<PAGE>
2.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
June 31, December 31,
1998 1997
---------- ----------
(In thousands)
(Unaudited)
Cash and due from banks $ 5,942 $ 6,516
Interest-bearing deposits with banks 322 17
Federal funds sold 5,500 4,180
--------- ----------
Total cash and cash equivalents 11,764 10,713
Securities available for sale 21,365 26,487
Securities held to maturity, fair value
$50,560 and $40,535 respectively 50,347 40,293
Loans receivable net of allowance for loan
losses $1,859 and $1,803, respectively 137,503 135,709
Bank premises and equipment, net 1,784 1,733
Accrued interest receivable and other assets 6,303 5,975
--------- ----------
TOTAL ASSETS $ 229,066 $ 220,910
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
-------------------------------------
Liabilities:
Deposits:
Non-interest bearing deposits $ 24,849 $ 22,462
Interest bearing deposits 170,786 166,545
--------- ----------
Total deposits 195,635 189,007
Accrued interest payable
and other liabilities 3,395 3,191
--------- ----------
Total liabilities 199,030 192,198
--------- ----------
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 1,400,389 1,400 1,400
Surplus 14,706 14,709
Retained earnings 13,671 12,651
Treasury stock, at cost 7,830 shares (284) (543)
Net unrealized appreciation on securities
available for sale, net of taxes 543 495
--------- ----------
Total stockholders' equity 30,036 28,712
--------- ----------
Total liabilities and $ 229,066 $ 220,910
stockholders' equity ========= ==========
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY 3.
---------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
For the Quarter Ended For Six Months Ended
---------------------- --------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------- --------- --------- ---------
(In thousands, except per share amount)
INTEREST INCOME:
Loans receivable $ 3,192 $ 3,049 $ 6,319 $ 6,008
Taxable securities 688 698 1,373 1,358
Tax-exempt securities 278 315 536 631
Other 123 27 238 81
---------- ---------- ---------- ---------
Total interest income 4,281 4,089 8,466 8,078
INTEREST EXPENSE ON DEPOSITS 1,988 1,931 3,941 3,830
---------- ---------- ---------- ---------
Net interest income 2,293 2,158 4,525 4,248
PROVISION FOR LOAN LOSSES 45 45 90 90
---------- ---------- ---------- ---------
Net interest income, after
provision for loan losses 2,248 2,113 4,435 4,158
---------- ---------- ---------- ---------
OTHER INCOME:
Trust department 50 40 95 85
Customer service fees 63 62 128 125
Net realized gains on
sales of securities - 65 - 65
Other 42 101 85 163
---------- ---------- ---------- ---------
Total other income 155 268 308 438
---------- ---------- ---------- ---------
OTHER EXPENSES:
Salaries and wages 592 569 1,183 1,133
Employee benefits 211 148 404 301
Occupancy 76 74 150 147
Equipment 71 76 145 156
Federal deposit insurance 6 6 11 11
Director compensation 38 65 81 130
Taxes, other than income 71 64 134 126
Other 317 378 628 690
---------- ---------- ---------- ---------
Total other expenses 1,382 1,380 2,736 2,694
---------- ---------- ---------- ---------
INCOME BEFORE INCOME TAXES 1,021 1,001 2,007 1,902
FEDERAL INCOME TAXES 253 231 488 435
---------- ---------- ---------- ---------
Net income $ 768 $ 770 $ 1,519 $ 1,467
========== ========== ========== ==========
PER SHARE DATA:
Net income $ .55 $ .55 $ 1.10 $ 1.05
========== ========== ========== ==========
Weighted average number of
shares outstanding 1,387,437 1,397,110 1,386,469 1,396,733
========= ========= ========= =========
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY 4.
---------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Unaudited)
For the Six months Ended
---------------------
June 30, June 30,
1998 1997
--------- ---------
(In Thousands)
Net Income $ 1,519 $ 1,467
Other Comprehensive Income(Loss),
net of tax
Unrealized gains(losses)
on securities:
Unrealized holding gains(losses)
arising during the period, 48 33
net of tax expense(benefit)
1998 $25; 1997 $(17)
Less: reclassification
adjustments for gains
included in net income
net of tax expense
1998 - $0 1997 - $22 - 43
--------- ---------
Other comprehensive
income(loss) 48 (10)
Comprehensive income $ 1,567 $ 1,457
========= =========
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------
(Unaudited)
Net Unrealized
Appreciation
(Depreciation)
On Securities
Common Retained Treasury Available
Stock Surplus Earnings Stock For Sale Total
----- ------- -------- ----- -------- -----
(In Thousands)
BALANCE
DECEMBER 31,
1997 $ 1,400 $ 14,709 $ 12,651 $ (543) $ 495 $ 28,712
Net income
for the six
months ended
June 30, 1998 - - 1,519 - - 1,519
Treasury Stock
Issued for
dividend
reinvestment plan
(4,571 shares) - 10 - 167 - 177
Treasury Stock Issued
For Employee Stock
Purchase Plan
(2,497 shares) - (13) 92 79
Cash Dividends
$.36 per share - - (499) - - (499)
Net change in
unrealized
appreciation
on securities
available for
sale, net of
taxes - - - - 48 48
Balance June
30, 1998 $ 1,400 $ 14,706 $ 13,671 $ (284) $ 543 $ 30,036
======= ======== ======== ======= ======= =========
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY 6.
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
For the Six Months Ended
-------------------------
June 30, June 30,
1998 1997
------------ -----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,519 1,467
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 90 90
Provision for depreciation 95 93
Net amortization on premiums of securities 94 94
Deferred directors' fees and supplemental
retirement plan expense 89 80
Payment of deferred compensation (74) (71)
Net realized gain on sale of securities - (65)
Deferred income taxes (53) (34)
Increase in accrued interest
receivable and other assets (226) (237)
Increase in interest payable
and other liabilities 113 190
------------ -----------
Net cash provided by operating activities 1,647 1,607
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (140) (1,258)
Proceeds from sales of available for sale securities - 92
Proceeds from maturities of and principal
repayments on available for sale securities 5,302 2,477
Purchases of held to maturity securities (14,193) (8,347)
Proceeds from maturities of and principal
repayments on held to maturity securities 4,079 6,539
Net increase in loans receivable (1,884) (5,253)
Purchases of bank premises and equipment (145) (50)
------------ -----------
Net cash used in investing activities (6,981) (5,800)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 6,628 5,061
Cash Dividends (499) (447)
Issuance of Treasury Stock 256 -
Employee stock purchase plan 114
------------ -----------
Net cash provided by financing activities 6,385 4,728
------------ -----------
Increase (decrease) in cash and
cash equivalents 1,051 535
CASH AND CASH EQUIVALENTS:
Beginning 10,713 9,022
------------ -----------
Ending $ 11,764 9.557
============ ===========
CASH PAYMENTS FOR:
Interest $ 3,916 $ 3,818
============ ===========
Income Taxes $ 512 432
============= ===========
<PAGE>
7.
NOTE A - Basis of Presentation
The financial information includes the accounts of the Juniata Valley Financial
Corp. and its wholly owned subsidiary, The Juniata Valley Bank. All
significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for fair presentation have been included. Operating results for the
six-month period ended June 30, 1998, are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. 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, 1997.
NOTE B - Comprehensive Income
The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income", in June 1997. The Corporation adopted the provisions of
the new standard in the first quarter of 1998. In accordance with the
Statement, prior year financial statements have been reclassified in order to
be consistent with the current year presentation. The only comprehensive
income item that the Corporation presently has is unrealized gains on
securities available for sale.
NOTE C - Derivative Instruments and Hedging Activities
The Financial Accounting Standards Board Issued Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities", in June 1998. The effect
of adopting the provisions of this Statement is not expected to have a material
impact on the Corporation's financial position or results of operations.
NOTE D - Merger
On December 30, 1997, Juniata Valley Financial Corp. and Lewistown Trust
Company entered into a definitive agreement and plan of merger providing for
the merger of Lewistown Trust Company with and into the Juniata Valley Bank, a
wholly owned subsidiary of Juniata Valley Financial Corp. (Juniata).
Under the terms of the definitive merger agreement, Lewistown Trust Company
will be merged into the Juniata Valley Bank and Juniata will exchange one share
of Juniata common stock for each share of Lewistown Trust Company common stock
outstanding in a tax-free exchange. Based upon Juniata's closing price on June
30, 1998, the shares of Juniata to be received by Lewistown Trust Company
shareholders would have a value of $36.8 million or $39.50 per share. The
transaction consideration is approximately 2.58 times Lewistown Trust Company's
book value. The transaction was completed by July 1, 1998 and has been
acccounted for as a pooling of interests. The annual meeting for shareholder
approval of this merger took place on May 19, 1998.
Based on June 30, 1998 financial data, the combined organization will have
approximately $334 million in total assets, $192 million in loans, $296 million
in deposits and $44 million in total equity. At consummation the combined
subsidiary has 12 full service banking offices.
<PAGE>
8.
NOTE E - Year 2000
The Corporation has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the year 2000 issue and is
developing an implementation plan to resolve any issues. The year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of the Corporation's programs that
have time-sensitive software could recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure.
Financial institutions are in a unique situation in that time-deposits and
loans, for a number of years have had maturity dates in the future well beyond
the year 2000.
The Corporation uses two major software vendors for data processing. Letters
of certification have been obtained assuring that they will be year 2000
compliant in 1998 and testing can be performed by the fall of 1998 and into
1999. The vendors are still on target with these dates. Because of the data
processing being outsourced, the cost of the year 2000 compliance will be
shared with the two data processing vendors. Management does not feel this
cost will materially impact the results of operations of the Corporation in
1998 or 1999.
<PAGE>
9.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Financial Condition:
Total assets of Juniata Valley Financial Corp. reached $229,066,000 as of June
30, an increase of $8,156,000 or 3.69% from December 31, 1997. The cash
provided by financing activities of $6,385,000 was a result of the net increase
in deposits. The funds provided by financing activities together with the
funds provided by operating activities of $1,647,000 were used to purchase
securities which exceeded proceeds by $4,952,000. Additional funds were used
for the increase in loan demand of $1,884,000. Updating premise and equipment
used $145,000 of the cash provided by financing activites. The remaining
increase in funds were used as an increase in cash and cash equivalents of
$1,051,000.
There are no material loans classified for regulatory purposes as loss,
doubtful, substandard or special mention which management expects to
significantly impact future operating results, liquidity or capital resources.
Additionally, management is not aware of any information which would give
serious doubt as to the ability of its borrowers to substantially comply with
their loan repayment terms. The Corporation's problem loans (i.e., 90 days
past due and restructured loans) were not material for all periods presented.
Management is not aware of any current recommendations of the regulatory
authorities which, if implemented, would have a material effect on the
Corporation's liquidity, capital resources or operations.
A dividend reinvestment plan for stockholders was instituted on January 1,
1996. The Corporation pays dividends semi-annually on June 1 and December 1 of
every year. Under the plan additional shares of Juniata Valley Financial Corp
may be purchased at market value with reinvested dividends and voluntary cash
payments. The Corporation has reserved 100,000 shares of common stock for this
plan. In 1996, 4,087 shares were issued and 95,913 remain unissued. In 1997,
all shares to satisfy the dividend reinvestment plan were purchased on the open
market. For the June 1, 1998 dividend pay date, 4,571 shares of treasury stock
were issued.
An employee stock purchase plan was approved by stockholders on April 16, 1996.
The first plan year began on July 1, 1996, and ended June 30, 1997. There were
62 out of 89 eligible employees that participated in the second plan year. On
June 15, 1997, 3,600 shares were issued. The corporation has reserved 100,000
shares of common stock for this plan. After the issuance on June 15, 1997,
there are 96,400 shares remaining to be issued. On June 15, 1998, 2,497 shares
of treasury stock were issued for the second employee purchase plan year.
Results of operations:
Interest income increased $192,000 or 4.70% for the quarter and $388,000 or
4.80% for the six-months of 1998 compared to 1997. Interest expense increased
$57,000 or 2.95 for the quarter and $111,000 or 2.90 for the six-months from
June 30, 1997 to 1998. Interest income and expense for the first six months
ended June, 30, 1998, versus 1997, are reflective of an increase of both
interest earning assests and interest bearing liabilities and overall higher
rates offered and paid in 1998 versus 1997. This resulted in an increase in
net interest income of $277,000 or 6.52% for the six months ended June 30,
1998.
<PAGE>
Results of operations continued: 10.
Other income has decreased $113,000 or 42.16% for the quarter and $130,000 or
29.68% for the first six months of 1998 over 1997. Gains on sales of
securities were realized in 1997 of $65,000 and life insurance proceeds of
$51,000 were received after the death of a retired Board of Director for the
quarter. The remaining decrease comparing the six months results can be
attributed to a decline of insurance fees earned on consumer loans.
Other expenses for the first quarter increased $2,000 and for the six months
ended June 30, 1998 they increased $42,000 or 1.56%. The $50,000 increase in
salary and wages for the six months ended June 30, 1998, can be attributed to
annual merit increases and promotions of employees. The $103,000 increase in
employee benefits is primarily due to a keyman pension plan in place for 10
years that required additional funding as employees age. The $49,000 decrease
in directors compensation is due to fully funded retirement plans. The $62,000
decrease in the other category is due to a reduction in collection fees of
deliquent loans.
All of these factors combined have contributed to an increase in net income of
$52,000 or 3.54% for the six months ended June 30, 1998.
Liquidity:
The objective of liquidity management is to ensure that sufficient funding is
available, at a reasonable cost, to meet the ongoing operational cash needs of
the Corporation and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of the Corporation to maintain a high level
of liquidity in all economic environments.
Principal sources of asset liquidity are provided by securities maturing in one
year or less, other short-term investments such as Federal Funds sold and cash
and due from banks. Liability liquidity, which is more difficult to measure,
can be met by attracting deposits and maintaining the core deposit base. The
Corporation joined the Federal Home Loan Bank of Pittsburgh in August of 1993
for the purpose of providing short term liquidity when other sources are unable
to fill these needs.
In view of the primary and secondary sources previously mentioned, Management
believes that the Corporation's liquidity is capable of providing the funds
needed to meet loan demand.
Interest rate sensitivity:
Interest rate sensitivity management is the responsibility of the
Asset/Liability Management Committee. This process involves the development
and implementation of strategies to maximize net interest margin, while
minimizing the earnings risk associated with changing interest rates. The
traditional gap analysis identifies the maturity and repricing terms of all
assets and liabilities.
As of June 30, 1998, the Corporation had a six-month negative gap of
$5,570,000. Generally a liability sensitive position indicates that more
liabilities than assets are expected to reprice 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
<PAGE>
Results of operations continued: 11.
traditional analysis does not accurately reflect the Bank's interest rate
sensitivity since the rates on core deposits generally do not change as quickly
as market rates. Historically net interest income has, in fact, not been
subject to the degree of sensitivity indicated by the traditional analysis at
The Juniata Valley Bank.
Capital Adequacy:
The Bank's regulatory capital ratios for the periods presented are as follows:
Risk Weighted Assets Ratio:
Actual Required
------ --------
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
------------- ------------ ------------- ------------
TIER I 18.59% 18.61% 4.0% 4.0%
TIER I & II 19.78% 20.82% 8.0% 8.0%
Total Assets Leverage Ratio:
TIER I 12.85% 12.82% 4.0% 4.0%
At June 30, 1998, the Corporation exceeds the regulatory requirements to be
considered a "well capitalized" financial institution.
Quantitative and Qualitative Disclosures About Market Risk:
There have been no material changes in the Corporation's exposure to market
risk. Please refer to the Annual Report on Form 10-k as of December 31, 1997.
<PAGE>
12.
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on May 19, 1998.
The shareholders approved the merger of Lewistown Trust Company
with and into The Juniata Valley Bank.
Shares voted for approval of the merger 1,085,032
Shares voted against the merger 9,683
Shares not voted 290,776
The shareholders also approved increasing authorized shares to
20,000,000.
Shares voted for increasing shares 1,179,451
Shares vote against increasing shares 14,968
Shares not voted 191,072
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Form 8-K was filed on January 8, and July 10, 1998, concerning
the merger of Juniata Valley Financial Corp. with Lewistown
Trust Company.
(27) Financial Data Schedule
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Juniata Valley Financial Corp.
(Registrant)
Date_______________________________ By_______________________________
A. Jerome Cook, Chairman & CEO
Date_______________________________ By_______________________________
Linda L. Engle, Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,942
<INT-BEARING-DEPOSITS> 322
<FED-FUNDS-SOLD> 5,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,365
<INVESTMENTS-CARRYING> 50,347
<INVESTMENTS-MARKET> 50,560
<LOANS> 139,362
<ALLOWANCE> 1,859
<TOTAL-ASSETS> 229,066
<DEPOSITS> 195,635
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,395
<LONG-TERM> 0
0
0
<COMMON> 1,400
<OTHER-SE> 28,636
<TOTAL-LIABILITIES-AND-EQUITY> 229,066
<INTEREST-LOAN> 6,319
<INTEREST-INVEST> 1,909
<INTEREST-OTHER> 238
<INTEREST-TOTAL> 8,466
<INTEREST-DEPOSIT> 3,941
<INTEREST-EXPENSE> 3,941
<INTEREST-INCOME-NET> 4,525
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,736
<INCOME-PRETAX> 2,007
<INCOME-PRE-EXTRAORDINARY> 2,007
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,519
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
<YIELD-ACTUAL> 7.89
<LOANS-NON> 113
<LOANS-PAST> 109
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 639
<ALLOWANCE-OPEN> 1,803
<CHARGE-OFFS> 41
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 1,859
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
