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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, 2001 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, 2002.
Common Stock, $1.00 Par Value - $66,241,800
-------------------------------------------
Indicate the number of shares outstanding of each issuer's classes of common
stock, as of January 31, 2002.
Common Stock, $1.00 Par Value 2,349,000
---------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareholders for the year ended December 31,
2001, 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 16, 2002, are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Incorporated by reference are the data appearing on Pages 7 through
14 of the 2001 Annual Report.
ITEM 2. PROPERTIES
The physical properties of the Corporation are all owned or leased
by the Bank.
The Bank owns the buildings located at: Bridge and Main Streets,
Mifflintown, Pennsylvania (its corporate headquarters); Butcher Shop Road,
Mifflintown, Pennsylvania (financial center); 301 Market Street, Port Royal,
Pennsylvania; corner of Main and School Streets, McAlisterville, Pennsylvania;
Four North Market Street, Millerstown, Pennsylvania; Main Street, Blairs Mills,
Pennsylvania; Monument Square, Lewistown, Pennsylvania; Route 322 Reedsville,
Pennsylvania; 100 East Market Street, Lewistown, Pennsylvania; 100 West Water
Street, Lewistown, Pennsylvania; 302 South Logan Boulevard, Burnham,
Pennsylvania. In addition thereto, the Bank leases three offices. One, in the
Shopping Plaza located on Legislative Route 31, Mifflintown, Pennsylvania, which
lease with extension expires in 2007. One is located in the Wal-Mart
Supercenter, Lewistown, Pennsylvania, which expires in October 2006, and one is
a loan production office located at 1525 Science Street, State College,
Pennsylvania, which renews month to month. All of the buildings used by the Bank
are freestanding and are used exclusively for banking purposes.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Corporation's and Bank's business, at times,
generates litigation involving matters arising in the ordinary course of
business. However, in the opinion of management of the Corporation, there are no
proceedings pending to which the Bank is a party or to which its property is
subject, which, if determined adversely to the Bank, would be material in
relation to the Bank's financial condition, nor are there any proceedings
pending other than ordinary routine litigation incident to the business of the
Bank. In addition, no material proceedings are pending or are known to be
threatened or contemplated against the Bank by government authorities or others.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Incorporated by reference are the data appearing on page 2 of the
2001 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference are the data appearing on Page 16 of the
2001 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 2001 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 2001 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference are the financial statements and notes on
Pages 33 through 55 of the 2001 Annual Report and the Quarterly Results of
Operations on Page 15 of the 2001 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 "Management of JVF and the Bank" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference in the proxy statement under the caption
"Remuneration of Executive Officers".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference is the following information contained in
the Proxy Statement filed under the captions "Election of Directors of JVF" and
"Management of JVF and the Bank".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the information pertaining to
transactions with directors and officers of the Bank within the footnote
"Transactions with Executive Officers and Directors: on Page 50 of the 2001
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 2001 Annual Report to
Shareholders, are incorporated in this report by reference.
2. All schedules are omitted because they are not applicable,
the data is not significant, or the required information is
shown in the financial statements or the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
(13) Annual Report to Shareholders
(21) Subsidiaries of the Registrant - As of the date of this
report Juniata Valley Bank is the only subsidiary of the
Registrant.
(23) Consent of Beard Miller Company L.L.P., Independent Auditors
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JUNIATA VALLEY FINANCIAL CORP. (REGISTRANT)
Date: March 19, 2002
By _____________________________
Francis J. Evanitsky
Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
------------------------- -------------------------
Ronald H. Witherite Joe E. Benner
Vice Chairman, Secretary Director
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
Jan G. Snedeker A. Jerome Cook
Director Director
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
Don E. Haubert Martin L. Dreibelbis
Director Chairman
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
John A. Renninger Dale G. Nace
Director Director
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
Francis J. Evanitsky Harold B. Shearer
President & CEO Director
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
Philip E. Gingrich Jr. Charles L. Hershberger
Director Director
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
Marshall L. Hartman Robert K. Metz, Jr.
Director Director
Date: March 19, 2002 Date: March 19, 2002
------------------------- -------------------------
Timothy I. Havice Richard M. Scanlon, DMD
Director Director
Date: March 19, 2002 Date: March 19, 2002
-------------------------
Linda L. Engle
Chief Financial Officer
Chief Accounting Officer
Date: March 19, 2002
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
DECEMBER 31, 2001
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 - 55
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 2001 and 2000 are provided in the
table below. 2001 Dividends Quarter High Low per share
2001 2000
---- ----
Dividends Dividends
Quarter High Low per share Quarter High Low per share
- ------- ---- --- --------- ------- ---- --- ---------
First $23.17 $22.72 First $30.00 $28.12 $.45
Second 26.75 23.17 $.39 Second 28.12 24.75 .37
Third 28.90 26.75 Third 24.75 23.40
Fourth 29.00 28.10 .41 Fourth 23.40 22.50 .39
For further information, we refer you to:
Ferris Baker Watts, Inc.
100 Light Street
Baltimore, MD 21202
(800) 638-7411
F.J. Morrissey & Co., Inc.
1700 Market St., Suite 1420
Philadelphia, PA 19103-3913
(800) 842-8928
Ryan, Beck & Co.
150 Monument Road, Suite 106
Bala Cynwyd, PA 19004
(800) 223-8969
Janney, Montgomery, Scott, Inc.
48 E. Market St., P.O. Box 2246
York, PA 17405-2246
(717) 845-5611
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-
[JUNIATA VALLEY LETTERHEAD GRAPHIC OMITTED]
To Our Shareholders,
An uncertain economy, a volatile stock market, eleven short term interest
rate reductions, and the horrific events of September 11 were just some of the
challenges faced by our industry in the year 2001. In addition to these
challenges, the year also provided your Bank with the opportunity to continue to
develop our goal of becoming a one stop provider of financial services.
The development of a new deposit product, enhancements to existing
products, and the overwhelming success of our alternative investment program are
just a few examples of our improvement in our quest to become a one stop
provider of financial services.
In September we installed our seventh ATM. This ATM is a drive-up ATM
located at our Mt. View Office. This machine provides our customers access to
cash at a very convenient location. Initial usage results at this machine during
the 4th quarter of 2001 were very encouraging.
In November we opened a Loan Production Office in State College. We have an
opportunity to grow our loan portfolio as well as increase our non-interest
income by generating good quality loans that correspond to the lending policies
and practices of the Bank. Again, the initial results of this venture are very
encouraging.
The year 2001 marked improved performance over 2000 for the Juniata Valley
Financial Corp. As a result of improvement in other income, net income increased
5.8% to $4,642,000 from $4,387,000. Increases in other income were realized by
increased income from the Trust Division, service fees, bank-owned life
insurance, and in certain non-recurring items included in the other income
category.
Total assets increased 6.5% to $356,757,000 from $334,914,000, an increase
of $21,843,000. Fueled in part by the uncertain economy, and the volatile stock
market, deposits increased 6.4% to $305,468,000 from $287,220,000.
Although 2001 was a turbulent year, the Bank showed a modest loan growth of
3.7%. This increase brought loan outstandings to a record level of $227,998,000
from $219,819,000.
As a result of the growth in loans, deposits, and continued improvement in
our other income categories, earnings per share increased 8.3% from $1.81 in
2000 to $1.96 in 2001. Additionally, return on average assets (ROAA) improved
from 1.31% in 2000 to 1.33% in 2001, and return on average equity (ROAE)
improved from 10.42% in 2000 to 10.47% in 2001.
We would like to take this opportunity to thank John M. "Jack" Wilson for
his years of dedicated service to the Bank. Mr. Wilson retired as a director in
October 2001. His loyalty and commitment will be missed.
As always, we would like to thank you, our shareholders, for your continued
loyalty and support. Further, we want to assure you that the officers, directors
and employees will continue to work diligently to ensure that the Juniata Valley
Financial Corp. continues to be a quality financial institution.
Sincerely,
/s/ Francis J. Evanitsky
------------------------------------
Francis J. Evanitsky
President and CEO
-3-
JUNIATA VALLEY FINANCIAL CORP. OFFICERS
MARTIN L. DREIBELBIS 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 Retired President, Metz Poultry Farms, Inc.
A. JEROME COOK DALE G. NACE
Retired President, The Juniata Valley Bank Owner, Glenn Nace Plumbing & Heating;
GlenDale Storage
MARTIN L. DREIBELBIS
Chairman, Self-Employed, Petroleum Consultant JOHN A. RENNINGER
President, A. D. Renninger
FRANCIS J. EVANITSKY Lumber Company
President & CEO, The Juniata Valley Bank
RICHARD M. SCANLON, DMD
PHILIP E. GINGERICH, JR. Self-Employed, Dentist
President, Central Insurers Group, Inc.
HAROLD B. SHEARER
MARSHALL L. HARTMAN Retired, Self-employed, Farmer
Owner, Traditions, Ltd.
JAN G. SNEDEKER
DON E. HAUBERT President, Snedeker Oil Co., Inc.
President, Haubert Homes, Inc.
RONALD H. WITHERITE
TIMOTHY I. HAVICE Owner, Ron's Fruit Market, Inc.
Owner, T.I. Havice, Developer
CHARLES L. HERSHBERGER
President, Hoenstine Funeral Homes, Inc.
NOTE: Above Directors also comprise the Board of Directors for The Juniata Valley Bank
- -4-
ADVISORY BOARD MEMBERS
MILLERSTOWN OFFICE MONUMENT SQUARE /WAL-MART OFFICES
R. Franklin Campbell William H. Bradford
Lowell R. Frantz, C.L.U. William R. Carter
Gregory J. Gordon Lee Ellen Foose
Gerald M. Lyter Sharon Havice
James A. Witmer Harry F. Stimely
Gary G. Wright Frank A. Zampelli
PORT ROYAL OFFICE GARDENVIEW OFFICE
Kim Bomberger David B. Esh
Larry B. Cottrill, Jr. M. Randall French
Richard J. Junk H. Ross Harshbarger
N. Jeffrey Leonard Donald R. Hartzler
Dennis A. Long Jerry L. Wagner
MCALISTERVILLE OFFICE MARKET STREET/WATER STREET OFFICES
Mark Apple George W. Anderson
M. Richard Dimm Catherine J. Laub
Clair Ehrenzeller Susan M. McCartney
Samuel E. Knouse J. Neal Shawver
Joseph D. Ritzman Steve R. Watson
Richard J. Sankey
BLAIRS MILLS OFFICE BURNHAM OFFICE
Robert G. Allison Mark S. Elsesser
Wayde H. Cisney Daniel B. Firth
William R. Goshorn Leann M. Fisher
C. Roger Searer David E. Walker
Clair L. Yohn
-5-
THE JUNIATA VALLEY BANK OFFICERS
A Wholly-Owned Subsidiary of Juniata Valley Financial Corp.
MIFFLINTOWN OFFICE
Francis J. Evanitsky-----------------------------------------President & C.E.O.
Linda L. Engle---------------------------------Executive Vice President, C.F.O.
Betty D. Ryan--------------------------Vice President, Community Office Manager
Lou Ann Wilson-------------------------------Vice President, Compliance Officer
Paul M. Lipka-----------------------Assistant Vice President, Marketing Officer
Judy R. Robinson--------------------------------------------Executive Secretary
ADMINISTRATION
Donald L. Musser---------Sr. Vice President, Community Banking Division Manager
Pamela S. Eberman--------------------Sr. Vice President, Human Resource Manager
CONTROLLER
Kristi J. Burdge-----------------------------------------------------Controller
Anna Mae Peoples---------------------------Vice President, Assistant Controller
LOANS
Edward L. Kauffman--------------------Sr. Vice President, Loan Division Manager
Robert G. Dillon------------Vice President, Sr. Loan Officer/Collection Manager
Scott E. Nace-----------------------Vice President, Loan Administration Manager
David A. Pecht-----------------------Vice President, Secondary Mortgage Manager
Kurt L. McKinney, Jr.-----------Vice President, Sr. Loan Officer Market Manager
R. Jack Morgan-----------------------------------------------------Loan Officer
John B. Zavacky-------------------------------------Loan Administration Officer
OPERATIONS
Judy R. Aumiller----------------Sr. Vice President, Operations Division Manager
Kathy D. Hutchinson-------------Vice President, Data/Deposit Operations Manager
Deborah A. Sheaffer--------------------------Vice President, Operations Officer
Sherise Pelizzari------------------Assistant Vice President, Operations Manager
S. Marlene Hubler-----------------------------------Computer Operations Manager
TRUST
James C. Dillman---------------------Sr. Vice President, Trust Division Manager
Cynthia L. Williams------------------------------ Vice President, Trust Officer
BLAIRS MILLS OFFICE
C. Roger Searer------------------------Vice President, Community Office Manager
Wanda K. Rowles----------------------------------------Customer Service Officer
BURNHAM OFFICE
Leann M. Fisher------------------------Vice President, Community Office Manager
GARDENVIEW OFFICE
M. Randall French----------------------Vice President, Community Office Manager
Christine L. Searer------------------------------------Customer Service Officer
MARKET STREET OFFICE
J. Neal Shawver------------------------Vice President, Community Office Manager
Susan C. Mayer-----------------------------------------Customer Service Officer
Winston L. Libby-------------------------------------Financial Services Officer
MCALISTERVILLE OFFICE
Joseph D. Ritzman----------------------Vice President, Community Office Manager
Leslie A. Miller---------------------------------------Customer Service Officer
MILLERSTOWN OFFICE
James A. Witmer------------------------Vice President, Community Office Manager
Barbara I. Seaman--------------------------------------Customer Service Officer
MONUMENT SQUARE OFFICE
Lee Ellen Foose------------------------Vice President, Community Office Manager
Suzanne Booher-----------------------------------------Customer Service Officer
MOUNTAIN VIEW OFFICE
Brenda A. Brubaker-------------------------------------Community Office Manager
PORT ROYAL OFFICE
Larry B. Cottrill, Jr.-----------------Vice President, Community Office Manager
Lona Rae Hawthorne-------------------------------------Customer Service Officer
WAL-MART SUPERCENTER OFFICE
Christine L. Weyer-------------------------------------Community Office Manager
Tammy L. Miller----------------------------------------Customer Service Officer
WATER STREET OFFICE
Catherine J. Laub----------------------Vice President, Community Office Manager
- -6-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
DESCRIPTION OF BUSINESS
On April 19,1983, the shareholders of The Juniata Valley Bank (The Bank)
approved a plan of merger and reorganization. The plan was approved by the
various regulatory agencies on June 7, 1983 and the Juniata Valley Financial
Corp., a one bank holding company, registered under the Bank Holding Company Act
of 1956, as amended, was organized. The Bank is the oldest independent
commercial bank in Juniata and Mifflin County having originated under a state
bank charter in 1867.
The Juniata Valley Bank operates twelve branch banking offices, two trust
service offices, and one loan production office. At December 31, 2001, the Bank
had 135 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, 2001, the Bank had four offices in Juniata County,
one office in Perry County, six offices in Mifflin County, one office in
Huntingdon County, and a loan production office in Centre County.
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 third in assets as of December 31, 2001.
Additionally, the Bank has been subjected to competition from non-bank firms,
such as credit unions, brokerage firms, insurance companies, mutual fund
companies, consumer finance and credit card firms, retail and manufacturing
conglomerates, and other firms providing financial services and credit to
customers. Although many non-bank industries now offer services traditionally
provided only by banks, banks are constrained by costly regulations and
time-worn laws to compete effectively against non-bank providers of financial
services. However, the Bank strives to remain competitive with respect to
interest rates, service fees and service quality in order to achieve continued
growth and success in its market. The Bank also continues to develop and
strengthen its strong ties to the communities it serves, relying on the unique
and strong relationship that a community bank has with its customers and
community by providing excellent, personal customer service.
The deposit base of The Juniata Valley Bank is such that the loss of one
depositor or a related group of depositors would not have a dramatically adverse
effect on the Bank's business. In addition, the loan portfolio is very well
diversified, so that one industry or group or related industries does not
comprise a material portion of total loans outstanding. The Bank's business is
not seasonal, nor does it have any risks attendant to foreign sources.
SUPERVISION AND REGULATION
Juniata Valley Financial Corp. operates in a highly regulated industry, and thus
may be affected by changes in state and federal regulations and legislation. As
a registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the Act), the Corporation is subject to supervision and examination by
the Board of Governors of the Federal Reserve System and is required to file
with the Federal Reserve Board quarterly reports and information regarding its
business operations and those of its subsidiary.
The Act requires the Corporation to obtain Federal Reserve approval before:
acquiring more than five percent ownership interest in any class of the voting
securities of any bank; acquiring all or substantially all of the assets of a
bank; or, merging or consolidating with another bank holding company. In
addition, the Act prohibits a bank holding company from acquiring the assets, or
more than five percent of the voting securities, of a bank located in another
state, unless such acquisition is specifically authorized by the statutes of the
state in which the bank is located.
New banking legislation passed in November of 1999, modifies the 43-year old
Bank Holding Company Act of 1956 to permit a Bank Holding Company that owns a
commercial bank to engage in any type of financial activity. The commercial bank
has to be well-capitalized, well-managed and CRA-rated satisfactory or better.
Financial activities include securities, insurance, merchant banking/equity
investment, financial in nature, and complimentary activities.
-7-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUPERVISION AND REGULATION (CONTINUED)
The deposits of The Juniata Valley Bank are insured by the Bank Insurance Fund
of the Federal Deposit Insurance Corporation (FDIC). Consequently, the Bank is
subject to regulations and reviews under the provisions of the Federal Deposit
Insurance Act, but the primary regulatory body is the Pennsylvania Department of
Banking. The Pennsylvania Department of Banking conducts regular reviews which
have resulted in satisfactory evaluations to date.
In 1991, the Federal Deposit Insurance Corporation Act (FDICIA) was signed into
law. FDICIA established five different levels of capitalization of financial
institutions, with prompt corrective actions and significant operational
restrictions imposed on institutions that are capital deficient. The five
categories are: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
To be considered well capitalized, an institution must have a total risk-based
capital ratio of at least 10%, a Tier I risk based capital ratio of at least 6%,
a leverage capital ratio of 5% and must not be subject to any order or directive
requiring the institution to improve its capital level. An institution falls
within the adequately capitalized category if it has a total risk-based capital
ratio of at least 8%, a Tier I risk-based capital ratio of at least 4%, and a
leverage capital ratio of at least 4%. Institutions with lower capital levels
are deemed to be undercapitalized, significantly undercapitalized, or critically
undercapitalized, depending on their actual capital levels.
The following table sets forth the computation of the Bank's regulatory capital
ratios. The Bank exceeded the minimum capital levels of the well capitalized
category. The Corporation's ratios were not materially different from those of
the Bank.
December 31,
------------
2001 2000 1999
---- ---- ----
Risk-weighted assets ratio:
Tier I 18.46% 18.46% 19.59%
Total 19.56% 19.59% 20.76%
Total assets leverage ratio:
Tier I 11.98% 12.30% 12.33%
SECURITIES PORTFOLIO
The following table sets forth the carrying amount of securities at the dates
indicated:
December 31,
------------
2001 2000 1999
---- ---- ----
(In Thousands)
Available for sale securities (at fair value):
U.S. Treasury and other U.S. government obligations $30,960 $ 6,035 $ 6,441
States and political subdivisions 15,691 15,341 23,448
Other corporate 3,116 5,042 5,992
Mortgage-backed 3,951 5,823 7,244
Equity 945 905 800
------- ------- --------
54,663 33,146 43,925
------- ------- --------
Held to maturity securities (at amortized cost):
U.S. Treasury and other U.S. government obligations 3,461 13,071 14,448
States and political subdivisions 26,742 27,201 30,223
Other corporate 8,409 10,968 14,879
------- ------- --------
38,612 51,240 59,550
------- ------- --------
Total securities $93,275 $84,386 $103,475
======= ======= ========
- -8-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SECURITIES PORTFOLIO (CONTINUED)
The following table sets forth the maturities of securities at December 31, 2001
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, 2001, feature regular repayments of
principal and average lives of three to five years.
Maturing
--------
After One After Five
But Within But Within After
Within One Year Five Years Ten Years Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(In Thousands)
Available for sale:
U.S. Treasury and other U.S.
government agencies $ 614 6.39% $27,307 5.09% $3,013 5.76% $ 26 4.69%
State and political
subdivisions 5,864 4.81 6,026 4.40 3,551 3.66 250 6.50
Other corporate 1,041 6.77 2,075 6.13 -- -- -- --
Mortgage-backed -- -- 12 8.80 96 7.74 3,843 7.03
------- ------- ------ ------
7,519 35,420 6,660 4,119
------- ------- ------ ------
Held to maturity:
U.S. Treasury and other U.S.
government agencies -- -- 3,461 5.40 -- -- -- --
State and political
subdivisions 5,794 4.13 20,681 3.99 -- -- 267 4.25
Other corporate 2,557 6.11 5,352 5.91 -- -- 500 5.90
------- ------- ------ ------
8,351 29,494 -- 767
------- ------- ------ ------
Total $15,870 $64,914 $6,660 $4,886
======= ======= ====== ======
Securities classified as available for sale are those debt securities that the
Bank intends to hold for an indefinite period of time, but not necessarily to
maturity. Securities available for sale are carried at fair value. Unrealized
gains or losses are reported in other comprehensive income, net of the related
deferred tax effect. Securities classified as held to maturity are those debt
securities the Bank has both the intent and ability to hold to maturity. These
securities are carried at cost adjusted for amortization of premium and
accretion of discount.
-9-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
LOAN PORTFOLIO
The highest loan concentration by activity type continues to be the trucking
industry. The percentage of these loans to total loans was approximately four
percent at the latest review. This industry services many other industries and
no potential significant risk is evident.
As with any lending activity, potential risk exists. Loans in the commercial,
financial and industrial category have remained relatively constant as a
percentage of total loans. The Bank prudently evaluates loans in this category
and generally secures such lending with collateral consisting of real and/or
tangible personal property.
All lending is granted on a variable rate basis except consumer loans which are
fixed rate. Consumer loans, consisting of approximately twenty-three percent of
total loans, average a three to four year repayment period and are fixed at such
a rate that rate sensitivity is considered to be limited.
The following table shows the Bank's loan distribution at the end of each of the
last five years:
December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In Thousands)
Commercial, financial and agricultural $ 24,548 $ 23,327 $ 18,784 $ 15,047 $ 16,110
Real estate mortgage 151,369 142,897 139,163 133,047 142,216
Consumer (less unearned discount) 51,733 52,991 46,419 41,049 32,428
All other 2,874 3,101 2,456 2,819 2,945
-------- -------- -------- -------- --------
Total loans $230,524 $222,316 $206,822 $191,962 $193,699
======== ======== ======== ======== ========
This table shows the maturity of loans (excluding residential mortgages of 1-4
family residences and consumer loans) outstanding as of December 31, 2001.
Maturing Maturing Maturing
During From 2003 After
2002 Thru 2006 2005 Total
---- --------- ---- -----
(In Thousands)
Commercial, agricultural and financial $ 24,548 $ -- $ -- $ 24,548
All other 2,874 -- -- 2,874
-------- -------- -------- --------
Total loans $ 27,422 $ -- $ -- $ 27,422
======== ======== ======== ========
- -10-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Bank's nonaccrual, past due and restructured
loans:
December 31,
------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In Thousands)
Average loans outstanding $223,487 $212,270 $193,305 $189,778 $186,510
======== ======== ======== ======== ========
Nonaccrual loans $ 934 $ 364 $ 164 $ -- $ 239
Accruing loans past due
90 days or more 811 440 262 386 395
Restructured loans -- -- -- -- 173
-------- -------- -------- -------- --------
Total $ 1,745 $ 804 $ 426 $ 386 $ 807
======== ======== ======== ======== ========
Ratio of non-performing loans
to average loans outstanding .78% .39% .22% .20% .43%
Information with respect to nonaccrual and restructured loans at December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In Thousands)
Nonaccrual loans $ 934 $ 364 $ 164 $ -- $ 239
Restructured loans -- -- -- -- 173
Interest income that would have been
recorded under original terms 84 38 16 -- 20
Interest income recorded
during the period -- -- -- -- 24
Commitments to lend additional funds -- -- -- -- --
A loan is generally considered impaired when it is probable the Bank will be
unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. The accrual of interest is
discontinued when the contractual payment of principal and interest has become
90 days past due or management has serious doubts about further collectibility
of principal or interest, even though the loan is currently performing. A loan
may remain on accrual status if it is in process of collection and is either
guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid
interest credited to income in the current year is reversed and unpaid interest
accrued in prior years is charged against the allowance for loan losses.
Interest received on nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's judgement as
to the collectibility of principal. Generally, loans are restored to accrual
status when the obligation is brought current, has performed in accordance with
the contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer in
doubt.
-11-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Bank's loan loss experience for each of the
five years ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In Thousands)
Average loans outstanding $223,487 $212,270 $193,305 $189,778 $186,510
======== ======== ======== ======== ========
Allowance for loan loss at January 1 $ 2,497 $ 2,486 $ 2,477 $ 2,390 $ 2,350
Losses charged to allowance
Commercial 58 155 2 37 60
Real estate 51 -- 27 13 12
Consumer 128 89 100 93 161
-------- -------- -------- -------- --------
237 244 129 143 233
-------- -------- -------- -------- --------
Recoveries credited to allowance
Commercial 2 13 -- 1 17
Real estate 19 -- -- -- --
Consumer 5 12 18 19 36
-------- -------- -------- -------- --------
26 25 18 20 53
-------- -------- -------- -------- --------
Net charge-offs 211 219 111 123 180
Provision for possible loan losses 240 230 120 210 220
-------- -------- -------- -------- --------
Allowance for loan losses at December 31 $ 2,526 $ 2,497 $ 2,486 $ 2,477 $ 2,390
======== ======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding .09% .10% .06% .06% .10%
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.
Management maintains an allowance for loan losses that it considers adequate
based on the evaluation process that it performs on a quarterly basis. As part
of this process, management considers it appropriate to maintain a portion of
the allowance that is based on credit quality trends, loan volume, current
economic trends and other uncertainties. This portion of the allowance for loan
losses is reflected as the unallocated portion in the table below that indicates
the distribution of the allowance as of the end of each of the last five years.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(In Thousands)
% OF % of % of % of % of
AMOUNT LOAN Amount Loan Amount Loan Amount Loan Amount Loan
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Commercial $ 970 11.9% $ 670 12.4% $ 577 10.3% $ 537 9.3% $ 482 9.9%
Real estate 747 65.7 472 64.3 468 67.3 483 69.3 483 73.4
Consumer 656 22.4 770 23.3 750 22.4 741 21.4 694 16.7
Unallocated 153 -- 585 -- 691 -- 716 -- 731 --
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total $2,526 100% $2,497 100% $2,486 100% $2,477 100% $2,390 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
- -12-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
SUMMARY OF LOAN LOSS EXPERIENCE (CONTINUED)
While loans secured by real estate mortgages comprise greater than 65% 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 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, 2001, that qualified as HLTS.
-13-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for December 31, in the following table:
2001 2000 1999
---- ---- ----
AMOUNT RATE Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In Thousands)
Non-interest bearing demand $ 36,623 $ 34,827 $ 34,728
Interest bearing demand 50,056 2.36% 46,221 2.95% 46,212 2.67%
Savings deposits 31,204 2.44 31,033 2.67 33,494 2.72
Time deposits 181,085 5.51 175,535 5.52 175,455 5.24
------- ------- -------
Total $298,968 $287,616 $289,889
======== ======== ========
As of December 31, 2001, certificates of deposit outstanding in an individual
amount of $100,000 or more totalled $31,271,000.
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)
$10,504 $3,617 $4,299 $12,851
======= ====== ====== =======
- -14-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
BUSINESS
QUARTERLY RESULTS OF OPERATIONS
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In Thousands, except per share data)
FOR THE YEAR 2001
Interest income $6,311 $6,172 $6,192 $5,966
Interest expense (3,073) (3,073) (3,029) (2,754)
------ ------ ------ ------
Net interest income 3,238 3,099 3,163 3,212
Provision for loan losses (60) (60) (60) (60)
Other income 366 563 509 756
Other expenses (2,160) (2,145) (2,138) (2,153)
------ ------ ------ ------
Income before income taxes 1,384 1,457 1,474 1,755
Income taxes (294) (297) (352) (485)
------ ------ ------ ------
Net income $1,090 $1,160 $1,122 $1,270
====== ====== ====== ======
Per-share data:
Basic and diluted earnings $ .46 $ .49 $ .47 $ .54
Cash dividends -- .39 -- .41
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(In Thousands, except per share data)
FOR THE YEAR 2000
Interest income $ 5,946 $ 6,094 $ 6,288 $ 6,351
Interest expense (2,785) (2,880) (3,064) (3,151)
------ ------ ------ ------
Net interest income 3,161 3,214 3,224 3,200
Provision for loan losses (45) (45) (45) (95)
Other income 330 339 304 404
Other expenses (2,058) (2,023) (2,025) (2,078)
------ ------ ------ ------
Income before income taxes 1,388 1,485 1,458 1,431
Income taxes (360) (376) (336) (303)
------ ------ ------ ------
Net income $ 1,028 $ 1,109 $ 1,122 $ 1,128
======= ======= ======= =======
Per-share data:
Basic and diluted earnings $ .42 $ .46 $ .47 $ .46
Cash dividends .45 .37 -- .39
-15-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY
THE JUNIATA VALLEY BANK
FIVE YEAR FINANCIAL HIGHLIGHTS O SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
BALANCE SHEET DATA (In Thousands)
Assets $356,757 $334,914 $336,119 $343,857 $332,440
Deposits 305,468 287,221 283,350 293,890 285,138
Loans receivable, net 227,998 219,819 204,336 189,485 191,309
Securities 98,073 85,571 104,650 123,505 113,757
Stockholders' equity 45,326 43,082 43,255 45,980 42,695
Average equity 44,348 42,106 44,526 44,448 41,449
Average assets 348,331 334,685 339,364 338,295 327,068
EARNINGS DATA (In Thousands)
Interest income $ 24,641 $ 24,679 $ 23,858 $ 24,864 $ 24,317
Interest expense 11,929 11,880 11,354 12,136 11,862
-------- -------- -------- -------- --------
Net interest income 12,712 12,799 12,504 12,728 12,455
Provision for loan losses 240 230 120 210 220
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 12,472 12,569 12,384 12,518 12,235
Other income 2,194 1,377 1,286 1,182 1,273
Other expenses 8,596 8,184 8,032 7,986 7,531
-------- -------- -------- -------- --------
Income before income taxes 6,070 5,762 5,638 5,714 5,977
Federal income taxes 1,428 1,375 1,360 1,313 1,405
-------- -------- -------- -------- --------
Net income $ 4,642 $ 4,387 $ 4,278 $ 4,401 $ 4,572
======== ======== ======== ======== ========
RATIOS
Return on average assets 1.33% 1.31% 1.26% 1.30% 1.40%
Return on average equity 10.47 10.42 9.61 9.90 11.03
Equity to assets (year end) 12.71 12.86 12.87 13.37 12.84
Loans to deposits (year end) 74.64 76.53 72.11 64.47 67.09
Dividend payout (percentage
of income) 40.78 66.90 68.61 37.99 32.68
PER SHARE DATA
Basic and diluted earnings 1.96 1.81 1.70 1.72 1.79
Cash dividends .80 1.21 1.16 .67 .60
Book value 19.28 19.90 19.35 19.73 18.43
Average shares outstanding 2,368,923 2,420,966 2,519,801 2,553,913 2,560,911
Approximate number
of stockholders 1,719 1,725 1,696 1,607 1,603
- -16-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
SOURCES AND USES OF FUNDS TRENDS
2001 2000 1999
AVERAGE Increase (Decrease) Average Increase (Decrease) Average
BALANCE Amount % Balance Amount % Balance
------- ------ --- ------- ------ --- -------
(Thousands of Dollars)
Funding uses:
Interest earning assets:
Loans:
Commercial $ 66,587 $ 1,843 2.85% $ 64,744 $ 6,058 10.32% $ 58,686
Mortgage 106,611 6,818 6.83 99,793 7,841 8.53 91,952
Consumer 50,289 2,556 5.35 47,733 5,066 11.87 42,667
-------- ------- -------- -------- --------
223,487 11,217 5.28 212,270 18,965 9.81 193,305
Less: Allowance for loan losses (2,518) 1 .04 (2,519) (27) 1.08 (2,492)
-------- ------- -------- -------- --------
220,969 11,218 5.35 209,751 18,938 9.92 190,813
Interest bearing deposits
with banks 1,114 442 65.77 672 5 .75 667
Securities 86,520 (12,276) (12.43) 98,796 (22,581) (18.60) 121,377
Funds sold 10,240 6,670 186.83 3,570 (1,985) (35.73) 5,555
-------- ------- -------- -------- --------
97,874 (5,164) (5.01) 103,038 (24,561) (19.25) 127,599
Total interest earning
assets 318,843 6,054 1.94 312,789 (5,623) 1.77 318,412
Other assets 29,488 7,592 34.67 21,896 944 4.51 20,952
-------- ------- -------- -------- --------
Total uses $348,331 $13,646 4.08 $334,685 $ (4,679) 1.38 $339,364
======== ======= ======== ======== ========
Funding sources:
Deposits:
Demand $ 36,623 $ 1,796 5.16 $ 34,827 $ 99 .29 $ 34,728
Interest bearing demand 50,056 3,835 8.30 46,221 9 .02 46,212
Savings 31,204 171 .55 31,033 (2,461) 7.35 33,494
Time under $100,000 149,814 (612) (.41) 150,426 (49) (.03) 150,475
-------- ------- -------- -------- --------
Total core deposits 267,697 5,190 1.98 262,507 (2,402) (.91) 264,909
Time over $100,000 31,271 6,162 24.54 25,109 129 .52 24,980
-------- ------- -------- -------- --------
Total deposits 298,968 11,352 3.95 287,616 (2,273) (.78) 289,889
Other liabilities 4,994 31 .62 4,963 301 6.46 4,662
Short-term borrowings 21 21 100.00 -- (287) (100.00) 287
Stockholders' equity 44,348 2,242 5.32 42,106 (2,420) (5.44) 44,526
-------- ------- -------- -------- --------
Total sources $348,331 $13,646 4.08 $334,685 $ (4,679) (1.38) $339,364
======== ======= ======== ======== ========
This discussion concerns Juniata Valley Financial Corp. (Corporation) and its
wholly owned subsidiary The Juniata Valley Bank (Bank). The purpose is to focus
on information concerning the Corporation financial condition and results of
operations which is not readily apparent from the consolidated financial
statements. In order to obtain a clear understanding of this discussion, the
reader should reference the consolidated financial statements, the notes to the
statements, and other financial information presented in this Annual Report.
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
The information contained in this Annual Report contains forward-looking
statements (as defined in the Securities Exchange Act of 1934), including
without limitation, statements as to the future loan and deposit volumes, the
allowance and provision for possible loan losses, future interest rates and
their effect on the Corporation's financial condition or results of operations,
the classification of the investment portfolio and other statements which are
not historical facts or as to trends or management's intentions, plans, beliefs,
expectations, or opinions. Such forward-looking statements are subject to risks
and uncertainties and may be affected by various factors which may cause actual
results to differ materially from those in these forward-looking statements
including without limitation, the effect of economic conditions and related
uncertainties, the effect of interest rates on the Corporation, federal and
state government regulation and competition. Certain of these risks,
uncertainties and other factors are discussed in this Annual Report or on Form
10-K for the year ended December 31, 2001, a copy of which may be obtained from
the Corporation upon request without charge.
OVERVIEW
The Corporation functions as a financial intermediary and therefore its
financial condition is analyzed in terms of changes in its sources and uses of
funds. Table 1 presents daily average balances, the dollar change, and
percentage change for the past two years. This table is referenced for the
discussion in this section.
The Corporation's average assets experienced an increase during 2001, reaching
the level of $348,331,000 an increase of $13,646,000 or 4.08% compared to 2000.
From 1999 to 2000 the Corporation experienced a decline in assets of $4,679,000.
The Corporation experienced an increase in average balances of loans of
$11,218,000 or 5.28% from 2000 to 2001. This increase was not as large as the
increase in 2000 over 1999 when loans grew by $18,938,000 or 9.81%. The decline
in the average balance of securities of $12,276,000 or 12.43% was used to fund
these loans. This occurred because normal funding sources in the way of average
balances of core deposits increased by $5,190,000 or 1.98% from 2000 to 2001 but
it was not enough to keep pace with loan demand. Securities declined from 1999
to 2000 by $22,581,000 or 18.60%. In 2001 as securities matured or were called,
money was placed in overnight Federal Funds until loans closed or an appropriate
investment security could be purchased. That is why Funds sold increased
$6,670,000 or 186.83%. Other assets increased because of a $5,000,000 bank-owned
life insurance purchase in the first quarter of 2001. The cash surrender value
of this instrument is included in other assets and revenues generated are
included in other income.
The Corporation's funding sources have increased from 2000 to 2001 by
$11,352,000 or 3.95%. Whereas, there was a decline from 1999 to 2000 of
$2,273,000 or .78%. Core deposits grew by $5,190,000 in 2001 over 2000 with the
largest growth coming in the interest-bearing demand deposits. Core deposits
declined in 2000 over 1999 by $2,402,000. The largest decline came from savings
deposits. Time deposits over $100,000 grew by $6,162,000 in 2001. In 2000 these
time deposits grew by $129,000.
The intense competition from banks and nonbanks in the market area was apparent
in 2001 which lead to a decline in market share.
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
[NET INCOME GRAPHIC OMITTED]
Juniata Valley Financial Corp. reported net income for 2001 of $4,642,000 which
was $255,000 or 5.81% more than the $4,387,000 reported in 2000 and $364,000 or
8.51% more than the $4,278,000 reported in 1999. Basic and diluted earnings per
share were $1.96 in 2001. This is an increase of $.15 from 2000 and an increase
of $.26 over 1999. This increase in earnings per share is a result of both
increased income but also a decline in weighted shares outstanding due to the
stock repurchase program.
- -18-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
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 10.47% in 2001,
compared to 10.42% in 2000 and 9.61% in 1999.
[RETURN ON AVERAGE EQUITY GRAPHIC OMITTED]
[REETURN ON AVERAGE ASSETS GRAPHIC OMITTED]
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
1.33% in 2001 compared to 1.31% in 2000 and 1.26% in 1999.
In the spring of 2001 the Board of Directors declared a 10% stock dividend. Per
share data has been adjusted in prior years to reflect this event. On a per
share basis $.80 was paid in 2001 down 33.88% from the $1.21 paid in 2000 and
down 31.03% from the $1.16 paid in 1999. The increase of cash dividends in 2000
and 1999 was to help increase the return on equity ratio by returning cash value
to stockholders. The Board of Directors declared a $.45 special dividend to be
paid in the spring of 1999 and 2000.
[CASH DIVIDENDS PER SHARE GRAPHIC OMITTED]
[ASSETS GRAPHIC OMITTED]
The Corporation had an increase in total assets of $21,843,000 or 6.52% at
December 31, 2001. Assets for the year ended December 31, 2001, were
$356,757,000 compared to assets of $334,914,000 at December 31, 2000.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
The Juniata Valley Bank's allowance for loan losses was $2,526,000 in 2001,
$2,497,000 in 2000 and $2,486,000 in 1999. The provision provided in each of
those years was $240,000 in 2001, $230,000 in 2000 and $120,000 in 1999. The
provision for loan losses exceeded net charge-offs by 13.74%, 5.02%, and 8.11%
in 2001, 2000 and 1999, respectively. In 2001 net charge-offs were .09% of
average loans outstanding. In 2000 and 1999 net charge-offs were .10% and .06%,
respectively of average loans outstanding each year.
Other income increased $817,000 or 59.33% from 2000 to 2001. From 1999 to 2000
the increase was $91,000 or 7.08%. The trust department income increased $48,000
in 2001 over 2000 and $12,000 in 2000 over 1999. This was a result of increased
estate settlements both in number and size. Customer service fees increased
$76,000 for 2001 compared to 2000 and $57,000 for 2000 compared to 1999. The
increases in customer service fees can be attributed to an increase in volume
and not as a result of increased fees. Because there were no realized gains on
the sale of securities in 2001, this created a decrease of $5,000 in 2001 over
2000 and a decrease of $39,000 occurred in net realized gains on sales of
securities in 2000 over 1999. The securities were sold in the fourth quarter of
1999 and were reflective of the higher interest rate environment during this
time period. Income on life insurance increased by $287,000 in 2001 over 2000.
The income on life insurance for 2000 and 1999 was the same. The increase in
income on life insurance is from a new bank-owned life insurance plan put into
place in 2001 that covers Directors retirement and key employees that are not
covered by another plan. The plan also offers life insurance for Director's and
key employees. The other income increased in 2001 over 2000 by $411,000. This
increase can be attributed to $266,000 in a settlement of a long-standing
litigation process in which the Bank was the plaintiff. The Bank also
experienced an increase of $107,000 in alternative investment commissions. The
increase in 2000 over 1999 was $61,000. This increase can be attributed to a
$30,000 transfer agent fee and $20,000 interchange fee on debit cards. Both
increases in 2000 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
joint marketing 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 2001 was $187,000.
Other expenses increased $412,000 or 5.03% over 2000, compared to an increase of
$152,000 from 1999 to 2000. Salaries and wages decreased $72,000 from 2000 to
2001. This compares to a decrease of $19,000 from 1999 to 2000. An early
retirement option was given and six employees took advantage of it in September
2000. Employee benefits decreased $67,000 from 2001 to 2000. From 1999 to 2000
the Bank experienced an increase of $116,000. This was due to price changes of
benefits provided as opposed to changed benefits. Occupancy expense increased by
$77,000 and can be attributed in the Bank's new operations' center in 2001 over
2000. Occupancy expense was virtually unchanged between 1999 and 2000. Equipment
expense increased $229,000 in 2001. The increase was $42,000 in 2000 over 1999.
The increases in equipment expenses are a direct result of increased technology
being offered and additional equipment needed to offer the technology.
Directors' compensation increased by $90,000 which was a result of the new
retirement plan put in place in 2001. Directors' expense declined $50,000 in
2000 over 1999 because of deferred compensation arrangements reaching maturity.
Taxes, other than income is an increase in the Pennsylvania shares tax of
$20,000 in 2001 over 2000 and $27,000 from 1999 to 2000. The $135,000 increase
in 2001 over 2000 in other expenses can be attributed to $68,000 paid for
outsourcing the internal audit, compliance, and loan review function, $42,000
increase in postage, and $25,000 for redesigning the wage and salary
administration. The $37,000 increase in other expenses for the year 2000 can be
attributed to an increase in postage.
On November 12, 1999, The Gramm-Leach-Bliley Act was signed into law. The Act
permits commercial banks to affiliate with investment banks. It permits bank
holding companies to engage in any type of financial activity which includes,
securities, insurance, merchant banking/equity investment, financial in nature,
and complimentary activities. The merchant banking provisions will allow a bank
holding company to make a controlling investment in any kind of company,
financial or commercial. These new powers allow a bank to engage in virtually
every type of activity currently recognized as financial or incidental or
complementary to a financial activity. The commercial bank has to be
well-capitalized, well-managed and CRA-rated satisfactory or better. The Act
also allows subsidiaries of banks to engage in a broad range of financial
activities that are not permitted for banks themselves. In light of this new
legislation, The Corporation and The Juniata Valley Bank will evaluate new
financial activities that would complement the products already offered to
enhance non-interest income.
- -20-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income is the most significant contributor to the Corporation's net
income. During 2001, net interest income decreased .68% to $12,712,000 compared
to an increase of 2.36% from 1999 to 2000. Table 3 shows the interest income,
interest expense and net interest income with the percentage change between the
years.
Table 2 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 increased $6,053,000 or 1.92% in 2001. In 2000 over 1999
there was a decrease of $5,596,000. The largest contributor to interest income
is loans. The yield on loans has declined from 2000 to 2001 by .16%. From 1999
to 2000 the rate increased .20%. The yield on taxable securities decreased .26%
in 2001 and the yield on tax free securities decreased .12%. In 2000 the yield
on taxable securities increased .05% and tax free securities decreased .10%.
Federal funds sold had a decrease of 4.24% in 2001 over 2000 while the
Corporation had an increase of 2.43% from 1999 to 2000. The overall yield on
these interest earning assets for 2001 was a decrease of .16%. This followed an
increase of .40% from 1999 to 2000.
Interest bearing liabilities increased $9,577,000 or 3.79% for 2001. There was a
decrease of $2,659,000 from 1999 to 2000. Time deposits increased by $5,550,000
from 2000 to 2001 and demand deposits bearing interest increased $3,835,000.
Rates paid decreased by .15% in 2001. There was an increase in rates paid from
1999 to 2000 of .26%.
The Corporation's net spread was 3.12% in 2001 down slightly from the 3.13% in
2000 but more than the 2.99% in 1999. 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 3.96% for 2001 compared to 4.06% in 2000 and 3.89% in 1999.
From Table 4 it can be seen that the decreases in net interest income of $87,000
during 2001 were affected by increases in volume of $303,000 however, and not
surprisingly decreases in rates which declined by $390,000. Volume increased
while rates decreased on interest income which is the same scenario with
interest expense in 2001. Loans added $1,005,000 in volume but had a $340,000
decrease in rates. Securities had both a decrease in volume and rate. Interest
expense experienced a small increase in volume in all categories and a small
decline in rates in all categories also. In 2000 an increase in net interest
income was also due to an increase in volume and a decrease in rates. Interest
income had both an increase in volume and rate while interest expense
experienced a decrease in volume and an increase in rates.
-21-
- --------------------------------------------------------------------------------
TABLE 2 - ANALYSIS OF NET INTEREST INCOME
- --------------------------------------------------------------------------------
Table 2 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".
2001
INTEREST
AVERAGE INCOME AVERAGE
BALANCES (EXPENSE) YIELD/RATE
-------- --------- ----------
(IN THOUSANDS)
INTEREST EARNING ASSETS
Interest bearing deposits in other banks $ 1,114 $ 53 4.76%
Securities (taxable) 44,691 2,692 6.02
Securities (tax exempt) 41,829 1,555 3.72
Federal funds sold 10,240 412 4.02
Loans 223,487 19,929 8.92
-------- ---------
Total interest earning assets 321,361 24,641 7.67
----
NON-INTEREST EARNING ASSETS
Cash and due from banks 9,596
Other assets 19,892
Less: allowance for loan losses (2,518)
--------
Total assets $348,331
========
INTEREST BEARING LIABILITIES
Demand deposits bearing interest $ 50,056 (1,183) 2.36%
Savings deposits 31,204 (760) 2.44
Time deposits 181,085 (9,985) 5.51
Short-term borrowings 21 (1) 4.76
-------- ---------
Total interest bearing liabilities 262,366 (11,929) 4.55
--------- ----
NON-INTEREST BEARING LIABILITIES
Demand deposits 36,623
Other liabilities 4,994
STOCKHOLDERS' EQUITY 44,348
--------
Total liabilities and stockholders' equity $348,331
========
NET INTEREST INCOME/SPREAD $ 12,712 3.12%
======== ====
MARGIN ANALYSIS
Interest income/ earning assets 7.67%
Interest expense/earning assets 3.71
----
Net interest margin 3.96%
====
- -22-
- --------------------------------------------------------------------------------
TABLE 2 (CONTINUED)
- --------------------------------------------------------------------------------
2000 1999
Interest Interest
Average Income Average Average Income Average
Balances (Expense) Yield/Rate Balances (Expense) Yield/Rate
-------- --------- ---------- -------- --------- ----------
(In Thousands) (In Thousands)
$ 672 $ 48 7.14% $ 667 $ 44 6.60%
52,339 3,287 6.28 66,942 4,171 6.23
46,457 1,785 3.84 54,435 2,147 3.94
3,570 295 8.26 5,555 324 5.83
212,270 19,264 9.08 193,305 17,172 8.88
-------- -------- -------- --------
315,308 24,679 7.83 320,904 23,858 7.43
---- ----
9,243 9,209
12,653 11,743
(2,519) (2,492)
-------- --------
$334,685 $339,364
======== ========
$ 46,221 (1,363) 2.95% $ 46,212 (1,233) 2.67%
31,033 (828) 2.67 33,494 (912) 2.72
175,535 (9,689) 5.52 175,455 (9,194) 5.24
-- -- -- 287 (15) 5.23
-------- -------- -------- --------
252,789 (11,880) 4.70 255,448 (11,354) 4.44
-------- ---- -------- ----
34,827 34,728
4,963 4,662
42,106 44,526
------ ------
$334,685 $339,364
======== ========
$ 12,799 3.13% $ 12,504 2.99%
======== ==== ======== ====
7.83% 7.43%
3.77 3.54
---- ----
4.06% 3.89%
==== ====
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
TABLE 3 --- NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, defined as interest income less interest expense, is shown
in the following table:
2001 % Change 2000 % Change 1999
---- -------- ---- -------- ----
(In Thousands)
Interest income $24,641 (.15)% $24,679 3.44% $23,858
Interest expense 11,929 .41 11,880 4.63 11,354
------- ------- -------
Net interest income $12,712 (.68) $12,799 2.36 $12,504
======= ======= =======
- --------------------------------------------------------------------------------
TABLE 4 - RATE-VOLUME ANALYSIS OF NET INTEREST INCOME
- --------------------------------------------------------------------------------
Table 4 attributes increases and decreases in components of net interest income
either to changes in average volume or to changes in average rates for interest
earning assets and interest bearing liabilities. Numerous and simultaneous
balance and rate changes occur during the year. The acmount of change that is
not due solely to volume or tate is allocated roportionally to both.
2001/2000 Increase (Decrease) 2000/1999 Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest bearing deposits
in other banks $ 25 $ (20) $ 5 $ -- $ 4 $ 4
Securities (taxable) (465) (130) (595) (931) 47 (884)
Securities (tax free) (173) (57) (230) (487) 125 (362)
Federal funds sold 329 (212) 117 (63) 34 (29)
Loans 1,005 (340) 665 2,188 (96) 2,092
------ ----- ------ ------ ----- ------
Interest income 721 (759) (38) 707 114 821
------ ----- ------ ------ ----- ------
Demand deposits
bearing interest 107 (287) (180) -- 130 130
Savings deposits 4 (72) (68) (67) (17) (84)
Time deposits 306 (10) 296 4 491 495
Short-term borrowings 1 -- 1 (15) -- (15)
------ ----- ------ ------ ----- ------
Interest expense 418 (369) 49 (78) 604 526
------ ----- ------ ------ ----- ------
Increase (decrease)
in net interest income $ 303 $(390) $ (87) $ 785 $(490) $ 295
====== ===== ===== ====== ===== ======
- --------------------------------------------------------------------------------
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
[NET LOANS GRAPHIC OMITTED]
At December 31, 2001, net loans increased $8,179,000 or 3.72% over 2000. This
follows an increase in 2000 over 1999 in net loans of $15,483,000 or 7.58%. The
loan to deposit ratio fluctuated throughout 2001; monthly averages were at a low
in December of 72.2% and a high in January of 76.8%. Residential mortgages
increased by $5,242,000 or 4.59% from 2000 to 2001. Residential mortgages
increased by $3,619,000 from 1999 to 2000. Real estate loans still remain a very
attractive option due to the tax deductibility of mortgage interest. Commercial
real estate loans grew by $3,230,000 or 11.27% in 2001 over 2000. Commercial
real estate loans increased by $115,000 from 1999 to 2000. Consumer loans
decreased $1,517,000 or 2.41% in 2001 over 2000. This follows a year with an
increase of $8,581,000 from 1999 to 2000.
- -24-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
In spite of the slow economy and increasing credit problems nationwide, the
Corporation continued its excellent charge-off record (charge-offs, net of
recoveries) during 2001. For the year, the net charge-offs were $211,000 or .09%
of average loans outstanding. The increase in 2000 was due to a growing loan
portfolio and not as a result of relaxation of underwriting standards. This
compares with $219,000 or .10% for 2000 and $111,000 or .06% for 1999.
The allowance for loan losses is based upon quarterly loan portfolio reviews by
management and a committee of the Board. The purpose of the review is to assess
loan quality, identify impaired loans, analyze delinquencies, ascertain loan
growth, evaluate potential charge-offs and recoveries and assess general
economic conditions in the market served.
Commercial and real estate loans are rated periodically by loan review
personnel. Consumer and residential real estate loans are generally reviewed in
the aggregate as they are of relative small dollar size and homogeneous in
nature.
In addition to economic conditions, loan portfolio diversification, delinquency,
and historic loss experience, consideration is also given to examinations
performed by the regulatory authorities.
To determine the allowance and corresponding provision, the amount required for
specific allocation is first determined. For all types of commercial and
construction loans, this amount is based upon specific borrower data determined
by reviewing non-performing, delinquent, or potentially troubled credits. In
addition, a general allocation is also determined using the same criteria
applied to the total commercial portfolio excluding the specific allocation.
Consumer and residential real estate allowances, which may include specific
allocations, generally are based upon recent charge-off and delinquency history,
other known trends, and expected losses over the remaining lives of these loans,
as well as the condition of local, regional, and national economies.
The unallocated portion of the allowance is the amount which, when added to
these allocated amounts, brings the total to the amount deemed adequate by
management at that time. This unallocated portion is available to absorb losses
sustained anywhere within the portfolio.
Determining the level of the allowance for possible loan losses at any given
period is difficult, particularly during deteriorating or uncertain economic
periods. Management must make estimates using assumptions and information which
is often subjective and changing rapidly. The review of the loan portfolio is a
continuing event in light of a changing economy and the dynamics of the banking
and regulatory environment. It is Management's opinion that the allowance for
loan losses for 2001 of $2,526,000 or 1.11% of outstanding loans is adequate to
meet any foreseeable loan loss contingency. This is lower than the 1.14% for
2000 and the 1.22% for 1999.
At December 31, 2001 and 2000, total non-performing loans were $1,745,000 and
$804,000, respectively; non-performing loans as a percentage of the allowance
for loan losses were 69.08% and 32.20%, respectively. The increase in 2001 was
due mainly from a single credit which the Corporation anticipates no loss to
occur.
In addition, regulatory authorities, as an integral part of their examinations,
periodically review the allowance for possible loan losses. They may require
additions to allowances based upon their judgements about information available
to them at the time of their examination.
It is the policy of the Corporation not to renegotiate the terms of a loan
simply because of a delinquency status. Rather a loan is transferred to
non-accrual status if it is not well secured and in process of collection and is
delinquent in payment of either principal or interest beyond 90 days. Interest
income received on non-accruing loans in 2001 and 2000 was $0.
Real estate acquired through foreclosure is carried at the lower of the recorded
amount of the loan for which the foreclosed property served as collateral or the
fair market value of the property as determined by a current appraisal less
estimated costs to sell (fair value). Prior to foreclosure, the recorded amount
of the loan is reduced, if necessary, to fair value by charging the allowance
for loan losses. Subsequent to foreclosure, gains or losses on the sale of real
estate acquired through foreclosure are recorded in operating income and any
losses determined as a result of periodic valuations are charged to other
operating expense.
Loans with principal and/or interest delinquent 90 days or more which are still
accruing interest were $811,000 at December 31, 2001 up from the $440,000 at
December 31, 2000. Although the economy has stabilized since September 11, 2001,
there is still uncertainty locally for large employers. This may adversely
affect certain borrowers and may cause additional loans to become past due
beyond 89 days or to be placed on non-accrual status because of uncertainty of
receiving full payments of either principal or interest on these loans.
Potential problem loans consist of loans which are performing but for which
credit problems have caused the Corporation to place them on its internally
monitored loan list. At December 31, 2001, such loans amounted to $680,000.
Depending upon the state of the economy and the impact thereon to these
borrowers, as well as future events such as regulatory examination assessment,
these losses and others not currently so identified could be classified as
non-performing assets in the future.
-25-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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 2001
the Corporation funded approximately 77% of its assets with core deposits
acquired in local communities. This core deposit base, combined with
stockholders' equity, funded almost 90% of average assets in 2001 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, 2001, these liquid assets amounted to $76,472,000 compared to
liquid assets at December 31, 2000, of $55,014,000. Liquidity is also provided
by scheduled and unscheduled principal repayments of loans.
The Corporation joined the Federal Home Loan Bank (FHLB) 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 a short term line of credit of
$10,000,000. Outstanding balances under this agreement were $1,275,000 at
December 31, 2001. At December 31, 2000, the amount borrowed was $0. The Bank
has a maximum borrowing capacity of $124,238,000 with the FHLB which is
collateralized by qualifying assets of the Bank.
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 2001 loan demand increased by $8,419,000. This was easily
funded by the deposit growth of $18,248,000.
- --------------------------------------------------------------------------------
REGULATORY MATTERS
- --------------------------------------------------------------------------------
The Juniata Valley Bank is subject to periodic examinations by one or more of
the various regulatory agencies. During 2001 an examination was conducted by the
Commonwealth of 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.
In July of 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations" and Statement No. 142, "Goodwill and Other
Intangible Assets".
Statement No. 141 requires all business combinations to be accounted for using
the purchase method of accounting as use of the pooling-of-interests method is
prohibited. In addition, this statement requires that negative goodwill that
exists after the basis of certain acquired assets is reduced to zero should be
recognized as an extraordinary gain. The provisions of this Statement apply to
all business combinations initiated after June 30, 2001.
- -26-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
REGULATORY MATTERS (CONTINUED)
- --------------------------------------------------------------------------------
Statement No. 142 prescribes that goodwill associated with a business
combination and intangible assets with an indefinite useful life should not be
amortized but should be tested for impairment at least annually. The Statement
requires intangibles that are separable from goodwill and that have a
determinable useful life to be amortized over the determinable useful life. The
provisions of this Statement became effective for the Bank in January of 2002
and require that goodwill and other intangible assets arising from acquisitions
completed before July 1, 2001 should be accounted for in accordance with the
provisions of this Statement.
In June of 2001, the Financial Accounting Standards Board issued Statement 143,
"Accounting for Asset Retirement Obligations", which addresses the financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
Statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. This
Statement will become effective for the Bank on January 1, 2003.
The Financial Accounting Standards Board issued Statement No. 144, "Accounting
for the Impairment of Disposal of Long-Lived Assets", in August 2001. This
Statement supersedes Statement No. 121 of the same name and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions for
the disposal of a segment of a business". This Statement also amends ARB 51,
"Consolidated Financial Statements". The provisions of this Statement became
effective for the Bank on January 1, 2002.
Adoption of these Statements is not expected to have a material impact on the
Bank's financial condition or results of operations.
- --------------------------------------------------------------------------------
MARKET RATE RISK
- --------------------------------------------------------------------------------
The operations of the Corporation are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the amount of
the Corporation's interest earning assets and the amount of interest bearing
liabilities that are prepaid/withdrawn, mature or re-price in specified periods.
The principal objective of the Corporation'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 Corporation. The Corporation 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 Corporation do not subject it to foreign currency exchange
or commodity price risk. Also the Corporation does not utilize interest rate
swaps, caps or other hedging transactions.
The Corporation uses several tools to measure and evaluate interest rate risk.
Table 5 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 6, the
financial simulation analysis revealed that projected net interest income over a
one-year time period is positively affected by higher market interest rates,
while the economic value of equity is adversely affected by higher interest
rates. In a lower interest rate environment the opposite is presented projected
net interest income is adversely affected by and economic value of equity is
favorably affected.
Computations of the projected effects of hypothetical interest rate changes are
based on many assumptions, including relative levels of market interest rates
and loan prepayments. Certain shortcomings are inherent in the computation of
discounted present value and, if key relationships do not unfold as assumed,
actual values may differ from those presented. Further, the computations do not
contemplate certain actions management could undertake in response to changes in
market interest rates.
-27-
- --------------------------------------------------------------------------------
TABLE 5 - INTEREST RATE SENSITIVITY
PRINCIPAL AMOUNT BY EXPECTED MATURITY/AVERAGE INTEREST RATE
- --------------------------------------------------------------------------------
2002 2003 2004
---- ---- ----
DECEMBER 31, 2001 (Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
ASSETS
Interest bearing and time deposits $ 2,217 2.96% $ 1,400 3.66% $ 60 4.41%
Federal funds sold -- -- -- -- -- --
Available for sale securities 7,519 5.21 10,284 5.92 9,112 5.18
Held to maturity securities 8,351 4.74 10,624 5.12 17,409 4.53
Loans
Commercial 24,548 8.56 -- -- -- --
Consumer 11,799 8.72 9,435 9.33 7,387 9.03
Real estate mortgage 135,815 7.87 876 7.79 922 7.78
LIABILITIES
Interest bearing demand deposits 51,769 2.36 -- -- -- --
Savings deposits 32,281 2.44 -- -- -- --
Certificates of deposit 112,800 4.73 47,917 5.18 11,163 4.83
- --------------------------------------------------------------------------------
2001 2002 2003
---- ---- ----
DECEMBER 31, 2000 (Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
ASSETS
Interest bearing deposits $ 676 5.65% -- -- -- --
Federal funds sold 4,400 6.44 -- -- -- --
Available for sale securities 10,171 5.59 $ 7,487 5.74% $ 3,750 5.68%
Held to maturity securities 4,986 5.63 4,582 5.79 9,207 4.95
Loans
Commercial 23,327 9.36 -- -- -- --
Consumer 12,287 9.37 8,557 9.22 7,105 9.55
Real estate mortgage 129,819 8.11 930 8.13 961 8.13
LIABILITIES
Interest bearing demand deposits 47,220 2.95 -- -- -- --
Savings deposits 29,191 2.67 -- -- -- --
Certificates of deposit 108,609 5.71 38,396 6.12 21,480 6.00
- -28-
- --------------------------------------------------------------------------------
TABLE 5 (CONTINUED)
- --------------------------------------------------------------------------------
Fair Value
2005 2006 Thereafter Total December
---- ---- ---------- ----- 31, 2001
(Dollars in Thousands) ---------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
-- -- -- -- -- -- $ 3,677 $ 3,677
-- -- -- -- -- -- -- --
8,476 5.67 6,932 6.01 11,315 5.39 53,638 54,663
500 6.00 961 3.50 767 5.33 38,612 39,435
-- -- -- -- -- -- 24,548 $ 24,548
$ 4,949 8.79% $ 3,271 8.78% $15,240 8.89% 52,081 52,283
983 7.77 1,045 7.76 11,728 7.59 151,369 151,620
-- -- -- -- -- -- 51,769 51,769
-- -- -- -- -- -- 32,281 32,281
5,050 5.82 6,399 5.14 -- -- 183,329 186,842
- --------------------------------------------------------------------------------
Fair Value
2004 2005 Thereafter Total December
---- ---- ---------- ----- 31, 2000
(Dollars in Thousands) ---------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
-- -- -- -- -- -- $ 676 $ 676
-- -- -- -- -- -- 4,400 4,400
$ 2,372 6.12% $ 1,763 6.15% $ 8,233 6.31% 32,591 33,146
18,031 4.42 13,659 4.37 775 5.31 51,240 50,967
-- -- -- -- -- -- 23,327 23,327
5,156 9.45 3,138 9.45 17,352 9.48 53,595 53,535
962 8.11 1,952 8.06 8,273 8.15 142,897 141,833
-- -- -- -- -- -- 47,220 47,220
-- -- -- -- -- -- 29,191 29,191
5,415 5.37 3,016 6.13 -- -- 176,916 177,656
-29-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
TABLE 6 - SENSITIVITY TO CHANGE IN MARKET INTEREST RATES
- --------------------------------------------------------------------------------
Interest Rate Scenarios
-----------------------
-200 bps -100 bps +100 bps +200 bps
-------- -------- -------- --------
DECEMBER 31, 2001 (In Thousands)
Prospective one-year net interest income:
Projected $12,390 $12,551 $12,804 $12,896
Percent change (2.53)% (1.27)% .72% 1.45%
Economic value of portfolio equity:
Projected 47,820 46,573 43,544 41,763
Percent change 5.50% 2.75% (3.93)% (7.86)%
Interest Rate Scenarios
-----------------------
-200 bps -100 bps +100 bps +200 bps
-------- -------- -------- --------
DECEMBER 31, 2000 (In Thousands)
Prospective one-year net interest income:
Projected $12,205 $12,527 $13,049 $13,299
Percent change (4.64)% (2.13)% 1.95% 3.91%
Economic value of portfolio equity:
Projected 43,582 43,332 42,810 42,488
Percent change 1.16% .58% (.63)% (1.38)%
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-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
On March 20, 2001, the Board of Directors of the Juniata Valley Financial Corp.
declared a 10% stock dividend to shareholders payable on April 27, 2001. 182,210
shares were issued from treasury stock and 32,320 shares were issued from
authorized and unissued. At this same meeting the Board of Directors authorized
the repurchase of 100,000 shares outstanding of common stock. As of December 1,
2001, 8,929 shares were repurchased with 91,071 shares remaining. Shares are
also reissued for the dividend reinvestment plan as well as the employee stock
purchase plan. At December 31, 2001 and 2000 treasury stock was 21,934 and
167,110 shares, respectively at a cost of $623,000 and $5,132,000.
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 8.00% and
qualifying total capital to risk adjusted total assets with at least 4% Tier I
capital and 8% of risk-adjusted assets in total capital. As indicated on the
schedule following this discussion, the Tier I risk-based capital ratio was
18.46% and Tier II risk-based capital ratio was 19.56% at December 31, 2001. The
Bank's capital ratios are well above the current minimum ratio requirement set
forth by federal banking regulators.
In addition to risk-based requirements, the Federal Reserve Board has
established minimum leverage guidelines for bank holding companies. For most
banks, the minimum leverage rate is 3% plus an additional cushion of 100 to 200
basis points depending on risk profiles and other factors. As of December 31,
2001, the leverage ratio was 11.98%.
[STOCKHOLDERS' EQUITY GRAPHIC OMITTED]
CAPITAL ANALYSIS December 31,
------------
2001 2000 1999
---- ---- ----
(Thousands of Dollars)
Tier I
Common stockholders' equity (excluding unrealized
gains/losses on securities) $ 42,515 $ 40,999 $ 41,833
Tier II
Allowable portion of allowance for loan losses 2,526 2,497 2,486
-------- -------- --------
Risk-based capital $ 45,041 $ 43,496 $ 44,319
======== ======== ========
Risk adjusted assets (including off-balance-sheet exposures) $230,325 $222,052 $213,490
======== ======== ========
Tier I risk-based capital ratio 18.46% 18.46% 19.59%
Total risk-based capital ratio 19.56% 19.59% 20.76%
Leverage ratio 11.98% 12.30% 12.33%
-31-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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 2002 because of many
uncertainties surrounding the economy. However, the Corporation's management and
Board of Directors are looking forward to meeting the challenges a changing
economy can present. The Corporation's commitment to providing quality banking
services for the communities it serves will continue through 2002. 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 Corporation'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 2002 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 2001 was $1,428,000 compared to $1,375,000 in
2000 and $1,360,000 in 1999. The effective tax rate, which is the ratio of
income tax expense to income before income taxes, was 23.53% in 2001, a decrease
from the 23.86% in 2000 and 24.12% in 1999. The tax rate for all periods was
less than the statutory rate of 34% due to tax exempt securities and loan income
and tax free earnings on the bank-owned life insurance. Please refer to the
Notes to the Consolidated Financial Statements "Income Taxes" for further
analysis of federal income tax expense.
- -32-
{LETTERHEAD GRAPHIC OMITTED]
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, 2001 and 2000, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Juniata
Valley Financial Corp. and its wholly-owned subsidiary, The Juniata Valley Bank,
as of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Beard Miller Company LLP
Harrisburg, Pennsylvania
January 18, 2002
-33-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED BALANCE SHEETS
ASSETS
------
December 31,
------------
2001 2000
---- ----
(In Thousands, Except Share Data)
Assets:
Cash and due from banks $ 11,571 $ 10,621
Interest bearing deposits with banks 87 676
Federal funds sold -- 4,400
-------- --------
Cash and cash equivalents 11,658 15,697
Interest bearing time deposits with banks 3,590 --
Securities available for sale 54,663 33,146
Securities held to maturity, fair value 2001 $39,435; 2000 $50,967 38,612 51,240
Federal Home Loan Bank stock 1,208 1,185
Loans receivable, net of allowance for loan losses 2001 $2,526; 2000 $2,497 227,998 219,819
Bank premises and equipment, net 6,068 5,992
Accrued interest receivable and other assets 12,960 7,835
-------- --------
Total assets $356,757 $334,914
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 38,089 $ 33,893
Interest bearing 267,379 253,327
-------- --------
Total deposits 305,468 287,220
Short-term borrowings 1,275
Accrued interest payable and other liabilities 4,688 4,612
-------- --------
Total liabilities 311,431 291,832
-------- --------
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 2001 2,372,934 shares; 2000 2,332,058 shares 2,373 2,332
Surplus 20,221 20,398
Retained earnings 22,679 25,117
Accumulated other comprehensive income 676 367
Treasury stock, at cost 2001 21,934 shares; 2000 167,110 shares (623) (5,132)
-------- --------
Total stockholders' equity 45,326 43,082
-------- --------
Total liabilities and stockholders' equity $356,757 $334,914
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- -34-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands, Except Per Share Data)
Interest income:
Loans receivable, including fees $19,929 $19,264 $17,172
Taxable securities 2,692 3,287 4,171
Tax-exempt securities 1,555 1,785 2,147
Other 465 343 368
------- ------- -------
Total interest income 24,641 24,679 23,858
------- ------- -------
Interest expense:
Deposits 11,928 11,880 11,339
Short-term borrowings 1 -- 15
------- ------- -------
Total interest expense 11,929 11,880 11,354
------- ------- -------
Net interest income 12,712 12,799 12,504
Provision for loan losses 240 230 120
------- ------- -------
Net interest income after provision for loan losses 12,472 12,569 12,384
------- ------- -------
Other income:
Trust department 435 387 375
Customer service fees 627 551 494
Net realized gains on sales of securities -- 5 44
Income on life insurance 362 75 75
Other 770 359 298
------- ------- -------
Total other income 2,194 1,377 1,286
------- ------- -------
Other expenses:
Salaries and wages 3,496 3,568 3,587
Employee benefits 1,109 1,176 1,060
Occupancy 575 498 499
Equipment 1,204 975 933
Director compensation 361 271 321
Taxes, other than income 485 465 438
Other 1,366 1,231 1,194
------- ------- -------
Total other expenses 8,596 8,184 8,032
------- ------- -------
Income before income taxes 6,070 5,762 5,638
Federal income taxes 1,428 1,375 1,360
------- ------- -------
Net income $ 4,642 $ 4,387 $ 4,278
======= ======= =======
Per share data:
Basic and diluted earnings $ 1.96 $ 1.81 $ 1.70
======= ======= =======
Cash dividends $ 0.80 $ 1.21 $ 1.16
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-35-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000 and 1999
--------------------------------------------
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
----- ------- -------- ------ ----- -----
(In Thousands)
Balance, December 31, 1998 $2,332 $20,580 $22,322 $ 816 $ (70) $45,980
-------
Comprehensive income:
Net income -- -- 4,278 -- -- 4,278
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- (714) -- (714)
-------
Total comprehensive income 3,564
-------
Cash dividends declared -- -- (2,935) -- -- (2,935)
Treasury stock issued under dividend
reinvestment plan -- (21) -- -- 462 441
Treasury stock issued under
employee stock purchase plan -- -- -- -- 28 28
Treasury stock acquired -- -- -- -- (3,823) (3,823)
------ ------- ------- ----- ------- -------
Balance, December 31, 1999 2,332 20,559 23,665 102 (3,403) 43,255
-------
Comprehensive income:
Net income -- -- 4,387 -- -- 4,387
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- 265 -- 265
-------
Total comprehensive income 4,652
-------
Cash dividends declared -- -- (2,935) -- -- (2,935)
Treasury stock issued under dividend
reinvestment plan -- (161) -- -- 546 385
Treasury stock issued under
employee stock purchase plan -- -- -- -- 1 1
Treasury stock acquired -- -- -- -- (2,276) (2,276)
------ ------- ------- ----- ------- -------
Balance, December 31, 2000 2,332 20,398 25,117 367 (5,132) 43,082
-------
Comprehensive income:
Net income -- -- 4,642 -- -- 4,642
Change in unrealized gains (losses)
on securities available for sale,
net of reclassification adjustment
and tax effects -- -- -- 309 -- 309
-------
Total comprehensive income 4,951
-------
Stock issued under dividend
reinvestment plan 7 166 -- -- -- 173
Cash dividends declared -- -- (1,893) -- -- (1,893)
10% common stock dividend 32 (373) (5,187) -- 5,517 (11)
Stock issued under employee stock
purchase plan 2 30 -- -- -- 32
Treasury stock issued under dividend
reinvestment plan -- -- -- -- 181 181
Treasury stock acquired -- -- -- -- (1,189) (1,189)
------ ------- ------- ----- ------- -------
BALANCE, DECEMBER 31, 2001 $2,373 $20,221 $22,679 $ 676 $ (623) $45,326
====== ======= ======= ===== ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- -36-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,642 $ 4,387 $ 4,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 240 230 120
Provision for depreciation 396 323 291
Net amortization of securities' premiums 177 158 89
Net realized gains on sales of securities -- (5) (44)
Deferred compensation plans' expense 528 378 421
Payment of deferred compensation (252) (199) (174)
Deferred income taxes (103) (110) (57)
(Increase) decrease in accrued interest receivable and other assets 196 (11) (7)
Increase (decrease) in accrued interest payable and other liabilities (199) 158 241
Increase in investment life insurance (377) (119) (96)
------- ------- -------
Net cash provided by operating activities 5,248 5,190 5,062
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest bearing time deposits (3,590) -- --
Purchases of available for sale securities (40,760) (1,141) (470)
Purchase of FHLB stock (23) (10) (415)
Proceeds from sales of available for sale securities -- 10 2,195
Proceeds from maturities of and principal repayments
on available for sale securities 19,629 12,274 18,066
Purchases of held to maturity securities (961) (701) (16,474)
Proceeds from maturities of and principal repayments
on held to maturity securities 13,494 8,895 14,684
Net increase in loans receivable (8,419) (15,712) (14,971)
Purchase of investment in life insurance (5,000) -- --
Net purchases of bank premises and equipment (473) (2,887) (842)
------- ------- -------
Net cash provided by (used in) investing activities (26,103) 728 1,773
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 18,248 3,870 (10,540)
Net increase (decrease) in short-term borrowings 1,275 (5,300) 5,300
Cash dividends and cash paid for fractional shares (1,904) (2,935) (2,935)
Purchase of treasury stock (1,189) (2,276) (3,823)
Treasury stock issued 181 386 469
Stock issued for dividend reinvestment
and employee stock purchase plan 205 -- --
------- ------- -------
Net cash provided by (used in) financing activities 16,816 (6,255) (11,529)
------- ------- -------
Decrease in cash and cash equivalents (4,039) (337) (4,694)
Cash and cash equivalents:
Beginning 15,697 16,034 20,728
------- ------- -------
Ending $11,658 $15,697 $16,034
======= ======= =======
Supplementary cash flows information:
Interest paid $11,967 $11,843 $11,397
======= ======= =======
Income taxes paid $ 1,470 $ 1,520 $ 1,460
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-37-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Juniata Valley Financial Corp. (the Corporation), a bank holding company,
and its wholly-owned subsidiary, The Juniata Valley Bank (the Bank). All
significant intercompany accounts and transactions have been eliminated.
Nature of operations:
The Bank operates under a state bank charter and provides full banking
services, including trust services. As a state bank, the Bank is subject to
regulation of the Pennsylvania Department of Banking and the Federal
Deposit Insurance Corporation. The bank holding company (parent company) is
subject to regulation of the Federal Reserve Bank. The area served by the
Bank is principally the counties of Juniata, Mifflin, Perry, Huntingdon,
Centre, Franklin and Snyder, Pennsylvania.
Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Interest bearing time deposits with banks:
Interest bearing deposits with banks consists of certificates of deposits
in other banks with maturities within one year to three years.
Securities:
Securities classified as available for sale are those debt securities that
the Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Bank's
assets and liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are carried at
fair value. Unrealized gains and losses are reported in other comprehensive
income, net of the related deferred tax effect. Realized gains or losses,
determined on the basis of the cost of specific securities sold, are
included in earnings. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity.
Securities classified as held to maturity are those debt securities the
Corporation has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the interest
method over the period to maturity.
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance
sheet date.
Federal law requires a member institution of the Federal Home Loan Bank
system to hold stock of its district Federal Home Loan Bank according to a
predetermined formula. The stock is carried at cost.
Loans receivable:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at their
outstanding unpaid principal balances, net of unearned discount and an
allowance for loan losses. Interest income is accrued on the unpaid
principal balance. Unearned discount on discounted loans is amortized to
income over the life of the loans, using the interest method.
- -38-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans receivable (continued):
The accrual of interest is generally discontinued when the contractual
payment of principal or interest has become 90 days past due or management
has serious doubts about further collectibility of principal or interest,
even though the loan is currently performing. A loan may remain on accrual
status if it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on nonaccrual status, unpaid interest
credited to income in the current year is reversed and unpaid interest
accrued in prior years is charged against the allowance for loan losses.
Interest received on nonaccrual loans generally is either applied against
principal or reported as interest income, according to management's
judgment as to the collectibility of principal. Generally, loans are
restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable period
of time and the ultimate collectibility of the total contractual principal
and interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any,
are credited to the allowance.
The allowance for loan losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated. Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's
past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, composition of the loan
portfolio, current economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material estimates that
may be susceptible to significant change, including the amounts and timing
of future cash flows expected to be received on impaired loans.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when
due. Loans that experience insignificant payment delays and payment
shortfalls generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for
the delay, the borrower's prior payment record and the amount of the
shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and construction loans by
either the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's obtainable market price or the
fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer and residential loans for impairment
disclosures.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally on the straight-line
method over the estimated useful lives of the related assets.
Foreclosed real estate:
Foreclosed assets, which are recorded in other assets, include properties
acquired through foreclosure or in full or partial satisfaction of the
related loan. Foreclosed assets are initially recorded at fair value, net
of estimated selling costs, at the date of foreclosure. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value, less estimated costs
to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in other expenses.
-39-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 per common share:
Basic earnings per share represents income available to common shareholders
divided by the weighted average number of common shares outstanding during
the period, as adjusted for the stock dividend. Diluted earnings per share
reflects additional common shares that would have been outstanding if
dilutive potential common shares had been issued, as well as any adjustment
to income that would result from the assumed issuance. Potential common
shares that may be issued by the Corporation relate solely to outstanding
stock options and are determined using the treasury stock method. For the
year ended December 31, 2001, outstanding options did not have a dilutive
impact on earnings per share.
The weighted average number of common shares outstanding was 2,368,923,
2,420,966 and 2,519,801 in 2001, 2000 and 1999, respectively.
Comprehensive income:
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available
for sale securities, are reported as a separate component of the equity
section of the balance sheet, such items, along with net income, are
components of comprehensive income.
The components of other comprehensive income (loss) and related tax effects
are as follows:
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
Unrealized holding gains (losses) on available for sale securities $470 $405 $(1,008)
Reclassification adjustment for gains realized in income -- (5) (44)
---- ---- -------
Net unrealized gains (losses) 470 400 (1,052)
Tax effect 161 135 (338)
---- ---- -------
Net of tax amount $309 $265 $ (714)
==== ==== =======
- -40-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications:
Certain amounts in the 2000 and 1999 financial statements have been
reclassified to conform with the 2001 presentation format. Such
reclassifications had no impact on the Corporations' net income.
Segment reporting:
The Bank acts as an independent community financial services provider, and
offers traditional banking and related financial services to individual,
business and government customers. Through its branch and automated teller
machine network, the Bank offers a full array of commercial and retail
financial services, including the taking of time, savings and demand
deposits; the making of commercial, consumer and mortgage loans; trust
services and the providing of other financial services.
Management does not separately allocate expenses, including the cost of
funding loan demand, between the commercial, retail and trust operations of
the Bank. As such, discrete financial information is not available and
segment reporting would not be meaningful.
New accounting standards:
In July of 2001, the Financial Accounting Standards Board issued Statement
No. 141, "Business Combinations," and Statement No. 142, "Goodwill and
Other Intangible Assets."
Statement No. 141 requires all business combinations to be accounted for
using the purchase method of accounting as use of the pooling-of-interests
method is prohibited. In addition, this Statement requires that negative
goodwill that exists after the basis of certain acquired assets is reduced
to zero should be recognized as an extraordinary gain. The provisions of
this Statement apply to all business combinations initiated after June 30,
2001.
Statement No. 142 prescribes that goodwill associated with a business
combination and intangible assets with an indefinite useful life should not
be amortized but should be tested for impairment at least annually. The
Statement requires intangibles that are separable from goodwill and that
have a determinable useful life to be amortized over the determinable
useful life. The provisions of this Statement became effective for the Bank
in January 2002 and require that goodwill and other intangible assets
arising from acquisitions completed before July 1, 2001 be accounted for in
accordance with the provisions of this Statement.
In June of 2001, the Financial Accounting Standards Board issued Statement
143, "Accounting for Asset Retirement Obligations," which addresses the
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made.
The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. This Statement will become
effective for the Bank on January 1, 2003.
In August of 2001, the Financial Accounting Standards Board issued
Statement 144, "Accounting for the Impairment of or Disposal of Long-Lived
Assets." This Statement supersedes FASB Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," and the accounting and reporting provisions of APB Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions for the Disposal of a
Segment of a Business." This Statement also amends ARB No. 51,
"Consolidated Financial Statements." The provisons of this Statement became
effective for the Bank on January 1, 2002.
Adoption of these Statements did not have or is not expected to have a
material impact on the Corporation's financial condition or results of
operations.
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 2001 and 2000 approximated $3,468,000 and
$2,228,000, respectively.
-41-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES
The amortized cost and fair value of securities at December 31 were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
AVAILABLE FOR SALE SECURITIES:
DECEMBER 31, 2001:
U.S. Treasury securities $ 1,508 $ 37 $ -- $ 1,545
U.S. Government and agency obligations 29,153 353 (91) 29,415
Obligations of states and political subdivisions 15,603 134 (46) 15,691
Corporate and other debt securities 2,992 124 -- 3,116
Mortgage-backed securities 3,846 105 -- 3,951
Equity securities 536 409 -- 945
------- ------ ----- -------
$53,638 $1,162 $(137) $54,663
======= ====== ===== =======
DECEMBER 31, 2000:
U.S. Treasury securities $ 750 $ 7 $ -- $ 757
U.S. Government and agency obligations 5,287 10 (19) 5,278
Obligations of states and political subdivisions 15,265 76 -- 15,341
Corporate and other debt securities 5,030 20 (8) 5,042
Mortgage-backed securities 5,726 101 (4) 5,823
Equity securities 533 403 (31) 905
------- ------ ----- -------
$32,591 $ 617 $ (62) $33,146
======= ====== ===== =======
HELD TO MATURITY SECURITIES:
DECEMBER 31, 2001:
U.S. Treasury securities $ 961 $ -- $ (2) $ 959
U.S. Government and agency obligations 2,500 76 -- 2,576
Obligations of states and political subdivisions 26,742 500 (2) 27,240
Corporate and other debt securities 8,409 251 -- 8,660
------- ------ ----- -------
$38,612 $ 827 $ (4) $39,435
======= ====== ===== =======
DECEMBER 31, 2000:
U.S. Treasury securities $ 999 $ -- $ (1) $ 998
U.S. Government and agency obligations 12,072 4 (51) 12,025
Obligations of states and political subdivisions 27,201 16 (170) 27,047
Corporate and other debt securities 10,968 3 (74) 10,897
------- ------ ----- -------
$51,240 $ 23 $(296) $50,967
======= ====== ===== =======
- -42-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 2001, 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 FIAR
COST VALUE COST VALUE
---- ----- ---- -----
(IN THOUSANDS)
Due in one year or less $ 7,407 $ 7,519 $ 8,351 $ 8,475
Due after one year through five years 34,975 35,408 29,494 30,178
Due after five years through ten years 6,598 6,564 -- --
Due after ten years 276 276 767 782
Mortgage-backed securities 3,846 3,951 -- --
Equity securities 536 945 -- --
------- ------- ------- -------
$56,638 $54,663 $38,612 $39,435
======= ======= ======= =======
Gross gains of $-0-, $5,000, and $44,000 were realized on sales of securities
available for sale in 2001, 2000 and 1999, respectively.
Securities with a fair value of $14,813,000 and $16,406,000 at December 31, 2001
and 2000, respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law.
-43-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans are comprised of the following:
December 31,
------------
2001 2000
---- ----
(In Thousands)
Commercial, agricultural and financial $ 24,548 $ 23,327
Real estate mortgages:
Residential 119,476 114,234
Commercial 31,893 28,663
Consumer 61,480 62,997
Other 2,874 3,101
-------- ---------
240,271 232,322
Unearned discount on loans (9,747) (10,006)
Allowance for loan losses (2,526) (2,497)
-------- ---------
$227,998 $219,819
======== ========
The following table presents changes in the allowance for loan losses:
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
Balance, beginning $2,497 $2,486 $2,477
Provision for loan losses 240 230 120
Recoveries 26 25 18
Loans charged off (237) (244) (129)
------ ------ ------
Balance, ending $2,526 $2,497 $2,486
====== ====== ======
The recorded investment in impaired loans not requiring an allowance for loan
losses was $582,000 and $-0- at December 31, 2001 and 2000, respectively. There
were no impaired loans requiring an allowance for loan losses at December 31,
2001 and 2000. For the years ended December 31, 2001, 2000 and 1999, the average
recorded investment in these impaired loans was $582,000, $-0- and $-0-,
respectively, and no interest income was recognized on impaired loans in 2001,
2000 and 1999.
- -44-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANK PREMISES AND EQUIPMENT
The major components of bank premises and equipment are as follows:
December 31,
------------
2001 2000
---- ----
(In Thousands)
Land and improvements $ 686 $ 686
Buildings and improvements 6,354 6,238
Furniture and equipment 3,000 2,700
-------- --------
10,040 9,624
Accumulated depreciation (3,972) (3,632)
-------- --------
$ 6,068 $ 5,992
======== ========
DEPOSITS
The composition of deposits is as follows:
December 31,
------------
2001 2000
---- ----
(In Thousands)
Demand, non-interest bearing $ 38,089 $ 33,893
NOW and Money Market 51,769 47,220
Savings 32,281 29,191
Time, $100,000 or more 31,271 25,102
Other time 152,058 151,814
-------- --------
$305,468 $287,220
======== ========
At December 31, 2001, the scheduled maturities of time deposits are as follows
(in thousands):
2002 $112,300
2003 47,917
2004 11,163
2005 5,050
2006 6,899
--------
$183,329
========
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 $1,275,000 and $-0- as of December 31, 2001 and 2000,
respectively. The agreement expires in March 2002 and the interest rate was
1.88% and 6.63% at December 31, 2001 and 2000, respectively.
The Bank has a maximum borrowing capacity of $124,238,000 with the FHLB which is
collateralized by qualifying assets of the Bank.
-45-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet the
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation and the Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth below) of total
and Tier l capital (as defined in the regulations) to risk-weighted assets and
of Tier l capital to average assets. Management believes, as of December 31,
2001, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 2001, the most recent notification from the Commonwealth of
Pennsylvania, Department of Banking categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
The Bank's actual capital ratios and the minimum ratios required for capital
adequacy purposes and to be well capitalized under the prompt corrective action
provisions are presented below. The Corporation's ratios were not materially
different from those of the Bank.
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollar Amounts in Thousands)
AS OF DECEMBER 31, 2001:
Total capital (to risk-weighted assets) $45,041 19.56% *$18,426 *8.00% *$23,033 *10.00%
Tier I capital (to risk-weighted assets) 42,515 18.46 * 9,213 *4.00 * 13,820 * 6.00
Tier I capital (to average assets) 42,515 11.98 * 14,190 *4.00 * 17,738 * 5.00
AS OF DECEMBER 31, 2000:
Total capital (to risk-weighted assets) $43,496 19.59% *$17,764 *8.00% *$22,205 *10.00%
Tier l capital (to risk-weighted assets) 40,999 18.46 * 8,882 *4.00 * 13,323 * 6.00
Tier l capital (to average assets) 40,999 12.30 * 13,332 *4.00 * 16,664 * 5.00
* = greater than or equal to
Certain restrictions exist regarding the ability of the Bank to transfer funds
to the Corporation in the form of cash dividends, loans or advances. At December
31, 2001, $30,595,000 of undistributed earnings of the Bank, included in the
consolidated stockholders' equity, was available for distribution to the
Corporation as dividends without prior regulatory approval.
In August 2000, the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend distribution of one right to purchase a share of the
Corporation's common stock at $23.86 as adjusted for the stock dividend for each
share issued and outstanding, upon the occurrence of certain events, as defined
in the Plan. These rights are fully transferable and expire on August 31, 2010.
The rights are not considered potential common shares for earnings per share
purposes because there is no indication that any event will occur which would
cause them to become exercisable.
The Corporation has a dividend reinvestment and stock purchase plan. Under the
Plan, additional shares of Juniata Valley Financial Corp. may be purchased at
the prevailing market prices with reinvested dividends and voluntary cash
payments. To the extent that shares are not available in the open market, the
Corporation has reserved 100,000 shares of common stock to be issued under the
plan. At December 31, 2001, 88,846 shares were available for issuance under the
Dividend Reinvestment Plan.
- -46-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFITS
Stock option plans:
Under the 2000 Incentive Stock Option Plan, 220,000 shares of common stock,
as adjusted for the stock dividend, were reserved for issuance upon the
exercise of options granted or available for grant to officers and key
employees of the Corporation. The plan provides that the option price per
share shall not be less than the fair market value of the stock on the day
the option is granted, but in no event less than the par value of such
stock. Options granted are exercisable no earlier than six months after the
grant and expire ten years after the date of the grant.
Stock option transactions under the Plan were as follows:
2001
----
Weighted-
Average
Options Exercise Price
------- --------------
Outstanding at beginning of year -- $ --
Granted 7,982 28.20
----- -----
Outstanding at end of year 7,982 $28.20
===== ======
Exercisable at December 31, 2001 -- $ --
===== ======
The weighted-average remaining contractual life of these options is
approximately ten years.
The Corporation applies Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees" (APB 25), and related Interpretations in
accounting for options granted under the Plan. Accordingly, no compensation
expense has been recognized for the stock options granted. Had compensation
expense for the Corporation's stock option plans been determined based on
the fair value at the grant date for awards under the plan consistent with
the method prescribed by FASB Statement No. 123, the Corporation's net
income would have been adjusted to the pro forma amounts indicated below
for the year ended December 31, 2001 (in thousands, except per share
amount):
Net income:
As reported $4,642
Pro forma 4,641
Basic and diluted earnings per share:
As reported $ 1.96
Pro forma 1.96
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model, with the following assumptions for
2001: risk-free interest rate of 4.7%, volatility of .22, dividend yield of
4.0% and an expected life of seven years. The fair value of options granted
in 201 was $5.16.
-47-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFITS (CONTINUED)
Defined benefit retirement plan:
The Corporation has a defined benefit retirement plan covering
substantially all of its employees. The benefits are based on years of
service and the employees' compensation. The Corporation's funding policy
is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to
be earned in the future.
Information pertaining to the activity in the Plan is as follows:
Years Ended December 31,
2001 2000
---- ----
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $3,561 $3,174
Service cost 167 177
Interest cost 253 242
Actuarial (gain) loss (192) 47
Benefits paid (132) (79)
------ ------
Benefit obligation at end of year 3,657 3,561
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year 3,189 2,932
Actual return on plan assets 176 107
Employer contribution 204 229
Benefits paid (132) (79)
------ ------
Fair value of plan assets at end of year 3,437 3,189
------ ------
Funded status (220) (372)
Unrecognized net actuarial gain (loss) (49) 95
Unrecognized net transition asset (21) (22)
------ ------
Accrued benefit cost $ (290) $ (299)
====== ======
Pension expense included the following components for the years ended
December 31:
2001 2000 1999
---- ---- ----
(In Thousands)
Service cost, benefits earned during the year $ 167 $ 177 $ 162
Interest cost on projected benefit obligation 248 239 212
Expected return on plan assets (239) (219) (202)
Net amortization (2) (2) (2)
------ ------ ------
$ 174 $ 195 $ 170
====== ====== ======
Assumptions used in the accounting were:
2001 2000 1999
---- ---- ----
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
- -48-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE BENEFITS (CONTINUED)
Supplemental retirement plans:
The Corporation has non-qualified supplemental retirement and split-dollar
life insurance plans for directors and key employees. At December 31, 2001
and 2000, the present value of the future liability was $1,123,000 and
$1,065,000, respectively. The Corporation has funded these plans through
the purchase of annuities and life insurance policies, which have an
aggregate cash surrender value of $2,733,000 and $970,000 at December 31,
2001 and 2000, respectively. For the years ended December 31, 2001, 2000
and 1999, $188,000, $147,000 and $152,000, respectively, was charged to
expense in connection with these plans.
Deferred compensation plan:
The Corporation has entered into deferred compensation agreements with
certain directors to provide each director an additional retirement
benefit, or to provide their beneficiary a benefit in the event of
pre-retirement death. At December 31, 2001 and 2000, the present value of
the future liability was $1,769,000 and $1,678,000, 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 $1,376,000 and
$1,246,000 at December 31, 2001 and 2000, respectively. For the years ended
December 31, 2001, 2000 and 1999, $213,000, $157,000 and $201,000,
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 2001, 2000 and 1999, 1,500, 39 and 753 shares,
respectively, were issued under the Plan. At December 31, 2001, 94,900
shares were reserved for issuance under the Plan.
Salary continuation plans:
The Corporation has a non-qualified Salary Continuation Plan for key
employees. At December 31, 2001 and 2000, the present value of the future
liability was $342,000 and $215,000, respectively. The Corporation has
funded these plans through the purchase of life insurance policies which
have an aggregate cash surrender value of $5,000,000 and $1,463,000 at
December 31, 2001 and 2000, respectively. For the years ended December 31,
2001, 2000 and 1999, $127,000, $74,000 and $68,000, respectively, was
charged to expense in connection with these plans.
-49-
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,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
Current $1,531 $1,485 $1,417
Deferred (103) (110) (57)
------ ------ ------
$1,428 $1,375 $1,360
====== ====== ======
A reconciliation of the statutory income tax expense computed at 34% to the
income tax expense included in the statements of income is as follows:
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
Federal income tax at statutory rate $2,064 $1,959 $1,917
Tax-exempt interest (583) (656) (775)
Disallowance of interest expense 96 110 123
Income on life insurance (128) (41) (33)
Other (21) 3 128
------ ------ ------
$1,428 $1,375 $1,360
====== ====== ======
The income tax provision includes $-0-, $2,000, and $15,000 in 2001, 2000 and
1999, 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,
------------
2001 2000
---- ----
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 732 $ 722
Deferred directors' fees 601 571
Pension liabilities 588 536
------ ------
Total deferred tax assets 1,921 1,829
------ ------
Deferred tax liabilities:
Bank premises and equipment (104) (105)
Securities accretion (17) (27)
Unrealized gains on securities available for sale (348) (187)
------ ------
Total deferred tax liabilities (469) (319)
------ ------
Net deferred tax asset $1,452 $1,510
====== ======
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, 2001 and 2000, these
persons were indebted to the Bank for loans totaling $1,887,000 and $1,335,000
respectively. During 2001, loans totaling $1,886,000 were disbursed and loan
repayments totaled $1,334,000.
- -50-
JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY,
THE JUNIATA VALLEY BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS
The Bank rents equipment and branch offices under operating leases that expire
through 2007. Equipment and servicing fees were $654,000, $484,000 and $485,000
for the years ended December 31, 2001, 2000 and 1999, respectively. Rent
expense, including the license fee for the branch offices was $55,000, $53,000
and $53,000 in 2001, 2000 and 1999, respectively.
Minimum future payments under all noncancellable lease and service agreements as
of December 31, 2001 are as follows (in thousands):
2002 $ 264
2003 265
2004 266
2005 266
2006 262
Thereafter 33
------
$1,356
======
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,
------------
2001 2000
---- ----
(In Thousands)
Commitments to grant loans $ 2,915 $ 2,514
Unfunded commitments under lines of credit 31,230 22,994
Outstanding letters of credit 765 610
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.
-51-
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,
2001 and 2000:
o For cash, cash equivalents, interest bearing demand deposits in other banks
and federal funds sold, the carrying amount is a reasonable estimate of
fair value.
o For interest bearing time deposits with banks, the carrying amount is a
reasonable estimate of face value.
o For securities, fair values are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable securities.
o For Federal Home Loan Bank stock, the carrying amount is a reasonable
estimate of fair value.
o For variable-rate loans that reprice frequently and which entail no
significant changes in credit risk, fair values are based on carrying
values. All commercial loans and substantially all real estate mortgages
are variable rate loans. The fair value of other loans (i.e., consumer
loans and fixed-rate real estate mortgages) are estimated using discounted
cash flow analyses, at interest rates currently offered for loans with
similar terms to borrowers of similar credit quality.
o Fair values for demand deposits, savings accounts and certain money market
deposits are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values of
fixed-maturity certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered
on certificates to a schedule of aggregated expected monthly maturity of
deposits.
o For short-term borrowings, the carrying amount is a reasonable estimate of
fair value.
o For accrued interest receivable and accrued interest payable, the carrying
amount is a reasonable estimate of fair value.
o Fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account
market interest rates, the remaining terms and present credit worthiness of
the counterparties. The fair value of guarantees and letters of credit is
based on fees currently charged for similar agreements.
- -52-
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 (CONTINUED)
The estimated fair values of the Corporation's financial instruments are as
follows:
December 31,
2001 2000
---- ----
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
------ ----- ------ -----
(In Thousands)
Financial assets:
Cash and due from banks $ 11,571 $ 11,571 $ 10,621 $ 10,621
Interest bearing deposits with banks 87 87 676 676
Interest bearing time deposits with banks 3,590 3,590 -- --
Federal funds sold -- -- 4,400 4,400
Securities 93,275 94,098 84,386 84,113
Federal Home Loan Bank stock 1,208 1,208 1,185 1,185
Loans receivable, net of allowance 227,998 228,451 219,819 218,695
Accrued interest receivable 2,047 2,047 2,177 2,177
Financial liabilities:
Deposits 305,468 308,981 287,220 287,960
Short-term borrowings 1,275 1,275 -- --
Accrued interest payable 950 950 988 988
Off-balance sheet financial instruments:
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
-53-
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,
------------
2001 2000
---- ----
ASSETS (In Thousands)
Cash $ 7 $ 2
Interest-bearing deposits with banks 490 490
------- -------
Cash and cash equivalents 497 492
Investment in Bank subsidiary 43,138 41,348
Securities available for sale 1,692 1,235
Other 26 16
------- -------
$45,353 $43,091
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, other $ 27 $ 9
Stockholders' equity 45,326 43,082
------- -------
$45,353 $43,091
======= =======
STATEMENTS OF INCOME
Years Ended December 31,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
Dividends from Bank subsidiary $ 3,090 $ 5,212 $6,758
Interest income 102 74 51
Other expenses (66) (72) (30)
------- ------- ------
Income before equity in undistributed net income of subsidiary 3,126 5,214 6,779
Equity in (excess of) undistributed net income of Bank subsidiary 1,516 (827) (2,501)
------- ------- ------
Net income $ 4,642 $ 4,387 $4,278
======= ======= ======
- -54-
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,
------------------------
2001 2000 1999
---- ---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,642 $ 4,387 $4,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Distributions in excess of (undistributed) net income
of Bank subsidiary (1,516) 827 2,501
(Increase) decrease in other assets (10) 42 (22)
Increase (decrease) in other liabilities 18 7 --
------- ------- ------
Net cash provided by operating activities 3,134 5,263 6,757
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (622) (640) (470)
Proceeds from maturities of available for sale securities 200 200 --
------- ------- ------
Net cash used in investing activities (422) (440) (470)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid and cash paid in lieu of fractional shares (1,904) (2,935) (2,935)
Purchase of treasury stock (1,189) (2,276) (3,823)
Treasury stock issued 181 386 469
Stock issued under employee stock purchase plan 32 -- --
Stock issued under dividend reinvestment plan 173 -- --
------- ------- ------
Net cash used in financing activities (2,707) (4,825) (6,289)
------- ------- ------
Increase (decrease) in cash and cash equivalents 5 (2) (2)
Cash and cash equivalents:
Beginning 492 494 496
------- ------- ------
Ending $ 497 $ 492 $ 494
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-55-
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. Judy Robinson
The Juniata Valley Bank
P.O. Box 66
Mifflintown, PA 17059