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| UVSP > SEC Filings for UVSP > Form 10-Q on 8-Nov-2012 | All Recent SEC Filings |
8-Nov-2012
Quarterly Report
(All dollar amounts presented within tables are in thousands, except per share data. "BP" means "basis points"; "N/M" equates to "not meaningful"; "-" equates to "zero" or "doesn't round to a reportable number"; and "N/A" equates to "not applicable." Certain amounts have been reclassified to conform to the current-year presentation.)
Forward-Looking Statements
The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words "believe," "anticipate," "estimate," "expect," "project," "target," "goal" and similar expressions are intended to identify forward-looking statements within the meaning of section 27A of the Securities Act of 1933. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including those set forth below:
• Operating, legal and regulatory risks
• Economic, political and competitive forces impacting various lines of business
• The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful
• Volatility in interest rates
• Other risks and uncertainties, 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.
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, valuation of goodwill and other intangible assets, mortgage servicing rights, deferred tax assets and liabilities, benefit plans and stock-based compensation as areas with critical accounting policies. For more information on these critical accounting policies, please refer to the Corporation's 2011 Annual Report on Form 10-K.
General
Univest Corporation of Pennsylvania, (the Corporation), is a Bank Holding Company. It owns all of the capital stock of Univest Bank and Trust Co. (the Bank) and Univest Delaware, Inc. The Corporation's former subsidiary, Univest Reinsurance Corporation, was liquidated during the third quarter of 2012 and the net assets were transferred to the Corporation.
The Bank is engaged in the general commercial banking business and provides a full range of banking services and trust services to its customers. 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. 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.
Executive Overview
The Corporation's consolidated net income, earnings per share and returns on
average assets and average equity were as follows:
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2012 2011 Amount Percent 2012 2011 Amount Percent
(Dollars in thousands, except per
share data)
Net income $ 5,770 $ 5,244 $ 526 10 % $ 15,796 $ 13,622 $ 2,174 16 %
Net income per share:
Basic $ 0.34 $ 0.31 $ 0.03 10 $ 0.94 $ 0.81 $ 0.13 16
Diluted 0.34 0.31 0.03 10 0.94 0.81 0.13 16
Return on average assets 1.04 % 0.98 % 6 BP 6 0.96 % 0.87 % 9 BP 10
Return on average equity 8.19 % 7.55 % 64 BP 8 7.60 % 6.69 % 91 BP 14
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Net interest income on a tax-equivalent basis for the three months ended September 30, 2012 was down $654 thousand, or 3% compared to the same period in 2011. The third quarter 2012 net interest margin on a tax-equivalent basis was 3.84%, a decrease of 31 basis points from 4.15% for the third quarter of 2011. Net interest income on a tax-equivalent basis for the nine months ended September 30, 2012 was down $2.1 million or 3% compared to the same period in 2011. The tax equivalent net interest margin for the nine months ended September 30, 2012 was 3.92% compared to 4.21% for the same period in the prior year.
The provision for loan and lease losses decreased by $1.4 million and $6.7 million for the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011.
Non-interest income increased $1.9 million or 21% and $4.5 million or 18% during the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011. Non-interest expense increased $1.8 million or 10% and $6.1 million or 12% for the three and nine months ended September 30, 2012, respectively, compared to the same periods in 2011.
Gross loans and leases grew $23.1 million from December 31, 2011 and deposits grew $28.7 million from December 31, 2011.
Nonperforming loans and leases increased to $44.6 million at September 30, 2012 compared to $42.5 million at December 31, 2011. Nonperforming loans and leases were $42.6 million at September 30, 2011. Nonperforming loans and leases as a percentage of total loans and leases (held for investment and nonaccrual loans held for sale) were 3.03% at September 30, 2012 compared to 2.94% at December 31, 2011 and 2.96% at September 30, 2011. Net loan and lease charge-offs were $5.6 million for the three months ended September 30, 2012 compared to $5.2 million for the same period in the prior year. Net charge-offs for the nine months ended September 30, 2012 declined to $10.4 million compared to $14.2 million for the same period in the prior year. Charge-offs occurred primarily in the commercial, financial and agricultural and commercial real estate categories.
On May 31, 2012, the Corporation and its insurance subsidiary, Univest Insurance, Inc., completed the acquisition of the Javers Group, a full-service employee benefits agency that specializes in comprehensive human resource management, payroll and administrative services to businesses with 50 to 1,000 employees. The acquisition expands the Corporation's insurance and employee benefits business and further diversifies its solutions to include human resource consulting services and technology. The Corporation paid $3.2 million in cash at closing with additional contingent consideration to be paid in annual installments over the three-year period ended June 30, 2015 based on the achievement of certain levels of revenue. As of the acquisition date, the Corporation recorded the estimated fair value of the contingent payments of $842 thousand as additional goodwill and the liability is included in other liabilities. The potential cash payments that could result from the contingent consideration arrangement range from $0 thousand to a maximum of $1.7 million over the next three years. As a result of the Javers Group acquisition, the Corporation recorded goodwill of $3.1 million (inclusive of contingent consideration) and customer related intangibles of $989 thousand.
Details of the changes in the various components of net income and the balance sheet are further discussed in the sections that follow.
The Corporation earns its revenues primarily from the margins and fees it generates from loans and leases and depository services it provides as well as from trust 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. As interest rates increase, fixed-rate assets that banks hold will tend to decrease in value; conversely, as interest rates decline, fixed-rate assets that banks hold will tend to increase in value. The Corporation is in a more asset sensitive position; although interest rates are expected to remain low for the foreseeable future, it anticipates increasing interest rates over the longer term, which it expects would benefit its net interest margin.
The Corporation seeks to establish itself as the financial provider of choice in the markets it serves. It plans to achieve this goal by offering a broad range of high quality financial products and services and by increasing market awareness of its brand and the benefits that can be derived from its products. The Corporation operates in an attractive market for financial services but also is in intense competition with domestic and international banking organizations and other insurance and investment providers for the financial services business. The Corporation has taken initiatives to achieve its business objectives by acquiring banks and other financial service providers in strategic markets, through marketing, public relations and advertising, by establishing standards of service excellence for its customers, and by using technology to ensure that the needs of its customers are understood and satisfied.
Results of Operations
Net Interest Income
Net interest income is the difference between interest earned on loans and leases, investments and other interest-earning assets and interest paid on deposits and other interest-bearing liabilities. Net interest income is the principal source of the Corporation's revenue. Table 1 presents a summary of the Corporation's average balances, the tax-equivalent yields earned on average assets, and the cost of average liabilities, and shareholders' equity on a tax-equivalent basis for the three and nine months ended September 30, 2012 and 2011. The tax-equivalent net interest margin is tax-equivalent net interest income as a percentage of average interest-earning assets. The tax-equivalent net interest spread represents the difference between the weighted average tax-equivalent yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The effect of net interest free funding sources represents the effect on the net interest margin of net funding provided by noninterest-earning assets, noninterest-bearing liabilities and shareholders' equity. 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 Investment Asset/Liability Management Committee works to maintain an adequate and stable net interest margin for the Corporation.
Net interest income on a tax-equivalent basis for the three months ended September 30, 2012 decreased $654 thousand, or 3% compared to the same period in 2011. The tax-equivalent net interest margin for the three months ended September 30, 2012 decreased 31 basis points to 3.84% from 4.15% for the three months ended September 30, 2011. Net interest income on a tax-equivalent basis for the nine months ended September 30, 2012 decreased $2.1 million, or 3% compared to the same period in 2011. The tax-equivalent net interest margin for the nine months ended September 30, 2012 decreased 29 basis points to 3.92% from 4.21% for the nine months ended September 30, 2011. The declines in net interest income and the net interest margin were primarily due to the re-investment of maturing and called investment securities with lower yielding investments, as a result of the lower interest rate environment and lower rates on commercial loans (including real estate loans) due to re-pricing and competitive pressures. The decline in net interest income and net interest margin was partially offset by re-pricing of certificates of deposits and savings account products. During the three months ended September 30, 2012, the Corporation increased its investments in government agencies, treasuries and corporate bonds with longer duration maturities as interest rate protection in the prolonged low rate interest environment.
Table 1-Average Balances and Interest Rates-Tax-Equivalent Basis
Three Months Ended September 30,
2012 2011
Average Income/ Average Average Income/ Average
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
Assets:
Interest-earning deposits with
other banks $ 52,214 $ 45 0.34 % $ 46,109 $ 25 0.22 %
U.S. Government obligations 156,885 508 1.29 129,263 509 1.56
Obligations of states and political
subdivisions 121,612 1,696 5.55 112,935 1,720 6.04
Other debt and equity securities 196,026 846 1.72 167,178 1,347 3.20
Total interest-earning deposits and
investments 526,737 3,095 2.34 455,485 3,601 3.14
Commercial, financial and
agricultural loans 452,531 4,895 4.30 435,805 4,930 4.49
Real estate-commercial and
construction loans 525,143 6,804 5.15 528,936 7,308 5.48
Real estate-residential loans 256,297 2,616 4.06 247,332 2,684 4.31
Loans to individuals 42,991 602 5.57 42,358 594 5.56
Municipal loans and leases 129,651 1,748 5.36 132,494 1,919 5.74
Lease financings 59,284 1,415 9.50 58,419 1,456 9.89
Gross loans and leases 1,465,897 18,080 4.91 1,445,344 18,891 5.19
Total interest-earning assets 1,992,634 21,175 4.23 1,900,829 22,492 4.69
Cash and due from banks 50,875 57,572
Reserve for loan and lease losses (31,365 ) (34,104 )
Premises and equipment, net 34,002 34,257
Other assets 168,137 154,892
Total assets $ 2,214,283 $ 2,113,446
Liabilities:
Interest-bearing checking deposits $ 230,462 40 0.07 $ 210,499 57 0.11
Money market savings 331,425 121 0.15 291,830 167 0.23
Regular savings 514,205 187 0.14 483,341 349 0.29
Time deposits 348,675 1,276 1.46 394,509 1,597 1.61
Total time and interest-bearing
deposits 1,424,767 1,624 0.45 1,380,179 2,170 0.62
Short-term borrowings 104,110 33 0.13 104,469 96 0.36
Long-term debt - - - 5,000 48 3.81
Subordinated notes and capital
securities 21,732 301 5.51 23,240 307 5.24
Total borrowings 125,842 334 1.06 132,709 451 1.35
Total interest-bearing liabilities 1,550,609 1,958 0.50 1,512,888 2,621 0.69
Demand deposits, non-interest
bearing 346,687 292,273
Accrued expenses and other
liabilities 36,815 32,783
Total liabilities 1,934,111 1,837,944
Shareholders' Equity:
Common stock 91,332 91,332
Additional paid-in capital 61,327 61,473
Retained earnings and other equity 127,513 122,697
Total shareholders' equity 280,172 275,502
Total liabilities and shareholders'
equity $ 2,214,283 $ 2,113,446
Net interest income $ 19,217 $ 19,871
Net interest spread 3.73 4.00
Effect of net interest-free funding
sources 0.11 0.15
Net interest margin 3.84 % 4.15 %
Ratio of average interest-earning
assets to average interest-bearing
liabilities 128.51 % 125.64 %
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Nine Months Ended September 30,
2012 2011
Average Income/ Average Average Income/ Average
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
Assets:
Interest-earning deposits with
other banks $ 55,358 $ 121 0.29 % $ 24,076 $ 40 0.22 %
U.S. Government obligations 148,422 1,519 1.37 150,902 1,865 1.65
Obligations of states and political
subdivisions 119,634 5,092 5.69 110,730 5,153 6.22
Other debt and equity securities 192,833 3,069 2.13 169,453 4,403 3.47
Total interest-earning deposits and
investments 516,247 9,801 2.54 455,161 11,461 3.37
Commercial, financial and
agricultural loans 445,301 14,423 4.33 431,983 15,048 4.66
Real estate-commercial and
construction loans 529,778 20,741 5.23 542,926 21,958 5.41
Real estate-residential loans 251,035 7,818 4.16 245,889 8,082 4.39
Loans to individuals 43,803 1,856 5.66 42,428 1,817 5.73
Municipal loans and leases 133,557 5,450 5.45 128,202 5,529 5.77
Lease financings 57,708 4,244 9.82 61,000 4,442 9.74
Gross loans and leases 1,461,182 54,532 4.99 1,452,428 56,876 5.24
Total interest-earning assets 1,977,429 64,333 4.35 1,907,589 68,337 4.79
Cash and due from banks 41,152 41,205
Reserve for loan and lease losses (31,706 ) (33,506 )
Premises and equipment, net 34,231 34,393
Other assets 168,485 155,561
Total assets $ 2,189,591 $ 2,105,242
Liabilities:
Interest-bearing checking deposits $ 227,775 138 0.08 $ 204,619 180 0.12
Money market savings 317,390 391 0.16 292,620 542 0.25
Regular savings 505,451 634 0.17 482,026 1,186 0.33
Time deposits 371,056 3,968 1.43 403,729 5,018 1.66
Total time and interest-bearing
deposits 1,421,672 5,131 0.48 1,382,994 6,926 0.67
Short-term borrowings 110,177 295 0.36 105,250 256 0.33
Long-term debt 146 4 3.66 5,000 142 3.80
Subordinated notes and capital
securities 22,108 906 5.47 23,615 917 5.19
Total borrowings 132,431 1,205 1.22 133,865 1,315 1.31
Total interest-bearing liabilities 1,554,103 6,336 0.54 1,516,859 8,241 0.73
Demand deposits, non-interest
bearing 319,176 283,124
Accrued expenses and other
liabilities 38,682 32,966
Total liabilities 1,911,961 1,832,949
Shareholders' Equity:
Common stock 91,332 91,332
Additional paid-in capital 61,352 61,452
Retained earnings and other equity 124,946 119,509
Total shareholders' equity 277,630 272,293
Total liabilities and shareholders'
equity $ 2,189,591 $ 2,105,242
Net interest income $ 57,997 $ 60,096
Net interest spread 3.81 4.06
Effect of net interest-free funding
sources 0.11 0.15
Net interest margin 3.92 % 4.21 %
Ratio of average interest-earning
assets to average interest-bearing
liabilities 127.24 % 125.76 %
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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 three and nine months ended September 30,
2012 and 2011 have been calculated using the Corporation's federal
applicable rate of 35%.
Table 2-Analysis of Changes in Net Interest Income
The rate-volume variance analysis set forth in the table below compares changes
in tax-equivalent net interest income for the periods indicated by their rate
and volume components. The change in interest income/expense due to both volume
and rate has been allocated proportionately.
Three Months Ended September 30, Nine Months Ended September 30,
2012 Versus 2011 2012 Versus 2011
Volume Rate Volume Rate
(Dollars in thousands) Change Change Total Change Change Total
Interest income:
Interest-earning deposits with other
banks $ 4 $ 16 $ 20 $ 65 $ 16 $ 81
U.S. Government obligations 97 (98 ) (1 ) (31 ) (315 ) (346 )
Obligations of states and political
subdivisions 124 (148 ) (24 ) 397 (458 ) (61 )
Other debt and equity securities 203 (704 ) (501 ) 543 (1,877 ) (1,334 )
Interest on deposits, investments and
federal funds sold 428 (934 ) (506 ) 974 (2,634 ) (1,660 )
Commercial, financial and agricultural
loans and leases 182 (217 ) (35 ) 458 (1,083 ) (625 )
Real estate-commercial and construction
loans (53 ) (451 ) (504 ) (513 ) (704 ) (1,217 )
Real estate-residential loans 94 (162 ) (68 ) 166 (430 ) (264 )
. . .
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