==============================================
Juniata Valley
--------- ----
Financial Corp.
Mifflintown, Pennsylvania 17059
1996
Annual
Report
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JUNIATA VALLEY CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
DECEMBER 31, 1996
CONTENTS
Page
Stock, Dividend and Broker Information-------------------------------------------------------------------- 2
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
STOCK, DIVIDEND AND BROKER INFORMATION
Common stock issued by Juniata Valley Financial Corp. is quoted under the symbol
"JUVF" on the over-the-counter ("OTC") Electronic Bulletin Board, an automated
quotation service, made available through, and governed by, the NASDAQ system.
Prices presented in the table below are bid prices between broker-dealers which
do not include retail mark-ups or mark-downs or any commission to the
broker-dealer. The published bid prices do not necessarily reflect prices in
actual transactions. Cash dividends paid for the most recent four quarters are
provided in the table below. Both the market values and cash dividends have been
adjusted in 1995 for a 5-for-4 stock split issued January 9, 1996.
1996 1995
---- ----
Dividends Dividends
Quarter High Low per share High Low per share
- ------- ---- --- --------- ---- --- ---------
First $33.75 $32.00 $28.40 $26.00
Second 36.75 33.75 .37 26.60 26.60 .34
Third 37.75 36.50 27.20 26.60
Fourth 40.00 37.75 .38 31.40 27.20 .36
For further information, we refer you to:
Hopper Soliday & Co., Inc.
1703 Oregon Pike
Lancaster, PA 17601
(800) 456-9234
Janney, Montgomery, Scott, Inc.
48 E. Market St., P.O. Box 2246
York, PA 17405-2246
(717) 845-5611
F.J. Morrissey & Co., Inc.
1700 Market St., Suite 1420
Philadelphia, PA 19103-3913
(800) 842-8928
Sandler O'Neil & Partners, L.P.
Two World Trade Center 104th Floor
New York, NY 10048
(800) 635-6851
Ryan, Beck & Co.
150 Monument Road, Suite 106
Bala Cynwyd, PA 19004
(800) 223-8969
SNL Securities, L.P.
410 E. Main St., P.O. Box 2124
Charlottesville, VA 22902
(804) 977-1600
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Information regarding the Corporation's Dividend Reinvestment and Stock Purchase
Plan may be obtained by calling (717) 436-8211 or by writing to:
Ms. Linda L. Engle
Juniata Valley Financial Corp.
P.O. Box 66
Mifflintown, PA 17059
[LETTERHEAD OF JUNIATA VALLEY FINANCIAL CORP. APPEARS HERE]
POST OFFICE BOX 66
TELEPHONE (717) 436-8211
March 11, 1997
Dear Shareholders,
During August 1997, this organization will celebrate 130 years of continued
service to its shareholders and the communities which it serves. This is the
thirteenth consecutive year of record profits.
Because of these profits, it is with pride that we present this Annual
Report. It could never have been accomplished without dedicated directors,
officers and employees.
Please continue to recommend the bank because your loyalty is most
important to us. We thank you for your support in the past.
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
Joe E. Benner Don E. Haubert
Owner, Benner Automotive President, Haubert Homes
Mifflintown, PA
A. Jerome Cook
President, The Juniata Valley Bank Dale G. Nace
Owner, Glenn Nace Plumbing & Heating;
Harry B. Fairman, Jr. GlenDale Storage
President, Hilltop Oil, Inc.
John A. Renninger
John E. Groninger President, A. D. Renninger
President, John E. Groninger, Inc. Lumber Company
Contractor, Director of
Consumers Financial Corp. Edward R. Rhodes
Senior Partner, E. R. Rhodes & Son
Karl E. Guss
Funeral Director Harold B. Shearer
Guss Funeral Home Self-employed Farmer
Ronald H. Witherite
Owner, Ron's IGA Fruit Market, Inc.
NOTE: Above Directors also comprise the Board of Directors for The Juniata
Valley Bank
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-------------------------------------------------------------------------------Senior 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---------------------------------------------------- Assistant Vice President & 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--------------------------------------------------------- Vice President & Community Office Manager
Larry B. Cottrill, Jr.------------------------------------------------------------------Customer Service Officer
ADVISORY BOARD MEMBERS
BLAIRS MILLS OFFICE LEWISTOWN OFFICE
Wayde H. Cisney William H. Bradford
William R. Goshorn William R. Carter
Hays I. Lauthers Sharon D. Havice
George Love R. Jack Morgan
C. Roger Searer Harry F. Stimely
Frank A. Zampelli
PORT ROYAL OFFICE MILLERSTOWN OFFICE
Clinton F. Bashore R. Franklin Campbell
Norman D. Clark Lowell R. Frantz, C.L.U.
Martin L. Dreibelbis Gregory J. Gordon
Richard J. Junk Gerald M. Lyter
Dennis A. Long James A. Witmer
Freeburn Love Gary G. Wright
Betty D. Ryan
Earl J. Wagner
McALISTERVILLE OFFICE GARDENVIEW OFFICE
Clair Ehrenzeller David B. Esh
Clair S. Graybill M. Randall French
Samuel E. Knouse H. Ross Harshbarger
Ralph E. Rickenbaugh Donald R. Hartzler
Joseph D. Ritzman Jerry L. Wagner
Richard J. Sankey
-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, 1996, 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,
1996, the Bank had four offices in Juniata County, one office in Perry County,
two offices in Mifflin County and one office in Huntingdon County.
The Juniata Valley Bank seeks product and service improvements that both
strengthen existing customer relationships and help attract new ones. With this
thought in mind two new services were introduced during 1996. In April telephone
banking was introduced under the name "Express Phone". This allows customers
access to their account information and bank information on a twenty-four hour
basis. In August the Visa check card was introduced under the name "Express
Check Card". The card allows access to your checking account without writing a
check. It can also be used at an Automated Teller Machine (ATM) to access
customers savings accounts.
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 17
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
17 commercial banks with operations in the Bank's market area, the Bank ranked
sixth in assets as of December 31, 1996.
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.
- -6-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUPERVISION AND REGULATION (CONTINUED)
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.
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,
------------
1996 1995 1994
---- ---- ----
Risk-weighted assets ratio:
Tier I 18.73% 18.24% 17.16%
Total 19.94% 19.45% 18.34%
Total assets leverage ratio:
Tier I 12.66% 12.41% 11.47%
SECURITIES PORTFOLIO
The following table sets forth the carrying amount of securities at the dates
indicated:
December 31,
------------
1996 1995 1994
---- ---- ----
(In Thousands)
Available for sale securities (at fair value):
U.S. Treasury and other U.S. government obligations $ 8,141 $ 9,585 $ 486
States and political subdivisions 10,420 3,683 2,999
Other corporate 5,118 3,168 1,143
Mortgage-backed 5,273 6,971 7,514
Equity 1,263 1,098 915
-------- -------- ---------
30,215 24,505 13,057
-------- -------- ---------
Held to maturity securities (at amortized cost):
U.S. Treasury and other U.S. government obligations 5,217 5,751 7,490
States and political subdivisions 19,729 20,448 22,265
Other corporate 15,338 16,472 14,402
-------- -------- ---------
40,284 42,671 44,157
-------- -------- ---------
Total securities $70,499 $67,176 $57,214
======== ======== =========
-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, 1996
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, 1996, 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 $ 2,759 6.43% $ 5,382 6.03% $ - - $ - -
State and political
subdivisions - - 7,960 4.54 1,941 4.60% 519 5.86%
Other corporate 503 6.83 4,615 5.96 - - - -
Mortgage-backed 370 5.42 1,886 6.27 91 5.63 2,926 6.63
--------- ------- ------- -------
3,632 19,843 2,032 3,445
--------- ------- ------- -------
Held to maturity:
U.S. Treasury and other U.S.
government agencies 3,501 5.84 1,249 6.52 468 5.89 - -
State and political
subdivisions 5,951 4.75 13,283 4.40 205 6.80 289 5.63
Other corporate 3,075 5.49 12,232 6.42 - - 31 6.32
--------- ------- ------- -------
12,527 26,764 673 320
--------- ------- ------- -------
Total $16,159 $46,607 $2,705 $3,765
========= ======= ======= =======
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 eighteen 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,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Commercial, financial and agricultural $ 11,808 $ 11,843 $ 14,472 $ 19,361 $ 24,156
Real estate mortgage 91,865 88,593 86,316 75,613 71,152
Consumer (less unearned discount) 23,061 21,019 20,917 18,792 17,508
All other 1,412 1,483 1,486 1,968 1,341
-------- -------- -------- -------- --------
Total loans $128,146 $122,938 $123,191 $115,734 $114,157
======== ======== ======== ======== ========
This table shows the maturity of loans (excluding residential mortgages of 1-4
family residences and consumer loans) outstanding as of December 31, 1996.
Maturing Maturing Maturing
During From 1998 After
1997 Thru 1999 1999 Total
---- --------- ---- -----
(In Thousands)
Commercial, agricultural and financial $ 11,808 $ - $ - $ 11,808
All other 1,412 $ - $ - 1,412
--------- -------- -------- ---------
Total loans $ 13,220 $ - $ - $ 13,220
========= ======== ======== =========
-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,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Average loans outstanding $123,104 $121,193 $116,805 $114,896 $111,741
======== ======== ======== ======== ========
Nonaccrual loans $ 296 $ 390 $ 433 $ 105 $ 92
Accruing loans past due
90 days or more 396 462 166 177 796
Restructured loans - - - - -
-------- -------- -------- -------- --------
Total $ 692 $ 852 $ 599 $ 282 $ 888
======== ======== ======== ======== ========
Ratio of non-performing loans
to average loans outstanding .56% .70% .51% .25% .79%
Information with respect to nonaccrual and restructured loans at December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Nonaccrual loans $ 296 $ 390 $ 433 $ 105 $ 92
Restructured loans - - - - -
Interest income that would have been
recorded under original terms 41 37 28 12 11
Interest income recorded
during the period - 5 9 - -
Commitments to lend additional funds - - - - -
All of the nonaccrual loans at December 31, 1996, 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,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Average loans outstanding $123,104 $121,193 $116,805 $114,896 $111,741
======== ======== ======== ======== ========
Allowance for loan loss January 1 $1,616 $ 1,523 $ 1,458 $ 1,363 $ 1,304
Losses charged to allowance
Commercial 58 12 19 59
Real estate 0 28 92 66 14
Consumer 45 55 86 79 71
-------- -------- -------- -------- --------
103 95 178 164 144
-------- -------- -------- -------- --------
Recoveries credited to allowance
Commercial 2 3 2 13
Real estate 0 42 2 10 2
Consumer 12 8 21 27 8
-------- -------- -------- -------- --------
14 53 23 39 23
-------- -------- -------- -------- --------
Net charge-offs 89 42 155 125 121
Provision for possible loan losses 180 135 220 220 180
-------- -------- -------- -------- --------
Allowance for loan losses December 31 $ 1,707 $ 1,616 $ 1,523 $ 1,458 $ 1,363
======== ======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding .07% .03% .13% .11% .11%
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.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
% of % of % of % of % of
Amount Loan Amount Loan Amount Loan Amount Loan Amount Loan
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Commercial $ 330 9.2% $ 321 9.6% $ 303 11.7% $ 385 4.3% $ 408 21.7%
Real estate 326 71.7 322 72.1 298 70.1 243 77.1 164 62.6
Consumer 458 19.1 443 18.3 468 18.2 410 18.6 395 15.7
Unallocated 593 - 530 - 454 - 420 - 396 -
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $1,707 100% $1,616 100% $1,523 100% $1,458 100% $1,363 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
-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 70% 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, 1996, 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:
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In Thousands)
Non-interest bearing demand $20,328 $ 19,182 $ 18,562
Interest bearing demand 25,930 2.45% 25,505 2.45% 30,051 2.43%
Savings deposits 22,124 2.84 22,183 2.86 24,794 2.85
Time deposits 112,377 5.63 103,793 5.50 95,043 4.60
-------- -------- --------
Total $180,759 $170,663 $168,450
======== ======== ========
As of December 31, 1996, certificates of deposit outstanding in an individual
amount of $100,000 or more totalled $13,530,000.
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)
$2,553 $1,928 $3,626 $5,423
====== ====== ====== ======
- -12-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY
THE JUNIATA VALLEY BANK
FIVE YEAR FINANCIAL HIGHLIGHTS . SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA (In Thousands)
Assets $212,264 $205,878 $190,176 $ 189,776 $185,958
Deposits 182,455 178,153 165,151 166,542 165,698
Loans receivable 126,439 121,322 121,668 114,276 112,794
Securities 70,499 67,176 57,214 59,932 57,183
Stockholders' equity 26,763 24,723 22,434 20,803 18,578
Average equity 25,443 23,316 21,363 19,497 17,709
Average assets 209,613 197,168 192,759 187,603 181,390
EARNINGS DATA (In Thousands)
Interest income $ 15,755 $ 15,070 $ 13,972 $ 14,090 $ 14,686
Interest expense 7,592 6,970 5,813 6,073 7,337
--------- --------- --------- --------- ---------
Net interest income 8,163 8,100 8,159 8,017 7,349
Provision for loan losses 180 135 220 220 180
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 7,983 7,965 7,939 7,797 7,169
Other operating income 633 581 551 518 468
Other operating expenses 5,071 5,106 5,146 5,237 4,897
--------- --------- --------- --------- ---------
Income before income tax
provision 3,545 3,440 3,344 3,078 2,740
Income tax provision 781 780 791 697 518
--------- --------- --------- --------- ---------
Income before cumulative effect
of change in accounting
principle 2,764 2,660 2,553 2,381 2,222
Net income $ 2,764 $ 2,660 $ 2,553 $ 2,934 $ 2,222
RATIOS
Return on average assets 1.32% 1.35% 1.32% 1.27%/(1)/ 1.22%
Return on average equity 10.86 11.41 11.94 12.21 /(1)/ 12.55
Equity to assets (year end) 12.61 12.01 11.80 10.27 9.99
Loans to deposits (year end) 69.30 68.10 73.67 68.62 68.07
Dividend payout (percentage
of income) 30.25 29.14 29.18 28.60 28.58
*PER SHARE DATA
Income before cumulative
effect of change in accounting
principle 2.48 2.39 2.29 2.14 2.00
Net Income 2.48 2.39 2.29 2.64 2.00
Cash dividends .75 .70 .67 .62 .57
Book value 23.96 22.21 20.16 18.69 16.69
Average shares outstanding 1,114,611 1,113,001 1,113,001 1,113,001 1,113,001
Approximate number
of stockholders 1,098 1,066 1,089 1,021 987
*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
1996 Increase (Decrease) 1995 Increase (Decrease) 1994
Average -------- ---------- Average -------- ---------- Average
Balance Amount % Balance Amount % Balance
------- ------ --- ------- ------ --- -------
(Thousands of Dollars)
Funding uses:
Interest earning assets:
Loans:
Commerical $ 41,767 $ 524 1.27% $ 41,243 $ (98) (.24)% $ 41,341
Mortgage 58,912 1,658 2.90 57,254 3,002 5.53 54,252
Consumer 22,425 (271) (1.19) 22,696 1,484 7.00 21,212
--------- ------- --------- -------- ---------
123,104 1,911 1.58 121,193 4,388 3.76 116,805
Less: Allowance for
loan losses (1,677) (101) 6.41 (1,576) (70) 4.65 (1,506)
--------- ------- --------- -------- ---------
121,427 1,810 1.51 119,617 4,318 3.75 115,299
Securities 72,665 9,805 15.60 62,860 (1,652) (2.56) 64,512
Funds sold 4,107 114 2.85 3,993 1,361 51.71 2,632
--------- ------- --------- -------- ---------
76,772 9,919 14.84 66,853 (291) (.43) 67,144
Total interest earning
assets 198,199 11,729 6.29 186,470 4,027 2.21 182,443
Other assets 11,414 716 6.69 10,698 382 3.70 10,316
--------- ------- --------- -------- ---------
Total uses $209,613 $12,445 6.31 $197,168 $ 4,409 2.29 $192,759
========= ======= ========= ======== =========
Funding sources:
Deposits:
Demand $ 20,328 $ 1,146 5.97 $ 19,182 $ 620 3.34 $ 18,562
Interest bearing demand 25,930 425 1.67 25,505 (4,546) (15.13) 30,051
Savings 22,124 (59) (.27) 22,183 (2,611) (10.53) 24,794
Time under $100,000 97,994 6,547 7.16 91,447 7,165 8.50 84,282
--------- ------- --------- -------- ---------
Total core deposits 166,376 8,059 5.09 158,317 628 .40 157,689
Time over $100,000 14,383 2,037 16.50 12,346 1,585 14.73 10,761
--------- ------- --------- -------- ---------
Total deposits 180,759 10,096 5.92 170,663 2,213 1.31 168,450
Other liabilities 3,411 222 6.96 3,189 243 8.25 2,946
Stockholders' equity 25,443 2,127 9.12 23,316 1,953 9.14 21,363
--------- ------- --------- -------- ---------
Total sources $209,613 $12,445 6.31 $197,168 $ 4,409 2.29 $192,759
========= ======= ========= ======== =========
- -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 1996 occurred in
two funding sources with the majority of this growth coming from time deposits
under $100,000; which was also the case in 1995. Time deposits under $100,000
increased 7.16% or $6,547,000 from 1995 to 1996 and 8.50% from 1994 to 1995.
Demand deposits increased 5.97% or $1,146,000 from 1995 to 1996 and 3.34% from
1994 to 1995. A slight increase was experienced in interest bearing demand of
1.67% or $425,000 in 1996 over 1995; however a decrease was experienced in this
same category from 1994 to 1995 of 15.13%. Savings decreased very slightly from
1995 to 1996 by .27% or $59,000 and decreased 10.53% from 1994 to 1995. On
average during 1996, core deposits experienced an increase of $8,059,000. The
Corporation's ability to maintain its core deposit base despite the increased
nonbank influences in the market area including mutual and money market funds,
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 1996.
At the beginning of the year in 1996, 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 $1,810,000 or 1.51% in 1996. This compares to a
$4,318,000 or 3.75% increase during the prior year. The largest increase in 1996
was in mortgage loans, which increased $1,658,000 or 2.90% from 1995 to 1996.
This was smaller than the increase in 1995 over 1994 of $3,002,000 or 5.53%.
Consumer loans declined in 1996 over 1995, by $271,000 or 1.19%; whereas this
category had the largest increase from 1994 to 1995, 7.00% or $1,484,000. An
increase in commercial loans of $524,000 or 1.27% from 1995 to 1996 occured
while a decrease was experienced in commercial loans of .24% or $98,000 in 1995
over 1994.
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. 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. 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 an increase during 1996 of
$9,805,000 compared to a decrease of $1,652,000 in 1995. The increase is due to
the increase in deposits and loan demand was weaker in 1996 over 1995. 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
- --------------------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
Juniata Valley Financial Corp. reported net income for 1996 of $2,764,000, an
increase of 3.91% from the $2,660,000 net income reported in 1995 which was an
increase of 4.19% over 1994 earnings of $2,553,000. Earnings per share was $2.48
in 1996 an increase of $.09 from 1995 which was an increase of $.10 from 1994.
-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 10.86% in 1996, compared to 11.41% in 1995 and 11.94% in
1994.
[CHART APPEARS HERE]
The 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 1.32% in 1996, compared to 1.35% in 1995 and 1.32% in 1994.
[CHART APPEARS HERE]
The Board of Directors continued to increase the cash dividends paid to
shareholders. On a per share basis $.75 was paid in 1996, up 7.14% from the $.70
paid in 1995 which was up 4.48% over the $.67 paid in 1994. Along with increase
in cash dividends, a 5-for-4 stock split in the form of a 25% stock dividend was
issued on January 9, 1996, and October 26, 1994. After giving effect to these
stock splits the market price per share increased from $26.00 at January 1,
1995, to $40.00 at December 31, 1996.
[CHART APPEARS HERE]
While increasing dividends, the Corporation was able to increase Stockholders'
equity to total assets (the capital ratio) to 12.61% at December 31, 1996, up
from 12.01% in 1995 and 11.80% in 1994.
[CHART APPEARS HERE]
The Corporation has realized steady growth over the past two years. Assets as of
December 31, 1996, were $212,264,000 an increase of $6,386,000 or 3.10% compared
to 1995 assets of $205,878,000. Assets for 1995 grew $15,702,000 or 8.26%
compared to 1994 assets of $190,176,000.
[CHART APPEARS HERE]
- -16-
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
The Juniata Valley Bank's allowance for loan losses was $1,707,000 in 1996,
$1,616,000 in 1995 and $1,523,000 in 1994. The provision provided in each of
those years was $180,000 in 1996, $135,000 in 1995 and $220,000 in 1994. The
provision for loan losses exceeded net charge-offs by 102.25%, 221.43%, and
41.94% in 1996, 1995 and 1994, respectively. In 1996 net charge-offs were .07%
of average loans outstanding. In 1995 and 1994 net charge-offs were .03% and
.13% of average loans outstanding, respectively.
Other income increased $52,000 or 8.95% over 1995. From 1994 to 1995 the
increase was $30,000 or 5.44%. The increase in 1996 was attributable to trust
department income increasing $25,000 due to the settlement of three large
estates. The increase in trust department income from 1994 to 1995 was $12,000.
This was due to settling two estates in 1995. Customer service fees increased
$14,000 from 1995 to 1996. This compares with a $1,000 increase from 1994 to
1995. Other service charges, commissions and fees increased $13,000 in 1996 over
1995. The increase from 1994 to 1995 was $10,000. These increases in 1996 for
both customer service fees and other service charges fees and commissions can be
attributed to an increase in volume and not as a result of increased fees.
Other expenses decreased $35,000 or .69% over 1995. This compares to a decline
of $40,000 from 1994 to 1995. The $83,000 increase in salaries and wages can be
attributed to annual merit increases and promotions of employees. This compares
to an increase of $69,000 in salaries and wages for 1995 over 1994. In 1996
employee benefits increased $25,000 which followed a decrease of $15,000 or
2.58% in 1995 over 1994. This was due to price changes of the benefits provided
as opposed to increased or decreased benefits. Equipment expense increased by
$28,000 in 1996 over 1995. There was a decrease of $78,000 or 20.53% from 1994
to 1995. The increase in 1996 was caused by the addition of equipment. The
decrease in 1995 can be attributed to the expiration of a lease and a less
costly replacement lease. Federal deposit insurance premiums decreased in 1996
$190,000 or 98.96% and $184,000 or 48.94% in 1995. As a result of an industry
wide funding of the federal deposit insurance plan, the premiums paid in 1996
were the statutory minimum of $500 per quarter. In 1995 the decrease was caused
by a refund of deposit insurance premiums previously paid of $105,000 and a
decrease in the assessment rate from $.23 to $.04 per $100 of insured deposits
effective September 30, 1995. Recent legislation passed in September 1996 will
require all banks to pay an increased assessment in 1997. The effect of the
increase based on the last certified statement received will be approximately
$23,000 for 1997. The $20,000 decrease in 1996 in director compensation followed
a slight increase of $9,000 in 1995. The decrease is due to declines in deferred
compensation and the directors' retirement plan. The $18,000 increase in the
other category can be attributed to an increase in holding company expenses
related to stockholder matters including the introduction of a dividend
reinvestment plan incurred in 1996 and not incurred in 1995. The $133,000
increase in 1995 over 1994 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.
The management of the Juniata Valley Bank seeks product and service improvements
that both strengthen existing customer relationships and help attract new ones.
During a strategic planning meeting it was decided that telephone banking would
be a product that would serve this purpose. In April of 1996 telephone banking
was introduced under the name "Express Phone". This service is offered at no
charge to our customers. From any touch-tone phone, 24 hours a day, a customer
can inquire about balances, transfer funds between accounts, obtain account
history, check savings and certificate of deposit rates, discover special
promotions, place a stop payment, make a loan payment, check bank hours, check
bank locations, check phone numbers and learn about upcoming products. In August
the Visa check card was introduced under the name "Express Check". This card
allows access to your checking account without writing a check, waiting for
check approval or showing identification. The card is accepted wherever VISA
credit cards are accepted. It can also be used at an automated teller machine
(ATM) to access customer savings accounts. This service is also provided at no
cost to the customer. During 1996, the United States Supreme Court issued its
decision in the case of Barnett Bank versus Nelson that national banks may sell
insurance to anyone in a community with a population under 5,000. Both the
Pennsylvania insurance any banking departments have issued policy statements
recognizing that state charted banks may become licensed insurance agents,
either directly or through an operating subsidiary. The Juniata Valley Bank will
evaluate the merits of insurance sales and pursue the sale of mutual funds
during 1997 to help improve the bottom line. 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".
1996
Interest
Average Income %
Balances (Expense) Rate
-------- --------- -----
(In Thousands)
INTEREST EARNING ASSETS
Interest bearing deposits in other banks $ 35 $ 2 5.71%
Securities (taxable) 42,836 2,758 6.44
Securities (tax free) 29,794 1,230 4.13
Federal funds sold 4,107 218 5.31
Loans 123,104 11,547 9.38
--------- ---------- -----
Total interest earning assets 199,876 $15,755 7.88
========== -----
NON-INTEREST EARNING ASSETS
Cash and due from banks 5,156
Other assets 6,258
Less: allowance for loan losses (1,677)
---------
Total assets $209,613
=========
INTEREST BEARING LIABILITIES
Demand deposits bearing interest $ 25,930 (634) 2.45
Savings deposits 22,124 (629) 2.84
Other time deposits 112,377 (6,329) 5.63
--------- ----------
Total interest bearing liabilities 160,431 ($ 7,592) 4.73
========== -----
NON-INTEREST BEARING LIABILITIES
Demand deposits 20,328
Other liabilities 3,411
STOCKHOLDERS' EQUITY 25,443
---------
Total liabilities and stockholders' equity $209,613
=========
NET INTEREST INCOME/SPREAD $ 8,163 3.15%
========== =====
MARGIN ANALYSIS
Interest income/ earning assets 7.88%
Interest expense/earning assets 3.80
-----
Net interest margin 4.08%
=====
- -18-
- --------------------------------------------------------------------------------
TABLE 1 (Continued)
- --------------------------------------------------------------------------------
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%
=====
1994
Interest
Average Income %
Balances (Expense) Rate
-------- --------- -----
(In Thousands)
INTEREST EARNING ASSETS
Interest bearing deposits in other banks $ 738 $ 31 4.20%
Securities (taxable) 34,599 2,035 5.88
Securities (tax free) 29,175 1,301 4.46
Federal funds sold 2,632 98 3.72
Loans 116,805 10,507 9.00
--------- ---------- -----
Total interest earning assets $ 183,949 $ 13,972 7.60
-----
NON-INTEREST EARNING ASSETS
Cash and due from banks 5,413
Other assets 4,903
Less: allowance for loan losses (1,506)
---------
Total assets $ 192,759
=========
INTEREST BEARING LIABILITIES
Demand deposits bearing interest $ 30,051 (731) 2.43
Savings deposits 24,794 (707) 2.85
Other time deposits 95,043 (4,375) 4.60
--------- ----------
Total interest bearing liabilities $ 149,888 $ (5,813) 3.88
---------- -----
NON-INTEREST BEARING LIABILITIES
Demand deposits 18,562
Other liabilities 2,946
STOCKHOLDERS' EQUITY 21,363
---------
Total liabilities and stockholders' equity $ 192,759
=========
NET INTEREST INCOME/SPREAD $ 8,159 3.72%
========== =====
MARGIN ANALYSIS
Interest income/ earning assets 7.60%
Interest expense/earning assets 3.16
-----
Net interest margin 4.44%
=====
-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 earnings assets and
interest expense on deposits. Earnings 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
$11,830,000 or 6.29% from 1995 to 1996. An increase was also experienced from
1994 to 1995 of $4,097,000 or 2.22%. The overall yield on these interest earning
assets was a decrease of 13 basis points; however there was an increase of 41
basis points from 1994 to 1995.
The largest contributor to interest income was loans. The yield on loans
decreased 4 basis points from 1995 to 1996. Interest earned on securities is the
second largest contributor for the Corporation. The yield on taxable securities
increased from 6.14% in 1995 to 6.44% in 1996. For tax free securities the yield
decreased from 4.48% in 1995 to 4.13% in 1996.
Interest bearing liabilities increased $8,950,000 or 5.91% from 1995 to 1996.
The yield on interest bearing demand and savings deposits remained relatively
unchanged from 1995 to 1996. 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 yield on time deposits increasing from 5.50% in 1995 to 5.63% in 1996.
The Corporation's net spread was 3.15% in 1996 down from 3.41% in 1995 and 3.72%
in 1994. 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 4.08% for 1996
compared to 4.31% in 1995 and 4.44% in 1994.
Table 2 shows the interest income, interest expense and net interest income with
the percentage change between the years. Interest income was $15,755,000 in 1996
an increase of 4.55% over 1995's amount of $15,070,000 and $13,972,000 in 1994.
Interest expense also increased 8.92% to $7,592,000 for 1996 compared with
$6,970,000 in 1995 and $5,813,000 in 1994. The changing interest rate
environment resulted in lower interest income and interest expense growth in
1996. The percentage growth of interest expense was more than interest income,
however in absolute dollars there was an overall increase in net interest income
of $63,000 or .78% from 1995 to 1996. Interest income and expense also increased
from 1994 to 1995. The increase in interest expense was greater than the
increase in interest income so that an overall decrease to net interest income
was experienced of .72%.
Table 3 indicates the interest income increase of $685,000 from 1995 to 1996 was
attributable to increases in volume of taxable securities and loans. Rates
however were down in tax free securities and loans. Asset growth contributed
$737,000 to interest income while rate declines reduced interest income by
$52,000.
The interest expense increase of $622,000 from 1995 to 1996 was also
attributable to increases in both volume and rate increases principally for time
deposits. Liability growth contributed $480,000 to interest expense while rate
increases contributed $142,000 to expense.
- --------------------------------------------------------------------------------
TABLE 2 --- NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, defined as interest income less interest expense, is shown
in the following table:
1996 % Change 1995 % Change 1994
---- -------- ---- -------- ----
(In Thousands)
Interest income $15,755 4.55% $15,070 7.86% $13,972
Interest expense 7,592 8.92 6,970 19.90 5,813
------- ------- -------
Net interest income $ 8,163 .78 $ 8,100 (.72) $ 8,159
======= ======= =======
- -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.
1996/1995 Increase (Decrease) 1995/1994 Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest bearing deposits
in other banks $ (8) $ 0 $ (8) $ (25) $ 4 $ (21)
Securities (taxable) 419 127 546 83 94 177
Securities (tax free) 139 (104) 35 (111) 5 (106)
Federal funds sold and other 7 (25) (18) 51 87 138
Loans 180 (50) 130 395 515 910
------ -------- ------- ------ -------- -------
Interest income 737 (52) 685 393 705 1,098
------ -------- ------- ------ -------- -------
Demand deposits
bearing interest 10 0 10 (111) 4 (107)
Savings deposits (2) (4) (6) (74) 2 (72)
Time deposits 472 146 618 403 933 1,336
------ -------- ------- ------ -------- -------
Interest expense 480 142 622 218 939 1,157
------ -------- ------- ------ -------- -------
Increase (decrease)
in net interest income $257 $(194) $ 63 $175 $(234) $ (59)
====== ======== ======= ====== ======== =======
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
At December 31, 1996 the net loan increase was $5,117,000 or 4.22% over 1995.
This follows a year of decline in net loans of $346,000 or .28% in 1995 over
1994. The loan to deposit ratio fluctuated slightly throughout 1996; monthly
averages were at a high in December of 69.11% and a low in May of 67.24%.
Mortgage loans increased $3,272,000 or 3.70% over 1995. The growth for 1995 over
1994 was $2,277,000. Real estate loans still remain a very attractive option due
to the tax deductibility of mortgage interest. Consumer loans increased
$2,042,000 or 9.72% in 1996 over 1995. The increase for 1995 over 1994 was
$102,000. Commercial loans decreased $35,000 or .30%. The decrease from 1994 to
1995 was $2,629,000.
The Corporation continued its excellent net charge-off record (charge-offs, net
of recoveries) during 1996. For the year, the net charge-offs were $89,000 or
.07% of average loans outstanding. This compares with $42,000 or .03% for 1995
and $155,000 or .13% for 1994.
The allowance for loan loss 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 1996 of $1,707,000 or 1.35% of
outstanding loans is adequate to meet any foreseeable loan loss contingency.
This is higher than the 1.33% for 1995 and 1.25% for 1994. At December 31, 1996
and 1995, total non-performing loans were $692,000 and $852,000, respectively;
non-performing loans as a percentage of the allowance for loan losses were
40.54% and 52.72%, respectively. Increased collection efforts have been made to
decrease this percentage for the future.
-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 1996
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 1996 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. Loan growth of $5,219,000 was more than
deposit growth of $4,302,000. Proceeds from maturities and principal repayment
of securities of $17,063,000 were used to purchase securities of $20,636,000.
The funding short fall in loans from deposits of $917,000 along with the
additional expenditures in securities of $3,573,000 was offset by the $2,756,000
net cash provided by operating activities and the $2,651,000 decrease in cash
and cash equivalents from December 31, 1995.
- --------------------------------------------------------------------------------
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 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, 1996
-----------------------
(In Thousands)
Remaining Maturity/Earliest Possible Repricing
Over Three Over Six Over One
Three Months But Months But Year But Over
Months Within Six Within One Within Five Five
or Less Months Year Years Years
------- ------ ---- ----- -----
Assets
Interest bearing deposits $ 65 $ - $ - $ - $ -
Federal funds sold 3,100
Securities:
U. S. Treasuries 1,500 - 501 1,243 -
U. S. Agencies 250 1,500 2,500 5,405 467
Municipals 1,312 1,000 5,038 17,788 2,922
Corporate and others 751 907 1,917 16,918 984
Mortgage-backed - - 371 1,895 2,999
Loans:
Commercial 39,060 - - - 3,795
Installment 1,478 1,437 2,570 11,316 5,948
Mortgage 13,267 13,267 26,533 3,034 5,028
All non-interest earning assets - - - - 14,198
--------- --------- -------- ------- --------
Total assets 60,783 18,111 39,430 57,599 36,341
--------- --------- -------- ------- --------
Liabilities and stockholders' equity
Interest bearing demand deposits 26,053 - - - -
Savings deposits 20,665 - - - -
Certificates of deposit 21,789 20,000 25,073 47,002
All non-interest bearing liabilities - - - - 24,919
Stockholders' equity - - - - 26,763
Total liabilities and stockholders' equity 68,507 20,000 25,073 47,002 51,682
--------- --------- -------- ------- --------
Gap $ (7,724) $ (1,889) $ 14,357 $10,597 $(15,341)
========= ========= ======== ======= ========
Cumulative gap $ (7,724) $ (9,613) $ 4,744 $15,341 -
========= ========= ======== ======= ========
-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 1996 an examination was conducted by the
Pennsylvania Department of Banking. This examination included, but was 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.
- --------------------------------------------------------------------------------
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 credit 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 adjusted total assets with at least 4%
Tier I capital and 8% of risk-adjusted assets in total capital. As indicated on
the schedule below, the Tier I risk-based capital ratio was 18.73% and total
(including Tier II) risk-based capital ratio was 19.94% at December 31, 1996.
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,
1996, Juniata Valley Financial Corp.'s leverage ratio was 12.66%.
STOCKHOLDERS' EQUITY
[BAR GRAPH APPEARS HERE]
- -23-
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
CAPITAL (Continued)
- --------------------------------------------------------------------------------
CAPITAL ANALYSIS
December 31,
------------
1996 1995 1994
---- ---- ----
(Thousands of Dollars)
Tier I
Common stockholders' equity (excluding unrealized
appreciation/depreciation on securities) $ 26,545 $ 24,468 $ 22,596
Tier II
Allowable portion of allowance for loan losses 1,707 1,616 1,523
--------- --------- ---------
Risk-based capital $ 28,252 $ 26,084 $ 24,119
========= ========= =========
Risk adjusted assets (including off-balance-sheet exposures) $141,704 $134,122 $131,640
========= ========= =========
Tier I risk-based capital ratio 18.73% 18.24% 17.16%
Total risk-based capital ratio 19.94% 19.45% 18.34%
Leverage ratio 12.66% 12.41% 11.47%
- --------------------------------------------------------------------------------
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 1997 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 1997. 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 1997 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 TAXES
- --------------------------------------------------------------------------------
The provision for income taxes for 1996 was $781,000 compared to $780,000 in
1995 and $791,000 in 1994. The effective tax rate, which is the ratio of income
tax expense to income-before-income-taxes, was 22.03% in 1996, a slight decrease
from the 22.67% in 1995 and 23.65% in 1994. 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-
[LOGO 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, 1996 and 1995, 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.
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 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, 1996 and 1995,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Beard & Company, Inc.
Reading, Pennsylvania
January 17, 1997
-27-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED BALANCE SHEETS
ASSETS
------
December 31,
------------
1996 1995
---- ----
(In Thousands)
Cash and due from banks $ 5,857 $ 6,578
Interest-bearing deposits with banks 65 15
Federal funds sold 3,100 5,080
-------- --------
Total cash and cash equivalents 9,022 11,673
Securities available for sale 30,215 24,505
Securities held to maturity, fair value 1996 $40,309; 1995 $43,070 40,284 42,671
Loans receivable, net of allowance for loan losses 1996 $1,707; 1995 $1,616 126,439 121,322
Bank premises and equipment, net 1,766 1,729
Accrued interest receivable and other assets 4,538 3,978
-------- --------
Total assets $212,264 $205,878
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 21,873 $ 22,297
Interest bearing 160,582 155,856
-------- --------
Total deposits 182,455 178,153
Accrued interest payable and other liabilities 3,046 3,002
-------- --------
Total liabilities 185,501 181,155
-------- --------
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 5,000,000 shares;
issued and outstanding 1,117,088 and 1,113,001 shares respectively 1,117 1,113
Surplus 14,879 14,734
Retained earnings 10,549 8,621
Net unrealized appreciation on securities available for sale, net of taxes 218 255
-------- --------
Total stockholders' equity 26,763 24,723
-------- --------
Total liabilities and stockholders' equity $212,264 $205,878
======== ========
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,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands, Except Per Share Amounts)
Interest income:
Loans receivable, including fees $ 11,547 $ 11,417 $ 10,507
Taxable securities 2,758 2,212 2,035
Tax-exempt securities 1,230 1,195 1,301
Other 220 246 129
------------ ------------ ------------
Total interest income 15,755 15,070 13,972
Interest expense on deposits 7,592 6,970 5,813
------------ ------------ ------------
Net interest income 8,163 8,100 8,159
Provision for loan losses 180 135 220
------------ ------------ ------------
Net interest income after provision for loan losses 7,983 7,965 7,939
------------ ------------ ------------
Other income:
Trust department 198 173 161
Customer service fees 237 223 222
Net realized losses on sales of securities - - (7)
Other 198 185 175
------------ ------------ ------------
Total other income 633 581 551
------------ ------------ ------------
Other expenses:
Salaries and wages 2,196 2,113 2,044
Employee benefits 592 567 582
Occupancy 310 309 308
Equipment 330 302 380
Federal deposit insurance premiums 2 192 376
Director compensation 269 289 280
Taxes, other than income 235 215 194
Other 1,137 1,119 982
------------ ------------ ------------
Total other expenses 5,071 5,106 5,146
------------ ------------ ------------
Income before income taxes 3,545 3,440 3,344
Federal income taxes 781 780 791
------------ ------------ ------------
Net income $ 2,764 $ 2,660 $ 2,553
============ ============ ============
Net income per common share $ 2.48 $ 2.39 $ 2.29
============ ============ ============
Weighted average number of shares outstanding 1,114,611 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, 1996, 1995 and 1994
--------------------------------------------
Net Unrealized
Appreciation
(Depreciation)
On Securities)
Common Retained Available
Stock Surplus Earnings For Sale Total
----- ------- -------- -------- -----
(In Thousands)
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 - - - 417 417
------ ------- -------- ----- -------
Balance, December 31, 1995 1,113 14,734 8,621 255 24,723
Net income - - 2,764 - 2,764
Cash dividend, $.75 per share - - (836) - (836)
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of taxes - - - (37) (37)
Stock issued under dividend reinvestment
plan 4 145 - - 149
------ ------- -------- ----- -------
Balance, December 31, 1996 $1,117 $14,879 $10,549 $ 218 $26,763
====== ======= ======== ===== =======
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,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,764 $ 2,660 $ 2,553
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 180 135 220
Provision for depreciation 192 174 181
Net amortization on securities premium 195 192 70
Net realized losses on sales of securities - - 7
Deferred directors' fees and supplemental retirement plan expense 242 303 312
Payment of deferred compensation (150) (135) (126)
Deferred income taxes (56) (74) (40)
(Increase) in accrued interest receivable and other assets (488) (356) (134)
Increase (decrease) in accrued interest payable and other
liabilities (123) 108 (50)
-------- -------- --------
Net cash provided by operating activities 2,756 3,007 2,993
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (12,105) (13,935) (1,998)
Proceeds from sales of available for sale securities - - 2,017
Proceeds from maturities of and principal repayments
on available for sale securities 6,275 6,118 6,533
Purchases of held to maturity securities (8,531) (8,753) (14,385)
Proceeds from maturities of and principal repayments
on held to maturity securities 10,788 7,048 10,228
Net (increase) decrease in loans receivable (5,219) 211 (7,612)
Purchases of bank premises and equipment (230) (222) (69)
-------- -------- --------
Net cash used in investing activities (9,022) (9,533) (5,286)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 4,302 13,002 (1,391)
Cash dividends and cash paid for fractional shares (836) (788) (760)
Stock issued under dividend reinvestment plan 149 - -
-------- -------- --------
Net cash provided by (used in) financing activities 3,615 12,214 (2,151)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (2,651) 5,688 (4,444)
Cash and cash equivalents:
Beginning 11,673 5,985 10,429
-------- -------- --------
Ending $ 9,022 $11,673 $ 5,985
======== ======== ========
Cash payments for:
Interest $ 7,566 $ 6,798 $ 5,782
======== ======== ========
Income taxes $ 879 $ 833 $ 812
======== ======== ========
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 that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff 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.
The allowance for loan losses related to impaired loans that are identified
for evaluation is based on discounted cash flows using the loan's initial
effective interest rate or the fair value, less selling costs, of the
collateral for certain collateral dependent loans. By the time a loan
becomes probable of foreclosure it has been charged down to fair value,
less estimated costs to sell.
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, including the amounts and timing
of future cash flows expected to be received on impaired loans.
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 the estimated useful lives of the related assets.
Income taxes:
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:
Net income and dividends per share are based on the weighted average number
of shares of common stock outstanding, adjusted for stock dividends.
RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain reserve balances with the Federal Reserve Bank.
The average reserve balances for 1996 and 1995 approximated $1,311,000 and
$1,283,000 respectively.
-33-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996:
U.S. Treasury securities $ 994 $- $ (3) $ 991
U.S. Government and agency obligations 7,155 12 (17) 7,150
Obligations of states and political subdivisions 10,331 95 (6) 10,420
Corporate and other debt securities 5,187 5 (74) 5,118
Mortgage-backed securities 5,265 43 (35) 5,273
Equity securities 953 312 (2) 1,263
------- ---- -------- -------
$29,885 $467 $ (137) $30,215
======= ==== ======== =======
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
======= ==== ======== =======
Held to maturity securities:
December 31, 1996:
U.S. Treasury securities $ 2,250 $ 1 $ (3) $ 2,248
U.S. Government and agency obligations 2,967 1 (12) 2,956
Obligations of states and political subdivisions 19,729 90 (38) 19,781
Corporate and other debt securities 15,338 55 (69) 15,324
------- ---- -------- -------
$40,284 $147 $ (122) $40,309
======= ==== ======== =======
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
======= ==== ======== =======
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, 1996, 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 $ 3,249 $ 3,262 $12,527 $12,544
Due after one year through five years 17,991 17,957 26,764 26,777
Due after five years through ten years 1,932 1,941 673 666
Due after ten years 495 519 320 322
Mortgage-backed securities 5,265 5,273 - -
Equity securities 953 1,263 - -
------- ------- ------- -------
$29,885 $30,215 $40,284 $40,309
======= ======= ======= =======
Equity securities include Federal Home Loan Bank stock with an aggregate cost
and fair value of $702,000 at December 31, 1996 and $689,000 at December 31,
1995.
There were no sales of securities in 1996 and 1995. Gross gains of $3,000 and
gross losses of $10,000 were realized on sales of securities available for sale
in 1994.
Securities with an amortized cost of $6,403,000 and $6,369,000 at December 31,
1996 and 1995 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,
------------
1996 1995
---- ----
(In Thousands)
Commercial, agricultural and financial $ 11,808 $ 11,843
Real estate mortgages 91,865 88,593
Consumer 27,340 25,332
Other 1,412 1,483
-------- --------
132,425 127,251
Unearned discount on loans 4,279 4,313
Allowance for loan losses 1,707 1,616
-------- --------
$126,439 $121,322
======== ========
-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,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Balance, beginning $ 1,616 $ 1,523 $1,458
Provision for loan losses 180 135 220
Recoveries 14 53 23
Loans charged off (103) (95) (178)
---------- ---------- ------
Balance, ending $ 1,707 $ 1,616 $1,523
========== ========== ======
There were no impaired loans not requiring an allowance for loan losses at
December 31, 1996 and 1995 respectively. At December 31, 1996 and 1995, the
recorded investment in impaired loans requiring an allowance for loan losses was
$229,000 and $390,000 respectively. The related allowance for loan losses
associated with these loans was $25,000 and $50,000 at December 31, 1996 and
1995 respectively. For the years ended December 31, 1996 and 1995, the average
recorded investment in impaired loans was $350,000 and $406,000 respectively,
and no interest income was recognized on impaired loans in 1996 while $5,000 was
recognized on impaired loans in 1995.
BANK PREMISES AND EQUIPMENT
The major components of bank premises and equipment were as follows:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Land and land improvements $ 438 $ 438
Buildings and improvements 1,863 1,763
Furniture and equipment 1,583 1,594
----------- -----------
3,884 3,795
Less accumulated depreciation 2,118 2,066
----------- -----------
$ 1,766 $ 1,729
=========== ===========
DEPOSITS
The composition of deposits is as follows:
December 31,
------------
1996 1995
---- ----
(In Thousands)
Demand, non-interest bearing $ 21,873 $ 22,297
Now and Money Market 26,053 24,491
Savings 20,665 21,861
Time Certificates $100,000 or more 13,530 13,283
Other Time Certificates 100,334 96,221
-------- --------
$182,455 $178,153
======== ========
At December 31, 1996, the scheduled maturities of time deposits are as follows
(in thousands):
1997 $ 66,990
1998 27,697
1999 9,360
2000 7,077
2001 2,740
--------
$113,864
========
- -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
$6,470,000 from the Federal Home Loan Bank. There were no outstanding balances
under this agreement as of December 31, 1996 and 1995.
REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
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, 1996, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, 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 Corporation's actual capital ratios at December 31, 1996 and the minimum
ratios required for capital adequacy purposes and to be well capitalized under
the prompt corrective action provisions are presented below. The Bank's ratios
were not materially different from those of the Corporation.
For Capital
Adequacy
Actual Purposes
------ --------
Amount Ratio Amount Rate
------ ----- ------ ----
(Dollar Amounts In Thousands)
As of December 31, 1996:
Total capital (to risk weighted assets) $28,252 19.94% greater than $11,336 greater than 8.00%
Tier 1 capital (to risk weighted assets) 26,545 18.73 greater than 5,668 greater than 4.00
Tier 1 capital (to average assets) 26,545 12.66 greater than 8,385 greater than 4.00
As of December 31, 1995:
Total capital (to risk weighted assets) $26,084 19.45% greater than $10,730 greater than 8.00%
Tier I capital (to risk weighted assets) 24,468 18.24 greater than 5,365 greater than 4.00
Tier I capital (to average assets) 24,468 12.41 greater than 7,887 greater than 4.00
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
-----------------
Amount Ratio
------ -----
As of December 31, 1996:
Total capital (to risk weighted assets) greater than $14,170 greater than 10.00%
Tier 1 capital (to risk weighted assets) greater than 8,502 greater than 6.00
Tier 1 capital (to average assets) greater than 10,481 greater than 5.00
As of December 31, 1995:
Total capital (to risk weighted assets) greater than $13,412 greater than 10.00%
Tier I capital (to risk weighted assets) greater than 8,047 greater than 6.00
Tier I capital (to average assets) greater than 9,858 greater than 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, 1996, $21,200,000 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 effective January 1, 1996. Under the Plan, additional shares of Juniata
Valley Financial Corp. may be purchased at the prevailing market prices with
reinvested dividends and voluntary cash payments. 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. During the year
ended December 31, 1996, 4,087 shares were issued under the 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 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:
1996 1995
---- ----
(In Thousands)
Actuarial present value of:
Accumulated benefit obligation, including vested benefits
of $1,714,000 and $1,550,000 $(1,726) $(1,563)
======= =======
Projected benefit obligation for service rendered to date $(2,336) $(2,133)
Plan assets at fair value 2,187 2,020
------- -------
Plan assets less than projected benefit obligation (149) (113)
Unrecognized net gain from experience different from that assumed (145) (147)
Unrecognized net transition asset (29) (31)
------- -------
Accrued pension cost $ (323) $ (291)
======= =======
Pension expense included the following components for the years ended December 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Service cost, benefits earned during the year $ 110 $ 101 $ 98
Interest cost on projected benefit obligation 157 143 134
Actual return on plan assets (164) (204) 27
Net amortization 15 73 (161)
------- ------- ------
$ 118 $ 113 $ 98
======= ======= ======
Assumptions used in the accounting were:
1996 1995 1994
---- ---- ----
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, 1996 and 1995, the present
value of the future liability was $751,000 and $726,000 respectively. The
Corporation has funded these plans through the purchase of annuities and
life insurance policies, which have an aggregate cash surrender value of
$803,000 and $763,000 at December 31, 1996 and 1995 respectively. For the
years ended December 31, 1996, 1995 and 1994, $58,000, $47,000 and $78,000
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, 1996 and 1995, the present value of the future
liability was $1,092,000 and $1,024,000 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 $797,000 and $320,000 at December 31, 1996
and 1995, respectively. For the years ended December 31, 1996, 1995 and
1994, $183,000, $223,000 and $199,000 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
EMPLOYEE BENEFITS (CONTINUED)
Employee Stock Purchase Plan:
In 1996, the Corporation established an Employee Stock Purchase Plan.
Under the plan, employees through payroll deductions, are able to purchase
shares of stock annually, beginning July 1, 1997. The option price of the
stock purchases shall be between 85% and 100% of the fair market value of
the stock on the purchase date as determined annually by the Board
Directors. The maximum number of shares which employees may purchase under
the Plan is 100,000; however, the annual issuance of shares shall not exceed
5,000 shares plus any unissued shares from prior offerings.
INCOME TAXES
The provision for federal income taxes consisted of the following:
Years Ended December 31,
------------------------
1996 1995 1994
------- ------- -------
(In Thousands)
Current $ 837 $ 854 $ 831
Deferred (56) (74) (40)
------- ------- -------
$ 781 $ 780 $ 791
======= ======= =======
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,
------------------------
1996 1995 1994
------- ------- -------
(In Thousands)
Federal income tax at statutory rate $1,205 $1,170 $1,137
Tax-exempt interest (446) (434) (469)
Disallowance of interest expense 70 62 57
Other (48) (18) 66
------- ------- -------
$ 781 $ 780 $ 791
======= ======= =======
The income tax provision includes $-0- in 1996, $-0- in 1995 and $(2,000) in
1994 of income tax related to investment security losses.
The net deferred tax asset in the accompanying balance sheets includes the
following amounts of deferred tax assets and liabilities:
December 31,
1996 1995
------- -------
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 586 $ 555
Deferred directors' fees 367 344
Pension liabilities 343 329
Other 16 29
------- -------
1,312 1,257
Valuation allowance (53) (53)
------- -------
Total deferred tax assets, net of valuation allowance 1,259 1,204
------- -------
Deferred tax liabilities:
Bank premises and equipment (54) (55)
Unrealized appreciation on securities available for sale (112) (131)
------- -------
Total deferred tax liabilities (166) (186)
------- -------
Net deferred tax asset $1,093 $1,018
======= =======
-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, 1996 and 1995, these
persons were indebted to the Bank for loans totaling $1,996,000 and $1,376,000
respectively. During 1996, loans totaling $5,024,000 were disbursed and loan
repayments totaled $4,598,000. Other changes caused the December 31, 1995
balance of the loans outstanding to increase by $194,000.
COMMITMENTS
The Bank rents equipment under operating leases that expire through 2000.
Equipment and servicing fees were $378,000, $368,000 and $377,000 for the years
ended December 31, 1996, 1995 and 1994 respectively. Additionally the Bank
leases a branch office building for which rent expense was $27,000 in 1996 and
$26,000 in 1995 and 1994.
Minimum future payments under all noncancellable lease agreements as of December
31, 1996 are (in thousands):
1997 $195
1998 65
1999 39
2000 40
2001 30
Thereafter 30
----
$399
====
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,
1996 1995
---- ----
(In Thousands)
Commitments to extend credit $14,715 $14,822
Outstanding letters of credit 293 334
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.
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.
- -40-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgement in estimating the fair value of the
Corporation's financial instruments; however, there are inherent weaknesses in
any estimation technique. Therefore, the fair value estimates herein are not
necessarily indicative of the amounts the Corporation could have realized in a
sales transaction on the dates indicated. The estimated fair value amounts have
been measured as of their respective year ends and have not been re-evaluated or
updated for purposes of these consolidated financial statements subsequent to
those respective dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than
the amounts reported at each year end.
The following information should not be interpreted as an estimate of the fair
value of the entire corporation since a fair value calculations is only provided
for a limited portion of the Corporation's assets. Due to a wide range of
valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Corporation's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were used
to estimate the fair values of the Bank's financial instruments at December 31,
1996 and 1995:
. For cash, cash equivalents, interest-bearing demand deposits in other banks
and federal funds sold, 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.
. For accrued interest receivable and accrued interest payable, the carrying
amount is a reasonable estimate of fair value.
. Fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account market
interest rates, the remaining terms and present credit worthiness of the
counterparties. The fair value of guarantees and letters of credit is based on
fees currently charged for similar agreements.
The estimated fair values of the Corporation's financial instruments were as
follows:
December 31,
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In Thousands)
Financial assets:
Cash and due from banks $5,857 $5,857 $ 6,578 $ 6,578
Interest-bearing deposits in other banks 65 65 15 15
Federal funds sold 3,100 3,100 5,080 5,080
Securities 70,499 70,524 67,176 67,575
Loans receivable, net of allowance 126,439 126,197 121,322 120,855
Accrued interest receivable 1,525 1,525 1,531 1,531
Financial liabilities:
Deposits 182,455 183,199 178,153 179,049
Accrued interest payable 696 696 670 670
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,
------------
1996 1995
---- ----
(In Thousands)
ASSETS
Cash $ 103 -
Investment in Bank subsidiary 26,441 24,567
Securities available for sale 235 157
Due from Bank subsidiary 15 33
------- -------
$26,794 $24,757
======= =======
LIABILITY AND STOCKHOLDERS' EQUITY
LIABILITY, other $ 31 $ 34
STOCKHOLDERS' EQUITY 26,763 24,723
------- -------
$26,794 $24,757
======= =======
STATEMENTS OF INCOME
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
Dividends from Bank subsidiary $ 856 $ 807 $ 870
Other dividend income 5 4 -
Other expenses (42) (15) (10)
------- ------- -------
Income before equity in undistributed net income of
subsidiary and income taxes 819 796 860
Equity in undistributed net income of Bank subsidiary 1,945 1,864 1,693
------- ------- -------
Net income $2,764 $2,660 $2,553
======= ======= =======
- -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,
------------------------
1996 1995 1994
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,764 $2,660 $2,553
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed net income of Bank subsidiary (1,945) (1,864) (1,693)
Non-cash dividends received from Bank subsidiary - - (98)
(Increase) decrease in due from subsidiary 18 (8) (2)
------ ------ ------
Net cash provided by operating activities 837 788 760
------ ------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of available for sale securities (47) - -
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid and cash paid in lieu of fractional shares (836) (788) (760)
Stock issued under dividend reinvestment plan 149 - -
------ ------ ------
Net cash used in financing activities (687) (788) (760)
------ ------ ------
Increase in cash 103 - -
Cash:
Beginning - - -
------ ------ ------
Ending $ 103 - -
====== ====== ======
-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-