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, 1999 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $5 par value 7,080,397 - -------------------------- --------- (Title of Class) (Number of shares outstanding at 2/29/00) The approximate aggregate market value of voting stock held by non affiliates of the registrant is $138,313,342 as of February 29, 2000. 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 11, 2000. Parts I, II, and IV incorporate information by reference from the annual report to shareholders for the year ended December 31, 1999. PAGE 1 OF 24
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. Univest Financial Services, a wholly owned subsidiary of Pennview Savings Bank, acquired Fin-Plan Group on January 29, 1999. This will allow Univest Corporation to provide a broader range of financial services including financial planning, investment management, insurance products and brokerage services. 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-seven (27) 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. Sixteen banking offices are in Montgomery County and eleven banking offices are in Bucks County. A work site office is located in Montgomery County. Four off-premises automated teller machines are 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, 2000, Univest and its subsidiaries employed four hundred and fifty-five (455) 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, Pennview Savings Bank and Fin-Plan Group. 2
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 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 12.2% and 12.3%, and total risk-based capital ratios of 13.5% and 13.4% at December 31, 1999 and 1998, 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. 3
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 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 4
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 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. Univest Financial Services Corporation, wholly owned by Pennview, acquired Fin-Plan Group on January 29, 1999. This will allow Univest Corporation to provide a broader range of financial services. 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. TABLE I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL <TABLE> <CAPTION> 1999 1999/1998 1998 Average Income/ Avg. Volume Rate Average Income/ Avg. ASSETS: Balance Expense Rate Change Change Total Balance Expense Rate ------- ------- ---- -------- -------- ------- ------- ------- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Cash and due from banks $ 34,496 $ 31,321 Time deposits with other banks 4,415 $ 227 5.1 $ (343) $ (56) $ (399) 11,273 $ 626 5.6 U.S. Government obligations 166,343 9,577 5.8 (1,829) (196) (2,025) 196,033 11,602 5.9 Oblig. of states & political sub. 21,684 947 4.4 647 (7) 640 6,858 307 4.5 Other securities 122,207 7,573 6.2 3,380 (135) 3,245 67,637 4,328 6.4 Trading Account 548 19 3.5 19 -- 19 -- -- -- Federal Reserve bank stock 761 46 6.0 -- -- -- 761 46 6.0 Federal funds sold and other short-term investments 9,735 474 4.9 (406) (108) (514) 18,057 988 5.5 ----- --- ------ --- Total investments 321,278 18,636 5.8 289,346 17,271 6.0 ------- ------ ------- ------ Commercial loans 184,019 15,870 8.6 2,412 (944) 1,468 157,363 14,402 9.2 Mortgage loans 337,153 26,547 7.9 (603) (1,729) (2,332) 345,781 28,879 8.4 Installment loans 104,348 8,557 8.2 1,467 (260) 1,207 86,505 7,350 8.5 Home equity loans 13,505 1,362 10.1 (114) (73) (187) 14,614 1,549 10.6 Municipal loans 46,619 2,645 5.7 262 -- 262 41,456 2,383 5.7 ------ ----- ------ ----- Gross loans 685,644 54,981 8.0 645,719 54,563 8.4 ------ ------ Less: reserve for loan losses (11,096) (10,439) ------- ------- Net loans 674,548 635,280 ------- ------- Property, net 15,684 16,237 Other assets 38,901 32,711 ------ ------ Total assets $ 1,089,322 $ 1,016,168 ----------- ----------- <CAPTION> 1998/1997 1997 Rate Average Income/ Avg. ASSETS: Change Total Balance Expense Rate -------- ------- ------- ------- ---- <S> <C> <C> <C> <C> <C> Cash and due from banks $29,244 Time deposits with other banks $ 2 $ 543 1,522 $ 83 5.5 U.S. Government obligations (399) (672) 199,733 12,274 6.1 Oblig. of states & political sub. (5) 88 4,728 219 4.6 Other securities (37) 1,956 36,547 2,372 6.5 Trading Account -- -- 0 0 - Federal Reserve bank stock -- -- 761 46 6.0 Federal funds sold and other short-term investments 8 765 4,204 223 5.3 ----- --- Total investments 245,973 15,134 6.2 ------- ------ Commercial loans -- 1,770 137,520 12,632 9.2 Mortgage loans (1,444) (2,733) 361,089 31,612 8.8 Installment loans -- 977 75,395 6,373 8.5 Home equity loans (31) (98) 15,300 1,647 10.8 Municipal loans 37 324 36,545 2,059 5.6 ----- Gross loans 625,849 54,323 8.7 ------ Less: reserve for loan losses (10,159) ------- Net loans 615,690 ------- Property, net 16,761 Other assets 20,047 ------ Total assets $ 929,237 --------- </TABLE> 5
<TABLE> <CAPTION> 1999 1999/1998 1998 Average Income/ Avg. Volume Rate Average Income/ Avg. LIABILITIES: Balance Expense Rate Change Change Total Balance Expense Rate ------- ------- ---- -------- -------- ------- ------- ------- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Demand deposits $ 150,455 $ 132,132 Interest checking deposits 86,583 $ 902 1.0 $ 123 $ (322) $ (199) 80,524 $ 1,101 1.4 Money market savings 158,014 6,152 3.9 1,088 (258) 830 128,970 5,322 4.1 Regular savings 140,313 2,776 2.0 134 (528) (394) 132,012 3,170 2.4 Certificates of deposit 321,097 17,039 5.3 (254) (977) (1,231) 325,798 18,270 5.6 Time open & club accounts 29,253 1,351 4.6 (78) (123) (201) 30,800 1,552 5.0 Total time, int., and inv. checking deposits 735,260 28,220 3.8 698,104 29,415 4.2 Total deposits 885,715 830,236 Federal funds purchased 3,515 191 5.4 178 (1) 177 234 14 6.0 Loans & securities sold under agreement to repurchase 67,612 2,210 3.3 381 -- 381 56,181 1,829 3.3 Other borrowings 14,695 760 5.2 233 (30) 203 10,135 557 5.5 Subordinated notes 0 0 -- -- -- -- 0 0 0.0 -- - Total borrowings 85,822 3,161 3.7 66,550 2,400 3.6 ------ ----- ------ ----- Accrued expenses & other liab. 15,017 14,617 ------ ------ Total liabilities 986,554 911,403 ------- ------- SHAREHOLDERS' EQUITY: - -------------------- Common stock 39,272 37,765 Capital surplus 14,908 19,696 Retained earnings 48,588 47,304 ------ ------ Total shareholders' equity 102,768 104,765 ------- ------- Total liabilities and share- holders' equity $ 1,089,322 $ 1,016,168 ------------ ------------ Weighted avg. yield on interest-earning assets 7.3 7.7 Weighted avg. rate paid on interest-bearing liab. 3.8 4.2 Net yield 4.2 4.3 <CAPTION> 1998/1997 1997 Volume Rate Average Income/ Avg. LIABILITIES: Change Change Total Balance Expense Rate -------- -------- ------- ------- ------- ---- <S> <C> <C> <C> <C> <C> <C> Demand deposits $ 118,960 Interest checking deposits $ 36 $ 74 $ 110 73,521 $ 991 1.3 Money market savings 2,166 539 2,705 77,013 2,617 3.4 Regular savings 116 (129) (13) 128,546 3,183 2.5 Certificates of deposit 714 -- 714 312,517 17,556 5.6 Time open & club accounts (673) (44) (717) 44,447 2,269 5.1 Total time, int., and inv. checking deposits 636,044 26,616 4.2 Total deposits 755,004 Federal funds purchased (200) 11 (189) 3,541 203 5.7 Loans & securities sold under agreement to repurchase 221 -- 221 49,133 1,608 3.3 Other borrowings 81 (9) 72 8,592 485 5.6 Subordinated notes -- -- -- 0 0 0.0 Total borrowings 61,266 2,296 3.7 ------ ----- Accrued expenses & other liab. 11,787 ------ Total liabilities 828,057 ------- SHAREHOLDERS' EQUITY: - -------------------- Common stock 19,636 Capital surplus 34,539 Retained earnings 47,005 ------ Total shareholders' equity 101,180 ------- Total liabilities and share- holders' equity $ 929,237 --------- Weighted avg. yield on interest-earning assets 8.0 Weighted avg. rate paid on interest-bearing liab. 4.1 Net yield 4.7 </TABLE> 6
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 $683 for 1999, $1,106 for 1998 and $1,253 for 1997. (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. 7
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE II. INVESTMENT PORTFOLIO (BOOK VALUE) (Thousands of Dollars) <TABLE> <CAPTION> CARRYING AMOUNT OF INVESTMENT SECURITIES December 31, December 31, December 31, 1999 (a) 1998 (a) 1997 (a) -------- -------- -------- <S> <C> <C> <C> U. S. Treasury, government corporations and agencies $150,096 $225,294 $195,048 State and political subdivisions 27,020 17,966 4,676 Mortgage-backed securities 111,516 74,233 53,996 Other 23,243 10,172 4,445 -------- -------- -------- Total $311,875 $327,665 $258,165 ======== ======== ======== <CAPTION> MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD December 31, December 31, December 31, December 31, December 31, December 31, 1999 1999 1998 1998 1997 1997 Amount (a) Yield (b) Amount (a) Yield (b) Amount (a) Yield (b) ------------ ------------ ------------ ------------------------- ------------ <S> <C> <C> <C> <C> <C> <C> 1 Year or less $ 54,249 5.68% $ 93,671 5.78% $ 69,916 5.88% 1 Year - 5 Years 139,357 5.64% 158,938 5.64% 136,317 6.19% 5 Years - 10 Years 35,094 6.26% 20,781 6.33% 11,652 6.54% After 10 Years 83,175 6.17% 54,275 6.24% 40,280 6.51% -------- ---- -------- ---- -------- ---- Total $311,875 5.86% $327,665 5.82% $258,165 6.17% ======== ==== ======== ==== ======== ==== </TABLE> 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. 8
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE III. LOAN PORTFOLIO, PART A. TYPES OF LOANS (Thousands of Dollars) <TABLE> <CAPTION> December 31, December 31, December 31, December 31, December 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Real estate Loans Construction and land development $ 33,632 $ 33,530 $ 30,951 $ 34,733 $ 54,840 Secured by 1-4 family residential properties 219,292 214,798 217,782 217,631 216,180 Other real estate loans 173,780 169,402 189,251 178,644 157,925 Commercial and industrial loans 212,656 171,699 138,812 124,788 120,692 Loans to individuals 72,658 64,306 53,500 47,466 40,648 All other loans 10,591 7,117 6,143 5,821 4,084 -------- -------- -------- -------- -------- Total loans $722,609 $660,852 $636,439 $609,083 $594,369 ======== ======== ======== ======== ======== </TABLE> 9
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. <TABLE> <CAPTION> As of December 31, 1999 Due in One Due in One Due in Over Year or Less to Five Years Five Years Total ------------ ------------- ---------- ----- <S> <C> <C> <C> <C> Real estate loans Construction and land development $ 17,814 $ 11,834 $ 3,984 $ 33,632 Secured by 1-4 family residential properties 44,087 82,015 93,190 219,292 Other real estate loans 41,430 56,566 75,784 173,780 Commercial and industrial loans 159,719 36,389 16,548 212,656 Loans to individuals 26,859 41,480 4,319 72,658 All other loans 517 9,611 463 10,591 -------- -------- -------- -------- Total loans $290,426 $237,895 $194,288 $722,609 ======== ======== ======== ======== Loans with a predetermined interest rate $111,950 $152,216 $184,548 $448,714 Loans with a floating or variable interest rate 178,476 85,679 9,740 273,895 -------- -------- -------- -------- $290,426 $237,895 $194,288 $722,609 ======== ======== ======== ======== </TABLE> 10
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 1999 was $2,323. There was no interest income recognized on these loans. If nonaccrual loans had been performing in accordance with their contractual terms, additional income of $246 would have been recorded in 1999. 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, 1999, there were no concentrations of loans exceeding 10% of total loans other than disclosed in Table III, Part A. Other Assets At December 31, 1999, $45 in Other Real Estate Owned was classified as nonperforming. This amount represents all Other Real Estate Owned as of December 31, 1999. <TABLE> <CAPTION> 1999 1998 1997 1996 1995 Principal Principal Principal Principal Principal Balance Balance Balance Balance Balance ------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> Nonaccruing loans $2,285 $3,424 $3,136 $4,671 $5,855 ====== ====== ====== ====== ====== Accruing loans 90 days or more past due: Real estate loans Construction and land development -- -- -- -- -- Secured by 1-4 family dwellings 304 705 308 373 234 Other real estate -- 14 36 12 93 Commercial and industrial loans 63 -- 21 19 -- Loans to individuals 214 204 159 180 174 All other loans -- -- -- -- -- ------ ------ ------ ------ ------ Total loans, 90 days or more past due 581 923 524 584 501 ====== ====== ====== ====== ====== Restructured loans, not included above 38 125 206 281 352 ====== ====== ====== ====== ====== </TABLE> 11
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. 12
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 non-accrual 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, 1999 1998 1997 ---- ---- ---- Allocated $ 8,786 $ 6,993 $ 4,749 Unallocated 2,437 3,545 5,521 ------- ------- ------- Total $11,223 $10,538 $10,270 ======= ======= ======= The increase of $1.8 million in the allocated portion of the reserve for the year ended December 31, 1999 was due to a combination of portfolio growth and higher estimation factors for several portfolio segments. The volume growth occurred predominantly in the commercial and consumer loan portfolios, up 11.3% and 12.4% respectively. Increases in loss factors applied to specific loan pools effected the following portfolios. Higher loss experience from small business loans, mostly unsecured commercial and industrial credits, caused the commercial uncriticized factor to increase from 1.11% at 12/31/98 to 1.28% at 12/31/99, continuing a trend from .15% at 12/31/97. An above average number of properties categorized as OREO at some point during 1999, influenced the qualitative component of the residential real estate factor, which rose from .28% to .77%. The loss factor applied to industry concentrations was raised from .60% to .80% to account for changes in loan structure practices for tract development financing and to account for the decision to allow higher credit exposure to the commercial investment property industry. The increase in allocated reserves caused a related decline in the unallocated portion of the reserve. The dollar difference between the allocated increase of $1.8 million and the unallocated decrease of $1.1 million can be attributed to recoveries added back to the reserve throughout 1999, largely the culmination of long standing action plans to recoup losses from older commercial charge-offs. 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. 13
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. As the accompanying table indicates, the amount of loan loss provision charged to expense for 1999 was $1,052 compared to $958 in 1998 and $1,310 in 1997. <TABLE> <CAPTION> 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Average amount of loans outstanding $674,798 $635,939 $617,082 $590,144 $583,398 Loan loss reserve at beginning of period $ 10,538 $ 10,270 $ 9,801 $ 8,854 $ 8,876 Charge-offs: Real estate loans 348 575 552 990 1,842 Commercial and industrial loans 1,105 370 319 20 416 Loans to individuals 304 427 286 175 236 Home equity -- -- -- -- -- Other -- -- -- -- -- -------- -------- -------- -------- -------- Total charge-offs: 1,757 1,372 1,157 1,185 2,494 ======== ======== ======== ======== ======== Recoveries: Real estate loans 857 324 167 458 316 Commercial and industrial loans 440 256 78 529 157 Loans to individuals 93 102 66 76 75 Home equity -- -- -- -- -- Other -- -- 5 24 29 -------- -------- -------- -------- -------- Total recoveries: 1,390 682 316 1,087 577 ======== ======== ======== ======== ======== Net charge-offs: 367 690 841 98 1,917 Additions to loan loss reserve 1,052 958 1,310 1,045 1,895 Loan loss reserve at end of period $ 11,223 $ 10,538 $ 10,270 $ 9,801 $ 8,854 ======== ======== ======== ======== ======== <CAPTION> 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 -------- -------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Real estate loans 59.0 $ 2,571 63.2 $ 2,358 68.8 $ 3,511 70.8 $ 3,146 72.2 $ 817 Commercial and industrial loans 29.4 5,356 26.0 3,575 21.8 610 20.5 1,332 20.3 2,459 Loans to individuals 10.1 848 9.7 1,049 8.4 617 7.8 354 6.8 347 All other loans 1.5 11 1.1 11 1.0 11 0.9 11 0.7 11 Unallocated portion 2,437 3,545 5,521 4,958 5,220 ------- ------- ------- ------- ------- Total $11,223 $10,538 $10,270 $ 9,801 $ 8,854 ======= ======= ======= ======= ======= Ratio of Net charge-offs versus average loans 0.1% 0.1% 0.1% 0.0% 0.3% </TABLE> Total cash-basis and nonaccrual loans of $2,285 at December 31, 1999, were generally comprised of $480 in residential real estate loans, $744 in commercial real estate loans and $1,061 in commercial and other loans. 14
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES \ <TABLE> <CAPTION> TABLE V. DEPOSITS (Thousands of Dollars) 1999 1998 1997 ---- ---- ---- <S> <C> <C> <C> A. Average: Noninterest-bearing demand deposits $150,455 $132,132 $118,960 Interest checking 86,583 80,524 73,521 Money Market savings 158,014 128,970 77,013 Saving deposits 140,313 132,012 128,546 Time deposits 350,350 356,598 356,964 -------- -------- -------- Total $885,715 $830,236 $755,004 ======== ======== ======== <CAPTION> 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, 1999 ------- ------ ------ --------- <S> <C> <C> <C> <C> Certificates of deposit $ 4,515 $ 3,680 $ 9,517 $ 7,688 Other time deposits $13,999 $ 5,301 $ 2,212 $ 2,092 </TABLE> 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) 1999 1998 1997 ---- ---- ---- Return on assets 1.5 1.4 1.4 Return on equity 15.4 13.8 13.0 Dividend payout ratio 30.3 29.9 28.2 Equity to assets ratio 9.4 10.3 10.9 15
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES TABLE VII. SHORT TERM BORROWINGS (Thousands of Dollars) LOANS AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE 1999 1998 1997 ---- ---- ---- Balance at December 31 $70,943 $62,890 $48,389 Weighted average interest rate at year end 3.3% 3.2% 3.3% Maximum amount outstanding at any month's end $75,439 $68,384 $58,521 Average amount outstanding during the year $67,612 $56,181 $49,133 Weighted average interest rate during the year 3.3% 3.3% 3.3% 16
Item 2. Properties Univest and its subsidiaries occupy thirty-two 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 11, 2000. PART II 17
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Incorporated by reference from the 1999 Annual Report to Shareholders (Exhibit 13), pages 43-44. Dividend and other restrictions are incorporated by reference from Note 16 of the 1999 Annual Report to Shareholders (Exhibit 13), pages 29 and 30. The number of shareholders as of February 29, 2000, was 2,078. Item 6. Selected Financial Data Incorporated by reference from the 1999 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 1999 Annual Report to Shareholders (Exhibit 13), pages 35 through 42. Dividend and other restrictions are incorporated by reference from Note 16 of the 1999 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 1999 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, 1999 and 1998, and consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years ended December 31, 1999, and the independent auditors' report thereon are incorporated by reference from the 1999 Annual Report to Shareholders (Exhibit 13), pages 13 through 16. Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosures None 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 11, 2000. 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 of the Corporation 66 and Union National Bank Norman L. Keller Executive Vice President and CEO of Pennview 62 18
President Savings Bank and Executive Vice President of the Corporation Marvin A. Anders Vice Chairman Vice Chairman of the Corporation 60 and Union National Bank William S. Aichele President President and CEO of the 49 Corporation and Union National Bank Wallace H. Bieler Executive Vice Executive Vice President 54 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 11, 2000. 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 11, 2000. Item 13. Certain Relationships and Related Transactions During 1999, the Corporation and its subsidiaries paid $344,561 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. 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 1999. (c) Exhibits - The response of this portion of item 14 is submitted as a separate section. (d) Financial Statement Schedules - none. 19
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, 1999 and 1998 Consolidated statements of income for each of the 14 three years in the period ended December 31, 1999 Consolidated statements of changes in shareholders' equity 15 for each of the three years in the period ended December 31, 1999 Consolidated statements of cash flows for 16 20
each of the three years in the period ended December 31, 1999 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 1999 (Exhibit 13) which is incorporated by references. 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. 22
(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. 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 22, 2000 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 22, 2000 Director, March 22, 2000 /s/ Marvin A. Anders /s/ Harold M. Mininger - ------------------------------------------ ----------------------------------- 23
Marvin A. Anders Harold M. Mininger Vice Chairman and Director, March 22, 2000 Director, March 22, 2000 /s/ William S. Aichele /s/ Paul G. Shelly - ------------------------------------------ ----------------------------------- William S. Aichele Paul G. Shelly President, CEO and Director, March 22, 2000 Director, March 22, 2000 /s/ Wallace H. Bieler /s/ R. Lee Delp - ------------------------------------------ ----------------------------------- Wallace H. Bieler R. Lee Delp Executive Vice President and CFO, Director, March 22, 2000 March 22, 2000 /s/ Charles H. Hoeflich /s/ Clair W. Clemens - ------------------------------------------ ----------------------------------- Charles H. Hoeflich Clair W. Clemens Chairman Emeritus, March 22, 2000 Director, March 22, 2000 /s/ Thomas K. Leidy /s/ John U. Young - ------------------------------------------ ----------------------------------- Thomas K. Leidy John U. Young Director, March 22, 2000 Director, March 22, 2000 24