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 June 30, 1999
---------------------------------
[ ] 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.
- ----------------------------------------------------------------
(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 June 30, 1999
- ------------------------- ------------------------------------
Common Stock ($1.00 par value) 2,295,701 shares
2.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS
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ASSETS
------
June 30, December 31,
1999 1998
---------- -----------
(In thousands)
(Unaudited)
Cash and due from banks $ 8,748 $ 12,284
Interest-bearing deposits with banks 693 619
Federal funds sold 3,400 7,825
--------- ----------
Total cash and cash equivalents 12,841 20,728
Securities available for sale 46,398 54,720
Securities held to maturity, fair value
$74,753 and $69,444 respectively 75,742 68,785
Loans receivable net of allowance for loan
losses $2,489 and $2,477, respectively 194,265 189,485
Bank premises and equipment, net 2,818 2,876
Accrued interest receivable and other assets 8,056 7,263
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TOTAL ASSETS $ 340,120 $ 343,857
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Liabilities:
Deposits:
Non-interest bearing deposits $ 34,473 $ 36,114
Interest bearing deposits 256,988 257,776
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Total deposits 291,461 293,890
Accrued interest payable
and other liabilities 4,184 3,987
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Total liabilities 295,645 297,877
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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 2,332,083 2,332 2,332
Surplus 20,572 20,580
Retained earnings 22,367 22,322
Treasury stock, at cost 1999 36,382 shares;
1998 1,938 shares (1,312) (70)
Accumulated other comprehensive income 516 816
--------- ----------
Total stockholders' equity 44,475 45,980
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 340,120 $ 343,857
========= ==========
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY 3.
---------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
For the Quarter Ended For Six Months Ended
---------------------- --------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
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(In thousands, except per share amount)
INTEREST INCOME:
Loans receivable $ 4,272 $ 4,424 $ 8,464 $ 8,764
Taxable securities 1,085 1,293 2,214 2,591
Tax-exempt securities 563 380 1,102 735
Other 105 206 223 377
---------- ---------- ---------- ---------
Total interest income 6,025 6,303 12,003 12,467
INTEREST EXPENSE ON DEPOSITS 2,849 3,041 5,727 6,018
---------- ---------- ---------- ---------
Net interest income 3,176 3,262 6,276 6,449
PROVISION FOR LOAN LOSSES 30 45 60 90
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Net interest income, after
provision for loan losses 3,146 3,217 6,216 6,359
---------- ---------- ---------- ---------
OTHER INCOME:
Trust department 100 69 170 133
Customer service fees 91 102 182 200
Net realized gains on
sales of securities - 4 - 4
Other 116 87 232 153
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Total other income 307 262 584 490
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OTHER EXPENSES:
Salaries and wages 918 840 1,832 1,613
Employee benefits 277 263 539 496
Occupancy 139 176 256 269
Equipment 229 150 453 350
Federal deposit insurance 8 7 20 17
Director compensation 71 53 142 112
Taxes, other than income 112 67 211 256
Other 261 287 600 593
---------- ---------- ---------- ---------
Total other expenses 2,015 1,843 4,053 3,706
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INCOME BEFORE INCOME TAXES 1,438 1,636 2,747 3,143
FEDERAL INCOME TAXES 357 393 669 770
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Net income $ 1,081 $ 1,243 $ 2,078 $ 2,373
========== ========== ========== ==========
PER SHARE DATA:
Basic earnings $ .47 $ .54 $ .90 $ 1.02
========== ========== ========== ==========
Weighted average number of
shares outstanding 2,300,928 2,319,137 2,314,203 2,318,169
========= ========= ========= =========
4.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
Accumulated
Other
Common Retained Treasury Comprehensive
Stock Surplus Earnings Stock Income Total
------ ------- -------- -------- ---------- -----
(In thousands)
Balance,
December 31,
1998 $ 2,332 $ 20,580 $ 22,322 $ (70) $ 816 $ 45,980
--------
Net income for
the six
months ended
June 30, 1999 - - 2,078 - - 2,078
Change in
unrealized
gains (losses)
on securities
available for
sale, net of
reclassification
adjustment and
tax effects - - - - (300) (300)
--------
Total Comprehensive Income 1,778
--------
Treasury stock
acquired - - - (1,500) - (1,500)
Treasury stock issued
for dividend reinvestment
plan (6,277 shares) - (8) - 230 - 222
Treasury stock issued
for employee stock purchase
plan (753 shares) - - - 28 - 28
Cash dividends,
$.88 per share - - (2,033) - - (2,033)
------ -------- ------- ------- ------- -------
Balance June
30, 1999 $ 2,332 $ 20,572 $ 22,367 $(1,312) $ 516 $ 44,475
======= ======== ======== ======= ======= ========
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 Six Months Ended
-------------------------
June 30, June 30,
1999 1998
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,078 $ 2,373
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 60 90
Provision for depreciation 139 133
Net amortization on securities' premium 73 128
Net realized gains on sales of securities - (4)
Deferred directors' fees and supplemental
retirement plan expense 84 89
Payment of deferred compensation (83) (74)
Deferred income taxes (48) (53)
Increase in accrued interest
receivable and other assets (490) (303)
Increase (decrease) in accrued interest payable
and other liabilities 87 (257)
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Net cash provided by operating activities 1,900 2,122
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (415) (10,863)
Proceeds from sales of available for sale securities - 407
Proceeds from maturities of and principal
repayments on available for sale securities 8,294 13,019
Purchases of held to maturity securities (13,973) (14,193)
Proceeds from maturities of and principal
repayments on held to maturity securities 6,932 4,079
Net (decrease) in loans receivable (4,840) (773)
Net purchases of bank premises and equipment (81) (145)
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Net cash used in investing activities (4,083) (8,469)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (2,429) 10,247
Cash dividends (2,033) (790)
Purchase of treasury stock (1,500) -
Treasury stock issued 258 254
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Net cash provided (used) by financing activties (5,704) 9,711
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Increase (decrease) in cash and
cash equivalents (7,887) 3,364
CASH AND CASH EQUIVALENTS
Beginning 20,728 17,667
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Ending $ 12,841 $ 21,031
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CASH PAYMENTS FOR
Interest $ 5,708 $ 5,697
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Income taxes $ 724 $ 795
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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
six-month period ended June 30, 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. Statement
No. 133 was amended by Statement No. 137 which deferred the effective date of
Statement No. 133. The Corporation is required to adopt the Statement no later
than January 1, 2001. 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 was completed by June 30, 1999.
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
$45,000 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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Forward Looking Statements:
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Those risks and
uncertainties include changes in interest rates, risks associated with the
effect of opening a new branch, the ability to control costs and expenses, and
general economic conditions. The Corporation undertakes no obligation to
publicly release the results of any revisions to those forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Financial Condition:
Total assets of Juniata Valley Financial Corp. reached $340,120,000 as of June
30, 1999, a decrease of $3,737,000 or 1.09% from December 31, 1998. The cash
provided by operating activities of $1,900,000 was used to fund loan growth of
$4,840,000. Loan growth was also funded by the overall decline in cash and
cash equivalents of $7,887,000. Securities proceeds exceeded purchases by
$838,000 which provided cash and updating premise and equipment used $81,000 of
cash. The Bank experienced a decline in deposits of $2,429,000. Along with an
$.88 per share dividend and the $1,500,000 to buy treasury stock the Bank had a
decline of $5,704,000 in financing activities.
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.
Results of operations:
Interest income decreased $278,000 or 4.41% for the quarter ended June 30, 1999
and $464,000 for six months. The decline came from the $300,000 less in
interest income on loans receivable. Interest income on taxable securities
declined by $377,000 but interest income on tax free securities increased by
$367,000. The decline in other interest income was due to less money in
federal funds sold. Interest expense decreased $192,000 or 6.31% for the
quarter and $291,000 or 4.84% for six months. Interest income and expense for
the first six months ended June 30, 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 $173,000 or 2.68% for the six months ended
June 30, 1999.
Other income has increased $45,000 or 17.18% for the quarter in 1999 over 1998
and $94,000 or 19.18% for six months. Trust department income has increased
$37,000 and other income has increased $79,000. The increase in trust
department income is a result of the settlement of five estates in 1999.
The other category increase can be attributed to an increase in mutual fund
commissions of $29,000; a $20,000 increase in the fee from credit life and
disability insurance on consumer loans; and a $10,000 increase in fees earned
on debit card resulting from higher transaction volume.
Other expenses increased $347,000 or 9.36% for the six months ended June 30,
1999 and $172,000 or 9.33% for the quarter. The $219,000 increase in salary
and wages for the six months ended June 30, 1999, compared to 1998, can be
attributed to annual merit increases and promotions of employees. The $43,000
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
$103,000 increase in equipment cost is due to increased equipment needs and
maintenance after the merger between Lewistown Trust and the Corporation was
consummated. The $45,000 decrease in taxes is due to Lewistown Trust's
recording of Pennsylvania Shares tax in its entirety when paid in 1998.
All of these factors combined have contributed to an decrease in net income of
$295,000 or 12.43% for the six months ended June 30, 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.
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 June 30, 1999, the Corporation had a six-month negative gap of
$8,864,000. 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
June 30, December 31,
June 30, December 31,
1999 1998 1999 1998
TIER I 21.07%
21.16% 4.0% 4.0%
TIER I & II 22.24%
22.36% 8.0% 8.0%
Total Assets Leveraged Ratio:
TIER I 13.14%
13.12% 4.0% 4.0%
At June 30, 1999, 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
(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