UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
For the quarterly period ended March 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 2-81699
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Juniata Valley Financial Corp.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2235254
- ------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bridge and Main Streets, Mifflintown, Pennsylvania 17059
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(Address of principal executive offices) (Zip Code)
(717) 436-8211
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding as of March 31, 1999
- ------------------------- ------------------------------------
Common Stock ($1.00 par value) 2,319,855 shares
2.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS
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ASSETS
------
March 31, December 31,
1999 1998
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(In Thousands)
(Unaudited)
Cash and due from banks $ 8,778 $ 12,284
Interest-bearing deposits with banks 689 619
Federal funds sold 6,100 7,825
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Total cash and cash equivalents 15,567 20,728
Securities available for sale 50,530 54,720
Securities held to maturity, fair value
$76,160 and $69,444 respectively 75,566 68,785
Loans receivable net of allowance for loan
losses $2,501 and $2,477, respectively 188,843 189,485
Bank premises and equipment, net 2,838 2,876
Accrued interest receivable and other assets 7,903 7,263
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TOTAL ASSETS $ 341,247 $ 343,857
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LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Liabilities:
Deposits:
Non-interest bearing deposits $ 35,281 $ 36,114
Interest bearing deposits 255,099 357,776
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Total deposits 290,380 293,890
Accrued interest payable
and other liabilities 4,364 3,987
Dividend Payable 1,160 -
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Total liabilities 295,904 297,877
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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 20,000,000 shares;
issued 2,332,086 2,332 2,332
Surplus 20,580 20,580
Retained earnings 22,160 22,322
Treasury stock, at cost 1999 12,229 shares;
1998 1,938 shares (449) (70)
Accumulated other comprehensive income 720 816
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Total stockholders' equity 45,343 45,980
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 341,247 $ 343,857
========= ==========
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY 3.
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
For the Quarter Ended
----------------------
March 31, March 31,
1999 1998
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(In Thousands, except
Per Share Amounts)
Interest income:
Loans receivable, including fees $ 4,192 $ 4,341
Taxable securities 1,128 1,297
Tax-exempt securities 539 355
Other 118 171
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Total interest income 5,977 6,164
Interest expense on deposits 2,877 2,977
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Net interest income 3,100 3,187
Provision for loan losses 30 45
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Net interest income after
provision for loan losses 3,070 3,142
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Other income:
Trust department 70 64
Customer service fees 116 98
Other 91 66
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Total other income 277 228
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Other expenses:
Salaries and wages 913 772
Employee benefits 262 232
Occupancy 118 93
Equipment 223 200
Federal deposit insurance premiums 11 10
Director compensation 71 59
Taxes, other than income 99 189
Other 340 307
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Total other expenses 2,037 1,862
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Income before income taxes 1,310 1,508
Federal income taxes 312 377
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Net income $ 998 $ 1,131
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Basic earnsings per share .43 .49
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Weighted average number of
shares outstanding 2,327,626 2,317,191
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4.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
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FOR THE THREE MONTHS ENDED MARCH 31, 1999
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(Unaudited)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Surplus Earnings Stock Income Total
------ ------- -------- -------- ---------- -----
(In thousands)
BALANCE,
DECEMBER 31,
1999 $ 2,332 $ 20,580 $ 22,322 $ (70) $ 816 $ 45,980
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Net income for
the three
months ended
March 31, 1999 - - 998 - - 998
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
reclassification
adjustment and
tax effects - - - - (96) (96)
--------
Total Comprehensive Income 902
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Cash dividends,
$.50 per share (1,160) (1,160)
Treasury stock
acquired - - - (379) - (379)
------- -------- -------- ------- ------- -------
Balance March
31, 1999 $ 2,332 $ 20,580 $ 22,160 $ (449) $ 720 $ 45,343
======= ======== ======== ======= ======= ========
5.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended
-------------------------
March 31, March 31,
1999 1998
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 998 $ 1,131
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 30 45
Provision for depreciation 70 66
Net amortization on premiums of securities 79 60
Deferred directors' fees and supplemental
retirement plan expense 77 38
Payment of deferred compensation (30) (30)
Deferred income taxes (38) (36)
Increase (decrease) in accrued interest
receivable and other assets 488 (469)
Increase in accrued interest payable
and other liabilities 401 73
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Net cash provided by operating activities 2,075 878
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities - (2,493)
Proceeds from maturities of and principal
repayments on available for sale securities 4,023 5,029
Purchases of held to maturity securities (11,973) (5,307)
Proceeds from maturities of and principal
repayments on held to maturity securities 5,153 1,647
Net (decrease) in loans receivable 642 131
Net purchases of bank premises and equipment (32) (53)
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Net cash used in investing activities (2,187) (1,046)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (3,510) 7,110
Cash dividends (1,160) -
Purchase of treasury stock (379) -
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Net cash provided (used) by financing activties (5,049) 7,110
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Increase (decrease) in cash and
cash equivalents (5,161) 6,942
CASH AND CASH EQUIVALENTS
Beginning 20,728 17,666
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Ending $ 15,567 $ 24,608
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CASH PAYMENTS FOR
Interest $ 2,873 $ 2,968
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6.
NOTE A - Basis of Presentation
The financial information includes the accounts of the Juniata Valley Financial
Corp. and its wholly owned subsidiary, The Juniata Valley Bank. All
significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for fair presentation have been included. Operating results for the
three-month period ended March 31, 1999, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Juniata Valley Financial Corp. annual report on Form 10-k
for the year ended December 31, 1998.
NOTE B - Accounting Standards
The Financial Accounting Standards Board issued Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities", in June 1998. The
Corporation is required to adopt the Statement on January 1, 2000. The
adoption of the Statement is not expected to have a significant impact on the
financial condition or results of operations of the Corporation.
NOTE C - Year 2000
The Corporation has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the year 2000 issue and is
developing an implementation plan to resolve any issues. The year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Corporation's programs that
have time-sensitive software could recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure.
Financial institutions are in a unique situation in that time-deposits and
loans, for a number of years have had maturity dates in to the future well
beyond the year 2000.
The year 2000 is discussed weekly by senior management and monthly at Board of
Director meetings. The Chairman and C.E.O. has been named as the person
responsible for the year 2000. Currently the Corporation is in the testing
phase of year 2000 and to date there have been no problems encountered that any
remediation is necessary. The testing will be completed by the
June 1999 deadline. Most of the testing was completed by December 31, 1998.
7.
The Corporation uses two major software vendors for data processing. Letters
of certification have been obtained assuring that they will be year 2000
compliant in 1998 and testing commenced in the fall of 1998. The vendors are
still on target with these dates. The Federal Financial Institutions
Examination Council have conducted special examinations to make sure that the
software vendors are doing everything necessary to be in compliance with the
year 2000 guidelines. The results of these examinations have been released to
the Corporation for review.
Because of the data processing being outsourced, the cost of the year 2000
compliance will be shared with the two data processing vendors. Because of the
merger in July it is very difficult to separate equipment costs for the merger
and the cost of what was necessary for the year 2000. To date approximately
$35,000 has been expended that can be attributed to year 2000. This does not
include personnel cost for the ongoing testing. Approximately $70,000 to
$80,000 may be needed for future remediation costs. Management does not feel
this cost will materially impact the results of operations of the Corporation
in 1999.
Another important area is the Corporation's PC network. Testing has been
performed on all PC's and the software to ensure that they are year 2000
compliant. The PC and software was tested by a third party to make
recommendations for upgrading or replacing. This process was completed in June
of 1998 and all additional purchases of equipment and software are validated
for year 2000 so that reinfection will not occur.
The Corporation has many customers and through the use of questionnaires the
larger loan customers are being assessed for their potential year 2000 risk.
No individual customer could materially impact the financial position of the
Corporation, however the credit risk could be increased if these customers are
not addressing their year 2000 problems. As a result, problem loans and losses
could increase in the following years of operation for the Corporation. Due to
uncertainties involved, it is not possible to quantify potential losses due to
year 2000 at this time.
A contingency plan to provide financial services to customers will be provided
to the Corporation through the software vendors currently used. A switch to
other systems could be accomplished with little to no impact to customers.
Managements believes they would continue to operate in the year 2000 manually
if necessary until the new systems would be in place. The manual operation
would be accomplished through hiring of temporary staff until normal operations
could resume. The hiring of additional staff would impact the financial
results but cannot be quantified at
this time. The cost of switching to the new system also cannot be quantified
at this time.
8.
Management believes that adequate resources are available to fund and address
the year 2000 issue. Management also believes that the costs associated with
bringing the Corporation into compliance will not have a material impact on the
Corporation's financial results. However, with all remediation, testing and
contingency plans there is no guarantee that these steps will fully expose all
failures and problems. In additional, the Corporation relies on various third
party providers, such as telecommunications and utility companies, where
alternative sources or arrangements are limited or unavailable. While the
Corporation continues to address year 2000 issues potential uncertainties
remain.
9.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition:
Total assets of Juniata Valley Financial Corp. reached $341,247,000 as of March
31, a decrease of $2,610,000 or .76% from December 31, 1998. The cash provided
by operating activities of $2,075,000 were used to purchase securities which
exceeded proceeds by $2,797,000. During the first quarter of 1999 the Bank
experienced a decrease in loan demand which declined by $642,000. Updating
premise and equipment used $32,000. The Bank also experienced a decline in
deposits of $3,510,000. Along with the special $.50 dividend and the $379,000
to buy treasury stock the Bank had a decline of $5,161,000 in cash and cash
equivalents to fund this activity.
There are no material loans classified for regulatory purposes as loss,
doubtful, substandard or special mention which management expects to
significantly impact future operating results, liquidity or capital resources.
Additionally, management is not aware of any information which would give
serious doubt as to the ability of its borrowers to substantially comply with
their loan repayment terms. The Corporation's problem loans (i.e., 90 days
past due and restructured loans) were not material for all periods presented.
Management is not aware of any current recommendations of the regulatory
authorities which, if implemented, would have a
material effect on the Corporation's liquidity, capital resources or
operations.
A dividend reinvestment plan for stockholders was instituted on January 1,
1996. The Corporation pays dividends semi-annually on June 1 and December 1 of
every year. Under the plan additional shares of Juniata Valley Financial Corp
may be purchased at market value with reinvested dividends and voluntary cash
payments. The Corporation has reserved 100,000 shares of common stock for this
plan. In 1996, 4,087 shares were issued and 95,913 remain unissued. For the
June 1, and December 1, 1997, dividend pay dates all shares to satisfy the
dividend reinvestment plan were purchased on the open market. For the June 1,
1998, dividend pay date 4,571 shares of treasury stock was issued. For the
December 1, 1998, dividend pay date 5,892 shares were issued from treasury
stock.
An employee stock purchase plan was approved by stockholders on April 16, 1996.
The first plan year began on July 1, 1996, and ended June 30, 1997. There were
62 out of 89 eligible employees that participated in the second plan year. On
June 15, 1997, 3,600 shares were issued. The Corporation has reserved 100,000
shares of common stock for this plan. After the issuance on June 15, 1997,
there are 94,400 shares remaining to be issued. On
10.
June 15, 1998, 2,497 shares of treasury stock was issued for the second
employee stock purchase plan year.
Results of operations:
Interest income decreased $187,000 or 3.03% for the quarter ended March 31,
1999. Interest expense decreased $100,000 or 3.36% for the quarter. Interest
income and expense for the first three months ended March 31, 1999, versus
1998, are reflective of a decrease of both interest earning assets and interest
bearing liabilities and overall lower rates offered and paid in 1999 versus
1998. This resulted in a decrease in net interest income of $87,000 or 2.73%
for the three months ended March 31, 1999.
Other income has increased $49,000 or 21.49% for the quarter in 1999 over 1998.
Trust department income has increased $6,000 and customer service fees have
increased $18,000. This is a result of higher volumes of transactions for
customers and not as a result of higher fees. The other category has increased
$25,000 in 1999 over 1998. This can be attributed to an increased in mutual
fund commissions of $9,000; a $12,000 increase in the fee from credit life and
disability insurance on consumer loans; and a $4,000 increase in fees earned on
debit card resulting from higher transactions.
Other expenses increased $175,000 or 9.40% for the three months ended March 31,
1999. The $141,000 increase in salary and wages for the quarter ended March
31, 1999, compared to 1998, can be attributed to annual merit increases and
promotions of employees. The $30,000 increase in employee benefits is
primarily due to a keyman pension plan in place for 10 years that required
additional funding as employees age. The $23,000 increase equipment cost is
due to increased equipment needs and maintenance after the merger. The $90,000
decrease in taxes is due to Lewistown Trust's booking of Pennsylvania Shares
tax when paid versus allocating the expense monthly.
All of these factors combined have contributed to an decrease in net income of
$133,000 or 11.76% for the three months ended March 31, 1999.
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 the primary goal of the Corporation to maintain a high level
of liquidity in all economic environments.
11.
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. Liability liquidity, which is more difficult to measure,
can be met by attracting deposits and maintaining the core deposit base. 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.
In view of the primary and secondary sources previously mentioned, Management
believes that the Corporation's liquidity is capable of providing the funds
needed to meet loan demand.
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.
As of September 30, 1998, the Corporation had a three-month negative gap of
$8,324,000. 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 interest rates could negatively affect net interest income. However,
the 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.
Capital Adequacy:
The Bank's regulatory capital ratios for the periods presented are as follows:
Risk Weighted Assets Ratio:
Actual Required
March 31, December 31, March 31, December 31,
1999 1998 1999 1998
TIER I 21.24% 21.16% 4.0% 4.0%
TIER I & II 22.43% 22.36% 8.0% 8.0%
12.
Total Assets Leveraged Ratio:
TIER I 13.08% 13.12% 4.0% 4.0%
At September 30, 1998, the Corporation exceeds the regulatory requirements
to be considered a "well capitalized" financial institution.
Quantitative and Qualitative Disclosures About Market Risk:
There have been no material changes in the Corporation's exposure to market
risk. Please refer to the Annual Report on Form 10-k as of December 31,
1998.
13.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Form 8-K was filed on February 23, 1999, concerning the $.50
cash dividend and repurchase of 5% of Juniata Valley Financial
Corp. outstanding shares of common stock.
(27) Financial Data Schedule
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Juniata Valley Financial Corp.
(Registrant)
Date_______________________________ By_______________________________
A. Jerome Cook, Chairman
Date_______________________________ By_______________________________
Linda L. Engle, Treasurer