UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
For the quarterly period ended September 30, 2004
------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------------- -------------------------
Commission File Number 2-81699
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Juniata Valley Financial Corp.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2235254
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bridge and Main Streets, Mifflintown, Pennsylvania 17059
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(Address of principal executive offices) (Zip Code)
(717) 436-8211
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of October 31, 2004
- ---------------------------------- ----------------------------------------
Common Stock ($1.00 par value) 2,275,439 shares
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
2.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
September 30, December 31,
2004 2003
--------- ---------
(In thousands, except share data)
(Unaudited)
Cash and due from banks $ 9,190 $ 13,502
Interest bearing deposits with banks 773 125
Federal funds sold 1,500 --
--------- ---------
Cash and cash equivalents 11,463 13,627
Interest bearing time deposits with banks 7,360 4,090
Securities available for sale 73,627 83,584
Securities held to maturity, fair value
$8,951 and $15,218, respectively 8,909 15,017
Restricted investment in bank stock 1,396 1,107
Loans receivable, net of allowance for loan
losses $2,983 and $2,820, respectively 275,655 249,960
Bank premises and equipment, net 6,887 6,755
Bank-owned life insurance 7,821 7,566
Accrued interest receivable and other assets 6,970 6,074
--------- ---------
TOTAL ASSETS $ 400,088 $ 387,780
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Deposits:
Non-interest bearing $ 47,656 $ 42,200
Interest bearing 288,240 290,784
Total deposits 335,896 332,984
Securities sold under agreements to repurchase 4,706 --
Long term debt 5,000 --
Accrued interest payable and other liabilities 4,415 4,313
Total liabilities 350,017 337,297
Stockholders' Equity:
Preferred stock, no par value; 500,000 shares
authorized; no shares issued or outstanding -- --
Common stock, par value $1.00 per share;
authorized 20,000,000 shares; issued
2,372,922 shares 2,373 2,373
Surplus 20,299 20,231
Retained earnings 29,702 29,016
Accumulated other comprehensive income 719 1,472
Treasury stock, at cost 2004 95,483 shares;
2003 88,219 shares (3,022) (2,609)
Total stockholders' equity 50,071 50,483
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 400,088 $ 387,780
========= =========
See Notes to Consolidated Financial Statements
3.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
For the Quarter Ended For Nine Months Ended
--------------------- ---------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
INTEREST INCOME:
Loans receivable $ 4,747 $ 4,634 $ 13,907 $ 13,947
Taxable securities 477 628 1,559 2,022
Tax-exempt securities 192 292 638 920
Other 60 57 133 194
---------- ---------- ---------- ----------
Total interest income 5,476 5,611 16,237 17,083
INTEREST EXPENSE:
Deposits 1,569 1,831 4,759 5,762
Securities sold under agreements
to repurchase 1 -- 1 --
Short term borrowings 2 1 2 1
Long term debt 21 -- 21 --
---------- ---------- ---------- ----------
Total interest expense 1,593 1,832 4,783 5,763
---------- ---------- ---------- ----------
Net interest income 3,883 3,779 11,454 11,320
PROVISION FOR LOAN LOSSES 82 75 239 225
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 3,801 3,704 11,215 11,095
---------- ---------- ---------- ----------
OTHER INCOME:
Trust department 101 90 337 315
Customer service fees 330 194 933 537
Other 323 646 969 1,194
Gain on sale of securities -- -- 268 --
---------- ---------- ---------- ----------
Total other income 754 930 2,507 2,046
---------- ---------- ---------- ----------
OTHER EXPENSES:
Salaries and wages 1,052 1,030 3,141 3,006
Employee benefits 345 425 1,082 1,102
Occupancy 196 189 606 557
Equipment 449 331 1,271 951
Director compensation 104 107 311 317
Taxes, other than income 129 128 386 388
Other 392 367 1,138 1,099
---------- ---------- ---------- ----------
Total other expenses 2,667 2,577 7,935 7,420
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,888 2,057 5,787 5,721
FEDERAL INCOME TAXES 572 502 1,541 1,302
---------- ---------- ---------- ----------
Net income $ 1,316 $ 1,555 $ 4,246 $ 4,419
========== ========== ========== ==========
Basic and diluted earnings per share $ .58 $ .68 $ 1.86 $ 1.93
========== ========== ========== ==========
Weighted average number of shares
outstanding 2,279,038 2,284,037 2,280,117 2,294,488
========== ========== ========== ==========
See Notes to Consolidated Financial Statements
4.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
-------- -------- -------- ------------- -------- --------
(In thousands)
Balance
December 31, 2003 $ 2,373 $ 20,231 $ 29,016 $ 1,472 $ (2,609) $ 50,483
--------
Comprehensive Income:
Net income for the
nine months ended
September 30, 2004 -- -- 4,246 -- -- 4,246
Change in unrealized
gains (losses) on
securities available
for sale, net of
reclassification
adjustment and tax
effects -- -- -- (753) -- (753)
--------
Total Comprehensive Income 3,493
--------
Cash dividends, $1.56 per share -- -- (3,560) -- -- (3,560)
Treasury stock issued for
dividend reinvestment plan
(7,207 shares) -- 74 -- -- 206 280
Treasury stock issued for
employee stock purchase plan
(5,574 shares) -- (6) -- -- 160 154
Treasury stock acquired
(20,045 shares) -- -- -- -- (779) (779)
-------- -------- -------- -------- -------- --------
Balance September 30, 2004 $ 2,373 $ 20,299 $ 29,702 $ 719 $ (3,022) $ 50,071
======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements
5.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
--------------------------------------------
(Unaudited)
Accumulated
Other
Common Retained Comprehensive Treasury
Stock Surplus Earnings Income Stock Total
-------- -------- -------- ------------- -------- --------
(In thousands)
Balance
December 31, 2002 $ 2,373 $ 20,212 $ 25,652 $ 1,795 $ (1,705) $ 48,327
--------
Comprehensive Income:
Net income for the
nine months ended
September 30, 2003 -- -- 4,419 -- -- 4,419
Change in unrealized
gains (losses) on
securities available
for sale, net of
reclassification
adjustment and tax
effects -- -- -- (81) -- (81)
--------
Total Comprehensive Income 4,338
--------
Cash dividends, $.47 per share -- -- (1,075) -- -- (1,075)
Treasury stock issued for
dividend reinvestment plan
(7,488 shares) -- 8 -- -- 214 222
Treasury stock issued for
employee stock purchase plan
(2,227 shares) -- (5) -- -- 63 58
Treasury stock acquired
(44,895) shares -- -- -- -- (1,351) (1,351)
-------- -------- -------- -------- -------- --------
Balance September 30, 2003 $ 2,373 $ 20,215 $ 28,996 $ 1,714 $ (2,779) $ 50,519
======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements
6.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
For the Nine Months Ended
-------------------------
September 30, September 30,
2004 2003
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,246 $ 4,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 239 225
Provision for depreciation 415 319
Net amortization of security premiums 223 186
Net realized gains on sales of securities (268) --
Deferred compensation expense 369 457
Payment of deferred compensation (270) (199)
Deferred income taxes -- (31)
Increase in accrued interest receivable and other assets (508) (809)
Increase (decrease) in accrued interest payable and
other liabilities 3 (165)
Net earnings on investment in life insurance (255) (262)
-------- --------
Net cash provided by operating activities 4,194 4,140
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest bearing time deposits (3,270) --
Purchases of available for sale securities (12,136) (47,293)
Proceeds from sales of available for sale securities 3,279 --
Purchase of restricted bank stock (636) (438)
Proceeds from sale of restricted bank stock 348 --
Proceeds from maturities of and principal repayments
on available for sale securities 17,726 28,784
Purchases of held to maturity securities (1,295) (3,002)
Proceeds from maturities of and principal repayments
on held to maturity securities 7,394 12,654
Net increase in loans receivable (25,934) (9,067)
Net purchases of bank premises and equipment (547) (1,413)
-------- --------
Net cash used in investing activities (15,071) (19,775)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,912 12,195
Net increase in short term borrowings 4,706 2,800
Long term debt advances 5,000 --
Cash dividends (3,560) (1,075)
Purchase of treasury stock (779) (1,351)
Treasury stock issued for dividend reinvestment and
employee stock purchase plan 434 280
-------- --------
Net cash provided by financing activities 8,713 12,849
-------- --------
Decrease in cash and cash equivalents (2,164) (2,786)
Cash and cash equivalents:
Beginning 13,627 14,901
-------- --------
Ending $ 11,463 $ 12,115
======== ========
Supplementary cash flows information:
Interest paid $ 4,801 $ 5,909
======== ========
Income taxes paid $ 1,721 $ 1,367
======== ========
See Notes to Consolidated Financial Statements
7.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The financial information includes the accounts of Juniata Valley Financial
Corp. and its wholly owned subsidiary, The Juniata Valley Bank. All significant
intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for fair presentation have been included, such as adjustments of a
normal occurring nature. Operating results for the nine month period ended
September 30, 2004, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. For further information, refer to
the consolidated financial statements and footnotes thereto included in Juniata
Valley Financial Corp. annual report on Form 10-K for the year ended December
31, 2003.
NOTE B - Accumulated Other Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
The components of other comprehensive income and related tax affects are as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands)
Unrealized holding gains (losses) on
available for sale securities $ 584 $ (391) $ (872) $ (123)
Less classification adjustment for
gains realized in income -- -- (268) --
------- ------- ------- -------
Net unrealized gains (losses) 584 (391) (1,140) (123)
Tax benefit (expense) (199) 133 387 42
------- ------- ------- -------
Net of tax amount $ 385 $ (258) $ (753) $ (81)
======= ======= ======= =======
8.
NOTE C - Stock Option Plan
The Corporation accounts for the stock option plan under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and
earnings per share if the Corporation had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based compensation:
For the Quarter Ended For Nine Months Ended
--------------------- ---------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
------- ------- ------- -------
(In thousands, except per share amount)
Net income, as reported $ 1,316 $ 1,555 $ 4,246 $ 4,419
Total stock-based employee compensation
expense determined under fair value
based method for all awards (9) (5) (26) (16)
------- ------- ------- -------
Pro forma net income $ 1,307 $ 1,550 $ 4,220 $ 4,403
======= ======= ======= =======
Basic and diluted earnings per share:
As reported $ .58 $ .68 $ 1.86 $ 1.93
Pro forma $ .57 $ .68 $ 1.85 $ 1.92
NOTE D - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
For the Quarter Ended For Nine Months Ended
--------------------- ---------------------
September 30, September 30, September 30, September 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
(In thousands, except per share amount)
Net income applicable to common stock $ 1,316 $ 1,555 $ 4,246 $ 4,419
Weighted average common shares outstanding 2,279,038 2,284,037 2,280,117 2,294,488
Effect of dilutive securities, stock options 6,632 984 5,927 141
---------- ---------- ---------- ----------
Weighted average common shares outstanding
used to calculate diluted earnings per share 2,285,670 2,285,021 2,286,044 2,294,629
Basic earnings per share $ .58 $ .68 $ 1.86 $ 1.93
Diluted earnings per share $ .58 $ .68 $ 1.86 $ 1.93
9.
NOTE E - Guarantees
The Corporation does not issue any guarantees that would require liability
recognition or disclosure, other than its letters of credit. Letters of credit
written are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Generally, all letters of credit,
when issued have expiration dates within one year. The credit risk involved in
issuing letters of credit is essentially the same as those that are involved in
extending loan facilities to customers. The Corporation, generally, holds
collateral and/or personal guarantees supporting these commitments. The
Corporation had $1,514,000 of letters of credit as of September 30, 2004.
Management believes that the proceeds obtained through a liquidation of
collateral and the enforcement of personal guarantees would be sufficient to
cover the potential amount of future payment required under the corresponding
guarantees. The current amount of the liability as of September 30, 2004 for
guarantees under letters of credit issued is not material.
NOTE F - Defined Benefit Retirement Plan
The Corporation has a defined benefit retirement plan covering substantially all
of its employees. The benefits are based on years of service and the employees'
compensation. The Corporation's funding policy is to contribute annually the
maximum amount that can be deducted for federal income taxes purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
Pension expense included the following components for the nine-months ended
September 30, 2004.
For the Quarter Ended For Nine Months Ended
--------------------- ---------------------
September 30, 2004 September 30, 2004
------------------ ------------------
(In Thousands)
Service cost, benefits earned during the year $ 55 $ 211
Interest cost on projected benefit obligation 80 240
Expected return on plan assets (80) (240)
Net amortization -- --
Recognized gains or losses -- --
Prior service cost recognized -- --
Settlement gain or loss -- --
------- -------
Net periodic benefit cost $ 55 $ 211
======= =======
This information relating to the quarter ended and the nine months ended
September 30, 2003 cannot be obtained for comparative purposes.
10.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements:
The Private Securities Litigation Reform Act of 1995 contains safe harbor
provisions regarding forward-looking statements. When used in this discussion,
the words "believes," "anticipates," "contemplates," "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of opening a new
branch, the ability to control costs and expenses and general economic
conditions. The Corporation undertakes no obligation to publicly release the
results of any revisions to those forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Critical Accounting Policies:
Disclosure of the Corporation's significant accounting policies is included in
the notes to the financial statements of the Bank's Annual Report on Form 10-K
for the year ended December 31, 2003. Some of these policies are particularly
sensitive, requiring significant judgments, estimates and assumptions to be made
by management, most particularly in connection with determining the provision
for loan losses and the appropriate level of the allowance for loan losses.
Additional information is contained in this form 10-Q on pages 10 and 11.
Financial Condition:
Total assets of Juniata Valley Financial Corp. totaled $400,088,000 as of
September 30, 2004, an increase of $12,308,000 or 3.17% from December 31, 2003.
Consumer sentiment is more positive about the economy because the bank has
experienced an increase in loans of $25,934,000 in the first nine months of
2004. Proceeds of investment securities were used to fund loan demand. Called,
matured, and sold investment securities exceeded purchases by $11,410,000. The
deposit increase of $2,912,000 was used to fund the remaining loan demand, along
with an increase in short term borrowings of $4,706,000. The increase of
$5,000,000 in long term debt advances was used to purchase certificates of
deposit at other financial institutions. The purpose was to increase the return
on equity for the Corporation. A $1.00 cash dividend was paid on February 27,
2004, along with the normal cash dividend on June 1, making the cash dividends
paid to stockholders $3,560,000. All of these factors combined to decrease cash
and cash equivalents by $2,164,000.
There are no material loans classified for regulatory purposes as loss,
doubtful, substandard or special mention which management expects to
significantly impact future operating results, liquidity or capital resources.
Additionally, management is not aware of any information which would give
serious doubt as to the ability of its borrowers to substantially comply with
their loan repayment terms. The Corporation's problem loans (i.e., 90 days past
due and restructured loans) were not material for all periods presented.
Management is not aware of any current recommendations of the regulatory
authorities which, if implemented, would have a material effect on the
Corporation's liquidity, capital resources or operations.
11.
Results of Operations:
Interest income decreased $846,000 or 4.95% for the first nine months of 2004
over 2003. The decrease in interest income for the quarter was $135,000 or
2.41% in 2004 over 2003. The decrease for interest income on loans for nine
months of $40,000 is because of a decline in rates of .69%. The decrease in
interest income for taxable securities of $463,000 and the decrease in tax
exempt securities of $282,000 are both due to declining rates and volume. The
decline in rates for securities was .64%. The decrease in interest income other
of $61,000 is due to a decrease in federal funds sold of $37,000 and interest
bearing time deposits in banks of $20,000. Since November 2001, management has
made an effort to keep federal funds to a minimum by purchasing time certificate
of deposits in other banks. For the first nine months of 2004, interest expense
decreased $980,000 or 17.01% over 2003. For the quarter, the decrease in
interest expense was $239,000 or 13.05% from 2003 to 2004. The decline in rates
for interest expense was .47%. Interest income and expense for the first nine
months ended September 30, 2004, versus 2003, reflect the declining interest
rate environment for both interest earning assets and interest bearing
liabilities. This resulted in an increase in net interest income of $134,000 or
1.18% for the nine months ended September 30, 2004. For the quarter, the
increase was $104,000 or 2.75%.
The increase in the allowance for loan loss is based upon quarterly loan
portfolio reviews by management and a committee of the Board. The purpose of the
review is to assess loan quality, identify impaired loans, analyze
delinquencies, ascertain loan growth, evaluate potential charge-offs and
recoveries and assess general economic conditions in the market served. Net
charge-offs for the nine months ended September 30, 2004 were $76,000 compared
to $149,000 for the nine months ended September 30, 2003. Past due and
non-accrual loans at September 30, 2004 and September 30, 2003, were $1,855,000
and $1,830,000, respectively. Depending upon the state of the economy and the
impact thereon to these borrowers, as well as future events, past due loans and
others not currently so identified could be classified as non-performing assets
in the future.
Other income has increased $461,000 or 22.53% for the first nine months of 2004
over 2003. For the quarter, there was a decrease of $176,000 or 18.92%. For the
nine month period September 30, 2004 versus 2003 trust department income
increased $22,000, customer service fees increased $396,000, other income
decreased $225,000, and gain on sale of securities increased $268,000. For the
quarter trust department income increased $11,000, customer service fees
increased $136,000, and other income decreased $323,000. The increase in trust
department income is a result of an increase in pension plan administration and
investment management accounts in 2004 over 2003. The increase in customer
service fees is a result of higher transaction volume as opposed to an increase
in fees. The increased volume is due to the introduction of an overdraft
privilege program introduced in November 2003. The decrease in other is due to
life insurance proceeds of $337,000 received in 2003. The sales of securities in
2004 were taken to help fund the increased loan demand.
Other expenses increased $515,000 or 6.94% for the nine months ended September
30, 2004 over 2003. For the quarter, the increase was $90,000 or 3.49%. The
$135,000 increase in salary and wages for the nine months ended September 30,
2004, compared to 2003, can be attributed to an increase of 3 full-time
equivalents and normal merit increases. The $20,000 decrease in employee
benefits is due to an increased pension plan payout to a beneficiary in 2003.
The $49,000 increase in occupancy is a result of depreciation expense from the
Water Street community office remodeling and snow removal costs incurred in
2004. The increase of $320,000 in equipment cost is from increased usage of the
internet banking and telephone banking products and installation of the teller
and platform automation systems. Director compensation and taxes other than
income had no significant changes. The other expenses increased $39,000 which
can be attributed to postage costs. The federal tax accrual for the third
quarter reflects an adjustment due to a change in the estimate of pretax and tax
free income which resulted in a subsequent increase in the effective tax rate
for the year to date federal tax accrual.
All of these factors combined have contributed to a decrease in net income of
$173,000 or 3.91% for the first nine months ended September 30, 2004 over 2003.
For the quarter, the decrease in net income was $239,000 or 15.37%. Earnings per
share decreased $.07 from $1.93 to $1.86 or 3.63% for the nine months ended
September 30, 2003 over 2004.
12.
Liquidity:
The objective of liquidity management is to ensure that sufficient funding is
available, at a reasonable cost, to meet the ongoing operational cash needs of
the Corporation and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of the Corporation to maintain a high level
of liquidity in all economic environments. Principal sources of asset liquidity
are provided by securities maturing in one year or less, other short-term
investments such as federal funds sold and cash and due from banks. Liability
liquidity, which is more difficult to measure, can be met by attracting deposits
and maintaining the core deposit base. The Corporation joined the Federal Home
Loan Bank of Pittsburgh in August of 1993 for the purpose of providing
short-term liquidity when other sources are unable to fill these needs.
The Corporation borrowed $5,000,000 from Federal Home Loan Bank in August of
2004, for a two year term with a fixed interest rate of 2.86%. The securities
sold under agreements to repurchase took place in September of 2004. This allows
the bank an ability to pay interest on corporate checking accounts.
In view of the primary and secondary sources previously mentioned, Management
believes that the Corporation's liquidity is capable of providing the funds
needed to meet loan demand.
Off-Balance Sheet Arrangements:
The Corporation's financial statements do not reflect various off-balance sheet
arrangements that are made in the normal course of business, which may involve
some liquidity risk, credit risk and interest rate risk. These commitments
consist mainly of loans approved but not yet funded, unused lines of credit and
letters of credit made under the same standards as on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Letters of
credit are conditional commitments issued to guarantee the financial performance
obligation of a customer to a third party. Unused commitments at September 30,
2004, were $38,750,000. Because these instruments have fixed maturity dates, and
because many of them will expire without being drawn upon, they do not generally
present any significant liquidity risk to the Corporation. Management believes
that any amounts actually drawn upon can be funded in the normal course of
operations.
The Corporation has no investment in or financial relationship with any
unconsolidated entities that are reasonably likely to have a material effect on
liquidity or the availability of capital resources.
Interest Rate Sensitivity:
Interest rate sensitivity management is the responsibility of the
Asset/Liability Management Committee. This process involves the development and
implementation of strategies to maximize net interest margin, while minimizing
the earnings risk associated with changing interest rates. The traditional gap
analysis identifies the maturity and re-pricing terms of all assets and
liabilities.
As of September 30, 2004, the Corporation had a six-month negative gap of
$14,858,000. Generally a liability sensitive position indicates that more
liabilities than assets are expected to re-price within the time period and that
falling interest rates could positively affect net interest income while rising
interest rates could negatively affect net interest income. However, the
traditional analysis does not accurately reflect the Bank's interest rate
sensitivity since the rates on core deposits generally do not change as quickly
as market rates. Historically net interest income has, in fact, not been subject
to the degree of sensitivity indicated by the traditional analysis at The
Juniata Valley Bank.
13.
Capital Adequacy:
The Bank's regulatory capital ratios for the periods presented are as follows:
Actual Required
------ --------
September 30, December 31, September 30, December 31,
2004 2003 2004 2003
------------- ------------ ------------- ------------
Risk Weighted Assets Ratio:
TIER I 17.46% 18.89% 4.0% 4.0%
TIER I & II 18.60% 20.05% 8.0% 8.0%
Total Assets Leveraged Ratio:
TIER I 11.76% 11.93% 4.0% 4.0%
At September 30, 2004, the Corporation and the Bank exceed the regulatory
requirements to be considered a "well capitalized" financial institution.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
From January 1, 2001 to March 31, 2004, the Federal Reserve has lowered the
federal funds rate thirteen times by 500 basis points. Since June 29, 2004 the
Federal Reserve raised interest rates by 75 basis points. As of September 30,
2004, little impact has been experienced. We are currently in the lowest
interest rate environment in 30 years. Net interest margin for the Corporation
was 4.55% at June 30, 2003 and decreased to 4.47% at June 30, 2004. Because of
the extent to which rates have declined, the Bank has become more sensitive to
future rate declines and expects added compression of the net interest margin.
Currently, the Bank has approximately 32.00% of its deposits in NOW, money
market and savings accounts, which it considers core deposits. These types of
interest bearing deposit accounts carry lower rates relative to other types of
deposits. Because of this, these accounts have contributed significantly to the
net interest margin. However, there is an ultimate floor to which the rates on
these accounts can fall. Under current conditions, the inability to further
decrease these deposits rates while loan and other earning assets continue to
drop and re-price at lower rates will result in further compression of the net
interest margin. The added risk in this interest rate environment is that as the
rates on the core deposits bottom-out, investors could migrate to other types of
accounts paying higher rates. The last financial simulation performed by the
Bank as of June 30, 2004, showed a possible decline in net interest income of
$181,000 in a -100 basis point rate shock over a one year period. This reflected
a change in the assumptions that the rates on NOW and savings accounts would
remain constant in a -100 or +200 basis point rate shock. The net interest
income at risk position remains within the guidelines established by the Bank's
asset/liability policy. The Bank continues to monitor and manage its rate
sensitivity during these unusual times.
No material change has been noted in the Bank's equity value at risk. Please
refer to the Annual Report on Form 10-K as of December 31, 2003 for further
discussion of this matter.
14.
Item 4 - CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer has evaluated the effectiveness of
the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934
(Exchange Act)) as of the end of the period covered by this report. Based on
such evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
15.
Part II. Other Information
Item 1. Legal Proceedings
In the opinion of management of the Corporation, there are no
legal proceedings pending to which the Corporation or its
subsidiary are a party or to which their property is subject,
which, if determined adversely to the Corporation or its
subsidiary, would be material in relation to the Corporation's or
its subsidiary financial condition. There are no proceedings
pending other than ordinary routine litigation incident to the
business of the Corporation or its subsidiary. In addition, no
material proceedings are pending or are known to be threatened or
contemplated against the Corporation or its subsidiary by
government authorities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(e) Issuer Purchases of Equity Securities
- --------------------------------------------------------------------------------------------------------------------------
(d)
Maximum number (or
(c) approximate dollar value)
Total number of shares or of shares (or units)
Period (a) (b) units) purchased as part that may yet be
Total number of shares Average price paid of publicly announced purchased under the
(or units) purchased per share (or unit) plans or programs plans or programs
- --------------------------------------------------------------------------------------------------------------------------
Month #1
July 1 to 2,930 $40.50 2,930 71,600
July 31, 2004
- --------------------------------------------------------------------------------------------------------------------------
Month #2
August 1 to
August 31, 2004 2,000 $40.00 2,000 69,600
- --------------------------------------------------------------------------------------------------------------------------
Month #3
September 1 to 0 0 0 69,600
September 30, 2004
- --------------------------------------------------------------------------------------------------------------------------
Total 4,930 $40.30 4,930 69,600
- --------------------------------------------------------------------------------------------------------------------------
On March 23, 2001, Juniata Valley Financial Corp. announced plans to buyback
100,000 shares of their stock. There is no expiration date to this buyback.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holder
None
Item 5. Other information
None
16.
Item 6. Exhibits
Exhibits 31.1 Rule 13a - 14(a)/15d - 14(a) Certification
Exhibits 31.2 Rule 13a - 14(a)/15d - 14(a) Certification
Exhibits 32.1 Section 1350 Certification
Exhibits 32.2 Section 1350 Certification
Pursuant to the requirements of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Juniata Valley Financial Corp.
(Registrant)
Date By
------------------------------- -------------------------------------
Francis J. Evanitsky, President & CEO
Date By
------------------------------- -------------------------------------
Linda L. Engle, Executive VP & CFO