Consolidated Financial Highlights
(in thousands, except per share data)
Percentage
2001 2000 Change
---------------------------------------
Earnings
Net interest income................................. $ 44,767 $ 43,418 3.11%
Income before income taxes ......................... 26,181 24,139 8.46
Applicable income taxes ............................ 6,971 6,791 2.65
Net income ......................................... 19,210 17,348 10.73
Per Share*
Average shares outstanding ......................... 7,136 7,394 (3.49)
Income before income taxes ......................... 3.67 3.27 12.23
Applicable income taxes ............................ .98 .92 6.52
Net income:
Basic ........................................... 2.69 2.35 14.47
Diluted ......................................... 2.68 2.34 14.53
Book Value.......................................... 17.32 15.76 9.90
Balance Sheets
Investments......................................... 347,858 348,426 (.16)
Net loans........................................... 788,035 729,020 8.10
Deposits ........................................... 998,137 971,924 2.70
Shareholders' equity................................ 121,580 115,240 5.50
Assets ............................................. 1,260,713 1,204,714 4.65
*Per share data has been restated to give effect to a five-percent stock
dividend paid May 1, 2000.
UNIVEST CORPORATION OF PENNSYLVANIA
Consolidated Balance Sheets
(in thousands, except share data)
December 31,
2001 2000
----------------------------
Assets
Cash and due from banks ............................................. $ 39,107 $ 40,517
Interest-bearing deposits with other banks .......................... 15,731 5,131
Investment securities held-to-maturity (market value $112,689
and $159,325 at December 31, 2001 and 2000, respectively) ........ 109,805 158,499
Investment securities available-for-sale ............................ 238,053 189,927
Federal funds sold and other short-term investments ................. 64 16,190
Loans................................................................ 798,329 739,228
Less: Reserve for possible loan losses............................ (10,294) (10,208)
----------------------------
Net loans......................................................... 788,035 729,020
----------------------------
Premises and equipment, net.......................................... 16,025 15,538
Accrued interest and other assets ................................... 53,893 49,892
----------------------------
Total assets ..................................................... $1,260,713 $ 1,204,714
============================
Liabilities
Demand deposits, noninterest bearing ................................ $ 166,254 $ 168,796
Demand deposits, interest bearing ................................... 322,245 298,304
Savings deposits .................................................... 139,449 130,594
Time deposits ....................................................... 370,189 374,230
----------------------------
Total deposits ................................................... 998,137 971,924
----------------------------
Securities sold under agreements to repurchase ...................... 73,745 67,370
Other short-term borrowings ......................................... 17,855 1,129
Accrued expenses and other liabilities .............................. 25,321 22,976
Long-term debt, current ............................................. - 7,000
Long-term debt ...................................................... 24,075 19,075
----------------------------
Total liabilities ................................................ 1,139,133 1,089,474
----------------------------
Shareholders' equity
Common stock, $5 par value; 24,000,000 shares authorized at
December 31, 2001 and 2000 and 8,207,496 shares issued at
December 31, 2001 and 2000 and 7,020,944 and 7,313,556
shares outstanding at December 31, 2001 and 2000, respectively* ... 41,037 41,037
Additional paid-in capital ........................................... 20,912 20,912
Retained earnings .................................................... 89,688 77,498
Accumulated other comprehensive income ............................... 3,070 848
Treasury stock, at cost; 1,186,552 shares and 893,940 shares
at December 31, 2001 and 2000, respectively ....................... (33,127) (25,055)
----------------------------
Total shareholders' equity ........................................ 121,580 115,240
----------------------------
Total liabilities and shareholders' equity ........................ $1,260,713 $ 1,204,714
============================
See accompanying notes to consolidated financial statements.
*Common stock data has been restated to give effect to a five percent stock
dividend paid May 1, 2000.
2
UNIVEST CORPORATION OF PENNSYLVANIA
Consolidated Statements of Income
(in thousands, except share data)
Year ended December 31,
2001 2000 1999
-----------------------------------------------
Interest income
Interest and fees on loans:
Taxable .............................................. $55,084 $55,808 $52,336
Exempt from federal income taxes ..................... 3,319 3,185 2,645
-----------------------------------------------
Total interest and fees on loans ........................ 58,403 58,993 54,981
Interest and dividends on investment securities:
U.S. Government obligations .......................... 5,233 7,333 9,577
Obligations of state and political subdivisions ...... 1,938 1,339 947
Other securities ..................................... 12,543 10,255 7,638
Interest on time deposits with other banks .............. 345 285 227
Interest on federal funds sold and term federal funds ... 746 1,672 474
-----------------------------------------------
Total interest income ................................ 79,208 79,877 73,844
-----------------------------------------------
Interest expense
Interest on demand deposits ............................. 7,873 9,900 7,054
Interest on savings deposits ............................ 2,555 2,660 2,776
Interest on time deposits ............................... 20,348 20,377 18,390
Interest on long-term debt .............................. 1,429 1,171 711
Interest--all other ..................................... 2,236 2,351 2,450
-----------------------------------------------
Total interest expense ............................... 34,441 36,459 31,381
-----------------------------------------------
Net interest income ........................................ 44,767 43,418 42,463
Provision for loan losses .................................. 763 205 1,052
-----------------------------------------------
Net interest income after provision for loan losses ........ 44,004 43,213 41,411
-----------------------------------------------
Noninterest income
Trust ................................................... 4,260 4,404 3,970
Service charges on demand deposits ...................... 3,919 3,690 3,450
Service charges on other deposits ....................... 1,296 1,245 1,258
Commission income ....................................... 2,596 2,776 2,068
Net gains on sales of securities ........................ 150 1 3
Net gains on sales of mortgages ......................... 83 14 51
Other ................................................... 5,662 4,611 4,749
-----------------------------------------------
Total other income ................................... 17,966 16,741 15,549
-----------------------------------------------
Noninterest expense
Salaries and benefits ................................... 19,961 20,887 19,204
Net occupancy ........................................... 2,734 2,652 2,464
Equipment ............................................... 2,214 2,556 2,570
Other ................................................... 10,880 9,720 10,304
-----------------------------------------------
Total other expenses ................................. 35,789 35,815 34,542
-----------------------------------------------
Income before income taxes ................................. 26,181 24,139 22,418
Applicable income taxes .................................... 6,971 6,791 6,614
-----------------------------------------------
Net income ................................................. $19,210 $17,348 $15,804
===============================================
Net income per share: *
Basic ................................................... $ 2.69 $ 2.35 $ 2.08
===============================================
Diluted ................................................. $ 2.68 $ 2.34 $ 2.07
===============================================
See accompanying notes to consolidated financial statements.
* Per share data has been restated to give effect to a five percent stock
dividend paid May 1, 2000.
3
UNIVEST CORPORATION OF PENNSYLVANIA
Consolidated Statements of Changes in Shareholders' Equity
(in thousands, except share data)
Accumulated
Other Additional
Comprehensive Common Paid-in Retained Treasury
Income Stock Capital Earnings Stock Total
--------------------------------------------------------------------------------
Balance at December 31, 1998..................... $ 582 $ 39,272 $ 14,908 $ 62,992 $ (14,577) $ 103,177
---------
Comprehensive Income
Net Income for 1999........................... 15,804 15,804
Other comprehensive income, net of
income tax benefit of $(1,784)
Unrealized gains and (losses) on
investment securities available-for-sale.. (3,254) (3,254)
---------
Total comprehensive income ...................... 12,550
---------
Cash dividends declared* ($0.629 per share)... (4,762) (4,762)
Stock issued under dividend reinvestment
and employee stock purchase plans .......... (12) 1,282 1,270
Exercise of stock options .................... (613) 1,312 699
Acquisition of treasury stock (360,253 shares) (10,183) (10,183)
--------------------------------------------------------------------------------
Balance at December 31, 1999..................... (2,672) 39,272 14,908 73,409 (22,166) 102,751
---------
Comprehensive Income
Net Income for 2000........................... 17,348 17,348
Other comprehensive income, net of
income taxes of $1,927
Unrealized gains and (losses) on
investment securities available-for-sale.. 3,520 3,520
---------
Total comprehensive income ...................... 20,868
---------
Cash dividends declared* ($0.732 per share)... (5,420) (5,420)
5% stock dividend paid May 1, 2000............ 1,765 6,004 (7,769)
Stock issued under dividend reinvestment
and employee stock purchase plans........... (27) 1,266 1,239
Exercise of stock options .................... (43) 109 66
Acquisition of treasury stock
(192,921 shares)............................ (4,264) (4,264)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 .................... 848 41,037 20,912 77,498 (25,055) 115,240
---------
COMPREHENSIVE INCOME
NET INCOME FOR 2001........................... 19,210 19,210
OTHER COMPREHENSIVE INCOME, NET OF
INCOME TAXES OF $1,197
UNREALIZED GAINS AND (LOSSES) ON
INVESTMENT SECURITIES AVAILABLE-FOR-SALE.. 1,919 1,919
UNREALIZED GAINS AND (LOSSES) ON SWAPS.... 303 303
---------
TOTAL COMPREHENSIVE INCOME ...................... 21,432
---------
CASH DIVIDENDS DECLARED*
($0.820 PER SHARE)........................ (5,843) (5,843)
STOCK ISSUED UNDER DIVIDEND REINVESTMENT
AND EMPLOYEE STOCK PURCHASE PLANS ........ (16) 1,221 1,205
EXERCISE OF STOCK OPTIONS..................... (1,161) 2,213 1,052
ACQUISITION OF TREASURY STOCK
(404,302 SHARES).......................... (11,506) (11,506)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2001 .................... $ 3,070 $ 41,037 $ 20,912 $ 89,688 $ (33,127) $ 121,580
================================================================================
See accompanying notes to consolidated financial statements.
* Per share data has been restated to give effect to a five percent stock
dividend paid May 1, 2000.
4
UNIVEST CORPORATION OF PENNSYLVANIA
Consolidated Statements of Cash Flows
(in thousands)
Year ended December 31,
2001 2000 1999
---------------------------------------------------
Cash flows from operating activities
Net income .................................................... $ 19,210 $ 17,348 $ 15,804
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses in excess of (less than)
net charge-offs ........................................... 86 (496) 685
Depreciation of premises and equipment ...................... 2,495 2,284 2,313
(Discount accretion) premium amortization on
investment securities ..................................... (764) (338) 17
Deferred tax (benefit) income tax ........................... (757) (458) 31
Realized gains on investment securities ..................... (150) (1) (3)
Realized gains on sales of mortgages ........................ (83) (14) (51)
Increase (decrease) in net deferred loan fees ............... 479 (315) (39)
(Increase) decrease in interest receivable and other assets . (836) 60 (3,338)
Increase (decrease) in accrued expenses and other liabilities 1,814 3,409 (622)
---------------------------------------------------
Net cash provided by operating activities ................. 21,494 21,479 14,797
Cash flows from investing activities
Proceeds from maturing securities held-to-maturity .......... 163,329 61,707 90,041
Proceeds from maturing securities available-for-sale ........ 111,274 20,114 28,935
Proceeds from sales of securities available-for-sale ........ 15,893 9,041 18,391
Purchases of investment securities held-to-maturity ......... (114,198) (82,671) (11,165)
Purchases of investment securities available-for-sale ....... (171,862) (38,956) (115,466)
(Increase) decrease in interest-bearing deposits ............ (10,600) (1,292) 101
Premium paid to purchase bank-owned life insurance .......... -- (8,000) --
Net decrease (increase) in federal funds sold and other
short-term investments .................................... 16,126 (14,390) 10,900
Proceeds from sales of mortgages ............................ 9,016 2,362 11,306
Net increase in loans ....................................... (68,513) (18,787) (73,241)
Capital expenditures ........................................ (2,982) (2,414) (1,893)
Other investing activities .................................. (2,700) (200) (4,000)
---------------------------------------------------
Net cash used in investing activities ..................... (55,217) (73,486) (46,091)
Cash flows from financing activities
Net increase in deposits..................................... 26,213 61,249 36,171
Net increase (decrease) in short-term borrowings............. 23,101 (3,599) 8,053
Repayment of long-term debt.................................. (7,000) (2,000) -
Proceeds from long-term debt ................................ 5,000 10,000 9,000
Purchases of treasury stock.................................. (11,506) (4,264) (10,183)
Stock issued under dividend reinvestment and
employee stock purchase plans ............................. 1,205 1,239 1,270
Proceeds from exercise of stock options...................... 1,052 66 699
Cash dividends .............................................. (5,752) (5,233) (4,661)
---------------------------------------------------
Net cash provided by financing activities ................. 32,313 57,458 40,349
---------------------------------------------------
Net (decrease) increase in cash and due from banks .......... (1,410) 5,451 9,055
---------------------------------------------------
Cash and due from banks at beginning of year ................ 40,517 35,066 26,011
---------------------------------------------------
Cash and due from banks at end of year ...................... $ 39,107 $ 40,517 $ 35,066
===================================================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest .................................................. $ 34,893 $ 34,497 $ 32,916
Income taxes .............................................. $ 7,678 $ 7,077 $ 6,758
See accompanying notes to consolidated financial statements.
5
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Note 1. Summary of Significant Accounting Policies
Organization
Univest Corporation of Pennsylvania (the Corporation) through its wholly
owned subsidiaries, Union National Bank and Trust Company (Union) and Pennview
Savings Bank (Pennview), is engaged in domestic commercial and retail banking
services and provides a full range of banking and trust services to its
customers. Univest Financial Services Corporation, a subsidiary of Pennview,
provides financial planning, investment management, insurance products and
brokerage services. Union and Pennview serve the Montgomery and Bucks Counties
of Pennsylvania through 32 banking offices and provide banking and trust
services to the residents and employees of 12 retirement communities and a work
site office at Moyer Packing Company. This office serves only to cash payroll
checks for Moyer Packing Company employees.
Principles of Consolidation
The consolidated financial statements include the accounts of Univest
Corporation of Pennsylvania and its wholly owned subsidiaries, including Union
National Bank and Trust Company and Pennview Savings Bank, collectively referred
to herein as the "Banks." All significant intercompany balances and transactions
have been eliminated in consolidation.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.
Interest-bearing Deposits with Other Banks
Interest-bearing deposits with other banks consist of deposit accounts
with other financial institutions generally having maturities of three months or
less.
Investment Securities
Securities are classified as investment securities held to maturity 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 held to maturity or trading are
designated securities available-for-sale and carried at fair value with
unrealized gains and losses reflected in accumulated other comprehensive income,
net of estimated income taxes. The net unrealized gain on available-for-sale
securities included in accumulated other comprehensive income was $2,767 and
$848 at December 31, 2001 and December 31, 2000, respectively.
Gains and losses on sales of securities are 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, consumer, and mortgage loans
is recorded on the outstanding balance method, using actual interest rates
applied to daily principal balances. 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.
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.
Derivative Financial Instruments
The Corporation uses interest-rate swap agreements to manage the
interest-rate risk of its floating-rate loan portfolio. Univest accounts for its
interest rate swap contracts in compliance with SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities", by establishing and documenting
the effectiveness of the instrument in offsetting the change in cash flows of
certain prime-rate-based loans held by the bank. When the effectiveness of the
hedge can be established and adequately documented at the inception of the
derivative contract, the change in market value of the swap is recorded on the
balance sheet of the company but only the accrued payments due under the
contract for the current period are passed through the statement of operations.
To ensure effectiveness, Univest performs an analysis to ensure that changes in
fair value or cash flow of the derivative
6
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
correlates to the equivalent changes in the loans being hedged. Related fees are
deferred and amortized on a straight-line basis over the life of the swap, which
corresponds to the estimated life of the asset being hedged. Interest-rate
differentials to be paid or received as a result of interest-rate swap
agreements are accrued and recognized as an adjustment of interest income
related to the designated floating-rate loans. Recorded amounts related to
interest-rate swaps are included in other assets or liabilities. Should the
company be unable to document the effectiveness of all or part of the cash flow
hedge, the change in market value of the ineffective part of the instrument will
need to be marked-to-market through the statement of operations, potentially
causing material fluctuations in reported earnings in the period of the change
relative to comparable periods.
As of January 1, 2001, the Corporation adopted Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133),
as amended. The Statement requires the Corporation to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The fair value, net of income taxes, of the interest-rate swaps has been
included in accumulated other comprehensive income.
Reserve for Possible Loan Losses
The reserve for possible 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. This evaluation is
inherently subjective as it requires estimates including the amounts and timing
of future cash flows expected to be received on impaired loans that may be
susceptible to significant change. 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 or when in the opinion of
management the full amount of the loan, in the case of non-collateral dependent
borrowings, will not be realized. Certain impaired loans are reported at the
present value of expected future cash flows using the loan's initial effective
interest rate, or at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent.
The reserve for possible loan losses consists of two elements:
(1) an allocated reserve, which is comprised of reserves established on
specific loans, and class reserves based on historical loan loss
experience, current trends, and management assessments.
(2) unallocated reserves based on both general economic conditions and
other risk factors in the Corporation's individual markets and
portfolios, and to account for a level of imprecision in
management's estimation process.
The specific reserve element is based on a regular analysis of impaired
commercial and real estate loans. The specific reserve established for these
loans is based on a careful analysis of related collateral value, cash flow
considerations and, if applicable, guarantor capacity.
The class reserve element is determined by an internal loan grading
process in conjunction with associated allowance factors. The Corporation
revises the class allowance factors whenever necessary in order to address
improving or deteriorating credit quality trends or specific risks associated
with a given loan pool classification.
The Corporation maintains an unallocated reserve to recognize the
existence of credit exposures that are probable within the loan portfolio
although currently are undetected. There are many factors considered such as the
inherent delay in obtaining information regarding a customer's financial
condition or changes in their business condition, the judgmental nature of loan
evaluations, the delay in the interpretation of economic trends and the
judgmental nature of collateral assessments. (Also refer to Management's
Discussion and Analysis.)
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.
Stock Options
The Corporation grants stock options to employees with an exercise price
equal to the fair value of the shares at the date of grant. The Corporation has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations in accounting
for its employee stock options because the alternative fair value
7
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
accounting provided for under Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation," (SFAS No. 123) requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, no compensation expense is recognized because the exercise price of the
Corporation's employee stock options equals the market price of the underlying
stock on the date of grant.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. The effect of applying SFAS No. 123 to the
Corporation's stock-based awards results in net income and earnings per share
that are not materially different from amounts reported.
Dividend Reinvestment and Employee Stock Purchase Plans
The Univest Dividend Reinvestment Plan (the "Reinvestment Plan") provided
1,000,000 shares of common stock and the 1996 Employee Stock Purchase Plan (the
"Purchase Plan") provided 500,000 shares of common stock available for issuance.
Employees may elect to make contributions to the Purchase Plan in an aggregate
amount not less than 2% nor more than 10% of such employee's total compensation.
These contributions are then used to purchase stock during an offering period
determined by the Corporation's Administrative Committee. The purchase price of
the stock is established by the Administrative Committee provided, however, that
the purchase price will not be less than 85% of the lesser of the market price
on the first day or last day of the offering period.
During 2001 and 2000, 37,958 and 48,850 shares, respectively, were issued
under the Reinvestment Plan, with 838,029 shares available for future purchase
as of December 31, 2001. During 2001 and 2000, 6,102 and 8,700 shares,
respectively, were issued under the Purchase Plan, with 492,175 shares available
for future purchase as of December 31, 2001.
Income Taxes
Deferred income taxes are provided on temporary differences between
amounts reported for financial statement and tax purposes in accordance with
SFAS No. 109, "Accounting for Income Taxes."
Intangible Assets
The Corporation acquired intangible assets in connection with the
acquisitions of Pennview, Fin-Plan, Univest Insurance Inc. (formerly George
Becker Associates) and Gum Insurance that include goodwill and core deposit
intangibles. Goodwill is being amortized on a straight-line basis over a
fifteen-year period. Core deposit intangibles have been fully amortized over
their estimated useful lives of ten years. At December 31, 2001 the unamortized
balance is approximately $7.1 million ($5.3 million at December 31, 2000), net
of accumulated amortization of approximately $5.0 million ($4.2 million at
December 31, 2000). In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
the carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the loss of economic value, the carrying
amount of the goodwill is reduced by the estimated loss of value. On July 20,
2001 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards SFAS No. 141 and SFAS No. 142, which changed the
initial measurement and subsequent recording of goodwill and intangible assets.
The effect of adopting SFAS No. 141 is discussed under "Recent Accounting
Pronouncements."
Mortgage servicing rights are recognized as separate assets when rights
are acquired through the sale of mortgage loans. Capitalized servicing rights
are reported in other assets and are amortized into noninterest income in
proportion to, and over the period of, the estimated future net servicing period
of the underlying mortgage loans. Servicing assets are evaluated for impairment
based upon the fair value of the rights as compared to amortized cost. Fair
value is based upon discounted cash flows using market-based assumptions.
Impairment is recognized through a valuation allowance, to the extent that fair
value is less than the capitalized amount. The balance of capitalized servicing
rights, net of valuation allowances, included in other assets at December 31,
2001 and 2000 was $0.5 million. The fair values of these rights approximates the
carrying value at December 31, 2001 and 2000. The fair value of servicing rights
was determined using discount rates ranging from 6.8% to 7.6%. Amortization of
mortgage servicing rights of approximately $0.1 million was recorded during 2001
($.06 million was recorded in 2000). The valuation allowance was immaterial to
the financial statements.
Retirement Plan, Supplemental Plans and Other Postretirement Benefit Plans
Substantially 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.
The Corporation also provides supplemental executive retirement benefits,
a portion of which is in excess of limits imposed on qualified plans by federal
tax law. These plans are nonqualified benefit plans.
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.
8
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
The Corporation provides certain postretirement healthcare and life
insurance benefits for retired employees. The Corporation accrues the costs
associated with providing these benefits during the active service periods of
employees in accordance with Statement of Financial Accounting Standard No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
No. 106).
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.
Stock Dividend
On March 22, 2000, the Corporation's board of directors declared a 5%
stock dividend paid on May 1, 2000 to all shareholders of record as of April 14,
2000. All share and per share amounts have been retroactively adjusted to give
effect to the stock dividend.
Earnings Per Share
Basic earnings per share represents income available to common
stockholders divided by the weighted-average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been
issued, as well as any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the Corporation relate
solely to outstanding stock options, and are determined using the treasury stock
method.
Comprehensive Income
Unrealized gains or losses on the Corporation's available-for-sale
securities and cash flow hedges are included in comprehensive income.
The following shows the accumulated comprehensive income, net of income
taxes, for the periods presented:
Period Ended Dec. 31
2001 2000
---------------------------
Net income................................................... $ 19,210 $ 17,348
Accumulated unrealized gain on cash flow hedges ............. 303 -
Change in unrealized gain (loss) on available-for-
sale investment securities .................................. 1,919 3,520
---------------------------
Total comprehensive income .................................. $ 21,432 $ 20,868
===========================
Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and
Other Intangible Assets." Major provisions of these Statements include the
following:
o SFAS No. 141 provisions relating to the initial measurement and
recording of goodwill and intangible assets, financial statement
presentation, and disclosures are effective for combinations
completed after June 30, 2001.
o SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001, but only if they have not
issued their first quarter financial statements prior to adoption.
Regardless of the full adoption date, the nonamortization provisions
of SFAS No. 142 are effective for business combinations and other
transactions completed after June 30, 2001.
The Corporation estimates that a decrease of approximately $500 thousand
in other expenses will be the effect of adopting SFAS No. 142.
9
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
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 was $2.7 million for December
31, 2001 and 2000.
Note 3. Investment Securities
Securities with a market value of $206.0 million and $207.0 million at
December 31, 2001 and 2000, respectively, were pledged to secure public deposits
and for other purposes as required by law. The following table shows the
amortized cost and the approximate market value of the held-to-maturity
securities and available-for-sale securities at December 31, 2001 and 2000, by
maturity within each type:
DECEMBER 31, 2001 December 31, 2000
-------------------------------------------- ----------------------------------------------
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
Held-to-Maturity Securities COST GAINS LOSSES VALUE Cost Gains Losses Value
-------------------------------------------- ----------------------------------------------
U.S. Treasury, government
corporations and agencies
obligations:
Within 1 year ................... $ 7,000 $ 102 $ - $ 7,102 $ 47,142 $ 15 $ (70) $ 47,087
1 to 5 years .................... 23,100 446 (9) 23,537 30,998 25 (178) 30,845
-------------------------------------------- ----------------------------------------------
30,100 548 (9) 30,639 78,140 40 (248) 77,932
-------------------------------------------- ----------------------------------------------
State and political subdivisions:
Within 1 year ................... 2,960 26 - 2,986 5,020 1 (8) 5,013
1 to 5 years .................... 9,180 195 - 9,375 12,721 - (113) 12,608
Over 10 years.................... 1,154 4 - 1,158 1,154 - - 1,154
-------------------------------------------- ----------------------------------------------
13,294 225 - 13,519 18,895 1 (121) 18,775
-------------------------------------------- ----------------------------------------------
Mortgage-backed securities:
Within 1 year ................... - - - - 794 - (4) 790
1 to 5 years .................... 934 17 - 951 837 - (5) 832
5 to 10 years ................... 5,726 104 - 5,830 3,130 20 (8) 3,142
Over 10 years.................... 39,384 1,027 (83) 40,328 36,609 684 (57) 37,236
-------------------------------------------- ----------------------------------------------
46,044 1,148 (83) 47,109 41,370 704 (74) 42,000
-------------------------------------------- ----------------------------------------------
Other:
Within 1 year ................... - - - - 491 - - 491
1 to 5 years .................... 10,145 532 - 10,677 9,195 271 - 9,466
5 to 10 years ................... 6,351 298 - 6,649 6,542 140 - 6,682
Over 10 years.................... 3,871 225 - 4,096 3,866 113 - 3,979
-------------------------------------------- ----------------------------------------------
20,367 1,055 - 21,422 20,094 524 - 20,618
-------------------------------------------- ----------------------------------------------
Total ............................ $109,805 $2,976 $(92) $112,689 $158,499 $1,269 $(443) $159,325
============================================ ==============================================
10
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
DECEMBER 31, 2001 December 31, 2000
-------------------------------------------- ----------------------------------------------
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
Securities Available for Sale COST GAINS LOSSES VALUE Cost Gains Losses Value
-------------------------------------------- ----------------------------------------------
U.S. Treasury, government
corporations and agencies
obligations:
Within 1 year ..................... $ 5,497 $ 54 $ - $ 5,551 $ 20,939 $ 1 $ (55) $ 20,885
1 to 5 years ...................... 52,260 868 - 53,128 31,677 147 (56) 31,768
5 to 10 years ..................... 2,000 44 - 2,044 550 1 - 551
-------------------------------------------- ----------------------------------------------
59,757 966 - 60,723 53,166 149 (111) 53,204
-------------------------------------------- ----------------------------------------------
State and political subdivisions:
1 to 5 years ...................... 974 6 - 980 414 - (6) 408
5 to 10 years ..................... 1,224 20 - 1,244 560 2 - 562
Over 10 years...................... 33,918 569 (367) 34,120 18,753 729 (1) 19,481
-------------------------------------------- ----------------------------------------------
36,116 595 (367) 36,344 19,727 731 (7) 20,451
-------------------------------------------- ----------------------------------------------
Mortgage-backed securities:
1 to 5 years ...................... 2,436 50 - 2,486 2,225 12 (2) 2,235
5 to 10 years ..................... 29,400 795 - 30,195 27,836 154 (62) 27,928
Over 10 years...................... 72,627 977 (170) 73,434 51,057 196 (185) 51,068
-------------------------------------------- ----------------------------------------------
104,463 1,822 (170) 106,115 81,118 362 (249) 81,231
-------------------------------------------- ----------------------------------------------
Other:
Within 1 year ..................... 669 - - 669 3,493 - - 3,493
1 to 5 years ...................... 23,994 1,311 - 25,305 23,936 469 (31) 24,374
5 to 10 years ..................... 2,000 46 - 2,046 - - - -
Over 10 years...................... 6,797 54 - 6,851 7,183 - (9) 7,174
-------------------------------------------- ----------------------------------------------
33,460 1,411 - 34,871 34,612 469 (40) 35,041
-------------------------------------------- ----------------------------------------------
Total .............................. $233,796 $ 4,794 $(537) $238,053 $188,623 $1,711 $(407) $189,927
============================================================================================
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, 2001, available-for-sale debt
securities with a fair value at the date of sale of $15,893 were sold ($9,041 in
2000). Gross realized gains on such sales totaled $151 during 2001 ($9 in 2000
and $52 in 1999), and the gross realized losses totaled $1 during 2001 ($8 in
2000 and $49 in 1999). Net unrealized gains on available-for-sale securities
included in accumulated other comprehensive income as a separate component of
shareholders' equity totaled $2,767 in 2001 and $848 in 2000. Unrealized losses
in investment securities at December 31, 2001 and 2000 do not represent
permanent impairments.
At December 31, 2001 and 2000, 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:
December 31,
2001 2000
--------------------------
Real estate-construction ............................ $ 34,774 $ 39,707
Real estate-commercial .............................. 195,872 168,761
Real estate-residential ............................. 226,962 214,973
Commercial and industrial ........................... 254,032 221,101
Loans to individuals ................................ 71,212 79,320
All other............................................ 15,495 15,425
--------------------------
Total loans ......................................... 798,347 739,287
Less: Unearned income ............................... (18) (59)
--------------------------
$798,329 $739,228
==========================
11
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
At December 31, 2001, loans to directors and executive officers of Univest
and companies in which directors have an interest aggregated $19,735. 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 Balance at
January 1, 2001 Additions Collected December 31, 2001
---------------------------------------------------------------------
$14,021 $25,305 $19,591 $19,735
Note 5. Reserve for Possible Loan Losses
A summary of the transactions in the reserve for possible loan losses is
as follows:
2001 2000 1999
--------------------------------
Balance at beginning of year.................... $10,208 $ 10,704 $10,019
Provision charged to operating expenses ........ 763 205 1,052
Recoveries...................................... 540 672 1,390
Loans charged off............................... (1,217) (1,373) (1,757)
--------------------------------
Balance at end of year.......................... $10,294 $ 10,208 $10,704
================================
Information with respect to loans that are considered to be impaired under
SFAS No. 114 for the year ended December 31 is as follows:
December 31,
2001 2000
----------------------
Average recorded investment in impaired loans .................................. $ 2,154 $ 2,096
Recorded investment in impaired loans at year-end subject to
a reserve for loan losses................................................... 832 1,485
Corresponding reserve........................................................... 540 1,035
Recorded investment in impaired loans at year-end requiring
no reserve for loan losses ................................................. 574 168
Recorded investment in impaired loans at year-end .............................. 1,406 1,653
Recorded investment in nonaccrual and restructured* ............................ 1,617 1,865
* Included in the nonaccrual total are Pennview's first residential mortgage
loans which were over 90 days delinquent of $211 at December 31, 2001 and
$212 at December 31, 2000.
The following is an analysis of interest on nonaccrual loans at December
31 as follows:
2001 2000 1999
-------------------------
Nonaccrual and restructured loans .................... $ 1,617 $ 1,865 $ 2,323
Interest income that would have been recognized
under original terms............................ 176 229 246
There was no other real estate owned at December 31, 2001 and December 31,
2000.
12
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Note 6. Premises and Equipment
December 31,
2001 2000
--------------------
Land and land improvements ............................... $ 4,230 $ 3,411
Premises and improvements................................. 17,759 17,853
Furniture and equipment................................... 17,528 16,996
--------------------
39,517 38,260
Less: accumulated depreciation............................ (23,492) (22,722)
--------------------
$ 16,025 $ 15,538
====================
As of December 31, 2001, 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:
2002................................$ 747
2003................................ 592
2004................................ 465
2005................................ 291
2006................................ 201
Rental expense charged to operations was $707, $685, and $611 for 2001,
2000, and 1999, respectively.
Note 7. Income Taxes
The provision for federal and state income taxes included in the
accompanying consolidated statements of income consists of the following:
2001 2000 1999
-----------------------
Current.............................................. $ 7,728 $ 7,249 $ 6,583
Deferred ............................................ (757) (458) 31
-----------------------
$ 6,971 $ 6,791 $ 6,614
=======================
The provision for income taxes differs from the expected statutory
provision as follows:
2001 2000
------------------
Expected provision at statutory rate ......................... 35.0% 35.0%
Difference resulting from:
Tax exempt interest income.................................. (6.7%) (6.2%)
Increase in value of contracts.............................. (2.4%) (1.7%)
Other....................................................... 0.7% 1.0%
------------------
26.6% 28.1%
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 assets and liabilities
as of December 31, 2001 and 2000 are as follows:
2001 2000
------------------
Deferred tax assets:
Loan loss .................................................. $ 3,831 $ 3,772
Deferred compensation ...................................... 426 403
Postretirement benefits..................................... 407 407
Depreciation ............................................... 242 82
Other....................................................... 118 -
------------------
Total deferred tax assets .................................... $ 5,024 $ 4,664
13
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
2001 2000
---------------------
Deferred tax liabilities:
Accretion ............................................ $ 311 $ 234
Retirement plans ..................................... 153 56
Intangible assets .................................... 291 290
Deferred income ...................................... 394 408
Marked-to-market adjustment........................... 1,921 493
Other................................................. - 525
---------------------
Total deferred tax liabilities ......................... 3,070 2,006
Net deferred tax assets ................................ $ 1,954 $ 2,658
=====================
No valuation allowance was recognized for the deferred tax assets at
December 31, 2001 and 2000.
Note 8. Retirement Plan and Supplemental Retirement Plans
Information with respect to the Retirement Plan and the Supplemental
Retirement Plans is as follows:
2001 2000
---------------------
Change in benefit obligation
Benefit obligation at beginning of year ................ $ 19,615 $ 17,944
Service cost-benefits earned during the period ......... 635 1,221
Interest cost on projected benefit obligation .......... 1,266 1,322
Actuarial (gain) loss................................... (802) 30
Benefits paid .......................................... (1,063) (902)
---------------------
Benefit obligation at end of year....................... $ 19,651 $ 19,615
=====================
Change in plan assets
Fair value of plan assets at beginning of year.......... $ 17,583 $ 19,090
Actual return on plan assets ........................... (435) (888)
Benefits paid........................................... (1,063) (902)
Employer contribution................................... 310 283
---------------------
Fair value of plan assets at end of year ............... 16,395 17,583
---------------------
Funded status (3,256) (2,032)
Unrecognized net actuarial gain ........................ 619 (489)
Unrecognized prior service costs ....................... (270) (343)
Unrecognized net transition asset ...................... - -
---------------------
Pension liability ...................................... $ (2,907) $ (2,864)
=====================
Weighted-average assumptions as of December 31
Assumed discount rate for obligation.................... 7.00%-7.50% 7.25%-8.00%
Assumed long-term rate of investment return ............ 8.50% 8.50%
Assumed salary increase rate ........................... 4.00%-5.10% 4.00%-5.10%
Expense recognized in 2001, 2000, and 1999 amounted to $353, $680, and
$1,045, respectively, and is summarized as follows:
2001 2000 1999
-------------------------------
Service cost-benefits earned during the period.......... $ 635 $ 1,221 $ 1,684
Interest cost on projected benefit obligation .......... 1,266 1,322 1,039
Expected return on plan assets ......................... (1,476) (1,593) (1,455)
Amortization of net transition asset.................... - (126) (126)
Amortization of prior service cost ..................... (72) (144) (61)
-------------------------------
$ 353 $ 680 $ 1,045
===============================
14
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
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. The Corporation has invested in bank-owned life insurance contracts to
meet its future obligations under the supplemental retirement plans. For the
nonqualified supplemental retirement plan, the projected benefit obligation
excess of plan assets was $3,920 and $3,884 for December 31, 2001 and 2000
respectively.
Expense recorded by the Corporation for the 401(k) deferred salary savings
plan for the years ended December 31, 2001, 2000 and 1999 was $306, $306 and
$290, respectively.
Note 9. Other Postretirement Benefit Plan
Information with respect to Other Postretirement Benefits is as follows:
Change in benefit obligation 2001 2000
-----------------------
Benefit obligation at beginning of year ................ $ 929 $ 903
Service cost-benefits earned during the period ......... 34 32
Interest cost on projected benefit obligation .......... 66 64
Actuarial (gain) loss................................... 7 (31)
Benefits paid .......................................... (69) (39)
-----------------------
Benefit obligation at end of year....................... $ 967 $ 929
=======================
Fair value of plan assets .............................. - -
-----------------------
Funded status (967) (929)
Unrecognized net actuarial loss ........................ 42 33
Unrecognized prior service cost......................... (251) (269)
-----------------------
Accrued pension expense ................................ $ (1,176) $ (1,165)
=======================
Net periodic postretirement benefit cost for the years ended December 31,
2001, 2000, and 1999 includes the following components:
2001 2000 1999
------------------------
Service cost-benefits earned during the period........................ $ 34 $ 32 $ 30
Interest cost on accumulated postretirement benefit obligation ....... 66 64 61
Prior service cost.................................................... (20) (20) (20)
Amortization of actuarial loss ....................................... - - 6
------------------------
$ 80 $ 76 $ 77
========================
Weighted-average assumptions as of December 31 2001 2000
------------------
Assumed discount rate for obligation......................... 7.25% 7.25%
Medical care cost trend on covered charges*.................. 6.50% 6.50%
*For measurement purposes, the medical care cost trend rate on covered charges
is 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, a one-percentage-point change in
the assumed health care cost trend rates would have the following effects:
One Percentage Point
------------------------------
Increase Decrease
------------------------------
Effect on total of service and interest cost components ................ $ 3 $ (3)
Effect on postretirement benefit obligation ............................ 36 (35)
The Corporation provides supplemental executive retirement benefits
covering selected employees and retirees. These plans are nonqualified defined
benefit plans. Assumptions used in determining the net periodic pension costs
are similar to those used to determine the costs of the Corporation's retirement
plan. Expenses charged to salaries and benefits were not material to the
Corporation's consolidated financial statements.
15
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Note 10. Long-Term Incentive Plan
The Corporation adopted the 1993 Long-Term Incentive Plan, whereby the
Corporation may grant options to employees to purchase up to 800,000 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. After two years, 33 percent of the optioned shares are
exercisable each year for a period not exceeding six years. 273,530 common
shares were available for future options and 338,373 common shares were
exercisable at December 31, 2001. Transactions involving the plan are summarized
as follows:
Shares Option Price
Under Option Per Share
--------------------------------
Outstanding at December 31, 1998............. 126,404 $12.95-$28.57
Granted...................................... 15,750 31.67
Granted...................................... 146,213 24.29
Exercised.................................... (30,715) 12.95
Exercised.................................... (20,435) 14.76
--------------------------------
Outstanding at December 31, 1999............. 237,217 $14.76-$31.67
Granted...................................... 10,500 24.40
Granted...................................... 53,000 22.25
Exercised.................................... (4,491) 14.76
--------------------------------
Outstanding at December 31, 2000............. 296,226 $14.76-$31.67
Granted...................................... 23,000 25.35
Granted...................................... 91,500 35.35
Forfeited ................................... (4,725) 24.29
Exercised.................................... (2,625) 31.67
Exercised.................................... (65,003) 14.76
--------------------------------
Outstanding at December 31, 2001............. 338,373 $22.25-$35.35
================================
Note 11. Time Deposits
The aggregate amount of certificates of deposit in denominations of $100
or more was $37,867 at December 31, 2001, and $31,662 at December 31, 2000, with
interest expense of $1,887 for 2001 and $1,736 for 2000. Other time deposits in
denominations of $100 or more were $13,314 at December 31, 2001, and $20,055 at
December 31, 2000, with interest expense of $879 for 2001 and $1,230 for 2000.
Note 12. Long-Term Debt
At December 31, 2001 and 2000, long-term debt consisted of the following:
Description December 31, December 31,
2001 2000 Interest Rate Maturity
-------------------------------------------------------------------
Federal Home Loan Bank Advance ................ $ - $ 3,500 6.60% (variable) May 2001
Federal Home Loan Bank Advance ................ - 3,500 6.58% (variable) March 2001
Federal Home Loan Bank Advance ................ 75 75 4.00% September 2006
Federal Home Loan Bank Advance ................ 4,000 4,000 4.99% January 2009
Federal Home Loan Bank Advance ................ 5,000 5,000 6.30% November 2009
Federal Home Loan Bank Advance ................ 5,000 5,000 6.10% September 2010
Federal Home Loan Bank Advance ................ 5,000 5,000 5.89% December 2010
Federal Home Loan Bank Advance ................ 5,000 - 4.68% March 2011
-------------------------------
$24,075 $26,075
===============================
16
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Advances from the Federal Home Loan Bank are collateralized by Federal
Home Loan Bank stock and substantially all first mortgage loans of the Banks.
These advances may be convertible to a floating interest rate and could be
subject to a prepayment fee.
Univest, through its banks, has short-term and long-term credit facilities
with the Federal Home Loan Bank of Pittsburgh with a maximum borrowing capacity
of approximately $188.1 million. At December 31, 2001, Univest's outstanding
borrowings under the FHLB credit facilities totaled $24.1 million. The maximum
borrowing capacity changes as a function of the banks' qualifying collateral
assets and the amount of funds received may be reduced by additional required
purchases of FHLB stock.
Univest maintains verbal federal fund credit lines with several
correspondent banks totaling $70 million. At December 31, 2001, Univest's
outstanding borrowings under these lines totaled $16.7 million. Future
availability under these lines is subject to the prerogatives of the granting
banks and may be withdrawn at will.
Univest, through Union, 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 December 31, 2001, the
Corporation had no outstanding borrowings under this line.
Note 13. Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
2001 2000 1999
--------------------------------
Numerator:
Net income ......................................................... $ 19,210 $ 17,348 $ 15,804
Numerator for basic and diluted earnings per
share - income available to common shareholders .................... $ 19,210 $ 17,348 $ 15,804
Denominator:*
Denominator for basic earnings per share-
weighted-average shares outstanding................................. 7,136 7,394 7,587
Effect of dilutive securities:
Employee stock options .......................................... 36 20 48
--------------------------------
Denominator for diluted earnings per share
adjusted weighted-average shares outstanding........................ 7,172 7,414 7,635
================================
Basic earnings per share*............................................. $ 2.69 $ 2.35 $ 2.08
================================
Diluted earnings per share*........................................... $ 2.68 $ 2.34 $ 2.07
================================
For additional disclosures regarding the employee stock options, see Note
10.
*The weighted-average number of shares outstanding as well as per share data has
been restated to give effect to a five percent stock dividend paid May 1, 2000.
Note 14. Financial Instruments with Off-Balance-Sheet Risk and Commitments
Loan commitments are made to accommodate the financial needs of the Banks'
customers. Standby letters of credit commit the Banks 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 Banks' normal credit policies. Collateral 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. As of December 31, 2001, the Banks
have identified the due from banks' balance of $23,658 as a significant
concentration of credit risk because it contains a balance due from a single
depository institution that is unsecured. Management evaluates the
creditworthiness of the institution on at least a quarterly basis in an effort
to monitor its credit risk associated with this concentration.
17
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
The following schedule summarizes the Corporation's off-balance-sheet
financial instruments:
Contract of
Notional Amount
-----------------
Financial instruments representing credit risk:
Commitments to extend credit..................................... $ 247,271
Standby letters of credit or commercial letters of credit........ 19,759
Interest-rate swaps, notional principal amount .................. 30,000
The Corporation may enter into interest-rate swaps in managing its
interest-rate risk. In these swaps, the Corporation agrees to exchange, at
specified intervals, the difference between fixed and floating interest amounts
calculated on an agreed-upon notional principal amount. Interest-rate swaps in
which the Corporation pays a floating rate and receives a fixed rate are used to
reduce the impact of changes in interest rates on the Corporation's net interest
income.
At December 31, 2001, $30 million in notional interest-rate swaps were
outstanding. The contracts entered into by the Corporation expire as follows:
$10 million in notional principal amount in first quarter 2002, $10 million in
second quarter 2003 and $10 million in third quarter of 2003. The impact of the
interest-rate swaps on net interest income for the year ended December 31, 2001
was a positive $440 and for the year ended December 31, 2000, a negative $187.
The ineffective portion of the swaps' change in fair value is to be immediately
recognized in earnings. For the Corporation, the amount of the ineffective
portion is immaterial.
The Corporation's current credit exposure on swaps is limited to the value
of interest-rate swaps that have become favorable to the Corporation. As of
December 31, 2001, the market value of interest-rate swaps in a favorable
position was $465. There were no interest-rate swaps in an unfavorable position.
At December 31, 2000, the market value of interest-rate swaps in a favorable
position was $107 and the market value of interest-rate swaps in an unfavorable
position was $66. Credit risk also exists when the counterparty to a derivative
contract with an unrealized gain fails to perform according to the terms of the
agreement.
Note 15. Fair Values of Financial Instruments
Statement of Financial Accounting Standard No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), 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 SFAS No. 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 not to 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 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.
The Corporation, using the best available data and an estimation
methodology suitable for each category of financial instruments, has determined
estimated fair values. 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.
SFAS No. 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.
18
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
The following table represents the estimates of fair value of financial
instruments:
DECEMBER 31, 2001 December 31, 2000
---------------------------------------------------------------
CARRYING OR Carrying or
NOTIONAL/CONTRACT FAIR Notinal/Contract Fair
AMOUNT VALUE Amount Value
---------------------------------------------------------------
Assets:
Cash and short-term assets ........................ $ 54,902 $ 54,902 $ 61,838 $ 61,838
Investment securities.............................. 347,858 350,742 348,426 349,252
Net loans.......................................... 788,035 817,072 729,020 747,880
Liabilities:
Deposits........................................... $998,137 $1,006,435 $971,924 $973,372
Short-term borrowings ............................. 91,600 91,600 68,499 68,499
Long-term debt .................................... 24,075 25,241 26,075 26,551
Off-Balance-Sheet:
Commitments to extend credit....................... $247,271 $ (610) $251,622 $ (724)
Letters of credit ................................. 19,759 (296) 18,902 (284)
Interest-rate swap, notional principal amount...... 30,000 465 30,000 41
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: The fair values for loans are estimated using discounted cash flow
analyses, using a discount rate consisting of an appropriate risk free rate, as
well as components for credit risk, operating expense, and imbedded prepayment
options.
DEPOSIT LIABILITIES: The fair values for deposits with fixed maturities
are estimated by discounting the final maturity, and the fair values for
non-maturity deposits are established using a decay factor estimate of cash
flows based upon industry-accepted assumptions. The discount rate applied to
deposits consists of an appropriate risk free rate and included components for
credit risk, operating expense, and imbedded prepayment options.
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 a discounted cash flow analysis using
a discount rate consisting of an appropriate risk free rate, as well as
components for credit risk, operating expense, and imbedded prepayment options.
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.
Note 16. Regulatory Matters
The Banks are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Banks' financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks' capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios(set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2001, that the
Banks meet all capital adequacy requirements to which they are subject.
19
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
As of December 31, 2001, the most recent notification from the Office of
Comptroller of the Currency and Federal Deposit Insurance Corporation (FDIC)
categorized the Banks as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Banks' category.
The Banks' actual capital amounts and ratios are also presented in the
table.
To Be Well-Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------
As of December 31, 2001:
Total Capital (to Risk-Weighted Assets):
CONSOLIDATED ....................................... $121,702 13.55% $ 71,877 8.00% $ 89,846 10.00%
Union National Bank ................................ 106,712 13.18% 64,754 8.00% 80,942 10.00%
Pennview Savings Bank .............................. 12,078 14.84% 6,512 8.00% 8,140 10.00%
Tier I Capital (to Risk-Weighted Assets):
CONSOLIDATED ....................................... 111,408 12.40% 35,938 4.00% 53,907 6.00%
Union National Bank ................................ 96,822 11.96% 32,377 4.00% 48,565 6.00%
Pennview Savings Bank .............................. 11,170 13.72% 3,256 4.00% 4,884 6.00%
Tier I Capital (to Average Assets):
CONSOLIDATED ....................................... 111,408 9.24% 36,168 3.00% 48,224 4.00%
Union National Bank ................................ 96,822 9.24% 31,444 3.00% 41,925 4.00%
Pennview Savings Bank .............................. 11,170 7.39% 4,536 3.00% 6,048 4.00%
As of December 31, 2000:
Total Capital (to Risk-Weighted Assets):
CONSOLIDATED ........................................ $119,782 13.89% $ 69,005 8.00% $ 86,256 10.00%
Union National Bank ................................. 102,785 13.45% 61,121 8.00% 76,401 10.00%
Pennview Savings Bank ............................... 13,598 15.16% 7,175 8.00% 8,969 10.00%
Tier I Capital (to Risk-Weighted Assets):
CONSOLIDATED ........................................ 109,055 12.64% 34,502 4.00% 51,753 6.00%
Union National Bank ................................. 93,232 12.20% 30,560 4.00% 45,841 6.00%
Pennview Savings Bank ............................... 12,664 14.12% 3,588 4.00% 5,382 6.00%
Tier I Capital (to Average Assets):
CONSOLIDATED ........................................ 109,055 9.56% 34,219 3.00% 45,626 4.00%
Union National Bank ................................. 93,232 9.39% 29,786 3.00% 39,715 4.00%
Pennview Savings Bank ............................... 12,664 8.96% 4,241 3.00% 5,655 4.00%
Dividend and Other Restrictions
The approval of the Office of 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 2002 without approval of the Office of
Comptroller of the Currency of approximately $12,193 plus an additional amount
equal to the Bank's net profits for 2002 up to the date of any such dividend
declaration.
The Federal Reserve Act requires that extension of credit by Union 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
Union'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.
20
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Note 17. Parent Company Financial Information
Condensed financial statements of Univest, parent company only, follow:
Balance Sheets December 31,
2001 2000
---------------------
Assets:
Deposits with bank subsidiary ............................................. $ 222 $ 67
Investments in U.S. Government obligations available-for-sale.............. 1,000 1,570
Investments in subsidiaries, at equity in net assets:
Banks .................................................................. 118,166 112,075
Non-banks .............................................................. 5,760 5,469
Other assets .............................................................. 3,469 2,817
---------------------
Total assets ......................................................... $128,617 $121,998
=====================
Liabilities:
Dividends payable ......................................................... $ 1,486 $ 1,395
Other liabilities ......................................................... 5,551 5,363
---------------------
Total liabilities ......................................................... 7,037 6,758
---------------------
Shareholders' equity ........................................................ 121,580 115,240
---------------------
Total liabilities and shareholders' equity............................ $128,617 $121,998
=====================
Statements of Income Year ended December 31,
2001 2000 1999
-----------------------------------
Dividends from banks .......................................... $ 15,193 $ 8,139 $ 12,991
Other income .................................................. 10,249 9,500 8,578
-----------------------------------
Total operating income ...................................... 25,442 17,639 21,569
Operating expenses ............................................ 10,531 9,975 9,839
-----------------------------------
Income before income tax benefit and equity in
undistributed income of subsidiaries ........................ 14,911 7,664 11,730
Applicable income tax (benefit) ............................... (140) (81) (365)
-----------------------------------
Income before equity in undistributed income of subsidiaries... 15,051 7,745 12,095
Equity in undistributed (loss) income of subsidiaries:
Banks ....................................................... 3,868 9,503 3,439
Non-banks ................................................... 291 100 270
-----------------------------------
Net income .................................................... $ 19,210 $ 17,348 $ 15,804
===================================
21
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Statements of Cash Flows Year ended December 31,
2001 2000 1999
------------------------------------
Cash flows from operating activites
Net income ............................................................ $ 19,210 $ 17,348 $ 15,804
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income/loss of subsidiaries........... (4,159) (9,603) (3,709)
Increase in other assets .......................................... (968) (545) (1,592)
Depreciation of premises and equipment ............................ 315 520 571
Increase in other liabilities ..................................... 188 500 1,969
------------------------------------
Net cash provided by operating activities ..................... 14,586 8,220 13,043
Cash flows from investing activities
Proceeds from sales of securities available-for-sale ................... 1,570 1,542 1,000
Purchases of investment securities available-for-sale .................. (1,000) (1,570) (1,542)
------------------------------------
Net cash provided by (used in) investing activities 570 (28) (542)
Cash flows from financing activities
Purchases of treasury stock ............................................ (11,506) (4,264) (10,183)
Stock issued under dividend reinvestment and employee
stock purchase plans ................................................. 1,205 1,239 1,270
Proceeds from exercise of stock options ................................ 1,052 66 699
Repayment from subsidiary .............................................. -- -- 350
Cash dividends ......................................................... (5,752) (5,233) (4,661)
------------------------------------
Net cash used in financing activities ......................... (15,001) (8,192) (12,525)
------------------------------------
Net increase (decrease) in deposits with bank subsidiary ............... 155 -- (24)
Deposits with bank subsidiary at beginning of year ..................... 67 67 91
------------------------------------
Deposits with bank subsidiary at end of year ........................... $ 222 $ 67 $ 67
====================================
During 2001, 2000, and 1999, the parent company made income tax payments of
$7,678, $7,077, and $6,758, respectively. No interest payments were made.
22
UNIVEST CORPORATION OF PENNSYLVANIA
Notes to Consolidated Financial Statements
(dollars in thousands, except share data)
Note 18. Quarterly Data (Unaudited)
The unaudited results of operations for the quarters for the years ended
December 31, 2001 and 2000 were as follows:
2001 Quarterly Financial Data
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------------------------------------------------
Interest income ..................................... $ 19,038 $ 19,938 $ 19,984 $ 20,248
Interest expense .................................... 7,436 8,470 9,073 9,462
------------------------------------------------------
Net interest income ............................... 11,602 11,468 10,911 10,786
Provision for loan losses ........................... 316 216 216 15
------------------------------------------------------
Net interest income after provision for loan losses . 11,286 11,252 10,695 10,771
Noninterest income .................................. 4,874 4,188 4,679 4,225
Noninterest expense ................................. 9,230 8,628 8,567 9,364
------------------------------------------------------
Income before income taxes .......................... 6,930 6,812 6,807 5,632
Applicable income taxes ............................. 1,794 1,913 1,793 1,471
------------------------------------------------------
Net income ........................................ $ 5,136 $ 4,899 $ 5,014 $ 4,161
======================================================
Per share data:
Net income:
Basic ......................................... $ .73 $ .69 $ .70 $ .58
======================================================
Diluted ....................................... $ .72 $ .68 $ .70 $ .58
======================================================
Dividends per share* ................................ $ .21 $ .21 $ .21 $ .19
======================================================
2000 Quarterly Financial Data
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------------------------------------------------
Interest income ..................................... $ 20,488 $ 20,330 $ 19,881 $ 19,178
Interest expense .................................... 9,752 9,453 8,931 8,323
------------------------------------------------------
Net interest income ............................... 10,736 10,877 10,950 10,855
Provision for loan losses ........................... 148 215 15 (173)
------------------------------------------------------
Net interest income after provision for loan losses 10,588 10,662 10,935 11,028
Noninterest income .................................. 4,108 4,157 4,112 4,364
Noninterest expense ................................. 8,899 8,846 8,567 9,503
------------------------------------------------------
Income before income taxes .......................... 5,797 5,973 6,480 5,889
Applicable income taxes ............................. 1,524 1,641 1,862 1,764
------------------------------------------------------
Net income ........................................ $ 4,273 $ 4,332 $ 4,618 $ 4,125
======================================================
Per share data:
Net income:
Basic ......................................... $ .58 $ .59 $ .62 $ .55
======================================================
Diluted ....................................... $ .58 $ .59 $ .62 $ .55
======================================================
Dividends per share* ................................ $ .19 $ .19 $ .19 $ .162
======================================================
*Per share data has been restated to give effect to a 5% stock dividend paid May
1, 2000.
23
UNIVEST CORPORATION OF PENNSYLVANIA
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, 2001 and 2000, 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, 2001. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Univest
Corporation of Pennsylvania at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 18, 2002
24
UNIVEST CORPORATION OF PENNSYLVANIA
FIVE-YEAR PERFORMANCE HIGHLIGHTS
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
BASIC EARNINGS PER SHARE
(In Dollars)
- --------------------------------------------------------------------------------
97 ................................................................ 1.62
98 ................................................................ 1.84
99 ................................................................ 2.08
00 ................................................................ 2.35
01 ................................................................ 2.69
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
AVERAGE DEPOSITS
(Millions of Dollars)
- --------------------------------------------------------------------------------
97 ................................................................ 755.0
98 ................................................................ 830.2
99 ................................................................ 885.7
00 ................................................................ 934.8
01 ................................................................ 969.1
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
AVERAGE LOANS
(Millions of Dollars)
- --------------------------------------------------------------------------------
97 ................................................................ 625.8
98 ................................................................ 645.7
99 ................................................................ 685.6
00 ................................................................ 717.7
01 ................................................................ 761.6
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
NET INCOME
(Millions of Dollars)
- --------------------------------------------------------------------------------
97 ................................................................ 13.18
98 ................................................................ 14.50
99 ................................................................ 15.80
00 ................................................................ 17.35
01 ................................................................ 19.21
- --------------------------------------------------------------------------------
Selected Financial Data
(In thousands, except per share data)
Year ended December 31,
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------
Total assets........................... $ 1,260,713 $ 1,204,714 $ 1,121,511 $ 1,070,989 $ 973,676
Long-term obligations.................. 24,075 26,075 18,075 9,075 9,075
Interest income........................ 79,208 79,877 73,844 72,460 69,540
Net interest income.................... 44,767 43,418 42,463 40,645 40,628
Provision for loan losses.............. 763 205 1,052 958 1,310
Net income............................. 19,210 17,348 15,804 14,501 13,177
Net income per share:*
Basic............................ $ 2.69 $ 2.35 $ 2.08 $ 1.84 $ 1.62
Diluted.......................... $ 2.68 $ 2.34 $ 2.07 $ 1.82 $ 1.61
Dividends declared per share........... $ 0.820 $ 0.732 $ 0.629 $ 0.548 $ 0.457
*Per share data has been restated to give effect to a 5% stock dividend paid May
1, 2000.
25
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Univest Corporation of Pennsylvania consolidated net income (in thousands)
and earnings per share for 2001, 2000, and 1999 were as follows:
2001 2000 1999
--------------------------------------------------
Net income...................................................... $ 19,210 $ 17,348 $ 15,804
Net income per share:
Basic........................................................ 2.69 2.35 2.08
Diluted...................................................... 2.68 2.34 2.07
2001 versus 2000
The 2001 results compared to 2000 include the following significant pretax
components:
-- Net interest income increased due to growth in average earning assets
offset by a decrease in the net
interest margin. The net interest margin decreased to 4.0% from 4.1%.
-- Total noninterest income increased by $1.3 million or 7.8% due
primarily to growth in debit card compensation and the cash surrender
value of bank owned life insurance policies.
-- Other noninterest expense increased $1.2 million or 12.4% largely due
to additional advertising, contribution and community relations
expenses.
2000 versus 1999
The 2000 results compared to 1999 include the following significant pretax
components:
-- Net interest income increased due to growth in average earning assets
and an increase in average yield
that was offset by growth in interest-bearing liabilities with an
increase in yield. The net interest margin decreased to 4.1% from 4.2%.
-- Total noninterest income increased by $1.2 million or 7.7% due to
growth in fee income and commission income. Commission income, which is
offset by commission expense, is the primary source of income for
Fin-Plan Group and George Becker Associates, Inc. acquired during
fiscal 2000.
-- Salaries and benefits increased $1.7 million or 8.9% largely due to
bonuses and the commissions and salaries of Fin-Plan Group and George
Becker Associates, Inc. acquired during fiscal 2000.
Net Interest Income
Net interest income is the difference between interest earned on loans,
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 revenues. The following table demonstrates a trend of
increasing amounts for 1999 through 2001. 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
predictable net interest margin for the Corporation.
26
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table presents a summary of Univest's average balances, the
yields earned on average assets, the cost of average liabilities, and
shareholders' equity for the years ended December 31, 2001, 2000, and 1999:
2001 2000 1999
----------------------------------------------------------------------------------------------------
INTEREST Interest Interest
AVERAGE INCOME/ AVERAGE Average Income/ Average Average Income/ Average
BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------------------
Interest-earning assets:
Investments $ 359,014 $ 20,805 5.8% $ 341,481 $ 20,884 6.1% $ 325,693 $ 18,863 5.8%
Loans 761,640 58,403 7.7% 717,749 58,993 8.2% 685,644 54,981 8.0%
----------------------------------------------------------------------------------------------------
Total interest-earning
assets 1,120,654 79,208 7.1% 1,059,230 79,877 7.5% 1,011,337 73,844 7.3%
Noninterest-earning
assets 90,247 87,147 77,985
------------- ------------ -------------
Total assets $ 1,210,901 $ 1,146,377 $ 1,089,322
============= ============ =============
Interest-bearing liabilities:
Deposits $ 816,402 $ 30,776 3.8% $ 783,868 $ 32,937 4.2% $ 735,260 $ 28,220 3.8%
Borrowings 102,274 3,665 3.6% 85,410 3,522 4.1% 85,822 3,161 3.7%
----------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 918,676 34,441 3.7% 869,278 36,459 4.2% 821,082 31,381 3.8%
Noninterest-bearing
liabilities 173,014 169,616 165,472
------------- ------------ -------------
Total liabilities 1,091,690 1,038,894 986,554
Shareholders' equity 119,211 107,483 102,768
------------- ------------ -------------
Total liabilities and
shareholders'
equity $ 1,210,901 $ 1,146,377 $ 1,089,322
============= ============ =============
---------- --------- ----------
Net interest income $ 44,767 $ 43,418 $ 42,463
========== ========= ==========
Interest-rate spread 3.4% 3.3% 3.5%
========== ========== =========
Net interest margin
on weighted
average interest-
earning assets 4.0% 4.1% 4.2%
========== ========== =========
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 122.0% 121.9% 123.2%
========== ========== =========
Interest Income
Interest and fees on loans decreased 1.0% or $0.6 million from the $59.0
million recorded for the year ended December 31, 2000 to $58.4 million for the
year ended December 31, 2001. There was a significant increase in loan volume in
commercial loans that was offset by a decrease in loan yields. Prime rate, which
is an important factor of the banks' loan interest income, decreased from 9.50%
beginning in January 2001 to 4.75% in December 2001. The average prime rate for
the year ended December 31, 2001 was 6.77% compared to 9.27% for the year ended
December 31, 2000. The average interest yield on the portfolio decreased from
8.2% in 2000 to 7.7% in 2001.
27
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest and fees on loans increased 7.3% or $4.0 million from the $55.0
million recorded for the year ended December 31, 1999 to $59.0 million for the
year ended December 31, 2000. The growth was due to increased volume and an
increase in rate. Prime rate was increased during 2000 from 8.50% in January
2000 to 9.50% at December 2000. The average prime rate for the year 2000 was
9.27% compared to 8.00% for the year 1999. The average interest yield on the
portfolio increased from 8.0% in 1999 to 8.2% in 2000.
Tax-free interest on loans shows an increasing trend when comparing the
$3.3 million for December 31, 2001 with the $3.2 million recorded for December
31, 2000 and the $2.6 million for December 31, 1999.
Interest on U.S. Government obligations decreased from $7.3 million for the
year ended December 31, 2000 to $5.2 million for the year ended December 31,
2001. The decline was due to a decrease in volume and rate. As U.S. government
securities matured or were called, many were replaced with agency
mortgage-backed securities. Interest on U.S. Government obligations decreased
from $9.6 million for the year ended December 31, 1999 to $7.3 million at
December 31, 2000. The decline was due to a decrease in volume. As treasury
securities matured many were replaced with corporate and asset-backed
securities.
Interest and dividends on state and political subdivisions shows an
increasing trend from $0.9 million in 1999 to $1.3 million in 2000 and $1.9
million in 2001. The increase is a result of a continued commitment to
tax-exempt securities. During 2001 and 2000, the Corporation acquired tax-exempt
securities with a term of greater than ten years and at tax-equated yields
substantially higher than portfolio yields.
The other securities category consists mainly of U.S. Government Agency
mortgage-backed securities. Income on other securities has grown from $7.6
million in 1999 to $10.3 million in 2000 and $12.5 million in 2001. The
increases were all due to increased average volume where average balances
increased from $122.2 million for 1999 to $154.8 million for 2000 and to $192.6
million for 2001. Corporate and asset-backed securities purchased during the
second half of 2000 also contributed to the increase in income.
Interest on federal funds sold is the resulting daily investment activity
that can be volatile in both rate and volume. Interest on federal funds sold
decreased from $1.7 million in 2000 to $0.7 million in 2001 due to both
decreased volume and a sharp decline in the federal funds rate. Interest on
federal funds sold increased from $0.5 million in 1999 to $1.7 million in 2000
due to both increased volume and rate.
Interest Expense
Interest expense on demand deposits decreased 20.2% or $2.0 million from
$9.9 million in 2000 to $7.9 million in 2001. An increase in volume was offset
by a decrease in the rate of certain types of money market accounts. Interest
expense on demand deposits increased 39.4% or $2.8 million from $7.1 million in
1999 to $9.9 million in 2000. The growth is attributed to an increase in volume
and rate in certain types of money market accounts.
Interest expense on savings deposits decreased from $2.7 million in 2000 to
$2.6 million in 2001. A reduction in rate caused the decrease. Interest expense
on savings deposits decreased from $2.8 million in 1999 to $2.7 million in 2000.
A reduction in volume caused the decrease.
Interest expense on time deposits decreased from $20.4 million in 2000 to
$20.3 million in 2001 primarily due to a decline in rates. Interest expense on
time deposits increased from $18.4 million in 1999 to $20.4 million in 2000.
Certificates of deposit volumes and rates grew due to special rate promotions
during 2000.
Interest expense-all other consists of interest paid on short-term
borrowings such as federal funds purchased, repurchase agreements and a treasury
tax and loan note. In addition, Union National Bank offers an automated cash
management checking account that sweeps funds daily into a repurchase agreements
account. Interest expense decreased from $2.4 million in 2000 to $2.2 million in
2001 due to a decrease in rate that was partially offset by an increase in
volume. Interest expense-all other decreased from $2.5 million in 1999 to $2.4
million in 2000 due to a reduction in volume that was partly offset by an
increase in rate.
Long-Term Debt
Interest on long-term debt increased from $1.2 million at December 31, 2000
to $1.4 million at December 31, 2001. This increase represents a full year of
interest on the additional $8.0 million borrowed from the Federal Home Loan Bank
of Pittsburgh by Pennview in 2000. Interest on long-term debt increased from
$0.7 million at December 31, 1999 to $1.2 million at December 31, 2000. This
increase represents interest on the additional borrowings from the Federal Home
Loan Bank of Pittsburgh by Pennview in 2000. Federal Home Loan Bank advances are
available to meet seasonal and other withdrawals from deposit accounts, to
purchase mortgage-backed securities and to expand lending.
Reserve For Possible Loan Losses
Management believes the reserve for possible loan losses is maintained at a
level that is adequate to absorb potential losses in the loan portfolio.
Management's methodology to determine the adequacy of and the provisions to the
reserve considers specific credit reviews, past loan loss experience, current
economic conditions and trends, and the volume, growth, and composition of the
loan portfolio.
28
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The reserve for possible loan losses is determined through a periodic
evaluation that takes into consideration the growth of the loan portfolio, the
status of past-due loans, current economic conditions, various types of lending
activity, policies, real estate and other loan commitments, and significant
changes in the charge-off activity. Loans are also reviewed for impairment based
on discounted cash flows using the loans' initial effective interest rate or the
fair value of the collateral for certain collateral dependent loans as provided
for under SFAS No. 114. Any of the above criteria may cause the provision to
fluctuate. The provision for December 31, 2001, 2000, and 1999 was $0.8 million,
$0.2 million, and $1.1 million, respectively. Growing loan volumes and a
migration of credit risk assessment towards weaker loan grades indicated the
need for an increase in the reserve for 2001. As weakness in the economy became
apparent in the latter part of 2001, the proportion of credits with identified
credit issues also increased. The provision for December 31, 2000 was minimal
due to improvements in the evaluation criteria and recoveries in the fourth
quarter of 2000. The ratio of the reserve for possible loan losses to total
loans at December 31, 2001 and 2000 was 1.3% and 1.4% respectively.
(Also refer to Note 1 of Notes to Consolidated Financial Statements.)
At December 31, 2001, the recorded investment in loans that are considered
to be impaired under SFAS No.114 was $1.4 million, all of which were on a
nonaccrual basis. The related reserve for possible loan losses for those loans
was $0.5 million. At December 31, 2000, the recorded investment in loans that
are considered to be impaired under SFAS No.114 was $1.7 million, all of which
were on a nonaccrual basis. The related reserve for possible loan losses for
those loans was $1.0 million.
When a loan, including a loan impaired under SFAS No. 114, is classified as
nonaccrual, the accrual of interest on such a loan is discontinued. A loan is
classified as nonaccrual when the contractual payment of principal or interest
has become 90 days past due or management has serious doubts about the further
collectibility of principal or interest, even though the loan is currently
performing. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is placed on
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." Interest received on nonaccrual loans is either applied against
principal or reported as interest income, according to management's judgment as
to the collectibility of principal.
Loans are usually restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period of time, and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Total cash basis, restructured and nonaccrual loans total $1.6 million at
December 31, 2001 and $1.9 million at December 31, 2000 and $2.3 million at
December 31, 1999 and consist mainly of commercial loans and real estate-related
commercial loans. For the years ended December 31, 2001, 2000 and 1999,
nonaccrual loans resulted in lost interest income of $0.2 million for all three
years. In management's evaluation of the loan portfolio risks, any significant
future increases in nonperforming loans are dependent to a large extent on the
economic environment, or specific industry problems. The Corporation's ratio of
nonperforming assets to total loans was .20% as of December 31, 2001 and .26% as
of December 31, 2000.
At December 31, 2001 and 2000, the Corporation had no Other Real Estate
Owned ("OREO"). OREO is usually recorded in "Other Assets" at fair market value,
less estimated costs to sell, in the accompanying consolidated balance sheets.
Noninterest Income
Trust income continues to be a major source of noninterest income. Income
for the year ended December 31, 2001 of $4.3 million was $0.1 million or 2.3%
less than the $4.4 million reported for year ended December 31, 2000. The
increase in the number of trust accounts was offset by the decline in market
conditions thereby lowering the dollar value of assets under management. Income
for the year ended December 31, 2000 of $4.4 million was $0.4 million or 10.0%
more than the $4.0 million reported for the year ended December 31, 1999. The
increase is attributed to growth in the number of trust accounts and a higher
dollar value of assets under management.
Service charges on demand deposits increased $0.2 million from $3.7 million
for the year ended December 31, 2000 to $3.9 million for the year ended December
31, 2001. The growth was due mainly to increases in various transaction fees and
deposit service fees. Service charges on demand deposits increased $0.2 million
from $3.5 million at December 31, 1999 to $3.7 million at December 31, 2000. The
realignment of checking account products resulted in an increase of deposit
service fees.
Service charges on other deposits increased $0.1 million from $1.2 million
for the year ended December 31, 2000 to $1.3 million for the year ended December
31, 2001. The growth was due mainly to increases in various transaction fees and
deposit service fees. Service charges on other deposits remained constant at
$1.2 million for the years ended December 31, 1999 and 2000.
Commission income, which is offset by commission expense, is the primary
source of income for Fin-Plan Group, George Becker Associates, Inc. and the
newly acquired Gum Insurance. Commission income decreased from $2.8 million at
29
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 2000 to $2.6 million at December 31, 2001, a reduction of $0.2
million or 7.1%. This decline is primarily due to an increase in broker/dealer
commission that was adversely impacted by the decline in the equity markets.
Commission income grew from $2.1 million at December 31, 1999 to $2.8 million at
December 31, 2000. This is an increase of $0.7 million or 33.3%. The majority of
the growth was due to the new company, George Becker Associates, Inc.
Other income that is noninterest related consists mainly of general fee
income and other miscellaneous types of income. Other noninterest income of $5.7
million for 2001 is $1.1 million or 23.9% higher than the $4.6 million earned in
2000. Increases in debit card compensation, cash surrender values of bank-owned
life insurance policies and nonqualified plan annuities all contributed to the
growth. Other noninterest income of $4.6 million for 2000 is $0.1 million or
2.1% lower than the $4.7 million earned in 1999. An increase in debit card
compensation and Bank-Owned Life Insurance Policy income offset by a decrease in
mortgage servicing fees is the reason for the slight decline.
Asset Sales
Sales of mortgage loans during the year ended December 31, 2001 resulted in
a gain of $83 thousand as compared to $14 thousand for the year ended December
31, 2000. Sales increased due to the large number of refinancings that was a
result of the decreasing long-term rates during 2001. Sales of mortgage loans
during the year ended December 31, 2000 resulted in a gain of $14 thousand as
compared to $51 thousand for the year ended December 31, 1999. Increasing
long-term rates during 2000 caused a reduction in new loan volume and resulted
in fewer sales.
During 2001, securities totaling approximately $15.9 million were sold from
the available-for-sale portfolio resulting in a net gain of $150 thousand.
Short-term securities were sold and reinvested in medium-term securities to take
advantage of the steepness of the yield curve. During 2000, securities totaling
approximately $9.0 million were sold from the available-for-sale portfolio or
matured, resulting in a net gain of $1 thousand. Near maturity government
securities were sold and reinvested in bank owned life insurance. In 1999,
securities totaling approximately $18.4 million were sold from the
available-for-sale portfolio or matured at a net gain of $3 thousand. Short-term
treasury securities were sold and the funds reinvested in agency securities to
take advantage of the steepness of the yield curve and spread between treasuries
and agencies. The total of debt and equity securities held in the
available-for-sale portfolio as of December 31, 2001 is $238.1 million versus
$189.9 million at December 31, 2000. The accumulated other comprehensive income
of $3.1 million, net of taxes, has been credited to shareholders' equity as of
December 31, 2001. Accumulated other comprehensive income of $0.8 million, net
of taxes, was credited to shareholders' equity as of December 31, 2000.
Noninterest Expense
The operating costs of the Corporation are known as noninterest 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, attempting to provide technological innovation whenever
practical, as operations change or expand. Salaries and benefits decreased $0.9
million or 4.3% from $20.9 million in 2000 to $20.0 million in 2001. Decreases
in bonus and commission expense, nonqualified pension expense and vacation
liability accrual are the reason for the reduction. Salaries and benefits
increased $1.7 million or 8.9% from $19.2 million in 1999 to $20.9 million in
2000. Salary increases of $1.1 million, which include bonuses and commission
expense generated by Fin-Plan Group and George Becker Associates, Inc., acquired
in fiscal 2000, contributed to this increase. The vacation and paid time off
program was realigned in 2000 and created an increase in the vacation liability
that generated $0.4 million of additional expense.
Net occupancy expense remained constant at $2.7 million for the year ended
December 31, 2000 and December 31, 2001. Net occupancy expense increased $0.2
million or 8.0% from $2.5 million for the year ended December 31, 1999 to $2.7
million for the year ended December 31, 2000. The new Franconia office and a
full year's expense for the new supermarket opened in 1999 contributed to the
higher expense. Equipment expense decreased $0.4 million from $2.6 million in
2000 to $2.2 million in 2001. Equipment expense remained constant at $2.6
million for December 31, 1999 and December 31, 2000.
Other expenses of $10.9 million increased $1.2 million or 12.4% for the
year ended December 31, 2001 as compared to $9.7 million for the year ended
December 31, 2000. Advertising, contributions, community relations and stock
option modification expense all contributed to this increase. Other expenses of
$9.7 million decreased $0.6 million or 5.8% for the year ended December 31, 2000
as compared to $10.3 million for the year ended December 31, 1999. A decrease in
intangible expense and certain retail sales incentives were posted to salaries
and benefits in 2000 instead of marketing expense in 1999 contributed to the
decrease.
Tax Provision
The provision for income taxes was $7.0 million for the year ended December
31, 2001, $6.8 million for the year ended December 31, 2000 and $6.6 million for
the year ended December 31, 1999. The provision for income taxes for 2001, 2000,
and 1999, was at effective rates of 26.7%, 28.1%, and 29.5%, respectively. The
effective tax rate reflects the benefits of tax
30
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
credits generated from investments in low-income housing tax projects and
tax-free income from investment of securities, loans, and bank-owned life
insurance.
Critical Accounting Policies
Management, in order to prepare Univest'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 effect the results of operations and financial position of the
Corporation should changes in circumstances require a change in related
estimates or assumptions.
Reserves for possible loan losses are provided using techniques that
specifically identify projected losses on impaired loans, estimate probable
losses on pools of homogeneous loans, and estimate the amount of unallocated
reserve necessary to account for probable losses that are present in the loan
portfolio but not yet currently identifiable. The adequacies of these reserves
are sensitive to changes in current economic conditions that may effect the
ability of borrowers to make contractual payments as well as the value of the
collateral committed to secure such payments. Rapid or sustained downturns in
the economy may require increases in reserves that may negatively impact the
corporation's results of operation and statements of financial condition in the
periods requiring additional reserves.
The Corporation accounts for its interest-rate swap contracts, in
compliance with SFAS No. 133, by establishing and documenting the effectiveness
of the instrument in offsetting the change in cash flows of certain
prime-rate-based loans held by the bank. When the effectiveness of the hedge can
be established and adequately documented, the change in market value of the swap
is recorded on the balance sheet of the company but only the accrued payments
due under the contract for the current period are passed through the statement
of operations. Should the company be unable to document the effectiveness of all
or part of the cash flow hedge, the change in market value of the ineffective
part of the instrument will need to be marked-to-market through the statement of
operations, potentially causing material fluctuations in reported earnings in
the period of the change relative to comparable periods. At 12/31/01 Univest's
interest-rate swap hedges were considered to be effective.
Intangible assets have been recorded on the books of the Corporation in
connection with its acquisitions of Pennview Savings Bank, Fin-Plan Group,
Univest Insurance, and several bank branches. These assets, both identifiable
and unidentifiable, are subject to tests for impairment. Changes in the useful
life or economic value of acquired assets may require a reduction in the asset
value carried on the financial statements of the Corporation and a related
change in the statement of operations. Such changes in asset value could result
from a change in market demand for the products or services offered by an
acquired business or by reductions in the expected profit margins that can be
obtained through the future delivery of the acquired product or service line.
SFAS No. 142, which takes effect January 1, 2002, defines the methods that are
acceptable for determining whether intangible asset values are sustainable.
Univest designates its investment securities as either held-to-maturity,
available-for-sale or trading in accordance with SFAS No. 115. Each of these
designations affords different treatment in the statement of operations and
statement of financial condition for market value changes effecting securities
that are otherwise identical. Should evidence emerge that indicates that
management's intent or ability to manage the securities as originally asserted
is not supportable, securities in the held-to-maturity or available-forsale
designations may be re-categorized so that either statement of financial
position or statement of operations adjustments may be required.
Univest accounts for mortgage servicing rights for mortgages it originated
but subsequently sold in accordance with SFAS No. 140. As such, the value of the
rights are booked as income when they are sold. The income booked at sale is the
estimated present value of the cash flows that will be received from the current
owner of the mortgage over its entire future term. The term of a servicing right
can be reasonably estimated using prepayment assumptions of comparable assets
priced in the secondary market. As mortgage rates being offered to the public
decrease, the life of loan servicing rights tends to shorten, as borrowers have
increased incentive to refinance. Shortened loan servicing lives require a
change in the value of the servicing rights that have already been recorded to
be marked down in the statement of operations of the servicing company. This may
cause a material change in reported operations for the Corporation depending on
the size of the servicing portfolio and the degree of change in the prepayment
speed of the type and coupon of loans being serviced.
The Corporation has a retirement plan and supplemental retirement plans
that it provides as a benefit to employees and former employees. Determining the
adequacy of the funding of these plans may require estimates of future salary
rate increases, of long-term rates of investment return, and the use of an
appropriate discount rate for the obligation. Changes in these estimates and
assumptions due to changes in the economic environment or financial markets may
result in material changes in the Corporation's report of operation or statement
of financial condition.
Readers of the Corporation's financial statements should be aware that the
estimates and assumptions used in the Corporation's current financial statements
may need to be updated in future financial presentations for changes in
circumstances, business or economic conditions in order to fairly represent the
condition of the Corporation at that time.
31
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
During 2001, total assets increased to $1,260.7 million, a growth of $56.5
million or 4.7% over the $1,204.7 million in 2000. Interest-bearing deposits
increased $10.6 million to $15.7 million as compared to the $5.1 million at
December 31, 2000. Federal funds sold decreased $16.1 million to $0.1 million as
compared to the $16.2 million at December 31, 2000. Total loans increased
significantly by $59.1 million from $739.2 million at December 31, 2000 to
$798.3 million at December 31, 2001. Other assets increased $4.5 million due to
the increase in the cash surrender value of the bank owned life insurance
policies, the recognition of the market value of interest-rate swaps on the
balance sheet and the acquisition of the Gum Insurance. The increase in deposits
and the decrease in federal funds sold provided funds for the increases in
loans.
Total deposits grew from $971.9 million at December 31, 2000 to $998.1
million at December 31, 2001, an increase of $26.2 million or 2.70%. Deposit
growth was due mainly to an increase in savings accounts, interest checking and
certain types of money market accounts. Long-term debt decreased $2.0 million
from $26.1 million at December 31, 2000 to $24.1 million at December 31, 2001.
Shareholders' equity increased $6.4 million or 5.6% to $121.6 million at
December 31, 2001 compared to $115.2 million at December 31, 2000. Unrealized
gains on investment securities available-for-sale and unrealized gains on
interest-rate swaps increased other comprehensive income by $2.3 million.
Treasury stock increased to $33.1 million from $25.1 million at December 31,
2000. On November 22, 2000, the Board of Directors approved the continuation of
the Buyback Program for another two years. This approval allows the Corporation
to buy back up to 5% or approximately 367,228 shares of its outstanding common
stock in open market or negotiated transactions. The net number of shares
purchased since November 2000 is 318,625. Subsequent to December 31, 2001, the
Board of Directors announced that the Corporation would extend the stock
purchase program.
As of January 1, 2001, the Corporation adopted Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133),
as amended. The Statement requires the Corporation to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The accumulated other comprehensive income, related to interest-rate swaps, of
$0.3 million, net of taxes, has been included in shareholders' equity as of
December 31, 2001.
Asset/Liability Management, Liquidity
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.
Univest uses both GAP and simulation techniques to quantify its exposure to
interest rate risk. The Corporation uses GAP 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 is permitted to use interest-rate swap agreements that
convert a portion of its floating rate commercial loans to a fixed rate basis.
In these swaps, the Corporation agrees to exchange, at specified intervals, the
difference between fixed and floating interest rates calculated on an agreed
upon notional principal amount. Interest-rate swaps in which the Corporation
pays a floating rate and receives a fixed rate are used to reduce the impact of
changes in interest rates on the Corporation's net interest income.
At December 31, 2001, $30.0 million in notional interest-rate swaps were
outstanding. The contracts entered into by the Corporation expire as follows:
$10.0 million in notional principal amount in the first quarter 2002, $10.0
million in the second quarter 2003 and $10.0 million in the third quarter 2003.
The impact of the interest-rate swaps on net interest income for the year ended
December 31, 2001 was a positive $0.4 million and for the year ended December
31, 2000 a negative $0.2 million.
The Corporation's current credit exposure on swaps is limited to the value
of interest-rate swaps that have become favorable to the Corporation. As of
December 31, 2001, the market value of interest-rate swaps in a favorable value
position was $0.5 million. There were no interest-rate swaps with the market
value in an unfavorable position. At December 31, 2000, the market value of
interest-rate swaps in a favorable value position was $0.1 million and the
market value of interest-rate swaps in an unfavorable value position was $0.1
million. Credit risk exists when the counterparty to a derivative contract with
an unrealized gain fails to perform according to the terms of the agreement.
32
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity
Univest, 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. Univest manages its liquidity risk by measuring and
monitoring its liquidity sources and estimated funding needs.
Core deposits and cash management repurchase agreement (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 of
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.
Univest supplements its core funding with money market funds it holds for
the benefit of various trust accounts. These funds are fully collateralized by
the banks 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.
Univest, through its Banks, has short-term and long-term credit facilities
with the Federal Home Loan Bank of Pittsburgh with a maximum borrowing capacity
of approximately $188.1 million. At December 31, 2001, Univest's outstanding
borrowings under the FHLB credit facilities totaled $24.1 million. The maximum
borrowing capacity changes as a function of the banks' 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 $70 million. At December 31, 2001, Univest's outstanding
borrowings under these lines totaled $16.7 million. Future availability under
these lines is subject to the policies of the granting banks and may be
withdrawn.
Univest, through Union, 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 December 31, 2001, the
corporation had no outstanding borrowings under this line.
Capital Adequacy
Shareholders' equity at December 31, 2001 was $121.6 million or 9.6% of
total assets compared to shareholders' equity of $115.2 million, also 9.6% of
total assets as of December 31, 2000. At December 31, 2001, shareholders' equity
includes accumulated other comprehensive income of $3.1 million related to the
unrealized security gains, net of taxes, on investment securities
available-for-sale and accumulated gains on interest-rate swaps, net of taxes,
while shareholders' equity at December 31, 2000 includes accumulated other
comprehensive income of $0.8 million.
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 I and Tier II. Tier I is composed
of total shareholders' equity, excluding the adjustment for the unrealized
securities gains and losses, and also excluding any goodwill. Tier II includes
the applicable portion of the reserve for possible loan losses. Minimum required
total risk-based capital is 8.0%. Under the requirements, Univest has Tier I
capital ratios of 12.4% and 12.6%, and total risk-based capital ratios of 13.6%
and 13.9% at December 31, 2001 and 2000, respectively. These ratios place
Univest in the "well-capitalized" category under regulatory standards.
Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, "Business Combinations," and Statement No. 142, "Goodwill and
Other Intangible Assets." Major provisions of these Statements include the
following:
o SFAS No. 141 provisions relating to the initial measurement and
recording of goodwill and intangible assets, financial statement
presentation, and disclosures are effective for combinations
completed after June 30, 2001.
o SFAS No. 142 is effective for fiscal years beginning after December
15, 2001. Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001 but only if they have not
issued their first quarter financial statements prior to adoption.
Regardless of the full adoption date, the nonamortization provisions
of SFAS No. 142 are effective for business combinations and other
transactions completed after June 30, 2001.
The Corporation estimates that a decrease of approximately $500 thousand in
other expenses will be the effect of adopting these new standards.
Credit Risk
Extending credit exposes Univest to credit risk, which is the risk that the
principal balance of a loan and any related interest will not be collected due
to the inability of the borrower to repay the loan. Univest manages credit risk
in the loan portfolio through adherence to consistent standards, guidelines and
limitations established by the Board of Directors. Written loan policies
establish underwriting standards, lending limits and other standards or limits
as deemed necessary and prudent.
33
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The loan review department conducts ongoing, independent reviews of the
lending process to ensure adherence to established policies and procedures,
monitors compliance with applicable laws and regulations, provides objective
measurement of the risk inherent in the loan portfolio, and ensures that proper
documentation exists.
Univest focuses on both assessing the borrower's capacity and willingness
to repay and on obtaining sufficient collateral. Commercial and industrial loans
are generally secured by the borrower's assets and by personal guarantees.
Commercial real estate loans are originated primarily within the Eastern
Pennsylvania market area and are secured by developed real estate at
conservative loan-to-value ratios and often by a guarantee of the borrowers.
Management closely monitors the composition and quality of the total commercial
loan portfolio to ensure that significant credit concentrations by borrower or
industry do not exist.
Credit risk in the direct consumer loan portfolio is controlled by strict
adherence to conservative underwriting standards that consider debt-to-income
levels and the creditworthiness of the borrower and, if secured, collateral
values. In the home equity loan portfolio, combined loan-to-value ratios are
generally limited to 80%. Other credit considerations may warrant higher
combined loan-to-value ratios for approved loans.
Univest originates fixed-rate and adjustable-rate residential mortgage
loans that are secured by the underlying 1- to 4-family residential properties.
Credit risk exposure in this area of lending is minimized by the evaluation of
the credit worthiness of the borrower, including debt-to-equity ratios, credit
scores and adherence to underwriting policies that emphasize conservative
loan-to-value ratios of generally no more that 80%. Residential mortgage loans
granted in excess of the 80% loan-to-value ratio criterion are generally insured
by private mortgage insurance.
Univest closely monitors delinquencies as another means of maintaining high
asset quality. Collection efforts begin after a loan payment is missed, by
attempting to contact all borrowers. If collection attempts fail, Univest will
proceed to gain control of any and all collateral in a timely manner in order to
minimize losses. While liquidation and recovery efforts continue, officers
continue to work with the borrowers, if appropriate, to recover all monies owed
to Univest. Univest monitors delinquency trends and past due reports are
submitted to the Board of Directors.
Market Risk
When used or incorporated by reference in disclosure documents, the words
"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. 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
document. The Corporation expressly disclaims any obligation or undertaking to
publicly release any updates or revisions to any forward-looking statement
contained herein 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.
Market risk is the risk of loss from adverse changes in market prices and
rates. In the course of its lending and deposit taking activities, Univest is
subject to changes in the economic value and/or earnings potential of these
assets and liabilities due to changes in interest rates. Univest's
Asset/Liability Management Committee (ALMC) manages interest rate risk in a
manner so as to provide adequate and predictable earnings. This is accomplished
through the establishment of policy limits on maximum risk exposures, as well as
the regular and timely monitoring of reports designed to quantify risk and
return levels.
Univest uses both GAP and simulation techniques to quantify its exposure to
interest rate risk. The Corporation uses GAP 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 1-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 is
permitted to use interest-rate swaps and interest-rate caps/floors with indices
that correlate to on-balance sheet instruments, to modify its indicated net
interest sensitivity to levels deemed to be appropriate based on the
Corporation's current economic outlook. The effect of the interest-rate swaps
that the bank uses to reduce its earnings volatility due to rate risk is also
included in the results of the simulation.
At December 31, 2001, the simulation, based upon forward-looking
assumptions, projects that Univest's greatest interest margin exposure to
interest-rate risk would occur if interest rates rise from present levels. Given
the assumptions, a 200 basis point parallel shift in the yield curve applied on
a ramp-up basis would cause Univest's interest margin, over a 1-year horizon, to
be approximately 0.60% less than it would be if market rates would remain
unchanged. At December 31, 2000, the simulation projected that Univest's
greatest interest margin exposure to interest-rate risk would occur if interest
rates had declined. A 200 basis point parallel shift in the yield curve applied
on a ramp-down basis would cause Univest's interest margin, over a 1-year
horizon, to be approximately 1% less than it would be if market rates would
remain unchanged. Policy
34
UNIVEST CORPORATION OF PENNSYLVANIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
limits have been established which allow a tolerance for no more than
approximately a 3.25% negative impact to the interest margin resulting from a
200 basis point parallel yield curve shift over a forward looking 12-month
period. See Management's Discussion and Analysis of Financial Condition and
Results of Operations--"Net Interest Income" and "Asset/Liability Management,
Liquidity" and the table below:
Interest Sensitivity Analysis at December 31, 2001 (Dollars in thousands)
WITHIN 1-5 OVER
1 YEAR YEARS 5 YEARS
----------------------------------------------------
Rate Sensitive Interest Earning Assets
Federal funds sold............................................ $ 64 $ -- $ --
Investment securities......................................... 63,840 257,120 42,629
Loans......................................................... 400,339 343,167 54,823
Hedging instruments........................................... (20,000) 20,000 --
----------------------------------------------------
444,243 620,287 97,452
Rate Sensitive Liabilities
Interest bearing deposits..................................... 431,067 400,668 148
Borrowed funds................................................ 45,405 66,599 3,671
Net noninterest-bearing funds (a)............................. -- -- 214,424
----------------------------------------------------
476,472 467,267 218,243
Excess interest-earning assets (liabilities)........................ (32,229) 153,020 (120,791)
Cumulative excess interest-earning assets (liabilities)............. $ (32,229) $ 120,791 $ --
====================================================
Notes to interest sensitivity analysis:
(a) Net noninterest-bearing funds is the sum of non-interest bearing liabilities
and shareholders' equity minus non-interest earning assets.
35
UNIVEST CORPORATION OF PENNSYLVANIA
SUPPLEMENTARY INFORMATION
Range of Market Prices
The following table shows the range of market values of the Corporation's
stock. The Trust Department of 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
-----------------------------------------
2001
January-March.................................................... $ 25.00 $ 22.25
April-June....................................................... 32.50 24.50
July-September................................................... 34.00 32.25
October-December................................................. 35.40 34.00
High Low
-----------------------------------------
2000
January-March.................................................... $ 26.19 $ 19.19
April-June....................................................... 25.25 19.53
July-September................................................... 21.50 19.50
October-December................................................. 21.88 21.00
Cash Dividends Paid Per Share*
2001
January 2........................................................ $ 0.190
April 1.......................................................... 0.190
July 1........................................................... 0.210
October 1........................................................ 0.210
----------------
........................................................... $ 0.800 for the year 2001
2000
January 2........................................................ $ 0.162
April 1.......................................................... 0.162
July 1........................................................... 0.190
October 1........................................................ 0.190
----------------
........................................................... $ 0.704 for the year 2000
*The cash dividends paid per share have been restated to give effect to a five
percent stock dividend paid on May 1, 2000.
36
UNIVEST CORPORATION OF PENNSYLVANIA
SUPPLEMENTARY INFORMATION
Description of Business
Univest Corporation of Pennsylvania is a financial holding company with
banking and financial subsidiaries operating in eastern Pennsylvania and
Delaware.
Union National Bank and Trust Company of Souderton, Pennsylvania has 19
traditional offices and 8 supermarket branches offering all normal commercial
bank and trust services, and one work site office offering a payroll check
cashing service. Union National also provides banking and trust services for the
residents and employees of 10 retirement home communities.
Pennview Savings Bank has 5 offices and emphasizes deposits from the
general public and residential mortgage loans. Pennview also provides banking
services at 2 retirement home communities. Delview, Inc., a wholly owned
subsidiary of Pennview, is a passive investment holding company located in
Delaware. Univest Financial Services Corporation, a subsidiary of Delview,
provides various financial management services and insurance products to
individuals and businesses within the holding company's market area through
Univest Investments, Inc. (formerly Fin-Plan Group) and Univest Insurance, Inc.
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 Reinsurance Corporation (formerly 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 developmentfor all subsidiaries of the holding company.
Univest Delaware, Inc. is a passive investment holding company located in
Delaware.
Securities Market
Univest Corporation of Pennsylvania stock is traded over the counter and is
generally held by individuals residing within the arket area of the Corporation
as stated under Description of Business. The number of shareholders as of
December 31, 2001 as 2,082.
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 2001 to each shareholder who requests one in writing
after March 31, 2002. Requests should be directed to: Norman L. Keller,
Secretary, Univest Corporation of Pennsylvania, 14 N. Main Street, Souderton, PA
18964.
37
UNIVEST CORPORATION OF PENNSYLVANIA
OFFICE LOCATIONS
Union National Bank & Trust Company
Univest Plaza Office Hilltown Supermarket Office Quakertown Office
TRUST AND FUNDS MANAGEMENT DIVISION, Clemens Market Quakertown Shopping Plaza
CORPORATE BANKING, PRIVATE BANKING, Route 113 & County Line Road Clemens Market
CONSUMER AND LOAN DEPARTMENT Souderton, Pennsylvania 18964 Routes 313 & 309
14 North Main Street 215-703-9933 Quakertown, Pennsylvania 18951
Souderton, Pennsylvania 18964 Kulpsville Office 215-538-3407
215-721-2400 Sumneytown Pike Ralph's Corner Office
Buckingham Office Kulpsville, Pennsylvania 19443 Clemens Market
Hunt Acres Center 215-368-1666 West Main Street & Forty Foot Road
5006 York Road Lansdale Area Office Lansdale, Pennsylvania 19446
Holicong, Pennsylvania 18928 2333 West Main Street, Suite 12 215-393-5677
215-794-5916 Lansdale, Pennsylvania 19446 Schwenksville Office
Center Point Office 215-362-8835 415 Main Street
2960 Skippack Pike Lansdale East Office Schwenksville, Pennsylvania 19473
Worcester, Pennsylvania 19490 Clemens Market 610-287-7811
610-584-8450 620 East Main Street Sellersville Office
Center Square Office Lansdale, Pennsylvania 19446 835 Lawn Avenue
Clemens Market 215-412-9750 Sellersville, Pennsylvania 18960
Routes 202 & 73 Line Lexington Office 215-257-8060
Center Square, Pennsylvania 19422 990 Bethlehem Pike Solebury Office
610-279-3901 Line Lexington, Pennsylvania 18932 Logan Square Shopping Center
East Greenville Office 215-822-3314 6542D York Road
321 Main Street Milford Office New Hope, Pennsylvania 18938
East Greenville, Pennsylvania 18041 Route 663 & Weiss Road 215-862-3750
215-679-7928 Milford Square, Pennsylvania 18935 Souderton Office
Franconia Office 215-536-4204 10 West Broad Street
503 Harleysville Pike Montgomery Office Souderton, Pennsylvania 18964
Franconia, Pennsylvania 18924 986 Bethlehem Pike 215-721-2400
215-721-0707 Montgomeryville, Pennsylvania 18936 Telford Office
Green Lane Office 215-699-3525 50 Penn Avenue
Gravel Pike New Britain Office Telford, Pennsylvania 18969
Green Lane, Pennsylvania 18054 Clemens Market 215-723-4515
215-234-4511 202 Town Center Telford Supermarket Office
Harleysville Office New Britain, Pennsylvania 18901 Landis Market
Clemens Market 215-345-8259 2685 County Line Road
611 Main Street Perkasie Office Telford, Pennsylvania 18969
Harleysville, Pennsylvania 19438 545 Constitution Avenue 215-721-7412
215-256-8048 Perkasie, Pennsylvania 18944 Trappe Office
Hilltown Traditional Office 215-257-6607 595 West Main Street
Routes 113 & 309 Plumsteadville Office Trappe, Pennsylvania 19426
Souderton, Pennsylvania 18964 5859 Easton Road 610-454-0883
215-721-2471 Plumsteadville, Pennsylvania 18949
215-766-3701
Pennview Savings Bank Montgomeryville Office Univest Investments, Inc.
Executive Offices 706 North Wales Road 14 North Main Street
14 North Main Street Montgomeryville, Pennsylvania 18936 Souderton, Pennsylvania 18964
Souderton, Pennsylvania 18964 215-362-5130 215-721-2112
215-721-2400 Silverdale Office Univest Insurance, Inc.
Franconia Office 103 Baringer Avenue 521 West Main Street
503 Harleysville Pike Silverdale, Pennsylvania 18962 Lansdale, Pennsylvania 19446
Franconia, Pennsylvania 18924 215-257-9600 215-362-7000
215-721-0707 Souderton Office
Hatfield Office 10 West Broad Street
115 East Broad Street Souderton, Pennsylvania 18964
Hatfield, Pennsylvania 19440 215-721-2400
215-855-4646
38
UNIVEST CORPORATION OF PENNSYLVANIA
DIRECTORS
James L. Bergey *+ Marvin A. Anders *+
President, Chairman, Univest Corporation of Pennsylvania; and
Abram W. Bergey & Sons, Inc. Chairman, Union National Bank & Trust Company
Clair W. Clemens *+ William S. Aichele *+o
Retired, President & Chief Executive Officer, Univest
Hatfield Quality Meats, Inc. Corporation of Pennsylvania; and President
& Chief Executive Officer, Union National Bank
R. Lee Delp * & Trust Company
Principal,
R. L. Delp & Company Norman L. Keller *o
Executive Vice President, Univest Corporation of
Richard W. Godshall # Pennsylvania; and President & Chief Executive Officer,
Physician, M.D., Upper Bucks Pennview Savings Bank
Orthopaedic Associates
Laurence A. Moyer o
Charles H. Hoeflich *+ Executive Vice President & Secretary,
Chairman Emeritus, Pennview Savings Bank
Univest Corporation of Pennsylvania
Thomas K. Leidy *+
Chairman & President,
Leidy's, Inc.
H. Ray Mininger *
President,
H. Mininger & Son, Inc.
William G. Morral o
Retired,
Moyer Packing Company
Merrill S. Moyer *+o
Retired Chairman, Univest Corporation of
Pennsylvania; and Retired Chairman, Union National
Bank & Trust Company
Paul Gregory Shelly *+
President,
Shelly Enterprises, Inc.
John U. Young *o
President, KEY
Alderfer Bologna Co., Inc.
* Director of Univest Corporation of Pennsylvania
Margaret K. Zook # + Director of Union National Bank & Trust Company
Administrator, o Director of Pennview Savings Bank
Souderton Mennonite Homes # Alternate Director of Univest Corporation of Pennsylvania
III
OFFICERS
UNIVEST CORPORATION OF PENNSYLVANIA UNION NATIONAL BANK & TRUST COMPANY PENNVIEW SAVINGS BANK
SENIOR MANAGEMENT SENIOR MANAGEMENT SENIOR MANAGEMENT
Marvin A. Anders, Chairman Marvin A. Anders, Chairman Norman L. Keller, President &
William S. Aichele, President & Chief William S. Aichele, President & Chief Executive Officer
Executive Officer Chief Executive Officer Laurence A. Moyer, Executive
Norman L. Keller, Executive Vice Wallace H. Bieler, Executive Vice Vice President & Secretary
President & Corporate Secretary President & Chief Financial Officer Francis E. Varilla, Senior Vice
Wallace H. Bieler, Executive Vice K. Leon Moyer, Executive Vice President,
President, Treasurer, & Chief President & Credit Policy Officer Chief Financial Officer & Treasurer
Financial Officer George D. Terry, Jr., Executive
K. Leon Moyer, Executive Vice Vice President UNIVEST INSURANCE, INC.
President & Credit Policy Officer
George D. Terry, Jr., Executive Vice SENIOR VICE PRESIDENTS Martin Renninger, Chairman &
President, Electronic Services Chief Executive Officer
Martin Renninger, Senior Vice President, Linda J. Bishop, Sales & Marketing George Becker, Jr., President
Financial Services & Insurance Diane L. Koehler, Compliance & Cynthia L. Gum, Chief
Community Reinvestment Operating Officer
SENIOR VICE PRESIDENTS John T. Landes, Corporate Banking George J. Becker, III, Vice President
Ronald S. Price, Corporate Banking William R. Erickson, Vice President
Linda J. Bishop, Sales & Marketing Barry L. Stoltzfus, Trust Division Hervey W. Schofield, Vice President
Richard L. Boaman, Electronic Services Gail M. Strohmeyer, Vice President
Duane J. Brobst, Credit Quality VICE PRESIDENTS Richard Theis, Vice President
Douglas R. Delp, Human Resources &
Branch Delivery Vernon L. Clemmer, Trust Operations UNIVEST INVESTMENTS, INC.
Kenneth D. Hochstetler, Wealth John W. Duerksen, Corporate Banking
Management J. Matthew Holliday, Trust & Martin Renninger, Chairman
Diane L. Koehler, Compliance & Investment Services Kenneth D. Hochstetler, President
Community Reinvestment Patricia J. Kratz, Corporate Banking Darren G. Johnson, Vice President
Richard R. Swartley, Electronic Services William F. Marks, Corporate Banking
Rose A. Radcliff, Corporate Banking OTHER PRINCIPAL SUBSIDIARIES
VICE PRESIDENTS Stephen D. Robinson, Corporate OF UNIVEST CORPORATION OF
Banking PENNSYLVANIA
Michael A. Baymor, Credit Quality Ricky R. Schneider, Corporate Banking
Gary E. Brown, Wealth Management Harry A. Wenzel, Corporate Banking Univest Realty Corporation
Patricia S. Coleman, Electronic Services Gary S. Wolfer, Trust & Univest Reinsurance Corporation
Richard D. Juniper, Auditor Investment Services Univest Delaware Inc.
Garry R. Kuhnle, Credit Support Fern M. Zepp, Trust Division
Mary L. Marger, Electronic Services
William B. Meyer, Loan Review
Timothy E. Mininger,
Wealth Management
Laurence A. Moyer, Residential
Mortgage Origination
Philip J. Rush, Finance & Accounting
Keith C. Thomas, Asset Recovery
Francis E. Varilla, Finance & Accounting
IV
INFORMATION FOR SHAREHOLDERS
CORPORATE HEADQUARTERS
Univest Plaza
14 North Main Street
Souderton, Pennsylvania 18964
SHAREHOLDERS' MEETING
The Annual Shareholders' Meeting will
take place at 10:45 a.m., Tuesday April 9,
2002, in the Board Room at Univest
Plaza, 14 North Main Street, Souderton,
Pennsylvania.
MARKET MAKERS FOR UNIVEST CORPORATION
OF PENNSYLVANIA COMMON STOCK
Legg Mason Wood Walker, Inc.
1-800-221-8496
Ryan, Beck & Co.
1-800-223-8969
F.J. Morrissey & Co., Inc.
1-800-842-8928
UNIVEST SHAREHOLDER
INFORMATION HOTLINE
For more information on the Univest
Corporation of Pennsylvania Common
Stock, please call 215-721-2434.
V