-----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, CpILdo4BEMbwAQ9Ecr5NKfTfVBleJe6+7CFgclvn1emauiQudpouogSkCHFeH0SY /Q+CDo3QRwTimPHJ5Nosaw== 0001133884-01-500444.txt : 20010813 0001133884-01-500444.hdr.sgml : 20010813 ACCESSION NUMBER: 0001133884-01-500444 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 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: 1934 Act SEC FILE NUMBER: 000-07617 FILM NUMBER: 1704818 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 g10q-25410.txt 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, 2001. --------------- 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 7,130,323 - -------------------------- --------- (Title of Class) (Number of shares outstanding at 6/30/01) UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES INDEX Page Number ----------- Part I. Financial Information: Item 1: Financial Statements (Unaudited) Condensed Consolidated Balance Sheets June 30, 2001 and December 31, 2000 1 Condensed Consolidated Statements of Income Three and Six Months Ended June 30, 2001 and 2000 2 Consolidated Statements of Cash Flows Six Months Ended June 30, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information: 15 Other Information UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (SEE NOTE) June 30, 2001 December 31, 2000 ------------- ----------------- (In thousands) ASSETS CASH AND DUE FROM BANKS $ 42,619 $ 40,517 INTEREST BEARING DEPOSITS WITH OTHER BANKS 13,579 5,131 INVESTMENT SECURITIES HELD-TO-MATURITY 125,713 158,499 (MARKET VALUE $127,696 AT 6/30/01 AND $159,325 AT 12/31/00) INVESTMENT SECURITIES AVAILABLE-FOR-SALE 215,984 189,927 FEDERAL FUNDS SOLD AND OTHER SHORT TERM INVESTMENTS 99 16,190 LOANS 767,175 739,228 LESS: RESERVE FOR POSSIBLE LOAN LOSSES (10,773) (10,727) ----------- ------------ NET LOANS 756,402 728,501 OTHER ASSETS 65,213 65,430 ----------- ------------ TOTAL ASSETS $ 1,219,609 $ 1,204,195 =========== ============ LIABILITIES DEMAND DEPOSITS, NON INTEREST BEARING $ 159,629 $ 168,796 DEMAND DEPOSITS, INTEREST BEARING 308,105 298,304 SAVINGS DEPOSITS 137,319 130,594 TIME DEPOSITS 368,537 374,230 ----------- ------------ TOTAL DEPOSITS 973,590 971,924 SHORT-TERM BORROWINGS 76,724 68,499 OTHER LIABILITIES 26,822 22,457 LONG-TERM DEBT 24,075 26,075 ----------- ------------ TOTAL LIABILITIES 1,101,211 1,088,955 SHAREHOLDERS' EQUITY COMMON STOCK 41,037 41,037 ADDITIONAL PAID-IN CAPITAL 20,912 20,912 RETAINED EARNINGS 83,661 77,498 ACCUMULATED OTHER COMPREHENSIVE INCOME 2,136 848 TREASURY STOCK (29,348) (25,055) ----------- ------------ TOTAL SHAREHOLDERS' EQUITY 118,398 115,240 ----------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,219,609 $ 1,204,195 =========== ============
NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2000 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES. 1 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, 2001 2000 2001 2000 (in thousands, except per share data) INTEREST INCOME INTEREST AND FEES ON LOANS TAXABLE INTEREST AND FEES ON LOANS $ 13,862 $ 13,953 $ 27,959 $ 27,623 EXEMPT FROM FEDERAL INCOME TAXES 822 787 1,645 1,561 -------- -------- -------- -------- TOTAL INTEREST AND FEES ON LOANS 14,684 14,740 29,604 29,184 INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES 4,900 4,577 9,843 9,096 OTHER INTEREST INCOME 400 564 785 779 -------- -------- -------- -------- TOTAL INTEREST INCOME 19,984 19,881 40,232 39,059 -------- -------- -------- -------- INTEREST EXPENSE INTEREST ON DEPOSITS 8,062 8,145 16,534 15,619 OTHER INTEREST EXPENSE 1,011 786 2,001 1,635 -------- -------- -------- -------- TOTAL INTEREST EXPENSE 9,073 8,931 18,535 17,254 -------- -------- -------- -------- NET INTEREST INCOME 10,911 10,950 21,697 21,805 PROVISION FOR LOAN LOSSES 216 15 231 (158) -------- -------- -------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,695 10,935 21,466 21,963 NONINTEREST INCOME TRUST 1,175 1,150 2,350 2,300 SERVICE CHARGES ON DEMAND DEPOSITS 940 909 1,832 1,848 SERVICE CHARGES ON OTHER DEPOSITS 324 329 619 632 COMMISSION INCOME 576 693 1,233 1,394 OTHER INCOME 1,664 1,031 2,870 2,302 -------- -------- -------- -------- TOTAL NONINTEREST INCOME 4,679 4,112 8,904 8,476 NONINTEREST EXPENSE SALARIES AND BENEFITS 4,691 4,917 10,073 10,715 NET OCCUPANCY 683 654 1,387 1,314 EQUIPMENT 351 407 740 821 OTHER EXPENSES 2,842 2,589 5,731 5,220 -------- -------- -------- -------- TOTAL NONINTEREST EXPENSE 8,567 8,567 17,931 18,070 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES 6,807 6,480 12,439 12,369 INCOME TAXES 1,793 1,862 3,264 3,626 -------- -------- -------- -------- NET INCOME $ 5,014 $ 4,618 $ 9,175 $ 8,743 ======== ======== ======== ======== PER COMMON SHARE DATA: NET INCOME PER SHARE: BASIC $ 0.70 $ 0.62 $ 1.28 $ 1.18 DILUTED $ 0.70 $ 0.62 $ 1.27 $ 1.18 CASH DIVIDENDS DECLARED PER SHARE $ 0.21 $ 0.19 $ 0.40 $ 0.352
2 UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
For the six months ended, (in thousands) June 30, 2001 June 30, 2000 ------------- ------------- Cash flows from operating activities: Net income $ 9,175 $ 8,743 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses in excess of (less than) net charge-offs 46 (850) Depreciation of premises and equipment 1,281 1,165 Discount accretion on investment securities (381) (1) Deferred tax benefit (499) (64) Realized gains on investment securities (102) - Realized gains on sales of mortgages (40) (1) Inccrease in net deferred loan fees 302 24 Decrease (increase) in interest receivable and other assets 563 (8,525) Increase in accrued expenses and other liabilities 4,063 2,358 ------------- ------------- Net cash provided by operating activities 14,408 2,849 Cash flows from investing activities: Proceeds from maturing securities held to maturity 106,249 29,109 Proceeds from maturing securities available for sale 28,758 7,113 Proceeds from sales of securities available for sale 5,661 8,549 Purchases of investment securities held to maturity (73,202) (33,956) Purchases of investment securities available for sale (58,494) (18,270) (Increase) decrease in interest-bearing deposits (8,448) 237 Net decrease (increase) in federal funds sold and other short-term investments 16,091 (7,900) Proceeds from sales of mortgages 4,352 554 Net increase in loans (32,561) (1,092) Capital expenditures (1,404) (1,414) Other investing activities - (200) ------------- ------------- Net cash used in investing activities (12,998) (17,270) Cash flows from financing activities: Net increase in deposits 1,666 34,013 Net increase (decrease) in short-term borrowings 8,225 (4,454) Repayment of long-term debt (2,000) - Purchases of treasury stock (5,243) (1,816) Stock issued under dividend reinvestment and employee stock purchase plans 594 635 Proceeds from exercise of stock options 207 57 Cash dividends (2,757) (2,424) -------------- ------------- Net cash provided by financing activities 692 26,011 Net increase in cash and due from banks 2,102 11,590 Cash and due from banks at beginning of period 40,517 35,066 -------------- ------------- Cash and due from banks at end of period $ 42,619 $ 46,656 ============== ============= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $17,999 $15,191
3 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 of a normal recurring nature and 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, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the registrant's Annual Report on Form 10-K for the year ended December 31, 2000, 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 Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ---- ---- ----- ---- Numerator: Net Income $5,014 $4,618 $9,175 $8,743 Numerator for basic and diluted earnings per share - income available to common shareholders 5,014 4,618 9,175 8,743 4 Denominator: Denominator for basic earnings per share- weighted-average shares outstanding 7,150 7,418 7,178 7,426 Effect of dilutive securities: Employee stock options 33 19 37 12 ----------------- ----------------- Denominator for diluted earnings per share adjusted weighted-average shares outstanding 7,183 7,437 7,215 7,438 ================= ================= Basic earnings per share $ .70 $ .62 $ 1.28 $ 1.18 ================= ================= Diluted earnings per share $ .70 $ .62 $ 1.27 $ 1.18 ================= =================
Note 3. Accumulated Other Comprehensive Income As of January 1, 2001, the Corporation adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended. The Statement requires 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 fair value of the interest-rate swaps has been included in other comprehensive income. The following shows the accumulated comprehensive income, net of income taxes, for the periods presented:
Three Months Six Months Ended June 30, Ended June 30, 2001 2000 2001 2000 ---- ---- ---- ---- (in thousands) Net income $5,014 $4,618 $ 9,175 $8,743 Accumulated gain on cash flow hedge (48) - 145 - Change in unrealized gain (loss) on available for sale investment securities (291) 519 1,143 (141) --- --- ----- --- Total comprehensive income $4,675 $5,137 $10,463 $8,602 ====== ====== ======= ======
5 Note 4. Future Accounting Pronouncements On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets. Major provisions of these Statements include the following: o SFAS 141 provisions relating to the initial measurement and recording of goodwill and intangible assets, financial statement presentation, and disclosures are effective for combinations completed after June 30, 2001. o SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for companies with fiscal years beginning after March 15, 2001 but only if they have not issued their first quarter financial statements prior to adoption. Regardless of the full adoption date, the nonamortization provisions of SFAS 142 are effective for business combinations and other transactions completed after June 30, 2001. The Corporation is evaluating the effect that the adoption of the new standards will have on earnings and its financial position. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET INCOME Net income increased 8.7% or $0.4 million from $4.6 million for the three months ended June 30, 2000 to $5.0 million for the three months ended June 30, 2001. The net income growth for the three months ended June 30, 2001 was due mainly to an increase in other income offset by an increase in the provision for loan loss. Net income for the six months ended June 30, 2001 increased 5.7% or $0.5 million from $8.7 million for the six months ended June 30, 2000 to $9.2 million for the six months ended June 30, 2001. The net income growth for the six months ended June 30, 2001 was due increases in interest income and other income and a decrease in operating expenses and income taxes offset by increases in interest expense and the loan loss provision. NET INTEREST INCOME Interest and fees on loans remained constant at $14.7 million for the three months ended June 30, 2000 and June 30, 2001. There was average loan volume growth in commercial loans that was offset by decreases in prime rate. Fixed rate consumer loans continued to increase in average volume during the second quarter. The prime rate, which is an important factor of the banks' loan interest income, averaged 7.1% for the second quarter 2001 compared to 9.3% for the second quarter 2000. For the six months ended June 30, 2001, interest and fees on loans increased $0.4 million from $29.2 million at June 30, 2000 to $29.6 million at June 30, 2001. The growth is due to an increase in average commercial loan volume offset by a decrease in prime rate. Fixed rate consumer loans increased in average volume. Prime rate was decreased from 9.5% in December 2000 to 9.0% in January 2001 to 8.5% in February 2001, to 8.0% in March 2001, to 7.0% in April 2001 and to 6.75% in June 2001 and remained at 6.75% through quarter end. Interest on investment securities increased $0.3 million from $4.6 million for the three-month period ended June 30, 2000 to $4.9 million for the three-month period ended June 30, 2001. For the six months ended June 30, 2001, interest on investments increased by $0.7 million from $9.1 million for the six months ended June 30, 2000 to $9.8 million for the same period in 2001. The increase was due to a higher average volume in mortgage-backed securities and corporate and asset-backed securities. Other interest income decreased $0.2 million for the three-month period ended June 30, 2001 and remained constant at $0.8 million for the six-month period ended June 30, 2001. This is due to the fluctuation in average volume of federal funds sold and the decline in the federal funds rate. 7 Interest expense increased $0.2 million from $8.9 million for the three months ended June 30, 2000 to $9.1 million for the three-month period ended June 30, 2001. Interest expense increased $1.2 million from $17.3 million for the six months ended June 30, 2000 to $18.5 million for the six-month period ended June 30, 2001. The increase in both periods is primarily attributed to volume growth and fluctuations in the average rate. The growth in the average volume of deposit accounts was offset by a decrease in rate particularly for the money market savings accounts. Repurchase agreements increased in average volume as well as rate. As borrowings from Federal Home Loan Bank matured, some were replaced with new borrowings at lower rates. The asset/liability management process continues with its goal of providing stable reliable earnings through varying interest rate environments. Net interest income is the amount by which interest income on earning assets exceeds interest paid on interest-bearing liabilities. Changes in interest rates, account balances or volume, and the mix of earning assets and interest bearing liabilities affect the amount of net interest income. The six months ended June 30, 2001 shows net interest income of $21.7 million, which is a decrease of $0.1 million compared to the $21.8 million recorded for the six months ended June 30, 2000. Average interest earning assets increased by $56.4 million for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000. Average interest bearing liabilities increased $47.6 million for the six months ended June 30, 2001 as compared to the same period in 2000. Interest earning asset yields decreased .1% compared to last year and an increase of .1% paid on interest-bearing liabilities decreased the net interest spread to 3.2%. The net interest margin decreased to 3.9%. The following table demonstrates the aforementioned effects:
SIX MONTHS ENDED ---------------- 6/30/01 6/30/00 ------- ------- AVG. BALANCE RATE AVG. BALANCE RATE ----------------- ----------------- Interest Earnings Assets $1,105,823 7.3% $1,049,472 7.4% Interest Bearing Liabilities 908,679 4.1% 861,042 4.0% Net Interest Income 21,697 21,805 Net Interest Spread 3.2% 3.4% Net Interest Margin 3.9% 4.2%
The Corporation uses interest-rate swap agreements that convert a portion of its floating rate commercial loans to a fixed rate basis. In these swaps, the Corporation 8 agrees to exchange, at specified intervals, thedifference between fixed and floating-interest rates calculated on an agreed upon notional principal amount. Interest rate swaps in which the Corporation pays a floating rate and receives a fixed rate are used to reduce the impact of changes in interest rates on the Corporation's net interest income. At June 30, 2001, June 30, 2000 and December 31, 2000, the notional amount of "Pay Floating, Receive Fixed" swaps outstanding were $20.0 million, $30.0 million and $30.0 million respectively. The net payable or receivable from interest rate swap agreements is accrued as an adjustment to interest income. The $20.0 million in notional amount interest rate swaps outstanding at June 30, 2001 expire as follows: $10.0 million in first quarter 2002 and $10.0 million in second quarter 2003. The impact of interest rate swaps on net interest income for the quarter ended June 30, 2001 was a positive $92 thousand as compared to a negative $58 thousand for the quarter ended June 30, 2000. For the six months ended June 30, 2001 the impact was a positive $99 thousand as compared to a negative $74 thousand for the six months ended June 30, 2000. The cost of the swaps decreased by the same amount as the income on the floating loans being hedged. Both decreases resulted from a decline in the prime rate. The Corporation's current credit exposure on swaps is limited to the value of interest-rate swaps that have become favorable to the Corporation. As of June 30, 2001, the market value of interest-rate swaps in a favorable position was $222 thousand and there were no interest-rate swaps with a market value in an unfavorable position. As of June 30, 2000, there were no interest-rate swaps with a market value in a favorable position and the market value of interest-rate swaps in an unfavorable position was $289 thousand. Credit risk exists when the counterparty to a derivative contract with an unrealized gain fails to perform according to the terms of the agreement. ASSET QUALITY Management believes the reserve for possible loan losses is maintained at a level that is adequate to absorb potential losses inherent in the loan portfolio. Management's methodology to determine the adequacy of and the provisions to the reserve considers specific credit reviews, past loan loss experience, current economic conditions and trends, and the volume, growth and composition of the loan portfolio. The reserve for possible loan losses is determined through a periodic evaluation that 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. The provisions for possible loan losses for both the three and six months ended June 30, 2001, were $0.2 million. For the three and six months ended June 30, 2000, the provisions were $0.02 million and ($0.2) million, respectively. 9 At June 30, 2001, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $3.0 million, all of which were on a non-accrual basis. The related reserve for credit losses for those loans was $1.3 million. At June 30, 2000, the recorded investment in loans considered to be impaired was $2.1 million, all of which were on a non-accrual basis. The related reserve for credit losses for these loans was $0.7 million. When a loan, including a loan impaired under SFAS No. 114, is classified as non-accrual, the accrual of interest on such loan is discontinued. A loan is classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years are charged against "other expense." Interest received on nonaccrual loans is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Loans are usually restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. The total of cash basis, non-accrual and restructured loans at June 30, 2001 was $3.1 million and consist mainly of commercial loans and real estate related commercial loans. Cash basis, non-accrual and restructured loans at June 30, 2000 were $2.4 million. At June 30, 2001, non-accrual loans resulted in lost interest income of $139 thousand as compared to $126 thousand at June 30, 2000. At June 30, 2001, the Corporation had no commitments to lend additional funds with respect to nonperforming loans. In management's evaluation of the loan portfolio risks, any significant future increases in nonperforming loans are dependent to a large extent on the economic environment, or specific industry problems. At June 30, 2001 and December 31, 2000, the reserve for possible loan losses was 1.4% and 1.5% of total loans, respectively. For more information on the reserve, please refer to the Registrant's Annual Report on Form 10-K for the period ended December 31, 2000. At June 30, 2001 and December 31, 2000, the Corporation had no Other Real Estate Owned ("OREO"). At June 30, 2000, the Corporation had a total of $82 thousand in OREO consisting of one commercial property and one residential property. This amount was recorded in "Other Assets" at the lower of cost or fair market value, less estimated costs to sell. 10 NONINTEREST INCOME Noninterest income consists mainly of trust department fee income, service charge income, commission income and other miscellaneous 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). Total noninterest income increased $0.6 million or 14.6% from $4.1 million for the three months ended June 30, 2000 to $4.7 million for the three months ended June 30, 2001. For the six months ended June 30, 2001, total noninterest income increased $0.4 million or 4.7% from $8.5 million for the six months ended June 30, 2000 to $8.9 million. The increase in both periods is attributed to other miscellaneous income as described below. Trust income remained constant at $1.2 million for the three months ended June 30, 2001 and June 30, 2000. Trust income for the six months ended June 30, 2001 of $2.4 million was $0.1 million more than the $2.3 million reported for the six months ended June 30, 2000. Growth in the number of trust accounts was partly offset by a decline in the market value of assets under management. Service charges on demand deposits remained constant at $0.9 million for the three months ended June 30, 2001 and June 30, 2000. Service charges on other deposits also remained constant at $0.3 million for the three months ended June 30, 2001 and June 30, 2000. Service charges on demand deposits remained constant at $1.8 million for the six months ended June 30, 2001 and June 30, 2000. Service charges on other deposits also remained constant at $0.6 million for the six months ended June 30, 2001 and June 30, 2000. Commission income is the primary source of income for Fin-Plan Group and George Becker Associates, Inc. Commission income for the three months ended June 30, 2001 of $0.6 million was $0.1 million or 14.3% less than the $0.7 million reported for the three months ended June 30, 2000. Commission income for the six months ended June 30, 2001 of $1.2 million was $0.2 million or 14.3% less than the $1.4 million reported for the six months ended June 30, 2000. While there was growth in the insurance commission there was a decline in the broker/dealer fees. Other miscellaneous income increased $0.7 million from $1.0 million for the three months ended June 30, 2000 to $1.7 million for the three months ended June 30, 2001. For the six-month period, other income grew $0.6 million from $2.3 million at June 30, 2000 to $2.9 million at June 30, 2001. The growth for both periods is attributed to gains on the sales of securities, gains on the sales of mortgages and changes in the cash surrender values of bank owned life insurance policies. These gains are all market driven and do not indicate a trend of increasing income. Also contributing to the growth for both periods is an increase in debit card usage that generated additional fees from the card origination system. 11 NONINTEREST EXPENSE The operating costs of the Corporation include but are not limited to, salaries and benefits, equipment expense, and occupancy costs. This category is usually referred to as noninterest 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. Total noninterest expenses remained steady at $8.6 million for the quarter ended June 30, 2000 and June 30, 2001. Total noninterest expenses decreased from $18.1 million for the six months ended June 30, 2000 to $17.9 million for the six months ended June 30, 2001. Salaries and benefits, which include bonuses and commission expense generated by Fin-Plan Group and George Becker Associates, Inc., decreased while other expenses such as advertising, loan processing fees, printing, postage, audit and miscellaneous other fees increased. TAX PROVISION The provision for income taxes was $1.8 million for the quarter ended June 30, 2001 and $1.9 million for the quarter ended June 30, 2000. The effective tax rates were 26.3% and 28.7% respectively. For the six months ended June 30, 2001 the provision was $3.3 million as compared to $3.6 million for the six months ended June 30, 2000. The effective tax rates were 26.2% and 29.3% respectively. The effective tax rates reflect the benefits of tax credits generated from investments in low-income housing projects and tax-free income from investment in municipal securities, loans and bank-owned life insurance. The reduction in the effective tax rate is primarily the result of an increase in tax-exempt loans and investment balances and in the amount of bank-owned life insurance owned by the Corporation. FINANCIAL CONDITION Total assets increased $15.4 million or 1.3% from $1,204.2 million at December 31, 2000 to $1,219.6 million at June 30, 2001. Growth in the corporate sweep accounts contributed to the $8.5 million increase in interest-bearing deposits with other banks. Investments declined $6.7 million due to maturing and sold securities exceeding new purchases. Federal funds sold decreased $16.1 million providing some of the funds for the $28.0 million growth in commercial loans, with $16.7 million of that growth in the second quarter. Total liabilities increased $12.2 million or 1.1% from $1,089.0 million at December 31, 2000 to $1,101.2 million at June 30, 2001. The increase of $8.5 million in short-term borrowings is due to growth in the corporate sweep accounts. Other liabilities increased $4.3 million primarily due to the purchase of securities of $6.7 million that will settle in July 2001. 12 Shareholders' equity grew to $118.4 million at June 30, 2001 from $115.2 million at December 31, 2000, an increase of $3.2 million or 2.8%. Treasury stock increased to $29.3 million from $25.1 million at December 31, 2000. Book value per share was $15.76 at December 31, 2000 and $16.60 at June 30, 2001, for an increase of $0.84 per share or 5.3%. 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 accumulated other comprehensive income, related to debt securities, of $2.0 million, net of taxes, has been included in shareholders' equity as of June 30, 2001. At December 31, 2000, the accumulated other comprehensive income included in shareholders' equity was $0.8 million. As of January 1, 2001, the Corporation adopted Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), as amended. The Statement requires 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 fair value of the interest-rate swaps at June 30, 2001 was $0.1 million and has been included in other comprehensive income. MARKET RISK No material changes in the Corporation's market risk or market strategy occurred during the current period. A detailed discussion of market risk is provided in the Registrant's Annual Report on Form 10-K for the period ended December 31, 2000. RECENT ACCOUNTING PRONOUNCEMENTS On July 20, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible Assets. Major provisions of these Statements include the following: 13 o SFAS 141 provisions relating to the initial measurement and recording of goodwill and intangible assets, financial statement presentation, and disclosures are effective for combinations completed after June 30, 2001. o SFAS 142 is effective for fiscal years beginning after December 15, 2001. Early adoption is permitted for companies with fiscal years beginning after March 15, 2001 but only if they have not issued their first quarter financial statements prior to adoption. Regardless of the full adoption date, the nonamortization provisions of SFAS 142 are effective for business combinations and other transactions completed after June 30, 2001. The Corporation is evaluating the effect that the adoption of the new standards will have on earnings and its financial position. 14 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. 15 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: 7/16/01 /s/ William S. Aichele ------- --------------------------- William S. Aichele, President and Chief Executive Officer Date: 7/17/01 /s/ Wallace H. Bieler ------- ------------------------------- Wallace H. Bieler, Executive Vice President and Chief Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----