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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File number 0-7617
UNIVEST CORPORATION OF PENNSYLVANIA
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1886144
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
14 North Main Street 18964
Souderton, Pennsylvania (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (215) 721-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $5 par value
(Title of Class) 7,327,554
(Number of shares outstanding
at 2/28/99)
The approximate aggregate market value of voting stock held by non
affiliates of the registrant is $194,274,685 as of February 28,1999.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. ( )
Parts I and Part III incorporate information by reference from the proxy
statement for the annual meeting of shareholders on April 6, 1999. Parts I, II,
and IV incorporate information by reference from the annual report to
shareholders for the year ended December 31, 1998.
PAGE 1 OF 25
PART I
Item 1. Business
General
Univest Corporation of Pennsylvania ("Univest") is a Pennsylvania
corporation organized in 1973 and registered as a bank holding company pursuant
to the Bank Holding Company Act of 1956. It owns all of the capital stock of
Union National Bank and Trust Company ("Union National Bank"), Pennview Savings
Bank, Univest Realty Corporation, Univest Leasing Corporation, Univest Delaware,
Inc., Univest Financial Planning Corporation, Univest Insurance Company, and
Univest Electronic Services Corporation.
Union National Bank is engaged in the general commercial banking business
and provides a full range of banking services and trust services to its
customers. Pennview Savings Bank is engaged in attracting deposits from general
public and investing such deposits primarily in loans secured by residential
properties and consumer loans. Delview, Inc. a wholly owned subsidiary of
Pennview, is a passive investment holding company operating in Delaware. Univest
Realty Corporation was established to obtain, hold and operate properties for
the holding company and its subsidiaries. Univest Delaware, Inc. is a passive
investment holding company operating in Delaware. Univest Leasing Corporation is
inactive. Univest Insurance Company offers credit-related reinsurance plans.
Univest Electronic Services Corporation was established to provide data
processing services to Union National Bank in Souderton and other subsidiaries
of Univest Corporation of Pennsylvania.
Union National Bank and Trust Company, with its head office in Souderton,
Montgomery County, serves the area through twenty-six (26) banking offices, two
off-premises automated teller machines, one work site office and provides
banking and trust services to the residents and employees of ten retirement
homes. Fifteen banking offices are in Montgomery County and eleven banking
offices are in Bucks County. A work site office is located in Montgomery County.
One off-premises automated teller machine is located in Montgomery County and
one is located in Bucks County.
Pennview Savings Bank conducts operations through five (5) full-service
offices located in Souderton, Hatfield, Franconia, Silverdale and
Montgomeryville, Pennsylvania and provides banking services to the residents and
employees of two retirement homes.
As of January 31, 1999, Univest and its subsidiaries employed four hundred
and thirty-six (436) persons.
Competition
Univest's service areas are characterized by intense competition for
banking business among commercial banks, savings and loan associations, savings
banks and other financial institutions. Each of the Corporation's subsidiary
banks actively compete with such banks and financial institutions for local
retail and commercial accounts, in Bucks and Montgomery Counties, as well as
other financial institutions outside their primary service area.
In competing with other banks, savings and loan associations, and other
financial institutions, Union National Bank and Pennview Savings Bank seek to
provide personalized services through management's knowledge and awareness of
their service area, customers and borrowers.
Other competitors, including credit unions, consumer finance companies,
insurance companies and mutual funds, compete with certain lending and deposit
gathering services offered by Union National Bank and Pennview Savings Bank.
Supervision and Regulation
Union National Bank is subject to supervision and is regularly examined by
the Office of Comptroller of the Currency. Also, Union National Bank is subject
to examination by the Federal Deposit Insurance Corporation
2
and by the Federal Reserve System. Pennview Savings Bank is regulated by the
Federal Deposit Insurance Corporation and by the Department of Banking of the
Commonwealth of Pennsylvania.
Univest is subject to the provisions of the Bank Holding Company Act of
1956, as amended, and is registered pursuant to its provisions. The Act
prohibits the acquisition by a bank holding company of a direct or indirect
ownership of more than five percent of the voting shares of any bank within the
United States without prior approval of the Board of Governors of the Federal
Reserve System, and also prohibits the granting of such approval in respect to
any bank within the United States located outside of the state where the bank
holding company's principal operations are conducted, unless the acquisition is
specifically authorized by the statutes of the state in which the bank is
located. With certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank, and from engaging directly
or indirectly in businesses unrelated to the business of banking, or managing,
or controlling banks. Under the Bank Holding Company Act Amendments of 1970,
which became effective on December 3, 1970, the Federal Reserve Board may
approve the acquisition by bank holding companies of non bank subsidiaries to
engage in activities that are closely related to banking and are in the public
interest. The amendments include a provision which prohibits banks, bank holding
companies and subsidiaries from engaging in tie-in arrangements. Bank tie-ins
involving a loan, discount, deposit, or trust service are specifically exempted,
and the Federal Reserve Board is authorized to make exceptions by regulations.
As a bank holding company, Univest is subject to the reporting requirements
of the Board of Governors of the Federal Reserve System, and Univest, together
with its subsidiaries, is subject to examination by the Board. The Federal
Reserve Act limits the amount of credit which a member bank may extend to its
affiliates, and the amount of its funds which it may invest in or lend on the
collateral of the securities of its affiliates. Under the Federal Deposit
Insurance Act, insured banks are subject to the same limitations.
FDICIA
In December 1991, the Federal Deposit Insurance Corporation Improvement Act
("FDICIA") was enacted, which substantially revised the bank regulatory and
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements in order to minimize losses to the FDIC.
FDICIA establishes five capital tiers: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized", and
"critically undercapitalized" and imposes significant restrictions on the
operations of a bank that is not at least adequately capitalized. A depository
institution's capital tier will depend upon where its capital levels are in
relation to various relevant capital measures, which will include a risk-based
capital measure, a leverage ratio capital measure and certain other factors.
Under the requirements, Univest has Tier I capital ratios of 12.3% and 14.1%,
and total risk-based capital ratios of 13.4% and 15.2% at December 31, 1998 and
1997, respectively. These ratios place Univest in the "well-capitalized"
category under regulatory standards.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal banking
regulators within 15 days of any material events that affect the capital
position of the institution.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, a
maximum ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly traded
shares (if feasible) and such other standards as the agency deems appropriate.
FDICIA also contains a variety of other provisions that affect the
operations of the Corporation, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, certain
3
restrictions on investments and activities of state-chartered insured banks and
their subsidiaries and limitations on credit exposure between banks.
Finally, FDICIA limits the discretion of the FDIC with respect to deposit
insurance coverage by requiring that, except in very limited circumstances, the
FDIC's course of action in resolving a problem bank must constitute the "least
costly resolution" for the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), as the case may be. The FDIC has
interpreted this standard as requiring it not to protect deposits exceeding the
$100,000 insurance limit in more situations than was previously the case. In
addition, FDICIA prohibits payments by the FDIC on uninsured deposits in foreign
branches of U.S. banks and will severely limit the "too big to fail" doctrine
under which the FDIC formerly protected deposits exceeding the $100,000
insurance limit in certain failed banking institutions.
Implementation of FDICIA has not had a material impact on the business or
operations of the Corporation.
Credit and Monetary Policies
Union National Bank is affected by the fiscal and monetary policies of the
federal government and its agencies, including the Federal Reserve System. An
important function of the policies is to curb inflation and control recessions
through control of the supply of money and credit. The Federal Reserve System
uses its powers to regulate reserve requirements of member banks, the discount
rate on member-bank borrowings, interest rates on time and savings deposits of
member banks, and to conduct open-market operations in United States Government
securities to exercise control over the supply of money and credit. The policies
have a direct effect on the amount of bank loans and deposits and on the
interest rates charged on loans and paid on deposits, with the result that the
policies have a material effect on bank earnings. Future policies of the Federal
Reserve Bank System and other authorities cannot be predicted, nor can their
effect on future bank earnings be predicted.
Pennview Savings Bank and Union National Bank are members of the Federal
Home Loan Bank System which consists of 12 regional Federal Home Loan Banks,
with each subject to supervision and regulation by the newly created Federal
Housing Finance Board. The Federal Home Loan Banks provide a central credit
facility primarily for member institutions. The Banks, as members of the Federal
Home Loan Bank of Pittsburgh, are required to acquire and hold shares of capital
stock in that Federal Home Loan Bank in an amount equal to at least 1% of the
aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or 5%
of its advances (borrowings) from the Federal Home Loan Bank of Pittsburgh,
whichever is greater.
Interstate Acquisitions
The Interstate Banking Act allows federal regulators to approve mergers
between adequately capitalized banks from different states regardless of whether
the transaction is prohibited under any state law, unless one of the banks' home
states has enacted a law expressly prohibiting out-of-state mergers before June
1997. This act also allows a state to permit out-of-state banks to establish and
operate new branches in this state. The Commonwealth of Pennsylvania has "opted
in" to this interstate merger provision. Therefore, the prior requirement that
interstate acquisitions would only be permitted when another state had
"reciprocal" legislation that allowed acquisitions by Pennsylvania-based bank
holding companies has been eliminated. The new Pennsylvania legislation,
however, retained the requirement that an acquisition of a Pennsylvania
institution by a Pennsylvania or a non-Pennsylvania-based holding company must
be approved by the Banking Department.
Statistical Disclosure
Univest was incorporated under Pennsylvania law in 1973 for the purpose of
acquiring the stock of Union National Bank and subsequently to engage in other
business activities permitted under the Bank Holding Company Act. On September
28, 1973, pursuant to an exchange offer, Univest acquired the outstanding stock
of Union National Bank and on August 1, 1990 acquired the stock of Pennview
Savings Bank. Two new subsidiaries were
4
incorporated on September 8, 1998 in the State of Delaware. Univest Delaware,
Inc. and Delview, Inc. were formed as passive investment companies. Univest
Delaware, Inc. is wholly owned by the Corporation and Delview, Inc. is wholly
owned by Pennview. The following financial data appearing on pages 6 through 17
reflects consolidated information. Where averages are reported, daily
information has been used for all subsidiaries.
5
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
($ in thousands)
1998 1998/1997
Average Income/ Avg. Volume Rate Average
ASSETS: Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
Cash and due from banks $ 31,321 $ 29,244
Time deposits with other banks 11,273 $ 626 5.6 $ 541 $ 2 $ 543 1,522
U.S. Government obligations 196,033 11,602 5.9 (273) (399) (672) 199,733
Oblig. of states & political sub 6,858 307 4.5 93 (5) 88 4,728
Other securities 67,637 4,328 6.4 1,993 (37) 1,956 36,547
Federal Reserve bank stock 761 46 6.0 -- -- -- 761
Federal funds sold and other
short-term investments 18,057 988 5.5 757 8 765 4,204
----------- ----------- -----------
Total investments 289,346 17,271 6.0 245,973
----------- ----------- ---- -----------
Commercial loans 157,363 14,402 9.2 1,770 -- 1,770 137,520
Real estate loans 345,781 28,879 8.4 (1,289) (1,444) (2,733) 361,089
Installment loans 86,505 7,350 8.5 977 -- 977 75,395
Home equity loans 14,614 1,549 10.6 (67) (31) (98) 15,300
Municipal loans 41,456 2,383 5.7 287 37 324 36,545
----------- ----------- -----------
Gross loans 645,719 54,563 8.4 625,849
----------- ----
Less: valuation reserve (10,439) (10,159)
----------- -----------
Net loans 635,280 615,690
----------- -----------
Property and equipment, net 16,237 16,761
Other assets 32,711 20,047
----------- -----------
Total assets $ 1,016,168 $ 929,237
=========== ===========
1997 1997/1996 1996
Income/ Avg. Volume Rate Average Income/ Avg.
ASSETS: Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
Cash and due from banks $ 30,866
Time deposits with other banks $ 83 5.5 $ 51 $ 2 $ 53 588 $ 30 5.1
U.S. Government obligations 12,274 6.1 (709) (214) (923) 213,981 13,197 6.2
Oblig. of states & political sub 219 4.6 35 12 47 3,967 172 4.3
Other securities 2,372 6.5 1,322 16 1,338 16,278 1,034 6.4
Federal Reserve bank stock 46 6.0 1 -- 1 752 45 6.0
Federal funds sold and other
short-term investments 223 5.3 7 (4) 3 4,083 220 5.4
-------- ----------- --------
Total investments 15,134 6.2 239,061 14,668 6.1
-------- ---- ----------- -------- ----
Commercial loans 12,632 9.2 1,239 (124) 1,115 124,372 11,517 9.3
Real estate loans 31,612 8.8 (245) 363 118 363,050 31,494 8.7
Installment loans 6,373 8.5 1,157 (61) 1,096 61,190 5,277 8.6
Home equity loans 1,647 10.8 (127) 16 (111) 16,393 1,758 10.7
Municipal loans 2,059 5.6 389 (268) 121 29,827 1,938 6.5
-------- ----------- --------
Gross loans 54,323 8.7 594,832 51,984 8.7
-------- ---- -------- ----
Less: valuation reserve (9,582)
----------
Net loans 585,250
----------
Property and equipment, net 16,436
Other assets 17,656
----------
Total assets $ 889,857
==========
6
1998 1998/1997
LIABILITIES: Average Income/ Avg. Volume Rate Average
Balance Expense Rate Change Change Total Balance
------- ------- ---- ------ ------ ----- -------
Demand deposits $ 132,132 $ 118,960
---------- ----------
Interest checking deposits 80,524 $ 1,101 1.4 $ 36 $ 74 $ 110 73,521
Money market savings 128,970 5,322 4.1 2,166 539 2,705 77,013
Regular savings 132,012 3,170 2.4 116 (129) (13) 128,546
Certificates of deposit 325,798 18,270 5.6 714 -- 714 312,517
Time open & club accounts 30,800 1,552 5.0 (673) (44) (717) 44,447
---------- ----------
Total time, int., and inv
checking deposits 698,104 29,415 4.2 636,044
---------- ---------- --- ----------
Total deposits 830,236 755,004
---------- ----------
Federal funds purchased 234 14 6.0 (200) 11 (189) 3,541
Loans & securities sold under
agreement to repurchase 56,181 1,829 3.3 221 -- 221 49,133
Other borrowings 10,135 557 5.5 81 (9) 72 8,592
Subordinated notes -- -- 0.0 0 -- -- --
---------- ---------- ----------
Total borrowings 66,550 2,400 3.6 61,266
---------- ---------- --- ----------
Accrued expenses & other liab 14,617 11,787
---------- ----------
Total liabilities 911,403 828,057
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock 37,765 19,636
Capital surplus 19,696 34,539
Retained earnings 47,304 47,005
---------- ----------
Total shareholders' equity 104,765 101,180
---------- ----------
Total liabilities and share-
holders' equity $1,016,168 $ 929,237
========== ==========
Weighted avg. yield on interest-earning assets 7.7 %
Weighted avg. rate paid on interest-bearing liab. 4.2 %
Net yield 4.3 %
1997 1997/1996 1996
LIABILITIES: Income/ Avg. Volume Rate Average Income/ Avg.
Expense Rate Change Change Total Balance Expense Rate
------- ---- ------ ------ ----- ------- ------- ----
Demand deposits $ 107,993
---------
Interest checking deposits $ 991 1.3 $ (6) $ -- $ (6) 73,973 $ 997 1.3
Money market savings 2,617 3.4 475 319 794 63,849 1,823 2.9
Regular savings 3,183 2.5 51 -- 51 126,118 3,132 2.5
Certificates of deposit 17,556 5.6 (83) -- (83) 313,867 17,639 5.6
Time open & club accounts 2,269 5.1 246 40 286 39,576 1,983 5.0
--------- ----------
Total time, int., and inv
checking deposits 26,616 4.2 617,383 25,574 4.1
---------- --- --------- ---------- ---
Total deposits 725,376
---------
Federal funds purchased 203 5.7 (51) 9 (42) 4,433 245 5.5
Loans & securities sold under
agreement to repurchase 1,608 3.3 160 -- 160 44,001 1,448 3.3
Other borrowings 485 5.6 56 15 71 7,612 414 5.4
Subordinated notes -- 0.0 -- -- -- -- -- 0.0
---------- ---------- ----------
Total borrowings 2,296 3.7 56,046 2,107 3.8
---------- --- ---------- ---------- ---
Accrued expenses & other liab 14,939
----------
Total liabilities 796,361
----------
SHAREHOLDERS' EQUITY:
Common stock 19,636
Capital surplus 34,545
Retained earnings 39,315
----------
Total shareholders' equity 93,496
----------
Total liabilities and share-
holders' equity $ 889,857
==========
Weighted avg. yield on interest-earning assets 8.0 % 8.0 %
Weighted avg. rate paid on interest-bearing liab. 4.1 % 4.1 %
Net yield 4.7 % 4.7 %
7
Note: (1) For rate calculation purposes, average loan categories include
unearned discount.
(2) Nonaccrual loans have been included in the average loan balances.
(3) Certain amounts have been reclassified to conform with the
current-year presentation.
(4) Included in interest income are loan fees of $1,106 for 1998,
$1,253 for 1997 and $1,364 for 1996.
(5) Table I has not been tax equated.
* The change due to the volume/rate variance and average volume and percent
roundings have been allocated to volume.
8
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE II. INVESTMENT PORTFOLIO (BOOK VALUE)
(Thousands of Dollars)
CARRYING AMOUNT OF INVESTMENT SECURITIES
December 31, December 31, December 31,
1998 (a) 1997 (a) 1996 (a)
-------- -------- --------
U. S. Treasury, government corporations and agencies $225,294 $195,048 $213,360
State and political subdivisions 17,966 4,676 4,980
Mortgage-backed securities 74,233 53,996 18,529
Other 10,172 4,445 5,344
-------- -------- --------
Total $327,665 $258,165 $242,213
======== ======== ========
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD
December 31, December 31, December 31, December 31, December 31, December 31,
1998 1998 1997 1997 1996 1996
Amount (a) Yield (b) Amount (a) Yield (b) Amount (a) Yield (b)
---------- --------- ---------- --------- ---------- ---------
1 Year or less $ 93,671 5.78% $ 69,916 5.88% $ 73,215 6.50%
1 Year - 5 Years 158,938 5.64% 136,317 6.19% 155,662 6.06%
5 Years - 10 Years 20,781 6.33% 11,652 6.54% 6,784 6.09%
After 10 Years 54,275 6.24% 40,280 6.51% 6,552 6.16%
-------- ---- -------- ---- -------- ----
Total $327,665 5.82% $258,165 6.17% $242,213 6.20%
======== ==== ======== ==== ======== ====
Refer to Note 3 to the consolidated financial statements
a. Held to maturity and available for sale portfolios are combined.
b. Weighted average yield is calculated by dividing income, which has not been
tax equated on tax-exempt obligations, within each maturity range by
outstanding amount of the related investment.
9
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART A. TYPES OF LOANS
(Thousands of Dollars)
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
Real estate Loans
Construction and land development $ 33,530 $ 30,951 $ 34,733 $ 54,840 $ 50,954
Secured by 1-4 family residential properties 214,798 217,782 217,631 216,180 221,098
Other real estate loans 169,402 189,251 178,644 157,925 160,234
Commercial and industrial loans 171,699 138,812 124,788 120,692 114,103
Loans to individuals 64,306 53,500 47,466 40,648 36,810
All other loans 7,117 6,143 5,821 4,084 5,639
-------- -------- -------- -------- --------
Total loans $660,852 $636,439 $609,083 $594,369 $588,838
======== ======== ======== ======== ========
10
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART B. MATURITIES AND SENSITIVITY
TO CHANGES IN INTEREST RATES
(Thousands of Dollars)
The commercial mortgages and Industrial Development Authority mortgages
that are presently being written at both fixed and floating rates of interest
are written for a three (3) year term with a monthly payment based on a fifteen
(15) year amortization schedule. At each three-year anniversary date of the
mortgages, the interest rate is renegotiated and the term of the loan is
extended for an additional three years. At each three-year anniversary date of
the mortgages, the Bank also has the right to require payment in full. These are
included in the "Due in One to Five Years" category on issue. The borrower has
the right to prepay the loan at any time.
The residential mortgages are presently being written on a one (1) or three
(3) year rollover basis. The monthly payment on these mortgages is based on a
thirty (30) year amortization schedule, unless the borrower requests a shorter
payout period. These are included in the "Due in One to Five Years" category on
issue. Fixed rate residential mortgages are also being written for terms of 15
and 30 years and are included in the "Due in over Five Years" category.
As of December 31, 1998 Due in One Due in One Due in Over
Year or Less to Five Years Five Years Total
------------ ------------- ---------- -----
Real estate loans
Construction and land development $ 20,031 $ 9,770 $ 3,729 $ 33,530
Secured by 1-4 family residential properties 45,432 86,124 83,242 214,798
Other real estate loans 55,636 41,446 72,320 169,402
Commercial and industrial loans 132,399 26,478 12,822 171,699
Loans to individuals 25,177 35,484 3,645 64,306
All other loans 2,229 4,405 483 7,117
-------- -------- -------- --------
Total loans $280,904 $203,707 $176,241 $660,852
======== ======== ======== ========
Loans with a predetermined interest rate $ 95,345 $134,172 $167,201 $396,718
Loans with a floating or variable interest rate 185,559 69,535 9,040 264,134
-------- -------- -------- --------
$280,904 $203,707 $176,241 $660,852
======== ======== ======== ========
11
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE III. LOAN PORTFOLIO, PART C. RISK ELEMENTS
(Thousands of Dollars)
Nonaccrual, Past-Due and Restructured Loans and Other Assets
Performance of the entire loan portfolio is reviewed on a regular basis by
bank management and loan officers. A number of factors regarding the borrower,
such as overall financial strength, collateral values, and repayment ability,
are considered in deciding on what actions should be taken when determining the
collectibility of interest for accrual purposes.
Potential Problem Loans
When collectibility of interest and/or principal on a particular loan is
questionable, the loan is placed on nonaccrual status. If, at the time a
decision is made to cease accruing interest, it is determined that the
collection of previously accrued but unpaid interest is uncertain, a stipulated
amount is charged against current income. Conversly, if a loan on nonaccrual
status is paid in full, including interest, a credit is made to current income.
The total of nonaccruing and restructured loans in 1998 was $3,549. There was no
interest income recognized on these loans. If nonaccrual loans had been
performing in accordance with their contractual terms, additional income of $341
would have been recorded in 1998. 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.
Loan Concentrations
At December 31, 1998, there were no concentrations of loans exceeding 10%
of total loans other than disclosed in Table III, Part A.
Other Assets
At December 31, 1998, $393 in Other Real Estate Owned was classified as
nonperforming. This amount represents all Other Real Estate Owned as of December
31, 1998.
1998 1997 1996 1995 1994
Principal Principal Principal Principal Principal
Balance Balance Balance Balance Balance
------- ------- ------- ------- -------
Nonaccruing loans $3,424 $3,136 $4,671 $5,855 $5,149
====== ====== ====== ====== ======
Accruing loans 90 days or more past due:
Real estate loans
Construction and land development -- -- -- -- --
Secured by 1-4 family dwellings 705 308 373 234 76
Other real estate 14 36 12 93 172
Commercial and industrial loans -- 21 19 -- --
Loans to individuals 204 159 180 174 247
All other loans -- -- -- -- --
------ ------ ------ ------ ------
Total loans, 90 days or more past due 923 524 584 501 495
====== ====== ====== ====== ======
Restructured loans, not included above 125 206 281 352 422
====== ====== ====== ====== ======
12
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Average amount of loans outstanding $635,939 $617,082 $590,144 $583,398 $585,644
Loan loss reserve at beginning of period $ 10,270 $ 9,801 $ 8,854 $ 8,876 $ 7,198
Charge-offs:
Real estate loans 575 552 990 1,842 701
Commercial and industrial loans 370 319 20 416 615
Loans to individuals 427 286 175 236 127
Home equity -- -- -- -- --
Other -- -- -- -- --
-------- -------- -------- -------- --------
Total charge-offs: 1,372 1,157 1,185 2,494 1,443
======== ======== ======== ======== ========
Recoveries:
Real estate loans 324 167 458 316 146
Commercial and industrial loans 256 78 529 157 816
Loans to individuals 102 66 76 75 170
Home equity -- -- -- -- --
Other -- 5 24 29 39
-------- -------- -------- -------- --------
Total recoveries: 682 316 1,087 577 1,171
======== ======== ======== ======== ========
Net charge-offs: 690 841 98 1,917 272
Additions to loan loss reserve 958 1,310 1,045 1,895 1,950
Loan loss reserve at end of period $ 10,538 $ 10,270 $ 9,801 $ 8,854 $ 8,876
======== ======== ======== ======== ========
Loan type Loan type Loan type Loan type Loan type
as % as % as % as % as %
Amount in reserve by category: of loans of loans of loans of loans of loans
-------- -------- -------- -------- --------
Real estate loans 63.2 $ 2,358 68.8 $ 3,511 70.8 $ 3,146 72.2 $ 817 73.4 $ 2,999
Commercial and industrial loans 26.0 3,575 21.8 610 20.5 1,332 20.3 2,459 19.4 2,495
Loans to individuals 9.7 1,049 8.4 617 7.8 354 6.8 347 6.3 490
All other loans 1.1 11 1.0 11 0.9 11 0.7 11 0.9 15
Unallocated portion 3,545 5,521 4,958 5,220 2,876
------- -------- ------- ------- -------
Total $10,538 $ 10,270 $ 9,801 $ 8,854 $ 8,875
======= ======== ======= ======= =======
Ratio of Net charge-offs versus
average loans 0.1% 0.1% 0.0% 0.3% 0.0%
Total cash-basis and nonaccrual loans of $3,424 at December 31, 1998, were
generally comprised of $955 in residential real estate loans, $2,176 in
commercial real estate loans and $293 in commercial and other loans.
13
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE IV. SUMMARY OF LOAN LOSS EXPERIENCE
(Thousands of Dollars)
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.
Reserve for possible loan losses is determined through a quarterly
evaluation of reserve adequacy which takes into consideration the growth of the
loan portfolio, the status of past-due loans, current economic conditions,
various types of lending activity, policies, real estate and other loan
commitments, and significant changes in the charge-off activity. Loans on the
"watch list" and all nonaccrual loans are evaluated individually. All other
loans are evaluated as pools. Based on historical loss experience, loss factors
are determined giving consideration to the areas noted in the first paragraph
and applied to the pooled loan categories to develop the general or allocated
portion of reserve. Loans are also reviewed for impairment based on discounted
cash flows using the loans' initial effective interest rate or the fair value of
the collateral for certain collateral-dependent loans as provided under SFAS No.
114. Management also reviews the activity within the allowance to determine what
actions, if any, should be taken to address differences between estimated and
actual losses. Any of the above factors may cause the provision to fluctuate.
The methodology for establishing the loan loss reserve and provision has not
changed in recent years.
The reserve for possible loan losses is made up of the allocated or general
reserve and the unallocated portion, which is the remainder after necessary
allocations are made. The following table summarizes the two categories for the
periods indicated.
December 31,
-------------------------------------
1998 1997 1996
------- ------- -------
Allocated $ 6,993 $ 4,749 $ 4,843
Unallocated 3,545 5,521 4,958
------- ------- -------
Total $10,538 $10,270 $ 9,801
======= ======= =======
The increase of $2.2 million in the allocated portion of the reserve for
the year ended December 31, 1998 was due mainly to a $2.0 million increase in
the uncriticized portion of the allowance related to the commercial loan pool.
This increase was caused by a higher volume of losses among small business
credits, which migrate more quickly from pass to loss than larger business
credit charge offs. The historical loss factor for this segment of the
commercial loan portfolio increased from 0.15% at December 31, 1997 to 1.11% at
December 31, 1998. Volume also increased from $142 million at December 31, 1997
to $174 million at December 31, 1998. Industry concentrations increased in
volume by $32 million from $56 million at December 31, 1997 to $88 million at
December 31, 1998. This increase relates to a segment in the real estate
industry. The loss factor for calculating the reserve applicable to industry
concentration increased from 0.20% at December 31, 1997 to 0.60% at December 31,
1998. The change in volume and change in loss factor resulted in an increase of
$400 thousand in the allocated reserve. The approximate $2.2 million increase in
the allocated reserve for the year ended December 31, 1998 caused a
corresponding decrease in the unallocated portion of the reserve. Other
immaterial fluctuation occurred in both volumes and estimation factors of other
pools of loans.
Management believes that both the allocated and unallocated portions of the
reserve are maintained at a level which is adequate to absorb potential losses
in the loan portfolio.
14
There were no significant changes in either the allocated or
unallocated portions of the reserve for the year ended December 31, 1998 when
compared to the year ended December 31, 1997.
As the accompanying table indicates, the amount of loan loss provision
charged to expense for 1998 was $958 compared to $1,310 in 1997 and $1,045 in
1996.
15
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE V. DEPOSITS
(Thousands of Dollars)
1998 1997 1996
--------- --------- ---------
A. Average: Noninterest-bearing demand deposits $ 132,132 $ 118,960 $ 107,993
Interest checking 80,524 73,521 73,973
Money Market savings 128,970 77,013 63,849
Saving deposits 132,012 128,546 126,118
Time deposits 356,598 356,964 353,443
--------- --------- ---------
Total $ 830,236 $ 755,004 $ 725,376
========= ========= =========
Due 3 months Due 3 - 6 Due 6 - 12 Due over
B. Year-end balance: ($100 or more) outstanding as of or less months months 12 months
December 31, 1998 ------- ------ ------ ---------
Certificates of deposit $ 3,542 $ 1,736 $ 5,828 $ 10,563
Other time deposits $ 15,653 $ 5,213 $ 1,408 $ 850
Note: Univest and its subsidiaries do not have any foreign offices or foreign
deposits
TABLE VI. RETURN ON EQUITY AND ASSETS (RATIOS)
(Shown as percentages)
1998 1997 1996
---- ---- ----
Return on assets 1.4 1.4 1.4
Return on equity 13.8 13.0 12.9
Dividend payout ratio 29.9 28.2 23.1
Equity to assets ratio 10.3 10.9 10.5
16
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE VII. SHORT TERM BORROWINGS
(Thousands of Dollars)
LOANS AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
1998 1997 1996
---- ---- ----
Balance at December 31 $62,890 $48,389 $48,661
Weighted average interest rate at year end 3.2% 3.3% 3.3%
Maximum amount outstanding at any month's end $68,384 $58,521 $53,109
Average amount outstanding during the year $56,181 $49,133 $44,001
Weighted average interest rate during the year 3.3% 3.3% 3.3%
17
Item 2. Properties
Univest and its subsidiaries occupy thirty-one properties in Montgomery and
Bucks Counties in Pennsylvania, which are used principally as banking offices.
Note 6, appearing on page 22 of the Annual Report to Shareholders (Exhibit 13),
is hereby incorporated in this item.
Item 3. Legal Proceedings
There are no proceedings pending other than the ordinary routine litigation
incident to the business of the corporation.
Item 4. Submission of Matters to a Vote of Security Holders
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), pages 43-44. Dividend and other restrictions are incorporated by
reference from Note 16 of the 1998 Annual Report to Shareholders (Exhibit 13),
pages 29 and 30. The number of shareholders as of February 28, 1999, was 2,032.
Item 6. Selected Financial Data
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), page 34.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), pages 35 through 42. Dividend and other restrictions are
incorporated by reference from Note 16 of the 1998 Annual Report to Shareholders
(Exhibit 13), pages 29 and 30.
Item 7 (a). Qualitative and Quantitative Disclosures About Market Risk
Incorporated by reference from the 1998 Annual Report to Shareholders
(Exhibit 13), pages 41 and 42.
Item 8. Financial Statements and Supplementary Data
Consolidated balance sheets of the registrant at December 31, 1998 and
1997, and consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years ended December 31, 1998, and the
independent auditors' report thereon are incorporated by reference from the 1998
Annual Report to Shareholders (Exhibit 13), pages 13 through 16.
Item 9. Change in and Disagreements with Accountants on Accounting and Financial
Disclosures
None
18
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
Executive Officers
The names and ages of all executive officers of Univest are as follows:
Principal Occupation
Officer Title during past 5 years Age
------- ----- ------------------- ---
Merrill S. Moyer Chairman Chairman and Chief Executive 65
Officer of the Corporation and
Chairman of Union National Bank
Norman L. Keller Executive Vice President and CEO of Pennview 61
President Savings Bank and Executive
Vice President of the Corporation
Marvin A. Anders Vice Chairman Vice Chairman of the Corporation 59
and Union National Bank
William S. Aichele President President of the Corporation 48
and President and CEO of
Union National Bank
Wallace H. Bieler Executive Vice Executive Vice President 53
President and CFO of the Corporation
and Union National Bank
There is no family relationship among any of the executive officers of Univest.
Item 11. Executive Compensation
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from the registrant's definitive proxy
statement for the annual meeting of shareholders on April 6, 1999.
Item 13. Certain Relationships and Related Transactions
During 1998, the Corporation and its subsidiaries paid $429,113 to H.
Mininger & Son, Inc. for building expansion projects which were in the normal
course of business on substantially the same terms as available from others. H.
Ray Mininger, Alternate Director, is president of H. Mininger & Sons, Inc.
19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. & 2. Financial Statements and Schedules
The financial statements listed in the accompanying index
to financial statements are filed as part of this annual
report.
3. Listing of Exhibits
The exhibits listed on the accompanying index to exhibits
are filed as part of this annual report.
(b) There were no reports on Form 8-K filed in the fourth quarter of
1998.
(c) Exhibits - The response of this portion of item 14 is submitted
as a separate section.
(d) Financial Statement Schedules - none.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIVEST CORPORATION OF PENNSYLVANIA
Registrant
By: /s/ Norman L. Keller
---------------------------------
Norman L. Keller
Secretary and Executive Vice President, March 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ Merrill S. Moyer /s/ James L. Bergey
- ---------------------------- ---------------------------
Merrill S. Moyer James L. Bergey
Chairman and Director, March 24, 1999 Director, March 24, 1999
/s/ Marvin A. Anders /s/ Harold M. Mininger
- ---------------------------- ---------------------------
Marvin A. Anders Harold M. Mininger
Vice Chairman, March 24,1999 Director, March 24, 1999
/s/ Wallace H. Bieler /s/ Paul G. Shelly
- ---------------------------- ---------------------------
Wallace H. Bieler Paul G. Shelly
Executive Vice President and CFO, March 24, 1999 Director, March 24, 1999
/s/ Charles H. Hoeflich /s/ R. Lee Delp
- ---------------------------- ---------------------------
Charles H. Hoeflich R. Lee Delp
Chairman Emeritus, March 24, 1999 Director, March 24, 1999
/s/ John U. Young /s/ Clair W. Clemens
- ---------------------------- ---------------------------
John U. Young Clair W. Clemens
Director, March 24, 1999 Director, March 24, 1999
/s/ Thomas K. Leidy
- ----------------------------
Thomas K. Leidy
Director, March 24, 1999
21
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
INDEX TO EXHIBITS
[Item 14(a)]
Description
-----------
(3) Articles of Incorporation and By-Laws
Articles of Incorporation and Charter are incorporated by reference to the
1973 Form 10-K.
(4) Instruments Defining the Rights of Security Holders, Including Debentures
Specimen Copy of Common Stock is incorporated herein by reference to the
1973 Form 10-K.
(10) Material Contracts - Not Applicable.
(11) Statement Re Computation of Per Share Earnings - See Footnote 13 in Item
(13).
(12) Statements Re Computation of Ratios - Not Applicable.
(13) Annual Report to Shareholders
(18) Letter Re Change in Accounting Principles - Not Applicable.
(19) Previously Unfiled Documents - Not Applicable.
(21) Subsidiaries of the Registrant
(23) Consent of independent auditors
(24) Power of Attorney - Not Applicable.
22
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[Item 14(a)]
Annual Report
to Shareholders*
----------------
Report of Independent Auditors 33
Consolidated balance sheets at 13
December 31, 1998 and 1997
Consolidated statements of income for each of the 14
three years in the period ended December 31, 1998
Consolidated statements of changes in shareholders' equity 15
for each of the three years in the period ended
December 31, 1998
Consolidated statements of cash flows for 16
each of the three years in the period ended
December 31, 1998
Notes to consolidated financial statements 17-32
Financial statement schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
* Refers to page numbers in the Annual Report to Shareholders for 1998 (Exhibit
13) which is incorporated by references.
23