Ready for a Bright Future
Shareholder Information
2016 was a year of Univest investing in the business, seizing market
opportunities and positioning us for a bright future. With Univest’s
solid capital position, disciplined approach to managing the business
and more than 800 dedicated employees living our core values, we
continue to maintain our positive image and reputation. We remain
confident that the story, which will continue to unfold, will be one
of growth, steady performance and success, for our employees,
customers, shareholders and communities.
As we progress through 2017, we are excited to capitalize on
opportunities that are available to us as a result of market disruption,
our enhanced capabilities, expanded service area and comprehensive
financial offerings. We will remain focused on building the franchise,
the legacy of Univest and achieving our vision, all while being
guided by our mission and core values.
We are confident in our abilities and strategic direction, and
grateful for the support of you, our loyal shareholders.
Vision Statement
To be the best integrated
financial solutions provider
in the market.
Shareholders’ Meeting
The Annual Shareholders’ Meeting will take place at 10:45 a.m. on Tuesday, April 18, 2017 at Indian Valley
Country Club, located at 650 Bergey Road, Telford, PA 18969.
Univest Stock Transfer Agent
For more information on Univest Corporation of Pennsylvania common stock, please contact Broadridge
Corporate Issuer Solutions or visit the investor relations section at www.univest.net.
Regular Mail Communications:
Overnight Mail Communications:
Broadridge Corporate Issuer Solutions, Inc.
Broadridge Corporate Issuer Solutions, Inc.
PO Box 1342
Brentwood, NY 11717
Phone Number: 866-321-8021
Email Address: shareholder@broadridge.com
Website: https://investor.broadridge.com
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Univest Shareholder Information Hotline
For more information on Univest Corporation of Pennsylvania, please call 877.723.5571 or 215.721.2434.
Common Stock Information
Traded on the NASDAQ National Market, Symbol: UVSP.
Market Makers For Univest Corporation of Pennsylvania Common Stock
Boenning & Scattergood, Inc.
Goldman Sachs & Co.
Griffin Financial Group LLC
Janney Montgomery Scott LLC
Keefe Bruyette & Woods, Inc.
Morgan Stanley & Co., Inc.
UBS Securities LLC
“He gives strength to the weary and increases the power of the weak… but those
who hope in the Lord will renew their strength. They will soar on wings like eagles;
they will run and not grow weary, they will walk and not be faint.”
- Isaiah 40:29, 31
2016
ANNUAL REPORT
Our Franchise
140 YEARS OF
BUSINESS
SUCCESS
10 PA & NJ
COUNTIES
SERVED
840 EMPLOYEES
MAKING IT
HAPPEN
40+ ATMs
37 FINANCIAL
CENTERS
7 COMMERCIAL
& CORPORATE
OFFICES
3 INVESTMENT
OFFICES
5 INSURANCE
OFFICES
59,170 CONSUMER
HOUSEHOLDS 10,892 BUSINESS
CUSTOMERS
Ready for a Bright Future
Shareholder Information
2016 was a year of Univest investing in the business, seizing market
opportunities and positioning us for a bright future. With Univest’s
solid capital position, disciplined approach to managing the business
and more than 800 dedicated employees living our core values, we
continue to maintain our positive image and reputation. We remain
confident that the story, which will continue to unfold, will be one
of growth, steady performance and success, for our employees,
customers, shareholders and communities.
As we progress through 2017, we are excited to capitalize on
opportunities that are available to us as a result of market disruption,
our enhanced capabilities, expanded service area and comprehensive
financial offerings. We will remain focused on building the franchise,
the legacy of Univest and achieving our vision, all while being
guided by our mission and core values.
We are confident in our abilities and strategic direction, and
grateful for the support of you, our loyal shareholders.
Vision Statement
To be the best integrated
financial solutions provider
in the market.
Shareholders’ Meeting
The Annual Shareholders’ Meeting will take place at 10:45 a.m. on Tuesday, April 18, 2017 at Indian Valley
Country Club, located at 650 Bergey Road, Telford, PA 18969.
Univest Stock Transfer Agent
For more information on Univest Corporation of Pennsylvania common stock, please contact Broadridge
Corporate Issuer Solutions or visit the investor relations section at www.univest.net.
Regular Mail Communications:
Overnight Mail Communications:
Broadridge Corporate Issuer Solutions, Inc.
Broadridge Corporate Issuer Solutions, Inc.
PO Box 1342
Brentwood, NY 11717
Phone Number: 866-321-8021
Email Address: shareholder@broadridge.com
Website: https://investor.broadridge.com
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Univest Shareholder Information Hotline
For more information on Univest Corporation of Pennsylvania, please call 877.723.5571 or 215.721.2434.
Common Stock Information
Traded on the NASDAQ National Market, Symbol: UVSP.
Market Makers For Univest Corporation of Pennsylvania Common Stock
Boenning & Scattergood, Inc.
Goldman Sachs & Co.
Griffin Financial Group LLC
Janney Montgomery Scott LLC
Keefe Bruyette & Woods, Inc.
Morgan Stanley & Co., Inc.
UBS Securities LLC
“He gives strength to the weary and increases the power of the weak… but those
who hope in the Lord will renew their strength. They will soar on wings like eagles;
they will run and not grow weary, they will walk and not be faint.”
- Isaiah 40:29, 31
2016
ANNUAL REPORT
Our Franchise
140 YEARS OF
BUSINESS
SUCCESS
10 PA & NJ
COUNTIES
SERVED
840 EMPLOYEES
MAKING IT
HAPPEN
40+ ATMs
37 FINANCIAL
CENTERS
7 COMMERCIAL
& CORPORATE
OFFICES
3 INVESTMENT
OFFICES
5 INSURANCE
OFFICES
59,170 CONSUMER
HOUSEHOLDS 10,892 BUSINESS
CUSTOMERS
2016 Financial Performance
At December 31, (Dollars in thousands)
2016
2015
2014
Cash and interest-earning deposits
Investment securities
Net loans and leases
Other assets
Total assets
Deposits
Borrowings
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$ 57,825
468,518
3,268,387
435,798
$ 4,230,528
$ 60,799
370,760
2,161,385
286,507
$ 2,879,451
$ 38,565
368,630
1,605,963
222,163
$ 2,235,321
$ 3,257,567
417,780
49,972
3,725,319
505,209
$ 4,230,528
$ 2,394,360
73,588
49,929
2,517,877
361,574
$ 2,879,451
$ 1,861,341
41,974
47,452
1,950,767
284,554
$ 2,235,321
For the years ended December 31,
(Dollars in thousands, except share and per share data)
2016
2015
2014
Interest income
Interest expense
Net-interest income
Provision for loan and lease losses
Net-interest income after provision for loan and lease losses
Non-interest income
Non-interest expense
Net income before income taxes
Income taxes
Net income
$ 126,607
12,382
114,225
4,821
109,404
55,963
141,981
23,386
3,881
$ 101,983
8,065
93,918
3,802
90,116
52,425
105,515
37,026
9,758
$ 76,192
3,996
72,196
3,607
68,589
48,344
87,254
29,679
7,448
$ 19,505
$ 27,268
$ 22,231
Book value per share
Net income per share:
Basic
Diluted
Diluted-core1
Dividends declared per share
$ 19.00
$ 18.51
$ 17.54
0.85
0.84
1.35
0.80
1.39
1.39
1.54
0.80
1.37
1.37
1.44
0.80
Weighted average shares outstanding
Period end shares outstanding
23,097,638
26,589,353
19,663,039
19,530,930
16,234,959
16,221,607
1Excludes integration and acquisition-related costs and restructuring charges.
$3,200,000
$2,800,000
$2,400,000
$2,000,000
$1,600,000
$1,200,000
$800,000
$400,000
$-
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
$32,000
$28,000
$24,000
$20,000
$16,000
$1.60
$1.45
$1.30
$1.15
$1.00
‘15
‘14
Loan and Lease Outstandings
(in Thousands)
‘16
Non-interest income
Net-interest income
‘14
‘15
Total Revenue
(in Thousands)
‘16
6
8
2
,
3
2
$
8
2
1
,
0
3
$
6
5
2
,
1
3
$
‘14
‘15
Net Income*
(in Thousands)
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘16
‘11
4
4
.
1
$
4
5
.
1
$
5
3
.
1
$
‘14
‘15
Diluted Earnings Per Share*
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘12
‘16
‘11
2016
Financial
Highlights
Commercial Loans
Consumer Loans
Residential Real Estate
Lease Financings
2016 Highlights
140 Years of Commitment to our Local Communities
For 140 years, Univest has been committed to local! Community is at the core of who we are as a company. In 2016,
Univest continued its tradition of giving back through financial support, strong leadership and employee volunteerism.
We continued partnerships in our core market while building new relationships with nonprofit organizations to
support Univest’s growth in new neighborhoods. Here are some of our philanthropic highlights from the year.
• Univest is committed to sharing our expertise to
provide financial education. Throughout the year, we
welcomed community groups to Univest, presented
at schools and shared tips and advice to employees
at a variety of businesses. Our efforts led to Univest
employees educating nearly 5,000 students.
• One of the pillars of Univest’s philanthropy program
is our Connecting with Community volunteer
initiative. For these half-day service projects, teams
of Univest employees go out into the community
to help nonprofits with a specific project. In 2016,
we completed 17 service projects throughout our
expanded market. In addition, Univest employees
volunteered more than 17,600 hours representing
Univest and through personal initiatives.
• During the month of June, we celebrated Univest’s
140th birthday with a number of events. 140 Forward
asked Univest employees how they would use $1,140
to pay it forward to the local community. Five winners
were selected from across our service area to each
receive a $1,140 donation. The winning employee got
to deliver the good news and be included in the social
media announcement of all of the winners.
• Our fifth annual Caring for Community Giveaway
garnered a great response from individuals passionate
about the causes they support. More than 6,700
entries were received on behalf of more than 120
organizations. The winner, Hope Against Heroin of
Quakertown, Bucks County, was selected at random to
receive the $5,140 donation.
• Our second consecutive year sponsoring Spruce Street
Harbor Park, a summer destination in Philadelphia,
also provided Univest with a great opportunity
to engage with the local community. We held the
Celebrate Summer Giveaway, which awarded $140
and a two-hour reservation in one of the exclusive
Hammock Lounges at the park to 10 lucky individuals.
This giveaway provided the opportunity to connect
with a large audience from across our service area by
sharing the fun of this popular urban oasis.
2016
Philanthropic
Year in Review
2016 PHILANTHROPIC GIVING
6%
2%
24%
29%
Youth & Education
Health & Social Services
Community & Economic
Development
Arts & Culture
And More
39%
$1.6m
FINANCIAL
CONTRIBUTIONS
560
ORGANIZATIONS
SUPPORTED
17,683
VOLUNTEER HOURS
17
CONNECTING WITH
COMMUNITY DAYS
4,945
NUMBER OF STUDENTS
EDUCATED
$4.2b
TOTAL ASSETS
58.98%
DIVIDENDS DECLARED
PAYOUT RATIO*
0.89%
RETURN ON
AVERAGE ASSETS*
3.82%
NET INTEREST
MARGIN
10.93%
RETURN ON AVERAGE
TANGIBLE COMMON EQUITY*
*EXCLUDING INTEGRATION AND
ACQUISITION-RELATED COSTS AND
RESTRUCTURING CHARGES.
Univest Corporation of Pennsylvania
Listing as of January 1, 2017
Senior Leadership Team
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief
Executive Officer, Univest Bank and Trust Co.
Michael S. Keim
President, Univest Bank and Trust Co. and
Senior Executive Vice President, Univest
Corporation of Pennsylvania
Duane J. Brobst
Senior Executive Vice President and Chief Risk
Officer, Univest Corporation of Pennsylvania
Roger S. Deacon
Senior Executive Vice President and Chief
Financial Officer, Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Hugh W. Connelly
President, Univest Capital, Inc. and President
Small Business Lending, Univest Bank and
Trust Co.
Ronald R. Flaherty
President, Univest Insurance, Inc.
Board of Directors
Listing as of January 1, 2017
William S. Aichele
Chairman of Univest Corporation of Pennsylvania
and of Univest Bank and Trust Co. Retired President
and Chief Executive Officer of Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Roger H. Ballou
Former Director, President and Chief Executive Officer
of CDI Corporation; Director of Alliance Data Systems
and RCM Technologies, Inc.
Todd S. Benning
Founding Stockholder, Dunlap & Associates, PC
Douglas C. Clemens
President, Clemens Food Group
R. Lee Delp
Principal, R. L. Delp & Company
William G. Morral, C.P.A.
Accountant and Financial Consultant,
Former Senior Vice President and Chief Financial
Officer, Moyer Packing Company
Glenn E. Moyer
Chief Executive Officer, Live Oak Strategies, LLC;
Board Chair and Trustee, The Wyomissing Foundation;
Former Pennsylvania Secretary of Banking & Securities
Kevin B. Norris
President, Wealth Management,
Univest Bank and Trust Co.
Louis P. Spinelli
President, Consumer Banking,
Univest Bank and Trust Co.
Michael S. Fitzgerald
Market President, Commercial Banking for the
Delaware Valley, Univest Bank and Trust Co.
Philip C. Jackson
Market President, Commercial Banking for the
Lehigh Valley, Univest Bank and Trust Co.
Eric W. Conner
Executive Vice President and Chief Information Officer,
Univest Corporation of Pennsylvania
Thomas J. Jordan IV
Executive Vice President,
Univest Bank and Trust Co.
M. Theresa Schwartzer
Executive Vice President and Director of Human
Resources, Univest Corporation of Pennsylvania
Annette D. Szygiel
Executive Vice President and Chief Experience Officer,
Univest Corporation of Pennsylvania
K. Leon Moyer
Retired President and Chief Executive Officer, Univest
Bank and Trust Co.
Thomas M. Petro
Former President and Chief Executive Officer of
Fox Chase Bancorp
Mark A. Schlosser
Secretary and Treasurer, Schlosser Steel, Inc.
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief Executive Officer,
Univest Bank and Trust Co.
P. Gregory Shelly
Retired President, Shellys US LBM LLC
Michael L. Turner
Partner, Marshall, Dennehey, Warner,
Coleman & Goggin
Charles H. Zimmerman
Senior Leadership, Calvary Church of Souderton;
Director, Clemens Family Corporation
Margaret K. Zook
Director of Church and Community Relations, Living
Branches Retirement Communities; Board Chair,
Penn Foundation
Wholly-Owned Subsidiaries
Univest Bank and Trust Co.
Univest Capital, Inc.
Univest Insurance, Inc.
Univest Investments, Inc.
104 S. Oakland Ave., LLC
Allied Benefits Group, LLC
Davisville Associates, LLC
Delview, Inc.
Girard Partners, Ltd., a Univest Wealth
Management Firm
TCG Investment Advisory, Inc.
Please visit univest.net for a complete list of locations for Univest Corporation and our subsidiaries.
2016 Financial Performance
At December 31, (Dollars in thousands)
2016
2015
2014
Cash and interest-earning deposits
Investment securities
Net loans and leases
Other assets
Total assets
Deposits
Borrowings
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$ 57,825
468,518
3,268,387
435,798
$ 4,230,528
$ 60,799
370,760
2,161,385
286,507
$ 2,879,451
$ 38,565
368,630
1,605,963
222,163
$ 2,235,321
$ 3,257,567
417,780
49,972
3,725,319
505,209
$ 4,230,528
$ 2,394,360
73,588
49,929
2,517,877
361,574
$ 2,879,451
$ 1,861,341
41,974
47,452
1,950,767
284,554
$ 2,235,321
For the years ended December 31,
(Dollars in thousands, except share and per share data)
2016
2015
2014
Interest income
Interest expense
Net-interest income
Provision for loan and lease losses
Net-interest income after provision for loan and lease losses
Non-interest income
Non-interest expense
Net income before income taxes
Income taxes
Net income
$ 126,607
12,382
114,225
4,821
109,404
55,963
141,981
23,386
3,881
$ 101,983
8,065
93,918
3,802
90,116
52,425
105,515
37,026
9,758
$ 76,192
3,996
72,196
3,607
68,589
48,344
87,254
29,679
7,448
$ 19,505
$ 27,268
$ 22,231
Book value per share
Net income per share:
Basic
Diluted
Diluted-core1
Dividends declared per share
$ 19.00
$ 18.51
$ 17.54
0.85
0.84
1.35
0.80
1.39
1.39
1.54
0.80
1.37
1.37
1.44
0.80
Weighted average shares outstanding
Period end shares outstanding
23,097,638
26,589,353
19,663,039
19,530,930
16,234,959
16,221,607
1Excludes integration and acquisition-related costs and restructuring charges.
$3,200,000
$2,800,000
$2,400,000
$2,000,000
$1,600,000
$1,200,000
$800,000
$400,000
$-
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
$32,000
$28,000
$24,000
$20,000
$16,000
$1.60
$1.45
$1.30
$1.15
$1.00
‘15
‘14
Loan and Lease Outstandings
(in Thousands)
‘16
Non-interest income
Net-interest income
‘14
‘15
Total Revenue
(in Thousands)
‘16
6
8
2
,
3
2
$
8
2
1
,
0
3
$
6
5
2
,
1
3
$
‘14
‘15
Net Income*
(in Thousands)
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘16
‘11
4
4
.
1
$
4
5
.
1
$
5
3
.
1
$
‘14
‘15
Diluted Earnings Per Share*
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘16
‘11
‘12
2016
Financial
Highlights
Commercial Loans
Consumer Loans
Residential Real Estate
Lease Financings
2016 Highlights
140 Years of Commitment to our Local Communities
For 140 years, Univest has been committed to local! Community is at the core of who we are as a company. In 2016,
Univest continued its tradition of giving back through financial support, strong leadership and employee volunteerism.
We continued partnerships in our core market while building new relationships with nonprofit organizations to
support Univest’s growth in new neighborhoods. Here are some of our philanthropic highlights from the year.
• Univest is committed to sharing our expertise to
provide financial education. Throughout the year, we
welcomed community groups to Univest, presented
at schools and shared tips and advice to employees
at a variety of businesses. Our efforts led to Univest
employees educating nearly 5,000 students.
• One of the pillars of Univest’s philanthropy program
is our Connecting with Community volunteer
initiative. For these half-day service projects, teams
of Univest employees go out into the community
to help nonprofits with a specific project. In 2016,
we completed 17 service projects throughout our
expanded market. In addition, Univest employees
volunteered more than 17,600 hours representing
Univest and through personal initiatives.
• During the month of June, we celebrated Univest’s
140th birthday with a number of events. 140 Forward
asked Univest employees how they would use $1,140
to pay it forward to the local community. Five winners
were selected from across our service area to each
receive a $1,140 donation. The winning employee got
to deliver the good news and be included in the social
media announcement of all of the winners.
• Our fifth annual Caring for Community Giveaway
garnered a great response from individuals passionate
about the causes they support. More than 6,700
entries were received on behalf of more than 120
organizations. The winner, Hope Against Heroin of
Quakertown, Bucks County, was selected at random to
receive the $5,140 donation.
• Our second consecutive year sponsoring Spruce Street
Harbor Park, a summer destination in Philadelphia,
also provided Univest with a great opportunity
to engage with the local community. We held the
Celebrate Summer Giveaway, which awarded $140
and a two-hour reservation in one of the exclusive
Hammock Lounges at the park to 10 lucky individuals.
This giveaway provided the opportunity to connect
with a large audience from across our service area by
sharing the fun of this popular urban oasis.
2016
Philanthropic
Year in Review
2016 PHILANTHROPIC GIVING
6%
2%
24%
29%
Youth & Education
Health & Social Services
Community & Economic
Development
Arts & Culture
And More
39%
$1.6m
FINANCIAL
CONTRIBUTIONS
560
ORGANIZATIONS
SUPPORTED
17,683
VOLUNTEER HOURS
17
CONNECTING WITH
COMMUNITY DAYS
4,945
NUMBER OF STUDENTS
EDUCATED
$4.2b
TOTAL ASSETS
58.98%
DIVIDENDS DECLARED
PAYOUT RATIO*
0.89%
RETURN ON
AVERAGE ASSETS*
3.82%
NET INTEREST
MARGIN
10.93%
RETURN ON AVERAGE
TANGIBLE COMMON EQUITY*
*EXCLUDING INTEGRATION AND
ACQUISITION-RELATED COSTS AND
RESTRUCTURING CHARGES.
Univest Corporation of Pennsylvania
Listing as of January 1, 2017
Senior Leadership Team
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief
Executive Officer, Univest Bank and Trust Co.
Michael S. Keim
President, Univest Bank and Trust Co. and
Senior Executive Vice President, Univest
Corporation of Pennsylvania
Duane J. Brobst
Senior Executive Vice President and Chief Risk
Officer, Univest Corporation of Pennsylvania
Roger S. Deacon
Senior Executive Vice President and Chief
Financial Officer, Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Hugh W. Connelly
President, Univest Capital, Inc. and President
Small Business Lending, Univest Bank and
Trust Co.
Ronald R. Flaherty
President, Univest Insurance, Inc.
Board of Directors
Listing as of January 1, 2017
William S. Aichele
Chairman of Univest Corporation of Pennsylvania
and of Univest Bank and Trust Co. Retired President
and Chief Executive Officer of Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Roger H. Ballou
Former Director, President and Chief Executive Officer
of CDI Corporation; Director of Alliance Data Systems
and RCM Technologies, Inc.
Todd S. Benning
Founding Stockholder, Dunlap & Associates, PC
Douglas C. Clemens
President, Clemens Food Group
R. Lee Delp
Principal, R. L. Delp & Company
William G. Morral, C.P.A.
Accountant and Financial Consultant,
Former Senior Vice President and Chief Financial
Officer, Moyer Packing Company
Glenn E. Moyer
Chief Executive Officer, Live Oak Strategies, LLC;
Board Chair and Trustee, The Wyomissing Foundation;
Former Pennsylvania Secretary of Banking & Securities
Kevin B. Norris
President, Wealth Management,
Univest Bank and Trust Co.
Louis P. Spinelli
President, Consumer Banking,
Univest Bank and Trust Co.
Michael S. Fitzgerald
Market President, Commercial Banking for the
Delaware Valley, Univest Bank and Trust Co.
Philip C. Jackson
Market President, Commercial Banking for the
Lehigh Valley, Univest Bank and Trust Co.
Eric W. Conner
Executive Vice President and Chief Information Officer,
Univest Corporation of Pennsylvania
Thomas J. Jordan IV
Executive Vice President,
Univest Bank and Trust Co.
M. Theresa Schwartzer
Executive Vice President and Director of Human
Resources, Univest Corporation of Pennsylvania
Annette D. Szygiel
Executive Vice President and Chief Experience Officer,
Univest Corporation of Pennsylvania
K. Leon Moyer
Retired President and Chief Executive Officer, Univest
Bank and Trust Co.
Thomas M. Petro
Former President and Chief Executive Officer of
Fox Chase Bancorp
Mark A. Schlosser
Secretary and Treasurer, Schlosser Steel, Inc.
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief Executive Officer,
Univest Bank and Trust Co.
P. Gregory Shelly
Retired President, Shellys US LBM LLC
Michael L. Turner
Partner, Marshall, Dennehey, Warner,
Coleman & Goggin
Charles H. Zimmerman
Senior Leadership, Calvary Church of Souderton;
Director, Clemens Family Corporation
Margaret K. Zook
Director of Church and Community Relations, Living
Branches Retirement Communities; Board Chair,
Penn Foundation
Wholly-Owned Subsidiaries
Univest Bank and Trust Co.
Univest Capital, Inc.
Univest Insurance, Inc.
Univest Investments, Inc.
104 S. Oakland Ave., LLC
Allied Benefits Group, LLC
Davisville Associates, LLC
Delview, Inc.
Girard Partners, Ltd., a Univest Wealth
Management Firm
TCG Investment Advisory, Inc.
Please visit univest.net for a complete list of locations for Univest Corporation and our subsidiaries.
2016 Highlights
• Our industry-first, small business banking subscription called Univest Prime was recognized by
Bank Director Magazine with a “Best of FinXTech” award. We recognized the speed advantage that
FinTech companies had and our customers’ need for quick decisions and turnaround. Univest Prime
has enabled us to get customers approved for credit, have their loan documents prepared and ready
for signature in as little as 10 minutes.
• Univest Insurance expanded its Human Resources Consulting line of services and the capabilities
of our customer support hotline, while also enhancing our claims and loss prevention services.
By developing these ancillary services that enhance our fee-based revenue stream, we are more
competitive and better equipped to serve the middle market and large size business segments.
• In a world where clients are being pushed to impersonal call centers and robo-advisors, Univest’s
Wealth Management Division successfully launched a cost-effective, proprietary investment
management platform that allows clients of smaller asset sizes access to private research and best of
breed third-party managers, all while maintaining a relationship with a trusted advisor. During 2016,
assets being serviced through this platform accumulated to more than $45 million.
Maximizing the Capabilities of Univest & Investing Within to Better Serve our Communities
• In several areas of the company, we implemented positive change to maximize efficiency and reduce
costs. Most notably, Univest successfully converted former Fox Chase Bank customers to the Univest
core banking platform in September. The entire conversion of data, systems and technology was
executed in just one weekend. As part of conversion weekend, Univest also rebranded all of the Fox
Chase locations to Univest.
• We implemented phase two of our financial center optimization strategy that includes the opening
of new financial centers in growth markets and the consolidation of locations which operate in close
proximity to other existing centers. During the year, we consolidated three offices located throughout
Bucks and Montgomery counties into other nearby locations, in addition to consolidating two Fox
Chase branches in New Jersey into the Ocean City office. The closings were offset by the openings
of three financial centers in our expanded service area – Fairmount, Philadelphia; Willow Street,
Lancaster; Hamilton Crossings, Lehigh Valley.
• 2016 brought many exciting Human Resources-related changes. In addition to hiring talent across
the commercial and consumer bank, cash management, insurance and wealth divisions, we added
more than 100 employees to the Univest family through the acquisition of Fox Chase Bank. We
successfully integrated all of these individuals into our HR system, met with all regarding benefits and
retirement plans and hand-delivered a welcome gift to each of the former Fox Chase employees.
• Throughout 2016, Univest also gained experienced professionals at all levels of the organization from
the Board and Senior Executive representatives to support staff, front line sales and customer service
positions to lead us into the future. Michael S. Fitzgerald, former Chief Lending Officer at Fox Chase,
joined Univest as Market President of the Commercial Bank. Mike now leads the Delaware Valley
Division while Philip C. Jackson leads the Lehigh Valley Division.
• In August, we launched an internal social network, UChat, to cultivate an environment of
collaboration, build employee engagement and continue to seek ways for Univest to strengthen
communications with our growing employee base. Monthly live chats are conducted in addition to
having weekly topics available for employees to ask questions and offer suggestions.
• With our employees being our most important asset, investing in them is paramount to our continued
success. As a result, in September, we launched Univest University with the mission to “create a
learning culture in which all employees can achieve high performance and professional growth
through purposeful educational opportunities, leading to a higher level of corporate performance,
retention and morale.” Employees now have opportunities for management certificate programs,
along with electives on topics from Excel to Generational Differences in the Workplace.
To our family of Shareholders, Customers and Employees
It is unusual for a business today to reach a milestone anniversary of 140 years. It is even more
unusual for a financial institution. At Univest, 2016 marked our 140th birthday. We have stood
the test of time, navigated a volatile economic climate, managed through a robust regulatory
environment, and built out our diversified platform of financial solutions, all while keeping
our core values of tradition, integrity, spirituality, community and excellence at the forefront.
We believe our success is a direct result of the loyal support of our customers, shareholders,
employees and communities and the vitality of the local neighborhoods we serve.
Throughout the year, we continued to write our story and build on our rich history by
investing in the business and laying the groundwork for long-term success. Our most significant
investment this year was our acquisition of Fox Chase Bank, a highly-respected and strong-
performing institution. This strategic acquisition was completed on July 1, 2016, further
strengthening our presence in Bucks and Montgomery counties and bringing Univest our first
financial centers in West Chester, PA and Ocean City, NJ.
Jeffrey M. Schweitzer, William S. Aichele
In addition to financial centers gained through the acquisition, we opened our fourth location in Philadelphia, in the
Fairmount neighborhood, and our first financial center in the Lehigh Valley, in the Hamilton Crossings Shopping Center.
Additionally, in May, we expanded our service area to Lancaster, a market with tremendous opportunities for a solid-
performing organization like Univest. We hired a 20-person team of experienced, trustworthy bankers who specialize in
agricultural and commercial lending, as well as business and consumer banking. To support the growth from this new team,
in August, we opened our first financial center in the town of Willow Street in Lancaster County and are pursuing additional
opportunities to expand our footprint in this market in 2017.
If we were to use one word to summarize our year it would be expansion. Certainly this is reflected in the completed
acquisition and market growth. It is also seen in the growth of our leadership team. Effective July 1, in connection with the
Fox Chase acquisition, we welcomed Roger S. Deacon as Senior Executive Vice President and Chief Financial Officer for
Univest Corporation and Univest Bank and Trust Co. and Michael S. Fitzgerald as Market President of our Delaware Valley
Division. In addition, we welcomed to the Univest Board of Directors Thomas M. Petro, former President and
Chief Executive Officer of Fox Chase Bank, and Roger H. Ballou and Todd S. Benning, two former board members of
Fox Chase Bank.
Together with our board and our employees, we recognize that Univest started as a bank devoted to the community in
1876 and we remain ever vigilant to our core value of community, as we know we cannot be a strong financial institution
unless the communities we serve are strong. In 2016, we continued our philanthropic tradition and increased awareness of
our “Committed to Local” giving program. We gave back more than $1.6 million to local, nonprofit organizations and our
employees volunteered more than 17,600 hours.
As you review the 2016 Annual Report, we trust you will be pleased with our accomplishments and plans for continued
growth and stability. We are well-positioned to seize opportunities, strengthen our franchise and enhance shareholder value.
On behalf of the entire Univest family, thank you for your support and investment.
Sincerely,
William S. Aichele
Chairman
Jeffrey M. Schweitzer
President and CEO
2016 Highlights
Our 2016 story of expansion brought us opportunities to change, grow and innovate. The region we serve has been
significantly disrupted in the last few years as a result of big, out-of-market banks acquiring long-time, community-
based organizations. Consumers, businesses and our communities at large have seen and felt the impact. Univest
kept a close eye on the rising uncertainty and general fatigue of the public and seized the opportunity to position our
strong financial brand with confidence. We grew organically and acquisitively, expanded our teams with well-respected,
long-time industry professionals, entered new markets, realigned Univest’s leadership team with market opportunities
and continued to focus on our strategic priorities of revenue generation, company efficiency, and optimizing the
delivery of our integrated financial capabilities.
We are pleased with all of our achievements, most of which were made possible by the earnest work of more than 800
employees. Together we achieved the following accomplishments:
Solid Growth Across our Integrated Platform of Solutions
• Our loan portfolio increased $1.1 billion from December 31, 2015. Organic loan growth accounted for $330.7
million, or 11.2% of the increase, and $776.2 million was obtained in the Fox Chase Bank acquisition.
• Deposits increased $863.2 million from December 31, 2015. Organic deposit growth was $124.9 million, or
4.0%, and $738.3 million was a result of deposits acquired from Fox Chase Bank.
• We issued $45 million in subordinated debt to enhance our regulatory capital and support both organic growth
and acquisitions in our non-banking lines of business.
• Our expansion into the Lancaster market has been extremely positive. We made investments to develop both a
commercial and consumer banking presence but we did not pay a purchase premium to move into this market.
The value of hiring a team that is deeply-rooted and highly-respected across the market was quickly apparent.
In just six months, we booked more than $100 million in loan commitments, with $73.9 million in loans
outstanding, and deposits exceeding $20 million at December 31, 2016.
• The housing market continued to rebound bringing Univest’s Home Loans team greater growth potential
in our core market as well as our expansion markets in Philadelphia, Lancaster and the Lehigh Valley. Loan
fundings for the year exceeded $350 million.
• Organic growth is a primary objective of Univest Insurance with written premium growing 6.9% in 2016 and
the total book of business now surpassing the $150 million level. As the agency grows in revenue and premium
dollars, achieving growth percentage goals has required a shift in focus to prospects and clients in the middle to
large market. Success in this area of the commercial market has and will continue to contribute to the agency’s
production and retention goals.
Solid Growth
$776m
LOAN GROWTH AS A RESULT
OF THE ACQUISITION OF
FOX CHASE BANK
11.2%
ORGANIC LOAN GROWTH
FOR THE YEAR ENDED
DECEMBER 31, 2016
$738m
DEPOSIT GROWTH AS A RESULT
OF THE ACQUISITION OF
FOX CHASE BANK
4.0%
ORGANIC DEPOSIT GROWTH
FOR THE YEAR ENDED
DECEMBER 31, 2016
• Our fee-based registered investment advisor, Girard Partners – a Univest Wealth Management Firm, saw
phenomenal growth in assets under management (AUM) during 2016. We began the year with approximately
$670 million in AUM, and by year end, AUM exceeded $900 million.
• Total lease originations for Univest Capital were $73 million. The National Account group continued to grow
originations, increasing 32.6% over 2015. Despite the competitive environment, Univest Capital’s net interest
margin remains strong.
New Technology & Exceptional Customer Experiences
• EMV – which stands for Europay, Mastercard and Visa – is a global standard for cards equipped with computer
chips and the technology to authenticate chip-card debit and credit transactions. Once implemented across all
merchant terminals and ATMs, it is designed to better protect consumers and reduce fraud. Univest began instantly
issuing EMV chip debit cards in May and completely transitioned customer’s cards to EMV chip in 2016.
• Across our financial center network, Univest introduced new system capabilities for the bank’s teller lines, statement
printing and lock box functionality. These enhancements make Univest more resilient in terms of disaster recovery
preparedness while also improving the experience of Univest’s customers and employees.
• Univest cash management solutions continued to evolve in our core and expansion markets. We launched a new,
sophisticated online banking platform to increase wire and reporting capabilities for commercial customers, and
created custom products to meet customer needs and compete in our newest market – Lancaster.
• In May, we converted to the new iPay system for online bill payment within NetTeller online banking and our
mobile banking app. iPay not only expanded the base of electronic payees available to our customers, but it also
positions us to expand our customer payment tools and use the
same bill pay in a new mobile banking app which will be available
to users in 2017.
2016
Integrated Successes
• In July, Univest’s fully-responsive website launched. We set out
with the goals of simplifying navigation, minimizing content,
generating leads, expediting conversion and maximizing our search
engine optimization success. We have had a tremendous response
and, in only six months, the site has outperformed lead generation
and sales conversion that came from univest.net for all of 2015.
• After using Applied’s TAM system for almost 20 years in some
areas of Univest Insurance, we made a significant investment
in technology to upgrade the entire agency to Applied’s Epic
solution. The conversion project was 10 months in the making
with employees dedicating their efforts toward the data conversion,
workflow creation and implementation phases. The system went
live in August and now offers improved efficiency for employees,
enhanced customer experiences, more versatile reporting
mechanisms and greater revenue per employee ratios.
Delivering Comprehensive Financial Solutions
to a Growing Marketplace
• We expanded our commitment to small businesses with the
creation of a lending team dedicated to supporting small businesses
in Greater Philadelphia and the Lehigh Valley. The new team
focuses on businesses with credit needs up to $1 million and
revenues less than $3 million. Univest is uniquely positioned to
gain market share of this desired segment and meet the diversified
financial needs business owners face with robust cash management,
insurance and investments solutions combined with sound
business advice.
$3.2b
ASSETS UNDER
MANAGEMENT
AND SUPERVISION
$966m
LOANS SERVICED
FOR OTHERS
$157m
TOTAL INSURANCE
WRITTEN PREMIUM
$135m
EQUIPMENT FINANCE
OUTSTANDINGS
CORE BANKING
OPERATION
68% TOTAL REVENUE FROM
32% TOTAL REVENUE FROM
NON-BANKING
OPERATIONS
2016 Highlights
Our 2016 story of expansion brought us opportunities to change, grow and innovate. The region we serve has been
significantly disrupted in the last few years as a result of big, out-of-market banks acquiring long-time, community-
based organizations. Consumers, businesses and our communities at large have seen and felt the impact. Univest
kept a close eye on the rising uncertainty and general fatigue of the public and seized the opportunity to position our
strong financial brand with confidence. We grew organically and acquisitively, expanded our teams with well-respected,
long-time industry professionals, entered new markets, realigned Univest’s leadership team with market opportunities
and continued to focus on our strategic priorities of revenue generation, company efficiency, and optimizing the
delivery of our integrated financial capabilities.
We are pleased with all of our achievements, most of which were made possible by the earnest work of more than 800
employees. Together we achieved the following accomplishments:
Solid Growth Across our Integrated Platform of Solutions
• Our loan portfolio increased $1.1 billion from December 31, 2015. Organic loan growth accounted for $330.7
million, or 11.2% of the increase, and $776.2 million was obtained in the Fox Chase Bank acquisition.
• Deposits increased $863.2 million from December 31, 2015. Organic deposit growth was $124.9 million, or
4.0%, and $738.3 million was a result of deposits acquired from Fox Chase Bank.
• We issued $45 million in subordinated debt to enhance our regulatory capital and support both organic growth
and acquisitions in our non-banking lines of business.
• Our expansion into the Lancaster market has been extremely positive. We made investments to develop both a
commercial and consumer banking presence but we did not pay a purchase premium to move into this market.
The value of hiring a team that is deeply-rooted and highly-respected across the market was quickly apparent.
In just six months, we booked more than $100 million in loan commitments, with $73.9 million in loans
outstanding, and deposits exceeding $20 million at December 31, 2016.
• The housing market continued to rebound bringing Univest’s Home Loans team greater growth potential
in our core market as well as our expansion markets in Philadelphia, Lancaster and the Lehigh Valley. Loan
fundings for the year exceeded $350 million.
• Organic growth is a primary objective of Univest Insurance with written premium growing 6.9% in 2016 and
the total book of business now surpassing the $150 million level. As the agency grows in revenue and premium
dollars, achieving growth percentage goals has required a shift in focus to prospects and clients in the middle to
large market. Success in this area of the commercial market has and will continue to contribute to the agency’s
production and retention goals.
Solid Growth
$776m
LOAN GROWTH AS A RESULT
OF THE ACQUISITION OF
FOX CHASE BANK
11.2%
ORGANIC LOAN GROWTH
FOR THE YEAR ENDED
DECEMBER 31, 2016
$738m
DEPOSIT GROWTH AS A RESULT
OF THE ACQUISITION OF
FOX CHASE BANK
4.0%
ORGANIC DEPOSIT GROWTH
FOR THE YEAR ENDED
DECEMBER 31, 2016
• Our fee-based registered investment advisor, Girard Partners – a Univest Wealth Management Firm, saw
phenomenal growth in assets under management (AUM) during 2016. We began the year with approximately
$670 million in AUM, and by year end, AUM exceeded $900 million.
• Total lease originations for Univest Capital were $73 million. The National Account group continued to grow
originations, increasing 32.6% over 2015. Despite the competitive environment, Univest Capital’s net interest
margin remains strong.
New Technology & Exceptional Customer Experiences
• EMV – which stands for Europay, Mastercard and Visa – is a global standard for cards equipped with computer
chips and the technology to authenticate chip-card debit and credit transactions. Once implemented across all
merchant terminals and ATMs, it is designed to better protect consumers and reduce fraud. Univest began instantly
issuing EMV chip debit cards in May and completely transitioned customer’s cards to EMV chip in 2016.
• Across our financial center network, Univest introduced new system capabilities for the bank’s teller lines, statement
printing and lock box functionality. These enhancements make Univest more resilient in terms of disaster recovery
preparedness while also improving the experience of Univest’s customers and employees.
• Univest cash management solutions continued to evolve in our core and expansion markets. We launched a new,
sophisticated online banking platform to increase wire and reporting capabilities for commercial customers, and
created custom products to meet customer needs and compete in our newest market – Lancaster.
• In May, we converted to the new iPay system for online bill payment within NetTeller online banking and our
mobile banking app. iPay not only expanded the base of electronic payees available to our customers, but it also
positions us to expand our customer payment tools and use the
same bill pay in a new mobile banking app which will be available
to users in 2017.
2016
Integrated Successes
• In July, Univest’s fully-responsive website launched. We set out
with the goals of simplifying navigation, minimizing content,
generating leads, expediting conversion and maximizing our search
engine optimization success. We have had a tremendous response
and, in only six months, the site has outperformed lead generation
and sales conversion that came from univest.net for all of 2015.
• After using Applied’s TAM system for almost 20 years in some
areas of Univest Insurance, we made a significant investment
in technology to upgrade the entire agency to Applied’s Epic
solution. The conversion project was 10 months in the making
with employees dedicating their efforts toward the data conversion,
workflow creation and implementation phases. The system went
live in August and now offers improved efficiency for employees,
enhanced customer experiences, more versatile reporting
mechanisms and greater revenue per employee ratios.
Delivering Comprehensive Financial Solutions
to a Growing Marketplace
• We expanded our commitment to small businesses with the
creation of a lending team dedicated to supporting small businesses
in Greater Philadelphia and the Lehigh Valley. The new team
focuses on businesses with credit needs up to $1 million and
revenues less than $3 million. Univest is uniquely positioned to
gain market share of this desired segment and meet the diversified
financial needs business owners face with robust cash management,
insurance and investments solutions combined with sound
business advice.
$3.2b
ASSETS UNDER
MANAGEMENT
AND SUPERVISION
$966m
LOANS SERVICED
FOR OTHERS
$157m
TOTAL INSURANCE
WRITTEN PREMIUM
$135m
EQUIPMENT FINANCE
OUTSTANDINGS
CORE BANKING
OPERATION
68% TOTAL REVENUE FROM
32% TOTAL REVENUE FROM
NON-BANKING
OPERATIONS
2016 Highlights
• Our industry-first, small business banking subscription called Univest Prime was recognized by
Bank Director Magazine with a “Best of FinXTech” award. We recognized the speed advantage that
FinTech companies had and our customers’ need for quick decisions and turnaround. Univest Prime
has enabled us to get customers approved for credit, have their loan documents prepared and ready
for signature in as little as 10 minutes.
• Univest Insurance expanded its Human Resources Consulting line of services and the capabilities
of our customer support hotline, while also enhancing our claims and loss prevention services.
By developing these ancillary services that enhance our fee-based revenue stream, we are more
competitive and better equipped to serve the middle market and large size business segments.
• In a world where clients are being pushed to impersonal call centers and robo-advisors, Univest’s
Wealth Management Division successfully launched a cost-effective, proprietary investment
management platform that allows clients of smaller asset sizes access to private research and best of
breed third-party managers, all while maintaining a relationship with a trusted advisor. During 2016,
assets being serviced through this platform accumulated to more than $45 million.
Maximizing the Capabilities of Univest & Investing Within to Better Serve our Communities
• In several areas of the company, we implemented positive change to maximize efficiency and reduce
costs. Most notably, Univest successfully converted former Fox Chase Bank customers to the Univest
core banking platform in September. The entire conversion of data, systems and technology was
executed in just one weekend. As part of conversion weekend, Univest also rebranded all of the Fox
Chase locations to Univest.
• We implemented phase two of our financial center optimization strategy that includes the opening
of new financial centers in growth markets and the consolidation of locations which operate in close
proximity to other existing centers. During the year, we consolidated three offices located throughout
Bucks and Montgomery counties into other nearby locations, in addition to consolidating two Fox
Chase branches in New Jersey into the Ocean City office. The closings were offset by the openings
of three financial centers in our expanded service area – Fairmount, Philadelphia; Willow Street,
Lancaster; Hamilton Crossings, Lehigh Valley.
• 2016 brought many exciting Human Resources-related changes. In addition to hiring talent across
the commercial and consumer bank, cash management, insurance and wealth divisions, we added
more than 100 employees to the Univest family through the acquisition of Fox Chase Bank. We
successfully integrated all of these individuals into our HR system, met with all regarding benefits and
retirement plans and hand-delivered a welcome gift to each of the former Fox Chase employees.
• Throughout 2016, Univest also gained experienced professionals at all levels of the organization from
the Board and Senior Executive representatives to support staff, front line sales and customer service
positions to lead us into the future. Michael S. Fitzgerald, former Chief Lending Officer at Fox Chase,
joined Univest as Market President of the Commercial Bank. Mike now leads the Delaware Valley
Division while Philip C. Jackson leads the Lehigh Valley Division.
• In August, we launched an internal social network, UChat, to cultivate an environment of
collaboration, build employee engagement and continue to seek ways for Univest to strengthen
communications with our growing employee base. Monthly live chats are conducted in addition to
having weekly topics available for employees to ask questions and offer suggestions.
• With our employees being our most important asset, investing in them is paramount to our continued
success. As a result, in September, we launched Univest University with the mission to “create a
learning culture in which all employees can achieve high performance and professional growth
through purposeful educational opportunities, leading to a higher level of corporate performance,
retention and morale.” Employees now have opportunities for management certificate programs,
along with electives on topics from Excel to Generational Differences in the Workplace.
To our family of Shareholders, Customers and Employees
It is unusual for a business today to reach a milestone anniversary of 140 years. It is even more
unusual for a financial institution. At Univest, 2016 marked our 140th birthday. We have stood
the test of time, navigated a volatile economic climate, managed through a robust regulatory
environment, and built out our diversified platform of financial solutions, all while keeping
our core values of tradition, integrity, spirituality, community and excellence at the forefront.
We believe our success is a direct result of the loyal support of our customers, shareholders,
employees and communities and the vitality of the local neighborhoods we serve.
Throughout the year, we continued to write our story and build on our rich history by
investing in the business and laying the groundwork for long-term success. Our most significant
investment this year was our acquisition of Fox Chase Bank, a highly-respected and strong-
performing institution. This strategic acquisition was completed on July 1, 2016, further
strengthening our presence in Bucks and Montgomery counties and bringing Univest our first
financial centers in West Chester, PA and Ocean City, NJ.
Jeffrey M. Schweitzer, William S. Aichele
In addition to financial centers gained through the acquisition, we opened our fourth location in Philadelphia, in the
Fairmount neighborhood, and our first financial center in the Lehigh Valley, in the Hamilton Crossings Shopping Center.
Additionally, in May, we expanded our service area to Lancaster, a market with tremendous opportunities for a solid-
performing organization like Univest. We hired a 20-person team of experienced, trustworthy bankers who specialize in
agricultural and commercial lending, as well as business and consumer banking. To support the growth from this new team,
in August, we opened our first financial center in the town of Willow Street in Lancaster County and are pursuing additional
opportunities to expand our footprint in this market in 2017.
If we were to use one word to summarize our year it would be expansion. Certainly this is reflected in the completed
acquisition and market growth. It is also seen in the growth of our leadership team. Effective July 1, in connection with the
Fox Chase acquisition, we welcomed Roger S. Deacon as Senior Executive Vice President and Chief Financial Officer for
Univest Corporation and Univest Bank and Trust Co. and Michael S. Fitzgerald as Market President of our Delaware Valley
Division. In addition, we welcomed to the Univest Board of Directors Thomas M. Petro, former President and
Chief Executive Officer of Fox Chase Bank, and Roger H. Ballou and Todd S. Benning, two former board members of
Fox Chase Bank.
Together with our board and our employees, we recognize that Univest started as a bank devoted to the community in
1876 and we remain ever vigilant to our core value of community, as we know we cannot be a strong financial institution
unless the communities we serve are strong. In 2016, we continued our philanthropic tradition and increased awareness of
our “Committed to Local” giving program. We gave back more than $1.6 million to local, nonprofit organizations and our
employees volunteered more than 17,600 hours.
As you review the 2016 Annual Report, we trust you will be pleased with our accomplishments and plans for continued
growth and stability. We are well-positioned to seize opportunities, strengthen our franchise and enhance shareholder value.
On behalf of the entire Univest family, thank you for your support and investment.
Sincerely,
William S. Aichele
Chairman
Jeffrey M. Schweitzer
President and CEO
2016 Financial Performance
At December 31, (Dollars in thousands)
2016
2015
2014
Cash and interest-earning deposits
Investment securities
Net loans and leases
Other assets
Total assets
Deposits
Borrowings
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$ 57,825
468,518
3,268,387
435,798
$ 4,230,528
$ 60,799
370,760
2,161,385
286,507
$ 2,879,451
$ 38,565
368,630
1,605,963
222,163
$ 2,235,321
$ 3,257,567
417,780
49,972
3,725,319
505,209
$ 4,230,528
$ 2,394,360
73,588
49,929
2,517,877
361,574
$ 2,879,451
$ 1,861,341
41,974
47,452
1,950,767
284,554
$ 2,235,321
For the years ended December 31,
(Dollars in thousands, except share and per share data)
2016
2015
2014
Interest income
Interest expense
Net-interest income
Provision for loan and lease losses
Net-interest income after provision for loan and lease losses
Non-interest income
Non-interest expense
Net income before income taxes
Income taxes
Net income
$ 126,607
12,382
114,225
4,821
109,404
55,963
141,981
23,386
3,881
$ 101,983
8,065
93,918
3,802
90,116
52,425
105,515
37,026
9,758
$ 76,192
3,996
72,196
3,607
68,589
48,344
87,254
29,679
7,448
$ 19,505
$ 27,268
$ 22,231
Book value per share
Net income per share:
Basic
Diluted
Diluted-core1
Dividends declared per share
$ 19.00
$ 18.51
$ 17.54
0.85
0.84
1.35
0.80
1.39
1.39
1.54
0.80
1.37
1.37
1.44
0.80
Weighted average shares outstanding
Period end shares outstanding
23,097,638
26,589,353
19,663,039
19,530,930
16,234,959
16,221,607
1Excludes integration and acquisition-related costs and restructuring charges.
$3,200,000
$2,800,000
$2,400,000
$2,000,000
$1,600,000
$1,200,000
$800,000
$400,000
$-
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
$32,000
$28,000
$24,000
$20,000
$16,000
$1.60
$1.45
$1.30
$1.15
$1.00
‘15
‘14
Loan and Lease Outstandings
(in Thousands)
‘16
Non-interest income
Net-interest income
‘14
‘15
Total Revenue
(in Thousands)
‘16
6
8
2
,
3
2
$
8
2
1
,
0
3
$
6
5
2
,
1
3
$
‘14
‘15
Net Income*
(in Thousands)
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘16
‘11
4
4
.
1
$
4
5
.
1
$
5
3
.
1
$
‘14
‘15
Diluted Earnings Per Share*
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘11
‘12
‘16
2016
Financial
Highlights
Commercial Loans
Consumer Loans
Residential Real Estate
Lease Financings
2016 Highlights
140 Years of Commitment to our Local Communities
For 140 years, Univest has been committed to local! Community is at the core of who we are as a company. In 2016,
Univest continued its tradition of giving back through financial support, strong leadership and employee volunteerism.
We continued partnerships in our core market while building new relationships with nonprofit organizations to
support Univest’s growth in new neighborhoods. Here are some of our philanthropic highlights from the year.
• Univest is committed to sharing our expertise to
provide financial education. Throughout the year, we
welcomed community groups to Univest, presented
at schools and shared tips and advice to employees
at a variety of businesses. Our efforts led to Univest
employees educating nearly 5,000 students.
• One of the pillars of Univest’s philanthropy program
is our Connecting with Community volunteer
initiative. For these half-day service projects, teams
of Univest employees go out into the community
to help nonprofits with a specific project. In 2016,
we completed 17 service projects throughout our
expanded market. In addition, Univest employees
volunteered more than 17,600 hours representing
Univest and through personal initiatives.
• During the month of June, we celebrated Univest’s
140th birthday with a number of events. 140 Forward
asked Univest employees how they would use $1,140
to pay it forward to the local community. Five winners
were selected from across our service area to each
receive a $1,140 donation. The winning employee got
to deliver the good news and be included in the social
media announcement of all of the winners.
• Our fifth annual Caring for Community Giveaway
garnered a great response from individuals passionate
about the causes they support. More than 6,700
entries were received on behalf of more than 120
organizations. The winner, Hope Against Heroin of
Quakertown, Bucks County, was selected at random to
receive the $5,140 donation.
• Our second consecutive year sponsoring Spruce Street
Harbor Park, a summer destination in Philadelphia,
also provided Univest with a great opportunity
to engage with the local community. We held the
Celebrate Summer Giveaway, which awarded $140
and a two-hour reservation in one of the exclusive
Hammock Lounges at the park to 10 lucky individuals.
This giveaway provided the opportunity to connect
with a large audience from across our service area by
sharing the fun of this popular urban oasis.
2016
Philanthropic
Year in Review
2016 PHILANTHROPIC GIVING
6%
2%
24%
29%
Youth & Education
Health & Social Services
Community & Economic
Development
Arts & Culture
And More
39%
$1.6m
FINANCIAL
CONTRIBUTIONS
560
ORGANIZATIONS
SUPPORTED
17,683
VOLUNTEER HOURS
17
CONNECTING WITH
COMMUNITY DAYS
4,945
NUMBER OF STUDENTS
EDUCATED
$4.2b
TOTAL ASSETS
58.98%
DIVIDENDS DECLARED
PAYOUT RATIO*
0.89%
RETURN ON
AVERAGE ASSETS*
3.82%
NET INTEREST
MARGIN
10.93%
RETURN ON AVERAGE
TANGIBLE COMMON EQUITY*
*EXCLUDING INTEGRATION AND
ACQUISITION-RELATED COSTS AND
RESTRUCTURING CHARGES.
Univest Corporation of Pennsylvania
Listing as of January 1, 2017
Senior Leadership Team
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief
Executive Officer, Univest Bank and Trust Co.
Michael S. Keim
President, Univest Bank and Trust Co. and
Senior Executive Vice President, Univest
Corporation of Pennsylvania
Duane J. Brobst
Senior Executive Vice President and Chief Risk
Officer, Univest Corporation of Pennsylvania
Roger S. Deacon
Senior Executive Vice President and Chief
Financial Officer, Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Hugh W. Connelly
President, Univest Capital, Inc. and President
Small Business Lending, Univest Bank and
Trust Co.
Ronald R. Flaherty
President, Univest Insurance, Inc.
Board of Directors
Listing as of January 1, 2017
William S. Aichele
Chairman of Univest Corporation of Pennsylvania
and of Univest Bank and Trust Co. Retired President
and Chief Executive Officer of Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Roger H. Ballou
Former Director, President and Chief Executive Officer
of CDI Corporation; Director of Alliance Data Systems
and RCM Technologies, Inc.
Todd S. Benning
Founding Stockholder, Dunlap & Associates, PC
Douglas C. Clemens
President, Clemens Food Group
R. Lee Delp
Principal, R. L. Delp & Company
William G. Morral, C.P.A.
Accountant and Financial Consultant,
Former Senior Vice President and Chief Financial
Officer, Moyer Packing Company
Glenn E. Moyer
Chief Executive Officer, Live Oak Strategies, LLC;
Board Chair and Trustee, The Wyomissing Foundation;
Former Pennsylvania Secretary of Banking & Securities
Kevin B. Norris
President, Wealth Management,
Univest Bank and Trust Co.
Louis P. Spinelli
President, Consumer Banking,
Univest Bank and Trust Co.
Michael S. Fitzgerald
Market President, Commercial Banking for the
Delaware Valley, Univest Bank and Trust Co.
Philip C. Jackson
Market President, Commercial Banking for the
Lehigh Valley, Univest Bank and Trust Co.
Eric W. Conner
Executive Vice President and Chief Information Officer,
Univest Corporation of Pennsylvania
Thomas J. Jordan IV
Executive Vice President,
Univest Bank and Trust Co.
M. Theresa Schwartzer
Executive Vice President and Director of Human
Resources, Univest Corporation of Pennsylvania
Annette D. Szygiel
Executive Vice President and Chief Experience Officer,
Univest Corporation of Pennsylvania
K. Leon Moyer
Retired President and Chief Executive Officer, Univest
Bank and Trust Co.
Thomas M. Petro
Former President and Chief Executive Officer of
Fox Chase Bancorp
Mark A. Schlosser
Secretary and Treasurer, Schlosser Steel, Inc.
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief Executive Officer,
Univest Bank and Trust Co.
P. Gregory Shelly
Retired President, Shellys US LBM LLC
Michael L. Turner
Partner, Marshall, Dennehey, Warner,
Coleman & Goggin
Charles H. Zimmerman
Senior Leadership, Calvary Church of Souderton;
Director, Clemens Family Corporation
Margaret K. Zook
Director of Church and Community Relations, Living
Branches Retirement Communities; Board Chair,
Penn Foundation
Wholly-Owned Subsidiaries
Univest Bank and Trust Co.
Univest Capital, Inc.
Univest Insurance, Inc.
Univest Investments, Inc.
104 S. Oakland Ave., LLC
Allied Benefits Group, LLC
Davisville Associates, LLC
Delview, Inc.
Girard Partners, Ltd., a Univest Wealth
Management Firm
TCG Investment Advisory, Inc.
Please visit univest.net for a complete list of locations for Univest Corporation and our subsidiaries.
2016 Financial Performance
At December 31, (Dollars in thousands)
2016
2015
2014
Cash and interest-earning deposits
Investment securities
Net loans and leases
Other assets
Total assets
Deposits
Borrowings
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$ 57,825
468,518
3,268,387
435,798
$ 4,230,528
$ 60,799
370,760
2,161,385
286,507
$ 2,879,451
$ 38,565
368,630
1,605,963
222,163
$ 2,235,321
$ 3,257,567
417,780
49,972
3,725,319
505,209
$ 4,230,528
$ 2,394,360
73,588
49,929
2,517,877
361,574
$ 2,879,451
$ 1,861,341
41,974
47,452
1,950,767
284,554
$ 2,235,321
For the years ended December 31,
(Dollars in thousands, except share and per share data)
2016
2015
2014
Interest income
Interest expense
Net-interest income
Provision for loan and lease losses
Net-interest income after provision for loan and lease losses
Non-interest income
Non-interest expense
Net income before income taxes
Income taxes
Net income
$ 126,607
12,382
114,225
4,821
109,404
55,963
141,981
23,386
3,881
$ 101,983
8,065
93,918
3,802
90,116
52,425
105,515
37,026
9,758
$ 76,192
3,996
72,196
3,607
68,589
48,344
87,254
29,679
7,448
$ 19,505
$ 27,268
$ 22,231
Book value per share
Net income per share:
Basic
Diluted
Diluted-core1
Dividends declared per share
$ 19.00
$ 18.51
$ 17.54
0.85
0.84
1.35
0.80
1.39
1.39
1.54
0.80
1.37
1.37
1.44
0.80
Weighted average shares outstanding
Period end shares outstanding
23,097,638
26,589,353
19,663,039
19,530,930
16,234,959
16,221,607
1Excludes integration and acquisition-related costs and restructuring charges.
$3,200,000
$2,800,000
$2,400,000
$2,000,000
$1,600,000
$1,200,000
$800,000
$400,000
$-
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
$32,000
$28,000
$24,000
$20,000
$16,000
$1.60
$1.45
$1.30
$1.15
$1.00
‘15
‘14
Loan and Lease Outstandings
(in Thousands)
‘16
Non-interest income
Net-interest income
‘14
‘15
Total Revenue
(in Thousands)
‘16
6
8
2
,
3
2
$
8
2
1
,
0
3
$
6
5
2
,
1
3
$
‘14
‘15
Net Income*
(in Thousands)
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘16
‘11
4
4
.
1
$
4
5
.
1
$
5
3
.
1
$
‘14
‘15
Diluted Earnings Per Share*
*EXCLUDING INTEGRATION AND ACQUISITION-RELATED
COSTS AND RESTRUCTURING CHARGES.
‘11
‘12
‘16
2016
Financial
Highlights
Commercial Loans
Consumer Loans
Residential Real Estate
Lease Financings
2016 Highlights
140 Years of Commitment to our Local Communities
For 140 years, Univest has been committed to local! Community is at the core of who we are as a company. In 2016,
Univest continued its tradition of giving back through financial support, strong leadership and employee volunteerism.
We continued partnerships in our core market while building new relationships with nonprofit organizations to
support Univest’s growth in new neighborhoods. Here are some of our philanthropic highlights from the year.
• Univest is committed to sharing our expertise to
provide financial education. Throughout the year, we
welcomed community groups to Univest, presented
at schools and shared tips and advice to employees
at a variety of businesses. Our efforts led to Univest
employees educating nearly 5,000 students.
• One of the pillars of Univest’s philanthropy program
is our Connecting with Community volunteer
initiative. For these half-day service projects, teams
of Univest employees go out into the community
to help nonprofits with a specific project. In 2016,
we completed 17 service projects throughout our
expanded market. In addition, Univest employees
volunteered more than 17,600 hours representing
Univest and through personal initiatives.
• During the month of June, we celebrated Univest’s
140th birthday with a number of events. 140 Forward
asked Univest employees how they would use $1,140
to pay it forward to the local community. Five winners
were selected from across our service area to each
receive a $1,140 donation. The winning employee got
to deliver the good news and be included in the social
media announcement of all of the winners.
• Our fifth annual Caring for Community Giveaway
garnered a great response from individuals passionate
about the causes they support. More than 6,700
entries were received on behalf of more than 120
organizations. The winner, Hope Against Heroin of
Quakertown, Bucks County, was selected at random to
receive the $5,140 donation.
• Our second consecutive year sponsoring Spruce Street
Harbor Park, a summer destination in Philadelphia,
also provided Univest with a great opportunity
to engage with the local community. We held the
Celebrate Summer Giveaway, which awarded $140
and a two-hour reservation in one of the exclusive
Hammock Lounges at the park to 10 lucky individuals.
This giveaway provided the opportunity to connect
with a large audience from across our service area by
sharing the fun of this popular urban oasis.
2016
Philanthropic
Year in Review
2016 PHILANTHROPIC GIVING
6%
2%
24%
29%
Youth & Education
Health & Social Services
Community & Economic
Development
Arts & Culture
And More
39%
$1.6m
FINANCIAL
CONTRIBUTIONS
560
ORGANIZATIONS
SUPPORTED
17,683
VOLUNTEER HOURS
17
CONNECTING WITH
COMMUNITY DAYS
4,945
NUMBER OF STUDENTS
EDUCATED
$4.2b
TOTAL ASSETS
58.98%
DIVIDENDS DECLARED
PAYOUT RATIO*
0.89%
RETURN ON
AVERAGE ASSETS*
3.82%
NET INTEREST
MARGIN
10.93%
RETURN ON AVERAGE
TANGIBLE COMMON EQUITY*
*EXCLUDING INTEGRATION AND
ACQUISITION-RELATED COSTS AND
RESTRUCTURING CHARGES.
Univest Corporation of Pennsylvania
Listing as of January 1, 2017
Senior Leadership Team
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief
Executive Officer, Univest Bank and Trust Co.
Michael S. Keim
President, Univest Bank and Trust Co. and
Senior Executive Vice President, Univest
Corporation of Pennsylvania
Duane J. Brobst
Senior Executive Vice President and Chief Risk
Officer, Univest Corporation of Pennsylvania
Roger S. Deacon
Senior Executive Vice President and Chief
Financial Officer, Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Hugh W. Connelly
President, Univest Capital, Inc. and President
Small Business Lending, Univest Bank and
Trust Co.
Ronald R. Flaherty
President, Univest Insurance, Inc.
Board of Directors
Listing as of January 1, 2017
William S. Aichele
Chairman of Univest Corporation of Pennsylvania
and of Univest Bank and Trust Co. Retired President
and Chief Executive Officer of Univest Corporation of
Pennsylvania and Univest Bank and Trust Co.
Roger H. Ballou
Former Director, President and Chief Executive Officer
of CDI Corporation; Director of Alliance Data Systems
and RCM Technologies, Inc.
Todd S. Benning
Founding Stockholder, Dunlap & Associates, PC
Douglas C. Clemens
President, Clemens Food Group
R. Lee Delp
Principal, R. L. Delp & Company
William G. Morral, C.P.A.
Accountant and Financial Consultant,
Former Senior Vice President and Chief Financial
Officer, Moyer Packing Company
Glenn E. Moyer
Chief Executive Officer, Live Oak Strategies, LLC;
Board Chair and Trustee, The Wyomissing Foundation;
Former Pennsylvania Secretary of Banking & Securities
Kevin B. Norris
President, Wealth Management,
Univest Bank and Trust Co.
Louis P. Spinelli
President, Consumer Banking,
Univest Bank and Trust Co.
Michael S. Fitzgerald
Market President, Commercial Banking for the
Delaware Valley, Univest Bank and Trust Co.
Philip C. Jackson
Market President, Commercial Banking for the
Lehigh Valley, Univest Bank and Trust Co.
Eric W. Conner
Executive Vice President and Chief Information Officer,
Univest Corporation of Pennsylvania
Thomas J. Jordan IV
Executive Vice President,
Univest Bank and Trust Co.
M. Theresa Schwartzer
Executive Vice President and Director of Human
Resources, Univest Corporation of Pennsylvania
Annette D. Szygiel
Executive Vice President and Chief Experience Officer,
Univest Corporation of Pennsylvania
K. Leon Moyer
Retired President and Chief Executive Officer, Univest
Bank and Trust Co.
Thomas M. Petro
Former President and Chief Executive Officer of
Fox Chase Bancorp
Mark A. Schlosser
Secretary and Treasurer, Schlosser Steel, Inc.
Jeffrey M. Schweitzer
President and Chief Executive Officer, Univest
Corporation of Pennsylvania and Chief Executive Officer,
Univest Bank and Trust Co.
P. Gregory Shelly
Retired President, Shellys US LBM LLC
Michael L. Turner
Partner, Marshall, Dennehey, Warner,
Coleman & Goggin
Charles H. Zimmerman
Senior Leadership, Calvary Church of Souderton;
Director, Clemens Family Corporation
Margaret K. Zook
Director of Church and Community Relations, Living
Branches Retirement Communities; Board Chair,
Penn Foundation
Wholly-Owned Subsidiaries
Univest Bank and Trust Co.
Univest Capital, Inc.
Univest Insurance, Inc.
Univest Investments, Inc.
104 S. Oakland Ave., LLC
Allied Benefits Group, LLC
Davisville Associates, LLC
Delview, Inc.
Girard Partners, Ltd., a Univest Wealth
Management Firm
TCG Investment Advisory, Inc.
Please visit univest.net for a complete list of locations for Univest Corporation and our subsidiaries.
Toggle SGML Header (+)
Section 1: 10-K (10-K)
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2016
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 or 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(b) of the Act:
Title of class
Common Stock, $5 par value
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which registered
The NASDAQ Stock Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133)(cid:3)No (cid:95)
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 (cid:133)(cid:3)No (cid:95)
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 (cid:95) No (cid:133)
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 (cid:95) No (cid:133)
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 the 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 (cid:133)
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 (cid:133)
Non-accelerated filer (cid:133)(cid:3)(Do not check if a smaller reporting company)
Accelerated filer (cid:95)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:95)
The approximate aggregate market value of voting stock held by non-affiliates of the registrant is $395,953,782 as of June 30, 2016 based on the June 30, 2016 closing price of the Registrant's Common
Stock of $21.02 per share.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, $5 par value
(Title of Class)
26,604,320
(Number of shares outstanding at January 31, 2017)
Part I and Part III incorporate information by reference from the proxy statement for the annual meeting of shareholders on April 18, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
PART IV
1
2
6
15
15
15
15
16
19
20
46
47
115
115
117
117
117
117
117
117
117
120
Table of Contents
PART I
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 and section 21E of the Securities Exchange Act of 1934. 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 owns all of the capital stock of Univest Bank and Trust Co. (the Bank). The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiary, the Bank. The Corporation’s and the Bank’s legal headquarters are located at 14 North Main Street, Souderton, PA 18964.
The Bank is a Pennsylvania state-chartered bank and trust company. As a state-chartered member bank of the Federal Reserve System, the Bank is regulated primarily by the
Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia.
The Bank is engaged in the commercial and consumer banking business and provides a full range of banking 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, Univest Investments, Inc., a full-service broker-dealer and investment
advisory firm and Girard Partners (Girard), a registered investment advisory firm acquired in January 2014. Univest Insurance has four offices in Pennsylvania and one in Maryland.
Univest Investments has two offices in Pennsylvania. Girard is headquartered in King of Prussia, Pennsylvania with a satellite office in Florida. The Bank is also the parent company
of Univest Capital, Inc., an equipment financing business, and TCG Investment Advisory, a registered investment advisory 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 Investments, Inc., Univest Insurance, Inc. and Univest Capital, Inc. were formed to enhance the traditional banking and trust services provided by the Bank, as was
the acquisition of Girard Partners.
At December 31, 2016, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines its segments based
primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has
positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. For more detailed discussion and financial
information on the business segments, see Note 23 “Segment Reporting” included in the Notes to the Consolidated Financial Statements included herein under Item 8.
At December 31, 2016, the Corporation had total assets of $4.2 billion, net loans and leases of $3.3 billion, total deposits of $3.3 billion and total shareholders’ equity of $505.2
million.
2
Table of Contents
Employees
At December 31, 2016, the Corporation and its subsidiaries employed eight hundred and forty (840) persons. None of these employees are covered by collective bargaining
agreements, and the Corporation believes it enjoys good relations with its personnel.
Market Area
The Corporation is headquartered in Souderton, Pennsylvania, which is located in Southeastern Pennsylvania, approximately thirty-five miles north of Philadelphia. The highest
concentration of our deposits and loans are in Montgomery and Bucks counties where twenty-eight out of our thirty-seven financial centers are located. The acquisition of Fox Chase
Bancorp (Fox Chase) on July 1, 2016 expanded the Corporation's presence in Montgomery, Bucks, Philadelphia, and Chester counties in Pennsylvania and into Cape May county in
New Jersey. In addition to financial centers gained through acquisitions, the Corporation opened a financial center located in each county of Philadelphia, Lehigh and Lancaster in
Pennsylvania during 2016.
Montgomery and Bucks counties are two of the wealthiest counties in Pennsylvania. Significant types of employment industries include pharmaceuticals, health care, electronics,
computer services, insurance, industrial machinery, retailing, schools and meat processing. Major companies throughout the two counties include Merck and Company, Abington
Hospital-Jefferson Health, GlaxoSmithKline, Hatfield Quality Meats, Aetna/U.S. Healthcare, St. Mary Medical Center, Giant Food Stores LLC, Doylestown Hospital, Grand View
Hospital, Central Bucks School District, Pennsbury School District and Northtec LLC. Unemployment rates at December 2016 were 3.6% in Montgomery County and 4.1% Bucks
County, lower than Pennsylvania’s state unemployment rate of 4.9% and the federal unemployment rate of 4.5%, according to the Bureau of Labor Statistics.
The Corporation ranks fifth in market share in Montgomery County with fifteen financial centers and eighth in Bucks County with thirteen financial centers; with 5.8% of total
combined market share in the two counties according to data provided by SNL Financial. Montgomery County’s population has grown 3% to 824,000 from the year 2010 to 2016, and
is expected to grow another 1.9% through 2022, while Bucks County’s population has increased .5% to 628,000 during the same period, but is expected to grow .7% through 2022,
according to SNL Financial. The median age is 40 years and 42 years in Montgomery and Bucks counties, respectively, consistent with the median age of 40 years in Pennsylvania
and slightly higher than the median age in the United States of 38 years. County estimates project the median age to increase over the next two decades. The median yearly household
income was $83,000 for Montgomery County and $83,000 for Bucks County during 2016 and is expected to increase 6% for Montgomery County and 10% for Bucks County through
2022, according to SNL Financial. The yearly median income for both counties is well above that of the Commonwealth of Pennsylvania of $57,000 and the United States at $57,000
during 2016.
Competition
The Corporation’s service areas are characterized by intense competition for banking business among commercial banks, savings institutions and other financial institutions. The
Corporation’s subsidiary bank actively competes with such banks and financial institutions for local retail and commercial accounts in Montgomery, Bucks, Chester, Philadelphia,
Lancaster and Lehigh counties of Pennsylvania and Cape May county of New Jersey, as well as other financial institutions outside its primary service area.
In competing with other banks, savings institutions and other financial institutions, the Bank seeks to provide personalized services and local decision making through
management’s knowledge and awareness of its service area, customers and borrowers.
Other competitors, including credit unions, consumer finance companies, insurance companies, wealth management providers, leasing companies and mutual funds, compete with
certain lending and deposit gathering services and insurance and wealth management services offered by the Bank and its operating segments.
Supervision and Regulation
The financial services industry in the United States, particularly entities that are chartered as banks, is highly regulated by federal and state laws that limit the types of businesses
in which banks and their holding companies may engage, and which impose significant operating requirements and limitations on banking entities. The discussion below is only a
brief summary of some of the significant laws and regulations that affect the Bank and the Corporation, and is not intended to be a complete description of all such laws.
The Bank is subject to supervision and is regularly examined by the Pennsylvania Department of Banking and Securities and the Federal Reserve Bank of Philadelphia. The Bank
is also subject to examination by the Federal Deposit Insurance Corporation.
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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 is subject to the Sarbanes-Oxley Act of 2002 (SOX). SOX adopted new standards of corporate governance and imposed additional requirements on the board of
directors and management of public companies. SOX also requires that the chief executive officer and chief financial officer certify the accuracy of periodic reports 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 control over
financial reporting, identify any material weaknesses in its internal control over financial reporting and assert that such internal controls are effective. The Corporation has continued
to be in compliance with SOX 404 during 2016. The Corporation must maintain effective internal controls, which requires 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.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).
The Dodd-Frank Act was signed into law on July 21, 2010. Uncertainty remains as to the ultimate impact of the Dodd-Frank Act, which could have a material adverse impact
either on the financial services industry as a whole, or on the Corporation’s business, results of operations and financial condition. The Dodd-Frank Act, among other things:
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Centralized responsibility for consumer financial protection by the creation of a new agency, the Consumer Financial Protection Bureau, that has rulemaking authority for a wide
range of consumer protection laws that apply to all banks and has broad powers to supervise and enforce consumer protection laws;
Increased the FDIC assessment for depository institutions with assets of $10 billion or more, changed the basis for determining FDIC premiums from insured deposits to
consolidated assets less tangible capital; and increased the minimum reserve ratio for the deposit insurance fund to 1.35% by September 30, 2020;
Permanently increased the federal deposit insurance coverage to $250 thousand and increased the Securities Investor Protection Corporation protection from $100 thousand to
$250 thousand;
Repealed the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other
accounts;
Amended the Electronic Funds Transfer Act, “Regulation E” to give the Federal Reserve authority to establish rules to limit debit-card interchange fees and rules regarding
overdraft fees;
Provided for new disclosures and other requirements relating to executive compensation, proxy access by shareholders and corporate governance;
Provided for mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay be determined for variable-rate
loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new
disclosures, and certain other revisions; and
Created a financial stability oversight council responsible for recommending to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and
other requirements as companies grow in size and complexity.
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Basel III
In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance
such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The July 2013 final rules generally
implement higher minimum capital requirements, add a new common equity Tier 1 capital requirement, and establish criteria that instruments must meet to be considered common
equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital. The new minimum capital to risk-adjusted assets requirements include a common equity Tier 1 capital ratio of 4.5%
(6.5% to be considered “well capitalized”) and a Tier 1 capital ratio of 6.0%, increased from 4.0% (and increased from 6.0% to 8.0% to be considered “well capitalized”); the total
capital ratio remains at 8.0% under the new rules (10.0% to be considered “well capitalized”). Under the new rules, in order to avoid limitations on capital distributions (including
dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier
1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. The final rules permit institutions, other than certain large
institutions, to elect to continue to treat most components of accumulated other comprehensive income as permitted under the current general risk-based capital rules, and not reflect
these items in common equity Tier 1 calculations (such as unrealized gains and losses on available-for-sale securities, amounts recorded in accumulated other comprehensive income
attributed to defined benefit retirement plans resulting from the initial and subsequent application of the relevant U.S. generally accepted accounting principles and accumulated net
gains and losses on cash flow hedges related to items that are reported on the balance sheet at fair value.) The new minimum capital requirements were effective on January 1, 2015.
The capital conservation buffer requirements phase in over a four-year period beginning January 1, 2016. The Corporation will continue to analyze the impact of the new rules as it
grows and as the capital conservation buffer requirements are phased in.
Wealth Management and Insurance Businesses
The Corporation's wealth management and insurance businesses are subject to additional regulatory requirements. The securities brokerage activities of Univest Investments, Inc.
are subject to regulation by the SEC, the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation. Girard Partners and TCG Investment
Advisory are registered investment advisory firms which are subject to regulation by the SEC. Univest Insurance, Inc. is subject to Pennsylvania insurance laws and the regulations of
the Pennsylvania Department of Insurance.
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 11 regional Federal Home Loan Banks, and is subject to supervision and
regulation by the Federal Housing Finance Agency. 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. At December 31, 2016, the Bank owned $10.1 million in FHLB capital stock.
The deposits of the Bank are insured under the Federal Deposit Insurance Corporation (FDIC) up to applicable limits. Effective April 1, 2011, in accordance with the provisions
of the Dodd-Frank Act, the FDIC implemented a final rule regarding deposit insurance assessments. The rule changed the assessment base from domestic deposits to average
consolidated total assets minus average tangible equity, adopted a new large-bank pricing assessment scheme, and set a target size for the Deposit Insurance Fund (DIF) at 2% of
insured deposits. The rule adopted a new assessment rate schedule and, in lieu of dividends, other rate schedules when the reserve ratio reaches certain levels. The final rule also
created a scorecard-based assessment system for banks with more than $10 billion in assets. The scorecards include financial measures that the FDIC believes are predictive of long-
term performance. Effective June 30, 2016, based on DIF ratios, the FDIC made changes to regulations to provide for three major changes to deposit insurance assessments including
a reduction to the range of initial assessment rates for all institutions, surcharges on large banks and a revised method to calculate risk-based assessment rates for established small
banks.
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Acquisitions
Univest Corporation of Pennsylvania and its business segments provide financial solutions to individuals, businesses, municipalities and nonprofit organizations. The 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, the Corporation and its subsidiaries have experienced stable growth, both organically and through various acquisitions to be the best integrated
financial solutions provider in the market.
The acquisitions included:
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Fox Chase Bancorp on July 1, 2016
Valley Green Bank on January 1, 2015
Sterner Insurance Associates on July 1, 2014
Girard Partners on January 1, 2014
John T. Fretz Insurance Agency, Inc. on May 1, 2013
Javers Group on May 31, 2012
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. Information included on the Corporation’s website is not part of
this Annual Report on Form 10-K. The Corporation will provide at no charge a copy of the SEC Form 10-K annual report for the year 2016 to each shareholder who requests one in
writing after March 31, 2017. Requests should be directed to: Megan Duryea Santana, Corporate Secretary, Univest Corporation of Pennsylvania, P.O. Box 197, Souderton, PA
18964.
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, values of real
estate and other collateral and the strength of the U.S. economy and the local economies in which we operate, all of which are beyond our control.
Uncertainty in the financial markets and concerns regarding general economic conditions have persisted over the past few years. While general economic trends and market
conditions have shown improvement, economic growth has been slow as consumers continue to recover from previously high unemployment rates, lower housing prices and
foreclosures in the housing market, financial difficulties and concerns about the level of national debt. The continued economic pressures on consumers and businesses or return of
recessionary conditions may adversely affect our business, financial condition, and results of operations.
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We cannot predict the effect of recent legislative and regulatory initiatives, and they could increase our costs of doing business and adversely affect our results of operations and
financial condition.
The Dodd-Frank Act may have a material impact on our operations, particularly through increased compliance costs resulting from possible future consumer and fair lending
regulations. Other changes to statutes, regulations or regulatory policies, could affect the Corporation in substantial and unpredictable ways. Such changes could subject the
Corporation to additional costs, limit the types of financial services and products the Corporation may offer, limit the fees we may charge, increase the ability of non-banks to offer
competing financial services and products, change regulatory capital requirements (such as BASEL III), change deposit insurance assessments, and limit our ability to attract and
maintain our executive officers, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or
reputation damage, which could have a material adverse effect on the Corporation's business, financial condition and results of operations.
We borrow from the Federal Home Loan Bank and the Federal Reserve, and these lenders could modify or terminate their current programs which could have an adverse effect
on our liquidity and profitability.
We utilize the FHLB 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 as well as the FHLB’s internal credit rating of the Bank. 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 effect 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, 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 the 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 the 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.
Our customary sources of liquidity are, including, but not limited to, inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal
Reserve. Such sources of liquidity may not be available to us on acceptable terms or not available 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 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.
Risks Related to Our Market and Business
The Corporation’s profitability is affected by economic conditions in the Commonwealth of Pennsylvania.
Unlike larger regional banks that operate in large geographies, the Corporation provides banking and financial services to customers primarily in Montgomery, Bucks, Chester,
Philadelphia, Lancaster and Lehigh counties of Pennsylvania and Cape May county of New Jersey. Because of our geographic concentration, continuation of a slow economic
recovery in our region or a downturn in the local economy 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. Regional
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economic conditions have a significant impact on the ability of borrowers to repay their loans as scheduled. A sluggish economy 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 which could adversely impact its business and results of operations.
We face substantial competition in all phases of our businesses from a variety of different competitors. Our competitors, including commercial banks, community banks, savings
institutions, 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 and insurance and wealth management 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 or tax structure 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 and capital structure. 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 but would decrease shareholders' equity.
Our acquisition activities could involve a number of additional risks, including the risks of:
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incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions;
using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or its 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 may not 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
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more senior executives or key managers may have an adverse effect on our businesses. Recently, the Corporation entered into change in control agreements with certain executive
officers. As we continue to grow businesses, our success depends on our ability to continue to attract, manage, and retain other qualified 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. At December 31, 2016, 28% of our deposit base was comprised of
noninterest-bearing deposits, of which 19% consisted of business deposits, which are primarily operating accounts for businesses, and 9% 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.
The Corporation relies heavily on information systems to conduct its business. Any failure, interruption, or breach in security or operational integrity of these systems could result
in failures or disruptions in the Corporation’s customer relationship management and general ledger, deposit, loan, and other systems. The Corporation has policies and procedures
designed with the intention to prevent or limit the effect of any failure, interruption, or breach in our security systems. 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.
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.
Natural disasters, acts of war or terrorism and other external events could negatively 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. In addition, such
events could affect the stability of the Corporation’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause
significant property damage, result in loss of revenue and/or cause the Corporation to incur additional expenses. Our management has established disaster recovery policies and
procedures that are expected to mitigate events related to natural or man-made disasters; however, the occurrence of any such event and 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 U.S. generally accepted accounting principles (U.S. 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, results of operations and capital 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 U.S. GAAP or are materially misleading.
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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:
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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 short-term and long-term
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. Increasing interest rates may also reduce the fair value of our fixed rate investment securities negatively impacting shareholders' equity.
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 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.
At December 31, 2016, approximately 85.3% of our loan and lease portfolio consisted of commercial, financial and agricultural, commercial real estate and construction loans and
leases which 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 increases if the economy worsens.
Commercial business loans and leases 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 and leases often depreciates
over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business.
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). 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, borrower
liquidation of collateral or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the
demand for residential housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the
original underwriting was completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost for projects to be higher than
the builder projected, negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.
Commercial real estate loans secured by owner-occupied properties are dependent upon the successful operation of the borrower’s business. If the operating company suffers
difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by properties where repayment is dependent upon
payment of rent by third party
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tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to sell a completed project in a timely fashion and
at a profit.
Commercial business, commercial real estate, 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 could experience an increase in delinquencies and losses as these loans continue
to mature.
The 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 earnings, financial condition and capital ratios at that time. Moreover, additions to the allowance may be 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 Corporation is required to adopt the FASB's accounting standard which requires measurement of certain financial assets (including loans) using the current expected credit
losses (CECL) beginning in calendar year 2020.
Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The FASB's amendment
replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and
supportable information to inform credit loss estimates. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial
statements; however, it is anticipated that the allowance will increase upon the adoption of CECL and that the increased allowance level will have the effect of decreasing
shareholders' equity and the Corporation's and Bank's regulatory capital ratios.
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.
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The Corporation is subject to extensive government regulation and supervision.
We are subject to Federal Reserve Board regulation. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulators, the Pennsylvania
Department of Banking and Securities and the Federal Reserve Bank of Philadelphia, and by the FDIC, the regulating authority that insures customer deposits. Also, as a member of
the FHLB, the Bank must comply with applicable regulations of the Federal Housing Finance Agency 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. The Bank’s activities are also regulated under consumer protection laws
applicable to our lending, deposit, and other activities. A large claim against the Bank under these laws could have a material adverse effect on our results of operations and financial
condition.
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. New financial reform legislation has been enacted by Congress changing the bank regulatory framework, creating an independent consumer
protection bureau and establishing more stringent capital standards for financial institutions and their holding companies. The legislation has, and will likely continue to result, in new
regulations including those that affect lending, funding, trading and investment activities of financial institutions and their holding companies. Such additional regulation and oversight
could have a material and adverse impact on us.
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 operations.
Risks Related to the Wealth Management and Insurance Industries
Revenues and profitability from our wealth management business may be adversely affected by any reduction in assets under management and supervision as a result of either a
decline in market value of such assets or net outflows, which could reduce trust, investment advisory and brokerage and other servicing fees earned.
The wealth management business derives the majority of its revenue from noninterest income which consists of trust, investment advisory and brokerage and other servicing fees.
Substantial revenues are generated from investment management contracts with clients. Under these contracts, the investment advisory fees paid to us are typically based on the
market value of assets under management. Assets under management and supervision may decline for various reasons including declines in the market value of the assets in the funds
and accounts managed or supervised, which could be caused by price declines in the securities markets generally or by price declines in specific market segments. Assets under
management may also decrease due to redemptions and other withdrawals by clients or termination of contracts. This could be in response to adverse market conditions or in pursuit
of other investment opportunities.
The wealth management industry is subject to extensive regulation, supervision and examination by regulators, and any enforcement action or adverse changes in the laws or
regulations governing our business could decrease our revenues and profitability.
The wealth management business is subject to regulation by a number of regulatory agencies that are charged with safeguarding the integrity of the securities and other financial
markets and with protecting the interests of customers participating in those markets. In the event of non-compliance with an applicable regulation, governmental regulators, including
the SEC, and FINRA, may institute administrative or judicial proceedings that may result in censure, fines, civil penalties, the issuance of cease-and-desist orders or the deregistration
or suspension of the non-compliant broker-dealer or investment adviser or other adverse consequences. The imposition of any such penalties or orders could have a material adverse
effect on the wealth management segment's operating results and financial condition. We may be adversely affected as a result of new or revised legislation or regulations. Regulatory
changes have imposed and may continue to impose additional costs, which could adversely impact our profitability.
Revenues and profitability from our insurance business may be adversely affected by market conditions, which could reduce insurance commissions and fees earned.
The revenues of our fee based insurance business are derived primarily from commissions from the sale of insurance policies, which commissions are generally calculated as a
percentage of the policy premium. These insurance policy commissions can fluctuate as insurance carriers from time to time increase or decrease the premiums on the insurance
products we sell. Due to the cyclical nature of the insurance market and the impact of other market and macro economic conditions on insurance premiums,
12
Table of Contents
commission levels may vary. The reduction of these commission rates, along with general volatility and/or declines in premiums, may adversely impact our profitability.
Risks Related to Our Common Stock
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 public company.
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 could cause the Corporation’s stock price to
decrease regardless of our operating results. These factors include, but are not limited to:
•
•
•
•
•
•
•
•
•
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.
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 sell 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, 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
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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 bank 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 the 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 state member banks in the
Federal Reserve System. If the 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.
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Table of Contents
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The Corporation and its subsidiaries occupy fifty-five properties in Montgomery, Bucks, Philadelphia, Chester, Lehigh, Delaware, Lancaster and Cumberland counties in
Pennsylvania, Camden and Cape May counties in New Jersey, Calvert County in Maryland and Lee County in Florida, most of 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 buildings, which are shared with the Bank, Univest Investments, Inc., and Univest Insurance, Inc. in Souderton, Montgomery
County. The Bank has a leased office used by Univest Investments, Inc. and for loan production located in Allentown, Lehigh County. The Bank owns an office used by Univest
Capital, Inc. and Univest Insurance, Inc. located in West Chester, Chester County. Univest Insurance, Inc. occupies four additional locations, of which one is owned by Univest
Insurance, Inc. in Coopersburg, Lehigh County and one is owned by the Bank, in Lansdale, Montgomery County; and two are leased, one in North Beach, Calvert County in Maryland
and one in Cherry Hill, Camden County in New Jersey. Univest Capital, Inc. occupies one additional leased location in Bensalem, Bucks County. Girard occupies two leased offices,
one located in King of Prussia, Montgomery County, and one located in Fort Meyers, Lee County in Florida. The Bank serves the area through its thirty-six traditional offices and one
supermarket branch that offer traditional community banking and trust services. In Pennsylvania, fifteen banking offices are located in Montgomery County, of which nine are owned,
four are leased and two are buildings owned on leased land; thirteen banking offices are located in Bucks County, of which seven are owned, four are leased and two are buildings
owned on leased land; five banking offices are located in Philadelphia County, of which one is owned and four are leased; one leased banking office is located in Chester County; one
leased banking office is located in Lehigh County; and one leased banking office is located in Lancaster County. In New Jersey, one owned banking office is located in Cape May
County. The Bank has four additional regional leased offices, one primarily used for corporate banking and mortgage banking located in Doylestown, Bucks County, one used for
administrative offices for loan production located in Philadelphia, Philadelphia County, one used for mortgage banking located in Mechanicsburg, Cumberland County, and one used
for corporate lending in Lancaster, Lancaster County. The traditional office located in West Chester, Chester County, is also used for commercial banking and wealth management.
The traditional office located in Hatboro, Montgomery County, is also used for corporate lending.
Additionally, the Bank provides banking and trust services for the residents and employees of fourteen retirement home communities. The Bank has nine off-premise automated
teller machines, four of which are located in Montgomery County, three in Bucks County, one in Lehigh County and one in Chester County. The Bank provides banking services
nationwide through the internet via its website www.univest.net.
Item 3.
Legal Proceedings
Management is not aware of any litigation that would be probable of occurring or probable of having a material adverse effect on the consolidated balance sheet or statement of
income 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. Mine Safety Disclosures
Not Applicable.
15
Table of Contents
Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
The Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “UVSP.” At December 31, 2016, the Corporation had 2,785 stockholders of
record.
Broadridge Corporate Issuer Solutions, Inc. (Broadridge), serves as the Corporation’s transfer agent. Broadridge is located at 1155 Long Island Avenue, Edgewood, NY 11717.
Shareholders can contact a representative by calling 866-321-8021.
Range of Market Prices of Common Stock and Cash Dividends
The following table shows the high and low sale prices of the Corporation’s common stock. The table also presents the cash dividends declared per share for each quarter.
2016
January–March
April–June
July–September
October–December
2015
January–March
April–June
July–September
October–December
Market Price
High
Low
Cash Dividends Declared
per Share
$
$
$
$
20.98
21.28
23.79
31.50
20.61
20.92
20.88
21.19
$
$
18.43
18.81
19.97
22.76
18.31
18.77
18.55
18.77
0.20
0.20
0.20
0.20
0.20
0.20
0.20
0.20
For a description of regulatory restrictions on the ability of the Corporation and the Bank to pay dividends, see Note 21 “Regulatory Matters” included in the Notes to the
Consolidated Financial Statements included herein under Item 8.
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,
2016, 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, 2011, 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.
Five Year Cumulative Total Return Summary
2011
2012
2013
2014
2015
2016
Univest Corporation of Pennsylvania
NASDAQ Stock Market (US)
NASDAQ Banks
100.00
100.00
100.00
122.37
117.70
118.61
17
154.34
164.92
167.99
157.18
189.33
176.18
168.56
202.82
191.73
258.50
220.93
264.29
Table of Contents
Equity Compensation Plan Information
The Corporation has a shareholder approved 2013 Long-Term Incentive Plan which replaced the expired 2003 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive
Plan, the Corporation may grant options and share awards to employees and non-employee directors up to 3,355,786 shares of common stock, which includes 857,191 shares as a
result of the completion of the acquisition of Fox Chase on July 1, 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank on January 1, 2015.
The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of
shares subject to other awards, as described in the plan.
The following table sets forth information regarding outstanding options and shares under equity compensation plans at December 31, 2016:
Plan Category
Equity compensation plan approved by security holders
Equity compensation plan not approved by security holders
Total
(a)
(b)
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(c)
Number of Securities Remaining
Available for Future Issuance Under
Equity Compensation Plans
(Excluding Securities Reflected in
Column (a))
504,908
—
504,908
$
$
19.06
—
19.06
2,747,871
—
2,747,871
The following table provides information on repurchases by the Corporation of its common stock during the fourth quarter of 2016, under the Corporation's Board approved
ISSUER PURCHASES OF EQUITY SECURITIES
program:
Period
October 1 - 31, 2016
November 1 - 30, 2016
December 1 – 31, 2016
Total
Total Number
of Shares
Purchased
Average
Price Paid
per Share
— $
—
—
— $
—
—
—
—
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
—
—
—
—
1,080,246
1,080,246
1,080,246
1.
2.
Transactions are reported as of trade dates.
On October 23, 2013, the Corporation’s Board of Directors approved a new stock repurchase plan for the repurchase of up to 800,000 shares, or approximately 5% of the shares outstanding. On
May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares available for repurchase under the Corporation's share repurchase program, or approximately 5% of
the Corporation's common stock outstanding as of May 27, 2015. The repurchased shares limit is net of normal treasury activity such as purchases to fund the dividend reinvestment, employee
stock purchase and equity compensation plans. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.
18
Table of Contents
Item 6.
Selected Financial Data
(Dollars in thousands, except per share data)
2016
2015
2014
2013
2012
For the Years Ended December 31,
Earnings
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Noninterest income
Noninterest expense
Net income before income taxes
Income taxes
Net income
Financial Condition at Year End
Cash and interest-earning deposits
Investment securities
Net loans and leases held for investment
Assets
Deposits
Borrowings
Shareholders' equity
Per Common Share Data
Average shares outstanding (in thousands)
Earnings per share – basic
Earnings per share – diluted
Dividends declared per share
Book value (at year-end)
Dividends declared to net income
Profitability Ratios
Return on average assets
Return on average equity
Average equity to average assets
Asset Quality Ratios
Nonaccrual loans and leases (including nonaccrual, troubled debt restructured
loans and lease modifications) to loans and leases held for investment
Nonperforming loans and leases to loans and leases held for investment
Net charge-offs to average loans and leases outstanding
Allowance for loan and lease losses to total loans and leases held for investment
Allowance for loan and lease losses to total loans and leases held for investment
(excluding acquired loans at period-end)
Allowance for loan and lease losses to nonaccrual loans and leases
Allowance for loan and leases losses to nonperforming loans and leases
$
126,607
$
101,983
$
$
$
$
8,065
93,918
3,802
90,116
52,425
105,515
37,026
9,758
27,268
60,799
370,760
2,161,385
2,879,451
2,394,360
73,588
361,574
19,663
1.39
1.39
0.80
18.51
57.35%
0.98%
7.58
12.96
0.65%
0.91
0.33
0.81
0.94
124.29
89.00
$
$
$
$
$
$
12,382
114,225
4,821
109,404
55,963
141,981
23,386
3,881
19,505
57,825
468,518
3,268,387
4,230,528
3,257,567
417,780
505,209
23,098
0.85
0.84
0.80
19.00
94.51%
0.56%
4.46
12.50
0.55%
0.67
0.18
0.53
0.73
97.67
78.98
19
$
$
$
$
76,192
3,996
72,196
3,607
68,589
48,344
87,254
29,679
7,448
22,231
38,565
368,630
1,605,963
2,235,321
1,861,341
41,974
284,554
16,235
1.37
1.37
0.80
17.54
58.40%
1.01%
7.74
13.03
1.07%
1.43
0.47
1.27
1.27
119.18
88.84
$
$
$
$
77,804
5,117
72,687
11,228
61,459
46,559
81,133
26,885
5,696
21,189
69,169
402,284
1,516,990
2,191,559
1,844,498
37,256
280,506
16,605
1.28
1.28
0.80
17.22
62.70%
0.95%
7.53
12.62
1.51%
2.05
0.77
1.59
1.59
105.42
77.53
80,865
8,174
72,691
10,035
62,656
40,049
76,282
26,423
5,551
20,872
146,112
499,579
1,457,116
2,304,841
1,865,333
117,276
284,277
16,761
1.25
1.24
0.80
16.95
64.25%
0.95%
7.39
12.78
2.17%
3.11
1.03
1.67
1.67
77.01
53.76
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. “BP” equates to “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.)
The information contained in this report may contain forward-looking statements, including statements relating to Univest Corporation of Pennsylvania (the Corporation) and its
financial condition and results of operations that involve certain risks, uncertainties and assumptions. The Corporation’s actual results may differ materially from those anticipated,
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 Operations and elsewhere
in this report.
Critical Accounting Policies
The discussion below outlines the Corporation’s critical accounting policies. For further information regarding accounting policies, refer to Note 1, “Summary of Significant
Accounting Policies” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K.
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, purchase accounting, 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.
Fair Value Measurement of Investment Securities Available-for-Sale and Assessment for Impairment of Certain Investment Securities: The Corporation designates its investment
securities as held-to-maturity, available-for-sale or trading. Each of these designations affords different treatment in the balance sheet and statement of income 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 adjustments to either the balance sheet or statement of condition may be
required.
Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated
pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance
data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such
as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does have not sufficient verifiable
information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third party service’s
valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.
Management evaluates debt securities for other-than-temporary impairment by considering the current economic conditions, the length of time and the extent to which the fair
value has been less than cost, market interest rates and the credit rating of each security. The Corporation evaluates its equity securities for other-than-temporary impairment. Other-
than-temporary impairment charges are recorded when the Corporation determines the fair value of certain equity securities will not recover the 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.
Reserve for Loan and Lease Losses: 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 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
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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 the allowance that may negatively impact the Corporation’s results of
operations and statements of financial condition in the periods requiring additional reserves.
Purchase Accounting: 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. The Corporation completed the acquisitions of Fox
Chase in July 2016 and Valley Green in January 2015, which generated significant amounts of fair value adjustments to assets and liabilities. The fair value adjustments assigned to
assets and liabilities, as well as their related useful lives, are subject to judgment and estimation by management. In many cases, determining the fair value of the acquired assets and
assumed liabilities requires the Corporation to estimate cash flows expected to result from those assets and liabilities and to discount those cash flows at appropriate rates of interest,
which requires the utilization of significant estimates and judgment in accounting for the acquisition.
The most significant fair value determination relates to the valuation of acquired loan portfolios. Level 3 inputs are utilized to value the portfolio and include the use of present
value techniques employing cash flow estimates and incorporate assumptions that marketplace participants would use in estimating fair values. Specifically, management utilizes three
separate fair value analyses which a market participant would employ in estimating the total fair value adjustment, which are: 1) interest rate loan fair value analysis; 2) general credit
fair value analysis; and 3) specific credit fair value analysis. For loans acquired with evidence of credit quality deterioration, the Corporation prepares a specific credit fair value
adjustment. Actual performance of loans could differ from management’s initial estimates. If a loan outperforms the original fair value estimate, the difference between the original
estimate and the actual performance of the loan is accreted into net interest income. Therefore, the net interest margin may initially increase due to the discount accretion. The yields
on acquired loans is expected to decline as the acquired loan portfolio pays down or matures and the discount decreases. This could result in higher net interest margins and interest
income in current periods and lower net interest rate margins and lower interest income in future periods. For more information, see Note 1 “Summary of Significant Accounting
Policies" included in the Notes to the Consolidated Financial Statements included herein under Item 8.
Valuation of intangible assets is generally based on the estimated cash flows related to those assets, while the initial value assigned to goodwill is the residual of the purchase
price over the fair value of all identifiable assets acquired and liabilities assumed. The most significant other intangible asset is the core deposit intangible (CDI). In oder to initially
record the fair value of the CDI, the income approach is used. Estimates are based upon financial, economic, market and other conditions that exist at the time of the acquisition to
develop the projected market interest rate, future interest and maintenance costs, and attrition rates. Useful lives are determined based on the expected future period of the benefit of
the asset or liability, the assessment of which considers various characteristics of the asset or liability, including the historical cash flows.
Valuation of Goodwill and Other Intangible Assets: The Corporation completes a goodwill analysis at least on an annual basis or more often if events and circumstances indicate
that there may be impairment. The Corporation also completes an impairment test for other intangible assets on an annual basis or more often if events and circumstances indicate a
possible impairment. In accordance with ASC Topic 350, the Corporation has the option of performing a qualitative assessment to determine whether it is more likely than not that the
fair value of the Corporation, including each of its identified reporting units is less than its carrying amount. If the results of the qualitative assessment indicate the potential for
impairment, the Corporation would perform the two-step goodwill impairment test.
The Corporation performs the qualitative assessment at the reporting unit level including Banking, Wealth Management, and Insurance. The Corporation identifies the significant
drivers of fair value including macroeconomic and microeconomic conditions, overall financial performance, management’s knowledge of the business, key assumptions used in the
most recent fair value determination and assumptions at the time of acquisition. As part of this analysis, the Corporation considered the results of the most recent fair value
determination performed as of October, 31, 2014, including the amount of excess between the unit’s fair value and carrying amount, changes in the reporting unit and the economic
environment in which the reporting unit operates. The Corporation performs a qualitative assessment of the likely impact of the factors on the fair value of the reporting unit and
considers what events and circumstances have occurred that may have impacted the drivers of fair value. The Corporation considers the overall financial performance of the reporting
unit, including current and projected earnings, funding resources, cashflows, salary and benefits expense, capital and tangible capital as well as changes in management and customers,
general economic conditions and the regulatory environment. The Corporation considers the reporting unit’s performance in comparison to peers and recent merger and acquisition
data including trading multiples of independent publicly traded entities of comparable sizes. The Corporation also considers changes in its stock price and in comparison to the
banking industry. During the fourth quarter of 2016, the Corporation determined based on the assessment of these qualitative factors and events and circumstances that may impact the
drivers of fair value, it was more likely than not that the fair value of the Corporation and each of the reporting units was more than its carrying amount; therefore,
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the Corporation did not need to perform the two-step impairment test for the Corporation or the reporting units. The Corporation will perform the two-step impairment test as
described below when the qualitative assessment indicates a material negative impact of the factors on the operating performance or cashflows of the Corporation and the reporting
units which would more likely than not result in the fair value of the Corporation, including the reporting units, being less than its carrying amount.
There was no goodwill impairment and no material impairment of identifiable intangibles recorded during 2014 through 2016. There can be no assurance that future impairment
assessments or tests will not result in a charge to earnings.
For other identifiable 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 income. 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.
Mortgage Servicing Rights: 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 economic value of the estimated net present value of the cash flows that will be received from
servicing the loans over their entire future term in excess of the cost of servicing. 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 mortgage servicing rights tends to shorten, as borrowers have
increased incentive to refinance. Shortened mortgage servicing lives may require changes in the value of the servicing rights that have already been recorded to be marked down. This
may cause a material change in reported results of 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.
Deferred Tax Assets and Liabilities: 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 income 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.
Benefit Plans: The Corporation has a retirement plan that it provides as a benefit to employees hired before December 8, 2009 and former employees who were also hired before
December 8, 2009 and met the plan’s vesting requirements. The Corporation also provides supplemental retirement plans that it provides as a benefit to certain former executives.
Determining the adequacy of the funding of these plans requires estimates of future salary rate increases, of long-term rates of investment return, mortality assumptions, 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 balance sheet or statement of income.
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’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 Corporation grants stock options to employees with an
exercise price equal to the fair value of the shares at the date of grant. The Corporation grants both fixed and variable (performance-based) restricted stock to employees and non-
employee directors. The performance-based restricted stock awards vest based upon the Corporation’s performance against selected peers with respect to certain financial measures
and internally developed earnings per share targets over a three-year period. The fair value of fixed 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 performance-based restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period adjusted for
a probability factor of achieving the performance goals.
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.
22
Table of Contents
General
The Corporation earns revenues primarily from the margins and fees generated from the lending and depository services to customers as well as fee-based income from trust,
insurance, mortgage banking and investment services to customers. The Corporation seeks to achieve adequate and reliable earnings through business growth 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 strategic 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, mortgage banking and investment services to customers.
The principal component of earnings for the Corporation is net interest income, the income earned on loans and investments less the cost of interest-bearing liabilities. The net
interest margin, the ratio of net interest income to average earning assets, is impacted by several factors including market interest rates, economic conditions, loan and lease demand,
and deposit activity. 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 slightly asset sensitive position and shall benefit modestly with increased net interest income should interest rates rise.
23
Table of Contents
Executive Overview
The Corporation’s consolidated net income, earnings per share and return on average assets and average equity were as follows:
(Dollars in thousands, except per share data)
Net income
Net income per share:
Basic
Diluted
Return on average assets
Return on average equity
2016 versus 2015
For the Years Ended December 31,
Amount of Change
Percent Change
$
$
$
$
2016
19,505
0.85
0.84
0.56%
4.46
$
$
2015
27,268
1.39
1.39
0.98%
7.58
2014
2016 to 2015
2015 to 2014
2016 to 2015
2015 to 2014
$
$
22,231
1.37
1.37
1.01%
7.74
$
$
(7,763)
(0.54)
(0.55)
(42) BP
(312) BP
5,037
(28.5)%
22.7%
0.02
0.02
(3) BP
(16) BP
(38.8)
(39.6)
(42.9)
(41.2)
1.5
1.5
(3.0)
(2.1)
The Corporation reported net income of $19.5 million or $0.84 diluted earnings per share for 2016 compared to net income of $27.3 million or $1.39 diluted earnings per share
for 2015. The financial results for 2016 include the Fox Chase Bank acquisition, which the Corporation completed on July 1, 2016. The financial results for the year ended
December 31, 2016 included acquisition and integration costs related to the Fox Chase acquisition plus restructuring costs related to facility closures and staffing rationalization of
$11.8 million, net of tax, or $0.51 of diluted earnings per share. The results for the year ended December 31, 2016 also included $1.2 million, net of tax, or $0.05 of diluted earnings
per share, related to the Corporation’s agreement to settle its future obligations related to its acquisition of Girard Partners, Inc. during the fourth quarter of 2016. The financial results
for the year ended December 31, 2015 included acquisition, integration and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and its new financial
center model of $2.9 million, net of tax, or $0.15 of diluted earnings per share.
•
•
•
•
•
Net interest income on a tax-equivalent basis for 2016 was $119.7 million, an increase of $20.5 million, or 20.6%, compared to 2015. The net interest margin on a tax-
equivalent basis for 2016 was 3.82%, compared to 3.96% for 2015. The increase in net interest income and decrease in net interest margin (tax equivalent) was mainly due to
the impact of the Fox Chase acquisition, which occurred on July 1, 2016.
The provision for loan and lease losses for 2016 was $4.8 million, compared to $3.8 million for 2015.
Noninterest income for 2016 was $56.0 million, an increase of $3.5 million, or 6.7%, compared to 2015. Investment advisory commission and fee income increased $584
thousand and insurance commission and fee income increased $718 thousand. Bank owned life insurance income increased $1.6 million primarily due to proceeds from bank
owned life insurance death benefits of $450 thousand recognized in the fourth quarter of 2016, acquired policies from Fox Chase of $26.1 million and in 2015, the purchase
of $8.0 million and the transfer of $9.8 million of policies to a higher yielding account structure. The net gain on mortgage banking activities increased $1.2 million mainly
due to higher mortgage volume. These favorable increases were partially offset by a decline in the net gain on sales of investment securities of $747 thousand.
Noninterest expense for 2016 was $142.0 million, an increase of $36.5 million, or 34.6% compared to 2015. Acquisition and integration costs related to the Fox Chase
acquisition and restructuring costs related to facility closures and staffing rationalization totaled $17.7 million for the year ended December 31, 2016. Acquisition, integration
and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and new financial center model were $4.2 million for the year ended December 31,
2015. Salaries and benefit expense increased $11.4 million for the year ended December 31, 2016, primarily attributable to higher staffing levels resulting from the Fox
Chase acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Premises and equipment expenses
increased $1.5 million primarily due to higher premises expense related to Fox Chase locations and expansion into Philadelphia, Lancaster County and the Lehigh Valley.
Data processing expense increased $2.3 million due to increased investments in computer software as well as six months of Fox Chase processing expense. Intangible
expenses increased $3.0 million as the Corporation reached an agreement to settle its future obligation related to its acquisition of Girard Partners, Inc.
Gross loans and leases held for investment increased $1.1 billion from December 31, 2015, including $776.2 million of loans acquired from Fox Chase. Organic loan growth,
which excludes the loans acquired from Fox Chase at June 30, 2016, was $330.7 million, or 11.2%, for the year ended December 31, 2016.
24
Table of Contents
•
•
•
•
Deposits increased $863.2 million from December 31, 2015, primarily due to $738.3 million of deposits acquired from Fox Chase. Organic deposit growth, which excludes
the Fox Chase deposits at June 30, 2016, was $124.9 million or 4.0% for the year ended December 31, 2016.
Borrowings increased $344.2 million from December 31, 2015, primarily due to long-term borrowings acquired from Fox Chase which consisted of $105.0 million of Federal
Home Loan bank borrowings and commercial bank borrowings, the issuance by the Corporation of $45.0 million in subordinated notes on July 1, 2016 and an increase of
$172.0 million in short-term borrowings.
The effective income tax rate for the year ended December 31, 2016 was 16.6%, compared to 26.4% for the year ended December 31, 2015. These rates reflect the
Corporation’s levels of tax exempt income for both periods relative to the overall level of taxable income.
Total risk-based capital at December 31, 2016 under Basel III was 12.44% for the Corporation and 11.85% for the Bank, in excess of the regulatory minimum for well-
capitalized status of 10.00%.
2015 versus 2014
The Corporation reported net income of $27.3 million or $1.39 diluted earnings per share for 2015, a 22.7% increase from reported net income of $22.2 million or $1.37 diluted
earnings per share for 2014. The financial results for 2015 included the Valley Green Bank acquisition which the Corporation completed on January 1, 2015. The results for the year
ended December 31, 2015 included acquisition, integration and restructuring costs related to the Valley Green acquisition, the Fox Chase acquisition and its new financial center
model of $2.9 million, net of tax, or $0.15 of diluted earnings per share.
•
•
•
•
•
Net interest income on a tax-equivalent basis for 2015 was $99.2 million, an increase of $22.0 million, or 28.5%, compared to 2014. The net interest margin on a tax-
equivalent basis for 2015 was 3.96%, compared to 3.87% for 2014. The increase in net interest income was mainly due to the acquisition of Valley Green.
The provision for loan and lease losses for 2015 was $3.8 million, compared to $3.6 million for 2014.
Noninterest income for 2015 was $52.4 million, an increase of $4.1 million, or 8.4%, compared to 2014. The increase was primarily due to the acquisition of Sterner
Insurance on July 1, 2014 and higher mortgage banking income partially offset by a decline in investment advisory commission and fee income.
Noninterest expense for 2015 was $105.5 million, an increase of $18.3 million, or 20.9% compared to 2014. Noninterest expense was impacted by the Valley Green
acquisition which included integration and acquisition-related costs totaling $2.0 million during 2015 and additional expenses related to staffing, branch offices and
operations. Noninterest expense also included $540 thousand of acquisition-related costs associated with Fox Chase. In addition, noninterest expense for 2015 included
restructuring charges of $1.6 million related to the consolidation of six financial centers under the Bank's new financial center model.
Gross loans and leases grew $552.4 million, or 34.0% from December 31, 2014 which included $380.9 million of loans acquired from Valley Green. Organic loan growth,
which excludes the loans acquired from Valley Green at December 31, 2014, was 10.5% for the year ended December 31, 2015. Deposits increased $533.0 million, or 28.6%
from December 31, 2014, primarily due to $385.9 million of deposits acquired from Valley Green and an increase in public funds. Organic deposit growth, which excludes
the loans acquired from Valley Green at December 31, 2014, was 7.9% for the year ended December 31, 2015.
On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares in the common shares available for repurchase under the Corporation's share
repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. During 2015, the Corporation repurchased 608,757 shares of common
stock at a cost of $12.0 million under the share repurchase program.
Merger with Fox Chase Bancorp
On July 1, 2016, the Corporation completed the merger with Fox Chase Bancorp (Fox Chase), parent company of Fox Chase Bank, with an aggregate value of approximately
$242.2 million based on the Corporation's June 30, 2016 closing share price. The fair value of total assets acquired as a result of the merger totaled $1.1 billion, loans totaled $776.2
million and deposits totaled
25
Table of Contents
$738.3 million. The Corporation's presence expanded in Bucks, Chester, Philadelphia and Montgomery counties in Pennsylvania and into Cape May county in New Jersey,
complementing and expanding the Corporation's existing network of financial centers. For detailed information related to the transaction, see Note 3 "Acquisition" included in the
Notes to the Consolidated Financial Statements included herein under Item 8.
Results of Operations
Net Interest Income
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 year ended December 31, 2016 compared to 2015 and for the year ended December 31, 2015 compared to 2014. 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 weighted average tax-equivalent
yield on interest-earning assets less 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.
Table 1, Table 2, and the interest income and net interest income analysis contains tax-equivalent financial information and measures determined by methods other than in
accordance with U.S. GAAP. The management of the Corporation uses this non-GAAP financial information and measures in its analysis of the Corporation's performance. This
financial information and measures should not be considered a substitute for GAAP basis financial information or measures nor should they be viewed as a substitute for operating
results determined in accordance with GAAP. Management believes the presentation of the non-GAAP financial information and measures provide useful information that is essential
to a proper understanding of the financial results of the Corporation.
2016 versus 2015
Net interest income on a tax-equivalent basis for the year ended December 31, 2016 was $119.7 million, an increase of $20.5 million, or 20.6%, compared to the same period in
2015. The tax-equivalent net interest margin for the year ended December 31, 2016 was 3.82% compared to 3.96% for 2015. The increase in net interest income and decrease in net
interest margin was mainly due to the impact of the Fox Chase acquisition, which occurred on July 1, 2016. The favorable impact of acquisition accounting fair value adjustments was
nine basis points for both years ended December 31, 2016 and 2015. The incremental subordinated debt issuance in July 2016 increased funding costs by four basis points for the year
ended December 31, 2016 compared to 2015.
2015 versus 2014
Net interest income on a tax-equivalent basis for the year ended December 31, 2015 was $99.2 million, an increase of $22.0 million, or 28.5%, compared to the same period in
2014. The tax-equivalent net interest margin for the year ended December 31, 2015 was 3.96% compared to 3.87% for 2014. The increases in net interest income and net interest
margin during the year ended December 31, 2015 was mainly due to the impact of the Valley Green acquisition, which occurred on January 1, 2015. The favorable impact of
acquisition accounting fair value adjustments was nine basis points for the year ended December 31, 2015. The subordinated debt issuance increased funding costs by 10 basis points
for the year ended December 31, 2015 compared to 2014.
26
Average
Rate
Average
Balance
2014
Income/
Expense
Average
Rate
0.25% $
33,482
$
Table of Contents
Table 1—Average Balances and Interest Rates—Tax-Equivalent Basis
For the Years Ended December 31,
(Dollars in thousands)
Assets:
Interest-earning deposits with other banks
$
U.S. government obligations
Obligations of states and political
subdivisions
Other debt and equity securities
Federal funds sold and other earning assets (1)
Total interest-earning deposits, investments, federal funds sold
and other earning assets
Commercial, financial and agricultural loans
Real estate—commercial and construction loans
$
$
Real estate—residential loans
Loans to individuals
Municipal loans and leases
Lease financings
Gross loans and leases
Total interest-earning assets
Cash and due from banks
Reserve for loan and lease losses
Premises and equipment, net
Other assets
Liabilities:
Total assets
Interest-bearing checking deposits
Money market savings
Regular savings
Time deposits
Total time and interest-bearing deposits
Short-term borrowings
Long-term debt
Subordinated notes (2)
Total borrowings
Total interest-bearing liabilities
Noninterest-bearing deposits
Accrued expenses and other liabilities
Total liabilities
Shareholders’ Equity:
Common stock
Additional paid-in capital
Retained earnings and other equity
Total shareholders’ equity
2015
Income/
Expense
95
1,375
5,303
3,296
525
10,594
16,901
39,275
22,789
1,587
9,890
6,240
96,682
107,276
269
1,205
533
4,000
6,007
35
—
2,023
2,058
8,065
Average
Balance
2016
Income/
Expense
Average
Rate
Average
Balance
$
61
649
4,172
4,731
790
10,403
21,964
52,232
28,101
1,654
11,556
6,168
121,675
132,078
362
1,540
1,052
4,261
7,215
748
549
3,870
5,167
12,382
13,438
54,220
97,325
254,508
16,370
435,861
552,322
1,146,293
633,886
30,501
261,057
75,914
2,699,973
3,135,834
37,050
(17,147)
53,036
287,239
3,496,012
386,176
414,121
714,809
512,557
2,027,663
103,238
60,965
71,851
236,054
2,263,717
751,592
43,605
3,058,914
127,509
175,609
133,980
437,098
0.45% $
38,515
$
1.20
4.29
1.86
4.83
2.39
3.98
4.56
4.43
5.42
4.43
8.12
4.51
4.21
0.09
0.37
0.15
0.83
0.36
0.72
0.90
5.39
2.19
0.55
$
$
123,593
107,204
143,133
9,936
422,381
422,507
849,161
499,208
29,653
208,236
72,052
2,080,817
2,503,198
33,025
(20,447)
40,891
219,616
2,776,283
369,611
368,392
582,647
461,968
1,782,618
35,932
—
37,431
73,363
1,855,981
517,566
43,011
2,416,558
110,271
120,565
128,889
359,725
128,487
106,365
137,900
5,987
412,221
392,747
608,602
293,610
33,675
180,914
71,287
1,580,835
1,993,056
32,710
(24,287)
35,099
165,669
2,202,247
314,784
295,209
535,346
264,591
1,409,930
41,215
—
—
41,215
$
$
1.11
4.95
2.30
5.28
2.51
4.00
4.63
4.57
5.35
4.75
8.66
4.65
4.29
0.07
0.33
0.09
0.87
0.34
0.10
—
5.40
2.81
0.43
81
1,287
5,554
2,702
307
9,931
15,636
26,454
11,987
2,040
8,767
6,404
71,288
81,219
172
373
317
3,102
3,964
32
—
—
32
1,451,145
3,996
435,058
29,006
1,915,209
91,332
62,163
133,543
287,038
Total liabilities and shareholders’ equity
$
3,496,012
$
2,776,283
$
2,202,247
Net interest income
Net interest spread
Effect of net interest-free funding sources
Net interest margin
$
119,696
$
99,211
$
77,223
3.66
0.16
3.82%
3.86
0.10
3.96%
Ratio of average interest-earning assets to average interest-bearing
liabilities
138.53%
134.87%
137.34%
(1) Other earning assets include Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost.
(2) The interest rate on gross subordinated notes is calculated on a 30/360 day basis with a weighted average note rate of 5.07%, 5.10%, and 0.00% for the years ended December 31, 2016, 2015 and 2014, respectively. The balance is net of debt
issuance costs which are amortized to interest expense.
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, 2016, 2015 and 2014 have been calculated using the Corporation’s federal applicable rate of 35%.
27
0.24%
1.00
5.22
1.96
5.13
2.41
3.98
4.35
4.08
6.06
4.85
8.98
4.51
4.08
0.05
0.13
0.06
1.17
0.28
0.08
—
—
0.08
0.28
3.80
0.07
3.87%
Table of Contents
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 year ended December 31, 2016 compared to 2015
and for the year ended December 31, 2015 compared to 2014, indicated by their rate and volume components. The change in interest income/expense due to both volume and rate has
been allocated proportionately.
(Dollars in thousands)
Interest income:
Interest-earning deposits with other banks
U.S. government obligations
Obligations of states and political subdivisions
Other debt and equity securities
Federal funds sold and other earning assets
Interest on deposits, investments, federal funds sold and other earning assets
Commercial, financial and agricultural loans
Real estate—commercial and construction loans
Real estate—residential loans
Loans to individuals
Municipal loans and leases
Lease financings
Interest and fees on loans and leases
Total interest income
Interest expense:
Interest-bearing checking deposits
Money market savings
Regular savings
Time deposits
Interest on time and interest-bearing deposits
Short-term borrowings
Long-term debt
Subordinated notes
Interest on borrowings
Total interest expense
Net interest income
For the Years Ended December 31, 2016 Versus
2015
For the Years Ended December 31, 2015 Versus
2014
Volume
Change
Rate
Change
Total
Volume
Change
Rate
Change
Total
$
(85)
$
51
$
(34)
$
(829)
(462)
2,163
314
1,101
5,149
13,560
6,026
46
2,369
326
27,476
28,577
13
170
132
444
759
165
549
1,851
2,565
3,324
103
(669)
(728)
(49)
(1,292)
(86)
(603)
(714)
21
(703)
(398)
(2,483)
(3,775)
80
165
387
(183)
449
548
—
(4)
544
993
(726)
(1,131)
1,435
265
(191)
5,063
12,957
5,312
67
1,666
(72)
24,993
24,802
93
335
519
261
1,208
713
549
1,847
3,109
4,317
11
(50)
43
107
209
320
1,186
11,026
9,220
(229)
1,307
68
22,578
22,898
29
115
32
1,850
2,026
(4)
—
2,023
2,019
4,045
$
3
$
138
(294)
487
9
343
79
1,795
1,582
(224)
(184)
(232)
2,816
3,159
68
717
184
(952)
17
7
—
—
7
24
14
88
(251)
594
218
663
1,265
12,821
10,802
(453)
1,123
(164)
25,394
26,057
97
832
216
898
2,043
3
—
2,023
2,026
4,069
$
25,253
$
(4,768)
$
20,485
$
18,853
$
3,135
$
21,988
28
Table of Contents
Interest Income
2016 versus 2015
Interest income on a tax-equivalent basis for the year ended December 31, 2016 was $132.1 million, an increase of $24.8 million from 2015. The increase was mainly due to the
impact of the Fox Chase acquisition. The favorable impact of acquisition accounting fair value adjustments on interest-earning assets was five basis points for 2016. In addition, the
positive benefit of interest income due to loan growth in commercial business, commercial real estate and residential real estate loans was partially offset by decreases in loan interest
rates due to re-pricing and the competitive environment.
2015 versus 2014
Interest income on a tax-equivalent basis for the year ended December 31, 2015 was $107.3 million, an increase of $26.1 million from 2014. The increase was mainly due to the
impact of the Valley Green acquisition. The favorable impact of acquisition accounting fair value adjustments on interest-earning assets was seven basis points for 2015. Growth in
commercial real estate, residential real estate and municipal loans and leases was partially offset by decreases in loan interest rates due to re-pricing and the competitive environment.
Interest Expense
2016 versus 2015
Interest expense for the year ended December 31, 2016 was $12.4 million, an increase of $4.3 million, compared to $8.1 million for 2015. The increase was primarily due to the
impact of the Fox Chase acquisition and increased borrowings during the year. The favorable impact of acquisition accounting fair value adjustments on interest-bearing liabilities was
six basis points for 2016. The increase in interest expense was also due to the subordinated debt issuance in June 2016 which increased funding costs by four basis points for 2016
compared to 2015.
2015 versus 2014
Interest expense for the year ended December 31, 2015 was $8.1 million, an increase of $4.1 million, compared to $4.0 million for 2014. The increase was primarily due to the
impact of the Valley Green acquisition. The favorable impact of acquisition accounting fair value adjustments on interest-bearing liabilities was two basis points for 2015. The
increase in interest expense was also due to the subordinated debt issuance which increased funding costs by 10 basis points for 2015 compared to 2014.
Provision for Loan and Lease Losses
The provision for the years ended December 31, 2016, 2015, and 2014 was $4.8 million, $3.8 million, and $3.6 million, respectively. The increase in the provision for 2016 and
2015 was primarily to provide for organic loan growth during those years partially offset by improvements in historical loss factors utilized to calculate the reserve for loan and lease
losses.
Noninterest Income
Noninterest income consists of trust fee income, service charges on deposit accounts, commission income, net gains (losses) on sales of securities, net gains (losses) on mortgage
banking activities and other miscellaneous types of income. Other service fee income primarily consists of fees from credit card companies for a portion of merchant charges paid to
the credit card companies for the Bank’s customer debit card usage, non-customer debit card fees at the Bank's ATM, other merchant fees, mortgage servicing income and mortgage
placement income. Bank owned life insurance income represents changes in the cash surrender value of bank-owned life insurance policies, which is affected by the market value of
the underlying assets, and also includes any excess proceeds from death benefit claims. The net gain on mortgage banking activities consists of gains (losses) on sales of mortgages
held for sale and fair value adjustments on interest-rate locks and forward loan sale commitments. Other noninterest income includes other miscellaneous income.
29
Table of Contents
The following table presents noninterest income for the periods indicated:
(Dollars in thousands)
Trust fee income
Service charges on deposit accounts
Investment advisory commission and fee income
Insurance commission and fee income
Other service fee income
Bank owned life insurance income
Net gain on sales of investment securities
Net gain on mortgage banking activities
Other income
Total noninterest income
2016 versus 2015
For the Years Ended December 31,
$ Change
% Change
2016
2015
2014
2016 to 2015
2015 to 2014
2016 to 2015
2015 to 2014
$
7,741
$
7,908
$
7,835
$
(167)
$
4,691
11,357
14,603
7,903
2,931
518
6,027
192
4,230
10,773
13,885
7,379
1,295
1,265
4,838
852
4,230
11,904
11,543
7,189
1,628
635
2,182
1,198
461
584
718
524
1,636
(747)
1,189
(660)
$
55,963
$
52,425
$
48,344
$
3,538
$
73
—
(1,131)
2,342
190
(333)
630
2,656
(346)
4,081
(2.1)%
0.9 %
10.9
5.4
5.2
7.1
N/M
(59.1)
24.6
(77.5)
—
(9.5)
20.3
2.6
(20.5)
99.2
N/M
(28.9)
6.7 %
8.4 %
Noninterest income for the year ended December 31, 2016 was $56.0 million, an increase of $3.5 million or 6.7% compared to 2015. Service charges on deposits increased $461
thousand or 10.9% for the year ended December 31, 2016 mostly due to fees on deposit accounts acquired from Fox Chase. Investment advisory commission and fee income increased
$584 thousand or 5.4% for the year ended December 31, 2016 due to an increase in assets under management during 2016. This increase was primarily due to a combination of both
increased new customer relationships and improvement in market performance during the second half of 2016. Insurance commission and fee income increased $718 thousand or
5.2% for the year ended December 31, 2016, primarily due to an increase in contingent commission income and growth in the group life and health and commercial product lines
premiums. Bank owned life insurance (BOLI) income increased $1.6 million for the year ended December 31, 2016 primarily due to proceeds from bank owned life insurance death
benefits of $450 thousand recognized in the fourth quarter of 2016, acquired policies from Fox Chase of $26.1 million, and the 2015 purchase of $8.0 million and transfer of $9.8
million of policies to a higher yielding account structure. The net gain on mortgage banking increased $1.2 million or 24.5% for the year ended December 31, 2016, mainly due to an
increase in mortgage origination volume during 2016. Mortgage loan closings increased $48.7 million, or 23.3% for the year ended December 31, 2016 compared to the same period
in 2015. These favorable increases were partially offset by a decline in the net gain on sales of investment securities for the year ended December 31, 2016 of $747 thousand compared
to 2015.
2015 versus 2014
Noninterest income for the year ended December 31, 2015 was $52.4 million, an increase of $4.1 million or 8.4% compared to 2014. Insurance commission and fee income
increased $2.3 million for the year ended December 31, 2015, primarily due to the acquisition of Sterner Insurance on July 1, 2014. The net gain on mortgage banking activities
increased $2.7 million for the year ended December 31, 2015, mainly due to an increase in volume. Funded first mortgage volume increased $72.5 million or 55% for the year ended
December 31, 2015, compared to 2014. In addition, the net gain on sales of investment securities increased $630 thousand for the year ended December 31, 2015. The increase in net
gains on sales of investment securities is attributable to the Corporation's disciplined approach to evaluating market conditions for potential sales and timing of reinvestment. These
favorable increases were partially offset by a decline in investment advisory commission and fee income of $1.1 million for the year ended December 31, 2015, primarily related to
the fourth quarter of 2014 divestiture of approximately $375 million in marginally profitable assets under the supervision of independent consultants.
Noninterest Expense
The operating costs of the Corporation are known as noninterest expense, and include, but are not limited to, salaries and benefits, commissions, occupancy, equipment, data
processing, professional services, intangible expenses, acquisition-related costs, integration costs and restructuring charges and other expenses.
30
Table of Contents
The following table presents noninterest expense for the periods indicated:
(Dollars in thousands)
Salaries and benefits
Commissions
Net occupancy
Equipment
Data processing
Professional fees
Marketing and advertising
Deposit insurance premiums
Intangible expenses
Acquisition-related costs
Integration costs
Restructuring charges
Other expense
For the Years Ended December 31,
$ Change
% Change
2016
2015
2014
2016 to 2015
2015 to 2014
2016 to 2015
2015 to 2014
$
61,518
$
50,069
$
42,245
$
11,449
$
9,361
9,638
3,489
6,981
4,547
2,015
1,713
5,528
10,257
5,667
1,731
19,536
8,037
8,430
3,159
4,660
3,839
2,253
1,730
2,567
1,047
1,490
1,642
16,592
1,324
1,208
330
2,321
708
(238)
(17)
2,961
9,210
4,177
89
2,944
7,824
400
1,407
780
869
675
373
169
400
(223)
1,482
1,642
2,463
22.9 %
18.5 %
16.5
14.3
10.4
49.8
18.4
(10.6)
(1.0)
N/M
N/M
N/M
5.4
17.7
5.2
20.0
32.8
22.9
21.3
19.8
10.8
18.5
(17.6)
N/M
N/M
17.4
$
36,466
$
18,261
34.6 %
20.9 %
7,637
7,023
2,379
3,791
3,164
1,880
1,561
2,167
1,270
8
—
14,129
87,254
Total noninterest expense
$
141,981
$
105,515
$
2016 versus 2015
Noninterest expense for the year ended December 31, 2016 was $142.0 million, an increase of $36.5 million or 34.6% compared to 2015. Acquisition and integration costs related
to the Fox Chase acquisition and restructuring costs related to facility closures and staffing rationalization totaled $17.7 million for the year ended December 31, 2016. Acquisition,
integration and restructuring costs related to the Fox Chase acquisition, the Valley Green acquisition and new financial center model were $4.2 million for the year ended
December 31, 2015.
Salaries and benefit expense increased $11.4 million for the year ended December 31, 2016, primarily attributable to higher staffing levels resulting from the Fox Chase
acquisition, additional staff hired to support revenue generation across all business lines and the expansion into Lancaster County. Included in salaries and benefit expense for the
fourth quarter of 2016 is the cost of a pension settlement of $1.4 million as the Corporation offered lump sum payouts to former employees in its noncontributory retirement plan. This
amount was recorded as a reclassification with the accumulated other comprehensive income component of equity and had no impact on the Corporation’s reported equity. This
pension distribution was partially offset by the Corporation’s modification of its paid time off policy which resulted in a non-cash reduction in expense of $1.3 million during the
fourth quarter of 2016. Commission expense increased $1.3 million for the year ended December 31, 2016, primarily due to commissions paid on increased mortgage banking
activities, investment advisory fees and insurance revenues. Premises and equipment expenses increased $1.5 million for the year ended December 31, 2016, primarily due to higher
premises expense related to Fox Chase locations and expansion into Philadelphia, Lancaster County and the Lehigh Valley. Data processing expense increased $2.3 million for the
year ended December 31, 2016 due to increased investments in computer software as well as six months of Fox Chase processing expense. Intangible expenses increased $3.0 million
for the year ended December 31, 2016 as the Corporation reached an agreement to settle its future obligation related to its acquisition of Girard Partners, Inc. during the fourth quarter
of 2016.
2015 versus 2014
Noninterest expense for the year ended December 31, 2015 was $105.5 million, an increase of $18.3 million or 20.9% compared to 2014. Non-interest expense was impacted by
the Valley Green acquisition which included integration and acquisition-related costs totaling $2.0 million for the year ended December 31, 2015 and $540 thousand in acquisition-
related charges associated with Fox Chase. In addition, noninterest expense for the year ended December 31, 2015 included restructuring charges of $1.6 million recognized related to
the consolidation of six financial centers under the new financial center model.
Salaries and benefit expense increased $7.8 million for the year ended December 31, 2015, primarily attributable to the Valley Green acquisition, additional staff hired to support
revenue generation, increased pension plan expense and bonus accruals. The Sterner Insurance acquisition also impacted 2015 salaries and benefits expense. This increase was
partially offset by higher deferred loan origination costs. Premises and equipment expenses increased $2.2 million for the year ended December 31, 2015, mainly due to the Valley
Green acquisition.
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Tax Provision
The provision for income taxes was $3.9 million, $9.8 million and $7.4 million for the years ended December 31, 2016, 2015, and 2014, respectively, at effective rates of 16.6%,
26.4%, and 25.1%, respectively. The effective tax rates reflect the benefits of tax-exempt income from investments in municipal securities, loans and bank-owned life insurance
partially offset by non-deductible merger expenses. The decrease in the effective tax rate from the prior year is mainly due a reduction in taxable income (primarily due to taxable
acquisition-related, integration and restructuring expenses of $16.9 million).
Financial Condition
ASSETS
The following table presents assets at the dates indicated:
(Dollars in thousands)
Cash and interest-earning deposits
Investment securities
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost
Loans held for sale
Loans and leases held for investment
Reserve for loan and lease losses
Premises and equipment, net
Goodwill and other intangibles, net
Bank owned life insurance
Accrued interest receivable and other assets
Total assets
Investment Securities
2016
2015
$ Change
% Change
At December 31,
$
57,825
$
60,799
$
468,518
24,869
5,890
3,285,886
(17,499)
63,638
189,210
99,948
52,243
370,760
8,880
4,680
2,179,013
(17,628)
42,156
125,277
71,560
33,954
(2,974)
97,758
15,989
1,210
1,106,873
129
21,482
63,933
28,388
18,289
(4.9)%
26.4
N/M
25.9
50.8
0.7
51.0
51.0
39.7
53.9
$
4,230,528
$
2,879,451
$
1,351,077
46.9 %
The investment portfolio is managed as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle
while mitigating risk. Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk, to take advantage of market conditions that create more economically
beneficial returns on these investments, and to collateralize public fund deposits and certain long-term debt. The securities portfolio consists primarily of U.S. government agencies,
municipals, residential mortgage-backed securities and corporate bonds.
Total investments at December 31, 2016 increased $97.8 million from December 31, 2015. Securities acquired from Fox Chase Bank of $230.7 million and purchases of $85.5
million were partially offset by sales of $77.3 million, maturities and pay-downs of $84.9 million, calls of $47.0 million and decreases in the fair value of available-for-sale investment
securities of $6.8 million. The decreases in fair value of available-for-sale investment securities were primarily due to the increase in long-term interest rates during the fourth quarter
of 2016.
Table 3—Investment Securities
The following table shows the carrying amount of investment securities at the dates indicated. Held-to-maturity and available-for-sale portfolios are combined.
(Dollars in thousands)
U.S. treasuries
U.S. government corporations and agencies
State and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligations
Corporate bonds
Money market mutual funds
Equity securities
Total investment securities
2016
At December 31,
2015
2014
— $
4,887
$
32,266
88,350
203,641
4,554
128,008
10,784
915
102,156
102,032
13,354
3,133
127,665
16,726
807
468,518
$
370,760
$
4,845
121,844
102,774
13,643
3,725
108,787
11,675
1,337
368,630
$
$
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Table 4—Investment Securities (Yields)
The following table shows the maturity distribution and weighted average yields of the investment securities at 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; therefore, the stated yield may not be recognized in
future periods. Additionally, residential mortgage-backed securities, which are collateralized by residential mortgage loans, typically prepay at a rate faster than stated maturity. Equity
securities and money market mutual funds 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.
(Dollars in thousands)
1 Year or less
After 1 Year to 5 Years
After 5 Years to 10 Years
After 10 Years
No stated maturity
Total
At December 31,
2016 Amount
2016 Yield
2015 Amount
2015 Yield
2014 Amount
2014 Yield
$
$
36,044
77,649
93,477
249,649
11,699
468,518
1.08% $
1.54
2.66
2.33
0.23
2.12% $
31,657
163,064
59,067
99,439
17,533
370,760
1.65%
$
1.39
3.14
3.69
0.16
2.25%
$
18,710
214,664
75,988
46,256
13,012
368,630
2.45%
1.33
3.13
3.77
0.25
2.03%
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost
The Bank is a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold
additional stock in the FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $10.1 million and $2.2 million at December 31, 2016 and 2015,
respectively. FHLB stock increased $7.9 million mainly due to purchase requirements related to the increase in FHLB borrowings from the Fox Chase acquisition. Additionally, the
FHLB might require its members to increase their capital stock investments. Changes in the credit ratings of the U.S. government and federal agencies, including the FHLB, could
increase the borrowing costs of the FHLB and possibly have a negative impact on the FHLB operations and long-term performance. It is possible this could have an adverse effect on
the value of the Corporation’s investment in FHLB stock. The Corporation determined there was no other-than-temporary impairment of its investment in FHLB stock. Therefore, at
December 31, 2016, the FHLB stock is recorded at cost.
At December 31, 2016 and 2015, the Bank held $14.6 million and $6.6 million, respectively, in Federal Reserve Bank stock as required by the Federal Reserve Bank. Federal
Reserve Bank stock increased $8.0 million from December 31, 2015 due to the increase of capital with the acquisition of Fox Chase.
Loans and Leases
Gross loans and leases held for investment at December 31, 2016 increased $1.1 billion from December 31, 2015, including $776.2 million of loans acquired from Fox Chase.
Organic loan growth, which excludes the loans acquired from Fox Chase at June 30, 2016, was 11.2% for the year ended December 31, 2016. Organic growth in loans was primarily
in commercial business, commercial real estate and residential real estate loans. Loan growth in 2016 resulted from new and existing customer relationships and the Corporation's
strategic move to expand its presence and hire a lending team in Lancaster County to seize opportunities as a result of market disruption caused by other bank acquisitions. Loan
growth also resulted from opportunities brought by the Corporation's new lending personnel in its core market and through the acquisition of Fox Chase.
At December 31, 2016, there were no concentrations of loans or leases exceeding 10% of total loans and leases other than as disclosed in Table 5.
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Table of Contents
Table 5—Loan and Lease Portfolio
The following table presents the composition of the loan and lease portfolio at the dates indicated:
(Dollars in thousands)
Commercial, financial and agricultural
Real estate-commercial
Real estate-construction
Real estate-residential
Loans to individuals
Lease financings
2016
2015
2014
2013
2012
At December 31,
$
823,266
$
504,515
$
457,827
$
422,816
$
1,374,949
174,844
747,715
30,373
134,739
885,892
96,541
536,893
29,732
125,440
628,478
79,887
312,032
29,941
118,460
600,353
90,493
281,828
40,000
105,994
468,421
530,122
91,250
264,432
43,780
83,857
Total loans and leases held for investment, net of deferred income
$
3,285,886
$
2,179,013
$
1,626,625
$
1,541,484
$
1,481,862
Table 6—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, 2016:
(Dollars in thousands)
Commercial, financial and agricultural
Real estate-commercial
Real estate-construction
Real estate-residential
Loans to individuals
Lease financings
Total gross loans and leases held for investment
Loans and leases with fixed predetermined interest rates
Loans and leases with variable or floating interest rates
Total gross loans and leases held for investment
Total
Due in One Year or
Less
Due after One Year
to Five Years
Due After Five
Years
823,266
$
539,246
$
164,358
$
1,374,949
174,844
747,715
30,373
134,739
3,285,886
1,573,453
1,712,433
3,285,886
$
$
$
385,099
117,491
262,561
17,556
49,249
1,371,202
174,653
1,196,549
1,371,202
$
$
$
744,143
32,947
225,221
8,047
85,055
1,259,771
935,748
324,023
1,259,771
$
$
$
119,662
245,707
24,406
259,933
4,770
435
654,913
463,052
191,861
654,913
$
$
$
$
The commercial mortgages and tax-exempt loans that are presently being written at both fixed and floating rates of interest primarily include loans typically written for five-year
terms with a monthly payment based on up to a maximum twenty-five year amortization schedule. At each five-year anniversary date of the mortgage, the Bank usually has the right
to require payment in full. If the loan is extended, the interest rate is renegotiated and the term of the loan is extended for an additional five years. These mortgages are included in the
“Due in One to Five Years” category in the table above.
Asset Quality
The Bank's strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential
problem loans and leases. Performance of the loan and lease portfolio is monitored on a regular basis by Bank management and lending officers.
Loans and leases are deemed impaired when, based on current information and events, it is probable that the Bank will be unable to collect all proceeds due according to the
contractual terms of the agreement or when a loan or lease is classified as a troubled debt restructuring. Factors considered by management in determining impairment include
payment status, borrower cash flows, collateral value and the probability of collecting scheduled principal and interest payments when due.
When a loan or lease, including a loan or lease that is impaired, is classified as nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease is
typically 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 and the amortization of net deferred fees is suspended. Interest
payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the ultimate
collectability of principal.
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Table of Contents
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.
At December 31, 2016, the recorded investment in loans held for investment that were considered to be impaired was $43.9 million. The related reserve for loan losses was $235
thousand. At December 31, 2015, the recorded investment in loans that were considered to be impaired was $48.9 million. The related reserve for loan losses was $322 thousand.
Impaired loans include nonaccrual loans and leases, accruing troubled debt restructured loans and lease modifications and other accruing impaired loans for which it is probable that
not all principal and interest payments due will be collectible in accordance with the contractual terms. The impaired loan balances consisted mainly of commercial real estate loans
and business loans. The amount of the specific reserve needed for these credits could change in future periods subject to changes in facts and judgments related to these credits.
Specific reserves have been established based on current facts and management’s judgments about the ultimate outcome of these credits. For the years ended December 31, 2016,
2015, and 2014, additional interest income that would have been recognized under the original terms for impaired loans was $909 thousand, $1.3 million and $1.2 million,
respectively. Interest income recognized on impaired loans for the years ended December 31, 2016, 2015 and 2014 was $1.4 million, $1.6 million and $1.9 million, respectively.
Other real estate owned was $5.0 million at December 31, 2016, compared to $1.3 million at December 31, 2015. The increase of $3.7 million was primarily due to other real
estate owned acquired from Fox Chase of $2.8 million. In addition, the Bank transferred five commercial real estate properties, two residential properties and a parcel of land with a
total fair value of $2.3 million to other real estate owned. In the fourth quarter of 2016, one commercial real estate property and five residential properties with a total carrying value of
$693 thousand were sold.
35
Table of Contents
Table 7—Nonaccrual and Past Due Loans and Leases; Troubled Debt Restructured Loans and Lease Modifications; Other Real Estate Owned; and Related Ratios
The following table details information pertaining to the Corporation’s non-performing assets at the dates indicated:
(Dollars in thousands)
Nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and
lease modifications*:
Loans held for investment:
Commercial, financial and agricultural
Real estate—commercial
Real estate—construction
Real estate—residential
Lease financings
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans
and lease modifications*
Accruing troubled debt restructured loans and lease modifications not included in the above
Accruing loans and leases 90 days or more past due:
Commercial, financial and agricultural
Real estate—residential
Loans to individuals
Lease financings
Total accruing loans and leases, 90 days or more past due
Total non-performing loans and leases
Other real estate owned
Total nonperforming assets
Nonaccrual loans and leases (including nonaccrual troubled debt restructured loans and
lease modifications) / loans and leases held for investment
Nonperforming loans and leases / loans and leases held for investment
Nonperforming assets / total assets
Allowance for loan and lease losses / loans and leases held for investment
Allowance for loan and lease losses / loans and leases held for investment (excluding
acquired loans at period-end)
Allowance for loan and lease losses / nonaccrual loans and leases
Allowance for loan and lease losses / nonperforming loans and leases
Allowance for loan and lease losses
Acquired credit impaired loans
Nonperforming loans and leases and acquired credit impaired loans / loans and leases held
for investment
Nonperforming assets and acquired credit impaired loans / total assets
* Nonaccrual troubled debt restructured loans and lease modifications included in
nonaccrual loans and leases in the above table
2016
2015
2014
2013
2012
At December 31,
$
$
$
$
$
$
$
$
$
5,746
5,651
—
5,983
536
17,916
3,252
—
652
142
193
987
22,155
4,969
27,124
0.55%
0.67
0.64
0.53
0.73
97.67
78.98
17,499
7,352
0.90
0.81
6,915
4,314
—
2,514
440
14,183
5,245
—
—
173
206
379
19,807
1,276
21,083
0.65%
0.91
0.73
0.81
0.94
124.29
89.00
17,628
1,253
0.97
0.78
$
$
5,002
4,413
5,931
1,611
380
17,337
5,469
—
31
365
55
451
23,257
955
$
24,212
$
1.07%
1.43
1.09
1.27
1.27
119.18
88.84
$
4,253
8,091
9,159
1,402
330
23,235
7,943
12
23
319
59
413
31,591
1,650
33,241
$
1.51%
2.05
1.52
1.59
1.59
105.42
77.53
$
$
20,662
$
— $
24,494
$
— $
1.43
1.09
2.05
1.52
1,753
$
93
$
3,104
$
1,583
$
2,842
14,340
13,588
976
386
32,132
13,457
—
54
347
40
441
46,030
1,607
47,637
2.17%
3.11
2.07
1.67
1.67
77.01
53.76
24,746
—
3.11
2.07
579
The following table provides additional information on the Corporation’s nonaccrual loans held for investment:
(Dollars in thousands)
Total nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications $
Nonaccrual loans and leases with partial charge-offs
Life-to-date partial charge-offs on nonaccrual loans and leases
Charge-off rate of nonaccrual loans and leases with partial charge-offs
Specific reserves on impaired loans
$
36
At December 31,
2016
2015
2014
2013
17,916
$
14,183
$
17,337
$
5,000
2,857
36.4%
235
$
6,451
3,853
37.4%
6,465
1,831
22.1%
322
$
998
$
23,235
8,958
9,120
50.4%
2,963
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Reserve for Loan and Lease Losses
The reserve for loan and lease losses is maintained at a level representing management's best estimate of known risks and inherent losses in the portfolio, based upon
management's evaluation of the portfolio's collectability. Management evaluates the need to establish reserves against losses on loans and leases on a quarterly basis. When changes in
the reserve are necessary, an adjustment is made.
The reserve for loan and lease losses consists of a reserve for impaired loans and leases and a general valuation allowance on the remainder of the portfolio. Although
management determines the amount of each element of the reserve separately, the entire reserve for loan and lease losses is available for losses on the portfolio.
Reserve Required for Impaired Loans and Leases
A loan or lease is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect future payments of principal or interest
as contractually due. The Bank applies its normal loan review procedures in determining if a loan is impaired, which includes reviewing the collectability of delinquent and internally
classified loans on a regular basis and at least quarterly. In determining the likelihood of collecting principal and interest, the Bank considers all available and relevant information,
including the borrower's actual and projected cash flows, balance sheet strength, liquidity and overall financial position. Additionally, all loans classified as a troubled debt
restructurings are considered impaired. When a loan is classified as impaired, an impairment analysis is performed within the quarter in which a loan is identified as impaired to
determine if a valuation allowance is needed. The Bank re-examines each impaired loan on a quarterly basis to determine if any adjustment to the net carrying amount of a loan is
required. The Bank recognizes charge-offs associated with impaired loans when all or a portion of a loan is considered to be uncollectible. In measuring impairment, the Bank
determines whether or not the loan is collateral dependent. A loan is collateral dependent if repayment is expected to be provided solely by the underlying collateral, which includes
repayment from the proceeds from the sale of the collateral, cash flows from the continued operation of the collateral, or both, and there are no other available and reliable repayment
sources. To determine the initial amount of impairment for a collateral dependent loan, the Bank utilizes a recent appraisal, an agreement of sale or a letter of intent. If the fair value of
the underlying collateral, less costs to sell, is less than the loan's carrying amount, the Bank establishes a provision to the reserve for loan and lease losses in the amount of the
difference between fair value, less costs to sell, and the loan or lease's carrying amount. In subsequent periods, the Bank takes into consideration current facts and circumstances in
analyzing whether the fair value of the collateral has increased or decreased significantly such that a change to the corresponding valuation allowance is required. If current facts and
circumstances are insufficient to determine fair value, the Bank obtains a new appraisal.
For loans that are not collateral dependent, the Bank establishes a specific reserve on impaired loans based on management's estimate of the discounted cash flows the Bank
expects to receive from the borrower. Factors considered in evaluating such cash flows include: (1) the strength of the customer's personal or business cash flows and personal
guarantees; (2) the borrower's effort to cure the delinquency; (3) the availability of other sources of repayment; (4) the type and value of collateral, if applicable; and (5) the strength of
our collateral position, if applicable.
General Reserve on the Remainder of the Loan Portfolio
The Bank establishes a general reserve for loans and leases that are not considered impaired to recognize the inherent losses associated with lending activities. This general
reserve is determined by segmenting the loan portfolio and assigning reserve factors to each category. The reserve factors are calculated using the Bank's historical losses and loss
emergence periods, and are adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors
include:
•
•
•
•
•
•
•
•
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in
estimating credit losses;
Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the
condition of various market segments;
Changes in the nature and volume of the portfolio and in the terms of loans;
Changes in the experience, ability, and depth of lending management and other relevant staff;
Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
Changes in the quality of the institution’s loan review system;
Changes in the value of underlying collateral for collateral-dependent loans;
The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
37
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•
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.
The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. The reserve
for these off-balance sheet credits was $385 thousand and $338 thousand at December 31, 2016 and 2015, respectively.
Table 8—Summary of Loan and Lease Loss Experience
The following table presents average loans and leases and summarizes loan and lease loss experience for the periods indicated.
(Dollars in thousands)
Average amount of loans and leases outstanding
Loan and lease loss reserve at beginning of period
Charge-offs:
Commercial, financial and agricultural loans
Real estate loans
Loans to individuals
Lease financings
Total charge-offs
Recoveries:
Commercial, financial and agricultural loans
Real estate loans
Loans to individuals
Lease financings
Total recoveries
Net charge-offs
Provision to loan and lease loss reserve
Provision for acquired credit impaired loans
Loan and lease loss reserve at end of period
Ratio of net charge-offs to average loans and leases
$
For the Years Ended December 31,
2016
2015
2014
2013
$
$
2,699,973
17,628
$
$
2,080,817
20,662
$
$
1,580,835
24,494
$
$
1,499,351
24,746
$
$
2012
1,465,448
29,870
4,827
1,007
395
759
6,988
1,454
260
133
191
2,038
4,950
4,646
175
17,499
$
4,793
2,353
549
801
8,496
1,032
238
176
214
1,660
6,836
3,623
179
17,628
2,834
4,644
796
576
8,850
247
618
265
281
1,411
7,439
3,607
—
$
20,662
$
3,213
8,974
641
791
13,619
320
1,130
174
515
2,139
11,480
11,228
—
24,494
$
9,974
4,959
578
1,224
16,735
484
401
130
561
1,576
15,159
10,035
—
24,746
0.18%
0.33%
0.47%
0.77%
1.03%
The decrease in charge-offs during 2016 compared to 2015 was mainly due to improvements in asset quality. The primary decrease in charge-off activity was in commercial real
estate loans. The decrease in charge-offs during 2015 compared to 2014 was mainly due to improvements in asset quality. Decreased charge-off activity for commercial real estate
loans was partially offset by increased charge-off activity for commercial, financial and agricultural loans.
Table 9—Loan and Lease Loss Reserves
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 held for investment at the dates indicated.
(Dollars in thousands)
Commercial, financial and agricultural
loans
Real estate loans
Loans to individuals
Lease financings
Unallocated
Total
2016
2015
At December 31,
2014
2013
2012
$
$
7,037
9,272
364
788
38
17,499
25.1% $
69.9
0.9
4.1
N/A
100.0% $
6,418
8,910
346
1,042
912
17,628
23.2% $
6,920
28.1% $
9,789
27.4% $
11,594
31.5%
69.6
1.4
5.8
N/A
100.0% $
10,830
360
985
1,567
20,662
62.8
1.8
7.3
N/A
100.0% $
11,126
694
1,285
1,600
24,494
63.1
2.6
6.9
N/A
100.0% $
9,126
679
1,326
2,021
24,746
59.8
3.0
5.7
N/A
100.0%
The allowance for loan and lease losses to nonaccrual loans and leases, including nonaccrual troubled debt restructured loans and lease modifications, was 97.67% at
December 31, 2016, 124.29% at December 31, 2015 and 119.18% at December 31, 2014. At December 31, 2016, the specific allowance on impaired loans was $235 thousand, or
0.5% of the balance of impaired loans of $43.9 million. At December 31, 2015, the specific allowance on impaired loans was $322 thousand, or 0.7% of the balance of impaired loans
of $48.9 million. At December 31, 2014, the specific allowance on impaired loans was $1.0 million, or 1.8% of the balance of impaired loans of $56.2 million.
38
Table of Contents
The ratio of the reserve for loan and lease losses to total loans and leases was 0.53% at December 31, 2016 compared to 0.81% at December 31, 2015 and 1.27% at December 31,
2014. Excluding the loans acquired in the Fox Chase Bank and Valley Green Bank acquisitions which were recorded at fair value, the ratio of the reserve for loan and lease losses to
total loans and leases was 0.73% at December 31, 2016 and 0.94% at December 31, 2015.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets have been recorded on the books of the Corporation in connection with acquisitions. The Corporation has covenants not to compete, core
deposit and 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 of these intangible assets for the years ended December 31, 2016, 2015 and 2014 was $4.1 million, $3.6 million
and $3.3 million, respectively. The Corporation also has goodwill with a net carrying value of $172.6 million at December 31, 2016 and $112.7 million at December 31, 2015, which
is deemed to be an indefinite intangible asset and is not amortized. The increase in goodwill of $59.9 million was related to the Fox Chase Bank acquisition.
The Corporation completes a goodwill impairment analysis at least on an annual basis, or more often, if events and circumstances indicate that there may be impairment. The
Corporation also completes an impairment test for other identifiable intangible assets on an annual basis or more often if events and circumstances indicate there may be impairment.
There was no impairment of goodwill and no material impairment of identifiable intangibles recorded during 2014 through 2016. There can be no assurance that future impairment
assessments or tests will not result in a charge to earnings.
Bank Owned Life Insurance
The Bank purchases bank owned life insurance to protect itself against the loss of key employees due to death and to offset or finance the Corporation’s future costs and
obligations to its employees under its benefit plans. Bank owned life insurance increased $28.4 million primarily to due $26.1 million of policies acquired from Fox Chase.
LIABILITIES
The following table presents liabilities at the dates indicated:
(Dollars in thousands)
Deposits
Short-term borrowings
Long-term debt
Subordinated notes
Accrued interest payable and other liabilities
Total liabilities
Deposits
2016
2015
$ Change
% Change
At December 31,
$
$
3,257,567
$
2,394,360
$
196,171
127,522
94,087
49,972
24,211
—
49,377
49,929
863,207
171,960
127,522
44,710
43
3,725,319
$
2,517,877
$
1,207,442
36.1%
N/M
—
90.5
0.1
48.0%
Total deposits increased $863.2 million from December 31, 2015, primarily due to $738.3 million of deposits acquired from Fox Chase. Organic deposit growth, which excludes
the Fox Chase deposits at June 30, 2016, was 4.0% from December 31, 2015.
Table 10—Deposits
The following table summarizes the average amount of deposits for the periods indicated:
(Dollars in thousands)
Noninteresting-bearing deposits
Interest-bearing checking deposits
Money market savings
Regular savings
Time deposits
Total average deposits
For the Years Ended December 31,
2016
2015
2014
751,592
$
517,566
$
386,176
414,121
714,809
512,557
369,611
368,392
582,647
461,968
2,779,255
$
2,300,184
$
435,058
314,784
295,209
535,346
264,591
1,844,988
$
$
39
Table of Contents
The following table summarizes the maturities of time deposits with balances of $100 thousand or more. Brokered deposits in the amount of $107.9 million at December 31, 2016
are not included in total certificates of deposit of $100 thousand or more.
(Dollars in thousands)
Due Three Months or Less
Due Over Three Months to Six Months
Due Over Six Months to Twelve Months
Due Over Twelve Months
Total
Borrowings
At December 31, 2016
110,835
71,080
48,548
60,507
290,970
$
$
Total borrowings increased $344.2 million from December 31, 2015 mainly due to an increase in long-term borrowings of $127.5 million of which: $105.0 million principal
amount was remaining from the Fox Chase acquisition; $45.0 million was due to the issuance by the Corporation of aggregate principal amount of fixed-to-floating rate subordinated
notes on July 1, 2016; and an increase of $172.0 million of short-term borrowings.
Short-term borrowings at December 31, 2016 consisted of FHLB borrowings, federal funds purchased and customer repurchase agreements on an overnight basis totaling $196.2
million. Long-term debt at December 31, 2016 consisted of Federal Home Loan bank advances and commercial bank borrowings totaling $127.5 million and subordinated notes of
$94.1 million. At December 31, 2016 and 2015, the Bank had outstanding short-term letters of credit with the FHLB totaling $148.5 million and $170.2 million, respectively, which
were utilized to collateralize public funds deposits.
The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less. The
long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization from the Fox Chase acquisition.
Table 11—Borrowings
The following table summarizes the Corporation's borrowing activity at the dates indicated:
(Dollars in thousands)
2016
Short-term borrowings
Long-term debt
Subordinated notes
2015
Short-term borrowings
Long-term debt
Subordinated notes
2014
Short-term borrowings
Long-term debt
Subordinated notes
Balance at End of Year
Weighted Average
Interest Rate
Maximum Amount
Outstanding at Month End
During the Year
Average Amount
Outstanding During the
Year
Weighted Average Interest
Rate During the Year
$
$
$
196,171
127,522
94,087
24,211
—
49,377
41,974
—
—
0.68% $
0.93
5.27
0.05% $
—
5.36
282,333
$
127,826
94,087
61,176
$
—
49,377
0.06% $
65,376
$
—
—
—
—
40
103,238
60,965
71,851
35,932
—
37,431
41,215
—
—
0.72%
0.90
5.39
0.10%
—
5.40
0.08%
—
—
Table of Contents
SHAREHOLDERS' EQUITY
The following table presents total shareholders’ equity at the dates indicated:
(Dollars in thousands)
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock
Total shareholders’ equity
2016
2015
$ Change
% Change
At December 31,
144,559
$
110,271
$
230,494
194,516
(19,454)
(44,906)
121,280
193,446
(16,708)
(46,715)
34,288
109,214
1,070
(2,746)
1,809
505,209
$
361,574
$
143,635
31.1 %
90.1
0.6
(16.4)
3.9
39.7 %
$
$
The increase to shareholders' equity at December 31, 2016 of $143.6 million from December 31, 2015 was primarily related to the issuance of common stock of $34.3 million and
additional paid-in capital of $109.9 million for the acquisition of Fox Chase Bank. Retained earnings at December 31, 2016, were impacted by net income of $19.5 million, partially
offset by cash dividends declared of $18.4 million. Accumulated other comprehensive loss, net of tax, related to available-for-sale investment securities was $5.0 million and $592
thousand at December 31, 2016 and 2015, respectively. The increase of $4.4 million was primarily due to decreases in the fair value of available-for-sale securities related to the
increase in long-term interest rates during the fourth quarter of 2016. Accumulated other comprehensive loss, net of tax benefits, related to pension and other post-retirement benefits
was $14.3 million and $15.8 million at December 31, 2016 and 2015, respectively. During the fourth quarter of 2016, the Corporation offered lump sum payouts to former employees
in its noncontributory retirement plan, which resulted in a pension settlement cost of $1.4 million. The amount represents a reclassification of accumulated other comprehensive
income to pension expense (included in salaries and benefit expense in the statement of income) and had no impact on shareholders' equity. Treasury stock decreased primarily due to
the issuance of restricted stock.
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%. In July 2013, the federal bank regulatory agencies adopted final rules
revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance such requirements and implement the revised standards of the Basel
Committee on Banking Supervision, commonly referred to as Basel III. The rules are discussed in Note 21 “Regulatory Matters,” included in the Notes to the Consolidated Financial
Statements under Item 8 of this Form 10-K.
The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and
adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a three-year period beginning January 1, 2015. Additionally under Basel III rules, the
decision was made to opt-out of including accumulated other comprehensive income in regulatory capital. During 2016, the Corporation and the Bank was required to hold a capital
conservation buffer greater than 0.625% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. During 2017, the Corporation and the
Bank must hold a capital conservation buffer greater than 1.25% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions.
At December 31, 2016, the Corporation had a Tier 1 capital ratio of 9.42% and total risked-based capital ratio of 12.44%. At December 31, 2015, the Corporation had a Tier 1
capital ratio of 10.65% and total risked-based capital ratio of 13.35%. The Corporation continues to be in the “well-capitalized” category under regulatory standards. Details on the
capital ratios can be found in Note 21 “Regulatory Matters,” included in the Notes to the Consolidated Financial Statements under Item 8 of this Form 10-K along with a discussion on
dividend and other restrictions.
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. Management's objective to address
interest-rate risk is to understand the Corporation's susceptibility to changes in interest rates and develop and implement strategies to minimize volatility while maximizing net interest
income.
The Corporation uses both interest-sensitivity gap analysis and simulation modeling to quantify 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
impact of declining or rising interest rates on net interest income over a one-year and two-year horizon. The simulation uses expected cash flows and repricing
41
Table of Contents
characteristics for all financial instruments at a point in time and incorporates company developed, market-based assumptions regarding growth, pricing, and optionality such as
prepayment speeds. 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.
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, financial and agricultural loans
are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate loans are originated primarily within the Southeastern Pennsylvania and New Jersey
market areas at prudent loan-to-value ratios and are often supported 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.
The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans that are secured by the underlying 1- to 4-family residential properties for personal
purposes. 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.
Credit risk in the consumer loan portfolio is controlled by strict adherence to 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 are generally limited to 80%, but increased to 85% for the Corporation’s strongest
profile borrower. Other credit considerations and compensating factors may warrant higher combined loan-to-value ratios.
The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting,
review, and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the
value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent
not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of
the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases, in which the entire
cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term.
The Corporation closely monitors delinquencies as another means of maintaining 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, deposit withdrawals, repayment of borrowings and brokered certificates of deposit at maturity, operating expenditures, and
capital expansion. The Corporation manages liquidity risk by measuring and monitoring liquidity sources and estimated funding needs on a weekly basis. 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.
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Sources of Funds
Core deposits continue to be the largest significant funding source for the Corporation. These deposits are primarily generated from a base of consumer, business and public
customers located in our primary service areas. The Corporation faces increased competition for these deposits from a large array of financial market participants, including banks,
credit unions, savings institutions, mutual funds, security dealers and others.
The Corporation also utilizes a mix of short-term and long-term wholesale funding providers. Wholesale funding includes correspondent bank borrowings, secured borrowing
lines from the Federal Home Loan Bank, the Federal Reserve Bank of Philadelphia and, at times, brokered deposits, or other similar sources.
The Corporation, through the Bank, has short-term and long-term credit facilities with the FHLB with a maximum borrowing capacity of approximately $1.2 billion. At
December 31, 2016 and 2015, the amount of overnight borrowings with the FHLB were $91.3 million and $0 thousand, respectively. At December 31, 2016 and 2015, the amount of
long-term borrowings with the FHLB were $96.2 million and $0 thousand, respectively. At December 31, 2016 and 2015, the Bank had outstanding short-term letters of credit with
the FHLB totaling $148.5 million and $170.2 million, respectively, which were utilized to collateralize public funds deposits. The maximum borrowing capacity with the FHLB
changes as a function of qualifying collateral assets as well as the FHLB’s internal credit rating of the Bank.
The Corporation, through the Bank, maintains federal fund lines with several correspondent banks totaling $302.0 million and $122.0 million at December 31, 2016 and 2015,
respectively. At December 31, 2016 and 2015, the Corporation had $80.0 million and $0 million, respectively, outstanding federal funds purchased with these correspondent banks.
Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
The Corporation has a $10.0 million line of credit with a correspondent bank. At December 31, 2016, the Corporation had no outstanding borrowings under this line.
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, 2016 and 2015, the Corporation had no outstanding borrowings under this line.
On April 25, 2016, Kroll Bond Rating Agency ("KBRA") affirmed its credit rating for the Corporation and the Bank with a stable outlook. Specifically, KBRA affirmed the
Corporation's senior unsecured debt rating of BBB+, subordinated debt rating of BBB and short-term rating of K2. With regard to the Bank, KBRA affirmed the Bank's deposit rating
of A-, short-term debt rating of K2 and short-term deposit rating of K2 while also assigning the Bank a senior unsecured debt rating of A-.
Cash Requirements
The Corporation has cash requirements for various financial obligations, including contractual obligations and commitments that require cash payments. The following
contractual obligations and commitments table presents, at December 31, 2016, significant fixed and determinable contractual obligations and commitments to third parties. The most
significant contractual obligation, in both the under and over one year time period, is for the Bank to repay its certificates of deposit and short-term and long-term borrowings. The
Bank anticipates meeting these obligations by continuing to provide convenient depository and cash management services through its financial center network, thereby replacing these
contractual obligations with similar fund sources at rates that are competitive in our market. The Bank will also use borrowings and brokered deposits to meet its obligations.
The table also shows the amounts and expected maturities of significant commitments at December 31, 2016. 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 that follows.
The Corporation is 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 loan sale contracts. These financial instruments involve, to
varying degrees, elements
43
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of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these financial instruments reflect the extent of
involvement the Corporation has in particular classes of financial instruments.
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 12.
Table 12—Contractual Obligations and Commitments
The following table sets forth contractual obligations and other commitments representing required and potential cash outflows, including interest payable, at December 31, 2016.
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.
(Dollars in thousands)
Short-term borrowings
Long-term debt
Subordinated capital notes (a)
Time deposits (b)
Operating leases
Standby and commercial letters of credit
Commitments to extend credit (c)
Net asset/liability derivative loan commitments (d)
Other long-term obligations (e)
Total contractual obligations
Total
Due in One Year or
Less
Due after One Year
to Three Years
Due after Three
Years to Five Years
Due in Over Five
Years
Payments Due by Period
$
196,171
$
196,171
$
— $
— $
129,965
135,300
634,772
59,093
46,566
980,647
984
25,431
67,825
4,800
413,580
3,115
40,041
276,209
984
6,346
41,824
9,600
180,438
6,288
5,815
133,641
—
9,637
20,316
8,584
25,885
6,244
499
59,233
—
7,206
$
2,208,929
$
1,009,071
$
387,243
$
127,967
$
—
—
112,316
14,869
43,446
211
511,564
—
2,242
684,648
Notes: (a) Includes interest for fixed and variable rate components. As specified in the note agreements, the Corporation has the option to redeem the Notes in whole or in part at a redemption price equal
to 100% of the principal amount of the redeemed Notes, plus accrued and unpaid interest to the date of the redemption.
Includes interest on both fixed and variable rate obligations. The interest expense is based upon the fourth quarter average interest rate.
Includes both revolving and straight lines of credit. Revolving lines are reported in the “Due in One Year or Less” category.
Includes the fair value of these contractual arrangements at December 31, 2016.
(b)
(c)
(d)
(e) Represents obligations to the Corporation's third-party data processing provider and other vendors.
Interest Rate Sensitivity
Interest rate sensitivity is a function of the repricing characteristics of the Corporation's assets and liabilities. Minimizing the balance sheet's maturity and repricing risk is a
continual focus in a changing interest rate environment. The Corporation uses a variety of techniques to assist in identifying the potential range of risk. A simulation model is utilized
to prepare a maturity/repricing Gap analysis as well as an Earnings at Risk analysis under various interest rate scenarios.
The gap analysis identifies interest rate risk by identifying re-pricing gaps in the Corporation’s balance sheet. The model is based on expected cash flows and re-pricing
characteristics for all financial instruments at a point in time and incorporates Corporation developed, market influenced assumptions regarding the impact of changing interest rates
on these financial instruments. All assets and liabilities are modeled to reflect some level of behavioral optionality, such as prepayments on loans, early call features on investments or
a decline in deposit balance. These assumptions are based upon historic behavior however are inherently uncertain and thus cannot precisely predict the impact of changes in interest
rates. While actual results will differ from simulated results due to customer behavioral change and/or market and regulatory influences, the following models are important tools to
guide management.
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Table 13—Interest Rate Sensitivity Gap Analysis
The following table presents the Corporation’s gap analysis at December 31, 2016:
(Dollars in thousands)
Assets:
Cash and due from banks
Interest-earning deposits with other banks
Investment securities
Federal Home Loan Bank, Federal Reserve Bank and other stock, at
cost
Loans held for sale
Loans and leases, net of reserve for loan and lease losses
Other assets
Total assets
Liabilities and shareholders' equity:
Noninterest-bearing deposits
Interest-bearing demand deposits
Savings deposits
Time deposits
Borrowings
Other liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Interest rate swaps
Incremental gap
Cumulative gap
Cumulative gap as a percentage of interest-earning assets
$
$
$
$
$
$
$
—
9,068
108,397
—
5,890
1,284,145
—
1,407,500
180,879
883,850
766,207
157,958
196,171
—
—
2,185,065
20,615
(756,950)
(756,950)
(20.08)%
$
$
$
$
$
$
$
Within Three
Months
After Three
Months to Twelve
Months
After One Year to
Five Years
Over Five Years
Non-Rate
Sensitive
Total
— $
48,757
$
—
—
63,730
—
—
369,704
—
433,434
$
— $
—
208,975
—
—
1,347,353
—
—
87,416
—
—
284,684
—
$1,556,328
$372,100
64,029
$
200,183
$
473,246
$
$
1,183
4,835
237,890
65,000
—
—
372,937
—
60,497
(696,453)
(18.48)%
$
$
$
$
4,926
18,224
210,613
155,000
—
—
20,004
13,812
19,728
1,609
—
—
588,946
$
528,399
$
— $
— $
967,382
270,929
$
$
7.19%
(156,299)
$
(94,015)
114,630
3.04%
48,757
9,068
468,518
24,869
5,890
3,268,387
405,039
4,230,528
918,337
909,963
803,078
626,189
417,780
49,972
505,209
$
4,230,528
—
—
24,869
—
(17,499)
405,039
461,166
$
— $
—
—
—
—
49,972
505,209
555,181
—
The table above indicates that the Corporation should anticipate a greater amount of liabilities repricing over assets in the near term. Over time, this will reverse as the magnitude
of the asset pricing change exceeds the liability pricing change. This table does not take into account the magnitude of repricing due to rate prices changes.
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Table 14—Net Interest Income - Summary of Interest Rate Simulation
Management also performs a simulation of net interest income to measure interest rate exposures. The following table demonstrates the anticipated impact of a parallel interest
rate shift, or "shock," to the yield curve on the Corporation’s net interest income over the next twelve months. This simulation incorporates the same assumptions noted above and
assumes a static balance sheet with no growth in interest-earning assets or interest-bearing liabilities over the next twelve months.
The changes to net interest income are shown in the below table at December 31, 2016. The results suggest the Corporation's year-end balance sheet is slightly asset sensitive as
net interest income is projected to increase in a rising rate environment. The level of asset sensitivity increased slightly from prior year-end results. The changes to net interest income
shown below are in compliance with the Corporation's policy guidelines.
(Dollars in thousands)
Rate shock - Change in interest rates
+300 basis points
+200 basis points
+100 basis points
-100 basis points*
Estimated Change in Net Interest Income Over Next
12 Months
Amount
Percent
$
9,172
6,231
3,009
(4,700)
7.03%
4.77
2.31
(3.60)
*Certain short-term interest rates are at or below 1.00%. Therefore, in a scenario where rates decline by 100bps, short-term interest rates will decline to zero, resulting in a non-parallel downward shift.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 1, “Summary of Significant Accounting Policies” of this Form 10-K.
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 normal course of its business activities including lending, investing, receiving deposits and
borrowing funds, the Corporation is subject to changes in the economic value and/or earnings potential of the assets and liabilities due to changes in interest rates. The Corporation’s
Investment Asset/Liability Management Committee, is responsible for managing 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’s Board of Directors establishes policies that govern interest rate risk management.
Information with respect to quantitative and qualitative disclosures about market risk can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” including Liquidity and Interest Rate Sensitivity.
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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:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
47
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48
49
50
51
52
53
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Table of Contents
The Board of Directors and Shareholders
Univest Corporation of Pennsylvania:
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Univest Corporation of Pennsylvania and subsidiaries (the Company) as of December 31, 2016 and 2015, and the
related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31,
2016. 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, 2016 and 2015,
and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, 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, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 3, 2017 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Philadelphia, Pennsylvania
March 3, 2017
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Table of Contents
(Dollars in thousands, except share data)
ASSETS
UNIVEST CORPORATION OF PENNSYLVANIA
CONSOLIDATED BALANCE SHEETS
Cash and due from banks
Interest-earning deposits with other banks
Investment securities held-to-maturity (fair value $24,871 and $41,061 at December 31, 2016 and 2015,
respectively)
Investment securities available-for-sale
Federal Home Loan Bank, Federal Reserve Bank and other stock, at cost
Loans held for sale
Loans and leases held for investment
Less: Reserve for loan and lease losses
Net loans and leases held for investment
Premises and equipment, net
Goodwill
Other intangibles, net of accumulated amortization and fair value adjustments of $17,597 and $15,360 at
December 31, 2016 and 2015, respectively
Bank owned life insurance
Accrued interest receivable and other assets
Total assets
LIABILITIES
Noninterest-bearing deposits
Interest-bearing deposits:
Demand deposits
Savings deposits
Time deposits
Total deposits
Short-term borrowings
Long-term debt
Subordinated notes
Accrued interest payable and other liabilities
Total liabilities
SHAREHOLDERS’ EQUITY
Common stock, $5 par value: 48,000,000 shares authorized at December 31, 2016 and 2015; 28,911,799 and
22,054,270 shares issued at December 31, 2016 and 2015, respectively; 26,589,353 and 19,530,930 shares
outstanding at December 31, 2016 and 2015, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax benefit
Treasury stock, at cost; 2,322,446 and 2,523,340 shares at December 31, 2016 and 2015, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
At December 31,
2016
2015
48,757
9,068
$
24,881
443,637
24,869
5,890
3,285,886
(17,499)
3,268,387
63,638
172,559
16,651
99,948
52,243
4,230,528
918,337
909,963
803,078
626,189
3,257,567
196,171
127,522
94,087
49,972
3,725,319
144,559
230,494
194,516
(19,454)
(44,906)
505,209
4,230,528
$
$
$
32,356
28,443
40,990
329,770
8,880
4,680
2,179,013
(17,628)
2,161,385
42,156
112,657
12,620
71,560
33,954
2,879,451
541,460
790,800
607,694
454,406
2,394,360
24,211
—
49,377
49,929
2,517,877
110,271
121,280
193,446
(16,708)
(46,715)
361,574
2,879,451
$
$
$
$
See accompanying notes to consolidated financial statements.
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Table of Contents
(Dollars in thousands, except per share data)
Interest income
Interest and fees on loans and leases:
Taxable
Exempt from federal income taxes
Total interest and fees on loans and leases
Interest and dividends on investment securities:
Taxable
Exempt from federal income taxes
Interest on deposits with other banks
Interest and dividends on other earning assets
Total interest income
Interest expense
Interest on demand deposits
Interest on savings deposits
Interest on time deposits
Interest on short-term borrowings
Interest on long-term debt and subordinated notes
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Noninterest income
Trust fee income
Service charges on deposit accounts
Investment advisory commission and fee income
Insurance commission and fee income
Other service fee income
Bank owned life insurance income
Net gain on sales of investment securities
Net gain on mortgage banking activities
Other income
Total noninterest income
Noninterest expense
Salaries and benefits
Commissions
Net occupancy
Equipment
Data processing
Professional fees
Marketing and advertising
Deposit insurance premiums
Intangible expenses
Acquisition-related costs
Integration costs
Restructuring charges
Other expense
Total noninterest expense
Income before income taxes
Income taxes
Net income
Net income per share:
Basic
Diluted
Dividends declared
UNIVEST CORPORATION OF PENNSYLVANIA
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
2016
2015
2014
$
110,119
$
7,545
117,664
5,380
2,712
61
790
126,607
1,902
1,052
4,261
748
4,419
12,382
114,225
4,821
109,404
7,741
4,691
11,357
14,603
7,903
2,931
518
6,027
192
55,963
61,518
9,361
9,638
3,489
6,981
4,547
2,015
1,713
5,528
10,257
5,667
1,731
19,536
141,981
23,386
3,881
19,505
0.85
0.84
0.80
$
$
$
$
$
$
$
86,792
6,452
93,244
4,671
3,447
95
526
101,983
1,474
533
4,000
35
2,023
8,065
93,918
3,802
90,116
7,908
4,230
10,773
13,885
7,379
1,295
1,265
4,838
852
52,425
50,069
8,037
8,430
3,159
4,660
3,839
2,253
1,730
2,567
1,047
1,490
1,642
16,592
105,515
37,026
9,758
27,268
1.39
1.39
0.80
62,521
5,684
68,205
3,989
3,610
81
307
76,192
545
317
3,102
32
—
3,996
72,196
3,607
68,589
7,835
4,230
11,904
11,543
7,189
1,628
635
2,182
1,198
48,344
42,245
7,637
7,023
2,379
3,791
3,164
1,880
1,561
2,167
1,270
8
—
14,129
87,254
29,679
7,448
22,231
1.37
1.37
0.80
See accompanying notes to consolidated financial statements.
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Table of Contents
(Dollars in thousands)
Income
Other comprehensive income:
Net unrealized (losses) gains on available-for-sale
investment securities:
Net unrealized holding (losses) gains arising during the
period
Less: reclassification adjustment for net gains on sales
realized in net income (1)
Less: reclassification adjustment for other-than-
temporary impairment on equity securities realized in
net income (2)
Total net unrealized (losses) gains on available-for-sale
investment securities
Net unrealized gains (losses) on interest rate swaps used in
cash flow hedges:
Net unrealized holding losses arising during the period
Less: reclassification adjustment for net losses realized
in net income (3)
Total net unrealized gains (losses) on interest rate swaps
used in cash flow hedges
Defined benefit pension plans:
Net unrealized gains (losses) arising during the period
Less: amortization of net actuarial loss included in net
periodic pension costs (4)
Less: accretion of prior service cost included in net
periodic pension costs (4)
Less: reclassification adjustment for net losses realized
in net income (5)
Total defined benefit pension plans
Other comprehensive loss
Total comprehensive income
UNIVEST CORPORATION OF PENNSYLVANIA
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Before
Tax
Amount
2016
Tax
Expense
(Benefit)
Net of
Tax
Amount
Before
Tax
Amount
2015
Tax
Expense
(Benefit)
Net of
Tax
Amount
Before
Tax
Amount
2014
Tax
Expense
(Benefit)
Net of
Tax
Amount
For the Years Ended December 31,
$
23,386
$
3,881
$
19,505
$
37,026
$
9,758
$
27,268
$
29,679
$
7,448
$
22,231
(6,245)
(2,186)
(4,059)
(2,283)
(518)
(181)
(337)
(1,265)
(799)
(443)
(1,484)
5,532
(822)
(635)
—
—
—
5
2
3
—
(6,763)
(2,367)
(4,396)
(3,543)
(1,240)
(2,303)
4,897
(86)
308
222
(155)
1,321
(283)
1,434
2,317
(4,224)
(30)
108
78
(54)
462
(99)
502
811
(1,478)
(56)
200
144
(101)
859
(184)
932
1,506
(2,746)
(574)
377
(197)
(797)
1,362
(280)
—
285
(201)
132
(69)
(373)
245
(128)
(307)
66
(241)
(279)
(518)
(11,968)
(4,189)
(7,779)
477
(98)
—
100
885
(182)
—
185
666
(288)
—
(11,590)
(6,934)
233
(101)
—
(4,057)
(2,427)
433
(187)
—
(7,533)
(4,507)
(3,455)
(1,209)
(2,246)
1,936
(222)
—
1,714
(107)
23
(84)
3,596
(413)
—
3,183
(200)
43
(157)
$
19,162
$
2,403
$
16,759
$
33,571
$
8,549
$
25,022
$
22,745
$
5,021
$
17,724
(1) Included in net gain on sales of investment securities on the consolidated statements of income (before tax amount).
(2) Included in other noninterest income on the consolidated statement of income (before tax amount).
(3) Included in interest expense on demand deposits on the consolidated statements of income (before tax amount).
(4) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (before tax amount). See Note 12 - Retirement Plans and
Other Postretirement Benefits for additional details.
(5) Included in pension cost (before tax amount). See Note 12 - Retirement Plans and Other Postretirement Benefits for additional details.
See accompanying notes to consolidated financial statements.
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Table of Contents
UNIVEST CORPORATION OF PENNSYLVANIA
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands, except share and per share data)
Common
Shares
Outstanding
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balance at December 31, 2013
16,287,812
$
91,332
$
62,417
$
172,602
$
(9,955)
$
(35,890)
$
280,506
Net income
Other comprehensive loss, net of income tax benefit
Cash dividends declared ($0.80 per share)
Stock issued under dividend reinvestment and employee stock
purchase plans and other employee benefit programs
Exercise of stock options
Repurchase of cancelled restricted stock awards
Stock-based compensation
Net tax deficiency on stock-based compensation
Purchases of treasury stock
Restricted stock awards granted
Balance at December 31, 2014
Net income
Other comprehensive loss, net of income tax benefit
Cash dividends declared ($0.80 per share)
Stock issued under dividend reinvestment and employee stock
purchase plans
Issuance of common stock, acquisition
Exercise of stock options
Repurchase of cancelled restricted stock awards
Stock-based compensation
Net tax benefit on stock-based compensation
Purchases of treasury stock
Restricted stock awards granted
Balance at December 31, 2015
Net income
Other comprehensive loss, net of income tax benefit
Cash dividends declared ($0.80 per share)
Stock issued under dividend reinvestment and employee stock
purchase plans
Issuance of common stock, acquisition
Exercise of stock options
Repurchase of cancelled restricted stock awards
Stock-based compensation
Purchases of treasury stock
Restricted stock awards granted
Balance at December 31, 2016
—
—
—
124,151
17,334
(43,452)
—
—
(238,542)
74,304
—
—
—
—
—
—
—
—
—
—
—
—
—
43
(5)
735
1,141
(2)
—
(1,349)
22,231
—
(12,982)
—
—
—
—
—
—
—
—
(4,507)
—
—
—
—
—
—
—
—
—
—
—
2,419
315
(735)
—
—
(4,605)
1,349
22,231
(4,507)
(12,982)
2,462
310
—
1,141
(2)
(4,605)
—
16,221,607
$
91,332
$
62,980
$
181,851
$
(14,462)
$
(37,147)
$
284,554
—
—
—
123,391
3,787,866
27,999
(19,934)
—
—
(675,754)
65,755
—
—
—
—
18,939
—
—
—
—
—
—
—
—
—
52
57,727
(54)
318
1,421
31
—
(1,195)
27,268
—
(15,673)
—
—
—
—
—
—
—
—
—
(2,246)
—
—
—
—
—
—
—
—
—
—
—
—
2,382
—
515
(318)
—
—
(13,342)
1,195
27,268
(2,246)
(15,673)
2,434
76,666
461
—
1,421
31
(13,342)
—
19,530,930
$
110,271
$
121,280
$
193,446
$
(16,708)
$
(46,715)
$
361,574
—
—
—
115,269
6,857,529
261,050
(23,409)
—
(328,271)
176,255
—
—
—
—
—
—
—
59
34,288
109,858
—
—
—
—
—
59
418
2,084
—
(3,264)
19,505
—
(18,435)
—
—
—
—
—
—
—
—
(2,746)
—
—
—
—
—
—
—
—
—
—
—
2,413
—
4,909
(418)
—
(8,359)
3,264
19,505
(2,746)
(18,435)
2,472
144,146
4,968
—
2,084
(8,359)
—
26,589,353
$
144,559
$
230,494
$
194,516
$
(19,454)
$
(44,906)
$
505,209
See accompanying notes to consolidated financial statements.
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UNIVEST CORPORATION OF PENNSYLVANIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses
Depreciation of premises and equipment
Net gain on sales of investment securities
Net gain on mortgage banking activities
Bank owned life insurance income
Net amortization on investment securities
Amortization, fair market value adjustments and capitalization of mortgage servicing rights
Net accretion of acquisition accounting fair value adjustments
Stock-based compensation
Intangible expenses
Other adjustments to reconcile net income to cash provided by operating activities
Deferred tax expense
Originations of loans held for sale
Proceeds from the sale of loans held for sale
Contributions to pension and other postretirement benefit plans
Decrease (increase) in accrued interest receivable and other assets
Increase (decrease) in accrued interest payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Net cash paid due to acquisitions
Net capital expenditures
Proceeds from maturities and calls of securities held-to-maturity
Proceeds from maturities and calls of securities available-for-sale
Proceeds from sales of securities available-for-sale
Purchases of investment securities held-to-maturity
Purchases of investment securities available-for-sale
Proceeds from sale of loans transferred to held for sale
Proceeds from sale of portfolio loans
Proceeds from sale of credit card portfolio
Net increase in loans and leases
Net decrease (increase) in interest-earning deposits
Net (increase) decrease in other investments
Proceeds from sales of other real estate owned
Net decrease in federal funds sold
Purchases of bank owned life insurance
Proceeds from bank owned life insurance
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net increase (decrease) in short-term borrowings
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from issuance of subordinated notes
Payment of contingent consideration on acquisitions
Purchases of treasury stock
Stock issued under dividend reinvestment and employee stock purchase plans and other employee benefit programs
Proceeds from exercise of stock options, including excess tax benefits
Cash dividends paid
Net cash provided by financing activities
Net decrease (increase) in cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of period
$
53
For the Years Ended December 31,
2016
2015
2014
$
19,505
$
27,268
$
22,231
4,821
4,089
(518)
(6,027)
(2,931)
1,853
(521)
(2,779)
2,084
5,528
659
942
(258,202)
262,948
(2,261)
1,956
2,160
33,306
(94,835)
(12,644)
21,000
110,927
77,290
(5,071)
(80,476)
—
2,435
—
(337,961)
35,004
(11,773)
885
—
—
662
(294,557)
125,425
123,207
20,000
(15,000)
44,515
(2,552)
(8,359)
2,472
4,968
(17,024)
277,652
16,401
32,356
48,757
$
3,802
3,757
(1,265)
(4,838)
(1,295)
1,284
(368)
(2,048)
1,421
2,567
(133)
3,816
(209,464)
212,613
(2,271)
3,055
1,442
39,343
(2,967)
(5,890)
13,000
79,482
77,308
—
(162,722)
4,000
—
—
(181,037)
(16,954)
(3,718)
14
17,442
(8,000)
—
(190,042)
147,572
(17,763)
—
—
49,267
(2,631)
(13,342)
2,434
534
(15,011)
151,060
361
31,995
32,356
$
3,607
3,243
(635)
(2,182)
(1,628)
1,690
10
—
1,141
2,167
(822)
4,162
(131,461)
132,278
(254)
(3,237)
(587)
29,723
(9,260)
(5,595)
11,000
58,744
32,967
—
(65,215)
—
—
8,940
(100,981)
30,070
2,144
891
—
—
—
(36,295)
16,843
4,217
—
—
—
(310)
(4,605)
2,462
310
(12,996)
5,921
(651)
32,646
31,995
Table of Contents
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes, net of refunds
Non cash transactions:
Transfer of loans to other real estate owned
Transfer of loans to loans held for sale
Assets acquired through acquisitions
Liabilities assumed through acquisitions
Contingent consideration recorded as goodwill
For the Years Ended December 31,
2016
2015
2014
$
$
13,982
$
8,053
$
8,099
2,142
2,347
$
320
$
—
1,090,395
911,316
—
4,000
425,185
389,795
1,525
4,118
5,899
—
8,926
—
—
6,105
See accompanying notes to consolidated financial statements.
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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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”.)
Note 1. Summary of Significant Accounting Policies
Organization
Univest Corporation of Pennsylvania (the Corporation) through its wholly owned subsidiary, Univest Bank and Trust Co. (the Bank), is engaged in domestic commercial and
consumer banking services and provides a full range of 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., Univest Insurance, Inc. and Girard Partners provides financial planning, investment management, investment
advisory, insurance products and brokerage services. Univest Investments, Inc., Univest Insurance, Inc. and Univest Capital, Inc. were formed to enhance the traditional banking and
trust services provided by the Bank, along with the acquisition of Girard Partners.
At December 31, 2016, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines its segments based
primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has
positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. For more detailed discussion and financial
information on the business segments, see Note 23 “Segment Reporting.”
The Bank serves Montgomery, Bucks, Chester, Philadelphia, Lancaster and Lehigh Counties of Pennsylvania and Cape May County in New Jersey through thirty-seven banking
offices and provides banking and trust services to the residents and employees of fourteen retirement communities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation and its wholly owned subsidiaries; the Corporation’s primary subsidiary is the Bank. All significant
intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current-year presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) 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, 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 expense.
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. At times, such balances
exceed the FDIC limits for insurance coverage.
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 at December 31, 2016 or 2015. 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, net of estimated income taxes, reflected in accumulated other comprehensive income, a separate component of shareholders' equity. Securities classified
as available-for-sale are those securities that the Corporation intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors, including interest rates, changes in the maturity or mix of the Corporation's assets and liabilities, liquidity needs, regulatory
capital considerations and other factors. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each
balance sheet date.
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Purchase premiums and discounts are recognized in interest income using the interest method over the expected life of the securities. Due to volatility in the financial markets,
there is the risk that any future fair value could vary from that disclosed in the accompanying financial statements. Realized gains and losses on the sale of investment securities are
recorded on the trade date, determined using the specific identification method and are included in the consolidated statements of income.
Management evaluates debt securities, which are comprised of U.S. government, government sponsored agencies, municipalities, corporate bonds and other issuers, for other-
than-temporary impairment by considering the current economic conditions, the length of time and the extent to which the fair value has been less than cost, market interest rates and
the credit rating of each security. Unrealized losses on the Corporation’s investments in debt securities that are deemed in debt securities are temporary in nature are recognized in
other comprehensive income, net of tax. Should it be determined that a security is impacted by deteriorating credit, the credit portion of the loss is recognized in earnings. 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 Corporation evaluates its equity securities for other-than-temporary impairment. Other-than-temporary impairment charges are recorded when the Corporation determines the
fair value of certain equity securities will not recover the cost basis of the individual security 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. The Corporation has the intent and
ability to hold these securities until recovery of the Corporation’s cost basis occurs.
Federal Home Loan Bank Stock, Federal Reserve Bank Stock and Certain Other Investments without Readily Determinable Fair Values
At December 31, 2016 and 2015, the Bank held $14.6 million and $6.6 million, respectively, in Federal Reserve Bank stock as required by the Federal Reserve Bank. The Bank is
a member of the FHLB, and as such, is required to hold FHLB stock as a condition of membership as determined by the FHLB. The Bank is required to hold additional stock in the
FHLB in relation to the level of outstanding borrowings. The Bank held FHLB stock of $10.1 million and $2.2 million at December 31, 2016 and 2015, respectively. Additionally, the
FHLB might require its members to increase their capital stock investments. Changes in the credit ratings of the U.S. government and federal agencies, including the FHLB, could
increase the borrowing costs of the FHLB and possibly have a negative impact on its operations and long-term performance. It is possible this could have an adverse effect on the
value of the Corporation’s investment in FHLB stock. Because ownership is restricted, the fair values of these investments are not readily determinable. As such, these investments are
recorded at cost and evaluated for other-than-temporary impairment. The Corporation determined there was no other-than-temporary impairment of its investments in these stocks at
December 31, 2016 or 2015.
Loans Held for Sale
The Corporation originates mortgage loans for investment and for sale. At origination, a mortgage loan is identified as either for sale or for investment. Mortgage loans originated
and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. Net unrealized losses are recognized by charges to non-interest income.
Cash payments and cash receipts resulting from acquisitions and sales of loans are classified as operating cash flows if those loans are acquired specifically for resale. Cash receipts
resulting from sales of loans that were not specifically acquired for resale are classified as investing cash inflows regardless of a change in the purpose for holding those loans.
Loans and Leases
Loans and leases are stated at the principal amount less net deferred fees and unearned discount. Interest income on commercial loans, real estate loans excluding residential real
estate loans, and consumer loans is recorded on the outstanding balance method, using actual interest rates applied to daily principal balances. Interest on residential real estate loans is
recorded based on the outstanding balance using the actual interest rate based upon a monthly interest calculation. Loan commitments are made to accommodate the financial needs of
the customers. These commitments represent off-balance sheet items that are unfunded. The Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet financial instruments. 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.
A loan or lease is typically 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. When a loan or lease, including a loan or lease that is impaired, is classified as
nonaccrual, the accrual of interest on such a loan or lease is discontinued. A loan or lease may remain on accrual status if it is in the process of collection and
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is either guaranteed or well secured. When a loan or lease is placed on nonaccrual status, unpaid interest credited to income is reversed and the amortization of the net deferred fees is
suspended. Interest payments received on nonaccrual loans and leases are either applied against principal or reported as interest income, according to management’s judgment as to the
ultimate 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. A loan or lease is considered impaired when,
based on current information and events, it is probable that the Corporation will be unable to collect all amounts due, including principal and interest, according to the contractual
terms of the loan agreement or when a loan or lease is classified as a troubled debt restructuring. Interest on impaired loans and leases, which are not classified as nonaccrual, is
recognized on the accrual basis.
Acquired Loans
Acquired loan portfolios are initially recorded at the acquisition date fair value. The fair value is based on guidance which defines fair value as the price that would be received to
sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs are utilized to value the portfolio and include the use of
present value techniques employing cash flow estimates and incorporate assumptions that marketplace participants would use in estimating fair values. In instances where reliable
market information is not available, the Corporation uses assumptions in an effort to determine reasonable fair value. Specifically, management utilizes three separate fair value
analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used are: 1) interest rate loan fair
value analysis; 2) general credit fair value analysis; and 3) specific credit fair value analysis. There is no carryover related allowance for loan losses.
For loans acquired without evidence of credit quality deterioration, the fair value adjustments to reflect the fair value of the loans and the fair value adjustments to reflect the
general credit risk of the loan portfolio are substantially recognized as interest income on a level yield amortization method based upon the expected life of the loan. Subsequent to the
acquisition, the Corporation records a provision for loan loss for the acquired non-impaired loans only when additional deterioration of the portfolio is identified over the projections
utilized in the initial fair value analysis.
For loans acquired with evidence of credit quality deterioration , the Corporation prepares a specific credit fair value adjustment. Management reviews the acquired loan portfolio
for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition are reviewed by comparing the contractual cash flows to expected
collectible cash flows. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount. The accretable discount amount is recognized over
the life of the loans on a level yield basis as an adjustment to yield. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the derecognition of the
loan at its carrying value with differences in actual results reflected in interest income. After the acquisition measurement period, the present value of any decreases in expected cash
flows of purchased impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.
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 maintained at a level representing management's best estimate of known risks and inherent losses in the portfolio, based upon
management's evaluation of the portfolio's collectability. Management evaluates the need to establish reserves against losses on loans on a quarterly basis. When changes in the
reserve are necessary, an adjustment is made.
The reserve for loan and lease losses is adjusted through provisions for loan and lease losses charged against or credited to income. Loans deemed to be uncollectible are charged
against the reserve for loan and lease losses, and any subsequent recoveries are credited to the reserve.
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Reserve Required for Impaired Loans and Leases
A loan or lease is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect future payments of principal or interest
as contractually due. The Bank applies its normal loan review procedures in determining if a loan is impaired, which includes reviewing the collectability of delinquent and internally
classified loans on a regular basis and at least quarterly. In determining the likelihood of collecting principal and interest, the Bank considers all available and relevant information,
including the borrower's actual and projected cash flows, balance sheet strength, liquidity and overall financial position. Additionally, all loans classified as a troubled debt
restructurings are considered impaired. When a loan is classified as impaired, an impairment analysis is performed within the quarter in which a loan is identified as impaired to
determine if a valuation allowance is needed. The Bank re-examines each impaired loan on a quarterly basis to determine if any adjustment to the net carrying amount of a loan is
required. The Bank recognizes charge-offs associated with impaired loans when all or a portion of a loan is considered to be uncollectible. In measuring impairment, the Bank
determines whether or not the loan is collateral dependent. A loan is collateral dependent if repayment is expected to be provided solely by the underlying collateral, which includes
repayment from the proceeds from the sale of the collateral, cash flows from the continued operation of the collateral, or both, and there are no other available and reliable repayment
sources. To determine the initial amount of impairment for a collateral dependent loan, the Bank utilizes a recent appraisal, an agreement of sale or a letter of intent. If the fair value of
the underlying collateral, less costs to sell, is less than the loan's carrying amount, the Bank establishes a provision to the reserve for loan and lease losses in the amount of the
difference between fair value, less costs to sell, and the loan or lease's carrying amount. In subsequent periods, the Bank takes into consideration current facts and circumstances in
analyzing whether the fair value of the collateral has increased or decreased significantly such that a change to the corresponding valuation allowance is required. If current facts and
circumstances are insufficient to determine fair value, the Bank obtains a new appraisal.
For loans that are not collateral dependent, the Bank establishes a specific reserve on impaired loans based on management's estimate of the discounted cash flows the Bank
expects to receive from the borrower. Factors considered in evaluating such cash flows include: (1) the strength of the customer's personal or business cash flows and personal
guarantees; (2) the borrower's effort to cure the delinquency; (3) the availability of other sources of repayment; (4) the type and value of collateral, if applicable; and (5) the strength of
our collateral position, if applicable.
General Reserve on the Remainder of the Portfolio
The Bank establishes a general reserve for loans and leases that are not considered impaired to recognize the inherent losses associated with lending activities. This general
reserve is determined by segmenting the loan portfolio and assigning reserve factors to each category. The reserve factors are calculated using the Bank's historical losses and loss
emergence periods, and are adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors
include:
•
•
•
•
•
•
•
•
•
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off and recovery practices not considered elsewhere in
estimating credit losses;
Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the
condition of various market segments;
Changes in the nature and volume of the portfolio and in the terms of loans;
Changes in the experience, ability, and depth of lending management and other relevant staff;
Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
Changes in the quality of the institution’s loan review system;
Changes in the value of underlying collateral for collateral-dependent loans;
The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution’s existing portfolio.
The Corporation maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded in categories with historical loss experience. 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 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 or, for leasehold improvements, over the life of the related lease if less than the estimated useful life of the asset. 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
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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. When assets are retired, or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts.
Goodwill and Other 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 are amortized using the sum of the year’s digits over their estimated useful lives of up to fifteen
years. Customer related intangibles are amortized over their estimated useful lives of five to twelve years. Covenants not to compete are amortized over their three to five-year
contractual lives on a straight-line basis. The Corporation completes a goodwill analysis at least on an annual basis or more often if events and circumstances indicate that there may
be impairment. The Corporation also completes an impairment test for other intangible assets on an annual basis or more often if events and circumstances indicate a possible
impairment. There can be no assurance that future impairment analyses will not result in a charge to earnings.
Mortgage servicing rights are recognized as separate assets when mortgage loans are sold and the servicing rights are retained. Capitalized mortgage servicing rights are reported
in other intangible assets on the consolidated balance sheets and are amortized into noninterest income in proportion to, and over the period of, estimated net servicing income on a
basis similar to the interest method and an accelerated amortization method for loan payoffs. Mortgage servicing rights are evaluated for impairment, on a quarterly basis, based upon
the fair value of the servicing rights as compared to amortized cost. The Corporation estimates the fair value of mortgage servicing rights 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. Mortgage servicing rights 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 has invested in bank-owned life insurance (BOLI). BOLI involves the purchasing of life insurance by the Corporation for certain employees. The Corporation is
the owner and beneficiary of the policies, however certain policies include split-dollar endorsements. Under these endorsements, beneficiaries of the insured individuals are entitled to
a portion of the proceeds from the policy upon death of the insured. The life insurance investment is carried at the net cash surrender value of the underlying policies. Changes in the
net cash surrender value of these policies are reflected in noninterest income. Proceeds from and purchases of bank owned life insurance are reflected in the consolidated statements of
cash flows under investing activities. The Corporation recognizes a liability for the future death benefit for certain endorsement split-dollar life insurance arrangements that provide an
employee with a death benefit in a postretirement/termination period.
Other Real Estate Owned
Other real estate owned (OREO) represents properties acquired through customers’ loan defaults and is included in other assets. The real estate is originally stated at an amount
equal to the fair value of the property, less estimated costs to sell. The fair value less cost to sell becomes the "original cost" of the OREO asset. The amount, if any, by which the
carrying amount of the loan plus recorded accrued interest (the recorded loan amount) exceeds the fair value less cost to sell of the OREO, the loss is charged against the reserve for
loan and lease losses at the time of foreclosure or repossession. If the fair value less cost to sell of the OREO asset when taken into possession is greater than the recorded loan
amount, the excess is first applied as a recovery against any prior charge-offs of the loan and any remaining gain is recorded as other noninterest income. Subsequently, OREO will be
reported at the lower of the original cost and the current the fair value less cost to sell. Subsequent write-downs and any gain or loss upon the sale of OREO is recorded in other
noninterest income. Capital improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the
capitalized expenses may not increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. Overages and
subsequent carrying costs are expensed as incurred.
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
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earnings, or recognized in other comprehensive income until the underlying forecasted transaction 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 third party pricing models that incorporate assumptions about market conditions and risks
that are current at the reporting date.
The Corporation may use interest-rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable 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 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. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in
accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. The change in fair
value of the ineffective part of the instrument would be charged to earnings, 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 sheet with the corresponding gain or loss being recognized in the consolidated statement of income. 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 consolidated statement of income. 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.
The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts and foreign
currency swap contracts with loan customers referred to them by the Corporation. The Corporation records the fair value of credit derivatives in other liabilities on the consolidated
balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees received, in other noninterest income in the consolidated statements of
income.
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 of mortgage loans to third-party investors to hedge the effect of changes in
interest rates on the value of the interest rate locks. Forward loan sale 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 loan sale 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 balance sheet date. 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 the net gain on mortgage banking activities on the consolidated statements of income.
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 noninterest expense in the year they are assessed and paid and are treated as a non-deductible expense for tax purposes. Interest is recorded in noninterest expense in the year it is
assessed and paid and is treated as a deductible expense for tax purposes.
Retirement Plans and Other Postretirement Benefits
Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Effective December 31, 2009, the benefits previously
accrued under the noncontributory retirement plan were frozen and the plan was amended and converted to a cash balance plan, with participants not losing any pension benefits
already earned in the plan. Prior to the cash balance plan conversion effective December 31, 2009, the plan provided benefits based on a formula of each participant’s final
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average pay. Future benefits under the cash balance plan accrue by crediting participants annually with an amount equal to a percentage of earnings in that year based on years of
credited service as defined in the plan. Employees hired on or after December 8, 2009 are not eligible to participate in the noncontributory retirement plan. The Corporation also
provides supplemental executive retirement benefits to certain former executives, a portion of which is in excess of limits imposed on qualified plans by federal tax law; these plans
are non-qualified benefit plans. These non-qualified benefit plans are not offered to new participants; all current participants are now retired. 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 consolidated 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 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.
The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP) which was established in 1981 prior to the existence of a 401(k) deferred salary savings,
employee stock purchase and long-term incentive plans and therefore is not offered to new participants; all current participants are now retired. These non-qualified plans are
accounted for under guidance for deferred compensation arrangements.
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 Corporation grants both fixed and variable (performance-based) restricted stock. The performance-based restricted stock awards vest based upon the
Corporation’s performance against selected peers with respect to certain financial measures over a three-year period. The fair value of fixed 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 performance-based restricted stock is equivalent to the fair value on the date of grant and is
amortized over the vesting period adjusted for a probability factor of achieving the performance goals.
Dividend Reinvestment and Employee Stock Purchase Plans
The Univest Dividend Reinvestment Plan allows for the issuance of 1,968,750 shares of common stock. During 2016 and 2015, 86,350 and 87,946 shares, respectively, were
issued under the dividend reinvestment plan, with 377,885 shares available for future purchase at December 31, 2016.
The 1996 Employee Stock Purchase Plan allows for the issuance of 984,375 shares of common stock. Employees may elect to make contributions to the plan in an aggregate
amount not less than 2% or 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 Employee Stock Purchase Plan Committee. The purchase price of the stock is 90% of the closing sale price on the last trading day of each quarter. Compensation
expense is recognized as the discount is greater than 5% of the fair value. During 2016 and 2015, 28,919 and 26,440 shares, respectively, were issued under the employee stock
purchase plan, with 677,265 shares available for future purchase at December 31, 2016.
Marketing and Advertising Costs
The Corporation’s accounting policy is to expense marketing and advertising costs as incurred, when the advertisement first takes place, or over the expected useful life of the
related asset, as would be the case with billboards.
Statement of Cash Flows
The Corporation has defined those items included in the caption “Cash and due from banks” as cash and cash equivalents.
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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
The Corporation uses the two-class method to calculate earnings per share as the unvested restricted stock issued under the Corporation's equity incentive plans are participating
shares with nonforfeitable rights to dividends. Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings to common
shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class
method, undistributed earnings are allocated to both common shares and participating securities based on the number of weighted average shares outstanding during the period.
Diluted earnings per share reflect additional common shares that would have been outstanding if options on common shares had been exercised, 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.
Recent Accounting Pronouncements
In November 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to require that a statement of cash flows explain the change
during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as
restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on
the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years for public business entities, or
January 1, 2018 for the Corporation. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Corporation does not
anticipate the adoption of this ASU will have a material impact on the statement of cash flows.
In August 2016, the FASB issued an ASU to provide guidance for eight cash flow classification issues for certain cash receipts and cash payments with the objective of reducing
diversity in practice. The issues identified within the ASU include: debt prepayments or extinguishment costs; contingent consideration payments made after a business combination;
proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions
received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The
ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years for public business entities that are SEC filers, or January 1, 2018 for the
Corporation. The Corporation does not anticipate the adoption of this ASU will have a material impact on the financial statements.
In June 2016, the FASB issued an ASU to require businesses and other organizations to measure the current expected credit losses (CECL) on financial assets, such as loans, net
investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not
accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has
been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a
broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to
retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified-retrospective approach). Acquired credit impaired loans for which the
guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition
approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. The ASU is effective for fiscal years beginning
after December 15, 2019, and interim periods within those years for public business entities that are SEC filers, or January 1, 2020 for the Corporation. The Corporation is in the
process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated that the allowance will increase upon adoption of
CECL and that the increased allowance level will decrease regulatory capital and ratios.
In March 2016, the FASB issued an ASU to simplify and improve employee share-based payment accounting. Under the new guidance, all excess tax benefits and tax
deficiencies are recognized as an income tax benefit or expense in the income statement. The additional paid-in capital pool is eliminated. Excess tax benefits and deficiencies are
recognized in the period they are deducted on the income tax return. Excess tax benefits are recorded along with other income tax cash flows as an operating activity in the statement
of cash flows. The recognition of excess tax benefits and deficiencies and changes to diluted earnings per share are applied
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prospectively when this ASU is adopted. For tax benefits that were not previously recognized because the related tax deduction had not reduced taxes payable, entities record a
cumulative-effect adjustment in retained earnings as of the beginning of the year of adoption. The Corporation does not record deferred tax benefits on incentive stock options when
expense is accrued, therefore, the Corporation does not have a cumulative-effect adjustment upon adoption of this ASU. Changes to the treatment of forfeitures will not impact the
Corporation as the historical assumption for forfeitures was immaterial and not taken into account during valuations; the Corporation has recorded forfeitures as they occurred which
is consistent with the new guidance. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those years for public business entities, or
January 1, 2017 for the Corporation. Early adoption is permitted in any interim or annual period provided that the entire ASU is adopted. The Corporation adopted this ASU effective
January 1, 2016 on a prospective basis. Prior periods have not been adjusted. All excess tax benefits and tax deficiencies for 2016 were recognized as a net income tax benefit in the
statement of income. The additional paid-in capital pool was eliminated. The net impact of this adoption was $301 thousand in net income tax benefits recorded in the statement of
income for the year ended December 31, 2016. The adoption of this ASU did not have a material impact on the Corporation's financial statements.
In March 2016, the FASB issued an ASU to amend the guidance for hedge accounting to clarify that a change in the counterparty to a derivative instrument that has been
designated as a hedging instrument does not require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The amendments
in this ASU are effective for financial statements of public businesses issued for fiscal years and interim periods within those years beginning after December 15, 2016, or January 1,
2017 for the Corporation. The adoption of this ASU did not have any impact on the Corporation's financial statements.
In February 2016, the FASB issued an ASU to revise the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability
and a right-of-use asset for all leases. Disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing,
and uncertainty of cash flows arising from leases. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified
retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. These practical expedients relate to the
identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use
hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. An entity that elects to apply the practical expedients will, in effect, continue
to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-
use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed
under previous GAAP. The ASU is effective for the first interim period within annual periods beginning after December 15, 2018, or January 1, 2019, with early adoption permitted.
The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, the adoption of this ASU will impact
the balance sheet for the recording of assets and liabilities for operating leases; any initial or continued impact of the recording of assets will have an impact on risk-based capital
ratios under current regulatory guidance and possibly equity ratios.
In January 2016, the FASB issued an ASU to address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The ASU will require
equity investments to be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable, an entity may elect to measure the
equity investment at cost, minus impairment, plus or minus any change in the investment’s observable price. The ASU will simplify the impairment assessment of equity investments
without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is
required to measure the investment at fair value. A valuation allowance on a deferred tax asset related to available-for-sale securities will need to be included. For financial liabilities
that are measured at fair value, the ASU requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument-
specific credit risk. An entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The
amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as
of the date of adoption. The amendments in this ASU are effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017 or January
1, 2018 for the Corporation. The Corporation is in the process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements.
In September 2015, the FASB issued an ASU simplifying the accounting for measurement-period adjustments related to business combinations. The ASU eliminates the
requirement to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. Under this ASU,
measurement-period adjustments are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. The ASU
requires additional disclosures about the impact on current period income statement line items of adjustments that would have been recognized in prior periods if prior period
information had been revised. The amendments in this ASU were effective for
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financial statements of public businesses issued for fiscal years and interim periods within those years beginning after December 15, 2015, or January 1, 2016 for the Corporation. The
adoption of this guidance did not impact the Corporation's financial statements.
In April 2015, the FASB issued an ASU simplifying the presentation of debt issuance costs. The ASU requires that debt issuance costs related to a recognized debt liability shall
be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The costs will continue to be amortized to interest
expense using the effective interest method. The ASU was effective for financial statements of public businesses issued for fiscal years beginning after December 15, 2015, or January
1, 2016 for the Corporation. The adoption of this ASU did not impact the Corporation's balance sheet presentation as the Corporation followed this presentation consistent with the
guidance in FASB Concepts Statement No. 6.
In May 2014, the FASB issued an ASU regarding revenue from contracts with customers which clarifies the principles for recognizing revenue and develops a common standard
for U.S. GAAP and International Financial Reporting Standards. The ASU establishes a core principle that would require an entity to identify the contract(s) with a customer, identify
the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when
(or as) the entity satisfies a performance obligation. The ASU provides for improved disclosure requirements that require entities to disclose sufficient information that enables users
of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In March 2016, the FASB issued an
ASU clarifying the implementation guidance on the principal-versus-agent considerations in the revenue recognition standard by instructing the participants in the sale to determine
whether they control the good or service and are entitled to the gross amount of the transaction or are acting as an agent and should collect only a fee or commission for arranging the
sale. In April 2016, the FASB issued an ASU clarifying the identification of performance obligations and licensing. In May 2016, the FASB issued an ASU providing some limited
improvements and practical expedients. The original effective date of the guidance relating to revenue from contracts with customers was deferred in August 2015 by one year. This
guidance is now effective for fiscal years and interim periods within those years beginning after December 15, 2017, or January 1, 2018 for the Corporation. The Corporation is in the
process of evaluating the impact of the adoption of this guidance on the Corporation's financial statements; however, it is anticipated the impact will be only related to timing.
Note 2. Restrictions on Cash and Due from Banks and Interest-earning Deposit Accounts
The Bank maintains reserve balances under Federal Reserve Bank requirements. The reserve requirement at December 31, 2016 and 2015 was $6.6 million and $4.2 million,
respectively, and was satisfied by vault cash held at the Bank’s branches. The average balances at the Federal Reserve Bank of Philadelphia were $10.2 million and $36.5 million for
the years ended December 31, 2016 and 2015, respectively.
The Corporation maintains interest-earning deposit accounts at other financial institutions and pledges certain deposits as collateral for credit derivatives and interest rate swap
agreements. Deposits pledged at December 31, 2016 and 2015 were $50 thousand and $460 thousand, respectively. See Note 17, "Derivative Instruments and Hedging Activities" for
additional information.
Note 3. Acquisition
Fox Chase Bancorp
On July 1, 2016, the Corporation completed the merger of Fox Chase Bancorp into the Corporation and Fox Chase Bank into Univest Bank and Trust Co. Fox Chase Bank was a
locally-managed institution with locations in Pennsylvania and New Jersey and headquartered in Hatboro, Pennsylvania. The Corporation's presence expanded in Bucks, Chester,
Philadelphia and Montgomery counties in Pennsylvania and into Cape May county in New Jersey, complementing and expanding the Corporation's existing network of financial
centers. The fair value of total assets acquired as a result of the merger totaled $1.1 billion, loans totaled $776.2 million and deposits totaled $738.3 million. In accordance with the
terms of the Agreement and Plan of Merger, dated December 8, 2015, holders of shares of Fox Chase common stock received, in aggregate, $98.9 million in cash and 6,857,529
shares or approximately 26% of the post transaction outstanding shares of the Corporation's common stock. The transaction was valued at $242.2 million based on Corporation’s June
30, 2016 closing share price of $21.02 as quoted on NASDAQ. The results of the combined entity’s operations are included in the Corporation's Consolidated Financial Statements
from the date of acquisition. Goodwill of $59.9 million, which is the excess of the merger consideration over the estimated fair value of net assets acquired, was recorded in the Fox
Chase acquisition and represents the anticipated revenue growth and reduced expenses as a result of the acquisition.
The acquisition of Fox Chase is being accounted for as a business combination using the acquisition method of accounting, which includes estimating the fair value of assets
acquired, liabilities assumed and consideration paid as of the acquisition date.
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The following table summarized the consideration paid for Fox Chase and the fair value of assets acquired and liabilities assumed at the acquisition date:
(Dollars in thousands, except share data)
Purchase price consideration in common stock:
Fox Chase common shares outstanding
Fox Chase common shares settled for stock
Exchange ratio
Univest shares issued
Univest closing stock price at June 30, 2016
Purchase price assigned to Fox Chase common shares exchanged for Univest stock
Fox Chase common shares settled for cash
Purchase price for shares exchanged for cash
Purchase price assigned to Fox Chase common shares exchanged for cash
Purchase price assigned to cash in lieu of fractional shares
Purchase price assigned to Fox Chase options settled for cash
Purchase price consideration - ESOP and Equity Incentive Plan
Total purchase price
Fair value of assets acquired:
Cash and due from banks
Interest-earning deposits with other banks
Investment securities available-for-sale
Loans held for investment
Premises and equipment, net
Other real estate owned
Core deposit intangible *
Bank owned life insurance
Accrued interest receivable and other assets
Total identifiable assets
Fair value of liabilities assumed:
Deposits - noninterest bearing
Deposits - interest bearing
Short-term borrowings
Long-term debt
Accrued interest payable and other liabilities
Total liabilities
Identifiable net assets
Goodwill resulting from merger *
$
$
$
$
11,754,852
7,047,096
0.9731
6,857,529
21.02
4,707,756
21.00
3,253
15,629
230,682
776,214
13,146
2,510
5,268
26,119
20,827
35,285
702,978
48,500
123,448
1,105
$
$
$
$
$
144,146
98,863
11
4,255
(5,041)
242,234
1,093,648
911,316
182,332
59,902
* Goodwill is not deductible for federal income tax purposes. The goodwill and core deposit intangible are allocated to the Banking business segment.
The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. In many cases,
determining the fair value of the acquired assets and assumed liabilities required the Corporation to estimate cash flows expected to result from those assets and liabilities and to
discount those cash flows at appropriate rates of interest, which required the utilization of significant estimates and judgment in accounting for the acquisition.
Cash and due from banks: The fair value of cash and due from banks is their stated value.
Investment securities available-for-sale: The estimated fair values of the investment securities available for sale, primarily comprised of U.S. government agency mortgage-
backed securities and corporate bonds, were determined using Level 2 inputs in the fair value hierarchy. The fair values were determined using independent pricing services and
market-participating brokers. The Corporation’s independent pricing service utilized evaluated pricing models that vary by asset class and incorporate available trade, bid and other
market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the pricing
service’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare
evaluations. Management reviewed the data and assumptions used in pricing the securities. A fair value premium of $3.4 million was recorded and is being amortized over the
estimated useful life of the investments (estimated average remaining life of 3.7 years) using the interest rate method.
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Loans held for investment: The most significant fair value determination related to the valuation of acquired loans. The acquisition resulted in loans acquired with and without
evidence of credit quality deterioration. There was no carryover related allowance for loan and lease losses.
The acquired loan portfolio was valued based on current guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly
transaction between market participants at the measurement date. Level 3 inputs were utilized to value the portfolio and included the use of present value techniques employing cash
flow estimates and incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the
Corporation used assumptions in an effort to determine reasonable fair value. Specifically, management utilized three separate fair value analyses which a market participant would
employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate fair value analysis; 2) general credit fair value analysis;
and 3) specific credit fair value analysis.
For loans acquired without evidence of credit quality deterioration, the Corporation prepared the interest rate fair value analysis. Loans were grouped by characteristics such as
loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by management for reasonableness. The average of
these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.
Additionally a general credit fair value adjustment was calculated using a two part general credit fair value analysis: 1) expected lifetime credit migration losses; and 2) estimated fair
value adjustment for qualitative factors, liquidity and an additional discount for loans considered to have heightened risk but not considered impaired.
The expected lifetime losses were calculated using an average of historical losses of the Bank, Fox Chase Bank and peer banks. The Corporation also estimated an environmental
factor to apply to each loan type. The environment factor represents potential discount which may arise due to general economic conditions. Fox Chase's loan portfolio without
evidence of credit quality deterioration was recorded at a current fair value of $762.5 million. A fair value premium of $4.7 million was recognized to reflect the fair values of loans. A
fair value discount of $8.5 million was recognized to reflect the general credit risk of the loan portfolio. The adjustment is being substantially recognized as interest income over
approximately 10 years on a level yield amortization method based upon the expected life of the loans.
For loans acquired with evidence of credit quality deterioration the Corporation prepared a specific credit fair value adjustment. Management reviewed the acquired loan portfolio
for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition were reviewed by comparing the contractual cash flows to expected
collectible cash flows. The aggregate expected cash flows less the acquisition date fair value results in an accretable yield amount. The accretable discount amount is being recognized
over the life of the loans on a level yield basis as an adjustment to yield. Any disposals of loans, including sales of loans, payments in full or foreclosures result in the derecognition of
the loan at its carrying value with differences in actual results reflected in interest income.
At the acquisition date, the Corporation recorded $13.7 million of acquired impaired loans. The aggregate expected cash flows less the acquisition date fair value results in an
accretable discount amount of $283 thousand, which is being recognized over the life of the loans on a level yield basis as an adjustment to yield. Contractual cashflows not expected
to be collected of $11.1 million resulted in an unaccretable fair value discount of $5.7 million.
The following is a summary of the acquired impaired loans at July 1, 2016 resulting from the acquisition with Fox Chase:
(Dollars in thousands)
Contractually required principal and interest payments
Contractual cash flows not expected to be collected (nonaccretable difference)
Cash flows expected to be collected
Interest component of expected cash flows (accretable discount)
Fair value of loans acquired with a deterioration of credit quality
$
$
25,141
(11,120)
14,021
(283)
13,738
Bank premises: The Corporation assumed ten owned properties. The fair value was determined taking into consideration the highest and best use of the properties from a market
participant perspective. For those properties that the Corporation have held-for-sale, the fair value is reduced by the costs to sell. The fair value of bank premises were determined
using Level 2 inputs in the fair value hierarchy. The fair value of the buildings of $4.4 million is being amortized over an estimated life of 30 years.
Other real estate owned: The Corporation assumed five other real estate owned properties. The fair value was determined taking into consideration the highest and best use of the
properties from a market participant perspective, including management assumptions when comparative data is not available, and is reduced by the costs to sell. The fair value of other
real estate owned was determined using Level 3 inputs in the fair value hierarchy.
Bank owned life insurance: The fair value was determined at the cash surrender value of the policies.
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Core deposit intangible: Core deposit intangible represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of the
acquisition. The core deposit intangible fair value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring
core deposits as part of an acquisition compared to the cost of alternative funding sources and was valued utilizing Level 3 inputs. The core deposit intangible of $5.3 million is being
amortized using the sum of the years digits method over an estimated life of 10 years.
Deposits: The fair values of demand and saving deposits, with no stated maturities, approximated the carrying value as these accounts are payable on demand. The fair values of
time deposits with fixed maturities were estimated by discounting the final maturity using current market interest rate for similar instruments. A fair value premium of $831 thousand
was recorded and is recognized as a reduction to interest expense using a level yield amortization method over the life of the time deposit. The fair value of time deposits were
determined using Level 2 inputs in the fair value hierarchy.
Federal funds: Federal funds are overnight funds. The fair value of federal funds was determined to be the carrying balance due to the using Level 2 inputs in the fair value
hierarchy.
Long-term debt: Fair values of long-term debt were estimated using discounted cash flow analysis based on rates currently available to the Bank for advances with similar terms
and remaining maturities. The fair value of long-term borrowings was determined using Level 2 inputs in the fair value hierarchy. A fair value premium of $3.4 million was
recognized and is recognized as a reduction to interest expense using a level yield amortization method over the life of the debt.
Deferred tax assets and liabilities: Deferred tax assets and liabilities were established for purchase accounting fair value adjustments as the future amortization/accretion of these
adjustments represent temporary differences between book income and taxable income.
Direct costs related to the acquisition were expensed as incurred. For the year ended December 31, 2016, the Corporation incurred $15.9 million of Fox Chase integration and
acquisition-related costs, which have been separately stated in the Corporation's consolidated statements of income.
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Supplemental Pro Forma Financial Information (unaudited)
The following unaudited pro forma combined consolidated financial information for the years ended December 31, 2016 and 2015 combine the historical consolidated results of
the Corporation and Fox Chase and give effect to the merger as if the merger occurred on January 1, 2016 and January 1, 2015, respectively. The pro forma information has been
prepared to include the estimated adjustments necessary to record the assets and liabilities of Fox Chase at their respective fair values. Furthermore, the unaudited proforma
information does not reflect management’s estimate of any revenue-enhancing opportunities or anticipated cost savings.
The pro forma data is not necessarily indicative of the operating results that the Corporation would have achieved had it completed the merger as of the beginning of the period
presented and should not be considered as representative of future operations.
(Dollars in thousands, except share data)
Net interest income
Noninterest income
Noninterest expense*
Net income*
Earnings per share:*
Basic
Diluted
(Dollars in thousands, except share data)
Acquisition and integration costs
Acquisition and integration costs, net of tax
Earnings per share:
Basic
Diluted
Restructuring charges
Restructuring charges, net of tax
Earnings per share:
Basic
Diluted
Pro Forma
For the Years Ended December 31,
2016
2015
$
$
132,581
58,189
168,170
11,933
0.45
0.45
* Includes acquisition, integration and restructuring costs as summarized below.
Pro Forma
For the Years Ended December 31,
2016
2015
$
(29,433)
(19,939)
(0.76)
(0.76)
(1,731)
(1,125)
(0.04)
(0.04)
68
130,452
55,158
132,600
38,767
1.46
1.46
(3,028)
(2,156)
(0.08)
(0.08)
(1,642)
(1,067)
(0.04)
(0.04)
Table of Contents
Note 4. Investment Securities
The following table shows the amortized cost and the estimated fair value of the held-to-maturity securities and available-for-sale securities at December 31, 2016 and 2015, by
contractual maturity within each type:
Amortized
Cost
At December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Amortized
Cost
At December 31, 2015
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(Dollars in thousands)
Securities Held-to-Maturity
Residential mortgage-backed securities:
Over 10 years
Corporate bonds:
Within 1 year
After 1 year to 5 years
Total
Securities Available-for-Sale
U.S. treasuries:
After 1 year to 5 years
U.S. government corporations and agencies:
Within 1 year
After 1 year to 5 years
State and political subdivisions:
Within 1 year
After 1 year to 5 years
After 5 years to 10 years
Over 10 years
Residential mortgage-backed securities:
After 1 year to 5 years
After 5 years to 10 years
Over 10 years
Collateralized mortgage obligations:
Over 10 years
Corporate bonds:
Within 1 year
After 1 year to 5 years
After 5 years to 10 years
Over 10 years
Money market mutual funds:
No stated maturity
Equity securities:
No stated maturity
Total
$
$
$
$
15,000
17,265
32,265
964
18,705
55,541
12,663
87,873
6,086
23,479
174,388
203,953
4,659
4,659
250
35,923
15,193
60,000
111,366
10,784
10,784
411
411
451,311
5,071
5,071
19,810
—
19,810
24,881
$
$
— $
—
— $
—
$
(3)
(3)
(9)
—
(9)
5,068
5,068
19,803
—
19,803
24,871
$
$
$
(12)
$
— $
— $
— $
2
—
2
2
—
20
—
20
—
38
829
226
1,093
—
—
99
99
—
—
—
34
—
27
61
—
—
— $
—
— $
—
— $
—
—
—
21,047
19,943
40,990
40,990
4,978
4,978
10,389
92,148
102,537
—
17,362
47,969
34,334
99,665
9,713
60
3,517
13,290
3,215
3,215
250
19,446
10,148
60,000
89,844
16,726
16,726
426
426
134
1
135
135
$
— $
$
$
—
—
26
26
—
80
1,188
1,160
2,428
12
—
65
77
—
—
—
25
—
—
25
—
—
381
381
$
$
—
(64)
(64)
(64)
(91)
(91)
(29)
(378)
(407)
—
(29)
(32)
—
(61)
(13)
—
—
(13)
(82)
(82)
—
(158)
(266)
(2,770)
(3,194)
—
—
—
—
21,181
19,880
41,061
41,061
4,887
4,887
10,360
91,796
102,156
—
17,413
49,125
35,494
102,032
9,712
60
3,582
13,354
3,133
3,133
250
19,313
9,882
57,230
86,675
16,726
16,726
807
807
—
—
(19)
(19)
(1)
(75)
(426)
(114)
(616)
(66)
(622)
(4,794)
(5,482)
(105)
(105)
—
(241)
(516)
(2,472)
(3,229)
—
—
—
—
—
15,020
17,246
32,266
963
18,668
55,944
12,775
88,350
6,020
22,857
169,693
198,570
4,554
4,554
250
35,716
14,677
57,555
108,198
10,784
10,784
915
915
504
504
1,777
$
$
(9,451)
$
443,637
$
330,681
$
2,937
$
(3,848)
$
329,770
Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties and
mortgage-backed securities typically prepay at a rate faster than contractually due. Unrealized losses in investment securities at December 31, 2016 and 2015 do not represent other-
than-temporary impairments.
69
Table of Contents
Securities with a carrying value of $356.7 million and $210.1 million at December 31, 2016 and 2015, respectively, were pledged to secure public deposits and for other purposes
as required by law. In addition, securities of $1.4 million were pledged to secure credit derivatives and interest rate swaps at December 31, 2016. See Note 17, "Derivative Instruments
and Hedging Activities" for additional information.
The following table presents information related to sales of securities available-for-sale during the years ended December 31, 2016, 2015 and 2014:
(Dollars in thousands)
Securities available-for-sale:
Proceeds from sales
Gross realized gains on sales
Gross realized losses on sales
Tax expense related to net realized gains on sales
For the Years Ended December 31,
2016
2015
2014
$
77,290
$
77,308
$
32,967
600
82
181
1,295
30
443
635
—
222
The Corporation did not recognize any other-than-temporary impairment charges on debt securities for the years ended December 31, 2016, 2015 and 2014. The Corporation
realized other-than-temporary impairment charges to noninterest income of $0 thousand, $5 thousand, and $0 thousand on its equity portfolio during the years ended December 31,
2016, 2015 and 2014, respectively.
At December 31, 2016 and 2015, there were no investments in any single non-federal issuer representing more than 10% of shareholders’ equity.
The following table shows the fair value of securities that were in an unrealized loss position at December 31, 2016 and 2015 by the length of time those securities were in a
continuous loss position. For the investment securities in an unrealized loss position, the Corporation has concluded, based on its analysis, that the unrealized losses are primarily
caused by the movement of interest rates and current market conditions. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than
the par value of the investment. It is more likely than not that the Corporation will not be required to sell the investments before a recovery of carrying value.
(Dollars in thousands)
At December 31, 2016
Securities Held-to-Maturity
Residential mortgage-backed securities
Corporate bonds
Total
Securities Available-for-Sale
U.S. government corporations and agencies
State and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligations
Corporate bonds
Total
At December 31, 2015
Securities Held-to-Maturity
Corporate bonds
Total
Securities Available-for-Sale
U.S. treasuries
U.S. government corporations and agencies
State and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligations
Corporate bonds
Total
Less than
Twelve Months
Twelve Months
or Longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
$
$
$
$
$
$
$
$
$
5,068
9,779
14,847
11,850
40,771
192,782
2,013
58,535
$
$
$
(3)
(9)
(12)
(19)
(610)
(5,482)
(26)
(1,333)
305,951
$
(7,470)
$
12,078
12,078
$
$
(9)
(9)
$
$
— $
— $
72,157
10,251
4,751
—
72,234
(379)
(49)
(13)
—
(2,941)
$
159,393
$
(3,382)
$
70
— $
—
— $
— $
—
— $
— $
— $
(6)
—
(79)
(1,896)
$
$
$
5,068
9,779
14,847
11,850
41,194
192,782
4,555
91,639
(1,981)
$
342,020
$
(55)
(55)
(91)
(28)
(12)
—
(82)
(253)
(466)
$
$
$
$
$
$
17,031
17,031
4,887
77,129
11,586
4,751
3,133
82,903
$
184,389
$
423
—
2,542
33,104
36,069
4,953
4,953
4,887
4,972
1,335
—
3,133
10,669
24,996
$
$
$
$
$
(3)
(9)
(12)
(19)
(616)
(5,482)
(105)
(3,229)
(9,451)
(64)
(64)
(91)
(407)
(61)
(13)
(82)
(3,194)
(3,848)
Table of Contents
Note 5. Loans and Leases
Summary of Major Loan and Lease Categories
(Dollars in thousands)
Commercial, financial and agricultural
Real estate-commercial
Real estate-construction
Real estate-residential secured for business purpose
Real estate-residential secured for personal purpose
Real estate-home equity secured for personal purpose
Loans to individuals
Lease financings
Total loans and leases held for investment, net of deferred income
Unearned lease income, included in the above table
Net deferred costs, included in the above table
Overdraft deposits included in the above table
(Dollars in thousands)
Commercial, financial and agricultural
Real estate-commercial
Real estate-construction
Real estate-residential secured for business purpose
Real estate-residential secured for personal purpose
Real estate-home equity secured for personal purpose
Loans to individuals
Lease financings
Total loans and leases held for investment, net of deferred income
Unearned lease income, included in the above table
Net deferred costs, included in the above table
Overdraft deposits included in the above table
$
$
$
$
$
$
At December 31, 2016
Originated
Acquired
Total
663,221
$
160,045
$
823,266
1,374,949
174,844
294,068
290,808
162,839
30,373
134,739
504,515
885,892
96,541
218,783
181,155
136,955
29,732
125,440
895,054
$
3,285,886
— $
—
—
(15,970)
4,503
84
At December 31, 2015
Originated
Acquired
Total
479,980
$
24,535
$
465,368
31,953
142,137
80,431
14,857
263
—
126,550
4,637
124,503
3,305
11,594
326
—
909,581
142,891
151,931
210,377
147,982
30,110
134,739
2,390,832
(15,970)
4,503
84
$
$
759,342
91,904
94,280
177,850
125,361
29,406
125,440
1,883,563
(13,829)
4,244
35
$
$
295,450
$
2,179,013
— $
—
—
(13,829)
4,244
35
Overdraft deposits are re-classified as loans and are included in the total loans and leases on the balance sheet.
The carrying amount of acquired loans at December 31, 2016 totaled $895.1 million, including $673.4 million of loans from the Fox Chase acquisition and $221.7 million from
the Valley Green Bank acquisition. At December 31, 2016, loans acquired with deteriorated credit quality, or acquired credit impaired loans, were $6.4 million from the Fox Chase
acquisition and $990 thousand from the Valley Green Bank acquisition. Acquired credit impaired loans are accounted for in accordance with Accounting Standards Codification
(ASC) Topic 310-30. See Note 3, "Acquisition" for additional information.
The outstanding principal balance and carrying amount for acquired credit impaired loans at December 31, 2016 and 2015 were as follows:
(Dollars in thousands)
Outstanding principal balance
Carrying amount
Allowance for loan losses
At December 31, 2016
At December 31, 2015
$
8,993
7,352
—
3,551
1,253
8
$
71
Table of Contents
The following table presents the changes in accretable yield on acquired credit impaired loans:
(Dollars in thousands)
Beginning of period
Acquisition of credit impaired loans
Reclassification from nonaccretable discount
Accretable yield amortized to interest income
Disposals
End of period
For the Years Ended December 31,
2016
2015
$
$
$
144
283
1,329
(1,672)
(34)
50
$
—
305
574
(717)
(18)
144
The Corporation is a lessor of equipment under agreements expiring at various dates through the year 2024. At December 31, 2016 and 2015, the schedule of minimum lease
payments receivable is as follows:
(Dollars in thousands)
Within 1 year
After 1 year through 2 years
After 2 years through 3 years
After 3 years through 4 years
After 4 years through 5 years
Thereafter
Total future minimum lease payments receivable
Less: Unearned income
Total lease financing receivables, net of unearned income
At December 31,
2016
2015
56,872
41,931
28,340
16,369
6,753
444
150,709
(15,970)
134,739
$
$
54,093
40,250
25,940
13,914
4,853
219
139,269
(13,829)
125,440
$
$
72
Table of Contents
Age Analysis of Past Due Loans and Leases
The following presents, by class of loans and leases, an aging of past due loans and leases, loans and leases which are current and the recorded investment in loans and leases 90
days or more past due which are accruing interest at December 31, 2016 and 2015:
(Dollars in thousands)
At December 31, 2016
30-59
Days
Past Due
60-89
Days
Past Due
90 Days
or more
Past Due
Total
Past Due
Current
Acquired
Credit
Impaired
Total Loans
and Leases
Held for
Investment
Recorded
Investment 90
Days or more
Past Due and
Accruing
Interest
Commercial, financial and agricultural
$
1,536
$
256
$
1,335
$
3,127
$
819,550
$
589
$
823,266
$
Real estate—commercial real estate and construction:
Commercial real estate
Construction
Real estate—residential and home equity:
Residential secured for business purpose
Residential secured for personal purpose
Home equity secured for personal purpose
Loans to individuals
Lease financings
Total
At December 31, 2015
Commercial, financial and agricultural
Real estate—commercial real estate and construction:
Commercial real estate
Construction
Real estate—residential and home equity:
Residential secured for business purpose
Residential secured for personal purpose
Home equity secured for personal purpose
Loans to individuals
Lease financings
Total
$
$
$
1,482
202
1,390
3,243
717
324
1,731
10,625
$
1,560
—
428
905
142
95
1,418
4,804
2,591
—
1,539
879
521
142
729
5,633
202
3,357
5,027
1,380
561
3,878
1,363,606
174,642
289,927
285,512
161,459
29,812
130,861
5,710
—
784
269
—
—
—
1,374,949
174,844
294,068
290,808
162,839
30,373
134,739
$
7,736
$
23,165
$
3,255,369
$
7,352
$
3,285,886
$
864
$
298
$
4,279
$
5,441
$
498,757
$
317
$
504,515
$
12,103
—
1,406
990
777
198
1,294
17,632
$
—
—
2,356
69
52
97
652
3,524
13,205
—
4,489
1,368
1,003
468
2,592
28,566
1,102
—
727
309
174
173
646
$
7,410
$
73
872,174
96,541
213,871
179,787
135,952
29,264
122,848
513
—
423
—
—
—
—
885,892
96,541
218,783
181,155
136,955
29,732
125,440
$
2,149,194
$
1,253
$
2,179,013
$
—
—
—
—
481
171
142
193
987
—
—
—
—
—
—
173
206
379
Table of Contents
Non-Performing Loans and Leases
The following presents, by class of loans and leases, non-performing loans and leases at December 31, 2016 and 2015:
2016
Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications
Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest
Nonaccrual
Loans and
Leases*
At December 31,
Total Non-
Performing
Loans and
Leases
Nonaccrual
Loans and
Leases*
2015
Accruing
Troubled
Debt
Restructured
Loans and
Lease
Modifications
Loans and
Leases
90 Days
or more
Past Due
and
Accruing
Interest
Total Non-
Performing
Loans and
Leases
$
5,746
$
967
$
— $
6,713
$
6,915
$
1,602
$
— $
8,517
5,651
1,519
—
7,170
4,314
2,449
4,898
560
525
—
536
766
—
—
—
—
$
17,916
$
3,252
$
—
481
171
142
193
987
5,664
1,041
696
142
729
1,863
376
275
—
440
763
421
—
—
10
$
22,155
$
14,183
$
5,245
$
—
—
—
—
173
206
379
6,763
2,626
797
275
173
656
$
19,807
(Dollars in thousands)
Commercial, financial and
agricultural
Real estate—commercial real estate
and construction:
Commercial real estate
Real estate—residential and home
equity:
Residential secured for
business purpose
Residential secured for
personal purpose
Home equity secured for
personal purpose
Loans to individuals
Lease financings
Total
* Includes nonaccrual troubled debt restructured loans and lease modifications of $1.8 million and $93 thousand at December 31, 2016 and December 31, 2015, respectively.
Credit Quality Indicators
The following tables present by class, the recorded investment in loans and leases held for investment by credit quality indicator at December 31, 2016 and 2015.
The Corporation employs a ten (10) grade risk rating system related to the credit quality of commercial loans and residential real estate loans secured for a business purpose of
which the first six categories are pass categories (credits not adversely rated). The following is a description of the internal risk ratings and the likelihood of loss related to each risk
rating. Loans with risk ratings of one through five are reviewed based on the relationship dollar amount with the borrower: loans with a relationship total of $2.5 million or greater are
reviewed quarterly; loans with a relationship balance of less than $2.5 million but greater than $500 thousand are reviewed annually based on the borrower’s fiscal year; loans with a
relationship balance of less than $500 thousand are reviewed only if the loan becomes 60 days or more past due. Loans with a risk rating of six are also reviewed based on the
relationship dollar amount with the borrower: loans with a relationship balance of $2.0 million or greater are reviewed quarterly; loans with a relationship balance of less than $2.0
million but greater than $500 thousand are reviewed annually; loans with a relationship balance of less than $500 thousand are reviewed only if the loan becomes 60 days or more past
due. Loans with a risk rating of seven are reviewed at least quarterly, and as often as monthly, at management’s discretion. Loans with risk ratings of eight through ten are reviewed
monthly.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Cash Secured—No credit risk
Fully Secured—Negligible credit risk
Strong—Minimal credit risk
Satisfactory—Nominal credit risk
Acceptable—Moderate credit risk
Pre-Watch—Marginal, but stable credit risk
Special Mention—Potential weakness
Substandard—Well-defined weakness
Doubtful—Collection in-full improbable
Loss—Considered uncollectible
74
Table of Contents
Commercial Credit Exposure Credit Risk by Internally Assigned Grades
The following table presents classifications for originated loans:
(Dollars in thousands)
At December 31, 2016
Grade:
1. Cash secured/ 2. Fully secured
3. Strong
4. Satisfactory
5. Acceptable
6. Pre-watch
7. Special Mention
8. Substandard
9. Doubtful
10. Loss
Total
At December 31, 2015
Grade:
1. Cash secured/ 2. Fully secured
3. Strong
4. Satisfactory
5. Acceptable
6. Pre-watch
7. Special Mention
8. Substandard
9. Doubtful
10. Loss
Total
$
$
$
Commercial,
Financial and
Agricultural
Real Estate—
Commercial
Real Estate—
Construction
Real Estate—
Residential Secured
for Business Purpose
Total
272
$
— $
13,714
$
14,980
35,529
465,675
113,499
8,820
24,446
—
—
2,045
38,861
676,212
128,646
22,439
41,378
—
—
—
—
110,650
18,213
314
—
—
—
$
162
—
367
133,716
12,025
1,199
4,462
—
—
14,148
17,025
74,757
1,386,253
272,383
32,772
70,286
—
—
663,221
$
909,581
$
142,891
$
151,931
$
1,867,624
968
$
— $
5,417
$
— $
17,328
36,697
328,140
61,098
6,074
29,675
—
—
10,877
36,023
530,766
119,117
20,286
42,273
—
—
—
450
72,630
13,262
—
145
—
—
—
9
78,659
7,161
2,347
6,104
—
—
6,385
28,205
73,179
1,010,195
200,638
28,707
78,197
—
—
$
479,980
$
759,342
$
91,904
$
94,280
$
1,425,506
The following table presents classifications for acquired loans:
(Dollars in thousands)
At December 31, 2016
Grade:
1. Cash secured/ 2. Fully secured
3. Strong
4. Satisfactory
5. Acceptable
6. Pre-watch
7. Special Mention
8. Substandard
9. Doubtful
10. Loss
Total
At December 31, 2015
Grade:
1. Cash secured/ 2. Fully secured
3. Strong
4. Satisfactory
5. Acceptable
6. Pre-watch
7. Special Mention
8. Substandard
9. Doubtful
10. Loss
Total
Commercial,
Financial and
Agricultural
Real Estate—
Commercial
Real Estate—
Construction
Real Estate—
Residential Secured
for Business Purpose
Total
$
$
$
$
583
—
4,399
113,512
31,697
73
9,781
—
—
— $
— $
— $
—
1,018
282,199
163,623
7,705
10,823
—
—
—
—
20,565
11,388
—
—
—
—
—
—
117,322
14,405
6,245
4,165
—
—
583
—
5,417
533,598
221,113
14,023
24,769
—
—
160,045
$
465,368
$
31,953
$
142,137
$
799,503
1,411
$
— $
— $
— $
—
1,181
18,446
2,273
417
807
—
—
—
3,561
102,122
10,365
8,853
1,649
—
—
—
—
4,637
—
—
—
—
—
—
608
113,002
8,153
367
2,373
—
—
1,411
—
5,350
238,207
20,791
9,637
4,829
—
—
$
24,535
$
126,550
$
4,637
$
124,503
$
280,225
75
Table of Contents
Credit Exposure—Real Estate—Residential Secured for Personal Purpose, Real Estate—Home Equity Secured for Personal Purpose, Loans to Individuals, Lease Financing
Credit Risk Profile by Payment Activity
The Corporation monitors the credit risk profile by payment activity for the following classifications of loans and leases: residential real estate loans secured for a personal
purpose, home equity loans secured for a personal purpose, loans to individuals and lease financings. Nonperforming loans and leases are loans past due 90 days or more, loans and
leases on nonaccrual of interest and troubled debt restructured loans and lease modifications. Performing loans and leases are reviewed only if the loan becomes 60 days or more past
due. Nonperforming loans and leases are reviewed monthly. Performing loans and leases have a nominal to moderate risk of loss.
The following table presents classifications for originated loans:
(Dollars in thousands)
At December 31, 2016
Performing
Nonperforming
Total
At December 31, 2015
Performing
Nonperforming
Total
Real Estate—
Residential
Secured for
Personal Purpose
Real Estate—
Home Equity
Secured for
Personal Purpose
Loans to
Individuals
Lease
Financing
Total
$
$
$
$
210,208
169
210,377
177,053
797
177,850
$
$
$
$
$
$
$
$
147,286
696
147,982
125,086
275
125,361
$
$
$
$
29,968
142
30,110
29,233
173
29,406
$
$
$
$
134,010
729
134,739
124,784
656
125,440
$
$
$
$
521,472
1,736
523,208
456,156
1,901
458,057
Real Estate—
Home Equity
Secured for
Personal Purpose
Loans to
Individuals
Lease
Financing
Total
14,857
—
14,857
11,594
—
11,594
$
$
$
$
263
—
263
326
—
326
$
$
$
$
— $
—
— $
— $
—
— $
94,679
872
95,551
15,225
—
15,225
The following table presents classifications for acquired loans:
(Dollars in thousands)
At December 31, 2016
Performing
Nonperforming
Total
At December 31, 2015
Performing
Nonperforming
Total
Real Estate—
Residential
Secured for
Personal Purpose
$
$
$
$
79,559
872
80,431
3,305
—
3,305
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.
Commercial, financial and agricultural loans, commercial real estate loans, construction loans and residential real estate loans with a business purpose are generally perceived as
having more risk of default than residential real estate loans with a personal purpose 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 and factors affecting residential real estate borrowers.
Commercial, financial and agricultural 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.
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). 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
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Table of Contents
or by seizure of collateral. Included in real estate-construction is track development financing. Risk factors related to track development financing include the demand for residential
housing and the real estate valuation market. When projects move slower than anticipated, the properties may have significantly lower values than when the original underwriting was
completed, resulting in lower collateral values to support the loan. Extended time frames also cause the interest carrying cost for a project to be higher than the builder projected,
negatively impacting the builder’s profit and cash flow and, therefore, their ability to make principal and interest payments.
Commercial real estate loans and residential real estate loans with a business purpose secured by owner-occupied properties are dependent upon the successful operation of the
borrower’s business. If the operating company suffers difficulties in terms of sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured
by properties where repayment is dependent upon payment of rent by third party tenants or the sale of the property may be impacted by loss of tenants, lower lease rates needed to
attract new tenants or the inability to sell a completed project in a timely fashion and at a profit.
Commercial, financial and agricultural loans, commercial real estate loans, construction loans and residential real estate loans secured for a business purpose are more susceptible
to a risk of loss during a downturn in the business cycle. While the Corporation has strict underwriting, review, and monitoring procedures in place, these procedures cannot eliminate
all of the risks related to these loans.
The Corporation focuses on both assessing the borrower’s capacity and willingness to repay and on obtaining sufficient collateral. Commercial, financial and agricultural loans
are generally secured by the borrower’s assets and by personal guarantees. Commercial real estate and residential real estate loans secured for a business purpose are originated
primarily within the Southeastern Pennsylvania market area at conservative loan-to-value ratios and often with 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.
The Corporation originates fixed-rate and adjustable-rate real estate-residential mortgage loans that are secured by the underlying 1-to-4 family residential properties for personal
purposes. 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.
In the real estate-home equity loan portfolio secured for a personal purpose, credit exposure is minimized by the evaluation of the creditworthiness of the borrower, including
debt-to-equity ratios, credit scores and adherence to the Corporation’s underwriting policies. Combined loan-to-value ratios are generally limited to 80%, but increased to 85% for the
Corporation’s strongest profile borrower. Other credit considerations and compensating factors may support higher combined loan-to-value ratios.
Credit risk for direct consumer loans is controlled by strict adherence to underwriting standards that consider debt-to-income levels and the creditworthiness of the borrower and,
if secured, collateral values. These loans are included within the portfolio of loans to individuals.
The primary risks that are involved with lease financing receivables are credit underwriting and borrower industry concentrations. The Corporation has strict underwriting,
review, and monitoring procedures in place to mitigate this risk. Risk also lies in the residual value of the underlying equipment. Residual values are subject to judgments as to the
value of the underlying equipment that can be affected by changes in economic and market conditions and the financial viability of the residual guarantors and insurers. To the extent
not guaranteed or assumed by a third party, or otherwise insured against, the Corporation bears the risk of ownership of the leased assets. This includes the risk that the actual value of
the leased assets at the end of the lease term will be less than the residual value. The Corporation greatly reduces this risk primarily by using $1.00 buyout leases, in which the entire
cost of the leased equipment is included in the contractual payments, leaving no residual payment at the end of the lease term.
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Table of Contents
Reserve for Loan and Lease Losses and Recorded Investment in Loans and Leases
The following presents, by portfolio segment, a summary of the activity in the reserve for loan and lease losses for the years ended December 31, 2016, 2015 and 2014:
Commercial,
Financial
and
Agricultural
Real Estate—
Commercial
and
Construction
Real Estate—
Residential
Secured for
Business
Purpose
Real Estate—
Residential
and Home
Equity
Secured for
Personal
Purpose
Loans to
Individuals
Lease
Financings
Unallocated
Total
(Dollars in thousands)
For the Year Ended
December 31, 2016
Reserve for loan and lease
losses:
Beginning balance
$
6,418
$
6,572
$
763
$
1,575
$
346
$
1,042
$
(4,827)
1,454
3,992
(307)
101
961
—
7,037
$
178
7,505
$
6,920
$
8,943
$
(4,793)
1,032
3,259
—
6,418
$
(1,895)
200
(684)
8
6,572
$
(522)
71
462
—
774
763
(179)
28
43
108
763
$
$
$
(178)
88
(489)
(3)
993
$
1,124
(279)
10
657
63
1,575
$
$
(395)
133
280
—
364
360
(549)
176
359
—
346
$
$
(759)
191
314
—
788
985
(801)
214
644
—
$
$
$
1,042
$
Charge-offs
Recoveries
Provision (recovery of
provision)
Provision (recovery of
provision) for acquired credit
impaired loans
Ending balance
For the Year Ended
December 31, 2015
Reserve for loan and lease
losses:
Beginning balance
Charge-offs*
Recoveries
Provision (recovery of
provision)
Provision for acquired credit
impaired loans
Ending balance
$
$
$
For the Year Ended
December 31, 2014
Reserve for loan and lease
losses:
912
N/A
N/A
$
17,628
(6,988)
2,038
(874)
4,646
—
38
175
$
17,499
1,567
N/A
N/A
(655)
—
912
$
20,662
(8,496)
1,660
3,623
179
$
17,628
Beginning balance
$
9,789
$
8,780
$
1,062
$
1,284
$
694
$
1,285
$
1,600
$
24,494
Charge-offs
Recoveries
(Recovery of provision)
provision
Provision for acquired credit
impaired loans
Ending balance
$
(2,834)
247
(282)
—
6,920
$
(4,363)
524
4,002
—
8,943
$
(140)
60
(219)
—
763
(141)
34
(53)
$
—
1,124
$
(796)
265
197
—
360
$
(576)
281
(5)
—
985
N/A
N/A
(33)
—
1,567
$
$
(8,850)
1,411
3,607
—
20,662
* Includes charge-offs of $1.3 million on two real estate construction loans for one borrower which were subsequently transferred to loans held for sale in the second quarter of 2015 and sold in the fourth
quarter of 2015.
N/A – Not applicable
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Table of Contents
The following presents, by portfolio segment, the balance in the reserve for loan and lease losses disaggregated on the basis of impairment method and the recorded investment in
loans and leases disaggregated on the basis of impairment method at December 31, 2016 and 2015:
Commercial,
Financial
and
Agricultural
Real Estate—
Commercial
and
Construction
Real Estate—
Residential
Secured for
Business
Purpose
Real Estate—
Residential
and Home
Equity
Secured for
Personal
Purpose
Loans to
Individuals
Lease
Financings
Unallocated
Total
19
7,018
7,037
$
$
25
7,480
7,505
$
$
191
583
774
$
$
— $
— $
993
993
$
364
364
$
—
788
788
$
N/A
38
38
11,077
$
25,066
$
6,687
$
1,085
$
— $
—
652,144
—
159,456
589
823,266
1,027,406
2,138
489,473
5,710
$
1,549,793
$
145,244
—
141,353
784
294,068
357,274
—
95,019
269
30,110
134,739
—
263
—
—
—
—
$
453,647
$
30,373
$
134,739
$
3,285,886
$
$
$
235
17,264
17,499
43,915
2,346,917
2,138
885,564
7,352
208
$
— $
45
$
69
$
— $
6,210
6,564
—
8
6,418
$
6,572
$
718
—
763
1,506
—
$
1,575
$
346
—
346
—
1,042
—
$
1,042
$
N/A
$
322
912
—
912
17,298
8
$
17,628
12,881
$
30,088
$
4,892
$
1,072
$
— $
—
$
48,933
467,099
24,218
317
821,158
130,674
513
982,433
$
89,388
124,080
423
218,783
302,139
29,406
125,440
14,899
—
326
—
—
—
1,834,630
294,197
1,253
$
318,110
$
29,732
$
125,440
$
2,179,013
79
Total ending balance
$
504,515
$
N/A – Not applicable
(Dollars in thousands)
At December 31, 2016
Reserve for loan and lease
losses:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Total ending balance
Loans and leases held for
investment:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loans measured at fair value
Acquired non-credit impaired
loans
Acquired credit impaired loans
Total ending balance
At December 31, 2015
Reserve for loan and lease
losses:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Ending balance: acquired credit
impaired loans evaluated for
impairment
Total ending balance
Loans and leases held for
investment:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Acquired non-credit impaired
loans
Acquired credit impaired loans
$
$
$
$
$
$
$
Table of Contents
Subsequent to the acquisition, the Corporation records a provision for loan loss for the acquired non-impaired loans only when additional deterioration of the portfolio is
identified over the projections utilized in the initial fair value analysis. After the acquisition measurement period, the present value of any decreases in expected cash flows of
purchased impaired loans will generally result in an impairment charge recorded as a provision for loan loss, resulting in an increase to the allowance.
Impaired Loans
The following presents, by class of loans, the recorded investment and unpaid principal balance of impaired loans, the amounts of the impaired loans for which there is not a
reserve for credit losses and the amounts for which there is a reserve for credit losses at December 31, 2016 and 2015. The impaired loans exclude loans acquired with deteriorated
credit quality.
(Dollars in thousands)
Impaired loans with no related reserve recorded:
Commercial, financial and agricultural
Real estate—commercial real estate
Real estate—residential secured for business purpose
Real estate—residential secured for personal purpose
Real estate—home equity secured for personal purpose
Total impaired loans with no related reserve recorded
Impaired loans with a reserve recorded:
Commercial, financial and agricultural
Real estate—commercial real estate
Real estate—residential secured for business purpose
Real estate—residential secured for personal purpose
Real estate—home equity secured for personal purpose
Total impaired loans with a reserve recorded
Total impaired loans:
Commercial, financial and agricultural
Real estate—commercial real estate
Real estate—residential secured for business purpose
Real estate—residential secured for personal purpose
Real estate—home equity secured for personal purpose
Total impaired loans
Recorded
Investment
2016
Unpaid
Principal
Balance
At December 31,
Related
Reserve
Recorded
Investment
2015
Unpaid
Principal
Balance
Related
Reserve
$
$
$
$
$
$
$
10,911
24,469
5,704
560
525
12,561
25,342
6,253
594
528
42,169
$
45,278
$
166
597
983
—
—
$
166
597
1,105
—
—
1,746
$
1,868
$
$
11,077
25,066
6,687
560
525
$
12,727
25,939
7,358
594
528
43,915
$
47,146
$
$
$
$
$
$
$
19
25
191
—
—
235
19
25
191
—
—
235
$
10,337
30,088
4,597
545
170
13,318
30,996
4,717
554
170
45,737
$
49,755
2,544
$
2,544
$
—
295
252
105
—
295
252
105
3,196
$
3,196
$
$
12,881
30,088
4,892
797
275
$
15,862
30,996
5,012
806
275
48,933
$
52,951
$
208
—
45
16
53
322
208
—
45
16
53
322
Impaired loans includes nonaccrual loans, accruing troubled debt restructured loans and other accruing impaired loans for which it is probable that not all principal and interest
payments due will be collectible in accordance with the contractual terms. These loans are individually measured to determine the amount of potential impairment. The loans are
reviewed for impairment based on the fair value of the collateral for collateral dependent loans and for certain loans based on discounted cash flows using the loans’ initial effective
interest rates. Impaired loans included other accruing impaired loans of $23.3 million and $30.0 million at December 31, 2016 and 2015, respectively. Specific reserves on other
accruing impaired loans were $84 thousand and $186 thousand at December 31, 2016 and 2015, respectively.
80
Table of Contents
The following presents by class of loans, the average recorded investment in impaired loans and an analysis of interest on impaired loans. A loan may remain on accrual status if
it is in the process of collection and is either guaranteed or well secured. Therefore, interest income on accruing impaired loans is recognized using the accrual method.
2016
2015
2014
For the Years Ended December 31,
(Dollars in thousands)
Average
Recorded
Investment
Interest
Income
Recognized*
Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms
Average
Recorded
Investment
Interest
Income
Recognized*
Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms
Average
Recorded
Investment
Interest
Income
Recognized*
Additional
Interest Income
That Would
Have Been
Recognized
Under Original
Terms
Loans held for sale
$
—
$
—
$
—
$
1,832
$
—
$
110
$
—
$
—
$
Loans held for investment:
Commercial, financial and
agricultural
Real estate—commercial real
estate
Real estate—construction
Real estate—residential
secured for business purpose
Real estate—residential
secured for personal purpose
Real estate—home equity
secured for personal purpose
13,126
26,698
—
4,084
498
440
258
1,106
—
67
2
—
Total
$
44,846
$
1,433
$
381
272
—
207
24
25
909
15,383
23,692
3,164
3,805
729
184
423
996
—
144
2
—
481
330
162
161
43
11
15,334
26,662
10,412
2,524
719
106
540
1,143
103
77
—
—
$
48,789
$
1,565
$
1,298
$
55,761
$
1,863
$
1,164
* Includes interest income recognized on a cash basis for nonaccrual loans of $8 thousand, $37 thousand and $23 thousand for the years ended December 31, 2016, 2015 and 2014, respectively and
interest income recognized on the accrual method for accruing impaired loans of $1.4 million, $1.5 million and $1.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Any income accrued on 1-to-4 family residential properties after the loan becomes 90 days past due, which is not placed on non-accrual, is held in a reserve for uncollected
interest. The reserve for uncollected interest was $10 thousand and $0 thousand at December 31, 2016 and 2015, respectively.
The Bank maintains a reserve in other liabilities for off-balance sheet credit exposures that currently are unfunded. The reserve for these off-balance sheet credits was $385
thousand and $381 thousand at December 31, 2016 and 2015, respectively.
81
—
258
323
463
61
49
10
Table of Contents
Troubled Debt Restructured Loans
The following presents, by class of loans, information regarding accruing and nonaccrual loans that were restructured during the years ended December 31, 2016 and 2015:
For the Years Ended December 31,
2016
Pre-
Restructuring
Outstanding
Recorded
Investment
Post-
Restructuring
Outstanding
Recorded
Investment
Number
of
Loans
Related
Reserve
Number
of
Loans
2015
Pre-
Restructuring
Outstanding
Recorded
Investment
Post-
Restructuring
Outstanding
Recorded
Investment
Related
Reserve
1
$
1,545
$
1,545
$
—
1
2
$
—
415
1,960
$
—
415
1,960
$
— $
— $
— $
1
1
1
3
$
313
34
152
499
$
312
34
152
498
$
—
—
—
—
—
—
—
—
—
4
1
1
6
$
$
1,140
$
1,140
$
405
353
1,898
$
405
353
1,898
$
1
$
122
$
122
$
—
—
—
1
$
—
—
—
122
$
—
—
—
122
$
—
—
—
—
22
—
—
—
22
(Dollars in thousands)
Accruing Troubled Debt
Restructured Loans:
Commercial, financial and
agricultural
Real estate—commercial real
estate
Real estate—residential secured
for business purpose
Total
Nonaccrual Troubled Debt
Restructured Loans:
Commercial, financial and
agricultural
Real estate—residential secured
for business purpose
Real estate—residential secured
for personal purpose
Real estate—home equity
secured for personal purpose
Total
The Corporation grants concessions primarily related to extensions of interest-only payment periods and an occasional payment modification. These modifications typically are
for a short-term basis up to one year. The goal when restructuring a credit is to establish a reasonable period of time to provide cash flow relief to customers experiencing cash flow
difficulties. Accruing troubled debt restructured loans are primarily comprised of loans on which interest is being accrued under the restructured terms, and the loans are current or less
than ninety days past due.
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Table of Contents
The following presents, by class of loans, information regarding the types of concessions granted on accruing and nonaccrual loans that were restructured during the years ended
December 31, 2016 and 2015:
(Dollars in thousands)
For the Year Ended December 31, 2016
Accruing Troubled Debt Restructured Loans:
Commercial, financial and agricultural
Real estate—residential secured for business purpose
Total
Nonaccrual Troubled Debt Restructured Loans:
Real estate—residential secured for business purpose
Real estate—residential secured for personal purpose
Real estate—home equity secured for personal purpose
Total
For the Year Ended December 31, 2015
Accruing Troubled Debt Restructured Loans:
Commercial, financial and agricultural
Real estate—commercial real estate
Real estate—residential secured for business purpose
Total
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural
Total
Interest Only Term
Extension
Temporary Payment
Reduction
Maturity Date
Extension
Amortization Period
Extension
Total Concessions
Granted
No. of
Loans
Amount
No. of
Loans
Amount
No. of
Loans
Amount
No. of
Loans
Amount
No. of
Loans
Amount
—
1
1
—
—
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
—
415
415
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
1
2
1
1
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
143
—
353
496
122
122
—
—
—
1
1
1
3
1
—
—
1
—
—
$
$
$
$
$
$
$
$
—
—
—
312
34
152
498
500
—
—
500
—
—
1
—
1
—
—
—
—
2
1
—
3
—
—
$
$
$
$
$
$
$
$
1,545
—
1,545
—
—
—
—
497
405
—
902
—
—
1
1
2
1
1
1
3
4
1
1
6
1
1
$
$
$
$
$
$
$
$
1,545
415
1,960
312
34
152
498
1,140
405
353
1,898
122
122
The following presents, by class of loans, information regarding accruing and nonaccrual troubled debt restructured loans, for which there were payment defaults within twelve
months of the restructuring date:
(Dollars in thousands)
Accruing Troubled Debt Restructured Loans:
Total
Nonaccrual Troubled Debt Restructured Loans:
Commercial, financial and agricultural
Real estate—residential secured for personal purpose
Total
For the Years Ended December 31,
2016
2015
Number
of Loans
Recorded
Investment
Number
of Loans
Recorded
Investment
—
—
1
1
$
$
$
—
—
34
34
—
1
—
1
$
$
$
—
143
—
143
The following presents, by class of loans, information regarding consumer mortgages collateralized by residential real estate property that are in the process of foreclosure at
December 31, 2016 and 2015:
(Dollars in thousands)
Real estate-residential secured for personal purpose
Real estate-home equity secured for personal purpose
Total
At December 31, 2016
At December 31, 2015
$
$
— $
180
180
$
313
60
373
The Corporation held no foreclosed consumer residential real estate property at December 31, 2016 and 2015.
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Note 6. Premises and Equipment
The following table reflects the components of premises and equipment:
(Dollars in thousands)
Land and land improvements
Premises and improvements
Furniture and equipment
Total cost
Less: accumulated depreciation
Net book value
The following table summarizes rental expense charged to operations for the periods indicated:
At December 31,
2016
2015
$
$
$
14,033
55,862
32,948
102,843
(39,205)
63,638
$
(Dollars in thousands)
Rental expense
Sublease rental income
Net rental expense
Note 7. Goodwill and Other Intangible Assets
For the Years Ended December 31,
2016
2015
2014
$
$
3,791
(138)
3,653
$
$
3,167
(195)
2,972
$
$
11,527
40,850
26,461
78,838
(36,682)
42,156
2,732
(238)
2,494
The Corporation has covenants not to compete, core deposit and 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 of intangible assets for the years ended December 31,
2016, 2015 and 2014 was $4.1 million, $3.6 million and $3.3 million, respectively. In 2016, 2015 and 2014, impairment on customer-related intangibles was recognized in other
noninterest expense in the amount of $0 thousand, $0 thousand and $31 thousand, respectively. The Corporation also has goodwill with a net carrying amount of $172.6 million at
December 31, 2016, which is deemed to be an indefinite intangible asset and is not amortized. The Corporation recorded goodwill of $59.9 million and core deposit intangibles of $5.3
million related to the Fox Chase Bank acquisition on July 1, 2016.
In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill during the fourth quarter of 2016 and determined it was more likely than not
that the fair value of the Corporation, including each of the identified reporting units, was more than its carrying amount; therefore, the Corporation did not need to perform the two-
step impairment test for the Corporation or the reporting units. The Corporation completed the most recent impairment test for goodwill during the fourth quarter of 2014.
The Corporation also completed an impairment test for other intangible assets during the fourth quarter of 2016. There was no goodwill impairment or material impairment of
identifiable intangibles recorded during 2014 through 2016.
Changes in the carrying amount of the Corporation's goodwill by business segment for the years ended December 31, 2016 and 2015 were as follows:
(Dollars in thousands)
Balance at December 31, 2014
Addition to goodwill from acquisitions
Balance at December 31, 2015
Addition to goodwill from acquisitions
Balance at December 31, 2016
Banking
Wealth Management
Insurance
Consolidated
$
$
$
$
35,058
43,516
78,574
59,902
138,476
84
15,434
—
15,434
—
15,434
$
$
17,225
1,424
18,649
—
18,649
$
$
67,717
44,940
112,657
59,902
172,559
Table of Contents
The following table reflects the components of intangible assets at the dates indicated:
(Dollars in thousands)
Amortized intangible assets:
Covenants not to compete
Core deposit intangibles
Customer related intangibles
Mortgage servicing rights
Total amortized intangible assets
At December 31, 2016
Accumulated
Amortization and
Fair Value
Adjustments
Gross Carrying
Amount
Net Carrying
Amount
Gross Carrying
Amount
At December 31, 2015
Accumulated
Amortization and
Fair Value
Adjustments
Net Carrying
Amount
$
$
710
$
205
$
505
$
— $
— $
6,788
12,381
14,369
34,248
1,004
8,504
7,884
5,784
3,877
6,485
$
17,597
$
16,651
$
1,520
14,227
12,233
27,980
276
8,728
6,356
—
1,244
5,499
5,877
$
15,360
$
12,620
The estimated aggregate amortization expense for covenants not to compete and core deposit and customer related intangibles for each of the five succeeding fiscal years and
thereafter follows:
Year
2017
2018
2019
2020
2021
Thereafter
(Dollars in thousands)
Amount
$
2,829
2,114
1,565
1,200
923
1,535
The Corporation has originated mortgage servicing rights which are included in other intangible assets on the consolidated balance sheet. 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 and an accelerated amortization method for loan payoffs. Mortgage
servicing rights are subject to impairment testing on a quarterly basis. The aggregate fair value of these rights was $9.5 million and $8.0 million at December 31, 2016 and 2015,
respectively. The fair value of mortgage servicing rights was determined using a discount rate of 10.0% at December 31, 2016 and 2015.
Changes in the mortgage servicing rights balance are summarized as follows:
(Dollars in thousands)
Beginning of period
Servicing rights capitalized
Acquired servicing rights
Amortization of servicing rights
Changes in valuation allowance
End of period
Mortgage loans serviced for others
Activity in the valuation allowance for mortgage servicing rights was as follows:
(Dollars in thousands)
Valuation allowance, beginning of period
Additions
Reductions
Direct write-downs
Valuation allowance, end of period
85
For the Years Ended December 31,
2016
2015
2014
5,877
2,049
87
(1,528)
—
6,485
965,729
$
$
$
5,509
1,674
—
(1,306)
—
5,877
863,947
$
$
$
For the Years Ended December 31,
2016
2015
2014
— $
— $
—
—
—
—
—
—
— $
— $
5,519
1,118
—
(1,378)
250
5,509
796,835
(250)
—
250
—
—
$
$
$
$
$
Table of Contents
The estimated amortization expense of mortgage servicing rights for each of the five succeeding fiscal years and thereafter is as follows:
Year
2017
2018
2019
2020
2021
Thereafter
(Dollars in thousands)
Amount
$
941
825
716
619
533
2,851
Note 8. Accrued Interest Receivable and Other Assets
The following table provides the details of accrued interest receivable and other assets:
(Dollars in thousands)
Other real estate owned
Accrued interest receivable
Accrued income and other receivables
Fair market value of derivative financial instruments
Other prepaid expenses
Net federal deferred tax assets
Other
Total accrued interest and other assets
Note 9. Time Deposits
At December 31,
2016
2015
4,969
$
10,794
7,751
1,058
17,686
9,965
20
52,243
$
1,276
7,463
2,725
1,089
10,880
10,521
—
33,954
$
$
The aggregate amount of time deposits in denominations of $100 thousand or more was $291.0 million at December 31, 2016 and $277.3 million at December 31, 2015. Deposits
are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Deposit insurance per account owner is currently up to $250 thousand. The aggregate amount of time
deposits in denominations over $250 thousand was $151.7 million at December 31, 2016 and $129.5 million at December 31, 2015.
At December 31, 2016, the scheduled maturities of time deposits are as follows:
Year
(Dollars in thousands)
Amount
Due in 2017
Due in 2018
Due in 2019
Due in 2020
Due in 2021
Thereafter
Total
$
$
410,380
114,308
62,004
12,854
12,439
14,204
626,189
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Note 10. Borrowings
The following is a summary of borrowings by type. Short-term borrowings consist of overnight borrowings and term borrowings with an original maturity of one year or less. The
long-term debt balances and weighted average interest rates include purchase accounting fair value adjustments, net of related amortization from the Fox Chase acquisition.
Balance at End of
Year
Weighted Average
Interest Rate
Maximum Amount
Outstanding at Month End
During the Year
Average Amount
Outstanding During the
Year
Weighted Average Interest
Rate During the Year
(Dollars in thousands)
2016
Short-term borrowings:
FHLB borrowings
Federal funds purchased
Customer repurchase agreements
Other short-term borrowings*
Long-term debt:
FHLB advances
Security repurchase agreements
Subordinated notes
2015
Short-term borrowings:
FHLB borrowings
Federal funds purchased
Customer repurchase agreements
Subordinated notes
$
$
$
$
$
91,300
80,000
24,871
—
96,248
31,274
94,087
—
—
24,211
49,377
0.74% $
206,000
$
0.81
0.05
—
125,000
30,011
79,960
0.94% $
0.91
$
96,471
31,475
5.27% $
94,087
$
—% $
9,100
$
—
0.05
39,150
43,161
5.36% $
49,377
$
50,757
24,783
26,173
1,525
45,179
15,786
71,851
1,335
3,877
30,720
37,431
0.58%
0.61
0.05
18.83
0.89%
0.93
5.39%
0.34%
0.38
0.05
5.40%
*Other short-term borrowings during 2016 consisted of a short-term bridge loan with a correspondent bank and associated fees.
The Corporation, through the Bank, has short-term and long-term credit facilities with the FHLB with a maximum borrowing capacity of approximately $1.2 billion. Advances
from the FHLB are collateralized by a blanket floating lien on all first mortgage loans of the Bank, FHLB capital stock owned by the Bank and any funds on deposit with the FHLB.
At December 31, 2016 and 2015, the Bank had outstanding short-term letters of credit with the FHLB totaling $148.5 million and $170.2 million, respectively, which were utilized to
collateralize public funds deposits. The maximum borrowing capacity with the FHLB changes as a function of the Bank’s qualifying collateral assets as well as the FHLB’s internal
credit rating of the Bank.
The Corporation, through the Bank, maintains federal fund credit lines with several correspondent banks totaling $302.0 million and $122.0 at December 31, 2016 and 2015,
respectively. Future availability under these lines is subject to the prerogatives of the granting banks and may be withdrawn at will.
The Corporation has a $10.0 million line of credit with a correspondent bank. At December 31, 2016, the Corporation had no outstanding borrowings under this line.
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, 2016 and 2015, the Corporation had no outstanding borrowings from this line.
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Long-term advances with the FHLB of Pittsburgh mature as follows:
(Dollars in thousands)
As of December 31, 2016
Weighted Average Rate
2017
2018
2019
2020
2021
Thereafter
Total
$
$
66,149
10,099
10,000
10,000
—
—
96,248
0.83%
0.69
1.35
1.47
—
—
0.94%
FHLB borrowings totaling $51.1 million have a "Call Date"; if the borrowing is called, the Corporation has the option to either pay off the borrowing without penalty or the fixed
rate borrowing resets to a variable three-month LIBOR based rate. Subsequent to the call date, the borrowings are callable by the FHLB quarterly. Accordingly, the contractual
maturities may differ from actual maturities.
Long-term debt under security repurchase agreements with large commercial banks mature as follows:
(Dollars in thousands)
As of December 31, 2016
Weighted Average Rate
2017
2018
2019
2020
2021
Thereafter
Total
$
$
—
10,404
10,418
10,452
—
—
31,274
—%
0.76
0.98
0.99
—
—
0.91%
Long-term debt under security repurchase agreements totaling $26.0 million are variable based on the one-month LIBOR rate plus a spread; one borrowing for $5.2 million has a
fixed interest rate and may be called by the lender based on the underlying agreement.
Subordinated Debt
On July 1, 2016, the Corporation completed the issuance of $45.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2016 Notes") due 2026
in a private placement transaction to institutional accredited investors. The net proceeds of the offering approximated $44.5 million. The 2016 Notes bear interest at an annual fixed
rate of 5.00% from the date of issuance until June 30, 2021, or any early redemption date. From June 30, 2021 to the maturity date of June 30, 2026 (or any early redemption date), the
2016 Notes will bear interest at an annual rate equal to three-month LIBOR rate plus 3.90%. Beginning with the interest payment date of June 30, 2021, the Corporation has the option
on each interest payment date, subject to approval of the Federal Reserve Board, to redeem the 2016 Notes in whole or in part at a redemption price equal to 100% of the principal
amount of the redeemed 2016 Notes, plus accrued and unpaid interest to the date of the redemption. The Corporation may also redeem the 2016 Notes, in whole but not in part, at any
time upon the occurrence of certain tax, regulatory capital and Investment Company Act of 1940 Act events, subject in each case to the approval of the Federal Reserve.
On March 30, 2015, the Corporation completed the issuance of $50.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes (the "2015 Notes") due
2025 in a private placement transaction to institutional accredited investors. The net proceeds of the offering approximated $49 million, The 2015 Notes bear interest at an annual
fixed rate of 5.10% from the date of issuance until March 30, 2020, or any early redemption date. From March 30, 2020 to the maturity date of March 30, 2025 (or any early
redemption date), the 2015 Notes will bear interest at an annual rate equal to the three-month LIBOR rate plus 3.544%. Beginning with the interest payment date of March 30, 2020,
the Corporation has the option on each interest payment date, subject to approval of the Federal Reserve Board, to redeem the 2015 Notes in whole or in part at a redemption price
equal to 100% of the principal amount of the redeemed 2015 Notes, plus accrued and unpaid interest to the date of the redemption. The Corporation may also redeem the 2015 Notes,
in whole, at any time, or in part from time to time upon the occurrence of certain tax, regulatory capital and Investment Company Act of 1940 Act events, subject in each case to the
approval of the Federal Reserve.
The subordinated notes qualify as Tier 2 capital for regulatory capital purposes, subject to applicable limitations. The debt issuance costs are included as a direct deduction from
the debt liability and the costs are amortized to interest expense using the effective interest method.
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On April 25, 2016, Kroll Bond Rating Agency ("KBRA") affirmed its credit rating for the Corporation and the Bank with a stable outlook. Specifically, KBRA affirmed the
Corporation's senior unsecured debt rating of BBB+, subordinated debt rating of BBB and short-term rating of K2. With regard to the Bank, KBRA affirmed the Bank's deposit rating
of A-, short-term debt rating of K2 and short-term deposit rating of K2 while also assigning the Bank a senior unsecured debt rating of A-.
Note 11. Income Taxes
The provision for federal and state income taxes included in the accompanying consolidated statements of income consists of the following:
(Dollars in thousands)
Current:
Federal
State
Deferred:
Federal
State
For the Years Ended December 31,
2016
2015
2014
$
$
2,400
$
539
909
33
3,881
$
5,113
$
829
3,877
(61)
9,758
$
2,509
777
4,027
135
7,448
The provision for income taxes differs from the expected statutory provision as follows:
(Dollars in thousands)
Expected provision at statutory rate
Difference resulting from:
Tax exempt interest income
Increase in value of bank owned life insurance assets
Stock-based compensation
Non-deductible merger-related expenses
State income taxes, net of federal benefits
Changes in valuation allowance
Other
For the Years Ended December 31,
2016
2015
2014
35.0 %
35.0 %
35.0 %
(15.6)
(4.2)
(1.7)
1.2
(1.5)
3.1
0.3
16.6 %
(9.5)
(1.2)
0.5
0.4
0.9
0.4
(0.1)
26.4 %
(11.2)
(1.9)
0.6
0.8
2.6
(0.6)
(0.2)
25.1 %
During the year December 31, 2015, the Corporation recorded excess tax benefits resulting from the exercise of employee stock options and restricted stock of $73 thousand
(includes a 2014 adjustment of $23 thousand) to additional paid-in capital. The Corporation adopted ASU 2016-9, Improvements to Employee Share-Based Payment Accounting,
which was issued in March 2016. All excess tax benefits and tax deficiencies for 2016 were recognized as a net income tax benefit in the statement of income. The additional paid-in
capital pool was eliminated. The net impact of this adoption was $301 thousand in net income tax benefits recorded in the statement of income for the year ended December 31, 2016.
Retained earnings include $6.0 million at December 31, 2016, 2015 and 2014, which was originally generated by Fox Chase Bank (acquired in 2016), for which no provision for
federal income tax has been made. This amount represents deductions for bad debt reserves for tax purposes, which were only allowed to savings institutions that met certain criteria
prescribed by the Internal Revenue Code of 1986, as amended. The Small Business Job Protection Act of 1996 (the "Act") eliminated the special bad debt deduction granted solely to
thrifts. Under the terms of the Act, there would be no recapture of the pre-1988 (base year) reserves. However, these pre-1988 reserves would be subject to recapture under the rules of
the Internal Revenue Code if the Company pays a cash dividend in excess of cumulative retained earnings or liquidates.
At December 31, 2016, the Corporation had no material unrecognized tax benefits, accrued interest or penalties. Penalties are recorded in noninterest expense in the year they are
assessed and are treated as a non-deductible expense for tax purposes. Interest is recorded in noninterest expense in the year it is assessed and is treated as a deductible expense for tax
purposes. At December 31, 2016, the Corporation’s tax years 2013 through 2015 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 amounts 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
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of deferred income or expense. The Corporation has a charitable contributions carryover of $606 thousand, resulting in a deferred tax asset of $212 thousand which will expire after
December 31, 2021, if not utilized. The Corporation has a state net operating loss carry-forward of $42.0 million which will begin to expire after December 31, 2018 if not utilized. A
valuation allowance at December 31, 2016 and 2015 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. Additionally, deferred tax assets of $42 thousand were reversed and recorded to additional paid-in capital during the year ended
December 31, 2015, as a result of unrecognized restricted stock and non-qualified stock option expense. During 2016, net deferred tax liabilities of $1.2 million were added due to the
Fox Chase acquisition.
The assets and liabilities giving rise to the Corporation’s deferred tax assets and liabilities are as follows:
(Dollars in thousands)
Deferred tax assets:
Loan and lease loss
Deferred compensation
Actuarial adjustments on retirement benefits*
State net operating losses
Other-than-temporary impairments on equity securities
Alternative minimum tax credits**
Net unrealized holding losses on securities available-for-sale and swaps*
Other deferred tax assets
Gross deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Mortgage servicing rights
Retirement plans
Intangible assets
Depreciation
Other deferred tax liabilities
Total deferred tax liabilities
Net deferred tax assets
*Represents the amount of deferred taxes recorded in accumulated other comprehensive loss.
** The alternative minimum tax credits have an indefinite life.
Note 12. Retirement Plans and Other Postretirement Benefits
At December 31,
2016
2015
$
5,984
2,541
7,714
2,725
331
3,114
2,762
2,676
27,847
(2,341)
25,506
2,302
6,265
3,543
1,401
2,430
15,941
9,565
$
6,012
2,483
8,525
1,986
317
2,156
472
3,209
25,160
(1,609)
23,551
2,066
6,307
2,460
347
2,192
13,372
10,179
$
$
Substantially all employees who were hired before December 8, 2009 are covered by a noncontributory retirement plan. Employees hired on or after December 8, 2009 are not
eligible to participate in the noncontributory retirement plan. The Corporation also provides supplemental executive retirement benefits to certain former executives, a portion of
which is in excess of limits imposed on qualified plans by federal tax law; these plans are non-qualified benefit plans. These non-qualified benefit plans are not offered to new
participants; all current participants are now retired. 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, 2016, 2015 and 2014 was $1.2 million, $1.0 million, and $836 thousand, respectively.
The Corporation sponsors a Supplemental Non-Qualified Pension Plan (SNQPP) which was established in 1981 prior to the existence of a 401(k) deferred salary savings plan,
employee stock purchase plan and long-term incentive plans and therefore is not offered to new participants; all current participants are now retired. Expense recorded by the
Corporation for the SNQPP for the years ended December 31, 2016 and 2015 was $52 thousand and $285 thousand, respectively. The Corporation recognized
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income in 2014 of $44 thousand primarily due to an increase in the weighted average discount rate from 4.0% for 2013 to 4.9% for 2014.
Information with respect to the Retirement Plans and Other Postretirement Benefits follows:
(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Settlements
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Benefits paid
Settlements
Employer contribution and non-qualified benefit payments
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss
Unrecognized prior service costs
Net amount recognized
Retirement Plans
2016
2015
Other Postretirement Benefits
2016
2015
49,810
$
51,390
$
2,834
$
661
2,071
413
(2,400)
(3,166)
47,389
$
41,490
$
3,314
(2,400)
(3,166)
2,180
41,418
$
(5,971)
22,018
(746)
15,301
$
756
1,953
(1,915)
(2,374)
—
49,810
41,437
246
(2,374)
—
2,181
41,490
(8,320)
24,628
(1,029)
15,279
$
$
$
$
46
133
36
(81)
—
2,968
$
— $
—
(81)
—
81
— $
(2,968)
767
—
(2,201)
$
2,896
59
110
(141)
(90)
—
2,834
—
—
(90)
—
90
—
(2,834)
756
—
(2,078)
$
$
$
$
$
In the fourth quarter of 2016, the Corporation offered to vested participants in the pension plan, who were no longer employees, the option of a one-time lump-sum payment in
lieu of any future benefits that would have been payable from the plan. As a result, lump-sum payments from the plan were $3.2 million and exceeded the service cost and interest cost
for the year triggering a settlement. The settlement was measured as of December 31, 2016 because the majority of lump sum payments occurred during December 2016. The
settlement cost was $1.4 million. The amount represents a reclassification of accumulated other comprehensive income to pension expense (included in salaries and benefit expense in
the statement of income) and had no impact on shareholders' equity.
Information for the pension plan with an accumulated benefit obligation in excess of the fair value of plan assets is shown below.
(Dollars in thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Components of net periodic benefit cost (income) were as follows:
At December 31,
2016
2015
$
$
45,129
42,178
41,418
47,543
44,125
41,490
(Dollars in thousands)
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Accretion of prior service cost
Settlement cost
Net periodic benefit cost (income)
Retirement Plans
Other Post Retirement
Benefits
2016
2015
2014
2016
2015
2014
$
$
661
$
756
$
2,071
(3,041)
1,296
(283)
1,434
2,138
$
1,953
(3,100)
1,308
(280)
—
637
$
91
528
1,900
(2,929)
649
(281)
—
(133)
$
$
46
133
—
25
—
—
204
$
$
59
110
—
54
—
—
223
$
$
75
128
—
17
(7)
—
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(Dollars in thousands)
Expected amortization expense for 2017:
Amortization of net actuarial loss
Accretion of prior service cost
Retirement Plans
Other Postretirement
Benefits
$
1,227
$
(283)
208
—
During 2017, the Corporation expects to contribute approximately $160 thousand to the Retirement Plans and approximately $121 thousand to Other Postretirement Benefits.
The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid:
(Dollars in thousands)
For the fiscal year ending:
2017
2018
2019
2020
2021
Years 2022-2026
Retirement Plans
Other Postretirement
Benefits
$
$
2,687
2,743
2,798
2,818
2,865
14,542
121
123
129
133
140
783
Weighted-average assumptions used to determine benefit obligations at December 31, 2016 and 2015 were as follows:
Assumed discount rate
Assumed salary increase rate
Retirement Plans
2016
2015
Other Postretirement Benefits
2016
2015
4.0%
3.0
4.3%
3.0
4.0%
—
4.3%
—
The benefit obligation for all plans at December 31, 2016 was based on the RP-2014 mortality table using the projection scale MP-2016 published by the Society of Actuaries.
Weighted-average assumptions used to determine net periodic costs for the years ended December 31, 2016 and 2015 were as follows. 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 discount rate
Assumed long-term rate of investment return
Assumed salary increase rate
Retirement Plans
2016
2015
Other Postretirement Benefits
2016
2015
4.3%
7.5
3.0
3.9%
7.5
3.0
4.3%
—
—
3.9%
—
—
The Corporation's pension plan asset allocation at December 31, 2016 and 2015, by asset category was as follows:
Asset Category:
Equity securities
Debt securities
Other
Total
Percentage of Plan Assets at December 31,
2016
2015
61%
38
1
100%
59%
40
1
100%
Plan assets include marketable equity securities, corporate and government debt securities, and certificates of deposit. The investment strategy is to keep a 60% equity to 40%
fixed income mix to achieve the overall expected long-term rate of return of 7.5%. Equity securities do not include any common stock of the Corporation.
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The major categories of assets in the Corporation’s pension plan at 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.”
(Dollars in thousands)
Level 1:
Mutual funds
Short-term investments
Level 2:
U.S. government obligations
Corporate bonds
Level 3:
Certificates of deposit
Total fair value of plan assets
Fair Value Measurements at December 31,
2016
2015
$
$
26,292
$
549
3,544
6,468
4,565
41,418
$
25,550
622
4,811
5,752
4,755
41,490
The following table provides a reconciliation of the beginning and ending balances for measurements in hierarchy Level 3 at December 31, 2016 and 2015:
(Dollars in thousands)
Certificates of deposit
Total Level 3 assets
(Dollars in thousands)
Certificates of deposit
Total Level 3 assets
Note 13. Stock-Based Incentive Plan
Balance at December
31, 2015
Total Unrealized
(Losses) or Gains
Total Realized
Gains or
(Losses)
Purchases
Maturities/
Redemptions
Balance at December
31, 2016
$
$
4,755
4,755
$
$
— $
— $
— $
— $
675
675
Balance at December
31, 2014
Total Unrealized
(Losses) or Gains
Total Realized
Gains or
(Losses)
Purchases
$
$
4,035
4,035
$
$
— $
— $
— $
— $
1,805
1,805
$
$
$
$
(865)
(865)
$
$
4,565
4,565
Maturities/
Redemptions
Balance at December
31, 2015
(1,085)
(1,085)
$
$
4,755
4,755
The Corporation has a shareholder approved 2013 Long-Term Incentive Plan which replaced the expired 2003 Long-Term Incentive Plan. Under the 2013 Long-Term Incentive
Plan, the Corporation may grant options and share awards to employees and non-employee directors up to 3,355,786 shares of common stock, which includes 857,191 shares as a
result of the completion of the acquisition of Fox Chase on July 1, 2016 and 473,483 shares as a result of the completion of the acquisition of Valley Green Bank on January 1, 2015.
The number of shares of common stock available for issuance under the plan is subject to adjustment, as described in the plan. This includes, in the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the stock, substitution or adjustment shall be made in the aggregate
number of shares reserved for issuance under the plan, in the number and option price of shares subject to outstanding options granted under the plan and in the number and price of
shares subject to other awards, as described in the plan. The plan provides for the issuance of options to purchase common shares at prices not less than 100 percent of the fair market
value on 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. The options issued in 2016 become exercisable and vest at 33.3 percent per year for 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 shares vest based upon the Corporation’s performance against selected peers with respect to certain
financial measures over a three-year period. There were 2,747,871 share awards available for future grants at December 31, 2016 under the plan. At December 31, 2016, there were
504,908 options to purchase common stock and 285,158 unvested restricted stock awards outstanding under the plan.
93
Shares Under
Option
Weighted Average
Exercise Price Per
Share
Weighted Average
Remaining Contractual
Life (Years)
Aggregate Intrinsic Value
at December 31, 2016
Table of Contents
The following table is a summary of the status of options under the Corporation’s long-term incentive plans:
(Dollars in thousands, except per share data)
Outstanding at December 31, 2015
Granted
Expired
Forfeited
Exercised
Outstanding at December 31, 2016
Exercisable at December 31, 2016
$
668,667
160,312
—
(62,537)
(261,534)
504,908
195,968
18.88
19.73
—
18.93
19.04
19.06
19.24
The following is a summary of nonvested stock options at December 31, 2016 including changes during the year:
(Dollars in thousands, except per share data)
Nonvested stock options at December 31, 2015
Granted
Vested
Forfeited
Nonvested stock options at December 31, 2016
$
6.2
3.2
5,979
2,285
Nonvested Stock
Options
Weighted Average
Grant Date Fair
Value
$
299,665
160,312
(88,500)
(62,537)
308,940
5.91
6.23
5.47
6.16
6.15
The total intrinsic value of options exercised during 2016, 2015, and 2014 was $2.1 million, $103 thousand, and $47 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 broker-assisted exchange allows the optionees to exercise their vested options on a net basis without having to pay the exercise price or related expenses in
cash. However, it will result in the optionees acquiring fewer shares than the number of options exercised.
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 strip rate 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 used to estimate the fair value of options granted for the periods indicated:
Expected option life in years
Risk free interest rate
Expected dividend yield
Expected volatility
Fair value of options
For the Years Ended December 31,
2016
Range
Weighted Average
2015
Actual
2014
Actual
8.2
1.89%
4.19%
46.22%
$6.27
7.6
1.38%
3.80%
37.71%
$5.40
-
-
-
-
-
94
7.9
1.87%
4.06%
45.82%
8.0
1.64%
4.32%
49.38%
$
6.23
$
6.07
$
8.2
2.51%
4.26%
50.16%
6.53
Table of Contents
The following is a summary of nonvested restricted stock awards at December 31, 2016 including changes during the year:
(Dollars in thousands, except per share data)
Nonvested share awards at December 31, 2015
Granted
Vested
Forfeited
Nonvested share awards at December 31, 2016
Nonvested Share
Awards
Weighted Average
Grant Date Fair
Value
$
183,584
176,255
(51,272)
(23,409)
285,158
18.00
20.60
17.31
17.86
19.74
The fair value of restricted stock is equivalent to the fair value on the date of grant and is amortized over the vesting period. Certain information regarding restricted stock is
summarized below for the periods indicated:
(Dollars in thousands, except per share data)
Shares granted
Weighted average grant date fair value
Intrinsic value of awards vested
For the Years Ended December 31,
2016
2015
2014
$
$
176,255
20.60
1,000
$
$
65,755
18.62
749
$
$
74,304
18.63
735
The total unrecognized compensation expense and the weighted average period over which unrecognized compensation expense is expected to be recognized related to nonvested
stock options and nonvested restricted stock awards at December 31, 2016 is presented below:
(Dollars in thousands)
Stock options
Restricted stock awards
Unrecognized Compensation Cost
Weighted-Average Period
Remaining (Years)
$
$
1,020
3,155
4,175
The following table presents information related to the Corporation’s compensation expense related to stock incentive plans recognized for the periods indicated:
(Dollars in thousands)
Stock-based compensation expense:
Stock options
Restricted stock awards
Employee stock purchase plan
Total
Tax benefit on nonqualified stock option expense, restricted stock awards and disqualifying dispositions of
incentive stock options
For the Years Ended December 31,
2016
2015
2014
$
$
$
577
1,507
67
2,151
836
$
$
$
528
893
53
1,474
339
$
$
$
There were no significant modifications or accelerations to options or restricted stock awards during the period 2014 through 2016.
The Corporation typically issues shares for stock option exercises and grants of restricted stock awards from its treasury stock.
95
1.9
1.7
1.8
463
679
46
1,188
244
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Note 14. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars and shares in thousands)
Numerator:
Net income
Net income allocated to unvested restricted stock
Net income allocated to common shares
Denominator:
Denominator for basic earnings per share—weighted-average shares outstanding
Effect of dilutive securities—employee stock options
Denominator for diluted earnings per share—adjusted weighted-average shares outstanding
Basic earnings per share
Diluted earnings per share
Average anti-dilutive options and awards excluded from computation of diluted earnings per share
Note 15. Accumulated Other Comprehensive Loss
For the Years Ended December 31,
2016
2015
2014
$
$
$
$
19,505
(167)
19,338
22,871
60
22,931
0.85
0.84
355
$
$
$
$
27,268
(204)
27,064
19,491
31
19,522
1.39
1.39
558
$
$
$
$
22,231
(245)
21,986
16,056
23
16,079
1.37
1.37
559
The following table shows the components of accumulated other comprehensive loss, net of tax benefit, for the periods presented:
Net Unrealized
Gains (Losses) on
Available-for-Sale
Investment
Securities
Net Change
Related to
Derivatives Used
for Cash Flow
Hedges
Net Change
Related to
Defined Benefit
Pension Plans
Accumulated
Other
Comprehensive
Loss
$
$
(1,472)
$
3,183
1,711
(2,303)
(592)
(4,396)
(4,988)
$
—
(157)
(157)
(128)
(285)
144
(141)
$
$
$
(8,483)
(7,533)
(16,016)
185
(15,831)
1,506
(14,325)
$
(9,955)
(4,507)
(14,462)
(2,246)
(16,708)
(2,746)
(19,454)
(Dollars in thousands)
Balance, December 31, 2013
Net Change
Balance, December 31, 2014
Net Change
Balance, December 31, 2015
Net Change
Balance, December 31, 2016
Note 16. Commitments and Contingencies
Lending Operations
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. The Bank offers
commercial, mortgage, and consumer credit products to customers in the normal course of business, which are detailed in Note 5. These products represent a diversified credit
portfolio and are generally issued to borrowers within the Bank’s market area. Financial instruments with off-balance sheet risk include commitments to extend credit. These
instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the consolidated balance sheets.
The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend 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.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Collateral is obtained based on management’s credit assessment of the customer.
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Standby letters of credit commit the Bank to make payments on behalf of customers when certain specified future events occur. They are primarily 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 un-assignable 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 the exposure is considered in the reserve for credit risk. At December 31, 2016, the maximum potential amount of future payments under letters of credit is $46.6 million. The
current carrying amount of the contingent obligation is $208 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 following schedule summarizes the Corporation’s off-balance sheet financial instruments at December 31, 2016:
(Dollars in thousands)
Financial instruments representing credit risk:
Commitments to extend credit
Performance letters of credit
Financial standby letters of credit
Other letters of credit
Contract/Notional Amount
$
980,647
26,570
19,981
15
The Bank maintains a reserve in other liabilities for estimated losses associated with sold mortgages that may be repurchased. At December 31, 2016, the reserve for sold
mortgages was $284 thousand.
Legal Proceedings
Management is not aware of any litigation that would be probable of occurring or probable of having a material adverse effect on the Corporation’s consolidated balance sheet or
statement of income. 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.
Operating Leases
At December 31, 2016, the Corporation and its subsidiaries were obligated under non-cancelable leases for various premises. Portions of certain properties are subleased. A
summary of the future minimum rental commitments under non-cancelable operating leases with original or remaining terms greater than one year is as follows:
(Dollars in thousands)
Year
2017
2018
2019
2020
2021
Thereafter
Total
Amount
3,115
3,235
3,053
3,102
3,142
43,446
59,093
$
$
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Table of Contents
Service contracts
At December 31, 2016, the Corporation had contracts with third-party providers to manage the Corporation's network operations, data processing and other related services. The
projected amount of the Corporation's future minimum payments due for contracts with original or remaining terms greater than one year is as follows:
(Dollars in thousands)
Year
2017
2018
2019
2020
2021
Thereafter
Total
Amount
6,346
5,011
4,626
4,047
3,159
2,242
25,431
$
$
Note 17. Derivative Instruments and Hedging Activities
Interest Rate Swaps
The Corporation may use interest-rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest
rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. 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
accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying
fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk,
adjusts the carrying amount of the hedge item and is recognized in earnings.
On October 24, 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of
the debt financing of a pool of 10-year maturity fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market
demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation
pays a fixed rate of 2.10% and receives a floating rate based on the one-month LIBOR . The swap matures in November 2022. The Corporation performed an assessment of the hedge
for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes
in cash flows of the hedged item. The Corporation expects that there will be no ineffectiveness over the life of the interest rate swap. At December 31, 2016, approximately $196
thousand in net deferred losses, net of tax, recorded in accumulated other comprehensive loss are expected to be reclassified into earnings during the next twelve months. This amount
could differ from amounts actually recognized due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to December 31, 2016. At
December 31, 2016, the notional amount of the interest rate swap was $18.6 million, with a negative fair value of $217 thousand.
The Corporation has an interest rate swap classified as a fair value hedge with a current notional amount of $1.4 million to hedge a 10-year fixed rate loan that is earning interest
at 5.83%. The Corporation pays a fixed rate of 5.83% and receives a floating rate based on the one-month LIBOR plus 350 basis points. The swap matures in October 2021. The
difference between changes in the fair values of the interest rate swap agreement and the hedged loan represents hedge ineffectiveness and is recorded in other noninterest income in
the consolidated statements of operations.
The Corporation has an interest rate swap with a current notional amount of $622 thousand, for a 15-year fixed rate loan that is earning interest at 7.43%. The Corporation pays a
fixed rate of 7.43% and receives a floating rate based on the one-month LIBOR plus 224 basis points. The swap matures in April 2022. The interest rate swap is carried at fair value in
accordance with FASB ASC 815 "Derivatives and Hedging." The loan is carried at fair value under the fair value option as permitted by FASB ASC 825 "Financial Instruments."
Credit Derivatives
The Corporation has agreements with third-party financial institutions whereby the third-party financial institution enters into interest rate derivative contracts and foreign
currency swap contracts with loan customers referred to them by the Corporation. By
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the terms of the agreements, the third-party financial institution has recourse to the Corporation for any exposure created under each swap contract in the event the customer defaults
on the swap agreement and the agreement is in a paying position to the third-party financial institution. These transactions represent credit derivatives and are a customary
arrangement that allows the Corporation to provide access to interest rate and foreign currency swap transactions for customers without creating the swap. The Corporation records the
fair value of credit derivatives in other liabilities on the consolidated balance sheets. The Corporation recognizes changes in the fair value of credit derivatives, net of any fees
received, in other noninterest income in the consolidated statements of income.
At December 31, 2016, the Corporation (primarily through the acquisition of Fox Chase) has nine variable-rate to fixed-rate interest rate swap transactions between the third-party
financial institution and customers with a current notional amount of $27.9 million, and remaining maturities ranging from two to 10 years. At December 31, 2016, the fair value of
the swaps to the customers was a liability of $9 thousand and all swaps were in paying positions to the third-party financial institution.
At December 31, 2016, there were no material foreign currency swap transactions between the third-party institution and loan customers.
The maximum potential payments by the Corporation to the third-party financial institution under these credit derivatives are not estimable as they are contingent on future
interest rates and exchange rates, and the agreement does not provide for a limitation of the maximum potential payment amount.
Mortgage Banking Derivatives
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.
Derivatives Tables
The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at December 31,
2016 and 2015. The Corporation pledges cash or securities to cover the negative fair value of derivative instruments. Cash collateral associated with derivative instruments are not
added to or netted against the fair value amounts.
(Dollars in thousands)
At December 31, 2016
Interest rate swap - cash flow hedge
Interest rate swap - fair value hedge
Total
At December 31, 2015
Interest rate swap - cash flow hedge
Total
Notional
Amount
Balance Sheet
Classification
Fair
Value
Balance Sheet
Classification
Fair
Value
Derivative Assets
Derivative Liabilities
$
$
$
$
18,566
1,427
19,993
19,269
19,269
$
$
$
$
—
—
—
—
—
Other liabilities
Other liabilities
Other liabilities
$
$
$
$
217
37
254
438
438
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The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at
December 31, 2016 and 2015:
(Dollars in thousands)
At December 31, 2016
Interest rate swap
Credit derivatives
Interest rate locks with customers
Forward loan sale commitments
Total
At December 31, 2015
Interest rate locks with customers
Forward loan sale commitments
Total
Notional
Amount
Balance Sheet
Classification
Fair
Value
Balance Sheet
Classification
Fair
Value
Derivative Assets
Derivative Liabilities
$
$
$
$
622
27,919
36,541
42,366
107,448
34,450
39,545
73,995
Other assets
Other assets
Other assets
$
$
$
$
—
—
801
257
1,058
1,089
—
1,089
Other liabilities
$
Other liabilities
$
$
$
Other liabilities
The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:
(Dollars in thousands)
Interest rate swap—cash flow hedge—net interest payments
Interest expense
Interest rate swap—fair value hedge—ineffectiveness
Other noninterest income
Net loss
$
$
308
9
(299)
$
$
377
—
(377)
$
$
Statement of Income Classification
2016
2015
2014
For the Years Ended December 31,
The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:
(Dollars in thousands)
Credit derivatives
Interest rate locks with customers
Other noninterest income
Net gain (loss) on mortgage banking activities
Forward loan sale commitments
Net gain (loss) on mortgage banking activities
Total
$
$
93
(288)
359
164
$
$
— $
301
10
311
$
Statement of Income Classification
2016
2015
2014
For the Years Ended December 31,
65
9
—
—
74
—
102
102
66
—
(66)
—
467
(137)
330
The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments at December 31, 2016 and
2015:
(Dollars in thousands)
Interest rate swap—cash flow hedge
Total
Note 18. Fair Value Disclosures
Accumulated Other
Comprehensive (Loss) Income
Fair value, net of taxes
At December 31,
2016
2015
$
$
(141)
(141)
$
$
(285)
(285)
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 at the measurement
date. The Corporation determines the fair value of 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 market participants would use in pricing the
asset or liability based on the best information available in the circumstances, including assumptions about risk. 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. Transfers between levels are recognized at the end of
the reporting period.
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Level 1: Valuations are based on quoted prices in active markets for identical assets or liabilities that the Corporation can access at the measurement date. 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.
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.
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.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, 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 U.S. Treasury securities, most equity securities and money market mutual funds. Mutual funds are registered investment companies which are valued at net asset
value of shares on a market exchange at the end of each trading day. 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
securities issued by U.S. government sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, corporate and municipal bonds and certain equity
securities. 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.
Fair values for securities are determined using independent pricing services and market-participating brokers. The Corporation’s independent pricing service utilizes evaluated
pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance
data. Because many fixed income securities do not trade on a daily basis, the pricing service’s evaluated pricing applications apply information as applicable through processes, such
as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. If at any time, the pricing service determines that it does have not sufficient verifiable
information to value a particular security, the Corporation will utilize valuations from another pricing service. Management has a sufficient understanding of the third party service’s
valuation models, assumptions and inputs used in determining the fair value of securities to enable management to maintain an appropriate system of internal control.
Certain corporate securities owned by the Corporation are classified as Level 3 as they are not traded in active markets.The fair value of each security is estimated by
benchmarking similar transactions of structure, yield and credit which are owned by the Corporation and are actively traded in the market.
On a quarterly basis, the Corporation reviews changes, as submitted by the pricing service, in the market value of its security portfolio. Individual changes in valuations are
reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. If, upon the Corporation’s review or in comparing with another
service, a material difference between pricing evaluations were to exist, the Corporation may submit an inquiry to the current pricing service regarding the data used to determine the
valuation of a particular security. If the Corporation determines there is market information that would support a different valuation than from the current pricing service’s evaluation,
the Corporation may utilize and change the security's valuation. There were no material differences in valuations noted at December 31, 2016.
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. Interest rate swaps and mortgage banking derivative financial instruments are
classified within Level 2 of the valuation hierarchy. Credit derivatives are valued based on credit worthiness of the underlying borrower which is a significant unobservable input and
therefore classified in Level 3 of the valuation hierarchy.
Two commercial loans, associated with interest rate swaps are classified in Level 3 of the valuation hierarchy since lending credit risk is not an observable input for these loans.
The unrealized gain on the two loans was $97 thousand at December 31, 2016.
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Contingent Consideration Liability
The Corporation estimates the fair value of the contingent consideration liability by using a discounted cash flow model of future contingent payments based on projected revenue
related to the acquired business. The estimated fair value of the contingent consideration liability is reviewed on a quarterly basis and any valuation adjustments resulting from a
change of estimated future contingent payments based on projected revenue of the acquired business affecting the contingent consideration liability will be recorded through
noninterest expense. Changes in the original assumptions utilized at the time the acquisition closes and identified during the measurement period are recorded in accordance with ASC
Topic 805 as an adjustment to goodwill. Due to the significant unobservable input related to the projected revenue, the contingent consideration liability is classified within Level 3 of
the valuation hierarchy. An increase in the projected revenue may result in a higher fair value of the contingent consideration liability. Alternatively, a decrease in the projected
revenue may result in a lower estimated fair value of the contingent consideration liability.
For the Sterner Insurance Associates acquisition, the potential remaining cash payments that could result from the contingent consideration arrangement range from $0 to a
maximum of $2.6 million based on the results for the twelve-month period June 30, 2017. Due to updates to the original assumptions utilized for determining the contingent
consideration liability for the Sterner acquisition completed on July 1, 2014, the Corporation recorded a purchase accounting adjustment, in accordance with ASC Topic 805, in the
first quarter of 2015 which resulted in an increase to the contingent consideration liability and an increase to goodwill of $1.5 million.
During the fourth quarter of 2016, the Corporation reached an agreement to settle its future obligations related to the Girard Partners acquisition. The total settlement amount of
$5.3 million was paid during the first quarter of 2017; additional amortization of $2.1 million was recognized in noninterest expense in 2016. During 2015, the Corporation recorded a
reduction to the contingent liability which resulted in a reduction of noninterest expense of $550 thousand. The adjustment reflected that projected revenue levels for earn-out
payments in the second through fifth years post-acquisition were anticipated to be lower than originally projected.
The following table presents the assets and liabilities measured at fair value on a recurring basis at December 31, 2016 and 2015, classified using the fair value hierarchy:
(Dollars in thousands)
Assets:
Available-for-sale securities:
U.S. government corporations and agencies
State and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligations
Corporate bonds
Money market mutual funds
Equity securities
Total available-for-sale securities
Loans*
Interest rate locks with customers*
Forward loan sale commitments*
Total assets
Liabilities:
Contingent consideration liability
Interest rate swaps*
Credit derivatives*
Total liabilities
At December 31, 2016
Level 1
Level 2
Level 3
Assets/
Liabilities at
Fair Value
$
— $
—
—
—
—
10,784
915
11,699
—
—
—
32,266
88,350
198,570
4,554
79,420
—
—
403,160
—
801
257
$
— $
—
—
—
28,778
—
—
28,778
2,138
—
—
11,699
$
404,218
$
30,916
— $
— $
—
—
— $
319
—
319
$
6,008
$
$
$
5,999
—
9
$
$
$
102
32,266
88,350
198,570
4,554
108,198
10,784
915
443,637
2,138
801
257
446,833
5,999
319
9
6,327
Table of Contents
(Dollars in thousands)
Assets:
Available-for-sale securities:
U.S. treasuries
U.S. government corporations and agencies
State and political subdivisions
Residential mortgage-backed securities
Collateralized mortgage obligations
Corporate bonds
Money market mutual funds
Equity securities
Total available-for-sale securities
Interest rate locks with customers*
Total assets
Liabilities:
Contingent consideration liability
Interest rate swaps*
Forward loan sale commitments*
Total liabilities
At December 31, 2015
Level 1
Level 2
Level 3
Assets/
Liabilities at
Fair Value
$
$
$
$
$
4,887
—
—
—
—
—
16,726
807
22,420
—
22,420
$
— $
—
—
— $
— $
— $
102,156
102,032
13,354
3,133
86,675
—
—
307,350
1,089
308,439
—
—
—
—
—
—
—
—
—
$
— $
— $
438
102
540
5,577
$
—
—
$
5,577
$
4,887
102,156
102,032
13,354
3,133
86,675
16,726
807
329,770
1,089
330,859
5,577
438
102
6,117
*Such financial instruments are recorded at fair value as further described in Note 17 - Derivative Instruments.
The following table includes a rollfoward of loans and credit derivatives for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for year
ended December 31, 2016. These loans and credit derivatives were acquired from Fox Chase on July 1, 2016.
(Dollars in thousands)
Corporate bonds
Loans
Credit derivatives
Net total
Balance at
December 31,
2015
Purchases/additions
Sales
Payments received
Premium
amortization, net
(Decrease)
increase in value
Transfer into
Level 3
Balance at December
31, 2016
$
$
— $
— $
— $
— $
— $
— $
28,778
—
—
2,313
(102)
—
—
(65)
—
—
—
(110)
93
—
—
— $
2,211
$
— $
(65)
$
— $
(17)
$
28,778
$
$
28,778
2,138
(9)
30,907
For the Year Ended December 31, 2016
The following table presents the change in the balance of the contingent consideration liability related to acquisitions for which the Corporation utilized Level 3 inputs to
determine fair value on a recurring basis for the years ended December 31, 2016 and 2015:
(Dollars in thousands)
Sterner Insurance Associates
Girard Partners
John T. Fretz Insurance Agency
Total contingent consideration liability
For the Year Ended December 31, 2016
Balance at
December 31,
2015
Contingent
Consideration
from New
Acquisition
$
$
1,144
4,241
192
5,577
$
$
103
Payment of
Contingent
Consideration
Adjustment
of Contingent
Consideration
Balance at December
31, 2016
— $
—
—
— $
1,325
$
967
260
2,552
$
512
2,394
68
2,974
$
$
331
5,668
—
5,999
Table of Contents
(Dollars in thousands)
Sterner Insurance Associates
Girard Partners
John T. Fretz Insurance Agency
Total contingent consideration liability
For the Year Ended December 31, 2015
Balance at
December 31,
2014
Contingent
Consideration
from New
Acquisition*
Payment of
Contingent
Consideration
Adjustment
of Contingent
Consideration
Balance at December
31, 2015
$
$
680
$
1,525
$
1,751
$
5,503
358
—
—
620
260
6,541
$
1,525
$
2,631
$
690
(642)
94
142
$
$
1,144
4,241
192
5,577
*Includes adjustments during the measurement period in accordance with ASC Topic 805.
The Corporation may be required to periodically measure certain assets and liabilities at fair value on a non-recurring basis in accordance with GAAP. These adjustments to fair
value usually result from the application of lower of cost or market accounting or impairment charges of individual assets. The following table represents assets measured at fair value
on a non-recurring basis at December 31, 2016 and 2015:
(Dollars in thousands)
Impaired loans held for investment
Other real estate owned
Total
(Dollars in thousands)
Impaired loans held for investment
Total
At December 31, 2016
Level 1
Level 2
Level 3
— $
—
— $
— $
—
— $
At December 31, 2015
Level 1
Level 2
Level 3
— $
— $
— $
— $
Assets/Liabilities at
Fair Value
43,680
4,969
48,649
Assets/Liabilities at
Fair Value
48,611
48,611
43,680
4,969
48,649
48,611
48,611
$
$
$
$
$
$
$
$
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Table of Contents
The following table presents assets and liabilities and off-balance sheet items not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated
balance sheets but for which the fair value is required to be disclosed at December 31, 2016 and 2015. The disclosed fair values are classified using the fair value hierarchy.
(Dollars in thousands)
Assets:
Cash and short-term interest-earning assets
Held-to-maturity securities
Federal Home Loan Bank, Federal Reserve Bank and other stock
Loans held for sale
Net loans and leases held for investment
Mortgage servicing rights
Total assets
Liabilities:
Deposits:
Demand and savings deposits, non-maturity
Time deposits
Total deposits
Short-term borrowings
Long-term debt
Subordinated notes
Total liabilities
Off-Balance-Sheet:
Commitments to extend credit
(Dollars in thousands)
Assets:
Cash and short-term interest-earning assets
Held-to-maturity securities
Federal Home Loan Bank, Federal Reserve Bank and other stock
Loans held for sale
Net loans and leases held for investment
Mortgage servicing rights
Other real estate owned
Total assets
Liabilities:
Deposits:
Demand and savings deposits, non-maturity
Time deposits
Total deposits
Short-term borrowings
Subordinated notes
Total liabilities
Off-Balance-Sheet:
Commitments to extend credit
$
$
$
$
$
$
$
$
$
$
Level 1
Level 2
Level 3
Fair
Value
Carrying
Amount
At December 31, 2016
57,825
$
— $
— $
—
N/A
—
—
—
24,871
N/A
5,943
—
—
—
N/A
—
3,193,886
9,548
$
57,825
24,871
N/A
5,943
3,193,886
9,548
57,825
$
30,814
$
3,203,434
$
3,292,073
$
2,631,378
$
— $
— $
2,631,378
$
—
2,631,378
—
—
—
2,631,378
$
628,096
628,096
195,572
130,157
95,188
1,049,013
— $
(2,218)
—
—
—
—
—
628,096
3,259,474
195,572
130,157
95,188
$
$
— $
3,680,391
— $
(2,218)
At December 31, 2015
Level 1
Level 2
Level 3
60,799
$
— $
— $
Fair
Value
60,799
41,061
N/A
4,708
—
N/A
—
57,825
24,881
24,869
5,890
3,222,569
6,485
3,342,519
2,631,378
626,189
3,257,567
196,171
127,522
94,087
3,675,347
—
Carrying
Amount
60,799
40,990
8,880
4,680
$
$
$
2,099,082
2,099,082
2,112,774
8,047
—
8,047
1,276
5,877
1,276
$
2,107,129
$
2,214,973
$
2,235,276
—
N/A
—
—
—
—
60,799
$
41,061
N/A
4,708
—
—
1,276
47,045
1,939,954
$
— $
— $
1,939,954
$
—
1,939,954
—
—
1,939,954
$
455,527
455,527
22,302
50,375
528,204
— $
(1,788)
—
—
—
—
455,527
2,395,481
22,302
50,375
$
$
— $
2,468,158
— $
(1,788)
$
$
1,939,954
454,406
2,394,360
24,211
49,377
2,467,948
—
The following valuation methods and assumptions were used by the Corporation in estimating the fair value for financial instruments measured at fair value on a non-recurring
basis and financial instruments not measured at fair value on a recurring or non-recurring basis in the Corporation’s consolidated balance sheets but for which the fair value is required
to be disclosed:
Cash and short-term interest-earning assets: The carrying amounts reported in the balance sheet for cash and due from banks, interest-earning deposits with other banks, federal
funds sold and other short-term investments approximates those assets’ fair values. Cash and short-term interest-earning assets are classified within Level 1 in the fair value hierarchy.
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Held-to-maturity securities: Fair values for the held-to-maturity investment securities are estimated by using pricing models or quoted prices of securities with similar
characteristics and are classified in Level 2 in the fair value hierarchy.
Federal Home Loan Bank, Federal Reserve Bank and other stock: It is not practical to determine the fair values of Federal
Home Loan Bank, Federal Reserve Bank and other stock, due to restrictions placed on their transferability.
Loans held for sale: The fair value of the Corporation’s mortgage loans held for sale are generally determined using a pricing model based on current market information obtained
from external sources, including interest rates, bids or indications provided by market participants on specific loans that are actively marketed for sale. These loans are primarily
residential mortgage loans and are generally classified in Level 2 due to the observable pricing data. Loans held for sale are carried at the lower of cost or estimated fair value. There
were no valuation adjustments for loans held for sale at December 31, 2016 and 2015.
Loans and leases held for investment: The fair values for loans and leases held for investment are estimated using discounted cash flow analyses, using a discount rate based on
current interest rates at which similar loans with similar terms would be made to borrowers and include components for credit risk, operating expense and embedded prepayment
options. An overall valuation adjustment is made for specific credit risks in addition to general portfolio risk and is significant to the valuation. As permitted, the fair value of the loans
and leases are not based on the exit price concept as discussed in the first paragraph of this note. Loans and leases are classified within Level 3 in the fair value hierarchy since credit
risk is not an observable input.
Impaired loans held for investment: Impaired loans held for investment include those collateral-dependent loans for which the practical expedient was applied, resulting in a fair-
value adjustment to the loan. Impaired loans 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 costs 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. At December 31, 2016, impaired loans held for investment had a carrying amount of $43.9 million with a valuation allowance
of $235 thousand. At December 31, 2015, impaired loans held for investment had a carrying amount of $48.9 million with a valuation allowance of $322 thousand.
Mortgage servicing rights: The Corporation estimates the fair value of mortgage servicing rights 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 interest rates of the portfolios serviced. Mortgage servicing rights are classified
within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the mortgage servicing rights portfolio on a quarterly basis for
impairment and the mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. At December 31, 2016 and December 31, 2015, mortgage servicing
rights had a carrying amount of $6.5 million and $5.9 million, respectively, with no valuation allowance.
Goodwill and other identifiable assets: Certain non-financial assets subject to measurement at fair value on a non-recurring basis include goodwill and other identifiable
intangible assets. In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill during the fourth quarter of 2016 and determined it was more
likely than not that the fair value of the Corporation, including each of the identified reporting units, was more than its carrying amount; therefore, the Corporation did not need to
perform the two-step impairment test for the Corporation or the reporting units. The Corporation also completed an impairment test for other intangible assets during the fourth quarter
of 2016. There was no impairment of goodwill or identifiable intangibles recorded.
Other real estate owned: The fair value of other real estate owned (OREO) is originally estimated based upon the appraised value less estimated costs to sell. The fair value less
cost to sell becomes the "original cost" of the OREO asset. Subsequently, OREO is reported as the lower of the original cost and the current the fair value less cost to sell. Capital
improvement expenses associated with the construction or repair of the property are capitalized as part of the cost of the OREO asset; however, the capitalized expenses may not
increase the OREO asset's recorded value to an amount greater than the asset's fair value after improvements and less cost to sell. New appraisals are generally obtained on an annual
basis. During 2016, four properties had write-downs totaling $469 thousand which was included in other noninterest income in the statement of income. Other real estate owned is
classified within Level 3 of the valuation hierarchy due to the unique characteristics of the collateral for each loan.
Deposit liabilities: The fair values for demand and savings accounts, with no stated maturities, is the amount payable on demand at the reporting date (carrying value) and are
classified within Level 1 in the fair value hierarchy. The fair values for time deposits with fixed maturities are estimated by discounting the final maturity using interest rates currently
offered for deposits with similar remaining maturities. Time deposits are classified within Level 2 in the fair value hierarchy.
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Table of Contents
Short-term borrowings: The fair value of customer repurchase agreements and federal funds purchased are estimated using current market rates for similar borrowings and are
classified within Level 2 in the fair value hierarchy.
Long-term debt: The fair value of long-term debt is estimated by using discounted cash flow analysis, based on current market rates for debt with similar terms and remaining
maturities. Long-term debt is classified within Level 2 in the fair value hierarchy.
Subordinated notes: The fair value of subordinated notes are estimated by discounting the principal balance using the treasury yield curve for the term to the call date as the
Corporation has the option to call the subordinated notes. The subordinated notes are classified within Level 2 in the fair value hierarchy.
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 and are classified within Level 2 in the fair value hierarchy.
Note 19. Restructuring Charges
During the first quarter of 2015, the Corporation finalized a new financial center model, which is smaller in size, combines enhanced technology with personal service and
provides consultive services and solutions delivered by personal bankers. These efforts have led to the development of a comprehensive financial center optimization plan approved in
April 2015 which includes opening new financial centers in growth markets while closing financial centers which operate in close proximity to other centers. As the Corporation
announced in April 2015, six financial centers were closed in September 2015 that operated in close proximity to other centers. As a result, the Corporation recorded $1.6 million in
restructuring charges during the second quarter of 2015 and related to the Banking business segment. The Corporation negotiated more favorable lease termination agreement on two
of the properties during 2016 resulting in a reversal in the accrual of $152 thousand.
During the third and fourth quarters of 2016, the Corporation exited four financial centers, a lease for a new financial center and two administrative offices, and reduced staff due
to rationalization; resulting in accruing a loss of $1.9 million related to the Banking business segment. As a result of the Fox Chase acquisition and in an effort to optimize market
visibility, financial centers and administrative offices which operated in close proximity to other centers were analyzed and staffing was rationalized.
A roll-forward of the accrued restructuring expense is as follows:
(Dollars in thousands)
Accrued at January 1, 2016
Restructuring charges
Payments
Accelerated depreciation
Accrued at December 31, 2016
Note 20. Share Repurchase Plan
Severance expenses
Write-downs and
retirements of fixed
assets
Lease cancellations
Total
$
$
— $
1,207
(306)
—
901
$
228
409
—
(409)
228
$
$
$
834
115
(868)
—
81
$
1,062
1,731
(1,174)
(409)
1,210
On October 23, 2013, the Corporation’s Board of Directors approved a new stock repurchase plan for the repurchase of up to 800,000 shares of common stock, or approximately
5% of the shares outstanding. During the year ended December 31, 2014, the Corporation repurchased 110,997 shares at a cost of $2.0 million under the share repurchase program.
On May 27, 2015, the Corporation's Board of Directors approved an increase of 1,000,000 shares in the common shares available for repurchase under the Corporation's share
repurchase program, or approximately 5% of the Corporation's common stock outstanding as of May 27, 2015. During the years ended December 31, 2016 and 2015, the Corporation
repurchased 66,000 and 608,757 shares of common stock at a cost of $1.4 million and $12.0 million, respectively, under the share repurchase program. Shares available for future
repurchases under the plan totaled 1,014,246 at December 31, 2016. Total shares outstanding at December 31, 2016 were 26,589,353. At December 31, 2016, the aggregate purchases
recorded as treasury stock, at cost, on the Corporation's consolidated balance sheet was $44.9 million. The Corporation will repurchase shares of its common stock from time to time
through open market purchases, tender offers, privately negotiated purchases or other means. The share repurchase program does not obligate the Corporation to acquire any particular
amount of common stock. The program has no scheduled expiration date and the Board of Directors has the right to suspend or discontinue the program at any time.
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Note 21. Regulatory Matters
The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. The risk-based capital guidelines include both
a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. 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 the Bank’s financial statements. Capital adequacy guidelines, and additionally for the Bank the 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), or
leverage ratio.
In July 2013, the federal bank regulatory agencies adopted final rules revising the agencies’ capital adequacy guidelines and prompt corrective action rules, designed to enhance
such requirements and implement the revised standards of the Basel Committee on Banking Supervision, commonly referred to as Basel III. The new minimum capital requirements
were effective on January 1, 2015. Under the new rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to
executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in
an amount greater than 2.5% of total risk-weighted assets. The capital conservation buffer requirements phase in over a four-year period beginning January 1, 2016.
The Corporation adopted the new Basel III regulatory capital rules during the first quarter of 2015 under the transition rules, primarily relating to regulatory deductions and
adjustments impacting common equity tier 1 capital and tier 1 capital, to be phased in over a three-year period beginning January 1, 2015. Under Basel III rules, the decision was made
to opt-out of including accumulated other comprehensive income in regulatory capital. During 2016, the Corporation and the Bank were required to hold a capital conservation buffer
greater than 0.625% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions. During 2017, the Corporation and the Bank must hold a
capital conservation buffer greater than 1.25% above its minimum risk-based capital requirements in order to avoid limitations on capital distributions.
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Table of Contents
The Corporation's and Bank's actual and required capital ratios as of December 31, 2016 and December 31, 2015 under BASEL III regulatory capital rules were as follows.
(Dollars in thousands)
At December 31, 2016
Total Capital (to Risk-Weighted Assets):
Corporation
Bank
Tier 1 Capital (to Risk-Weighted Assets):
Corporation
Bank
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation
Bank
Tier 1 Capital (to Average Assets):
Corporation
Bank
At December 31, 2015
Total Capital (to Risk-Weighted Assets):
Corporation
Bank
Tier 1 Capital (to Risk-Weighted Assets):
Corporation
Bank
Tier 1 Common Capital (to Risk-Weighted Assets):
Corporation
Bank
Tier 1 Capital (to Average Assets):
Corporation
Bank
Actual
For Capital Adequacy
Purposes
To Be Well-Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
462,198
436,435
349,942
418,266
349,942
418,266
349,942
418,266
$
334,757
300,527
267,098
282,245
267,098
282,245
267,098
282,245
12.44% $
11.85
9.42
11.36
9.42
11.36
8.84
10.64
13.35% $
12.09
10.65
11.36
10.65
11.36
9.69
10.31
297,284
294,679
222,963
221,010
167,222
165,757
158,410
157,254
200,613
198,816
150,460
149,112
112,845
111,834
110,227
109,480
8.00% $
8.00
6.00
6.00
4.50
4.50
4.00
4.00
8.00% $
8.00
6.00
6.00
4.50
4.50
4.00
4.00
371,604
368,349
297,284
294,679
241,543
239,427
198,013
196,567
250,766
248,521
200,613
198,816
162,998
161,538
137,783
136,850
10.00%
10.00
8.00
8.00
6.50
6.50
5.00
5.00
10.00%
10.00
8.00
8.00
6.50
6.50
5.00
5.00
At December 31, 2016 and December 31, 2015, management believes that the Corporation and the Bank continued to meet 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 equal to at least 6.0% and 8.0%, respectively, of its
total risk-weighted assets (including various off-balance-sheet items). The Bank, like other depository institutions, is required to maintain similar capital levels under capital adequacy
guidelines. During 2016, the Corporation and the Bank was required to hold a capital conservation buffer comprised of common equity Tier I capital above its minimum risk-based
capital requirements in an amount greater than .625% of total risk-weighted assets in order to avoid limitations on capital distributions. For a depository institution to be considered
“well capitalized” under the regulatory framework for prompt corrective action, Tier 1 and Total Capital ratios must be at least 8.0% and 10.0% on a risk-adjusted basis, respectively.
At December 31, 2016, the Bank is categorized 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. The Corporation will continue to analyze the impact of the new rules as it grows and as the capital
conservation buffer requirements are phased in.
Dividends and Other Restrictions
The primary source of the Corporation’s dividends paid to its shareholders is from the earnings of the Bank paid to the Corporation in the form of dividends.
The approval of the Federal Reserve Board of Governors is required for a state bank member in the Federal Reserve system 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 2017 without approval of the Federal Reserve Board of Governors of approximately $16.1 million plus an additional amount equal to the Bank’s net profits
for 2017 up to the date of any such dividend declaration.
Federal Reserve Board policy applicable to the holding company also provides that, as a general matter, a bank holding company should inform the Federal Reserve and should
eliminate, defer or significantly reduce the holding company’s dividends if the holding company’s net income for the preceding four quarters, net of dividends paid during the period,
is not sufficient to fully fund the
109
Table of Contents
dividends, the holding company’s prospective rate of earnings retention is inconsistent with capital needs and overall current and prospective financial condition, or the holding
company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Federal Reserve Board policy also provides that a bank holding company
should inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period or that could result in a material adverse change to the
organization’s capital structure.
The Federal Reserve Act requires that the extension of credit by the Bank to certain affiliates, including the Corporation (parent), be secured by readily marketable securities, that
the 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 22. Related Party Transactions
In the ordinary course of business, the Corporation has made loans and commitments to extend credit to certain directors and executive officers of the Corporation and companies
in which directors have an interest (Related Parties). These loans and commitments have been made on substantially the same terms, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with customers not related to the lender and did not involve more than the normal risk of collectability or present other
unfavorable terms.
The following table provides a summary of activity for loans to Related Parties during the year ended December 31, 2016:
(Dollars in thousands)
Balance at January 1, 2016
Additions
Amounts collected and other reductions
Balance at December 31, 2016
$
$
66,377
18,688
(27,679)
57,386
During 2016, the Corporation paid $23 thousand to Penn Foundation Inc. for the Employee Assistance Program and $2 thousand to Dunlap & Associates PC for advisory
services, in the normal course of business on substantially the same terms as available for others. Margaret Zook, a director of the Corporation, is on the Board of Directors of Penn
Foundation Inc., and Todd Benning, a director of the Corporation, is a liaison partner with Dunlap & Associates PC.
The following table provides additional information regarding transactions with Related Parties:
(Dollars in thousands)
Commitments to extend credit
Standby and commercial letters of credits
Deposits received
At December 31, 2016
$
15,503
1,000
15,960
Note 23. Segment Reporting
At December 31, 2016, the Corporation has three reportable business segments: Banking, Wealth Management and Insurance. The Corporation determines the segments based
primarily upon product and service offerings, through the types of income generated and the regulatory environment. This is strategically how the Corporation operates and has
positioned itself in the marketplace. Accordingly, significant operating decisions are based upon analysis of each of these segments. The parent holding company and intercompany
eliminations are included in the "Other" segment.
The Corporation's Banking segment consists of commercial and consumer banking. The Wealth Management segment consists of investment advisory services, retirement plan
services, trust, municipal pension services and broker/dealer services. The Insurance segment consists of commercial lines, personal lines, benefits and human resources consulting.
Each segment generates revenue from a variety of products and services it provides. Examples of products and services provided for each reportable segment are indicated below.
(cid:121)
(cid:121)
(cid:121)
The Banking segment provides financial services to consumers, businesses and governmental units. These services include a full range of banking services such as deposit taking, loan
origination and servicing, mortgage banking, other general banking services and equipment lease financing.
The Wealth Management segment offers trust and investment advisory services, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered
investment advisory managing private investment accounts for both individuals and institutions.
The Insurance segment includes a full-service insurance brokerage agency offering commercial property and casualty insurance, group life and health coverage, employee benefit
solutions, personal insurance lines and human resources consulting.
110
Table of Contents
The accounting policies, used in the disclosure of the operating segments, are the same as those described in Note 1, “Summary of Significant Accounting Policies."
The following tables provide reportable segment-specific information and reconciliations to consolidated financial information for the years ended December 31, 2016, 2015 and
2014.
(Dollars in thousands)
For the Year Ended December 31, 2016
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Intangible expenses
Acquisition-related and integration costs and restructuring charges
Other noninterest expense
Intersegment (revenue) expense*
Income (expense) before income taxes
Income tax expense (benefit)
Net income (loss)
Total assets
Capital expenditures
For the Year Ended December 31, 2015
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Intangible expenses
Acquisition-related and integration costs and restructuring charges
Other noninterest expense
Intersegment (revenue) expense*
Income before income taxes
Income taxes
Net income
Total assets
Capital expenditures
For the Year Ended December 31, 2014
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Intangible expenses
Acquisition-related and integration costs
Other noninterest expense
Intersegment (revenue) expense*
Income before income taxes
Income taxes
Net income
Capital expenditures
Banking
Wealth Management
Insurance
Other
Consolidated
$
$
$
$
$
$
$
$
$
$
$
126,571
12,094
114,477
4,821
21,296
1,038
16,096
84,089
(1,766)
31,495
6,510
24,985
4,137,873
9,944
$
$
$
$
101,950
$
8,065
93,885
3,802
18,934
293
1,992
76,099
(2,115)
32,748
7,693
25,055
2,797,746
5,003
$
$
$
76,157
$
3,998
72,159
3,607
15,863
19
285
65,008
(2,192)
21,295
4,043
17,252
5,607
$
$
5
—
5
—
19,318
3,132
—
12,980
788
2,423
857
1,566
35,061
29
1
—
1
—
18,874
410
—
12,276
867
5,322
2,054
3,268
33,950
19
1
—
1
—
19,918
1,138
—
11,752
965
6,064
2,269
3,795
73
$
— $
—
—
—
15,150
1,464
—
11,924
978
784
348
436
24,472
30
$
$
$
— $
—
—
—
14,396
1,864
—
10,849
1,248
435
164
271
24,436
58
$
$
$
— $
—
—
—
12,038
1,010
59
9,139
1,227
603
256
347
116
$
$
$
$
$
$
$
$
$
$
$
$
31
288
(257)
—
199
—
1,559
9,699
—
(11,316)
(3,834)
(7,482)
33,122
1,660
32
—
32
—
221
—
2,187
(455)
—
(1,479)
(153)
(1,326)
23,319
1,650
34
(2)
36
—
525
—
934
(2,090)
—
1,717
880
837
144
$
$
$
$
$
$
$
$
$
$
$
126,607
12,382
114,225
4,821
55,963
5,634
17,655
118,692
—
23,386
3,881
19,505
4,230,528
11,663
101,983
8,065
93,918
3,802
52,425
2,567
4,179
98,769
—
37,026
9,758
27,268
2,879,451
6,730
76,192
3,996
72,196
3,607
48,344
2,167
1,278
83,809
—
29,679
7,448
22,231
5,940
*Includes an allocation of general and administrative expenses from both the parent holding company and the Bank. Generally speaking, these expenses are allocated based upon
number of employees and square footage utilized.
111
Table of Contents
Note 24. Condensed Financial Information - Parent Company Only
Condensed financial statements of the Corporation, parent company only, follow:
(Dollars in thousands)
Balance Sheets
Assets:
Cash and due from banks
Investments in securities
Investments in subsidiaries, at equity in net assets:
Bank
Non-banks
Other assets
Total assets
Liabilities:
Dividends payable
Subordinated notes
Other liabilities
Total liabilities
Shareholders' equity:
Total liabilities and shareholders' equity
At December 31,
2016
2015
$
$
$
$
1,980
$
914
587,532
—
32,124
622,550
5,316
94,087
17,938
117,341
505,209
622,550
$
$
$
17,096
807
392,304
—
24,950
435,157
3,905
49,377
20,301
73,583
361,574
435,157
The Corporation’s condensed Balance Sheet at December 31, 2016 reflects the issuance of common stock valued at approximately $227 million related to the acquisition of Fox
Chase Bank on July 1, 2016 and the push down to the Bank subsidiary. The Corporation’s condensed Balance Sheet at December 31, 2015 reflects the issuance of common stock
valued at approximately $77 million related to the acquisition of Valley Green Bank on January 1, 2015 and the push down to the Bank subsidiary.
(Dollars in thousands)
Statements of Income
Dividends from Bank
Dividends from non-bank
Net gain on sales of securities
Other income
Total operating income
Operating expenses
Income before income tax (benefit) expense and equity in undistributed (loss) income of
subsidiaries
Income tax (benefit) expense
Income before equity in undistributed (loss) income of subsidiaries
Equity in undistributed (loss) income of subsidiaries:
Bank
Non-banks
Net income
For the Years Ended December 31,
2016
2015
2014
$
94,042
$
26,523
$
—
23
18,663
112,728
30,001
82,727
(3,834)
86,561
(67,056)
—
19,505
$
—
285
18,428
45,236
21,833
23,403
(728)
24,131
3,137
—
27,268
$
$
112
12,482
—
306
18,334
31,122
16,924
14,198
880
13,318
8,913
—
22,231
Table of Contents
(Dollars in thousands)
Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net loss (income) of subsidiaries
Net gain on sales of securities
Bank owned life insurance income
Depreciation of premises and equipment
Stock based compensation
Contributions to pension and other postretirement benefit plans
Decrease (increase) in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Cash flow from investing activities:
Investments in subsidiaries
Proceeds from sales of securities
Outlays for business acquisitions
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Net decrease in short-term borrowings
Proceeds from issuance of subordinated notes
Purchases of treasury stock
Stock issued under dividend reinvestment and employee stock purchase plans and other
employee benefit plans
Proceeds from exercise of stock options, including excess tax benefits
Cash dividends paid
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and due from financial institutions
Cash and due from financial institutions at beginning of year
Cash and due from financial institutions at end of year
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
Income tax, net of refunds received
For the Years Ended December 31,
2016
2015
2014
$
19,505
$
27,268
$
67,056
(23)
(182)
339
2,084
(2,261)
1,098
213
87,829
(40,000)
38
(87,683)
(1,619)
(129,264)
(253)
44,515
(8,359)
2,472
4,968
(17,024)
26,319
(15,116)
17,096
(3,137)
(285)
(5)
275
1,421
(2,271)
(4,268)
2,027
21,025
(30,000)
708
—
(1,640)
(30,932)
—
49,267
(13,342)
2,434
534
(15,010)
23,883
13,976
3,120
1,980
$
17,096
$
$
3,956
6,675
$
1,275
1,770
$
$
113
22,231
(8,913)
(306)
(238)
364
1,141
(254)
714
(639)
14,100
—
1,131
—
(281)
850
—
—
(4,605)
2,462
310
(12,996)
(14,829)
121
2,999
3,120
2
5,300
Table of Contents
Note 25. Quarterly Financial Data (Unaudited)
The unaudited results of operations for the quarters for the years ended December 31, 2016 and 2015 were as follows:
(Dollars and shares in thousands)
2016 Quarterly Financial Data:
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Per share data:
Weighed average shares outstanding - basic earnings per share
Weighed average shares outstanding - diluted earnings per share
Basic earnings per share
Diluted earnings per share
Dividends per share
2015 Quarterly Financial Data:
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Per share data:
Weighed average shares outstanding - basic earnings per share
Weighed average shares outstanding - diluted earnings per share
Basic earnings per share
Diluted earnings per share
Dividends per share
Fourth
Third
Second
First
$
38,056
$
36,705
$
26,112
$
3,884
34,172
2,250
31,922
13,994
38,430
7,486
568
3,836
32,869
1,415
31,454
14,137
47,066
(1,475)
(1,533)
6,918
$
58
$
26,300
26,436
0.27
0.27
0.20
$
$
$
26,273
26,340
— $
— $
0.20
$
2,451
23,661
830
22,831
14,001
29,546
7,286
2,046
5,240
19,434
19,469
0.27
0.27
0.20
$
$
$
$
Fourth
Third
Second
First
25,747
$
25,704
$
25,622
$
2,278
23,469
917
22,552
13,188
26,029
9,711
2,553
7,158
19,356
19,395
0.37
0.37
0.20
$
$
$
$
2,220
23,484
670
22,814
12,736
25,243
10,307
2,779
7,528
19,337
19,368
0.39
0.39
0.20
$
$
$
$
2,133
23,489
1,141
22,348
13,242
26,832
8,758
2,292
6,466
19,501
19,530
0.33
0.33
0.20
$
$
$
$
$
$
$
$
$
$
$
$
$
25,734
2,211
23,523
326
23,197
13,831
26,939
10,089
2,800
7,289
19,402
19,433
0.37
0.37
0.20
24,910
1,434
23,476
1,074
22,402
13,259
27,411
8,250
2,134
6,116
19,776
19,800
0.31
0.31
0.20
The quarterly results for 2016 and 2015 were impacted by the acquisitions of Fox Chase Bancorp on July 1, 2016 and Valley Green Bank on January 1, 2015.
114
Table of Contents
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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 controls and other procedures of an issuer that
are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and
principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this
report, an evaluation was performed under the supervision and with the participation of the Corporation’s management, including the Chief Executive Officer (Principal Executive
Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and
procedures. Based on that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of
December 31, 2016.
Management's Report on Internal Control over Financial Reporting
The management of the Univest Corporation of Pennsylvania (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 it's 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, 2016, using the criteria set forth in Internal Control -
Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this assessment, management concluded
that, as of December 31, 2016, the Corporation’s internal control over financial reporting is effective based on those criteria.
KPMG LLP, an independent registered public accounting firm, has audited the Corporation’s consolidated financial statements as of and for the year ended December 31, 2016
and the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2016, as stated in their reports, which are included herein.
The Corporation added internal controls over the acquisition of Valley Green Bank in 2015 and modified those controls in 2016 for the acquisition of Fox Chase Bancorp. There
were no changes in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f)) during the year ended December 31, 2016 that materially affected, or are
reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
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Table of Contents
The Board of Directors and Shareholders
Univest Corporation of Pennsylvania:
Report of Independent Registered Public Accounting Firm
We have audited Univest Corporation of Pennsylvania’s (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal
Control - Integrated Framework (2013) 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, 2016, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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 and
subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of
the years in the three- year period ended December 31, 2016, and our report dated March 3, 2017 expressed an unqualified opinion on those consolidated financial statements.
Philadelphia, Pennsylvania
March 3, 2017
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Table of Contents
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
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 Corporation’s definitive proxy
statement on Schedule 14A for the annual meeting of shareholders on April 18, 2017 (2017 Proxy), under the headings: “Election of Directors,” “Section 16(a) Beneficial Ownership
Reporting Compliance,” “The Board, the Board’s Committees and Their Functions,” “Audit Committee,” “Compensation Committee of the Board,” “Corporate Governance
Disclosure,” "Compensation Committee Interlocks and Insider Participation," and "Nominating and Governance Committee of the Board.”
The Corporation maintains in effect 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 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 under “Investors
Relations” in 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 197,
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 Corporation’s 2017 Proxy under the
headings: “The Board, the Board’s Committees and Their Functions,” “Executive Compensation,” “Director Compensation,” and "Compensation Committee Report."
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by Items 201(d) and 403 of Regulation S-K is incorporated herein by reference from the Corporation’s 2017 Proxy under the heading, “Beneficial
Ownership of Directors and Officers” and Item 5 of this Annual Report on Form 10-K.
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 Corporation’s 2017 Proxy under the headings, “The Board, the
Board’s Committees and Their Functions” and “Related Party Transactions.”
Item 14. Principal Accounting Fees and Services
Information required by Item 9(e) of Schedule 14A is incorporated herein by reference from the Corporation’s 2017 Proxy under the headings: “Audit Committee” and
“Independent Registered Public Accounting Firm Fees.”
PART IV
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 separate section.
(c) Financial Statements Schedules - none.
117
Table of Contents
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES
[Item 15(a) 1. & 2.]
Annual Report of Shareholders
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2016 and 2015
Consolidated Statements of Income for each of the three years in the period ended December 31, 2016
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2016
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended December 31, 2016
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2016
Notes to Consolidated Financial Statements
Page
48
49
50
51
52
53
55
Certain 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.
118
Table of Contents
UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
INDEX OF EXHIBITS
[Item 15(a) 3. & 15(b)]
Description
(2.1)
(3.1)
(3.2)
(10.1)
(10.2)
(21)
(23.1)
(31.1)
(31.2)
(32.1)*
(32.2)*
Agreement and Plan of Merger by and between Univest Corporation of Pennsylvania and Fox Chase Bancorp, Inc. dated as of December 8, 2015 is incorporated by
reference to Exhibit 2.1 of Form 8-K filed with the SEC on December 11, 2015.
Amended and Restated Articles of Incorporation are incorporated by reference to Exhibit 3.1 of Form 8-K, filed with the SEC on April 22, 2015.
Amended By-Laws effective November 23, 2016 are incorporated by reference to Exhibit 3.2 of Form 8-K, filed with the SEC on November 23, 2016.
Form of Change in Control Agreement, dated February 22, 2017, entered into between Univest Corporation of Pennsylvania and Roger S. Deacon, is incorporated by
reference to Exhibit 10.1 of Form 8-K, filed with the SEC on February 23, 2017.
Form of Change in Control Agreement, dated February 26, 2016, entered into between Univest Corporation of Pennsylvania and each of Jeffrey M. Schweitzer, Michael
S. Keim, Duane J. Brobst, Eric W. Conner, Philip C. Jackson, and Kevin B. Norris, is incorporated by reference to Exhibit 10.1 of Form 8-K, filed with the SEC on
March 2, 2016.
Subsidiaries of the Registrant.
Consent of independent registered public accounting firm, KPMG LLP.
Certification of Jeffrey M. Schweitzer, 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.
Certification of Roger S. Deacon, Senior 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.
Certification of Jeffrey M. Schweitzer, President and 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.
Certification of Roger S. Deacon, Senior Executive Vice President and 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.
Exhibit 101.INS
Exhibit 101.SCH
Exhibit 101.CAL
Exhibit 101.LAB
Exhibit 101.PRE
Exhibit 101.DEF
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
* 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.
119
Table of Contents
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.
SIGNATURES
UNIVEST CORPORATION OF PENNSYLVANIA
Registrant
By: /s/ Roger S. Deacon
Roger S. Deacon
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 3, 2017
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
/s/ WILLIAM S. AICHELE
William S. Aichele
/s/ JEFFREY M. SCHWEITZER
Jeffrey M. Schweitzer
Title
Chairman and Director
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ ROGER H. BALLOU
Roger H. Ballou
/s/ TODD S. BENNING
Todd S. Benning
/s/ DOUGLAS C. CLEMENS
Douglas C. Clemens
/s/ R. LEE DELP
R. Lee Delp
/s/ WILLIAM G. MORRAL
William G. Morral
/s/ GLENN E. MOYER
Glenn E. Moyer
/s/ K. LEON MOYER
K. Leon Moyer
/s/ THOMAS M. PETRO
Thomas M. Petro
/s/ MARK A. SCHLOSSER
Mark A. Schlosser
/s/ P. GREGORY SHELLY
P. Gregory Shelly
/s/ MICHAEL L. TURNER
Michael L. Turner
/s/ CHARLES H. ZIMMERMAN III
Charles H. Zimmerman III
/s/ MARGARET K. ZOOK
Margaret K. Zook
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Section 2: EX-21 (EXHIBIT 21)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
120
Date
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
March 3, 2017
UNIVEST CORPORATION OF PENNSYLVANIA
AND SUBSIDIARIES
EXHIBIT 21
[Item 15(c)]
Exhibit 21
Subsidiaries of the Registrant
100% Voting Securities Owned by Registrant
1) Univest Bank and Trust Co. ─ chartered in the Commonwealth of Pennsylvania ─ and its wholly-owned subsidiary as follows:
a. Delview, Inc. ─ chartered in the State of Delaware and its wholly-owned subsidiaries:
i. Univest Investments, Inc. ─ chartered in the Commonwealth of Pennsylvania
ii. Univest Insurance, Inc. ─ chartered in the Commonwealth of Pennsylvania
iii. Allied Benefits Group, LLC─ chartered in the Commonwealth of Pennsylvania
iv. Girard Partners ─ chartered in the Commonwealth of Pennsylvania
b. TCG Investment Advisory, Inc. ─ chartered in the Commonwealth of Pennsylvania
c. Univest Capital, Inc. ─ chartered in the Commonwealth of Pennsylvania
d. 104 S. Oakland Ave., LLC ─ chartered in the State of New Jersey
All the subsidiaries do business under the above names.
(Back To Top)
Section 3: EX-23.1 (EXHIBIT 23.1)
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Univest Corporation of Pennsylvania:
We consent to the incorporation by reference in the registration statement (Nos. 333-123189, 333-02513, 333- 152142, and 333-187987) on Forms S-8 and
registration statements (Nos. 333-02509 and 333-159084) on Forms S-3 of Univest Corporation of Pennsylvania and subsidiaries (the Company) of our reports dated
March 3, 2017, with respect to the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of income,
comprehensive income, changes in shareholders' equity, and cash flows, for each of the years in the three-year period ended December 31, 2016, and the effectiveness
of internal control over financial reporting as of December 31, 2016, which reports appear in the Annual Report on Form 10-K of the Company for the year ended
December 31, 2016.
Philadelphia, Pennsylvania
March 3, 2017
(Back To Top)
Section 4: EX-31.1 (EXHIBIT 31.1)
I, Jeffrey M. Schweitzer, certify that:
CERTIFICATION
1.
2.
I have reviewed this Annual Report on Form 10-K of Univest Corporation of Pennsylvania;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Exhibit 31.1
3.
4.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls
over financial reporting.
Date: March 3, 2017
/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer
(Principal Executive Officer)
(Back To Top)
Section 5: EX-31.2 (EXHIBIT 31.2)
I, Roger S. Deacon, certify that:
CERTIFICATION
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Univest Corporation of Pennsylvania;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls
over financial reporting.
Date: March 3, 2017
/s/ Roger S. Deacon
Roger S. Deacon
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
(Back To Top)
Section 6: EX-32.1 (EXHIBIT 32.1)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Univest Corporation of Pennsylvania on Form 10-K for the period ended December 31, 2016, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation.
A signed original of this written statement required by Section 906 has been provided to Univest Corporation of Pennsylvania and will be retained by Univest Corporation of
Pennsylvania and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Jeffrey M. Schweitzer
Jeffrey M. Schweitzer
President and Chief Executive Officer
(Principal Executive Officer)
March 3, 2017
(Back To Top)
Section 7: EX-32.2 (EXHIBIT 32.2)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Univest Corporation of Pennsylvania on Form 10-K for the period ended December 31, 2016, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Corporation.
A signed original of this written statement required by Section 906 has been provided to Univest Corporation of Pennsylvania and will be retained by Univest Corporation of
Pennsylvania and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Roger S. Deacon
Roger S. Deacon
Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 3, 2017
(Back To Top)
Ready for a Bright Future
Shareholder Information
2016 was a year of Univest investing in the business, seizing market
opportunities and positioning us for a bright future. With Univest’s
solid capital position, disciplined approach to managing the business
and more than 800 dedicated employees living our core values, we
continue to maintain our positive image and reputation. We remain
confident that the story, which will continue to unfold, will be one
of growth, steady performance and success, for our employees,
customers, shareholders and communities.
As we progress through 2017, we are excited to capitalize on
opportunities that are available to us as a result of market disruption,
our enhanced capabilities, expanded service area and comprehensive
financial offerings. We will remain focused on building the franchise,
the legacy of Univest and achieving our vision, all while being
guided by our mission and core values.
We are confident in our abilities and strategic direction, and
grateful for the support of you, our loyal shareholders.
Vision Statement
To be the best integrated
financial solutions provider
in the market.
Shareholders’ Meeting
The Annual Shareholders’ Meeting will take place at 10:45 a.m. on Tuesday, April 18, 2017 at Indian Valley
Country Club, located at 650 Bergey Road, Telford, PA 18969.
Univest Stock Transfer Agent
For more information on Univest Corporation of Pennsylvania common stock, please contact Broadridge
Corporate Issuer Solutions or visit the investor relations section at www.univest.net.
Regular Mail Communications:
Overnight Mail Communications:
Broadridge Corporate Issuer Solutions, Inc.
Broadridge Corporate Issuer Solutions, Inc.
PO Box 1342
Brentwood, NY 11717
Phone Number: 866-321-8021
Email Address: shareholder@broadridge.com
Website: https://investor.broadridge.com
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Univest Shareholder Information Hotline
For more information on Univest Corporation of Pennsylvania, please call 877.723.5571 or 215.721.2434.
Common Stock Information
Traded on the NASDAQ National Market, Symbol: UVSP.
Market Makers For Univest Corporation of Pennsylvania Common Stock
Boenning & Scattergood, Inc.
Goldman Sachs & Co.
Griffin Financial Group LLC
Janney Montgomery Scott LLC
Keefe Bruyette & Woods, Inc.
Morgan Stanley & Co., Inc.
UBS Securities LLC
“He gives strength to the weary and increases the power of the weak… but those
who hope in the Lord will renew their strength. They will soar on wings like eagles;
they will run and not grow weary, they will walk and not be faint.”
- Isaiah 40:29, 31
2016
ANNUAL REPORT
Our Franchise
140 YEARS OF
BUSINESS
SUCCESS
10 PA & NJ
COUNTIES
SERVED
840 EMPLOYEES
MAKING IT
HAPPEN
40+ ATMs
37 FINANCIAL
CENTERS
7 COMMERCIAL
& CORPORATE
OFFICES
3 INVESTMENT
OFFICES
5 INSURANCE
OFFICES
59,170 CONSUMER
HOUSEHOLDS 10,892 BUSINESS
CUSTOMERS
Ready for a Bright Future
Shareholder Information
2016 was a year of Univest investing in the business, seizing market
opportunities and positioning us for a bright future. With Univest’s
solid capital position, disciplined approach to managing the business
and more than 800 dedicated employees living our core values, we
continue to maintain our positive image and reputation. We remain
confident that the story, which will continue to unfold, will be one
of growth, steady performance and success, for our employees,
customers, shareholders and communities.
As we progress through 2017, we are excited to capitalize on
opportunities that are available to us as a result of market disruption,
our enhanced capabilities, expanded service area and comprehensive
financial offerings. We will remain focused on building the franchise,
the legacy of Univest and achieving our vision, all while being
guided by our mission and core values.
We are confident in our abilities and strategic direction, and
grateful for the support of you, our loyal shareholders.
Vision Statement
To be the best integrated
financial solutions provider
in the market.
Shareholders’ Meeting
The Annual Shareholders’ Meeting will take place at 10:45 a.m. on Tuesday, April 18, 2017 at Indian Valley
Country Club, located at 650 Bergey Road, Telford, PA 18969.
Univest Stock Transfer Agent
For more information on Univest Corporation of Pennsylvania common stock, please contact Broadridge
Corporate Issuer Solutions or visit the investor relations section at www.univest.net.
Regular Mail Communications:
Overnight Mail Communications:
Broadridge Corporate Issuer Solutions, Inc.
Broadridge Corporate Issuer Solutions, Inc.
PO Box 1342
Brentwood, NY 11717
Phone Number: 866-321-8021
Email Address: shareholder@broadridge.com
Website: https://investor.broadridge.com
ATTN: IWS
1155 Long Island Avenue
Edgewood, NY 11717
Univest Shareholder Information Hotline
For more information on Univest Corporation of Pennsylvania, please call 877.723.5571 or 215.721.2434.
Common Stock Information
Traded on the NASDAQ National Market, Symbol: UVSP.
Market Makers For Univest Corporation of Pennsylvania Common Stock
Boenning & Scattergood, Inc.
Goldman Sachs & Co.
Griffin Financial Group LLC
Janney Montgomery Scott LLC
Keefe Bruyette & Woods, Inc.
Morgan Stanley & Co., Inc.
UBS Securities LLC
“He gives strength to the weary and increases the power of the weak… but those
who hope in the Lord will renew their strength. They will soar on wings like eagles;
they will run and not grow weary, they will walk and not be faint.”
- Isaiah 40:29, 31
2016
ANNUAL REPORT
Our Franchise
140 YEARS OF
BUSINESS
SUCCESS
10 PA & NJ
COUNTIES
SERVED
840 EMPLOYEES
MAKING IT
HAPPEN
40+ ATMs
37 FINANCIAL
CENTERS
7 COMMERCIAL
& CORPORATE
OFFICES
3 INVESTMENT
OFFICES
5 INSURANCE
OFFICES
59,170 CONSUMER
HOUSEHOLDS 10,892 BUSINESS
CUSTOMERS