[LOGO OF JUNIATA VALLEY FINANCIAL CORP. APPEARS HERE]
Mifflintown, Pennsylvania 17059
1995
Annual
Report
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
DECEMBER 31, 1995
CONTENTS
Page
Letter to Shareholders............................................................................. 3
Corporation Officers and Directors................................................................. 4
Bank Officers & Advisory Board Members............................................................. 5
Business...................................................................................... 6 - 12
Financial Highlights.............................................................................. 13
Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14 - 26
Report of Independent Auditors.................................................................... 27
Financial Statements:
Consolidated Balance Sheets................................................................... 28
Consolidated Statements of Income............................................................. 29
Consolidated Statements of Stockholders' Equity............................................... 30
Consolidated Statements of Cash Flows......................................................... 31
Notes to Consolidated Financial Statements............................................... 32 - 43
[LOGO OF JUNIATA VALLEY FINANCIAL CORP. APPEARS HERE]
-------------------------------
MIFFLINTOWN, PENNSYLVANIA 17059
-------------------------------
POST OFFICE BOX 66
TELEPHONE (717) 436-8211
March 14, 1996
Dear Shareholder,
We are proud to present this Annual Report for 1995. Once again Juniata Valley
Financial Corp. had record profits.
Darwin C. Pomeroy has decided to not seek re-election for Director. Mr.
Pomeroy has served as a Director since 1966. He will be missed for his insight
and unselfish dedication to this organization.
As always, I would like you to know that this excellent report would not be
possible without dedicated officers and employees. Many of us have worked
together for over twenty years.
Our wish is that all of you continue to recommend your organization to your
friends. Without your support, we could not prosper.
Sincerely;
/s/ A. Jerome Cook
A. Jerome Cook
President
AJC:rhn
-3-
Juniata Valley Financial Corp. Officers
Harry B. Fairman, Jr. Ronald H. Witherite
Chairman Vice Chairman, Secretary
A. Jerome Cook Linda L. Engle
President Treasurer
Directors
A. Jerome Cook Dale G. Nace
President, The Juniata Valley Bank Owner, Glenn Nace Plumbing & Heating;
GlenDale Storage
Harry B. Fairman, Jr.
President, Hilltop Oil, Inc. Darwin C. Pomeroy
Retired Sales Engineer
John E. Groninger Bethlehem Steel Co.
President, John E. Groninger, Inc.
Contractor, Director of John A. Renninger
Consumers Financial Corp. President, A. D. Renninger
Lumber Company
Karl E. Guss
Funeral Director Edward R. Rhodes
Guss Funeral Home Senior Partner, E. R. Rhodes & Son
Don E. Haubert Harold B. Shearer
CEO and Chairman of the Board Self-employed Farmer
S & A Custom Built Homes, Inc.
Contractor, Mifflintown, PA Ronald H. Witherite
Owner, Ron's IGA Fruit Market, Inc.
NOTE: Above Directors also comprise the Board of Directors for The Juniata
Valley Bank
- -4-
THE JUNIATA VALLEY BANK OFFICERS
A Wholly-Owned Subsidiary of Juniata Valley Financial Corp
MIFFLINTOWN OFFICE
A. Jerome Cook....................................................President
Helen L. Sieber..................Vice President & Community Officer Manager
Jeffrey A. Pottorff............................Auditor & Compliance Officer
Paul M. Lipka.............................................Marketing Officer
Ruth H. Nace............................................Executive Secretary
ADMINISTRATION
Donald L. Musser.........................Sr. Vice President, Administration
CONTROLLER
Linda L. Engle..................Sr. Vice President, Chief Financial Officer
Anna Mae Peoples.......................Vice President, Assistant Controller
LOANS
Edward L. Kauffman..................Sr. Vice President, Loan Administration
Scott E. Nace..................................Vice President, Loan Officer
David A. Pecht.............................................Sr. Loan Officer
Loretta A. Saylor..............................................Loan Officer
OPERATIONS
Judy R. Aumiller.............................Sr. Vice President, Operations
Deborah A. Sheaffer......................................Operations Officer
Kathy D. Hutchinson....................Assistant Vice President, Operations
TRUST
Terry S. Love.............................Sr. Vice President, Trust Officer
Cynthia L. Williams...........................................Trust Officer
BLAIRS MILLS OFFICE
C. Roger Searer..................Vice President & Community Officer Manager
Wanda K. Rowles....................................Customer Service Officer
GARDENVIEW OFFICE
M. Randall French.................Vice President & Community Office Manager
LEWISTOWN OFFICE
R. Jack Morgan....................Vice President & Community Office Manager
Lee Ellen Foose....................................Customer Service Officer
McALISTERVILLE OFFICE
Joseph D. Ritzman.................Vice President & Community Office Manager
Leslie A. Miller...................................Customer Service Officer
MILLERSTOWN OFFICE
James A. Witmer...................Vice President & Community Office Manager
Barbara I. Seaman..................................Customer Service Officer
MOUNTAIN VIEW OFFICE
Connie C. Benner..................Vice President & Community Office Manager
PORT ROYAL OFFICE
Betty D. Ryan......................................Community Office Manager
Larry B. Cottrill, Jr..............................Customer Service Officer
ADVISORY BOARD MEMBERS
BLAIRS MILLS OFFICE PORT ROYAL OFFICE McALISTERVILLE OFFICE
Wayde H. Cisney Clinton F. Bashore Clair Ehrenzeller
William R. Goshorn Norman D. Clark Clair S. Graybill
Hays I. Lauthers Martin L. Dreibelbis Samuel E. Knouse
George Love Richard J. Junk Ralph E. Rickenbaugh
C. Roger Searer Dennis A. Long Joseph D. Ritzman
Freeburn Love Richard J. Sankey
Earl J. Wagner
LEWISTOWN OFFICE MILLERSTOWN OFFICE GARDENVIEW OFFICE
William H.Bradford R. Franklin Campbell David B. Esh
William R. Carter Lowell R. Frantz, C.L.U. M. Randall French
Sharon D. Havice Gerald M. Lyter H. Ross Harshbarger
R. Jack Morgan James A. Witmer Donald R. Hartzler
Harry F. Stimely Gary G. Wright Jerry L. Wagner
Frank A. Zampelli
-5-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
DESCRIPTION OF BUSINESS
On April 19, 1983, the shareholders of The Juniata Valley Bank (The Bank)
approved a plan of merger and reorganization. The plan was approved by the
various regulatory agencies on June 7, 1983 and the Juniata Valley Financial
Corp., a one bank holding company, registered under the Bank Holding Company Act
of 1956, as amended, was organized. The Bank is the oldest independent
commercial bank in Juniata and Mifflin County having originated under a state
bank charter in 1867.
The Juniata Valley Bank operates eight branch banking offices and one trust
service office. At December 31, 1995, the Bank had 100 full-time equivalent
employees. The Bank is engaged in commercial banking and trust business as
authorized by the Pennsylvania Banking Code of 1965. This includes accepting
time and demand deposits, making secured and unsecured commercial and consumer
loans, financing commercial transactions, making construction and mortgage
loans, and administering corporate, pension and personal trust services. The
Bank provides its services to individuals, corporations, partnerships,
associations, municipalities and other governmental bodies. As of December 31,
1995, the Bank had four offices in Juniata County, one office in Perry County,
two offices in Mifflin County and one office in Huntingdon County.
COMPETITION
The Bank's principal market area includes all of Mifflin and Juniata Counties,
and portions of Perry, Huntingdon, Franklin and Snyder Counties. There are 15
commercial banks which are headquartered or have branch offices located within
the Bank's market area which the Bank considers its primary competitors. Of the
15 commercial banks with operations in the Bank's market area, the Bank ranked
sixth in assets as of December 31, 1995.
Additionally, the Bank has been subjected to competition from non-bank firms,
such as savings and loans, credit unions, brokerage firms, insurance companies,
mutual fund companies, consumer finance and credit card firms, retail and
manufacturing conglomerates, and other firms providing financial services and
credit to customers. Although many non-bank industries now offer services
traditionally provided only by banks, banks are constrained by costly
regulations and time-worn laws to compete effectively against non-bank providers
of financial services. However, the Bank strives to remain competitive with
respect to interest rates, service fees and service quality in order to achieve
continued growth and success in its market. The Bank also continues to develop
and strengthen its strong ties to the communities it serves, relying on the
unique and strong relationship that a community bank has with its customers and
community by providing excellent, personal customer service.
The deposit base of The Juniata Valley Bank is such that the loss of one
depositor or a related group of depositors would not have a dramatically adverse
effect on the Bank's business. In addition, the loan portfolio is very well
diversified, so that one industry or group or related industries does not
comprise a material portion of total loans outstanding. The Bank's business is
not seasonal, nor does it have any risks attendant to foreign sources.
SUPERVISION AND REGULATION
Juniata Valley Financial Corp. operates in a highly regulated industry, and thus
may be affected by changes in state and federal regulations and legislation. As
a registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the Act), the Corporation is subject to supervision and examination by
the Board of Governors of the Federal Reserve System and is required to file
with the Federal Reserve Board quarterly reports and information regarding its
business operations and those of its subsidiary.
The Act requires the Corporation to obtain Federal Reserve approval before:
acquiring more than five percent ownership interest in any class of the voting
securities of any bank; acquiring all or substantially all of the assets of a
bank; or, merging or consolidating with another bank holding company. In
addition, the Act prohibits a bank holding company from acquiring the assets, or
more than five percent of the voting securities, of a bank located in another
state, unless such acquisition is specifically authorized by the statutes of the
state in which the bank is located.
A bank holding company is normally not permitted to acquire direct or indirect
ownership of more than five percent of any class of voting securities of any
company that is not a bank or not engaged in activities determined by the
Federal Reserve Board regulations, activities deemed to be closely related to
banking including such ventures as consumer finance, equipment leasing, certain
data processing services, mortgage banking and investment advisory services. The
act does not place geographic restrictions on the activities of non-bank
subsidiaries of bank holding companies.
The deposits of The Juniata Valley Bank are insured by the Bank Insurance Fund
of the Federal Deposit Insurance Corporation (FDIC). Consequently, the Bank is
subject to regulations and reviews under the provisions of the Federal Deposit
Insurance Act, but the primary regulatory body is the Pennsylvania Department of
Banking. The Pennsylvania Department of Banking conducts regular reviews which
have resulted in satisfactory evaluations to date.
- -6-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUPERVISION AND REGULATION (CONTINUED)
In 1991, the Federal Deposit Insurance Corporation Act (FDICIA) was signed into
law. FDICIA established five different levels of capitalization of financial
institutions, with prompt corrective actions and significant operational
restrictions imposed on institutions that are capital deficient. The five
categories are: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
To be considered well capitalized, an institution must have a total risk-based
capital ratio of at least 10%, a Tier I risk based capital ratio of at least 6%,
a leverage capital ratio of 5% and must not be subject to any order or directive
requiring the institution to improve its capital level. An institution falls
within the adequately capitalized category if it has a total risk-based capital
ratio of at least 8%, a Tier I risk-based capital ratio of at least 4%, and a
leverage capital ratio of at least 4%. Institutions with lower capital levels
are deemed to be undercapitalized, significantly undercapitalized, or critically
undercapitalized, depending on their actual capital levels.
The following table sets forth the computation of the Bank's regulatory capital
ratios. The Bank exceeded the minimum capital levels of the well capitalized
category.
December 31,
------------
1995 1994
------ ------
Risk-weighted assets ratio:
Tier I 18.24% 17.16%
Total 19.45% 18.34%
Total assets leverage ratio:
Tier I 12.41% 11.47%
SECURITIES PORTFOLIO
The following table sets forth the dollar amount of securities at the dates
indicated:
December 31,
------------
1995 1994 1993
------- ------- -------
(In Thousands)
Available for sale securities:
U.S. Treasury and other U.S. government obligations $ 9,585 $ 486 $ -
States and political subdivisions 3,683 2,999 -
Other corporate 3,168 1,143 -
Mortgage-backed 6,971 7,514 -
Equity 1,098 915 -
------- ------- -------
24,505 13,057 -
Held to maturity securities:
U.S. Treasury and other U.S. government obligations 5,751 7,490 6,531
States and political subdivisions 20,448 22,265 27,822
Other corporate 16,472 14,402 14,268
Mortgage-backed - - 10,464
Equity - - 847
------- ------- -------
42,671 44,157 59,932
------- ------- -------
Total securities $67,176 $57,214 $59,932
======= ======= =======
-7-
JUNIATA VALLEY FINANCIAL CORP AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SECURITIES PORTFOLIO (CONTINUED)
The following table sets forth the maturities of securities at December 31, 1995
and the weighted average yields of such securities by contractual maturities or
call dates. Mortgage-backed securities with contractual maturities after ten
years from December 31, 1995, feature regular repayments of principal and
average lives of three to five years.
Maturing
--------
After One After Five
But Within But Within After
Within One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- -------------
(In Thousands)
Available for sale:
U.S. Treasury and other U.S.
government agencies $ 3,521 6.57% $ 6,064 6.31% $ -- -- $ -- --
State and political
subdivisions 1,282 4.11 1,382 4.71 754 6.23% 265 6.50%
Other corporate -- -- 3,168 6.07 -- -- -- --
Mortgage-backed 209 5.54 2,862 6.16 174 5.63 3,726 6.46
------- ------- ------- -------
5,012 13,476 928 3,991
Held to maturity:
U.S. Treasury and other U.S.
government agencies 2,000 5.75 3,751 5.83 -- -- -- --
State and political
subdivisions 5,223 5.38 14,660 4.78 225 6.63 340 5.40
Other corporate 2,144 5.22 14,114 6.21 -- -- 214 6.67
------- ------- ------- -------
9,367 32,525 225 554
------- ------- ------- -------
Total $14,379 $46,001 $1,153 $4,545
======= ======= ====== ======
Securities classified as available for sale are those debt securities that the
Bank intends to hold for an indefinite period of time, but not necessarily to
maturity. Securities available for sale are carried at fair value. Unrealized
gains or losses are reported as increases or decreases in stockholders' equity,
net of related deferred tax effect. Securities classified as held to maturity
are those debt securities the Bank has both the intent and ability to hold to
maturity. These securities are carried at cost adjusted for amortization of
premium and accretion of discount.
- -8-
JUNIATA VALLEY FINANCIAL CORP AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
LOAN PORTFOLIO
The highest loan concentration by activity type continues to be the trucking
industry. The percentage of these loans to total loans was approximately four
percent at the latest review. This industry services many other industries and
no potential significant risk is evident.
As with any lending activity, potential risk exists. Loans in the commercial,
financial and industrial category have declined as a percentage of total loans
over the past three years. The Bank prudently evaluates loans in this category
and generally secures such lending with collateral consisting of real and/or
tangible personal property.
All lending is granted on a variable rate basis except consumer loans which are
fixed rate. Consumer loans, consisting of approximately seventeen percent of
total loans, average a three year repayment period and are fixed at such a rate
that rate sensitivity is considered to be limited.
The following table shows the Bank's loan distribution at the end of each of the
last five years:
December 31
------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In Thousands)
Commercial, financial and
agricultural $ 11,843 $ 14,472 $ 19,361 $ 24,156 $ 25,392
Real estate mortgage 88,593 86,316 75,613 71,152 63,691
Consumer (less unearned
discount) 21,019 20,917 18,792 17,508 18,393
All other 1,483 1,486 1,968 1,341 1,361
-------- -------- -------- -------- --------
Total loans $122,938 $123,191 $115,734 $114,157 $108,837
======== ======== ======== ======== ========
This table shows the maturity of loans (excluding residential mortgages of 1-4
family residences and consumer loans) outstanding as of December 31, 1995.
Maturing Maturing Maturing
During From 1997 After
1996 Thru 1998 1998 Total
-------- --------- -------- --------
(In Thousands)
Commercial, agricultural and
financial $11,843 $ -- $ -- $11,843
All other 1,483 -- -- 1,483
------- ------ ------ -------
Total loans $13,326 $ -- $ -- $13,326
======= ====== ====== =======
-9-
JUNIATA VALLEY FINANCIAL CORP AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Bank's nonaccrual, past due and restructured
loans:
December 31,
------------
1995 1994 1993 1992 1991
--------- --------- ---------- --------- ---------
(In Thousands)
Average loans outstanding $121,193 $116,805 $114,896 $111,741 $105,291
======== ======== ======== ======== ========
Nonaccrual loans $ 390 $ 433 $ 105 $ 92 $ 161
Accruing loans past due
90 days or more 462 166 177 796 640
Restructured loans -- -- -- -- --
-------- -------- -------- -------- --------
Total $ 852 $ 599 $ 282 $ 888 $ 801
======== ======== ======== ======== ========
Ratio of non-performing loans
to average loans outstanding .70% .51% .25% .79% .76%
Information with respect to nonaccrual and restructured loans at December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
(In Thousands)
Nonaccrual loans $ 390 $ 433 $ 105 $ 92 $ 161
Restructured loans -- -- -- -- --
Interest income that would have been
recorded under original terms 37 28 12 11 19
Interest income recorded
during the period 5 9 -- -- --
Commitments to lend additional funds -- -- -- -- --
$390,000 of the nonaccrual loans at December 31, 1995, are secured by real
estate or otherwise guaranteed as to repayment. The majority of the nonaccrual
balance relates to one borrower.
- -10-
JUNIATA VALLEY FINANCIAL CORP AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Bank's loan loss experience for each of the
five years ended December 31,
1995 1994 1993 1992 1991
------------- ------------ ------------ ------------ ------------
(In Thousands)
Average loans outstanding $121,193 $116,805 $114,896 $111,741 $105,291
======== ======== ======== ======== ========
Allowance for loan loss January 1 $ 1,523 $ 1,458 $ 1,363 $ 1,304 $ 1,294
Losses charged to allowance
Commercial 12 - 19 59 131
Real estate 28 92 66 14 18
Consumer 55 86 79 71 138
--------- ---------- ---------- ---------- ----------
95 178 164 144 287
Recoveries credited to allowance --------- ---------- ---------- ---------- ----------
Commercial 3 - 2 13 27
Real estate 42 2 10 2 3
Consumer 8 21 27 8 25
--------- ---------- ---------- ---------- ----------
53 23 39 23 55
--------- ---------- ---------- ---------- ----------
Net charge-offs 42 155 125 121 232
Provision for possible loan losses 135 220 220 180 242
--------- ---------- ---------- ---------- ----------
Allowance for loan losses December 31 $ 1,616 $ 1,523 $ 1,458 $ 1,363 $ 1,304
======== ========== ========== ========== ==========
Ratio of net charge-offs to
average loans outstanding .03% .13% .11% .11% .22%
The amount charged to operations and the related balance in the allowance for
loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior loan
loss experience and management's estimate of future potential losses.
This table shows an allocation of the allowance for loan losses as of the end
of each of the last five years.
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(In Thousands)
% of % of % of % of % of
Amount Loan Amount Loan Amount Loan Amount Loan Amount Loan
-------- -------- --------- -------- --------- -------- --------- -------- --------- ----------
Commercial $ 321 9.6% $ 303 11.7% $ 385 4.3% $ 408 21.7% $ 380 22.5%
Real estate 322 72.1 298 70.1 243 77.1 164 62.6 160 56.6
Consumer 443 18.3 468 18.2 410 18.6 395 15.7 370 20.9
Unallocated 530 -- 454 -- 420 -- 396 -- 394 --
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Total $1,616 100% $1,523 100% $1,458 100% $1,363 100% $1,304 100%
====== ===== ====== ===== ====== ===== ====== ===== ====== ======
-11-
JUNIATA VALLEY FINANCIAL CORP AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
While loans secured by real estate mortgages comprise greater than 50% of the
total loan portfolio, historically these accounts have resulted in marginal
loss. Therefore management's evaluation of the loan portfolio indicates a
relatively low allocation of the allowance for this category of loans.
In addition to management's regular reviews, the results of normal examination
of the loan portfolio by representatives of regulatory agencies and the Bank's
independent accountants are also considered in determining the level at which
the allowance should be maintained. There are no material loans classified for
regulatory purposes as loss, doubtful, substandard or special mention which
management expects to impact future operating results, liquidity or capital
resources. Additionally, management is not aware of any information that would
give serious doubt as to the ability of its borrowers to substantially comply
with loan repayment terms.
Highly leveraged transactions (HLTS) generally include loans and commitments
made in connection with recapitalizations, acquisitions and leveraged buyouts,
and result in the borrowers debt-to-total assets ratio exceeding 75%. The Bank
has no loans at December 31, 1995, that qualified as HLTS.
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for December 31, indicated in the following table:
1995 1994 1993
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In Thousands)
Non-interest bearing demand $ 19,182 $ 18,562 $ 17,259
Interest bearing demand 25,505 2.45% 30,051 2.43% 29,610 2.64%
Savings deposits 22,183 2.86 24,794 2.85 23,186 3.09
Time deposits 103,793 5.50 95,043 4.60 95,464 4.79
-------- -------- --------
Total $170,663 $168,450 $165,519
======== ======== ========
As of December 31, 1995, certificates of deposit outstanding in an individual
amount of $100,000 or more totalled $13,283,000.
The maturity of these certificates of deposits is as follows:
Over 3 Over 6
3 months through 6 through 12 Over 12
or less months months months
------- ------ ------ ------
(In Thousands)
$3,235 $1,890 $1,239 $6,919
====== ====== ====== ======
- -12-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY
THE JUNIATA VALLEY BANK
FIVE YEAR FINANCIAL HIGHLIGHTS . SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
BALANCE SHEET DATA (In Thousands)
Assets $ 205,878 $ 190,176 $ 189,776 $ 185,958 $ 174,454
Deposits 178,153 165,151 166,542 165,698 155,702
Loans receivable 121,322 121,668 114,276 112,794 107,533
Securities 67,176 57,214 59,932 57,183 54,885
Stockholders' equity 24,723 22,434 20,803 18,578 16,987
Average equity 23,316 21,363 19,497 17,709 16,153
Average assets 197,168 192,759 187,603 181,390 170,202
EARNINGS DATA (In Thousands)
Interest income $ 15,070 $ 13,972 $ 14,090 $ 14,686 $ 15,805
Interest expense 6,970 5,813 6,073 7,337 8,920
---------- ---------- ---------- ---------- ----------
Net interest income 8,100 8,159 8,017 7,349 6,885
Provision for loan losses 135 220 220 180 242
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 7,965 7,939 7,797 7,169 6,643
Other operating income 581 551 518 468 467
Other operating expenses 5,106 5,146 5,237 4,897 4,535
---------- ---------- ---------- ---------- ----------
Income before income tax
provision 3,440 3,344 3,078 2,740 2,575
Income tax provision 780 791 697 518 448
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of change in accounting
principle 2,660 2,553 2,381 2,222 2,127
Net income $ 2,660 $ 2,553 $ 2,934 $ 2,222 $ 2,127
RATIOS
Return on average assets 1.35% 1.32% 1.27% (1) 1.22% 1.25%
Return on average equity 11.41 11.94 12.21 (1) 12.55 13.17
Equity to assets (year end) 12.01 11.80 10.27 9.99 9.26
Loans to deposits (year end) 68.10 73.67 68.62 68.07 69.06
Dividend payout (percentage
of income) 29.14 29.18 28.60 28.58 27.74
*PER SHARE DATA
Income before cumulative
effect of change in accounting
principle 2.39 2.29 2.14 2.00 1.91
Net Income 2.39 2.29 2.64 2.00 1.91
Cash dividends .70 .67 .62 .57 .53
Book value 22.21 20.16 18.69 16.69 15.26
Average shares outstanding 1,113,001 1,113,001 1,113,001 1,113,001 1,113,001
Approximate number
of stockholders 1,066 1,089 1,021 987 965
*Outstanding and per-share information for all years presented has been restated
to give effect to the 5-for-4 stock split in the form of a 25% stock dividend
issued January 9, 1996, and on October 26, 1994, and three 10% stock dividends
issued on September 30, 1993, February 26, 1993 and September 15, 1992.
(1) Excluding the cumulative effect of change in accounting principle of
$553,000 or $.62 per share.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS
The purpose of this discussion is to focus on information about the
Corporation's financial condition and results of operations which is not
otherwise apparent from the consolidated financial statements included in this
annual report. Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following discussion and analysis.
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
SOURCES AND USES OF FUNDS TRENDS
1995 Increase (Decrease) 1994 Increase (Decrease) 1993
Average -------- ---------- Average -------- ---------- Average
Balance Amount % Balance Amount % Balance
------- -------- --- ------- -------- --- -------
(Thousands of Dollars)
Funding uses:
Interest earning assets:
Loans:
Commercial $ 41,243 $ (98) (.24)% $ 41,341 $(3,827) (8.47)% $ 45,168
Mortgage 57,254 3,002 5.53 54,252 3,092 6.05 51,160
Consumer 22,696 1,484 7.00 21,212 2,644 14.24 18,568
-------- ------- -------- ------- --------
121,193 4,388 3.76 116,805 1,909 1.66 114,896
Less: Allowance for loan
losses (1,576) (70) 4.65 (1,506) (97) 6.97 (1,409)
-------- ------- -------- ------- --------
119,617 4,318 3.75 115,299 1,812 1.60 113,487
Securities 62,860 (1,652) (2.56) 64,512 4,514 7.52 59,998
Funds sold 3,993 1,361 51.71 2,632 (1,847) (41.24) 4,479
-------- ------- -------- ------- --------
66,853 (291) (.43) 67,144 2,667 4.14 64,477
Total interest earning
assets 186,470 4,027 2.21 182,443 4,479 2.52 177,964
Other assets 10,698 382 3.70 10,316 677 7.02 9,639
-------- ------- -------- ------- --------
Total uses $197,168 $ 4,409 2.29 $192,759 $5,156 2.75 $187,603
======== ======= ======== ======= ========
Funding sources:
Deposits:
Demand $ 19,182 $ 620 3.34 $ 18,562 $ 1,303 7.55 $ 17,259
Interest bearing demand 25,505 (4,546) (15.13) 30,051 441 1.49 29,610
Savings 22,183 (2,611) (10.53) 24,794 1,608 6.94 23,186
Time under $100,000 91,447 7,165 8.50 84,282 (466) (.55) 84,748
-------- ------- -------- ------- --------
Total core deposits 158,317 628 .40 157,689 2,886 1.86 154,803
Time over $100,000 12,346 1,585 14.73 10,761 45 .42 10,716
-------- ------- -------- ------- --------
Total deposits 170,663 2,213 1.31 168,450 2,931 1.77 165,519
Other liabilities 3,189 243 8.25 2,946 359 13.88 2,587
Stockholders' equity 23,316 1,953 9.14 21,363 1,866 9.57 19,497
-------- ------- -------- ------- --------
Total sources $197,168 $ 4,409 2.29 $192,759 $ 5,156 2.75 $187,603
======== ======= ======== ======= ========
- -14-
MANAGEMENT'S DISCUSSION AND ANALYSIS
----------------------------------------------------------------
FINANCIAL CONDITION (Continued)
----------------------------------------------------------------
The Corporation functions as a financial intermediary and as such its financial
condition should be examined in terms of trends in its sources and uses of
funds. The following comparison of daily averages balances indicates how the
Corporation has managed its sources and uses of funds.
Juniata Valley Financial Corp.'s primary source of funds is core deposits. Over
the past several years, the composition of the Corporation's deposits has
changed significantly due to volatile interest rates. Growth in 1995 occurred in
two funding sources with the majority of this growth coming from time deposits
under $100,000; whereas growth in 1994 occurred in all funding sources except
time deposits under $100,000. Time deposits under $100,000 increased 8.50% from
1994 to 1995 and decreased .55% from 1993 to 1994. Demand deposits increased
3.34% from 1994 to 1995 and 7.55% from 1993 to 1994. A decrease was experienced
in interest bearing demand of 15.13% from 1994 to 1995 and an increase of 1.49%
was shown in 1994 over 1993. Savings decreased from 1994 to 1995 by 10.53% but
increased 6.94% from 1993 to 1994. On average during 1995, core deposits
experienced a slight increase of $628,000. The Corporation's ability to maintain
its core deposit base despite the volatile interest rates and nonbank
influences in the market area, reflects the Corporation's strong customer base.
The largest category of core deposits and the primary source of funds, continues
to be time deposits under $100,000. This category includes certificates of
deposit, which allow customers to invest their funds at selected maturities
ranging from 6 months to 5 years and individual retirement accounts. A
disintermediation between time deposits under $100,000 and savings deposits has
been experienced for several years; this trend was not as significant in 1994.
At the beginning of the year in 1995, interest rates being offered on
certificates of deposits increased. These higher rates being offered lured
customers to commit to reinvest their money market and saving accounts into
certificates of deposit.
The Corporation uses its funds primarily to support its lending activities.
Total net loans increased by $4,318,000 or 3.75% in 1995. This compares to a
$1,812,000 or 1.60% increase during the prior year. The largest increase in
both years was in consumer loans, $1,484,000 or 7.00% from 1994 to 1995 and
$2,644,000 or 14.24% from 1993 to 1994. Mortgage loans, the largest category,
increased $3,002,000 or 5.53% from 1994 to 1995 and $3,092,000 or 6.05% from
1993 to 1994. In both years a decrease was experienced in commercial loans .24%
or $98,000 in 1995 over 1994, and 8.47% or $3,827,000 in 1994 over 1993.
Consumer loans which consist primarily of loans made to individuals on an
installment basis grew because of favorable loan rates being offered especially
on new and used vehicles. The increase in mortgage loans is due to the
refinancing of existing mortgages as well as first time home buyers. Other
consumers took this opportunity to renovate their existing homes and consolidate
other debt into residential mortgages. Commercial loans are typically made to
small businesses in our market place. There has been very little growth in this
market with many small businesses preferring other loan products the Bank has to
offer.
The Corporation's securities portfolio experienced a decline during 1995 of
$1,652,000 compared to an increase of $4,514,000 in 1994. The Corporation's
securities portfolio is comprised of U.S. government and federal agencies, tax-
exempt issues of states and municipalities, other corporate bonds and mortgage-
backed securities.
---------------------------------------------------------------------
RESULTS OF OPERATIONS INCOME
---------------------------------------------------------------------
Juniata Valley Financial Corp. reported net income for 1995 of $2,660,000, an
increase of 4.19% from the $2,553,000 net income reported in 1994 and a decrease
of 9.34% compared to 1993 earnings of $2,934,000. 1993's net income was
positively impacted by $553,000 due to the cumulative effect of adopting a
change in the method of accounting for income taxes. Earnings per share was
$2.39 in 1995 an increase of $.10 from 1994 and a decrease of $.25 from 1993.
[BAR GRAPH APPEARS HERE]
INCOME
1991 2127
1992 2222
1993 2381
1994 2553
1995 2660
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
-------------------------------------------------------------------
The two most widely recognized performance ratios are the return on average
equity and return on average assets. The return on average equity ratio presents
the net income to average equity maintained throughout the year. The return on
average equity was 11.41% in 1995, compared to 11.94% in 1994 and 12.21% in 1993
(excluding the cumulative effect of a change in accounting principle).
[GRAPH OF RETURN ON AVERAGE EQUITY APPEARS HERE]
RETURN ON AVERAGE EQUITY
1991 13.17
1992 12.55
1993 12.21
1994 11.94
1995 11.41
Return on average assets ratio presents the income for the year compared to the
average assets maintained throughout the year. The return on average assets was
1.35% in 1995, compared to 1.32% in 1994 and 1.27% in 1993 (excluding the
cumulative effect of a change in accounting principle).
[GRAPH OF RETURN ON AVERAGE ASSETS APPEARS HERE]
RETURN ON AVERAGE ASSETS
1991 1.25
1992 1.22
1993 1.27
1994 1.32
1995 1.35
The Board of Directors continued to increase the cash dividends paid to
stockholders. On a per share basis $.70 was paid in 1995, up 4.48% from the $.67
paid in 1994 and up 12.90% over the $.62 paid in 1993. Along with increases in
cash dividends, two 5-for-4 stock splits in the form of 25% stock dividends were
issued on January 9, 1996, and October 26, 1994. This followed three 10% stock
dividends that were paid on February 26 and September 30, 1993, and September
15, 1992. After giving effect to these stock splits and stock dividends, the
market price per share increased from $28.80 at December 31, 1994, to $35.00 at
December 31, 1995.
[GRAPH OF CASH DIVIDENDS PER SHARE APPEARS HERE]
CASH DIVIDENDS PER SHARE
1991 0.53
1992 0.57
1993 0.62
1994 0.67
1995 0.70
While increasing the dividends, the Corporation was able to increase
Stockholders' equity to assets (the capital ratio) to 12.01% at December 31,
1995, up from 11.80% in 1994 and 10.27% in 1993. This indicates the continued
strength of the Corporation to build Stockholder wealth.
[GRAPH OF EQUITY TO ASSETS APPEARS HERE]
EQUITY TO ASSETS
1991 9.26
1992 9.99
1993 10.27
1994 11.80
1995 12.01
The Corporation has realized steady growth over the past two years. Assets at
December 31, 1995 were $205,878,000 an increase of $15,702,000 or 8.26% compared
to 1994 assets of $190,176,000. Assets for 1994 grew $400,000 or .21% compared
to 1993 assets of $189,776,000.
[GRAPH OF ASSETS APPEARS HERE]
ASSETS
1991 174454
1992 185958
1993 189776
1994 190176
1995 205878
- -16-
MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
-----------------------------------------------------------------
The Juniata Valley Bank's allowance for loan losses was $1616,000 in 1995,
$1,523,000 in 1994 and $1,458,000 in 1993. The provision provided in each of
those years was $135,000 in 1995 and $220,000 in both 1994 and 1993. The
provision for loan losses exceeded net charge-offs by 221.43%, 41.94%, and
76.00% in 1995, 1994 and 1993, respectively. In 1995 net charge-offs were .03%
of average loans outstanding. In 1994 and 1993 net charge-offs were .13% and
.11% of average loans outstanding, respectively.
Other income increased $30,000 or 5.44% over 1994. From 1993 to 1994 the
increase was $33,000 or 6.37%. The increase in 1995 was attributable to trust
department income increasing $12,000 due to the settlement of two large estates.
This contrasts a decline in trust department income from 1994 to 1993 of
$24,000. This was due to settling three large estates in 1993 over 1994. Other
service charges, commissions and fees increased $10,000 or 5.71% over 1994 which
increased $32,000 over 1993. The increase in 1995 can be attributed to an
increase in commissions earned as a result of increased volume. Customer service
fees increased $1,000 or .45% from 1994 to 1995. Customer service fees increased
$16,000 or 7.77% from 1993 to 1994.
In total, other expenses decreased $40,000 or .78% over 1994. This compares to a
decline of $91,000 from 1993 to 1994. The $69,000 increase in salaries and wages
can be attributed to annual merit increases and promotions of employees. This
compares to an increase of $59,000 in salaries and wages for 1994 over 1993. In
1995 employee benefits decreased $15,000 or 2.58%. This was due to a decrease in
the price of the benefits provided as opposed to decreased benefits. There was
an increase in employee benefits of $21,000 from 1993 to 1994. Equipment expense
decreased by $78,000 or 20.53% from 1994 to 1995. This can be attributed to the
expiration of a lease and a less costly replacement lease. There was no change
between 1993 and 1994. Federal deposit insurance premiums decreased $184,000 or
48.94% in 1995. As a result of an industry wide funding of the federal deposit
insurance reserves, a refund of deposit insurance premiums previously paid of
$105,000 was received and the Bank experienced a decrease in the assessment rate
from $.23 to $.04 per $100 of insured deposits effective September 30, 1995. The
effect of the decrease in the deposit insurance premium assessment rate will
continue to have a favorable impact to the bank in the future. The 1996 premium
for the Bank will be at the statutory minimum of $2,000 based on the Bank being
well-capitalized. After a decrease of $41,000 in 1994 in director compensation,
there was a slight increase in 1995 of $13,000 or 3.49%. The $133,000 increase
in the other category is attributable to a $15,000 consulting fee; $22,000
increase in examination fees by the Pennsylvania Department of Banking; a
$15,000 increase in errors and omissions insurance costs; and a $30,000 increase
in repossession and loan collection expense.
Management is not aware of any known trends, events or uncertainties that will
have or that are reasonably likely to have material adverse effects on
liquidity, capital resources or operations of the Corporation.
-17-
- --------------------------------------------------------------------------------
TABLE 1 - ANALYSIS OF NET INTEREST INCOME
- --------------------------------------------------------------------------------
Table 1 presents average balances, interest income and expense and the yields
earned or paid on these assets and liabilities. Yields on tax exempt securities
are not presented on a tax equivalent basis. Nonaccrual loans are included in
"Other assets" under "Noninterest earning assets".
1995
Interest
Average Income %
Balances (Expense) Rate
-------- -------- -----
(In Thousands)
INTEREST EARNING ASSETS
Interest bearing deposits in other banks $ 153 $ 10 6.54%
Securities (taxable) 36,011 2,212 6.14
Securities (tax free) 26,696 1,195 4.48
Federal funds sold 3,993 236 5.91
Loans 121,193 11,417 9.42
-------- --------
Total interest earning assets 188,046 $ 15,070 8.01
----
NON-INTEREST EARNING ASSETS
Cash and due from banks 5,127
Other assets 5,571
Less: allowance for loan losses (1,576)
--------
Total assets $197,168
========
INTEREST BEARING LIABILITIES
Demand deposits bearing interest $ 25,505 (624) 2.45
Savings deposits 22,183 (635) 2.86
Other time deposits 103,793 (5,711) 5.50
-------- --------
Total interest bearing liabilities 151,481 ($6,970) 4.60
-------- ----
NON-INTEREST BEARING LIABILITIES
Demand deposits 19,182
Other liabilities 3,189
Stockholders' equity 23,316
--------
Total liabilities and stockholders' equity $197,168
========
NET INTEREST INCOME/SPREAD $ 8,100 3.41%
======== =====
MARGIN ANALYSIS
Interest income/ earning assets 8.01%
Interest expense/earning assets 3.71
-----
Net interest margin 4.31%
=====
- -18-
- --------------------------------------------------------------------------------
TABLE 1 (Continued)
- --------------------------------------------------------------------------------
1994 1993
Interest Interest
Average Income % Average Income %
Balances (Expense) Rate Balances (Expense) Rate
-------- --------- ----- --------- --------- -----
(In Thousands) (In Thousands)
$ 738 $ 31 4.20% $ 110 $ 3 2.73%
34,599 2,035 5.88 32,335 1,916 5.93
29,175 1,301 4.46 27,554 1,337 4.85
2,632 98 3.72 4,479 134 2.99
116,805 10,507 9.00 114,896 10,700 9.31
-------- -------- -------- --------
$183,949 $ 13,972 7.60 $179,374 $ 14,090 7.86
---- ----
5,413 5,021
4,903 4,616
(1,506) (1,408)
-------- --------
$192,759 $187,603
======== ========
$ 30,051 (731) 2.43 $ 29,610 (781) 2.64
24,794 (707) 2.85 23,186 (716) 3.09
95,043 (4,375) 4.60 95,464 (4,576) 4.79
-------- -------- -------- --------
$149,888 $ (5,813) 3.88 148,260 $ (6,073) 4.10
-------- ---- -------- ----
18,562 17,259
2,946 2,587
21,363 19,497
-------- --------
$192,759 $187,603
======== ========
$ 8,159 3.72% $ 8,017 3.76%
======= ==== ======= ====
7.60% 7.86%
3.16 3.39
---- ----
4.44% 4.47%
==== ====
- 19 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
NET INTEREST INCOME
- --------------------------------------------------------------------------------
The primary source of income for the Corporation is net interest income, which
represents the difference between interest income on earning assets and interest
expense on deposits. Earning assets include securities, loans and deposits in
other banks. The amount of interest income is dependent upon many factors
including the volume of earning assets, the general level of interest rates and
the dynamics of the change in interest rates. The cost of funds varies with the
amount of funds necessary to support earning assets, the rates paid to attract
and hold deposits and the level of non-interest bearing demand deposits and
equity capital.
Table 1 presents average balances, interest income and expense and yields earned
or paid on these assets and liabilities. Interest earning assets increased
$4,097,000 or 2.22% from 1994 to 1995. An increase was also experienced from
1993 to 1994 of $4,575,000 or 2.52%. The overall yield on these interest earning
assets was an increase of 41 basis points in 1995; however there was a decline
of 26 basis points from 1993 to 1994.
The largest contributor to interest income was loans. The yield on loans
increased 42 basis points from 1994 to 1995. Interest earned on securities is
the second largest contributor for the Corporation. The yield on taxable
securities increased from 5.88% in 1994 to 6.14% in 1995. For tax free
securities the yield increased from 4.46% in 1994 to 4.48% in 1995.
Interest bearing liabilities increased $1,593,000 or 1.06% from 1994 to 1995.
The average cost of interest bearing demand and savings deposits remained
relatively unchanged from 1994 to 1995. In order for the bank to not only keep
the deposits they had, but to attract new deposits, higher rates offered and
paid resulted in the average cost of time deposits increasing from 4.60% in 1994
to 5.50% in 1995.
The Corporation's net spread was 3.41% in 1995 down from 3.72% in 1994 and 3.76%
in 1993. Interest spread measures the absolute difference between average rates
earned and average rates paid while net interest margin reflects the
relationship of interest income to earning assets versus interest expense to
earning assets. The Corporation's net interest margin was 4.31% for 1995
compared to 4.44% in 1994 and 4.47% in 1993.
Table 2 shows the interest income, interest expense and net interest income with
the percentage change between the years. Interest income was $15,070,000 in 1995
an increase of 7.86% over 1994's amount of $13,972,000 and $14,090,000 in 1993.
Interest expense also increased 19.90% to $6,970,000 for 1995 compared with
$5,813,000 in 1994 and $6,073,000 in 1993. The changing interest rate
environment resulted in higher interest income and interest expense growth in
1995. The expense growth was more then the income which yielded an overall
decline in net interest income of .72% from 1994 to 1995. Interest income and
expense declined from 1993 to 1994; however the decrease in interest expense was
greater than the decrease in interest income to that an overall increase to net
interest income was experienced of 1.77%.
Table 3 indicates the interest income increase of $1,098,000 from 1994 to 1995
was attributable to increases in both volume and rates principally for loans.
Asset growth contributed $393,000 to interest income while rate increases
contributed $705,000 to interest income.
The interest expense increase of $1,157,000 from 1994 to 1995 was also
attributable to increases in both volume and rate increases principally for time
deposits. Liability growth contributed $218,000 to interest expense while rate
increases contributed $939,000 to expense.
- --------------------------------------------------------------------------------
TABLE 2 -- NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, defined as interest income less interest expense, is shown
in the following table:
1995 % Change 1994 % Change 1993
------- -------- ------- -------- -------
(In Thousands)
Interest income $15,070 7.86% $13,972 (.84)% $14,090
Interest expense 6,970 19.90 5,813 (4.28) 6,073
Net interest income $ 8,100 (.72) $ 8,159 1.77 $ 8,017
======= ======= =======
- - 20 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
TABLE 3 - RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
- --------------------------------------------------------------------------------
Table 3 attributes increases and decreases in components of net interest income
to changes in average volume and to changes in average rates for interest
earning assets and interest bearing liabilities.
1995/1994 Increase 1994/1993 Increase
(Decrease) Due to (Decrease) Due to
Change in Change in
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest bearing deposits
in other banks $ (25) $ 4 $ (21) $ 17 $ 11 $ 28
Securities (taxable) 83 94 177 134 (15) 119
Securities (tax free) (111) 5 (106) 79 (115) (36)
Federal funds sold and other 51 87 138 (55) 19 (36)
Loans 395 515 910 178 (371) (193)
----- ----- ------ ---- ----- -----
Interest income 393 705 1,098 353 (471) (118)
----- ----- ------ ---- ----- -----
Demand deposits
bearing interest (111) 4 (107) 12 (62) (50)
Savings deposits (74) 2 (72) 49 (58) (9)
Time deposits 403 933 1,336 (20) (181) (201)
----- ----- ------ ---- ----- -----
Interest expense 218 939 1,157 42 (302) (260)
----- ----- ------ ---- ----- -----
Increase (decrease)
in net interest
income $ 175 $(234) $ (59) $311 $(169) $ 142
===== ===== ====== ==== ===== =====
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
At December 31, 1995 the net loan decline was $346,000
or a decrease of .28% over 1994. This follows a year of
record growth of $7,392,000 in 1994 over 1993. The loan
to deposit ratio decreased throughout 1995; monthly
averages were at a high in January of 74.29% to a low in
[BAR GRAPH APPEARS December of 68.61%. Mortgage loans increased $2,277,000
HERE] or 2.63% from 1994 to 1995. The growth for 1994 over
1993 was $10,703,000. Real estate loans still remain a
very attractive option due to the tax deductibility of
mortgage interest. Consumer loans increased $102,000 or
.49% in 1995 over 1994. The increase from 1993 to 1994
was $2,125,000. Commercial loans decreased $2,629,000 or
18.17% from 1994 to 1995. The decrease from 1993 to 1994
was $4,889,000. This trend is indicative of weaker
demand primarily due to the uncertain national and local
economy.
In spite of the slow economy and increasing credit
problems nationwide, the Corporation continued its excellent net charge-off
record (charge-offs, net of recoveries) during 1995. For the year, the net
charge-offs were $42,000 or .03% of average loans outstanding. This compares
with $155,000 or .13% for 1994 and $125,000 or .11% for 1993.
The allowance for loan losses is based upon quarterly loan portfolio reviews by
management. The purpose of the review is to assess loan quality, analyze
delinquencies, ascertain loan growth, evaluate potential charge-offs and
recoveries and assess general economic conditions in the market served. It is
Management's judgement that the allowance for 1995 of $1,616,000 or 1.33% of
outstanding loans is adequate to meet any foreseeable loan loss contingency.
This is higher than the 1.25% for 1994 and 1.28% for 1993. At December 31,1995
and 1994, total non-performing loans were $852,000 and $599,000, respectively;
non-performing loans as a percentage of the allowance for loan losses were
52.72% and 39.33%, respectively. Increased collection efforts have been made to
decrease this percentage for the future.
Bar/Line Chart Data
NET LOANS
X Axis
Pt Name
1 1991 107533
2 1992 112794
3 1993 114276
4 1994 121668
5 1995 121322
- 21 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
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 Corporation 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 a primary goal of the Corporation to maintain a high level of
liquidity in all economic environments.
Liquidity management is influenced by several key elements, including asset
quality and the maturity structure of assets and liabilities. The single most
important source of liquidity for the Corporation is a strong, stable core
deposit base. This funding source has exhibited steady growth over the years and
consists of deposits from customers with long-standing relationships. In 1995
the Corporation funded approximately 80% of its assets with core deposits
acquired in local communities. This core deposit base, combined with
Stockholders' equity, funded 90% of average assets in 1995 and provides a
substantial and highly stable source of liquidity.
Principal sources of asset liquidity are provided by securities maturing in one
year or less, other short-term investments such as Federal Funds sold and cash
and due from banks. The Corporation joined the Federal Home Loan Bank of
Pittsburgh in August of 1993 for the purpose of providing short term liquidity
when other sources are unable to fill these needs.
Liability liquidity, which is more difficult to measure, can be met by
attracting deposits and maintaining the core deposit base. The Corporation's
ability to attract deposits depends primarily on several factors including sales
effort, competitive interest rates, and other conditions which help maintain
consumer confidence in the stability of the financial institution. This
confidence is evaluated by such factors as profitability, capitalization and
overall financial condition.
The Corporation's primary funding requirement is loan demand. Loan demand is
primarily funded through deposit growth. With loans decreasing in 1995, deposits
were used to purchase securities.
For the year ended December 31,1995 the financing activities of the Bank,
provided net cash of $12,214,000 resulting principally from the increase in
deposits. Net cash used in investing activities was $9,341,000 as purchases of
securities exceeded maturities and principal repayments by $9,330,000. Net cash
provided by operating activities was $2,815,000.
- --------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------
Interest rate sensitivity management is the responsibility of 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. The traditional gap
analysis identifies the maturity and repricing terms of all assets and
liabilities.
The analysis in Table 4 indicates the existence of a liability sensitive
position. Generally a liability sensitive position indicates that more
liabilities than assets are expected to re-price within the time period and that
falling interest rates could positively affect net interest income while rising
rates could negatively affect net interest income. However, this traditional
analysis does not accurately reflect the Bank's interest rate sensitivity since
the rates on core deposits generally do not change as quickly as market rates.
Historically net interest income has, in fact, not been subject to the degree of
sensitivity indicated by the traditional analysis at The Juniata Valley Bank. In
certain cases in prior years, securities were identified and disposed of that
did not conform to Management's model. In those cases, these securities were
sold.
- - 22 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
Table 4 - MATURITY DISTRIBUTION
- --------------------------------------------------------------------------------
As of December 31, 1995
-----------------------
(In Thousands)
Remaining Maturity/Earliest Possible Repricing
Over One
Over Three Over Six Year But
Three Months But Months But Within Over
Months Within Six Within One Five Five
Assets or Less Months Year Years Years
------- ------ ---- ----- --------
Interest bearing deposits $ 15 $ - $ - $ - $ -
Securities:
U.S. Treasuries 1,000 - - 2,250 -
U.S. Agencies 768 3,499 1,819 7,513 -
Municipals 1,201 1,142 4,959 15,961 815
Corporate and others 660 232 1,872 20,129 1,107
Mortgage-backed 210 210 420 2,236 3,872
Loans:
Commercial 37,377 - - - 3,631
Installment 1,508 1,474 2,770 11,397 5,501
Mortgage 12,144 12,214 24,287 4,273 4,957
All non-interest earning
assets - - - - 12,455
-------- ------- ------- ------- --------
Total assets 54,883 18,771 36,127 63,759 32,338
-------- ------- ------- ------- --------
Liabilities and
stockholders' equity
Interest bearing demand
deposits 24,491 - - - -
Savings deposits 21,861 - - - -
Certificates of deposit 19,803 17,330 18,119 54,252 -
All non-interest bearing
liabilities - - - - 25,299
Stockholders' equity - - - - 24,723
-------- ------- ------- ------- --------
Total liabilities and
stockholders' equity 66,155 17,330 18,119 54,252 50,022
-------- ------- ------- ------- --------
Gap $(11,272) $ 1,441 $18,008 $ 9,507 $(17,684)
======== ======= ======= ======= ========
Cumulative gap $(11,272) $(9,831) $ 8,177 $17,684 $ -
======== ======= ======= ======= ========
- 23 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
REGULATORY MATTERS
- --------------------------------------------------------------------------------
The Juniata Valley Bank is subject to periodic examinations by one or more of
the various regulatory agencies. During 1995 an examination was conducted by the
Federal Deposit Insurance Corporation. Also, The Federal Reserve Board of
Philadelphia conducted an examination of the Juniata Valley Financial Corp.
These examinations included, but were not limited to, procedures designed to
review lending practices, credit quality, liquidity, operations and capital
adequacy. No comments were received from this regulatory body which would have a
material effect on the Corporation's liquidity, capital resources or operations.
The Financial Accounting Standards Board has issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by Statement
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures". Under the new standards, the 1995 allowance for loan losses
related to loans that are identified for evaluation in accordance with Statement
No. 114 is based on discounted cash flows using the loans initial effective
interest rate or their fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for loan losses related to these
loans was based on undiscounted cash flows or fair value of the collateral for
collateral dependent loans.
In 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed Of" which establishes accounting and measurement standards
for the impairment of long-lived assets such as property and equipment, certain
identifiable intangibles and goodwill related to those assets. The Bank is
required to adopt the Statement effective January 1, 1996 and the effect of its
implementation is not expected to have a material impact on the Bank's financial
position or results of operation.
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
The Corporation maintains a strong capital base to take advantage of business
opportunities while ensuring that it has resources to absorb the risks inherent
in the business. The federal banking regulators have established capital
adequacy requirements for banks and bank holding companies by using a risk-based
capital framework and by monitoring compliance with minimum leverage guidelines.
These guidelines are based on "risk adjusted" factors, which means assets with
potentially higher risk will require more capital backing than assets with lower
risk.
The FDIC classified capital into two tiers, referred to as Tier I and Tier II.
Tier I capital consists of common stockholders' equity, noncumulative and
cumulative (bank holding companies only) perpetual preferred stock, and minority
interests less goodwill. Tier II capital consists of allowance for loan and
lease losses, perpetual preferred stock (not included in Tier I),
hybrid capital instruments, term subordinated debt, and
intermediate-term preferred stock. Since December 31,
1992, all banks have been required to meet a minimum
ratio of 8.00% of qualifying total capital to risk
[BAR GRAPH APPEARS adjusted total assets with at least 4% Tier I capital.
HERE] As indicated on the schedule below, the Tier I risk-
based capital ratio was 18.24% and Total risk-based
capital ratio was 19.45% at December 31, 1995. The
Bank's capital ratios are well above the current minimum
ratio requirements set forth by federal banking
regulators.
In addition to risk-based requirements, the Federal
Reserve Board has established minimum leverage
guidelines for bank holding companies. For most banks,
the minimum leverage rate is 3% plus an additional
cushion of 100 to 200 basis points depending on risk
profiles and other factors. As of December 31, 1995,
Juniata Valley Financial Corp.'s leverage ratio was
12.41%.
Bar/Line Chart Data
STOCKHOLDERS' EQUITY
X Axis
Pt Name
1 1991 16987
2 1992 18578
3 1993 20803
4 1994 22434
5 1995 24723
- - 24 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
CAPITAL (Continued)
- --------------------------------------------------------------------------------
CAPITAL ANALYSIS
December 31,
------------
1995 1994 1993
--------- --------- ---------
(Thousands of Dollars)
Tier I
Common stockholders' equity (excluding
unrealized appreciation/depreciation on
securities) $ 24,468 $ 22,596 $ 20,803
Tier II
Allowable portion of allowance for loan
losses 1,616 1,523 1,458
-------- -------- --------
Risk-based capital $ 26,084 $ 24,119 $ 22,261
======== ======== ========
Risk adjusted assets (including
off-balance-sheet exposures) $134,122 $131,640 $130,162
======== ======== ========
Tier I risk-based capital ratio 18.24% 17.16% 15.97%
Total risk-based capital ratio 19.45% 18.34% 17.12%
Leverage ratio 12.41% 11.47% 10.82%
- --------------------------------------------------------------------------------
EFFECTS OF INFLATION
- --------------------------------------------------------------------------------
The performance of a bank is affected more by changes in interest rates than by
inflation; therefore, the effect of inflation is normally not as significant as
it is on other businesses and industries. During periods of high inflation, the
money supply usually increases and banks normally experience above average
growth in assets, loans, and deposits. A bank's operating expenses will usually
increase during inflationary times as the price of goods and services increase.
A bank's performance is also affected during recessionary periods. In times of
recession, a bank usually experiences a tightening on its earning assets and on
its profits. A recession is usually an indicator of higher unemployment rates,
which could mean an increase in the number of nonperforming loans because of
continued layoffs and other deterioration of consumers' financial conditions.
It is difficult to predict what will happen in 1996 because of the many
uncertainties surrounding the economy. However, The Juniata Valley Bank's
management and Board of Directors are looking forward to meeting the challenges
a changing economy can present. The Juniata Valley Bank's commitment to
providing quality banking services for the communities it serves will continue
through 1996. This community-based strategy gives management the opportunity to
recognize steady growth in our consumer, mortgage and commercial loans as well
as in our core deposit base. The Bank's strong capital and earnings potential
provide the solid foundation needed to excel in the ever-changing banking
industry. Management feels it is positioned to handle changes in the economic
environment in 1996 through effective asset/liability management. Juniata Valley
Financial Corp. is committed to providing stockholders with an attractive return
on their investment.
- 25 -
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
- --------------------------------------------------------------------------------
The provision for income taxes for 1995 was $780,000 compared to $791,000 in
1994 and $697,000 in 1993. The effective tax rate, which is the ratio of income
tax expense to income-before-income-taxes, was 22.67% in 1995, a slight decrease
from the 23.65% in 1994 and an increase from the 22.64% in 1993. The tax rate
for all periods was less than the statutory rate of 34% due to tax exempt
securities and loan income. Please refer to the Notes to the Consolidated
Financial Statements "Income Taxes" for further analysis of federal income tax
expense.
- - 26 -
[LETTERHEAD OF BEARD & COMPANY APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Juniata Valley Financial Corp.
Mifflintown, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Juniata Valley Financial Corp. and its wholly-owned subsidiary, The Juniata
Valley Bank, as of December 31, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial statements of Juniata
Valley Financial Corp. for the year ended December 31, 1993, before they were
restated for the matter discussed in the note "Restatement", were audited by
other auditors whose report, dated January 31, 1994, expressed an unqualified
opinion on those statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 1995 and 1994 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Juniata Valley Financial Corp. and subsidiary as of December 31,
1995 and 1994, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
We also have audited the adjustment described in the note
"Restatement" that was applied to restate the 1993 financial statements. In our
opinion, such adjustment is appropriate and has been properly applied.
As described in the notes to the consolidated financial statements,
the Corporation changed its method of accounting for investments in debt and
equity securities, effective January 1, 1994.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 25, 1996
- 27 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED BALANCE SHEETS
ASSETS
------
December 31,
------------
1995 1994
-------- --------
(In Thousands)
Cash and due from banks $ 6,578 $ 5,978
Interest-bearing deposits with banks 15 7
Federal funds sold 5,080 -
-------- --------
Total cash and cash equivalents 11,673 5,985
Securities available for sale 24,505 13,057
Securities held to maturity, fair value 1995 $43,070;
1994 $42,728 42,671 44,157
Loans receivable, net of allowance for loan losses
1995 $1,616; 1994 $1,523 121,322 121,668
Bank premises and equipment, net 1,729 1,681
Accrued interest receivable and other assets 3,978 3,628
-------- --------
Total assets $205,878 $190,176
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 22,297 $ 18,971
Interest bearing 155,856 146,180
-------- --------
Total deposits 178,153 165,151
Accrued interest payable and other liabilities 3,002 2,591
-------- --------
Total liabilities 181,155 167,742
-------- --------
Stockholders' equity:
Preferred stock, no par value; 500,000 shares
authorized; no shares issued or outstanding - -
Common stock, par value $1.00 per share; authorized
2,000,000 shares; issued and outstanding 1,113,001
and 890,692 shares respectively 1,113 891
Surplus 14,734 14,956
Retained earnings 8,621 6,749
Net unrealized appreciation (depreciation) on
securities available for sale, net of taxes 255 (162)
-------- --------
Total stockholders' equity 24,723 22,434
-------- --------
Total liabilities and stockholders' equity $205,878 $190,176
======== ========
See Notes to Consolidated Financial Statements.
- - 28 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(In Thousands, Except Per Share Amounts)
Interest income:
Loans receivable, including fees $ 11,417 $ 10,507 $ 10,700
Taxable securities 2,212 2,035 1,916
Tax-exempt securities 1,195 1,301 1,337
Other 246 129 137
---------- ---------- ----------
Total interest income 15,070 13,972 14,090
Interest expense on deposits 6,970 5,813 6,073
---------- ---------- ----------
Net interest income 8,100 8,159 8,017
Provision for loan losses 135 220 220
---------- ---------- ----------
Net interest income after
provision for loan losses 7,965 7,939 7,797
---------- ---------- ----------
Other income:
Trust department 173 161 185
Customer service fees 223 222 206
Net realized losses on sales of securities - (7) (16)
Other 185 175 143
---------- ---------- ----------
Total other income 581 551 518
---------- ---------- ----------
Other expenses:
Salaries and wages 2,113 2,044 1,985
Employee benefits 567 582 561
Occupancy 309 308 322
Equipment 302 380 380
Federal deposit insurance premiums 192 376 370
Director compensation 386 373 414
Taxes, other than income 215 194 179
Other 1,022 889 1,026
---------- ---------- ----------
Total other expenses 5,106 5,146 5,237
---------- ---------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle 3,440 3,344 3,078
Federal income taxes 780 791 697
---------- ---------- ----------
Income before cumulative effect of
change in accounting principle 2,660 2,553 2,381
Cumulative effect of change in accounting
principle - - 553
---------- ---------- ----------
Net income $ 2,660 $ 2,553 $ 2,934
========== ========== ==========
Per share data:
Income before cumulative effect of
change in accounting principle $2.39 $2.29 $2.14
========== ========== ==========
Net income $2.39 $2.29 $2.64
========== ========== ==========
Weighted average number of shares
outstanding 1,113,001 1,113,001 1,113,001
========== ========== ==========
See Notes to Consolidated Financial Statements.
- 29 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
--------------------------------------------
Net Unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Available
Stock Surplus Earnings For Sale Total
------ -------- --------- -------------- --------
(In Thousands)
Balance, December 31, 1992 $ 590 $10,698 $ 7,290 $ - $18,578
Net income - - 2,934 - 2,934
Cash dividend, $.62 per share - - (681) - (681)
10% stock dividend 59 2,052 (2,123) - (12)
10% stock dividend 64 2,384 (2,464) - (16)
------ ------- ------- ------------- -------
Balance, December 31, 1993 713 15,134 4,956 - 20,803
Adjustment to beginning balance for change in
accounting method, net of taxes of $141 - - 274 274
Net income - - 2,553 - 2,553
Cash dividend, $.67 per share - - (745) - (745)
5-for-4 stock split in the form of a
25% stock dividend 178 (178) (15) - (15)
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of taxes of $224 - - - (436) (436)
------ ------- ------- ------------- -------
Balance, December 31, 1994 891 14,956 6.749 (162) 22,434
Net income - - 2,660 - 2,660
Cash dividend, $.70 per share - - (775) - (775)
5-for-4 stock split in the form of a
25% stock dividend 222 (222) (13) - (13)
Net change in unrealized appreciation
(depreciation) on securities available
for sale,net of taxes of$215 - - - 417 417
------ ------- ------- ------------- -------
Balance, December 31, 1995 $1,113 $14,734 $ 8,621 $ 255 $24,723
====== ======= ======= ============= =======
See Notes to Consolidated Financial Statements.
- - 30 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,660 $ 2,553 $ 2,934
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 135 220 220
Provision for depreciation and amortization 174 181 120
Net realized losses on sales of securities - 7 16
Deferred directors' fees and supplemental retirement plan expense 303 312 297
Payment of deferred compensation (135) (126) (108)
Cumulative effect of change in accounting principle - - (553)
Deferred income taxes (74) (40) (102)
(Increase) decrease in accrued interest receivable and other assets (356) (134) 110
Increase (decrease) in interest payable and other liabilities 108 (50) 14
-------- -------- -------
Net cash provided by operating activities 2,815 2,923 2,948
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities
Proceeds from sales of available for sale securities (13,935) (1,998) -
Proceeds from maturities of and principal repayments - 2,017 -
on available for sale securities 6,118 6,533 -
Purchases of held to maturity securities (8,753) (14,385) (27,087)
Proceeds from maturities of and principal repayments
on held to maturity securities 7,240 10,298 22,249
Proceeds from sales of held to
maturity securities - - 2,073
Net (increase) decrease in loans receivable 211 (7,612) (1,727)
Purchases of bank premises and equipment (222) (69) (222)
-------- -------- -------
Net cash used in investing activities (9,341) (5,216) (4,714)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 13,002 (1,391) 844
Cash dividends and cash paid for fractional shares (788) (760) (709)
-------- -------- -------
Net cash provided by (used in financing activities 12,214 (2,151) 135
-------- -------- -------
Increase (decrease) in cash and cash equivalents 5,688 (4,444) (1,631)
Cash and cash equivalents:
Beginning 5,985 10,429 12,060
-------- -------- -------
Ending $ 11,673 $ 5,985 $10,429
======== ======== =======
Cash payments for:
Interest $ 6,798 $ 5,782 $ 6,162
-------- -------- -------
Income taxes $ 833 $ 812 $ 760
======== ======== =======
See Notes to Consolidated Financial Statements.
- 31 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Juniata Valley Financial Corp. (the Corporation), a bank holding company, and
its wholly-owned subsidiary, The Juniata Valley Bank (the Bank). All
significant intercompany accounts and transactions have been eliminated.
Nature of operations:
The Bank operates under a state bank charter and provides full banking
services, including trust services. As a state bank, the Bank is subject to
regulation of the Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation. The bank holding company (parent company) is subject to
regulation of the Federal Reserve Bank. The area served by the Bank is
principally the counties of Juniata, Mifflin, Perry, Huntingdon, Franklin and
Snyder, Pennsylvania.
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, interest-bearing demand deposits with banks
and federal funds sold.
Securities:
The Financial Accounting Standards Board issued Statement No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" in May 1993. The
Corporation adopted the provisions of the new standard for investments held as
of or acquired after January, 1, 1994. The January 1, 1994 stockholders'
equity was increased by $274,000, net of $141,000 in deferred income taxes, to
reflect the net unrealized appreciation on securities classified as available
for sale previously carried at amortized cost. Management determines the
appropriate classification of debt securities at the time of purchase and re-
evaluates such designation as of each balance sheet date.
Securities classified as available for sale are those debt securities that the
Bank 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 movements in interest
rates, changes in the maturity mix of the Bank's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. Unrealized
appreciation and depreciation is reported as increases or decreases in
stockholders' equity, net of the related deferred tax effect. Realized gains
or losses, determined on the basis of the cost of specific securities sold,
are included in earnings.
Securities classified as held to maturity are those debt securities the Bank
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
Loans receivable:
Loans generally are stated at their outstanding unpaid principal balances, net
of unearned discount and an allowance for loan losses. Interest income is
accrued on the unpaid principal balance. Unearned discount on discounted loans
is amortized to income over the life of the loans, using the interest method.
A loan is generally considered impaired when it is probable the Bank will be
unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. The accrual of interest is
discontinued when the contractual payment of principal or interest has become
90 days past due or management has serious doubts about further collectibility
of principal or interest, even though the loan is currently performing. A loan
may remain on accrual status if it is in the process of collection and is
either guaranteed or well secured. When a loan is placed on nonaccrual status,
unpaid interest credited to income in the current year is reversed 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 collectibility of principal. Generally, loans are restored
to accrual status when the obligation is brought current, has performed in
accordance with the contractual terms for a reasonable period of time and the
ultimate collectibility of the total contractual principal and interest is no
longer in doubt.
- - 32 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for loan losses:
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
Beginning in 1995, the Corporation adopted Financial Accounting Standards
Board Statement No.114, "Accounting by Creditors for Impairment of a Loan", as
amended by Statement No. 118. Under the new standards, the 1995 allowance for
loan losses related to loans that are identified for evaluation in accordance
with Statement No. 114 is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for
certain collateral dependent loans. Prior to 1995, the allowance for loan
losses related to these loans was based on undiscounted cash flows or the fair
value of the collateral for collateral dependent loans.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions, and other relevant factors. This evaluation is inherently
subjective as it requires material estimates that may be susceptible to
significant change.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally on the straight-line method over their
estimated useful lives of the related assets.
Income taxes:
Effective January 1, 1993, the Corporation changed its method of accounting
for income taxes from the deferred method to the liability method required by
FASB Statement No.109, "Accounting for Income Taxes". The cumulative effect of
this
change in accounting principle increased 1993 net income by $553,000.
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities in the financial statements and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted through the provision for income taxes for the effects of changes
in tax laws and rates on the date of enactment.
The Corporation and its subsidiary file a consolidated federal income tax
return.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit and
letters of credit. Such financial instruments are recorded in the balance
sheet when they are funded.
Per share data:
Earnings and dividends per share are based on the weighted average number of
shares of common stock outstanding, adjusted for stock dividends.
New accounting standards:
In 1995, the Financial Accounting Standards Board (FASB) issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which establishes accounting and measurement
standards for the impairment of long-lived assets such as property and
equipment, certain identifiable intangibles and goodwill related to those
assets. The Bank is required to adopt the Statement effective January 1, 1996
and the effect of its implementation is not expected to have a material impact
on the Bank's financial position or results of operations.
- 33 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESTATEMENT
The cumulative effect of a change in accounting principle previously reported in
the 1993 statement of income has been adjusted to correct an error in the
initial adoption of FASB Statement No. 109, "Accounting for Income Taxes". The
difference between the financial statement and tax basis of the allowance for
loan losses was not properly reflected as a temporary difference and,
accordingly, a deferred tax asset was not established for this temporary
difference. The effect of this adjustment on 1993 net income, retained earnings
and per share amounts is summarized as follows:
As Originally
Reported Adjustment Restated
------------- ---------- --------
(In Thousands, Except Per Share Amounts)
Net income $ 2,439 $ 495 $ 2,934
======= ===== =======
Retained earnings $ 4,461 $ 495 $ 4,956
======= ===== =======
Net income per share $2.19 $0.45 $2.64
======= ===== =======
SECURITIES
The amortized cost and fair value of securities at December 31 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
--------- ------------- ------------ -----
(In Thousands)
Available for sale
securities:
December 31, 1995:
U.S. Government and
agency obligations $ 9,507 $ 79 $ (1) $ 9,585
Obligations of states
and political
subdivisions 3,630 54 - 3,684
Corporate and other
debt securities 3,140 27 - 3,167
Mortgage-backed
securities 6,948 62 (39) 6,971
Equity securities 894 207 (3) 1,098
------- ----- ------- -------
$24,119 $ 429 $ (43) $24,505
======= ===== ======= =======
December 31,1994:
U.S. Government and
agency obligations $ 500 $ - $ (14) $ 486
Obligations of states
and political
subdivisions 2,988 18 (7) 2,999
Corporate and other
debt securities 1,167 - (24) 1,143
Mortgage-backed
securities 7,842 3 (331) 7,514
Equity securities 805 110 - 915
------- ----- ------- -------
$13,302 $ 131 $ (376) $13,057
======= ===== ======= =======
Held to maturity
securities:
December 31,1995:
U.S. Treasury
securities $ 3,250 $ 20 $ (3) $ 3,267
U.S. Government and
agency obligations 2,501 19 - 2,520
Obligations of states
and political
subdivisions 20,448 203 (34) 20,617
Corporate and other
debt securities 16,472 208 (14) 16,666
------- ----- ------- -------
$42,671 $ 450 $ (51) $43,070
======= ===== ======= =======
December 31, 1994:
U.S.Treasury
securities $ 3,241 $ - $ (101) $ 3,140
U.S. Government and
agency obligations 4,249 - (233) 4,016
Obligations of states
and political
subdivisions 22,265 99 (470) 21,894
Corporate and other
debt securities 14,402 20 (744) 13,678
======= ===== ======= =======
$44,157 $ 119 $(1,548) $42,728
======= ===== ======= =======
In December 1995, the Bank reevaluated the appropriateness of all securities
held and transferred $2,969,000 of securities from securities held to maturity
to securities available for sale in accordance with the Guide to Implementation
of Statement No.115 issued by the FASB. The securities were transferred at
their fair value on the date of transfer which was $29,000 less than the
amortized cost of the securities. The transfer represented three municipal
securities and three agency securities.
- - 34 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1995, by
contractual maturity or call date, are shown below. Expected maturities may
differ from contractual maturities or call dates because the securities may be
called or prepaid with or without call or prepayment penalties.
Available For Sale Held To Maturity
--------- ------- --------- --------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- --------
(In Thousands)
Due in one year or less $ 4,777 $ 4,803 $ 9,368 $ 9,422
Due after one year through five years 10,502 10,613 32,525 32,866
Due after five years through ten years 748 754 225 225
Due after ten years 250 266 553 557
Mortgage-backed securities 6,948 6,971 - -
Equity securities 894 1,098 - -
------- ------- ------- -------
$24,119 $24,505 $42,671 $43,070
======= ======= ======= =======
Equity securities include Federal Home Loan Bank stock with an aggregate cost
and fair value of $689,000.
There were no sales of securities in 1995. Gross gains of $3,000 and gross
losses of $10,000 were realized on sales of securities available for sale in
1994. Gross gains of $3,000 and gross losses of $19,000 were realized on sales
of securities held to maturity in 1993.
Securities with an amortized cost of $6,369,000 and $6,307,000 at December
31, 1995 and 1994 respectively, were pledged to secure public deposits and for
other purposes as required or permitted by law.
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans are comprised of the following:
December 31,
--------------
1995 1994
---- ----
(In Thousands)
Commercial, agricultural and financial $ 11,843 $ 14,472
Real estate mortgages 88,593 86,316
Consumer 25,332 25,012
Other 1,483 1,486
-------- --------
127,251 127,286
Unearned discount on loans 4,313 4,095
Allowance for loan losses 1,616 1,523
-------- --------
$121,322 $121,668
======== ========
- 35 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The following table presents changes in the allowance for loan losses:
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(In Thousands)
Balance, beginning $1,523 $1,458 $1,363
Provision for loan losses 135 220 220
Recoveries 53 23 39
Loans charged off (95) (178) (164)
------ ------ ------
Balance, ending $1,616 $1,523 $1,458
====== ====== ======
Information with respect to impaired loans as of and for the year ended December
31,1995 is as follows (in thousands):
Loans receivable for which there is a related allowance for loan losses $390
Loans receivable for which there is no related allowance for loan losses -
----
Total impaired loans $390
====
Related allowance for loan losses $ 50
====
Average recorded balance of these impaired loans $408
====
Interest income recognized on these impaired loans $ 5
====
At December 31,1994, the Bank had nonaccrual loans of $433,000, all of which
would be considered impaired under Statement No.114. The Bank recorded $9,000 of
interest income on these loans in 1994. Interest income that would have been
recorded under the original terms of the loan agreements amounted to $28,000 for
the year ended December 31,1994.
BANK PREMISES AND EQUIPMENT
The major components of bank premises and equipment
were as follows:
December 31,
------------
1995 1994
---- ----
(In Thousands)
Land and land improvements $ 438 $ 438
Buildings and improvements 1,763 1,705
Furniture and equipment 1,594 1,449
-------- --------
3,795 3,592
Less accumulated depreciation 2,066 1,911
-------- --------
$ 1,729 $ 1,681
======== ========
DEPOSITS
The composition of deposits is as follows:
December 31,
------------
1995 1994
---- ----
(In Thousands)
Demand, non-interest bearing $ 22,297 $ 18,971
Now and Money Market 24,491 26,983
Savings 21,861 24,071
Time Certificates $100,000 or more 13,283 10,147
Other Time Certificates 96,221 84,979
-------- --------
$178,153 $165,151
======== ========
- - 36 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BORROWINGS
The Bank has entered into an agreement whereby it can borrow up to approximately
10% of the Bank's assets from the Federal Home Loan Bank. There were no
outstanding balances under this agreement as of December 31, 1995 and 1994.
REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Bank is required to maintain average cash reserve balances in vault cash or
with the Federal Reserve Bank. The average amount of these restricted cash
reserve balances as of December 31, 1995 was approximately $1,283,000.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet the minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
December 31, 1995, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1995, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital ratios at December 31, 1995 and the minimum ratios
required for capital adequacy purposes and to be well capitalized under the
prompt corrective action provisions are as follows:
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ ----------- ------------------
Total capital (to risk weighted
assets) 19.45% 8.00% 10.00%
Tier 1 capital (to risk weighted
assets) 18.24% 4.00% 6.00%
Tier 1 capital (to average
assets) 12.41% 3.00% - 5.00% 5.00%
Certain restrictions exist regarding the ability of the Bank to transfer funds
to the Corporation in the form of cash dividends, loans or advances. At December
31, 1995, $19,268,000 of undistributed earnings of the Bank, included in the
consolidated stockholders' equity, was available for distribution to the
Corporation as dividends without prior regulatory approval.
In August 1990, the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend distribution of one right to purchase a share of the
Corporation's common stock at $15.30 for each share issued and outstanding, upon
the occurrence of certain events, as defined in the Plan. These rights are fully
transferrable and expire on August 31, 2000. The rights are not considered
common stock equivalents because there is no indication that any event will
occur which would cause them to become exercisable. Their issuance, therefore,
has no effect on earnings per share.
In 1995, the Corporation established a dividend reinvestment and stock purchase
plan which goes into effect in 1996. Common stockholders may participate in the
Plan, which provides that additional shares of common stock may be purchased
with reinvested dividends at the prevailing market prices. To the extent that
shares are not available in the open market, the Corporation has reserved
100,000 shares of common stock to be issued under the dividend reinvestment
plan.
- 37 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFITS
Defined benefit retirement plan:
The Corporation has a defined benefit retirement plan covering substantially
all of its employees. The benefits are based on years of service and the
employees' compensation. The Corporation's funding policy is to contribute
annually the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future.
The following table sets forth the Plan's funded status
and amounts recognized in the balance sheets at December 31:
1995 1994
---- ----
(In Thousands)
Actuarial present value of:
Accumulated benefit obligation, including
vested benefits of $1,550,000 and $1,395,000 $(1,563) $(1,410)
======= =======
Projected benefit obligation for service
rendered to date $(2,133) $(2,007)
Plan assets at fair value 2,020 1,758
------- -------
Plan assets less than projected benefit
obligation (113) (249)
Unrecognized net gain from experience different
from that assumed (147) (4)
Unrecognized net transition asset (31) (33)
------- -------
Accrued pension cost $ (291) $ (286)
======= =======
Pension expense included the following components
for the years ended December 31:
1995 1994 1993
---- ---- ----
(In Thousands)
Service cost, benefits earned during the year $ 101 $ 98 $ 93
Interest cost on projected benefit obligation 143 134 124
Actual return on plan assets (204) 27 (125)
Net amortization 73 (161) (2)
------- ------- -----
$ 113 $ 98 $ 90
======= ======= =====
Assumptions used in the accounting were:
1995 1994 1993
---- ---- ----
(In Thousands)
Discount rates 7.5% 7.5% 7.5%
Rates of increase in compensation levels 4.0 4.0 4.0
Expected long-term rate of return on assets 7.5 7.5 7.5
Assets in the Plan consist primarily of U.S. Government securities, U.S.
Government security mutual funds and certificates of deposit.
Supplemental retirement plan:
The Corporation has a non-qualified supplemental retirement plan for directors
and key employees. At December 31, 1995 and 1994, the present value of the
future liability was $726,000 and $680,000 respectively. The Corporation has
funded these plans through the purchase of annuities and life insurance
policies, which have an aggregate cash surrender value of $763,000 and
$659,000 at December 31, 1995 and 1994 respectively. For the years ended
December 31, 1995, 1994 and 1993, $47,000, $78,000 and $98,000 was charged to
expense in connection with this plan.
Deferred compensation:
The Corporation has entered into deferred compensation agreements with certain
directors to provide each director an additional retirement benefit, or to
provide their beneficiary a benefit in the event of pre-retirement death. At
December 31, 1995 and 1994, the present value of the future liability was
$1,024,000 and $919,000 respectively. To fund the benefits under these
agreements, the Corporation is the owner and beneficiary of life insurance
policies on the lives of the directors. The policies had an aggregate cash
surrender value of $320,000 and $284,000 at December 31, 1995 and 1994,
respectively. For the years ended December 31, 1995, 1994 and 1993, $223,000,
$199,000 and $211,000 respectively, was charged to expense in connection with
this plan.
- - 38 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The provision for federal income taxes consisted of the following:
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(In Thousands)
Current $ 854 $ 831 $ 799
Deferred (74) (40) (102)
----- ----- -----
$ 780 $ 791 $ 697
===== ===== =====
A reconciliation of the statutory income tax expense computed at 34% to the
income tax expense included in the statements of income is as follows:
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
(In Thousands)
Federal income tax at statutory
rate $1,170 $1,137 $1,047
Tax-exempt interest (434) (469) (480)
Disallowance of interest expense 62 57 59
Other (18) 66 71
------ ------ ------
$ 780 $ 791 $ 697
====== ====== ======
The income tax provision includes $-0- in 1995, $(2,000) in 1994 and $(5,000) in
1993 of income tax related to realized security losses.
The net deferred tax asset in the accompanying balance sheets includes the
following amounts of deferred tax assets and liabilities:
December 31,
1995 1994
------- -------
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 555 $ 518
Deferred directors' fees 344 312
Pension liabilities 329 330
Unrealized depreciation on securities available for sale -- 84
Other 29 10
------ ------
1,257 1,254
Valuation allowance (53) (43)
------ ------
Total deferred tax assets, net of valuation allowance 1,204 1,211
------ ------
Deferred tax liabilities:
Bank premises and equipment (55) (52)
Unrealized appreciation on securities available for sale (131) -
------ ------
Total deferred tax liabilities (186) (52)
------ ------
Net deferred tax asset $1,018 $1,159
====== ======
- 39 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had banking transactions in the ordinary course of business with
its executive officers, directors, and their related interests on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. At December 31, 1995 and 1994, these
persons were indebted to the Bank for loans totaling $1,376,000 and $1,884,000
respectively. During 1995, loans totaling $4,355,000 were disbursed and loan
repayments totaled $4,863,000.
COMMITMENTS
The Bank rents equipment under operating leases that expire through 2000.
Equipment and servicing fees were $368,000, $377,000 and $373,000 for the years
ended December 31, 1995, 1994 and 1993 respectively. Additionally the Bank
leases a branch office building for which rent expense was $26,000 in 1995 and
1994 and $25,000 in 1993.
Minimum future payments under all noncancellable lease agreements as of December
31, 1995 are (in thousands):
1996 $247
1997 195
1998 65
1999 39
2000 40
Thereafter 60
----
$646
====
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and letters of
credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the Bank's financial instrument commitments is as follows:
December 31,
1995 1994
---- ----
(In Thousands)
Commitments to extend credit $14,822 $13,769
Outstanding letters of credit 334 984
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or commercial real
estate, accounts receivable, inventory and equipment.
Outstanding letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
- - 40 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in the counties of Juniata, Mifflin, Perry, Huntingdon,
Franklin and Snyder, Pennsylvania. The concentrations of credit by type of loan
are set forth in the note "Loans Receivable and Allowance for Loan Losses".
Although the Bank has a diversified loan portfolio, its debtors' ability to
honor their contracts is influenced by the region's economy.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
. For cash, cash equivalents and interest-bearing deposits in other banks, the
carrying amount is a reasonable estimate of fair value.
. For securities, fair values are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable securities.
. For variable-rate loans that reprice frequently and which entail no
significant changes in credit risk, fair values are based on carrying values.
All commercial loans and substantially all real estate mortgages are variable
rate loans. The fair value of other loans (i.e., consumer loans and fixed-
rate real estate mortgages) are estimated using discounted cash flow
analyses, at interest rates currently offered for loans with similar terms to
borrowers of similar credit quality.
. Fair values for demand deposits, savings accounts and certain money market
deposits are, by definition, equal to the amount payable on demand at the
reopening date (i.e., their carrying amounts). Fair values of fixed-maturity
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturity of
deposits.
. Fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account
market interest rates, the remaining terms and present credit worthiness of
the counterparties. The fair value of guarantees and letters of credit is
based on fees currently charged for similar agreements.
The fair value estimates are dependent upon subjective assumptions and involve
significant uncertainties resulting in estimates that vary with changes in
assumptions. Any changes in assumptions or estimation methodologies may have a
material effect on the estimated fair values disclosed.
The estimated fair values of the Corporation's financial instruments were as
follows:
December 31,
1995 1994
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
(In Thousands)
Financial assets:
Cash and due from banks $ 6,578 $ 6,578 $ 5,978 $ 5,978
Interest-bearing deposits in other
banks 15 15 7 7
Federal funds sold 5,080 5,080 - -
Securities 67,176 67,575 57,214 55,785
Loans receivable, net of allowance 121,322 120,855 121,668 120,822
Financial liabilities:
Deposits 178,153 179,049 165,151 164,496
Off-balance sheet financial instruments:
Commitments to extend credit - - - -
Standby letters of credit - - - -
- 41 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT COMPANY ONLY FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
1995 1994
---- ----
(In Thousands)
ASSETS
Investment in Bank subsidiary $24,567 $22,284
Securities available for sale 157 140
Due from Bank subsidiary 33 25
------- -------
$24,757 $22,449
======= =======
LIABILITY AND STOCKHOLDERS' EQUITY
LIABILITY, other $ 34 $ 15
STOCKHOLDERS' EQUITY 24,723 22,434
------- -------
$24,757 $22,449
======= =======
STATEMENTS OF INCOME
Years Ended December 31,
1995 1994 1993
---- ---- ----
(In Thousands)
Dividends from Bank subsidiary $ 807 $ 870 $ 723
Other dividend income 4 - -
Other expenses (21) (16) (17)
------- ------- ------
Income before equity in undistributed net
income of subsidiary and income taxes 790 854 706
Equity in undistributed net income of Bank
subsidiary 1,864 1,693 2,222
Income taxes (credits) (6) (6) (6)
------- ------- ------
Net income $ 2,660 $ 2,553 $2,934
======= ======= ======
- - 42 -
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1995 1994 1993
------- ------- -------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,660 $ 2,553 $ 2,934
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of Bank subsidiary (1,864) (1,693) (2,222)
Non-cash dividends received from Bank subsidiary - (98) -
(Increase) in due from subsidiary (8) (2) (3)
------- ------- -------
Net cash provided by operating activities 788 760 709
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid and cash paid in lieu of fractional
shares (788) (760) (709)
------- ------- -------
Change in cash - - -
Cash:
Beginning - -
------- -------
Ending $ - $ -
======= =======
- 43 -
AVAILABILITY OF FORM 10-K
A copy of the Corporation's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission will be available without charge upon written
request. This request should be addressed to:
Ms. Linda Engle
Juniata Valley Financial Corp.
P.O. Box 66
Mifflintown, PA 17059
Pursuant to Part 350 to FDIC's Annual Disclosure Regulation, Juniata Valley
Financial Corp. will make available to you upon request, financial information
about this Bank. The purpose of this regulation is to facilitate more informed
decision making by you, our shareholders, by providing statements containing
financial information for the last two years.
Please contact:
Ms. Ruth Nace
The Juniata Valley Bank
P.O. Box 66
Mifflintown, PA 17059
- - 44 -