994 1993
----------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Total assets............................ $ 973,157 $ 912,459 $ 881,888 $ 847,154 $ 789,887
Long-term obligations................... 9,075 7,075 4,085 9,438 10,277
Interest income......................... 69,540 66,682 63,545 55,921 54,402
Net interest income..................... 40,628 39,001 37,582 34,648 31,633
Provision for loan losses............... 1,310 1,045 1,895 1,950 2,480
Net income.............................. 13,177 12,038 11,227 10,120 8,787
Net income per share:
Basic................................ $1.70 $1.54 $1.43 $1.29 $1.12
Diluted.............................. $1.69 $1.54 $1.43 $1.29 $1.12
Dividends declared per share............ 0.48 0.355 0.355 0.30 0.28
</TABLE>
22
<PAGE>
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Results of Operations
Univest Corporation of Pennsylvania consolidated net income (in thousands) and
earnings per share for 1997, 1996, and 1995 were as follows:
1997 1996 1995
------------------- ------------------ ------------------
<S> <C> <C> <C>
Net income $ 13,177 $ 12,038 $ 11,227
Net income per share:
Basic..................................... 1.70 1.54 1.43
Diluted................................... 1.69 1.54 1.43
</TABLE>
1997 versus 1996
- ----------------
The 1997 results compared to 1996 include the following significant pretax
components:
- Net interest income rose $1.6 million or 4.1% due to a 4.7% increase in
average earning assets. The net interest margin remained constant at 4.7%
- The provisions for loan losses increased $265 thousand or 25.4% due to
higher net charge-offs during 1997. - Other income increased by $1.0
million or 47.6% due to earnings from the purchase of Bank-Owned Life
Insurance, increased fee income, and a gain on the sale of a closed
branch office building.
- Salaries and benefits increased $1.0 million or 6.9% due to staff
additions directly tied to the opening of 4 new branch locations, and
normal salary increases.
- Net occupancy expense increased $105 thousand or 5.1% due to the addition
of several branch locations in 1997 and 1996. - Other expenses decreased
$270 thousand or 3.3% mainly due to a one-time special assessment of $800
thousand paid by Pennview Savings Bank in 1996 to recapitalize the
Savings Association Insurance Fund, and offset by increases in marketing
consulting, and ATM expenses during 1997.
1996 versus 1995
- ----------------
The 1996 results compared to 1995 include the following significant pretax
components:
- Net interest income rose $1.4 million or 3.8% due to a 4.8% increase in
average earning assets offset by a 2.1% decrease in the net interest
margin.
- The provision for loan losses decreased $850 thousand or 44.9% due to an
improvement in asset quality. - Salaries and benefits increased $1.1
million or 9.0% due to staff additions directly tied to the opening of
new branch locations, and normal salary increases.
- Net occupancy expense increased $217 thousand or 11.7% due to the
addition of several branch locations in 1995 and 1996.
- Equipment expense rose $530 thousand or 27.9% also due to new branch
locations and installation of a new computer system.
- Other expenses decreased $327 thousand or 3.9% mainly due to decrease
in costs associated with the disposition of real estate owned offset by
an $800 thousand one-time special assessment paid by Pennview Savings
Bank to recapitalize the Savings Association Insurance Fund (SAIF).
Net Interest Income
Net interest income is the difference between interest earned on loans,
investments and other earning assets and interest paid on deposits and other
interest-bearing liabilities. Net interest income is the principal source of the
Corporation's revenues. The following table demonstrates a trend of increasing
amounts for 1995 through 1997. Sensitivities associated with the mix of assets
and liabilities are numerous and very complex, thus the Corporation commits
significant time to maximizing the net interest margin. The Asset/Liability
Management and Investment Committees, along with the Funds Management
Department, work to implement strategies with the intent and effort to at least
maintain or improve the net interest margin.
The investment portfolio is and has been primarily short-term in nature,
resulting in frequent repricing opportunities for Univest over the three (3)
year period analyzed in this report. It is important to again underscore the
complexities associated with asset/liability pricing noting the competition
within the marketplace that can dramatically impact the margin results. For this
reason, as we look to the future, it must be understood that an improving or
increasing net interest income is not certain. As discussed later in this
section, Univest maintains a short-term positive gap resulting from a large
floating-rate loan portfolio.
23
<PAGE>
The following table presents a summary of Univest's average balances, the
yields earned on average assets, the cost of average liabilities, and
shareholders' equity for the years ended December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------- --------------------------------- ---------------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investments $ 247,495 $ 15,217 6.1% $ 239,649 $ 14,698 6.1% $ 203,266 $ 12,223 6.0%
Loans 625,849 54,323 8.7% 594,832 51,984 8.7% 583,820 51,322 8.8%
-------------------------------------------------------------------------------------------------------
Total interest-earning 873,344 69,540 8.0% 834,481 66,682 8.0% 787,086 63,545 8.1%
assets
Noninterest-earning assets 55,893 55,376 56,946
=========== =========== ============
Total assets $ 929,237 $ 889,857 $ 844,032
=========== =========== ============
Interest-bearing
liabilities:
Deposits $ 636,044 26,616 4.2% $ 617,383 25,574 4.1% $ 596,237 24,049 4.0%
Borrowings 61,266 2,296 3.7% 56,046 2,107 3.8% 47,177 1,914 4.1%
-------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 697,310 28,912 4.1% 673,429 27,681 4.1% 643,414 25,963 4.0%
Noninterest-bearing 130,747 122,932 115,526
liabilities
----------- ----------- ------------
Total liabilities 828,057 796,361 758,940
Shareholders' equity 101,180 93,496 85,092
----------- ----------- ------------
Total liabilities and
shareholders' equity $ 929,237 $ 889,857 $ 844,032
==========------------ =========== ============
============ ===========
Net interest income $ 40,628 $ 39,001 $ 37,582
============ ============ ===========
Interest-rate spread 3.9% 3.9% 4.1%
=========== ============ ============
Net interest margin on
weighted average 4.7% 4.7% 4.8%
interest-earning assets
=========== ============ ============
Ratio of average
interest-earning assets
to average 125.2% 123.9% 122.3%
interest-bearing
liabilities
=========== ============ ============
</TABLE>
Interest Income
Interest and fees on loans increased 4.4% or $2.3 million from the $52.0
million recorded for the year ended December 31, 1996 as compared to the $54.3
million for the year ended December 31, 1997. The increase was due to increased
volume. Although the prime rate increased from the 8.25% at January 1, 1997 to
8.50% in March 1997, the average interest yield on the portfolio remained
constant at 8.7% for the year ended December 31, 1997. Interest and fees on
loans increased $700 thousand or 1.4% when comparing the $52.0 million for 1996
to the $51.3 million for 1995. This increase was due to increased volume offset
by a prime rate decrease. The prime rate decreased from 8.5% at January 1, 1996
to 8.25% in February 1996, reducing the average portfolio yield from 8.8% in
1995 to 8.7% in 1996.
Tax-free interest remained fairly constant when comparing the $2.0 million
for December 31, 1997 with the $1.9 million recorded for December 31, 1996 and
1995.
Interest on U.S. Government obligations decreased from $13.2 million for the
year ended December 31, 1996 to $12.3 million at December 31, 1997. The decrease
was due to decreases in both volume and rate. Interest on government obligations
increased from $10.4 million for the year ended December 31, 1995 to $13.2
million at December 31, 1996. The increase was due mostly to volume.
Interest and dividends on state and political subdivisions shows an
increasing trend from $118 thousand in 1995 to $172 thousand in 1996 and $219
thousand in 1997. Volumes grew in each of the periods.
The other securities category consists mainly of U.S. Government Agency
obligations. Income on other securities has grown from $1.0 million in 1995 to
$1.1 million in 1996 and $2.4 million in 1997. The increases were all due to
increased volume, especially in 1997 when average balances increased from $16.3
million for 1996 to $36.5 million for 1997.
Interest on federal funds sold is the resulting daily investment activity
that can be volatile in both rate and volume. Interest on federal funds sold
increased from $220 thousand in 1996 to $223 thousand in 1997 due to increased
volume offset by decreased yield. Income decreased from $616 thousand in 1995 to
$220 thousand in 1996 due to decreased volume and decreased yield.
24
<PAGE>
Interest Expense
Interest expense on demand deposits increased 28.6% or $800 thousand from
$2.8 million in 1996 to $3.6 million in 1997. The increase was due to volume and
rate. Interest on demand deposits decreased 12.5% or $400 thousand from $3.2
million in 1995 to $2.8 million in 1996. The decrease was due to lower volume.
Interest expense in savings deposits remained stable at $3.1 million when
comparing years ended December 31, 1995, 1996, and 1997.
Interest expense on time deposits for the year ended December 31, 1997 was
$19.8 million or $200 thousand more than the $19.6 million paid in 1996. The
increase was due to slightly higher average balances. Interest expense on time
deposits increased from $17.8 million in 1995 to $19.6 million in 1996, an
increase of $1.8 million or 10.1%. The increase was due to more volume and
higher rates.
Interest expense - all other consists of interest paid on short-term
borrowings such as federal funds purchased, the corporate line of credit,
repurchase agreements and treasury tax and loan deposit. In addition, Union
National Bank offers an automated cash management checking account that sweeps
funds daily into a repurchase agreement account. Interest expense increased to
$1.9 million in 1997 from $1.7 million in 1996 and $1.6 million in 1995.
Increases were due to higher volumes and yields on short-term
purchased funds.
Long-Term Debt
Interest on long-term debt increased from $358 thousand at December 31, 1996
to $425 thousand at December 31, 1997. This increase was due to an increase of
$2.0 million in borrowings from the Federal Home Loan Bank of Pittsburgh by
Pennview Savings Bank during 1997. Interest on long-term debt increased from
$314 thousand in 1995 to $358 thousand in 1996 due to an increase of $3.0
million in borrowings from the Federal Home Loan Bank of Pittsburgh by Union
National during 1996.
Allowance For Loan Losses
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 periodic evaluation
which takes into consideration the growth of the loan portfolio, the status of
past-due loans, current economic conditions, various types of lending activity,
policies, real estate and other loan commitments, and significant changes in the
charge-off activity. Loans are also reviewed for impairment based on discounted
cash flows using the loans' initial effective interest rate or the fair value of
the collateral for certain collateral-dependent loans as provided for under SFAS
114. Any of the above criteria may cause the provision to fluctuate. The
provision for loan losses for the year ended December 31, 1997 was $1.3 million
as compared to $1.0 million for 1996 and $1.9 million for 1995. The increase for
1997 was due primarily to loan growth and higher net charge-offs.
At December 31, 1997, the recorded investment in loans that are considered
to be impaired under Statement 114 was $1.2 million (all of which were on a
nonaccrual basis); the related allowance for credit losses for those loans was
$204 thousand. At December 31, 1996, the recorded investment in loans considered
to be impaired was $2.6 million and the related allowance for credit losses for
those loans was $495 thousand.
Generally, a loan (including a loan impaired under SFAS114) 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 past 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 period of time, and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. Total cash basis,
restructured and nonaccrual loans at December 31, 1997 total $3.3 million
(versus $5.0 million at December 31, 1996 and $6.3 million at December 1995) and
consist mainly of real estate-related commercial loans. For the year ended
December 31, 1997, nonaccrual loans resulted in lost interest income of $187
thousand as compared to $275 thousand in 1996 and $530 thousand in 1995. 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 ratio of the allowance for loan
losses to total loans at December 31, 1997 and 1996 was 1.6%. The Corporation's
ratio of nonperforming assets to total loans was .57% as of December 31, 1997
and .91% as of December 31, 1996.
During the first quarter of 1997, the Office of the Comptroller of the
Currency completed a safety and soundness examination at Union National Bank,
the Corporation's subsidiary commercial bank and during the second quarter of
1997, a similar examination was completed by the Commonwealth of Pennsylvania
Department of Banking at Pennview Savings Bank. The dollar value of identified
25
<PAGE>
potential problem loans was not revised significantly as a result of either
examination. Examination procedures require individual judgments about the
borrower's ability to repay loans, sufficiency of collateral values, and the
effects of changing economic circumstances. The procedures are similar to those
employed by the Corporation in determining the adequacy of the allowance for
loan losses and in classifying loans. Judgments made by regulatory examiners may
differ from those made by management.
At December 31, 1997, the Corporation has $250 thousand of Other Real Estate
Owned ("OREO") consisting of one commercial property ($184 thousand) and one
single-family residence ($66 thousand). This amount is recorded in "Other
Assets" at the lower of cost or fair market value in the accompanying
consolidated balance sheets. At December 31, 1996, the Corporation had $553
thousand in OREO, and included in other operating expense in the consolidated
statements of income for the years ended December 31, 1995 and 1996 were
adjustments of $1.1 million and $225 thousand, respectively, to the carrying
value of OREO, to approximate net realizable value. There were no such
adjustments during 1997.
Noninterest Income
Trust income continues to be a major source of noninterest income,
generating income for the year ended December 31, 1997 of $2.7 million which was
$400 thousand or 17.4% more than the $2.3 million reported for year ended
December 31, 1996 versus an increase of 15.0% or $300 thousand from 1995 to
1996. The increases are attributed to higher market values of assets under
management and growth in the number of trust accounts.
Service charges on demand deposits increased $100 thousand from $1.8 million
at December 31, 1996 to $1.9 million at December 31, 1997. The increase was due
mainly to increased fees per transaction. Service charges for the year ended
December 31, 1996 increased $200 thousand from $1.6 million for the year ended
December 31, 1995 to $1.8 million for the year ended December 31, 1996.
Other income which is noninterest related consists mainly of general fee
income and other miscellaneous nonrecurring types of income. It also includes
various types of service charges, such as ATM fees and, for 1997, increases in
the cash surrender value of Bank-Owned Life Insurance (BOLI). Other noninterest
income of $3.1 million for 1997 is $1.0 million or 47.6% greater than the $2.1
million earned in 1996. The increase is attributed to a $300 thousand increase
in the net cash surrender value of a $15.0 million Bank-Owned Life Insurance
Policy, a nonrecurring gain on the sale of a closed branch office building, and
a nonrecurring gain on the sale of a piece of commercial real estate which was
being held in OREO. These gains, which totaled $230 thousand, along with
approximately $500 thousand of increased fee income, mainly from various other
transaction fees. The 1996 income of $2.1 million is 12.5% or $300 thousand less
than the $2.4 million shown for 1995. The decrease in 1996 was the result of a
nonrecurring interest recovery on a previously charged-off loan.
Asset Sales
Sales of mortgage loans during the year ended December 31, 1997 resulted in
a pretax gain of $95 thousand as compared to a gain of $43 thousand for the year
ended December 31, 1996. The increase results from decreasing long-term interest
rates during 1997. The Corporation currently sells all long-term fixed-rate
conforming residential mortgage loans with terms in excess of fifteen (15)
years. For the year ended December 31, 1996, sales of mortgage loans provided a
pretax gain of $43 thousand as compared to a gain of $101 thousand for the year
ended December 31, 1995. The decrease was due to increased long-term interest
rates during 1996.
During 1997, securities totaling approximately $39.0 million were sold from
the available-for-sale portfolio or matured, resulting in a net gain of $95
thousand. Some of the proceeds were used to fund the purchase of $15.0 million
of Bank-Owned Life Insurance. In 1996, securities totaling approximately $11.0
million were sold from the available-for-sale portfolio at a net loss of $9
thousand. In 1995, securities totaling approximately $15 million were sold from
the available-for-sale portfolio at a net loss of $66 thousand. Except for the
securities sold to fund the purchase of Bank-Owned Life Insurance, all other
sales and maturities proceeds provided yield enhancement or extended maturities.
The total of debt and equity securities held in the available-for-sale portfolio
as of December 31, 1997 is $116.2 million versus $69.4 million at December 31,
1996. The cumulative unrealized gain of $350 thousand, net of taxes, has been
credited to shareholders' equity as of December 31, 1997.
Noninterest Expense
The operating costs of the Corporation are known as other expenses, and
include, but are not limited to, salaries and benefits, equipment expense, and
occupancy costs. Expense control is very important to the management of the
Corporation, and every effort is made to contain and minimize the growth of
operating expenses, attempting to provide technological innovation whenever
practical, as operations change or expand. Salaries and benefits increased $1.0
million or 6.9% from $14.5 million in 1996 to $15.5 million in 1997. Salaries
and benefits also increased 9.0% or $1.2 million from $13.3 million in 1995 to
$14.5 million in 1996. The increases were due to normal salary and staff
increases and the opening of three additional offices during 1996 and four in
1997.
Net occupancy expense increased by $100 thousand or 4.7% from $2.1 million
for the year ended December 31, 1996 to $2.2 million for the year ended December
31, 1997. Net occupancy also increased 10.5% or $200 thousand from $1.9 million
for the year ended December 31, 1995 to $2.1 million for the year ended December
31, 1996. The increases were due to the opening of four additional offices in
1997 and three in 1996. Equipment expense also increased $100 thousand or 4.2%
from $2.4 million in 1996 to $2.5 million in 1997. Equipment expense increased
26.3% from $1.9 million in 1995 to $2.4 million in 1996, an increase of $500
thousand. The increase in 1997 was due to the four additional offices, while the
1996 increase was due to the new branches plus new hardware and software for the
conversion to a new computer system.
26
<PAGE>
Other expenses of $7.9 million decreased $300 thousand or 3.7% for the year
ended December 31, 1997 as compared to $8.2 million expense for 1996. This
decrease was mainly due to the decrease of $800 thousand representing the
one-time SAIF special assessment paid by Pennview Savings Bank in 1996. This
decrease was offset by increases in other expenses such as marketing,
consulting, and ATM fees. Other expenses of $8.2 million decreased $300 thousand
or 3.5% for the year ended December 31, 1996 as compared to $8.5 million expense
for 1995. The decrease was due mainly to a reduction in the write-down of other
real estate owned from $1.1 million in 1995 to $225 thousand for 1996. This
decrease was also offset by the $800 thousand paid by Pennview Savings Bank in
1996, representing the one-time SAIF special assessment.
Year 2000
The year 2000 date change issue that impacts almost every area of the
Corporation is recognized as to scope and potential liability; and as a result,
a Year 2000 Committee was established. This group of people representing most
areaes of the Corporation has developed a plan, inventoried software, identified
hardware, contracts and insurance issues, all of which are under review.
Testing for Year 2000 compliance has already begun on all core applications,
personal computers, and ancillary systems and is expected to be completed in
1998. Also, full integration testing is scheduled for the fall of 1998.
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 $400 thousand in
1998. 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
The provision for income taxes was $6.0 million for the year ended December
31, 1997 and $5.0 million for the years ended December 31, 1996 and 1995. The
provision for income taxes for 1997, 1996, and 1995 was at effective rates of
31.2%, 29.4%, and 30.8%, respectively. The effective tax rate for the year ended
December 31, 1996 reflects the recognition of $200 thousand of tax benefits for
a tax refund received by Pennview Savings Bank. In addition, the effective tax
rate reflects the benefits of tax credits generated from investments in
low-income housing tax projects and tax-free income from investment of
securities, loans, and bank-owned life insurance.
Financial Condition
During 1997, total assets increased to $973.2 million, an increase of $60.7
million or 6.7% over the $912.5 million in 1996. Investment securities increased
$16.0 million to $258.2 million as compared to the $242.2 million at December
31, 1996. Total loans increased by $28.5 million from $607.1 million at December
31, 1996 to $635.6 million at December 31, 1997.
Accrued interest and other assets increased $15.9 million from $16.8 million
at December 31, 1996 to $32.7 million at December 31, 1997. The main reason for
the increase was due to the purchase of bank-owned life insurance which had a
cash surrender value of $15.3 million at December 31, 1997.
Total deposits grew from $733.8 million at December 31, 1996 to $792.9
million at December 31, 1997, an increase of $59.1 million. Deposit growth was
aided by the purchase of approximately $14.0 million of deposit liabilities
during the fourth quarter of 1997.
Short-term borrowings (Federal Funds Purchased) decreased by $10.9 million
while long-term borrowings increased by $2.0 million resulting in a net decrease
of $8.9 million in borrowing when comparing 1996 to 1997.
Shareholders' equity increased $7.3 million or 7.5% to $104.6 million at
December 31, 1997 compared to $97.3 million at December 31, 1996.
Asset/Liability Management, Liquidity
The primary functions of Asset/Liability Management are to assure adequate
liquidity while maintaining an appropriate balance between interest-earning
assets and interest-bearing liabilities. Liquidity management involves the
ability to meet cash flow requirements of customers. Interest-rate sensitivity
management seeks to avoid fluctuating net interest margins and to enhance
consistent growth of net interest income through periods of changing rates.
Univest analyzes its position by the use of Gap analysis, flow of funds reports,
and a simulation model. More emphasis continues to be placed on the simulations
which show the impact of different rate environments and their respective
projected results relative to the current and projected balance sheet makeup.
Univest focuses on the management of the one-year interest-rate sensitivity
gap. The one-year cumulative gap, which reflects the Corporation's interest
sensitivity over that period of time was positive at December 31, 1997. This
positive or asset-sensitive gap will generally benefit the Corporation's net
interest-rate margin in a rising interest-rate environment while falling
interest rates will negatively impact the Corporation. The Corporation remains
asset sensitive mainly as a result of a large floating-rate portfolio held by
the commercial bank subsidiary. The floating loans mentioned here are tied to
prime, and fall into the one-month gap category causing the asset-sensitive
position.
27
<PAGE>
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.
At December 31, 1997, $50.0 million in notional interest-rate swaps were
outstanding as compared to $30.0 million outstanding at December 31, 1996. The
contracts entered into by the Corporation expire as follows: $20.0 million in
notional principal amount in March 1998, $20.0 million in notional principal
amount in first quarter 1999, and $10.0 million in third quarter 1999. The
impact of the interest-rate swaps on net interest income for the year ended
December 31, 1997 was a positive $74 thousand and for the year ended December
31, 1996 a positive $69 thousand.
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
December 31, 1997, the market value of interest-rate swaps in a favorable value
position was $119 thousand, while the market value of interest-rate swaps in an
unfavorable position totaled $4 thousand. At December 31, 1996, the market value
of interest-rate swaps in a favorable position was $38 thousand, while the
market value of interest-rate swaps in an unfavorable position totaled $6
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.
Capital Adequacy
Shareholders' equity at December 31, 1997 was $104.6 million or 10.8% of
total assets compared to shareholders' equity of $97.3 million or 10.7% as of
December 31, 1996. December 31, 1997 shareholders' equity includes a positive
adjustment of $350 thousand related to the unrealized security gains, net of
taxes on investment securities available for sale, while shareholders' equity at
December 31, 1996 includes net unrealized securities gains of $18 thousand.
Capital guidelines which banking regulators have adopted assign minimum
capital requirements for categories of assets depending on their assigned risks.
The components of risk-based capital are Tier I, which is composed of total
shareholders' equity, excluding the adjustment for the unrealized securities
gains and losses, and also excluding any goodwill, Tier II, also includes the
applicable portion of the allowance for possible loan losses and applicable
adjustment for subordinated debt. Minimum acquired Tier II total risk-based
capital is 8.0%. Under the requirements, Univest has Tier I capital ratios of
14.1% and 14.3%, and total risk-based capital ratios of 15.2% and 15.5% at
December 31, 1997 and 1996, respectively. These ratios place Univest in the
"well-capitalized" category under regulatory standards.
In November 1995, the Corporation's Board of Directors approved the
repurchase of up to 5% (approximately 400,000 shares) of its outstanding common
stock in open market or negotiated transactions. At December 31, 1997, a total
of 240,146 shares have been repurchased at an aggregate cost of $4.8 million.
Recent Accounting Pronouncements
Effective January 1, 1997, the Corporation adopted Statement of Financial
Accounting Standard No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS No. 125). Statement
125 provides new accounting and reporting standards for sales, securitizations,
and servicing of receivables and other financial assets, for certain secured
borrowings, and collateral transactions, and for extinguishments of liabilities.
The adoption of Statement 125 did not have a material impact on the
Corporation's financial condition or results of operations.
In 1997, the Financial Standards Board 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 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 Company does not believe the adoption of this standard will have any
impact on the Company's financial statements.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Both Statements become effective for fiscal periods
beginning after December 15, 1997, with early adoption permitted. The Company is
evaluating the additional disclosure requirements these Statements are expected
to have on the Company's financial statements.
28
<PAGE>
Supplementary Information
- --------------------------------------------------------------------------------
Range of Market Prices
The following table shows the range of market values of the Corporation's
stock. The Trust Department, Union National Bank and Trust Company, serves as
the Corporation's Stock Transfer Agent and Registrar and Dividend Disbursement
Agent pursuant to the trust powers of national banks. The prices shown on this
page represent transactions between dealers and do not include retail markups,
markdowns, or commissions.
High Low
----------------- ----------------
1997
January - March 20-1/8 17
April - June 21-1/2 19-1/2
July - September 24-3/4 20-3/4
October - December 30-3/4 24-1/4
High Low
----------------- ----------------
1996
January - March 16 15
April - June 15-3/4 15
July - September 16-1/8 15-1/4
October - December 18 15-1/2
Cash Dividends Paid Per Share
1997
January 2 $ 0.115
April 1 0.115
July 1 0.115
October 1 0.125
=================
$ 0.47 for the year 1997
=================
1996
January 2 $ 0.076 regular
0.076 extra
-----------------
0.152
April 1 0.08
July 1 0.08
October 1 0.08
=================
$ 0.392 for the year 1996
=================
29
<PAGE>
Supplementary Information
- --------------------------------------------------------------------------------
Description of Business
Univest Corporation of Pennsylvania is a multibank holding company with
banking and financial subsidiaries operating in eastern Pennsylvania.
Union National Bank and Trust Company of Souderton, Pennsylvania has 19
traditional offices and 7 supermarket branches offering all normal commercial
bank and trust services. Union National also provides banking and trust services
for the residents and employees of 10 retirement home communities.
Pennview Savings Bank has 5 offices and emphasizes deposits from the general
public and residential mortgage loans. Pennview also provides banking services
at 2 retirement home communities.
Univest Leasing Corporation offers services of leasing commercial,
industrial, and institutional equipment to firms and individuals in the same
geographical area.
Univest Realty Corporation owns and manages real estate for all subsidiaries
of the holding company.
Univest Mortgage Company provides real estate financing for individuals,
with funding through the secondary mortgage market.
Univest Financial Planning Corporation provides various financial management
services to individuals and businesses within the holding company's market area.
Univest Insurance Company, as a reinsurer, offers life and disability
insurance to individuals in connection with credit extended to them by the bank.
Univest Electronic Services Corporation provides the data processing
operation and electronic development for all subsidiaries of the holding
company.
Securities Market
Univest Corporation of Pennsylvania stock is traded over the counter and is
generally held by individuals residing within the market area of the Corporation
as stated under Description of Business. The number of shareholders as of
December 31, 1997 was 1,916.
Securities and Exchange Commission Reports
The Corporation will provide at no charge a copy of the SEC Form 10-K annual
report for the year 1997 to each shareholder who requests one in writing after
March 31, 1998. Requests should be directed to: Robert H. Schong, Secretary,
Univest Corporation of Pennsylvania, Broad and Main Streets, Souderton, PA
18964.
30
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 33,352
<INT-BEARING-DEPOSITS> 5,001
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,193
<INVESTMENTS-CARRYING> 141,972
<INVESTMENTS-MARKET> 142,205
<LOANS> 635,563
<ALLOWANCE> 10,270
<TOTAL-ASSETS> 973,157
<DEPOSITS> 792,868
<SHORT-TERM> 49,546
<LIABILITIES-OTHER> 17,064
<LONG-TERM> 9,075
0
0
<COMMON> 39,272
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<INTEREST-OTHER> 306
<INTEREST-TOTAL> 69,540
<INTEREST-DEPOSIT> 26,616
<INTEREST-EXPENSE> 28,912
<INTEREST-INCOME-NET> 40,628
<LOAN-LOSSES> 1,310
<SECURITIES-GAINS> 95
<EXPENSE-OTHER> 28,041
<INCOME-PRETAX> 19,164
<INCOME-PRE-EXTRAORDINARY> 19,164
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,177
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 4.7
<LOANS-NON> 3,137
<LOANS-PAST> 524
<LOANS-TROUBLED> 206
<LOANS-PROBLEM> 566
<ALLOWANCE-OPEN> 9,801
<CHARGE-OFFS> 1,157
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<ALLOWANCE-DOMESTIC> 10,270
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<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 38,934 30,901
<INT-BEARING-DEPOSITS> 360 456
<FED-FUNDS-SOLD> 69 16,527
<TRADING-ASSETS> 0 0
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0 0
0 0
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<TOTAL-LIABILITIES-AND-EQUITY> 912,459 881,888
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<INTEREST-INVEST> 14,448 11,584
<INTEREST-OTHER> 250 639
<INTEREST-TOTAL> 66,682 63,545
<INTEREST-DEPOSIT> 25,574 24,049
<INTEREST-EXPENSE> 27,681 25,963
<INTEREST-INCOME-NET> 39,001 37,582
<LOAN-LOSSES> 1,045 1,895
<SECURITIES-GAINS> (9) (66)
<EXPENSE-OTHER> 27,119 25,558
<INCOME-PRETAX> 17,066 16,224
<INCOME-PRE-EXTRAORDINARY> 17,066 16,224
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<CHANGES> 0 0
<NET-INCOME> 12,038 11,227
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