United
States
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
Form
10-Q
x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the quarterly period ended March
31, 2008.
|
or
o
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the transition period from _______
to
_______.
|
Commission
File Number: 0-7617
UNIVEST
CORPORATION OF PENNSYLVANIA
(Exact
name of registrant as specified in its charter)
Pennsylvania
|
|
23-1886144
|
(State
or other jurisdiction of incorporation of organization)
|
|
(IRS
Employer Identification No.)
|
14
North Main Street, Souderton, Pennsylvania 18964
(Address
of principal executive offices)(Zip Code)
Registrant’s
telephone number, including area code: (215)
721-2400
Not
applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. RYes
£No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer þ
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). £Yes
RNo
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common
Stock, $5 par value
|
|
12,843,507
|
(Title
of Class)
|
|
(Number
of shares outstanding at
3/31/08)
|
UNIVEST
CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX
|
|
|
Page Number
|
|
|
|
|
Part
I.
|
Financial
Information:
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets at March 31, 2008 and December 31,
2007
|
1
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Income for the Three Months Ended March
31,
2008 and 2007
|
2
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
March 31,
2008 and 2007
|
3
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
4
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
22
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
22
|
|
|
|
|
Part
II.
|
Other
Information:
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
22
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
22
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
23
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Securities Holders
|
23
|
|
|
|
|
|
Item
5.
|
Other
Information
|
23
|
|
|
|
|
|
Item
6.
|
Exhibits
|
24
|
PART
I. FINANCIAL
INFORMATION
Item
1. Financial
Statements
UNIVEST
CORPORATION OF PENNSYLVANIA
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(UNAUDITED)
|
|
(SEE
NOTE)
|
|
|
|
March 31, 2008
|
|
December 31, 2007
|
|
|
|
($
in thousands, except per share data)
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
43,538
|
|
$
|
47,135
|
|
Interest-bearing
deposits with other banks
|
|
|
480
|
|
|
502
|
|
Federal
funds sold
|
|
|
41,300
|
|
|
11,748
|
|
Investment
securities held-to-maturity (fair value $31,190 and $1,933 at March
31,
2008 and December 31, 2007, respectively)
|
|
|
31,105
|
|
|
1,862
|
|
Investment
securities available-for-sale
|
|
|
440,857
|
|
|
421,586
|
|
Loans
and leases
|
|
|
1,357,887
|
|
|
1,355,442
|
|
Less:
Reserve for loan and lease losses
|
|
|
(12,997
|
)
|
|
(13,086
|
)
|
Net
loans and leases
|
|
|
1,344,890
|
|
|
1,342,356
|
|
Premises
and equipment, net
|
|
|
30,290
|
|
|
27,977
|
|
Goodwill,
net of accumulated amortization of $2,942 at March 31, 2008 and December
31, 2007
|
|
|
44,589
|
|
|
44,438
|
|
Other
intangibles, net of accumulated amortization of $6,073 and $5,855
at March
31, 2008 and December 31, 2007, respectively
|
|
|
2,442
|
|
|
2,643
|
|
Cash
surrender value of insurance policies
|
|
|
47,114
|
|
|
46,689
|
|
Accrued
interest and other assets
|
|
|
32,967
|
|
|
25,569
|
|
Total
assets
|
|
$
|
2,059,572
|
|
$
|
1,972,505
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Demand
deposits, noninterest-bearing
|
|
$
|
230,531
|
|
$
|
226,513
|
|
Demand
deposits, interest-bearing
|
|
|
665,382
|
|
|
582,528
|
|
Savings
deposits
|
|
|
260,231
|
|
|
233,766
|
|
Time
deposits
|
|
|
460,699
|
|
|
489,796
|
|
Total
deposits
|
|
|
1,616,843
|
|
|
1,532,603
|
|
Securities
sold under agreements to repurchase
|
|
|
78,107
|
|
|
94,276
|
|
Accrued
expenses and other liabilities
|
|
|
37,393
|
|
|
32,447
|
|
Long-term
debt
|
|
|
95,472
|
|
|
85,584
|
|
Subordinated
notes
|
|
|
7,875
|
|
|
8,250
|
|
Company-obligated
mandatorily redeemable preferred securities of subsidiary trusts
holding
junior subordinated debentures of Univest (“Trust
Preferred Securities”)
|
|
|
20,619
|
|
|
20,619
|
|
Total
liabilities
|
|
|
1,856,309
|
|
|
1,773,779
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Common
stock, $5 par value: 24,000,000 shares authorized at March 31, 2008
and
December 31, 2007; 14,873,904 shares issued at March 31, 2008 and
December
31, 2007; 12,843,507 and 12,830,609 shares outstanding at March 31,
2008
and December 31, 2007, respectively
|
|
|
74,370
|
|
|
74,370
|
|
Additional
paid-in capital
|
|
|
22,644
|
|
|
22,591
|
|
Retained
earnings
|
|
|
145,678
|
|
|
143,066
|
|
Accumulated
other comprehensive loss, net of tax benefit
|
|
|
(42
|
)
|
|
(1,768
|
)
|
Unearned
compensation—Restricted Stock Awards
|
|
|
(499
|
)
|
|
(380
|
)
|
Treasury
stock, at cost; 2,030,397 and 2,043,295 shares at March 31, 2008
and
December 31, 2007, respectively
|
|
|
(38,888
|
)
|
|
(39,153
|
)
|
Total
shareholders’ equity
|
|
|
203,263
|
|
|
198,726
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,059,572
|
|
$
|
1,972,505
|
|
Note:
The
condensed consolidated balance sheet at December 31, 2007 has been derived
from
the audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. See accompanying notes
to the unaudited condensed consolidated financial statements.
UNIVEST
CORPORATION OF PENNSYLVANIA
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
For the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
($
in thousands, except per share data)
|
|
Interest
income
|
|
|
Interest
and fees on loans and leases:
|
|
|
|
|
|
|
|
Taxable
|
|
$
|
21,366
|
|
$
|
22,585
|
|
Exempt
from federal income taxes
|
|
|
933
|
|
|
1,019
|
|
Total
interest and fees on loans and leases
|
|
|
22,299
|
|
|
23,604
|
|
Interest
and dividends on investment securities:
|
|
|
|
|
|
|
|
Taxable
|
|
|
4,474
|
|
|
3,684
|
|
Exempt
from federal income taxes
|
|
|
1,058
|
|
|
948
|
|
Other
interest income
|
|
|
262
|
|
|
64
|
|
Total
interest income
|
|
|
28,093
|
|
|
28,300
|
|
Interest
expense
|
|
|
|
|
|
|
|
Interest
on deposits
|
|
|
10,307
|
|
|
10,395
|
|
Interest
on long-term borrowings
|
|
|
1,499
|
|
|
1,466
|
|
Interest
on short-term debt
|
|
|
356
|
|
|
994
|
|
Total
interest expense
|
|
|
12,162
|
|
|
12,855
|
|
Net
interest income
|
|
|
15,931
|
|
|
15,445
|
|
Provision
for loan and lease losses
|
|
|
999
|
|
|
624
|
|
Net
interest income after provision for loan and lease losses
|
|
|
14,932
|
|
|
14,821
|
|
Noninterest
income
|
|
|
|
|
|
|
|
Trust
fee income
|
|
|
1,627
|
|
|
1,487
|
|
Service
charges on deposit accounts
|
|
|
1,658
|
|
|
1,650
|
|
Investment
advisory commission and fee income
|
|
|
615
|
|
|
679
|
|
Insurance
commission and fee income
|
|
|
2,058
|
|
|
1,875
|
|
Life
insurance income
|
|
|
791
|
|
|
322
|
|
Other
service fee income
|
|
|
758
|
|
|
866
|
|
Net
gain (loss) on sales of securities
|
|
|
56
|
|
|
─
|
|
Other
|
|
|
94
|
|
|
37
|
|
Total
noninterest income
|
|
|
7,657
|
|
|
6,916
|
|
Noninterest
expense
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
8,168
|
|
|
7,794
|
|
Net
occupancy
|
|
|
1,291
|
|
|
1,251
|
|
Equipment
|
|
|
766
|
|
|
775
|
|
Marketing
and advertising
|
|
|
189
|
|
|
165
|
|
Other
|
|
|
3,194
|
|
|
3,177
|
|
Total
noninterest expense
|
|
|
13,608
|
|
|
13,162
|
|
Income
before income taxes
|
|
|
8,981
|
|
|
8,575
|
|
Applicable
income taxes
|
|
|
2,260
|
|
|
2,328
|
|
Net
income
|
|
$
|
6,721
|
|
$
|
6,247
|
|
Net
income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.52
|
|
$
|
0.48
|
|
Diluted
|
|
|
0.52
|
|
|
0.48
|
|
Dividends
declared
|
|
|
0.20
|
|
|
0.20
|
|
Note:
See
accompanying notes to the unaudited condensed consolidated financial
statements.
UNIVEST
CORPORATION OF PENNSYLVANIA
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
|
|
($
in thousands)
|
Cash
flows from operating activities:
|
|
|
Net
income
|
|
$
|
6,721
|
|
$
|
6,247
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
Provision
for loan and lease losses
|
|
|
999
|
|
|
624
|
|
Depreciation
of premises and equipment
|
|
|
500
|
|
|
513
|
|
Realized
gains on investment securities
|
|
|
(56
|
)
|
|
─
|
|
Increase
in cash surrender value of insurance policies
|
|
|
(302
|
)
|
|
(322
|
)
|
Other
adjustments to reconcile net income to cash provided by operating
activities
|
|
|
(248
|
)
|
|
(59
|
)
|
(Increase)
decrease in interest receivable and other assets
|
|
|
(8,091
|
)
|
|
1,257
|
|
Increase
in accrued expenses and other liabilities
|
|
|
3,291
|
|
|
5,441
|
|
Net
cash provided by operating activities
|
|
|
2,814
|
|
|
13,701
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Net
cash paid due to acquisitions, net of cash acquired
|
|
|
(151
|
)
|
|
(198
|
)
|
Net
capital expenditures
|
|
|
(2,814
|
)
|
|
(467
|
)
|
Proceeds
from maturing securities held-to-maturity
|
|
|
132
|
|
|
226
|
|
Proceeds
from maturing securities available-for-sale
|
|
|
67,958
|
|
|
16,267
|
|
Proceeds
from sales and calls of securities available-for-sale
|
|
|
42,407
|
|
|
8,380
|
|
Purchases
of investment securities held-to-maturity
|
|
|
(29,375
|
)
|
|
─
|
|
Purchases
of investment securities available-for-sale
|
|
|
(126,897
|
)
|
|
(21,115
|
)
|
Proceeds
from sales of loans and leases
|
|
|
1,615
|
|
|
246
|
|
Purchases
of lease financings
|
|
|
(6,975
|
)
|
|
(6,478
|
)
|
Net
decrease (increase) in loans and leases
|
|
|
1,867
|
|
|
(13,034
|
)
|
Net
decrease in interest-bearing deposits
|
|
|
22
|
|
|
104
|
|
Net
(increase) decrease in federal funds sold
|
|
|
(29,552
|
)
|
|
7,397
|
|
Net
cash used in investing activities
|
|
|
(81,763
|
)
|
|
(8,672
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
84,246
|
|
|
32,741
|
|
Net
decrease in short-term borrowings
|
|
|
(16,169
|
)
|
|
(33,835
|
)
|
Issuance
of long-term debt
|
|
|
10,000
|
|
|
─
|
|
Repayment
of long-term debt
|
|
|
─
|
|
|
(1,000
|
)
|
Repayment
of subordinated debt
|
|
|
(375
|
)
|
|
(375
|
)
|
Purchases
of treasury stock
|
|
|
(435
|
)
|
|
(1,273
|
)
|
Proceeds
from sales of treasury stock
|
|
|
121
|
|
|
─
|
|
Stock
issued under dividend reinvestment and employee stock purchase
plans
|
|
|
513
|
|
|
492
|
|
Proceeds
from exercise of stock options, including tax benefits
|
|
|
10
|
|
|
151
|
|
Cash
dividends paid
|
|
|
(2,559
|
)
|
|
(2,595
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
75,352
|
|
|
(5,694
|
)
|
Net
decrease in cash and due from banks
|
|
|
(3,597
|
)
|
|
(665
|
)
|
Cash
and due from banks at beginning of year
|
|
|
47,135
|
|
|
46,956
|
|
Cash
and due from banks at end of period
|
|
$
|
43,538
|
|
$
|
46,291
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
14,691
|
|
$
|
13,623
|
|
Income
taxes, net of refunds received
|
|
|
2,265
|
|
|
(2
|
)
|
Note:
See
accompanying notes to the unaudited condensed consolidated financial
statements.
UNIVEST
CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes
to the Unaudited Condensed Consolidated Financial
Statements
Note
1. Financial Information
The
accompanying unaudited condensed consolidated financial statements include
the
accounts of Univest Corporation of Pennsylvania (the “Corporation”) and its
wholly owned subsidiaries; the Corporation’s primary subsidiary is Univest
National Bank and Trust Co. (the “Bank”). The unaudited condensed consolidated
financial statements included herein have been prepared without audit pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
in the United States have been condensed or omitted pursuant to such rules
and
regulations. The accompanying unaudited condensed consolidated financial
statements reflect all adjustments which are of a normal recurring nature and
are, in the opinion of management, necessary to present a fair statement of
the
results and condition for the interim periods presented. Operating results
for
the three-month period ended March 31, 2008 are not necessarily indicative
of
the results that may be expected for the year ending December 31, 2008. It
is
suggested that these unaudited condensed consolidated financial statements
be
read in conjunction with the financial statements and the notes thereto included
in the registrant’s Annual Report on Form 10-K for the year ended December
31, 2007, which has been filed with the SEC on March 6, 2008.
Note
2. Loans
The
following is a summary of the major loan and lease categories:
($
in thousands)
|
|
At
March 31,
2008
|
|
At December 31,
2007
|
|
Commercial,
financial and agricultural
|
|
$
|
389,232
|
|
$
|
381,826
|
|
Real
estate-commercial
|
|
|
388,213
|
|
|
393,686
|
|
Real
estate-construction
|
|
|
138,187
|
|
|
134,448
|
|
Real
estate-residential
|
|
|
304,788
|
|
|
310,571
|
|
Loans
to individuals
|
|
|
66,475
|
|
|
72,476
|
|
Lease
financings
|
|
|
77,573
|
|
|
68,100
|
|
Total
gross loans and leases
|
|
|
1,364,468
|
|
|
1,361,107
|
|
Less:
Unearned income
|
|
|
(6,581
|
)
|
|
(5,665
|
)
|
Total
loans and leases
|
|
$
|
1,357,887
|
|
$
|
1,355,442
|
|
Note
3. Reserve for Loan and Lease Losses
A
summary
of the activity in the reserve for loan and lease losses is as
follows:
($
in thousands)
|
|
Three
Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
Reserve
for loan and lease losses at beginning of period
|
|
$
|
13,086
|
|
$
|
13,283
|
|
Provision
for loan and lease losses
|
|
|
999
|
|
|
624
|
|
Recoveries
|
|
|
109
|
|
|
159
|
|
Loans
charged off
|
|
|
(1,197
|
)
|
|
(652
|
)
|
Reserve
for loan and lease losses at period end
|
|
$
|
12,997
|
|
$
|
13,414
|
|
Information
with respect to loans and leases that are considered to be impaired under SFAS
114 at March 31, 2008 and December 31, 2007 is as follows:
|
|
At
March 31, 2008
|
|
At
December 31, 2007
|
|
($
in thousands)
|
|
Balance
|
|
Specific
Reserve
|
|
Balance
|
|
Specific
Reserve
|
|
Recorded
investment in impaired loans and leases at period-end subject to
a
specific reserve for loan and lease losses and corresponding specific
reserve
|
|
$
|
4,210
|
|
$
|
1,718
|
|
$
|
4,120
|
|
$
|
1,755
|
|
Recorded
investment in impaired loans and leases at period-end requiring no
specific reserve for loan and lease losses
|
|
|
1,955
|
|
|
|
|
|
2,758
|
|
|
|
|
Recorded
investment in impaired loans and leases at period-end
|
|
$
|
6,165
|
|
|
|
|
$
|
6,878
|
|
|
|
|
Recorded
investment in nonaccrual and restructured loans and leases
|
|
$
|
6,165
|
|
|
|
|
$
|
6,878
|
|
|
|
|
The
following is an analysis of interest on nonaccrual and restructured loans and
leases:
|
|
Three
Months Ended
|
|
($
in thousands)
|
|
March
31,
|
|
|
|
2008
|
|
2007
|
|
Nonaccrual
and restructured loans and leases at period end
|
|
$
|
6,165
|
|
$
|
7,752
|
|
Average
recorded investment in impaired loans and leases
|
|
|
6,564
|
|
|
8,186
|
|
Interest
income that would have been recognized under original
terms
|
|
|
142
|
|
|
198
|
|
No
interest income was recognized on these loans and leases for the three-month
periods ended March 31, 2008 and 2007.
Note
4. Earnings Per Share
The
following table sets forth the computation of basic and diluted earnings per
share:
(in
thousands, except per share data)
|
|
Three
Months Ended
March
31,
|
|
|
|
2008
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
Numerator
for basic and diluted earnings per share – income
available to common shareholders
|
|
$
|
6,721
|
|
$
|
6,247
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator
for basic earnings per share – weighted-average
shares outstanding
|
|
|
12,839
|
|
|
13,004
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
Employee
stock options
|
|
|
15
|
|
|
49
|
|
Denominator
for diluted earnings per share – adjusted weighted-average
shares outstanding
|
|
|
12,854
|
|
|
13,053
|
|
Basic
earnings per share
|
|
$
|
0.52
|
|
$
|
0.48
|
|
Diluted
earnings per share
|
|
$
|
0.52
|
|
$
|
0.48
|
|
Note
5. Accumulated Comprehensive Income
The
following shows the accumulated comprehensive income, net of income taxes,
for
the periods presented:
|
|
For
the Three Months
|
|
|
|
Ended
March 31,
|
|
($
in thousands)
|
|
2008
|
|
2007
|
|
Net
Income
|
|
$
|
6,721
|
|
$
|
6,247
|
|
Unrealized
gain (loss) on available-for-sale investment securities:
|
|
|
|
|
|
|
|
Unrealized
gains arising during the period
|
|
|
1,681
|
|
|
509
|
|
Less:
reclassification adjustment for gains realized in net income
|
|
|
36
|
|
|
—
|
|
Defined
benefit pension plans:
|
|
|
|
|
|
|
|
Unrealized
gains (losses) arising during the period
|
|
|
4
|
|
|
(61
|
)
|
Less:
amortization of net gain included in net periodic pension
costs
|
|
|
(59
|
)
|
|
(47
|
)
|
Prior
service costs rising during the period
|
|
|
28
|
|
|
9
|
|
Less:
accretion of prior service cost included in net periodic pension
costs
|
|
|
10
|
|
|
15
|
|
Total
comprehensive income
|
|
$
|
8,447
|
|
$
|
6,736
|
|
Note
6. Pensions and Other Postretirement Benefits
Components
of net periodic benefit cost:
($
in thousands)
|
|
Three
Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
Retirement
Plans
|
|
Other
Postretirement
|
|
Service
cost
|
|
$
|
330
|
|
$
|
362
|
|
$
|
17
|
|
$
|
16
|
|
Interest
cost
|
|
|
462
|
|
|
419
|
|
|
21
|
|
|
19
|
|
Expected
return on plan assets
|
|
|
(458
|
)
|
|
(415
|
)
|
|
|
|
|
|
|
Amortization
of net loss
|
|
|
90
|
|
|
70
|
|
|
1
|
|
|
3
|
|
Amortization
of prior service cost
|
|
|
(10
|
)
|
|
(18
|
)
|
|
(5
|
)
|
|
(5
|
)
|
Net
periodic benefit cost
|
|
$
|
414
|
|
$
|
418
|
|
$
|
34
|
|
$
|
33
|
|
The
Corporation previously disclosed in its financial statements for the year ended
December 31, 2007, that it expected to make payments of $2.1 million for its
qualified and non-qualified retirement plans and $97 thousand for its other
postretirement benefit plans in 2008. As of March
31,
2008,
$464
thousand and $22 thousand have been paid to participants from its qualified
and non-qualified retirement plans and other postretirement plans, respectively.
During the three months ended March
31,
2008,
the
Corporation contributed $173 thousand and $22 thousand to its non-qualified
retirement plans and other postretirement plans, respectively.
On
January 1, 2008, the Corporation adopted Emerging Issues Task Force No. 06-4,
“Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-4.”) Under
EITF 06-4, if an
agreement is to provide an employee with a death benefit in a postretirement/
termination period, the employer should recognize a liability for the future
death benefit in accordance with either Statement of Financial Accounting
Standard (“SFAS”) No. 106, “Employers’ Accounting for Postretirement Benefits
Other than Pensions” or Accounting Principles Board Opinion No. 12.
EITF 06-4
requires that recognition of the effects of adoption should be either by
(a) a change in accounting principle through a cumulative-effect adjustment
to retained earnings as of the beginning of the year of adoption or (b) a
change in accounting principle through retrospective application to all prior
periods.
The
Corporation chose option (a) as its method of adoption for EITF 06-4.
The
following table shows the incremental effect of applying EITF 06-4 on individual
line items in the Consolidated Balance Sheet at January 1, 2008:
($
in thousands)
|
|
Before
Application of
EITF
06-4
|
|
Adjustments
|
|
After
Application of
EITF
06-4
|
|
Cash
surrender value of insurance policies
|
|
$
|
46,689
|
|
$
|
123
|
|
$
|
46,812
|
|
Total
assets
|
|
|
1,972,505
|
|
|
123
|
|
|
1,972,628
|
|
Accrued
split-dollar life insurance payable
|
|
|
|
|
|
1,673
|
|
|
1,673
|
|
Total
liabilities
|
|
|
1,773,779
|
|
|
1,673
|
|
|
1,775,452
|
|
Retained
earnings
|
|
|
143,066
|
|
|
(1,550
|
)
|
|
141,516
|
|
Total
shareholders’ equity
|
|
|
198,726
|
|
|
(1,550
|
)
|
|
197,176
|
|
Total
liabilities and shareholders’ equity
|
|
|
1,972,505
|
|
|
123
|
|
|
1,972,628
|
|
Note
7. Income Taxes
As
of
January 1, 2008 the Corporation had no material unrecognized tax benefits,
accrued interest or penalties. Penalties are recorded in non-interest expense
in
the year they are assessed and are treated as a non-deductible expense for
tax
purposes. Interest is recorded in non-interest expense in the year it is
assessed and is treated as a deductible expense for tax purposes. Tax Years
2004
through 2007 remain subject to Federal examination as well as examination by
state taxing jurisdictions.
Note
8. Fair Value Disclosures
As
of
January 1, 2008 and effective for the reporting period ended March 31, 2008,
the
Corporation adopted SFAS No. 157, “Fair Value Measurements” (“SFAS 157.”) SFAS
157 establishes a framework for measuring fair value and expands disclosures
about fair measurements. SFAS 157 defines fair value as the exchange price
that
would be received for an asset or paid to transfer a liability in the principal
or most advantageous market for the asset or liability. The Corporation does
not
currently hold any trading assets, derivative contracts or other financial
instruments that are measured at fair value on a recurring basis that were
impacted by the adoption of SFAS 157.
SFAS
157
establishes a hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs when
measuring fair value. Observable inputs are inputs that market participants
would use in pricing the asset or liability developed based on market data
obtained from sources independent of the Corporation. Unobservable inputs are
inputs that reflect the Corporation’s assumptions that the market participants
would use in pricing the asset or liability based on the best information
available in the circumstances. The hierarchy is broken down into three levels
based on the reliability of inputs as follows:
|
§
|
Level
1—Valuations are based on quoted prices in active markets for identical
assets or liabilities that the Corporation has the ability to access.
Since valuations are based on quoted prices that are readily and
regularly
available in an active market, valuation of these products does not
entail
a significant degree of judgment. Assets and liabilities utilizing
Level 1
inputs include: Exchange-traded equity and most U.S. Government
securities.
|
|
§
|
Level
2—Valuations are based on quoted prices in markets that are not active
or
for which all significant inputs are observable, either directly
or
indirectly. Assets and liabilities utilizing Level 2 inputs include:
most
U.S. Government agency mortgage-backed debt securities (“MBS”), corporate
debt securities, corporate and municipal bonds, asset-backed securities
(“ABS”), residential mortgage loans held for sale and mortgage servicing
rights.
|
|
§
|
Level
3—Valuations are based on inputs that are unobservable and significant
to
the overall fair value measurement. Assets and liabilities utilizing
Level
3 inputs include: financial instruments whose value is determined
using
pricing models, discounted cash-flow methodologies, or similar techniques,
as well as instruments for which the fair value calculation requires
significant management judgment or estimation. These assets and
liabilities include: certain commercial mortgage obligations (“CMOs”), MBS
and ABS securities; and not readily marketable equity
investments.
|
Following
is a description of the valuation methodologies used for instruments measured
at
fair value, as well as the general classification of such instruments pursuant
to the valuation hierarchy.
Investment
Securities
Where
quoted prices are available in an active market for identical instruments,
investment securities are classified within Level 1 of the valuation hierarchy.
Level 1 investment securities include highly liquid U.S. Treasury securities,
U.S. Government sponsored enterprises, and most equity securities. If quoted
market prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics or discounted
cash flows. Examples of such instruments, which would generally be classified
within Level 2 of the valuation hierarchy, include certain MBS, CMOs, ABS and
municipal bonds. In cases where there is limited activity or less transparency
around inputs to the valuation, investment securities are classified within
Level 3 of the valuation hierarchy. Investment securities classified within
Level 3 include certain equity securities that do not have readily available
market prices, certain municipal bonds, certain ABS and other less liquid
investment securities.
Loans
Held for Sale
The
fair
value of the Corporation’s loans held for sale are generally determined using a
pricing model based on current market information obtained from external
sources, including, interest rates, and bids or indications provided by market
participants on specific loans that are actively marketed for sale. The
Company’s loans held for sale are primarily residential mortgage loan and are
generally classified in Level 2 due to the observable pricing data.
Mortgage
Servicing Rights
The
Corporation estimates the fair value of Mortgage Servicing Rights (“MRS”) using
discounted cash flow models that calculate the present value of estimated future
net servicing income. The model uses readily available prepayment speed
assumptions for the current interest rates of the portfolios serviced. MSRs
are
classified within level 2 of the valuation hierarchy. MSRs are carried at the
lower of amortized cost or estimated fair value.
Assets
and liabilities measured at fair value on a recurring basis, all of which were
measured at fair value prior to the adoption of SFAS 157, are summarized
below:
($
in thousands)
|
|
At
March 31, 2008
|
|
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Assets/
Liabilities
at
Fair
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
3,153
|
|
$
|
427,145
|
|
$
|
10,559
|
|
$
|
440,857
|
|
Mortgage
servicing rights
|
|
|
─
|
|
|
438
|
|
|
─
|
|
|
438
|
|
Total
assets
|
|
$
|
3,153
|
|
$
|
427,583
|
|
$
|
10,559
|
|
$
|
441,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
─
|
|
$
|
─
|
|
$
|
─
|
|
$
|
─
|
|
The
following table presents additional information about assets and liabilities
measured at fair value on a recurring basis and for which the Corporation
utilized Level 3 inputs to determine fair value:
($
in thousands)
|
|
At
March 31,
2008
|
|
|
|
Balance
at
December 31,
2007
|
|
Total
Unrealized
Gains
or
(Losses)
|
|
Total
Realized
Gains
or
(Losses)
|
|
Purchases
(Sales
or
Paydowns)
|
|
Balance
at
March
31,
2008
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed
securities
|
|
$
|
1,995
|
|
$
|
20
|
|
$
|
─
|
|
$
|
(66
|
)
|
$
|
1,949
|
|
Commercial
mortgage obligations
|
|
|
7,644
|
|
|
(363
|
)
|
|
─
|
|
|
(252
|
)
|
|
7,029
|
|
Not
readily marketable equity securities
|
|
|
1,581
|
|
|
─
|
|
|
─
|
|
|
─
|
|
|
1,581
|
|
Total
Level 3 assets
|
|
$
|
11,220
|
|
$
|
(343
|
)
|
$
|
─
|
|
$
|
(318
|
)
|
$
|
10,559
|
|
Realized
gains or losses are recognized in the Consolidated Statement of Income. There
were no gains or losses recognized on Level 3 assets during the three-month
period ended March 31, 2008.
Note
9. Related-Party Transactions
During
the first quarter of 2008, Univest purchased $29.4 million in tax-free
municipal bonds issued on behalf of Grand View Hospital. William S. Aichele,
Chairman, President and CEO of the Corporation, and P. Gregory Shelly, Director
of the Corporation, are members of the Board of Trustees for Grand View
Hospital.
Note
10. Recent Accounting Pronouncements
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 enhances disclosures about fair
value of derivative instruments and their gains or losses and the company’s
objectives and strategies for using derivative instruments and whether or not
they are designated as hedging instruments. SFAS 161 is effective prospectively
for interim periods and fiscal years beginning after November 15, 2008. The
Corporation does not anticipate the adoption of SFAS 161 to have a material
impact on its consolidated financial statements.
Note
11. Subsequent Event
On
April
7, 2008 a retired key employee passed away. The Corporation held several BOLI
policies on this individual for which the death benefit exceeded the cash
surrender value. In the Second Quarter of 2008, the Corporation expects to
record this excess into income which is approximated to be $1.4
million.
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
(All
dollar amounts presented within tables are in thousands, except per share data.
“N/M” equates to “not meaningful”; “─“
equates to “zero” or “doesn’t round to a reportable number”; and “N/A” equates
to “not applicable”.)
Forward-Looking
Statements
The
information contained in this report may contain forward-looking statements.
When used or incorporated by reference in disclosure documents, the words
"believe," "anticipate," "estimate," "expect," "project," "target," "goal"
and
similar expressions are intended to identify forward-looking statements within
the meaning of section 27A of the Securities Act of 1933. Such forward-looking
statements are subject to certain risks, uncertainties and assumptions,
including those set forth below:
|
· |
Operating,
legal and regulatory risks
|
|
· |
Economic,
political and competitive forces impacting various lines of
business
|
|
· |
The
risk that our analysis of these risks and forces could be incorrect
and/or
that the strategies developed to address them could be
unsuccessful
|
|
· |
Volatility
in interest rates
|
|
· |
Other
risks and uncertainties
|
Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated, expected or projected. These forward-looking statements
speak only as of the date of the report. The Corporation expressly disclaims
any
obligation to publicly release any updates or revisions to reflect any change
in
the Corporation's expectations with regard to any change in events, conditions
or circumstances on which any such statement is based.
General
Univest
Corporation of Pennsylvania, (the “Corporation”), is a Financial Holding
Company. It owns all of the capital stock of Univest National Bank and Trust
Co.
(the “Bank”), Univest Realty Corporation, Univest Delaware, Inc., and Univest
Reinsurance Corporation.
The
Bank
is engaged in the general commercial banking business and provides a full range
of banking services and trust services to its customers. Univest Capital, Inc.,
a wholly owned subsidiary of the Bank, provides lease financing. Delview, Inc.,
a wholly owned subsidiary of the Bank, provides various financial services
including financial planning, investment management, insurance products and
brokerage services to individuals and businesses through its subsidiaries
Univest Investments, Inc. and Univest Insurance, Inc.
Executive
Overview
The
Corporation recorded net income for the three months ended March
31,
2008
of
$6.7 million, a 7.6% increase over the March 31, 2007 period. Basic and
diluted net income per share increased 8.3%.
Average
earning assets increased $93.0 million and average interest-bearing liabilities
increased $92.9 million when comparing the three-month periods ended
March
31,
2008
and
2007. Increased volume on other securities, federal funds sold and lease
financings along with decreased rates on money market savings were partially
offset by decreased rates on commercial business loans and commercial and
construction real estate loans; this contributed to a $486 thousand
increase in net interest income. The tax-equivalent net interest margin declined
to 3.66% for the three-month period ended March 31, 2008 compared to 3.81%
for
the same period in 2007.
Non-interest
income grew 10.7%, when comparing the three-month periods ended March
31,
2008
to 2007,
primarily due to increases in trust fee income, insurance commissions and fee
income and life insurance income. Non-interest expense grew 3.4% primarily
due
to increases in salary and employee benefits, net occupancy expenses and
marketing and advertising expense. These increases were offset by a slight
decrease in equipment expense.
The
Corporation earns its revenues primarily from the margins and fees it generates
from loans and leases and depository services it provides as well as from trust,
insurance and investment commissions and fees. The Corporation seeks to achieve
adequate and reliable earnings by growing its business while maintaining
adequate levels of capital and liquidity and limiting its exposure to credit
and
interest rate risk to Board approved levels. As interest rates increase,
fixed-rate assets that banks hold will tend to decrease in value; conversely,
as
interest rates decline, fixed-rate assets that banks hold will tend to increase
in value. The Corporation maintains a relatively neutral interest rate risk
profile and anticipates that an increase or decrease within 200 basis points
in
interest rates would not significantly impact its net interest
margin.
The
Corporation seeks to establish itself as the financial provider of choice in
the
markets it serves. It plans to achieve this goal by offering a broad range
of
high quality financial products and services and by increasing market awareness
of its brand and the benefits that can be derived from its products. The
Corporation operates in an attractive market for financial services but also
is
in intense competition with domestic and international banking organizations
and
other insurance and investment providers for the financial services business.
The Corporation has taken initiatives to achieve its business objectives by
acquiring banks and other financial service providers in strategic markets,
through marketing, public relations and advertising, by establishing standards
of service excellence for its customers, and by using technology to ensure
that
the needs of its customers are understood and satisfied.
Results
of Operations – Three Months Ended March 31, 2008 Versus 2007
The
Corporation’s consolidated net income and earnings per share for the three
months ended March 31, 2008 and 2007 were as follows:
($
in thousands, except per share data)
|
|
Three
Months Ended
March
31,
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
Net
income
|
|
$
|
6,721
|
|
$
|
6,247
|
|
$
|
474
|
|
|
7.6
|
%
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.52
|
|
$
|
0.48
|
|
$
|
0.04
|
|
|
8.3
|
%
|
Diluted
|
|
|
0.52
|
|
|
0.48
|
|
|
0.04
|
|
|
8.3
|
|
Return
on
average shareholders' equity was 13.41% and return on average assets was 1.34%
for the three months ended March 31, 2008 compared to 13.33% and 1.31%,
respectively, for the same period in 2007.
Net
Interest Income
Net
interest income is the difference between interest earned on loans and leases,
investments and other interest-earning assets and interest paid on deposits
and
other interest-bearing liabilities. Net interest income is the principal source
of the Corporation's revenue. Table 1 presents a summary of the Corporation's
average balances; the tax-equivalent yields earned on average assets, and the
cost of average liabilities, and shareholders’ equity on a tax-equivalent basis
for the three months ended March 31, 2008 and 2007. Table 2 analyzes the changes
in the tax-equivalent net interest income for the periods broken down by their
rate and volume components. 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 stable net interest
margin for the Corporation.
Net
interest income increased $486 thousand for the three months ended March 31,
2008 compared to 2007 primarily due to increased volume on lease financings,
increased volume on federal funds sold and increased volume on other securities;
partially offset by decreased volume and rates on commercial loans, increased
volume and rates on regular savings deposits as well as decreased volume on
certificates of deposit. The decrease in rates is attributable to the 200 basis
point reduction in the prime interest rate that occurred during the first
quarter of 2008. The tax-equivalent net interest margin, which is tax-equivalent
net interest income as a percentage of average interest-earning assets, was
3.66% and 3.81% for the three-month periods ended March 31, 2008 and 2007,
respectively. The tax-equivalent net interest spread, which represents the
difference between the weighted average tax-equivalent yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities, was 3.19%
for the three months ended March 31, 2008 compared to 3.24% for the same period
in 2007. The effect of net interest free funding sources decreased to 0.47%
for
the three months ended March 31, 2008 compared to 0.57% for the same period
in
2007; this represents the effect on the net interest margin of net funding
provided by noninterest-earning assets, noninterest-bearing liabilities and
shareholders’ equity.
Table
1 — Distribution of Assets, Liabilities and Stockholders’
Equity; Interest
Rates and Interest Differential
|
|
For
the Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Average
|
|
Income/
|
|
Avg.
|
|
Average
|
|
Income/
|
|
Avg.
|
|
|
|
Balance
|
|
Expense
|
|
Rate
|
|
Balance
|
|
Expense
|
|
Rate
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
deposits with other banks
|
|
$
|
700
|
|
$
|
5
|
|
|
2.87
|
%
|
$
|
594
|
|
$
|
7
|
|
|
4.78
|
%
|
U.S.
Government obligations
|
|
|
102,777
|
|
|
1,242
|
|
|
4.86
|
|
|
123,249
|
|
|
1,351
|
|
|
4.45
|
|
Obligations
of states and political subdivisions
|
|
|
93,113
|
|
|
1,551
|
|
|
6.70
|
|
|
82,983
|
|
|
1,458
|
|
|
7.13
|
|
Other
debt and equity securities
|
|
|
252,251
|
|
|
3,207
|
|
|
5.11
|
|
|
175,961
|
|
|
2,308
|
|
|
5.32
|
|
Federal
Reserve Bank stock
|
|
|
1,687
|
|
|
25
|
|
|
5.96
|
|
|
1,687
|
|
|
25
|
|
|
6.01
|
|
Federal
funds sold
|
|
|
33,339
|
|
|
257
|
|
|
3.10
|
|
|
5,197
|
|
|
57
|
|
|
4.45
|
|
Total
interest-earning deposits, investments and federal funds
sold
|
|
|
483,867
|
|
|
6,287
|
|
|
5.23
|
|
|
389,671
|
|
|
5,206
|
|
|
5.42
|
|
Commercial,
financial and agricultural loans
|
|
|
357,138
|
|
|
6,211
|
|
|
6.99
|
|
|
407,934
|
|
|
7,967
|
|
|
7.92
|
|
Real
estate—commercial and construction loans
|
|
|
475,094
|
|
|
8,340
|
|
|
7.06
|
|
|
432,734
|
|
|
8,334
|
|
|
7.81
|
|
Real
estate—residential loans
|
|
|
307,157
|
|
|
4,130
|
|
|
5.41
|
|
|
305,199
|
|
|
4,112
|
|
|
5.46
|
|
Loans
to individuals
|
|
|
69,332
|
|
|
1,223
|
|
|
7.09
|
|
|
85,702
|
|
|
1,485
|
|
|
7.03
|
|
Municipal
loans and leases
|
|
|
81,490
|
|
|
1,259
|
|
|
6.21
|
|
|
92,839
|
|
|
1,469
|
|
|
6.42
|
|
Lease
financings
|
|
|
64,373
|
|
|
1,462
|
|
|
9.13
|
|
|
31,386
|
|
|
687
|
|
|
8.88
|
|
Gross
loans and leases
|
|
|
1,354,584
|
|
|
22,625
|
|
|
6.72
|
|
|
1,355,794
|
|
|
24,054
|
|
|
7.20
|
|
Total
interest-earning assets
|
|
|
1,838,451
|
|
|
28,912
|
|
|
6.33
|
|
|
1,745,465
|
|
|
29,260
|
|
|
6.80
|
|
Cash
and due from banks
|
|
|
35,621
|
|
|
|
|
|
|
|
|
39,075
|
|
|
|
|
|
|
|
Reserve
for loan and lease losses
|
|
|
(12,946
|
)
|
|
|
|
|
|
|
|
(13,315
|
)
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
|
29,215
|
|
|
|
|
|
|
|
|
21,888
|
|
|
|
|
|
|
|
Other
assets
|
|
|
115,341
|
|
|
|
|
|
|
|
|
108,845
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,005,682
|
|
|
|
|
|
|
|
$
|
1,901,958
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
checking deposits
|
|
$
|
139,567
|
|
|
125
|
|
|
0.36
|
|
$
|
136,634
|
|
$
|
91
|
|
|
0.27
|
%
|
Money
market savings
|
|
|
487,601
|
|
|
3,648
|
|
|
3.01
|
|
|
365,947
|
|
|
3,685
|
|
|
4.08
|
|
Regular
savings
|
|
|
247,266
|
|
|
1,088
|
|
|
1.77
|
|
|
198,145
|
|
|
717
|
|
|
1.47
|
|
Certificates
of deposit
|
|
|
467,036
|
|
|
5,385
|
|
|
4.64
|
|
|
515,957
|
|
|
5,705
|
|
|
4.48
|
|
Other
time deposits
|
|
|
7,428
|
|
|
61
|
|
|
3.30
|
|
|
17,164
|
|
|
197
|
|
|
4.65
|
|
Total
time and interest-bearing deposits
|
|
|
1,348,898
|
|
|
10,307
|
|
|
3.07
|
|
|
1,233,847
|
|
|
10,395
|
|
|
3.42
|
|
Federal
funds purchased
|
|
|
3,795
|
|
|
32
|
|
|
3.39
|
|
|
16,297
|
|
|
218
|
|
|
5.42
|
|
Securities
sold under agreements to repurchase
|
|
|
81,257
|
|
|
293
|
|
|
1.45
|
|
|
91,450
|
|
|
537
|
|
|
2.38
|
|
Other
short-term borrowings
|
|
|
3,991
|
|
|
31
|
|
|
3.12
|
|
|
17,794
|
|
|
239
|
|
|
5.45
|
|
Long-term
debt
|
|
|
92,675
|
|
|
1,011
|
|
|
4.39
|
|
|
76,883
|
|
|
884
|
|
|
4.66
|
|
Subordinated
notes and capital securities
|
|
|
28,535
|
|
|
488
|
|
|
6.88
|
|
|
29,998
|
|
|
582
|
|
|
7.87
|
|
Total
borrowings
|
|
|
210,253
|
|
|
1,855
|
|
|
3.55
|
|
|
232,422
|
|
|
2,460
|
|
|
4.29
|
|
Total
interest-bearing liabilities
|
|
|
1,559,151
|
|
|
12,162
|
|
|
3.14
|
|
|
1,466,269
|
|
|
12,855
|
|
|
3.56
|
|
Demand
deposits, non-interest bearing
|
|
|
216,795
|
|
|
|
|
|
|
|
|
218,933
|
|
|
|
|
|
|
|
Accrued
expenses and other liabilities
|
|
|
29,297
|
|
|
|
|
|
|
|
|
29,306
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,805,243
|
|
|
|
|
|
|
|
|
1,714,508
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
74,370
|
|
|
|
|
|
|
|
|
74,370
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
22,627
|
|
|
|
|
|
|
|
|
22,485
|
|
|
|
|
|
|
|
Retained
earnings and other equity
|
|
|
103,442
|
|
|
|
|
|
|
|
|
90,595
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
200,439
|
|
|
|
|
|
|
|
|
187,450
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
2,005,682
|
|
|
|
|
|
|
|
$
|
1,901,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
16,750
|
|
|
|
|
|
|
|
$
|
16,405
|
|
|
|
|
Net
interest spread
|
|
3.19
|
|
|
|
|
|
|
|
|
3.24
|
|
Effect
of net interest-free funding sources
|
|
0.47
|
|
|
|
|
|
|
|
|
0.57
|
|
Net
interest margin
|
|
3.66
|
%
|
|
|
|
|
|
|
|
3.81
|
%
|
Ratio
of average interest-earning assets to average interest-bearing
liabilities
|
|
|
117.91
|
%
|
|
|
|
|
|
|
|
119.04
|
%
|
|
|
|
|
|
|
Notes: |
Tax-equivalent
amounts have been calculated using the Corporation’s federal applicable
rate of 35 percent.
|
For
rate
calculation purposes, average loan and lease categories include unearned
discount.
Nonaccrual
loans and leases have been included in the average loan and lease balances.
Certain
amounts have been reclassified to conform to the current-year
presentation.
Analysis
of Changes in Net Interest Income
The
rate-volume variance analysis set forth in the table below compares changes
in
tax-equivalent net interest for the periods indicated by their rate and volume
components. The change in interest income/expense due to both volume and rate
has been allocated to change in volume.
|
|
The
Three Months Ended March 31,
2008
Versus 2007
|
|
|
|
Volume
Change
|
|
Rate
Change
|
|
Total
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
deposits with other banks
|
|
$
|
1
|
|
$
|
(3
|
)
|
$
|
(2
|
)
|
U.S.
Government obligations
|
|
|
(235
|
)
|
|
126
|
|
|
(109
|
)
|
Obligations
of states and political subdivisions
|
|
|
182
|
|
|
(89
|
)
|
|
93
|
|
Other
debt and equity securities
|
|
|
991
|
|
|
(92
|
)
|
|
899
|
|
Federal
Reserve Bank stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Federal
funds sold
|
|
|
217
|
|
|
(17
|
)
|
|
200
|
|
Interest
on deposits, investments and federal funds sold
|
|
|
1,156
|
|
|
(75
|
)
|
|
1,081
|
|
Commercial,
financial and agricultural loans and leases
|
|
|
(810
|
)
|
|
(946
|
)
|
|
(1,756
|
)
|
Real
estate—commercial and construction loans
|
|
|
815
|
|
|
(809
|
)
|
|
6
|
|
Real
estate—residential loans
|
|
|
56
|
|
|
(38
|
)
|
|
18
|
|
Loans
to individuals
|
|
|
(275
|
)
|
|
13
|
|
|
(262
|
)
|
Municipal
loans and leases
|
|
|
(161
|
)
|
|
(49
|
)
|
|
(210
|
)
|
Lease
financings
|
|
|
755
|
|
|
20
|
|
|
775
|
|
Interest
and fees on loans and leases
|
|
|
380
|
|
|
(1,809
|
)
|
|
(1,429
|
)
|
Total
interest income
|
|
|
1,536
|
|
|
(1,884
|
)
|
|
(348
|
)
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
Interest
checking deposits
|
|
|
3
|
|
|
31
|
|
|
34
|
|
Money
market savings
|
|
|
939
|
|
|
(976
|
)
|
|
(37
|
)
|
Regular
savings
|
|
|
223
|
|
|
148
|
|
|
371
|
|
Certificates
of deposit
|
|
|
(526
|
)
|
|
206
|
|
|
(320
|
)
|
Other
time deposits
|
|
|
(78
|
)
|
|
(58
|
)
|
|
(136
|
)
|
Interest
on deposits
|
|
|
561
|
|
|
(649
|
)
|
|
(88
|
)
|
Federal
funds purchased
|
|
|
(104
|
)
|
|
(82
|
)
|
|
(186
|
)
|
Securities
sold under agreement to repurchase
|
|
|
(32
|
)
|
|
(212
|
)
|
|
(244
|
)
|
Other
short-term borrowings
|
|
|
(105
|
)
|
|
(103
|
)
|
|
(208
|
)
|
Long-term
debt
|
|
|
179
|
|
|
(52
|
)
|
|
127
|
|
Subordinated
notes and capital securities
|
|
|
(20
|
)
|
|
(74
|
)
|
|
(94
|
)
|
Interest
on borrowings
|
|
|
(82
|
)
|
|
(523
|
)
|
|
(605
|
)
|
Total
interest expense
|
|
|
479
|
|
|
(1,172
|
)
|
|
(693
|
)
|
Net
interest income
|
|
$
|
1,057
|
|
$
|
(712
|
)
|
$
|
345
|
|
Notes: |
Tax-equivalent
amounts have been calculated using the Corporation’s federal applicable
rate of 35 percent.
|
Nonaccrual
loans and leases and unearned discounts have been included in the average loan
and lease balances.
Interest
Income
Interest
income on U. S. Government obligations decreased due to a decline in average
volume that was offset by an increase in average rates. Interest income on
obligations of states and political subdivisions increased due to average volume
increases that were offset by a decline in average rates. Interest income on
other securities increased primarily due to average volume increases on
mortgage-backed securities. Interest income increased on federal funds sold
was
due primarily to increases in average volume.
The
decline in interest and fees on loans and leases is due primarily to average
rate decreases on commercial business loans, real estate - commercial and
construction, and municipal loans and leases. The rate decreases are
attributable to the 200 basis point decline in prime rate which occurred during
the first quarter of 2008. The average interest yield on the commercial loan
portfolio decreased 93 basis points; which, along with average volume decline
of
$50.8 million, contributed to a $1.8 million decrease in interest
income. The average volume decline on loans to individuals of
$16.4 million, contributed to a $262 thousand decrease in interest
income. The average interest yield decreased on municipal loans and leases
of 21
basis points, combined with the average volume decline of $11.3 million,
contributed to a $210 thousand decrease in interest income. These decreases
were
offset by an increase in average volume on lease financings of $33.0 million;
this contributed to a $775 thousand increase in interest income.
Interest
Expense
The
Corporation’s average rate on deposits decreased 35 basis points for the three
months ended March 31, 2008 compared to the same period in 2007. The average
rate decrease is attributable to the 200 basis point decline in prime rate
which
occurred during the first quarter of 2008. The average rate paid on money market
savings decreased 107 basis points while the average volume increased
$121.7 million; the net effect contributed to a $37 thousand decrease in
interest expense. The increase in money market savings was primarily due to
a
$92.6 million short-term deposit received from one customer. Interest on
regular savings increased $371 thousand due to an average rate increase of
30 basis points and an average volume increase of $49.1 million. Interest
on certificates of deposit decreased $320 thousand, due to a $48.9 million
average decrease in volume that was offset by a 16 basis-point increase in
average rate. Interest on other time deposit accounts decreased $136 thousand
due to average rate decrease of 135 basis points and an average balance decrease
of $9.7 million. Average rate decreases along with the average volume growth
of
$115.1 million, contributed to an $88 thousand decrease in interest expense
on deposits.
Interest
expense on short-term borrowings includes interest paid on federal funds
purchased and short-term FHLB borrowings. In addition, the Bank offers an
automated cash management checking account that sweeps funds daily into a
repurchase agreement account (“sweep accounts”). Interest expense on short-term
borrowings decreased $638 thousand in the aggregate during the three months
ended March 31, 2008 compared to 2007 primarily due to average volume decreases
of $37.5 million and a 27 basis-point decline in rates.
Interest
expense on long-term debt increased $127 thousand primarily due to a volume
increase of $15.8 million partially offset by a 27 basis-point decrease in
the rate paid on FHLB long term borrowings.
Provision
for Loan and Lease Losses
The
reserve for loan and lease losses is determined through a periodic evaluation
that takes into consideration the growth of the loan and lease portfolio, the
status of past-due loans and leases, current economic conditions, various types
of lending activity, policies, real estate and other loan commitments, and
significant changes in charged-off activity. Loans and leases are also reviewed
for impairment based on discounted cash flows using the loans' an leases’
initial effective interest rates or the fair value of the collateral for certain
collateral dependent loans as provided for under SFAS No. 114, “Accounting
by Creditors for Impairment of a Loan” (“SFAS 114”). Any of the above criteria
may cause the reserve to fluctuate. The provision for the three months ended
March 31, 2008 and 2007 was $999 thousand and $624 thousand,
respectively.
Non-interest
Income
Non-interest
income consists of trust department fee income, service charges on deposits,
commission income, net gains on sales of securities, and other miscellaneous
types of income. It also includes various types of service fees, such as ATM
fees, and life insurance income which represents changes in the cash surrender
value of bank-owned life insurance policies and any excess proceeds from death
benefit claims. Total non-interest income increased during the three months
ended March 31, 2008 compared to 2007 primarily due to a death benefit
claim resulting in additional income of $489.0 thousand, increases in trust
fee
income and higher insurance commission and fee income. These increases were
offset by declines in investment advisory commission and fee income and other
service fee income.
|
|
For the Three Months
Ended March 31,
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
Trust
fee income
|
|
$
|
1,627
|
|
$
|
1,487
|
|
$
|
140
|
|
|
9.4
|
%
|
Service
charges on deposit accounts
|
|
|
1,658
|
|
|
1,650
|
|
|
8
|
|
|
0.5
|
|
Investment
advisory commission and fee income
|
|
|
615
|
|
|
679
|
|
|
(64
|
)
|
|
(9.4
|
)
|
Insurance
commission and fee income
|
|
|
2,058
|
|
|
1,875
|
|
|
183
|
|
|
9.8
|
|
Life
insurance income
|
|
|
791
|
|
|
322
|
|
|
469
|
|
|
145.7
|
|
Other
service fee income
|
|
|
758
|
|
|
866
|
|
|
(108
|
)
|
|
(12.5
|
)
|
Net
gain on sales of securities
|
|
|
56
|
|
|
—
|
|
|
56
|
|
|
N/M
|
|
Other
|
|
|
94
|
|
|
37
|
|
|
57
|
|
|
154.1
|
|
Total
non-interest income
|
|
$
|
7,657
|
|
$
|
6,916
|
|
$
|
741
|
|
|
10.7
|
|
Trust
fee
income increased in 2008 over 2007 primarily due to an increase in the number
and market value of managed accounts. Service charges on deposit accounts
remained relatively constant when comparing the first quarter of 2008 to the
same period in 2007.
Investment
advisory commissions and fee income, the primary source of income for Univest
Investments, Inc., decreased in 2008 over 2007 due to market fluctuations that
resulted in decreased fees and commissions received. Insurance commissions
and
fee income, the primary source of income for Univest Insurance, Inc. increased
in 2008 over 2007 primarily due to an increase in contingent commissions
received from insurance carriers. This was partially offset by decreased fees
and commission due to market conditions.
Life
insurance income is primarily the change in the cash surrender values of bank
owned life insurance policies, which is affected by the market value of the
underlying assets. Life insurance income may also be recognized as the result
of
a death benefit claim. The increase recognized in the first quarter of 2008
over
2007 was primarily due to additional income resulting from a death benefit
claim
of $489.0 thousand.
Other
service fee income primarily consists of fees from credit card companies for
a
portion of merchant charges paid to the credit card companies for the Bank’s
customer debit card usage (“Mastermoney fees”), non-customer debit card fees,
other merchant fees, mortgage servicing income and mortgage placement income.
Other service fee income decreased for the first quarter of 2008 over 2007
primarily due to decreases in the fair market value of mortgage servicing rights
and official check fees. These decreases were offset slightly by an increase
in
Mastermoney fees.
Other
non-interest income includes losses on investments in partnerships, gains on
sales of mortgages, gains on sales of other real estate owned, reinsurance
income and other miscellaneous income. Other non-interest income increased
over
prior year primarily due to a $66 thousand increase in the sale of loans and
leases as detailed below.
Gains
on Sale of Assets
Sales
of
$1.6 million in loans and leases during the three months ended March 31, 2008
resulted in gains of $81 thousand compared to sales of $244 thousand for
gains of $5 thousand for the three months ended March 31, 2007.
During
the three months ended March 31, 2008, approximately $5.4 million of securities
were sold recognizing gains of $56 thousand. During the three months ended
March
31, 2007, the Corporation sold $4.2 million in securities that resulted in
no
material gains or losses.
Non-interest
Expense
The
operating costs of the Corporation are known as non-interest expense, and
include, but are not limited to, salaries and benefits, equipment expense,
and
occupancy costs. Expense control is very important to the management of the
Corporation, and every effort is made to contain and minimize the growth of
operating expenses.
The
following table presents noninterest expense for the periods
indicated:
|
|
For
the Three Months
Ended
March 31,
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
Salaries
and benefits
|
|
$
|
8,168
|
|
$
|
7,794
|
|
$
|
374
|
|
|
4.8
|
%
|
Net
occupancy
|
|
|
1,291
|
|
|
1,251
|
|
|
40
|
|
|
3.2
|
|
Equipment
|
|
|
766
|
|
|
775
|
|
|
(9
|
)
|
|
(1.2
|
)
|
Marketing
and advertising
|
|
|
189
|
|
|
165
|
|
|
24
|
|
|
14.5
|
|
Other
|
|
|
3,194
|
|
|
3,177
|
|
|
17
|
|
|
0.5
|
|
Total
non-interest expense
|
|
$
|
13,608
|
|
$
|
13,162
|
|
$
|
446
|
|
|
3.4
|
|
Salaries
and benefits increased due to increases in special effort awards and stock-based
compensation expense. Net occupancy costs increased due to increases in rental
expense on leased properties. This increase was offset slightly by an increase
in rental income on leased office space.
Equipment
expense decreased slightly due to the reduction of furniture and equipment
rental costs and depreciation expense of capitalized furniture and equipment.
These decreases were offset by increases in computer software licenses and
maintenance. Marketing and advertising expenses increased primarily due to
increases in all other marketing expenses and magazine and billboard
advertising, partially offset by decreases in newspaper advertising and agency
retainer fees. Other expenses increased slightly primarily due to consultant
fees. This increase was offset by decreases in all other insurance costs;
pension and deferred salary savings plan administration fees and director’s
fees.
Tax
Provision
The
provision for income taxes was $2.3 million for the three months ended March
31,
2008 and March 31, 2007, at the effective rates of 25.2% and 27.1%,
respectively. The effective tax rates reflect the benefits of tax credits
generated from investments in low-income housing projects and tax-exempt income
from investments in municipal securities, loans and bank-owned life insurance.
The decrease in the effective tax rate between the three-month periods is
primarily due to increases in the cash surrender value and income from death
benefit claims on bank-owned life insurance which was partially offset by income
growth.
Financial
Condition
Assets
Total
assets increased $87.1 million since December 31, 2007. The increase was
primarily due to net growth in cash, deposits and federal funds sold and
investment securities. The following table presents the assets for the periods
indicated:
|
|
At March 31,
|
|
At December 31,
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
Cash, deposits and
federal funds sold
|
|
$
|
85,318
|
|
$
|
59,385
|
|
$
|
25,933
|
|
|
43.7
|
%
|
Investment
securities
|
|
|
471,962
|
|
|
423,448
|
|
|
48,514
|
|
|
11.5
|
|
Total
loans and leases
|
|
|
1,357,887
|
|
|
1,355,442
|
|
|
2,445
|
|
|
0.2
|
|
Reserve
for loan and lease losses
|
|
|
(12,997
|
)
|
|
(13,086
|
)
|
|
89
|
|
|
0.7
|
|
Premises
and equipment, net
|
|
|
30,290
|
|
|
27,977
|
|
|
2,313
|
|
|
8.3
|
|
Goodwill
and other intangibles, net
|
|
|
47,031
|
|
|
47,081
|
|
|
(50
|
)
|
|
(0.1
|
)
|
Cash
surrender value of insurance policies
|
|
|
47,114
|
|
|
46,689
|
|
|
425
|
|
|
0.9
|
|
Accrued
interest and other assets
|
|
|
32,967
|
|
|
25,569
|
|
|
7,398
|
|
|
28.9
|
|
Total
assets
|
|
$
|
2,059,572
|
|
$
|
1,972,505
|
|
$
|
87,067
|
|
|
4.4
|
|
Investment
Securities
The
investment portfolio is managed as part of the overall asset and liability
management process to optimize income and market performance over an entire
interest rate cycle while mitigating risk. Activity in this portfolio is
undertaken primarily to manage liquidity and interest rate risk and to take
advantage of market conditions that create more economically attractive returns
on these investments. The securities portfolio consists primarily of U.S.
Government agency, mortgage-backed and municipal securities.
Total
cash, deposits and federal funds sold increased primarily due to an increase
of
$30.0 million in securities purchased under agreement to resell for pledging
purposes. Total investments increased primarily due to security purchases of
$156.3 million that were partially offset by maturities of $68.1 million and
sales and calls of $42.4 million.
Loans
and Leases
Total
loans and leases increased in the three months ended March 31, 2008 due to
increases in commercial, financial, agricultural loans of $7.4 million, real
estate construction loans of $3.7 million and lease financings of
$8.6 million. These increases were partially offset by decreases in real
estate commercial loans of $5.5 million, real estate residential loans of $5.8
million and loans to individuals of $6.0 million.
Asset
Quality
Performance
of the entire loan and lease portfolio is reviewed on a regular basis by bank
management and loan officers. A number of factors regarding the borrower, such
as overall financial strength, collateral values, and repayment ability, are
considered in deciding what actions should be taken when determining the
collectibility of interest for accrual purposes.
When
a
loan or lease, including a loan or lease impaired under SFAS 114, is classified
as nonaccrual, the accrual of interest on such a loan or lease is discontinued.
A loan or lease is classified as nonaccrual when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about the further collectibility of principal or interest, even though
the loan is currently performing. A loan or lease may remain on accrual status
if it is in the process of collection and is either guaranteed or well secured.
When a loan or lease is placed on nonaccrual status, unpaid interest credited
to
income is reversed. Interest received on nonaccrual loans and leases is either
applied against principal or reported as interest income, according to
management's judgment as to the collectibility of principal.
Loans
and
leases are usually restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period of time, and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Cash
basis, restructured and nonaccrual loans and leases totaled $6.2 million at
March 31, 2008, $6.9 million at December 31, 2007 and $7.8 million at March
31, 2007 and consist mainly of commercial loans and real estate related
commercial loans. For the three months ended March 31, 2008 and 2007, nonaccrual
loans and leases resulted in lost interest income of $142 thousand and $198
thousand, respectively. Loans and leases 90 days or more past due totaled $3.5
million at March 31, 2008, $1.9 million at December 31, 2007 and $1.2 million
at
March 31, 2007. There was no other real estate owned at March 31, 2008, December
31, 2007 or at March 31, 2007. The Corporation's ratio of nonperforming assets
to total loans and leases and other real estate owned was 0.71% at March 31,
2008, 0.65% at December 31, 2007 and .67% at March 31, 2007.
At
March
31, 2008, the recorded investment in loans and leases that are considered to
be
impaired under SFAS 114 was $6.2 million, all of which were on a nonaccrual
basis; the related reserve for loan and lease losses for those credits was
$1.7 million. At December 31, 2007, the recorded investment in loans and
leases that are considered to be impaired under SFAS 114 was $6.9 million,
all
of which were on a nonaccrual basis. The related reserve for loan and lease
losses for those credits was $1.8 million. At March 31, 2007, the recorded
investment in loans and leases that are considered to be impaired under SFAS
114
was $7.8 million and the related reserve for loan and lease losses for
those credits was $1.5 million. The amount of the specific reserve needed
for these credits could change in future periods subject to changes in facts
and
judgments related to these credits. Specific reserves have been established
based on current facts and management’s judgments about the ultimate outcome of
these credits.
Reserve
for Loan and Lease Losses
Management
believes the reserve for loan and lease losses is maintained at a level that
is
adequate to absorb losses in the loan and lease portfolio. Management's
methodology to determine the adequacy of and the provisions to the reserve
considers specific credit reviews, past loan and lease loss experience, current
economic conditions and trends, and the volume, growth, and composition of
the
portfolio.
The
reserve for loan and lease losses is determined through a monthly evaluation
of
reserve adequacy. Quarterly, this analysis takes into consideration the growth
of the loan and lease portfolio, the status of past-due loans and leases,
current economic conditions, various types of lending activity, policies, real
estate and other loan commitments, and significant changes in charge-off
activity. Non-accrual loans and leases are evaluated individually. All other
loans and leases 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 and lease categories to develop the
general or allocated portion of the reserve. Loans are also reviewed for
impairment based on discounted cash flows using the loans' initial effective
interest rate or the fair value of the collateral for certain
collateral-dependent loans as provided under SFAS 114. Management also reviews
the activity within the reserve to determine what actions, if any, should be
taken to address differences between estimated and actual losses. Any of the
above factors may cause the provision to fluctuate.
Wholesale
leasing portfolios are purchased by the Bank’s subsidiary, Univest Capital, Inc.
Credit losses on these purchased portfolios are largely the responsibility
of
the seller up to pre-set dollar amounts initially equal to 10 to 20 percent
of
the portfolio purchase amount. The dollar amount of recourse for purchased
portfolios is inclusive of cash holdbacks and purchase discounts.
The
reserve for loan and lease losses is based on management's evaluation of the
loan and lease portfolio under current economic conditions and such other
factors, which deserve recognition in estimating loan and lease 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 and lease losses charged to operations or
from
the recovery of amounts previously charged off. Loan and lease charge-offs
reduce the reserve. Loans and leases are charged off when there has been
permanent impairment or when in the opinion of management the full amount of
the
loan or lease, in the case of non-collateral dependent borrowings, will not
be
realized. Certain impaired loans and leases 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 loan and lease losses consists of an allocated reserve and
unallocated reserve categories. The allocated reserve is comprised of reserves
established on specific loans and leases, and class reserves based on historical
loan and lease loss experience, current trends, and management assessments.
The
unallocated reserve is based on both general economic conditions and other
risk
factors in the Corporation’s individual markets and portfolios.
The
specific reserve element is based on a regular analysis of impaired commercial
and real estate loans. For these loans, the specific reserve established is
based on an analysis of related collateral value, cash flow considerations
and,
if applicable, guarantor capacity.
The
class
reserve element is determined by an internal loan and lease grading process
in
conjunction with associated allowance factors. The Corporation revises the
class
allowance factors whenever necessary, but no less than quarterly, in order
to
address improving or deteriorating credit quality trends or specific risks
associated with a given loan or lease pool classification.
The
Corporation maintains a reserve in other liabilities for off-balance sheet
credit exposures that currently are unfunded in categories with historical
loss
experience.
The
reserve for loan and lease losses decreased $89 thousand from December 31,
2007
to March 31, 2008 primarily due to a large commercial loan charge off of $500
thousand that occurred as a result of the deterioration of the underlying
collateral of the loan. Management believes that the reserve is maintained
at a
level that is adequate to absorb losses in the loan and lease portfolio. The
ratio of the reserve for loan and lease losses to total loans and leases was
0.96% at March 31, 2008 and 0.97% at December 31, 2007.
Goodwill
and Other Intangible Assets
The
corporation has goodwill of $44.6 million, which is deemed to be an indefinite
intangible asset and in accordance with SFAS No. 142, “Goodwill and Other
Intangible Assets” (“SFAS 142”), is no longer amortized. The Corporation also
has intangible assets due to bank and branch acquisitions, core deposit
intangibles, covenants not to compete (in favor of the Corporation), customer
related intangibles and mortgage servicing rights, which are not deemed to
have
an indefinite life and therefore will continue to be amortized over their useful
life.
In
accordance with SFAS 142, the Corporation conducts an annual impairment analysis
on all intangible assets during the fourth quarter to determine if impairment
of
the asset exists. Additionally, throughout the year, the Corporation reviews
its
intangible assets for indicators of impairment in accordance with SFAS 142.
At
March 31, 2008, there was no impairment indicated.
Liabilities
Total
liabilities increased since December 31, 2007 primarily due to an increase
in
deposits, partially offset by a decrease in borrowings. The following table
presents the liabilities for the periods indicated:
|
|
At March 31,
|
|
At December 31,
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
Deposits
|
|
$
|
1,616,843
|
|
$
|
1,532,603
|
|
$
|
84,240
|
|
|
5.5
|
%
|
Borrowings
|
|
|
202,073
|
|
|
208,729
|
|
|
(6,656
|
)
|
|
(3.2
|
)
|
Accrued
expenses and other liabilities
|
|
|
37,393
|
|
|
32,447
|
|
|
4,946
|
|
|
15.2
|
|
Total
liabilities
|
|
$
|
1,856,309
|
|
$
|
1,773,779
|
|
$
|
82,530
|
|
|
4.7
|
|
Deposits
Total
deposits grew at the Bank primarily due to increases in money market savings
accounts of $92.0 million, primarily due to a $92.6 million short-term deposit
received from one customer that is expected to leave the Bank in the second
quarter of 2008, and increases in regular savings of $25.9 million. These
increases were partially offset by decreases in Pennsylvania Local Government
Investment Trust (“PLGIT”) certificates of deposits of $30.0 million and
interest-bearing checking accounts of $9.1 million; a portion of these
decreases was due to movement into higher-yielding money market products.
Borrowings
Long-term
borrowings at March 31, 2008, included $7.9 million in Subordinated Capital
Notes, $20.6 million of Trust Preferred Securities, and $94.5 million in
long-term borrowings from the FHLB. The consolidated balance sheet also includes
a $972 thousand fair market value adjustment relating to FHLB long-term
borrowings acquired in the First County Bank and Suburban Community Bank
acquisitions. Long-term borrowings increased due to the issuance of an
additional $10.0 million in FHLB borrowings. Short-term borrowings
typically include federal funds purchased and short-term FHLB borrowings. In
addition, the Bank offers an automated cash management checking account that
sweeps funds daily into a repurchase agreement account (“sweep accounts”).
Short-term borrowings decreased due to a decline in the sweep accounts of $16.2
million.
Shareholders'
Equity
Total
shareholders’ equity increased since December 31, 2007 primarily due to current
earnings and a reduction in accumulated other comprehensive loss; these
increases were partially offset by cash dividends paid. The following table
presents the shareholders’ equity for the periods indicated:
|
|
At March 31,
|
|
At December 31,
|
|
Change
|
|
|
|
2008
|
|
2007
|
|
Amount
|
|
Percent
|
|
Common stock
|
|
$
|
74,370
|
|
$
|
74,370
|
|
$
|
—
|
|
|
—
|
%
|
Additional
paid-in capital
|
|
|
22,644
|
|
|
22,591
|
|
|
53
|
|
|
0.2
|
|
Retained
earnings
|
|
|
145,678
|
|
|
143,066
|
|
|
2,612
|
|
|
1.8
|
|
Accumulated
other comprehensive loss
|
|
|
(42
|
)
|
|
(1,768
|
)
|
|
1,726
|
|
|
97.6
|
|
Unearned
Compensation - restricted stock awards
|
|
|
(499
|
)
|
|
(380
|
)
|
|
(119
|
)
|
|
(31.3
|
)
|
Treasury
stock
|
|
|
(38,888
|
)
|
|
(39,153
|
)
|
|
265
|
|
|
0.7
|
|
Total
shareholders’ equity
|
|
$
|
203,263
|
|
$
|
198,726
|
|
$
|
4,537
|
|
|
2.3
|
|
Retained
earnings were favorably impacted by three months of net income of $6.7 million
partially offset by cash dividends of $2.6 million declared during the first
three months of 2008. Treasury stock decreased primarily due to sales for the
employee stock purchase plan and restricted stock awards. There is a buyback
program in place that allows the Corporation to purchase an additional 643,782
shares of its outstanding common stock in the open market or in negotiated
transactions.
Accumulated
other comprehensive income related to securities of $3.5 million, net of taxes,
is included in shareholders' equity as of March 31, 2008. Accumulated other
comprehensive income related to securities of $1.9 million, net of taxes,
has been included in shareholders' equity as of December 31, 2007. Accumulated
other comprehensive income (loss) related to securities is the unrealized gain
(loss), or difference between the book value and market value, on the
available-for-sale investment portfolio, net of taxes. The period-to-period
recovery in accumulated other comprehensive income (loss) was a result of
increases in the market values of non-mortgage-backed government agency debt
securities, mortgage-backed government agency debt securities and other
mortgage-backed securities.
Accumulated
other comprehensive loss related to pension and other post-retirement benefits
amounted to $3.6 million as of March 31, 2008. Accumulated other
comprehensive loss related to pension and other post-retirement benefits amount
to $3.7 million at December 31, 2007. The change in the accumulated other
comprehensive income loss related to pension and other post-retirement benefits
represent the changes in the actuarial gains and losses and the prior service
costs and credits that arise during the period.
Capital
Adequacy
Capital
guidelines which banking regulators have adopted assign minimum capital
requirements for categories of assets depending on their assigned risks. The
components of risk-based capital are Tier 1 and Tier 2. Minimum required total
risk-based capital is 8.0%. The Corporation and the Bank continue to be in
the
"well-capitalized" category under regulatory standards.
Critical
Accounting Policies
Management,
in order to prepare the Corporation's financial statements in conformity with
generally accepted accounting principles, is required to make estimates and
assumptions that effect the amounts reported in the Corporation's financial
statements. There are uncertainties inherent in making these estimates and
assumptions. Certain critical accounting policies, discussed below, could
materially affect the results of operations and financial position of the
Corporation should changes in circumstances require a change in related
estimates or assumptions. The Corporation has identified the reserve for loan
and lease losses, intangible assets, investment securities, mortgage servicing
rights, income taxes and benefit plans as its critical accounting policies.
For
more information on these critical accounting policies, please refer to our
2007
Annual Report on Form 10-K.
Asset/Liability
Management
The
primary functions of Asset/Liability Management are to assure adequate earnings,
capital and liquidity while maintaining an appropriate balance between
interest-earning assets and interest-bearing liabilities. Liquidity management
involves the ability to meet cash flow requirements of customers and corporate
needs. Interest-rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income through
periods of changing rates.
The
Corporation uses both interest-sensitivity gap analysis and simulation
techniques to quantify its exposure to interest rate risk. The Corporation
uses
the gap analysis 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.
Liquidity
The
Corporation, in its role as a financial intermediary, is exposed to certain
liquidity risks. Liquidity refers to the Corporation's ability to ensure that
sufficient cash flow and liquid assets are available to satisfy demand for
loans
and deposit withdrawals. The Corporation manages its liquidity risk by measuring
and monitoring its liquidity sources and estimated funding needs. The
Corporation has a contingency funding plan in place to address liquidity needs
in the event of an institution-specific or a systemic financial
crisis.
Sources
of Funds
Core
deposits and cash management repurchase agreements (“Repos”) have historically
been the most significant funding sources for the Corporation. These deposits
and Repos are generated from a base of consumer, business and public customers
primarily located in Bucks and Montgomery counties, Pennsylvania. The
Corporation faces increased competition for these deposits from a large array
of
financial market participants, including banks, thrifts, mutual funds, security
dealers and others.
The
Corporation supplements its core funding with money market funds it holds for
the benefit of various trust accounts. These funds are fully collateralized
by
the Bank’s investment portfolio and are at current money market mutual fund
rates. This funding source is subject to changes in the asset allocations of
the
trust accounts.
The
Bank
purchases Certificates from PLGIT to augment its short-term fixed funding
sources. The PLGIT deposits are public funds collateralized with a letter of
credit that PLGIT maintains with the FHLB; therefore, Univest National Bank
is
not required to provide collateral on these deposits. At March 31, 2008,
the Bank had $20.0 million in PLGIT deposits.
The
Corporation, through the Bank, has short-term and long-term credit facilities
with the FHLB with a maximum borrowing capacity of approximately
$341.5 million. At March 31, 2008, outstanding long-term borrowings with
FHLB totaled $94.5 million and there was an outstanding irrevocable standby
letter of credit of $29.0 million. The maximum borrowing capacity changes as
a
function of 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 $77.0 million. At March 31, 2008, there were no outstanding borrowings
under these lines. Future availability under these lines is subject to the
policies of the granting banks and may be withdrawn.
The
Corporation, through the Bank, has an available line of credit at the Federal
Reserve Bank of Philadelphia, the amount of which is dependent upon the balance
of loans and securities pledged as collateral. At March 31, 2008, the
Corporation had no outstanding borrowings under this line.
Cash
Requirements
The
Corporation has cash requirements for various financial obligations, including
contractual obligations and commitments that require cash payments. The
contractual obligations and commitments table presents, as of March 31, 2008,
significant fixed and determinable contractual obligations and commitments
to
third parties. The most significant contractual obligation, in both the under
and over one year time period, is for the Bank to repay its certificates of
deposit. Securities sold under agreement to repurchase constitute the next
largest payment obligation which is short term in nature. The Bank anticipates
meeting these obligations by continuing to provide convenient depository and
cash management services through its branch network, thereby replacing these
contractual obligations with similar fund sources at rates that are competitive
in our market.
Commitments
to extend credit are the Bank’s most significant commitment in both the under
and over one year time periods. These commitments do not necessarily represent
future cash requirements in that these commitments often expire without being
drawn upon.
Recent
Accounting Pronouncements
In
March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS 161”). SFAS 161 enhances disclosures about fair
value of derivative instruments and their gains or losses and the company’s
objectives and strategies for using derivative instruments and whether or not
they are designated as hedging instruments. SFAS 161 is effective prospectively
for interim periods and fiscal years beginning after November 15, 2008. The
Corporation does not anticipate the adoption of SFAS 161 to have a material
impact on its consolidated financial statements.
Item
3. Quantitative
and Qualitative Disclosure About Market Risk
No
material changes in the Corporation’s market risk or market strategy occurred
during the current period. A detailed discussion of market risk is provided
in
the Registrant’s Annual Report on Form 10-K for the period ended December 31,
2007.
Item
4.Controls
and Procedures
Management
is responsible for the disclosure controls and procedures of Univest Corporation
of Pennsylvania (“Univest”). Disclosure controls and procedures are in place to
assure that all material information is collected and disclosed in accordance
with Rule 13a - 15(e) and 15d-15(e) under the Securities Exchange Act of 1934.
Based on their evaluation Management believes that the financial information
required to be disclosed in accordance with the Securities Exchange Act of
1934
is presented fairly, recorded, summarized and reported within the required
time
periods.
As
of
March 31, 2008 an evaluation was performed under the supervision and with the
participation of the Corporation's management, including the CEO and CFO, of
the
effectiveness of the design and operation of the Corporation's disclosure
controls and procedures. Based on that evaluation, the Corporation's management,
including the CEO and CFO, concluded that the Corporation's disclosure controls
and procedures were effective and there have been no changes in the
Corporation's internal controls or in other factors that have materially
affected or are reasonably likely to materially affect internal controls
subsequent to December 31, 2007.
PART
II. OTHER
INFORMATION
Item
1. Legal
Proceedings
Management
is not aware of any litigation that would have a material adverse effect on
the
consolidated financial position of the Corporation. There are no proceedings
pending other than the ordinary routine litigation incident to the business
of
the Corporation. In addition, there are no material proceedings pending or
known
to be threatened or contemplated against the Corporation or the Bank by
government authorities.
Item
1A. Risk
Factors
There
were no material changes from the risk factors previously disclosed in the
Registrant’s Form 10-K, Part 1, Item 1A,
for the
Year Ended December 31, 2007 as filed with the Securities and Exchange
Commission on March 6, 2008.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
The
following table provides information on repurchases by the Corporation of its
common stock during the three months ended March 31, 2008.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
|
Period
|
|
Total
Number
of Shares
Purchased
|
|
Average
Price
Paid per
share
|
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
|
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs (3)
|
|
January
1 – 31, 2008
|
|
|
20,995
|
|
$
|
20.76
|
|
|
20,995
|
|
|
643,782
|
|
February
1 – 29, 2008
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
643,782
|
|
March
1 – 31, 2008
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
643,782
|
|
Total
|
|
|
20,995
|
|
|
|
|
|
20,995
|
|
|
|
|
|
1.
|
Transactions
are reported as of settlement
dates.
|
|
2.
|
The
Corporation’s current stock repurchase program was approved by its Board
of Directors and announced on August 22, 2007. The repurchased shares
limit is net of normal Treasury activity such as purchases to fund
the
Dividend Reinvestment Program, Employee Stock Purchase Program and
the
equity compensation plan.
|
|
3.
|
The
number of shares approved for repurchase under the Corporation’s stock
repurchase program is 643,782.
|
|
4.
|
The
Corporation’s current stock repurchase program does not have an expiration
date.
|
|
5.
|
No
stock repurchase plan or program of the Corporation expired during
the
period covered by the table.
|
|
6.
|
The
Corporation has no stock repurchase plan or program that it has determined
to terminate prior to expiration or under which it does not intend
to make
further purchases. The plans are restricted during certain blackout
periods in conformance with the Corporation’s Insider Trading Policy.
|
Item
3. Defaults
Upon Senior Securities
None.
Item
4. Submission
of Matters to a Vote of Security Holders
At
the
Corporation’s Annual Meeting of Shareholders held on April 8, 2008, the
Corporation’s shareholders approved the following matters:
|
|
|
For
|
|
No
|
|
Abstain
|
|
1.
|
|
ELECTION
OF THREE CLASS III DIRECTORS TO SERVE FOR A THREE-YEAR TERM EXPIRING
IN
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Marvin
A. Anders
|
|
|
8,972,593.53
|
|
|
|
|
|
575,755.39
|
|
|
|
R.
Lee Delp
|
|
|
8,994,966.23
|
|
|
|
|
|
553,382.69
|
|
|
|
H.
Ray Mininger
|
|
|
9,444,152.42
|
|
|
|
|
|
104,196.50
|
|
|
|
P.
Gregory Shelly
|
|
|
9,454,384.21
|
|
|
|
|
|
93,964.71
|
|
2.
|
|
ELECTION
OF THREE ALTERNATE DIRECTORS FOR A ONE-YEAR TERM EXPIRING IN
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Wallace
H. Bieler
|
|
|
8,973,822.36
|
|
|
|
|
|
574,526.56
|
|
|
|
Mark
A. Schlosser
|
|
|
9,025,665.29
|
|
|
|
|
|
522,683.63
|
|
|
|
Margaret
K. Zook
|
|
|
9,015,911.16
|
|
|
|
|
|
532,437.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
|
APPROVAL
OF AMENDED AND RESTATED UNIVEST 2003 LONG-TERM INCENTIVE
PLAN
|
|
|
7,156,652.35
|
|
|
927,895.99
|
|
|
185,529.58
|
|
The
other
directors of the Corporation whose terms in office continued after the 2008
Annual Meeting of Shareholders are as follows: terms expiring at the 2009 Annual
Meeting are William S. Aichele, Norman L. Keller, Thomas K. Leidy and Merrill
S.
Moyer; and terms expiring at the 2010 Annual Meeting are Charles H. Hoeflich,
William G. Morral, CPA, and John U. Young.
Item
5. Other
Information
None.
Item
6.
|
|
Exhibits
|
|
|
|
|
|
|
|
|
a.
|
Exhibits
|
|
|
|
|
|
|
|
|
|
Exhibit
31.1
|
Certification
of William S. Aichele, Chairman, President and Chief Executive Officer
of
the Corporation, pursuant to Rule 13a-14(a) of the Exchange Act,
as
enacted by Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
|
|
Exhibit
31.2
|
Certification
of Jeffrey M. Schweitzer Executive Vice President and Chief Financial
Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted
by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
Exhibit
32.1
|
Certification
of William S. Aichele, Chief Executive Officer of the Corporation,
pursuant to 18 United States Code Section 1350, as enacted by Section
906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
Exhibit
32.2
|
Certification
of Jeffrey M. Schweitzer, Chief Financial Officer of the Corporation,
pursuant to 18 United States Code Section 1350, as enacted by Section
906
of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Univest
Corporation of Pennsylvania
|
|
(Registrant)
|
|
|
Date:
May 9, 2008
|
/s/
William S. Aichele
|
|
William
S. Aichele, Chairman, President
|
|
and
Chief Executive Officer
|
|
|
Date:
May 9, 2008
|
/s/
Jeffrey M. Schweitzer
|
|
Jeffrey
M. Schweitzer, Executive Vice President,
|
|
and
Chief Financial Officer
|