-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EKxsoMfzznsgpZ2N2JDgre2Ssrq5XZ1lzXqZxGfEznTZna+KfwQmdQf6aQENbWk9 7EtHDvLxN4NM+b5nFovCvA== 0000891554-98-000976.txt : 19980813 0000891554-98-000976.hdr.sgml : 19980813 ACCESSION NUMBER: 0000891554-98-000976 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVEST CORP OF PENNSYLVANIA CENTRAL INDEX KEY: 0000102212 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 231886144 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07617 FILM NUMBER: 98683772 BUSINESS ADDRESS: STREET 1: 10 W BROAD ST CITY: SOUDERTON STATE: PA ZIP: 18964 BUSINESS PHONE: 2157212400 MAIL ADDRESS: STREET 1: 10 W BROAD STREET CITY: SOUDERTON STATE: PA ZIP: 18964 10-Q 1 QUARTERLY REPORT ON FORM 10-Q United States SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For The Period Ended June 30, 1998. or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _____ to _____. UNIVEST CORPORATION OF PENNSYLVANIA (Exact name of registrant as specified in its charter) Pennsylvania (State or other jurisdiction of 23-1886144 incorporation of organization) (IRS Employer Identification No.) 10 West Broad Street, Souderton, Pennsylvania 18964 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code (215) 721-2400 Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ---- ---- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $5 par value 7,550,145 (Title of Class) (Number of shares outstanding at 6/30/98) UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES INDEX Page Number ----------- Part I. Financial Information: Item 1: Financial Statements (Unaudited) Condensed Consolidated Balance Sheets June 30, 1998 and December 31, 1997 1 Condensed Consolidated Statements of Income Three and Six Months Ended June 30, 1998 and 1997 2 Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997 3 Notes to Condensed Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information: 14 Other Information Part III. Financial Data Schedule 16 UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (SEE NOTE) June 30, 1998 December 31, 1997 -------------- ----------------- (In thousands) ASSETS CASH AND DUE FROM BANKS $ 29,286 $ 33,352 INTEREST BEARING DEPOSITS WITH OTHER BANKS 19,023 5,001 INVESTMENT SECURITIES HELD-TO-MATURITY 146,830 141,972 (MARKET VALUE $147,176 AT 6/30/98 AND $142,205 AT 12/31/97) INVESTMENT SECURITIES AVAILABLE-FOR-SALE 118,861 116,193 FEDERAL FUNDS SOLD AND OTHER SHORT TERM INVESTMENTS 19,600 2,000 LOANS 651,231 635,563 LESS: RESERVE FOR POSSIBLE LOAN LOSSES (10,375) (10,270) ----------- ----------- NET LOANS 640,856 625,293 ----------- ----------- OTHER ASSETS 49,013 49,346 ----------- ----------- TOTAL ASSETS $ 1,023,469 $ 973,157 =========== =========== LIABILITIES DEMAND DEPOSITS, NON INTEREST BEARING $ 132,861 $ 129,892 DEMAND DEPOSITS, INTEREST BEARING 207,769 176,115 SAVINGS DEPOSITS 134,743 127,965 TIME DEPOSITS 357,188 358,896 ----------- ----------- TOTAL DEPOSITS 832,561 792,868 SHORT-TERM BORROWINGS 58,507 49,546 OTHER LIABILITIES 18,209 17,064 LONG-TERM DEBT 9,075 9,075 ----------- ----------- TOTAL LIABILITIES 918,352 868,553 SHAREHOLDERS' EQUITY COMMON STOCK 39,272 39,272 ADDITIONAL PAID-IN CAPITAL 14,908 14,908 RETAINED EARNINGS 58,462 53,691 ACCUMULATED OTHER COMPREHENSIVE INCOME 413 350 TREASURY STOCK (7,938) (3,617) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 105,117 104,604 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,023,469 $ 973,157 =========== ===========
NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31,1997 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. 1 UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1998 1997 1998 1997 (in thousands, except per share data) INTEREST INCOME INTEREST AND FEES ON LOANS TAXABLE INTEREST AND FEES ON LOANS $13,290 $13,104 $26,254 $25,622 EXEMPT FROM FEDERAL INCOME TAXES 604 501 1,187 989 ------- ------- ------- ------- TOTAL INTEREST AND FEES ON LOANS 13,894 13,605 27,441 26,611 INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES 4,023 3,820 7,878 7,439 OTHER INTEREST INCOME 279 31 468 63 ------- ------- ------- ------- TOTAL INTEREST INCOME 18,196 17,456 35,787 34,113 ------- ------- ------- ------- INTEREST EXPENSE INTEREST ON DEPOSITS 7,405 6,604 14,466 12,965 OTHER INTEREST EXPENSE 570 572 1,110 1,094 ------- ------- ------- ------- TOTAL INTEREST EXPENSE 7,975 7,176 15,576 14,059 ------- ------- ------- ------- NET INTEREST INCOME 10,221 10,280 20,211 20,054 PROVISION FOR LOAN LOSSES 275 370 608 580 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,946 9,910 19,603 19,474 OTHER INCOME 2,574 1,794 5,169 3,618 GAINS ON SALES OF SECURITIES 12 13 12 58 ------- ------- ------- ------- TOTAL OTHER INCOME 2,586 1,807 5,181 3,676 OTHER EXPENSES SALARIES AND BENEFITS 3,880 3,733 7,728 7,507 OTHER EXPENSES 3,493 3,183 6,803 6,450 ------- ------- ------- ------- TOTAL OTHER EXPENSES 7,373 6,916 14,531 13,957 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 5,159 4,801 10,253 9,193 APPLICABLE INCOME TAXES 1,508 1,518 3,042 2,897 ------- ------- ------- ------- NET INCOME $ 3,651 $ 3,283 $ 7,211 $ 6,296 ======= ======= ======= ======= PER COMMON SHARE DATA: NET INCOME PER SHARE: BASIC $ 0.48 $ 0.42 $ 0.95 $ 0.81 DILUTED $ 0.48 $ 0.42 $ 0.94 $ 0.81 CASH DIVIDENDS DECLARED PER SHARE $ 0.15 $ 0.115 $ 0.275 $ 0.23
2 Univest Corporation of Pennsylvania and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the six months ended, (in thousands) June 30, 1998 June 30, 1997 ------------- ------------- Cash flows from operating activities: Net income $ 7,211 $ 6,296 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses in excess of net charge-offs 105 406 Depreciation of premises and equipment 1,268 1,199 Discount accretion on investment securities (129) (256) Deferred tax benefit (334) (185) Realized gains on investment securities (12) (58) Realized gains on sales of mortgages (156) (37) Decrease in net deferred loan fees (36) (231) Increase in interest receivable and other assets (210) (5,120) Increase in accrued expenses and other liabilities 1,265 369 -------- -------- Net cash provided by operating activities 8,972 2,383 Cash flows from investing activities: Proceeds from sales of securities available for sale 6,011 20,987 Proceeds from maturing securities held to maturity 31,846 35,636 Proceeds from maturing securities available for sale 13,106 4,308 Purchases of time deposits (1,599) (553) Purchases of investment securities held to maturity (36,638) (13,177) Purchases of investment securities available for sale (21,613) (42,497) Net increase in federal funds sold and other short-term investments (30,023) (1,331) Proceeds from sales of mortgages 13,566 3,160 Net increase in loans (29,042) (36,002) Capital expenditures (725) (896) -------- -------- Net cash used in investing activities (55,111) (30,365) Cash flows from financing activities: Net increase in deposits 39,693 35,129 Net increase (decrease) in short-term borrowings 8,961 (10,577) Purchases of treasury stock (5,518) (1,406) Stock issued under dividend reinvestment and employee stock purchase plans 577 392 Proceeds from exercise of stock options 275 59 Cash dividends (1,915) (1,787) -------- -------- Net cash provided by financing activities 42,073 21,810 Net decrease in cash and due from banks (4,066) (6,172) Cash and due from banks at beginning of period 33,352 38,934 -------- -------- Cash and due from banks at end of period $ 29,286 $ 32,762 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 15,561 $ 14,077 Income taxes $ 3,366 $ 2,975
3 UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1. Financial Information The accompanying condensed consolidated financial statements include the accounts of Univest Corporation of Pennsylvania (Univest) and its wholly owned subsidiaries, including Union National Bank and Trust Company (Union) and Pennview Savings Bank (Pennview), collectively referred to herein as the "Banks". The condensed consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results and condition for the interim periods presented. Operating results for the six-month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the registrant's Annual Report on Form 10-K for the year ended December 31, 1997, which has been filed with the Securities and Exchange Commission. Note 2. Per Share Data The following weighted average shares were used for the computation of earnings per share:
For the Three Months For the Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 Weighted Average Shares 7,601,829.8 7,744,627.6 7,622,976.4 7,753,379.0
In February 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, Earnings per Share, which was adopted on December 31, 1997 by the Corporation. At that time, the Corporation changed the method currently used to compute earnings per share and restated all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options is excluded. Note 3. Stock Split On January 28, 1998 the Corporation's board of directors declared a 100% stock dividend in the form of a stock split which was paid on May 1, 1998, to shareholders of record as of April 14, 1998. All share and per share amounts have been retroactively adjusted to give effect to the stock split. Note 4. Recent Accounting Pronouncements In 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per 4 share excludes any dilutive effects of options, warrants, and convertible securities. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS No. 128 requirements. The Financial Accounting Standards Board (FASB) has issued Statement No. 129, "Disclosure of Information about Capital Structure" (SFAS No. 129), which is applicable to all companies. SFAS No. 129 consolidates the existing guidance in authoritative literature relating to a company's capital structure. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. The adoption of this standard did not have any impact on the Corporation's financial statements. As of January 1, 1998, the Corporation adopted Statement No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Corporation's net income or shareholders' equity. SFAS No. 130 requires unrealized gains or losses on the Corporation's available- for-sale securities which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. The following shows the comprehensive income for the periods stated:
Three months Six months ended June 30, ended June 30, 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Net income $3,651 $3,283 $7,211 $6,296 Change in unrealized gain on available for sale investment securities 116 527 63 19 ------ ------ ------ ------ Total comprehensive income $3,767 $3,810 $7,274 $6,315 ====== ====== ====== ======
In June 1997, Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information" became effective for fiscal periods beginning after December 15, 1997, with early adoption permitted. The Corporation is currently evaluating the additional disclosure requirements this statement is expected to have on the Corporation's financial statements. The FASB has recently issued Statement No. 132, Employers' "Disclosures about Pensions and Other Postretirement Benefits", (SFAS No. 132) which is effective for financial statements issued for periods beginning after December 31, 1997. SFAS No. 132 does not change the recognition or measurement associated with pension or postretirement plans. It standardizes certain disclosures, requires additional information about changes in the benefit obligations and about change in the fair value of plan assets to facilitate analysis, and it eliminates certain disclosures that were not deemed useful. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which is required to be adopted in two years beginning after June 15, 1999. The Statement will require the Corporation to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Corporation has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Corporation. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Income Net income for the three months ended June 30, 1998 increased 12.1% or $0.4 million from $3.3 million for the three months ended June 30, 1997 to $3.7 million for the three months ended June 30, 1998. The increase was due mainly to an increase in other income. Net income also increased $0.9 million or 14.3% to $7.2 million for the six months ended June 30, 1998 as compared to $6.3 million for the six months ended June 30, 1997. The increases for both the three and six month periods were due to an increase in other income. Net Interest Income Interest and fees on loans increased $0.3 million from $13.6 million for the three months ended June 30, 1997 to $13.9 million for the three months ended June 30, 1998. For the six months ended June 30, 1998, interest and fees on loans increased $0.8 million from $26.6 million at June 30, 1997 to $27.4 million at June 30, 1998. The increase in both periods was due to increased loan volume. Interest on investment securities increased $0.2 million from $3.8 million for the three month period ended June 30, 1997 to $4.0 million for the three month period ended June 30, 1998. The increase was due to higher average volume. For the six months ended June 30, 1998 interest on investments increased by $0.5 million from $7.4 million for the six months ended June 30, 1997 to $7.9 million for the same period in 1998. This increase is also attributed to higher average volume for the period. Interest expense increased from $7.2 million for the three months ended June 30, 1997 to $8.0 million for the three months ended June 30, 1998, an increase of $0.8 million. Interest expense increased $1.5 million from $14.1 million for the six months ended June 30, 1997 to $15.6 million for the six months ended June 30, 1998. The increase in both periods is attributed to volume and rate increases in certain types of money market accounts and special certificates of deposit for Individual Retirement Accounts. The asset/liability management process continues with its goal of providing stable reliable earnings through varying interest rate environments. Net interest income is the amount by which interest income on earnings assets exceeds interest paid on interest bearing liabilities. The amount of net interest income is affected by changes in interest rates, account balances or volume, and the mix of earning assets and interest bearing liabilities. Six months ended June 30, 1998 shows net interest income of $20.2 million which is a $0.2 million increase over the $20.0 million 6 recorded for the six months ended June 30, 1997. The increase in net interest income for the six months ended June 30, 1998 was attributed to growth in net interest earning assets of $2.5 million and was offset by a decline in the net interest margin. Average interest earning assets increased by $59.4 million for the six month period ended June 30, 1998, as compared to the prior year. Average interest bearing liabilities increased by $57.0 million for the six month period ended June 30, 1998 as compared to the prior year. Average earning assets grew mainly due to commercial loan growth and average interest bearing liabilities grew due to increased deposits. The increase in net interest income resulting from the increase in net interest earning assets was offset by a decline in interest rate margin of 27 basis points to 4.39% in June 1998 from 4.66% in June 1997. The following demonstrates the aforementioned effects:
SIX MONTHS ENDED ---------------- 6/30/98 6/30/97 ------- ------- AVG. BALANCE RATE AVG. BALANCE RATE ----------------- ----------------- Interest Earnings Assets $920,738 7.77% $861,326 7.92% Interest Bearing Liabilities 743,833 4.19% 686,889 4.09% Net Interest Income 20,211 20,054 Net Interest Spread 3.59% 3.83% Net Interest Margin 4.39% 4.66%
The Corporation is permitted to use interest-rate swap agreements which convert a portion of its floating rate commercial loans to a fixed basis, thus reducing the impact of interest changes on future income. In these swaps, the Corporation agrees to exchange, at specified intervals, the difference between fixed and floating-interest rates calculated on an agreed upon notional principal amount. Because of the Corporation's interest-earning assets tend to be short-term floating rate instruments while the Corporation's interest-bearing liabilities tend to be longer-term fixed rate instruments, interest rate swaps in which the Corporation pays a floating rate and receives a fixed rate are used to reduce the impact of changes in interest rates on the Corporation's net interest income. At June 30, 1998, June 30, 1997 and December 31, 1997, $50.0 million in notional amount of "Pay Floating, Receive Fixed" swaps were outstanding. The net payable or receivable from interest rate swap agreements is accrued as an adjustment to interest income. The $50.0 million in notional amount interest rate swaps outstanding at June 30, 1998 expire as follows: $20.0 million in notional principal amount in first quarter 1999, $10.0 million in notional principal amount in third quarter 1999, $10.0 million in first quarter 2000 and $10.0 million in second quarter 2000. The impact of interest rate swaps on net interest income for the quarter ended June 30, 1998 was a positive $22 7 thousand as compared to a positive $18 thousand for the quarter ended June 30, 1997. For the six months ended June 30, 1998 the impact was a positive $40 thousand as compared to a positive $44 thousand for the six months ended June 30, 1997. The Corporation's current credit exposure on swaps is limited to the value of interest-rate swaps that have become favorable to the Corporation. As of June 30, 1998 the market value of interest-rate swaps in a favorable position was $95 thousand. There were no interest rate swaps with the market value in an unfavorable position. Asset Quality Management believes the allowance for loan losses is maintained at a level which is adequate to absorb potential losses in the loan portfolio. Management's methodology to determine the adequacy of the allowance considers specific credit reviews, past loan loss experience, current economic conditions and trends, and the volume, growth and composition of the loan portfolio. The allowance for loan losses is determined through a quarterly evaluation of reserve adequacy which takes into consideration the growth of the loan portfolio, the status of past-due loans, current economic conditions, various types of lending activity, policies, real estate and other loan commitments, and significant change in the charge-off activity. Loans are also reviewed for impairment based on discounted cash flows using the loans initial effective interest rate or the fair value of the collateral for certain collateral dependent loans as provided for under SFAS 114. Any of the above criteria may cause the provision to fluctuate. For the three and six months ended June 30, 1998, the provisions for loan losses were $0.3 million and $0.6 million respectively. For the three and six months ended June 30, 1997 the provisions were $0.4 million and $0.6 million respectively. At June 30, 1998, the recorded investment in loans that are considered to be impaired was $3.1 million (all of which were on a non-accrual basis); the related allowance for credit losses for those loans was $611 thousand. At June 30, 1997, the recorded investment in loans considered to be impaired was $2.2 million and the related allowance for credit losses for these loans was $578 thousand. Generally, a loan (including a loan impaired) is classified as non-accrual and the accrual of interest on such loan is discontinued when the contractual payment of principal or interest has become 90 days due or management has serious doubts about the further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against "other expense." Interest received on non-accrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the 8 obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. Total cash basis, non-accrual and restructured loans at June 30, 1997 and 1998, was $4.6 million and consist mainly of real estate related commercial loans. For the quarter ended June 30, 1998, non-accrual loans resulted in lost interest income of $100 thousand as compared to $67 thousand for the quarter ended June 30, 1997. For the six months ended June 30, 1998 lost interest totaled $176 thousand as compared to $146 thousand for the same period in 1997. At June 30, 1998, the Corporation had no commitments to lend additional funds with respect to nonperforming loans. In management's evaluation of the loan portfolio risks, any significant future increases in nonperforming loans are dependent to a large extent on the economic environment, or specific industry problems. The Corporation is currently in the process of evaluating potential loss exposure for large commercial credits based on the results of a questionnaire dealing with Year 2000 readiness. Completion of this process is expected by the end of the third quarter. The impact this analysis will have on the reserve is not known at this time. At June 30, 1998, and December 31, 1997, the reserve for loan losses remained constant at 1.6% of total loans. The Corporation, at June 30, 1998, has a total of $234 thousand of Other Real Estate Owned ("OREO") consisting of three commercial properties. This amount is recorded in "Other Assets" at lower of cost or fair market value in the accompanying consolidated balance sheets. Other Income Other income which is non-interest related consists mainly of general fee income, trust department fee income, and other miscellaneous non-recurring types of income. It also includes various types of service charges, such as ATM fees, and for 1998, increases in the cash surrender value of Bank-Owned Life Insurance (BOLI). Other income increased $0.8 million or 44.4% from $1.8 million for the three months ended June 30, 1997 to $2.6 million for the three months ended June 30, 1998. The increase is attributed to a $0.2 million increase in the net cash surrender value of a $15.0 million Bank Owned Life Insurance Policy, along with trust income, which continues to be a major source of non-interest income. Trust income for the three months ended June 30, 1998 of $0.7 million was $0.1 million or 16.7% more than the $0.6 million reported for the three months ended June 30, 1997. Fee income, mainly due to increases in various other transaction fees and deposit service fees, increased from $0.9 million for the three months ended June 30, 1997 to $1.3 million for the three months ended June 30, 1998, an increase of $0.4 million or 44.4% Other income for the six months ended June 30, 1998 increased $1.5 million or 40.5% from $3.7 million for the six months ended June 30, 1997 to $5.2 million for the six months ended June 30, 1998. The increase is attributed to a $0.4 million increase in the net cash surrender value of a $15.0 million Bank Owned Life Insurance Policy and trust income. Trust income for the six months ended June 30, 1998 9 of $1.7 million was $0.3 million or 21.4% more than the $1.4 million reported for the six months ended June 30, 1997. Fee income, mainly due to increases in various other transaction fees and deposit service fees, increased from $1.7 million for the six months ended June 30, 1997 to $2.5 million for the six months ended June 30, 1998, an increase of $0.8 million or 47.1%. During the quarter and six months ended June 30, 1998, investment securities totaling approximately $6 million were sold from the available for sale portfolio resulting in a net gain of $12 thousand. Those securities were sold to provide future yield enhancement and extend maturities. During the quarter ended June 30, 1997, securities totaling approximately $7 million were sold resulting in a net gain of $13 thousand. For the six months ended June 30, 1997, gains on sale of securities total $58 thousand. Debt securities that the Corporation has both the positive intent and ability to hold to maturity are carried at amortized cost. All other debt securities and all marketable equity securities are classified as available-for-sale or trading and carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried net of taxes and included in Accumulated Other Comprehensive Income. Unrealized holding gains and losses on securities classified as trading are reported in earnings. The total debt and equity securities held in the available-for-sale account as of June 30, 1998, is $118.9 million as compared to $116.2 million at December 31, 1997. At June 30, 1998, a net unrealized gain of $413 thousand was recorded, compared to a net unrealized gain of $350 thousand at December 31, 1997. Other Expense Other expenses make up the operating costs of the Corporation, including but not limited to salaries and benefits, equipment, data-processing and occupancy costs. This category is usually referred to as non-interest expense and receives ongoing management attention in an attempt to contain and minimize the growth of the various expense categories, while encouraging technological innovation in conjunction with the expansion of the Corporation. Other expenses increased from $6.9 million for the quarter ended June 30, 1997 to $7.4 million for the quarter ended June 30, 1998. For the six months ended June 30, 1998 other expenses increased 3.6% or $0.5 million from $14.0 million at June 30, 1997 to $14.5 million at June 30, 1998. Increases is both periods are due to normal salary increases, and other expenses such as advertising, community relations, intangible expenses and software expenses. Year 2000 As reported in the Corporation's Annual Report on Form 10-K for the year ended December 31, 1977 a Year 2000 committee has been established. This group represents most areas of the Corporation and has developed a plan, inventoried software, identified hardware, contracts, and insurance issues all of which are under review. 10 In April, 1998, the Corporation implemented a detailed testing schedule for mission-critical systems, which is expected to be substantially complete by December 31, 1998. In early 1999, the Corporation will conduct external testing with third parties, including ATMs, major customers, other financial institutions, payment systems providers, etc. This testing is expected to be completed by June 30, 1999. The Corporation has initiated communications with all of its significant suppliers and customers. This will enhance the level of understanding and help to identify significant areas of third-party risk. These critical business areas may require contingency plans, which are now under study. The Year 2000 project cost is estimated at approximately $0.4 million in 1998. Total cost for the first six months ended June 30, 1998 was not material to the Corporation's results of operations. The cost of the project and the date on which the Corporation believes it will complete the project are based on best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those anticipated. Tax Provision An income tax provision of $1.5 million was recorded for the quarter ended June 30, 1998 and June 30, 1997. The effective tax rates were 29.2% and 31.6% respectively. For the six months ended June 30, 1998 the provision was $3.0 million as compared to $2.9 million for the six months ended June 30, 1997 with effective tax rates of 29.7% and 31.5% respectively. The effective tax rates reflects the benefits of tax credits generated from investments in low-income housing projects, tax-free income from investment in securities, loans and bank-owned life insurance. Financial Condition Total assets increased $50.3 million or 5.2% from $973.2 million at December 31, 1997 to $1,023.5 million at June 30, 1998. Net loans and investments increased $15.6 million and $21.5 million respectively. Deposits increased $39.7 million mainly due to increased activity in certain types of money market accounts with higher rates being paid. Shareholders' equity increased to $105.1 million at June 30, 1998 from $104.6 million at December 31, 1997, an increase of $0.5 million or .5% Book value per share increased from $13.64 at December 31, 1997 to $13.92 at June 30, 1998. An increase of $.28 per share or 2.1%. Recent Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the calculation of primary 11 and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS No. 128 requirements. The Financial Accounting Standards Board (FASB) has issued Statement No. 129, "Disclosure of Information about Capital Structure" (SFAS No. 129), which is applicable to all companies. SFAS No. 129 consolidates the existing guidance in authoritative literature relating to a company's capital structure. SFAS No. 129 is effective for financial statements for periods ending after December 15, 1997. The adoption of this standard did not have any impact on the Corporation's financial statements. As of January 1, 1998, the Corporation adopted Statement No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. However, the adoption of this Statement had no impact on the Corporation's net income or shareholders' equity. SFAS No. 130 requires unrealized gains or losses on the Corporation's available-for-sale securities which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirement of SFAS No. 130. The following shows the comprehensive income for the periods stated:
Three months Six months ended June 30, ended June 30, 1998 1997 1998 1997 ---- ---- ---- ---- (in thousands) Net income $3,651 $3,283 $7,211 $6,296 Change in unrealized gain on available for sale investment securities 116 527 63 19 ------ ------ ------ ------ Total comprehensive income $3,767 $3,810 $7,274 $6,315 ====== ====== ====== ======
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement becomes effective for fiscal periods beginning after December 15, 1997, with early adoption permitted. The Corporation is evaluating the additional disclosure requirements this Statement is expected to have on the Corporation's financial statements. The FASB has recently issued Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (SFAS No 132) which is effective for financial statements issued for periods beginning after December 31, 1997. SFAS No. 132 does not change the recognition or measurement associated with pension or postretirement plans. It standardizes certain disclosures, requires additional information 12 about changes in the benefit obligations and about change in the fair value of plan assets to facilitate analysis, and it eliminates certain disclosures that were not deemed useful. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which is required to be adopted in years beginning after June 15, 1999. The Statement will require the Corporation to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Corporation has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Corporation. 13 Part II. OTHER INFORMATION Item 1. Legal Proceedings--None Item 2. Changes in Securities--None Item 3. Defaults upon Senior Securities--None Item 4. Submission of Matters to a Vote of Security Holders--Not applicable Item 5. Other Information--None Item 6. Exhibits and Reports on Form 8-K Exhibit 27 - Financial Data Schedule No reports on Form 8-K were filed during the quarter for which this report is filed. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Univest Corporation of Pennsylvania ----------------------------------- (Registrant) Date: 7/21/98 /s/ Merrill S. Moyer ------- -------------------- Merrill S. Moyer, Chairman Date: 7/20/98 /s/ Wallace H. Bieler ------- --------------------- Wallace H. Bieler, Executive Vice President and Chief Financial Officer 15 EX-27.1 2 FINANCIAL DATA SCHEDULE
9 0000102212 Univest Corporation of Pennsylvania 6-MOS DEC-31-1998 JUN-30-1998 29,286 19,023 19,600 0 118,861 146,830 147,176 651,231 10,375 1,023,469 832,561 58,507 18,209 9,075 0 0 39,272 65,845 1,023,469 27,441 7,878 468 35,787 14,466 15,576 20,211 608 12 14,531 10,253 10,253 0 0 7,211 0.95 0.94 4.51 4,462 555 166 56 10,270 697 194 10,375 10,375 0 3,826
EX-27.2 3 FINANCIAL DATA SCHEDULE
9 0000102212 Univest Corporation of Pennsylvania 6-MOS DEC-31-1997 JUN-30-1997 32,762 913 1,400 0 86,749 150,551 151,216 640,179 10,207 940,779 768,897 50,139 13,823 7,075 0 0 19,636 81,209 940,779 26,611 7,439 63 34,113 12,965 14,059 20,054 580 58 13,957 9,193 9,193 0 0 6,296 0.81 0.81 4.82 4,152 356 244 0 9,801 334 160 10,207 10,207 0 5,516
EX-27.3 4 FINANCIAL DATA SCHEDULE
9 0000102212 Univest Corporation of Pennsylvania 6-MOS DEC-31-1996 JUN-30-1996 39,288 389 219 0 61,288 182,124 181,501 595,502 9,668 904,108 737,198 48,225 18,175 7,075 0 0 19,636 73,799 904,108 25,731 6,949 168 32,848 12,679 13,626 19,222 530 10 13,104 8,717 8,717 0 0 6,031 0.77 0.77 4.85 3,402 1,086 317 0 8,854 502 786 9,668 9,668 0 4,234
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