P r o g r e s s
2013 ANNUAL REPORT
JUNiATA VALLEy FiNANciAL cORP.
SignS of A Letter From The President
We reflecT on The SucceSSeS of 2013 WiTh pride And cAuTiouS opTiMiSM. While
We Are proud of The iMproveMenTS in our eArningS And ASSeT QuAliTy, We
reMAin diligenTly focuSed on STrATegic iniTiATiveS deSigned To groW The vAlue
of your frAnchiSe inTo The fuTure.
The Signs of economic
improvement are all around
us, but many observers are
unsure of the sustainability
of real growth. The sound
banking practices and prudent
fiscal management which
have historically defined The
Juniata Valley Bank are more
important today than ever
before. We enthusiastically
support real economic growth
opportunities in the markets
local economy and
reflect
management’s focused efforts
to proactively address credit
issues. Improvements in this
critical metric allow for the
redirection of
resources
to
growth initiatives.
progress
in Asset growth
Loan
balances
outstanding
stabilized in 2013, the result
of new customer acquisition
and profitable
leveraging of
we serve, but with unrelenting commitment to sound
credit underwriting practices and long term expansion
strategies with a goal of enhancing shareholder value
rather than growing only for the sake of growth.
loan participation partnerships. In keeping with our
commitment to our primary markets, The Juniata Valley
Bank assumed the lead role in a major physical expansion
for a valued local retirement community. And we “cut
the ribbon” to dedicate the newly completed Mann Edge
And The SignS of our progreSS Are exciTing...
Terrace elderly housing complex.
Progress in Profitability Measures
Our 2013 return on average assets, at 0.89%, was an
11% improvement over 2012, the result of prudent expense
management and improvements in credit quality. Our
return on average equity represented a 10% improvement
over the previous year, with capital levels comfortably in
excess of all regulatory benchmarks and positioning the
company for growth.
progress in credit Quality
progress in people
Despite our advances in technology and electronic
delivery, we still value our customers as people. Our
customers have the right to expect consultative service and
products which go beyond transactional banking. We are
investing in our human delivery system through training
and mentoring efforts in order to meet the changing needs
of our customers, both today and tomorrow. Our people
are vital members of civic clubs, service organizations,
Decreases in non-performing loans of more than
churches and schools in the markets we serve, connecting
27% from 2012 levels, signal improvement in the
with and caring for our communities.
JUVF 2013 Annual Report
look for More SignS of progreSS…
The Juniata Valley Bank continues to expand its
to point to continued weak demand, slow or little economic
electronic delivery services to meet your financial
growth, and a prolonged flat yield curve. The fact is, the experts
needs faster and closer to home. Deposit-automated
don’t agree… And that’s why our commitment to careful,
ATMs will be introduced in key
locations and Internet Banking
will be enhanced with new
account opening capabilities.
But, in addition, cognizant of
the related risks in electronic
services, we continue to invest in
fraud detection and prevention
solutions. New products and
services will be introduced to
expand customer
information
security and to insure against
identify theft.
Which WAy Are The SignS poinTing?
Some signs seem to point to economic recovery, lower
risk-managed growth is a wise
strategy. It’s not easy to juggle the
cost of regulation, the demands
for physical and
electronic
security, and
the expanding
array of customer service needs
with shareholder
return and
community commitment.
But that is what community
banks do.
Speaking for the management
and employees of The Juniata
Valley Bank, we are proud to do it.
unemployment and more robust growth. Other signs seem
our SignS Are poinTing To progreSS…
Marcie A. Barber
President and CEO
Average Assets for the Year
(In Thousands)
$424,847
$428,744
$414,048
$435,285 $439,130
$447,323
$454,057 $450,031
$393,554
$406,706
2004200520062007200820092010201120122013 success is often measured as progress toward the
achievement of your goals. At The Juniata Valley Bank,
we believe it is possible to move forward while remaining
true to the past. our long standing connection to our
customers, and commitment to our shareholders,
enables us to move forward as we enhance
service and franchise value.
This past year, our client base not only
increased in size, but transitioned to the adoption
of more electronic services and delivery options.
While maintaining personal service at 12 community offices,
The Juniata Valley Bank furthered its commitment to provide even more convenience in
mobile banking and remote deposit services. As information security and identity theft became of more and more concern
to the consumer, JVB focused on enhanced fraud detection and prevention products and procedures.
In 2013, JVB continued to augment the amount and variety of services it offers in order to compete in the continually
fluctuating community of financial services. By “stepping up our game,” JVB demonstrated to its clients that it has their
everyday financial needs at the forefront of its daily operating priorities.
“The advent of new technology and the ever-increasing quest for ways to
use it have given The Juniata Valley Bank the impetus it needed to develop
improved methods of ‘Convenience Banking.’ online banking, mobile access
to finances and a knowledgeable staff have made JVB a leader in providing
customers secure and rapid access to their finances.”
JVB’s commitment to its markets and connection to their needs was evidenced by our financial support and participation
in numerous community endeavors. By volunteering to coach our neighborhood children sports teams, sponsoring efforts
to fill the local food banks and raising funds for cancer research, JVB employees exemplified caring community bankers at
their very best.
At JVB, we continue to make progress despite an ever-changing economic landscape. The Juniata Valley Bank
approaches 2014 with expectations of growth and financial reward, through continued efforts to identify and provide what
our customers value most.
Signs of Success. 2013 Annual Report
Table of Contents
Message from the President ---------------------------------------------------------------------------------------------------Inside Front Cover
Five-Year Financial Summary – Selected Financial Data -------------------------------------------------------------------------------------2
Management’s Discussion and Analysis of Financial Condition and Results of Operations ------------------------------------------3-36
Report on Management’s Assessment of Internal Control over Financial Reporting ---------------------------------------------------- 37
Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control over Financial Reporting ------- 38
Reports of Independent Registered Public Accounting Firms on Consolidated Financial Statements ----------------------------- 39-40
Financial Statements
Consolidated Statements of Financial Condition -------------------------------------------------------------------------------------- 41
Consolidated Statements of Income ----------------------------------------------------------------------------------------------------- 42
Consoldiated Statements of Comprehensive Income --------------------------------------------------------------------------------- 43
Consolidated Statements of Stockholders’ Equity ------------------------------------------------------------------------------------- 44
Consolidated Statements of Cash Flows ------------------------------------------------------------------------------------------------ 45
Notes to Consolidated Financial Statements --------------------------------------------------------------------------------------- 46-85
Common Stock Market Prices and Dividends ------------------------------------------------------------------------------------------------- 86
Corporate Information ------------------------------------------------------------------------------------------------------------------------ 86-87
Corporate Officers, Directors and Advisory Boards ------------------------------------------------------------------------------------------ 88
Officers of the Juniata Valley Bank ------------------------------------------------------------------------------------------ Inside Back Cover
The Juniata Valley Bank, as an independent community bank, will endeavor to identify customers’ financial needs
and exceed their expectations in delivering quality products and services at a fair price to assure shareholders
an above average return and employees competitive salaries and benefits. The business of the bank will be
conducted with integrity and responsiveness to the communities served.
- 1 -
Juniata Valley Financial Corp. and Subsidiary
Five-Year Financial Summary – Selected Financial Data
(In thousands of dollars, except share and per share data)
BALANCE SHEET INFORMATION
at December 31
Assets
Deposits
Loans, net of allowance for loan losses
Investments
Goodwill
Short-term borrowings
Long-term debt
Stockholders’ equity
Number of shares outstanding
Average for the year
Assets
Stockholders’ equity
Weighted average shares outstanding
INCOME STATEMENT INFORMATION
Years Ended December 31
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Other income
Other expenses
Income before income taxes
Federal income tax expense
2013
2012
2011
2010
2009
$ 448,782
379,645
275,511
128,262
2,046
13,797
–
49,984
4,196,266
$ 448,869
386,751
274,219
124,911
2,046
5,436
–
50,297
4,218,361
$ 447,433
386,665
286,750
114,077
2,046
3,500
–
49,720
4,228,218
$ 435,753
376,790
295,278
83,356
2,046
3,314
–
49,976
4,257,765
$ 442,109
377,397
308,911
80,973
2,046
3,207
5,000
50,603
4,337,587
450,031
49,571
4,210,336
454,057
49,766
4,231,404
447,323
50,355
4,241,286
439,130
50,654
4,297,443
435,285
49,514
4,341,097
$ 16,734
2,900
$ 18,170
3,648
$ 20,033
4,591
$ 21,574
5,502
$ 23,268
7,279
13,834
415
4,233
13,146
4,506
505
14,522
1,411
4,592
13,077
4,626
978
15,442
364
3,946
12,802
6,222
1,542
16,072
741
3,855
12,641
6,545
1,630
15,989
627
4,190
12,638
6,914
1,808
Net income
$ 4,001
$ 3,648
$ 4,680
$ 4,915
$ 5,106
PER SHARE DATA
Earnings per share - basic
Earnings per share - diluted
Cash dividends
Book value
FINANCIAL RATIOS
Return on average assets
Return on average equity
Dividend payout
Average equity to average assets
Loans to deposits (year end)
$ 0.95
0.95
0.88
11.91
$ 0.86
0.86
0.88
11.92
$ 1.10
1.10
0.86
11.76
$ 1.14
1.14
0.82
11.74
$ 1.18
1.18
0.78
11.67
0.89%
8.07
92.65
11.02
72.57
0.80%
7.33
102.08
10.96
70.90
1.05%
9.29
77.95
11.26
74.16
1.12%
9.70
71.72
11.54
78.37
1.17%
10.31
66.31
11.38
81.85
- 2 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD LOOKING STATEMENTS
The information contained in this Annual Report contains forward looking statements (as such term is defined in the Securities Exchange
Act of 1934 and the regulations thereunder) including statements which are not historical facts or as to trends or management’s
intentions, plans, beliefs, expectations or opinions. Such forward looking statements are subject to risks and uncertainties and may be
affected by various factors which may cause actual results to differ materially from those in the forward looking statements including,
without limitation, the impact of adverse changes in the economy and real estate markets, including protracted periods of low-growth
and sluggish loan demand; the effect of market interest rates, particularly a continuing period of low market interest rates, and relative
balances of rate-sensitive assets to rate-sensitive liabilities, on net interest margin and net interest income; the effect of competition
on rates of deposit and loan growth and net interest margin; increases in non-performing assets, which may result in increases in the
allowance for credit losses, loan charge-offs and elevated collection and carrying costs related to such non-performing assets; other
income growth, including the impact of regulatory changes which have reduced debit card interchange revenue; investment securities
gains and losses, including other than temporary declines in the value of securities which may result in charges to earnings; the level
of other expenses, including salaries and employee benefit expenses; the increasing time and expense associated with regulatory
compliance and risk management; the uncertainty and lack of clear regulatory guidance associated with the delay in implementing
many of the regulations mandated by the Dodd Frank Act; and capital and liquidity strategies, including the expected impact of the
capital and liquidity requirements proposed by the Basel III standards. Certain of these risks, uncertainties and other factors are
discussed in this Annual Report or in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, a copy
of which may be obtained from the Company upon request and without charge (except for the exhibits thereto).
OVERVIEW
This discussion concerns Juniata Valley Financial Corp. (“Company” or “Juniata”) and its wholly owned subsidiary, The Juniata
Valley Bank (“Bank”). The overview is intended to provide a context for the following Management’s Discussion and Analysis
of Financial Condition and Results of Operations. Management’s Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this
annual report. We have attempted to identify the most important matters on which our management focuses in evaluating our financial
condition and operating performance and the short-term and long-term opportunities, challenges and risks (including material trends
and uncertainties) which we face. We also discuss the actions we are taking to address these opportunities, challenges and risks.
The Overview is not intended as a summary of, or a substitute for review of, Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Nature of Operations
Juniata is a bank holding company that delivers financial services within its market, primarily central Pennsylvania. The Company
owns one bank, the Bank, which provides retail and commercial banking services through 12 offices in Juniata, Mifflin, Perry,
Huntingdon and Centre counties. Additionally, Juniata owns 39.16% of Liverpool Community Bank (“LCB”), carried as an
unconsolidated subsidiary and accounted for under the equity method of accounting.
The Bank provides a full range of consumer and commercial services. Consumer services include Internet, mobile and telephone
banking, an automated teller machine network, personal checking accounts, interest checking accounts, savings accounts, insured
money market accounts, debit cards, certificates of deposit, club accounts, secured and unsecured installment loans, construction
and mortgage loans, safe deposit facilities, credit lines with overdraft checking protection, individual retirement accounts, health
savings accounts, on-line bill payment and other on-line and mobile services. Commercial banking services include small and high-
volume business checking accounts, on-line account management services, ACH origination, payroll direct deposit, commercial
lines and letters of credit, commercial term and demand loans and repurchase agreements. The Bank also provides a variety of trust,
asset management and estate services. The Bank offers annuities, mutual funds, stock and bond brokerage services and long-term
care insurance products through an arrangement with a broker-dealer and insurance brokers. Management believes the Company
has a relatively stable deposit base with no major seasonal depositor or group of depositors. Most of the Company’s commercial
customers are small and mid-sized businesses in central Pennsylvania.
- 3 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Economic and Industry-Wide Factors Relevant to Juniata
As a financial services organization, Juniata’s core business is most influenced by the movement of interest rates. Lending and
investing is done daily, using funding from deposits and borrowings, resulting in net interest income, the most significant portion of
operating results. Through the use of asset/liability management tools, the Company continually evaluates the effects that possible
changes in interest rates could have on operating results and balance sheet growth. Using this information, along with analysis of
competitive factors, management designs and prices its products and services.
General economic conditions are relevant to Juniata’s business. In addition, economic factors impact customers’ need for financing,
thus affecting loan growth. Additionally, changes in the economy can directly impact the credit strength of existing and potential
borrowers.
Focus of Management
The management of Juniata believes that it is important to know who and what we are in order to be successful. We must be aligned
in our efforts to achieve goals. We’ve identified the four characteristics that define the Company and the personnel that support it.
We are Committed, Capable, Caring and Connected. Management seeks to be the preeminent financial institution in its market
area and measures its success by five key elements.
Shareholder Satisfaction
Above all else, management is committed to maximizing the value of our shareholders’ investment, through both stock value
appreciation and dividend returns. Remaining connected to our communities will allow us to identify the financial needs of our
market and to deliver those products and services capably. In doing so, we will profitably grow the balance sheet and enhance core
earnings, while maintaining capital and liquidity levels well exceeding all regulatory guidelines.
Customer Relationships
We are committed to maximizing customer satisfaction. We are sensitive to the expanding array of financial services and financial
service providers available to our customers, both locally and globally. We are committed to fostering a complete customer
relationship by helping clients identify their current and future financial needs and offering practical and affordable solutions to
both. As our customers’ lifestyles change, the channels through which we deliver our services must change as well. One element of
the Company’s strategic plan is to provide connection through every means available, wherever we are needed, whether through a
stand-alone branch, in-store boutique, ATM or via on-line and mobile banking anywhere internet or cell phone signals can be received.
Balance Sheet Growth
We are capable of profitable balance sheet growth. Rapid growth should not be a substitute for careful fiscal and strategic
management. It is our goal to continue quality growth despite intense competition by paying careful attention to the needs of our
customers. We will continue to maintain high credit standards, knowing that lending under the right circumstances is the proper way
to maintain soundness and profitability. We believe we consistently pay fair market rates on all deposits, and have invested wisely
and conservatively in compliance with self-imposed standards, minimizing risk of asset impairment. We aspire to increase our market
share within the current communities that we serve, and to expand in contiguous areas through acquisition and investment. As part
of our strategic plan for growth, we continue to actively seek opportunities for acquisitions of branches or stakes in other financial
institutions, similar to those that have occurred in prior years.
- 4 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Operating Results
We are capable of producing profitability ratios that exceed those of many of our peers. Recognizing that net interest margins have
narrowed for banks in general and that they may not return to the ranges experienced in the past, we also focus on the importance
of providing fee-generating services in which customers find value. Offering a broad array of services prevents us from becoming
too reliant on one form of revenue. It has also been our philosophy to spend conservatively and to implement operating efficiencies
where possible to keep non-interest expense from escalating in areas that can be controlled. In 2013, we continued to make advances
in technological resources, placing data and information in the hands of our customers and employees, committed to optimizing
the customer experience.
Connection to the Community
We are active corporate citizens of the communities we serve. Although the world of banking has transitioned to global availability
through electronics, we believe that our community banking philosophy is still valid. Despite technological advances, banking is still
a personal business, particularly in the rural areas we serve. We believe that our customers shop for services and value a relationship
with an institution involved in the same community, with the same interests in its prosperity. We have a foundation and a history
in each of the communities we serve. Management takes an active role in local business and industry development organizations
to help attract and retain commerce in our market area. We provide businesses, large and small, with financial tools and financing
needed to grow and prosper. We have always been committed to responsible lending practices. We invest locally by including local
municipal bonds in our investment portfolio and participating in funding for such projects as low income and elderly housing. We
support charitable programs that benefit the local communities, not only with monetary contributions, but also through the personal
involvement of our caring employees.
Juniata’s Opportunities
Soundness and stability
Our financial condition is strong. We enjoy strong capital and liquidity ratios that significantly exceed regulatory guidelines. Our
business model includes a plan for growth without sacrificing profitability or integrity. We believe an opportunity exists for banks
such as ours to offer the trusted, personal service of a locally managed institution that has roots in the community reaching back
more than 140 years.
Expansion of customer base
Our strategic focus is based on leveraging our collective knowledge of the Company’s primary and contiguous markets to identify
lending or fee-based opportunities consistent with our risk parameters and profitability targets. We continue to develop our sales
team through mentoring and by making employee education paramount. We continually seek and implement back-room efficiencies.
We recognize changes taking place in a world where convenience and mobility are priorities for consumers and businesses when
choosing a financial institution with whom to do business. We offer full-featured secure mobile banking for use on home computers
and all mobile devices for consumers. For businesses, we provide options for cash management and remote deposit. In 2013, we
expanded our marketing and advertising channels to increase awareness of our Bank’s services. We launched an electronic financial
education session to the community. Through team sales efforts we reach out to present and potential customers to make them aware
of the full complement of services available to match family and business needs. In 2014, we are set to announce several exciting
new deposit products, targeted to meet the changing needs of families.
Delivery system enhancements
We seek to continually enhance our customer delivery system, both through technology and physical facilities. We actively seek
opportunities to expand our branch network through acquisitions. We believe that it is imperative that our customers have convenient
and easy access to personal financial services that complement their particular lifestyle, whether it is through electronic or personal
delivery. It is with this goal in mind that we announced our entrance into the mobile banking arena in 2011 and followed up with
an on-line mortgage application product beginning in 2012. In 2013, remote deposit capabilities were introduced to our business
clients. In 2014, our ATMs will be upgraded to state-of-the-art machines, designed to appeal to both traditional customers and those
that prefer electronic efficiencies. In addition to offering on-line and mobile services, our sales staff has also become more mobile,
reaching out to clients and potential clients through on-site visits, connecting more closely with the business and personal financial
needs of our customer base.
- 5 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Juniata’s Challenges
Economy
The direction of the economy continues to be uncertain. Unemployment levels have not yet shown signs of sustained decrease,
home values have remained depressed, earnings rates on investments remain historically low and government actions to intervene
in the markets continue to result in large increases in the national debt. All these factors are affecting the behavior of consumers
and businesses and the way in which money is spent, saved, borrowed and invested. The aforementioned factors have combined to
create an uncertain and challenging economic environment, especially for financial institutions.
Competition
Each year, competition becomes more intense and global in nature. To meet this challenge, we attempt to stay in close contact with
our customers, monitoring their satisfaction with our services through surveys, personal visits and networking in the communities
we serve. We strive to meet or exceed our customers’ expectations and deliver consistent high-quality service. We believe that our
customers have become acutely aware of the value of local service, and we strive to maintain their confidence.
Rate environment
We intend to continue making what we believe to be rational pricing decisions for loans, deposits and non-deposit products. This
strategy can be difficult to maintain, as many of our peers appear to continue pricing for growth, rather than long-term profitability
and stability. We believe that a strategy of “growth for the sake of growth” results in lower profitability, and such actions by large
groups of banks have had an adverse impact on the entire financial services industry. We intend to maintain our core pricing principles,
which we believe protect and preserve our future as a sound community financial services provider, proven by results.
Regulated Company
The Company is subject to banking regulation, as well as regulation by the Securities and Exchange Commission (“SEC”) and, as
such, must comply with many laws, including the USA Patriot Act, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the
Dodd-Frank Wall Street Reform and Consumer Protection Act. Management has established a Disclosure Committee for Financial
Reporting, an internal group at Juniata that seeks to ensure that current and potential investors in the Company receive full and
complete information concerning our financial condition. Juniata has incurred direct and indirect costs associated with compliance
with the SEC’s filing and reporting requirements imposed on public companies by the Sarbanes-Oxley Act, as well as adherence
to new and existing banking regulations and stronger corporate governance requirements. Regulatory burdens continue to increase
as evidenced by the provisions in the Dodd-Frank Act that impact the Company in the areas of corporate governance, capital
requirements and restrictions on fees that may be charged to consumers.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared based upon the application of accounting principles generally accepted
in the United States of America (“GAAP”), the most significant of which are described in Note 2 to our consolidated financial
statements – Summary of Significant Accounting Policies. Certain of these policies, particularly with respect to allowance for loan
losses, the investment portfolio and deferred tax assets and liabilities require numerous estimates and economic assumptions, based
upon information available as of the date of the consolidated financial statements. As such, over time, they may prove inaccurate or
vary and may significantly affect the Company’s reported results and financial position in future periods.
The accounting policy for establishing the allowance for loan losses relies to a greater extent on the use of estimates than other
areas and, as such, has a greater possibility of producing results that could be different from those currently reported. Changes
in underlying factors, assumptions or estimates in the allowance for loan losses could have a material impact on the Company’s
future financial condition and results of operations. The section of this Annual Report to Shareholders entitled “Allowance for
Loan Losses” provides management’s analysis of the Company’s allowance for loan losses and related provision expense. The
allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses in the loan portfolio.
Management’s determination of the adequacy of the allowance for loan losses is based upon an evaluation of individual credits
in the loan portfolio, historical loan loss experience, current economic conditions and other relevant factors. This determination
is inherently subjective, as it requires material estimates, including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant change.
In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for
loan losses and may require the Company to recognize additions to the allowance for loan losses based on their judgments about
information available to them at the time of their examination, which may not be currently available to management.
- 6 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Considerations used by management to determine other-than-temporary impairment status of individual holdings within the
investment securities portfolio are based partially upon estimations of fair value and potential for recovery. As market conditions
and perception can unpredictably affect the value of individual investments in the future, these determinations could have a material
impact on the Company’s future financial condition and results of operations.
The Company recognizes deferred tax assets and liabilities for the future effects of temporary differences 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 consolidated statements 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 Company’s ability to benefit from the
asset in the future.
RESULTS OF OPERATIONS
2013
Financial Performance Overview
Net income for Juniata in 2013 was $4,001,000, representing a 9.7% increase as compared to net income for 2012. Earnings per share
on a fully diluted basis increased by 10.5%, from $0.86 in 2012 to $0.95 in 2013. The net interest margin, on a fully tax-equivalent
basis, decreased from 3.68% in 2012 to 3.53%, in 2013. The ratio of non-interest income (excluding gains on sales of securities) to
average assets decreased by 7 basis points, while the ratio of non-interest expense to average assets increased by 4 basis points to
2.92%. Five-year historical ratios are presented below.
Return on average assets
Return on average equity
Yield on earning assets
Cost to fund earning assets
Net interest margin (fully tax equivalent)
Non-interest income (excluding gains on
sales or calls of securities and securities
impairment charges) to average assets
Non-interest expense to average assets
Net non-interest expense to average assets
2013
2012
2011
2010
2009
0.89%
8.07
4.09
0.71
3.53
0.80%
7.33
4.39
0.88
3.68
1.05%
9.29
4.91
1.13
3.97
1.12%
9.70
5.42
1.38
4.24
1.17%
10.31
5.88
1.84
4.23
0.94
2.92
1.98
1.01
2.88
1.87
0.88
2.86
1.98
0.88
2.98
2.10
1.01
2.90
1.89
As demonstrated above, there were improvements in both Return on Average Asset and Return on Average Equity ratios in 2013 as
compared to 2012, in spite of a continuing narrowing net interest margin. Much of the increase in 2013 can be attributed to a lower
provision for loan losses. In 2012, an unusually high provision was recorded to address declines in fair value of collateral held
for certain land development loans. The sustained low rate environment has resulted in generally lower margins for most banking
organizations. Therefore, it is important to understand the degree of change in the net interest margin and how it compares to similar
companies in our competitive market. We follow the performances of a group of six local competitors as a peer group to compare
total stock return and the analysis below compares our net interest margin to the peer group’s financial performance for the year
ended December 31, 2013. As noted below, Juniata’s net interest margin significantly exceeded the averages of the peer group, that
includes F.N.B. Corporation, First Community Financial Corporation, Kish Bancorp, Inc., Mid Penn Bancorp, Inc., Mifflinburg
Bank and Trust Co., Northumberland Bancorp, and Orrstown Financial Services, Inc.
For the year ended December 31, 2013
Net Interest Margin
Juniata Valley Financial Corp.
Peer Group Average
3.53%
3.36%
- 7 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Juniata strives to attain consistently high earnings levels each year by protecting the core (repeatable) earnings base through
conservative growth strategies that minimize stockholder and balance-sheet risk, while serving its rural Pennsylvania customer
base. This approach has helped achieve solid performances year after year. The Company considers the return on assets (“ROA”)
ratio to be a key indicator of its success and constantly scrutinizes the broad categories of the income statement that impact this
profitability indicator. Summarized below are the components of net income (in thousands of dollars) and the contribution of each
to ROA for 2013 and 2012.
2013
2012
Net interest income
Provision for loan losses
Customer service fees
Debit card fee income
BOLI
Trust fees
Commissions from sales of
non-deposit products
Income from unconsolidated
subsidiary
Security gains
Gains on sale of other assets
Other noninterest income
Total noninterest income
Employee expense
Occupancy and equipment
Data processing expense
Director compensation
Professional fees
Taxes, other than income
FDIC insurance premiums
Gain (Loss) on sales of other real estate owned
Intangible amortization
Amortization of investment in partnership
Other noninterest expense
Total noninterest expense
Income tax expense
Net income
Average assets
% of Average
Assets
3.07%
(0.09)
$ 13,834
(415)
% of Average
Assets
$ 14,522
(1,411)
3.20%
(0.31)
1,290
822
416
355
375
237
(2)
338
402
4,233
(7,028)
(1,433)
(1,450)
(223)
(388)
(483)
(331)
39
(45)
(448)
(1,356)
(13,146)
(505)
$ 4,001
$450,031
0.29
0.18
0.09
0.08
0.08
0.05
(0.00)
0.08
0.09
0.94
(1.56)
(0.32)
(0.32)
(0.05)
(0.09)
(0.11)
(0.07)
0.01
(0.01)
(0.10)
(0.30)
(2.92)
(0.11)
0.89%
1,282
809
450
379
353
249
2
567
501
4,592
(7,286)
(1,439)
(1,440)
(234)
(362)
(438)
(327)
(34)
(45)
–
(1,472)
(13,077)
(978)
$ 3,648
$454,057
0.28
0.18
0.10
0.08
0.08
0.05
0.00
0.12
0.11
1.01
(1.60)
(0.32)
(0.32)
(0.05)
(0.08)
(0.10)
(0.07)
(0.01)
(0.01)
0.00
(0.32)
(2.88)
(0.22)
0.80%
Net Interest Income
Net interest income is the amount by which interest income on earning assets exceeds interest expense on interest bearing liabilities.
Net interest income is the most significant component of revenue, comprising approximately 77% of total revenues (the total of
net interest income and non-interest income, exclusive of security gains) for 2013. Interest spread measures the absolute difference
between average rates earned and average rates paid. Because some interest earning assets are tax-exempt, an adjustment is made for
analytical purposes to place all assets on a fully tax-equivalent basis. Net interest margin is the percentage of net return on average
earning assets on a fully tax-equivalent basis and provides a measure of comparability of a financial institution’s performance.
Both net interest income and net interest margin are impacted by interest rate changes, changes in the relationships between various
rates and changes in the composition of the average balance sheet. Additionally, product pricing, product mix and customer preferences
dictate the composition of the balance sheet and the resulting net interest income. Table 1 shows average asset and liability balances,
average interest rates and interest income and expense for the years 2013, 2012 and 2011. Table 2 further shows changes attributable
to the volume and rate components of net interest income.
- 8 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 1
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(Dollars in thousands)
ASSETS
Interest earning assets:
Loans:
Taxable (5)
Tax-exempt
Total loans (8)
Investment securities:
Taxable
Tax-exempt
Total investment securities
Interest bearing deposits
Federal funds sold
Total interest earning assets
Non-interest earning assets:
Cash and due from banks
Allowance for loan losses
Premises and equipment
Other assets (7)
Total assets
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Demand deposits (2)
Savings deposits
Time deposits
Other, including short-term
borrowings, and other
interest bearing liabilities
Total interest bearing liabilities
Non-interest bearing liabilities:
Demand deposits
Other
Stockholders’ equity
Total liabilities
and stockholders’ equity
Net interest income
Net margin on interest
earning assets (3)
Net interest income and margin -
Tax equivalent basis (4)
Years Ended December 31,
2013
2012
2011
Average
Balance
(1)
Interest
Yield/
Rate
Average
Balance
(1)
Interest
Yield/
Rate
Average
Balance
(1)
Interest
Yield/
Rate
$258,116
18,621
276,737
$14,310
558
14,868
5.54% $263,174
19,108
3.00
282,282
5.37
$15,439
653
16,092
5.87% $279,501
3.42
13,818
293,319
5.70
$17,332
525
17,857
6.20%
3.80
6.09
91,972
37,210
129,182
2,834
–
408,753
1,267
583
1,850
16
–
16,734
1.38
1.57
1.43
0.56
0.00
4.09
88,482
36,429
124,911
6,707
75
413,975
1,311
738
2,049
29
0
18,170
1.48
2.03
1.64
0.43
0.13
4.39
70,658
33,724
104,382
3,681
6,590
407,972
1,240
901
2,141
30
5
20,033
1.76
2.67
2.05
0.81
0.08
4.91
8,557
(2,679)
6,305
29,095
$450,031
8,813
(3,533)
6,555
28,247
$454,057
9,514
(2,854)
6,892
25,799
$447,323
$ 94,338
59,926
161,677
160
69
2,642
0.17
0.12
1.63
$ 96,599
56,263
174,844
209
135
3,277
0.22
0.24
1.87
$ 91,897
49,894
185,005
396
202
3,962
0.43
0.40
2.14
8,848
324,789
29
2,900
0.33
0.89
5,330
333,036
27
3,648
0.51
1.10
4,495
331,291
31
4,591
0.69
1.39
71,006
4,665
49,571
$450,031
65,224
6,031
49,766
$454,057
60,986
4,691
50,355
$447,323
$13,834
$14,522
$15,442
3.38%
3.51%
3.79%
$14,422
3.53%
$15,239
3.68%
$16,177
3.97%
Notes:
(1)
(2)
(3)
(4)
Average balances were calculated using a daily average.
Includes Super Now and money market accounts.
Net margin on interest earning assets is net interest income divided by average interest earning assets.
Interest on obligations of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on
a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 34%.
- 9 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 2
RATE - VOLUME ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
ASSETS
Interest earning assets:
Loans:
Taxable (5)
Tax-exempt
Total loans (8)
Investment securities:
Taxable
Tax-exempt
Total investment securities
Interest bearing deposits
Federal funds sold
Total interest earning assets
2013 Compared to 2012
Increase (Decrease) Due To (6)
2012 Compared to 2011
Increase (Decrease) Due To (6)
Volume
Rate
Total
Volume
Rate
Total
$(293)
(16)
(309)
$ (836)
(79)
(915)
$(1,129)
(95)
(1,224)
$(984)
185
(799)
$ (909)
(57)
(966)
$(1,893)
128
(1,765)
50
16
66
(20)
–
(263)
(94)
(171)
(265)
7
–
(1,173)
(44)
(155)
(199)
(13)
–
(1,436)
283
68
351
17
(7)
(438)
(212)
(231)
(443)
(18)
2
(1,425)
71
(163)
(92)
(1)
(5)
(1,863)
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Demand deposits (2)
Savings deposits
Time deposits
Other, including short-term
borrowings, and other
interest bearing liabilities
Total interest bearing liabilities
(5)
8
(235)
14
(218)
(44)
(74)
(400)
(49)
(66)
(635)
(12)
(530)
2
(748)
19
23
(209)
5
(162)
(206)
(90)
(476)
(9)
(781)
(187)
(67)
(685)
(4)
(943)
Net interest income
$ (45)
$ (643)
$ (688)
$(276)
$ (644)
$ (920)
(5)
(6)
(7)
(8)
Non-accruing loans are included in the above table until they are charged off.
The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
Includes net unrealized gains on securities available for sale: $86 in 2013, $1,389 in 2012, $930 in 2011.
Interest income includes loan fees of $185, $167 and $218, in 2013, 2012 and 2011, respectively.
- 10 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
On average, total loans outstanding in 2013 decreased from 2012 by 2.0%, to $276,737,000. Average yields on loans decreased by
33 basis points in 2013 when compared to 2012. As shown in the preceding Rate – Volume Analysis of Net Interest Income Table
2, the decrease in yield reduced interest income on loans by approximately $915,000, and the decrease in volume further reduced
interest income by $309,000, resulting in an aggregate decrease in interest recorded on loans of $1,224,000. While the prime rate has
remained unchanged at 3.25% since December of 2008, most adjustable rate mortgages scheduled to reprice during 2013 that had not
already reached a floor, did so at rates below their previous rates, effectively decreasing the overall yield to the Bank. Additionally,
in 2013, with fixed rates offered through the secondary market, it was favorable for some customers with adjustable rate loans to
refinance through that program, decreasing both volume and yield in the loan portfolio. Likewise, new and refinanced portfolio loans
were priced at lower rates during 2013, also contributing to the decrease in overall yield.
During 2013, 33% of the investment portfolio, or $38,973,000, matured or was prepaid. All proceeds from these events and other funds
available through loan repayments, totaling $45,446,000, were reinvested in the investment portfolio in the lower rate environment,
resulting in the decrease in overall yield of the investment securities by 21 basis points. Yields on the investment securities portfolio
decreased to 1.43% in 2013, as compared to 1.64% in 2012. Yield declines decreased net interest income by $265,000 when compared
to 2012. Average balances of investment securities increased by $4,271,000, and this volume increase accounted for a $66,000
increase in interest income as compared to 2012.
In total, yield on earning assets in 2013 was 4.09% as compared to 4.39% in 2012, a decrease of 30 basis points. On a fully tax
equivalent basis, yield on earning assets decreased from 4.56% in 2012 to 4.24% in 2013.
Average interest bearing liabilities decreased by $8,247,000 in 2013, as compared to 2012. Within the categories of interest bearing
liabilities, deposits decreased on average by $11,765,000, and borrowings increased by $3,518,000 on average. During 2013, the
most significant change in interest bearing deposits was in time deposit balances, which decreased on average by $13,167,000,
while interest-bearing demand and savings accounts increased on average by $1,402,000. This shift continues a trend that has been
occurring for several years. Management believes this trend reflects the consumers’ response to historical low interest rates. In 2013,
time deposits accounted for 51.1% of total interest-bearing deposits. One and two years prior, time deposits represented 53.4%
and 63.5%, respectively, of all interest-bearing deposits. Changes in total interest-bearing liabilities reduced interest expense by
$218,000 in 2013 as compared to 2012, while decreases in interest rates further reduced interest expense by $530,000. Non-interest
bearing liabilities used to fund earning assets included demand deposits, which increased $5,782,000 on average. The percentage
of interest earning assets funded by non-interest bearing liabilities was approximately 20.5% in 2013 versus 19.6% in 2012. The
total cost to fund earning assets (computed by dividing the total interest expense by the total average earning assets) in 2013 was
0.71%, as compared to 0.88% in 2012.
Net interest income was $13,834,000 for 2013, a decrease of $688,000 when compared to 2012, with $643,000 due to net rate
decreases and $45,000 attributed to net volume decreases.
Provision for Loan Losses
Juniata’s provision for loan losses is determined as a result of an analysis of the adequacy level of the allowance for loan losses. In
order to closely reflect the potential losses within the current loan portfolio based upon current information known, the Company
carries no unallocated allowance. An analysis was performed following the process described in “Application of Critical Accounting
Policies” earlier in this discussion, and it was determined that a provision of $415,000 was appropriate for 2013, a decrease of $996,000
when compared to 2012 when the total loan loss provision was $1,411,000. The higher provision in 2012 was primarily the result of
analysis of the values of collateral securing certain impaired loans. Discussion included in the Loans and Allowance for Loan Losses
in the section below titled “Financial Condition” explains the information and analysis used to arrive at the significant increase in
the provision in 2012. In 2013, net charge-offs exceeded the provision by $994,000, due primarily to specific loss confirming events
related to one loan in which a $1,026,000 charge-off was taken in 2013, which had a specific reserve established in 2012.
- 11 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-interest Income
The Company remains committed to providing comprehensive services and products to meet the current and future financial needs of
our customers. We believe that our responsiveness to customers’ needs surpasses that of our competitors, and we measure our success
by the customer acceptance of fee-based services. We continually explore avenues to enhance product offerings in areas beneficial to
customers. We offer a variety of options for financing to home-buyers that includes a secondary market lending program, providing
significant fee income. We continue to add new features and services for our electronic banking clientele. We provide alternative
investment opportunities through an arrangement with a broker dealer and integrate the delivery of non–traditional products with
our Trust and Wealth Management Division. This arrangement enables us to meet the investment needs of a varied customer base
and to better identify our clients’ needs for traditional trust services.
Fee-generated non-interest revenues consist of customer service fees derived from deposit accounts, trust relationships and sales of
non-deposit products. In 2013, revenues from these services totaled $2,020,000, representing a slight increase of $6,000, or 0.3%,
from 2012 revenues. Customer service fees derived from deposit accounts were $8,000 higher in 2013 than in 2012. The slight
increase was attributed to overdraft and non-sufficient fund charges to customers. Total fees for trust services decreased by $24,000,
or 6.3%, as fees from estate settlements decreased by $9,000 in 2013 as compared to 2012, and non-estate fees decreased by $15,000.
Variance in fees from estate settlements occurs because estate settlements occur sporadically and are not necessarily consistent year
to year. Non-estate fees are repeatable revenues that generally increase and decrease in relation to movements in interest rates as
market values of trust assets under management increase or decrease and as new relationships are established. Commissions from
sales of non-deposit products increased in 2013, resulting in a $22,000 increase in related fee income.
Fees and income derived from the origination, sale and servicing of residential mortgage loans was $338,000 in 2013, a decrease
of $229,000, or 40.4%, compared to 2012, when refinancing activities were more active. Other non-interest-related fees derived
from loan activity decreased by $32,000 when comparing 2013 to 2012. A gain of $53,000 was recorded in 2012 as a result of a life
insurance claim. No such activity occurred in 2013.
The Company owns 39.16% of the stock of Liverpool Community Bank, (“LCB”) and accounts for its ownership through the equity
method. As such, 39.16% of the income of LCB is recorded by Juniata as non-interest income. As a result of this investment, $237,000
was recorded as income in 2013, compared to $249,000 in 2012. Earnings on bank-owned life insurance and annuities decreased in
2013 by $34,000, or 7.6%, when compared to the previous year, as crediting rates were reduced.
As a percentage of average assets, non-interest income (excluding securities gains and losses) was 0.94% in 2013 as compared to
1.01% in 2012.
Non-interest Expense
Management strives to control non-interest expense where possible in order to achieve maximum operating results.
In 2013, total non-interest expense increased by $69,000, or 0.5%, when compared to 2012. The overall change in non-interest
expense was attributable to the first year’s amortization of the Company’s investment in a low income housing project in 2013,
offset by decreases in the cost for employee benefits expenses and costs associated with loan foreclosures (included in other non-
interest expense). In 2013, amortization of the low income housing investment was $448,000, with no such expense recorded in
2012. Amortization is scheduled to continue through 2023 at similar amounts.
On December 31, 2012, the Company froze its defined benefit plan to future service accruals while at the same time significantly
enhancing the defined contribution plan employer match for its employees. The result was a reduction in expense of $257,000, or
43.5%, in 2013 compared to 2012. Additionally, the cost of medical insurance for employees declined by $203,000, or 23.6%, in the
Company’s self-funded plan. Small variances in occupancy, equipment, data processing, director compensation, professional fees
and FDIC insurance resulted in a net increase of $23,000 for 2013 in comparison to 2012. Sales of properties carried as other real
estate owned generated net gains of $39,000 for 2013, as compared to a net loss of $34,000 during 2012. This increase was offset
somewhat by a decrease in costs associated with assets in foreclosure of $50,000, included in other non-interest expense.
As a percentage of average assets, non-interest expense was 2.92% in 2013 as compared to 2.88% in 2012. The low-income housing
investment amortization increased this key ratio by 10 basis points. Excluding the new amortization, annualized non-interest expense
would have been 2.82% of average assets, representing an improvement of 6 basis points.
- 12 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Income Taxes
Income tax expense for 2013 amounted to $505,000, which included the effect of a tax credit in the amount of $556,000, versus
$978,000 of income tax expense with no such credit in 2012. The tax credit is available to the Company as a result of an equity
investment in a low income housing project. The effective tax rate in 2013 was 11.2% versus 21.1% in 2012. The reduction in the
effective rate is attributed to the tax credit earned in 2013. See Note 15 of Notes to Consolidated Financial Statements for further
information on income taxes.
Net Income
For comparative purposes, the following table sets forth earnings, in thousands of dollars, and selected earnings ratios for the past
three years.
Net income
Return on average assets
Return on average equity
2013
$4,001
0.89%
8.07%
2012
$3,648
0.80%
7.33%
2011
$4,680
1.05%
9.29%
Outlook for 2014
Since December of 2008, the national prime rate has remained at 3.25% and the federal funds rate has remained at a historically low
level. This period is the longest period of unchanged rates in recent history. Still, we expect, and are prepared for, the interest rate
environment to remain relatively unchanged again throughout 2014. However, because experience also tells us that rate movement
can occur quickly and significantly, we are managing our interest sensitive assets and liabilities with an understanding of the rate risk
involved with rapidly rising rates. We enter 2014 with non-performing loans at the lowest level since 2010 and expect to see further
reductions by year-end as issues are resolved. Our net interest margin remains a primary component of profitability; however, we
have sought and continue to seek to focus on fee services, including an attempt to regain income lost to consumer regulation that
lessens our ability to charge for consumer overdrafts, in order to augment revenues. We will maintain the conservative lending and
investing philosophies and responsible deposit pricing that have resulted in our healthy net interest margin and solid balance sheet.
Also necessary to our success is the satisfaction level of our customers, clients and employees. In recent years, we have introduced
new avenues of service delivery through technology, such as an on-line mortgage application portal, a mobile banking application for
the IPad and other electronic tablets to complement our smart phone apps, internal and external transfers of funds features through
on-line banking and merchant remote deposit, to name a few. Further advancement in 2013 continued as we realigned our human
resources to achieve more efficient and competent delivery. In 2014, we will be replacing our ATM network with new state-of-the
art machines, designed with high-level functionality.
Increasing our customer base and connection with those customers is a priority. In 2013, we embarked upon a new and effective
advertising campaign that showcased the Company’s new brand. We followed up with several successful direct-mail marketing
efforts, setting the stage for expanded marketing plans for 2014. We believe that it is imperative that our customers have convenient
and easy access to personal financial services that complement their changing lifestyles, whether through electronic or personal
delivery. Convenience and mobility have become priorities for a large segment of the population in deciding with whom one will
do business, and thus we have made it our priority to provide such convenience.
In recent years, attempts to defraud consumers have continued to grow. For several years we have had mechanisms in place to
detect and thwart fraud attempts against our customers before monetary loss. We believe our customers value the service. We are
planning an announcement for a new service in 2014 that will go beyond fraud detection on singular deposit accounts and provide
full ID protection for families. This service will accompany a complete new line-up of accounts, designed to support the lifestyles
and needs of our clientele.
Additionally, in 2014, our business development plan continues to expand and reward more horizontal integration, extending the
opportunities for cross selling across departmental lines. We strive to be the financial services provider of choice to those within
our market area.
Management is aware of the challenges facing us in the coming year. We are positioned to reward our stockholders with a good return
on their investment in our Company while maintaining strong capital and liquidity levels, and we intend to remain in that position.
The confidence of our stockholders and the trust of our community are vital to our ongoing success.
- 13 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2012
Financial Performance Overview
Net income for Juniata in 2012 was $3,648,000, representing a 22.1% decrease as compared to net income for 2011. Earnings per
share on a fully diluted basis decreased from $1.10 in 2011 to $0.86 in 2012. The net interest margin, on a fully tax-equivalent
basis, decreased from 3.97% in 2011 to 3.68%, in 2012. The ratio of noninterest income (excluding gains on sales of securities
and securities impairment charges) to average assets increased by 13 basis points, while the ratio of noninterest expense to average
assets increased by 2 basis points to 2.88%.
Summarized below are the components of net income (in thousands of dollars) and the contribution of each to ROA for 2012 and
2011.
Net interest income
Provision for loan losses
Customer service fees
BOLI
Trust fees
Commissions from sales of
non-deposit products
Income from unconsolidated
subsidiary
Other noninterest income
Security gains and
impairment charges, net
Gains on sale of other assets
Total noninterest income
Employee expense
Occupancy and equipment
Data processing expense
Director compensation
Professional fees
Taxes, other than income
FDIC insurance premiums
Gain (Loss) on sales of other real estate owned
Intangible amortization
Other noninterest expense
Total noninterest expense
Income tax expense
Net income
Average assets
2012
% of Average
Assets
2011
% of Average
Assets
$ 14,522
(1,411)
3.20%
(0.31)
$ 15,442
(364)
3.45%
(0.08)
0.28
0.10
0.08
0.08
0.05
0.29
0.00
0.12
1.01
(1.60)
(0.32)
(0.32)
(0.05)
(0.08)
(0.10)
(0.07)
(0.01)
(0.01)
(0.32)
(2.88)
(0.22)
0.80%
1,346
478
388
273
263
1,192
6
–
3,946
(6,944)
(1,526)
(1,326)
(284)
(462)
(496)
(369)
56
(45)
(1,406)
(12,802)
(1,542)
$ 4,680
$447,323
0.30
0.11
0.09
0.06
0.06
0.27
0.00
0.00
0.88
(1.55)
(0.34)
(0.30)
(0.06)
(0.10)
(0.11)
(0.08)
0.01
(0.01)
(0.31)
(2.86)
(0.34)
1.05%
1,282
450
379
353
249
1,310
2
567
4,592
(7,286)
(1,439)
(1,440)
(234)
(362)
(438)
(327)
(34)
(45)
(1,472)
(13,077)
(978)
$ 3,648
$454,057
- 14 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net Interest Income
On average, total loans outstanding in 2012 decreased from 2011 by 3.8%, to $282,282,000. Average yields on loans decreased by
39 basis points in 2012 when compared to 2011. As shown in the preceding Rate – Volume Analysis of Net Interest Income Table
2, the decrease in yield reduced interest income by approximately $966,000, and the decrease in volume further reduced interest
income by $799,000, resulting in an aggregate decrease in interest recorded on loans of $1,765,000. While the prime rate has
remained unchanged at 3.25% since December of 2008, adjustable rate mortgages scheduled to reprice during 2012 that had not
already reached a floor, did so at rates below their previous rates, effectively decreasing the overall yield to the Bank. Additionally,
in 2012, with fixed rates offered through the secondary market, it became favorable for some customers with adjustable rate loans
to refinance through that program, decreasing both volume and yield in the loan portfolio. Likewise, new and refinanced loans
remaining in the portfolio at lower rates during 2012 also contributed to the decrease in overall yield.
During 2012, 68% of the investment portfolio, or $75,816,000, matured or was prepaid. All proceeds from these events and other funds
available through deposit growth, totaling $87,319,000, were reinvested in the investment portfolio in the lower rate environment,
explaining the decrease in overall yield of the investment securities by 41 basis points. Yields on the investment securities portfolio
decreased to 1.64% in 2012, as compared to 2.05% in 2011. Yield declines decreased net interest income by $443,000 when compared
to 2011. Average balances of investment securities increased by $20,529,000, and this volume increase accounted for a $351,000
increase in interest income as compared to 2011.
In total, yield on earning assets in 2012 was 4.39% as compared to 4.91% in 2011, a decrease of 52 basis points. On a fully tax
equivalent basis, yield on earning assets decreased from 5.09% in 2011 to 4.56% in 2012.
Average interest bearing liabilities increased by $1,745,000 in 2012, as compared to 2011. Within the categories of interest bearing
liabilities, deposits increased on average by $910,000, and borrowings increased by $835,000 on average. While interest-bearing
deposits increased only slightly in total, there was a shift in types of interest-bearing deposits. During 2012, time deposit balances
decreased on average by $10,161,000, while interest-bearing demand and savings accounts increased on average by $11,071,000.
This trend had been occurring over the previous several years. Management believes this was the consumers’ response to historical
low interest rates. In 2012, time deposits accounted for 53.3% of total interest-bearing deposits. Two years prior, time deposits
represented 61.6% of all interest-bearing deposits. Changes in total interest-bearing liabilities reduced interest expense by $162,000
in 2012 as compared to 2011, while decreases in interest rates further reduced interest expense by $782,000. Non-interest bearing
liabilities used to fund earning assets included demand deposits, which increased $4,238,000 on average. The percentage of interest
earning assets funded by non-interest bearing liabilities was approximately 19.6% in 2012 versus 18.8% in 2011. The total cost to
fund earning assets in 2012 was 0.88%, as compared to 1.13% in 2011.
Net interest income was $14,522,000 for 2012, a decrease of $920,000 when compared to 2011, with $644,000 due to rate differences
and $276,000 attributed to volume changes.
Provision for Loan Losses
Management performed an analysis of the loan portfolio following the process described in “Application of Critical Accounting
Policies” earlier in this discussion, and management determined that a provision of $1,411,000 was appropriate for 2012, an increase of
$1,047,000 when compared to 2011 when the total loan loss provision was $364,000. The increased provision was primarily the result
of analysis of the values of collateral securing certain impaired loans. In 2012, the provision exceeded net charge-offs by $350,000.
- 15 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Non-interest Income
In 2012, revenues from fee-generated services (customer service fees derived from deposit accounts, trust relationships and sales
of non-deposit products) totaled $2,014,000, representing a slight increase of $7,000, or 0.3%, from 2011 revenues. Customer
service fees derived from deposit accounts were $64,000 less in 2012 than in 2011. The decrease was a result of a reduction in
overdraft and non-sufficient fund charges to customers. Total fees for trust services decreased by $9,000, or 2.3%, as fees from estate
settlements increased by $2,000 in 2012 as compared to 2011, and non-estate fees decreased by $11,000. Variance in fees from estate
settlements occurs because estate settlements occur sporadically and are not necessarily consistent year to year. Non-estate fees are
repeatable revenues that generally increase and decrease in relation to movements in interest rates as market values of trust assets
under management increase or decrease and as new relationships are established. Commissions from sales of non-deposit products
increased in 2012, resulting in an $80,000 increase in related fee income.
As a result of the Company’s investment in LCB, $249,000 was recorded as income in 2012, compared to $263,000 in 2011.
Earnings on bank-owned life insurance and annuities decreased in 2012 by $28,000, or 5.9%, when compared to the previous year,
as crediting rates are reduced.
As a percentage of average assets, non-interest income (excluding securities gains and impairment charges) was 1.01% in 2012 as
compared to 0.88% in 2011.
Non-interest Expense
In 2012, total non-interest expense increased by $275,000, or 2.1%, when compared to 2011. Total employee compensation and
benefits increased by $342,000, or 4.9% in 2012 over 2011. While total salary expense in 2012 was decreased by $68,000 when
compared to salary expense in 2011, the cost to provide medical insurance to employees increased by approximately $194,000, and
defined benefit expense increased by $244,000. FDIC insurance premiums for the Bank were reduced in 2012 by $42,000 as compared
to 2011 as the full year benefit of the revised FDIC insurance premium formula was realized during 2012. The calculation changed
mid-year in 2011 and the premiums for banks are became based upon total assets and risk-based capital levels so that banks such
as Juniata Valley Bank with lower levels of risk in the balance sheet are charged at a lower rate. Director compensation costs were
$50,000, or 17.7%, lower in 2012 as compared to 2011, as a result of retirements of board and advisory board members. Professional
fees decreased by $100,000 in 2012 as compared to 2011 due to the decreased use of various consultants and attorneys during 2012.
Other non-interest expense categories that increased in 2012 included losses realized on the sales of foreclosed properties, which
added $90,000 to expense, but was partially offset by a reduction in delinquent and foreclosed loan costs, included in other non-
interest expense, of $27,000 when compared to 2011.
As a percentage of average assets, non-interest expense was 2.88% in 2012 as compared to 2.86% in 2011.
Income Taxes
Income tax expense for 2012 amounted to $978,000 compared to $1,542,000 in 2011. The effective tax rate was 21.1% in 2012
versus 24.8% in 2011, as tax-exempt income as a percentage of income before tax increased to 30.1% in 2012 from 22.9% in 2011.
Average tax-exempt investments and loans as a percentage of average assets were 12.2% and 10.6% in 2012 and 2011, respectively.
See Note 15 of Notes to Consolidated Financial Statements for further information on income taxes.
- 16 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL CONDITION
Balance Sheet Summary
Juniata functions as a financial intermediary and, as such, its financial condition is best analyzed in terms of changes in its uses and
sources of funds, and is most meaningful when analyzed in terms of changes in daily average balances. The table below sets forth
average daily balances for the last three years and the dollar change and percentage change for the past two years.
Table 3
Changes in Uses and Sources of Funds
(Dollars in thousands)
Funding uses:
Taxable loans
Tax-exempt loans
Taxable securities
Tax-exempt securities
Interest bearing deposits
Federal funds sold
Total interest earning assets
Investment in:
Unconsolidated subsidiary
Low income housing
BOLI and annuities
Goodwill and intangible assets
Other non-interest earning assets
Unrealized gains on securities
Less: Allowance for loan losses
2013
Average
Balance
$258,116
18,621
91,972
37,210
2,834
–
408,753
4,060
3,989
14,616
2,321
18,885
86
(2,679)
Increase (Decrease)
Amount
%
$(5,058)
(487)
3,490
781
(3,873)
(75)
(5,222)
181
3,028
410
65
(2,039)
(1,303)
854
(1.9)%
(2.5)
3.9
2.1
(57.7)
(100.0)
(1.3)
4.7
315.1
2.9
2.9
(9.7)
(93.8)
(24.2)
2012
Average
Balance
$263,174
19,108
88,482
36,429
6,707
75
413,975
3,879
961
14,206
2,256
20,924
1,389
(3,533)
Increase (Decrease)
Amount
%
$(16,327)
5,290
17,824
2,705
3,026
(6,515)
6,003
218
961
724
(23)
(929)
459
(679)
(5.8%)
38.3
25.2
8.0
82.2
(98.9)
1.5
6.0
–
5.4
(1.0)
(4.3)
49.4
23.8
2011
Average
Balance
$279,501
13,818
70,658
33,724
3,681
6,590
407,972
3,661
–
13,482
2,279
21,853
930
(2,854)
Total uses
$450,031
$(4,026)
(0.9)%
$454,057
$ 6,734
1.5%
$447,323
- 17 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 3 (Cont.)
Changes in Uses and Sources of Funds
(Dollars in thousands)
2013
Average
Balance
$ 94,338
59,926
129,417
32,260
4,332
3,199
1,317
324,789
71,006
4,665
49,571
Increase (Decrease)
Amount
%
$(2,261)
3,663
(11,008)
(2,159)
724
2,737
57
(8,247)
5,782
(1,366)
(195)
(2.3)%
6.5
(7.8)
(6.3)
20.1
592.4
4.5
(2.5)
8.9
(22.6)
(0.4)
2012
Average
Balance
$ 96,599
56,263
140,425
34,419
3,608
462
1,260
333,036
65,224
6,031
49,766
Increase (Decrease)
Amount
%
$ 4,702
6,369
(8,893)
(1,268)
574
207
54
1,745
4,238
1,340
(589)
5.1%
12.8
(6.0)
(3.6)
18.9
81.2
4.5
0.5
6.9
28.6
(1.2)
2011
Average
Balance
$ 91,897
49,894
149,318
35,687
3,034
255
1,206
331,291
60,986
4,691
50,355
Funding Sources:
Interest bearing demand deposits
Savings deposits
Time deposits under $100,000
Time deposits over $100,000
Repurchase agreements
Short-term borrowings
Other interest bearing liabilities
Total interest bearing liabilities
Demand deposits
Other liabilities
Shareholders’ equity
Total sources
$450,031
$(4,026)
(0.9)%
$454,057
$ 6,734
1.5%
$447,323
Overall, total average assets decreased by $4,026,000, or 0.9%, for the year 2013 compared to 2012, following an increase of
$6,734,000, or 1.5%, in 2012 over average assets in 2011. The ratio of average earning assets to total average assets was consistent
at 91%, in each of the last three years, while the ratio of average interest-bearing liabilities to total average assets dropped from 74%
in 2011 to 73% in 2012 and then further to 72% in 2013. Although Juniata’s investment in its unconsolidated subsidiary, investment
in a low income elderly housing project and its bank owned life insurance and annuities are not classified as interest-earning assets,
income is derived directly from those assets. These instruments have represented 5.0% and 4.2% of total average assets in 2013
and 2012, respectively. A more detailed discussion of the Company’s earning assets and interest bearing liabilities will follow in
Sections titled “Loans”, “Investments”, “Deposits” and “Market/Interest Rate Risk”.
- 18 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Loans outstanding at the end of each year consisted of the following (in thousands):
Loans
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Unearned interest
Total
2013
$ 26,281
74,471
19,681
140,459
12,702
4,204
–
$277,798
2012
$ 19,296
69,187
18,092
153,122
12,769
5,034
–
$277,500
December 31,
2011
$ 19,417
60,774
17,508
176,548
8,780
6,658
(4)
$289,681
2010
$ 19,911
56,305
13,256
190,985
8,984
8,688
(27)
$298,102
2009
$ 20,783
51,299
24,578
190,811
13,553
10,670
(64)
$311,630
From year-end 2012 to year-end 2013, total loans outstanding increased by $298,000, following a decrease of $12,181,000 in 2012
when compared to year-end 2011. The following table summarizes how the ending balances (in thousands) changed annually in
each of the last three years.
Beginning balance
Net new loans (repayments)
Loans charged off
Loans transferred to other real estate owned
and other adjustments to carrying value
Net change
Ending alance
2013
$277,500
2012
$289,681
2011
$298,102
2,359
(1,431)
(10,097)
(1,071)
(7,519)
(282)
(630)
298
$277,798
(1,013)
(12,181)
$277,500
(620)
(8,421)
$289,681
The loan portfolio was comprised of approximately 52% consumer loans and 48% commercial loans (including construction) on
December 31, 2013 as compared to 57% consumer loans and 43% commercial loans on December 31, 2012. Management believes
that diversification in the loan portfolio is important and performs a loan concentration analysis on a quarterly basis. The highest
loan concentration by activity type was commercial real estate loans secured by income-producing property whose debt service on
this category of loans is reliant upon the cash flow generated by the property. In the aggregate, loans in this category had outstanding
balances of $21,236,000 at December 31, 2013, or 47.6% of capital. Components of this concentration group with balances considered
for general reserve purposes are as follows:
Operators of apartment buildings
Operators of dwellings other than apartments
Hotels and motels
Total
Outstanding
Balance
$ 9,347,000
8,508,000
3,381,000
$21,236,000
% of Capital
21.0%
19.1%
7.6%
47.6%
Given the reserves allocated to this sector over the past 36 months and the continuing softness in the market, management has assigned
an additional concentration risk factor to this group of loans when analyzing the adequacy of the Allowance for Loan Losses. See
Note 6 of Notes to Consolidated Financial Statements.
- 19 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
During 2013, there was growth in the commercial real estate and construction lines of business, as well as commercial, financial
and agricultural business, primarily as a result of participation opportunities with other banks. This growth was largely offset by the
decrease in mortgages and personal loans, as the secondary market continued to offer more appealing fixed rates and longer terms to
borrowers. Growth was further offset by payments and charge-downs of non-performing loans. Juniata is willing, able and continues
to lend to qualifying businesses and individuals. Management also believes that the economic climate will continue to result in low
loan growth. Our business model closely aligns lenders and community office managers’ efforts to effectively develop referrals and
existing customer relationships. Continued emphasis is placed on responsiveness and personal attention given to customers, which
we believe differentiates the Bank from its competition. Nearly all commercial loans and most residential mortgage loans are either
variable or adjustable rate loans, while other consumer loans generally have fixed rates for the duration of the loan.
Juniata strives to offer fair, competitive rates and to provide optimal service in order to attract loan growth. Emphasis will continue
to be placed upon attracting the entire customer relationship of our borrowers.
The loan portfolio carries the potential risk of past due, non-performing or, ultimately, charged-off loans. The Bank attempts to manage
this risk through credit approval standards and aggressive monitoring and collection efforts. Where prudent, the Bank secures com-
mercial loans with collateral consisting of real and/or tangible personal property. Management further believes that non-performing
loans will continue to decline in 2014. The Company maintains a dedicated credit administration division, in response to the need
for heightened credit review, both in the loan origination process and in the ongoing risk assessment process. With stringent credit
standards in place, Juniata’s lending strategy stresses quality growth, diversified by product. A standardized credit policy is in place
throughout the Company, and the credit committee of the Board of Directors reviews and approves all loan requests for amounts
that exceed management’s approval levels. The Company makes credit judgments based on a customer’s existing debt obligations,
collateral, ability to pay and general economic trends. See Note 2 of Notes to Consolidated Financial Statements.
The allowance for loan losses has been established in order to absorb probable losses on existing loans. A quarterly provision or
credit is charged to earnings to maintain the allowance at adequate levels. Charge-offs and recoveries are recorded as adjustments to
the allowance. The allowance for loan losses at December 31, 2013 was 0.82% of total loans, net of unearned interest, as compared
to 1.18% of total loans, net of unearned interest, at the end of 2012. The allowance decreased $994,000 when compared to Decem-
ber 31, 2012, as a result of charge-offs of $1,026,000 that had been previously reserved to carry impaired loans at fair value. Net
charge-offs for 2013 and 2012 were 0.51% and 0.38% of average loans, respectively.
At December 31, 2013, non-performing loans (as defined in Table 4 below), as a percentage of the allowance for loan losses, were
305.1% as compared to 292.2% at December 31, 2012. Non-performing loans were 2.51% of loans as of December 31, 2013, and
3.46% of loans as of December 31, 2012. Management believes that the decreasing levels of nonperforming loans in 2012 and 2013
will continue into 2014. Of the $6,978,000 of non-performing loans at December 31, 2013, $6,968,000, or 99%, is collateralized
with real estate and $10,000 is collateralized with other assets. As of December 31, 2013, there was one restructured loan delin-
quent in excess of 90 days with respect to the terms of the restructuring as of December 31, 2013 that was included with “accruing
restructured loans” in Table 4. This loan has a balance of $61,000 and is in the process of foreclosure.
Table 4
Non-Performing Loans
2013
2012
Nonaccrual loans
Accruing loans past due 90 days or more
Accruing restructured loans
Total non-performing loans
$5,952
251
775
$6,978
$8,846
742
–
$9,588
December 31,
2011
(In thousands)
$ 7,947
2,743
–
$10,690
2010
2009
$5,964
1,007
–
$6,971
$2,629
1,369
–
$3,998
- 20 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is
generally discontinued when the contractual payment of principal or interest has become 90 days past due or reasonable doubt exists
as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest on loans
over 90 days past due as long as (1) they are guaranteed or well secured and (2) there is an effective means of timely collection in
process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current year is reversed against
current period income, and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received
on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment
as to the collectability of principal. Generally, accruals are resumed on loans only when the obligation is brought fully current with
respect to interest and principal, 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. The Company’s nonaccrual and charge-off
policies are the same, regardless of loan type. During 2013, gross interest income that would have been recorded if loans in nonaccrual
status had been current was $578,000, of which $88,000 was collected and included in net income.
Allowance for Loan Losses
The amount of allowance for loan losses is determined through a critical quantitative and qualitative analysis performed by management
that includes significant assumptions and estimates. It is maintained at a level deemed sufficient to absorb probable estimated losses
within the loan portfolio, and supported by detailed documentation. To assess potential credit weaknesses, it is critical to analyze
observable trends that may be occurring.
Management systematically monitors the loan portfolio and the adequacy of the allowance for loan losses on a quarterly basis to
provide for probable losses inherent in the portfolio. The Bank’s methodology for maintaining the allowance is highly structured
and contains two components; a component for loans that are deemed to be impaired and a component for contingencies.
Component for impaired loans:
A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-
by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the
delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and
interest owed. Impairment is measured on a loan by loan basis by the present value of expected future cash flows discounted at the
loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.
The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the
loan’s collateral. For commercial loans secured with real estate, estimated fair values are determined primarily through third-party
appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of
the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-
to-value ratio based on the current appraisal and the condition of the property. Appraised values may be discounted to arrive at the
estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include the estimated
costs to sell the property. For commercial loans secured by non-real estate collateral, estimated fair values are determined based on
the borrower’s financial statements, inventory reports, aging accounts receivable, equipment appraisals or invoices. Indications of
value from these sources are generally discounted based on the age of the financial information or the quality of the assets. For such
loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable
market price) of the impaired loan is lower than the carrying value of that loan. The Company generally does not separately identify
individual consumer segment loans for impairment disclosures, unless such loans are subject to a restructuring agreement.
Loans whose terms are modified are classified as troubled debt restructurings if the Company grants borrowers concessions, and
it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring
generally involve a below-market interest rate based on the loan’s risk characteristics or an extension of a loan’s stated maturity date.
Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are
current for a sustained period of time after modification. Loans classified as troubled debt restructurings are designated as impaired.
- 21 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
As of December 31, 2013, 59 loans, with aggregate outstanding balances of $8,049,000, were evaluated for impairment. A collateral
analysis was performed on each of these 59 loans in order to establish a portion of the reserve needed to carry impaired loans at no
higher than fair value. As a result, five loans were determined to have insufficient collateral and specific reserves were established
for each of the five impaired loans, totaling $164,000.
Component for contingencies:
A contingency is an existing condition, or set of circumstances, involving uncertainty as to possible gain or loss to the Company that
will ultimately be resolved when one or more future events occur or fail to occur. These conditions may be considered in relation
to individual loans or in relation to groups of similar types of loans. If the conditions are met, a provision is made even though the
particular loans that are uncollectible may not be identifiable.
The component of the allowance for contingencies relates to other loans that have been segmented into risk rated categories as follows:
• Commercial, financial and agricultural
• Real estate – commercial
• Real estate - construction
• Real estate – mortgage
• Obligations of states and political subdivisions
•
Personal
Contingency allowance evaluation consists of several key elements. The borrower’s overall financial condition, repayment sources,
guarantors and value of collateral, if appropriate, are evaluated quarterly or when credit deficiencies arise, such as delinquent loan
payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans
classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential
weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have one or more well-defined
weaknesses that jeopardize the liquidation of the debt. Substandard loans include loans that are inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses
inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current
conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance
for loan losses. Loans not classified are rated pass. Specific reserves may be established for larger, individual classified loans as a
result of this evaluation, as discussed above. Remaining loans are categorized into large groups of smaller balance homogeneous
loans and are collectively evaluated for impairment. This computation is generally based on historical loss experience adjusted for
qualitative factors. The historical loss experience is averaged over a ten-year period for each of the portfolio segments. The ten-year
timeframe was selected in order to capture activity over a wide range of economic conditions and has been consistently used for the
past seven years. The qualitative risk factors are reviewed for relevancy each quarter and include:
• National, regional and local economic and business conditions, as well as the condition of various market segments,
including the underlying collateral for collateral dependent loans;
Experience, ability and depth of lending and credit management and staff;
• Nature and volume of the portfolio and terms of loans;
•
• Volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications;
•
•
Existence and effect of any concentrations of credit and changes in the level of such concentrations; and
Effect of external factors, including competition.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using
relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of
changes in conditions in a narrative accompanying the allowance for loan loss calculation.
- 22 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
A summary of activity in the allowance for loan loss for the last five years (in thousands) is shown below. The level of net charge-offs
in 2013 was the highest in the most recent five year period. The area most affected by charge-offs in each of the five years presented
was real estate – mortgages, whose balances accounted for approximately 50% of the total loan portfolio at December 31, 2013.
In 2013, the Company recorded net charge-offs of $1,409,000. Of the 2013 net charge-offs, $1,026,000 was due to specific loss
confirming events which were the subjects of specific reserves established in 2012. Due to charge-offs and successful resolution of
other troubled debt, non-performing loans decreased by $2,610,000, or 27.2%, at December 31, 2013 compared to December 31,
2012. As such, the level of allowance needed to adequately reserve for loan losses decreased. Management’s analysis indicated that
an adequate loan loss allowance would be $2,287,000 at December 31, 2013.
Balance of allowance - beginning of period
Loans charged off:
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Personal
Total charge-offs
Recoveries of loans previously charged off:
Commercial, financial and agricultural
Real estate - mortgage
Personal
Total recoveries
Net charge-offs
Provision for loan losses
Balance of allowance - end of period
Ratio of net charge-offs during period to
average loans outstanding
2013
$3,281
4
–
117
1,281
29
1,431
13
–
9
22
Years ended December 31,
2011
$2,824
2012
$2,931
2010
$2,719
25
–
193
852
1
1,071
8
–
2
10
18
37
–
205
22
282
2
10
13
25
134
–
–
482
38
654
–
–
18
18
2009
$2,610
47
32
–
343
107
529
–
–
11
11
1,409
415
$2,287
1,061
1,411
$3,281
257
364
$2,931
636
741
$2,824
518
627
$2,719
0.51%
0.38%
0.09%
0.21%
0.17%
The following tables show how the allowance for loan losses is allocated among the various types of outstanding loans and the
percent of loans by type to total loans.
Allocation of the Allowance for Loan Losses (in thousands)
December 31,
2011
2010
2012
2009
2013
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
$ 253
534
212
1,246
–
42
$2,287
$ 179
463
202
2,387
–
50
$3,281
$ 195
455
442
1,771
–
68
$2,931
$ 163
442
336
1,810
-
73
$2,824
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of state and political subdivisions
Personal
2013
9.5%
26.8%
7.1%
50.5%
4.6%
1.5%
100.0%
- 23 -
Percent of Loan Type to Total Loans
December 31,
2011
2012
2010
7.0%
24.9%
6.5%
55.2%
4.6%
1.8%
100.0%
6.7%
21.0%
6.0%
61.0%
3.0%
2.3%
100.0%
6.7%
18.9%
4.4%
64.1%
3.0%
2.9%
100.0%
$ 157
426
324
1,743
–
69
$2,719
2009
6.7%
16.5%
7.9%
61.2%
4.3%
3.4%
100.0%
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investments
Total investments, defined to include all interest earning assets except loans (i.e. investment securities available for sale (at market
value), federal funds sold, interest bearing deposits, Federal Home Loan Bank stock and other interest-earning assets), totaled
$128,305,000 on December 31, 2013, representing an increase of $3,258,000 when compared to year-end 2012. The following table
summarizes how the ending balances (in thousands) changed annually in each of the last three years.
Beginning balance
2013
$125,047
2012
$116,177
2011
$ 95,874
Purchases of investment securities
Calls and maturities of investment securities
Adjustment in market value of AFS securities
Amortization/Accretion
Federal Home Loan Bank stock, net change
Federal funds sold, net change
Interest bearing deposits with others, net change
Net change
45,446
(38,973)
(2,325)
(440)
241
–
(691)
3,258
87,319
(75,816)
(34)
(412)
26
–
(2,213)
8,870
87,131
(56,034)
630
(369)
(388)
(12,300)
1,633
20,303
Ending Balance
$128,305
$125,047
$116,177
On average, investments increased slightly, by $323,000, or 0.2%, during 2013, following an increase of $17,040,000, or 14.9%,
during 2012. The increase in 2012 was due to deposit growth outpacing loan growth with the excess funding invested in short-term
debt securities.
The investment area is managed according to internally established guidelines and quality standards. Juniata segregates its investment
securities portfolio into two classifications: those held to maturity and those available for sale. Juniata classifies all new marketable
investment securities as available for sale, and currently holds no securities in the held to maturity or trading classifications. At
December 31, 2013, the market value of the entire securities portfolio was below amortized cost by $1,138,000 as compared to
December 31, 2012, when market value was greater than amortized cost by $1,185,000. The weighted average maturity of the
investment portfolio was 4.1 years on December 31, 2013 versus 3.7 years on December 31, 2012. The weighted average maturity has
remained short in order to achieve a desired level of liquidity. Table 5, “Maturity Distribution”, in this Management’s Discussion and
Analysis of Financial Condition shows the remaining maturity or earliest possible repricing for investment securities. The following
table sets forth the maturities of securities (in thousands) and the weighted average yields of such securities by contractual maturities
or call dates. Yields on obligations of states and public subdivisions are presented on a tax-equivalent basis.
- 24 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Securities
Type and maturity
Obligations of U.S. Government
agencies and corporations
Within one year
After one year but within five years
After five years but within ten years
Obligations of state and political subdivisions
Within one year
After one year but within five years
After five years but within ten years
After ten years
Corporate Notes and Other
Within one year
Mortgage-backed securities
Within one year
After one year but within five years
After five years but within ten years
December 31, 2013
Fair
Value
Weighted
Average
Yield
December 31, 2012
Weighted
Average
Yield
Fair
Value
December 31, 2011
Fair
Value
Weighted
Average
Yield
$ 4,192
47,578
26,508
78,278
0.77% $ 7,996
42,796
1.26
22,025
1.50
72,817
1.32%
2.10% $ 2,947
52,202
1.19
12,539
1.10
67,688
1.26%
8,314
26,098
7,182
338
41,932
1.75%
1.34
2.26
1.20
1.58%
10,505
29,809
4,936
726
45,976
2.13%
1.54
2.61
1.35
1.78%
–
–
–
–
–
–
–
–
878
1,003
2,588
4,469
2.86%
2.63
2.09
2.36%
–
1,428
1,098
2,526
–
2.46%
1.24
1.93%
11,154
22,289
4,147
–
37,590
1,004
1,004
–
1,878
2,231
4,109
1.94%
1.55
1.49
1.55%
2.39%
2.36
3.23
–
3.79%
4.00%
4.00%
–
2.84%
2.26
2.52%
Equity securities
1,367
$126,046
1,019
$122,338
890
$111,281
Bank Owned Life Insurance and Annuities
The Company periodically insures the lives of certain bank officers in order to provide split-dollar life insurance benefits to some
key officers and to offset the cost of providing post-retirement benefits through non-qualified plans. Some annuities are also owned
to provide cash streams that match certain post-retirement liabilities. See Note 8 of Notes to Consolidated Financial Statements.
The following table summarizes how the ending balances (in thousands) of these instruments changed annually in each of the last
three years.
Beginning balance
Bank-owned life insurance
Annuities
Net change
2013
$14,402
2012
$14,069
2011
$13,568
426
20
446
318
15
333
496
5
501
Ending balance
$14,848
$14,402
$14,069
- 25 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investment in Unconsolidated Subsidiary
The Company owns 39.16% of the outstanding common stock of Liverpool Community Bank (LCB), Liverpool, PA. This
investment is accounted for under the equity method of accounting. The investment is being carried at $4,172,000 as of December
31, 2013. The Company increases its investment in LCB for its share of earnings and decreases its investment by any dividends
received from LCB. The investment is evaluated quarterly for impairment. A loss in value of the investment which is determined
to be other than a temporary decline would be recognized as a loss in the period in which such determination is made. Evidence of
a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the
investment or inability of LCB to sustain an earnings capacity which would justify the current carrying value of the investment. The
carrying amount at December 31, 2013 represented an increase of $172,000 when compared to December 31, 2012. In connection
with this investment, two representatives of Juniata serve on the Board of Directors of LCB.
Goodwill and Intangible Assets
In 2006, the Company acquired a branch office in Richfield, PA. Completing this purchase was in line with a strategic goal of the
Company to expand its base into contiguous market areas within rural Pennsylvania. Included in the purchase price of the branch
was goodwill of $2,046,000. Additionally, core deposit intangible was acquired and had carrying values of $119,000 and $164,000,
as of December 31, 2013 and December 31, 2012, respectively. The core deposit intangible is being amortized over a ten-year
period on a straight-line basis. Goodwill is not being amortized, but is measured annually for impairment.
The Company originates and sells residential mortgage loans into the secondary market, but retains the servicing on the loans. The
mortgage servicing rights are valued based on the present value of estimated future cash flows on pools of mortgages stratified by
rate and maturity date. The computed value is carried as an intangible asset. As of December 31, 2013, the fair value of mortgage
servicing rights was $167,000, compared to $98,000 on December 31, 2012.
Deferred Taxes
The Company accounts for income taxes under the asset/liability method. Deferred tax assets and liabilities are recognized for the
future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, as well as operating loss and tax credit carry-forwards, if applicable. A valuation allowance is
established against deferred tax assets when, in the judgment of management, it is more likely than not that such deferred tax assets
will not become realizable. Management has determined that there was no need for a valuation allowance for deferred taxes as of
December 31, 2013 and 2012. As of December 31, 2013 and 2012, the Company recorded a net deferred tax asset of $602,000 and
$1,137,000, respectively, which was carried as a non-interest earning asset. Significant components of the decrease of $535,000
included:
1. A change in the funded status of the Company’s defined benefit plan, decreasing the deferred tax asset by $663,000,
2. A $361,000 decrease in the deferred tax asset relating to the allowance for loan losses,
3. An increase of $790,000 in the deferred tax asset relating to unrealized losses arising in the available-for-sale securities
portfolio.
The remainder of the difference was due to the various other changes in gross temporary tax differences. See Note 15 of Notes to
Consolidated Financial Statements.
Other Non-interest Earning Assets
The following table summarizes the components of the non-interest earning asset category, and how the ending balances (in thousands)
changed annually in each of the last three years.
Beginning balance
Cash and due from banks
Premises and equipment, net
Other real estate owned
Investment in low income housing
Other receivables and prepaid expenses,
including deferred tax assets
Net change
Ending balance
- 26 -
2013
$28,893
2012
$24,386
2011
$25,183
(5,691)
(142)
(147)
194
507
(5,279)
2,187
(238)
1
3,403
(846)
4,507
(684)
(357)
15
393
(164)
(797)
$23,614
$28,893
$24,386
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
At December 31, 2013, total deposits were $379,645,000, a decrease of $7,106,000 from total deposits on December 31, 2012.
From year-end 2011 to year-end 2012, total deposits were essentially unchanged. The following table summarizes how the ending
balances (in thousands) changed annually in each of the last three years.
Deposits
Beginning balance
Demand deposits
Interest bearing demand deposits
Savings deposits
Time deposits, $100,000 and greater
Time deposits, other
Net change
2013
$386,751
2012
$386,665
2011
$376,790
3,293
(482)
4,379
(2,012)
(12,284)
(7,106)
6,567
(2,707)
5,667
(26)
(9,415)
86
4,055
11,678
3,603
(1,066)
(8,395)
9,875
Ending balance
$379,645
$386,751
$386,665
The following table shows (in thousands of dollars) the comparison of average core deposits and average time deposits as a percentage
of total deposits for each of the last three years.
Changes in Deposits
(Dollars in thousands)
Increase (Decrease)
Amount
%
2013
Average
Balance
2012
Average
Balance
Increase (Decrease)
Amount
%
$ 38,920
55,418
59,926
71,006
225,270
$ (3,073)
812
3,663
5,782
7,184
(7.3)%
1.5
6.5
8.9
3.3
$ 41,993
54,606
56,263
65,224
218,086
$ 3,370
1,332
6,369
4,238
15,309
8.7%
2.5
12.8
6.9
7.5
2011
Average
Balance
$ 38,623
53,274
49,894
60,986
202,777
32,260
129,417
161,677
(2,159)
(11,008)
(13,167)
(6.3)
(7.8)
(7.5)
34,419
140,425
174,844
(1,268)
(8,893)
(10,161)
(3.6)
(6.0)
(5.5)
35,687
149,318
185,005
Core transaction deposits:
Indexed money market
Interest bearing demand
Savings
Demand
Total
Time deposits:
$100,000 and greater
Other
Total
Total deposits
$386,947
$ (5,983)
(1.5)%
$392,930
$ 5,148
1.3%
$387,782
Average deposits decreased $5,983,000, or 1.5%, to $386,947,000 in 2013 following an increase in 2012 of $5,148,000, or 1.3%,
to $392,930,000. Core transaction accounts increased by 3.3% and 7.5%, respectively in 2013 and 2012. We believe that over the
past two years, because of the market uncertainties that accompany uncertain economic periods, investors have moved balances
of available funds into safe, FDIC-insured banking institutions and particularly into liquid transaction accounts. In both 2013 and
2012 however, funds invested in time deposits have declined. Due to the sustained low-interest rate environment, we believe many
investors are seeking higher yields than are available in time deposit products. We are experiencing a higher number of sales in our
wealth management (non-deposit) products and are seeing investors seeking dividend yields in the stock market as well.
- 27 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The consumer continues to have a need for transaction accounts, and the Bank is continuing to focus on that need in order to build
deposit relationships. Our products are geared toward low-cost convenience and ease for the customer. The Company’s strategy
is to aggressively seek to grow customer relationships by staying in touch with customers’ changing needs and new methods of
connectivity, in an effort to increase deposit (and loan) market share.
The Bank competes in the marketplace with many sources that offer products that directly compete with traditional banking products.
In keeping with our desire to provide our customers with a full array of financial services, we supplement the services traditionally
offered by our Trust Department by staffing our community offices with wealth management consultants that are licensed and trained
to sell variable and fixed rate annuities, mutual funds, stock brokerage services and long-term care insurance. Although the sale of
these products can reduce the Bank’s deposit levels, these products offer solutions for our customers that traditional bank products
cannot and allow us to more completely service our community. Fee income from the sale of non-deposit products (primarily
annuities and mutual funds) was $375,000 and $353,000 in 2013 and 2012, respectively, representing approximately 8.3% and
7.6%, respectively, of total pre-tax income.
Other Interest Bearing Liabilities
Because Juniata funds its needs primarily with local deposits, high levels of debt are not necessary, as can be seen in the table below.
Occasionally, there is a need for short term, overnight borrowings that are temporary in nature, and there are instances where long-
term debt may be used in matched-funding arrangements for particular loans. Juniata’s average balances for all borrowings increased
in 2013 by $3,518,000, or 66.0%, following an increase of $835,000, or 18.6%, in 2012 as compared to 2011. The increase in 2013
was related to the Company’s use of short-term borrowings to fund loan and investment growth. The increase in 2012 was primarily
due to the increase in repurchase agreement balances.
Repurchase agreements
Short-term borrowings
Other interest bearing liabilities
Changes in Borrowings
(Dollars in thousands)
Increase (Decrease)
Amount
%
$ 724
2,737
57
$3,518
20.1%
592.4
4.5
66.0%
2013
Average
Balance
$4,332
3,199
1,317
$8,848
Pension Plan
2012
Average
Balance
$3,608
462
1,260
$5,330
Increase (Decrease)
Amount
%
$574
207
54
$835
18.9%
81.2
4.5
18.6%
2011
Average
Balance
$3,034
255
1,206
$4,495
Through its noncontributory pension plan, the Company provides pension benefits to substantially all of its employees that were
employed as of December 31, 2007. Benefits are provided based upon an employee’s years of service and compensation through
December 31, 2012. Effective December 31, 2012, the defined benefit retirement plan was amended to cease future service accruals
after that date (frozen). ASC Topic 715 gives guidance on the allowable pension expense that is recognized in any given year. In
determining the appropriate amount of pension expense to recognize, management must make subjective assumptions relating to
amounts and rates that are inherently uncertain. Please refer to Note 20 of Notes to Consolidated Financial Statements.
- 28 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Stockholders’ Equity
Total stockholders’ equity decreased by $313,000 in 2013. The decrease in stockholders’ equity resulted primarily from the decrease
in fair values of investment securities and funds used for treasury stock repurchases. Offsetting this decrease was the reduction in
unamortized expense related to the defined benefit retirement plan and undistributed net income. The following table summarizes
how the components of equity (in thousands) changed annually in each of the last three years.
Beginning balance
Net income
Dividends
Stock-based compensation
Repurchase of stock, net of re-issuance
Net change in unrealized security gains
2013
$50,297
2012
$49,720
2011
$49,976
4,001
(3,707)
30
(397)
(1,551)
3,648
(3,724)
25
(209)
(23)
4,680
(3,648)
26
(523)
424
Defined benefit retirement plan adjustments,
net of tax
Net change
1,311
(313)
860
577
(1,215)
(256)
Ending balance
$49,984
$50,297
$49,720
On average, stockholders’ equity in 2013 was $49,571,000, essentially unchanged from the average in 2012 of $49,766,000. At
December 31, 2013, Juniata held 549,560 shares of stock in treasury at a cost of $10,591,000 as compared to 527,465 in 2012 at a
cost of $10,200,000. These increases are a result of the Company’s stock repurchase program (see Note 16 of Notes to Consolidated
Financial Statements). Return on average equity increased to 8.07% in 2013 from 7.33% in 2012.
The Company periodically repurchases shares of its common stock under the share repurchase program approved by the Board of
Directors. In September of 2008, the Board of Directors authorized the repurchase of an additional 200,000 shares of its common
stock through its share repurchase program. The program will remain authorized until all approved shares are repurchased, unless
terminated by the Board of Directors. Repurchases have typically been through open market transactions and have complied with
all regulatory restrictions on the timing and amount of such repurchases. Shares repurchased have been added to treasury stock and
accounted for at cost. These shares may be periodically reissued for stock option exercises, employee stock purchase plan purchases
and to fulfill dividend reinvestment program needs. During 2013, 24,918 shares were repurchased in conjunction with the current
program. Remaining shares authorized for repurchase were 43,475 as of December 31, 2013.
In both 2013 and 2012, Juniata declared dividends of $0.88 per common share. The per-share common dividend in 2011 was $0.86.
(See Note 16 of Notes to Consolidated Financial Statements regarding restrictions on dividends from the Bank to the Company.) The
dividend payout ratio was 92.65% and 102.08% in 2013 and 2012, respectively. In January 2014, the Board of Directors declared a
dividend of $0.22 per share for the first quarter of 2014 to stockholders of record on February 14, 2014, payable on March 3, 2014.
Juniata’s book value per share at December 31, 2013 was 11.91, as compared to $11.92 and $11.76 at December 31, 2012 and 2011,
respectively. Juniata’s average equity to assets ratio for 2013, 2012 and 2011 was 11.01%, 10.96% and 11.26%, respectively. Refer
also to the Capital Risk section in the Asset / Liability management discussion that follows.
- 29 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Asset / Liability Management Objectives
Management believes that optimal performance is achieved by maintaining overall risks at a low level. Therefore, the objective of
asset/liability management is to control risk and produce consistent, high quality earnings independent of changing interest rates.
The Company has identified five major risk areas discussed below:
Liquidity Risk
•
• Capital Risk
• Market / Interest Rate Risk
Investment Portfolio Risk
•
Economic Risk
•
Liquidity Risk
Through liquidity risk management, we seek to maintain our ability to readily meet commitments to fund loans, purchase assets and
other securities and repay deposits and other liabilities. This area also includes the ability to manage unplanned changes in funding
sources and recognize and address changes in market conditions that affect the quality of liquid assets. Juniata has developed a
methodology for assessing its liquidity risk through an analysis of its primary and total liquidity sources. Three types of liquidity
sources are (1) asset liquidity, (2) liability liquidity and (3) off-balance sheet liquidity.
Asset liquidity refers to assets that we are quickly able to convert into cash, consisting of cash, federal funds sold and securities.
Short-term liquid assets generally consist of federal funds sold and securities maturing over the next twelve months. The quality of
our short-term liquidity is very good: as federal funds are unimpaired by market risk and as bonds approach maturity, their value
moves closer to par value. Liquid assets tend to reduce earnings when there is not an immediate use for such funds, since normally
these assets generate income at a lower rate than loans or other longer-term investments.
Liability liquidity refers to funding obtained through deposits. The largest challenge associated with liability liquidity is cost.
Juniata’s ability to attract deposits depends primarily on several factors, including sales effort, competitive interest rates and other
conditions that help maintain consumer confidence in the stability of the financial institution. Large certificates of deposit, public
funds and brokered deposits are all acceptable means of generating and providing funding. If the cost is favorable or fits the overall
cost structure of the Bank, then these sources have many benefits. They are readily available, come in large block size, have investor-
defined maturities and are generally low maintenance.
Off-balance sheet liquidity is closely tied to liability liquidity. Sources of off-balance sheet liquidity include Federal Home Loan
Bank borrowings, repurchase agreements and federal funds lines with correspondent banks. These sources provide immediate
liquidity to the Bank. They are available to be deployed when a need arises. These instruments also come in large block sizes, have
investor-defined maturities and generally require low maintenance.
“Available liquidity” encompasses all three sources of liquidity when determining liquidity adequacy. It results from the Bank’s access
to short-term funding sources for immediate needs and long-term funding sources when the need is determined to be permanent.
Management uses both on-balance sheet liquidity and off-balance sheet liquidity to manage its liquidity position. The Company’s
liquidity strategy is to maintain an adequate volume of high quality liquid instruments to facilitate customer liquidity demands.
Management also maintains sufficient capital, which provides access to the liability and off-balance sheet sides of the balance sheet
for funding. An active knowledge of debt funding sources is important to liquidity adequacy.
Contingency funding management involves maintaining contingent sources of immediate liquidity. Management believes that it must
consider an array of available sources in terms of volume, maturity, cash flows and pricing. To meet demands in the normal course
of business or for contingency, secondary sources of funding such as public funds deposits, collateralized loans, sales of investment
securities or sales of loan receivables are considered.
- 30 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
It is the Company’s policy to maintain both a primary liquidity ratio and a total liquidity ratio of at least 10% of total assets. The
primary liquidity ratio equals liquid assets divided by total assets, where liquid assets equal the sum of cash and due from banks,
federal funds sold, interest-bearing deposits with other banks and available for sale securities. Total liquidity is comprised of all
components noted in primary liquidity plus securities classified as held-to-maturity, if any. If either of these liquidity ratios falls
below 10%, it is the Company’s policy to increase liquidity in a timely manner to achieve the required ratio.
It is the Company’s policy to maintain available liquidity at a minimum of 10% of total assets and contingency liquidity at a minimum
of 7.5% of total assets.
Juniata is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh, which provides short-term liquidity. The Bank uses this
vehicle to satisfy temporary funding needs throughout the year. The Company had overnight advances of $8,400,000 on December
31, 2013 and $1,600,000 on December 31, 2012.
The Bank’s maximum borrowing capacity with the FHLB is $135,454,000 at December 31, 2013. In order to borrow additional
amounts in excess of $2,021,000, the FHLB would require the Bank to purchase additional FHLB Stock. The FHLB is a source of
both short-term and long-term funding. The Bank must maintain sufficient qualifying collateral to secure all outstanding advances.
Juniata needs to have liquid resources available to fulfill contractual obligations that require future cash payments. The table below
summarizes the Company’s significant contractual obligations to third parties (in thousands of dollars), by type, that are fixed and
determined at December 31, 2013. Further discussion of the nature of each obligation is included in the referenced note to the
consolidated financial statements.
Contractual Obligations
Note
Reference
Total
Less than
One Year
Payments Due by Period
Three to
Five
Years
One to
Three
Years
More than
Five
Years
Certificates of deposits
Federal Funds borrowed and
security repurchase agreements
Operating lease obligations
Other long-term liabilities
3rd party data processor contract
Supplemental retirement and
deferred compensation
12
13
14
23
20
$154,406
$70,197
$61,785
$17,044
$5,380
13,797
337
13,797
121
–
172
2,376
528
1,056
–
44
792
–
–
–
3,261
$174,177
362
$85,005
545
$63,558
384
$18,264
1,970
$7,350
The schedule of contractual obligations (above) excludes expected defined benefit retirement payments that will be paid from the
plan assets, as referenced in Note 20 of Notes to Consolidated Financial Statements.
- 31 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Capital Risk
The Company maintains sufficient core capital to protect depositors and stockholders and to take advantage of business opportunities
while ensuring that it has resources to absorb the risks inherent in the business. Federal banking regulators have established capital
adequacy requirements for banks and bank holding companies based on risk factors, which require more capital backing for assets
with higher potential credit risk than assets with lower credit risk. All banks and bank holding companies are currently required
to have a minimum of 4% of risk adjusted assets in Tier I capital and 8% of risk adjusted assets in Total capital (Tier I and Tier
II capital). As of December 31, 2013 and 2012, Juniata’s Tier I capital ratio was 17.13% and 17.14%, respectively, and its Total
capital ratio was 17.97% and 18.28%, respectively. Additionally, banking organizations must maintain a minimum Tier I capital
to total average asset (leverage) ratio of 3%. This 3% leverage ratio is a minimum for the top-rated banking organizations without
any supervisory, financial or operational weaknesses or deficiencies. Other banking organizations are required to maintain leverage
capital ratios 100 to 200 basis points above the minimum depending on their financial condition. At December 31, 2013 and 2012,
Juniata’s leverage ratio was 11.04% and 10.96%, respectively, with a required leverage ratio of 4% (see Note 16 of Notes to the
Consolidated Financial Statements).
In December 2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation,
officially identified by the Basel Committee as “Basel III”. The federal banking regulatory agencies have proposed regulations
implementing the Basel III capital standards. The Basel III proposals would change required levels of capital and how banks calculate
their regulatory capital and revise and harmonize the rules for calculating risk-weighted assets to enhance risk sensitivity and address
weaknesses that have been identified over the past several years. The proposals would increase the minimum levels of required
capital, narrow the definition of capital, and increase the risk weights for various asset classes. In July, 2013, the Federal Reserve
Board approved the final rules (the “Basel III Rules”) which substantially revise the risk-based capital requirements applicable to
bank holding companies and depository institutions. The new rules, which will begin phase-in starting January 1, 2015, with final
phase-in completed by January 1, 2019:
• Create a new minimum Common Equity Tier I capital ratio of 4.50% of risk-weighted assets and a minimum Tier 1 capital
ratio of 6.00% of risk-weighted assets;
• Continue the current minimum Total Capital Ratio at 8.00% of risk-weighted assets and the minimum Tier 1 Leverage
•
Capital Ratio at 4.00% of average assets;
Institute a ”capital conservation buffer” of 2.50% above the minimum risk-based capital requirements, which, if not
maintained, restricts an institution from making capital distributions and certain discretionary bonus payments;
• Revised the definition of capital such that certain non-qualifying capital instruments, including cumulative preferred stock
and trust preferred securities, will be excluded as a component of Tier 1 Capital for institutions of the Company’s size; and
• Expands the risk-weightings categories and weights for assets and off balance sheet exposures to a much larger and more
risk-sensitive number of categories, depending on the nature of the assets, and results in higher risk weights for a variety
of asset categories.
As a result of the new capital conservation buffer rules, once in effect, if the Company’s bank subsidiary (The Juniata Valley Bank)
fails to maintain the required minimum capital conservation buffer, the Company may be unable to obtain capital distributions from
it, which could negatively impact the Company’s ability to pay dividends, service debt obligations or repurchase common stock.
In addition, such a failure could result in a restriction on the Company’s ability to pay certain cash bonuses to executive officers,
negatively impacting the Company’s ability to retain key personnel.
As of December 31, 2013, the Company believes its current capital levels would meet the fully phased-in minimum capital requirements,
including capital conservation buffer, as prescribed in the U.S. Basel III Capital Rules.
Market / Interest Rate Risk
Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of
market risk exposures generally faced by financial institutions include equity market price risk, interest rate risk, foreign currency
risk and commodity price risk. Due to the nature of its operations, only equity market price risk and interest rate risk are significant
to the Company.
Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial
position or results of operations of the Company. The Company’s equity investments consist of common stocks of publicly traded
financial institutions.
- 32 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Declines and volatility in the values of financial institution stocks have significantly reduced the likelihood of realizing significant
gains in the near-term. Although the Company has realized occasional gains from this portfolio in the past, the primary objective of
the portfolio is to achieve value appreciation in the long term while earning consistent, attractive after-tax yields from dividends.
The carrying value of the financial institutions stocks accounted for 0.3% of the Company’s total assets as of December 31, 2013.
Management performs an impairment analysis on the entire investment portfolio, including the financial institutions stocks on a
quarterly basis. No “other-than-temporary” impairment was identified or recorded on stocks in 2013, 2012 or 2011, however, there
is no assurance that declines in market values of the common stock portfolio in the future will not result in subsequent “other-than-
temporary” impairment charges, depending upon facts and circumstances present.
The equity investments in the Corporation’s portfolio had an adjusted cost basis of approximately $1,055,000 and a fair value of
$1,367,000 at December 31, 2013. Net unrealized gains in this portfolio were $312,000 at December 31, 2013.
In addition to its equity portfolio, the Company’s investment management and trust services revenue could be impacted by fluctuations
in the securities markets. A portion of the Company’s trust revenue is based on the value of the underlying investment portfolios. If
securities values decline, the Company’s trust revenue could be negatively impacted.
Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Company’s liquidity position
and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in
the Company’s net interest income and changes in the economic value of equity.
The primary objective of the Company’s asset-liability management process is to maximize current and future net interest income
within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain
amount of interest rate risk is inherent, appropriate and necessary to ensure profitability. A simulation analysis is used to assess
earnings and capital at risk from movements in interest rates. The model considers three major factors of (1) volume differences, (2)
repricing differences, and (3) timing in its income simulation. As of the most recent model run, data was disseminated into appropriate
repricing buckets, based upon the static position at that time. The interest-earning assets and interest-bearing liabilities were assigned
a multiplier to simulate how much that particular balance sheet item would re-price when interest rates change. Finally, the estimated
timing effect of rate changes is applied, and the net interest income effect is determined on a static basis (as if no other factors were
present). As the table below indicates, based upon rate shock simulations on a static basis, the Company’s balance sheet is relatively
rate-neutral as rates decline. Each 100 basis point increase results in approximately $584,000 decline in net interest income in the
static environment. This negative effect of rising rates is offset to a large degree by the positive effect of imbedded options that
include loans floating above their floors and likely internal deposit pricing strategies. After applying the effects of options, over a
one-year period, the net effect of an immediate 100, 200, 300 and 400 basis point rate increase would decrease net interest income by
$216,000, $420,000, $1,641,000 and $2,033,000, respectively. Rate shock modeling was done for a declining rate of 25 basis points
only, as the federal funds target rate currently is between zero and 0.25%. As the table below indicates, the net effect of interest rate
risk on net interest income is $77,000 in a declining rate environment. Juniata’s rate risk policies provide for maximum limits on
net interest income that can be at risk for 100 through 400 basis point changes in interest rates.
Effect of Interest Rate Risk on Net Interest Income
(Dollars in thousands)
Change in Interest Rates
(Basis Points)
Change in Net Interest Income
Due to Interest Rate Risk (Static)
Change in Net Interest Income
Due to Imbedded Options
Total Change in
Net Interest Income
400
300
200
100
0
(25)
$(2,338)
(1,753)
(1,169)
(584)
–
146
$305
112
749
368
–
(69)
$(2,033)
(1,641)
(420)
(216)
–
77
The net interest income at risk position remained within the guidelines established by the Company’s asset/liability policy.
- 33 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 5, presented below, illustrates the maturity distribution of the Company’s interest-sensitive assets and liabilities as of December
31, 2013. Earliest re-pricing opportunities for variable and adjustable rate products and scheduled maturities for fixed rate products
have been placed in the appropriate column to compute the cumulative sensitivity ratio (ratio of interest-earning assets to interest-
bearing liabilities). Securities with call features are treated as though the call date is the maturity date. Through one year, the cumulative
sensitivity ratio is 0.93, indicating a liability-sensitive balance sheet, when measured on a static basis.
Table 5
MATURITY DISTRIBUTION
AS OF DECEMBER 31, 2013
(Dollars in thousands)
Remaining Maturity / Earliest Possible Repricing
Interest Earning Assets
Interest bearing deposits
Investment securities:
Debt securities - taxable
Debt securities - tax-exempt
Mortgage-backed securities
Stocks
Loans:
Commercial, financial and agricultural
Real estate - construction
Other loans
12,134
7,382
138,186
Within One
Year
Over One
Year But
Within Five
Years
Over
Five
Years
Total
$ 292
$ –
$ –
$ 292
55,526
5,895
879
–
24,388
26,857
1,003
–
7,564
6,425
68,667
5,051
2,493
2,587
1,367
6,583
5,874
24,983
84,965
35,245
4,469
1,367
26,281
19,681
231,836
Total Interest Earning Assets
Interest Bearing Liabilities
Demand deposits
Savings deposits
Certificates of deposit over $100,000
Time deposits
Securities sold under agreements to repurchase
Short-term borrowings
Other interest bearing liabilities
220,294
134,904
48,938
404,136
89,867
60,761
14,526
55,671
5,397
8,400
1,356
–
–
15,382
63,447
–
–
–
–
–
1,087
4,293
–
–
–
89,867
60,761
30,995
123,411
5,397
8,400
1,356
Total Interest Bearing Liabilities
235,978
78,829
5,380
320,187
Gap
Cumulative Gap
$ (15,684)
$ 56,075
$43,558
$ 83,949
$ (15,684)
$ 40,391
$83,949
Cumulative sensitivity ratio
0.93
1.13
1.26
Commercial, financial and agricultural
Loans maturing after one year with:
Fixed interest rates
Variable interest rates
Total
$ 6,657
9,910
$ 16,567
$ 6,080
1,174
$ 7,254
$ 12,737
11,084
$ 23,821
- 34 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Investment Portfolio Risk
Management considers its investment portfolio risk as the amount of appreciation or depreciation the investment portfolio will
sustain when interest rates change. The securities portfolio will decline in value when interest rates rise and increase in value when
interest rates decline. Securities with long maturities, excessive optionality (as a result of call features) and unusual indexes tend
to produce the most market risk during interest rate movements. Rate shocks of minus 100 and plus 100, 200, 300 and 400 basis
points were applied to the securities portfolio to determine how Tier 1 capital would be affected if the securities portfolio had to be
liquidated and all gains and losses were recognized. The test revealed that, as of December 31, 2013, the risk-based capital ratio
would remain adequate under these scenarios.
Economic Risk
Economic risk is the risk that the long-term or underlying value of the Company will change if interest rates change. Economic
value of equity (EVE) represents the change in the value of the balance sheet without regard to business continuity. Generally, banks
are exposed to rising interest rates on an economic value of equity basis because of the inherent mismatch between longer duration
assets compared to shorter duration liabilities. Rate shocks are applied to all financial assets and liabilities, using parallel and non-
parallel rate shifts of 100 to 400 basis points to estimate the change in EVE under the various scenarios. As of December 31, 2013,
a non-parallel 200 basis point increase shock in rates produced an estimated 12.3% decline in EVE, indicating a stable value well
within Juniata’s policy guidelines.
Off-Balance Sheet Arrangements
The Company has numerous off-balance sheet loan obligations that exist in order to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, unused lines of credit and letters of credit. Because many commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
These instruments involve, to varying degrees, elements of credit and interest rate risk that are not recognized in the consolidated
financial statements. The Company does not expect that these commitments will have an adverse effect on its liquidity position.
Exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend
credit and financial guarantees written is represented by the contractual notional amount of those instruments. The Company uses
the same credit policies in making these commitments as it does for on-balance sheet instruments.
The Company had outstanding loan origination commitments aggregating $33,532,000 and $31,918,000 at December 31, 2013 and
2012, respectively. In addition, the Company had $7,457,000 and $11,246,000 outstanding in unused lines of credit commitments
extended to its customers at December 31, 2013 and 2012, respectively.
Letters of credit are instruments issued by the Company that guarantee the beneficiary payment by the Bank in the event of default
by the Company’s customer in the non-performance of an obligation or service. Most letters of credit are extended for one-year
periods. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The Company holds collateral supporting those commitments for which collateral is deemed necessary. The amount of
the liability as of December 31, 2013 and 2012 for guarantees under letters of credit issued is not material.
The maximum undiscounted exposure related to these commitments at December 31, 2013 was $1,199,000, and the approximate
value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $1,061,000.
In 2009, the Company executed an agreement to obtain technology outsourcing services through an outside service bureau, and those
services began in June 2010. The agreement provides for termination fees if the Company cancels the services prior to the end of the
8-year commitment period. The termination fee would be an amount equal to one hundred percent of the estimated remaining value
of the terminated services if terminated in the first contract year, ninety percent of the estimated remaining value of the terminated
services if terminated in the second contract year, eighty percent and seventy percent of the remaining value of the terminated services
if terminated in the third and fourth contract years, respectively, and sixty percent of the remaining value of the terminated services
if terminated in contract years five through eight. Termination fees are estimated to be approximately $1,663,000 at December 31,
2013. Since the Company does not expect to terminate these services prior to the end of the commitment period, no liability has
been recorded at December 31, 2013.
The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a
material effect on liquidity or the availability of capital resources.
- 35 -
Juniata Valley Financial Corp. and Subsidiary
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Effects of Inflation
The performance of a bank is affected more by changes in interest rates than by inflation; therefore, the effect of inflation is normally
not as significant as it is on other businesses and industries. During periods of high inflation, the money supply usually increases and
banks normally experience above average growth in assets, loans and deposits. A bank’s operating expenses may increase during
inflationary times as the price of goods and services increase.
A bank’s performance is also affected during recessionary periods. In times of recession, a bank usually experiences a tightening on
its earning assets and on its profits. A recession is usually an indicator of higher unemployment rates, which could mean an increase
in the number of nonperforming loans because of continued layoffs and other deterioration of consumers’ financial condition.
- 36 -
Juniata Valley Financial Corp. and Subsidiary
Report on Management’s Assessment of Internal Control over Financial Reporting
Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements included in
this Annual Report on Form 10-K. The consolidated financial statements and notes included in this annual report have been prepared
in conformity with accounting principles generally accepted in the United States of America, and as such, include some amounts
that are based on management’s best estimates and judgments.
The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting.
The system of internal control over financial reporting, as it relates to the financial statements, is evaluated for effectiveness by
management and tested for reliability through a program of internal audits and management testing and review. Actions are taken
to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may
occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly,
even an effective system of internal control will provide only a reasonable assurance with respect to financial statement preparation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. In
making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework (1992). Based on our assessment, management concluded that as of December
31, 2013, the Company’s internal control over financial reporting is effective and meets the criteria of the Internal Control-Integrated
Framework (1992).
The independent registered public accounting firm that audited the consolidated financial statements included in the annual report
has issued an attestation report on the Company’s internal control over financial reporting.
Marcie A. Barber, President and Chief Executive Officer
JoAnn N. McMinn, Chief Financial Officer
- 37 -
Report of Independent Registered Public Accounting Firm on Effectiveness
of Internal Control over Financial Reporting
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Juniata Valley Financial Corp.
Mifflintown, Pennsylvania
We have audited Juniata Valley Financial Corp. and its wholly-owned subsidiary’s, The Juniata Valley Bank, (the
“Company”) internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control – Integrated Framework (1992) 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 “Item 9A, Report on Management’s Assessment of 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, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated statement of financial condition and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows of Juniata Valley Financial Corp. and its wholly-owned
subsidiary, The Juniata Valley Bank, as of and for the year ended December 31, 2013, and our report dated March
14, 2014 expressed an unqualified opinion.
BDO USA, LLP
Harrisburg, Pennsylvania
March 14, 2014
- 38 -
Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Juniata Valley Financial Corp.
Mifflintown, Pennsylvania
We have audited the accompanying consolidated statement of financial condition of Juniata Valley Financial Corp.,
and its wholly-owned subsidiary, The Juniata Valley Bank, (the “Company”) as of December 31, 2013 and the
related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the
year then ended. 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 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 the consolidated financial statements are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit provides 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 Juniata Valley Financial Corp. and its wholly-owned subsidiary, The Juniata Valley Bank at
December 31, 2013, and the results of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
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, 2013, based on criteria established
in the Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 14, 2014, expressed an unqualified opinion.
BDO USA, LLP
Harrisburg, Pennsylvania
March 14, 2014
- 39 -
Report of Independent Registered Public Accounting Firm
on Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Juniata Valley Financial Corp.
Mifflintown, Pennsylvania
We have audited the accompanying consolidated statement of financial condition of Juniata Valley Financial Corp.
and its wholly-owned subsidiary, The Juniata Valley Bank (the “Company”) as of December 31, 2012, and the
related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each
of the years in the two-year period ended December 31, 2012. 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 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 the consolidated financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides 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 Juniata Valley Financial Corp. and its wholly-owned subsidiary, The Juniata Valley Bank, as
of December 31, 2012, and the results of their operations and their cash flows for each of the years in the two-year
period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States
of America.
ParenteBeard LLC
Pittsburgh, Pennsylvania
March 15, 2013
- 40 -
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Financial Condition
(in thousands, except share data)
ASSETS
December 31,
2013
2012
Cash and due from banks
Interest bearing deposits with banks
Cash and cash equivalents
Interest bearing time deposits with banks
Securities available for sale
Restricted investment in Federal Home Loan Bank (FHLB) stock
Investment in unconsolidated subsidiary
Total loans
Less: Allowance for loan losses
Total loans, net of allowance for loan losses
Premises and equipment, net
Other real estate owned
Bank owned life insurance and annuities
Investment in low income housing project
Core deposit intangible
Goodwill
Mortgage servicing rights
Accrued interest receivable and other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing
Interest bearing
Total deposits
Securities sold under agreements to repurchase
Short-term borrowings
Other interest bearing liabilities
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ Equity:
Preferred stock, no par value:
Authorized - 500,000 shares, none issued
Common stock, par value $1.00 per share:
Authorized - 20,000,000 shares
Issued - 4,745,826 shares
Outstanding -
4,196,266 shares at December 31, 2013;
4,218,361 shares at December 31, 2012
Surplus
Retained earnings
Accumulated other comprehensive loss
Cost of common stock in Treasury:
549,560 shares at December 31, 2013;
527,465 shares at December 31, 2012
Total stockholders’ equity
Total liabilities and stockholders’ equity
See Notes to Consolidated Financial Statements
- 41 -
$ 8,570
43
8,613
249
126,046
1,967
4,172
277,798
(2,287)
275,511
6,330
281
14,848
3,990
119
2,046
167
4,443
$448,782
$ 74,611
305,034
379,645
5,397
8,400
1,356
4,000
398,798
$ 14,261
136
14,397
847
122,338
1,726
4,000
277,500
(3,281)
274,219
6,472
428
14,402
3,796
164
2,046
98
3,936
$448,869
$ 71,318
315,433
386,751
3,836
1,600
1,305
5,080
398,572
–
–
4,746
18,370
39,118
(1,659)
4,746
18,346
38,824
(1,419)
(10,591)
49,984
$448,782
(10,200)
50,297
$448,869
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Income
(in thousands, except share and per share data)
Interest income:
Loans, including fees
Taxable securities
Tax-exempt securities
Other interest income
Total interest income
Interest expense:
Deposits
Securities sold under agreements to repurchase
Short-term borrowings
Other interest bearing liabilities
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income:
Customer service fees
Debit card fee income
Earnings on bank owned life insurance and annuities
Trust fees
Commissions from sales of non-deposit products
Income from unconsolidated subsidiary
Fees derived from loan activity
Gain on sales of loans
(Loss) gain on calls of securities
Gain from life insurance proceeds
Other non-interest income
Total non-interest income
Non-interest expense:
Employee compensation expense
Employee benefits
Occupancy
Equipment
Data processing expense
Director compensation
Professional fees
Taxes, other than income
FDIC Insurance premiums
(Gain) loss on sales of other real estate owned
Amortization of intangibles
Amortization of investment in low-income housing partnership
Other non-interest expense
Total non-interest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share
Basic
Diluted
Cash dividends declared per share
Weighted average basic shares outstanding
Weighted average diluted shares outstanding
See Notes to Consolidated Financial Statements
- 42 -
Years Ended December 31,
2012
2013
2011
$ 14,868
1,267
583
16
16,734
$ 16,092
1,311
738
29
18,170
$ 17,857
1,240
901
35
20,033
2,871
4
8
17
2,900
13,834
415
13,419
1,290
822
416
355
375
237
165
338
(2)
–
237
4,233
5,413
1,615
971
462
1,450
223
388
483
331
(39)
45
448
1,356
13,146
4,506
505
3,621
4
1
22
3,648
14,522
1,411
13,111
1,282
809
450
379
353
249
197
567
2
53
251
4,592
5,190
2,096
929
510
1,440
234
362
438
327
34
45
–
1,472
13,077
4,626
978
4,560
3
1
27
4,591
15,442
364
15,078
1,346
792
478
388
273
263
152
–
6
–
248
3,946
5,258
1,686
957
569
1,326
284
462
496
369
(56)
45
–
1,406
12,802
6,222
1,542
$ 4,001
$ 3,648
$ 4,680
$ 0.95
$ 0.95
$ 0.88
4,210,336
4,211,078
$ 0.86
$ 0.86
$ 0.88
4,231,404
4,233,448
$ 1.10
$ 1.10
$ 0.86
4,241,286
4,244,507
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Comprehensive Income
(in thousands)
Net income
Other comprehensive income (loss):
Available for sale securities:
Unrealized holding losses arising during the period
Unrealized holding losses from unconsolidated subsidiary
Less reclassification adjustment for
losses included in net income (1) (3)
Unrecognized pension net gain (2) (3)
Unrecognized pension gain due to change in assumptions (2) (3)
Amortization of pension prior service income (2) (3)
Amortization of pension net actuarial loss (2) (3)
Other comprehensive loss
Total comprehensive income
Net income
Other comprehensive income (loss):
Available for sale securities:
Unrealized holding losses arising during the period
Less reclassification adjustment for
gains included in net income (1) (3)
Unrecognized pension net gain (2) (3)
Unrecognized pension cost due to change in assumptions (2) (3)
Amortization of pension prior service income (2) (3)
Amortization of pension net actuarial loss (2) (3)
Other comprehensive income
Total comprehensive income
Net income
Other comprehensive income (loss):
Available for sale securities:
Unrealized holding gains arising during the period
Unrealized holding gains from unconsolidated subsidiary
Less reclassification adjustment for
gains included in net income (1) (3)
Unrecognized pension net loss (2) (3)
Unrecognized pension cost due to change in assumptions (2) (3)
Amortization of pension prior service cost (2) (3)
Amortization of pension net actuarial loss (2) (3)
Other comprehensive loss
Total comprehensive income
Year Ended December 31, 2013
Tax
Effect
$(505)
Net-of-Tax
Amount
$4,001
Before Tax
Amount
$4,506
(2,325)
(18)
2
821
962
(1)
203
(356)
$4,150
791
–
(1)
(279)
(327)
–
(68)
116
$(389)
(1,534)
(18)
1
542
635
(1)
135
(240)
$3,761
Year Ended December 31, 2012
Tax
Effect
$ (978)
Before Tax
Amount
$ 4,626
Net-of-Tax
Amount
$3,648
(33)
11
(2)
1,633
(681)
56
296
1,269
$ 5,895
1
(555)
232
(19)
(102)
(432)
$(1,410)
(22)
(1)
1,078
(449)
37
194
837
$4,485
Year Ended December 31, 2011
Tax
Effect
$(1,542)
Net-of-Tax
Amount
$4,680
Before Tax
Amount
$ 6,222
630
12
(6)
(743)
(1,247)
(2)
152
(1,204)
$ 5,018
(214)
–
2
252
424
1
(52)
413
$(1,129)
416
12
(4)
(491)
(823)
(1)
100
(791)
$3,889
(1) Amounts are included in (loss) gain on calls of securities on the Consolidated Statements of Income as a separate element within total
non-interest income.
(2) Amounts are included in the computation of net periodic benefit cost and are included in employee benefits expense on the Consolidated
Statements of Income as a separate element within total non-interest expense.
(3) Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.
See Notes to Consolidated Financial Statements
- 43 -
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
Years Ended December 31, 2013, 2012 and 2011
Number
of
Shares
Outstanding
Common
Stock
Surplus
4,257,765
$4,746
$18,354
(33,850)
4,303
26
(17)
4,228,218
4,746
18,363
(19,793)
9,936
25
(42)
4,218,361
4,746
18,346
(24,918)
2,823
30
(6)
Retained
Earnings
$37,868
4,680
(3,648)
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Stockholders’
Equity
$(1,465)
$ (9,527)
(791)
(589)
$49,976
4,680
(791)
(3,648)
26
(589)
83
66
38,900
3648
(3,724)
(2,256)
(10,033)
837
(360)
49,720
3,648
837
(3,724)
25
(360)
193
151
38,824
4,001
(3,707)
(1,419)
(10,200)
(240)
(445)
54
50,297
4,001
(240)
(3,707)
30
(445)
48
Balance at January 1, 2011
Net income
Other comprehensive loss
Cash dividends at $0.86 per share
Stock-based compensation activity
Purchase of treasury stock
Treasury stock issued for stock option
and stock purchase plans
Balance at December 31, 2011
Net income
Other comprehensive income
Cash dividends at $0.88 per share
Stock-based compensation activity
Purchase of treasury stock
Treasury stock issued for stock option
and stock purchase plans
Balance at December 31, 2012
Net income
Other comprehensive loss
Cash dividends at $0.88 per share
Stock-based compensation activity
Purchase of treasury stock
Treasury stock issued for stock purchase plan
Balance at December 31, 2013
4,196,266
$4,746
$18,370
$39,118
$(1,659)
$(10,591)
$49,984
See Notes to Consolidated Financial Statements
- 44 -
Juniata Valley Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
2012
2011
2013
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$ 4,001
$ 3,648
$ 4,680
Provision for loan losses
Depreciation
Net amortization of securities premiums
Net amortization of loan origination costs (fees)
Deferred net loan origination fees (costs)
Amortization of core deposit intangible
Amortization of investment in low income housing partnership
Net realized loss (gain) on calls of securities
Net (gain) loss on sales of other real estate owned
Earnings on bank owned life insurance and annuities
Deferred income tax expense (benefit)
Equity in earnings of unconsolidated subsidiary, net of dividends of $47, $45 and $29
Stock-based compensation expense
Mortgage loans originated for sale
Proceeds from loans sold to others
Gains on sales of loans
Gain from life insurance proceeds
Decrease in accrued interest receivable and other assets
(Decrease) increase in accrued interest payable and other liabilities
Net cash provided by operating activities
Investing activities:
Purchases of:
Securities available for sale
FHLB stock
Premises and equipment
Bank owned life insurance and annuities
Proceeds from:
Maturities of and principal repayments on securities available for sale
Redemption of FHLB stock
Bank owned life insurance and annuities
Life insurance claim
Sale of other real estate owned
Sale of other assets
Investment in low income housing partnership
Net decrease in interest bearing time deposits with banks
Net (increase) decrease in loans
Net cash used in investing activities
Financing activities:
Net (decrease) increase in deposits
Net increase in short-term borrowings and securities
sold under agreements to repurchase
Cash dividends
Purchase of treasury stock
Treasury stock issued for employee stock plans
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Interest paid
Income taxes paid
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to other real estate owned
Transfer of loans to other assets
See Notes to Consolidated Financial Statements
- 45 -
415
497
440
25
15
45
448
2
(39)
(416)
662
(190)
30
(8,173)
8,442
(338)
–
930
(997)
5,799
(45,446)
(241)
(355)
(68)
38,973
–
8
–
780
18
(642)
598
(2,359)
(8,734)
(7,106)
8,361
(3,707)
(445)
48
(2,849)
1,411
524
412
(31)
(32)
45
–
(2)
34
(450)
(64)
(204)
25
(11,057)
11,526
(567)
(53)
478
167
5,810
(87,319)
(26)
(286)
(70)
75,816
–
13
200
988
2
(3,403)
249
10,160
(3,676)
364
581
369
43
(9)
45
–
(6)
(56)
(478)
(20)
(234)
26
–
–
–
–
190
86
5,581
(87,131)
–
(224)
(70)
56,034
388
23
–
612
9
–
249
7,537
(22,573)
86
9,875
1,936
(3,724)
(360)
151
(1,911)
186
(3,648)
(589)
66
5,890
(5,784)
14,397
$ 8,613
223
14,174
$ 14,397
(11,102)
25,276
$ 14,174
$ 2,967
695
$ 3,715
1,135
$ 4,669
1,200
$ 594
18
$ 1,023
–
$ 571
22
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Years ended December 31, 2013, 2012 and 2011
1. Nature Of OperatiONs
Juniata Valley Financial Corp. (“Juniata” or the “Company”) is a bank holding company operating in central Pennsylvania, for the
purpose of delivering financial services within its local market. Through its wholly-owned banking subsidiary, The Juniata Valley
Bank (the “Bank”), Juniata provides retail and commercial banking and other financial services through 12 branch locations located
in Juniata, Mifflin, Perry and Huntingdon Counties. Additionally, in Mifflin and Centre Counties, the Company maintains two
offices for loan production and alternative investment sales. Each of the Company’s lines of business are part of the same reporting
segment, whose operating results are regularly reviewed and managed by a centralized executive management group. As a result,
the Company has only one reportable segment for financial reporting purposes. The Bank provides a full range of banking services
including on-line banking, an automatic teller machine network, checking accounts, NOW accounts, savings accounts, money market
accounts, fixed rate certificates of deposit, club accounts, secured and unsecured commercial and consumer loans, construction
and mortgage loans, safe deposit facilities and credit loans with overdraft checking protection. The Bank also provides a variety of
trust services. The Company has a contractual arrangement with a broker-dealer to allow the offering of annuities, mutual funds,
stock and bond brokerage services and long-term care insurance to its local market. Most of the Company’s commercial customers
are small and mid-sized businesses operating in the Bank’s local service area. The Bank operates under a state bank charter and is
subject to regulation by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation. Juniata is subject
to regulation of the Board of Governors of the Federal Reserve Bank and the Pennsylvania Department of Banking.
2. summary Of sigNificaNt accOuNtiNg pOlicies
The accounting policies of Juniata Valley Financial Corp. and its wholly owned subsidiary conform to accounting principles generally
accepted in the United States of America (“GAAP”) and to general financial services industry practices. A summary of the more
significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows.
Principles of consolidation
The consolidated financial statements include the accounts of Juniata Valley Financial Corp. and its wholly owned subsidiary,
The Juniata Valley Bank. All significant intercompany transactions and balances have been eliminated.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the
near term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets and the determination
of other-than-temporary impairment on securities.
Basis of presentation
Certain amounts previously reported have been reclassified to conform to the consolidated financial statement presentation for
2013. The reclassification had no effect on net income.
Significant group concentrations of credit risk
Most of the Company’s activities are with customers located within the Juniata Valley region. Note 5 discusses the types of
securities in which the Company invests. Note 6 discusses the types of lending in which the Company engages.
As of December 31, 2013, there were no concentrations of credit to any particular industry equaling more than 25% of total
capital. The Bank’s business activities are geographically concentrated in the counties of Juniata, Mifflin, Perry, Huntingdon,
Centre, Franklin and Snyder, Pennsylvania. The Bank has a diversified loan portfolio; however, a substantial portion of its
debtors’ ability to honor their obligations is dependent upon the economy in central Pennsylvania.
Cash and cash equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing
demand deposits with banks and federal funds sold. Generally, federal funds are sold for one-day periods.
- 46 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Interest bearing time deposits with banks
Interest-bearing time deposits with banks consist of certificates of deposits in other banks with maturities within one year.
Securities
Securities classified as available for sale, which include marketable investment securities, are stated at fair value, with the
unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as
available for sale are those securities that the Company 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 significant
movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Investment securities that management has the positive intent and ability to hold until
maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions are classified as
held to maturity and are stated at cost, adjusted for amortization of premium and accretion of discount computed by the interest
method over their contractual lives. Interest and dividends on investment securities available for sale and held to maturity are
recognized as income when earned. Premiums and discounts are recognized in interest income using the interest method over
the terms of the securities. Gains or losses on the disposition of securities available for sale are based on the net proceeds and
the adjusted carrying amount of the securities sold, determined on a specific identification basis. The Company has no securities
classified as held to maturity at December 31, 2013 and 2012.
Accounting Standards Codification (ASC) Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of
the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt
securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will
be required to sell the security prior to its anticipated recovery. These steps are taken before an assessment is made as to whether
the entity will recover the cost basis of the investment. For equity securities, consideration is given to management’s intention
and ability to hold the securities until recovery of unrealized losses in assessing potential other-than-temporary impairment. More
specifically, factors considered to determine other-than-temporary impairment status for individual equity holdings include the
length of time the stock has remained in an unrealized loss position, the percentage of unrealized loss compared to the carrying
cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent factors that
would affect expectations for recovery or further decline.
In instances when a determination is made that an other-than-temporary impairment exists and the entity does not intend to
sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated
recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment
related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total
other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related
to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors
is recognized in other comprehensive (loss) income.
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation
as of each balance sheet date.
Restricted Investment in Federal Home Loan Bank Stock
The Bank owns restricted stock investments in the Federal Home Loan Bank. Federal law requires a member institution of the
Federal Home Loan Bank to hold stock according to a predetermined formula. The stock is carried at cost.
Management evaluates the restricted stock for impairment on an annual basis. Management’s determination of whether these
investments are impaired is based on management’s assessment of the ultimate recoverability of the cost of these investments
rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability
of the cost of these investments is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as
compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the
FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance
of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of
the FHLB.
Management believes no impairment charge was necessary related to the FHLB restricted stock during 2013, 2012 or 2011.
- 47 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Loans
Loans that the Company has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at
the outstanding unpaid principal balances, net of any deferred fees or costs and the allowance for loan losses. Interest income
on all loans, other than nonaccrual loans, is accrued over the term of the loans based on the amount of principal outstanding.
Unearned income is amortized to income over the life of the loans, using the interest method.
The loan portfolio is segmented into commercial and consumer loans. Commercial loans are comprised of the following
classes of loans: (1) commercial, financial and agricultural, (2) commercial real estate, (3) real estate construction, a portion of
(4) mortgage loans and (5) obligations of states and political subdivisions. Consumer loans are comprised of a portion of (4)
mortgage loans and (6) personal loans.
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans
is generally discontinued when the contractual payment of principal or interest has become 90 days past due or reasonable
doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue
interest on loans over 90 days past due as long as (1) they are guaranteed or well secured and (2) there is an effective means
of collection in process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current
year is reversed against current period income and unpaid interest accrued in prior years is charged against the allowance for
loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income,
according to management’s judgment as to the collectability of principal. Generally, accruals are resumed on loans only when
the obligation is brought fully current with respect to interest and principal, 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.
The Company originates loans in the portfolio with the intent to hold them until maturity. At the time the Company no longer
intends to hold loans to maturity based on asset/liability management practices, the Company transfers loans from its portfolio
to held for sale at fair value. Any write-down recorded upon transfer is charged against the allowance for loan losses. Any write-
downs recorded after the initial transfers are recorded as a charge to other non-interest expense. Gains or losses recognized upon
sale are included in other non-interest income.
Loan origination fees and costs
Loan origination fees and related direct origination costs for a given loan are deferred and amortized over the life of the loan
on a level-yield basis as an adjustment to interest income over the contractual life of the loan. As of December 31, 2013 and
2012, the amount of net unamortized origination fees carried as an adjustment to outstanding loan balances was $123,000 and
$42,000, respectively.
Allowance for credit losses
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments.
The allowance for loan losses (“allowance”) represents management’s estimate of losses inherent in the loan portfolio as of
the consolidated statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending
commitments represents management’s estimate of losses inherent in its unfunded lending commitments and is recorded in
other liabilities on the consolidated statement of financial condition, when necessary. The amount of the reserve for unfunded
lending commitments is not material to the consolidated financial statements. The allowance for loan losses is increased by the
provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against
the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
For financial reporting purposes, the provision for loan losses charged to current operating income is based on management’s
estimates, and actual losses may vary from estimates. These estimates are reviewed and adjusted at least quarterly and are
reported in earnings in the periods in which they become known.
- 48 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Loans included in any class are considered for charge-off when:
•
•
•
•
•
principal or interest has been in default for 120 days or more and for which no payment has been received during the
previous four months;
all collateral securing the loan has been liquidated and a deficiency balance remains;
a bankruptcy notice is received for an unsecured loan;
a confirming loss event has occurred; or
the loan is deemed to be uncollectible for any other reason.
The allowance for loan losses is maintained at a level considered adequate to offset probable losses on the Company’s existing
loans. The analysis of the allowance for loan losses relies heavily on changes in observable trends that may indicate potential
credit weaknesses. Management’s periodic evaluation of the adequacy of the allowance is based on the Bank’s past loan loss
experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the
estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant
factors. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision
as more information becomes available.
In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance
for loan losses and may require the Company to recognize additions to the allowance for loan losses based on their judgments
about information available to them at the time of their examination, which may not be currently available to management.
Based on management’s comprehensive analysis of the loan portfolio, management believes the level of the allowance for loan
losses as of December 31, 2013 was adequate.
There are two components of the allowance: a specific component for loans that are deemed to be impaired; and a general
component for contingencies.
A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include payment status, collateral value and the probability of
collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower,
including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall
in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by the present value of expected
future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the
collateral if the loan is collateral dependent.
The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value
of the loan’s collateral. For commercial loans secured with real estate, estimated fair values are determined primarily through
third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated
certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the
most recent appraisal, the loan-to-value ratio based on the current appraisal and the condition of the property. Appraised values
may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value.
The discounts also include the estimated costs to sell the property. For commercial loans secured by non-real estate collateral,
estimated fair values are determined based on the borrower’s financial statements, inventory reports, aging accounts receivable,
equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the
financial information or the quality of the assets. For such loans that are classified as impaired, an allowance is established
when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying
value of that loan. The Company generally does not separately identify individual consumer segment loans for impairment
disclosures, unless such loans are subject to a restructuring agreement.
Loans whose terms are modified are classified as troubled debt restructurings if the Company grants borrowers concessions and
it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring
generally involve a below-market interest rate based on the loan’s risk characteristics or an extension of a loan’s stated maturity
date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified
terms, are current for a sustained period of time after modification. Loans classified as troubled debt restructurings are designated
as impaired.
- 49 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The component of the allowance for contingencies relates to other loans that have been segmented into risk rated categories.
The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated
quarterly or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory
classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential
weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration
of the repayment prospects. Loans classified as substandard have one or more well-defined weaknesses that jeopardize the
liquidation of the debt. Substandard loans include loans that are inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans
classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and
facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan
losses. Loans not classified are rated pass. Specific reserves may be established for larger, individual classified loans as a result
of this evaluation, as discussed above. Remaining loans are categorized into large groups of smaller balance homogeneous
loans and are collectively evaluated for impairment. This computation is generally based on historical loss experience adjusted
for qualitative factors. The historical loss experience is averaged over a ten-year period for each of the portfolio segments.
The ten-year timeframe was selected in order to capture activity over a wide range of economic conditions and has been
consistently used for the past seven years. The qualitative risk factors are reviewed for relevancy each quarter and include:
• National, regional and local economic and business conditions, as well as the condition of various market segments,
including the underlying collateral for collateral dependent loans;
Experience, ability and depth of lending and credit management and staff;
• Nature and volume of the portfolio and terms of loans;
•
• Volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications;
•
•
Existence and effect of any concentrations of credit and changes in the level of such concentrations; and
Effect of external factors, including competition.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using
relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation
of changes in conditions in a narrative accompanying the allowance for loan loss calculation.
Commercial, Financial and Agricultural Lending
The Company originates commercial, financial and agricultural loans primarily to businesses located in its primary market
area and surrounding areas. These loans are used for various business purposes, which include short-term loans and lines of
credit to finance machinery and equipment purchases, inventory and accounts receivable. Generally, the maximum term for
loans extended on machinery and equipment is shorter and does not exceed the projected useful life of such machinery and
equipment. Most business lines of credit are written with a five year maturity, subject to an annual review.
Commercial loans are generally secured with short-term assets; however, in many cases, additional collateral, such as real
estate, is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company
and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts
receivable aging reports, collateral appraisals, etc.
In underwriting commercial loans, an analysis of the borrower’s character, capacity to repay the loan, the adequacy of the
borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower, is performed. Analysis of the
borrower’s past, present and future cash flows is also an important aspect of the Company’s analysis.
Concentration analysis assists in identifying industry specific risk inherent in commercial, financial and agricultural lending.
Mitigants include the identification of secondary and tertiary sources of repayment and appropriate increases in oversight.
Commercial, financial and agricultural loans generally present a higher level of risk than certain other types of loans, particularly
during slow economic conditions.
- 50 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Commercial Real Estate Lending
The Company engages in commercial real estate lending in its primary market area and surrounding areas. The Company’s
commercial real estate portfolio is secured primarily by residential housing, commercial buildings, raw land and hotels.
Generally, commercial real estate loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the
appraised value of the property and are typically secured by personal guarantees of the borrowers.
As economic conditions deteriorate, the Company reduces its exposure in real estate loans with higher risk characteristics. In
underwriting these loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s
credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on
properties securing commercial real estate loans originated by the Company are performed by independent appraisers.
Commercial real estate loans generally present a higher level of risk than certain other types of loans, particularly during slow
economic conditions.
Real Estate Construction Lending
The Company engages in real estate construction lending in its primary market area and surrounding areas. The Company’s
real estate construction lending consists of commercial and residential site development loans, as well as commercial building
construction and residential housing construction loans.
The Company’s commercial real estate construction loans are generally secured with the subject property, and advances are
made in conformity with a pre-determined draw schedule supported by independent inspections. Terms of construction loans
depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.
In underwriting commercial real estate construction loans, the Company performs a thorough analysis of the financial condition
of the borrower, the borrower’s credit history, the reliability and predictability of the cash flow generated by the project using
feasibility studies, market data, etc. Appraisals on properties securing commercial real estate loans originated by the Company
are performed by independent appraisers.
Real estate construction loans generally present a higher level of risk than certain other types of loans, particularly during slow
economic conditions. The difficulty of estimating total construction costs adds to the risk as well.
Mortgage Lending
The Company’s real estate mortgage portfolio is comprised of consumer residential mortgages and business loans secured by
one-to-four family properties. One-to-four family residential mortgage loan originations, including home equity installment
and home equity lines of credit loans, are generated by the Company’s marketing efforts, its present customers, walk-in
customers and referrals. These loans originate primarily within the Company’s market area or with customers primarily from
the market area.
The Company offers fixed-rate and adjustable rate mortgage loans with terms up to a maximum of 25-years for both permanent
structures and those under construction. The Company’s one-to-four family residential mortgage originations are secured
primarily by properties located in its primary market area and surrounding areas. The majority of the Company’s residential
mortgage loans originate with a loan-to-value of 80% or less. Home equity installment loans are secured by the borrower’s
primary residence with a maximum loan-to-value of 80% and a maximum term of 15 years. Home equity lines of credit are
secured by the borrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years.
In underwriting one-to-four family residential real estate loans, the Company evaluates the borrower’s ability to make monthly
payments, the borrower’s repayment history and the value of the property securing the loan. The ability to repay is determined
by the borrower’s employment history, current financial conditions, and credit background. The analysis is based primarily on
the customer’s ability to repay and secondarily on the collateral or security. Most properties securing real estate loans made
by the Company are appraised by independent fee appraisers. The Company generally requires mortgage loan borrowers to
- 51 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
obtain an attorney’s title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in
an amount not less than the amount of the loan. The Company does not engage in sub-prime residential mortgage originations.
Residential mortgage loans and home equity loans generally present a lower level of risk than certain other types of consumer
loans because they are secured by the borrower’s primary residence. Risk is increased when the Company is in a subordinate
position for the loan collateral.
Obligations of States and Political Subdivisions
The Company lends to local municipalities and other tax-exempt organizations. These loans are primarily tax-anticipation
notes and, as such, carry little risk. Historically, the Company has never had a loss on any loan of this type.
Personal Lending
The Company offers a variety of secured and unsecured personal loans, including vehicle loans, mobile home loans and loans
secured by savings deposits as well as other types of personal loans.
Personal loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In underwriting
personal loans, a thorough analysis of the borrower’s willingness and financial ability to repay the loan as agreed is performed.
The ability to repay is determined by the borrower’s employment history, current financial conditions and credit background.
Personal loans may entail greater credit risk than do residential mortgage loans, particularly in the case of personal loans which
are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any
repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation. In addition, personal loan collections are dependent
on the borrower’s continuing financial stability and, thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.
Other real estate owned
Assets acquired in settlement of mortgage loan indebtedness are recorded as other real estate owned (OREO) at fair value less
estimated costs to sell, establishing a new cost basis. Costs to maintain the assets and subsequent gains and losses attributable
to their disposal are included in other expense as realized. No depreciation or amortization expense is recognized. At December
31, 2013 and 2012, the carrying value of other real estate owned was $281,000 and $428,000, respectively.
Goodwill and intangibles
Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible
assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of
contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination
with a related contract, asset or liability. It is the Company’s policy that goodwill be tested at least annually for impairment.
Mortgage servicing rights
The Company originates residential mortgage loans with the intent to sell. These individual loans are normally funded by the
buyer immediately. The Company maintains servicing rights on these loans.
Mortgage servicing rights are recognized as an asset upon the sale of a mortgage loan. A portion of the cost of the loan is
allocated to the servicing right based upon relative fair value. Servicing rights are intangible assets and are carried at estimated
fair value . The carrying amount of mortgage servicing rights was $167,000 and $98,000 at December 31, 3013 and 2012,
respectively. Adjustments to fair value are recorded as non-interest income and included in gain on sales of loans in the
consolidated statements of income.
The Company retains the servicing rights on certain mortgage loans sold to the FHLB and receives mortgage banking fee
income based upon the principal balance outstanding Total loans serviced for the FHLB were $18,688,000 and $11,295,000
at December 31, 2013 and 2012, respectively. The mortgage loans sold to the FHLB and serviced by the Company are not
reflected in the consolidated statements of financial condition.
- 52 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Premises and equipment and depreciation
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally using the straight-
line method over the estimated useful lives of the related assets, which range from 3 to 10 years for furniture and equipment
and 25 to 50 years for buildings. Expenditures for maintenance and repairs are charged against income as incurred. Costs of
major additions and improvements are capitalized. Amortization of leasehold improvements is computed by straight line over
the shorter of the assets’ useful life or the related lease term.
Trust assets and revenues
Assets held in a fiduciary capacity are not assets of the Bank or the Bank’s Trust Department and are, therefore, not included
in the consolidated financial statements. Trust revenues are recorded on the accrual basis.
Bank owned life insurance, annuities and split-dollar arrangements
The cash surrender value of bank owned life insurance and annuities is carried as an asset, and changes in cash surrender value
are recorded as non-interest income.
GAAP requires split-dollar life insurance arrangements to have a liability recognized related to the postretirement benefits
covered by an endorsement split-dollar life insurance arrangement. The accrued benefit liability was $792,000 and $738,000 as
of December 31, 2013 and 2012, respectively. Related expenses for 2013, 2012 and 2011 were $54,000, $29,000 and $49,000,
respectively.
Investments in low-income housing partnerships
Juniata has invested as a limited partner in a partnership that provides low-income housing in Lewistown, Pennsylvania. The
carrying value of the investment in the limited partnership was $3,990,000 at December 31, 2013 and $3,796,000 at December
31, 2012. The partnership anticipates receiving $575,000 annually in low-income housing tax credits over ten years, beginning
in 2013. Amortization of the investment using the cost method is scheduled to occur over the same period as tax credits are
earned. The maximum exposure to loss is limited to the carrying value of its investment at year-end.
Income taxes
The Company accounts for income taxes in accordance with income tax accounting guidance ASC Topic 740, Income Taxes.
Current income tax accounting guidance results in two components of income tax expense: current and deferred. Current income
tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the
taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences
between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period
in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are
reduced by a valuation allowance if, based on the weight of the evidence available, it is more likely than not that some portion
or all of a deferred tax asset will not be realized.
The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits, that the tax position
will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent;
the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax
position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount
of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has
full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-
not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to
management’s judgment.
The Company recognizes interest and penalties on income taxes, if any, as a component of income tax expense.
Advertising
The Company follows the policy of charging costs of advertising to expense as incurred. Advertising expenses were $207,000,
$172,000 and $144,000 in 2013, 2012 and 2011, respectively.
- 53 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Off-balance sheet financial instruments
In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments
to extend credit and letters of credit. Such financial instruments are recorded on the consolidated statement of financial condition
when they are funded.
Transfer of financial assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred
assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right
(free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the
Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their
maturity.
Stock-based compensation
The Company sponsors a stock option plan for certain key officers. Compensation expense for stock options granted is
measured using the fair value of the award on the grant date and is recognized over the vesting period. The Company recognized
$30,000, $25,000 and $26,000 of expense for the years ended December 31, 2013, 2012 and 2011, respectively, for stock-based
compensation. The stock-based compensation expense amounts were derived based on the fair value of options using the Black-
Scholes option-pricing model. The following weighted average assumptions were used to value options granted in the periods
indicated.
Expected life of options
Risk-free interest rate
Expected volatility
Expected dividend yield
2013
7 years
1.41%
21.57%
4.91%
2012
7 years
1.78%
22.12%
4.86%
2011
7 years
1.39%
21.91%
4.62%
Segment reporting
Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail
and trust operations of the Company. As such, discrete financial information is not available, and segment reporting would not
be meaningful.
Subsequent events
The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition
date of December 31, 2013, for items that should potentially be recognized or disclosed in the consolidated financial statements.
The evaluation was conducted through the date these consolidated financial statements were issued.
3. receNt accOuNtiNg staNdards update (asu)
There were no new accounting pronouncements affecting the Company during the year ended December 31, 2013 that had not been
adopted by the Company in previous periods. In addition, there are no recently issued accounting standards that are expected to
have a material impact on the Company’s consolidated financial statements in future periods.
4. restrictiONs ON cash aNd due frOm BaNks
The Bank is required to maintain cash reserve balances with the Federal Reserve Bank. The total required reserve balances were
$362,000 and $225,000 as of December 31, 2013 and 2012, respectively.
- 54 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
5. securities
The Company’s investment portfolio includes primarily bonds issued by U.S. Government sponsored agencies (approximately 62%)
and municipalities (approximately 33%) as of December 31, 2013. Most of the municipal bonds are general obligation bonds with
maturities or pre-refunding dates within 5 years. The remaining 5% of the portfolio includes mortgage-backed securities issued by
Government-sponsored agencies and backed by residential mortgages and a group of equity investments in other financial institutions.
The amortized cost and fair value of securities as of December 31, 2013 and 2012, by contractual maturity, are shown below (in
thousands). Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or
without prepayment penalties.
December 31, 2013
Securities Available for Sale
Type and maturity
Obligations of Government agencies and corporations
Within one year
After one year but within five years
After five years but within ten years
Obligations of state and political subdivisions
Within one year
After one year but within five years
After five years but within ten years
After ten years
Mortgage-backed securities
Equity securities
Total
Amortized
Cost
$ 4,177
48,011
27,615
79,803
8,260
26,027
7,224
350
41,861
4,465
1,055
$127,184
Fair
Value
$ 4,192
47,578
26,508
78,278
8,314
26,098
7,182
338
41,932
4,469
1,367
$126,046
Gross
Unrealized
Gains
$ 15
203
–
218
55
133
56
–
244
7
366
$835
Gross
Unrealized
Losses
$ –
(636)
(1,107)
(1,743)
(1)
(62)
(98)
(12)
(173)
(3)
(54)
$(1,973)
- 55 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2012
Securities Available for Sale
Type and maturity
Obligations of Government agencies and corporations
Within one year
After one year but within five years
After five years but within ten years
Obligations of state and political subdivisions
Within one year
After one year but within five years
After five years but within ten years
After ten years
Mortgage-backed securities
Equity securities
Total
Amortized
Cost
$ 7,908
42,253
22,004
72,165
10,448
29,595
4,727
731
45,501
2,502
985
$121,153
Fair
Value
$ 7,996
42,796
22,025
72,817
10,505
29,809
4,936
726
45,976
2,526
1,019
$122,338
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$ 88
543
53
684
57
246
215
–
518
24
145
$1,371
$ –
–
(32)
(32)
–
(32)
(6)
(5)
(43)
–
(111)
$(186)
Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold
under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was
$31,921,000 and $30,785,000 at December 31, 2013 and 2012, respectively.
In addition to cash received from the scheduled maturities of securities, some investment securities available for sale are sold at
current market values during the course of normal operations. Following is a summary of proceeds received from all investment
securities transactions and the resulting realized gains and losses (in thousands):
Gross proceeds from sales of securities
Securities available for sale:
Gross realized gains from called securities
Gross realized losses from called securities
2013
$ –
$ –
(2)
Years
2012
$ –
$ 2
–
2011
$ –
$ 6
–
- 56 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The following table shows gross unrealized losses and fair value, aggregated by category and length of time that individual securities
have been in a continuous unrealized loss position, at December 31, 2013 (in thousands):
Obligations of U.S. Government
agencies and corporations
Obligations of state and political subdivisions
Mortgage-backed securities
Debt securities
Unrealized Losses at December 31, 2013
Less Than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Fair
Unrealized
Value
Losses
Total
Fair
Value
Unrealized
Losses
$53,438
11,496
308
65,242
$(1,664)
(130)
(3)
(1,797)
$1,921
4,301
–
6,222
$ (79)
(43)
–
(122)
$55,359
15,797
308
71,464
$(1,743)
(173)
(3)
(1,919)
Equity securities
–
–
266
(54)
266
(54)
Total temporarily impaired securities
$65,242
$(1,797)
$6,488
$(176)
$71,730
$(1,973)
At December 31, 2013, 45 U.S. Government and agency securities had unrealized losses that in the aggregate did not exceed 3% of
amortized cost. One of these securities has been in a continuous loss position for 12 months or more.
At December 31, 2013, 37 obligations of state and political subdivision bonds had unrealized losses that in the aggregate did not
exceed 2% of amortized cost. Eight of these securities have been in a continuous loss position for 12 months or more.
At December 31, 2013, one mortgage-backed security had an unrealized loss that did not exceed 1% of amortized cost. This security
had not been in a continuous loss position for 12 months or more.
The mortgaged-backed securities in the Company’s portfolio are government sponsored enterprise (GSE) pass-through instruments
issued by the Federal National Mortgage Association (FNMA), which guarantees the timely payment of principal on these investments.
The unrealized losses noted above are considered to be temporary impairments. The decline in the values of the debt securities is
due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows,
including principal repayment, is not at risk. As the Company does not intend to sell the securities, does not believe the Company
will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, none of the debt securities
are deemed to be other-than-temporarily impaired.
Equity securities owned by the Company consist of common stock of various financial services providers (“Bank Stocks”) and are
evaluated quarterly for evidence of other-than-temporary impairment. There were seven equity securities that were in an unrealized
loss position on December 31, 2013, and have carried unrealized losses for 12 months or more. Individually, none of these seven
equity securities have significant unrealized losses. Of the seven equity securities that have sustained unrealized losses for more
than 12 months, all have increased in fair value during 2013, indicating the possibility of full recovery and therefore are deemed to
be temporarily impaired. Management has identified no other-than-temporary impairment as of, or for the periods ended, December
31, 2013 and 2012 in the equity portfolio. Management continues to track the performance of each stock owned to determine if it
is prudent to deem any further other-than-temporary impairment charges. The Company has the ability and intent to hold its equity
securities until recovery of unrealized losses.
- 57 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The following table shows gross unrealized losses and fair value, aggregated by category and length of time that individual securities
had been in a continuous unrealized loss position, at December 31, 2012 (in thousands):
Obligations of U.S. Government
agencies and corporations
Obligations of state and political subdivisions
Debt securities
Unrealized Losses at December 31, 2012
Less Than 12 Months
Unrealized
Losses
Fair
Value
12 Months or More
Fair
Unrealized
Value
Losses
Total
Fair
Value
Unrealized
Losses
$11,471
13,040
24,511
$(32)
(43)
(75)
$ –
–
–
$ –
–
–
$11,471
13,040
24,511
$ (32)
(43)
(75)
Equity securities
249
(13)
251
(98)
500
(111)
Total temporarily impaired securities
$24,760
$(88)
$251
$(98)
$25,011
$(186)
6. lOaNs aNd related allOwaNce fOr lOaN lOsses
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of
special mention, substandard and doubtful within the Company’s internal risk rating system as of December 31, 2013 and December
31, 2012 (in thousands):
As of December 31, 2013
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total
As of December 31, 2012
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total
Pass
$ 20,388
56,867
15,803
130,706
12,674
4,204
$240,642
Pass
$ 17,570
55,198
14,001
144,179
12,769
5,024
$248,741
Special
Mention
$ 5,658
11,706
292
3,995
28
–
$21,679
Special
Mention
$ 904
8,939
1,022
3,864
–
10
$14,739
Substandard
Doubtful
Total
$ 235
5,620
1,754
4,272
–
–
$11,881
$ –
278
1,832
1,486
–
–
$3,596
$ 26,281
74,471
19,681
140,459
12,702
4,204
$277,798
Substandard
Doubtful
Total
$ 822
5,010
867
2,350
–
–
$ 9,049
$ –
40
2,202
2,729
–
–
$4,971
$ 19,296
69,187
18,092
153,122
12,769
5,034
$277,500
- 58 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The Company has certain loans in its portfolio that are considered to be impaired. It is the policy of the Company to recognize income
on impaired loans that have been transferred to nonaccrual status on a cash basis, only to the extent that it exceeds principal balance
recovery. Until an impaired loan is placed on nonaccrual status, income is recognized on the accrual basis. A collateral analysis is
performed on each impaired loan at least quarterly and results are used to determine if a specific reserve is necessary to adjust the
carrying value of each individual loan down to the estimated fair value. Generally, specific reserves are carried against impaired
loans based upon estimated collateral value until a confirming loss event occurs or until termination of the credit is scheduled
through liquidation of the collateral or foreclosure. Charge off will occur when a confirmed loss is identified. Professional appraisals
of collateral, discounted for expected selling costs, are used to determine the charge-off amount. The following tables summarize
information regarding impaired loans by portfolio class as of December 31, 2013 and December 31, 2012 (in thousands):
As of December 31, 2013
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
As of December 31, 2012
Unpaid
Principal
Balance
Recorded
Investment
Related
Allowance
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
With an allowance recorded:
Real estate - commercial
Real estate - construction
Real estate - mortgage
Total:
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
$ 94
2,017
504
3,353
$ 238
1,478
365
$ 94
2,255
1,982
3,718
$8,049
$ 94
2,142
813
4,751
$ 238
1,502
394
$ 94
2,380
2,315
5,145
$9,934
$ –
–
–
–
$ 26
93
45
$ –
26
93
45
$164
$ 160
2,672
2,004
487
$ 160
2,672
2,197
523
$ –
–
–
–
$ –
198
2,141
$ –
198
2,141
$ –
91
1,036
$ 160
2,672
2,202
2,628
$7,662
$ 160
2,672
2,395
2,664
$7,891
$ –
–
91
1,036
$1,127
- 59 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Year Ended December 31, 2013
Year Ended December 31, 2012
Year Ended December 31, 2011
Average
Recorded
Investment
Interest
Income
Recognized
Cash Basis
Interest
Income
Average
Recorded
Investment
Interest
Income
Recognized
Cash Basis
Interest
Income
Average
Recorded
Investment
Interest
Income
Recognized
Cash Basis
Interest
Income
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
$ 127
2,345
1,254
1,920
$ –
96
2
64
With an allowance recorded:
Real estate - commercial
Real estate - construction
Real estate - mortgage
Total:
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
$ 119
838
1,253
$ –
–
–
$ 127
2,464
2,092
3,173
$7,856
$ –
96
2
64
$162
$ –
24
6
24
$ –
–
7
$ –
24
6
31
$61
$ 199
2,492
1,362
1,371
$ –
674
2,503
$ 199
2,492
2,036
3,874
$8,601
$ 14
119
–
–
$ –
–
–
$ 14
119
–
–
$133
$ –
3
–
–
$ –
15
–
$ –
3
15
–
$18
$ 274
2,354
485
2,453
$ 19
139
42
34
$ –
1,025
2,051
$ –
–
65
$ 274
2,354
1,510
4,504
$8,642
$ 19
139
42
99
$299
$ –
10
14
47
$ –
–
–
$ –
10
14
47
$71
The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2013 and December 31, 2012 (in
thousands):
Nonaccrual loans:
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Total
December 31, 2013
December 31, 2012
$ 10
1,331
1,982
2,629
$5,952
$ 20
1,835
2,376
4,615
$8,846
Interest income not recorded based on the original contractual terms of the loans for nonaccrual loans was $490,000, $472,000
and $405,000 in 2013, 2012 and 2011, respectively. The aggregate amount of demand deposits that have been reclassified as loan
balances at December 31, 2013 and 2012 were $41,000 and $620,000, respectively.
- 60 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined
by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by
the past due status as of December 31, 2013 and December 31, 2012 (in thousands):
As of December 31, 2013
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states
and political subdivisions
Personal
Total
$ 19
35
239
1,239
–
23
$1,555
$ –
1,092
7
2,130
–
1
$3,230
30-59 Days
Past Due
60-89 Days
Past Due
Greater than
90 Days
Total Past
Due
$ 10
947
1,801
2,585
$ 29
2,074
2,047
5,954
Current
$ 26,252
72,397
17,634
134,505
–
–
$5,343
–
24
$10,128
12,702
4,180
$267,670
As of December 31, 2012
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states
and political subdivisions
Personal
Total
30-59 Days
Past Due
60-89 Days
Past Due
Greater than
90 Days
Total Past
Due
$ 30
295
9
1,359
–
29
$1,722
$ –
819
136
3,131
–
25
$4,111
$ 191
1,928
2,335
4,428
–
2
$8,884
$ 221
3,042
2,480
8,918
–
56
$14,717
Current
$ 19,075
66,145
15,612
144,204
12,769
4,978
$262,783
Loans Past
Due Greater
than 90 Days
and Accruing
$ –
61
–
251
–
–
$312
Loans Past
Due Greater
than 90 Days
and Accruing
$171
93
156
320
–
2
$742
Total
Loans
$ 26,281
74,471
19,681
140,459
12,702
4,204
$277,798
Total
Loans
$ 19,296
69,187
18,092
153,122
12,769
5,034
$277,500
The following table summarizes information regarding troubled debt restructurings by loan portfolio class as of and for the year
ended December 31, 2013, in thousands of dollars. There were no loans identified as troubled debt restructurings as of and for the
year ended December 31, 2012.
2013
Accruing troubled debt restructurings:
Real estate - commercial
Real estate - mortgage
Pre-Modification
Outstanding
Recorded
Investment
Post-Modification
Outstanding
Recorded
Investment
Number of
Contracts
Recorded
Investment
1
6
7
$ 64
706
$770
$ 61
714
$775
$ 61
714
$775
- 61 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The Company’s troubled debt restructurings are also impaired loans, which may result in a specific allocation and subsequent
charge-off if appropriate. As of December 31, 2013, there were no specific reserves or charge-offs relating to the troubled debt
restructurings. The amended terms of the restructured loans vary, whereby interest rates have been reduced, principal payments
have been reduced or deferred for a period of time and/or maturity dates have been extended. One restructured loan was delinquent
in excess of 90 days with respect to the terms of the restructuring as of December 31, 2013. This loan has a balance of $61,000 and
is in the process of foreclosure.
There were no loans modified resulting in troubled debt restructurings during 2012. There have been no defaults of troubled debt
restructuring that took place during 2012 and 2013 within 12 months of restructure.
The following tables summarize the activity in the allowance for loan losses by loan class and loans by loan class, segregated into
the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for
impairment as of and for the years ended December 31, 2013, 2012 and 2011 (in thousands):
Allowance for loan losses:
Beginning Balance, January 1, 2013
Charge-offs
Recoveries
Provisions
Ending balance
Commercial,
financial and
agricultural
Real estate -
commercial
Real estate -
construction
Real estate -
mortgage
Obligations of
states and
political
subdivisions
Personal
Total
$ 179
(4)
13
65
$ 253
$ 463
–
–
71
$ 534
$ 202
(117)
–
127
$ 212
$ 2,387
(1,281)
–
140
$ 1,246
$ –
–
–
–
$ –
$ 50
(29)
9
12
$ 42
$ 3,281
(1,431)
22
415
$ 2,287
Commercial,
financial and
agricultural
Real estate -
commercial
Real estate -
construction
Real estate -
mortgage
Obligations of
states and
political
subdivisions
Personal
Total
As of December 31, 2013
Allowance for loan losses:
Ending balance evaluated for impairment
$ 253
$ 534
$ 212
$ 1,246
$ –
$ 42
$ 2,287
individually
collectively
$ –
$ 253
$ 26
$ 508
$ 93
$ 119
$ 45
$ 1,201
$ –
$ –
$ –
$ 42
$ 164
$2,123
Loans:
Ending balance evaluated for impairment
$26,281
$74,471
$19,681
$140,459
$12,702
$4,204
$277,798
individually
collectively
$ 94
$26,187
$ 2,255
$72,216
$ 1,982
$17,699
$ 3,718
$136,741
$ –
$12,702
$ –
$4,204
$ 8,049
$269,749
- 62 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Allowance for loan losses:
Beginning Balance, January 1, 2012
Charge-offs
Recoveries
Provisions
Ending balance
Commercial,
financial and
agricultural
Real estate -
commercial
Real estate -
construction
Real estate -
mortgage
Obligations of
states and
political
subdivisions Personal
Total
$ 195
(25)
8
1
$ 179
$ 455
–
–
8
$ 463
$ 442
(193)
–
(47)
$ 202
$ 1,771
(852)
–
1,468
$ 2,387
$ –
–
–
–
$ –
$ 68
(1)
2
(19)
$ 50
$ 2,931
(1,071)
10
1,411
$ 3,281
Commercial,
financial and
agricultural
Real estate -
commercial
Real estate -
construction
Real estate -
mortgage
Obligations of
states and
political
subdivisions Personal
Total
As of December 31, 2012
Allowance for loan losses:
Ending balance evaluated for impairment
$ 179
$ 463
$ 202
$ 2,387
$ –
$ 50
$ 3,281
individually
collectively
$ –
$ 179
$ –
$ 463
$ 91
$ 111
$ 1,036
$ 1,351
$ –
$ –
$ –
$ 50
$ 1,127
$ 2,154
Loans:
Ending balance evaluated for impairment
$19,296
$69,187
$18,092
$153,122
$12,769
$5,034
$277,500
individually
collectively
$ 160
$19,136
$ 2,672
$66,515
$ 2,202
$15,890
$ 2,628
$150,494
$ –
$12,769
$ –
$5,034
$ 7,662
$269,838
Commercial,
financial and
agricultural
Real estate -
commercial
Real estate -
construction
Real estate -
mortgage
Obligations of
states and
political
subdivisions Personal
Total
Allowance for loan losses:
Beginning Balance, January 1, 2011
Charge-offs
Recoveries
Provisions
Ending balance
$ 163
(18)
2
48
$ 195
$ 442
(37)
–
50
$ 455
$ 336
–
–
106
$ 442
$ 1,810
(205)
10
156
$ 1,771
$ –
–
–
–
$ –
$ 73
(22)
13
4
$ 68
$ 2,824
(282)
25
364
$ 2,931
Commercial,
financial and
agricultural
Real estate -
commercial
Real estate -
construction
Real estate -
mortgage
Obligations of
states and
political
subdivisions Personal
Total
As of December 31, 2011
Allowance for loan losses:
Ending balance evaluated for impairment $ 195
$ 455
$ 442
$ 1,771
$ –
$ 68
$ 2,931
individually
collectively
$ –
$ 195
$ –
$ 455
$ 343
$ 99
$ 432
$ 1,339
$ –
$ –
$ –
$ 68
$ 775
$ 2,156
Loans, net of unearned interest:
Ending balance evaluated for impairment $19,417
$60,774
$17,508
$176,544
$ 8,780
$6,658
$289,681
individually
collectively
$ 238
$19,179
$ 2,312
$58,462
$ 1,870
$15,638
$ 5,119
$171,425
$ –
$ 8,780
$ –
$6,658
$ 9,539
$280,142
- 63 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
7. pledged assets
The Bank must maintain sufficient qualifying collateral with the Federal Home Loan Bank (FHLB), in order to secure borrowings.
Therefore, a Master Collateral Agreement has been entered into which pledges all mortgage related assets as collateral for future
borrowings. Mortgage related assets could include loans or investment securities. As of December 31, 2013, the amount of loans
included in qualifying collateral was $190,905,000, for a collateral value of $135,454,000. No investment securities are included in
qualifying collateral as of December 31, 2013.
8. BaNk OwNed life iNsuraNce aNd aNNuities
The Company holds bank-owned life insurance (BOLI), deferred annuities and payout annuities with a combined cash value of
$14,848,000 and $14,402,000 at December 31, 2013 and 2012, respectively. As annuitants retire, the deferred annuities may be
converted to payout annuities to create payment streams that match certain post-retirement liabilities. The cash surrender value
on the BOLI and annuities increased by $446,000, $333,000 and $501,000 in 2013, 2012 and 2011, respectively, from earnings
recorded as non-interest income and from premium payments, net of cash payments received. The contracts are owned by the Bank
in various insurance companies. The crediting rate on the policies varies annually based on the insurance companies’ investment
portfolio returns in their general fund and market conditions. Changes in cash value of BOLI and annuities in 2013 and 2012 are
shown below (in thousands):
Life
Insurance
Deferred
Annuities
Payout
Annuities
Total
Balance as of December 31, 2011
$13,718
$327
$ 24
$14,069
Earnings
Premiums on existing policies
Annuity payments received
Net proceeds from life insurance claim
Balance as of December 31, 2012
Earnings
Premiums on existing policies
Annuity payments received
Balance as of December 31, 2013
409
56
–
(147)
14,036
372
54
–
$14,462
13
14
–
–
354
13
14
–
$381
1
–
(13)
–
12
1
–
(8)
$ 5
423
70
(13)
(147)
14,402
386
68
(8)
$14,848
9. premises aNd equipmeNt
Premises and equipment consist of the following (in thousands):
Land
Buildings and improvements
Furniture, computer software and equipment
Less: accumulated depreciation and amortization
December 31,
2013
$ 1,066
8,585
4,601
14,252
(7,922)
$ 6,330
2012
$ 864
8,510
4,523
13,897
(7,425)
$ 6,472
Depreciation and amortization expense on premises and equipment charged to operations was $497,000 in 2013, $524,000 in 2012
and $581,000 in 2011.
- 64 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
10. acquisitiON
On September 8, 2006, the Company completed its acquisition of a branch office in Richfield, PA. The acquisition included real
estate, deposits and loans. The assets and liabilities of the acquired branch office were recorded on the consolidated statement of
financial condition at their estimated fair values as of September 8, 2006, and its results of operations have been included in the
consolidated statements of income since such date.
Included in the purchase price of the branch was goodwill and core deposit intangible of $2,046,000 and $449,000, respectively.
The core deposit intangible is being amortized over a ten-year period on a straight line basis. The goodwill is not amortized, but
is measured annually for impairment. Core deposit intangible amortization expense of $45,000 was recorded in each of the years
2013, 2012 and 2011. Intangible amortization expense projected for the succeeding five years beginning in 2014 is estimated to be
$45,000 in 2014 and 2015 and $29,000 for 2016.
11. iNvestmeNt iN uNcONsOlidated suBsidiary
On September 1, 2006, the Company invested in Liverpool Community Bank (formerly known as The First National Bank of
Liverpool) (“LCB”), Liverpool, PA, by purchasing 39.16% of its outstanding common stock. This investment is accounted for under
the equity method of accounting. The investment is being carried at $4,172,000 as of December 31, 2013. The Company increases
its investment in LCB for its share of earnings and decreases its investment by any dividends received from LCB. The investment
is evaluated quarterly for impairment. A loss in value of the investment which is determined to be other than a temporary decline
would be recognized as a loss in the period in which such determination is made. Evidence of a loss in value might include, but
would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of LCB to
sustain an earnings capacity which would justify the current carrying value of the investment.
12. depOsits
Deposits consist of the following (in thousands):
Demand, non-interest bearing
NOW and Money Market
Savings
Time deposits, $100,000 or more
Other time deposits
December 31,
2013
$ 74,611
89,867
60,761
30,995
123,411
$379,645
2012
$ 71,318
90,349
56,382
33,007
135,695
$386,751
Aggregate amount of scheduled maturities of time deposits as of December 31, 2013 include the following (in thousands):
Maturing in:
2014
2015
2016
2017
2018
Later
Time Deposits
Other
$ 55,671
35,221
13,886
6,914
7,426
4,293
$123,411
Total Time
Deposits
70,197
45,443
16,342
8,289
8,755
5,380
154,406
$100,000
or more
$14,526
10,222
2,456
1,375
1,329
1,087
$30,995
- 65 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
13. BOrrOwiNgs
Borrowings consist of the following (dollars in thousands):
December 31, 2013
December 31, 2012
December 31, 2011
Outstanding
Balance
Rate
Outstanding
Balance
Rate
Outstanding
Balance
Rate
For the year 2013
Weighted
Average
Rate
Average
Balance
Securities sold under
agreements to repurchase
$ 5,397
0.10%
$3,836
0.10%
$3,500
0.10%
$4,332
0.10%
Short-term borrowings -
Federal Home Loan Bank
overnight advances
8,400
0.25%
1,600
0.25%
–
–
3,200
0.25%
$13,797
0.19%
$5,436
0.14%
$3,500
0.10%
$7,532
0.16%
The maximum balance of short-term borrowings at any month-end during 2013 was $ 13,863,000.
The Bank has repurchase agreements with several of its depositors, under which customers’ funds are invested daily into an interest
bearing account. These funds are carried by the Company as short-term debt. It is the Company’s policy to have repurchase agreements
collateralized 100% by U.S. Government securities. As of December 31, 2013, the securities that serve as collateral for securities
sold under agreements to repurchase had a fair value of $8,919,000. The interest rate paid on these funds is variable and subject to
change daily.
The Bank’s maximum borrowing capacity with the Federal Home Loan Bank of Pittsburgh (“FHLB”) is $135,454,000, with a balance
of $8,400,000 outstanding as of December 31, 2013. In order to borrow additional amounts in excess of $2,021,000, the FHLB
would require the Bank to purchase additional FHLB Stock. The FHLB is a source of both short-term and long-term funding. The
Bank must maintain sufficient qualifying collateral to secure all outstanding advances.
The Bank has entered into an agreement under which it can borrow up to $20,000,000 from the FHLB in their Open RepoPlus
product. There were no borrowings under this agreement during the periods included in these consolidated financial statements.
There is no expiration date on the current agreement.
- 66 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
14. OperatiNg lease OBligatiONs
The Company has entered into a number of arrangements that are classified as operating leases. The operating leases are for several
branch and office locations. The majority of the branch and office location leases are renewable at the Company’s option. Future
minimum lease commitments are based on current rental payments. Rental expense charged to operations, including license fees
for branch offices, was $122,000, $114,000 and $108,000 in 2013, 2012 and 2011, respectively.
The following is a summary of future minimum rental payments for the next five years required under operating leases that have
initial or remaining noncancellable lease terms in excess of one year as of December 31, 2013 (in thousands):
Years ending December 31,
2014
2015
2016
2017
2018
2019 and beyond
Total minimum payments required
$121
89
83
44
–
–
$337
15. iNcOme taxes
The components of income tax expense for the three years ended December 31 were (in thousands):
Current tax (benefit) expense
Deferred tax expense (benefit)
Total tax expense
2013
$(157)
662
$ 505
2012
$1,042
(64)
$ 978
2011
$1,562
(20)
$1,542
Income tax expense (benefit) related to realized securities gains was $(1,000) in 2013, $1,000 in 2012 and $2,000 in 2011.
A reconciliation of the statutory income tax expense computed at 34% to the income tax expense included in the consolidated
statements of income follows (dollars in thousands):
Income before income taxes
Effective tax rate
Years Ended December 31,
2012
$4,626
2013
$4,506
2011
$6,222
34.0%
34.0%
34.0%
Federal tax at statutory rate
Tax-exempt interest
Net earnings on BOLI
Dividend from unconsolidated subsidiary
Stock-based compensation
Federal tax credits
Other permanent differences
Total tax expense
1,532
(354)
(108)
(13)
10
(556)
(6)
$ 505
1,573
(431)
(148)
(12)
2
–
(6)
$ 978
2,115
(439)
(133)
(8)
7
–
–
$1,542
Effective tax rate
11.2%
21.1%
24.8%
- 67 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Deductible temporary differences and taxable temporary differences gave rise to a net deferred tax asset for the Company as of
December 31, 2013 and 2012. The components giving rise to the net deferred tax asset are detailed below (in thousands):
Deferred Tax Assets
Allowance for loan losses
Deferred directors’ compensation
Employee and director benefits
Qualified pension liability
Unrealized losses on securities available for sale
Unrealized loss from securities impairment
Other
Total deferred tax assets
Deferred Tax Liabilities
Depreciation
Equity income from unconsolidated subsidiary
Qualified pension asset
Loan origination costs
Prepaid expense
Unrealized gains on securities available for sale
Annuity earnings
Fair value of mortgage servicing rights
Goodwill
Total deferred tax liabilities
December 31,
2013
$ 639
541
574
–
387
221
109
2,471
(223)
(462)
(342)
(287)
(95)
–
(63)
(57)
(340)
(1,869)
2012
$1,000
565
605
321
–
221
160
2,872
(236)
(398)
–
(223)
(90)
(403)
(58)
(33)
(294)
(1,735)
Net deferred tax asset included in other assets
$ 602
$1,137
The Company has concluded that the deferred tax assets are realizable (on a more likely than not basis) through the combination
of future reversals of existing taxable temporary differences, certain tax planning strategies and expected future taxable income.
It is the Company’s policy to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated
Statements of Income. No significant income tax uncertainties were identified as a result of the Company’s evaluation of its income
tax position. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended December
31, 2013, 2012 and 2011. The Company is no longer subject to examination by taxing authorities for years before 2010. Tax years
2010 through the present, with limited exception, remain open to examination.
- 68 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
16. stOckhOlders’ equity aNd regulatOry matters
The Company is authorized to issue 500,000 shares of preferred stock with no par value. The Board has the ability to fix the voting,
dividend, redemption and other rights of the preferred stock, which can be issued in one or more series. No shares of preferred stock
have been issued.
The Company has a dividend reinvestment and stock purchase plan. Under this plan, additional shares of Juniata Valley Financial
Corp. stock may be purchased at the prevailing market prices with reinvested dividends and voluntary cash payments, within limits.
To the extent that shares are not available in the open market, the Company has reserved common stock to be issued under the plan.
Any adjustment in capitalization of the Company will result in a proportionate adjustment to the reserved shares for this plan. At
December 31, 2013, 141,887 shares were available for issuance under the Dividend Reinvestment Plan.
The Company periodically repurchases shares of its common stock under a share repurchase program approved by the Board of
Directors. Repurchases have typically been through open market transactions and have complied with all regulatory restrictions on
the timing and amount of such repurchases. Shares repurchased have been added to treasury stock and accounted for at cost. These
shares may be reissued for stock option exercises, employee stock purchase plan purchases and to fulfill dividend reinvestment
program needs. During 2013, 2012 and 2011, 24,918, 19,793 and 33,850 shares, respectively, were repurchased in conjunction with
this program. Remaining shares authorized in the program were 43,475 as of December 31, 2013.
The Company and the Bank are subject to risk-based capital standards by which bank holding companies and banks are evaluated in
terms of capital adequacy. These regulatory capital requirements are administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to each maintain
minimum amounts and ratios (set forth in the table below) of Total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined in the regulations), and Tier I capital (as defined in the regulations) to average assets (as defined in the regulations).
Management believes, as of December 31, 2013 and 2012, that the Company and the Bank met all capital adequacy requirements
to which they were subject.
As of December 31, 2013, the most recent notification from the regulatory banking agencies categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as “well capitalized”, the Bank must maintain
minimum Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. To the knowledge of management,
there are no conditions or events since these notifications that have changed the Bank’s category.
- 69 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The table below provides a comparison of the Company’s and the Bank’s risk-based capital ratios and leverage ratios to the minimum
regulatory requirements for the periods indicated (dollars in thousands).
Juniata Valley Financial Corp. (Consolidated)
As of December 31, 2013:
Total Capital (to Risk-Weighted Assets)
Tier I Capital (to Risk-Weighted Assets)
Tier I Capital (to Average Assets)
As of December 31, 2012:
Total Capital (to Risk-Weighted Assets)
Tier I Capital (to Risk-Weighted Assets)
Tier I Capital (to Average Assets)
Actual
Minimum Requirement
For Capital
Adequacy Purposes
Amount
Ratio
Amount
Ratio
$51,888
49,461
49,461
17.97%
17.13
11.04
$52,803
49,506
49,506
18.28%
17.14
10.96
$23,105
11,553
17,915
$23,103
11,552
18,074
8.00%
4.00
4.00
8.00%
4.00
4.00
The Juniata Valley Bank
As of December 31, 2013:
Total Capital (to Risk-Weighted Assets)
Tier I Capital (to Risk-Weighted Assets)
Tier I Capital (to Average Assets)
As of December 31, 2012:
Total Capital (to Risk-Weighted Assets)
Tier I Capital (to Risk-Weighted Assets)
Tier I Capital (to Average Assets)
Actual
Minimum Requirement
For Capital
Adequacy Purposes
Minimum Regulatory
Requirements to be
“Well Capitalized”
under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$46,530
44,185
44,185
16.35%
15.52
9.97
$22,773
11,387
17,723
8.00%
4.00
4.00
$28,467
17,080
22,154
10.00%
6.00
5.00
$47,812
44,519
44,519
16.79%
15.63
9.99
$22,780
11,390
17,822
8.00%
4.00
4.00
$28,475
17,085
22,277
10.00%
6.00
5.00
Certain regulatory restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends,
loans or advances. At December 31, 2013, $39,118,000 of undistributed earnings of the Bank, included in the consolidated
stockholders’ equity, was available for distribution to the Company as dividends without prior regulatory approval, subject to the
regulatory capital requirements above.
- 70 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
17. calculatiON Of earNiNgs per share
Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the
Company. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined
using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share:
Net income
Weighted-average common shares outstanding
Basic earnings per share
Weighted-average common shares outstanding
Common stock equivalents due to effect of stock options
Total weighted-average common shares and equivalents
Diluted earnings per share
Anti-dilutive stock options outstanding
18. accumulated Other cOmpreheNsive lOss
Years Ended December 31,
2012
2011
2013
(Amounts, except earnings per share, in thousands)
$4,001
$4,680
$3,648
4,241
4,231
4,210
$ 0.95
4,210
1
$4,211
$ 0.95
78
$ 0.86
4,231
2
$4,233
$ 0.86
79
$ 1.10
4,241
3
$4,244
$ 1.10
60
Components of accumulated other comprehensive loss, net of tax as of December 31 of each of the last three years consist of the
following (in thousands):
Unrealized (losses) gains on available for sale securities
Unrecognized expense for defined benefit pension
Accumulated other comprehensive loss
$ (751)
(908)
$(1,659)
$ 800
(2,219)
$(1,419)
$ 823
(3,079)
$(2,256)
12/31/2013
12/31/2012
12/31/2011
19. fair value measuremeNts
Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or transfer a
liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement
date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the
asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction
may not be considered orderly.
Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether
there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity
for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity
for the asset or liability, further analysis of the information from that market is needed, and significant adjustments to the related
prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.
- 71 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
This guidance clarifies that, when there has been a significant decrease in the volume and level of activity for the asset or liability,
some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the
transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction
price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.
Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to
sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market,
the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the
fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to
the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions
involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market
that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
Fair value measurement and disclosure guidance requires the use of valuation techniques that are consistent with the market approach,
the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert
future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the
amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should
be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the
asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the
asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the
reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date.
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such
as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by
market data by correlation or other means.
Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions
about the assumptions that market participants would use in pricing the assets or liabilities.
An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value
measurement.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of
such instruments pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair
value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation
adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to
reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any
such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the
Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the
reporting date.
- 72 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Securities Available for Sale. Debt securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For
these securities, the Company obtains fair value measurement from an independent pricing service. The fair value measurements
consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading
levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among
other things. Equity securities classified as available for sale are reported at fair value using Level 1 inputs.
Impaired Loans. Certain impaired loans are reported on a non-recurring basis at the fair value of the underlying collateral since
repayment is expected solely from the collateral. Fair value is generally determined based upon independent third-party appraisals
of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based
upon the lowest level of input that is significant to the fair value measurements.
Other Real Estate Owned. Certain assets included in other real estate owned are carried at fair value as a result of impairment and
accordingly are presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that
consider the sales prices of property in the proximate vicinity.
Mortgage Servicing Rights. The fair value of servicing assets is based on the present value of estimated future cash flows on pools
of mortgages stratified by rate and maturity date and are considered Level 3 inputs.
The following table summarizes financial assets and financial liabilities measured at fair value as of December 31, 2013 and December
31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands).
There were no transfers of assets between fair value Level 1 and Level 2 during the year ended December 31, 2013.
Measured at fair value on a recurring basis:
Debt securities available-for-sale:
Obligations of U.S. Government
agencies and corporations
Obligations of state and political subdivisions
Mortgage-backed securities
Equity securities available-for-sale
Measured at fair value on a non-recurring basis:
Impaired loans
Other real estate owned
Mortgage servicing rights
Measured at fair value on a recurring basis:
Debt securities available-for-sale:
Obligations of U.S. Government
agencies and corporations
Obligations of state and political subdivisions
Mortgage-backed securities
Equity securities available-for-sale
Measured at fair value on a non-recurring basis:
Impaired loans
Other real estate owned
Mortgage servicing rights
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Other
Unobservable
Inputs
December 31,
2013
$78,278
41,932
4,469
1,367
$ –
–
–
1,367
$78,278
41,932
4,469
–
$ –
–
–
–
3,300
50
167
–
–
–
–
–
–
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
December 31,
2012
3,300
50
167
(Level 3)
Significant
Other
Unobservable
Inputs
$72,817
45,976
2,526
1,019
$ –
–
–
1,019
$72,817
45,976
2,526
–
2,056
50
98
–
–
–
–
–
–
$ –
–
–
–
2,056
50
98
- 73 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for
which Level 3 inputs have been used to determine fair value:
December 31, 2013
Impaired loans
Other real estate owned
Mortgage servicing rights
Fair Value
Estimate
$3,300
50
Valuation Technique
Appraisal of collateral (1)
Appraisal of collateral (1)
167 Multiple of annual servicing fee
December 31, 2012
Impaired loans
Other real estate owned
Mortgage servicing rights
Fair Value
Estimate
$2,056
50
Valuation Technique
Appraisal of collateral (1)
Appraisal of collateral (1)
98 Multiple of annual servicing fee
Unobservable Input
Range
Weighted
Average
Appraisal and liquidation adjustments (2)
Appraisal and liquidation adjustments (2)
Estimated pre-payment speed,
based on rate and term
(7)% - (10)%
0%
300% - 400%
(9.0)%
0%
326%
Unobservable Input
Range
Weighted
Average
Appraisal and liquidation adjustments (2)
Appraisal and liquidation adjustments (2)
Estimated pre-payment speed,
based on rate and term
(7)% - (10)%
0%
300% - 400%
(8.1)%
0%
326%
(1)
(2)
(1) Fair value is generally determined through independent appraisals of the underlying
collateral that generally include various level 3 inputs which are not identifiable.
(2) Appraisals may be adjusted by management for qualitative factors such as economic
conditions and estimated liquidation expenses. The range of liquidation expenses and other
appraisal adjustments are presented as a percent of the appraisal.
Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent
weaknesses in any estimation technique. Therefore, the fair value estimates herein are not necessarily indicative of the amounts the
Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured
as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements
subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective
reporting dates may be different from the amounts reported at each year end.
The information presented below should not be interpreted as an estimate of the fair value of the entire Company since a fair
value calculation is provided only for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those
of other companies may not be meaningful.
The following describes the estimated fair value of the Company’s financial instruments as well as the significant methods and
assumptions not previously disclosed used to determine these estimated fair values.
Carrying values approximate fair value for cash and due from banks, interest-bearing demand deposits with banks, restricted stock
in the Federal Home Loan Bank, interest receivable, mortgage servicing rights, non-interest bearing demand deposits, securities
sold under agreements to repurchase, short-term borrowings and interest payable. Other than cash and due from banks, which are
considered Level 1 inputs and mortgage servicing rights, which are considered Level 3 inputs, these instruments are Level 2 inputs.
Interest bearing time deposits with banks - The estimated fair value is determined by discounting the contractual future cash flows,
using the rates currently offered for deposits of similar remaining maturities.
Loans – For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, carrying values
approximated fair value. Substantially all commercial loans and real estate mortgages are variable rate loans. The fair value of
other loans (i.e. consumer loans and fixed-rate real estate mortgages) are estimated by calculating the present value of the cash flow
difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.
Fixed rate time deposits - The estimated fair value is determined by discounting the contractual future cash flows, using the rates
currently offered for deposits of similar remaining maturities.
- 74 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Other interest bearing liabilities – The fair value is estimated using discounted cash flow analysis, based on incremental borrowing
rates for similar types of arrangements.
Commitments to extend credit and letters of credit – The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit-
worthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar
agreements.
The estimated fair values of the Company’s financial instruments are as follows (in thousands):
Financial Instruments
(in thousands)
December 31, 2013
December 31, 2012
Carrying
Value
$ 8,570
43
249
126,046
1,967
275,511
167
1,529
74,611
305,034
5,397
8,400
1,356
287
Fair
Value
$ 8,570
43
250
126,046
1,967
282,226
167
1,529
74,611
308,414
5,397
8,400
1,358
287
Carrying
Value
$ 14,261
136
847
122,338
1,726
274,219
98
1,632
71,318
315,433
3,836
1,600
1,305
354
Fair
Value
$ 14,261
136
849
122,338
1,726
286,467
98
1,632
71,318
319,946
3,836
1,600
1,315
354
–
–
–
–
–
–
–
–
Financial assets:
Cash and due from banks
Interest bearing deposits with banks
Interest bearing time deposits with banks
Securities
Restricted investment in FHLB stock
Loans, net of allowance for loan losses
Mortgage servicing rights
Accrued interest receivable
Financial liabilities:
Non-interest bearing deposits
Interest bearing deposits
Securities sold under agreements to repurchase
Short-term borrowings
Other interest bearing liabilities
Accrued interest payable
Off-balance sheet financial instruments:
Commitments to extend credit
Letters of credit
- 75 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments
not previously disclosed as of December 31, 2013 and December 31, 2012. This table excludes financial instruments for which the
carrying amount approximates fair value.
Carrying
Amount
Fair Value
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Other
Unobservable
Inputs
$ 249
275,511
305,034
1,356
$ 250
282,226
308,414
1,358
$–
–
–
–
$ 250
–
$ –
282,226
308,414
1,358
–
–
Carrying
Amount
Fair Value
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Other
Unobservable
Inputs
$ 847
274,219
315,433
1,305
$ 849
286,467
319,946
1,315
$–
–
–
–
$ 849
–
$ –
286,467
319,946
1,315
–
–
December 31, 2013
Financial instruments - Assets
Interest bearing time deposits with banks
Loans, net of allowance for loan losses
Financial instruments - Liabilities
Interest bearing deposits
Other interest bearing liabilities
December 31, 2012
Financial instruments - Assets
Interest bearing time deposits with banks
Loans, net of allowance for loan losses
Financial instruments - Liabilities
Interest bearing deposits
Other interest bearing liabilities
20. emplOyee BeNefit plaNs
Stock Option Plan
The 2000 Incentive Stock Option Plan expired in May 2010 and was replaced with the 2011 Stock Option Plan in May 2011
(collectively, the “Plans”). The 2011 Stock Option Plan has essentially the same structure as the 2000 plan. Under the provisions
of the Plans, while active, options can be granted to officers and key employees of the Company. The Plans provide that the option
price per share is not to be less than the fair market value of the stock on the day the option was granted, but in no event less than the
par value of such stock. Options granted under the Plans are exercisable no earlier than one year after the date of grant and expire
ten years after the date of the grant.
The Plans are administered by a committee of the Board of Directors, whose members are not eligible to receive options under the
Plans. The Committee determines, among other things, which officers and key employees receive options, the number of shares to
be subject to each option, the option price and the duration of the option. Options vest over three to five years and are exercisable at
the grant price, which is at least the fair market value of the stock on the grant date. All options previously granted under the Plans
are scheduled to expire through February 20, 2023. The aggregate number of shares that may be issued upon the exercise of options
under the 2011 Stock Option Plan is set at 300,000 shares, and 247,300 shares were available for grant as of December 31, 2013.
Total options outstanding at December 31, 2013 have exercise prices between $17.22 and $24.00, with a weighted average exercise
price of $18.50 and a weighted average remaining contractual life of 6.7 years.
As of December 31, 2013, there was $57,000 of total unrecognized compensation cost related to nonvested share-based compensation
arrangements granted under the Plans. That cost is expected to be recognized through 2018.
Cash received from option exercises under the Plans for the years ended December 31, 2013, 2012 and 2011 was $0, $104,000, and
$27,000, respectively.
- 76 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
A summary of the status of the Plans as of December 31, 2013, 2012 and 2011, and changes during the years ending on those dates
is presented below:
2013
2012
2011
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Shares
97,792
21,800
–
(35,662)
83,930
Weighted Average
Exercise Price
$19.04
17.65
–
19.45
$18.50
Shares
90,474
19,150
(7,207)
(4,625)
97,792
Weighted Average
Exercise Price
$ 18.85
18.00
14.47
17.89
$ 19.04
Shares
92,953
16,050
(1,890)
(16,639)
90,474
Weighted Average
Exercise Price
$18.83
17.75
14.37
18.20
$18.85
Options exercisable at year-end
43,079
68,361
67,685
Weighted-average fair value of
options granted during the year
Intrinsic value of options
exercised during the year
Intrinsic value of options
outstanding and exercisable
at December 31, 2013
$ 1.75
$ –
$5,309
$ 1.98
$24,444
$ 1.91
$7,070
The following table summarizes characteristics of stock options as of December 31, 2013:
Grant Date
11/15/2004
10/18/2005
10/17/2006
10/16/2007
10/21/2008
10/20/2009
9/20/2011
3/20/2012
2/19/2013
Outstanding
Exercisable
Exercise
Price
20.25
24.00
21.00
20.05
21.10
17.22
17.75
18.00
17.65
Contractual
Average Life
(Years)
0.88
1.46
2.03
3.20
4.19
5.15
7.72
8.22
9.14
Shares
1,248
2,662
3,195
5,623
7,289
11,213
13,850
17,050
21,800
83,930
Shares
1,248
2,662
3,195
5,623
7,289
10,211
7,900
4,951
–
43,079
- 77 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Defined Benefit Retirement Plan
The Company sponsors a defined benefit retirement plan which covers substantially all of its employees employed prior to December
31, 2007. As of January 1, 2008, the plan was amended to close the plan to new entrants. All active participants as of December
31, 2007 became 100% vested in their accrued benefit and, as long as they remained eligible, continued to accrue benefits until
December 31, 2012. The benefits are based on years of service and the employee’s compensation. Effective December 31, 2012, the
defined benefit retirement plan was amended to cease future service accruals after that date (frozen). The Company’s funding policy
is to contribute annually no more than the maximum amount that can be deducted for federal income tax purposes. Contributions
are intended to provide for benefits attributed to service through December 31, 2012. The Company does not expect to contribute
to the defined benefit plan in 2014.
Management expects no expense to be recorded as net periodic expense in 2014 for the defined benefit plan, which includes
expected amortization out of accumulated other comprehensive loss. The following table sets forth by level, within the fair value
hierarchy, debt and equity instruments included in the defined benefit retirement’s plan assets at fair value as of December 31, 2013
and December 31, 2012 (in thousands). Assets included in the plan that are not valued in the hierarchy table consist of cash and cash
equivalents, totaling $703,000 and $738,000, at December 31, 2013 and 2012, respectively.
Measured at fair value on a recurring basis:
U.S. Government and agency securities
Corporate bonds and notes
Mutual funds
Value funds
Blend funds
Growth funds
Common stocks
Money market funds
Measured at fair value on a recurring basis:
U.S. Government and agency securities
Corporate bonds and notes
Mutual funds
Value funds
Blend funds
Growth funds
Common stocks
Money market funds
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable
Inputs
December 31,
2013
$ 739
2,987
2,120
1,522
1,867
4
172
$9,411
$ –
–
2,120
1,522
1,867
4
172
$5,685
$ 739
2,987
–
–
–
–
–
$3,726
$ –
–
–
–
–
–
–
$ –
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 2)
Significant
Other
Observable
Inputs
(Level 3)
Significant
Unobservable
Inputs
December 31,
2012
$ 199
3,017
1,379
1,220
1,932
3
590
$8,340
$ –
–
1,379
1,220
1,932
3
590
$5,124
$ 199
3,017
–
–
–
–
–
$3,216
$ –
–
–
–
–
–
–
$ –
- 78 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
The measurement date for the defined benefit plan is December 31. Information pertaining to the activity in the defined benefit
plan is as follows (in thousands):
Change in projected benefit obligation (PBO)
PBO at beginning of year
Service cost
Interest cost
Change in assumptions
Curtailment adjustment
Actuarial loss
Benefits paid
PBO at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets, net of expenses
Benefits paid
Fair value of plan assets at end of year
Funded status, included in other assets (liabilities)
Amounts recognized in accumulated
comprehensive loss before income taxes consist of:
Unrecognized actual loss
Unrecognized net transition asset
Years ended December 31,
2013
2012
$10,022
–
395
(962)
–
91
(438)
$10,438
222
451
681
(1,393)
49
(426)
$9,108
$10,022
$9,078
1,474
(438)
$10,114
$1,006
$8,625
879
(426)
$9,078
$(944)
$(1,377)
1
$(1,376)
$(3,362)
1
$(3,361)
Accumulated benefit obligation
$9,108
$10,022
- 79 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Pension expense included the following components for the years ended December 31 (in thousands):
Service cost during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Net accretion (amortization)
Recognized net actuarial loss
2013
$ –
395
(561)
(1)
203
2012
$ 222
451
(591)
56
296
2011
$ 192
479
(631)
(2)
152
Net periodic benefit cost
36
434
190
Net loss (gain)
Amortization of net loss
Net amortization (accretion)
Total recognized in other comprehensive loss (income)
Total recognized in net periodic benefit cost and other
comprehensive loss (income)
Assumptions used to determine benefit obligations were:
Discount rate
Rate of compensation increase
Assumptions used to determine the net periodic benefit cost were:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
(1,782)
(203)
1
(1,984)
(952)
(296)
(56)
$(1,304)
1,990
(152)
2
$1,840
$(1,948)
$ (870)
$2,030
2013
4.75%
N/A
2013
4.00%
6.35
N/A
2012
4.00%
N/A
2012
4.40%
7.00
3.00
2011
4.40%
3.00
2011
5.50%
7.00
3.00
The investment strategy and investment policy for the retirement plan is to target the plan assets to contain 50% equity and 50%
fixed income securities. The asset allocation as of December 31, 2013 was approximately 43% fixed income securities, 55% equities
and 2% cash equivalents.
Future expected benefit payments (in thousands):
Estimated future benefit payments
2014
$450
2015
$444
2016
$447
2017
$463
2018
$510
2019-2023
$2,633
- 80 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
Defined Contribution Plan
The Company has a Defined Contribution Plan under which employees, through payroll deductions, are able to defer portions of
their compensation. The Company makes an annual non-elective fully vested contribution equal to 3% of compensation to each
eligible participant. As of December 31, 2013, a liability of $172,000 was recorded to satisfy this obligation, and was credited to
employees’ accounts by January 31, 2014. This liability at December 31, 2012 totaled $161,000 and was credited to employee
accounts during 2013. Expense incurred under this plan was $175,000, $157,000 and $151,000 in 2013, 2012 and 2011, respectively.
Effective January 1, 2013, the Company amended the Defined Contribution Plan to include an employer matching contribution for
employees that elect to defer compensation into this program. The matching contribution in 2013 was $123,000.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan under which employees, through payroll deductions, are able to purchase
shares of Company stock annually. The option price of the stock purchases is between 95% and 100% of the fair market value of
the stock on the offering termination date as determined annually by the Board of Directors. The maximum number of shares which
employees may purchase under the Plan is 250,000; however, the annual issuance of shares may not exceed 5,000 shares plus any
unissued shares from prior offerings. There were 2,823 shares issued in 2013, 2,729 shares issued in 2012 and 2,413 shares issued
in 2011 under this plan. At December 31, 2013, there were 187,557 shares reserved for issuance under the Employee Stock Purchase
Plan.
Supplemental Retirement Plans
The Company has non-qualified supplemental retirement plans for directors and key employees. At December 31, 2013 and 2012,
the present value of the future liability was $533,000 and $627,000, respectively. For the years ended December 31, 2013, 2012 and
2011, $47,000, $56,000 and $73,000, respectively, was charged to expense in connection with these plans. The Company offsets the
cost of these plans through the purchase of bank-owned life insurance and annuities. See Note 8.
Deferred Compensation Plans
The Company has entered into deferred compensation agreements with certain directors to provide each director an additional
retirement benefit, or to provide their beneficiary a benefit, in the event of pre-retirement death. At December 31, 2013 and 2012,
the present value of the future liability was $1,591,000 and $1,661,000, respectively. For the years ended December 31, 2013, 2012
and 2011, $47,000, $66,000 and $83,000, respectively, was charged to expense in connection with these plans. The Company offsets
the cost of these plans through the purchase of bank-owned life insurance. See Note 8.
Salary Continuation Plans
The Company has non-qualified salary continuation plans for key employees. At December 31, 2013 and 2012, the present value of
the future liability was $1,154,000 and $1,151,000, respectively. For the years ended December 31, 2013, 2012 and 2011, $97,000,
$132,000 and $136,000, respectively, was charged to expense in connection with these plans. The Company offsets the cost of these
plans through the purchase of bank-owned life insurance. See Note 8.
21. fiNaNcial iNstrumeNts with Off-BalaNce sheet risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments may include commitments to extend credit and letters of credit. These
instruments involve, to varying degrees, elements of credit risk that are not recognized in the consolidated financial statements.
Exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend
credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies
in making these commitments and conditional obligations as it does for on-balance sheet instruments. The Company controls the
credit risk of its financial instruments through credit approvals, limits and monitoring procedures; however, it does not generally
require collateral for such financial instruments since there is no principal credit risk.
A summary of the Company’s financial instrument commitments is as follows (in thousands):
Commitments to grant loans
Unfunded commitments under lines of credit
Outstanding letters of credit
- 81 -
December 31,
2013
$33,532
7,457
1,199
2012
$31,918
11,246
1,293
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
portions of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of
collateral obtained by the Bank upon extension of credit is based on management’s credit evaluation of the counter-party. Collateral
held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.
Outstanding letters of credit are instruments issued by the Bank that guarantee the beneficiary payment by the Bank in the event of
default by the Bank’s customer in the non-performance of an obligation or service. Most letters of credit are extended for one year
periods. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary. The amount of the
liability as of December 31, 2013 and 2012 for guarantees under letters of credit issued is not material.
The maximum undiscounted exposure related to these guarantees at December 31, 2013 was $1,199,000, and the approximate
value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $1,061,000.
22. related-party traNsactiONs
The Bank has granted loans to certain of its executive officers, directors and their related interests. These loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions
with unrelated persons and, in the opinion of management, do not involve more than normal risk of collection or present other
unfavorable terms. The aggregate dollar amount of these loans was $1,892,000 and $2,370,000 at December 31, 2013 and 2012,
respectively. During 2013, $281,000 of new loans were made and repayments totaled $759,000. None of these loans were past due,
in non-accrual status or restructured at December 31, 2013 or 2012.
23. cOmmitmeNts aNd cONtiNgeNt liaBilities
In 2009, the Company executed an agreement to obtain technology outsourcing services through an outside service bureau, and
those services began in June 2010. The agreement provides for termination fees if the Company cancels the services prior to the
end of the 8-year commitment period. The termination fee would be an amount equal to one hundred percent of the estimated
remaining value of the terminated services if terminated in the first contract year, ninety percent of the estimated remaining value of
the terminated services if terminated in the second contract year, eighty percent and seventy percent of the remaining value of the
terminated services if terminated in the third and fourth contract years, respectively, and sixty percent of the remaining value of the
terminated services if terminated in contract years five through eight. Termination fees are estimated to be approximately $1,663,000
at December 31, 2013. Since the Company does not expect to terminate these services prior to the end of the commitment period,
no liability has been recorded at December 31, 2013.
The Company, from time to time, may be a defendant in legal proceedings relating to the conduct of its banking business. Most of
such legal proceedings are a normal part of the banking business and, in management’s opinion, the consolidated financial condition
and results of operations of the Company would not be materially affected by the outcome of such legal proceedings.
Additionally, the Company has committed to fund and sell qualifying residential mortgage loans to the Federal Home Loan Bank of
Pittsburgh in the total amount of $15,000,000. As of December 31, 2013, $14,211,000 remains to be delivered on that commitment,
of which $160,000 has been committed to borrowers.
24. suBsequeNt eveNts
In January 2014, the Board of Directors declared a dividend of $0.22 per share for the first quarter of 2014 to shareholders of record
on February 14, payable on March 3, 2014.
- 82 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
25. JuNiata valley fiNaNcial cOrp. (pareNt cOmpaNy ONly)
Financial information:
CONDENSED BALANCE SHEETS
(in thousands)
ASSETS:
Cash and cash equivalents
Investment in bank subsidiary
Investment in unconsolidated subsidiary
Investment securities available for sale
Other assets
TOTAL ASSETS
LIABILITIES:
Accounts payable and other liabilities
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
December 31,
2013
2012
$ 365
44,589
4,172
1,127
56
$50,309
$ 325
49,984
$50,309
$ 231
45,285
4,000
954
15
$50,485
$ 188
50,297
$50,485
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands)
INCOME
Interest and dividends on investment securities available for sale
Dividends from bank subsidiary
Income from unconsolidated subsidiary
TOTAL INCOME
EXPENSE:
Non-interest expense
TOTAL EXPENSE
INCOME BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET (LOSS) INCOME OF SUBSIDIARY
Income tax expense
Undistributed net (loss) income of subsidiary
NET INCOME
COMPREHENSIVE INCOME
2013
$ 28
4,290
237
4,555
140
140
4,415
23
4,392
(391)
$4,001
$3,761
Years Ended December 31,
2012
$ 41
2,793
249
3,083
80
80
3,003
47
2,956
692
$3,648
$4,485
2011
$ 44
4,217
263
4,524
140
140
4,384
36
4,348
332
$4,680
$3,889
- 83 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net loss (income) of subsidiary
Net amortization of securities premiums
Equity in earnings of unconsolidated subsidiary,
net of dividends of $47, $45 and $29
(Increase) decrease in other assets
Increase in taxes payable
(Decrease) increase in accounts payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available for sale securities
Proceeds from the maturity of available for
sale investment securities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Cash dividends
Purchase of treasury stock
Treasury stock issued for dividend reinvestment and
employee stock purchase plan
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Years Ended December 31,
2012
2011
2013
$ 4,001
$ 3,648
$ 4,680
391
–
(190)
(42)
87
(7)
4,240
(252)
250
(2)
(3,707)
(445)
48
(4,104)
134
231
$ 365
(692)
2
(204)
12
127
(2)
2,891
–
1,235
1,235
(3,724)
(360)
151
(3,933)
193
38
$ 231
(332)
2
(234)
2
68
19
4,205
(50)
–
(50)
(3,648)
(589)
66
(4,171)
(16)
54
$ 38
- 84 -
Juniata Valley Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
26. quarterly results Of OperatiONs (uNaudited)
The unaudited quarterly results of operations for the years ended December 31, 2013 and 2012 follow (in thousands, except per-
share data):
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Gains from the sale of loans
Other income
Other expense
Income before income taxes
Income tax expense
Net income
Per-share data:
Basic earnings
Diluted earnings
Cash dividends
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Gains from the sale of loans
Other income
Other expense
Income before income taxes
Income tax expense
Net income
Per-share data:
Basic earnings
Diluted earnings
Cash dividends
March 31
$4,144
763
3,381
80
97
980
3,035
1,343
337
$1,006
$ .24
.24
.22
2013 Quarter Ended
June 30
$4,173
741
3,432
86
85
970
3,330
1,071
62
$1,009
$ .24
.24
.22
September 30
$4,224
719
3,505
100
84
939
3,349
1,079
60
$1,019
December 31
$4,193
677
3,516
149
72
1,006
3,432
1,013
46
$ 967
$ .24
.24
.22
$ .23
.23
.22
March 31
June 30
September 30
December 31
2012 Quarter Ended
$4,711
972
3,739
1,108
65
977
3,245
428
10
$ 418
$ .10
.10
.22
$4,605
924
3,681
69
149
1,046
3,220
1,587
372
$1,215
$ .29
.29
.22
$4,464
898
3,566
60
208
1,045
3,273
1,486
354
$1,132
$ .27
.27
.22
$4,390
854
3,536
174
147
955
3,339
1,125
242
$ 883
$ .20
.20
.22
- 85 -
Common Stock Market Prices and Dividends
The common stock of Juniata Valley Financial Corp. is quoted under the symbol “JUVF” on the over-the-counter (“OTC”) Electronic
Bulletin Board, a regulated electronic quotation service made available through, and governed by, the NASDAQ system. As of
December 31, 2013, the number of stockholders of record of the Company’s common stock was 1,767.
The following table presents the quarterly high and low prices of the Company’s common stock and per common share cash dividends
declared for each of the quarterly periods in 2013 and 2012.
Quarter Ended
March 31
June 30
September 30
December 31
Quarter Ended
March 31
June 30
September 30
December 31
2013
Low
$17.00
17.55
17.30
16.80
2012
Low
$17.60
17.30
17.35
17.65
Dividends
Declared
$0.22
0.22
0.22
0.22
Dividends
Declared
$0.22
0.22
0.22
0.22
High
$18.49
18.08
18.50
17.85
High
$18.95
18.85
18.90
18.50
As stated in “Note 16 – Stockholders’ Equity and Regulatory Matters” in the Notes to Consolidated Financial Statements, the Company
is subject to various regulatory capital requirements that limit the amount of capital available for dividends. While the Company
expects to continue its policy of regular dividend payments, no assurance of future dividend payments can be given. Future dividend
payments will depend upon maintenance of a strong financial condition, future earnings, capital and regulatory requirements, future
prospects, business conditions and other factors deemed relevant by the Board of Directors.
For further information on stock quotes, please contact any licensed broker-dealer, some of which make a market in Juniata Valley
Financial Corp. stock.
Corporate Information
Corporate Headquarters
Juniata Valley Financial Corp.
Bridge and Main Streets
P.O. Box 66
Mifflintown, PA 17059
(855) 582-5101
JVBonline.com
Investor Information
JoAnn N. McMinn,
Executive Vice President and Chief Financial Officer
P.O. Box 66
Mifflintown, PA 17059
JoAnn.McMinn@JVBonline.com
- 86 -
Information Availability
Information about the Company’s financial performance may be found at www.JVBonline.com, following the “Investor Information”
link.
All reports filed electronically by Juniata Valley Financial Corp. with the United States Securities and Exchange Commission (SEC),
including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any
amendments to those reports, are also accessible at no cost on the SEC’s web site at www.SEC.gov.
Additionally, a copy of the Company’s Annual Report to the SEC on Form 10-K for the year ended December 31, 2013 will be
supplied without charge (except for exhibits) upon written request. Please direct all inquiries to Ms. JoAnn McMinn, as detailed above.
Pursuant to Part 350 of FDIC’s Annual Disclosure Regulation, Juniata Valley Financial Corp. will make available to you upon
request, financial information about The Juniata Valley Bank. Please contact:
Ms. Danyelle Pannebaker
The Juniata Valley Bank
P.O. Box 66
Mifflintown, PA 17059
Investment Considerations
In analyzing whether to make, or to continue, an investment in Juniata Valley Financial Corp., investors should consider, among
other factors, the information contained in this Annual Report and certain investment considerations and other information more
fully described in our Annual Report on Form 10-K for the year ended December 31, 2013, a copy of which can be obtained as
described above.
Registrar and Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Telephone: (800) 368-5948
Website: www.RTCo.com
Email: info@RTCo.com
Stockholders of record may access their accounts via the Internet to review account holdings and transaction history through Registrar
and Transfer Company’s website: www.RTCo.com.
Information regarding the Company’s Dividend Reinvestment and Stock Purchase Plan, including a Prospectus, may be obtained
by contacting Registrar and Transfer Company, through the means listed above.
The Company offers a dividend direct deposit option whereby shareholders of record may have their dividends deposited directly
into the bank account of their choice on the dividend payment date. Please contact Registrar and Transfer Company for further
information and to register for this service.
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Juniata Valley Financial Corp. will be held at 10:30 a.m., on Tuesday, May 20, 2014 at the
Quality Inn Suites, 13015 Ferguson Valley Road, Burnham, Pennsylvania.
- 87 -
Juniata Valley Financial Corp.
Corporate Officers
Timothy I. Havice ---------------------------------------------------------------------------- Chairman
Philip E. Gingerich, Jr. ---------------------------------------------------------------- Vice Chairman
Marcie A. Barber --------------------------------------------President and Chief Executive Officer
JoAnn N. McMinn -----------Executive Vice President, Treasurer and Chief Financial Officer
Charles L. Hershberger ----------------------------------------------------------------------- Secretary
Juniata Valley Financial Corp. and The Juniata Valley Bank
Board of Directors
Marcie A. Barber
President and Chief Executive Officer
The Rev. Charles L. Hershberger
Pastor, Port Royal Lutheran Church
and President, Stonewall Equity, Inc.
Martin L. Dreibelbis
Self-Employed, Petroleum Consultant
Dale G. Nace, P.E.
Francis J. Evanitsky
Retired President, Juniata Valley Financial Corp.
Philip E. Gingerich, Jr., Chairman
President, Central Insurers Group, Inc.
Timothy I. Havice, Vice Chairman
Owner, T.I. Havice, Developer
Retired Owner/Operator, Glendale Storage
Richard M. Scanlon, DMD
Self-Employed, Dentist
Jan G. Snedeker
Retired President, Snedeker Oil Co., Inc.
The Juniata Valley Bank
Advisory Board Members
Mifflin County
George W. Anderson
Mark S. Elsesser
Donald R. Hartzler
Sharon D. Havice
Jeffrey C. Moyer
David E. Walker
Samuel C. Yoder
Juniata/Perry/Huntingdon
Kim E. Bomberger
R. Franklin Campbell
Steven R. Ehrenzeller
Gregory J. Gordon
Robert D. Hower
Carl F. Jaymes
N. Jeffrey Leonard
Dennis A. Long
Gerald M. Lyter
Georgiana Snyder-Leitzel
- 88 -
Officers Of The Juniata Valley Bank
ExEcutivE
BrAnch AdministrAtion
Marcie A. Barber . . . . . . . . . . . . . . . . . . . . .President, Chief Executive Officer
JoAnn N. McMinn . . . . . . . .Executive Vice President, Chief Financial Officer
Danyelle M. Pannebaker . . . . . . . . . . . . . . . . . . . . . . . . . .Executive Secretary
AdministrAtion
Tina J. Smith. . . . . . . . . . SeniorVice President, Director of Human Resources
Suzanne E. Booher . . . . Vice President, Facilities/Security/Marketing Officer
Brent M. Miller . . . . . . . . . . . . . Assistant Vice President, Compliance Officer
Sherise Y. Pelizzari . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Vice President,
Deposit Compliance Specialist and BSA Officer
Accounting
Kristi J. Burdge . . . . . . . . . . . .Assistant Vice President, Accounting Manager
Renee D. Williamson . . . . . . . . . . . . . . . . . . . Financial Information Manager
LEnding
Corbett J. Monica . . . . . . .Senior Vice President, Lending Division Manager
Pamela K. Parson . . . . . . . . . . . . . . . . . Vice President, Collections Manager
Patricia J. Yearick. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior Vice President,
Community Banking Division Manager
BLAirs miLLs officE
Wayne S. McCoy . . . . . . . . . . . . Vice President, Community Office Manager
BurnhAm officE
Leann M. Fisher . . . . . . . . . . . . . Vice President, Community Office Manager
gArdEnviEw officE
Larry B. Cottrill, Jr. . . . . . . . . . . Vice President, Community Office Manager
Denise M. Rothrock . . . . . . . . . . . . . . . . . . . . . . . . . Customer Service Officer
mcAListErviLLE officE
Leslie A. Miller . . . . . . . . . . . . . . Vice President, Community Office Manager
Kelly M. Neimond. . . . . . . . . . . . . . . . . . . . . . . . . . . Customer Service Officer
miffLintown And mountAin viEw officEs
Annette M. Price. . . . . . . . . . . . . Vice President, Community Office Manager
Scott E. Nace . . . . . . . . . . . . . . . . . . . . Vice President, Relationship Manager
miLLErstown officE
H. Fred Wallace . . . . . . . . . . . . . . . . . . Vice President, Relationship Manager
Thomas P. O’Connell . . . . . . . . . Vice President, Community Office Manager
Betty D. Ryan . . . . . . Vice President, Secondary Mortgage Market Manager
Christine L. Burlew. . . . Vice President, Secondary Mortgage Market Manager
William T. Campbell, Jr. . . . Assistant Vice President, Relationship Manager
Lisa M. Snyder . . . . . . . . . . . . . . . . . . . . . . . .Credit Administration Manager
Matthew J. Waddell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Manager
opErAtions
Steven T. Kramm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice President,
Operations/Technology Division Manager
Kathy D. Hutchinson . . . . . Vice President, Operations/Technology Manager
S. Marlene Hubler . . . . . . . . . . . . . . . . . . . . Computer Operations Manager
Kelly L. Yetter . . . . . . . . . . . . . . . . Electronic and Business Banking Manager
Curtis M. Crouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Network Administrator
Beverly M. McClellan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Data Analyst
Tammy L. Miller . . . . . . . . . . . . . . . . . . . . . . . . Deposit Operations Manager
trust And invEstmEnt sErvicEs
Donald E. Shawley . . . . . . . . . . . . . . . . . . . . .Senior Vice President, Trust and
Investment Services Division Manager
James C. Dillman . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Trust Officer
Cynthia L. Williams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President,
Trust Officer/Trust Operations Manager
Paul M. Grego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trust Investment Officer
Malcolm R. Parks . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Services Officer
Lisa M. Freet . . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer Service Officer
monumEnt squArE officE
Lee Ellen Foose . . . . . . . . . . . . . . Vice President, Community Office Manager
Stacey K. McMurtrie . . . . . . . . . . . . . . . . . . . . . . . . Customer Service Officer
port royAL officE
Barbara I. Seaman . . . . . . . . . . . Vice President, Community Office Manager
richfiELd officE
Brenda A. Brubaker . . . . . . . . . . Vice President, Community Office Manager
wAL-mArt officE
Kristi A. Dippery. . . . . . . . . . . . . . . . . . . . . . . . . . . . Customer Service Officer
wAtEr strEEt officE
Christine L. Searer . . . Assistant Vice President, Community Office Manager
j vb on li ne.com
Juniata Valley Financial corp.
218 Bridge Street
Mifflintown, PA 17059
www.jvbonline.com