UNIVEST FINANCIAL CORP
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
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, 2009
Commission File number 0-7617
Univest Corporation of
Pennsylvania
(Exact name of registrant as
specified in its charter)
|
Pennsylvania
(State or other jurisdiction of incorporation of organization) |
23-1886144
(IRS Employer Identification No.) |
|
|
14 North Main Street
Souderton, Pennsylvania (Address of principal executive offices) |
18964
(Zip Code) |
Registrant’s telephone number, including area code
(215) 721-2400
Securities registered pursuant to Section 12(g) of the
Act:
|
Title of Class
|
Number of shares outstanding at 1/31/10
|
|
|
Common Stock, $5 par value
|
16,561,964 |
Securities registered pursuant to Section 12(b) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. YES
o
NO
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. YES
o
NO
þ
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
þ
NO
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). YES
o
NO
o
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.
o
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 the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). YES
o
NO
þ
The approximate aggregate market value of voting stock held by
non-affiliates of the registrant is $244,079,202 as of
June 30, 2009 based on the June 30, 2009 closing price
of the Registrant’s Common Stock of $20.26 per share.
DOCUMENTS
INCORPORATED BY REFERENCE
Part I and Part III incorporate information by
reference from the proxy statement for the annual meeting of
shareholders on April 20, 2010.
UNIVEST
CORPORATION OF PENNSYLVANIA
TABLE OF
CONTENTS
1
Table of Contents
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 but not limited to
those set forth below as well as the risk factors described in
Item 1A, “Risk Factors”:
| • | 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, including those occurring in the U.S. and world financial systems |
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.
| Item 1. | Business |
General
Univest Corporation of Pennsylvania, (the
“Corporation”), is a Pennsylvania corporation
organized in 1973 and registered as a bank holding company
pursuant to the Bank Holding Company Act of 1956. The
Corporation elected to become a Financial Holding Company in
2000 as provided under Title I of the Gramm-Leach-Bliley
Act. It owns all of the capital stock of Univest National Bank
and Trust Company (the “Bank”), Univest Realty
Corporation, Univest Delaware, Inc., and Univest Reinsurance
Corporation. The consolidated financial statements include the
accounts of the Corporation and its wholly owned subsidiaries.
The Corporation’s and the Bank’s legal headquarters
are located at 14 North Main Street, Souderton, PA 18964.
The Bank is engaged in the general commercial banking business
and provides a full range of banking services and trust services
to its customers. The Bank is the parent company of Delview,
Inc., which is the parent company of Univest Insurance, Inc., an
independent insurance agency, and Univest Investments, Inc., a
full-service broker-dealer and investment advisory firm. Univest
Insurance has two offices in Pennsylvania and one in Maryland.
Univest Investments has two offices in Pennsylvania. The Bank is
also the parent company of Univest Capital, Inc., a small ticket
commercial finance business, and TCG Investment Advisory, a
registered investment advisor which provides discretionary
investment consulting and management services. Through its
wholly-owned subsidiaries, the Bank provides a variety of
financial services to individuals, municipalities and businesses
throughout its markets of operation.
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
located in Delaware.
Univest Reinsurance Corporation, as a reinsurer, offers life and
disability insurance to individuals in connection with credit
extended to them by the Bank.
Univest Investments, Inc., Univest Insurance, Inc., Univest
Capital, Inc. and Univest Reinsurance Corporation were formed to
enhance the traditional banking and trust services provided by
the Bank.
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Table of Contents
Univest Investments, Univest Insurance, Univest Capital and
Univest Reinsurance do not currently meet the quantitative
thresholds for separate disclosure as a business segment.
Therefore, the Corporation currently has one reportable segment,
“Community Banking,” and strategically is how the
Corporation operates and has positioned itself in the
marketplace. The Corporation’s activities are interrelated,
each activity is dependent, and performance is assessed based on
how each of these activities supports the others. Accordingly,
significant operating decisions are based upon analysis of the
Corporation as one Community Banking operating segment.
As of December 31, 2009, the Corporation had total assets
of $2.1 billion, total loans and leases of
$1.4 billion, total deposits of $1.6 billion and total
shareholders’ equity of $267.8 million.
Employees
As of December 31, 2009, the Corporation and its
subsidiaries employed five hundred and thirty-six
(536) persons. None of these employees are covered by a
collective bargaining agreement and the Corporation believes it
enjoys good relations with its personnel.
Competition
The Corporation’s service areas are characterized by
intense competition for banking business among commercial banks,
savings and loan associations, savings banks and other financial
institutions. The Corporation’s subsidiary bank actively
competes with such banks and financial institutions for local
retail and commercial accounts, in Bucks, Montgomery, Chester
and Lehigh counties, as well as other financial institutions
outside its primary service area.
In competing with other banks, savings and loan associations,
and other financial institutions, the Bank seeks 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, leasing companies and mutual
funds, compete with certain lending and deposit gathering
services offered by the Bank and its subsidiaries, Univest
Investments, Inc., Univest Insurance, Inc. and Univest Capital,
Inc.
Supervision and
Regulation
The Bank is subject to supervision and is regularly examined by
the Office of the Comptroller of the Currency. Also, the Bank is
subject to examination by the Federal Deposit Insurance
Corporation.
The Corporation is subject to the provisions of the Bank Holding
Company Act of 1956, as amended, and is registered pursuant to
its provisions. The Corporation is subject to the reporting
requirements of the Board of Governors of the Federal Reserve
System (the “Board”); and the Corporation, together
with its subsidiaries, is subject to examination by the Board.
The Federal Reserve Act limits the amount of credit that a
member bank may extend to its affiliates, and the amount of its
funds that 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.
The Corporation elected to become a Financial Holding Company in
2000 as provided under Title I of the Gramm-Leach-Bliley
Act (the “Act”). The Act provides a regulatory
framework for regulation through the financial holding company,
which has the Board as its umbrella regulator. The
Gramm-Leach-Bliley Act requires “satisfactory” or
higher Community Reinvestment Act compliance for insured
depository institutions and their financial holding companies in
order for them to engage in new financial activities. The Act
provides a federal right to privacy of non-public personal
information of individual customers.
The Corporation is subject to the Sarbanes-Oxley Act of 2002
(“SOX”). SOX was enacted to address corporate and
accounting fraud. SOX adopts new standards of corporate
governance and imposes additional requirements on the board of
directors and management of public companies. SOX law also
requires that the chief executive officer and chief financial
officer certify the accuracy of periodic reports
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Table of Contents
filed with the Securities and Exchange Commission
(“SEC”). Pursuant to Section 404 of SOX
(“SOX 404”), the Corporation is required to furnish a
report by its management on internal controls over financial
reporting, identify any material weaknesses in its internal
controls over financial reporting and assert that such internal
controls are effective. The Corporation has continued to be in
compliance with SOX 404 during 2009. The Corporation must
maintain effective internal controls which require an on-going
commitment by management and the Corporation’s Audit
Committee. The process has and will continue to
require substantial resources in both financial costs and human
capital.
Credit and
Monetary Policies
The Bank is affected by the fiscal and monetary policies of the
federal government and its agencies, including the Federal
Reserve Board of Governors. An important function of these
policies is to curb inflation and control recessions through
control of the supply of money and credit. The Board 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 Board and other authorities
cannot be predicted, nor can their effect on future bank
earnings.
The Bank is a member of the Federal Home Loan Bank System
(“FHLBanks”), which consists of 12 regional Federal
Home Loan Banks, and is subject to supervision and regulation by
the Federal Housing Finance Board. The FHLBanks provide a
central credit facility primarily for member institutions. The
Bank, as a member of the Federal Home Loan Bank of Pittsburgh
(“FHLB”), is required to acquire and hold shares of
capital stock in the FHLB in an amount equal to: 1) not
less than 4.5% and not more than 6.0% of its outstanding FHLB
loans and 2) at least a certain percentage of its unused
borrowing capacity, not to exceed 1.5%. In December 2008, the
FHLB suspended its dividends and the repurchase of capital stock
due to capital compliance requirements. At December 31,
2009, the Bank owned $7.4 million in FHLB capital stock.
The deposits of the Bank are insured under the Federal Deposit
Insurance Corporation (“FDIC”) up to applicable
limits. Under the cross-guarantee provisions of the Federal
Deposit Insurance Act, in the event of a loss suffered or
anticipated by the FDIC — either as a result of
default of a banking subsidiary or related to FDIC assistance
provided to a subsidiary in danger of default — the
other banks may be assessed for the FDIC’s loss, subject to
certain exceptions. Presently, the Bank has affiliates but none
of them is a separate banking institution. The Bank has been
required to pay significantly higher FDIC premiums because
market developments have significantly depleted the insurance
fund of the FDIC and reduced the ratio of reserves to insured
deposits. On September 28, 2009, the FDIC Board proposed an
institutional prepaid FDIC assessment to recapitalize the
Deposit Insurance Fund which was finalized in the Fourth Quarter
of 2009. The prepaid amount was collected on December 30,
2009 for the Fourth Quarter 2009, and for all of 2010, 2011 and
2012. This assessment was based on an estimated 5% annual growth
rate in deposits during 2010, 2011 and 2012; and a 3 basis-point
increase in the base assessment rate at September 30, 2009
to be applied in 2011 and 2012. The Bank paid $9.0 million
to the FDIC on December 30, 2009 of which $8.4 million
will remain in a prepaid asset account. The prepaid amount of
$8.4 million has a zero percent risk-weighting for
risk-based capital ratio calculations. The prepaid amount will
be expensed over the 2010 through 2012 period as the actual FDIC
assessments are determined for each interim quarterly period.
Any excess prepaid amounts may be utilized up to
December 30, 2014 at which time any excess will be returned
to the Bank.
Statistical
Disclosure
Univest Corporation of Pennsylvania and its subsidiaries Univest
National Bank and Trust Co., Univest Insurance, Inc.,
Univest Capital, Inc., Univest Investments, Inc. and TCG
Investment Advisory, provide Financial Solutions to individuals,
businesses, municipalities and nonprofit organizations. Univest
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Table of Contents
Corporation prides itself on being a financial organization that
continues to increase its scope of services while maintaining
traditional beliefs and a determined commitment to the
communities it serves. Over the past five years Univest
Corporation and its subsidiaries have experienced steady and
stable growth, both organically and through various acquisitions
to be the best integrated financial solutions provider in the
market. The acquisitions included:
| • | B. G. Balmer and Co. on July 28, 2006 | |
| • | Liberty Benefits, Inc. on December 29, 2008 | |
| • | Trollinger Consulting Group |
| • | TC Group Securities Company, Inc. on December 31, 2008 | |
| • | Allied Benefits Group, LLC on December 31, 2008 | |
| • | TCG Investment Advisory Inc. on December 31, 2008 |
In addition to these acquisitions, in May 2006, the Bank entered
into the small ticket commercial leasing business through its
newly formed subsidiary Vanguard Leasing, Inc., which is
incorporated under Pennsylvania law. In February 2008, Vanguard
Leasing, Inc. changed its name to Univest Capital, Inc.
Securities and
Exchange Commission Reports
The Corporation makes available
free-of-charge
its reports that are electronically filed with the Securities
and Exchange Commission (“SEC”) including its Report
on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports on its website as a hyperlink to
EDGAR. These reports are available as soon as reasonably
practicable after the material is electronically filed. The
Corporation’s website address is
www.univest.net.
The Corporation will provide at no charge a copy of the SEC
Form 10-K
annual report for the year 2009 to each shareholder who requests
one in writing after March 31, 2010. Requests should be
directed to: Karen E. Tejkl, Corporate Secretary, Univest
Corporation of Pennsylvania, P.O. Box 64197,
Souderton, PA 18964.
The Corporation’s filings are also available at the
SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. Information on the hours of operation of
the Public Reference Room can be obtained by calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site that contains the
Corporation’s SEC filings electronically at
www.sec.gov
.
| Item 1A. | Risk Factors |
An investment in the Corporation’s common stock is subject
to risks inherent to the Corporation’s business. Before
making an investment, you should carefully consider the risks
and uncertainties described below, together with all of the
other information included or incorporated by reference in this
report. This report is qualified in its entirety by these risk
factors.
Risks Relating to
Recent Economic Conditions and Governmental Response
Efforts
The
Corporation’s earnings are impacted by general business and
economic conditions.
The Corporation’s operations and profitability are impacted
by general business and economic conditions; these conditions
include long-term and short-term interest rates, inflation,
money supply, political issues, legislative and regulatory
changes, fluctuations in both debt and equity capital markets,
broad trends in industry and finance, and the strength of the
U.S. economy and the local economies in which we operate,
all of which are beyond our control.
Our results of operations are affected by conditions in the
capital markets and the economy generally. The capital and
credit markets have experienced extreme volatility and
disruption for more than twelve months. The volatility and
disruption in these markets have produced downward pressure on
stock prices of, and credit availability to, certain companies
without regard to those companies’ underlying financial
5
Table of Contents
strength. This has resulted in significant write-downs of asset
values by financial institutions, including government-sponsored
entities and major commercial and investment banks. The
U.S. and global economies are in steep decline. Monetary
and fiscal policies are loosening around the world to varying
degrees — most aggressively in the United
States — but they are battling against an extreme
credit crunch, and will take time to become effective. These
factors, combined with declining business and consumer
confidence, dramatic declines in the housing market during the
past year, with falling home prices and increasing foreclosures,
and rising unemployment have precipitated an economic slowdown
and induced fears of a prolonged recession.
We cannot predict
the effect of recent legislative and regulatory
initiatives.
The U.S. federal, state and foreign governments have taken
or are considering extraordinary actions in an attempt to deal
with the worldwide financial crisis and the severe decline in
the global economy. To the extent adopted, many of these actions
have been in effect for only a limited time, and have produced
limited or no relief to the capital, credit and real estate
markets. There is no assurance that these actions or other
actions under consideration will ultimately be successful.
In the United States, the federal government has adopted the
Emergency Economic Stabilization Act of 2008 (enacted on
October 3, 2008) (“EESA”) and the American
Recovery and Reinvestment Act of 2009 (enacted on
February 17, 2009) (“ARRA”). With authority
granted under these laws, the Treasury has proposed a financial
stability plan that is intended to:
| • | provide for the government to invest additional capital into banks and otherwise facilitate bank capital formation; | |
| • | increase the limits on federal deposit insurance; and | |
| • | provide for various forms of economic stimulus, including to assist homeowners restructure and lower mortgage payments on qualifying loans. |
In many cases, full implementation of the laws will require the
adoption of regulations and program parameters. Other laws,
regulations, and programs at the federal, state and even local
levels are under consideration that address the economic climate
and/or
the
financial services industry. The full effect of these
initiatives cannot be predicted. Compliance with such
initiatives may increase our costs and limit our ability to
pursue business opportunities. Although we did not participate
in the U.S. Treasury’s Capital Purchase Program,
future participation in specific programs may subject us to
additional restrictions. In addition, we are required to pay
significantly higher FDIC premiums because market developments
have significantly depleted the insurance fund of the FDIC and
reduced the ratio of reserves to insured deposits.
There can be no assurance that these initiatives will improve
economic conditions generally or the financial markets or
financial services industry in particular. The failure of EESA,
ARRA and the financial stability plan to stabilize the financial
markets could materially adversely affect our ability to access
the capital and credit markets, our business, financial
condition, results of operations and the market price for our
common stock.
Regulatory
initiatives by the government could increase our costs of doing
business and adversely affect our results of operations and
financial condition.
Recent government responses to the condition of the global
financial markets and the banking industry has, among other
things, increased our costs significantly and may further
increase our costs for items such as federal deposit insurance
and increased capital requirements. The FDIC insures deposits at
FDIC-insured financial institutions, including our Bank up to
applicable limits. The FDIC charges the insured financial
institutions premiums to maintain the Deposit Insurance Fund at
a certain level. Pursuant to federal law enacted in 2009, the
standard maximum deposit insurance amount has been increased to
$250,000 per depositor through December 31, 2013, after
which it would revert to a $100,000 per depositor level unless
additional federal legislation is adopted to provide otherwise.
Certain retirement accounts such as Individual Retirement
Accounts are insured up to $250,000 per depositor per insured
6
Table of Contents
institution. Current economic conditions have increased bank
failures and expectations for further failures, in which case
the FDIC would pay all deposits of a failed bank up to the
insured amount from the Deposit Insurance Fund. In December
2008, the FDIC adopted a rule that would increase premiums paid
by insured institutions and make other changes to the assessment
system. Increases in deposit insurance premiums could adversely
affect our net income. We may also become subject to additional
federal legislation and regulation that could force us to change
a number of our historical practices, limit the fees we may
charge or restrict our ability to attract and maintain our
executive officers.
We borrow from
the Federal Home Loan Bank and the Federal Reserve, and there
can be no assurance these programs will continue in their
current manner.
We at times utilize the Federal Home Loan Bank of Pittsburgh for
overnight borrowings and term advances; we also borrow from the
Federal Reserve and from correspondent banks under our federal
funds lines of credit. The amount loaned to us is generally
dependent on the value of the collateral pledged. These lenders
could reduce the percentages loaned against various collateral
categories, could eliminate certain types of collateral and
could otherwise modify or even terminate their loan programs,
particularly to the extent they are required to do so because of
capital adequacy or other balance sheet concerns. Any change or
termination of our borrowings from the FHLB, the Federal Reserve
or correspondent banks would have an adverse affect on our
liquidity and profitability.
Our results of
operations may be adversely affected by
other-than-temporary
impairment charges relating to our investment
portfolio.
We may be required to record future impairment charges on our
investment securities, including our investment in the FHLB of
Pittsburgh, if they suffer declines in value that we consider
other-than-temporary.
Numerous factors, including the lack of liquidity for re-sales
of certain investment securities, the absence of reliable
pricing information for investment securities, adverse changes
in the business climate, adverse regulatory actions or
unanticipated changes in the competitive environment, could have
a negative effect on our investment portfolio in future periods.
If an impairment charge is significant enough, it could affect
the ability of our Bank to pay dividends to us, which could have
a material adverse effect on our liquidity and our ability to
pay dividends to shareholders. Significant impairment charges
could also negatively impact our regulatory capital ratios and
result in our Bank not being classified as
“well-capitalized” for regulatory purposes.
We may need to
raise additional capital in the future and such capital may not
be available when needed or at all.
We may need to raise additional capital in the future to provide
us with sufficient capital resources and liquidity to meet our
commitments and business needs. Our ability to raise additional
capital, if needed, will depend on, among other things,
conditions in the capital markets at that time, which are
outside of our control, and our financial performance. The
ongoing liquidity crisis and the loss of confidence in financial
institutions may increase our cost of funding and limit our
access to some of our customary sources of capital, including,
but not limited to, inter-bank borrowings, repurchase agreements
and borrowings from the discount window of the Federal Reserve.
We cannot assure you that such capital will be available to us
on acceptable terms or at all. Any occurrence that may limit our
access to the capital markets, such as a decline in the
confidence of debt purchasers, depositors of our subsidiary bank
or counterparties participating in the capital markets may
adversely affect our capital costs and our ability to raise
capital and, in turn, our liquidity. An inability to raise
additional capital on acceptable terms when needed could have a
material adverse effect on our business, financial condition and
results of operations.
7
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Risks Related to
Our Market and Business
The
Corporation’s profitability is affected by economic
conditions in the Commonwealth of Pennsylvania.
Unlike larger national or regional banks that operate in large
geographies, the Corporation provides banking and financial
services to customers primarily in Bucks, Montgomery, Chester
and Lehigh Counties in Pennsylvania. Because of our geographic
concentration, continuation of the economic downturn in our
region could make it more difficult to attract deposits and
could cause higher rates of loss and delinquency on our loans
than if the loans were more geographically diversified. Adverse
economic conditions in the region, including, without
limitation, declining real estate values, could cause our levels
of non-performing assets and loan losses to increase. If the
economic downturn continues or a prolonged economic recession
occurs in the economy as a whole, borrowers will be less likely
to repay their loans as scheduled. A continued economic downturn
could, therefore, result in losses that materially and adversely
affect our financial condition and results of operations.
The Corporation
operates in a highly competitive industry and market
area.
We face substantial competition in all phases of our operations
from a variety of different competitors. Our competitors,
including commercial banks, community banks, savings and loan
associations, mutual savings banks, credit unions, consumer
finance companies, insurance companies, securities dealers,
brokers, mortgage bankers, investment advisors, money market
mutual funds and other financial institutions, compete with
lending and deposit-gathering services offered by us. Increased
competition in our markets may result in reduced loans and
deposits.
Many of these competing institutions have much greater financial
and marketing resources than we have. Due to their size, many
competitors can achieve larger economies of scale and may offer
a broader range of products and services than we can. If we are
unable to offer competitive products and services, our business
may be negatively affected.
Some of the financial services organizations with which we
compete are not subject to the same degree of regulation as is
imposed on bank holding companies and federally insured
financial institutions. As a result, these non-bank competitors
have certain advantages over us in accessing funding and in
providing various services. The banking business in our primary
market areas is very competitive, and the level of competition
facing us may increase further, which may limit our asset growth
and financial results.
The
Corporation’s controls and procedures may fail or be
circumvented.
Our management diligently reviews and updates the
Corporation’s internal controls over financial reporting,
disclosure controls and procedures, and corporate governance
policies and procedures. Any failure or undetected circumvention
of these controls could have a material adverse impact on our
financial condition and results of operations.
Potential
acquisitions may disrupt the Corporation’s business and
dilute shareholder value.
We regularly evaluate opportunities to acquire and invest in
banks and in other complementary businesses. As a result, we may
engage in negotiations or discussions that, if they were to
result in a transaction, could have a material effect on our
operating results and financial condition, including short and
long-term liquidity. Our acquisition activities could be
material to us. For example, we could issue additional shares of
common stock in a purchase transaction, which could dilute
current shareholders’ ownership interest. These activities
could require us to use a substantial amount of cash, other
liquid assets,
and/or
incur
debt. In addition, if goodwill recorded in connection with our
prior or potential future acquisitions were determined to be
impaired, then we would be required to recognize a charge
against our earnings, which could materially and adversely
affect our results of operations during the period in which the
impairment was recognized. Any potential charges for impairment
related to goodwill would not impact cash flow, tangible capital
or liquidity.
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Our acquisition activities could involve a number of additional
risks, including the risks of:
| • | incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business; | |
| • | using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets; | |
| • | the time and expense required to integrate the operations and personnel of the combined businesses; | |
| • | creating an adverse short-term effect on our results of operations; and | |
| • | losing key employees and customers as a result of an acquisition that is poorly received. |
We cannot assure you that we will be successful in overcoming
these risks or any other problems encountered in connection with
potential acquisitions. Our inability to overcome these risks
could have an adverse effect on our ability to achieve our
business strategy and maintain our market value.
The Corporation
may not be able to attract and retain skilled people.
We are dependent on the ability and experience of a number of
key management personnel who have substantial experience with
our operations, the financial services industry, and the markets
in which we offer products and services. The loss of one or more
senior executives or key managers may have an adverse effect on
our operations. The Corporation does not currently have
employment agreements or non-competition agreements with any of
our executive officers. Also, as we continue to grow operations,
our success depends on our ability to continue to attract,
manage, and retain other qualified middle management personnel.
If we lost a
significant portion of our low-cost deposits, it would
negatively impact our liquidity and profitability.
Our profitability depends in part on our success in attracting
and retaining a stable base of low-cost deposits. As of
December 31, 2009, 15.5% of our deposit base was comprised
of noninterest bearing deposits, of which 12.4% consisted of
business deposits, which are primarily operating accounts for
businesses, and 3.1% consisted of consumer deposits. While we
generally do not believe these core deposits are sensitive to
interest rate fluctuations, the competition for these deposits
in our markets is strong and customers are increasingly seeking
investments that are safe, including the purchase of
U.S. Treasury securities and other government-guaranteed
obligations, as well as the establishment of accounts at the
largest, most-well capitalized banks. If we were to lose a
significant portion of our low-cost deposits, it would
negatively impact our liquidity and profitability.
The
Corporation’s information systems may experience an
interruption or breach in security.
While the Corporation has policies and procedures designed to
prevent or limit the effect of any failure, interruption, or
breach in our security systems, there can be no assurance that
any such failures will not occur and, if they do occur, that
they will be adequately addressed. As a result, the occurrence
of any such failures, interruptions, or breaches in security
could expose the Corporation to reputation risk, civil
litigation, regulatory scrutiny and possible financial liability
that could have a material adverse effect on our financial
condition.
The Corporation
continually encounters technological change.
Our future success depends, in part, on our ability to
effectively embrace technology efficiencies to better serve
customers and reduce costs. Failure to keep pace with
technological change could potentially have an adverse effect on
our business operations and financial condition.
9
Table of Contents
The Corporation
is subject to claims and litigation.
Customer claims and other legal actions, whether founded or
unfounded, could result in financial or reputation damage and
have a material adverse effect on our financial condition and
results of operations if such claims are not resolved in a
manner favorable to the Corporation.
External events
could impact the Corporation.
Natural disasters, acts of war or terrorism and other adverse
external events could have a significant impact on the
Corporation’s ability to conduct business. Our management
has established disaster recovery policies and procedures that
are expected to mitigate events related to natural or man-made
disasters; however, the impact of an overall economic decline
resulting from such a disaster could have a material adverse
effect on the Corporation’s financial condition.
The Corporation
depends on the accuracy and completeness of information about
customers and
counterparties
.
In deciding whether to extend credit or enter into other
transactions with customers and counterparties, we may rely on
information furnished to us by or on behalf of customers and
counterparties, including financial statements and other
financial information. We also may rely on representations of
customers and counterparties as to the accuracy and completeness
of that information and, with respect to financial statements,
on reports of independent auditors. For example, in deciding
whether to extend credit to clients, we may assume that a
customer’s audited financial statements conform to GAAP and
present fairly, in all material respects, the financial
condition, results of operations and cash flows of the customer.
Our earnings are significantly affected by our ability to
properly originate, underwrite and service loans. Our financial
condition and results of operations could be negatively impacted
to the extent we incorrectly assess the creditworthiness of our
borrowers, fail to detect or respond to deterioration in asset
quality in a timely manner, or rely on financial statements that
do not comply with GAAP or are materially misleading.
Risks Related to
the Banking Industry
The Corporation
is subject to interest rate risk.
Our profitability is dependent to a large extent on our net
interest income. Like most financial institutions, we are
affected by changes in general interest rate levels and by other
economic factors beyond our control. Although we believe we have
implemented strategies to reduce the potential effects of
changes in interest rates on our results of operations, any
substantial and prolonged change in market interest rates could
adversely affect our operating results.
Net interest income may decline in a particular period if:
| • | In a declining interest rate environment, more interest-earning assets than interest-bearing liabilities re-price or mature, or | |
| • | In a rising interest rate environment, more interest-bearing liabilities than interest-earning assets re-price or mature. |
Our net interest income may decline based on our exposure to a
difference in short-term and long-term interest rates. If the
difference between the interest rates shrinks or disappears, the
difference between rates paid on deposits and received on loans
could narrow significantly resulting in a decrease in net
interest income. In addition to these factors, if market
interest rates rise rapidly, interest rate adjustment caps may
limit increases in the interest rates on adjustable rate loans,
thus reducing our net interest income. Also, certain adjustable
rate loans re-price based on lagging interest rate indices. This
lagging effect may also negatively impact our net interest
income when general interest rates continue to rise periodically.
10
Table of Contents
The Corporation
is subject to lending risk.
Risks associated with lending activities include, among other
things, the impact of changes in interest rates and economic
conditions, which may adversely impact the ability of borrowers
to repay outstanding loans, and impact the value of the
associated collateral. Various laws and regulations also affect
our lending activities and failure to comply with such
applicable laws and regulations could subject the Corporation to
enforcement actions and civil monetary penalties.
As of December 31, 2009, approximately 78.0% of our loan
and lease portfolio consisted of commercial, industrial,
construction, and commercial real estate loans and leases; these
are generally perceived as having more risk of default than
residential real estate and consumer loans. These types of loans
involve larger loan balances to a single borrower or groups of
related borrowers. Commercial real estate loans may be affected
to a greater extent than residential loans by adverse conditions
in real estate markets or the economy because commercial real
estate borrowers’ ability to repay their loans depends on
successful development of their properties, as well as the
factors affecting residential real estate borrowers. An increase
in non-performing loans and leases could result in a net loss of
earnings from these loans and leases, an increase in the
provision for possible loan and lease losses, and an increase in
loan and lease charge-offs. The risk of loan and lease losses
will increase if the economy worsens.
Risk of loss on a construction loan depends largely upon whether
our initial estimate of the property’s value at completion
of construction equals or exceeds the cost of the property
construction (including interest) and the availability of
permanent take-out financing. During the construction phase, a
number of factors can result in delays and cost overruns. If
estimates of value are inaccurate or if actual construction
costs exceed estimates, the value of the property securing the
loan may be insufficient to ensure full repayment when completed
through a permanent loan or by seizure of collateral.
Commercial business loans are typically based on the
borrowers’ ability to repay the loans from the cash flow of
their businesses. These loans may involve greater risk because
the availability of funds to repay each loan depends
substantially on the success of the business itself. In
addition, the collateral securing the loans often depreciates
over time, is difficult to appraise and liquidate and fluctuates
in value based on the success of the business.
Commercial real estate, commercial business, and construction
loans are more susceptible to a risk of loss during a downturn
in the business cycle. Our underwriting, review, and monitoring
cannot eliminate all of the risks related to these loans.
The
Corporation’s allowance for possible loan and lease losses
may be insufficient and an increase in the allowance would
reduce earnings.
We maintain an allowance for loan and lease losses. The
allowance is established through a provision for loan and lease
losses based on management’s evaluation of the risks
inherent in our loan portfolio and the general economy. The
allowance is based upon a number of factors, including the size
of the loan and lease portfolio, asset classifications, economic
trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management’s
assessment of the credit risk inherent in the portfolio,
historical loan and lease loss experience and loan underwriting
policies. In addition, we evaluate all loans and leases
identified as problem loans and augment the allowance based upon
our estimation of the potential loss associated with those
problem loans and leases. Additions to our allowance for loan
and lease losses decrease our net income.
If the evaluation we perform in connection with establishing
loan and lease loss reserves is wrong, our allowance for loan
and lease losses may not be sufficient to cover our losses,
which would have an adverse effect on our operating results. Due
to the volatile economy, we cannot assure you that we will not
experience an increase in delinquencies and losses as these
loans continue to mature.
The federal regulators, in reviewing our loan and lease
portfolio as part of a regulatory examination, may from time to
time require us to increase our allowance for loan and lease
losses, thereby negatively affecting our financial condition and
earnings at that time. Moreover, additions to the allowance may
be
11
Table of Contents
necessary based on changes in economic and real estate market
conditions, new information regarding existing loans and leases,
identification of additional problem loans and leases and other
factors, both within and outside of our control.
The loan and lease provision for the year ended
December 31, 2009 was $20.9 million as opposed to
$8.8 million for the same period of 2008. The increase in
the provision for loan and lease losses was due to the
deterioration of underlying collateral and economic factors.
This resulted in the migration of loans to a higher risk
category and increased specific reserves on impaired loans to
$1.4 million at December 31, 2009 from $36 thousand at
December 31, 2008. Additionally, nonaccrual loans and
leases and restructured loans increased to $37.1 million at
December 31, 2009 from $5.4 million at
December 31, 2008. There can be no assurance that
conditions will improve in the near term or that we will
maintain our current provisions for loan and lease losses.
Changes in
economic conditions and the composition of our loan portfolio
could lead to higher loan charge-offs or an increase in our
provision for loan losses and may reduce our net
income.
Changes in national and regional economic conditions could
impact our loan portfolios. For example, an increase in
unemployment, a decrease in real estate values or increases in
interest rates, as well as other factors, could weaken the
economies of the communities we serve. Weakness in the market
areas we serve could depress our earnings and consequently our
financial condition because customers may not demand our
products or services; borrowers may not be able to repay their
loans; the value of the collateral securing our loans to
borrowers may decline and the quality of our loan portfolio may
decline. Any of the latter three scenarios could require us to
charge off a higher percentage of our loans
and/or
increase our provision for loan and lease losses, which would
reduce our net income and could require us to raise capital.
The Corporation
is subject to environmental liability risk associated with
lending activities.
In the course of our business, we may foreclose and take title
to real estate and could be subject to environmental liabilities
with respect to these properties. The Corporation may be held
liable to a governmental entity or to third parties for property
damage, personal injury, investigation and
clean-up
costs incurred by these parties in connection with environmental
contamination, or may be required to investigate or clean up
hazardous or toxic substances, or chemical releases at a
property. Our policies and procedures require environmental
factors to be considered during the loan application process. An
environmental review is performed before initiating any
commercial foreclosure action; however, these reviews may not be
sufficient to detect all potential environmental hazards.
Possible remediation costs and liabilities could have a material
adverse effect on our financial condition.
The Corporation
is subject to extensive government regulation and
supervision.
We are subject to Federal Reserve Board regulation. Our Bank is
subject to extensive regulation, supervision, and examination by
our primary federal regulator, the Office of the Comptroller of
the Currency, and by the FDIC, the regulating authority that
insures customer deposits. Also, as a member of the FHLB, our
Bank must comply with applicable regulations of the Federal
Housing Finance Board and the FHLB. Regulation by these agencies
is intended primarily for the protection of our depositors and
the deposit insurance fund and not for the benefit of our
shareholders. Our Bank’s activities are also regulated
under consumer protection laws applicable to our lending,
deposit, and other activities. A large claim against our Bank
under these laws could have a material adverse effect on our
results of operations.
Proposals for further regulation of the financial services
industry are continually being introduced in the Congress of the
United States of America and the General Assembly of the
Commonwealth of Pennsylvania. We can provide no assurance
regarding the manner in which any new laws and regulations will
affect us.
12
Table of Contents
Consumers may
decide not to use banks to complete their financial
transactions.
The process of eliminating banks as intermediaries, known as
“disintermediation,” could result in the loss of fee
income as well as the loss of customer deposits and the related
income generated from those deposits. The loss of these revenue
streams could have an adverse effect on our financial condition
and results of operation.
Risks Related to
Our Common Stock and Common Stock Offerings
An investment in
the Corporation’s common stock is not an insured
deposit.
The Corporation’s common stock is not a bank deposit, is
not insured by the FDIC or any other deposit insurance fund, and
is subject to investment risk, including the loss of some or all
of your investment. Our common stock is subject to the same
market forces that affect the price of common stock in any
company.
The Corporation
has broad discretion in applying the net proceeds from
offerings.
The Corporation intends to use the net proceeds from offerings
for general corporate purposes, which may include the funding of
additional contributions to the capital of the Bank. We will
have significant flexibility in applying the net proceeds of
offerings. Our failure to apply these funds effectively could
adversely affect our business by reducing its return on equity
and inhibiting our abilities to expand
and/or
raise
additional capital in the future.
The
Corporation’s stock price can be volatile.
The Corporation’s stock price can fluctuate in response to
a variety of factors, some of which are not under our control.
These factors include:
| • | our past and future dividend practice; | |
| • | our financial condition, performance, creditworthiness and prospects; | |
| • | quarterly variations in our operating results or the quality of our assets; | |
| • | operating results that vary from the expectations of management, securities analysts and investors; | |
| • | changes in expectations as to our future financial performance; | |
| • | the operating and securities price performance of other companies that investors believe are comparable to us; | |
| • | future sales of our equity or equity-related securities; | |
| • | the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and developments with respect to financial institutions generally; and | |
| • | changes in global financial markets and global economies and general market conditions, such as interest or foreign exchange rates, stock, commodity or real estate valuations or volatility and other geopolitical, regulatory or judicial events. |
These factors could cause the Corporation’s stock price to
decrease regardless of our operating results.
The Corporation’s common stock is listed for trading on the
NASDAQ Global Select Market under the symbol “UVSP”;
the trading volume has historically been less than that of
larger financial services companies. Stock price volatility may
make it more difficult for you to resell your common stock when
you want and at prices you find attractive.
A public trading market having the desired characteristics of
depth, liquidity and orderliness depends on the presence in the
marketplace of willing buyers and sellers of our common stock at
any given time. This presence depends on the individual
decisions of investors and general economic and market
conditions over which we have no control. Given the relatively
low trading volume of our common stock,
13
Table of Contents
significant sales of our common stock in the public market, or
the perception that those sales may occur, could cause the
trading price of our common stock to decline or to be lower than
it otherwise might be in the absence of those sales or
perceptions.
Anti-takeover
provisions could negatively impact our shareholders.
Certain provisions in the Corporation’s Articles of
Incorporation and Bylaws, as well as federal banking laws,
regulatory approval requirements, and Pennsylvania law could
make it more difficult for a third party to acquire the
Corporation, even if doing so would be perceived to be
beneficial to the Corporation’s shareholders.
There may be
future sales or other dilution of the Corporation’s equity,
which may adversely affect the market price of our common
stock.
The Corporation is generally not restricted from issuing
additional common stock, including any securities that are
convertible into or exchangeable for, or that represent the
right to receive, common stock. The issuance of any additional
shares of common stock or preferred stock or securities
convertible into, exchangeable for or that represent the right
to receive common stock or the exercise of such securities could
be substantially dilutive to shareholders of our common stock.
Holders of our shares of common stock have no preemptive rights
that entitle holders to purchase their pro rata share of any
offering of shares of any class or series. The market price of
our common stock could decline as a result of offerings or
because of sales of shares of our common stock made after
offerings or the perception that such sales could occur. Because
our decision to issue securities in any future offering will
depend on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or
nature of our future offerings. Thus, our shareholders bear the
risk of our future offerings reducing the market price of our
common stock and diluting their stock holdings in us.
The Corporation
relies on dividends from our subsidiaries for most of our
revenue.
The Corporation is a financial holding company and our
operations are conducted by our subsidiaries from which we
receive dividends. The ability of our subsidiaries to pay
dividends is subject to legal and regulatory limitations,
profitability, financial condition, capital expenditures and
other cash flow requirements. The ability of our Bank to pay
cash dividends to the Corporation is limited by its obligation
to maintain sufficient capital and by other restrictions on its
cash dividends that are applicable to national banks and banks
that are regulated by the Office of the Comptroller of the
Currency. If our Bank is not permitted to pay cash dividends to
the Corporation, it is unlikely that we would be able to pay
cash dividends on our common stock.
| Item 1B. | Unresolved Staff Comments |
Univest Corporation may receive written comments from the staff
of the SEC regarding its periodic or current reports under the
Exchange Act. There are no comments that remain unresolved that
Univest Corporation received not less than 180 days before
the end of its fiscal year to which this report relates.
| Item 2. | Properties |
The Corporation and its subsidiaries occupy forty-one properties
in Montgomery, Bucks, Chester and Lehigh counties in
Pennsylvania and Prince Georges County in Maryland, which are
used principally as banking offices. Business locations and
hours are available on the Corporation’s website at
www.univest.net
.
The Corporation owns its corporate headquarters building, which
is shared with the Bank and Univest Investments, Inc., in
Souderton, Montgomery County. Univest Investments, Inc. also
occupies a location in Allentown, Lehigh County. Univest
Insurance, Inc. occupies three locations of which two are owned
by the Bank, one in Lansdale, Montgomery County and one in West
Chester, Chester County; and one is leased in Upper Marlboro,
Prince Georges County in Maryland. Univest Capital, Inc.
occupies one leased location
14
Table of Contents
in Bensalem, Bucks County. The Bank serves the area through its
thirty traditional offices and two supermarket branches that
offer traditional community banking and trust services. Fifteen
banking offices are located in Montgomery County, of which ten
are owned, two are leased and three are buildings owned on
leased land; seventeen banking offices are located in Bucks
County, of which five are owned, nine are leased and two are
buildings owned on leased land. The Bank has two additional
regional leased offices primarily used for loan productions one
of which is located in Bucks County and one in Lehigh County.
Additionally, the Bank provides banking and trust services for
the residents and employees of twelve retirement home
communities, offers a payroll check cashing service at one work
site office and offers merchants an express banking center
located in the Montgomery Mall. The work site office and the
express banking center are located in Montgomery County. The
Bank has seven off-premise automated teller machines located in
Montgomery County. The Bank provides banking services nationwide
through the internet via its website www.univestdirect.com.
| Item 3. | 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 4. | Submission of Matters to a Vote of Security Holders |
Not applicable.
15
Table of Contents
| Item 5. | Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Corporation’s common stock is traded on the NASDAQ
Global Select Market under the symbol “UVSP.” At
December 31, 2009, Univest had 4,396 stockholders.
StockTrans, Inc. serves as the Corporation’s transfer agent
to assist shareholders in managing their stock. StockTrans, Inc.
is located at 44 West Lancaster Avenue, Ardmore, PA.
Shareholders can contact a representative by calling
610-649-7300.
Range of Market
Prices
The following table shows the range of market values of the
Corporation’s stock. The prices shown on this page
represent transactions between dealers and do not include retail
markups, markdowns, or commissions.
Market
Price
|
2009
|
High | Low | ||||||
|
January — March
|
$ | 33.50 | $ | 16.19 | ||||
|
April — June
|
21.99 | 17.50 | ||||||
|
July — September
|
26.87 | 19.00 | ||||||
|
October — December
|
21.85 | 15.14 | ||||||
|
2008
|
High | Low | ||||||
|
January — March
|
$ | 27.00 | $ | 19.09 | ||||
|
April — June
|
29.89 | 19.85 | ||||||
|
July — September
|
38.99 | 19.70 | ||||||
|
October — December
|
36.10 | 25.01 | ||||||
Cash Dividends
Paid Per Share
|
2009
|
||||
|
January 2
|
$ | 0.20 | ||
|
April 1
|
0.20 | |||
|
July 1
|
0.20 | |||
|
October 1
|
0.20 | |||
|
For the Year 2009
|
$ | 0.80 | ||
|
2008
|
||||
|
January 2
|
$ | 0.20 | ||
|
April 1
|
0.20 | |||
|
July 1
|
0.20 | |||
|
October 1
|
0.20 | |||
|
For the Year 2008
|
$ | 0.80 | ||
16
Table of Contents
Stock Performance
Graph
The following chart compares the yearly percentage change in the
cumulative shareholder return on the Corporation’s common
stock during the five years ended December 31, 2009, with
(1) the Total Return Index for the NASDAQ Stock Market
(U.S. Companies) and (2) the Total Return Index for
NASDAQ Bank Stocks. This comparison assumes $100.00 was invested
on December 31, 2004, in our common stock and the
comparison groups and assumes the reinvestment of all cash
dividends prior to any tax effect and retention of all stock
dividends.
Comparison of
Cumulative Total Return on
$100 Investment Made on December 31, 2004
$100 Investment Made on December 31, 2004
Five Year
Cumulative total return Summary
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||||||||
|
Univest Corporation
|
100.00 | 117.90 | 151.86 | 109.16 | 170.34 | 97.15 | ||||||||||||||||||||||||
|
NASDAQ Stock Market (US)
|
100.00 | 167.08 | 184.35 | 203.94 | 122.77 | 178.10 | ||||||||||||||||||||||||
|
NASDAQ Banks
|
100.00 | 144.47 | 164.19 | 131.98 | 103.99 | 86.92 | ||||||||||||||||||||||||
17
Table of Contents
Equity
Compensation Plan Information
The following table sets forth information regarding outstanding
options and shares under the equity compensation plan,
“Univest 2003 Long-term Incentive Plan”, as of
December 31, 2009:
|
(c)
|
||||||||||||
|
Number of
|
||||||||||||
|
(a)
|
Securities
|
|||||||||||
|
Number of
|
(b)
|
Remaining
|
||||||||||
|
Securities to
|
Weighted-
|
Available for
|
||||||||||
|
be Issued
|
Average
|
Future Issuance
|
||||||||||
|
Upon
|
Exercise
|
Under Equity
|
||||||||||
|
Exercise of
|
Price of
|
Compensation
|
||||||||||
|
Outstanding
|
Outstanding
|
Plans (Excluding
|
||||||||||
|
Options,
|
Options,
|
Securities
|
||||||||||
|
Warrants and
|
Warrants
|
Reflected in
|
||||||||||
|
Plan Category
|
Rights | and Rights | Column(a) | |||||||||
|
Equity compensation plan approved by security holders
|
405,532 | $ | 23.37 | 967,639 | ||||||||
|
Equity compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
405,532 | $ | 23.37 | 967,639 | ||||||||
The following table provides information on repurchases by the
Corporation of its common stock during the fourth quarter of
2009:
ISSUER PURCHASES
OF EQUITY SECURITIES
|
Total Number
|
Maximum
|
|||||||||||||||
|
of Shares
|
Number of
|
|||||||||||||||
|
Purchased as
|
Shares that
|
|||||||||||||||
|
|
May Yet Be
|
|||||||||||||||
|
Publicly
|
Purchased
|
|||||||||||||||
|
Total Number of
|
Average
|
Announced
|
Under the
|
|||||||||||||
|
Shares
|
Price Paid
|
Plans or
|
Plans or
|
|||||||||||||
|
Period
|
Purchased | per Share | Programs | Programs | ||||||||||||
|
Oct. 1, 2009 — Oct. 31, 2009
|
— | $ | — | — | 643,782 | |||||||||||
|
Nov. 1, 2009 — Nov. 30, 2009
|
— | — | — | 643,782 | ||||||||||||
|
Dec. 1, 2009 — Dec. 31, 2009
|
— | — | — | 643,782 | ||||||||||||
|
Total
|
— | — | ||||||||||||||
| 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 8/22/2007. 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 current 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. |
18
Table of Contents
| Item 6. | Selected Financial Data |
| Years Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| (Dollars in thousands, except per share data and ratios) | ||||||||||||||||||||
|
Earnings
|
||||||||||||||||||||
|
Interest income
|
$ | 96,359 | $ | 108,057 | $ | 116,144 | $ | 104,853 | $ | 85,290 | ||||||||||
|
Interest expense
|
28,723 | 42,310 | 54,127 | 43,651 | 26,264 | |||||||||||||||
|
Net interest income
|
67,636 | 65,747 | 62,017 | 61,202 | 59,026 | |||||||||||||||
|
Provision for loan and lease losses
|
20,886 | 8,769 | 2,166 | 2,215 | 2,109 | |||||||||||||||
|
Net interest income after provision for loan and lease losses
|
46,750 | 56,978 | 59,851 | 58,987 | 56,917 | |||||||||||||||
|
Noninterest income
|
29,917 | 26,615 | 27,268 | 25,730 | 22,656 | |||||||||||||||
|
Noninterest expense
|
65,324 | 57,225 | 52,211 | 49,958 | 45,796 | |||||||||||||||
|
Net income before income taxes
|
11,343 | 26,368 | 34,908 | 34,759 | 33,777 | |||||||||||||||
|
Applicable income taxes
|
563 | 5,778 | 9,351 | 9,382 | 8,910 | |||||||||||||||
|
Net income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | $ | 25,377 | $ | 24,867 | ||||||||||
|
Financial Condition at Year End
|
||||||||||||||||||||
|
Cash, interest-earning deposits and federal funds sold
|
$ | 68,597 | $ | 40,066 | $ | 59,385 | $ | 70,355 | $ | 59,439 | ||||||||||
|
Investment securities
|
420,045 | 432,266 | 415,465 | 374,814 | 336,612 | |||||||||||||||
|
Net loans and leases
|
1,401,182 | 1,436,774 | 1,342,356 | 1,340,398 | 1,236,289 | |||||||||||||||
|
Assets
|
2,085,421 | 2,084,797 | 1,972,505 | 1,929,501 | 1,769,309 | |||||||||||||||
|
Deposits
|
1,564,257 | 1,527,328 | 1,532,603 | 1,488,545 | 1,366,715 | |||||||||||||||
|
Long-term obligations
|
30,684 | 120,006 | 114,453 | 107,405 | 88,449 | |||||||||||||||
|
Shareholders’ equity
|
267,807 | 203,207 | 198,726 | 185,385 | 173,080 | |||||||||||||||
|
Per Common Share Data
|
||||||||||||||||||||
|
Average shares outstanding
|
14,347 | 12,873 | 12,885 | 12,960 | 12,867 | |||||||||||||||
|
Earnings per share — basic
|
$ | 0.75 | $ | 1.60 | $ | 1.98 | $ | 1.96 | $ | 1.93 | ||||||||||
|
Earnings per share — diluted
|
0.75 | 1.60 | 1.98 | 1.95 | 1.91 | |||||||||||||||
|
Dividends declared per share
|
0.80 | 0.80 | 0.80 | 0.78 | 0.72 | |||||||||||||||
|
Book value
|
16.27 | 15.71 | 15.49 | 14.25 | 13.37 | |||||||||||||||
|
Dividend payout ratio
|
109.33 | % | 50.03 | % | 40.40 | % | 40.00 | % | 37.54 | % | ||||||||||
|
Profitability Ratios
|
||||||||||||||||||||
|
Return on average assets
|
0.52 | % | 1.02 | % | 1.32 | % | 1.38 | % | 1.46 | % | ||||||||||
|
Return on average equity
|
4.68 | 10.09 | 13.44 | 14.04 | 14.87 | |||||||||||||||
|
Average equity to average assets
|
11.06 | 10.08 | 9.84 | 9.81 | 9.83 | |||||||||||||||
19
Table of Contents
| Item 7. | 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”.)
The information contained in this report may contain
forward-looking statements, including statements relating to
Univest’s financial condition and results of operations
that involve certain risks, uncertainties and assumptions.
Univest’s actual results may differ materially from those
anticipated, projected, expected or projected as discussed in
forward-looking statements. A discussion of forward-looking
statements and factors that might cause such a difference
includes those discussed in Item 1. “Business,”
Item 1A. “Risk Factors,” as well as those within
this Management’s Discussion and Analysis of Financial
Condition and Results of Operation and elsewhere in this
report.
Critical
Accounting Policies
Management, in order to prepare the Corporation’s financial
statements in conformity with U.S. generally accepted
accounting principles, is required to make estimates and
assumptions that affect 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 fair value measurement of investment securities available
for sale and assessment for impairment of certain investment
securities, reserve for loan and lease losses, intangible
assets, mortgage servicing rights, income taxes, benefit plans
and stock-based compensation as areas with critical accounting
policies.
The Corporation designates its investment securities as
held-to-maturity,
available-for-sale
or trading. Each of these designations affords different
treatment in the statement of operations and statement of
financial condition for market value changes affecting
securities that are otherwise identical. Should evidence emerge
that indicates that management’s intent or ability to
manage the securities as originally asserted is not supportable,
securities in the
held-to-maturity
or
available-for-sale
designations may be re-categorized so that either statement of
financial position or statement of operations adjustments may be
required. Management evaluates debt securities, which comprise
of U.S. Government, Government Sponsored Agencies,
municipalities and other issuers, for
other-than-temporary
impairment and considers the current economic conditions, the
length of time and the extent to which the fair value has been
less than cost, interest rates and the bond rating of each
security. All of the debt securities are highly rated as
investment grade and Management believes that it will not incur
any losses. The unrealized losses on the Corporation’s
investments in debt securities are temporary in nature since
they are primarily related to market interest rates and are not
related to the underlying credit quality of the issuers within
our investment portfolio. The Corporation does not have the
intent to sell the debt securities and believes it is more
likely than not, that it will not have to sell the securities
before recovery of their cost basis. The credit portion of any
loss on debt securities is recognized through earnings and the
noncredit portion of any loss related to debt securities that
the Corporation does not intend to sell and it is more likely
than not that the Corporation will not be required to sell the
securities prior to recovery is recognized in other
comprehensive income, net of tax. The Corporation evaluates its
equity securities for
other-than-temporary
impairment and recognizes
other-than-temporary
impairment charges when it has determined that it is probable
that certain equity securities will not regain market value
equivalent to the Corporation’s cost basis within a
reasonable period of time due to a decline in the financial
stability of the underlying companies. Management evaluates the
near-term prospects of the issuers in relation to the severity
and duration of the impairment and the Corporation’s
positive intent and ability to hold these securities until
recovery to the Corporation’s cost basis occurs.
Reserves for loan and lease losses are provided using techniques
that specifically identify losses on impaired loans and leases,
estimate losses on pools of homogeneous loans and leases, and
estimate the
20
Table of Contents
amount of unallocated reserve necessary to account for losses
that are present in the loan and lease portfolio but not yet
currently identifiable. The adequacies of these reserves are
sensitive to changes in current economic conditions that may
affect the ability of borrowers to make contractual payments as
well as the value of the collateral committed to secure such
payments. Rapid or sustained downturns in the economy may
require increases in reserves that may negatively impact the
Corporation’s results of operation and statements of
financial condition in the periods requiring additional reserves.
Goodwill and other intangible assets have been recorded on the
books of the Corporation in connection with its acquisitions.
Goodwill and other intangible assets are reviewed for potential
impairment on an annual basis, or more often if events or
circumstances indicate that there may be impairment. Goodwill is
tested for impairment at the reporting unit level and an
impairment loss is recorded to the extent that the carrying
amount of goodwill exceeds its implied fair value. The
Corporation employs general industry practices in evaluating the
fair value of its goodwill and other intangible assets. The
Corporation tests for impairment by first allocating its
goodwill and other assets and liabilities, as necessary, to
defined reporting units, which are generally the Bank, Univest
Investments and Univest Insurance. After this allocation is
completed, a two-step valuation process is applied, as required
by ASC Topic 805. For the Bank, in Step 1, fair value is
determined based on a market approach, which measures fair value
based on trading multiples of independent publicly traded
financial institutions of comparable sizes. If the fair value of
the Bank exceeds its adjusted book value, no write-down of
goodwill is necessary. If the fair value of any reporting unit
is less than its adjusted book value, a Step 2 valuation
procedure is required to assess the proper carrying value of the
goodwill. The valuation procedures applied in a Step 2 valuation
are similar to those that would be performed upon an
acquisition, with the Step 1 fair value representing a
hypothetical reporting unit purchase price. If the current
market value does not exceed the net book value, impairment
exists which requires an impairment charge to noninterest
expense.
In its analysis of goodwill for Univest Insurance, Inc. and
Univest Investments, Inc., the Corporation utilizes a net
present value of cash flows of projected net income based on the
compound annual growth rate of equity and a discount rate. The
discount rate is calculated by utilizing the cost of equity and
the cost of debt methods. The fair value that is calculated is
compared to the net book value of each company. If the fair
value exceeds the net book value, no impairment exists. If the
fair value of any reporting unit is less than its adjusted book
value, a Step 2 valuation procedure is required to assess the
proper carrying value of the goodwill. The valuation procedures
applied in a Step 2 valuation are similar to those that would be
performed upon an acquisition, with the Step 1 fair value
representing a hypothetical reporting unit purchase price. If
the current market value does not exceed the net book value,
impairment exists which requires an impairment charge to
noninterest expense.
For other intangible assets, changes in the useful life or
economic value of acquired assets may require a reduction in the
asset value carried on the financial statements of the
Corporation and a related charge in the statement of operations.
Such changes in asset value could result from a change in market
demand for the products or services offered by an acquired
business or by reductions in the expected profit margins that
can be obtained through the future delivery of the acquired
product or service line.
The Corporation has mortgage servicing rights for mortgages it
originated, subsequently sold and retained servicing. The value
of the rights is booked as income when the corresponding
mortgages are sold. The income booked at sale is the estimated
present value of the cash flows that will be received from
servicing the loans over the entire future term. The term of a
servicing right can be reasonably estimated using prepayment
assumptions of comparable assets priced in the secondary market.
As mortgage rates being offered to the public decrease, the life
of loan servicing rights tends to shorten, as borrowers have
increased incentive to refinance. Shortened loan servicing lives
require changes in the value of the servicing rights that have
already been recorded to be marked down in the statement of
operations of the servicing company. This may cause a material
change in reported operations for the Corporation depending on
the size of the servicing portfolio and the degree of change in
the prepayment speed of the type and coupon of loans being
serviced.
21
Table of Contents
The Corporation recognizes deferred tax assets and liabilities
for the future effects of temporary differences, net operating
loss carryforwards, and tax credits. Enacted tax rates are
applied to cumulative temporary differences based on expected
taxable income in the periods in which the deferred tax asset or
liability is anticipated to be realized. Future tax rate changes
could occur that would require the recognition of income or
expense in the statement of operations in the period in which
they are enacted. Deferred tax assets must be reduced by a
valuation allowance if in management’s judgment it is
“more likely than not” that some portion of the asset
will not be realized. Management may need to modify their
judgments in this regard from one period to another should a
material change occur in the business environment, tax
legislation, or in any other business factor that could impair
the Corporation’s ability to benefit from the asset in the
future.
The Corporation has a retirement plan that it provides as a
benefit to employees and former employees and supplemental
retirement plans that it provides as a benefit to certain
current and former executives. Determining the adequacy of the
funding of these plans may require estimates of future salary
rate increases, of long-term rates of investment return, and the
use of an appropriate discount rate for the obligation. Changes
in these estimates and assumptions due to changes in the
economic environment or financial markets may result in material
changes in the Corporation’s results of operations or
statement of financial condition.
The fair value of share based awards is recognized as
compensation expense over the vesting period based on the
grant-date fair value of the awards. The Corporation uses the
Black-Scholes Model to estimate the fair value of each option on
the date of grant. The Black-Scholes model estimates the fair
value of employee stock options using a pricing model which
takes into consideration the exercise price of the option, the
expected life of the option, the current market price and its
expected volatility, the expected dividends on the stock and the
current risk-free interest rate for the expected life of the
option. The Corporation’s estimate of the fair value of a
stock option is based on expectations derived from historical
experience and may not necessarily equate to its market value
when fully vested.
Readers of the Corporation’s financial statements should be
aware that the estimates and assumptions used in the
Corporation’s current financial statements may need to be
updated in future financial presentations for changes in
circumstances, business or economic conditions in order to
fairly represent the condition of the Corporation at that time.
Results of
Operations — Overview
Univest Corporation of Pennsylvania (the
“Corporation”) earns its revenues primarily through
its subsidiaries, from the margins and fees it generates from
the loan and lease and depository services it provides as well
as from trust fees and insurance and investment commissions. 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 of Directors approved levels. Growth
is pursued through expansion of current customer relationships
and development of additional relationships with new offices and
strategically related acquisitions. The Corporation has also
taken steps in recent years to reduce its dependence on net
interest income by intensifying its focus on fee based income
from trust, insurance, and investment services to customers.
The principal component of earnings for the Corporation is net
interest income, which is the difference between the yield on
interest-earning assets and the cost of interest-bearing
liabilities. The net interest margin, which is the ratio of net
interest income to average earning assets, is affected by
several factors including market interest rates, economic
conditions, loan and lease demand, and deposit activity. The
Corporation maintains a relatively neutral interest rate risk
profile and does not anticipate that the decrease in interest
rates would be materially adverse to its net interest margin.
The Corporation seeks to maintain a steady net interest margin
and consistent growth of net interest income.
22
Table of Contents
The Corporation’s consolidated net income and earnings per
share as of the dates indicated:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
|
Net income per share:
|
||||||||||||
|
Basic
|
0.75 | 1.60 | 1.98 | |||||||||
|
Diluted
|
0.75 | 1.60 | 1.98 | |||||||||
2009 versus
2008
The 2009 results compared to 2008 include the following
significant pretax components:
| • | Net interest income increased due to volume increases on average interest-earning assets and decreases in rates on interest-bearing liabilities. This growth was partially offset by volume increases on interest-bearing liabilities along with decreases in rate on interest-earning assets. The net interest margin on a tax-equivalent basis increased slightly to 3.79% from 3.75%. | |
| • | The provision for loan and lease losses increased by $12.1 million primarily due to the migration of loans to higher-risk ratings as a result of deterioration of underlying collateral and economic factors. | |
| • | Total noninterest income increased by $3.3 million or 12.4% due primarily to increased mortgage-banking activities, and increased investment advisory commission and fee income and insurance commission and fee income resulting from the Trollinger and Liberty acquisitions. These increases were partially offset by decreases in bank owned life insurance income, trust fees and increases in other than temporary impairments on equity securities and other long-lived assets. | |
| • | Total noninterest expense increased $8.1 million or 14.2% primarily due to increases in salaries and benefits expense resulting from growing the mortgage-banking business and the Trollinger and Liberty acquisitions, and higher deposit insurance premiums. |
2008 versus
2007
The 2008 results compared to 2007 include the following
significant pretax components:
| • | Net interest income increased due to volume increases on average interest-earning assets. This growth was partially offset by volume increases on interest-bearing liabilities along with decreases in rates on interest-earning assets. The net interest margin on a tax-equivalent basis increased slightly to 3.75% from 3.71%. | |
| • | The provision for loan and lease losses increased by $6.6 million due primarily to charge-offs of $9.3 million. | |
| • | Total noninterest income decreased by $653 thousand or 2.4% due primarily to an impairment charge on equity investments of $1.3 million, decreases in investment advisory commission and fee income, and service charges on deposit accounts, which was partially offset by an increase in bank owned life insurance income of $1.3 million. | |
| • | Total noninterest expense increased $5.0 million or 9.6% primarily due to increases in salaries and benefits expense and marketing and advertising expense. |
Acquisitions
On December 29, 2008, the Corporation completed the
acquisition of Liberty Benefits, Inc., a full service employee
benefits brokerage and consulting firm specializing in providing
comprehensive employee benefits packages to businesses both
large and small. The Corporation recorded $2.8 million in
goodwill and $740 thousand in customer related intangibles as a
result of the Liberty Benefits, Inc. acquisition. On
December 31, 2008, the Corporation completed the
acquisition of the Trollinger Consulting
23
Table of Contents
Group and related entities, an independent actuarial,
administrative, consulting/compliance, and investment counseling
firm that exclusively serves Municipal Pension Plan clients. The
Corporation recorded $2.9 million in goodwill and
$3.0 million in customer related intangibles as a result of
the Trollinger Consulting Group acquisition. The Corporation
recorded additional goodwill of $157 thousand in 2009 related to
its 2008 acquisition of Trollinger Consulting Group.
Results of
Operations — 2009 Versus 2008
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
years ended December 31, 2009 compared to 2008. 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 Committee works to maintain an adequate and stable
net interest margin for the Corporation.
24
Table of Contents
Table
1 — Distribution of Assets, Liabilities and
Shareholders’ Equity;
Interest Rates and Interest Differential for 2009 versus 2008
Interest Rates and Interest Differential for 2009 versus 2008
| For the Year Ended December 31, | ||||||||||||||||||||||||
| 2009 | 2008 | |||||||||||||||||||||||
|
Average
|
Income/
|
Average
|
Average
|
Income/
|
Average
|
|||||||||||||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||
|
Interest-earning deposits with other banks
|
$ | 5,645 | $ | 16 | 0.28 | % | $ | 1,040 | $ | 16 | 1.54 | % | ||||||||||||
|
U.S. Government obligations
|
110,781 | 3,608 | 3.26 | 99,547 | 4,617 | 4.64 | ||||||||||||||||||
|
Obligations of states and political subdivisions
|
104,481 | 6,890 | 6.59 | 94,549 | 6,305 | 6.67 | ||||||||||||||||||
|
Other debt and equity securities
|
218,660 | 10,406 | 4.76 | 232,715 | 12,145 | 5.22 | ||||||||||||||||||
|
Federal funds sold
|
58 | — | — | 14,714 | 394 | 2.68 | ||||||||||||||||||
|
Total interest-earning deposits, investments and federal funds
sold
|
439,625 | 20,920 | 4.76 | 442,565 | 23,477 | 5.30 | ||||||||||||||||||
|
Commercial, financial and agricultural loans
|
410,729 | 18,838 | 4.59 | 385,652 | 23,849 | 6.18 | ||||||||||||||||||
|
Real estate-commercial and construction loans
|
521,029 | 30,549 | 5.86 | 481,016 | 31,741 | 6.60 | ||||||||||||||||||
|
Real estate-residential loans
|
291,229 | 13,520 | 4.64 | 309,307 | 16,019 | 5.18 | ||||||||||||||||||
|
Loans to individuals
|
49,930 | 3,440 | 6.89 | 62,813 | 4,422 | 7.04 | ||||||||||||||||||
|
Municipal loans and leases
|
90,065 | 5,444 | 6.04 | 82,563 | 5,209 | 6.31 | ||||||||||||||||||
|
Lease financings
|
90,192 | 7,655 | 8.49 | 80,620 | 6,843 | 8.49 | ||||||||||||||||||
|
Gross loans and leases
|
1,453,174 | 79,446 | 5.47 | 1,401,971 | 88,083 | 6.28 | ||||||||||||||||||
|
Total interest-earning assets
|
1,892,799 | 100,366 | 5.30 | 1,844,536 | 111,560 | 6.05 | ||||||||||||||||||
|
Cash and due from banks
|
33,514 | 35,507 | ||||||||||||||||||||||
|
Reserve for loan and lease losses
|
(18,200 | ) | (13,843 | ) | ||||||||||||||||||||
|
Premises and equipment, net
|
33,170 | 31,475 | ||||||||||||||||||||||
|
Other assets
|
142,164 | 127,385 | ||||||||||||||||||||||
|
Total assets
|
$ | 2,083,447 | $ | 2,025,060 | ||||||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||||||
|
Interest-bearing checking deposits
|
$ | 162,615 | 257 | 0.16 | $ | 144,415 | 463 | 0.32 | ||||||||||||||||
|
Money market savings
|
305,113 | 1,724 | 0.57 | 409,586 | 8,861 | 2.16 | ||||||||||||||||||
|
Regular savings
|
353,748 | 2,955 | 0.84 | 276,908 | 4,348 | 1.57 | ||||||||||||||||||
|
Time deposits
|
508,337 | 17,371 | 3.42 | 483,872 | 20,894 | 4.32 | ||||||||||||||||||
|
Total time and interest-bearing deposits
|
1,329,813 | 22,307 | 1.68 | 1,314,781 | 34,566 | 2.63 | ||||||||||||||||||
|
Securities sold under agreements to repurchase
|
91,390 | 544 | 0.60 | 84,254 | 943 | 1.12 | ||||||||||||||||||
|
Other short-term borrowings
|
92,209 | 2,937 | 3.19 | 40,889 | 801 | 1.96 | ||||||||||||||||||
|
Long-term debt
|
48,979 | 1,640 | 3.35 | 100,527 | 4,266 | 4.24 | ||||||||||||||||||
|
Subordinated notes and capital securities
|
26,427 | 1,295 | 4.90 | 27,950 | 1,734 | 6.20 | ||||||||||||||||||
|
Total borrowings
|
259,005 | 6,416 | 2.48 | 253,620 | 7,744 | 3.05 | ||||||||||||||||||
|
Total interest-bearing liabilities
|
1,588,818 | 28,723 | 1.81 | 1,568,401 | 42,310 | 2.70 | ||||||||||||||||||
|
Demand deposits, non-interest bearing
|
224,417 | 223,353 | ||||||||||||||||||||||
|
Accrued expenses and other liabilities
|
39,817 | 29,211 | ||||||||||||||||||||||
|
Total liabilities
|
1,853,052 | 1,820,965 | ||||||||||||||||||||||
|
Shareholders’ Equity:
|
||||||||||||||||||||||||
|
Common stock
|
80,969 | 74,370 | ||||||||||||||||||||||
|
Additional paid-in capital
|
37,844 | 22,643 | ||||||||||||||||||||||
|
Retained earnings and other equity
|
111,582 | 107,082 | ||||||||||||||||||||||
|
Total shareholders’ equity
|
230,395 | 204,095 | ||||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 2,083,447 | $ | 2,025,060 | ||||||||||||||||||||
|
Net interest income
|
$ | 71,643 | $ | 69,250 | ||||||||||||||||||||
|
Net interest spread
|
3.49 | 3.35 | ||||||||||||||||||||||
|
Effect of net interest-free funding sources
|
0.30 | 0.40 | ||||||||||||||||||||||
|
Net interest margin
|
3.79 | % | 3.75 | % | ||||||||||||||||||||
|
Ratio of average interest-earning assets to average
interest-bearing liabilities
|
119.13 | % | 117.61 | % | ||||||||||||||||||||
| Notes: | 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. |
Loans held for sale have been included in the average loan
balances.
Tax-equivalent amounts for the years ended December 31,
2009 and 2008 have been calculated using the Corporation’s
federal applicable rate of 34.5% and 35.0%, respectively.
Certain amounts have been reclassified to conform to the
current-year presentation.
25
Table of Contents
Table
2 — Analysis of Changes in Net Interest Income for
2009 Versus 2008
The rate-volume variance analysis set forth in the table below
compares changes in tax-equivalent net interest for the years
ended December 31, 2009 and December 31, 2008,
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 Years Ended December 31,
|
||||||||||||
| 2009 Versus 2008 | ||||||||||||
|
Volume
|
Rate
|
|||||||||||
| Change | Change | Total | ||||||||||
|
Interest income:
|
||||||||||||
|
Interest-earning deposits with other banks
|
$ | 13 | $ | (13 | ) | $ | — | |||||
|
U.S. Government obligations
|
365 | (1,374 | ) | (1,009 | ) | |||||||
|
Obligations of states and political subdivisions
|
661 | (76 | ) | 585 | ||||||||
|
Other debt and equity securities
|
(669 | ) | (1,070 | ) | (1,739 | ) | ||||||
|
Federal funds sold
|
(394 | ) | — | (394 | ) | |||||||
|
Interest on deposits, investments and federal funds sold
|
(24 | ) | (2,533 | ) | (2,557 | ) | ||||||
|
Commercial, financial and agricultural loans and leases
|
1,121 | (6,132 | ) | (5,011 | ) | |||||||
|
Real estate-commercial and construction loans
|
2,368 | (3,560 | ) | (1,192 | ) | |||||||
|
Real estate-residential loans
|
(829 | ) | (1,670 | ) | (2,499 | ) | ||||||
|
Loans to individuals
|
(888 | ) | (94 | ) | (982 | ) | ||||||
|
Municipal loans and leases
|
458 | (223 | ) | 235 | ||||||||
|
Lease financings
|
812 | — | 812 | |||||||||
|
Interest and fees on loans and leases
|
3,042 | (11,679 | ) | (8,637 | ) | |||||||
|
Total interest income
|
3,018 | (14,212 | ) | (11,194 | ) | |||||||
|
Interest expense:
|
||||||||||||
|
Interest-bearing checking deposits
|
25 | (231 | ) | (206 | ) | |||||||
|
Money market savings
|
(625 | ) | (6,512 | ) | (7,137 | ) | ||||||
|
Regular savings
|
628 | (2,021 | ) | (1,393 | ) | |||||||
|
Time deposits
|
832 | (4,355 | ) | (3,523 | ) | |||||||
|
Interest on time and interest-bearing deposits
|
860 | (13,119 | ) | (12,259 | ) | |||||||
|
Securities sold under agreement to repurchase
|
39 | (438 | ) | (399 | ) | |||||||
|
Other short-term borrowings
|
1,633 | 503 | 2,136 | |||||||||
|
Long-term debt
|
(1,731 | ) | (895 | ) | (2,626 | ) | ||||||
|
Subordinated notes and capital securities
|
(76 | ) | (363 | ) | (439 | ) | ||||||
|
Interest on borrowings
|
(135 | ) | (1,193 | ) | (1,328 | ) | ||||||
|
Total interest expense
|
725 | (14,312 | ) | (13,587 | ) | |||||||
|
Net interest income
|
$ | 2,293 | $ | 100 | $ | 2,393 | ||||||
| Notes: | 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. |
Loans held for sale have been included in the average loan
balances.
Tax-equivalent amounts for the years ended December 31,
2009 and 2008 have been calculated using the Corporation’s
federal applicable rate of 34.5% and 35.0%, respectively.
Certain amounts have been reclassified to conform to the
current-year presentation.
26
Table of Contents
Net interest income on a tax-equivalent basis increased
$2.4 million in 2009 compared to 2008 primarily due to
increased volume in commercial real estate and construction
loans, commercial business loans and lease financings, along
with decreased rates on money market savings, time deposits and
savings accounts. These increases were partially offset by
decreased rates on commercial business loans and commercial real
estate and commercial construction loans. The tax-equivalent net
interest margin, which is tax-equivalent net interest income as
a percentage of average interest-earning assets, was 3.79% and
3.75% for the years ended December 31, 2009 and 2008,
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 3.49% for the
year ended December 31, 2009 compared to 3.35% for the same
period in 2008. The effect of net interest free funding sources
decreased to 0.30% for the year ended December 31, 2009
compared to 0.40% for the same period in 2008; this represents
the effect on the net interest margin of net funding provided by
noninterest-earning assets, noninterest-bearing liabilities and
shareholders’ equity.
Interest
Income
Interest income on U.S. Government obligations decreased
during the year ended December 31, 2009 compared to 2008
due to a decline in average rates that was partially offset by
an increase in average volume. Interest income on obligations of
state and political subdivisions increased due to average volume
increases that were partially offset by a decline in average
rates. Interest income on other debt and equity securities
decreased primarily due to average volume and rate decreases on
mortgage-backed securities. Interest income decreased on federal
funds sold primarily due to decreases in the average volume.
The decline in interest and fees on loans and leases during the
year ended December 31, 2009 compared to 2008 was due
primarily to average rate decreases on commercial business loans
and real estate — commercial and construction loans.
The rate decreases were attributable to the declines in the
average prime rate, and one-month and three-month
U.S. London Interbank Borrowing Rate (“LIBOR”).
The average interest yield on the commercial business loan
portfolio decreased 159 basis points for the year ended
December 31, 2009 compared to the same period in 2008; this
was partially offset by a $25.1 million increase in volume
resulting in a $5.0 million decrease in interest income.
The average interest yield on the commercial and construction
real estate loan portfolios decreased 74 basis points; this
was partially offset by a $40.0 million increase in volume
resulting in a $1.2 million decline in interest income. The
average volume decline on real estate — residential of
$18.1 million and average interest yield declines of
54 basis points contributed to a $2.5 million decrease
in interest income. The average volume decline on loans to
individuals of $12.9 million, contributed to a $982
thousand decrease in interest income. These decreases were
offset by an increase in average volume of $9.6 million on
lease financings and $7.5 million on municipal loans and
lease financings, which contributed to $812 thousand and $235
thousand, respectively, in increases in interest income.
Interest
Expense
The Corporation’s average cost of deposits decreased
95 basis points for the year ended December 31, 2009
compared to the same period in 2008. The average rate paid on
money market savings decreased 159 basis points and the
average volume decreased $104.5 million; contributing to a
$7.1 million decrease in interest expense. The decrease in
money market savings was primarily due to a $92.6 million
short-term deposit received from one customer during the first
six months of 2008, and migration to higher yielding savings
accounts. Interest expense on regular savings decreased
$1.4 million due to an average rate decrease of 73
basis-points; partially offset by an average volume increase of
$76.8 million. Interest on time deposits decreased
$3.5 million, due to a 90 basis-point decrease in average
rate, partially offset by a $24.5 million average increase
in volume.
Interest on other short-term borrowings includes interest paid
on federal funds purchased and short-term Federal Home Loan Bank
of Pittsburgh (“FHLB”) borrowings. In addition, the
Bank offers an automated cash management checking account that
sweeps funds daily into a repurchase agreement
27
Table of Contents
account (“cash management accounts”). Interest on
other short-term borrowings increased $2.1 million
primarily due to volume increases of $51.3 million.
Interest on long-term debt, which consists of long-term FHLB
borrowings, decreased $2.6 million due to an average volume
decrease of $51.5 million and an 89 basis-point decrease in
the average rate paid. Subordinated notes and capital securities
include the issuance of $15.0 million in Subordinated
Capital Notes and $20.0 million in Company-Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trusts
Holding Junior Subordinated Debentures of the Corporation
(“Trust Preferred Securities”). Interest expense
on Subordinated Capital Notes and Trust Preferred
Securities decreased $439 thousand primarily due to pay-downs on
the Subordinated Capital Notes.
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 charge-off activity. Loans and leases are
also reviewed for impairment based on discounted cash flows
using the loans’ initial effective interest rates or the
fair value of the collateral for certain collateral dependent
loans. Any of the above criteria may cause the reserve to
fluctuate. The provision for the years ended December 31,
2009 and 2008 was $20.9 million and $8.8 million,
respectively. The increase in provision was primarily due to the
migration of loans to higher-risk ratings as a result of
deterioration of underlying collateral and economic factors.
Noninterest
Income
Noninterest income consists of trust department fee income,
service charges on deposit accounts, 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 net cash surrender values of bank-owned life insurance
policies and any excess proceeds from death benefit claims.
Total noninterest income increased during the year ended
December 31, 2009 compared to 2008 primarily due to
increased mortgage-banking activities, and increased investment
advisory commission and fee income and insurance commission and
fee income resulting from the Trollinger and Liberty
acquisitions. These increases were partially offset by decreases
in bank owned life insurance income, trust fees and increases in
other than temporary impairments on securities and other
long-lived assets.
28
Table of Contents
The following table presents noninterest income as of the dates
indicated:
| For the Years Ended December 31, | ||||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
Trust fee income
|
$ | 5,536 | $ | 6,004 | $ | (468 | ) | (7.8 | )% | |||||||
|
Service charges on deposit accounts
|
7,036 | 6,808 | 228 | 3.3 | ||||||||||||
|
Investment advisory commission and fee income
|
3,427 | 2,374 | 1,053 | 44.4 | ||||||||||||
|
Insurance commission and fee income
|
7,081 | 5,723 | 1,358 | 23.7 | ||||||||||||
|
Other service fee income
|
3,410 | 3,484 | (74 | ) | (2.1 | ) | ||||||||||
|
Bank owned life insurance income
|
1,321 | 2,791 | (1,470 | ) | (52.7 | ) | ||||||||||
|
Other-than-temporary
impairment on equity securities
|
(1,708 | ) | (1,251 | ) | (457 | ) | (36.5 | ) | ||||||||
|
Other-than-temporary
impairment on other long lived assets
|
(500 | ) | — | (500 | ) | N/M | ||||||||||
|
Net gain on sales of securities
|
1,150 | 280 | 870 | N/M | ||||||||||||
|
Net gain on sale of loans held for sale
|
2,222 | 82 | 2,140 | N/M | ||||||||||||
|
Net (loss) gain on dispositions of fixed assets
|
(144 | ) | (40 | ) | (104 | ) | N/M | |||||||||
|
Other
|
1,086 | 360 | 726 | 201.7 | ||||||||||||
|
Total noninterest income
|
$ | 29,917 | $ | 26,615 | $ | 3,302 | (12.4 | ) | ||||||||
Trust fee income decreased in 2009 over 2008 primarily due to a
decrease in the market value of managed accounts. Service
charges on deposit accounts increased primarily due to
non-sufficient funds fees.
Investment advisory commissions and fee income, the primary
source of income for Univest Investments, Inc. increased in 2009
over 2008 due to the acquisition of the Trollinger Consulting
Group in December 2008 that resulted in increased fees and
commissions received. Insurance commissions and fee income, the
primary source of income for Univest Insurance, Inc. increased
during the year ended December 31, 2009 over the same
period in 2008 primarily due to the acquisitions of Liberty
Benefits, Inc. and Trollinger Consulting Group in December 2008.
Other service fee income primarily consists of MasterMoney fees,
non-customer debit card fees, other merchant fees, mortgage
servicing income and mortgage placement income. Other service
fee income decreased for the year ended December 31, 2009
over 2008 primarily due to income recognized in 2008 which
resulted from a renegotiated contract with a service provider.
Bank owned life insurance income is the change in the cash
surrender values of bank owned life insurance policies, which is
affected by the market value of the underlying assets, and any
excess proceeds from death benefit claims. The decrease
recognized in the year ended December 31, 2009 over 2008
was primarily due to additional income resulting from death
benefit claims of $1.9 million received in 2008 partially
offset by positive changes in the cash surrender value of the
underlying investments due to market conditions.
During the year ended December 31, 2009, approximately
$50.8 million of securities were sold recognizing gains of
$1.2 million. Additionally, the Corporation realized
impairment charges of $1.7 million on its equity portfolio
during the year ended December 31, 2009. The Corporation
determined that there was an increased severity and duration of
the decline in fair values during the year due to a decline in
the financial stability of the underlying companies. The
Corporation carefully monitors all of its equity securities and
has not taken impairment losses on certain other under-water
securities, at this time, as the financial performance and near-
term prospects of the underlying companies are not indicative of
the market deterioration of their stock. The Corporation has the
positive intent and ability to hold these securities until
recovery to the Corporation’s cost basis occurs. During the
year ended December 31, 2008, approximately
$58.9 million of securities were sold recognizing gains of
$279 thousand. Additionally, the Corporation
29
Table of Contents
realized an impairment charge of $1.3 million on its equity
portfolio during the year ended December 31, 2008.
At December 31, 2009, the Corporation held certain equity
investments for which it is restricted from trading and had been
carried at cost. During 2009, the Corporation recorded an
other-than-temporary
impairment on these long-lived assets of $500 thousand. The
Corporation determined that it was probable that these
long-lived assets would not regain market value equivalent to
the Corporation’s cost basis within a reasonable period of
time due to a decline in the financial stability of the
underlying company.
Sales of $142.5 million in loans held for sale, primarily
due to increased mortgage activity, during the year ended
December 31, 2009 resulted in gains of $2.2 million
compared to sales of $4.4 million for gains of $82 thousand
for the year ended December 31, 2008.
Net losses on the disposition of fixed assets were $144 thousand
and $40 thousand for the years ended December 31, 2009 and
2008, respectively. Net losses in 2009 were primarily the result
of relocating a banking office within one of our supermarket
locations to a traditional office and the demolition of the
Corporation’s former operations center. The consolidation
and upgrade of the corporate phone system in 2008 resulted in a
loss on disposal of $36 thousand.
Other non-interest income includes fair value adjustments on
derivatives, losses on investments in partnerships, gains on
sales of other real estate owned, gains on sales of portfolio
loans and leases, reinsurance income and other miscellaneous
income. Other non-interest income increased for the year ended
2009 compared to the same period in 2008 primarily due to net
positive fair value adjustments on derivative loan commitments
and interest rate swaps totaling $797 thousand.
Noninterest
Expense
The operating costs of the Corporation are known as noninterest
expense, and include, but are not limited to, salaries and
benefits, equipment expense, and occupancy costs. Expense
control is very important to the management of the Corporation,
and every effort is made to contain and minimize the growth of
operating expenses, and to provide technological innovation
whenever practical, as operations change or expand.
The following table presents noninterest expense as of the dates
indicated:
| For the Years Ended December 31, | ||||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
Salaries and benefits
|
$ | 37,422 | $ | 32,413 | $ | 5,009 | 15.5 | % | ||||||||
|
Net occupancy
|
5,274 | 5,230 | 44 | 0.8 | ||||||||||||
|
Equipment
|
3,438 | 3,247 | 191 | 5.9 | ||||||||||||
|
Marketing and advertising
|
1,840 | 1,499 | 341 | 22.7 | ||||||||||||
|
Deposit insurance premiums
|
3,185 | 767 | 2,418 | N/M | ||||||||||||
|
Other
|
14,165 | 14,069 | 96 | 0.7 | ||||||||||||
|
Total noninterest expense
|
$ | 65,324 | $ | 57,225 | $ | 8,099 | 14.2 | |||||||||
Salaries and benefits increased due to salary and benefit
expenses associated with the acquisitions of Liberty Benefits,
Inc. and the Trollinger Consulting Group in December 2008,
additional personnel to grow the mortgage banking business,
normal base pay increases and pension plan expense of
$1.2 million.
Net occupancy costs and equipment expense increased due to
expansion of the Corporation’s mortgage banking business,
the acquisition of Liberty and Trollinger, and new equipment
purchases and upgrades.
Marketing and advertising expenses increased primarily due to
increased brand advertising.
Deposit insurance premiums increased due to a special assessment
of five basis points on each FDIC-insured depository
institution’s assets, minus its Tier 1 capital, as of
June 30, 2009, which equated to
30
Table of Contents
$947 thousand, credits that were utilized by the Corporation in
2008 and a 7 basis point increase in rates, causing an
aggregate variance of $2.4 million.
Other expenses increased primarily due to increases in the
amortization of customer-related intangibles which increased by
$759 thousand due to the acquisitions stated above, partially
offset by expenses associated with a claim under a
rent-a-captive
arrangement of $349 thousand and fee expense of $257 thousand
associated with student loans, both recognized in the 2008
period and which are not recurring in nature.
Tax
Provision
The provision for income taxes was $563 thousand for the year
ended December 31, 2009 compared to $5.8 million in
2008, at effective rates of 5.0% and 21.9%, 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 years of 2009 and 2008 was
primarily due to a larger percentage of tax-exempt income to
pre-tax income.
Results of
Operations — 2008 Versus 2007
Net Interest
Income
Table 3 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 year ended
December 31, 2008 compared to 2007. Table 4 analyzes the
changes in the tax-equivalent net interest income for the
periods broken down by their rate and volume components.
31
Table of Contents
Table
3 — Distribution of Assets, Liabilities and
Shareholders’ Equity;
Interest Rates and Interest Differential for 2008 versus 2007
Interest Rates and Interest Differential for 2008 versus 2007
| For the Year Ended December 31, | ||||||||||||||||||||||||
| 2008 | 2007 | |||||||||||||||||||||||
|
Average
|
Income/
|
Average
|
Average
|
Income/
|
Average
|
|||||||||||||||||||
| Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||
|
Interest-earning deposits with other banks
|
$ | 1,040 | $ | 16 | 1.54 | % | $ | 1,892 | $ | 95 | 5.02 | % | ||||||||||||
|
U.S. Government obligations
|
99,547 | 4,617 | 4.64 | 117,768 | 5,371 | 4.56 | ||||||||||||||||||
|
Obligations of states and political subdivisions
|
94,549 | 6,305 | 6.67 | 84,587 | 5,937 | 7.02 | ||||||||||||||||||
|
Other debt and equity securities
|
232,715 | 12,145 | 5.22 | 181,175 | 9,698 | 5.35 | ||||||||||||||||||
|
Federal funds sold
|
14,714 | 394 | 2.68 | 9,303 | 454 | 4.88 | ||||||||||||||||||
|
Total interest-earning deposits, investments and federal funds
sold
|
442,565 | 23,477 | 5.30 | 394,725 | 21,555 | 5.07 | ||||||||||||||||||
|
Commercial, financial and agricultural loans
|
385,652 | 23,849 | 6.18 | 394,667 | 31,155 | 7.89 | ||||||||||||||||||
|
Real estate-commercial and construction loans
|
481,016 | 31,741 | 6.60 | 445,954 | 34,883 | 7.82 | ||||||||||||||||||
|
Real estate-residential loans
|
309,307 | 16,019 | 5.18 | 307,042 | 16,665 | 5.43 | ||||||||||||||||||
|
Loans to individuals
|
62,813 | 4,422 | 7.04 | 81,157 | 5,675 | 6.99 | ||||||||||||||||||
|
Municipal loans and leases
|
82,563 | 5,209 | 6.31 | 90,421 | 5,341 | 5.91 | ||||||||||||||||||
|
Lease financings
|
80,620 | 6,843 | 8.49 | 47,776 | 4,228 | 8.85 | ||||||||||||||||||
|
Gross loans and leases
|
1,401,971 | 88,083 | 6.28 | 1,367,017 | 97,947 | 7.17 | ||||||||||||||||||
|
Total interest-earning assets
|
1,844,536 | 111,560 | 6.05 | 1,761,742 | 119,502 | 6.78 | ||||||||||||||||||
|
Cash and due from banks
|
35,507 | 39,782 | ||||||||||||||||||||||
|
Reserve for loan and lease losses
|
(13,843 | ) | (13,645 | ) | ||||||||||||||||||||
|
Premises and equipment, net
|
31,475 | 23,223 | ||||||||||||||||||||||
|
Other assets
|
127,385 | 121,162 | ||||||||||||||||||||||
|
Total assets
|
$ | 2,025,060 | $ | 1,932,264 | ||||||||||||||||||||
|
Liabilities:
|
||||||||||||||||||||||||
|
Interest-bearing checking deposits
|
$ | 144,415 | 463 | 0.32 | $ | 137,699 | 463 | 0.34 | ||||||||||||||||
|
Money market savings
|
409,586 | 8,861 | 2.16 | 387,315 | 15,826 | 4.09 | ||||||||||||||||||
|
Regular savings
|
276,908 | 4,348 | 1.57 | 212,977 | 3,833 | 1.80 | ||||||||||||||||||
|
Time deposits
|
483,872 | 20,894 | 4.32 | 539,048 | 25,001 | 4.64 | ||||||||||||||||||
|
Total time and interest-bearing deposits
|
1,314,781 | 34,566 | 2.63 | 1,277,039 | 45,123 | 3.53 | ||||||||||||||||||
|
Securities sold under agreements to repurchase
|
84,254 | 943 | 1.12 | 86,641 | 1,994 | 2.30 | ||||||||||||||||||
|
Other short-term borrowings
|
40,889 | 801 | 1.96 | 14,432 | 777 | 5.38 | ||||||||||||||||||
|
Long-term debt
|
100,527 | 4,266 | 4.24 | 82,855 | 3,919 | 4.73 | ||||||||||||||||||
|
Subordinated notes and capital securities
|
27,950 | 1,734 | 6.20 | 29,431 | 2,314 | 7.86 | ||||||||||||||||||
|
Total borrowings
|
253,620 | 7,744 | 3.05 | 213,359 | 9,004 | 4.22 | ||||||||||||||||||
|
Total interest-bearing liabilities
|
1,568,401 | 42,310 | 2.70 | 1,490,398 | 54,127 | 3.63 | ||||||||||||||||||
|
Demand deposits, non-interest bearing
|
223,353 | 221,738 | ||||||||||||||||||||||
|
Accrued expenses and other liabilities
|
29,211 | 29,913 | ||||||||||||||||||||||
|
Total liabilities
|
1,820,965 | 1,742,049 | ||||||||||||||||||||||
|
Shareholders’ Equity:
|
||||||||||||||||||||||||
|
Common stock
|
74,370 | 74,370 | ||||||||||||||||||||||
|
Additional paid-in capital
|
22,643 | 22,517 | ||||||||||||||||||||||
|
Retained earnings and other equity
|
107,082 | 93,328 | ||||||||||||||||||||||
|
Total shareholders’ equity
|
204,095 | 190,215 | ||||||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 2,025,060 | $ | 1,932,264 | ||||||||||||||||||||
|
Net interest income
|
$ | 69,250 | $ | 65,375 | ||||||||||||||||||||
|
Net interest spread
|
3.35 | 3.15 | ||||||||||||||||||||||
|
Effect of net interest-free funding sources
|
0.40 | 0.56 | ||||||||||||||||||||||
|
Net interest margin
|
3.75 | % | 3.71 | % | ||||||||||||||||||||
|
Ratio of average interest-earning assets to average
interest-bearing liabilities
|
117.61 | % | 118.21 | % | ||||||||||||||||||||
| Notes: | 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.
Included in interest income are loan and lease fees of $728
thousand for 2008 and $1.0 million for 2007.
Tax-equivalent amounts for both periods have been calculated
using the Corporation’s federal applicable rate of 35%.
32
Table of Contents
Table
4 — Analysis of Changes in Net Interest Income for
2008 Versus 2007
The rate-volume variance analysis set forth in the table below
compares changes in tax-equivalent net interest for the years
ended December 31, 2008 and December 31, 2007,
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 Years Ended December 31,
|
||||||||||||
| 2008 Versus 2007 | ||||||||||||
|
Volume
|
Rate
|
|||||||||||
| Change | Change | Total | ||||||||||
|
Interest income:
|
||||||||||||
|
Interest-earning deposits with other banks
|
$ | (13 | ) | $ | (66 | ) | $ | (79 | ) | |||
|
U.S. Government obligations
|
(848 | ) | 94 | (754 | ) | |||||||
|
Obligations of states and political subdivisions
|
664 | (296 | ) | 368 | ||||||||
|
Other debt and equity securities
|
2,683 | (236 | ) | 2,447 | ||||||||
|
Federal funds sold
|
145 | (205 | ) | (60 | ) | |||||||
|
Interest on deposits, investments and federal funds sold
|
2,631 | (709 | ) | 1,922 | ||||||||
|
Commercial, financial and agricultural loans and leases
|
(557 | ) | (6,749 | ) | (7,306 | ) | ||||||
|
Real estate-commercial and construction loans
|
2,299 | (5,441 | ) | (3,142 | ) | |||||||
|
Real estate-residential loans
|
122 | (768 | ) | (646 | ) | |||||||
|
Loans to individuals
|
(1,294 | ) | 41 | (1,253 | ) | |||||||
|
Municipal loans
|
(494 | ) | 362 | (132 | ) | |||||||
|
Lease financings
|
2,787 | (172 | ) | 2,615 | ||||||||
|
Interest and fees on loans and leases
|
2,863 | (12,727 | ) | (9,864 | ) | |||||||
|
Total interest income
|
5,494 | (13,436 | ) | (7,942 | ) | |||||||
|
Interest expense:
|
||||||||||||
|
Interest-bearing checking deposits
|
28 | (28 | ) | — | ||||||||
|
Money market savings
|
510 | (7,475 | ) | (6,965 | ) | |||||||
|
Regular savings
|
1,005 | (490 | ) | 515 | ||||||||
|
Time deposits
|
(2,382 | ) | (1,725 | ) | (4,107 | ) | ||||||
|
Interest on time and interest-bearing deposits
|
(839 | ) | (9,718 | ) | (10,557 | ) | ||||||
|
Securities sold under agreement to repurchase
|
(29 | ) | (1,022 | ) | (1,051 | ) | ||||||
|
Other short-term borrowings
|
518 | (494 | ) | 24 | ||||||||
|
Long-term debt
|
753 | (406 | ) | 347 | ||||||||
|
Subordinated notes and capital securities
|
(91 | ) | (489 | ) | (580 | ) | ||||||
|
Interest on borrowings
|
1,151 | (2,411 | ) | (1,260 | ) | |||||||
|
Total interest expense
|
312 | (12,129 | ) | (11,817 | ) | |||||||
|
Net interest income
|
$ | 5,182 | $ | (1,307 | ) | $ | 3,875 | |||||
| Notes: | 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.
Tax-equivalent amounts for both periods have been calculated
using the Corporation’s federal applicable rate of 35%.
Net interest income on a tax-equivalent basis increased
$3.9 million in 2008 compared to 2007 primarily due to
increased volume on other debt and equity securities, commercial
real estate and
33
Table of Contents
construction loans, lease financings along with decreased rates
on money market savings and time deposits. These increases were
partially offset by decreased rates on commercial business loans
and commercial real estate and commercial construction loans.
The tax-equivalent net interest margin, which is tax-equivalent
net interest income as a percentage of average interest-earning
assets, was 3.75% and 3.71% for the years ended
December 31, 2008 and 2007. 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 3.35%
for the year ended December 31, 2008 compared to 3.15% for
the same period in 2007. The effect of net interest free funding
sources decreased to 0.40% for the year ended December 31,
2008 compared to 0.56% 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.
Interest
Income
Interest income on U.S. Government obligations decreased
during the year ended December 31, 2008 compared to 2007
due to a decline in average volume that was partially offset by
an increase in average rates. Interest income on obligations of
state and political subdivisions increased due to average volume
increases that were partially offset by a decline in average
rates. Interest income on other debt and equity securities
increased primarily due to average volume increases on
mortgage-backed securities. Interest income decreased on federal
funds sold primarily due to decreases in the average rate.
The decline in interest and fees on loans and leases during the
year ended December 31, 2008 compared to 2007 was due
primarily to average rate decreases on commercial business loans
and real estate — commercial and construction loans.
The rate decreases were attributable to the 304 basis point
decline in average prime rate comparing the year ended
December 31, 2008 to the same period in 2007. The average
interest yield on the commercial loan portfolio decreased
171 basis points for the year ended December 31, 2008
compared to the same period in 2007; which, along with an
average volume decline of $9.0 million, contributed to a
$7.3 million decrease in interest income. The average
interest yield on the commercial and construction real estate
loan portfolios decreased 122 basis points; this was
partially offset by a $35.1 million increase in volume
resulting in a $3.1 million decline in interest income. The
average volume decline on loans to individuals of
$18.3 million, contributed to a $1.3 million decrease
in interest income. These decreases were offset by an increase
in average volume on lease financings of $32.8 million;
which contributed to a $2.6 million increase in interest
income.
Interest
Expense
The Corporation’s average cost of deposits decreased
90 basis points for the year ended December 31, 2008
compared to the same period in 2007. The average rate paid on
money market savings decreased 193 basis points while the
average volume increased $22.3 million; the net effect
contributed to a $7.0 million 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
during the first six months of 2008. Interest expense on regular
savings increased $515 thousand due to an average volume
increase of $63.9 million that was partially offset by a 23
basis-point decrease in the average rate. Interest on time
deposits decreased $4.1 million, due to a
$55.2 million average decrease in volume and a 32
basis-point decrease in the average rate.
Interest on short-term borrowings includes interest paid on
federal funds purchased, repurchase agreements 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 (“cash management
accounts”). Interest on short-term borrowings decreased
37.1% during 2008 compared to 2007 primarily due to a decrease
in the average rate associated with cash management accounts and
short-term FHLB borrowings.
Interest on long-term debt, which consists of long-term FHLB
borrowings, increased due to average volume growth of
$17.7 million partially offset by a 49 basis point
decrease in the average rate paid.
34
Table of Contents
Subordinated notes and capital securities include
$15.0 million in Subordinated Capital Notes and
$20.0 million in Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts Holding Junior
Subordinated Debentures of the Corporation
(“Trust Preferred Securities”). Interest expense
on Subordinated Capital Notes and Trust Preferred
Securities decreased 25% primarily due to pay-downs on the
Subordinated Capital Notes.
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,
current economic conditions, various types of lending activity,
policies, real estate and other loan commitments, and
significant changes in charge-off activity. Loans and leases are
also reviewed for impairment based on discounted cash flows
using the loans’ initial effective interest rates or the
fair value of the collateral for certain collateral dependent
loans Any of the above criteria may cause the reserve to
fluctuate. The provision for the years ended December 31,
2008 and 2007 was $8.8 million and $2.2 million,
respectively. The increase in provision was primarily due to
$9.3 million in loans and leases charged-off during 2008.
Noninterest
Income
Noninterest income consists of trust department fee income,
service charges on deposit accounts, 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 net cash surrender values of bank-owned life insurance
policies and any excess proceeds from death benefit claims.
Total noninterest income decreased during the year ended
December 31, 2008 compared to 2007 primarily due to
$1.3 million in
other-than-temporary
impairments on equity securities which was offset by death
benefit claims on bank-owned life insurance policies resulting
in additional income of $1.9 million partially offset by
negative changes in cash surrender value of $602 thousand.
The following table presents noninterest income as of the dates
indicated:
| For the Years Ended December 31, | ||||||||||||||||
| 2008 | 2007 | $ Change | % Change | |||||||||||||
|
Trust fee income
|
$ | 6,004 | $ | 5,921 | $ | 83 | 1.4 | % | ||||||||
|
Service charges on deposit accounts
|
6,808 | 6,822 | (14 | ) | (0.2 | ) | ||||||||||
|
Investment advisory commission and fee income
|
2,374 | 2,680 | (306 | ) | (11.4 | ) | ||||||||||
|
Insurance commission and fee income
|
5,723 | 5,730 | (7 | ) | (0.1 | ) | ||||||||||
|
Other service fee income
|
3,484 | 3,662 | (178 | ) | (4.9 | ) | ||||||||||
|
Bank owned life insurance income
|
2,791 | 1,503 | 1,288 | 85.7 | ||||||||||||
|
Other-than-temporary
impairment on equity securities
|
(1,251 | ) | — | (1,251 | ) | N/M | ||||||||||
|
Net gain on sales of securities
|
280 | 435 | (155 | ) | (35.6 | ) | ||||||||||
|
Net gain on sale of loans held for sale
|
82 | 64 | 18 | 28.1 | ||||||||||||
|
Net loss on dispositions of fixed assets
|
(40 | ) | (112 | ) | 72 | 64.3 | ||||||||||
|
Other
|
360 | 563 | (203 | ) | (36.1 | ) | ||||||||||
|
Total noninterest income
|
$ | 26,615 | $ | 27,268 | $ | (653 | ) | (2.4 | ) | |||||||
Trust fee income increased in 2008 over 2007 primarily due to an
increase in the number of managed accounts. Service charges on
deposit accounts remained relatively constant when comparing the
year ended December 31, 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, which more than offset
the addition of new accounts during the year. Insurance
35
Table of Contents
commissions and fee income, the primary source of income for
Univest Insurance, Inc., decreased slightly in the year ended
December 31, 2008 over 2007 due to the current market
conditions as policies have been renewing at lower premium
levels.
Other service fee income primarily consists of MasterMoney fees,
non-customer debit card fees, other merchant fees, mortgage
servicing income and mortgage placement income. Other service
fee income decreased for the year ended 2008 over 2007 primarily
due to a decrease in mortgage placement fee income.
Bank owned life insurance income is the change in the cash
surrender values of bank owned life insurance policies, which is
affected by the market value of the underlying assets, and any
excess proceeds from death benefit claims. The increase
recognized in the year ended December 31, 2008 over 2007
was primarily due to additional income resulting from death
benefit claims of $1.9 million partially offset by negative
changes in the cash surrender value of $602 thousand due to
decreases in the value of the underlying investments due to
market conditions.
During the year ended December 31, 2008, approximately
$58.9 million of securities were sold recognizing gains of
$279 thousand. Additionally, the Corporation realized impairment
charges of $1.3 million on its equity portfolio during the
year ended December 31, 2008. The Corporation determined
that it was probable that certain equity securities would not
regain market value equivalent to the Corporation’s cost
basis within a reasonable period of time due to a decline in the
financial stability of the underlying companies. The Corporation
carefully monitors all of its equity securities and has not
taken impairment losses on certain other under-water equity
securities, at this time, as the financial performance of the
underlying companies is not indicative of the market
deterioration of their stock and it is Management’s opinion
that it is probable that the market value of the equity
securities will recover to the Corporation’s cost basis in
the individual securities. Additionally, the Corporation has the
positive intent and ability to hold those securities until such
recovery occurs. During the year ended December 31, 2007,
the Corporation sold $5.6 million in securities that
resulted in $435 thousand in net gains and the Corporation also
received $251 thousand from the sales of shares created through
conversion of one of its vendor relationships from a membership
association to a private share corporation.
Sales of $4.4 million in loans and leases and mortgage
loans held for sale during the year ended December 31, 2008
resulted in gains of $82 thousand compared to sales of
$12.9 million for gains of $64 thousand for the year ended
December 31, 2007.
Net losses on the disposition of fixed assets were $40 thousand
and $112 thousand for the years ended December 31, 2008 and
2007, respectively. Net losses in 2007 were primarily the result
of relocating a banking office within one of its supermarket
locations to a traditional office, recognizing a loss of $64
thousand. The consolidation and upgrade of the corporate phone
system in 2008 resulted in a loss on disposal of $36 thousand.
Other non-interest income includes losses on investments in
partnerships, gains on sales of portfolio loans and leases,
gains on sales of other real estate owned, reinsurance income
and other miscellaneous income. Other non-interest income
decreased for the year ended 2008 compared to the same period in
2007 primarily due to an $86 thousand increase in losses on
investments in partnerships and an $80 thousand decline in FHLB
dividends.
Noninterest
Expense
The operating costs of the Corporation are known as noninterest
expense, and include, but are not limited to, salaries and
benefits, equipment expense, and occupancy costs. Expense
control is very important to the management of the Corporation,
and every effort is made to contain and minimize the growth of
operating expenses, and to provide technological innovation
whenever practical, as operations change or expand.
36
Table of Contents
The following table presents noninterest expense as of the dates
indicated:
| For the Years Ended December 31, | ||||||||||||||||
| 2008 | 2007 | $ Change | % Change | |||||||||||||
|
Salaries and benefits
|
$ | 32,413 | $ | 30,811 | $ | 1,602 | 5.2 | % | ||||||||
|
Net occupancy
|
5,230 | 4,753 | 477 | 10.0 | ||||||||||||
|
Equipment
|
3,247 | 3,127 | 120 | 3.8 | ||||||||||||
|
Marketing and advertising
|
1,499 | 831 | 668 | 80.4 | ||||||||||||
|
Deposit insurance premiums
|
767 | 178 | 589 | N/M | ||||||||||||
|
Other
|
14,069 | 12,511 | 1,558 | 12.5 | ||||||||||||
|
Total noninterest expense
|
$ | 57,225 | $ | 52,211 | $ | 5,014 | 9.6 | |||||||||
Salaries and benefits increased due to normal annual increases,
stock-based compensation expense and employee insurance
benefits. Net occupancy costs increased due to increases in
rental expense on leased properties which was partially offset
by a slight increase in rental income on leased office space.
Equipment expense increased slightly due to increases in
computer software licenses and maintenance. This increase was
partially offset by a reduction of furniture and equipment
rental costs as well as maintenance and repairs on equipment.
Marketing and advertising expenses increased primarily due to
the Corporation’s UnivestOne campaign which was launched in
the second quarter of 2008 to increase awareness of its on-line
banking website and increased brand advertising during the
fourth quarter to address concerns of our communities explaining
the difference between Wall Street and Main Street banks. FDIC
deposit insurance premiums increased as the utilization of
credits ran off during 2008. Other expenses increased primarily
due to expense associated with a claim under a
rent-a-captive
arrangement of $349 thousand and fee expense of $257 thousand
associated with student loans; both charges are not recurring in
nature. Increases in consultant fees and telephone expenses also
contributed to the increase in other expenses.
Tax
Provision
The provision for income taxes was $5.8 million for the
year ended December 31, 2008 compared to $9.4 million
in 2007, at effective rates of 21.9% and 26.8%, 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 years of 2008 and 2007 was
primarily due to a larger percentage of tax-exempt income to
pre-tax income. Tax-exempt income increased primarily due to
death benefit claims on bank-owned life insurance.
Financial
Condition
During 2009, total assets increased primarily due to growth in
cash and other short-term interest-earning deposits resulting
from proceeds from the Corporation’s stock issuance during
2009. As a result of the stock issuance, common stock increased
by $17.0 million and additional paid-in capital increased
by $38.7 million at December 31, 2009. Detailed
explanations of these fluctuations are discussed below.
37
Table of Contents
ASSETS
The following table presents assets as of the dates indicated:
| At December 31, | ||||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
Cash, interest-earning deposits and federal funds sold
|
$ | 68,597 | $ | 40,066 | $ | 28,531 | 71.2 | % | ||||||||
|
Investment securities
|
420,045 | 432,266 | (12,221 | ) | (2.8 | ) | ||||||||||
|
Loans held for sale
|
1,693 | 544 | 1,149 | N/M | ||||||||||||
|
Total loans and leases
|
1,425,980 | 1,449,892 | (23,912 | ) | (1.6 | ) | ||||||||||
|
Reserve for loan and lease losses
|
(24,798 | ) | (13,118 | ) | (11,680 | ) | (89.0 | ) | ||||||||
|
Premises and equipment, net
|
34,201 | 32,602 | 1,599 | 4.9 | ||||||||||||
|
Goodwill and other intangibles, net
|
55,970 | 56,051 | (81 | ) | (0.1 | ) | ||||||||||
|
Bank owned life insurance
|
46,740 | 45,419 | 1,321 | 2.9 | ||||||||||||
|
Accrued interest and other assets
|
56,993 | 41,075 | 15,918 | 38.8 | ||||||||||||
|
Total assets
|
$ | 2,085,421 | $ | 2,084,797 | $ | 624 | — | |||||||||
Cash,
Interest-earning Deposits and Federal Funds Sold
Cash, interest-earning deposits and federal funds sold increased
as of December 31, 2009 as compared to December 31,
2008 primarily due to a $42.8 million increase in
interest-bearing deposits with other banks. The excess cash
provided by growth in deposits was invested at the Federal
Reserve Bank for future short-term needs at higher yielding
rates than other available short-term investments.
Investment
Securities
The investment portfolio is managed as part of the overall asset
and liability management process to provide liquidity to the
Bank, 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, residential mortgage-backed and
municipal securities. Total investments decreased primarily due
to maturities, sales and calls of mortgage-backed securities.
Table
5 — Investment Securities
The following table shows the carrying amount of investment
securities as of the dates indicated.
Held-to-maturity
and
available-for-sale
portfolios are combined.
| At December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
U.S. treasury
|
$ | — | $ | 5,862 | $ | 4,935 | ||||||
|
U.S. government corporations and agencies
|
119,992 | 98,844 | 112,119 | |||||||||
|
State and political subdivisions
|
107,566 | 100,350 | 86,754 | |||||||||
|
Residential mortgage-backed securities
|
101,376 | 131,261 | 130,790 | |||||||||
|
Commercial mortgage obligations
|
79,454 | 80,205 | 64,383 | |||||||||
|
Asset-backed securities
|
573 | 1,211 | 1,995 | |||||||||
|
Other securities
|
9,160 | 11,625 | 10,797 | |||||||||
|
Equity securities
|
1,924 | 2,908 | 3,692 | |||||||||
|
Total investment securities
|
$ | 420,045 | $ | 432,266 | $ | 415,465 | ||||||
38
Table of Contents
Table
6 — Investment Securities (Yields)
The following table shows the maturity distribution and weighted
average yields of the investment securities as of the dates
indicated. Expected maturities will differ from contractual
maturities because debt issuers may have the right to call or
prepay obligations without call or prepayment penalties; hence
the stated yield may not be recognized in future periods. Equity
securities have no stated maturity and the current dividend
yields may not be recognized in future periods. The weighted
average yield is calculated by dividing income, which has not
been tax equated on tax-exempt obligations, within each
contractual maturity range by the outstanding amount of the
related investment.
Held-to-maturity
and
available-for-sale
portfolios are combined.
| At December 31, | ||||||||||||||||||||||||
|
2009
|
2009
|
2008
|
2008
|
2007
|
2007
|
|||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||
|
1 Year or less
|
$ | 14,495 | 1.91 | % | $ | 10,626 | 0.67 | % | $ | 49,087 | 3.93 | % | ||||||||||||
|
After 1 Year-5 Years
|
125,349 | 3.01 | 113,380 | 4.43 | 85,652 | 4.98 | ||||||||||||||||||
|
After 5 Years-10 Years
|
54,795 | 4.48 | 37,888 | 4.80 | 33,284 | 4.90 | ||||||||||||||||||
|
After 10 Years
|
223,482 | 4.48 | 267,464 | 5.07 | 243,750 | 5.18 | ||||||||||||||||||
|
No stated maturity
|
1,924 | 2.42 | 2,908 | 4.76 | 3,692 | 4.17 | ||||||||||||||||||
|
Total
|
$ | 420,045 | 3.94 | $ | 432,266 | 4.77 | $ | 415,465 | 4.96 | |||||||||||||||
Loans and
Leases
Total gross loans and leases declined comparing
December 31, 2009 to December 31, 2008 primarily due
to decreases of $61.6 million in real estate-construction
and $49.4 million in real estate-residential loans. These
decreases were partially offset by increases of
$88.7 million real estate-commercial loans and
$22.8 million in commercial, financial and agricultural
loans. Loans to individuals decreased by $7.5 million and
lease financings, net of unearned income, decreased
$17.0 million.
At December 31, 2009 there were no concentrations of loans
or leases exceeding 10% of total loans and leases other than as
disclosed in Table 7.
Table
7 — Loan and Lease Portfolio
The following table presents the composition of the loan and
lease portfolio as of the dates indicated:
| At December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
Commercial, financial and agricultural
|
$ | 447,495 | $ | 424,649 | $ | 381,826 | $ | 442,182 | $ | 383,792 | ||||||||||
|
Real estate — commercial
|
487,688 | 399,003 | 393,686 | 352,596 | 349,384 | |||||||||||||||
|
Real estate — construction
|
91,891 | 153,506 | 134,448 | 136,331 | 110,032 | |||||||||||||||
|
Real estate — residential
|
266,622 | 316,039 | 310,571 | 305,306 | 303,994 | |||||||||||||||
|
Loans to individuals
|
46,761 | 54,212 | 72,476 | 89,217 | 102,095 | |||||||||||||||
|
Lease financings
|
95,678 | 110,095 | 68,100 | 30,186 | 415 | |||||||||||||||
|
Total gross loans and leases
|
1,436,135 | 1,457,504 | 1,361,107 | 1,355,818 | 1,249,712 | |||||||||||||||
|
Less: Unearned income
|
(10,155 | ) | (7,612 | ) | (5,665 | ) | (2,137 | ) | (60 | ) | ||||||||||
|
Total loans and leases
|
$ | 1,425,980 | $ | 1,449,892 | $ | 1,355,442 | $ | 1,353,681 | $ | 1,249,652 | ||||||||||
39
Table of Contents
Table
8 — Loan and Lease Maturities and Sensitivity to
Changes in Interest Rates
The following table presents the maturity and interest rate
sensitivity of the loan and lease portfolio at December 31,
2009:
|
Due in One
|
Due after
|
|||||||||||||||
|
Year or
|
One Year
|
Due after
|
||||||||||||||
| Total | Less | to Five Years | Five Years | |||||||||||||
|
Commercial, financial and agricultural
|
$ | 447,495 | $ | 327,123 | $ | 105,265 | $ | 15,107 | ||||||||
|
Real estate — commercial
|
487,688 | 209,329 | 238,754 | 39,605 | ||||||||||||
|
Real estate — construction
|
91,891 | 84,432 | 6,237 | 1,222 | ||||||||||||
|
Real estate — residential
|
266,622 | 96,889 | 50,452 | 119,281 | ||||||||||||
|
Loans to individuals
|
46,761 | 13,650 | 12,541 | 20,570 | ||||||||||||
|
Leases financings
|
85,523 | 38,938 | 46,535 | 50 | ||||||||||||
|
Total gross loans and leases
|
$ | 1,425,980 | $ | 770,361 | $ | 459,784 | $ | 195,835 | ||||||||
|
Loans and leases with fixed predetermined interest rates
|
$ | 683,909 | $ | 158,342 | $ | 356,386 | $ | 169,181 | ||||||||
|
Loans and leases with variable or floating interest rates
|
742,071 | 612,019 | 103,398 | 26,654 | ||||||||||||
|
Total gross loans and leases
|
$ | 1,425,980 | $ | 770,361 | $ | 459,784 | $ | 195,835 | ||||||||
The commercial mortgages and Industrial Development Authority
mortgages that are presently being written at both fixed and
floating rates of interest primarily include loans written for
three or five-year terms with a monthly payment based on a
fifteen-year amortization schedule. At each three-year or
five-year anniversary date of the mortgages, the interest rate
is renegotiated and the term of the loan is extended for an
additional three or five years. At each three-year or five-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 in the table above. The
borrower has the right to prepay the loan at any time.
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 collectability of interest for accrual purposes.
When a loan or lease, including a loan or lease impaired, 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 collectability of principal or
interest, even though the loan or lease 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 collectability of principal.
Loans or 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 collectability of the total contractual principal and
interest is no longer in doubt.
Total cash basis, restructured and nonaccrual loans and leases
totaled $37.1 million at December 31, 2009,
$5.4 million at December 31, 2008 and
$6.9 million at December 31, 2007; the balance at
December 31, 2009 primarily consisted of real
estate-construction and real estate — commercial
loans. For the years ended December 31, 2009, 2008, and
2007, nonaccrual loans and leases resulted in lost interest
income of $969 thousand, $685 thousand, and $747 thousand,
respectively. The Corporation’s ratio of nonperforming
assets to total loans and leases and other real estate owned was
2.89% as of December 31, 2009, 0.48% as of
December 31, 2008, and 0.65% as of December 31, 2007.
The ratio of
40
Table of Contents
nonperforming assets to total assets was 1.98% at
December 31, 2009, 0.33% at December 31, 2008 and
0.45% at December 31, 2007.
At December 31, 2009, the recorded investment in loans and
leases that are considered to be impaired was
$37.1 million, all of which were on a nonaccrual basis or
trouble debt restructured. The related reserve for loan and
lease losses for those loans was $1.4 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. Nonaccruing loans increased during 2009
primarily due to two credits which went on non-accrual during
the third quarter of 2009. One credit is a Shared National
Credit to a continuing care retirement community in which
Univest participates. The parent company of the community has
come under financial difficulty and as a result the parent
company and all communities declared bankruptcy. The credit has
$7.3 million outstanding at December 31, 2009 and is
listed within the real estate — construction loan
category. There is a specific allowance on this credit of $665
thousand to cover deficiencies in the underlying real estate
value under current market conditions. The second credit is for
four separate facilities to a local commercial real estate
developer/home builder which aggregated $16.6 million at
December 31, 2009; of which $11.8 million is listed
within the real estate — commercial loan category and
$4.9 million is listed within the real estate —
construction loan category. There is no specific allowance on
this credit as the value of the underlying collateral is more
than sufficient to cover the outstanding balance. Univest will
continue to closely monitor these credits and may have to
provide additional reserves in future quarters related to these
credits.
The Corporation sold the two other real estate owned properties
acquired during 2008. During 2009, the Corporation acquired five
other real estate owned properties.
Table
9 — Nonaccrual, Past Due and Restructured Loans and
Leases, and Other Real Estate Owned
The following table details the aggregate principal balance of
loans and leases classified as nonaccrual, past due and
restructured as of the dates indicated:
| At December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
Nonaccruing loans and leases:
|
||||||||||||||||||||
|
Commercial, financial and agricultural
|
$ | 3,275 | $ | 520 | $ | 3,473 | $ | 4,480 | $ | 1,216 | ||||||||||
|
Real estate — commercial
|
14,005 | 1,758 | 1,036 | 1,794 | 2,047 | |||||||||||||||
|
Real estate — construction
|
14,872 | 1,640 | 2,308 | 2,169 | — | |||||||||||||||
|
Real estate — residential
|
572 | 813 | — | — | — | |||||||||||||||
|
Leases financings
|
774 | 298 | 61 | — | — | |||||||||||||||
|
Total nonaccruing loans and leases
|
33,498 | 5,029 | 6,878 | 8,443 | 3,263 | |||||||||||||||
|
Restructured loans and leases, not included above
|
3,611 | 380 | — | — | — | |||||||||||||||
|
Total impaired loans and leases
|
$ | 37,109 | $ | 5,409 | $ | 6,878 | $ | 8,443 | $ | 3,263 | ||||||||||
|
Accruing loans and leases 90 days or more past due:
|
||||||||||||||||||||
|
Real estate — residential
|
$ | 273 | $ | 175 | $ | 401 | $ | 227 | $ | 114 | ||||||||||
|
Real estate — commercial
|
— | 299 | 243 | — | — | |||||||||||||||
|
Commercial and industrial loans
|
134 | 315 | 1,147 | 48 | 146 | |||||||||||||||
|
Loans to individuals
|
319 | 356 | 126 | 485 | 350 | |||||||||||||||
|
Total accruing loans and leases, 90 days or more past due
|
$ | 726 | $ | 1,145 | $ | 1,917 | $ | 760 | $ | 610 | ||||||||||
|
Other real estate owned
|
$ | 3,428 | $ | 346 | $ | — | $ | — | $ | 344 | ||||||||||
|
Total non-performing assets
|
$ | 41,263 | $ | 6,900 | $ | 8,795 | $ | 9,203 | $ | 4,217 | ||||||||||
41
Table of Contents
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 known and
inherent losses in the loan and lease portfolio.
Management’s methodology to determine the adequacy of and
the provision 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 loan
portfolio.
The reserve for loan and lease losses is determined through a
monthly evaluation of reserve adequacy. 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. Nonaccrual loans and leases, and those
which have been restructured, 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.
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. 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 or 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 and lease,
in the case of non-collateral dependent borrowings, will not be
realized. Certain impaired loans are reported at the present
value of expected future cash flows using the loan’s
initial effective interest rate, or at the loan’s
observable market price or the fair value of the collateral,
less cost to sell, if the loan is collateral dependent.
The reserve for loan and lease losses consists of 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.
42
Table of Contents
Table
10 — Allocated, Other Loan and Lease Loss
Reserves
The reserve for loan and lease losses is made up of the
allocated reserve and the unallocated portion. The following
table summarizes the two categories as of the dates indicated:
| At December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Allocated
|
$ | 23,744 | $ | 12,387 | $ | 12,217 | ||||||
|
Unallocated
|
1,054 | 731 | 869 | |||||||||
|
Total
|
$ | 24,798 | $ | 13,118 | $ | 13,086 | ||||||
Allocated reserves in 2009 increased by $11.4 million due
to the migration of loans to higher-risk ratings as a result of
deterioration of underlying collateral and economic factors.
Unallocated reserves increased by $323 thousand in 2009
primarily due to current economic volatility. As a result, the
allowance for loan and lease losses as a percentage of total
loans and leases increased to 1.74% at December 31, 2009
from 0.90% at December 31, 2008 and from 0.97% at
December 31, 2007. The allowance for loan and lease losses
to nonperforming loans and leases equaled 65.54% at
December 31, 2009, 200.15% at December 31, 2008, and
190.7% at December 31, 2007. At December 31, 2009, the
specific allowance on impaired loans was $1.4 million, or
3.8% of the impaired loan balance of $37.1 million. At
December 31, 2008 the specific allowance on impaired loans
was $36 thousand, or 0.64% of the balance of impaired loans of
$5.4 million. Although the coverage ratio of the specific
allowance on the impaired loans and leases increased, the ratio
of the allowance to nonperforming loans and leases decreased.
The increase in the allocated allowance for loan and lease
losses was impacted more by the migration of loans to
higher-risk ratings than the increase in non-performing loans
and leases. Management closely monitors the credit worthiness
and the value of underlying collateral as a commercial credit
becomes past-due. These factors along with historical and
economic trends, and management’s assumptions, are taken
into consideration in providing the allowance for loan and lease
losses. When the loan becomes impaired and is placed on
non-accrual, a specific allowance is created for the impaired
loan.
Allocated reserves in 2008 increased by $170 thousand as higher
allocations to account for growth in the lease financings
portfolio were more than offset by lower reserves against
declining indirect and commercial loan portfolios. Lease
financings, net of unearned discounts, rose to
$102.5 million at December 31, 2008 from
$62.4 million when compared to the same period in 2007.
Homogeneous retail loans, including residential real estate and
consumer loans outstanding, declined by $18.4 million,
contributing to a homogeneous loan pool allocation reduction of
$271 thousand. Commercial loans (including commercial real
estate loans) increased by $75.0 million, which resulted in
an increase of $218 thousand in the allocated reserve.
Unallocated reserves declined by $138 thousand in 2008 as well
as a decrease in reserves for impaired loans of
$1.7 million at December 31, 2008. Nonperforming loans
as a percentage of loans and leases decreased to 0.45% at
December 31, 2008 from 0.65% as of December 31, 2007;
the allowance for loan and lease losses to total loans and
leases decreased to 0.90% at December 31, 2008 compared to
0.97% at December 31, 2007 primarily due to the decline in
nonaccrual loans and the related reserve. Management closely
monitors the credit worthiness and the value of underlying
collateral as a commercial credit becomes past-due. These
factors along with historical and economic trends, and
management’s assumptions, are taken into consideration in
providing the allowance for loan and lease losses. When the loan
becomes impaired and is placed on non-accrual, a specific
allowance is created for the impaired loan. At December 31,
2008 the specific allowance on impaired loans was $36 thousand,
or 0.64% of the balance of impaired loans of $5.4 million.
At December 31, 2007 the specific allowance on impaired
loans was $1.8 million, or 25.5% of the impaired loan
balance of $6.9 million.
43
Table of Contents
Table
11 — Summary of Loan and Lease Loss
Experience
The following table presents average loans and leases and
summarizes loan and lease loss experience as of the dates
indicated:
| For the Years Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
Average amount of loans and leases outstanding
|
$ | 1,453,174 | $ | 1,401,971 | $ | 1,367,017 | $ | 1,317,711 | $ | 1,198,881 | ||||||||||
|
Loan and lease loss reserve at beginning of period
|
$ | 13,118 | $ | 13,086 | $ | 13,283 | $ | 13,363 | $ | 13,099 | ||||||||||
|
Charge-offs:
|
||||||||||||||||||||
|
Commercial, financial and agricultural loans
|
3,857 | 6,008 | 902 | 1,860 | 1,329 | |||||||||||||||
|
Real estate loans
|
2,088 | 1,373 | 499 | — | 911 | |||||||||||||||
|
Loans to individuals
|
1,808 | 1,422 | 1,513 | 1,133 | 1,019 | |||||||||||||||
|
Lease financings
|
2,695 | 502 | 106 | — | — | |||||||||||||||
|
Total charge-offs
|
10,448 | 9,305 | 3,020 | 2,993 | 3,259 | |||||||||||||||
|
Recoveries:
|
||||||||||||||||||||
|
Commercial, financial and agricultural loans
|
275 | 97 | 176 | 139 | 625 | |||||||||||||||
|
Real estate loans
|
33 | 27 | 95 | 168 | 368 | |||||||||||||||
|
Loans to individuals
|
491 | 353 | 386 | 391 | 421 | |||||||||||||||
|
Lease financings
|
443 | 91 | — | — | — | |||||||||||||||
|
Total recoveries
|
1,242 | 568 | 657 | 698 | 1,414 | |||||||||||||||
|
Net charge-offs
|
9,206 | 8,737 | 2,363 | 2,295 | 1,845 | |||||||||||||||
|
Provisions to loan and lease loss reserve
|
20,886 | 8,769 | 2,166 | 2,215 | 2,109 | |||||||||||||||
|
Loan and lease loss reserve at end of period
|
$ | 24,798 | $ | 13,118 | $ | 13,086 | $ | 13,283 | $ | 13,363 | ||||||||||
|
Ratio of net charge-offs to average loans and leases
|
.63 | % | .62 | % | .17 | % | .17 | % | .15 | % | ||||||||||
The increase in charge-offs during 2009 compared to 2008 was
primarily due to the increase in lease financings charge-offs
due to the deterioration in the economy impacting small
businesses, the primary customer base of the leasing portfolio.
These increases were offset by a reduction of charge-off
activity for commercial, financial and agricultural loans. The
increase in charge-offs during 2008 compared to 2007 was
primarily due to the increase of activity for commercial,
financial and agricultural loans, real estate loans, and lease
financings charge-offs due to the deterioration in the economy.
These increases were offset by a reduction of charge-off
activity for loans to individuals. Loans and leases that are
charged-off are considered to be permanently impaired.
44
Table of Contents
The following table summarizes the allocation of the allowance
for loan and lease losses and the percentage of loans and leases
in each major loan category to total loans and leases as of the
dates indicated:
| At December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||
|
Commercial, financial and agricultural
|
$ | 12,148 | 31.4 | % | $ | 6,432 | 29.3 | % | $ | 6,295 | 28.2 | % | $ | 6,963 | 32.6 | % | $ | 6,005 | 30.7 | % | ||||||||||||||||||||
|
Real estate loans
|
9,534 | 59.3 | 4,800 | 59.9 | 4,836 | 61.9 | 4,266 | 58.7 | 5,431 | 61.1 | ||||||||||||||||||||||||||||||
|
Loans to individuals
|
887 | 3.3 | 581 | 3.7 | 730 | 5.3 | 1,005 | 6.6 | 949 | 8.2 | ||||||||||||||||||||||||||||||
|
Lease financings
|
1,175 | 6.0 | 574 | 7.1 | 356 | 4.6 | 171 | 2.1 | — | — | ||||||||||||||||||||||||||||||
|
Unallocated
|
1,054 | N/A | 731 | N/A | 869 | N/A | 878 | N/A | 978 | N/A | ||||||||||||||||||||||||||||||
|
Total
|
$ | 24,798 | 100.0 | % | $ | 13,118 | 100.0 | % | $ | 13,086 | 100.0 | % | $ | 13,283 | 100.0 | % | $ | 13,363 | 100.0 | % | ||||||||||||||||||||
The ratio of the reserve for loan and lease losses to total
loans and leases was 1.74% at December 31, 2009 and 0.90%
at December 31, 2008.
Goodwill and
Other Intangible Assets
The Corporation has completed the 2009 and 2008 annual
impairment tests on goodwill and other intangible assets and no
impairment was noted. There can be no assurance that future
goodwill impairment tests will not result in a charge to
earnings.
The Corporation 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. The amortization for these intangible assets
was $1.5 million for the year ended December 31, 2009;
$642 thousand for the year ended December 31, 2008 and $742
thousand for the year ended December 31, 2007. The
Corporation also has goodwill of $50.4 million, which is
deemed to be an indefinite intangible asset and will not be
amortized.
Accrued
Interest and Other Assets
On September 28, 2009, the FDIC Board proposed an
institutional prepaid FDIC assessment to recapitalize the
Deposit Insurance Fund which was finalized in the Fourth Quarter
of 2009. The amount was paid on December 30, 2009 for the
Fourth Quarter 2009, and for all of 2010, 2011 and 2012. This
assessment was based on an estimated 5% annual growth rate in
deposits during 2010, 2011 and 2012; and a 3 basis-point
increase in the base assessment rate at September 30, 2009
to be applied in 2011 and 2012. The Bank paid $9.0 million
to the FDIC on December 30, 2009 of which $8.4 million
will remain in a prepaid asset account. The prepaid amount of
$8.4 million has a zero percent risk-weighting for
risk-based capital ratio calculations. The prepaid amount will
be expensed over the 2010 though 2012 period as the actual FDIC
assessment are determined for each interim quarterly period. Any
excess prepaid amounts may be utilized up to December 30,
2014 at which time any excess will be returned to the Bank.
On December 23, 2008, the FHLB announced that it would be
suspending the payment of dividends and the repurchase of excess
capital stock in-order to rebuild its capital levels. This is
due to the
other-than-temporary
impairment write down required on its private-label mortgage
portfolio which could reduce their capital below required
levels. Additionally, the FHLB might require its members to
increase its capital stock requirement. Based on current
information from the FHLB, Management believes that if there is
any impairment in the stock, it is temporary. Therefore, as of
December 31, 2009, the FHLB stock is recorded at cost.
45
Table of Contents
LIABILITIES
The following table presents liabilities as of the dates
indicated:
| At December 31, | ||||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
Deposits
|
$ | 1,564,257 | $ | 1,527,328 | $ | 36,929 | 2.4 | % | ||||||||
|
Short-term borrowings
|
183,379 | 192,730 | (9,351 | ) | (4.9 | ) | ||||||||||
|
Long-term borrowings
|
30,684 | 120,002 | (89,322 | ) | (74.4 | ) | ||||||||||
|
Other liabilities
|
39,294 | 41,526 | (2,232 | ) | (5.4 | ) | ||||||||||
|
Total liabilities
|
$ | 1,817,614 | $ | 1,881,590 | $ | (63,976 | ) | (3.4 | ) | |||||||
Deposits
Total deposits increased during 2009 primarily due to increases
in savings deposits of $92.9 million. These increases were
partially offset by decreases in time deposits of
$59.4 million. Due to market and economic conditions,
customers took advantage of shorter-term interest-earning
deposits. Additionally, as a result of the increase in savings
deposits, the Corporation was able to reduce its reliance on
wholesale deposits by $83.9 million to $7.0 million
which are included in time deposits.
Table
12 — Deposits
The following table summarizes the average amount of deposits
for the periods indicated:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Noninterest-bearing demand deposits
|
$ | 224,417 | $ | 223,353 | $ | 221,738 | ||||||
|
Interest-bearing checking deposits
|
162,615 | 144,415 | 137,699 | |||||||||
|
Money market savings
|
305,113 | 409,586 | 387,315 | |||||||||
|
Regular savings
|
353,748 | 276,908 | 212,977 | |||||||||
|
Time deposits
|
508,337 | 483,872 | 539,048 | |||||||||
|
Total average deposits
|
$ | 1,554,230 | $ | 1,538,134 | $ | 1,498,777 | ||||||
The following table summarizes the maturities of time deposits
with balances of $100 thousand or more at December 31, 2009:
|
Due Over Three
|
Due Over Six
|
|||||||||||||||
|
Due Three Months
|
Months to Six
|
Months to Twelve
|
Due Over Twelve
|
|||||||||||||
| or Less | Months | Months | Months | |||||||||||||
|
Time deposits
|
$ | 44,355 | $ | 19,762 | $ | 38,483 | $ | 26,130 | ||||||||
Borrowings
Long-term borrowings decreased $89.3 million during 2009 as
compared to 2008 primarily due to an $87.0 million reclass
of long-term advances from the Federal Home Loan Bank to
short-term borrowings as the remaining maturity of these
borrowing became one year or less. Short-term borrowings
decreased during 2008 primarily due to paydowns more than
offsetting the $87.0 million reclass from long-term FHLB
advances.
46
Table of Contents
Table
13 — Short Term Borrowings
The following table details key information pertaining to
securities sold under agreement to repurchase on an overnight
basis as of the dates indicated:
| 2009 | 2008 | 2007 | ||||||||||
|
Balance at December 31
|
$ | 95,624 | $ | 81,230 | $ | 94,276 | ||||||
|
Weighted average interest rate at year end
|
0.50 | % | 0.49 | % | 1.80 | % | ||||||
|
Maximum amount outstanding at any month’s end
|
$ | 133,140 | $ | 92,962 | $ | 94,276 | ||||||
|
Average amount outstanding during the year
|
$ | 91,390 | $ | 84,254 | $ | 86,641 | ||||||
|
Weighted average interest rate during the year
|
0.60 | % | 1.12 | % | 2.30 | % | ||||||
SHAREHOLDERS’
EQUITY
The following table presents the shareholders’ equity as of
the dates indicated:
| At December 31, | ||||||||||||||||
| 2009 | 2008 | $ Change | % Change | |||||||||||||
|
Common stock
|
$ | 91,332 | $ | 74,370 | $ | 16,962 | 22.8 | % | ||||||||
|
Additional paid-in capital
|
60,126 | 22,459 | 37,667 | N/M | ||||||||||||
|
Retained earnings
|
150,507 | 151,816 | (1,309 | ) | (0.9 | ) | ||||||||||
|
Accumulated other comprehensive loss
|
(524 | ) | (8,619 | ) | 8,095 | 93.9 | ||||||||||
|
Treasury stock
|
(33,634 | ) | (36,819 | ) | 3,185 | 8.7 | ||||||||||
|
Total shareholders’ equity
|
$ | 267,807 | $ | 203,207 | $ | 64,600 | 31.8 | |||||||||
Total shareholders’ equity increased since
December 31, 2008 primarily due to an additional
$55.6 million in capital as a result of the issuance of
common stock during the third quarter 2009.
On August 12, 2009, the Corporation completed its public
offering of 3,392,500 shares of common stock at a price of
$17.50 per share, including 442,500 shares of common stock
purchased by the underwriters pursuant to their over-allotment
option, which was exercised in full. The net proceeds of the
offering after deducting underwriting discounts and commissions
and offering expenses were approximately $55.6 million. The
Corporation intends to use the net proceeds from the offering
for general corporate purposes, including supporting the capital
needs of the Bank, the financing of its operations, the
repayment of short-term indebtedness and potential acquisitions.
Treasury stock decreased primarily due to shares issued for the
employee stock purchase plan, employee options 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
$5.4 million and $2.3 million, net of taxes, is
included in shareholders’ equity at December 31, 2009
and 2008, respectively. Accumulated other comprehensive income
(loss) related to securities is the unrealized gain (loss), or
difference between the book value and fair 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 fair values of mortgage-backed
government agency debt securities and other mortgage-backed
securities.
Accumulated other comprehensive income related to an interest
rate swap, net of taxes, amounted to $1.1 million and a
loss of $149 thousand at December 31, 2009 and 2008,
respectively. Accumulated other comprehensive income (loss)
related to an interest-rate swap reflects the current fair value
of the swap used for cash flow hedging purposes, net of taxes.
Accumulated other comprehensive loss related to pension and
other post-retirement benefits amounted to $7.0 million and
$10.8 million at December 31, 2009 and 2008,
respectively. The change in the accumulated other comprehensive
income loss related to pension and other post-retirement
47
Table of Contents
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
for the Corporation are Tier 1 and Tier 2. Minimum
required total risk-based capital is 8.00%. At December 31,
2009, the Corporation had a Tier 1 capital ratio of 14.41%
and total risked-based capital ratio of 15.76%. At
December 31, 2008, the Corporation had a Tier 1
capital ratio of 10.65% and total risked-based capital ratio of
11.60% The Corporation continues to be in the
“well-capitalized” category under regulatory
standards. Details on the capital ratios can be found in
Note 20 “Regulatory Matters” of this
Form 10-K
along with a discussion on dividend and other restrictions.
The increase in the Corporation’s risk-based capital ratios
is attributable to the net proceeds from its public offering,
after deducting underwriting discounts and commissions and
offering expenses, of $55.6 million.
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 an interest-sensitivity gap analysis
and a simulation model 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.
On March 24, 2009, the Corporation entered into a
$22.0 million notional interest rate swap, which had been
classified as a fair value hedge on a real estate-commercial
loan. Under the terms of the swap agreement, the Corporation
pays a fixed rate of 6.49% and receives a floating rate which is
based on the one month U.S. London Interbank Borrowing Rate
(“LIBOR”) with a 357 basis point spread and a
termination date of April 1, 2019. During the fourth
quarter of 2009, a portion of the hedged loan was participated
which caused the swap to become ineffective. At
December 31, 2009, the interest rate swap had a positive
fair value of $1.2 million, of which $276 thousand was
ineffective, and is classified on the balance sheet as other
assets. The underlying real estate-commercial loan had a
negative fair value adjustment of $431 thousand which is
classified on the balance sheet as a component of loans and
leases. The Corporation recorded the change in fair value of the
interest rate swap and underlying commercial loan as a component
of noninterest income on the income statement.
On December 23, 2008, the Corporation entered into a
$20.0 million notional value interest rate swap, which has
been classified as a cash flow hedge on $20.0 million of
trust preferred securities. Under the terms of the swap
agreement, the Corporation will pay a fixed rate of 2.65% and
receive a floating rate which is based on the three-month
U.S. London Interbank Borrowing Rate (“LIBOR”)
with a termination date of January 7, 2019. Interest-rate
swaps in which the Corporation pays a floating rate and receives
a fixed rate are used to reduce the impact of changes in
interest rates on the Corporation’s net income.
48
Table of Contents
Credit
Risk
Extending credit exposes the Corporation to credit risk, which
is the risk that the principal balance of a loan and any related
interest will not be collected due to the inability of the
borrower to repay the loan. The Corporation manages credit risk
in the loan portfolio through adherence to consistent standards,
guidelines and limitations established by the Board of
Directors. Written loan policies establish underwriting
standards, lending limits and other standards or limits as
deemed necessary and prudent.
The loan review department conducts ongoing, independent reviews
of the lending process to ensure adherence to established
policies and procedures, monitors compliance with applicable
laws and regulations, provides objective measurement of the risk
inherent in the loan portfolio, and ensures that proper
documentation exists.
The Corporation focuses on both assessing the borrower’s
capacity and willingness to repay and on obtaining sufficient
collateral. Commercial and industrial loans are generally
secured by the borrower’s assets and by personal
guarantees. Commercial real estate loans are originated
primarily within the Eastern Pennsylvania market area at
conservative
loan-to-value
ratios and often by a guarantee of the borrowers. Management
closely monitors the composition and quality of the total
commercial loan portfolio to ensure that any credit
concentrations by borrower or industry are closely monitored.
Credit risk in the direct consumer loan portfolio and credit
card portfolio is controlled by strict adherence to conservative
underwriting standards that consider
debt-to-income
levels and the creditworthiness of the borrower and, if secured,
collateral values. In the home equity loan portfolio, combined
loan-to-value
ratios at origination are generally limited to 80%. Other credit
considerations may warrant higher combined
loan-to-value
ratios and are generally insured by private mortgage insurance.
The Corporation originates fixed-rate and adjustable-rate
residential mortgage loans that are secured by the underlying 1-
to 4-family residential properties. Credit risk exposure in this
area of lending is minimized by the evaluation of the credit
worthiness of the borrower, including
debt-to-equity
ratios, credit scores and adherence to underwriting policies
that emphasize conservative
loan-to-value
ratios of generally no more than 80%. Residential mortgage loans
granted in excess of the 80%
loan-to-value
ratio criterion are generally insured by private mortgage
insurance.
The Corporation closely monitors delinquencies as another means
of maintaining high asset quality. Collection efforts begin
after a loan payment is missed, by attempting to contact all
borrowers. If collection attempts fail, the Corporation will
proceed to gain control of any and all collateral in a timely
manner in order to minimize losses. While liquidation and
recovery efforts continue, officers continue to work with the
borrowers, if appropriate, to recover all monies owed to the
Corporation. The Corporation monitors delinquency trends and
past due reports which are submitted to the Board of Directors.
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
leases 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.
49
Table of Contents
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 may purchase Certificates from the Pennsylvania Local
Government Investment Trust (“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
December 31, 2008, the Bank had $50.0 million in PLGIT
deposits. At December 31, 2009 the Bank had no 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 $374.1 million. At
December 31, 2009, total outstanding short-term and
long-term borrowings with the FHLB totaled $92.0 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 Bank maintains federal fund credit lines with several
correspondent banks totaling $82.0 million and
$77.0 million at December 31, 2009 and 2008,
respectively. Outstanding borrowings under these lines totaled
$54.0 million at December 31, 2008; there were no
outstanding balances at December 31, 2009. Future
availability under these lines is subject to the prerogatives of
the granting banks and may be withdrawn at will.
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 December 31, 2009, the
Corporation had no outstanding borrowings under this line.
Cash
Requirements
The Corporation has cash requirements including various
financial obligations, including contractual obligations and
commitments that require cash payments. The following
contractual obligations and commitments table presents, as of
December 31, 2009, significant fixed and determinable
contractual obligations to third parties. The most significant
obligation, in both the under and over one year time period, is
for the Bank to repay its certificates of deposit. Short-term
borrowings constitute the next largest payment obligation. 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.
The table also shows the amounts and expected maturities of
significant commitments as of December 31, 2009. These
commitments do not necessarily represent future cash
requirements in that these commitments often expire without
being drawn upon. Commitments to extend credit are the
Bank’s most significant commitment in both the under and
over one year time periods.
Contractual
Obligations and Commitments
The Corporation enters into contractual obligations in the
normal course of business as a source of funds for its asset
growth and its asset/liability management, to fund acquisitions
and to meet required capital needs. These obligations require
the Corporation to make cash payments over time as detailed in
the table below.
The Corporation is a party to financial instruments with
off-balance sheet risk in the normal course of business to
manage the Corporation’s exposure to fluctuation in
interest rates. These financial instruments include commitments
to extend credit, standby and commercial letters of credit and
forward contracts. These financial instruments involve, to
varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the consolidated balance
sheets. The contract or notional amounts of these financial
instruments reflect the extent of involvement the Corporation
has in particular classes of financial instruments.
50
Table of Contents
The Corporation’s exposure to credit loss in the event of
non-performance by the other party to the financial instrument
for commitments to extend credit and standby and commercial
letters of credit is represented by the contractual amount of
those instruments. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance sheet instruments. Unless noted otherwise, the
Corporation does not require and is not required to pledge
collateral or other security to support financial instruments
with credit risk. These commitments expire over time as detailed
in Table 14. For further information regarding the
Corporation’s commitments, refer to Footnote 16 of the
Consolidated Financial Statements, herein.
Table
14 — Contractual Obligations
The following table sets forth contractual obligations and other
commitments representing required and potential cash outflows,
including interest payable, as of December 31, 2009:
| Payments Due by Period | ||||||||||||||||||||
|
Due after One
|
Due after Four
|
Due in Over
|
||||||||||||||||||
|
Due in One
|
Year to
|
Years to
|
Five
|
|||||||||||||||||
| Total | Year or Less | Three Years | Five Years | Years | ||||||||||||||||
|
Long-term debt(a)
|
$ | 5,568 | $ | 188 | $ | 375 | $ | 5,005 | $ | — | ||||||||||
|
Subordinated capital notes(b)
|
5,016 | 1,571 | 3,068 | 377 | — | |||||||||||||||
|
Trust preferred securities(c)
|
37,807 | 688 | 1,375 | 1,375 | 34,369 | |||||||||||||||
|
Securities sold under agreement to repurchase(d)
|
95,624 | 95,624 | — | — | — | |||||||||||||||
|
Other short-term borrowings
|
88,906 | 88,906 | — | — | ||||||||||||||||
|
Time deposits(e)
|
471,944 | 377,211 | 60,137 | 12,756 | 21,840 | |||||||||||||||
|
Operating leases
|
8,742 | 1,781 | 2,927 | 1,870 | 2,164 | |||||||||||||||
|
Standby and commercial letters of credit
|
61,313 | 48,061 | 13,115 | 137 | — | |||||||||||||||
|
Commitments to extend credit(f)
|
445,731 | 150,446 | 19,840 | 16,069 | 259,376 | |||||||||||||||
|
Derivative loan commitments(g)
|
156 | 156 | — | — | — | |||||||||||||||
|
Total contractual obligations
|
$ | 1,220,807 | $ | 764,632 | $ | 100,837 | $ | 37,589 | $ | 317,749 | ||||||||||
Notes:
| (a) | Interest expense is projected based upon the weighted average interest rate of long-term debt. | |
| (b) | Includes interest on both fixed and variable rate obligations. The interest expense associated with the variable rate obligations is based upon interest rates in effect at December 31, 2009. The contractual amounts to be paid on variable rate obligations are affected by changes in the market interest rates. Future changes in the market interest rates could materially affect the contractual amounts to be paid. | |
| (c) | Includes interest on variable rate obligations. The interest expense is based upon interest rates in effect at December 31, 2009. The contractual amounts to be paid on variable rate obligations are affected by changes in the market interest rates. Future changes in the market interest rates could materially affect the contractual amounts to be paid. The trust preferred securities mature in 2033 and interest is calculated to this maturity date. The first non-penalized call date was in 2008. The Corporation may choose to call these securities as a result of interest rate fluctuations and capital needs without penalty for the remainder of the term. | |
| (d) | Includes interest on variable rate obligations. The interest expense is based upon the fourth quarter average interest rate. The contractual amounts to be paid on variable rate obligations are affected by changes in the market interest rates. Future changes in the market interest rates could materially affect the contractual amounts to be paid. | |
| (e) | Includes interest on both fixed and variable rate obligations. The interest expense is based upon the fourth quarter average interest rate. The contractual amounts to be paid on variable rate obligations |
51
Table of Contents
| are affected by changes in the market interest rates. Future changes in the market interest rates could materially affect the contractual amounts to be paid. | ||
| (f) | Includes both revolving and straight lines of credit. Revolving lines, including unused credit card lines, are reported in the “Due in One Year or Less” category. | |
| (g) | Includes the fair value of these contractual arrangements at December 31, 2009. |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the risk of loss from adverse changes in market
prices and rates. In the course of its lending, leasing and
deposit taking activities, the Corporation is subject to changes
in the economic value
and/or
earnings potential of these assets and liabilities due to
changes in interest rates. The Corporation’s
Asset/Liability Management Committee (“ALMC”) manages
interest rate risk in a manner so as to provide adequate and
reliable earnings. This is accomplished through the
establishment of policy limits on maximum risk exposures, as
well as the regular and timely monitoring of reports designed to
quantify risk and return levels.
The Corporation uses both an interest-rate sensitivity gap
analysis and a simulation model 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.
The Corporation is permitted to use interest-rate swaps and
interest-rate caps/floors with indices that correlate to
on-balance sheet instruments, to modify its indicated net
interest sensitivity to levels deemed to be appropriate based on
the Corporation’s current economic outlook.
At December 31, 2009, the simulation, based upon
forward-looking assumptions, projects that the
Corporation’s greatest interest margin exposure to
interest-rate risk would occur if interest rates decreased from
present levels. Given the assumptions, a 200 basis point
parallel shift in the yield curve applied on a
ramp-up
basis would cause the Corporation’s net interest margin,
over a
1-year
horizon, to be approximately 1.49% more than it would be if
market rates would remain unchanged. A 100 basis point (a
200 basis point ramp down would not be relevant in the
current market conditions) parallel shift in the yield curve
applied on a ramp-down basis would cause the Corporation’s
net interest margin, over a
1-year
horizon, to be approximately 2.06% less than it would be if
market rates would remain unchanged. Policy limits have been
established which allow a tolerance for no more than
approximately a 5.0% negative impact to the interest margin
resulting from a 200 basis point parallel yield curve shift
over a forward looking
12-month
period. See Management’s Discussion and Analysis of
Financial Condition and Results of Operations —
“Net Interest Income” and “Asset/Liability
Management, Liquidity” and Table 15.
52
Table of Contents
Table
15 — Interest Sensitivity Analysis
Interest Sensitivity Analysis at December 31, 2009:
|
After Three Months
|
After One Year
|
|||||||||||||||||||||||
|
Within
|
to Twelve
|
to Five
|
Over
|
Non-Rate
|
||||||||||||||||||||
| Three Months | Months | Years | Five Years | Sensitive | Total | |||||||||||||||||||
|
Assets:
|
||||||||||||||||||||||||
|
Cash and due from banks
|
$ | — | $ | — | $ | — | $ | — | $ | 20,535 | $ | 20,535 | ||||||||||||
|
Interest-earning deposits with other banks
|
48,062 | — | — | — | — | 48,062 | ||||||||||||||||||
|
Investment securities
|
71,674 | 85,002 | 138,941 | 124,427 | — | 420,045 | ||||||||||||||||||
|
Loans held for sale
|
1,693 | — | — | — | — | 1,693 | ||||||||||||||||||
|
Loans and leases, net of reserve for loan and lease losses:
|
608,138 | 246,892 | 476,064 | 94,887 | (24,798 | ) | 1,401,182 | |||||||||||||||||
|
Other assets
|
— | — | — | — | 193,904 | 193,904 | ||||||||||||||||||
|
Total assets
|
$ | 729,567 | $ | 331,894 | $ | 615,005 | $ | 219,314 | $ | 189,641 | $ | 2,085,421 | ||||||||||||
|
Liabilities and shareholders’ equity:
|
||||||||||||||||||||||||
|
Demand deposits — noninterest-bearing
|
$ | — | $ | — | $ | — | $ | — | $ | 242,691 | $ | 242,691 | ||||||||||||
|
Demand deposits — interest-bearing
|
299,569 | 27,288 | 143,715 | — | — | 470,572 | ||||||||||||||||||
|
Savings deposits
|
21,733 | 60,434 | 318,285 | — | 400,452 | |||||||||||||||||||
|
Time deposits
|
124,530 | 176,137 | 129,437 | 20,438 | — | 450,542 | ||||||||||||||||||
|
Borrowed funds
|
147,493 | 60,130 | 6,250 | 190 | — | 214,063 | ||||||||||||||||||
|
Other liabilities
|
— | — | — | — | 39,294 | 39,294 | ||||||||||||||||||
|
Shareholders’ equity
|
— | — | — | — | 267,807 | 267,807 | ||||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 593,325 | $ | 323,989 | $ | 597,687 | $ | 20,628 | $ | 549,792 | $ | 2,085,421 | ||||||||||||
|
Incremental gap
|
$ | 136,242 | $ | 7,906 | $ | 17,318 | $ | 198,686 | $ | (360,151 | ) | |||||||||||||
|
Cumulative gap
|
$ | 136,242 | $ | 144,148 | $ | 161,465 | $ | 360,151 | ||||||||||||||||
|
Cumulative gap as a percentage of interest-earning assets
|
7.19 | % | 7.60 | % | 8.52 | % | 19.00 | % | ||||||||||||||||
Recent
Accounting Pronouncements
For information regarding recent accounting pronouncements,
refer to Footnote 1, “Summary of Significant Accounting
Policies” of this
Form 10-K.
53
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
The following audited consolidated financial statements and
related documents are set forth in this Annual Report on
Form 10-K
on the following pages:
| Page | ||||
| 55 | ||||
| 56 | ||||
| 57 | ||||
| 58 | ||||
| 59 | ||||
| 60 | ||||
54
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Univest Corporation of Pennsylvania:
We have audited the accompanying consolidated balance sheets of
Univest Corporation of Pennsylvania and subsidiaries (the
“Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of income, changes in
shareholders’ equity and cash flows for each of the years
in the three-year period ended December 31, 2009. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2009 and 2008,
and the results of their operations and their cash flows for
each of the years in the three-year period ended
December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 5, 2010
expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
March 5, 2010
Philadelphia, PA
55
Table of Contents
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
|
(Dollars in thousands,
|
||||||||
| except per share data) | ||||||||
|
ASSETS
|
||||||||
|
Cash and due from banks
|
$ | 20,535 | $ | 34,800 | ||||
|
Interest-earning deposits with other banks
|
48,062 | 5,266 | ||||||
|
Investment securities
held-to-maturity
(fair value $108 and $1,432 at
|
||||||||
|
December 31, 2009 and 2008, respectively)
|
103 | 1,368 | ||||||
|
Investment securities
available-for-sale
|
419,942 | 430,898 | ||||||
|
Loans held for sale
|
1,693 | 544 | ||||||
|
Loans and leases
|
1,425,980 | 1,449,892 | ||||||
|
Less: Reserve for loan and lease losses
|
(24,798 | ) | (13,118 | ) | ||||
|
Net loans and leases
|
1,401,182 | 1,436,774 | ||||||
|
Premises and equipment, net
|
34,201 | 32,602 | ||||||
|
Goodwill
|
50,393 | 50,236 | ||||||
|
Other intangibles, net of accumulated amortization of $8,015 and
$6,497 at December 31, 2009 and 2008, respectively
|
5,577 | 5,815 | ||||||
|
Bank owned life insurance
|
46,740 | 45,419 | ||||||
|
Accrued interest and other assets
|
56,993 | 41,075 | ||||||
|
Total assets
|
$ | 2,085,421 | $ | 2,084,797 | ||||
| LIABILITIES | ||||||||
|
Demand deposits, noninterest-bearing
|
$ | 242,691 | $ | 221,863 | ||||
|
Demand deposits, interest-bearing
|
470,572 | 487,983 | ||||||
|
Savings deposits
|
400,452 | 307,512 | ||||||
|
Time deposits
|
450,542 | 509,970 | ||||||
|
Total deposits
|
1,564,257 | 1,527,328 | ||||||
|
Securities sold under agreements to repurchase
|
95,624 | 81,230 | ||||||
|
Other short-term borrowings
|
87,755 | 111,500 | ||||||
|
Accrued expenses and other liabilities
|
39,294 | 41,526 | ||||||
|
Long-term debt
|
5,190 | 92,637 | ||||||
|
Subordinated notes
|
4,875 | 6,750 | ||||||
|
Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding junior subordinated debentures of
Univest (“Trust Preferred Securities”)
|
20,619 | 20,619 | ||||||
|
Total liabilities
|
1,817,614 | 1,881,590 | ||||||
|
SHAREHOLDERS’ EQUITY
|
||||||||
|
Common stock, $5 par value; 48,000,000 shares
authorized at December 31, 2009 and 2008; 18,266,404 and
14,873,904 shares issued at December 31, 2009 and
2008, respectively; and 16,465,083 and 12,938,514 shares
outstanding at December 31, 2009 and 2008, respectively
|
91,332 | 74,370 | ||||||
|
Additional paid-in capital
|
60,126 | 22,459 | ||||||
|
Retained earnings
|
150,507 | 151,816 | ||||||
|
Accumulated other comprehensive loss, net of tax benefit
|
(524 | ) | (8,619 | ) | ||||
|
Treasury stock, at cost; 1,801,321 shares and
1,935,390 shares at December 31, 2009 and 2008,
respectively
|
(33,634 | ) | (36,819 | ) | ||||
|
Total shareholders’ equity
|
267,807 | 203,207 | ||||||
|
Total liabilities and shareholders’ equity
|
$ | 2,085,421 | $ | 2,084,797 | ||||
See accompanying notes to consolidated financial statements.
56
Table of Contents
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||
|
Interest income
|
||||||||||||
|
Interest and fees on loans and leases:
|
||||||||||||
|
Taxable
|
$ | 74,002 | $ | 82,874 | $ | 92,606 | ||||||
|
Exempt from federal income taxes
|
3,815 | 3,742 | 4,061 | |||||||||
|
Total interest and fees on loans and leases
|
77,817 | 86,616 | 96,667 | |||||||||
|
Interest and dividends on investment securities:
|
||||||||||||
|
Taxable
|
14,014 | 16,762 | 15,069 | |||||||||
|
Exempt from federal income taxes
|
4,512 | 4,269 | 3,859 | |||||||||
|
Interest on federal funds sold and term federal funds
|
— | 394 | 454 | |||||||||
|
Other interest income
|
16 | 16 | 95 | |||||||||
|
Total interest income
|
96,359 | 108,057 | 116,144 | |||||||||
|
Interest expense
|
||||||||||||
|
Interest on demand deposits
|
1,981 | 9,324 | 16,289 | |||||||||
|
Interest on savings deposits
|
2,955 | 4,348 | 3,833 | |||||||||
|
Interest on time deposits
|
17,371 | 20,894 | 25,001 | |||||||||
|
Interest on short-term borrowings
|
3,481 | 1,744 | 2,771 | |||||||||
|
Interest on long-term borrowings
|
2,935 | 6,000 | 6,233 | |||||||||
|
Total interest expense
|
28,723 | 42,310 | 54,127 | |||||||||
|
Net interest income
|
67,636 | 65,747 | 62,017 | |||||||||
|
Provision for loan and lease losses
|
20,886 | 8,769 | 2,166 | |||||||||
|
Net interest income after provision for loan and lease losses
|
46,750 | 56,978 | 59,851 | |||||||||
|
Noninterest income
|
||||||||||||
|
Trust fee income
|
5,536 | 6,004 | 5,921 | |||||||||
|
Service charges on deposit accounts
|
7,036 | 6,808 | 6,822 | |||||||||
|
Investment advisory commission and fee income
|
3,427 | 2,374 | 2,680 | |||||||||
|
Insurance commission and fee income
|
7,081 | 5,723 | 5,730 | |||||||||
|
Other service fee income
|
3,410 | 3,484 | 3,662 | |||||||||
|
Bank owned life insurance income
|
1,321 | 2,791 | 1,503 | |||||||||
|
Other-than-temporary
impairment on equity securities
|
(1,708 | ) | (1,251 | ) | — | |||||||
|
Other-than-temporary
impairment on other long lived assets
|
(500 | ) | — | — | ||||||||
|
Net gain on sales of securities
|
1,150 | 280 | 435 | |||||||||
|
Net gain on sales of loans held for sale
|
2,222 | 82 | 64 | |||||||||
|
Net loss on dispositions of fixed assets
|
(144 | ) | (40 | ) | (112 | ) | ||||||
|
Other
|
1,086 | 360 | 563 | |||||||||
|
Total noninterest income
|
29,917 | 26,615 | 27,268 | |||||||||
|
Noninterest expense
|
||||||||||||
|
Salaries and benefits
|
37,422 | 32,413 | 30,811 | |||||||||
|
Net occupancy
|
5,274 | 5,230 | 4,753 | |||||||||
|
Equipment
|
3,438 | 3,247 | 3,127 | |||||||||
|
Marketing and advertising
|
1,840 | 1,499 | 831 | |||||||||
|
Deposit insurance premiums
|
3,185 | 767 | 178 | |||||||||
|
Other
|
14,165 | 14,069 | 12,511 | |||||||||
|
Total noninterest expense
|
65,324 | 57,225 | 52,211 | |||||||||
|
Income before income taxes
|
11,343 | 26,368 | 34,908 | |||||||||
|
Applicable income taxes
|
563 | 5,778 | 9,351 | |||||||||
|
Net income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
|
Net income per share:
|
||||||||||||
|
Basic
|
$ | 0.75 | $ | 1.60 | $ | 1.98 | ||||||
|
Diluted
|
$ | 0.75 | $ | 1.60 | $ | 1.98 | ||||||
|
Dividends declared
|
$ | 0.80 | $ | 0.80 | $ | 0.80 | ||||||
See accompanying notes to consolidated financial statements.
57
Table of Contents
|
Accumulated
|
||||||||||||||||||||||||||||
|
Other
|
||||||||||||||||||||||||||||
|
Common
|
Comprehensive
|
Additional
|
||||||||||||||||||||||||||
|
Shares
|
(Loss)
|
Common
|
Paid-in
|
Retained
|
Treasury
|
|||||||||||||||||||||||
| Outstanding | Income | Stock | Capital | Earnings | Stock | Total | ||||||||||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||||||||||
|
Balance at January 1, 2007
|
13,005,329 | $ | (4,463 | ) | $ | 74,370 | $ | 22,459 | $ | 128,242 | $ | (35,223 | ) | $ | 185,385 | |||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||
|
Net Income for 2007
|
25,557 | 25,557 | ||||||||||||||||||||||||||
|
Other comprehensive income, net of income tax of $1,451:
|
||||||||||||||||||||||||||||
|
Unrealized gain on investment securities
available-for-sale
|
2,073 | 2,073 | ||||||||||||||||||||||||||
|
Unrecognized pension costs
|
622 | 622 | ||||||||||||||||||||||||||
|
Total comprehensive income
|
28,252 | |||||||||||||||||||||||||||
|
Cash dividends declared ($0.800 per share)
|
(10,304 | ) | (10,304 | ) | ||||||||||||||||||||||||
|
Stock issued under dividend reinvestment and employee stock
purchase plans
|
78,882 | 29 | 1,978 | 2,007 | ||||||||||||||||||||||||
|
Exercise of stock options
|
55,446 | (459 | ) | 1,201 | 742 | |||||||||||||||||||||||
|
Tax benefits on stock based compensation
|
121 | 121 | ||||||||||||||||||||||||||
|
Purchases of treasury stock
|
(328,048 | ) | (7,498 | ) | (7,498 | ) | ||||||||||||||||||||||
|
Restricted stock awards granted
|
19,000 | (390 | ) | 1 | 389 | — | ||||||||||||||||||||||
|
Vesting of restricted stock awards
|
21 | 21 | ||||||||||||||||||||||||||
|
Balance at December 31, 2007
|
12,830,609 | (1,768 | ) | 74,370 | 22,211 | 143,066 | (39,153 | ) | 198,726 | |||||||||||||||||||
|
Cumulative effect of adoption of a new accounting principle on
January 1, 2008
|
(1,550 | ) | (1,550 | ) | ||||||||||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||
|
Net Income for 2008
|
20,590 | 20,590 | ||||||||||||||||||||||||||
|
Other comprehensive loss, net of income tax benefit of $3,689:
|
||||||||||||||||||||||||||||
|
Unrealized gain on investment securities
available-for-sale
|
382 | 382 | ||||||||||||||||||||||||||
|
Unrealized loss on swap
|
(149 | ) | (149 | ) | ||||||||||||||||||||||||
|
Unrecognized pension costs
|
(7,084 | ) | (7,084 | ) | ||||||||||||||||||||||||
|
Total comprehensive income
|
13,739 | |||||||||||||||||||||||||||
|
Cash dividends declared ($0.800 per share)
|
(10,302 | ) | (10,302 | ) | ||||||||||||||||||||||||
|
Stock issued under dividend reinvestment and employee stock
purchase plans
|
85,415 | 64 | 1,950 | 2,014 | ||||||||||||||||||||||||
|
Exercise of stock options,
|
87,134 | (88 | ) | 12 | 1,904 | 1,828 | ||||||||||||||||||||||
|
Tax benefits on stock based compensation
|
204 | 204 | ||||||||||||||||||||||||||
|
Purchases of treasury stock
|
(69,235 | ) | (1,614 | ) | (1,614 | ) | ||||||||||||||||||||||
|
Restricted stock awards granted
|
4,591 | (94 | ) | 94 | — | |||||||||||||||||||||||
|
Vesting of restricted stock awards
|
162 | 162 | ||||||||||||||||||||||||||
|
Balance at December 31, 2008
|
12,938,514 | (8,619 | ) | 74,370 | 22,459 | 151,816 | (36,819 | ) | 203,207 | |||||||||||||||||||
|
Comprehensive Income:
|
||||||||||||||||||||||||||||
|
Net Income for 2009
|
10,780 | 10,780 | ||||||||||||||||||||||||||
|
Other comprehensive income, net of income tax of $4,359:
|
||||||||||||||||||||||||||||
|
Unrealized gain on investment securities
available-for-sale
|
3,092 | 3,092 | ||||||||||||||||||||||||||
|
Unrealized gain on swap
|
1,299 | 1,299 | ||||||||||||||||||||||||||
|
Unrecognized pension costs
|
3,704 | 3,704 | ||||||||||||||||||||||||||
|
Total comprehensive income
|
18,875 | |||||||||||||||||||||||||||
|
Cash dividends declared ($0.800 per share)
|
(11,786 | ) | (11,786 | ) | ||||||||||||||||||||||||
|
Stock issued under dividend reinvestment and employee stock
purchase plans
|
95,973 | 27 | (344 | ) | 2,375 | 2,058 | ||||||||||||||||||||||
|
Issuance of common stock
|
3,392,500 | 16,962 | 38,635 | 55,597 | ||||||||||||||||||||||||
|
Exercise of stock options
|
2,547 | (10 | ) | 43 | 60 | 93 | ||||||||||||||||||||||
|
Purchases of treasury stock
|
(11,642 | ) | (370 | ) | (370 | ) | ||||||||||||||||||||||
|
Restricted stock awards granted
|
47,191 | (1,118 | ) | (2 | ) | 1,120 | — | |||||||||||||||||||||
|
Vesting of restricted stock awards
|
133 | 133 | ||||||||||||||||||||||||||
|
Balance at December 31, 2009
|
16,465,083 | $ | (524 | ) | $ | 91,332 | $ | 60,126 | $ | 150,507 | $ | (33,634 | ) | $ | 267,807 | |||||||||||||
See accompanying notes to consolidated financial statements.
58
Table of Contents
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (Dollars in thousands) | ||||||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Provision for loan and lease losses
|
20,886 | 8,769 | 2,166 | |||||||||
|
Depreciation of premises and equipment
|
2,357 | 2,246 | 1,987 | |||||||||
|
Other-than-temporary
impairment on equity securities
|
1,708 | 1,251 | — | |||||||||
|
Other-than-temporary
impairment on other long-lived assets
|
500 | — | — | |||||||||
|
Net gain on sales of investment securities
|
(1,150 | ) | (280 | ) | (435 | ) | ||||||
|
Realized losses on dispositions of fixed assets
|
144 | 40 | 112 | |||||||||
|
Net gain on sales of loans and leases held for investment
|
— | (116 | ) | (133 | ) | |||||||
|
Net gain loss on sale of loans held for sale
|
(2,222 | ) | (82 | ) | (64 | ) | ||||||
|
Originations of loans held for sale
|
(143,615 | ) | (4,976 | ) | (11,664 | ) | ||||||
|
Proceeds from the sale of loans held for sale
|
144,688 | 4,514 | 12,946 | |||||||||
|
Bank owned life insurance income
|
(1,321 | ) | (2,791 | ) | (1,503 | ) | ||||||
|
Net amortization (accretion) on investment securities
|
97 | (339 | ) | (270 | ) | |||||||
|
Amortization, fair market value adjustments and capitalization
of other intangibles
|
238 | 642 | 760 | |||||||||
|
Premium accretion on deposits and FHLB borrowings
|
(447 | ) | (453 | ) | (605 | ) | ||||||
|
Deferred tax (benefit) expense
|
(4,480 | ) | (124 | ) | 421 | |||||||
|
Realized loss (gain) on sale of real estate owned
|
207 | (9 | ) | — | ||||||||
|
Net decrease (increase) in deferred loan and lease fees and
amortization of premiums on loans and leases
|
11 | 47 | (557 | ) | ||||||||
|
(Increase) decrease in interest receivable and other assets
|
(11,218 | ) | (3,352 | ) | 5,802 | |||||||
|
Increase (decrease) in accrued expenses and other liabilities
|
2,893 | (3,389 | ) | (1,727 | ) | |||||||
|
Net cash provided by operating activities
|
20,056 | 22,188 | 32,793 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Net cash paid due to acquisitions, net of cash acquired
|
(157 | ) | (9,720 | ) | (198 | ) | ||||||
|
Net capital expenditures
|
(3,289 | ) | (6,752 | ) | (8,198 | ) | ||||||
|
Proceeds from maturities of securities
held-to-maturity
|
336 | 44,971 | 758 | |||||||||
|
Proceeds from maturities of securities
available-for-sale
|
58,424 | 167,768 | 67,345 | |||||||||
|
Proceeds from calls of securities
held-to-maturity
|
930 | 28,800 | — | |||||||||
|
Proceeds from sales and calls of securities
available-for-sale
|
198,835 | 152,186 | 43,316 | |||||||||
|
Purchases of investment securities
held-to-maturity
|
— | (73,275 | ) | — | ||||||||
|
Purchases of investment securities
available-for-sale
|
(242,202 | ) | (337,295 | ) | (148,175 | ) | ||||||
|
Purchases of lease financings
|
(4,178 | ) | (49,671 | ) | (34,711 | ) | ||||||
|
Net decrease (increase) loans and leases
|
15,584 | (56,524 | ) | 27,187 | ||||||||
|
Proceeds from sales of loans and leases
|
— | 2,679 | 4,059 | |||||||||
|
(Increase) decrease in interest-earning deposits
|
(42,796 | ) | (4,764 | ) | 80 | |||||||
|
Net decrease in federal funds sold
|
— | 11,748 | 11,069 | |||||||||
|
Purchases of bank owned life insurance
|
— | — | (8,500 | ) | ||||||||
|
Proceeds from bank owned life insurance
|
— | 3,984 | — | |||||||||
|
Net cash used in investing activities
|
(18,513 | ) | (125,865 | ) | (45,968 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Net increase (decrease) in deposits
|
36,929 | (5,269 | ) | 44,211 | ||||||||
|
Net (decrease) increase in short-term borrowings
|
(97,162 | ) | 75,954 | (23,385 | ) | |||||||
|
Issuance of long-term debt
|
— | 30,000 | 10,000 | |||||||||
|
Repayment of long-term debt
|
— | — | (1,000 | ) | ||||||||
|
Repayment of subordinated debt
|
(1,875 | ) | (1,500 | ) | (1,500 | ) | ||||||
|
Issuance of common stock
|
55,597 | — | — | |||||||||
|
Purchases of treasury stock
|
(370 | ) | (1,614 | ) | (7,498 | ) | ||||||
|
Stock issued under dividend reinvestment and employee stock
purchase plans
|
2,058 | 2,014 | 2,007 | |||||||||
|
Proceeds from exercise of stock options, including tax benefits
|
93 | 2,032 | 863 | |||||||||
|
Cash dividends paid
|
(11,078 | ) | (10,275 | ) | (10,344 | ) | ||||||
|
Net cash (used in) provided by financing activities
|
(15,808 | ) | 91,342 | 13,354 | ||||||||
|
Net (decrease) increase in cash and due from banks
|
(14,265 | ) | (12,335 | ) | 179 | |||||||
|
Cash and due from banks at beginning of year
|
34,800 | 47,135 | 46,956 | |||||||||
|
Cash and due from banks at end of year
|
$ | 20,535 | $ | 34,800 | $ | 47,135 | ||||||
|
Supplemental disclosures of cash flow information
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest
|
$ | 30,440 | $ | 44,593 | $ | 54,249 | ||||||
|
Income taxes, net of refunds received
|
5,080 | 8,180 | 8,845 | |||||||||
|
Assets acquired through acquisition
|
— | 159 | — | |||||||||
|
Goodwill and other intangibles due to acquisitions
|
157 | 9,561 | 198 | |||||||||
See accompanying notes to consolidated financial statements.
59
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
(All dollar amounts presented in 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”.)
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”.)
| Note 1. | Summary of Significant Accounting Policies |
Organization
Univest Corporation of Pennsylvania (the
“Corporation”) through its wholly owned subsidiary,
Univest National Bank and Trust Co. (the “Bank”),
is engaged in domestic commercial and retail banking services
and provides a full range of community banking and trust
services to its customers. The Bank wholly owns Univest Capital,
Inc., which provides lease financing, and Delview, Inc., who
through its subsidiaries, Univest Investments, Inc. and Univest
Insurance, Inc., provides financial planning, investment
management, insurance products and brokerage services. Univest
Investments, Univest Insurance, Univest Capital and Univest
Reinsurance Company, a wholly owned subsidiary of the
Corporation, were formed to enhance the traditional banking and
trust services provided by the Bank. Univest Investments,
Univest Insurance, Univest Capital and Univest Reinsurance do
not currently meet the quantitative thresholds for separate
disclosure provided as a business segment. Therefore, the
Corporation currently has one reportable segment,
“Community Banking,” and strategically is how the
Corporation operates and has positioned itself in the
marketplace. The Corporation’s activities are interrelated,
each activity is dependent, and performance is assessed based on
how each of these activities supports the others. Accordingly,
significant operating decisions are based upon analysis of the
Corporation as one Community Banking operating segment. The Bank
serves Montgomery, Bucks, Chester and Lehigh counties of
Pennsylvania through thirty-two banking offices and provides
banking and trust services to the residents and employees of
twelve retirement communities, a work site office which performs
a payroll check cashing service and an express banking center
located in the Montgomery Mall. Banking services are also
available on-line at the Corporation’s websites at
www.univest.net
and
www.univestdirect.com
.
Principles of
Consolidation
The consolidated financial statements include the accounts of
the Corporation and its wholly owned subsidiaries, the Bank,
Univest Realty Corporation, Univest Delaware, Inc. and Univest
Reinsurance Company. All significant intercompany balances and
transactions have been eliminated in consolidation and certain
prior period amounts have been reclassified to conform to
current year presentation.
Use of
Estimates
The preparation of the consolidated financial statements in
conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates. Material estimates that are particularly susceptible
to significant changes include fair value measurement of
investment securities available for sale and assessment for
impairment of certain investment securities, the allowance for
loan losses, impairment of goodwill and other intangible assets,
deferred tax assets and liabilities, stock-based compensation
expense, and mortgage servicing rights.
Subsequent
Events
The Corporation has evaluated subsequent events for recognition
and/or
disclosure through March 5, 2010, the date these
consolidated financial statements were issued.
60
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Interest-earning
Deposits with Other Banks
Interest-earning deposits with other banks consist of deposit
accounts with other financial institutions generally having
maturities of three months or less.
Investment
Securities
Securities are classified as investment securities
held-to-maturity
and carried at amortized cost if management has the positive
intent and ability to hold the securities to maturity.
Securities purchased with the intention of recognizing
short-term profits are placed in the trading account and are
carried at fair value. The Corporation did not have any trading
account securities as of December, 31, 2009 or 2008. Securities
not classified as
held-to-maturity
or trading are designated securities
available-for-sale
and carried at fair value with unrealized gains and losses
reflected in accumulated other comprehensive income, net of
estimated income taxes. Realized gains and losses on the sale of
investment securities are recognized using the specific
identification method and are included in the consolidated
statements of income. The amortization of premiums and accretion
of discounts are included in interest income and calculated
using the effective yield method for mortgage-backed securities
and the constant yield method for all other securities.
Management evaluates debt securities, which comprise of
U.S. Government, Government Sponsored Agencies,
municipalities and other issuers, for
other-than-temporary
impairment and considers the current economic conditions, the
length of time and the extent to which the fair value has been
less than cost, interest rates and the bond rating of each
security. All of the debt securities are highly rated as
investment grade and Management believes that it will not incur
any losses. The unrealized losses on the Corporation’s
investments in debt securities are temporary in nature since
they are primarily related to market interest rates and are not
related to the underlying credit quality of the issuers within
our investment portfolio. The Corporation does not have the
intent to sell the debt securities and believes it is more
likely than not, that it will not have to sell the securities
before recovery of their cost basis. The credit portion of any
loss on debt securities is recognized through earnings and the
noncredit portion of any loss related to debt securities that
the Corporation does not intend to sell and it is more likely
than not that the Corporation will not be required to sell the
securities prior to recovery is recognized in other
comprehensive income, net of tax. The Corporation has not
recognized any
other-than-temporary
impairment charges on debt securities during 2007 through 2009.
The Corporation evaluates its equity securities for
other-than-temporary
impairment and recognizes
other-than-temporary
impairment charges when it has determined that it is probable
that certain equity securities will not regain market value
equivalent to the Corporation’s cost basis within a
reasonable period of time due to a decline in the financial
stability of the underlying companies. Management evaluates the
near-term prospects of the issuers in relation to the severity
and duration of the impairment and the Corporation’s
positive intent and ability to hold these securities until
recovery to the Corporation’s cost basis occurs.
Loans and
Leases
Loans and leases are stated at the principal amount less net
deferred fees and unearned discount. Interest income on
commercial, consumer, and mortgage loans is recorded on the
outstanding balance method, using actual interest rates applied
to daily principal balances. Loan commitments are made to
accommodate the financial needs of the customers. These
commitments represent off-balance sheet items that are unfunded.
Accrual of interest income on loans and leases ceases when
collectability of interest
and/or
principal is questionable. If it is determined that the
collection of interest previously accrued is uncertain, such
accrual is reversed and charged to current earnings. Loans and
leases are considered past due based upon failure to comply with
contractual terms.
61
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
When a loan or lease, including an impaired loan or lease, 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 collectability of principal or
interest, even though the loan or lease 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 in the current year 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 collectability
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 collectability of the total contractual
principal and interest is no longer in doubt.
Loan and Lease
Fees
Fees collected upon loan or lease origination and certain direct
costs of originating loans and leases are deferred and
recognized over the contractual lives of the related loans and
leases as yield adjustments using the interest method. Upon
prepayment or other disposition of the underlying loans and
leases before their contractual maturities, any associated
unearned fees or unamortized costs are recognized.
Reserve for
Loan and Lease Losses
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 and leases 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 or lease’s initial effective interest
rate, or at the loan’s or lease’s observable market
price or the fair value of the collateral if the loan or lease
is collateral dependent.
The reserve for loan and lease losses consists of an allocated
reserve and an unallocated reserve. 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, and is to account for a level of
imprecision in management’s estimation process.
The specific reserve element is based on a regular analysis of
impaired commercial and real estate loans and leases. The
specific reserve established for these loans and leases is based
on a careful analysis of related collateral value, cash flow
considerations and, if applicable, guarantor capacity.
The class reserve element is determined by an internal loan and
lease grading process in conjunction with associated allowance
factors. The Corporation revises the class allowance factors
whenever necessary in order to address improving or
deteriorating credit quality trends or specific risks associated
with a given loan or lease pool classification.
62
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
The Corporation maintains an unallocated reserve to recognize
the existence of credit exposures that are within the loan and
lease portfolio although currently undetected. There are many
factors considered such as the inherent delay in obtaining
information regarding a customer’s financial condition or
changes in their business condition, the judgmental nature of
loan and lease evaluations, the delay in the interpretation of
economic trends and the judgmental nature of collateral
assessments. The Corporation also maintains a reserve in other
liabilities for off-balance sheet credit exposures that
currently are unfunded. In addition, the Bank’s primary
examiner, as a regular part of their examination process, may
require the Bank to increase the level of reserves.
Premises and
Equipment
Land is stated at cost, and bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line method and charged to operating
expenses over the estimated useful lives of the assets. The
estimated useful life for new buildings constructed on land
owned is forty years, and for new buildings constructed on
leased land, is the lesser of forty years or the lease term
including anticipated renewable terms. The useful life of
purchased existing buildings is the estimated remaining useful
life at the time of the purchase. Land improvements are
considered to have estimated useful lives of fifteen years or
the lease term including anticipated renewable terms. Furniture,
fixtures and equipment have estimated useful lives ranging from
three to ten years.
Business
Combinations and Intangible Assets
The Corporation accounts for its acquisitions using the purchase
accounting method. Purchase accounting requires the total
purchase price to be allocated to the estimated fair values of
assets acquired and liabilities assumed, including certain
intangible assets that must be recognized. Typically, this
allocation results in the purchase price exceeding the fair
value of net assets acquired, which is recorded as goodwill.
Core deposit intangibles are a measure of the value of checking,
money market and savings deposits acquired in business
combinations accounted for under the purchase method. Core
deposit intangibles and other identified intangibles with finite
useful lives are amortized using the sum of the year’s
digits over their estimated useful lives of up to fifteen years.
The Corporation completes annual impairment tests for goodwill
and other intangible assets. Identifiable intangible assets are
evaluated for impairment if events and circumstances indicate a
possible impairment. There can be no assurance that future
goodwill impairment tests will not result in a charge to
earnings. Customer related intangibles are being amortized over
their estimated useful lives of five to twelve years. Core
deposit intangibles are being amortized over their average
estimated useful lives of eight years. The covenants not to
compete are being amortized over their three- to five-year
contractual lives.
Mortgage servicing rights (MSRs) are recognized as separate
assets when mortgage loans are sold and the rights are retained.
Capitalized MSRs are reported in other assets and are amortized
into noninterest income in proportion to, and over the period
of, the estimated future net servicing period of the underlying
mortgage loans. MSRs are evaluated for impairment based upon the
fair value of the rights as compared to amortized cost. The
Corporation estimates the fair value of MSRs 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 carried at the lower of
amortized cost or estimated fair value. Impairment is recognized
through a valuation allowance, to the extent that fair value is
less than the unamortized capitalized amount.
Bank Owned
Life Insurance
The Corporation carries bank owned life insurance
(“BOLI”) at the net cash surrender value of the
policy. Changes in the net cash surrender value of these
policies are reflected in noninterest income.
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CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Proceeds from and purchases of bank owned life insurance are
reflected on the statement of cash flows under investing
activities.
On January 1, 2008, the Corporation recognized a
cumulative-effect adjustment to retained earnings totaling
$1.6 million related to accounting for certain endorsement
split-dollar life insurance arrangements in connection with the
adoption of new authoritative accounting guidance. The new
accounting guidance requires the Corporation to recognize a
liability for the future death benefit for agreements that
provide an employee with a death benefit in a
postretirement/termination period.
Other Real
Estate Owned
Other real estate owned represents properties acquired through
customers’ loan defaults and is included in accrued
interest and other assets. The real estate is stated at an
amount equal to the loan balance prior to foreclosure, plus
costs incurred for improvements to the property, but no more
than the fair value of the property, less estimated costs to
sell. Any write-down, at or prior to the dates the real estate
is considered foreclosed, is charged to the allowance for loan
losses. Subsequent write-downs and any gain or loss upon the
sale of real estate owned is recorded in other noninterest
income. Expenses incurred in connection with holding such assets
are recorded in other noninterest expense.
Derivative
Financial Instruments
The Corporation recognizes all derivative financial instruments
on its balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If a
derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset
against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a
derivative’s change in fair value is recognized in earnings
immediately. To determine fair value, the Corporation uses a
third party’s pricing models that incorporate assumptions
about market conditions and risks that are current as of the
reporting date.
The Corporation may use interest-rate swap agreements to modify
the interest rate characteristics from variable to fixed or
fixed to floating in order to reduce the impact of interest rate
changes on future net interest income. The Corporation accounts
for its interest-rate swap contracts in cash flow hedging
relationships by establishing and documenting the effectiveness
of the instrument in offsetting the change in cash flows of
assets or liabilities that are being hedged. To determine
effectiveness, the Corporation performs an analysis to identify
if changes in fair value or cash flow of the derivative
correlate to the equivalent changes in the forecasted interest
receipts related to a specified hedged item. Recorded amounts
related to interest-rate swaps are included in other assets or
liabilities. The change in fair value of the ineffective part of
the instrument would need to be charged to the statement of
operations, potentially causing material fluctuations in
reported earnings in the period of the change relative to
comparable periods. In a fair value hedge, the fair values of
the interest rate swap agreements and changes in the fair values
of the hedged items are recorded in the Corporation’s
consolidated balance sheets with the corresponding gain or loss
being recognized in current earnings. The difference between
changes in the fair values of interest rate swap agreements and
the hedged items represents hedge ineffectiveness and is
recorded in net interest income in the statement of operations.
The Corporation performs an assessment, both at the inception of
the hedge and quarterly thereafter, to determine whether these
derivatives are highly effective in offsetting changes in the
value of the hedged items.
In connection with its mortgage banking activities, the
Corporation enters into commitments to originate certain
fixed-rate residential mortgage loans for customers, also
referred to as interest rate locks. In addition, the Corporation
enters into forward commitments for the future sale or purchase
of mortgage-backed securities to or from third-party investors
to hedge the effect of changes in interest rates on the
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
value of the interest rate locks. Forward sales commitments may
also be in the form of commitments to sell individual mortgage
loans at a fixed price at a future date. Both the interest rate
locks and the forward commitments are accounted for as
derivatives and carried at fair value, determined as the amount
that would be necessary to settle each derivative financial
instrument at the end of the period. Gross derivative assets and
liabilities are recorded within other assets and other
liabilities on the consolidated balance sheets, with changes in
fair value during the period recorded within gains on sales of
mortgage loans on the consolidated statements of operations.
Federal Home
Loan Bank Stock, Federal Reserve Bank Stock and Certain Other
Investments without Readily Determinable Fair
Values
Federal Home Loan Bank stock, Federal Reserve Bank stock and
certain other investments without readily determinable fair
values are classified as other assets on the consolidated
balance sheets. These investments are carried at cost and
evaluated for impairment periodically or if events or
circumstances indicate that there may be impairment.
Low Income
Housing Investments
Low income housing (LIH) investments are amortized under the
effective interest method over the life of the Federal income
tax credits generated as of such investments, generally ten
years. As of December 31, 2009 and 2008, the
Corporation’s LIH investments, included in other assets on
the consolidated balance sheets, totaled $1 thousand and $54
thousand, respectively. The net income tax benefit associated
with these investments was $76 thousand for each year of 2009,
2008 and 2007, respectively. None of the Corporation’s LIH
investments met consolidation criteria as of December 31,
2009 or 2008.
Income
Taxes
There are two components of income tax expense: current and
deferred. Current income tax expense approximates cash to be
paid or refunded for taxes for the applicable period. Deferred
income taxes are provided for temporary differences between
amounts reported for financial statement and tax purposes.
Deferred income taxes are computed using the asset and liability
method, such that deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary
differences between financial reporting amounts and the tax
basis of existing assets and liabilities based on currently
enacted tax laws and tax rates in effect for the periods in
which the differences are expected to reverse. Deferred tax
assets are subject to management’s judgment based upon
available evidence that future realizations are “more
likely than not.” If management determines that the
Corporation is not, more likely than not, to realize some or all
of the net deferred tax asset in the future, a charge to income
tax expense may be required to reduce the value of the net
deferred tax asset to the expected realizable value. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Penalties are
recorded in non-interest expense in the year they are assessed
and paid 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 paid and is treated as a deductible
expense for tax purposes.
Retirement
Plan, Supplemental Plans and Other Postretirement Benefit
Plans
Substantially all employees are covered by a noncontributory
retirement plan. The plan provides benefits based on a formula
of each participant’s final average pay. On June 24,
2009, the Compensation Committee of the Board of Directors of
the Corporation resolved that effective December 31, 2009,
the benefits under the noncontributory retirement plan, in its
current form, would be frozen and the current plan would be
amended and converted to a cash balance plan under which
employees would continue to
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
receive future benefits in accordance with the provisions of the
cash balance plan. Additionally, participation in the plan was
frozen to new entrants effective December 7, 2009. The
Corporation also provides supplemental executive retirement
benefits, a portion of which is in excess of limits imposed on
qualified plans by federal tax law. These plans are
non-qualified benefit plans. The Corporation provides certain
postretirement healthcare and life insurance benefits for
retired employees. The Corporation’s measurement date for
plan assets and obligation is fiscal year-end. The Corporation
recognizes on its balance sheet the funded status of its defined
pension plans and changes in the funded status of the plan in
the year in which the changes occur. An under-funded position
would create a liability and an over-funded position would
create an asset, with a correlating deferred tax asset or
liability. The net impact would be an adjustment to equity as
accumulated other comprehensive income (loss). The Corporation
also recognizes as a component of other comprehensive income
(loss), net of tax, the actuarial gains and losses and the prior
service costs and credits that arise during the period.
The Corporation sponsors a 401(k) deferred salary savings plan,
which is a qualified defined contribution plan, and which covers
all employees of the Corporation and its subsidiaries, and
provides that the Corporation make matching contributions as
defined by the plan.
Stock Based
Compensation
The fair value of share based awards is recognized as
compensation expense over the vesting period based on the
grant-date fair value of the awards. The Corporation uses the
Black-Scholes Model to estimate the fair value of each option on
the date of grant. The Black-Scholes Model estimates the fair
value of employee stock options using a pricing model which
takes into consideration the exercise price of the option, the
expected life of the option, the current market price and its
expected volatility, the expected dividends on the stock and the
current risk-free interest rate for the expected life of the
option. The Corporation grants stock options to employees with
an exercise price equal to the fair value of the shares at the
date of grant. The fair value of restricted stock is equivalent
to the fair value on the date of grant and is amortized over the
vesting period.
Dividend
Reinvestment and Employee Stock Purchase Plans
The Univest Dividend Reinvestment Plan (the “Reinvestment
Plan”) allows for the issuance of 1,968,750 shares of
common stock. During 2009 and 2008, 75,936 and
69,235 shares, respectively, were issued under the
Reinvestment Plan, with 1,039,534 shares available for
future purchase as of December 31, 2009.
The 1996 Employee Stock Purchase Plan (the “Purchase
Plan”) allows for the issuance of 984,375 shares of
common stock. Employees may elect to make contributions to the
Purchase Plan in an aggregate amount not less than 2% nor more
than 10% of such employee’s total compensation. These
contributions are then used to purchase stock during an offering
period determined by the Corporation’s Administrative
Committee. The purchase price of the stock is based solely on
the market price of the shares at the date of purchase.
Compensation expense is recognized if the discount is greater
than 5% of the fair value. During 2009 and 2008, 14,412 and
11,494 shares, respectively, were issued under the Purchase
Plan, with 843,803 shares available for future purchase as
of December 31, 2009.
Marketing and
Advertising Costs
The Corporation’s accounting policy is to expense marketing
and advertising costs in the period in which they are incurred.
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CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Statement of
Cash Flows
The Corporation has defined those items included in the caption
“Cash and due from banks” as cash and cash equivalents.
Trust Assets
Assets held by the Corporation in a fiduciary or agency capacity
for its customers are not included in the consolidated financial
statements since such items are not assets of the Corporation.
Earnings Per
Share
Basic earnings per share represents income available to common
shareholders divided by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share
reflects additional common shares that would have been
outstanding if option common shares had been issued, as well as
any adjustment to income that would result from the assumed
issuance. Potential common shares that may be issued by the
Corporation relate solely to outstanding stock options, and are
determined using the treasury stock method. The effects of
options to issue common stock are excluded from the computation
of diluted earnings per share in periods in which the effect
would be antidilutive.
Variable
Interest Entities
Variable interest entities (VIE’s) are entities in which
equity investors do not have a controlling financial interest or
do not have sufficient equity at risk for the entity to finance
activities without additional financial support from other
parties. A company must consolidate a VIE if the company has a
variable interest that will absorb a majority of the VIE’s
losses, if they occur,
and/or
receive a majority of the VIE’s residual returns, if they
occur.
The accounting standards related to Subsidiary Trusts, as
interpreted by the SEC, disallow consolidation of Subsidiary
Trusts in the financial statements of the Corporation. As a
result, securities that were issued by the trusts
(Trust Preferred Securities) are not included on the
Corporation’s consolidated balance sheets. The junior
subordinated debentures issued by the Parent Company to the
Subsidiary Trusts, which have the same total balance and rate as
the combined equity securities and trust preferred securities
issued by the Subsidiary Trusts remain in long-term debt.
Recent
Accounting Pronouncements
In January 2010, the FASB issued an Accounting Standard
Codification Update for improving disclosures about fair value
measurements. This update requires companies to disclose, and
provide the reasons for, all transfers of assets and liabilities
between the Level 1 and 2 fair value categories. It also
clarifies that companies should provide fair value measurement
disclosures for classes of assets and liabilities which are
subsets of line items within the balance sheet, if necessary. In
addition, the update clarifies that companies provide
disclosures about the fair value techniques and inputs for
assets and liabilities classified within Level 2 or 3
categories. The disclosure requirements prescribed by this
update are effective for fiscal years beginning after
December 31, 2009, and for interim periods within those
fiscal years, or March 31, 2010 for the Corporation. This
update also requires companies to reconcile changes in
Level 3 assets and liabilities by separately providing
information about Level 3 purchases, sales, issuances and
settlements on a gross basis. This provision of this update is
effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years, or
March 31, 2011 for the Corporation. The adoption of this
update is not expected to materially impact the
Corporation’s fair value measurement disclosures.
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
In September 2009, the FASB issued an Accounting Standard
Codification Update for fair value measurements and disclosures
related to investments in certain entities that calculate net
asset value per share or its equivalent. The update permits, as
a practical expedient, a reporting entity to measure the fair
value of an investment that is within the scope of the
amendments in this update on the basis of the net asset value
per share of the investment (or its equivalent) if the net asset
value of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of this update
as of the reporting entity’s measurement date. The update
also requires disclosures by major category of investment about
the attributes of investments within the scope of the update.
The update is effective for interim and annual periods ending
after December 15, 2009. The adoption of this update did
not have a material impact on the Corporation’s
consolidated financial statements as of December 31, 2009.
In June 2009, the FASB issued the Accounting Standards
Codification (the ASC or the Codification) establishing the
Codification as the single source of authoritative
nongovernmental U.S. generally accepted accounting
principles (GAAP). The Codification did not change current GAAP,
but was intended to simplify user access to all authoritative
GAAP by providing all the authoritative literature related to a
particular topic in one place. Rules and interpretive releases
of the Securities and Exchange Commission (SEC) under authority
of federal securities laws are also sources of authoritative
GAAP for SEC registrants. On the effective date of the
Codification, all existing accounting standard documents are
superseded and all other accounting literature not included in
the Codification is considered nonauthoritative, other than
guidance issued by the SEC. The Codification was effective for
interim or annual reporting periods ending after
September 15, 2009. The adoption of the Codification did
not have a material impact on the Corporation’s financial
statements as of December 31, 2009, although references to
specific authoritative literature in financial statements were
eliminated and discussions of accounting concepts were enhanced.
In June 2009, the FASB issued standards for accounting for
transfers of financial assets and amendments to guidance
relating to consolidation of variable interest entities. The
standards change off-balance-sheet accounting of financial
instruments including the way entities account for
securitizations and special-purpose entities. The standards
relating to accounting for transfers of financial assets require
more information about sales of securitized financial assets and
similar transactions, particularly if the seller retains some
risk to the assets. They eliminate the concept of a
“qualifying special purpose entity,” change the
requirement for derecognizing financial assets, and require
sellers of the assets to make additional disclosures about them.
The guidance relating to consolidation of variable interest
entities alters how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting
should be consolidated. A company has to determine whether it
should provide consolidated reporting of any entity based upon
the entity’s purpose and design and the parent
company’s ability to direct the entity’s actions. The
standards are effective at the start of the first fiscal year
beginning after November 15, 2009 and are not anticipated
to have a material impact on the Corporation’s financial
statements.
In May 2009, the FASB issued general standards of accounting and
disclosure for subsequent events. Subsequent events are events
or transactions that occur after the balance sheet date but
before the release of financial statements. The subsequent
events standards were effective for reporting periods ending
after June 15, 2009. The application of these standards did
not have a material impact on the Corporation’s
consolidated financial statements as of December 31, 2009.
In April 2009, the FASB issued standards for recognition and
presentation of
other-than-temporary
impairments. The standards (i) change existing guidance for
determining whether an impairment is other- than-temporary for
debt securities and (ii) replace the existing requirement
that the entity’s management assert it has both the intent
and ability to hold an impaired security until recovery with a
requirement that management assert: (a) it does not have
the intent to sell the security; and (b) it is more likely
than not it will
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
not have to sell the security before recovery of its cost basis.
Declines in the fair value of
held-to-maturity
and
available-for-sale
securities below their cost that are deemed to be
other-than-temporary
are reflected in earnings as realized losses to the extent the
impairment is related to credit losses. The amount of impairment
related to other factors is recognized in other comprehensive
income. These standards were effective for interim and annual
periods ending after June 15, 2009. The application of the
provisions of these standards did not have a material impact on
the Corporation’s consolidated financial statements as of
December 31, 2009.
In April 2009, the FASB issued standards for determining fair
value when the volume and level of activity for the asset or
liability have significantly decreased and identifying
transactions that are not orderly. The standards were effective
prospectively for interim periods and annual years ending after
June 15, 2009. The application of the provisions of these
standards did not have a material impact on the
Corporation’s consolidated financial statements as of
December 31, 2009.
In April 2009, the FASB issued standards for accounting for
assets acquired and liabilities assumed in a business
combination that arise from contingencies. The standards provide
guidance in respect of initial recognition and measurement,
subsequent measurement, and disclosures concerning assets and
liabilities arising from pre-acquisition contingencies in a
business combination. The standards were effective for business
combinations for which the acquisition date was on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2008. The application of the provisions
of these standards did not have a material impact on the
Corporation’s consolidated financial statements as of
December 31, 2009.
In December 2008, the FASB issued standards to require
disclosure of additional information concerning assets held in a
defined benefit pension or other postretirement benefit plan.
Under these standards, disclosures should provide users of
financial statements with an understanding of how investment
allocation decisions are made, the factors that are pertinent to
an understanding of investment policies and strategies, the
major categories of plan assets, the inputs and valuation
techniques used to measure the fair value of plan assets, the
effect of fair value measurements using significant unobservable
inputs on changes in plan assets for the period and significant
concentrations of risk within plan assets. The additional
disclosure requirements are effective for fiscal years ending
after December 15, 2009, with earlier application
permitted. Upon initial application, comparative information is
not required for earlier periods presented. The additional
required disclosures under these standards are included in
Note 10, “Retirement Plan and Supplemental Retirement
Plans.”
| Note 2. | Restrictions on Cash and Due from Bank Accounts |
The Bank maintains reserve balances under Federal Reserve Bank
requirements. The reserve requirement at December 31, 2009
and 2008 was $4.4 million and $6.0 million,
respectively, and was satisfied by vault cash held at the
Bank’s branches. No additional reserves were required to be
maintained at the Federal Reserve Bank of Philadelphia in excess
of the required $25 thousand clearing balance requirement. The
average balances at the Federal Reserve Bank of Philadelphia
were $26.5 million and $6.1 million for the years
ended December 31, 2009 and 2008, respectively.
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 3. | Investment Securities |
The following table shows the amortized cost and the approximate
fair value of the
held-to-maturity
securities and
available-for-sale
securities at December 31, 2009 and 2008, by maturity
within each type:
| December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
Gross
|
|||||||||||||||||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Amortized
|
Unrealized
|
Unrealized
|
Market
|
|||||||||||||||||||||||||
| Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
|
Held-to-Maturity
Securities
|
||||||||||||||||||||||||||||||||
|
Residential mortgage-backed securities:
|
||||||||||||||||||||||||||||||||
|
Within 1 year
|
$ | — | $ | — | $ | — | $ | — | $ | 5 | $ | — | $ | — | $ | 5 | ||||||||||||||||
|
After 1 year to 5 years
|
87 | 5 | — | 92 | 222 | 8 | — | 230 | ||||||||||||||||||||||||
|
After 5 years to 10 years
|
— | — | — | — | 199 | 10 | — | 209 | ||||||||||||||||||||||||
|
Over 10 years
|
— | — | — | — | 927 | 46 | — | 973 | ||||||||||||||||||||||||
| 87 | 5 | — | 92 | 1,353 | 64 | — | 1,417 | |||||||||||||||||||||||||
|
Other securities:
|
||||||||||||||||||||||||||||||||
|
After 1 year to 5 years
|
16 | — | — | 16 | 15 | — | — | 15 | ||||||||||||||||||||||||
| 16 | — | — | 16 | 15 | — | — | 15 | |||||||||||||||||||||||||
|
Total
|
$ | 103 | $ | 5 | $ | — | $ | 108 | $ | 1,368 | $ | 64 | $ | — | $ | 1,432 | ||||||||||||||||
|
Securities
Available-for-Sale
|
||||||||||||||||||||||||||||||||
|
U.S. Treasury:
|
||||||||||||||||||||||||||||||||
|
Within 1 year
|
$ | — | $ | — | $ | — | — | $ | 5,871 | $ | — | $ | (9 | ) | $ | 5,862 | ||||||||||||||||
| — | — | — | — | 5,871 | — | (9 | ) | 5,862 | ||||||||||||||||||||||||
|
U.S. government corporations and agencies:
|
||||||||||||||||||||||||||||||||
|
Within 1 year
|
$ | 7,000 | $ | — | $ | — | $ | 7,000 | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||
|
After 1 year to 5 years
|
112,937 | 293 | (238 | ) | 112,992 | 97,994 | 884 | (34 | ) | 98,844 | ||||||||||||||||||||||
| 119,937 | 293 | (238 | ) | 119,992 | 97,994 | 884 | (34 | ) | 98,844 | |||||||||||||||||||||||
|
State and political subdivisions:
|
||||||||||||||||||||||||||||||||
|
After 1 year to 5 years
|
8,287 | 262 | (2 | ) | 8,547 | 3,048 | 109 | (5 | ) | 3,152 | ||||||||||||||||||||||
|
After 5 years to 10 years
|
28,894 | 636 | (23 | ) | 29,507 | 28,176 | 939 | (37 | ) | 29,078 | ||||||||||||||||||||||
|
Over 10 years
|
68,560 | 1,200 | (248 | ) | 69,512 | 68,572 | 478 | (930 | ) | 68,120 | ||||||||||||||||||||||
| 105,741 | 2,098 | (273 | ) | 107,566 | 99,796 | 1,526 | (972 | ) | 100,350 | |||||||||||||||||||||||
|
Residential mortgage-backed securities:
|
||||||||||||||||||||||||||||||||
|
Within 1 year
|
1,461 | 18 | — | 1,479 | 175 | 1 | — | 176 | ||||||||||||||||||||||||
|
After 1 year to 5 years
|
6 | — | — | 6 | 2,910 | 3 | (4 | ) | 2,909 | |||||||||||||||||||||||
|
After 5 years to 10 years
|
15,865 | 452 | — | 16,317 | 3,760 | 130 | — | 3,890 | ||||||||||||||||||||||||
|
Over 10 years
|
80,464 | 3,852 | (829 | ) | 83,487 | 119,907 | 3,091 | (65 | ) | 122,933 | ||||||||||||||||||||||
| 97,796 | 4,322 | (829 | ) | 101,289 | 126,752 | 3,225 | (69 | ) | 129,908 | |||||||||||||||||||||||
|
Commercial mortgage obligations:
|
||||||||||||||||||||||||||||||||
|
After 5 years to 10 years
|
8,644 | 327 | — | 8,971 | 4,763 | 13 | (55 | ) | 4,721 | |||||||||||||||||||||||
|
Over 10 years
|
68,440 | 2,043 | — | 70,483 | 75,957 | 1,421 | (1,894 | ) | 75,484 | |||||||||||||||||||||||
| 77,084 | 2,370 | — | 79,454 | 80,720 | 1,434 | (1,949 | ) | 80,205 | ||||||||||||||||||||||||
|
Asset backed securities:
|
||||||||||||||||||||||||||||||||
|
After 1 year to 5 years
|
564 | 9 | — | 573 | 1,231 | — | (20 | ) | 1,211 | |||||||||||||||||||||||
| 564 | 9 | — | 573 | 1,231 | — | (20 | ) | 1,211 | ||||||||||||||||||||||||
|
Other securities:
|
||||||||||||||||||||||||||||||||
|
Within 1 year
|
5,968 | 48 | — | 6,016 | 4,583 | — | — | 4,583 | ||||||||||||||||||||||||
|
After 1 year to 5 years
|
2,996 | 132 | — | 3,128 | 6,992 | 165 | (130 | ) | 7,027 | |||||||||||||||||||||||
| 8,964 | 180 | — | 9,144 | 11,575 | 165 | (130 | ) | 11,610 | ||||||||||||||||||||||||
|
Equity securities:
|
||||||||||||||||||||||||||||||||
|
No stated maturity
|
1,589 | 363 | (28 | ) | 1,924 | 3,447 | 53 | (592 | ) | 2,908 | ||||||||||||||||||||||
| 1,589 | 363 | (28 | ) | 1,924 | 3,447 | 53 | (592 | ) | 2,908 | |||||||||||||||||||||||
|
Total
|
$ | 411,675 | $ | 9,635 | $ | (1,368 | ) | $ | 419,942 | $ | 427,386 | $ | 7,287 | $ | (3,775 | ) | $ | 430,898 | ||||||||||||||
Expected maturities will differ from contractual maturities
because debt issuers may have the right to call or prepay
obligations without call or prepayment penalties.
70
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Securities with a fair value of $300.7 million and
$311.7 million at December 31, 2009 and 2008,
respectively, were pledged to secure public deposits and for
other purposes as required by law.
During the year ended December 31, 2009,
available-for-sale
securities with a fair value at the date of sale of
$50.8 million were sold; $58.9 million were sold in
2008; and $6.1 million were sold in 2007. Gross realized
gains on such sales totaled $1.2 million during 2009, $282
thousand during 2008 and $435 thousand in 2007. Gross realized
losses on sales totaled $28 thousand in 2009, $2 thousand in
2008 and there were no losses on realized sales in 2007. Tax
expense related to net realized gains from the sales of
investment securities for the years ended December 31,
2009, 2008 and 2007 were $403 thousand, $99 thousand and $152
thousand, respectively. Accumulated other comprehensive income
related to securities of $5.4 million and
$2.3 million, net of taxes, has been included in
shareholders’ equity at December 31, 2009 and 2008,
respectively. Unrealized losses in investment securities at
December 31, 2009 and 2008 do not represent
other-than-temporary
impairments.
The Corporation realized
other-than-temporary
impairment charges of $1.7 million and $1.3 million,
respectively, to noninterest income on its equity portfolio
during the years ended December 31, 2009 and 2008. The
Corporation determined that it was probable that certain equity
securities would not regain market value equivalent to the
Corporation’s cost basis within a reasonable period of time
due to a decline in the financial stability of the underlying
companies. The Corporation carefully monitors all of its equity
securities and has not taken impairment losses on certain other
under-water equity securities, at this time, as the financial
performance of the underlying companies is not indicative of the
market deterioration of their stock and it is probable that the
market value of the equity securities will recover to the
Corporation’s cost basis in the individual securities in a
reasonable amount of time. The equity securities within the
following table consist of common stocks of other financial
institutions, which have experienced recent declines in value
consistent with the industry as a whole. Management evaluated
the near-term prospects of the issuers in relation to the
severity and duration of the impairment. The Corporation has the
positive intent and ability to hold these securities until
recovery to the Corporation’s cost basis occurs. The
Corporation does not consider those investments to be
other-than-temporarily
impaired at December 31, 2009.
At December 31, 2009 and 2008, there were no investments in
any single non-federal issuer representing more than 10% of
shareholders’ equity.
The following table shows the amount of securities that were in
an unrealized loss position at December 31, 2009 and 2008:
| At December 31, 2009 | ||||||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
| Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
|
U.S. government corporations and agencies
|
$ | 47,057 | $ | (238 | ) | $ | — | $ | — | $ | 47,057 | $ | (238 | ) | ||||||||||
|
State and political subdivisions
|
16,378 | (248 | ) | 1,141 | (25 | ) | 17,519 | (273 | ) | |||||||||||||||
|
Residential mortgage-backed securities
|
— | — | 5,323 | (829 | ) | 5,323 | (829 | ) | ||||||||||||||||
|
Commercial mortgage obligations
|
— | — | — | — | — | — | ||||||||||||||||||
|
Other securities
|
— | — | — | — | — | — | ||||||||||||||||||
|
Equity securities
|
128 | (15 | ) | 95 | (13 | ) | 223 | (28 | ) | |||||||||||||||
|
Total
|
$ | 63,563 | $ | (501 | ) | $ | 6,559 | $ | (867 | ) | $ | 70,122 | $ | (1,368 | ) | |||||||||
71
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| At December 31, 2008 | ||||||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Longer | Total | ||||||||||||||||||||||
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
| Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
|
U.S. Treasury
|
$ | 5,862 | $ | (9 | ) | $ | — | $ | — | $ | 5,862 | $ | (9 | ) | ||||||||||
|
U.S. government corporations and agencies
|
5,007 | (34 | ) | — | — | 5,007 | (34 | ) | ||||||||||||||||
|
State and political subdivisions
|
32,985 | (704 | ) | 6,897 | (268 | ) | 39,882 | (972 | ) | |||||||||||||||
|
Residential mortgage-backed securities
|
12,718 | (69 | ) | — | — | 12,718 | (69 | ) | ||||||||||||||||
|
Commercial mortgage obligations
|
4,449 | (9 | ) | 8,909 | (1,940 | ) | 13,358 | (1,949 | ) | |||||||||||||||
|
Asset-backed securities
|
1,211 | (20 | ) | — | — | 1,211 | (20 | ) | ||||||||||||||||
|
Other securities
|
2,863 | (130 | ) | — | — | 2,863 | (130 | ) | ||||||||||||||||
|
Equity securities
|
1,062 | (270 | ) | 1,137 | (322 | ) | 2,199 | (592 | ) | |||||||||||||||
|
Total
|
$ | 66,157 | $ | (1,245 | ) | $ | 16,943 | $ | (2,530 | ) | $ | 83,100 | $ | (3,775 | ) | |||||||||
| Note 4. | Loans and Leases |
The following is a summary of the major loan and lease
categories:
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Commercial, financial and agricultural
|
$ | 447,495 | $ | 424,649 | ||||
|
Real estate-commercial
|
487,688 | 399,003 | ||||||
|
Real estate-construction
|
91,891 | 153,506 | ||||||
|
Real estate-residential
|
266,622 | 316,039 | ||||||
|
Loans to individuals
|
46,761 | 54,212 | ||||||
|
Lease financings
|
95,678 | 110,095 | ||||||
|
Total gross loans and leases
|
1,436,135 | 1,457,504 | ||||||
|
Less: Unearned income
|
(10,155 | ) | (7,612 | ) | ||||
|
Total loans and leases, net of unearned income
|
$ | 1,425,980 | $ | 1,449,892 | ||||
Net unamortized deferred loan and lease origination fees, which
are recorded within each loan category, for the years ended
December 31, 2009 and 2008, were $1.1 million and $936
thousand, respectively. Overdraft deposits are re-classified as
loans and are included in the total loans and leases on the
balance sheet. For the years ended December 31, 2009 and
2008, overdrafts were $495 thousand and $283 thousand,
respectively.
72
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UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
The Corporation is a lessor of primarily small-ticket equipment
under agreements expiring at various dates through the Year
2015. At December 31, 2009, the schedule of minimum lease
payments is as follows:
|
2009
|
$ | 38,937 | ||
|
2010
|
29,809 | |||
|
2011
|
16,611 | |||
|
2012
|
7,816 | |||
|
2013
|
2,455 | |||
|
Thereafter
|
50 | |||
|
Total future minimum lease payments receivable
|
95,678 | |||
|
Less: Unearned income
|
(10,155 | ) | ||
|
Total lease financing receivables, net of unearned income
|
$ | 85,523 | ||
| Note 5. | Reserve for Loan and Lease Losses |
A summary of the activity in the reserve for loan and lease
losses is as follows:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Balance at beginning of year
|
$ | 13,118 | $ | 13,086 | $ | 13,283 | ||||||
|
Provision for loan and lease losses
|
20,886 | 8,769 | 2,166 | |||||||||
|
Recoveries
|
1,242 | 568 | 657 | |||||||||
|
Loans and leases charged off
|
(10,448 | ) | (9,305 | ) | (3,020 | ) | ||||||
|
Balance at end of year
|
$ | 24,798 | $ | 13,118 | $ | 13,086 | ||||||
Information with respect to loans and leases that are impaired
is as follows:
| December 31, | ||||||||||||||||
| 2009 | 2008 | |||||||||||||||
|
Loan
|
Specific
|
Loan
|
Specific
|
|||||||||||||
| Balance | Reserve | Balance | Reserve | |||||||||||||
|
Average recorded investment in impaired loans and leases
|
$ | 16,570 | $ | 7,135 | ||||||||||||
|
Recorded investment in impaired loans and leases at year-end
subject to a specific reserve for loan and lease losses and
corresponding specific reserve
|
$ | 9,549 | $ | 1,424 | $ | 166 | $ | 36 | ||||||||
|
Recorded investment in impaired loans and leases at year-end
requiring no specific reserve for loan and lease losses
|
27,560 | — | 5,243 | — | ||||||||||||
|
Recorded investment in impaired loans and leases at year-end
|
$ | 37,109 | $ | 5,409 | ||||||||||||
|
Recorded investment in nonaccrual and restructured loans and
leases
|
$ | 37,109 | $ | 5,409 | ||||||||||||
Loans and leases greater than 90 days past due and still
accruing interest were $726 thousand and $1.1 million at
December 31, 2009 and 2008, respectively. Any income
accrued on
one-to-four
family
73
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
residential properties after the loan becomes 90 days past
due is held in a reserve for uncollected interest. The reserve
for uncollected interest was $29 thousand and $8 thousand at
December 31, 2009 and 2008, respectively. Other real estate
owned was $3.4 million and $346 thousand at
December 31, 2009 and 2008, respectively.
The Bank maintains a reserve in other liabilities for
off-balance sheet credit exposures that currently are unfunded.
The reserve for off-balance sheet credits was $145 thousand and
$150 thousand at December 31, 2009 and 2008, respectively.
The following is an analysis of interest on nonaccrual and
restructured loans and leases:
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Nonaccrual and restructured loans and leases
|
$ | 37,109 | $ | 5,409 | $ | 6,878 | ||||||
|
Interest income that would have been recognized under original
terms
|
969 | 685 | 747 | |||||||||
Interest income of $79 thousand and $11 thousand was recognized
on these loans and leases at December 31, 2009 and 2008,
respectively. No interest income was recognized on these loans
and leases for the year ended December 31, 2007.
| Note 6. | Premises and Equipment |
The following table reflects the components of premises and
equipment:
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Land and land improvements
|
$ | 8,270 | $ | 8,025 | ||||
|
Premises and improvements
|
34,493 | 32,567 | ||||||
|
Furniture and equipment
|
17,307 | 18,039 | ||||||
|
Total cost
|
60,070 | 58,631 | ||||||
|
Less: accumulated depreciation
|
(25,869 | ) | (26,029 | ) | ||||
|
Net book value
|
$ | 34,201 | $ | 32,602 | ||||
| Note 7. | Intangible Assets |
The Corporation has completed an annual impairment test for the
intangible asset category. There were no impairments in 2009 and
2008 and $14 thousand was recognized in other noninterest
expense on customer related intangibles in 2007. There can be no
assurance that future impairment tests will not result in a
charge to earnings.
The Corporation has covenants not to compete, intangible assets
due to branch acquisitions, core deposit intangibles,
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 using the
present value of projected cash flows. The amortization for
these intangible assets was: $1.5 million for the year
ended December 31, 2009; $642 thousand for the year ended
December 31, 2008; and $742 thousand for the year ended
December 31, 2007. The Corporation also has goodwill with a
net carrying amount of $50.4 million, which is deemed to be
an indefinite intangible asset and is not amortized. On
December 29, 2008, the Corporation completed the
acquisition of Liberty Benefits, Inc., a full service employee
benefits brokerage and consulting firm specializing in providing
comprehensive employee benefits packages to businesses both
large and small. The Corporation recorded $2.8 million in
goodwill and $740 thousand in customer related intangibles as a
result of the Liberty Benefits, Inc. acquisition. On
December 31, 2008,
74
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
the Corporation completed the acquisition of the Trollinger
Consulting Group and related entities, an independent actuarial,
administrative, consulting/compliance, and investment counseling
firm that exclusively serves Municipal Pension Plan clients. The
Corporation recorded $2.9 million in goodwill and
$3.0 million in customer related intangibles as a result of
the Trollinger Consulting Group acquisition. On July 27,
2006, the Corporation completed the acquisition of B. G.
Balmer & Company, Inc., a full-service insurance
agency, located in West Chester, Pa. In connection with this
acquisition, $3.1 million was recorded to goodwill,
$1.5 million was recorded to a customer-related intangible
and $100 thousand was recorded for a covenant not to compete.
The Corporation recorded additional goodwill of $157 thousand in
2009 related to its 2008 acquisition of Trollinger Consulting
Group. The Corporation recorded additional goodwill of $151
thousand in 2008 related to its 2005 acquisition of Donald K.
Martin & Company.
Changes in the carrying amount of the Corporation’s
goodwill for the years ended December 31, 2009 and 2008
were as follows:
|
Balance as of December 31, 2007
|
$ | 44,438 | ||
|
Additions:
|
||||
|
Donald K. Martin & Company
|
151 | |||
|
Liberty Benefits, Inc.
|
2,720 | |||
|
Trollinger Consulting Group
|
2,927 | |||
|
Balance as of December 31, 2008
|
$ | 50,236 | ||
|
Additions:
|
||||
|
Trollinger Consulting Group
|
157 | |||
|
Balance as of December 31, 2009
|
$ | 50,393 | ||
The following table reflects the components of intangible assets
as of the dates indicated:
| December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
|
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
|
Gross
|
Amortization
|
Net
|
Gross
|
Amortization
|
Net
|
|||||||||||||||||||
|
Carrying
|
and Fair Value
|
Carrying
|
Carrying
|
and Fair Value
|
Carrying
|
|||||||||||||||||||
| Amount | Adjustments | Amount | Amount | Adjustments | Amount | |||||||||||||||||||
|
Amortized intangible assets:
|
||||||||||||||||||||||||
|
Covenants not to compete
|
$ | 320 | $ | 288 | $ | 32 | $ | 320 | $ | 268 | $ | 52 | ||||||||||||
|
Branch acquisitions
|
2,951 | 2,951 | — | 2,951 | 2,951 | — | ||||||||||||||||||
|
Core deposit intangibles
|
2,201 | 1,786 | 415 | 2,201 | 1,539 | 662 | ||||||||||||||||||
|
Customer related intangibles
|
5,302 | 1,609 | 3,693 | 5,302 | 619 | 4,683 | ||||||||||||||||||
|
Mortgage servicing rights, net
|
2,818 | 1,381 | 1,437 | 1,538 | 1,120 | 418 | ||||||||||||||||||
|
Total amortized intangible assets
|
$ | 13,592 | $ | 8,015 | $ | 5,577 | $ | 12,312 | $ | 6,497 | $ | 5,815 | ||||||||||||
The estimated aggregate amortization expense includes covenants
not to compete, core deposit intangibles and customer related
intangibles for each of the five succeeding fiscal years was as
follows:
|
Year
|
Amount | |||
|
2010
|
$ | 864 | ||
|
2011
|
740 | |||
|
2012
|
618 | |||
|
2013
|
498 | |||
|
2014
|
380 | |||
75
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
The Corporation has originated mortgage servicing rights which
are included in other intangible assets on the consolidated
balance sheets. Mortgage servicing rights are amortized in
proportion to, and over the period of, estimated net servicing
income on a basis similar to the interest method using an
accelerated amortization method and are subject to periodic
impairment testing.
Changes in the mortgage servicing rights balance are summarized
as follows:
|
For the Years Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Beginning balance
|
$ | 418 | $ | 512 | $ | 540 | ||||||
|
Servicing rights capitalized
|
1,280 | 51 | 31 | |||||||||
|
Amortization of servicing rights
|
(178 | ) | (27 | ) | (44 | ) | ||||||
|
Changes in valuation
|
(83 | ) | (118 | ) | (15 | ) | ||||||
|
Ending balance
|
$ | 1,437 | $ | 418 | $ | 512 | ||||||
|
Mortgage loans serviced for others
|
$ | 174,066 | $ | 55,138 | $ | 57,774 | ||||||
Activity in the valuation allowance for mortgage servicing
rights was as follows:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Beginning balance.
|
$ | (167 | ) | $ | (49 | ) | $ | (33 | ) | |||
|
Additions
|
(83 | ) | (118 | ) | (16 | ) | ||||||
|
Reductions
|
— | — | — | |||||||||
|
Direct write-downs
|
— | — | — | |||||||||
|
Ending balance
|
$ | (250 | ) | $ | (167 | ) | $ | (49 | ) | |||
The estimated amortization expense of mortgage servicing rights
for each of the five succeeding fiscal years was as follows:
|
Year
|
Amount | |||
|
2010
|
$ | 104 | ||
|
2011
|
93 | |||
|
2012
|
71 | |||
|
2013
|
55 | |||
|
2014
|
42 | |||
|
Thereafter
|
128 | |||
The balance of mortgage servicing rights, net of fair value
adjustments and accumulated amortization, or fair value,
included in other intangibles at December 31, 2009 was
$1.4 million and at December 31, 2008 was $418
thousand. The aggregate fair value of these rights was
$1.4 million and $418 thousand at December 31, 2009
and 2008, respectively. The fair value of mortgage servicing
rights was determined using discount rates ranging from 4.4% to
6.3% for 2009. Amortization of mortgage servicing rights of
approximately $178 thousand was recorded during 2009, $27
thousand during 2008, and $44 thousand during 2007. The
cumulative unfavorable fair value adjustments were $250
thousand, $167 thousand and $49 thousand at December 31,
2009, 2008 and 2007, respectively.
76
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 8. | Accrued Interest and Other Assets |
The following table provides the details of accrued interest and
other assets:
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Other real estate owned
|
$ | 3,428 | $ | 346 | ||||
|
Accrued interest receivable
|
7,613 | 8,319 | ||||||
|
Accrued income and other receivables
|
2,772 | 2,707 | ||||||
|
Fair market value of derivative instruments
|
3,124 | 34 | ||||||
|
Prepaid FDIC insurance assessments
|
8,427 | — | ||||||
|
Other prepaid expenses
|
9,145 | 8,417 | ||||||
|
Federal Reserve Bank stock, Federal Home Loan Bank stock and
other not readily marketable equity securities
|
11,910 | 10,761 | ||||||
|
Net deferred tax assets
|
9,947 | 9,834 | ||||||
|
Other
|
627 | 657 | ||||||
|
Total accrued interest and other assets
|
$ | 56,993 | $ | 41,075 | ||||
On September 28, 2009, the FDIC Board proposed an
institutional prepaid FDIC assessment to recapitalize the
Deposit Insurance Fund which was finalized in the Fourth Quarter
of 2009. The amount was paid on December 30, 2009 for the
Fourth Quarter 2009, and for all of 2010, 2011 and 2012. This
assessment was based on an estimated 5% annual growth rate in
deposits during 2010, 2011 and 2012; and a 3 basis-point
increase in the base assessment rate at September 30, 2009
to be applied in 2011 and 2012. The Bank paid $9.0 million
to the FDIC on December 30, 2009 of which $8.4 million
will remain in a prepaid asset account. The prepaid amount of
$8.4 million has a zero percent risk-weighting for
risk-based capital ratio calculations. The prepaid amount will
be expensed over the 2010 though 2012 period as the actual FDIC
assessment are determined for each interim quarterly period. Any
excess prepaid amounts may be utilized up to December 30,
2014 at which time any excess will be returned to the Bank.
At December 31, 2009 and 2008, the Bank held
$3.3 million and $1.7 million, respectively, in
Federal Reserve Bank stock as required by the Federal Reserve
Bank. The Bank is required to hold stock in the Federal Home
Loan Bank of Pittsburgh (“FHLB”) in relation to the
level of outstanding borrowings. The Bank held FHLB stock of
$7.4 million as of December 31, 2009 and 2008. On
December 23, 2008, the FHLB announced that it would be
suspending the payment of dividends and the repurchase of excess
capital stock in-order to rebuild its capital levels. This is
due to the
other-than-temporary
impairment write down required on their private-label mortgage
portfolio which could reduce their capital below required
levels. Additionally, the FHLB might require its members to
increase its capital stock requirement. Based on current
information from the FHLB, Management believes that if there is
any impairment in the stock it is temporary. Therefore, as of
December 31, 2009, the FHLB stock is recorded at cost.
At December 31, 2009, the Corporation held certain equity
investments for which it is restricted from trading and had been
carried at cost. During 2009, the Corporation recorded an
other-than-temporary
impairment on these long-lived assets of $500 thousand. The
Corporation determined that it was probable that these
long-lived assets would not regain market value equivalent to
the Corporation’s cost basis within a reasonable period of
time due to a decline in the financial stability of the
underlying company.
77
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 9. | Income Taxes |
The provision for federal and state income taxes included in the
accompanying consolidated statements of income consists of the
following:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 5,057 | $ | 5,727 | $ | 8,688 | ||||||
|
State
|
(14 | ) | 175 | 242 | ||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(4,543 | ) | (124 | ) | 421 | |||||||
|
State
|
63 | — | — | |||||||||
| $ | 563 | $ | 5,778 | $ | 9,351 | |||||||
The provision for income taxes differs from the expected
statutory provision as follows:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Expected provision at statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Difference resulting from:
|
||||||||||||
|
Tax exempt interest income
|
(25.0 | ) | (9.9 | ) | (7.3 | ) | ||||||
|
Increase in value of bank owned life insurance assets
|
(4.1 | ) | (3.7 | ) | (1.5 | ) | ||||||
|
Other, including state income taxes, valuation allowance and
rate differential
|
(0.9 | ) | 0.5 | 0.6 | ||||||||
| 5.0 | % | 21.9 | % | 26.8 | % | |||||||
During the year ended December 31, 2008, the Corporation
recorded tax benefits resulting from the exercise of employee
stock options and restricted stock of $210 thousand to
additional paid-in capital. There were no tax benefits recorded
during the year ended December 31, 2009.
As of December 31, 2009 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. As of December 31, 2009, the
Corporation’s 2006 and 2007 federal tax returns were
examined with some minor adjustments, and tax years 2006 through
2008 remain subject to federal examination as well as
examination by state taxing jurisdictions.
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amount used
for income tax purposes. Deferred state taxes are combined with
federal deferred taxes (net of the impact of deferred state tax
on the deferred federal tax) and are shown in the table below by
major category of deferred income or expense. There were no
deferred state taxes recorded in 2008 other than those on state
net operating loss carryforwards. The Corporation had state net
operating loss carryforwards of $13.0 million which will
begin to expire after December 31, 2018 if not utilized. A
valuation allowance at December 31, 2009 and 2008 was
attributable to deferred tax assets generated in certain state
jurisdictions for which management believes it is more likely
than not that such deferred tax assets will not be realized.
78
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Additionally, deferred tax assets of $7 thousand and $6 thousand
were reversed during the years ended December 31, 2009 and
2008, respectively, as a result of unrecognizable restricted
stock and non-qualified stock option expense.
The assets and liabilities giving rise to the Corporation’s
deferred tax assets and liabilities are as follows:
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Deferred tax assets:
|
||||||||
|
Loan and lease loss
|
$ | 8,756 | $ | 4,591 | ||||
|
Deferred compensation
|
2,426 | 2,041 | ||||||
|
Postretirement benefits
|
578 | 459 | ||||||
|
Actuarial adjustments on postretirement benefits*
|
3,794 | 5,789 | ||||||
|
Vacation accrual
|
366 | 376 | ||||||
|
Depreciation
|
— | 12 | ||||||
|
State net operating losses
|
846 | 837 | ||||||
|
Other-than-temporary
impairment on equity securities
|
1,315 | 438 | ||||||
|
Other
|
822 | 374 | ||||||
|
Gross deferred tax assets
|
18,903 | 14,917 | ||||||
|
Valuation allowance
|
(1,405 | ) | (837 | ) | ||||
|
Total deferred tax assets
|
17,498 | 14,080 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Market discount
|
691 | 263 | ||||||
|
Retirement plans
|
1,117 | 1,696 | ||||||
|
Depreciation
|
273 | — | ||||||
|
Deferred fees and expense
|
175 | 63 | ||||||
|
Prepaid expenses
|
371 | 340 | ||||||
|
Intangible assets
|
564 | 334 | ||||||
|
Net unrealized holding gains on securities available for sale
and swaps*
|
3,512 | 1,148 | ||||||
|
Other
|
848 | 402 | ||||||
|
Total deferred tax liabilities
|
7,551 | 4,246 | ||||||
|
Net deferred tax assets
|
$ | 9,947 | $ | 9,834 | ||||
| * | Represents the amount of deferred taxes recorded in accumulated other comprehensive income (loss). |
| Note 10. | Retirement Plan and Supplemental Retirement Plans |
Substantially all employees are covered by a noncontributory
retirement plan. The plan provides benefits based on a formula
of each participant’s final average pay. On June 24,
2009, the Compensation Committee of the Board of Directors of
the Corporation resolved that effective December 31, 2009,
the benefits under the noncontributory retirement plan, in its
current form, would be frozen and the current plan would be
amended and converted to a cash balance plan under which
employees would continue to receive future benefits in
accordance with the provisions of the cash balance plan.
Additionally,
79
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
participation in the plan was frozen to new entrants effective
December 7, 2009. The Corporation also provides
supplemental executive retirement benefits, a portion of which
is in excess of limits imposed on qualified plans by federal tax
law. These plans are non-qualified benefit plans. Information on
these plans are aggregated and reported under “Retirement
Plans” within this footnote.
The Corporation also provides certain postretirement healthcare
and life insurance benefits for retired employees. Information
on these benefits is reported under “Other Postretirement
Benefits” within this footnote.
The Corporation sponsors a 401(k) deferred salary savings plan,
which is a qualified defined contribution plan, and which covers
all employees of the Corporation and its subsidiaries, and
provides that the Corporation makes matching contributions as
defined by the plan. Expense recorded by the Corporation for the
401(k) deferred salary savings plan for the years ended
December 31, 2009, 2008 and 2007 was $536 thousand, $493
thousand and $507 thousand, respectively.
Information with respect to the Retirement and Supplemental
Retirement Plans and Other Postretirement Benefits follows:
|
Other
|
||||||||||||||||
|
Postretirement
|
||||||||||||||||
| Retirement Plans | Benefits | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 36,405 | $ | 30,425 | $ | 1,486 | $ | 1,319 | ||||||||
|
Service cost
|
1,407 | 1,209 | 68 | 47 | ||||||||||||
|
Interest cost
|
1,964 | 1,868 | 91 | 75 | ||||||||||||
|
Plan amendment
|
(2,726 | ) | — | — | — | |||||||||||
|
Actuarial (gain) loss
|
(76 | ) | 4,906 | 72 | 134 | |||||||||||
|
Benefits paid
|
(1,989 | ) | (2,003 | ) | (81 | ) | (89 | ) | ||||||||
|
Benefit obligation at end of year
|
$ | 34,985 | $ | 36,405 | $ | 1,636 | $ | 1,486 | ||||||||
|
Change in plan assets:
|
||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 19,422 | $ | 23,452 | $ | — | $ | — | ||||||||
|
Actual return on plan assets
|
3,543 | (4,342 | ) | — | — | |||||||||||
|
Benefits paid
|
(1,989 | ) | (2,003 | ) | (81 | ) | (89 | ) | ||||||||
|
Employer contribution and non-qualified benefit payments
|
630 | 2,315 | 81 | 89 | ||||||||||||
|
Fair value of plan assets at end of year
|
21,606 | 19,422 | — | — | ||||||||||||
|
Funded status
|
(13,379 | ) | (16,983 | ) | (1,636 | ) | (1,486 | ) | ||||||||
|
Unrecognized net actuarial loss
|
13,128 | 16,123 | 333 | 285 | ||||||||||||
|
Unrecognized prior service (costs) benefits
|
(2,531 | ) | 243 | (88 | ) | (109 | ) | |||||||||
|
Net amount recognized
|
$ | (2,782 | ) | $ | (617 | ) | $ | (1,391 | ) | $ | (1,310 | ) | ||||
80
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Information for the pension plans with an accumulated benefit
obligation in excess of plan assets:
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Projected benefit obligation
|
$ | 28,896 | $ | 30,886 | ||||
|
Accumulated benefit obligation
|
26,615 | 26,615 | ||||||
|
Fair value of plan assets
|
21,606 | 19,422 | ||||||
The retirement benefit cost includes the following components:
|
Other
|
||||||||||||||||||||||||
|
Postretirement
|
||||||||||||||||||||||||
| Retirement Plans | Benefits | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
Service cost
|
$ | 1,407 | $ | 1,209 | $ | 1,290 | $ | 68 | $ | 47 | $ | 61 | ||||||||||||
|
Interest cost
|
1,964 | 1,868 | 1,763 | 91 | 75 | 76 | ||||||||||||||||||
|
Expected return on plan assets
|
(1,545 | ) | (1,872 | ) | (1,798 | ) | — | — | — | |||||||||||||||
|
Amortization of net loss
|
899 | 358 | 366 | 25 | 3 | 6 | ||||||||||||||||||
|
Amortization (accretion) of prior service cost
|
47 | 46 | (43 | ) | (20 | ) | (20 | ) | (20 | ) | ||||||||||||||
|
Net periodic benefit cost
|
$ | 2,772 | $ | 1,609 | $ | 1,578 | $ | 164 | $ | 105 | $ | 123 | ||||||||||||
|
Other
|
||||||||
|
Retirement
|
Postretirement
|
|||||||
|
Expected amortization expense for 2010:
|
Plans | Benefits | ||||||
|
Amortization (accretion) of net loss (gain)
|
$ | (676 | ) | $ | (39 | ) | ||
|
Amortization (accretion) of prior service cost
|
167 | 20 | ||||||
During 2010, the Corporation expects to contribute approximately
$471 thousand to the Retirement Plans and approximately $202
thousand to Other Postretirement Benefits.
The following benefit payments, which reflect an expected future
service, as appropriate, are expected to be paid:
|
Other
|
||||||||
|
Retirement
|
Postretirement
|
|||||||
|
For the fiscal year ending:
|
Plans | Benefits | ||||||
|
2010
|
$ | 2,165 | $ | 97 | ||||
|
2011
|
2,310 | 105 | ||||||
|
2012
|
2,487 | 112 | ||||||
|
2013
|
2,648 | 123 | ||||||
|
2014
|
2,703 | 126 | ||||||
|
Years
2015-2019
|
13,092 | 710 | ||||||
Weighted-average assumptions used to determine benefit
obligations at December 31, 2009 and 2008 were as follows:
|
Other
|
||||||||
|
Retirement
|
Postretirement
|
|||||||
| Plans | Benefits | |||||||
|
Expected amortization expense for 2010
|
$ | (47 | ) | $ | 20 | |||
81
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
|
Other Postretirement
|
||||||||||||||||
| Retirement Plans | Benefits | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Assumed discount rate for obligation
|
5.9 | % | 5.9 | % | 6.0 | % | 5.9 | % | ||||||||
|
Assumed salary increase rate
|
3.0 | % | 5.1 | % | — | — | ||||||||||
Weighted-average assumptions used to determine net periodic
costs for the years ended December 31, 2009 and 2008 were
as follows:
|
Other
|
||||||||||||||||
|
Postretirement
|
||||||||||||||||
| Retirement Plans | Benefits | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Assumed discount rate for obligation
|
5.9 | % | 6.2 | % | 5.9 | % | 6.5 | % | ||||||||
|
Assumed long-term rate of investment return
|
8.0 | 8.0 | — | — | ||||||||||||
|
Assumed salary increase rate
|
5.1 | 5.1 | — | — | ||||||||||||
The discount rate was determined utilizing the Citigroup Pension
Discount Curve. Historical investment returns is the basis used
to determine the overall expected long-term rate of return on
assets.
|
Assumed Health Care Cost Trend Rates
|
2009 | 2008 | 2007 | |||||||||
|
Health care cost trend rate assumed for next year
|
6.5 | % | 6.5 | % | 6.5 | % | ||||||
|
Rate to which the cost trend rate is assumed to decline
|
5.0 | 5.0 | 5.0 | |||||||||
|
Year that the rate reaches the ultimate rate
|
2011 | 2010 | 2009 | |||||||||
Assumed health care cost trend rates have a significant effect
on the amounts reported for health care plans. A
one-percentage-point change in the assumed health care cost
trend rates would have the following effects:
| One Percentage Point | ||||||||
| Increase | Decrease | |||||||
|
Effect on total of service and interest cost components
|
$ | 5 | $ | (5 | ) | |||
|
Effect on postretirement benefit obligation
|
60 | (5 | ) | |||||
The Corporation’s pension plan asset allocation at
December 31, 2009 and 2008, by asset category was as
follows:
|
Percentage of Plan
|
||||||||
| Assets at December 31, | ||||||||
|
Asset Category:
|
2009 | 2008 | ||||||
|
Equity securities
|
50 | % | 44 | % | ||||
|
Debt securities
|
44 | 49 | ||||||
|
Other
|
6 | 7 | ||||||
|
Total
|
100 | % | 100 | % | ||||
Plan assets include marketable equity securities, corporate and
government debt securities, and certificates of deposit. The
investment strategy is to keep a 50%-equity-to-50%-fixed-income
mix to achieve the overall expected long-term rate of return of
8.0%. Equity securities do not include any common stock of the
Corporation.
82
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
The major categories of assets in the Corporation’s pension
plan as of year-end are presented in the following table. Assets
are segregated by the level of the valuation inputs within the
fair value hierarchy described in Note 18, “Fair Value
Disclosures.”
|
Fair Value
|
||||||||
| Measurements at December 31, | ||||||||
| 2009 | 2008 | |||||||
|
Level 1:
|
||||||||
|
Common stocks
|
$ | 8,666 | $ | 6,913 | ||||
|
Mutual funds
|
2,968 | 2,408 | ||||||
|
Short-term investments
|
1,324 | 1,379 | ||||||
|
Level 2:
|
||||||||
|
U.S. government obligations
|
2,156 | 3,018 | ||||||
|
Corporate bonds
|
4,219 | 3,800 | ||||||
|
Level 3:
|
||||||||
|
Certificates of deposit
|
2,273 | 1,904 | ||||||
|
Total fair value of plan assets
|
$ | 21,606 | $ | 19,422 | ||||
The following table provides a reconciliation of the beginning
and ending balances for measurements in hierarchy Level 3
at December 31, 2009.
|
Total
|
Total
|
|||||||||||||||||||
|
Balance at
|
Unrealized
|
Realized
|
Purchases
|
Balance at
|
||||||||||||||||
|
December 31,
|
(Losses) or
|
Gains or
|
(Sales or
|
December 31,
|
||||||||||||||||
| 2008 | Gains | (Losses) | Paydowns) | 2009 | ||||||||||||||||
|
Certificates of deposit
|
$ | 1,904 | $ | — | $ | — | $ | 369 | $ | 2,273 | ||||||||||
|
Total Level 3 assets
|
$ | 1,904 | $ | — | $ | — | $ | 369 | $ | 2,273 | ||||||||||
| Note 11. | Long-Term Incentive Plan |
The Corporation has a shareholder-approved 2003 Long-Term
Incentive Plan under which the Corporation may grant options and
share awards to employees up to 1,500,000 shares of common
stock. The plan provides for the issuance of options to purchase
common shares at prices not less than 100 percent of the
fair market value at the date of option grant and have a
contractual term of ten years; and for restricted stock awards
valued at not less than 100 percent of the fair market
value at the date of award grant. For the majority of options
issued, after two years, 33.3 percent of the optioned
shares become exercisable in each of the following three years
and remain exercisable for a period not exceeding ten years from
the date of grant. For the majority of the restricted stock
awards, the restriction lapses over a
three-year
period at 33.3 percent per year. There were 967,639 common
shares available for future grants at December 31, 2009
under the plan. At December 31, 2009 there were 405,532
options to purchase common stock and 56,024 unvested restricted
stock awards outstanding under the plan.
83
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Following is a summary of the status of options granted under
the 2003 Long-term Incentive Plan during 2009:
|
Weighted
|
Weighted
|
Aggregate
|
||||||||||||||
|
Average
|
Average
|
Intrinsic
|
||||||||||||||
|
Shares
|
Exercise
|
Remaining
|
Value at
|
|||||||||||||
|
Under
|
Price per
|
Contractual
|
December 31,
|
|||||||||||||
| Option | Share | Life (Years) | 2009 | |||||||||||||
|
Outstanding at December 31, 2008
|
391,115 | $ | 23.51 | |||||||||||||
|
Granted
|
25,500 | 22.38 | ||||||||||||||
|
Expired
|
(5,450 | ) | 25.92 | |||||||||||||
|
Forfeited
|
(1,500 | ) | 22.90 | |||||||||||||
|
Exercised
|
(4,133 | ) | 26.88 | |||||||||||||
|
Outstanding at December 31, 2009
|
405,532 | 23.37 | 6.9 | $ | — | |||||||||||
|
Exercisable at December 31, 2009
|
208,204 | 25.38 | 5.6 | — | ||||||||||||
The total intrinsic values of options exercised during 2009,
2008 and 2007 were $25 thousand, $1.1 million and $606
thousand, respectively. The Corporation has a
stock-for-stock-option
exchange (or cashless exercise) program in place, whereby
optionees can exchange the value of the spread of
in-the-money
vested options for Corporation stock having an equivalent value.
This exchange allows the optionees to exercise their vested
options on a net basis without having to pay the exercise price
and or related taxes in cash. However, it will result in the
executives acquiring fewer shares than the number of options
exercised. During 2009, optionees exchanged 1,586 shares,
net shares acquired amounted to 2,547 common shares.
The Corporation’s estimate of the fair value of a stock
option is based on expectations derived from historical
experience and may not necessarily equate to its market value
when fully vested. The life of the option is based on historical
factors which include the contractual term, vesting period,
exercise behavior and employee turnover. The risk-free rate for
periods within the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
Expected volatility is based on the historical volatility of the
Corporation’s stock over the expected life of the grant.
The Corporation uses a straight-line accrual method to recognize
stock-based compensation expense over the time-period it expects
the options to vest.
The Corporation recognizes compensation expense for stock
options over the requisite service period based on the
grant-date fair value of those awards expected to ultimately
vest. Forfeitures are estimated on the date of grant and revised
if actual or expected forfeiture activity differs materially
from original estimates. The following aggregated assumptions
were made for options granted during fiscal years 2009 and 2007;
there were no options granted in 2008:
|
For the Years Ended
|
||||||||||||
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Expected option life in years
|
7.8 | — | 7.1 | |||||||||
|
Risk free interest rate
|
2.34 | % | — | 3.70 | % | |||||||
|
Expected dividend yield
|
3.60 | % | — | 3.79 | % | |||||||
|
Expected volatility
|
45.95 | % | — | 25.76 | % | |||||||
|
Fair value of options
|
$ | 7.67 | — | $ | 4.25 | |||||||
84
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Following is a summary of nonvested restricted stock awards as
of December 31, 2009 including changes during the year:
|
Weighted
|
||||||||
|
Nonvested
|
Average
|
|||||||
|
Share
|
Grant Date
|
|||||||
| Awards | Fair Value | |||||||
|
Nonvested share awards at December 31, 2008
|
14,918 | $ | 22.61 | |||||
|
Granted
|
47,191 | 23.08 | ||||||
|
Vested
|
(6,085 | ) | 21.85 | |||||
|
Forfeited
|
— | — | ||||||
|
Nonvested share awards at December 31, 2009
|
56,024 | 23.09 | ||||||
The fair value of restricted stock is equivalent to the fair
value on the date of grant and is amortized over the vesting
period. The fair value of the restricted stock awards granted
during 2009, 2008 and 2007 was $23.08, $26.00 and $21.12 per
share, respectively. The total intrinsic value of restricted
stock awards that vested during 2009, 2008 and 2007 was $112
thousand, $229 thousand and $21 thousand, respectively. As of
December 31, 2009 and 2008, there was $1.3 million and
$337 thousand, respectively, in total unrecognized compensation
expense related to nonvested share-based compensation
arrangements, which is expected to be recognized over a weighted
average period of 2.3 years and 2.7 years,
respectively.
During the years ended December 31, 2009, 2008 and 2007,
the Corporation recognized stock-based compensation expense of
$376 thousand, $449 thousand and $420 thousand, respectively, on
stock options; $445 thousand, $184 thousand and $22 thousand
during 2009, 2008 and 2007, respectively, on restricted stock
awards; and $32 thousand, $28 thousand and $26 thousand during
2009, 2008 and 2007, respectively, on the Employee Stock
Purchase Plan. During the years ended December 31, 2009,
2008 and 2007, the Corporation recognized a tax benefit on
nonqualified stock option expense and restricted stock awards of
$171 thousand, $125 thousand and $47 thousand, respectively.
During the years ended December 31, 2008 and 2007, the
Corporation accelerated the vesting of 5,000, and 5,150 options,
respectively as permitted under the plan upon retirement. The
accelerated options became exercisable upon the date of
retirement and are exercisable up to a two-year period
post-retirement; however incentive stock options become
nonqualified after
90-days
post-retirement. As a result of these modifications, additional
compensation expense of $38 thousand and $33 thousand was
recognized for the years ended December 31, 2008 and 2007,
respectively. During the year ended December 31, 2008, the
Corporation accelerated the vesting of 2,500 restricted stock
awards as permitted under the plan upon retirement. As a result
of this modification, additional compensation expense of $53
thousand was recognized in 2008. There were no modifications or
accelerations to options or restricted stock awards during 2009.
During the years ended December 31, 2009, 2008 and 2007,
cash proceeds from the exercise of stock options were $93
thousand, $1.8 million and $742 thousand, respectively; the
tax benefit recognized and recorded to additional paid in
capital was $0, $210 thousand and $121 thousand, respectively.
The Corporation typically issues shares for stock options
exercises and grants of restricted stock awards from its
Treasury Stock.
85
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 12. | Time Deposits |
The aggregate amount of time deposits in denominations of $100
thousand or more was $128.7 million at December 31,
2009 and $141.1 million at December 31, 2008, with
interest expense of $4.4 million for 2009 and
$4.8 million for 2008.
At December 31, 2009, the scheduled maturities of time
deposits in denominations of $100 thousand or more are as
follows:
|
Due in 2010
|
$ | 102,601 | ||
|
Due in 2011
|
9,283 | |||
|
Due in 2012
|
6,532 | |||
|
Due in 2013
|
871 | |||
|
Due in 2014
|
4,012 | |||
|
Thereafter
|
5,431 | |||
|
Total
|
$ | 128,730 | ||
| Note 13. | Borrowings |
At December 31, 2009 and 2008 long-term borrowings
consisted of the following:
| Balance | Interest Rate | |||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | Maturity | ||||||||||||||
|
Federal Home Loan Bank Advances*
|
$ | 5,000 | $ | 92,000 | 3.75 | % | 4.31 | % | January 2013 | |||||||||
|
Subordinated Term Loan Note
|
1,625 | 2,250 | 1.64 | % | 3.31 | % | April 2013 | |||||||||||
|
Subordinated Term Loan Note
|
3,250 | 4,500 | 1.64 | % | 3.31 | % | May 2013 | |||||||||||
|
Trust Preferred Securities
|
20,619 | 20,619 | 3.33 | % | 7.87 | % | October 2033 | |||||||||||
| $ | 30,494 | $ | 119,369 | |||||||||||||||
| * | Federal Home Loan Bank (FHLB) Advances are calculated at a weighted average rate and do not include the fair value adjustment of $190 thousand and $637 thousand at December 31, 2009 and 2008, respectively, recorded on debt assumed through the 2003 acquisitions. There were $87.0 million of FHLB Advances reclassed during 2009 to short-term borrowing as the maturities become less than one year |
The contractual maturities of long-term borrowings as of
December 31, 2009 are as follows:
|
Due in 2010
|
$ | 1,125 | ||
|
Due in 2011
|
1,500 | |||
|
Due in 2012
|
1,500 | |||
|
Due in 2013
|
5,750 | |||
|
Due in 2014
|
— | |||
|
Thereafter
|
20,619 | |||
| $ | 30,494 | |||
Advances from the FHLB are collateralized by Federal Home Loan
Bank stock and substantially all first mortgage loans of the
Bank. As a result of the acquisitions of First County Bank and
Suburban Community Bank, $18.0 million in FHLB advances
were assumed. The net carrying value of the fair value
86
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
adjustment of the assumed advances was $190 thousand at
December 31, 2009. The Corporation, through the Bank, has
short-term and long-term credit facilities with the FHLB with a
maximum borrowing capacity of approximately $374.1 million.
At December 31, 2009, the Bank’s outstanding
short-term and long-term borrowings under the FHLB credit
facilities totaled $92.0 million. The maximum borrowing
capacity changes as a function of the Bank’s qualifying
collateral assets and the amount of funds received may be
reduced by additional required purchases of FHLB stock. Included
in the $92.0 million of outstanding FHLB borrowings are
$32.0 million of convertible advances whereby the FHLB has
the option at a pre-determined time to convert the fixed
interest rate to an adjustable rate tied to three-month
U.S. London Interbank Borrowing Rate (“LIBOR”).
The Bank has the option to prepay these advances without penalty
if the rate on these borrowings is converted and on each
quarterly reset date thereafter. Management does not believe
that conversion is likely unless short-term interest rates
increase several hundred basis points.
The Corporation secured two subordinated term loan notes during
the second quarter of 2003. The first note was issued for
$5.0 million at the fixed rate of 5.5% per annum. This note
converted to a floating rate in second quarter 2008 based upon
the one-month LIBOR plus 1.40% per annum. Quarterly principal
and interest payments are made on this note. The second note was
issued for $10.0 million at a floating rate based upon the
one-month LIBOR plus 1.40% per annum. Quarterly principal and
interest payments are made on this note. Both of these notes
mature in second quarter 2013. At December 31, 2009 and
2008, the outstanding balance of these notes was
$4.9 million and $6.8 million, respectively.
On August 27, 2003, the Corporation issued
$20.0 million of Capital Securities of Univest Capital
Trust I, a Delaware statutory trust formed by the
Corporation. This issuance constitutes Trust Preferred
Securities, which were completed through a placement in Junior
Subordinated Debentures of the Corporation. The deconsolidation
of Univest Capital Trust I increased the carrying amount of
the Trust Preferred Securities by $619 thousand. The
30-year
term
securities were issued on a variable rate based upon the
published LIBOR rate plus 3.05% per annum. The initial interest
rate of the securities was 4.19% and is callable by Univest at
par in whole or in part after five years. Quarterly interest
payments are made on this note. At December 31, 2009, the
$20.6 million in Trust Preferred Securities qualified
as Tier 1 capital under capital guidelines of the Federal
Reserve. The proceeds from the Trust Preferred Securities
were used to support the future growth of the Corporation and
its banking subsidiary, the Bank.
The Bank maintains federal fund credit lines with several
correspondent banks totaling $82.0 million and
$77.0 million at December 31, 2009 and 2008,
respectively. Outstanding borrowings under these lines totaled
$54.0 million at December 31, 2008; there was no
outstanding balance at December 31, 2009. Future
availability under these lines is subject to the prerogatives of
the granting banks and may be withdrawn at will.
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 December 31, 2009 and 2008, the
Corporation had no outstanding borrowings from this line.
The following table details key information pertaining to
securities sold under agreement to repurchase on an overnight
basis for the periods indicated:
| 2009 | 2008 | 2007 | ||||||||||
|
Balance at December 31
|
$ | 95,624 | $ | 81,230 | $ | 94,276 | ||||||
|
Weighted average interest rate at year end
|
0.50 | % | 0.49 | % | 1.80 | % | ||||||
|
Maximum amount outstanding at any month’s end
|
$ | 133,140 | $ | 92,962 | $ | 94,276 | ||||||
|
Average amount outstanding during the year
|
$ | 91,390 | $ | 84,254 | $ | 86,641 | ||||||
|
Weighted average interest rate during the year
|
0.60 | % | 1.12 | % | 2.30 | % | ||||||
87
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 14. | Earnings per Share |
The following table sets forth the computation of basic and
diluted earnings per share:
|
For the Years Ended December 31,
|
2009 | 2008 | 2007 | |||||||||
|
Numerator:
|
||||||||||||
|
Numerator for basic and diluted earnings per share —
income available to common shareholders
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
|
Denominator:
|
||||||||||||
|
Denominator for basic earnings per share —
weighted-average shares outstanding
|
14,347 | 12,873 | 12,885 | |||||||||
|
Effect of dilutive securities:
|
||||||||||||
|
Employee stock options
|
— | 22 | 26 | |||||||||
|
Denominator for diluted earnings per share — adjusted
weighted-average shares outstanding
|
14,347 | 12,895 | 12,911 | |||||||||
|
Basic earnings per share
|
$ | 0.75 | $ | 1.60 | $ | 1.98 | ||||||
|
Diluted earnings per share
|
$ | 0.75 | $ | 1.60 | $ | 1.98 | ||||||
Anti-dilutive options have been excluded in the computation of
diluted earnings per share because the options’ exercise
prices were greater than the average market price of the common
stock. For 2009, 2008 and 2007, there were 406,615, 88,267 and
232,204 anti-dilutive options at an average price of $23.45,
$28.26, and $25.96, per share, respectively.
| Note 15. | Comprehensive Income and Accumulated Other Comprehensive Loss |
The following shows the components of comprehensive income, net
of income taxes, for the periods presented:
| For the Years Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Net Income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
|
Net unrealized gains (losses) on
available-for-sale
investment securities:
|
||||||||||||
|
Net unrealized gains (losses) arising during the period
|
2,730 | (249 | ) | 2,356 | ||||||||
|
Less: reclassification adjustment for net gains on sales
realized in net income
|
748 | 182 | 283 | |||||||||
|
Less: reclassification adjustment for
other-than-temporary
impairment on equity securities realized in net income
|
(1,110 | ) | (813 | ) | — | |||||||
|
Total net unrealized gains on
available-for-sale
investment securities
|
3,092 | 382 | 2,073 | |||||||||
|
Net change in fair value of derivative used for cash flow hedges
|
1,299 | (149 | ) | — | ||||||||
|
Defined benefit pension plans:
|
||||||||||||
|
Net unrealized gains (losses) arising during the period
|
1,314 | (7,336 | ) | 534 | ||||||||
|
Less: amortization of net loss included in net periodic pension
costs
|
(601 | ) | (235 | ) | (242 | ) | ||||||
|
Prior service costs (benefits) rising during the period
|
1,771 | 34 | (195 | ) | ||||||||
|
Less: (amortization) accretion of prior service cost included in
net periodic pension costs
|
(18 | ) | 17 | (41 | ) | |||||||
|
Total defined benefit pension plans
|
3,704 | (7,084 | ) | 622 | ||||||||
|
Total comprehensive income, net of tax
|
$ | 18,875 | $ | 13,739 | $ | 28,252 | ||||||
88
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
The following shows the components of accumulated other
comprehensive loss, net of income taxes, for the periods
presented:
|
Net
|
||||||||||||||||
|
Unrealized
|
Net
|
|||||||||||||||
|
(Losses)
|
Net Change
|
Change
|
||||||||||||||
|
Gains on
|
in Fair Value
|
Related to
|
||||||||||||||
|
Available for
|
of Derivative
|
Defined
|
Accumulated
|
|||||||||||||
|
Sale
|
Used for
|
Benefit
|
Other
|
|||||||||||||
|
Investment
|
Cash Flow
|
Pension
|
Comprehensive
|
|||||||||||||
| Securities | Hedges | Plan | Loss | |||||||||||||
|
Balance, December 31, 2006
|
$ | (174 | ) | $ | — | $ | (4,289 | ) | $ | (4,463 | ) | |||||
|
Net Change
|
2,073 | — | 622 | 2,695 | ||||||||||||
|
Balance, December 31, 2007
|
1,899 | — | (3,667 | ) | (1,768 | ) | ||||||||||
|
Net Change
|
382 | (149 | ) | (7,084 | ) | (6,851 | ) | |||||||||
|
Balance, December 31, 2008
|
2,281 | (149 | ) | (10,751 | ) | (8,619 | ) | |||||||||
|
Net Change
|
3,092 | 1,299 | 3,704 | 8,095 | ||||||||||||
|
Balance, December 31, 2009
|
$ | 5,373 | $ | 1,150 | $ | (7,047 | ) | $ | (524 | ) | ||||||
| Note 16. | Commitments and Contingencies |
Loan commitments are made to accommodate the financial needs of
the Bank’s customers. The Bank offers commercial, mortgage,
and consumer credit products to their customers in the normal
course of business, which are detailed in Note 4. These
products represent a diversified credit portfolio and are
generally issued to borrowers within the Bank’s branch
office systems in eastern Pennsylvania. The ability of the
customers to repay their credit is, to some extent, dependent
upon the economy in the Bank’s market areas. Collateral is
obtained based on management’s credit assessment of the
customer.
Standby letters of credit commit the Bank to make payments on
behalf of customers when certain specified future events occur.
They primarily are issued to support commercial paper, medium
and long-term notes and debentures, including industrial revenue
obligations. The approximate term is usually one year but some
can be up to five years. Historically, substantially all standby
letters of credit expire unfunded. If funded the majority of the
letters of credit carry current market interest rates if
converted to loans. Because letters of credit are generally
unassignable by either the Bank or the borrower, they only have
value to the Bank and the borrower. The carrying amount is
recorded as unamortized deferred fees and any credit risk. As of
December 31, 2009, the maximum potential amount of future
payments under the standby letters of credit is
$61.1 million. The current carrying amount of the
contingent obligation is $303 thousand.
This arrangement has credit risk essentially the same as that
involved in extending loans to customers and is subject to the
Bank’s normal credit policies. Collateral is obtained based
on management’s credit assessment of the customer.
The Bank also controls their credit risk by limiting the amount
of credit to any business, institution, or individual.
Management evaluates the creditworthiness of the institution on
at least a quarterly basis in an effort to monitor its credit
risk associated with this concentration.
The Bank significantly grew its mortgage-banking business during
2009 and due to this growth increased its potential to have to
repurchase the mortgages due to errors in documentation and
underwriting. The exposure to repurchase these mortgages is
$139.9 million as of December 31, 2009. The Bank
maintains a reserve in other liabilities for sold mortgages that
may be repurchased. At December 31, 2009, the reserve for
sold mortgages was $28 thousand.
89
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Based on consultation with the Corporation’s legal counsel,
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.
The following schedule summarizes the Corporation’s
off-balance sheet financial instruments:
|
Contract/Notional
|
||||
| Amount | ||||
|
Financial instruments representing credit risk:
|
||||
|
Commitments to extend credit
|
$ | 445,731 | ||
|
Performance letters of credit
|
23,629 | |||
|
Financial standby letters of credit
|
37,487 | |||
|
Other letters of credit
|
197 | |||
As of December 31, 2009, the Corporation and its
subsidiaries were obligated under non-cancelable leases for
various premises and equipment. A summary of the future minimum
rental commitments under non-cancelable operating leases net of
related sublease revenue is as follows:
|
Year
|
Amount | |||
|
2010
|
$ | 1,781 | ||
|
2011
|
1,590 | |||
|
2012
|
1,337 | |||
|
2013
|
1,089 | |||
|
2014
|
781 | |||
|
Thereafter
|
2,164 | |||
|
Total
|
$ | 8,742 | ||
Rental expense charged to operations was $1.9 million,
$2.0 million and $1.8 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
| Note 17. | Derivative Instruments and Hedging Activities |
The Corporation may use interest-rate swap agreements to modify
the interest rate characteristics from variable to fixed or
fixed to floating in order to reduce the impact of interest rate
changes on future net interest income. The Corporation accounts
for its interest-rate swap contracts in cash flow and fair value
hedging relationships by establishing and documenting the
effectiveness of the instrument in offsetting the change in cash
flows or fair value of assets or liabilities that are being
hedged. To determine effectiveness, the Corporation performs an
analysis to identify if changes in fair value or cash flow of
the derivative correlate to the equivalent changes in the
forecasted interest receipts related to a specified hedged item.
Recorded amounts related to interest-rate swaps are included in
other assets or liabilities. The change in fair value of the
ineffective part of the instrument would need to be charged to
the statement of operations, potentially causing material
fluctuations in reported earnings in the period of the change
relative to comparable periods.
The Corporation’s credit exposure on interest rate swaps
includes fair value and any collateral that is held by a third
party. Changes in the fair value of derivative instruments
designated as hedges of future cash flows are recognized in
equity until the underlying forecasted transactions occur, at
which time the deferred gains and losses are recognized in
income. For a qualifying fair value hedge, the gain or loss on
the hedging instrument is recognized in earnings, and the change
in fair value on the hedge item to the
90
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
extent attributable to the hedged risk adjusts the carrying
amount of the hedge item and is recognized in earnings.
Derivative loan commitments represent agreements for delayed
delivery of financial instruments in which the buyer agrees to
purchase and the seller agrees to deliver, at a specified future
date, a specified instrument at a specified price or yield. The
Corporation’s derivative loan commitments are commitments
to sell loans secured by 1-to-4 family residential properties
whose predominant risk characteristic is interest rate risk. The
fair values of these derivative loan commitments are based upon
the estimated amount the Corporation would receive or pay to
terminate the contracts or agreements, taking into account
current interest rates and, when appropriate, the current
creditworthiness of the counterparties. At December 31,
2009, the notional amounts of interest rate locks with customers
and forward loan commitments were $11.6 million and
$13.3 million, respectively with fair values of $24
thousand and $132 thousand, respectively. At December 31,
2008, the notional amounts of interest rate locks with customers
and forward loan commitments were $2.1 million and
$2.7 million, respectively with fair values of $34 thousand
and negative $1 thousand, respectively.
On March 24, 2009, the Corporation entered into a
$22.0 million notional interest rate swap, which had been
classified as a fair value hedge on a real estate-commercial
loan. Under the terms of the swap agreement, the Corporation
pays a fixed rate of 6.49% and receives a floating rate which is
based on the one month U.S. London Interbank Borrowing Rate
(“LIBOR”) with a 357 basis point spread and a
termination date of April 1, 2019. The Corporation
performed an assessment of the hedge at inception. At
December 31, 2009, the interest rate swap had a positive
fair value of $1.2 million, of which $276 thousand was
ineffective, and is classified on the balance sheet as other
assets. The underlying commercial loan had a negative fair value
adjustment of $431 thousand which is classified on the balance
sheet as a component of loans and leases.
On December 23, 2008, the Corporation entered into a cash
flow hedge with a notional amount of $20.0 million that had
the effect of converting the variable rates on trust preferred
securities to a fixed rate. Under the terms of the swap
agreement, the Corporation pays a fixed rate of 2.65% and
receives a floating rate based on the three month LIBOR with a
termination date of January 7, 2019. The Corporation has
performed an assessment of the hedge at inception and determined
that this derivative is highly effective in offsetting the value
of the hedged item. At December 31, 2008, the interest rate
swap had a negative fair value of $229 thousand. The cash
payments on the interest rate swap of $377 thousand during 2009
was recorded as a component of interest expense on the income
statement. At December 31, 2009, the interest rate swap had
a positive fair value of $1.8 million, which is classified
on the balance sheet as a component of other assets, and was
determined to be highly effective in offsetting the value of the
hedged item. The fair value of the interest rate swap, net of
taxes, of $1.1 million is recorded as a component of
accumulated other comprehensive income on the balance sheet.
| Note 18. | Fair Value Disclosures |
Fair value is the price that would be received to sell an asset
or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date.
The Corporation determines the fair value of its financial
instruments based on the fair value hierarchy. The Corporation
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.
Three levels of inputs are used to measure fair value. A
financial instrument’s level within the fair value
hierarchy is based on the lowest level of input significant to
the fair value measurement.
91
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| • | 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. treasury 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 generally 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, certain commercial loans, mortgage servicing rights and derivative financial instruments. | |
| • | 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”) and certain ABS securities. |
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 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
instruments, which would generally be classified within
Level 2 of the valuation hierarchy, include
U.S. Government sponsored enterprises, certain MBS, CMOs,
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 CMO and certain ABS 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 Corporation’s loans held for sale are primarily
residential mortgage loans and are generally classified in
Level 2 due to the observable pricing data. Loans held for
sale at December 31, 2009 were carried at the lower of cost
or estimated fair value.
Mortgage
Servicing Rights
The Corporation estimates the fair value of Mortgage Servicing
Rights (“MSR’s”) 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. MSR’s are classified within
Level 2 of the valuation hierarchy. MSR’s are carried
at the lower of amortized cost or estimated fair value.
92
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Derivative
Financial Instruments
The fair values of derivative financial instruments are based
upon the estimated amount the Corporation would receive or pay
to terminate the contracts or agreements, taking into account
current interest rates and, when appropriate, the current
creditworthiness of the counterparties. Derivative financial
instruments are classified within Level 2 of the valuation
hierarchy.
The following table presents the assets and liabilities measured
at fair value on a recurring basis as of December 31, 2009
and 2008, classified using the fair value hierarchy:
| At December 31, 2009 | ||||||||||||||||
|
Assets/ Liabilities
|
||||||||||||||||
| Level 1 | Level 2 | Level 3 | at Fair Value | |||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||
|
U.S. government corporations and agencies
|
$ | — | $ | 119,992 | $ | — | $ | 119,992 | ||||||||
|
State and political subdivisions
|
— | 107,566 | — | 107,566 | ||||||||||||
|
Mortgage-backed securities
|
— | 101,289 | — | 101,289 | ||||||||||||
|
Commercial mortgage obligations
|
— | 74,282 | 5,172 | 79,454 | ||||||||||||
|
Asset-backed securities
|
— | — | 573 | 573 | ||||||||||||
|
Other securities
|
— | 9,144 | — | 9,144 | ||||||||||||
|
Equity securities
|
1,924 | — | — | 1,924 | ||||||||||||
|
Total
available-for-sale
securities
|
1,924 | 412,273 | 5,745 | 419,942 | ||||||||||||
|
Mortgage servicing rights
|
— | 1,437 | — | 1,437 | ||||||||||||
|
Interest rate swaps
|
— | 2,968 | — | 2,968 | ||||||||||||
|
Interest rate locks with customers
|
— | 24 | — | 24 | ||||||||||||
|
Forward loan commitments
|
— | 132 | — | 132 | ||||||||||||
|
Total assets
|
$ | 1,924 | $ | 416,834 | $ | 5,745 | $ | 424,503 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Liabilities
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Total liabilities
|
$ | — | $ | — | $ | — | $ | — | ||||||||
93
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| At December 31, 2008 | ||||||||||||||||
|
Assets/ Liabilities
|
||||||||||||||||
| Level 1 | Level 2 | Level 3 | at Fair Value | |||||||||||||
|
Assets:
|
||||||||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||
|
U.S. Treasury
|
$ | 5,862 | $ | — | $ | — | $ | 5,862 | ||||||||
|
U.S. government corporations and agencies
|
— | 98,844 | — | 98,844 | ||||||||||||
|
State and political subdivisions
|
— | 100,350 | — | 100,350 | ||||||||||||
|
Mortgage-backed securities
|
— | 129,908 | — | 129,908 | ||||||||||||
|
Commercial mortgage obligations
|
— | 74,865 | 5,340 | 80,205 | ||||||||||||
|
Asset-backed securities
|
— | — | 1,211 | 1,211 | ||||||||||||
|
Other securities
|
— | 11,610 | — | 11,610 | ||||||||||||
|
Equity securities
|
2,908 | — | — | 2,908 | ||||||||||||
|
Total
available-for-sale
securities
|
8,770 | 415,577 | 6,551 | 430,898 | ||||||||||||
|
Mortgage servicing rights
|
— | 418 | — | 418 | ||||||||||||
|
Interest rate locks with customers
|
— | 34 | — | 34 | ||||||||||||
|
Total assets
|
$ | 8,770 | $ | 416,029 | $ | 6,551 | $ | 431,350 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Interest rate swaps
|
$ | — | $ | 229 | $ | — | $ | 229 | ||||||||
|
Forward loan commitments
|
— | 1 | — | 1 | ||||||||||||
|
Total liabilities
|
$ | — | $ | 230 | $ | — | $ | 230 | ||||||||
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:
|
Total
|
Total
|
|||||||||||||||||||
|
Balance at
|
Unrealized
|
Realized
|
Purchases
|
Balance at
|
||||||||||||||||
|
December 31,
|
(Losses) or
|
Gains or
|
(Sales or
|
December 31,
|
||||||||||||||||
| 2008 | Gains | (Losses) | Paydowns) | 2009 | ||||||||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||||||
|
Asset-backed securities
|
$ | 1,211 | $ | 29 | $ | — | $ | (667 | ) | $ | 573 | |||||||||
|
Commercial mortgage obligations
|
5,340 | 1,057 | — | (1,225 | ) | 5,172 | ||||||||||||||
|
Total Level 3 assets
|
$ | 6,551 | $ | 1,086 | $ | — | $ | (1,892 | ) | $ | 5,745 | |||||||||
|
Total
|
Total
|
|||||||||||||||||||
|
Balance at
|
Unrealized
|
Realized
|
Purchases
|
Balance at
|
||||||||||||||||
|
December 31,
|
(Losses) or
|
Gains or
|
(Sales or
|
December 31,
|
||||||||||||||||
| 2007 | Gains | (Losses) | Paydowns) | 2008 | ||||||||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||||||
|
Asset-backed securities
|
$ | 1,995 | $ | (15 | ) | $ | — | $ | (769 | ) | $ | 1,211 | ||||||||
|
Commercial mortgage obligations
|
7,644 | (1,650 | ) | — | (654 | ) | 5,340 | |||||||||||||
|
Total Level 3 assets
|
$ | 9,639 | $ | (1,665 | ) | $ | — | $ | (1,423 | ) | $ | 6,551 | ||||||||
94
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
Realized gains or losses are recognized in the Consolidated
Statements of Income. There were no realized gains or losses
recognized on Level 3 assets during the years ended
December 31, 2009 or 2008.
The following table represents assets measured at fair value on
a non-recurring basis as of December 31, 2009. There were
no assets measured at fair value on a non-recurring basis as of
December 31, 2008.
|
Assets/Liabilities
|
||||||||||||||||
| Level 1 | Level 2 | Level 3 | at Fair Value | |||||||||||||
|
Acquired leases
|
$ | — | $ | — | $ | 3,796 | $ | 3,796 | ||||||||
|
Real estate-commercial loan
|
— | 16,569 | — | 16,569 | ||||||||||||
|
Impaired loans and leases
|
— | — | 35,685 | 35,685 | ||||||||||||
|
Other long-lived assets
|
— | 1,080 | — | 1,080 | ||||||||||||
|
Total assets
|
$ | — | $ | 17,649 | $ | 39,481 | $ | 57,130 | ||||||||
Acquired leases are measured at the time of acquisition and are
based on the fair value of the collateral securing these leases.
Acquired leases are classified within Level 3 of the
valuation hierarchy.
The fair value of the previously hedged real estate-commercial
loan (as discussed in Note 17) is based on a
discounted cash flow model which takes into consideration the
changes in market value due to changes in LIBOR. Commercial
loans are classified within Level 2 of the valuation
hierarchy.
Impaired loans and leases include those collateral-dependent
loans and leases for which the practical expedient was applied,
resulting in a fair-value adjustment to the loan or lease.
Impaired loans and leases are evaluated and valued at the time
the loan is identified as impaired, at the lower of cost or fair
value. Fair value is measured based on the value of the
collateral securing these loans less cost to sell and is
classified at a Level 3 in the fair value hierarchy. The
fair value of collateral is based on appraisals performed by
qualified licensed appraisers hired by the Corporation. During
2009, the carrying value of impaired loans and leases was
reduced by $1.4 million based on the fair value of the
underlying collateral, with an offset to the allowance for loan
and lease losses.
The fair value of long-lived assets is based upon readily
available market prices adjusted for underlying restrictions on
selling; therefore, long-lived assets are classified within
Level 2 of the valuation hierarchy.
Certain non-financial assets subject to measurement at fair
value on a non-recurring basis include goodwill and other
intangible assets. During 2009, there was no impairment of
goodwill or other intangible assets.
95
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
The following table represents the estimates of fair value of
financial instruments:
| At December 31, 2009 | At December 31, 2008 | |||||||||||||||
|
Carrying,
|
Carrying,
|
|||||||||||||||
|
Notional
|
Notional or
|
|||||||||||||||
|
or Contract
|
Fair
|
Contract
|
Fair
|
|||||||||||||
| Amount | Value | Amount | Value | |||||||||||||
|
Assets:
|
||||||||||||||||
|
Cash and short-term assets
|
$ | 68,597 | $ | 68,597 | $ | 40,066 | $ | 40,066 | ||||||||
|
Investment securities
|
420,045 | 420,050 | 432,266 | 432,330 | ||||||||||||
|
Loans held for sale
|
1,693 | 1,708 | 544 | 550 | ||||||||||||
|
Net loans and leases
|
1,401,182 | 1,459,568 | 1,436,774 | 1,502,733 | ||||||||||||
|
Interest rate swaps
|
42,000 | 2,968 | — | — | ||||||||||||
|
Liabilities:
|
||||||||||||||||
|
Deposits
|
1,564,257 | 1,542,882 | 1,527,328 | 1,539,879 | ||||||||||||
|
Short-term borrowings
|
183,379 | 185,139 | 192,730 | 192,730 | ||||||||||||
|
Long-term borrowings
|
30,684 | 31,248 | 120,006 | 124,084 | ||||||||||||
|
Interest rate swap
|
— | — | 20,000 | 229 | ||||||||||||
|
Off-Balance-Sheet:
|
||||||||||||||||
|
Commitments to extend credit
|
— | (935 | ) | — | (389 | ) | ||||||||||
The following methods and assumptions were used by the
Corporation in estimating its fair value disclosures for
financial instruments:
Cash and short-term assets:
The carrying
amounts reported in the balance sheets for cash and due from
banks, interest-earning deposits with other banks, and federal
funds sold and other short-term investments approximates those
assets’ fair values.
Investment securities:
Fair values for the
held-to-maturity
and
available-for-sale
investments securities are based on quoted market prices that
are available in an active market for identical instruments. 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.
Loans and leases:
The fair values for loans
are estimated using discounted cash flow analyses, using a
discount rate consisting of an appropriate risk free rate, as
well as components for credit risk, operating expense, and
embedded prepayment options. As permitted, the fair value of the
loans and leases are not based on the exits price concept as
discussed in the first paragraph of this note.
Deposit liabilities:
The fair values for
deposits with fixed maturities are estimated by discounting the
final maturity, and the fair values for non-maturity deposits
are established using a decay factor estimate of cash flows
based upon industry-accepted assumptions. The discount rate
applied to deposits consists of an appropriate risk free rate
and includes components for operating expense.
Short-term borrowings:
The carrying amounts of
securities sold under repurchase agreements, and fed funds
purchased approximate their fair values. Short-term FHLB
advances with embedded options are estimated using a discounted
cash flow analysis using a discount rate consisting of an
appropriate risk free rate, as well as operating expense, and
embedded prepayment options.
Long-term borrowings:
The fair values of the
Corporation’s long-term borrowings (other than deposits)
are estimated using a discounted cash flow analysis using a
discount rate consisting of an appropriate risk free rate, as
well as components for credit risk, operating expense, and
embedded prepayment options.
Off-balance-sheet instruments:
Fair values for
the Corporation’s off-balance-sheet instruments are based
on the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and
the counterparties’ credit standing.
96
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 19. | Common Stock Issuance |
On August 12, 2009, the Corporation completed its public
offering of 3,392,500 shares of common stock at a price of
$17.50 per share, including 442,500 shares of common stock
purchased by the underwriters pursuant to their over-allotment
option, which was exercised in full. The net proceeds of the
offering after deducting underwriting discounts and commissions
and offering expenses were approximately $55.6 million. As
a result of the stock issuance, common stock increased by
$17.0 million and additional paid-in capital increased by
$38.7 million.
| Note 20. | Regulatory Matters |
The Corporation and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct
material effect on the Corporation’s and Bank’s
financial statements. Capital adequacy guidelines, and
additionally for the Bank prompt corrective action regulations,
involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about
components, risk weighting and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Corporation and the Bank to
maintain minimum amounts and ratios (set forth in the following
table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of
Tier 1 capital (as defined) to average assets (as defined).
|
To Be Well-
|
||||||||||||||||||||||||
|
For Capital
|
Capitalized
|
|||||||||||||||||||||||
|
Adequacy
|
Under Prompt Corrective
|
|||||||||||||||||||||||
| Actual | Purposes | Action Provisions | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
|
As of December 31, 2009:
|
||||||||||||||||||||||||
|
Total Capital (to Risk-Weighted Assets):
|
||||||||||||||||||||||||
|
Consolidated
|
$ | 255,482 | 15.76 | % | $ | 129,711 | 8.00 | % | $ | 162,139 | 10.00 | % | ||||||||||||
|
Univest National Bank
|
241,177 | 15.13 | 127,502 | 8.00 | 159,377 | 10.00 | ||||||||||||||||||
|
Tier 1 Capital (to Risk-Weighted Assets):
|
||||||||||||||||||||||||
|
Consolidated
|
233,654 | 14.41 | 64,856 | 4.00 | 97,283 | 6.00 | ||||||||||||||||||
|
Univest National Bank
|
221,193 | 13.88 | 63,751 | 4.00 | 95,626 | 6.00 | ||||||||||||||||||
|
Tier 1 Capital (to Average Assets):
|
||||||||||||||||||||||||
|
Consolidated
|
233,654 | 11.46 | 81,539 | 4.00 | 81,539 | 4.00 | ||||||||||||||||||
|
Univest National Bank
|
221,193 | 10.97 | 80,666 | 4.00 | 80,666 | 4.00 | ||||||||||||||||||
|
As of December 31, 2008:
|
||||||||||||||||||||||||
|
Total Capital (to Risk-Weighted Assets):
|
||||||||||||||||||||||||
|
Consolidated
|
$ | 191,469 | 11.60 | % | 132,060 | 8.00 | % | $ | 165,075 | 10.00 | % | |||||||||||||
|
Univest National Bank
|
178,535 | 10.97 | 130,196 | 8.00 | 162,745 | 10.00 | ||||||||||||||||||
|
Tier 1 Capital (to Risk-Weighted Assets):
|
||||||||||||||||||||||||
|
Consolidated
|
175,801 | 10.65 | 66,030 | 4.00 | 99,045 | 6.00 | ||||||||||||||||||
|
Univest National Bank
|
165,267 | 10.16 | 65,098 | 4.00 | 97,647 | 6.00 | ||||||||||||||||||
|
Tier 1 Capital (to Average Assets):
|
||||||||||||||||||||||||
|
Consolidated
|
175,801 | 8.94 | 78,697 | 4.00 | 78,697 | 4.00 | ||||||||||||||||||
|
Univest National Bank
|
165,267 | 8.46 | 78,186 | 4.00 | 78,186 | 4.00 | ||||||||||||||||||
97
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
As of December 31, 2009 and December 31, 2008,
management believes that the Corporation and the Bank met all
capital adequacy requirements to which they are subject. The
Corporation, like other bank holding companies, currently is
required to maintain Tier 1 Capital and Total Capital (the
sum of Tier 1, Tier 2 and Tier 3 capital) equal
to at least 4.0% and 8.0%, respectively, of its total
risk-weighted assets (including various off-balance-sheet items,
such as standby letters of credit). The Bank, like other
depository institutions, is required to maintain similar capital
levels under capital adequacy guidelines. For a depository
institution to be considered “well capitalized” under
the regulatory framework for prompt corrective action, its
Tier 1 and Total Capital ratios must be at least 6.0% and
10.0% on a risk-adjusted basis, respectively. As of
December 31, 2009, the most recent notification from the
Office of Comptroller of the Currency and Federal Deposit
Insurance Corporation (“FDIC”) categorized the Bank as
“well capitalized” under the regulatory framework for
prompt corrective action. There are no conditions or events
since that notification that management believes have changed
the Bank’s category.
Dividend and
Other Restrictions
The primary source of the Corporation’s dividends paid to
its shareholders is from the earnings of its subsidiaries paid
to the Corporation in the form of dividends.
The approval of the Office of Comptroller of the Currency is
required for a national bank to pay dividends if the total of
all dividends declared in any calendar year exceeds the
Bank’s net profits (as defined) for that year combined with
its retained net profits for the preceding two calendar years.
Under this formula, the Bank can declare dividends in 2010
without approval of the Office of Comptroller of the Currency of
approximately $8.2 million plus an additional amount equal
to the Bank’s net profits for 2010 up to the date of any
such dividend declaration.
The Federal Reserve Act requires that extension of credit by the
Bank to certain affiliates, including Univest Corporation
(parent), be secured by readily marketable securities, that
extension of credit to any one affiliate be limited to 10% of
the Bank’s capital and surplus (as defined), and that
extensions of credit to all such affiliates be limited to 20% of
the Bank’s capital and surplus.
| Note 21. | Related Party Transactions |
At December 31, 2009, loans to directors and executive
officers of the Corporation and companies in which directors
have an interest (“Related Parties”) aggregated
$37.0 million. These loans have been made in the ordinary
course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the same
time for comparable transactions with customers and did not
involve more than the normal risk of collectability or present
other unfavorable terms.
The summary of activity for the past year is as follows:
|
Balance at
|
Amounts
|
Balance at
|
||||||||||
|
January 1, 2009
|
Additions | Collected | December 31, 2009 | |||||||||
|
$46,004
|
$75,258 | $84,260 | $37,002 | |||||||||
The Corporation paid $1.7 million and $3.6 million
during 2009 and 2008, respectively, to H. Mininger &
Son, Inc. for building expansion projects which were in the
normal course of business on substantially the same terms as
available for others. H. Ray Mininger, a director of the
Corporation, is secretary of H. Mininger & Son, Inc.
Deposits received from Related Parties as of December 31,
2009 were $9.8 million.
At December 31, 2009, the Bank had commitments to extend
credit to Related Parties of $17.9 million and standby and
commercial letters of credit for Related Parties of $872
thousand. These commitments have been made in the ordinary
course of business on substantially the same terms, including
interest
98
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
rates and collateral, as those prevailing at the same time for
comparable transactions with customers and did not involve more
than the normal risk of collectability or present other
unfavorable terms.
| Note 22. | Parent Company Financial Information |
Condensed financial statements of Univest, parent company only,
follow:
| At December 31, | ||||||||
| Balance Sheets | 2009 | 2008 | ||||||
|
Assets:
|
||||||||
|
Cash and balances due from financial institutions
|
$ | 86 | $ | 1,042 | ||||
|
Investments in securities
|
8,924 | 10,350 | ||||||
|
Investments in subsidiaries, at equity in net assets:
|
||||||||
|
Bank
|
266,026 | 208,580 | ||||||
|
Non-banks
|
21,458 | 21,426 | ||||||
|
Other assets
|
20,265 | 14,622 | ||||||
|
Total assets
|
$ | 316,759 | $ | 256,020 | ||||
|
Liabilities:
|
||||||||
|
Dividends payable
|
$ | 3,294 | $ | 2,586 | ||||
|
Other borrowings
|
755 | — | ||||||
|
Subordinated capital notes
|
4,875 | 6,750 | ||||||
|
Trust preferred securities
|
20,619 | 20,619 | ||||||
|
Other liabilities
|
19,409 | 22,858 | ||||||
|
Total liabilities
|
48,952 | 52,813 | ||||||
|
Shareholders’ equity
|
267,807 | 203,207 | ||||||
|
Total liabilities and shareholders’ equity
|
$ | 316,759 | $ | 256,020 | ||||
99
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| For the Years Ended December 31, | ||||||||||||
| Statements of Income | 2009 | 2008 | 2007 | |||||||||
|
Dividends from bank
|
$ | 12,482 | $ | 13,542 | $ | 15,985 | ||||||
|
Dividends from non-banks
|
1,190 | 1,200 | 1,200 | |||||||||
|
Other-than-temporary
impairment on equity securities
|
(1,708 | ) | (1,251 | ) | — | |||||||
|
Other-than-temporary
impairment on other long-lived assets
|
(500 | ) | — | — | ||||||||
|
Net (loss) gain on sales of securities
|
(28 | ) | 79 | 52 | ||||||||
|
Other income
|
14,014 | 13,325 | 13,380 | |||||||||
|
Total operating income
|
25,450 | 26,895 | 30,617 | |||||||||
|
Operating expenses
|
16,376 | 15,444 | 14,216 | |||||||||
|
Income before income tax benefit and equity in undistributed
(loss) income of subsidiaries
|
9,074 | 11,451 | 16,401 | |||||||||
|
Applicable income tax benefit
|
(1,745 | ) | (852 | ) | (178 | ) | ||||||
|
Income before equity in undistributed (loss) income of
subsidiaries
|
10,819 | 12,303 | 16,579 | |||||||||
|
Equity in undistributed (loss) income of subsidiaries:
|
||||||||||||
|
Bank
|
(71 | ) | 8,264 | 8,989 | ||||||||
|
Non-banks
|
32 | 23 | (11 | ) | ||||||||
|
Net income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
100
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| For the Years Ended December 31, | ||||||||||||
| Statements of Cash Flows | 2009 | 2008 | 2007 | |||||||||
|
Cash flows from operating activities:
|
||||||||||||
|
Net income
|
$ | 10,780 | $ | 20,590 | $ | 25,557 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Equity in undistributed net loss (income) of subsidiaries
|
39 | (8,287 | ) | (8,978 | ) | |||||||
|
Other-than-temporary
impairment on equity securities
|
1,708 | 1,251 | — | |||||||||
|
Other-than-temporary
impairment on other long-lived assets
|
500 | — | — | |||||||||
|
Net loss (gain) on sales of securities
|
28 | (79 | ) | (52 | ) | |||||||
|
Depreciation of premises and equipment
|
143 | 99 | 146 | |||||||||
|
Increase in other assets
|
(1,298 | ) | (1,013 | ) | (539 | ) | ||||||
|
(Decrease) increase in other liabilities
|
(820 | ) | (856 | ) | 2,466 | |||||||
|
Net cash provided by operating activities
|
11,080 | 11,705 | 18,600 | |||||||||
|
Cash flows from investing activities:
|
||||||||||||
|
Investments in subsidiaries
|
(55,000 | ) | (310 | ) | — | |||||||
|
Proceeds from sales of securities
|
5,989 | 5,702 | 4,553 | |||||||||
|
Purchases of investment securities
|
(7,000 | ) | (6,680 | ) | (6,631 | ) | ||||||
|
Other, net
|
(393 | ) | (126 | ) | — | |||||||
|
Net cash used in investing activities
|
(56,404 | ) | (1,414 | ) | (2,078 | ) | ||||||
|
Cash flows from financing activities:
|
||||||||||||
|
Net change in purchased funds and other short-term borrowings
|
(57 | ) | — | — | ||||||||
|
Repayment of long-term debt
|
(1,875 | ) | (1,500 | ) | (1,500 | ) | ||||||
|
Purchases of treasury stock
|
(370 | ) | (1,614 | ) | (7,498 | ) | ||||||
|
Proceeds from the issuance of common stock
|
55,597 | — | — | |||||||||
|
Stock issued under dividend reinvestment and employee stock
purchase plans
|
2,058 | 2,014 | 2,007 | |||||||||
|
Proceeds from exercise of stock options, including tax benefits
|
93 | 2,032 | 863 | |||||||||
|
Cash dividends paid
|
(11,078 | ) | (10,275 | ) | (10,344 | ) | ||||||
|
Net cash provided by (used in) financing activities
|
44,368 | (9,343 | ) | (16,472 | ) | |||||||
|
Net (decrease) increase in cash and due from financial
institutions
|
(956 | ) | 948 | 50 | ||||||||
|
Cash and due from financial institutions at beginning of year
|
1,042 | 94 | 44 | |||||||||
|
Cash and due from financial institutions at end of year
|
$ | 86 | $ | 1,042 | $ | 94 | ||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Cash paid during the year for:
|
||||||||||||
|
Interest
|
$ | 1,480 | $ | 1,810 | $ | 2,349 | ||||||
|
Income tax, net of refunds received
|
$ | 4,977 | $ | 7,791 | $ | 8,583 | ||||||
101
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA
Notes to
Consolidated Financial
Statements — (Continued)
| Note 23. | Quarterly Data (Unaudited) |
The unaudited results of operations for the quarters for the
years ended December 31, 2009 and 2008 were as follows:
| 2009 Quarterly Financial Data: | Fourth | Third | Second | First | ||||||||||||
|
Interest income
|
$ | 23,184 | $ | 24,244 | $ | 24,529 | $ | 24,402 | ||||||||
|
Interest expense
|
6,409 | 6,901 | 7,356 | 8,057 | ||||||||||||
|
Net interest income
|
16,775 | 17,343 | 17,173 | 16,345 | ||||||||||||
|
Provision for loan and lease losses
|
7,449 | 5,928 | 5,353 | 2,156 | ||||||||||||
|
Net interest income after provision for loan and lease losses
|
9,326 | 11,415 | 11,820 | 14,189 | ||||||||||||
|
Noninterest income
|
8,819 | 7,098 | 7,826 | 6,174 | ||||||||||||
|
Noninterest expense
|
17,468 | 15,563 | 16,790 | 15,503 | ||||||||||||
|
Income before income taxes
|
677 | 2,950 | 2,856 | 4,860 | ||||||||||||
|
Applicable income taxes
|
(845 | ) | 197 | 187 | 1,024 | |||||||||||
|
Net income
|
$ | 1,522 | $ | 2,753 | $ | 2,669 | $ | 3,836 | ||||||||
|
Per share data:
|
||||||||||||||||
|
Net income:
|
||||||||||||||||
|
Basic
|
$ | 0.09 | $ | 0.19 | $ | 0.21 | $ | 0.30 | ||||||||
|
Diluted
|
$ | 0.09 | $ | 0.19 | $ | 0.21 | $ | 0.30 | ||||||||
|
Dividends per share
|
$ | 0.20 | $ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||||
| 2008 Quarterly Financial Data: | Fourth | Third | Second | First | ||||||||||||
|
Interest income
|
$ | 26,455 | $ | 26,661 | $ | 26,935 | $ | 28,006 | ||||||||
|
Interest expense
|
9,630 | 10,148 | 10,370 | 12,162 | ||||||||||||
|
Net interest income
|
16,825 | 16,513 | 16,565 | 15,844 | ||||||||||||
|
Provision for loan and lease losses
|
2,427 | 3,046 | 2,297 | 999 | ||||||||||||
|
Net interest income after provision for loan and lease losses
|
14,398 | 13,467 | 14,268 | 14,845 | ||||||||||||
|
Noninterest income
|
5,328 | 5,564 | 7,979 | 7,744 | ||||||||||||
|
Noninterest expense
|
14,867 | 13,665 | 15,085 | 13,608 | ||||||||||||
|
Income before income taxes
|
4,859 | 5,366 | 7,162 | 8,981 | ||||||||||||
|
Applicable income taxes
|
1,054 | 1,176 | 1,288 | 2,260 | ||||||||||||
|
Net income
|
$ | 3,805 | $ | 4,190 | $ | 5,874 | $ | 6,721 | ||||||||
|
Per share data:
|
||||||||||||||||
|
Net income:
|
||||||||||||||||
|
Basic
|
$ | 0.30 | $ | 0.33 | $ | 0.46 | $ | 0.52 | ||||||||
|
Diluted
|
$ | 0.29 | $ | 0.33 | $ | 0.46 | $ | 0.52 | ||||||||
|
Dividends per share
|
$ | 0.20 | $ | 0.20 | $ | 0.20 | $ | 0.20 | ||||||||
102
Table of Contents
| Item 9. | Change in and Disagreements with Accountants on Accounting and Financial |
Disclosures
None.
| Item 9A. | Controls and Procedures |
Disclosure
Controls and Procedures
Management is responsible for the disclosure controls and
procedures of the Corporation. 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.
Management’s
Report on Internal Control over Financial Reporting
The Management of the Corporation is responsible for
establishing and maintaining adequate internal control over
financial reporting. The Corporation’s internal control
system is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s
internal control over financial reporting as of
December 31, 2009, using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control — Integrated Framework.
Based on this assessment, Management concluded that, as of
December 31, 2009, the Corporation’s internal control
over financial reporting is effective based on those criteria.
The Corporation’s financial information as shown in the
Annual Report
Form 10-K
for the Years 2009, 2008 and 2007 has been audited by KPMG LLP,
independent registered public accounting firm. KPMG LLP
presented the Corporation with unqualified opinions for these
years.
103
Table of Contents
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Univest Corporation of Pennsylvania:
We have audited Univest Corporation of Pennsylvania and
subsidiaries (the “Company”) internal control over
financial reporting as of December 31, 2009, based on
criteria established in
Internal Control —
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control — Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2009 and 2008, and the related consolidated
statements of income, changes in shareholders’ equity, and
cash flows for each of the years in the three-year period ended
December 31, 2009, and our report dated March 5, 2010
expressed an unqualified opinion on those consolidated financial
statements.
March 5, 2010
Philadelphia, PA
104
Table of Contents
| Item 9B. | Other Information |
None.
| Item 10. | Directors, Executive Officers and Corporate Governance |
Information required by Items 401, 405, 406 and 407(c)(3),
(d)(4) and (d)(5), of
Regulation S-K
is incorporated herein by reference from the Registrant’s
definitive proxy statement on Schedule 14A for the annual
meeting of shareholders on April 20, 2010 (“2010
Proxy”), under the headings: “Election of Directors
and Alternate Directors,” “Compliance with
Section 16(a) of the Securities Exchange Act of 1934,”
“The Board, the Board’s Committees and Their
Functions,” “Audit Committee,” “Board
Compensation Committee,” “Corporate Governance
Disclosure” and “Nominating and Governance
Committee.”
The Corporation has adopted a Code of Conduct for Directors and
a Code of Conduct for all officers and employees, which includes
the CEO and senior financial officers. The waiver reporting
requirement process was established in 2004 and there have been
no waivers. The codes of conduct are available on the
Corporation’s website. The Corporation’s website also
includes the charters for its audit committee, compensation
committee, and nominating and governance committee as well as
its corporate governance principles. These documents are located
on the Corporation’s website at www.univest.net in the
“Investors Section” under Governance Documents and are
also available to any person without charge by sending a request
to the Corporate Secretary at Univest Corporation, P. O. Box
64197, Souderton, PA 18964.
| Item 11. | Executive Compensation |
Information required by Item 402 and paragraphs (e)(4) and
(e)(5) of item 407 of
Regulation S-K
is incorporated herein by reference from the Registrant’s
2010 Proxy under the headings: “The Board, the Board’s
Committees and Their Functions,” “Executive and
Director Compensation,” and “Compensation Committee
Report.”
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matter |
Information required by Items 201(d) and 403 of
Regulation S-K
is incorporated herein by reference from the Registrant’s
2010 Proxy under the heading, “Beneficial Ownership of
Directors and Officers.”
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Information required by Items 404 and 407(a) of
Regulation S-K
is incorporated herein by reference from the Registrant’s
2010 Proxy under the headings, “The Board, the Board’s
Committees and Their Functions” and “Related Party
Transactions.”
| Item 14. | Principal Accountant Fees and Services |
Information required by Item 9(e) of Schedule 14A is
incorporated herein by reference from the Registrant’s 2010
Proxy under the headings: “Audit Committee” and
“Independent Registered Public Accounting Firm Fees.”
105
Table of Contents
| Item 15. | Exhibits and Financial Statement Schedules |
(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) Exhibits — The response to this portion of
item 15 is submitted as a separate section.
(c) Financial Statement Schedules — none.
106
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
[Item 15(a)
1. & 2.]
|
Annual Report
|
||||
|
to Shareholders
|
Page | |||
|
Report of Independent Registered Public Accounting Firm
|
55 | |||
|
Consolidated balance sheets at December 31, 2009 and 2008
|
56 | |||
|
Consolidated statements of income for each of the three years in
the period ended December 31, 2009
|
57 | |||
|
Consolidated statements of changes in shareholders’ equity
for each of the three years in the period ended
December 31, 2009
|
58 | |||
|
Consolidated statements of cash flows for each of the three
years in the period ended December 31, 2009
|
59 | |||
|
Notes to consolidated financial statements
|
60 | |||
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.
107
Table of Contents
UNIVEST
CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO
EXHIBITS
[Item 15(a)
3. and 15(b)]
|
Description
|
||
|
(3.1)
|
Amended and Restated Articles of Incorporation are incorporated by reference to Appendix A of Form DEF14A, filed with the Securities and Exchange Commission (the SEC) on March 9, 2006. | |
|
(3.2)
|
Amended By-Laws dated September 26, 2007 are incorporated by reference to Exhibit 3.2 of Form 8-K, filed with the SEC on September 27, 2007. | |
|
(10.1)
|
Univest 2003 Amended and Restated Long-term Incentive Plan is incorporated by reference to Appendix A of the Corporation’s Definitive Proxy Statement on Form DEF14A, File No. 000-07617, filed with the SEC on March 7, 2008. | |
|
(10.2)
|
Non-Qualified Pension Plan, including Split-dollar Agreement, for certain executive officers, incorporated by reference to Exhibit 10.2 of Form 10-K, filed with the SEC March 7, 2005. | |
|
(10.3)
|
Supplemental Retirement Plan incorporated by reference to Exhibit 10.3 of Form 10-K, filed with the SEC March 7, 2005. | |
|
(11)
|
Statement Re Computation of Per Share Earnings — is incorporated by reference from Footnote 14 in Item (8) of this Form 10-K. | |
|
(14)
|
Code of Ethics — is incorporated by reference from Item (10) of this Form 10-K. | |
|
(21)
|
Subsidiaries of the Registrant. | |
|
(23.1)
|
KPMG LLP — Consent of independent registered public accounting firm. | |
|
(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. | |
|
(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. | |
|
(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. | |
|
(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. |
| * | A certification furnished pursuant to this item will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. |
108
Table of Contents
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
Registrant
| By: |
/s/
Jeffrey
M. Schweitzer
|
Jeffrey M. Schweitzer
Executive Vice President and Chief Financial Officer,
(Principal Financial and Accounting Officer)
March 5, 2010
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:
|
Signature
|
Title
|
Date
|
||||
|
/s/
William
S. Aichele
|
Chairman, President, CEO and Director | March 4, 2010 | ||||
|
/s/
Marvin
A. Anders
|
Retired Chairman, Director | March 4, 2010 | ||||
|
/s/
Charles
H. Hoeflich
|
Chairman Emeritus | March 4, 2010 | ||||
|
/s/
R.
Lee Delp
|
Director | March 4, 2010 | ||||
|
/s/
William
G. Morral
|
Director | March 4, 2010 | ||||
|
/s/
Thomas
K. Leidy
|
Director | March 4, 2010 | ||||
|
/s/
H.
Paul Lewis
|
Director | March 4, 2010 | ||||
|
/s/
H.
Ray Mininger
|
Director | March 4, 2010 | ||||
|
/s/
Mark
A. Schlosser
|
Director | March 4, 2010 | ||||
|
/s/
P.
Greg Shelly
|
Director | March 4, 2010 | ||||
|
/s/
John
U. Young
|
Director | March 4, 2010 | ||||
|
/s/
K.
Leon Moyer
|
Vice Chairman | March 4, 2010 | ||||
109
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For The Registrant S Common Stock, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesPart OfItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1. Summary Of Significant Accounting PoliciesNote 2. Restrictions on Cash and Due From Bank AccountsNote 3. Investment SecuritiesNote 4. Loans and LeasesNote 5. Reserve For Loan and Lease LossesNote 6. Premises and EquipmentNote 7. Intangible AssetsNote 8. Accrued Interest and Other AssetsNote 9. Income TaxesNote 10. Retirement Plan and Supplemental Retirement PlansNote 11. Long-term Incentive PlanNote 12. Time DepositsNote 13. BorrowingsNote 14. Earnings Per ShareNote 15. Comprehensive Income and Accumulated Other Comprehensive LossNote 16. Commitments and ContingenciesNote 17. Derivative Instruments and Hedging ActivitiesNote 18. Fair Value DisclosuresNote 19. Common Stock IssuanceNote 20. Regulatory MattersNote 21. Related Party TransactionsNote 22. Parent Company Financial InformationNote 23. Quarterly Data (unaudited)Item 9. Change in and Disagreements with Accountants on Accounting and FinancialItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MatterItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement Schedules