United States

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q


x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31,September 30, 2007.
or

o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to _________.                  .

Commission File Number: 0-7617

UNIVEST CORPORATION OF PENNSYLVANIA
(Exact name of registrant as specified in its charter)
 
Pennsylvania 23-1886144
(State or other jurisdiction of incorporation of organization) (IRS Employer Identification No.)

14 North Main 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. R xYes    o£No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer x   Non-accelerated filer o
Large accelerated filer £
Accelerated filer R
Non-accelerated filer £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o£Yes    xRNo

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, $5 par value 12,978,48112,782,232
(Title of Class) (Number of shares outstanding at 3/31/9/30/07)
 

UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

INDEX
 
  Page Number
  
Page Number
Part I.Financial Information: 
   
 Item 1.Financial Statements (Unaudited) 
    
  Condensed Consolidated Balance Sheets at March 31,September 30, 2007 and December 31, 20061
    
  Condensed Consolidated Statements of Income for the Three and Nine Months Ended March 31,September 30, 2007 and 20062
    
  Condensed Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,September 30, 2007 and 20063
    
  Notes to Condensed Consolidated Financial Statements4
    
 Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations9
    
 Item 3.Quantitative and Qualitative Disclosure About Market Risk2128
    
 Item 4.Controls and Procedures2128
    
Part II.Other Information: 
    
 Item 1.Legal Proceedings2228
    
 Item 1A.Risk Factors2228
    
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2229
    
 Item 3.Defaults Upon Senior Securities2329
    
 Item 4.Submission of Matters to a Vote of Securities Holders2329
    
 Item 5.Other Information2329
    
 Item 6.Exhibits2430
 



PART I.FINANCIAL INFORMATION
PART I.Item 1. FINANCIAL INFORMATIONFinancial Statements
Item 1.
Financial Statements

UNIVEST CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED BALANCE SHEETS

 
(UNAUDITED)
 (SEE NOTE) 
 
September 30, 2007
 
December 31, 2006
 
 
(UNAUDITED)
March 31, 2007
 
(SEE NOTE)
December 31, 2006
  ($ in thousands, except per share data) 
ASSETS
 (In thousands, except share data)        
Cash and due from banks 
$
46,291
 $46,956  
$
40,466
 $46,956 
Interest-earning deposits with other banks  
478
  582 
Interest-bearing deposits with other banks  
613
  582 
Federal funds sold  
15,420
  22,817   
13,260
  22,817 
Investment securities held-to-maturity (market value $2,463 and $2,685 at March 31, 2007 and December 31, 2006, respectively)  
2,394
  2,619 
Investment securities held-to-maturity (market value $2,068 and $2,685 at September 30, 2007 and December 31, 2006, respectively)  
2,012
  2,619 
Investment securities available-for-sale  
377,093
  379,781   
393,015
  379,781 
Loans and leases  
1,372,523
  1,353,681   
1,371,374
  1,353,681 
Less: Reserve for loan and lease losses  
(13,414
)
 (13,283)  
(13,872
)
 (13,283)
Net loans and leases  
1,359,109
  1,340,398   
1,357,502
  1,340,398 
Premises and equipment, net  
21,833
  21,878   
22,747
  21,878 
Goodwill, net of accumulated amortization of $2,942 at March 31, 2007 and December 31, 2006  
44,425
  44,273 
Other intangibles, net of accumulated amortization and fair value adjustments of $5,134 and $5,113 at March 31, 2007 and December 31, 2006, respectively  
3,194
  3,335 
Goodwill, net of accumulated amortization of $2,942 at September 30, 2007 and December 31, 2006  
44,438
  44,273 
Other intangibles, net of accumulated amortization of $5,692 and $5,113 at September 30, 2007 and December 31, 2006, respectively  
2,813
  3,335 
Cash surrender value of insurance policies  
37,008
  36,686   
46,311
  36,686 
Accrued interest and other assets  
28,685
  30,176   
29,198
  30,176 
Total assets 
$
1,935,930
 $1,929,501  
$
1,952,375
 $1,929,501 
              
LIABILITIES
              
Demand deposits, noninterest-bearing 
$
244,410
 $263,417  
$
228,908
 $263,417 
Demand deposits, interest-bearing  
519,102
  508,140   
531,468
  508,140 
Savings deposits  
204,815
  195,126   
217,428
  195,126 
Time deposits  
553,013
  521,862   
540,359
  521,862 
Total deposits  
1,521,340
  1,488,545   
1,518,163
  1,488,545 
Securities sold under agreements to repurchase  
83,826
  99,761   
77,381
  99,761 
Other short-term borrowings  
-
  17,900   
17,600
  17,900 
Accrued expenses and other liabilities  
35,962
  30,505   
32,344
  30,505 
Long-term debt  
75,919
  77,036   
85,696
  77,036 
Subordinated notes  
9,375
  9,750   
8,625
  9,750 
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts holding junior subordinated debentures of Univest ("Trust Preferred Securities")  
20,619
  20,619   
20,619
  20,619 
Total liabilities  
1,747,041
  1,744,116   
1,760,428
  1,744,116 
SHAREHOLDERS' EQUITY
              
Common stock, $5 par value: 24,000,000 shares authorized at March 31, 2007 and December 31, 2006; 14,873,904 shares issued at March 31, 2007 and December 31, 2006; 12,978,481 and 13,005,329 shares outstanding at March 31, 2007 and December 31, 2006, respectively  
74,370
  74,370 
Common stock, $5 par value: 24,000,000 shares authorized at September 30, 2007 and December 31, 2006; 14,873,904 shares issued at September 30, 2007 and December 31, 2006; 12,782,232 and 13,005,329 shares outstanding at September 30, 2007 and December 31, 2006, respectively  
74,370
  74,370 
Additional paid-in capital  
22,493
  22,459   
22,573
  22,459 
Retained earnings  
131,884
  128,242   
139,144
  128,242 
Accumulated other comprehensive loss, net of tax benefit  
(3,974
)
 (4,463)  
(4,011
)
 (4,463)
Treasury stock, at cost; 1,895,423 and 1,868,575 shares at March 31, 2007 and December 31, 2006, respectively  
(35,884
)
 (35,223)
Treasury stock, at cost; 2,091,672 and 1,868,575 shares at September 30, 2007 and December 31, 2006, respectively  
(40,129
)
 (35,223)
Total shareholders’ equity  
188,889
  185,385   
191,947
  185,385 
Total liabilities and shareholders’ equity 
$
1,935,930
 $1,929,501  
$
1,952,375
 $1,929,501 

Note: The condensed consolidated balance sheet at December 31, 2006 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 for complete financial statement.statements. See accompanying notes to the unaudited condensed consolidated financial statements.

-1-- 1 -

UNIVEST CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

    
For the Three Months Ended
September 30,
 
For the Nine Months Ended
September 30,
 
 
For the Three Months Ended March 31,
  
2007
 
2006
 
2007
 
2006
 
 
2007
 
2006
  ($ in thousands, except per share data) 
Interest income
 ($ in thousands, except per share data)          
Interest and fees on loans and leases:              
Taxable 
$
22,585
 $19,160  
$
23,648
 $22,542 
$
69,633
 $62,598 
Exempt from federal income taxes  
1,019
  916   
1,028
  1,003  
3,080
  2,860 
Total interest and fees on loans and leases  
23,604
  20,076   
24,676
  23,545  
72,713
  65,458 
Interest and dividends on investment securities:                    
Taxable  
3,684
  2,446   
3,932
  3,178  
11,331
  8,424 
Exempt from federal income taxes  
948
  967   
981
  959  
2,899
  2,907 
Other interest income  
64
  63   
193
  42  
345
  216 
Total interest income  
28,300
  23,552   
29,782
  27,724  
87,288
  77,005 
Interest expense
                    
Interest on deposits  
10,395
  6,697   
11,804
  9,722  
33,478
  24,829 
Interest on long-term borrowings  
1,466
  1,156 
Interest on long-term debt and capital securities  
1,613
  1,264  
4,640
  3,607 
Interest on short-term debt  
994
  707   
572
  1,091  
2,294
  2,375 
Total interest expense  
12,855
  8,560   
13,989
  12,077  
40,412
  30,811 
Net interest income  
15,445
  14,992   
15,793
  15,647  
46,876
  46,194 
Provision for loan and lease losses  
624
  511   
456
  568  
1,733
  1,594 
Net interest income after provision for loan and lease losses  
14,821
  14,481   
15,337
  15,079  
45,143
  44,600 
Noninterest income
                    
Trust fee income  
1,487
  1,551   
1,525
  1,363  
4,493
  4,362 
Service charges on deposit accounts  
1,650
  1,672   
1,706
  1,748  
5,058
  5,091 
Investment advisory commission and fee income  
679
  549   
647
  545  
2,012
  1,701 
Insurance commission and fee income  
1,875
  1,377   
1,385
  1,233  
4,576
  3,534 
Life insurance income  
322
  386   
391
  433  
1,125
  1,054 
Other service fee income  
866
  754   
913
  893  
2,709
  2,437 
Net gain (loss) on sales of securities  
-
  - 
Net gain on sales of securities  
259
  3  
310
  50 
Net loss on disposition of fixed assets  ─  ─  
(64
)
 (67)
Other  
37
  156   
86
  16  
173
  192 
Total noninterest income  
6,916
  6,445   
6,912
  6,234  
20,392
  18,354 
Noninterest expense
                    
Salaries and benefits  
7,794
  7,305   
7,659
  7,051  
23,293
  21,554 
Net occupancy  
1,251
  1,068   
1,188
  1,078  
3,625
  3,205 
Equipment  
775
  772   
793
  829  
2,396
  2,406 
Marketing and advertising  
165
  535 
Marketing and Advertising   
255
  291  
663
  1,272 
Other  
3,177
  2,809   
3,187
  3,083  
9,598
  8,890 
Total noninterest expense  
13,162
  12,489   
13,082
  12,332  
39,575
  37,327 
Income before income taxes  
8,575
  8,437   
9,167
  8,981  
25,960
  25,627 
Applicable income taxes  
2,328
  2,223   
2,479
  2,444  
6,950
  6,861 
Net income 
$
6,247
 $6,214  
$
6,688
 $6,537 
$
19,010
 $18,766 
Net income per share:
                    
Basic 
$
0.48
 $0.48  
$
0.52
 $0.50 
$
1.47
 $1.45 
Diluted  
0.48
  0.48   
0.52
  0.50  
1.47
  1.44 
Dividends declared  
0.20
  0.19   
0.20
  0.20  
0.60
  0.58 

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

-2-- 2 -

UNIVEST CORPORATION OF PENNSYLVANIA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
For the Nine Months Ended
September 30,
 
 
For the Three Months Ended
March 31,
  
2007
 2006 
 
2007
 2006  ($ in thousands) 
Cash flows from operating activities: ($ in thousands)        
Net income 
$
6,247
 $6,214  
$
19,010
 $18,766 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:   Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for loan and lease losses  
624
  511   
1,733
  1,594 
Depreciation of premises and equipment  
513
  536   
1,495
  1,627 
Realized gains on investment securities  
(310
)
 (50)
Realized losses on dispositions of fixed assets  
64
  67 
Increase in cash surrender value of insurance policies  
(322
)
 (386)  
(1,125
)
 (1,054)
Other adjustments to reconcile net income to cash provided by operating activities  
(59
)
 (8)  
(119
)
 (446)
Decrease (increase) in accrued interest receivable and other assets  
1,257
  (3,082)
Decrease (increase) in interest receivable and other assets  
668
  (1,475)
Increase (decrease) in accrued expenses and other liabilities  
5,441
  (2,686)  
1,563
  (7,672)
Net cash provided by operating activities  
13,701
  1,099   
22,979
  11,357 
Cash flows from investing activities:              
Net cash paid due to acquisitions, net of cash acquired  
(198
)
 (152)  
(200
)
 (4,330)
Net capital expenditures  
(467
)
 (991)  
(2,428
)
 (2,327)
Proceeds from maturing securities held-to-maturity  
226
  308   
608
  827 
Proceeds from maturing securities available-for-sale  
16,267
  11,975   
57,999
  121,265 
Proceeds from sales of securities available-for-sale  
8,380
  7,470 
Proceeds from sales and calls of securities available-for-sale  
28,703
  22,298 
Purchases of investment securities available-for-sale  
(21,115
)
 (7,827)  
(98,781
)
 (194,655)
Proceeds from sales of loans and leases  
246
  449   
2,734
  1,156 
Purchases of financing leases  
(6,478
)
 ─ 
Net increase in loans and leases  
(13,034
)
 (38,252)
Net decrease (increase) in interest-bearing deposits  
104
  (58)
Purchases of lease financings  
(27,287
)
 (10,412)
Net decrease (increase) in loans and leases  
6,163
  (113,420)
Purchases of bank owned life insurance  
(8,500
)
 (10,412)
Net increase in interest-bearing deposits  
(31
)
 (92)
Net decrease in federal funds sold  
7,397
  5,528   
9,557
  11,726 
Net cash used in investing activities  
(8,672
)
 (21,550)  
(31,463
)
 (167,964)
Cash flows from financing activities:              
Net increase in deposits  
32,741
  38,391   
29,740
  97,182 
Net decrease in short-term borrowings  
(33,835
)
 (17,463)
Net (decrease) increase in short-term borrowings  
(22,680
)
 55,485 
Issuance of long-term debt  
10,000
  20,000 
Repayment of long-term debt  
(1,000
)
 ─   
(1,000
)
 (9,075)
Repayment of subordinated debt  
(375
)
 (375)  
(1,125
)
 (1,125)
Purchases of treasury stock  
(1,273
)
 (1,029)  
(7,065
)
 (3,397)
Stock issued under dividend reinvestment and employee stock purchase plans  
492
  552   
1,494
  1,539 
Proceeds from exercise of stock options  
151
  158 
Proceeds from exercise of stock options, including tax benefits  
414
  2,026 
Cash dividends paid  
(2,595
)
 (2,462)  
(7,784
)
 (7,383)
Net cash (used in) provided by financing activities  
(5,694
)
 17,772 
Net cash provided by financing activities  
1,994
  155,252 
Net decrease in cash and due from banks  
(665
)
 (2,679)  
(6,490
)
 (1,355)
Cash and due from banks at beginning of year  
46,956
  46,226   
46,956
  46,226 
Cash and due from banks at end of period 
$
46,291
 $43,547  
$
40,466
 $44,871 
              
Supplemental disclosures of cash flow information              
Cash paid (received) during the year for:       
Interest expense 
$
13,623
 $8,275 
Cash paid during the year for:       
Interest 
$
39,804
 $29,046 
Income taxes, net of refunds received  
(2
)
 23   
7,568
  6,999 

Note: See accompanying notes to the unaudited condensed consolidated financial statements.

-3-- 3 -

UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1. Financial Information

The accompanying unaudited condensed consolidated financial statements include the accounts of Univest Corporation of Pennsylvania (the “Corporation”) and its wholly owned subsidiaries; the Corporation’s primary subsidiary is Univest National Bank and Trust Co. (the “Bank”). The unaudited condensed consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying unaudited 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 three-monthnine-month period ended March 31,September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. It is suggested that these unaudited 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, 2006, which has been filed with the SEC on March 8, 2007.

Note 2. Loan and LeasesLoans

The following is a summary of the major loan and lease categories:

($ in thousands) 
At March 31,
2007
 
At December 31,
2006
  
At September 30,
2007
 
At December 31,
2006
 
Commercial, financial and agricultural 
$
445,422
 $442,182  
$
376,898
 $442,182 
Real estate-commercial  
355,627
  352,596   
399,574
  352,596 
Real estate-construction  
144,143
  136,331   
146,639
  136,331 
Real estate-residential  
305,767
  305,306   
311,616
  305,306 
Loans to individuals  
84,866
  89,217   
77,748
  89,217 
Lease financings  
39,810
  30,186   
63,665
  30,186 
Total gross loans and leases  
1,375,635
  1,355,818   
1,376,140
  1,355,818 
Less: Unearned income  
(3,112
)
 (2,137)  
(4,766
)
 (2,137)
Total loans and leases 
$
1,372,523
 $1,353,681  
$
1,371,374
 $1,353,681 

Note 3. Reserve for Loan and Lease Losses

A summary of the activity in the reserve for loan and lease losses is as follows:

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
($ in thousands) 
Three Months Ended March 31,
  
2007
 2006 
2007
 2006 
 
2007
 2006 
Reserve for loan and lease losses at beginning of period 
$
13,283
 $13,363  
$
13,793
 $14,280 
$
13,283
 $13,363 
Provision for loan and lease losses  
624
  511   
456
  568  
1,733
  1,594 
Recoveries  
159
  274   
166
  110  
522
  512 
Loans and leases charged off  
(652
)
 (292)
Loans charged off  
(543
)
 (1,961) 
(1,666
)
 (2,472)
Reserve for loan and lease losses at period end 
$
13,414
 $13,856  
$
13,872
 $12,997 
$
13,872
 $12,997 

-4-- 4 -

Information with respect to loans and leases that are considered to be impaired under SFAS 114 at March 31,September 30, 2007 and December 31, 2006 is as follows:

  
At March 31, 2007
 At December 31, 2006 
($ in thousands) 
 
Balance
 
Specific
Reserve
 Balance 
Specific
Reserve
 
Recorded investment in impaired loans and leases at period-end subject to a specific reserve for loan and lease losses and corresponding specific reserve 
$
4,451
 
$
1,498
 $5,606 $1,576 
Recorded investment in impaired loans and leases at period-end requiring no specific reserve for loan and lease losses  
3,301
     2,837    
Recorded investment in impaired loans and leases at period-end 
$
7,752
    $8,443    
Recorded investment in nonaccrual and restructured loans and leases 
$
7,752
    $8,443 ��  
  
At September 30, 2007
 At December 31, 2006 
($ in thousands) 
Balance
 
Specific
Reserve
 Balance 
Specific
Reserve
 
Recorded investment in impaired loans and leases at period-end subject to a specific reserve for loan and lease losses and corresponding specific reserve 
$
6,861
 
$
2,426
 $5,606 $1,576 
Recorded investment in impaired loans and leases at period-end requiring no specific reserve for loan and lease losses  
519
     2,837    
Recorded investment in impaired loans and leases at period-end 
$
7,380
    $8,443    
Recorded investment in nonaccrual and restructured loans and leases 
$
7,380
    $8,443    

The following is an analysis of interest on nonaccrual and restructured loans and leases:

 
Three Months Ended
 
Nine Months Ended
 
 
Three Months Ended
  
September 30,
 
September 30,
 
($ in thousands) 
March 31,
  
2007
 2006 
2007
 2006 
 
2007
 2006 
Nonaccrual and restructured loans and leases at period end 
$
7,752
 $5,343  
$
7,380
 $4,918 
$
7,380
 $4,918 
Average recorded investment in impaired loans and leases  
8,186
  4,321   
7,266
  7,915  
7,554
  5,658 
Interest income that would have been recognized under original terms  
198
  
118
   
146
  
86
  
542
  
319
 

No interest income was recognized on these loans for the three-monththree- and nine-month periods ended March 31,September 30, 2007 and 2006.

Note 4. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
(in thousands, except per share data) 
Three Months Ended
March 31,
  
2007
 2006 
2007
 2006 
  
2007
  2006 
Numerator:                
Numerator for basic and diluted earnings per share - Net income 
$
6,247
 $6,214 
Numerator for basic and diluted earnings per share – Net income 
$
6,688
 $6,537 
$
19,010
 $18,766 
Denominator:                    
Denominator for basic earnings per share -
weighted-average shares outstanding
  
13,004
  
12,945
 
Denominator for basic earnings per share – weighted-average shares outstanding  
12,811
  12,963  
12,917
  12,949 
Effect of dilutive securities:                    
Employee stock options  
49
  
74
   
7
  69  
18
  57 
Denominator for diluted earnings per share - adjusted weighted-average shares outstanding  
13,053
  
13,019
 
Denominator for diluted earnings per share – adjusted weighted-average shares outstanding  
12,818
  
13,032
  
12,935
  
13,006
 
Basic earnings per share 
$
0.48
 $0.48  
$
0.52
 $0.50 
$$
1.47
 $1.45 
Diluted earnings per share 
$
0.48
 $0.48  
$
0.52
 $0.50 
$
1.47
 $1.44 

-5-- 5 -

Note 5. Accumulated Comprehensive Income

The following shows the accumulated comprehensive income, net of income taxes, for the periods presented:

 
For the Three Months
 
For the Nine Months
 
 
Ended September 30,
 
Ended September, 30
 
($ in thousands) 
For the Three Months
Ended March 31,
  
2007
 2006 
2007
 2006 
 
2007
 2006 
Net Income 
$
6,247
 $6,214  
$
6,688
 $6,537 
$
19,010
 $18,766 
Unrealized loss on cash flow hedges:       
Unrealized holding losses arising during the period  
─
  (11)
Unrealized gain on cash flow hedges:             
Unrealized holding gains arising during the period  
─
  41  
─
  45 
Unrealized gain (loss) on available-for-sale investment securities:                    
Unrealized gains arising during the period  
2,363
  2,823  
574
  977 
Less: reclassification adjustment for gains realized in net income   
169
  1  
202
  32 
Defined benefit pension plans:             
Unrealized gains (losses) arising during the period  
509
  (869)  
(26
)
 ─  
(65
)
 ─ 
Defined benefit pension plans:       
Unrealized losses arising during the period  
(52
)
 ─ 
Less: amortization of net gain included in net periodic pension costs  
(47
)
 ─   
(67
)
 ─  
(179
)
 ─ 
Less: accretion of prior service cost included in net periodic pension costs  
15
  
─
   
9
  
─
  
33
  
─
 
Total comprehensive income 
$
6,736
 $5,334  
$
8,914
 $9,400 
$
19,463
 $19,756 

Note 6. Pensions and Other Postretirement Benefits

Components of net periodic benefit cost:

($ in thousands) Three Months Ended March 31, 
 2007 2006 2007 2006  
Three Months Ended September 30,
 
 Retirement Plans Other Postretirement  
2007
 2006 
2007
 2006 
($ in thousands)  
Retirement Plans
 
Other Postretirement
 
Service cost $362 $340 $16 $14  
$
334
 $326 
$
16
 $14 
Interest cost  419  414  19  19   
426
  406  
19
  20 
Expected return on plan assets  (415) (382) ─  ─   
(456
)
 (395) 
─
  ─ 
Amortization of net gain  70  70  3  3 
Accretion of prior service cost  (18) (18) (5) (5)
Amortization of net loss  
100
  95  
3
  3 
Amortization of prior service cost  
(8
)
 (19) 
(5
)
 (5)
Net periodic benefit cost $418 $424 $33 $31  
$
396
 $413 
$
33
 $32 
 
  
Nine Months Ended September 30,
 
  
2007
 2006 
2007
 2006 
($ in thousands)  
Retirement Plans
 
Other Postretirement
 
Service cost 
$
1,020
 $1,013 
$
48
 $43 
Interest cost  
1,274
  1,226  
58
  59 
Expected return on plan assets  
(1,341
)
 (1,171) 
─
  ─ 
Amortization of net (gain) loss  
268
  261  
8
  9 
Amortization of prior service cost  
(35
)
 (55) 
(15
)
 (15)
Net periodic benefit cost 
$
1,186
 $1,274 
$
99
 $96 

The Corporation previously disclosed in its financial statements for the year ended December 31, 2006, that it expected to make payments of $1.7 million for its qualified and non-qualified retirement plans and $92 thousand for its other postretirement benefit plans in 2007. As of March 31,September 30, 2007, $401 thousand$1.3 million and $25$73 thousand have been paid to participants from its qualified and non-qualified retirement plans and other postretirement plans, respectively. During the threenine months ended March 31,September 30, 2007, the Corporation contributed $126$390 thousand and $25$73 thousand to its non-qualified retirement plans and other postretirement plans, respectively. The Corporation presently anticipates making essentially equal payments for the remaining quarters in 2007 to fund the non-qualified retirement plan and other postretirement plans.

- 6 -

Note 7. SFAS No. 133, “Accounting“Accounting for Derivative Instruments and Hedging Activities.”

At March 31,September 30, 2006, the total notional amount of the “Pay Floating, Receive Fixed” swap outstanding was $20.0 million. The net payable or receivable from the interest-rate swap agreement wasis accrued as an adjustment to interest income. The $20.0 million in notional amount of interest-rate swap outstanding expired on November 2, 2006. There were no swaps outstanding at March 31,September 30, 2007 or December 31, 2006.

-6-

Note 8. Income Taxes

Effective January 1, 2007 the Corporation adopted Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 provides guidance on financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. According to FIN 48, a tax position is recognized if it is more-likely-than-not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If the tax position meets the more-likely-than-not recognition threshold, the position is measured to determine the amount of benefit to recognize and should be measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN 48 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As of January 1, 2007 the CoporationCorporation had no material unrecognized tax benefits, accrued interest or penalties. Penalties are recorded in non-interest expense in the year they are assessed and are treated as a non-deductible expense for tax purposes. Interest is recorded in non-interest expense in the year it is assessed and is treated as a deductible expense for tax purposes. As of January 1, 2007, Tax Years 2003 through 2006 remain subject to Federal examination as well as examination by state taxing jurisdictions.


Note 9. Recent Accounting Pronouncements 

In September 2006, the Emerging Issues Task Force (“EITF”) reachedreach a conclusion on EITF No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” (“EITF 06-4.”) EITF 06-4 is effective for fiscal years beginning after December 15, 2007. Under EITF 06-4, if an agreement is to provide the employee with a death benefit in a postretirement/termination period, the employer should recognize a liability for the future death benefit in accordance with either Statement of Financial Accounting Standard (“SFAS”) No. 106 or Accounting Principles Board Opinion No. 12. EITF 06-4 requires that recognition of the effects of adoption should be either by (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. The potential impact to the CorporationUnivest will be a negative cumulative-effect adjustment to retained earnings of approximately $1.6 million and would not be tax affected.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. SFAS 157 applies when other accounting pronouncementpronouncements require fair value measurements; it does not require new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those years. The Corporation chose not to adopt SFAS 157 early. The Corporation does not anticipate the adoption of SFAS 157 in the Fiscal Year 2008 to have a material impact on its financial statements.

- 7 -

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities (Including an amendmentAmendment of FASB Statement No. 115)” (“SFAS 159.”) SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS 159 is to improve financial reporting by allowing entities to minimize volatility in reported earnings caused by related assets and liabilities being measured differently. Most of the provisions of SFAS 159 apply only to entities that elect the fair value option. However, SFAS 159 includes an amendment to SFAS 115 which applies to all entities with available-for-sale and trading securities. Entities electing the fair value option will report unrealized gains and losses in earnings and recognize upfront costs and fees related to those items in earnings as they are incurred, not deferred. The following items are eligible for the fair value measurement option established by SFAS 159: 1) Recognized financial assets and financial liabilities, except (a) an investment in a subsidiary that is required to be consolidated, (b) an interest in a variable interest entity that is required to be consolidated, (c) obligations (or assets representing net over funded positions) for pension plans, other postretirement benefits, post employment benefits, employee stock option and stock purchase plans, and other forms of deferred compensation arrangements, (d) financial assets and liabilities recognized under leases, (e) demand deposit liabilities of financial institutions, and (f) financial instruments classified by the issuer as a component of shareholder’s equity; 2) firm commitments that would otherwise not be recognized at inception and that involve only financial instruments; 3) nonfinancial insurance contracts and warranties that the insurer can settle by paying a third party to provide those goods or services; and, 4) host financial instruments resulting from separation of an embedded nonfinancial derivative instrument from a nonfinancial hybrid instrument. The fair value option may be applied on an instrument-by-instrument basis, with a few exceptions, such as investments otherwise accounted for by the equity method or multiple advancedadvances made to one borrower under a single contract. The fair value option is irrevocable unless a new election date occurs and applies only to entire instruments and not to portions of instruments. Entities are permitted to elect fair value option for any eligible item within the scope of SFAS 159 at the date they initially adopt the SFAS 159. The adjustment to reflect the difference between the fair value and the current carrying amount of the assets and liabilities for which an entity elects fair value option is reported as a cumulative-effect adjustment to the opening balance of retained earnings upon adoption. SFAS 159 is effective as of the beginning of an entity’s firstsecond fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Corporation chose not to adopt SFAS 159 early. The Corporation does not anticipate the adoption of SFAS 159 in the Fiscal Year 2008 to have a material impact on its financial statements.

-7-- 8 -

Item 2.Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words "believe," "anticipate," "estimate," "expect," "project," "target," "goal" and similar expressions are intended to identify forward-looking statements within the meaning of section 27A of the Securities Act of 1933. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including those set forth below:

·Operating, legal and regulatory risks
·Economic, political and competitive forces impacting various lines of business
·The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful
·Volatility in interest rates
·Other risks and uncertainties

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These forward-looking statements speak only as of the date of the report. The Corporation expressly disclaims any obligation to publicly release any updates or revisions to reflect any change in the Corporation's expectations with regard to any change in events, conditions or circumstances on which any such statement is based.

General

Univest Corporation of Pennsylvania, (the “Corporation”), is a Financial Holding Company. It owns all of the capital stock of Univest National Bank and Trust Co. (the “Bank”), Univest Realty Corporation, Univest Delaware, Inc., and Univest Reinsurance Corporation.

The Bank is engaged in the general commercial banking business and provides a full range of banking services and trust services to its customers. Vanguard Leasing, Inc., a wholly owned subsidiary of the Bank, provides lease financing. Delview, Inc., a wholly owned subsidiary of the Bank, provides various financial services including financial planning, investment management, insurance products and brokerage services to individuals and businesses through its subsidiaries Univest Investments, Inc. and Univest Insurance, Inc.

Executive Overview

The Corporation recorded net income for the nine months ended September 30, 2007 of $6.2$19.0 million, for both three-month periods ended March 31, 2007a 1.3% increase over the September 30, 2006 period. Basic net income per share increased 1.4% and 2006.diluted net income per share increased 2.1%.

Average earning assets increased $140.6$99.8 million and average interest-bearing liabilities increased $136.0$93.0 million when comparing the three-monthnine-month periods ended March 31,September 30, 2007 and 2006. Increased volume and rates on commercial business loans and commercial and construction real estate loans, partially offset by increased volume and rates on money market savings and certificates of deposits, contributed to a $453$682 thousand increase in net interest income. The tax-equivalent net interest margin declined slightly to 3.81%3.73% for the three-monthnine-month period ended March 31,September 30, 2007 compared to 4.01%3.92% for the same period in 2006.

Non-interest income grew 7.30%11.1%, when comparing the three-monthnine-month periods ended March 31,September 30, 2007 to 2006, primarily due to increases in insurance commissioncommissions and fee income, investment advisory commissions and fee income, and other service fee income.

Non-interest expense grew 5.38%6.0% primarily due to increases in salary and employee benefitbenefits, capital shares tax, and public and community relations expense. These increases were offset by a decrease in marketing and advertising expense.

-8-- 9 -

The Corporation earns its revenues primarily from the margins and fees it generates from the loanloans and leases and depository services it provides as well as from trust, insurance and investment commissions and fees. The Corporation seeks to achieve adequate and reliable earnings by growing its business while maintaining adequate levels of capital and liquidity and limiting its exposure to credit and interest rate risk to Board approved levels. As interest rates increase, fixed-rate assets that banks hold will tend to decrease in value while the margin impactvalue; conversely, as interest rates decline, fixed-rate assets that banks hold will vary from banktend to bank based upon the structure of its balance sheet.increase in value. The Corporation maintains a relatively lowneutral interest rate risk profile and does not anticipateanticipates that an increase or decrease within 200 basis points in interest rates would be adverse tonot significantly impact its net interest margin.

The Corporation seeks to establish itself as the financial provider of choice in the markets it serves. It plans to achieve this goal by offering a broad range of high quality financial products and services and by increasing market awareness of its brand and the benefits that can be derived from its products. The Corporation operates in an attractive market for financial services but also is in intense competition with domestic and international banking organizations and other insurance and investment providers for the financial services business. The Corporation has taken initiatives to achieve its business objectiveobjectives by acquiring banks and other financial service providers in strategic markets, bythrough marketing, public relations and advertising, by establishing standards of service excellence for its customers, and by using technology to ensure that the needs of its customers are understood and satisfied.

Results of Operations -– Three Months Ended March 31,September 30, 2007 Versus 2006

The Corporation’s consolidated net income and earnings per share for the three months ended March 31,September 30, 2007 and 2006 were as follows:

 
Three Months Ended
September 30,
 
Change
 
($ in thousands, except per share data) 
For the Three Months Ended
March 31,
 Change  
2007
 
2006
 
Amount
 
Percent
 
 2007 2006 Amount Percent 
Net income $6,247 $6,214 $33  0.53% 
$
6,688
 $6,537 $151  2.3%
Net income per share:                          
Basic $0.48 $0.48  —  —  
$
0.52
 $0.50 $0.02  4.0%
Diluted  0.48  0.48  —  —   
0.52
  0.50  0.02  4.0 

Return on average shareholders' equity was 13.33%14.12% and return on average assets was 1.31%1.38% for the three months ended March 31,September 30, 2007 compared to 14.24%14.36% and 1.41%1.39%, respectively, for the same period in 2006.

Net Interest Income

Net interest income is the difference between interest earned on loans and leases, investments and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is the principal source of the Corporation's revenue. The following table presents a summary of the Corporation's average balances; the tax-equivalent yields earned on average assets, and the cost of average liabilities for the three months ended March 31,September 30, 2007 and 2006. Sensitivities associated with the mix of assets and liabilities are numerous and complex. The Asset/Liability Management and Investment committees work to maintain an adequate and reliable net interest margin for the Corporation.

Net interest income increased $453$146 thousand for the three months ended March 31,September 30, 2007 compared to the same period in 2006 primarily due to increased volume and rates on commercial loans, increased volume on lease financings and commercial real estaterate and construction loans,volume increases on other securities, partially offset by increased volume and rates on money market savings and regular savings deposits andas well as increased rates on certificates of deposit. The tax-equivalent net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, was 3.81%3.71% and 4.01%3.80% for the three-month periodperiods ended March 31,September 30, 2007 and 2006, respectively. The tax-equivalent net interest spread, which represents the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities, was 3.24%3.13% for the three months ended March 31,September 30, 2007 compared to 3.56%3.28% for the same period in 2006. The effect of net interest free funding sources increased to 0.57%0.58% for the three months ended March 31,September 30, 2007 compared to 0.45%0.52% for the same period in 2006; this represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

-9-- 10 -

Table 1 — Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest Differential
 
For the Three Months Ended March 31,
  
For the Three Months Ended September 30,
 
 
2007
 
2006
  
2007
 
2006
 
 
Average
 
Income/
 
Avg.
 
Average
 
Income/
 
Avg.
  
Average
 
Income/
 
Avg.
 
Average
 
Income/
 
Avg.
 
 
Balance 
 
Expense 
 
Rate 
 
Balance 
 
Expense 
 
Rate 
  
Balance
 
Expense
 
Rate
 
Balance
 
Expense
 
Rate
 
Assets:
                          
Interest-earning deposits with other banks $
594
 
$
7
 
4.78
%
$610 $6 3.99% 
$
3,739
 
$
50
 
5.31
%
$663 $7 4.19%
U.S. Government obligations  
123,249
 
1,351
 
4.45
  152,557 1,297 3.45   
114,024
 
1,330
 
4.63
 159,125 1,456 3.63 
Obligations of states & political subdivisions  
82,983
 
1,458
 
7.13
  84,612 1,486 7.12 
Obligations of states and political subdivisions  
84,992
 
1,509
 
7.04
 83,566 1,474 7.00 
Other securities  
175,961
 
2,308
 
5.32
  97,494 1,124 4.68   
191,574
 
2,577
 
5.34
 131,419 1,697 5.12 
Federal Reserve bank stock  
1,687
 
25
 
6.01
  1,687 25 6.01   
1,687
 
25
 
5.88
 1,687 25 5.88 
Federal funds sold  
5,197
  
57
  
4.45
  5,439  57  4.25   
10,886
  
143
  
5.21
  2,815  35  4.93 
Total interest-earning deposits, investments and federal funds sold  
389,671
  
5,206
  
5.42
  342,399  3,995  4.73   
406,902
  
5,634
  
5.49
  379,275  4,694  4.91 
Commercial, financial and agricultural loans  
407,934
 
7,967
 
7.92
  365,210 6,402 7.11   
408,268
 
8,181
 
7.95
 412,358 7,814 7.52 
Real estate─commercial and construction loans  
432,734
 
8,334
 
7.81
  401,242 7,102 7.18   
431,901
 
8,668
 
7.96
 430,982 8,564 7.88 
Real estate─residential loans  
305,199
 
4,112
 
5.46
  303,119 4,007 5.36   
306,745
 
4,165
 
5.39
 301,296 4,156 5.47 
Loans to individuals  
85,702
 
1,485
 
7.03
  105,786 1,638 6.28   
79,684
 
1,402
 
6.98
 107,359 1,872 6.92 
Municipal loans  
92,839
 
1,469
 
6.42
  86,748 1,275 5.96   
92,096
 
1,349
 
5.81
 90,710 1,357 5.94 
Lease financings  
31,386
  
687
  
8.88
  323  11  13.81   
54,478
  
1,232
  
8.97
  3,328  136  16.21 
Gross loans and leases  
1,355,794
  
24,054
  
7.20
  1,262,428  20,435  6.56   
1,373,172
  
24,997
  
7.22
  1,346,033  23,899  7.04 
Total interest-earning assets  
1,745,465
  
29,260
  
6.80
  1,604,827  24,430  6.17   
1,780,074
  
30,631
  
6.83
  1,725,308  28,593  6.58 
Cash and due from banks  
39,075
      39,173       
40,499
     42,330     
Reserve for loan losses  
(13,315
)
      (13,572)     
Reserve for loan and lease losses  
(13,894
)
     (14,278)     
Premises and equipment, net  
21,888
      21,571       
22,204
     22,142     
Other assets  
108,845
        104,650         
116,023
        109,924       
Total assets 
$
1,901,958
       $1,756,649        
$
1,944,906
       $1,885,426       
Liabilities:
                             
Interest-bearing checking deposits $
136,634
 
$
91
 
0.27
%
$140,787 $37 0.11% $
135,094
 
128
 
0.38
 $132,672 69 0.21 
Money market savings  
365,947
 
3,685
 
4.08
  284,009 2,110 3.01   
385,243
 
4,009
 
4.13
 330,013 3,187 3.83 
Regular savings  
198,145
 
717
 
1.47
  196,136 202 0.42   
222,666
 
1,108
 
1.97
 194,999 499 1.02 
Certificates of deposit  
515,957
 
5,705
 
4.48
  485,671 4,181 3.49   
525,733
 
6,222
 
4.70
 537,524 5,592 4.13 
Time open & club accounts  
17,164
  
197
  
4.65
  19,272  167  3.51 
Time open and club accounts  
27,788
  
337
  
4.81
  31,495  375  4.72 
Total time and interest-bearing deposits  
1,233,847
  
10,395
  
3.42
  1,125,875  6,697  2.41   
1,296,524
  
11,804
  
3.61
  1,226,703  9,722  3.14 
Federal funds purchased  
16,297
 
218
 
5.42
  559 6 4.35   
4,582
 
61
 
5.28
 12,853 172 5.31 
Securities sold under agreements to repurchase  
91,450
 
537
 
2.38
  98,624 506 2.08   
83,436
 
497
 
2.36
 92,623 516 2.21 
Short-term borrowings  
17,794
 
239
 
5.45
  17,176 195 4.60 
Other short-term borrowings  
1,087
 
15
 
5.47
 33,545 403 4.77 
Long-term debt  
76,883
 
884
 
4.66
  56,525 606 4.35   
85,755
 
1,028
 
4.76
 57,201 649 4.50 
Subordinated notes and capital securities  
29,998
  
582
  
7.87
  31,502  550  7.08   
29,248
  
584
  
7.92
  30,752  615  7.93 
Total borrowings  
232,422
  
2,460
  
4.29
  204,386  1,863  3.70   
204,108
  
2,185
  
4.25
  226,974  2,355  4.12 
Total interest-bearing liabilities  
1,466,269
  
12,855
  
3.56
  1,330,261  8,560  2.61   
1,500,632
  
13,989
  
3.70
  1,453,677  12,077  3.30 
Demand deposits, non-interest bearing  
218,933
      228,003       
224,474
     227,389     
Accrued expenses & other liabilities  
29,306
        23,841       
Accrued expenses and other liabilities  
30,380
        22,239       
Total liabilities  
1,714,508
        1,582,105         
1,755,486
        1,703,305       
Shareholders’ Equity:
                             
Common stock  
74,370
      74,370       
74,370
     74,370     
Additional paid-in capital  
22,485
      22,053       
22,508
     22,178     
Retained earnings and other equity  
90,595
        78,121         
92,542
        85,573       
Total shareholders’ equity  
187,450
        174,544         
189,420
        182,121       
Total liabilities and shareholders’ equity 
$
1,901,958
       $1,756,649        
$
1,944,906
       $1,885,426       
                             
Net interest income    
$
16,405
       $15,870        
$
16,642
       $16,516    
Net interest spreadNet interest spread 
3.24
      3.56       
3.13
     3.28 
Effect of net interest-free funding sourcesEffect of net interest-free funding sources 
0.57
        0.45         
0.58
        0.52 
Net interest marginNet interest margin 
3.81
%
       4.01%        
3.71
%
       3.80%
Ratio of average interest-earning assets to average interest-bearing liabilities  
119.04
%
       120.64%        
118.62
%
       118.69%      

Notes:
Tax-equivalent amounts have been calculated using the Corporation’s federal applicable rate of 35 percent.
For rate calculation purposes, average loan categories include unearned discount.
Nonaccrual loans have been included in the average loan balances.

Certain amounts have been reclassified to conform to the current-year presentation.

-10-- 11 -

Analysis of Changes in Net Interest Income 

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated to change in volume.

The Three Months Ended March 31,
2007 Versus 2006
 
The Three Months Ended September 30,
2007 Versus 2006
 
Volume
Change
 
Rate
Change
 
 
Total
 
Volume
Change
Rate
Change
 
Total
Interest income:              
Interest-bearing deposits with other banks $─ 
$
1
 $1 
Interest-earning deposits with other banks $41 
$
2
 $43 
U.S. Government obligations  (322) 376  54   (527) 401  (126)
Obligations of states & political subdivisions  (30) 2  (28)
Obligations of states and political subdivisions  27  8  35 
Other securities  1,030  154  1,184   807  73  880 
Federal Reserve bank stock  —  —  —   —  —  — 
Federal funds sold  (3) 3  ─   106  2  108 
Interest on deposits, investments and federal funds sold  675  536  1,211   454  486  940 
Commercial , financial and agricultural loans  836  729  1,565 
Commercial, financial and agricultural loans and leases  (80) 447  367 
Real estate─commercial and construction loans  609  623  1,232   17  87  104 
Real estate─residential loans  30  75  105   70  (61) 9 
Loans to individuals  (349) 196  (153)  (486) 16  (470)
Municipal loans  96  98  194   22  (30) (8)
Lease financings  680  (4) 676   1,157  (61) 1,096 
Interest and fees on loans and leases  1,902  1,717  3,619   700  398  1,098 
Total interest income  2,577  2,253  4,830   1,154  884  2,038 
Interest expense:                    
Interest checking deposits  (2) 56  54   2  57  59 
Money market savings  826  749  1,575   572  250  822 
Regular savings  7  508  515   142  467  609 
Certificates of deposit  338  1,186  1,524   (142) 772  630 
Time open & club accounts  (24) 54  30 
Time open and club accounts  (45) 7  (38)
Interest on deposits  1,145  2,553  3,698   529  1,553  2,082 
Federal funds purchased  211  1  212   
(110
)
 (1) (111)
Securities sold under agreement to repurchase  (42) 73  31   (54) 35  (19)
Other short-term borrowings  8  36  44   (447) 59  (388)
Long-term debt  235  43  278   342  37  379 
Subordinated notes and capital securities  (29) 61  32   (30) (1) (31)
Interest on borrowings  383  214  597   (299) 129  (170)
Total interest expense  1,528  
2,767
  4,295   230  1,682  1,912 
Net interest income $1,049 
$
(514
)
$535  $924 
$
(798
)
$126 

Notes:
Tax-equivalent amounts have been calculated using the Corporation’s federal applicable rate of 35 percent.
Nonaccrual loans and unearned discounts have been included in the average loan and lease balances.

Interest Income

Interest income on other securities increased primarily due to rate and volume increases on mortgage-backed securities. Interest income on U.S. Government agency obligations declined due to a decline in average volume that was offset slightly by an average rate increase. Interest income increased on deposits with other banks and federal funds sold primarily due to increases in average volume.

The growth in interest and fees on loans and leases is due primarily to increased volume and ratesrate increases on commercial business loans and commercial and construction real estate loans.volume increases on lease financings. These increases were offset by a decline in volume on loans to individuals. The average interest yield on the commercial loan portfolio increased 8143 basis points, primarily due to an 83 basis point increasepricing disciplines in the average prime rate, for the three months ended March 31, 2007 compared to the same period in 2006;2007; which, along with average volume increasesdecline of $42.7$4.1 million, contributed to a $1.6$367 thousand increase in interest income. The average volume on lease financings increased $51.2 million; this contributed to a $1.1 million increase in interest income. The average yield on commercial and construction real estate loans increased by 63 basis points; this along with average volume increases of $31.5 million contributed to a $1.2 million increase in interest income. The average yield on loans to individuals increased 75 basis points; this increase was offset bydecreased $27.7 million, primarily contributing to a decrease in average volume by $20.1 million, primarily due to the saleinterest income of $13.9 million of student loans in the fourth quarter of 2006.$470 thousand.
Interest on investments, interest-bearing deposits and federal funds sold increased primarily due to a rate increases on U.S. Government agency obligations and average volume and rate increases in other securities.

-11-- 12 -

Interest Expense

The Corporation’s average rate on deposits increased 10147 basis points for the three months ended March 31,September 30, 2007 compared to the same period in 2006. The average rate paid on money market savings increased 10730 basis points and average volume increased $55.2 million due to new products and promotions offered to grow deposits in the Bank’s competitive marketplace; which contributed to an $822 thousand increase in interest expense. Interest on certificates of deposit increased $630 thousand, due to a 57 basis-point increase in average rate. Average rate increases combinedalong with the average volume increasesgrowth of $81.9$69.8 million, contributed to a $1.6$2.1 million increase in interest expense on such deposits. Interest on certificates of deposit increased $1.5 million, due to a 99 basis-point increase in average rate and average volume increases of $30.3 million. Average wholesale certificates of deposit increased $10.0 million and average customer certificates of deposits increased $20.3 million.

Interest expense on short-term borrowings includes interest paid on federal funds purchased increased $212and short-term FHLB borrowings. In addition, the Bank offers an automated cash management checking account that sweeps funds daily into a repurchase agreement account (“sweep accounts”). Interest expense on short-term borrowings decreased $19 thousand during the three months ended September 30, 2007 compared to 2006 primarily due to an average volume increasedecrease of $15.7$32.5 million and a 107 basis point increase in the average rate paid.short-term FHLB borrowings.

Interest expense on long-term debt increased $278$379 thousand primarily due to an averagea volume increase of $20.4$28.6 million and a 3126 basis-point increase in the rate.rate paid on FHLB long term borrowings.

Provision Forfor Loan and Lease Losses

The reserve for loan and lease losses is determined through a periodic evaluation that takes into consideration the growth of the loan and lease 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 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 bank’s primary regulators, as an integral part of their examination process, may require adjustments to the reserve. Continued growthallowance. A decline in commercial loan and lease volumes and current economic conditions indicatedvolume since June 30, 2007 warranted less of a provision to be recorded in the need forthird quarter of 2007; this was partially offset by additions to the provision resulting from an increase to the reserve in 2007.more secure commercial real estate loans. The provision for the three months ended March 31,September 30, 2007 and 2006 was $624$456 thousand and $511$568 thousand, respectively.

NoninterestNon-interest Income

NoninterestNon-interest income consists of trust department fee income, service charges on deposits income, commission income, net gains on sales of securities, and other miscellaneous types of income. It also includes various types of service fees, such as ATM fees, and life insurance income which primarily represents changes in the cash surrender value of bank-owned insurance.life insurance policies. Total noninterestnon-interest income increased during the three months ended March 31,September 30, 2007 compared to 2006 primarily due to an increase in trust fee income, higher insurance commission and fee income.

The following table presents noninterest income for the periods indicated:and sales of securities.
 
 
For the Three Months Ended
March 31,
 Change  
For the Three Months
Ended September 30,
 
Change
 
 2007 2006 Amount  Percent  
2007
 2006 
Amount
 
Percent
 
Trust fee income $1,487 $1,551 $(64) (4.1)% 
$
1,525
 $1,363 $162  11.9%
Service charges on deposit accounts  1,650  1,672  (22) (1.3)  
1,706
  1,748  (42) (2.4)
Investment advisory commission and fee income  679  549  130  23.7   
647
  545  102  18.7 
Insurance commission and fee income  1,875  1,377  498  36.2   
1,385
  1,233  152  12.3 
Life insurance income  322  386  (64) (16.6)  
391
  433  (42) (9.7)
Other service fee income  866  754  112  14.9   
913
  893  20  2.2 
Net gain on sales of securities  
259
  3  256  ─ 
Other  37  156  (119) (76.3)  
86
  16  70  437.5 
Total noninterest income $6,916 $6,445 $471  7.3%
Total non-interest income 
$
6,912
 $6,234 $678  10.9 

Trust fee income decreasedincreased in 2007 over 2006 asprimarily due to an increase in the number and market value increases onof managed accounts were less in 2007 than in 2006.accounts. Service fee charges on deposit accounts declined slightly for the third quarter in 2007 compared to 2006 primarily due to reductionsa reduction in regular checking account service fee charges resulting from free-checking products introduced during 2006. Nonsufficient-funds fee income increased slightly, as the average balance of overdrafts increased.and checking non-sufficient charges.

-12-- 13 -

Investment advisory commissions and fee income, the primary source of income for Univest Investments, Inc., increased in 2007 over 2006 due to market activity and volume. Insurance commissions and fee income, the primary source of income for Univest Insurance, Inc., grew approximately $498 thousand primarily due to the acquisition of B.G. Balmer and Co. in the third quarter of 2006.

Life insurance income is primarily the change in the cash surrender values of bank owned life insurance policies, which is primarily affected by the market value of the underlying assets. There was less of anThe increase recognized on these policies was less in the third quarter of 2007 compared to 2006 due to current market conditions.2006.
 
Other service fee income primarily consists of fees from credit card companies for a portion of merchant charges paid to the credit card companies for the Bank’s customer debit card usage (“Mastermoney fees”), non-customer debit card fees, other merchant fees, mortgage servicing income and mortgage placement income. Other service fee income increased for the firstthird quarter of 2007 over 2006 primarily due to increases in Mastermoney fees and merchant fees and mortgage placementfee income.

Other non-interest income includes losslosses on investments in partnerships, gains on sales of mortgages, gains on sales of other real estate owned, reinsurance income and other miscellaneous income. Other non-interest income declinedincreased over prior year primarily due to the $139a $60 thousand decline of losses recognized on investments in gains on sales of other real estate owned recorded during the first quarter of 2006, as discussed below.partnerships.

Gains on Sale of Assets

Sales of $244$972 thousand in mortgage loans and leases during the first quarter ofthree months ended September 30, 2007 resulted in gains of $5$19 thousand compared to sales of $390 thousand for gains of $11$12 thousand for the first quarterthree months ended September 30, 2006.

During the three months ended September 30, 2007, approximately $644 thousand of 2006.securities were sold recognizing gains of $8 thousand. During the three months ended September 30, 2007, the Corporation also received $251 thousand from the sale of shares created through conversion of one of its vendor relationships from a membership association to a private share corporation. During the three months ended September 30, 2006, $31 thousand of securities were sold recognizing gains of $3 thousand.

During the three months ended March 31,September 30, 2007, and 2006, approximately $4.2 million and $1.6 million, respectively, in securities available-for-sale wereone other real estate owned property was sold resulting in no material gains or losses recognized in either period.

recognizing a loss of $18 thousand. There were no sales of other real estate owned duringfor the three months ended March 31, 2007. During the three months ended March 31, 2006 the Corporation sold two other real estate owned properties resulting in a gain of $139 thousand.September 30, 2006.

NoninterestNon-interest Expense

The operating costs of the Corporation are known as noninterestnon-interest expense, and include, but are not limited to, salaries and benefits, equipment expense, and occupancy costs. Expense control is very important to the management of the Corporation, and every effort is made to contain and minimize the growth of operating expenses.

The following table presents noninterest expense for the periods indicated:

 
For the Three Months Ended
March 31,
 Change  
For the Three Months
Ended September 30,
 
Change
 
 2007 2006 Amount Percent  
2007
 2006 
Amount
 
Percent
 
Salaries and benefits $7,794 $7,305 $489  6.7% 
$
7,659
 $7,051 $608  8.6%
Net occupancy  1,251  1,068  183  17.1   
1,188
  1,078  110  10.2 
Equipment  775  772  3  0.4   
793
  829  (36) (4.3)
Marketing and advertising  165  535  (370) (69.2)  
255
  291  (36) (12.4)
Other  3,177  2,809  368  13.1   
3,187
  3,083  104  3.4 
Total noninterest expense $13,162 $12,489 $673  5.4%
Total non-interest expense 
$
13,082
 $12,332 $750  6.1 

SalarySalaries and benefits increased due to the normal annual merit increases the acquisitionand special effort awards. These increases were offset slightly by a reduction of B.G. Balmer and Co. in the third quarter$49 thousand of 2006, and increased benefit costs during the first quarter of 2007. Net occupancystock-based compensation expense.

Occupancy expense increased primarily due to increasedthe increase of rental obligations associated withfor the new West Chester insurance office andVernfield office. Equipment expense decreased primarily due to the new Doylestown corporate banking office.reduction of computer software depreciation when compared to the same period in 2006. Marketing and advertising expenses decreased primarily due to a reduction in radio advertising, costs.partially offset by increases in internet and newspaper advertising. Other expenses increased primarily due an increase in the bank shares tax,to audit and examination fees, legal fees and amortization costs associated with customer lists. These increases were partially offset by decreases in consultant fees as well as reductions in travel and entertainment expenses.

-13-- 14 -

Tax Provision

The provision for income taxes was $2.3$2.5 million for the three months ended March 31,September 30, 2007 compared to $2.2$2.4 million in 2006, at effective rates of 27.1%27.04% and 26.3%27.21%, respectively. The effective tax rates reflect the benefits of tax credits generated from investments in low-income housing projects and tax-exempt income from investments in municipal securities, loans and bank-owned life insurance. The increasedecrease in the effective tax rate between the three-month periods is primarily due to income growth at entities not subject to state income tax; therefore, state net income tax did not increase proportionately to the total increase in taxable income.


Results of Operations - Nine Months Ended September 30, 2007 Versus 2006

The Corporation’s consolidated net income and earnings per share for the nine months ended September 30, 2007 and 2006 were as follows:

  
For the Nine Months Ended
September 30,
 
Change
 
($ in thousands, except per share data)  
2007
 
2006
 
Amount
 
Percent
 
Net income 
$
19,010
 $18,766 $244  1.3%
Net income per share:             
Basic 
$
1.47
 $1.45 $0.02  1.4 
Diluted  
1.47
  1.44  0.03  2.1 

Return on average shareholders' equity was 13.43% and return on average assets was 1.32% for the nine months ended September 30, 2007 compared to 14.04% and 1.37%, respectively, for the same period in 2006.

Net Interest Income

Net interest income is the difference between interest earned on loans and leases, investments and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is the principal source of the Corporation's revenue. The following table presents a summary of the Corporation's average balances; the tax-equivalent yields earned on average assets, and the cost of average liabilities for the nine months ended September 30, 2007 and 2006. Sensitivities associated with the mix of assets and liabilities are numerous and complex. The Asset/Liability Management and Investment committees work to maintain an adequate and reliable net interest margin for the Corporation.

Net interest income increased $682 thousand for the nine months ended September 30, 2007 compared to 2006 primarily due to increased volume and rates on commercial loans and commercial real estate and construction loans, increased volume on lease financings, as well as rate and volume increases on other securities. These increases were partially offset by increased volume and rate on money market savings deposits and increased rates on regular savings and certificates of deposit. The tax-equivalent net interest margin, which is tax-equivalent net interest income as a percentage of average interest-earning assets, was 3.73% for the nine-month period ended September 30, 2007 and 3.92% for the same period in 2006. The tax-equivalent net interest spread, which represents the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities, was 3.15% for the nine months ended September 30, 2007 compared to 3.43% for the same period in 2006. The effect of net interest free funding sources increased to 0.58% for the nine months ended September 30, 2007 compared to 0.49% for the same period in 2006; this represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders’ equity.

- 15 -

Table 1 — Distribution of Assets, Liabilities and Stockholders’ Equity;Interest Rates and Interest Differential

  
For the Nine Months Ended September 30,
 
  
2007
 
2006
 
  
Average
 
Income/
 
Avg.
 
Average
 
Income/
 
Avg.
 
  
Balance
 
Expense
 
Rate
 
Balance
 
Expense
 
Rate
 
Assets:
             
Interest-earning deposits with other banks 
$
1,655
 
$
65
  
5.25
%
$647 $19  3.93%
U.S. Government obligations  
119,502
  
4,047
  
4.53
  154,183  4,067  3.53 
Obligations of states and political subdivisions  
84,186
  
4,460
  
7.08
  84,210  4,467  7.09 
Other securities  
181,067
  
7,208
  
5.32
  115,106  4,281  4.97 
Federal Reserve bank stock  
1,687
  
76
  
6.02
  1,687  76  6.02 
Federal funds sold  
7,287
  
280
  
5.14
  5,525  197  4.77 
Total interest-earning deposits, investments and federal funds sold  
395,384
  
16,136
  
5.46
  361,358  13,107  4.85 
Commercial, financial and agricultural loans leases  
411,315
  
24,416
  
7.94
  386,948  21,303  7.36 
Real estate─commercial and construction loans  
433,756
  
25,561
  
7.88
  418,428  23,585  7.54 
Real estate─residential loans  
306,267
  
12,432
  
5.43
  302,955  12,285  5.42 
Loans to individuals  
83,313
  
4,336
  
6.96
  106,821  5,266  6.59 
Municipal loans  
92,711
  
3,894
  
5.62
  88,285  3,926  5.95 
Lease financings  
43,157
  
2,888
  
8.95
  1,324  159  16.06 
Gross loans and leases  
1,370,519
  
73,527
  
7.17
  1,304,761  66,524  6.82 
Total interest-earning assets  
1,765,903
  
89,663
  
6.79
  1,666,119  79,631  6.39 
Cash and due from banks  
40,024
        40,707       
Reserve for loan and lease losses  
(13,590
)
       (13,964)      
Premises and equipment, net  
21,979
        21,946       
Other assets  
111,555
        107,081       
Total assets 
$
1,925,871
       $1,821,889       
Liabilities:
                   
Interest-bearing checking deposits 
$
137,481
  
329
  
0.32
 $137,422  143  0.14 
Money market savings  
374,038
  
11,520
  
4.12
  310,291  8,099  3.49 
Regular savings  
209,260
  
2,671
  
1.71
  196,125  1,011  0.69 
Certificates of deposit  
523,809
  
18,063
  
4.61
  517,630  14,768  3.81 
Time open and club accounts  
24,728
  
895
  
4.84
  24,970  808  4.33 
Total time and interest-bearing deposits  
1,269,316
  
33,478
  
3.53
  1,186,438  24,829  2.80 
Federal funds purchased  
11,065
  
447
  
5.40
  5,947  234  5.26 
Securities sold under agreements to repurchase  
86,537
  
1,547
  
2.39
  94,996  1,517  2.14 
Other short-term borrowings  
7,381
  
301
  
5.45
  17,748  624  4.70 
Long-term debt  
81,916
  
2,891
  
4.72
  56,532  1,861  4.40 
Subordinated notes and capital securities  
29,620
  
1,748
  
7.89
  31,125  1,746  7.50 
Total borrowings  
216,519
  
6,934
  
4.28
  206,348  5,982  3.88 
Total interest-bearing liabilities  
1,485,835
  
40,412
  
3.64
  1,392,786  30,811  2.96 
Demand deposits, non-interest bearing  
221,556
        227,835       
Accrued expenses and other liabilities  
29,711
        23,078       
Total liabilities  
1,737,102
        1,643,699       
Shareholders’ Equity:
                   
Common stock  
74,370
        74,370       
Additional paid-in capital  
22,498
        22,097       
Retained earnings and other equity  
91,901
        81,723       
Total shareholders’ equity  
188,769
        178,190       
Total liabilities and shareholders’ equity 
$
1,925,871
       $1,821,889       
Net interest income    
$
49,251
       $48,820    
                    
Net interest spread        
3.15
        3.43 
Effect of net interest-free funding sources        
0.58
        0.49 
Net interest margin        
3.73
%
       3.92%
Ratio of average interest-earning assets to average interest-bearing liabilities  
118.85
%
       119.62%      

Notes:
Tax-equivalent amounts have been calculated using the Corporation’s federal applicable rate of 35 percent.
For rate calculation purposes, average loan categories include unearned discount.
Nonaccrual loans have been included in the average loan balances. 
Certain amounts have been reclassified to conform to the current-year presentation.

- 16 -

Analysis of Changes in Net Interest Income

The rate-volume variance analysis set forth in the table below compares changes in tax-equivalent net interest for the periods indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has been allocated to change in volume.

  
The Nine Months Ended September 30,
2007 Versus 2006
 
Volume
Change
 
Rate
Change
 
 
Total
 
Interest income:       
Interest-earning deposits with other banks $40 
$
6
 $46 
U.S. Government obligations  (1,173) 1,153  (20)
Obligations of states and political subdivisions  (1) (6) (7)
Other securities  2,626  301  2,927 
Federal Reserve bank stock  —  —  — 
Federal funds sold  68  15  83 
Interest on deposits, investments and federal funds sold  1,560  1,469  3,029 
Commercial, financial and agricultural loans and leases  1,434  1,679  3,113 
Real estate─commercial and construction loans  912  1,064  1,976 
Real estate─residential loans  124  23  147 
Loans to individuals  (1,226) 296  (930)
Municipal loans  186  (218) (32)
Lease financings  2,799  (70) 2,729 
Interest and fees on loans and leases  4,229  2,774  7,003 
Total interest income  5,789  4,243  10,032 
Interest expense:          
Interest checking deposits  1  185  186 
Money market savings  1,959  1,462  3,421 
Regular savings  164  1,496  1,660 
Certificates of deposit  198  3,097  3,295 
Time open and club accounts  (8) 95  87 
Interest on deposits  2,314  6,335  8,649 
Federal funds purchased  
207
  6  213 
Securities sold under agreement to repurchase  (148) 178  30 
Other short-term borrowings  (423) 100  (323)
Long-term debt  895  135  1,030 
Subordinated notes and capital securities  (89) 91  2 
Interest on borrowings  442  510  952 
Total interest expense  2,756  6,845  9,601 
Net interest income $3,033 
$
(2,602
)
$431 

Notes:
Tax-equivalent amounts have been calculated using the Corporation’s federal applicable rate of 35 percent.
Nonaccrual loans and unearned discounts have been included in the average loan balances.

Interest Income

Interest income on other securities increased primarily due to rate and volume increases on mortgage-backed securities. Interest income on U.S. Government agency obligations declined slightly due to a decline in average volume that was offset by an average rate increase. Interest income increased on deposits with other banks and federal funds sold primarily due to increases in average volume.

The growth in interest and fees on loans and leases is due primarily to increased volume and rates on commercial business loans, increased volume in lease financings and increased rates on commercial and construction real estate loans. The average interest yield on the commercial loan portfolio increased 58 basis points, primarily due to pricing disciplines in 2007; which, along with average volume increases of $24.4 million, contributed to a $3.1 million increase in interest income. The average yield on commercial and construction real estate loans increased by 34 basis points; combined with average volume increases of $15.3 million contributed to a $2.0 million increase in interest income. The average volume on lease financings contributed to a $2.7 million increase in interest income. These increases were offset by a decrease in the average volume on loans to individuals of $23.5 million offset slightly by a 37 basis-point average rate increase, contributed to a $930 thousand reduction in interest income.

- 17 -

Interest Expense

The Corporation’s average rate on deposits increased 73 basis points for the nine months ended September 30, 2007 compared to the same period in 2006. The average rate paid on money market savings increased 63 basis points due to new products and promotions offered to grow deposits in the Bank’s competitive marketplace; which contributed to a $3.4 million increase in interest expense. Interest on regular savings increased $1.7 million primarily due to a 102 basis-point increase in average rate and average volume increases of $13.1 million. Interest on certificates of deposit increased $3.3 million, due to an 80 basis-point increase in average rate and average volume increases of $6.2 million.

Interest expense on short-term borrowings includes interest paid on federal funds purchased and short-term FHLB borrowings. In addition, the Bank offers an automated cash management checking account that sweeps funds daily into a repurchase agreement account (“sweep accounts”). Interest expense on short-term borrowings decreased $80 thousand during the nine months ended September 30, 2007 compared to 2006 primarily due to average volume decreases on sweep accounts and short-term FHLB borrowings of $18.8 million. These decreases were offset slightly by an increase in pre-taxaverage volume of $5.1 million and an average rate increase of 14 basis points on federal funds purchased.

Interest on long-term borrowings increased primarily due to an increase in average rate of 32 basis points and an increase in volume of $25.4 million on long-term FHLB borrowings.

Provision for Loan and Lease Losses

The reserve for loan and lease losses is determined through a periodic evaluation that takes into consideration the growth of the loan and lease 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 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 bank’s primary regulators, as an integral part of their examination process, may require adjustments to the allowance. Continued growth in loan and lease volumes and current economic conditions indicated the need for an increase to the reserve in 2007. The provision for the nine months ended September 30, 2007 and 2006 was $1.7 million and $1.6 million, respectively.

Non-interest Income

Non-interest income consists of trust department fee income, service charges on deposits income, commission income, net gains on sales of securities, and other miscellaneous types of income. It also includes various types of service fees, such as ATM fees, and life insurance income which primarily represents changes in the cash surrender value of bank-owned life insurance. Total non-interest income increased during the nine months ended September 30, 2007 compared to 2006 primarily due to higher insurance commissions and fees, investment advisory commission as well as trust commissions.

  
For the Nine Months
Ended September 30,
 
Change
 
  
2007
 
2006
 
Amount
 
Percent
 
Trust fee income 
$
4,493
 $4,362 $131  3.0%
Service charges on deposit accounts  
5,058
  5,091  (33) (0.6)
Investment advisory commission and fee income  
2,012
  1,701  311  18.3 
Insurance commission and fee income  
4,576
  3,534  1,042  29.5 
Life insurance income  
1,125
  1,054  71  6.7 
Other service fee income  
2,709
  2,437  272  11.2 
Net gain on sales of securities  
310
  50  260  520.0 
Net loss on dispositions of fixed assets  
(64
)
 (67) 3  4.5 
Other  
173
  192  (19) (9.9)
Total non-interest income 
$
20,392
 $18,354 $2,038  11.1 

- 18 -

Trust fee income increased in 2007 over 2006 primarily due to an increase in the number and market value of managed accounts. Service charges on deposit accounts decreased slightly primarily due to a decrease in regular checking service charges.

Investment advisory commissions and fee income, the primary source of income for Univest Investments, Inc., increased in 2007 over 2006 due to market activity and volume. Insurance commission and fee income increased due to the acquisition of B. G. Balmer and Co. in the third quarter of 2006. Life insurance income is primarily the change in the cash surrender values of bank owned life insurance policies, which is primarily affected by the market value of the underlying assets. The increase recognized on these policies was slightly more in 2007 compared to 2006.

Other service fee income primarily consists of fees from credit card companies for a portion of merchant charges paid to the credit card companies for the Bank’s customer debit card usage (“Mastermoney fees”), non-customer debit card fees, other merchant fees, mortgage servicing income and mortgage placement income. Other service fee income increased slightly in 2007 over 2006 primarily due to increases in Mastermoney fees, other merchant fees and mortgage servicing income.

Other non-interest income includes loss on investments in partnerships, gains on sales of mortgages, gains on sales of other real estate owned, reinsurance income and other miscellaneous income. Other non-interest income decreased over prior year primarily due to the $139 thousand gain on sales of other real estate owned that was recognized during the first nine months of 2006 and a $60 thousand decline in miscellaneous income. These decreases were offset by a $180 decline in the losses recognized on investments in partnerships.

Gains on Sale of Assets

Sales of $2.7 million in loans and leases were sold during the first nine months ended September 30, 2007 resulting in gains of $61 thousand compared to sales of $1.1 million for gains of $30 thousand for the nine months ended September 30, 2006.

During the nine months ended September 30, 2007 and 2006, approximately $8.5 million and $7.2 million of securities were sold recognizing gains of $59 thousand and $4 thousand, respectively. During the nine months ended September 30, 2007 and 2006, the Corporation also received $251 thousand and $46 thousand, respectively, resulting from the sale of shares created through conversion of one of its vendor relationships from a membership association to a private share corporation.

During the nine months ended September 30, 2007, the Corporation relocated a banking office within one of its supermarket locations to a traditional office, recognizing a loss of $64 thousand. During the nine months ended September 30, 2006 the Corporation relocated a banking office within one of its Montgomery county supermarket locations and recognized a loss of $65 thousand.

During the nine months ended September 30, 2007, the Corporation sold one other real estate owned property recognizing a loss of $18 thousand. During the nine months ended September 30, 2006, the Corporation sold two other real estate owned properties resulting in a gain of $139 thousand.
Non-interest Expense

The operating costs of the Corporation are known as non-interest expense, and include, but are not limited to, salaries and benefits, equipment expense, and occupancy costs. Expense control is very important to the management of the Corporation, and every effort is made to contain and minimize the growth of operating expenses.

- 19 -

The following table presents noninterest expense for the periods indicated:

  
For the Nine Months
Ended September 30,
 
Change
 
  
2007
 
2006
 
Amount
 
Percent
 
Salaries and benefits 
$
23,293
 $21,554 $1,739  8.1%
Net occupancy  
3,625
  3,205  420  13.1 
Equipment  
2,396
  2,406  (10) (0.4)
Marketing and advertising  
663
  1,272  (609) (47.9)
Other  
9,598
  8,890  708  8.0 
Total non-interest expense 
$
39,575
 $37,327 $2,248  6.0 

Salaries and benefits increased due to the normal annual merit increases, special effort awards and health benefits. These increases were offset slightly by a reduction of $85 thousand of stock-based compensation expense and decreased payroll tax expense of $71 thousand when compared to the same period in 2006.

Occupancy expense increased primarily due to the increase of rental obligations for the West Chester insurance office, Doylestown corporate office and the Vernfield office. Equipment expense decreased slightly primarily due to the reduction of computer software depreciation offset by increases in depreciation of furniture and equipment and computer software licenses and maintenance when compared to the same period in 2006.

Marketing and advertising expenses decreased primarily due to a reduction in radio advertising, direct mailings and sales promotion. This decrease was offset by increases in internet advertising. Other expenses increased primarily due to audit and examination fees and amortization costs associated with customer lists.

Tax Provision

The provision for income taxes was $7.0 million for the nine months ended September 30, 2007 compared to $6.9 million in 2006, at an effective rate of 26.77% for both periods. The effective tax rates reflect the benefits of tax credits generated from investments in low-income housing projects and tax-exempt income from investments in municipal securities, loans and bank-owned life insurance. The effective tax rate remained unchanged. Income growth was offset by a reductiondecrease in the amount the cash surrender value ofnon-deductible stock-based compensation expense and an increase in tax-exempt bank-owned life insurance policies increased.income.

Financial Condition

Assets

Total assets increased $6.4$22.9 million since December 31, 2006. The increase was primarily due to net growth in loans.loans and investment securities. The following table presents the assets for the periods indicated:

 At March 31, At December 31, Change  
At September 30,
 
At December 31,
 
Change
 
 2007 2006 Amount Percent  
2007
 
2006
 
Amount
 
Percent
 
Cash, deposits and federal funds sold $62,189 $70,355 $(8,166) (11.6)% 
$
54,339
 $70,355 $(16,016) (22.8)%
Investment securities  379,487  382,400  (2,913) (0.8)  
395,027
  382,400  12,627  3.3 
Total loans and leases  1,372,523  1,353,681  18,842  1.4   
1,371,374
  1,353,681  17,693  1.3 
Reserve for loan and lease losses  (13,414) (13,283) (131) (0.1)  
(13,872
)
 (13,283) (589) (4.4)
Premises and equipment  21,833  21,878  (45) (0.2)
Goodwill and other intangibles  47,619  47,608  11  ─ 
Premises and equipment, net  
22,747
  21,878  869  4.0 
Goodwill and other intangibles, net  
47,251
  47,608  (357) (0.7)
Cash surrender value of insurance policies  37,008  36,686  322  0.9   
46,311
  36,686  9,625  26.2 
Other assets  28,685  30,176  (1,491) (4.9)  
29,198
  30,176  (978) (3.2)
Total assets $1,935,930 $1,929,501 $6,429  0.3% 
$
1,952,375
 $1,929,501 $22,874  1.2 

- 20 -

Investment Securities

The investment portfolio is managed as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle while mitigating risk. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk and to take advantage of market conditions that create more economically attractive returns on these investments. The securities portfolio consists primarily of U.S. Government agency, mortgage-backed and municipal securities.

Total investments decreasedincreased primarily due to maturities, calls and salessecurity purchases of $24.9$98.8 million that were partially offset by purchasesmaturities of $21.1$58.6 million in the available-for-sale portfolio.and sales and calls of $28.4 million.

Loans and Leases

Total loans and leases increased in the first threenine months ofended September 30, 2007 due to increases in lease financings of $9.6 million, commercial real estate loans of $3.0$47.0 million, real estate construction loans of $7.8$10.3 million and lease financings of $33.5 million, partially offset by decreases in commercial business loans of $3.2 million. These increases were offset slightly by a decrease in non-real estate related loans to individuals of $4.4 million.$65.3 million

-14-

Asset Quality

Performance of the entire loan and lease portfolio is reviewed on a regular basis by bank management and loan officers. A number of factors regarding the borrower, such as overall financial strength, collateral values, and repayment ability, are considered in deciding what actions should be taken when determining the collectibility of interest for accrual purposes.

When a loan or lease, including a loan or lease impaired under SFAS No. 114, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease 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 or lease may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against other expense.reversed. Interest received on nonaccrual loans and leases is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal.

Loans and leases 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.

Cash basis, restructured and nonaccrual loans and leases totaled $7.8$7.4 million at March 31,September 30, 2007, $8.4 million at December 31, 2006 and $5.3$4.9 million at March 31,September 30, 2006 and consistedconsist mainly of commercial loans and real estate related commercial loans. For the threenine months ended March 31,September 30, 2007 and 2006, nonaccrual loans and leases resulted in lost interest income of $198$542 thousand and $118$319 thousand, respectively. Loans and leases 90 days or more past due totaled $1.2$1.7 million at March 31,September 30, 2007, $760 thousand at December 31, 2006 and $663 thousand$1.7 million at March 31,September 30, 2006. Other real estate owned totaled $338$732 thousand at March 31, 2007.September 30, 2006. There was no other real estate owned at September 30, 2007 or at December 31, 2006 and March 31, 2006. The Corporation's ratio of nonperforming assets to total loans and leases and other real estate owned was 0.67%0.66% at March 31,September 30, 2007, 0.68% at December 31, 2006 and 0.47%.48% at March 31,September 30, 2006.

At March 31,September 30, 2007, the recorded investment in loans and leases that are considered to be impaired under SFAS No. 114 was $7.8$7.4 million, all of which were on a nonaccrual basis; the related reserve for loan and lease losses for those loanscredits was $1.5$2.4 million. At December 31, 2006, the recorded investment in loans and leases that are considered to be impaired under SFAS No. 114 was $8.4 million, all of which were on a nonaccrual basis; thebasis. The related reserve for loan and lease losses for those loanscredits was $1.6 million. At March 31,September 30, 2006, the recorded investment in loans and leases that are considered to be impaired under SFAS No. 114 was $5.3 million;$4.9 million and the related reserve for loan and lease losses for those loanscredits was $1.3$1.1 million. The amount of the specific reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits. Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits. In the first quarter of 2007, one commercial real estate credit secured by a mortgage totaling $406 thousand and several commercial business loans totaling $730 thousand were added to impaired loans. For the three months ended March 31, 2007, payments of $839 thousand were received on impaired loans, $298 thousand were charged-off, $350 thousand was returned to accruing, and $327 thousand was transferred to other real estate owned.

- 21 -

Reserve Forfor Loan and Lease Losses

Management believes the reserve for loan and lease losses is maintained at a level that is adequate to absorb losses in the loan and lease portfolio. Management's methodology to determine the adequacy of and the provisions to the reserve considers specific credit reviews, past loancredit loss experience, current economic conditions and trends, and the volume, growth, and composition of the loan and lease portfolio.

The reserve for loan and lease losses is determined through a monthly evaluation of reserve adequacy. Quarterly, this analysis takes into consideration the growth of the loan and lease portfolio, the status of past-due credits, current economic conditions, various types of lending activity, policies, real estate and other loan commitments, and significant changes in charge-off activity. Non-accrual loans and leases are evaluated individually. All other loans are evaluated as pools. Based on historical loss experience, loss factors are determined giving consideration to the areas noted in the first paragraph and applied to the pooled loan or lease categories to develop the general or allocated portion of the reserve. 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 under SFAS No. 114. Management also reviews the activity within the reserve to determine what actions, if any, should be taken to address differences between estimated and actual losses. Any of the above factors including input from the Bank’s primary regulators, may cause the provision to fluctuate.

-15-
The reserve for loan and lease losses is based on management's evaluation of the loan and lease portfolio under current economic conditions and such other factors, which deserve recognition in estimating loan and leasecredit losses. This evaluation is inherently subjective, as it requires estimates including the amounts and timing of future cash flows expected to be received on impaired credits that may be susceptible to significant change. Additions to the reserve arise from the provision for loan and lease losses charged to operations or from the recovery of amounts previously charged off. Loan and lease charge-offs reduce the reserve. Loans and leases are charged off when there has been permanent impairment or when in the opinion of management the full amount of the loan or lease, in the case of non-collateral dependent borrowings, will not be realized. Certain impaired loanscredits are reported at the present value of expected future cash flows using the loan's initial effective interest rate, or at the loan'scredit's observable market price or the fair value of the collateral if the loancredit is collateral dependent.

The specific reserve element is based on a regular analysis of impaired commercial and real estate loans.credits. For these loans,credits, the specific reserve established is based on an analysis of related collateral value, cash flow considerations and, if applicable, guarantor capacity.

The class reserve element is determined by an internal loancredit grading process in conjunction with associated allowance factors. The Corporation revises the class reserve factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a given loan or lease pool classification.

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded.

The reserve for loan and lease losses increased $131$589 thousand from December 31, 2006 to March 31,September 30, 2007 primarily due to the need to increase the reserve fortotal loan and lease growth. Management believes that the reserve is maintained at a level that is adequate to absorb losses in the loan and lease portfolio. The ratio of the reserve for loan and lease losses to total loans and leases was 1.01% at September 30, 2007 and 0.98% at both March 31, 2007 and December 31, 2006.

The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded. The balance of this reserve was $105 thousand as of March 31, 2007 and December 31, 2006.

Goodwill and Other Intangible Assets

TheOn January 1, 2002, the Corporation has goodwilladopted SFAS No. 142, "Goodwill and Other Intangible Assets" (“SFAS 142”). In accordance with the provisions of $44.4 million, which is deemed to be an indefinite intangible asset and in accordance to SFAS 142, isthe Corporation completes annual impairment tests during the fourth quarter. There can be no longer amortized. assurance that future goodwill impairment tests will not result in a charge to earnings.

The Corporation also has covenants not to compete, intangible assets due to bank and branch acquisitions, core deposit intangibles, customer related intangibles and mortgage servicing rights, which are not deemed to have an indefinite life and therefore will continue to be amortized over their useful life. In accordanceThe Corporation also has goodwill of $44.4 million, which is deemed to SFAS 142,be an indefinite intangible asset and will not be amortized but is tested for impairment annually.

- 22 -

Cash Surrender Value of Insurance Policies

During the third quarter of 2007, the Corporation conducts annual impairment analysis on all intangible assetspurchased an additional $8.5 million in separate account bank owned life insurance (BOLI). BOLI is a cost effective and tax-advantageous method to determine if impairmentfinancially offset a portion of employee benefit expense. The intent of the separate account BOLI is not to formally fund the Corporation’s benefit expenses, but to create an independent source of funds to hedge against always increasing benefit expenses. The separate account BOLI will diversify the asset exists. At March 31, 2007, there was no impairment detected.mix of the Corporation and create additional economic performance.

Liabilities

Total liabilities increased since December 31, 2006 primarily due to an increase in deposits, and other liabilities, partially offset by a decrease in borrowings. The following table presents the liabilities for the periods indicated:
 At March 31, At December 31, Change  
At September 30,
 
At December 31,
 
Change
 
 2007 2006 Amount Percent  
2007
 
2006
 
Amount
 
Percent
 
Deposits $1,521,340 $1,488,545 $32,795  2.2% 
$
1,518,163
 $1,488,545 $29,618  2.0%
Borrowings  189,739  225,066  (35,327) (15.7)  
209,921
  225,066  (15,145) (6.7)
Other liabilities  35,962  30,505  5,457  17.9 
Accrued expenses and other liabilities  
32,344
  30,505  1,839  6.0 
Total liabilities $1,747,041 $1,744,116 $2,925  0.2% 
$
1,760,428
 $1,744,116 $16,312  0.9 

-16-
Deposits

Total deposits grew at the Bank primarily due to increases in wholesale certificates of deposit of $24.9 million. Growth in regular and money market savings accounts of $18.7$35.6 million, regular savings of $23.4 million and PLGIT deposits of $15.0 million. These increases were partially offset by a decreasedecreases in non-interest-bearing demand accounts of $19.0 million.$34.5 million and interest-bearing checking accounts of $12.3 million; a portion of these decreases was due to movement into higher-yielding money market products.

Borrowings

Long-term debtborrowings at March 31,September 30, 2007, includes $9.4included $8.6 million in Subordinated Capital Notes, $20.6 million of Trust Preferred Securities, and $74.5$84.5 million in long-term borrowings from the FHLB. The consolidated balance sheet also includes a $1.4$1.2 million fair market value adjustment relating to FHLB long-term borrowings acquired in the First County Bank and Suburban Community Bank acquisitions. In April 2003, the Corporation secured $15.0 million in subordinated capital notes that qualify for Tier 2 capital status. In August 2003, the Corporation issued $20.0 million of trust preferred securities that qualify for Tier 1 capital status. Principal payments of $375 thousand are made quarterly and reduce the Subordinated Capital Notes balance. The Corporation deconsolidated its Capital Trust in the first quarter of 2004, as a result of the adoption of FIN 46. The result was an increase in the junior debt of $619 thousand. Long-term borrowings increased due to the issuance of an additional $9.0 million in FHLB borrowings. Short-term borrowings typically include federal funds purchased and short-term FHLB borrowings. In addition, the Bank offers an automated cash management checking account that sweeps funds daily into a repurchase agreement account (“sweep accounts”). Short-term borrowings decreased due to net fluctuationsa decline in the sweep accounts of negative $15.9 million and a reduction in federal funds purchased of $17.9$22.4 million.

Other Liabilities

Other liabilities increased primarily due to an increase in accrued income taxes and an increase in the liability for payments made to private investors for participated loans.

Shareholders' Equity

Total shareholders’ equity increased since December 31, 2006 primarily due to current earnings, partially offset by cash dividends paid. The following table presents the shareholders’ equity for the periods indicated:

 At March 31, At December 31, Change  
At September 30,
 
At December 31,
 
Change
 
 2007 2006 Amount Percent  
2007
 
2006
 
Amount
 
Percent
 
Common stock $74,370 $74,370 $─  ─% 
$
74,370
 $74,370 $─  ─%
Additional paid-in capital  22,493  22,459  34  0.2   
22,573
  22,459  114  0.5 
Retained earnings  131,884  128,242  3,642  2.8   
139,144
  128,242  10,902  8.5 
Accumulated other comprehensive loss  (3,974) (4,463) 489  11.0   
(4,011
)
 (4,463) 452  10.1 
Treasury stock  (35,884) (35,223) (661) (1.9)  
(40,129
)
 (35,223) (4,906) (13.9)
Total shareholders’ equity $188,889 $185,385 $3,504  1.9% 
$
191,947
 $185,385 $6,562  3.5 


- 23 -

Retained earnings waswere favorably impacted by threenine months of net income of $6.2$19.0 million partially offset by cash dividends of $2.6$7.7 million declared during the first threenine months of 2007. Treasury stock increased slightly primarily due to purchases. There isEffective September 15, 2007, a buybacknew repurchase plan program in place that as of March 31, 2007 allowswas approved authorizing the Corporation to purchase an additional 526,571repurchase 643,782 shares of its outstanding common stock in the open market or in negotiated transactions.

Accumulated other comprehensive gainsincome related to debt securities of $334$197 thousand, net of taxes, is included in shareholders' equity as of March 31,September 30, 2007. Accumulated other comprehensive loss related to debt securities of $175 thousand, net of taxes, has been included in shareholders' equity as of December 31, 2006. Accumulated other comprehensive income (loss) related to debt securities is the unrealized gain (loss), or difference between the book value and market value, on the available-for-sale investment portfolio, net of taxes. The period-to-period increase in accumulated other comprehensive income (loss) was a result of improvedmaturities of investment securities that had market values of fixed rate mortgage-backed and non-mortgage-backed government agency debt securities. The market value increased are attributable to decreases, fromlower than cost at December 31, 2006 to March 31, 2007, in the 2-, 3- and 5-year treasury yields, which ranged from 16 basis points to 24 basis points.2006.

-17-
Capital Adequacy

Capital guidelines which banking regulators have adopted assign minimum capital requirements for categories of assets depending on their assigned risks. The components of risk-based capital are Tier 1 and Tier 2. Minimum required total risk-based capital is 8.0%. The Corporation and the Bank continue to be in the "well-capitalized" category under regulatory standards.

Critical Accounting Policies

Management, in order to prepare the Corporation's financial statements in conformity with generally accepted accounting principles, is required to make estimates and assumptions that effect the amounts reported in the Corporation's financial statements. There are uncertainties inherent in making these estimates and assumptions. Certain critical accounting policies, discussed below, could materially affect the results of operations and financial position of the Corporation should changes in circumstances require a change in related estimates or assumptions. The Corporation has identified the reserve for loan and lease losses, intangible assets, investment securities, mortgage servicing rights, income taxes and benefit plans and stock-based compensation as its critical accounting policies. For more information on these critical accounting policies, please refer to our 2006 Annual Report on Form 10-K.

Asset/Liability Management

The primary functions of Asset/Liability Management are to assure adequate earnings, capital and liquidity while maintaining an appropriate balance between interest-earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet cash flow requirements of customers and corporate needs. Interest-rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing rates.

The Corporation uses both static gap analysis and simulation techniques to quantify its exposure to interest rate risk. The Corporation uses static gap analysis techniques to identify and monitor long-term rate exposure and uses a simulation model to measure the short-term rate exposures. The Corporation runs various earnings simulation scenarios to quantify the effect of declining or rising interest rates on the net interest margin over a one-year horizon. The simulation uses existing portfolio rate and repricing information, combined with assumptions regarding future loan and deposit growth, future spreads, prepayments on residential mortgages, and the discretionary pricing of non-maturity assets and liabilities.

The Corporation had used an interest-rate swap agreement that converts a portion of its floating rate commercial loans to a fixed rate basis. In this swap, the Corporation agreed to exchange, at specified intervals, the difference between the fixed and floating interest rates calculated on aan 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'sCorporation’s net income. The impact of the interest-rate swap on interest income for the threenine months ended March 31,September 30, 2006 was a negative $20$125 thousand. At March 31,September 30, 2007 and December 31, 2006 the Corporation had no swaps outstanding as the swap expired on November 2, 2006.outstanding.
- 24 -

Liquidity

The Corporation, in its role as a financial intermediary, is exposed to certain liquidity risks. Liquidity refers to the Corporation's ability to ensure that sufficient cash flow and liquid assets are available to satisfy demand for loans and deposit withdrawals. The Corporation manages its liquidity risk by measuring and monitoring its liquidity sources and estimated funding needs. The Corporation has a contingency funding plan in place to address liquidity needs in the event of an institution-specific or a systemic financial crisis.
-18-

Sources of Funds

Core deposits and cash management repurchase agreements (“Repos”) have historically been the most significant funding sources for the Corporation. These deposits and Repos are generated from a base of consumer, business and public customers primarily located in Bucks and Montgomery counties, Pennsylvania. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks, thrifts, mutual funds, security dealers and others.

The Corporation supplements its core funding with wholesale certificates of deposit. At March 31, 2007 the Bank had $108.7 million in wholesale certificates of deposits. The Corporation also supplements its core funding with money market funds it holds for the benefit of various trust accounts. These funds are fully collateralized by the Bank’s investment portfolio and are at current money market mutual fund rates. This funding source is subject to changes in the asset allocations of the trust accounts. Since August 2004, the Bank obtained deposits from PLGIT to augment its fixed funding sources. The PLGIT deposits are public funds collateralized with a letter of credit that PLGIT maintains with the FHLB; therefore, the Bank is not required to provide collateral on these deposits. These standby letters of credit are issued by the FHLB on behalf of the Corporation, which is the account party on the letters of credit and therefore is obligated to reimburse the FHLB for all payments made under the standby letter of credit. At September 30, 2007, the Bank had $50.0 million in PLGIT deposits.

The Corporation, through its Bank, has short-term and long-term credit facilities with the FHLB with a maximum borrowing capacity of approximately $343.4$353.4 million. At March 31,September 30, 2007, the Corporation's outstanding borrowings under the FHLB credit facilities, the Corporation's outstanding short-term and long-term borrowings totaled $74.5$84.5 million and PLGIT letters of credit totaled $52.4 million. The maximum borrowing capacity changes as a function of the Bank’s qualifying collateral assets and the amount of funds received may be reduced by additional required purchases of FHLB stock.

The Corporation maintains federal fund lines with several correspondent banks totaling $112.0$77.0 million. At March 31,September 30, 2007, there were no$17.6 million in outstanding borrowings under these lines. Future availability under these lines is subject to the policies of the granting banks and may be withdrawn.

The Corporation, through the Bank, has an available line of credit at the Federal Reserve Bank of Philadelphia, the amount of which is dependent upon the balance of loans and securities pledged as collateral. At March 31,September 30, 2007, the Corporation had no outstanding borrowings under this line.

Cash Requirements

The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The contractual obligations and commitments table that follows presents, as of March 31,September 30, 2007, significant fixed and determinable contractual obligations and commitments to third parties. The most significant contractual obligation, in both the under and over one year time period, is for the Bank to repay its certificates of deposit. Securities sold under agreement to repurchase constitute the next largest payment obligation which is short term in nature. The Bank anticipates meeting these obligations by continuing to provide convenient depository and cash management services through its branch network, thereby replacing these contractual obligations with similar fund sources at rates that are competitive in our market.

Commitments to extend credit are the Bank’s most significant commitment in both the under and over one year time periods. These commitments do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon.

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Contractual Obligations and Commitments

The Corporation enters into contractual obligations in the normal course of business as a source of funds for its asset growth and its asset/liability management, to fund acquisitions and to meet required capital needs. These obligations require the Corporation to make cash payments over time as detailed in the table below.

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to manage the Corporation’s exposure to fluctuation in interest rates. These financial instruments include commitments to extend credit, standby and commercial letters of credit and forward contracts. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of these financial instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.  
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The Corporation’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby and commercial letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Unless noted otherwise, the Corporation does not require and is not required to pledge collateral or other security to support financial instruments with credit risk. These commitments expire over time as detailed in the following table. 

Pennsylvania Local Government Investment Trust (“PLGIT”) deposits are public funds collateralized with a letter of credit that PLGIT maintains with the FHLB; therefore, the Corporation is not required to provide collateral on these deposits. These standby letters of credit are issued by the FHLB on behalf of the Corporation, which is the account party on the letters of credit and therefore is obligated to reimburse the FHLB for all payments made under the standby letter of credit. The Corporation’s exposure is represented by the contractual amount of these instruments.

Forward contracts represent agreements for delayed delivery of financial instruments or commodities in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument or commodity at a specified price or yield. Forward contracts are not traded on organized exchanges and their contractual terms are not standardized. The Corporation’s forward contracts are commitments to sell loans secured by 1-to-4 family residential properties whose predominant risk characteristic is interest rate riskrisk.

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows, including interest payable, as of March 31,September 30, 2007:

 
Payments Due by Period
 
 
Payments Due by Period
    
Due in
One
 
Due in
One to
 
Due in
Four
 
Due in
Over
 
Total
 
Due in One
Year or Less
 
Due in One to Three Years
 
Due in Four
to Five Years
 
Due in Over
Five Years
  
Total
 
Year or
Less
 
Three
Years
 
to Five
Years
 
Five
Years
 
Long-term debt $85,946 $13,860 $36,755 $30,185 $5,146  $95,349 $14,118 $46,817 $29,362 $5,052 
Subordinated capital notes  11,566 2,088 3,936 3,536 2,006   10,887 2,050 3,842 3,435 1,560 
Trust preferred securities  66,552 1,732 3,464 3,464 57,892   65,889 1,707 3,414 3,414 57,354 
Securities sold under agreement to repurchase  83,836 83,836 ─ ─ ─   77,396 77,396 ─ ─ ─ 
Other short-term borrowings  17,602 17,602 ─ ─ ─ 
Time deposits  586,575 490,214 78,908 17,203 250   575,005 463,592 101,223 9,881 309 
Operating leases  7,742 1,495 2,176 1,562 2,509   9,633 1,827 3,008 2,354 2,444 
Standby and commercial letters of credit  69,163 58,312 10,851 ─ ─   63,809 55,219 8,519 71 ─ 
Forward contracts   633 633 ─ ─ ─ 
Commitments to extend credit   468,748 153,036 43,020 16,363 256,329 
Standby letters of credit issued by FHLB on behalf of the Corporation  47,469 47,469 ─ ─ ─   52,416  52,416  ─  ─  ─ 
Commitments to extend credit  508,111 184,590 53,124 13,929 256,468 
Forward contracts  190  190  ─  ─  ─ 
Total contractual obligations $1,467,108 $883,786 $189,214 $69,879 $324,271  $1,437,367 $839,596 $209,843 $64,880 $323,048 
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Recent Accounting Pronouncements

In September 2006, the Emerging Issues Task Force (“EITF”) reachedreach a conclusion on EITF No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” (“EITF 06-4.”) EITF 06-4 is effective for fiscal years beginning after December 15, 2007. Under EITF 06-4, if an agreement is to provide the employee with a death benefit in a postretirement/termination period, the employer should recognize a liability for the future death benefit in accordance with either Statement of Financial Accounting Standard (“SFAS”) No. 106 or Accounting Principles Board Opinion No. 12. EITF 06-4 requires that recognition of the effects of adoption should be either by (a) a change in accounting principle through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption or (b) a change in accounting principle through retrospective application to all prior periods. The potential impact to the CorporationUnivest will be a negative cumulative-effect adjustment to retained earnings of approximately $1.6 million and would not be tax affected.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 establishes a framework for measuring fair value in GAAP, and enhances disclosures about fair value measurements. SFAS 157 applies when other accounting pronouncementpronouncements require fair value measurements; it does not require new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those years. The Corporation chose not to adopt SFAS 157 early. The Corporation does not anticipate the adoption of SFAS 157 in the Fiscal Year 2008 to have a material impact on its financial statements.

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In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities (Including an amendmentAmendment of FASB Statement No. 115)” (“SFAS 159.”) SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS 159 is to improve financial reporting by allowing entities to minimize volatility in reported earnings caused by related assets and liabilities being measured differently. Most of the provisions of SFAS 159 apply only to entities that elect the fair value option. However, SFAS 159 includes an amendment to SFAS 115 which applies to all entities with available-for-sale and trading securities. Entities electing the fair value option will report unrealized gains and losses in earnings and recognize upfront costs and fees related to those items in earnings as they are incurred, not deferred. The following items are eligible for the fair value measurement option established by SFAS 159: 1) Recognized financial assets and financial liabilities, except (a) an investment in a subsidiary that is required to be consolidated, (b) an interest in a variable interest entity that is required to be consolidated, (c) obligations (or assets representing net over funded positions) for pension plans, other postretirement benefits, post employment benefits, employee stock option and stock purchase plans, and other forms of deferred compensation arrangements, (d) financial assets and liabilities recognized under leases, (e) demand deposit liabilities of financial institutions, and (f) financial instruments classified by the issuer as a component of shareholder’s equity; 2) firm commitments that would otherwise not be recognized at inception and that involve only financial instruments; 3) nonfinancial insurance contracts and warranties that the insurer can settle by paying a third party to provide those goods or services; and, 4) host financial instruments resulting from separation of an embedded nonfinancial derivative instrument from a nonfinancial hybrid instrument. The fair value option may be applied on an instrument-by-instrument basis, with a few exceptions, such as investments otherwise accounted for by the equity method or multiple advancedadvances made to one borrower under a single contract. The fair value option is irrevocable unless a new election date occurs and applies only to entire instruments and not to portions of instruments. Entities are permitted to elect fair value option for any eligible item within the scope of SFAS 159 at the date they initially adopt the SFAS 159. The adjustment to reflect the difference between the fair value and the current carrying amount of the assets and liabilities for which an entity elects fair value option is reported as a cumulative-effect adjustment to the opening balance of retained earnings upon adoption. SFAS 159 is effective as of the beginning of an entity’s firstsecond fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Corporation chose not to adopt SFAS 159 early. The Corporation does not anticipate the adoption of SFAS 159 in the Fiscal Year 2008 to have a material impact on its financial statements.

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Item 3.

Item 3.Quantitative and Qualitative Disclosure About 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, 2006.

Item 4.
Controls and Procedures

Management is responsible for the disclosure controls and procedures of Univest Corporation of Pennsylvania (“Univest”). Disclosure controls and procedures are in place to assure that all material information is collected and disclosed in accordance with Rule 13a - 15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on their evaluation Management believes that the financial information required to be disclosed in accordance with the Securities Exchange Act of 1934 is presented fairly, recorded, summarized and reported within the required time periods.

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As of March 31,September 30, 2007 an evaluation was performed under the supervision and with the participation of the Corporation's management, including the CEO and CFO, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based on that evaluation, the Corporation's management, including the CEO and CFO, concluded that the Corporation's disclosure controls and procedures were effective and there have been no changes in the Corporation's internal controls or in other factors that have materially affected or are reasonably likely to materially affect internal controls subsequent to December 31, 2006.


PART II. OTHER INFORMATION

Item 1.
Item 1.Legal Proceedings

Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position of the Corporation. There are no proceedings pending other than the ordinary routine litigation incident to the business of the Corporation. In addition, there are no material proceedings pending or known to be threatened or contemplated against the Corporation or the Bank by government authorities.

Item 1A.
Item 1A.Risk Factors

There were no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K, Part 1, Item 1A, for the Year Ended December 31, 2006 as filed with the Securities and Exchange Commission on March 8, 2007.


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Item 2.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information on repurchases by the Corporation of its common stock during the three months ended March 31,September 30, 2007.
 
ISSUER PURCHASES OF EQUITY SECURITIES 
 
 
 
 
Period
 
 
Total Number of Shares Purchased
 
 
Average Price Paid per share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - 31, 2007  15,721 $30.27  15,721  515,404 
February 1 - 28, 2007  ─  ─  ─  515,404 
March 1 - 31, 2007  32,575  24.47  32,575  483,879 
Total  48,296     48,296    
ISSUER PURCHASES OF EQUITY SECURITIES 
Period 
Total
Number
of Shares
Purchased
 
Average
Price
Paid per
share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or 
Programs (3)
 
July 1 — 31, 2007  18,476 $22.78  18,476  526,571 
August 1 — 31, 2007  106,946  20.23  106,946  526,571 
September 1 — 30, 2007  ─  ─  ─  643,782 
Total  125,422     125,422    

1.Transactions are reported as of settlement dates.
2.The Corporation’s current stock repurchase program was approved by its Board of Directors and announced on 12/31/2001.August 22, 2007. The repurchased shares limit is net of normal Treasury activity such as purchases to fund the Dividend Reinvestment Program, Employee Stock Purchase Program and the equity compensation plan.
3.The number of shares originally approved for repurchase under the Corporation’s current stock repurchase program is 526,571. Effective September 15, 2007 a new repurchase program was approved authorizing the Corporation to repurchase 643,782 shares.
4.The Corporation’s current stock repurchase program does not have an expiration date.
5.No stock repurchase plan or program of the Corporation expired during the period covered by the table.
6.The Corporation has no stock repurchase plan or program that it has determined to terminate prior to expiration or under which it does not intend to make further purchases. The plans are restricted during certain blackout periods in conformance with the Corporation’s Insider Trading Policy.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Submission of Matters to a Vote of Security Holders

None.

Item 5.Other Information

None.

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Item 6.Exhibits

Item 3.a.
Defaults Upon Senior Securities

None.
Item 4.
Submission of Matters to a Vote of Security Holders

At the Corporation’s Annual Meeting of Shareholders held on April 10, 2007, the Corporation’s shareholders approved the following matters:
ForAbstainExhibits 
   
1.
ELECTION OF THREE CLASS II DIRECTORS TO SERVE FOR A
THREE-YEAR TERM EXPIRING IN 2010:
James L. Bergey  9,594,341.74  598,489.40 
Charles H. Hoeflich  9,926,088.13  266,743.01 
John U. Young  10,021,655.88  171,175.26 
2.
ELECTION OF THREE ALTERNATE DIRECTORS FOR A
ONE-YEAR TERM EXPIRING IN 2008:
Margaret K. Zook  9,511,312.93  681,518.21 
William G. Morral, CPA  9,467,046.54  725,784.60 
Mark A. Schlosser  9,514,862.93  677,968.21 
        
The other directors of the Corporation whose terms in office continued after the 2007 Annual Meeting of Shareholders are as follows: terms expiring at the 2008 Annual Meeting are Marvin A. Anders, R. Lee Delp, H. Ray Mininger and P. Gregory Shelly; and terms expiring at the 2009 Annual Meeting are William S. Aichele, Norman L. Keller, Thomas K. Leidy and Merrill S. Moyer.

Item 5.
Other Information

None.
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Item 6.
Exhibits

a.Exhibits
 Exhibit 31.1Certification of William S. Aichele, Chairman, President and Chief Executive Officer of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

 Exhibit 31.2Certification of Wallace H. Bieler, Senior Executive Vice President, Chief Operation Officer and Chief Financial OfficerCorporate Secretary of the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

 Exhibit 32.1Certification of William S. Aichele, Chairman, President and Chief Executive Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

 Exhibit 32.2Certification of Wallace H. Bieler, Chief Operation Officer and Chief Financial Officer of the Corporation, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.



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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
Univest Corporation of Pennsylvania
(Registrant)



Date: May 8, 2007By:  /s/ William S. Aichele 
 
William S. Aichele, Chairman, President
and Chief Executive Officer
(Registrant)
  
 


 
Date: May 8,November 7, 2007By:/s/ William S. Aichele
 William S. Aichele, Chairman, President
and Chief Executive Officer
Date: November 7, 2007/s/ Wallace H. Bieler
 
Wallace H. Bieler, Senior Executive Vice President,
 Chief Operation Officer and Chief Financial OfficerCorporate Secretary

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