Juniata Valley Financial Corp. Annual Report 2016

← All annual reports

FY2016 Annual Report · Juniata Valley Financial Corp.

Loading PDF…

THE NEW SHAPE OF BANKING

JUNIATA VALLEY FINANCIAL CORP.
2016 ANNUAL REPORT

FROM THE PRESIDENT

On August 5, 1867, with capital of $25,000, Patterson, Pomeroy &

It all comes down to fulfilling the many and varied needs of our growing

Company opened its doors to meet the financial needs of a growing

customer base. By meeting the changing requirements of the communities

agricultural community in the Juniata Valley. Over the course of 31 years (and

five different locations) many changes occured. In 1898 the bank was granted

we serve at a fair and equitable price, we’ve managed to not just survive, but
THRIVE for 150 years.

its National Charter and officially became The Juniata Valley Bank. The rest,

as they say, is history.

A NEW SHAPE FOR SHAREHOLDERS

With pride in our heritage and longevity, JUVF eagerly anticipates

It’s no secret that increased regulation, erratic economic activity and, a

the celebration of our Sesquicentennial. But merely surviving is not the

prolonged duration of flat yield curves result in profitability challenges for

accomplishment. With hard work and determination, this 150-year old

community banks. It was easier to make money with a four percent spread

Community Bank has grown, has adapted, and has evolved into something
new. Now, JUVF is embracing the New Shape of Banking.

when competition was limited to the bank across the street or a well-to-do

aunt or uncle.

A NEW SHAPE FOR CUSTOMERS

Today, Banking is very different and competition comes in many forms.

Financial services are offered through Fintech companies, government

The new shape of our industry is all about diversity… different shapes

agencies, dot com institutions and retailers.

for different needs. Some customers prefer a more traditional atmosphere –

Our financial performance in 2016 evidences our commitment to grow

full-service community offices with caring, knowledgeable tellers and financial

the value of your investment, despite economic and regulatory headwinds.

service advisors ready to assist. With twelve full-service offices throughout

Our acquisition in the Northern Tier contributed in large part to this

Central Pennsylvania and three additional offices in our Northern Tier region,

impressive improvement.

JVB fully understands what our customers want. In 2017, JVB will break ground

Traditionally, bank acquisitions have been across the street, across the

on construction of an innovative new office to meet the banking needs of our

river or in the next county. The new shape of shareholder value is also about

Mountain View area. This office is designed to provide more efficient service,

diversity… diverse opportunities that leverage capital and provide a strong

improved traffic flow and will utilize interactive technology.

economic return. Your management team and board remain committed to

Many JVB customers prefer to bank from their home, office, or even while

creative strategic planning in order to source new opportunities and grow

on vacation. All of this is possible with their smart phone, tablet or home

your company’s value.

computer using JVB’s mobile banking and online banking services. Deposit-

We will continue to look at our future optimistically. We firmly believe

automated ATMs provide 24/7 drive-up access to cash and deposit services at

that, as we remain focused on meeting the ever-changing needs of our

virtually every JVB location. If it’s just information you need, visit any branch,

customers, we will also meet the needs of our shareholders for the next

send us an email, call, text or chat.

150 years and beyond.

In addition to these services, all customers are offered premiere identity-
theft protection through our IDLock® secure checking account relationships.

TOTAL ASSETS
AT YEAR END
(In Thousands)

$600,000

$580,000

$560,000

$540,000

$520,000

$500,000

$480,000

$460,000

$440,000

$420,000

$400,000

Marcie A. Barber | President and CEO

$583,928

$580,354

$442,109

$435,753

$447,433

$448,869

$448,782

$420,146

$428,084

$480,529

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2016 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

Report on Management's Assessment of Internal Control over Financial Reporting ----------------------------------- 45

Report of Independent Registered Public Accounting Firm on Effectiveness

of Internal Control over Financial Reporting ------------------------------------------------------------------------------ 46

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements ---------------- 47

Financial Statements

Consolidated Statements of Financial Condition -------------------------------------------------------------------------- 48

Consolidated Statements of Income ----------------------------------------------------------------------------------------- 49

Consolidated Statements of Comprehensive Income--------------------------------------------------------------------- 50

Consolidated Statements of Stockholders' Equity ------------------------------------------------------------------------ 51

Consolidated Statements of Cash Flows ------------------------------------------------------------------------------------ 52

Notes to Consolidated Financial Statements ------------------------------------------------------------------------------- 54

Common Stock Market Prices and Dividends ----------------------------------------------------------------------------------106

Corporate Information -------------------------------------------------------------------------------------------------------------106

Corporate Officers, Directors and Business Development Boards ---------------------------------------------------------108

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.

Five-YeAR FinAnciAl SummARY - Selected FinAnciAl dAtA

BALANCE SHEET INFORMATION

(In thousands of dollars, except share and per share data)

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

2016

2015

2014

2013

2012

$ 580,354
455,822
375,574
154,448
5,448
32,196
25,000
59,090
4,755,630

$ 583,928
457,126
374,565
156,186
5,381
35,057
22,500
59,962
4,798,086

$ 480,529
380,884
292,521
145,629
2,046
20,544
22,500
49,856
4,187,441

$ 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

577,341
61,209
4,801,245

489,323
51,131
4,240,319

470,660
50,704
4,192,761

450,031
49,571
4,210,336

454,057
49,766
4,231,404

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

Net income
PER SHARE DATA

Earnings per share - basic
Earnings per share - diluted
Cash dividends
Book value
FINANCIAL RATIOS

20,469
2,268

17,379
2,042

16,932
2,598

16,734
2,900

$ 18,170
3,648

18,201
466
5,418

17,178
5,975
819

15,337
502
4,505

16,199
3,141
83

14,334
357
4,334

13,570
4,741
525

13,834
415
4,233

14,522
1,411
4,592

13,146
4,506
505

13,077
4,626
978

5,156

3,058

4,216

4,001

3,648

1.07
1.07
0.88
12.43

0.72
0.72
0.88
12.50

1.01
1.01
0.88
11.91

0.95
0.95
0.88
11.91

0.86
0.86
0.88
11.92

Return on average assets
Return on average equity
Dividend payout
Average equity to average assets
Loans to deposits (year end)

0.89%
8.42
81.96
10.60
82.39

0.62%
5.98
120.57
10.45
81.94

0.90%
8.31
87.52
10.77
76.80

0.89%
8.07
92.65
11.02
72.57

0.80%
7.33
102.08
10.96
70.90

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 that reflect 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 following a period of low market interest rates and
current market uncertainties, 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;

capital and liquidity strategies, including the expected impact of the capital and liquidity requirements
modified by the Basel III standards;

changes in the applicable federal income tax rate that could result in the reversal of net deferred tax
assets and the reduction of current tax expense;

•

the Company’s failure to identify and to address cyber-security risks;

•

the Company’s ability to keep pace with technological changes;

•

the Company’s ability to attract and retain talented personnel;

•

the Company’s reliance on its subsidiary for substantially all of its revenues and its ability to
pay dividends;

the effects of changes in relevant accounting principles and guidelines on the Company’s financial
condition; and

•

failure of third party service providers to perform their contractual obligations.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016 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, 2016, 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 15 offices in Juniata, Mifflin, Perry, Huntingdon, McKean, Potter and Centre counties. On November 30,
2015, Juniata acquired FNBPA Bancorp, Inc. (“FNBPA”), a Pennsylvania corporation. Under the terms of a merger
agreement between the parties, FNBPA merged with and into Juniata, with Juniata continuing as the surviving
entity. Simultaneously with the consummation of the foregoing merger, First National Bank of Port Allegany
(“FNB”), a nationally chartered bank and wholly-owned subsidiary of FNBPA, merged with and into The Juniata
Valley Bank, a Pennsylvania state-chartered bank and wholly-owned subsidiary of Juniata. The trade name “JVB
Northern Tier” is used to reference the former offices and service area of FNB. 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.
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,

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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’
needs 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
Management seeks to be the preeminent financial institution in its market area and measures its success by five
key elements.
ShAREhOLDER SATISFACTION

Committed, Capable, Caring and Connected

committed

Above all else, management is
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
profitably grow the balance sheet and enhance core earnings, while maintaining capital and liquidity levels well
exceeding all regulatory guidelines.
CuSTOMER RELATIONShIpS

capably.

In doing so, we will

committed

to maximizing customer satisfaction. We are sensitive to the expanding array of financial

We are
services and financial service providers available to our customers, both locally and globally. We are
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
connection
which we deliver our services must change as well. One element of the Company’s strategic plan is to provide
through every means available, wherever we are needed, whether through a stand-alone branch,

committed

in-store boutique, ATM or via on-line and mobile banking anywhere internet or cell phone signals can be received.
BALANCE ShEET GROWTh

capable

careful

fiscal

of profitable balance sheet growth. Rapid growth should not be a substitute for
We are
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. Late in 2015, we
consummated one such acquisition and have completed integration of the operation of our JVB Northern
Tier region.
OpERATING RESuLTS
capable

We are
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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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 2016, we continued to make advances in
technological resources, placing data and information in the hands of our customers and employees,
to optimizing the customer experience.
CONNECTION TO ThE COMMuNITy

committed

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 not only still
valid, but essential. 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
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
employees. JuniAtA’S oppoRtunitieS
involvement of our

committed

caring

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 150 years.
ExpANSION OF CuSTOMER BASE

4
1

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 change is 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 that includes remote check
deposit for use on home computers and all mobile devices for consumers. For businesses, we provide options for
cash management and remote deposit. We offer identity protection to the families of our customers, which we
believe to be a true value-added service, with features that go far beyond traditional banking services, and sets us
apart from other financial institutions in our market area. On November 30, 2015, with the acquisition of FNBPA,
we expanded our market into the northern tier region of Pennsylvania and have integrated the JVB brand there.
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. We achieved an early entry into the
mobile banking arena in 2011 and have since expanded online delivery each year following, including consumer
remote deposit and Touch ID. Our suite of online services includes the convenience of online loan applications for

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
residential mortgages, home equity, vehicle and other personal loans. Online and mobile banking features include
full bill-pay and monetary transfers between internal and external accounts. Our ATM network is equipped with
all highly functional state-of-the art machines. Our Customer Care Center became operational in 2016, providing
dedicated service to address all customer inquiries and provide outreach through our new social media sites. In
2016, we introduced mobile deposit for our small business customers through our business mobile app. The
rollout of a fully redesigned JVBonline.com website was completed in 2016 as well. In 2017, online deposit
account opening will become available and construction will be completed on a new branch facility, featuring a
highly interactive and complete customer experience.

JuniAtA’S chAllenGeS

NET INTEREST MARGIN COMpRESSION

Low market interest rates have pressured the net interest margin for most banks, including Juniata, in recent
years. Loans have been originated, acquired or repriced at lower rates, reducing the average rate earned on those
assets. While the average rate paid on interest-bearing liabilities, such as deposits and borrowings, has also
declined, the decline has not always occurred at the same pace as the decline in the average rate earned on
interest-earning assets, which can result in a narrowing of the net interest margin. We believe that increasing the
net interest margin will continue to be a challenge until general market rates rise more significantly.
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

5
1

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016ApplicAtion 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 and the investment portfolio,
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.

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
2016 FINANCIAL pERFORMANCE OVERVIEW

ReSultS oF opeRAtionS

Net income for Juniata in 2016 was $5,156,000, representing a 68.6% increase as compared to net income for
2015. The comparability of the results of operations for 2016 were significantly impacted by the acquisition of
FNBPA Bancorp, Inc. (“FNBPA”) on November 30, 2015, which increased loans and deposits by approximately $47
million and $78 million, respectively, on that date. During the integration of the new market area products were
standardized and customer fee structures were made uniform while efficiencies and economies of scale were
identified and implemented throughout the year in 2016. Additionally, Juniata incurred non-interest expense in
conjunction with the acquisition in both 2016 and 2015 of $347,000 and $1,806,000, respectively, as well as a
gain on the sale of certain loans obtained in the acquisition. Exclusive of these expenses and gain and the
corresponding tax impact, net income for the year ended December 31, 2016 was $5,310,000, an increase of
$941,000, or 21.5%, over net income of $4,369,000 in 2015. Operating results included those of FNBPA
beginning on December 1, 2015.

Earnings per share on a fully diluted basis increased from $0.72 in 2015 to $1.07, in 2016. When adjusted for
the impact of tax-effected non-recurring merger and acquisition items, earnings per share was $1.11 in 2016 as
compared to $1.03 in 2015. The net interest margin, on a fully tax-equivalent basis, increased from 3.56% in
2015 to 3.57% in 2016. The ratio of non-interest income (excluding gains on sales of securities) to average assets
declined slightly from 0.92% in 2015 to 0.90% in 2016, while the ratio of non-interest expense to average assets
decreased by 33 basis points to 2.98%. Of the 33 basis point improvement in the non-interest expense ratio, 31
basis points was due to the reduction in merger-related expenses. Because the Company has varying levels of
merger and acquisition-related costs and revenues, Management believes it is meaningful for a performance
comparison presentation to segregate and exclude those items in a non-GAAP disclosure. Five-year historical
ratios are presented below, followed by a reconciliation of non-GAAP comparative disclosures for the most recent
three years.

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

Non-GAAP presentation of comparative net income
and performance ratios
Net Income, as reported
Merger and acquisition costs
Merger-related gains on sale of loans
Tax impact of merger and acquisition costs
Net income, exclusive of merger and acquisition
costs, net of corresponding tax impact
Return on average assets, adjusted
Return on average equity, adjusted
Earnings per share, adjusted

2016
0.89%
8.42
3.87
0.43
3.57

0.90
2.98
2.08

2015
0.62%
5.98
3.88
0.59
3.56

2014
0.90%
8.31
3.94
0.60
3.48

2013
0.89%
8.07
4.09
0.71
3.53

0.92
3.31
2.39

0.92
2.88
1.96

0.94
2.92
1.98

2016
5,156
347
(113)
(80)
5,310

0.92%
8.68%
1.11

2015
3,058
1,806
-
(495)
4,369

0.89%
8.54%
1.03

2012
0.80%
7.33
4.39
0.88
3.68

1.01
2.88
1.87

2014
4,216
-
-
-
4,216

0.90%
8.31%
1.01

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 2016
and 2015.

2016
% of Average
Assets

2015
% of Average
Assets

Net interest income
Provision for loan losses

18,201
(466)

3.15%
(0.08)

15,337
(502)

3.13%
(0.10)

Customer service fees
Debit card fee income
BOLI
Trust fees
Commissions from sales of non-deposit products
Income from unconsolidated subsidiary
Insurance-related gains
Security gains
Mortgage banking income
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
(Loss) gain on sales of other real estate owned
Intangible amortization
Merger and acquisition expense
Amortization of investment in partnership
Other noninterest expense
Total noninterest expense

Income tax expense
Net income

Average assets

1,736
1,044
371
454
223
222
364
218
158
628
5,418

(9,184)
(1,798)
(1,807)
(238)
(539)
(437)
(375)
(150)
(105)
(347)
(479)
(1,719)
(17,178)

0.30
0.18
0.06
0.08
0.04
0.04
0.06
0.04
0.03
0.11
0.94

(1.59)
(0.31)
(0.31)
(0.04)
(0.09)
(0.08)
(0.06)
(0.03)
(0.02)
(0.06)
(0.08)
(0.30)
(2.98)

1,563
866
378
396
347
238
98
13
190
416
4,505

(7,911)
(1,558)
(1,589)
(192)
(430)
(368)
(318)
14
(51)
(1,806)
(479)
(1,511)
(16,199)

0.32
0.18
0.08
0.08
0.07
0.05
0.02
0.00
0.04
0.09
0.92

(1.62)
(0.32)
(0.32)
(0.04)
(0.09)
(0.08)
(0.06)
0.00
(0.01)
(0.37)
(0.10)
(0.31)
(3.31)

(819)
5,156

(0.14)
0.89%

577,341

(83)
3,058

(0.02)
0.62%

489,323

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 78% of total revenues (the total of net interest income and non-interest income, exclusive of
security gains) for 2016. 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 present 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 2016, 2015 and 2014. Table 2 further shows changes attributable to
the volume and rate components of net interest income.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016TABLE 1
AVERAGE BALANCE ShEETS AND NET INTEREST INCOME ANALySIS

Year Ended December 31

2016

2015

2014

Average

Balance(1)

Interest

Yield/

Rate

Average

Balance(1)

Interest

Yield/

Rate

Average

Balance(1)

Interest

Yield/

Rate

(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

$ 348,914
30,263
379,177

$ 16,653
906
17,559

4.77%
2.99
4.63

$ 280,920
25,208
306,128

$ 13,894
751
14,645

124,611
23,807

2,475
418

148,418
770
675
529,040

2,893
13
4
20,469

1.99
1.76

1.95
1.69
0.52
3.87

9,553
(2,572)
7,017
34,303
$ 577,341

2,267
465

2,732
2
0
17,379

112,459
28,687

141,146
597
32
447,903

7,417
(2,349)
6,506
29,846
$ 489,323

4.95%
2.98
4.78

2.02
1.62

1.94
0.34
0.25
3.88

$ 260,613
20,995
281,608

111,649
34,203

145,852
1,368
455
429,283

7,618
(2,313)
6,314
29,758
$ 470,660

$ 13,840
625
14,465

1,950
513

2,463
3
1
16,932

5.31%
2.98
5.14

1.75
1.50

1.69
0.23
0.22
3.94

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Demand deposits (2)
Savings deposits
Time deposits
Other, including short
and long-term
borrowings, and other

$ 121,479
96,869
139,387

253
102
1,456

0.21
0.11
1.04

$ 98,618
74,268
130,843

161
76
1,440

0.16
0.10
1.10

97,920
65,275
147,745

163
65
2,128

0.17
0.10
1.44

interest bearing liabilities 46,310

457

0.99

44,941

365

0.81

27,589

242

0.88

Total interest bearing
liabilities

404,045

2,268

0.56

348,670

2,042

0.59

338,529

2,598

0.77

Non-interest bearing liabilities:
Demand deposits
Other
Stockholders’ equity
Total liabilities and

105,536
6,551
61,209

stockholders’ equity

$ 577,341

Net interest income
Net margin on
interest earning assets (3)
Net interest income and margin -
Tax equivalent basis (4)

84,295
5,227
51,131

$ 489,323

77,399
4,028
50,704

$ 470,660

$ 18,201

$ 15,337

$ 14,334

3.44%

3.42%

3.34%

$ 18,883

3.57%

$ 15,964

3.56%

$ 14,920

3.48%

Notes:
(1) Average balances were calculated using a daily average.
(2) Includes interest-bearing demand and money market accounts.
(3) Net margin on interest earning assets is net interest income divided by average interest earning assets.
(4) 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%.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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
LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest bearing liabilities:
Demand deposits (2)
Savings deposits
Time deposits
Other, including short-term
borrowings, and other

42
24
91

2016 compared to 2015
Increase (Decrease) Due To (6)

2015 compared to 2014
Increase (Decrease) Due To (6)

Volume

Rate

Total

Volume

Rate

Total

$ 3,260
151
3,411

$ (501)
4
(497)

242
(84)
158
1
4
3,574

$ 2,759
155
2,914

208
(47)
161
11
4
3,090

$ 1,039
126
1,165

14
(87)
(73)
(2)
(1)
1,089

$ (985)
-
(985)

303
39
342
1
-
(642)

54
126
180

317
(48)
269
(1)
(1)
447

92
26
16

1
9
(225)

(3)
2
(463)

(2)
11
(688)

(34)
37
3
10
-
(484)

50
2
(75)

interest bearing liabilities
Total interest bearing liabilities
Net interest income

11
168
$ 3,406

81
58
$ (542)

92
226
$ 2,864

142
(73)
$ 1,162

(19)
(483)
$ (159)

123
(556)
$ 1,003

(5) Non-accruing loans are included in the above table until they are charged off.
(6) 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.

(7) Includes net unrealized gains (losses) on securities available for sale: $(1,302) in 2016, $897 in 2015 and $(38) in 2014.
(8) Interest income includes loan fees of $78, $93 and $153, in 2016, 2015 and 2014, respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

On average, total loans outstanding in 2016 increased from 2015 by 23.9%, to $379,177,000. Average yields on
loans decreased by 15 basis points in 2016 when compared to 2015. 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
$497,000, while the increase in volume increased interest income by $3,411,000, resulting in an aggregate
increase in interest recorded on loans of $2,914,000. The increase in average loan volumes in 2016 was due to
two factors, nearly equal in impact; the acquisition of FNBPA and organic growth. The prime rate increased by 25
basis points in December 2015 after 7 years unchanged. It remained at 3.50% throughout 2016 until mid-
December when it increased by 25 basis points to 3.75%. Increased yield on prime-related loans in 2016 was
offset by new loans originating at lower rates than maturing loans.

During 2016, cash flows from maturities, sales and repayments of investment securities were primarily used to
fund a portion of the loan growth and to reinvest in the investment portfolio. Additional funds from deposit
growth were likewise invested in the securities portfolio. As a result, average balances of investment securities
increased by $7,272,000, and this volume increase accounted for a $158,000 increase in interest income as
compared to 2015. The improvement in the overall yield of the investment portfolio between 2015 and 2016
further increased net interest income by $3,000.

In total, yield on earning assets in 2016 was 3.87% as compared to 3.88% in 2015, a decrease of 1 basis point.

On a fully tax equivalent basis, yield on earning assets decreased from 4.02% in 2015 to 4.00% in 2016.

Average interest bearing liabilities increased by $55,375,000 in 2016, as compared to 2015. Within the
categories of interest bearing liabilities, deposits increased on average by $54,006,000, and borrowings increased
by $1,369,000 on average. Deposits assumed in the merger with FNBPA were the primary reason for the increase
in average deposits. In total, average interest bearing transaction accounts and savings accounts increased
$45,462,000 while average time deposits increased $8,544,000. In 2016, time deposits accounted for 39.0% of
total interest-bearing deposits. During 2015 and 2014, time deposits represented 43.1% and 47.5%, respectively,
of all interest-bearing deposits. Changes in total interest-bearing liabilities increased interest expense by
$168,000 in 2016 as compared to 2015, while changes in interest rates further increased interest expense by
$58,000. Non-interest bearing liabilities used to fund earning assets included demand deposits, which increased
$21,241,000 on average. The percentage of interest earning assets funded by non-interest bearing liabilities was
approximately 23.6% in 2016 versus 22.2% in 2015. The total cost to fund earning assets (computed by dividing
the total interest expense by the total average earning assets) in 2016 was 0.43%, as compared to 0.46% in 2015.

0
2

Net interest income was $18,201,000 for 2016, an increase of $2,864,000 when compared to 2015. Increases in
volumes contributed $3,406,000 toward the improved net interest income, partially offset by a $542,000
reduction of net interest income due to rate changes.
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. Using the process of analysis described in
“Application of Critical Accounting Policies” earlier in this discussion, the Company determined that a provision of
$466,000 was appropriate for 2016, a decrease of $36,000 when compared to 2015 when the total loan loss
provision was $502,000. The lower provision in 2016 primarily resulted from the relatively unchanged loan
volumes in 2016 versus 2015; in 2016, the provision exceeded net charge-offs by $245,000. The 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 provision for 2016.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 make fraud protection
services available to all consumer depositors. 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 2016, revenues from these services totaled $2,413,000,
representing an increase of $107,000, or 4.6%, from 2015 revenues, primarily due to increases in fees earned
from customer deposit services. Total fees from customer deposits increased by $173,000, or 11.1%, due
primarily to larger customer base resulting from the FNBPA acquisition that closed on November 30, 2015. Fees
from estate settlements increased by $41,000, or 56.2%, in 2016 as compared to 2015, and non-estate fees
increased by $17,000, or 5.3%. 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 decreased in 2016, in comparison to 2015, by $124,000, or 35.7%, as sales declined.

Fees generated by debit card activity increased by $178,000, or 20.6%, in 2016 as compared to the prior year.
General increased usage of debit cards was augmented by the increased service area in the Company’s Northern
Tier market.

Fees and income derived from the origination, sale and servicing of residential mortgage loans (mortgage
banking income) was $158,000 in 2016, a decrease of $32,000, or 16.8%, compared to 2015, as activity declined.
Other non-interest-related fees derived from loan activity increased by $45,000 when comparing 2016 to 2015,
primarily due to revenues generated from title insurance fees. Gains of $364,000 and $98,000 were recorded in
2016 and 2015, respectively, as a result of life insurance claims.

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, $222,000 was recorded as income in 2016, compared to $238,000 in 2015.
Earnings on bank-owned life insurance and annuities decreased in 2016 by $7,000, or 1.9%, when compared to
the previous year, because investment in BOLI was lower, and crediting rates were reduced.

In 2016, student loans that were included in the FNBPA acquisition were sold, generating an accounting gain of
$113,000; no similar corresponding gain was recorded in the 2015 period. Gains realized from the sale and calls
of investment securities during 2016 were $218,000, compared to $13,000 during 2015.

As a percentage of average assets, non-interest income (excluding securities gains and losses) was 0.90% and
0.92% in 2016 and 2015, respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
NON-INTEREST ExpENSE

Management strives to control non-interest expense where possible in order to achieve maximum
operating results.

In 2016, total non-interest expense increased by $979,000, or 6.0%, when compared to 2015. The primary
driver in the change in non-interest expense was attributable to merger and acquisition costs of $347,000 and
$1,806,000 recorded in 2016 and 2015, respectively. Exclusive of these costs, non-interest expense increased by
$2,438,000, or 16.9%. Compensation expense for 2016 increased by $788,000 as compared to 2015, due to a
number of offsetting factors, including the full year effect of the increase in full-time equivalent employment (due
to the addition of personnel from JVB Northern Tier), lower commissions paid for sales of non-deposit products,
and higher levels of accruals for employee incentive bonus, pursuant to the Company’s Employee Annual
Incentive Plan. Costs of employee benefits was $485,000 higher in 2016 than in 2015. Payroll taxes increased, as
a result of higher employee compensation costs, and the cost of providing medical coverage within the Company’s
self-funded plan increased by $245,000. Additionally, costs associated with maintaining the Company’s defined
benefit plans increased by $109,000 in 2016 versus 2015 and employer contributions to the defined contribution
plan increased by $71,000. Also included in the increase of employee benefit expense was $64,000 relating to
accelerated vesting for a supplemental retirement arrangement following the death of a participant.

Data processing expense increased by $218,000, or 13.7%, in 2016 as compared to 2015, as a result of an
increased number of customer accounts serviced, in addition to new on-line features being made available to
customers, such as on-line consumer loan applications. Occupancy and equipment expense increased in the
aggregate by $240,000, or 15.4%, due to the maintenance, real estate taxes and upgraded equipment necessary to
standardize the new Northern Tier offices, as well as maintenance and repairs in other facilities and equipment.
Costs associated with loan documentation and foreclosure activities (included in “other non-interest expense)
increased in 2016 as compared to 2015 by $91,000. The increase in “other non-interest expense” also included
higher regulatory assessments of $75,000, due to the increased asset size of the Company.

Amortization expense associated with the Bank’s investment in a low-income housing project, which first
became applicable during the second quarter of 2013, was more than offset by the recording of the benefit of the
tax credit from the project in both 2016 and 2015. Amortization was $479,000 in both 2016 and 2015.
Amortization is scheduled to continue through 2023 at similar amounts.

Variances in director compensation, professional fees, FDIC insurance premiums, non-income taxes,
amortization of intangibles and net gains and losses on sales of assets, which in the aggregate, increased 37.1% in
2016 versus 2015, are due to the increased asset size of the Company following the late 2015 FNBPA acquisition.

As a percentage of average assets, non-interest expense was 2.98% in 2016 as compared to 3.31% in 2015.
Exclusive of merger and acquisition expenses, the ratio was 2.92% in 2016 versus 2.94% in 2015

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
INCOME TAxES

Income tax expense for 2016 amounted to $819,000 versus $83,000 in 2015. Both periods included the effect

of a tax credit in the amount of $570,000. The tax credit was available to the Company as a result of an equity
investment in a low income housing project. The effective tax rate in 2016 was 13.7% versus 2.6% in 2015. See
Note 16 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.

As reported
Net Income
Return on average assets
Return on average equity
OuTLOOK FOR 2017

2016
5,156
0.89%
8.42%

2015
3,058 $
0.62%
5.98%

2014
4,216

0.90%
8.31%

Despite a 25 basis point increase in mid-December 2016, both the national prime rate and the federal funds
rate have remained at a historically low levels since 2008. We expect, and are prepared for, the interest rate
environment to begin to change more significantly in 2017. And, because 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 2017 with cautious optimism for economic growth which could spark
lending opportunities, and the potential of de-regulation for community banking. Our focus will remain on
identifying opportunities for fee services, and delivering service enhancements throughout our market area. 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 and employees. In recent years, we have
introduced many new avenues of service delivery through technology, and continue to evaluate new technology.
We’ve enhanced our consumer mobile banking apps with remote deposit, enabling quick and easy deposit of
checks, and now offer the same functionality to our small business owners through our business mobile app.
Consumer mobile banking was further enhanced with Touch ID, giving our customers even faster, more
responsive mobile banking experience. We added to our online banking the ease and convenience of consumer
loan applications. With a re-designed and updated website, in which we incorporated a chat feature, we expect to
further our outreach to the segment of the population that prefers to do business on-line. But for those who do
not, we maintain fully staffed offices throughout our market area and plan to unveil a newly constructed and
progressively designed branch in Juniata County that will offer a highly interactive and complete customer
experience. Lastly, our new Customer Care Center is now our dedicated resource for all manner of customer
inquiries and plans to expand our social media presence in 2017.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Expanding our customer base and enhancing our engagement with our customers remain priorities. In 2016,
we expanded our marketing efforts to reach a broader consumer base. We believe that it is imperative that all
consumers have convenient and easy access to personal financial services that complement their changing
lifestyles, whether through electronic or personal delivery. Convenience and mobility remain 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 reach beyond fraud detection on singular deposit accounts and provide the
opportunity for full ID protection for families of our depositors. This service accompanies a complete line-up of
accounts, designed to support the lifestyles and needs of our clientele. While over 80% of our consumer account
holders are taking advantage of this service, we plan to continue marketing more broadly its features and
benefits to further increase deposit market share, particularly in our new Northern Tier region.

Additionally, in 2017, our business development plan continued 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. The confidence of our stockholders and the trust of our community are vital to our
ongoing success.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
2015
FinAnciAl peRFoRmAnce oveRview

Net income for Juniata in 2015 was $3,058,000, representing a 27.4% decrease as compared to net income for
2014. The comparability of the results of operations for 2015 were significantly impacted by the acquisition of
FNBPA Bancorp, Inc. (“FNBPA”) on November 30, 2015. Juniata incurred $1,806,000 of non-recurring expense in
conjunction with the acquisition of FNBPA during 2015. Exclusive of these expenses and the corresponding tax
impact, net income for the year ended December 31, 2015 was $4,369,000, an increase of $153,000, or 3.6%,
over net income of $4,216,000 in 2014. Operating results for the year included those of FNBPA beginning on
December 1, 2015.

Earnings per share on a fully diluted basis decreased from $1.01 in 2014 to $0.72 in 2015. When adjusted for
the impact of tax-effected non-recurring merger and acquisition costs, earnings per share was $1.03 in 2015. The
net interest margin, on a fully tax-equivalent basis, increased from 3.48% in 2014 to 3.56% in 2015. The ratio of
non-interest income (excluding gains on sales of securities) to average assets remained unchanged at 0.92% in
both 2015 and 2014, while the ratio of non-interest expense to average assets increased by 43 basis points to
3.31%. Of the increase in the non-interest expense ratio, 37 basis points related to the non-recurring merger and
acquisition costs. A reconciliation of non-GAAP comparative disclosures for the 2015 and 2014 periods is
presented earlier in the 2016 Financial Performance Overview.

Summarized below are the components of net income (in thousands of dollars) and the contribution of each to
ROA for 2015 and 2014.

2015

2014

% of Average
Assets

Net interest income
Provision for loan losses

15,337
(502)

3.13%
(0.10)

14,334
(357)

3.05%
(0.08)

Total noninterest expense

Income tax expense
Net income

Average assets

1,563
866
378
396
347
238
98
13
190
416
4,505

(7,911)
(1,558)
(1,589)
(192)
(430)
(368)
(318)
14
(51)
(1,806)
(479)
(1,511)

(16,199)

0.32
0.18
0.08
0.08
0.07
0.05
0.02
0.00
0.04
0.09
0.92

(1.62)
(0.32)
(0.32)
(0.04)
(0.09)
(0.08)
(0.06)
0.00
(0.01)
(0.37)
(0.10)
(0.31)

(3.31)

1,278
847
391
438
352
236
165
9
214
404
4,334

(7,320)
(1,463)
(1,545)
(205)
(396)
(340)
(310)
(22)
(45)
-
(479)
(1,445)

(13,570)

0.27
0.18
0.08
0.09
0.07
0.05
0.04
0.00
0.05
0.09
0.92

(1.56)
(0.31)
(0.33)
(0.04)
(0.08)
(0.07)
(0.07)
(0.00)
(0.01)
0.00
(0.10)
(0.31)

(2.88)

(83)
3,058

(0.02)
0.62%

489,323

(525)
4,216

(0.11)
0.90%

470,660

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

NET INTEREST INCOME

On average, total loans outstanding in 2015 increased from 2014 by 8.7%, to $306,128,000. Average yields on
loans decreased by 36 basis points in 2015 when compared to 2014. 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
$985,000, while the increase in volume increased interest income by $1,165,000, resulting in an aggregate
increase in interest recorded on loans of $180,000. While the prime rate had remained unchanged at 3.25% from
December of 2008 through mid-December 2015, most new and refinanced portfolio loans were priced at lower
rates than maturing loans during 2015, contributing to the decrease in overall yield. Because the acquisition of
FNBPA was consummated on November 30, 2015, the increase in average loans outstanding for 2015 was
affected only slightly by the loans acquired in the business combination, increasing average loan balances by
approximately $3,822,000. The remaining increase of $24,520,000 was attributable to increased loan demand
and participations with other banks.

During 2015, cash flows from maturities, sales and repayments of investment securities were primarily used to
fund a portion of the loan growth and to reinvest in the investment portfolio. Additionally, the acquired
investment portfolio from the merger, approximately $35.5 million, was immediately sold and the proceeds used
to fund the cash needs of the merger and reinvest into securities with characteristics consistent with the
Company’s investment policy. The portfolio reinvestment was principally focused on government sponsored
agency mortgage backed securities with relatively short weighted average lives and similar risk characteristics to
government sponsored agency bonds and investments that can be used for pledging requirements. As a result,
while average balances of investment securities decreased by $4,706,000, and this volume decrease accounted
for a $73,000 decrease in interest income as compared to 2014, the improvement in the overall yield of the
investment portfolio between 2014 and 2015 further increased net interest income by $342,000.

In total, yield on earning assets in 2015 was 3.88% as compared to 3.94% in 2014, a decrease of 6 basis points.

On a fully tax equivalent basis, yield on earning assets decreased from 4.08% in 2014 to 4.02% in 2015.

Average interest bearing liabilities increased by $10,141,000 in 2015, as compared to 2014. Within the
categories of interest bearing liabilities, deposits decreased on average by $7,211,000, and borrowings increased
by $17,352,000 on average, in order to fund the increase in earning assets. Deposits assumed in the merger with
FNBPA increased interest-bearing liabilities on average by approximately $4,888,000 in 2015, and non-interest
bearing deposits by approximately $1,809,000. In total, average interest bearing transaction accounts and savings
accounts increased $9,691,000 while average time deposits decreased $16,902,000. This shift away from time
deposits continued a trend that has been occurring for several years. Management believes this trend reflects the
consumers’ response to historical low interest rates. In 2015, time deposits accounted for 43.1% of total interest-
bearing deposits. During 2014 and 2013, time deposits represented 47.5% and 51.2%, respectively, of all
interest-bearing deposits. Changes in total interest-bearing liabilities reduced interest expense by $73,000 in
2015 as compared to 2014, while decreases in interest rates further reduced interest expense by $483,000. Non-
interest bearing liabilities used to fund earning assets included demand deposits, which increased $6,896,000 on
average. The percentage of interest earning assets funded by non-interest bearing liabilities was approximately
22.2% in 2015 versus 21.1% in 2014. The total cost to fund earning assets (computed by dividing the total
interest expense by the total average earning assets) in 2015 was 0.46%, as compared to 0.60% in 2014.

Net interest income was $15,337,000 for 2015, an increase of $1,003,000 when compared to 2014. Increases in
volumes contributed $1,162,000 toward the improved net interest income, partially offset by a $159,000
reduction of net interest income due to rate changes.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
pROVISION FOR LOAN LOSSES

Management performed an analysis following the process described in “Application of Critical Accounting
Policies” earlier in this discussion, and determined that a provision for loan losses of $502,000 was appropriate
for 2015, an increase of $145,000 when compared to 2014 when the total loan loss provision was $357,000. The
higher provision in 2015 primarily resulted from the increase in loan volumes in 2015; in 2015, the provision
exceeded net charge-offs by $98,000.
NON-INTEREST INCOME

In 2015, revenues from fee-generated services (customer service fees derived from deposit accounts, trust
relationships and sales of non-deposit products) totaled $2,306,000, representing an increase of $238,000, or
10.5%, from 2014 revenues, primarily due to increases in fees earned from customer deposit services. Total fees
from customer deposits increased by $285,000, or 22.3%, due primarily to fees earned from the new deposit
product line introduced in 2014. Fees from estate settlements increased by $32,000 in 2015 as compared to
2014, and non-estate fees decreased by $74,000, due to the final settlement of several trust accounts in 2014.
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 decreased in
2015, in comparison to 2014, by $5,000.

Fees and income derived from the origination, sale and servicing of residential mortgage loans (mortgage
banking income) was $190,000 in 2015, a decrease of $24,000, or 11.2%, compared to 2014, as refinancing
activity declined. Other non-interest-related fees derived from loan activity decreased by $15,000 when
comparing 2015 to 2014. Gains of $98,000 and $165,000 were recorded in 2015 and 2014, respectively, as a
result of life insurance claims

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, $238,000 was recorded as income in 2015, compared to $236,000 in 2014.
Earnings on bank-owned life insurance and annuities decreased in 2015 by $13,000, or 3.3%, when compared to
the previous year, because investment in BOLI was lower and crediting rates were reduced.

As a percentage of average assets, non-interest income (excluding securities gains and losses) was 0.92% in
both 2015 and 2014.
NON-INTEREST ExpENSE

In 2015, total non-interest expense increased by $2,629,000, or 19.4%, when compared to 2014. The primary

driver in the change in non-interest expense was attributable to non-recurring merger and acquisition costs of
$1,806,000 recorded in 2015. Exclusive of these costs, non-interest expense increased by $823,000, or 13.4%.
Compensation expense for 2015 increased by $219,000 as compared to 2014, due to a number of offsetting
factors, including an increase in full-time equivalent employment (due to the addition of personnel from JVB
Northern Tier), lower commissions paid for sales of non-deposit products, and lower levels of accruals for
employee incentive bonus, pursuant to the Company’s Employee Annual Incentive Plan. Costs of employee
benefits was $372,000 higher in 2015 than in 2014. Payroll taxes increased, as a result of higher employee
compensation costs, and the cost of providing medical coverage within the Company’s self-funded plan increased
by $275,000. Additionally, costs associated with maintaining the Company’s defined benefit plans increased by
$62,000 in 2015 versus 2014 and employer contributions to the defined contribution plan increased by $27,000.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Data processing expense increased by $44,000 in 2015 as compared to 2014, as new electronic delivery
services were initiated for the benefit of consumer and business customers. Occupancy and equipment expense
increased in the aggregate by $95,000, or 6.5%, due to maintenance and repairs in facilities and equipment. Costs
associated with loan documentation and foreclosure activities (included in “other non-interest expense)
increased in 2015 as compared to 2014 by $74,000.

Amortization expense associated with the Bank’s investment in a low-income housing project, which first
became applicable during the second quarter of 2013, was more than offset by the recording of the benefit of the
tax credit from the project in both 2015 and 2014. Amortization was $479,000 in both 2015 and 2014.
Amortization is scheduled to continue through 2023 at similar amounts.

Small variances in director compensation, professional fees, net gains and losses on sales of assets,
amortization of intangibles and FDIC insurance essentially offset each other.

As a percentage of average assets, non-interest expense was 3.31% in 2015 as compared to 2.88% in 2014.
Exclusive of merger and acquisition expenses the ratio was 2.94% in 2015.
INCOME TAxES

Income tax expense for 2015 amounted to $83,000 versus $525,000 in 2014. Both periods included the effect

of a tax credit in the amounts of $570,000 and $575,000, respectively. The tax credit was available to the
Company as a result of an equity investment in a low income housing project. The Company’s effective tax rate in
2015 was 2.6% versus 11.1% in 2014. See Note 16 of Notes to Consolidated Financial Statements for further
information on income taxes.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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 (losses)

on securities
Less: Allowance for
loan losses

Funding Sources:
Total uses

Interest bearing
demand deposits
Savings deposits
Time deposits
under $100,000
Time deposits
over $100,000
Repurchase agreements
Short-term borrowings
Long-term debt
Other interest bearing

liabilities

Total interest bearing

liabilities
Demand deposits
Other liabilities
Stockholders’ equity

2016
Average
Balance

348,914
30,263
124,611
23,807
770
675

Increase (Decrease)
Amount

2015
Average
Balance

Increase (Decrease)

Amount

$ 67,994
5,055
12,152
(4,880)
173
643

24.2 %
20.1
10.8
(17.0)
29.0
2,009.4

280,920 $ 20,307
4,213
810
(5,516)
(771)
(423)

25,208
112,459
28,687
597
32

7.8 % $

20.1
0.7
(16.1)
(56.4)
(93.0)

2014
Average
Balance

260,613
20,995
111,649
34,203
1,368
455

529,040

81,137

18.1

447,903

18,620

4.3

429,283

4,614
3,419
14,888

171
(206)
(72)

3.8
(5.7)
(0.5)

4,443
3,625
14,960

207
(433)
203

4.9
(10.7)
1.4

4,236
4,058
14,757

5,754

3,332

137.6

2,422

277

12.9

2,145

23,703

6,281

36.1

17,422

(1,110)

(6.0)

18,532

(1,505)

(2,402)

(267.8)

897

935

2,460.5

(38)

(2,572)

(223)

(9.5)

(2,349)

(36)

(1.6)

(2,313)

577,341

88,018

18.0 %

489,323 $ 18,663

4.0 % $

470,660

121,479
96,869

22,861
22,601

23.2 %
30.4

98,618 $
74,268

698
8,993

0.7%

13.8

97,920
65,275

109,054

3,250

3.1

105,804

(12,890)

(10.9)

118,694

30,333
4,711
15,713
24,406

5,294
(5)
(596)
1,906

21.1
(0.1)
(3.7)
8.5

25,039
4,716
16,309
22,500

(4,012)
451
11,306
5,548

(13.8)
10.6
226.0
32.7

29,051
4,265
5,003
16,952

1,480

4.5

1,416

3.4

1,369

404,045
105,536
6,551
61,209

55,375
21,241
1,324
10,078

15.9
25.2
25.3
19.7

348,670
84,295
5,227
51,131

10,141
6,896
1,199
427

3.0
8.9
29.8
0.8

338,529
77,399
4,028
50,704

Total sources

577,341

88,018

18.0 %

489,323 $ 18,663

4.0 % $

470,660

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Overall, total average assets increased by $88,018,000, or 18.0%, for the year 2016 compared to 2015,
following an increase of $18,663,000, or 4.0%, in 2015 over average assets in 2014. The large increase in 2016
was primarily due to the acquisition of FNBPA in the fourth quarter of 2015. 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 decreased slightly each of the last three years, at 72% in 2014, 71% in
2015 and 70% in 2016. 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 4.0% and 4.7%
of total average assets in 2016 and 2015, respectively. A more detailed discussion of the Company’s earning
assets and interest bearing liabilities will follow in the Sections titled “Loans”, “Investments”, “Deposits” and
“Market/Interest Rate Risk”.
LOANS

Loans outstanding at December 31 of each year consisted of the following (in thousands):

Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total

2016
40,827
123,711
35,206
154,905
13,616
10,032
$ 378,297

2015
34,171
127,213
26,672
164,617
17,524
6,846
$ 377,043

2014
23,738
90,000
20,713
140,676
15,730
4,044
$ 294,901

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

From year-end 2015 to year-end 2016, total loans outstanding increased by $1,254,000, following an increase
of $82,142,000 in 2015 when compared to year-end 2014. The following table summarizes how the ending
balances (in thousands) changed annually in each of the last three years.

Loans
Beginning balance
Net new loans (repayments)
Loans acquired through merger, net of fair value adjustments
Loans charged off
Loans transferred to other real estate owned and

other adjustments to carrying value

Net change
Ending balance

2016
$ 377,043
1,750
-
(279)

2015
$ 294,901
38,004
45,372
(415)

2014
$ 277,798
17,891
-
(275)

(217)
1,254
$ 378,297

(819)
82,142
$ 377,043

(513)
17,103
$ 294,901

The loan portfolio was comprised of approximately 44% consumer loans and 56% commercial loans (including
construction) on December 31, 2016 as compared to 45% consumer loans and 55% commercial loans on
December 31, 2015. 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, with debt service on this category of loans being reliant
upon the cash flow generated by the property. In the aggregate, loans in this category had outstanding balances of
$67,000,000 at December 31, 2016, or 125.9% of the Bank’s capital. Components of this concentration group
with balances considered for general reserve purposes are as follows:

NAIC Definition
Lessors of residential buildings and dwellings
Lessors of non-residential buildings
Hotels and Motels
Total

Outstanding Balance % of Bank Capital
65.42%
37.80%
22.65%
125.87%

34,824,000
20,120,000
12,056,000
67,000,000

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Given the reserves allocated to this sector over the past several years 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 7 of Notes to Consolidated Financial Statements.

During 2016, there was growth in commercial, real estate construction and personal loans, largely offset by
decreases in consumer mortgages, commercial real estate and obligations of states and political subdivisions. In
2015, exclusive of the loans acquired through the acquisition of FNBPA, there was growth in the commercial,
commercial real estate and construction lines of business, primarily as a result of participation opportunities
with other banks as well as new business development. This growth was offset somewhat by the decrease in
loans to states and political subdivisions and residential real estate loans. The ongoing decline in residential real
estate loans is a result of the secondary market continuing to offer more appealing fixed rates and longer terms
to borrowers. Juniata is willing, able and continues to lend to qualifying businesses and individuals and is
optimistic about increasing opportunities for loans in the newly acquired JVB Northern Tier region. Management
also believes that the economic climate is improving and is resulting in 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 are either variable or
adjustable rate loans, while non-mortgage 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 commercial loans with collateral consisting of real and/or tangible
personal property. Management believes that non-performing loans will continue to decline in 2017. 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 3 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, 2016
was 0.72% of total loans, net of unearned interest, as compared to 0.66% of total loans, net of unearned interest,
at the end of 2015. Loans that Juniata acquired through the combination with FNBPA on November 30, 2015 are
recorded at fair value with no carryover of the related allowance for loan losses. The acquired loans are excluded
from coverage by the loan loss reserve unless losses on the acquired loans exceed the fair value adjustments
recorded. Through loan amortization and other scheduled payments, the excluded balances are becoming a
smaller percentage of total outstanding loans, contributing to the increase in the allowance as a percentage of
total loans. The allowance increased $245,000 when compared to December 31, 2015, as a result of net charge-
offs of $221,000 offset by the provision of $466,000. Net charge-offs for 2016 and 2015 were 0.06% and 0.13%
of average loans, respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
At December 31, 2016, non-performing loans (as defined in Table 4 below), as a percentage of the allowance
for loan losses, were 195.1% as compared to 148.9% at December 31, 2015. Non-performing loans were 1.40%
of loans as of December 31, 2016, and 0.98% of loans as of December 31, 2015. Management believes that the
increased levels of nonperforming loans in 2016 will be reduced in 2017 as a number of large long-term non-
performing loans are expected to be brought current or liquidated in the upcoming year. All $5,312,000 of non-
performing loans at December 31, 2016 are collateralized with real estate.
TABLE 4
NON-pERFORMING LOANS

Nonaccrual loans
Accruing loans past due 90 days or more,
exclusive of loans acquired with
credit deterioration
Restructured loans in default and non-accruing
Total non-performing loans

2016

2015

4,733

3,688

2014
(In thousands)
4,880

2013

2012

5,952

8,846

554
25
5,312

2
-
3,690

400
366
5,646

251
-
6,203

742
-
9,588

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 2016, gross interest income that would have been recorded if loans on
nonaccrual status had been current was $423,000, of which $37,000 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 analysis, 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.

As of December 31, 2016, 41 loans, with aggregate outstanding balances of $12,547,000, were evaluated for
impairment. A collateral analysis was performed on each of these 41 loans in order to establish a portion of the
reserve needed to carry impaired loans at no higher than fair value. As a result of this analysis, two loans were
determined to have insufficient collateral, and specific reserves were established in the amount of $56,000. Also
included as impaired loans were loans in the amount of $1,056,000 that were acquired with credit impairment.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016Component 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 as
doubtful have all the weaknesses inherent in loans classified as 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;
Nature and volume of the portfolio and terms of loans;
Experience, ability and depth of lending and credit management and staff;
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 influences, including competition, legal and regulatory requirements.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016 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.

A summary of activity in the allowance for loan loss for the last five years (in thousands) is shown below. The
area most affected by charge-offs in each of the five years presented was real estate – mortgages, whose balances
accounted for approximately 41% of the total loan portfolio at December 31, 2016. In 2016, the Company
recorded net charge-offs of $221,000. Due to relatively low growth in net loans outstanding, low charge-offs
and little deterioration in fair value of impaired loans during 2016, the provision for loan loss in 2016 was 7%
lower than in 2015. With the provision exceeding net charge-offs, the loan loss allowance increased by 9.9% over
the allowance level in December 31, 2015. Management’s analysis indicated that the loan loss allowance of
$2,723,000 at December 31, 2016 was adequate.

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 - commercial
Real estate - mortgage
Personal

Total recoveries

Years Ended December 31,

2016

2,478

2015
2,380

2014
2,287

2013
3,281

2012
2,931

4
146
-
103
26
279

-
24
15
19
58

11
66
24
305
9
415

7
-
1
3
11

20
92
18
125
20
275

4
5
-
2
11

4
-
117
1,281
29
1,431

13
-
-
9
22

25
-
193
852
1
1,071

8
-
-
2
10

Net charge-offs
Provision for loan losses
Balance of allowance - end of period

221
466
2,723

404
502
2,478

264
357
2,380

1,409
415
2,287

1,061
1,411
3,281

Ratio of net charge-offs during period to
average loans outstanding

0.06%

0.13%

0.09%

0.51%

0.38%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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.

Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal

Allocation of the Allowance for Loan Losses (in thousands)
December 31,

2016
318
948
231
1,143
-
83
2,723

2015
264
836
191
1,140
-
47
2,478

2014
222
665
155
1,300
-
38
2,380

2013
253
534
212
1,246
-
42
2,287

2012
179
463
202
2,387
-
50
3,281

Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal

INVESTMENTS

2016
10.8%
32.7%
9.3%
40.9%
3.6%
2.7%
100.0%

Percent of Loan Type to Total Loans
2015

2014

2013

9.1%
33.7%
7.1%
43.7%
4.6%
1.8%
100.0%

8.0%
30.5%
7.0%
47.8%
5.3%
1.4%
100.0%

9.5%
26.8%
7.1%
50.5%
4.6%
1.5%
100.0%

2012

7.0%
24.9%
6.5%
55.2%
4.6%
1.8%
100.0%

Total investments, defined to include all interest earning assets except loans (i.e. investment securities available
for sale (at fair value), federal funds sold, interest bearing deposits, Federal Home Loan Bank stock and other
interest-earning assets), totaled $154,543,000 on December 31, 2016, representing an increase of $1,716,000
when compared to year-end 2015. The following table summarizes how the ending balances (in thousands)
changed annually in each of the last three years.

Beginning balance
Purchases of investment securities
Investments acquired through merger
Sales, calls and maturities of investment securities
Adjustment in market value of AFS securities
Amortization/Accretion
Federal Home Loan Bank stock, net change
Interest bearing deposits with others, net change
Net change

2016
$ 156,259
48,309
-
(47,974)
(1,434)
(740)
101
22
(1,716)

2015
$ 145,639
68,094
35,458
(92,989)
(296)
(764)
704
413
10,620

2014
$ 128,305
66,451
-
(50,533)
1,573
(634)
759
(282)
17,334

Ending balance

$ 154,543

$ 156,259

$ 145,639

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

On average, investments increased by $8,088,000, or 5.7%, during 2016, following a decrease of $5,900,000, or
3.4%, during 2015. The decrease in 2015 was experienced as cash flows from maturing bonds and mortgage
backed securities were used to fund loan growth. The increase in 2016 resulted from excess cash available from
loan repayments.

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, 2016, the market value of the entire
securities portfolio was less than amortized cost by $1,302,000 as compared to December 31, 2015, when market
value was greater than amortized cost by $132,000. The weighted average life of the investment portfolio was 3.7
years on December 31, 2016 and December 31, 2015. The weighted average maturity has remained short in
order to achieve a desired level of liquidity.
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.

Table 5, “Maturity Distribution”, in this Management’s Discussion and

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

Mortgage-backed securities
Within one year
After one year but within five years
After five years but within ten years
After ten years

December 31, 2016

Fair
Value

Weighted
Average
Yield

December 31, 2015
Weighted
Average
Yield

Fair
Value

December 31, 2014

Fair
Value

Weighted
Average
Yield

.0-

19,331 1.38%
16,468 1.87%
35,799 1.61%

2,820 2.04%
13,240 2.50%
10,599 3.00%

.0-

26,659 2.65%

.0-

104 1.37%
7,701 2.22%
77,897 2.13%
85,702 2.13%

1,003
24,264
7,465
32,732

5,771
16,151
7,282
331
29,535

-
242
5,059
82,440
87,741

2.13%
1.34%
2.07%
1.53%

1.97%
2.64%
3.42%
1.85%
2.66%

.0-
1.35%
2.27%
2.16%
2.16%

4,566
38,723
6,812
50,101

9,934
16,853
8,748
338
35,873

-
537
3,417
51,475
55,429

1.96%
1.28%
1.44%
1.37%

1.71%
2.14%
3.27%
1.83%
2.29%

.0-
2.08%
1.58%
2.13%
2.10%

Equity securities

2,328
$ 150,488

2,319
$ 152,327

1,500
$ 142,903

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 9 of Notes to Consolidated Financial Statements. The following table summarizes how the
cash surrender values (in thousands) of these instruments changed annually in each of the last three years.

Beginning balance
BOLI increase in cash surrender value
BOLI receipt of death benefit
Annuities net (decrease) increase in cash surrender value
Net change

Ending balance
INVESTMENT IN uNCONSOLIDATED SuBSIDIARy

2016
14,905
349
(651)
28
(274)

2015
14,807
362
(259)
(5)
98

2014
$ 14,848
386
(450)
23
(41)

14,631

14,905

$ 14,807

The Company owns 39.16% of the outstanding common stock of Liverpool Community Bank (LCB), Liverpool,
Pennsylvania. This investment is accounted for under the equity method of accounting. The investment was
carried at $4,703,000 as of December 31, 2016. 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, 2016 represented an increase of $150,000 when
compared to December 31, 2015. In connection with this investment, two representatives of Juniata serve on the
Board of Directors of LCB.
GOODWILL AND INTANGIBLE ASSETS
Branch Acquisition

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill at December 31, 2016
and 2015 was $2,046,000. Core deposit intangible of $431,000 was fully amortized as of December 31, 2016 and
was $29,000 net of amortization of $402,000 at December 31, 2015. The core deposit intangible was being
amortized over a ten-year period on a straight line basis. Goodwill is not amortized, but is measured annually for
impairment. Core deposit intangible amortization expense of $29,000, $45,000 and $45,000 was recorded in each
of the years 2016, 2015 and 2014, respectively.
FNBPA Acquisition

On November 30, 2015, the Company completed its acquisition of FNBPA and as a result, recorded goodwill of
$3,335,000, which was subsequently adjusted in 2016 to $3,402,000. In addition, core deposit intangible in the
amount of $303,000 was recorded and will be amortized over a ten-year period using a sum of the year’s digits
basis. Core deposit intangible amortization expense recorded in 2016 was $55,000 and for the succeeding five
years beginning 2017 is estimated to be $49,000, $44,000, $38,000, $33,000 and $27,000 per year, respectively,
and $53,000 in total for years after 2021. Other intangible assets were identified and recorded as of November
30, 2015, in the amount of $40,000 and are being amortized on a straight line basis over two years, through
November 30, 2017. Expense recognized in 2016 was $20,000, and is projected to be $18,000 for 2017. Core
deposit and other intangible assets, net of amortization, was $262,000 as of December 31, 2016.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, 2016 and December 31, 2015, the fair value of mortgage servicing rights
was $205,000.
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, 2016 and 2015. As of December 31, 2016 and 2015, the Company recorded a net deferred tax asset of
$1,249,000 and $1,054,000, respectively, which was carried as a non-interest earning asset. Significant
components of the increase of $195,000 included:

1. A $357,000 increase in the deferred tax asset relating to unrealized losses on securities available for sale;
2. An increase of $129,000 in the carryforward for a tax credit for low income housing investment;
3. An increase of $62,000 in the deferred tax asset relating to defined benefit liabilities;
4. A decrease of $216,000 in the deferred tax asset relating to fair value adjustments to acquired assets and

liabilities; and

5. A $76,000 decrease in the deferred tax asset relating to the allowance for loan losses.

The remainder of the difference was due to the various other changes in gross temporary tax differences. See
Note 16 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 cash equivalents
Premises and equipment, net
Other real estate owned
Investment in low income housing
Other receivables and prepaid expenses, including deferred tax assets
Net change

2016
25,886
(921)
(52)
21
444
(390)
(898)

2015
20,879
3,628
376
385
(479)
1,097
5,007

2014
$ 23,614
(1,813)
203
(49)
(143)
(933)
(2,735)

Ending balance

24,988

25,886

$ 20,879

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

DEpOSITS

At December 31, 2016, total deposits were $455,822,000, a decrease of $1,304,000 as compared to the
previous year end. At December 31, 2015, total deposits were $457,126,000, an increase of $76,242,000 from
total deposits on December 31, 2014. Deposits assumed from the FNBPA acquisition accounted for an increase of
$77,392,000. Otherwise, deposits decreased by $1,150,000 at December 31, 2015 as compared to December 31,
2014. The following table summarizes how the ending balances (in thousands) changed annually in each of the
last three years.

Beginning balance
Demand deposits
Interest bearing demand deposits
Savings deposits
Time deposits
Net change

Ending balance

2016
$ 457,126
(2,661)
4,023
526
(3,192)
(1,304)

$ 455,822

2015 Exclusive
of Acquisition Acquisition

FNBPA

8,709
(3,114)
8,344
(15,089)
(1,150)

20,261
21,845
19,149
16,137
77,392

2015

$ 380,884
28,970
18,731
27,493
1,048
76,242

2014
$ 379,645
3,086
5,808
6,669
(14,324)
1,239

$ 457,126

$ 380,884

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.

2016
Average
Balance

Increase (Decrease)
Amount

Increase (Decrease)

Amount

2014
Average
Balance

Changes in Deposits
(Dollars in thousands)
2015
Average
Balance

Core transaction deposits:
Money market

Interest bearing demand

Savings
Demand
Total

Time deposits:
100,000 and greater
Other

Total

43,896
77,583
96,869
105,536
323,884

10,208
12,653
22,601
21,241
66,703

30.3%
19.5
30.4
25.2
25.9

33,688 $ (3,686)
4,384
64,930
8,993
74,268
6,896
84,295
16,587
257,181

(9.9)% $
7.2
13.8
8.9
6.9

37,374
60,546
65,275
77,399
240,594

30,333
109,054
139,387

5,294
3,250
8,544

21.1
3.1
6.5

25,039
105,804
130,843

(4,012)
(12,890)
(16,902)

(13.8)
(10.9)
(11.4)

29,051
118,694
147,745

Total deposits

463,271

$ 75,247

19.4%

388,024 $

(315)

(0.1)% $

388,339

Average deposits increased $75,247,000, or 25.9%, to $463,271,000 in 2016 following a decrease in 2015 of
$315,000, or 0.1%, to $388,024,000. Core transaction accounts increased by 25.9% and 6.9%, respectively, in
2016 and 2015. The large increase in 2016 is largely due to the acquisition of FNBPA in the fourth quarter of
2015. We also believe that, over the past several years, because of the market uncertainties that accompany
uncertain economic periods, investors continued to move balances of available funds into safe, FDIC-insured
banking institutions and particularly into liquid transaction accounts, while funds invested in time deposits
declined. Due to the sustained low-interest rate environment that existed over the period, we believe many
investors had been seeking higher yields than are available in time deposit products. We continue to provide
alternatives to such investors through the sale of our wealth management (non-deposit) products and are seeing
investors seeking dividend yields in the stock market as well.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 offers identity protection services as an option for all consumer demand depositors. We
believe this product to be a valuable and essential tool necessary to combat the upsurge in fraud and identity
theft. This product is a unique benefit to our customers as there are no other banks in our immediate market that
offer a similar service.

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 customer base. Fee income from the sale of non-deposit
products (primarily annuities and mutual funds) was $223,000 and $347,000 in 2016 and 2015, respectively,
representing approximately 4.1% and 7.7%, respectively, of total non-interest income.
OThER INTEREST BEARING LIABILITIES

Juniata funds its needs primarily with local deposits and when necessary, relies on external funding sources for

additional funding requirements. These funding sources include credit facilities at correspondent banks and the
Federal Home Loan Bank of Pittsburgh. Juniata’s average balances for all borrowings increased in 2016 by
$1,369,000, following an increase of $17,352,000 in 2015 as compared to 2014. The increase in 2015 was related
to the Company’s use of short-term borrowings to fund loan growth.

Changes in Borrowings
(Dollars in thousands)

Repurchase agreements
Short-term borrowings
Long-term debt
Other interest bearing

liabilities

pENSION pLAN

2016
Average
Balance

4,711
15,713
24,406

2015
Average
Balance

Increase (Decrease)
Amount

(5)
(596)
1,906

%
(0.1)% $
(3.7)
8.5

4,716 $

16,309
22,500

Amount
451
11,306
5,548

10.6 % $

226.0
32.7

Increase (Decrease)

2014
Average
Balance

4,265
5,003
16,952

1,480
46,310

64
1,369

4.5
3.0 %

1,416

47
44,941 $ 17,352

3.4

62.9 % $

1,369
27,589

The Company has sponsored two noncontributory pension plans, the JVB Plan and the FNB Plan. The FNB Plan
was assumed by the Company as part of the merger with FNBPA and was merged into the JVB Plan in 2016. The
merged JVB Plan has unfunded liabilities that totaled $2,492,000 as of December 31, 2016. Through the JVB Plan,
the Company provides pension benefits to substantially all 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 JVB Plan was amended to cease future service accruals after that date
(i.e., it was frozen). The JVB Plan was amended in 2016 to provide pension benefits to all former FNBPA
employees that were previously participants in the former FNB Plan at the same level of benefit provided in the

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

FNB Plan. 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 21 of Notes to
Consolidated Financial Statements.
STOCKhOLDERS’ EquITy

Total stockholders’ equity decreased by $872,000 in 2016. Net income in 2016 exceeded dividends by
$930,000. The Company is well-capitalized and had the capacity to maintain the traditional dividend level in
2016 when net income was affected by merger and acquisition costs. The remaining change in stockholders’
equity resulted from a number of factors. The other comprehensive income associated with the Company’s
defined benefit plan, net of tax, caused a decrease of $44,000. In 2016, changes in assumptions applied to the
actuarial calculation of the projected benefit obligation resulted in the decrease. It is the Company’s practice to
use the most recently updated mortality tables in the assumptions, which, when applied to the Company’s
participant characteristics, was more than offset by the 25 basis point reduction in the discount rate assumption
used to determine the benefit obligation. Substantially offsetting this change was a decrease in fair values of
investment securities at year-end 2016 as compared to year-end 2015, reducing equity by $963,000. During
2016, shares repurchased into treasury, net of those reissued, reduced equity by $927,000. 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
Common stock issued to FNBPA stockholders
Common stock issued for stock plans
Stock-based compensation
Repurchase of stock, net of re-issuance
Net change in unrealized security gains
Defined benefit retirement plan adjustments, net of tax
Net change

2016
59,962
5,156
(4,226)
-
64
67
(927)
(963)
(43)
(872)

2015
49,856
3,058
(3,687)
10,637
-
57
47
(200)
194
10,106

2014
$ 49,984
4,216
(3,690)
-
-
47
(163)
1,047
(1,585)
(128)

Ending balance

59,090

59,962

$ 49,856

Average stockholders’ equity in 2016 was $61,209,000, an increase of 19.7% from $51,131,000 in 2015 and
was $50,704,000 in 2014. At December 31, 2016, Juniata held 49,370 shares of stock in treasury versus none at
December 31, 2015. Return on average equity increased to 8.42% in 2016 from 5.98% in 2015. Return on
average equity was decreased in 2015 due to significant non-recurring merger and acquisition expenses
recorded. See the discussion in 2016 Financial Overview section.

The Company periodically repurchases shares of its common stock under the share repurchase program
approved by the Board of Directors. In December of 2016, 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 accomplished 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, restricted stock awards, to fulfill dividend reinvestment program needs and to supply
shares needed as consideration in an acquisition. During 2016, 2015 and 2014, 49,370, 3,504 and 12,322 shares,

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

respectively, were repurchased in conjunction with this program. Shares remaining authorized for repurchase in
the program were 178,279 as of December 31, 2016. On November 30, 2015, there were 555,555 treasury shares
reissued to former FNBPA shareholders in conjunction with the acquisition of FNBPA.

In each of the years 2016, 2015 and 2014, Juniata declared dividends of $0.88 per common share (See Note 17

of Notes to Consolidated Financial Statements regarding restrictions on dividends from the Bank to the
Company). The dividend payout ratio was 82.0% and 120.6% in 2016 and 2015, respectively. The dividend
payout ratio in 2015 was unusually high due to the impact on net income of non-recurring merger expenses. In
January 2017, the Board of Directors declared a dividend of $0.22 per share to stockholders of record on
February 15, 2017, payable on March 1, 2017.

Juniata’s book value per share at December 31, 2016 was $12.43, as compared to $12.50 at each of December

31, 2015 and 2014. Juniata’s average equity to assets ratio for 2016, 2015 and 2014 was 10.60%, 10.45%
and 10.77%, respectively. Refer also to the Capital Risk section in the Asset / Liability management discussion
that follows.
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

Liquidity Risk
Capital Risk
Market / Interest Rate Risk
Investment Portfolio Risk
Economic 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. Liquidity management 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. Juniata relies on three main types of
liquidity sources: (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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 seeks 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.

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
and a source for long-term borrowings. The Bank uses this vehicle to satisfy temporary funding needs throughout
the year. The Company had short-term borrowings of $27,700,000 on December 31, 2016 and $30,061,000 on
December 31, 2015.

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank of Pittsburgh (“FHLB”) was
$165,283,000 at December 31, 2016. In order to borrow additional amounts, 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 were fixed and determined at December 31, 2016. Further discussion of the
nature of each obligation is included in the referenced note to the consolidated financial statements.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

CONTRACTuAL OBLIGATIONS

Certificates of deposits
Short-term borrowings and
security repurchase agreements
Long-term debt
Operating lease obligations
Other long-term liabilities
3rd party data processor contract
Supplemental retirement and
deferred compensation

14
14
15

Note
Reference
13

Total
$ 137,938

Payments Due by Period
Three to
One to
Five
Three
Years
Years

36,215

39,806

More than
Five
Years
$ 13,659

32,196
25,000
435

-
18,750
162

-
-
123

792

528

264

-
-
5

2,870
$ 199,231

278
87,655

551
55,942

516
40,445

1,525
$ 15,189

Less than
One Year
48,258

32,196
6,250
145

The schedule of contractual obligations (above) excludes expected defined benefit retirement payments that
will be paid from the plan assets, as referenced in Note 21 of Notes to Consolidated Financial Statements.
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.

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”. In July 2013, the FRB approved
final rules to implement the Basel III capital framework which revises the risk-based capital requirements
applicable to bank holding companies and depository institutions. The new minimum regulatory capital
requirements established by the U.S. Basel III Capital Rules became effective for the Company on January 1, 2015,
and will be fully phased in on January 1, 2019.

When fully phased in, Basel III requires financial institutions to maintain: (a) Common Equity Tier 1 (CET1) to
risk-weighted assets ratio of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5%
CET1 ratio as that buffer is phased in, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of
at least 7.0%); (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital
conservation buffer (which is added to the 6.0% tier 1 capital ratio as that buffer is phased in, effectively
resulting in a minimum tier 1 capital ratio of 8.5% upon full implementation); (c) a minimum ratio of total (that
is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is
added to the 8.0% total capital ratio as that buffer is phased in, effectively resulting in a minimum total capital
ratio of 10.5% upon full implementation); and (d) as a newly adopted international standard, a minimum
leverage ratio of 3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance
sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter).

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, 2016, 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. See Note 17 of Notes to the Consolidated Financial Statements.
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.

Recent changes in the values of financial institution stocks have significantly increased the likelihood of
realizing significant gains in the near-term. Although the primary objective of the portfolio is to achieve value
appreciation in the long term while earning consistent, attractive after-tax yields from dividends, stock holdings
will be sold to execute Company objectives, including tax strategies. The carrying value of the financial institution
stocks accounted for 0.4% of the Company’s total assets as of December 31, 2016. Management performs an
impairment analysis on the entire investment portfolio, including the financial institution stocks on a quarterly
basis. No “other-than-temporary” impairment was identified or recorded on stocks in 2016, 2015 or 2014;
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 a cost basis of $1,615,000 and a fair value of
$2,328,000 at December 31, 2016, resulting in net unrealized gains in this portfolio of $713,000 at
December 31, 2016.

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 full simulation approach is used to assess earnings and capital at risk from
movements in interest rates. First, all rate-sensitive assets and rate-sensitive liabilities are segregated into their
respective repricing intervals to determine expected cash flows. Next, a multiplier (BETA) is assigned to rate
sensitive instruments to apply management’s repricing behavior. Management reprices differently in rising and
declining rates, so different Betas are used to better simulate, especially in regard to deposit pricing. Next,
interest income or expense is modeled by determining the impact based on amount of contribution remaining
over the following 12 months in the simulation. The model considers three major components of income
simulation consisting of (1) determining repricing cash flows, (2) modeling management’s repricing behavior,
and (3) accounting for the instruments positions within the 12 month simulation period. 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 rise
or decline through a 300 basis point change. The impact of a 400 basis point rate increase is more significant, as
modeling assumptions project a liability sensitive position in that scenario. The modeled effects for increases and
decreases to net interest income over a twelve-month period as a result of this modeling approach are shown in
the table below. 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, and Juniata is in compliance with those policy limits.

Effect of Interest Rate Risk on Net Interest Income
(Dollars in thousands)

Change in Interest Rates (Basis Points)

400
300
200
100
0
(100)
(200)
(300)
(400)

Total Change in Net Interest Income
(1,032)
(168)
246
268
-
240
193
(116)
(467)

The net interest income at risk position remained within the guidelines established by the Company’s asset/
liability policy in each of the above scenarios.

Table 5, presented below, illustrates the maturity distribution of the Company’s interest-sensitive assets and
liabilities as of December 31, 2016. 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 0.50, indicating a liability-sensitive balance sheet, when measured on a static basis.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

TABLE 5
MATuRITy DISTRIBuTION

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

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
Long-term debt
Other interest bearing liabilities
Total Interest Bearing Liabilities
Gap
Cumulative Gap
Cumulative sensitivity ratio

Commercial, financial and agricultural
loans maturing after one year with:

Fixed interest rates
Variable interest rates
Total

Certificates of Deposit over $100,000
Maturing within 3 months
Maturing within 3 to 6 months
Maturing within 6 to 12 months
Maturing after 1 year

AS OF DECEMBER 31, 2016
(Dollars in thousands)
Remaining Maturity / Earliest Possible Repricing

Within
One
Year

Over One
Year But
Within Five
Years

Over
Five
Years

Total

195

250

445

27,852
3,601
12,711
-

17,892
8,436
79,973

9,499
18,250
41,584
-

15,851
4,125
129,126

-
3,256
31,407
2,328

37,351
25,107
85,702
2,328

7,084
22,645
93,165

40,827
35,206
302,264

150,660

218,685

159,885

529,230

118,429
95,449
9,976
38,279
4,496
27,700
6,250
1,545
302,124
$ (151,464)
$ (151,464)
0.50

-
-
14,897
61,107
-
-
18,750
-
94,754
$ 123,931
(27,533)
$
0.93

-
-
7,648
6,031
-
-
-
-
13,679
$ 146,206
$ 118,673

118,429
95,449
32,521
105,417
4,496
27,700
25,000
1,545
410,557
$ 118,673

1.29

14,926
12,245
27,171

6,668
890
7,558

$ 21,594
13,135
$ 34,729

2,896
2,541
4,539
22,545
$ 32,521

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, 2016, 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, 2016, a non-parallel
200 basis point increase shock in rates produced an estimated 9.8% 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 $56,095,000 and $42,619,000 at
December 31, 2016 and 2015, respectively. In addition, the Company had $3,889,000 and $4,661,000 outstanding
in unused lines of credit commitments extended to its customers at December 31, 2016 and 2015, respectively.

Letters of credit are instruments issued by the Company that guarantee payment by the Bank to the beneficiary
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 a one-year period. 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, 2016 and 2015 for guarantees under letters of credit issued is not material.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016 The maximum undiscounted exposure related to these guarantees at December 31, 2016 was $2,300,000, and
the approximate value of underlying collateral upon liquidation that would be expected to cover this maximum
potential exposure was $11,851,000.

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 $475,000 at December 31, 2015. 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, 2016.

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.
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 to the Company as it is to 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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, 2016. 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 (2013)

Based on our assessment, management concluded that as of December 31, 2016, the Company’s internal
control over financial reporting is effective and meets the criteria of the Internal Control-Integrated Framework
(2013).

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016REpORT 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, 2016, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying “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, 2016, 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 statements of financial condition as of December 31, 2016 and 2015 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 for each of the three years in the period ended December 31, 2016, and our report dated
March 15, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP
Harrisburg, Pennsylvania
March 15, 2017

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016REpORT 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 statements of financial condition of Juniata Valley Financial
Corp., and its wholly-owned subsidiary, The Juniata Valley Bank, (the “Company”) as of December 31, 2016 and
2015 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash
flows for each of the three years in the period ended December 31, 2016. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the 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 audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Juniata Valley Financial Corp. and its wholly-owned subsidiary, The Juniata Valley Bank
at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2016, 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, 2016, based on
criteria established in the Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2017, expressed
an unqualified opinion thereon.

/s/ BDO USA, LLP
Harrisburg, Pennsylvania
March 15, 2017

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

ASSETS

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
Residential mortgage loans held for sale
Student loans held for sale
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 partnership
Core deposit and other intangible
Goodwill
Mortgage servicing rights
Accrued interest receivable and other assets
Liabilities:

Total assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Non-interest bearing
Interest bearing

Total deposits

Securities sold under agreements to repurchase
Short-term borrowings
Long-term debt
Other interest bearing liabilities
Accrued interest payable and other liabilities
Stockholders’ Equity:

Total liabilities

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 -
4,805,000 shares at December 31, 2016;
4,798,086 shares at December 31, 2015

Outstanding -

4,755,630 shares at December 31, 2016;
4,798,086 shares at December 31, 2015

Surplus
Retained earnings
Accumulated other comprehensive loss
Cost of common stock in Treasury:
Total stockholders’ equity
49,370 shares at December 31, 2016
Total liabilities and stockholders’ equity

See Notes to Consolidated Financial Statements

December 31,
2016

2015

(In Thousands, Except Share
and Per Share Data)

9,464
95
9,559

10,385
73
10,458

350
150,488
3,610
4,703
-
-
378,297
(2,723)
375,574
6,857
638
14,631
3,812
262
5,448
205
4,217
580,354

350
152,327
3,509
4,553
125
1,683
377,043
(2,478)
374,565
6,909
617
14,905
3,368
366
5,381
205
4,607
$ 583,928

104,006
351,816
455,822

$ 106,667
350,459
457,126

4,496
27,700
25,000
1,545
6,701
521,264

4,996
30,061
22,500
1,471
7,812
523,966

4,805
18,476
39,945
(3,209)

4,798
18,352
39,015
(2,203)

(927)
59,090
580,354

-
59,962
$ 583,928

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF INCOME

Interest income:

Loans, including fees
Taxable securities
Tax-exempt securities
Other interest income
Interest expense:

Total interest income

Deposits
Securities sold under agreements to repurchase
Short-term borrowings
Long-term debt
Other interest bearing liabilities
Net interest income

Total interest expense

Net interest income after provision for loan losses
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
Mortgage banking income
Gain on sales and calls of securities
Gain on sales of loans
Gain from life insurance proceeds
Total non-interest income
Other 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
Loss (gain) on sales of other real estate owned
Amortization of intangibles
Amortization of investment in low-income housing partnership
Merger and acquisition expense
Other non-interest expense
Income before income taxes

Total non-interest expense

Net income
Provision for income taxes
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

Years Ended December 31,
2015

2014

2016

(In Thousands, Except per Share Data)

17,559
2,475
418
17
20,469

1,811
5
94
328
30
2,268
18,201
466
17,735

1,736
1,044
371
454
223
222
232
158
218
113
364
283
5,418

6,883
2,301
1,137
661
1,807
238
539
437
375
150
105
479
347
1,719
17,178
5,975
819
5,156

14,645
2,267
465
2
17,379

1,677
5
63
275
22
2,042
15,337
502
14,835

1,563
866
378
396
347
238
187
190
13
-
98
229
4,505

6,095
1,816
1,039
519
1,589
192
430
368
318
(14)
51
479
1,806
1,511
16,199
3,141
83
3,058

14,465
1,950
513
4
16,932

2,356
4
15
207
16
2,598
14,334
357
13,977

1,278
847
391
438
352
236
202
214
9
-
165
202
4,334

5,876
1,444
993
470
1,545
205
396
340
310
22
45
479
-
1,445
13,570
4,741
525
4,216

1.07
$
1.07
$
$
0.88
4,801,245
4,802,175

0.72
$
0.72
$
$
0.88
4,240,319
4,241,265

1.01
$
1.01
$
$
0.88
4,192,761
4,193,129

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF COMpREhENSIVE INCOME

( in thousands)

Year ended December 31, 2016

Net income
Other comprehensive income (loss):
Available for sale securities :
Unrealized holding loss arising during the period
Unrealized holding loss from unconsolidated subsidiary
Less reclassification adjustment for

gains included in net income (1) (3)

Unrecognized pension net loss (2) (3)
Unrecognized pension loss due to change in assumptions (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 loss 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 gain due to change in assumptions (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 gains arising during the period
Unrealized holding gains from unconsolidated subsidiary
Less reclassification adjustment for

gains included in net income (1) (3)

Before
Tax
Amount

Tax
Effect

5,975

(819) $

Net-of-Tax
Amount
5,156

(1,215)
(17)

(218)
(9)
(305)
248
(1,516)
4,459

413
-

(802)
(17)

74
3
104
(84)
510
(309) $

(144)
(6)
(201)
164
(1,006)
4,150

Year ended December 31, 2015

Before
Tax
Amount

Tax
Effect

3,141

(83) $

Net-of-Tax
Amount
3,058

(291)
1

(13)
(571)
623
242
(9)
3,132

99
-

4
194
(212)
(82)
3
(80) $

(192)
1

(9)
(377)
411
160
(6)
3,052

Year ended December 31, 2014

Before
Tax
Amount

Tax
Effect

4,741

(525) $

Net-of-Tax
Amount
4,216

1,582
10

(9)
(144)
(2,297)
40
(818)
3,923

(539)
-

1,043
10

3
49
781
(14)
280
(245) $

(6)
(95)
(1,516)
26
(538)
3,678

(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)
See Notes to Consolidated Financial Statements

Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF STOCKhOLDERS’ EquITy

Balance at January 1, 2014

Net income
Other comprehensive loss
Cash dividends at $0.88 per share
Stock-based compensation activity
Purchase of treasury stock
Balance at December 31, 2014
Treasury stock issued for stock plans

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 plans
Common stock issued to
Balance at December 31, 2015
FNBPA stockholders

Net income
Other comprehensive loss
Cash dividends at $0.88 per share
Stock-based compensation activity
Purchase of treasury stock
Balance at December 31, 2016
Common stock issued for stock plans

Years Ended December 31, 2016, 2015 and 2014

Number
of Shares
Outstanding

Common
Stock

Accumulated
Other

Stock

Surplus

Retained Comprehensive Treasury
Loss
Earnings

Stock

Total
Stockholders'
Equity

(Dollars in Thousands, Except Per Share Data)

4,196,266 $

4,746

18,370

$ 39,118
4,216

(3,690)

(1,659)

$ (10,591)

(538)

(12,322)
3,497
4,187,441

4,746

(3,504)
6,334

(8)
18,409

(12)

607,815
4,798,086

52
4,798

(102)
18,352

(49,370)
6,914
4,755,630 $

7
4,805

57
18,476

39,644
3,058

(3,687)

(2,197)

(6)

39,015
5,156

(4,226)

(2,203)

(1,006)

(222)
67
(10,746)

(63)
122

10,687
-

(927)

$ 39,945

(3,209)

(927)

49,984
4,216
(538)
(3,690)
47
(222)
59
49,856
3,058
(6)
(3,687)
57
(63)
110

10,637
59,962
5,156
(1,006)
(4,226)
67
(927)
64
59,090

See Notes to Consolidated Financial Statements

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF CASh FLOWS

Years Ended December 31,
2015

2014

2016

Operating Activities

Net income
Adjustments to reconcile net income to net cash provided by operating activities:

5,156

3,058

4,216

(In Thousands)

Provision for loan losses
Depreciation
Net amortization of securities premiums
Net amortization of loan origination costs
Deferred net loan origination (costs) fees
Amortization of core deposit intangible
Amortization of investment in low income housing partnership
Net amortization of purchase fair value adjustments
Net realized gain on sales and calls of securities
Net loss (gain) 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 $55, $55 and $48
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 (increase) in accrued interest receivable and other assets
Net cash provided by operating activities
(Decrease) increase in accrued interest payable and other liabilities

466
595
740
63
(124)
105
479
(9)
(218)
148
(371)
320
(167)
67
(1,582)
1,822
(228)
(364)
461
(1,056)
6,303

Investing activities:

Purchases of:

Securities available for sale
FHLB stock
Premises and equipment
Bank owned life insurance and annuities

Proceeds from:

Sales of securities available for sale
Maturities of and principal repayments on securities available for sale
Sale of student loans
Bank owned life insurance and annuities
Life insurance claims
Sale of other real estate owned
Sale of other assets

Net cash received from acquisition of FNBPA

Investment in low income housing partnerships
Net cash used in investing activities

Net decrease in interest bearing time deposits with banks
Net increase in loans
Financing activities:

(48,195)
(111)
(542)
(53)

4,304
43,835
1,796
-
1,016
144
20
-
(923)
-
(1,750)
(459)

502
506
764
68
(139)
51
479
(3)
(13)
(14)
(378)
(66)
(183)
57
(3,385)
3,438
(190)
(98)
292
497
5,243

(67,047)
(704)
(463)
(54)

53,213
39,776
-
34
357
644
-
1,244
-
-
(38,004)
(11,004)

357
494
634
13
142
45
479
-
(9)
22
(391)
194
(188)
47
(3,759)
3,949
(214)
(165)
(41)
83
5,908

(66,451)
(759)
(697)
(60)

14,631
35,911
-
5
615
396
-
-
(336)
249
(17,891)
(34,387)

Net (decrease) increase in deposits
Net (decrease) increase in short-term borrowings and securities sold

under agreements to repurchase
Issuance of long-term debt
Repayment of long-term debt
Cash dividends
Purchase of treasury stock
Common 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

(1,293)

(1,421)

1,239

(2,861)
10,000
(7,500)
(4,226)
(927)
64
(6,743)
(899)
10,458
9,559

14,513
-
-
(3,687)
(63)
110
9,452
3,691
6,767
10,458

6,747
22,500
-
(3,690)
(222)
59
26,633
(1,846)
8,613
6,767

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Supplemental information:

Supplemental schedule of noncash investing and financing activities

Interest paid
Income taxes paid

Transfer of loans to other real estate owned
Transfer of loans to other assets
Supplemental schedule of assets and liabilities in connection with merger:
Securities sold settling after year-end

2,237
200

313
20
104

2,105
100

901
-
-

2,584
50

369
-
-

Assets acquired:

Interest bearing time deposits with banks

Securities
Loans
Property and equipment
Accrued interest receivable
Core deposit and other intangible assets
Deferred income taxes
Other real estate owned
Other assets

Liabilities assumed:

Deposits
Pension liability
Accrued interest payable and other liabilities

-
-
-
-
-
-
-
-
-
-

-
-
-
-

350
35,458
47,055
419
550
343
732
114
31
85,052

77,665
1,248
81
78,994

-
-
-
-
-
-
-
-
-
-

-
-
-
-

See Notes to Consolidated Financial Statements

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
yEARS ENDED DECEMBER 31, 2016, 2015 AND 2014

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 15 branch locations located in Juniata, Mifflin, Perry, McKean, Potter and
Huntingdon Counties. Additionally, in Mifflin, Juniata and Centre Counties, the Company maintains three offices
for loan production, trust services and wealth management 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 and mobile banking, an
automatic teller machine network, checking accounts, identity protection products for consumers, 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 by the Board of Governors of the Federal Reserve Bank
and the Pennsylvania Department of Banking and Securities.
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 determination of other-than-temporary impairment on
securities, impairment of goodwill and the value of assets acquired and liabilities assumed in business combinations.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
Basis of presentation

Certain amounts previously reported have been reclassified to conform to the consolidated financial statement
presentation for 2016. 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 and the JVB Northern
Tier regions. Note 6 discusses the types of securities in which the Company invests. Note 7 discusses the types of
lending in which the Company engages.

As of December 31, 2016, credit exposure to lessors of residential buildings and dwellings represented
61.6% of capital and credit exposure to lessors of non-residential buildings represented 32.6% of capital.
Otherwise, 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, McKean, Potter 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.
Interest bearing time deposits with banks

Interest-bearing time deposits with banks consist of certificates of deposits in other banks with maturities

within five years.
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 had no securities classified as held
to maturity at December 31, 2016 and 2015.

Investments – Debt and Equity Securities

Accounting Standards Codification (ASC) Topic 320,
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.

, clarifies the

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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.

4
4

Management believes no impairment charge was necessary related to the FHLB restricted stock during 2016,
2015 or 2014.
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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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, 2016 and 2015, the amount of net unamortized origination fees carried as an adjustment to
outstanding loan balances was $103,000 and $152,000, 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.

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016allowance 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, 2016 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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.

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:

•

•
•
•
•
•

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.
Acquired Loans

Loans that Juniata acquires through business combinations are recorded at fair value with no carryover of the
related allowance for loan losses. Fair value of the loans involves estimating the amount and timing of principal
and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of
interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable
discount and is recognized into interest income over the remaining life of the loan. The difference between
contractually required payments at acquisition and the cash flows expected to be collected at acquisition is
referred to as the nonaccretable discount. The nonaccretable discount includes estimated future credit losses

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require
Juniata to evaluate the need for an additional allowance for credit losses. Subsequent improvement in expected
cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which Juniata
will then reclassify as accretable discount that will be recognized into interest income over the remaining life of
the loan.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be
considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if
Juniata expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Juniata may no longer
consider the loan to be nonaccrual or nonperforming and may accrue interest on these loans, including the
impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the
nonaccretable difference portion of the fair value adjustment.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30, but for
which a discount is attributable at least in part to credit quality, are also accounted for in accordance with this
guidance. As a result, related discounts are recognized subsequently through accretion based on the contractual
cash flows of the acquired loans.
Loans Held for Sale

The Company also 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. Adjustments to fair value are recorded as non-interest income and included in
gain on sales of loans in the consolidated statements of income.

In a business combination, the Company may acquire loans which it intends to sell. These loans are assigned a

fair value by obtaining actual bids on the loans and adjusting for contingencies in the bids. These loans are
carried at lower of cost or market value until sold, adjusted periodically if conditions change before the
subsequent sale. Adjustments to fair value and gains or losses recognized upon sale are included in gains on sales
of loans which is a component of non-interest income.
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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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.
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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
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, 2016 and 2015, the carrying value of other
Goodwill and intangibles
real estate owned was $638,000 and $617,000, respectively.

The Company accounts for its business combinations using the purchase accounting method. Purchase
accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and
liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in
the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit
intangibles are a measure of the value of checking, money market and savings deposits acquired in business
combinations accounted for under the purchase method. Core deposit intangibles and other identified intangibles
with finite useful lives are amortized over their estimated useful lives.

Goodwill and other intangible assets are tested for impairment annually or when circumstances arise
indicating impairment may have occurred. In determining whether impairment has occurred, management
considers a number of factors including, but not limited to, the market value of the Company’s stock, operating
results, business plans, economic projections, anticipated future cash flows and current market data. There are
inherent uncertainties related to these factors and management’s judgment in applying them to the analysis of
impairment. Changes in economic and operating conditions, as well as other factors, could result in impairment
in future periods. Any impairment losses arising from such testing would be reported in the Consolidated
Statements of Income as a separate line item within operations. There were no impairment losses recognized as a
Mortgage servicing rights
result of periodic impairment testing in each of the three years ended December 31, 2016.

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 $205,000 at December
31, 2016 and 2015. 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
$21,705,000 and $21,841,000 at December 31, 2016 and 2015, respectively. The mortgage loans sold to the FHLB
Premises and equipment and depreciation
and serviced by the Company are not reflected in the consolidated statements of financial condition.

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 on a straight line basis over the shorter of the assets’ useful
life or the related lease term.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016Trust 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 $949,000 and $887,000 as of December 31, 2016 and 2015, respectively. Related expenses for 2016,
2015 and 2014 were $61,000, $29,000 and $66,000, 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 $3,812,000 at December 31,
2016 and $3,368,000 at December 31, 2015. The partnership anticipates receiving $572,000 annually in low-
income housing tax credits over ten years, which began 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

Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance ASC Topic 740,

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
Advertising

The Company follows the policy of charging costs of advertising to expense as incurred. Advertising expenses
were $243,000, $222,000 and $169,000 in 2016, 2015 and 2014, respectively.
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 compensation plan for certain key officers which allows, among other stock-
based compensation methods, for stock options and restricted stock awards. Prior to 2016, stock options were
used exclusively for long-term compensation, but in 2016 restricted shares awards were used. Compensation
expense for stock options granted and restricted stock awarded is measured using the fair value of the award on
the grant date and is recognized over the vesting period. The Company recognized $67,000, $57,000 and $47,000
of expense for the years ended December 31, 2016, 2015 and 2014, respectively, for stock-based compensation.
The stock-based compensation expense amounts for stock options 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
Segment reporting

2015
7.4 years
1.95%
21.42%
4.87%

2014
7.0 years
2.14%
21.39%
4.83%

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, 2016, 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

3. RECENT ACCOuNTING STANDARDS upDATE (ASu)
Accounting Standards Update 2016-15, Classification of Certain Cash Receipts and Cash Payments

Issued:

Summary:

August 2016

ASU 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in

Effective Date:
the statement of cash flows. The amendments are intended to reduce diversity in practice.

The amendments are effective for public business entities for fiscal years, and interim periods

within those fiscal years, beginning after December 15, 2017. This Update will have no impact on its consolidated
Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
financial position and results of operations.
Credit Losses on Financial Instruments

Issued:

Summary:

June 2016

ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain
other instruments to be measured using an expected credit loss model (referred to as the current expected credit
loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the
instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable
expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities.
The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit
deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets
measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added
to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent
accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale
(AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not
requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized
cost basis.
Effective Date:

The new standard is effective for fiscal years beginning after December 15, 2019, including

interim periods within those fiscal years. While the Company is currently in the process of evaluating the impact
of the amended guidance on its Consolidated Financial Statements, it currently expects the ALLL to increase upon
adoption given that the allowance will be required to cover the full remaining expected life of the portfolio upon
adoption, rather than the incurred loss model under current U.S. GAAP. The extent of this increase is still being
evaluated and will depend on economic conditions and the composition of the Company’s loan portfolio at the
time of adoption. In preparation, the Company’s senior level management is evaluating a potential software
Accounting Standards Update 2016-02, Leases
provider and is assessing the sufficiency of data currently available through its core database.

Issued:

Summary:

February 2016

The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset

and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as
either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016Effective Date:

The new standard is effective for fiscal years beginning after December 15, 2018, including

interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for
capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements, with certain practical expedients available. The Company has determined
that the provisions of ASU 2016-02 will result in an increase in assets to recognize the present value of the lease
obligations with a corresponding increase in liabilities, however, the Company does not expect this to have a
material impact on the Company’s financial position, results of operations or cash flows, as it has only operating
Accounting Standards Update 2016-01, Measurement of Financial Instruments
lease obligations, which are minimal. Current operating lease obligations are discussed in Note 15.
Issued

Summary:

: January 2016

The amendments in this Update require all equity investments to be measured at fair value with

changes in the fair value recognized through net income (other than those accounted for under equity method of
accounting or those that result in consolidation of the investee). The amendments in this Update also require an
entity to present separately in other comprehensive income the portion of the total change in the fair value of a
liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the
liability at fair value in accordance with the fair value option for financial instruments. In addition the
amendments in this Update eliminate the requirement to disclose the fair value of financial instruments
measured at amortized cost for entities that are not public business entities and the requirement to disclose the
method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for
Effective Date
financial instruments measured at amortized cost on the balance sheet for public business entities.

: For public entities, the amendments in the Update are effective for fiscal years beginning after
December 15, 2017, including interim periods within those fiscal years. The Company currently holds a small
portfolio of equity investments for which the fair value fluctuates with market activity. Had ASU 2016-01 become
effective on January 1, 2017, the cumulative effect adjustment to income before tax would have been $713,000
(see Note 6). The cumulative adjustment that will be recognized upon adoption in the first quarter of 2018 will
Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606)
be dependent upon the size of the equity portfolio and the market values at that time.

Issued:

Summary:

May 2014

The amendments in this Update establish a comprehensive revenue recognition standard for virtually

all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the
real estate, construction and software industries. The revenue standard’s core principle is built on the contract
between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of
rights and obligations between the parties in the pattern of revenue recognition based on the consideration to
which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the
contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the
transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v)
Effective Date and Transition:
recognize revenue when (or as) the entity satisfies a performance obligation.

Public entities will apply the new standard for annual reports beginning after

December 15, 2016, including interim periods therein. Three basic transition methods are available – full
retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third
alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy
U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016standard as an adjustment to the opening balance of retained earnings. That is, prior years would not be restated
and additional disclosures would be required to enable users of the financial statements to understand the
impact of adopting the new standard in the current year compared to prior years that are presented under legacy
U.S. GAAP. Early adoption is prohibited under U.S. GAAP. The Company is evaluating the effects this Update will
Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606):
have on the Company’s consolidated financial condition or results of operations.
Deferral of the Effective Date

Issued:

Summary:

August 2015

ASU 2015-14 defers the effective date of the new revenue recognition standard by one year. As such, it

now takes effect for public entities in fiscal years beginning after December 15, 2017. All other entities have an
additional year. However, early adoption is permitted for any entity that chooses to adopt the new standard as of
the original effective date. Early adoption is permitted only as of annual reporting periods beginning after
December 15, 2016, including interim periods within that year. Because the amended guidance does not apply to
revenue associated with financial instruments, including loans and securities that are accounted for under other
U.S. GAP, the Company’s preliminary analysis suggests that the adoption of this amended guidance is not expected
to have a material impact on its Consolidated Financial Statements, although the Company will also be subject to
expanded disclosure requirements upon adoption and the Company’s recognition processes for wealth and asset
management revenue, banking revenue and card and processing revenue may be affected. However, there are
certain areas of the amended guidance, such as credit card interchange fees programs, which are subject to
interpretation and for which the Company has not made final conclusions regarding the applicability and the
related impact, if any. Accordingly, the results of the Company’s materiality analysis, as well as its selected
4. MERGER
adoption method, may change as these conclusions are reached.

On November 30, 2015, Juniata consummated the merger with FNBPA Bancorp, Inc. (“FNBPA”), a Pennsylvania
corporation. FNBPA merged with, and into Juniata, with Juniata continuing as the surviving entity. Simultaneously
with the consummation of the foregoing merger, First National Bank of Port Allegany (“FNB”), a national banking
association and a wholly-owned subsidiary of FNBPA, merged with and into the Bank.

As part of this transaction, FNBPA shareholders received either 2.7813 shares of Juniata’s common stock or
$50.34 in cash in exchange for each share of FNBPA common stock. As a result, Juniata issued 607,815 shares of
common stock with an acquisition date fair value of approximately $10,637,000, based on Juniata’s closing stock
price of $17.50 on November 30, 2015, and cash of $2,208,000, including cash in lieu of fractional shares. The fair
value of total consideration paid was $12,845,000.

The assets and liabilities of FNB and FNBPA were recorded on the consolidated balances sheet at their
estimated fair value as of November 30, 2015, and their results of operations have been included in the
consolidated income statement since such date.

Included in the purchase price was goodwill and a core deposit intangible of $3,335,000 and $343,000,

respectively. The core deposit intangible will be amortized over a ten-year period using a sum of the year’s digits
basis. The goodwill will not be amortized, but will be measured annually for impairment or more frequently if
circumstances require.

Core deposit intangible amortization expense projected for the succeeding five years beginning 2017 is
estimated to be $49,000, $44,000, $38,000, $33,000 and $27,000 per year, respectively, and $53,000 in total for
years after 2021.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
The allocation of the purchase price is as follows, in thousands of dollars:

Purchase price assigned to FNBPA common shares exchanged for 607,815 Juniata common shares
Purchase price assigned to FNBPA common shares exchanged for cash
Total purchase price
FNBPA net assets acquired:
Tangible common equity
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Total fair value adjustments
Associated deferred income taxes
Fair value adjustment to net assets acquired, net of tax
Total FNBPA net assets acquired
Goodwill resulting from the merger

$ 10,637
2,208
12,845

9,854

(523)
179
(344)
9,510
3,335

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed, in
thousands of dollars.

Total purchase price

Net assets acquired
Cash and cash equivalents

Interest-bearing time deposits
Investment securities

Loans
Premises and equipment
Accrued interest receivable
Core deposit and other intangibles
Other real estate owned
Other assets
Deposits
Accrued interest payable
Other liabilities

Goodwill

$ 12,845

3,452
350
35,458
47,055
419
550
343
114
763
(77,665)
(13)
(1,316)
9,510
3,335

As of November 30, 2015, the merger date, goodwill was recorded at $3,335,000. ASC 805 allows for
adjustments to goodwill for a period of up to one year after the merger date for information that becomes
available that reflects circumstances at the merger date. During 2016, such information became available and
goodwill was adjusted by $67,000, to $3,402,000, to reflect the adjustments to fair value of two assets.

The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of
$47,797,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to
present a fair value of the loans acquired, in thousands of dollars.

Gross amortized cost basis at November 30, 2015
Market rate adjustment
Credit fair value adjustment on pools of homogeneous loans
Credit fair value adjustment on impaired loans
Fair value of purchased loans at November 30, 2015

$ 47,797
(110)
(73)
(559)
47,055

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

The market rate adjustment represents the movement in market interest rates, irrespective of credit
adjustments, compared to the stated rates of the acquired loans. The credit adjustment made on pools of
homogeneous loans represents the changes in credit quality of the underlying borrowers from the loan inception
to the acquisition date. The credit adjustment on impaired loans is derived in accordance with ASC 310-30 and
represents the portion of the loan balances that has been deemed uncollectible based on the Company’s
expectations of future cash flows for each respective loan. The information about the acquired FNBPA impaired
loan portfolio as of November 30, 2015 is as follows, in thousands of dollars.

Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (nonaccretable discount)
Expected cash flows at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans

2,488
(1,427)
1,061
(157)
904

The following table presents unaudited pro forma information, in thousands, as if the merger between Juniata
and FNBPA had been completed on January 1, 2014. The pro forma information does not necessarily reflect the
results of operations that would have occurred had Juniata merged with FNBPA at the beginning of 2014.
Supplemental pro forma earnings for 2015 were adjusted to exclude $1,637,000 of merger related costs
(exclusive of the corresponding tax impact) incurred in 2015; the results for 2014 were adjusted to include these
charges. The pro forma financial information does not include the impact of possible business model changes,
nor does it consider any potential impacts of current market conditions or revenues, expense efficiencies or
other factors.

Years Ended
December 31,

Net interest income after loan loss provision
Noninterest income
Noninterest expense
Net income
Net income per common share

2015
17,731
4,841
17,124
4,862
1.01

2014
$ 17,089
4,745
18,358
3,353
0.70

The amount of total revenue, consisting of interest income plus noninterest income, as well as the net income
specifically related to FNBPA for the period beginning December 1, 2015, included in the consolidated statements
of income of Juniata for the year ended December 31, 2015, was $242,000 and $61,000, respectively.
5. RESTRICTIONS ON CASh AND DuE FROM BANKS

The Bank is required to maintain cash reserve balances with the Federal Reserve Bank if vault cash is
insufficient to cover the reserve requirement. As of December 31, 2016 and 2015, respectively, no reserves were
required to be held at the Federal Reserve Bank.
6. SECuRITIES

The Company’s investment portfolio includes primarily mortgage-backed securities issued by U.S. Government
sponsored agencies and backed by residential mortgages (approximately 57%), bonds issued by U.S. Government
sponsored agencies (approximately 24%) and municipalities (approximately 18%) as of December 31, 2016.
Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.
The remaining 1% of the portfolio includes a group of equity investments in other financial institutions.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

The amortized cost and fair value of securities as of December 31, 2016 and 2015, 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.

Securities Available for Sale

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

Mortgage-backed securities
Equity securities
Total

Securities Available for Sale

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

Mortgage-backed securities
Equity securities
Total

December 31, 2016
Gross

Gross

Amortized
Cost

Fair
Value

Unrealized Unrealized

Gains

Losses

-
19,495
17,000
36,495

-
19,331
16,468
35,799

-
13
-
13

2
39
16
-
57
114
713
897

-
(177)
(532)
(709)

(1)
(67)
(340)
-
(408)
(1,082)
-
(2,199)

2,820
13,240
10,599
-
26,659
85,702
2,328
150,488

December 31, 2015
Gross

Gross

Fair
Value

Unrealized Unrealized

Gains

Losses

1,003
24,264
7,465
32,732

3
19
7
29

5,771
16,151
7,282
331
29,535
87,741
2,319
152,327

15
101
78
1
195
213
645
1,082

-
(244)
(37)
(281)

-
(20)
-
-
(20)
(631)
(18)
(950)

2,819
13,268
10,923
-
27,010
86,670
1,615
$ 151,790

Amortized
Cost

1,000
24,489
7,495
32,984

5,756
16,070
7,204
330
29,360
88,159
1,692
$ 152,195

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 $36,638,000 and $45,101,000 at December 31, 2016 and 2015,
respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 sold and called securities
Gross realized losses from sold and called securities
Gross gains from business combinations

Years Ended December 31,

2016
4,304

139
(21)
100

2015
53,213

83
(70)
-

2014
14,631

43
(34)
-

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, 2016
(in thousands):

Unrealized Losses at December 31, 2016

Less than 12 Months
Fair
Value

Unrealized
Losses

12 Months or More

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

$ 32,783

(709) $

32,783

(709)

17,437
68,989
119,209

(406)
(1,082)
(2,197)

300
-
300

(2)
-
(2)

17,737
68,989
119,509

(408)
(1,082)
(2,199)

Obligations of U.S. Government
agencies and corporations
Obligations of state and political
subdivisions
Mortgage-backed securities
Debt securities
Total temporarily

impaired securities

$ 119,209

(2,197) $

300

(2)

$ 119,509

(2,199)

At December 31, 2016, 21 U.S. Government and agency securities had unrealized losses that, in the aggregate,
did not exceed 1% of amortized cost. None of these securities have been in a continuous loss position for 12
months or more.

At December 31, 2016, 38 obligations of state and political subdivision bonds had unrealized losses that, in the
aggregate, did not exceed 1% of amortized cost. One of these securities has been in a continuous loss position for
12 months or more.

At December 31, 2016, 34 mortgage-backed securities had an unrealized loss that did not exceed 1% of
amortized cost. None of these securities has been in a continuous loss position for 12 months or more.

The mortgage-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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 was one
equity security that was in an unrealized loss position on December 31, 2016, and has carried an unrealized loss
for 12 months or more, with the unrealized loss at December 31, 2016 less than $1,000. Management has
identified no other-than-temporary impairment as of, or for the years ended, December 31, 2016, 2015 and 2014
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.

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, 2015
(in thousands):

Less than 12 Months
Unrealized
Fair
Losses
Value

Unrealized Losses at December 31, 2015
12 Months or More

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Obligations of U.S. Government
agencies and corporations
Obligations of state and political
subdivisions
Mortgage-backed securities
Debt securities
Equity securities
Total temporarily

$ 10,887

(102) $

12,814

(179)

23,701

(281)

7,469
57,454
75,810
62

(13)
(631)
(746)
(3)

692
-
13,506
75

(7)
-
(186)
(15)

8,161
57,454
89,316
137

(20)
(631)
(932)
(18)

impaired securities

$ 75,872

(749) $

13,581

(201)

89,453

(950)

7. 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, 2016 and December 31, 2015 (in thousands):

Pass

Special
Mention

Substandard

Doubtful

Total

As of December 31, 2016
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total

34,510
100,153
24,702
144,353
12,431
9,970
$ 326,119

5,104
15,843
4,044
4,426
1,185
52
30,654

1,213
6,726
6,460
4,496
-
10
18,905

-
989
-
1,630
-
-
2,619

$ 40,827
123,711
35,206
154,905
13,616
10,032
$ 378,297

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Pass

Special
Mention

Substandard

Doubtful

Total

As of December 31, 2015
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total

30,814
106,629
16,351
152,161
17,069
6,787
$ 329,811

1,853
16,067
7,024
6,595
455
56
32,050

1,504
3,274
3,297
4,656
-
3
12,734

-
1,243
-
1,205
-
-
2,448

34,171
127,213
26,672
164,617
17,524
6,846
$ 377,043

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. 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. Consumer mortgage loans secured by
residential real estate properties for which formal foreclosure proceedings were in process at December 31, 2016
and December 31, 2015 totaled $1,778,000 and $382,000, respectively. 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, 2016 and December 31, 2015 (in thousands):

As of December 31, 2016
Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

As of December 31, 2015
Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance

Impaired Loans
With no related allowance recorded:
Commercial, financial

and agricultural
Real estate - commercial
Acquired with credit

deterioration

Real estate - construction
Real estate - mortgage
Acquired with credit

deterioration

With an allowance recorded:
Real estate - mortgage
Total:
Commercial, financial
and agricultural

Real estate - commercial
Acquired with credit
deterioration

Real estate - construction
Real estate - mortgage
Acquired with credit

deterioration

436
5,499

439
6,475

641
2,455
3,345

730
2,455
5,020

415

440

-
-

-
-
-

475
1,851

475
2,024

834
-
2,636

893
-
4,127

630

642

712

436
5,499

439
6,475

-
-

475
1,851

475
2,024

641
2,455
4,057

730
2,455
5,732

415
$ 13,503

440
16,271

-
-
56

-
56

834
-
2,636

893
-
4,127

630
6,426

642
8,161

-
-

-
-
-

-
-

-
-
-

-
-

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Impaired loans
With no related allowance:
Commercial, financial
and agricultural
Real estate - commercial
Acquired with credit
deterioration
Real estate - construction
Real estate - mortgage
Acquired with credit
deterioration
With an allowance recorded:
Real estate - commercial
Real estate - construction
Real estate - mortgage
Total:
Commercial, financial
and agricultural
Real estate - commercial
Acquired with credit deterioration
Real estate - construction
Real estate - mortgage
Acquired with credit
deterioration

Year Ended December 31, 2016
Cash
Basis
Interest
Income

Interest
Income
Recognized

Average
Recorded
Investment

Year Ended December 31, 2015

Average
Recorded
Investment

Interest
Income
Recognized

Cash
Basis
Interest
Income

Year Ended December 31, 2014
Cash
Basis
Interest
Income

Interest
Income
Recognized

Average
Recorded
Investment

- $
-

238 $

2,058

25 $
45

456
3,675

738
1,228
2,991

523

-
-
356

456
3,675
738
1,228
3,347

29 $

331

-
136
28

-
-
-

29
331
-
136
28

-
-
37

417
168
2,846

-
-
-

-
-
-
-
37

-
-
448

238
2,058
417
168
3,294

48
2,141

-
420
3,205

119
739
631

48
2,260
-
1,159
3,836

1
62

-
-
76

-
-
-

1
62
-
-
76

2
49

-
-
71

-
-
5

2
49
-
-
76

-
27

-
-
36

-
-
-

-
27
-
-
36

-
-
27

-
-
-

25
45
-
-
27

523
9,967

-
524 $

-
37 $

53
6,228 $

97 $

63 $

-
7,303

-
139

-
127

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2016 and
December 31, 2015 (in thousands):

Nonaccrual loans:
Real estate - commercial
Real estate - mortgage
Total

December 31, 2016 December 31, 2015
1,286
$
2,402
3,688

1,016
3,717
4,733

Interest income not recorded based on the original contractual terms of the loans for nonaccrual loans was

$281,000, $239,000 and $382,000 in 2016, 2015 and 2014, respectively. The aggregate amount of demand
deposits that have been reclassified as loan balances at December 31, 2016 and 2015 were $39,000 and
$146,000, respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

As of December 31, 2015
Commercial, financial and agricultural
Real estate - commercial
Real estate - commercial
Acquired with credit deterioration
Real estate - construction
Real estate - mortgage
Real estate - mortgage
Acquired with credit deterioration
Obligations of states and political subdivisions
Personal
Total

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, 2016 and December 31, 2015
(in thousands):

As of December 31, 2016
Commercial, financial and agricultural
Real estate - commercial
Real estate - commercial
Acquired with credit deterioration
Real estate - construction
Real estate - mortgage
Real estate - mortgage
Acquired with credit deterioration
Obligations of states and political subdivisions
Personal
Total

30-59 Days 60-89 Days

Past Due
15

55
-
6

1,097
-
-
25
1,198 $

Past Due

-
-
-

57
-
-
3

60 $

Greater
than 90
Days

Total
Past
Due

Current

6 $

21 $

40,806

Total
Loans
40,827

-
452
508

55
452
514

123,015
189
34,692

123,070
641
35,206

40
138
-
-
1,144 $

1,194
138
-
28

153,296
277
13,616
10,004
2,402 $ 375,895

154,490
415
13,616
10,032
$ 378,297

Loans
Past Due
Greater
than 90
Days and
Accruing

-
452
508

40
138
-
-
1,144

Loans
Past Due
Greater
than 90
Days and
Accruing

-
443
-

-
119
-
2
564

30-59 Days 60-89 Days

Past Due
92

Past Due

Greater
than 90
Days

Total
Past
Due

Current

92 $

34,079

Total
Loans
34,171

112
-
-

124
175
-

1,243
443
-

1,479
618
-

124,900
216
26,672

126,379
834
26,672

1,038
-
-
56
1,298 $

761
61
-
48
1,169 $

1,669
119
-
2
3,476 $

3,468
180
-
106

160,519
450
17,524
6,740
5,943 $ 371,100

163,987
630
17,524
6,846
$ 377,043

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

The following table summarizes information regarding troubled debt restructurings by loan portfolio class as
of and for the years ended December 31, 2016 and 2015, in thousands of dollars.

As of December 31, 2016
Accruing troubled debt restructurings:
Real estate - mortgage
Non-accruing troubled debt restructurings:
Real estate - mortgage

As of December 31, 2015
Accruing troubled debt restructurings:
Real estate - commercial
Real estate - mortgage

Pre-Modification Post-Modification

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

1
8

1
6
7

369

397

340

25
394

148
254
402

25
422

148
282
430

23
363

142
234
376

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, 2016, there were no specific reserves and no
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.

As of December 31, 2016, one restructured loan with a balance of $44,000 was in default because it was
delinquent in excess of 30 days with respect to the terms of the restructuring. There have been no defaults of
troubled debt restructurings that took place during 2016, 2015 or 2014 within 12 months of restructure.

The following table summarizes loans whose terms have been modified, resulting in troubled debt
restructurings during 2016, in thousands of dollars. There were no loans whose terms have been modified
resulting in troubled debt restructurings during 2015.

As of December 31, 2016
Accruing troubled debt restructurings:
Real estate - mortgage

Pre-Modification Post-Modification

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

3
3

$
$

189
189

$
$

189
189

$
$

186
186

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

The following tables summarize loans and the activity in the allowance for loan losses 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, 2016, 2015 and 2014
(in thousands):

individually
collectively
Ending balance: loans
acquired with deteriorated credit quality

436 $

$
5,499 $
$ 40,391 $ 117,571 $

2,455 $
32,751 $

4,057 $
150,433 $

-
13,616

641 $

415 $

Allowance for loan losses
Beginning Balance, January 1, 2016
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2016

As of December 31, 2016
Allowance for loan losses:
Ending balance
evaluated for impairment

individually
collectively

Loans:
Ending balance
evaluated for impairment

Allowance for loan losses
Beginning Balance, January 1, 2015
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2015

As of December 31, 2015
Allowance for loan losses:
Ending balance
evaluated for impairment

individually
collectively

Loans:
Ending balance
evaluated for impairment

individually
collectively
acquired with credit deterioration

Commercial,
financial
and

Obligations
of states and
political
subdivisions

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

264 $
(4)
-
58
318 $

836 $
(146)
24
234
948 $

191 $
-
-
40
231 $

1,140 $
(103)
15
91
1,143 $

-
-
-
-
-

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

318 $

948 $

231 $

1,143 $

$
$

- $
318 $

-
$
948 $

$
-
231 $

56 $
1,087 $

-
-

Personal
47
(26)
19
43
83

Personal
83

-
83

$
$

Total
2,478
(279)
58
466
2,723

Total
2,723

56
2,667

$
$

$ 40,827 $ 123,711 $

35,206 $

154,905 $

13,616

10,032

$ 378,297

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

222 $
(11)
7
46
264 $

665 $
(66)
-
237
836 $

155 $
(24)
-
60
191 $

1,300 $
(305)
1
144
1,140 $

-
-
-
-
-

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

264 $

836 $

191 $

1,140 $

$
$

- $
264 $

-
$
836 $

$
-
191 $

$
-
1,140 $

-
-

$
$

-
10,032

$
12,447
$ 364,794

1,056

Personal
38
(9)
3
15
47

Personal
47

-
47

Total
2,380
(415)
11
502
2,478

Total
2,478

-
2,478

$
$

$ 34,171 $ 127,213 $

26,672 $

164,617 $

17,524

6,846

$ 377,043

475 $

$
1,851 $
$ 33,696 $ 124,528 $
834 $
$

$
-
26,672 $
$
-

2,636 $
161,351 $
630 $

-
17,524
-

$
$
$

-
6,846
-

$
4,962
$ 370,617
1,464
$

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Allowance for loan losses
Beginning Balance, January 1, 2014
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2014

As of December 31, 2014
Allowance for loan losses:
Ending balance
evaluated for impairment

individually
collectively

Loans:
Ending balance
evaluated for impairment

individually
collectively

Personal
42
(20)
2
14
38

Total
2,287
(275)
11
357
2,380

Personal

Total

2,380

-
38

$
$

150
2,230

4,044

$ 294,901

-
4,044

$
6,553
$ 288,348

$
$

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

253 $
(20)
4
(15)
222 $

534 $
(92)
5
218
665 $

212 $
(18)
-
(39)
155 $

1,246 $
(125)
-
179
1,300 $

-
-
-
-
-

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

222 $

665 $

155 $

1,300 $

$
$

- $
222 $

-
$
665 $

$
-
155 $

150 $
1,150 $

-
-

$ 23,738 $

90,000 $

20,713 $

140,676 $

15,730

$
1 $
$ 23,737 $

2,264 $
87,736 $

336 $
20,377 $

3,952 $
136,724 $

-
15,730

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

8. 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, 2016, the amount of loans included in qualifying collateral was $229,352,000,
for a collateral value of $165,283,000. No investment securities are included in qualifying collateral as of
December 31, 2016.
9. BANK OWNED LIFE INSuRANCE AND ANNuITIES

The Company holds bank-owned life insurance (BOLI) and deferred annuities with a combined cash value of
$14,631,000 and $14,905,000 at December 31, 2016 and 2015, 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 decreased in 2016 by $274,000, the net change
resulting from proceeds from life insurance claim payments, premium payments and earnings recorded as non-
interest income. The net increase in cash surrender value on the BOLI and annuities was $98,000 and $411,000
in 2015 and 2014, respectively. 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 2016 and 2015 are
shown below (in thousands):

Balance as of January 1, 2015

Earnings
Premiums on existing policies
Annuity payments received
Net proceeds from life insurance claim
Balance as of December 31, 2015

Earnings
Premiums on existing policies
Net proceeds from life insurance claim
Balance as of December 31, 2016
10. pREMISES AND EquIpMENT

Premises and equipment consist of the following (in thousands):

Land
Buildings and improvements
Furniture, computer software and equipment

Less: accumulated depreciation

Life
Insurance
14,397

Deferred
Annuities
410

Total
14,807

321
41
-
(259)
14,500

309
40
(651)
14,198

16
13
(34)
-
405

15
13
-
433

337
54
(34)
(259)
14,905

324
53
(651)
14,631

December 31,
2016
1,126
9,460
5,166
15,752
(8,895)
6,857

2015
1,126
9,226
4,901
15,253
(8,344)
6,909

Depreciation expense on premises and equipment charged to operations was $595,000 in 2016, $506,000 in
2015 and $494,000 in 2014.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

11. GOODWILL AND OThER INTANGIBLE ASSETS

Branch Acquisition
On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill at December 31, 2016
and 2015 was $2,046,000. Core deposit intangible of $431,000 was fully amortized as of December 31, 2016 and
was $29,000 net of amortization of $402,000 at December 31, 2015. The core deposit intangible was being
amortized over a ten-year period on a straight line basis. Goodwill is not amortized, but is measured annually for
impairment.

FNBPA Acquisition
On November 30, 2015, the Company completed its acquisition of FNBPA and, as a result, recorded goodwill of
$3,335,000. In 2016, an adjustment was made to increase goodwill to $3,402,000. Core deposit intangible in the
amount of $303,000 was recorded and is being amortized over a ten-year period using a sum of the year’s digits
basis. Other intangible assets were identified and recorded as of November 30, 2015, in the amount of $40,000
and are being amortized on a straight line basis over two years, through November 30, 2017.

The following table shows the amortization schedule for each of the intangible assets recorded.

Beginning Balance at Acquisition Date
Amortization expense recorded prior to December 31, 2013
Amortization expense recorded in Years ended:
December 31, 2014
December 31, 2015
December 31, 2016
Unamortized balance as of December 31, 2016

Scheduled Amortization expense for years ended:
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
After December 31, 2021
12. INVESTMENT IN uNCONSOLIDATED SuBSIDIARy

FNBPA
Acquisition
Core
Deposit
Intangible

FNBPA
Acquisition
Other
Intangible
Assets

Branch
Acquisition
Core
Deposit
Intangible

303
-

-
4
55
244

49
44
38
33
27
53

40
-

431
312

45
45
29
-

-
2
20
18

18
-
-
-
-
-

On September 1, 2006, the Company invested in Liverpool Community Bank (formerly known as The First
National Bank of Liverpool) (“LCB”), Liverpool, Pennsylvania, by purchasing 39.16% of its outstanding common
stock. This investment is accounted for under the equity method of accounting. The investment was carried at
$4,703,000 and $4,553,000 as of December 31, 2016 and 2015, respectively. 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

13. DEpOSITS

Deposits consist of the following (in thousands):
Demand, non-interest bearing
Interest-bearing demand and money market
Savings
Time deposits, $250,000 or more
Other time deposits

December 31,

2016
$ 104,006
118,429
95,449
5,773
132,165
$ 455,822

2015
$ 106,667
114,406
94,923
5,222
135,908
$ 457,126

Aggregate amount of scheduled maturities of time deposits as of December 31, 2016 include the following
(in thousands):

Maturing in:
2017
2018
2019
2020
2021
Later

$250,000 or more
$

351
862
1,705
513
808
1,534
5,773

Other

47,907
16,390
17,258
25,416
13,069
12,125
132,165

Total Time Deposits
48,258
17,252
18,963
25,929
13,877
13,659
137,938

14. BORROWINGS

Short term borrowings as of December 31, 2016, 2015 and 2014 and the related maximum amounts
outstanding at the end of any month in each of the three years then ended are presented below
(dollars in thousands).

Securities sold under agreements

to repurchase

4,496

4,996

4,594

6,018

5,106

5,197

2016

December 31,
2015

Maximum Outstanding at Any Month End

2014

2016

2015

2014

Short-term borrowings with

Federal Home Loan Bank

Overnight advances
Mid-term repo

27,700
-
$ 32,196

30,061
-
35,057

9,700
6,250
20,544

32,300
-

35,234
6,250

9,700
6,250

The following table presents supplemental information related to short-term borrowings
(dollars in thousands).

Securities sold
under agreements
to repurchase
2015

2014

2016

Short-term borrowings with
Federal Home
Loan Bank
2015

2016

2014

Amount outstanding
as of December 31
Weighted average interest rate
as of December 31
Average amount outstanding
during the year
Weighted average interest rate
during the year

4,496

4,996

4,594

27,700

30,061

15,950

0.18%

0.10%

0.74%

0.44%

0.32%

4,712

4,716

4,265

15,696

16,309

4,998

0.11%

0.10%

0.60%

0.38%

0.31%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. Outstanding
balances were $25,000,000 and $22,500,000 as of December 31, 2016 and 2015, respectively.

The following table summarizes the scheduled maturities of long-term debt as of December 31, 2016
(in thousands).

Year
2017
2018
2019
2020
2021
Thereafter

Scheduled
Maturities

6,250
10,000
8,750
-
-
-
25,000

Weighted Average
Interest Rate
1.10%
1.33%
1.57%
.0-
.0-
.0-
1.36%

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, 2016, the securities that serve as collateral for securities sold under agreements to repurchase had
a fair value of $7,880,000. 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
$165,283,000, with a balance of $52,700,000 outstanding as of December 31, 2016. In order to borrow additional
amounts, 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. Qualifying collateral is defined by the FHLB and includes outstanding balances of the
Company’s real estate loans, excluding loans with certain risk mitigants, including delinquencies and loans made
to insiders, borrowers with low credit scores or loans with high loan-to-value ratios.
15. 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 $142,000, $127,000 and
$124,000 in 2016, 2015 and 2014, 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, 2016 (in thousands):

Years ending December 31,
2017
2018
2019
2020
2021
2022 and beyond
Total minimum payments required

145
84
78
60
63
5
435

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

16. INCOME TAxES

The components of income tax expense for the three years ended December 31 were (in thousands):

Current tax expense
Deferred tax expense (benefit)
Total tax expense

2016
499
320
819

2015
149
(66)
83

2014
331
194
525

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
Statutory tax rate
Federal tax at statutory rate
Tax-exempt interest
Net earnings on BOLI
Gain from life insurance proceeds
Dividend from unconsolidated subsidiary
Stock-based compensation
Federal tax credits
Merger and acquisition expenses
Other permanent differences
Total tax expense
Effective tax rate

Years Ended December 31,

2016
5,975

34.0%

2,032
(427)
(84)
(124)
(15)
23
(572)
-
(14)
819
13.7%

2015
3,141

34.0%

1,068
(391)
(99)
(34)
(15)
20
(570)
115
(11)
83
2.6%

2014
4,741

34.0%

1,612
(358)
(93)
(56)
(13)
16
(575)
-
(8)
525
11.1%

Deductible temporary differences and taxable temporary differences gave rise to a net deferred tax asset for
the Company as of December 31, 2016 and 2015. 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
Investment in low income housing project
Fair value adjustments to acquired assets and liabilities
Tax credit carryforward
Valuation reserves on other real estate owned
Other
Total deferred tax assets
Deferred Tax Liabilities
Depreciation
Equity income from unconsolidated subsidiary
Loan origination costs
Prepaid expense
Unrealized gains on securities available for sale
Annuity earnings
Fair value of mortgage servicing rights
Intangible assets
Goodwill
Total deferred tax liabilities
Net deferred tax asset included in other assets

December 31,

2016
413
534
535
847
429
106
159
277
209
70
83
3,662

(272)
(645)
(440)
(386)
-
(79)
(70)
(42)
(479)
(2,413)
1,249

2015
489
511
534
785
-
236
96
493
80
24
80
3,328

(288)
(589)
(412)
(284)
(58)
(73)
(70)
(67)
(433)
(2,274)
1,054

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, 2016, 2015 and 2014. The Company is no
longer subject to examination by taxing authorities for years before 2013. Tax years 2013 through the present,
with limited exception, remain open to examination.
17. 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, 2016,
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,
stock awards, employee stock purchase plan purchases, to fulfill dividend reinvestment program needs and to
supply shares needed for exchange in an acquisition. During 2016, 2015 and 2014, 49,370, 3,504 and 12,322
shares, respectively, were repurchased in conjunction with this program. Remaining shares authorized in the
program were 178,279 as of December 31, 2016. On November 30, 2015, 555,555 treasury shares were reissued
to former FNBPA shareholders in conjunction with the acquisition of FNBPA.

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 result in 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. The requirements were revised and became effective on a
phased-in basis beginning January 1, 2015 and include the establishment of a Common Equity Tier I level.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
Juniata’s and the Bank’s Total, Tier I and Common Equity 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) are set forth in the table below. The new risk-based capital rules require that
banks and holding companies maintain a “capital conservation buffer” of 250 basis points in excess of the
“minimum capital ratio”. The minimum capital ratio is equal to the prompt corrective action adequately
capitalized threshold ratio. The capital conservation buffer will be phased in over four years beginning on
January 1, 2016, with a maximum buffer of 0.625% of risk weighted assets for 2016, 1.25% for 2017, 1.875% for
2018 and 2.5% for 2019 and thereafter. Failure to maintain the required capital conservation buffer will result in
limitations on capital distributions and on discretionary bonuses to executive officers. Management believes, as
of December 31, 2016 and 2015, that the Company and the Bank met all capital adequacy requirements to which
they were subject.

As of December 31, 2016, 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, Common Equity 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.

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 as of the dates indicated (dollars in thousands).
Juniata Valley Financial Corp. (Consolidated)

As of December 31, 2016:
Total Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Risk Weighted Assets)
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Average Assets) Leverage

As of December 31, 2015:
Total Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Risk Weighted Assets)
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Tier 1 Capital

(to Average Assets) Leverage

Actual

Amount

Ratio

Minimum Requirement
For Capital
Adequacy Purposes
Ratio
Amount

Minimum
Regulatory
Requirements
to be "Well
Capitalized"
under Prompt
Corrective Action
Provisions

Amount

Ratio

58,375

15.34%

30,442

8.00%

32,820

8.625%

55,331

14.54%

22,831

6.00%

25,210

6.625%

55,331

14.54%

17,124

4.50%

19,502

5.125%

55,331

9.68%

22,872

4.00%

22,872

4.000%

57,098

15.03%

30,385

8.00%

N/A

54,338

14.31%

22,789

6.00%

N/A

54,338

14.31%

17,092

4.50%

N/A

54,338

11.23%

19,352

4.00%

N/A

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Actual

Amount

Ratio

Minimum Requirement

For Capital
Adequacy Purposes
Ratio
Amount

Minimum
Capital Adequacy
With Capital
Buffer

Amount

Ratio

Minimum
Regulatory
Requirements
to be "Well
Capitalized"
under Prompt
Corrective
Action Provisions
Ratio

Amount

$ 51,102

13.60%

30,053

8.00%

32,401

8.625%

37,566

10.00%

48,217

12.84%

15,026

4.00%

24,888

6.625%

30,053

8.00%

48,217

12.84%

16,905

4.50%

19,253

5.125%

24,418

6.50%

48,217

8.39%

22,991

4.00%

22,991

4.000%

28,739

5.00%

The Juniata Valley Bank

As of December 31, 2015:
Total Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Risk Weighted Assets)
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Average Assets) Leverage

As of December 31, 2015
Total Capital
(to Risk Weighted Assets)
Tier 1 Capital
(to Risk Weighted Assets)
Common Equity Tier 1 Capital
(to Risk Weighted Assets)
Tier 1 Capital

$ 51,491

14.11%

29,186

8.00%

48,861

13.39%

14,593

4.00%

48,861

13.39%

16,417

4.50%

48,861

10.21%

19,146

4.00%

N/A

36,482

10.00%

N/A

29,186

8.00%

23,713

6.50%

23,932

5.00%

(to Average Assets) Leverage

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, 2016, $33,218,000 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.
18. 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:

Years Ended December 31,

Net income
Basic earnings per share
Weighted-average common shares outstanding

Weighted-average common shares outstanding
Common stock equivalents due to effect of stock options
Diluted earnings per share
Total weighted-average common shares and equivalents

Anti-dilutive stock options outstanding

$
$

2016

2014

2015
(Amounts, except earnings
per share, in thousands)
3,058
4,240
0.72
4,240
1
4,241
0.72
103

4,216
4,193
1.01
4,193
-
4,193
1.01
100

$
$

5,156
4,801
1.07
4,801
1
4,802
1.07
401

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

19. ACCuMuLATED OThER COMpREhENSIVE LOSS

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 gains (losses) on available for sale securities
Unrecognized expense for defined benefit pension
Accumulated other comprehensive loss
20. FAIR VALuE MEASuREMENT

12/31/2016
$

(866) $

(2,343)
(3,209)

12/31/2015
96
(2,299)
(2,203)

12/31/2014
296
$
(2,493)
(2,197)

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.

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 –

Level 2 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 3 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.

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
Securities Available for Sale
in a different estimate of fair value at the reporting date.

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 debt securities’ terms and conditions, among other things. Equity securities classified as
Impaired Loans
available for sale are reported at fair value using Level 1 inputs.

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-

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, 2016 and December 31, 2015, 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 years ended December 31, 2016 or 2015.

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets
for Identical
Assets

Inputs

Other

(Level 3)
Significant
Other

Inputs

Observable Unobservable

December 31,
2016

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

35,799
26,659
85,702
2,328

-
-
-
2,328

35,799
26,659
85,702
-

-
-
-
-

Measured at fair value on a non-recurring basis:

Impaired loans

Other real estate owned
Mortgage servicing rights

2,563
358
205

-
-
-

2,563
358
205

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets
for Identical
Assets

Inputs

Other

(Level 3)
Significant
Other

Inputs

Observable Unobservable

December 31,
2015

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

32,732
29,535
87,741
2,319

-
-
-
2,319

32,732
29,535
87,741
-

-
-
-
-

Measured at fair value on a non-recurring basis:

Impaired loans

Other real estate owned
Mortgage servicing rights

2,232
150
205

-
-
-

2,232
150
205

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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 (in thousands):

December 31, 2016
Impaired loans

Fair Value Estimate
2,563
$

Valuation Technique
Appraisal of collateral (1)

Other real estate owned

358

Appraisal of collateral (1)

Mortgage servicing rights

205 Multiple of annual

servicing fee

December 31, 2015
Impaired loans

Fair Value Estimate
2,232
$

Valuation Technique
Appraisal of collateral (1)

Other real estate owned

150

Appraisal of collateral (1)

Mortgage servicing rights

205 Multiple of annual

servicing fee

Unobservable Input
Appraisal and
liquidation
adjustments (2)
Appraisal and
liquidation
adjustments (2)

Estimated
pre-payment
speed, based
on rate and term

Unobservable Input
Appraisal and
liquidation
adjustments (2)
Appraisal and
liquidation
adjustments (2)

Estimated
pre-payment
speed, based
on rate and term

Range

Average

7% - 58%

8.9%

30-72%

46%

300% - 400%

368%

Range

Average

7% - 37%

16.1%

32%

300% - 400%

364%

(1) Fair value is generally determined through independent appraisals of the underlying collateral that generally include var-

ious level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted downward 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, loans held for sale, interest receivable, mortgage servicing
rights, non-interest bearing 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 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.

Long-term debt and other interest bearing liabilities – The fair values are 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

The estimated fair values of the Company’s financial instruments are as follows (in thousands):
FINANCIAL INSTRuMENTS

(in thousands)

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 held for sale

December 31, 2016

Carrying
Value

Fair
Value

December 31, 2015
Fair
Carrying
Value
Value

9,464

10,385

350

150,488

152,327

3,610

3,509

1,808

3,509

1,808

Loans, net of allowance for loan losses

375,574

366,660

374,565

373,078

Mortgage servicing rights

Accrued interest receivable

Financial liabilities:

Non-interest bearing deposits

Interest bearing deposits

Securities sold under agreements to repurchase

Short-term borrowings

Long-term debt

Other interest bearing liabilities

Accrued interest payable

Off-balance sheet financial instruments:

Commitments to extend credit

Letters of credit

205

1,582

205

1,582

205

1,806

205

1,806

104,006

351,816

4,496

27,700

25,000

1,545

268

104,006

354,628

4,496

27,700

24,963

1,549

268

106,667

350,459

352,859

4,996

30,061

22,500

1,471

238

4,996

30,061

22,482

1,476

238

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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, 2016 and December 31, 2015, in
thousands. This table excludes financial instruments for which the carrying amount approximates fair value.

(Level 1)
Quoted Prices in
Active Markets
for Identical

(Level 2)
Significant
Other

(Level 3)
Significant
Other

Observable Unobservable

Fair Value Assets or Liabilities

Inputs

Carrying
Amount

December 31, 2016
Financial instruments - Assets

Interest bearing time deposits with banks $

Loans, net of allowance for loan losses
Financial instruments - Liabilities

375,574

Interest bearing deposits

Long-term debt
Other interest bearing liabilities

351,816
25,000
1,545

354,628
24,963
1,549

350 $

350
366,660

-
-

-
-
-

350
-

-
366,660

354,628
24,963
1,549

-
-
-

(Level 1)
Quoted Prices in
Active Markets
for Identical

(Level 2)
Significant
Other

(Level 3)
Significant
Other

Observable Unobservable

December 31, 2015
Financial instruments - Assets

Carrying
Amount

Interest bearing time deposits with banks $

350 $

Loans held for sale
Loans, net of allowance for loan losses
Financial instruments - Liabilities

Interest bearing deposits

Long-term debt
Other interest bearing liabilities
21. EMpLOyEE BENEFIT pLANS
Long-Term Incentive Plan

Fair Value Assets or Liabilities

Inputs

1,808
374,565

350
1,808
373,078

350,459
22,500
1,471

352,859
22,482
1,476

-
-
-

350
1,808
-

-
-
373,078

352,859
22,482
1,476

-
-
-

The Company maintains the 2016 Long-Term Incentive Plan (the “Plan”), that amended and restated the former
2011 Stock Option Plan (the “2011 Plan”). The Plan continues in effect any outstanding awards under the 2011
Plan in accordance with the terms and conditions governing such awards immediately prior to the effective date
of the Plan but expanded the types of awards authorized to include, among others, restricted stock. Under the
provisions of the Plan, while active, options and other types of stock compensation can be granted to officers and
key employees of the Company, as well as Directors.

The Plan is administered by a committee of the Board of Directors. The Committee determines, among other
things, which officers and key employees receive stock compensation, the number of shares to be subject to each
award, the option price, the duration of the option and the restricted period, as appropriate. The aggregate
number of shares that may be issued upon the exercise of options under the Plan is 300,000 shares, and 174,825
shares were available for grant as of December 31, 2016.

During 2016, certain officers and key employees were issued restricted stock awards totaling 3,150 shares of
Company stock. The awards carry a three-year restriction, until 2019. A recipient of the restricted shares will
forfeit those shares in their entirety if employment is terminated prior to the vesting date for reasons other than
retirement, death or disability. On the date of the awards, the fair value of the Company stock was $17.49
per share.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

No stock options were awarded in 2016. Options granted prior to 2016 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. The Plan
provides 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 Plan are
exercisable no earlier than one year after the date of grant and expire ten years after the date of the grant. All
options previously granted under the Plans are scheduled to expire through February 17, 2025.

Total options outstanding at December 31, 2016 have exercise prices between $17.22 and $21.10, with a
weighted average exercise price of $17.97 and a weighted average remaining contractual life of 6.0 years.

As of December 31, 2016, there was $73,000 of total unrecognized compensation cost related to nonvested
share-based compensation arrangements granted under the Plan. That cost is expected to be recognized
through 2020.

Cash received from option exercises under the Plans for the year ended December 31, 2015 was $53,000. No
options were exercised in 2014 or 2016.

A summary of the status of the outstanding stock options as of December 31, 2016, 2015 and 2014, and
changes during the years ending on those dates is presented below:

2016

2015

2014

Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Options exercisable at year-end
Weighted-average fair value of
of options granted during the year
Intrinsic value of options
exercised during the year
Intrinsic value of options
outstanding and exercisable at

December 31, 2016

Weighted
Average
Exercise
Price
18.07
.0 -

-
22.36
17.97

Shares
109,816
35,800
(3,092)
-
142,524
70,920

Shares
142,524
-
-
(3,369)
139,155
97,584

Weighted
Average
Exercise
Price
18.13
17.80
17.22
-
18.07

Weighted
Average
Exercise
Price

83,930 $
33,525
-
(7,639)
109,816 $
51,396

18.50
17.72
.0 -
20.44
18.13

1.90

866

1.96

.0-

20,017

The following table summarizes characteristics of stock options as of December 31, 2016:

Grant Date
10/16/2007
10/21/2008
10/20/2009
9/20/2011
3/20/2012
2/19/2013
2/18/2014
2/17/2015

Exercise Price
20.05
21.10
17.22
17.75
18.00
17.65
17.72
17.80

Outstanding
Contractual Average Life (Years)
0.79
1.80
2.80
4.72
5.22
6.14
7.13
8.13

Exercisable
Shares
4,425
6,100
6,605
13,850
15,950
18,160
21,225
11,269
97,584

Shares
4,425
6,100
6,605
13,850
17,050
21,800
33,525
35,800
139,155

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Defined Benefit Retirement Plan

The Company sponsors a defined benefit retirement plan (The Juniata Valley Bank Retirement Plan (“JVB Plan”)
which covers substantially all of its employees employed prior to December 31, 2007. As of January 1, 2008, the
JVB 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 JVB Plan was amended to cease future service accruals after that date (i.e., it was frozen).

As a result of the FNBPA acquisition, the Company assumed sponsorship of a second defined benefit retirement
plan (Retirement Plan for the First National Bank of Port Allegany (“FNB Plan”)) as of November 30, 2015, which
covers substantially all former FNBPA employees that were employed prior to September 30, 2008. The FNBPA
Plan was amended as of December 31, 2015 to cease future service accruals to previously unfrozen participants
and is now considered to be “frozen”. Effective December 31, 2016, the FNB Plan was merged into the JVB Plan,
which was amended to provide the same benefits to the class of participants previously included in the FNB Plan.

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 JVB Plan in 2017.

Management expects to record a $150,000 net periodic expense in 2017 for the JVB 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 JVB Plan’s assets at fair value as of
December 31, 2016 and December 31, 2015 (in thousands). Assets included in the JVB Plan that are not valued in
the hierarchy table consist of cash and cash equivalents, totaling $179,000 and $250,000, at December 31, 2016
and 2015, respectively.

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

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
Money market funds

December 31, for Identical

Observable Unobservable

2016

Assets

Inputs

102
3,501

-
-

102
3,501

3,066
3,411
2,590
991
13,661

3,066
3,411
2,590
991
10,058

-
-
-
-
3,603

-
-

-
-
-
-
-

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

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
Money market funds

December 31, for Identical

Observable Unobservable

2015

Assets

Inputs

325
4,156

-
-

325
4,156

1,878
1,433
1,500
172
9,464

1,878
1,433
1,500
172
4,983

-
-
-
-
4,481

-
-

-
-
-
-
-

The measurement date for the JVB 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
Assumption of liability from FNB Plan

Interest cost

Change in assumptions
Actuarial loss
Benefits paid
PBO at end of year

Change in plan assets
Fair value of plan assets at beginning of year
Transfer of FNB Plan assets
Actual return on plan assets, net of expenses
Benefits paid
Fair value of plan assets at end of year

Years Ended
December 31,
2016

2015

10,863
5,061
666
305
114
(677)
16,332

9,713
3,903
901
(677)
13,840

11,473
-
450
(623)
37
(474)
10,863

10,130
-
57
(474)
9,713

Funded status, included in other (liabilities) assets

(2,492) $

(1,150)

Amounts recognized in accumulated comprehensive loss

before income taxes consist of:

Unrecognized actual loss

Accumulated benefit obligation

(3,550) $

(3,483)

16,332

10,863

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

For the year ended December 31, 2015, the mortality assumptions were derived using the Adjusted RP-2014
White Collar Mortality Table. Incorporated into the most recent table are rates projected generationally using
Scale MP-2015 to reflect mortality improvement. The impact on the benefit obligation for the mortality
assumption change in 2015 was a decrease in the projected benefit obligation of $623,000. For the year ended
December 31, 2016, the mortality assumptions were derived using the Adjusted RP-2014 White Collar Mortality
Table. Incorporated into the table are rates projected generationally using Scale MP-2016 to reflect mortality
improvement. The impact on the benefit obligation for the mortality assumption change in 2016 was an increase
in the projected benefit obligation of $305,000.

Pension expense for the JVB Plan included the following components for the years ended December 31
(in thousands):

Interest cost on projected benefit obligation

Expected return on plan assets
Recognized net actuarial loss
Net periodic benefit cost

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

2016
666
(795)
248
119

173
(248)
-
(75)

2015
450
(592)
242
100

2014
426
(518)
40
(52)

(52)
(242)
-
(294) $

2,441
(40)
-
2,401

(194) $

2,349

2016
4.00%
N/A

2016
4.25%
6.00
N/A

2015
4.25%
N/A

2015
4.00%
6.00
N/A

2014
4.00%
N/A

2014
4.75%
5.25
N/A

The following table sets forth by level, within the fair value hierarchy, debt and equity instruments included in
the FNB Plan’s assets at fair value as of December 31, 2015 (in thousands).

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

Measured at fair value on a recurring basis:
Mutual funds
Aggressive growth funds
Growth funds
Growth and income funds

Income

December 31, for Identical

Observable Unobservable

2015

Assets

Inputs

1,003
589
1,433
878
3,903

-
-
-
-
-

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

The measurement date for the FNB Plan was December 31. Information pertaining to the activity in the defined
benefit plan in 2015 is as follows (in thousands):

Change in projected benefit obligation (PBO)
PBO at December 1, 2015
Service cost
Interest cost

Change in assumptions
Curtailment gain ($108) net of actuarial loss $2
Benefits paid
PBO at end of year

Change in plan assets
Fair value of plan assets at December 1, 2015
Actual return on plan assets, net of expenses
Benefits paid
Fair value of plan assets at end of year

Funded status, included in other (liabilities) assets

Accumulated benefit obligation

2015

5,249
3
18
(87)
(106)
(16)
5,061

4,001
(82)
(16)
3,903

(1,158)

5,061

Pension expense included the following components for the year ended December 31 (in thousands):

Service cost during the year

Interest cost on projected benefit obligation

Expected return on plan assets
Net periodic benefit gain
Total recognized in net periodic benefit cost and other comprehensive 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

2015
3
18
(23)
(2)
(2)

2015
4.25%
N/A

2015
4.00%
6.00
N/A

The investment strategy and investment policy for the JVB Plan is to target the plan assets to contain 60%
equity and 40% fixed income securities. The asset allocation as of December 31, 2016 was approximately 33%
fixed income securities, 66% equities and 1% cash equivalents in the JVB Plan.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

Future expected benefit payments (in thousands):

Estimated future benefit payments $
Defined Contribution Plan

2017

2018

2019

2020

2021

2022-2026

671

712

797

813

827

4,338

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, 2016, a liability of $214,000 was recorded
to satisfy this obligation, and was credited to employees’ accounts by January 31, 2017. This liability at December
31, 2015 totaled $192,000 and was credited to employee accounts during 2016. Expense incurred under this plan
was $211,000, $192,000 and $180,000 in 2016, 2015 and 2014, respectively. The Defined Contribution Plan also
includes an employer matching contribution for employees that elect to defer compensation into this program.
The matching contribution in 2016, 2015 and 2014 was $179,000, $162,000 and $147,000, respectively.
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 3,764 shares issued in 2016, 3,242 shares issued in 2015 and 3,497 shares issued in 2014
under this plan. At December 31, 2016, there were 177,054 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, 2016 and 2015, the present value of the future liability associated with these plans was $323,000 and
$392,000, respectively. For the years ended December 31, 2016, 2015 and 2014, $30,000, $34,000 and $39,000,
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 9.
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, 2016 and 2015, the present value of the future liability was $1,570,000 and $1,504,000,
respectively. For the years ended December 31, 2016, 2015 and 2014, $32,000, $30,000 and $33,000,
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 9.
Salary Continuation Plans

The Company has non-qualified salary continuation plans for key employees. At December 31, 2016 and 2015,
the present value of the future liability was $1,251,000 and $1,178,000, respectively. For the years ended
December 31, 2016, 2015 and 2014, $185,000, $119,000 and $118,000, 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 9.

100

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016
22. 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):

December 31,

Commitments to grant loans
Unfunded commitments under lines of credit
Outstanding letters of credit

2016
56,095
3,889
2,300

2015
$ 42,619
4,661
2,586

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, 2016 and 2015 for guarantees under letters of credit issued is not material.

The maximum undiscounted exposure related to these guarantees at December 31, 2016 was $2,300,000, and
the approximate value of underlying collateral upon liquidation that would be expected to cover this maximum
potential exposure was $11,851,000.
23. 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. The aggregate dollar amount of these loans was $6,443,000 and $4,749,000 at
December 31, 2016 and 2015, respectively. During 2016, $12,273,000 of new loans were made and repayments
totaled $10,579,000. None of these loans were past due, in non-accrual status or restructured at December 31,
2016 or 2015.

101

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

24. 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 $475,000 at December 31, 2016. 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, 2016.

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 $10,000,000. As of December 31, 2016, $5,978,000 remains
to be delivered on that commitment, of which $112,000 has been committed to borrowers.
25. SuBSEquENT EVENTS

In January 2017, the Board of Directors declared a dividend of $0.22 per share to shareholders of record on

February 15, payable on March 1, 2017.

102

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

26. 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
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
Gain on sale of securities
Other non-interest income
TOTAL INCOME
EXPENSE
Merger-related expenses
Other non-interest expense
TOTAL EXPENSE
INCOME BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARY
Income tax expense

Undistributed net income (loss) of subsidiary
NET INCOME
COMPREHENSIVE INCOME

December 31,

2016

2015

96
52,674
4,703
1,841
469
59,783

89
54,279
4,553
1,399
143
60,463

693

501

59,090

59,962

59,783

60,463

Years Ended December 31,
2015

2014

2016

$
$

59
5,624
222
166
-
6,071

66
157
223

5,848
47
5,801
(645)
5,156
4,150

$
$

34
3,900
238
19
1
4,192

279
131
410

3,782
27
3,755
(697)
3,058
3,052

$
$

32
3,691
236
-
1
3,960

-
132
132

3,828
25
3,803
413
4,216
3,678

103

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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
Realized gains on sales of investment securities
Equity in earnings of unconsolidated subsidiary,

net of dividends of $55, $55 and $48

Stock-based compensation expense

Increase in other assets
Increase in taxes payable
Increase (decrease) 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 sale of available for sale securities
Net cash received from acquisition
Net cash (used in) provided by investing activities

Cash flows from financing activities:
Cash dividends
Purchase of treasury stock
Common stock issued for stock plans
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,

2016

2015

2014

5,156

3,058

4,216

645
(166)

(167)
67
(413)
191
1
5,314

(470)
252
-
(218)

697
(19)

(183)
57
(112)
72
14
3,584

-
9
4
13

(413)
-

(188)
47
(87)
65
(20)
3,620

-
-
-
-

(4,226)
(927)
64
(5,089)

(3,687)
(63)
110
(3,640)

(3,690)
(222)
59
(3,853)

7
89
96

(43)
132
89

(233)
365
132

104

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

27. quARTERLy RESuLTS OF OpERATIONS (uNAuDITED)

The unaudited quarterly results of operations for the years ended December 31, 2016 and 2015 follow
(in thousands, except per-share data):

2016 Quarter ended

Total interest income
Total interest expense
Net interest income
Provision for loan losses
Securities gains
Other income
Merger and acquisition expense
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
Securities gains (losses)
Other income
Merger and acquisition expense
Other expense
Income before income taxes
Income tax expense (benefit)
Net income
Per-share data:
Basic earnings
Diluted earnings
Cash dividends

March 31
$ 5,187
558
4,629
121
-
1,179
58
4,082
1,547
255
$ 1,292

June 30
$ 5,077
546
4,531
113
128
1,217
314
4,172
1,277
162
$ 1,115

September 30 December 31
5,156
$
603
4,553
100
84
1,239
(25)
4,247
1,554
252
1,302

5,049
561
4,488
132
6
1,565
-
4,330
1,597
150
1,447

.27
.27
.22

.23
.23
.22

.30
.30
.22

.27
.27
.22

2015 Quarter ended

March 31
$ 4,226
565
3,661
50
(17)
1,017
10
3,594
1,007
83
924

June 30
$ 4,220
496
3,724
112
1
1,129
48
3,573
1,121
120
$ 1,001

September 30 December 31
4,651
$
502
4,149
200
10
1,171
1,595
3,677
(142)
(266)
124

4,282
479
3,803
140
19
1,175
153
3,549
1,155
146
1,009

.22
.22
.22

.24
.24
.22

.02
.02
.22

105

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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-Pink”) Electronic Bulletin Board, a regulated electronic quotation service made available through, and
governed by, the NASDAQ system. As of December 31, 2016, the Company had 1,824 stockholders of record.

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 2016 and 2015.

Quarter Ended
March 31
June 30
September 30
December 31

High
$ 18.95
18.35
18.75
19.10

High
18.75
18.90
19.95
19.50

2016

Low
17.10
17.55
17.55
18.00

2015

Low
17.80
17.55
17.28
17.50

Dividends Declared
0.22
0.22
0.22
0.22

As stated in “Note 17 – 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.
128 Bridge Street
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

106

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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,
2016 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:

INVESTMENT CONSIDERATIONS

Ms. Danyelle Pannebaker
The Juniata Valley Bank
P.O. Box 66
Mifflintown, PA 17059

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, 2016, a copy of which can be obtained as described above.

Registrar and Transfer Agent

By regular mail:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
United States

By overnight delivery:
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
Telephone: (800) 368-5948
Website: www.Computershare.com/investor

Shareholders of record may access their accounts via the Internet to review account holdings and transaction
history through Computershare’s website: www.Computershare.com/investor.

Information regarding the Company’s Dividend Reinvestment and Stock Purchase Plan, including a Prospectus,

may be obtained by contacting Computershare, 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
Computershare 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 16, 2017 at the Lewistown Country Club, 306 Country Club Road, Lewistown, Pennsylvania.

107

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

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

Michael A. Buffington
Founder and President of
Buffington Property Management, LLC
and One-Stop Communications

Gary E. Kelsey
Potter County, PA Register of Wills and Recorder
of Deeds

Richard M. Scanlon,
DMD Retired Dentist and Dental Consultant to
Central PA Institute of Science and Technology

Martin L. Dreibelbis
Self-Employed, Petroleum Consultant

Jan G. Snedeker
Retired President, Snedeker Oil Co., Inc.

Philip E. Gingerich, Jr., Vice Chairman
President, Central Insurers Group, Inc.

Timothy I. Havice, Chairman
Owner, T.I. Havice, Developer

Bradley J. Wagner
President and General Manager of
Hoober Feeds, President of Hegins Feed and
Supply, Inc. and President of L &K Mills

The Rev. Charles L. Hershberger
Pastor, Port Royal Lutheran Church
and President, Stonewall Equity, Inc.

ThE JuNIATA VALLEy BANK
BuSINESS DEVELOpMENT BOARD MEMBERS

Mifflin County

Juniata/Perry/Huntingdon

McKean/Potter/Northern Tier

Mark S. Elsesser
Donald R. Hartzler
Jeffrey C. Moyer
Craig M. Rupert
William J. Rupp, Jr.
David E. Walker
Corey P. Wray

Kim E. Bomberger
R. Franklin Campbell
Steven R. Ehrenzeller
Gregory J. Gordon
Robert D. Hower
Carl F. Jaymes
N. Jeffrey Leonard
Dennis A. Long
Georgiana Snyder-Leitzel

108

R. Keith Fortner
Gary E. Kelsey
Dan F. Lane III
Martin L. Moses
Benjamin R. Olney

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2016

DiRECTORY Of OffiCERS Of JvB

ExECUTIVE
Marcie A. Barber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . President, Chief Executive Officer

BRANCh AdmINIsTRATION
Jason A. McFalls . . . . . . . . . . . . . . . . . Vice President, Retail Services Division Manager

JoAnn N. McMinn . . . . . . . . . . . . . . . . .Executive Vice President, Chief Financial Officer

Brenda A. Brubaker . . . . . . . . . . . . . . . . . . . . Vice President, Director of Customer Care

Danyelle M. Pannebaker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Assistant

AdmINIsTRATION
Tina J. Smith. . . . . . . . . . . . . . . . . . Senior Vice President, Director of Human Resources

Suzanne E. Booher. . . . .Vice President, Director of Marketing and Facilities Management

Brent M. Miller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Compliance Officer

Kathy D. Hutchinson . . Vice President, Compliance Specialist and Security/BSA Officer

FINANCE
Kristi J. Burdge . . . . . . . . . . . . . . . . . . . . .Assistant Vice President, Accounting Manager

Renee D. Williamson . . . . . . . . . . . . . . . . . . . . . . . . . . . .Financial Information Manager

BUsINEss LENdINg
Jeremiah J. Trout . . . . . . . . . . . . . . . . .Senior Vice President, Lending Division Manager

William T. Campbell, Jr. . . . . . . . . . . . . . . . . . . . . .Vice President, Relationship Manager

Jeffrey A. Herr . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President, Relationship Manager

Joseph W. Lashway . . . . . . . . . . Senior Vice President, Northern Tier Division Manager

H. Fred Wallace . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President, Relationship Manager

Pamela K. Parson . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President, Collections Manager

Christine L. Burlew . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Collections Officer

Lora J. Rankin. . . . . . . . . . . . . . . . . Northern Tier Collections Officer and Loan Support

CONsUmER LENdINg
Jon R. Yarger . . . . . . . . . . . . . . . . . . . . . . . Vice President, Consumer Lending Manager

Betty D. Ryan . . . . . . . . . . . . . . . Vice President, Secondary Mortgage Market Manager

CREdIT AdmINIsTRATION
ANd LOAN OPERATIONs
Lisa M. Snyder . . . . . . . . . . . . . . Senior Vice President, Credit Administration Manager

Matthew J. Waddell . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Portfolio Manager

OPERATIONs
Steven T. Kramm. . . . . Senior Vice President, Operations/Technology Division Manager

S. Marlene Hubler . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computer Operations Manager

Tammy L Miller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposit Operations Manager

Kelly L. Yetter . . . . . . . . . . . . . . . . . . . . . . . . . Electronic and Business Banking Manager

Cynthia L. Bosworth . . . . Northern Tier Branch Administrator and Compliance Affiliate

Lynne S. Ruffner . . . . . . . . . . . . . . . .Vice President, Northern Tier Retail Sales Manager

BLAiRS MiLLS OffiCE
Wayne S. McCoy . . . . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager

BuRNhAM OffiCE
Leann M. Fisher . . . . . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager

Holly M. Laub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager

COuDERSPORT OffiCE
Kelly L. Bruno . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community Office Manager
and Northern Tier Electronic Banking Coordinator

Diane S. Dynda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager

GARDENviEw OffiCE
Larry B. Cottrill, Jr. . . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager
and Relationship Manager

Kelly L. Bishop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager

MCALiSTERviLLE AND RiChfiELD OffiCES
Leslie A. Miller . . . . . . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager

Kelly M. Neimond. . . . . . . . . . . . . . . . . Assistant Office Manager, McAlisterville Office

Amber N. Portzline. . . . . . . . . . . . . . . . . . . . . Assistant Office Manager, Richfield Office

MiffLiNTOwN AND MOuNTAiN viEw OffiCES
Annette M. Price. . . . . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager
and Teller Support Manager

MiLLERSTOwN OffiCE
Thomas P. O’Connell . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager

Lisa M. Freet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager

MONuMENT SquARE AND wATER STREET OffiCES
Christine L. Searer. . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager

Curtis M. Crouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Network Administrator

Stacey K. McMurtrie . . . . . . . . . . . Assistant Office Manager, Monument Square Office

Beverly M. McClellan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Data Analyst

Laurie B. Blauvelt . . . . . . . . . . . . . . . . . . . . . Northern Tier Operations and IT Specialist

Lee Ellen Foose . . . . . . . . . . . . . . . . . . . . . . Vice President/Branch Operations Specialist

TRUsT ANd INVEsTmENT sERVICEs
Donald E. Shawley

Senior Vice President,
Trust and Investment Services Division Manager

Cynthia L. Williams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Vice President, Trust Officer

Paul M. Grego . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Trust Investment Officer

Adam E. Truitt. . . . . . . . . . . . . . . . . . . . . . . . . . Vice President, Financial Services Officer

Jonathan F. King. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Services Representative

Amy J. Pitts . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager, Water Street Office

PORT ALLEGANY AND LiLLiBRiDGE OffiCES
Denise R. Russell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Community Office Manager

PORT ROYAL OffiCE
Barbara I. Seaman . . . . . . . . . . . . . . . . . . . Vice President, Community Office Manager
and Relationship Manager

wAL-MART OffiCE
Kristi A. Dippery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager

JuNiATA vALLEY fiNANCiAL CORP.

ANNuAL REPORT 2016

JuNiATA vALLEY fiNANCiAL CORP.
218 Bridge Street | Mifflintown, PA 17059 | www.jvbonline.com

002CSN789F