Univest Corporation of Pennsylvania
Consolidated Financial Highlights
Percentage
1994 1993 Change
Earnings:
Net interest income $34,647,923 $31,633,168 9.5
Income before income taxes and cumulative
effect of a change in accounting principle 14,656,886 13,477,566 8.8
Applicable income taxes 4,536,404 4,120,675 10.1
Income before cumulative effect of a change
in accounting principle 10,120,482 9,356,891 8.2
Net income 10,120,482 8,786,512 15.2
Per share:
Average shares outstanding 3,137,016 3,137,016 -
Income before income taxes and
cumulative effect of a change in
accounting principle $ 4.67 $ 4.29 8.9
Applicable income taxes $ 1.44 $ 1.31 9.9
Income before cumulative effect of a
change in accounting principle $ 3.23 $ 2.98 8.4
Net income $ 3.23 $ 2.80 15.4
Book value $25.55 $23.23 10.0
Balance sheets:
Investments $202,060,206 $139,326,861 45.0
Net loans 571,903,335 563,583,948 1.5
Deposits 699,072,720 668,851,440 4.5
Shareholders' equity 80,157,936 72,872,658 10.0
Assets 847,153,657 789,887,067 7.2
Univest Corporation of Pennsylvania
Consolidated Balance Sheets
December 31,
1994 1993
Assets
Cash and due from banks $ 35,176,956 $ 34,701,868
Time deposits with other banks 501,244 3,299,273
Investment securities held to maturity (market
value $167,604,794 and $91,405,253 at
December 31, 1994 and 1993, respectively) 171,725,681 91,056,109
Investment securities available for sale
(market value of $48,714,712 in 1993) 30,334,525 48,270,752
Federal funds sold and other short-term 6,847,794 12,678,108
investments
Mortgage loans held for sale - 8,916,100
Loans 580,778,786 570,782,161
Less: Reserve for possible loan losses (8,875,451) (7,198,213)
Net loans 571,903,335 563,583,948
Premises and equipment, net 13,948,531 12,632,889
Accrued interest and other assets 16,715,591 14,748,020
Total assets $847,153,657 $789,887,067
Liabilities
Demand deposits, noninterest bearing $104,403,816 $103,058,755
Demand deposits, interest bearing 155,636,331 165,429,430
Savings deposits 126,975,026 123,675,277
Time deposits 312,057,547 276,687,978
Total deposits 699,072,720 668,851,440
Securities sold under agreements to repurchase 43,767,554 28,123,589
Other short-term borrowings 1,155,000 1,155,000
Accrued expenses and other liabilities 13,562,042 8,607,251
Long-term debt 9,438,405 10,277,129
Total liabilities 766,995,721 717,014,409
Shareholders' equity
Common stock, $5 par value; 12,000,000 shares
authorized at December 31, 1994 and 5,000,000
shares authorized at December 31, 1993, and
3,143,346 shares issued and 3,137,016 shares
outstanding at December 31, 1994 and 1993 15,716,728 15,716,728
Additional paid-in capital 8,090,128 8,090,128
Retained earnings 56,983,044 49,215,323
Net unrealized securities losses (482,443) -
Treasury stock, 6,330 shares at cost (149,521) (149,521)
Total shareholders' equity 80,157,936 72,872,658
Total liabilities and shareholders' equity $847,153,657 $789,887,067
See accompanying notes to consolidated financial statements.
Univest Corporation of Pennsylvania
Consolidated Statements of Income
Year ended December 31
1994 1993 1992
Interest income:
Interest and fees on loans:
Taxable $ 45,793,675 $ 43,749,199 $ 45,795,766
Exempt from federal income taxes 1,880,110 2,073,297 2,353,704
Total interest and fees on loans 47,673,785 45,822,496 48,149,470
Interest and dividends on investment securities:
U.S. Government obligations 6,404,798 5,621,534 6,146,809
Obligations of state and political subdivisions 94,812 125,295 145,674
Other securities 968,492 2,246,373 3,186,750
Interest on time deposits with other banks 118,508 179,608 181,011
Interest on federal funds sold 660,950 406,644 736,968
Bankers' acceptances and long-term federal funds sold - - 65,000
Total interest income 55,921,345 54,401,950 58,611,682
Interest expense:
Interest on demand deposits 3,417,669 4,197,638 5,177,864
Interest on savings deposits 3,151,961 3,092,200 3,089,547
Interest on time deposits 12,843,452 13,864,921 18,858,859
Interest on long-term debt 565,598 793,564 784,521
Interest-all other 1,294,742 820,459 865,717
Total interest expense 21,273,422 22,768,782 28,776,508
Net interest income 34,647,923 31,633,168 29,835,174
Provision for loan losses 1,950,000 2,480,000 2,852,300
Net interest income after provision for loan losses 32,697,923 29,153,168 26,982,874
Other income:
Trust 1,828,037 1,630,365 1,543,675
Service charges on demand deposits 1,632,508 1,560,583 1,548,215
(Losses) gains on sales of securities (26,870) - 120,328
(Losses) gains on sales of mortgages (12,189) 955,872 509,466
Other 2,150,671 2,303,943 1,945,436
Total other income 5,572,157 6,450,763 5,667,120
Other expenses:
Salaries and benefits 12,403,346 11,764,170 10,993,299
Net occupancy 1,664,944 1,584,429 1,490,544
Equipment 1,723,744 1,623,200 1,590,774
Other 7,821,160 7,154,566 6,842,683
Total other expenses 23,613,194 22,126,365 20,917,300
Income before income taxes and cumulative effect
of a change in accounting principle 14,656,886 13,477,566 11,732,694
Applicable income taxes 4,536,404 4,120,675 3,318,856
Income before cumulative effect of a change in
accounting principle 10,120,482 9,356,891 8,413,838
Cumulative effect of a change in accounting principle,
net of income taxes of $293,831 - (570,379) -
Net income $10,120,482 $ 8,786,512 $ 8,413,838
Per common share data:
Income before cumulative effect of a change in
accounting principle $ 3.23 $ 2.98 $ 2.68
Cumulative effect of a change in accounting principle - (0.18) -
Net income per share $ 3.23 $ 2.80 $ 2.68
See accompanying notes to consolidated financial statements.
Univest Corporation of Pennsylvania
Consolidated Statements of Changes in Shareholders' Equity
Net
Additional Unrealized
Common Paid-in Retained Securities Treasury
Stock Capital Earnings Losses Stock Total
Balance at December 31, 1991 $ 7,858,364 $8,090,128 $44,029,883 $ - $(149,521) $59,828,854
Net income for 1992 8,413,838 8,413,838
Cash dividends declared ($.625 per share) (1,960,635) (1,960,635)
Balance at December 31, 1992 7,858,364 8,090,128 50,483,086 - (149,521) 66,282,057
Net income for 1993 8,786,512 8,786,512
Cash dividends declared ($.70 per share) (2,195,911) (2,195,911)
Two-for-one common stock split
in the form of a 100% stock dividend 7,858,364 (7,858,364) -
Balance at December 31, 1993 15,716,728 8,090,128 49,215,323 - (149,521) 72,872,658
Adjustment to beginning balance for
change in accounting method, net
of income taxes of $150,946 293,013 293,013
Change in unrealized gains and (losses)
on investment securities available for
sale, net of income taxes of $(399,478) (775,456) (775,456)
Net income for 1994 10,120,482 10,120,482
Cash dividends declared ($.75 per share) (2,352,761) (2,352,761)
Balance at December 31, 1994 $15,716,728 $8,090,128 $56,983,044 $ (482,443) $(149,521) $80,157,936
See accompanying notes to consolidated financial statements.
Univest Corporation of Pennsylvania
Consolidated Statements of Cash Flows
Year ended December 31
1994 1993 1992
Cash flows from operating activities
Net income $10,120,482 $ 8,786,512 $ 8,413,838
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses (less than) in excess of
net charge-offs 1,677,238 (1,042,112) 1,505,361
Depreciation of premises and equipment 1,526,874 1,292,796 1,252,728
Cumulative effect of a change in accounting principle - 570,379 -
Premium amortization (discount accretion) on
investment securities and time deposits 289,522 511,479 91,307
Deferred income tax (benefit) 139,305 472,521 (818,294)
Realized losses (gains) on investment securities 26,870 - (120,328)
Realized losses (gains) on sales of mortgages 12,189 (955,872) (509,466)
(Decrease) increase in net deferred loan fees (552,398) (53,506) 729,708
(Increase) decrease in interest receivable and other assets (1,320,110) 794,673 (471,376)
Decrease in accrued expenses and other liabilities 5,001,277 (1,408,439) (588,113)
Net cash provided by operating activities 16,921,249 8,968,431 9,485,365
Cash flows from investing activities
Purchases of time deposits - - (2,162,122)
Proceeds from maturing time deposits 2,798,029 48,666 1,000,000
Proceeds from maturing securities - 98,634,461 59,006,991
Proceeds from sales of securities - - 11,716,425
Proceeds from maturing securities held to maturity 24,334,687 - -
Proceeds from maturing securities available for sale 29,987,404 - -
Proceeds from sales of securities available for sale 7,246,544 - -
Purchases of investment securities held to maturity (108,784,018) (67,751,172) (102,705,594)
Purchases of investment securities available for sale (16,565,327) - -
Net decrease in federal funds sold and other short-term
investments 5,830,314 1,550,934 4,814,744
Net decrease (increase) in loans held for sale 8,916,100 (1,422,200) (7,493,900)
Proceeds from sales of mortgages 14,917,616 34,499,131 35,791,048
Net increase in loans (24,374,032) (62,431,316) (37,667,607)
Capital expenditures (2,842,516) (1,340,979) (1,221,683)
Net cash (used in) provided by investing activities (58,535,199) 1,787,525 (38,921,698)
Cash flows from financing activities
Assumption of deposits 10,607,692 - -
Net increase (decrease) in deposits 18,966,127 (8,419,081) 26,593,358
Net increase (decrease) in short-term borrowings 15,643,965 (2,587,151) 5,095,740
Proceeds from long-term debt - 4,000,000 -
Cash dividends (2,290,021) (2,101,800) (1,897,894)
Repayments of long-term debt (838,725) (1,798,875) (2,000,000)
Net cash provided by (used in) financing activities 42,089,038 (10,906,907) 27,791,204
Net increase (decrease) in cash and due from banks 475,088 (150,951) (1,645,129)
Cash and due from banks at beginning of year 34,701,868 34,852,819 36,497,948
Cash and due from banks at end of year $35,176,956 $34,701,868 $34,852,819
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $20,600,157 $23,575,877 $30,308,462
Income taxes $ 4,449,625 $ 4,350,959 $ 3,901,979
Supplemental disclosure of noncash activity
During the year ended December 31, 1993, the Corporation entered
into a capital lease obligation for $491,004.
See accompanying notes to consolidated financial statements.
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidation financial statements include the accounts of Univest
Corporation of Pennsylvania (Univest) and its wholly owned subsidiaries,
including Union National Bank and Trust Company (Union) and Pennview
Savings Bank (Pennview), collectively referred to herein as the "Banks."
All significant intercompany balances and transactions have been eliminated
in consolidation.
Investment Securities
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards ("FAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securites." Securities are classified as investments and
carried at amortized cost if management has the positive intent and ability to
hold the securities to maturity. Securities purchased with the intention of
recognizing short-term profits are placed in the trading account and are
carried at market value. Securities not classified as investment or trading
are designated securities available for sale and carried at fair value with
unrealized gains and losses reflected in shareholders' equity. Prior to the
adoption of FAS No. 115, securities available for sale were carried at the
lower of cost or fair value. As a result of adopting FAS 115, securities with
an original carrying value of $48,714,712 were classified as
available-for-sale at January 1, 1994 and were written up to their aggregate
fair value of $48,714,712. After the related tax effects, shareholders'
equity at January 1, 1994 was increased by $293,013 to reflect the write-up of
those securites to fair value. The accumulated net unrealized loss on
available-for-sale securities included in retained earnings was $482,443
at December 31, 1994.
Gains and losses on sales of securites are generally computed on a
specific security basis.
Loans
Loans are stated at the principal amount less net deferred loan
fees and unearned discount. Interest income on commercial and
mortgage loans is recorded on the outstanding balance method,
using actual interest rates applied to daily principal balances.
Unearned discount on installment loans is recognized in income
using the "rule of 78ths" method (sum-of-the-digits), which
materially approximates the interest method. Accrual of interest
income on loans ceases when collectibility of interest and/or
principal is questionable. If it is determined that the
collection of interest previously accrued is uncertain, such
accrual is reversed and charged to current earnings. Thereafter,
income is only recognized as payments are received for loans on
which there is no uncertainty as to the collectibility of
principal.
Mortgage Loans Held for Sale
The Corporation originates mortgage loans for portfolio
investment or for sale in the secondary market. All fixed-rate
mortgage loans originated after January 1, 1992 with a 15-year to
30-year term are designated as held for sale. There were no
loans held for sale as of December 31, 1994. The estimated fair
market value of mortgage loans held for sale at December 31, 1993
was approximately $9,177,400. Mortgage loans held for sale are
carried at the lower of cost or market value, determined on an
aggregate basis.
Loan Fees
Fees collected upon loan origination and certain direct costs of
originating loans are deferred and recognized over the
contractual lives of the related loans as yield adjustments.
Upon prepayment or other disposition of the underlying loans
before their contractual maturities, any associated unamortized
fees or costs are recognized.
Reserve for Possible Loan Losses
The reserve for loan losses is based on management's evaluation
of the loan portfolio under current economic conditions and such
other factors which deserve recognition in estimating possible
loan losses. Additions to the reserve arise from the provision
for loan losses charged to operations or from the recovery of
amounts previously charged off. Loan charge-offs reduce the
reserve. Loans are charged off when there has been permanent
impairment.
The Corporation will adopt Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a
Loan," effective January 1, 1995. As a result of applying the
new rules, certain impaired loans will be reported at the present
value of expected future cash flows using the loan's effective
interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. The Corporation does not
expect the adoption of the standard to have a material impact on
the Corporation's financial position or results of operations.
Premises and Equipment
Land is stated at cost, and bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line method and charged to operating
expenses over the estimated useful lives of the assets (bank
premises and improvements - average life 25 years; furniture and
equipment - average life 10 years).
Other Real Estate Owned
Other real estate owned represents properties acquired through
customers' loan defaults, and is included in accrued interest and
other assets. The real estate is stated at an amount equal to
the loan balance prior to foreclosure, plus costs incurred for
improvements to the property, but no more than the fair market
value of the property, less estimated costs to sell.
Net Income Per Share
Net income per common share is based on the weighted average
number of shares outstanding during each fiscal year. The
assumed exercise of the options under the Long-Term Incentive
Plan did not have a materially dilutive effect on the earnings
per share in 1993 and 1994.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement No. 109, "Accounting for Income Taxes." The
Corporation adopted the provisions of the new standard in its
financial statements for the year ended December 31, 1993. The
adoption of Statement 109 did not produce materially different
results from using the deferred method. As permitted by the
Statement, prior years' financial statements have not been
restated to reflect the change in accounting method.
Under Statement 109, the liability method is used in accounting
for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined
using the deferred method. Deferred tax expense was based on
items of income and expense that were reported in different years
in the financial statements and tax returns and were measured at
the tax rate in effect in the year the difference originated.
Intangible Assets
The purchase price of Pennview in excess of the fair value of the
net assets acquired is recorded as goodwill and amortized on a
straight-line basis over a 15-year period. At December 31, 1994,
the unamortized balance is approximately $1,924,000 ($2,106,000
at December 31, 1993), net of accumulated amortization of
approximately $804,000 ($622,000 at December 31, 1993).
Retirement Plan
Nearly all employees are covered by a noncontributory retirement
plan. The plan provides benefits based on a formula of each
participant's final average pay. The amount funded is not more
than the maximum amount deductible for federal income tax
purposes. In addition, Univest sponsors a 401(k) deferred salary
savings plan, which is a qualified defined contribution plan, and
which covers all employees of Univest and its subsidiaries, and
provides that the Corporation make matching contributions as
defined by the plan.
Postretirement Benefits Other Than Pensions
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (FAS 106). FAS
106 requires that employers accrue the costs associated with
providing postretirement benefits during the active service
periods of employees. As permitted under FAS 106, the
Corporation elected to immediately recognize the January 1, 1993
transitional liability of $864,210, $570,379 after-tax or $.18
per share, as the cumulative effect of a change in accounting
principle.
Statement of Cash Flows
Univest has defined those items included in the caption "Cash and
due from banks" as cash and cash equivalents.
Trust Assets
Assets held by Union in a fiduciary or agency capacity for its
customers are not included in the consolidated financial
statements since such items are not assets of Union. Trust
service income is reported on a cash basis. Reporting such
income on a cash basis instead of the accrual basis does not
materially affect net income or financial position.
Note 2. Restrictions on Cash and Due from Bank Accounts
Union is required to maintain reserve balances with the Federal
Reserve Bank. The average amount of those reserve balances for
1994 was $5,293,490 and for 1993 was $5,003,289.
Note 3. Investment Securities
Securities with a market value of $93,480,992 and $84,808,267 at
December 31, 1994 and 1993, respectively, were pledged to secure
public deposits and for other purposes as required by law. The
following table shows the amortized cost and approximate market
value of the held-to-maturity securities and available-for-sale
securities at December 31, 1994 and 1993, by maturity within each
type:
December 31, 1994 December 31, 1993
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Held-to-Maturity Securities Cost Gains (Losses) Value Cost Gains (Losses) Value
(In Thousands)
U.S. Treasury, government
corporations and
agencies obligations:
Within 1 year $ 41,113 $ - $ (481) $40,632 $19,705 $113 $ - $19,818
1 to 5 years 122,661 - (3,490) 119,171 57,266 190 (117) 57,339
163,774 - (3,971) 159,803 76,971 303 (117) 77,157
State and political subdivisions:
Within 1 year 15 - - 15 485 1 - 486
1 to 5 years 2,515 - (61) 2,454 1,000 2 - 1,002
5 to 10 years - - - - 20 - - 20
2,530 - (61) 2,469 1,505 3 - 1,508
Mortgage-backed securities:
1 to 5 years 3,520 34 (45) 3,509 5,877 166 (1) 6,042
5 to 10 years 402 - (1) 401 - - - -
Over 10 years 100 - - 100 1,831 8 (2) 1,837
4,022 34 (46) 4,010 7,708 174 (3) 7,879
Other:
1 to 5 years 1,200 - (70) 1,130 1,076 - (13) 1,063
5 to 10 years 200 - (7) 193 200 - - 200
Over 10 years - - - - 3,596 2 - 3,598
1,400 - (77) 1,323 4,872 2 (13) 4,861
Total $ 171,726 $34 $(4,155) $167,605 $91,056 $482 $(133) $91,405
December 31, 1994 December 31, 1993
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Securities Available for Sale Cost Gains (Losses) Value Cost Gains (Losses) Value
(In Thousands)
U.S. Treasury, government
corporations and
agencies obligations:
Within 1 year $ 8,012 $ - $ (42) $ 7,970 $23,535 $209 $ (15) $23,729
1 to 5 years 11,990 20 (174) 11,836 8,045 283 - 8,328
20,002 20 (216) 19,806 31,580 492 (15) 32,057
Mortgage-backed securities:
5 to 10 years 3,534 - (303) 3,231 1,009 - (1) 1,008
Over 10 years 3,823 - (233) 3,590 15,682 55 (87) 15,650
7,357 - (536) 6,821 16,691 55 (88) 16,658
Other:
Over 10 years 3,707 1 - 3,708 - - - -
3,707 1 - 3,708 - - - -
Total $31,066 $ 21 $(752) $30,335 $48,271 $547 $(103) $48,715
The amortized cost and estimated market value of debt securities
at December 31, 1994, by contractual maturity, are shown above.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations without call or prepayment penalties.
During the year ended December 31, 1994, debt available-for-sale
securities with a fair value at the date of sale of $7,246,543
were sold. The gross realized gains on such sales totaled
$18,809, and the gross realized losses totaled $45,679. The net
adjustment to unrealized holding losses on available-for-sale
securities included as a separate component of shareholders'
equity totaled $482,443, in 1994.
There were no sales of investments in debt securities during
1993. Proceeds from sales of investments in debt securities were
$5,622,750 during 1992. Gross gains of $26,951 and gross losses
of $351 were realized on those sales during 1992.
Unrealized losses in investment securities at December 31, 1994
and 1993 do not represent permanent impairments.
At December 31, 1994 and 1993, there were no investments in any
single non-federal issuer representing more than 10% of
shareholders' equity.
Note 4. Loans
The following is a summary of the major loan categories at
December 31 of the noted years:
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
1994 1994 1993 1993
(In Thousands)
Real estate loans--construction $ 50,954 $ 50,614 $ 60,437 $ 60,430
Real estate loans--commercial 160,234 151,444 164,304 166,301
Real estate loans--residential 221,098 216,021 200,018 202,033
Commercial and industrial loans 114,103 111,290 115,375 115,679
Loans to individuals 36,810 35,757 34,130 33,503
All other loans 5,639 5,456 4,402 4,381
Total loans 588,838 570,582 578,666 582,327
Less: Unearned income (8,059) (8,059) (7,884) (7,884)
$580,779 $562,523 $570,782 $574,443
At December 31, 1994, loans to directors and executive officers
of Univest and companies in which directors have an interest
aggregated $16,426,265. These loans have been made in the
ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at
the same time for comparable transactions with customers and did
not involve more than the normal risk of collectibility or
present other unfavorable terms. The summary of activity for the
past year is as follows:
Balance at Amounts Current Balance
Beginning of Additions Collected at the End of 1994
1994
$17,079,374 $32,152,713 $32,805,822 $16,426,265
Note 5. Reserve for Possible Loan Losses
A summary of the transactions in the reserve for possible loan
losses is as follows:
1994 1993 1992
Balance at beginning of year $7,198,213 $8,240,325 $6,734,964
Provision charged to operating
expenses 1,950,000 2,480,000 2,852,300
Recoveries 1,170,989 329,531 484,089
Loans charged off (1,443,751) (3,851,643) (1,831,028)
Balance at end of year $8,875,451 $7,198,213 $8,240,325
At December 31, 1994, the total of nonaccrual and restructured
loans was $4,747,602 ($6,099,988 at December 31, 1993), and the
total of other real estate owned was $1,750,000 ($2,400,000 at
December 31, 1993). If these loans had been performing in
accordance with their contractual terms, additional interest
income of $567,063, $661,348, and $698,552 would have been
recorded in 1994, 1993, and 1992, respectively. In addition,
Pennview had first residential mortgage loans of $823,586 at
December 31, 1994 ($891,403 at December 31, 1993) which were over
90 days delinquent on which interest income of $7,600 ($10,164 at
December 31, 1993) had been reversed.
Note 6. Premises and Equipment
December 31,
1994 1993
(In thousands)
Land and land improvements $ 3,265 $ 3,001
Premises and improvements 12,579 11,121
Furniture and equipment 12,659 11,696
28,503 25,818
Less:accumulated depreciation (14,554) (13,185)
$13,949 $12,633
As of December 31, 1994, Univest and its subsidiaries were
obligated under noncancelable leases for various premises and
equipment. A summary of the future minimum rental commitments
under noncancelable operating leases net of related sublease
revenue is as follows: 1995--$190,000; 1996--$215,000; 1997--
$172,000; 1998--$155,000; 1999--$107,000. Rental expense charged
to operations was $135,000, $87,000, and $76,000 for 1994, 1993,
and 1992, respectively.
Note 7. Income Taxes
Effective January 1, 1993, the Corporation changed its method of
accounting for income taxes from the deferred method to the
liability method required by FASB Statement No. 109, "Accounting
for Income Taxes." As permitted under the new rules, prior
years' financial statements have not been restated.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. The assets and liabilities giving rise
to the Corporation's deferred tax liabilities and assets as of
December 31, 1994 and 1993 are as follows:
1994 1993
Deferred tax assets:
Loan loss $2,851,000 $2,206,000
Deferred compensation 306,000 309,000
Deferred fee income 469,000 883,000
Postretirement benefits 323,000 305,000
Net unrealized securities losses 249,000 -
Other - 171,000
4,198,000 3,874,000
Deferred liabilities:
Accretion 71,000 51,000
Retirement plans 148,000 173,000
Depreciation 250,000 245,000
Intangible assets 403,000 416,000
Mark-to-market adjustment 226,000 -
Other 36,000 -
Net deferred tax assets $3,064,000 $2,989,000
The provision for federal and state income taxes included in the
accompanying consolidated statements of income consists of the
following:
Liability Liability Deferred
Method Method Method
1994 1993 1992
Currently payable $4,397,099 $3,648,154 $4,137,150
Deferred 139,305 472,521 (818,294)
$4,536,404 $4,120,675 $3,318,856
The effective tax rates are less than the statutory federal rate
of 35% because interest on loans and investment securities of
state and political subdivisions is exempt from income tax.
Deferred federal income taxes (tax benefits) arise from timing
differences in the recognition of income and expenses for tax and
financial reporting purposes. The sources and tax effects of
each are as follows for 1992:
1992
Provision for possible loan losses $(645,709)
Bond discount accretion, net 43,450
Excess (book) amortization of unearned discount over
(tax) amortization 59,918
Tax (book) depreciation in excess of book (tax) (7,440)
depreciation
Retirement plan 44,175
Deferred compensation (29,615)
Deferred loan fees (316,600)
Other, net 33,527
Total deferred $(818,294)
Pennview is permitted to deduct an annual addition to a tax
reserve for bad debts, which differs from the method used for
financial accounting purposes. As of December 31, 1994, Pennview
has taken approximately $2,596,000 in bad debt deductions for
which no deferred income taxes have been provided, since
management does not intend to use the reserve for purposes other
than to absorb bad debt losses.
Note 8. Retirement Plan
Net pension expense recognized in 1994, 1993, and 1992 amounted
to $193,001, $351,114, and $250,676, respectively, and is
summarized as follows:
1994 1993 1992
Service cost-benefits earned during the period $ 418,775 $ 364,741 $ 342,838
Interest cost on projected benefit obligation 686,195 722,816 633,539
Actual return on plan assets 189,226 (871,950) (518,572)
Net amortization and deferral (1,101,195) 135,507 (207,129)
$ 193,001 $ 351,114 $ 250,676
The funded status is reconciled to prepaid pension expense
recognized in the financial statements at December 31, 1994 and
1993, as follows:
1994 1993
Fair value of plan assets $9,023,703 $9,448,323
Actuarial present value of benefit obligations:
Vested 6,221,989 6,587,635
Nonvested 330,905 361,347
Accumulated benefit obligation 6,552,894 6,948,982
Effect of projected future salary increase 1,661,977 2,373,269
Projected benefit obligation 8,214,871 9,322,251
Plan assets in excess of (less than) projected
benefit obligation 808,832 126,072
Unrecognized net asset at transition (756,616) (882,718)
Unrecognized prior service costs (836,254) (711,996)
Unrecognized net loss 1,210,562 1,980,400
Prepaid pension expense $ 426,524 $ 511,758
Assumed discount rate for obligation 8.50% 7.35%
Assumed long-term rate of investment return 8.50% 8.50%
Assumed salary increase rate 5.60% 5.60%
The unrecognized net asset at transition is being amortized on
the straight-line method over 15 years. Plan assets include
marketable equity securities, corporate and government debt
securities, and certificates of deposit.
Pension expense for the 401(k) deferred salary savings plan for
the years ended December 31, 1994, 1993, and 1992, was $196,000,
$177,000, and $166,000, respectively.
Note 9. Other Postretirement Benefit Plans
The Corporation provides certain postretirement health care and
life insurance benefits for retired employees. The liability for
these postretirement benefits is unfunded. Statement of
Financial Accounting Standards No. 106, "Employers' accounting
for Postretirement Benefits Other Than Pensions" (FAS 106) was
issued in December 1990, to establish the accounting for
postretirement benefits. FAS 106 requires that employers accrue
the costs associated with providing postretirement benefits
during the active service periods of employees, rather than the
previously accepted accounting practice of recognizing those
costs on a pay-as-you-go basis.
Effective January 1, 1993, the Corporation adopted FAS 106. As
permitted under FAS 106, the Corporation elected to recognize
immediately the transitional postretirement benefit liability of
$864,000, $570,000 after-tax or $.18 per share, as the cumulative
effect of a change in accounting principle. The impact of FAS
106 included in salaries and benefits on the Consolidated
Statements of Income for the year ended December 31, 1994 and
1993, was an increase of $26,000 and $33,000, respectively.
The liability for postretirement benefits included in other
liabilities at December 31, 1994 and 1993, was as follows:
1994 1993
Accumulated postretirement benefit obligation:
Retirees $(596,000) $(667,000)
Fully eligible active plan participants (32,000) (36,000)
Other active plan participants (189,000) (211,000)
Unrecognized net gain (160,000) -
Accrued postretirement benefit cost $(977,000) $(914,000)
Net periodic postretirement benefit cost for the years ended
December 31, 1994 and 1993 includes the following components:
1994 1993
Service cost-benefits earned during the period $15,941 $13,857
Interest cost on accumulated postretirement
benefit obligation 67,609 66,513
$83,550 $80,370
The cost of providing postretirement benefits in 1992 was
recognized by expensing the annual payments to the retirees,
which were $41,000.
For measurement purposes, a 10.0 percent annual rate of increase
in the per capita cost of covered health care benefits was
assumed in 1994; the rate was assumed to decrease gradually by
1/2 percent per year, reaching 5 percent in 2003 and after. The
health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed
health care cost trend rates by 1 percentage point in each year
would increase the accumulated postretirement benefit obligation
as of December 31, 1994 by $45,000 and the aggregate of the
service and interest cost components of net periodic
postretirement benefit cost for the year ended by $500.
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 8.50 percent
and 7.35 percent, at December 31, 1994 and 1993, respectively,
and the assumed salary increase rate was 5.60 percent at December
31, 1994 and 1993.
Note 10. Long-Term Incentive Plan
During 1993, the Corporation adopted the 1993 Long-Term Incentive
Plan, whereby the Corporation may grant options to employees to
purchase up to 156,850 shares of common stock. The plan provides
for the issuance of options to purchase common shares at prices
not less than 100 percent of the fair market value at the date of
option grant. Options are exercisable as to 33 percent of the
optioned shares each year, commencing January 1, 1996. 131,850
common shares were available for future options at December 31,
1994. All options expire December 31, 1999. Transactions
involving the plan are summarized as follows:
Option
Price Per
Shares Share
Outstanding at December 31, 1992 - -
Granted 25,000 $34.00
Exercised - -
Outstanding at December 31, 1993 25,000 34.00
Granted - -
Exercised - -
Outstanding at December 31, 1994 25,000 $34.00
Note 11. Time Deposits
The aggregate amount of certificates of deposit in denominations
of $100,000 or more was $21,725,000 at December 31, 1994, and
$23,833,000 at December 31, 1993, with interest expense of
$1,104,000 for 1994, and $1,268,000 for 1993. Other time
deposits in denominations of $100,000 or more were $21,546,000 at
December 31, 1994, and $12,512,000 at December 31, 1993, with
interest expense of $549,000 for 1994, and $309,000 for 1993.
In accordance with FAS 107, financial instruments with stated
maturities have been valued using a present value discounted cash
flow with a discount rate approximating current market for
similar assets and liabilities. Financial instrument liabilities
with no stated maturities have an estimated fair value equal to
both the amount payable on demand and the recorded book balances.
Estimated Estimated
Book Value Fair Value Book Value Fair Value
1994 1994 1993 1993
(In thousands)
Deposits with stated maturities $312,058 $307,635 $276,688 $277,911
Noninterest-bearing demand deposit
accounts 104,404 104,404 103,059 103,059
Interest-bearing demand deposit accounts 80,531 80,531 74,065 74,065
Money Market Savings 75,105 75,105 91,364 91,364
Regular Savings Deposits 126,975 126,975 123,675 123,675
Note 12. Long-Term Debt
At December 31, 1994 and 1993, long-term debt consisted of the
following amounts:
December 31 December 31 Interest
Description 1994 1993 Rate Maturity
Subordinated Note $ - $ 750,000 Prime (6.0% at December 31, 1993)
Subordinated Note 5,000,000 5,000,000 10.35% through July 31, 1995 July 31, 2000
Federal Home Loan
Bank Advance 4,000,000 4,000,000 4.82% February 1996
Federal Home Loan
Bank Advance 75,000 75,000 4.00% September 2006
Federal Home Loan
Bank Advance 10,000 10,000 2.50% March 1996
$9,085,000 $9,835,000
The $5,000,000 subordinated note does not permit prepayment
before the conversion date (July 31, 1995) without a substantial
penalty. The note bears interest at a fixed rate of 10.35%
until the conversion date. Thereafter, the note shall bear
interest either at a floating rate equal to the prime rate or at
a fixed rate to be mutually agreed upon by the lender and the
Corporation. The terms of the $5,000,000 note require interest
payments only through July 31, 1995, and principal payments of
$1,000,000 per year, plus interest payable quarterly through
July 31, 2000. Advances from the Federal Home Loan Bank are
collateralized by Federal Home Loan Bank stock and substantially
all first mortgage loans of Pennview. The advances are subject
to the payment of a prepayment fee in the event of repayment of
the advance in whole or in part prior to maturity.
During 1993, Univest Electronic Services Corporation entered into
a capital lease for equipment. The balance of this obligation at
December 31, 1994 is $353,405 with principal repayments as
follows: 1995--$94,969; 1996--$101,746; 1997--$109,006; 1998--
$47,684. This amount is also included in other long-term debt.
The estimated fair value of long-term debt, in accordance with
FAS 107, was $8,903,000 and $10,235,000 at December 31, 1994 and
1993, respectively, and was arrived at by using a present value
discounted cash flow, based on expected current borrowing rates
for similar types of borrowing arrangements.
Note 13. Loan Commitments, Standby Letters of Credit, and
Concentrations of Credit Risk
Loan commitments are made to accommodate the financial needs of
the Institutions' customers. Standby letters of credit commit
the Institutions to make payments on behalf of customers when
certain specified future events occur. They primarily are issued
to support commercial paper, medium- and long-term notes and
debentures, including industrial revenue obligations.
Historically, substantially all standby letters of credit expire
unfunded.
Both arrangements have credit risk essentially the same as that
involved in extending loans to customers and are subject to the
Institutions' normal credit policies. Collateral (e.g.,
securities, receivables, inventory, equipment) is obtained based
on management's credit assessment of the customer.
The Banks offer commercial, mortgage, and consumer credit
products to their customers in the normal course of business
which are detailed in Note 4. These products represent a
diversified credit portfolio and are generally issued to
borrowers within the Banks' branch office systems in eastern
Pennsylvania. The ability of the customers to repay their credit
is, to some extent, dependent upon the economy in the Banks'
market areas.
The Banks also control their credit risks by limiting the amount
of credit to any business, institution, or individual, but as of
December 31, 1994, the Banks have identified the due from banks'
balance as a significant concentration of credit risk because it
contains a balance due from a depository institution in the
amount of $16,230,735 which is unsecured. Management evaluates
the creditworthiness of the institution on at least a quarterly
basis in an effort to minimize its credit risk associated with
this concentration.
The estimated fair value of off-balance-sheet financial
instruments is based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the counterparties' credit standing. The
lending commitments for residential mortgage loans are based on
quoted market prices for similar instruments traded in the
secondary market.
The Institutions' maximum exposure to credit loss for loan
commitments (unfunded loans and unused lines of credit) and
standby letters of credit outstanding at December 31, 1994, was
as follows:
Contract or Estimated
Notional Amount Fair Value
(In thousands)
Financial instruments representing credit risk:
Commitments to extend credit $120,277 $(190)
Standby letters of credit or commercial letters of credit 19,663 (295)
As of December 31, 1994, the Banks were servicing loans for
others amounting to approximately $81,993,000. Servicing loans
for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors,
and foreclosure processing.
Note 14. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107 (FAS 107),
"Disclosures about Fair Value of Financial Instruments,"
requires all entities to disclose the estimated fair value of
its financial instruments whether or not recognized in the
balance sheet. For Univest, as for most financial institutions,
substantially all of its assets and liabilities are considered
financial instruments as defined in FAS 107. Many of the
Corporation's financial instruments, however, lack an available
trading market as characterized by a willing buyer and willing
seller engaging in an exchange transaction. It is also the
Corporation's general practice and intent to hold its financial
instruments to maturity and to not engage in trading or sales
activities other than residential mortgage loans held for sale
and those investment securities classified as available for
sale. Significant estimations and present value calculations,
which are significantly affected by the assumptions used,
including the discount rate and estimate of future cash flows,
were used by the Corporation for the purposes of this
disclosure.
Estimated fair values have been determined by the Corporation
using the best available data, and an estimation methodology
suitable for each category of financial instruments. For those
loans and deposits with floating interest rates, it is presumed
that estimated fair values generally approximate the recorded
book balances. Various methodologies are described in the
accompanying notes.
FAS 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Corporation.
Management is concerned that reasonable comparability between
financial institutions may not be likely due to the wide range of
permitted valuation techniques and numerous estimates which must
be made given the absence of readily available active secondary
market valuations for many of the financial instruments. This
lack of uniform valuation methodologies also introduces a greater
degree of subjectivity to these estimated fair values. Certain
estimated fair values cannot be substantiated by comparison to
independent valuation sources and, in many cases, might not be
realized in immediate settlement of the instrument.
The following table represents the estimates of fair value of
financial instruments:
December 31, 1994 December 31, 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets
Cash and short-term assets $ 42,526,000 $ 42,526,000 $ 50,679,000 $ 50,679,000
Loans held for sale - - 8,916,100 9,177,000
Investment securities 202,060,000 197,939,000 139,327,000 140,120,000
Net loans 571,903,000 553,648,000 563,584,000 567,245,000
Liabilities
Demand deposits and savings deposits 387,015,000 387,015,000 392,163,000 392,163,000
Time deposits 312,058,000 307,635,000 276,688,000 277,911,000
Short-term borrowings 44,923,000 44,923,000 29,279,000 29,279,000
Long-term debt 9,439,000 8,903,000 10,277,000 10,235,000
Off-Balance-Sheet
Commitments to extend credit 120,277,000 (190,000) 102,525,000 (241,000)
Letters of credit 19,663,000 (295,000) 19,514,000 (244,000)
The following methods and assumptions were used by the
Corporation in estimating its fair value disclosures for
financial instruments:
Cash and due from banks and short-term investments: The carrying
amounts reported in the balance sheets for cash and due from
banks, time deposits with other banks, and federal funds sold and
other short-term investments approximates those assets' fair
values.
Investment securities (including mortgage-backed securities):
Fair values for investment securities are based on quoted market
prices.
Loans: For variable rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans are estimated
using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
Off-balance-sheet instruments: Fair values for the Corporation's
off-balance-sheet instruments are based on the fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit
standing.
Deposit liabilities: The fair values disclosed for demand
deposits (e.g., interest and noninterest checking, passbook
savings, and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the
reporting date (i.e. ,their carrying amounts). The carrying
amounts for variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Short-term borrowings: The carrying amounts of securities sold
under repurchase agreements, and other short-term borrowings
approximate their fair values.
Long-term debt: The fair values of the Corporation's long-term
borrowings (other than deposits) are estimated using discounted
cash flow analyses, based on the Corporation's current borrowing
rates for similar types of borrowing arrangements.
Note 15. Parent Company Financial Information
Condensed financial statements of Univest, Parent Company only, follow:
Balance Sheets
December 31
1994 1993
Assets:
Deposits with bank subsidiary $ 11,300 $ 723,210
Loan to non-bank subsidiary 275,000 275,000
Investments in U.S. Government obligations
held to maturity 5,838,377 -
Investments in U.S. Government obligations - 2,902,907
Investments in subsidiaries, at equity in net assets:
Banks 76,442,264 72,268,932
Non-banks 4,292,711 3,732,058
Other assets 1,227,620 1,156,787
Total assets $88,087,272 $81,058,894
Liabilities:
Dividends payable $ 941,105 $ 878,365
Subordinated note 5,000,000 5,750,000
Other liabilities 1,988,231 1,557,871
Total liabilities 7,929,336 8,186,236
Shareholders' equity 80,157,936 72,872,658
Total liabilities and shareholders' equity $88,087,272 $81,058,894
Statements of Income
Year ended December 31
1994 1993 1992
Dividends from banks $ 5,625,664 $ 6,205,974 $ 5,176,365
Other income 6,358,364 5,289,852 5,168,768
Total operating income 11,984,028 11,495,826 10,345,133
Operating expenses 6,478,891 5,983,069 6,097,610
Income before income tax benefit and equity in
undistributed income of subsidiaries 5,505,137 5,512,757 4,247,523
Applicable income tax expense (benefit) 1,083 (199,690) (315,144)
Income before equity in undistributed income
of subsidiaries 5,504,054 5,712,447 4,562,667
Equity in undistributed income (loss) of subsidiaries:
Banks 4,655,775 3,604,490 3,863,395
Non-banks (39,347) 39,954 (12,224)
Income before cumulative effect of a change
in accounting principle 10,120,482 9,356,891 8,413,838
Cumulative effect of a change in accounting principle - (570,379) -
Net income $10,120,482 $ 8,786,512 $ 8,413,838
Statements of Cash Flows
Year ended December 31
1994 1993 1992
Cash flows from operating activities
Net income $10,120,482 $ 8,786,512 $ 8,413,838
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting
principle - 570,379 -
Equity in undistributed net income of
subsidiaries (4,616,428) (3,644,444) (3,851,171)
(Increase) decrease in other assets (338,478) 164,476 (724,949)
Depreciation of premises and equipment 267,645 265,036 183,267
Increase (decrease) in other liabilities 430,360 (28,265) (36,199)
Net cash provided by operating activities 5,863,581 6,113,694 3,984,786
Cash flows from investing activities
Proceeds from maturities of securities held to 1,899,423 - -
maturity
Purchases of investment securities held to (4,834,893) - -
maturity
Proceeds from maturities of securities - 1,736,654 1,596,238
Purchases of investment securities - (2,902,907) (1,736,654)
Investment in non-bank subsidiaries (600,000) (400,000) (150,475)
Net cash used in investing activities (3,535,470) (1,566,253) (290,891)
Cash flows from financing activities
Repayment of subordinated note (750,000) (1,750,000) (2,000,000)
Cash dividends (2,290,021) (2,101,800) (1,897,894)
Net cash used in financing activities (3,040,021) (3,851,800) (3,897,894)
Net (decrease) increase in deposits with
bank subsidiary (711,910) 695,641 (203,999)
Deposits with bank subsidiary at beginning of 723,210 27,569 231,568
year
Deposits with bank subsidiary at end of year $ 11,300 $ 723,210 $ 27,569
During 1994, 1993, and 1992, the parent company made income tax
payments of $4,149,701, $4,116,234, and $3,878,500, respectively,
and made interest payments of $537,896, $598,229, and $784,521,
respectively.
Dividend and Other Restrictions
The approval of the Comptroller of the Currency is required for a
national bank to pay dividends if the total of all dividends
declared in any calendar year exceeds the bank's net profits (as
defined) for that year combined with its retained net profits for
the preceding two calendar years. Under this formula, Union can
declare dividends in 1995 without approval of the Comptroller of
the Currency of approximately $7,993,656 plus an additional
amount equal to the Bank's net profits for 1995 up to the date of
any such dividend declaration.
The Federal Reserve Act requires that extension of credit by the
Bank to certain affiliates, including Univest (parent), be
secured by readily marketable securities, that extension of
credit to any one affiliate be limited to 10% of the Bank's
capital and surplus as defined, and that extensions of credit to
all such affiliates be limited to 20% of Union's capital and
surplus.
Note 16. Quarterly Data (Unaudited)
The unaudited results of operations for the quarters for the
years ended December 31, 1994 and 1993 were as follows:
December 31 September 30 June 30 March 31
1994 Quarterly Financial Data
Interest income $14,914,877 $14,345,355 $13,631,931 $13,029,182
Interest expense 5,842,261 5,391,161 5,058,027 4,981,973
Net interest income 9,072,616 8,954,194 8,573,904 8,047,209
Provision for loan losses 315,000 345,000 645,000 645,000
Net interest income after provision
for loan losses 8,757,616 8,609,194 7,928,904 7,402,209
Other income 1,385,746 1,433,560 1,306,599 1,446,252
Other expenses 5,901,939 6,188,184 5,793,683 5,729,388
Income before income taxes 4,241,423 3,854,570 3,441,820 3,119,073
Applicable income taxes 1,334,159 1,194,637 1,055,763 951,845
Net income $ 2,907,264 $ 2,659,933 $ 2,386,057 $ 2,167,228
Per share data:
Net earnings per share $ .93 $ .85 $ .76 $ .69
Dividends per share $ .30 $ .15 $ .15 $ .15
December 31 September 30 June 30 March 31
1993 Quarterly Financial Data
Interest income $ 13,612,331 $ 13,330,161 $ 13,725,372 $13,734,086
Interest expense 5,278,622 5,580,001 5,929,126 5,981,033
Net interest income 8,333,709 7,750,160 7,796,246 7,753,053
Provision for loan losses 645,000 545,000 645,000 645,000
Net interest income after provision
for loan losses 7,688,709 7,205,160 7,151,246 7,108,053
Other income 1,994,184 1,669,655 1,455,126 1,331,798
Other expenses 5,595,386 5,620,886 5,624,231 5,285,862
Income before income taxes and
cumulative effect of a change in
accounting principle 4,087,507 3,253,929 2,982,141 3,153,989
Applicable income taxes 1,302,166 990,269 892,694 935,546
Income before cumulative effect of a
change in accounting principle 2,785,341 2,263,660 2,089,447 2,218,443
Cumulative effect of a change in
accounting
principle, net of income taxes of
$293,831 (570,379)
Net income $ 2,785,341 $ 2,263,660 $ 2,089,447 $ 1,648,064
Per share data:
Earnings before cumulative effect
of a change in accounting $ 0.88 $ 0.72 $ 0.67 $ 0.71
principle
Cumulative effect of a change in
accounting principle - - - (0.18)
Net earnings per share $ 0.88 $ 0.72 $ 0.67 $ 0.53
Dividends per share $ 0.28 $ 0.14 $ 0.14 $ 0.14
Report of Independent Auditors
Board of Directors and Shareholders
Univest Corporation of Pennsylvania
We have audited the accompanying consolidated balance sheets of
Univest Corporation of Pennsylvania as of December 31, 1994 and
1993, and the related consolidated statements of income, changes
in shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Univest Corporation of Pennsylvania at
December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 the
Company changed its method of accounting for certain investments
in debt and equity securities and in 1993 changed its method of
accounting for postretirement benefits other than pensions.
Ernst & Young LLP
Philadelphia, Pennsylvania
January 20, 1995
Selected Financial Data
(In Thousands, except per share data)
Year ended December 31
1994 1993 1992 1991 1990
Total assets $847,154 $789,887 $791,335 $756,536 $746,943
Long-term obligations 9,438 10,277 7,585 9,500 10,644
Interest income 55,921 54,402 58,612 66,553 61,903
Net interest income 34,648 31,633 29,835 27,727 25,941
Provision for loan losses 1,950 2,480 2,852 1,895 2,768
Net income 10,120 8,787 8,414 7,656 7,454
Net income per share $ 3.23 $ 2.80 $ 2.68 $ 2.44 $ 2.38
Dividends declared per share 0.75 0.70 0.625 0.575 0.575
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Shareholders' Equity
Shareholders' equity has grown over the last three (3) years, and
is positioned strongly at 9.46% percent of assets at December 31,
1994. The strength and stability given a corporation by its
shareholders' equity is understood by Univest, therefore, a
serious commitment is made to assure the continuation of strong,
stable equity as shown in the following table. Shareholders'
support, reliable earnings, and controlled dividend distribution
represent the elements needed to continue a strong shareholders'
equity position. These factors have been relied on in the past
and are expected to provide the equity growth needed for future
investment requirements in addition to meeting all regulatory
standards.
Growth in shareholders' equity exceeded the Consumer Price Index
(CPI) which is considered a positive result. The equity growth
patterns relative to the CPI are also reflected in the following
table for the last three (3) years.
Shareholder's Percent of Dollar Percentage CPI Percentage
December 31, Equity Assets Increase Increase Increase
1994 $80,157,936 9.46 $7,285,278 10.00 2.70
1993 72,872,658 9.23 6,590,601 9.94 2.70
1992 66,282,057 8.38 6,543,203 10.79 2.90
Risk-Based Capital
The Corporation's strong capital position also assures compliance
with the risk-based capital guidelines. Risk weights are
assigned to assets to determine the required capital in relation
to the risk of the assets. Under the guidelines, certain minimum
ratios of core capital and total capital as a percentage of risk-
weighted assets and certain off-balance-sheet instruments are
required by year end 1994 and 1993. Risk-based capital ratios at
December 31, 1994 and 1993 as computed under the guidelines,
exceed all minimum levels.
December 31, December 31,
1994 1993
Capital Components ($000)
Core capital $ 78,101 $ 70,766
Total risk-based capital 88,314 80,964
Risk-weighted assets $617,008 $607,709
Capital Ratios
Core capital (Tier 1) 12.66% 11.64%
Minimum standards 4.00% 4.00%
Total risk-based capital 14.31% 13.32%
Minimum standards 8.00% 8.00%
Asset/Liability Management, Liquidity, Inflation
The primary functions of asset/liability management are to assure
adequate liquidity while maintaining an appropriate balance
between interest-sensitive earning assets and interest-bearing
liabilities. Liquidity management involves the ability to meet
cash flow requirements of customers who may be either depositors
wanting to withdraw funds or borrowers needing assurance that
sufficient funds will be available to meet their credit needs.
Interest rate sensitivity management seeks to avoid fluctuating
net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates.
The asset/liability management process continues as a very
important aspect of Univest's management effort to sustain
stable earnings. The Asset/Liability Management Committee
(ALCO) works closely with the Funds Management Department to
match asset/liability positions for maximization of interest
margins. A few of the tools used in this process include gap
analysis, flow of funds reports, and a simulation model. More
emphasis continues to be placed on the simulations which show
the impact of different rate environments and their respective
projected results relative to the current balance sheet makeup.
Funds flow reporting aids in the analysis of the Corporation's
liquidity, and provides important data for interest rate risk
assessment through changing economies.
Flexibility during volatile rate environments is a key management
issue in this area of asset/liability management, and for this
reason, flow of funds reporting and the like are critical to the
monitoring process that assures the Corporation of its
flexibility. It should be noted that current policy continues to
favor short-term investment purchases (short-term defined as up
to three years in maturity). This overall corporate direction of
investment philosophy helps to provide the liquidity needed to
meet demand for loans as well as other investment goals. Another
part of the ALCO process is cash management, which involves the
daily process of balancing the Bank's Federal Reserve position,
including the daily reserve requirement and correspondent bank
balances needed to cover the needs of transaction processing and
the commercial Bank's excess cash position which can result in
federal funds purchased or sold on a daily basis. The ongoing
goal of this process is to maximize the amount of funds available
for investment at the highest yields. An important objective of
cash management is to maximize earning assets compared to total
assets of the organization. Univest's target is to have a ratio
that exceeds 90 percent on a constant basis.
The results for the past three years can be seen in the following
table.
Average
Year Average Earnings Percentage
Assets Assets
1994 $809,596,000 $741,284,000 91.56
1993 786,800,000 723,897,000 92.01
1992 770,168,000 707,783,000 91.90
Univest, as a financial institution, is made up of assets and
liabilities that are primarily monetary, which are thus affected
by inflation as well as interest rate changes. The Corporation
does not utilize, nor is it a party to, any off-balance-sheet
derivative financial instruments. The Corporation remained asset
sensitive during periods covered in this report, mainly as a
result of a large floating-rate loan portfolio held by the
commercial bank subsidiary. The floating loans mentioned here
are tied to prime, and fall into the one-month gap category,
causing an asset-sensitive position on a dynamic or rolling
basis. The three years covered in this report show a trend of
increasing net interest income which is mainly the result of
asset/liability management with appropriate pricing and fairly
constant inflation.
Interest Income
Interest and fees on loans increased 4.04 percent or $1,851,289
from the $45,822,496 recorded for the year ended December 31,
1993, as compared to the $47,673,785 for the year ended December
31, 1994. The increase was due to higher interest rates, which
included four prime rate increases from 6.0% at December 31, 1993
to 8.5% at December 31, 1994, and higher volume. Interest and
fees on loans decreased $2,326,974 or 4.83 percent when comparing
the $45,822,496 for 1993 to the $48,149,470 for 1992. This
decrease was due to lower rates during 1993, offset by higher
volume.
Tax-free interest decreased from $2,073,297 in 1993 to $1,880,110
in 1994. This decrease is primarily due to a decreasing trend
due to the 1986 Tax Reform Act which removed a significant
benefit associated with Industrial Development Authority (IDA)
lending. Tax-free interest income decreased $280,407 for the
year ended December 31, 1993 as compared to December 31, 1992.
This decrease was also due to decreasing loan volume.
Interest on U.S. Government obligations increased from $5,621,534
for the year ended December 31, 1993 to $6,404,798 at December
31, 1994 and decreased from $6,146,809 at December 31, 1992 to
$5,621,534 in 1993. The decrease of $525,275 between 1992 and
1993 was due to lower yields being paid and maturing investments
being re-invested in other securities to obtain higher yields.
The increase of $783,264 or 13.93 percent between 1993 and 1994
was due to investment in higher yielding securities.
Interest and dividends on state and political subdivisions
remains fairly consistent showing income of $94,812 for 1994,
$125,295 for 1993, and $145,674 for 1992. Activity decreased
slightly in 1993 and 1994, after increasing slightly in 1992.
Yields have been decreasing in all periods.
The other securities category consists mainly of mortgage-backed
securities. Income on other securities decreased 56.89 percent
or $1,277,881 from $2,246,373 in 1993 to $968,492 in 1994. This
decrease was due to prepayments, maturities, and sales of the
mortgage-backed securities from the available-for-sale category.
Other securities income also decreased from $3,186,750 in 1992 to
$2,246,373 in 1993. This decrease was due to high prepayments of
the mortgage-backed securities that were refinanced for lower
interest rates.
The interest on time deposits represents the Corporation's
investment in other bank certificates (CDs). Income from these
certificates decreased to $118,508 for 1994, from $179,608 for
1993, and $181,011 for 1992. The decreasing trend is due to
lower yields and substantially reduced volume.
Interest on federal funds sold is the resulting daily investment
activity that can be volatile in both interest yield and volume.
Interest on federal funds sold increased from $406,644 in 1993 to
$660,950 in 1994. The increase was due to higher yields along
with increased volume. Income decreased from $736,968 in 1992 to
$406,644 in 1993. This decrease was due to lower yields and less
daily volume. The activity in the area of bankers' acceptances
and long-term federal funds sold has been declining, resulting in
income of only $65,000 in 1992, and with no activity in 1993 and
1994. Maturities of bankers' acceptances have been re-invested
in other financial instruments.
Interest Expense
Interest is paid on two types of demand deposit accounts; one is
a checking account that pays interest on the outstanding balance
and the other is a money market account that has limited check-
writing privileges, also paying interest on the balance.
Interest expense on demand deposits decreased 18.58 percent or
$779,969 from $4,197,638 in 1993 to $3,417,669 in 1994. The
decrease was due mainly to decreased yields and lower volume.
For the year ended December 31, 1993, interest expense on demand
deposits decreased 18.93 percent or $980,226 from $5,177,864 in
1992 to $4,197,638 in 1993. This decrease was due mainly to
decreased yields offset by increased volume.
Interest expense on savings deposits remained stable increasing
from $3,092,200 in 1993 to $3,151,961 in 1994. For the year
ended December 31, 1993, interest expense on savings deposits
increased from $3,089,547 in 1992 to $3,092,200 in 1993. This
increase was due to increased volume offset by decreased yields.
Interest expense on time deposits for the year ended December 31,
1994 was $12,843,452 which is 7.37 percent or $1,021,469 less
than the $13,864,921 paid in 1993. The decrease was due to lower
yields, especially during the first and second quarters of 1994.
Yields began to increase slightly in the third quarter and more
rapidly in the fourth quarter of 1994. Volumes also increased
partially due to the assumption of approximately $12 million of
deposits from the acquisition of a bank branch in the second
quarter of 1994. The 1993 expense was 26.48 percent or
$4,993,938 less than the $18,858,859 paid in 1992. The decrease
was due to decreases in both volume and yield.
Interest expense - all other, consists of interest paid on short-
term borrowings such as federal funds purchased, the corporate
line of credit, repurchase agreements and treasury tax and loan
deposits. In addition, Union offers an automated cash management
checking account that sweeps funds daily into a repurchase
agreement account. Interest expense increased to $1,294,742 in
1994 from $820,459 in 1993, and $865,717 in 1992. The increase
in 1994 was mainly due to increased volume along with increasing
yields, especially during third and fourth quarters of 1994. The
decrease in 1993 was mainly due to lower interest rates on the
various accounts.
Long-Term Debt
Interest on long-term debt includes interest paid by the
Corporation on the subordinated debt whose balance as of
December 31, 1994 was $5,000,000. The debt was incurred by the
Corporation in 1990 to partially finance the acquisition of
Pennview Savings Bank. Interest onlong-term debt also includes
interest paid on $4,085,000 borrowed by Pennview Savings Bank,
for liquidity purposes, from the Federal Home Loan Bank (FHLB) of
Pittsburgh, and interest paid by Univest Electronic Services
Corporation on a long-term capital lease obligation to finance
computer equipment whose balance, as of December 31, 1994 was
$353,405. (Refer to Note 12 of the Notes to Consolidated
Financial Statements.) Interest on long-term debt for the year
ended December 31, 1994 was $565,598 as compared to $793,564 in
1993. The decrease was mainly due to a $750,000 payment on the
subordinated debt, using funds received by the Corporation from
dividend payments made by the subsidiary banks during 1994.
Interest paid on long-term debt in 1993 increased from $784,521
in 1992 to $793,564 in 1993. The increase in 1993 was due to the
payment of interest on the FHLB borrowing and the capital lease
obligation, both of which were borrowed in 1993, offset by a
$1,750,000 payment on the subordinated debt.
Net Interest Income
Net interest income is the result of interest income less
interest expense. The following graph and table demonstrates a
trend of increasing amounts for 1992 through 1994. Sensitivities
associated with the mix of assets and liabilities are numerous
and very complex, thus the Corporation commits significant time
to maximizing the net interest margin. The Asset/Liability
Management and Investment Committees, along with the Funds
Management Department, work to implement strategies with the
intent and effort to at least maintain or improve the net
interest margin. Significant consideration is given to
asset/liability pricing, which was especially true for the year
ended December 31, 1994. During the year, the committees focused
on liability pricing to maintain a positive margin. If the 1995
rate environment is similar to 1994, it is anticipated that the
1995 net interest margin will increase because there are more
asset repricing opportunities available.
The investment portfolio is and has been primarily short-term in
nature, resulting in frequent repricing opportunities for Univest
over the three (3) year period analyzed in this report.
Investments maturing during the year 1994 were repriced with
replacement purchases at higher yields. It is important to again
underscore the complexities associated with asset/liability
pricing noting the competition within the marketplace that can
dramatically impact the margin results. For this reason, as we
look to the future, it must be understood that an improving or
increasing net interest income is not certain. As already
discussed under this section, Univest does have a short-term
positive gap resulting from a large floating-rate loan portfolio.
Average Net Interest Margin Net Interest
Year Earning Margins Percentage Margin
Assets Changes
1994 $741,284,000 $34,647,923 4.67 $3,014,755
1993 723,897,000 31,633,168 4.37 1,797,994
1992 707,783,000 29,835,174 4.22 2,107,867
Allowance For Loan Losses
Management believes the allowance for loan losses is maintained
at a level which is adequate to absorb potential losses within
the loan portfolio. Management's methodology to determine the
adequacy of and the provisions to the allowance considers
specific credit reviews, past loan loss experience, current
economic conditions and trends, and the volume, growth, and3
composition of the loan portfolio.
Each credit on the Company's internal loan "watchlist" is
evaluated periodically to estimate potential losses. In
addition, minimum estimates for each category of watchlist
credits are also provided based on management's judgment which
considers past loan loss experience and other factors. For
installment and real estate mortgage loans, specific allocations
are based on past loss experience adjusted for recent portfolio
growth and economic trends. The total reserves resulting from
this analysis are "allocated" reserves. The amounts specifically
provided for individual loans and pools of loans are supplemented
by an unallocated amount for loan losses. This unallocated
amount is determined based on judgments regarding risk of error
in the specific allocation, and other potential exposure in the
loan portfolio, which is not easily identifiable.
The allowance for loan losses is determined through a quarterly
evaluation of reserve adequacy which takes into consideration the
growth of the loan portfolio, the status of past-due loans,
current economic conditions, various types of lending activity,
policies, real estate and other loan commitments, and any
significant change in the charge-off activity_all of which may
cause the provision to fluctuate. The provision for loan losses
for the year ended December 31, 1994 was $1,950,000 as compared
to $2,480,000 for 1993 and $2,852,300 for 1992. Total nonaccrual
and restructured loans at December 31, 1994 of $5,571,188 are
mainly real estate related and have slowed in performance due to
the economy. These loans include $4,325,686 of nonaccrual
commercial loans of which $994,010 are performing in accordance
with contractual terms. Nonaccrual and restructured loans at
December 31, 1993 totaled $6,991,391 and at December 31, 1992
totaled $14,969,452. The large decrease in 1993 was due to
approximately $3,000,000 of commercial and 1-to-4 family
residential real estate loans being returned to performing
status, approximately $3,400,000 being either totally or
partially charged off and one commercial real estate loan of
approximately $2,000,000 along with one residential mortgage loan
of $400,000 being transferred to "Other Real Estate Owned." The
Corporation currently has approximately $1,750,000 of "Other Real
Estate Owned" consisting of two commercial properties ($1,600,000
and $150,000). These amounts are recorded in "Other Assets" at
the lower of cost or fair market value in the accompanying
consolidated balance sheets. During the quarter ended
September 30, 1994, a commercial property was written down a
total of $300,000 based on a current appraisal to properly
reflect the market value. The $400,000 residential loan included
in "Other Real Estate Owned" in 1993 was sold during fourth
quarter 1994. For the year ended December 31, 1994, nonaccrual
and restructured loans resulted in lost interest income of
$574,663 as compared to $671,512 in 1993 and $774,536 in 1992.
Based on a comprehensive evaluation, management has determined
that the level of the reserve is adequate at this time. At
December 31, 1994, the Corporation has no material commitments to lend
additional funds with respect to nonperforming loans. In management's
evaluation of the loan portfolio risks, any significant future increases in
nonperforming loans are dependent to a large extent on the
economic environment.
At December 31, 1994, the reserve for loan losses is 1.53 percent
of total loans as compared to 1.26 percent at December 31, 1993.
The reason for the increase was due to the recovery of a
previously charged-off commercial real estate loan totaling
approximately $900,000.
During the fourth quarter of 1994, the Office of the Comptroller
of the Currency completed a safety and soundness examination at
Union National Bank, the Corporation's subsidiary commercial
bank. During the second quarter, a similar examination was
completed by the Pennsylvania State Department of Banking at
Pennview Savings Bank. The dollar value of identified potential
problem loans was not revised significantly as a result of either
examination. Examination procedures require individual judgments
about a borrower's ability to repay loans, sufficiency of
collateral values, and the effects of changing economic
circumstances. The procedures are similar to those employed by
the Corporation in determining the adequacy of the allowance for
loan losses and in classifying loans. Judgments made by
regulatory examiners may differ from those made by management.
The Corporation will adopt Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a
Loan," effective January 1, 1995. As a result of applying the
new rules, certain impaired loans will be reported at the present
value of expected future cash flows using the loan's effective
interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. The Corporation does not
expect the adoption of the standard to have a material impact on
the Corporation's financial position or results of operations.
The following table shows the major real estate loan categories
for Univest over the past three years.
1994 1993 1992
(In thousands)
Real estate loans-construction $ 50,954 $ 60,437 $ 50,104
Real estate loans-commercial 160,234 164,304 174,333
Real estate loans-residential 221,098 200,018 165,313
Real estate commitments 7,653 7,996 12,822
Real estate loans-construction includes residential tract
development loans comprising less than ten percent of the
outstanding real estate construction loan balances for each year.
Our credit criteria for residential tract development continue
stringent, and with local developers who have proven track
records. The balance of the construction loans would be for
locally owned business real estate expansion.
The real estate-commercial loan category consists of loans for
locally owned business real estate purposes. Investment-type
loans (multi-family, 5 and up per unit) are included in this
total. These types of loans are supported by operating
performance, cash flows, etc. to repay the debt.
Residential loans (1- to 4-family dwellings) present minimal
delinquency problems and loss exposure through varied economic
cycles. On a comparative basis, this is the category of least
risk for total real estate loans.
Real estate commitments, although off-balance-sheet, still
present risk as discussed above, and, for this reason, receive
careful attention. If the economy continues to weaken, this
category is expected to decline because of reduced demand.
Management continues to closely monitor the entire loan
portfolio, and early identification of troubled loans is still a
priority for all lending personnel. Adequate reserves have been
established for both nonperforming and nonaccrual loans, and the
loan loss reserve as of December 31, 1994, is considered
sufficient relative to the risk inherent within the loan
portfolio.
Noninterest Income
Trust income continues to be a major source of noninterest
income, generating income for the year ended December 31, 1994 of
$1,828,037 which was $197,672 or 12.12 percent more than the
$1,630,365 reported for year end December 31, 1993. The 1993
income was 5.62 percent or $86,690 more than the $1,543,675
reported for year end December 31, 1992. Although the results
are encouraging, it should be noted that fluctuations usually
occur with this type of income, and are anticipated, since trust
commissions are derived partially from estate settlements and
other types of trust services that may result in nonrecurring,
one-time fees.
Service charges on demand deposits remained fairly constant from
$1,560,583 for the year ended December 31, 1993 to $1,632,508 at
December 31, 1994 and also increased from $1,548,215 in 1992 to
$1,560,583 in 1993. Both increases were due to increased average
balances and increases to certain type fees in August 1992. It
is not possible to determine exactly what future trends will be
for this income category; however, it is hoped that the 1994
level will at least be matched in 1995. The Corporation's
pricing committee continuously monitors the entire fee structure
and process.
Other income which is noninterest related consists mainly of
general fee income and other miscellaneous nonrecurring types of
income. It includes various types of service charges such as
account analysis fees, ATM fees, overdraft fees, and safe deposit
box rent, along with various one-time fees, thus resulting in
noticeable income fluctuations on a year-to-year basis. Other
income of $2,150,671 for 1994 is 6.65 percent or $153,272 less
than the $2,303,943 shown for 1993. The 1993 other income of
$2,303,943 is 18.43 percent or $358,507 more than the $1,945,436
shown for 1992.
Asset Sales
Sales of mortgage loans during the year ended December 31, 1994
resulted in a loss of $12,189. For the years ended December 31,
1993 and 1992, sales of mortgage loans resulted in gains of
$955,872 and $509,466, respectively. The change was due to
variations of market prices caused by increasing long-term
rates. Because of the increase in long-term mortgage rates,
mortgage lending, especially in the area of refinancing,
decreased considerably. Due to these conditions, during the
second quarter of 1994, a Corporate decision was made to
discontinue holding loans for sale. All long-term fixed rate
loans not granted for a third party by prior commitment, from
such third party, will be held in portfolio. The Corporation
has both the intent and ability to hold these loans until
maturity.
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective
for fiscal years beginning after December 15, 1993. Under the
new rules, which were adopted by the Corporation as of January 1,
1994, debt securities that the Corporation has both the positive
intent and ability to hold to maturity are carried at amortized
cost. All other debt securities and all marketable equity
securities are classified as available-for-sale or trading and
carried at fair value. Unrealized holding gains and losses on
securities classified as available-for-sale are carried as a
component of shareholders' equity. Unrealized holding gains and
losses on securities classified as trading are reported in
earnings.
Previously, the Corporation classified most debt securities as
held-for-investment and carried them at amortized cost. The
$91,056,109 recorded as held-for-investment at December 31, 1993
was transferred to the held-to-maturity account as of January 1,
1994 in accordance with the new rule. Accordingly, the
$48,270,752 recorded as held-for-sale and carried at lower of
cost or market at December 31, 1993 was transferred to available-
for-sale as of January 1, 1994 and resulted in an increase of
approximately $300,000 in shareholders' equity at that date,
representing the unrealized appreciation, net of taxes, of the
Corporation's investment in debt and equity securities determined
to be available-for-sale.
During the first quarter ended March 31, 1994, securities
totaling approximately $7,200,000 were sold from the available-
for-sale account and a net loss of $26,870 was recorded. The
Corporation did not record any gain or loss for the year ended
December 31, 1993. Gains on sales for the year ended
December 31, 1992 were $120,328. The total of debt and equity
securities held in the available-for-sale account as of
December 31, 1994, is $30,334,525. The unrealized cumulative
loss of $482,443, net of taxes, has been charged against equity
as of December 31, 1994. The Corporation has not designated any
of its securities as trading for the year ended December 31,
1994.
Noninterest Expense
The operating costs of the Corporation are known as other
expense, and include, but are not limited to, salaries and
benefits, equipment expense, and occupancy costs. Expense
control is very important to the management of the Corporation,
and every effort is made to contain and minimize the growth of
operating expenses, while attempting to provide technological
innovation whenever practical, as operations change or expand.
Salaries and benefits increased $639,176 or 5.43 percent from
$11,764,170 in 1993 to $12,403,346 in 1994. Salaries and
benefits also increased 7.01 percent or $770,871 from $10,993,299
in 1992 to $11,764,170 in 1993. The increases were due to normal
salary increases and staff increases due to the opening of an
additional branch. A serious effort to contain salaries and
benefits is being made by management with an ongoing goal to work
"smarter" being communicated throughout the Corporation.
Net occupancy expense increased by 5.08 percent or $80,515 from
$1,584,429 as of December 31, 1993 to $1,664,944 as of December
31, 1994. For the year ended 1993, net occupancy expense was
$93,885 or 6.30 percent higher than the $1,490,544 reported in
1992. These changes were due to routine property cost increases
and the addition of a new branch. Equipment expense increased
6.19 percent from $1,623,200 in 1993 to $1,723,744 in 1994, an
increase of $100,544. Equipment expense also increased $32,426
or 2.04 percent from $1,590,774 for the year ended December 31,
1992 to $1,623,200 for the year ended December 31, 1993. The
increase in 1993 and 1994 was mainly due to the purchase of new
equipment.
Other expenses of $7,821,160 increased $666,594 or 9.32 percent
for the year ended December 31, 1994, as compared to the
$7,154,566 expense for 1993. The increase was mainly due to the
write-down of other real estate owned of $300,000, along with
increased advertising, postage, and acquisition costs. The
$7,154,566 for 1993 exceeds the 1992 expense of $6,842,683 by
$311,883 or 4.56 percent. The increase was mainly due to
increased accounting and legal fees and capital shares tax.
Other expense includes but is not limited to items such as data
processing, goodwill amortization, marketing, audit, exam, legal
and other fees, other taxes, along with insurance, printing,
stationery, supplies and contributions, any of which can
fluctuate up or down in a given year.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (FAS 106). FAS
106 requires that employers accrue the costs associated with
providing postretirement benefits during the active service
periods of employees, rather than the previously accepted
accounting practice of recognizing these costs on a pay-as-you-go
basis. As permitted under FAS 106, the Corporation elected to
recognize immediately a one-time, non-cash charge for the
January 1, 1993 transitional liability of $864,000, ($570,000
after-tax), as the cumulative effect of a change in accounting
principle. Adoption of FAS 106 did not have a material impact on
salaries and benefits expense in 1994 or 1993.
In November 1992, the Financial Accounting Standards Board (FASB)
issued Financial Accounting Standards No. 112 (FAS 112),
"Employers' Accounting for Postemployment Benefits." FAS 112 is
effective for fiscal years beginning after December 15, 1993.
Management has evaluated the impact of FAS 112 and has concluded
that the impact was not material for the year ended December 31,
1994.
Tax Provision
A tax provision of $4,536,404 is shown for the year ended
December 31, 1994 and $4,120,675 for 1993 and $3,318,856 for
1992, with effective tax rates of 31 percent, 30 percent, and 28
percent, respectively. If the Corporation's income which is
exempt from federal income tax continues to decline, it is
anticipated that the Corporation's effective tax rate will
continue to increase. Also, rates will continue to grow if the
Corporation's taxable income remains over $10,000,000, since
under the 1993 Revenue Reconciliation Act, the marginal corporate
tax rate changed from 34 percent to 35 percent on taxable income
that exceeds $10,000,000. For the years ended December 31, 1994
and 1993, the Corporation's tax provision increased by $27,000
and $15,000, respectively, due to taxable income exceeding
$10,000,000 by $2,700,000 and $1,500,000, respectively.
Effective January 1, 1993, Univest adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). The adoption of FAS 109 did not produce materially
different results from using the deferred method. As permitted
by the Statement, prior-period financial statements have not been
restated to reflect the change in accounting method. As of
December 31, 1994, the Corporation's net deferred tax asset was
$3.1 million. Realization of this asset over time is dependent in
part upon the Corporation generating earnings in future periods.
In determining that the realization of the deferred tax asset was "more
likely than not," the Corporation gave consideration to a number of factors,
including its recent earnings history and its expectations for
earnings in the future and concluded that no valuation allowance
was necessary at December 31, 1994. The Corporation will continue to review
the tax criteria of "more likely than not" for the recognition of the
deferred tax asset on a quarterly basis.
Impact of Inflation and Changing Prices
The majority of assets and liabilities of a financial institution
are monetary in nature and therefore differ greatly from most
commercial and industrial companies that have significant
investment in fixed assets or inventories. However, inflation
does have an important impact on the growth of total assets in
the banking industry and the resulting need to increase equity
capital at higher-than-normal rates in order to maintain an
appropriate equity-to-assets ratio. Inflation does have a
significant and direct impact on other expenses, which tend to
rise during periods of higher inflation.
Management believes the most significant impact on financial
results is the Company's ability to manage the effect of changes
in interest rates. As discussed previously, management is
attempting to maintain an essentially balanced position between
interest-sensitive assets and liabilities in order to protect
against wide interest rate fluctuations.
Net Income
The net income for 1994 of $10,120,482 ($3.23 per share) is 15.18
percent or $1,333,970 greater than the net income of $8,786,512
($2.80 per share) for 1993. The 1993 net income of $8,786,512
was 4.43 percent or $372,674 more than the $8,413,838 ($2.68 per
share) reported for 1992. The increase in both periods was
mainly due to increased net interest income and, for 1994, by the
cumulative effect of the adoption of FASB Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," for the year ended December 31, 1993.
Range of Market Prices
The following table shows the range of market values of the
Corporation's stock. The Trust Department, Union National Bank
and Trust Company, serves as the Corporation's Stock
Transfer Agent and Registrar and Dividend Disbursement Agent
pursuant to the trust powers of national banks. The prices shown
on this page represent transactions between dealers and do not
include retail markups, markdowns, or commissions.
High Low
1994
January - March 35 34
April - June 36 36
July - September 36-1/2 34-1/4
October - December 35-1/2 34-1/2
High Low
1993
January - March 30 23
April - June 32 30
July - September 34 32
October - December 34 34
Cash Dividends Paid Per Share
1994
January 2 $0.14 regular
0.14 extra
0.28
April 1 0.15
July 1 0.15
October 1 0.15
$0.73 for the year 1994
1993
January 2 $0.125 regular
0.125 extra
0.25
April 1 0.14
July 1 0.14
October 1 0.14
$0.67 for the year 1993
Description of Business
Univest Corporation of Pennsylvania is a multibank holding
company with banking and financial subsidiaries operating in
eastern Pennsylvania.
Union National Bank and Trust Company of Souderton, Pennsylvania
has 16 offices and offers all normal commercial bank and trust
services.
Pennview Savings Bank has 5 offices and emphasizes deposits from
the general public and residential mortgage loans.
Univest Leasing Corporation offers services of leasing
commercial, industrial, and institutional equipment to firms and
individuals in the same geographical area.
Univest Realty Corporation owns and manages real estate for all
subsidiaries of the holding company.
Univest Mortgage Company provides real estate financing for
individuals, with funding through the secondary mortgage market.
Univest Financial Planning Corporation provides various financial
management services to individuals and businesses within the
holding company's market area.
Univest Insurance Company, as a reinsurer, offers life and
disability insurance to individuals in connection with credit
extended to them by the bank.
Univest Electronic Services Corporation provides the data
processing operation and electronic development for all
subsidiaries of the holding company.
Securities Market
Univest Corporation of Pennsylvania stock is traded over the
counter and is generally held by individuals residing within the
market area of the Corporation as stated under Description of
Business. The approximate number of shareholders as of December
31, 1994 was 1,727.
Securities and Exchange Commission Reports
The Corporation will provide at no charge a copy of the SEC Form
10-K annual report for the year 1994 to each shareholder who
requests one in writing after March 31, 1995. Requests should be
directed to: Robert H. Schong, Secretary, Univest Corporation of
Pennsylvania, Broad and Main Streets, Souderton, PA 18964.