-----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, QJhE9CnJJwW24i2C/o5HyKBPOW3ffP81Kb/tAFOAnmKaretRFHF9Cp9jlxavhx6A PSbSdjWlt/bQf58KBhEH7w== 0001005477-99-005064.txt : 19991111 0001005477-99-005064.hdr.sgml : 19991111 ACCESSION NUMBER: 0001005477-99-005064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991110 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: 99745830 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 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 September 30, 1999. or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From _______ to _______. UNIVEST CORPORATION OF PENNSYLVANIA ----------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1886144 ------------ ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 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 7,139,580 - -------------------------- --------- (Title of Class) (Number of shares outstanding at 9/30/99) UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES INDEX Page Number ----------- Part I. Financial Information: Item 1: Financial Statements (Unaudited) Condensed Consolidated Balance Sheets September 30, 1999 and December 31, 1998 1 Condensed Consolidated Statements of Income Three and Nine Months Ended September 30, 1999 and 1998 2 Consolidated Statements of Cash Flows Nine Months Ended September 30, 1999 and 1998 3 Notes to Condensed Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information: 16 Other Information Part III. Financial Data Schedule 18 UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (SEE NOTE) September 30, 1999 December 31, 1998 ------------------ ----------------- (In thousands) ASSETS CASH AND DUE FROM BANKS $ 33,898 $ 26,011 INTEREST BEARING DEPOSITS WITH OTHER BANKS 2,209 3,940 INVESTMENT SECURITIES HELD-TO-MATURITY 146,503 216,404 (MARKET VALUE $144,820 AT 9/30/99 AND $217,515 AT 12/31/98) INVESTMENT SECURITIES AVAILABLE-FOR-SALE 172,476 111,261 FEDERAL FUNDS SOLD AND OTHER SHORT TERM INVESTMENTS -- 12,700 LOANS 698,035 660,449 LESS: RESERVE FOR POSSIBLE LOAN LOSSES (11,221) (10,538) ----------- ----------- NET LOANS 686,814 649,911 OTHER ASSETS 56,767 50,243 ----------- ----------- TOTAL ASSETS $ 1,098,667 $ 1,070,470 ----------- ----------- LIABILITIES DEMAND DEPOSITS, NON INTEREST BEARING $ 149,413 $ 152,094 DEMAND DEPOSITS, INTEREST BEARING 246,259 238,622 SAVINGS DEPOSITS 137,947 138,936 TIME DEPOSITS 343,516 344,852 ----------- ----------- TOTAL DEPOSITS 877,135 874,504 SHORT-TERM BORROWINGS 91,972 64,045 OTHER LIABILITIES 14,762 19,669 LONG-TERM DEBT 13,075 9,075 ----------- ----------- TOTAL LIABILITIES 996,944 967,293 SHAREHOLDERS' EQUITY COMMON STOCK 39,272 39,272 ADDITIONAL PAID-IN CAPITAL 14,908 14,908 RETAINED EARNINGS 70,649 62,992 ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (2,119) 582 TREASURY STOCK (20,987) (14,577) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 101,723 103,177 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,098,667 $ 1,070,470 ----------- -----------
NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31,1998 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. 1 UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPT. 30, ENDED SEPT. 30, 1999 1998 1999 1998 (in thousands, except per share data) INTEREST INCOME INTEREST AND FEES ON LOANS TAXABLE INTEREST AND FEES ON LOANS $13,159 $13,096 $38,943 $39,350 EXEMPT FROM FEDERAL INCOME TAXES 686 607 1,906 1,794 ------- ------- ------- ------- TOTAL INTEREST AND FEES ON LOANS 13,845 13,703 40,849 41,144 INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES 4,691 4,058 13,508 11,936 OTHER INTEREST INCOME 128 699 653 1,167 ------- ------- ------- ------- TOTAL INTEREST INCOME 18,664 18,460 55,010 54,247 ------- ------- ------- ------- INTEREST EXPENSE INTEREST ON DEPOSITS 7,134 7,642 21,142 22,108 OTHER INTEREST EXPENSE 788 618 2,180 1,728 ------- ------- ------- ------- TOTAL INTEREST EXPENSE 7,922 8,260 23,322 23,836 ------- ------- ------- ------- NET INTEREST INCOME 10,742 10,200 31,688 30,411 PROVISION FOR LOAN LOSSES 251 275 801 883 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,491 9,925 30,887 29,528 OTHER INCOME 3,837 2,745 10,975 7,926 ------- ------- ------- ------- TOTAL OTHER INCOME 3,837 2,745 10,975 7,926 OTHER EXPENSES SALARIES AND BENEFITS 4,686 3,851 13,810 11,579 OTHER EXPENSES 3,846 3,373 11,364 10,176 ------- ------- ------- ------- TOTAL OTHER EXPENSES 8,532 7,224 25,174 21,755 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 5,796 5,446 16,688 15,699 APPLICABLE INCOME TAXES 1,681 1,623 4,895 4,665 ------- ------- ------- ------- NET INCOME $ 4,115 $ 3,823 $11,793 $11,034 ======= ======= ======= ======= PER COMMON SHARE DATA: NET INCOME PER SHARE: BASIC $ 0.57 $ 0.51 $ 1.62 $ 1.45 DILUTED $ 0.57 $ 0.50 $ 1.61 $ 1.44 CASH DIVIDENDS DECLARED PER SHARE $ 0.17 $ 0.15 $ 0.49 $ 0.425
2 Univest Corporation of Pennsylvania and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended, (in thousands) Sept. 30, 1999 Sept. 30, 1998 -------------- -------------- Cash flows from operating activities: Net income $ 11,793 $ 11,034 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses in excess of (less than) net charge-offs 683 (2) Depreciation of premises and equipment 1,737 1,887 Premium amortization (discount accretion) on investment securities 14 (174) Deferred tax benefit (212) (242) Realized gains on investment securities (52) (97) Realized gains on sales of mortgages (42) (201) Decrease in net deferred loan fees (39) (24) Increase in interest receivable and other assets (2,725) (1,327) (Decrease) increase in accrued expenses and other liabilities (3,360) 5,492 --------- --------- Net cash provided by operating activities 7,797 16,346 Cash flows from investing activities: Proceeds from sales of securities available for sale 17,919 25,079 Proceeds from maturing securities held to maturity 81,022 52,690 Proceeds from maturing securities available for sale 25,372 20,167 Decrease (increase) in interest-bearing deposits 1,731 (5,306) Purchases of time deposits -- (1,599) Purchases of investment securities held to maturity (11,165) (88,953) Purchases of investment securities available for sale (108,581) (30,642) Net decrease (increase) in federal funds sold and other short-term investments 12,700 (16,900) Net increase in long term federal funds sold -- (20,000) Proceeds from sales of mortgages 9,933 18,268 Net increase in loans (47,438) (24,169) Capital expenditures (1,536) (1,362) Other investing activities (4,000) -- --------- --------- Net cash used in investing activities (24,043) (72,727) Cash flows from financing activities: Net increase in deposits 2,631 56,223 Net increase in short-term borrowings 27,927 12,557 Proceeds from long-term debt 4,000 -- Purchases of treasury stock (8,561) (9,712) Stock issued under dividend reinvestment and employee stock purchase plans 936 878 Proceeds from exercise of stock options 633 311 Cash dividends (3,433) (3,053) --------- --------- Net cash provided by financing activities 24,133 57,204 Net increase in cash and due from banks 7,887 823 Cash and due from banks at beginning of period 26,011 33,352 --------- --------- Cash and due from banks at end of period $ 33,898 $ 34,175 --------- --------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 24,591 $ 23,881
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 nine-month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the registrant's Annual Report on Form 10-K for the year ended December 31, 1998, which has been filed with the Securities and Exchange Commission. Note 2. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands):
For the Three Months For the Nine Months Ended Sept. 30, Ended Sept. 30, 1999 1998 1999 1998 ---- ---- ---- ---- Numerator: Net Income $ 4,115 $ 3,823 $11,793 $11,034 Numerator for basic and diluted earnings per share - income available to common shareholders 4,115 3,823 11,793 11,034
4 Denominator: Denominator for basic earnings per share- weighted-average shares outstanding 7,220 7,533 7,273 7,593 Effect of dilutive securities: Employee stock options 30 68 32 67 ------------------- ------------------- Denominator for diluted earnings per share adjusted weighted-average shares outstanding 7,250 7,601 7,305 7,660 Basic earnings per share $ .57 $ .51 $ 1.62 $ 1.45 Diluted earnings per share .57 .50 1.61 1.44
Note 3. Comprehensive Income As of January 1, 1998, the Corporation adopted Statement No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Corporation's net income or shareholders' equity. SFAS No. 130 requires unrealized gains or losses on the Corporation's available-for-sale securities, which prior to adoption were reported separately in shareholders' equity, to be included in accumulated other comprehensive income. The following shows the comprehensive income for the periods presented:
Three months Nine months ended Sept. 30 ended Sept. 30, 1999 1998 1999 1998 ---- ---- ---- ---- (in thousands) Net income $ 4,115 $ 3,823 $ 11,793 $ 11,034 Change in unrealized (loss) gain on available for sale investment securities (504) 704 (2,701) 767 -------- -------- -------- -------- Total comprehensive income $ 3,611 $ 4,527 $ 9,092 $ 11,801 ======== ======== ======== ========
Note 4. Recent Accounting Pronouncements In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended, which is required to be adopted in years beginning after June 15, 2000. The Statement will require the Corporation to recognize all derivatives on the balance sheet at fair value. Derivatives 5 that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Because of the Corporation's minimal use of derivatives, management does not anticipate that the adoption of the new standard will have a significant effect on earnings or the financial position of the Corporation. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net Income Net income for the three months ended September 30, 1999 increased 7.9% or $0.3 million from $3.8 million for the three months ended September 30, 1998 to $4.1 million for the three months ended September 30, 1999. Net income also increased $0.8 million or 7.3% to $11.8 million for the nine months ended September 30, 1999 as compared to $11.0 million for the nine months ended September 30, 1998. The net income growth for the three and nine months ended September 30, 1999 was due mainly to increases in net interest income and other income. The increases were offset by increases in other expenses. Net Interest Income Interest and fees on loans increased $0.1 million from $13.7 million for the three months ended September 30, 1998 to $13.8 million for the three months ended September 30, 1999. The increase was attributed to increased average balance and an increase in prime rate from 7.75% to 8.00% in July and then to 8.25% in August. For the nine months ended September 30, 1999, interest and fees on loans decreased $0.3 million from $41.1 million at September 30, 1998 to $40.8 million at September 30,1999. This was due to a decrease in rate offset by increased volume. While prime rate was raised in July and August, the majority of the year was based on the lower rate set in November 1998. Interest on investment securities increased $0.6 million from $4.1 million for the three-month period ended September 30, 1998 to $4.7 million for the three-month period ended September 30, 1999. The increase was due to higher average volume offset by a lower average yield. For the nine months ended September 30, 1999 interest on investments increased by $1.6 million from $11.9 million for the nine months ended September 30, 1998 to $13.5 million for the same period in 1999. This increase is also attributed to higher average volume for the period offset by a slight decrease in yield. Other interest income decreased $0.6 million from $0.7 million for the three months ended September 30, 1999 to $0.1 for the three months ended September 30, 1998. Reduced federal funds sold volume is the reason for the decrease for the three and nine months ended September 30, 1999. Interest expense decreased from $8.3 million for the three months ended September 30, 1998 to $7.9 million for the three months ended September 30, 1999, a decrease of $0.4 million. Interest expense also decreased $0.5 million from $23.8 million 7 for the nine months ended September 30, 1998 to $23.3 million for the nine months ended September 30, 1999. This reduction for both periods is attributed to a decrease in rate that was offset by an increase in the average volume of deposits, particularly in the money market savings accounts. The asset/liability management process continues with its goal of providing stable reliable earnings through varying interest rate environments. Net interest income is the amount by which interest income on earning assets exceeds interest paid on interest bearing liabilities. Changes in interest rates, account balances or volume, and the mix of earning assets and interest bearing liabilities affect the amount of net interest income. The nine months ended September 30, 1999 shows net interest income of $31.7 million, which is an increase of $1.3 million over the $30.4 million recorded for the nine months, ended September 30, 1998. Average interest earning assets increased by $70.7 million for the nine-month period ended September 30, 1999 as compared to the nine months ended September 30, 1998. An increase in deposits and federal funds purchased provided the funds for loan growth. Average interest bearing liabilities increased by $60.3 million for the nine-month period ended September 30, 1999 as compared to the same period in 1998. Net interest earning assets grew $10.4 million for the nine months ended September 30, 1999 as compared to the nine months ended September 30, 1998. The increase in net interest income resulting from the increase in net interest earning assets and the decrease of 40 basis points in rate paid on interest bearing liabilities was offset by a decline in rate on interest bearing assets of 40 basis points. The net interest spread remained the same at 3.5%. The following demonstrates the aforementioned effects:
NINE MONTHS ENDED ----------------- 9/30/99 9/30/98 AVG. BALANCE RATE AVG. BALANCE RATE ----------------- ----------------- Interest Earnings Assets $1,006,707 7.3% $ 935,988 7.7% Interest Bearing Liabilities 816,676 3.8% 756,416 4.2% Net Interest Income 31,688 30,411 Net Interest Spread 3.5% 3.5% Net Interest Margin 4.2% 4.3%
The Corporation uses interest-rate swap agreements which convert a portion of its floating rate commercial loans to a fixed basis, thus reducing the impact of interest changes on future income. In these swaps, the Corporation agrees to exchange, at specified intervals, the difference between fixed and floating-interest rates calculated on an agreed upon notional principal amount. The Corporation's interest-earning assets tend 8 to be short-term floating rate instruments while the Corporation's interest-bearing liabilities tend to be longer-term fixed rate instruments. Interest rate swaps in which the Corporation pays a floating rate and receives a fixed rate are used to reduce the impact of changes in interest rates on the Corporation's net interest income. At September 30, 1999, $40.0 million in notional amount of "Pay Floating, Receive Fixed" swaps were outstanding. At September 30, 1998 and December 31, 1998, $50.0 million in notional amount of "Pay Floating, Receive Fixed" swaps were outstanding. The net payable or receivable from interest rate swap agreements is accrued as an adjustment to interest income. The $40.0 million in notional amount interest rate swaps outstanding at September 30, 1999 expire as follows: $10.0 million in first quarter 2000, $10.0 million in second quarter 2000, and $20.0 million in second quarter 2001. The impact of interest rate swaps on net interest income for the quarter ended September 30, 1999 was a positive $48 thousand as compared to a positive $23 thousand for the quarter ended September 30, 1998. For the nine months ended September 30, 1999 the impact was a positive $208 thousand as compared to a positive $63 thousand for the nine months ended September 30, 1998. The Corporation's current credit exposure on swaps is limited to the value of interest-rate swaps that have become favorable to the Corporation. As of September 30, 1999 the market value of interest-rate swaps in a favorable position was $5 thousand. The market value of interest-rate swaps in a negative position was $207 thousand. As of September 30, 1998 the market value of interest-rate swaps in a favorable position was $467 thousand. There were no interest rate swaps with the market value in an unfavorable position. Asset Quality Management believes the reserve for possible loan losses is maintained at a level that is adequate to absorb potential losses inherent in the loan portfolio. Management's methodology to determine the adequacy of and the provisions to the reserve considers specific credit reviews, past loan loss experience, current economic conditions and trends, and the volume, growth and composition of the loan portfolio. The reserve for possible loan losses is determined through a periodic evaluation which takes into consideration the growth of the loan portfolio, the status of past-due loans, current economic conditions, various types of lending activity, policies, real estate and other loan commitments, and significant changes in the charge-off activity. Loans are also reviewed for impairment based on discounted cash flows using the loans' initial effective interest rate or the fair value of the collateral for certain collateral dependent loans as provided for under SFAS No.114. Any of the above criteria may cause the provision to fluctuate. For the three months ended September 30, 1999 and September 30, 1998, the provisions for loan losses were $0.3 million. For the nine months ended 9 September 30, 1999 the provisions for loan losses were $0.8 million and for September 30, 1998, $0.9 million. At September 30, 1999, and December 31, 1998, the reserve for possible loan losses remained constant at 1.6% of total loans. For more information on the reserve, please refer to the Corporation's 1998 Form 10-K. At September 30, 1999, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $2.2 million, all of which were on a non-accrual basis. The related reserve for credit losses for those loans was $1.2 million. At September 30, 1998, the recorded investment in loans considered to be impaired was $2.8 million and the related reserve for credit losses for these loans was $0.7 million. Generally, when a loan (including a loan impaired under SFAS No. 114) is classified as non-accrual, the accrual of interest on such loan is discontinued. A loan is classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against "other expense." Interest received on nonaccrual loans is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. Total cash basis, non-accrual and restructured loans at September 30, 1999 was $2.6 million and at September 30, 1998 was $3.7 million. They consist mainly of commercial loans and real estate related commercial loans. For the quarter ended September 30, 1999, non-accrual loans resulted in lost interest income of $66 thousand as compared to $84 thousand for the quarter ended September 30, 1998. For the nine months ended September 30, 1999 lost interest totaled $183 thousand as compared to $260 thousand for the same period in 1998. At September 30, 1999, the Corporation had no commitments to lend additional funds with respect to nonperforming loans. In management's evaluation of the loan portfolio risks, any significant future increases in nonperforming loans are dependent to a large extent on the economic environment, or specific industry problems. At September 30, 1999, the Corporation has a total of $417 thousand of Other Real Estate Owned ("OREO") consisting of one commercial property and 3 residential properties. This amount is carried in "Other Assets" at lower of cost or fair market value in the accompanying consolidated balance sheets. 10 Other Income Other income which is non-interest related consists mainly of general fee income, trust department fee income, and other miscellaneous non-recurring types of income. It also includes various types of service charges, such as ATM fees, and increases in the cash surrender value of Bank-Owned Life Insurance (BOLI). Other income increased $1.1 million or 40.7% from $2.7 million for the three months ended September 30, 1998 to $3.8 million for the three months ended September 30, 1999. The increase is attributed to trust income and fee income. Trust income for the three months ended September 30, 1999 of $0.9 million was $0.1 million or 12.5% more than the $0.8 million reported for the three months ended September 30, 1998. Fee income grew from $1.4 million for the three months ended September 30, 1998 to $2.2 million for the three months ended September 30, 1999, an increase of $0.8 million or 57.1%. Included in fee income is an increase in various transaction fees and deposit service fees of $0.3 million from $1.1 million for the three months ended September 30, 1998 to $1.4 million for the three months ended September 30, 1999. Also included in fee income is commission income of $0.5 million for the three months ended September 30, 1999. Commission income, which is offset by commission expense, is the primary source of income for the newly acquired Fin-Plan Group. Refer to Other Expense. Other income for the nine months ended September 30, 1999 increased $3.1 million or 39.2% from $7.9 million for the nine months ended September 30, 1998 to $11.0 million for the nine months ended September 30, 1999. This increase is attributed to trust income and fee income. Trust income for the nine months ended September 30, 1999 of $2.9 million was $0.5 million or 20.8% more than the $2.4 million reported for the nine months ended September 30, 1998. Fee income increased from $3.9 million for the nine months ended September 30, 1998 to $6.4 million for the nine months ended September 30, 1999, an increase of $2.5 million or 64.1%. Included in fee income is an increase in various transaction fees and deposit service fees of $0.8 million from $3.1 million for the nine months ended September 30, 1998 to $3.9 million for the nine months ended September 30, 1999. Also included in fee income is commission income of $1.4 million for the nine months ended September 30, 1999, is offset by commission expense. Refer to Other Expense. Other Expense The operating costs of the Corporation are known as other expenses, and include but are not limited to, salaries and benefits, equipment expense, and occupancy costs. This category is usually referred to as non-interest expense and receives ongoing management attention in an attempt to contain and minimize the growth of the various expense categories, while encouraging technological innovation in conjunction with the expansion of the Corporation. Other expenses increased from $7.2 million for the quarter ended September 30, 1998 to $8.5 million for the quarter ended September 30, 1999, an increase of 18.1%. For the nine months ended September 30, 1999 other expenses increased 15.6% or $3.4 million from $21.8 million at September 30, 1998 to $25.2 million at September 30, 1999. The increase in salary expense includes commission expense of $1.0 million for the nine months ended September 30, 1999 and $0.3 million 11 for the three months ended September 30, 1999. The commission expense offsets commission income, generated by the new subsidiary, Fin-Plan Group. Refer to Other Income. Other expenses such as occupancy, MAC fees, software, and intangible expenses also contributed to the increases in both periods. Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The discussion regarding the Corporation's preparedness for Year 2000 as discussed in the following section entitled "Year 2000" contains certain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements involve risks and uncertainties including changes in the Corporation's ability to execute its plan to address the Year 2000 issue, and the ability of third parties to effectively address their Year 2000 issues. The Corporation wishes to advise readers not to place undue reliance on any such forward-looking statements that reflect management's analysis only as of the date hereof. Although the Corporation believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. Year 2000 The Corporation began the process of preparing its computer systems and applications for the Year 2000(Y2K) in 1997. A committee was established that formed a plan to resolve the Y2K issues in the following four phases: assessment, remediation, testing, and implementation. The committee has inventoried software, identified hardware and contracts with external vendors, and reviewed insurance issues. The Corporation has fully completed the assessment phase related to Y2K issues as it relates to the Corporation's hardware and software applications. The Corporation's assessment indicated that most of the significant information technology systems, particularly the general ledger and subsidiary applications including loans, deposits, payroll and trust systems could be affected. All of these software applications are licensed from vendors and run on hardware operated by the Corporation. These vendors have represented that such applications are Y2K compliant. Testing of these software applications is fully completed with satisfactory results, and programs remediated where necessary. Testing of the Corporation's computer hardware is complete and determined to be Y2K compliant. Any changes to software or new software will be Y2K tested before the software is made operational. The Corporation's contingency plans include self-remediation of licensed software, manual workarounds, and the use of outsourcing alternatives in the case of the payroll application. The assessment also indicated that the Y2K issue affected certain internally 12 developed programs. Such programs have been remedied, tested and successfully implemented. Additionally, the Corporation has completed the assessment of the potential effects on the Corporation related to its commercial customers' preparedness for Y2K. Specifically, the Corporation is subject to the risk of loss of customer deposits and customers' inability to meet contracted loan obligations in the event customers experience disruptions in their operations and experience loss of business and liquidity problems. The results of this assessment enable the Corporation to more closely monitor those higher risk customers to promptly determine the possible effects on the Corporation's liquidity and loan loss reserves. The inability of customers to complete their Y2K resolution process in a timely manner could materially impact the Corporation. In the first quarter of 1999, the Corporation successfully completed testing with external third parties, including ATMs, other financial institutions and payment systems providers. Testing with major customers was successfully conducted during the second quarter 1999. Contingency plans have been prepared for all mission critical applications. The contingency plans have been tested internally and verified by an independent third party. Validation plans have also been verified. Contingency plan training for all Univest employees will take place during the fourth quarter of 1999. We also continue to address other areas of the Corporation such as utilities, communications and networks. The total cost of the Y2K project cost is estimated at $400 thousand. To date, the Corporation has incurred approximately $318 thousand, all of which has been expensed. At September 30, 1999, $109 thousand was expensed and for the year ended December 31, 1998, $209 thousand was expensed. Management believes that the program in place has addressed the Y2K issue in a timely manner. Failure to complete the project as herein described may have a negative impact on our ability to effectively serve our customers. In this event, the Corporation may experience the loss of customers, strain on liquidity and a material negative effect on the results of operations. Management of the Corporation believes that our readiness program will be completed and if any need to rely on contingency plans arises, the impact will not have a material financial impact on the Corporation. However, there can be no guarantee that the estimates to complete the Y2K project or the contingency plans will be achieved and actual results could differ from those anticipated. 13 Tax Provision The provision for income taxes was $1.7 million for the quarter ended September 30, 1999 and $1.6 million for the quarter ended September 30, 1998. The effective tax rates were 29.0% and 29.8% respectively. For the nine months ended September 30, 1999 the provision was $4.9 million as compared to $4.7 million for the nine months ended September 30, 1998 with effective tax rates of 29.3% and 29.7% respectively. The effective tax rates reflects the benefits of tax credits generated from investments in low-income housing projects and tax-free income from investment in securities, loans and bank-owned life insurance. Financial Condition Total assets increased $28.2 million or 2.6% from $1,070.5 million at December 31, 1998 to $1,098.7 million at September 30, 1999. Net loans increased $36.9 million while investment securities and federal funds sold decreased $21.4 million. Deposits increased $ 2.6 million mainly due to increased activity in certain types of money market accounts that pay a higher rate. Short-term borrowings increased $28.0 million due to the normal business cycle volatility in the corporate daily sweep repurchase account and federal funds purchased. Shareholders' equity decreased to $101.7 million at September 30, 1999 from $103.2 million at December 31, 1998, a decrease of $1.5 million or 1.5%. The primary reason for the reduction was the continued treasury stock activity, in which net purchases total approximately $6.4 million since December 31, 1998. Book value per share increased from $14.02 at December 31, 1998 to $14.25 at September 30, 1999, an increase of $.23 per share or 1.6%. Debt securities that the Corporation has both the positive intent and ability to hold to maturity are carried at amortized cost. All other debt securities and all marketable equity securities are classified as available-for-sale or trading and carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried net of taxes and included in accumulated other comprehensive income. Unrealized holding gains and losses on securities classified as trading are reported in earnings. The total debt and equity securities held in the available-for-sale portfolio, as of September 30, 1999, is $172.5 million as compared to $111.3 million at December 31, 1998. Accumulated other comprehensive loss of $2.1 million, net of taxes, has been debited to shareholders' equity as of September 30, 1999. At December 31, 1998, accumulated other comprehensive income of $0.6 million was credited to shareholders' equity. 14 Market Risk No material changes in the Corporation's market risk or market strategy occurred during the current period. A detailed discussion of market risk is provided in the SEC Form 10-K for the period ended December 31, 1998. Other Univest Financial Services Corporation acquired Fin-Plan Group on January 29, 1999. This will allow Univest Corporation to provide a broader range of financial services including financial planning, investment management, insurance products and brokerage services. The impact on the Corporation's financial position and results of operations was immaterial for the nine months ended September 30, 1999. Effective July 1, 1999, Merrill S. Moyer retired as Chief Executive Officer of Univest Corporation. He continues to serve as Chairman of Univest Corporation and Union National Bank. William S. Aichele assumed the position of Chief Executive Officer of Univest Corporation in addition to his present role as President of the Corporation and President and CEO of Union National Bank. 15 Part II. OTHER INFORMATION Item 1. Legal Proceedings--None Item 2. Changes in Securities--None Item 3. Defaults upon Senior Securities--None Item 4. Submission of Matters to a Vote of Security Holders--Not applicable Item 5. Other Information--None Item 6. Exhibits and Reports on Form 8-K Exhibit 27 - Financial Data Schedule No reports on Form 8-K were filed during the quarter for which this report is filed. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Univest Corporation of Pennsylvania ----------------------------------- (Registrant) Date: 10/25/99 /s/ Merrill S. Moyer -------- -------------------------------------------- Merrill S. Moyer, Chairman Date: 10/22/99 /s/ Wallace H. Bieler -------- -------------------------------------------- Wallace H. Bieler, Executive Vice President and Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-1999 SEP-30-1999 33,898 2,209 0 0 172,476 146,503 144,820 698,035 11,221 1,098,667 877,135 91,972 14,762 13,075 0 0 39,272 62,451 1,098,667 40,849 13,508 653 55,010 21,142 23,322 31,688 801 52 25,174 16,688 16,688 0 0 11,793 1.62 1.61 4.33 2,519 591 60 7 10,538 1,303 1,185 11,221 11,221 0 886
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