United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For The Period Ended June 30, 2000. 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
------------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
10 West Broad Street, Souderton, Pennsylvania 18964
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (215) 721-2400
--------------
Not applicable
--------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5 par value 7,399,756
-------------------------- ---------
(Title of Class) (Number of shares outstanding
at 6/30/00)
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 2000 and 1999 2
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 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: 15
Other Information
Part III. Financial Data Schedule 17
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) (SEE NOTE)
June 30, 2000 December 31, 1999
------------- -----------------
(In thousands)
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 46,656 $ 35,066
INTEREST BEARING DEPOSITS WITH OTHER BANKS 3,602 3,839
INVESTMENT SECURITIES HELD-TO-MATURITY 142,283 137,461
(MARKET VALUE $139,972 AT 6/30/00
AND $135,107 AT 12/31/99)
INVESTMENT SECURITIES AVAILABLE-FOR-SALE 176,862 174,414
FEDERAL FUNDS SOLD AND OTHER
SHORT TERM INVESTMENTS 9,700 1,800
LOANS 722,989 722,474
LESS: RESERVE FOR POSSIBLE LOAN LOSSES (10,373) (11,223)
----------- -----------
NET LOANS 712,616 711,251
OTHER ASSETS 66,135 57,161
----------- -----------
TOTAL ASSETS $ 1,157,854 $ 1,120,992
----------- -----------
LIABILITIES
DEMAND DEPOSITS, NON INTEREST BEARING $ 158,857 $ 159,300
DEMAND DEPOSITS, INTEREST BEARING 273,826 266,212
SAVINGS DEPOSITS 139,685 136,387
TIME DEPOSITS 372,320 348,776
----------- -----------
TOTAL DEPOSITS 944,688 910,675
SHORT-TERM BORROWINGS 67,644 72,098
OTHER LIABILITIES 19,844 17,393
LONG-TERM DEBT 18,075 18,075
----------- -----------
TOTAL LIABILITIES 1,050,251 1,018,241
SHAREHOLDERS' EQUITY
COMMON STOCK 41,037 39,272
ADDITIONAL PAID-IN CAPITAL 20,912 14,908
RETAINED EARNINGS 71,701 73,409
ACCUMULATED OTHER COMPREHENSIVE LOSS (2,813) (2,672)
TREASURY STOCK (23,234) (22,166)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 107,603 102,751
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,157,854 $ 1,120,992
----------- -----------
</TABLE>
NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31,1999 HAS BEEN
DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE
ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES.
1
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS
TAXABLE INTEREST AND FEES ON LOANS $ 13,953 $ 12,950 $ 27,623 $ 25,784
EXEMPT FROM FEDERAL INCOME TAXES 787 643 1,561 1,220
-------- -------- -------- --------
TOTAL INTEREST AND FEES ON LOANS 14,740 13,593 29,184 27,004
INTEREST AND DIVIDENDS ON
INVESTMENT SECURITIES 4,577 4,358 9,096 8,817
OTHER INTEREST INCOME 564 374 779 525
-------- -------- -------- --------
TOTAL INTEREST INCOME 19,881 18,325 39,059 36,346
-------- -------- -------- --------
INTEREST EXPENSE
INTEREST ON DEPOSITS 8,145 7,058 15,619 14,008
OTHER INTEREST EXPENSE 786 715 1,635 1,392
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 8,931 7,773 17,254 15,400
-------- -------- -------- --------
NET INTEREST INCOME 10,950 10,552 21,805 20,946
PROVISION FOR LOAN LOSSES 15 275 (158) 550
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 10,935 10,277 21,963 20,396
OTHER INCOME
TRUST 1,150 810 2,300 1,955
SERVICE CHARGES ON DEMAND DEPOSITS 909 810 1,848 1,625
COMMISSION INCOME 693 574 1,394 968
OTHER INCOME 1,360 1,369 2,934 2,590
-------- -------- -------- --------
TOTAL OTHER INCOME 4,112 3,563 8,476 7,138
OTHER EXPENSES
SALARIES AND BENEFITS 4,917 4,622 10,715 9,124
NET OCCUPANCY 654 637 1,314 1,237
EQUIPMENT 407 417 821 811
OTHER EXPENSES 2,589 2,816 5,220 5,470
-------- -------- -------- --------
TOTAL OTHER EXPENSES 8,567 8,492 18,070 16,642
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,480 5,348 12,369 10,892
APPLICABLE INCOME TAXES 1,862 1,580 3,626 3,214
-------- -------- -------- --------
NET INCOME $ 4,618 $ 3,768 $ 8,743 $ 7,678
-------- -------- -------- --------
PER COMMON SHARE DATA:
NET INCOME PER SHARE:
BASIC $ 0.62 $ 0.49 $ 1.18 $ 1.00
DILUTED $ 0.62 $ 0.49 $ 1.18 $ 1.00
CASH DIVIDENDS DECLARED PER SHARE $ 0.19 $ 0.162 $ 0.352 $ 0.305
</TABLE>
2
<PAGE>
Univest Corporation of Pennsylvania and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the six months ended,
June 30, 2000 June 30, 1999
------------- -------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,743 $ 7,678
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses (less than) in excess of net charge-offs (850) 450
Depreciation of premises and equipment 1,165 1,160
Discount accretion on investment securities (1) (5)
Deferred tax benefit (64) (209)
Realized gains on investment securities -- (74)
Realized gains on sales of mortgages (1) (40)
Increase (decrease) in net deferred loan fees 24 (14)
Increase in interest receivable and other assets (8,525) (1,741)
Increase (decrease) in accrued expenses and other liabilities 2,358 (1,286)
-------- --------
Net cash provided by operating activities 2,849 5,919
Cash flows from investing activities:
Proceeds from sales of securities available for sale 8,549 15,815
Proceeds from maturing securities held to maturity 29,109 70,567
Proceeds from maturing securities available for sale 7,113 20,273
Decrease in interest-bearing deposits 237 592
Purchases of investment securities held to maturity (33,956) (5,075)
Purchases of investment securities available for sale (18,270) (98,767)
Net increase (decrease) in federal funds sold and
other short-term investments (7,900) 5,400
Proceeds from sales of mortgages 554 8,019
Net increase in loans (1,092) (29,156)
Capital expenditures (1,414) (1,045)
Other investing activities (200) (4,000)
-------- --------
Net cash used in investing activities (17,270) (17,377)
Cash flows from financing activities:
Net increase in deposits 34,013 16,673
Net decrease (increase) in short-term borrowings (4,454) 3,596
Proceeds from long-term debt -- 4,000
Purchases of treasury stock (1,816) (5,236)
Stock issued under dividend reinvestment and
employee stock purchase plans 635 624
Proceeds from exercise of stock options 57 102
Cash dividends (2,424) (2,203)
-------- --------
Net cash provided by financing activities 26,011 17,556
Net increase in cash and due from banks 11,590 6,098
Cash and due from banks at beginning of period 35,066 26,011
-------- --------
Cash and due from banks at end of period $ 46,656 $ 32,109
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,191 $ 16,182
</TABLE>
3
<PAGE>
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Financial Information
The accompanying condensed consolidated financial statements include the
accounts of Univest Corporation of Pennsylvania (Univest) and its wholly owned
subsidiaries, including Union National Bank and Trust Company (Union) and
Pennview Savings Bank (Pennview), collectively referred to herein as the
"Banks". The condensed consolidated financial statements included herein have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The accompanying condensed consolidated financial
statements reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results and condition for the
interim periods presented. Operating results for the six-month period ended June
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. It is suggested that these condensed
consolidated 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, 1999, 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 Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Net Income $4,618 $3,768 $8,743 $7,678
Numerator for basic and diluted earnings per
share - income available to common
shareholders 4,618 3,768 8,743 7,678
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Denominator:
<S> <C> <C> <C> <C>
Denominator for basic earnings per share-
weighted-average shares outstanding 7,418 7,618 7,426 7,654
Effect of dilutive securities:
Employee stock options 19 51 12 52
--------------- ---------------
Denominator for diluted earnings per share
adjusted weighted-average shares
outstanding 7,437 7,669 7,438 7,706
=============== ===============
Basic earnings per share $ .62 $ .49 $ 1.18 $ 1.00
=============== ===============
Diluted earnings per share $ .62 $ .49 $ 1.18 $ 1.00
=============== ===============
</TABLE>
Note 3. Stock Dividend
The Corporation paid a 5% stock dividend on May 1, 2000 to all shareholders of
record as of April 14, 2000. All share and per share information has been
restated to reflect the dividend.
Note 4. 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, net of
income taxes, for the periods presented:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 4,618 $ 3,768 $ 8,743 $ 7,678
Change in unrealized (loss) gain on available
for sale investment securities 519 (1,860) (141) (2,197)
------- ------- ------- -------
Total comprehensive income $ 5,137 $ 1,908 $ 8,602 $ 5,481
======= ======= ======= =======
</TABLE>
5
<PAGE>
Note 5. 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 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 increased 21.1% or $0.8 million from $3.8 million for the three
months ended June 30, 1999 to $4.6 million for the three months ended June 30,
2000. Net income for the six months ended June 30, 2000 increased 13.0% or $1.0
million from $7.7 million for the six months ended June 30, 1999 to $8.7 million
for the six months ended June 30, 2000. The net income growth was due mainly to
increases in net interest income and other income. The increases were offset by
a slight rise in other expenses.
Net Interest Income
Interest and fees on loans increased $1.1 million from $13.6 million for
the three months ended June 30, 1999 to $14.7 million for the three months ended
June 30, 2000. For the six months ended June 30, 2000, interest and fees on
loans increased $2.2 million from $27.0 million to $29.2 million at June 30,
2000. The growth is due to an increase in average loan volume and an increase in
prime rate. At June 30, 1999, prime rate averaged 7.75%. Prime rate was
increased from 8.50% in January 2000 to 8.75% in February 2000, 9.00% in March
2000 and 9.50% in May 2000 and currently remains at 9.50%.
Interest on investment securities increased $0.2 million from $4.4 million
for the three-month period ended June 30, 1999 to $4.6 million for the
three-month period ended June 30, 2000. The increase was due to both a higher
average volume and a higher average yield. For the six months ended June 30,
2000 interest on investments increased by $0.3 million from $8.8 million for the
six months ended June 30, 1999 to $9.1 million for the same period in 2000. This
increase is attributed to a higher average yield. Other interest income
increased $0.2 million for the three-month period ended June 30, 2000 and $0.3
million for the six-month period ended June 30, 2000 due to an increase in
federal funds sold.
Interest expense increased $1.1 million from $7.8 million for the three
months ended June 30, 1999 to $8.9 million for the three-month period ended June
30, 2000. Interest expense increased $1.9 million from $15.4 million for the six
months ended June 30, 1999 to $17.3 million for the six-month period ended June
30, 2000. The increase in both periods is primarily attributed to volume growth
with a small rise in average rate. Money market savings and certificates of
deposit volumes grew due to special rate promotions.
7
<PAGE>
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 six months
ended June 30, 2000 shows net interest income of $21.8 million, which is an
increase of $0.9 million over the $20.9 million recorded for the six months,
ended June 30, 1999. Average interest earning assets increased by $48.6 million
for the six months ended June 30, 2000 as compared to the six months ended June
30, 1999. An increase in deposits provided the funds for loan growth. Average
interest bearing liabilities increased $50.0 million for the six months ended
June 30, 2000 as compared to the same period in 1999. Net interest earning
assets decreased $1.4 million for the six months ended June 30, 2000 as compared
to the six months ended June 30, 1999. Interest earning assets yielded 10 basis
points more than last year. This was offset by an increase of 20 basis points
paid on interest bearing liabilities. The net interest margin remained the same
at 4.2%.
The following table demonstrates the aforementioned effects:
SIX MONTHS ENDED
----------------
6/30/00 6/30/99
------- -------
AVG. BALANCE RATE AVG. BALANCE RATE
----------------- -----------------
Interest Earnings Assets $1,049,472 7.4% $1,000,900 7.3%
Interest Bearing
Liabilities 861,042 4.0% 811,053 3.8%
Net Interest Income 21,805 20,946
Net Interest Spread 3.4% 3.5%
Net Interest Margin 4.2% 4.2%
The Corporation uses interest-rate swap agreements that convert a portion
of its floating rate commercial loans to a fixed rate basis. 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. 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.
8
<PAGE>
At June 30, 2000, June 30, 1999 and December 31, 1999, the notional amount
of "Pay Floating, Receive Fixed" swaps outstanding were $30.0 million, $50.0
million and $40.0 million respectively. The net payable or receivable from
interest rate swap agreements is accrued as an adjustment to interest income.
The $30.0 million in notional amount interest rate swaps outstanding at June 30,
2000 expire as follows: $20.0 million in notional principal amount in second
quarter 2001 and $10.0 million in first quarter 2002. The impact of interest
rate swaps on net interest income for the quarter ended June 30, 2000 was a
negative $58 thousand as compared to a positive $61 thousand for the quarter
ended June 30, 1999. For the six months ended June 30, 2000 the impact was a
negative $74 thousand as compared to a positive $160 thousand for the six months
ended June 30, 1999. The cost of the swaps increased by the same amount as the
income on the floating loans being hedged. Both increases resulted from a rise
in the prime rate.
The Corporation's current credit exposure on swaps is limited to the value
of interest-rate swaps that have become favorable to the Corporation. As of June
30, 2000 there were no interest-rate swaps with a market value in a favorable
position. The market value of interest-rate swaps in an unfavorable position was
$289 thousand. As of June 30, 1999, the market value of interest-rate swaps in a
favorable position was $47 thousand and the market value of interest-rate swaps
in an unfavorable position was $188 thousand. Credit risk exists when the
counterparty to a derivative contract with an unrealized gain fails to perform
according to the terms of the agreement.
Asset Quality
Management believes the 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 and for the quarter ended March 31, 2000, the improvement in these
criteria resulted in a provision of ($0.2) million. For the three and six months
ended June 30, 2000, the provisions for possible loan losses were $15 thousand
and ($0.2) million, respectively. For the three and six months ended June 30,
1999, the provisions for possible loan losses were $0.3 million and $0.6
million, respectively.
9
<PAGE>
At June 30, 2000, the recorded investment in loans that are considered to
be impaired under SFAS No. 114 was $2.1 million, all of which were on a
non-accrual basis. The related reserve for credit losses for those loans was
$0.7 million. At June 30, 1999, the recorded investment in loans considered to
be impaired was $1.4 million and the related reserve for credit losses for these
loans was $0.5 million.
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 are 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.
Loans are usually 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 June 30, 2000 were $2.4 million and
consist mainly of commercial loans and real estate related commercial loans.
Cash basis, non-accrual and restructured loans at June 30, 1999 were $2.3
million. At June 30, 2000, non-accrual loans resulted in lost interest income of
$126 thousand as compared to $44 thousand at June 30, 1999. At June 30, 2000,
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 June 30, 2000 and December 31, 1999, the reserve for possible loan
losses was 1.4% and 1.6% of total loans, respectively. For more information on
the reserve, please refer to the Registrant's Annual Report on Form 10-K for the
period ended December 31, 1999.
At June 30, 2000, the Corporation has a total of $82 thousand of Other
Real Estate Owned ("OREO") consisting of one commercial property and one
residential property. This amount is recorded in "Other Assets" at lower of cost
or fair market value, less estimated costs to sell, in the accompanying
condensed consolidated balance sheets.
10
<PAGE>
Other Income
Other income which is non-interest related consists mainly of general fee
income, trust department fee income, commission 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 $0.5 million or 13.9%
from $3.6 million for the three months ended June 30, 1999 to $4.1 million for
the three months ended June 30, 2000. The increase is primarily attributed to
trust income, service charges on demand deposits and commission income. For the
six months ended June 30, 2000, other income increased $1.4 million or 19.7%
from $7.1 million for the six months ended June 30, 1999 to $8.5 million for the
six months ended June 30, 2000. The increase is attributed to trust income,
service charges on demand deposits, commission income and other income.
Trust income for the three months ended June 30, 2000 of $1.2 million was
$0.4 million more than the $0.8 million reported for the three months ended June
30, 1999. Trust income for the six months ended June 30, 2000 of $2.3 million
was $0.3 million more than the $2.0 million reported for the six months ended
June 30, 1999.
Service charges on demand deposits increased $0.1 million from $0.8
million for the three months ended June 30, 1999 to $ 0.9 million for the three
months ended June 30, 2000. Service charges on demand deposits increased $0.2
million from $1.6 million for the six months ended June 30, 1999 to $1.8 million
for the six months ended June 30, 2000. The growth was due mainly to increases
in various transactions for demand deposit service products.
Commission income is the primary source of income for Fin-Plan Group and
the newly acquired insurance sales agency, George Becker Associates, Inc.
Commission income for the three months ended June 30, 2000 of $0.7 million was
$0.1 million or 16.7% more than the $0.6 million reported for the three months
ended June 30, 1999. Commission income for the six months ended June 30, 2000 of
$1.4 million was $0.4 million or 40.0% more than the $1.0 million reported for
the six months ended June 30, 1999. The majority of the growth was due to the
new company, George Becker Associates, Inc.
Other income remained constant at $1.4 million for the three months ended
June 30, 1999 and June 30, 2000. For the six-month period, other income grew
$0.3 million from $2.6 million at June 30, 1999 to $2.9 million at June 30,
2000. The growth is attributed to increased activities in other service fee
areas and the cash surrender value adjustments of certain corporate owned life
insurance policies.
11
<PAGE>
Other Expense
The operating costs of the Corporation 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 $8.5
million for the quarter ended June 30, 1999 to $8.6 million for the quarter
ended June 30, 2000 and from $16.6 million for the six months ended June 30,
1999 to $18.1 million for the six months ended June 30, 2000. Salary increases,
which include bonuses and commission expense generated by Fin-Plan Group and the
new subsidiary, George Becker Associates, Inc., contributed to this increase in
both the three and six month periods.
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Corporation wishes to advise readers not to place undue reliance on
any such forward-looking statements, which 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.
Tax Provision
The provision for income taxes was $1.9 million for the quarter ended June
30, 2000 and $1.6 million for the quarter ended June 30, 1999. The effective tax
rates were 28.7% and 29.5% respectively. For the six months ended June 30, 2000
the provision was $3.6 million as compared to $3.2 million for the six months
ended June 30, 1999. The effective tax rates were 29.3% and 29.5% respectively.
The effective tax rates reflect 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.
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Financial Condition
Total assets increased $36.9 million or 3.3% from $1,121.0 million at
December 31, 1999 to $1,157.9 million at June 30, 2000. An increase in deposits
of $34.0 million provided funds for the increase in cash, investment in
securities, federal funds sold and loans. Other assets increased $8.9 million
due to the purchase of Bank Owned Life Insurance for benefits.
Shareholders' equity increased to $107.6 million at June 30, 2000 from
$102.8 million at December 31, 1999, an increase of $4.8 million or 4.7%.
Treasury stock increased to $23.2 million from $22.2 million at December 31,
1999. Book value per share increased from $13.80 at December 31, 1999 to $14.54
at June 30, 2000, an increase of $.74 per share or 5.4%. On May 1, 2000, the
Corporation paid a 5% stock dividend to all shareholders of record as of April
14, 2000. All per share data has been restated to reflect the dividend.
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 of debt and equity securities held in the available-for-sale
portfolio, as of June 30, 2000, is $176.9 million as compared to $174.4 million
at December 31, 1999. The accumulated other comprehensive loss of $2.8 million,
net of taxes, has been debited to shareholders' equity as of June 30, 2000. At
December 31, 1999, the accumulated other comprehensive loss debited to
shareholders' equity was $2.7 million.
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 Registrant's Annual Report on Form 10-K for the period ended
December 31, 1999.
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 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
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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.
Due to 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.
Other
Univest Financial Services Corporation acquired George Becker Associates,
Inc. on January 3, 2000. This will allow Univest Corporation to provide a
broader range of insurance products. The impact on the Corporation's financial
position and results of operations was immaterial for the six months ended June
30, 2000.
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Univest Corporation of Pennsylvania
-----------------------------------
(Registrant)
Date: 7/19/00 /s/ William S. Aichele
------- ------------------------------------
William S. Aichele, President
and Chief Executive Officer
Date: 7/19/00 /s/ Wallace H. Bieler
------- ------------------------------------
Wallace H. Bieler, Executive Vice President
and Chief Financial Officer
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