United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For The Period Ended September 30, 1999.
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From _______ to _______.
UNIVEST CORPORATION OF PENNSYLVANIA
-----------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1886144
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
10 West Broad Street, Souderton, Pennsylvania 18964
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (215) 721-2400
--------------------
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5 par value 7,139,580
- -------------------------- ---------
(Title of Class) (Number of shares outstanding
at 9/30/99)
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX
Page Number
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Part I. Financial Information:
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 1999 and 1998 2
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information: 16
Other Information
Part III. Financial Data Schedule 18
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE)
September 30, 1999 December 31, 1998
------------------ -----------------
(In thousands)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 33,898 $ 26,011
INTEREST BEARING DEPOSITS WITH OTHER BANKS 2,209 3,940
INVESTMENT SECURITIES HELD-TO-MATURITY 146,503 216,404
(MARKET VALUE $144,820 AT 9/30/99
AND $217,515 AT 12/31/98)
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 172,476 111,261
FEDERAL FUNDS SOLD AND OTHER
SHORT TERM INVESTMENTS -- 12,700
LOANS 698,035 660,449
LESS: RESERVE FOR POSSIBLE LOAN LOSSES (11,221) (10,538)
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NET LOANS 686,814 649,911
OTHER ASSETS 56,767 50,243
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TOTAL ASSETS $ 1,098,667 $ 1,070,470
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LIABILITIES
DEMAND DEPOSITS, NON INTEREST BEARING $ 149,413 $ 152,094
DEMAND DEPOSITS, INTEREST BEARING 246,259 238,622
SAVINGS DEPOSITS 137,947 138,936
TIME DEPOSITS 343,516 344,852
----------- -----------
TOTAL DEPOSITS 877,135 874,504
SHORT-TERM BORROWINGS 91,972 64,045
OTHER LIABILITIES 14,762 19,669
LONG-TERM DEBT 13,075 9,075
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TOTAL LIABILITIES 996,944 967,293
SHAREHOLDERS' EQUITY
COMMON STOCK 39,272 39,272
ADDITIONAL PAID-IN CAPITAL 14,908 14,908
RETAINED EARNINGS 70,649 62,992
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (2,119) 582
TREASURY STOCK (20,987) (14,577)
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TOTAL SHAREHOLDERS' EQUITY 101,723 103,177
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,098,667 $ 1,070,470
----------- -----------
</TABLE>
NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31,1998 HAS BEEN
DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE
ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS.
1
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
1999 1998 1999 1998
(in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS
TAXABLE INTEREST AND FEES ON LOANS $13,159 $13,096 $38,943 $39,350
EXEMPT FROM FEDERAL INCOME TAXES 686 607 1,906 1,794
------- ------- ------- -------
TOTAL INTEREST AND FEES ON LOANS 13,845 13,703 40,849 41,144
INTEREST AND DIVIDENDS ON
INVESTMENT SECURITIES 4,691 4,058 13,508 11,936
OTHER INTEREST INCOME 128 699 653 1,167
------- ------- ------- -------
TOTAL INTEREST INCOME 18,664 18,460 55,010 54,247
------- ------- ------- -------
INTEREST EXPENSE
INTEREST ON DEPOSITS 7,134 7,642 21,142 22,108
OTHER INTEREST EXPENSE 788 618 2,180 1,728
------- ------- ------- -------
TOTAL INTEREST EXPENSE 7,922 8,260 23,322 23,836
------- ------- ------- -------
NET INTEREST INCOME 10,742 10,200 31,688 30,411
PROVISION FOR LOAN LOSSES 251 275 801 883
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,491 9,925 30,887 29,528
OTHER INCOME 3,837 2,745 10,975 7,926
------- ------- ------- -------
TOTAL OTHER INCOME 3,837 2,745 10,975 7,926
OTHER EXPENSES
SALARIES AND BENEFITS 4,686 3,851 13,810 11,579
OTHER EXPENSES 3,846 3,373 11,364 10,176
------- ------- ------- -------
TOTAL OTHER EXPENSES 8,532 7,224 25,174 21,755
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 5,796 5,446 16,688 15,699
APPLICABLE INCOME TAXES 1,681 1,623 4,895 4,665
------- ------- ------- -------
NET INCOME $ 4,115 $ 3,823 $11,793 $11,034
======= ======= ======= =======
PER COMMON SHARE DATA:
NET INCOME PER SHARE:
BASIC $ 0.57 $ 0.51 $ 1.62 $ 1.45
DILUTED $ 0.57 $ 0.50 $ 1.61 $ 1.44
CASH DIVIDENDS DECLARED PER SHARE $ 0.17 $ 0.15 $ 0.49 $ 0.425
</TABLE>
2
<PAGE>
Univest Corporation of Pennsylvania and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the nine months ended,
(in thousands)
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,793 $ 11,034
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses in excess of (less than) net charge-offs 683 (2)
Depreciation of premises and equipment 1,737 1,887
Premium amortization (discount accretion) on investment securities 14 (174)
Deferred tax benefit (212) (242)
Realized gains on investment securities (52) (97)
Realized gains on sales of mortgages (42) (201)
Decrease in net deferred loan fees (39) (24)
Increase in interest receivable and other assets (2,725) (1,327)
(Decrease) increase in accrued expenses and other liabilities (3,360) 5,492
--------- ---------
Net cash provided by operating activities 7,797 16,346
Cash flows from investing activities:
Proceeds from sales of securities available for sale 17,919 25,079
Proceeds from maturing securities held to maturity 81,022 52,690
Proceeds from maturing securities available for sale 25,372 20,167
Decrease (increase) in interest-bearing deposits 1,731 (5,306)
Purchases of time deposits -- (1,599)
Purchases of investment securities held to maturity (11,165) (88,953)
Purchases of investment securities available for sale (108,581) (30,642)
Net decrease (increase) in federal funds sold and
other short-term investments 12,700 (16,900)
Net increase in long term federal funds sold -- (20,000)
Proceeds from sales of mortgages 9,933 18,268
Net increase in loans (47,438) (24,169)
Capital expenditures (1,536) (1,362)
Other investing activities (4,000) --
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Net cash used in investing activities (24,043) (72,727)
Cash flows from financing activities:
Net increase in deposits 2,631 56,223
Net increase in short-term borrowings 27,927 12,557
Proceeds from long-term debt 4,000 --
Purchases of treasury stock (8,561) (9,712)
Stock issued under dividend reinvestment and
employee stock purchase plans 936 878
Proceeds from exercise of stock options 633 311
Cash dividends (3,433) (3,053)
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Net cash provided by financing activities 24,133 57,204
Net increase in cash and due from banks 7,887 823
Cash and due from banks at beginning of period 26,011 33,352
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Cash and due from banks at end of period $ 33,898 $ 34,175
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 24,591 $ 23,881
</TABLE>
3
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Financial Information
The accompanying condensed consolidated financial statements include the
accounts of Univest Corporation of Pennsylvania (Univest) and its wholly owned
subsidiaries, including Union National Bank and Trust Company (Union) and
Pennview Savings Bank (Pennview), collectively referred to herein as the
"Banks". The condensed consolidated financial statements included herein have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The accompanying condensed consolidated financial
statements reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results and condition for the
interim periods presented. Operating results for the nine-month period ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the registrant's Annual Report on
Form 10-K for the year ended December 31, 1998, which has been filed with the
Securities and Exchange Commission.
Note 2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 4,115 $ 3,823 $11,793 $11,034
Numerator for basic and diluted earnings per
share - income available to common
shareholders 4,115 3,823 11,793 11,034
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic earnings per share-
weighted-average shares outstanding 7,220 7,533 7,273 7,593
Effect of dilutive securities:
Employee stock options 30 68 32 67
------------------- -------------------
Denominator for diluted earnings per share
adjusted weighted-average shares
outstanding 7,250 7,601 7,305 7,660
Basic earnings per share $ .57 $ .51 $ 1.62 $ 1.45
Diluted earnings per share .57 .50 1.61 1.44
</TABLE>
Note 3. Comprehensive Income
As of January 1, 1998, the Corporation adopted Statement No. 130, "Reporting
Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Corporation's net income or
shareholders' equity. SFAS No. 130 requires unrealized gains or losses on the
Corporation's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity, to be included in accumulated other
comprehensive income. The following shows the comprehensive income for the
periods presented:
<TABLE>
<CAPTION>
Three months Nine months
ended Sept. 30 ended Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 4,115 $ 3,823 $ 11,793 $ 11,034
Change in unrealized (loss) gain on available
for sale investment securities (504) 704 (2,701) 767
-------- -------- -------- --------
Total comprehensive income $ 3,611 $ 4,527 $ 9,092 $ 11,801
======== ======== ======== ========
</TABLE>
Note 4. Recent Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), as amended, which is
required to be adopted in years beginning after June 15, 2000. The Statement
will require the Corporation to recognize all derivatives on the balance sheet
at fair value. Derivatives
5
<PAGE>
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. Because of the Corporation's minimal use of
derivatives, management does not anticipate that the adoption of the new
standard will have a significant effect on earnings or the financial position of
the Corporation.
6
<PAGE>
Item 2.
Management's Discussion and Analysis
of Financial Condition and
Results of Operations
Net Income
Net income for the three months ended September 30, 1999 increased 7.9% or
$0.3 million from $3.8 million for the three months ended September 30, 1998 to
$4.1 million for the three months ended September 30, 1999. Net income also
increased $0.8 million or 7.3% to $11.8 million for the nine months ended
September 30, 1999 as compared to $11.0 million for the nine months ended
September 30, 1998. The net income growth for the three and nine months ended
September 30, 1999 was due mainly to increases in net interest income and other
income. The increases were offset by increases in other expenses.
Net Interest Income
Interest and fees on loans increased $0.1 million from $13.7 million for
the three months ended September 30, 1998 to $13.8 million for the three months
ended September 30, 1999. The increase was attributed to increased average
balance and an increase in prime rate from 7.75% to 8.00% in July and then to
8.25% in August. For the nine months ended September 30, 1999, interest and fees
on loans decreased $0.3 million from $41.1 million at September 30, 1998 to
$40.8 million at September 30,1999. This was due to a decrease in rate offset by
increased volume. While prime rate was raised in July and August, the majority
of the year was based on the lower rate set in November 1998.
Interest on investment securities increased $0.6 million from $4.1 million
for the three-month period ended September 30, 1998 to $4.7 million for the
three-month period ended September 30, 1999. The increase was due to higher
average volume offset by a lower average yield. For the nine months ended
September 30, 1999 interest on investments increased by $1.6 million from $11.9
million for the nine months ended September 30, 1998 to $13.5 million for the
same period in 1999. This increase is also attributed to higher average volume
for the period offset by a slight decrease in yield.
Other interest income decreased $0.6 million from $0.7 million for the
three months ended September 30, 1999 to $0.1 for the three months ended
September 30, 1998. Reduced federal funds sold volume is the reason for the
decrease for the three and nine months ended September 30, 1999.
Interest expense decreased from $8.3 million for the three months ended
September 30, 1998 to $7.9 million for the three months ended September 30,
1999, a decrease of $0.4 million. Interest expense also decreased $0.5 million
from $23.8 million
7
<PAGE>
for the nine months ended September 30, 1998 to $23.3 million for the nine
months ended September 30, 1999. This reduction for both periods is attributed
to a decrease in rate that was offset by an increase in the average volume of
deposits, particularly in the money market savings accounts.
The asset/liability management process continues with its goal of
providing stable reliable earnings through varying interest rate environments.
Net interest income is the amount by which interest income on earning assets
exceeds interest paid on interest bearing liabilities. Changes in interest
rates, account balances or volume, and the mix of earning assets and interest
bearing liabilities affect the amount of net interest income. The nine months
ended September 30, 1999 shows net interest income of $31.7 million, which is an
increase of $1.3 million over the $30.4 million recorded for the nine months,
ended September 30, 1998. Average interest earning assets increased by $70.7
million for the nine-month period ended September 30, 1999 as compared to the
nine months ended September 30, 1998. An increase in deposits and federal funds
purchased provided the funds for loan growth. Average interest bearing
liabilities increased by $60.3 million for the nine-month period ended September
30, 1999 as compared to the same period in 1998. Net interest earning assets
grew $10.4 million for the nine months ended September 30, 1999 as compared to
the nine months ended September 30, 1998. The increase in net interest income
resulting from the increase in net interest earning assets and the decrease of
40 basis points in rate paid on interest bearing liabilities was offset by a
decline in rate on interest bearing assets of 40 basis points. The net interest
spread remained the same at 3.5%.
The following demonstrates the aforementioned effects:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
9/30/99 9/30/98
AVG. BALANCE RATE AVG. BALANCE RATE
----------------- -----------------
<S> <C> <C> <C> <C>
Interest Earnings Assets $1,006,707 7.3% $ 935,988 7.7%
Interest Bearing Liabilities 816,676 3.8% 756,416 4.2%
Net Interest Income 31,688 30,411
Net Interest Spread 3.5% 3.5%
Net Interest Margin 4.2% 4.3%
</TABLE>
The Corporation uses interest-rate swap agreements which convert a portion
of its floating rate commercial loans to a fixed basis, thus reducing the impact
of interest changes on future income. In these swaps, the Corporation agrees to
exchange, at specified intervals, the difference between fixed and
floating-interest rates calculated on an agreed upon notional principal amount.
The Corporation's interest-earning assets tend
8
<PAGE>
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 September 30, 1999, $40.0 million in notional amount of "Pay Floating,
Receive Fixed" swaps were outstanding. At September 30, 1998 and December 31,
1998, $50.0 million in notional amount of "Pay Floating, Receive Fixed" swaps
were outstanding. The net payable or receivable from interest rate swap
agreements is accrued as an adjustment to interest income. The $40.0 million in
notional amount interest rate swaps outstanding at September 30, 1999 expire as
follows: $10.0 million in first quarter 2000, $10.0 million in second quarter
2000, and $20.0 million in second quarter 2001. The impact of interest rate
swaps on net interest income for the quarter ended September 30, 1999 was a
positive $48 thousand as compared to a positive $23 thousand for the quarter
ended September 30, 1998. For the nine months ended September 30, 1999 the
impact was a positive $208 thousand as compared to a positive $63 thousand for
the nine months ended September 30, 1998.
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
September 30, 1999 the market value of interest-rate swaps in a favorable
position was $5 thousand. The market value of interest-rate swaps in a negative
position was $207 thousand. As of September 30, 1998 the market value of
interest-rate swaps in a favorable position was $467 thousand. There were no
interest rate swaps with the market value in an unfavorable position.
Asset Quality
Management believes the reserve for possible loan losses is maintained at
a level that is adequate to absorb potential losses inherent in the loan
portfolio. Management's methodology to determine the adequacy of and the
provisions to the reserve considers specific credit reviews, past loan loss
experience, current economic conditions and trends, and the volume, growth and
composition of the loan portfolio.
The reserve for possible 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 No.114. Any of the above criteria may cause the provision to
fluctuate. For the three months ended September 30, 1999 and September 30, 1998,
the provisions for loan losses were $0.3 million. For the nine months ended
9
<PAGE>
September 30, 1999 the provisions for loan losses were $0.8 million and for
September 30, 1998, $0.9 million.
At September 30, 1999, and December 31, 1998, the reserve for possible
loan losses remained constant at 1.6% of total loans. For more information on
the reserve, please refer to the Corporation's 1998 Form 10-K.
At September 30, 1999, the recorded investment in loans that are
considered to be impaired under SFAS No. 114 was $2.2 million, all of which were
on a non-accrual basis. The related reserve for credit losses for those loans
was $1.2 million. At September 30, 1998, the recorded investment in loans
considered to be impaired was $2.8 million and the related reserve for credit
losses for these loans was $0.7 million.
Generally, when a loan (including a loan impaired under SFAS No. 114) is
classified as non-accrual, the accrual of interest on such loan is discontinued.
A loan is classified as nonaccrual 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 non-accrual status, unpaid interest credited to income in the current
year is reversed and unpaid interest accrued in prior years is charged against
"other expense." Interest received on nonaccrual loans 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,
non-accrual and restructured loans at September 30, 1999 was $2.6 million and at
September 30, 1998 was $3.7 million. They consist mainly of commercial loans and
real estate related commercial loans. For the quarter ended September 30, 1999,
non-accrual loans resulted in lost interest income of $66 thousand as compared
to $84 thousand for the quarter ended September 30, 1998. For the nine months
ended September 30, 1999 lost interest totaled $183 thousand as compared to $260
thousand for the same period in 1998. At September 30, 1999, the Corporation had
no commitments to lend additional funds with respect to nonperforming loans. In
management's evaluation of the loan portfolio risks, any significant future
increases in nonperforming loans are dependent to a large extent on the economic
environment, or specific industry problems.
At September 30, 1999, the Corporation has a total of $417 thousand of
Other Real Estate Owned ("OREO") consisting of one commercial property and 3
residential properties. This amount is carried in "Other Assets" at lower of
cost or fair market value in the accompanying consolidated balance sheets.
10
<PAGE>
Other Income
Other income which is non-interest related consists mainly of general fee
income, trust department fee income, and other miscellaneous non-recurring types
of income. It also includes various types of service charges, such as ATM fees,
and increases in the cash surrender value of Bank-Owned Life Insurance (BOLI).
Other income increased $1.1 million or 40.7% from $2.7 million for the three
months ended September 30, 1998 to $3.8 million for the three months ended
September 30, 1999. The increase is attributed to trust income and fee income.
Trust income for the three months ended September 30, 1999 of $0.9 million was
$0.1 million or 12.5% more than the $0.8 million reported for the three months
ended September 30, 1998. Fee income grew from $1.4 million for the three months
ended September 30, 1998 to $2.2 million for the three months ended September
30, 1999, an increase of $0.8 million or 57.1%. Included in fee income is an
increase in various transaction fees and deposit service fees of $0.3 million
from $1.1 million for the three months ended September 30, 1998 to $1.4 million
for the three months ended September 30, 1999. Also included in fee income is
commission income of $0.5 million for the three months ended September 30, 1999.
Commission income, which is offset by commission expense, is the primary source
of income for the newly acquired Fin-Plan Group. Refer to Other Expense. Other
income for the nine months ended September 30, 1999 increased $3.1 million or
39.2% from $7.9 million for the nine months ended September 30, 1998 to $11.0
million for the nine months ended September 30, 1999. This increase is
attributed to trust income and fee income. Trust income for the nine months
ended September 30, 1999 of $2.9 million was $0.5 million or 20.8% more than the
$2.4 million reported for the nine months ended September 30, 1998. Fee income
increased from $3.9 million for the nine months ended September 30, 1998 to $6.4
million for the nine months ended September 30, 1999, an increase of $2.5
million or 64.1%. Included in fee income is an increase in various transaction
fees and deposit service fees of $0.8 million from $3.1 million for the nine
months ended September 30, 1998 to $3.9 million for the nine months ended
September 30, 1999. Also included in fee income is commission income of $1.4
million for the nine months ended September 30, 1999, is offset by commission
expense. Refer to Other Expense.
Other 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. This category is usually referred to as non-interest expense
and receives ongoing management attention in an attempt to contain and minimize
the growth of the various expense categories, while encouraging technological
innovation in conjunction with the expansion of the Corporation. Other expenses
increased from $7.2 million for the quarter ended September 30, 1998 to $8.5
million for the quarter ended September 30, 1999, an increase of 18.1%. For the
nine months ended September 30, 1999 other expenses increased 15.6% or $3.4
million from $21.8 million at September 30, 1998 to $25.2 million at September
30, 1999. The increase in salary expense includes commission expense of $1.0
million for the nine months ended September 30, 1999 and $0.3 million
11
<PAGE>
for the three months ended September 30, 1999. The commission expense offsets
commission income, generated by the new subsidiary, Fin-Plan Group. Refer to
Other Income. Other expenses such as occupancy, MAC fees, software, and
intangible expenses also contributed to the increases in both periods.
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The discussion regarding the Corporation's preparedness for Year 2000 as
discussed in the following section entitled "Year 2000" contains certain
forward-looking statements (as defined in the Private Securities Litigation
Reform Act of 1995). These forward-looking statements involve risks and
uncertainties including changes in the Corporation's ability to execute its plan
to address the Year 2000 issue, and the ability of third parties to effectively
address their Year 2000 issues. The Corporation wishes to advise readers not to
place undue reliance on any such forward-looking statements that reflect
management's analysis only as of the date hereof. Although the Corporation
believes that the expectations reflected in such forward-looking statements are
reasonable, actual results may differ materially from the results discussed in
these forward-looking statements.
Year 2000
The Corporation began the process of preparing its computer systems and
applications for the Year 2000(Y2K) in 1997. A committee was established that
formed a plan to resolve the Y2K issues in the following four phases:
assessment, remediation, testing, and implementation. The committee has
inventoried software, identified hardware and contracts with external vendors,
and reviewed insurance issues.
The Corporation has fully completed the assessment phase related to Y2K
issues as it relates to the Corporation's hardware and software applications.
The Corporation's assessment indicated that most of the significant information
technology systems, particularly the general ledger and subsidiary applications
including loans, deposits, payroll and trust systems could be affected. All of
these software applications are licensed from vendors and run on hardware
operated by the Corporation. These vendors have represented that such
applications are Y2K compliant.
Testing of these software applications is fully completed with
satisfactory results, and programs remediated where necessary. Testing of the
Corporation's computer hardware is complete and determined to be Y2K compliant.
Any changes to software or new software will be Y2K tested before the software
is made operational. The Corporation's contingency plans include
self-remediation of licensed software, manual workarounds, and the use of
outsourcing alternatives in the case of the payroll application. The assessment
also indicated that the Y2K issue affected certain internally
12
<PAGE>
developed programs. Such programs have been remedied, tested and successfully
implemented.
Additionally, the Corporation has completed the assessment of the
potential effects on the Corporation related to its commercial customers'
preparedness for Y2K. Specifically, the Corporation is subject to the risk of
loss of customer deposits and customers' inability to meet contracted loan
obligations in the event customers experience disruptions in their operations
and experience loss of business and liquidity problems. The results of this
assessment enable the Corporation to more closely monitor those higher risk
customers to promptly determine the possible effects on the Corporation's
liquidity and loan loss reserves. The inability of customers to complete their
Y2K resolution process in a timely manner could materially impact the
Corporation.
In the first quarter of 1999, the Corporation successfully completed
testing with external third parties, including ATMs, other financial
institutions and payment systems providers. Testing with major customers was
successfully conducted during the second quarter 1999.
Contingency plans have been prepared for all mission critical
applications. The contingency plans have been tested internally and verified by
an independent third party. Validation plans have also been verified.
Contingency plan training for all Univest employees will take place during the
fourth quarter of 1999. We also continue to address other areas of the
Corporation such as utilities, communications and networks.
The total cost of the Y2K project cost is estimated at $400 thousand. To
date, the Corporation has incurred approximately $318 thousand, all of which has
been expensed. At September 30, 1999, $109 thousand was expensed and for the
year ended December 31, 1998, $209 thousand was expensed.
Management believes that the program in place has addressed the Y2K issue
in a timely manner. Failure to complete the project as herein described may have
a negative impact on our ability to effectively serve our customers. In this
event, the Corporation may experience the loss of customers, strain on liquidity
and a material negative effect on the results of operations.
Management of the Corporation believes that our readiness program will be
completed and if any need to rely on contingency plans arises, the impact will
not have a material financial impact on the Corporation. However, there can be
no guarantee that the estimates to complete the Y2K project or the contingency
plans will be achieved and actual results could differ from those anticipated.
13
<PAGE>
Tax Provision
The provision for income taxes was $1.7 million for the quarter ended
September 30, 1999 and $1.6 million for the quarter ended September 30, 1998.
The effective tax rates were 29.0% and 29.8% respectively. For the nine months
ended September 30, 1999 the provision was $4.9 million as compared to $4.7
million for the nine months ended September 30, 1998 with effective tax rates of
29.3% and 29.7% respectively. The effective tax rates reflects the benefits of
tax credits generated from investments in low-income housing projects and
tax-free income from investment in securities, loans and bank-owned life
insurance.
Financial Condition
Total assets increased $28.2 million or 2.6% from $1,070.5 million at
December 31, 1998 to $1,098.7 million at September 30, 1999. Net loans increased
$36.9 million while investment securities and federal funds sold decreased $21.4
million. Deposits increased $ 2.6 million mainly due to increased activity in
certain types of money market accounts that pay a higher rate. Short-term
borrowings increased $28.0 million due to the normal business cycle volatility
in the corporate daily sweep repurchase account and federal funds purchased.
Shareholders' equity decreased to $101.7 million at September 30, 1999
from $103.2 million at December 31, 1998, a decrease of $1.5 million or 1.5%.
The primary reason for the reduction was the continued treasury stock activity,
in which net purchases total approximately $6.4 million since December 31, 1998.
Book value per share increased from $14.02 at December 31, 1998 to $14.25 at
September 30, 1999, an increase of $.23 per share or 1.6%.
Debt securities that the Corporation has both the positive intent and
ability to hold to maturity are carried at amortized cost. All other debt
securities and all marketable equity securities are classified as
available-for-sale or trading and carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are carried net
of taxes and included in accumulated other comprehensive income. Unrealized
holding gains and losses on securities classified as trading are reported in
earnings. The total debt and equity securities held in the available-for-sale
portfolio, as of September 30, 1999, is $172.5 million as compared to $111.3
million at December 31, 1998. Accumulated other comprehensive loss of $2.1
million, net of taxes, has been debited to shareholders' equity as of September
30, 1999. At December 31, 1998, accumulated other comprehensive income of $0.6
million was credited to shareholders' equity.
14
<PAGE>
Market Risk
No material changes in the Corporation's market risk or market strategy
occurred during the current period. A detailed discussion of market risk is
provided in the SEC Form 10-K for the period ended December 31, 1998.
Other
Univest Financial Services Corporation acquired Fin-Plan Group on January
29, 1999. This will allow Univest Corporation to provide a broader range of
financial services including financial planning, investment management,
insurance products and brokerage services. The impact on the Corporation's
financial position and results of operations was immaterial for the nine months
ended September 30, 1999.
Effective July 1, 1999, Merrill S. Moyer retired as Chief Executive
Officer of Univest Corporation. He continues to serve as Chairman of Univest
Corporation and Union National Bank. William S. Aichele assumed the position of
Chief Executive Officer of Univest Corporation in addition to his present role
as President of the Corporation and President and CEO of Union National Bank.
15
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--Not applicable
Item 5. Other Information--None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
No reports on Form 8-K were filed during the quarter for which this report
is filed.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Univest Corporation of Pennsylvania
-----------------------------------
(Registrant)
Date: 10/25/99 /s/ Merrill S. Moyer
-------- --------------------------------------------
Merrill S. Moyer, Chairman
Date: 10/22/99 /s/ Wallace H. Bieler
-------- --------------------------------------------
Wallace H. Bieler, Executive Vice President
and Chief Financial Officer
17
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