Juniata Valley Financial Corp. Annual Report 2018

← All annual reports

FY2018 Annual Report · Juniata Valley Financial Corp.

Loading PDF…

CONNECTED

COMMUNITY

OUR

Juniata Valley Financial corp.

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

j
u
n

a
t
a

v
a
l
l
e
y

f
i

n
a
n
c

a
l

c
o
r
p

2
0
1
8

a
n
n
u
a
l
r
e
p
o
r
t

001CSN3A5D

2018 ANNUAL REPORT
JUNIATA VALLEY FINANCIAL CORP.

president’s letter

JVB is CONNECTED

Today more than any time in our history, we have the ability to be connected
to each other virtually twenty-four/seven. But being connected means more
than having access to communication through telephones, texting devices,
email, web conferencing and a myriad of social media platforms. REAL
connection happens when people share meaningful information and ideas.
Connection happens when an understanding is reached, when a message sent
is in fact, a message received, but it’s actually much harder than it seems.

Meaningful connection with customers, shareholders, and employees is one

of the hallmarks of great community banking, and one we embrace!

We are excited to be rolling out JAVA with JVB, a FACEBOOK live-streamed
event held after banking hours once a month, to educate, connect and kibitz
with customers and community members on varied topics of interest. We
will address topics and field questions relating to home financing, retirement
planning, budgeting, identity theft, electronic banking services and many
others. We are meeting our customers face-to-face and through social media
to address their individual questions and help solve problems. The forum will
provide plenty of opportunity to explore issues of immediate concern or to
broaden one’s general financial knowledge base. Our first event was held in the
community room of our Mountain View office in Mifflintown, PA, but throughout
the year we’ll be taking it “on the road” to coffee shops and meeting rooms
throughout our markets.

You’ll find JVB employees at Chamber of Commerce events, fund-raisers,
and local football, basketball, and soccer games. We’re in church choirs and
non-profit board rooms. We’re connected.

Our connection to each other results in a collaborative process which
strengthens our systems, our financial performance and our customer service.
There is no substitute for face-to-face problem solving and brainstorming to
develop the best product, process or resolution. More than ever, 2019 marks
the year for clear communication of goals and expectations. Connection is key.

Connection with our shareholders is evidenced by our unwavering
commitment to grow core earnings, improve credit quality, expand the
franchise, and enhance shareholder value. In 2018, we finalized the acquisition
of Liverpool Community Bank, extending deeper into Perry County, a natural
geographic expansion of our primary market. This acquisition was immediately
accretive to earnings in the first year; 2019 holds greater opportunity to extend
trust and wealth management services in this new market. We continue to
capitalize on opportunities in the Northern Tier region of Pennsylvania on both
the asset and funding sides of the balance sheet.

JVB is well capitalized and can support future growth. Credit quality
continues to improve, and our liquidity metrics are very strong. Just as
importantly, we have streamlined operations and reorganized reporting lines
to enhance efficiency and productivity. In short, our managed growth through
thoughtful acquisition and detailed execution of integration strategies has
served us well.

We remain focused on careful and profitable growth.

Marcie a. Barber | president and ceo

TOTAL ASSETS AT YEAR END
(in thousands)

$583,928

$580,354

$591,945

$480,529

$442,109

$435,753

$447,433

$448,869

$448,782

$640,000

$620,000

$600,000

$580,000

$560,000

$540,000

$520,000

$500,000

$480,000

$460,000

$440,000

$420,000

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

■ COMPLiANCE

Kathy D. Hutchinson . . . . . . . . . . Vice president, compliance Specialist
and Security officer
camie l. Harr . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BSa officer

■ FiNANCE

cortney e. Wilbert . . . . . . . . . . . . . . . . . . . . . . Vice president, controller
Kristi J. Burdge . . . . . . . .assistant Vice president, accounting Manager
renee D. Williamson . . . . . . . . . . . . . . . Financial information Manager

■ HUMAN RESOURCES

tina J. Smith . . . . . Senior Vice president, Director of Human resources
carol a. noland . . . . . . . . payroll Manager and Benefits administrator

■ MARKETiNG

lee ellen Foose . . . . . . Vice president/Branch operations administrator
laurie B. Blauvelt . . . . . . . . . . . . . . northern tier Branch administrator
Brenda a. Brubaker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice president,
Director of customer care and training
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

■ BURNHAM OFFiCE

leann M. Fisher . . . . . . . . . Vice president, community office Manager
Holly M. laub . . . . . . . . . . . . . . . . . . . . . . . . . . assistant office Manager

■ COUDERSPORT OFFiCE

Kelly l. Bruno . . . . . . . . . . . . . . . . . . . . community office Manager and
northern tier electronic Banking coordinator
Diane S. Dynda . . . . . . . . . . . . . . . . . . . . . . . . assistant office Manager

Suzanne e. Booher . . . . . . . . . . . . Vice president, Director of Marketing

■ GARDENViEw OFFiCE

■ BUSiNESS LENDiNG

Jeremiah J. trout . . . .Senior Vice president, lending Division Manager
William t. campbell, Jr. . . . . . . . . Vice president, relationship Manager
Jeffrey a. Herr . . . . . . . . . . . . . . . Vice president, relationship Manager
Joseph W. lashway . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice president,
northern tier Division Manager
thomas p. o’connell . . . . . . . . . . Vice president, relationship Manager
Kelly a. Sherman . . . . . . . . . . . . . Vice president, relationship 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

■ CONSUMER LENDiNG
Betty D. ryan . . . Vice president, Secondary Mortgage Market Manager

$624,830

■ CREDiT ADMiNiSTRATiON AND LOAN OPERATiONS

lisa M. Snyder . . . Senior Vice president, credit administration Manager
Matthew J. Waddell . . . . . . . . . . . . . . Vice president, portfolio Manager
cathleen l. Miller . . . . . . . . . . . . . . . . . . . . loan operations Supervisor

■ OPERATiONS

Steven t. Kramm . . . . . . . . . . . . . . . . . . . . . . . . . . . .Senior Vice president,
operations/it Division Manager
curtis M. crouse. . . . . . . . . . . . . . . . . . . . . . . . . . network administrator
S. Marlene Hubler. . . . . computer operations and Facilities Manager
Beverly M. Mcclellan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Data analyst
tammy l Miller . . . . . . . . . . . . . . . . . . . . . . Deposit operations Manager
Kelly l. yetter . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Solutions officer

■ 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

larry B. cottrill, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice president,
community office Manager and relationship Manager
Kelly l. Mayes . . . . . . . . . . . . . . . . . . . . . . . . . assistant office Manager

■ McALiSTERViLLE AND RiCHFiELD OFFiCES

leslie a. Miller. . . . . . . . . . Vice president, community office Manager
amber n. portzline . . . . . . . assistant office Manager, richfield office

■ MiFFLiNTOwN AND MOUNTAiN ViEw OFFiCES

annette M. price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice president,
community office Manager and teller Support Manager

MiLLERSTOwN AND LiVERPOOL OFFiCES

Diana S. orwan . . . . . . . . . . . . . . . . . . . . . . community office Manager
lisa M. Freet . . . . . . . . . . assistant office Manager, Millerstown office

■ MONUMENT SqUARE, wATER STREET, & wAL-MART OFFiCES

christine l. Searer . . . . . . . . . . . . . . . Vice president, Market Manager,
Southwest lewistown
Shana K. Mateer . . . . . . . . . assistant office Manager, Wal-Mart office
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

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Juniata Valley Financial corp.

annual report 2018

2018 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 ----------------------------------- 44

Report of Independent Registered Public Accounting Firm on Effectiveness

of Internal Control over Financial Reporting ------------------------------------------------------------------------------ 45

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements ---------------- 46

Financial Statements

Consolidated Statements of Financial Condition -------------------------------------------------------------------------- 47

Consolidated Statements of Income ----------------------------------------------------------------------------------------- 48

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

Consolidated Statements of Stockholders' Equity ------------------------------------------------------------------------ 50

Consolidated Statements of Cash Flows ------------------------------------------------------------------------------------ 51

Notes to Consolidated Financial Statements ------------------------------------------------------------------------------- 53

Common Stock Market Prices and Dividends ----------------------------------------------------------------------------------113

Corporate Information -------------------------------------------------------------------------------------------------------------113

Corporate Officers, Directors and Business Development Boards ---------------------------------------------------------115

Officers of The Juniata Valley Bank ----------------------------------------------------------------------------------------------115

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 (benefit) expense

2018

2017

2016

2015

2014

$ 625,236
521,722
414,597
148,802
9,139
11,600
15,000
67,378
5,092,048

$ 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

614,632
62,689
4,987,186

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

23,651
3,635

21,374
2,855

20,469
2,268

17,379
2,042

16,932
2,598

20,016
337
5,027

19,461
5,245
(659)

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

Net income
PER SHARE DATA

5,904

4,537

5,156

3,058

4,216

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

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

1.18
1.18
0.88
13.23

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

0.96%
9.42
74.71
10.20
79.47

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 and 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 impact of governmental monetary and fiscal policies, as well as legislative and regulatory changes;

•

the results of regulatory examination and supervision processes;

•

the failure of assumptions underlying the establishment of reserves for loan and lease losses, and
estimations of collateral values and various financial assets and liabilities;

•

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

•

the ability to implement business strategies, including business acquisition activities and organic branch,
product, and service expansion strategies;

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 on the presentation in 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;

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
•

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 presentation in the
Company’s financial condition;

•

acts of war or terrorism; disruptions due to flooding, severe weather, or other natural disasters

•

failure of third party service providers to perform their contractual obligations; and

•

the impact on earnings of the Company’s strategy to terminate its defined benefit retirement plan.

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, 2018, 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”). Juniata is a bank holding company that delivers financial services
within its market, primarily central Pennsylvania. The Bank provides retail and commercial banking, trust, estate,
and wealth management services through 16 offices in Juniata, Mifflin, Perry, Huntingdon, McKean, Potter and
Centre counties. On April 30, 2018, Juniata, which previously owned 39.16%, or 1,214 of the 3,100 outstanding
common shares of Liverpool Community Bank (“Liverpool” or “LCB”), completed the acquisition of the remainder
of Liverpool’s outstanding common stock. Under the terms of a merger agreement between the parties, LCB
merged with and into the 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.
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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018FOCUS OF MANAGEMENT

The management of Juniata believes that it is important to know who and what we are in order to be
Connected
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, 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
connection
which we deliver our services must change as well. One element of the Company’s strategic plan is to provide
through every means available, wherever we are needed, whether through a stand-alone branch,

committed

in-store boutique, ATM or via online and mobile banking anywhere internet or cell phone signals can be received.
In 2018, we continued to make advances in technological resources, placing data and information in the hands of
our customers and employees, because we are
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, and most recently in April
2018 with the acquisition of LCB.
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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
CONNECTION TO THE COMMUNITY

We are active corporate citizens of the communities we serve. Although the world of banking has transitioned
to global availability through electronics, we believe that our community banking philosophy is not only still
valid, but essential. Despite technological advances, banking is still a personal business, particularly in the rural
areas we serve. We believe that our customers shop for services and value a relationship with an institution
involved in the same community, with the same interests in its prosperity. We have a foundation and a history in
each of the communities we serve. Management takes an active role in local business and industry development
organizations to help attract and retain commerce in our market area. We provide businesses, large and small,
with financial tools and financing needed to grow and prosper. We have always been
to responsible
lending practices. We invest locally by including local municipal bonds in our investment portfolio and
participating in funding for such projects as low income and elderly housing. We support charitable programs
that benefit the local communities, not only with monetary contributions, but also through the personal
employees. JUNIATA’S OPPORTUNITIES
involvement of our

committed

caring

SOUNDNESS AND STABILITY

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

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. With the acquisition of First National Bank of Port
Allegheny (“FNBPA”) in 2015, we expanded our market into the northern tier region of Pennsylvania and
integrated the JVB brand there and have since expanded our footprint in Perry County, Pennsylvania, following
the consummation of the acquisition of LCB in April 2018.
DELIVERY SYSTEM ENHANCEMENTS

4
1

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018dedicated 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 2019,
Juniata plans to offer online deposit account opening capability.

JUNIATA’S CHALLENGES

NET INTEREST MARGIN COMPRESSION

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.
RATE ENVIRONMENT

We intend to continue making what we believe to be rational pricing decisions for loans, deposits and non-
deposit products. This strategy can be difficult to maintain, as many of our peers appear to continue pricing for
growth, rather than long-term profitability and stability. We believe that a strategy of “growth for the sake of
growth” results in lower profitability, and such actions by large groups of banks have had an adverse impact on
the entire financial services industry. We intend to maintain our core pricing principles, which we believe protect
and preserve our future as a sound community financial services provider, proven by results.
REGULATIONS

5
1

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018APPLICATION 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
allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses in
the loan portfolio. Management’s determination of the adequacy of the allowance for loan losses is based upon an
evaluation of individual credits in the loan portfolio, historical loan loss experience, current economic conditions
and other relevant factors. This determination is inherently subjective, as it requires material estimates, including
the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to
significant change.

Considerations used by management to determine other-than-temporary impairment status of individual
holdings within the investment securities portfolio are based partially upon estimations of fair value and
potential for recovery. As market conditions and perception can unpredictably affect the value of individual
investments in the future, these determinations could have a material impact on the Company’s future financial
condition and results of operations.

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 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 20182018 FINANCIAL PERFORMANCE OVERVIEW

RESULTS OF OPERATIONS

The comparability of the results of operations for the years ended December 31, 2018 and December 31, 2017
was impacted by the following events discussed in more detail below: (i) the acquisition of LCB, (ii) the
“de-risking” of the Company’s defined benefit plan in 2018 and 2017, and (iii) the reduction in the corporate tax
rate due to the enactment of the Tax Cuts and Jobs Act (“TCJA”) on December 22, 2017. Juniata’s management
believes it is meaningful to present a performance comparison that segregates the financial impact of the afore-
mentioned items, to allow a view of comparative results to 2017. 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 are referred to as “adjusted” results.

Prior to Juniata’s acquisition of Liverpool on April 30, 2018, Juniata owned 39.16% of the outstanding common
stock of Liverpool and recorded its share of Liverpool’s earnings as “income from unconsolidated subsidiary”
using the equity method of accounting. In conjunction with the acquisition, Juniata incurred $884,000 and
$13,000 in merger-related expenses during the years ended December 31, 2018 and 2017, respectively. Since
Juniata accounted for its investment in Liverpool using the equity method, 39.16% of Liverpool’s merger-related
expenses incurred in the year ended December 31, 2017 reduced Juniata’s non-interest income by $33,000.
Additionally, an adjustment to the carrying value of Juniata’s previous 39.16% ownership of Liverpool at April 30,
2018 resulted in a recorded pre-tax net gain of $215,000 during the year ended December 31, 2018. Also, the
removal of a $406,000 deferred tax liability related to the previous investment in Liverpool, resulted in a
corresponding reduction in income tax expense in 2018.

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 in
2017. In 2018, Juniata completed the second step of the strategy to reduce the liability associated with its defined
benefit pension plan by making a lump sum payment offer to a small group of terminated vested participants in
Juniata’s defined benefit plan. This step further reduced Juniata’s remaining pension liability by approximately
9%, which resulted in a pre-tax charge to earnings of $210,000 in the twelve months ended December 31, 2018.
The pre-tax charges represent a further acceleration of pension expenses that would otherwise have impacted
Juniata’s future earnings. In 2019, Juniata plans to finalize the termination of its defined benefit plan.

The enactment of the TCJA at the end of 2017, while expected to provide tax savings to Juniata in future
periods, resulted in write-downs of Juniata’s and Liverpool’s net deferred tax assets in 2017, which were
previously valued based upon the projection of a 34% future tax benefit. As a result, a non-cash charge of
$416,000 was included in the provision for income taxes at Juniata as was a similar non-cash charge at Liverpool,
resulting in a $32,000 decline in Juniata’s non-interest income in the in the three and twelve months ended
December 31, 2017 due to Juniata’s previous 39.16% ownership in Liverpool. In 2018, the value of the Juniata’s
deferred tax asset was adjusted again, due primarily to a defined benefit contribution applied to the prior tax
year. The adjustment resulted in a decrease in tax expense of $168,000.

Net income for Juniata in 2018 was $5,904,000, representing a 30.1% increase compared to net income for
2017. Earnings per share on a fully diluted basis increased from $0.95 in 2017 to $1.18 in 2018. When adjusted
for the impact of the tax-effected events mentioned above, adjusted net income was $6,024,000 for the year
ended December 31, 2018, an increase of 14.7% over adjusted net income for the year ended December 31, 2017.
Adjusted earnings per share increased by 10.0% from $1.10 in 2017 to $1.21 in 2018. For 2018, return on

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
average assets (“ROA”) and return on average equity (“ROE”) were 0.96% and 9.42%, respectively. On an adjusted
basis, return on average assets was 0.98% in 2018 as compared to 0.88% in 2017, and return on average equity
was 9.61% and 8.77% in 2018 and 2017, respectively.

The net interest margin, on a fully tax-equivalent basis, increased from 3.52% in 2017 to 3.60% in 2018. The
yield on earning assets increased 26 basis points to 4.18%, while the cost of funds increased 17 basis points, to
0.85%, compared to 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

2018
0.96%
9.42
4.18
0.85

0.82
3.17
2.35

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

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 net gain on carrying value of 39.16% in LCB
Tax expense of merger-related gains
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
(Increase) reduction in valuation of deferred tax assets due to TCJA

Reduction in deferred tax liability related to previous investment

in unconsolidated subsidiary

Total adjustments to reported net income to reconcile

to non-GAAP measure

Adjusted net income (non-GAAP)

2018
5,904

2017
4,537

2016
5,156

210
(44)
884

-
(186)
(215)
45
-
-
-
-

-
(168)

(406)

377
(128)
13

33
(16)
-
-
-
-
-
-

(11)
416

-
-
347

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

-
-

120
6,024

716
5,253

(210)
4,946

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

(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
Reduction in valuation of deferred tax liability
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
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
Adjusted return on average equity

2018

2017

2016

1.18

0.95

1.07

0.03
0.14
(0.03)
.0-
(0.03)
(0.08)

0.05
0.01
.0-
.0-
0.09
.0-

.0-
0.05
(0.02)
(0.08)
.0-
.0-

0.03
1.21

0.15
1.10

(0.05)
1.02

5,904
614,632
62,689
5,009,484

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

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

0.96%

0.76%

0.89%

0.02
0.98%

0.12
0.88%

(0.04)
0.86%

9.42%

7.57%

8.42%

0.19
9.61%

1.20
8.77%

(0.34)
8.08%

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 2018 and 2017.
(Dollars in thousands)

2018

2017

Net interest income
Provision for loan losses
Customer service fees
Debit card fee income
BOLI
Trust fees
Commissions from sales of non-deposit products
Income from unconsolidated subsidiary
Security gains
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 benefit (expense)
Net income

Average assets

Assets

Net Income % of Average Net Income % of Average
Components
20,016
$
(337)
1,779
1,280
352
430
259
296
(188)
70
749
5,027

Components
18,519
$
(439)
1,747
1,120
352
446
173
167
512
214
561
5,292

3.26%
(0.05)
0.29
0.21
0.06
0.07
0.04
0.05
(0.03)
0.01
0.12
0.82

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

(10,280)
(2,035)
(1,924)
(215)
(640)
(498)
(274)
60
(79)
(800)
(884)
(1,892)
(19,461)

(1.67)
(0.33)
(0.31)
(0.03)
(0.10)
(0.08)
(0.04)
0.01
(0.01)
(0.13)
(0.14)
(0.31)
(3.17)

(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)

659
5,904

0.11
0.96%

614,632

(1,060)
4,537

(0.18)
0.76%

593,923

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 82% of total revenues (the total of net interest income and non-interest income, exclusive of
security losses) for 2018. 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 2018, 2017 and 2016. Table 2 further shows changes attributable to
the volume and rate components of net interest income.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018TABLE 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

2018

Years Ended December 31

2017

2016

Average

Balance(1)

Interest

Yield/

Rate

Average

Balance(1)

Interest

Yield/

Rate

Average

Balance(1)

Interest

Yield/

Rate

$ 379,696
29,666
409,362

$ 19,092
968
20,060

5.03%
3.26
4.90

$ 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

131,420
19,988

3,040
393

151,408
3,246
1,267
565,283

3,433
132
26
23,651

2.31
1.97

2.27
4.07
2.05
4.18

12,685
(3,016)
8,757
30,923
$ 614,632

134,607
24,797

159,404
580
-
545,395

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

2,888
451

3,339
30
-
21,374

2.15
1.82

2.09
5.17
0.00
3.92

2,475
418

2,893
13
4
20,469

124,611
23,807

148,418
770
675
529,040

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

4.77%
2.99
4.63

1.99
1.76

1.95
1.69
0.52
3.87

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

$ 141,483
102,086
148,671

978
102
1,988

0.69
0.10
1.34

$ 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

interest bearing liabilities

33,136

567

1.71

56,846

726

1.28

46,310

457

0.99

Total interest bearing
liabilities

425,376

3,635

0.85

419,403

2,855

0.68

404,045

2,268

0.56

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

120,521
6,046
62,689

stockholders’ equity

$ 614,632

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

108,141
6,441
59,938

$ 593,923

105,536
6,551
61,209

$ 577,341

$ 20,016

$ 18,519

$ 18,201

3.54%

3.40%

3.44%

$ 20,378

3.60%

$ 19,223

3.52%

$ 18,884

3.57%

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 21% in 2018 and 34% in both 2017 and 2016.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

2018 compared to 2017
Increase (Decrease) Due To (6)

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

Volume

Rate

Total

Volume

Rate

Total

1,219
(22)
1,197

783
75
858

(70)
(92)
(162)
110
26
1,171

222
34
256
(8)
-
1,106

$ 2,002
53
2,055

152
(58)
94
102
26
2,277

294
3
297

207
18
225
(4)
(4)
514

143
6
149

206
15
221
21
-
391

437
9
446

413
33
446
17
(4)
905

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

66
3
110

508
-
252

574
3
362

4
3
3

147
(6)
167

151
(3)
170

interest bearing liabilities
Total interest bearing liabilities
Net interest income

(360)
(181)
1,352

201
961
145

(159)
780
$ 1,497

117
127
387

152
460
(69)

269
587
318

Notes:
(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 losses on securities available for sale: $4,687 in 2018, $1,065 in 2017, $1,302 in 2016.
(8) Interest income includes loan fees of $95, $89 and $78, in 2018, 2017 and 2016, respectively.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

On average, total loans outstanding in 2018 increased from 2017 by 6.2%, to $409,362,000, primarily due to
the addition of Liverpool’s loan portfolio, as well as organic growth. Average yields on loans increased by 23
basis points in 2018 when compared to 2017. 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 $858,000, while the
increase in volume increased interest income by $1,197,000, resulting in an aggregate increase in interest
recorded on loans of $2,055,000 in 2018 compared to 2017. The prime rate increased by 25 basis points in
March 2018, June 2018, September 2018, and mid-December 2018 to end the year at 5.50%. The increased yield
on prime-related loans in 2018 assisted in the increase in the average yield on loans in 2018 compared to 2017.

During 2018, cash flows from maturities, sales and repayments of investment securities were primarily used to
fund a portion of the loan growth and pay off maturing long-term debt and pay down short-term borrowings.
Additional funds from deposit growth were likewise invested into the loan portfolio and used to pay down debt.
As a result, average balances of investment securities decreased by $7,996,000, and this volume decline
accounted for a $162,000 decrease in interest income compared to 2017. The improvement in the overall yield
of the investment portfolio by 18 basis points between 2017 and 2018 increased net interest income by
$256,000, resulting in an aggregate increase in interest recorded on investment securities of $94,000 in 2018
compared to 2017.

In total, yield on earning assets in 2018 was 4.18% compared to 3.92% in 2017, an increase of 26 basis points.

On a fully tax equivalent basis, the yield on earning assets also increased 20 basis points from 4.05% in 2017 to
4.25% in 2018.

Average interest bearing liabilities increased by $5,973,000 in 2018, compared to 2017. Within the categories
of interest bearing liabilities, deposits increased on average by $29,683,000, and borrowings declined by
$23,710,000 on average. The addition of Liverpool’s deposits was the primary reason for the increase in average
interest bearing deposits as Liverpool’s deposits allowed for a reduction in overnight borrowings, which declined
by an average of approximately $16,217,000 in 2018 compared to 2017. In addition, the deposits were also used
towards the repayment of two FHLB long-term debt advances, further contributing to a decline in average
borrowings of $7,507,000. Changes in the volume of total interest-bearing liabilities decreased interest expense
by $181,000 in 2018 compared to 2017, while changes in interest rates increased interest expense by $961,000.
The percentage of average interest earning assets funded by average non-interest bearing demand deposits was
approximately 23.1% in 2018 versus 19.8% in 2017. The total cost to fund earning assets (computed by dividing
the total interest expense by the total average earning assets) in 2018 was 0.64%, compared to 0.52% in 2017.
This increase was primarily caused by the 1.00% increase in the Prime rate during 2018, which led to increased
deposit rate competition and higher overnight borrowing rates.

0
2

Net interest income was $20,016,000 for 2018, an increase of $1,497,000 when compared to 2017. Increases in
both volume and rates contributed $1,352,000 and $145,000, respectively, toward the improved net interest
income in 2018 compared to 2017.
PROVISION FOR LOAN LOSSES

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

$337,000 was appropriate for 2018, a decrease of $102,000 when compared to 2017 when the total loan loss
provision was $439,000. The lower provision in 2018 primarily resulted from continued strong asset quality with
a reduction in the recorded investment in impaired loans. 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 2018.
NON-INTEREST INCOME

The Company remains committed to providing comprehensive services and products to meet the current and
future financial needs of its customers. Juniata believes its responsiveness to customers’ needs surpasses that of
its competitors, and measures its success by the customer acceptance of fee-based services. The Company
continually explores avenues to enhance product offerings in areas beneficial to its customers, such as adding
new features and services for its electronic banking clientele. Fraud protection services are made available to all
consumer depositors. We offer a variety of options for financing to home-buyers that includes a mortgage referral
program, providing significant fee income. Juniata also provides alternative investment opportunities through an
arrangement with a broker dealer that integrates the delivery of non–traditional products with its Trust and
Wealth Management Division. This arrangement enables Juniata to meet the investment needs of a varied
customer base and to better identify its 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 2018, revenues from these services totaled $2,468,000,
representing an increase of $102,000, or 4.3%, from 2017 revenues, primarily due to an increase in wealth
management commissions. Total fees from customer deposits increased by $32,000, or 1.8%. Fees from both
estate settlements and non-estate fees declined by $4,000 and $12,000, respectively, in 2018 compared to 2017.
Variance in fees from estate settlements occurs because estate settlements occur sporadically and are not
necessarily consistent year to year. Non-estate fees are repeatable revenues that generally increase and decrease
in relation to movements in interest rates as market values of trust assets under management increase or
decrease and as new relationships are established. Commissions from sales of non-deposit products increased in
2018, in comparison to 2017, by $86,000, or 49.7%, as sales increased.

Fees generated by debit card activity increased by $160,000, or 14.3%, in 2018 compared to the prior year due
to general increased debit card usage, as well as the addition of Liverpool’s debit card customers.

Fees and income derived from the origination, sale and servicing of residential mortgage loans (mortgage
banking income) was $70,000 in 2018, a decline of $144,000, or 67.3%, compared to 2017. No loans were sold to
the secondary market in 2018 as the focus of the Bank’s was shifted to a loan referral program. Other non-
interest-related fees derived from loan activity increased by $149,000 when comparing 2018 to 2017, primarily
due to revenues generated from title insurance fees and the loan referral program.

The Company previously owned 39.16% of the stock of LCB and accounted for its ownership through the
equity method. As such, 39.16% of the income of LCB was recorded by Juniata as non-interest income. Upon the
acquisition of Liverpool on April 30, 2018, an adjustment to the carrying value of Juniata’s previous 39.16%
ownership resulted in a net gain of $215,000 (derived from Juniata’s share of $239,000 in LCB’s second quarter
earnings net loss, $39,000 in dividend income received from LCB’s special merger-related dividend, as well as a
$415,000 equity gain recorded from the acquisition) at April 30, 2018, which was offset by the discontinuance of
income in this category after April 30, 2018. Due to the recording of the net gain in 2018, income/gain from
unconsolidated subsidiary increased by $129,000 compared to the same 2017 period.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 Losses realized from the sales and calls of investment securities during 2018 were $188,000 compared to a
gain of $512,000 in 2017. A strategy was undertaken at the end of 2018 to replace lower yielding investments
with higher yielding ones in order to position the portfolio for higher future returns. This strategy resulted in a
loss in 2018, while Juniata benefited from the price appreciation of securities sold in 2017 for a gain.

As a percentage of average assets, non-interest income (excluding securities gains/losses on sales or calls of
securities) was 0.85% and 0.89% in 2018 and 2017, respectively.
NON-INTEREST EXPENSE

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

In 2018, total non-interest expense increased by $1,686,000, or 9.5%, when compared to 2017. Merger and
acquisition expense increased $871,000 in 2018 compared to 2017 due to the acquisition of Liverpool. Employee
compensation expense increased $663,000, or 9.3%, in 2018 compared to 2017, predominantly due to the
addition of the Liverpool staff and higher levels of accruals for the employee incentive bonus. However, a
reduction in medical expenses of $165,000 and defined benefit expense of $242,000 contributed to a decline of
$379,000, or 13.4%, in employee benefits expense in 2018 compared to 2017. Some of the decline was
attributable to a reduction in settlement costs of $167,000, with the remainder attributable to a pre-tax charge to
earnings of $377,000 recorded in 2017 from step one of the “de-risking” of the defined benefit plan compared to
$210,000 recorded in 2018 for the completion of step two.

Also contributing to the year over year increase in non-interest expense was an increase of $188,000, or 30.7%,
in the amortization of two tax credit investments in low-income housing partnerships. Amortization for the
phase II project did not begin until the in the second half of 2017, while amortization was recorded for the entire
year of 2018. 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 2018 and 2017. Amortization is scheduled to continue
through 2023 for phase I and through 2027 for phase II.

Data processing expense increased by $173,000, or 9.9%, in 2018 compared to 2017 with occupancy and
equipment expense including, in aggregate, by $151,000, or 8.0%, due to the increased expense of adding
Liverpool’s data processing, branch office, and equipment in 2018.

Offsetting the increase in total non-interest expense was a decline in FDIC insurance premiums of $60,000, or
18.0%, as well as an increase in the gain on sales of other real estate owned of $52,000, or 650.0%.

As a percentage of average assets, non-interest expense was 3.17% in 2018 as compared to 2.99% in 2017.
INCOME TAXES

Income tax for 2018 amounted to a benefit of $659,000 versus an expense of $1,060,000 in 2017. The effect of
the TCJA 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, while the reduction in Juniata’s corporate tax rate from 34%
in 2017 to 21% in 2018 resulted in an additional tax benefit of $168,000. Further impacting the income tax
provision in 2018 was the removal of a $406,000 deferred tax liability related to the previous investment in
unconsolidated subsidiary. Both periods included the effect of a tax credit amounting to $901,000 in 2018 and
$722,000 in 2017. The tax credit was available to the Company as a result of an equity investment in two low-
income housing projects. Juniata’s effective tax rate in 2018 was (12.6)% versus 18.9% in 2017. See Note 16 of
Notes to Consolidated Financial Statements for further information on income taxes.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

2018
5,904
0.96%
9.42%
2017 FINANCIAL PERFORMANCE OVERVIEW

2017
4,537

2016
5,156

0.76%
7.57%

0.89%
8.42%

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 TCJA on December 22,
2017, and (iv) the gains from life insurance proceeds recorded in 2016, with no such gains recorded 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 in the “2018 Financial Performance Overview”. The non-GAAP
measures are 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 continued 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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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.

Summarized below are the components of net income and the contribution of each to ROA for 2017 and 2016.
(Dollars in thousands)

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
(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

Net Income % of Average Net Income % of Average
Components
18,519
$
(439)

Components
18,201
$
(466)

3.12%
(0.07)

3.15%
(0.08)

Assets

1,747
1,120
352
446
173
167
-
512
214
561
5,292

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

0.29
0.19
0.06
0.08
0.03
0.03
0.00
0.09
0.04
0.09
0.89

(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)

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

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

0.30
0.18
0.06
0.08
0.04
0.04
0.06
0.04
0.03
0.11
0.94

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

Income tax expense
Net income

(1,060)
4,537

(0.18)
0.76%

(819)
5,156

(0.14)
0.89%

Average assets
NET INTEREST INCOME

593,923

577,341

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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 primarily 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.
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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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.

Prior to April 30, 2018, the Company owned 39.16% of the stock of LCB and accounted for its ownership
through the equity method. As such, 39.16% of the income of LCB was 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 TCJA. 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.

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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 2018
FINANCIAL CONDITION

BALANCE SHEET SUMMARY

Juniata functions as a financial intermediary and, as such, its financial condition can be best analyzed in terms

of changes in its uses and sources of funds, and can also be 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

2018
Average
Balance

379,696
29,666
131,420
19,988
3,246
1,267

Increase (Decrease)
Amount

24,663
(712)
(3,187)
(4,809)
2,666
1,267

6.9 %
(2.3)
(2.4)
(19.4)
459.7
-

2017
Average
Balance

Increase (Decrease)

Amount

2016
Average
Balance

355,033 $

30,378
134,607
24,797
580
-

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

1.8 % $
0.4
8.0
4.2
(24.7)
(100.0)

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

565,283

19,888

3.6

545,395

16,355

3.1

529,040

1,573
4,965
15,552

(3,198)
(18)
761

(67.0)
(0.4)
5.1

4,771
4,983
14,791

157
1,564
(97)

3.4
45.7
(0.7)

4,614
3,419
14,888

8,294

2,616

46.1

5,678

(76)

(1.3)

5,754

26,668

4,216

19.0

22,179

(1,524)

(6.4)

23,703

(4,687)

(3,622)

340.1

(1,065)

440

(29.2)

(1,505)

loan losses

(3,016)

(207)

(7.4)

(2,809)

(237)

(9.2)

(2,572)

Funding Sources:
Total uses

614,632

20,436

3.4 %

593,923 $ 16,582

2.9 % $

577,341

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

141,483
102,086

17,963
2,701

14.5 %
2.7

123,520 $

99,385

2,041
2,516

1.7 % $
2.6

121,479
96,869

110,931

5,326

5.0

105,605

(3,449)

(3.2)

109,054

37,740
4,177
9,906
17,493

3,693
(646)
(15,570)
(7,507)

10.8
(13.4)
(61.1)
(30.0)

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

1,560

0.8

1,547

4.5

1,480

425,376
120,521
6,046
62,689

5,973
12,380
(395)
2,478

1.4
11.4
(6.1)
4.1

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

Total sources

614,632

20,436

3.4 %

593,923 $ 16,582

2.9 % $

577,341

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Overall, total average assets increased by $20,436,000, or 3.4%, for the year 2018 compared to 2017, following
an increase of $16,582,000, or 2.9%, in 2017 over average assets in 2016. The increase in 2018 was primarily due
to the acquisition of LCB on April 30, 2018. The ratio of average earning assets to total average assets was 92.0%
in 2018, while it was 91.8% and 91.6% in 2017 and 2016, respectively. The ratio of average interest-bearing
liabilities to total average assets decreased in 2018 to 69.2% from 70.6% in 2017, which was an increase from
70.0% in 2016. Although Juniata’s previous investment in its unconsolidated subsidiary, investment in low
income elderly housing projects 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 3.6% and 4.1%
of total average assets in 2018 and 2017, 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
LOANS
“Market/Interest Rate Risk”.

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

2018
46,563
141,295
36,688
163,548
19,129
10,408
$ 417,631

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

Years ended December 31,
2016
40,827
123,711
35,206
154,905
13,616
10,032
378,297

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

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

From year-end 2017 to year-end 2018, total loans outstanding increased by $33,727,000, primarily due to the
addition of $31,331,000 at April 30, 2018 from Liverpool’s loan portfolio, following an increase of $5,607,000 in
2017 when compared to year-end 2016. The following table summarizes how the ending balances changed
(Dollars in thousands)
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

2018
383,904
2,931
31,331
(285)

2017
$ 378,297
6,239
-
(292)

2016
377,043
1,750
-
(279)

(250)
33,727
417,631

(340)
5,607
$ 383,904

(217)
1,254
378,297

The loan portfolio was comprised of approximately 41.7% consumer loans and 58.3% commercial loans
(including construction) on December 31, 2018 as compared to 40.7% consumer loans and 59.3% commercial
loans on December 31, 2017. 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 $93,966,000 at December 31, 2018, or 142.57% 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
Continuing care retirement communities
Lessors of residential buildings and dwellings
Total

Outstanding Balance % of Bank Capital

36,459,183
20,424,415
18,684,249
18,398,129
93,965,976

55.32%
30.99%
28.35%
27.91%
142.57%

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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.

There was growth in all loan categories in 2018, mainly due to the addition of Liverpool’s loan portfolio, as well
as organic growth. During 2017, there was growth in commercial and commercial real estate mortgages, largely
offset by a decrease in real estate construction and consumer mortgages. 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, 2018
was 0.73% of total loans, net of unearned interest, as compared to 0.77% of total loans, net of unearned interest,
at the end of 2017. Loans that Juniata acquired through mergers and acquisitions, such as those acquired from
Liverpool in 2018 and FNBPA in 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 become a
smaller percentage of total outstanding loans over time, contributing to the increase in the allowance as a
percentage of total loans. The allowance increased $95,000 when compared to December 31, 2017, as a result of
net charge-offs of $242,000 offset by the provision of $337,000. Net charge-offs for both 2018 and 2017 were
0.06% of average loans.

At December 31, 2018, non-performing loans (as defined in Table 4 below), as a percentage of the allowance
for loan losses, were 68.4% as compared to 102.9% at December 31, 2017. Non-performing loans were 0.50% of
loans as of December 31, 2018, and 0.79% of loans as of December 31, 2017. The decrease in nonperforming
loans in 2018 compared to 2017 was predominantly due to successful workout efforts, which resulted in a
significant reduction in non-performing loans as several of these loans were either brought current or liquidated.
Of the $2,075,000 in non-performing loans at December 31, 2018, only one loan for $17,000 was not
collateralized with real estate.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
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

2018

1,707

Years ended December 31,
2016
4,733

2017
2,874

2015
3,688

2014
4,880

329
39
2,075

64
87
3,025

554
25
5,312

2
-
3,690

400
366
5,646

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 2018, gross interest income that would have been recorded if loans on
nonaccrual status had been current was $311,000, of which $33,000 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: 1) specific allowances allocated to loans
evaluated for impairment under the Financial Accounting Standards Board’s Accounting Standards Codification
(“FASB ASC”) Section 310-10-35; and 2) allowances calculated for pools of loans evaluated for impairment under
FASB ASC Subtopic 450-20 (Contingencies).
Component for impaired loans:

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018, 34 loans, with aggregate outstanding balances of $2,133,000, were evaluated for
impairment. A collateral analysis was performed on each of these 34 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. Loans acquired
with credit impairment are considered to be impaired loans, but are not included with this component for
consideration in the allowance, as they are carried at fair value of $1,515,000 as of December 31, 2018.
Component for pooled loan 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.

In accordance with FASB ASC Subtopic 450-20, when measuring estimated credit losses, these loans are grouped

into homogenous pools with similar characteristics and evaluated collectively considering both quantitative
measures, such as historical loss, and qualitative measures, in the form of environmental adjustments.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
These pools are established by general loan type, or “portfolio segments,” as follows:

•
•
•
•
•
•

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

Some portfolio segments are further disaggregated and evaluated collectively for impairment based on “class
segments,” which are largely based on the type of collateral underlying each loan. For commercial, financial and
agricultural loans, class segments include commercial loans secured by other-than real estate collateral. Real
estate – commercial class segments include loans secured by farmland, multi-family properties, owner-occupied
non-farm, non-residential properties and other nonfarm non-residential properties. Real estate – mortgage
includes loans secured by first and junior liens on residential real estate. Construction loan class segments
include loans secured by commercial real estate, loans to commercial borrowers secured by residential real
estate and loans to individuals secured by residential real estate. Personal loan class segments include direct
consumer installment loans, indirect automobile loans and other revolving and unsecured loans to individuals.
Quantitative factor determination:

An average annual loss rate is calculated for each pool through an analysis of historical losses over a five-year
look-back period. Using data for each loan, a loss emergence period is determined within each segmented class
pool. The loss emergence period reflects the approximate length of time from the point when a loss is incurred
(the loss trigger event) to the point of loss confirmation (the date of eventual charge-off). The loss emergence
period is applied to the average annual loss to produce the qualitative factor for each pooled class segment.
Qualitative factor determination:

Historical loss rates computed in the quantitative component reflects an estimate of the level of incurred losses
in the portfolio based on historical experience. Management considers that the current conditions may deviate
from those that prevailed over the historical look-back period. Thus, the quantitative rates are an imperfect
estimate, necessitating an evaluation of qualitative considerations, i.e. environmental factors to incorporate
these risks.

Management considered qualitative, environmental risk factors including:

•

•
•
•
•
•

•
•

National, regional and local economic and business conditions, and developments that affect the
collectability of the portfolio, including the condition of various market segments;
Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume
and severity of adversely classified loans;
Changes in the nature and volume of the portfolio and terms of loans;
Changes in the experience, ability and depth of lending and credit management and other relevant staff;
Existence and effect of any concentrations of credit and changes in the level of such concentrations;
Changes in the quality of the loan review system;
Changes in lending policies and procedures including changes in underwriting standards and collection,
charge-off and recovery practices;
Changes in the value of underlying collateral for collateral-dependent loans; and
Effect of external influences, including competition, legal and regulatory requirements.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Within each loan segment, an analysis was performed over a ten-year look-back period to discover peak
historical losses, and with this data, management established ranges of risk from minimal to very high, for
each risk factor, to produce a supportable anchor for risk assignment. Based on the framework for risk factor
evaluation and range of adjustments established through the anchoring process, a risk assessment and
corresponding adjustment was assigned for each portfolio segment as of December 31, 2018. Adjustments
to the factors are supported through documentation of changes in conditions in a narrative accompanying
the allowance for loan loss calculation.

The combination of quantitative and qualitative factors were applied to year-end balances in each pooled
segment to establish the overall allowance.

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, which balances accounted
for approximately 39% of the total loan portfolio at December 31, 2018. In 2018, the Company recorded net
charge-offs of $242,000. Based on the analysis described above, the provision for loan loss in 2018 was 23.2%
lower than in 2017. With the provision exceeding net charge-offs, the loan loss allowance increased by 3.2% over
the allowance level in December 31, 2017. Management’s analysis indicated that the loan loss allowance of
$3,034,000 at December 31, 2018 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,

2018

2,939

2017
2,723

2016
2,478

2015
2,380

2014
2,287

-
60
-
183
42
285

10
5
12
16
43

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

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

242
337
3,034

223
439
2,939

221
466
2,723

404
502
2,478

264
357
2,380

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

0.06%

0.13%

0.09%

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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
Obligations of states and political subdivisions
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,

2018
275
1,074
558
1,035
20
72
3,034

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

Years Ended December 31,

2018
11.1%
33.8%
8.8%
39.2%
4.6%
2.5%
100.0%

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%

Total investments, defined to include all interest earning assets except loans (i.e. investment securities available
for sale (at fair value), equity securities, federal funds sold, interest bearing deposits, restricted investment in
bank stock and other interest-earning assets), totaled $149,641,000 on December 31, 2018, representing a
decrease of $7,695,000 when compared to year-end 2017. 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
Sales, calls and maturities of investment securities
Change in value of equity securities under ASU 2016-01
Adjustment in market value of AFS securities
Amortization/Accretion
Restricted investment in bank stock, net change
Federal funds sold, net change

Interest bearing deposits with others, net change
Interest bearing time deposits with banks acquired through merger

Maturities of interest bearing time deposits with banks
Net change

2018
157,336
20,610
(29,794)
(1)
(1,028)
(540)
(663)
729
52
3,675
(735)
(7,695)

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)

Ending balance

149,641

$ 157,336

$ 154,543

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

On average, total investments declined by $4,063,000, or 2.5%, during 2018, following an increase of
$10,121,000, or 6.8%, during 2017. The decline in 2018 was the result of a strategy to apply cash flows from the
investment portfolio to reduce high cost borrowings, as opposed to reinvesting in additional investment
securities. The increase in 2017 resulted from excess cash available from loan repayments.

The investment area is managed according to internally established guidelines and quality standards. Juniata
segregates its investment securities portfolio into two classifications: those held to maturity and those available
for sale. Juniata classifies all new marketable investment securities as available for sale, and currently holds no
securities in the held to maturity or trading classifications. At December 31, 2018, the market value of the entire
securities portfolio was less than amortized cost by $3,357,000 as compared to December 31, 2017, when the
market value was less than amortized cost by $2,132,000. The weighted average life of the investment portfolio
was 4.5 years on December 31, 2018 and 4.3 years on December 31, 2017. 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, 2018

Fair
Value

Weighted
Average
Yield

December 31, 2017
Weighted
Average
Yield

Fair
Value

December 31, 2016

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

0.00%
20,355 1.96%
2,911 2.29%
23,266 2.00%

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

826 3.37%
14,686 3.82%
2,669 3.74%
18,181 3.79%

0.00%
5,664 2.19%
94,842 2.52%
100,506 2.51%

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

2,516
13,955
8,510
24,981

-
5,249
88,261
93,510

1.11%
1.84%
1.99%
1.78%

1.84%
2.75%
3.02%
2.75%

0.00%
2.21%
2.27%
2.26%

19,331
16,468
35,799

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

104
7,701
77,897
85,702

0.00%
1.38%
1.87%
1.61%

2.04%
2.50%
3.00%
2.65%

1.37%
2.22%
2.13%
2.13%

Available for sale equity securities

$ 141,953

1,119
$ 153,824

2,328
$ 150,488

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 net increase in cash surrender value
BOLI policy acquired through merger
BOLI receipt of death benefit
Annuities net increase in cash surrender value
Net change
Ending balance
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

2018
14,972
303
632
-
31
966
15,938

2017
14,631
311
-
-
30
341
14,972

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

The Company no longer has an investment in an unconsolidated subsidiary following its acquisition of the
remainder of the outstanding common stock of Liverpool on April 30, 2018. Prior to the acquisition, the Company
owned 39.16% of the outstanding common stock of Liverpool, and the investment was carried at $4,812,000 as
of December 31, 2017. The investment was accounted for under the equity method of accounting. The Company
increased its investment in LCB for its share of earnings and decreased its investment by any dividends received
from LCB. The investment was evaluated quarterly for impairment. A loss in value of the investment which is
determined to be other than a temporary decline would have been recognized as a loss in the period in which
such determination was 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 that would justify the current carrying value of the investment. There was no impairment of the
investment relating to LCB prior to the acquisition on April 30, 2018. In connection with this investment, two
representatives of Juniata served on the Board of Directors of LCB.
GOODWILL AND INTANGIBLE ASSETS
Branch Acquisition

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill at December 31, 2018
and 2017 was $2,046,000. The core deposit intangible of $431,000 was fully amortized as of December 31, 2018
and 2017. Core deposit intangible amortization expense of $29,000 was recorded in 2016, while no such expense
was recorded during the years 2018 and 2017. The core deposit intangible was 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, 2018, goodwill related
to the FNBPA acquisition remained at $3,402,000. In addition, a 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. Core
deposit intangible amortization expense recorded in 2018 was $44,000 and, for the succeeding five years
beginning 2019, is estimated to be $38,000, $33,000, $27,000, $22,000, and $16,000 per year, respectively, and
$15,000 in total for years after 2023. 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 no such expense was recognized in 2018. Core deposit
and other intangible assets, net of amortization, was $151,000 as of December 31, 2018.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

LCB Acquisition

On April 30, 2018, Juniata completed the acquisition of LCB and, as a result, recorded goodwill of $3,691,000.
In addition, a core deposit intangible of $289,000 was recorded and will be amortized over a ten-year period
using a sum of the years’ digits basis. Core deposit intangible expense recorded in 2018 was $35,000, and for the
succeeding five years beginning 2019, is estimated to be $49,000, $44,000, $39,000, $33,000, and $28,000 per
year, respectively, and $68,000 in total for years after 2023. Core deposit intangible, net of amortization, was
$254,000 as of December 31, 2018.
Mortgage Servicing Rights

Due to a strategic shift in focus to a new mortgage product, which is increasing fees derived from loan activity,
the Company did not originate and sell residential mortgage loans to the secondary market in 2018; however, the
Company retains the servicing on loans originated and sold in prior years. 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, 2018 and December 31,
2017, the fair value of mortgage servicing rights was $200,000 and $225,000, 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, 2018 or 2017. As of December 31, 2018 and 2017, the Company recorded a net deferred tax asset of
$1,000,000 and $652,000, respectively, which was carried as a non-interest earning asset.

The Tax Cuts and Jobs Act, lowered Juniata’s future maximum corporate tax rate from 34% to 21% on January
1, 2018. While the reduced rate provides tax savings to Juniata now and 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 reduction in net deferred taxes of $416,000,
or 69.7%, of the total reduction of $597,000 at December 31, 2017. In 2018, the value of the Juniata’s deferred
tax asset was adjusted again, due primarily to a defined benefit contribution applied to the prior tax year, along
with the removal of a deferred tax liability no longer applicable. The net adjustment resulted in a decrease in tax
expense in 2018 of $168,000.

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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018OTHER 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
DEPOSITS

2018

2017

2016

27,992

24,988

25,886

5,778

(143)

389

(700)

2,000

7,324

375

2,030

(283)

1,433

(551)

3,004

(921)

(52)

444

(390)

(898)

35,316

27,992

24,988

At December 31, 2018, total deposits were $521,722,000, an increase of $44,054,000 as compared to the
previous year end. At December 31, 2017, total deposits were $477,668,000, an increase of $21,846,000 from
total deposits on December 31, 2016. Deposits assumed from the LCB acquisition accounted for an increase of
$36,052,000 in 2018. 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

2018
477,668
10,146
25,006
270
8,632
44,054
521,722

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

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)

2018
Average
Balance

Increase (Decrease)
Amount

Changes in Deposits
2017
Average
Balance

Increase (Decrease)

Amount

2016
Average
Balance

Core transaction deposits:
Money market

Interest bearing demand

Savings
Demand

Total core transaction

48,210
93,273
102,086
120,521

1,544
16,419
2,701
12,380

3.3%

21.4
2.7
11.4

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
77,583
96,869
105,536

deposits

364,090

33,044

10.0

331,046

7,162

2.2

323,884

Time deposits:
$100,000 and greater
Other

Total time deposits

Total deposits

37,740
110,931
148,671
512,761

3,693
5,326
9,019
42,063

10.8
5.0
6.5
8.9 %

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

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

12.2
(3.2)
0.2
1.6 % $

30,333
109,054
139,387
463,271

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Average deposits increased $42,063,000, or 8.9%, to $512,761,000 in 2018 following an increase in 2017 of
$7,427,000, or 1.6%, to $470,698,000. Core transaction accounts increased by 10.0% and 2.2%, respectively, in
2018 and 2017. The large increase in 2018 was largely due to the acquisition of LCB in the second quarter of
2018. Since market rates increased during the period, many customers sought higher rates, in both time deposits,
as well as interest-bearing demand deposits, particularly money market deposits. In addition to our deposit
products, we continue to provide alternatives to our customers through the sale of our wealth management (non-
deposit) products.

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 $259,000 and $173,000 in 2018 and 2017, respectively,
representing approximately 5.2% and 3.3%, 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 declined by $23,710,000 in 2018
compared to 2017, and increased by $10,536,000 in 2017 compared to 2016.
(Dollars in thousands)

Changes in Borrowings

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

liabilities

Total borrowings
PENSION PLAN

2018
Average
Balance
4,177
9,906
17,493

Increase (Decrease)
Amount

(646)
(15,570)
(7,507)

(13.4)% $
(61.1)
(30.0)

2017
Average
Balance

Increase (Decrease)

4,823 $

25,476
25,000

Amount
112
9,763
594

%
2.4%
62.1
2.4

1,560
33,136

13
$ (23,710)

0.8

(41.7)% $

1,547

67
56,846 $ 10,536

4.5
22.8%

2016
Average
Balance

4,711
15,713
24,406

1,480
46,310

The Company sponsors a noncontributory pension plan, the JVB Plan. The JVB Plan has unfunded liabilities
that totaled $373,000 as of December 31, 2018. 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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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.

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. In
2018, Juniata completed the second step of the strategy to reduce the liability associated with its defined benefit
pension plan by making a lump sum payment offer to a small group of terminated vested participants in Juniata’s
defined benefit plan. This step further reduced Juniata’s remaining pension liability by approximately 9%, which
resulted in a pre-tax charge to earnings of $210,000 in 2018. The pre-tax charges represent a further acceleration
of pension expenses that would otherwise have impacted Juniata’s future earnings.

Management plans to terminate the JVB Plan in 2019. Please refer to Note 22 of Notes to Consolidated
Financial Statements.
STOCKHOLDERS’ EQUITY

Total stockholders’ equity increased by $7,991,000, or 13.5%, in 2018. The Company is well-capitalized and
had the capacity to maintain the traditional dividend level in 2018. The Company’s net income exceeded
dividends paid by $1,493,000. Common stock issued to LCB shareholders increased total stockholders’ equity by
$6,463,000. The adjustment to accumulated other comprehensive loss (“AOCI”) to record the change in net
unrealized gains from the previous unconsolidated subsidiary, the reclassification adjustment for losses on sales
of debt securities, as well as the unrecognized net gains and amortization of the costs associated with the
Company’s defined benefit retirement plan decreased the Company’s equity by $109,000. Stock based
compensation expense recorded pursuant to the Company’s Stock Option Plan added $82,000 to stockholders’
equity in 2018, while payments for exercised stock options increased shareholders’ equity by $90,000 and
employee stock plans added $42,000. Treasury stock purchases during the year ended December 31, 2018
decreased stockholders’ equity by $70,000.

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 for acquisition

Common stock issued for stock plans

Treasury stock issued for stock plans

Stock-based compensation

Repurchase of stock, net of re-issuance

Net change in unrealized security gains

Defined benefit retirement plan adjustments, net of tax

AOCI deferred tax adjustment due to tax reform

Net change

Ending balance

2018

2017

2016

59,387

59,090

59,962

5,904

(4,411)

6,463

(70)

(807)

698

7,991

4,537

5,156

(4,194)

(4,226)

172

(86)

(817)

(8)

588

297

(927)

(963)

(43)

(872)

67,378

59,387

59,090

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Average stockholders’ equity in 2018 was $62,689,000, an increase of 4.6% from $59,938,000 in 2017, and was
$61,209,000 in 2016. At December 31, 2018, Juniata held 42,201 shares of stock in treasury versus 43,955 at
December 31, 2017. Return on average equity increased to 9.42% in 2018 from 7.57% in 2017. Return on
average equity increased in 2018 due to a 30.1% increase in net income mainly due to the enactment of the TCJA,
as well as the removal of the deferred tax liability related to the Company's previous ownership of Liverpool,
which resulted in a net tax benefit of $659,000 in 2018 compared to a net tax expense of $1,060,000 in 2017. See
the discussion in the 2018 Financial Overview section.

The Company periodically repurchases shares of its common stock under the share repurchase program
approved by the Board of Directors. In December of 2016, the Board of Directors authorized the repurchase of an
additional 200,000 shares of its common stock through its share repurchase program. The program will remain
authorized until all approved shares are repurchased, unless terminated by the Board of Directors. Repurchases
have typically been accomplished through open market transactions and have complied with all regulatory
restrictions on the timing and amount of such repurchases. Shares repurchased have been added to treasury
stock and accounted for at cost. These shares may be reissued for stock option exercises, employee stock
purchase plan purchases, restricted stock awards, to fulfill dividend reinvestment program needs and to supply
shares needed as consideration in an acquisition. During 2018, 2017 and 2016, 3,416, 4,289 and 49,370 shares,
respectively, were repurchased in conjunction with this program. Treasury shares of 5,170 and 9,704 were also
redeemed for stock option exercises in 2018 and 2017, respectively. Shares remaining authorized for repurchase
in the program were 170,574 as of December 31, 2018.

In each of the years 2018, 2017 and 2016, 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 74.71% and 92.4% in 2018 and 2017, respectively. The dividend
payout ratio in 2017 was greater than 2018 due to the impact of recording less net income in 2017 compared to
2018 resulting from increased expenses including the “de-risking” of the defined benefit plan and the TCJA tax
reform adjustments recorded in 2017. In January 2019, the Board of Directors declared a dividend of $0.22 per
share to stockholders of record on February 18, 2019, payable on March 1, 2019.

Juniata’s book value per share at December 31, 2018 was $13.23 as compared to $12.46 and $12.43 at

December 31, 2017 and 2016, respectively. Juniata’s average equity to assets ratio for 2018, 2017 and 2016 was
10.20%, 10.09% and 10.60%, respectively. Refer also to the Capital Risk section in the Asset / Liability
ASSET / LIABILITY MANAGEMENT OBJECTIVES
management discussion that follows.

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
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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Asset liquidity refers to assets that we are quickly able to convert into cash, consisting of cash, federal funds
sold and securities. Short-term liquid assets generally consist of federal funds sold and securities maturing over
the next twelve months. The quality of our short-term liquidity is very good; as federal funds are unimpaired by
market risk and as bonds approach maturity, their value moves closer to par value. Liquid assets tend to reduce
earnings when there is not an immediate use for such funds, since normally these assets generate income at a
lower rate than loans or other longer-term investments.

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

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

“Available liquidity” encompasses all three sources of liquidity when determining liquidity adequacy. It results
from the Bank’s access to short-term funding sources for immediate needs and long-term funding sources when
the need is determined to be permanent. Management uses both on-balance sheet liquidity and off-balance sheet
liquidity to manage its liquidity position. The Company’s liquidity strategy 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 $11,600,000 on December 31, 2018 and
$12,000,000 on December 31, 2017.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

The Bank’s maximum borrowing capacity with the FHLB was $187,818,000 at December 31, 2018. 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.
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 were fully phased in on January 1, 2019.

As 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%; (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least
6.0%; (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%; 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). However, unless the Company maintains an additional 2.5%
“capital conservation buffer” above the percentages stated above in (a) – (c), 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, 2018, the Company’s current capital levels met 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

Table 5, presented below, illustrates the maturity distribution of the Company’s interest-sensitive assets and
liabilities as of December 31, 2018. 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 0.44, indicating a liability-sensitive balance sheet, when measured on a static basis.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

TABLE 5
MATURITY DISTRIBUTION

(Dollars in thousands)

Interest bearing deposits
Federal funds sold

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 of $100,000 or more
Maturing within 3 months
Maturing within 3 to 6 months
Maturing within 6 to 12 months
Maturing 1-5 years
Maturing after 5 years

As of December 31, 2018
Remaining Maturity / Earliest Possible Repricing

Within
One
Year

945
729

Over One
Year But
Within Five
Years
2,455
-

Over
Five
Years

Total
3,400
729

-
-

-
826
-
-

24,857
18,376
99,315
145,048

147,413
99,236
11,678
40,916
2,911
11,600
15,000
1,596
330,350
$ (185,302)
$ (185,302)
0.44

20,355
14,686
-
-

14,557
16,056
141,908
210,017

-
-
20,223
60,696
-
-
-
-
80,919
129,098
(56,204)
0.86

2,911
2,669
100,506
-

7,149
2,256
93,157
208,648

-
-
6,259
9,244
-
-
-
-
15,503
$ 193,145
$ 136,941

23,266
18,181
100,506
-

46,563
36,688
334,380
563,713

147,413
99,236
38,160
110,856
2,911
11,600
15,000
1,596
426,772
$ 136,941

1.32

12,375
19,104
31,479

7,301
3,264
10,565

19,676
22,368
42,044

$
$

3,047
3,530
5,101
20,223
6,259
38,160

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018, 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, 2018, 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 2.4% 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 $72,755,000 and $77,023,000 at
December 31, 2018 and 2017, respectively. In addition, the Company had $14,468,000 and $3,150,000
outstanding in unused lines of credit commitments extended to its customers at December 31, 2018 and 2017,
respectively. The increase was mainly due to the acquisition of Liverpool’s consumer lines of credit.

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, 2018 and 2017 for guarantees under letters of credit issued is not material.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 The maximum undiscounted exposure related to these guarantees at December 31, 2018 was $2,749,000, and
the approximate value of underlying collateral upon liquidation that would be expected to cover this maximum
potential exposure was $22,963,000.

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, 2018, termination fees
are estimated to be approximately $1,672,000 and $1,542,000 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, 2018.
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 2018
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, 2018. 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 Decemer 31, 2018, the Company's internal control
(2013)
over financial reporting was not effective and did not meet the criteria of the

Internal Control-Integrated Framework

. We concluded that material weaknesses in our internal control over financial reporting existed related to

management not designing and maintaining controls over the annual review process for evaluating risk ratings on
commercial loans and over the accounting for income taxes.

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 which
contains an adverse option. During the first quarter of 2019, Management has evaluated the causes of the material
weaknesses and is taking steps to improve its internal controls over financial reporting, including formally
documenting policies and procedures pertainting to the ongoing process for evaluating risk ratings on commercial
loans and to the accounting for income taxes, as well as formally testing key controls.

Marcie A. Barber,
President and Chief Executive Officer

JoAnn N. McMinn,
Chief Financial Officer

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited Juniata Valley Financial Corp., and its wholly-owned subsidiary, The Juniata Valley Bank’s (the “Company’s”)
internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In
our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on the COSO criteria. We do not express an opinion or any other form of assurance on management's
statements referring to any corrective actions taken by the Company after the date of management's assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated statement of financial condition of the Company as of December 31, 2018 and 2017, 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, 2018, and the related notes, and our report dated April 2, 2019 expressed an unqualified
Basis for Opinion
opinion thereon.

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.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not
be prevented or detected on a timely basis. Material weaknesses regarding management not designing and maintaining
controls over the annual review process for evaluating risk ratings on commecial loans and over the accounting for income
taxes have been described in management's assessment. These material weaknesses were considered in determining the
nature, timing, and extent of audit tests applied in our audit of the 2018 financial statements, and this report does not affect
Definition and Limitations of Internal Control over Financial Reporting
our report dated April 2, 2019 on those financial statements.

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.

/s/ BDO USA, LLP
Harrisburg, Pennsylvania
April 2, 2019

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of their operations and their cash flows for

each of the three years in the period ended December 31, 2018, 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, 2018, 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 April 2, 2019 expressed an adverse 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.

/s/ BDO USA, LLP

Harrisburg, Pennsylvania

April 2, 2019

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share data)

ASSETS

Cash and due from banks
Interest bearing deposits with banks
Federal funds sold
Cash and cash equivalents

Interest bearing time deposits with banks
Equity securities
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
Accrued interest payable and other liabilities
Stockholders’ Equity:

Total liabilities

Preferred stock, no par value:

Authorized - 500,000 shares, none issued

Common stock, par value $1.00 per share:

Authorized 20,000,000 shares

Issued -
5,134,249 shares at December 31, 2018;
4,811,611 shares at December 31, 2017;

Outstanding -

5,092,048 shares at December 31, 2018;
4,767,656 shares at December 31, 2017;

Surplus
Retained earnings
Accumulated other comprehensive loss
Cost of common stock in Treasury:
42,201 shares at December 31, 2018;
Total stockholders’ equity
43,955 shares at December 31, 2017;
Total liabilities and stockholders’ equity

See Notes to Consolidated Financial Statements

December 31,
2018

2017

15,617
110
729
16,456

9,839
58
-
9,897

3,290
1,118
141,953
2,441
-
417,631
(3,034)
414,597
8,744
744
15,938
4,545
405
9,139
200
5,666
625,236

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

126,057
395,665
521,722

$ 115,911
361,757
477,668

2,911
11,600
15,000
1,596
5,029
557,858

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

5,134
24,821
42,525
(4,299)

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

(803)
67,378
625,236

(831)
59,387
$ 591,945

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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
Other interest bearing liabilities
Net interest income

Total interest expense

Net interest income after provision for loan losses
Provision for loan losses
Non-interest income:

Customer service fees
Debit card fee income
Earnings on bank owned life insurance and annuities
Trust fees
Commissions from sales of non-deposit products
Income/gain from unconsolidated subsidiary

Fees derived from loan activity
Mortgage banking income

(Loss) gain on sales and calls of securities

Change in value of equity 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

(Gain) loss 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
Earnings per share

Income tax (benefit) provision

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,
2017

2016

2018

20,060
3,040
393
158
23,651

3,068
62
190
276
39
3,635
20,016
337
19,679

1,779
1,280
352
430
259
296
416
70
(188)
(1)
-
-
334
5,027

7,822
2,458
1,217
818
1,924
215
640
498
274
(60)
79
800
884
1,892
19,461
5,245
(659)
5,904

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

1.18
$
1.18
$
$
0.88
4,987,186
5,009,484

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

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 gain due to change in assumptions (2) (3)
Amortization of pension net actuarial loss (2) (3)
Other comprehensive (loss) income
Total comprehensive income

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) income
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) income
Total comprehensive income

Year ended December 31, 2018
Tax
Effect

Pre-Tax
Amount

Net-of-Tax
Amount
5,904

5,245

659

(1,216)
5

188
(55)
601
338
(139)
5,106

255
-

(39)
11
(126)
(71)
30
689

(961)
5

149
(44)
475
267
(109)
5,795

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

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

(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 2018

JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Balance at January 1, 2016

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 to FNBPA stockholders

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

Net income
Other comprehensive loss
Reclassification for ASU 2016-01
Cash dividends at $0.88 per share
Stock-based compensation activity
Purchase of treasury stock
Treasury stock issued for stock plans
Common stock issued for stock plans
Balance at December 31, 2018
Common stock issued for acquisition

Years Ended December 31, 2018, 2017 and 2016

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)

4,798,086 $

4,798

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

(3,416)
5,170
7,354
315,284
5,092,048 $

8
315
5,134

(10)
28
18,565

(8)
34
6,148
24,821

$ 39,015
5,156

(4,226)

(2,203)

(1,006)

39,945
4,537

588
(4,194)

40,876
5,904

156
(4,411)

(927)

(3,209)

(927)

(237)
(588)

(86)
182

(4,034)

(831)

(109)
(156)

(70)
98

$ 42,525

(4,299)

(803)

59,962
5,156
(1,006)
(4,226)
67
(927)
64
59,090
4,537
(237)
-
(4,194)
71
(86)
172
34
59,387
5,904
(109)
-
(4,411)
82
(70)
90
42
6,463
67,378

See Notes to Consolidated Financial Statements

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 (amortization) accretion of purchase fair value adjustments
Net realized loss (gain) on sales and calls of securities
Change in value of equity securities
Net (gain) loss on sales of other real estate owned
Earnings on bank owned life insurance and annuities
Deferred income tax (benefit) expense
Equity loss (gain) in unconsolidated subsidiary, net of dividends of $75, $61 and $55
Equity gain from acquisition of unconsolidated subsidiary
Stock-based compensation expense
Mortgage loans originated for sale
Proceeds from loans sold to others
Mortgage banking income
Gain from life insurance proceeds

(Increase) decrease in accrued interest receivable and other assets
Net cash provided by operating activities
(Decrease) increase 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
Life insurance claims
Sale of other real estate owned
Sale of other assets

Net cash received from acquisition

Investment in low income housing partnerships

Net cash provided by (used in) investing activities

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

Net increase (decrease) in deposits
Net decrease 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
Treasury stock issued for employee stock plans
Common stock issued for employee stock plans

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Years Ended December 31,
2017

2016

2018

5,904

4,537

5,156

337
815
540
43
(348)
79
800
(102)
188
1
(60)
(352)
(96)
194
(415)
82
-
95
(70)
-
(1,493)
(821)
5,321

(20,610)
-
(548)
(39)

10,461
19,145
787
-
-
352
22
7,561
(100)
735
(2,931)
14,835

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)

8,010

21,837

(1,293)

(7,258)
-
(10,000)
(4,411)
(70)
90
42
(13,597)
6,559
9,897
16,456

(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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Years Ended December 31,
2017

2016

2018

3,646
(663)

681
12
-

2,823
735

716
21
-

2,237
200

313
20
104

3,675
31,331
125
123
289
632
124
267
36,566

36,052
266
36,318

(Dollars in thousands)

Supplemental information:

Supplemental schedule of noncash investing and financing activities:

Interest paid
Income tax (refund) 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:

Assets acquired:

Investment in time deposits with banks

Loans
Premises and equipment
Accrued interest receivable
Core deposit and other intangible assets
Bank owned life insurance
FHLB stock
Other assets

Liabilities assumed:
Deposits
Accrued interest payable and other liabilities

See Notes to Consolidated Financial Statements

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2018, 2017 AND 2016

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 16 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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
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, 2018, credit exposure to lessors of non-residential buildings and dwellings represented
55.3% of capital, credit exposure to hotels and motels represented 40.0% of capital, credit exposure to continuing
care retirement communities represented 28.4% of capital, and credit exposure to residential buildings and
dwellings represented 27.9% 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.
Revenue Recognition

The Company generally acts in a principal capacity, on its own behalf, in most contracts with customers. In such
transactions, revenue and related costs to provide these services are recognized on a gross basis in the financial
statements. In some cases, the Company acts in an agent capacity, deriving revenue through assisting other entities
in transactions with its customers. In such transactions, revenue and the related costs to provide the services are
recognized on a net basis in the financial statements. These transactions primarily relate to non-deposit product
commissions and fees derived from customer’s use of various interchange and ATM/debit card networks.

Revenue from

Contracts with Customers
All of the Company’s revenue from contracts with customers in the scope of ASC Topic 606,

, are recognized within non-interest income on the consolidated statements of income.

Revenue streams not within the scope of ASC 606 included in non-interest income on the consolidated
statements of income include earnings on bank-owned life insurance and annuities, income from unconsolidated
subsidiary, fees derived from loan activity, mortgage banking income, gain/loss on sales and calls of securities,
and the change in value of equity securities. Refer to Note 21 for a description of the Company’s sources of
revenue accounted for under ASC 606.
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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar
factors. Interest and dividends 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.

Investments – Debt

and Equity Securities
Prior to January 1, 2018, both debt and equity securities were accounted for under ASC 320,

. ASC 320 clarified the interaction of the factors that should be considered when determining

whether a debt security is other-than-temporarily impaired. For debt securities, management had to assess whether
(a) it had the intent to sell the security and (b) it was more likely than not that it would be required to sell the
security prior to its anticipated recovery. These steps were taken before an assessment was made as to whether the
entity would recover the cost basis of the investment. If either of these circumstances was present, the securities
would be written down to fair value through an impairment charge recorded on the income statement.

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.

For equity securities under ASC 320, consideration was 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
included the length of time the stock 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.

Investments – Equity Securities

Investments – Debt

As of January 1, 2018, upon the adoption of ASU 2016-01, all of the Company’ equity securities are within the
Securitie
scope of ASC 321,

, while debt securities remain under ASC 320,

s. ASC 321 requires all equity securities within its scope to be measured at fair value with changes in fair

value recognized in net income.
Restricted Investment in 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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such
payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory
changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge was necessary related to the FHLB or ACBB restricted stock
during 2018, 2017 or 2016.
Loans

Loans that the Company has the intent and ability to hold for the foreseeable future or until maturity 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.

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.

4
4

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, 2018 and 2017, the amount of net unamortized origination fees carried as an adjustment to
outstanding loan balances was $11,000 and $52,000, 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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018in the loan portfolio as of the consolidated statement of financial condition date and is recorded as a reduction to
loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its
unfunded lending commitments and is recorded in other liabilities on the consolidated statement of financial
condition, when necessary. The amount of the reserve for unfunded lending commitments is not material to the
consolidated financial statements. The allowance for loan losses is increased by the provision for loan losses, and
decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance
for loan losses, and subsequent recoveries, if any, are credited to the allowance.

For financial reporting purposes, the provision for loan losses charged to current operating income is based on
management’s estimates, and actual losses may vary from estimates. These estimates are reviewed and adjusted
at least quarterly and are reported in earnings in the periods in which they become known.

Loans included in any class are considered for charge-off when:
•

principal or interest has been in default for 120 days or more and for which no payment has been
received during the previous four months;
all collateral securing the loan has been liquidated and a deficiency balance remains;
a bankruptcy notice is received for an unsecured loan;
a confirming loss event has occurred; or
the loan is deemed to be uncollectible for any other reason.

•
•
•
•

The allowance for loan losses is maintained at a level considered adequate to offset probable losses on the
Company’s existing loans. The analysis of the allowance for loan losses relies heavily on changes in observable
trends that may indicate potential credit weaknesses. Management’s periodic evaluation of the adequacy of the
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.

Based on management’s comprehensive analysis of the loan portfolio, management believes the level of the
allowance for loan losses as of December 31, 2018 was adequate.

There are two components of the allowance: 1) specific allowances allocated to loans evaluated for impairment
under ASC Section 310-10-35; and 2) allowances calculated for pools of loans evaluated collectively for
impairment under ASC Subtopic 450-20 (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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 The estimated fair values of substantially all of the Company’s impaired loans are measured based on the
estimated fair value of the loan’s collateral. For commercial loans secured with real estate, estimated fair values
are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a
decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is
based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on
the current appraisal and the condition of the property. Appraised values may be discounted to arrive at the
estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also
include the estimated costs to sell the property. For commercial loans secured by non-real estate collateral,
estimated fair values are determined based on the borrower’s financial statements, inventory reports, aging
accounts receivable, equipment appraisals or invoices. Indications of value from these sources are generally
discounted based on the age of the financial information or the quality of the assets. For such loans that are
classified as impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan is lower than the carrying value of that loan. The Company
generally does not separately identify individual consumer segment loans for impairment analysis, unless such
loans are subject to a restructuring agreement.

Loans whose terms are modified are classified as troubled debt restructurings if the Company grants borrowers
concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a
troubled debt restructuring generally involve a below-market interest rate based on the loan’s risk characteristics,
an extension of a loan’s stated maturity date or a significant delay in payment. 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 pooled loan contingencies relates to other loans that have been segmented
into risk rated categories. In accordance with ASC Subtopic 450-20, when measuring estimated credit losses,
these loans are grouped into homogenous pools with similar characteristics and evaluated collectively
considering both quantitative measures, such as historical loss, and qualitative measures, in the form of
environmental adjustments.

An average annual loss rate is calculated for each pool through an analysis of historical losses over a five-year
look-back period. Using data for each loan, a loss emergence period is determined within each segmented class
pool. The loss emergence period reflects the approximate length of time from the point when a loss is incurred (the
loss trigger event) to the point of loss confirmation (the date of eventual charge-off). The loss emergence period is
applied to the average annual loss to produce the qualitative factor for each pooled class segment.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018Qualitative factor determination:

Historical loss rates computed in the quantitative component reflects an estimate of the level of incurred losses in
the portfolio based on historical experience. Management considers that the current conditions may deviate from
those that prevailed over the historical look-back period. Thus, the quantitative rates are an imperfect estimate,
necessitating an evaluation of qualitative considerations, i.e. environmental factors to incorporate these risks.

Management considered qualitative, environmental risk factors including:

•

•
•
•
•
•

•
•

Within each loan segment, an analysis was performed over a ten-year look-back period to discover peak
historical losses, and with this data, management established ranges of risk from minimal to very high, for each
risk factor, to produce a supportable anchor for risk assignment. Based on the framework for risk factor
evaluation and range of adjustments established through the anchoring process, a risk assessment and
corresponding adjustment was assigned for each portfolio segment as of December 31, 2018. Adjustments to the
factors are supported through documentation of changes in conditions in a narrative accompanying the
allowance for loan loss calculation.

The combination of quantitative and qualitative factors were applied to year-end balances in each pooled segment
to establish the overall allowance.
Acquired Loans

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

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 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 has originated 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
mortgage banking income in the consolidated statements of income.

In a business combination, the Company may acquire loans which it intends to sell. These loans are assigned a fair
value by obtaining actual bids on the loans and adjusting for contingencies in the bids. These loans are carried at lower
of cost or market value until sold, adjusted periodically if conditions change before the subsequent sale. Adjustments to
fair value and gains or losses recognized upon sale are included in gains on sales of loans which is a component of non-
interest income.
Commercial, Financial and Agricultural Lending

The Company originates commercial, financial and agricultural loans primarily to businesses located in its
primary market area and surrounding areas. These loans are used for various business purposes, which include
short-term loans and lines of credit to finance machinery and equipment purchases, inventory and accounts
receivable. Generally, the maximum term for loans extended on machinery and equipment is shorter and does not
exceed the projected useful life of such machinery and equipment. Most business lines of credit are written with
a five year maturity, subject to an annual review.

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

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

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

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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Commercial Real Estate Lending

The Company engages in commercial real estate lending in its primary market area and surrounding areas. The
Company’s commercial real estate portfolio is secured primarily by residential housing, commercial buildings,
raw land and hotels. Generally, commercial real estate loans have terms that do not exceed 20 years, have loan-to-
value ratios of up to 80% of the appraised value of the property and are typically secured by personal guarantees
of the borrowers.

As economic conditions deteriorate, the Company reduces its exposure in real estate loans with higher risk
characteristics. In underwriting these loans, the Company performs a thorough analysis of the financial condition
of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by
the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the
Company are performed by independent appraisers.

Commercial real estate loans generally present a higher level of risk than certain other types of loans,
particularly during slow economic conditions.
Real Estate Construction Lending

The Company engages in real estate construction lending in its primary market area and surrounding areas.
The Company’s real estate construction lending consists of commercial and residential site development loans, as
well as commercial building construction and residential housing construction loans.

The Company’s commercial real estate construction loans are generally secured with the subject property, and
advances are made in conformity with a pre-determined draw schedule supported by independent inspections.
Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated
time to complete, etc.

In underwriting commercial real estate construction loans, the Company performs a thorough analysis of the

financial condition of the borrower, the borrower’s credit history, the reliability and predictability of the cash
flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing
commercial real estate loans originated by the Company are performed by independent appraisers.

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

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

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

to make monthly payments, the borrower’s repayment history and the value of the property securing the loan.
The ability to repay is determined by the borrower’s employment history, current financial conditions, and credit
background. The analysis is based primarily on the customer’s ability to repay and secondarily on the collateral
or security. Most properties securing real estate loans made by the Company are appraised by independent fee
appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title
insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than
the amount of the loan. The Company does not engage in sub-prime residential mortgage originations.

Residential mortgage loans and home equity loans generally present a lower level of risk than certain other
types of consumer loans because they are secured by the borrower’s primary residence. Risk is increased when
the Company is in a subordinate position for the loan collateral.
Obligations of States and Political Subdivisions

The Company lends to local municipalities and other tax-exempt organizations. These loans are primarily
tax-anticipation notes and, as such, carry little risk. Historically, the Company has never had a loss on any loan of
this type.
Personal Lending

The Company offers a variety of secured and unsecured personal loans, including vehicle loans, mobile home
loans and loans secured by savings deposits as well as other types of personal loans.

Personal loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In
underwriting personal loans, a thorough analysis of the borrower’s willingness and financial ability to repay the
loan as agreed is performed. The ability to repay is determined by the borrower’s employment history, current
financial conditions and credit background.

Personal loans may entail greater credit risk than do residential mortgage loans, particularly in the case of
personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or
recreational equipment. In such cases, any repossessed collateral for a defaulted personal loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial
stability and, thus are more likely to be affected by adverse personal circumstances. Furthermore, the application
of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be
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, 2018 and 2017, the carrying value of other
Goodwill and intangibles
real estate owned was $744,000 and $355,000, 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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
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
result of periodic impairment testing in each of the three years ended December 31, 2018.
Mortgage servicing rights

The Company originates residential mortgage loans with the intent to sell. These individual loans are normally
funded by the buyer immediately. The Company maintains servicing rights on these loans.

Mortgage servicing rights are recognized as an asset upon the sale of a mortgage loan. A portion of the cost of
the loan is allocated to the servicing right based upon relative fair value. Servicing rights are intangible assets and
are carried at estimated fair value. The carrying amount of mortgage servicing rights was $200,000 and $225,000
at December 31, 2018 and 2017, 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 $23,563,000
and $23,647,000 at December 31, 2018 and 2017, respectively. The mortgage loans sold to the FHLB and serviced
by the Company are not reflected in the consolidated statements of financial condition.
Premises and equipment and depreciation

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 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 $1,081,000 and $1,014,000 as of December 31, 2018 and 2017, respectively. Related expenses for
2018, 2017 and 2016 were $38,000, $95,000 and $61,000, 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 $4,545,000 at December 31,
2018 and $5,245,000 at December 31, 2017. The decline in carrying value in 2018 was the result of amortization
exceeding the 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.

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 $294,000, $272,000 and $243,000 in 2018, 2017 and 2016, respectively.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
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 beginning in 2016, restricted shares awards were used.
Compensation expense for stock options granted and restricted stock awarded is measured using the fair value
of the award on the grant date and is recognized over the vesting period. The stock-based compensation
expense amounts for stock options were derived based on the fair value of options using the Black-Scholes
option-pricing model.
Segment reporting

Management does not separately allocate expenses, including the cost of funding loan demand, between the
commercial, retail and trust operations of the Company. As such, discrete financial information is not available,
and segment reporting would not be meaningful.
Subsequent events

The Company has evaluated events and transactions occurring subsequent to the consolidated statement of
financial condition date of December 31, 2018, for items that should potentially be recognized or disclosed in the
consolidated financial statements. The evaluation was conducted through the date these consolidated financial
statements were issued.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
3. RECENT ACCOUNTING STANDARDS UPDATE (“ASU”)

New Accounting Standards Adopted in 2018

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. The revenue
standard’s core principle requires an entity to recognize revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. 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.
the Effective Date.

ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of

In August 2015, the FASB issued

ASU 2015-14 deferred the effective date of the new revenue recognition standard by one year.

As a result, the standard was effective for public entities in fiscal years beginning after December 15, 2017.

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
accounted for under other U.S. GAAP, the Company assessed the effect the guidance had on the recognition
processes of certain recurring revenue streams related to non-interest income. The Company did not identify any
significant changes in the timing of revenue recognition when considering the amended accounting guidance.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain
Additional disclosures related to revenue recognition appear in Note 21.
Tax Effects from Accumulated Other Comprehensive Income.

Issued:

Summary:

February 2018

The Update allows entities to reclassify from accumulated other comprehensive income (“AOCI”) to
accounting for income tax rate changes on items accounted for in

retained earnings the ‘stranded’ tax effects of
AOCI that were impacted by tax reform enacted in December 2017. Because the impact of tax rate changes is
recorded in income, items accounted for in AOCI could be left with a stranded tax effect appearing as though
those items do not reflect the appropriate tax rate. The FASB’s changes were intended to improve the usefulness
of information reported to financial statement users.
Effective Date:

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

permitted. The Company elected to adopt the changes in the first quarter of 2018, as of December 31, 2017. The
amount transferred from AOCI to retained earnings totaled $588,000 and represented the impact of the
Company’s corporate tax rate change from 34% to 21% at the date of enactment of the tax reform for the
unrealized gains and losses on securities and the defined benefit plan accounted for in AOCI.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 changes accounted for under the
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 AOCI 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 Update
emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies
that entities should not make use of a practicability exception in determining the fair value of loans. Accordingly,
we refined the calculations used to determine the disclosed fair value of our loans as part of adopting this
standard. The redefined calculation did not have a significant impact on our fair value disclosures.
Effective 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 to retained earnings. The Company recorded a decline of $1,000 during the year ended
December 31, 2018 for the change in fair value of equity securities on the consolidated statements of income.
ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-
10): Recognition and Measurement of Financial Assets and Financial Liabilitie

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; and

•

Transition guidance for equity securities without a readily determinable fair value.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 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
Company adopted this Update in conjunction with the adoption of ASU 2016-01 on January 1, 2018. The adoption
had no material impact to the Company’s consolidated financial position or results of operations.
ASU 2017-09, Scope of Modification Accounting

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 were effective for all entities for fiscal years beginning after December 15,

2017, including interim periods within those years. The Company adopted ASU 2017-09 on January 1, 2018 and
it had no material impact on the Company’s consolidated financial position or results of operations.
ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities

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 for securities held at a discount.
Effective Date:

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

December 15, 2018. Early adoption is permitted. The Company chose to early adopt this standard, and the
financial statements as of, and for the year ended, December 31, 2017 reflected the impact of premium
amortization on callable debt securities to the earliest call date. The adoption of this ASU did not have a material
ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
impact on the Company’s consolidated financial statements.
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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018Effective Date:

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

December 15, 2017. The Company adopted this Update on January 1, 2018, and it had 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 component to consider. The cost for other components related to the
ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments
defined benefit plan are recorded in employee benefits expense on the consolidated statements of income.

Issued:

Summary:

August 2016

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

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

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

periods within those fiscal years, beginning after December 15, 2017. The Company adopted this Update on
January 1, 2018 and it did not have a material impact on the Company’s consolidated financial position or results
Pending Accounting Standards
of operations.

ASU 2016-02, Leases

Issued:

Summary:

February 2016

The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU
asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be
classified as either finance or operating, with classification affecting the pattern of expense recognition in the
income statement.

ASU-2018-10, Codification Improvements to Topic 842, Leases

In July 2018, the FASB issued

. ASU 2018-10

clarifies the intended application of certain narrow aspects of the guidance in ASU 2016-02. The amendments are
similar in nature to those in the FASB’s ongoing project to make improvements to clarify the Codification or
correct unintended application of the guidance. Key amendments in this ASU include:

• Updating the definition of Rate Implicit in the Lease to clarify that the rate cannot be less than zero;

•

Clarifying application of guidance for lessors when determining impairment of net investment in the lease;

•

Clarifying whether lessors and lessees should recognize certain transition adjustments to earnings rather
than through equity;

•

Clarifying certain transition guidance for amounts previously recognized in business combinations.

ASU 2018-11, Leases (Topic 842): Targeted Improvements

. ASU 2018-11
In July 2018, the FASB also issued
provides entities with an additional (and optional) transition method to adopt the new leases standard. Under
this new transition method, an entity initially applies the new leases standard at the adoption date and
recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

ASU 2018-11 also provides lessors with a practical expedient, by class of underlying asset, to elect not to
separate nonlease components from the associated lease component and, instead, to account for those
components as a single component if the nonlease components otherwise would be accounted for under the new
revenue guidance (Topic 606) and both the timing and pattern of transfer of the nonlease component(s) and

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
associated lease component are the same, and the lease component, if accounted for separately, would be
classified as an operating lease. If the nonlease component or components associated with the lease component
are the predominant component of the combined component, an entity is required to account for the combined
component in accordance with Topic 606. Otherwise, the entity must account for the combined component as an
Effective Date:
operating lease in accordance with Topic 842.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim

periods within those fiscal years. The effective date and transition requirements of ASU 2018-10 and ASU 2018-
11 are the same as the effective date and transition requirements in Topic 842.

The Company adopted ASU 2016-02 on January 1, 2019 using the optional transition method. The Company
also elected the following practical expedients: the package of practical expedients, combining lease and nonlease
components by class of underlying asset, and using hindsight in determining the lease terms. The adoption of this
standard resulted in the recording of a ROU asset of $519,000 and a lease liability of $510,000 as of January 1,
2019 for the Company’s four operating lease obligations. The adoption of this standard is not expected to have a
material impact on the Company's operations, cash flows, or capital ratios, nor should it cause the Company to no
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20):
longer be well capitalized.
Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

Issued:

Summary:

August 2018

ASU 2018-14 modifies the disclosure requirements under ASC 715-20 for employers that sponsor

defined benefit pension or other postretirement plans. Those modifications include the removal and addition of
Effective Date:
disclosure requirements as well as clarifying specific disclosure requirements.

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

15, 2020. For all other entities, the amendments are effective for annual reporting periods ending after December
15, 2021. Early adoption is permitted. This Update will have no impact on the Company’s consolidated financial
position and results of operations because in August 2018, Juniata’s Board of Directors resolved to terminate the
Company’s defined benefit retirement plan, The Juniata Valley Bank Retirement Plan, effective November 30,
2018. All participants have been properly notified and settlement of all obligations is expected to occur in mid-
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
2019. See Note 22 for additional information.
Requirements for Fair Value Measurement

Issued:

Summary:

August 2018

ASU 2018-13 modifies the disclosure requirements for fair value measurements required under ASC

820. Those modifications include the removal and addition of disclosure requirements as well as clarifying
specific disclosure requirements.
Effective Date:

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

2019, including interim periods within those fiscal years. Early adoption is permitted upon issuance of this ASU.
An entity is permitted to early adopt all disclosure requirements in the ASU or early adopt only the removed and
modified disclosures and delay adoption of the additional disclosures until their effective date. This Update is not
expected to have an impact on the Company’s consolidated financial position or results of operations.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018ASU 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
ASU 2017-04, Simplifying the Test for Goodwill Impairment
will have no impact on the Company’s consolidated financial position and results of operations.

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. The adoption of this Update is not expected to have an impact on the Company’s
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
consolidated financial position and results of operations.
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
deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets
measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added
to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent
accounting for PCD financial assets is the same expected loss model described above.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 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 and disclosures, 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 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 taken steps to prepare for the
implementation when it becomes effective by forming an internal taskforce, gathering pertinent data,
participating in training courses, and partnering with a software provider that specializes in ALLL analysis, as
4. MERGER
well as assessing the sufficiency of data currently available through its core database.

On April 30, 2018, the Company completed the acquisition of Liverpool Community Bank, a Pennsylvania state-
chartered bank with one branch location in Liverpool, Perry County. Liverpool was merged with and into The
Juniata Valley Bank. As of the merger date, Liverpool had assets of $45,360,000, loans of $32,091,000, and equity
of $9,246,000.

Prior to the acquisition, Juniata owned 1,214, or 39.16%, of the 3,100 outstanding common shares of Liverpool.
The merger was accounted for using the acquisition method of accounting, in accordance with the provisions of
ASC 805, Business Combinations. Juniata obtained control over Liverpool in a step acquisition by acquiring the
previously unowned interest in Liverpool. As such, Juniata was required to remeasure its previously held equity
interest in Liverpool at its acquisition date fair value and recognize the resulting gain in earnings. The purchase
price for the step acquisition was calculated as the aggregate of the consideration transferred for the newly
acquired interest (Step Two 60.84% interest) and the fair value of Juniata’s previously held equity interest (Step
One 39.16% interest) in Liverpool.

On April 30, 2018, Juniata’s Step One adjusted basis in Liverpool was $5,037,000, which included a $415,000
equity gain from the acquisition, in addition to Juniata’s basis in Liverpool of $4,622,000 prior to the recording of
the equity gain.

Liverpool shareholders (other than Juniata, whose Liverpool common stock owned of record or beneficially
was cancelled) received either: (i) 202.6286 shares of common stock of Juniata or (ii) $4,050.00 in cash in
exchange for each share of Liverpool common stock subject to the limitation that cash would be paid for no more
than 20% and no less than 15% of Liverpool’s outstanding common stock. As a result, Juniata issued 315,284
shares of common stock with an acquisition date fair value of approximately $6,463,000, based on Juniata’s
closing stock price of $20.50 on April 30, 2018, and cash of $1,362,000, including cash in lieu of fractional shares
for a total Step Two purchase price consideration of $7,825,000. The total purchase price of the merger, including
both the Step One adjusted basis and Step Two purchase price consideration, was $12,862,000.

The assets and liabilities of Liverpool were recorded on the consolidated balance sheet at their estimated fair
value as of April 30, 2018, and its results of operations have been included in the consolidated income statement
since such date.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 The purchase price included goodwill and a core deposit intangible of $3,691,000 and $289,000, 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 tested annually for impairment, or more frequently if circumstances require.

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

Step One Purchase Price Consideration

April 30, 2018 JUVF basis in LCB (before gain)

Increase in Step One basis from equity gain in acquisition
Total Step One adjusted basis

Step Two Purchase Price Consideration

Purchase price assigned to LCB common shares exchanged for 315,284 JUVF common shares
Purchase price assigned to LCB common shares exchanged for cash including cash in lieu of

fractional shares
Total Step Two purchase price consideration

Total purchase price

LCB 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 LCB net assets acquired
Goodwill resulting from the merger

4,622
415
5,037

6,463

1,362
7,825
12,862

9,246

(95)
20
(75)
9,171
3,691

(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
Investments in time deposits with banks
Loans
Premises and equipment
Accrued interest receivable
Core deposit and other intangibles
Bank owned life insurance
FHLB stock
Other assets
Deposits
Accrued interest payable
Other liabilities

Goodwill

12,862

8,923
3,675
31,331
125
123
289
632
124
267
(36,052)
(17)
(249)
9,171
3,691

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

As of April 30, 2018, the merger date, goodwill was recorded at $3,691,000. ASC 805 allows for adjustments to the
estimated fair value of assets and liabilities, and the resulting goodwill for a period of up to one year after the
merger date for new information that becomes available that reflects circumstances at the merger date.

The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of
$32,091,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to
present a fair value of the loans acquired.
(Dollars in thousands)

Gross amortized cost basis at April 30, 2018
Market rate adjustment
Credit fair value adjustment on pools of homogeneous loans
Credit fair value adjustment on purchased credit impaired loans
Reversal of existing deferred fees and premiums
Fair value of purchased loans at April 30, 2018

32,091
272
(496)
(622)
86
31,331

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.

Summarized below is the acquired Liverpool purchased credit impaired loan portfolio as of April 30, 2018.
(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

2,022
(1,273)
749
(177)
572

The following table presents unaudited pro forma information as if the merger between Juniata and Liverpool had
been completed on January 1, 2017. The pro forma information does not necessarily reflect the results of operations
that would have occurred had Juniata merged with Liverpool at the beginning of 2017. Due to Juniata’s former
39.16% ownership in Liverpool, the income previously recorded in 2018 and 2017 that was attributable to the
partial ownership of Liverpool has been excluded, in addition to merger-related costs incurred in 2018 and the
resulting tax impacts. Supplemental pro forma earnings for the year ended December 31, 2018 were adjusted to
exclude $296,000 from the income/gain from unconsolidated subsidiary, $884,000 in merger-related expenses, and
the resulting tax benefit of $123,000. The results for the comparable 2017 period were adjusted to include the
aforementioned merger-related expenses; however, those results exclude the income from unconsolidated
subsidiary and merger-related expenses previously recorded in the year ended December 31, 2017 of $167,000 and
$13,000, respectively. The resulting tax benefit included in the year ended December 31, 2017 was $218,000. A 21%

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

tax rate was assumed in both the 2018 and 2017 periods. The pro forma financial information does not include the
impact of possible business model changes, nor does it consider any potential impacts of current market conditions
or revenues, expense efficiencies or other factors.

(Dollars in thousands, except share data)

Net interest income after loan loss provision
Noninterest income
Noninterest expense
Net income available to common shareholders
Net income per common share
5. RESTRICTIONS ON CASH AND DUE FROM BANKS

Years ended
December 31,
2018

2017

20,629
4,816
18,818
6,996
1.37

19,943
5,347
19,098
5,184
1.02

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, 2018, and 2017, respectively, no reserves were required to be
held at the Federal Reserve Bank.
6. SECURITIES

On January 1, 2018, the Company adopted ASU 2016-01, Measurement of Financial Assets Instruments. Upon
adoption, equity securities with readily determinable fair values are stated at fair value with realized and
unrealized gains and losses reported in net income. For periods prior to January 1, 2018, equity securities were
classified as available for sale and stated at fair value with unrealized gains and losses reported as a separate
component of AOCI, net of tax. At December 31, 2017, the fair value of equity securities classified as available for
sale was $1,119,000. The adoption of ASU 2016-01 resulted in a reclassification of $156,000 in net unrealized
gains from AOCI to retained earnings. As of December 31, 2018, the Company had $1,118,000 in equity
investments recorded at fair value.

The Company’s investment portfolio includes primarily mortgage-backed securities issued by U.S. Government
sponsored agencies and backed by residential mortgages (approximately 71%), bonds issued by U.S. Government
sponsored agencies (approximately 16%) and municipalities (approximately 13%) as of December 31, 2018.
Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

The amortized cost and fair value of securities available for sale as of December 31, 2018 and 2017, 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 2018

(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
Total

(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

December 31, 2018
Gross

Gross

Amortized
Cost

Fair
Value

Unrealized Unrealized

Gains

Losses

20,998
2,999
23,997

20,355
2,911
23,266

-
-
-

(643)
(88)
(731)

826
14,751
2,779
18,356
102,957
$ 145,310

Amortized
Cost

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

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

826
14,686
2,669
18,181
100,506
141,953

-
13
-
13
172
185

-
(78)
(110)
(188)
(2,623)
(3,542)

December 31, 2017
Gross

Gross

Fair
Value

Unrealized Unrealized

Gains

Losses

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

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

-
-
-
-

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

-
50
18
68
38
197
303

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

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 $50,157,000 and $47,825,000 at December 31, 2018 and 2017, respectively.

In addition to cash received from the scheduled maturities of securities, some investment securities available for sale are
sold at current market values during the course of normal operations. Following is a summary of proceeds received from all
investment securities transactions and the resulting realized gains and losses:

(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,

2018
10,461

-
(188)
-

2017
21,799

539
(32)
5

2016
4,304

139
(21)
100

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Equity securities owned by the Company consist of common stock of various financial services providers (“Bank Stocks”).
As of January 1, 2018, upon the adoption of ASU 2016-01, all of the Company’ equity securities are within the scope of ASC
Topic 321, Investments – Equity Securities. ASC 321 requires all equity investments within its scope to be measured at fair
value with changes in fair value recognized in net income. The Company recorded a decline of $1,000 during the year ended
December 31, 2018 for the change in fair value of equity securities on the consolidated statements of income.

The following table shows gross unrealized losses and fair values of securities available for sale, aggregated by category and
length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2018:

(Dollars in thousands)

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

Less Than 12 Months

Unrealized Losses at December 31, 2018
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

23,267

(731)

23,267 $

(731)

5,055

(10)

8,242

(178)

13,297

(188)

3
11

6,726
11,781

(32)
(42)

43
70

77,170
108,679

(2,591)
(3,500)

46
81

83,896
120,460

(2,623)
(3,542)

$ 11,781

(42)

$ 108,679

$ (3,500)

120,460 $

(3,542)

At December 31, 2018, 14 U.S. Government and agency securities had unrealized losses that, in the aggregate, did not
exceed 1% of amortized cost. All of these securities have been in a continuous loss position for 12 months or more.

At December 31, 2018, 21 obligations of state and political subdivision bonds had unrealized losses that, in the aggregate, did
not exceed 1% of amortized cost. Thirteen of these securities have been in a continuous loss position for 12 months or more.

At December 31, 2018, 46 mortgage-backed securities had an unrealized loss that did not exceed 2% of amortized cost.
Forty-three 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.

The unrealized losses noted above are considered to be temporary impairments. The decline in the values of the debt secu-
rities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contrac-
tual 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.

There were two available for sale 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 available for sale equity securities at December
31, 2017 was less than $1,000. Management identified no other-than-temporary impairment as of, or for the years ended,
December 31, 2017 and 2016.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

The following table shows gross unrealized losses and fair values of securities available for sale, aggregated by category and
length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2017:

(Dollars in thousands)

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

(157)

$ 10,845

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
7. LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

51,050
72,386
9

38,740
65,971
4

(518)
(745)
-

23
51
1

20
41
1

$ 72,395

65,975

10,491

23,369

3,862

(745)

(70)

(627)

34,214 $

(784)

(108)

14,353

(178)

(955)
(1,690)
-

43
92
2

89,790
138,357
13

(1,473)
(2,435)
-

$ (1,690)

138,370 $

(2,435)

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, 2018 and December 31, 2017. Due to the expansion of the Company’s internal credit quality risk
ratings in the second quarter of 2018, the amount reclassified from the special mention rating to the pass/watch
rating, which is included within the pass rating classification below, was $32,603,000 at June 30, 2018. Previously,
both special mention and watch rated loans were reported under the special mention rating classification.
(Dollars in thousands)

Special
Mention
$

2,992
8,590
-
24
-
-
11,606

Special
Mention
$

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

Substandard
814
$
6,459
2,528
2,569
-
19
12,389

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

Doubtful
-
894
29
181
-
-
1,104

Total
46,563
141,295
36,688
163,548
19,129
10,408
$ 417,631

Doubtful

4
953
-
617
-
-
1,574

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

As of December 31, 2018
Commercial, financial and agricultural
Real estate - commercial
Real estate - construction
Real estate - mortgage
Obligations of states and political subdivisions
Personal
Total
(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
42,757
125,352
34,131
160,774
19,129
10,389
$ 392,532

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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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 of the collateral less costs to sell. 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, 2018 and December 31, 2017 totaled $94,000 and $1,285,000, respectively.
Charge-offs 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,
2018 and December 31, 2017:
(Dollars in thousands)

As of December 31, 2018
Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

As of December 31, 2017
Unpaid
Principal
Balance

Recorded
Investment

Related
Allowance

-
-

-
-
-

-
-

-
-
-

468
5,031

477
5,957

191
-
2,232

337
-

247
-
3,738

384
-

468
5,031

477
5,957

191
-
2,232

337
-
8,259

247
-
3,738

384
-
10,803

-
-

-
-
-

-
-

-
-
-

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

Personal
Total:
Commercial, financial
and agricultural

Real estate - commercial
Acquired with credit

deterioration

Real estate - construction
Real estate - mortgage

Acquired with credit

deterioration

Personal

-
909

-
1,303

544
27
1,180

971
17

592
1,123
1,912

1,061
17

-
909

-
1,303

544
27
1,180

971
17
3,648

592
1,123
1,912

1,061
17
6,008

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

(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

Personal
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

Personal

Year Ended December 31, 2018
Cash
Basis
Interest
Income

Interest
Income
Recognized

Average
Recorded
Investment

Year Ended December 31, 2017

Average
Recorded
Investment

Interest
Income
Recognized

Cash
Basis
Interest
Income

Year Ended December 31, 2016
Cash
Basis
Interest
Income

Interest
Income
Recognized

Average
Recorded
Investment

234
2,970

- $
-

452 $

25 $

5,265

313

-
-

456
3,675

29
331

368
14
1,706

654
9

-
-
19

-
-

-
-
33

-
-

416
1,228
2,789

376
-

-
34
21

-
-
20

738
1,228
2,991

523
-

-
136
28

- $

356 $

356

234
2,970

368
14
1,706

654
9
5,955

-
-

-
-
19

-
-

-
-
33

452
5,265

416
1,228
3,145

25
313

-
34
21

-
-
19 $

-
-
33 $

376
-
10,882 $

-
-
393 $

-
-

-
-
20

-
-

20 $

456
3,675

738
1,228
3,347

523
-
9,967

29
331

-
136
28

-
-
524

-
-

-
-
37

-
-

-
-
37

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2018 and
December 31, 2017:
(Dollars in thousands)

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

December 31, 2018 December 31, 2017
4
$
953
-
1,917
-
2,874

-
908
29
753
17
1,707

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

$311,000, $300,000 and $281,000 in 2018, 2017 and 2016, respectively.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018 and December 31, 2017:

(Dollars in thousands)

As of December 31, 2018
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, 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

30-59 Days 60-89 Days

Past Due

Greater
than 90
Days

Total
Past
Due

Current

6 $

46,557

-
140
32

824
259
-
24
1,285 $

-
-
-

561
-
-
15

576 $

1,214
-
29

1,214
140
61

139,890
51
36,627

175
7
-
17
1,442 $

1,560
266
-
56

161,651
71
19,129
10,352
3,303 $ 414,328

163,211
337
19,129
10,408
$ 417,631

Total
Loans
46,563

141,104
191
36,688

Loans
Past Due
Greater
than 90
Days and
Accruing (1)

306
-
-

23
7
-
-
336

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 (1)

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

(1) These loans are guaranteed, or well secured, and there is an effective means of collection in process.

The following table summarizes information regarding troubled debt restructurings by loan portfolio class as
of and for the years ended December 31, 2018 and 2017.
(Dollars in thousands)

Pre-Modification Post-Modification

As of December 31, 2018
Accruing troubled debt restructurings:
Real estate - mortgage
Non-accruing troubled debt restructurings:
Real estate - mortgage

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

1
9

522

550

428

25
547

25
575

17
445

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

(Dollars in thousands)

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

Pre-Modification Post-Modification

Outstanding
Recorded
Investment

Recorded
Investment

Number of
Contracts

1
1
9

369

397

315

19
25
413

20
25
442

4
20
339

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, 2018, there were no specific reserves relating to
the troubled debt restructurings, nor were there any charge-offs on troubled debt restructured loans recorded in
2018. 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, 2018, one restructured loan for $39,000 was in default because it was delinquent in excess
of 30 days with respect to the terms of the restructuring. There were no defaults of troubled debt restructurings
within 12 months of restructure during 2018, 2017 or 2016.

The following tables summarize loans whose terms were modified, resulting in troubled debt restructurings
during 2018 and 2017.
(Dollars in thousands)

As of December 31, 2018
Non-accruing troubled debt restructurings:
Real estate - mortgage

(Dollars in thousands)

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

Pre-Modification Post-Modification

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

1
1

$
$

153
153

$
$

153
153

$
$

147
147

Pre-Modification Post-Modification

Number of
Contracts

Outstanding
Recorded
Investment

Recorded
Investment

1
1

$
$

19
19

$
$

20
20

$
$

4
4

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018, 2017 and 2016:
(Dollars in thousands)

Allowance for loan losses

Beginning Balance, January 1, 2018
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2018
collectively evaluated for impairment
Loans receivable:

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

$
$

273 $
-
10
(8)
275 $
275 $

1,022 $
(60)
5
107
1,074 $
1,074 $

288 $
-
-
270
558 $
558 $

1,285 $
(183)
12
(79)
1,035 $
1,035 $

-
-
-
20
20
20

Ending balance
individually evaluated for impairment
acquired with credit deterioration
collectively evaluated for impairment

$ 46,563 $ 141,295 $

-
-

909
544

$ 46,563 $ 139,842 $

36,688 $
27
-
36,661 $

163,548 $
1,180
971
161,397 $

19,129
-
-
19,129

Allowance for loan losses:

Beginning Balance, January 1, 2017
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2017
collectively evaluated for impairment
Loans receivable:

Ending balance
individually evaluated for impairment
acquired with credit deterioration
collectively evaluated for impairment
(Dollars in thousands)

Allowance for loan losses:

Beginning Balance, January 1, 2016
Charge-offs
Recoveries
Provisions
Ending balance, December 31, 2016
individually evaluated for impairment
collectively evaluated for impairment
Loans receivable:

Ending balance
individually evaluated for impairment
acquired with credit deterioration
collectively 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 $
273 $

948 $
(70)
2
142
1,022 $
1,022 $

231 $
-
-
57
288 $
288 $

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

-
-
-
-
-
-

$ 45,802 $ 140,369 $

468
-

5,031
191

$ 45,334 $ 135,147 $

28,403 $
-
-
28,403 $

146,888 $
2,232
337
144,319 $

13,044
-
-
13,044

Commercial,
financial
and

agricultural commercial

Real estate- Real estate- Real estate-
construction mortgage

Obligations
of states and
political
subdivisions

264 $
(4)
-
58
318 $
-
318 $

836 $
(146)
24
234
948 $
-
948 $

191 $
-
-
40
231 $
-
231 $

1,140 $
(103)
15
91
1,143 $
56
1,087 $

-
-
-
-
-
-
-

$ 40,827 $ 123,711 $

436
-

5,499
641

$ 40,391 $ 117,571 $

35,206 $
2,455
-
32,751 $

154,905 $
4,057
415
150,433 $

13,616
-
-
13,616

Personal
71
(42)
16
27
72
72

Total
2,939
(285)
43
337
3,034
3,034

$
$

10,408
17
-
10,391

$ 417,631
2,133
1,515
$ 413,983

Personal
83
(27)
17
(2)
71
71

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

$
$

9,398
-
-
9,398

$ 383,904
7,731
528
$ 375,645

Personal
47
(26)
19
43
83
-
83

Total
2,478
(279)
58
466
2,723
56
2,667

10,032
-
-
10,032

$ 378,297
12,447
1,056
$ 364,794

$
$

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

8. PLEDGED ASSETS

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, 2018, the amount of loans included in qualifying collateral was $261,442,000, for a lending value of
$187,818,000. As of December 31, 2017, the amount of loans included in qualifying collateral was $224,561,000,
for a lending value of $163,181,000. No investment securities are included in qualifying collateral as of December
31, 2018 or 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
$15,938,000 and $14,972,000 at December 31, 2018 and 2017, 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 $966,000 and $341,000 in
2018 and 2017, respectively, while the cash surrender value decreased in 2016 by $274,000; the net change
resulting from the addition of BOLI acquired through acquisition, 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 2018 and 2017 are shown below:
(Dollars in thousands)

Life
Insurance
14,198
285
27
14,510
277
25
1
632
15,445

Balance as of January 1, 2017
Earnings
Premiums on existing policies
Balance as of December 31, 2017
Earnings
Premiums on existing policies
Annuity payments received
BOLI acquired through acquisition
Balance as of December 31, 2018

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

Deferred
Annuities
433
16
13
462
18
13
-
-
493

Total
14,631
301
40
14,972
295
38
1
632
15,938

December 31,
2018
1,158
11,645
6,217
19,020
(10,276)
8,744

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

Depreciation expense on premises and equipment charged to operations was $815,000 in 2018, $672,000 in
2017 and $595,000 in 2016.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018
and 2017 was $2,046,000. The core deposit intangible of $431,000 was fully amortized as of December 31, 2018
and 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. In 2016, an adjustment was made to increase goodwill to $3,402,000, which is where the balance
remained as of December 31, 2018 and 2017. 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.
LCB Acquisition

On April 30, 2018, Juniata completed the acquisition of LCB and, as a result, recorded goodwill of $3,691,000,
which was also the balance at December 31, 2018. In addition, a core deposit intangible of $289,000 was
recorded and will be amortized over a ten-year period using a sum of the years’ digits basis.

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

(Dollars in thousands)

LCB
Acquisition
Core
Deposit
Intangible

FNBPA
Acquisition
Core
Deposit
Intangible

FNBPA
Acquisition
Other
Intangible
Assets

Branch
Acquisition
Core
Deposit
Intangible

Beginning Balance at Acquisition Date
Amortization expense recorded prior to December 31, 2015
Amortization expense recorded in Years ended:
December 31, 2016
December 31, 2017
December 31, 2018
Unamortized balance as of December 31, 2018

Scheduled Amortization expense for years ended:
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
After December 31, 2023

289
-

-
-
35
254

49
44
39
33
28
61

303
4

55
49
44
151

38
33
27
22
16
15

40
2

20
18
-
-

-
-
-
-
-
-

431
402

29
-
-
-

-
-
-
-
-
-

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

12. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

The Company no longer has an investment in an unconsolidated subsidiary following its acquisition of the
remainder of the outstanding common stock of Liverpool on April 30, 2018. Prior to the acquisition, the Company
owned 39.16% of the outstanding common stock of Liverpool. The investment was accounted for under the equity
method of accounting and was carried at $4,812,000 as of December 31, 2017. The Company increased its
investment in LCB for its share of earnings and decreased its investment by any dividends received from LCB. The
investment was evaluated quarterly for impairment. A loss in value of the investment which is determined to be
other than a temporary decline would have been recognized as a loss in the period in which such determination was
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 that would justify
the current carrying value of the investment. There was no impairment of the investment relating to LCB prior to
the acquisition on April 30, 2018. A deferred tax liability of $406,000 related to the previous 39.16% ownership in
LCB was removed as of April 30, 2018, resulting in a corresponding reduction in income tax expense.

The following table illustrates the components of the income/gain from the unconsolidated subsidiary
investment recorded for the years ended December 31, 2018, 2017, and 2016.
(Dollars in thousands)
Income from unconsolidated subsidiary

Years Ended December 31,
2017

2018

2016

(excluding merger-related adjustments)

Dividend income
Equity income

Total income (excluding merger-related adjustments)
Merger-related adjustments for investment in unconsolidated
subsidiary

Adjustment to LCB book value at April 30, 2018
Special merger-related dividend
Fair value gain

Total merger-related adjustments

Total income/gain from unconsolidated subsidiary

13. DEPOSITS

36
45
81

61
106
167

55
167
222

(239)
39
415
215
296

-
-
-
-
167

-
-
-
-
222

The aggregate amount of demand deposit overdrafts that were reclassified as loans were $75,000 at December
31, 2018, compared to $33,000 at December 31, 2017.

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,

2018
$ 126,057
147,413
99,236
8,368
140,648
$ 521,722

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

Deposits and other funds from related parties held by Juniata amounted to $1,215,000 and $1,116,000 at
December 31, 2018 and 2017, respectively.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Aggregate amount of scheduled maturities of time deposits as of December 31, 2018 include the following:

(Dollars in thousands)

Maturing in:
2019
2020
2021
2022
2023
Later

$250,000 or more
$

3,538
2,715
513
-
607
995
8,368

14. BORROWINGS

Time Deposits
Other

49,056
34,817
21,694
9,503
11,070
14,508
140,648

Total Time Deposits
52,594
37,532
22,207
9,503
11,677
15,503
149,016

Short term borrowings as of December 31, 2018, 2017 and 2016, and the related maximum amounts
outstanding at the end of any month in each of the three years ended, are presented below.
(Dollars in thousands)

2018

December 31,
2017

Maximum Outstanding at Any Month End

2016

2018

2017

2016

Securities sold under agreements

to repurchase

Short-term borrowings

with FHLB:

Overnight advances

2,911

9,769

4,496

4,620

9,769

6,018

11,600
$ 14,511

12,000
21,769

27,700
32,196

29,238
33,858

30,721
40,490

32,300
38,318

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
2017

2016

2018

Short-term borrowings with
Federal Home Loan Bank
2017

2016

2018

2,911

9,769

4,496

11,600

12,000

27,700

2.13%

0.32%

0.18%

2.62%

1.54%

0.74%

4,177

4,823

4,712

9,906

25,476

15,696

1.49%

0.64%

0.11%

1.92%

1.16%

0.60%

Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. Outstanding
balances were $15,000,000 as of December 31, 2018 and $25,000,000 as of December 31, 2017.

The following table summarizes the scheduled maturities of long-term debt as of December 31, 2018.
(Dollars in thousands)

Year
2019
2020
2021
2022
2023
Thereafter

Scheduled
Maturities

15,000
-
-
-
-
15,000

Weighted Average
Interest Rate
1.59%
-
-
-
-
1.59%

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018, the securities that serve as collateral for securities sold under agreements to repurchase had
a fair value of $8,666,000. The interest rate paid on these funds is variable and subject to change daily.

The Bank’s maximum borrowing capacity with the FHLB is $187,818,000, with a balance of $26,600,000
outstanding as of December 31, 2018. 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 four operating lease arrangements. The operating leases are for two branch and
two office locations. The majority of the leases are renewable at the Company’s option. One of the office location
lease agreements is with a related party. The original term of this lease was for ten years followed by fifteen
annual renewal options. The Company is currently in the fifth annual renewal period.

Future minimum lease commitments are based on current rental payments. Rental expense charged to
operations, including license fees for branch offices, was $109,000, $147,000 and $142,000 in 2018, 2017 and
2016, respectively. The primary reason for the decline in rental expense in 2018 was because a previously leased
branch office was relocated to a newly constructed branch facility owned by Juniata at the end of 2017.

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, 2018:
(Dollars in thousands)

Years ending December 31,
2019
2020
2021
2022
2023
2024 and beyond
Total minimum payments required

Lease Obligation
111
93
83
26
21
95
429

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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. In 2018, the value of Juniata’s net deferred tax asset was adjusted again, primarily due
to a defined benefit contribution applied to the 2017 tax year that resulted in a decline in tax expense of
$168,000 in 2018. Offsetting the tax expense was the effect of tax credits for Juniata’s investment in two low-
income housing partnerships amounting to $901,000 in 2018, $722,000 in 2017 and $572,000 in 2016. 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. In addition, a $406,000 deferred tax liability related to the previous 39.16% ownership of
Liverpool, was removed as of April 30, 2018, resulting in a corresponding reduction in income tax expense.

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

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

Years Ended December 31,

2018
(563)
(96)
(659)

2017
379
681
1,060

2016
499
320
819

A reconciliation of the statutory income tax (benefit) expense computed at 21% in 2018 and 34% in both 2017
and 2016 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
Defined benefit prior year contribution, net of
other PTR adjustments
Basis difference related to Liverpool investment
prior to acquisition
Other permanent differences
Total tax (benefit) expense
Effective tax rate

Years Ended December 31,

2018
5,245

2017
5,597

2016
5,975

21.0%

34.0%

1,101
(271)
(50)
-
(10)
19
(901)
33
-

(198)

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

2,032
(427)
(84)
(124)
(15)
23
(572)
-
-

(406)
24
(659)
(12.6)%

-
(26)
1,060

18.9%

-
(14)
819
13.7%

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Deductible temporary differences and taxable temporary differences gave rise to a net deferred tax asset for
the Company as of December 31, 2018 and 2017. 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,

2018

2017

494
345
309
78
655
34
142
293
225
1
1
2,577

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

(445)
-
(384)
(229)
(56)
(42)
(68)
(353)
-
(1,577)
1,000

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

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, 2018, 2017 and 2016. The Company is no
longer subject to examination by taxing authorities for years before 2015. Tax years 2015 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

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

dividends and voluntary cash payments, within limits. To the extent that shares are not available in the open
market, the Company has reserved common stock to be issued under the plan. Any adjustment in capitalization of
the Company will result in a proportionate adjustment to the reserved shares for this plan. At December 31,
2018, 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 2018, 2017 and 2016, 3,416, 4,289 and 49,370
shares, respectively, were repurchased in conjunction with this program. Remaining shares authorized in the
program were 170,574 as of December 31, 2018.

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 included 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. These 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 was fully phased in as of January 1, 2019. The maximum buffer for 2018
was 1.875% and is 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, 2018 and 2017, that the Company and the Bank met all capital adequacy
requirements to which they were subject.

As of December 31, 2018, 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 2018 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, 2018:

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, 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

Actual

Amount

Ratio

Minimum
Requirement
For Capital
Adequacy Purposes
Ratio

Amount

63,883

15.86%

32,214

60,849

15.11%

60,849

15.11%

60,849

10.01%

24,160

18,120

24,318

59,667

15.01%

31,809

55,808
55,808
55,808

14.04%
14.04%
9.43%

23,857
17,892
23,666

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

$ 62,422

15.50%

32,222

8.00%

39,774

9.875%

40,278

10.00%

59,388

14.74%

24,167

6.00%

31,719

7.875%

32,222

8.00%

59,388

14.74%

18,125

4.50%

25,677

6.375%

26,181

6.50%

59,388

9.77%

24,317

4.00%

24,317

4.000%

30,397

5.00%

$ 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%

The Juniata Valley Bank

(Dollars in thousands)

As of December 31, 2018:
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, 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

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, 2018, $42,119,000 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 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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,

2018
5,904
4,987
1.18
4,987
22
5,009
1.18
-

$
$

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

$
$

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 on available for sale securities
Unrecognized expense for defined benefit pension
Accumulated other comprehensive loss
20. FAIR VALUE MEASUREMENT

2018
(2,647)
(1,652)
(4,299)

As of December 31,
2017
(1,683)
(2,351)
(4,034)

2016

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

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 2018

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 for valuation inputs 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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

A description of the valuation methodologies used for instruments measured at fair value, as well as the
general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

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

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

The fair value of equity securities is based upon quoted prices in active markets and is reported using
Level 1 inputs.
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 measured on a non-recurring basis as they are carried at the lower of cost or fair value.
Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the
proximate vicinity less estimated costs to sell.
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 2018
The following table summarizes financial assets and financial liabilities measured at fair value as of December
31, 2018 and December 31, 2017, 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, 2018 or 2017.

(Dollars in thousands)

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

Obligations of U.S. Government agencies

and corporations

Obligations of state and political subdivisions
Mortgage-backed securities

Measured at fair value on a non-recurring basis:

Impaired loans

Other real estate owned
Mortgage servicing rights

(Dollars in thousands)

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

Obligations of U.S. Government agencies

and corporations

Obligations of state and political subdivisions
Mortgage-backed securities
Equity securities available-for-sale

Measured at fair value on a non-recurring basis:

Impaired loans

Other real estate owned
Mortgage servicing rights

(Level 1)

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

Inputs

Other

(Level 3)
Significant
Other

Inputs

Observable Unobservable

December 31,
2018

23,266
18,181
100,506

1,104
149
200

-
-
-

23,266
18,181
100,506

-
-
--

-
-
-

1,104
149
200

(Level 1)

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

Inputs

Other

(Level 3)
Significant
Other

Inputs

Observable Unobservable

December 31,
2017

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

-
-
-
1,119

34,214
24,981
93,510
-

-
-
-
-

1,574
27
225

-
-
-

1,574
27
225

The following table presents additional quantitative information about assets measured at fair value on a
(Dollars in thousands)
nonrecurring basis and for which Level 3 inputs have been used to determine fair value:

December 31, 2018
Impaired loans

Fair Value Estimate
1,104
$

Valuation Technique
Appraisal of collateral (1)

Other real estate owned

149

Appraisal of collateral (1)

Mortgage servicing rights

200 Multiple of annual

servicing fee

Range
0% - 15%

Weighted
Average
14%

300% - 400%

369%

Unobservable Input
Appraisal and
liquidation
adjustments (2)
Appraisal and
liquidation
adjustments (2)
Estimated
pre-payment
speed, based
on rate and term

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

(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

Range
0% - 13%

Weighted
Average
8%

22%

300% - 400%

371%

Unobservable Input
Appraisal and
liquidation
adjustments (2)
Appraisal and
liquidation
adjustments (2)
Estimated
pre-payment
speed, based
on rate and term

(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, federal funds sold, restricted stock in the Federal Home Loan Bank, 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.

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

Federal funds sold

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, 2018

Carrying
Value

Fair
Value

December 31, 2017
Fair
Carrying
Value
Value

15,617

9,839

110

729

3,290

141,953

2,441

414,597

200

1,681

126,057

395,665

2,911

11,600

15,000

1,596

289

110

729

3,290

350

141,953

153,824

2,441

3,104

415,195

380,965

372,906

200

1,681

225

1,582

225

1,582

126,057

395,226

2,911

11,600

14,958

1,597

289

115,911

361,757

361,468

9,769

12,000

25,000

1,593

300

9,769

12,000

24,885

1,595

300

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018 and December 31, 2017. This
table excludes financial instruments for which the carrying amount approximates fair value.

(Dollars in thousands)

December 31, 2018
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 $

3,290 $

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

414,597

3,290
415,195

Interest bearing deposits

Long-term debt
Other interest bearing liabilities

395,665 $ 395,226
14,958
1,597

15,000
1,596

-
-

-
-
-

3,290
-

395,226
14,958
1,597

-
415,195

-
-
-

(Dollars in thousands)

December 31, 2017
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. REVENUE RECOGNITION

(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 $

380,965

350
372,906

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

25,000
1,593

-
-

-
-
-

350
-

361,468
24,885
1,595

-
372,906

-
-
-

As disclosed in Note 3, as of January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts
with Customers (Topic 606)”, as well as subsequent ASU’s that modified ASC 606. The Company elected to apply
the ASU and all related ASU’s using the modified retrospective approach applied to all contracts initiated on or
after the effective date, and for contracts which have remaining obligations as of the effective date, while prior
period results continue to be reported under legacy U.S. GAAP. Based on this assessment, the Company concluded
that ASC 606 did not materially change the method by which the Company currently recognizes revenue for these
revenue streams, which is by recognizing revenues as they are earned based upon contractual terms, as
transactions occur, or as services are provided and collectability is reasonably assured.

All of the Company’s revenue from contracts with customers in the scope of ASC 606 are recognized within
non-interest income on the consolidated statements of income. Revenue streams not within the scope of ASC 606
included in non-interest income on the consolidated statements of income include earnings on bank-owned life

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

insurance and annuities, income from unconsolidated subsidiary, fees derived from loan activity, mortgage
banking income, gain/loss on sales and calls of securities, and the change in value of equity securities.

A description of the Company’s sources of revenue accounted for under ASC 606 are as follows:

Customer Service Fees – fees mainly represent fees from deposit customers for transaction based, account
maintenance, and overdraft services. Transaction based fees include, but are not limited to, stop payment and
overdraft fees. These fees are recognized at the time of the transaction when the performance obligation has been
fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing
the period of the performance obligation, and are recognized monthly.

Debit Card Fee Income – consists of interchange fees from cardholder transactions conducted through the card
payment network. Cardholders use debit cards to conduct point-of-sale transactions that produce interchange
fees. The Company acts in an agent capacity to offer processing services for debit cards to its customers. Fees are
recognized with the processing of the transactions and netted against the related fees from such transactions.

Trust Fees – include asset management and estate fees. Asset management fees are generally based on a fee
schedule, based upon the market value of the assets under management, and recognized monthly when the
service obligation is completed. Trust fees recognized in 2018 and 2017 were $367,000 and $371,000,
respectively. Fees for estate management services are based on a specified fee schedule and generally recognized
as the following performance obligations are fulfilled: (i) 25% of total estate fee recognized when all estate assets
are collected and debts paid, (ii) 50% of the total fee is recognized when the inheritance tax return is filed, and
(iii) remaining 25% is recognized when the first and final account is confirmed, settling the estate. Estate fees
recognized during 2018 and 2017 were $63,000 and $75,000, respectively.

Commissions From Sales Of Non-Deposit Products – include, but are not limited to, brokerage services,
employer-based retirement solutions, individual retirement planning, insurance solutions, and fee-based
investment advisory services. The Company acts in an agent capacity to offer these services to customers.
Revenue is recognized, net of related fees, in the month in which the contract is fulfilled.

Other Non-Interest Income – includes certain revenue streams within the scope of ASC 606 comprised
primarily of ATM surcharges, commissions on check orders, and wire transfer fees. ATM surcharges are the result
of customers conducting ATM transactions that generate fee income. All of these fees, as well as wire transfer
fees, are transaction based and are recognized at the time of the transaction. In addition, the Company acts in an
agent capacity to offer checks to its customers and recognizes commissions, net of related fees, when the contract
is fulfilled.

Gains/Losses On Sales Of Other Real Estate Owned – are recognized when control of the property transfers to
the buyer, which generally occurs when the deed is executed.
Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays
consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract
liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received
payment (or payment is due from the customer). The company’s non-interest revenue streams are largely based on

100

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end
market values. Consideration is often received immediately or shortly after the Company satisfies its performance
obligation and revenue is recognized. The Company does not typically enter into longer-term revenue contracts
with customer, and therefore, does not experience significant contract balances.
Contract Acquisition Costs

The Company expenses all contract acquisition costs as costs are incurred.
22. EMPLOYEE BENEFIT PLANS
Long-Term Incentive Plan

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 for any outstanding awards under the
2011 Plan in accordance with the terms and conditions governing such awards immediately prior to the effective
date of the Plan but expanded the types of awards authorized to include, among others, restricted stock. Under
the provisions of the Plan, while active, 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.

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 $82,000,
$71,000 and $67,000 of expense for the years ended December 31, 2018, 2017 and 2016, respectively, for stock-
based compensation.

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 164,955 shares were available for grant as of December 31, 2018.
Shares of common stock issued under the Plan may be treasury shares or authorized but unissued shares.

During 2018 and 2017, certain officers and key employees were issued restricted stock awards of 5,220 and
4,650 shares, respectively. Each of the awards carry a three-year restriction, with no interim vesting.

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

2018

2017

2016

77
(16)
61

43
(15)
28

16
(5)
11

At December 31, 2018, there was $109,000 of unrecognized compensation cost related to all non-vested
restricted stock awards. This cost is expected to be recognized through February 2021.

101

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

The following table presents a summary of non-vested restricted shares activity for 2018.

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

Weighted
Average
Grant Date
Fair Value

18.10

19.80
18.78

Shares
7,800
-
-
5,220
13,020

No stock options were awarded in 2018. Options granted prior to 2018 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, 2018 have exercise prices between $17.22 and $18.00, with a
weighted average exercise price of $17.91 and a weighted average remaining contractual life of 5.1 years.

As of December 31, 2018, there was $111,000 of total unrecognized compensation cost related to nonvested
share-based compensation arrangements granted under the Plan. That cost is expected to be recognized
through 2021.

Cash received from option exercises under the Plans for the year ended December 31, 2018 was $90,000 and
$172,000 for the year ended December 31, 2017. No options were exercised in 2016.

A summary of the status of the outstanding stock options as of December 31, 2018, 2017 and 2016, and
changes during the years ending on those dates is presented below:

2018

2017

2016

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, 2018

Shares
125,026
-
(5,170)
(6,100)
113,756
110,911

Weighted
Average
Exercise
Price
17.91
.0-
17.47
21.10
17.76

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

Weighted
Average
Exercise
Price
17.97
.0-
17.74
20.05
17.91

Weighted
Average
Exercise
Price

142,524 $

-
-
(3,369)
139,155 $
97,584

18.07
.0 -
.0 -
22.36
17.97

15,240

10,807

387,318

102

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

The following table summarizes characteristics of stock options as of December 31, 2018:

Grant Date

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

Exercise Price
17.22
17.75
18.00
17.65
17.72
17.80

$
$
$
$
$
$

Defined Benefit Retirement Plans

Shares
3,909
13,200
15,800
16,622
31,025
33,200
113,756

Outstanding
Contractual Average Life (Years)
0.80
2.72
3.22
4.14
5.13
6.13

Exercisable
Shares

3,909
13,200
15,800
16,622
30,180
31,200
110,911

The Company sponsors a defined benefit retirement plan [The Juniata Valley Bank Retirement Plan (“JVB
Plan”)] which covers substantially all of its employees employed prior to December 31, 2007. As of January 1,
2008, the JVB Plan was amended to close the plan to new entrants. All active participants as of December 31,
2007 became 100% vested in their accrued benefit and, as long as they remained eligible, continued to accrue
benefits until December 31, 2012. The benefits are based on years of service and the employee’s compensation.
Effective December 31, 2012, the JVB Plan was amended to cease future service accruals after that date (i.e., it
was frozen).

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

The Company’s funding policy is to contribute annually no more than the maximum amount that can be
deducted for federal income tax purposes. Contributions are intended to provide for benefits attributed to service
through December 31, 2012.

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

In 2018, Juniata completed the second step of the strategy to reduce the liability associated with its defined
benefit pension plan by making a lump sum payment offer to a small group of terminated vested participants in
Juniata’s defined benefit plan. This step further reduced Juniata’s remaining pension liability by approximately
9%, which resulted in a pre-tax charge to earnings of $210,000 in the twelve months ended December 31, 2018.
The pre-tax charges for both the 2018 and 2017 strategies executed to reduce the pension liability, represent a
further acceleration of pension expenses that would otherwise have impacted Juniata’s future earnings. In 2019,
Juniata plans to finalize the termination of its defined benefit plan.

103

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Management expects to record a $117,000 net periodic expense in 2019 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, 2018 and December 31, 2017. Assets included in the JVB Plan that are not valued in the hierarchy
table consist of cash and cash equivalents, totaling $50,000 and $46,000, at December 31, 2018 and 2017,
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:
Mutual 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

2018

Assets

Inputs

11,891
241
12,132

-
-
-

(Level 1)

(Level 2)
Quoted Prices in Significant
Active Markets

Other

(Level 3)
Significant
Other

December 31, for Identical

Observable Unobservable

2017

Assets

Inputs

12,857
213
13,070

-
-
-

104

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

Interest cost

Change in assumptions
Actuarial loss
Group annuity purchase
Settlement payments
Benefits paid
PBO at end of year

Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets, net of expenses
Employer contribution
Group annuity purchase
Settlement payments
Benefits paid
Fair value of plan assets at end of year

Funded status, included in other (liabilities) assets

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

Accumulated benefit obligation

Years Ended
December 31,
2018

2017

15,554
521
(1,208)
(244)
-
(1,485)
(583)
12,555

13,117
(217)
1,350
-
(1,485)
(583)
12,182

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

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

(373) $

(2,437)

(884) $

(3,081)

12,555

15,554

For the year ended December 31, 2018, 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-2018 to reflect mortality improvement. 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.

105

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

2018
521
(690)
210
129
170

(449)
(435)
(884)

2017
621
(793)
377
207
412

117
(584)
(467) $

2016
666
(795)
-
248
119

173
(248)
(75)

(714)

(55) $

2018
4.10%
N/A

2018
3.50%
4.20
N/A

2017
3.50%
N/A

2017
4.00%
6.00
N/A

2016
4.00%
N/A

2016
4.25%
6.00
N/A

As previously stated, the Company has terminated the Defined Benefit Plan as of November 30, 2018, with final
distribution targeted for the second or third quarter of 2019. Accordingly, a liability-driven investment strategy
has been established, which includes an asset allocation glide path that gradually increases the fixed income
allocation from 40% (as of December 31, 2017) to 100% and decrease the equity allocation from 60% to zero by
mid-2019. At December 31, 2018, the asset allocation was 10% equities and 90% fixed income in the JVB Plan.

Future expected benefit payments:
(Dollars in thousands)

Estimated future benefit payments $
Defined Contribution Plan

2019

2020

2021

2022

2023

626

630

620

621

631

2024-2028
3,406
$

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, 2018, a liability of $238,000 was recorded
to satisfy this obligation and was credited to employees’ accounts by January 31, 2019. This liability at December
31, 2017 totaled $224,000 and was credited to employee accounts during 2017. Expense incurred under this plan
was $234,000, $222,000 and $211,000 in 2018, 2017 and 2016, 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 2018, 2017 and 2016 was $199,000, $189,000 and $179,000, respectively.

106

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan under which employees, through payroll deductions, are
able to purchase shares of Company stock annually. The option price of the stock purchases is between 95% and
100% of the fair market value of the stock on the offering termination date as determined annually by the Board
of Directors. The maximum number of shares which employees may purchase under the Plan is 250,000;
however, the annual issuance of shares may not exceed 5,000 shares plus any unissued shares from prior
offerings. There were 2,134 shares issued in 2018, 1,961 shares issued in 2017 and 3,764 shares issued in 2016
under this plan. At December 31, 2018, there were 172,959 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, 2018 and 2017, the present value of the future liability associated with these plans was $215,000 and
$261,000, respectively. For the years ended December 31, 2018, 2017 and 2016, $20,000, $25,000 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 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, 2018 and 2017, the present value of the future liability was $1,602,000 and $1,609,000,
respectively. For the years ended December 31, 2018, 2017 and 2016, $40,000, $33,000 and $32,000,
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, 2018 and 2017,
the present value of the future liability was $1,256,000 and $1,264,000, respectively. For the years ended
December 31, 2018, 2017 and 2016 $103,000, $127,000 and $185,000, 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.
23. 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.

107

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018 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,

2018
72,755
14,468
2,749

2017
$ 77,023
3,150
2,541

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, 2018 and 2017 for guarantees under letters of credit issued is not material.

The maximum undiscounted exposure related to these guarantees at December 31, 2018 was $2,749,000, and
the approximate value of underlying collateral upon liquidation that would be expected to cover this maximum
potential exposure was $22,963,000.
24. RELATED-PARTY TRANSACTIONS

The Bank has granted loans to certain of its executive officers, directors and their related interests. The
aggregate dollar amount of these loans was $7,780,000 and $7,939,000 at December 31, 2018 and 2017,
respectively. During 2018, $10,714,000 of new loans were made and repayments totaled $10,873,000. None of
these loans were past due, in non-accrual status or restructured at December 31, 2018 or 2017.
25. 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, 2018, potential
termination fees were estimated to be approximately $1,672,000 and $1,542,000 on the two contracts. The
potential termination fees 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, 2018.

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.

108

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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.
26. SUBSEQUENT EVENTS

In January 2019, the Board of Directors declared a dividend of $0.22 per share to shareholders of record on

February 18, 2019, payable on March 1, 2019.

109

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018
27. 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
Change in value of equity securities
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 gain (loss) of subsidiary
NET INCOME
COMPREHENSIVE INCOME

December 31,

2018

2017

48
65,909
-
1,193
641
67,791

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

413

422

67,378
67,791

59,387
59,809

Years Ended December 31,
2017

2016

2018

$
$

44
4,923
296
-
26
5,289

134
155
289

5,000
(347)
5,347
557
5,904
5,795

$
$

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

110

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

Cash flows from operating activities:

Years Ended December 31,

2018

2017

2016

Net income

5,904

4,537

5,156

Adjustments to reconcile net income to net cash

provided by operating activities:

Undistributed net (gain) loss of subsidiary
Realized gains on sales of investment securities
Change in value of equity securities
Equity in earnings of unconsolidated subsidiary,

net of dividends of $75, $61 and $55

Equity gain from acquisition of unconsolidated subsidiary
Stock-based compensation expense
(Increase) decrease 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
Proceeds from the maturity of available for sale investment 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
Treasury stock issued for stock plans
Common stock issued for stock plans

Net cash used in financing activities

(556)
-
(26)

194
(415)
82
(93)
(402)
(12)
4,676

-
-
-
(1,361)
(1,361)

(4,411)
(70)
90
42
(4,349)

150
(314)
-

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

-
734
-
-
734

645
(166)
-

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

(470)
252
-
-
(218)

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

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

Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

(1,034)
1,082
48

986
96
1,082

7
89
96

111

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

28. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The unaudited quarterly results of operations for the years ended December 31, 2018 and 2017 follow:
(Dollars in thousands, except per-share data)

2018 Quarter ended

March 31

June 30 as Revised*

Total interest income
Total interest expense
Net interest income
Provision for loan losses
AFS securities losses
Change in equity security value
Other income
Merger and acquisition expense
Other expense
Income before income taxes
Income tax (benefit) expense
Net income
Per-share data:
Basic earnings
Diluted earnings
Cash dividends

Total interest income
Total interest expense
Net interest income
Provision for loan losses
Securities gains
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

$
$
$

5,439
794
4,645
158
(15)
(6)
1,195
64
4,341
1,256
(71)
1,327

0.28
0.28
0.22

March 31

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

0.31
0.31
0.22

$
$
$

5,944
890
5,054
41
-
52
1,444
376
4,530
1,603
(372)
1,975

September 30
6,129
$
950
5,179
32
-
(4)
1,245
185
4,847
1,356
(29)
1,385

December 31
6,139
$
1,001
5,138
106
(173)
(43)
1,332
259
4,859
1,030
(187)
1,217

0.39
0.39
0.22

$
$
$

0.27
0.27
0.22

$
$
$

0.24
0.24
0.22

2017 Quarter ended

June 30

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

September 30
5,457
$
752
4,705
149
2
1,217
-
4,442
1,333
127
1,206

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

0.27
0.27
0.22

$
$
$

0.25
0.25
0.22

$
$
$

0.12
0.12
0.22

* The income tax benefit and net income for the quarter ended June 30, 2018 set forth on this table have been restated by
$406,000 from the amounts of income tax expense of $34,000 and net income of $1,569,000 originally reported. In addition,
the basic and diluted earnings per share set forth on this table have been restated from the $0.31 per share originally
reported. The $406,000 relates primarily to the reversal of a deferred tax liability on the previous investment in LCB prior to
the acquisition on April 30, 2018. The Form 10-Qs for the quarters ending June 30, 2019 and September 30, 2019 will reflect

these changes as a correction of a prior year immaterial error.

112

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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, 2018, the Company had 1,777 stockholders of record.

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 the Company’s
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

113

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018INFORMATION 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,
2018 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, 2018, 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 21, 2019 at the Juniata Valley Bank Financial Center, 1762 Butcher Shop Road, Mifflintown, Pennsylvania.

114

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

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

Kim E. Bomberger
R. Franklin Campbell
Steven R. Ehrenzeller
Mark S. Elsesser
Gregory J. Gordon
Donald R. Hartzler
Robert D. Hower
Daniel F. Lane, III

William Larson
Dennis A. Long
Jeffrey C. Moyer
Craig M. Rupert
William J. Rupp, Jr.
Richard A. Smeltz
Georgiana Snyder-Leitzel
Corey P. Wray

115

JUNIATA VALLEY FINANCIAL CORP - ANNUAL REPORT 2018

THIS PAGE IS INTENTIONALLY LEFT BLANK

116

president’s letter

JVB is CONNECTED

Meaningful connection with customers, shareholders, and employees is one

of the hallmarks of great community banking, and one we embrace!

You’ll find JVB employees at Chamber of Commerce events, fund-raisers,
and local football, basketball, and soccer games. We’re in church choirs and
non-profit board rooms. We’re connected.

We remain focused on careful and profitable growth.

Marcie a. Barber | president and ceo

TOTAL ASSETS AT YEAR END
(in thousands)

$583,928

$580,354

$591,945

$480,529

$442,109

$435,753

$447,433

$448,869

$448,782

$640,000

$620,000

$600,000

$580,000

$560,000

$540,000

$520,000

$500,000

$480,000

$460,000

$440,000

$420,000

Directory of officerS of jvb

■ ExECUTiVE

■ BRANCH ADMiNiSTRATiON

■ COMPLiANCE

■ FiNANCE

■ HUMAN RESOURCES

tina J. Smith . . . . . Senior Vice president, Director of Human resources
carol a. noland . . . . . . . . payroll Manager and Benefits administrator

■ MARKETiNG

■ BLAiRS MiLLS AND PORT ROYAL OFFiCES

■ BURNHAM OFFiCE

leann M. Fisher . . . . . . . . . Vice president, community office Manager
Holly M. laub . . . . . . . . . . . . . . . . . . . . . . . . . . assistant office Manager

■ COUDERSPORT OFFiCE

Suzanne e. Booher . . . . . . . . . . . . Vice president, Director of Marketing

■ GARDENViEw OFFiCE

■ BUSiNESS LENDiNG

■ CONSUMER LENDiNG
Betty D. ryan . . . Vice president, Secondary Mortgage Market Manager

$624,830

■ CREDiT ADMiNiSTRATiON AND LOAN OPERATiONS

■ OPERATiONS

■ McALiSTERViLLE AND RiCHFiELD OFFiCES

leslie a. Miller. . . . . . . . . . Vice president, community office Manager
amber n. portzline . . . . . . . assistant office Manager, richfield office

■ MiFFLiNTOwN AND MOUNTAiN ViEw OFFiCES

annette M. price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vice president,
community office Manager and teller Support Manager

MiLLERSTOwN AND LiVERPOOL OFFiCES

Diana S. orwan . . . . . . . . . . . . . . . . . . . . . . community office Manager
lisa M. Freet . . . . . . . . . . assistant office Manager, Millerstown office

■ MONUMENT SqUARE, wATER STREET, & wAL-MART OFFiCES

■ PORT ALLEGANY AND LiLLiBRiDGE OFFiCES

Denise r. russell . . . . . . . . . . . . . . . . . . . . . community office Manager

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Juniata Valley Financial corp.

annual report 2018

CONNECTED

COMMUNITY

OUR

Juniata Valley Financial corp.

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

j
u
n

a
t
a

v
a
l
l
e
y

f
i

n
a
n
c

a
l

c
o
r
p

2
0
1
8

a
n
n
u
a
l
r
e
p
o
r
t

001CSN3A5D

2018 ANNUAL REPORT
JUNIATA VALLEY FINANCIAL CORP.