UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000 Commission File Number 0-13232
JUNIATA VALLEY FINANCIAL CORP.
------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2235254
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Bridge & Main Streets, PO Box 66, Mifflintown, PA 17059-0066
------------------------------------------------------------
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 436-8211
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, Par Value $1.00 Per Share
---------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of January 31, 2001.
Common Stock, $1.00 Par Value - $54,475,562
-------------------------------------------
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of January 31, 2001.
Common Stock, $1.00 Par Value 2,157,448
---------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the year ended December 31,
2000, are incorporated by reference into Parts I, II and III.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held April 17, 2001, are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Incorporated by reference are the data appearing on Pages 7 through
14 of the 2000 Annual Report.
ITEM 2. PROPERTIES
The physical properties of the Corporation are all owned or
leased by the Bank.
The Bank owns the buildings located at: Bridge and Main Streets,
Mifflintown, Pennsylvania (its corporate headquarters); Butcher Shop
Road, Mifflintown, Pennsylvania (financial center); 301 Market
Street, Port Royal, Pennsylvania; corner of Main and School Streets,
McAlisterville, Pennsylvania; Four North Market Street, Millerstown,
Pennsylvania; Main Street, Blairs Mills, Pennsylvania; Monument
Square, Lewistown, Pennsylvania; Route 322 Reedsville, Pennsylvania;
100 East Market Street, Lewistown, Pennsylvania; 100 West Water
Street, Lewistown, Pennsylvania; 302 South Logan Boulevard, Burnham,
Pennsylvania. In addition thereto, the Bank leases two offices. One,
in the Shopping Plaza located on Legislative Route 31, Mifflintown,
Pennsylvania, which lease with extension expires in 2007. The second
one is located in the Wal-Mart Supercenter, Lewistown, Pennsylvania,
which expires in October 2001. All of the buildings used by the Bank
are freestanding and are used exclusively for banking purposes.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Corporation's and Bank's business, at times,
generates litigation involving matters arising in the ordinary
course of business. However, in the opinion of management of the
Corporation, there are no proceedings pending to which the Bank is a
party or to which its property is subject, which, if determined
adversely to the Bank, would be material in relation to the Bank's
financial condition, nor are there any proceedings pending other
than ordinary routine litigation incident to the business of the
Bank. In addition, no material proceedings are pending or are known
to be threatened or contemplated against the Bank by government
authorities or others.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Incorporated by reference are the data appearing on page 2 of the
2000 Annual report.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference are the data appearing on Page 16 of the
2000 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference are the data appearing on Pages 17 through
32 of the 2000 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference are the data under the caption "Market
Rate Risk" appearing on Pages 27 through 30 of the 2000 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Icorporated by reference are the financial statements and notes on
Pages 33 through 53 of the 2000 Annual Report and the Quarterly
Results of Operations on Page 15 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference is information appearing under the
captions "Election of Directors of JVF" and "Remuneration of
Executive Officers" in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference in the proxy statement under the caption
"Remuneration of Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference is the following information contained in
the Proxy Statement filed under the captions "Election of Directors
of JVF" and "Management of JVF and the Bank".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the information pertaining to
transactions with directors and officers of the Bank within the
footnote "Transactions with Executive Officers and Directors: on
Page 49 of the 2000 Annual Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Consolidated Financial Statements of Juniata
Valley Financial Corp., as included in the 2000
Annual Report to Shareholders, are incorporated in
this report by reference.
2. All schedules are omitted because they are not
applicable, the data is not significant, or the
required information is shown in the financial
statements or the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
(13) Annual Report to Shareholders
(21) Subsidiaries of the Registrant - As of the date of
this report Juniata Valley Bank is the only
subsidiary of the Registrant.
(23) Consent of Beard Miller Company L.L.P., Independent
Auditors
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: March 15, 2001
By _____________________________
Francis J. Evanitsky
Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
------------------------- -------------------------
Ronald H. Witherite Joe E. Benner
Vice Chairman, Secretary Director
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
Jan G. Snedeker A. Jerome Cook
Director Chairman
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
Don E. Haubert Martin L. Dreibelbis
Director Director
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
John A. Renninger Dale G. Nace
Director Director
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
Francis J. Evanitsky Harold B. Shearer
President Director
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
Philip E. Gingrich Jr. Charles L. Hershberger
Director Director
Date: March 15, 2001 March 15, 2001
------------------------- -------------------------
Marshall L. Hartman Robert K. Metz, Jr.
Director Director
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
Timothy I. Havice Richard M. Scanlon, DMD
Director Director
Date: March 15, 2001 Date: March 15, 2001
------------------------- -------------------------
John M. Wilson Linda L. Engle
Director Chief Financial Officer
Date: March 15, 2001 Chief Accounting Officer
March 15, 2001
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
DECEMBER 31, 2000
MISSION STATEMENT
The Juniata Valley Bank, as an independent community bank, will endeavor to
identify customers' financial needs and exceed their expectations in delivering
quality products and services at a fair price to assure shareholders an above
average return and employees competitive salaries and benefits. The business of
the bank will be conducted with integrity and responsiveness to the communities
served.
CONTENTS
Page
Stock, Dividend and Broker Information---------------------------------------- 2
Letter to Shareholders-------------------------------------------------------- 3
Corporation Officers and Directors-------------------------------------------- 4
Advisory Board Members-------------------------------------------------------- 5
Bank Officers----------------------------------------------------------------- 6
Business----------------------------------------------------------------- 7 - 15
Financial Highlights--------------------------------------------------------- 16
Management's Discussion and Analysis of Financial Condition and
Results of Operations--------------------------------------------- 17 - 32
Report of Independent Auditors----------------------------------------------- 33
Financial Statements:
Consolidated Balance Sheets--------------------------------------------- 34
Consolidated Statements of Income--------------------------------------- 35
Consolidated Statements of Stockholders' Equity------------------------- 36
Consolidated Statements of Cash Flows----------------------------------- 37
Notes to Consolidated Financial Statements------------------------- 38 - 53
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 2000 and 1999 are provided in the
table below.
2000 1999
---- ----
Dividends Dividends
Quarter High Low per share Quarter High Low per share
- ------- ---- --- --------- ------- ---- --- ---------
First $33.00 $31.25 .50 First $37.50 $35.25 .50
Second 31.25 27.50 .41 Second 35.25 34.75 .38
Third 27.50 26.00 Third 34.75 34.50
Fourth 26.00 25.00 .42 Fourth 34.50 33.00 .40
For further information, we refer you to:
Ferris Baker Watts, Inc. F.J. Morrissey & Co., Inc.
100 Light Street 1700 Market St., Suite 1420
Baltimore, MD 21202 Philadelphia, PA 19103-3913
(800) 638-7411 (800) 842-8928
Ryan, Beck & Co.
150 Monument Road, Suite 106
Bala Cynwyd, PA 19004
(800) 223-8969
Janney, Montgomery, Scott, Inc. Sandler O'Neil & Partners, L.P.
48 E. Market St., P.O. Box 2246 Two World Trade Center 104th Floor
York, PA 17405-2246 New York, NY 10048
(717) 845-5611 (800) 635-6851
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
DIVIDEND DIRECT DEPOSIT PROGRAM
Juniata Valley Financial Corp. now offers a dividend direct deposit program
whereby shareholders with registered stock in their own names may choose to have
their dividends deposited directly into the bank account of their choice on
dividend payment date. Information concerning this optional program is available
by calling (717) 436-8211 or writing to:
Ms. Linda L. Engle
Juniata Valley Financial Corp.
P.O. Box 66
Mifflintown, PA 17059
- -2-
[LOGO]
JUNIATA VALLEY
FINANCIAL CORP.
-------------------------------
MIFFLINTOWN, PENNSYLVANIA 17059
-------------------------------
POST OFFICE BOX 66
TELEPHONE (717) 436-8211
To Our Shareholders,
The year 2000 indeed was a challenging and exciting year for the Juniata
Valley Financial Corp. A year filled with challenges, opportunities and change.
In May we celebrated the grand reopening of our remodeled and expanded
Burnham Office. The branch now features two drive-up window lanes, as well as a
drive-up ATM. This facility now affords our customers significantly improved
ease of access, while improving on our already high level of customer service.
The month of June was an exciting month for your bank as we implemented and
very successfully introduced our state-of-the-art Internet banking program. This
program allows ease of banking activities for individuals as well as business
customers from the convenience of your home or office. In addition to normal
banking activities our system offers an efficient and highly regarded bill
payment feature. For more information regarding The Juniata Valley Bank, our
products and services, please visit our website at www.jvbonline.com.
In December we relocated our proof, bookkeeping and computer areas to our
new center in Mifflintown. This facility provides ample room for these operation
areas, and affords us room for growth. Additionally, it houses a much needed
training facility. This facility will enable us to provide quality training in a
quality environment. As we continue on our journey to become a highly regarded
one stop financial services provider, having trained, qualified, and
understanding employees is paramount.
Two thousand marked improved performance over nineteen ninety-nine for the
Juniata Valley Financial Corp. Net income increased 2.5% to $4,387,000 primarily
as a result of loan growth and expense control. Our net loan growth of 7.6% to
$219,819,000 from $204,336,000 resulted in an increase in net interest income of
$295,000 over 1999. Despite the projects and programs mentioned earlier, non
interest expense only increased $152,000 over 1999, or 1.9%, a very commendable
percentage. Another factor instrumental in our earnings improvement was the
increase in non interest income of $91,000 or 7.04% over 1999.
As a result of this financial improvement, earnings per share increased
from $1.87 per share in 1999 to $1.99 per share in 2000, or 6.4%. Additionally,
return on average assets improved from 1.26% in 1999 to 1.31% in 2000 and return
on average equity improved from 9.61% to 10.42%.
We would like to take this opportunity to thank Edward R. "Dusty" Rhodes
for his years of dedicated service to the bank. Mr. Rhodes retired as a Director
in August, 2000.
We would also like to pay a special thanks to A. Jerome "Jerry" Cook who
retired in September, 2000 after serving as President, CEO for twenty-eight
years. Mr. Cook's thirty-five years of dedication and support to the bank, as
well as his commitment to the community, was greatly appreciated.
As always, we would like to thank you, our shareholders, for your continued
loyalty and support. Further, we want to assure you that the officers, directors
and employees will continue to work diligently to ensure that the Juniata Valley
Financial Corp. continues to be a quality financial institution.
Sincerely,
[SIGNATURE]
Francis J. Evanitsky
President and CEO
-3-
JUNIATA VALLEY FINANCIAL CORP. OFFICERS
A. JEROME COOK RONALD H. WITHERITE
Chairman Vice Chairman, Secretary
FRANCIS J. EVANITSKY LINDA L. ENGLE
President Treasurer
DIRECTORS
JOE E. BENNER ROBERT K. METZ, JR.
Owner, Benner Automotive President, Metz Poultry Farms, Inc.
A. JEROME COOK DALE G. NACE
Chairman, Juniata Valley Financial Corp. Owner, Glenn Nace Plumbing & Heating;
GlenDale Storage
MARTIN L. DREIBELBIS JOHN A. RENNINGER
Self-Employed, Petroleum Consultant President, A. D. Renninger
Lumber Company
FRANCIS J. EVANITSKY RICHARD M. SCANLON, DMD
President & CEO, The Juniata Valley Bank Self-Employed Dentist
PHILIP E. GINGERICH, JR HAROLD B. SHEARER
President, Central Insurers Group, Inc. Self-employed Farmer
MARSHALL L. HARTMAN JAN G. SNEDEKER
Retired President, Lewistown Trust Co. President, Snedeker Oil Co., Inc.
DON E. HAUBERT JOHN M. WILSON
President, Haubert Homes Retired President, Wilson Oil, Co.
TIMOTHY I. HAVICE RONALD H. WITHERITE
Real Estate Developer Owner, Ron's IGA Fruit Market, Inc.
CHARLES L. HERSHBERGER
President, Hoenstine Funeral Homes, Inc.
NOTE: Above Directors also comprise the Board of Directors
for The Juniata Valley Bank
- -4-
ADVISORY BOARD MEMBERS
MILLERSTOWN OFFICE MONUMENT SQUARE/WAL-MART OFFICES
R. Franklin Campbell William H. Bradford
Lowell R. Frantz, C.L.U. William R. Carter
Gregory J. Gordon Lee Ellen Foose
Gerald M. Lyter Sharon Havice
James A. Witmer J. Neal Shawver
Gary G. Wright Harry F. Stimely
Frank A. Zampelli
PORT ROYAL OFFICE GARDENVIEW OFFICE
Kim Bomberger David B. Esh
Richard J. Junk M. Randall French
N. Jeffrey Leonard H. Ross Harshbarger
Dennis A. Long Donald R. Hartzler
Freeburn Love Jerry L. Wagner
McALISTERVILLE OFFICE MARKET STREET/WATER STREET OFFICES
Mark Apple George W. Anderson
Clair Ehrenzeller Catherine J. Laub
Samuel E. Knouse Susan M. McCartney
Joseph D. Ritzman Steve R. Watson
Richard J. Sankey Lou Ann Wilson
BLAIRS MILLS OFFICE BURNHAM OFFICE
Robert G. Allison Mark S. Elsesser
Wayde H. Cisney Daniel B. Firth
William R. Goshorn Leann M. Fisher
C. Roger Searer David E. Walker
Clair L. Yohn
-5-
THE JUNIATA VALLEY BANK OFFICERS
A Wholly-Owned Subsidiary of Juniata Valley Financial Corp.
MIFFLINTOWN OFFICE
Francis J. Evanitsky------------------------------------President & C.E.O
Linda L. Engle----------------------------Executive Vice President, C.O.O
Betty D. Ryan-------------------Vice President & Community Office Manager
Jeffrey A. Pottorff----------Vice President, Auditor & Compliance Officer
Paul M. Lipka-----------------Assistant Vice President, Marketing Officer
Ruth H. Nace------------------------------------------Executive Secretary
ADMINISTRATION
Donald L. Musser .Sr.---------------Vice President, Branch Administration
Pamela S. Eberman------------------Vice President, Human Resource Manager
CONTROLLER
Kristi J. Burdge-----------------------------------------------Controller
Anna Mae Peoples---------------------Vice President, Assistant Controller
LOANS
Edward L. Kauffman----------------Sr. Vice President, Loan Administration
Robert G. Dillon-----------------------------Vice President, Loan Officer
Scott E. Nace--------------------------------Vice President, Loan Officer
David A. Pecht--------------------------Vice President, Mortgage Division
Kurt L. McKinney, Jr.------------------------------------Sr. Loan Officer
R. Jack Morgan-----------------------------------------------Loan Officer
Loretta A. Saylor--------------------------------------------Loan Officer
John B. Zavacky-------------------------------Loan Administration Officer
OPERATIONS
Judy R. Aumiller---------------------------Sr. Vice President, Operations
Kathy D. Hutchinson----------------------------Vice President, Operations
Deborah A. Sheaffer--------------------Vice President, Operations Officer
Sherise Pelizzari------------Assistant Vice President, Operations Manager
TRUST
James C. Dillman------------------------Sr. Vice President, Trust Officer
Cynthia L. Williams-------------------------Vice President, Trust Officer
BLAIRS MILLS OFFICE
C. Roger Searer------------------Vice President, Community Office Manager
Wanda K. Rowles----------------------------------Customer Service Officer
BURNHAM OFFICE
Leann M. Fisher------------------Vice President, Community Office Manager
GARDENVIEW OFFICE
M. Randall French----------------Vice President, Community Office Manager
MARKET STREET OFFICE
Lou Ann Wilson-------------------Vice President, Community Office Manager
Brenda A. Brubaker-------------------------------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
MONUMENT SQUARE OFFICE
Lee Ellen Foose------------------Vice President, Community Office Manager
Suzanne Booher-----------------------------------Customer Service Officer
MOUNTAIN VIEW OFFICE
Connie C. Benner-----------------Vice President, Community Office Manager
PORT ROYAL OFFICE
Larry B. Cottrill, Jr.---------------------------Community Office Manager
Lona Rae Hawthorne-------------------------------Customer Service Officer
WAL-MART SUPERCENTER OFFICE
J. Neal Shawver------------------Vice President, Community Office Manager
WATER STREET OFFICE
Catherine J. Laub----------------Vice President, Community Office Manager
- -6-
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 twelve branch banking offices and two trust
service offices. At December 31, 2000, the Bank had 136 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,
2000, the Bank had four offices in Juniata County, one office in Perry County,
six offices in Mifflin County and one office in Huntingdon County.
On July 1, 1998, the Corporation completed the merger of Lewistown Trust Company
(Lewistown), a commercial bank located in Lewistown, Pennsylvania, by issuing
931,700 shares of common stock for all of the outstanding common stock of
Lewistown, except for the 5,324 shares of Lewistown held by the Corporation
which were cancelled. The merger was accounted for under the
pooling-of-interests method of accounting and, as such, all prior period
information has been restated.
COMPETITION
The Bank's principal market area includes all of Mifflin and Juniata Counties,
and portions of Perry, Huntingdon, Centre, Franklin and Snyder Counties. There
are 15 commercial banks which are headquartered or have branch offices located
within the Bank's market area which the Bank considers its primary competitors.
Of the 15 commercial banks with operations in the Bank's market area, the Bank
ranked second in assets as of December 31, 2000.
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.
New banking legislation passed in November of 1999, modifies the 43-year old
Bank Holding Company Act of 1956 to permit a Bank Holding Company that owns a
commercial bank to engage in any type of financial activity. The commercial bank
has to be well-capitalized, well-managed and CRA-rated satisfactory or better.
Financial activities include securities, insurance, merchant banking/equity
investment, financial in nature, and complimentary activities.
-7-
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. The Corporation's ratios were not materially different from those of
the Bank.
December 31,
-----------
2000 1999 1998
---- ---- ----
Risk-weighted assets ratio:
Tier I 18.46% 19.59% 21.16%
Total 19.59% 20.76% 22.36%
Total assets leverage ratio:
Tier I 12.30% 12.33% 13.12%
SECURITIES PORTFOLIO
The following table sets forth the carrying amount of securities at the dates
indicated:
December 31,
-----------
2000 1999 1998
---- ---- ----
(In Thousands)
Available for sale securities (at fair value):
U.S. Treasury and other U.S. government obligations $ 6,035 $ 6,441 $ 8,873
States and political subdivisions 15,341 23,448 28,123
Other corporate 5,042 5,992 4,872
Mortgage-backed 5,823 7,244 11,046
Equity 2,090 1,975 1,806
------- -------- --------
34,331 45,100 54,720
------- -------- --------
Held to maturity securities (at amortized cost):
U.S. Treasury and other U.S. government obligations 13,071 14,448 16,042
States and political subdivisions 27,201 30,223 30,297
Other corporate 10,968 14,879 22,446
------- -------- --------
51,240 59,550 68,785
------- -------- --------
Total securities $85,571 $104,650 $123,505
======= ======== ========
- -8-
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, 2000
and the weighted average yields of such securities by contractual maturities or
call dates. Yields on obligations of state and political subdivisions are not
presented on a tax equivalent basis. Mortgage-backed securities with contractual
maturities after ten years from December 31, 2000, 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 $ 1,349 6.36% $ 4,559 6.16% $ 99 6.71% $ 28 6.37%
State and political
subdivisions 6,831 4.96 7,833 5.00 414 4.71 263 6.50
Other corporate 1,999 6.72 3,043 6.34 -- -- -- --
Mortgage-backed -- -- -- -- 143 7.87 5,680 6.28
------- ------- ---- ------
10,179 15,435 656 5,971
------- ------- ---- ------
Held to maturity:
U.S. Treasury and other U.S.
government agencies 2,072 5.10 10,999 5.97 -- -- -- --
State and political
subdivisions 400 3.70 26,527 4.02 -- -- 274 4.23
Other corporate 2,514 6.38 7,953 5.97 -- -- 501 5.90
------- ------- ---- ------
4,986 45,479 -- 775
------- ------- ---- ------
Total $15,165 $60,914 $656 $6,746
======= ======= ==== ======
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 in other comprehensive income, net of the 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.
-9-
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 increased as a percentage of total loans
for the second consecutive year. 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 twenty-three percent of
total loans, average a three to four 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,
------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
Commercial, financial and agricultural $ 23,327 $ 18,784 $ 15,047 $ 16,110 $ 15,531
Real estate mortgage 142,897 139,163 133,047 142,216 130,865
Consumer (less unearned discount) 52,991 46,419 41,049 32,428 30,822
All other 3,101 2,456 2,819 2,945 3,674
-------- -------- -------- -------- --------
Total loans $222,316 $206,822 $191,962 $193,699 $180,892
======== ======== ======== ======== ========
This table shows the maturity of loans (excluding residential mortgages of 1-4
family residences and consumer loans) outstanding as of December 31, 2000.
Commercial, agricultural and financial $ 23,327 $ -- $ -- $ 23,327
All other 3,101 -- -- 3,101
-------- -------- -------- --------
Total loans $ 26,428 $ -- $ -- $ 26,428
======== ======== ======== ========
- -10-
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,
------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
Average loans outstanding $212,270 $193,305 $189,778 $186,510 $174,575
======== ======== ======== ======== ========
Nonaccrual loans $ 364 $ 164 $ -- $ 239 $ 482
Accruing loans past due
90 days or more 440 262 386 395 408
Restructured loans -- -- -- 173 --
-------- -------- -------- -------- --------
Total $ 804 $ 426 $ 386 $ 807 $ 890
======== ======== ======== ======== ========
Ratio of non-performing loans
to average loans outstanding .39% .22% .20% .43% .51%
Information with respect to nonaccrual and restructured loans at December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
Nonaccrual loans $ 364 $ 164 $ -- $ 239 $ 482
Restructured loans -- -- -- 173 --
Interest income that would have been
recorded under original terms 38 16 -- 20 56
Interest income recorded
during the period -- -- -- 24 4
Commitments to lend additional funds -- -- -- -- --
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 and 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 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 judgement 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.
-11-
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,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
Average loans outstanding $212,270 $193,305 $189,778 $186,510 $174,575
======== ======== ======== ======== ========
Allowance for loan loss at January 1 $ 2,486 $ 2,477 $ 2,390 $ 2,350 $ 2,228
Losses charged to allowance
Commercial 155 2 37 60 58
Real estate -- 27 13 12 --
Consumer 89 100 93 161 98
-------- -------- -------- -------- --------
244 129 143 233 156
-------- -------- -------- -------- --------
Recoveries credited to allowance
Commercial 13 -- 1 17 2
Real estate -- -- -- -- --
Consumer 12 18 19 36 46
-------- -------- -------- -------- --------
25 18 20 53 48
-------- -------- -------- -------- --------
Net charge-offs 219 111 123 180 108
Provision for possible loan losses 230 120 210 220 230
-------- -------- -------- -------- --------
Allowance for loan losses at December 31 $ 2,497 $ 2,486 $ 2,477 $ 2,390 $ 2,350
======== ======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding .10% .06% .06% .10% .06%
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.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In Thousands)
% OF % of % of % of % of
AMOUNT LOAN Amount Loan Amount Loan Amount Loan Amount Loan
Commercial $ 670 12.4% $ 577 10.3% $ 537 9.3% $ 482 9.9% $ 569 10.6%
Real estate 472 64.3 468 67.3 483 69.3 483 73.4 436 72.3
Consumer 770 23.3 750 22.4 741 21.4 694 16.7 617 17.1
Unallocated 585 -- 691 -- 716 -- 731 -- 728 --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $2,497 100% $2,486 100% $2,477 100% $2,390 100% $2,350 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
- -12-
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 64% 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, 2000, that qualified as HLTS.
-13-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for December 31, in the following table:
2000 1999 1998
---- ---- ----
AMOUNT RATE Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In Thousands)
Non-interest bearing demand $ 34,827 $ 34,728 $ 30,719
Interest bearing demand 46,221 2.95% 46,212 2.67% 49,199 2.87%
Savings deposits 31,033 2.67 33,494 2.72 32,796 2.92
Time deposits 175,535 5.52 175,455 5.24 176,905 5.52
-------- -------- --------
Total $287,616 $289,889 $289,619
======== ======== ========
As of December 31, 2000, certificates of deposit outstanding in an individual
amount of $100,000 or more totalled $25,102,000.
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)
$6,810 $5,832 $3,363 $9,097
====== ====== ====== ======
- -14-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
QUARTERLY RESULTS OF OPERATIONS
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In Thousands,except per share data)
FOR THE YEAR 2000
Interest income $ 5,946 $ 6,094 $ 6,288 $ 6,351
Interest expense (2,785) (2,880) (3,064) (3,151)
------- ------- ------- -------
Net interest income 3,161 3,214 3,224 3,200
Provision for loan losses (45) (45) (45) (95)
Other income 330 339 304 404
Other expenses (2,058) (2,023) (2,025) (2,078)
------- ------- ------- -------
Income before income taxes 1,388 1,485 1,458 1,431
Income taxes (360) (376) (336) (303)
------- ------- ------- -------
Net income $ 1,028 $ 1,109 $ 1,122 $ 1,128
======= ======= ======= =======
Per-share data:
Basic earnings $ .46 $ .50 $ .51 $ .52
Cash dividends .50 .41 -- .42
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In Thousands,except per share data)
FOR THE YEAR 1999
Interest income $ 5,977 $ 6,025 $ 5,929 $ 5,927
Interest expense (2,877) (2,849) (2,809) (2,819)
------- ------- ------- -------
Net interest income 3,100 3,176 3,120 3,108
Provision for loan losses (30) (30) (30) (30)
Other income 277 307 263 439
Other expenses (2,037) (2,015) (1,999) (1,981)
------- ------- ------- -------
Income before income taxes 1,310 1,438 1,354 1,536
Income taxes (312) (357) (345) (346)
------- ------- ------- -------
Net income $ 998 $ 1,081 $ 1,009 $ 1,190
======= ======= ======= =======
Per-share data:
Basic earnings $ .43 $ .47 $ .44 $ .53
Cash dividends .50 .38 -- .40
-15-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY
THE JUNIATA VALLEY BANK
FIVE YEAR FINANCIAL HIGHLIGHTS o SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA (In Thousands)
Assets $334,914 $336,119 $343,857 $332,440 $318,708
Deposits 287,221 283,350 293,890 285,138 274,670
Loans receivable, net 219,819 204,336 189,485 191,309 178,542
Securities 85,571 104,650 123,505 113,757 116,956
Stockholders' equity 43,082 43,255 45,980 42,695 39,862
Average equity 42,106 44,526 44,448 41,449 38,072
Average assets 334,685 339,364 338,295 327,068 317,384
EARNINGS DATA (In Thousands)
Interest income $ 24,679 $ 23,858 $ 24,864 $ 24,317 $ 23,613
Interest expense 11,880 11,354 12,136 11,862 11,697
-------- -------- -------- -------- --------
Net interest income 12,799 12,504 12,728 12,455 11,916
Provision for loan losses 230 120 210 220 230
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 12,569 12,384 12,518 12,235 11,686
Other income 1,377 1,286 1,182 1,273 1,025
Other expenses 8,184 8,032 7,986 7,531 7,026
-------- -------- -------- -------- --------
Income before income taxes 5,762 5,638 5,714 5,977 5,685
Federal income taxes 1,375 1,360 1,313 1,405 1,356
-------- -------- -------- -------- --------
Net income $ 4,387 $ 4,278 $ 4,401 $ 4,572 $ 4,329
======== ======== ======== ======== ========
RATIOS
Return on average assets 1.31% 1.26% 1.30% 1.40% 1.36%
Return on average equity 10.42 9.61 9.90 11.03 11.37
Equity to assets (year end) 12.86 12.87 13.37 12.84 12.51
Loans to deposits (year end) 76.53 72.11 64.47 67.09 65.00
Dividend payout (percentage
of income) 66.90 68.61 37.99 32.68 31.21
PER SHARE DATA
Basic earnings 1.99 1.87 1.90 1.96 1.86
Cash dividends 1.33 1.28 .74 .66 .60
Book value 19.90 19.35 19.73 18.43 17.09
Average shares outstanding 2,200,878 2,290,728 2,321,739 2,328,101 2,324,964
Approximate number
of stockholders 1,725 1,696 1,607 1,603 1,417
- -16-
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
2000 1999 1998
AVERAGE Increase (Decrease) Average Increase (Decrease) Average
BALANCE Amount % Balance Amount % Balance
------- ------ --- ------- ------ --- -------
Funding uses:
Interest earning assets:
Loans:
Commercial $ 64,744 $ 6,058 10.32% $ 58,686 $(1,118) (1.87)% $ 59,804
Mortgage 99,793 7,841 8.53 91,952 419 .46 91,533
Consumer 47,733 5,066 11.87 42,667 4,226 10.99 38,441
-------- ------- -------- ------- --------
212,270 18,965 9.81 193,305 3,527 1.86 189,778
Less: Allowance for loan losses (2,519) (27) 1.08 (2,492) (46) 1.88 (2,446)
-------- ------- -------- ------- --------
209,751 18,938 9.92 190,813 3,481 1.86 187,332
Interest bearing deposits
with banks 672 5 .75 667 153 29.77 514
Securities 98,796 (22,581) (18.60) 121,377 (348) (.29) 121,725
Funds sold 3,570 (1,985) (35.73) 5,555 (5,164) (48.18) 10,719
-------- ------- -------- ------- --------
103,038 (24,561) (19.25) 127,599 (5,359) (4.03) 132,958
Total interest earning
assets 312,789 (5,623) 1.77 318,412 (1,878) (.59) 320,290
Other assets 21,896 944 4.51 20,952 2,947 16.37 18,005
-------- ------- -------- ------- --------
Total uses $334,685 $(4,679) 1.38 $339,364 $ 1,069 .32 $338,295
======== ======= ======== ======= ========
Funding sources:
Deposits:
Demand $ 34,827 $ 99 .29 $ 34,728 $ 4,009 13.05 $ 30,719
Interest bearing demand 46,221 9 .02 46,212 (2,987) (6.07) 49,199
Savings 31,033 (2,461) 7.35 33,494 698 2.13 32,796
Time under $100,000 150,426 (49) (.03) 150,475 (3,453) (2.24) 153,928
-------- ------- -------- ------- --------
Total core deposits 262,507 (2,402) (.91) 264,909 (1,733) (.65) 266,642
Time over $100,000 25,109 129 .52 24,980 2,003 8.72 22,977
-------- ------- -------- ------- --------
Total deposits 287,616 (2,273) (.78) 289,889 270 .09 289,619
Other liabilities 4,963 301 6.46 4,662 434 10.26 4,228
Short-term borrowings -- (287) (100.00) 287 287 100.00 --
Stockholders' equity 42,106 (2,420) (5.44) 44,526 78 .18 44,448
-------- ------- -------- ------- --------
Total sources $334,685 $(4,679) (1.38) $339,364 $ 1,069 .32 $338,295
======== ======= ======== ======= ========
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Corporation functions as a financial intermediary and therefore its
financial condition is analyzed in terms of its sources and uses of funds. The
following comparison of daily average balances indicates how the Corporation has
managed its sources and uses of funds.
The Corporation's assets experienced a decline during 2000, reaching the level
of $334,685,000 a decrease of $4,679,000 or 1.38% compared to 1999. However, the
Corporation experienced a robust increase in average balances of loans of
$18,965,000 or 9.81% from 1999 to 2000. The decline in the average balance of
securities of $22,581,000 or 18.60% was used to fund these loans. This occurred
because normal funding sources in the way of average balances of core deposits
also declined by $2,776,000 or 1.05% from 1999 to 2000.
Commercial loans increased $6,058,000 or 10.32% in 2000 over 1999. This increase
was preceded by a decline from 1998 to 1999 of $1,118,000. Mortgage loans
increased $7,841,000 or 8.53% from 1999 to 2000. From 1998 to 1999 the increase
was $419,000. Consumer loans increased $5,066,000 or 11.87% in 2000 over 1999.
This followed an increase of $4,226,000 from 1998 to 1999.
Because deposits declined, new securities were not purchased as they matured or
were called to fund the loan growth. Demand and interest bearing demand deposits
increased only slightly. Savings deposits declined by $2,461,000 or 7.35% from
1999 to 2000. This followed a slight increase of $698,000 in 1999 over 1998.
Time deposits under $100,000 decreased slightly by $49,000 from 1999. Time
deposits over $100,000 increased modestly by $129,000 in 2000 over 1999. The
decline in stockholders' equity was a result of the stock repurchase program and
the special $.50 dividend payed in 2000. The Corporation also had a decline in
funds sold of $1,985,000 or 35.73% from 1999 to 2000. This followed a decline of
$5,164,000 in 1999 over 1998.
The intense competition from bank and nonbanks in the market area was apparent
in 2000 which lead to a decline in market share.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Juniata Valley Financial Corp. reported net income
for 2000 of $4,387,000 which was $109,000 or 2.55%
more than the $4,278,000 reported in 1999 and
$14,000 or .32% less than the $4,401,000 reported
[NET INCOME GRAPHIC OMITTED] in 1998. Basic earnings per share was $1.99 in
2000. This is an increase of $.12 from 1999 and an
increase of $.09 over 1998. This increase in
earnings per share is a result of both increased
income but also a decline in weighted shares
outstanding due to the stock repurchase program.
- -18-
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
The two most widely recognized performance ratios
within the financial services industry are the return
on average equity and return on average assets. The [RETURN ON
return on average equity ratio presents the net income AVERAGE EQUITY
to average equity maintained throughout the year. GRAPHIC OMITTED]
The return on average equity was 10.42% in 2000,
compared to 9.61% in 1999 and 9.90% in 1998.
[RETURN ON Return on average assets presents the income for the year
AVERAGE ASSETS compared to the average assets maintained throughout the
GRAPHIC OMITTED] year. The return on average assets was 1.31% in 2000
compared to 1.26% in 1999 and 1.30% in 1998.
The Board of Directors continued to increase
the cash dividends paid to shareholders. On
a per share basis $1.33 was paid in 2000 up
3.91% from the $1.28 paid in 1999 and up 79.73%
from the $.74 paid in 1998. The increase of [CASH DIVIDENDS
cash dividends in 2000 and 1999 was to help PER SHARE
increase the return on equity ratio by GRAPHIC OMITTED]
returning cash value to stockholders. The
Board of Directors declared a $.50 special
dividend to be paid in the spring of 1999
and 2000.
[EQUITY TO ASSETS Stockholders' equity to total assets (the capital
GRAPHIC OMITTED] ratio) decreased at December 31, 2000 to 12.86% from
12.87% in 1999 and 13.37% in 1998.
The Corporation had a decline in total assets
at December 31, 2000. Assets for the year ended
December 31, 2000, were $334,914,000 a decrease
of $1,205,000 or .36% compared to assets of [ASSETS GRAPHIC OMITTED]
$336,119,000 at December 31, 1999. There was
however short-term borrowings of $5,300,000 at
December 31, 1999, to fund the necessary
increase in cash reserves for the year 2000.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
The Juniata Valley Bank's allowance for loan losses was $2,497,000 in 2000,
$2,486,000 in 1999 and $2,477,000 in 1998. The provision provided in each of
those years was $230,000 in 2000, $120,000 in 1999 and $210,000 in 1998. The
provision for loan losses exceeded net charge-offs by 5.02%, 8.11%, and 70.73%
in 2000, 1999 and 1998, respectively. In 2000 net charge-offs were .10% of
average loans outstanding. In 1999 and 1998 net charge-offs were .06% of average
loans outstanding each year.
Other income increased $91,000 or 7.08% from 1999 to 2000. From 1998 to 1999 the
increase was $104,000 or 8.80%. The trust department income increased $12,000 in
2000 over 1999. This was a result of estate settlements. The increase of $76,000
from 1998 to 1999 was due to the settling of estates in 1999 that did not occur
in 1998. Customer service fees increased $57,000 for 2000 compared to 1999 and
$80,000 in 1999 compared to 1998. The increases in customer service fees can be
attributed to an increase in volume and not as a result of increased fees. There
was a decrease of $39,000 in net realized gains on sales of securities in 2000
over 1999. This followed a decrease of $168,000 in 1999 over 1998. The
securities were sold in the fourth quarter of 1999 and were reflective of the
higher interest rate environment during this time period. The other income
increased in 2000 over 1999 by $61,000. This increase can be attributed to
$30,000 transfer agent fee and $20,000 interchange fee on debit cards. Both
increases can be attributed to increased usage as opposed to increased fees. The
management of The Juniata Valley Bank seeks product and service improvements
that both strengthen existing customer relationships and help attract new ones.
During 1997, sales of mutual funds were introduced through a third party
arrangement with T.H.E. Financial for those customers desiring this type of
alternative investment. Fee income derived from the sale of this product in 2000
was $81,000.
Other expenses increased $152,000 or 1.89% over 1999, compared to an increase of
$46,000 from 1998 to 1999. Salaries and wages decreased $19,000 from 1999 to
2000. This compares to an increase of $217,000 from 1998 to 1999. The decreases
in salaries and wages can be attributed to a decrease in full-time equivalents
from 140 to 136 in the year 2000. An early retirement option was given and six
employees took advantage of it. Employee benefits increased $116,000 from 2000
to 1999. From 1998 to 1999 this increase was $165,000. This was due to price
changes of benefits provided as opposed to increased benefits. Occupancy expense
remained the same for the years presented. Equipment expense increased $42,000
in 2000 over 1999. The increase was $11,000 from 1998 to 1999. The increase in
equipment expense is a direct result of increased technology being offered and
additional equipment needed to offer the technology. Director's compensation
declined $50,000 because of deferred compensation arrangements reaching
maturity. Taxes, other than income is an increase in the Pennsylvania shares tax
of $27,000 from 1999 to 2000 and $39,000 from 1998 to 1999. The $37,000 increase
in other expenses for the year 2000 and $89,000 increase in 1999 can be
attributed to an increase in postage because of increased volume in both years
and rates in 1999.
On November 12, 1999, The Gramm-Leach-Bliley Act was signed into law. The Act
permits commercial banks to affiliate with investment banks. It permits bank
holding companies to engage in any type of financial activity which includes,
securities, insurance, merchant banking/equity investment, financial in nature,
and complimentary activities. The merchant banking provisions will allow a bank
holding company to make a controlling investment in any kind of company,
financial or commercial. These new powers allow a bank to engage in virtually
every type of activity currently recognized as financial or incidental or
complementary to a financial activity. The commercial bank has to be
well-capitalized, well-managed and CRA-rated satisfactory or better. The Act
also allows subsidiaries of banks to engage in a broad range of financial
activities that are not permitted for banks themselves. In light of this new
legislation, The Corporation and The Juniata Valley Bank will evaluate new
financial activities that would compliment the products already offered to
enhance non-interest income.
- -20-
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the most significant contributor to the Corporation's net
income. During 2000, net interest income increased 2.38% to $12,799,000 compared
to a decrease of 1.76% during 1999. Table 2 shows the interest income, interest
expense and net interest income with the percentage change between the years.
Table 1 presents average balances, interest income and expense and yields earned
or paid. This table summarizes the components of the net interest income growth.
Interest earning assets decreased $5,596,000 or 1.74% in 2000. The decrease for
1999 over 1998 was $1,832,000. The largest contributor to interest income is
loans. The yield on loans has declined from 1999 to 2000 by 5 basis points. From
1998 to 1999 the rate declined 29 basis points. The yield on taxable securities
increased 7 basis points in 2000 and the yield on tax free securities increased
23 basis points. In 1999 the taxable securities increased 20 basis points and
tax free securities decreased 49 basis points. Federal funds sold had an
increase of 61 basis points in 2000 over 1999 while the Corporation had a
decline of 36 basis points from 1998 to 1999. The overall yield on these
interest earning assets for 2000 was an increase of 26 basis points. This
followed a decline of 27 basis points from 1998 to 1999.
Interest bearing liabilities decreased $2,659,000 or 1.04% for 2000. There was a
decrease of $3,452,000 from 1998 to 1999. Saving deposits decreased $2,461,000
from 1999 to 2000 which followed an increase of $698,000. Demand deposits
bearing interest declined $9,000 and time deposits increased $80,000 from 1999
to 2000. Demand deposits bearing interest decreased $2,987,000 and time deposits
decreased by $1,450,000 in 1999 over 1998. Rates paid increased by 26 basis
points in 2000. The decline for 1999 of rates paid was 25 basis points.
The Corporation's net spread was 2.99% in 1999 and 3.15% in 2000 compared to the
3.01% in 1998. 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 4.06% for 2000
compared to 3.89% in 1999 and 3.94% in 1998.
From Table 3 it can be seen that the decreases in net interest income of
$127,000 during 2000 were affected by increases in volume of $421,000 however
rates declined by $548,000. Volume and rate both increased on interest income
and volume decreased while rates increased on interest expense. In 1999 a
decrease in interest income was due to an overall decrease in both volume and
rate. Decreases in volume and rates offered on interest bearing liabilities
caused the change in interest expense during 1999. In 2000 interest income
increased by $399,000; $344,000 can be attributed to an increase in volume.
Loans added $1,685,000 to income in volume while the volume of all the
securities declined. In 1999, the decrease in interest income of $1,006,000 can
be attributed to the decline in taxable securities of $1,123,000. The $526,000
increase in interest expense in 2000 can be attributed to an increase in time
deposit rates. The $782,000 change in interest expense in 1999 can be attributed
to a decrease in both volume and rate on demand deposits bearing interest and
time deposits.
-21-
- --------------------------------------------------------------------------------
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 and unrealized
gains on securities are included in "Other assets" under "Noninterest earning
assets".
2000
INTEREST
AVERAGE INCOME %
BALANCES (EXPENSE) RATE
-------- --------- ----
(IN THOUSANDS)
INTEREST EARNING ASSETS
Interest bearing deposits in other banks $ 672 $ 48 7.14%
Securities (taxable) 52,339 3,287 6.30
Securities (tax exempt) 46,457 1,785 3.84
Federal funds sold and other 3,570 295 8.26
Loans 212,270 19,264 9.08
-------- --------
Total interest earning assets 315,308 24,679 7.83
----
NON-INTEREST EARNING ASSETS
Cash and due from banks 9,243
Other assets 12,653
Less: allowance for loan losses (2,519)
--------
Total assets $334,685
========
INTEREST BEARING LIABILITIES
Demand deposits bearing interest $ 46,221 (1,363) 2.95%
Savings deposits 31,033 (828) 2.67
Time deposits 175,535 (9,689) 5.52
Short-term borrowings -- -- --
-------- --------
Total interest bearing liabilities 252,789 (11,880) 4.70
-------- ----
NON-INTEREST BEARING LIABILITIES
Demand deposits 34,827
Other liabilities 4,963
STOCKHOLDERS' EQUITY 42,106
--------
Total liabilities and stockholders' equity $334,685
========
NET INTEREST INCOME/SPREAD $12,799 3.13%
======= ====
MARGIN ANALYSIS
Interest income/earning assets 7.83%
Interest expense/earning assets 3.77
----
Net interest margin 4.06%
====
- -22-
- --------------------------------------------------------------------------------
TABLE 1 (CONTINUED)
- --------------------------------------------------------------------------------
1999 1998
Interest Interest
Average Income % Average Income %
Balances (Expense) Rate Balances (Expense) Rate
-------- --------- ---- -------- -------- ----
(In Thousands) (In Thousands)
$ 667 $ 44 6.60% $ 514 $ 28 5.45%
66,942 4,171 6.23 85,572 5,159 6.03
54,435 2,147 3.94 36,153 1,603 4.43
5,555 324 5.83 10,719 664 6.19
193,305 17,172 8.88 189,778 17,410 9.17
-------- -------- -------- --------
320,904 23,858 7.43 322,736 24,864 7.70
---- ----
9,209 8,663
11,743 9,342
(2,492) (2,446)
-------- --------
$339,364 $338,295
======== ========
$ 46,212 (1,233) 2.67% $ 49,199 (1,411) 2.87
33,494 (912) 2.72 32,796 (958) 2.92
175,455 (9,194) 5.24 176,905 (9,767) 5.52
287 (15) 5.23 -- -- --
-------- -------- -------- --------
255,448 (11,354) 4.44 258,900 (12,136) 4.69
-------- ---- -------- ----
34,728 30,719
4,662 4,228
44,526 44,448
-------- --------
$339,364 $338,295
======== ========
$ 12,504 2.99% $ 12,728 3.01%
======== ==== ======== ===
7.43% 7.70%
3.54 3.76
---- ----
3.89% 3.94%
==== ====
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
TABLE 2 --- NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, defined as interest income less interest expense, is shown
in the following table:
2000 % Change 1999 % Change 1998
---- -------- ---- -------- ----
(In Thousands)
Interest income $24,679 3.44% $23,858 (4.05)% $24,864
Interest expense 11,880 4.63 11,354 (6.44) 12,136
------- ------- -------
Net interest income $12,799 2.36 $12,504 (1.76) $12,728
======= ======= =======
- --------------------------------------------------------------------------------
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.
2000/1999 Increase (Decrease) 1999/1998 Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest bearing deposits
in other banks $ 0 $ 4 $ 4 $ 8 $ 8 $ 16
Securities (taxable) (931) 47 (884) (1,123) 135 (988)
Securities (tax free) (487) 125 (362) 811 (267) 544
Federal funds sold (63) 34 (29) (320) (20) (340)
Loans 2,188 (96) 2,092 324 (562) (238)
------ ----- ------ ------- ----- -------
Interest income 707 114 821 (300) (706) (1,006)
------ ----- ------ ------- ----- -------
Demand deposits
bearing interest -- 130 130 (86) (92) (178)
Savings deposits (67) (17) (84) 20 (66) (46)
Time deposits 4 491 495 (80) (493) (573)
Short-term borrowings (15) -- (15) 15 -- 15
------ ----- ------ ------- ----- -------
Interest expense (78) 604 526 (131) (651) (782)
------ ----- ------ ------- ----- -------
Increase (decrease)
in net interest income $ 785 $(490) $ 295 $ (169) $ (55) $ (224)
====== ===== ====== ======= ===== =======
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
At December 31, 2000, net loans increased
$15,483,000 or 7.58% over 1999. This follows an
increase in 1999 over 1998 in net loans of
$14,851,000 or 7.84%. The loan to deposit ratio
fluctuated throughout 2000; monthly averages were
at a low in April of 72.6% and a high in November
of 76.0%. Residential mortgages increased by
$3,619,000 or 3.27% from 1999 to 2000. Residential
mortgages increased by $3,019,000 from 1998 to
1999. Real estate loans still remain a very
attractive option due to the tax deductibility of
mortgage interest. Consumer loans increased
[NET LOANS GRAPHIC OMITTED] $8,581,000 or 15.77% in 2000 over 1999. This
follows a year with an increase of $7,773,000 from
1998 to 1999.
In spite of the slow economy and increasing credit
problems nationwide, the Corporation continued its
excellent charge-off record (charge-offs, net of
recoveries) during 1999. For the year, the net
charge-offs were $219,000 or .10% of average loans
outstanding. The increase in 2000 was due to a
growing loan portfolio and not as a result of
relaxation of underwriting standards. This
compares with $111,000 or .06% for 1999 and
$123,000 or .10% for 1998.
- -24-
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
The allowance for loan losses is based upon quarterly loan portfolio reviews by
management and a committee of the Board. The purpose of the review is to assess
loan quality, identify impaired loans, analyze delinquencies, ascertain loan
growth, evaluate potential charge-offs and recoveries and assess general
economic conditions in the market served.
Commercial and real estate loans are rated, periodically by loan review
personnel. Consumer and residential real estate loans are generally reviewed in
the aggregate as they are of relative small dollar size and homogenous in
nature.
In addition to economic conditions, loan portfolio diversification, delinquency,
and historic loss experience, consideration is also given to examinations
performed by the regulatory authorities.
To determine the allowance and corresponding provision, the amount required for
specific allocation is first determined. For all types of commercial and
construction loans, this amount is based upon specific borrower data determined
by reviewing non-performing, delinquent, or potentially troubled credits. In
addition, a general allocation is also determined using the same criteria
applied to the total commercial portfolio. Consumer and residential real estate
allowances, which may include specific allocations, generally are based upon
recent charge-off and delinquency history, other known trends, and expected
losses over the remaining lives of these loans, as well as the condition of
local, regional, and national economies.
The unallocated portion of the allowance is the amount which, when added to
these allocated amounts, brings the total to the amount deemed adequate by
management at that time. This unallocated portion is available to absorb losses
sustained anywhere within the portfolio.
Determining the level of the allowance for possible loan losses at any given
period is difficult, particularly during deteriorating or uncertain economic
periods. Management must make estimates using assumptions and information which
is often subjective and changing rapidly. The review of the loan portfolio is a
continuing event in light of a changing economy and the dynamics of the banking
and regulatory environment. It is Management's opinion that the allowance for
loan losses for 2000 of $2,497,000 or 1.14% of outstanding loans is adequate to
meet any foreseeable loan loss contingency. The ratio for 1999 was 1.22% and for
1998 it was 1.31%.
At December 31, 2000 and 1999, total non-performing loans were $804,000 and
$426,000, respectively; non-performing loans as a percentage of the allowance
for loan losses were 32.20% and 17.14%, respectively.
In addition, regulatory authorities, as an integral part of their examinations,
periodically review the allowance for possible loan losses. They may require
additions to allowances based upon their judgements about information available
to them at the time of examination.
It is the policy of the Corporation not to renegotiate the terms of a loan
simply because of delinquency status. Rather a loan is transferred to
non-accrual status if it is not well secured and in process of collection and is
delinquent in payment of either principal or interest beyond 90 days. Interest
income received on non-accruing loans in 2000 and 1999 was $0.
Real estate acquired through foreclosure is carried at the lower of the recorded
amount of the loan for which the foreclosed property served as collateral or the
fair market value of the property as determined by a current appraisal less
estimated costs to sell (fair value). Prior to foreclosure, the recorded amount
of the loan is reduced, if necessary, to fair value by charging the allowance
for loan losses. Subsequent to foreclosure, gains or losses on the sale of real
estate acquired through foreclosure are recorded in operating income and any
losses determined as a result of periodic valuations are charged to other
operating expense.
Loans with principal and/or interest delinquent 90 days or more which are still
accruing interest were $440,000 at December 31, 2000 up from the $262,000 at
December 31, 1999. Although the economy is stable, softness in certain areas of
the economy may adversely affect certain borrowers and may cause additional
loans to become past due beyond 89 days or to be placed on non-accrual status
because of uncertainty of receiving full payment of either principal or interest
on these loans.
Potential problem loans consist of loans which are performing but for which
potential credit problems have caused the Corporation to place them on its
internally monitored loan list. At December 31, 2000, such loans amounted to
$646,000. Depending upon the state of the economy and the impact thereon to
these borrowers, as well as future events such as regulatory examination
assessment, these loans and others not currently so identified could be
classified as non-performing assets in the future.
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
- --------------------------------------------------------------------------------
The goals of the Corporation's asset/liability management function, are to
ensure adequate liquidity and to maintain an appropriate balance between the
relative rate sensitivity of interest earning assets and interest bearing
liabilities. Liquidity management encompasses the ability to meet ongoing cash
flow requirements of customers, who, as depositors, may want to withdraw funds
or who, as borrowers, need credit availability. Interest rate sensitivity,
management attempts to prove stable net interest margins through changing
interest rate environments and thereby achieve consistent growth in net interest
income.
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 2000
the Corporation funded approximately 78% of its assets with core deposits
acquired in local communities. This core deposit base, combined with
stockholders' equity, funded more than 90% of average assets in 2000 and
provides a substantial and highly stable source of liquidity.
Principal sources of asset liquidity are provided by held to maturity securities
maturing in one year or less, available for sale securities, and other short
term investments such as federal funds sold and cash and due from banks. At
December 31, 2000, these liquid assets amounted to $55,014,000 compared to
liquid assets at December 31, 1999, of $79,676,000. Liquidity is also provided
by scheduled and unscheduled principal repayments of loans.
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. The Corporation has available for additional
liquidity a maximum borrowing capacity of $118,572,000 at December 31, 2000,
from the Federal Home Loan Bank of which $0 was outstanding.
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
efforts, 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. From the statement
of cash flows in 2000 loan demand increased by $15,712,000. This was easily
funded by maturities and repayments of securities which exceeded purchases by
$19,327,000.
- -26-
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 2000 an examination was conducted by the
Federal Deposit Insurance Corporation. 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.
In September 2000, the Financial Accounting Standards Board issued Statement No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement replaces SFAS No. 125 of the
same name. It revises the standards of securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but carries
over most of the provisions of SFAS No. 125 without reconsideration. SFAS No.
140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The statement is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ended
December 15, 2000. This statement is to be applied prospectively with certain
exceptions. Other than these exceptions, earlier or retroactive application of
its accounting provision is not permitted. The adoption of the statement is not
expected to have a significant impact on the Corporation.
- --------------------------------------------------------------------------------
MARKET RATE RISK
- --------------------------------------------------------------------------------
The operations of the Bank are subject to risk resulting from interest rate
fluctuations to the extent that there is a difference between the amount of the
Bank's interest earning assets and the amount of interest bearing liabilities
that are prepaid/withdrawn, mature or re-price in specified periods. The
principal objective of the Bank's asset/liability management activities is to
provide consistently higher levels of net interest income while maintaining
acceptable levels of interest rate and liquidity risk and facilitating the
funding needs of the Bank. The Bank utilizes an interest rate sensitivity model
as the primary quantitative tool in measuring the amount of interest rate risk
that is present.
The operations of the Bank do not subject it to foreign currency exchange or
commodity price risk. Also the Bank and Corporation do not utilize interest rate
swaps, caps or other hedging transactions.
The Corporation uses several tools to measure and evaluate interest rate risk.
Table 4 provides information about the Corporation's financial instruments that
are sensitive to changes in interest rates. For securities, loans and deposits,
the table presents principal cash flows and related weighted average interest
rates by maturity dates. The Corporation has no market risk sensitive
instruments entered into for trading purposes.
Another tool for analyzing interest rate risk is financial simulation modeling
which captures the impact of not only changing interest rates but also other
sources of cash flow variability including loan and securities prepayments, loan
repricing, and deposit pricing. Financial simulation modeling forecasts both net
interest income and the economic value of liabilities. The Corporation regularly
measures the effects of an up or down 200-basis point "rate shock" which is
deemed to represent the outside limits of any reasonably probable movement in
market interest rates during a one-year time frame. As indicated in Table 5, the
financial simulation analysis revealed that projected net interest income over a
one-year time period is positively affected by higher market interest rates,
while the economic value of equity is adversely affected by higher interest
rates. In a lower interest rate environment the opposite is presented as
projected net interest income is adversely affected by and economic value of
equity is favorably affected.
Computations of the projected effects of hypothetical interest rate changes are
based on many assumptions, including relative levels of market interest rates
and loan prepayments. Certain shortcomings are inherent in the computation of
discounted present value and, if key relationships do not unfold as assumed,
actual values may differ from those presented. Further, the computations do not
contemplate certain actions management could undertake in response to changes in
market interest rates.
-27-
- --------------------------------------------------------------------------------
TABLE 4 - INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY/AVERAGE INTEREST RATE
- --------------------------------------------------------------------------------
2001 2002 2003
---- ---- ----
DECEMBER 31, 2000 (Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
ASSETS
Interest bearing deposits $ 676 5.65% -- -- -- --
Federal funds sold 4,400 6.44 -- -- -- --
Available for sale securities 10,171 5.59 $ 7,487 5.74% $ 3,750 5.68%
Held to maturity securities 4,986 5.63 4,582 5.79 9,207 4.95
Loans
Commercial 23,327 9.36 -- -- -- --
Consumer 12,287 9.37 8,557 9.22 7,105 9.55
Real estate mortgage 129,819 8.11 930 8.13 961 8.13
LIABILITIES
Interest bearing demand deposits 47,220 -- -- -- -- --
Savings deposits 29,191 -- -- -- -- --
Certificates of deposit 108,609 5.71 38,396 6.12 21,480 6.00
- --------------------------------------------------------------------------------------------------------------------------
2000 2001 2002
---- ---- ----
DECEMBER 31, 1999 (Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
ASSETS
Interest bearing deposits $ 653 6.60% -- -- -- --
Available for sale securities 10,874 5.43 $12,512 5.61% $ 6,213 5.53%
Held to maturity securities 18,542 6.07 4,155 6.53 9,144 4.70
Loans
Commercial 18,784 8.95 -- -- -- --
Consumer 11,070 9.80 7,877 9.54 5,826 9.53
Real estate mortgage 127,339 7.93 1,521 7.98 1,612 7.97
LIABILITIES
Interest bearing demand deposits 44,025 2.67 -- -- -- --
Savings deposits 32,125 2.72 -- -- -- --
Certificates of deposit 107,819 5.01 35,471 5.33 9,848 5.86
- -28-
- --------------------------------------------------------------------------------
TABLE 4 (CONTINUED)
- --------------------------------------------------------------------------------
Fair Value
2004 2005 Thereafter Total December 31, 2000
---- ---- ---------- ----- -----------------
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
-- -- -- -- -- -- $ 676 $ 676
-- -- -- -- -- -- 4,400 4,400
$ 2,372 6.12% $ 1,763 6.15% $ 8,233 6.31% 33,776 34,331
18,031 4.42 13,659 4.37 775 5.31 51,240 50,967
-- -- -- -- -- -- 23,327 23,327
5,156 9.45 3,138 9.45 17,352 9.48 53,595 53,535
962 8.11 1,952 8.06 8,273 8.15 142,897 141,833
-- -- -- -- -- -- 47,220 47,220
-- -- -- -- -- -- 29,191 29,191
5,415 5.37 3,016 6.13 -- -- 176,916 177,656
- --------------------------------------------------------------------------------------------------------------------------
Fair Value
2003 2004 Thereafter Total December 31, 1999
---- ---- ---------- ----- -----------------
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
-- -- -- -- -- -- $ 653 $ 653
$ 2,850 6.52% $ 2,727 6.55% $ 9,769 6.42% 44,945 45,100
16,380 4.57 11,329 4.34 -- -- 59,550 58,171
-- -- -- -- -- -- 18,784 18,784
4,143 9.56 2,873 9.55 14,600 9.80 46,389 46,316
1,649 7.95 1,672 7.94 5,370 7.87 139,163 137,997
-- -- -- -- -- -- 44,025 44,025
-- -- -- -- -- -- 32,125 32,125
14,494 5.76 5,236 5.31 172,868 173,714
-29-
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
TABLE 5 - SENSITIVITY TO CHANGE IN MARKET INTEREST RATES
- --------------------------------------------------------------------------------
Interest Rate Scenarios
-----------------------
DECEMBER 31, 2000 -200 bps -100 bps +100 bps +200 bps
-------- -------- -------- --------
(In Thousands)
Prospective one-year net interest income:
Projected $12,205 $12,527 $13,049 $13,299
Percent change (4.64)% (2.13)% 1.95% 3.91%
Economic value of portfolio equity:
Projected 42,488 42,810 43,332 43,582
Percent change (1.38)% (.63)% .58% 1.16%
Interest Rate Scenarios
-----------------------
DECEMBER 31, 1999 -200 bps -100 bps +100 bps +200 bps
-------- -------- -------- --------
(In Thousands)
Prospective one-year net interest income:
Projected $12,323 $12,414 $12,594 $12,685
Percent change (1.45)% (.72)% .72% 1.45%
Economic value of portfolio equity:
Projected 43,931 43,595 42,922 42,586
Percent change 1.56% .79% (.77)% (1.55)%
<FN>
Key assumptions:
1. Residential mortgage loans and mortgage-backed securities prepay at
rate-sensitive speeds consistent with observed historical prepayment
speeds for pools of residential mortgages.
2. Variable rate loans and variable rate liabilities reprice in accordance
with their contractual terms, if any. Rate changes for adjustable rate
mortgages are constrained by their contractual caps and floors.
3. Interest-bearing nonmaturity deposits reprice in response to different
interest rate scenarios consistent with the Corporation's historical
rate relationships to market interest rates.
4. Interest rate scenarios assume a three month ramp in the term structure of interest rates.
</FN>
- -30-
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
On January 18, 2000, the Board of Directors of the Juniata Valley Financial
Corp. authorized the repurchase of up to 5% of its shares outstanding of common
stock (111,700 shares). On February 16, 1999, the Board of Directors authorized
the repurchase of up to 5% of its shares outstanding of common stock (116,500
shares). As of December 31, 2000, 201,147 shares were repurchased. Shares were
then reissued for the dividend reinvestment plan as well as the employee stock
purchase plan. Treasury stock acquired is used for general corporate purposes as
those just mentioned as well as stock dividends and stock splits. At December
31, 2000 and 1999, treasury stock was 167,110 and 96,204 shares, respectively at
a cost of $5,132,000 and $3,403,000.
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 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 credit risk.
The FDIC classified capital into two tiers,
referred to as Tier I and Tier II. Tier I
capital consists of common stockholders' equity
(excluding the net unrealized appreciation on
securities available for sale), noncumulative
and cumulative (bank holding companies only)
perpetual stock, and minority interests less
goodwill. Tier II capital consists of allowance
[STOCKHOLDERS' EQUITY for loan and lease losses, perpetual preferred
GRAPHIC OMITTED] 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% and 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 following this
discussion, the Tier I risk-based capital ratio
was 18.46% and Tier II risk-based capital ratio
was 19.59% at December 31, 2000. The Bank's
capital ratios are well above the current
minimum ratio requirement 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,
2000, the leverage ratio was 12.30%.
CAPITAL ANALYSIS
December 31,
------------
2000 1999 1998
---- ---- ----
(Thousands of Dollars)
Tier I
Common stockholders' equity (excluding unrealized
gains/losses on securities) $ 40,999 $ 41,833 $ 44,337
Tier II
Allowable portion of allowance for loan losses 2,497 2,486 2,477
-------- -------- --------
Risk-based capital $ 43,496 $ 44,319 $ 46,814
======== ======== ========
Risk adjusted assets (including off-balance-sheet exposures) $222,052 $213,490 $209,346
======== ======== ========
Tier I risk-based capital ratio 18.46% 19.59% 21.16%
Total risk-based capital ratio 19.59% 20.76% 22.36%
Leverage ratio 12.30% 12.33% 13.12%
-31-
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
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 2001 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 2001. 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 2001 through effective asset/liability management. Juniata Valley
Financial Corp. is committed to providing stockholders with an attractive return
on their investment.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes for 2000 was $1,375,000 compared to $1,360,000 in
1999 and $1,313,000 in 1998. The effective tax rate, which is the ratio of
income tax expense to income before income taxes, was 23.86% in 2000, an
increase from the 24.12% in 1999 and 22.98% in 1998. 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.
- --------------------------------------------------------------------------------
MERGER
- --------------------------------------------------------------------------------
On July 1, 1998, the Corporation completed the merger of Lewistown Trust Company
(Lewistown), a commercial bank located in Lewistown, Pennsylvania, by issuing
931,700 shares of its common stock for all of the outstanding common stock of
Lewistown, except for the 5,324 shares of Lewistown held by the Corporation
which were cancelled. The merger was accounted for under the pooling-of-interest
method of accounting and, as such, all prior period information has been
restated. Please refer to the Notes to the Consolidated Financial Statements
"Merger" for further analysis of the merger.
- --------------------------------------------------------------------------------
SIGNIFICANT FINANCIAL EVENT
- --------------------------------------------------------------------------------
At the January 16, 2001 meeting, the Board of Directors approved a Bank Owned
Life Insurance Policy plan (BOLI). This plan offers life insurance for
Directors' and key officers while they serve or are employed by the Corporation.
This life insurance will continue after they retire. This plan also offers a
retirement plan for Directors' who are not already receiving a retirement as
well as a supplemental retirement plan for key employees who are not covered by
another plan.
- -32-
[Beard Miller Company LLP
Certified Public Accountants and Consultants Logo]
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, 2000 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. 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 auditing standards
generally accepted in the United States of America. 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 its wholly-owned subsidiary, The Juniata
Valley Bank, as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
[Beard Miller Company LLP
Signature]
Harrisburg, Pennsylvania
January 19, 2001
-33-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED BALANCE SHEETS
ASSETS
------
December 31,
------------
2000 1999
---- ----
(In Thousands, Except Share Data)
Cash and due from banks $ 10,621 $ 15,381
Interest-bearing deposits with banks 676 653
Federal funds sold 4,400 --
-------- --------
Total cash and cash equivalents 15,697 16,034
Securities available for sale 34,331 45,100
Securities held to maturity, fair value 2000
$50,967; 1999 $58,171 51,240 59,550
Loans receivable, net of allowance for
loan losses 2000 $2,497; 1999 $2,486 219,819 204,336
Bank premises and equipment, net 5,992 3,428
Accrued interest receivable and other assets 7,835 7,671
-------- --------
Total assets $334,914 $336,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 33,893 $ 34,332
Interest bearing 253,327 249,018
-------- --------
Total deposits 287,220 283,350
Short-term borrowings -- 5,300
Accrued interest payable and other liabilities 4,612 4,214
-------- --------
Total liabilities 291,832 292,864
-------- --------
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 2,332,058 shares 2,332 2,332
Surplus 20,398 20,559
Retained earnings 25,117 23,665
Accumulated other comprehensive income 367 102
Treasury stock, at cost 2000 167,110 shares;
1999 96,204 shares (5,132) (3,403)
-------- --------
Total stockholders' equity 43,082 43,255
-------- --------
Total liabilities and
stockholders' equity $334,914 $336,119
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- -34-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands, Except Per Share Data)
Interest income:
Loans receivable, including fees $19,264 $17,172 $17,410
Taxable securities 3,287 4,171 5,159
Tax-exempt securities 1,785 2,147 1,603
Other 343 368 692
------- ------- -------
Total interest income 24,679 23,858 24,864
------- ------- -------
Interest expense:
Deposits 11,880 11,339 12,131
Short-term borrowings -- 15 5
------- ------- -------
11,880 11,354 12,136
------- ------- -------
Net interest income 12,799 12,504 12,728
Provision for loan losses 230 120 210
------- ------- -------
Net interest income after provision for loan losses 12,569 12,384 12,518
------- ------- -------
Other income:
Trust department 387 375 299
Customer service fees 551 494 414
Net realized gains on sales of securities 5 44 212
Other 434 373 257
------- ------- -------
Total other income 1,377 1,286 1,182
------- ------- -------
Other expenses:
Salaries and wages 3,568 3,587 3,370
Employee benefits 1,176 1,060 995
Occupancy 498 499 499
Equipment 975 933 922
Director compensation 271 321 302
Taxes, other than income 465 438 399
Merger -- -- 394
Other 1,231 1,194 1,105
------- ------- -------
Total other expenses 8,184 8,032 7,986
------- ------- -------
Income before income taxes 5,762 5,638 5,714
Federal income taxes 1,375 1,360 1,313
------- ------- -------
Net income $ 4,387 $ 4,278 $ 4,401
======= ======= =======
Per share data:
Basic earnings $ 1.99 $ 1.87 $ 1.90
======= ======= =======
Cash dividends $ 1.33 $ 1.28 $ 0.74
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-35-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
--------------------------------------------
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income (Loss) Stock Total
---- ------- -------- ------------- ----- -----
(In Thousands)
Balance, December 31, 1997 $2,332 $20,569 $19,593 $ 744 $ (543) $42,695
-------
Comprehensive income:
Net income -- -- 4,401 -- -- 4,401
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- 72 72
-------
Total comprehensive income 4,473
-------
Cash dividends declared -- -- (1,672) -- -- (1,672)
Treasury stock issued under dividend
reinvestment plan -- 25 -- -- 381 406
Treasury stock issued under
employee stock purchase plan (14) 92 78
------ ------ ------ ---- ----- -------
Balance, December 31, 1998 2,332 20,580 22,322 816 (70) 45,980
-------
Comprehensive income:
Net income -- -- 4,278 -- -- 4,278
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- (714) -- (714)
-------
Total comprehensive income -- -- -- -- -- 3,564
-------
Cash dividends declared -- -- (2,935) -- -- (2,935)
-------
Treasury stock issued under dividend
reinvestment plan -- (21) -- -- 462 441
Treasury stock issued under
employee stock purchase plan -- -- -- -- 28 28
Treasury stock acquired -- -- -- -- (3,823) (3,823)
------ ------- ------ ----- ------ -------
Balance, December 31, 1999 2,332 20,559 23,665 102 (3,403) 43,255
-------
Comprehensive income:
Net income -- -- 4,387 -- -- 4,387
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- 265 -- 265
-------
Total comprehensive income 4,652
-------
Cash dividends declared -- -- (2,935) -- -- (2,935)
Treasury stock issued under dividend
reinvestment plan -- (161) -- -- 546 385
Treasury stock issued under
employee stock purchase plan -- -- -- -- 1 1
Treasury stock acquired -- -- -- -- (2,276) (2,276)
------ ------- ------ ----- ------ -------
BALANCE, DECEMBER 31, 2000 $2,332 $20,398 $25,117 $ 367 $(5,132) $43,082
====== ======= ======= ===== ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- -36-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,387 $ 4,278 $ 4,401
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 230 120 210
Provision for depreciation 323 291 273
Net amortization on securities' premium 158 89 118
Net realized gains on sales of securities (5) (44) (212)
Deferred directors' fees and supplemental retirement plan expense 353 341 395
Payment of deferred compensation (199) (174) (158)
Deferred income taxes (110) (57) (172)
(Increase) in accrued interest receivable and other assets (105) (23) (3)
Increase (decrease) in accrued interest payable and other liabilities 158 241 (568)
------- ------- -------
Net cash provided by operating activities 5,190 5,062 4,284
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (1,151) (885) (12,303)
Proceeds from sales of available for sale securities 10 2,195 252
Proceeds from maturities of and principal repayments
on available for sale securities 12,274 18,066 31,133
Purchases of held to maturity securities (701) (16,474) (42,077)
Proceeds from maturities of and principal repayments
on held to maturity securities 8,895 14,684 13,451
Net (increase) decrease in loans receivable (15,712) (14,971) 1,595
Net purchases of bank premises and equipment (2,887) (842) (547)
------- ------- -------
Net cash provided by (used in) investing activities 728 1,773 (8,496)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 3,870 (10,540) 8,752
Net increase (decrease) in short-term borrowings (5,300) 5,300 --
Cash dividends and cash paid for fractional shares (2,935) (2,935) (1,962)
Purchase of treasury stock (2,276) (3,823) --
Treasury stock issued 386 469 484
------- ------- -------
Net cash provided by (used in) financing activities (6,255) (11,529) 7,274
------- ------- -------
Increase (decrease) in cash and cash equivalents (337) (4,694) 3,062
Cash and cash equivalents:
Beginning 16,034 20,728 17,666
------- ------- -------
Ending $15,697 $16,034 $20,728
======= ======= =======
Cash payments for:
Interest $11,843 $11,397 $12,147
======= ======= =======
Income taxes $ 1,520 $ 1,460 $ 1,459
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-37-
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,
Centre, 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:
Securities classified as available for sale are those debt securities that
the Corporation 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 gains and losses are reported in other comprehensive
income, 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. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity.
Securities classified as held to maturity are those debt securities the
Corporation 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 the period to maturity.
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance
sheet date.
Loans receivable:
Loans receivable 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.
The accrual of interest is generally 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.
- -38-
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 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.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower's prior payment record and the amount of the
shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by
either the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's obtainable market price or the
fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer and residential loans for impairment
disclosures.
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.
Foreclosed real estate:
Foreclosed assets, which are recorded in other assets, include properties
acquired through foreclosure or in full or partial satisfaction of the
related loan. Foreclosed assets are initially recorded at fair value, net
of estimated selling costs, at the date of foreclosure. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value, less estimated costs
to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in other expenses.
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.
Advertising:
Advertising costs are expensed as incurred.
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.
-39-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings and dividends per share:
The Corporation has a simple capital structure. Basic earnings per share
represents income available to common stockholders divided by the weighted
average number of common shares outstanding during the period. The weighted
average number of common shares outstanding was 2,200,878, 2,290,728 and
2,321,739 in 2000, 1999 and 1998, respectively. Dividends per share
represent the historical dividends of the Corporation which excludes the
dividends of Lewistown Trust Company. Total dividends paid by Lewistown in
1998 were $290,000.
Comprehensive income:
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available
for sale securities, are reported as a separate component of the equity
section of the balance sheet, such items, along with net income, are
components of comprehensive income.
The components of other comprehensive income (loss) and related tax effects
are as follows:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Unrealized holding gains (losses) on available for sale securities $405 $(1,008) $ 322
Less reclassification adjustment for gains realized in income (5) (44) (212)
---- ------- -----
Net unrealized gains (losses) 400 (1,052) 110
Tax effect 135 (338) 38
---- ------- -----
Net of tax amount $265 $ (714) $ 72
==== ======= ======
New accounting standard:
In September 2000, the Financial Accounting Standards Board issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities". This statement replaces SFAS
No. 125 of the same name. It revises the standards of securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but carries over most of the provisions of SFAS No. 125
without reconsideration. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The statement is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. This statement is to be applied prospectively with
certain exceptions. Other than these exceptions, earlier or retroactive
application of its accounting provision is not permitted. The adoption of
the statement is not expected to have a significant impact on the
Corporation.
Segment reporting:
The Bank acts as an independent community financial services provider, and
offers traditional banking and related financial services to individual,
business and government customers. Through its branch and automated teller
machine network, the Bank offers a full array of commercial and retail
financial services, including the taking of time, savings and demand
deposits; the making of commercial, consumer and mortgage loans; trust
services and the providing of other financial services.
Management does not separately allocate expenses, including the cost of
funding loan demand, between the commercial, retail, and trust operations
of the Bank. As such, discrete financial information is not available and
segment reporting would not be meaningful.
- -40-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MERGER
On July 1, 1998, the Corporation completed the merger of Lewistown Trust Company
(Lewistown), a commercial bank located in Lewistown, Pennsylvania, by issuing
931,700 shares of its common stock for all of the outstanding common stock of
Lewistown, except for the 5,324 shares of Lewistown held by the Corporation
which were canceled. The merger was accounted for under the pooling-of-interests
method of accounting and, as such, all prior period information has been
restated. The results of operations for periods prior to the merger are
summarized as follows:
Net Interest Net
Income Income
------ ------
(In Thousands)
Six months ended June 30, 1998:
Corporation $4,525 $1,519
Lewistown 1,925 820
------ ------
$6,450 $2,339
====== ======
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 2000 and 1999 approximated $2,228,000 and
$2,571,000 respectively.
-41-
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 Gains Losses Value
---- ----- ------ -----
(In Thousands)
AVAILABLE FOR SALE SECURITIES:
DECEMBER 31, 2000:
U.S. Treasury securities $ 750 $ 7 $ -- $ 757
U.S. Government and agency obligations 5,287 10 (19) 5,278
Obligations of states and political subdivisions 15,265 76 -- 15,341
Corporate and other debt securities 5,030 20 (8) 5,042
Mortgage-backed securities 5,726 101 (4) 5,823
Equity securities 1,718 403 (31) 2,090
------- ---- ------- -------
$33,776 $617 $ (62) $34,331
======= ==== ======= =======
DECEMBER 31, 1999:
U.S. Treasury securities $ 1,648 $ 1 $ -- $ 1,649
U.S. Government and agency obligations 4,912 -- (120) 4,792
Obligations of states and political subdivisions 23,437 66 (55) 23,448
Corporate and other debt securities 6,068 2 (78) 5,992
Mortgage-backed securities 7,167 93 (16) 7,244
Equity securities 1,713 299 (37) 1,975
------- ---- ------- -------
$44,945 $461 $ (306) $45,100
======= ==== ======= =======
HELD TO MATURITY SECURITIES:
DECEMBER 31, 2000:
U.S. Treasury securities $ 999 $ -- $ (1) $ 998
U.S. Government and agency obligations 12,072 4 (51) 12,025
Obligations of states and political subdivisions 27,201 16 (170) 27,047
Corporate and other debt securities 10,968 3 (74) 10,897
------- ---- ------- -------
$51,240 $ 23 $ (296) $50,967
======= ==== ======= =======
DECEMBER 31, 1999:
U.S. Treasury securities $ 1,247 $ -- $ (14) $ 1,233
U.S. Government and agency obligations 13,201 -- (366) 12,835
Obligations of states and political subdivisions 30,223 -- (679) 29,544
Corporate and other debt securities 14,879 1 (321) 14,559
------- ---- ------- -------
$59,550 $ 1 $(1,380) $58,171
======= ==== ======= =======
- -42-
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, 2000, 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 $10,171 $10,179 $ 4,986 $ 4,978
Due after one year through five years 15,372 15,435 45,479 45,213
Due after five years through ten years 512 513 -- --
Due after ten years 277 291 775 776
Mortgage-backed securities 5,726 5,823 -- --
Equity securities 1,718 2,090 -- --
------- ------- ------- -------
$33,776 $34,331 $51,240 $50,967
======= ======= ======= =======
Equity securities include Federal Home Loan Bank stock with an aggregate cost,
which approximates fair value, of $1,185,000 and $1,175,000 at December 31, 2000
and 1999, respectively.
Gross gains of $5,000, $44,000, and $212,000 were realized on sales of
securities available for sale in 2000, 1999 and 1998, respectively.
Securities with a fair value of $16,406,000 and $18,090,000 at December 31, 2000
and 1999, respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law.
-43-
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
Loans are comprised of the following:
December 31,
------------
2000 1999
---- ----
(In Thousands)
Commercial, agricultural and financial $ 23,327 $ 18,784
Real estate mortgages:
Residential 114,234 110,615
Commercial 28,663 28,548
Consumer 62,997 54,416
Other 3,101 2,456
-------- --------
232,322 214,819
Unearned discount on loans (10,006) (7,997)
Allowance for loan losses (2,497) (2,486)
-------- --------
$219,819 $204,336
======== ========
The following table presents changes in the allowance for loan losses:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Balance, beginning $ 2,486 $ 2,477 $ 2,390
Provision for loan losses 230 120 210
Recoveries 25 18 20
Loans charged off (244) (129) (143)
-------- -------- --------
Balance, ending $ 2,497 $ 2,486 $ 2,477
======== ======== ========
The recorded investment in impaired loans was $-0- at December 31, 2000 and
1999. For the years ended December 31, 2000, 1999 and 1998, the average recorded
investment in these impaired loans was $-0-, $-0-, and $143,000, respectively,
and no interest income was recognized on impaired loans in 2000, 1999 and 1998.
- -44-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANK PREMISES AND EQUIPMENT
The major components of bank premises and equipment are as follows:
December 31,
------------
2000 1999
---- ----
(In Thousands)
Land and land improvements $ 686 $ 686
Buildings and improvements 6,238 3,527
Furniture and equipment 2,700 2,528
-------- --------
9,624 6,741
Less accumulated depreciation 3,632 3,313
-------- --------
$ 5,992 $ 3,428
======== ========
DEPOSITS
The composition of deposits is as follows:
December 31,
------------
2000 1999
---- ----
(In Thousands)
Demand, non-interest bearing $ 33,893 $ 34,332
Now and Money Market 47,220 44,025
Savings 29,191 32,125
Time, $100,000 or more 25,102 23,478
Other Time 151,814 149,390
-------- --------
$287,220 $283,350
======== ========
At December 31, 2000, the scheduled maturities of time deposits are as follows
(in thousands):
2001 $108,279
2002 38,396
2003 21,480
2004 5,415
2005 3,346
--------
$176,916
========
BORROWINGS
The Bank has entered into an agreement whereby it can borrow up to $10,000,000
from the Federal Home Loan Bank (FHLB). Outstanding balances under this
agreement were $-0- and $5,300,000 as of December 31, 2000 and 1999,
respectively. The agreement expires in September 2001 and the interest rate was
6.63% and 4.05% at December 31, 2000 and 1999, respectively.
The Bank has a maximum borrowing capacity of $118,572,000 with the FHLB which is
collateralized by qualifying assets of the Bank. No amounts were outstanding at
December 31, 2000.
-45-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Corporation and the Bank are 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 Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The 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 maintenance of minimum amounts and ratios (set forth below) of total
and Tier l capital (as defined in the regulations) to risk-weighted assets and
of Tier l capital to average assets. Management believes, as of December 31,
2000, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 2000, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital ratios and the minimum ratios required for capital
adequacy purposes and to be well capitalized under the prompt corrective action
provisions are presented below. The Corporation's ratios were not materially
different from those of the Bank.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
AS OF DECEMBER 31, 2000:
Total capital (to risk-weighted assets) $43,496 19.59% [*]$17,764 [*]8.00% [*]$22,205 [*]10.00%
Tier I capital (to risk-weighted assets) 40,999 18.46 [*] 8,882 [*]4.00 [*] 13,323 [*] 6.00
Tier I capital (to average assets) 40,999 12.30 [*] 13,332 [*]4.00 [*] 16,664 [*] 5.00
AS OF DECEMBER 31, 1999:
Total capital (to risk-weighted assets) $44,319 20.76% [*]$17,079 [*]8.00% [*]$21,349 [*]10.00%
Tier l capital (to risk-weighted assets) 41,833 19.59 [*] 8,540 [*]4.00 [*] 12,809 [*] 6.00
Tier l capital (to average assets) 41,833 12.33 [*] 13,574 [*]4.00 [*] 16,967 [*] 5.00
[*Greater than or equal to]
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, 2000, $29,080,000 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 2000, 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 $26.25 for each share issued and outstanding, upon
the occurrence of certain events, as defined in the Plan. These rights are fully
transferable and expire on August 31, 2010. The rights are not considered
potential common shares for earnings per share purposes because there is no
indication that any event will occur which would cause them to become
exercisable.
The Corporation has a dividend reinvestment and stock purchase plan. 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
plan. At December 31, 2000, 95,913 shares were available for issuance under the
Dividend Reinvestment Plan.
During 2000, the Corporation's shareholders approved the adoption of the 2000
Incentive Stock Option Plan. The plan covers 200,000 shares of common stock
reserved for issuance upon exercise of options granted or available for grant to
officers and key employees and will expire May 31, 2010. The plan provides that
the option price per share shall not be less than the fair market value of the
stock on the day the option is granted, but in no event less than the par value
of such stock. Options granted are exercisable six months after the grant and
expire ten years after the date of the grant. During the year ended December 31,
2000, no options were granted under this plan.
- -46-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFITS
Defined benefit retirement plan:
The Corporation has a defined benefit retirement plan covering
substantially all of its employees. The benefits are based on years of
service and the employees' compensation. The Corporation's funding policy
is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to
be earned in the future.
Information pertaining to the activity in the Plan is as follows:
Years ended December 31,
2000 1999
---- ----
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $3,174 $2,858
Service cost 177 162
Interest cost 242 215
Actuarial loss 47 10
Benefits paid (79) (71)
------ ------
Benefit obligation at end of year 3,561 3,174
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 2,932 2,654
Actual return on plan assets 107 172
Employer contribution 229 177
Benefits paid (79) (71)
------ ------
Fair value of plan assets at end of year 3,189 2,932
------ ------
Funded status (372) (242)
Unrecognized net actuarial gain (loss) 95 (63)
Unrecognized net transition asset (22) (24)
------ ------
Accrued benefit cost $ (299) $ (329)
====== ======
Pension expense included the following components for the years ended
December 31:
2000 1999 1998
---- ---- ----
(In Thousands)
Service cost, benefits earned during the year $ 177 $ 162 $ 145
Interest cost on projected benefit obligation 239 212 194
Expected return on plan assets (219) (202) (167)
Net amortization (2) (2) (20)
------ ----- ------
$ 195 $ 170 $ 152
====== ====== ======
Assumptions used in the accounting were:
2000 1999 1998
---- ---- ----
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
-47-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFITS (CONTINUED)
Supplemental retirement plan:
The Corporation has a non-qualified supplemental retirement plan for
directors and key employees. At December 31, 2000 and 1999, the present
value of the future liability was $1,065,000 and $1,005,000, respectively.
The Corporation has funded these plans through the purchase of annuities
and life insurance policies, which have an aggregate cash surrender value
of $970,000 and $978,000 at December 31, 2000 and 1999, respectively. For
the years ended December 31, 2000, 1999 and 1998, $147,000, $152,000 and
$154,000, respectively, was charged to expense in connection with this
plan.
Deferred compensation plan:
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, 2000 and 1999, the present value of
the future liability was $1,678,000 and $1,572,000, respectively. To fund
the benefits under these agreements, the Corporation is the owner and
beneficiary of life insurance policies on the lives of certain directors.
The policies had an aggregate cash surrender value of $1,246,000 and
$1,152,000 at December 31, 2000 and 1999, respectively. For the years ended
December 31, 2000, 1999 and 1998, $157,000, $201,000 and $283,000,
respectively, was charged to expense in connection with this plan.
Employee Stock Purchase Plan:
The Corporation has an Employee Stock Purchase Plan under which employees,
through payroll deductions, are able to purchase shares of stock annually.
The option price of the stock purchases shall be between 85% and 100% of
the fair market value of the stock on the commencement date as determined
annually by the Board of 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. In 2000, 1999 and 1998, 39, 753 and 2,497 shares,
respectively, were issued under the Plan. At December 31, 2000, 96,400
shares were reserved for issuance under the Plan.
Salary continuation plan: The Corporation has a non-qualified Salary
Continuation Plan for key employees. At December 31, 2000 and 1999, the
present value of the future liability was $215,000 and $141,000,
respectively. The Corporation has funded the Plan through the purchase of
life insurance policies which have an aggregate cash surrender value of
$1,463,000 and $1,396,000 at December 31, 2000 and 1999, respectively. For
the years ended December 31, 2000, 1999 and 1998, $74,000, $68,000 and
$63,000, respectively, was charged to expense in connection with the Plan.
- -48-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The provision for federal income taxes consists of the following:
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Current $1,485 $1,417 $1,485
Deferred (110) (57) (172)
------ ------ ------
$1,375 $1,360 $1,313
====== ====== ======
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,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Federal income tax at statutory rate $1,959 $1,917 $1,943
Tax-exempt interest (656) (775) (689)
Disallowance of interest expense 110 123 84
Other (38) 95 (25)
------ ------ ------
$1,375 $1,360 $1,313
====== ====== ======
The income tax provision includes $2,000, $15,000 and $72,000 in 2000, 1999 and
1998, respectively, of income tax related to realized gains on sales of
securities.
The net deferred tax asset in the accompanying balance sheets includes the
following amounts of deferred tax assets and liabilities:
December 31,
2000 1999
---- ----
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 722 $ 718
Deferred directors' fees 571 534
Pension liabilities 536 502
------ ------
Total deferred tax assets 1,829 1,754
------ ------
Deferred tax liabilities:
Bank premises and equipment (105) (95)
Securities accretion (27) (39)
Unrealized gains on securities available for sale (187) (52)
Other -- (33)
------ ------
Total deferred tax liabilities (319) (219)
------ -------
Net deferred tax asset $1,510 $1,535
====== =======
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, 2000 and 1999, these
persons were indebted to the Bank for loans totaling $1,335,000 and $1,407,000
respectively. During 2000, loans totaling $1,274,000 were disbursed and loan
repayments totaled $1,346,000.
-49-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS
The Bank rents equipment and branch offices under operating leases that expire
through 2006. Equipment and servicing fees were $484,000, $485,000 and $469,000
for the years ended December 31, 2000, 1999 and 1998, respectively. Rent
expense, including the license fee for the branch offices was $53,000 $53,000
and $52,000 in 2000, 1999 and 1998, respectively.
Minimum future payments under all noncancellable lease and service agreements as
of December 31, 2000 are as follows (in thousands):
2001 $267
2002 196
2003 30
2004 30
2005 30
Thereafter 25
----
$578
====
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:
2000 1999
---- ----
(In Thousands)
Commitments to grant loans $ 2,514 $ 2,607
Unfunded commitments under lines of credit 22,994 24,614
Outstanding letters of credit 610 337
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,
Centre, 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.
- -50-
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 judgment 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 calculation 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,
2000 and 1999:
o 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.
o 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.
o 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.
o Fair values for demand deposits, savings accounts and certain money market
deposits are, by definition, equal to the amount payable on demand at the
reporting 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.
o For short-term borrowings, the carrying amount is a reasonable estimate of
fair value.
o For accrued interest receivable and accrued interest payable, the carrying
amount is a reasonable estimate of fair value.
o 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,
2000 1999
---- ----
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
------ ----- ------ -----
(In Thousands)
Financial assets:
Cash and due from banks $ 10,621 $ 10,621 $ 15,381 $ 15,381
Interest-bearing deposits with banks 676 676 653 653
Federal funds sold 4,400 4,400 -- --
Securities 85,571 85,298 104,650 103,271
Loans receivable, net of allowance 219,819 218,695 204,336 203,097
Accrued interest receivable 2,177 2,177 2,215 2,215
Financial liabilities:
Deposits 287,220 287,960 283,350 284,196
Short-term borrowings -- -- 5,300 5,300
Accrued interest payable 988 988 951 951
Off-balance sheet financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
-51-
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,
------------
2000 1999
---- ----
ASSETS (In Thousands)
Cash $ 2 $ 4
Interest-bearing deposits with banks 490 490
------- -------
Total cash and cash equivalents 492 494
Investment in Bank subsidiary 41,348 41,942
Securities available for sale 1,235 813
Other 16 58
------- -------
$43,091 $43,307
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES, other $ 9 $ 52
STOCKHOLDERS' EQUITY 43,082 43,255
------- -------
$43,091 $43,307
======= =======
STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
Dividends from Bank subsidiary $ 5,212 $ 6,758 $1,972
Interest income 74 51 29
Other expenses (72) (30) (23)
------- ------- ------
Income before equity in undistributed net income of subsidiary 5,214 6,779 1,978
Equity in (excess of) undistributed net income of Bank subsidiary (827) (2,501) 2,423
------- ------- ------
Net income $ 4,387 $ 4,278 $4,401
======= ======= ======
- -52-
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,
------------------------
2000 1999 1998
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,387 $4,278 $ 4,401
Adjustments to reconcile net income to net cash
provided by operating activities:
Distributions in excess of (undistributed) net income
of Bank subsidiary 827 2,501 (2,423)
(Increase) decrease in other assets 42 (22) (8)
Increase (decrease) in other liabilities 7 -- (8)
------- ------ ------
Net cash provided by operating activities 5,263 6,757 1,962
------- ------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of available for sale securities (640) (470) --
Proceeds from maturities of available for sale securities 200 -- --
------- ------ ------
Net cash used in investing activities (440) (470) --
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid and cash paid in lieu of fractional shares (2,935) (2,935) (1,962)
Purchase of treasury stock (2,276) (3,823)
Treasury stock issued 386 469 484
------- ------ ------
Net cash used in financing activities (4,825) (6,289) (1,478)
------- ------ ------
Increase (decrease) in cash and cash equivalents (2) (2) 484
Cash and cash equivalents:
Beginning 494 496 12
-------- ------ ------
Ending $ 492 $ 494 $ 496
======== ====== ======
-53-
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
- - 54 -