10-Q 1 jvfc-10q_53763.txt JUNIATA VALLEY 10-Q FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934 For the quarterly period ended June 30, 2002 ------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- --------------------- Commission File Number 2-81699 ---------------------------------------------------------- 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 No.) Bridge and Main Streets, Mifflintown, Pennsylvania 17059 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (717) 436-8211 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding as of July 31, 2002 ----------------------------------- ---------------------------------------- Common Stock ($1.00 par value) 2,329,366 shares
2. JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY --------------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- ASSETS ------ June 30, December 31, 2002 2001 --------- --------- (In thousands) (Unaudited) Cash and due from banks $ 10,640 $ 11,571 Interest bearing deposits with banks 507 87 Federal funds sold 4,700 -- --------- --------- Total cash and cash equivalents 15,847 11,658 Interest bearing time deposits with banks 3,990 3,590 Securities available for sale 58,443 54,663 Securities held to maturity, fair value $36,970 and $39,435, respectively 36,057 38,612 Federal home loan bank stock 1,236 1,208 Loans receivable net of allowance for loan losses $2,633 and $2,526, respectively 230,623 227,998 Bank premises and equipment, net 5,877 6,068 Bank-owned life insurance 6,970 6,796 Accrued interest receivable and other assets 6,787 6,164 --------- --------- TOTAL ASSETS $ 365,830 $ 356,757 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Deposits: Non-interest bearing $ 39,172 $ 38,089 Interest bearing 274,852 267,379 --------- --------- Total deposits 314,024 305,468 Short-term borrowings -- 1,275 Accrued interest payable and other liabilities 4,813 4,688 --------- --------- Total liabilities 318,837 311,431 --------- --------- Stockholders' Equity: Preferred stock, no par value; 500,000 shares authorized; no shares issued or outstanding -- -- Common stock, par value $1.00 per share; authorized 20,000,000 shares; issued 2,372,934 shares 2,373 2,373 Surplus 20,211 20,221 Retained earnings 24,340 22,679 Accumulated other comprehensive income 1,103 676 Treasury stock, at cost 2002 36,274 shares; 2001 21,934 shares (1,034) (623) --------- --------- Total stockholders' equity 46,993 45,326 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 365,830 $ 356,757 ========= =========
3.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY --------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Unaudited) For the Quarter Ended For Six Months Ended ----------------------- ----------------------- June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- (In thousands, except per share amount) INTEREST INCOME: Loans receivable $ 4,738 $ 5,071 $ 9,434 $ 10,138 Taxable securities 716 601 1,441 1,247 Tax-exempt securities 389 400 775 780 Other 56 100 99 317 ---------- ---------- ---------- ---------- Total interest income 5,899 6,172 11,749 12,482 INTEREST EXPENSE: 2,305 3,073 4,728 6,146 ---------- ---------- ---------- ---------- Net interest income 3,594 3,099 7,021 6,336 PROVISION FOR LOAN LOSSES: 75 60 150 120 ---------- ---------- ---------- ---------- Net interest income, after provision for loan losses 3,519 3,039 6,871 6,216 ---------- ---------- ---------- ---------- OTHER INCOME: Trust department 80 123 198 223 Customer service fees 172 163 326 311 Other 265 277 498 395 ---------- ---------- ---------- ---------- Total other income 517 563 1,022 929 ---------- ---------- ---------- ---------- OTHER EXPENSES: Salaries and wages 915 866 1,818 1,763 Employee benefits 324 300 641 604 Occupancy 166 132 323 269 Equipment 306 294 602 600 Director compensation 86 100 171 184 Taxes, other than income 125 121 252 242 Other 363 332 667 643 ---------- ---------- ---------- ---------- Total other expenses 2,285 2,145 4,474 4,305 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES: 1,751 1,457 3,419 2,840 FEDERAL INCOME TAXES: 421 297 753 591 ---------- ---------- ---------- ---------- Net income $ 1,330 $ 1,160 $ 2,666 $ 2,249 ========== ========== ========== ========== Basic and diluted earnings per share $ .57 $ .49 $ 1.14 $ .95 ========== ========== ========== ========== Weighted average number of shares outstanding 2,338,052 2,369,189 2,342,201 2,370,655 ========== ========== ========== ==========
4.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY --------------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ---------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2002 -------------------------------------- (Unaudited) Accumulated Other Common Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ------ ------- -------- ------------- -------- ----- (In thousands) BALANCE, December 31, 2001 $ 2,373 $ 20,221 $ 22,679 $ 676 $ (623) $ 45,326 -------- Net income for the six months ended June 30, 2002 -- -- 2,666 -- -- 2,666 Change in unrealized gains (losses) on securities available for sale, net of reclassification adjustment and tax effects -- -- -- 427 -- 427 -------- Total Comprehensive Income 3,093 -------- Cash dividends, $.43 per share -- -- (1,005) -- -- (1,005) Treasury stock issued for dividend reinvestment plan (7,088 shares) -- -- -- -- 201 201 Treasury stock issued for employee stock purchase plan (2,296 shares) -- (10) -- -- 65 55 Treasury stock acquired -- -- -- -- (677) (677) -------- -------- -------- -------- -------- -------- Balance June 30, 2002 $ 2,373 $ 20,211 $ 24,340 $ 1,103 $ (1,034) $ 46,993 ======== ======== ======== ======== ======== ========
5.
JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY --------------------------------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ---------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 2001 -------------------------------------- (Unaudited) Accumulated Other Common Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total ------ ------- -------- ------------- -------- ----- (In thousands) BALANCE, December 31, 2000 $ 2,332 $ 20,398 $ 25,117 $ 367 $ (5,132) $ 43,082 -------- Net income for the six months ended June 30, 2001 -- -- 2,249 -- -- 2,249 Change in unrealized gains (losses) on securities available for sale, net of reclassification adjustment and tax effects -- -- -- 169 -- 169 -------- Total Comprehensive Income 2,418 -------- Cash dividends, $.39 per share -- -- (922) -- -- (922) Stock issued under dividend reinvestment plan 7 166 -- -- -- 173 Stock issued under employee stock purchase plan 2 31 -- -- -- 33 10% Stock dividend declared 32 (373) (5,187) -- 5,517 (11) Treasury stock acquired -- -- -- -- (385) (385) -------- -------- -------- -------- -------- -------- Balance June 30, 2001 $ 2,373 $ 20,222 $ 21,257 $ 536 $ -- $ 44,388 ======== ======== ======== ======== ======== ========
6. JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY --------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Unaudited) Increase (Decrease) in Cash and Cash Equivalents For the Six Months Ended ------------------------ June 30, June 30, 2002 2001 -------- -------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,666 $ 2,249 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 150 120 Provision for depreciation 223 182 Net amortization on securities premium 84 110 Deferred directors' fees and supplemental retirement plan expense 328 180 Earnings on life insurance (175) (153) Payment of deferred compensation (155) (117) Deferred income taxes (82) (79) Increase in accrued interest receivable and other assets (761) (179) Decrease in interest payable and other liabilities (47) (72) -------- -------- Net cash provided by operating activities 2,231 2,241 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net increase in interest bearing time deposits (400) -- Purchases of available for sale securities (17,830) (20,132) Purchase FHLB stock (28) (22) Proceeds from maturities of and principal repayments on available for sale securities 14,666 8,828 Purchase of held to maturity securities (498) -- Proceeds from maturities of and principal repayments on held to maturity securities 3,002 11,981 Net increase in loans receivable (2,776) (5,250) Net purchases of bank premises and equipment (33) (293) Purchase of life insurance -- (5,000) -------- -------- Net cash used in investing activities (3,897) (9,888) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits 8,556 11,107 Net decrease in short-term borrowings (1,275) -- Cash dividends and cash paid for fractional shares (1,005) (933) Purchase of treasury stock (677) (385) Stock issued for dividend reinvestment and employee stock purchase plan 256 206 -------- -------- Net cash provided in financing activities 5,855 9,995 -------- -------- Increase in cash and cash equivalents 4,189 2,348 CASH AND CASH EQUIVALENTS: Beginning 11,658 15,697 -------- -------- Ending $ 15,847 $ 18,045 ======== ======== CASH PAYMENTS FOR: Interest $ 4,863 $ 6,111 ======== ======== Income Taxes $ 890 $ 675 ======== ======== 7. NOTE A - Basis of Presentation The financial information includes the accounts of Juniata Valley Financial Corp. and its wholly owned subsidiary, The Juniata Valley Bank. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the six-month period ended June 30, 2002, are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in Juniata Valley Financial Corp. annual report on Form 10-K for the year ended December 31, 2001. NOTE B - Accounting Standards In June of 2001, the Financial Accounting Standards Board issued Statement 143, "Accounting for Asset Retirement Obligations", which addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This Statement will become effective for the Bank on January 1, 2003. Adoption of this Statement is not expected to have a material impact on the Bank's financial condition or results of operations. 8. NOTE C - Accumulated Other Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. The components of other comprehensive income and related tax affects are as follows: Six Months Ended June 30, ------------------------- 2002 2001 ---- ---- (In thousands) Unrealized holding gains (losses) on available for sale securities $ 648 $ 257 Less classification adjustment for gains realized in income -- -- ----- ----- Net unrealized gains (losses) 648 257 Tax effect 221 88 ----- ----- Net of tax amount $ 427 $ 169 ===== ===== 9. MANAGEMENT'S DISCUSSION AND ANALYSIS Forward Looking Statements: The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes," "anticipates," "contemplates," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, risks associated with the effect of opening a new branch, the ability to control costs and expenses, and general economic conditions. The Corporation undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Financial Condition: Total assets of Juniata Valley Financial Corp. totaled $365,830,000 as of June 30, 2002, an increase of $9,073,000 or 2.54% from December 31, 2001. This increase is a result of the increase in deposits of $8,556,000. Some of the increase in deposits was created by the uncertainty in the capital markets; customers do not know where to hold their money until the markets improve. These deposits were used to fund the increase in loan demand of $2,776,000 and to pay for the decrease in short-term borrowings of $1,275,000. Also the increase in deposits was used for purchases of investment securities which exceeded maturity proceeds by $1,088,000, and provide stockholders with a cash dividend payment of $1,005,000. All of this resulted in an increase in cash and cash equivalents of $4,189,000. There are no material loans classified for regulatory purposes as loss, doubtful, substandard or special mention which management expects to significantly impact future operating results, liquidity or capital resources. Additionally, management is not aware of any information which would give serious doubt as to the ability of its borrowers to substantially comply with their loan repayment terms. The Corporation's problem loans (i.e., 90 days past due and restructured loans) were not material for all periods presented. Management is not aware of any current recommendations of the regulatory authorities which, if implemented, would have a material effect on the Corporation's liquidity, capital resources, or operations. 10. Results of Operations: Interest income decreased $733,000 or 5.87% for the six months of 2002 over 2001. For the quarter the decrease was $273,000 or 4.42%. The decrease for interest income on loans for six months of $704,000 is because of a decline in rates. The increase in interest income for taxable securities of $194,000 is due to higher volume in the first six months in 2002 over 2001. Tax-exempt securities had a decrease of $5,000 over the same period. The decline in interest income other of $218,000 is a decline in the dollar amount of federal funds sold. Since November 2001 management has made an effort to keep federal funds to a minimum by purchasing time certificate of deposits in other banks. Interest expense decreased by $1,418,000 or 23.07% for the first six months of 2002 over 2001 and $768,000 or 24.99% for the quarter. Interest income and expense for the first six months ended June 30, 2002, versus 2001, reflect the declining interest rate environment for both interest earning assets and interest bearing liabilities. This resulted in an increase in net interest income of $685,000 or 10.81% for the six months ended June 30, 2002 and $495,000 or 15.97% for the quarter. The increase in the allowance for loan losses is based upon quarterly loan portfolio reviews by management and a committee of the Board. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries and assess general economic conditions in the market served. Net charge-offs at June 30, 2002, were $43,000 compared to $88,000 at June 30, 2001. Past due and nonaccrual loans at June 30, 2002, were $3,356,000. At June 30, 2001, this amount for past due and nonaccrual loans was $3,158,000. Depending upon the state of the economy and the impact thereon to these borrowers, as well as future events, these loans and others not currently so identified could be classified as non-performing assets in the future. The increase in the provision is not reflective of a decline in underwriting standards or potential problem loans. Other income has increased $93,000 or 10.01% for the first six months of 2002 over 2001. For the quarter ended June 30, 2002, there has been a decline of $46,000 or 8.17%. Trust department income has decreased $25,000, customer service fees have increased $15,000, and other income has increased $103,000. The decrease in trust department income is a result of estate settlements in 2001 over 2002. The increase in customer service fees is a result of higher transaction volume as opposed to an increase in fees. The other category increase can be attributed to a bank owned life insurance which added $25,000 in 2002 over 2001, an increase in mutual fund commissions of $68,000, and an increase of $11,000 in credit card interchange fees. Other expenses increased $169,000 or 3.93% for the first six months ended June 30, 2002 over 2001 and $140,000 or 6.53% for the quarter. The $55,000 increase in salary and wages for the first six months ended June 30, 2002, compared to 2001, can be attributed to normal merit increases. The $37,000 increase in employee benefits is reflective of increases in the costs as opposed to additional benefits. The $54,000 increase in occupancy is a result of increased costs for the financial center that was occupied in December 2000. The small increase of $2,000 in equipment cost is from the renegotiation of a computer processing contract. The $13,000 decrease in director's fees is from a retirement plan which is now fully funded. The $10,000 increase in taxes, other than income is an increase in Pennsylvania Bank Shares Tax. The $24,000 increase in other expenses can be attributed to $12,000 consulting service fees and $12,000 of legal fees for loan collection. The increase in federal income taxes is due to increased income. All of these factors combined have contributed to an increase in net income of $417,000 or 18.54% for the first six months ended June 30, 2002 over 2001 and $170,000 or 14.66% for the quarter. 11. Liquidity: The objective of liquidity management is to ensure that sufficient funding is available, at a reasonable cost, to meet the ongoing operational cash needs of the Corporation and to take advantage of income producing opportunities as they arise. While the desired level of liquidity will vary depending upon a variety of factors, it is the primary goal of the Corporation to maintain a high level of liquidity in all economic environments. Principal sources of asset liquidity are provided by securities maturing in one year or less, other short-term investments such as federal funds sold and cash and due from banks. Liability liquidity, which is more difficult to measure, can be met by attracting deposits and maintaining the core deposit base. The Corporation joined the Federal Home Loan Bank of Pittsburgh in August of 1993 for the purpose of providing short-term liquidity when other sources are unable to fill these needs. In view of the primary and secondary sources previously mentioned, Management believes that the Corporation's liquidity is capable of providing the funds needed to meet loan demand. Interest Rate Sensitivity: Interest rate sensitivity management is the responsibility of the Asset/Liability Management Committee. This process involves the development and implementation of strategies to maximize net interest margin, while minimizing the earnings risk associated with changing interest rates. The traditional gap analysis identifies the maturity and repricing terms of all assets and liabilities. As of June 30, 2002, the Corporation had a six-month negative gap of $18,697,000. Generally a liability sensitive position indicates that more liabilities than assets are expected to reprice within the time period and that falling interest rates could positively affect net interest income while rising interest rates could negatively affect net interest income. However, the 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. 12. Capital Adequacy: The Bank's regulatory capital ratios for the periods presented are as follows: Risk Weighted Assets Ratio: Actual Required ------ -------- June 30, December 31, June 30, December 31, 2002 2001 2002 2001 -------- ------------ -------- ------------ TIER I 18.64% 18.46% 4.0% 4.0% TIER I & II 19.77% 19.56% 8.0% 8.0% Total Assets Leveraged Ratio: TIER I 12.17% 11.98% 4.0% 4.0% At June 30, 2002, the Corporation and the Bank exceed the regulatory requirements to be considered a "well capitalized" financial institution. Quantitative and Qualitative Disclosures About Market Risk: From January 1, 2001 to December 31, 2001, the Federal Reserve has lowered the federal funds rate eight times by 425 basis points. We are currently in the lowest interest rate environment in 40 years. Net interest margin for the Bank was 4.34% at June 30, 2001 and increased to 4.44% at June 30, 2002. Because of the extent to which rates have declined this year, the Bank has become more sensitive to future rate declines and expects added compression of the net interest margin. Currently, the Bank has 28.09% of its deposits in NOW, money market and savings accounts, which it considers core deposits. These type of interest bearing deposit accounts carry lower rates relative to other types of deposits. Because of this, these accounts have contributed significantly to the net interest margin. However, there is an ultimate floor to which the rates on these accounts can fall. Under current conditions, the inability to further decrease these deposits rates while loan and other earning assets continue to drop and reprice at lower rates will result in further compression of the net interest margin. The added risk in this interest rate environment is that as the rates on the core deposits bottom-out, investors could migrate to other types of accounts paying higher rates. The last financial simulation performed by the Bank as of March 31, 2002, showed a possible decline in net interest income of $348,000 in a -200 basis point rate shock over a one year period. This reflected a change in the assumptions that the rates on NOW and savings accounts would remain constant in a +/-200 basis point rate shock. The net interest income at risk position remains within the guidelines established by the Bank's asset/liability policy. The Bank continues to monitor and manage its rate sensitivity during these unusual times. No material change has been noted in the Bank's equity value at risk. Please refer to the Annual Report on Form 10-K as of December 31, 2001, for further discussion of this matter. 13. Part II. Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holder None Item 5. Other information None Item 6. Exhibits None Form 8-K None This report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. Sections 78m or 78o(d)), and the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Juniata Valley Financial Corp. (Registrant) Date By -------------------------------- ------------------------------------- Francis J. Evanitsky, President Date By -------------------------------- ------------------------------------- Linda L. Engle, Treasurer