UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
For the quarterly period ended June 30, 2005
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission File Number 2-81699
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Juniata Valley Financial Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2235254
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bridge and Main Streets, Mifflintown, Pennsylvania 17059
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(Address of principal executive offices) (Zip Code)
(717) 436-8211
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of July 31, 2005
----------------------------- -----------------------------------------
Common Stock ($1.00 par value) 2,283,909 shares
1.
JUNIATA VALLEY FINANCIAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets
as of June 30, 2005 and December 31, 2004 (Unaudited).................2
Consolidated Statements of Income for the three
and six months ended June 30, 2005 and 2004 (Unaudited)...............3
Consolidated Statement of Stockholders' Equity
For the six months ended June 30, 2005 (Unaudited)....................4
Consolidated Statement of Stockholders' Equity
For the six months ended June 30, 2004 (Unaudited)....................5
Consolidated Statements of Cash Flows for the six
months ended June 30, 2005 and 2004 (Unaudited).......................6
Notes to Unaudited Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.....................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........14
Item 4. Controls and Procedures..............................................14
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings....................................................15
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........15
Item 3. Defaults Upon Senior Securities......................................15
Item 4. Submission of Matters to a Vote of Security Holders..................15
Item 5. Other Information....................................................16
Item 6. Exhibits ............................................................16
Signatures...........................................................16
2.
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
June 30, December 31,
2005 2004
--------- ------------
(In thousands, except share data)
(Unaudited)
Cash and due from banks $ 11,485 $ 10,733
Interest bearing deposits with banks 91 167
Federal funds sold -- 3,900
--------- ---------
Cash and cash equivalents 11,576 14,800
Interest bearing time deposits with banks 6,260 6,760
Securities available for sale 67,479 71,583
Securities held to maturity, fair value of
$7,861 and $4,489, respectively 7,887 4,485
Restricted investment in bank stock 1,049 1,329
Loans receivable, net of allowance for loan
losses of $2,988 and $2,989, respectively 289,000 276,759
Bank premises and equipment, net 6,596 6,802
Bank-owned life insurance 8,023 7,885
Accrued interest receivable and other assets 8,331 6,355
--------- ---------
TOTAL ASSETS $ 406,201 $ 396,758
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 46,941 $ 47,459
Interest bearing 294,197 285,183
--------- ---------
Total deposits 341,138 332,642
Securities sold under agreements to repurchase 4,564 4,716
Short-term debt 1,500 --
Long-term debt 5,000 5,000
Accrued interest payable and other liabilities 5,483 4,247
--------- ---------
Total liabilities 357,685 346,605
--------- ---------
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
2,372,913 shares 2,373 2,373
Surplus 20,488 20,386
Retained earnings 28,629 29,966
Accumulated other comprehensive income (loss) (24) 414
Treasury stock, at cost 88,998 shares and
92,284 shares respectively (2,950) (2,986)
--------- ---------
Total stockholders' equity 48,516 50,153
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 406,201 $ 396,758
========= =========
See Notes to Unaudited Consolidated Financial Statements
3.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
For the Quarter Ended For the Six Months Ended
--------------------- ------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------- ------- ------- -------
(In thousands, except per share amount)
INTEREST INCOME:
Loans receivable $ 4,965 $ 4,674 $ 9,726 $ 9,159
Taxable securities 482 524 968 1,082
Tax-exempt securities 168 209 334 447
Other 69 38 148 74
------- ------- ------- -------
Total interest income 5,684 5,445 11,176 10,762
INTEREST EXPENSE:
Deposits 1,866 1,550 3,557 3,191
Borrowings 63 -- 129 --
------- ------- ------- -------
Total interest expense 1,929 1,550 3,686 3,191
Net interest income 3,755 3,895 7,490 7,571
PROVISION FOR LOAN LOSSES -- 77 28 157
------- ------- ------- -------
Net interest income after provision
for loan losses 3,755 3,818 7,462 7,414
------- ------- ------- -------
OTHER INCOME:
Trust department 93 99 190 236
Customer service fees 349 322 683 604
Other 262 283 521 474
Earnings on bank-owned life insurance 67 87 138 171
Gain on sale of securities -- 134 99 268
------- ------- ------- -------
Total other income 771 925 1,631 1,753
------- ------- ------- -------
OTHER EXPENSES:
Salaries and wages 1,409 1,077 2,459 2,090
Employee benefits 400 354 786 736
Occupancy 210 199 417 409
Equipment 447 395 900 822
Director compensation 104 104 202 208
Taxes, other than income 128 128 257 257
Other 525 392 873 746
------- ------- ------- -------
Total other expenses 3,223 2,649 5,894 5,268
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,303 2,094 3,199 3,899
FEDERAL INCOME TAXES 358 519 891 969
------- ------- ------- -------
Net income $ 945 $ 1,575 $ 2,308 $ 2,930
======= ======= ======= =======
Basic earnings per share $ .41 $ .69 $ 1.01 $ 1.28
======= ======= ======= =======
Diluted earnings per share $ .41 $ .69 $ 1.01 $ 1.28
======= ======= ======= =======
Dividends per share $ .60 $ .56 $ 1.60 $ 1.56
======= ======= ======= =======
See Notes to Unaudited Consolidated Financial Statements
4.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2005
--------------------------------------
(Unaudited, except per share amounts)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income (loss) Stock Total
-------- -------- -------- ------------- -------- --------
(In thousands)
BALANCE
December 31, 2004 $ 2,373 $ 20,386 $ 29,966 $ 414 $ (2,986) $ 50,153
--------
Comprehensive Income:
Net income for the
six months ended
June 30, 2005 -- -- 2,308 -- -- 2,308
Change in unrealized
(losses) on
securities available
for sale, net of
reclassification
adjustment and tax
effects -- -- -- (438) -- (438)
--------
Total Comprehensive Income 1,870
--------
Cash dividends, $1.60 per share -- -- (3,645) -- -- (3,645)
Treasury stock issued for
dividend reinvestment plan
(7,086 shares) -- 94 -- -- 233 327
Treasury stock issued for
employee stock purchase plan
(2,200 shares) -- 8 -- -- 73 81
Treasury stock acquired
(6,000 shares) -- -- -- -- (270) (270)
-------- -------- -------- -------- -------- --------
Balance June 30, 2005 $ 2,373 $ 20,488 $ 28,629 $ (24) $ (2,950) $ 48,516
======== ======== ======== ======== ======== ========
See Notes to Unaudited Consolidated Financial Statements
5.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2004
--------------------------------------
(Unaudited, except per share amounts)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
-------- -------- -------- ------------- -------- --------
(In thousands)
BALANCE
December 31, 2003 $ 2,373 $ 20,231 $ 29,016 $ 1,472 $ (2,609) $ 50,483
--------
Comprehensive Income:
Net income for the
six months ended
June 30, 2004 -- -- 2,930 -- -- 2,930
Change in unrealized
losses on
securities available
for sale, net of
reclassification
adjustment and tax
effects -- -- -- (1,138) -- (1,138)
--------
Total Comprehensive Income 1,792
--------
Cash dividends, $1.56 per share -- -- (3,560) -- -- (3,560)
Treasury stock issued for
dividend reinvestment plan
(7,207 shares) -- 74 -- -- 206 280
Treasury stock issued for
employee stock purchase plan
(5,574 shares) -- (6) -- -- 160 154
Treasury stock acquired
(15,115 shares) -- -- -- -- (580) (580)
-------- -------- -------- -------- -------- --------
Balance June 30, 2004 $ 2,373 $ 20,299 $ 28,386 $ 334 $ (2,823) $ 48,569
======== ======== ======== ======== ======== ========
See Notes to Unaudited Consolidated Financial Statements
6.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
For the Six Months Ended
------------------------
June 30, June 30,
2005 2004
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,308 $ 2,930
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 28 157
Provision for depreciation 303 271
Net amortization of security premiums 68 158
Net realized gains on sales of securities (99) (268)
Deferred compensation expense 215 245
Payment of deferred compensation (180) (193)
Earnings on investment in life insurance (138) (171)
Other (549) (564)
-------- --------
Net cash provided by operating activities 1,956 2,565
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing time deposits 500 1,100
Purchases of available for sale securities (3,094) (8,847)
Proceeds from sales of available for sale securities 125 3,279
Proceeds from maturities of and principal repayments
on available for sale securities 6,438 16,054
Net change in restricted bank stock 280 169
Purchases of held to maturity securities (4,400) (1,295)
Proceeds from maturities of and principal repayments
on held to maturity securities 1,000 6,359
Net increase in loans receivable (12,269) (17,593)
Purchases of bank premises and equipment (97) (209)
-------- --------
Net cash used for investing activities (11,517) (983)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 8,496 2,106
Net increase in short-term borrowings 1,348 --
Cash dividends (3,645) (3,560)
Purchase of treasury stock (270) (580)
Treasury stock issued for dividend reinvestment and
employee stock purchase plan 408 434
-------- --------
Net cash provided by (used for) financing activities 6,337 (1,600)
-------- --------
Decrease in cash and cash equivalents (3,224) (18)
Cash and cash equivalents:
Beginning 14,800 13,267
-------- --------
Ending $ 11,576 $ 13,609
======== ========
Supplementary cash flows information:
Interest paid $ 3,608 $ 3,230
======== ========
Income taxes paid $ 1,151 $ 1,096
======== ========
See Notes to Unaudited Consolidated Financial Statements
7.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The financial information includes the accounts of Juniata Valley Financial
Corp. (the Corporation) and its wholly owned subsidiary, The Juniata Valley
Bank. All significant intercompany accounts and transactions have been
eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with U.S. generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
for the six-month period ended June 30, 2005, are not necessarily indicative of
the results that may be expected for the year ended December 31, 2005. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Juniata Valley Financial Corp. annual report on
Form 10-K for the year ended December 31, 2004.
NOTE B - Recent Accounting Pronouncements
In April 2005, the Securities and Exchange Commission adopted a new rule that
amends the compliance dates for Financial Accounting Standards Board's ("FASB")
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (FAS No. 123R). The Statement requires that compensation cost relating
to share-based payment transactions be recognized in financial statements and
that this cost be measured based on the fair value of the equity or liability
instruments issued. FAS No. 123 (Revised 2004) covers a wide range of
share-based compensation arrangements including share options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. The Company will adopt FAS No. 123 (Revised 2004) on January 1,
2006 and is currently evaluating the impact the adoption of the standard will
have on the Company's results of operations.
In March 2005, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 107 ("SAB No. 107"), "Share-Based Payment," providing
guidance on option valuation methods, the accounting for income tax effects of
share-based payment arrangements upon adoption of FAS No. 123R, and the
disclosures in MD&A subsequent to the adoption. The Company will provide SAB No.
107 required disclosures upon adoption of SFAS No. 123R on January 1, 2006, and
is currently evaluating the impact the adoption of the standard will have on the
Company's financial condition, results of operations, and cash flows.
In December 2004, FASB issued FAS No. 153, "Exchanges of Nonmonetary Assets - An
Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, "Accounting
for Nonmonetary Transactions," is based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. The guidance in that Opinion, however, included certain exceptions to
that principle. FAS No. 153 amends Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of FAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early
application is permitted and companies must apply the standard prospectively.
The adoption of this standard is not expected to have a material effect on the
Company's results of operations or financial position.
In June 2005, the FASB issued FAS No. 154, "Accounting Changes and Errors
Corrections, a replacement of APB Opinion No. 20 and FAS No. 3." The Statement
applies to all voluntary changes in accounting principle, and changes the
requirements for accounting for and reporting of a change in accounting
principle. FAS No. 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impractical. APB Opinion No. 20 previously required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
FAS No. 154 improves the financial reporting because its requirements enhance
the consistency of financial reporting between periods.
NOTE C - Accumulated Other 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 (loss).
8.
The components of other comprehensive income and related tax affects are as
follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2005 2004 2005 2004
------- ------- ------- -------
(In thousands)
Unrealized holding gains (losses) on
available for sale securities $ 328 $(1,682) $ (565) $(1,456)
Less classification adjustment for
gains realized in income -- (134) (99) (268)
------- ------- ------- -------
Net unrealized gains (losses) 328 (1,816) (664) (1,724)
Tax benefit (expense) (112) 618 226 586
------- ------- ------- -------
Net of tax amount $ 216 $(1,198) $ (438) $(1,138)
======= ======= ======= =======
NOTE D - Stock Option Plan
The Corporation accounts for the stock option plan under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Corporation had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based compensation for three and six months ended June 30, 2005 and
2004:
For the Quarter Ended For the Six Months Ended
--------------------- ------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------- ------- ------ -------
(In thousands, except per share amount)
Net income, as reported $ 945 $ 1,575 $ 2,308 $ 2,930
Total stock-based employee compensation
expense determined under fair value
based method for all awards (8) (9) (15) (17)
------- ------- ------ -------
Pro forma net income $ 937 $ 1,566 $ 2,293 $ 2,913
======= ======= ======= =======
Basic earnings per share:
As reported $ .41 $ .69 $ 1.01 $ 1.28
Pro forma $ .41 $ .69 $ 1.01 $ 1.28
Diluted earnings per share:
As reported $ .41 $ .69 $ 1.01 $ 1.28
Pro forma $ .41 $ .69 $ 1.00 $ 1.28
9.
NOTE E - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
For the Quarter Ended For the Six Months Ended
--------------------- ------------------------
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------- --------- --------- ---------
Net income applicable to common stock $ 945,000 1,575,000 2,308,000 2,930,000
Weighted average common shares outstanding 2,280,073 2,278,217 2,280,162 2,280,662
Effect of dilutive securities, stock options 9,181 6,250 8,593 5,537
---------- --------- --------- ---------
Weighted average common shares outstanding
used to calculate diluted earnings per share 2,289,254 2,284,467 2,288,755 2,286,199
Basic earnings per share $ .41 $ .69 $ 1.01 $ 1.28
Diluted earnings per share $ .41 $ .69 $ 1.01 $ 1.28
NOTE E - Guarantees
The Corporation does not issue any guarantees that would require liability
recognition or disclosure, other than its letters of credit. Letters of credit
written are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Generally, all letters of credit,
when issued have expiration dates within one year. The credit risk involved in
issuing letters of credit is essentially the same as those that are involved in
extending loan facilities to customers. The Corporation, generally, holds
collateral and/or personal guarantees supporting these commitments. The
Corporation had $735,000 of letters of credit as of June 30, 2005. Management
believes that the proceeds obtained through a liquidation of collateral and the
enforcement of guarantees would be sufficient to cover the potential amount of
future payment required under the corresponding guarantees. The current amount
of the liability as of June 30, 2005, for guarantees under letters of credit
issued is not material.
NOTE F - 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 taxes 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.
Pension expense included the following components for the three- and six-month
periods ended June 30, 2005 and 2004.
(In Thousands)
For the Quarter Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
----- ----- ----- -----
Service cost $ 70 $ 66 $ 140 $ 156
Interest cost 87 80 173 160
Expected return on plan assets (84) (80) (167) (160)
Net amortization 42 -- 38 --
----- ----- ----- -----
Net periodic cost $ 115 $ 66 $ 184 $ 156
===== ===== ===== =====
10.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements:
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses, and general economic
conditions. The Corporation undertakes no obligation to publicly release the
results of any revisions to those forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Critical Accounting Policies:
Disclosure of the Corporation's significant accounting policies is included in
the notes to the financial statements of the Corporation's Annual Report on Form
10-K for the year ended December 31, 2004. Some of these policies are
particularly sensitive, requiring significant judgments, estimates, and
assumptions to be made by management, most particularly in connection with
determining the provision for loan losses and the appropriate level of the
allowance for loan losses.
General
The following discusses the financial condition of the Company as of June 30,
2005, as compared to December 31, 2004, and the results of operations for the
three and six months ended June 30, 2005, compared to the same period in 2004.
This discussion should be read in conjunction with the interim condensed
consolidated financial statements and related footnotes included herein.
Introduction
Juniata Valley Financial Corp. is a Pennsylvania corporation organized to become
the holding company of The Juniata Valley Bank ("Bank"). The Bank is a
state-chartered bank located in Juniata, Pennsylvania. Juniata Valley Financial
Corp. and its subsidiary bank derive substantially all of their income from
banking and bank-related services, including interest earnings on residential
real estate, commercial mortgage, commercial, and consumer financings as well as
interest earnings on investment securities and deposit services to its customers
through 11 locations in central Pennsylvania.
Financial Condition:
Total assets increased $9,443,000 or 2.4 percent from December 31, 2004 to June
30, 2005.
Cash and cash equivalent decreased $3,224,000 or 21.8 percent as the corporation
utilized federal funds sold to fund loan growth during the first six months of
2005.
Total securities available for sale at June 30, 2005 decreased $4,104,000 or 5.7
percent from December 31, 2004. Total purchases for the period were $3,094,000,
while calls, maturities, and principal repayments totaled $6,438,000. Total
securities held to maturity at June 30, 2005 increased $3,402,000 or 75.9
percent from December 31, 2004. Total purchases for the period were $4,400,000,
while calls, maturities, and principal repayments totaled $1,000,000. A majority
of the calls, maturities, and principal repayments in the available for sale
portfolio were reinvested in the held to maturity portfolio in order to take
advantage of tax anticipation securities.
Loans increased $12,241,000 or 4.4 percent from December 31, 2004 to June 30,
2005. Commercial loans increased $4,402,000 or 4.9 percent, installment loans
increased $3,201,000 or 5.1 percent, and mortgages increased $3,768,000 or 2.9
percent. Management attributes the increases in lending balances to continued
customer referrals, the economic climate within the market area, and competitive
rates. The growth in loans was primarily funded by cash and cash equivalents and
deposit growth.
There are no material loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention which management expects to
significantly impact future operating results, liquidity or capital resources.
Additionally, management is not aware of any information which would give
serious doubt as to the ability of its borrowers to substantially comply with
their loan repayment terms. The Corporation's problem loans (i.e., 90 days past
due and restructured loans) were not material for all periods presented.
Total deposits increased $8,496,000 or 2.6 percent during the first half of
2005. Management has continued to offer attractive interest rates on deposit
accounts resulting in both new customers and additional deposits from existing
customers.
11.
Short-term borrowings increased $1,500,000 or 100 percent during the first six
months of 2005. Securities sold under agreements to repurchase decreased
$152,000 or 3.2 percent during the period. The increase in short-term borrowings
helped to fund the loan growth seen in the first half of 2005.
Stockholders' equity decreased $1,637,000 or 3.3 percent from December 31, 2004
to June 30, 2005. Net income of $2,308,000 was offset by dividend declarations
of $3,645,000. The purpose of the cash dividends was to return to stockholders
part of their investment as well as increase the return on equity for the
Corporation. Securities available for sale declined in market value,
representing a decrease of $438,000 during the period.
Management is not aware of any current recommendations of the regulatory
authorities which, if implemented, would have a material effect on the
Corporation's liquidity, capital resources, or operations.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
The Company had net income of $945,000 for the second quarter of 2005. Basic and
diluted earnings per share for the three months ended June 30, 2005 totaled
$.41, compared with $.69 for the three months ended June 30, 2004, a decrease of
40.6 percent. In dollars, net income decreased $630,000 or 40.0 percent for the
three months ended June 30, 2005, compared to the same period in 2004.
Interest on loans increased $291,000 or 6.2 percent in 2005 as compared to 2004.
Volume increases in the loan portfolio were responsible for greater income over
the period with the average balance of the portfolio increasing $27,418,000 or
10.5 percent while the average interest rate earned on the portfolio decreased
28 basis points from 7.17 percent to 6.89 percent over the period. The
substantial growth in the loan portfolio over the past year continued during the
second quarter of 2005. Management attributes the increases in lending balances
to continued customer referrals, the economic climate within the market area,
and competitive rates. The growth in loans was primarily funded by cash and cash
equivalents and deposit growth.
Interest earned on taxable investment securities decreased $42,000 or 8.0
percent in the second quarter of 2005 as compared to 2004. Maturities and calls
of investments which were purchased while interest rates were higher than
current rates were not able to be reinvested at similar rates without increasing
the duration of the bonds. Management believes that economic indicators show
that we are in a rising interest rate period.
Interest expense on deposits increased $316,000 or 20.4 percent in 2005 as
compared to 2004. The average balance of interest-bearing deposits increased
$3,251,000 or 1.1 percent while the average interest rate paid increased to 2.5
percent in 2005 from 2.1 percent in 2004. With the additional increases in
short-term interest rates, management expects the average interest rate to
increase, but not in direct proportion to the market increase since deposit
interest rates lag market rates in general and time deposit rates reprice at
maturity, which may vary from 30 days to 5 years.
As a result of the aforementioned changes in interest earned and interest paid,
net interest income decreased $140,000, or 3.6 percent in the second quarter of
2005 as compared to the same period in 2004.
The provision for loan losses decreased $77,000 or 100.0 percent for the three
months ended June 30, 2005, compared to the same period in 2004. The decrease in
the provision 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.
Noninterest income decreased $154,000 or 16.7 percent in the second quarter of
2005 as compared to the same period in 2004. The Company recognized gains on
sales of securities of $134,000 in the second quarter of 2004 which were not
repeated in 2005 causing the majority of the decrease. The decrease in security
gains resulted from management responding to opportunities available to sell
securities in the prior year without impacting the overall effective yield of
the investment portfolio.
Noninterest expenses increased $574,000 or 21.7 percent in the second quarter of
2005 as compared to 2004. Salaries and wages expense increased $332,000 in the
second quarter of 2005 as compared to 2004. The majority of this increase is due
to severance that was recorded related to an executive who left the company
during the second quarter. The increase in employee benefits is due to rising
costs and normal increases. The increase of $52,000 in equipment cost is from
increased usage of the Internet banking and telephone banking products and
installation of the teller and platform automation systems. Other expenses
increased primarily due to additional costs related to compliance with
Sarbanes-Oxley section 404.
12.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
The Company had net income of $2,308,000 for the six months ended June 30, 2005.
Basic and diluted earnings per share for the six months ended June 30, 2005,
totaled $1.01, compared with $1.28 for the six months ended June 30, 2004, a
decrease of 21.1 percent. In dollars, net income decreased $622,000 or 21.2
percent for the six months ended June 30, 2005, compared to the same period in
2004.
Interest on loans increased $567,000 or 6.2 percent in 2005 as compared to 2004
with an increase in the average investment in loans of $26,527,000 or 10.3
percent in 2005. Management attributes the increases in lending balances to
continued customer referrals, the economic climate within the market area, and
competitive rates. The growth in loans was primarily funded by cash and cash
equivalents and deposit growth. The average interest rate earned on these loans
declined from 7.1 percent in 2004 to 6.9 percent due to lower offering rates in
recent years combined with repricing of the variable portion of the portfolio.
With the recent announcement of an increase in the prime rate of interest, we
expect to see a gradual increase in interest earned based upon reprices of
variable interest rate loans combined with originations at higher rates.
Interest earned on taxable investment securities declined $114,000 or 10.5
percent during the first half of 2005 as compared to 2004 due to a combination
of a smaller volume of investments due to repayment and maturities and lower
interest rates earned.
Interest expense relating to deposits increased $366,000 or 11.5 percent in the
first half of 2005 as compared to the same period in 2004. This increase in
expense is directly related to growth in deposits and higher interest rates paid
with the average rate paid in 2005 of 2.4 percent compared to 2.2 percent in
2004. With the additional increases in short term interest rates, management
expects the average interest rate to increase, but not in direct proportion to
the market increase since deposit interest rates lag market rates in general and
time deposit rates reprice at maturity, which may vary from 30 days to 5 years.
As a result of the aforementioned changes in interest earned and interest paid,
net interest income decreased $81,000, or 1.1 percent for the six months ended
June 30, 2005, as compared to the same period in 2004.
The provision for loan loss decreased by $129,000 or 82.2 percent in the first
half of 2005 as compared to the same period in 2004. The decrease in the
provision 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. Net charge-offs at June 30, 2005, were
$29,000 compared to net charge-offs of $53,000 at June 30, 2004.
Noninterest income decreased $122,000 or 7.0 percent in the first half of 2005
as compared to the same period in 2004. The Company recognized gains on sales of
securities of $268,000 in the first half of 2004, whereas only $99,000 in gains
were recognized in 2005 causing the majority of the decrease. The decrease in
security gains resulted from management responding to opportunities available to
sell securities in prior year without impacting the overall effective yield of
the investment portfolio. Customer service fees increased $79,000 in the six
months ended June 30, 2005, as compared to the same period in 2004 commensurate
with activity in deposits. The decrease in trust department income is a result
of a decrease in estate fees in 2005 over 2004.
Salaries and employee benefits increased $369,000 or 17.7 percent for the first
half of 2005 as compared to 2004. The majority of this increase is due to
severance that was recorded related to an executive who left the company during
the second quarter. The $50,000 increase in employee benefits for the six months
ended June 30, 2005, compared to 2004, can be attributed to increases in benefit
costs overall.
Other noninterest expense increased $257,000 or 8.1 percent with higher expenses
in a number of areas. The increase of $78,000 in equipment cost is from
increased usage of the Internet banking and telephone banking products and
installation of the teller and platform automation systems. Other expenses
increased primarily due to additional costs related to compliance with
Sarbanes-Oxley section 404.
Liquidity:
The objective of liquidity management is to ensure that sufficient funding is
available, at a reasonable cost, to meet the ongoing operational cash needs of
the Corporation and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of the Corporation to maintain a high level
of liquidity in all economic environments. Principal sources of asset liquidity
are provided by securities maturing in one year or less, other short-term
investments such as federal funds sold and cash and due from banks. Liability
liquidity, which is more difficult to measure, can be met by attracting deposits
and maintaining the core deposit base. The Corporation is a member of the
Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term
liquidity when other sources are unable to fill these needs.
13.
The Corporation borrowed $5,000,000 from Federal Home Loan Bank in August of
2004, for a two-year term with a fixed interest rate of 2.86 percent which were
used for investment purposes.
Funding derived from securities sold under agreements to repurchase began in
September of 2004 through new corporate cash management accounts for business
customers. This allows the bank an ability to pay interest on corporate checking
accounts.
In view of the primary and secondary sources previously mentioned, Management
believes that the Corporation's liquidity is capable of providing the funds
needed to meet loan demand.
Off-Balance Sheet Arrangements:
The Corporation's financial statements do not reflect various off-balance sheet
arrangements that are made in the normal course of business, which may involve
some liquidity risk, credit risk, and interest rate risk. These commitments
consist mainly of loans approved but not yet funded, unused lines of credit, and
letters of credit made under the same standards as on-balance sheet instruments.
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. Letters of
credit are conditional commitments issued to guarantee the financial performance
obligation of a customer to a third party. Unused commitments at June 30, 2005,
were $39,454,000. Because these instruments have fixed maturity dates, and
because many of them will expire without being drawn upon, they do not generally
present any significant liquidity risk to the Corporation. Management believes
that any amounts actually drawn upon can be funded in the normal course of
operations.
The Corporation has no investment in or financial relationship with any
unconsolidated entities that are reasonably likely to have a material effect on
liquidity or the availability of capital resources.
Interest Rate Sensitivity:
Interest rate sensitivity management is the responsibility of the
Asset/Liability Management Committee. This process involves the development and
implementation of strategies to maximize net interest margin, while minimizing
the earnings risk associated with changing interest rates. The traditional gap
analysis identifies the maturity and re-pricing terms of all assets and
liabilities.
Generally a liability sensitive position indicates that more liabilities than
assets are expected to re-price within the time period and that falling interest
rates could positively affect net interest income while rising interest rates
could negatively affect net interest income. However, the traditional analysis
does not accurately reflect the Corporation's interest rate sensitivity since
the rates on core deposits generally do not change as quickly as market rates.
Historically net interest income has, in fact, not been subject to the degree of
sensitivity indicated by the traditional analysis at The Juniata Valley Bank.
Capital Adequacy:
The Bank's regulatory capital ratios for the periods presented are as follows:
Risk Weighted Assets Ratio:
Actual Required
------ --------
June 30, December 31, June 30 December 31,
2005 2004 2005 2004
------ ------ ---- ----
TIER I 16.34% 17.54% 4.0% 4.0%
TIER I & II 17.45% 18.69% 8.0% 8.0%
Total Assets Leveraged Ratio:
TIER I 10.96% 11.58% 4.0% 4.0%
At June 30, 2005, both the Corporation and the Bank exceeded the regulatory
requirements to be considered a "well capitalized" financial institution.
14.
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk:
From January 1, 2001 to March 31, 2004, the Federal Reserve lowered the federal
funds rate 13 times by 500 basis points. Since June 29, 2004, the Federal
Reserve raised interest rates by 225 basis points. As of June 30, 2005, little
impact has been experienced. Net interest margin for the Corporation was 4.5
percent at June 30, 2004 and decreased to 4.0 percent at June 30, 2005.
Currently, the Corporation has approximately 32.00 percent of its deposits in
NOW, money market, and savings accounts, which it considers core deposits. These
types of interest bearing deposit accounts carry lower rates relative to other
types of deposits. Because of this, these accounts have contributed
significantly to the net interest margin. The Corporation anticipates future
federal fund rates increases; therefore, future rate increases on the core
deposit accounts and there will be further compression on net interest margin.
The added risk in this interest rate environment is that as the rates on the
core deposits are so low, investors could migrate to other types of accounts
paying higher rates. The last financial simulation performed by the Bank as of
March 31, 2005, showed a possible decline in net interest income of $168,000 in
a -100 basis point rate shock over a one-year period. If rates continue to
increase, in a +100 basis point shock over a one-year period, the simulation
performed shows a possible $7,000 increase to net interest income. This
reflected a change in the assumptions that the rates on NOW and savings accounts
would remain constant in a -100 or +100 basis point rate shock. The net interest
income at risk position remains within the guidelines established by the Bank's
asset/liability policy. The Bank continues to monitor and manage its rate
sensitivity during these unusual times.
No material change has been noted in the Bank's equity value at risk. Please
refer to the Annual Report on Form 10-K as of December 31, 2004 for further
discussion of this matter.
Item 4 - CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer has evaluated the effectiveness of
the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(Exchange Act)) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that, as of the end of such period, the Company's disclosure
controls and procedures are effective in recording, processing, summarizing, and
reporting, on a timely basis, information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
During the second quarter, the Company's management continued to make
improvements to resolve an identified material weakness in internal control over
financial reporting. The Company lacked sufficient personnel in the Finance
Department to review information and to assure that the information is
calculated correctly and properly disclosed in the financial statements and
related footnotes. It was noted that greater expertise was required in certain
complex areas of financial reporting, including the calculation of income taxes,
stock options and employee benefit plans. During the quarter, management has
retained the services of an independent accounting firm for assistance in the
preparation and review of financial information, particularly with respect to
non-routine, major, and complex financial transactions.
15.
Part II. OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
In the opinion of management of the Corporation, there are no
legal proceedings pending to which the Corporation or its
subsidiary are a party or to which their property is subject,
which, if determined adversely to the Corporation or its
subsidiary, would be material in relation to the Corporation's or
its subsidiary financial condition. There are no proceedings
pending other than ordinary routine litigation incident to the
business of the Corporation or its subsidiary. In addition, no
material proceedings are pending or are known to be threatened or
contemplated against the Corporation or its subsidiary by
government authorities.
Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information on repurchases by the corporation of
its common stock in each month of the quarter ended June 30, 2005:
- -----------------------------------------------------------------------------------------------------------------------------
(d)
(c) Maximum number (or
Total number of shares approximate dollar
Period (a) (b) (or units) purchased as value) of shares (or
Total number of shares Average price paid part of publicly units) that may yet be
(or units) purchased per share (or unit) announced plans or purchased under the
programs plans or programs
- -----------------------------------------------------------------------------------------------------------------------------
Month #1
April 1 to 0 0 0 63,200
April 30, 2005
- -----------------------------------------------------------------------------------------------------------------------------
Month #2
May 1 to 4,000 46.00 4,000 59,200
May 31, 2005
- -----------------------------------------------------------------------------------------------------------------------------
Month #3
June 1 to 0 0 0 59,200
June 30, 2005
- -----------------------------------------------------------------------------------------------------------------------------
Total 4,000 46.00 4,000 59,200
- -----------------------------------------------------------------------------------------------------------------------------
On March 23, 2001, Juniata Valley Financial Corp. announced plans to buy back
100,000 shares of their stock. There is no expiration date to this buyback plan.
No Juniata Financial Corp. repurchase plan or program expired during the period
covered by the table. The Corporation has no stock repurchase plan or program
that it has determined to terminate prior to expiration or under which it does
not intend to make further purchases.
Item 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
The 2005 annual meeting of the shareholders of Juniata Valley Financial Corp.
was held on May 17, 2005. Notice of the meeting was mailed to shareholders of
record on or about April 12, 2005, together with proxy solicitation materials
prepared in accordance with Section 14(a) of the Securities Exchange Act of
1934, as amended, and the regulations promulgated thereunder.
The annual meeting was held to elect six Class C Directors to serve until the
2008 annual meeting.
There was no solicitation in opposition to the Board of Directors' nominees for
election to the Board of Directors and all such nominees were elected. The
number of votes cast for or withheld, as well as the number of abstentions and
broker non-votes, for each of the nominees for election to the Board of
Directors were as follows:
16.
Nominee For Withheld Abstentions and Broker Nonvotes
- ------- --- -------- -------------------------------
Joe E. Benner 1,682,778 198 595,651
Francis J. Evanitsky 1,681,778 1,198 595,651
Philip E. Gingerich, Jr. 1,681,867 1,109 595,651
Dale G. Nace 1,676,726 6,250 595,651
Harold B. Shearer 1,674,100 8,876 595,651
Jan G. Snedeker 1,675,555 7,421 595,651
Item 5 OTHER INFORMATION
None
Item 6 EXHIBITS
Exhibit 31.1 Rule 13a - 14(a)/15d - 14(a) Certification
Exhibits 32.1 Section 1350 Certification
Pursuant to the requirements of the Security 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 August 3, 2005 By /s/ Francis J. Evanitsky
--------------------- -----------------------------------------
Francis J. Evanitsky, President, CEO &
Chief Financial Officer