Juniata Valley Financial Corp. Annual Report 2017

FY2017 Annual Report · Juniata Valley Financial Corp.

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2017
ANNUAL
REPORT

juniata valley financial corp.

Building
Blocks
for the
Future

president’s letter

As we proudly celebrated Juniata Valley Bank’s Sesquicentennial
in 2017, we purposefully laid the Building Blocks For The Future
– we have accomplished much in the last 150 years and we plan
to continue our progress in the next 150 years. Our building
blocks were both literal and figurative as we built and improved
facilities and also continued our expansion of electronic delivery
systems and services, invested in human resources and grew our
marketplace footprint through acquisition.

FIGURATIVE BLOCKS

Banking is still a PEOPLE BUSINESS and we know that our success is
attributable to the commitment and professional service of our JVB associates.
2017 was a year of investment in bench strength from the board room to the
teller line.

Software investments which span 2017 and 2018 will support accounting,
loan production, compliance and network security functions and are used to
support and enhance the efforts of our professionals, but not replace them.

LITERAL BLOCKS

SHAREHOLDER BLOCKS

Prior to the end of 2017, we crossed the threshold of an innovative new
branch, a replacement of our thirty year-old Mountain View office in Mifflintown,
PA. As our industry shifts from a brick and mortar service delivery business
model to digital access through multiple devices, our customers still want
to see and connect with their JVB banker. Our new office design reflects the
evolving role of the branch and the service preferences of our clients. Despite
the increase in mobile and on-line banking, the Mountain View office remains
one of our busiest in sales and transactional volume. The new branch provides
an open floorplan for customer comfort as well as private meeting spaces and
a learning center. In our Discovery Center, our associates share new products
and services in a secure and confidential environment. The Community Room is
open to small community groups for meeting and education. And we will launch
consumer and business educational sessions, enhanced by Web Conferencing
technology, in 2018.

Our Trust and Investment Services outgrew their physical space so we
added three professional offices to our Financial Services Office on Butcher
Shop Road. The integration of traditional trust services and investment services
is a testament to our commitment to deliver responsible and comprehensive
solutions for every stage of life and every financial circumstance.

Above all else, we are focused on maintaining and growing the value of
the franchise for you, our shareholders. The efforts described above did not
distract us from continuing to grow our franchise and achieve solid financial
results in 2017. Excluding the impact of certain items in order to provide a
meaningful performance comparison of 2017 to 2016 (the excluded items are
described in detail in this report), we achieved higher levels of profitability
in 2017. Having successfully acquired and integrated First National Bank of
Port Allegany in 2015, we were pleased to announce a definitive agreement to
merge Liverpool Community Bank into JVB late 2017. As we work toward an
anticipated closing in the second quarter of 2018, we are already planning the
integration of Liverpool’s franchise, contiguous to our current markets, into JVB
and welcoming Liverpool’s shareholders and associates into the JVB family.
The acquisition is expected to be accretive to earnings in the first year and will
provide a new market for trust and investment services. We will continue to
actively seek opportunities that leverage our capital and overhead for greater
shareholder return.

We eagerly look forward to the challenges ahead, believing that the
foundation we are building today will surpass the expectations of our
customers, our associates and our shareholders for many years into the future.

TOTAL ASSETS AT YEAR END
(in thousands)

Marcie A. Barber | President and CEO

$583,928

$580,354

$591,945

$442,109

$435,753

$428,084

$447,433

$448,869

$448,782

$480,529

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

$600,000

$580,000

$560,000

$540,000

$520,000

$500,000

$480,000

$460,000

$440,000

$420,000

$400,000

2017 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 ----------------------------------- 47

Report of Independent Registered Public Accounting Firm on Effectiveness

of Internal Control over Financial Reporting ------------------------------------------------------------------------------ 48

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements ---------------- 49

Financial Statements

Consolidated Statements of Financial Condition -------------------------------------------------------------------------- 50

Consolidated Statements of Income ----------------------------------------------------------------------------------------- 51

Consolidated Statements of Comprehensive Income--------------------------------------------------------------------- 52

Consolidated Statements of Stockholders' Equity ------------------------------------------------------------------------ 53

Consolidated Statements of Cash Flows ------------------------------------------------------------------------------------ 54

Notes to Consolidated Financial Statements ------------------------------------------------------------------------------- 56

Common Stock Market Prices and Dividends ----------------------------------------------------------------------------------112

Corporate Information -------------------------------------------------------------------------------------------------------------112

Corporate Officers, Directors and Business Development Boards ---------------------------------------------------------114

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
(Dollars in thousands, except share and per share data)

BALANCE SHEET INFORMATION

at December 31
Assets
Deposits
Loans, net of allowance for loan losses

Investments

Goodwill
Short-term borrowings
Long-term debt
Stockholders’ equity
Number of shares outstanding

Average for the year
Assets
Stockholders’ equity
Weighted average shares outstanding
INCOME STATEMENT INFORMATION

Years Ended December 31
Total interest income
Total interest expense

Net interest income
Provision for loan losses
Other income

Other expenses

Income before income taxes
Federal income tax expense

Net income
PER SHARE DATA

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

2017

2016

2015

2014

2013

$ 591,945
477,668
380,965
157,278
5,448
12,000
25,000
59,387
4,767,656

$ 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

593,923
59,938
4,765,165

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

21,374
2,855

20,469
2,268

17,379
2,042

16,932
2,598

16,734
2,900

18,519
439
5,292

17,775
5,597
1,060

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

13,146
4,506
505

4,537

5,156

3,058

4,216

4,001

0.95
0.95
0.88
12.46

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

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

0.76%
7.57
92.44
10.09
79.76

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 effects of changes in the applicable federal income tax rate;

•

the level of other expenses, including salaries and employee benefit expenses;

•

the impact of increased regulatory scrutiny of the banking industry;

•

the increasing time and expense associated with regulatory compliance and risk management;

•

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

the effects of changes in accounting policies, standards, and interpretations of the Company’s
consolidated balance sheets and consolidated statements of income;

•

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 2017 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, 2017, 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 Bank.
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 (“ATM”) 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, online
bill payment and other online and mobile services. Commercial banking services include small and high-volume
business checking accounts, online 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.
Agreement and Plan of Merger

On December 29, 2017, Juniata entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
LCB. The Merger Agreement provides that, upon the terms, and subject to the conditions set forth therein, LCB
will merge with, and into, the Bank, with the Bank continuing as the surviving entity (the “Merger”).

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each share of
Liverpool’s common stock issued and outstanding immediately prior to the effective time of the Merger (other
than the LCB common stock currently owned by Juniata, which will be cancelled) will be converted into the right
to receive, at the election of the holder, either: (i) 202.6286 shares of common stock of Juniata (the “Stock
Consideration”) or (ii) $4,050.00 (the “Cash Consideration”), subject to proration to maintain total Cash
Consideration at a minimum of 15% and a maximum of 20% of the total merger consideration. Holders of
Liverpool Common Stock prior to the consummation of the Merger will own a percentage of Juniata’s common
stock outstanding immediately following the consummation of the Merger that will range from 6.4% (if minimum
Cash Consideration of 15% were paid) to 6.0% (if the maximum Cash Consideration of 20% were paid).

Consummation of the Merger is subject to customary closing conditions including, but not limited to, the
absence of a material adverse change relating to Liverpool or Juniata, approval of the Merger by Liverpool’s
shareholders and receipt of all required regulatory approvals.

The parties anticipate the Merger will close in the first half of 2018.
ECONOMIC AND INDuSTRy-WIDE FACTORS RELEVANT TO JuNIATA

As a financial services organization, Juniata’s core business is most influenced by the level of, and movement of,
interest rates. Lending and investing is done daily, using funding from deposits and borrowings, resulting in net
interest income, the most significant portion of operating results. Through the use of asset/liability management
tools, the Company continually evaluates the effects that possible changes in interest rates could have on
operating results and balance sheet growth. Using this information, along with analysis of competitive factors,
management designs and prices its products and services.

General economic conditions are relevant to Juniata’s business. In addition, economic factors impact customers’
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 the
five key elements described below.
Shareholder Satisfaction

Committed

Connected

Capable

Caring

and

committed

Above all else, management is
both stock value appreciation and dividend returns. Remaining
identify the financial needs of our market and to deliver those products and services
seek to profitably grow the balance sheet and enhance earnings, while maintaining capital and liquidity levels
well exceeding all regulatory guidelines.
Customer Relationships

to maximizing the value of our shareholders’ investment, through
to our communities will allow us to

capably

. In doing so, we will

connected

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
which we deliver our services must change as well. One element of the Company’s strategic plan is to provide

committed

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

connection

through every means available, wherever we are needed, whether through a stand-alone branch,

in-store boutique, ATM or via online and mobile banking anywhere internet or cell phone signals can be received.
In 2017, we continued to make advances in technological resources, placing data and information in the hands of
our customers and employees,
Balance Sheet Growth

to optimizing the customer experience.

committed

capable

We are
careful
and strategic management. It is our goal to continue quality growth despite intense competition by paying

of profitable balance sheet growth. Rapid growth should not be a substitute for careful fiscal

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 with FNBPA and look forward to completing the Merger with LCB in 2018.
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.
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.
Connection to the Community

4
1

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
involvement of our

employees.

committed

caring

JuniAtA’S oppoRtunitieS

SOuNDNESS AND STABILITy

Our financial condition is strong. We enjoy strong capital and liquidity ratios that significantly exceed
regulatory guidelines. Our business model includes a plan for growth without sacrificing profitability or integrity.
We believe an opportunity exists for banks such as ours to offer the trusted, personal service of a locally managed
institution that has roots in the community reaching back 150 years.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017ExpANSION OF CuSTOMER BASE

Our strategic focus is based on leveraging our collective knowledge of the Company’s primary and contiguous
markets to identify lending or fee-based opportunities consistent with our risk parameters and profitability
targets. We continue to develop our sales team through mentoring and by making employee education
paramount. We continually seek and implement back-room efficiencies. We recognize 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.
We look forward to expanding our footprint in Perry County, Pennsylvania, upon the consummation of the Merger
with LCB in 2018.
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
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. The
rollout of a fully redesigned JVBonline.com website was completed in 2016 as well. In 2017, the construction was
completed on a new branch facility featuring a highly interactive and complete customer experience. In 2018,
Juniata plans to offer online deposit account opening capability.

JuniAtA’S chAllenGeS

NET INTEREST MARGIN COMpRESSION

5
1

While market interest rates are slowly rising, the low interest rate environment that has persisted in recent
years has pressured the net interest margin for most banks, including Juniata. 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017RATE 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.
REGuLATIONS

The Company is subject to banking regulation, as well as regulation by the Securities and Exchange
Commission (“SEC”) and, as such, must comply with many laws, including the USA Patriot Act, the
Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the Dodd-Frank Wall Street Reform and Consumer
Protection Act. Management has established a Disclosure Committee for Financial Reporting, an internal group
at Juniata that seeks to ensure that current and potential investors in the Company receive full and complete
information concerning our financial condition. Juniata has incurred direct and indirect costs associated with
compliance with the SEC’s filing and reporting requirements imposed on public companies by the Sarbanes-Oxley
Act, as well as adherence to new and existing banking regulations and stronger corporate governance
requirements. Regulatory burdens continue to increase as evidenced by the provisions in the Dodd-Frank Act that
impact the Company in the areas of corporate governance, capital requirements and restrictions on fees that may
be charged to consumers.

ApplicAtion oF cRiticAl AccountinG policieS

The Company’s consolidated financial statements are prepared based upon the application of accounting

principles generally accepted in the United States of America (“GAAP”), the most significant of which are
described in Note 2 to our consolidated financial statements – Summary of Significant Accounting Policies.
Certain of these policies, particularly with respect to allowance for loan losses 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
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.

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.

Goodwill recorded in connection with acquisitions is tested annually for impairment. If certain events occur
which indicate goodwill might be impaired between annual tests, goodwill must be tested when such events
occur. In making this assessment, Juniata considers a number of factors including operation results, business
plans, economic projections, anticipated future cash flows, current market data, stock price, etc. There are
inherent uncertainties related to these factors and Juniata’s judgement in applying them to the analysis of
goodwill impairment. Changes in economic and operating conditions could result in goodwill impairment in
future periods.

Valuations of assets acquired and liabilities assumed in business combinations are measured at fair value as of
the acquisition date. In many case, determining the fair value of the assets acquired and liabilities assumed
requires Juniata to estimate the timing and amount of cash flows expected to result from these assets and
liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of
significant estimates and judgment in accounting for the acquisition.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
2017 FINANCIAL pERFORMANCE OVERVIEW

ReSultS oF opeRAtionS

The comparability of the results of operations for the years ended December 31, 2017 and December 31, 2016
was impacted by the following events discussed in more detail below: (i) the de-risking of a portion of the
Company’s defined benefit plan in 2017, (ii) the pending merger between the Bank, and Juniata’s unconsolidated
subsidiary, LCB, (iii) the reduction in the corporate tax rate due to the enactment of the Tax Cuts and Jobs Act
(“TCJA”) on December 22, 2017, and (iv) the gains from life insurance proceeds recorded in 2016, while there
were none in 2017. Juniata’s management believes it to be meaningful to present a performance comparison that
segregates the financial impact of the afore-mentioned items, to allow a view of comparative results to 2016. The
following discussion includes both GAAP, as well as non-GAAP financial measures that are reconciled to GAAP
financial measures in the supplemental tables presented below. The non-GAAP measures will be referred to as
“adjusted” results.

As noted above, Juniata initiated a strategy to reduce the liability associated with its defined benefit pension
plan in the fourth quarter of 2017. The first step of the initiative consisted of the purchase of a single premium
group annuity for a group of Juniata’s retirees, transferring the associated pension liability to the issuer of the
annuity. This step reduced Juniata’s overall pension liability by approximately 12%, which resulted in a pre-tax
charge to earnings of $377,000. This pre-tax charge represents an acceleration of pension expenses that would
otherwise have impacted Juniata’s earnings in the future. During 2018, Management will continue to implement
its strategy to further reduce the pension liability.

Also occurring in the fourth quarter of 2017 was the execution of a definitive merger agreement between Juniata
and LCB. Merger-related expenses were incurred at both institutions in 2017. Since Juniata accounts for its
investment in Liverpool using the equity method, 39.16% of LCB’s merger-related expenses reduced Juniata’s non-
interest income by $33,000. Juniata’s own merger-related expenses increased non-interest expense by $13,000.

On December 22, 2017, the TCJA was enacted, lowering Juniata’s and LCB’s future maximum corporate tax rate
from 34% to 21%. The effects of tax law and rate changes must be reflected as a component of tax expense from
continuing operations. Though the reduced rate will provide tax savings to Juniata and LCB in future periods, the
reduction resulted in write-downs of Juniata’s and LCB’s net deferred tax assets, which were previously valued
based upon the projection of a 34% future tax rate. As a result, a non-cash charge of $416,000 was included in
the 2017 income taxes expense. A similar non-cash charge at LCB, resulted in a $32,000 decline in Juniata’s non-
interest income in the fourth quarter of 2017.

Net income for Juniata in 2017 was $4,537,000, representing a 12.0% decrease as compared to net income for
2016. Earnings per share on a fully diluted basis decreased from $1.07 in 2016 to $0.95 in 2017. When adjusted
for the impact of the tax-effected events mentioned above, adjusted net income was $5,253,000 for the year
ended December 31, 2017, an increase of 6.2% over adjusted net income for the year ended December 31, 2016.
Adjusted earnings per share increased by 6.8% from $1.02 in 2016 to $1.10 in 2017. For 2017, return on average
assets (“ROA”) and return on average equity (“ROE”) were 0.76% and 7.57%, respectively. On an adjusted basis,
return on average assets was 0.88% in 2017 as compared to 0.85% in 2016, and return on average equity was
8.76% and 8.08% in 2017 and 2016, respectively.

The net interest margin, on a fully tax-equivalent basis, decreased from 3.57% in 2016 to 3.52% in 2017. While
the yield on earning assets increased five basis points to 3.92%, the cost of funds increased 25 basis points, to
0.68%, as rate-sensitive short-term borrowings increased in 2017 compared to 2016.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017 Five-year historical ratios are presented below.
(Dollars in thousands)

Return on average assets
Return on average equity
Yield on earning assets
Cost to fund earning assets
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

2017
0.76%
7.57
3.92
0.68

0.89
2.99
2.10

2016
0.89%
8.42
3.87
0.43

0.90
2.98
2.08

2015
0.62%
5.98
3.88
0.59

0.92
3.31
2.39

2014
0.90%
8.31
3.94
0.60

0.92
2.88
1.96

2013
0.89%
8.07
4.09
0.71

0.94
2.92
1.98

Below, and on the following page, are the comparative disclosures illustrating the reconciliation of the
non-GAAP financial measures discussed on the previous page to GAAP financial measures for the most recent
three years.
(Dollars in thousands)

Non-GAAP presentation of comparative net income

Net Income
Adjustments to reported net income to reconcile to
non-GAAP measure
Defined benefit plan settlement cost included in

employee benefits

Tax benefit of defined benefit plan settlement cost

Merger-related expense for JUVF
Merger-related expense included in income from

unconsolidated subsidiary

Tax benefit of all merger-related expense
Merger-related gains on sale of loans

Tax expense of merger-related gains on sale of loans

Gains from life insurance proceeds

Tax expense of gains from life insurance proceeds (N/A)

Reduction in valuation of deferred tax assets included in

income from unconsolidated subsidiary
Tax benefit for reduction in valuation of deferred

tax assets included in income from unconsolidated subsidiary

Reduction in valuation of deferred tax assets for JUVF
(1) Total adjustments to reported net income to reconcile

to non-GAAP measure

(2) Adjusted net income (non-GAAP)

2017
4,537

2016
5,156

2015
3,058

377
(128)
13

33
(16)
-
-
-
-

(11)
416

-
-
347

-
(118)
(113)
38
(364)
-

-
-

-
-
1,806

-
(495)
-
-
-
-

-
-

716
5,253

(210)
4,946

1,311
4,369

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands, except share and per share data)

Non-GAAP presentation of performance ratios

Adjusted Earnings Per Share (Diluted)

Earnings per share (diluted)
Adjustments to reported diluted earnings per share to
reconcile to non-GAAP measure (tax effected)

Defined benefit settlement cost (tax effected)
Merger-related expenses (tax effected)
Merger-related gains (tax effected)
Gains from life insurance proceeds
Reduction in valuation of deferred tax assets
Total adjustments to reported diluted earnings per
share to reconcile to non-GAAP measure
Adjusted earnings per share (diluted) (non-GAAP)

Net Income
Average Assets
Average Equity
Weighted average diluted shares outstanding
Adjusted Return on Average Assets

Return on average assets
Total adjustments to reported net income to reconcile to
non-GAAP measure (1)
Adjusted return on average assets
Adjusted Return on Average Equity

Return on average equity
Total adjustments to reported net income to reconcile to
non-GAAP measure (1)
Adjusted return on average equity

2017

2016

2015

0.95

1.07

0.72

0.05
0.01
.0-
.0-
0.09

-
0.05
(0.02)
(0.08)
.0-

-
0.31
.0-
.0-
.0-

0.15
1.10

(0.05)
1.02

0.31
1.03

4,537
593,923
59,938
4,775,505

5,156
577,341
61,209
4,802,175

3,058
489,323
51,131
4,241,265

0.76%

0.89%

0.62%

0.12
0.88%

(0.04)
0.86%

0.27
0.89%

7.57%

8.42%

5.98%

1.20
8.77%

(0.34)
8.08%

2.56
8.54%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Juniata strives to attain consistently satisfactory 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 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 and the contribution of each to ROA for 2017 and 2016.

2017

2016

Net interest income
Provision for loan losses
Customer service fees
Debit card fee income
BOLI
Trust fees
Commissions from sales of non-deposit products
Income from unconsolidated subsidiary
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
Gain (loss) on sales of other real estate owned
Intangible amortization
Amortization of investment in partnership
Merger and acquisition expense
Other noninterest expense
Total noninterest expense

Income tax expense
Net income

Average assets

Assets

Net Income % of Average Net Income % of Average
Components
18,519
$
(439)
1,747
1,120
352
446
173
167
-
512
214
561
5,292

Components
18,201
$
(466)
1,736
1,044
371
454
223
222
364
218
158
628
5,418

3.12%
(0.07)
0.29
0.19
0.06
0.08
0.03
0.03
0.00
0.09
0.04
0.09
0.89

3.15%
(0.08)
0.30
0.18
0.06
0.08
0.04
0.04
0.06
0.04
0.03
0.11
0.94

(9,996)
(1,884)
(1,751)
(241)
(571)
(463)
(334)
8
(67)
(612)
(13)
(1,851)
(17,775)

(1.68)
(0.32)
(0.29)
(0.04)
(0.10)
(0.08)
(0.06)
0.00
(0.01)
(0.10)
(0.00)
(0.31)
(2.99)

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

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

(1,060)
4,537

(0.18)
0.76%

593,923

(819)
5,156

(0.14)
0.89%

577,341

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 79% of total revenues (the total of net interest income and non-interest income, exclusive of
security gains) for 2017. 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 2017, 2016 and 2015. Table 2 further shows changes attributable to
the volume and rate components of net interest income.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017TABLE 1
AVERAGE BALANCE ShEETS AND NET INTEREST INCOME ANALySIS

(Dollars in thousands)

ASSETS
Interest earning assets:
Loans:
Taxable (5)
Tax-exempt

Total loans (8)
Investment securities:
Taxable
Tax-exempt

Total investment

securities

Interest bearing deposits
Federal funds sold
Total interest earning assets
Non-interest earning assets:
Cash and due from banks
Allowance for loan losses
Premises and equipment
Other assets (7)
Total assets

2017

Years Ended December 31

2016

2015

Average

Balance(1)

Interest

Yield/

Rate

Average

Balance(1)

Interest

Yield/

Rate

Average

Balance(1)

Interest

Yield/

Rate

$ 355,033
30,378
385,411

$ 17,090
915
18,005

4.81%
3.01
4.67

$ 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

134,607
24,797

2,888
451

159,404
580
-
545,395

3,339
30
-
21,374

2.15
1.82

2.09
5.17
NA
3.92

10,513
(2,809)
6,823
34,001
$ 593,923

124,611
23,807

148,418
770
675
529,040

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

2,475
418

2,893
13
4
20,469

1.99
1.76

1.95
1.69
0.52
3.87

2,267
465

2,732
2
-
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

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

$ 123,520
99,385
139,652

404
99
1,626

0.33
0.10
1.16

$ 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

interest bearing liabilities

56,846

726

1.28

46,310

457

0.99

44,941

365

0.81

Total interest bearing
liabilities

419,403

2,855

0.68

404,045

2,268

0.56

348,670

2,042

0.59

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

108,141
6,441
59,938

stockholders’ equity

$ 593,923

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

105,536
6,551
61,209

$ 577,341

84,295
5,227
51,131

$ 489,323

$ 18,519

$ 18,201

$ 15,337

3.40%

3.44%

3.42%

$ 19,223

3.52%

$ 18,883

3.57%

$ 15,964

3.56%

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 2017

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

2017 compared to 2016
Increase (Decrease) Due To (6)

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

Volume

Rate

Total

Volume

Rate

Total

294
3
297

207
18
225
(4)
(4)
514

143
6
149

206
15
221
21
-
391

437
9
446

$ 3,260
151
3,411

$ (501)
4
(497)

$ 2,759
155
2,914

413
33
446
17
(4)
905

242
(84)
158
1
4
3,574

(34)
37
3
10
-
(484)

208
(47)
161
11
4
3,090

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

interest bearing liabilities
Total interest bearing liabilities
Net interest income

0
2

4
3
3

147
(6)
167

151
(3)
170

42
24
91

50
2
(75)

92
26
16

117
127
387

152
460
(69)

269
587
318

11
168
$ 3,406

81
58
$ (542)

92
226
$ 2,864

(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: $(1,065) in 2017, $(1,302) in 2016 and $897 in 2015.
(8) Interest income includes loan fees of $89, $78 and $93, in 2017, 2016 and 2015, respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

On average, total loans outstanding in 2017 increased from 2016 by 1.6%, to $385,411,000. Average yields on
loans increased by 4 basis points in 2017 when compared to 2016. As shown in the preceding Rate – Volume
Analysis of Net Interest Income Table 2, the increase in yield raised interest income on loans by approximately
$149,000, while the increase in volume increased interest income by $297,000, resulting in an aggregate increase
in interest recorded on loans of $446,000 in 2017 compared to 2016. The prime rate increased by 25 basis points
in March 2017, June 2017, and mid-December 2017 to end the year at 4.50%. The increased yield on prime-
related loans in 2017 assisted in the increase in the average yield on loans in 2017 compared to 2016.

During 2017, 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 $10,986,000, and this volume increase accounted for a $225,000 increase in interest income as
compared to 2016. The improvement in the overall yield of the investment portfolio by 14 basis points between
2016 and 2017 further increased net interest income by $221,000, resulting in an aggregate increase in interest
recorded on investment securities of $446,000 in 2017 compared to 2016.

In total, yield on earning assets in 2017 was 3.92% compared to 3.87% in 2016, an increase of 5 basis points.

On a fully tax equivalent basis, the yield on earning assets also increased 5 basis points from 4.00% in 2016 to
4.05% in 2017.

Average interest bearing liabilities increased by $15,358,000 in 2017, compared to 2016. Within the categories
of interest bearing liabilities, deposits increased on average by $4,822,000, and borrowings increased by
$10,536,000 on average. The average increase in overnight borrowings of approximately $9,774,000 in 2017
compared to 2016 was the primary reason for the increase in average borrowings. Changes in the volume of total
interest-bearing liabilities increased interest expense by $127,000 in 2017 as compared to 2016, while changes
in interest rates further increased interest expense by $459,000. The percentage of interest earning assets funded
by non-interest bearing liabilities was approximately 23.1% in 2017 versus 23.6% in 2016. The total cost to fund
earning assets (computed by dividing the total interest expense by the total average earning assets) in 2017 was
0.52%, compared to 0.43% in 2016. This increase was predominantly caused by the 0.75% increase in the Prime
rate during 2017, combined with the increased volume in overnight borrowings.

Net interest income was $18,519,000 for 2017, an increase of $318,000 when compared to 2016. Increases in
volumes contributed $387,000 toward the improved net interest income, partially offset by a $69,000 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
$439,000 was appropriate for 2017, a decrease of $27,000 when compared to 2016 when the total loan loss
provision was $466,000. The lower provision in 2017 primarily resulted from the relatively unchanged loan
volumes and asset quality in 2017 versus 2016. 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 2017.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 2017, revenues from these services totaled $2,366,000,
representing a decline of $47,000, or 1.9%, from 2016 revenues, primarily due to a decrease in wealth
management commissions. Total fees from customer deposits increased by $11,000, or 0.6%. Fees from estate
settlements decreased by $39,000, or 34.2%, in 2017 as compared to 2016, while non-estate fees increased by
$31,000, or 9.4%. 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 2017, in comparison to 2016, by $50,000, or 22.4%, as sales declined.

Fees generated by debit card activity increased by $76,000, or 7.3%, in 2017 as compared to the prior year due
to general increased debit card usage.

Fees and income derived from the origination, sale and servicing of residential mortgage loans (mortgage
banking income) was $214,000 in 2017, an increase of $56,000, or 35.4%, compared to 2016, as activity
increased. Other non-interest-related fees derived from loan activity increased by $35,000 when comparing 2017
to 2016, primarily due to revenues generated from title insurance fees and a loan referral program that
commenced in the second half of 2017. Gains of $364,000 were recorded in 2016 as a result of life insurance
claims, while no claims were recorded in 2017.

The Company owns 39.16% of the stock of 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,
$167,000 was recorded as income in 2017, compared to $222,000 in 2016. The decline in income from LCB was
the result of merger-related expenses and the write-down of its deferred tax asset due to the passing of the Tax
Cuts and Jobs Act. Earnings on bank-owned life insurance and annuities decreased in 2017 by $19,000, or 5.1%,
when compared to the previous year, because investment in BOLI was lower in 2017.

In 2016, student loans that were included in the FNBPA acquisition were sold, generating a gain of $113,000;

no similar corresponding gain was recorded in the 2017 period. Gains realized from the sale and call of
investment securities during 2017 were $512,000, compared to $218,000 during 2016.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
As a percentage of average assets, non-interest income (excluding securities gains on sales or calls of
securities) was 0.89% and 0.90% in 2017 and 2016, respectively.
NON-INTEREST ExpENSE

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

In 2017, total non-interest expense increased by $597,000, or 3.5%, when compared to 2016. The $377,000 in

settlement costs from the first step of the de-risking of the defined benefit plan contributed to the increase in
employee benefits expense in 2017 of $536,000, or 23.3%, compared to 2016, as well as $238,000 in increased
medical insurance claims. Compensation expense for 2017 increased by $276,000, or 4.0%, as compared to 2016
due to staffing enhancements and higher levels of accruals for the employee incentive bonus.

Also contributing to the year over year increase in non-interest expense was an increase of $133,000, or 27.8%,
in the amortization of two tax credit investments in low-income housing partnerships due to the addition of the
amortization for the phase II project, which began in the second half of 2017. Amortization expense associated
with the Bank’s investment in low-income housing partnerships, 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 partnerships in
both 2017 and 2016. Amortization is scheduled to continue through 2023 for phase I and through 2027 for
phase II.

Occupancy and equipment expense increased in the aggregate by $86,000, or 4.8%, due to the completion and
occupation of a relocated banking office. Other noninterest expense increased $132,000, or 7.7%, in 2017 to the
same period in 2016 due to higher electronic banking losses and the addition of consultant expenses associated
with the de-risking of the defined benefit plan.

Offsetting the increase in total non-interest expense was a decline in data processing expense of $56,000, or
3.1%, in 2017 as compared to 2016. Merger and acquisition expense decreased $334,000, or 96.3%, for the year
2017 compared to the same period in 2016 as the remaining merger expenses for the FNBPA acquisition were
recorded in 2016. Additionally, the valuation of properties held in other real estate owned resulted in net gains
of $8,000 in 2017 compared to net losses of $150,000 in 2016, resulting in a net decline in expense of $158,000,
or 105.3%, in 2017.

As a percentage of average assets, non-interest expense was 2.99% in 2017 as compared to 2.98% in 2016.
INCOME TAxES

Income tax expense for 2017 amounted to $1,060,000 versus $819,000 in 2016. The effect of the Tax Cuts and
Jobs Act passed in 2017 required an immediate write-down of JVB’s deferred tax assets as of December 31, 2017
resulting in an additional tax expense of $416,000. Both periods included the effect of a tax credit amounting to
$722,000 in 2017 and $572,000 in 2016. The tax credit was available to the Company as a result of an equity
investment in a low-income housing project. Juniata’s effective tax rate in 2017 was 18.9% versus 13.7% in 2016.
See Note 16 of Notes to Consolidated Financial Statements for further information on income taxes.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

NET INCOME

For comparative purposes, the following table sets forth earnings and selected earnings ratios for the past
three years.
(Dollars in thousands)
As reported

Net Income
Return on average assets
Return on average equity
OuTLOOK FOR 2018

2017
4,537
0.76%
7.57%

2016
5,156

2015
3,058

0.89%
8.42%

0.62%
5.98%

For Juniata, 2017 was a year of great accomplishment in creating “Building Blocks of the Future”. We
constructed a flagship branch with state-of-the-art service delivery, completely remodeled our Trust Division
offices, developed a wider array of mortgage product offerings, and advanced and expanded our social media
presence. We also reduced the volatility in a legacy defined benefit plan, completed the second phase of our
commitment to invest in a low income elderly housing project within one of our local communities, and signed a
definitive agreement to merge Liverpool Community Bank into JVB. We pursued each of these initiatives with an
eye toward profitable expansion in the future, pursuant to our Strategic Plan.

After eight years of a historically low rate environment, national prime and federal funds rates increased from
December 2016 to December 2017 by 100 basis points. We expect, and are prepared for, the interest rate
environment to change even more in 2018. 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 or declining rates. We enter 2018 with cautious optimism for economic growth which could spark
lending opportunities, and the potential of de-regulation of community banking. Our focus will remain on
identifying opportunities for fee services and delivering system 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.

We anticipate receiving regulatory and LCB shareholder approval for the acquisition of LCB in order to
consummate that merger by mid-second quarter 2018. We will devote considerable resources to assuring a
successful integration of personnel and services and look forward to welcoming the Liverpool community fully
into the JVB family. Excluding merger costs necessary to facilitate the transition, we expect the merger to be
accretive to earnings in the first year.

In 2018, Juniata will continue to implement its strategy to further reduce the pension liability associated with

its frozen legacy defined benefit plan.

Expanding our customer base and enhancing our engagement with our customers remain priorities. In 2017,
we further enhanced our marketing efforts to reach a broader consumer base. We plan in 2018 to increase our
presence and interaction in social media. Our business development plan focuses on horizontal integration,
emphasizing teamwork, to fully meet the financial needs of our customers. We continue to recruit quality and
experienced personnel for key positions, and anticipate further upgrades to our community offices, keeping pace
with new and more efficient delivery methods.

We believe 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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

2016 FinAnciAl peRFoRmAnce oveRview

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 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 the non-GAAP items in the comparative disclosure presented earlier in the 2017 Financial
Performance Overview, adjusted earnings per share was $1.02 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. Summarized below are the components of net income and the contribution of each to
ROA for 2016 and 2015.
(Dollars in thousands)

2016

2015

Net interest income
Provision for loan losses

Customer service fees
Debit card fee income
BOLI
Trust fees
Commissions from sales of non-deposit products
Income from unconsolidated subsidiary
Insurance-related gains
Security gains
Mortgage banking income
Other noninterest income
Total noninterest income

Employee expense
Employee severance
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

Net Income % of Average Net Income % of Average
Components
18,201
$
(466)

Components
15,337
$
(502)

3.15%
(0.08)

3.13%
(0.10)

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)
0.00
(0.31)
(0.31)
(0.04)
(0.09)
(0.08)
(0.06)
(0.03)
(0.02)
(0.06)
(0.08)
(0.30)
(2.98)

(819)
5,156

(0.14)
0.89%

577,341

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)

(83)
3,058

489,323

0.32
0.18
0.08
0.08
0.07
0.05
0.02
0.00
0.04
0.09
0.92

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

(0.02)
0.01%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

NET INTEREST INCOME

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 being unchanged for seven years. The prime rate 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, the 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.

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

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 $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 under the headings “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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
NON-INTEREST INCOME

In 2016, revenues from fee-generated services (customer service fees derived from deposit accounts, trust

relationships and sales of non-deposit products) 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 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.
NON-INTEREST ExpENSE

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

$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 online features being made available to
customers, such as online 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.
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 of $572,000 in 2016 and $570,000 in 2015. 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
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

2017
Average
Balance

355,033
30,378
134,607
24,797
580
-

Increase (Decrease)
Amount

2016
Average
Balance

Increase (Decrease)

Amount

6,119
115
9,996
990
(190)
(675)

1.8%
0.4
8.0
4.2
(24.7)
(100.0)

348,914 $ 67,994
5,055
12,152
(4,880)
173
643

30,263
124,611
23,807
770
675

24.2%
20.1
10.8
(17.0)
29.0
2,009.4

2015
Average
Balance

280,920
25,208
112,459
28,687
597
32

545,395

16,355

3.1

529,040

81,137

18.1

447,903

4,771
4,983
14,791

157
1,564
(97)

3.4
45.7
(0.7)

4,614
3,419
14,888

171
(206)
(72)

3.8
(5.7)
(0.5)

4,443
3,625
14,960

5,678

(76)

(1.3)

5,754

3,332

137.6

2,422

22,179

(1,524)

(6.4)

23,703

6,281

36.1

17,422

(1,065)

440

(29.2)

(1,505)

(2,402)

(267.8)

897

loan losses

(2,809)

(237)

(9.2)

(2,572)

(223)

(9.5)

(2,349)

Funding Sources:
Total uses

593,923

16,582

2.9%

577,341 $ 88,018

18.0%

489,323

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

123,520
99,385

2,041
2,516

1.7 %
2.6

121,479 $ 22,861
22,601

96,869

23.2 % $
30.4

98,618
74,268

105,605

(3,449)

(3.2)

109,054

3,250

3.1

105,804

34,047
4,823
25,476
25,000

3,714
112
9,763
594

12.2
2.4
62.1
2.4

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

1,547

4.5

1,480

4.5

1,416

419,403
108,141
6,441
59,938

15,358
2,605
(110)
(1,271)

3.8
2.5
(1.7)
(2.1)

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

Total sources

593,923

16,582

2.9%

577,341 $ 88,018

18.0%

489,323

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Overall, total average assets increased by $16,582,000, or 2.9%, for the year 2017 compared to 2016, following an
increase of $88,018,000, or 18.0%, in 2016 over average assets in 2015. 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 91.8% in 2017, while it was 91.6% and 91.5% in 2016 and 2015, respectively. The ratio of average
interest-bearing liabilities to total average assets increased slightly in 2017 to 70.6% from 70.0% in 2016, which
was a decline from 71.3% in 2015. 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 4.1% and 4.0% of
total average assets in 2017 and 2016, 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 the end of each year consisted of the following:
(Dollars in thousands)

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

2017
45,802
140,369
28,403
146,888
13,044
9,398
$ 383,904

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

Years ended December 31,
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

From year-end 2016 to year-end 2017, total loans outstanding increased by $5,607,000, following an increase of
$1,254,000 in 2016 when compared to year-end 2015. The following table summarizes how the ending balances
(Dollars in thousands)
changed annually in each of the last three years.

Beginning balance
Net new loans
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

2017
378,297
6,239
-
(292)

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

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

(340)
5,607
383,904

(217)
1,254
$ 378,297

(819)
82,142
377,043

The loan portfolio was comprised of approximately 40.7% consumer loans and 59.3% commercial loans
(including construction) on December 31, 2017 as compared to 43.6% consumer loans and 56.4% commercial
loans on December 31, 2016. 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 $101,955,000 at December 31, 2017, or 194.12% of the Bank’s capital. Components of this
concentration group with balances considered for general reserve purposes are as follows:

NAIC Definition

Lessors of non-residential buildings
Hotels and Motels
Lessors of residential buildings and dwellings
Continuing care retirement communities
Total

Outstanding Balance % of Bank Capital
63.74%
53.23%
39.22%
37.93%
194.12%

33,475,000
27,958,000
20,600,000
19,922,000
$ 101,955,000

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 2017, there was growth in commercial and commercial real estate, largely offset by a decrease in real
estate construction and consumer mortgages. The ongoing decline in residential real estate loans is a result of the
secondary market continuing to offer more appealing fixed rates to borrowers. In 2016, there was growth in
commercial, real estate construction and personal loans, which was offset by decreases in consumer mortgages,
commercial real estate and obligations of states and political subdivisions. Juniata is willing, able and continues to
lend to qualifying businesses and individuals. 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. 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, 2017 was
0.77% of total loans, net of unearned interest, as compared to 0.72% of total loans, net of unearned interest, at the
end of 2016. 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. Acquired loans subsequently deemed
impaired are included in the allowance for loan losses as impaired loans. 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 $216,000 when
compared to December 31, 2016, as a result of net charge-offs of $223,000 offset by the provision of $439,000. Net
charge-offs for both 2017 and 2016 were 0.06% of average loans.

At December 31, 2017, non-performing loans (as defined in Table 4 below), as a percentage of the allowance for
loan losses, were 102.9% as compared to 195.1% at December 31, 2016. Non-performing loans were 0.79% of
loans as of December 31, 2017, and 1.40% of loans as of December 31, 2016. The decrease in nonperforming loans
in 2017 compared to 2016 was the result of the workout efforts of the collection staff as some long-term non-
performing loans were either brought current or liquidated. Of the $3,025,000 in non-performing loans at
December 31, 2017, only one loan for $4,000 is not collateralized with real estate.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
TABLE 4
NON-pERFORMING LOANS

(Dollars in thousands)

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

2017

2,874

Years ended December 31,
2015
3,688

2016
4,733

2014
4,880

2013
5,952

64
87
3,025

554
25
5,312

2
-
3,690

400
366
5,646

251
-
6,203

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 2017, gross interest income that would have been recorded if loans on nonaccrual status had been
current was $335,000, of which $20,000 was collected and included in net income.
ALLOWANCE FOR LOAN LOSSES

The amount of allowance for loan losses is determined through a critical quantitative and qualitative
analysis performed by management that includes significant assumptions and estimates. It is maintained at
a level deemed sufficient to absorb probable estimated losses within the loan portfolio, and supported by
detailed documentation. To assess potential credit weaknesses, it is critical to analyze observable trends that may
be occurring.

Management systematically monitors the loan portfolio and the adequacy of the allowance for loan losses on a
quarterly basis to provide for probable losses inherent in the portfolio. The Bank’s methodology for maintaining
the allowance is highly structured and contains two components: a component for loans that are deemed to be
impaired and a component for contingencies.
Component for impaired loans:

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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
borrower’s 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, 2017, 40 loans, with aggregate outstanding balances of $7,731,000, were evaluated for
impairment. A collateral analysis was performed on each of these 40 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, no loans were
determined to have insufficient collateral, and therefore, no specific reserves were established. Also included as
impaired loans were loans in the amount of $528,000 that were acquired with credit impairment.
Component for contingencies:

A contingency is an existing condition, or set of circumstances, involving uncertainty as to possible gain or
loss to the Company that will ultimately be resolved when one or more future events occur or fail to occur.
These conditions may be considered in relation to individual loans or in relation to groups of similar types of loans.
If the conditions are met, a provision is made even though the particular loans that are uncollectible may not
be identifiable.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017 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 five-year period for each of the
portfolio segments.

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;
Effect of external influences, including competition, legal and regulatory requirements; and
Risk from change in the historical look-back period.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017 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 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 38% of the total loan portfolio at December 31, 2017. In 2017, the Company recorded net
charge-offs of $223,000. Due to relatively low growth in net loans outstanding, low charge-offs and little
deterioration in fair value of collateral related to impaired loans during 2017, the provision for loan loss in 2017
was 5.8% lower than in 2016. With the provision exceeding net charge-offs, the loan loss allowance increased by
7.9% over the allowance level in December 31, 2016. Management’s analysis indicated that the loan loss
allowance of $2,939,000 at December 31, 2017 was adequate.
(Dollars in thousands)

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,

2017

2,723

2016
2,478

2015
2,380

2014
2,287

2013
3,281

46
70
-
149
27
292

5
2
45
17
69

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

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

223
439
2,939

221
466
2,723

404
502
2,478

264
357
2,380

1,409
415
2,287

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

0.06%

0.13%

0.09%

0.51%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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.
(Dollars in thousands)

Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Personal

(Dollars in thousands)

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

INVESTMENTS

Years Ended December 31,

2017
273
1,022
288
1,285
71
2,939

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

Years Ended December 31,

2017
11.9%
36.6%
7.4%
38.3%
3.4%
2.4%
100.0%

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

2015

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

2014

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

2013

9.5%
26.8%
7.1%
50.5%
4.6%
1.5%
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, restricted investment in bank stock and other
interest-earning assets), totaled $157,336,000 on December 31, 2017, representing an increase of $2,793,000
when compared to year-end 2016. The following table summarizes how the ending balances changed annually in
each of the last three years.
(Dollars in thousands)

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
Restricted investment in bank stock, net change

Interest bearing deposits with others, net change

Net change

Ending balance

2017
154,543
42,510
-
(37,614)
(830)
(650)
(586)
(37)
2,793

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

157,336

$ 154,543

$ 156,259

On average, total investments increased by $10,121,000, or 6.8%, during 2017, following an increase of
$8,088,000, or 5.7%, during 2016. The increase in 2017 and 2016 resulted from excess cash available from
loan repayments.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, 2017, the market value of the entire
securities portfolio was less than amortized cost by $2,132,000 as compared to December 31, 2016, when the
market value was less than amortized cost by $1,302,000. The weighted average life of the investment portfolio
was 4.3 years on December 31, 2017 and 3.7 years on December 31, 2016. The weighted average maturity has
remained short in order to achieve a desired level of liquidity. Table 5, “Maturity Distribution”, in this
Management’s Discussion and Analysis of Financial Condition shows the remaining maturity or earliest possible
repricing for investment securities.

The following table sets forth the maturities of securities 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.
(Dollars in thousands)

December 31, 2017

Fair
Value

Weighted
Average
Yield

December 31, 2016
Weighted
Average
Yield

Fair
Value

December 31, 2015

Fair
Value

Weighted
Average
Yield

Security 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

5,969 1.11%
14,689 1.84%
13,556 1.99%
34,214 1.78%

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
After one year but within five years
After five years but within ten years
After ten years

2,516 1.84%
13,955 2.75%
8,510 3.02%

.0-

24,981 2.75%

.0-

5,249 2.21%
88,261 2.27%
93,510 2.26%

-
19,331
16,468
35,799

2,820
13,240
10,599
-
26,659

104
7,701
77,897
85,702

.0-
1.38%
1.87%
1.61%

2.04%
2.50%
3.00%
.0-
2.65%

1.37%
2.22%
2.13%
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%

1.35%
2.27%
2.16%
2.16%

Equity securities

1,119
$ 153,824

2,328
$ 150,488

2,319
$ 152,327

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 of these instruments changed annually in each of the last three years.
(Dollars in thousands)

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

2017
14,631
311
-
30
341
14,972

2016
14,905
349
(651)
28
(274)
14,631

2015
$ 14,807
362
(259)
(5)
98
14,905

The Company owns 39.16% of the outstanding common stock of LCB, Liverpool, Pennsylvania. This investment
is accounted for under the equity method of accounting. The investment was carried at $4,812,000 as of
December 31, 2017. 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, 2017 represented an increase of $109,000 when compared to December 31,
2016. In connection with this investment, two representatives of Juniata serve on the Board of Directors of LCB.

On December 29, 2017, Juniata entered into the Merger Agreement with LCB. Upon the terms, and subject to
the conditions set forth therein, LCB will merge with, and into, the Bank, with the Bank continuing as the
surviving entity. Upon the completion of the merger, the 1,214 shares of Liverpool common stock currently
owned by Juniata will be canceled. The parties anticipate the merger will close in the first half of 2018. See Note
25 of Notes to Consolidated Financial Statements.
GOODWILL AND INTANGIBLE ASSETS
Branch Acquisition

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill at December 31, 2017
and 2016 was $2,046,000. The core deposit intangible of $431,000 was fully amortized as of December 31, 2017
and 2016. Core deposit intangible amortization expense of $29,000 and $45,000 was recorded in the years 2016
and 2015, respectively, while no expense was recorded in 2017. 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, which was subsequently adjusted in 2016 to $3,402,000. As of December 31, 2017, goodwill related
to the FNBPA acquisition remained at $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 2017 was $49,000 and, for the succeeding five years beginning
2018, is estimated to be $44,000, $38,000, $33,000, $27,000 and $21,000 per year, respectively, and $32,000 in

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

total for years after 2022. Other intangible assets were identified and recorded as of November 30, 2015, in the
amount of $40,000 and were amortized on a straight-line basis over two years, through November 30, 2017.
Expense recognized in 2017 was $18,000, while $20,000 was recognized in 2016. Core deposit and other
intangible assets, net of amortization, was $195,000 as of December 31, 2017.
Mortgage Servicing Rights

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, 2017 and December 31, 2016, the fair value of mortgage servicing rights was
$225,000 and $205,000, respectively.
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, 2017 and 2016. As of December 31, 2017 and 2016, the Company recorded a net deferred tax asset of
$652,000 and $1,249,000, respectively, which was carried as a non-interest earning asset.

The Tax Cuts and Jobs Act, enacted on December 22, 2017, lowered Juniata’s future maximum corporate tax
rate from 34% to 21% on January 1, 2018. While the reduced rate will provide tax savings to Juniata in future
periods, the reduction resulted in write-downs of Juniata’s net deferred tax asset as of year-end 2017, which was
previously valued based upon the projection of a 34% future tax rate. Overall, the TCJA resulted in a provisional
reduction in net deferred taxes of $416,000, or 69.7%, of the total reduction of $597,000 at December 31, 2017
compared to December 31, 2016.

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 changed annually in each of the last three years.
(Dollars in thousands)

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

Ending balance

2017

2016

2015

24,988

25,886

20,879

375

2,030

(283)

1,433

(551)

3,004

(921)

3,628

(52)

444

376

385

(479)

(390)

(898)

1,097

5,007

27,992

24,988

25,886

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

DEpOSITS

At December 31, 2017, total deposits were $477,668,000, an increase of $21,846,000 as compared to the
previous year end. At December 31, 2016, total deposits were $455,822,000, a decrease of $1,304,000 from total
deposits on December 31, 2015. Deposits assumed from the FNBPA acquisition accounted for an increase of
$77,392,000 in 2015. The following table summarizes how the ending balances changed annually in each of the
last three years.
(Dollars in thousands)

Beginning balance
Demand deposits

Interest bearing demand deposits

Savings deposits
Time deposits
Net change
Ending balance

2017
$ 455,822
11,905
3,977
3,517
2,447
21,846
$ 477,668

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
$ 457,126

The following table shows the comparison of average core deposits and average time deposits as a percentage of
total deposits for each of the last three years.
(Dollars in thousands)

2017
Average
Balance

Increase (Decrease)
Amount

Changes in Deposits
2016
Average
Balance

Increase (Decrease)

Amount

2015
Average
Balance

Core transaction deposits:
Money market

Interest bearing demand

Savings
Demand

Total core transaction

46,666
76,854
99,385
108,141

2,770
(729)
2,516
2,605

6.3 %
(0.9)
2.6
2.5

43,896 $ 10,208
12,653
77,583
22,601
96,869
21,241
105,536

30.3 % $
19.5
30.4
25.2

33,688
64,930
74,268
84,295

deposits

331,046

7,162

2.2

323,884

66,703

25.9

257,181

Time deposits:
$100,000 and greater
Other

Total time deposits

Total deposits

34,047
105,605
139,652
470,698

3,714
(3,449)
265
7,427

12.2
(3.2)
0.2
1.6 %

5,294
30,333
3,250
109,054
139,387
8,544
463,271 $ 75,247

21.1
3.1
6.5

19.4 % $

25,039
105,804
130,843
388,024

Average deposits increased $7,427,000, or 1.6%, to $470,698,000 in 2017 following an increase in 2016 of
$75,247,000, or 19.4%, to $463,271,000. Core transaction accounts increased by 2.2% and 25.9%, respectively, in
2017 and 2016. 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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 $173,000 and $223,000 in 2017 and 2016, respectively,
representing approximately 3.3% and 4.1%, 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. External 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 2017 by $10,536,000
compared to 2016, and by $1,369,000 in 2016 compared to 2015.
(Dollars in thousands)

Changes in Borrowings

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

liabilities

Total borrowings
pENSION pLAN

2017
Average
Balance

4,823
25,476
25,000

Increase (Decrease)
Amount

112
9,763
594

%
2.4%

62.1
2.4

1,547
56,846

67
10,536

4.5
22.8%

2016
Average
Balance

Increase (Decrease)

Amount

4,711 $

15,713
24,406

1,480

46,310 $

(5)
(596)
1,906

64
1,369

2015
Average
Balance

4,716
16,309
22,500

(0.1)% $
(3.7)
8.5

4.5
3.0%

1,416
44,941

The Company sponsors a noncontributory pension plan, the JVB Plan. The JVB Plan has unfunded liabilities
that totaled $2,437,000 as of December 31, 2017. 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 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

In 2017, Juniata initiated a strategy to reduce the liability associated with its defined benefit pension plan. The

first step of the initiative consisted of the purchase of a single premium group annuity for a group of Juniata’s
retirees, transferring the associated pension liability to the issuer of the annuity. This step reduced Juniata’s
overall pension liability by approximately 12%, which resulted in a pre-tax charge to earnings of $377,000. This
pre-tax charge represents an acceleration of pension expenses that would otherwise have impacted Juniata’s
earnings in the future. During 2018, Management will continue to implement its strategy to further reduce the
pension liability through the purchase of additional single premium group annuities or lump sum payouts of the
liability. Please refer to Note 21 of Notes to Consolidated Financial Statements.
STOCKhOLDERS’ EquITy

Total stockholders’ equity increased by $297,000 in 2017. The Company is well-capitalized and had the
capacity to maintain the traditional dividend level in 2017 despite net income being negatively affected by the
de-risking of the defined benefit plan and the deferred tax adjustment charged to income tax expense due to the
enactment of the Tax Cuts and Jobs Act at the end of 2017. Net income in 2017 exceeded dividends by $343,000.
In addition, the reclassification of the accumulated other comprehensive income (“AOCI”) deferred tax adjustment
added an additional $588,000 to retained earnings. During 2017, shares repurchased into treasury, net of those
reissued, also increased equity by $86,000.

AOCI decreased equity by $825,000 from December 31, 2016 to December 31, 2017. A decline in the fair values
of investment securities in 2017, coupled with the deferred tax asset adjustment due to Juniata’s corporate tax
rate change at the end of 2017, caused a reduction in the AOCI of $817,000, as did the tax rate change to the
Company’s defined benefit plan resulting in a decline of $8,000, net of tax.

The following table summarizes how the components of equity changed annually in each of the last three years.
(Dollars in thousands)

Beginning balance

Net income

Dividends

Common stock issued to FNBPA stockholders

Common stock issued for stock plans

Treasury stock issues 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

AOCI deferred tax adjustment due to tax reform

Net change

Ending balance

2017

2016

2015

59,090

59,962

49,856

4,537

(4,194)

5,156

3,058

(4,226)

(3,687)

172

(86)

(817)

(8)

588

297

(927)

(963)

(43)

10,637

(200)

194

(872)

10,106

59,387

59,090

59,962

Average stockholders’ equity in 2017 was $59,938,000, a decrease of 2.1% from $61,209,000 in 2016 and was
$51,131,000 in 2015. At December 31, 2017, Juniata held 43,955 shares of stock in treasury versus 49,370 at
December 31, 2016. Return on average equity decreased to 7.57% in 2017 from 8.42% in 2016. Return on
average equity decreased in 2017 due to increased expenses recorded, resulting in lower net income in 2017
compared to 2016. See the discussion in the 2017 Financial Overview section.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 2017, 2016 and 2015, 4,289, 49,370 and 3,504 shares,
respectively, were repurchased in conjunction with this program. During 2017, 9,704 treasury shares were also
redeemed for stock option exercises. Shares remaining authorized for repurchase in the program were 173,990
as of December 31, 2017. On November 30, 2015, 555,555 treasury shares were reissued to former FNBPA
shareholders in conjunction with the acquisition of FNBPA.

In each of the years 2017, 2016 and 2015, 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 92.4% and 82.0% in 2017 and 2016, respectively. The dividend payout
ratio in 2017 was greater than 2016 due to the impact of recording less net income in 2017 compared to 2016
resulting from increased expenses including the de-risking of the defined benefit plan and the TCJA tax reform
adjustments recorded in 2017. In January 2018, the Board of Directors declared a dividend of $0.22 per share to
stockholders of record on February 15, 2018, payable on March 1, 2018.

Juniata’s book value per share at December 31, 2017 was $12.46 as compared to $12.43 and $12.50 at

December 31, 2016 and 2015, respectively. Juniata’s average equity to assets ratio for 2017, 2016 and 2015 was
10.09%, 10.60% and 10.45%, 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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

the next twelve months. The quality of our short-term liquidity is very good: as federal funds are unimpaired by
market risk and as bonds approach maturity, their value moves closer to par value. Liquid assets tend to reduce
earnings when there is not an immediate use for such funds, since normally these assets generate income at a
lower rate than loans or other longer-term investments.

Liability liquidity refers to funding obtained through deposits. The largest challenge associated with liability
liquidity is cost. Juniata’s ability to attract deposits depends primarily on several factors, including sales effort,
competitive interest rates and other conditions that help maintain consumer confidence in the stability of the
financial institution. Large certificates of deposit, public funds and brokered deposits are all acceptable means of
generating and providing funding. If the cost is favorable or fits the overall cost structure of the Bank, then these
sources have many benefits. They are readily available, come in large block size, have investor-defined maturities
and are generally low maintenance.

Off-balance sheet liquidity is closely tied to liability liquidity. Sources of off-balance sheet liquidity include
Federal Home Loan Bank borrowings, repurchase agreements and federal funds lines with correspondent banks.
These sources provide immediate liquidity to the Bank. They are available to be deployed when a need arises.
These instruments also come in large block sizes, have investor-defined maturities and generally require
low maintenance.

“Available liquidity” encompasses all three sources of liquidity when determining liquidity adequacy. It results
from the Bank’s access to short-term funding sources for immediate needs and long-term funding sources when
the need is determined to be permanent. Management uses both on-balance sheet liquidity and off-balance sheet
liquidity to manage its liquidity position. The Company’s liquidity strategy 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 greater than 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 greater than 10% of total assets and contingency

liquidity greater than 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 $12,000,000 on December 31, 2017 and
$27,700,000 on December 31, 2016.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

The Bank’s maximum borrowing capacity with the FHLB was $163,181,000 at December 31, 2017. 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, by
type, that were fixed and determined at December 31, 2017. Further discussion of the nature of each obligation is
included in the referenced note to the consolidated financial statements.

(Dollars in thousands)

Contractual Obligations
Certificates of deposits
Short-term borrowings and
security repurchase agreements
Long-term debt
Operating lease obligations
Other long-term liabilities
Supplemental retirement and
deferred compensation

3rd party data processor contract

Note
Reference
13

Total
$ 140,384

Less than
One Year
$ 42,428

Payments Due by Period
Three to
One to
Five
Three
Years
Years
$ 28,328
$ 57,333

More than
Five
Years
$ 12,295

14
14
15

21
24

21,769
25,000
278

21,769
10,000
91

-
15,000
126

-
-
61

-
-
-

2,896
6,080
$ 196,407

279
957
$ 75,524

567
1,914
$ 74,940

495
1,914
$ 30,798

1,555
1,295
$ 15,145

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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).

As a result of the capital conservation buffer rules, if the 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, 2017, 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.

Although the Company has realized occasional gains from this portfolio in the past, including $512,000 in 2017,
$218,000 in 2016, and $13,000 in 2015, the primary objective is to achieve value appreciation in the long-term
while earning consistent, attractive after-tax yields from dividends. The carrying value of the financial institutions
stocks accounted for 0.2% of the Company’s total assets as of December 31, 2017.

Management performs an impairment analysis on the entire investment portfolio on a quarterly basis. No
“other-than-temporary” impairment was identified or recorded in 2017, 2016 or 2015; however, there is no
assurance that declines in market values of the portfolio in the future will not result in subsequent “other-than-
temporary” impairment charges, depending upon facts and circumstances present.

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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 liability-sensitive in all rate
scenarios, but more so in a rising rate environment. The impact of a 300 and 400 basis point rate increase is most
significant. 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.

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

Change in Interest Rates (Basis Points)

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

Total Change in Net Interest Income
(1,723)
(999)
(531)
(201)
-
(208)
(466)
(431)
(556)

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, 2017. 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 0.47, indicating a liability-sensitive balance sheet, when measured on a static basis.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

TABLE 5
MATuRITy DISTRIBuTION

(Dollars in thousands)

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, 2017
Remaining Maturity / Earliest Possible Repricing

Within
One
Year

Over One
Year But
Within Five
Years

Over
Five
Years

Total

100

250

350

6,226
2,259
13,870
-

24,764
2,567
89,551
139,337

122,407
98,966
9,078
31,669
9,769
12,000
10,000
1,593
295,482
$ (156,145)
$ (156,145)
0.47

15,804
12,840
48,144
-

13,395
9,222
119,343
218,998

-
-
20,948
66,644
-
-
15,000
-
102,592
116,406
(39,739)
0.90

13,556
8,510
31,496
1,119

35,586
23,609
93,510
1,119

7,643
16,614
100,805
179,743

45,802
28,403
309,699
538,078

-
-
5,866
6,179
-
-
-
-
12,045
$ 167,698
$ 127,959

122,407
98,966
35,892
104,492
9,769
12,000
25,000
1,593
410,119
$ 127,959

1.31

12,278
14,508
26,786

8,357
4,962
13,319

20,635
19,470
40,105

$
$

4,489
1,681
2,908
26,814
35,892

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, 2017, 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. 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 hypothetical scenarios. As
of December 31, 2017, in a rising rate environment, the modeling results indicate that the Company’s liabilities
would increase in value slightly more than assets would lose value. A non-parallel 200 basis point increase shock
in rates produced an estimated 3.3% increase 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 $77,023,000 and $56,095,000 at
December 31, 2017 and 2016, respectively. In addition, the Company had $3,150,000 and $3,889,000 outstanding
in unused lines of credit commitments extended to its customers at December 31, 2017 and 2016, 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, 2017 and 2016 for guarantees under letters of credit issued is not material.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017 The maximum undiscounted exposure related to these guarantees at December 31, 2017 was $2,541,000, and
the approximate value of underlying collateral upon liquidation that would be expected to cover this maximum
potential exposure was $14,298,000.

In 2017, the Company executed renewal agreements for technology outsourcing services through two outside
service bureaus. Both agreements provide for termination fees if the Company cancels the services prior to the
end of the 7-year commitment period that runs through May 31, 2024. At December 31, 2017, termination fees
are estimated to be approximately $1,976,000 and $1,822,000, respectively, on the two contracts. The
termination fees would decrease by approximately 15% in each succeeding year through 2024. Since the
Company does not expect to terminate these services with either vendor prior to the end of the commitment
periods, no liability has been recorded as of December 31, 2017.
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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
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, 2017. 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, 2017, the Company’s internal
(2013)
control over financial reporting is effective and meets the criteria of the

Internal Control-Integrated Framework

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 2017REpORT OF INDEpENDENT REGISTERED puBLIC ACCOuNTING FIRM ON
EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REpORTING

REpORT OF INDEpENDENT REGISTERED puBLIC ACCOuNTING FIRM

Shareholders and Board of Directors
Juniata Valley Financial Corp.
Mifflintown, Pennsylvania
Opinion on Internal Control over Financial Reporting

We have audited Juniata Valley Financial Corp., and its wholly-owned subsidiary, The Juniata Valley Bank’s (the
Control – Integrated Framework (2013)
“Company’s”) internal control over financial reporting as of December 31, 2017, based on criteria established in

Internal

(the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on the COSO criteria.

issued by the Committee of Sponsoring Organizations of the Treadway Commission

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated statement of financial position of the Company as of December 31, 2017 and 2016, 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, 2017, and the related notes, and our report dated March 16, 2018 expressed an unqualified
opinion thereon.
Basis for Opinion

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 are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting

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.

(Signed BDO USA, LLP)
Harrisburg, Pennsylvania
March 16, 2018

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017REpORT OF INDEpENDENT REGISTERED puBLIC ACCOuNTING FIRM ON
CONSOLIDATED FINANCIAL STATEMENTS

REpORT OF INDEpENDENT REGISTERED puBLIC ACCOuNTING FIRM

Shareholders and Board of Directors

Juniata Valley Financial Corp.

Mifflintown, Pennsylvania
Opinion on the Consolidated Financial Statements

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, 2017 and 2016, 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, 2017, and the related notes (collectively referred to as the “consolidated financial

statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position

of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows for

each of the three years in the period ended December 31, 2017, 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)

(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in

Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway

Commission (“COSO”) and our report dated March 16, 2018 expressed an unqualified opinion thereon.
Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm

registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial

statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included

examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our

audits also included evaluating the accounting principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable

basis for our opinion.

We have served as the Company’s auditor since 2013.

(Signed BDO USA, LLP)

Harrisburg, Pennsylvania

March 16, 2018

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share and per share data)

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 bank stock
Investment in unconsolidated subsidiary
Total loans
Less: Allowance for loan losses
Total loans, net of allowance for loan losses
Premises and equipment, net
Other real estate owned
Bank owned life insurance and annuities
Investment in low income housing partnerships
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
Total liabilities
Accrued interest payable and other liabilities
Stockholders’ Equity:

Preferred stock, no par value:

Authorized - 500,000 shares, none issued

Common stock, par value $1.00 per share:

Authorized 20,000,000 shares

Issued -
4,811,611 shares at December 31, 2017;
4,805,000 shares at December 31, 2016

Outstanding -

4,767,656 shares at December 31, 2017;
4,755,630 shares at December 31, 2016

Surplus
Retained earnings
Accumulated other comprehensive loss
Cost of common stock in Treasury:
43,955 shares at December 31, 2017;
Total stockholders’ equity
49,370 shares at December 31, 2016
Total liabilities and stockholders’ equity

See Notes to Consolidated Financial Statements

December 31,
2017

2016

9,839
58
9,897

9,464
95
9,559

350
153,824
3,104
4,812
383,904
(2,939)
380,965
8,887
355
14,972
5,245
195
5,448
225
3,666
591,945

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

115,911
361,757
477,668

$ 104,006
351,816
455,822

9,769
12,000
25,000
1,593
6,528
532,558

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

4,811
18,565
40,876
(4,034)

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

(831)
59,387
591,945

(927)
59,090
$ 580,354

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy
CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except share and per share data)

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
Total interest expense
Other interest bearing liabilities
Net interest income

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 partnerships
Merger and acquisition expense
Total non-interest expense
Other non-interest expense
Income before income taxes

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,
2016

2015

2017

18,005
2,888
451
30
21,374

2,129
31
295
369
31
2,855
18,519
439
18,080

1,747
1,120
352
446
173
167
267
214
512
-
-
294
5,292

7,159
2,837
1,173
711
1,751
241
571
463
334
(8)
67
612
13
1,851
17,775
5,597
1,060
4,537

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

0.95
$
0.95
$
$
0.88
4,765,165
4,775,505

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

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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

(Dollars in thousands)

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

Less reclassification adjustment for

gains included in net income (1) (3)

Unrecognized pension net gain (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

Pre-Tax
Amount

Year ended December 31, 2017
Tax
Effect
(1,060) $

Net-of-Tax
Amount
4,537

5,597

(318)
3

(512)
1,024
(1,141)
584
(360)
5,237

108
-

174
(348)
388
(199)
123
(937) $

(210)
3

(338)
676
(753)
385
(237)
4,300

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

Year ended December 31, 2016
Tax
Effect

Pre-Tax
Amount

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
Tax
Effect

Pre-Tax
Amount

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

(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.

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

(3)
See Notes to Consolidated Financial Statements

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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

Balance at January 1, 2015

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

Net income
Other comprehensive loss
Reclassification due to tax reform
Cash dividends at $0.88 per share
Stock-based compensation activity
Purchase of treasury stock
Treasury stock issued for stock plans
Balance at December 31, 2017
Common stock issued for stock plans

Years Ended December 31, 2017, 2016 and 2015

Number
of Shares
Outstanding

Common
Stock

Surplus

Accumulated
Other
Retained Comprehensive Treasury
Loss
Earnings

Stock

Total
Stockholders'
Equity

(Dollars in thousands, except per share data)

4,187,441 $

4,746

18,409

(3,504)
6,334

(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

(4,289)
9,704
6,611
4,767,656 $

6
4,811

(10)
28
18,565

$ 39,644
3,058

(3,687)

39,015
5,156

(4,226)

39,945
4,537

588
(4,194)

(2,197)

$ (10,746)

(6)

(2,203)

(1,006)

(63)
122

10,687
-

(927)

(3,209)

(927)

(237)
(588)

(86)
182

$ 40,876

(4,034)

(831)

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
4,537
(237)
-
(4,194)
71
(86)
172
34
59,387

See Notes to Consolidated Financial Statements

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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

(Dollars in thousands)

Operating activities:

Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Depreciation
Net amortization of securities premiums
Net amortization of loan origination costs
Deferred net loan origination costs
Amortization of core deposit intangible
Amortization of investment in low income housing partnership
Net accretion (amortization) of purchase fair value adjustments
Net realized gain on sales and calls of securities
Net (gain) loss on sales of other real estate owned
Earnings on bank owned life insurance and annuities
Deferred income tax expense (benefit)
Equity in earnings of unconsolidated subsidiary, net of dividends of $61, $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

Net cash provided by operating activities

(Increase) decrease in accrued interest receivable and other assets
Increase (decrease) in accrued interest payable and other liabilities

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
Redemption of FHLB stock
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 increase in loans
Financing activities:

Years Ended December 31,
2016

2015

2017

4,537

5,156

3,058

439
672
650
75
(410)
67
612
17
(512)
(8)
(352)
681
(106)
71
(4,170)
4,257
(107)
-
(6)
393
6,800

(42,510)
-
(2,703)
(40)

21,799
16,322
586
-
-
-
1,007
25
-
(2,045)
(6,239)
(13,798)

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

(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)

Net increase (decrease) 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 provided by (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

21,837

(1,293)

(1,421)

(10,427)
-
-
(4,194)
(86)
206
7,336
338
9,559
9,897

(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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands)

Supplemental information:

Years Ended December 31,
2016

2015

2017

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
Securities sold settling after year-end
Supplemental schedule of assets and liabilities in connection with merger:
(Dollars In thousands)

2,823
735

716
21
-

2,237
200

313
20
104

2,105
100

901
-
-

Years Ended
December 31,
2015

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 2017

JuNIATA VALLEy FINANCIAL CORp. AND SuBSIDIARy

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
yEARS ENDED DECEMBER 31, 2017, 2016 AND 2015

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 online 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.

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Basis of presentation

There were no amounts previously reported that have been reclassified to conform to the consolidated
financial statement presentation for 2017.
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, 2017, credit exposure to lessors of residential buildings and dwellings represented 63.7%
of capital, credit exposure to hotels and motels represented 53.2% of capital, credit exposure to lessors of non-
residential buildings and dwellings represented 39.2% of capital, and credit exposure to continuing care
retirement communities represented 37.9% 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, 2017 and 2016.

Investments – Debt and Equity Securities

Accounting Standards Codification (“ASC”) Topic 320,
, clarifies the
interaction of the factors that should be considered when determining whether a debt security is other-than-
temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated
recovery. These steps are taken before an assessment is made as to whether the entity will recover the cost basis
of the investment. For equity securities, consideration is given to management’s intention and ability to hold the
securities until recovery of unrealized losses in assessing potential other-than-temporary impairment.
More specifically, factors considered to determine other-than-temporary impairment status for individual equity
holdings include the length of time the stock has remained in an unrealized loss position, the percentage of
unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst
reviews and expectations, and other pertinent factors that would affect expectations for recovery or further decline.

In instances when a determination is made that an other-than-temporary impairment exists and the entity
does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt
security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of
the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the
debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other
factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in
earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in
other comprehensive (loss) income.

Management determines the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date.
Restricted Investment in Federal Home Loan Bank Stock

The Bank owns restricted stock investments in the Federal Home Loan Bank and the Atlantic Community
Bankers Bank (“ACBB”). Federal law requires a member institution of the Federal Home Loan Bank to hold stock
according to a predetermined formula. Both the FHLB and ACBB 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 recoverability of the
cost of the FHLB 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 or ACBB restricted stock
during 2017, 2016 or 2015.
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, (4) mortgage loans and (5) obligations of states and political subdivisions. Consumer loans are
comprised of (4) mortgage loans and (6) personal loans.

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Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of
interest on loans is generally discontinued when the contractual payment of principal or interest has become 90
days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the
Company’s policy to continue to accrue interest on loans over 90 days past due as long as (1) they are guaranteed
or well secured and (2) there is an effective means of collection in process. When a loan is placed on non-accrual
status, all unpaid interest credited to income in the current year is reversed against current period income and
unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on
nonaccrual loans generally is either applied against principal or reported as interest income, according to
management’s judgment as to the collectability of principal. Generally, accruals are resumed on loans only when
the obligation is brought fully current with respect to interest and principal, has performed in accordance with
the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual
principal and interest is no longer in doubt.

The Company originates loans in the portfolio with the intent to hold them until maturity. At the time the
Company no longer intends to hold loans to maturity based on asset/liability management practices, the Company
transfers loans from its portfolio to held for sale at fair value. Any write-down recorded upon transfer is charged
against the allowance for loan losses. Any write-downs recorded after the initial transfers are recorded as a charge
to other non-interest expense. Gains or losses recognized upon sale are included in other non-interest income.
Loan origination fees and costs

Loan origination fees and related direct origination costs for a given loan are deferred and amortized over the
life of the loan on a level-yield basis as an adjustment to interest income over the contractual life of the loan. As of
December 31, 2017 and 2016, the amount of net unamortized origination fees carried as an adjustment to
outstanding loan balances was $52,000 and $103,000, 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.

•
•
•
•

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017 The allowance for loan losses is maintained at a level considered adequate to offset probable losses on the
Company’s existing loans. The analysis of the allowance for loan losses relies heavily on changes in observable
trends that may indicate potential credit weaknesses. Management’s periodic evaluation of the adequacy of the
allowance is based on the Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is
inherently subjective as it requires material estimates that may be susceptible to significant revision as more
information becomes available.

In addition, regulatory agencies, as an integral part of their examination process, periodically review the
Company’s allowance for loan losses and may require the Company to recognize additions to the allowance for
loan losses based on their judgments about information available to them at the time of their examination, which
may not be currently available to management. Based on management’s comprehensive analysis of the loan
portfolio, management believes the level of the allowance for loan losses as of December 31, 2017 was adequate.

There are two components of the allowance: a specific component for loans that are deemed to be impaired;
and a general component for contingencies.

A loan is considered to be impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in determining impairment include
payment status, collateral value and the probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the
length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall
in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by the present
value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market
price or the fair value of the collateral if the loan is collateral dependent.

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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.

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.
During 2017, the historical loss experience look-back period was changed from ten years to five years in
conjunction with an increase in the number of homogeneous loan groups. Increasing the number of portfolio
segments allows for a more granular approach to the analysis, and historical loss experience is more specific to
the selected loan types. Management asserts that evaluating a look-back period longer than five years is no longer
appropriate since more recent information is generally considered to be the most relevant. As indicated above,
the historical loss experience is averaged over a five-year look-back period for each of the defined portfolio
segments. 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 factors, including competition, legal and regulatory requirements; and
Risk from change in the historical look-back period.

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017Acquired 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 expected 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.

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Commercial loans are generally secured with short-term assets; however, in many cases, additional collateral,
such as real estate, is provided as additional security for the loan. Loan-to-value maximum values have been
established by the Company and are specific to the type of collateral. Collateral values may be determined using
invoices, inventory reports, accounts receivable aging reports, collateral appraisals, etc.

In underwriting commercial loans, an analysis of the borrower’s character, capacity to repay the loan, the

adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower, is
performed. Analysis of the borrower’s past, present and future cash flows is also an important aspect of the
Company’s analysis.

Concentration analysis assists in identifying industry specific risk inherent in commercial, financial and
agricultural lending. Mitigants include the identification of secondary and tertiary sources of repayment and
appropriate increases in oversight.

Commercial, financial and agricultural loans generally present a higher level of risk than certain other types of
loans, particularly during slow economic conditions.
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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Real estate construction loans generally present a higher level of risk than certain other types of loans,
particularly during slow economic conditions. The difficulty of estimating total construction costs adds to the risk
as well.
Mortgage Lending

The Company’s real estate mortgage portfolio is comprised of consumer residential mortgages and business
loans secured by one-to-four family properties. One-to-four family residential mortgage loan originations,
including home equity installment and home equity lines of credit loans, are generated by the Company’s
marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily within
the Company’s market area or with customers primarily from the market area.

The Company offers fixed-rate and adjustable rate mortgage loans with terms up to a maximum of 25-years for
both permanent structures and those under construction. The Company’s one-to-four family residential mortgage
originations are secured primarily by properties located in its primary market area and surrounding areas. The
majority of the Company’s residential mortgage loans originate with a loan-to-value of 80% or less. Home equity
installment loans are secured by the borrower’s primary residence with a maximum loan-to-value of 80% and a
maximum term of 15 years. Home equity lines of credit are secured by the borrower’s primary residence with a
maximum loan-to-value of 90% and a maximum term of 20 years.

In underwriting one-to-four family residential real estate loans, the Company evaluates the borrower’s ability

to make monthly payments, the borrower’s repayment history and the value of the property securing the loan.
The ability to repay is determined by the borrower’s employment history, current financial conditions, and credit
background. The analysis is based primarily on the customer’s ability to repay and secondarily on the collateral
or security. Most properties securing real estate loans made by the Company are appraised by independent fee
appraisers. The Company generally requires mortgage loan borrowers to 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
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
Other real estate owned
recovered on such loans.

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, 2017 and 2016, the carrying value of other
Goodwill and intangibles
real estate owned was $355,000 and $638,000, 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, 2017.

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 $225,000 and $205,000
at December 31, 2017 and 2016, respectively. Adjustments to fair value are recorded as non-interest income and
included in gain on sales of loans in the consolidated statements of income.

The Company retains the servicing rights on 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 $23,647,000
and $21,705,000 at December 31, 2017 and 2016, respectively. The mortgage loans sold to the FHLB and serviced
by the Company are not reflected in the consolidated statements of financial condition.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017Premises and equipment and depreciation

Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed
principally using the straight-line method over the estimated useful lives of the related assets, which range from
3 to 10 years for furniture and equipment and 25 to 50 years for buildings. Expenditures for maintenance and
repairs are charged against income as incurred. Costs of major additions and improvements are capitalized.
Amortization of leasehold improvements is computed on a straight-line basis over the shorter of the assets’
useful life or the related lease term.
Trust assets and revenues

Assets held in a fiduciary capacity are not assets of the Bank or the Bank’s Trust Department and are, therefore,
not included in the consolidated financial statements. Trust revenues are recorded on the accrual basis.
Bank owned life insurance, annuities and split-dollar arrangements

The cash surrender value of bank owned life insurance and annuities is carried as an asset, and changes in cash
surrender value are recorded as non-interest income.

GAAP requires split-dollar life insurance arrangements to have a liability recognized related to the
postretirement benefits covered by an endorsement split-dollar life insurance arrangement. The accrued benefit
liability was $1,014,000 and $949,000 as of December 31, 2017 and 2016, respectively. Related expenses for
2017, 2016 and 2015 were $95,000, $61,000 and $29,000, respectively.
Investments in low-income housing partnerships

Juniata has invested as a limited partner in two partnerships that provide low-income housing in Lewistown,
Pennsylvania. The carrying value of the investment in the limited partnerships was $5,245,000 at December 31,
2017 and $3,812,000 at December 31, 2016. The increase in carrying value in 2017 was the result of draws taken
for the completion of the phase II low-income housing project. Federal credits are available for ten years for each
of the two projects. Tax credits associated with phase I will continue through 2023 annually at $572,000. Phase
II credits were initiated in 2017 and will run through 2027 at an annual amount of $333,000. The tax credits are
included in the tax expense line item on the Consolidated Statements of Income. Amortization of the investment
using the cost method is scheduled to occur over the same period as tax credits are earned. Juniata’s maximum
exposure to loss is limited to the carrying value of the 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
The Company accounts for uncertain tax positions if it is more likely than not, based on the technical merits,
that the tax position will be realized or sustained upon examination. The term “more likely than not” means a
likelihood of more than 50 percent; the terms “examined” and “upon examination” also include resolution of the
related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition
threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50
percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all
relevant information. The determination of whether or not a tax position has met the more-likely-than-not
recognition threshold considers the facts, circumstances and information available at the reporting date and is
subject to management’s judgment.

The Company recognizes interest and penalties on income taxes, if any, as a component of income tax expense.
Advertising

The Company follows the policy of charging costs of advertising to expense as incurred. Advertising expenses
were $272,000, $243,000 and $222,000 in 2017, 2016 and 2015, 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.
Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive
income (loss) includes changes in unrealized gains and losses on securities available for sale arising during the
period and reclassification adjustments for realized gains and losses on securities available for sale included in
net income. The Company has a defined benefit retirement plan which utilizes assumptions and methods to
calculate the fair value of Plan assets and recognizing the funded status of the Plans on its consolidated balance
sheet. Gains and losses on the Plan are recognized in other comprehensive income (loss), net of tax, until they are
amortized, or immediately upon curtailment.
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 and 2017, 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 $71,000, $67,000
and $57,000 of expense for the years ended December 31, 2017, 2016 and 2015, 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
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%

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, 2017, for items that should potentially be recognized or disclosed in the
consolidated financial statements. The evaluation was conducted through the date these consolidated financial
statements were issued.
3. RECENT ACCOuNTING STANDARDS upDATE (“ASu”)
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income.

Issued:

Summary:

February 2018

The Update allows entities to reclassify from AOCI to retained earnings the ‘stranded’ tax effects of

accounting for income tax rate changes on items accounted for in AOCI which were impacted by tax reform enacted
in December 2017. The impact of tax rate changes is recorded in income and items accounted for in AOCI could be
left with such a stranded tax effect that could have those items appear to not reflect the appropriate tax rate. The
Effective Date:
FASB’s changes are intended to improve the usefulness of information reported to financial statement users.

The changes are effective for years beginning after December 31, 2018, with early adoption

permitted. The Company elected to adopt the changes in December 2017. The amount transferred from AOCI to
retained earnings totaled $588,000 and represented the impact of the Tax Law rate change to 21% at the date of
Codification Improvements Project, Topic 225, Income Statement and Topic 220, Comprehensive Income
enactment for the unrealized gains and losses on securities and the defined benefit plan accounted for in AOCI.
(combined as Topic 220, Income Statement—Reporting Comprehensive Income)

Issued:

Summary:

November 2017

As part of its ongoing Codification Improvements project, the FASB identified Topic 225, Income

Statement and Topic 220, Comprehensive Income as two Topics covering related guidance that could be simplified
by combining the content within one Topic. The Board agreed with the recommendation to simplify these Topics
through a maintenance update.

The existing content in Topic 220 defines and provides more guidance about net income and contains multiple
examples of income statements (statement of comprehensive income). As such, the guidance in Topic 225 will be
relocated to Topic 220. The combined Topic will be renamed as Topic 220, Income Statement—Reporting
Comprehensive Income. There have been no incremental changes to the actual guidance and this Update will have
Effective Date:
no impact on the Company’s consolidated financial position and results of operations.

The combination of Topic 225 and Topic 220 has no accounting impact and therefore does not have

an associated effective date.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities

Issued:

Summary:

August 2017

ASU 2017-12 improves Topic 815 by simplifying and expanding the eligible hedging strategies for
financial and nonfinancial risks by more closely aligning hedge accounting with a company’s risk management
activities, and also simplifies its application through targeted improvements in key practice areas. This includes
expanding the list of items eligible to be hedged and amending the methods used to measure the effectiveness of
hedging relationships. In addition, the ASU prescribes how hedging results should be presented and requires
incremental disclosures. These changes are intended to allow preparers more flexibility and to enhance the
transparency of how hedging results are presented and disclosed. Further, the new standard provides partial relief
on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge
Effective Date:
ineffectiveness separately in earnings in the current period.

The amendments are effective for public business entities, for fiscal years beginning after December

15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after
issuance of the amendments for existing hedging relationships on the date of adoption. This Update will have no
ASU 2017-09, Scope of Modification Accounting
impact on the Company’s consolidated financial position and results of operations.

Issued:

Summary:

May 2017

ASU 2017-09 clarifies Topic 718 such that an entity must apply modification accounting to changes in

the terms or conditions of a share-based payment award unless all of the following criteria are met:

1. The fair value of the modified award is the same as the fair value of the original award immediately before

the modification. The standard indicates that if the modification does not affect any of the inputs to the
valuation technique used to value the award, the entity is not required to estimate the value immediately
before and after the modification.

2. The vesting conditions of the modified award are the same as the vesting conditions of the original award

immediately before the modification.

3. The classification of the modified award as an equity instrument or a liability instrument is the same as the
Effective Date:

classification of the original award immediately before the modification.

The amendments are effective for all entities for fiscal years beginning after December 15, 2017,

including interim periods within those years. This Update will have no impact on the Company’s consolidated
ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities
financial position and results of operations.

Issued

Summary:

: March 2017

ASU 2017-08 shortens the amortization period for premiums on purchased callable debt securities to

the earliest call date, rather than amortizing over the full contractual term. The ASU does not change the accounting
Effective Date:
for securities held at a discount.

The amendments are effective for public business entities for fiscal years beginning after December

15, 2018. Early adoption is permitted. The Company has early adopted this standard, and the financial statements
as of, and for the year ended, December 31, 2017 reflect the impact of premium amortization on callable debt
securities to the earliest call date. The adoption of this ASU did not have a material impact on the Company's
consolidated financial statements.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost

Issued:

Summary:

March 2017

ASU 2017-07 requires that an employer disaggregate the service cost component from the other

components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost
component and the other components of net benefit cost in the income statement and allows only the service cost
component of net benefit cost to be eligible for capitalization.
Effective Date:

The amendments are effective for public business entities for fiscal years beginning after

December 15, 2017. This Update will have no impact on the Company’s consolidated financial position and
results of operations because the Company’s defined benefit plan is frozen; therefore, there is no service cost
ASU 2017-04, Simplifying the Test for Goodwill Impairment
component to consider.

Issued:

Summary:

January 2017

ASU 2017-04 eliminates the requirement of Step 2 in the current guidance to calculate the implied fair

value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge
Effective Date:
based on the excess of a reporting unit’s carrying amount over its fair value in Step 1 of the current guidance.

The amendments are effective for public business entities for fiscal years beginning after December

15, 2019. This Update will have no impact on the Company’s consolidated financial position and results of
ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments
operations.

Issued:

Summary:

August 2016

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

Effective Date:
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. The adoption of this Update will have no material
impact to the Company’s consolidated financial position and results of operations.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments

Issued:

Summary:

June 2016

ASU 2016-13 requires credit losses on most financial assets to be 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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017deterioration 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
Effective Date:
cost basis.

The new standard is effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. While the Company’s senior management 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, 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 has partnered with a software provider specializing in ALLL analysis and
ASU 2016-02, Leases
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
Effective Date:
either finance or operating, with classification affecting the pattern of expense recognition in the income statement.

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 new standard to have a material
impact on the Company’s financial position, results of operations or cash flows. The Company is currently evaluating
the projected present value at the adoption date.
ASU 2016-01, Measurement of Financial Instruments

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 (loss) 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 financial instruments measured at
amortized cost on the balance sheet for public business entities.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017Effective Date:

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. The Company adopted ASU
2016-01 on January 1, 2018. As of this date, the Company had $197,000 in unrealized gains on equity securities
(see Note 6). The adoption of this Update resulted in a reclassification of $156,000 from other comprehensive loss
ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10):
to retained earnings.
Recognition and Measurement of Financial Assets and Financial Liabilities

Issued:

Summary:

February 2018

The FASB issued this Update to clarify certain aspects of the guidance on recognizing and measuring

financial assets and liabilities in ASU 2016-01:

•

Clarification regarding the ability to discontinue application of the measurement alternative for equity
securities without a readily determinable fair value

Clarification of the measurement date for fair value adjustments to the carrying amount of equity
securities without a readily determinable fair value for which the measurement alternative is elected

Clarification of the unit of account for fair value adjustments to forward contracts and purchased options
on equity securities without a readily determinable fair value for which the measurement alternative is
expected to be elected

Presentation requirements for certain hybrid financial liabilities for which the fair value option is elected

Measurement of financial liabilities denominated in a foreign currency for which the fair value option
is elected

•

Transition guidance for equity securities without a readily determinable fair value

The amendments in ASU 2018-03 are effective for public business entities for fiscal years beginning after
December 15, 2017 and for interim periods within those fiscal years beginning after June 15, 2018. For all other
entities, the effective date is the same as the effective date for ASU 2016-01. All entities may early adopt the
amendments, including adoption in an interim period, provided they have already adopted ASU 2016-01.
The adoption of this ASU had no material impact to the Company’s consolidated financial position and results
of operations.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

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) recognize revenue when (or as)
the entity satisfies a performance obligation.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers

(Topic 606): Deferral of the Effective Date. 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.

Three basic transition methods are available – full retrospective, retrospective with certain practical expedients,
and a modified retrospective method. 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, 2018)
and recognize the cumulative effect of the new standard 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 adopted the ASU 2014-09 on January 1, 2018 and elected the modified retrospective transition
method. 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. GAAP, the Company assessed the affect the guidance
would have on the recognition processes of revenue for wealth and asset management services, estate planning,
deposit fees and card processing. The analysis illustrated there would be no material impact on the Company’s
consolidated financial statements, although the Company will be subject to expanded disclosure requirements.
4. MERGER
FNBPA Merger

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 2018 is
estimated to be $44,000, $38,000, $33,000, $27,000 and $21,000 per year, respectively, and $32,000 in total for
years after 2022.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

The allocation of the purchase price is as follows:
(Dollars in thousands)

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

(Dollars in thousands)
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed.

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 increased 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
(Dollars in thousands)
present a fair value of the loans acquired.

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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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.
(Dollars in thousands)

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 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, 2017 and 2016, 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 61%), bonds issued by U.S. Government
sponsored agencies (approximately 22%) and municipalities (approximately 16%) as of December 31, 2017.
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.

The amortized cost and fair value of securities as of December 31, 2017 and 2016, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because the securities may be called or
prepaid with or without prepayment penalties.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands)

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

Mortgage-backed securities
Equity securities
Total

(Dollars in thousands)

Securities Available for Sale
Type and maturity
Obligations of U.S. Government agencies and corporations
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

Mortgage-backed securities
Equity securities
Total

December 31, 2017
Gross

Gross

Amortized
Cost

Fair
Value

Unrealized Unrealized

Gains

Losses

6,000
15,000
13,998
34,998

5,969
14,689
13,556
34,214

-
-
-
-

(31)
(311)
(442)
(784)

2,521
13,959
8,611
25,091
94,945
922
$ 155,956

Amortized
Cost

19,495
17,000
36,495

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

2,516
13,955
8,510
24,981
93,510
1,119
153,824

-
50
18
68
38
197
303

(5)
(54)
(119)
(178)
(1,473)
-
(2,435)

December 31, 2016
Gross

Gross

Fair
Value

Unrealized Unrealized

Gains

Losses

19,331
16,468
35,799

13
-
13

(177)
(532)
(709)

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

2
39
16
57
114
713
897

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

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 $47,825,000 and $36,638,000 at December 31, 2017 and
2016, respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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:

(Dollars 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,

2017
21,799

539
(32)
5

2016
4,304

2015
$ 53,213

139
(21)
100

83
(70)
-

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, 2017:

(Dollars in thousands)

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

Less Than 12 Months

Unrealized Losses at December 31, 2017
12 Months or More

Number
of

Fair
Securities Value

Unrealized
Losses

Number
of
Securities

Fair
Value

Unrealized
Losses

Number
of
Securites

Total

Fair
Value

Unrealized
Losses

$ 10,845

(157)

23,369

(627)

10,491

(70)

23
51
1

51,050
72,386
9

(518)
(745)
-

$ 72,395

(745)

20
41
1

3,862

(108)

38,740
65,971
4

(955)
(1,690)
-

65,975

$ (1,690)

43
92
2

34,214 $

(784)

14,353

(178)

89,790
138,357
13

(1,473)
(2,435)
-

138,370 $

(2,435)

At December 31, 2017, 20 U.S. Government and agency securities had unrealized losses that, in the aggregate,
did not exceed 1% of amortized cost. Fifteen of these securities have been in a continuous loss position for 12
months or more.

At December 31, 2017, 29 obligations of state and political subdivision bonds had unrealized losses that, in the
aggregate, did not exceed 1% of amortized cost. Six of these securities have been in a continuous loss position for
12 months or more.

At December 31, 2017, 43 mortgage-backed securities had an unrealized loss that did not exceed 1% of
amortized cost. Twenty of these securities have 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

The unrealized losses noted above are considered to be temporary impairments. The decline in the values of
the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result,
the payment of contractual cash flows, including principal repayment, is not at risk. As the Company does not
intend to sell the securities, does not believe the Company will be required to sell the securities before recovery
and expects to recover the entire amortized cost basis, none of the debt securities are deemed to be other-than-
temporarily impaired.

Equity securities owned by the Company consist of common stock of various financial services providers
(“Bank Stocks”) and are evaluated quarterly for evidence of other-than-temporary impairment. There were two
equity securities in an unrealized loss position on December 31, 2017, with one in an unrealized loss position for
12 months or more. The total unrealized loss on equity securities at December 31, 2017 was less than $1,000.
Management has identified no other-than-temporary impairment as of, or for the years ended, December 31,
2017, 2016 and 2015 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, 2016:

(Dollars in thousands)

Less Than 12 Months

Unrealized Losses at December 31, 2016
12 Months or More

Number
of

Fair
Securities Value

Unrealized
Losses

Number
of
Securities

Fair
Value

Unrealized
Losses

Number
of
Securites

Total

Fair
Value

Unrealized
Losses

$ 32,783

(709)

17,437

(406)

34
92
0

68,989
119,209
-

(1,082)
(2,197)
-

$ 119,209 $ (2,197)

-
1
1

300

-
300
4

(2)

-
(2)
-

304

(2)

34
93
1

32,783 $

(709)

17,737

(408)

68,989
119,509
4

(1,082)
(2,199)
-

119,513 $

(2,199)

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, 2017 and December 31, 2016:
(Dollars in thousands)

As of December 31, 2017
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total

Pass
34,826
114,299
22,470
139,861
12,088
9,360
$ 332,904

Special
Mention
$

8,692
17,928
3,297
3,551
956
32
34,456

Substandard
2,280
$
7,189
2,636
2,859
-
6
14,970

Doubtful

4
953
-
617
-
-
1,574

Total
45,802
140,369
28,403
146,888
13,044
9,398
$ 383,904

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands)

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

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

Special
Mention
$

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

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

Doubtful
-
989
-
1,630
-
-
2,619

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

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, 2017
and December 31, 2016 totaled $1,285,000 and $1,778,000, 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,
2017 and December 31, 2016:
(Dollars in thousands)

As of December 31, 2017
Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

As of December 31, 2016
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

468
5,031

477
5,957

191
-
2,232

247
-
3,738

337

384

468
5,031

477
5,957

191
-
2,232

247
-
3,738

337
8,259

384
10,803

-
-

-
-
-

-
-

-
-
-

-
-

436
5,499

439
6,475

641
2,455
3,345

415

712

730
2,455
5,020

440

712

436
5,499

439
6,475

641
2,455
4,057

730
2,455
5,732

415
13,503

440
16,271

-
-

-
-
-

-
-

-
-
56

-
56

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands)

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 - 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, 2017
Cash
Basis
Interest
Income

Interest
Income
Recognized

Average
Recorded
Investment

Year Ended December 31, 2016

Average
Recorded
Investment

Interest
Income
Recognized

Cash
Basis
Interest
Income

Year Ended December 31, 2015
Cash
Basis
Interest
Income

Interest
Income
Recognized

Average
Recorded
Investment

- $
-

456 $

29 $

3,675

331

-
-

238
2,058

452
5,265

416
1,228
2,789

376

356

25 $

313

-
34
21

-
-
20

738
1,228
2,991

523

356

-
136
28

452
5,265

416
1,228
3,145

25 $

313

-
34
21

- $
-

456 $

29 $

3,675

331

-
-
20

738
1,228
3,347

-
136
28

-
-
37

-
-

-
-
37

417
168
2,846

448

238
2,058

417
168
3,294

376
10,882

-
393 $

-
20 $

523
9,967 $

-
524 $

37 $

53
6,228

25
45

-
-
27

25
45

-
-
27

-
97

-
27

-
-
36

-
27

-
-
36

-
63

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2017 and
December 31, 2016:
(Dollars in thousands)

Nonaccrual loans:
Commercial, financial and agricultural
Real estate - commercial
Real estate - mortgage
Total

December 31, 2017 December 31, 2016
-
$
1,016
3,717
4,733

4
953
1,917
2,874

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

$300,000, $281,000 and $239,000 in 2017, 2016 and 2015, respectively. The aggregate amount of demand
deposits that have been reclassified as loan balances at December 31, 2017 and 2016 were $33,000 and $39,000,
respectively.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, 2017 and December 31, 2016:

(Dollars in thousands)

As of December 31, 2017
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

(Dollars 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

Greater
than 90
Days

Total
Past
Due

Current

- $

45,802

Loans
Past Due
Greater
than 90
Days and
Accruing

Total
Loans
45,802

16
-
-

23
-
-

-
28
-

39
28
-

140,139
163
28,403

140,178
191
28,403

694
-
-
66
776 $

80
-
-
6
109 $

64
123
-
-
215 $

838
123
-
72

145,713
214
13,044
9,326
1,100 $ 382,804

146,551
337
13,044
9,398
$ 383,904

-
28
-

64
123
-
-
215

30-59 Days 60-89 Days

Past Due

Greater
than 90
Days

Total
Past
Due

Current

15 $

6 $

21 $

40,806

Loans
Past Due
Greater
than 90
Days and
Accruing

Total
Loans
40,827

55
-
6

1,097
-
-
25
1,198 $

-
-
-

57
-
-
3

60 $

-
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

-
452
508

40
138
-
-
1,144

The following table summarizes information regarding troubled debt restructurings by loan portfolio class as
of and for the years ended December 31, 2017 and 2016.
(Dollars in thousands)

Pre-Modification Post-Modification

As of December 31, 2017
Accruing troubled debt restructurings:
Real estate - mortgage
Non-accruing troubled debt restructurings:
Commercial, financial, agricultural
Real estate - mortgage

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

1
1
9

369

397

315

19
25
413

20
25
442

4
20
339

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands)

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

Pre-Modification Post-Modification

Outstanding
Recorded
Investment

Recorded
Investment

Number of
Contracts

1
8

369

397

340

25
394

25
422

23
363

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, 2017, there were no specific reserves relating to
the troubled debt restructurings. There was one troubled debt restructured loan for $4,000 at December 31,
2017 for which an $8,000 charge-off was recorded in 2017. 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, 2017, two restructured loans to unrelated borrowers totaling $87,000 were in default because
they were 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 2017, 2016 or 2015 within 12 months of restructure.

The following table summarizes loans whose terms have been modified, resulting in troubled debt
restructurings during 2017 and 2016.
(Dollars in thousands)

As of December 31, 2017
Non-accruing troubled debt restructurings:
Commercial, financial, agriculture

(Dollars in thousands)

As of December 31, 2017
Accruing troubled debt restructurings:
Real estate - mortgage

Pre-Modification Post-Modification

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

1
1

$
$

19
19

$
$

20
20

$
$

4
4

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 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, 2017, 2016 and 2015:
(Dollars in thousands)

Allowance for loan losses
Beginning Balance, January 1, 2017
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2017

As of December 31, 2017
Allowance for loan losses:
Ending balance
evaluated for impairment

individually
collectively

Loans:
Ending balance
evaluated for impairment
individually
collectively
Ending balance: loans acquired with
deteriorated credit quality
(Dollars in thousands)

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

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

318 $
(46)
5
(4)
273 $

948 $
(70)
2
142
1,022 $

231 $
-
-
57
288 $

1,143 $
(149)
45
246
1,285 $

-
-
-
-
-

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

273 $

1,022 $

288 $

1,285 $

$
$

- $
273 $

-
$
1,022 $

$
-
288 $

$
-
1,285 $

-
-

Personal
83
(27)
17
(2)
71

Personal
71

-
71

$
$

Total
2,723
(292)
69
439
2,939

Total
2,939

-
2,939

$
$

$ 45,802 $ 140,369 $

28,403 $

146,888 $

13,044

9,398

$ 383,904

468 $

$
5,031 $
$ 45,334 $ 135,147 $

$
-
28,403 $

2,232 $
144,319 $

-
13,044

191 $

337 $

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

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 $

-
-

$
$

-
9,398

$
7,731
$ 375,645

528

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

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 $

$
$

-
10,032

$
12,447
$ 364,794

1,056

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars in thousands)

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
8. pLEDGED ASSETS

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 $

-
-
-
-
-

Personal
38
(9)
3
15
47

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

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

Personal

Total

264 $

836 $

191 $

1,140 $

$
$

- $
264 $

-
$
836 $

$
-
191 $

$
-
1,140 $

-
-

$
$

2,478

-
47

$
$

-
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
$

The Bank must maintain sufficient qualifying collateral with the 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, 2017, the amount of loans included in qualifying collateral was $224,561,000, for a collateral value
of $163,181,000. No investment securities are included in qualifying collateral as of December 31, 2017.
9. BANK OWNED LIFE INSuRANCE AND ANNuITIES

The Company holds bank-owned life insurance (“BOLI”) and deferred annuities with a combined cash value of
$14,972,000 and $14,631,000 at December 31, 2017 and 2016, respectively. As annuitants retire, the deferred
annuities may be converted to payout annuities to create payment streams that match certain post-retirement
liabilities. The net increase in cash surrender value on the BOLI and annuities was $341,000 and $98,000 in 2017
and 2015, respectively, while the cash surrender value 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 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 2017 and 2016 are shown below:
(Dollars in thousands)

Balance as of January 1, 2016
Earnings
Premiums on existing policies
Net proceeds from life insurance claim
Balance as of December 31, 2016
Earnings
Premiums on existing policies
Balance as of December 31, 2017

Life
Insurance
14,500
309
40
(651)
14,198
285
27
14,510

Deferred
Annuities
405
15
13
-
433
16
13
462

Total
14,905
324
53
(651)
14,631
301
40
14,972

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

10. pREMISES AND EquIpMENT

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

Land
Buildings and improvements
Furniture, computer software and equipment

Less: accumulated depreciation

December 31,
2017
1,126
11,358
5,898
18,382
(9,495)
8,887

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

Depreciation expense on premises and equipment charged to operations was $672,000 in 2017, $595,000 in
2016 and $506,000 in 2015.
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, 2017
and 2016 was $2,046,000. Core deposit intangible of $431,000 was fully amortized as of December 31, 2017 and
2016. 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 were 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.

(Dollars in thousands)

Beginning Balance at Acquisition Date
Amortization expense recorded prior to December 31, 2014
Amortization expense recorded in Years ended:
December 31, 2015
December 31, 2016
December 31, 2017
Unamortized balance as of December 31, 2017

Scheduled Amortization expense for years ended:
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
After December 31, 2022

FNBPA
Acquisition
Core
Deposit
Intangible

FNBPA
Acquisition
Other
Intangible
Assets

Branch
Acquisition
Core
Deposit
Intangible

303
-

4
55
49
195

44
38
33
27
21
32

40
-

2
20
18
-

-
-
-
-
-
-

431
357

45
29
-
-

-
-
-
-
-
-

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

12. INVESTMENT IN uNCONSOLIDATED SuBSIDIARy

On September 1, 2006, the Company invested in Liverpool Community Bank (formerly known as The First
National Bank of Liverpool), (“LCB”), located in 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 $4,812,000 and $4,703,000 as of December 31, 2017 and 2016, 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.
Acquisition of Liverpool Community Bank

On December 29, 2017, Juniata entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
LCB. The Merger Agreement provides that, upon the terms, and subject to the conditions set forth therein, LCB
will merge with, and into, The Juniata Valley Bank, with The Juniata Valley Bank continuing as the surviving entity
(the “Merger”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, each share of
Liverpool’s common stock issued and outstanding immediately prior to the effective time of the Merger (other
than the LCB common stock currently owned by Juniata, which will be cancelled) will be converted into the right
to receive, at the election of the holder, either: (i) 202.6286 shares of common stock of Juniata (the “Stock
Consideration”) or (ii) $4,050.00 (the “Cash Consideration”), subject to proration to maintain total Cash
Consideration at a minimum of 15% and a maximum of 20% of the total merger consideration. Holders of
Liverpool Common Stock prior to the consummation of the Merger will own a percentage of Juniata’s common
stock outstanding immediately following the consummation of the Merger that will range from 6.4% (if minimum
Cash Consideration of 15% were paid) to 6.0% (if the maximum Cash Consideration of 20% were paid).

The parties anticipate the Merger will close in the first half of 2018.
13. DEpOSITS

The aggregate amount of demand deposit overdrafts that were reclassified as loans were $33,000 at December
31, 2017, compared to $39,000 at December 31, 2016.

Deposits consist of the following:
(Dollars in thousands)

Demand, non-interest bearing
Interest-bearing demand and money market
Savings
Time deposits, $250,000 or more
Other time deposits

December 31,

2017
$ 115,911
122,407
98,966
8,456
131,928
$ 477,668

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

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Deposits and other funds from related parties held by Juniata amounted to $1,116,000 and $1,247,000 at
December 31, 2017 and 2016, respectively.

Aggregate amount of scheduled maturities of time deposits as of December 31, 2017 include the following:

(Dollars in thousands)

Maturing in:
2018
2019
2020
2021
2022
Later

$250,000 or more
$

2,530
1,726
2,676
257
-
1,267
8,456

14. BORROWINGS

Time Deposits
Other

39,898
19,566
33,365
19,224
8,847
11,028
131,928

Total Time Deposits
42,428
21,292
36,041
19,481
8,847
12,295
140,384

Short term borrowings as of December 31, 2017, 2016 and 2015 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

9,769

4,496

4,996

9,769

6,018

5,106

2017

December 31,
2016

Maximum Outstanding at Any Month End

2015

2017

2016

2015

Short-term borrowings with

Federal Home Loan Bank:

Overnight advances
Mid-term repo

12,000
-
$ 21,769

27,700
-
32,196

30,061
-
35,057

30,721
-
40,490

32,300
-
38,318

35,234
6,250
46,590

The following table presents supplemental information related to short-term borrowings.

(Dollars in thousands)

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

Securities sold under agreements
to repurchase
2016

2015

2017

Short-term borrowings with
Federal Home Loan Bank
2016

2015

2017

9,769

4,496

4,996

12,000

27,700

30,061

0.32%

0.18%

0.10%

1.54%

0.74%

0.44%

4,823

4,712

4,716

25,476

15,696

16,309

0.64%

0.11%

0.10%

1.16%

0.60%

0.38%

Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. Outstanding
balances were $25,000,000 as of December 31, 2017 and 2016.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

The following table summarizes the scheduled maturities of long-term debt as of December 31, 2017.
(Dollars in thousands)

Year
2018
2019
2020
2021
2022
Thereafter

Scheduled
Maturities

10,000
15,000
-
-
-
25,000

Weighted Average
Interest Rate
1.33%
1.59 %
.0-
.0-
.0-
1.49%

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 completely collateralize repurchase agreements with U.S. Government securities. As of
December 31, 2017, the securities that serve as collateral for securities sold under agreements to repurchase had
a fair value of $10,888,000. The interest rate paid on these funds is variable and subject to change daily.

The Bank’s maximum borrowing capacity with the FHLB is $163,181,000, with a balance of $37,000,000
outstanding as of December 31, 2017. 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 $147,000, $142,000 and
$127,000 in 2017, 2016 and 2015, 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 noncancelable lease terms in excess of one year as of
December 31, 2016:
(Dollars in thousands)

Years ending December 31,
2018
2019
2020
2021
2022
2023 and beyond
Total minimum payments required

Lease Obligation
91
72
54
56
5
-
278

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

16. INCOME TAxES

ASC 740 requires the effects of tax law and rate changes be reflected as a component of tax expense from
continuing operations. Due to the enactment of the Tax Cuts and Jobs Act on December 22, 2017, Juniata’s future
maximum corporate tax rate was lowered from 34% to 21%, thereby decreasing the future tax benefit of its net
deferred tax asset by 13%. Though the reduced rate will provide tax savings to Juniata in future periods, the
reduction resulted in a write-downs of Juniata’s net deferred tax assets, which was previously valued based upon
the projection of a 34% future tax rate. As a result, a non-cash charge of $416,000 was included in the 2017
expense for income taxes. Offsetting the tax expense was the effect of tax credits for Juniata’s investment in two
low-income housing partnerships amounting to $722,000 in 2017, $572,000 in 2016 and $570,000 in 2015.
Tax credits associated with phase I will continue through 2023. Phase II credits were initiated in the second half
of 2017 and will run through 2027. The tax credits are included in the tax expense line item on the Consolidated
Statements of Income.

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

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

Years Ended December 31,

2017
379
681
1,060

2016
499
320
819

2015
149
(66)
83

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
Tax reform adjustment
Other permanent differences
Total tax expense
Effective tax rate

Years Ended December 31,

2017
5,597

2016
5,975

34.0%

1,903
(443)
(75)
-
(17)
24
(722)
-
416
(26)
1,060

18.9%

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%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Deductible temporary differences and taxable temporary differences gave rise to a net deferred tax asset for
the Company as of December 31, 2017 and 2016. The components giving rise to the net deferred tax asset are
detailed below:
(Dollars 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
Annuity earnings
Fair value of mortgage servicing rights
Intangible assets
Goodwill
Other
Total deferred tax liabilities
Net deferred tax asset included in other assets

Years Ended December 31,

2017
369
338
320
512
439
37
141
168
75
1
-
2,400

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

(345)
(368)
(340)
(230)
(52)
(47)
(18)
(324)
(24)
(1,748)
652

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

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, 2017, 2016 and 2015. The Company is no
longer subject to examination by taxing authorities for years before 2014. Tax years 2014 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 through reinvested
dividends and voluntary cash payments, within limits. To the extent that shares are not available in the open

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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,
2017, 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 2017, 2016 and 2015, 4,289, 49,370 and 3,504
shares, respectively, were repurchased in conjunction with this program. Remaining shares authorized in the
program were 173,990 as of December 31, 2017. 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’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, which began 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, 2017 and 2016, that the Company and the Bank met all capital adequacy requirements to which
they were subject.

As of December 31, 2017, 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017 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.
Juniata Valley Financial Corp. (Consolidated)

(Dollars in thousands)

As of December 31, 2017:

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, 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

Actual

Amount

Ratio

Minimum
Requirement
For Capital
Adequacy Purposes
Ratio

Amount

59,667

15.01%

31,809

55,808

14.04%

55,808

14.04%

55,808

9.43%

23,857

17,892

23,666

58,375

15.34%

30,442

55,331
55,331

14.54%
14.54%

55,331

9.68%

22,831
17,124

22,872

8.00%

6.00%

4.50%

4.00%

8.00%

6.00%
4.50%

4.00%

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

$ 52,009

13.24%

31,435

8.00%

36,346

9.250%

39,293

10.00%

49,026

12.48%

23,576

6.00%

28,488

7.250%

31,435

8.00%

49,026

12.48%

17,682

4.50%

22,594

5.750%

25,541

6.50%

49,026

8.36%

23,460

4.00%

23,460

4.000%

29,325

5.00%

$ 51,102

13.60%

30,053

8.00%

32,401

8.625%

37,566

10.00%

48,217

12.84%

15,026

6.00%

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

(Dollars in thousands)

As of December 31, 2017:
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, 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

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, 2017, $33,675,000 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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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. Restricted stock is participating, and therefore, is included in the EPS calculation. The following
table sets forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except earnings per share)

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
19. ACCuMuLATED OThER COMpREhENSIVE LOSS

Years Ended December 31,

2017
4,537
4,765
0.95
4,765
10
4,775
0.95
6

$
$

2016
5,156
4,801
1.07
4,801
1
4,802
1.07
401

$
$

2015
3,058
4,240
0.72
4,240
1
4,241
0.72
103

$
$

Components of accumulated other comprehensive loss, net of tax as of December 31 of each of the last three
years consist of the following:
(Dollars in thousands)

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

2017
(1,683)
(2,351)
(4,034)

As of December 31,
2016

(866)
(2,343)
(3,209)

2015

96
(2,299)
(2,203)

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value
measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market
for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or
liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or
liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the
market for a period prior to the measurement date to allow for marketing activities that are usual and customary
for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers
and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv)
willing to transact.

Fair value measurement and disclosure guidance requires the use of valuation techniques that are consistent
with the market approach, the income approach and/or the cost approach. The market approach uses prices and
other relevant information generated by market transactions involving identical or comparable assets and
liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or
earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that
currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques
should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants
would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions
market participants would use in pricing the asset or liability developed based on market data obtained from
independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about
the assumptions market participants would use in pricing the asset or liability developed based on the best
information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for
valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs –

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.

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.

Level 3 Inputs –

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not

available, fair value is based upon internally developed models that primarily use, as inputs, observable market-
based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair
value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s
creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are
applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that
may not be indicative of net realizable value or reflective of future fair values. While management believes the
Company’s valuation methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different estimate of fair value at the reporting date.
Securities Available for Sale

Debt securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these
securities, the Company obtains fair value measurement from an independent pricing service. The fair value
measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit
information and the 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-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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017
The following table summarizes financial assets and financial liabilities measured at fair value as of December
31, 2017 and December 31, 2016, segregated by the level of the valuation inputs within the fair value hierarchy
utilized to measure fair value. There were no transfers of assets between fair value Level 1 and Level 2 during the
years ended December 31, 2017 or 2016.

(Dollars in thousands)

Measured at fair value on a recurring basis:
Debt securities available-for-sale:

December 31,
2017

(Level 1)

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

Inputs

Other

(Level 3)
Significant
Other

Inputs

Observable Unobservable

Obligations of U.S. Government agencies and corporations
Obligations of state and political subdivisions
Mortgage-backed securities
Equity securities available-for-sale

34,214
24,981
93,510
1,119

-
-
-
1,119

34,214
24,981
93,510
-

-
-
-
-

Measured at fair value on a non-recurring basis:

Impaired loans

Other real estate owned
Mortgage servicing rights

1,574
27
225

-
-
-

1,574
27
225

(Dollars in thousands)

Measured at fair value on a recurring basis:
Debt securities available-for-sale:

December 31,
2016

(Level 1)

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

Inputs

Other

(Level 3)
Significant
Other

Inputs

Observable Unobservable

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

-
-
-
2,148

35,799
26,659
85,702
180

-
-
-
-

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

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:
(Dollars in thousands)

December 31, 2017
Impaired loans

Fair Value Estimate
1,574
$

Valuation Technique
Appraisal of collateral (1)

Other real estate owned

Appraisal of collateral (1)

Mortgage servicing rights

225

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

Range

Average

0% - 13%

22%

300% - 400%

371%

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

(Dollars 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

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%

30-72%

46%

300% - 400%

368%

(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.

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.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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.

The estimated fair values of the Company’s financial instruments are as follows:
FINANCIAL INSTRuMENTS
(Dollars 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, net of allowance for loan losses

Mortgage servicing rights

Accrued interest receivable

Financial liabilities:

Non-interest bearing deposits

Interest bearing deposits

Securities sold under agreements to repurchase

Short-term borrowings

Long-term debt

Other interest bearing liabilities

Accrued interest payable

Off-balance sheet financial instruments:

Commitments to extend credit

Letters of credit

December 31, 2017

Carrying
Value

Fair
Value

December 31, 2016
Fair
Carrying
Value
Value

9,839

9,464

350

153,824

150,488

3,104

3,610

380,965

372,906

375,574

366,660

225

1,582

225

1,582

205

1,582

205

1,582

115,911

361,757

9,769

12,000

25,000

1,593

300

115,911

361,468

9,769

12,000

24,885

1,595

300

104,006

351,816

354,628

4,496

27,700

25,000

1,545

268

4,496

27,700

24,963

1,549

268

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, 2017 and December 31, 2016. This
table excludes financial instruments for which the carrying amount approximates fair value.

(Dollars in thousands)

December 31, 2017
Financial instruments - Assets

(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

Interest bearing time deposits with banks $

350 $

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

380,965

350
372,906

Interest bearing deposits

Long-term debt
Other interest bearing liabilities

361,757 $ 361,468
24,885
1,595

25,000
1,593

-
-

-
-
-

350
-

361,468
24,885
1,595

-
372,906

-
-
-

(Dollars in thousands)

December 31, 2016
Financial instruments - Assets
Interest bearing time deposits with banks
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

(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

350 $

375,574

350
366,660

351,816 $ 354,628
24,963
1,549

25,000
1,545

-
-

-
-
-

350
-

354,628
24,963
1,549

-
366,660

-
-
-

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. Under the provisions of the Plan, while active, awards
may consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted
stock and performance shares 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. 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. The maximum number of shares of common stock that may
be issued under the Plan is 300,000 shares, and 170,175 shares were available for grant as of December 31, 2017.
Shares of common stock issued under the plan may be treasury shares or unauthorized but unissued shares.

During 2017 and 2016, certain officers and key employees were issued restricted stock awards of 4,650 and
3,150 shares, respectively. Each of the awards carry a three-year restriction, with no interim vesting.

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

The following table presents compensation expense and related tax benefits for restricted stock awards
recognized on the consolidated statement of income.
(Dollars in thousands)

Compensation expense
Tax benefit
Net income effect

2017

2016

2015

43
(15)
28

16
(5)
11

-
-
-

At December 31, 2017, there was $82,000 of unrecognized compensation cost related to all non-vested
restricted stock awards. This cost is expected to be recognized through July 2020.

The following table presents a summary of non-vested restricted shares activity for 2017.

Non-vested at January 1, 2017
Vested
Cancelled
Granted
Non-vested at December 31, 2017

Weighted
Average
Grant Date
Fair Value

17.49

18.52
18.10

Shares
3,150
-
-
4,650
7,800

No stock options were awarded in 2017. Options granted prior to 2017 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, 2017 have exercise prices between $17.22 and $21.10, with a
weighted average exercise price of $17.91 and a weighted average remaining contractual life of 5.1 years.

As of December 31, 2017, there was $90,000 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, 2017 was $172,000 and
$53,000 for the year ended December 31, 2015. No options were exercised in 2016.

100

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

A summary of the status of the outstanding stock options as of December 31, 2017, 2016 and 2015, and
changes during the years ending on those dates is presented below:

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, 2017

Shares
139,155
-
(9,704)
(4,425)
125,026
110,282

2017

2016

2015

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

Weighted
Average
Exercise
Price
17.97
.0-
17.74
20.05
17.91

.0-

10,807

Weighted
Average
Exercise
Price
18.07
.0-
.0-
22.36
17.97

Weighted
Average
Exercise
Price

109,816 $
35,800
(3,092)
-

142,524 $
70,920

18.13
17.80
17.22
.0-
18.07

.0-

1.90

866

$ 203,715

The following table summarizes characteristics of stock options as of December 31, 2017:

Grant Date

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

Exercise Price
21.10
17.22
17.75
18.00
17.65
17.72
17.80

$
$
$
$
$
$
$

Defined Benefit Retirement Plans

Shares
6,100
6,079
13,200
15,800
19,622
31,025
33,200
125,026

Outstanding
Contractual Average Life (Years)
0.80
1.80
3.72
4.22
5.14
6.13
7.13

Exercisable
Shares

6,100
6,079
13,200
15,800
17,802
29,335
21,966
110,282

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.

101

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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 2018.

In 2017, Juniata initiated a strategy to reduce the liability associated with its defined benefit pension plan. The

Management expects to record a $45,000 net periodic expense in 2018 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, 2017
and December 31, 2016. Assets included in the JVB Plan that are not valued in the hierarchy table consist of cash
and cash equivalents, totaling $46,000 and $179,000, at December 31, 2017 and 2016, respectively.

(Dollars in thousands)

Measured at fair value on a recurring basis:
Mutual funds
Money market funds

(Dollars in thousands)

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

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

December 31, for Identical

Observable Unobservable

2017

Assets

Inputs

5,154
7,916
13,070

-
-
-

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

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

-
-

-
-
-
-
-

102

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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

Change in projected benefit obligation (PBO)
PBO at beginning of year
Assumption of liability from FNB Plan

Interest cost

Change in assumptions
Plan amendments
Actuarial loss
Group annuity purchase
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
Group annuity purchase
Benefits paid
Fair value of plan assets at end of year

Years Ended
December 31,
2017

2016

16,332
-
621
1,141
-
136
(1,974)
(702)
15,554

13,840
-
1,953
(1,974)
(702)
13,117

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

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

Funded status, included in other (liabilities) assets

(2,437) $

(2,492)

Amounts recognized in accumulated comprehensive loss
before income taxes consist of:
Unrecognized actual loss

Accumulated benefit obligation

(3,081) $

(3,550)

15,554

16,332

For the year ended December 31, 2016, 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-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. For the year ended December 31,
2017, 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-2017 to reflect mortality
improvement. The impact on the benefit obligation for the mortality assumption change in 2017 was an increase in
the projected benefit obligation of $1,141,000.

103

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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

Interest cost on projected benefit obligation

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

Net loss (gain)
Amortization of net loss
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

2017
621
(793)
377
207
412

117
(584)
(467)

2016
666
(795)
-
248
119

173
(248)

(75) $

2015
450
(592)
-
242
100

(52)
(242)
(294)

(55)

(194)

2017
3.50%
N/A

2017
4.00%
6.00
N/A

2016
4.00%
N/A

2016
4.25%
6.00
N/A

2015
4.25%
N/A

2015
4.00%
6.00
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.

(Dollars in thousands)

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

Income

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

December 31, for Identical

Observable Unobservable

2015

Assets

Inputs

1,003
589
1,433
878
3,903

-
-
-
-
-

104

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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:
(Dollars 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

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.

Pension expense for the FNB Plan included the following components for the year ended December 31:

(Dollars 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, 2017 was approximately 61%
equities and 39% cash equivalents in the JVB Plan.

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JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Future expected benefit payments:
(Dollars in thousands)

Estimated future benefit payments $
Defined Contribution Plan

2018

2019

2020

2021

2022

2023-2027

635

686

676

692

708

3,936

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, 2017, a liability of $224,000 was recorded
to satisfy this obligation and was credited to employees’ accounts by January 31, 2018. This liability at December
31, 2016 totaled $214,000 and was credited to employee accounts during 2017. Expense incurred under this plan
was $222,000, $211,000 and $192,000 in 2017, 2016 and 2015, 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 2017, 2016 and 2015 was $189,000, $179,000 and $162,000, 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 1,961 shares issued in 2017, 3,764 shares issued in 2016 and 3,242 shares issued in 2015
under this plan. At December 31, 2017, there were 175,093 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, 2017 and 2016, the present value of the future liability associated with these plans was $261,000 and
$323,000, respectively. For the years ended December 31, 2017, 2016 and 2015, $25,000, $30,000 and $34,000,
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, 2017 and 2016, the present value of the future liability was $1,609,000 and $1,570,000,
respectively. For the years ended December 31, 2017, 2016 and 2015, $33,000, $32,000 and $30,000,
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, 2017 and 2016,
the present value of the future liability was $1,264,000 and $1,251,000, respectively. For the years ended
December 31, 2017, 2016 and 2015, $127,000, $185,000 and $119,000, 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.

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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. 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 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:
(Dollars in thousands)

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

December 31,

2017
77,023
3,150
2,541

2016
$ 56,095
3,889
2,300

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, 2017 and 2016 for guarantees under letters of credit issued is not material.

The maximum undiscounted exposure related to these guarantees at December 31, 2017 was $2,541,000, and
the approximate value of underlying collateral upon liquidation that would be expected to cover this maximum
potential exposure was $14,298,000.
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 $7,939,000 and $6,443,000 at
December 31, 2017 and 2016, respectively. During 2017, $12,736,000 of new loans were made and repayments
totaled $11,259,000. In addition, there was a new related interest relationship in 2017 with a party who had a
pre-existing loan balance of $25,000 at December 31, 2017, as well as two terminated relationships due to
retirements having a combined balance of $6,000. None of these loans were past due, in non-accrual status or
restructured at December 31, 2017 or 2016.

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JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

24. COMMITMENTS AND CONTINGENT LIABILITIES

In 2017, the Company executed renewal agreements for technology outsourcing services through two outside
service bureaus. Both agreements provide for termination fees if the Company cancels the services prior to the
end of the 7-year commitment period that runs through May 31, 2024. At December 31, 2017, termination fees
are estimated to be approximately $1,976,000 and $1,822,000 on the two contracts. The termination fees would
decrease by approximately 15% in each succeeding year through 2024. Since the Company does not expect to
terminate these services with either vendor prior to the end of the commitment periods, no liability has been
recorded as of December 31, 2017.

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 sold qualifying residential mortgage loans to the FHLB as part of its Mortgage
Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the
Company for loans that do not perform in accordance with the terms of the loan agreement. Each loan sold under
the Program is “credit enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the
FHLB. The Program can be terminated by either the FHLB or the Company, without cause, by giving notice to the
other party. The FHLB has no obligation to commit to purchase any mortgage through, or from, the Company.
25. SuBSEquENT EVENTS

In January 2018, the Board of Directors declared a dividend of $0.22 per share to shareholders of record on
February 15, 2018, payable on March 1, 2018.

108

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26. JuNIATA VALLEy FINANCIAL CORp. (pARENT COMpANy ONLy)
FINANCIAL INFORMATION:

CONDENSED BALANCE SHEETS
(Dollars 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
(Dollars 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 (benefit) expense

Undistributed net (loss) of subsidiary
NET INCOME
COMPREHENSIVE INCOME

December 31,

2017

2016

1,082
52,522
4,812
1,169
224
59,809

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

422

693

59,387
59,809

59,090
59,783

Years Ended December 31,
2016

2015

2017

$
$

44
4,194
167
314
-
4,719

13
146
159

4,560
(127)
4,687
(150)
4,537
4,300

$
$

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

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CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Cash flows from operating activities:

Years Ended December 31,

2017

2016

2015

Net income

4,537

5,156

3,058

Adjustments to reconcile net income to net cash

provided by operating activities:
Undistributed net loss of subsidiary
Realized gains on sales of investment securities
Equity in earnings of unconsolidated subsidiary,

net of dividends of $61, $55 and $48

Stock-based compensation expense
Decrease (increase) in other assets

(Decrease) increase in taxes payable
Net cash provided by operating activities
(Decrease) increase in accounts payable and other liabilities

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 provided by (used in) 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 (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

150
(314)

(106)
71
513
(271)
(254)
4,326

-
734
-
734

645
(166)

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

(470)
252
-
(218)

697
(19)

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

-
9
4
13

(4,194)
(86)
206
(4,074)

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

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

986
96
1,082

7
89
96

(43)
132
89

110

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27. quARTERLy RESuLTS OF OpERATIONS (uNAuDITED)

The unaudited quarterly results of operations for the years ended December 31, 2017 and 2016 follow:
(Dollars in thousands, except per-share data)

2017 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

March 31
$ 5,174
627
4,547
105
504
1,112
-
4,269
1,789
330
$ 1,459

June 30
$ 5,348
702
4,646
135
4
1,252
-
4,229
1,538
244
$ 1,294

September 30 December 31
5,395
$
774
4,621
50
2
1,199
13
4,822
937
359
578

5,457
752
4,705
149
2
1,217
-
4,442
1,333
127
1,206

$
$
$

0.31
0.31
0.22

$
$
$

0.27
0.27
0.22

$
$
$

0.25
0.25
0.22

$
$
$

0.12
0.12
0.22

2016 Quarter ended

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

$
$
$

0.27
0.27
0.22

$
$
$

0.23
0.23
0.22

$
$
$

0.30
0.30
0.22

$
$
$

0.27
0.27
0.22

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JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, 2017, the Company had 1,798 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 2017 and 2016.

Quarter Ended
March 31
June 30
September 30
December 31

High
$ 19.75
21.60
21.50
22.00

High
18.95
18.35
18.75
19.10

2017

Low
18.25
18.60
18.61
19.70

2016

Low
17.10
17.55
17.55
18.00

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

112

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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,
2017 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, 2017, 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
15, 2018 at the Juniata Valley Bank Financial Center, 1762 Butcher Shop Road, Mifflintown, Pennsylvania.

113

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

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, Secretary, Treasurer and Chief Financial Officer

JuNIATA VALLEy FINANCIAL CORp. AND ThE JuNIATA VALLEy BANK
BOARD OF DIRECTORS

Marcie A. Barber
President and Chief Executive Officer

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

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

Martin L. Dreibelbis
Self-Employed, Petroleum Consultant

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

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

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

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.
Corey P. Wray

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

Gary E. Kelsey
Dan F. Lane III

114

JuNIATA VAlley FINANcIAl corp - ANNuAl reporT 2017

Directory of officerS of jvb

■ ExECUTIVE

■ BRANCH ADmINISTRATION

Marcie A. Barber . . . . . . . . . . . . . . . . . President, Chief Executive Officer
JoAnn N. McMinn. . . . .Executive Vice President, Chief Financial Officer
Danyelle M. Pannebaker . . . . . . . . . . . . . . . . . . . . . . Executive Assistant

■ ADmINISTRATION

Tina J. Smith . . . . . Senior Vice President, Director of Human Resources
Suzanne E. Booher . . . . . . . . . . . . Vice President, Director of Marketing
Brent M. Miller . . . . . . . . . . . . . . . . . Vice President, Compliance Officer
Kathy Hutchinson . . . . . . . . . . . . Vice President, Compliance Specialist
and Security/BSA Officer

■ FINANCE

Jason A. McFalls . . . . . . . Vice President, Retail Sales Division Manager
Cynthia L. Bosworth . . . . . . . . . . . . . . . . . . . . . . . . .Northern Tier Branch
Administrator and Compliance Affiliate
Brenda A. Brubaker . . . . . . . Vice President, Director of Customer Care
Lynne S. Ruffner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President,
Northern Tier Retail Sales Manager

■ BLAIRS mILLS AND pORT ROYAL OFFICES

Barbara i. Seaman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President,
Community Office Manager and Relationship Manager
Lori A. yocum . . . . . . . . . . Assistant Office Manager, Blairs Mills Office

Cortney E. Wilbert . . . . . . . . . . . . . . . . . . . . . . Vice President, Controller
Kristi J. Burdge . . . . . . . .Assistant Vice President, Accounting Manager
Renee D. Williamson . . . . . . . . . . . . . . . Financial information Manager

■ BURNHAm OFFICE

Leann M. Fisher . . . . . . . . . Vice President, Community Office Manager
Holly M. Laub . . . . . . . . . . . . . . . . . . . . . . . . . . Assistant Office Manager

■ BUSINESS LENDING

■ COUDERSpORT OFFICE

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

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

Jon R. yarger . . . . . . . . . . Vice President, Consumer Lending Manager
Betty D. Ryan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President,
Secondary Mortgage Market Manager

■ 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, wATER STREET, & wAL-mART OFFICES

Christine L. Searer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice President,
Market Manager, Southwest Lewistown
Stacey K. McMurtrie . . . . . . . . . . . . . . . . . . . . Assistant Office Manager,
Monument Square Office
Amy J. Pitts . . . . . . . . . . . Assistant Office Manager, Water Street Office

■ pORT ALLEGANY AND LILLIBRIDGE OFFICES

Denise R. Russell . . . . . . . . . . . . . . . . . . . . . Community Office Manager

■ CREDIT ADmINISTRATION

Lisa M. Snyder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice President,
Credit Administration Manager
Matthew J. Waddell . . . . . . . . . . . . . . Vice President, Portfolio Manager

■ OpERATIONS AND INFORmATION TECHNOLOGY

Steven T. Kramm . . . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice President,
Operations/Technology Division Manager
Laurie B. Blauvelt . . . . . . . . .Northern Tier Operations and iT Specialist
Curtis M. Crouse . . . . . . . . . . . . . . . . . . . . . . . . . Network Administrator
Lee Ellen Foose . . . . . . . . . Vice President/Branch Operations Specialist
S. Marlene Hubler. . . . . . Computer Operations and Facilities Manager
Beverly M. McClellan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Data Analyst
Tammy L Miller . . . . . . . . . . . . . . . . . . . . . . Deposit Operations Manager
Kelly L. yetter . . . . . . . . . . . . Electronic and Business Banking Manager

■ TRUST AND INVESTmENT SERVICES

Donald E. Shawley . . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice President,
Trust and investment Services Division Manager
Paul M. Grego . . . . . . . . . . . . . Vice President, Trust investment Officer
Jonathan F. King . . . . . . . . . . . . . . . . .Financial Services Representative
Adam E. Truitt . . . . . . . . . . . . Vice President, Financial Services Officer
Cynthia L. Williams . . . . . . . . . . . . . . . . . . . Vice President, Trust Officer

JUNiATA VALLEy FiNANCiAL CORP.

ANNUAL REPORT 2017

JUNiATA VALLEy FiNANCiAL CORP.

218 Bridge Street
Mifflintown, PA 17059
www.jvbonline.com

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