-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C+Ha7J+FD609xyieOsCZMjUrC8iCsNBYpIUZ4WUBxzawT/G+4s2qaOkpwdXCnqoJ CUqy34fUYWYq8Xrkbwsapg== 0000714712-96-000007.txt : 19960326 0000714712-96-000007.hdr.sgml : 19960326 ACCESSION NUMBER: 0000714712-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960325 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JUNIATA VALLEY FINANCIAL CORP CENTRAL INDEX KEY: 0000714712 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232235254 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13232 FILM NUMBER: 96538165 BUSINESS ADDRESS: STREET 1: BRIDGE & MAIN ST STREET 2: P O BOX 66 CITY: MIFFLINTOWN STATE: PA ZIP: 17059-0066 BUSINESS PHONE: 7174368211 MAIL ADDRESS: STREET 1: BRIDGE AND MAIN STREETS STREET 2: P O BOX 66 CITY: MIFFLINTOWN STATE: PA ZIP: 17059-0066 10-K 1 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, 1995 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 the Form 10-K or any amendment to this Form 10-K. (X) The Aggregate market value of the voting stock held by non-affiliates of the Registrant as of January 31, 1996. Common Stock, $1.00 Par Value - $38,955,035 ------------------------------------------- Indicate the number of shares outstanding of each issuer's classes of common stock, as of January 31, 1996 Common Stock, $1.00 Par Value - 1,113,001 ----------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to Shareholders for the year ended December 31, 1995 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, 1996 are incorporated by reference into Part III. PART I Item 1. Business Incorporated by reference are the data appearing on pages 6 through 12 of the 1995 Annual Report. Item 2. Properties The physical properties of the Corporation are all owned or leased by the Bank. The Bank owns the buildings located at: Bridge and Main Streets, Mifflintown, Pennsylvania (its corporate headquarters); 301 Market Street, Port Royal, Pennsylvania; corner of Main and School Streets, McAlisterville, Pennsylvania; Four North Market Street, Millerstown, Pennsylvania; Main Street, Blairs Mills, Pennsylvania; East Market Street, Lewistown, Pennsylvania; Route 322, Reedsville, Pennsylvania. In addition thereto, the Bank leases an office in the Shopping Plaza located on Legislative Route 31, Mifflintown, Pennsylvania, which lease with extensions expires in 2007. 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 Bank's business, at times, generates litigation involving matters arising in the ordinary course of business. However, in the opinion of management of the Bank, 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 The Corporation's stock is not traded on a national securities exchange and is only occasionally and sporadically traded through local and regional brokerage houses or through the facilities of the Bank. Sales of shares of which the management of the Corporation has knowledge occurring during 1995 have ranged from a low of $28.80 to a high of $35.00 per share. In 1994 the market value ranged from a low of $26.24 to a high of $28.80. Cash dividends in 1995 and 1994 are as follows: Payable Date 1995 1994 ------- ---- ---- June 1 $.34 $.33 December 1 .36 .34 ---- ---- Total $.70 $.67 ---- ---- ---- ---- Item 6. Selected Financial Data Incorporated by reference are the data appearing on page 13 of the 1995 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 14 through 26 of the 1995 Annual Report. Item 8. Financial Statements and Supplementary Data Incorporated by reference are the financial statements and notes on pages 27 through 43 of the 1995 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 the information appearing under the captions "Election of Directors of JVF" on pages 3 through 5 and "Remuneration of Executive Officers" on page 12 in the Proxy Statement to be filed. Item 11. Executive Compensation Incorporated by reference in the proxy statement to be filed on page 12, 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 to be filed under the captions "Election of Directors of JVF" on pages 3 through 5 and "Management of JVF and the Bank" on page 9. 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 40 of the 1995 Annual Report. PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K (a) 1. Financial Statements The Consolidated Financial Statements of Juniata Valley Financial Corp., as reported in the 1995 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 (3) Articles of Incorporation and By-Laws - Incorporated by reference is the information appearing in Exhibit "A" of the proxy statement dated March 14, 1996 (13) Annual Report To Security Holders (21) Subsidiaries of the Registrant - As of the date of this report Juniata Valley Bank is the only subsidiary of the Registrant. (23) i. Consent of Beard & Company, Inc., Independent Auditors ii. Consent of Stockton Bates & Company, Independent Auditors (27) Financial data schedule (99) Report of Independent Auditors, Stockton Bates & Company, as to the Corporation's Consolidated Financial Statements for year ending December 31, 1993. 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 14, 1996 BY _____________________ A. JEROME COOK 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. ___________________ ___________________ Harry B. Fairman, Jr. Darwin C. Pomeroy Chairman Vice Chairman Date: March 14, 1996 Date: March 14, 1996 ___________________ ___________________ Ronald H. Witherite A. Jerome Cook Vice Chairman, Secretary President Date: March 14, 1996 Date: March 14, 1996 ___________________ ___________________ Edward R. Rhodes John E. Groninger Director Director Date: March 14, 1996 Date: March 14, 1996 ___________________ ___________________ Karl E. Guss Don E. Haubert Director Director Date: March 14, 1996 Date: March 14, 1996 ___________________ ___________________ Dale G. Nace John A. Renninger Director Director Date: March 14, 1996 Date: March 14, 1996 Signatures (Continued) ___________________ Harold B. Shearer Director Date: March 14, 1996 ___________________ Linda L. Engle Chief Financial Officer Chief Accounting Officer Date: March 14, 1996 _ EX-3 2 JUNIATA VALLEY FINANCIAL CORP. Bridge and Main Streets Post Office Box 66 Mifflintown, PA 17O59 Telephone (717) 436-8211 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 16, 1996 TO OUR SHAREHOLDERS: NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of Juniata Valley Financial Corp. ("JVF") will be held at 10:30 a.m. on April 16, 1996, at the Lewistown Branch Office of The Juniata Valley Bank (the "Bank"), for the purpose of considering and voting upon the following matters: 1. Election of Directors. The election of three Class C Directors listed --------------------- in Proxy Statement dated March 14, 1996, accompanying this Notice. These Directors will serve until the 1999 Annual Meeting. 2. Amendment to Amended and Restated Articles of Incorporation. To act ----------------------------------------------------------- upon a proposal to increase the number of authorized shares of Common stock, par value $1.00 per share, from 2,000,000 to 5,000,000 shares. 3. Juniata Valley Financial Corp. Employee Stock Purchase Plan. To act ----------------------------------------------------------- upon a proposal to adopt the Juniata Valley Financial Corp. Employee Stock Purchase Plan, which will permit employees of the Bank to purchase shares of the Common stock, par value $1.00 per share, of JVF. 4. Other Business. Such other business as may be properly brought before -------------- the Annual Meeting of Shareholders or any adjournment or adjournments thereof. Information regarding the matters to be acted upon at the meeting is contained in the Proxy Statement accompanying this Notice. IN ACCORDANCE with the statutes in such case made and PROVIDED only those holders of record of Common stock of JVF at the close of business on March 13, 1996 (the "RECORD DATE"), are entitled to notice of and to vote at the Annual Meeting of Shareholders and any adjournment or adjournments thereof. The Stock Transfer Books of JVF will not be closed. BY ORDER OF THE BOARD OF DIRECTORS, RONALD H. WITHERITE Secretary Mifflintown, Pennsylvania March 14, 1996 THE MANAGEMENT OF JVF REQUESTS THAT YOU SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE PREPAID ENVELOPE PROVIDED. THIS PROXY WILL NOT BE USED IF YOU ARE PRESENT AND DESIRE TO VOTE IN PERSON. JUNIATA VALLEY FINANCIAL CORP. PROXY STATEMENT MARCH 14, 1996 GENERAL INFORMATION This Proxy Statement (the "Proxy Statement") is being furnished in connection with the solicitation by Management of Juniata Valley Financial Corp. ("JVF"), a corporation organized under the laws of the Commonwealth of Pennsylvania, of proxies to be voted at the Annual Meeting of Shareholders of JVF to be held on April 16, 1996 at 10:30 a.m. prevailing time, and at any and all adjournments or postponements thereof. This Proxy Statement and the enclosed Form of Proxy (the "Proxy") are first being sent to shareholders of JVF on or about March 14, 1996. The costs of preparing, printing and mailing the Proxy and all materials used in the solicitation thereof will be borne by JVF. In addition to use of the mails, proxies may be solicited by officers, directors and employees of JVF personally, by telephone or by telegraph. JVF's executive offices are located at Bridge and Main Streets, Mifflintown, Pennsylvania 17059, and its telephone number is (717) 436-8211. JVF's mailing address is P.O. Box 66, Mifflintown, Pennsylvania 17059. Date by which Security Holder Proposals must be Received to be Presented at Next Annual Meeting of Shareholders Proposals of security holders of JVF intended to be presented at the next annual meeting of shareholders of JVF must be received by JVF for inclusion in JVF's Proxy Statement and Form of Proxy relating to that meeting by November 15, 1996. If the date of the next Annual Meeting of Shareholders of JVF is advanced or delayed by more than 30 days from April 15, 1997, security holders will be timely informed of the change of the Annual Meeting of Shareholders and the date by which proposals of security holders must be received. PURPOSES OF THE MEETING The Annual Meeting of Shareholders will be held for the purpose of (i) electing three (3) Class C Directors to serve until the Annual Meeting of 1999; (ii) to act upon a proposal to increase the number of authorized shares of JVF common stock, par value $1.00 per share, from 2,000,000 to 5,000,000 shares; (iii) to act upon a proposal to adopt the Juniata Valley Financial Corp. Employee Stock Purchase Plan, which will permit employees of the Bank to purchase shares of the common stock, par value $1.00 per share, of JVF; and (iv) transacting such other business as may properly be brought before the meeting or any adjournment thereof. VOTING Voting; Revocation of Proxies Each Proxy may be revoked at any time before its exercise by, among other methods, giving written notice to the Secretary of JVF. A subsequently dated Proxy will, if presented to the Secretary of JVF, revoke a prior dated Proxy. Any shareholder of JVF may attend the meeting and vote in person whether or not he has previously given a Proxy. The enclosed Proxy confers discretionary authority to vote with respect to any and all of the following matters that may come before the Annual Meeting of Shareholders: (i) matters which the Board of Directors does not know, a reasonable time before the proxy solicitation, are to be presented at the meeting; (ii) approval of the minutes of a prior meeting of the shareholders, if such approval does not amount to ratification of the action taken at that meeting; and (iii) matters incident to the conduct of the meeting. In connection with such matters, the persons named in the enclosed Proxy will vote in accordance with their best judgment. The Board of Directors of JVF is not presently aware of any matters (other than procedural matters) which will be brought before the Annual Meeting of Shareholders which are not referred to in the Notice of Annual Meeting of Shareholders. If other business is properly brought before the Annual Meeting of Shareholders, the persons named in the Proxies will act or vote in accordance with their judgment. Vote Required; Shares Entitled to Vote The presence in person or by proxy of the holders of a majority of the outstanding shares of JVF's common stock will constitute a quorum for the transaction of business at the Annual Meeting of Shareholders. At the close of business on the Record Date, there were 1,113,001 shares of JVF's common stock outstanding. Each share of JVF's common stock outstanding on the Record Date is entitled to one vote on all matters, including the election of directors, to come before the Annual Meeting. The Trust Department of The Juniata Valley Bank (the "Bank") as sole trustee, holds 49,698 shares of stock which may not be voted in the election of directors of JVF. Management of JVF in the aggregate beneficially owned 4.74% of the common stock of JVF and the Bank's Trust Department as corporate fiduciary owned 4.50% of the outstanding common stock of JVF as of the Record Date. To the knowledge of management of JVF, no shareholder beneficially owned 5% or more of the outstanding common stock of JVF on the Record Date. All matters which are expected to come before the shareholders, including election of directors, will require the affirmative vote of the holders of a majority of JVF's outstanding common stock represented at the meeting, if a quorum is present. At the Annual Meeting, the Judges of Election will manually tabulate all votes which are cast in person or by proxy. Those shareholders wishing to vote in person will be provided ballots with which to vote. Voting is an important right of shareholders. If a shareholder abstains or otherwise fails to cast a vote on any matter brought before the shareholders, the Pennsylvania Business Corporation Law provides that notwithstanding any intention to the contrary, the abstention or failure is not a vote and will not be counted. This is true of broker nonvotes, as well as nonvotes by other shareholders. -2- ELECTION OF DIRECTORS OF JVF The Bylaws of JVF provide that the Board of Directors may, from time to time, fix the number of directors and their respective classifications. The number of directors that shall constitute the whole Board of Directors shall be not less than five nor more than 25. The Bylaws also provide that the Board of Directors shall be classified into three classes as nearly equal in number as possible, each class to be elected for a term of three years. Each class shall be elected in a separate election. At each subsequent annual meeting of Shareholders, successors to the class of directors whose term shall then expire shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire in each year. Nomination for elections to the Board of Directors may be made by the Board of Directors or by any holder of the common stock of JVF entitled to vote at the election of directors. Nominations, other than those made by or on behalf of the existing management of JVF, shall be made in writing and shall be delivered or mailed to the secretary of JVF not less than 45 days prior to the date of any meeting of shareholders called for the election of directors. Such notification shall contain the following information to the extent known by the notifying shareholder: (a) the name and address of each proposed nominee; (b) the age of each proposed nominee; (c) the principal occupation of each proposed nominee; (d) the number of shares of JVF owned by each proposed nominee; (e) total number of shares that, to the knowledge of the notifying shareholder, will be voted for each proposed nominee; (f) the name and residence address of the notifying shareholder; and (g) the number of shares of JVF owned by the notifying shareholder. Any nomination for director not made in accordance with the above procedure shall be disregarded by the Chairman of the meeting, and votes cast for each such nominee shall be disregarded by the Judge of Election. It is the intention of the persons named in the Proxy to vote for the election of the three individuals listed as Class C Directors to the class to which said directors have been designated, to serve until the 1999 Annual Meeting of Shareholders. In absence of instructions to the contrary, proxies will be voted in favor of the election of the management's nominees. In the event any nominee should become unavailable, it is intended that the proxies will be voted for such substitute nominee as may be nominated by management. Management has no present knowledge that any of the nominees will be unavailable to serve. In February, 1996, pursuant to the Bylaws of JVF, the number of Directors was decreased from 11 to 10. This decrease was in response to the resignation of Darwin C. Pomeroy, whose term will expire at the Annual Meeting. Each nominee for the position of Class C Director is currently a director of JVF and its sole wholly-owned subsidiary, The Juniata Valley Bank. All Class C Directors were elected directors of JVF at the 1993 Annual Meeting of Shareholders of JVF. The following table sets forth the name and age of each nominee to each class of the Board of Directors of JVF, as well as the nominee's business experience, including principal occupation for the past five years, the period during which he has served as a director of JVF, the Bank, and the number and percentage of outstanding shares of common stock of JVF beneficially owned by said nominee as of the Record Date. -3-
Business Experience Including Principal Amount and Percentage Occupation Nature of of for the Director Beneficial Outstanding Name and Age Past Five Years Since/1/ Ownership/2/ Stock Owned ------------ --------------- ----- --------- ----------- CLASS C Directors to be elected for a three-year term ending in 1999. Dale G. Nace Owner, Glenn Nace 1992 805 .07% Age 51 Plumbing & Heating; GlenDale Storage, Millerstown, PA Edward R. Rhodes Senior Partner 1992 520 .05% Age 67 E. R. Rhodes & Son Lewistown, PA Harold B. Shearer Self-Employed Farmer 1988 3,131 .28% Age 60 East Waterford, PA CLASS B Directors to continue in office to 1998. Harry B. Fairman, Jr. President of Hilltop 1983 3,725 .33% Age 68 Oil, Inc. Mifflintown, PA Don E. Haubert CEO/Chairman of 1975 8,997 .81% Age 56 the Board, S & A Custom Built Homes, Inc. Contractor, Mifflintown, PA John A. Renninger President of A.D. 1979 7,398 .66% Age 59 Renninger Lumber Co. Richfield, PA Ronald H. Witherite Owner, Ron's IGA 1992 768 .07% Age 58 Fruit Market, Inc. Reedsville, PA CLASS A Directors to continue in office to 1997. A. Jerome Cook President and CEO 1976 3,651 .33% Age 55 of The Juniata Valley Bank and Juniata Valley Financial Corp.
-4- John E. Groninger President of John E. 1971 12,653 1.13% Age 70 Groninger, Inc., Con- tractor, Mexico, PA, Director of Consumers Financial Corporation, Camp Hill, PA, a life insurance company Karl E. Guss Funeral Director 1974 11,716 1.05% Age 68 with Guss Funeral, Home, Mifflintown, PA
/1/ Includes period prior to the formation of JVF (1983) during which named person served as director of the Bank. Each director of JVF also serves as a director of the Bank. /2/ The securities "beneficially owned" by an individual are determined in accordance with the definition of "beneficial ownership" set forth in the regulations of the Securities and Exchange Commission. Accordingly, they may include securities owned by or for, among others, the wife and/or minor children of the individual and any other relative who has the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or has the right to acquire under outstanding stock options within 60 days after March 14, 1996. Beneficial ownership may be disclaimed as to certain of the securities. The following are all shares owned beneficially by all directors and principal officers as a group:
Amount and Nature of Beneficial Ownership -------------------- Title of Class Direct Indirect Percentage -------------- ------ -------- ---------- Common 46,715 6,649 4.79%
PROPOSED AMENDMENT TO INCREASE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK JVF is currently authorized to issue 2,500,000 shares of stock, which is divided into two classes. Authorized stock consists of 2,000,000 shares of common stock with a par value of $1.00 per share, and 500,000 of preferred stock without a par value. A copy of JVF's currently effective Amended and Restated Articles of Incorporation are attached to this Proxy Statement as Exhibit "A". The Board of Directors of JVF has authority to fix the voting rights, designations, preferences, qualifications, privileges and other features of preferred stock. JVF has not issued any preferred stock, and there is no plan at the present time to issue preferred stock. As noted above, at the close of business on March 14, 1996, there were issued and outstanding 1,113,001 shares of common stock. -5- The additional shares of authorized JVF common stock for which shareholder approval is sought would be part of the existing class of common stock. When and if issued, this common stock would have the same rights and privileges as shares of common stock presently issued and outstanding. The Board of Directors currently has no plan, arrangement or understanding regarding the issuance of additional shares of common stock, except in connection with dividend reinvestments, employee stock purchase plans and stock dividends to existing shareholders. The Board of Directors believes that it is desirable to have additional authorized shares of JVF common stock for use in raising additional capital, for use in connection with stock dividends, stock splits, employee benefit plans, and for other general corporate purposes. Having additional authorized common stock available for issuance in the future would give JVF greater flexibility and would allow additional shares to be issued without the expense and delay of a special shareholder's meeting. On January 16, 1996, the Board of Directors unanimously adopted a resolution approving the increase in the number of shares of common stock, and directed that the matter be presented at the Annual Meeting to the shareholders of JVF for their approval. Under certain circumstances, the issuance of additional shares of JVF common stock could be used to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of JVF. Additional shares of JVF common stock could be privately sold to purchasers who might side with the Board of Directors in opposing a hostile takeover attempt. The issuance of additional shares of JVF common stock could be used to dilute the stock ownership of a takeover bidder. To the extent that potential takeovers are discouraged, stockholders may not have opportunity to dispose of all or part of their stock at a price that may be higher than that prevailing in the market. However, it is also possible that making additional shares of authorized but unissued common stock available to the Board of Directors to be issued for the purposes described above may have the effect of increasing the price offered to shareholders should a tender offer or exchange offer take place. Because JVFC shareholders would not be entitled to preemptive rights to purchase additional shares, their shareholder interests in JVFC are potentially subject to dilution in the event JVFC issues additional shares of JVFC common stock or preferred stock to other parties. Such dilution would occur if the JVFC Board of Directors determines to offer additional shares of JVFC common stock for sale to the general public in a non-preemptive rights offering. If the shareholders approve the proposed Amendment, Article 5 of the Amended and Restated Articles of Incorporation of JVF will provide as follows: ARTICLE 5: The aggregate number of shares which the Corporation shall have authority to issue is 5,500,000 shares divided into two (2) classes consisting of 5,000,000 shares of common stock with a par value of $1.00 per share, and 500,000 shares of Preferred Stock without a par value. The Board of Directors shall have the full authority permitted by law to fix by resolution full, limited, multiple, or fractional, or no voting rights, and such designations and preferences, priorities, qualifications, privileges, limitations, restrictions, options, conversion rights, dividend features, retirement features, liquidation features, redemption features, or other special or relative rights that may be desired for the Preferred Stock and any series thereof, and to issue such Preferred Stock from time to time in one or more series. The designations, preferences, priorities, qualifications, privileges, limitations, restrictions, options, conversion rights, dividend -6- features, retirement features, liquidation features, redemption features, and any other special or relative rights of any series of Preferred Stock may differ from those of any and all series at anytime outstanding. The Board of Directors unanimously recommends that shareholders approve the proposed Amendment to Article 5 of JVF's Articles of Incorporation. ADOPTION OF THE JUNIATA VALLEY FINANCIAL CORP. EMPLOYEE STOCK PURCHASE PLAN General JVF's Board of Directors has unanimously approved the Juniata Valley Financial Corp. Employee Stock Purchase Plan (the "Plan"), subject to approval by JVF shareholders. The Board believes that the ability to give employees the opportunity to purchase stock of JVF is an important factor in attracting and retaining exceptional individuals as employees and in rewarding existing employees. The granting of supplemental compensation provides a valuable incentive to employees in the performance of their duties. The important features of the Plan are summarized below, but the summary is qualified in its entirety by express reference to the Plan itself. The purpose of the Plan is to provide a method for employees of the Bank to acquire a proprietary interest in JVF. The Plan is intended to promote the best interests of JVF by encouraging its employees to acquire stock ownership in JVF. The affirmative vote of holders of a majority of the issued and outstanding common stock of JVF entitled to vote at the meeting is required to approve the Plan. The full text of the Plan is set forth in Exhibit "B" to this Proxy Statement. All proxies will be voted "FOR" approval of the Plan except for that of any shareholder who specifies the contrary on his or her proxy card. Administration of the Plan The Plan is administered by a Committee to be appointed by the Board of Directors of JVF. No member of the Committee may be eligible for awards under the Plan. The Committee will consist of no fewer than three (3) members of the Board of Directors. The Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all of the determinations necessary or advisable for administering the Plan. The maximum number of shares which employees may purchase under this Plan is 100,000. As of March 1, 1996, the closing sale price quotation for shares of JVF common stock in the over-the-counter market was $35.00 per share. Eligibility An employee of the Bank will be eligible to participate in the Plan if: (i) he or she has completed ninety (90) days employment; and (ii) he or she is employed by the Bank on the date the employee's participation in the Plan becomes effective. Participation will be limited to the extent necessary to prevent an employee from owning stock, and/or hold outstanding options to purchase stock, possessing -7- five (5%) percent or more of the total combined voting power or value of all classes of stock of JVF. In addition, participation is prohibited or limited if participation permits the participant's right to purchase stock under all employee stock purchase plans of JVF to accrue at a rate which exceeds Twenty-five Thousand ($25,000.00) Dollars for each calendar year (determined by the fair market value of the stock at the time the option is granted). Options On the Commencement Date of each offering (July 1 of each year), a participant will be granted an option to purchase as many full shares of stock as he or she will be able to purchase with the aggregate sum of the payroll deductions deposited into his or her account during that offering. The option price of stock purchased during each annual offering for a participant shall be a percentage between eighty-five (85%) percent and one hundred (100%) percent of the fair market value of the stock on the Commencement Date or the nearest prior business day to the Commencement Date. The percentage used shall be in the sole and exclusive discretion of the Board of Directors. During a participant's lifetime, options held by the participant shall be exercised only by that participant. If, prior to the expiration of an option exercise term, the participant ceases to be employed by the Bank (other than by reason of death or disability) the participant's participation in the Plan will automatically terminate, and the participant will not be entitled to purchase any shares at the end of the offering. Any payroll deductions credited to the participant's account will be returned to the participant. Should the termination of an employee occur because of the employee's death, the participant's beneficiary may elect either to withdraw all of the payroll deductions credited to the participant's account under the Plan or to exercise the participant's option for the purchase of stock on the next Termination Date (May 15 of each year). Tax Consequences - Generally The Plan is intended to be an "Employee Stock Purchase Plan" as defined in Section 423 of the Code. There are several tax advantages of an employee stock purchase plan. First, when an option is granted to an employee, he or she will not realize taxable income. Second, the employee will not recognize taxable income on the exercise of the option. In order to be eligible for this favorable tax treatment, an employee must be employed by JVB during the offering period. Additionally, the employee may not dispose of his or her shares within one (1) year after the date of the transfer of the stock to him or her or within two (2) years after the date the option is offered. Under these circumstances, there will be no tax effect upon JVB (it will not be entitled to tax deduction by reason of the employee's subscription or purchase, nor will it recognize gain or loss upon the transfer of the shares to the employee). There are tax consequences when an employee disposes of the shares. The tax treatment of the subsequent disposition of (S) 423 Plan stock depends on whether the stock was disposed of within the statutory holding period for (S) 423 Plan stock. The statutory holding period for (S) 423 Plan stock, as discussed above, is the later of two years after the grant of an option or one year from the date of transfer of the stock pursuant to the option. -8- If the employee disposes of stock purchased pursuant to the Plan before the expiration of the statutory holding period, the employee must recognize as ordinary income the difference between the stock's fair market value and the option's exercise price. If the sale or other taxable disposition of stock occurs after the statutory holding period has expired, the employee's capital gain on the sale is an amount equal to the excess of the proceeds of the sale over the employee's basis in the stock. There is a difference in treatment of an option with an exercise price of more than 85% and less than 100% of the fair market value of the stock. In this case, the employee must include in taxable income at time of sale or other taxable disposition of the stock, or upon the employee's death while still holding the stock, the lesser of 1) the amount, if any, by which the fair market value of the stock when the option was granted exceeds the option price; or 2) the amount, if any, by which the stock's fair market value at the time of the disposition or death exceeds the exercise price paid. JVB may not deduct the difference between the fair market value of the option stock and the option exercise price if the option is one issued pursuant to a (S) 423 Plan. However, if there is a disqualifying disposition (i.e., disposing of the stock in violation of the statutory holding period), the employer will be entitled to the compensation deduction to which it would be entitled if the option had been a non-qualified option. Amendment of the Plan The Board of Directors shall have complete power and authority to terminate or amend the Plan. No termination, modification, or amendment of the Plan may adversely affect the rights under outstanding options. MANAGEMENT OF JVF AND THE BANK Board of Directors The Board of Directors of JVF and the Bank are identical. The Board of Directors of JVF has not appointed any committees as of this date. JVF has utilized the Bank's committees. Executive Officers The following table sets forth the executive officers of JVF, their ages, their positions with JVF and the beneficial ownership (as determined in accordance with the rules and regulations of the Securities and Exchange Commission) of common stock of JVF by each of such persons. Share information is stated as of March 14, 1996.
Amount and Percentage Nature of of Beneficial Outstanding Name and Age Title Ownership Stock - ------------ ----- --------- ----- A. Jerome Cook Chairman and CEO 3,651 .33% Age 55 of JVF and the Bank
- ---------- -9- Board Personnel Committee Report on Executive Compensation JVF does not have a Compensation Committee. The Board of Directors has delegated to the Personnel Committee initial review and recommendations for executive compensation. Recommendations of the Personnel Committee are reviewed and ratified by the full Board of Directors. Executive compensation is designed to provide a level of salary competitive with that offered by other similar regional bank holding companies and banks. To that end, the Personnel Committee reviews the results of several salary and compensation surveys. At the present time, there is no relationship between executive compensation and JVF's corporate performance. Rather, the process of determining executive compensation is primarily subjective and not based on quantifiable data. Executive officers of JVF participate in the same two bonus programs in which all employees of JVF participate. These programs pay modest bonuses; one is paid at year end and the other after JVF's return on assets is calculated. Mr. Cook, as President and Chief Executive Officer of JVF, receives a salary determined by the Personnel Committee in the manner described above. In addition, he participates in the same bonus programs which are applicable to all employees. Mr. Cook's total compensation is disclosed in the Summary Compensation Table set forth below on Page 12. JVF offers no special incentive programs for its executive officers. Members of the Personnel Committee are Harry Fairman, John Renninger, Edward Rhodes, and Ronald Witherite. None of these committee members have been officers or employees of JVF or the Bank at any time, and none had any relationship with JVF or the Bank requiring specific disclosure under applicable Securities and Exchange Commission regulations. This report is given over the signatures of the Personnel Committee, consisting of Harry Fairman, John Renninger, Edward Rhodes, and Ronald Witherite. Stock Performance Graph The following graph sets forth the yearly percentage change in JVF's cumulative total shareholder return on its common stock from December 31, 1990 to December 31, 1995. This percentage change is measured by dividing (i) the sum of (A) the cumulative amount of dividends for the period measured, assuming dividend reinvestment and (B) the difference between JVF's share price at December 31, 1995 and December 31, 1990 by (ii) the share price of December 31, 1990. This result, on the following performance graph, is compared with the NASDAQ Market Index and the MG Industry Group 042-Middle Atlantic Banks: - 10 - [GRAPH APPEARS HERE] ASSUMES $100 INVESTED ON JAN. 1, 1991 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING DEC. 31, 1995 COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
- ------------------------- FISCAL YEAR ENDING ----------------------------- COMPANY 1990 1991 1992 1993 1994 1995 JUNIATA VALLEY FINANCIAL CP 100 102.75 123.33 161.50 190.94 239.48 INDUSTRY INDEX 100 133.08 166.65 207.03 196.56 298.47 BROAD MARKET 100 128.38 129.64 155.50 163.26 211.77
THE INDUSTRY INDEX CHOSEN WAS: MG INDUSTRY GROUP 042 - Middle Atlantic Banks THE BROAD MARKET INDEX CHOSEN WAS: NASDAQ MARKET INDEX THE CURRENT COMPOSITION OF THE INDUSTRY INDEX IS AS FOLLOWS: ALLEGIANCE BANC CP AMBANC HLDG CO INC ANNAPOLIS BANCSHARES INC ARGENTARIA CP BANC ARROW BANK CP AUBURN NATL BANC INC BANCO BILBOA VIZ S A BANCO DE SANTANDER BANK OF NEW YORK CO BANKERS TRUST NEW YORK BARCLAYS PLC ADR BCB FIN SVCS BFS BANKORP INC NY BMJ FIN CP BROAD NATL BANCORP BRYN MAWR BANK CP BSB BANCORP INC BT FIN CP CARNEGIE BANCORP CARROLLTON BANCORP CHASE MANHATTAN CP CHEMICAL BANKING CP CITI-BANCSHARES INC CITICORP CITIZENS BANCORP CNB FIN CP NY COLLECTIVE BANCORP INC COLUMBIA BANCORP COMMERCE BANCORP INC NJ COMMERCE BK HARRISBURG COMMERCIAL BANK OF NY COMMUNITY BANK SYSTS INC COMMUNITY BANKS MLRBG PA COMMUNITY FIN HLDG CONESTOGA BANCORP INC CORESTATES FIN CP DAUPHIN DEPOSIT CP ELMIRA SVGS BK FSB NY ESPIRITO SANTO FIN HLDG EVERGREEN BANCORP INC EXECUFIRST BANCORP INC F&M BANCORP FCNB CP FINANCIAL BANCORP INC NY FINANCIAL TRUST CP FIRST BANK OF PHILA FIRST BELL BANCORP INC FIRST COMMONWEALTH FIN FIRST EMPIRE STATE CP FIRST FIDELITY BANCORP FIRST KEYSTONE FIN FIRST LEESPORT BANCORP FIRST OF LONG ISLAND CP FIRST SAV BK NJ FIRST SHENANGO BANCORP FIRST UNITED CP FIRST WESTERN BANCORP FLEMINGTON NATL BK & TR FLUSHING FINANCIAL CP FNB CORP INC (PA) FNB ROCHESTER CP FRANKLIN BANCORP FULTON FIN CP GARDEN STATE BANCSHARES GATEWAY BANCORP INC GROWTH FIN CP HARBOR FED BANCORP HARLEYSYILLE NATL CP HERITAGE BANCORP INC HOME FED CP MARYLAND HUBCO INC HUDSON CHARTERED BANCORP IBS FIN CP INDEPENDENCE BANCORP INDEPENDENCE FED SAV BK INTEGRA FIN CP INTERCHANGE FIN SVGS JEFFBANKS INC KEYSTONE FIN INC KEYSTONE HERITAGE GR LAKE ARIEL BANCORP INC LAKEVIEW FIN CP LETCHWORTH IND BANCSHARE MADISON BANCSHRS GR MASON-DIXON BANCSHRS MBNA CP MELLON BANK CP MERCANTILE BANKSHRS CP MERCHANTS N Y BANCORP MERIDIAN BANCORP INC MIDLANTIC CP MLF BANCORP INC MORGAN, J.P. & CO INC MOXHAM BANK CP NATIONAL PENN BANCSHRS NATIONAL WESTMINSTER BK NBT BANCORP INC NEWBERRY BANCORP NORTH FORK BANCORP NY NORTH SIDE SAV BANK NY NSD BANCORP INC OMEGA FIN CP ONBANCORP INC PEEKSKILL FIN CP PENNFED FIN SVCS PNC BANK CP POUGHKEEPSIE SAV BANK PRESTIGE FIN CP PRIME BANCORP INC PROGRESS FIN CP PROGRESSIVE BANK INC QUEENS COUNTY BANCORP RAMAPO FIN CP RARITAN BANCORP INC REGENT BANCSHARES CP REPUBLIC NY CP RIGGS NATL CP ROYAL BANCSHARES OF PA S&T BANCORP INC SFS BANCORP INC SKYLANDS COMMUNITY BANK SOUTHWEST NATL CP STATE BANCORP INC STATEWIDE FIN GR STERLING BANCORP SUFFOLK BANCORP SUMMIT BANCORP SUN BANCORP INC SUSQUEHANNA BANCSHARES TAPPAN ZEE FIN INC TROY HILL BANCORP INC TRUST CO OF NJ TRUSTCO BANK CP NY U.S. TRUST CP UJB FIN CP UNITED COUNTIES BANCORP UNITED NATL BANCORP NJ USBANCORP INC PA VALLEY NATL BANCORP VISTA BANCORP INC WEST JERSEY BANCSHARES WILMINGTON TRUST CP WSFS FIN CP WVS FIN CP YARDVILLE NATL BCP SOURCE: MEDIA GENERAL FINANCIAL SERVICES P.O. BOX 85333 RICHMOND, VA 23293 PHONE: l-(800) 446-7922 FAX: 1-(804) 649-6097 -11- Remuneration of Executive Officers The following Summary Compensation Table sets forth the remuneration of the executive officer of JVF (as defined in applicable securities regulations), and the annual salary and other compensation of that officer for the preceding three years. SUMMARY COMPENSATION TABLE
Lone Term Compensation -------------------------------------- Annual Compensation Awards Payouts ------------------------------------ ------------------------ ---------- Other Securities Name Annual Restricted Underlying All Other and Compen- Stock Options/ LTIP Compen Principal sation/1/ Awards/2/ SARs/3/ Payouts/4/ sation/5/ Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($) - -------- ---- ---------- --------- --------- ---------- ---------- ---------- ---------- A. Jerome Cook 1995 116,423 1,175 - - - - 21,795 Chairman & CEO 1994 111,746 1,165 - - - - 21.155 1993 110,000 1,165 - - - - 20,408
/1/ The aggregate of personal benefits provided by JVF and the Bank for any executive officer, individually or all executive officers as a group did not exceed the lesser of (i) $50,000 or (ii) 10% of the salary and bonus of the officer for any of the years referenced. This does not include benefits that are available to all salaried officers, directors and employees on a non-discriminatory basis. /2/ JVF has not issued any Restricted Stock Awards to any executive officer. /3/ JVF has not issued any options or SARs to any Executive Officer. /4/ JVF does not maintain any Long-Term Incentive Plan as defined in the applicable Securities and Exchange Commission Regulations, and consequently has made no payouts pursuant to any such plan. /5/ Mr. Cook received $7,500 in 1995, $7,500 in 1994, and $7,200 in 1993 as compensation for serving as a director of JVF and the Bank. Mr. Cook has elected to defer a portion of this compensation in the manner described below under "Director's Compensation." Mr. Cook also participated in the Officer's Supplemental Retirement Plan, also described below. Accruals to Mr. Cook's account under this Plan were $13,000 in 1995, $11,940 in 1994, and $11,600 in 1993. Finally, Mr. Cook participated in the Director's Retirement Plan described below. Accruals to Mr. Cook's account under this plan were $947 in 1995, $907 in 1994 and $886 in 1993. Mr. Cook is provided with the use of an automobile; the compensation element of this automobile aggregated $348 in 1995, $808 in 1994, and $722 in 1993. - 12 - Employment Agreement In 1995, JVF and the Bank entered into a deferred compensation agreement with A. Jerome Cook. The agreement provides that JVF and the Bank shall, if Mr. Cook's employment is terminated without cause, or, if Mr. Cook's employment with JVF and the Bank is terminated by either Mr. Cook, JVF or the Bank within a period commencing six months before or nine months after a change in control of JVF and the Bank, pay Mr. Cook severance compensation equal to 2.95 times Mr. Cook's average annual compensation over the five taxable years immediately preceding the termination of Mr. Cook's employment with JVF and the Bank. The agreement shall expire when Mr. Cook retires. Stock Option Grants Applicable Securities Exchange Commission regulations require disclosure of Stock Option grants to executive employees. JVF maintains no stock option plans and the following table indicates that no such options have been granted: INCENTIVE STOCK OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Alternative Rates of Stock Price Appreciation Individual Grants for Option Term ---------------------------------------------------------------------- ------------------ Number of % of Total Securities Options/ Underlying SARs Options/ Granted to Exercise SARs Employees or Base Expira- Granted in Fiscal Price tion Name (#) Year ($/Sh) Date 5% ($) 10% ($) ---- ---------- ---------- -------- ------- ------ ------- A. Jerome Cook 0 0% $0 0 $0 $0
Pension Plan JVF and the Bank maintain a pension plan for employees of JVF and the Bank. The aggregate amount set aside or accrued as of December 31, 1995, for all pension or retirement benefits to be paid under existing plan for all plan participants was $107,000, an amount equal to 5.34% of the total covered compensation of all plan participants. All employees with 12 months' continuous service who have attained the age of 21 years (except those paid hourly who work less than 1,000 hours per year) are eligible to participate. The cost of the pension, which is actuarially determined, is paid by JVF and the Bank. The amount of the contribution or accrual with respect to a specified pension is not and cannot readily be separated or individually calculated by the regular actuaries for the Plan. The formula used to determine an employee's monthly pension income is 1% of the employee's average monthly compensation for the Plan year multiplied by his or her years of Benefit Formula Service, not to exceed 99 years. Early retirement is possible with reduced benefits provided the employee has attained the age of 55 years and has completed 20 years of service. Average monthly earnings are calculated from the - 13 - employee's highest five consecutive years of earnings and exclude directors' fees, whether paid in cash or deferred. The amount shown on the following table assumes the retirement of an employee who chose a straight life annuity, who is presently 50 years old and who will retire at the age of 65 years. PENSION PLAN TABLE
Years of Service ----------------------------------------------- Remuneration 15 20 25 30 35 - ------------ -- -- -- -- -- 75,000 $13,594 $18,125 $22,656 $27,187 $31,718 95,000 $18,674 $24,900 $31,125 $37,349 $43,574 115,000 $23,794 $31,725 $39,656 $47,587 $55,518 135,000 $28,894 $38,525 $48,156 $57,787 $67,418 145,000 $31,444 $41,925 $52,406 $62,887 $73,368 155,000 $32,700 $43,600 $54,500 $65,400 $76,300
As of December 31, 1995, A. Jerome Cook had 30 years of credit service under the Pension Plan. Officer's Supplemental Retirement Plan In December, 1988, the Bank established a supplemental retirement plan for certain key executive employees (the "Officer's Plan"). The Officer's Plan provides for a target annual retirement benefit, payable over 10 years beginning at age 65, in an amount equal to 40% of the employee's 1988 compensation. The retirement benefit will accrue to the account of each participating employee, commencing in 1989, over his working years with the Bank until he attains the age of 65. The Plan is dependent on annual funding which is subject to approval by the Board of Directors. If the Board terminates the Plan or declines to make a contribution in any year, participants will receive only such benefits as have accrued, even if less than the targeted benefits. A lesser retirement benefit, equal to the employee's accrued benefit to date of retirement, is payable if the employee retires on or after attainment of the age of 62, provided that he has completed 15 years of service. Payment is deferred until the employee attains the age of 65. If the Board of Directors approves, receipt of benefits on early retirement may commence, but the benefit will be the then actuarial equivalent of the accrued retirement benefit. The plan also provides for a disability pension in an amount equal to the employee's accrued retirement benefit on the date of disability. This pension is payable over a 10-year period, commencing when the employee attains the age of 65. However, payment may be accelerated with approval of the Board; in such event, the actuarial equivalent of the benefit will be paid. If a participant in the plan dies while employed by the Bank, a death benefit is payable. The amount of the benefit depends on whether the Bank has purchased insurance on the life of the participant. The death benefit is equal to the proceeds of the policy if the Bank has purchased insurance, and the equivalent of the participant's accrued retirement benefit if life insurance has not been purchased. - 14 - Directors' Compensation Subject to the right of a director to defer the payment of directors' fees in accordance with the directors' compensation plan set forth below, each director is paid an annual fee of $7,500 for attendance at 12 regular meetings of the Board of Directors of the Bank. Each director who is not an executive officer also receives $60 for attendance of each committee meeting of the Bank and special meeting of the Board of Directors of the Bank. JVF directors receive no fees in addition to those received from the Bank. Director's Deferred Compensation Plans. In 1982, JVF established a director's deferred compensation plan. This plan permitted participating directors to defer $3,700 in director's fees each year for a five year period commencing with the election to participate in the plan in return for an undertaking by JVF to pay each participating director a specified amount in 120 equal payments beginning at the last to occur of the attainment of the age of 65 or the expiration of five years from the date of the director's election to participate in the plan, or if the director were to die prior to such time, upon the death of the director. JVF applied the deferred director's compensation to the purchase of life insurance policies which will fund JVF's obligations under the plan. JVF is the owner and the beneficiary of these life insurance policies. In 1987, when the first director's deferred compensation plan was fully funded, JVF offered directors a second deferred compensation plan whereby each director could elect to defer $4,900 in directors fees each year for five years in exchange for an additional benefit similar to that offered under the 1982 plan. In 1991, when the second plan was funded, JVF offered a third deferred compensation plan to directors whereby they may elect to defer $6,000 in director's fees each year for five years in order to receive an additional benefit similar to that offered under the 1982 and 1987 plans. All three plans operate in substantially the same manner and all are funded by insurance policies as described above. JVF has no plans to offer any additional deferred compensation plans to its directors. The above-referenced plans will continue in effect. Director's Retirement Plan In December, 1988, the Bank established a retirement program for directors (the "Director's Plan"). All persons who were directors of the Bank on January 1, 1988, are eligible for benefits under the Plan. All directors whose service commenced after January 1, 1988, are eligible following the completion of six months of service on the Board. The Director's Plan provides for a target retirement benefit of $7,800 per year for 10 years commencing at age 65, or, if later, at such time as the director has completed 10 years of credited service (as defined in the Director's Plan) with the Board. The retirement benefit for each director will accrue over his remaining projected period of service until he reaches age 65 or completes 10 years of credited service. The Plan is dependent on annual funding which is subject to approval by the Board of Directors. If the Board terminates the Plan or declines to make a contribution in any year, directors will receive only such benefits as have accrued, even if less than the targeted benefits. Lesser benefits are payable in the event of the director's death, disability, or other termination (except terminations caused by the director's fraud or dishonesty). - 15 - Transactions with Officers and Directors During 1995, the Bank had and expects to have in the future banking transactions in the ordinary course of its business with directors, officers, principal shareholders and their associates of JVF and the Bank, on the same terms, including interest rates and collateral on loans as those prevailing at the same time for comparable transactions with others. Such loans present, in the opinion of management, no more than the normal risk of collectibility or present other unfavorable features. During 1995, the highest aggregate amount of extensions of credit to directors, officers and their associates either directly or indirectly, did not exceed 20% of equity capital. Also during 1995, extension of credit to any one director, officer, or principal shareholder did not exceed 10% of equity capital. Compliance with Section 16(a) of Securities Exchange Act In 1995, to the knowledge of JVF, no directors or officers failed to file on a timely basis any reports with the Securities Exchange Commission. Committees of the Board of Directors of the Bank The Board of Directors of JVF has not established its own committees but rather utilizes the committees of the Bank. The total number of Board of Directors' meetings during 1995 was 12 and no director attended fewer than 75% of the aggregate total number of meetings of the Board of Directors and the total number of meetings held by all committees of the Board on which he served. Audit Committee Members of the Audit Committee were Karl E. Guss, Dale Nace and Edward Rhodes. This Committee met three times during 1995. The Audit Committee causes to be made by certified public accountants a complete audit of the books and financial statements of JVF. Upon receipt and review of the internal auditor's report and certified public audit report, the Committee brings to the Board of Directors the Committee's recommendations concerning the audit. The Committee also reviews any examination reports by the Department of Banking, Federal Deposit Insurance Corporation and The Federal Reserve Bank of Philadelphia. Trust Committee Members of the Trust Committee were John Groninger, Harold Shearer, and Ronald Witherite. This Committee met 11 times during 1995. The Trust Committee determines the policy and investments of the Trust Department, the acceptance of all fiduciary relationships and relinquishment of all fiduciary relationships. The Trust Committee keeps minutes of their meetings which are reviewed by the Board of Directors monthly. Personnel Committee Members of the Personnel Committee were John Renninger, Edward Rhodes, and Ronald Witherite. This Committee met once during 1995. The Personnel Committee reviews all personnel policies, including compensation of all employees. - 16 - Other Committees of the Bank There is no nominating committee but there are other standing committees which are appointed from time to time by the Chairman of the Board of Directors subject to the approval of the Board. Examples of some of the committees are Policy, Consumer, Marketing, Buildings and Grounds, Pension and Finance. OTHER BUSINESS To transact any other matters connected with and incidental to the election of directors that may properly come before the Annual Meeting of Shareholders. Management, at present, knows of no other business except those items explained herein that may require the vote of the shareholders to be presented by or on behalf of JVF or its management at the meeting. INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors of JVF has engaged Beard & Company, Inc., Reading, Pennsylvania, as principal accountant for JVF and the Bank to audit its financial statements for the year 1995. This firm has no material relationship with JVF or the Bank and is considered to be well qualified. A representative of the firm is expected to be at the Annual Meeting of Shareholders. FORM 10-K ANNUAL REPORT Securities and Exchange Commission Form 10-K Annual Report is available free of charge. If you desire a copy of this report, forward your request to: Ms. Linda L. Engle Sr. Vice President/CFO The Juniata Valley Bank P.O. Box 66 Mifflintown, PA 17059 RETURN OF PROXY You are urged to sign, date and return the accompanying Proxy as promptly as possible, whether or not you plan to attend the meeting in person. If you do attend the meeting, you may then withdraw your Proxy. BY ORDER OF THE BOARD OF DIRECTORS RONALD H. WITHERITE Secretary Mifflintown, Pennsylvania March 14, 1996 PROXY JUNIATA VALLEY FINANCIAL CORP. P.O. Box 66 Mifflintown, PA 17059 Telephone: (717) 436-8211 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF JUNIATA VALLEY FINANCIAL CORP. The undersigned hereby appoints Madelon Book, Margaret Fleck and Dennis Long as Proxies, each with the power to appoint his substitute, and authorizes them to represent and vote, as designated below, all the shares of common stock of Juniata Valley Financial Corp. held of record by the undersigned on March 14, 1996 at the Annual Meeting of Shareholders to be held on April 16, 1996. 1. ELECTION OF DIRECTORS: For all Nominees Listed Below _____ Withhold Authority _____ (except as indicated below) CLASS C ------- Dale G. Nace Edward R. Rhodes Harold B. Shearer INSTRUCTION: To withhold authority to vote for any individual nominee(s), write that nominee's name(s) in the space immediately below. 2. INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK, PAR VALUE $1.00, FROM 2,000,000 TO 5,000,000: FOR ___ AGAINST ___ ABSTAIN ___ 3. APPROVAL OF THE JUNIATA VALLEY FINANCIAL CORP. EMPLOYEE STOCK PURCHASE PLAN: FOR ___ AGAINST ___ ABSTAIN ___ 4. OTHER BUSINESS: Take action on other business which may properly come before the meeting. FOR ___ AGAINST ___ ABSTAIN ___ THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION OR DIRECTION IS MADE, THEY WILL BE VOTED FOR THE ELECTION OF THE THREE CLASS C DIRECTORS, AND FOR ANY OTHER BUSINESS IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT. THIS PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE. Dated this day of , 1996. (SEAL) -------------------------------------- Signature (SEAL) -------------------------------------- Signature Please sign exactly as your name appears hereon. When signing as an Attorney, Executor, Administrator, Trustee or Guardian, please give full title. If more than one Trustee, all must sign. All joint owners must sign. EXHIBIT "A" COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF STATE CORPORATION BUREAU AMENDED AND RESTATED ARTICLES OF INCORPORATION JUNIATA VALLEY FINANCIAL CORP. 1. The name of the Corporation is Juniata Valley Financial Corp. 2. The location and post office address of its registered office in the Commonwealth of Pennsylvania is Bridge and Main Streets, Mifflintown, Pennsylvania. 3. The Corporation is incorporated under the Business Corporation Law of the Commonwealth of Pennsylvania for the following purpose or purposes: To have unlimited power to engage in and to do any lawful act concerning any or all lawful business for which Corporations may be incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania. The Corporation is incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania (Act of May 5, 1933, P. L. 364, as amended). 4. The term for which the Corporation is to exist is perpetual. 5. The aggregate number of shares which the Corporation shall have authority to issue is 2,500,000 shares, divided into two classes consisting of 2,000,000 shares of Common Stock with a par value of $1.00 per share and 500,000 shares of Preferred Stock without a par value. The Board of Directors shall have the full authority permitted by law to fix by resolution full, limited, multiple or fractional, or no voting rights, and such designations and preferences, priorities, qualifications, privileges, limitations, restrictions, options, conversion rights, dividend features, retirement features, liquidation features, redemption features or other special or relative rights that may be desired for the Preferred Stock and any series thereof, and to issue such Preferred Stock from time to time in one or more series. The designations, preferences, priorities, qualifications, privileges, limitations, restrictions, options, conversion rights, dividend features, retirement features, liquidation features, redemption features and any other special or relative rights of any series of Preferred Stock may differ from those of any and all series at any time outstanding. 6. The name and post office address of each incorporator and the number and class of shares subscribed by each incorporator is: Name Address No and Class of Shares ---- ------- ---------------------- James A. Ulsh 1801 N. Front St. One share of common stock P.O. Box 729 Harrisburg, PA 17108 7. No cumulative voting for the election of directors shall be permitted. 8. No holder of any class of capital stock of the Corporation shall have pre-emptive rights, and the Corporation may issue shares, option rights or securities having conversion or option rights with respect to shares and any other securities of any class without first offering them to shareholders of any class or classes. 9. To the full extent permitted by law, the Board of Directors is expressly vested with the authority to make, alter, amend and repeal such Bylaws as it may deem necessary or desirable for the Corporation, subject to the statutory power of the shareholders to change such action but only upon the affirmative vote of the holders of the outstanding capital stock of the Corporation entitled to cast at least seventy-five percent (75%) of the votes which all shareholders are entitled to cast on the matter at a regular or special meeting of the shareholders duly convened after notice to the shareholders of that purpose. 10. A. The Board of Directors of the Corporation may, in its sole discretion, if it deems it advisable, oppose any offer, proposal, or attempt by any Corporation or other business entity, person or group to (a) make any tender or other offer to acquire any of the Corporation's securities; (b) merge or consolidate the Corporation with or into another entity; (c) purchase or otherwise acquire all or substantially all of the assets of the Corporation; or (d) make any transaction similar in purpose or effect to any of the above. In considering whether to oppose, recommend or remain neutral with respect to any of the aforesaid offers, proposals or plans, the Board of Directors shall evaluate what is in the best interests of the Corporation and may, but is not legally obligated to, consider any pertinent factors which may include but are not limited to any of the following: (1) Whether the offering price, whether in cash or in securities, is adequate and acceptable based upon both the current market price of the Corporation's securities and the historical and present operating results or financial condition of the Corporation. (2) Whether a price more favorable to the shareholders may be obtained now or in the future from other offerors and whether the Corporation's continued existence as an independent Corporation will affect the future value of the Corporation. (3) What the impact of the offer would have on the employees, depositors, clients and the customers of the Corporation or its subsidiaries and the communities which they serve. (4) The present and historical financial position of the offeror, its reputation in the communities which it serves and the effect which the reputation and practices of offeror or its management and affiliates would have upon the employees, depositors and customers of the Corporation and the community which the Corporation serves. (5) An analysis of the value of the securities (if any) offered in exchange for the Corporation's securities. (6) Any anti-trust or other legal or regulatory issues raised by the offeror. B. If the Board of Directors determines that an offer shall be rejected, it may take any lawful action to accomplish its purpose, including, but not limited to, any or all of the following: advising 2 shareholders not to accept the offer; litigation against the offeror; filing complaint with all government and regulatory authorities having jurisdiction over the offer; acquiring the Corporation's securities; selling or otherwise issuing authorized but unissued securities or treasury stock and granting options with respect thereto; acquiring a company to create an anti-trust or other regulatory problem for the offeror; and obtaining a more favorable offer from another individual or entity. 11. A. For purposes of this Article 11 the term "Business Combination" shall mean any one or more of the following transactions: (1) Any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any ten percent (10%) Shareholder (as hereinafter defined) or (ii) any other Corporation (whether or not itself is a ten percent (10%) Shareholder) which is, or after such merger or consolidation would be, an affiliate (as hereinafter defined) of a ten percent (10%) Shareholder or; (2) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or in a series of related transactions) to or with any ten percent (10%) Shareholder of assets whether of the Corporation or any Subsidiary or Subsidiaries of the Corporation, or any combination thereof, the aggregate value of which is equal to or greater than ten percent (10%) of the Corporation's consolidated stockholders equity; or (3) The issuance or transfer by the Corporation or by any Subsidiary (in one transaction or in a series of related transactions) of any securities of the Corporation or any Subsidiary to any ten percent (10%) Shareholder or Affiliate of a ten percent (10%) Shareholder in exchange for cash, securities or other property or any combination thereof, having an aggregate fair market value equal to or greater than ten percent (10%) of the Corporation's consolidated stockholders equity; or (4) Any reclassification of securities (including any reverse stock split), recapitalization, reorganization, merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with, into or otherwise involving a ten percent (10%) Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary, which is directly or indirectly owned by any ten percent (10%) Shareholder or any Affiliate of a ten percent (10%) Shareholder; Provided however, no transaction described in Clauses 1. through 4. of this subparagraph A of Article 11 shall constitute a Business Combination if the Board of Directors has by resolution authorized or ratified the execution and delivery of a written agreement in principle, memorandum of understanding or letter of intent respecting such transaction prior to the time the ten percent (10%) Shareholder involved in such transaction acquired, directly or indirectly, more than five percent (5%) of the outstanding Common Stock of the Corporation which would be entitled to vote on such transaction. In such an event the provisions of subparagraph D of this Article 11 shall apply. B. Notwithstanding the fact that by law or by agreement with a national securities exchange or otherwise no vote, or a lesser vote, of shareholders may be specified or permitted, and except as otherwise expressly provided in subparagraph C. of this Article 11 the affirmative vote of the holders of at least 3 eighty-five percent (85%) of the votes which all Shareholders are entitled to cast on the matter shall be required to approve any Business Combination. C. Notwithstanding the provisions of subparagraph B. of this Article 11, a Business Combination shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes which all Shareholders are entitled to cast on the matter, if and only if all of the following conditions shall have been satisfied: (1) The ratio of (a) the aggregate amount of cash and fair market value of all other consideration to be received in such Business Combination by the Corporation, a Subsidiary, or the holders of Common Stock, as the case may be, divided by the number of shares of Common Stock issued and outstanding immediately prior to the first public announcement relating to such Business Combination, to (b) the market price of the Common Stock per share immediately prior to the first public announcement relating to such Business Combination, is at least as great as the ratio of (c) the highest per-share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) which such ten percent (10%) Shareholder has paid for any shares of Common Stock acquired by it within the three-year period prior to the record date for determining shareholders entitled to vote on such Business Combination to (d) the market price of the Common Stock immediately prior to the initial acquisition by such ten percent (10%) Shareholder of any Common Stock. (2) The aggregate amount of the cash and fair market value of other consideration to be received in such Business Combination by the Corporation, a Subsidiary or the holders of Common Stock, as the case may be, divided by the number of shares of Common Stock issued and outstanding immediately prior to the first public announcement relating to such Business Combination, is not less than the highest per-share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid by such ten percent (10%) Shareholder for any block of Common Stock owned by it; and in addition is not less than the market price per share of Common Stock immediately prior to the first public announcement relating to such Business Combination. (3) The form of consideration to be received by holders of Common Stock in such Business Combination shall not be less favorable than the consideration paid by the ten percent (10%) Shareholder in acquiring the largest block of Common Stock already owned by it; (4) After such ten percent (10%) Shareholder has acquired ownership of not less than ten percent (10%) of the then outstanding Common Stock (a "10% Interest") and prior to the consummation of such Business Combination: (a) the ten percent (10%) Shareholder shall have taken all action necessary to ensure that the Corporation's Board of Directors included at all times representation by Continuing Director(s) (as hereinafter defined) proportionate to the ratio that the Voting Shares owned by persons who are not ten percent (10%) Shareholders ("Public Holders") bears to all Voting Shares outstanding at such respective times (with a Continuing Director to occupy any resulting fractional Board position); (b) such ten percent (10%) Shareholder shall not have acquired any newly issued shares of stock, directly or indirectly, from the Corporation (except upon conversion 4 of convertible securities acquired by it prior to obtaining a 10% Interest or as a result of a pro rata stock dividend or stock split); and (c) such ten percent (10%) Shareholder shall not have acquired any additional shares of the Corporation's outstanding Voting Shares except as a part of the transaction which resulted in such ten percent (10%) Shareholder acquiring its 10% Interest; (5) Prior to the consummation of such Business Combination, such ten percent (10%) Shareholder shall not have (a) received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation, or (b) made any major change in the Corporation's business or equity capital structure without the unanimous approval of the whole Board of Directors; and (6) A proxy statement meeting the requirements of the Securities Exchange Act of 1934 shall have been mailed to all holders of Voting Shares for the purpose of soliciting shareholder approval of such Business Combination. Such proxy statement shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the continuing Directors, or any of them, may have furnished in writing and an opinion of a reputable investment banking firm as to the fairness (or lack of fairness) of the terms of such Business Combination, from the point of view of the holders of Voting Shares other than any ten percent (10%) Shareholder (such investment banking firm to be selected by a majority of the Continuing Directors, to be furnished with all information it reasonably requests and to be paid a reasonable fee by the Corporation for its services upon receipt by the Corporation of such opinion). D. Any of the following which are not a Business Combination subject to the provisions of subparagraph B or subparagraph C of this Article 11 shall require the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all Shareholders are entitled to cast on the matter: (1) Any merger or consolidation of the Corporation with or into another Corporation; or (2) Any merger or consolidation of a Subsidiary with or into another Corporation if (i) the resulting, surviving or continuing Corporation, as the case may be, would not be a Subsidiary or (ii) the total number of shares of the Corporation issued or delivered in connection with such transaction, plus those initially issuable upon conversion of any other shares, securities or obligation to be issued in connection with such transaction, exceed fifteen percent (15%) of the shares of Common Stock of the Corporation outstanding immediately prior to the date on which such transaction is consummated; or (3) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all of the assets of the Corporation; or (4) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition of all or substantially all the assets of a Subsidiary whose total assets exceed twenty percent (20%) of the total assets of the Corporation as reflected on the most recent consolidated balance sheet of the Corporation; or 5 (5) Any sale of all or substantially all of the stock in a subsidiary whose total assets exceed twenty percent (20%) of the total assets of the Corporation as reflected on the most recent consolidated balance sheet of the Corporation. Provided, however, that the transaction described in Clauses 1 through 5, of this subparagraph D of Article 11 shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) and not seventy- five percent (75%) of the votes which all Shareholders are entitled to cast on the matter if the Board of Directors has by resolution authorized or ratified the execution and delivery of a written agreement in principle, memorandum of understanding or letter of intent respecting such transaction prior to the time that any party has presented such transaction to the shareholders of the Corporation for their consideration or approval. Transactions involving the Corporation or a Subsidiary which are not Business Combinations or which are not described in (1) through (5) of this subparagraph D of Article 11, shall require only such shareholder approval, if any, as may be required pursuant to the Business Corporation Law of Pennsylvania as in effect from time to time. E. Any plan or proposal for the liquidation or dissolution of the Corporation which would require or permit a distribution of any surplus remaining after paying off all debts and liabilities of the Corporation to the shareholders in accordance with their respective rights and preferences shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes which all Shareholders are entitled to cast on the matter; provided, the affirmative vote of the holders of at least eighty- five percent (85%) of the votes which all Shareholders are entitled to cast on the matter shall be required for any such plan or proposal which would permit such distribution to shareholders to be made other than in cash. F. For the purposes of this Article 11 and Article 12: (1) A "person" shall mean any individual group, firm, Corporation or other entity. (2) "10% Shareholder" shall mean, in respect of any Business Combination, any person (other than the Corporation or any Subsidiary) who or which, as of the record date for the determination of shareholders entitled to notice of and to vote on such Business Combination, or immediately prior to the consummating of any such transaction: (a) is the beneficial owner, directly or indirectly, of not less than ten percent (10%) of the outstanding Common Stock of the Corporation, or (b) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficiary owner, directly or indirectly, of not less than ten percent (10%) of the outstanding Common Stock of this Corporation, or (c) is an assignee of or has otherwise succeeded to any Common Stock which was at any time within two years prior thereto beneficially owned by any ten percent (10%) Shareholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. 6 (3) A person shall be the "beneficial owner" of any Common Stock: (a) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially own, directly or indirectly, or (b) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote, pursuant to any agreement, arrangement or understanding, or (c) which are beneficially owned, directly or indirectly, by any other person with which such first-mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Common Stock. (4) The outstanding Common Stock shall include shares deemed owned through application of Section 3 above but shall not include any other shares of Common Stock which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. (5) "Continuing Director" shall mean a person who was a member of the Board of Directors of the Corporation elected by the Holders of Common Stock prior to the date as of which any ten percent (10%) Shareholder acquired in excess of five percent (5%) of the then outstanding shares of Common Stock, or a person designated (before his initial election as a Director) as a Continuing Director by a majority of the then Continuing Directors. (6) "Affiliate" and "Associate" shall have the respective meanings given those terms in the General Rules and Regulations under the Securities Exchange Act of 1934. (7) "Subsidiary" means any corporation or entity of which a majority of any class of equity security (as defined in the General Rules and Regulations under the Securities Exchange Act of 1934) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of ten percent (10%) Shareholder set forth in Section 2 of this subparagraph F, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (8) "Voting Shares" shall mean any shares of the capital stock of the Corporation entitled to vote (irrespective of the number of votes which each such share is entitled to cast) generally in the election of Directors. G. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article 11, on the basis of information known to them, (1) the number of shares of Common Stock beneficially owned by any person, (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in Section 3 of subparagraph F., (4) the fair market value of consideration other than cash to be received in any Business Combination, (5) whether the form of consideration to be received by holder of Common Stock in a Business Combination is not less favorable than the consideration paid by a ten percent (10%) Shareholder in acquiring the largest block of Common Stock owned by it, and (6) 7 whether a ten percent (10%) Shareholder has taken all action necessary to ensure proportionate representation by Continuing Directors on the Board of Directors for purposes of clause 4(a) of subparagraph C of this Article 11. H. Nothing contained in this Article 11 shall be construed to relieve any ten percent (10%) Shareholder from any fiduciary obligation imposed by law. 12. Articles 7, 8, 9, 10 and 11 of these Articles of Incorporation, and this Article 12, may not be amended, altered, changed or repealed without the affirmative vote of holders of at least eighty-five percent (85%) of the votes which all shareholders are entitled to cast on the matter. Provided, however, that if the amendment, alteration, change or repeal of any of the aforesaid Articles is recommended to the shareholders by sixty-six and two-thirds percent (66 2/3%) of the whole Board of Directors, consisting entirely of Continuing Directors, then the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes which all Shareholders are entitled to cast on the matter shall be required. Article 5 of these Articles of Incorporation may not be amended, altered, changed or repealed without the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes which all shareholders are entitled to cast on the matter. 13. The Corporation shall, to the fullest extent permitted by applicable law, indemnify any and all persons whom it shall have the power to indemnify from and against any and all expenses, liabilities or other matter for which indemnification is permitted by applicable law, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 14. Each article of these Articles of Incorporation shall be considered separable and if for any reason any Article is determined to be invalid and contrary to any then existing law, such invalidity shall not impair the operation of or affect those Articles which are valid. 8 EXHIBIT "B" JUNIATA VALLEY FINANCIAL CORP. EMPLOYEE STOCK PURCHASE PLAN ARTICLE I-PURPOSE 1.01. Purpose The Juniata Valley Financial Corporation Employee Stock Purchase Plan will provide a method for employees of The Juniata Valley Bank to acquire a proprietary interest in Juniata Valley Financial Corporation. Under the Employee Stock Purchase Plan, participating employees may purchase shares of the Common Stock of Juniata Valley Financial Corporation. Juniata Valley Financial Corporation intends to have the Employee Stock Purchase Plan qualify as an "employee stock purchase plan" under (S)423 of the Internal Revenue Code of 1986, as amended. The Employee Stock Purchase Plan shall be construed to comply with the requirements of that section of the Internal Revenue Code. ARTICLE II-DEFINITIONS 2.01. Base Pay "Base Pay" means the regular straight-time earnings of an employee, excluding payments for overtime, shift premium, bonuses and other special payments, commissions and other marketing incentive payments. 2.02. Board of Directors "Board of Directors" means the Board of Directors of Juniata Valley Financial Corporation. 2.03. Code "Code" means the Internal Revenue Code of 1986, as amended. 2.04. Committee "Committee" means the committee administering the Employee Stock Purchase Plan, which is more fully described in Article XI. 2.05. Employee "Employee" means any person who is customarily employed on a fill-time or part-time basis by Juniata Valley Bank and is regularly scheduled to work more than 20 hours per week. 2.06. JVB "JVB" means The Juniata Valley Bank. 2.07. JVFC "JVFC" means Juniata Valley Financial Corporation. 2.08. Offerings "Offerings" means the annual offerings of JVFC's common stock. Each Offering will begin on July 1 and end on May 15 of the following year. 2.09. Offering Commencement Date "Offering Commencement Date" means July 1 of each year. 2.10. Offering Termination Date "Offering Termination Date" means May 15 of the year following the Offering Commencement Date. 2.11. Participant "Participant" means any eligible employee of JVB that has completed an authorization for payroll deduction on the form provided by JVB and filed the form with the Treasurer of JVFC.. 2.12. Plan "Plan" means the JVFC Employee Stock Purchase Plan. 2.13. Stock "Stock" means the common stock of JVFC. ARTICLE III-ELIGIBILITY AND PARTICIPATION 3.01. Initial Eligibility An employee is eligible to participate in the Plan if: (i) he or she has completed ninety (90) days' employment; and (ii) he or she is employed by JVB on the date the employee's participation in the Plan becomes effective. Eligible employees may participate in offerings -2- under the Plan which commence on or after the employee meets the eligibility requirements set forth in this section. 3.02. Leave of Absence For purposes of the Plan, a person on leave of absence will be considered an employee for the first 90 days of the leave of absence. The person's employment shall be considered terminated at the close of business on the 90th day of the leave of absence. Termination by JVB of any employee's leave of absence, other than termination of the leave of absence on return to full time or part time employment, will terminate the employee's participation in the Plan and the employee's right to exercise any option outstanding under the Plan. 3.03. Restrictions on Participation Any provision of the Plan to the contrary notwithstanding, an employee's participation in the Plan will be limited or prohibited: (a) if, because of participation the employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of JVFC (for purposes of this paragraph, the rules of (S)424(d) of the Code shall apply in determining stock ownership of any employee); or (b) if the Participant's rights to purchase stock under all employee stock purchase plans of JVFC would accrue at a rate which exceeds $25,000 for each calendar year determined by the fair market value of the stock at the time the option is granted. 3.04. Commencement of Participation An eligible employee may become a Participant by completing an authorization for a payroll deduction on the form provided by JVB and filing it with the Treasurer of JVFC. With respect to each Offering, the payroll deduction authorization must be received by JVFC on or before a date established by the Committee. For each Offering, payroll deductions for a Participant will commence on the applicable Offering Commencement Date, and will end on the Offering Termination Date, unless sooner terminated by the Participant as provided in Article VIII. ARTICLE IV-OFFERINGS 4.01. Annual Offerings The Plan will be implemented by annual Offerings of JVFC's Common Stock beginning on the 1st day of July in each year. Each Offering will terminate on May 15th of the following year. -3- ARTICLE V-PAYROLL DEDUCTIONS 5.01. Amount of Deduction At the time a Participant files the authorization for payroll deduction, he or she shall elect to have deductions made from his or her pay. The deductions shall be made on each payday during the time the employee is a Participant in an Offering. The rate of each deductions shall be at the rate of 2, 3, 4, 5, 6, 7, 8, 9 or 10% of the Participant's base pay in effect at the Offering Commencement Date. If the Participant is a part-time hourly employee, that employee's base pay during an Offering will be determined by multiplying the employee's hourly rate of pay in effect on the Offering Commencement Date by the number of regularly scheduled hours of work for the employee during the Offering. 5.02. Participant's Account All payroll deductions made for a Participant shall be credited to the Participant's account under the Plan. A Participant may make separate cash payments only as permitted by the Committee and permitted by (S) 5.04. 5.03. Changes in Payroll Deductions A Participant may discontinue participation in the Plan as provided in Article VIII. No other change can be made during an Offering. Specifically, a Participant may not alter the amount of his or her payroll deductions for that Offering. 5.04 Leave of Absence If a Participant goes on a leave of absence, that Participant will have the right to elect: (a) to withdraw the balance in his or her account pursuant to (S)7.02; (b) to discontinue contributions to the Plan but remain a Participant in the Plan; or (c) to remain a Participant in the Plan during the leave of absence, authorizing deductions to be made from payments by JVB to the Participant during the leave of absence and undertaking to make cash payments to the Plan at the end of each payroll period to the extent that amounts payable by JVB to the Participant are insufficient to meet the Participant's authorized Plan deductions. -4- ARTICLE VI-GRANTING OF OPTION 6.01. Number of Option Shares On the Commencement Date of each Offering, a Participant will be granted an option to purchase as many full shares of the Stock as he or she will be able to purchase with the aggregate sum of the payroll deduction deposited in his or her account during that Offering. 6.02. Option Price The option price of Stock purchased during each annual Offering for a Participant shall be a percentage between eighty-five (85%) percent and one hundred (100%) percent of the fair market value of the Stock on the Offering Commencement Date or the nearest prior business day to the Offering Commencement Date. The percentage used shall be in the sole and exclusive discretion of the Board of Directors. ARTICLE VII-EXERCISE OF OPTION 7.01. Automatic Exercise Unless a Participant gives written notice to the Treasurer of JVFC as provided in Section 7.02, the Participant's option for the purchase of Stock with payroll deductions made during any offering will be exercised automatically on the Offering Termination Date, for the purchase of the number of full shares of Stock which the balance in his or her account at that time will purchase at the applicable option price (but not in excess of the number of shares for which options have been granted to the employee pursuant to (S)6.01). Any excess in the account at that time will be returned to the Participant. 7.02. Withdrawal of Account By written notice to the Treasurer of JVFC, at any time prior to the Offering Termination Date applicable to any Offering, a Participant may elect to withdraw all the money in the Participant's account. 7.03. Fractional Shares Fractional shares will not be issued under the Plan. Any accumulated payroll deductions which would have been used to purchase fractional shares will be returned to any Participant promptly following the termination of an Offering. -5- 7.04. Transferability of Option During a Participant's lifetime, options held by the Participant shall be exercisable only by that Participant. 7.05. Delivery of Stock Within forty-five (45) days after the Offering Termination Date of each Offering, or as soon as practicable thereafter, JVFC will deliver to each Participant, as appropriate, the Stock purchased upon exercise of his or her option. ARTICLE VIII-WITHDRAWAL 8.01. In General A Participant may withdraw payroll deductions credited to his or her account under the Plan at any time (subject to Article 7.02) by giving written notice to the Treasurer of JVFC. All of the Participant's payroll deductions credited to his or her account will be paid to the Participant promptly after receipt of notice of withdrawal. No further payroll deductions will be made from the Participant's pay during such Offering. 8.02. Effect on Subsequent Participation A Participant's withdrawal from any Offering will not have any effect upon his or her eligibility to participate in any succeeding Offering or in any similar plan which may hereafter be adopted by JVFC. 8.03. Termination of Employment Upon termination of the Participant's employment for any reason, including retirement (but excluding death or continuation of a leave of absence for a period beyond 90 days), the Participant's participation in the Plan shall automatically terminate, the Participant shall not be entitled to purchase any shares at the end of the Offering, and the payroll deductions credited to the Participant's account will be returned to the Participant. 8.04. Termination of Employment Due to Death Upon termination of the Participant's employment because of death, the Participant's beneficiary (as defined in (S)12.01) shall have the right to elect, by written notice given to the Treasurer of JVFC prior to the earlier of the Offering Termination Date or the expiration of a period of sixty (60) days commencing with the date of death of the Participant, either: -6- (a) to withdraw all of the payroll deductions credited to the Participant's account under the Plan; or (b) to exercise the Participant's option for the purchase of Stock on the Offering Termination Date following the date of the Participant's death under the terms described in Article 7.01. In the event that no written notice of election is received by the Treasurer of JVFC, the beneficiary shall automatically be deemed to have elected pursuant to paragraph (b), to exercise the Participant's option. 8.05. Leave of Absence A Participant on leave of absence shall, subject to the election made by the Participant pursuant to (S)5.04, continue to be a Participant in the Plan so long as the Participant is on continuous leave of absence. A Participant who has been on leave of absence for more than 90 days will not be entitled to participate in any offering commencing after the 90th day of such leave of absence. Notwithstanding any other provisions of the Plan, unless a Participant on leave of absence returns to regular full time or part time employment with the JVB at the earlier of: (a) the termination of such leave of absence or (b) three months from the 90th day of the leave of absence, the Participant's participation in the Plan shall terminate on whichever of such dates first occurs. ARTICLE IX-INTEREST 9.01 Payment of Interest A Participant's account will be credited with simple interest computed at the regular statement savings account rate in effect at JVB during the applicable offering period ARTICLE X-STOCK 10.01 Maximum Shares The maximum number of shares which will be issued under the Plan, subject to adjustment upon changes in capitalization of JVFC as provided in (S)12.04 shall be 5000 shares in each annual Offering plus in each Offering all unissued shares from prior Offerings, whether offered or not, not to exceed 100,000 shares for all Offerings. If the total number of shares for which options are exercised on any Offering Termination Date in accordance with Article VI exceeds the maximum number of shares for the applicable Offering, JVFC shall make a pro rata allocation of the shares remaining available in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable. In such event, the balance of payroll deductions credited -7- to the account of each Participant under the Plan shall be returned to the Participant as promptly as possible. 10.02. Participant's Interest in Option Stock The Participant will have no interest in Stock covered by his or her option until the option has been exercised. 10.03. Registration of Stock Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant, or, if the Participant directs by written notice to the Treasurer of JVFC prior to the Offering Termination Date, in the names of the Participant and one such other person as may be designate by the Participant, as joint tenants with rights of survivorship or as tenants by the entireties, to the extent permitted by applicable law. ARTICLE XI-ADMINISTRATION 11.01. Appointment of Committee The Board of Directors shall appoint a committee (the "Committee") to administer the Plan. The Committee which shall consist of no fewer than three members of the Board of Directors. No member of the Committee shall be eligible to purchase stock under the Plan. 11.02. Authority of Committee The Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Plan, to adopt rules and regulations for administering the Plan, and to make all other determinations necessary or advisable for administering the Plan. The Committee's determination shall be conclusive. 11.03. Rules Governing the Administration of the Committee The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it shall deem advisable. Meetings by telephone are permissible. A majority of its members shall constitute a quorum. All decisions of the Committee shall be made by a majority of its members. The Committee may correct any defect or omission or reconcile any inconsistency in the Plan, in the manner and to the extent it shall deem desirable. Any decision or determination reduced to writing and signed by a majority of the members of the Committee will be as fully effective as if it had been made by a majority -8- vote at a meeting duly called and held. The Committee may appoint a secretary and shall make such rules and regulations for the conduct of its business as it shall deem advisable. ARTICLE XII-MISCELLANEOUS 12.01. Designation of Beneficiary A Participant may file a written designation of a beneficiary who is to receive any stock and/or cash in the event the Participant dies. A Participant may change the designated beneficiary at any time by written notice to the Treasurer of JVFC. In the event of the Participant's death prior to the delivery of Stock purchased pursuant to an Offering, JVFC will deliver the Stock, or any cash to which the Participant is entitled, to the joint tenant, if the Participant has designated a joint tenant as provided in Article 10.03. If there is no joint tenant, JVFC shall deliver the stock and/or cash to the designated beneficiary upon receipt by JVFC of proof of the identity and existence at the Participant's death of a beneficiary validly designated under the Plan. If a Participant dies and no living beneficiary has been validly designated under the Plan, JVFC shall deliver the stock and/or cash to the executor or administrator of the estate of the Participant. If there is no executor or administrator appointed (to the knowledge of JVFC), JVFC, in its discretion, may deliver the stock and/or cash to the spouse or to any one or more dependents of the Participant as JVFC may designate. No beneficiary shall, prior to death of the Participant by whom he has been designated, acquire any interest in the stock or cash credited to the Participant under the Plan. JVFC shall not be liable to any person for the delivery of stock and/or cash pursuant to the provisions of this Section 12.01. 12.02. Transferability In no event may any rights with regard to the exercise of an option or to receive stock under the Plan be assigned, transferred, pledged, or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that JVFC may treat such act as an election to withdraw funds in accordance with (S)7.02. 12.03. Use of Funds All payroll deductions received or held by JVFC under this Plan may be used by JVFC in the same manner as funds held in ordinary savings accounts at JVB are used. JVFC shall not be obligated to segregate payroll deductions. 12.04. Adjustment Upon Changes in Capitalization (a) If, while any options are outstanding, the outstanding shares of Common Stock of JVFC have increased, decreased, changed into, or been exchanged for a different number or kind -9- of shares or securities of JVFC through reorganization, stock split, reverse stock split or similar transaction, appropriate and proportionate adjustments may be made by the Committee. In addition, the number and/or kind of shares which may be offered in the Offerings described in Article IV hereof shall also be proportionately adjusted. No adjustments shall be made for stock dividends. For the purposes of this Paragraph, any distribution of shares to shareholders in an amount aggregating 20% or more of the outstanding shares shall be deemed a stock split and any distributions of shares aggregating less than 20% of the outstanding shares shall be deemed a stock dividend. (b) Upon the (i) dissolution or liquidation of JVFC; (ii) reorganization, merger or consolidation of JVFC with one or more corporations as a result of which JVFC is not the surviving corporation; or (iii) upon a sale of substantially all of the property or stock of JVFC to another corporation, the holder of each option then outstanding under the Plan will thereafter be entitled to receive at the next Offering Termination Date upon the exercise of such option for each share as to which such option shall be exercised, as nearly as reasonably may be determined, the cash, securities and/or property which a holder of one share of the Common stock was entitled to receive upon and at the time of such transaction. The Board of Directors shall take such steps in connection with such transactions as the Board shall deem necessary to assure that the provisions of this (S)12.04 shall thereafter be applicable, as nearly as reasonably may be determined, in relation to the said cash, securities and/or property as to which such holder of such option might thereafter be entitled to receive. 12.05. Amendment and Termination The Board of Directors shall have complete power and authority to terminate or amend the Plan. The Board of Directors shall not, without the approval of the stockholders of the Corporation (i) increase the maximum number of shares which may be issued under any Offering (except pursuant to (S)12.04); (ii) amend the requirements as to the class of employees eligible to purchase stock under the Plan or permit the members of the Committee to purchase stock under the Plan. No termination, modification, or amendment of the Plan may, without the consent of an employee then having an option under the Plan to purchase stock, adversely affect the rights of such employee under such option. 12.06. Effective Date The Plan shall become effective as of July 1, 1996, subject to approval by the holders of the majority of the Stock present and represented at the 1996 annual meeting of the shareholders. If the Plan is not approved, the Plan shall not become effective. - 10 - 12.07. No Employment Rights The Plan does not, directly or indirectly, create any right for the benefit of any employee or class of employees to purchase any shares under the Plan, or create in any employee or class of employees any right with respect to continuation of employment by JVB. The Plan shall not be deemed to interfere in any way with JVB's right to terminate, or otherwise modify, an employee's employment at any time. 12.08. Effect of Plan The provisions of the Plan will be binding upon all successors of each employee participating in the Plan, including, without limitation, the employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of the employee. 12.09. Governing Law The law of the State of Pennsylvania will govern all matters relating to this Plan except to the extent it is superseded by the laws of the United States. - 11 - EX-13 3 [LOGO OF JUNIATA VALLEY FINANCIAL CORP. APPEARS HERE] Mifflintown, Pennsylvania 17059 1995 Annual Report JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK DECEMBER 31, 1995 CONTENTS Page Letter to Shareholders............................................................................. 3 Corporation Officers and Directors................................................................. 4 Bank Officers & Advisory Board Members............................................................. 5 Business...................................................................................... 6 - 12 Financial Highlights.............................................................................. 13 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 14 - 26 Report of Independent Auditors.................................................................... 27 Financial Statements: Consolidated Balance Sheets................................................................... 28 Consolidated Statements of Income............................................................. 29 Consolidated Statements of Stockholders' Equity............................................... 30 Consolidated Statements of Cash Flows......................................................... 31 Notes to Consolidated Financial Statements............................................... 32 - 43
[LOGO OF JUNIATA VALLEY FINANCIAL CORP. APPEARS HERE] ------------------------------- MIFFLINTOWN, PENNSYLVANIA 17059 ------------------------------- POST OFFICE BOX 66 TELEPHONE (717) 436-8211 March 14, 1996 Dear Shareholder, We are proud to present this Annual Report for 1995. Once again Juniata Valley Financial Corp. had record profits. Darwin C. Pomeroy has decided to not seek re-election for Director. Mr. Pomeroy has served as a Director since 1966. He will be missed for his insight and unselfish dedication to this organization. As always, I would like you to know that this excellent report would not be possible without dedicated officers and employees. Many of us have worked together for over twenty years. Our wish is that all of you continue to recommend your organization to your friends. Without your support, we could not prosper. Sincerely; /s/ A. Jerome Cook A. Jerome Cook President AJC:rhn -3- Juniata Valley Financial Corp. Officers Harry B. Fairman, Jr. Ronald H. Witherite Chairman Vice Chairman, Secretary A. Jerome Cook Linda L. Engle President Treasurer Directors A. Jerome Cook Dale G. Nace President, The Juniata Valley Bank Owner, Glenn Nace Plumbing & Heating; GlenDale Storage Harry B. Fairman, Jr. President, Hilltop Oil, Inc. Darwin C. Pomeroy Retired Sales Engineer John E. Groninger Bethlehem Steel Co. President, John E. Groninger, Inc. Contractor, Director of John A. Renninger Consumers Financial Corp. President, A. D. Renninger Lumber Company Karl E. Guss Funeral Director Edward R. Rhodes Guss Funeral Home Senior Partner, E. R. Rhodes & Son Don E. Haubert Harold B. Shearer CEO and Chairman of the Board Self-employed Farmer S & A Custom Built Homes, Inc. Contractor, Mifflintown, PA Ronald H. Witherite Owner, Ron's IGA Fruit Market, Inc. NOTE: Above Directors also comprise the Board of Directors for The Juniata Valley Bank - -4- THE JUNIATA VALLEY BANK OFFICERS A Wholly-Owned Subsidiary of Juniata Valley Financial Corp MIFFLINTOWN OFFICE A. Jerome Cook....................................................President Helen L. Sieber..................Vice President & Community Officer Manager Jeffrey A. Pottorff............................Auditor & Compliance Officer Paul M. Lipka.............................................Marketing Officer Ruth H. Nace............................................Executive Secretary ADMINISTRATION Donald L. Musser.........................Sr. Vice President, Administration CONTROLLER Linda L. Engle..................Sr. Vice President, Chief Financial Officer Anna Mae Peoples.......................Vice President, Assistant Controller LOANS Edward L. Kauffman..................Sr. Vice President, Loan Administration Scott E. Nace..................................Vice President, Loan Officer David A. Pecht.............................................Sr. Loan Officer Loretta A. Saylor..............................................Loan Officer OPERATIONS Judy R. Aumiller.............................Sr. Vice President, Operations Deborah A. Sheaffer......................................Operations Officer Kathy D. Hutchinson....................Assistant Vice President, Operations TRUST Terry S. Love.............................Sr. Vice President, Trust Officer Cynthia L. Williams...........................................Trust Officer BLAIRS MILLS OFFICE C. Roger Searer..................Vice President & Community Officer Manager Wanda K. Rowles....................................Customer Service Officer GARDENVIEW OFFICE M. Randall French.................Vice President & Community Office Manager LEWISTOWN OFFICE R. Jack Morgan....................Vice President & Community Office Manager Lee Ellen Foose....................................Customer Service Officer McALISTERVILLE OFFICE Joseph D. Ritzman.................Vice President & Community Office Manager Leslie A. Miller...................................Customer Service Officer MILLERSTOWN OFFICE James A. Witmer...................Vice President & Community Office Manager Barbara I. Seaman..................................Customer Service Officer MOUNTAIN VIEW OFFICE Connie C. Benner..................Vice President & Community Office Manager PORT ROYAL OFFICE Betty D. Ryan......................................Community Office Manager Larry B. Cottrill, Jr..............................Customer Service Officer ADVISORY BOARD MEMBERS BLAIRS MILLS OFFICE PORT ROYAL OFFICE McALISTERVILLE OFFICE Wayde H. Cisney Clinton F. Bashore Clair Ehrenzeller William R. Goshorn Norman D. Clark Clair S. Graybill Hays I. Lauthers Martin L. Dreibelbis Samuel E. Knouse George Love Richard J. Junk Ralph E. Rickenbaugh C. Roger Searer Dennis A. Long Joseph D. Ritzman Freeburn Love Richard J. Sankey Earl J. Wagner LEWISTOWN OFFICE MILLERSTOWN OFFICE GARDENVIEW OFFICE William H.Bradford R. Franklin Campbell David B. Esh William R. Carter Lowell R. Frantz, C.L.U. M. Randall French Sharon D. Havice Gerald M. Lyter H. Ross Harshbarger R. Jack Morgan James A. Witmer Donald R. Hartzler Harry F. Stimely Gary G. Wright Jerry L. Wagner Frank A. Zampelli -5- 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 eight branch banking offices and one trust service office. At December 31, 1995, the Bank had 100 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, 1995, the Bank had four offices in Juniata County, one office in Perry County, two offices in Mifflin County and one office in Huntingdon County. COMPETITION The Bank's principal market area includes all of Mifflin and Juniata Counties, and portions of Perry, Huntingdon, 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 sixth in assets as of December 31, 1995. Additionally, the Bank has been subjected to competition from non-bank firms, such as savings and loans, credit unions, brokerage firms, insurance companies, mutual fund companies, consumer finance and credit card firms, retail and manufacturing conglomerates, and other firms providing financial services and credit to customers. Although many non-bank industries now offer services traditionally provided only by banks, banks are constrained by costly regulations and time-worn laws to compete effectively against non-bank providers of financial services. However, the Bank strives to remain competitive with respect to interest rates, service fees and service quality in order to achieve continued growth and success in its market. The Bank also continues to develop and strengthen its strong ties to the communities it serves, relying on the unique and strong relationship that a community bank has with its customers and community by providing excellent, personal customer service. The deposit base of The Juniata Valley Bank is such that the loss of one depositor or a related group of depositors would not have a dramatically adverse effect on the Bank's business. In addition, the loan portfolio is very well diversified, so that one industry or group or related industries does not comprise a material portion of total loans outstanding. The Bank's business is not seasonal, nor does it have any risks attendant to foreign sources. SUPERVISION AND REGULATION Juniata Valley Financial Corp. operates in a highly regulated industry, and thus may be affected by changes in state and federal regulations and legislation. As a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the Act), the Corporation is subject to supervision and examination by the Board of Governors of the Federal Reserve System and is required to file with the Federal Reserve Board quarterly reports and information regarding its business operations and those of its subsidiary. The Act requires the Corporation to obtain Federal Reserve approval before: acquiring more than five percent ownership interest in any class of the voting securities of any bank; acquiring all or substantially all of the assets of a bank; or, merging or consolidating with another bank holding company. In addition, the Act prohibits a bank holding company from acquiring the assets, or more than five percent of the voting securities, of a bank located in another state, unless such acquisition is specifically authorized by the statutes of the state in which the bank is located. A bank holding company is normally not permitted to acquire direct or indirect ownership of more than five percent of any class of voting securities of any company that is not a bank or not engaged in activities determined by the Federal Reserve Board regulations, activities deemed to be closely related to banking including such ventures as consumer finance, equipment leasing, certain data processing services, mortgage banking and investment advisory services. The act does not place geographic restrictions on the activities of non-bank subsidiaries of bank holding companies. 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. - -6- JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK BUSINESS SUPERVISION AND REGULATION (CONTINUED) 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.
December 31, ------------ 1995 1994 ------ ------ Risk-weighted assets ratio: Tier I 18.24% 17.16% Total 19.45% 18.34% Total assets leverage ratio: Tier I 12.41% 11.47%
SECURITIES PORTFOLIO The following table sets forth the dollar amount of securities at the dates indicated:
December 31, ------------ 1995 1994 1993 ------- ------- ------- (In Thousands) Available for sale securities: U.S. Treasury and other U.S. government obligations $ 9,585 $ 486 $ - States and political subdivisions 3,683 2,999 - Other corporate 3,168 1,143 - Mortgage-backed 6,971 7,514 - Equity 1,098 915 - ------- ------- ------- 24,505 13,057 - Held to maturity securities: U.S. Treasury and other U.S. government obligations 5,751 7,490 6,531 States and political subdivisions 20,448 22,265 27,822 Other corporate 16,472 14,402 14,268 Mortgage-backed - - 10,464 Equity - - 847 ------- ------- ------- 42,671 44,157 59,932 ------- ------- ------- Total securities $67,176 $57,214 $59,932 ======= ======= =======
-7- 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, 1995 and the weighted average yields of such securities by contractual maturities or call dates. Mortgage-backed securities with contractual maturities after ten years from December 31, 1995, 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 $ 3,521 6.57% $ 6,064 6.31% $ -- -- $ -- -- State and political subdivisions 1,282 4.11 1,382 4.71 754 6.23% 265 6.50% Other corporate -- -- 3,168 6.07 -- -- -- -- Mortgage-backed 209 5.54 2,862 6.16 174 5.63 3,726 6.46 ------- ------- ------- ------- 5,012 13,476 928 3,991 Held to maturity: U.S. Treasury and other U.S. government agencies 2,000 5.75 3,751 5.83 -- -- -- -- State and political subdivisions 5,223 5.38 14,660 4.78 225 6.63 340 5.40 Other corporate 2,144 5.22 14,114 6.21 -- -- 214 6.67 ------- ------- ------- ------- 9,367 32,525 225 554 ------- ------- ------- ------- Total $14,379 $46,001 $1,153 $4,545 ======= ======= ====== ======
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 as increases or decreases in stockholders' equity, net of 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. - -8- 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 declined as a percentage of total loans over the past three years. The Bank prudently evaluates loans in this category and generally secures such lending with collateral consisting of real and/or tangible personal property. All lending is granted on a variable rate basis except consumer loans which are fixed rate. Consumer loans, consisting of approximately seventeen percent of total loans, average a three 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 ------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (In Thousands) Commercial, financial and agricultural $ 11,843 $ 14,472 $ 19,361 $ 24,156 $ 25,392 Real estate mortgage 88,593 86,316 75,613 71,152 63,691 Consumer (less unearned discount) 21,019 20,917 18,792 17,508 18,393 All other 1,483 1,486 1,968 1,341 1,361 -------- -------- -------- -------- -------- Total loans $122,938 $123,191 $115,734 $114,157 $108,837 ======== ======== ======== ======== ========
This table shows the maturity of loans (excluding residential mortgages of 1-4 family residences and consumer loans) outstanding as of December 31, 1995.
Maturing Maturing Maturing During From 1997 After 1996 Thru 1998 1998 Total -------- --------- -------- -------- (In Thousands) Commercial, agricultural and financial $11,843 $ -- $ -- $11,843 All other 1,483 -- -- 1,483 ------- ------ ------ ------- Total loans $13,326 $ -- $ -- $13,326 ======= ====== ====== =======
-9- 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, ------------ 1995 1994 1993 1992 1991 --------- --------- ---------- --------- --------- (In Thousands) Average loans outstanding $121,193 $116,805 $114,896 $111,741 $105,291 ======== ======== ======== ======== ======== Nonaccrual loans $ 390 $ 433 $ 105 $ 92 $ 161 Accruing loans past due 90 days or more 462 166 177 796 640 Restructured loans -- -- -- -- -- -------- -------- -------- -------- -------- Total $ 852 $ 599 $ 282 $ 888 $ 801 ======== ======== ======== ======== ======== Ratio of non-performing loans to average loans outstanding .70% .51% .25% .79% .76% Information with respect to nonaccrual and restructured loans at December 31, 1995 1994 1993 1992 1991 -------- -------- -------- -------- --------- (In Thousands) Nonaccrual loans $ 390 $ 433 $ 105 $ 92 $ 161 Restructured loans -- -- -- -- -- Interest income that would have been recorded under original terms 37 28 12 11 19 Interest income recorded during the period 5 9 -- -- -- Commitments to lend additional funds -- -- -- -- --
$390,000 of the nonaccrual loans at December 31, 1995, are secured by real estate or otherwise guaranteed as to repayment. The majority of the nonaccrual balance relates to one borrower. - -10- 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,
1995 1994 1993 1992 1991 ------------- ------------ ------------ ------------ ------------ (In Thousands) Average loans outstanding $121,193 $116,805 $114,896 $111,741 $105,291 ======== ======== ======== ======== ======== Allowance for loan loss January 1 $ 1,523 $ 1,458 $ 1,363 $ 1,304 $ 1,294 Losses charged to allowance Commercial 12 - 19 59 131 Real estate 28 92 66 14 18 Consumer 55 86 79 71 138 --------- ---------- ---------- ---------- ---------- 95 178 164 144 287 Recoveries credited to allowance --------- ---------- ---------- ---------- ---------- Commercial 3 - 2 13 27 Real estate 42 2 10 2 3 Consumer 8 21 27 8 25 --------- ---------- ---------- ---------- ---------- 53 23 39 23 55 --------- ---------- ---------- ---------- ---------- Net charge-offs 42 155 125 121 232 Provision for possible loan losses 135 220 220 180 242 --------- ---------- ---------- ---------- ---------- Allowance for loan losses December 31 $ 1,616 $ 1,523 $ 1,458 $ 1,363 $ 1,304 ======== ========== ========== ========== ========== Ratio of net charge-offs to average loans outstanding .03% .13% .11% .11% .22%
The amount charged to operations and the related balance in the allowance for loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience and management's estimate of future potential losses. This table shows an allocation of the allowance for loan losses as of the end of each of the last five years.
1995 1994 1993 1992 1991 --------- --------- --------- --------- --------- (In Thousands) % of % of % of % of % of Amount Loan Amount Loan Amount Loan Amount Loan Amount Loan -------- -------- --------- -------- --------- -------- --------- -------- --------- ---------- Commercial $ 321 9.6% $ 303 11.7% $ 385 4.3% $ 408 21.7% $ 380 22.5% Real estate 322 72.1 298 70.1 243 77.1 164 62.6 160 56.6 Consumer 443 18.3 468 18.2 410 18.6 395 15.7 370 20.9 Unallocated 530 -- 454 -- 420 -- 396 -- 394 -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------- Total $1,616 100% $1,523 100% $1,458 100% $1,363 100% $1,304 100% ====== ===== ====== ===== ====== ===== ====== ===== ====== ======
-11- 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 50% of the total loan portfolio, historically these accounts have resulted in marginal loss. Therefore management's evaluation of the loan portfolio indicates a relatively low allocation of the allowance for this category of loans. In addition to management's regular reviews, the results of normal examination of the loan portfolio by representatives of regulatory agencies and the Bank's independent accountants are also considered in determining the level at which the allowance should be maintained. There are no material loans classified for regulatory purposes as loss, doubtful, substandard or special mention which management expects to impact future operating results, liquidity or capital resources. Additionally, management is not aware of any information that would give serious doubt as to the ability of its borrowers to substantially comply with loan repayment terms. Highly leveraged transactions (HLTS) generally include loans and commitments made in connection with recapitalizations, acquisitions and leveraged buyouts, and result in the borrowers debt-to-total assets ratio exceeding 75%. The Bank has no loans at December 31, 1995, that qualified as HLTS. DEPOSITS The average daily amount of deposits and rates paid on such deposits is summarized for December 31, indicated in the following table:
1995 1994 1993 ---- ---- ---- Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (In Thousands) Non-interest bearing demand $ 19,182 $ 18,562 $ 17,259 Interest bearing demand 25,505 2.45% 30,051 2.43% 29,610 2.64% Savings deposits 22,183 2.86 24,794 2.85 23,186 3.09 Time deposits 103,793 5.50 95,043 4.60 95,464 4.79 -------- -------- -------- Total $170,663 $168,450 $165,519 ======== ======== ========
As of December 31, 1995, certificates of deposit outstanding in an individual amount of $100,000 or more totalled $13,283,000. 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) $3,235 $1,890 $1,239 $6,919 ====== ====== ====== ======
- -12- JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY THE JUNIATA VALLEY BANK FIVE YEAR FINANCIAL HIGHLIGHTS . SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- BALANCE SHEET DATA (In Thousands) Assets $ 205,878 $ 190,176 $ 189,776 $ 185,958 $ 174,454 Deposits 178,153 165,151 166,542 165,698 155,702 Loans receivable 121,322 121,668 114,276 112,794 107,533 Securities 67,176 57,214 59,932 57,183 54,885 Stockholders' equity 24,723 22,434 20,803 18,578 16,987 Average equity 23,316 21,363 19,497 17,709 16,153 Average assets 197,168 192,759 187,603 181,390 170,202 EARNINGS DATA (In Thousands) Interest income $ 15,070 $ 13,972 $ 14,090 $ 14,686 $ 15,805 Interest expense 6,970 5,813 6,073 7,337 8,920 ---------- ---------- ---------- ---------- ---------- Net interest income 8,100 8,159 8,017 7,349 6,885 Provision for loan losses 135 220 220 180 242 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 7,965 7,939 7,797 7,169 6,643 Other operating income 581 551 518 468 467 Other operating expenses 5,106 5,146 5,237 4,897 4,535 ---------- ---------- ---------- ---------- ---------- Income before income tax provision 3,440 3,344 3,078 2,740 2,575 Income tax provision 780 791 697 518 448 ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of change in accounting principle 2,660 2,553 2,381 2,222 2,127 Net income $ 2,660 $ 2,553 $ 2,934 $ 2,222 $ 2,127 RATIOS Return on average assets 1.35% 1.32% 1.27% (1) 1.22% 1.25% Return on average equity 11.41 11.94 12.21 (1) 12.55 13.17 Equity to assets (year end) 12.01 11.80 10.27 9.99 9.26 Loans to deposits (year end) 68.10 73.67 68.62 68.07 69.06 Dividend payout (percentage of income) 29.14 29.18 28.60 28.58 27.74 *PER SHARE DATA Income before cumulative effect of change in accounting principle 2.39 2.29 2.14 2.00 1.91 Net Income 2.39 2.29 2.64 2.00 1.91 Cash dividends .70 .67 .62 .57 .53 Book value 22.21 20.16 18.69 16.69 15.26 Average shares outstanding 1,113,001 1,113,001 1,113,001 1,113,001 1,113,001 Approximate number of stockholders 1,066 1,089 1,021 987 965
*Outstanding and per-share information for all years presented has been restated to give effect to the 5-for-4 stock split in the form of a 25% stock dividend issued January 9, 1996, and on October 26, 1994, and three 10% stock dividends issued on September 30, 1993, February 26, 1993 and September 15, 1992. (1) Excluding the cumulative effect of change in accounting principle of $553,000 or $.62 per share. -13- MANAGEMENT'S DISCUSSION AND ANALYSIS The purpose of this discussion is to focus on information about the Corporation's financial condition and results of operations which is not otherwise apparent from the consolidated financial statements included in this annual report. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis. - -------------------------------------------------------------------------------- FINANCIAL CONDITION - -------------------------------------------------------------------------------- SOURCES AND USES OF FUNDS TRENDS
1995 Increase (Decrease) 1994 Increase (Decrease) 1993 Average -------- ---------- Average -------- ---------- Average Balance Amount % Balance Amount % Balance ------- -------- --- ------- -------- --- ------- (Thousands of Dollars) Funding uses: Interest earning assets: Loans: Commercial $ 41,243 $ (98) (.24)% $ 41,341 $(3,827) (8.47)% $ 45,168 Mortgage 57,254 3,002 5.53 54,252 3,092 6.05 51,160 Consumer 22,696 1,484 7.00 21,212 2,644 14.24 18,568 -------- ------- -------- ------- -------- 121,193 4,388 3.76 116,805 1,909 1.66 114,896 Less: Allowance for loan losses (1,576) (70) 4.65 (1,506) (97) 6.97 (1,409) -------- ------- -------- ------- -------- 119,617 4,318 3.75 115,299 1,812 1.60 113,487 Securities 62,860 (1,652) (2.56) 64,512 4,514 7.52 59,998 Funds sold 3,993 1,361 51.71 2,632 (1,847) (41.24) 4,479 -------- ------- -------- ------- -------- 66,853 (291) (.43) 67,144 2,667 4.14 64,477 Total interest earning assets 186,470 4,027 2.21 182,443 4,479 2.52 177,964 Other assets 10,698 382 3.70 10,316 677 7.02 9,639 -------- ------- -------- ------- -------- Total uses $197,168 $ 4,409 2.29 $192,759 $5,156 2.75 $187,603 ======== ======= ======== ======= ======== Funding sources: Deposits: Demand $ 19,182 $ 620 3.34 $ 18,562 $ 1,303 7.55 $ 17,259 Interest bearing demand 25,505 (4,546) (15.13) 30,051 441 1.49 29,610 Savings 22,183 (2,611) (10.53) 24,794 1,608 6.94 23,186 Time under $100,000 91,447 7,165 8.50 84,282 (466) (.55) 84,748 -------- ------- -------- ------- -------- Total core deposits 158,317 628 .40 157,689 2,886 1.86 154,803 Time over $100,000 12,346 1,585 14.73 10,761 45 .42 10,716 -------- ------- -------- ------- -------- Total deposits 170,663 2,213 1.31 168,450 2,931 1.77 165,519 Other liabilities 3,189 243 8.25 2,946 359 13.88 2,587 Stockholders' equity 23,316 1,953 9.14 21,363 1,866 9.57 19,497 -------- ------- -------- ------- -------- Total sources $197,168 $ 4,409 2.29 $192,759 $ 5,156 2.75 $187,603 ======== ======= ======== ======= ========
- -14- MANAGEMENT'S DISCUSSION AND ANALYSIS ---------------------------------------------------------------- FINANCIAL CONDITION (Continued) ---------------------------------------------------------------- The Corporation functions as a financial intermediary and as such its financial condition should be examined in terms of trends in its sources and uses of funds. The following comparison of daily averages balances indicates how the Corporation has managed its sources and uses of funds. Juniata Valley Financial Corp.'s primary source of funds is core deposits. Over the past several years, the composition of the Corporation's deposits has changed significantly due to volatile interest rates. Growth in 1995 occurred in two funding sources with the majority of this growth coming from time deposits under $100,000; whereas growth in 1994 occurred in all funding sources except time deposits under $100,000. Time deposits under $100,000 increased 8.50% from 1994 to 1995 and decreased .55% from 1993 to 1994. Demand deposits increased 3.34% from 1994 to 1995 and 7.55% from 1993 to 1994. A decrease was experienced in interest bearing demand of 15.13% from 1994 to 1995 and an increase of 1.49% was shown in 1994 over 1993. Savings decreased from 1994 to 1995 by 10.53% but increased 6.94% from 1993 to 1994. On average during 1995, core deposits experienced a slight increase of $628,000. The Corporation's ability to maintain its core deposit base despite the volatile interest rates and nonbank influences in the market area, reflects the Corporation's strong customer base. The largest category of core deposits and the primary source of funds, continues to be time deposits under $100,000. This category includes certificates of deposit, which allow customers to invest their funds at selected maturities ranging from 6 months to 5 years and individual retirement accounts. A disintermediation between time deposits under $100,000 and savings deposits has been experienced for several years; this trend was not as significant in 1994. At the beginning of the year in 1995, interest rates being offered on certificates of deposits increased. These higher rates being offered lured customers to commit to reinvest their money market and saving accounts into certificates of deposit. The Corporation uses its funds primarily to support its lending activities. Total net loans increased by $4,318,000 or 3.75% in 1995. This compares to a $1,812,000 or 1.60% increase during the prior year. The largest increase in both years was in consumer loans, $1,484,000 or 7.00% from 1994 to 1995 and $2,644,000 or 14.24% from 1993 to 1994. Mortgage loans, the largest category, increased $3,002,000 or 5.53% from 1994 to 1995 and $3,092,000 or 6.05% from 1993 to 1994. In both years a decrease was experienced in commercial loans .24% or $98,000 in 1995 over 1994, and 8.47% or $3,827,000 in 1994 over 1993. Consumer loans which consist primarily of loans made to individuals on an installment basis grew because of favorable loan rates being offered especially on new and used vehicles. The increase in mortgage loans is due to the refinancing of existing mortgages as well as first time home buyers. Other consumers took this opportunity to renovate their existing homes and consolidate other debt into residential mortgages. Commercial loans are typically made to small businesses in our market place. There has been very little growth in this market with many small businesses preferring other loan products the Bank has to offer. The Corporation's securities portfolio experienced a decline during 1995 of $1,652,000 compared to an increase of $4,514,000 in 1994. The Corporation's securities portfolio is comprised of U.S. government and federal agencies, tax- exempt issues of states and municipalities, other corporate bonds and mortgage- backed securities. --------------------------------------------------------------------- RESULTS OF OPERATIONS INCOME --------------------------------------------------------------------- Juniata Valley Financial Corp. reported net income for 1995 of $2,660,000, an increase of 4.19% from the $2,553,000 net income reported in 1994 and a decrease of 9.34% compared to 1993 earnings of $2,934,000. 1993's net income was positively impacted by $553,000 due to the cumulative effect of adopting a change in the method of accounting for income taxes. Earnings per share was $2.39 in 1995 an increase of $.10 from 1994 and a decrease of $.25 from 1993. [BAR GRAPH APPEARS HERE]
INCOME 1991 2127 1992 2222 1993 2381 1994 2553 1995 2660
-15- MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) ------------------------------------------------------------------- The two most widely recognized performance ratios 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 11.41% in 1995, compared to 11.94% in 1994 and 12.21% in 1993 (excluding the cumulative effect of a change in accounting principle). [GRAPH OF RETURN ON AVERAGE EQUITY APPEARS HERE]
RETURN ON AVERAGE EQUITY 1991 13.17 1992 12.55 1993 12.21 1994 11.94 1995 11.41
Return on average assets ratio presents the income for the year compared to the average assets maintained throughout the year. The return on average assets was 1.35% in 1995, compared to 1.32% in 1994 and 1.27% in 1993 (excluding the cumulative effect of a change in accounting principle). [GRAPH OF RETURN ON AVERAGE ASSETS APPEARS HERE]
RETURN ON AVERAGE ASSETS 1991 1.25 1992 1.22 1993 1.27 1994 1.32 1995 1.35
The Board of Directors continued to increase the cash dividends paid to stockholders. On a per share basis $.70 was paid in 1995, up 4.48% from the $.67 paid in 1994 and up 12.90% over the $.62 paid in 1993. Along with increases in cash dividends, two 5-for-4 stock splits in the form of 25% stock dividends were issued on January 9, 1996, and October 26, 1994. This followed three 10% stock dividends that were paid on February 26 and September 30, 1993, and September 15, 1992. After giving effect to these stock splits and stock dividends, the market price per share increased from $28.80 at December 31, 1994, to $35.00 at December 31, 1995. [GRAPH OF CASH DIVIDENDS PER SHARE APPEARS HERE]
CASH DIVIDENDS PER SHARE 1991 0.53 1992 0.57 1993 0.62 1994 0.67 1995 0.70
While increasing the dividends, the Corporation was able to increase Stockholders' equity to assets (the capital ratio) to 12.01% at December 31, 1995, up from 11.80% in 1994 and 10.27% in 1993. This indicates the continued strength of the Corporation to build Stockholder wealth. [GRAPH OF EQUITY TO ASSETS APPEARS HERE]
EQUITY TO ASSETS 1991 9.26 1992 9.99 1993 10.27 1994 11.80 1995 12.01
The Corporation has realized steady growth over the past two years. Assets at December 31, 1995 were $205,878,000 an increase of $15,702,000 or 8.26% compared to 1994 assets of $190,176,000. Assets for 1994 grew $400,000 or .21% compared to 1993 assets of $189,776,000. [GRAPH OF ASSETS APPEARS HERE]
ASSETS 1991 174454 1992 185958 1993 189776 1994 190176 1995 205878
- -16- MANAGEMENT'S DISCUSSION AND ANALYSIS ----------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) ----------------------------------------------------------------- The Juniata Valley Bank's allowance for loan losses was $1616,000 in 1995, $1,523,000 in 1994 and $1,458,000 in 1993. The provision provided in each of those years was $135,000 in 1995 and $220,000 in both 1994 and 1993. The provision for loan losses exceeded net charge-offs by 221.43%, 41.94%, and 76.00% in 1995, 1994 and 1993, respectively. In 1995 net charge-offs were .03% of average loans outstanding. In 1994 and 1993 net charge-offs were .13% and .11% of average loans outstanding, respectively. Other income increased $30,000 or 5.44% over 1994. From 1993 to 1994 the increase was $33,000 or 6.37%. The increase in 1995 was attributable to trust department income increasing $12,000 due to the settlement of two large estates. This contrasts a decline in trust department income from 1994 to 1993 of $24,000. This was due to settling three large estates in 1993 over 1994. Other service charges, commissions and fees increased $10,000 or 5.71% over 1994 which increased $32,000 over 1993. The increase in 1995 can be attributed to an increase in commissions earned as a result of increased volume. Customer service fees increased $1,000 or .45% from 1994 to 1995. Customer service fees increased $16,000 or 7.77% from 1993 to 1994. In total, other expenses decreased $40,000 or .78% over 1994. This compares to a decline of $91,000 from 1993 to 1994. The $69,000 increase in salaries and wages can be attributed to annual merit increases and promotions of employees. This compares to an increase of $59,000 in salaries and wages for 1994 over 1993. In 1995 employee benefits decreased $15,000 or 2.58%. This was due to a decrease in the price of the benefits provided as opposed to decreased benefits. There was an increase in employee benefits of $21,000 from 1993 to 1994. Equipment expense decreased by $78,000 or 20.53% from 1994 to 1995. This can be attributed to the expiration of a lease and a less costly replacement lease. There was no change between 1993 and 1994. Federal deposit insurance premiums decreased $184,000 or 48.94% in 1995. As a result of an industry wide funding of the federal deposit insurance reserves, a refund of deposit insurance premiums previously paid of $105,000 was received and the Bank experienced a decrease in the assessment rate from $.23 to $.04 per $100 of insured deposits effective September 30, 1995. The effect of the decrease in the deposit insurance premium assessment rate will continue to have a favorable impact to the bank in the future. The 1996 premium for the Bank will be at the statutory minimum of $2,000 based on the Bank being well-capitalized. After a decrease of $41,000 in 1994 in director compensation, there was a slight increase in 1995 of $13,000 or 3.49%. The $133,000 increase in the other category is attributable to a $15,000 consulting fee; $22,000 increase in examination fees by the Pennsylvania Department of Banking; a $15,000 increase in errors and omissions insurance costs; and a $30,000 increase in repossession and loan collection expense. Management is not aware of any known trends, events or uncertainties that will have or that are reasonably likely to have material adverse effects on liquidity, capital resources or operations of the Corporation. -17- - -------------------------------------------------------------------------------- TABLE 1 - ANALYSIS OF NET INTEREST INCOME - -------------------------------------------------------------------------------- Table 1 presents average balances, interest income and expense and the yields earned or paid on these assets and liabilities. Yields on tax exempt securities are not presented on a tax equivalent basis. Nonaccrual loans are included in "Other assets" under "Noninterest earning assets".
1995 Interest Average Income % Balances (Expense) Rate -------- -------- ----- (In Thousands) INTEREST EARNING ASSETS Interest bearing deposits in other banks $ 153 $ 10 6.54% Securities (taxable) 36,011 2,212 6.14 Securities (tax free) 26,696 1,195 4.48 Federal funds sold 3,993 236 5.91 Loans 121,193 11,417 9.42 -------- -------- Total interest earning assets 188,046 $ 15,070 8.01 ---- NON-INTEREST EARNING ASSETS Cash and due from banks 5,127 Other assets 5,571 Less: allowance for loan losses (1,576) -------- Total assets $197,168 ======== INTEREST BEARING LIABILITIES Demand deposits bearing interest $ 25,505 (624) 2.45 Savings deposits 22,183 (635) 2.86 Other time deposits 103,793 (5,711) 5.50 -------- -------- Total interest bearing liabilities 151,481 ($6,970) 4.60 -------- ---- NON-INTEREST BEARING LIABILITIES Demand deposits 19,182 Other liabilities 3,189 Stockholders' equity 23,316 -------- Total liabilities and stockholders' equity $197,168 ======== NET INTEREST INCOME/SPREAD $ 8,100 3.41% ======== ===== MARGIN ANALYSIS Interest income/ earning assets 8.01% Interest expense/earning assets 3.71 ----- Net interest margin 4.31% =====
- -18- - -------------------------------------------------------------------------------- TABLE 1 (Continued) - --------------------------------------------------------------------------------
1994 1993 Interest Interest Average Income % Average Income % Balances (Expense) Rate Balances (Expense) Rate -------- --------- ----- --------- --------- ----- (In Thousands) (In Thousands) $ 738 $ 31 4.20% $ 110 $ 3 2.73% 34,599 2,035 5.88 32,335 1,916 5.93 29,175 1,301 4.46 27,554 1,337 4.85 2,632 98 3.72 4,479 134 2.99 116,805 10,507 9.00 114,896 10,700 9.31 -------- -------- -------- -------- $183,949 $ 13,972 7.60 $179,374 $ 14,090 7.86 ---- ---- 5,413 5,021 4,903 4,616 (1,506) (1,408) -------- -------- $192,759 $187,603 ======== ======== $ 30,051 (731) 2.43 $ 29,610 (781) 2.64 24,794 (707) 2.85 23,186 (716) 3.09 95,043 (4,375) 4.60 95,464 (4,576) 4.79 -------- -------- -------- -------- $149,888 $ (5,813) 3.88 148,260 $ (6,073) 4.10 -------- ---- -------- ---- 18,562 17,259 2,946 2,587 21,363 19,497 -------- -------- $192,759 $187,603 ======== ======== $ 8,159 3.72% $ 8,017 3.76% ======= ==== ======= ==== 7.60% 7.86% 3.16 3.39 ---- ---- 4.44% 4.47% ==== ====
- 19 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- NET INTEREST INCOME - -------------------------------------------------------------------------------- The primary source of income for the Corporation is net interest income, which represents the difference between interest income on earning assets and interest expense on deposits. Earning assets include securities, loans and deposits in other banks. The amount of interest income is dependent upon many factors including the volume of earning assets, the general level of interest rates and the dynamics of the change in interest rates. The cost of funds varies with the amount of funds necessary to support earning assets, the rates paid to attract and hold deposits and the level of non-interest bearing demand deposits and equity capital. Table 1 presents average balances, interest income and expense and yields earned or paid on these assets and liabilities. Interest earning assets increased $4,097,000 or 2.22% from 1994 to 1995. An increase was also experienced from 1993 to 1994 of $4,575,000 or 2.52%. The overall yield on these interest earning assets was an increase of 41 basis points in 1995; however there was a decline of 26 basis points from 1993 to 1994. The largest contributor to interest income was loans. The yield on loans increased 42 basis points from 1994 to 1995. Interest earned on securities is the second largest contributor for the Corporation. The yield on taxable securities increased from 5.88% in 1994 to 6.14% in 1995. For tax free securities the yield increased from 4.46% in 1994 to 4.48% in 1995. Interest bearing liabilities increased $1,593,000 or 1.06% from 1994 to 1995. The average cost of interest bearing demand and savings deposits remained relatively unchanged from 1994 to 1995. In order for the bank to not only keep the deposits they had, but to attract new deposits, higher rates offered and paid resulted in the average cost of time deposits increasing from 4.60% in 1994 to 5.50% in 1995. The Corporation's net spread was 3.41% in 1995 down from 3.72% in 1994 and 3.76% in 1993. 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 4.31% for 1995 compared to 4.44% in 1994 and 4.47% in 1993. Table 2 shows the interest income, interest expense and net interest income with the percentage change between the years. Interest income was $15,070,000 in 1995 an increase of 7.86% over 1994's amount of $13,972,000 and $14,090,000 in 1993. Interest expense also increased 19.90% to $6,970,000 for 1995 compared with $5,813,000 in 1994 and $6,073,000 in 1993. The changing interest rate environment resulted in higher interest income and interest expense growth in 1995. The expense growth was more then the income which yielded an overall decline in net interest income of .72% from 1994 to 1995. Interest income and expense declined from 1993 to 1994; however the decrease in interest expense was greater than the decrease in interest income to that an overall increase to net interest income was experienced of 1.77%. Table 3 indicates the interest income increase of $1,098,000 from 1994 to 1995 was attributable to increases in both volume and rates principally for loans. Asset growth contributed $393,000 to interest income while rate increases contributed $705,000 to interest income. The interest expense increase of $1,157,000 from 1994 to 1995 was also attributable to increases in both volume and rate increases principally for time deposits. Liability growth contributed $218,000 to interest expense while rate increases contributed $939,000 to expense. - -------------------------------------------------------------------------------- TABLE 2 -- NET INTEREST INCOME - -------------------------------------------------------------------------------- Net interest income, defined as interest income less interest expense, is shown in the following table:
1995 % Change 1994 % Change 1993 ------- -------- ------- -------- ------- (In Thousands) Interest income $15,070 7.86% $13,972 (.84)% $14,090 Interest expense 6,970 19.90 5,813 (4.28) 6,073 Net interest income $ 8,100 (.72) $ 8,159 1.77 $ 8,017 ======= ======= =======
- - 20 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- TABLE 3 - RATE-VOLUME ANALYSIS OF NET INTEREST INCOME - -------------------------------------------------------------------------------- Table 3 attributes increases and decreases in components of net interest income to changes in average volume and to changes in average rates for interest earning assets and interest bearing liabilities.
1995/1994 Increase 1994/1993 Increase (Decrease) Due to (Decrease) Due to Change in Change in Volume Rate Net Volume Rate Net ------ ---- --- ------ ---- --- Interest bearing deposits in other banks $ (25) $ 4 $ (21) $ 17 $ 11 $ 28 Securities (taxable) 83 94 177 134 (15) 119 Securities (tax free) (111) 5 (106) 79 (115) (36) Federal funds sold and other 51 87 138 (55) 19 (36) Loans 395 515 910 178 (371) (193) ----- ----- ------ ---- ----- ----- Interest income 393 705 1,098 353 (471) (118) ----- ----- ------ ---- ----- ----- Demand deposits bearing interest (111) 4 (107) 12 (62) (50) Savings deposits (74) 2 (72) 49 (58) (9) Time deposits 403 933 1,336 (20) (181) (201) ----- ----- ------ ---- ----- ----- Interest expense 218 939 1,157 42 (302) (260) ----- ----- ------ ---- ----- ----- Increase (decrease) in net interest income $ 175 $(234) $ (59) $311 $(169) $ 142 ===== ===== ====== ==== ===== =====
- -------------------------------------------------------------------------------- LOAN PORTFOLIO - -------------------------------------------------------------------------------- At December 31, 1995 the net loan decline was $346,000 or a decrease of .28% over 1994. This follows a year of record growth of $7,392,000 in 1994 over 1993. The loan to deposit ratio decreased throughout 1995; monthly averages were at a high in January of 74.29% to a low in [BAR GRAPH APPEARS December of 68.61%. Mortgage loans increased $2,277,000 HERE] or 2.63% from 1994 to 1995. The growth for 1994 over 1993 was $10,703,000. Real estate loans still remain a very attractive option due to the tax deductibility of mortgage interest. Consumer loans increased $102,000 or .49% in 1995 over 1994. The increase from 1993 to 1994 was $2,125,000. Commercial loans decreased $2,629,000 or 18.17% from 1994 to 1995. The decrease from 1993 to 1994 was $4,889,000. This trend is indicative of weaker demand primarily due to the uncertain national and local economy. In spite of the slow economy and increasing credit problems nationwide, the Corporation continued its excellent net charge-off record (charge-offs, net of recoveries) during 1995. For the year, the net charge-offs were $42,000 or .03% of average loans outstanding. This compares with $155,000 or .13% for 1994 and $125,000 or .11% for 1993. The allowance for loan losses is based upon quarterly loan portfolio reviews by management. The purpose of the review is to assess loan quality, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries and assess general economic conditions in the market served. It is Management's judgement that the allowance for 1995 of $1,616,000 or 1.33% of outstanding loans is adequate to meet any foreseeable loan loss contingency. This is higher than the 1.25% for 1994 and 1.28% for 1993. At December 31,1995 and 1994, total non-performing loans were $852,000 and $599,000, respectively; non-performing loans as a percentage of the allowance for loan losses were 52.72% and 39.33%, respectively. Increased collection efforts have been made to decrease this percentage for the future. Bar/Line Chart Data
NET LOANS X Axis Pt Name 1 1991 107533 2 1992 112794 3 1993 114276 4 1994 121668 5 1995 121322
- 21 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- 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 a primary goal of the Corporation to maintain a high level of liquidity in all economic environments. 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 1995 the Corporation funded approximately 80% of its assets with core deposits acquired in local communities. This core deposit base, combined with Stockholders' equity, funded 90% of average assets in 1995 and provides a substantial and highly stable source of liquidity. 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. 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. 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 effort, 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. Loan demand is primarily funded through deposit growth. With loans decreasing in 1995, deposits were used to purchase securities. For the year ended December 31,1995 the financing activities of the Bank, provided net cash of $12,214,000 resulting principally from the increase in deposits. Net cash used in investing activities was $9,341,000 as purchases of securities exceeded maturities and principal repayments by $9,330,000. Net cash provided by operating activities was $2,815,000. - -------------------------------------------------------------------------------- INTEREST RATE SENSITIVITY - -------------------------------------------------------------------------------- Interest rate sensitivity management is the responsibility of the Asset/Liability Management Committee. This process involves the development and implementation of strategies to maximize net interest margin, while minimizing the earnings risk associated with changing interest rates. The traditional gap analysis identifies the maturity and repricing terms of all assets and liabilities. The analysis in Table 4 indicates the existence of a liability sensitive position. 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 rates could negatively affect net interest income. However, this 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. In certain cases in prior years, securities were identified and disposed of that did not conform to Management's model. In those cases, these securities were sold. - - 22 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- Table 4 - MATURITY DISTRIBUTION - --------------------------------------------------------------------------------
As of December 31, 1995 ----------------------- (In Thousands) Remaining Maturity/Earliest Possible Repricing Over One Over Three Over Six Year But Three Months But Months But Within Over Months Within Six Within One Five Five Assets or Less Months Year Years Years ------- ------ ---- ----- -------- Interest bearing deposits $ 15 $ - $ - $ - $ - Securities: U.S. Treasuries 1,000 - - 2,250 - U.S. Agencies 768 3,499 1,819 7,513 - Municipals 1,201 1,142 4,959 15,961 815 Corporate and others 660 232 1,872 20,129 1,107 Mortgage-backed 210 210 420 2,236 3,872 Loans: Commercial 37,377 - - - 3,631 Installment 1,508 1,474 2,770 11,397 5,501 Mortgage 12,144 12,214 24,287 4,273 4,957 All non-interest earning assets - - - - 12,455 -------- ------- ------- ------- -------- Total assets 54,883 18,771 36,127 63,759 32,338 -------- ------- ------- ------- -------- Liabilities and stockholders' equity Interest bearing demand deposits 24,491 - - - - Savings deposits 21,861 - - - - Certificates of deposit 19,803 17,330 18,119 54,252 - All non-interest bearing liabilities - - - - 25,299 Stockholders' equity - - - - 24,723 -------- ------- ------- ------- -------- Total liabilities and stockholders' equity 66,155 17,330 18,119 54,252 50,022 -------- ------- ------- ------- -------- Gap $(11,272) $ 1,441 $18,008 $ 9,507 $(17,684) ======== ======= ======= ======= ======== Cumulative gap $(11,272) $(9,831) $ 8,177 $17,684 $ - ======== ======= ======= ======= ========
- 23 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- REGULATORY MATTERS - -------------------------------------------------------------------------------- The Juniata Valley Bank is subject to periodic examinations by one or more of the various regulatory agencies. During 1995 an examination was conducted by the Federal Deposit Insurance Corporation. Also, The Federal Reserve Board of Philadelphia conducted an examination of the Juniata Valley Financial Corp. These examinations included, but were 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. The Financial Accounting Standards Board has issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures". Under the new standards, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 is based on discounted cash flows using the loans initial effective interest rate or their fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or fair value of the collateral for collateral dependent loans. In 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed Of" which establishes accounting and measurement standards for the impairment of long-lived assets such as property and equipment, certain identifiable intangibles and goodwill related to those assets. The Bank is required to adopt the Statement effective January 1, 1996 and the effect of its implementation is not expected to have a material impact on the Bank's financial position or results of operation. - -------------------------------------------------------------------------------- CAPITAL - -------------------------------------------------------------------------------- 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 a 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 risk will require more capital backing than assets with lower risk. The FDIC classified capital into two tiers, referred to as Tier I and Tier II. Tier I capital consists of common stockholders' equity, noncumulative and cumulative (bank holding companies only) perpetual preferred 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% of qualifying total capital to risk [BAR GRAPH APPEARS adjusted total assets with at least 4% Tier I capital. HERE] As indicated on the schedule below, the Tier I risk- based capital ratio was 18.24% and Total risk-based capital ratio was 19.45% at December 31, 1995. The Bank's capital ratios are well above the current minimum ratio requirements 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, 1995, Juniata Valley Financial Corp.'s leverage ratio was 12.41%. Bar/Line Chart Data
STOCKHOLDERS' EQUITY X Axis Pt Name 1 1991 16987 2 1992 18578 3 1993 20803 4 1994 22434 5 1995 24723
- - 24 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- CAPITAL (Continued) - --------------------------------------------------------------------------------
CAPITAL ANALYSIS December 31, ------------ 1995 1994 1993 --------- --------- --------- (Thousands of Dollars) Tier I Common stockholders' equity (excluding unrealized appreciation/depreciation on securities) $ 24,468 $ 22,596 $ 20,803 Tier II Allowable portion of allowance for loan losses 1,616 1,523 1,458 -------- -------- -------- Risk-based capital $ 26,084 $ 24,119 $ 22,261 ======== ======== ======== Risk adjusted assets (including off-balance-sheet exposures) $134,122 $131,640 $130,162 ======== ======== ======== Tier I risk-based capital ratio 18.24% 17.16% 15.97% Total risk-based capital ratio 19.45% 18.34% 17.12% Leverage ratio 12.41% 11.47% 10.82%
- -------------------------------------------------------------------------------- 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 1996 because of the many uncertainties surrounding the economy. However, The Juniata Valley Bank's management and Board of Directors are looking forward to meeting the challenges a changing economy can present. The Juniata Valley Bank's commitment to providing quality banking services for the communities it serves will continue through 1996. This community-based strategy gives management the opportunity to recognize steady growth in our consumer, mortgage and commercial loans as well as in our core deposit base. The Bank's strong capital and earnings potential provide the solid foundation needed to excel in the ever-changing banking industry. Management feels it is positioned to handle changes in the economic environment in 1996 through effective asset/liability management. Juniata Valley Financial Corp. is committed to providing stockholders with an attractive return on their investment. - 25 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) - -------------------------------------------------------------------------------- FEDERAL INCOME TAX - -------------------------------------------------------------------------------- The provision for income taxes for 1995 was $780,000 compared to $791,000 in 1994 and $697,000 in 1993. The effective tax rate, which is the ratio of income tax expense to income-before-income-taxes, was 22.67% in 1995, a slight decrease from the 23.65% in 1994 and an increase from the 22.64% in 1993. The tax rate for all periods was less than the statutory rate of 34% due to tax exempt securities and loan income. Please refer to the Notes to the Consolidated Financial Statements "Income Taxes" for further analysis of federal income tax expense. - - 26 - [LETTERHEAD OF BEARD & COMPANY APPEARS HERE] 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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. 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. The consolidated financial statements of Juniata Valley Financial Corp. for the year ended December 31, 1993, before they were restated for the matter discussed in the note "Restatement", were audited by other auditors whose report, dated January 31, 1994, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1995 and 1994 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Juniata Valley Financial Corp. and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. We also have audited the adjustment described in the note "Restatement" that was applied to restate the 1993 financial statements. In our opinion, such adjustment is appropriate and has been properly applied. As described in the notes to the consolidated financial statements, the Corporation changed its method of accounting for investments in debt and equity securities, effective January 1, 1994. BEARD & COMPANY, INC. Reading, Pennsylvania January 25, 1996 - 27 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK CONSOLIDATED BALANCE SHEETS ASSETS ------
December 31, ------------ 1995 1994 -------- -------- (In Thousands) Cash and due from banks $ 6,578 $ 5,978 Interest-bearing deposits with banks 15 7 Federal funds sold 5,080 - -------- -------- Total cash and cash equivalents 11,673 5,985 Securities available for sale 24,505 13,057 Securities held to maturity, fair value 1995 $43,070; 1994 $42,728 42,671 44,157 Loans receivable, net of allowance for loan losses 1995 $1,616; 1994 $1,523 121,322 121,668 Bank premises and equipment, net 1,729 1,681 Accrued interest receivable and other assets 3,978 3,628 -------- -------- Total assets $205,878 $190,176 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------
Liabilities: Deposits: Non-interest bearing $ 22,297 $ 18,971 Interest bearing 155,856 146,180 -------- -------- Total deposits 178,153 165,151 Accrued interest payable and other liabilities 3,002 2,591 -------- -------- Total liabilities 181,155 167,742 -------- -------- 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 2,000,000 shares; issued and outstanding 1,113,001 and 890,692 shares respectively 1,113 891 Surplus 14,734 14,956 Retained earnings 8,621 6,749 Net unrealized appreciation (depreciation) on securities available for sale, net of taxes 255 (162) -------- -------- Total stockholders' equity 24,723 22,434 -------- -------- Total liabilities and stockholders' equity $205,878 $190,176 ======== ========
See Notes to Consolidated Financial Statements. - - 28 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ------------------------ 1995 1994 1993 ---- ---- ---- (In Thousands, Except Per Share Amounts) Interest income: Loans receivable, including fees $ 11,417 $ 10,507 $ 10,700 Taxable securities 2,212 2,035 1,916 Tax-exempt securities 1,195 1,301 1,337 Other 246 129 137 ---------- ---------- ---------- Total interest income 15,070 13,972 14,090 Interest expense on deposits 6,970 5,813 6,073 ---------- ---------- ---------- Net interest income 8,100 8,159 8,017 Provision for loan losses 135 220 220 ---------- ---------- ---------- Net interest income after provision for loan losses 7,965 7,939 7,797 ---------- ---------- ---------- Other income: Trust department 173 161 185 Customer service fees 223 222 206 Net realized losses on sales of securities - (7) (16) Other 185 175 143 ---------- ---------- ---------- Total other income 581 551 518 ---------- ---------- ---------- Other expenses: Salaries and wages 2,113 2,044 1,985 Employee benefits 567 582 561 Occupancy 309 308 322 Equipment 302 380 380 Federal deposit insurance premiums 192 376 370 Director compensation 386 373 414 Taxes, other than income 215 194 179 Other 1,022 889 1,026 ---------- ---------- ---------- Total other expenses 5,106 5,146 5,237 ---------- ---------- ---------- Income before income taxes and cumulative effect of change in accounting principle 3,440 3,344 3,078 Federal income taxes 780 791 697 ---------- ---------- ---------- Income before cumulative effect of change in accounting principle 2,660 2,553 2,381 Cumulative effect of change in accounting principle - - 553 ---------- ---------- ---------- Net income $ 2,660 $ 2,553 $ 2,934 ========== ========== ========== Per share data: Income before cumulative effect of change in accounting principle $2.39 $2.29 $2.14 ========== ========== ========== Net income $2.39 $2.29 $2.64 ========== ========== ========== Weighted average number of shares outstanding 1,113,001 1,113,001 1,113,001 ========== ========== ==========
See Notes to Consolidated Financial Statements. - 29 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993 -------------------------------------------- Net Unrealized Appreciation (Depreciation) On Securities Common Retained Available Stock Surplus Earnings For Sale Total ------ -------- --------- -------------- -------- (In Thousands) Balance, December 31, 1992 $ 590 $10,698 $ 7,290 $ - $18,578 Net income - - 2,934 - 2,934 Cash dividend, $.62 per share - - (681) - (681) 10% stock dividend 59 2,052 (2,123) - (12) 10% stock dividend 64 2,384 (2,464) - (16) ------ ------- ------- ------------- ------- Balance, December 31, 1993 713 15,134 4,956 - 20,803 Adjustment to beginning balance for change in accounting method, net of taxes of $141 - - 274 274 Net income - - 2,553 - 2,553 Cash dividend, $.67 per share - - (745) - (745) 5-for-4 stock split in the form of a 25% stock dividend 178 (178) (15) - (15) Net change in unrealized appreciation (depreciation) on securities available for sale, net of taxes of $224 - - - (436) (436) ------ ------- ------- ------------- ------- Balance, December 31, 1994 891 14,956 6.749 (162) 22,434 Net income - - 2,660 - 2,660 Cash dividend, $.70 per share - - (775) - (775) 5-for-4 stock split in the form of a 25% stock dividend 222 (222) (13) - (13) Net change in unrealized appreciation (depreciation) on securities available for sale,net of taxes of$215 - - - 417 417 ------ ------- ------- ------------- ------- Balance, December 31, 1995 $1,113 $14,734 $ 8,621 $ 255 $24,723 ====== ======= ======= ============= =======
See Notes to Consolidated Financial Statements. - - 30 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------ 1995 1994 1993 ---- ---- ---- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,660 $ 2,553 $ 2,934 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 135 220 220 Provision for depreciation and amortization 174 181 120 Net realized losses on sales of securities - 7 16 Deferred directors' fees and supplemental retirement plan expense 303 312 297 Payment of deferred compensation (135) (126) (108) Cumulative effect of change in accounting principle - - (553) Deferred income taxes (74) (40) (102) (Increase) decrease in accrued interest receivable and other assets (356) (134) 110 Increase (decrease) in interest payable and other liabilities 108 (50) 14 -------- -------- ------- Net cash provided by operating activities 2,815 2,923 2,948 -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available for sale securities Proceeds from sales of available for sale securities (13,935) (1,998) - Proceeds from maturities of and principal repayments - 2,017 - on available for sale securities 6,118 6,533 - Purchases of held to maturity securities (8,753) (14,385) (27,087) Proceeds from maturities of and principal repayments on held to maturity securities 7,240 10,298 22,249 Proceeds from sales of held to maturity securities - - 2,073 Net (increase) decrease in loans receivable 211 (7,612) (1,727) Purchases of bank premises and equipment (222) (69) (222) -------- -------- ------- Net cash used in investing activities (9,341) (5,216) (4,714) -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 13,002 (1,391) 844 Cash dividends and cash paid for fractional shares (788) (760) (709) -------- -------- ------- Net cash provided by (used in financing activities 12,214 (2,151) 135 -------- -------- ------- Increase (decrease) in cash and cash equivalents 5,688 (4,444) (1,631) Cash and cash equivalents: Beginning 5,985 10,429 12,060 -------- -------- ------- Ending $ 11,673 $ 5,985 $10,429 ======== ======== ======= Cash payments for: Interest $ 6,798 $ 5,782 $ 6,162 -------- -------- ------- Income taxes $ 833 $ 812 $ 760 ======== ======== =======
See Notes to Consolidated Financial Statements. - 31 - 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, Franklin and Snyder, Pennsylvania. Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Presentation of cash flows: For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing demand deposits with banks and federal funds sold. Securities: The Financial Accounting Standards Board issued Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in May 1993. The Corporation adopted the provisions of the new standard for investments held as of or acquired after January, 1, 1994. The January 1, 1994 stockholders' equity was increased by $274,000, net of $141,000 in deferred income taxes, to reflect the net unrealized appreciation on securities classified as available for sale previously carried at amortized cost. Management determines the appropriate classification of debt securities at the time of purchase and re- evaluates such designation as of each balance sheet date. 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. 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 appreciation and depreciation is reported as increases or decreases in stockholders' equity, 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. Securities classified as held to maturity are those debt securities the Bank has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed by the interest method over their contractual lives. Loans receivable: Loans generally are stated at their outstanding unpaid principal balances, net of unearned discount and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Unearned discount on discounted loans is amortized to income over the life of the loans, using the interest method. A loan is generally considered impaired when it is probable the Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. The accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectibility of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management's judgment as to the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. - - 32 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Allowance for loan losses: The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. Beginning in 1995, the Corporation adopted Financial Accounting Standards Board Statement No.114, "Accounting by Creditors for Impairment of a Loan", as amended by Statement No. 118. Under the new standards, the 1995 allowance for loan losses related to loans that are identified for evaluation in accordance with Statement No. 114 is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Prior to 1995, the allowance for loan losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. 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. 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 their estimated useful lives of the related assets. Income taxes: Effective January 1, 1993, the Corporation changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No.109, "Accounting for Income Taxes". The cumulative effect of this change in accounting principle increased 1993 net income by $553,000. 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. 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. Per share data: Earnings and dividends per share are based on the weighted average number of shares of common stock outstanding, adjusted for stock dividends. New accounting standards: In 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which establishes accounting and measurement standards for the impairment of long-lived assets such as property and equipment, certain identifiable intangibles and goodwill related to those assets. The Bank is required to adopt the Statement effective January 1, 1996 and the effect of its implementation is not expected to have a material impact on the Bank's financial position or results of operations. - 33 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS RESTATEMENT The cumulative effect of a change in accounting principle previously reported in the 1993 statement of income has been adjusted to correct an error in the initial adoption of FASB Statement No. 109, "Accounting for Income Taxes". The difference between the financial statement and tax basis of the allowance for loan losses was not properly reflected as a temporary difference and, accordingly, a deferred tax asset was not established for this temporary difference. The effect of this adjustment on 1993 net income, retained earnings and per share amounts is summarized as follows:
As Originally Reported Adjustment Restated ------------- ---------- -------- (In Thousands, Except Per Share Amounts) Net income $ 2,439 $ 495 $ 2,934 ======= ===== ======= Retained earnings $ 4,461 $ 495 $ 4,956 ======= ===== ======= Net income per share $2.19 $0.45 $2.64 ======= ===== ======= SECURITIES The amortized cost and fair value of securities at December 31 were as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Appreciation Depreciation Value --------- ------------- ------------ ----- (In Thousands) Available for sale securities: December 31, 1995: U.S. Government and agency obligations $ 9,507 $ 79 $ (1) $ 9,585 Obligations of states and political subdivisions 3,630 54 - 3,684 Corporate and other debt securities 3,140 27 - 3,167 Mortgage-backed securities 6,948 62 (39) 6,971 Equity securities 894 207 (3) 1,098 ------- ----- ------- ------- $24,119 $ 429 $ (43) $24,505 ======= ===== ======= ======= December 31,1994: U.S. Government and agency obligations $ 500 $ - $ (14) $ 486 Obligations of states and political subdivisions 2,988 18 (7) 2,999 Corporate and other debt securities 1,167 - (24) 1,143 Mortgage-backed securities 7,842 3 (331) 7,514 Equity securities 805 110 - 915 ------- ----- ------- ------- $13,302 $ 131 $ (376) $13,057 ======= ===== ======= ======= Held to maturity securities: December 31,1995: U.S. Treasury securities $ 3,250 $ 20 $ (3) $ 3,267 U.S. Government and agency obligations 2,501 19 - 2,520 Obligations of states and political subdivisions 20,448 203 (34) 20,617 Corporate and other debt securities 16,472 208 (14) 16,666 ------- ----- ------- ------- $42,671 $ 450 $ (51) $43,070 ======= ===== ======= ======= December 31, 1994: U.S.Treasury securities $ 3,241 $ - $ (101) $ 3,140 U.S. Government and agency obligations 4,249 - (233) 4,016 Obligations of states and political subdivisions 22,265 99 (470) 21,894 Corporate and other debt securities 14,402 20 (744) 13,678 ======= ===== ======= ======= $44,157 $ 119 $(1,548) $42,728 ======= ===== ======= =======
In December 1995, the Bank reevaluated the appropriateness of all securities held and transferred $2,969,000 of securities from securities held to maturity to securities available for sale in accordance with the Guide to Implementation of Statement No.115 issued by the FASB. The securities were transferred at their fair value on the date of transfer which was $29,000 less than the amortized cost of the securities. The transfer represented three municipal securities and three agency securities. - - 34 - 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, 1995, by contractual maturity or call date, are shown below. Expected maturities may differ from contractual maturities or call dates because the securities may be called or prepaid with or without call or prepayment penalties.
Available For Sale Held To Maturity --------- ------- --------- -------- Amortized Fair Amortized Fair Cost Value Cost Value --------- ------- --------- -------- (In Thousands) Due in one year or less $ 4,777 $ 4,803 $ 9,368 $ 9,422 Due after one year through five years 10,502 10,613 32,525 32,866 Due after five years through ten years 748 754 225 225 Due after ten years 250 266 553 557 Mortgage-backed securities 6,948 6,971 - - Equity securities 894 1,098 - - ------- ------- ------- ------- $24,119 $24,505 $42,671 $43,070 ======= ======= ======= =======
Equity securities include Federal Home Loan Bank stock with an aggregate cost and fair value of $689,000. There were no sales of securities in 1995. Gross gains of $3,000 and gross losses of $10,000 were realized on sales of securities available for sale in 1994. Gross gains of $3,000 and gross losses of $19,000 were realized on sales of securities held to maturity in 1993. Securities with an amortized cost of $6,369,000 and $6,307,000 at December 31, 1995 and 1994 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES Loans are comprised of the following:
December 31, -------------- 1995 1994 ---- ---- (In Thousands) Commercial, agricultural and financial $ 11,843 $ 14,472 Real estate mortgages 88,593 86,316 Consumer 25,332 25,012 Other 1,483 1,486 -------- -------- 127,251 127,286 Unearned discount on loans 4,313 4,095 Allowance for loan losses 1,616 1,523 -------- -------- $121,322 $121,668 ======== ========
- 35 - 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 (CONTINUED) The following table presents changes in the allowance for loan losses:
Years Ended December 31, ------------------------ 1995 1994 1993 ---- ---- ---- (In Thousands) Balance, beginning $1,523 $1,458 $1,363 Provision for loan losses 135 220 220 Recoveries 53 23 39 Loans charged off (95) (178) (164) ------ ------ ------ Balance, ending $1,616 $1,523 $1,458 ====== ====== ======
Information with respect to impaired loans as of and for the year ended December 31,1995 is as follows (in thousands): Loans receivable for which there is a related allowance for loan losses $390 Loans receivable for which there is no related allowance for loan losses - ---- Total impaired loans $390 ==== Related allowance for loan losses $ 50 ==== Average recorded balance of these impaired loans $408 ==== Interest income recognized on these impaired loans $ 5 ====
At December 31,1994, the Bank had nonaccrual loans of $433,000, all of which would be considered impaired under Statement No.114. The Bank recorded $9,000 of interest income on these loans in 1994. Interest income that would have been recorded under the original terms of the loan agreements amounted to $28,000 for the year ended December 31,1994. BANK PREMISES AND EQUIPMENT The major components of bank premises and equipment were as follows:
December 31, ------------ 1995 1994 ---- ---- (In Thousands) Land and land improvements $ 438 $ 438 Buildings and improvements 1,763 1,705 Furniture and equipment 1,594 1,449 -------- -------- 3,795 3,592 Less accumulated depreciation 2,066 1,911 -------- -------- $ 1,729 $ 1,681 ======== ========
DEPOSITS The composition of deposits is as follows:
December 31, ------------ 1995 1994 ---- ---- (In Thousands) Demand, non-interest bearing $ 22,297 $ 18,971 Now and Money Market 24,491 26,983 Savings 21,861 24,071 Time Certificates $100,000 or more 13,283 10,147 Other Time Certificates 96,221 84,979 -------- -------- $178,153 $165,151 ======== ========
- - 36 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BORROWINGS The Bank has entered into an agreement whereby it can borrow up to approximately 10% of the Bank's assets from the Federal Home Loan Bank. There were no outstanding balances under this agreement as of December 31, 1995 and 1994. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY The Bank is required to maintain average cash reserve balances in vault cash or with the Federal Reserve Bank. The average amount of these restricted cash reserve balances as of December 31, 1995 was approximately $1,283,000. The Bank is 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 Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's 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 Bank to maintain minimum amounts and ratios (set forth below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 1995, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1995, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category. The Bank's actual capital ratios at December 31, 1995 and the minimum ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows:
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions ------ ----------- ------------------ Total capital (to risk weighted assets) 19.45% 8.00% 10.00% Tier 1 capital (to risk weighted assets) 18.24% 4.00% 6.00% Tier 1 capital (to average assets) 12.41% 3.00% - 5.00% 5.00%
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, 1995, $19,268,000 of undistributed earnings of the Bank, included in the consolidated stockholders' equity, was available for distribution to the Corporation as dividends without prior regulatory approval. In August 1990, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend distribution of one right to purchase a share of the Corporation's common stock at $15.30 for each share issued and outstanding, upon the occurrence of certain events, as defined in the Plan. These rights are fully transferrable and expire on August 31, 2000. The rights are not considered common stock equivalents because there is no indication that any event will occur which would cause them to become exercisable. Their issuance, therefore, has no effect on earnings per share. In 1995, the Corporation established a dividend reinvestment and stock purchase plan which goes into effect in 1996. Common stockholders may participate in the Plan, which provides that additional shares of common stock may be purchased with reinvested dividends at the prevailing market prices. 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 dividend reinvestment plan. - 37 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EMPLOYEE BENEFITS Defined benefit retirement plan: The Corporation has a defined benefit retirement plan covering substantially all of its employees. The benefits are based on years of service and the employees' compensation. The Corporation's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.
The following table sets forth the Plan's funded status and amounts recognized in the balance sheets at December 31: 1995 1994 ---- ---- (In Thousands) Actuarial present value of: Accumulated benefit obligation, including vested benefits of $1,550,000 and $1,395,000 $(1,563) $(1,410) ======= ======= Projected benefit obligation for service rendered to date $(2,133) $(2,007) Plan assets at fair value 2,020 1,758 ------- ------- Plan assets less than projected benefit obligation (113) (249) Unrecognized net gain from experience different from that assumed (147) (4) Unrecognized net transition asset (31) (33) ------- ------- Accrued pension cost $ (291) $ (286) ======= ======= Pension expense included the following components for the years ended December 31: 1995 1994 1993 ---- ---- ---- (In Thousands) Service cost, benefits earned during the year $ 101 $ 98 $ 93 Interest cost on projected benefit obligation 143 134 124 Actual return on plan assets (204) 27 (125) Net amortization 73 (161) (2) ------- ------- ----- $ 113 $ 98 $ 90 ======= ======= ===== Assumptions used in the accounting were: 1995 1994 1993 ---- ---- ---- (In Thousands) 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
Assets in the Plan consist primarily of U.S. Government securities, U.S. Government security mutual funds and certificates of deposit. Supplemental retirement plan: The Corporation has a non-qualified supplemental retirement plan for directors and key employees. At December 31, 1995 and 1994, the present value of the future liability was $726,000 and $680,000 respectively. The Corporation has funded these plans through the purchase of annuities and life insurance policies, which have an aggregate cash surrender value of $763,000 and $659,000 at December 31, 1995 and 1994 respectively. For the years ended December 31, 1995, 1994 and 1993, $47,000, $78,000 and $98,000 was charged to expense in connection with this plan. Deferred compensation: The Corporation has entered into deferred compensation agreements with certain directors to provide each director an additional retirement benefit, or to provide their beneficiary a benefit in the event of pre-retirement death. At December 31, 1995 and 1994, the present value of the future liability was $1,024,000 and $919,000 respectively. To fund the benefits under these agreements, the Corporation is the owner and beneficiary of life insurance policies on the lives of the directors. The policies had an aggregate cash surrender value of $320,000 and $284,000 at December 31, 1995 and 1994, respectively. For the years ended December 31, 1995, 1994 and 1993, $223,000, $199,000 and $211,000 respectively, was charged to expense in connection with this plan. - - 38 - 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 consisted of the following:
Years Ended December 31, ------------------------ 1995 1994 1993 ---- ---- ---- (In Thousands) Current $ 854 $ 831 $ 799 Deferred (74) (40) (102) ----- ----- ----- $ 780 $ 791 $ 697 ===== ===== =====
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, ------------------------ 1995 1994 1993 ---- ---- ---- (In Thousands) Federal income tax at statutory rate $1,170 $1,137 $1,047 Tax-exempt interest (434) (469) (480) Disallowance of interest expense 62 57 59 Other (18) 66 71 ------ ------ ------ $ 780 $ 791 $ 697 ====== ====== ======
The income tax provision includes $-0- in 1995, $(2,000) in 1994 and $(5,000) in 1993 of income tax related to realized security losses. The net deferred tax asset in the accompanying balance sheets includes the following amounts of deferred tax assets and liabilities:
December 31, 1995 1994 ------- ------- (In Thousands) Deferred tax assets: Allowance for loan losses $ 555 $ 518 Deferred directors' fees 344 312 Pension liabilities 329 330 Unrealized depreciation on securities available for sale -- 84 Other 29 10 ------ ------ 1,257 1,254 Valuation allowance (53) (43) ------ ------ Total deferred tax assets, net of valuation allowance 1,204 1,211 ------ ------ Deferred tax liabilities: Bank premises and equipment (55) (52) Unrealized appreciation on securities available for sale (131) - ------ ------ Total deferred tax liabilities (186) (52) ------ ------ Net deferred tax asset $1,018 $1,159 ====== ======
- 39 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1995 and 1994, these persons were indebted to the Bank for loans totaling $1,376,000 and $1,884,000 respectively. During 1995, loans totaling $4,355,000 were disbursed and loan repayments totaled $4,863,000. COMMITMENTS The Bank rents equipment under operating leases that expire through 2000. Equipment and servicing fees were $368,000, $377,000 and $373,000 for the years ended December 31, 1995, 1994 and 1993 respectively. Additionally the Bank leases a branch office building for which rent expense was $26,000 in 1995 and 1994 and $25,000 in 1993. Minimum future payments under all noncancellable lease agreements as of December 31, 1995 are (in thousands): 1996 $247 1997 195 1998 65 1999 39 2000 40 Thereafter 60 ---- $646 ====
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, 1995 1994 ---- ---- (In Thousands) Commitments to extend credit $14,822 $13,769 Outstanding letters of credit 334 984
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. - - 40 - JUNIATA VALLEY FINANCIAL CORP. AND ITS WHOLLY-OWNED SUBSIDIARY, THE JUNIATA VALLEY BANK NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONCENTRATION OF CREDIT RISK The Bank grants commercial, residential and consumer loans to customers primarily located in the counties of Juniata, Mifflin, Perry, Huntingdon, 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. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: . For cash, cash equivalents and interest-bearing deposits in other banks, the carrying amount is a reasonable estimate of fair value. . For securities, fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. . For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, fair values are based on carrying values. All commercial loans and substantially all real estate mortgages are variable rate loans. The fair value of other loans (i.e., consumer loans and fixed- rate real estate mortgages) are estimated using discounted cash flow analyses, at interest rates currently offered for loans with similar terms to borrowers of similar credit quality. . Fair values for demand deposits, savings accounts and certain money market deposits are, by definition, equal to the amount payable on demand at the reopening 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. . Fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit worthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements. The fair value estimates are dependent upon subjective assumptions and involve significant uncertainties resulting in estimates that vary with changes in assumptions. Any changes in assumptions or estimation methodologies may have a material effect on the estimated fair values disclosed. The estimated fair values of the Corporation's financial instruments were as follows:
December 31, 1995 1994 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value -------- ----- -------- ----- (In Thousands) Financial assets: Cash and due from banks $ 6,578 $ 6,578 $ 5,978 $ 5,978 Interest-bearing deposits in other banks 15 15 7 7 Federal funds sold 5,080 5,080 - - Securities 67,176 67,575 57,214 55,785 Loans receivable, net of allowance 121,322 120,855 121,668 120,822 Financial liabilities: Deposits 178,153 179,049 165,151 164,496 Off-balance sheet financial instruments: Commitments to extend credit - - - - Standby letters of credit - - - -
- 41 - 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, 1995 1994 ---- ---- (In Thousands) ASSETS Investment in Bank subsidiary $24,567 $22,284 Securities available for sale 157 140 Due from Bank subsidiary 33 25 ------- ------- $24,757 $22,449 ======= ======= LIABILITY AND STOCKHOLDERS' EQUITY LIABILITY, other $ 34 $ 15 STOCKHOLDERS' EQUITY 24,723 22,434 ------- ------- $24,757 $22,449 ======= =======
STATEMENTS OF INCOME
Years Ended December 31, 1995 1994 1993 ---- ---- ---- (In Thousands) Dividends from Bank subsidiary $ 807 $ 870 $ 723 Other dividend income 4 - - Other expenses (21) (16) (17) ------- ------- ------ Income before equity in undistributed net income of subsidiary and income taxes 790 854 706 Equity in undistributed net income of Bank subsidiary 1,864 1,693 2,222 Income taxes (credits) (6) (6) (6) ------- ------- ------ Net income $ 2,660 $ 2,553 $2,934 ======= ======= ======
- - 42 - 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, 1995 1994 1993 ------- ------- ------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,660 $ 2,553 $ 2,934 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of Bank subsidiary (1,864) (1,693) (2,222) Non-cash dividends received from Bank subsidiary - (98) - (Increase) in due from subsidiary (8) (2) (3) ------- ------- ------- Net cash provided by operating activities 788 760 709 ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid and cash paid in lieu of fractional shares (788) (760) (709) ------- ------- ------- Change in cash - - - Cash: Beginning - - ------- ------- Ending $ - $ - ======= =======
- 43 - AVAILABILITY OF FORM 10-K A copy of the Corporation's Annual Report on Form 10-K as filed with the Securities and Exchange Commission will be available without charge upon written request. This request should be addressed to: Ms. Linda Engle Juniata Valley Financial Corp. P.O. Box 66 Mifflintown, PA 17059 Pursuant to Part 350 to FDIC's Annual Disclosure Regulation, Juniata Valley Financial Corp. will make available to you upon request, financial information about this Bank. The purpose of this regulation is to facilitate more informed decision making by you, our shareholders, by providing statements containing financial information for the last two years. Please contact: Ms. Ruth Nace The Juniata Valley Bank P.O. Box 66 Mifflintown, PA 17059 - - 44 - EX-23 4 EXHIBIT 23.1 CONSENT OF BEARD & COMPANY, INC. INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-3) of Juniata Valley Financial Corp. of our report dated January 25, 1996, with respect to the consolidated financial statements of Juniata Valley Financial Corp. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1995. BEARD & COMPANY, INC. Reading, Pennsylvania March 22, 1996 EX-23 5 EXHIBIT 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT -------------------------------------------------- We hereby consent to the use of our report included herein dated January 31, 1994, relating to the consolidated financial statements of Juniata Valley Financial Corp. and Subsidiary, to the incorporation by reference of such report included in the Company's 1995 annual report on Form 10-K. STOCKTON BATES & COMPANY Lancaster, Pennsylvania March 1, 1996 EX-27 6
9 1,000 12-MOS DEC-31-1995 DEC-31-1996 6,578 15 5,080 0 24,505 42,671 43,071 122,938 1,616 205,878 178,153 0 3,002 0 0 0 1,113 23,610 205,878 11,417 3,407 246 15,070 6,970 6,970 8,100 135 0 5,100 3,447 2,660 0 0 2,660 2.39 2.39 7.71 390 462 0 898 1,523 95 53 1,616 0 0 0
EX-99 7 EHHIBIT 99 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Stockholders Juniata Valley Financial Corp. and Subsidiary Mifflintown, Pennsylvania We have audited the accompanying consolidated statement of income of Juniata Valley Financial Corp. and Subsidiary for the year ended December 31, 1993, before it was restated, and the related consolidated statements of stockholders' equity and cash flows for the year ended December 31, 1993, before they were restated. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, prior to restatement, present fairly, in all material respects, the consolidated results of operations, stockholders' equity and cash flows of Juniata Valley Financial Corp. and Subsidiary for the year ended December 31, 1993, in conformity with generally accepted accounting principles. STOCKTON BATES & COMPANY Lancaster, Pennsylvania January 31, 1994 -----END PRIVACY-ENHANCED MESSAGE-----