10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 1994 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 incorporation of organization) Identification No.) 10 West Broad Street Souderton, Pennsylvania 18964 ________________________________________ ____________________________ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 721-2400 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $5 par value 3,137,016 ________________________________________ ____________________________ (Title of Class) (Number of shares outstanding at 2/28/95) The approximate aggregate market value of voting stock held by nonaffiliates of the registrant is $83,052,130 as of February 28, 1995. 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. ( ) Part I and Part III incorporate information by reference from the proxy statement for the annual meeting of shareholders on April 11, 1995. Parts I, II and IV incorporate information by reference from the annual report to shareholders for the year ended December 31, 1994. 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, 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 the general public and investing such deposits primarily in loans secured by residential properties, consumer loans, and to a lesser extent, loans secured by commercial real estate and in commercial business 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. Pennsylvania banking law allows a bank to merge or add branch offices within the county in which its head office located and in contiguous or co-contiguous counties. Union National Bank and Trust Company, with its head office in Souderton, Montgomery County, serves the area through sixteen (16) banking offices, two off-premises automated teller machines and offices located in ten retirement homes. Eleven banking offices are in Montgomery County and five banking offices are in Bucks County. One off-premises automated teller machine is located in Bucks County and the other is located in Montgomery County. Pennview Savings Bank conducts operations through five full-service offices located in Souderton, Hatfield, Franconia, Silverdale and Montgomeryville, Pennsylvania and offices located in two retirement homes. As of January 31, 1995, Univest and its subsidiaries employed four hundred and three (403) persons. Competition Univest Corporation's service areas are characterized by intense competition for banking business among commercial banks, savings and loan associations, mutual 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. Union National Bank and Pennview Savings Bank are also subject to competition from other local banks and financial institutions 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. Management believes this knowledge and awareness provides a business advantage in serving the retail depositors and the small and mid-sized commercial borrowers that comprise Union National Bank's and Pennview Savings Bank's customer base. Other competitors, including credit unions, consumer finance companies, insurance companies and mainly money market mutual fund 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 Federal Reserve System. Pennview Savings Bank is regulated by the Federal Deposit Insurance Corporation and by the Pennsylvania Department of Banking. 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 nonbank 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, 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. 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 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 is a member 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 Bank, as a member of the Federal Home Loan Bank of Pittsburgh, is 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. 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 Trust Company (Union National) 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. The following financial data appearing on pages 7 through 18 reflects consolidated information. Where averages are reported, daily information has been used for all subsidiaries. UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES (Thousands of Dollars) TABLE I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
1994 1994/1993 1993 ------ --------- ------ Average Income/ Avg. Volume Rate Average Income/ Avg. ASSETS: Balance Expense Rate Change Change Total Balance Expense Rate ------- -------------------------- ------------------------- -------------------------- Cash and due from banks $32,914 $33,927 Time deposits with other banks 1,955 $118 6.0 ($73) 11 (62) 3,146 $180 5.7 U.S. Government obligations 127,836 6,405 5.0 881 (98) 783 109,629 5,622 5.1 Oblig. of states & political sub. 2,091 95 4.5 (40) 10 (30) 2,964 125 4.2 Other securities 18,447 924 5.0 (1,087) (196) (1,283) 39,903 2,207 5.5 Federal Reserve Bank stock 742 45 6.1 6 0 6 649 39 6.0 Federal funds sold and other short- term investments 15,293 661 4.3 75 179 254 13,528 407 3.0 --------- ------- -------- ----- Total investments 164,409 8,130 4.9 166,673 8,400 5.0 --------- ------- ----- -------- ----- ---- Bankers' acceptances and term federal funds 0 0 0.0 0 - 0 0 0 0.0 --------- ------- ----- -------- ----- ---- Commercial loans 196,065 15,780 8.0 155 875 1,030 195,244 14,750 7.6 Mortgage loans 294,251 24,345 8.3 1,549 (898) 651 275,165 23,694 8.6 Installment loans 45,934 3,753 8.2 558 (130) 428 39,302 3,325 8.5 Home equity loans 20,105 1,916 9.5 (278) 214 (64) 22,958 1,980 8.6 Municipal loans 29,851 1,880 6.3 (129) (64) (193) 31,726 2,073 6.5 --------- ------- ----- -------- ------ ---- Gross loans 586,206 47,674 8.1 564,395 45,822 8.1 ------- ----- ------ ---- Less: valuation reserve (8,660) (8,507) ---------- --------- Net loans 577,546 555,888 ---------- --------- Property, net 13,346 12,150 Other assets 19,426 15,016 ---------- --------- Total assets $809,596 $786,800 ========== ========= 1994 1994/1993 1993 ------ ----------- ------ LIABILITIES: Average Income/ Avg. Volume Rate Average Income/ Avg. ------------ Balance Expense Rate Change Change Total Balance Expense Rate --------------------------- ------------------------ ----------------------- Demand deposit $97,750 $90,485 ------- ------- Interest checking deposits 73,160 $1,326 1.8 $75 ($197) ($122) 68,444 $1,448 2.1 Money market savings 84,874 2,092 2.5 (422) (236) (658) 100,351 2,750 2.7 Regular savings 128,628 3,152 2.5 345 (285) 60 114,261 3,092 2.7 Unifund savings 46 1 2.2 (10) (5) (15) 499 16 3.2 Certificates of deposit 271,994 12,267 4.5 (432) (811) (1,243) 279,627 13,510 4.8 Time open & club accounts 15,988 575 3.6 153 83 236 11,864 339 2.9 ------- ------- ------- ------- Total time, int., and inv. checking deposits 574,690 19,413 3.4 575,046 21,155 3.7 ------- ------- ----- --------- ------- ---- Total deposits 672,440 665,531 ------- --------- Federal funds purchased 690 25 3.6 10 1 11 427 14 3.3 Loans & securities sold under agreement to repurchase 37,047 1,030 2.8 130 124 254 32,515 776 2.4 Other borrowings 5,654 267 4.7 35 6 41 4,898 226 4.6 Subordinated notes 5,229 538 10.3 (103) 43 (60) 6,235 598 9.6 ------- -------- -------- ------- Total borrowings 48,620 1,860 3.8 44,075 1,614 3.7 ------ -------- ----- -------- ------- ---- Accrued expenses & other liab. 12,072 7,877 ------ -------- Total liabilities 733,132 717,483 ------- -------- STOCKHOLDERS' EQUITY: -------------------- Common stock 15,717 13,822 Capital surplus 8,090 8,090 Retained earnings 52,657 47,405 ------ -------- Total stockholders' equity 76,464 69,317 ------ -------- Total liabilities and stock- holders' equity $809,596 $786,800 ======== ========= Weighted avg. yield on interest-earning assets 7.5% 7.5% Weighted avg. rate paid on interest-bearing liab. 3.4% 3.7% Net yield 4.5% 4.3% 1993 1993/1992 1992 ----- --------- ----- Average Income/ Avg. Volume Rate Average Income/ Avg. ASSETS: Balance Expense Rate Change Change Total Balance Expense Rate ------- -------------------------- ------------------------ ---------------------- Cash and due from banks $33,927 $31,445 Time deposits with other banks 3,146 $180 5.7 $26 (27) (1) 2,686 $181 6.7 U.S. Government obligations 109,629 5,622 5.1 733 (1,258) (525) 96,743 6,147 6.4 Oblig. of states & political sub. 2,964 125 4.2 (14) (7) (21) 3,354 146 4.4 Other securities 39,903 2,207 5.5 (42) (904) (946) 41,070 3,153 7.7 Federal Reserve Bank stock 649 39 6.0 6 (1) 5 549 34 6.2 Federal funds sold and other short-term investments 13,528 407 3.0 (225) (104) (329) 20,788 736 3.5 --------- ------- ------- ------ ---- Total investments 166,673 8,400 5.0 162,504 10,216 6.3 --------- ------ ---- ------- ------ ---- Bankers acceptances and term federal funds 0 0 0.0 (65) - (65) 1,967 65 3.3 --------- ------- ---- ------- ------ ---- Commercial loans 195,244 14,750 7.6 (569) (807) (1,376) 201,849 16,126 8.0 Mortgage loans 275,165 23,694 8.6 1,928 (2,285) (357) 253,842 24,051 9.5 Installment loans 39,302 3,325 8.5 36 (310) (274) 38,731 3,599 9.3 Home equity loans 22,958 1,980 8.6 28 (68) (40) 22,681 2,020 8.9 Municipal loans 31,726 2,073 6.5 (53) (228) (281) 32,554 2,354 7.2 -------- ------- ---- ------- ------ Gross loans 564,395 45,822 8.1 549,657 48,150 8.8 ------- ---- ------ ---- Less: valuation reserve (8,507) (7,168) --------- ------- Net loans 555,888 542,489 --------- ------- Property, net 12,150 11,649 Other assets 15,016 17,428 --------- ------- Total assets $786,800 $770,168 ========= ======= 1993 1993/1992 1992 ---- --------- ---- LIABILITIES: Average Income/ Avg. Volume Rate Average Income/ Avg. ------------ Balance Expense Rate Change Change Total Balance Expense Rate ------------------------- -------------------------- ---------------------- Demand Deposits $90,485 $83,503 ------- ------- Interest checking deposits 68,444 $1,448 2.1 $240 ($471) ($231) 58,821 1,679 2.9 Money market savings 100,351 2,750 2.7 261 (1,010) (749) 91,800 3,499 3.8 Regular savings 114,261 3,092 2.7 636 (634) 2 90,525 3,090 3.4 Unifund savings 499 16 3.2 (34) (10) (44) 1,589 60 3.8 Certificates of deposit 279,627 13,510 4.8 (1,367) (3,111) (4,478) 311,115 17,988 5.8 Time open & club accounts 11,864 339 2.9 (248) (223) (471) 20,278 810 4.0 -------- ------- -------- ------- Total time, int., and inv. checking deposits 575,046 21,155 3.7 574,128 27,126 4.7 -------- ------- ---- -------- ------- ---- Total deposits 665,531 657,631 -------- -------- Federal funds purchased 427 14 3.3 11 0 11 98 3 3.1 Loans & securities sold under agreement to repurchase 32,515 776 2.4 125 (160) (35) 26,729 811 3.0 Other borrowings 4,898 226 4.6 167 8 175 1,289 51 4.0 Subordinated notes 6,235 598 9.6 (278) 91 (187) 9,079 785 8.6 -------- ------- -------- ------- Total borrowings 44,075 1,614 3.7 37,195 1,650 4.4 -------- ------- ---- -------- ------- ---- Accrued expenses & other liab. 7,877 12,129 -------- -------- Total liabilities 717,483 706,955 -------- -------- STOCKHOLDERS' EQUITY: -------------------- Common stock 13,822 7,858 Capital surplus 8,090 8,090 Retained earnings 47,405 47,265 -------- -------- Total stockholders' equity 69,317 63,213 -------- -------- Total liabilities and stock- holders' equity $786,800 $770,168 ========= ======== Weighted avg. yield on interest-earning assets 7.5% 8.3% Weighted avg. rate paid on interest-bearing liab. 3.7% 4.7% Net yield 4.3% 4.2%
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 is loan fees of $1,766,000 for 1994, $1,897,000 for 1993 and $1,715,000 for 1992. *The change due to the volume/rate variance and average volume and percent roundings have been allocated to volume. UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE II. INVESTMENT PORTFOLIO (BOOK VALUE) (Thousands of Dollars)
CARRYING AMOUNT OF INVESTMENT SECURITIES December 31, December 31, December 31, 1994 1993 1992 ------------ ------------ ------------- U.S. Treasury, government corporations and agencies $183,580 $108,551 $125,272 State and political subdivisions 2,530 1,505 4,418 Mortgage-backed securities 10,843 24,399 36,913 Other 5,108 4,872 4,119 ----------- ----------- ------------ Total $202,061 $139,327 $170,722 =========== =========== =========== MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD December 31, December 31, December 31, December 31, December 31, December 31, 1994 1994 1993 1993 1992 1992 AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------------ ------------ ----------- ------------ ------------- ------------ 1 YEAR OR LESS $49,098 4.52% $43,725 5.01% $57,547 5.67% 1 YEAR - 5 YEARS 141,732 6.28% 73,264 4.83% 79,279 5.57% 5 YEARS - 10 YEARS 3,833 6.42% 1,229 5.58% 2,235 8.12% AFTER 10 YEARS 7,398 6.29% 21,109 5.59% 31,661 6.98% ------------ ------------ ---------- ------------ ------------- ------------ Total $202,061 5.85% $139,327 5.01% $170,722 5.90% ============ ============ ========== ============ ============= ============
Refer to Note 3 to the consolidated financial statements. Weighted average yield is calculated by dividing income within each maturity range by outstanding amount of the related investment, and has not been tax equated on tax-exempt obligations. UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE III, LOAN PORTFOLIO, PART A TYPES OF LOANS (Thousands of Dollars)
December 31, December 31, December 31, December 31, December 31, 1994 1993 1992 1991 1990 ------------ ------------ ------------ ------------ ------------ Real estate loans Construction and land development $50,954 $60,437 $50,104 $46,753 $62,068 Secured by 1-4 family residential properties 221,098 200,018 165,313 159,387 107,361 Other real estate loans 160,234 164,304 174,333 166,656 166,737 Commercial and industrial loans 114,103 115,375 116,847 124,014 119,825 Loans to individuals 36,810 34,130 42,518 48,458 69,395 All other loans 5,639 4,402 2,918 6,087 3,627 ---------- --------- ---------- ---------- --------- Total loans $588,838 $578,666 $552,033 $551,355 $529,013 ========== ========= =========== ========== =========
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE III. LOAN PORTFOLIO, PART B. MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE (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.
Due in One Due in One Due in Over As of December 31, 1994 Year or Less to Five Years Five Years Total ----------------------- ------------ ------------- ------------ ----- Real estate loans Construction and land development $15,867 $24,827 $10,260 $50,954 Secured by 1-4 family residential properties 55,021 67,134 98,943 221,098 Other real estate loans 39,836 63,375 57,023 160,234 Commercial and industrial loans 69,893 37,698 6,512 114,103 Loans to individuals 19,246 7,289 10,275 36,810 All other loans 3,384 1,883 372 5,639 ----------- ----------- ----------- --------- Total loans $203,247 $202,206 $183,385 $588,838 =========== =========== =========== ========= Loans with a predetermined interest rate $63,506 $122,078 $138,709 $324,293 Loans with a floating interest rate 139,741 80,128 44,676 264,545 ----------- ------------ ----------- --------- $203,247 $202,206 $183,385 $588,838 =========== ============ =========== =========
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. Conversely, if a loan on nonaccrual status is paid in full, including interest, a credit is made to current income. The $5,571 of nonaccruing and restructured loans in 1994 includes $994 which although nonaccruing is performing on current contractual status. If nonaccrual loans had been performing in accordance with their contractual terms, additional interest income of $575 would have been recorded in 1994. Interest income of $164 was recognized on these loans. The decrease in nonaccrual loans from 1993 to 1994 was mainly due to economic conditions. It should be noted that loans classified as substandard internally are, at this point, not known as a potential problem but, if the economy continues to slow, could move into this problem loan category. It is not possible to fairly estimate a dollar figure that would be added to this problem loan category. Loan Concentrations At December 31, 1994, there were no concentrations of loans exceeding 10% of total loans other than disclosed in Table III, Part A. Other Assets At December 31, 1994, $1,786 in Other Real Estate Owned was classified as nonperforming. This amount represents all the Other Real Estate Owned.
1994 1993 1992 1991 1990 -------- --------- --------- --------- --------- Principal Principal Principal Principal Principal Balance Balance Balance Balance Balance --------- --------- --------- --------- --------- Nonaccruing loans $5,149 $6,991 $14,969 $12,440 $5,370 ====== ====== ======= ======= ====== Accruing loans 60 days or more past due: ---------------------------------------- Real estate loans Construction and land development $0 $0 $0 $1,610 $3,336 Secured by 1-4 family dwellings 865 887 1,187 1,684 1,138 Other real estate 74 210 0 1,632 262 Commercial and industrial loans 82 62 1,341 319 1,456 Loans to individuals 142 196 396 646 921 All other loans 0 0 0 0 0 -------- ------- -------- -------- --------- Total loans, 60 days or more past due $1,163 $1,355 $2,924 $5,891 $7,113 ======== ======= ======== ======== ========= Restructured loans, not included above $422 $0 $0 $0 $0 ======== ======= ======== ======= =======
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE IV. SUMMARY OF LOAN LOSS EXPERIENCE (Thousands of Dollars) The loan loss reserve is established at a level which management believes is adequate to absorb potential loan losses on the current portfolio. Loans which are currently performing that may pose collectibility problems in the future are considered in the determination of the loan loss reserve as described in Table IV. For financial reporting purposes, the provision for loan losses charged to operating expenses is based upon several factors, including: 1. A continuing review by management and the Bank's Loan Review Committee of the loan portfolio. Loans are reviewed on an individual basis with special attention given to those loans which are believed to possess the possibility of loss exposure, with regard to either principal or interest. 2. The analysis of historical loan loss experience in relation to various types of outstanding loans, particularly in the consumer loan portfolio. 3. Requirements of the Federal Regulatory examinations, at which time certain loans are required to be charged against reserve for loan losses. If, after applying these factors, it is management's opinion that reserves must be increased, additional amounts are provided through a charge to operating expenses. As the accompanying table indicates, the amount of loan loss provision charged to expense for 1994 was $1,950 compared to $2,480 in 1993 and $2,852 in 1992.
1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- Average amount of loans outstanding $585,644 $563,678 $550,649 $532,501 $453,044 ----------------------------------- -------- -------- -------- -------- -------- Loan loss reserve at beginning of period $ 7,198 $ 8,240 $ 6,735 $ 6,353 $ 3,922 Charge-offs: Real estate loans 701 1,367 624 198 5 Commercial and industrial loans 615 2,270 871 1,193 741 Loans to individuals 128 215 265 265 431 Home equity Other 71 -------- -------- -------- -------- -------- Total charge-offs 1,444 3,852 1,831 1,656 1,177 -------- -------- -------- -------- -------- Recoveries: Real estate loans 146 139 52 24 Commercial and industrial loans 816 9 298 40 249 Loans to individuals 170 114 75 62 79 Home equity Other 39 68 59 17 -------- -------- -------- -------- -------- Total recoveries 1,171 330 484 143 328 -------- -------- -------- -------- -------- Net charge-offs 273 3,522 1,347 1,513 849 Additions to loan loss reserve 1,950 2,480 2,852 1,895 2,768 Acquired allowance of Pennview Savings 512 -------- -------- -------- -------- -------- Loan loss reserve at end of period 8,875 7,198 8,240 6,735 6,353 ======== ======== ======== ======== ======== 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 --------- ---------- --------- --------- --------- Real estate loans 73.4 2,999 73.4 2,468 70.6 3,705 67.6 2,355 63.5 1,691 Commercial and industrial loans 19.4 2,495 19.9 2,384 21.2 3,408 22.4 2,807 22.7 3,225 Loans to individuals 6.3 490 5.9 402 7.7 548 8.8 885 13.1 1,058 All other loans 1.0 15 0.8 538 0.5 124 1.2 391 0.7 Unallocated portion 2,876 1,406 455 297 379 -------- ------- ------- ------ ------ Total 8,875 7,198 8,240 6,735 6,353 ======== ======= ======= ====== ====== Ratio - Net charge-offs versus average loans 0.0% 0.6% 0.2% 0.3% 0.2%
Total cash-basis and nonaccrual loans of $5,149,273 at December 31, 1994, were generally comprised of $2,633,442 in residential real estate loans, $456,367 in commercial and industrial loans, and $2,059,464 in commercial real estate loans. UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE V. DEPOSITS (Thousands of Dollars)
1994 1993 1992 ------- ------- -------- A. Average: Noninterest-bearing demand deposits $97,750 $90,485 $ 83,503 Interest checking 73,160 68,444 58,821 Money Market savings 84,874 100,351 91,800 Savings deposits 128,628 114,261 90,525 Time deposits 288,028 291,990 332,982 -------- -------- -------- Total $672,440 $665,531 $657,631 ======== ======== ======== B. Year-end balance: ($100 or more) Due 3 months Due 3 - 6 Due 6-12 Due over outstanding as of or less Months months 12 months December 31, 1994 ------------- --------- --------- --------- Certificates of deposit $5,006 $4,458 $1,455 $10,806 Other time deposits $16,872 $3,724 $ 950
Note: Univest and its subsidiaries do not have foreign offices or foreign deposits. TABLE VI. RETURN ON EQUITY AND ASSETS (RATIOS) (Shown as percentages)
1994 1993 1992 ---- ---- ---- Return on assets 1.3 1.1 1.1 Return on equity 13.2 13.3 13.3 Dividend payout ratio 23.2 23.3 23.3 Equity to assets ratio 9.4 8.2 8.2
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES INTEREST RATE SENSITIVITY GAPS (Millions of dollars) Interest rate sensitivity varies with different types of interest- earning assets and interest-bearing liabilities. Overnight federal funds on which rates change daily and loans which are tied to the prime rate differ considerably from long-term investment securities and fixed-rate loans. Similarly, time deposits over $100,000 and money market certificates are much more interest sensitive than passbook savings accounts and long-term capital notes. The shorter term interest rate sensitivities are key to measuring the interest sensitivity gap, or excess interest-sensitive earnings assets over interest-bearing liabilities. The following table shows the interest sensitivity gaps for five different time intervals as of December 31, 1994. Univest, as a financial institution, is made up of assets and liabilities that are primarily monetary, which are thus affected by inflation as well as interest rate changes. A positive gap continued during 0-30 day periods mainly as a result of a large floating-rate portfolio held by the commercial bank subsidiary. The floating loans are tied to prime, and fall into the one- month gap category, causing a positive gap position on a dynamic or rolling basis.
0-30 31-90 91-365 1-5 OVER DAYS DAYS DAYS YEARS 5 YEARS -------- ------- ------- ------- ------- Interest-earning assets $207.6 $42.9 $125.9 $263.9 $149.9 Interest-bearing liabilities 174.7 33.2 142.5 296.7 1.9 -------- ------- ------ ------ ------ Interest sensitivity gap $32.9 $9.7 ($16.6) ($32.8) $148.0 ======== ======= ======= ======= ======
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE VII. SHORT-TERM BORROWINGS (Thousands of Dollars)
LOANS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 1994 1993 1992 ------- ------- --------- Balance at December 31 $43,768 $28,124 $30,711 Weighted average interest rate at year end 3.3% 2.4% 2.5% Maximum amount outstanding at any month's end $43,768 $39,055 $31,020 Average amount outstanding during the year $37,047 $32,515 $26,729 Weighted average interest rate during the year 2.8% 2.4% 3.0%
Item 2. Properties Univest and its subsidiaries own and occupy twenty-one properties in Montgomery and Bucks Counties in Pennsylvania, which are used principally as banking offices. Note 6, appearing on page 21 of the Annual Report to Shareholders (Exhibit 13), is hereby incorporated in this item. Item 3. Legal Proceedings None 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 11, 1995. Executive Officers The names and ages of all executive officers of Univest are as follows:
Principal Occupation Officer Title during past 5 years Age ---------------- -------- ----------------------- ---- Merrill S. Moyer Chairman Chairman and President 61 of the Corporation and Chairman of Union National Bank Norman L. Keller Executive Vice President of Pennview 57 President Savings Bank Marvin A. Anders Vice Chairman Executive Vice President 55 and Senior Trust Officer of Union National Bank William S. Aichele Executive Vice Executive Vice President 44 President of the Corporation and President and CEO of Union National Bank Wallace H. Bieler Senior Vice Senior Vice President 49 President and CFO of the Corporation and Union National Bank
There is no family relationship among any of the executive officers of Univest. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Incorporated by reference from the 1994 Annual Report to Shareholders (Exhibit 13), pages 39-40. Dividend and other restrictions are incorporated by reference from Note 15 of the 1994 Annual Report to Shareholders (Exhibit 13), pages 27 and 28. The approximate number of shareholders as of February 28, 1995, was 1,725. Item 6. Selected Financial Data Incorporated by reference from the 1994 Annual Report to Shareholders (Exhibit 13), page 31. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference from the 1994 Annual Report to Shareholders (Exhibit 13), pages 32 through 38. Dividend and other restrictions are incorporated by reference from Note 15 of the 1994 Annual Report to Shareholders (Exhibit 13), pages 27 and 28. Item 8. Financial Statements and Supplementary Data Consolidated balance sheets of the registrant at December 31, 1994 and 1993, and consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1994, 1993 and 1992, and the independent auditors' report thereon are incorporated by reference from the 1994 Annual Report to Shareholders (Exhibit 13), pages 13 through 31. Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosures Not Applicable 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 11, 1995. The executive officers are listed in Part I of this Form 10-K. Item 11. Executive Compensation Incorporated herein by reference from the registrant's definitive proxy statement for the annual meeting of shareholders on April 11, 1995. 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 11, 1995. Item 13. Certain Relationships and Related Transactions The law firm of Brunner, Conver and Conver, in which Neil L. Conver, a director of Pennview Savings Bank, is a partner. performs legal services for Pennview Savings Bank, in the ordinary course of business. For the year ended December 31, 1994, fees received by Brunner, Conver, and Conver for services performed for Pennview Savings Bank, amounted to less than 5% of the firm's gross revenues. PART IV Item 14. Exhibits, Financial Statements, 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 1994. (c) Exhibits - The response of this portion of item 14 is submitted as a separate section. (d) Financial Statement Schedules - none. UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES [Item 14(a)]
Annual Report to Shareholders* Report of Independent Auditors 30 Consolidated balance sheets at 13 December 31, 1994 and 1993 Consolidated statements of income for each of the three years in the period ended December 31, 1994 14 Consolidated statements of changes in shareholders' equity for each of the three years in the period ended December 31, 1994 15 Consolidated statements of cash flows for each of the three years in the period ended December 31, 1994 16 Notes to consolidated financial statements 17-29 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 1994 (Exhibit 13) which is incorporated by reference. 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 herein 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 - Not Applicable. (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. 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: Robert H. Schong Secretary, March 22, 1995 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: Merrill S. Moyer Paul Gregory Shelly Chairman, President and Director, Director, March 22, 1995 March 22, 1995 Charles H. Hoeflich Thomas K. Leidy Chairman Emeritus and Director, Director, March 22, 1995 March 22, 1995 Marvin A. Anders James L. Bergey Vice Chairman, March 22, 1995 Director, March 22, 1995 William S. Aichele John U. Young Executive Vice President, March 22, 1995 Director, March 22, 1995 Norman L. Keller Norman G. Good Executive Vice President, March 22, 1995 Director, March 22, 1995 Wallace H. Bieler SVP and Chief Financial Officer, March 22, 1995 Jules Pearlstine Director, March 22, 1995 Harold M. Mininger Director, March 22, 1995 Curtis F. Moyer Director, March 22, 1995
EX-13 2 Univest Corporation of Pennsylvania Consolidated Financial Highlights
Percentage 1994 1993 Change Earnings: Net interest income $34,647,923 $31,633,168 9.5 Income before income taxes and cumulative effect of a change in accounting principle 14,656,886 13,477,566 8.8 Applicable income taxes 4,536,404 4,120,675 10.1 Income before cumulative effect of a change in accounting principle 10,120,482 9,356,891 8.2 Net income 10,120,482 8,786,512 15.2 Per share: Average shares outstanding 3,137,016 3,137,016 - Income before income taxes and cumulative effect of a change in accounting principle $ 4.67 $ 4.29 8.9 Applicable income taxes $ 1.44 $ 1.31 9.9 Income before cumulative effect of a change in accounting principle $ 3.23 $ 2.98 8.4 Net income $ 3.23 $ 2.80 15.4 Book value $25.55 $23.23 10.0 Balance sheets: Investments $202,060,206 $139,326,861 45.0 Net loans 571,903,335 563,583,948 1.5 Deposits 699,072,720 668,851,440 4.5 Shareholders' equity 80,157,936 72,872,658 10.0 Assets 847,153,657 789,887,067 7.2
Univest Corporation of Pennsylvania Consolidated Balance Sheets
December 31, 1994 1993 Assets Cash and due from banks $ 35,176,956 $ 34,701,868 Time deposits with other banks 501,244 3,299,273 Investment securities held to maturity (market value $167,604,794 and $91,405,253 at December 31, 1994 and 1993, respectively) 171,725,681 91,056,109 Investment securities available for sale (market value of $48,714,712 in 1993) 30,334,525 48,270,752 Federal funds sold and other short-term 6,847,794 12,678,108 investments Mortgage loans held for sale - 8,916,100 Loans 580,778,786 570,782,161 Less: Reserve for possible loan losses (8,875,451) (7,198,213) Net loans 571,903,335 563,583,948 Premises and equipment, net 13,948,531 12,632,889 Accrued interest and other assets 16,715,591 14,748,020 Total assets $847,153,657 $789,887,067 Liabilities Demand deposits, noninterest bearing $104,403,816 $103,058,755 Demand deposits, interest bearing 155,636,331 165,429,430 Savings deposits 126,975,026 123,675,277 Time deposits 312,057,547 276,687,978 Total deposits 699,072,720 668,851,440 Securities sold under agreements to repurchase 43,767,554 28,123,589 Other short-term borrowings 1,155,000 1,155,000 Accrued expenses and other liabilities 13,562,042 8,607,251 Long-term debt 9,438,405 10,277,129 Total liabilities 766,995,721 717,014,409 Shareholders' equity Common stock, $5 par value; 12,000,000 shares authorized at December 31, 1994 and 5,000,000 shares authorized at December 31, 1993, and 3,143,346 shares issued and 3,137,016 shares outstanding at December 31, 1994 and 1993 15,716,728 15,716,728 Additional paid-in capital 8,090,128 8,090,128 Retained earnings 56,983,044 49,215,323 Net unrealized securities losses (482,443) - Treasury stock, 6,330 shares at cost (149,521) (149,521) Total shareholders' equity 80,157,936 72,872,658 Total liabilities and shareholders' equity $847,153,657 $789,887,067 See accompanying notes to consolidated financial statements.
Univest Corporation of Pennsylvania Consolidated Statements of Income
Year ended December 31 1994 1993 1992 Interest income: Interest and fees on loans: Taxable $ 45,793,675 $ 43,749,199 $ 45,795,766 Exempt from federal income taxes 1,880,110 2,073,297 2,353,704 Total interest and fees on loans 47,673,785 45,822,496 48,149,470 Interest and dividends on investment securities: U.S. Government obligations 6,404,798 5,621,534 6,146,809 Obligations of state and political subdivisions 94,812 125,295 145,674 Other securities 968,492 2,246,373 3,186,750 Interest on time deposits with other banks 118,508 179,608 181,011 Interest on federal funds sold 660,950 406,644 736,968 Bankers' acceptances and long-term federal funds sold - - 65,000 Total interest income 55,921,345 54,401,950 58,611,682 Interest expense: Interest on demand deposits 3,417,669 4,197,638 5,177,864 Interest on savings deposits 3,151,961 3,092,200 3,089,547 Interest on time deposits 12,843,452 13,864,921 18,858,859 Interest on long-term debt 565,598 793,564 784,521 Interest-all other 1,294,742 820,459 865,717 Total interest expense 21,273,422 22,768,782 28,776,508 Net interest income 34,647,923 31,633,168 29,835,174 Provision for loan losses 1,950,000 2,480,000 2,852,300 Net interest income after provision for loan losses 32,697,923 29,153,168 26,982,874 Other income: Trust 1,828,037 1,630,365 1,543,675 Service charges on demand deposits 1,632,508 1,560,583 1,548,215 (Losses) gains on sales of securities (26,870) - 120,328 (Losses) gains on sales of mortgages (12,189) 955,872 509,466 Other 2,150,671 2,303,943 1,945,436 Total other income 5,572,157 6,450,763 5,667,120 Other expenses: Salaries and benefits 12,403,346 11,764,170 10,993,299 Net occupancy 1,664,944 1,584,429 1,490,544 Equipment 1,723,744 1,623,200 1,590,774 Other 7,821,160 7,154,566 6,842,683 Total other expenses 23,613,194 22,126,365 20,917,300 Income before income taxes and cumulative effect of a change in accounting principle 14,656,886 13,477,566 11,732,694 Applicable income taxes 4,536,404 4,120,675 3,318,856 Income before cumulative effect of a change in accounting principle 10,120,482 9,356,891 8,413,838 Cumulative effect of a change in accounting principle, net of income taxes of $293,831 - (570,379) - Net income $10,120,482 $ 8,786,512 $ 8,413,838 Per common share data: Income before cumulative effect of a change in accounting principle $ 3.23 $ 2.98 $ 2.68 Cumulative effect of a change in accounting principle - (0.18) - Net income per share $ 3.23 $ 2.80 $ 2.68 See accompanying notes to consolidated financial statements.
Univest Corporation of Pennsylvania Consolidated Statements of Changes in Shareholders' Equity
Net Additional Unrealized Common Paid-in Retained Securities Treasury Stock Capital Earnings Losses Stock Total Balance at December 31, 1991 $ 7,858,364 $8,090,128 $44,029,883 $ - $(149,521) $59,828,854 Net income for 1992 8,413,838 8,413,838 Cash dividends declared ($.625 per share) (1,960,635) (1,960,635) Balance at December 31, 1992 7,858,364 8,090,128 50,483,086 - (149,521) 66,282,057 Net income for 1993 8,786,512 8,786,512 Cash dividends declared ($.70 per share) (2,195,911) (2,195,911) Two-for-one common stock split in the form of a 100% stock dividend 7,858,364 (7,858,364) - Balance at December 31, 1993 15,716,728 8,090,128 49,215,323 - (149,521) 72,872,658 Adjustment to beginning balance for change in accounting method, net of income taxes of $150,946 293,013 293,013 Change in unrealized gains and (losses) on investment securities available for sale, net of income taxes of $(399,478) (775,456) (775,456) Net income for 1994 10,120,482 10,120,482 Cash dividends declared ($.75 per share) (2,352,761) (2,352,761) Balance at December 31, 1994 $15,716,728 $8,090,128 $56,983,044 $ (482,443) $(149,521) $80,157,936 See accompanying notes to consolidated financial statements.
Univest Corporation of Pennsylvania Consolidated Statements of Cash Flows
Year ended December 31 1994 1993 1992 Cash flows from operating activities Net income $10,120,482 $ 8,786,512 $ 8,413,838 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses (less than) in excess of net charge-offs 1,677,238 (1,042,112) 1,505,361 Depreciation of premises and equipment 1,526,874 1,292,796 1,252,728 Cumulative effect of a change in accounting principle - 570,379 - Premium amortization (discount accretion) on investment securities and time deposits 289,522 511,479 91,307 Deferred income tax (benefit) 139,305 472,521 (818,294) Realized losses (gains) on investment securities 26,870 - (120,328) Realized losses (gains) on sales of mortgages 12,189 (955,872) (509,466) (Decrease) increase in net deferred loan fees (552,398) (53,506) 729,708 (Increase) decrease in interest receivable and other assets (1,320,110) 794,673 (471,376) Decrease in accrued expenses and other liabilities 5,001,277 (1,408,439) (588,113) Net cash provided by operating activities 16,921,249 8,968,431 9,485,365 Cash flows from investing activities Purchases of time deposits - - (2,162,122) Proceeds from maturing time deposits 2,798,029 48,666 1,000,000 Proceeds from maturing securities - 98,634,461 59,006,991 Proceeds from sales of securities - - 11,716,425 Proceeds from maturing securities held to maturity 24,334,687 - - Proceeds from maturing securities available for sale 29,987,404 - - Proceeds from sales of securities available for sale 7,246,544 - - Purchases of investment securities held to maturity (108,784,018) (67,751,172) (102,705,594) Purchases of investment securities available for sale (16,565,327) - - Net decrease in federal funds sold and other short-term investments 5,830,314 1,550,934 4,814,744 Net decrease (increase) in loans held for sale 8,916,100 (1,422,200) (7,493,900) Proceeds from sales of mortgages 14,917,616 34,499,131 35,791,048 Net increase in loans (24,374,032) (62,431,316) (37,667,607) Capital expenditures (2,842,516) (1,340,979) (1,221,683) Net cash (used in) provided by investing activities (58,535,199) 1,787,525 (38,921,698) Cash flows from financing activities Assumption of deposits 10,607,692 - - Net increase (decrease) in deposits 18,966,127 (8,419,081) 26,593,358 Net increase (decrease) in short-term borrowings 15,643,965 (2,587,151) 5,095,740 Proceeds from long-term debt - 4,000,000 - Cash dividends (2,290,021) (2,101,800) (1,897,894) Repayments of long-term debt (838,725) (1,798,875) (2,000,000) Net cash provided by (used in) financing activities 42,089,038 (10,906,907) 27,791,204 Net increase (decrease) in cash and due from banks 475,088 (150,951) (1,645,129) Cash and due from banks at beginning of year 34,701,868 34,852,819 36,497,948 Cash and due from banks at end of year $35,176,956 $34,701,868 $34,852,819 Supplemental disclosures of cash flow information Cash paid during the year for: Interest $20,600,157 $23,575,877 $30,308,462 Income taxes $ 4,449,625 $ 4,350,959 $ 3,901,979 Supplemental disclosure of noncash activity During the year ended December 31, 1993, the Corporation entered into a capital lease obligation for $491,004. See accompanying notes to consolidated financial statements.
Note 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidation 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." All significant intercompany balances and transactions have been eliminated in consolidation. Investment Securities Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards ("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securites." 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. Prior to the adoption of FAS No. 115, securities available for sale were carried at the lower of cost or fair value. As a result of adopting FAS 115, securities with an original carrying value of $48,714,712 were classified as available-for-sale at January 1, 1994 and were written up to their aggregate fair value of $48,714,712. After the related tax effects, shareholders' equity at January 1, 1994 was increased by $293,013 to reflect the write-up of those securites to fair value. The accumulated net unrealized loss on available-for-sale securities included in retained earnings was $482,443 at December 31, 1994. Gains and losses on sales of securites 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 and mortgage loans is recorded on the outstanding balance method, using actual interest rates applied to daily principal balances. Unearned discount on installment loans is recognized in income using the "rule of 78ths" method (sum-of-the-digits), 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. Mortgage Loans Held for Sale The Corporation originates mortgage loans for portfolio investment or for sale in the secondary market. All fixed-rate mortgage loans originated after January 1, 1992 with a 15-year to 30-year term are designated as held for sale. There were no loans held for sale as of December 31, 1994. The estimated fair market value of mortgage loans held for sale at December 31, 1993 was approximately $9,177,400. Mortgage loans held for sale are carried at the lower of cost or market value, determined on an aggregate basis. 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. 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. 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. The Corporation will adopt Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan," effective January 1, 1995. As a result of applying the new rules, certain impaired loans will be reported at the present value of expected future cash flows using the loan's 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 Corporation does not expect the adoption of the standard to have a material 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. Net Income Per Share Net income per common share is based on the weighted average number of shares outstanding during each fiscal year. The assumed exercise of the options under the Long-Term Incentive Plan did not have a materially dilutive effect on the earnings per share in 1993 and 1994. Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement No. 109, "Accounting for Income Taxes." The Corporation adopted the provisions of the new standard in its financial statements for the year ended December 31, 1993. The adoption of Statement 109 did not produce materially different results from using the deferred method. As permitted by the Statement, prior years' financial statements have not been restated to reflect the change in accounting method. Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. Intangible Assets The purchase price of Pennview in excess of the fair value of the net assets acquired is recorded as goodwill and amortized on a straight-line basis over a 15-year period. At December 31, 1994, the unamortized balance is approximately $1,924,000 ($2,106,000 at December 31, 1993), net of accumulated amortization of approximately $804,000 ($622,000 at December 31, 1993). Retirement Plan Nearly 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 Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). FAS 106 requires that employers accrue the costs associated with providing postretirement benefits during the active service periods of employees. As permitted under FAS 106, the Corporation elected to immediately recognize the January 1, 1993 transitional liability of $864,210, $570,379 after-tax or $.18 per share, as the cumulative effect of a change in accounting principle. 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. 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 1994 was $5,293,490 and for 1993 was $5,003,289. Note 3. Investment Securities Securities with a market value of $93,480,992 and $84,808,267 at December 31, 1994 and 1993, 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, 1994 and 1993, by maturity within each type:
December 31, 1994 December 31, 1993 Gross Gross Gross Gross Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Held-to-Maturity Securities Cost Gains (Losses) Value Cost Gains (Losses) Value (In Thousands) U.S. Treasury, government corporations and agencies obligations: Within 1 year $ 41,113 $ - $ (481) $40,632 $19,705 $113 $ - $19,818 1 to 5 years 122,661 - (3,490) 119,171 57,266 190 (117) 57,339 163,774 - (3,971) 159,803 76,971 303 (117) 77,157 State and political subdivisions: Within 1 year 15 - - 15 485 1 - 486 1 to 5 years 2,515 - (61) 2,454 1,000 2 - 1,002 5 to 10 years - - - - 20 - - 20 2,530 - (61) 2,469 1,505 3 - 1,508 Mortgage-backed securities: 1 to 5 years 3,520 34 (45) 3,509 5,877 166 (1) 6,042 5 to 10 years 402 - (1) 401 - - - - Over 10 years 100 - - 100 1,831 8 (2) 1,837 4,022 34 (46) 4,010 7,708 174 (3) 7,879 Other: 1 to 5 years 1,200 - (70) 1,130 1,076 - (13) 1,063 5 to 10 years 200 - (7) 193 200 - - 200 Over 10 years - - - - 3,596 2 - 3,598 1,400 - (77) 1,323 4,872 2 (13) 4,861 Total $ 171,726 $34 $(4,155) $167,605 $91,056 $482 $(133) $91,405
December 31, 1994 December 31, 1993 Gross Gross Gross Gross Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Securities Available for Sale Cost Gains (Losses) Value Cost Gains (Losses) Value (In Thousands) U.S. Treasury, government corporations and agencies obligations: Within 1 year $ 8,012 $ - $ (42) $ 7,970 $23,535 $209 $ (15) $23,729 1 to 5 years 11,990 20 (174) 11,836 8,045 283 - 8,328 20,002 20 (216) 19,806 31,580 492 (15) 32,057 Mortgage-backed securities: 5 to 10 years 3,534 - (303) 3,231 1,009 - (1) 1,008 Over 10 years 3,823 - (233) 3,590 15,682 55 (87) 15,650 7,357 - (536) 6,821 16,691 55 (88) 16,658 Other: Over 10 years 3,707 1 - 3,708 - - - - 3,707 1 - 3,708 - - - - Total $31,066 $ 21 $(752) $30,335 $48,271 $547 $(103) $48,715
The amortized cost and estimated market value of debt securities at December 31, 1994, by contractual maturity, are shown above. 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, 1994, debt available-for-sale securities with a fair value at the date of sale of $7,246,543 were sold. The gross realized gains on such sales totaled $18,809, and the gross realized losses totaled $45,679. The net adjustment to unrealized holding losses on available-for-sale securities included as a separate component of shareholders' equity totaled $482,443, in 1994. There were no sales of investments in debt securities during 1993. Proceeds from sales of investments in debt securities were $5,622,750 during 1992. Gross gains of $26,951 and gross losses of $351 were realized on those sales during 1992. Unrealized losses in investment securities at December 31, 1994 and 1993 do not represent permanent impairments. At December 31, 1994 and 1993, 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 at December 31 of the noted years:
Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value 1994 1994 1993 1993 (In Thousands) Real estate loans--construction $ 50,954 $ 50,614 $ 60,437 $ 60,430 Real estate loans--commercial 160,234 151,444 164,304 166,301 Real estate loans--residential 221,098 216,021 200,018 202,033 Commercial and industrial loans 114,103 111,290 115,375 115,679 Loans to individuals 36,810 35,757 34,130 33,503 All other loans 5,639 5,456 4,402 4,381 Total loans 588,838 570,582 578,666 582,327 Less: Unearned income (8,059) (8,059) (7,884) (7,884) $580,779 $562,523 $570,782 $574,443
At December 31, 1994, loans to directors and executive officers of Univest and companies in which directors have an interest aggregated $16,426,265. 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:
Balance at Amounts Current Balance Beginning of Additions Collected at the End of 1994 1994 $17,079,374 $32,152,713 $32,805,822 $16,426,265
Note 5. Reserve for Possible Loan Losses A summary of the transactions in the reserve for possible loan losses is as follows:
1994 1993 1992 Balance at beginning of year $7,198,213 $8,240,325 $6,734,964 Provision charged to operating expenses 1,950,000 2,480,000 2,852,300 Recoveries 1,170,989 329,531 484,089 Loans charged off (1,443,751) (3,851,643) (1,831,028) Balance at end of year $8,875,451 $7,198,213 $8,240,325
At December 31, 1994, the total of nonaccrual and restructured loans was $4,747,602 ($6,099,988 at December 31, 1993), and the total of other real estate owned was $1,750,000 ($2,400,000 at December 31, 1993). If these loans had been performing in accordance with their contractual terms, additional interest income of $567,063, $661,348, and $698,552 would have been recorded in 1994, 1993, and 1992, respectively. In addition, Pennview had first residential mortgage loans of $823,586 at December 31, 1994 ($891,403 at December 31, 1993) which were over 90 days delinquent on which interest income of $7,600 ($10,164 at December 31, 1993) had been reversed. Note 6. Premises and Equipment
December 31, 1994 1993 (In thousands) Land and land improvements $ 3,265 $ 3,001 Premises and improvements 12,579 11,121 Furniture and equipment 12,659 11,696 28,503 25,818 Less:accumulated depreciation (14,554) (13,185) $13,949 $12,633
As of December 31, 1994, 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: 1995--$190,000; 1996--$215,000; 1997-- $172,000; 1998--$155,000; 1999--$107,000. Rental expense charged to operations was $135,000, $87,000, and $76,000 for 1994, 1993, and 1992, respectively. Note 7. Income Taxes Effective January 1, 1993, the Corporation changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements have not been restated. 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, 1994 and 1993 are as follows:
1994 1993 Deferred tax assets: Loan loss $2,851,000 $2,206,000 Deferred compensation 306,000 309,000 Deferred fee income 469,000 883,000 Postretirement benefits 323,000 305,000 Net unrealized securities losses 249,000 - Other - 171,000 4,198,000 3,874,000 Deferred liabilities: Accretion 71,000 51,000 Retirement plans 148,000 173,000 Depreciation 250,000 245,000 Intangible assets 403,000 416,000 Mark-to-market adjustment 226,000 - Other 36,000 - Net deferred tax assets $3,064,000 $2,989,000
The provision for federal and state income taxes included in the accompanying consolidated statements of income consists of the following:
Liability Liability Deferred Method Method Method 1994 1993 1992 Currently payable $4,397,099 $3,648,154 $4,137,150 Deferred 139,305 472,521 (818,294) $4,536,404 $4,120,675 $3,318,856
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. The sources and tax effects of each are as follows for 1992:
1992 Provision for possible loan losses $(645,709) Bond discount accretion, net 43,450 Excess (book) amortization of unearned discount over (tax) amortization 59,918 Tax (book) depreciation in excess of book (tax) (7,440) depreciation Retirement plan 44,175 Deferred compensation (29,615) Deferred loan fees (316,600) Other, net 33,527 Total deferred $(818,294)
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, 1994, Pennview has taken approximately $2,596,000 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 1994, 1993, and 1992 amounted to $193,001, $351,114, and $250,676, respectively, and is summarized as follows:
1994 1993 1992 Service cost-benefits earned during the period $ 418,775 $ 364,741 $ 342,838 Interest cost on projected benefit obligation 686,195 722,816 633,539 Actual return on plan assets 189,226 (871,950) (518,572) Net amortization and deferral (1,101,195) 135,507 (207,129) $ 193,001 $ 351,114 $ 250,676
The funded status is reconciled to prepaid pension expense recognized in the financial statements at December 31, 1994 and 1993, as follows:
1994 1993 Fair value of plan assets $9,023,703 $9,448,323 Actuarial present value of benefit obligations: Vested 6,221,989 6,587,635 Nonvested 330,905 361,347 Accumulated benefit obligation 6,552,894 6,948,982 Effect of projected future salary increase 1,661,977 2,373,269 Projected benefit obligation 8,214,871 9,322,251 Plan assets in excess of (less than) projected benefit obligation 808,832 126,072 Unrecognized net asset at transition (756,616) (882,718) Unrecognized prior service costs (836,254) (711,996) Unrecognized net loss 1,210,562 1,980,400 Prepaid pension expense $ 426,524 $ 511,758 Assumed discount rate for obligation 8.50% 7.35% Assumed long-term rate of investment return 8.50% 8.50% Assumed salary increase rate 5.60% 5.60%
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, 1994, 1993, and 1992, was $196,000, $177,000, and $166,000, 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 Standards No. 106, "Employers' accounting for Postretirement Benefits Other Than Pensions" (FAS 106) was issued in December 1990, to establish the accounting for postretirement benefits. FAS 106 requires that employers accrue the costs associated with providing postretirement benefits during the active service periods of employees, rather than the previously accepted accounting practice of recognizing those costs on a pay-as-you-go basis. Effective January 1, 1993, the Corporation adopted FAS 106. As permitted under FAS 106, the Corporation elected to recognize immediately the transitional postretirement benefit liability of $864,000, $570,000 after-tax or $.18 per share, as the cumulative effect of a change in accounting principle. The impact of FAS 106 included in salaries and benefits on the Consolidated Statements of Income for the year ended December 31, 1994 and 1993, was an increase of $26,000 and $33,000, respectively. The liability for postretirement benefits included in other liabilities at December 31, 1994 and 1993, was as follows:
1994 1993 Accumulated postretirement benefit obligation: Retirees $(596,000) $(667,000) Fully eligible active plan participants (32,000) (36,000) Other active plan participants (189,000) (211,000) Unrecognized net gain (160,000) - Accrued postretirement benefit cost $(977,000) $(914,000)
Net periodic postretirement benefit cost for the years ended December 31, 1994 and 1993 includes the following components:
1994 1993 Service cost-benefits earned during the period $15,941 $13,857 Interest cost on accumulated postretirement benefit obligation 67,609 66,513 $83,550 $80,370
The cost of providing postretirement benefits in 1992 was recognized by expensing the annual payments to the retirees, which were $41,000. For measurement purposes, a 10.0 percent annual rate of increase in the per capita cost of covered health care benefits was assumed in 1994; 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, 1994 by $45,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended by $500. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.50 percent and 7.35 percent, at December 31, 1994 and 1993, respectively, and the assumed salary increase rate was 5.60 percent at December 31, 1994 and 1993. Note 10. Long-Term Incentive Plan During 1993, the Corporation adopted the 1993 Long-Term Incentive Plan, whereby the Corporation may grant options to employees to purchase up to 156,850 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, commencing January 1, 1996. 131,850 common shares were available for future options at December 31, 1994. All options expire December 31, 1999. Transactions involving the plan are summarized as follows:
Option Price Per Shares Share Outstanding at December 31, 1992 - - Granted 25,000 $34.00 Exercised - - Outstanding at December 31, 1993 25,000 34.00 Granted - - Exercised - - Outstanding at December 31, 1994 25,000 $34.00
Note 11. Time Deposits The aggregate amount of certificates of deposit in denominations of $100,000 or more was $21,725,000 at December 31, 1994, and $23,833,000 at December 31, 1993, with interest expense of $1,104,000 for 1994, and $1,268,000 for 1993. Other time deposits in denominations of $100,000 or more were $21,546,000 at December 31, 1994, and $12,512,000 at December 31, 1993, with interest expense of $549,000 for 1994, and $309,000 for 1993. In accordance with FAS 107, financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the recorded book balances.
Estimated Estimated Book Value Fair Value Book Value Fair Value 1994 1994 1993 1993 (In thousands) Deposits with stated maturities $312,058 $307,635 $276,688 $277,911 Noninterest-bearing demand deposit accounts 104,404 104,404 103,059 103,059 Interest-bearing demand deposit accounts 80,531 80,531 74,065 74,065 Money Market Savings 75,105 75,105 91,364 91,364 Regular Savings Deposits 126,975 126,975 123,675 123,675
Note 12. Long-Term Debt At December 31, 1994 and 1993, long-term debt consisted of the following amounts:
December 31 December 31 Interest Description 1994 1993 Rate Maturity Subordinated Note $ - $ 750,000 Prime (6.0% at December 31, 1993) Subordinated Note 5,000,000 5,000,000 10.35% through July 31, 1995 July 31, 2000 Federal Home Loan Bank Advance 4,000,000 4,000,000 4.82% February 1996 Federal Home Loan Bank Advance 75,000 75,000 4.00% September 2006 Federal Home Loan Bank Advance 10,000 10,000 2.50% March 1996 $9,085,000 $9,835,000
The $5,000,000 subordinated note does not permit prepayment before the conversion date (July 31, 1995) without a substantial penalty. The note bears interest at a fixed rate of 10.35% until the conversion date. Thereafter, the note shall bear interest either at a floating rate equal to the prime rate or at a fixed rate to be mutually agreed upon by the lender and the Corporation. The terms of the $5,000,000 note require interest payments only through July 31, 1995, and principal payments of $1,000,000 per year, plus interest payable quarterly through July 31, 2000. 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 the payment of a prepayment fee in the event of repayment of the advance in whole or in part prior to maturity. During 1993, Univest Electronic Services Corporation entered into a capital lease for equipment. The balance of this obligation at December 31, 1994 is $353,405 with principal repayments as follows: 1995--$94,969; 1996--$101,746; 1997--$109,006; 1998-- $47,684. This amount is also included in other long-term debt. The estimated fair value of long-term debt, in accordance with FAS 107, was $8,903,000 and $10,235,000 at December 31, 1994 and 1993, respectively, and was arrived at by using a present value discounted cash flow, based on expected current borrowing rates for similar types of borrowing arrangements. Note 13. Loan Commitments, Standby Letters of Credit, and Concentrations of Credit Risk 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 (e.g., securities, receivables, inventory, equipment) is obtained based on management's credit assessment of the customer. 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, 1994, the Banks have identified the due from banks' balance as a significant concentration of credit risk because it contains a balance due from a depository institution in the amount of $16,230,735 which is unsecured. Management evaluates the creditworthiness of the institution on at least a quarterly basis in an effort to minimize its credit risk associated with this concentration. The estimated fair value of off-balance-sheet financial instruments is based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The lending commitments for residential mortgage loans are based on quoted market prices for similar instruments traded in the secondary market. The Institutions' maximum exposure to credit loss for loan commitments (unfunded loans and unused lines of credit) and standby letters of credit outstanding at December 31, 1994, was as follows:
Contract or Estimated Notional Amount Fair Value (In thousands) Financial instruments representing credit risk: Commitments to extend credit $120,277 $(190) Standby letters of credit or commercial letters of credit 19,663 (295)
As of December 31, 1994, the Banks were servicing loans for others amounting to approximately $81,993,000. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and foreclosure processing. Note 14. Fair Values of Financial Instruments Statement of Financial Accounting Standards No. 107 (FAS 107), "Disclosures about Fair Value of Financial Instruments," 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 FAS 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. FAS 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. The following table represents the estimates of fair value of financial instruments:
December 31, 1994 December 31, 1993 Carrying Fair Carrying Fair Amount Value Amount Value Assets Cash and short-term assets $ 42,526,000 $ 42,526,000 $ 50,679,000 $ 50,679,000 Loans held for sale - - 8,916,100 9,177,000 Investment securities 202,060,000 197,939,000 139,327,000 140,120,000 Net loans 571,903,000 553,648,000 563,584,000 567,245,000 Liabilities Demand deposits and savings deposits 387,015,000 387,015,000 392,163,000 392,163,000 Time deposits 312,058,000 307,635,000 276,688,000 277,911,000 Short-term borrowings 44,923,000 44,923,000 29,279,000 29,279,000 Long-term debt 9,439,000 8,903,000 10,277,000 10,235,000 Off-Balance-Sheet Commitments to extend credit 120,277,000 (190,000) 102,525,000 (241,000) Letters of credit 19,663,000 (295,000) 19,514,000 (244,000)
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 15. Parent Company Financial Information Condensed financial statements of Univest, Parent Company only, follow: Balance Sheets
December 31 1994 1993 Assets: Deposits with bank subsidiary $ 11,300 $ 723,210 Loan to non-bank subsidiary 275,000 275,000 Investments in U.S. Government obligations held to maturity 5,838,377 - Investments in U.S. Government obligations - 2,902,907 Investments in subsidiaries, at equity in net assets: Banks 76,442,264 72,268,932 Non-banks 4,292,711 3,732,058 Other assets 1,227,620 1,156,787 Total assets $88,087,272 $81,058,894 Liabilities: Dividends payable $ 941,105 $ 878,365 Subordinated note 5,000,000 5,750,000 Other liabilities 1,988,231 1,557,871 Total liabilities 7,929,336 8,186,236 Shareholders' equity 80,157,936 72,872,658 Total liabilities and shareholders' equity $88,087,272 $81,058,894
Statements of Income
Year ended December 31 1994 1993 1992 Dividends from banks $ 5,625,664 $ 6,205,974 $ 5,176,365 Other income 6,358,364 5,289,852 5,168,768 Total operating income 11,984,028 11,495,826 10,345,133 Operating expenses 6,478,891 5,983,069 6,097,610 Income before income tax benefit and equity in undistributed income of subsidiaries 5,505,137 5,512,757 4,247,523 Applicable income tax expense (benefit) 1,083 (199,690) (315,144) Income before equity in undistributed income of subsidiaries 5,504,054 5,712,447 4,562,667 Equity in undistributed income (loss) of subsidiaries: Banks 4,655,775 3,604,490 3,863,395 Non-banks (39,347) 39,954 (12,224) Income before cumulative effect of a change in accounting principle 10,120,482 9,356,891 8,413,838 Cumulative effect of a change in accounting principle - (570,379) - Net income $10,120,482 $ 8,786,512 $ 8,413,838
Statements of Cash Flows
Year ended December 31 1994 1993 1992 Cash flows from operating activities Net income $10,120,482 $ 8,786,512 $ 8,413,838 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of a change in accounting principle - 570,379 - Equity in undistributed net income of subsidiaries (4,616,428) (3,644,444) (3,851,171) (Increase) decrease in other assets (338,478) 164,476 (724,949) Depreciation of premises and equipment 267,645 265,036 183,267 Increase (decrease) in other liabilities 430,360 (28,265) (36,199) Net cash provided by operating activities 5,863,581 6,113,694 3,984,786 Cash flows from investing activities Proceeds from maturities of securities held to 1,899,423 - - maturity Purchases of investment securities held to (4,834,893) - - maturity Proceeds from maturities of securities - 1,736,654 1,596,238 Purchases of investment securities - (2,902,907) (1,736,654) Investment in non-bank subsidiaries (600,000) (400,000) (150,475) Net cash used in investing activities (3,535,470) (1,566,253) (290,891) Cash flows from financing activities Repayment of subordinated note (750,000) (1,750,000) (2,000,000) Cash dividends (2,290,021) (2,101,800) (1,897,894) Net cash used in financing activities (3,040,021) (3,851,800) (3,897,894) Net (decrease) increase in deposits with bank subsidiary (711,910) 695,641 (203,999) Deposits with bank subsidiary at beginning of 723,210 27,569 231,568 year Deposits with bank subsidiary at end of year $ 11,300 $ 723,210 $ 27,569
During 1994, 1993, and 1992, the parent company made income tax payments of $4,149,701, $4,116,234, and $3,878,500, respectively, and made interest payments of $537,896, $598,229, and $784,521, respectively. 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 1995 without approval of the Comptroller of the Currency of approximately $7,993,656 plus an additional amount equal to the Bank's net profits for 1995 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. Note 16. Quarterly Data (Unaudited) The unaudited results of operations for the quarters for the years ended December 31, 1994 and 1993 were as follows:
December 31 September 30 June 30 March 31 1994 Quarterly Financial Data Interest income $14,914,877 $14,345,355 $13,631,931 $13,029,182 Interest expense 5,842,261 5,391,161 5,058,027 4,981,973 Net interest income 9,072,616 8,954,194 8,573,904 8,047,209 Provision for loan losses 315,000 345,000 645,000 645,000 Net interest income after provision for loan losses 8,757,616 8,609,194 7,928,904 7,402,209 Other income 1,385,746 1,433,560 1,306,599 1,446,252 Other expenses 5,901,939 6,188,184 5,793,683 5,729,388 Income before income taxes 4,241,423 3,854,570 3,441,820 3,119,073 Applicable income taxes 1,334,159 1,194,637 1,055,763 951,845 Net income $ 2,907,264 $ 2,659,933 $ 2,386,057 $ 2,167,228 Per share data: Net earnings per share $ .93 $ .85 $ .76 $ .69 Dividends per share $ .30 $ .15 $ .15 $ .15 December 31 September 30 June 30 March 31 1993 Quarterly Financial Data Interest income $ 13,612,331 $ 13,330,161 $ 13,725,372 $13,734,086 Interest expense 5,278,622 5,580,001 5,929,126 5,981,033 Net interest income 8,333,709 7,750,160 7,796,246 7,753,053 Provision for loan losses 645,000 545,000 645,000 645,000 Net interest income after provision for loan losses 7,688,709 7,205,160 7,151,246 7,108,053 Other income 1,994,184 1,669,655 1,455,126 1,331,798 Other expenses 5,595,386 5,620,886 5,624,231 5,285,862 Income before income taxes and cumulative effect of a change in accounting principle 4,087,507 3,253,929 2,982,141 3,153,989 Applicable income taxes 1,302,166 990,269 892,694 935,546 Income before cumulative effect of a change in accounting principle 2,785,341 2,263,660 2,089,447 2,218,443 Cumulative effect of a change in accounting principle, net of income taxes of $293,831 (570,379) Net income $ 2,785,341 $ 2,263,660 $ 2,089,447 $ 1,648,064 Per share data: Earnings before cumulative effect of a change in accounting $ 0.88 $ 0.72 $ 0.67 $ 0.71 principle Cumulative effect of a change in accounting principle - - - (0.18) Net earnings per share $ 0.88 $ 0.72 $ 0.67 $ 0.53 Dividends per share $ 0.28 $ 0.14 $ 0.14 $ 0.14
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, 1994 and 1993, 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, 1994. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Univest Corporation of Pennsylvania at December 31, 1994 and 1993, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, in 1994 the Company changed its method of accounting for certain investments in debt and equity securities and in 1993 changed its method of accounting for postretirement benefits other than pensions. Ernst & Young LLP Philadelphia, Pennsylvania January 20, 1995 Selected Financial Data
(In Thousands, except per share data) Year ended December 31 1994 1993 1992 1991 1990 Total assets $847,154 $789,887 $791,335 $756,536 $746,943 Long-term obligations 9,438 10,277 7,585 9,500 10,644 Interest income 55,921 54,402 58,612 66,553 61,903 Net interest income 34,648 31,633 29,835 27,727 25,941 Provision for loan losses 1,950 2,480 2,852 1,895 2,768 Net income 10,120 8,787 8,414 7,656 7,454 Net income per share $ 3.23 $ 2.80 $ 2.68 $ 2.44 $ 2.38 Dividends declared per share 0.75 0.70 0.625 0.575 0.575
Management's Discussion and Analysis of Financial Condition and Results of Operations Shareholders' Equity Shareholders' equity has grown over the last three (3) years, and is positioned strongly at 9.46% percent of assets at December 31, 1994. The strength and stability given a corporation by its shareholders' equity is understood by Univest, therefore, a serious commitment is made to assure the continuation of strong, stable equity as shown in the following table. Shareholders' support, reliable earnings, and controlled dividend distribution represent the elements needed to continue a strong shareholders' equity position. These factors have been relied on in the past and are expected to provide the equity growth needed for future investment requirements in addition to meeting all regulatory standards. Growth in shareholders' equity exceeded the Consumer Price Index (CPI) which is considered a positive result. The equity growth patterns relative to the CPI are also reflected in the following table for the last three (3) years.
Shareholder's Percent of Dollar Percentage CPI Percentage December 31, Equity Assets Increase Increase Increase 1994 $80,157,936 9.46 $7,285,278 10.00 2.70 1993 72,872,658 9.23 6,590,601 9.94 2.70 1992 66,282,057 8.38 6,543,203 10.79 2.90
Risk-Based Capital The Corporation's strong capital position also assures compliance with the risk-based capital guidelines. Risk weights are assigned to assets to determine the required capital in relation to the risk of the assets. Under the guidelines, certain minimum ratios of core capital and total capital as a percentage of risk- weighted assets and certain off-balance-sheet instruments are required by year end 1994 and 1993. Risk-based capital ratios at December 31, 1994 and 1993 as computed under the guidelines, exceed all minimum levels.
December 31, December 31, 1994 1993 Capital Components ($000) Core capital $ 78,101 $ 70,766 Total risk-based capital 88,314 80,964 Risk-weighted assets $617,008 $607,709 Capital Ratios Core capital (Tier 1) 12.66% 11.64% Minimum standards 4.00% 4.00% Total risk-based capital 14.31% 13.32% Minimum standards 8.00% 8.00%
Asset/Liability Management, Liquidity, Inflation The primary functions of asset/liability management are to assure adequate liquidity while maintaining an appropriate balance between interest-sensitive earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates. The asset/liability management process continues as a very important aspect of Univest's management effort to sustain stable earnings. The Asset/Liability Management Committee (ALCO) works closely with the Funds Management Department to match asset/liability positions for maximization of interest margins. A few of the tools used in this process include 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 balance sheet makeup. Funds flow reporting aids in the analysis of the Corporation's liquidity, and provides important data for interest rate risk assessment through changing economies. Flexibility during volatile rate environments is a key management issue in this area of asset/liability management, and for this reason, flow of funds reporting and the like are critical to the monitoring process that assures the Corporation of its flexibility. It should be noted that current policy continues to favor short-term investment purchases (short-term defined as up to three years in maturity). This overall corporate direction of investment philosophy helps to provide the liquidity needed to meet demand for loans as well as other investment goals. Another part of the ALCO process is cash management, which involves the daily process of balancing the Bank's Federal Reserve position, including the daily reserve requirement and correspondent bank balances needed to cover the needs of transaction processing and the commercial Bank's excess cash position which can result in federal funds purchased or sold on a daily basis. The ongoing goal of this process is to maximize the amount of funds available for investment at the highest yields. An important objective of cash management is to maximize earning assets compared to total assets of the organization. Univest's target is to have a ratio that exceeds 90 percent on a constant basis. The results for the past three years can be seen in the following table.
Average Year Average Earnings Percentage Assets Assets 1994 $809,596,000 $741,284,000 91.56 1993 786,800,000 723,897,000 92.01 1992 770,168,000 707,783,000 91.90
Univest, as a financial institution, is made up of assets and liabilities that are primarily monetary, which are thus affected by inflation as well as interest rate changes. The Corporation does not utilize, nor is it a party to, any off-balance-sheet derivative financial instruments. The Corporation remained asset sensitive during periods covered in this report, mainly as a result of a large floating-rate loan 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 an asset-sensitive position on a dynamic or rolling basis. The three years covered in this report show a trend of increasing net interest income which is mainly the result of asset/liability management with appropriate pricing and fairly constant inflation. Interest Income Interest and fees on loans increased 4.04 percent or $1,851,289 from the $45,822,496 recorded for the year ended December 31, 1993, as compared to the $47,673,785 for the year ended December 31, 1994. The increase was due to higher interest rates, which included four prime rate increases from 6.0% at December 31, 1993 to 8.5% at December 31, 1994, and higher volume. Interest and fees on loans decreased $2,326,974 or 4.83 percent when comparing the $45,822,496 for 1993 to the $48,149,470 for 1992. This decrease was due to lower rates during 1993, offset by higher volume. Tax-free interest decreased from $2,073,297 in 1993 to $1,880,110 in 1994. This decrease is primarily due to a decreasing trend due to the 1986 Tax Reform Act which removed a significant benefit associated with Industrial Development Authority (IDA) lending. Tax-free interest income decreased $280,407 for the year ended December 31, 1993 as compared to December 31, 1992. This decrease was also due to decreasing loan volume. Interest on U.S. Government obligations increased from $5,621,534 for the year ended December 31, 1993 to $6,404,798 at December 31, 1994 and decreased from $6,146,809 at December 31, 1992 to $5,621,534 in 1993. The decrease of $525,275 between 1992 and 1993 was due to lower yields being paid and maturing investments being re-invested in other securities to obtain higher yields. The increase of $783,264 or 13.93 percent between 1993 and 1994 was due to investment in higher yielding securities. Interest and dividends on state and political subdivisions remains fairly consistent showing income of $94,812 for 1994, $125,295 for 1993, and $145,674 for 1992. Activity decreased slightly in 1993 and 1994, after increasing slightly in 1992. Yields have been decreasing in all periods. The other securities category consists mainly of mortgage-backed securities. Income on other securities decreased 56.89 percent or $1,277,881 from $2,246,373 in 1993 to $968,492 in 1994. This decrease was due to prepayments, maturities, and sales of the mortgage-backed securities from the available-for-sale category. Other securities income also decreased from $3,186,750 in 1992 to $2,246,373 in 1993. This decrease was due to high prepayments of the mortgage-backed securities that were refinanced for lower interest rates. The interest on time deposits represents the Corporation's investment in other bank certificates (CDs). Income from these certificates decreased to $118,508 for 1994, from $179,608 for 1993, and $181,011 for 1992. The decreasing trend is due to lower yields and substantially reduced volume. Interest on federal funds sold is the resulting daily investment activity that can be volatile in both interest yield and volume. Interest on federal funds sold increased from $406,644 in 1993 to $660,950 in 1994. The increase was due to higher yields along with increased volume. Income decreased from $736,968 in 1992 to $406,644 in 1993. This decrease was due to lower yields and less daily volume. The activity in the area of bankers' acceptances and long-term federal funds sold has been declining, resulting in income of only $65,000 in 1992, and with no activity in 1993 and 1994. Maturities of bankers' acceptances have been re-invested in other financial instruments. Interest Expense Interest is paid on two types of demand deposit accounts; one is a checking account that pays interest on the outstanding balance and the other is a money market account that has limited check- writing privileges, also paying interest on the balance. Interest expense on demand deposits decreased 18.58 percent or $779,969 from $4,197,638 in 1993 to $3,417,669 in 1994. The decrease was due mainly to decreased yields and lower volume. For the year ended December 31, 1993, interest expense on demand deposits decreased 18.93 percent or $980,226 from $5,177,864 in 1992 to $4,197,638 in 1993. This decrease was due mainly to decreased yields offset by increased volume. Interest expense on savings deposits remained stable increasing from $3,092,200 in 1993 to $3,151,961 in 1994. For the year ended December 31, 1993, interest expense on savings deposits increased from $3,089,547 in 1992 to $3,092,200 in 1993. This increase was due to increased volume offset by decreased yields. Interest expense on time deposits for the year ended December 31, 1994 was $12,843,452 which is 7.37 percent or $1,021,469 less than the $13,864,921 paid in 1993. The decrease was due to lower yields, especially during the first and second quarters of 1994. Yields began to increase slightly in the third quarter and more rapidly in the fourth quarter of 1994. Volumes also increased partially due to the assumption of approximately $12 million of deposits from the acquisition of a bank branch in the second quarter of 1994. The 1993 expense was 26.48 percent or $4,993,938 less than the $18,858,859 paid in 1992. The decrease was due to decreases in both volume and yield. 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 deposits. In addition, Union offers an automated cash management checking account that sweeps funds daily into a repurchase agreement account. Interest expense increased to $1,294,742 in 1994 from $820,459 in 1993, and $865,717 in 1992. The increase in 1994 was mainly due to increased volume along with increasing yields, especially during third and fourth quarters of 1994. The decrease in 1993 was mainly due to lower interest rates on the various accounts. Long-Term Debt Interest on long-term debt includes interest paid by the Corporation on the subordinated debt whose balance as of December 31, 1994 was $5,000,000. The debt was incurred by the Corporation in 1990 to partially finance the acquisition of Pennview Savings Bank. Interest onlong-term debt also includes interest paid on $4,085,000 borrowed by Pennview Savings Bank, for liquidity purposes, from the Federal Home Loan Bank (FHLB) of Pittsburgh, and interest paid by Univest Electronic Services Corporation on a long-term capital lease obligation to finance computer equipment whose balance, as of December 31, 1994 was $353,405. (Refer to Note 12 of the Notes to Consolidated Financial Statements.) Interest on long-term debt for the year ended December 31, 1994 was $565,598 as compared to $793,564 in 1993. The decrease was mainly due to a $750,000 payment on the subordinated debt, using funds received by the Corporation from dividend payments made by the subsidiary banks during 1994. Interest paid on long-term debt in 1993 increased from $784,521 in 1992 to $793,564 in 1993. The increase in 1993 was due to the payment of interest on the FHLB borrowing and the capital lease obligation, both of which were borrowed in 1993, offset by a $1,750,000 payment on the subordinated debt. Net Interest Income Net interest income is the result of interest income less interest expense. The following graph and table demonstrates a trend of increasing amounts for 1992 through 1994. 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. Significant consideration is given to asset/liability pricing, which was especially true for the year ended December 31, 1994. During the year, the committees focused on liability pricing to maintain a positive margin. If the 1995 rate environment is similar to 1994, it is anticipated that the 1995 net interest margin will increase because there are more asset repricing opportunities available. 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. Investments maturing during the year 1994 were repriced with replacement purchases at higher yields. 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 already discussed under this section, Univest does have a short-term positive gap resulting from a large floating-rate loan portfolio.
Average Net Interest Margin Net Interest Year Earning Margins Percentage Margin Assets Changes 1994 $741,284,000 $34,647,923 4.67 $3,014,755 1993 723,897,000 31,633,168 4.37 1,797,994 1992 707,783,000 29,835,174 4.22 2,107,867
Allowance For Loan Losses Management believes the allowance for loan losses is maintained at a level which is adequate to absorb potential losses within 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, and3 composition of the loan portfolio. Each credit on the Company's internal loan "watchlist" is evaluated periodically to estimate potential losses. In addition, minimum estimates for each category of watchlist credits are also provided based on management's judgment which considers past loan loss experience and other factors. For installment and real estate mortgage loans, specific allocations are based on past loss experience adjusted for recent portfolio growth and economic trends. The total reserves resulting from this analysis are "allocated" reserves. The amounts specifically provided for individual loans and pools of loans are supplemented by an unallocated amount for loan losses. This unallocated amount is determined based on judgments regarding risk of error in the specific allocation, and other potential exposure in the loan portfolio, which is not easily identifiable. 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 any significant change in the charge-off activity_all of which may cause the provision to fluctuate. The provision for loan losses for the year ended December 31, 1994 was $1,950,000 as compared to $2,480,000 for 1993 and $2,852,300 for 1992. Total nonaccrual and restructured loans at December 31, 1994 of $5,571,188 are mainly real estate related and have slowed in performance due to the economy. These loans include $4,325,686 of nonaccrual commercial loans of which $994,010 are performing in accordance with contractual terms. Nonaccrual and restructured loans at December 31, 1993 totaled $6,991,391 and at December 31, 1992 totaled $14,969,452. The large decrease in 1993 was due to approximately $3,000,000 of commercial and 1-to-4 family residential real estate loans being returned to performing status, approximately $3,400,000 being either totally or partially charged off and one commercial real estate loan of approximately $2,000,000 along with one residential mortgage loan of $400,000 being transferred to "Other Real Estate Owned." The Corporation currently has approximately $1,750,000 of "Other Real Estate Owned" consisting of two commercial properties ($1,600,000 and $150,000). These amounts are recorded in "Other Assets" at the lower of cost or fair market value in the accompanying consolidated balance sheets. During the quarter ended September 30, 1994, a commercial property was written down a total of $300,000 based on a current appraisal to properly reflect the market value. The $400,000 residential loan included in "Other Real Estate Owned" in 1993 was sold during fourth quarter 1994. For the year ended December 31, 1994, nonaccrual and restructured loans resulted in lost interest income of $574,663 as compared to $671,512 in 1993 and $774,536 in 1992. Based on a comprehensive evaluation, management has determined that the level of the reserve is adequate at this time. At December 31, 1994, the Corporation has no material 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. At December 31, 1994, the reserve for loan losses is 1.53 percent of total loans as compared to 1.26 percent at December 31, 1993. The reason for the increase was due to the recovery of a previously charged-off commercial real estate loan totaling approximately $900,000. During the fourth quarter of 1994, the Office of the Comptroller of the Currency completed a safety and soundness examination at Union National Bank, the Corporation's subsidiary commercial bank. During the second quarter, a similar examination was completed by the Pennsylvania State Department of Banking at Pennview Savings Bank. The dollar value of identified potential problem loans was not revised significantly as a result of either examination. Examination procedures require individual judgments about a 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. The Corporation will adopt Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan," effective January 1, 1995. As a result of applying the new rules, certain impaired loans will be reported at the present value of expected future cash flows using the loan's 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 Corporation does not expect the adoption of the standard to have a material impact on the Corporation's financial position or results of operations. The following table shows the major real estate loan categories for Univest over the past three years.
1994 1993 1992 (In thousands) Real estate loans-construction $ 50,954 $ 60,437 $ 50,104 Real estate loans-commercial 160,234 164,304 174,333 Real estate loans-residential 221,098 200,018 165,313 Real estate commitments 7,653 7,996 12,822
Real estate loans-construction includes residential tract development loans comprising less than ten percent of the outstanding real estate construction loan balances for each year. Our credit criteria for residential tract development continue stringent, and with local developers who have proven track records. The balance of the construction loans would be for locally owned business real estate expansion. The real estate-commercial loan category consists of loans for locally owned business real estate purposes. Investment-type loans (multi-family, 5 and up per unit) are included in this total. These types of loans are supported by operating performance, cash flows, etc. to repay the debt. Residential loans (1- to 4-family dwellings) present minimal delinquency problems and loss exposure through varied economic cycles. On a comparative basis, this is the category of least risk for total real estate loans. Real estate commitments, although off-balance-sheet, still present risk as discussed above, and, for this reason, receive careful attention. If the economy continues to weaken, this category is expected to decline because of reduced demand. Management continues to closely monitor the entire loan portfolio, and early identification of troubled loans is still a priority for all lending personnel. Adequate reserves have been established for both nonperforming and nonaccrual loans, and the loan loss reserve as of December 31, 1994, is considered sufficient relative to the risk inherent within the loan portfolio. Noninterest Income Trust income continues to be a major source of noninterest income, generating income for the year ended December 31, 1994 of $1,828,037 which was $197,672 or 12.12 percent more than the $1,630,365 reported for year end December 31, 1993. The 1993 income was 5.62 percent or $86,690 more than the $1,543,675 reported for year end December 31, 1992. Although the results are encouraging, it should be noted that fluctuations usually occur with this type of income, and are anticipated, since trust commissions are derived partially from estate settlements and other types of trust services that may result in nonrecurring, one-time fees. Service charges on demand deposits remained fairly constant from $1,560,583 for the year ended December 31, 1993 to $1,632,508 at December 31, 1994 and also increased from $1,548,215 in 1992 to $1,560,583 in 1993. Both increases were due to increased average balances and increases to certain type fees in August 1992. It is not possible to determine exactly what future trends will be for this income category; however, it is hoped that the 1994 level will at least be matched in 1995. The Corporation's pricing committee continuously monitors the entire fee structure and process. Other income which is noninterest related consists mainly of general fee income and other miscellaneous nonrecurring types of income. It includes various types of service charges such as account analysis fees, ATM fees, overdraft fees, and safe deposit box rent, along with various one-time fees, thus resulting in noticeable income fluctuations on a year-to-year basis. Other income of $2,150,671 for 1994 is 6.65 percent or $153,272 less than the $2,303,943 shown for 1993. The 1993 other income of $2,303,943 is 18.43 percent or $358,507 more than the $1,945,436 shown for 1992. Asset Sales Sales of mortgage loans during the year ended December 31, 1994 resulted in a loss of $12,189. For the years ended December 31, 1993 and 1992, sales of mortgage loans resulted in gains of $955,872 and $509,466, respectively. The change was due to variations of market prices caused by increasing long-term rates. Because of the increase in long-term mortgage rates, mortgage lending, especially in the area of refinancing, decreased considerably. Due to these conditions, during the second quarter of 1994, a Corporate decision was made to discontinue holding loans for sale. All long-term fixed rate loans not granted for a third party by prior commitment, from such third party, will be held in portfolio. The Corporation has both the intent and ability to hold these loans until maturity. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," effective for fiscal years beginning after December 15, 1993. Under the new rules, which were adopted by the Corporation as of January 1, 1994, debt securities that the Corporation has both the positive intent and ability to hold to maturity are carried at amortized cost. All other debt securities and all marketable equity securities are classified as available-for-sale or trading and carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried as a component of shareholders' equity. Unrealized holding gains and losses on securities classified as trading are reported in earnings. Previously, the Corporation classified most debt securities as held-for-investment and carried them at amortized cost. The $91,056,109 recorded as held-for-investment at December 31, 1993 was transferred to the held-to-maturity account as of January 1, 1994 in accordance with the new rule. Accordingly, the $48,270,752 recorded as held-for-sale and carried at lower of cost or market at December 31, 1993 was transferred to available- for-sale as of January 1, 1994 and resulted in an increase of approximately $300,000 in shareholders' equity at that date, representing the unrealized appreciation, net of taxes, of the Corporation's investment in debt and equity securities determined to be available-for-sale. During the first quarter ended March 31, 1994, securities totaling approximately $7,200,000 were sold from the available- for-sale account and a net loss of $26,870 was recorded. The Corporation did not record any gain or loss for the year ended December 31, 1993. Gains on sales for the year ended December 31, 1992 were $120,328. The total of debt and equity securities held in the available-for-sale account as of December 31, 1994, is $30,334,525. The unrealized cumulative loss of $482,443, net of taxes, has been charged against equity as of December 31, 1994. The Corporation has not designated any of its securities as trading for the year ended December 31, 1994. Noninterest Expense The operating costs of the Corporation are known as other expense, 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, while attempting to provide technological innovation whenever practical, as operations change or expand. Salaries and benefits increased $639,176 or 5.43 percent from $11,764,170 in 1993 to $12,403,346 in 1994. Salaries and benefits also increased 7.01 percent or $770,871 from $10,993,299 in 1992 to $11,764,170 in 1993. The increases were due to normal salary increases and staff increases due to the opening of an additional branch. A serious effort to contain salaries and benefits is being made by management with an ongoing goal to work "smarter" being communicated throughout the Corporation. Net occupancy expense increased by 5.08 percent or $80,515 from $1,584,429 as of December 31, 1993 to $1,664,944 as of December 31, 1994. For the year ended 1993, net occupancy expense was $93,885 or 6.30 percent higher than the $1,490,544 reported in 1992. These changes were due to routine property cost increases and the addition of a new branch. Equipment expense increased 6.19 percent from $1,623,200 in 1993 to $1,723,744 in 1994, an increase of $100,544. Equipment expense also increased $32,426 or 2.04 percent from $1,590,774 for the year ended December 31, 1992 to $1,623,200 for the year ended December 31, 1993. The increase in 1993 and 1994 was mainly due to the purchase of new equipment. Other expenses of $7,821,160 increased $666,594 or 9.32 percent for the year ended December 31, 1994, as compared to the $7,154,566 expense for 1993. The increase was mainly due to the write-down of other real estate owned of $300,000, along with increased advertising, postage, and acquisition costs. The $7,154,566 for 1993 exceeds the 1992 expense of $6,842,683 by $311,883 or 4.56 percent. The increase was mainly due to increased accounting and legal fees and capital shares tax. Other expense includes but is not limited to items such as data processing, goodwill amortization, marketing, audit, exam, legal and other fees, other taxes, along with insurance, printing, stationery, supplies and contributions, any of which can fluctuate up or down in a given year. Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS 106). FAS 106 requires that employers accrue the costs associated with providing postretirement benefits during the active service periods of employees, rather than the previously accepted accounting practice of recognizing these costs on a pay-as-you-go basis. As permitted under FAS 106, the Corporation elected to recognize immediately a one-time, non-cash charge for the January 1, 1993 transitional liability of $864,000, ($570,000 after-tax), as the cumulative effect of a change in accounting principle. Adoption of FAS 106 did not have a material impact on salaries and benefits expense in 1994 or 1993. In November 1992, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 112 (FAS 112), "Employers' Accounting for Postemployment Benefits." FAS 112 is effective for fiscal years beginning after December 15, 1993. Management has evaluated the impact of FAS 112 and has concluded that the impact was not material for the year ended December 31, 1994. Tax Provision A tax provision of $4,536,404 is shown for the year ended December 31, 1994 and $4,120,675 for 1993 and $3,318,856 for 1992, with effective tax rates of 31 percent, 30 percent, and 28 percent, respectively. If the Corporation's income which is exempt from federal income tax continues to decline, it is anticipated that the Corporation's effective tax rate will continue to increase. Also, rates will continue to grow if the Corporation's taxable income remains over $10,000,000, since under the 1993 Revenue Reconciliation Act, the marginal corporate tax rate changed from 34 percent to 35 percent on taxable income that exceeds $10,000,000. For the years ended December 31, 1994 and 1993, the Corporation's tax provision increased by $27,000 and $15,000, respectively, due to taxable income exceeding $10,000,000 by $2,700,000 and $1,500,000, respectively. Effective January 1, 1993, Univest adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). The adoption of FAS 109 did not produce materially different results from using the deferred method. As permitted by the Statement, prior-period financial statements have not been restated to reflect the change in accounting method. As of December 31, 1994, the Corporation's net deferred tax asset was $3.1 million. Realization of this asset over time is dependent in part upon the Corporation generating earnings in future periods. In determining that the realization of the deferred tax asset was "more likely than not," the Corporation gave consideration to a number of factors, including its recent earnings history and its expectations for earnings in the future and concluded that no valuation allowance was necessary at December 31, 1994. The Corporation will continue to review the tax criteria of "more likely than not" for the recognition of the deferred tax asset on a quarterly basis. Impact of Inflation and Changing Prices The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investment in fixed assets or inventories. However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher-than-normal rates in order to maintain an appropriate equity-to-assets ratio. Inflation does have a significant and direct impact on other expenses, which tend to rise during periods of higher inflation. Management believes the most significant impact on financial results is the Company's ability to manage the effect of changes in interest rates. As discussed previously, management is attempting to maintain an essentially balanced position between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations. Net Income The net income for 1994 of $10,120,482 ($3.23 per share) is 15.18 percent or $1,333,970 greater than the net income of $8,786,512 ($2.80 per share) for 1993. The 1993 net income of $8,786,512 was 4.43 percent or $372,674 more than the $8,413,838 ($2.68 per share) reported for 1992. The increase in both periods was mainly due to increased net interest income and, for 1994, by the cumulative effect of the adoption of FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for the year ended December 31, 1993. 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 1994 January - March 35 34 April - June 36 36 July - September 36-1/2 34-1/4 October - December 35-1/2 34-1/2
High Low 1993 January - March 30 23 April - June 32 30 July - September 34 32 October - December 34 34
Cash Dividends Paid Per Share 1994 January 2 $0.14 regular 0.14 extra 0.28 April 1 0.15 July 1 0.15 October 1 0.15 $0.73 for the year 1994 1993 January 2 $0.125 regular 0.125 extra 0.25 April 1 0.14 July 1 0.14 October 1 0.14 $0.67 for the year 1993
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 16 offices and offers all normal commercial bank and trust services. Pennview Savings Bank has 5 offices and emphasizes deposits from the general public and residential mortgage loans. 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 approximate number of shareholders as of December 31, 1994 was 1,727. 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 1994 to each shareholder who requests one in writing after March 31, 1995. Requests should be directed to: Robert H. Schong, Secretary, Univest Corporation of Pennsylvania, Broad and Main Streets, Souderton, PA 18964. EX-21 3 SUBSIDIARIES OF THE REGISTRANT UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES EXHIBIT [ITEMS 14(C)] Subsidiaries ------------ (1) Union National Bank 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. EX-23 4 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by refernce in this annoual report on Form 10-K of Univest Corporation of Pennsylvania of our dated January 20, 1995 included in the 1994 Annual Report to Shareholders (Exhibit 13) of Univest Corporation of Pennsylvania. /S/ERNST & YOUNG LLP Philadelphia, Pennsylvania January 20, 1995 EX-27 5
9 1 YEAR DEC-31-1994 DEC-31-1994 35,176,956 501,244 6,847,794 0 30,334,525 171,725,681 167,604,794 580,778,786 8,875,451 847,153,657 699,072,720 44,922,554 13,562,042 9,438,405 15,716,728 0 0 64,441,208 847,153,657 47,673,785 7,468,102 779,458 55,921,345 19,413,082 21,273,422 34,647,923 1,950,000 (26,870) 23,613,194 14,656,886 14,656,886 0 0 10,120,482 3.23 3.23 5 5,149,273 278,444 0 59,342 7,198,213 1,443,751 1,170,989 8,875,451 8,875,451 0 2,876,737