<PAGE>
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, 1999 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, 2000.
Common Stock, $1.00 Par Value - $64,840,317
-------------------------------------------
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of January 31, 2000
Common Stock, $1.00 Par Value - 2,235,873
-----------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the year ended December 31,
1999, 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 18, 2000, are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
Incorporated by reference are the data appearing on Pages 7 through 14 of
the 1999 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); 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 extensions expires in 2007. The second one is located in the Wal-
Mart Supercenter, Lewistown, Pennsylvania, which expires in 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
<PAGE>
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 1999
Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference are the data appearing on Page 16 of the 1999
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 1999 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 1999 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference are the financial statements and notes on Pages
33 through 53 of the 1999 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".
<PAGE>
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 1999 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 1999 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 & Company, Inc.,
Independent Auditors
(27) Financial Data Schedule
<PAGE>
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 21, 2000
By /s/ A. Jerome Cook
--------------------
A. Jerome Cook
Director, Chairman 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.
/s/ Ronald H. Witherite /s/ Joe E. Benner
------------------------ --------------------------
Ronald H. Witherite Joe E. Benner
Vice Chairman, Secretary Director
Date: March 21, 2000 Date: March 21, 2000
/s/ Edward R. Rhodes /s/ A. Jerome Cook
-------------------------- --------------------------
Edward R. Rhodes A. Jerome Cook
Director Chairman
Date: March 21, 2000 Date: March 21, 2000
/s/ Don E. Haubert /s/ Martin L. Dreibelbis
-------------------------- --------------------------
Don E. Haubert Martin L. Dreibelbis
Director Director
Date: March 21, 2000 Date: March 21, 2000
/s/ John A. Renninger /s/ Dale G. Nace
-------------------------- --------------------------
John A. Renninger Dale G. Nace
Director Director
Date: March 21, 2000 Date: March 21, 2000
/s/ Francis J. Evanitsky /s/ Harold B. Shearer
-------------------------- --------------------------
Francis J. Evanitsky Harold B. Shearer
President Director
Date: March 21, 2000 Date: March 21, 2000
/s/ Philip E. Gingrich Jr. /s/ Charles L. Hershberger
-------------------------- --------------------------
Philip E. Gingrich Jr. Charles L. Hershberger
Director Director
Date: March 21, 2000 Date: March 21, 2000
<PAGE>
Date: March 21, 2000 Date: March 21, 2000
/s/ Marshall L. Hartman /s/ Robert K. Metz, Jr.
------------------------ --------------------------
Marshall L. Hartman Robert K. Metz, Jr.
Director Director
Date: March 21, 2000 Date: March 21, 2000
/s/ Timothy I. Havice /s/ Richard M. Scanlon, DMD
------------------------ --------------------------
Timothy I. Havice Richard M. Scanlon, DMD
Director Director
Date: March 21, 2000 Date: March 21, 2000
/s/ John M. Wilson /s/ Jan G. Snedeker
------------------------ --------------------------
John M. Wilson Jan G. Snedeker
Director Director
Date: March 21, 2000 Date: March 21, 2000
/s/ Linda L. Engle
------------------------
Linda L. Engle
Chief Financial Officer
Chief Accounting Officer
Date: March 21, 2000
<PAGE>
[LOGO OF JUNIATA VALLEY FINANCIAL CORP.]
Mifflintown, Pennsylvania 17059
1999
Annual
Report
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
DECEMBER 31, 1999
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
<PAGE>
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 1999 and 1998 are provided in the table
below.
<TABLE>
<CAPTION>
1999 1998
---- ----
Dividends Dividends
Quarter High Low per share Quarter High Low per share
- ------- ---- --- --------- ------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
First $37.50 $35.25 .50 First $38.00 $36.50
Second 35.25 34.75 .38 Second 39.50 38.00 .36
Third 34.75 34.50 Third 39.75 39.50
Fourth 34.50 33.00 .40 Fourth 39.50 37.50 .38
</TABLE>
<TABLE>
<CAPTION>
For further information, we refer you to:
<S> <C> <C>
Tucker Anthony, Inc. F.J. Morrissey & Co., Inc. Ryan, Beck & Co.
2101 Oregon Pike 1700 Market St., Suite 1420 150 Monument Road, Suite 106
Lancaster, PA 17601 Philadelphia, PA 19103-3913 Bala Cynwyd, PA 19004
(800) 456-9234 (800) 842-8928 (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
</TABLE>
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-
<PAGE>
[LETTERHEAD OF JUNIATA VALLEY FINANCIAL CORP.]
POST OFFICE BOX 66
TELEPHONE (717) 436-8211
Dear Shareholder,
The following pages reflect the performance of the Juniata Valley Financial
Corp. during 1999. Please take some time to review this information.
Indeed, 1999 proved to be a very challenging year for our industry. As we
strive to meet the challenges of this rapidly changing industry, we have
introduced numerous new products and services, and expanded several of our
existing products and services in our ongoing attempt to meet and exceed the
expectations of our customers. During the year 2000 we hope to add our newest
service, internet banking, to our wide array of products and services.
We would like to take this opportunity to thank Karl E. Guss for his years
of dedication, loyalty and support. Mr. Guss has been a Director since 1974 and
retired in January, 2000.
As always, we would like to thank you 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,
/s/ A. Jerome Cook
A. Jerome Cook
Chairman and CEO
/s/ Francis J. Evanitsky
Francis J. Evanitsky
President and COO
AJC:FJE:rhn
-3-
<PAGE>
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 & CEO, The Juniata Valley Bank Owner, Glenn Nace Plumbing & Heating;
GlenDale Storage
Martin L. Dreibelbis
Self-Employed, Petroleum Consultant John A. Renninger
President, A. D. Renninger
Francis J. Evanitsky Lumber Company
President & COO, The Juniata Valley Bank
Edward R. Rhodes
Philip E. Gingerich, Jr. Retired Partner, E. R. Rhodes & Son
President, Central Insurers Group, Inc.
Richard M. Scanlon, DMD
Karl E. Guss Self-Employed Dentist
Funeral Director, Guss Funeral Home
Harold B. Shearer
Marshall L. Hartman Self-employed Farmer
Retired President, Lewistown Trust Co.
Jan G. Snedeker
Don E. Haubert President, Snedeker Oil Co., Inc.
President, Haubert Homes
John M. Wilson
Timothy I. Havice Retired President, Wilson Oil, Co.
Real Estate Developer
Ronald H. Witherite
Charles L. Hershberger Owner, Ron's IGA Fruit Market, Inc.
President, Hoenstine Funeral Homes, Inc.
NOTE: Above Directors also comprise the Board of Directors for The Juniata
Valley Bank
- -4-
<PAGE>
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 Sharon Havice
Gerald M. Lyter Harry F. Stimely
James A. Witmer Frank A. Zampelli
Gary G. Wright
PORT ROYAL OFFICE GARDENVIEW OFFICE
Clinton F. Bashore David B. Esh
Richard J. Junk M. Randall French
Dennis A. Long H. Ross Harshbarger
Freeburn Love Donald R. Hartzler
Earl J. Wagner Jerry L. Wagner
McALISTERVILLE OFFICE
Clair Ehrenzeller MARKET STREET/WATER STREET OFFICES
Clair S. Graybill George W. Anderson
Samuel E. Knouse Susan M. McCartney
Joseph D. Ritzman R. Jack Morgan
Richard J. Sankey Steve R. Watson
BLAIRS MILLS OFFICE
Robert G. Allison
Wayne H. Cisney BURNHAM OFFICE
William R. Goshorn Mark S. Elsesser
C. Roger Searer Daniel B. Firth
Clair L. Yohn David E. Walker
-5-
<PAGE>
THE JUNIATA VALLEY BANK OFFICERS
A Wholly-Owned Subsidiary of Juniata Valley Financial Corp.
MIFFLINTOWN OFFICE
A. Jerome Cook---------------------------------------------Chairman & C.E.O.
Francis J. Evanitsky--------------------------------------President & C.O.O.
Betty D. Ryan----------------------Vice President & Community Office Manager
Jeffrey A. Pottorff--------------------------------------------------Auditor
Lou Ann Wilson--------------------------------------------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-------------------------------------Human Resource Manager
CONTROLLER
Linda L. Engle------------------------------Executive Vice President, C.F.O.
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
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
Sherise Pelizzari-----------------------------------------Operations Manager
Deborah A. Sheaffer---------------------------------------Operations Officer
TRUST
Terry S. Love------------------------------Sr. Vice President, Trust Officer
James C. Dillman-------------------------------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-------------------------------------Community Office Manager
GARDENVIEW OFFICE
M. Randall French-------------------Vice President, Community Office Manager
MARKET STREET OFFICE
R. Jack Morgan----------------------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-------------------------------------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-------------------------------------Community Office Manager
WATER STREET OFFICE
Catherine J. Laub-----------------------------------Community Office Manager
- -6-
<PAGE>
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, 1999, the Bank had 140 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,
1999, 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, 1999.
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-
<PAGE>
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,
-----------
1999 1998 1997
---- ---- ----
Risk-weighted assets ratio:
Tier I 19.59% 21.16% 20.33%
Total 20.76% 22.36% 21.50%
Total assets leverage ratio:
Tier I 12.33% 13.12% 12.50%
SECURITIES PORTFOLIO
The following table sets forth the carrying amount of securities at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
-----------
1999 1998 1997
---- ---- ----
(In Thousands)
Available for sale securities (at fair value):
<S> <C> <C> <C>
U.S. Treasury and other U.S. government obligations $ 6,441 $ 8,873 $ 23,216
States and political subdivisions 23,448 28,123 26,960
Other corporate 5,992 4,872 5,082
Mortgage-backed 7,244 11,046 16,501
Equity 1,975 1,806 1,705
-------- -------- --------
45,100 54,720 73,464
-------- -------- --------
Held to maturity securities (at amortized cost):
U.S. Treasury and other U.S. government obligations 14,448 16,042 7,160
States and political subdivisions 30,223 30,297 15,726
Other corporate 14,879 22,446 17,407
-------- -------- --------
59,550 68,785 40,293
-------- -------- --------
Total securities $104,650 $123,505 $113,757
======== ======== ========
</TABLE>
- -8-
<PAGE>
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, 1999
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, 1999, feature regular
repayments of principal and average lives of three to five years.
<TABLE>
<CAPTION>
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
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Available for sale:
U.S. Treasury and other U.S.
government agencies $ 1,621 6.03% $ 4,751 6.19% $ - - $ 69 6.37%
State and political
subdivisions 8,259 5.02 14,359 4.95 572 5.12% 258 6.50
Other corporate 995 5.82 4,997 6.49 - - - -
Mortgage-backed - - - - 185 7.86 7,059 6.30
------- ------- ---- -------
10,875 24,107 757 7,386
------- ------- ---- -------
Held to maturity:
U.S. Treasury and other U.S.
government agencies 11,742 5.98 2,706 5.56 - - - -
State and political
subdivisions 2,965 3.87 27,258 3.98 - - - -
Other corporate 3,835 6.42 11,044 6.03 - - - -
------- ------- ---- -------
18,542 41,008 - -
------- ------- ---- -------
Total $29,417 $65,115 $757 $ 7,386
======= ======= ==== =======
</TABLE>
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-
<PAGE>
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 three
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 first time in four years. 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-two 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:
<TABLE>
<CAPTION>
December 31,
-----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In Thousands)
Commercial, financial and agricultural $ 18,784 $ 15,047 $ 16,110 $ 15,531 $ 15,132
Real estate mortgage 139,163 133,047 142,216 130,865 125,987
Consumer (less unearned discount) 46,419 41,049 32,428 30,822 30,116
All other 2,456 2,819 2,945 3,674 4,184
-------- -------- -------- -------- --------
Total loans $206,822 $191,962 $193,699 $180,892 $175,419
========= ======== ======== ======== ========
</TABLE>
This table shows the maturity of loans (excluding residential mortgages of 1-4
family residences and consumer loans) outstanding as of December 31, 1999.
<TABLE>
<CAPTION>
Maturing Maturing Maturing
During From 2001 After
2000 Thru 2004 2005 Total
---- --------- ---- -----
(In Thousands)
<S> <C> <C> <C> <C>
Commercial, agricultural and financial $ 18,784 $ - $ - $ 18,784
All other 2,456 - - 2,456
-------- -------- -------- --------
Total loans $ 21,240 $ - $ - $ 21,240
======== ======== ======== ========
</TABLE>
- -10-
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Average loans outstanding $193,305 $189,778 $186,510 $174,575 $171,388
======== ======== ======== ======== ========
Nonaccrual loans 164 $ - $ 239 $ 482 $ 512
Accruing loans past due
90 days or more 262 386 395 408 511
Restructured loans - - 173 - -
-------- -------- --------- -------- --------
Total $ 426 $ 386 $ 807 $ 890 $ 1,023
======== ======== ======== ======== ========
Ratio of non-performing loans
to average loans outstanding .22% .20% .43% .51% .60%
<CAPTION>
Information with respect to nonaccrual and restructured loans at December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 164 $ - $ 239 $ 482 $ 512
Restructured loans - - 173 - -
Interest income that would have been
recorded under original terms 16 - 20 56 48
Interest income recorded
during the period - - 24 4 5
Commitments to lend additional funds - - - - -
</TABLE>
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-
<PAGE>
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,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Average loans outstanding $193,305 $189,778 $186,510 $174,575 $171,388
======== ======== ======== ======== ========
Allowance for loan loss at January 1 $ 2,477 $ 2,390 $ 2,350 $ 2,228 $ 2,115
Losses charged to allowance
Commercial 2 37 60 58 12
Real estate 27 13 12 - 28
Consumer 100 93 161 98 97
-------- ------ -------- -------- --------
129 143 233 156 137
-------- ------ -------- -------- --------
Recoveries credited to allowance
Commercial - 1 17 2 3
Real estate - - - - 42
Consumer 18 19 36 46 15
-------- ------ -------- -------- --------
18 20 53 48 60
-------- ------ -------- -------- --------
Net charge-offs 111 123 180 108 77
Provision for possible loan losses 120 210 220 230 190
-------- ------ -------- -------- --------
Allowance for loan losses at December 31 $ 2,486 $2,477 $ 2,390 $ 2,350 $ 2,228
======== ======= ======== ======== ========
Ratio of net charge-offs to
average loans outstanding .06% .06% .10% .06% .04%
</TABLE>
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.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
% of % of % of % of % of
Amount Loan Amount Loan Amount Loan Amount Loan Amount Loan
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 577 10.3% $ 537 9.3% $ 482 9.9% $ 569 10.6% $ 510 11.0%
Real estate 468 67.3 483 69.3 483 73.4 436 72.3 432 71.8
Consumer 750 22.4 741 21.4 694 16.7 617 17.1 597 17.2
Unallocated 691 - 716 - 731 - 728 - 689 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $2,486 100% $2,477 100% $2,390 100% $2,350 100% $2,228 100%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- -12-
<PAGE>
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 67% 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, 1999, that qualified as HLTS.
-13-
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $ 34,728 $ 30,719 $ 29,844
Interest bearing demand 46,212 2.67% 49,199 2.87% 46,688 2.85%
Savings deposits 33,494 2.72 32,796 2.92 25,860 2.78
Time deposits 175,455 5.24 176,905 5.52 178,835 5.49
-------- -------- --------
Total $289,889 $289,619 $281,227
======== ======== ========
</TABLE>
As of December 31, 1999, certificates of deposit outstanding in an individual
amount of $100,000 or more totalled $23,478,000.
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)
$5,434 $4,689 $4,469 $8,886
====== ====== ====== ======
- -14-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
(In Thousands, except per share data)
<S> <C> <C> <C> <C>
FOR THE YEAR 1998
Interest income $ 6,164 $ 6,304 $ 6,263 $ 6,133
Interest expense (2,977) (3,042) (3,082) (3,035)
-------- -------- -------- --------
Net interest income 3,187 3,262 3,181 3,098
Provision for loan losses (45) (45) (55) (65)
Other income 228 262 430 262
Other expenses (1,862) (1,843) (2,284) (1,997)
-------- -------- -------- --------
Income before income taxes 1,508 1,636 1,272 1,298
Income taxes (377) (428) (297) (211)
-------- -------- -------- --------
Net income $ 1,131 $ 1,208 $ 975 $ 1,087
======== ======== ======== ========
Per-share data:
Basic earnings $ .49 $ .52 $ .42 $ .47
Cash dividends - .36 - .38
</TABLE>
-15-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY
THE JUNIATA VALLEY BANK
FIVE YEAR FINANCIAL HIGHLIGHTS . SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (In Thousands)
Assets $ 336,119 $ 343,857 $ 332,440 $ 318,708 $ 310,580
Deposits 283,350 293,890 285,138 274,670 269,499
Loans receivable, net 204,336 189,485 191,309 178,542 173,191
Securities 104,650 123,505 113,757 116,956 112,297
Stockholders' equity 43,255 45,980 42,695 39,862 36,920
Average equity 44,526 44,448 41,449 38,072 34,671
Average assets 339,364 338,295 327,068 317,384 300,185
EARNINGS DATA (In Thousands)
Interest income $ 23,858 $ 24,864 $ 24,317 $ 23,613 $ 22,688
Interest expense 11,354 12,136 11,862 11,697 10,952
---------- ---------- ---------- ---------- ----------
Net interest income 12,504 12,728 12,455 11,916 11,736
Provision for loan losses 120 210 220 230 190
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 12,384 12,518 12,235 11,686 11,546
Other income 1,286 1,182 1,273 1,025 869
Other expenses 8,032 7,986 7,531 7,026 6,907
---------- ---------- ---------- ---------- ----------
Income before income taxes 5,638 5,714 5,977 5,685 5,508
Federal income taxes 1,360 1,313 1,405 1,356 1,350
---------- ---------- ---------- ---------- ----------
Net income $ 4,278 $ 4,401 $ 4,572 $ 4,329 $ 4,158
========== ========== ========== ========== ==========
RATIOS
Return on average assets 1.26% 1.30% 1.40% 1.36% 1.39%
Return on average equity 9.61 9.90 11.03 11.37 11.99
Equity to assets (year end) 12.87 13.37 12.84 12.51 11.89
Loans to deposits (year end) 72.11 64.47 67.09 65.00 64.26
Dividend payout (percentage
of income) 68.61 37.99 32.68 31.21 30.86
PER SHARE DATA
Basic earnings 1.87 1.90 1.96 1.86 1.79
Cash dividends 1.28 .74 .66 .60 .55
Book value 19.35 19.73 18.43 17.09 15.83
Average shares outstanding 2,290,728 2,321,739 2,328,101 2,324,964 2,322,951
Approximate number
of stockholders 1,696 1,607 1,603 1,417 1,381
</TABLE>
- - 16 -
<PAGE>
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
<TABLE>
<CAPTION>
1999 Increase (Decrease) 1998 Increase (Decrease) 1997
Average -------- ---------- Average -------- ---------- Average
Balance Amount % Balance Amount % Balance
------- ------- --- ------- ------- --- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Interest earning assets:
Loans:
Commercial $ 58,686 $(1,118) (1.87)% $ 59,804 $(4,263) (6.65)% $ 64,067
Mortgage 91,952 419 .46 91,533 4,918 5.68 86,615
Consumer 42,667 4,226 10.99 38,441 2,613 7.29 35,828
-------- ------- ------- -------- ------- ------ --------
193,305 3,527 1.86 189,778 3,268 1.75 186,510
Less: Allowance for loan losses (2,492) (46) 1.88 (2,446) (67) (2.82) (2,379)
-------- ------- ------- -------- ------- ------ --------
190,813 3,481 1.86 187,332 3,201 1.74 184,131
Interest bearing deposits
with banks 667 153 29.77 514 369 254.48 145
Securities 121,377 (348) (.29) 121,725 3,314 2.80 118,411
Funds sold 5,555 (5,164) (48.18) 10,719 3,526 49.02 7,193
-------- ------- ------- -------- ------- ------ --------
127,599 (5,359) (4.03) 132,958 7,209 5.73 125,749
Total interest earning
assets 318,412 (1,878) (.59) 320,290 10,410 3.36 309,880
Other assets 20,952 2,947 16.37 18,005 817 4.75 17,188
-------- ------- ------- -------- ------- ------ --------
Total uses $339,364 $ 1,069 .32 $338,295 $11,227 3.43 $327,068
======== ======= ======= ======== ======== ======== ========
Funding sources:
Deposits:
Demand $ 34,728 $ 4,009 13.05 $ 30,719 $ 875 2.93 $ 29,844
Interest bearing demand 46,212 (2,987) (6.07) 49,199 2,511 5.38 46,688
Savings 33,494 698 2.13 32,796 6,936 26.82 25,860
Time under $100,000 150,475 (3,453) (2.24) 153,928 (4,935) (3.11) 158,863
-------- ------- ------- -------- ------- ------ --------
Total core deposits 264,909 (1,733) (.65) 266,642 5,387 2.06 261,255
Time over $100,000 24,980 2,003 8.72 22,977 3,005 15.05 19,972
-------- ------- ------- -------- ------- ------ --------
Total deposits 289,889 270 .09 289,619 8,392 2.98 281,227
Other liabilities 4,662 434 10.26 4,228 (164) (3.73) 4,392
Short-term borrowings 287 287 100.00 - - - -
Stockholders' equity 44,526 78 .18 44,448 2,999 7.24 41,449
-------- ------- ------- -------- ------- ------ --------
Total sources $339,364 $ 1,069 .32 $338,295 $11,227 3.43 $327,068
======== ======= ======= ======== ======= ====== ========
</TABLE>
- 17 -
<PAGE>
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 modest growth during 1999, reaching the
level of $339,364,000 an increase of $1,069,000 or .32% compared to 1998. The
funding sources were a reduction in federal funds sold and a modest increase in
short-term borrowings and deposits. The funding use was an increase in loans.
Loans increased $3,481,000 or 1.86% in 1999 over 1998. This followed an increase
of $3,201,000 from 1997 to 1998. Consumer loans increased $4,226,000 or 10.99%
from 1998 to 1999, which was more than the $2,613,000 in 1998 over 1997. The
mortgage loan portfolio experienced a slight increase of $419,000 or .46% from
1998 to 1999. This was less than the $4,918,000 increase in 1998 over 1997.
Commercial loans declined by $1,118,000 or 1.87% in 1999 over 1997 which was
less than the decline experienced from 1997 to 1998 of $4,263,000.
Because deposits remained steady with a slight increase only, new securities
were not purchased as they matured or were called. Securities declined by
$348,000 or .29% from 1998 to 1999. In 1998 over 1997 securities experienced an
increase of $3,314,000. The Corporation also had a decline in funds sold of
$5,164,000 or 48.18% in 1999 over 1998. This followed an increase of $3,526,000
in 1998 over 1997.
The asset growth was funded by short-term borrowings of $287,000, which were not
used in prior years. The $270,000 growth in deposits in 1999 over 1998 was from
demand deposits which increased $4,009,000 during this same period. From 1997 to
1998 the increase in demand deposits was $875,000. Time deposits over $100,000
also experienced an increase of $2,003,000 or 8.72% from 1998 to 1999. This
followed a $3,005,000 increase in 1998 over 1997. Interest bearing demand and
time deposits under $100,000 had a decline and savings had an increase. Overall
the Corporation experienced a decline in the core deposit base of $1,733,000 or
.65% from 1998 to 1999. The intense competition from bank and nonbanks in the
market area was apparent in 1999, which lead to a slight decline in market
share.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
PAGE 19 NET INCOME 4,158 4,329 4,572 4,401 4,278
PAGE 19 RETURN ON EQUITY 11.99 11.37 11.03 9.90 9.61
PAGE 19 RETURN ON ASSETS 1.39 1.36 1.40 1.30 1.26
PAGE 19 CASH DIVIDENDS .55 .60 .66 .74 1.28
PAGE 19 EQUITY TO ASSETS 11.89 12.51 12.84 13.37 12.87
PAGE 19 ASSETS 310,580 318,708 332,448 343,857 336,119
PAGE 25 NET LOANS 173.191 178.542 191,309 189,485 204,336
PAGE 31 STOCKHOLDERS' EQUITY 36,920 39,862 42,695 45,980 43,255
Juniata Valley Financial Corp. reported net income for 1999 of $4,278,000 which
was $123,000 or 2.79% less than the $4,401,000 reported in 1998 and $294,000 or
6.43% less than the $4,572,000 reported in 1997. Basic earnings per share was
$1.87 in 1999. This was a decrease of $.03 from 1998 and a decrease of $.09 from
1997.
- -18-
<PAGE>
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 average equity ratio presents the net income to average equity
maintained throughout the year. The return on average equity was 9.61% in 1999,
compared to 9.90% in 1998 and 11.03% in 1997.
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
PAGE 19 RETURN ON EQUITY 11.99 11.37 11.03 9.90 9.61
PAGE 19 RETURN ON ASSETS 1.39 1.36 1.40 1.30 1.26
Return on average assets presents the income for the year compared to the
average assets maintained throughout the year. The return on average assets was
1.26% in 1999 compared to 1.30% in 1998 and 1.40% in 1997.
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
PAGE 19 CASH DIVIDENDS .55 .60 .66 .74 1.28
The Board of Directors continued to increase the cash dividends paid to
shareholders. On a per share basis $1.28 was paid in 1999 up 72.97% from the
$.74 paid in 1998 and up 93.94% from the $.66 paid in 1997. The increase of cash
dividends in 1999 was to help increase the return on equity ratio by returning
cash value to stockholders. On Janaury 18, 2000, The Board of Directors declared
an extra $.50 dividend payable on March 3, 2000.
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
PAGE 19 EQUITY TO ASSETS 11.89 12.51 12.84 13.37 12.82
Stockholders' equity to total assets (the capital ratio) decreased at December
31, 1999 to 12.87% from 13.37% in 1998; however it is an increase over 1997 of
12.84%.
The Corporation had a decline in total assets at December 31, 1999. Assets for
the year ended December 31, 1999, were $336,119,000 a decrease of $7,738,000 or
2.25% compared to assets of $343,857,000 at December 31, 1998.
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
PAGE 19 ASSETS 310,580 318,708 332,448 343,857 336,119
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
- --------------------------------------------------------------------------------
The Juniata Valley Bank's allowance for loan losses was $2,486,000 in 1999,
$2,477,000 in 1998 and $2,390,000 in 1997. The provision provided in each of
those years was $120,000 in 1999, $210,000 in 1998 and $220,000 in 1997. The
provision for loan losses exceeded net charge-offs by 8.11%, 70.73%, and 22.22%
in 1999, 1998 and 1997, respectively. In 1999 net charge-offs were .06% of
average loans outstanding. In 1998 and 1997 net charge-offs were .06% and .10%
of average loans outstanding, respectively.
Other income increased $104,000 or 8.80% from 1998 to 1999. From 1997 to 1998
the decrease was $91,000 or 7.14%. The trust department income increased $76,000
from 1998 to 1999 due to the settling of estates in 1999 that did not occur in
1998. The trust department income decreased $48,000 from 1997 to 1998 for this
same reason. Customer service fees increased $80,000 for 1999 compared to 1998
and $9,000 in 1998 compared to 1997. 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 $168,000 in net realized gains on sales of securities in
1999 versus 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 increase from 1997 to 1998 in net realized gains on sales of securities was
$68,000. The other income increased in 1999 over 1998 by $116,000. This increase
can be attributed to $53,000 of mutual fund commissions and $40,000 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 1999 was $86,000.
Other expenses increased $46,000 or .58% over 1998, compared to an increase of
$455,000 from 1997 to 1998. Salaries and wages increased $217,000 from 1998 to
1999. This compares to an increase of $43,000 from 1997 to 1998. The increases
in salaries and wages can be attributed to annual merit increases and promotions
of employees. Employee benefits increased $65,000 from 1999 to 1998. From 1997
to 1998 this increase was $182,000. This was due to price changes of benefits
provided as opposed to increased benefits. Occupancy expense remained the same
for 1999 and 1998 and declined $46,000 in 1998 compared to 1997. The decline in
1998 over 1997 was due to a reassessment of real estate taxes. Equipment expense
increased $11,000 in 1999 over 1998. The increase of $101,000 from 1997 to 1998
was due to the purchase of equipment for software compatibility of the four
former Lewistown Trust branches. Director's compensation remained relatively
stable during the years presented. Taxes, other than income is an increase in
the Pennsylvania shares tax of $39,000 from 1998 to 1999 and $29,000 from 1997
to 1998. The $89.000 increase in other expenses can be attributed to an increase
in postage because of both increased volume and rates. The $254,000 decrease in
other expenses from 1997 to 1998 is due to $98,000 of expense recognized in 1997
associated with preparing two foreclosed properties for sale. Professional fees
increased $68,000 in 1997 due to the audit and consulting fees of Lewistown
Trust Company. Additional expenses associated with the opening of a new branch
were incurred in 1997 and not in 1998.
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, and provide
substantial discretion to the Federal Reserve and Treasury Department to
authorize new activities as financial, or as 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 the bottom line.
- -20-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
YEAR 2000 ISSUES
- --------------------------------------------------------------------------------
The Corporation successfully planned for the Year 2000 event and did not
experience system problems, deposit run-off or loan problems related to our
customer's Year 2000 readiness. In anticipation of the potential for deposit
run-off as part of contingency planning, the Corporation obtained a sufficient
amount of cash from the Federal Reserve Bank of Philadelphia to add to the
Bank's normal cash inventory. This cash was used to increase the normal cash
levels in the Bank's ATMs for a higher volume of customer withdrawal activity
over the New Year weekend and to have extra cash on hand in the event of heavier
than normal customer withdrawals. Neither event occurred and the extra cash was
returned to the Federal Reserve Bank during the two weeks following December 31,
1999.
Larger loan customers that were determined through questionnaires to place a
heavy reliance on computers and their applications, were contacted following
December 31, 1999. There were no loan customers that experienced any problems
with their computer systems. In an ongoing effort to follow-up on potential Y2K
problems, delinquency reports are being monitored to determine if any payment
problems could be caused by computer system or application failures.
In the months following December 31, 1999, the Corporation has not experienced
any problems with systems, vendors or customers related to the Year 2000 event.
The cost to the Corporation for Y2K preparation was immaterial.
-21-
<PAGE>
- --------------------------------------------------------------------------------
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".
<TABLE>
<CAPTION>
1999
Interest
Average Income %
Balances (Expense) Rate
-------- -------- ----
(In Thousands)
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Interest bearing deposits in other banks $ 667 $ 44 6.60%
Securities (taxable) 66,942 4,171 6.23
Securities (tax free) 54,435 2,147 3.94
Federal funds sold 5,555 324 5.83
Loans 193,305 17,172 8.88
-------- --------
Total interest earning assets 320,904 23,858 7.43
----
NON-INTEREST EARNING ASSETS
Cash and due from banks 9,209
Other assets 11,743
Less: allowance for loan losses (2,492)
--------
Total assets $339,364
========
INTEREST BEARING LIABILITIES
Demand deposits bearing interest $ 46,212 (1,233) 2.67%
Savings deposits 33,494 (912) 2.72
Time deposits 175,455 (9,194) 5.24
Short-term borrowings 287 (15) 5.23
-------- --------
Total interest bearing liabilities 255,448 (11,354) 4.44
-------- ----
NON-INTEREST BEARING LIABILITIES
Demand deposits 34,728
Other liabilities 4,662
STOCKHOLDERS' EQUITY 44,526
--------
Total liabilities and stockholders' equity $339,364
========
NET INTEREST INCOME/SPREAD $ 12,504 2.99%
======== ====
MARGIN ANALYSIS
Interest income/ earning assets 7.43%
Interest expense/earning assets 3.54
----
Net interest margin 3.89%
====
</TABLE>
- -22-
<PAGE>
- --------------------------------------------------------------------------------
TABLE 1 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
Interest Interest
Average Income % Average Income %
Balances (Expense) Rate Balances (Expense) Rate
- -------- --------- ---- -------- --------- ----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C>
$ 514 28 5.45% $ 145 $ 8 5.52%
85,572 5,159 6.03 78,531 5,163 6.57
36,153 1,603 4.43 39,880 1,625 4.07
10,719 664 6.19 7,193 406 5.64
189,778 17,410 9.17 186,510 17,115 9.18
- -------- -------- -------- --------
322,736 24,864 7.70 312,259 24,317 7.79
---- ----
8,663 8,599
9,342 8,589
(2,446) (2,379)
- -------- --------
$338,295 $327,068
======== ========
$ 49,199 (1,411) 2.87 $ 46,688 (1,331) 2.85
32,796 (958) 2.92 25,860 (718) 2.78
176,905 (9,767) 5.52 178,835 (9,813) 5.48
- - - - - -
- -------- -------- -------- --------
258,900 (12,136) 4.69 251,383 (11,862) 4.72
-------- ---- -------- ----
30,719 29,844
4,228 4,392
44,448 41,449
- -------- --------
$338,295 $327,068
======== ========
$12,728 3.01% $ 12,455 3.07%
======= ==== ======== ====
7.70% 7.79%
3.76 3.80
---- ----
3.94% 3.99%
==== ====
</TABLE>
-23-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the most significant contributor to the Corporation's net
income. During 1999, net interest income decreased 1.76% to $12,504,000 compared
to an increase of 2.19% during 1998. 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 $1,832,000 or .57% in 1999. The increase for
1998 over 1997 was $10,477,000. The largest contributor to interest income is
loans. The yield on loans has declined from 1998 to 1999 by 29 basis points.
From 1997 to 1998 the rate remained fairly stable. The yield on taxable
securities increased 20 basis points in 1999, while the yield on tax free
securities decreased 49 basis points. In 1998 the opposite effect is presented
with taxable securities decreasing 54 basis points and tax free securities
increasing 36 basis points. The overall yield on these interest earning assets
for 1999 was a decline of 27 basis points. This followed a decline of 9 basis
points from 1997 to 1998.
Interest bearing liabilities decreased $3,452,000 or 1.33% for 1999. There was
an increase of $7,517,000 from 1997 to 1998. Saving deposits increased $698,000
from 1998 to 1999 which followed an increase of $6,936,000 in 1998. Demand
deposits bearing interest declined $2,987,000 and time deposits declined
$1,450,000 from 1998 to 1999. Demand deposits bearing interest increased
$2,511,000 and time deposits decreased by $1,930,000 in 1998 over 1997. Rates
paid declined by 25 basis points in 1999. The decline for 1998 of rates paid was
3 basis points.
The Corporation's net spread was 2.99% in 1999 down slightly from the 3.01% in
1998 and 3.07% in 1997. 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 3.89% for 1999
compared to 3.94% in 1998 and 3.99% in 1997.
From Table 3 it can be seen that the decreases in interest income and interest
expense during 1999 were affected by both decreases in volume and rates. Volume
and rates also declined on interest bearing liabilities. In 1998 the increase in
interest income was due to an overall increase in volume, offset by lower rates
offered on interest earning assets which reduced interest income. Decreases in
volume and rates offered on interest bearing liabilities caused the change in
interest expense during 1999. In 1998, there was increases in both volume and
rate on interest bearing liabilities to effect the change on interest expense.
In 1999, interest income declined by $1,006,000; $1,123,000 can be attributed to
a decline in volume in taxable securities. In 1998, the increase in interest
income of $547,000 can be attributed to both loans and federal funds sold. The
$782,000 decline in interest expense in 1999 can be attributed to declines in
rates offered on interest bearing liabilities. The $274,000 change in interest
expense in 1998 can be attributed to an increase in both volume and rate on
savings deposits. Rates on interest earning assets displayed more volatility in
1999 and 1998 than interest bearing liabilities.
- --------------------------------------------------------------------------------
TABLE 2 --- NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, defined as interest income less interest expense, is shown
in the following table:
<TABLE>
<CAPTION>
1999 % Change 1998 % Change 1997
---- -------- ---- -------- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Interest income $23,858 (4.05)% $24,864 2.25% $24,317
Interest expense 11,354 (6.44) 12,136 2.31 11,862
------- ------- -------
Net interest income $12,504 (1.76) $12,728 2.19 $12,455
======= ======= =======
</TABLE>
- -24-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
1999/1998 Increase (Decrease) 1998/1997 Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits
in other banks $ 8 $ 8 $ 16 $ 20 $ 0 $ 20
Securities (taxable) (1,123) 135 (988) 463 (467) (4)
Securities (tax free) 811 (267) 544 (152) 130 (22)
Federal funds sold (320) (20) (340) 199 59 258
Loans 324 (562) (238) 300 (5) 295
-------- ----- ------- ----- ----- ----
Interest income (300) (706) (1,006) 830 (283) 547
-------- ----- ------- ----- ----- ----
Demand deposits
bearing interest (86) (92) (178) 72 8 80
Savings deposits 20 (66) (46) 193 47 240
Time deposits (80) (493) (573) (106) 60 (46)
Short-term borrowings 15 - 15 - - -
-------- ----- ------- ----- ----- ----
Interest expense (131) (651) (782) 159 115 274
-------- ----- ------- ----- ----- ----
Increase (decrease)
in net interest income $ (169) $ (55) $ (224) $ 671 $(398) $273
======== ===== ======= ===== ===== ====
</TABLE>
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
Page 25 NET LOANS 173.191 178.542 191,309 189,485 204,336
[PLOT POINTS TO COME]
At December 31, 1999, net loans increased $14,851,000 or 7.84% over 1998. This
follows a decrease in 1998 over 1997 in net loans of $1,824,000 or .95%. The
loan to deposit ratio fluctuated throughout 1999; monthly averages were at a low
in April of 64.4% and a high in December of 71.1%. Residential mortgages
increased by $3,019,000 or 2.81% from 1998 to 1999. Residential mortgages
declined by $10,118,000 from 1997 to 1998. Real estate loans still remain a very
attractive option due to the tax deductibility of mortgage interest. Consumer
loans increased $7,773,000 or 16.66% in 1999 over 1998. This follows a year with
an increase of $8,621,000 from 1997 to 1998.
In spite of the 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 $111,000 or .06% of average loans
outstanding. This compares with $123,000 or .06% for 1998 and $180,000 or .10%
for 1997.
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, analyze delinquencies, ascertain loan growth, evaluate potential
charge-offs and recoveries and assess general economic conditions in the market
served. It is Management's judgment that the allowance for 1999 of $2,486,000 or
1.22% of outstanding loans is adequate to meet any foreseeable loan loss
contingency. This is lower than the 1.31% for 1998 and the 1.25% for 1997. At
December 31, 1999 and 1998, total non-performing loans were $426,000 and
$386,000, respectively; non-performing loans as a percentage of the allowance
for loan losses were 17.14% and 15.58%, respectively. Increased collection
efforts continue to be made so that the level of non-performing loans remains at
historical levels in the future.
-25-
<PAGE>
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 1999
the Corporation funded approximately 83% 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 1999 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, 1999, these liquid assets amounted to $79,676,000 compared to
liquid assets at December 31, 1998, of $90,520,000. 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 $100,679,000 at December 31, 1999,
from the Federal Home Loan Bank of which $5,300,000 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 1999 loan demand increased by $14,851,000. This was easily
funded by maturities and repayments of securities which exceeded purchases by
$17,683,000.
- -26-
<PAGE>
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 1999 an examination was conducted by the
Pennsylvania Department of Banking. 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.
On November 30, 1999, the Corporation adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities." As provided for under Statement No. 133, the Corporation
transferred investment securities classified as "held to maturity" with a book
value of $10,980,000 to the "available for sale" classification.
- --------------------------------------------------------------------------------
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 reprice 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 present as projected
net interest income is adversely affected and economic value of equity is
favorably affected.
Computation 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-
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4 - INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY/AVERAGE INTEREST RATE
- --------------------------------------------------------------------------------
2000 2001 2002
---- ---- ----
December 31, 1999
(Dollars in Thousands)
ASSETS
Interest bearing deposits $ 653 - -
6.60%
Available for sale securities 10,874 $12,512 $ 6,213
5.43% 5.61% 5.53%
Held to maturity securities 18,542 4,155 9,144
6.07% 6.53% 4.70%
Loans
Commercial 18,784 - -
8.95%
Consumer 11,070 7,877 5,826
9.80% 9.54% 9.53%
Real estate mortgage 127,339 1,521 1,612
7.93% 7.98% 7.97%
LIABILITIES
Interest bearing demand deposits 44,025 - -
2.67%
Savings deposit 32,125 - -
2.72%
Certificates of deposit 107,819 35,471 9,848
5.01% 5.33% 5.86%
- --------------------------------------------------------------------------------
[CAPTION]
1999 2000 2001
---- ---- ----
December 31, 1998
(Dollars in Thousands)
ASSETS
Interest bearing deposits $ 619 - -
5.45%
Federal funds sold 7,825 - -
6.19%
Available for sale securities 17,054 $11,992 $ 7,252
5.54% 5.27% 5.10%
Held to maturity securities 15,072 14,047 6,972
5.75% 5.77% 5.97%
Loans
Commercial 15,047 - -
9.26%
Consumer 6,021 4,871 3,897
9.81% 10.38% 9.88%
Real estate mortgage 121,304 1,443 1,514
8.27% 8.17% 8.14%
LIABILITIES
Interest bearing demand deposits 47,506 - -
2.87%
Savings deposit 34,111 - -
2.92%
Certificates of deposit 105,225 36,205 13,017
5.20% 5.71% 5.69%
- -28-
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4 (Continued)
- --------------------------------------------------------------------------------
Fair Value
2003 2004 Thereafter Total December 31, 1999
- ---- ---- ---------- ----- -----------------
(Dollars in Thousands)
- - - $ 653 $ 653
$ 2,850 $ 2,727 $ 9,769 44,945 45,100
6.52% 6.55% 6.42%
16,380 11,329 - 59,550 58,171
4.57% 4.34%
- - - 18,784 18,784
4,143 2,873 14,600 46,389 46,316
9.56% 9.55% 9.80%
1,649 1,672 5,370 139,163 137,997
7.95% 7.94% 7.87%
- - - 44,025 44,025
- - - 32,125 32,125
14,494 5,236 - 172,868 173,714
5.76% 5.31%
- --------------------------------------------------------------------------------
Fair Value
2002 2003 Thereafter Total December 31, 1998
---- ---- ---------- ----- -----------------
(Dollars in Thousands)
- - - $ 619 $ 619
- - - 7,825 7,825
$ 3,882 $ 2,084 $11,219 53,483 54,720
5.04% 5.36% 6.77%
10,159 15,560 6,975 68,785 69,444
4.93% 4.74% 3.95%
- - - 15,047 15,047
2,801 2,036 24,242 43,868 44,259
9.46% 9.57% 10.00%
1,570 1,570 5,646 133,047 133,089
8.14% 8.14% 8.14%
- - - 47,506 47,506
- - - 34,111 34,111
8,153 13,514 45 176,159 177,885
6.01% 5.82% 6.79%
-29-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
TABLE 5 - SENSITIVITY TO CHANGE IN MARKET INTEREST RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Interest Rate Scenarios
-----------------------
-200 bps -100 bps +100 bps +200 bps
-------- -------- -------- --------
December 31, 1999 (In Thousands)
<S> <C> <C> <C> <C>
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)%
<CAPTION>
Interest Rate Scenarios
-----------------------
-200 bps -100 bps +100 bps +200 bps
-------- -------- -------- --------
December 31, 1998 (In Thousands)
<S> <C> <C> <C> <C>
Prospective one-year net interest income:
Projected $12,556 $12,628 $12,799 $ 12,871
Percent change (1.35)% (.79)% .56% 1.12%
Economic value of portfolio equity:
Projected 47,080 46,321 43,803 43,044
Percent change 2.39% .74% (4.73)% (6.39)%
</TABLE>
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.
- -30-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued)
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
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, 1999, 107,635 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, 1999 and 1998,
treasury stock was 96,204 and 1,938 shares, respectively at a cost of $3,403,000
and $70,000.
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 for loan and lease losses,
perpetual preferred 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% 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
19.59% and Total risk- based capital ratio was 20.76% at December 31, 1999. The
Bank's capital ratios are well above the current minimum ratio requirement set
forth by federal banking regulators.
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
PAGE 31 STOCKHOLDERS' EQUITY 36,920 39,862 42,695 45,980 43,255
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,
1999, the leverage ratio was 12.33%.
CAPITAL ANALYSIS
December 31,
------------
1999 1998 1997
---- ---- ----
(Thousands of Dollars)
Tier I
Common stockholders' equity (excluding
unrealized gains/losses on securities) $ 41,833 $ 44,337 $ 41,614
Tier II
Allowable portion of allowance
for loan losses 2,486 2,477 2,390
-------- -------- --------
Risk-based capital $ 44,319 $ 46,814 $ 44,004
======== ======== ========
Risk adjusted assets (including
off-balance-sheet exposures) $213,490 $209,346 $204,700
======== ======== ========
Tier I risk-based capital ratio 19.59% 21.16% 20.33%
Total risk-based capital ratio 20.76% 22.36% 21.50%
Leverage ratio 12.33% 13.12% 12.50%
-31-
<PAGE>
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 2000 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 2000. 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 2000 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 1999 was $1,360,000 compared to $1,313,000 in
1998 and $1,405,000 in 1997. The effective tax rate, which is the ratio of
income tax expense to income before income taxes, was 24.12% in 1999, an
increase from the 22.98% in 1998 and 23.51% in 1997. The tax rate for all
periods was less than the statutory rate of 34% due to tax exempt securities and
loan income. Please refer to the Notes to the Consolidated Financial Statements
"Income Taxes" for further analysis of federal income tax expense.
- --------------------------------------------------------------------------------
MERGER
- --------------------------------------------------------------------------------
On July 1, 1998, the Corporation completed the merger of Lewistown Trust Company
(Lewistown), a commercial bank located in Lewistown, Pennsylvania, by issuing
931,700 shares of its common stock for all of the outstanding common stock of
Lewistown, except for the 5,324 shares of Lewistown held by the Corporation
which were cancelled. The merger was accounted for under the pooling-of-
interest method of accounting and, as such, all prior period information has
been restated. Please refer to the Notes to the Consolidated Financial
Statements "Merger" for further analysis of the merger.
- --------------------------------------------------------------------------------
SIGNIFICANT FINANCIAL EVENTS
- --------------------------------------------------------------------------------
On January 18, 2000, the Board of Directors of the Juniata Valley Financial
Corp. declared an extra fifty cent ($.50) dividend which cannot be used in the
dividend reinvestment program. This dividend is above the normal dividends
declared by Juniata Valley Financial Corp. Shareholders of record on February
17, 2000, will receive the extra dividend payable on March 3, 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). Pursuant to the authorization, appropriate senior officers of the
Corporation may direct the repurchase at times and in amounts determined by them
to be prudent.
The Corporation expects to use available cash to fund the repurchases and does
not anticipate borrowing for this purpose. Repurchases will be made from time to
time on the open market or in privately negotiated transactions. The shares
purchased are to be held as treasury stock for various corporate programs,
including the funding of existing employee benefit plans and such other benefit
plans as may hereinafter be adopted by the Corporation.
- -32-
<PAGE>
Beard
& Company INC. [LOGO]
CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
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, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. 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 generally accepted
auditing standards. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ Beard & Company, Inc.
Harrisburg, Pennsylvania
January 21, 2000
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED BALANCE SHEETS
ASSETS
------
December 31,
------------
1999 1998
---- ----
(In Thousands, Except Share Data)
Cash and due from banks $ 15,381 $ 12,284
Interest-bearing deposits with banks 653 619
Federal funds sold - 7,825
-------- --------
Total cash and cash equivalents 16,034 20,728
Securities available for sale 45,100 54,720
Securities held to maturity, fair value
1999 $58,171; 1998 $69,444 59,550 68,785
Loans receivable, net of allowance for
loan losses 1999 $2,486; 1998 $2,477 204,336 189,485
Bank premises and equipment, net 3,428 2,876
Accrued interest receivable and other assets 7,671 7,263
-------- --------
Total assets $336,119 $343,857
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 34,332 $ 36,114
Interest bearing 249,018 257,776
-------- --------
Total deposits 283,350 293,890
Short-term borrowings 5,300 -
Accrued interest payable and
other liabilities 4,214 3,987
-------- --------
Total liabilities 292,864 297,877
-------- --------
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 2,332,077 shares 2,332 2,332
Surplus 20,559 20,580
Retained earnings 23,665 22,322
Accumulated other comprehensive income 102 816
Treasury stock, at cost 1999 96,204 shares;
1998 1,938 shares (3,403) (70)
-------- --------
Total stockholders' equity 43,255 45,980
-------- --------
Total liabilities and
stockholders' equity $336,119 $343,857
======== ========
See Notes to Consolidated Financial Statements.
- -34-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Interest income:
Loans receivable, including fees $ 17,172 $ 17,410 $ 17,115
Taxable securities 4,171 5,159 5,163
Tax-exempt securities 2,147 1,603 1,625
Other 368 692 414
--------- --------- ---------
Total interest income 23,858 24,864 24,317
--------- --------- ---------
Interest expense:
Deposits 11,339 12,131 11,862
Short-term borrowings 15 5 -
--------- --------- ---------
11,354 12,136 11,862
--------- --------- ---------
Net interest income 12,504 12,728 12,455
Provision for loan losses 120 210 220
--------- --------- ---------
Net interest income after provision for loan losses 12,384 12,518 12,235
--------- --------- ---------
Other income:
Trust department 375 299 347
Customer service fees 494 414 405
Net realized gains on sales of securities 44 212 144
Other 373 257 377
--------- --------- ---------
Total other income 1,286 1,182 1,273
--------- --------- ---------
Other expenses:
Salaries and wages 3,587 3,370 3,327
Employee benefits 1,060 995 813
Occupancy 499 499 545
Equipment 933 922 821
Director compensation 321 302 296
Taxes, other than income 438 399 370
Merger - 394 -
Other 1,194 1,105 1,359
--------- --------- ---------
Total other expenses 8,032 7,986 7,531
--------- --------- ---------
Income before income taxes 5,638 5,714 5,977
Federal income taxes 1,360 1,313 1,405
--------- --------- ---------
Net income $ 4,278 $ 4,401 $ 4,572
========= ========= =========
Per share data:
Basic earnings $ 1.87 $ 1.90 $ 1.96
========= ========= =========
Cash dividends $ 1.28 $ 0.74 $ 0.66
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
-35-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1999, 1998 and 1997
--------------------------------------------
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----- ------- -------- ------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 1,862 $ 20,926 $ 16,535 $ 539 $ - $ 39,862
---------
Comprehensive income:
Net income - - 4,572 - - 4,572
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects - - - 205 - 205
---------
Total comprehensive income 4,777
---------
Cash dividends - - (1,494) - - (1,494)
Stock issued under employee stock
purchase plan 3 110 - - - 113
5-for-4 stock split in the form of a 25%
stock dividend 467 (467) (20) - - (20)
Treasury stock acquired - - - - (543) (543)
---------- ---------- ---------- ---------- ---------- ---------
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 - - (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 - - (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
========== ========== ========== ========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements.
- -36-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,278 $ 4,401 $ 4,572
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 120 210 220
Provision for depreciation 291 273 278
Net amortization on securities' premium 89 118 141
Net realized gains on sales of securities (44) (212) (144)
Deferred directors' fees and supplemental retirement plan expense 341 395 170
Payment of deferred compensation (174) (158) (145)
Deferred income taxes (57) (172) (51)
(Increase) in accrued interest receivable and other assets (23) (3) (328)
Increase (decrease) in accrued interest payable and other liabilities 241 (568) 294
-------- -------- ---------
Net cash provided by operating activities 5,062 4,284 5,007
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (885) (12,303) (23,268)
Proceeds from sales of available for sale securities 2,195 252 192
Proceeds from maturities of and principal repayments
on available for sale securities 18,066 31,133 26,721
Purchases of held to maturity securities (16,474) (42,077) (13,356)
Proceeds from maturities of and principal repayments
on held to maturity securities 14,684 13,451 13,223
Net (increase) decrease in loans receivable (14,971) 1,595 (12,987)
Net purchases of bank premises and equipment (842) (547) (289)
Purchase of life insurance - - (1,250)
-------- -------- ---------
Net cash provided by (used in) investing activities 1,773 (8,496) (11,014)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (10,540) 8,752 10,467
Net increase in short-term borrowings 5,300 - -
Cash dividends and cash paid for fractional shares (2,935) (1,962) (1,506)
Stock issued under employee stock purchase plan - - 113
Purchase of treasury stock (3,823) - (543)
Treasury stock issued 469 484 -
-------- -------- ---------
Net cash provided by (used in) financing activities (11,529) 7,274 8,531
-------- -------- ---------
Increase (decrease) in cash and cash equivalents (4,694) 3,062 2,524
Cash and cash equivalents:
Beginning 20,728 17,666 15,142
-------- -------- ---------
Ending $ 16,034 $ 20,728 $ 17,666
======== ======== =========
Cash payments for:
Interest $ 11,397 $ 12,147 $ 11,871
======== ======== =========
Income taxes $ 1,460 $ 1,459 $ 1,497
======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
-37-
<PAGE>
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 their
contractual lives.
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 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.
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 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-
<PAGE>
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 related to impaired loans that are identified
for evaluation is based on discounted cash flows using the loan's initial
effective interest rate or the fair value, less selling costs, of the
collateral for certain collateral dependent loans. By the time a loan becomes
probable of foreclosure it has been charged down to fair value, less estimated
costs to sell.
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.
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 foreclosed real estate 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.
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, adjusted for
stock dividends for all periods presented. The weighted average number of
common shares outstanding was 2,290,728, 2,321,739 and 2,328,101 in 1999, 1998
and 1997, 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 and 1997 were $290,000, and
$572,000, respectively.
-39-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and related tax effects are as
follows:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Unrealized holding gains (losses) on
available for sale securities $(1,008) $ 322 $ 455
Less reclassification adjustment for
gains realized in income (44) (212) (144)
------- ----- -----
Net unrealized gains (losses) (1,052) 110 311
Tax effect (338) 38 106
------- ----- -----
Net of tax amount $ (714) $ 72 $ 205
======= ===== =====
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 and retail trust operations of the
Bank. As such, discrete financial information is not available and segment
reporting would not be meaningful.
- -40-
<PAGE>
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
======= ======
Year ended December 31, 1997:
Corporation $ 8,682 $3,045
Lewistown 3,773 1,527
------- ------
$12,455 $4,572
======= ======
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 1999 and 1998 approximated $2,571,000 and
$2,101,000 respectively.
-41-
<PAGE>
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES
On November 30, 1999, the Corporation adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." As provided for under Statement No. 133, the Corporation
transferred investment securities classified as "held to maturity" with a book
value of $10,980,000 to the "available for sale" classification. The transfer
resulted in a decrease to stockholders' equity of approximately $64,000, net of
tax.
The amortized cost and fair value of securities at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
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
======= ======= ======= =======
December 31, 1998:
U.S. Treasury securities $ 3,044 $ 46 $ - $ 3,090
U.S. Government and agency obligations 5,755 28 - 5,783
Obligations of states and political subdivisions 27,566 557 - 28,123
Corporate and other debt securities 4,807 68 (3) 4,872
Mortgage-backed securities 10,995 80 (29) 11,046
Equity securities 1,316 510 (20) 1,806
------- ------- ------- -------
$53,483 $ 1,289 $ (52) $54,720
======= ======= ======= =======
Held to maturity securities:
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
======= ======= ======= =======
December 31, 1998:
U.S. Treasury securities $ 1,750 $ 16 $ - $ 1,766
U.S. Government and agency obligations 14,292 91 (3) 14,380
Obligations of states and political subdivisions 30,297 329 (30) 30,596
Corporate and other debt securities 22,446 275 (19) 22,702
------- ------- ------- -------
$68,785 $ 711 $ (52) $69,444
======= ======= ======= =======
</TABLE>
- -42-
<PAGE>
================================================================================
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, 1999, 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 $10,874 $10,875 $18,542 $18,221
Due after one year through five
years 24,302 24,107 41,008 39,950
Due after five years through ten
years 570 572 -- --
Due after ten years 319 327 -- --
Mortgage-backed securities 7,167 7,244 -- --
Equity securities 1,713 1,975 -- --
------- ------- ------- -------
$44,945 $45,100 $59,550 $58,171
======= ======= ======= =======
Equity securities include Federal Home Loan Bank stock with an aggregate cost,
which approximates fair value, of $1,175,000 and $760,000 at December 31, 1999
and 1998, respectively.
Gross gains of $44,000, $212,000, and $144,000 were realized on sales of
securities available for sale in 1999, 1998 and 1997, respectively.
Securities with a fair value of $18,090,000 and $21,774,000 at December 31, 1999
and 1998, respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law.
================================================================================
- 43 -
<PAGE>
================================================================================
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,
------------
1999 1998
---- ----
(In Thousands)
Commercial, agricultural and financial $ 18,784 $ 15,047
Real estate mortgages:
Residential 110,615 107,596
Commercial 28,548 25,451
Consumer 54,416 46,643
Other 2,456 2,819
-------- --------
214,819 197,556
Unearned discount on loans 7,997 5,594
Allowance for loan losses 2,486 2,477
-------- --------
$204,336 $189,485
======== ========
The following table presents changes in the allowance for loan losses:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Balance, beginning $ 2,477 $ 2,390 $ 2,350
Provision for loan losses 120 210 220
Recoveries 18 20 53
Loans charged off (129) (143) (233)
-------- -------- --------
Balance, ending $ 2,486 $ 2,477 $ 2,390
======== ======== ========
The recorded investment in impaired loans was $-0- at December 31, 1999 and
1998. For the years ended December 31, 1999, 1998 and 1997, the average recorded
investment in these impaired loans was $-0-, $143,000 and $351,000,
respectively, and no interest income was recognized on impaired loans in 1999
and 1998, while $16,000 was recognized on impaired loans in 1997.
================================================================================
- - 44 -
<PAGE>
================================================================================
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,
------------
1999 1998
---- ----
(In Thousands)
Land and land improvements $ 686 $ 541
Buildings and improvements 3,527 3,168
Furniture and equipment 2,528 2,651
-------- --------
6,741 6,360
Less accumulated depreciation 3,313 3,484
-------- --------
$ 3,428 $ 2,876
======== ========
DEPOSITS
The composition of deposits is as follows:
December 31,
------------
1999 1998
---- ----
(In Thousands)
Demand, non-interest bearing $ 34,332 $ 36,114
Now and Money Market 44,025 47,506
Savings 32,125 34,111
Time, $100,000 or more 23,478 24,350
Other Time 149,390 151,809
-------- --------
$283,350 $293,890
======== ========
At December 31, 1999, the scheduled maturities of time deposits are as follows
(in thousands):
2000 $107,765
2001 35,471
2002 9,849
2003 14,494
2004 5,236
Thereafter 53
--------
$172,868
========
================================================================================
- 45 -
<PAGE>
================================================================================
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $5,300,000 and $-0- as of December 31, 1999 and 1998,
respectively. The aggreement expires in September 2000 and the interest rate
was 4.05% at December 31, 1999.
The Bank has a maximum borrowing capcity of $100,679,000 with the FHLB which is
collateralized by qualifying assets of the Bank.
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,
1999, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1999, 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.
<TABLE>
<CAPTION>
For Capital
Adequacy
Actual Purposes
------ --------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Dollar Amounts In Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to risk-weighted assets) $44,319 20.76% $17,079 (GREATER THAN OR EQUAL TO)8.00%
Tier I capital (to risk-weighted assets) 41,833 19.59 8,540 (GREATER THAN OR EQUAL TO)4.00
Tier I capital (to average assets) 41,833 12.33 13,574 (GREATER THAN OR EQUAL TO)4.00
As of December 31, 1998:
Total capital (to risk-weighted assets) $46,814 22.36% (GREATER THAN OR EQUAL TO)16,748 (GREATER THAN OR EQUAL TO)8.00%
Tier l capital (to risk-weighted assets) 44,337 21.16 (GREATER THAN OR EQUAL TO) 8,374 (GREATER THAN OR EQUAL TO)4.00
Tier l capital (to average assets) 44,337 13.12 (GREATER THAN OR EQUAL TO)13,522 (GREATER THAN OR EQUAL TO)4.00
<CAPTION>
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
-----------------
Amount Ratio
------ -----
(Dollar Amounts In Thousands)
<S> <C> <C>
As of December 31, 1999:
Total capital (to risk-weighted assets) $21,349 (GREATER THAN OR EQUAL TO)10.00%
Tier I capital (to risk-weighted assets) 12,809 (GREATER THAN OR EQUAL TO) 6.00
Tier I capital (to average assets) 16,967 (GREATER THAN OR EQUAL TO) 5.00
As of December 31, 1998:
Total capital (to risk-weighted assets) (GREATER THAN OR EQUAL TO)$20,935 (GREATER THAN OR EQUAL TO)10.00%
Tier l capital (to risk-weighted assets) (GREATER THAN OR EQUAL TO) 12,561 (GREATER THAN OR EQUAL TO) 6.00
Tier l capital (to average assets) (GREATER THAN OR EQUAL TO) 16,903 (GREATER THAN OR EQUAL TO) 5.00
</TABLE>
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, 1999, $29,914,000 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 1990, 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 $12.24 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, 2000. 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, 1999, 95,913 shares were available for issuance under the
Dividend Reinvestment Plan.
================================================================================
- - 46 -
<PAGE>
================================================================================
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 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,
1999 1998
---- ----
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of
year $2,858 $2,583
Service cost 162 145
Interest cost 215 194
Actuarial loss 10 4
Benefits paid (71) (68)
------ ------
Benefit obligation at end of year 3,174 2,858
------ ------
Change in plan assets:
Fair value of plan assets at
beginning of year 2,654 2,401
Actual return on plan assets 172 167
Employer contribution 177 154
Benefits paid (71) (68)
------ ------
Fair value of plan assets at end
of year 2,932 2,654
------ ------
Funded status (242) (204)
Unrecognized net actuarial loss (63) (102)
Unrecognized net transition asset (24) (26)
------ ------
Accrued benefit cost $ (329) $ (332)
====== ======
Pension expense included the following components for the years ended
December 31:
1999 1998 1997
---- ---- ----
(In Thousands)
Service cost, benefits earned
during the year $ 162 $ 145 $ 98
Interest cost on projected benefit
obligation 212 194 166
Expected return on plan assets (202) (167) (197)
Net amortization (2) (20) 36
------ ------ -----
$ 170 $ 152 $ 103
====== ====== =====
Assumptions used in the accounting were:
1999 1998 1997
---- ---- ----
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 -
<PAGE>
================================================================================
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, 1999 and 1998, the present value
of the future liability was $1,005,000 and $876,000 respectively. The
Corporation has funded these plans through the purchase of annuities and life
insurance policies, which have an aggregate cash surrender value of $978,000
and $907,000 at December 31, 1999 and 1998, respectively. For the years ended
December 31, 1999, 1998 and 1997, $152,000, $154,000 and $76,000,
respectively, was charged to expense in connection with this plan.
Deferred compensation:
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, 1999 and 1998, the present value of the future
liability was $1,572,000 and $1,450,000, 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 $1,152,000 and $1,080,000 at December 31,
1999 and 1998, respectively. For the years ended December 31, 1999, 1998 and
1997, $201,000, $283,000 and $264,000, 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 1999, 1998 and 1997, 753, 2,497 and 3,600 shares,
respectively, were issued under the Plan. At December 31, 1999, 96,400 shares
were reserved for issuance under the Plan.
Salary continuation plan:
In 1997, the Corporation established a non-qualified Salary Continuation Plan
for key employees. At December 31, 1999 and 1998, the present value of the
future liability was $141,000 and $73,000, respectively. The Corporation has
funded the Plan through the purchase of life insurance policies which have an
aggregate cash surrender value of $1,396,000 and $1,328,000 at December 31,
1999 and 1998, respectively. For the years ended December 31, 1999, 1998 and
1997, $68,000, $63,000 and $10,000, respectively, was charged to expense in
connection with the Plan.
Profit sharing plan:
The profit sharing plan of Lewistown was terminated in 1998. The
participants' balances were transferred into the Corporation's 401(k) plan,
in which the employer does not contribute. The annual discretionary
contributions for 1998 and 1997 were $-0- and $143,000, respectively.
================================================================================
- - 48 -
<PAGE>
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,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Current $1,417 $1,485 $1,456
Deferred (57) (172) (51)
------ ------ ------
$1,360 $1,313 $1,405
====== ====== ======
A reconciliation of the statutory income tax expense computed at 34% to the
income expense the statements tax included in of income is as follows:
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Federal income tax at statutory rate $1,917 $1,943 $2,032
Tax-exempt interest (775) (689) (622)
Disallowance of interest expense 123 84 100
Other 95 (25) (105)
------ ------ ------
$1,360 $1,313 $1,405
====== ====== ======
The income tax provision includes $15,000, $72,000, and $49,000 in 1999, 1998
and 1997, 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,
1999 1998
---- ----
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 718 $ 715
Deferred directors' fees 534 493
Pension liabilities 502 385
Other -- 66
------ ------
Total deferred tax assets 1,754 1,659
------ ------
Deferred tax liabilities:
Bank premises and equipment (95) (78)
Securities accretion (39) (51)
Unrealized gains on securities
available for sale (52) (390)
Other (33) --
------ ------
Total deferred tax liabilities (219) (519)
------ ------
Net deferred tax asset $1,535 $1,140
====== ======
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, 1999 and 1998, these
persons were indebted to the Bank for loans totaling $1,407,000 and $1,698,000
respectively. During 1999, loans totaling $1,700,000 were disbursed and loan
repayments totaled $2,027,000. Other changes caused the December 31, 1999
balance of the loans outstanding to increase by $36,000.
-49-
<PAGE>
================================================================================
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS
The Bank rents equipment under operating leases that expire through 2002.
Equipment and servicing fees were $416,000, $469,000 and $385,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. Additionally, the Bank
leases branch offices for which rent expense, including the license fee, was
$53,000 $52,000 and $61,000 in 1999, 1998 and 1997, respectively.
Minimum future payments under all noncancellable lease agreements as of December
31, 1999 are as follows (in thousands):
2000 $278
2001 262
2002 166
------
$706
======
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:
December 31,
1999 1998
---- ----
(In Thousands)
Commitments to grant loans $ 2,607 $ 2,675
Unfunded commitments under lines of credit 24,614 19,461
Outstanding letters of credit 337 415
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 -
<PAGE>
================================================================================
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,
1999 and 1998:
. 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.
. 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.
. 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.
. 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.
. For short-term borrowings, the carrying amount is a reasonable estimate of
fair value.
. For accrued interest receivable and accrued interest payable, the carrying
amount is a reasonable estimate of fair value.
. 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,
1999 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In Thousands)
Financial assets:
Cash and due from banks $ 15,381 $ 15,381 $ 12,284 $ 12,284
Interest-bearing deposits
in other banks 653 653 619 619
Federal funds sold -- -- 7,825 7,825
Securities 104,650 103,271 123,505 124,164
Loans receivable, net of
allowance 204,336 203,097 189,485 189,918
Accrued interest receivable 2,215 2,215 2,443 2,443
Financial liabilities:
Deposits 283,350 284,196 293,890 295,616
Short-term borrowings 5,300 5,300 -- --
Accrued interest payable 951 951 994 994
Off-balance sheet financial
instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
================================================================================
- 51 -
<PAGE>
================================================================================
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,
------------
1999 1998
---- ----
ASSETS
(In Thousands)
Cash $ 4 $ 6
Interest-bearing deposits with banks 490 490
------- --------
Total cash and cash equivalents 494 496
Investment in Bank subsidiary 41,942 45,094
Securities available for sale 813 388
Other 58 34
------- --------
$43,307 $ 46,012
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES, other $ 52 $ 32
STOCKHOLDERS' EQUITY 43,255 45,980
------- --------
$43,307 $ 46,012
======= ========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
Dividends from Bank subsidiary $ 6,758 $ 1,972 $ 2,067
Interest income 51 29 16
Other expenses (30) (23) (28)
-------- -------- --------
Income before equity in
undistributed net income
of subsidiary 6,779 1,978 2,055
Equity in (excess of)
undistributed net income
of Bank subsidiary (2,501) 2,423 2,517
-------- -------- --------
Net income $ 4,278 $ 4,401 $ 4,572
======== ======== ========
================================================================================
- - 52 -
<PAGE>
================================================================================
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,
------------------------
1999 1998 1997
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,278 $ 4,401 $ 4,572
Adjustments to reconcile net income to net
cash provided by operating activities:
Distributions in excess of
(undistributed) net income
of Bank subsidiary 2,501 (2,423) (2,517)
(Increase) decrease in other assets (22) (8) (11)
Decrease in other liabilities -- (8) --
-------- ------- -------
Net cash provided by operating
activities 6,757 1,962 2,044
-------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of available for sale securities (470) -- (199)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid and cash paid in lieu of
fractional shares (2,935) (1,962) (1,506)
Stock issued under employee stock purchase
plan -- -- 113
Purchase of treasury stock (3,823) -- (543)
Treasury stock issued 469 484 --
-------- ------- -------
Net cash used in financing
activities (6,289) (1,478) (1,936)
-------- ------- -------
Increase (decrease) in cash and
cash equivalents (2) 484 (91)
Cash and cash equivalents:
Beginning 496 12 103
-------- ------- -------
Ending $ 494 $ 496 $ 12
======== ======= =======
================================================================================
- 53 -
<PAGE>
================================================================================
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 -
<PAGE>
EXHIBIT 23
CONSENT OF BEARD & COMPANY, INC. INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(on Form S-3 and Form S-8) of Juniata Valley Financial Corp. of our report dated
January 21, 2000, with respect to the consolidated financial statements of
Juniata Valley Financial Corp. incorporated by reference in this Annual Report
(Form 10-K) for the year ended December 31, 1999.
BEARD & COMPANY, INC
Reading, Pennsylvania
March 22, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,381
<INT-BEARING-DEPOSITS> 653
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,100
<INVESTMENTS-CARRYING> 59,550
<INVESTMENTS-MARKET> 58,171
<LOANS> 206,822
<ALLOWANCE> 2,486
<TOTAL-ASSETS> 336,119
<DEPOSITS> 283,350
<SHORT-TERM> 5,300
<LIABILITIES-OTHER> 4,214
<LONG-TERM> 0
0
0
<COMMON> 2,332
<OTHER-SE> 40,923
<TOTAL-LIABILITIES-AND-EQUITY> 336,119
<INTEREST-LOAN> 17,172
<INTEREST-INVEST> 6,318
<INTEREST-OTHER> 368
<INTEREST-TOTAL> 23,858
<INTEREST-DEPOSIT> 11,339
<INTEREST-EXPENSE> 11,354
<INTEREST-INCOME-NET> 12,504
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<SECURITIES-GAINS> 44
<EXPENSE-OTHER> 8,032
<INCOME-PRETAX> 5,638
<INCOME-PRE-EXTRAORDINARY> 5,638
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,278
<EPS-BASIC> 1.87
<EPS-DILUTED> 1.87
<YIELD-ACTUAL> 7.43
<LOANS-NON> 164
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<ALLOWANCE-OPEN> 2,477
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<RECOVERIES> 18
<ALLOWANCE-CLOSE> 2,486
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
