10-Q 1 v344215_10q.htm 10-Q

    

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 March 31, 2013

OR

¨ 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 __________________________ 000-13232_________________________

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 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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).                                                

                                                                                               x Yes                    ¨ No

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨ Accelerated filer  x
Non-accelerated filer   ¨ (Do not check if a smaller reporting company) Smaller reporting company  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes x No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding as of May 8, 2013
Common Stock ($1.00 par value)   4,218,361 shares

  

 
 

 

TABLE OF CONTENTS

 

  PART I - FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Consolidated Statements of Financial Condition as of March 31, 2013 and December 31, 2012 (Unaudited) 3
     
  Consolidated Statements of Income for the Three  Months Ended March 31, 2013 and 2012 (Unaudited) 4
     
  Consolidated Statements of Comprehensive Income for the Three  Months Ended March 31, 2013 and 2012 (Unaudited) 5
     
  Consolidated Statements of Stockholders’ Equity  for the Three Months Ended March 31, 2013 and 2012 (Unaudited) 6
     
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (Unaudited) 7
     
  Notes to Consolidated Financial Statements (Unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 36
     
Item 4. Controls and Procedures 37
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 38
     
Item 1A. Risk Factors 38
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38
     
Item 3. Defaults upon Senior Securities 38
     
Item 4. Mine Safety Disclosures 38
     
Item 5. Other Information 38
     
Item 6. Exhibits 39
     
  Signatures 40

  

2
 

  

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Financial Condition

 ( Unaudited, in thousands, except share data)

 

   March 31,   December 31, 
   2013   2012 
ASSETS          
Cash and due from banks  $6,705   $14,261 
Interest bearing deposits with banks   4,834    136 
Cash and cash equivalents   11,539    14,397 
           
Interest bearing time deposits with banks   847    847 
Securities available for sale   129,082    122,338 
Restricted investment in Federal Home Loan Bank (FHLB) stock   1,472    1,726 
Investment in unconsolidated subsidiary   4,034    4,000 
Loans held for sale   380    - 
Loans   272,108    277,500 
Less: Allowance for loan losses   (2,316)   (3,281)
Total loans, net of allowance for loan losses   269,792    274,219 
Premises and equipment, net   6,352    6,472 
Other real estate owned   162    428 
Bank owned life insurance and annuities   14,508    14,402 
Equity investment in low income housing project   3,946    3,796 
Core deposit intangible   153    164 
Goodwill   2,046    2,046 
Accrued interest receivable and other assets   4,454    4,034 
Total assets  $448,767   $448,869 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Liabilities:          
Deposits:          
Non-interest bearing  $70,524    71,318 
Interest bearing   317,954    315,433 
Total deposits   388,478    386,751 
           
Securities sold under agreements to repurchase   3,828    3,836 
Short-term borrowings   -    1,600 
Other interest bearing liabilities   1,309    1,305 
Accrued interest payable and other liabilities   4,769    5,080 
Total liabilities   398,384    398,572 
Stockholders' Equity:          
Preferred stock, no par value:          
Authorized - 500,000 shares, none issued   -    - 
Common stock, par value $1.00 per share:          
Authorized - 20,000,000 shares          
Issued - 4,745,826 shares          
Outstanding -          
4,218,361 shares at March 31, 2013;          
4,218,361 shares at December 31, 2012   4,746    4,746 
Surplus   18,352    18,346 
Retained earnings   38,902    38,824 
Accumulated other comprehensive loss   (1,417)   (1,419)
Cost of common stock in Treasury:          
527,465 shares at March 31, 2013;          
527,465 shares at December 31, 2012   (10,200)   (10,200)
Total stockholders' equity   50,383    50,297 
Total liabilities and stockholders' equity  $448,767   $448,869 

 

See Notes to Consolidated Financial Statements

 

3
 

 

Juniata Valley Financial Corp. and Subsidiary

 Consolidated Statements of Income

(Unaudited, in thousands, except share and per share data)

  

   Three Months Ended 
   March 31, 
   2013   2012 
Interest income:          
Loans, including fees  $3,690   $4,195 
Taxable securities   297    330 
Tax-exempt securities   151    178 
Other interest income   6    8 
Total interest income   4,144    4,711 
Interest expense:          
Deposits   757    965 
Securities sold under agreements to repurchase   1    1 
Other interest bearing liabilities   5    6 
Total interest expense   763    972 
Net interest income   3,381    3,739 
Provision for loan losses   80    1,108 
Net interest income after provision for loan losses   3,301    2,631 
Non-interest income:          
Customer service fees   310    313 
Debit card fee income   194    204 
Earnings on bank-owned life insurance and annuities   97    106 
Trust fees   89    106 
Commissions from sales of non-deposit products   116    87 
Income from unconsolidated subsidiary   54    57 
Fees derived from loan activity   60    39 
Gains on sales of loans   96    65 
Gains on calls of securities   1    - 
Other non-interest income   60    65 
Total non-interest income   1,077    1,042 
Non-interest expense:          
Employee compensation expense   1,223    1,278 
Employee benefits   462    535 
Occupancy   245    229 
Equipment   120    133 
Data processing expense   354    356 
Director compensation   57    59 
Professional fees   95    88 
Taxes, other than income   123    118 
FDIC Insurance premiums   90    79 
(Gain) loss on sales of other real estate owned   (26)   2 
Amortization of intangibles   11    11 
Other non-interest expense   281    357 
Total non-interest expense   3,035    3,245 
Income before income taxes   1,343    428 
Provision for income taxes   337    10 
Net income  $1,006   $418 
Earnings per share          
Basic  $0.24   $0.10 
Diluted  $0.24   $0.10 
Cash dividends declared per share  $0.22   $0.22 
Weighted average basic shares outstanding   4,218,361    4,228,218 
Weighted average diluted shares outstanding   4,219,526    4,231,276 

 

See Notes to Consolidated Financial Statements

 

4
 

 

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

 

  

Three Months Ended March 31,

2013

  

Three Months Ended March 31,

2012

 
   Before       Net of   Before       Net of 
   Tax   Tax   Tax   Tax   Tax   Tax 
   Amount   Effect   Amount   Amount   Effect   Amount 
Net income  $1,343   $(337)  $1,006   $428   $(10)  $418 
Other comprehensive income (loss):                              
                               
Unrealized losses on available for sale securities:                              
                               
Unrealized holding losses arising during the period   (39)   13    (26)   (22)   8    (14)
                               
Unrealized holding losses from unconsolidated subsidiary   (5)   -    (5)   (1)   -    (1)
                               
Less reclassification adjustment for gains included in net income  (1) (3)   (1)   -    (1)   -    -    - 
                               
Amortization of pension net actuarial cost (2) (3)   51    (17)   34    74    (25)   49 
                               
Other comprehensive income   6    (4)   2    51    (17)   34 
                               
Total comprehensive income  $1,349   $(341)  $1,008   $479   $(27)  $452 

 

See Notes to Consolidated Financial Statements

 

(1)Amounts are included in gains on calls of securities on the Consolidated Statements of Income as a separate element within total non-interest income.
(2)Amounts are included in the computation of net periodic benefit cost and are included in employee benefits on the Consolidated Statements of Income as a separate element within total non-interest expense.
(3)Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.

  

5
 

  

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Stockholders' Equity

 (Unaudited, in thousands, except share data)

Three Months Ended March 31, 2013

  

   Number               Accumulated         
   of               Other       Total 
   Shares   Common       Retained   Comprehensive   Treasury   Stockholders' 
   Outstanding   Stock   Surplus   Earnings   Loss   Stock   Equity 
Balance at January 1, 2013   4,218,361   $4,746   $18,346   $38,824   $(1,419)  $(10,200)  $50,297 
Net income                  1,006              1,006 
Other comprehensive income                       2         2 
Cash dividends at $0.22 per share                  (928)             (928)
Stock-based compensation             6                   6 
Balance at March 31, 2013   4,218,361   $4,746   $18,352   $38,902   $(1,417)  $(10,200)  $50,383 

  

Three Months Ended March 31, 2012
   Number               Accumulated         
   of               Other       Total 
   Shares   Common       Retained   Comprehensive   Treasury   Stockholders' 
   Outstanding   Stock   Surplus   Earnings   Loss   Stock   Equity 
Balance at January 1, 2012   4,228,218   $4,746   $18,363   $38,900   $(2,256)  $(10,033)  $49,720 
Net income                  418              418 
Other comprehensive income                       34         34 
Cash dividends at $0.22 per share                  (930)             (930)
Stock-based compensation             5                   5 
Treasury stock issued for                                   
stock option and stock                                   
purchase plans   1,450         (7)             28    21 
Balance at March 31, 2012   4,229,668   $4,746   $18,361   $38,388   $(2,222)  $(10,005)  $49,268 

 

See Notes to Consolidated Financial Statements

 

6
 

 

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows

 (Unaudited, in thousands)

 

   Three Months Ended March 31, 
   2013   2012 
Operating activities:          
Net income  $1,006   $418 
Adjustments to reconcile net income to net cash provided by operating activities:          
Provision for loan losses   80    1,108 
Depreciation and amortization   131    134 
Net amortization of securities premiums   111    95 
Net amortization of loan origination costs   13    3 
Deferred net loan origination fees (costs)   (2)   3 
Amortization of core deposit intangible   11    11 
Net realized gains on calls of securities   (1)   - 
Net (gains) losses on sales of other real estate owned   (26)   2 
Earnings on bank owned life insurance and annuities   (97)   (106)
Deferred income tax expense   29    91 
Equity in earnings of unconsolidated subsidiary, net of dividends of $15 and $14   (39)   (43)
Stock-based compensation expense   6    5 
Mortgage loans originated for sale   (3,690)   (1,430)
Proceeds from loans sold to others   3,382    1,430 
Net gains on sales of loans   (96)   - 
Increase in accrued interest receivable and other assets   (431)   (516)
Decrease in accrued interest payable and other liabilities   (249)   (326)
Net cash provided by operating activities   138    879 
Investing activities:          
Purchases of:          
Securities available for sale   (14,227)   (24,711)
Premises and equipment   (11)   (48)
Bank owned life insurance and annuities   (18)   (18)
Proceeds from:          
Maturities of and principal repayments on securities available for sale   7,333    20,905 
Redemption of FHLB stock   254    85 
Bank owned life insurance and annuities   2    4 
Sale of other real estate owned   354    116 
Sale of other assets   2    2 
Investment in low income housing partnership   (150)   (167)
Net decrease in loans   4,274    3,839 
Net cash (used in) provided by investing activities   (2,187)   7 
Financing activities:          
Net increase in deposits   1,727    7,660 
Net change in  securities sold under agreements to repurchase and short-term borrowings   (1,608)   (381)
Cash dividends   (928)   (930)
Treasury stock issued for employee stock plans   -    21 
Net cash  (used in) provided by financing activities   (809)   6,370 
Net (decrease) increase in cash and cash equivalents   (2,858)   7,256 
Cash and cash equivalents at beginning of year   14,397    14,174 
Cash and cash equivalents at end of period  $11,539   $21,430 
Supplemental information:          
Interest paid  $791   $973 
Income taxes paid   75    150 
Supplemental schedule of noncash investing and financing activities:          
Transfer of loans to other real estate owned  $62   $279 

 

See Notes to Consolidated Financial Statements

  

7
 

 

JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

1. Basis of Presentation and Accounting Policies

 

The consolidated financial statements include the accounts of Juniata Valley Financial Corp. (the “Company”) and its wholly owned subsidiary, The Juniata Valley Bank (the “Bank”). All significant intercompany accounts and transactions have been eliminated.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (U.S. GAAP) for complete consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included. For comparative purposes, whenever necessary, the 2012 balances have been reclassified to conform to the 2013 presentation. Such reclassifications, if any, had no impact on net income. Operating results for the three month period ended March 31, 2013, are not necessarily indicative of the results for the year ending December 31, 2013. For further information, refer to the consolidated financial statements and notes thereto included in Juniata Valley Financial Corp.’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of March 31, 2013 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

 

2. Recent Accounting Standards Updates (ASU)

 

There were no new accounting pronouncements affecting the Company during the three months ended March 31, 2013 that were not already incorporated into the disclosures.

 

3. Accumulated other Comprehensive loss

 

Components of accumulated other comprehensive loss, net of tax consisted of the following (in thousands):

 

   3/31/2013   12/31/2012 
Unrealized gains on available for sale securities  $768   $800 
Unrecognized expense for defined benefit pension   (2,185)   (2,219)
Accumulated other comprehensive loss  $(1,417)  $(1,419)

 

8
 

 

4. Earnings Per Share

 

Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share:

  

(Amounts, except earnings per share, in thousands) 
   Three Months   Three Months 
   Ended   Ended 
   March 31, 2013   March 31, 2012 
         
Net income  $1,006   $418 
Weighted-average common shares outstanding   4,218    4,228 
Basic earnings per share  $0.24   $0.10 
           
Weighted-average common shares outstanding   4,218    4,228 
Common stock equivalents due to effect of stock options   1    3 
Total weighted-average common shares and equivalents   4,219    4,231 
Diluted earnings per share  $0.24   $0.10 

 

5.Securities

 

The Company’s investment portfolio includes primarily bonds issued by U.S. Government sponsored agencies (approximately 63%) and municipalities (approximately 35%) as of March 31, 2013. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years. The remaining 2% of the portfolio includes mortgage-backed securities issued by Government-sponsored agencies and backed by residential mortgages and a group of equity investments in other financial institutions.

 

The amortized cost and fair value of securities as of March 31, 2013 and December 31, 2012, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

 

   March 31, 2013 
Securities Available for Sale          Gross   Gross 
   Amortized   Fair   Unrealized   Unrealized 
Type and maturity  Cost   Value   Gains   Losses 
Obligations of Government agencies and corporations                    
Within one year  $7,892   $7,954   $62   $- 
After one year but within five years   42,237    42,712    475    - 
After five years but within ten years   30,119    30,093    34    (60)
    80,248    80,759    571    (60)
Obligations of state and political subdivisions                    
Within one year   8,894    8,927    33    - 
After one year but within five years   29,927    30,168    260    (19)
After five years but within ten years   4,721    4,927    214    (8)
After ten years   727    718    -    (9)
    44,269    44,740    507    (36)
Mortgage-backed securities   2,435    2,456    21    - 
Equity securities   985    1,127    223    (81)
Total  $127,937   $129,082   $1,322   $(177)

 

9
 

  

   December 31, 2012 
Securities Available for Sale          Gross   Gross 
   Amortized   Fair   Unrealized   Unrealized 
Type and maturity  Cost   Value   Gains   Losses 
Obligations of Government agencies and corporations                    
Within one year  $7,908   $7,996   $88   $- 
After one year but within five years   42,253    42,796    543    - 
After five years but within ten years   22,004    22,025    53    (32)
    72,165    72,817    684    (32)
Obligations of state and political subdivisions                    
Within one year   10,448    10,505    57    - 
After one year but within five years   29,595    29,809    246    (32)
After five years but within ten years   4,727    4,936    215    (6)
After ten years   731    726    -    (5)
    45,501    45,976    518    (43)
Mortgage-backed securities   2,502    2,526    24    - 
Equity securities   985    1,019    145    (111)
Total  $121,153   $122,338   $1,371   $(186)

 

Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The carrying value of the pledged assets was $28,789,000 and $30,785,000 at March 31, 2013 and December 31, 2012, respectively.

 

In addition to cash received from the scheduled maturities of securities, some investment securities available for sale are sold at current market values during the course of normal operations. Following is a summary of proceeds received from all investment securities transactions and the resulting realized gains and losses (in thousands):

 

   Three Months Ended 
   March 31, 
   2013   2012 
Gross proceeds from sales of securities  $-   $- 
Securities available for sale:          
Gross realized gains from called securities  $1   $- 
Gross realized losses   -    - 

  

Accounting Standards Codification (ASC) Topic 320, Investments – Debt and Equity Securities, clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. For equity securities, consideration is given to management’s intention and ability to hold the securities until recovery of unrealized losses in assessing potential other-than-temporary impairment. More specifically, considerations used to determine other-than-temporary impairment status for individual equity holdings include the length of time the stock has remained in an unrealized loss position, the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent developments that would affect expectations for recovery or further decline.

 

In instances when a determination is made that an other-than-temporary impairment exists and the entity does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

 

10
 

 

The following table shows gross unrealized losses and fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2013 and December 31, 2012 (in thousands):

 

   Unrealized Losses at March 31, 2013 
   Less Than 12 Months   12 Months or More   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
Obligations of U.S. Government  agencies and corporations  $17,463   $(60)  $-   $-   $17,463   $(60)
Obligations of state and political  subdivisions   8,773    (36)   -    -    8,773    (36)
Debt securities   26,236    (96)   -    -    26,236    (96)
                               
Equity securities   -    -    268    (81)   268    (81)
                               
Total temporarily impaired securities  $26,236   $(96)  $268   $(81)  $26,504   $(177)

 

   Unrealized Losses at December 31, 2012 
   Less Than 12 Months   12 Months or More   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
Obligations of U.S. Government agencies and corporations  $11,471   $(32)  $-   $-   $11,471   $(32)
Obligations of state and political subdivisions   13,040    (43)   -    -    13,040    (43)
Debt securities   24,511    (75)   -    -    24,511    (75)
                               
Equity securities   249    (13)   251    (98)   500    (111)
                               
Total temporarily impaired securities  $24,760   $(88)  $251   $(98)  $25,011   $(186)

 

There are 34 debt securities that were in an unrealized loss position on March 31, 2013, but none that have had unrealized losses for more than 12 months. These securities depreciated 0.7% from their amortized cost basis. The unrealized losses noted above are considered to be temporary impairments. The decline in the values of the debt securities is due only to interest rate fluctuations, rather than erosion of issuer credit quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. As management does not intend to sell the securities, does not believe the Company will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, none of the debt securities are deemed to be other-than-temporarily impaired.

 

Equity securities owned by the Company consist of common stock of various financial services providers (“Bank Stocks”) and are evaluated quarterly for evidence of other-than-temporary impairment. There were eight equity securities that were in an unrealized loss position on March 31, 2013, and have carried unrealized losses for 12 months or more. Individually, none of these eight equity securities have significant unrealized losses and each has increased in value during the first quarter of 2013. Management has identified no other-than-temporary impairment as of March 31, 2013 in the equity portfolio. Management continues to track the performance of each stock owned to determine if it is prudent to recognize any further other-than-temporary impairment charges. The Company has the ability and intent to hold its equity securities until recovery of unrealized losses.

 

11
 

 

6. Loans and Related Allowance for Credit Losses

 

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at the outstanding unpaid principal balances, net of any deferred fees or costs and the allowance for loan losses. Interest income on all loans, other than nonaccrual loans, is accrued over the term of the loans based on the amount of principal outstanding. Unearned income is amortized to income over the life of the loans, using the interest method.

 

The loan portfolio is segmented into commercial and consumer loans. Commercial loans are comprised of the following classes of loans: (1) commercial, financial and agricultural, (2) commercial real estate, (3) real estate construction, a portion of (4) mortgage loans and (5) obligations of states and political subdivisions. Consumer loans are comprised of a portion of (4) mortgage loans and (6) personal loans.

 

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans. Accrual of interest on loans is generally discontinued when the contractual payment of principal or interest has become 90 days past due or reasonable doubt exists as to the full, timely collection of principal or interest. However, it is the Company’s policy to continue to accrue interest on loans over 90 days past due as long as they are (1) guaranteed or well secured and (2) there is an effective means of timely collection in process. When a loan is placed on non-accrual status, all unpaid interest credited to income in the current year is reversed against current period income, 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 collectability of principal. Generally, accruals are resumed on loans only when the obligation is brought fully current with respect to interest and principal, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

 

The Company originates loans in the portfolio with the intent to hold them until maturity. At the time the Company no longer intends to hold loans to maturity based on asset/liability management practices, the Company transfers loans from its portfolio to held for sale at fair value. Any write-down recorded upon transfer is charged against the allowance for loan losses. Any write-downs recorded after the initial transfers are recorded as a charge to other non-interest expense. Gains or losses recognized upon sale are included in gains on sales of loans which is a component of non-interest income.

 

The Company also originates residential mortgage loans with the intent to sell. These individual loans are normally funded by the buyer immediately. The Company maintains servicing rights on these loans, and the fair value of the servicing rights is carried as a component of other assets. Servicing rights are not material to the Company’s consolidated financial statements.

 

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses (“allowance”) represents management’s estimate of losses inherent in the loan portfolio as of the consolidated statement of financial condition date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded lending commitments and is recorded in other liabilities on the consolidated statement of financial condition, when necessary. The amount of the reserve for unfunded lending commitments is not material to the consolidated financial statements. The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

 

For financial reporting purposes, the provision for loan losses charged to current operating income is based on management's estimates, and actual losses may vary from estimates. These estimates are reviewed and adjusted at least quarterly and are reported in earnings in the periods in which they become known.

 

Loans included in any class are considered for charge-off when:

·principal or interest has been in default for 120 days or more and for which no payment has been received during the previous four months;
·all collateral securing the loan has been liquidated and a deficiency balance remains;
·a bankruptcy notice is received for an unsecured loan;
·a confirming loss event has occurred; or
·the loan is deemed to be uncollectible for any other reason.

 

12
 

 

The allowance for loan losses is maintained at a level considered adequate to offset probable losses on the Company’s existing loans. The analysis of the allowance for loan losses relies heavily on changes in observable trends that may indicate potential credit weaknesses. 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 revision as more information becomes available.

 

In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the level of the allowance for loan losses as of March 31, 2013 was adequate.

 

There are two components of the allowance: a specific component for loans that are deemed to be impaired; and a general component for contingencies.

 

A large commercial loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. A “large” loan, or group of like-loans within one relationship, is defined as a commercial/business loan, including business loans secured by 1-4 family properties included in the real estate-mortgage category, with an aggregate outstanding balance in excess of $150,000, or any other loan that management deems to have similar characteristics to an impaired large loan. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loans and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial segment loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

 

The estimated fair values of substantially all of the Company’s impaired loans are measured based on the estimated fair value of the loan’s collateral. For commercial loans secured with real estate, estimated fair values are determined primarily through third-party appraisals. When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary. This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the current appraisal and the condition of the property. Appraised values may be discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include the estimated costs to sell the property. For commercial loans secured by non-real estate collateral, estimated fair values are determined based on the borrower’s financial statements, inventory reports, aging accounts receivable, equipment appraisals or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The Bank generally does not separately identify individual consumer segment loans for impairment disclosures, unless such loans are subject to a restructuring agreement.

 

Loans whose terms are modified are classified as troubled debt restructurings if the Company grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a below-market interest rate based on the loan’s risk characteristics or an extension of a loan’s stated maturity date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period of time after modification. Loans classified as troubled debt restructurings are designated as impaired.

 

13
 

 

The component of the allowance for contingencies relates to other loans that have been segmented into risk rated categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated quarterly or when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have one or more well-defined weaknesses that jeopardize the liquidation of the debt. Substandard loans include loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. Specific reserves may be established for larger, individual classified loans as a result of this evaluation, as discussed above. Remaining loans are categorized into large groups of smaller balance homogeneous loans and are collectively evaluated for impairment. This computation is generally based on historical loss experience adjusted for qualitative factors. The historical loss experience is averaged over a ten-year period for each of the portfolio segments. The ten-year timeframe was selected in order to capture activity over a wide range of economic conditions and has been consistently used for the past seven years. The qualitative risk factors are reviewed for relevancy each quarter and include:

 

·National, regional and local economic and business conditions, as well as the condition of various market segments, including the underlying collateral for collateral dependent loans;
·Nature and volume of the portfolio and terms of loans;
·Experience, ability and depth of lending and credit management and staff;
·Volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications;
·Existence and effect of any concentrations of credit and changes in the level of such concentrations; and
·Effect of external factors, including competition.

 

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

 

14
 

 

Commercial, Financial and Agricultural Lending

 

The Company originates commercial, financial and agricultural loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for various business purposes, which include short-term loans and lines of credit to finance machinery and equipment purchases, inventory and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is shorter and does not exceed the projected useful life of such machinery and equipment. Most business lines of credit are written with a five year maturity, subject to an annual review.

 

Commercial loans are generally secured with short-term assets; however, in many cases, additional collateral, such as real estate, is provided as additional security for the loan. Loan-to-value maximum values have been established by the Company and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, collateral appraisals, etc.

 

In underwriting commercial loans, an analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as an evaluation of conditions affecting the borrower, is performed. Analysis of the borrower’s past, present and future cash flows is also an important aspect of the Company’s analysis.

 

Concentration analysis assists in identifying industry specific risk inherent in commercial, financial and agricultural lending. Mitigants include the identification of secondary and tertiary sources of repayment and appropriate increases in oversight.

 

Commercial, financial and agricultural loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.

 

Commercial Real Estate Lending

 

The Company engages in commercial real estate lending in its primary market area and surrounding areas. The Company’s commercial real estate portfolio is secured primarily by residential housing, commercial buildings, raw land and hotels. Generally, commercial real estate loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property and are typically secured by personal guarantees of the borrowers.

 

As economic conditions deteriorate, the Company reduces its exposure in real estate loans with higher risk characteristics. In underwriting these loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.

 

Commercial real estate loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions.

 

Real Estate Construction Lending

 

The Company engages in real estate construction lending in its primary market area and surrounding areas. The Company’s real estate construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.

 

The Company’s commercial real estate construction loans are generally secured with the subject property, and advances are made in conformity with a pre-determined draw schedule supported by independent inspections. Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.

 

In underwriting commercial real estate construction loans, the Company performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.

 

15
 

 

 

Real estate construction loans generally present a higher level of risk than certain other types of loans, particularly during slow economic conditions. The difficulty of estimating total construction costs adds to the risk as well.

 

Mortgage Lending

 

The Company’s real estate mortgage portfolio is comprised of consumer residential mortgages and business loans secured by one-to-four family properties. One-to-four family residential mortgage loan originations, including home equity installment and home equity lines of credit loans, are generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals. These loans originate primarily within the Company’s market area or with customers primarily from the market area.

 

The Company offers fixed-rate and adjustable rate mortgage loans with terms up to a maximum of 25-years for both permanent structures and those under construction. The Company’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The majority of the Company’s residential mortgage loans originate with a loan-to-value of 80% or less. Home equity installment loans are secured by the borrower’s primary residence with a maximum loan-to-value of 80% and a maximum term of 15 years. Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years.

 

In underwriting one-to-four family residential real estate loans, the Company evaluates the borrower’s ability to make monthly payments, the borrower’s repayment history and the value of the property securing the loan. The ability to repay is determined by the borrower’s employment history, current financial conditions, and credit background. The analysis is based primarily on the customer’s ability to repay and secondarily on the collateral or security. Most properties securing real estate loans made by the Company are appraised by independent fee appraisers. The Company generally requires mortgage loan borrowers to obtain an attorney’s title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. The Company does not engage in sub-prime residential mortgage originations.

 

Residential mortgage loans and home equity loans generally present a lower level of risk than certain other types of consumer loans because they are secured by the borrower’s primary residence. Risk is increased when the Company is in a subordinate position for the loan collateral.

 

Obligations of States and Political Subdivisions

The Company lends to local municipalities and other tax-exempt organizations. These loans are primarily tax-anticipation notes and, as such, carry little risk. Historically, the Company has never had a loss on any loan of this type.

 

Personal Lending

 

The Company offers a variety of secured and unsecured personal loans, including vehicle loans, mobile home loans and loans secured by savings deposits as well as other types of personal loans.

 

Personal loan terms vary according to the type and value of collateral and creditworthiness of the borrower. In underwriting personal loans, a thorough analysis of the borrower’s willingness and financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower’s employment history, current financial conditions and credit background.

 

Personal loans may entail greater credit risk than do residential mortgage loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, personal loan collections are dependent on the borrower’s continuing financial stability and, thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

 

16
 

 

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of March 31, 2013 and December 31, 2012 (in thousands):

  

As of March 31, 2013  Pass   Special
Mention
   Substandard   Doubtful   Total 
                     
Commercial, financial and agricultural  $17,649   $1,414   $238   $-   $19,301 
Real estate - commercial   53,623    12,044    3,074    40    68,781 
Real estate - construction   14,021    1,018    880    2,198    18,117 
Real estate - mortgage   141,539    2,631    3,499    1,661    149,330 
Obligations of states and political subdivisions   11,895    -    -    -    11,895 
Personal   4,674    -    10    -    4,684 
Total  $243,401   $17,107   $7,701   $3,899   $272,108 

 

As of December 31, 2012  Pass   Special
Mention
   Substandard   Doubtful   Total 
                     
Commercial, financial and agricultural  $17,570   $904   $822   $-   $19,296 
Real estate - commercial   55,198    8,939    5,010    40    69,187 
Real estate - construction   14,001    1,022    867    2,202    18,092 
Real estate - mortgage   144,179    3,864    2,350    2,729    153,122 
Obligations of states and political subdivisions   12,769    -    -    -    12,769 
Personal   5,024    10    -    -    5,034 
Total  $248,741   $14,739   $9,049   $4,971   $277,500 

 

The Company has certain loans in its portfolio that are considered to be impaired. It is the policy of the Company to recognize income on impaired loans that have been transferred to nonaccrual status on a cash basis, only to the extent that it exceeds principal balance recovery. Until an impaired loan is placed on nonaccrual status, income is recognized on the accrual basis. Collateral analysis is performed on each impaired loan at least quarterly and results are used to determine if a specific reserve is necessary to adjust the carrying value of each individual loan down to the estimated fair value. Generally, specific reserves are carried against impaired loans based upon estimated collateral value until a confirming loss event occurs or until termination of the credit is scheduled through liquidation of the collateral or foreclosure. Charge off will occur when a confirmed loss is identified. Professional appraisals of collateral, discounted for expected selling costs, appraisal age, economic conditions and other known factors are used to determine the charge-off amount. The following tables summarize information regarding impaired loans by portfolio class as of March 31, 2013 and December 31, 2012 (in thousands):

 

17
 

  

   As of March 31, 2013   As of December 31, 2012 
Impaired loans  Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
   Recorded
Investment
   Unpaid
Principal
Balance
   Related
Allowance
 
With no related allowance recorded:                              
Commercial, financial and agricultural  $146   $146   $-   $160   $160   $- 
Real estate - commercial   2,586    2,655    -    2,672    2,672    - 
Real estate - construction   1,297    1,297    -    2,004    2,197    - 
Real estate - mortgage   1,939    3,156    -    487    523    - 
                               
With an allowance recorded:                              
Real estate - construction  $901   $1,108   $117   $198   $198   $91 
Real estate - mortgage   -    -    -    2,141    2,141    1,036 
                               
Total:                              
Commercial, financial and agricultural  $146   $146   $-   $160   $160   $- 
Real estate - commercial   2,586    2,655    -    2,672    2,672    - 
Real estate - construction   2,198    2,405    117    2,202    2,395    91 
Real estate - mortgage   1,939    3,156    -    2,628    2,664    1,036 
   $6,869   $8,362   $117   $7,662   $7,891   $1,127 

 

   Three Months Ended March 31, 2013   Three Months Ended March 31, 2012 
Impaired loans  Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Interest
Income
   Average
Recorded
Investment
   Interest
Income
Recognized
   Cash Basis
Interest
Income
 
With no related allowance recorded:                              
Commercial, financial and agricultural  $153   $3   $-   $227   $4   $- 
Real estate - commercial   2,629    27    -    2,547    41    - 
Real estate - construction   1,651    -    -    360    -    - 
Real estate - mortgage   1,213    -    -    1,407    -    - 
                               
With an allowance recorded:                              
Real estate - construction  $550   $-   $-   $1,025   $-   $- 
Real estate - mortgage   1,071    -    -    3,630    -    - 
                               
Total:                              
Commercial, financial and agricultural  $153   $3   $-   $227   $4   $- 
Real estate - commercial   2,629    27    -    2,547    41    - 
Real estate - construction   2,201    -    -    1,385    -    - 
Real estate - mortgage   2,284    -    -    5,037    -    - 
   $7,267   $30   $-   $9,196   $45   $- 

  

18
 

 

The following table presents nonaccrual loans by classes of the loan portfolio as of March 31, 2013 and December 31, 2012 (in thousands):

  

Nonaccrual loans:  March 31, 2013   December 31, 2012 
Commercial, financial and agricultural  $18   $20 
Real estate - commercial   1,692    1,835 
Real estate - construction   2,398    2,376 
Real estate - mortgage   4,347    4,615 
Total  $8,455   $8,846 

 

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of March 31, 2013 and December 31, 2012 (in thousands):

 

As of March  31, 2013  30-59
Days
Past Due
   60-89
Days
Past Due
   Greater
than 90
Days
   Total
Past
Due
   Current   Total
Loans
   Loans Past
Due
greater
than 90
Days and
Accruing
 
                             
Commercial, financial and agricultural  $-   $-   $18   $18   $19,283   $19,301   $- 
Real estate - commercial   1,304    161    1,625    3,090    65,691    68,781    - 
Real estate - construction   22    536    2,204    2,762    15,355    18,117    - 
Real estate - mortgage   2,091    391    4,160    6,642    142,688    149,330    353 
Obligations of states and political subdivisions   -    -    -    -    11,895    11,895    - 
Personal   35    2    -    37    4,647    4,684    - 
Total  $3,452   $1,090   $8,007   $12,549   $259,559   $272,108   $353 

 

As of December 31, 2012  30-59
Days
Past Due
   60-89
Days
Past Due
   Greater
than 90
Days
   Total
Past
Due
   Current   Total
Loans
   Loans Past
Due
greater
than 90
Days and
Accruing
 
                             
Commercial, financial and agricultural  $30   $-   $191   $221   $19,075   $19,296   $171 
Real estate - commercial   295    819    1,928    3,042    66,145    69,187    93 
Real estate - construction   9    136    2,335    2,480    15,612    18,092    156 
Real estate - mortgage   1,359    3,131    4,428    8,918    144,204    153,122    320 
Obligations of states and political subdivisions   -    -    -    -    12,769    12,769    - 
Personal   29    25    2    56    4,978    5,034    2 
Total  $1,722   $4,111   $8,884   $14,717   $262,783   $277,500   $742 

 

19
 

 

The following table summarizes information regarding troubled debt restructurings by loan portfolio class at March 31, 2013. There were no loans identified as troubled debt restructurings during 2012.

 

   Number of
Contracts
   Pre-Modification
Outstanding
Recorded
Investment
   Post-Modification
Outstanding
Recorded
Investment
   Recorded
Investment
 
As of March 31, 2013                    
Accruing troubled debt restructurings:                    
Real estate - mortgage   1   $364   $371   $371 

 

The Company’s troubled debt restructuring is also an impaired loan, which may result in a specific allocation and subsequent charge-off if appropriate. As of March 31, 2013, there were no specific reserves or charge-offs relating to the troubled debt restructuring. Terms of the restructured loan, which was restructured during the quarter ended March 31, 2013, deferred principal payments for one year. The restructured loan was current with respect to its forbearance agreement.

 

The following tables summarize the activity in the allowance for loan losses and recorded investments in loans receivable (in thousands):

 

As of, and for the period ended March 31, 2013

 

Allowance for loan losses:  Commercial,
financial and
agricultural
   Real estate -
commercial
   Real estate -
construction
   Real estate -
mortgage
   Obligations
of states and
political
subdivisions
   Personal   Total 
Beginning Balance, January 1, 2013  $179   $463   $202   $2,387   $-   $50   $3,281 
Charge-offs   -    -    -    (1,038)   -    (10)   (1,048)
Recoveries   -    -    -    -    -    3    3 
Provisions   14    7    19    36    -    4    80 
Ending balance, March 31, 2013  $193   $470   $221   $1,385   $-   $47   $2,316 

 

As of March 31, 2013  Commercial,
financial and
agricultural
   Real estate -
commercial
   Real estate -
construction
   Real estate -
mortgage
   Obligations
of states and
political
subdivisions
   Personal   Total 
Allowance for loan losses:                            
Ending balance  $193   $470   $221   $1,385   $-   $47   $2,316 
evaluated for impairment                                   
individually  $-   $-   $117   $-   $-   $-   $117 
collectively  $193   $470   $104   $1,385   $-   $47   $2,199 
                                    
Loans:                                   
Ending balance  $19,301   $68,781   $18,117   $149,330   $11,895   $4,684   $272,108 
evaluated for impairment                                   
individually  $146   $2,586   $2,198   $1,939   $-   $-   $6,869 
collectively  $19,155   $66,195   $15,919   $147,391   $11,895   $4,684   $265,239 

 

20
 

 

As of, and for the period ended March 31, 2012

 

Allowance for loan losses:  Commercial,
financial and
agricultural
   Real estate -
commercial
   Real estate -
construction
   Real estate -
mortgage
   Obligations
of states and
political
subdivisions
   Personal   Total 
Beginning Balance, January 1, 2012  $195   $455   $442   $1,771   $-   $68   $2,931 
   Charge-offs   (2)   -    -    (155)   -    (1)   (158)
   Recoveries   1    -    -    -    -    1    2 
   Provisions   -    (52)   (171)   1,335    -    (4)   1,108 
Ending balance, March 31, 2012  $194   $403   $271   $2,951   $-   $64   $3,883 

  

As of March 31, 2012  Commercial,
financial and
agricultural
   Real estate -
commercial
   Real estate -
construction
   Real estate -
mortgage
   Obligations
of states and
political
subdivisions
   Personal   Total 
Allowance for loan losses:                                   
Ending balance  $194   $403   $271   $2,951   $-   $64   $3,883 
evaluated for impairment                                   
individually  $-   $-   $193   $1,662   $-   $-   $1,855 
collectively  $194   $403   $78   $1,289   $-   $64   $2,028 
                                    
Loans:                                   
Ending balance  $19,353   $65,841   $12,087   $170,383   $11,516   $6,221   $285,401 
evaluated for impairment                                   
individually  $216   $2,781   $900   $4,954   $-   $-   $8,851 
collectively  $19,137   $63,060   $11,187   $165,429   $11,516   $6,221   $276,550 

 

As of December 31, 2012

 

As of December 31, 2012  Commercial,
financial and
agricultural
   Real estate -
commercial
   Real estate -
construction
   Real estate -
mortgage
   Obligations
of states and
political
subdivisions
   Personal   Total 
Allowance for loan losses:                                   
Ending balance  $179   $463   $202   $2,387   $-   $50   $3,281 
evaluated for impairment                                   
individually  $-   $-   $91   $1,036   $-   $-   $1,127 
collectively  $179   $463   $111   $1,351   $-   $50   $2,154 
                                    
Loans:                                   
Ending balance  $19,296   $69,187   $18,092   $153,122   $12,769   $5,034   $277,500 
evaluated for impairment                                   
individually  $160   $2,672   $2,202   $2,628   $-   $-   $7,662 
collectively  $19,136   $66,515   $15,890   $150,494   $12,769   $5,034   $269,838 

 

7. Acquisition

 

On September 8, 2006, the Company completed its acquisition of a branch office in Richfield, PA. The acquisition included real estate, deposits and loans. The assets and liabilities of the acquired branch office were recorded on the consolidated statement of financial condition at their estimated fair values as of September 8, 2006, and its results of operations have been included in the consolidated statements of income since such date.

 

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Included in the purchase price of the branch was goodwill and core deposit intangible of $2,046,000 and $449,000, respectively. The core deposit intangible is being amortized over a ten-year period on a straight line basis. During the first three months of 2013 and 2012, amortization expense was $11,000. Accumulated amortization of core deposit intangible through March 31, 2013 was $296,000. The goodwill is not amortized, but is measured annually for impairment or more frequently if certain events occur which might indicate goodwill has been impaired. There was no impairment of goodwill during the three month periods ended March 31, 2013 or 2012.

 

8. Investment in Unconsolidated Subsidiary

 

The Company owns 39.16% of the outstanding common stock of Liverpool Community Bank (LCB), Liverpool, PA. This investment is accounted for under the equity method of accounting. The investment is being carried at $4,034,000 as of March 31, 2013. The Company increases its investment in LCB for its share of earnings and decreases its investment by any dividends received from LCB. The investment is evaluated quarterly for impairment. A loss in value of the investment which is determined to be other than a temporary decline would be recognized as a loss in the period in which such determination is made. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of LCB to sustain an earnings capacity which would justify the current carrying value of the investment.

 

9. Fair Value Measurement

 

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.

 

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

 

This guidance clarifies that, when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

 

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

 

22
 

 

Fair value measurement and disclosure guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

 

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

Level 3 Inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

 

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 

Securities Available for Sale. Debt securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurement from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. Equity securities classified as available for sale are reported at fair value using Level 1 inputs.

 

Impaired Loans. Certain impaired loans are reported on a non-recurring basis at the fair value of the underlying collateral since repayment is expected solely from the collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

 

Other Real Estate Owned. Certain assets included in other real estate owned are carried at fair value as a result of impairment and accordingly are presented as measured on a non-recurring basis. Values are estimated using Level 3 inputs, based on appraisals that consider the sales prices of property in the proximate vicinity.

 

23
 

 

The following table summarizes financial assets and financial liabilities measured at fair value as of March 31, 2013 and December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands). There were no transfers of assets between fair value Level 1 and Level 2 during the quarter ended March 31, 2013.

 

       (Level 1)   (Level 2)   (Level 3) 
       Quoted Prices in   Significant   Significant 
       Active Markets   Other   Other 
   March 31,   for Identical   Observable   Unobservable 
   2013   Assets   Inputs   Inputs 
Measured at fair value on a recurring basis:                    
Debt securities available-for-sale:                    
Obligations of U.S. Government agencies and corporations  $80,759   $-   $80,759   $- 
Obligations of state and political subdivisions   44,740    -    44,740    - 
Mortgage-backed securities   2,456    -    2,456    - 
Equity securities available-for-sale   1,127    1,127    -    - 
                     
Measured at fair value on a non-recurring basis:                    
Impaired loans   1,853    -    -    1,853 
Other real estate owned   50    -    -    50 

 

       (Level 1)   (Level 2)   (Level 3) 
       Quoted Prices in   Significant   Significant 
       Active Markets   Other   Other 
   December 31,   for Identical   Observable   Unobservable 
   2012   Assets   Inputs   Inputs 
Measured at fair value on a recurring basis:                    
Debt securities available-for-sale:                    
Obligations of U.S. Government agencies and corporations  $72,817   $-   $72,817   $- 
Obligations of state and political subdivisions   45,976    -    45,976    - 
Mortgage-backed securities   2,526    -    2,526    - 
Equity securities available-for-sale   1,019    1,019    -    - 
                     
Measured at fair value on a non-recurring basis:                    
Impaired loans   2,056    -    -    2,056 
Other real estate owned   50    -    -    50 

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs have been used to determine fair value:

 

March 31, 2013  Fair Value
Estimate
   Valuation Technique  Unobservable Input  Range 
                 
Impaired loans   1,853   Appraisal of collateral (1)  Appraisal and liquidation adjustments (2)   7% - (10)% 
Other real estate owned  $50   Appraisal of collateral (1)  Appraisal and liquidation adjustments (2)   0%

 

24
 

 

 

 

December 31, 2012  Fair Value
Estimate
   Valuation Technique  Unobservable Input  Range 
               
Impaired loans   2,056   Appraisal of collateral (1)  Appraisal and liquidation adjustments (2)   7% - (10)%
Other real estate owned  $50   Appraisal of collateral (1)  Appraisal and liquidation adjustments (2)   0%

 

(1)Fair value is generally determined through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable.
(2)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

 

Fair Value of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each quarter end.

 

The information presented below should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is provided only for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

 

The following describes the estimated fair value of the Company’s financial instruments as well as the significant methods and assumptions not previously disclosed used to determine these estimated fair values.

 

Carrying values approximate fair value for cash and due from banks, interest-bearing demand deposits with banks, federal funds sold, restricted stock in the Federal Home Loan Bank, interest receivable, mortgage servicing rights, non-interest bearing demand deposits, securities sold under agreements to repurchase, short-term borrowings and interest payable. Other than cash and due from banks, which are considered Level 1 inputs, these instruments are Level 2 inputs.

 

Interest bearing time deposits with banks - The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.

 

Loans – For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, carrying values approximated fair value. Substantially all commercial loans and 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 by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.

 

Fixed rate time deposits - The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.

 

Other interest bearing liabilities – The fair value is estimated using discounted cash flow analysis, based on incremental borrowing rates for similar types of arrangements.

 

Commitments to extend credit and letters of credit – The 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.

 

25
 

 

The estimated fair values of the Company’s financial instruments are as follows (in thousands):

 

Financial Instruments

 (in thousands)

 

   March 31, 2013   December 31, 2012 
   Carrying   Fair   Carrying   Fair 
   Value   Value   Value   Value 
Financial assets:                    
Cash and due from banks  $6,705   $6,705   $14,261   $14,261 
Interest bearing deposits with banks   4,834    4,834    136    136 
Interest bearing time deposits with banks   847    849    847    849 
Securities   129,082    129,082    122,338    122,338 
Restricted investment in FHLB stock   1,472    1,472    1,726    1,726 
Loans held for sale   380    380    -    - 
Loans, net of allowance for loan losses   269,792    277,700    274,219    286,467 
Mortgage servicing rights   122    122    98    98 
Accrued interest receivable   1,560    1,560    1,632    1,632 
                     
Financial liabilities:                    
Non-interest bearing deposits   70,524    70,524    71,318    71,318 
Interest bearing deposits   317,954    321,909    315,433    319,946 
Securities sold under agreements to repurchase   3,828    3,828    3,836    3,836 
Other interest bearing liabilities   1,309    1,312    1,305    1,315 
Accrued interest payable   326    326    354    354 
                     
Off-balance sheet financial instruments:                    
Commitments to extend credit   -    -    -    - 
Letters of credit   -    -    -    - 

 

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments not previously disclosed as of March 31, 2013 and December 31, 2012. This table excludes financial instruments for which the carrying amount approximates fair value (in thousands).

 

           (Level 1)   (Level 2)   (Level 3) 
           Quoted Prices in         
           Active Markets   Significant   Significant 
           for Identical   Other   Other 
March 31, 2013  Carrying
Amount
   Fair Value   Assets or
Liabilities
   Observable
Inputs
   Unobservable
Inputs
 
Financial instruments - Assets                         
Interest bearing time deposits with banks  $847   $849   $-   $849   $- 
Loans, net of allowance for loan losses   269,792    277,700    -    -    277,700 
Financial instruments - Liabilities                         
Interest bearing deposits   317,954    321,909    -    321,909    - 
Other interest bearing liabilities   1,309    1,312    -    1,312    - 
                          

 

26
 

 

           (Level 1)   (Level 2)   (Level 3) 
           Quoted Prices in         
           Active Markets   Significant   Significant 
           for Identical   Other   Other 
December 31, 2012  Carrying
Amount
   Fair Value   Assets or
Liabilities
   Observable
Inputs
   Unobservable
Inputs
 
Financial instruments - Assets                         
Interest bearing time deposits with banks  $847   $849   $-   $849   $- 
Loans, net of allowance for loan losses   274,219    286,467    -    -    286,467 
Financial instruments - Liabilities                         
Interest bearing deposits   315,433    319,946    -    319,946    - 
Other interest bearing liabilities   1,305    1,315    -    1,315    - 

 

10. Defined Benefit Retirement Plan

The Company sponsors a defined benefit retirement Plan which covers substantially all of its employees employed prior to December 31, 2007. As of January 1, 2008, the Plan was amended to close the Plan to new entrants. All active participants as of December 31, 2007 became 100% vested in their accrued benefit and, as long as they remained eligible, continued to accrue benefits until December 31, 2012. The benefits are based on years of service and the employee’s compensation. Effective December 31, 2012, the defined benefit retirement Plan was amended to cease future service accruals after that date (frozen). The Company’s funding policy is to contribute annually no more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide for benefits attributed to service through December 31, 2012. The Company has made no contributions in the first three months of 2013 and does not expect to contribute to the defined benefit Plan in the remainder of 2013. Pension expense included the following components for the three month periods ended March 31, 2013 and 2012:

 

(Dollars in thousands)    
         
   Three Months Ended 
   March 31, 
   2013   2012 
Components of net periodic pension cost          
Service cost  $-   $55 
Interest cost   99    113 
Expected return on plan assets   (140)   (148)
Recognized net actuarial loss   51    74 
Net periodic pension cost   10    94 
           
Amortization of net actuarial loss   (51)   (74)
Total recognized in other comprehensive income  $(51)  $(74)
           
Total recognized in net periodic pension cost and other comprehensive (income) loss  $(41)  $20 

 

11. Commitments, Contingent Liabilities and Guarantees

 

In the ordinary course of business, the Company makes commitments to extend credit to its customers through letters of credit, loan commitments and lines of credit. At March 31, 2013, the Company had $46,718,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $43,164,000 at December 31, 2012.

 

27
 

 

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its letters of credit. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Generally, letters of credit have expiration dates within one year of issuance. The credit risk involved in issuing letters of credit is essentially the same as the risks that are involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. The Company had outstanding $1,309,000 and $1,293,000 of letters of credit commitments as of March 31, 2013 and December 31, 2012, respectively. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of March 31, 2013 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

 

Additionally, the Company has committed to fund and sell qualifying residential mortgage loans to the Federal Home Loan Bank of Pittsburgh in the total amount of $20,000,000. As of March 31, 2013, $5,216,700 remains to be delivered on that commitment.

 

12. Subsequent Events

 

In April 2013, the Board of Directors declared a dividend of $0.22 per share for the second quarter of 2013 to shareholders of record on May 15, payable on June 3, 2013.

 

28
 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements:

 

The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes," "anticipates," "contemplates," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results, performance or achievements expressed or implied by such forward-looking statements to differ materially from those projected. Those risks and uncertainties include:

 

·changes in interest rates and their impact on the level of deposits;
·loan demand and value of loan collateral;
·changes in the market value of the securities portfolio;
·increased competition from other financial institutions;
·governmental monetary policy;
·legislation and changes in banking regulations;
·changes in levels of FDIC deposit insurance premiums and assessments;
·risks associated with the effect of opening a new branch;
·the ability to control costs and expenses; and
·general economic conditions.

 

The Company undertakes no obligation to update such forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

Critical Accounting Policies:

 

Disclosure of the Company’s significant accounting policies is included in the notes to the consolidated financial statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Some of these policies require significant judgments, estimates, and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses, as well as management’s evaluation of the investment portfolio for other-than-temporary impairment, the assessment of goodwill for impairment and the valuation of deferred tax assets. There have been no changes in critical accounting policies since December 31, 2012.

 

General:

 

The following discussion relates to the consolidated financial condition of the Company as of March 31, 2013, as compared to December 31, 2012, and the consolidated results of operations for the three months ended March 31, 2013, compared to the same period in 2012. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.

 

Overview:

 

Juniata Valley Financial Corp. is a Pennsylvania corporation organized in 1983 to become the holding company of The Juniata Valley Bank. The Bank is a state-chartered bank headquartered in Mifflintown, Pennsylvania. Juniata Valley Financial Corp. and its subsidiary bank derive substantially all of their income from banking and bank-related services, including interest earned on residential real estate, commercial mortgage, commercial and consumer loans, interest earned on investment securities and fee income from deposit services and other financial services to its customers through 12 locations in central Pennsylvania. Juniata Valley Financial Corp. also owns 39.16% of the Liverpool Community Bank (LCB), located in Liverpool, Pennsylvania. The Company accounts for LCB as an unconsolidated subsidiary using the equity method of accounting.

 

29
 

 

Financial Condition:

 

Total assets as of March 31, 2013, were $448.8 million, relatively unchanged from December 31, 2012. Deposits increased by $1.7 million, with non-interest bearing deposits decreasing slightly by $0.8 million and interest-bearing deposits increasing by $2.5 million.

 

The table below shows changes in deposit volumes by type of deposit (in thousands of dollars) between December 31, 2012 and March 31, 2013.

 

   March 31,   December 31,   Change 
   2013   2012   $   % 
Deposits:                    
Demand, non-interest bearing  $70,524   $71,318   $(794)   (1.1)%
NOW and money market   93,334    90,349    2,985    3.3 
Savings   59,576    56,382    3,194    5.7 
Time deposits, $100,000 and more   32,644    33,007    (363)   (1.1)
Other time deposits   132,400    135,695    (3,295)   (2.4)
Total deposits  $388,478   $386,751   $1,727    0.4%

 

Overall, total loans decreased by $5.4 million, between December 31, 2012 and March 31, 2013, as shown in the table below (in thousands of dollars). The largest dollar reduction by class occurred in the real estate – mortgage category, as more individual borrowers continue to be attracted to the secondary market by preferential loan rates.

 

   March 31,   December 31,   Change 
   2013   2012   $   % 
Loans:                    
Commercial, financial and agricultural  $19,301   $19,296   $5    0.0%
Real estate - commercial   68,781    69,187    (406)   (0.6)
Real estate - construction   18,117    18,092    25    0.1 
Real estate - mortgage   149,330    153,122    (3,792)   (2.5)
Obligations of states and political subdivisions   11,895    12,769    (874)   (6.8)
Personal   4,684    5,034    (350)   (7.0)
Total loans  $272,108   $277,500   $(5,392)   (1.9)%

 

A summary of the activity in the allowance for loan losses for each of the three-month periods ended March 31, 2013 and 2012 (in thousands) are presented below.

 

   Periods Ended March 31, 
   2013   2012 
Balance of allowance - January 1  $3,281   $2,931 
Loans charged off   (1,048)   (158)
Recoveries of loans previously charged off   3    2 
Net charge-offs   (1,045)   (156)
Provision for loan losses   80    1,108 
Balance of allowance - end of period  $2,316   $3,883
           
Ratio of net charge-offs during period to average loans outstanding   0.38%   0.05%

 

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During the first quarter of 2013, the Company recorded charge-offs of $1,048,000. Of the 2013 charge-offs, $1,026,000 was due to specific loss confirming events and were previously reserved.

 

As of March 31, 2013, 25 loans, with aggregate outstanding balances of $6,869,000, were evaluated for impairment. A collateral analysis was performed on each of these 25 loans in order to establish a portion of the reserve needed to carry impaired loans at no higher than fair value. As a result, three loans were determined to have insufficient collateral, and specific reserves were established for each of the three impaired loans, totaling $117,000. The three loans requiring fair value adjustment relate to two loan relationships.

 

Management believes that the specific reserves carried are adequate to cover potential future losses related to these relationships. There are no other material loans classified as loss, doubtful, substandard, or special mention which management expects to significantly impact future operating results, liquidity or capital resources. Following is a summary of the Bank’s non-performing loans on March 31, 2013 as compared to December 31, 2012.

 

(Dollar amounts in thousands)        
   March 31, 2013    December 31, 2012 
Non-performing loans          
Non-accrual loans  $8,455   $6,989 
Accruing loans past due 90 days or more   353    2,599 
Accruing restructured loans   371    - 
Total  $9,179   $9,588 
           
Average loans outstanding  $274,887   $282,282 
           
Ratio of non-performing loans to  average loans outstanding   3.34%   3.40%

 

Stockholders’ equity increased by $86,000, or 0.2%, from December 31, 2012 to March 31, 2013, primarily as the result of net income of $1,006,000 exceeding dividends declared of $928,000. Securities available for sale decreased slightly in market value, representing a decrease in equity of $32,000, net of taxes, while accounting for stock-based compensation activity increased equity by $6,000. An adjustment of $34,000 was made to equity to record the amortization of the net actuarial loss of the Company’s defined benefit retirement plan.

 

Management is not aware of any current recommendations of applicable regulatory authorities that, if implemented, would have a material effect on the Company's liquidity, capital resources or operations.

 

Subsequent to March 31, 2013, the following events took place:

 

On April 16, 2013, the Board of Directors declared a cash dividend for the second quarter of 2013 of $0.22 per share to shareholders of record on May 15, 2013, payable on June 3, 2013.

 

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Comparison of the Three Months Ended March 31, 2013 and 2012

 

Operations Overview:

Net income for the first quarter of 2013 was $1,006,000, an increase of $588,000 when compared to the first quarter of 2012. The increase was due primarily to an unusually large provision for loan losses recorded in the first quarter of 2012; no similar provision was recorded in the first quarter of 2013. Excluding the impact of the provision in the first quarter of 2012, comparing the current quarter results with results from the same quarter one year ago, improvements in ratios of both non-interest income and non-interest expense to average assets offset a lower net interest margin. Basic and diluted earnings per share, were $0.24 in the first quarter of 2013, as compared to the $0.10 reported in the first quarter of 2012. Presented below are selected key ratios for the two periods:

 

   Three Months Ended 
   March 31, 
   2013   2012 
Return on average assets (annualized)   0.90%   0.37%
Return on average equity (annualized)   8.05%   3.36%
Average equity to average assets   11.23%   11.14%
           
Non-interest income, excluding securities gains, as a percentage of average assets (annualized)   0.97%   0.93%
Non-interest expense as a percentage of average assets (annualized)   2.73%   2.90%

 

The discussion that follows explains changes in the components of net income when comparing the first quarter of 2013 with the first quarter of 2012.

 

Net Interest Income:

Net interest income was $3,381,000 for the first quarter of 2013, as compared to $3,739,000 in the same quarter in 2012. Average earning assets declined by 0.9%, and the net interest margin, on a fully tax equivalent basis, decreased by 34 basis points.

 

Interest on loans decreased $505,000, or 12.0%, in the first quarter of 2013 as compared to the same period in 2012. An average weighted yield decrease of 45 basis points reduced interest income by approximately $295,000, with the remaining decrease attributable to a lower volume of loans.

 

Interest earned on investment securities and money market investments decreased $62,000 in the first quarter of 2013 as compared to the first quarter of 2012, with average balances increasing $9.3 million during the period. The yield on money market investments (federal funds and interest bearing deposits) increased by 8 basis points in the first quarter of 2013 as compared to the first quarter of 2012, due to a reduction in average balances of overnight federal funds sold and interest bearing deposits. The overall pre-tax yield on the investment securities portfolio decreased during that same timeframe by 37 basis points.

 

Average interest-bearing deposits decreased by $6.0 million, while average non-interest bearing deposits increased by $3.9 million. The decrease in average interest-earning deposits contributed to a reduction in the cost to fund earning assets, which was reduced by 19 basis points, to 0.77%, in the first quarter of 2013.

 

Total average earning assets during the first quarter of 2013 were $403.9 million, compared to $407.6 million during the first quarter of 2012, yielding 4.12% in 2013 versus 4.63% in 2012. Net interest margin on a fully tax-equivalent basis for the first quarter of 2013 was 3.50%. For the same period in 2012, the fully-tax equivalent net interest margin was 3.84%.

 

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AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

(Dollars in thousands)

 

   Three Months Ended   Three Months Ended             
   March 31, 2013   March 31, 2012     
   Average        Yield/    Average        Yield/   Increase (Decrease) Due To (6) 
   Balance (1)   Interest   Rate   Balance (1)   Interest   Rate   Volume   Rate   Total 
ASSETS                                             
Interest earning assets:                                             
Taxable loans (5)  $256,068   $3,547    5.56%  $270,410   $4,038    5.98%  $(222)  $(269)  $(491)
Tax-exempt loans   18,819    143    3.08    17,449    157    3.62    12    (26)   (14)
Total loans   274,887    3,690    5.39    287,859    4,195    5.84    (210)   (295)   (505)
                                       -    - 
Taxable investment securities   87,862    297    1.35    81,519    330    1.62    25    (58)   (33)
Tax-exempt investment securities   36,325    151    1.66    30,603    178    2.31    29    (56)   (27)
Total investment securities   124,187    448    1.44    112,122    508    1.81    54    (114)   (60)
                                       -    - 
Interest bearing deposits   4,820    6    0.51    7,282    8    0.44    (3)   1    (2)
Federal funds sold   -    -         302    -    0.13    -    -    - 
Total interest earning assets   403,894    4,144    4.12    407,565    4,711    4.63    (159)   (408)   (567)
                                              
Other assets (7)   41,460              39,575                          
Total assets  $445,354             $447,140                          
LIABILITIES AND STOCKHOLDERS' EQUITY                                             
                                             
Interest bearing liabilities:                                             
Interest bearing demand deposits (2)  $92,296    37    0.16   $91,567    62    0.27    1    (26)   (25)
Savings deposits   58,104    23    0.16    52,967    33    0.25    3    (13)   (10)
Time deposits   166,846    697    1.69    178,674    870    1.96    (54)   (119)   (173)
Other, including short-term borrowings, long-term debt and other interest bearing liabilities   5,460    6    0.42    4,402    7    0.61    1    (2)   (1)
Total interest bearing liabilities   322,706    763    0.95    327,610    972    1.19    (49)   (160)   (209)
                                              
Non-interest bearing liabilities:                                             
Demand deposits   67,477              63,557                          
Other   5,165              6,149                          
Stockholders' equity   50,006              49,824                          
Total liabilities and stockholders' equity  $445,354             $447,140                          
                                              
Net interest income and net interest rate spread       $3,381    3.17%       $3,739    3.44%  $(110)  $(248)  $(358)
Net interest margin on interest earning assets (3)             3.35%             3.67%               
Net interest income and net interest margin-Tax equivalent basis (4)       $3,533    3.50%       $3,911    3.84%               

 

Notes:

1) Average balances were calculated using a daily average.

2) Includes SuperNOW and money market accounts.

3) Net margin on interest earning assets is net interest income divided by average interest earning assets.

4) Interest on obligations of states and municipalities is not subject to federal income tax. In order to make the net yield comparable on a fully taxable basis, a tax equivalent adjustment is applied against the tax-exempt income utilizing a federal tax rate of 34%.

5) Non-accruing loans are included in the above table until they are charged off.

6) The change in interest due to rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

 

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(7) Includes gross unrealized gains (losses) on securities available for sale.

 

Provision for Loan Losses:

In the first quarter of 2013, the provision for loan losses was $80,000, as compared to a provision of $1,108,000 in the first quarter of 2012. Management regularly reviews the adequacy of the loan loss reserve and makes assessments as to specific loan impairment, historical charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. The decreased provision was primarily the result of analysis of the values of collateral securing certain impaired loans and the charge-off during the period of an impaired loan with a previous specific reserve. See the earlier discussion in the Financial Condition section, explaining the information used to determine the provision.

 

Non-interest Income:

Non-interest income in the first quarter of 2013 was $1,077,000, compared to $1,042,000 in the first quarter of 2012, representing an increase of 3.5%.

 

The Company began originating mortgages to sell on the secondary market and retain the servicing rights as a strategic objective early in 2012 and has been successful in building a servicing portfolio of approximately $14.9 million as of March 31, 2013. The mortgage servicing right asset is included as a component of other assets, and as of March 31, 2013, was $122,000. Gains on the sale of mortgage loans is made up of origination and servicing fees collected from the buyer, origination points collected from the borrower and an adjustment to the fair value of the mortgage servicing rights asset. In the first quarter of 2013, the total net gain on the sale of mortgage loans was $96,000, an increase of $31,000, or 47.7% over the first quarter of 2012. Non-interest income reflected in the line item “fees derived from loan activity” increased by an additional $21,000, or 53.8%, consisting of fees derived primarily as a result of the production of mortgage loans.

 

Due to increased volumes, commissions from sales of non-deposit products in the first quarter of 2013 were $29,000, or 33.3%, higher than in the same quarter of the previous year. Trust fee income was $17,000, or 16.0%, less in the first quarter of 2013 as compared to the first quarter of 2012. The variance resulted primarily from $12,000 less in estate fees earned during the period. Investment management and trust services revenue is impacted by fluctuations in the securities market, as trust revenues are based on the value of the underlying investment portfolios. In a sustained low-rate environment trust revenues may be adversely affected.

 

Customer service fees remained steady in the two periods, and fees derived from electronic payment activity through the use of debit cards declined slightly by $10,000, or 4.9%, in the first quarter of 2013 as compared to the first quarter of 2012.

 

As a percentage of average assets, annualized non-interest income, exclusive of net gains on the sale of securities, increased to 0.97% in the first quarter of 2012 as compared to 0.93% in the first quarter of 2012.

 

Non-interest Expense:

Total non-interest expense was $3,035,000 in the first quarter of 2013, a decrease of $210,000, or 6.5%, as compared to the first quarter of 2012.

 

Employee compensation expense decreased by 4.3% in the first quarter of 2013 compared to the previous year’s first quarter, due primarily to lower staffing levels. Employee benefits decreased by 13.6% in the first quarter of 2013, due to lower staffing levels and decreased pension costs. Most other non-interest expense categories varied only slightly during the first quarter of 2013 versus the first quarter of 2012, including occupancy, equipment, director compensation, data processing expense, professional fees and FDIC insurance premiums. A decrease in other non-interest expense of $76,000 was primarily due to decreased costs associated with assets in foreclosure. Further, the sale of foreclosed property yielded a gain of $26,000 in the first quarter of 2013 as compared to a loss of $2,000 in the first quarter of 2012.

 

As a percentage of average assets, annualized non-interest expense was 2.73% in the first quarter of 2013 compared to 2.90% in the first quarter of 2012.

 

34
 

 

Provision for income taxes:

 

Income tax expense in the first quarter of 2013 was $337,000 as compared to the $10,000 recorded in the first quarter of 2012. The variance in income tax expense was related to the significantly higher pre-tax income in the 2013 period. The effective tax rate in the first quarter of 2013 was 25.1% compared to 2.3% in the first quarter of 2012. The low effective tax rate in 2012 was attributed to the higher percentage of tax-exempt income relative to pre-tax earnings.

 

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 Company 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 Company 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 Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity when other sources are unable to fill these needs. During the first three months of 2013, there were no borrowings from the Federal Home Loan Bank. As of March 31, 2013, the Company had no long-term debt and had unused borrowing capacity with the Federal Home Loan Bank of $102.8 million.

 

Funding derived from securities sold under agreements to repurchase (accounted for as collateralized financing transactions) is available through corporate cash management accounts for business customers. This product gives the Company the ability to pay interest on corporate checking accounts.

 

In view of the sources previously mentioned, management believes that the Company's liquidity is capable of providing the funds needed to meet loan demand.

 

Off-Balance Sheet Arrangements:

 

The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk, credit risk, and interest rate risk. These commitments consist mainly of loans approved but not yet funded, unused lines of credit and outstanding letters of credit. These commitments were made using the same credit standards as are used for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment terms. Letters of credit are conditional commitments issued to guarantee the financial performance obligation of a customer to a third party. Unused commitments and letters of credit at March 31, 2013 were $46,718,000 and $1,309,000, respectively. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Company. Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources.

 

Interest Rate Sensitivity:

 

Interest rate sensitivity management is overseen by 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. Traditional gap analysis identifies the maturity and re-pricing terms of all assets and liabilities. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates. See Item 3 for a description of the complete simulation process and results.

 

Capital Adequacy:

 

Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy. The risk-based capital standards require all banks to have Tier 1 capital of at least 4% and total capital, including Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes common stockholders’ equity and qualifying perpetual preferred stock together with related surpluses and retained earnings. Total capital is comprised of Tier 1 capital, limited life preferred stock, qualifying debt instruments, and the reserves for possible loan losses. Banking regulators have also issued leverage ratio requirements. The leverage ratio requirement is measured as the ratio of Tier 1 capital to adjusted average assets. At March 31, 2013, the Bank exceeded the regulatory requirements to be considered a "well capitalized" financial institution, i.e., a leverage ratio exceeding 5%, Tier 1 capital exceeding 6% and total capital exceeding 10%.

 

35
 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of market risk exposures generally faced by financial institutions include equity market price risk, interest rate risk, foreign currency risk and commodity price risk. Due to the nature of its operations, only equity market price risk and interest rate risk are significant to the Company.

 

Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial position or results of operations of the Company. The Company’s equity investments consist of common stocks of publicly traded financial institutions.

 

Recent declines and volatility in the values of financial institution stocks have significantly reduced the likelihood of realizing significant gains in the near-term. Although the Company has realized occasional gains from this portfolio in the past, the primary objective of the portfolio is to achieve value appreciation in the long term while earning consistent attractive after-tax yields from dividends. The carrying value of the financial institutions stocks accounted for 0.2% of the Company’s total assets as of March 31, 2013. Management performs an impairment analysis on the entire investment portfolio, including the financial institutions stocks, on a quarterly basis. For the three months ended March 31, 2013, no “other-than-temporary” impairment was identified. There is no assurance that further declines in market values of the common stock portfolio in the future will not result in “other-than-temporary” impairment charges, depending upon facts and circumstances present.

 

The equity investments in the Company’s portfolio had an adjusted cost basis of approximately $985,000 and a fair value of $1,127,000 at March 31, 2013. Net unrealized gains in this portfolio were approximately $142,000 at March 31, 2013.

 

In addition to its equity portfolio, the Company’s investment management and trust services revenue could be impacted by fluctuations in the securities markets. A portion of the Company’s trust revenue is based on the value of the underlying investment portfolios. If securities values decline, the Company’s trust revenue could be negatively impacted.

 

Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Company’s liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Company’s net interest income and changes in the economic value of equity.

 

The primary objective of the Company’s asset-liability management process is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate and necessary to ensure profitability. A simulation analysis is used to assess earnings and capital at risk from movements in interest rates. The model considers three major factors: (1) volume differences; (2) repricing differences; and (3) timing in its income simulation. As of the most recent model run, data was disseminated into appropriate repricing buckets, based upon the static position at that time. The interest-earning assets and interest-bearing liabilities were assigned a multiplier to simulate how much that particular balance sheet item would re-price when interest rates change. Finally, the estimated timing effect of rate changes is applied, and the net interest income effect is determined on a static basis (as if no other factors were present). As the table below indicates, based upon rate shock simulations on a static basis, the Company’s balance sheet is relatively rate-neutral as rates decline. Each 100 basis point increase results in approximately $379,000 decline in net interest income in the static environment. This negative effect of rising rates is offset to a large degree by the positive effect of imbedded options that include loans floating above their floors and likely internal deposit pricing strategies. After applying the effects of options, over a one-year period, the net effect of an immediate 100, 200, 300 and 400 basis point rate increase would change net interest income by $(7,000), $5,000, $(1,015,000) and $(1,201,000), respectively. Rate shock modeling was done for a declining rate of 25 basis points only, as the federal funds target rate currently is between zero and 0.25%. As the table below indicates, the net effect of interest rate risk on net interest income is essentially neutral in a rising rate environment through a 200 basis point increase. Juniata’s rate risk policies provide for maximum limits on net interest income that can be at risk for 100 through 400 basis point changes in interest rates.

 

36
 

 

Effect of Interest Rate Risk on Net Interest Income

(Dollars in thousands)

 

Change in Interest
Rates (Basis Points)
  Change in Net Interest
Income Due to Interest
Rate Risk (Static)
   Change in Net Interest
Income Due to
Imbedded Options
   Total Change in Net
Interest Income
 
                
400  $(1,514)  $313   $(1,201)
300   (1,135)   120    (1,015)
200   (756)   761    5 
100   (379)   372    (7)
0   -    -    - 
(25)  94    (51)   43 

 

The net interest income at risk position remained within the guidelines established by the Company’s asset/liability policy.

 

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, 2012 for further discussion of this topic.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

As of March 31, 2013, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined by the Securities Exchange Act of 1934 (“Exchange Act”), Rule 13a-15(e). Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions, regardless of how remote.

 

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Attached as Exhibits 31 and 32 to this quarterly report are certifications of the Chief Executive Officer and the Chief Financial Officer required by Rule 13a-14(a) and rule 15d-14(a) of the Exchange Act. This portion of the Company’s quarterly report includes the information concerning the controls evaluation referred to in the certifications and should be read in conjunction with the certifications for a more complete understanding of the topics presented.

 

Changes in Internal Control Over Financial Reporting

 

There were no significant changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2013, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1.LEGAL PROCEEDINGS

 

In the opinion of management of the Company, there are no legal proceedings pending to which the Company or its subsidiary is a party or to which its property is subject, which, if determined adversely to the Company or its subsidiary, would be material in relation to the Company’s or its subsidiary’s financial condition. There are no proceedings pending other than ordinary routine litigation incident to the business of the Company or its subsidiary. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company or its subsidiary by government authorities.

 

Item 1A.RISK FACTORS

 

There have been no material changes to the risk factors that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The Company made no repurchases of its common stock in the quarter ended March 31, 2013.

 

On March 23, 2001, the Company announced plans to buy back 100,000 (200,000 on a post-split basis) shares of its common stock. There is no expiration date to this buyback plan, but subsequent to the initial plan, the Board of Directors authorized the repurchase of 400,000 additional shares in 2005 and then authorized 200,000 additional shares in September of 2008. As of May 10, 2013, the number of shares that may yet be purchased under the program was 68,393. No repurchase plan or program expired during the quarter. The Company has no stock repurchase plan or program that it has determined to terminate prior to expiration or under which it does not intend to make further purchases.

 

Certain regulatory restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances. At March 31, 2013, $34,588,000 of undistributed earnings of the Bank, included in the consolidated stockholders’ equity, was available for distribution to the Company as dividends without prior regulatory approval, subject to regulatory capital requirements.

 

Item 3.DEFAULTS UPON SENIOR SECURITIES

Not applicable

 

Item 4.MINE SAFETY DISCLOSURES

Not applicable

 

Item 5.OTHER INFORMATION

None

 

38
 

 

Item 6.EXHIBITS

 

3.1 - Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 4.1 to the Company’s Form S-3 Registration Statement No. 333-129023 filed with the SEC on October 14, 2005)

 

3.2 – Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s report on Form 8-K filed with the SEC on December 21, 2007)

3.3 - Bylaw Amendment – (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on February 28, 2012

10.1 – Employee Annual Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 10-K filed with the SEC on March 15, 2013) *

 

31.1 - Rule 13a – 14(a)/15d – 14(a) Certification of President and Chief Executive Officer

 

31.2 - Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer

 

32.1 - Section 1350 Certification of President and Chief Executive Officer

 

32.2 - Section 1350 Certification of Chief Financial Officer

 

101.LAB** - XBRL Taxonomy Extension Label Linkbase

 

101.PRE** - XBRL Taxonomy Extension Presentation Linkbase

 

101.INS** - XBRL Instance Document

 

101.SCH** - XBRL Taxonomy Extension Schema

 

101.CAL** - XBRL Taxonomy Extension Calculation Linkbase

 

101.DEF** - XBRL Taxonomy Extension Definition Linkbase

 

39
 

 

Pursuant to the requirements 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 05-10-2013   By   /s/ Marcie A. Barber
      Marcie A. Barber, President
      and Chief Executive Officer
      (Principal Executive
      Officer)
     
Date 05-10-2013   By /s/ JoAnn N. McMinn
      JoAnn N. McMinn, Chief
      Financial Officer (Principal
      Accounting Officer and
      Principal Financial Officer)

 

40