Juniata Valley Financial (JUVF) 10-Q 2020 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934
For the quarterly period ended September 30, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                                   to
Commission File Number                        000-13232
JUNIATA VALLEY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania	23-2235254
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
Bridge and Main Streets, Mifflintown, Pennsylvania	17059
(Address of principal executive offices)	(Zip Code)
(855) 582-5101
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes        ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒ Yes        ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes       ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of November 9, 2020
Common Stock ($1.00 par value)	5,029,841 shares

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Financial Condition as of September 30, 2020 (Unaudited) and December 31, 2019	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	5
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	8
	Notes to Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Not applicable.
Item 4.	Controls and Procedures	56
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
	Signatures	60

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Financial Condition

	(Unaudited)
(Dollars in thousands, except share data)	September 30, 2020		December 31, 2019
ASSETS
Cash and due from banks	$	11,135	$	12,658
Interest bearing deposits with banks		1,144		82
Cash and cash equivalents		12,279		12,740
Interest bearing time deposits with banks		735		2,210
Equity securities		992		1,144
Debt securities available for sale		296,848		210,686
Restricted investment in bank stock		3,449		3,442
Total loans		420,754		400,590
Less: Allowance for loan losses		(3,924)		(2,961)
Total loans, net of allowance for loan losses		416,830		397,629
Premises and equipment, net		8,881		9,243
Bank owned life insurance and annuities		16,503		16,266
Investment in low income housing partnerships		3,304		3,904
Core deposit and other intangible assets		261		318
Goodwill		9,047		9,047
Mortgage servicing rights		164		180
Accrued interest receivable and other assets		5,799		3,823
Total assets	$	775,092	$	670,632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	159,512	$	134,703
Interest bearing		441,014		397,234
Total deposits		600,526		531,937
Short-term borrowings and repurchase agreements		24,575		13,129
Federal Reserve Bank ("FRB") advances		31,298		—
Long-term debt		35,000		45,000
Other interest bearing liabilities		1,563		1,603
Accrued interest payable and other liabilities		5,429		5,256
Total liabilities		698,391		596,925
Commitments and contingent liabilities
Stockholders’ Equity:
Preferred stock, 0 par value: Authorized - 500,000 shares, NaN issued		—		—
Common stock, par value $1.00 per share: Authorized 20,000,000 shares Issued - 5,151,279 shares at September 30, 2020; 5,141,749 shares at December 31, 2019 Outstanding - 5,029,841 shares at September 30, 2020; 5,099,729 shares at December 31, 2019		5,151		5,142
Surplus		24,977		24,898
Retained earnings		44,845		43,954
Accumulated other comprehensive income		3,827		516
Cost of common stock in Treasury: 121,438 shares at September 30, 2020; 42,020 shares at December 31, 2019		(2,099)		(803)
Total stockholders’ equity		76,701		73,707
Total liabilities and stockholders’ equity	$	775,092	$	670,632

See Notes to Consolidated Financial Statements

3

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Income (Unaudited)

	Three Months Ended				Nine Months Ended
(Dollars in thousands, except share data)	September 30,				September 30,
	2020		2019		2020		2019
Interest and dividend income:
Loans, including fees	$	4,848	$	5,157	$	14,507	$	16,023
Taxable securities		1,312		1,118		3,742		2,907
Tax-exempt securities		42		29		105		122
Other interest income		8		76		73		258
Total interest income		6,210		6,380		18,427		19,310
Interest expense:
Deposits		710		970		2,270		2,806
Short-term borrowings and repurchase agreements		26		9		34		44
FRB advances		28		0		35		0
Long-term debt		216		286		729		612
Other interest bearing liabilities		4		11		14		33
Total interest expense		984		1,276		3,082		3,495
Net interest income		5,226		5,104		15,345		15,815
Provision for loan losses		87		(46)		639		(490)
Net interest income after provision for loan losses		5,139		5,150		14,706		16,305
Non-interest income:
Customer service fees		339		429		1,030		1,280
Debit card fee income		384		328		1,080		1,000
Earnings on bank-owned life insurance and annuities		74		82		201		222
Trust fees		98		104		302		294
Commissions from sales of non-deposit products		66		52		213		218
Fees derived from loan activity		94		104		184		238
Mortgage banking income		11		16		41		52
Gain (loss) on sales and calls of securities		283		0		845		(56)
Change in value of equity securities		2		(19)		(152)		(4)
Other non-interest income		99		100		257		260
Total non-interest income		1,450		1,196		4,001		3,504
Non-interest expense:
Employee compensation expense		2,164		2,038		5,970		6,074
Employee benefits		625		1,492		1,747		3,090
Occupancy		284		309		869		979
Equipment		241		224		706		656
Data processing expense		600		556		1,664		1,545
Professional fees		198		210		562		772
Taxes, other than income		116		144		378		422
FDIC Insurance premiums		39		0		118		107
Loss (gain) on sales of other real estate owned		0		(222)		0		(208)
Amortization of intangible assets		19		21		57		65
Amortization of investment in low-income housing partnerships		200		200		600		600
Long-term debt prepayment penalty		0		0		524		0
Other non-interest expense		439		384		1,307		1,383
Total non-interest expense		4,925		5,356		14,502		15,485
Income before income taxes		1,664		990		4,205		4,324
Income tax provision (benefit)		58		(103)		(44)		(27)
Net income	$	1,606	$	1,093	$	4,249	$	4,351
Earnings per share
Basic	$	0.32	$	0.21	$	0.83	$	0.85
Diluted	$	0.32	$	0.21	$	0.83	$	0.85

See Notes to Consolidated Financial Statements

4

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)	Three Months Ended September 30,
	2020						2019
	Before Tax		Tax		Net of Tax		Before Tax		Tax		Net of Tax
	Amount		Effect		Amount		Amount		Effect		Amount
Net income	$	1,664	$	(58)	$	1,606	$	990	$	103	$	1,093
Other comprehensive income:
Available for sale securities:
Unrealized holding gains arising during the period		614		(128)		486		802		(168)		634
Less reclassification adjustment for gains included in net income for sales of debt securities (1) (4)		(283)		59		(224)		0		0		0
Unrealized gains on cash flow hedge		10		(2)		8		0		0		0
Less reclassification adjustment for losses included in net income (3) (4)		1		0		1		0		0		0
Pension net gain		0		0		0		(235)		49		(186)
Amortization of pension net actuarial loss (2) (4)		0		0		0		942		(198)		744
Other comprehensive income (loss)		342		(71)		271		1,509		(317)		1,192
Total comprehensive income	$	2,006	$	(129)	$	1,877	$	2,499	$	(214)	$	2,285

(Dollars in thousands)	Nine Months Ended September 30,
	2020						2019
	Pre-Tax		Tax		Net-of-Tax		Pre-Tax		Tax		Net-of-Tax
	Amount		Effect		Amount		Amount		Effect		Amount
Net income	$	4,205	$	44	$	4,249	$	4,324	$	27	$	4,351
Other comprehensive income:
Available for sale securities:
Unrealized holding gains arising during the period		5,231		(1,098)		4,133		4,317		(906)		3,411
Less reclassification adjustment for (gains) losses included in net income (1) (4)		(845)		177		(668)		56		(12)		44
Unrealized losses on cash flow hedge		(174)		37		(137)		0		0		0
Less reclassification adjustment for gains included in net income (3) (4)		(21)		4		(17)		0		0		0
Pension net loss		0		0		0		2,399		(504)		1,895
Pension loss due to change in assumptions		0		0		0		(1,478)		310		(1,168)
Amortization of pension net actuarial loss (2) (4)		0		0		0		1,276		(268)		1,008
Other comprehensive income		4,191		(880)		3,311		6,570		(1,380)		5,190
Total comprehensive income	$	8,396	$	(836)	$	7,560	$	10,894	$	(1,353)	$	9,541

(1) Amounts are included in (loss) gain on sales and calls of securities on the consolidated statements of income as a separate element within total non-interest income.

(2) Amounts are included in the computation of net periodic benefit cost and are included in employee benefits expense on the consolidated statements of income as a separate element within total non-interest expense.

(3) Amounts are included in interest expense on short-term borrowings and repurchase agreements on the consolidated statements of income.

(4) Income tax amounts are included in the provision for income taxes on the consolidated statements of income.

See Notes to Consolidated Financial Statements

5

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

	Three months ended September 30, 2020
								Accumulated
(Dollars in thousands, except share data)	Number							Other				Total
	of Shares	Common				Retained		Comprehensive		Treasury		Stockholders’
	Outstanding	Stock		Surplus		Earnings		Income		Stock		Equity
Balance, July 1, 2020	5,086,718	$	5,151	$	24,946	$	44,355	$	3,556	$	(1,106)	$	76,902
Net income							1,606						1,606
Other comprehensive income									271				271
Cash dividends at $0.22 per share							(1,116)						(1,116)
Stock-based compensation					31								31
Purchase of treasury stock	(56,877)										(993)		(993)
Balance, September 30, 2020	5,029,841	$	5,151	$	24,977	$	44,845	$	3,827	$	(2,099)	$	76,701

		Nine months ended September 30, 2020
									Accumulated
(Dollars in thousands, except share data)		Number							Other				Total
		of Shares	Common				Retained		Comprehensive		Treasury		Stockholders’
	��	Outstanding	Stock		Surplus		Earnings		Income		Stock		Equity
Balance, January 1, 2020		5,099,729	$	5,142	$	24,898	$	43,954	$	516	$	(803)	$	73,707
Net income								4,249						4,249
Other comprehensive income										3,311				3,311
Cash dividends at $0.66 per share								(3,358)						(3,358)
Stock-based compensation						94								94
Purchase of treasury stock		(83,877)										(1,372)		(1,372)
Treasury stock issued for stock plans		4,459				(6)						76		70
Common stock issued for stock plans		9,530		9		(9)								—
Balance, September 30, 2020		5,029,841	$	5,151	$	24,977	$	44,845	$	3,827	$	(2,099)	$	76,701

6

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

	Three months ended September 30, 2019
								Accumulated
(Dollars in thousands, except share data)	Number					Retained		Other				Total
	of Shares	Common				Earnings		Comprehensive		Treasury		Stockholders’
	Outstanding	Stock		Surplus		(adjusted)		Income (Loss)		Stock		Equity
Balance at July 1, 2019	5,103,628	$	5,142	$	24,858	$	43,622	$	(384)	$	(712)	$	72,526
Net income							1,093						1,093
Other comprehensive income									1,192				1,192
Cash dividends at $0.22 per share							(1,122)						(1,122)
Stock-based compensation					28								28
Treasury stock issued for stock plans	4,009				(6)						75		69
Balance, September 30, 2019	5,107,637	$	5,142	$	24,880	$	43,593	$	808	$	(637)	$	73,786

	Nine months ended September 30, 2019
								Accumulated
(Dollars in thousands, except share data)	Number							Other				Total
	of Shares	Common				Retained		Comprehensive		Treasury		Stockholders’
	Outstanding	Stock		Surplus		Earnings		Income (Loss)		Stock		Equity
Balance, January 1, 2019	5,092,048	$	5,134	$	24,821	$	42,525	$	(4,299)	$	(803)	$	67,378
Net income							4,351						4,351
Other comprehensive income									5,190				5,190
Reclassification for ASU 2018-02							83		(83)				—
Cash dividends at $0.66 per share							(3,366)						(3,366)
Stock-based compensation					75								75
Forfeiture of restricted stock	(800)												—
Treasury stock issued for stock plans	8,889				(8)						166		158
Common stock issued for stock plans	7,500		8		(8)								—
Balance, September 30, 2019	5,107,637	$	5,142	$	24,880	$	43,593	$	808	$	(637)	$	73,786

See Notes to Consolidated Financial Statements

7

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)	Nine Months Ended September 30,
	2020		2019
Operating activities:
Net income	$	4,249	$	4,351
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		639		(490)
Depreciation		609		598
Net amortization of securities premiums		973		578
Net amortization of loan origination fees		163		106
Deferred net loan origination costs		(496)		(340)
Amortization of intangibles		57		65
Amortization of investment in low income housing partnerships		600		600
Net amortization of purchase fair value adjustments		(80)		(158)
Net realized (gain) loss on sales and calls of available for sale securities		(845)		56
Change in value of equity securities		152		4
Net gain on sales of other real estate owned		0		(208)
Earnings on bank owned life insurance and annuities		(201)		(222)
Deferred income tax expense		242		411
Stock-based compensation expense		94		75
Proceeds from mortgage loans sold to others		57		67
Mortgage banking income		(41)		(52)
Increase in accrued interest receivable and other assets		(3,110)		(1,541)
(Decrease) increase in accrued interest payable and other liabilities		(21)		2,589
Net cash provided by operating activities		3,041		6,489
Investing activities:
Purchases of:
Securities available for sale		(201,217)		(85,802)
FHLB stock		(7)		(638)
Premises and equipment		(247)		(348)
Bank owned life insurance and annuities		(36)		(35)
Proceeds from:
Sales of securities available for sale		48,565		11,107
Maturities of and principal repayments on securities available for sale		70,748		20,092
Sale of other real estate owned		0		952
Sale of fixed assets		0		7
Investment in low income housing partnerships		0		(151)
Net decrease in interest bearing time deposits with banks		1,475		590
Net (increase) decrease in loans		(19,453)		13,212
Net cash used in investing activities		(100,172)		(41,014)
Financing activities:
Net increase in deposits		68,586		15,110
Net increase (decrease) in short-term borrowings and securities sold under agreements to repurchase		11,446		(10,530)
Issuance of FRB advances		31,298		0
Issuance of long-term debt		0		45,000
Repayment of long-term debt		(10,000)		(15,000)
Cash dividends		(3,358)		(3,366)
Purchase of treasury stock		(1,372)		0
Treasury stock issued for employee stock plans		70		158
Net cash provided by financing activities		96,670		31,372
Net decrease in cash and cash equivalents		(461)		(3,153)
Cash and cash equivalents at beginning of year		12,740		16,456
Cash and cash equivalents at end of period	$	12,279	$	13,303

8

(Dollars in thousands)	Nine Months Ended September 30,
	2020		2019
Supplemental information:
Interest paid	$	3,120	$	3,329
Income tax paid		225		143
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to repossessed vehicles	$	29	$	7
Right-of-Use assets obtained in exchange for lease obligations		0		556

See Notes to Consolidated Financial Statements

9

JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Juniata Valley Financial Corp. (the “Company” or “Juniata”) and its wholly owned subsidiary, The Juniata Valley Bank (the “Bank” or “JVB”). All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the financial statements. Additionally, effects of the COVID-19 pandemic may negatively impact significant estimates and the assumptions underlying those estimates. Estimates that are particularly susceptible to material change include the determination of the allowance for loan losses, and possible impairment of goodwill and other intangible assets. 

In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and notes thereto included in Juniata Valley Financial Corp.’s Annual Report on Form 10-K (“Annual Report”) for the year ended December 31, 2019.

The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of September 30, 2020 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

2. RECENT ACCOUNTING STANDARDS UPDATES

Not Yet Adopted:

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Issued: June 2016

Summary: 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.

10

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

Effective Date: On November 15, 2019, the FASB voted and approved to delay the effective date of this ASU for smaller reporting companies until fiscal years beginning after December 15, 2022. Since the Company is a smaller reporting company, the delay of the effective date of ASU 2016-13 approved by the FASB applies to the Company. 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 expects the allowance for loan and lease losses (“ALLL”) to increase upon adoption because 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 well as assessing the sufficiency of data currently available through its core database.

3. ACCUMULATED OTHER COMPREHENSIVE INCOME

Components of accumulated other comprehensive income, net of tax, consisted of the following:

(Dollars in thousands)
September 30, 2020	Gains and (Losses) on Cash Flow Hedges		Unrealized Gains and (Losses) on Available for Sale Securities		Defined Benefit Pension Items		Total
Beginning balance, December 31, 2019	$	0	$	516	$	0	$	516
Current period other comprehensive income (loss):
Other comprehensive income (loss) before reclassification		(137)		4,133		0		3,996
Amounts reclassified from accumulated other comprehensive income		(17)		(668)		0		(685)
Net current period other comprehensive income (loss)		(154)		3,465		0		3,311
Ending balance, September 30, 2020	$	(154)	$	3,981	$	0	$	3,827

(Dollars in thousands)
December 31, 2019	Gains and (Losses) on Cash Flow Hedges		Unrealized Gains and (Losses) on Available for Sale Securities		Defined Benefit Pension Items		Total
Beginning balance, December 31, 2018	$	0	$	(2,647)	$	(1,652)	$	(4,299)
Current period other comprehensive income:
Other comprehensive income before reclassification		0		3,129		634		3,763
Amounts reclassified from accumulated other comprehensive income		0		34		1,101		1,135
Net current period other comprehensive income		0		3,163		1,735		4,898
Reclassification for ASU 2018-02		0		0		(83)		(83)
Ending balance, December 31, 2019	$	0	$	516	$	0	$	516

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4. EARNINGS PER SHARE

Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share:

(Dollars in thousands, except earnings per share data)	Three Months Ended September 30,
	2020		2019
Net income	$	1,606	$	1,093
Weighted-average common shares outstanding		5,074		5,104
Basic earnings per share	$	0.32	$	0.21
Weighted-average common shares outstanding	$	5,074	$	5,104
Common stock equivalents due to effect of stock options		7		20
Total weighted-average common shares and equivalents		5,081		5,124
Diluted earnings per share	$	0.32	$	0.21

(Dollars in thousands, except earnings per share)	Nine months ended September 30,
	2020		2019
Net income	$	4,249	$	4,351
Weighted-average common shares outstanding		5,089		5,101
Basic earnings per share	$	0.83	$	0.85
Weighted-average common shares outstanding	$	5,089	$	5,101
Common stock equivalents due to effect of stock options		6		20
Total weighted-average common shares and equivalents		5,095		5,121
Diluted earnings per share	$	0.83	$	0.85

5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. As of September 30, 2020, the Company had $992,000 in equity securities recorded at fair value and $1,144,000 in equity securities recorded at fair value at December 31, 2019. The Company recorded a net gain of $2,000 and a net loss of $152,000 during the three and nine months ended September 30, 2020, respectively, and net losses of $19,000 and $4,000 during the three and nine months ended September 30, 2019, respectively, on the Consolidated Statements of Income as a result of  the change in fair value of the Company’s equity securities during the applicable period.

Debt Securities Available for Sale

Debt securities classified as available for sale, which include marketable investment securities, are within the scope of ASC Topic 320, Investments – Debt Securities. Topic 320 requires all debt securities within its scope to be stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and

12

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.

The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored enterprises (approximately 1% of the investment portfolio), municipal bonds (approximately 2%), corporate debt securities (approximately 3%) and mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 94%) as of September 30, 2020. 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 September 30, 2020 and December 31, 2019, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

(Dollars in thousands)	September 30, 2020
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After five years but within ten years	$	4,000	$	4,011	$	11	$	0
		4,000		4,011		11		0
Obligations of state and political subdivisions
After one year but within five years		4,019		4,076		57		0
After five years but within ten years		2,789		2,974		185		0
		6,808		7,050		242		0
Corporate debt securities
Within one year		1,029		1,083		54		0
After five years but within ten years		7,061		7,555		502		(8)
		8,090		8,638		556		(8)
Mortgage-backed securities		272,916		277,149		4,373		(140)
Total	$	291,814	$	296,848	$	5,182	$	(148)

(Dollars in thousands)	December 31, 2019
					Gross		Gross
	Amortized		Fair		Unrealized		Unrealized
Debt Securities Available for Sale	Cost		Value		Gains		Losses
Type and Maturity
Obligations of U.S. Government sponsored enterprises
After one year but within five years	$	14,998	$	14,970	$	1	$	(29)
After five years but within ten years		6,000		5,950		0		(50)
		20,998		20,920		1		(79)
Obligations of state and political subdivisions
Within one year		1,020		1,024		4		0
After one year but within five years		2,810		2,823		13		0
After five years but within ten years		723		728		5		0
		4,553		4,575		22		0
Mortgage-backed securities		184,488		185,191		1,132		(429)
Total	$	210,039	$	210,686	$	1,155	$	(508)

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Certain obligations of the U.S. Government and state and political subdivisions, as well as mortgage-backed securities 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 $70,977,000 and $50,365,000 at September 30, 2020 and December 31, 2019, respectively.

In addition to cash received from the scheduled maturities of investment securities, some securities available for sale are sold or called at current market values during the course of normal operations.

The following table summarizes proceeds received from sales or calls of available for sale investment securities transactions and the resulting realized gains and losses during the nine months ended September 30, 2020 and 2019.

(Dollars in thousands)	Nine Months Ended
	September 30,
	2020		2019
Gross proceeds from sales and calls of securities	$	48,565	$	11,107
Securities available for sale:
Gross realized gains from sold and called securities	$	875	$	5
Gross realized losses from sold and called securities		(30)		(61)
Net gains (losses) from sales and calls of securities	$	845	$	(56)

Topic 320 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. Management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are taken before an assessment is made as to whether the entity will recover the cost basis of the investment. 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 income.

The following tables show gross unrealized losses and fair values of debt securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019:

	Unrealized Losses at September 30, 2020
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Corporate debt securities	1	$	3,033	$	(8)	0	$	0	$	0	1	$	3,033	$	(8)
Mortgage-backed securities	9		44,727		(140)	0		0		0	9		44,727		(140)
Total temporarily impaired securities	10	$	47,760	$	(148)	0	$	0	$	0	10	$	47,760	$	(148)

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	Unrealized Losses at December 31, 2019
	Less Than 12 Months					12 Months or More					Total
(Dollars in thousands)	Number					Number					Number
	of	Fair		Unrealized		of	Fair		Unrealized		of	Fair		Unrealized
	Securities	Value		Losses		Securities	Value		Losses		Securities	Value		Losses
Obligations of U.S. Government sponsored enterprises	9	$	16,919	$	(79)	0	$	0	$	0	9	$	16,919	$	(79)
Mortgage-backed securities	13		47,466		(204)	16		22,049		(225)	29		69,515		(429)
Total temporarily impaired securities	22	$	64,385	$	(283)	16	$	22,049	$	(225)	38	$	86,434	$	(508)

At September 30, 2020, 1 corporate debt security and 9 mortgage-backed securities had unrealized losses. None of these securities have been in a continuous loss position for twelve 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”) or Federal Home Loan Mortgage Corporation (“FHLMC”), which guarantees the timely payment of principal on these investments.

The unrealized losses noted in the tables above are considered to be temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. Because 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, 0 debt securities were deemed to be other-than-temporarily impaired for the periods ended September 30, 2020 and December 31, 2019, respectively.

6. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loans that the Company originated and has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the outstanding unpaid principal balances, net of any deferred fees or costs and the allowance for loan losses. Loans acquired through a business combination are discussed under the heading “Acquired Loans”. 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 includes the following classes: (1) commercial, financial and agricultural, (2) real estate - commercial, (3) real estate - construction, (4) real estate – mortgage, (5) obligations of states and political subdivisions, and (6) personal loans.

Interest income on consumer, mortgage and commercial loans is discontinued and loans are placed on non-accrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Loans are charged off to the extent principal or interest is deemed uncollectible. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. Non-accrual loans and loans past due 90 days still on accrual include both homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan principal balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the loan has performed in accordance with the contractual terms for a reasonable period of time and future payments are reasonably assured.

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

15

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 gains on sales of loans, which is a component of non-interest income.

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 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.

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 credit 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, and other methods.

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. Evaluation 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.

Real Estate - Commercial Lending

The Company engages in real estate - commercial lending in its primary market area and surrounding areas. The Company’s real estate - commercial portfolio is secured primarily by residential housing, commercial buildings, raw land and hotels. Generally, real estate - commercial 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.

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Real estate - commercial 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 portfolio 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 and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, and other resources. Appraisals on properties securing real estate - commercial 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.

Real Estate - Mortgage Lending

The Company’s real estate - mortgage portfolio is comprised of one-to-four family 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 real estate - mortgage loans with a term 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 real estate - mortgage loans originate with a loan-to-value of 80% or less. Home equity installment loans are secured by the borrower’s primary residence with a maximum loan-to-value of 80% and a maximum term of 15 years. Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years.

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

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

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Obligations of States and Political Subdivisions

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

Personal Lending

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

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

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

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 probable incurred losses in the loan portfolio as of the consolidated statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of probable incurred losses 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 consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been

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modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.

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. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

Impairment for substantially all of the Company’s impaired loans is measured based on the estimated fair value of the loan’s collateral. For real estate - commercial loans, 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, financial and agricultural, and obligations of states and political subdivision loans, 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.

Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures. 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. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period after modification. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio class.

Acquired Loans

Loans that Juniata acquires through business combinations are recorded at fair value with no carryover of the related allowance for loan losses. Some of these loans have shown evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.

Such purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics, such as credit score, loan type, and date of origination. Juniata estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest

19

income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

PCI loans that met the criteria for impairment or non-accrual 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 non-accrual 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.

Paycheck Protection Program Loans

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, establishing the Paycheck Protection Program (“PPP”) which is administered by the Small Business Administration (“SBA”). The PPP is intended to provide economic relief to small businesses nationwide adversely impacted under the COVID-19 Emergency Declaration issued on March 13, 2020. The PPP, which began on April 3, 2020, provides small businesses with funds to cover up to eight weeks of payroll costs, including benefits. It also provides for forgiveness of up to the full principal amount of qualifying loans.

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. The 24 week period applies to all borrowers, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight week period. The PPP Flexibility Act also amended the requirements regarding forgiveness of PPP loans, reducing the portion of PPP loan proceeds that must be used for payroll costs for the full amount of the PPP loan to be eligible for forgiveness from 75% to 60%. Additionally, the PPP Flexibility Act extended the maturity date for PPP loans made on, or after June 5, 2020, from two years to five years; however, lenders and borrowers may mutually agree to modify PPP loans made before such date to reflect the longer maturity.

The Company is participating in the PPP, and as of September 30, 2020, has funded 508 PPP loans totaling $31,531,000, net of remaining deferred fees of $533,000. As of September 30, 2020, 454 of the Company’s PPP loans had maturity dates of two years, while the remaining 54 loans, totaling $698,000, had five year maturities. All the Company’s PPP loans are part of the commercial, financial and agricultural loan portfolio.

The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. On October 8, 2020, the SBA, in consultation with the U.S. Treasury Department, released a simpler loan forgiveness application for PPP loans of $50,000 or less to streamline the PPP forgiveness process to provide financial and administrative relief to American’s smallest businesses and eased the burden on PPP lenders, allowing them to process forgiveness applications more swiftly. As of September 30, 2020, Juniata had 367 PPP loans, totaling $6,066,000, with a balance of $50,000 or less. As of September 30, 2020, Juniata had 0t yet submitted a forgiveness application on behalf of its PPP borrowers.

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Loan Portfolio Classification

The following table presents the loan portfolio by class at September 30, 2020 and December 31, 2019.

(Dollars in thousands)
	September 30, 2020		December 31, 2019
Commercial, financial and agricultural	$	71,859	$	51,785
Real estate - commercial		121,527		126,613
Real estate - construction		62,142		46,459
Real estate - mortgage		142,998		150,538
Obligations of states and political subdivisions		15,601		16,377
Personal		6,627		8,818
Total	$	420,754	$	400,590

The following table summarizes the activity in the allowance for loan losses by loan class, for the three and nine months ended September 30, 2020 and 2019.

(Dollars in thousands)							Obligations
	Commercial,						of states
	financial and		Real estate-		Real estate-		and political		Real estate-
	agricultural		commercial		construction		subdivisions		mortgage		Personal		Total
Three Months Ended
September 30, 2020
Balance, beginning of period	$	311	$	878	$	1,137	$	22	$	1,149	$	61	$	3,558
Provision for loan losses		(40)		(10)		145		(1)		(12)		5		87
Charge-offs		0		0		0		0		(3)		(10)		(13)
Recoveries		0		0		267		0		24		1		292
Balance, end of period	$	271	$	868	$	1,549	$	21	$	1,158	$	57	$	3,924
September 30, 2019
Balance, beginning of period	$	274	$	1,038	$	588	$	22	$	1,019	$	74	$	3,015
Provision for loan losses		(8)		0		(37)		1		(6)		4		(46)
Charge-offs		(2)		0		0		0		0		(11)		(13)
Recoveries		0		0		94		0		2		5		101
Balance, end of period	$	264	$	1,038	$	645	$	23	$	1,015	$	72	$	3,057
Nine Months Ended
September 30, 2020
Balance, beginning of period	$	321	$	754	$	718	$	17	$	1,081	$	70	$	2,961
Provision for loan losses		(50)		114		502		4		57		12		639
Charge-offs		0		0		0		0		(7)		(34)		(41)
Recoveries		0		0		329		0		27		9		365
Balance, end of period	$	271	$	868	$	1,549	$	21	$	1,158	$	57	$	3,924
September 30, 2019
Balance, beginning of period	$	275	$	1,074	$	558	$	20	$	1,035	$	72	$	3,034
Provision for loan losses		(12)		(335)		(200)		3		22		32		(490)
Charge-offs		(2)		(15)		0		0		(49)		(48)		(114)
Recoveries		3		314		287		0		7		16		627
Balance, end of period	$	264	$	1,038	$	645	$	23	$	1,015	$	72	$	3,057

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The following table summarizes loans by loan class, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2020 and December 31, 2019.

(Dollars in thousands)							Obligations
	Commercial,						of states
	financial and		Real estate-		Real estate-		and political		Real estate-
	agricultural		commercial		construction		subdivisions		mortgage		Personal		Total
September 30, 2020
Loans allocated by:
individually evaluated for impairment	$	7	$	1,187	$	0	$	0	$	801	$	0	$	1,995
acquired with credit deterioration		0		348		0		0		644		0		992
collectively evaluated for impairment		71,852		119,992		62,142		15,601		141,553		6,627		417,767
	$	71,859	$	121,527	$	62,142	$	15,601	$	142,998	$	6,627	$	420,754
Allowance for loan losses allocated by:
individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0	$	0	$	0
acquired with credit deterioration		0		0		0		0		0		0		0
collectively evaluated for impairment		271		868		1,549		21		1,158		57		3,924
	$	271	$	868	$	1,549	$	21	$	1,158	$	57	$	3,924
December 31, 2019
Loans allocated by:
individually evaluated for impairment	$	0	$	1,206	$	0	$	0	$	1,296	$	14	$	2,516
acquired with credit deterioration		0		366		0		0		704		0		1,070
collectively evaluated for impairment		51,785		125,041		46,459		16,377		148,538		8,804		397,004
	$	51,785	$	126,613	$	46,459	$	16,377	$	150,538	$	8,818	$	400,590
Allowance for loan losses allocated by:
individually evaluated for impairment	$	0	$	0	$	0	$	0	$	0	$	0	$	0
acquired with credit deterioration		0		0		0		0		0		0		0
collectively evaluated for impairment		321		754		718		17		1,081		70		2,961
	$	275	$	1,074	$	558	$	20	$	1,035	$	72	$	2,961

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 anticipated principal balance recovery. Until an impaired loan is placed on nonaccrual status, income is recognized on the accrual basis. Collateral analysis is performed on each impaired loan at least quarterly, and results are used to determine if a specific reserve is necessary to adjust the carrying value of each individual loan down to the estimated fair value. Generally, specific reserves are carried against impaired loans based upon estimated collateral value until a confirming loss event occurs or until termination of the credit is scheduled through liquidation of the collateral or foreclosure. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process at September 30, 2020 and December 31, 2019 totaled $207,000 and $248,000, respectively. Charge-offs will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for expected selling costs, appraisal age, economic conditions and other known factors, are used to determine the charge-off amount.

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The following table summarizes information regarding impaired loans by portfolio class as of September 30, 2020 and December 31, 2019.

(Dollars in thousands)	As of September 30, 2020						As of December 31, 2019
	Recorded		Unpaid Principal		Related		Recorded		Unpaid Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural	$	7	$	7	$	—	$	0	$	0	$	—
Real estate - commercial		1,187		1,288		—		1,206		1,304		—
Acquired with credit deterioration		348		390		—		366		395		—
Real estate – construction		0		964		—		0		1,054		—
Real estate - mortgage		726		1,459		—		1,296		2,006		—
Acquired with credit deterioration		644		811		—		704		840		—
Personal		0		0		—		14		14		—
With an allowance recorded:
Real estate - mortgage	$	75	$	74	$	0	$	0	$	0	$	0
Total:
Commercial, financial and agricultural	$	7	$	7	$	0	$	0	$	0	$	0
Real estate - commercial		1,187		1,288		0		1,206		1,304		0
Acquired with credit deterioration		348		390		0		366		395		0
Real estate - construction		0		964		0		0		1,054		0
Real estate – mortgage		801		1,533		0		1,296		2,006		0
Acquired with credit deterioration		644		811		0		704		840		0
Personal		0		0		0		14		14		0
	$	2,987	$	4,993	$	—	$	3,586	$	5,613	$	0

The related allowance on the real estate – mortgage loan with an allowance recorded in the table above was immaterial as of September 30, 2020.

Average recorded investment of impaired loans and related interest income recognized for the three and nine months ended September 30, 2020 and 2019 are summarized in the tables below.

(Dollars in thousands)	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired loans
With no related allowance recorded:
Commercial, financial and agricultural	$	161	$	0	$	0	$	750	$	0	$	12
Real estate - commercial		1,722		5		6		1,232		5		16
Acquired with credit deterioration		351		0		0		381		0		0
Real estate - mortgage		735		4		11		1,284		4		12
Acquired with credit deterioration		650		0		0		763		0		0
Personal		0		0		0		14		0		0
With an allowance recorded:
Real estate - mortgage	$	75	$	0	$	0	$	0	$	0	$	0
Total:
Commercial, financial and agricultural	$	161	$	0	$	0	$	750	$	0	$	12
Real estate - commercial		1,722		5		6		1,232		5		16
Acquired with credit deterioration		351		0		0		381		0		0
Real estate - mortgage		810		4		11		1,284		4		12
Acquired with credit deterioration		650		0		0		763		0		0
Personal		0		0		0		14		0		0
	$	3,694	$	9	$	17	$	4,424	$	9	$	40

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(Dollars in thousands)	Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Average		Interest		Cash Basis		Average		Interest		Cash Basis
	Recorded		Income		Interest		Recorded		Income		Interest
	Investment		Recognized		Income		Investment		Recognized		Income
Impaired Loans
With no related allowance recorded:
Commercial, financial and agricultural	$	310	$	0	$	0	$	369	$	22	$	12
Real estate - commercial		2,405		15		26		1,066		40		16
Acquired with credit deterioration		355		0		0		460		0		0
Real estate - construction		0		0		0		14		0		0
Real estate - mortgage		939		12		33		1,238		13		35
Acquired with credit deterioration		669		0		0		860		0		0
Personal		3		0		0		16		0		0
With an allowance recorded:
Real estate - mortgage	$	106	$	0	$	0	$	0	$	0	$	0
Total:
Commercial, financial and agricultural	$	310	$	0	$	0	$	369	$	22	$	12
Real estate - commercial		2,405		15		26		1,066		40		16
Acquired with credit deterioration		355		0		0		460		0		0
Real estate - construction		0		0		0		14		0		0
Real estate - mortgage		1,045		12		33		1,238		13		35
Acquired with credit deterioration		669		0		0		860		0		0
Personal		3		0		0		16		0		0
	$	4,787	$	27	$	59	$	4,023	$	75	$	63

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net, due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs. 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 the loan type.

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2020 and December 31, 2019.

(Dollars in thousands)
	September 30, 2020		December 31, 2019
Non-accrual loans:
Commercial, financial and agricultural	$	7	$	0
Real estate - commercial		887		903
Real estate - mortgage		433		902
Personal		0		14
Total	$	1,327	$	1,819

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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. Past due status is determined by the contractual terms of the loan. The following tables present the classes of the loan portfolio summarized by the past due status as of September 30, 2020 and December 31, 2019.

													Loans
													Past Due
													Greater
(Dollars in thousands)							Greater						than 89
			30‑59 Days		60‑89 Days		than 89		Total Past				Days and
	Current		Past Due(2)		Past Due		Days		Due		Total Loans		Accruing(1)
As of September 30, 2020
Commercial, financial and agricultural	$	71,859	$	0	$	0	$	0	$	0	$	71,859	$	0
Real estate - commercial		121,136		0		0		43		43		121,179		0
Real estate - construction		61,969		0		0		173		173		62,142		173
Real estate - mortgage		141,732		86		253		283		622		142,354		134
Obligations of states and political subdivisions		15,601		0		0		0		0		15,601		0
Personal		6,609		18		0		0		18		6,627		0
Subtotal		418,906		104		253		499		856		419,762		307
Loans acquired with credit deterioration
Real estate - commercial		348		0		0		0		0		348		0
Real estate - mortgage		418		134		0		92		226		644		92
Subtotal		766		134		0		92		226		992		92
	$	419,672	$	238	$	253	$	591	$	1,082	$	420,754	$	399

														Loans
					���									Past Due
														Greater
(Dollars in thousands)								Greater						than 89
			30‑59 Days			60‑89 Days		than 89		Total Past				Days and
	Current		Past Due(2)			Past Due		Days		Due		Total Loans		Accruing(1)
As of December 31, 2019
Commercial, financial and agricultural	$	51,725	$	60		$	0	$	0	$	60	$	51,785	$	0
Real estate - commercial		126,180		19			0		48		67		126,247		0
Real estate - construction		46,172		287			0		0		287		46,459		0
Real estate - mortgage		148,366		348			149		971		1,468		149,834		359
Obligations of states and political subdivisions		16,377		0			0		0		0		16,377		0
Personal		8,725		55			0		38		93		8,818		24
Subtotal		397,545		769			149		1,057		1,975		399,520		383
Loans acquired with credit deterioration
Real estate - commercial		366		0			0		0		0		366		0
Real estate - mortgage		330		371			0		3		374		704		3
Subtotal		696		371			0		3		374		1,070		3
	$	398,241	$	1,140		$	149	$	1,060	$	2,349	$	400,590	$	386

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

(2) Loans are considered past due when the borrower is in arrears on two or more monthly payments.

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Troubled Debt Restructurings

The following tables summarize information regarding troubled debt restructurings by loan portfolio class at September 30, 2020 and December 31, 2019.

(Dollars in thousands)		Pre-Modification		Post-Modification
	Number of	Outstanding		Outstanding
	Contracts	Recorded Investment		Recorded Investment		Recorded Investment
As of September 30, 2020
Accruing troubled debt restructurings:
Real estate - commercial	1	$	306	$	326	$	302
Real estate - mortgage	7		488		516		367
	8	$	794	$	842	$	669

(Dollars in thousands)		Pre-Modification		Post-Modification
	Number of	Outstanding		Outstanding
	Contracts	Recorded Investment		Recorded Investment		Recorded Investment
As of December 31, 2019
Accruing troubled debt restructurings:
Real estate - commercial	1	$	306	$	326	$	306
Real estate - mortgage	7		488		516		397
	8	$	794	$	842	$	703

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 September 30, 2020, there were 0 specific reserves carried for troubled debt restructured loans. There were 0 troubled debt restructured loans in default within 12 months of restructure during the three or nine months ended September 30, 2020. NaN troubled debt restructured loan for $314,000 was in default within 12 months of restructure during the three and nine months ended September 30, 2019. On December 31, 2019, there were 0 specific reserves carried for the troubled debt restructurings, nor any charge-offs related to the troubled debt restructured loans. The amended terms of the restructured loans vary, and may include interest rates that have been reduced, principal payments that have been reduced or deferred for a period of time and/or maturity dates that have been extended.

There were 0 loan terms modified resulting in troubled debt restructuring during the three and nine months ended September 30, 2020, nor during the three months ended September 30, 2019. The following table lists the loan whose terms were modified resulting in a troubled debt restructuring during the nine months ended September 30, 2019.

(Dollars in thousands)		Pre-Modification		Post-Modification
	Number of	Outstanding		Outstanding
	Contracts	Recorded Investment		Recorded Investment		Recorded Investment
Nine months ended September 30, 2019
Accruing troubled debt restructurings:
Real estate - commercial	1	$	306	$	326	$	314
Real estate - mortgage	1		9		9		6
	2	$	315	$	335	$	320

The CARES Act permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.  

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On April 7, 2020, the federal banking supervisory agencies issued a Revised Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus (“Interagency Statement”). The interagency statement offers some practical expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs. A lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (i.e. six months) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government (e.g., a state program that requires all institutions within that state to suspend mortgage payments for a specified period). Accordingly, any loan modification made in response to the COVID-19 pandemic that meets either of these practical expedients would not be considered a TDR because the borrower is not experiencing financial difficulty.

On August 3, 2020, the Federal Financial Institutions Examination Council (“FFIEC”) issued the Joint Statement on Additional Loan Accommodations Related to COVID-19 to provide prudent risk management and consumer protection principles for financial institution to consider while working with borrowers as loans near the end of initial loan accommodation periods applicable during the pandemic. In determining whether to offer additional accommodations options to a borrower, it is generally appropriate for the financial institution to assess each loan based upon the fundamental risk characteristics affecting the collectability of that particular credit, including evaluating the borrower’s financial condition and repayment capacity, as well as assessing whether current conditions have affected collateral values or the strength of guarantees, if applicable. If a financial institution elects to account for a loan modification under Section 4013 of the CARES Act, an additional loan modification could also be eligible under Section 4013 if (1) related to the COVID event; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (a) 60 days after the date of termination of the National Emergency or (b) December 31, 2020. If a financial institution does not elect to account for a loan modification under Section 4013, an additional modification should be viewed cumulatively in determining whether the additional modification is a TDR. If a loan modification was previously elected under the Interagency Statement, subsequent qualifying loan modifications may be accounted for under Section 4013 of the CARES Act.

During the nine month period ending on September 30, 2020, Juniata approved interest and/or principal payment deferrals on 237 loans totaling $90,227,000 for individuals and businesses affected by the economic impacts of COVID-19. As of September 30, 2020, 228 of these payment deferral loans, totaling $78,454,000, completing the agreed-upon deferment period and returned to normal debt service. NaN of these loans, totaling $111,000, were delinquent at September 30, 2020. The remaining 9 payment deferral loans, totaling $11,773,000, consisted primarily of commercial real estate loans for the hospitality and fitness/recreation industries within their second deferral period as of September 30, 2020. NaN of the borrowers approved for these designated deferrals were delinquent as of March 20, 2020, the date on which the Company’s COVID-19 Modification Program went into effect, and the loan modifications are not considered to be troubled-debt restructures under Section 4013.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This individual analysis includes loans to commercial customers with an aggregate loan exposure greater

27

than $500,000 and for lines of credit in excess of $50,000. This individual analysis is performed on a continuing basis with all such loans reviewed annually. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Loans in this category are reviewed no less than quarterly.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans in this category are reviewed no less than monthly.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in this category are reviewed no less than monthly.

Loans not falling into one of the categories above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following tables present 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 September 30, 2020 and December 31, 2019. The increase in the special mention category at September 30, 2020 compared to December 31, 2019 was predominantly the result of downgrading four participated hospitality and recreational facility relationships, totaling $20,000,000, from pass to special mention in 2020. Partially offsetting this increase was the payoff of a $4,800,000 special mention relationship during 2020.

(Dollars in thousands)			Special
As of September 30, 2020	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	70,263	$	1,047	$	549	$	0	$	71,859
Real estate - commercial		109,233		4,177		8,074		43		121,527
Real estate - construction		44,709		16,968		465		0		62,142
Real estate - mortgage		141,252		302		1,392		52		142,998
Obligations of states and political subdivisions		15,601		0		0		0		15,601
Personal		6,627		0		0		0		6,627
Total	$	387,685	$	22,494	$	10,480	$	95	$	420,754

(Dollars in thousands)			Special
As of December 31, 2019	Pass		Mention		Substandard		Doubtful		Total
Commercial, financial and agricultural	$	46,725	$	4,080	$	980	$	0	$	51,785
Real estate - commercial		113,851		5,668		7,046		48		126,613
Real estate - construction		44,954		287		1,218		0		46,459
Real estate - mortgage		148,164		327		1,951		96		150,538
Obligations of states and political subdivisions		16,377		0		0		0		16,377
Personal		8,804		0		14		0		8,818
Total	$	378,875	$	10,362	$	11,209	$	144	$	400,590

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7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill associated with this transaction is carried at $2,046,000. On November 30, 2015, the Company acquired FNBPA Bancorp, Inc. and, as a result, carries goodwill of $3,402,000 relating to the acquisition. On April 30, 2018, the Company acquired the remainder of the outstanding common stock of Liverpool Community Bank and, as a result, carries goodwill of $3,599,000 relating to the acquisition.

Total goodwill at September 30, 2020 and December 31, 2019 was $9,047,000. Goodwill is not amortized but is tested annually for impairment or more frequently if certain events occur which might indicate goodwill has been impaired. Due to the severe economic impact of COVID-19, testing was performed as of March 31, 2020, and management concluded that 0 impairment of goodwill existed as of that date. No goodwill impairment test was conducted at September 30, 2020 because the Company’s stock was trading above book value per share and there were no other circumstances indicating impairment may exist.

Intangible Assets

On November 30, 2015, a core deposit intangible in the amount of $303,000 associated with the FNBPA Bancorp, Inc. acquisition was recorded and is being amortized over a ten-year period using a sum of the year’s digits basis. Amortization expense recognized for the intangibles related to the FNBPA acquisition in the three and nine months ended September 30, 2020 was $8,000 and $24,000, respectively.

On April 30, 2018, a core deposit intangible in the amount of $289,000 associated with the Liverpool Community Bank acquisition was recorded and is being amortized over a ten-year period using a sum of the year’s digit basis. Amortization expense recognized for the intangible related to the Liverpool Community Bank acquisition in the three and nine months ended September 30, 2020 was $11,000 and $33,000, respectively.

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The following table shows the amortization schedule for each of the intangible assets recorded.
(Dollars in thousands)	FNBPA		LCB
	Acquisition		Acquisition
	Core		Core
	Deposit		Deposit
	Intangible		Intangible
Beginning Balance at Acquisition Date	$	303	$	289
Amortization expense recorded prior to January 1, 2019		152		35
Amortization expense recorded in the twelve months
ended December 31, 2019		38		49
Unamortized balance as of December 31, 2019		113		205
Amortization expense recorded in the
nine months ended September 30, 2020		24		33
Unamortized balance as of September 30, 2020	$	89	$	172
Scheduled remaining amortization expense for years ended:
December 31, 2020	$	9	$	11
December 31, 2021		27		39
December 31, 2022		22		33
December 31, 2023		16		28
December 31, 2024		10		23
After December 31, 2024		5		38

8. BORROWINGS

Borrowings consisted of the following as of September 30, 2020 and December 31, 2019.

(Dollars in thousands)	September 30,		December 31,
	2020		2019
Securities sold under agreements to repurchase	$	4,575	$	3,429
Overnight advances with FHLB		0		9,700
Short-term debt with FHLB		20,000		0
Federal Reserve Bank advances		31,298		0
Long-term debt with FHLB		35,000		45,000
	$	90,873	$	58,129

Borrowings increased $32,744,000, or 56.3%, at September 30, 2020 compared to December 31, 2019. The Company executed a three-year cash flow hedge on $20,000,000 in three-month advances from the FHLB in the second quarter of 2020, which it renewed in the third quarter of 2020. The Company also began participating in the Federal Reserve Bank’s Paycheck Protection Program Liquidity Facility (“PPPLF”) during the second quarter and received $31,298,000 in advances. As of September 30, 2020, such advances remained outstanding. The advances are collateralized by the PPP loans granted by the Company. The maturity date of the PPPLF advance equals the maturity date of the underlying PPP loans pledged to secure the extension of credit. The maturity date of the PPPLF’s extension of credit will be accelerated if an underlying PPP loan goes into default if the Company sells the PPP loan to the SBA to realize on the SBA guarantee. The maturity date of the PPPLF’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by the Company from the SBA. The interest rate on the advances is fixed at 0.35%.

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Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. In April 2020, Juniata executed a balance sheet strategy by repaying $10,000,000 in FHLB long-term advances, at a weighted average rate of 2.75%, to create a smaller, more efficient balance sheet. A prepayment penalty of $524,000 was incurred. The following table summarizes the scheduled maturities of the remaining long-term debt as of September 30, 2020.

(Dollars in thousands)	Scheduled		Weighted Average
Year	Maturities		Interest Rate
2024	$	20,000	2.42	%
2025		15,000	2.41
	$	35,000	2.42	%

9. FAIR VALUE MEASUREMENT

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

This guidance clarifies that, when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

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

Fair value measurement and disclosure guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those

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that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities 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 and 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.

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

Derivatives – The fair values of derivatives are based on valuation models using observable market data as of the measurement date utilizing Level 2 inputs. The Company’s derivatives are comprised of interest rate swaps traded in an over-the-counter market where quoted market prices are not always available; therefore, the fair values are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of curves, prepayment rates and volatility factors used to value the position. Most market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

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Impaired Loans – Certain impaired loans are reported on a non-recurring basis at the fair value of the underlying collateral since repayment is expected solely from the collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Other Real Estate Owned – Certain assets included in other real estate owned are carried at fair value as a result of impairment and accordingly are presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

Mortgage Servicing Rights – The fair value of servicing assets is based on the present value of estimated future cash flows on pools of mortgages stratified by rate and maturity date and are considered Level 3 inputs.

The following tables summarize assets and liabilities measured at fair value as of September 30, 2020 and December 31, 2019 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. There were 0 transfers of assets between fair value Level 1 and Level 2 during the nine months ended September 30, 2020 or 2019.

	(Level 1)		(Level 2)		(Level 3)
	Quoted Prices in		Significant		Significant
(Dollars in thousands)	Active Markets		Other		Other
	for Identical		Observable		Unobservable
September 30, 2020	Assets		Inputs		Inputs		Total
Assets measured at fair value on a recurring basis:
Debt securities available for sale:
Obligations of U.S. Government agencies and corporations	$	0	$	4,011	$	0	$	4,011
Obligations of state and political subdivisions		0		7,050		0		7,050
Corporate debt securities		0		8,638		0		8,638
Mortgage-backed securities		0		277,149		0		277,149
Total debt securities available for sale	$	0	$	296,848	$	0	$	296,848
Equity securities	$	992	$	0	$	0	$	992
Mortgage servicing rights	$	0	$	0	$	164	$	164
Liabilities measured at fair value on a recurring basis:
Interest rate swaps	$	0	$	195	$	0	$	195
Assets measured at fair value on a non-recurring basis:
Impaired loans	$	0	$	0	$	95	$	95

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	(Level 1)		(Level 2)		(Level 3)
	Quoted Prices in		Significant		Significant
(Dollars in thousands)	Active Markets		Other		Other
	for Identical		Observable		Unobservable
December 31, 2019	Assets		Inputs		Inputs		Total
Assets measured at fair value on a recurring basis:
Debt securities available for sale:
Obligations of U.S. Government agencies and corporations	$	0	$	20,920	$	0	$	20,920
Obligations of state and political subdivisions		0		4,575		0		4,575
Mortgage-backed securities		0		185,191		0		185,191
Total debt securities available for sale	$	0	$	210,686	$	0	$	210,686
Equity securities	$	1,144	$	0	$	0	$	1,144
Mortgage servicing rights	$	0	$	0	$	180	$	180
Assets measured at fair value on a non-recurring basis:
Impaired loans	$	0	$	0	$	144	$	144

Assets measured at fair value on a nonrecurring basis for which Level 3 inputs have been used to determine fair value are immaterial to the Company’s consolidated financial statements.

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 reported 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 quarter 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 discussion describes the estimated fair value of the Company’s financial instruments as well as the significant methods and assumptions not previously disclosed used to determine these estimated fair values.

Carrying values approximate fair value for cash and due from banks, interest-bearing demand deposits with banks, restricted stock in the Federal Home Loan Bank, loans held for sale, interest receivable, mortgage servicing rights, non-interest bearing deposits, securities sold under agreements to repurchase, short-term borrowings and interest payable. Other than cash and due from banks, which are considered Level 1 inputs, and mortgage servicing rights, which are Level 3 inputs, these instruments are Level 2 inputs.

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The estimated fair values of the Company’s financial instruments are as follows:

	Financial Instruments
(Dollars in thousands)	September 30, 2020				December 31, 2019
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Financial assets:
Cash and due from banks	$	11,135	$	11,135	$	12,658	$	12,658
Interest bearing deposits with banks		1,144		1,144		82		82
Interest bearing time deposits with banks		735		735		2,210		2,210
Securities		297,840		297,840		211,830		211,830
Restricted investment in bank stock		3,449		N/A		3,442		N/A
Loans, net of allowance for loan losses		416,830		418,497		397,629		403,359
Accrued interest receivable		2,656		2,656		1,607		1,607
Financial liabilities:
Non-interest bearing deposits	$	159,512	$	159,512	$	134,703	$	134,703
Interest bearing deposits		441,014		445,648		397,234		399,848
Securities sold under agreements to repurchase		4,575		N/A		3,429		N/A
Short-term borrowings		20,000		20,000		9,700		9,700
FRB advances		31,298		31,298		—		—
Long-term debt		35,000		37,374		45,000		45,809
Interest rate swaps		195		195		—		—
Other interest bearing liabilities		1,563		1,564		1,603		1,603
Accrued interest payable		435		435		473		473
Off-balance sheet financial instruments:
Commitments to extend credit	$	0	$	0	$	0	$	0
Letters of credit		0		0		0		0

The following tables present the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments not previously disclosed as of September 30, 2020 and December 31, 2019. The tables exclude financial instruments for which the carrying amount approximates fair value.

					(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in		Significant		Significant
(Dollars in thousands)					Active Markets		Other		Other
	Carrying				for Identical		Observable		Unobservable
	Amount		Fair Value		Assets or Liabilities		Inputs		Inputs
September 30, 2020
Financial instruments - Assets
Interest bearing time deposits with banks	$	735	$	735	$	0	$	735	$	0
Loans, net of allowance for loan losses		416,830		418,497		0		0		418,497
Financial instruments - Liabilities
Interest bearing deposits	$	441,014	$	445,648	$	0	$	445,648	$	0
Long-term debt		35,000		37,374		0		37,374		0
Other interest bearing liabilities		1,563		1,564		0		1,564		0

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					(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in		Significant		Significant
(Dollars in thousands)					Active Markets		Other		Other
	Carrying				for Identical		Observable		Unobservable
	Amount		Fair Value		Assets or Liabilities		Inputs		Inputs
December 31, 2019
Financial instruments - Assets
Interest bearing time deposits with banks	$	2,210	$	2,210	$	0	$	2,210	$	0
Loans, net of allowance for loan losses		397,629		403,359		0		0		403,359
Financial instruments - Liabilities
Interest bearing deposits	$	397,234	$	399,848	$	0	$	399,848	$	0
Long-term debt		45,000		45,809		0		45,809		0
Other interest bearing liabilities		1,603		1,603		0		1,603		0

10. DEFINED BENEFIT RETIREMENT PLAN

The Company sponsored a defined benefit retirement plan, The Juniata Valley Bank Retirement Plan (“JVB Plan”), which covered 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 were 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, as of November 30, 2015, the Company assumed sponsorship of a second defined benefit retirement plan, the Retirement Plan for the First National Bank of Port Allegany (“FNB Plan”), which covered 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 was 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.

Juniata’s Board of Directors resolved to terminate the JVB Plan, effective November 30, 2018. All participants were properly notified. During the second quarter of 2019, JVB Plan participants elected preferences for receiving their vested benefit in the form of either lump sum payments or annuities. All obligations were satisfied in the third quarter of 2019, and the JVB Plan was liquidated. Excess funds of $431,000 were transferred to fund the Company’s 401(k) Safe Harbor Plan.

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There was 0 pension expense recorded during the three and nine months ended September 30, 2020. Pension expense included the following components for the three and nine months ended September 30, 2019:

	Three Months Ended		Nine Months Ended
(Dollars in thousands)	September 30,		September 30,
	2019		2019
Components of net periodic pension cost:
Interest cost	$	49	$	299
Expected return on plan assets		66		(182)
Recognized net actuarial loss		943		1,277
Net periodic pension cost		1,058		1,394
Total recognized in other comprehensive income		(1,863)		(2,197)
Total recognized in net periodic pension cost and other comprehensive income	$	(805)	$	(803)

There was 0 pension activity during the nine months ended September 30, 2020. Information pertaining to the activity in the defined benefit plan during the nine months ended September 30, 2019 is as follows:

(Dollars in thousands)	Nine Months Ended
	September 30, 2019
Change in projected benefit obligation ("PBO")
PBO at beginning of year	$	12,555
Interest cost		299
Change in assumptions		1,477
Actuarial loss		(1,326)
Group annuity purchase		(9,021)
Settlement payments		(3,569)
Benefits paid		(415)
PBO at end of period	$	0
Change in plan assets
Fair value of plan assets at beginning of year	$	12,182
Actual return on plan assets, net of expenses		1,254
Employer contribution		0
Group annuity purchase		(9,021)
Settlement payments		(3,569)
Benefits paid		(415)
Benefits transferred to 401(k) Plan		(431)
Fair value of plan assets at end of period	$	0
Funded status, included in other (liabilities) assets	$	0
Amounts recognized in accumulated comprehensive loss before income taxes consist of:
Unrecognized actual loss	$	0
Accumulated benefit obligation	$	0

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11. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES

In the ordinary course of business, the Company makes commitments to extend credit to its customers through letters of credit, loan commitments and lines of credit. At September 30, 2020, the Company had $113,978,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $110,485,000 at December 31, 2019.

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance standby letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had outstanding $3,151,000 and $2,624,000 of financial and performance standby letters of credit commitments as of September 30, 2020 and December 31, 2019, respectively. Commercial letters of credit as of September 30, 2020 and December 31, 2019 totaled $7,975,000 and $7,725,000, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability as of September 30, 2020 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

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. The FHLB has no obligation to commit to purchase any mortgage loans through, or from, the Company.

12. DERIVATIVES

The Company began utilizing interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position in the second quarter of 2020. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Interest rate swaps with a notional amount totaling $40,000,000 as of September 30, 2020, were designated as cash flow hedges on certain FHLB advances. Because the interest rate swap agreements did not commence until the second quarter of 2020, there was 0 notional value as of December 31, 2019. The interest rate swaps were determined to be fully effective during the period presented, and as such, no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in either other assets or other liabilities on the Consolidated Statements of Condition with changes in fair value recorded in other comprehensive income. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

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The Company presents derivative positions gross on the balance sheet. The following table reflects the derivatives recorded on the Consolidated Statements of Condition as of September 30, 2020.

(Dollars in thousands)	September 30, 2020
	Notional		Fair
	Amount		Value
Included in other liabilities:
Derivatives designated as hedges:
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance	$	20,000	$	(118)
Interest rate swaps - forward-starting on long-term FHLB advances		20,000		(77)
Total included in other liabilities			$	(195)

The effect of cash flow hedge accounting on accumulated other comprehensive income for the period ended September 30, 2020 is as follows:

(Dollars in thousands)	September 30, 2020
	Amount of Gain		Location of Gain	Amount of Gain
	(Loss) Recognized in		(Loss) Reclassified	(Loss) Reclassified
	OCI on Derivatives		from OCI into Income	from OCI into Income
Interest rate contracts	$	(154)	Interest expense on short-term borrowings and repurchase agreements	$	21

The effect of cash flow hedge accounting on the Consolidated Statements of Income for the three and nine months ended September 30, 2020 was as follows:

Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships

	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30, 2020				September 30, 2020
	Interest		Other		Interest		Other
	Income		Income		Income		Income
	(Expense)		(Expense)		(Expense)		(Expense)
Effects of cash flow hedging:
Gain on cash flow hedging relationships:
Amount reclassified from AOCI into income	$	(1)	$	0	$	21	$	0
Total	$	(1)	$	0		21		0

13. SUBSEQUENT EVENTS

On October 20, 2020, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on November 16, 2020, payable on December 1, 2020.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements:

The information contained in this Quarterly Report on Form 10-Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder) including statements that are not historical facts or that address trends or management’s intentions, plans, beliefs, expectations or opinions. Any forward-looking statement made by us in this document is based only on information currently available to us and speaks only as of the date when made. Juniata undertakes no obligation to publicly update or revise forward looking information, whether as a result of new or updated information, future events, or otherwise. Forward-looking statements are not historical facts or guarantees of future performance, events or results and are subject to potential risks and uncertainties, many of which are outside of our control that could cause actual results to differ materially from this forward-looking information. Important factors that could cause our actual result and financial condition to differ materially from those indicated in the forward-looking statements include, without limitation:

● the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic and the direct and indirect impacts of the pandemic on the Company, its customers and third parties;

● 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 estimates 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 address cyber-security risks;

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

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

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

● acts of war or terrorism;

● disruptions due to flooding, severe weather, or other natural disasters; and

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

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For a more complete discussion of certain risks, uncertainties and other factors affecting the Company, refer to the Company’s Risk Factors, contained in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, a copy of which may be obtained from the Company upon request and without charge (except for the exhibits thereto), and Item 1A of Part II of this Quarterly Report on Form 10-Q and of the Quarterly Report on Form 10-Q as March 31, 2020.

COVID-19 and the CARES Act:

On March 13, President Trump declared a National Emergency due to the spread of COVID-19 in the United States. Subsequently, businesses in Pennsylvania deemed non-essential were required to close and economic activity in the Company’s markets slowed dramatically.

On March 27, 2020, the CARES Act was signed into law, providing relief from certain requirements under U.S. GAAP. The CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.

In response to the COVID-19 pandemic, the Company established a COVID-19 Modification Program on March 20, 2020 to offer payment relief to certain borrowers. Through this program, the Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic.

On April 7, 2020, the banking agencies issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement”), to encourage banks to work prudently with borrowers and to describe the agencies’ interpretation of how accounting rules under ASC 310-40 apply to certain COVID-19-related modifications. The interagency statement interprets, but does not suspend, ASC 310-40. It indicates that a lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (i.e. six months) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government. Accordingly, any loan modification made in response to the COVID-19 pandemic that meets either of these practical expedients would not be considered a TDR because the borrower is not experiencing financial difficulty.

On August 3, 2020, the Federal Financial Institutions Examination Council (“FFIEC”) issued the Joint Statement on Additional Loan Accommodations Related to COVID-19 to provide prudent risk management and consumer protection principles for financial institution to consider while working with borrowers as loans near the end of initial loan accommodation periods applicable during the pandemic. If a financial institution elects to account for a loan modification under Section 4013 of the CARES Act, an additional loan modification could also be eligible under Section 4013. If a financial institution does not elect to account for a loan modification under Section 4013, an additional modification should be viewed cumulatively in determining whether the additional modification is a TDR. If a loan modification was previously elected under the Interagency Statement, subsequent qualifying loan modifications may be accounted for under Section 4013 of the CARES Act.

As part of the CARES Act and in recognition of the challenging circumstances faced by small businesses, Congress created the Paycheck Protection Program (“PPP”), in which the Company is a participating lender. PPP covered loans are fully guaranteed as to principal and accrued interest by the SBA, and therefore, require a zero percent risk weight for risk-based capital requirements. The SBA reimburses PPP lenders for any amount of a PPP covered loan that is forgiven. PPP lenders

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are not held liable for any representations made by PPP borrowers in connection with a borrower's request for PPP covered loan forgiveness.

To provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system, on April 7, 2020, the Federal Reserve Banks extended credit under the Paycheck Protection Program Liquidity Facility (“PPPLF”). Under the PPPLF, each Federal Reserve Bank can extend non-recourse loans to institutions eligible to make PPP covered loans. Under the PPPLF, only PPP covered loans guaranteed by the SBA under the Paycheck Protection Program with respect to both principal and interest and that are originated by an eligible institution may be pledged as collateral to the Federal Reserve Banks. The Company was approved and subsequently received $31,298,000 in PPPLF advances, with such advances remaining outstanding at September 30, 2020.

The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. On October 8, 2020, the SBA, in consultation with the U.S. Treasury Department, released a simpler loan forgiveness application for PPP loans of $50,000 or less to streamline the PPP forgiveness process to provide financial and administrative relief to American’s smallest businesses and eased the burden on PPP lenders, allowing them to process forgiveness applications more swiftly. As of September 30, 2020, Juniata funded 508 PPP loans through the SBA, for a total of $31,531,000. At September 30, 2020, Juniata had 367 PPP loans, totaling $6,066,000, with a balance of $50,000 or less. As of September 30, 2020, Juniata had not yet submitted a forgiveness application on behalf of its PPP borrowers.

Critical Accounting Policies:

Disclosure of the Company’s significant accounting policies is included in the Company’s critical accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2019. Some of these policies require significant judgments, estimates, and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses.

General:

The following discussion relates to the consolidated financial condition of the Company as of September 30, 2020, compared to December 31, 2019, and the consolidated results of operations for the three and nine months ended September 30, 2020, compared to the same periods in 2019. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.

Overview:

Juniata Valley Financial Corp. is a Pennsylvania corporation organized in 1983 to be the holding company of The Juniata Valley Bank. The Bank is a state-chartered bank headquartered in Mifflintown, Pennsylvania. Juniata Valley Financial Corp. and its subsidiary bank derive substantially all of their income from banking and bank-related services, including interest earned on residential real estate, commercial mortgage, commercial and consumer loans, interest earned on investment securities and fee income from deposit services and other financial services provided to its customers.

Financial Condition:

Total assets as of September 30, 2020, were $775,092,000, an increase of $104,460,000, or 15.6%, compared to December 31, 2019. Comparing asset balances at September 30, 2020 and December 31, 2019, debt securities available for sale increased by $86,162,000, mainly driven by a $68,589,000 increase in deposits due deposits of government payments and decreased consumer spending. Over the same period, loans increased by $20,164,000, predominantly due to PPP loan funding. Short-term debt increased by $11,446,000 at September 30, 2020 compared to year-end 2019, while long-term debt declined by $10,000,000 over the same period. Additionally, advances from the Federal Reserve Bank increased $31,298,000 as of September 30, 2020 compared to December 31, 2019 due to Juniata’s participation in the

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PPPLF. Stockholders’ equity increased by $2,994,000 at September 30, 2020 compared to December 31, 2019 primarily due to an increase in unrealized gains on debt securities.

The table below shows changes in deposit volumes by type of deposit between December 31, 2019 and September 30, 2020.

(Dollars in thousands)	September 30,		December 31,		Change
	2020		2019		$		%
Deposits:
Demand, non-interest bearing	$	159,512	$	134,703	$	24,809	18.4	%
Interest bearing demand and money market		175,729		150,157		25,572	17.0
Savings		112,827		96,980		15,847	16.3
Time deposits, $250,000 and more		11,228		6,923		4,305	62.2
Other time deposits		141,230		143,174		(1,944)	(1.4)
Total deposits	$	600,526	$	531,937	$	68,589	12.9	%

Total loans increased $20,164,000, or 5.0%, between December 31, 2019 and September 30, 2020. The Company is participating in the PPP established through the CARES Act, and, as of September 30, 2020, funded 508 PPP loans through the SBA, for a total of $31,531,000, net of remaining deferred fees of $533,000. All the Company’s PPP loans are part of the commercial, financial and agricultural loan portfolio. While PPP loan origination activity was significant, paydowns exceeded non-PPP loan production. As shown in the table below, most of the decline was in real estate - commercial and mortgage loans, as well as personal loans. These declines were partially offset by increases in commercial, financial and agricultural and real estate - construction loans.

(Dollars in thousands)	September 30,		December 31,		Change
	2020		2019		$		%
Loans:
Commercial, financial and agricultural	$	71,859	$	51,785	$	20,074	38.8	%
Real estate - commercial		121,527		126,613		(5,086)	(4.0)
Real estate - construction		62,142		46,459		15,683	33.8
Real estate - mortgage		142,998		150,538		(7,540)	(5.0)
Obligations of states and political subdivisions		15,601		16,377		(776)	(4.7)
Personal		6,627		8,818		(2,191)	(24.8)
Total loans	$	420,754	$	400,590	$	20,164	5.0	%

A summary of the activity in the allowance for loan losses for each of the nine month periods ended September 30, 2020 and 2019 is presented below.

(Dollars in thousands)	Nine months ended September 30,
	2020			2019
Balance of allowance - January 1	$	2,961		$	3,034
Loans charged off		(41)			(114)
Recoveries of loans previously charged off		365			627
Net recoveries		324			513
Provision for loan losses		639			(490)
Balance of allowance - end of period	$	3,924		$	3,057
Ratio of net recoveries during period to average loans outstanding		(0.08)	%		(0.12)	%

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The $963,000 increase in the allowance at September 30, 2020 compared to December 31, 2019 was the result of the additional probability of losses inherent in the loan portfolio, particularly in segments most affected by the economic conditions resulting from the COVID-19 pandemic, such as hospitality, restaurants, and recreational facilities. Additional consideration was also included for estimated elevated losses within the COVID-19 deferral loan pool.

As of September 30, 2020, 30 loans (exclusive of loans acquired with existing credit deterioration) with aggregate outstanding balances of $1,995,000 were individually evaluated for impairment. A collateral analysis was performed on each of these loans to establish a portion of the reserve needed to carry the impaired loans at fair value. There was one loan for $75,000 determined to have insufficient collateral at September 30, 2020, requiring the establishment of an immaterial reserve.

As of September 30, 2020, there were $22,494,000 in special mention loans compared to $10,362,000 at December 31, 2019. The majority of this increase was caused by the downgrading of four hospitality and recreational facility participated relationships, totaling $20,000,000, from pass to special mention in 2020. The increase was partially offset by the payoff of a $4,800,000 special mention relationship during 2020. As of September 30, 2020, there were $10,480,000 in substandard loans compared to $11,209,000 at December 31, 2019, and $95,000 in doubtful loans at September 30, 2020 compared to $144,000 at December 31, 2019.

Management believes the reserves carried are adequate to cover probable incurred losses related to these relationships as of September 30, 2020. However, there are uncertainties about the lasting effects of the COVID-19 impact on the economy. Such effects could have a material impact on future results of operations if businesses are not able to remain solvent and unemployment remains at elevated levels. We believe we have sufficient liquidity, capital and loss allowance reserves to withstand losses that may occur, but we continue to closely monitor the financial strength of borrowers whose ability to comply with repayment terms may become permanently impaired.

The following is a summary of the Bank’s non-performing loans on September 30, 2020 compared to December 31, 2019.

	September 30, 2020			December 31, 2019
Non-performing loans
Non-accrual loans	$	1,327		$	1,819
Accruing loans past due 90 days or more, exclusive of loans acquired with credit deterioration		307			383
Total	$	1,634		$	2,202
Loans outstanding	$	420,754		$	400,590
Ratio of non-performing loans to loans outstanding		0.39	%		0.55	%

Total non-performing loans at September 30, 2020 decreased $568,000 over total non-performing loans at December 31, 2019 predominantly due to the payoff and successful resolution of former non-accrual loans in 2020.

The Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of September 30, 2020, Juniata approved interest and/or principal payment deferrals on 237 loans, totaling $90,227,000, for individuals and businesses affected by the economic impacts of COVID-19. As none of the borrowers approved for these designated deferrals were delinquent as of March 20, 2020, the date on which the Company’s COVID-19 Modification Program went into effect, and the modification terms are short-term, the loan modifications are not considered to be troubled-debt restructures under the interagency statement guidance.

As of September 30, 2020, 228 of these payment deferral loans, totaling $78,454,000, have completed the agreed-upon deferment period and have returned to normal debt service. Three of these loans, totaling $111,000, were delinquent at

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September 30, 2020. The loans that remain in payment deferment consist primarily of commercial real estate loans for the hospitality and fitness/recreation industries.

Stockholders’ equity increased from December 31, 2019 to September 30, 2020 by $2,994,000, or 4.1%, mainly due to an increase in net unrealized gains resulting from the change in market value of debt securities available for sale.

Subsequent to September 30, 2020, the following event took place:

On October 20, 2020, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on November 16, 2020, payable on December 1, 2020.

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Comparison of the Three Months Ended September 30, 2020 and 2019

Operations Overview:

Net income for the third quarter of 2020 was $1,606,000, an increase of $513,000 when compared to the third quarter of 2019. Basic and diluted earnings per share were $0.32 in the third quarter of 2020 compared to basic and diluted earnings per share of $0.21 in the third quarter of 2019.

Annualized return on average equity for the three months ended September 30, 2020 was 8.36%, compared to the annualized return on average equity of 6.00% for the same period in 2019. For the three months ended September 30, 2020, annualized return on average assets was 0.82% in 2020, compared to 0.66% in 2019.

Presented below are selected key ratios for the two periods:

	Three Months Ended
	September 30,
	2020		2019
Return on average assets (annualized)	0.82	%	0.66	%
Return on average equity (annualized)	8.36	%	6.00	%
Average equity to average assets	9.84	%	10.99	%
Non-interest income, excluding gain/loss on sales and calls of securities and change in value of equity securities, as a percentage of average assets (annualized)	0.60	%	0.73	%
Non-interest expense as a percentage of average assets (annualized)	2.52	%	3.23	%

The discussion that follows further explains changes in the components of net income when comparing the third quarter of 2020 with the third quarter of 2019.

Net Interest Income:

Net interest income was $5,226,000 during the three months ended September 30, 2020 compared to $5,104,000 during the three months ended September 30, 2019. Total interest expense decreased by $292,000 during the third quarter of 2020 compared to the same period in 2019, partially offset by a decline of $170,000 in total interest income.

Overall, average earning assets increased 18.9%, while average interest bearing liabilities increased 17.6%. Net interest margin, on a fully tax equivalent basis, decreased from 3.41% during the three months ended September 30, 2019 to 2.93% during the three months ended September 30, 2020.

Average loan balances increased by $19,120,000, while interest on loans declined by $309,000 during for the third quarter of 2020 compared to the same period in 2019. The decline in the yield on loans decreased interest income by $583,000, while the increase in the average volume of loans outstanding increased interest income by $274,000.

The average balance of, and interest earned on, investment securities increased $100,975,000 and $207,000, respectively, in the third quarter of 2020 compared to the third quarter of 2019. The increase in average balance on investment securities during the period increased interest income by $598,000, while the decline in yield on investment securities decreased interest income by $391,000.

Average earning assets increased $114,845,000, to $723,591,000, mainly due to a 52.1% increase in average investment securities. The yield on earning assets declined to 3.43% during the three months ended September 30, 2020 from 4.19% during the same period in 2019. The average balance of interest bearing liabilities increased over the period by $80,239,000 compared to the same 2019 period. In addition, the cost to fund interest bearing assets with interest bearing liabilities

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decreased 39 basis points, to 0.73%, during the third quarter of 2020 compared to the same period in 2019. The yields on earning assets and cost of funds were affected by changes in the Prime rate and the federal funds target range between the third quarter of 2019 and the third quarter of 2020.

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The table below shows the net interest margin on a fully tax-equivalent basis for the three months ended September 30, 2020 and 2019.

Average Balance Sheets and Net Interest Income Analysis

	Three Months Ended						Three Months Ended
(Dollars in thousands)	September 30, 2020						September 30, 2019
	Average				Yield/		Average				Yield/		Increase (Decrease) Due To (6)
	Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total
ASSETS
Interest earning assets:
Taxable loans (5)	$	395,099	$	4,626	4.68	%	$	370,154	$	4,851	5.24	%	$	327	$	(552)	$	(225)
Tax-exempt loans		28,071		222	3.16			33,896		306	3.61			(53)		(31)		(84)
Total loans		423,170		4,848	4.58			404,050		5,157	5.11			274		(583)		(309)
Taxable investment securities		288,184		1,312	1.82			188,516		1,118	2.37			591		(397)		194
Tax-exempt investment securities		6,763		42	2.48			5,456		29	2.13			7		6		13
Total investment securities		294,947		1,354	1.84			193,972		1,147	2.37			598		(391)		207
Interest bearing deposits		5,474		8	0.58			4,691		41	3.50			7		(40)		(33)
Federal funds sold		—		—	0.00			6,033		35	2.32			(35)		—		(35)
Total interest earning assets		723,591		6,210	3.43			608,746		6,380	4.19			844		(1,014)		(170)
Other assets (7)		57,570						54,165
Total assets	$	781,161					$	662,911
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2)	$	178,417		85	0.19		$	157,410		328	0.83		$	44	$	(287)	$	(243)
Savings deposits		111,758		14	0.05			98,453		25	0.10			3		(14)		(11)
Time deposits		152,323		611	1.60			149,820		617	1.65			10		(16)		(6)
Short-term and long-term borrowings and other interest bearing liabilities		93,350		274	1.17			49,926		306	2.45			266		(298)		(32)
Total interest bearing liabilities		535,848		984	0.73			455,609		1,276	1.12			323		(615)		(292)
Non-interest bearing liabilities:
Demand deposits		162,881						128,379
Other		5,575						6,069
Stockholders’ equity		76,857						72,854
Total liabilities and stockholders’ equity	$	781,161					$	662,911
Net interest income and net interest rate spread			$	5,226	2.70	%			$	5,104	3.07	%	$	521	$	(399)	$	122
Net interest margin on interest earning assets (3)					2.89	%					3.35	%
Net interest income and net interest margin - Tax equivalent basis (4)			$	5,296	2.93	%			$	5,193	3.41	%

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. 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%.

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 gross unrealized gains (losses) on securities available for sale.

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Provision for Loan Losses:

In the third quarter of 2020, an $87,000 provision for loan losses was recorded, due primarily to the additional probability of losses inherent in the loan portfolio, particularly in segments most affected by the economic conditions resulting from the COVID-19 pandemic, such as hospitality and restaurants. Additional consideration was also included for estimated elevated losses within the COVID-19 deferral loan pool. In the third quarter of 2019, a provision credit of $46,000 was recorded. Management regularly reviews the adequacy of the allowance for loan losses and makes assessments as to specific loan impairment, charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. See the earlier discussion in the Financial Condition section explaining the information used to determine the provision.

Non-interest Income:

Non-interest income in the third quarter of 2020 was $1,450,000 compared to $1,196,000 in the third quarter of 2019, an increase of $254,000, or 21.2%.

Most significantly impacting non-interest income during the comparative three month periods was an increase on the gains on the sales and calls of securities in 2020 over the comparable 2019 period due to a restructuring of the debt securities portfolio to reduce Juniata’s overall premium exposure, resulting in a net gain on the sales of securities of $283,000, while no gains were recorded during the 2019 period. Partially offsetting this increase was a $90,000 decrease in customer service fees, predominantly in overdraft fees, in the third quarter of 2020 compared to the third quarter of 2019, as consumer spending declined.

As a percentage of average assets, annualized non-interest income was 0.74% in the third quarter of 2020 compared to 0.72% in the third quarter of 2019. Excluding the gain/loss on sales and calls of securities and change in value of equity securities, the percentage of average assets to annualized non-interest income was 0.60% in the third quarter of 2020 compared to 0.73% in the third quarter of 2019.

Non-interest Expense:

Non-interest expense was $4,925,000 for the three months ended September 30, 2020 compared to $5,356,000 for the same period in 2019, a decrease of $431,000, or 8.0%.

Non-interest expense decreased in the third quarter of 2020 compared to the same period in 2019, primarily driven by a decline of $867,000 in employee benefits expense due to the elimination of pension-related expenses in 2020 compared to the third quarter of 2019 when a $943,000 pre-tax pension settlement charge to earnings was recorded. Partially offsetting this decline was a $222,000 net gain on sales of other real estate owned recorded during the third quarter of 2019, while no similar amount was recorded in the 2020 period, as well as a $126,000 increase in employee compensation expense in the third quarter of 2020 compared to the third quarter of 2019.

As a percentage of average assets, annualized non-interest expense was 2.52% in the third quarter of 2020 compared to 3.23% in the third quarter of 2019. Excluding the $943,000 pension settlement charge recorded during the three months ended September 30, 2019, annualized non-interest expense was 2.66% in the third quarter of 2019.

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Provision for income taxes:

An income tax provision of $58,000 was recorded in the third quarter of 2020 compared to a tax benefit of $103,000 recorded in the third quarter of 2019, primarily due to lower taxable income in the 2019 period.

The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. For the third quarters of 2020 and 2019, the tax credits were $225,000 and $226,000, respectively, offsetting $283,000 and $123,000 in tax expense in the 2020 and 2019 periods, respectively. For the third quarter of 2020, the tax credit lowered the effective tax rate from 17.0% to 3.5% compared to the same period in 2019, when the tax credit lowered the effective tax rate from 12.4% to (10.4)%.

Comparison of the Nine Months Ended September 30, 2020 and 2019

Operations Overview:

Net income for the first nine months of 2020 was $4,249,000, a decrease of $102,000, or 2.3%, when compared to the nine months ended September 30, 2019, while basic and diluted earnings per share were $0.83 during the first nine months of 2020 compared to basic and diluted earnings per share of $0.85 during the comparable 2019 period. Annualized return on average equity for the nine months ended September 30, 2020 was 7.45%, compared to 8.30% for the same period in 2019. For the nine months ended September 30, annualized return on average assets was 0.78% in 2020, compared to 0.90% in 2019.

Presented below are selected key ratios for the two periods:

	Nine Months Ended
	September 30,
	2020		2019
Return on average assets (annualized)	0.78	%	0.90	%
Return on average equity (annualized)	7.45	%	8.30	%
Average equity to average assets	10.48	%	10.90	%
Non-interest income, excluding gain/loss on sales and calls of securities and change in value of equity securities, as a percentage of average assets (annualized)	0.61	%	0.74	%
Non-interest expense as a percentage of average assets (annualized)	2.66	%	3.22	%

The discussion that follows further explains changes in the components of net income when comparing the nine months ended September 30, 2020 to the nine months ended September 30, 2019.

Net Interest Income:

Net interest income decreased by $470,000, or 3.0%, during the nine months ended September 30, 2020 when compared to the nine months ended September 30, 2019. The decrease in net interest income was mainly attributable to a decline of $1,516,000 in loan interest and fee income, which was partially offset by an $835,000 increase in interest income on taxable securities and a decrease of $413,000 in interest expense on deposits over the same period.

Overall, average earning assets increased 13.5%, while average interest bearing liabilities increased 11.8% during the nine months ended September 30, 2020 compared to the same period in 2019. Over the same period, net interest margin, on a fully tax equivalent basis, decreased from 3.64% during the nine months ended September 30, 2019 to 3.10% during the nine months ended September 30, 2020.

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Average loan balances and interest on loans decreased by $2,243,000 and $1,516,000, respectively, for the first nine months of 2020 compared to the same period in 2019. While PPP loan origination activity was significant, it was offset by paydowns and light demand for non-PPP loans. The decline in the average volume of loans outstanding and the 47 basis point decrease in the weighted average yield on loans decreased interest income by approximately $19,000 and $1,497,000, respectively.

Interest earned on investment securities increased $818,000 in the first nine months of 2020 compared to the first nine months of 2019, as did the average balance of investment securities, which increased by $81,245,000 during the period. The increase in the average balance increased interest income by $1,504,000, while the decrease in the overall pre-tax yield of 36 basis points on the investment securities portfolio resulted in a decrease of interest income of $686,000.

Average earning assets increased $79,705,000, to $669,148,000, primarily due to the 49.1% increase in average investment securities. The yield on earning assets decreased to 3.67% during the nine months ended September 30, 2020 from 4.37% in the same period in 2019. The average balance of interest bearing liabilities increased over the period by $51,859,000, to $492,022,000, compared to the same period in 2019. In addition, the cost to fund interest bearing assets with interest bearing liabilities decreased 22 basis points, to 0.84%, during the first nine months of 2020 compared to the same period in 2019. The yields on earning assets and cost of funds were affected by the 175 basis point decline in the prime rate and the federal funds target range between the nine month periods ending September 30, 2019 and September 30, 2020.

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The table below shows the net interest margin on a fully tax-equivalent basis for the nine months ended September 30, 2020 and 2019.

Average Balance Sheets and Net Interest Income Analysis

	Nine Months Ended						Nine Months Ended						2020 compared to 2019
(Dollars in thousands)	September 30, 2020						September 30, 2019						Increase (Decrease) Due To (6)
	Average				Yield/		Average				Yield/
	Balance(1)		Interest		Rate		Balance(1)		Interest		Rate		Volume		Rate		Total
ASSETS
Interest earning assets:
Taxable loans (5)	$	380,913	$	13,833	4.84	%	$	377,568	$	15,092	5.33	%	$	134	$	(1,393)	$	(1,259)
Tax-exempt loans		28,465		674	3.16			34,053		931	3.65			(153)		(104)		(257)
Total loans		409,378		14,507	4.72			411,621		16,023	5.19			(19)		(1,497)		(1,516)
Taxable investment securities		240,694		3,742	2.07			157,568		2,907	2.46			1,534		(699)		835
Tax-exempt investment securities		5,869		105	2.39			7,750		122	2.10			(30)		13		(17)
Total investment securities		246,563		3,847	2.08			165,318		3,029	2.44			1,504		(686)		818
Interest bearing deposits		9,127		60	0.88			8,008		180	3.00			25		(145)		(120)
Federal funds sold		4,080		13	0.43			4,496		78	2.31			(7)		(58)		(65)
Total interest earning assets		669,148		18,427	3.67			589,443		19,310	4.37			1,503		(2,386)		(883)
Other assets (7)		56,917						51,933
Total assets	$	726,065					$	641,376
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing demand deposits (2)	$	163,834		327	0.27		$	152,979		988	0.86		$	70	$	(731)	$	(661)
Savings deposits		105,959		54	0.07			99,167		74	0.10			5		(25)		(20)
Time deposits		151,953		1,889	1.66			149,421		1,744	1.56			30		115		145
Short-term and long-term borrowings and other interest bearing liabilities		70,276		812	1.54			38,596		689	2.38			566		(443)		123
Total interest bearing liabilities		492,022		3,082	0.84			440,163		3,495	1.06			671		(1,084)		(413)
Non-interest bearing liabilities:
Demand deposits		152,664						125,643
Other		5,290						5,660
Stockholders’ equity		76,089						69,910
Total liabilities and stockholders’ equity	$	726,065					$	641,376
Net interest income and net interest rate spread			$	15,345	2.83	%			$	15,815	3.31	%	$	832	$	(1,302)	$	(470)
Net interest margin on interest earning assets (3)					3.06	%					3.58	%
Net interest income and net interest margin - Tax equivalent basis (4)			$	15,552	3.10	%			$	16,095	3.64	%

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. 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%.

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 gross unrealized gains (losses) on securities available for sale.

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Provision for Loan Losses:

In the first nine months of 2020, the provision for loan losses was $639,000, compared to a credit of $490,000 in the first nine months of 2019. While both the 2020 and 2019 periods included the effect of net recoveries ($324,000 and $513,000, respectively), Juniata increased the qualitative risk factors for all loan segments in the loan portfolio in its allowance for loan loss analysis as of September 30, 2020 as a result of the change in the economic environment resulting from the COVID-19 pandemic. Management regularly reviews the adequacy of the allowance for loan losses and makes assessments as to specific loan impairment, charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. See the earlier discussion in the Financial Condition section explaining the information used to determine the provision.

Non-interest Income:

Non-interest income in the first nine months of 2020 was $4,001,000 compared to $3,504,000 in the first nine months of 2019, an increase of $497,000, or 14.2%.

Most significantly impacting the comparative nine month periods was an $845,000 gain on the sales and calls of securities recorded during the first nine months of 2020 compared to a $56,000 loss on the sales and calls of securities during the first nine months of 2019. The recorded net gain in 2020 was due to in part to the execution of a balance sheet strategy in the second quarter of 2020 that produced securities gains of $549,000 which offset a $524,000 prepayment penalty on the extinguishment of long-term debt, as well as to the restructuring of the debt securities portfolio in the third quarter to reduce Juniata’s overall premium exposure resulting in a net gain of $283,000 on the sales of securities. Partially offsetting this increase in non-interest income was a $152,000 decline in the fair value of equity securities during the first nine months of 2020 compared to a $4,000 decline during the comparable 2019 period. Further, customer service fees, primarily NSF fees, were $250,000 less in the 2020 period compared to the same period in the prior year, reflecting decreased consumer spending during the COVID-19 pandemic.

As a percentage of average assets, annualized non-interest income was 0.73% in both the first nine months of 2020 and 2019. As a percentage of average assets, annualized non-interest income, exclusive of net gains/losses on the sales of securities, was 0.61% in the first nine months of 2020 compared to 0.74% in the first nine months of 2019.

Non-interest Expense:

Non-interest expense was $14,502,000 for the nine months ended September 30, 2020 compared to $15,485,000 for the same period in 2019, a decrease of $983,000, or 6.3%.

Non-interest expense declined in the first nine months of 2020 compared to the same period in 2019 primarily due to Juniata’s $1,343,000 decline in employee benefits expense resulting from the elimination of pension-related expenses in 2020 compared to the $1,221,000 in pre-tax pension settlement charges recorded during the 2019 period. Also contributing to the decline in non-interest expense were lower occupancy and professional fees, which declined by $110,000 and $210,000, respectively, during the first nine months of 2020 compared to the first nine months of 2019. Partially offsetting these declines was a $524,000 prepayment penalty on the long-term debt extinguishment recorded during the first nine months of 2020, while no similar expense was recorded during the comparable 2019 period. Additionally, a $208,000 net gain on the sale of OREO was recorded during the nine months ended September 30, 2019, while no gains were recorded during the comparable 2020 period.

As a percentage of average assets, annualized non-interest expense was 2.66% in the first nine months of 2020 compared to 3.22% in the comparable 2019 period. Excluding the $524,000 long-term debt prepayment penalty recorded during the nine months ended September 30, 2020 and the $1,221,000 in pension settlement charges recorded during the nine months

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ended September 30, 2019, annualized non-interest expense was 2.57% through the first nine months of 2020 versus 2.97% through the first nine months of 2019.

Provision for income taxes:

An income tax benefit of $44,000 was recorded in the first nine months of 2020 compared to a benefit of $27,000 recorded in the first nine months of 2019. In 2020, the Company was able to take advantage of a provision in the CARES Act, allowing the carryback of net operating losses (“NOLs”) from a prior period. In 2018, the Company acquired Liverpool Community Bank. Prior to the acquisition, Liverpool filed a short-period income tax return in 2018 where an NOL was recognized. Under the CARES Act, the NOL can be carried back to years in which the statutory tax rate was 34%, as opposed to the current 21%. The reversal of a portion of the deferred tax asset carried for this NOL, at an amount in excess of its carrying amount, was recorded as a $57,000 credit to income tax expense during the nine months ended September 30, 2020.

The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflected the application of the tax credit. For the first nine months of 2020 and 2019, the tax credits were $676,000 and $679,000, respectively, offsetting $632,000 in tax expense recorded during the nine months ended September 30, 2020 and $652,000 in tax expense recorded in the comparable 2019 period. The tax credit lowered the effective tax rate from 15.0% to (1.0)% during the first nine months of 2020 compared to the same period in 2019, when the tax credit lowered the effective tax rate from 15.1% to (0.6)%.

Liquidity:

The objective of liquidity management is to ensure that sufficient funding is available, at a reasonable cost, to meet the ongoing operational cash needs of the Company and to take advantage of income producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is the primary goal of the Company to maintain a high level of liquidity in all economic environments. Principal sources of asset liquidity are provided by loans and securities maturing in one year or less, and other short-term investments, such as federal funds sold and cash and due from banks. Liability liquidity, which is more difficult to measure, can be met by attracting deposits and maintaining the core deposit base. The Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity to supplement other liquidity sources. During the nine months ended September 30, 2020, overnight borrowings from the Federal Home Loan Bank averaged $755,000. As of September 30, 2020, the Company had $20,000,000 in short-term borrowings and $35,000,000 in long-term debt with the Federal Home Loan Bank, with a remaining unused borrowing capacity with the Federal Home Loan Bank of $110,207,000.

Funding derived from securities sold under agreements to repurchase (accounted for as collateralized financing transactions) is available through corporate cash management accounts for business customers. This product gives the Company the ability to pay interest on corporate checking accounts.

In view of the sources previously mentioned, management believes that the Company’s liquidity is capable of providing the funds needed to meet operational cash needs, including those arising from funding of PPP loans. The Company was approved to borrow from the Federal Reserve Bank’s PPPLF and, as of September 30, 2020, had borrowed $31,298,000 from the facility.

Off-Balance Sheet Arrangements:

The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk, credit risk, and interest rate risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and outstanding letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial

54

letters of credit have longer term commitments. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had $3,151,000 and $2,624,000 of financial and performance standby letters of credit commitments outstanding as of September 30, 2020 and December 31, 2019, respectively. Commercial letters of credit as of September 30, 2020 and December 31, 2019 totaled $7,975,000 and $7,725,000, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The amount of the liability for payments under letters of credit issued as of September 30, 2020 was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

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. The FHLB has no obligation to commit to purchase any mortgage through, or from, the Company.

Interest Rate Sensitivity:

Interest rate sensitivity management is overseen by the Asset/Liability Management Committee. This process involves the development and implementation of strategies to maximize net interest margin, while minimizing the earnings risk associated with changing interest rates. Traditional gap analysis identifies the maturity and re-pricing terms of all assets and liabilities. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates.

Capital Adequacy:

Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy.

The risk-based capital standards require financial institutions to maintain: (a) a minimum ratio of common equity tier 1 (“CET1”) to risk-weighted assets 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) 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). In addition, the rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% above the minimum standards stated in (a) - (c) above.

The CARES Act allows banking organizations to apply a zero percent risk weight to PPP covered loans for risk-based capital requirement purposes. In addition, because of the non-recourse nature of the Federal Reserve's extension of credit to the banking organization, the banking organization is not exposed to credit or market risk from the pledged PPP covered loans. Therefore, pledged PPP covered loans are excluded from a banking organization's regulatory capital calculation.

In September 2019, the FDIC finalized a rule to simplify the capital calculation for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR framework”)), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The Bank qualified and opted into the CBLR framework, effective January 1, 2020.

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Section 4012 of the CARES Act requires regulatory agencies to temporarily lower the CBLR eligibility requirement from 9.00% to 8.00% through the end of 2020. The associated regulatory interim final rule modified the CBLR framework allowing banks with a leverage ratio of 8.00% or greater to elect to use the CBLR framework. The interim final rule gradually increases the requirement back to 9.00% on January 1, 2022, requiring a ratio of 8.5% for the year beginning January 1, 2021. The interim final rule also provides a two-quarter grace period for qualifying banks whose leverage ratio falls no more than 1.00% below the required ratio for that reporting quarter. The Bank’s Tier One leverage ratio was 8.52% on September 30, 2020; therefore, the Bank met the well-capitalized ratio classification of the current CBLR framework and was not required to report or calculate risk-based capital.  

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of September 30, 2020, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined by the Securities Exchange Act of 1934 (“Exchange Act”), Rule 13a-15(e). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions, regardless of how remote.

Attached as Exhibits 31 and 32 to this quarterly report are certifications of the Chief Executive Officer and the Chief Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act. This portion of the Company’s quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Changes in Internal Control Over Financial Reporting

There were no significant changes in the Company’s internal control over financial reporting during the fiscal quarter ended September 30, 2020, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1.         LEGAL PROCEEDINGS

In the opinion of management of the Company, there are no legal or governmental proceedings pending to which the Company or its subsidiary is a party or to which its property is subject, which, if determined adversely to the Company or its subsidiary, would be material in relation to the Company’s or its subsidiary’s financial condition. There are no proceedings pending other than ordinary routine litigation incident to the business of the Company or its subsidiary. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company or its subsidiary by government authorities.

Item 1A.      RISK FACTORS

There have been no other material changes to the risk factors that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.

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Item 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 25, 2020, Juniata’s Board of Directors approved a written trading plan (the “10b5-1 Plan”) under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to facilitate the repurchase of shares of the Juniata’s common stock through May 5, 2020. The Company designated up to 100,000 shares for repurchase under the 10b5-1 Plan. Upon expiration of the 10b5-1 Plan during the second quarter of 2020, Juniata reconstituted the prior repurchase program under which Juniata is authorized to periodically repurchase shares of its common stock. As of November 9, 2020, 64,389 shares remained available to purchase. Repurchases made pursuant to the repurchase program in the three month period ended September 30, 2020 are shown below.

				Total Number of
				Shares Purchased as	Maximum Number of
	Total Number	Average		Part of Publicly	Shares that May Yet Be
	of Shares	Price Paid		Announced Plans or	Purchased Under the
Period	Purchased	per Share		Programs	Plans or Programs (1)
July 1-31, 2020	—	$	—	—	121,266
August 1-31, 2020	10,565		16.05	10,565	110,701
September 1-30, 2020	46,312		18.00	46,312	64,389
Totals	56,877			56,877	64,389

The Company intends to make further purchases under the provision of the stock repurchase plan and does not intend to terminate the plan prior to its expiration.

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 September 30, 2020, $35,659,000 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 regulatory capital requirements.

Item 3.         DEFAULTS UPON SENIOR SECURITIES

Not applicable

Item 4.         MINE SAFETY DISCLOSURES

Not applicable

Item 5.         OTHER INFORMATION

None

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Item 6.        EXHIBITS

3.1	Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8-K filed with the SEC on November 12, 2015)
3.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the SEC on February 27, 2019)
31.1	Rule 13a – 14(a)/15d – 14(a) Certification of President and Chief Executive Officer
31.2	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of President and Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Juniata Valley Financial Corp.
		(Registrant)
Date:	NOVEMBER 9, 2020	By:	/s/ Marcie A. Barber
			Marcie A. Barber, President
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 9, 2020	By:	/s/ JoAnn N. McMinn
			JoAnn N. McMinn
			Chief Financial Officer
			(Principal Accounting Officer and
			Principal Financial Officer)

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