Annual Statements Open main menu

JUNIATA VALLEY FINANCIAL CORP - Quarter Report: 2020 March (Form 10-Q)

Table of Contents

 

 

 

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, 2020

 

 

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)

(855) 582-5101

(Registrant’s telephone number, including area code)

 

 

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

N/A

 

N/A

 

N/A

 

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 every Interactive Data File required to be submitted 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 such files).

[ X ]  Yes        [   ]  No

 

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

 

 

 

Large accelerated filer  [    ]

Accelerated filer  [ X ]

Non-accelerated filer  [    ]

Smaller reporting company  [ X ]

 

Emerging growth company  [    ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [    ]

 

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 11, 2020

Common Stock ($1.00 par value)

 

5,087,559 shares

 

 

 

 

 

Table of Contents

TABLE OF CONTENTS

 

 

PART I - FINANCIAL INFORMATION 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition as of March 31, 2020 (Unaudited) and December 31, 2019

3

 

 

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)

4

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited)

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited)

6

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited)

7

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

8

 

 

 

Item 2. 

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

36

 

 

 

Item 3.

Not applicable.

 

 

 

 

Item 4. 

Controls and Procedures

47

 

PART II - OTHER INFORMATION 

 

 

 

Item 1. 

Legal Proceedings

48

 

 

 

Item 1A. 

Risk Factors

48

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

49

 

 

 

Item 3. 

Defaults upon Senior Securities

50

 

 

 

Item 4. 

Mine Safety Disclosures

50

 

 

 

Item 5. 

Other Information

50

 

 

 

Item 6. 

Exhibits

50

 

 

 

 

Signatures

52

 

 

2

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Financial Condition (Unaudited)

 

 

 

 

 

 

 

(Dollars in thousands, except share data)

    

March 31, 2020

    

December 31, 2019

ASSETS

 

 

  

 

 

  

Cash and due from banks

 

$

16,826

 

$

12,658

Interest bearing deposits with banks

 

 

10,998

 

 

82

Federal funds sold

 

 

10,000

 

 

 —

Cash and cash equivalents

 

 

37,824

 

 

12,740

Interest bearing time deposits with banks

 

 

1,720

 

 

2,210

Equity securities

 

 

971

 

 

1,144

Debt securities available for sale

 

 

200,638

 

 

210,686

Restricted investment in bank stock

 

 

3,036

 

 

3,442

Total loans

 

 

390,014

 

 

400,590

Less: Allowance for loan losses

 

 

(3,333)

 

 

(2,961)

Total loans, net of allowance for loan losses

 

 

386,681

 

 

397,629

Premises and equipment, net

 

 

9,173

 

 

9,243

Bank owned life insurance and annuities

 

 

16,336

 

 

16,266

Investment in low income housing partnerships

 

 

3,704

 

 

3,904

Core deposit and other intangible assets

 

 

299

 

 

318

Goodwill

 

 

9,047

 

 

9,047

Mortgage servicing rights

 

 

176

 

 

180

Accrued interest receivable and other assets

 

 

4,223

 

 

3,823

Total assets

 

$

673,828

 

$

670,632

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Deposits:

 

 

  

 

 

  

Non-interest bearing

 

$

139,205

 

$

134,703

Interest bearing

 

 

402,724

 

 

397,234

Total deposits

 

 

541,929

 

 

531,937

Short-term borrowings and repurchase agreements

 

 

2,783

 

 

13,129

Long-term debt

 

 

45,000

 

 

45,000

Other interest bearing liabilities

 

 

1,574

 

 

1,603

Accrued interest payable and other liabilities

 

 

5,176

 

 

5,256

Total liabilities

 

 

596,462

 

 

596,925

Commitments and contingent liabilities

 

 

 

 

 

 

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 - 5,151,279 shares at March 31, 2020; 5,141,749 shares at December 31, 2019 Outstanding - 5,093,859 shares at March 31, 2020; 5,099,729 shares at December 31, 2019

 

 

5,151

 

 

5,142

Surplus

 

 

24,918

 

 

24,898

Retained earnings

 

 

43,870

 

 

43,954

Accumulated other comprehensive income

 

 

4,416

 

 

516

Cost of common stock in Treasury: 57,420 shares at March 31, 2020; 42,020 shares at December 31, 2019

 

 

(989)

 

 

(803)

Total stockholders’ equity

 

 

77,366

 

 

73,707

Total liabilities and stockholders’ equity

 

$

673,828

 

$

670,632

 

See Notes to Consolidated Financial Statements

3

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Income (Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended

(Dollars in thousands, except share data)

 

March 31, 

 

    

2020

    

2019

Interest and dividend income:

 

 

  

 

 

Loans, including fees

 

$

4,878

 

$

5,255

Taxable securities

 

 

1,173

 

 

849

Tax-exempt securities

 

 

23

 

 

61

Other interest income

 

 

55

 

 

53

Total interest income

 

 

6,129

 

 

6,218

Interest expense:

 

 

  

 

 

  

Deposits

 

 

830

 

 

863

Short-term borrowings and repurchase agreements

 

 

 8

 

 

24

Long-term debt

 

 

283

 

 

161

Other interest bearing liabilities

 

 

 7

 

 

11

Total interest expense

 

 

1,128

 

 

1,059

Net interest income

 

 

5,001

 

 

5,159

Provision for loan losses

 

 

356

 

 

15

Net interest income after provision for loan losses

 

 

4,645

 

 

5,144

Non-interest income:

 

 

  

 

 

  

Customer service fees

 

 

415

 

 

422

Debit card fee income

 

 

324

 

 

308

Earnings on bank-owned life insurance and annuities

 

 

64

 

 

69

Trust fees

 

 

113

 

 

99

Commissions from sales of non-deposit products

 

 

74

 

 

71

Fees derived from loan activity

 

 

67

 

 

70

Mortgage banking income

 

 

16

 

 

17

Gain (loss) on sales and calls of securities

 

 

11

 

 

(56)

Change in value of equity securities

 

 

(172)

 

 

 9

Other non-interest income

 

 

82

 

 

85

Total non-interest income

 

 

994

 

 

1,094

Non-interest expense:

 

 

  

 

 

  

Employee compensation expense

 

 

2,003

 

 

1,968

Employee benefits

 

 

728

 

 

741

Occupancy

 

 

314

 

 

349

Equipment

 

 

234

 

 

214

Data processing expense

 

 

501

 

 

461

Director compensation

 

 

57

 

 

51

Professional fees

 

 

173

 

 

197

Taxes, other than income

 

 

138

 

 

134

FDIC Insurance premiums

 

 

40

 

 

56

Amortization of intangible assets

 

 

19

 

 

22

Amortization of investment in low-income housing partnerships

 

 

200

 

 

200

Other non-interest expense

 

 

353

 

 

442

Total non-interest expense

 

 

4,760

 

 

4,835

Income before income taxes

 

 

879

 

 

1,403

Income tax provision (benefit)

 

 

(159)

 

 

(10)

Net income

 

$

1,038

 

$

1,413

Earnings per share

 

 

  

 

 

  

Basic

 

$

0.20

 

$

0.28

Diluted

 

$

0.20

 

$

0.28

 

See Notes to Consolidated Financial Statements

4

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Three Months Ended March 31, 

 

 

2020

 

2019

 

 

Before Tax

 

Tax

 

Net of Tax

 

Before Tax

 

Tax

 

Net of Tax

 

    

Amount

    

Effect

    

Amount

    

Amount

    

Effect

    

Amount

Net income

 

$

879

 

$

159

 

$

1,038

 

$

1,403

 

$

10

 

$

1,413

Other comprehensive income:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Available for sale securities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Unrealized holding gains (losses) arising during the period

 

 

4,948

 

 

(1,039)

 

 

3,909

 

 

1,793

 

 

(377)

 

 

1,416

Less reclassification adjustment for (gains) losses included in net income for sales of debt securities (1) (3)

 

 

(11)

 

 

 2

 

 

(9)

 

 

56

 

 

(12)

 

 

44

Amortization of pension net actuarial loss (2) (3)

 

 

 —

 

 

 —

 

 

 —

 

 

29

 

 

(6)

 

 

23

Other comprehensive income

 

 

4,937

 

 

(1,037)

 

 

3,900

 

 

1,878

 

 

(395)

 

 

1,483

Total comprehensive income

 

$

5,816

 

$

(878)

 

$

4,938

 

$

3,281

 

$

(385)

 

$

2,896

 


(1)

Amounts are included in (loss) gain on sales and 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 expense 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.

See Notes to Consolidated Financial Statements

5

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

(Dollars in thousands, except share data)

 

Number 

 

 

 

 

 

 

 

 

Other

 

 

 

Total

 

 

of Shares

    

Common

    

 

    

Retained

    

Comprehensive

    

Treasury

    

Stockholders’

 

    

Outstanding

    

Stock

    

Surplus

    

Earnings

 

Income

    

Stock

    

Equity

Balance, January 1, 2020

 

5,099,729

 

$

5,142

 

$

24,898

 

$

43,954

 

$

516

 

$

(803)

 

$

73,707

Net income

 

  

 

 

  

 

 

  

 

 

1,038

 

 

  

 

 

  

 

 

1,038

Other comprehensive income

 

  

 

 

  

 

 

  

 

 

 

 

 

3,900

 

 

  

 

 

3,900

Cash dividends at $0.22 per share

 

  

 

 

  

 

 

  

 

 

(1,122)

 

 

  

 

 

  

 

 

(1,122)

Stock-based compensation

 

  

 

 

  

 

 

29

 

 

  

 

 

  

 

 

  

 

 

29

Purchase of treasury stock

 

(15,400)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(186)

 

 

(186)

Common stock issued for stock plans

 

9,530

 

 

 9

 

 

(9)

 

 

  

 

 

  

 

 

  

 

 

 —

Balance, March 31, 2020

 

5,093,859

 

$

5,151

 

$

24,918

 

$

43,870

 

$

4,416

 

$

(989)

 

$

77,366

 

 

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

(Dollars in thousands, except share data)

 

Number 

 

 

 

 

 

 

 

 

Other

 

 

 

Total

 

 

of Shares

    

Common

    

 

    

Retained

    

Comprehensive

    

Treasury

    

Stockholders’

 

    

Outstanding

    

Stock

    

Surplus

    

Earnings

 

Income (Loss)

    

Stock

    

Equity

Balance, January 1, 2019

 

5,092,048

 

$

5,134

 

$

24,821

 

$

42,525

 

$

(4,299)

 

$

(803)

 

$

67,378

Net income

 

  

 

 

  

 

 

  

 

 

1,413

 

 

  

 

 

  

 

 

1,413

Other comprehensive income

 

  

 

 

  

 

 

  

 

 

  

 

 

1,483

 

 

  

 

 

1,483

Cash dividends at $0.22 per share

 

  

 

 

  

 

 

  

 

 

(1,120)

 

 

  

 

 

  

 

 

(1,120)

Stock-based compensation

 

  

 

 

  

 

 

19

 

 

  

 

 

  

 

 

  

 

 

19

Forfeiture of restricted stock

 

(800)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 —

Common stock issued for stock plans

 

7,500

 

 

 8

 

 

(8)

 

 

  

 

 

  

 

 

  

 

 

 —

Balance, March 31, 2019

 

5,098,748

 

$

5,142

 

$

24,832

 

$

42,818

 

$

(2,816)

 

$

(803)

 

$

69,173

 

See Notes to Consolidated Financial Statements

6

Table of Contents

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

(Dollars in thousands)

 

Three Months Ended March 31, 

 

    

2020

    

2019

Operating activities:

 

 

 

 

 

Net income

 

$

1,038

 

$

1,413

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

 

 

  

Provision for loan losses

 

 

356

 

 

15

Depreciation

 

 

206

 

 

196

Net amortization of securities premiums

 

 

228

 

 

133

Net amortization of loan origination fees

 

 

 5

 

 

20

Deferred net loan origination costs

 

 

(83)

 

 

(47)

Amortization of intangibles

 

 

19

 

 

22

Amortization of investment in low income housing partnerships

 

 

200

 

 

200

Net amortization of purchase fair value adjustments

 

 

(27)

 

 

(31)

Net realized (gain) loss on sales and calls of available for sale securities

 

 

(11)

 

 

56

Change in value of equity securities

 

 

172

 

 

(9)

Earnings on bank owned life insurance and annuities

 

 

(64)

 

 

(69)

Deferred income tax expense

 

 

125

 

 

24

Stock-based compensation expense

 

 

29

 

 

19

Proceeds from mortgage loans sold to others

 

 

20

 

 

24

Mortgage banking income

 

 

(16)

 

 

(17)

(Increase) decrease in accrued interest receivable and other assets

 

 

(1,561)

 

 

483

Decrease in accrued interest payable and other liabilities

 

 

(109)

 

 

(61)

Net cash provided by operating activities

 

 

527

 

 

2,371

Investing activities:

 

 

  

 

 

  

Purchases of:

 

 

  

 

 

  

Securities available for sale

 

 

(23,275)

 

 

(11,214)

FHLB stock

 

 

 —

 

 

(94)

Premises and equipment

 

 

(136)

 

 

(96)

Bank owned life insurance and annuities

 

 

(6)

 

 

(6)

Proceeds from:

 

 

 

 

 

  

Sales of securities available for sale

 

 

15,704

 

 

11,107

Maturities of and principal repayments on securities available for sale

 

 

22,339

 

 

3,512

Redemption of FHLB stock

 

 

406

 

 

 —

Investment in low income housing partnerships

 

 

 —

 

 

(90)

Net decrease in interest bearing time deposits with banks

 

 

490

 

 

490

Net decrease in loans

 

 

10,698

 

 

2,654

Net cash provided by investing activities

 

 

26,220

 

 

6,263

Financing activities:

 

 

  

 

 

  

Net increase in deposits

 

 

9,991

 

 

2,135

Net decrease in short-term borrowings and securities sold under agreements to repurchase

 

 

(10,346)

 

 

(11,828)

Issuance of long-term debt

 

 

 —

 

 

15,000

Repayment of long-term debt

 

 

 —

 

 

(5,000)

Cash dividends

 

 

(1,122)

 

 

(1,120)

Purchase of treasury stock

 

 

(186)

 

 

 —

Net cash used in financing activities

 

 

(1,663)

 

 

(813)

Net increase in cash and cash equivalents

 

 

25,084

 

 

7,821

Cash and cash equivalents at beginning of year

 

 

12,740

 

 

16,456

Cash and cash equivalents at end of period

 

$

37,824

 

$

24,277

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Three Months Ended March 31, 

 

    

2020

    

2019

Supplemental information:

 

 

 

 

 

 

Interest paid

 

$

1,135

 

$

933

Supplemental schedule of noncash investing and financing activities:

 

 

  

 

 

  

Right-of-Use assets obtained in exchange for lease obligations

 

 

 —

 

 

556

 

See Notes to Consolidated Financial Statements

7

Table of Contents

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” or “Juniata”) and its wholly owned subsidiary, The Juniata Valley Bank (the “Bank” or “JVB”). 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 (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the financial statements. Additionally, effects of the COVID-19 pandemic may negatively impact significant estimates. Estimates that are particularly susceptible to material change include the determination of the allowance for loan losses, and goodwill and other intangible assets. 

In the opinion of management, all adjustments considered necessary for fair presentation have been included. Operating results for the three month periods ended March 31, 2020 are not necessarily indicative of the results for the year ending December 31, 2020. 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 (“Annual Report”) for the year ended December 31, 2019.

The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of March 31, 2020 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 2016‑13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Issued: June 2016

Summary: ASU 2016‑13 requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available for sale debt securities. For an available for sale debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

8

Table of Contents

Effective Date: On October 16, 2019, the FASB voted and approved to delay the effective date of this ASU for smaller reporting companies until fiscal years beginning after December 15, 2022. Since the Company is a smaller reporting company, the delay of the effective date of ASU 2016-13 approved by the FASB applies to the Company. While the Company’s senior management is currently in the process of evaluating the impact of the amended guidance on its consolidated financial statements and disclosures, it expects the allowance for loan and lease losses (“ALLL”) to increase upon adoption because the allowance will be required to cover the full remaining expected life of the portfolio, rather than the incurred loss under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of the Company’s loan portfolio at the time of adoption. In preparation, the Company has taken steps to prepare for the implementation when it becomes effective by forming an internal taskforce, gathering pertinent data, participating in training courses, and partnering with a software provider that specializes in ALLL analysis, as well as assessing the sufficiency of data currently available through its core database.

 

3. ACCUMULATED OTHER COMPREHENSIVE INCOME

Components of accumulated other comprehensive income, net of tax, consisted of the following:

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

March 31, 2020

    

Unrealized Gains and Losses on Available for Sale Securities

    

Defined Benefit Pension Items

    

Total

Beginning balance, December 31, 2019

 

$

516

 

$

 —

 

$

516

Current period other comprehensive income:

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

 

3,909

 

 

 —

 

 

3,909

Amounts reclassified from accumulated other comprehensive income

 

 

(9)

 

 

 —

 

 

(9)

Net current period other comprehensive income

 

 

3,900

 

 

 —

 

 

3,900

Ending balance, March 31, 2020

 

$

4,416

 

$

 —

 

$

4,416

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

December 31, 2019

    

Unrealized Gains and Losses on Available for Sale Securities

    

Defined Benefit Pension Items

    

Total

Beginning balance, December 31, 2018

 

$

(2,647)

 

$

(1,652)

 

$

(4,299)

Current period other comprehensive income:

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassification

 

 

3,129

 

 

634

 

 

3,763

Amounts reclassified from accumulated other comprehensive income

 

 

34

 

 

1,101

 

 

1,135

Net current period other comprehensive income

 

 

3,163

 

 

1,735

 

 

4,898

Reclassification for ASU 2018-02

 

 

 —

 

 

(83)

 

 

(83)

Ending balance, December 31, 2019

 

$

516

 

$

 —

 

$

516

 

 

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.

9

Table of Contents

The following table sets forth the computation of basic and diluted earnings per share:

 

 

 

 

 

 

 

(Dollars in thousands, except earnings per share data)

 

Three Months Ended March 31, 

 

 

2020

    

2019

Net income

 

$

1,038

 

$

1,413

Weighted-average common shares outstanding

 

 

5,103

 

 

5,095

Basic earnings per share

 

$

0.20

 

$

0.28

Weighted-average common shares outstanding

 

 

5,103

 

 

5,095

Common stock equivalents due to effect of stock options

 

 

 8

 

 

22

Total weighted-average common shares and equivalents

 

 

5,111

 

 

5,117

Diluted earnings per share

 

$

0.20

 

$

0.28

Anti-dilutive stock options outstanding

 

 

 5

 

 

 —

 

 

 

 

5. SECURITIES

Equity Securities

Equity securities owned by the Company consist of common stock of various financial services providers. ASC Topic 321, Investments – Equity Securities requires all equity securities within its scope to be measured at fair value with changes in fair value recognized in net income. As of March 31, 2020, the Company had $971,000 in equity securities recorded at fair value and $1,144,000 in equity securities recorded at fair value at December 31, 2019. The Company recorded a net loss of $172,000 during the three months ended March 31, 2020 and a net gain of $9,000 during the three months ended March 31, 2019 as a result of  the change in fair value of the Company’s equity securities during the applicable period.

Debt Securities Available for Sale

Debt securities classified as available for sale, which include marketable investment securities, are within the scope of ASC Topic 320, Investments – Debt Securities. Topic 320 requires all debt securities within its scope to be stated at fair value, with the unrealized gains and losses, net of tax, reported as a component of other comprehensive income (loss). Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time but not necessarily to maturity. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Interest and dividends are recognized as income when earned. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains or losses on the disposition of securities available for sale are based on the net proceeds and the adjusted carrying amount of the securities sold, determined on a specific identification basis.

The Company’s available for sale investment portfolio includes primarily bonds issued by U.S. Government sponsored enterprises (approximately 5% of the investment portfolio), mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 91%), municipal bonds (approximately 3%) and a corporate debt security (approximately 1%) as of March 31, 2020. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

10

Table of Contents

The amortized cost and fair value of securities available for sale as of March 31, 2020 and December 31, 2019, by contractual maturity, are shown in the tables below. Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

March 31, 2020

 

 

 

 

 

 

Gross

    

Gross

 

 

Amortized

 

Fair

 

Unrealized

 

Unrealized

Debt Securities Available for Sale

    

Cost

    

Value

    

Gains

    

Losses

Type and Maturity

 

 

  

 

 

  

 

 

  

 

 

  

Obligations of U.S. Government sponsored enterprises

 

 

  

 

 

  

 

 

 

 

 

  

After one year but within five years

 

$

6,000

 

$

6,015

 

$

15

 

$

 —

After five years but within ten years

 

 

4,000

 

 

4,030

 

 

30

 

 

 —

 

 

 

10,000

 

 

10,045

 

 

45

 

 

 —

Obligations of state and political subdivisions

 

 

  

 

 

  

 

 

  

 

 

  

Within one year

 

 

850

 

 

853

 

 

 3

 

 

 —

After one year but within five years

 

 

2,808

 

 

2,823

 

 

15

 

 

 —

After five years but within ten years

 

 

2,790

 

 

2,936

 

 

146

 

 

 —

 

 

 

6,448

 

 

6,612

 

 

164

 

 

 —

Corporate debt securities

 

 

  

 

 

  

 

 

  

 

 

  

Within one year

 

 

1,023

 

 

1,035

 

 

12

 

 

 —

 

 

 

1,023

 

 

1,035

 

 

12

 

 

 —

Mortgage-backed securities

 

 

177,584

 

 

182,946

 

 

5,363

 

 

(1)

Total

 

$

195,055

 

$

200,638

 

$

5,584

 

$

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31, 2019

 

    

    

 

    

    

 

    

Gross

    

Gross

 

 

Amortized

 

Fair

 

Unrealized

 

Unrealized

Debt Securities Available for Sale

 

Cost

 

Value

 

Gains

 

Losses

Type and Maturity

 

 

  

 

 

  

 

 

  

 

 

  

Obligations of U.S. Government sponsored enterprises

 

 

  

 

 

  

 

 

  

 

 

  

After one year but within five years

 

$

14,998

 

$

14,970

 

$

 1

 

$

(29)

After five years but within ten years

 

 

6,000

 

 

5,950

 

 

 —

 

 

(50)

 

 

 

20,998

 

 

20,920

 

 

 1

 

 

(79)

Obligations of state and political subdivisions

 

 

  

 

 

  

 

 

  

 

 

  

Within one year

 

 

1,020

 

 

1,024

 

 

 4

 

 

 —

After one year but within five years

 

 

2,810

 

 

2,823

 

 

13

 

 

 —

After five years but within ten years

 

 

723

 

 

728

 

 

 5

 

 

 —

 

 

 

4,553

 

 

4,575

 

 

22

 

 

 —

Mortgage-backed securities

 

 

184,488

 

 

185,191

 

 

1,132

 

 

(429)

Total

 

$

210,039

 

$

210,686

 

$

1,155

 

$

(508)

 

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 $55,511,000 and $50,365,000 at March 31, 2020 and December 31, 2019, respectively.

In addition to cash received from the scheduled maturities of investment securities, some securities available for sale are sold or called at current market values during the course of normal operations.

11

Table of Contents

The following table summarizes proceeds received from sales or calls of available for sale investment securities transactions and the resulting realized gains and losses during the three months ended March 31, 2020 and 2019.

 

 

 

 

 

 

 

(Dollars in thousands)

 

Three Months Ended

 

 

March 31, 

 

    

2020

    

2019

Gross proceeds from sales and calls of securities

 

$

15,704

 

$

11,107

Securities available for sale:

 

 

 

 

 

  

Gross realized gains from sold and called securities

 

$

41

 

$

 5

Gross realized losses from sold and called securities

 

 

(30)

 

 

(61)

Net losses from sales and calls of securities

 

$

11

 

$

(56)

 

Topic 320 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. 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 taken before an assessment is made as to whether the entity will recover the cost basis of the investment. 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.

The following tables show gross unrealized losses and fair values of debt securities available for sale, aggregated by category and length of time the individual securities have been in a continuous unrealized loss position at March 31, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Losses at March 31, 2020

 

 

Less Than 12 Months

 

12 Months or More

 

Total

(Dollars in thousands)

    

Number

    

 

 

    

 

 

    

Number

    

 

 

    

 

 

    

Number

    

 

 

    

 

 

 

 

of

 

Fair

 

Unrealized 

 

of

 

Fair

 

Unrealized 

 

of

 

Fair

 

Unrealized 

 

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

Mortgage-backed securities

 

 2

 

$

1,186

 

$

(1)

 

 —

 

$

 —

 

$

 —

 

 2

 

$

1,186

 

$

(1)

Total temporarily impaired securities

 

 2

 

$

1,186

 

$

(1)

 

 —

 

$

 —

 

$

 —

 

 2

 

$

1,186

 

$

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Losses at December 31, 2019

 

 

Less Than 12 Months

 

12 Months or More

 

Total

(Dollars in thousands)

    

Number

    

 

 

    

 

 

    

Number

    

 

 

    

 

 

    

Number

    

 

 

    

 

 

 

 

of

 

Fair

 

Unrealized 

 

of

 

Fair

 

Unrealized 

 

of

 

Fair

 

Unrealized 

 

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

 

Securities

 

Value

 

Losses

Obligations of U.S. Government sponsored enterprises

 

 9

 

$

16,919

 

$

(79)

 

 —

 

$

 —

 

$

 —

 

 9

 

$

16,919

 

$

(79)

Mortgage-backed securities

 

13

 

 

47,466

 

 

(204)

 

16

 

 

22,049

 

 

(225)

 

29

 

 

69,515

 

 

(429)

Total temporarily impaired securities

 

22

 

$

64,385

 

$

(283)

 

16

 

$

22,049

 

$

(225)

 

38

 

$

86,434

 

$

(508)

 

At March 31, 2020, two mortgage-backed securities had an unrealized loss. Neither of these securities have been in a continuous loss position for twelve months or more. The mortgage-backed securities in the Company’s portfolio are government sponsored enterprise (“GSE”) pass-through instruments issued by the Federal National Mortgage Association (“FNMA”) or Federal Home Loan Mortgage Corporation (“FHLMC”), which guarantees the timely payment of principal on these investments.

12

Table of Contents

The unrealized losses noted in the tables 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. Because the Company 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, no debt securities were deemed to be other-than-temporarily impaired for the periods ended March 31, 2020 and December 31, 2019, respectively.

 

6. LOANS AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loans that the Company originated and 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. Loans acquired through a business combination are discussed under the heading “Acquired Loans”. 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 includes the following classes: (1) commercial, financial and agricultural, (2) real estate - commercial, (3) real estate - construction, (4) real estate – mortgage, (5) obligations of states and political subdivisions, and (6) personal loans.

Interest income on consumer, mortgage and commercial loans is discontinued and loans are placed on non-accrual status at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Loans are charged off to the extent principal or interest is deemed uncollectible. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on non-accrual or charged off at an earlier date if collection of principal or interest is considered doubtful. Non-accrual loans and loans past due 90 days still on accrual include both homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. 

Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan principal balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, the loan has performed in accordance with the contractual terms for a reasonable period of time and future payments are reasonably assured.

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.

Loans Held for Sale

The Company has originated 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. Mortgage servicing rights are recognized as an asset upon the sale of a mortgage loan. A portion of the cost of the loan is allocated to the servicing right based upon fair value. Servicing rights are intangible assets and are carried at estimated fair value. Adjustments to fair value are recorded as non-interest income and included in mortgage banking income in the consolidated statements of income.

13

Table of Contents

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 credit 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, and other methods.

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. Evaluation 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.

Real Estate - Commercial Lending

The Company engages in real estate - commercial lending in its primary market area and surrounding areas. The Company’s real estate - commercial portfolio is secured primarily by residential housing, commercial buildings, raw land and hotels. Generally, real estate - commercial 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.

Real estate - commercial 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.

14

Table of Contents

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 and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, and other resources. Appraisals on properties securing real estate - commercial loans originated by the Company are performed by independent appraisers.

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.

Real Estate - Mortgage Lending

The Company’s real estate -  mortgage portfolio is comprised of one-to-four family 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 real estate - mortgage loans with  a term 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 real estate - 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.

15

Table of Contents

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.

Allowance for Credit Losses

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 probable incurred losses 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 probable incurred losses 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.

 

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.

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 by 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. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

 

16

Table of Contents

Impairment for substantially all of the Company’s impaired loans is measured based on the estimated fair value of the loan’s collateral. For real estate - commercial loans, 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, financial and agricultural, and obligations of states and political subdivision loans, 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 Company generally does not separately identify individual consumer segment loans for impairment analysis, unless such loans are subject to a restructuring agreement.

Troubled debt restructurings are individually evaluated for impairment and included in the separately identified impairment disclosures. Loans whose terms are modified are classified as troubled debt restructurings if the Company grants 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, an extension of a loan’s stated maturity date or a significant delay in payment. Non-accrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period after modification. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio class.

Acquired Loans

Loans that Juniata acquires through business combinations are recorded at fair value with no carryover of the related allowance for loan losses. Some of these loans have shown evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, such that there is no carryover of the seller’s allowance for loan losses. After acquisition, losses are recognized by an increase in the allowance for loan losses.

Such purchased credit impaired loans are accounted for individually or aggregated into pools of loans based on common risk characteristics, such as credit score, loan type, and date of origination. Juniata estimates the amount and timing of expected cash flows for each loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

PCI loans that met the criteria for impairment or non-accrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if Juniata expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, Juniata may no longer consider the loan to be non-accrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

17

Table of Contents

Loans acquired through business combinations that do not meet the specific criteria of ASC 310‑30, but for which a discount is attributable at least in part to credit quality, are also accounted for in accordance with this guidance. As a result, related discounts are recognized subsequently through accretion based on the contractual cash flows of the acquired loans.

Loan Portfolio Classification

The following table presents the loan portfolio by class at March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

(Dollars in thousands)

    

 

 

    

 

 

 

 

March 31, 2020

 

December 31, 2019

Commercial, financial and agricultural

 

$

48,833

 

$

51,785

Real estate - commercial

 

 

118,265

 

 

126,613

Real estate - construction

 

 

51,108

 

 

46,459

Real estate - mortgage

 

 

147,226

 

 

150,538

Obligations of states and political subdivisions

 

 

16,621

 

 

16,377

Personal

 

 

7,961

 

 

8,818

Total

 

$

390,014

 

$

400,590

 

The following table summarizes the activity in the allowance for loan losses by loan class, for the three months ended March 31, 2020 and 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

 

 

    

 

 

    

 

 

    

Obligations

    

 

 

    

 

 

    

 

 

 

 

Commercial,

 

 

 

 

 

 

 

of states

 

 

 

 

 

 

 

 

 

 

 

financial and

 

Real estate-

 

Real estate-

 

and political

 

Real estate-

 

 

 

 

 

 

 

 

agricultural

 

commercial

 

construction

 

subdivisions

 

mortgage

 

Personal

 

Total

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

321

 

$

754

 

$

718

 

$

17

 

$

1,081

 

$

70

 

$

2,961

Provision for loan losses

 

 

112

 

 

 4

 

 

154

 

 

 6

 

 

65

 

 

15

 

 

356

Charge-offs

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21)

 

 

(21)

Recoveries

 

 

 —

 

 

 —

 

 

32

 

 

 —

 

 

 1

 

 

 4

 

 

37

Balance, end of period

 

$

433

 

$

758

 

$

904

 

$

23

 

$

1,147

 

$

68

 

$

3,333

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

275

 

$

1,074

 

$

558

 

$

20

 

$

1,035

 

$

72

 

$

3,034

Provision for loan losses

 

 

 6

 

 

(23)

 

 

14

 

 

 1

 

 

12

 

 

 5

 

 

15

Charge-offs

 

 

 —

 

 

(15)

 

 

 —

 

 

 —

 

 

(47)

 

 

(11)

 

 

(73)

Recoveries

 

 

 2

 

 

 7

 

 

 —

 

 

 —

 

 

 5

 

 

 4

 

 

18

Balance, end of period

 

$

283

 

$

1,043

 

$

572

 

$

21

 

$

1,005

 

$

70

 

$

2,994

 

18

Table of Contents

The following table summarizes loans by loan class, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

 

 

    

 

 

    

 

 

    

Obligations

    

 

 

    

 

 

    

 

 

 

 

Commercial,

 

 

 

 

 

 

 

of states

 

 

 

 

 

 

 

 

 

 

 

financial and

 

Real estate-

 

Real estate-

 

and political

 

Real estate-

 

 

 

 

 

 

 

 

agricultural

 

commercial

 

construction

 

subdivisions

 

mortgage

 

Personal

 

Total

March 31, 2020

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Loans allocated by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

individually evaluated for impairment

 

$

562

 

$

3,836

 

$

 —

 

$

 —

 

$

1,250

 

$

 —

 

$

5,648

acquired with credit deterioration

 

 

 —

 

 

356

 

 

 —

 

 

 —

 

 

681

 

 

 —

 

 

1,037

collectively evaluated for impairment

 

 

48,271

 

 

114,073

 

 

51,108

 

 

16,621

 

 

145,295

 

 

7,961

 

 

383,329

 

 

$

48,833

 

$

118,265

 

$

51,108

 

$

16,621

 

$

147,226

 

$

7,961

 

$

390,014

Allowance for loan losses allocated by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

individually evaluated for impairment

 

$

118

 

$

 —

 

$

 —

 

$

 —

 

$

 7

 

$

 —

 

$

125

acquired with credit deterioration

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

collectively evaluated for impairment

 

 

315

 

 

758

 

 

904

 

 

23

 

 

1,140

 

 

68

 

 

3,208

 

 

$

433

 

$

758

 

$

904

 

$

23

 

$

1,147

 

$

68

 

$

3,333

December 31, 2019

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Loans allocated by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

individually evaluated for impairment

 

$

 —

 

$

1,206

 

$

 —

 

$

 —

 

$

1,296

 

$

14

 

$

2,516

acquired with credit deterioration

 

 

 —

 

 

366

 

 

 —

 

 

 —

 

 

704

 

 

 —

 

 

1,070

collectively evaluated for impairment

 

 

51,785

 

 

125,041

 

 

46,459

 

 

16,377

 

 

148,538

 

 

8,804

 

 

397,004

 

 

$

51,785

 

$

126,613

 

$

46,459

 

$

16,377

 

$

150,538

 

$

8,818

 

$

400,590

Allowance for loan losses allocated by:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

individually evaluated for impairment

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

acquired with credit deterioration

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

collectively evaluated for impairment

 

 

321

 

 

754

 

 

718

 

 

17

 

 

1,081

 

 

70

 

 

2,961

 

 

$

275

 

$

1,074

 

$

558

 

$

20

 

$

1,035

 

$

72

 

$

2,961

 

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 anticipated 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. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process at March 31, 2020 and December 31, 2019 totaled $320,000 and $248,000, respectively. Charge-offs 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.

19

Table of Contents

The following table summarizes information regarding impaired loans by portfolio class as of March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

As of March 31, 2020

 

As of December 31, 2019

 

    

Recorded

    

Unpaid Principal

    

Related

    

Recorded

    

Unpaid Principal

    

Related

 

 

Investment

 

Balance

 

Allowance

 

Investment

 

Balance

 

Allowance

Impaired loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Real estate - commercial

 

$

3,836

 

$

3,934

 

$

 —

 

$

1,206

 

$

1,304

 

$

 —

Acquired with credit deterioration

 

 

356

 

 

390

 

 

 —

 

 

366

 

 

395

 

 

 —

Real estate – construction

 

 

 —

 

 

1,045

 

 

 —

 

 

 —

 

 

1,054

 

 

 —

Real estate - mortgage

 

 

1,125

 

 

1,852

 

 

 —

 

 

1,296

 

 

2,006

 

 

 —

Acquired with credit deterioration

 

 

681

 

 

832

 

 

 —

 

 

704

 

 

840

 

 

 —

Personal

 

 

 —

 

 

 —

 

 

 —

 

 

14

 

 

14

 

 

 —

With an allowance recorded:

 

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Commercial, financial and agricultural

 

$

562

 

$

562

 

$

118

 

$

 —

 

$

 —

 

$

 —

Real estate - mortgage

 

 

125

 

 

124

 

 

 7

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Commercial, financial and agricultural

 

$

562

 

$

562

 

$

118

 

$

 —

 

$

 —

 

$

 —

Real estate - commercial

 

 

3,836

 

 

3,934

 

 

 —

 

 

1,206

 

 

1,304

 

 

 —

Acquired with credit deterioration

 

 

356

 

 

390

 

 

 —

 

 

366

 

 

395

 

 

 —

Real estate - construction

 

 

 —

 

 

1,045

 

 

 —

 

 

 —

 

 

1,054

 

 

 —

Real estate – mortgage

 

 

1,250

 

 

1,976

 

 

 7

 

 

1,296

 

 

2,006

 

 

 —

Acquired with credit deterioration

 

 

681

 

 

832

 

 

 —

 

 

704

 

 

840

 

 

 —

Personal

 

 

 —

 

 

 —

 

 

 —

 

 

14

 

 

14

 

 

 —

 

 

$

6,685

 

$

8,739

 

$

125

 

$

3,586

 

$

5,613

 

$

 —

 

Average recorded investment of impaired loans and related interest income recognized for the three months ended March 31, 2020 and 2019 are summarized in the tables below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Three Months Ended March 31, 2020

 

Three Months Ended March 31, 2019

 

    

Average

    

Interest

    

Cash Basis

    

Average

    

Interest

    

Cash Basis

 

 

Recorded

 

Income

 

Interest

 

Recorded

 

Income

 

Interest

 

 

Investment

 

Recognized

 

Income

 

Investment

 

Recognized

 

Income

Impaired Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Commercial, financial and agricultural

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Real estate - commercial

 

 

2,080

 

 

 5

 

 

12

 

 

1,062

 

 

 3

 

 

 —

Acquired with credit deterioration

 

 

361

 

 

 —

 

 

 —

 

 

538

 

 

 —

 

 

 —

Real estate - construction

 

 

 —

 

 

 —

 

 

 —

 

 

14

 

 

 —

 

 

 —

Real estate - mortgage

 

 

1,139

 

 

 4

 

 

11

 

 

1,245

 

 

 5

 

 

12

Acquired with credit deterioration

 

 

693

 

 

 —

 

 

 —

 

 

958

 

 

 —

 

 

 —

Personal

 

 

 9

 

 

 —

 

 

 —

 

 

16

 

 

 —

 

 

 —

With an allowance recorded:

 

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Commercial, financial and agricultural

 

$

187

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Real estate - mortgage

 

 

126

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total:

 

 

 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Commercial, financial and agricultural

 

$

187

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Real estate - commercial

 

 

2,080

 

 

 5

 

 

12

 

 

1,062

 

 

 3

 

 

 —

Acquired with credit deterioration

 

 

361

 

 

 —

 

 

 —

 

 

538

 

 

 —

 

 

 —

Real estate - construction

 

 

 —

 

 

 —

 

 

 —

 

 

14

 

 

 —

 

 

 —

Real estate - mortgage

 

 

1,265

 

 

 4

 

 

11

 

 

1,245

 

 

 5

 

 

12

Acquired with credit deterioration

 

 

693

 

 

 —

 

 

 —

 

 

958

 

 

 —

 

 

 —

Personal

 

 

 9

 

 

 —

 

 

 —

 

 

16

 

 

 —

 

 

 —

 

 

$

4,595

 

$

 9

 

$

23

 

$

3,833

 

$

 8

 

$

12

 

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

20

Table of Contents

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 (1) they are 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’s nonaccrual and charge-off policies are the same, regardless of the loan type.

The following table presents nonaccrual loans by classes of the loan portfolio as of March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

(Dollars in thousands)

    

 

 

    

 

 

 

 

March 31, 2020

 

December 31, 2019

Non-accrual loans:

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

562

 

$

 —

Real estate - commercial

 

 

3,537

 

 

903

Real estate - mortgage

 

 

865

 

 

902

Personal

 

 

 —

 

 

14

Total

 

$

4,964

 

$

1,819

 

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. Past due status is determined by the contractual terms of the loan. The following tables present the classes of the loan portfolio summarized by the past due status as of March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greater

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

than 89

 

 

 

 

 

30‑59 Days

 

60‑89 Days

 

than 89

 

Total Past

 

 

 

 

Days and

 

 

Current

 

Past Due(2)

 

Past Due

 

Days

 

Due

 

Total Loans

 

Accruing(1)

As of March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

48,807

 

$

26

 

$

 —

 

$

 —

 

$

26

 

$

48,833

 

$

 —

Real estate - commercial

 

 

117,727

 

 

136

 

 

 —

 

 

46

 

 

182

 

 

117,909

 

 

 —

Real estate - construction

 

 

48,550

 

 

2,558

 

 

 —

 

 

 —

 

 

2,558

 

 

51,108

 

 

 —

Real estate - mortgage

 

 

145,341

 

 

414

 

 

38

 

 

752

 

 

1,204

 

 

146,545

 

 

134

Obligations of states and political subdivisions

 

 

16,621

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

16,621

 

 

 —

Personal

 

 

7,904

 

 

57

 

 

 —

 

 

 —

 

 

57

 

 

7,961

 

 

 —

Subtotal

 

 

384,950

 

 

3,191

 

 

38

 

 

798

 

 

4,027

 

 

388,977

 

 

134

Loans acquired with credit deterioration

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

356

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

356

 

 

 —

Real estate - mortgage

 

 

578

 

 

101

 

 

 —

 

 

 2

 

 

103

 

 

681

 

 

 2

Subtotal

 

 

934

 

 

101

 

 

 —

 

 

 2

 

 

103

 

 

1,037

 

 

 2

 

 

$

385,884

 

$

3,292

 

$

38

 

$

800

 

$

4,130

 

$

390,014

 

$

136

 

21

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Past Due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Greater

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Greater

 

 

 

 

 

 

 

than 89

 

 

 

 

 

30‑59 Days

 

60‑89 Days

 

than 89

 

Total Past

 

 

 

 

Days and

 

    

Current

    

Past Due(2)

    

Past Due

    

Days

    

Due

    

Total Loans

    

Accruing(1)

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

51,725

 

$

60

 

$

 —

 

$

 —

 

$

60

 

$

51,785

 

$

 —

Real estate - commercial

 

 

126,180

 

 

19

 

 

 —

 

 

48

 

 

67

 

 

126,247

 

 

 —

Real estate - construction

 

 

46,172

 

 

287

 

 

 —

 

 

 —

 

 

287

 

 

46,459

 

 

 —

Real estate - mortgage

 

 

148,366

 

 

348

 

 

149

 

 

971

 

 

1,468

 

 

149,834

 

 

359

Obligations of states and political subdivisions

 

 

16,377

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

16,377

 

 

 —

Personal

 

 

8,725

 

 

55

 

 

 —

 

 

38

 

 

93

 

 

8,818

 

 

24

Subtotal

 

 

397,545

 

 

769

 

 

149

 

 

1,057

 

 

1,975

 

 

399,520

 

 

383

Loans acquired with credit deterioration

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate - commercial

 

 

366

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

366

 

 

 —

Real estate - mortgage

 

 

330

 

 

371

 

 

 —

 

 

 3

 

 

374

 

 

704

 

 

 3

Subtotal

 

 

696

 

 

371

 

 

 —

 

 

 3

 

 

374

 

 

1,070

 

 

 3

 

 

$

398,241

 

$

1,140

 

$

149

 

$

1,060

 

$

2,349

 

$

400,590

 

$

386


(1)

These loans are guaranteed, or well-secured, and there is an effective means of collection in process.

(2)

Loans are considered past due when the borrower is in arrears on two or more monthly payments.

 

Troubled Debt Restructurings

The following tables summarize information regarding troubled debt restructurings by loan portfolio class at March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Number of

 

Outstanding

 

Outstanding

 

 

 

 

    

Contracts

    

Recorded Investment

    

Recorded Investment

    

Recorded Investment

As of March 31, 2020

 

  

 

 

  

 

 

  

 

 

  

Accruing troubled debt restructurings:

 

  

 

 

  

 

 

  

 

 

  

Real estate - commercial

 

 1

 

$

306

 

$

326

 

$

302

Real estate - mortgage

 

 7

 

 

488

 

 

516

 

 

387

 

 

 8

 

$

794

 

$

842

 

$

689

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Number of

 

Outstanding

 

Outstanding

 

 

 

 

    

Contracts

    

Recorded Investment

    

Recorded Investment

    

Recorded Investment

As of December 31, 2019

 

  

 

 

  

 

 

  

 

 

  

Accruing troubled debt restructurings:

 

  

 

 

  

 

 

  

 

 

  

Real estate - commercial

 

 1

 

$

306

 

$

326

 

$

306

Real estate - mortgage

 

 7

 

 

488

 

 

516

 

 

397

 

 

 8

 

$

794

 

$

842

 

$

703

 

The Company’s troubled debt restructurings are also impaired loans, which may result in a specific allocation and subsequent charge-off if appropriate. As of March 31, 2020, there were no specific reserves carried for troubled debt restructured loans. There were no troubled debt restructured loans in default within 12 months of restructure during the three months ended March 31, 2020 or 2019. On December 31, 2019, there were no specific reserves carried for the troubled debt restructurings, nor any charge-offs related to the troubled debt restructured loans. The amended terms of the

22

Table of Contents

restructured loans vary, and may include interest rates that have been reduced, principal payments that have been reduced or deferred for a period of time and/or maturity dates that have been extended.

There were no loan terms modified resulting in troubled debt restructuring during the three months ended March 31, 2020.  The following table lists the loan whose terms were modified resulting in a troubled debt restructuring during the three months ended March 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

    

 

    

Pre-Modification

    

Post-Modification

    

 

 

 

 

Number of

 

Outstanding

 

Outstanding

 

 

 

 

 

Contracts

 

Recorded Investment

 

Recorded Investment

 

Recorded Investment

Three months ended March 31, 2019

 

  

 

  

 

 

  

 

 

  

 

Accruing troubled debt restructurings:

 

  

 

 

  

 

 

  

 

 

  

Real estate - commercial

 

 1

 

$

306

 

$

326

 

$

324

Real estate - mortgage

 

 1

 

 

 9

 

 

 9

 

 

 8

 

 

 2

 

$

315

 

$

335

 

$

332

 

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, permits financial institutions to suspend requirements under GAAP for loan modifications to borrowers affected by the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.  

 

Additionally, the interagency statement offers some practical expedients for evaluating whether loan modifications that occur in response to the COVID-19 pandemic are TDRs.  A lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (e.g., six months) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government (e.g., a state program that requires all institutions within that state to suspend mortgage payments for a specified period). Accordingly, any loan modification made in response to the COVID-19 pandemic that meets either of these practical expedients would not be considered a TDR because the borrower is not experiencing financial difficulty.

 

As of March 31, 2020, Juniata approved interest and/or principal payment deferrals on eight loans totaling $566,000 for individuals and businesses affected by the economic impacts of COVID-19. None of the borrowers approved for these designated deferrals were delinquent as of March 20, 2020, the date on which the Company’s COVID-19 Modification Program went into effect,  and the modification terms are short-term, thus the loan modifications are not considered to be troubled-debt restructures under the interagency statement guidance.

 

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans to commercial customers with an aggregate loan exposure greater than $500,000

23

Table of Contents

and for lines of credit in excess of $50,000. This analysis is performed on a continuing basis with all such loans reviewed annually. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Loans in this category are reviewed no less than quarterly.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans in this category are reviewed no less than monthly.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans in this category are reviewed no less than monthly.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

 

The following tables present 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, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

As of March 31, 2020

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

Commercial, financial and agricultural

 

$

43,679

 

$

4,173

 

$

419

 

$

562

 

$

48,833

Real estate - commercial

 

 

105,682

 

 

5,903

 

 

3,992

 

 

2,688

 

 

118,265

Real estate - construction

 

 

49,133

 

 

177

 

 

1,798

 

 

 —

 

 

51,108

Real estate - mortgage

 

 

144,973

 

 

320

 

 

1,856

 

 

77

 

 

147,226

Obligations of states and political subdivisions

 

 

16,621

 

 

 —

 

 

 —

 

 

 —

 

 

16,621

Personal

 

 

7,961

 

 

 —

 

 

 —

 

 

 —

 

 

7,961

Total

 

$

368,049

 

$

10,573

 

$

8,065

 

$

3,327

 

$

390,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

As of December 31, 2019

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

Commercial, financial and agricultural

 

$

46,725

 

$

4,080

 

$

980

 

$

 —

 

$

51,785

Real estate - commercial

 

 

113,851

 

 

5,668

 

 

7,046

 

 

48

 

 

126,613

Real estate - construction

 

 

44,954

 

 

287

 

 

1,218

 

 

 —

 

 

46,459

Real estate - mortgage

 

 

148,164

 

 

327

 

 

1,951

 

 

96

 

 

150,538

Obligations of states and political subdivisions

 

 

16,377

 

 

 —

 

 

 —

 

 

 —

 

 

16,377

Personal

 

 

8,804

 

 

 —

 

 

14

 

 

 —

 

 

8,818

Total

 

$

378,875

 

$

10,362

 

$

11,209

 

$

144

 

$

400,590

 

24

Table of Contents

 

 

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

On September 8, 2006, the Company acquired a branch office in Richfield, PA. Goodwill associated with this transaction is carried at $2,046,000. On November 30, 2015, the Company acquired FNBPA Bancorp, Inc. and, as a result, carries goodwill of $3,402,000 relating to the acquisition. On April 30, 2018, the Company acquired the remainder of the outstanding common stock of Liverpool Community Bank and, as a result, carries goodwill of $3,599,000 relating to the acquisition.

Total goodwill at March 31, 2020 and December 31, 2019 was $9,047,000. Goodwill is not amortized but is tested annually for impairment or more frequently if certain events occur which might indicate goodwill has been impaired. Due to the severe economic impact of COVID-19, testing was performed as of March 31, 2020, and management concluded that no impairment of goodwill existed at March 31, 2020.

Intangible Assets

On November 30, 2015, a core deposit intangible in the amount of $303,000 associated with the FNBPA Bancorp, Inc. acquisition was recorded and is being amortized over a ten-year period using a sum of the year’s digits basis. Amortization expense recognized for the intangibles related to the FNBPA acquisition in the three months ended March 31, 2020 was $8,000.

On April 30, 2018, a core deposit intangible in the amount of $289,000 associated with the Liverpool Community Bank acquisition was recorded and is being amortized over a ten-year period using a sum of the year’s digit basis. Amortization expense recognized for the intangible related to the Liverpool Community Bank acquisition in the three months ended March 31, 2020 was $11,000.

The following table shows the amortization schedule for each of the intangible assets recorded.

 

 

 

 

 

 

 

(Dollars in thousands)

    

FNBPA

    

LCB

 

 

Acquisition

 

Acquisition

 

 

Core

 

Core

 

 

Deposit

 

Deposit

 

 

Intangible

 

Intangible

Beginning Balance at Acquisition Date

 

$

303

 

$

289

Amortization expense recorded prior to January 1, 2019

 

 

152

 

 

35

Amortization expense recorded in the twelve months

 

 

  

 

 

  

ended December 31, 2019

 

 

38

 

 

49

Unamortized balance as of December 31, 2019

 

 

113

 

 

205

Amortization expense recorded in the

 

 

 

 

 

 

three months ended March 31, 2020

 

 

 8

 

 

11

Unamortized balance as of March 31, 2020

 

$

105

 

$

194

 

 

 

 

 

 

 

Scheduled remaining amortization expense for years ended:

 

 

 

 

 

 

December 31, 2020

 

$

25

 

$

33

December 31, 2021

 

 

27

 

 

39

December 31, 2022

 

 

22

 

 

33

December 31, 2023

 

 

16

 

 

28

December 31, 2024

 

 

10

 

 

23

After December 31, 2024

 

 

 5

 

 

38

 

25

Table of Contents

 

 

 

8. BORROWINGS

Borrowings consisted of the following as of March 31, 2020 and December 31, 2019.

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

March 31, 

 

December 31, 

 

    

2020

    

2019

Securities sold under agreements to repurchase

 

$

2,783

 

$

3,429

Overnight advances with FHLB

 

 

 —

 

 

9,700

Long-term debt with FHLB

 

 

45,000

 

 

45,000

 

 

$

47,783

 

$

58,129

 

Long-term debt is comprised only of FHLB advances with an original maturity of one year or more. The following table summarizes the scheduled maturities of long-term debt as of March 31, 2020.

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Scheduled

 

Weighted Average

 

Year

    

Maturities

    

Interest Rate

 

2022

 

$

5,000

 

2.74

%

2023

 

 

5,000

 

2.75

 

2024

 

 

20,000

 

2.42

 

2025

 

 

15,000

 

2.41

 

 

 

$

45,000

 

2.49

%

 

 

 

 

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

26

Table of Contents

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.

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 assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities 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.

Equities Securities – The fair value of equity securities is based upon quoted prices in active markets and is reported using Level 1 inputs.

27

Table of Contents

Debt 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.

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.

Mortgage Servicing Rights – The fair value of servicing assets is based on the present value of estimated future cash flows on pools of mortgages stratified by rate and maturity date and are considered Level 3 inputs.

The following tables summarize financial assets and financial liabilities measured at fair value as of March 31, 2020 and December 31, 2019 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value. There were no transfers of assets between fair value Level 1 and Level 2 during the three months ended March 31, 2020 or 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

 

 

Active Markets

 

Other

 

Other

(Dollars in thousands)

 

March 31, 

 

for Identical

 

Observable

 

Unobservable

 

 

2020

 

Assets

 

Inputs

 

Inputs

Measured at fair value on a recurring basis:

 

 

  

 

 

  

 

 

  

 

 

  

Debt securities available for sale:

 

 

  

 

 

  

 

 

  

 

 

  

Obligations of U.S. Government agencies and corporations

 

$

10,045

 

$

 —

 

$

10,045

 

$

 —

Obligations of state and political subdivisions

 

 

6,612

 

 

 —

 

 

6,612

 

 

 —

Corporate debt securities

 

 

1,035

 

 

 —

 

 

1,035

 

 

 —

Mortgage-backed securities

 

 

182,946

 

 

 —

 

 

182,946

 

 

 —

Equity securities

 

 

971

 

 

971

 

 

 —

 

 

 —

Mortgage servicing rights

 

 

176

 

 

 —

 

 

 —

 

 

176

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured at fair value on a non-recurring basis:

 

 

  

 

 

  

 

 

  

 

 

  

Impaired loans

 

$

123

 

$

 —

 

$

 —

 

$

123

 

28

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

 

 

Active Markets

 

Other

 

Other

(Dollars in thousands)

 

December 31, 

 

for Identical

 

Observable

 

Unobservable

 

 

2019

 

Assets

 

Inputs

 

Inputs

Measured at fair value on a recurring basis:

 

 

  

 

 

  

 

 

  

 

 

  

Debt securities available for sale:

 

 

  

 

 

  

 

 

  

 

 

  

Obligations of U.S. Government agencies and corporations

 

$

20,920

 

$

 —

 

$

20,920

 

$

 —

Obligations of state and political subdivisions

 

 

4,575

 

 

 —

 

 

4,575

 

 

 —

Mortgage-backed securities

 

 

185,191

 

 

 —

 

 

185,191

 

 

 —

Equity securities

 

 

1,144

 

 

1,144

 

 

 —

 

 

 —

Mortgage servicing rights

 

 

180

 

 

 —

 

 

 —

 

 

180

 

 

 

 

 

 

 

 

 

 

 

 

 

Measured at fair value on a non-recurring basis:

 

 

  

 

 

  

 

 

  

 

 

  

Impaired loans

 

$

144

 

$

 —

 

$

 —

 

$

144

 

Assets measured at fair value on a nonrecurring basis for which Level 3 inputs have been used to determine fair value are immaterial to the Company’s consolidated financial statements.

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 reported 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 discussion 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, restricted stock in the Federal Home Loan Bank, loans held for sale, interest receivable, mortgage servicing rights, non-interest bearing 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, and mortgage servicing rights, which are Level 3 inputs, these instruments are Level 2 inputs.

29

Table of Contents

The estimated fair values of the Company’s financial instruments are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Instruments

(Dollars in thousands)

 

March 31, 2020

 

December 31, 2019

 

    

Carrying

    

Fair

    

Carrying

    

Fair

 

 

Value

 

Value

 

Value

 

Value

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

16,826

 

$

16,826

 

$

12,658

 

$

12,658

Interest bearing deposits with banks

 

 

10,998

 

 

10,998

 

 

82

 

 

82

Federal funds sold

 

 

10,000

 

 

10,000

 

 

 —

 

 

 —

Interest bearing time deposits with banks

 

 

1,720

 

 

1,720

 

 

2,210

 

 

2,210

Securities

 

 

201,609

 

 

201,609

 

 

211,830

 

 

211,830

Restricted investment in bank stock

 

 

3,036

 

 

N/A

 

 

3,442

 

 

N/A

Loans, net of allowance for loan losses

 

 

386,681

 

 

388,228

 

 

397,629

 

 

403,359

Accrued interest receivable

 

 

1,537

 

 

1,537

 

 

1,607

 

 

1,607

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Non-interest bearing deposits

 

$

139,205

 

$

139,205

 

$

134,703

 

$

134,703

Interest bearing deposits

 

 

402,724

 

 

406,156

 

 

397,234

 

 

399,848

Securities sold under agreements to repurchase

 

 

2,783

 

 

N/A

 

 

3,429

 

 

N/A

Short-term borrowings

 

 

 —

 

 

 —

 

 

9,700

 

 

9,700

Long-term debt

 

 

45,000

 

 

47,355

 

 

45,000

 

 

45,809

Other interest bearing liabilities

 

 

1,574

 

 

1,576

 

 

1,603

 

 

1,603

Accrued interest payable

 

 

466

 

 

466

 

 

473

 

 

473

 

 

 

 

 

 

 

 

 

 

 

 

 

Off-balance sheet financial instruments:

 

 

  

 

 

  

 

 

  

 

 

  

Commitments to extend credit

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Letters of credit

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

The following tables present 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, 2020 and December 31, 2019. The tables exclude financial instruments for which the carrying amount approximates fair value.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

 

 

 

Quoted Prices in

 

Significant

 

Significant

(Dollars in thousands)

 

 

 

 

 

 

 

Active Markets

 

Other

 

Other

 

 

Carrying

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

 

Amount

 

Fair Value

 

Assets or Liabilities

 

Inputs

 

Inputs

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments - Assets

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Interest bearing time deposits with banks

 

$

1,720

 

$

1,720

 

$

 —

 

$

1,720

 

$

 —

Loans, net of allowance for loan losses

 

 

386,681

 

 

388,228

 

 

 —

 

 

 —

 

 

388,228

Financial instruments - Liabilities

 

 

 

 

 

 

 

 

  

 

 

 

 

 

  

Interest bearing deposits

 

$

402,724

 

$

406,156

 

$

 —

 

$

406,156

 

$

 —

Long-term debt

 

 

45,000

 

 

47,355

 

 

 —

 

 

47,355

 

 

 —

Other interest bearing liabilities

 

 

1,574

 

 

1,576

 

 

 —

 

 

1,576

 

 

 —

 

30

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

Quoted Prices in

 

Significant

 

Significant

(Dollars in thousands)

 

 

 

 

 

 

 

Active Markets

 

Other

 

Other

 

 

Carrying

 

 

 

 

for Identical

 

Observable

 

Unobservable

 

    

Amount

    

Fair Value

    

Assets or Liabilities

    

Inputs

    

Inputs

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments - Assets

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Interest bearing time deposits with banks

 

$

2,210

 

$

2,210

 

$

 —

 

$

2,210

 

$

 —

Loans, net of allowance for loan losses

 

 

397,629

 

 

403,359

 

 

 —

 

 

 —

 

 

403,359

Financial instruments - Liabilities

 

 

 

 

 

 

 

 

  

 

 

 

 

 

  

Interest bearing deposits

 

$

397,234

 

$

399,848

 

$

 —

 

$

399,848

 

$

 —

Long-term debt

 

 

45,000

 

 

45,809

 

 

 —

 

 

45,809

 

 

 —

Other interest bearing liabilities

 

 

1,603

 

 

1,603

 

 

 —

 

 

1,603

 

 

 —

 

 

 

 

10. DEFINED BENEFIT RETIREMENT PLAN

The Company sponsored a defined benefit retirement plan, The Juniata Valley Bank Retirement Plan (“JVB Plan”), which covered substantially all of its employees employed prior to December 31, 2007. As of January 1, 2008, the JVB 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 were based on years of service and the employee’s compensation. Effective December 31, 2012, the JVB Plan was amended to cease future service accruals after that date (i.e., it was frozen).

As a result of the FNBPA acquisition, as of November 30, 2015, the Company assumed sponsorship of a second defined benefit retirement plan, the Retirement Plan for the First National Bank of Port Allegany (“FNB Plan”), which covered substantially all former FNBPA employees that were employed prior to September 30, 2008. The FNBPA Plan was amended as of December 31, 2015 to cease future service accruals to previously unfrozen participants and was considered to be “frozen”. Effective December 31, 2016, the FNB Plan was merged into the JVB Plan, which was amended to provide the same benefits to the class of participants previously included in the FNB Plan.

Juniata’s Board of Directors resolved to terminate the JVB Plan, effective November 30, 2018. All participants were properly notified. During the second quarter of 2019, JVB Plan participants elected preferences for receiving their vested benefit in the form of either lump sum payments or annuities. All obligations were satisfied in the third quarter of 2019 and The JVB Plan was liquidated. Excess funds of $431,000 were transferred to fund the Company’s 401(k) Safe Harbor Plan.

Pension expense included the following components for the three months ended March 31, 2019:

 

 

 

 

 

 

Three Months Ended

(Dollars in thousands)

 

March 31, 

 

    

2019

Components of net periodic pension cost:

 

 

 

Interest cost

 

$

125

Expected return on plan assets

 

 

(124)

Recognized net actuarial loss

 

 

28

Net periodic pension cost

 

 

29

Total recognized in other comprehensive income

 

 

(28)

Total recognized in net periodic pension cost and other comprehensive income

 

$

 1

 

 

 

 

 

31

Table of Contents

 

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, 2020, the Company had $115,052,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $110,485,000 at December 31, 2019.

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, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. 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 $2,573,000 and $2,624,000 of financial and performance letters of credit commitments as of March 31, 2020 and December 31, 2019, respectively. Commercial letters of credit as of March 31, 2020 and December 31, 2019 totaled $7,975,000 and $7,725,000, 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 amount of the liability as of March 31, 2020 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 sold qualifying residential mortgage loans to the FHLB as part of its Mortgage Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the Company for loans that do not perform in accordance with the terms of the loan agreement. Each loan sold under the Program is “credit enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the FHLB. The Program can be terminated by either the FHLB or the Company, without cause. The FHLB has no obligation to commit to purchase any mortgage loans through, or from, the Company.

 

 

12. REVENUE RECOGNITION

The Company accounts for revenue from contracts with customers under Topic 606. The Company generally acts in a principal capacity, on its own behalf, in most contracts with customers. In such transactions, revenue and related costs to provide these services are recognized on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue through assisting other entities in transactions with its customers. In such transactions, revenue and the related costs to provide the services are recognized on a net basis in the financial statements. These transactions primarily relate to non-deposit product commissions and fees derived from customers’ use of various interchange and ATM/debit card networks.

All of the Company’s revenue from contracts with customers in the scope of Topic 606 are recognized within non-interest income on the consolidated statements of income, except for the gain/loss on the sale of other real estate owned, which is included in other non-interest expense. Revenue streams not within the scope of Topic 606 included in non-interest income on the consolidated statements of income include earnings on bank-owned life insurance and annuities, income from unconsolidated subsidiary, fees derived from loan activity, mortgage banking income, gain/loss on sales and calls of securities, and the change in value of equity securities.

A description of the Company’s sources of revenue accounted for under Topic 606 are as follows:

Customer Service Fees – fees mainly represent fees from deposit customers for transaction based, account maintenance, and overdraft services. Transaction based fees include, but are not limited to, stop payment and overdraft fees. These fees

32

Table of Contents

are recognized at the time of the transaction when the performance obligation has been fulfilled. Account maintenance fees and account analysis fees are earned over the course of a month, representing the period of the performance obligation, and are recognized monthly.

Debit Card Fee Income – consists of interchange fees from cardholder transactions conducted through the card payment network. Cardholders use debit cards to conduct point-of-sale transactions that produce interchange fees. The Company acts in an agent capacity to offer processing services for debit cards to its customers. Fees are recognized with the processing of the transactions and netted against the related fees from such transactions.

Trust Fees – include asset management and estate fees. Asset management fees are generally based on a fee schedule, based upon the market value of the assets under management, and recognized monthly when the service obligation is completed. Asset management fees recognized during the three month periods ended March 31, 2020 totaled $85,000. Asset management fees recognized during the three month periods ended March 31, 2019 totaled $90,000. Fees for estate management services are based on a specified fee schedule and generally recognized as the following performance obligations are fulfilled: (i) 25% of total estate fee recognized when all estate assets are collected and debts paid, (ii) 50% of the total fee is recognized when the inheritance tax return is filed, and (iii) remaining 25% is recognized when the first and final account is confirmed, settling the estate. Estate fees recognized during the three month period ended March 31, 2020 totaled $28,000. Estate fees recognized during the three month period ended March 31, 2019 totaled $9,000.  

Commissions From Sales Of Non-Deposit Products – include, but are not limited to, brokerage services, employer-based retirement solutions, individual retirement planning, insurance solutions, and fee-based investment advisory services. The Company acts in an agent capacity to offer these services to customers. Revenue is recognized, net of related fees, in the month in which the contract is fulfilled.

Other Non-Interest Income – includes certain revenue streams within the scope of Topic 606 comprised primarily of ATM surcharges, commissions on check orders, and wire transfer fees. ATM surcharges are the result of customers conducting ATM transactions that generate fee income. All of these fees, as well as wire transfer fees, are transaction based and are recognized at the time of the transaction. In addition, the Company acts in an agent capacity to offer checks to its customers and recognizes commissions, net of related fees, when the contract is fulfilled.

Gains/Losses On Sales Of Other Real Estate Owned – are recognized when control of the property transfers to the buyer, which generally occurs when the deed is executed.

Contract Balances

 

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due from the customer). The company’s non-interest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into longer-term revenue contracts with the customer, and therefore, does not experience significant contract balances.

Contract Acquisition Costs

 

The Company expenses all contract acquisition costs as costs are incurred.

 

33

Table of Contents

 

13. LEASES

The Company accounts for its lease obligations under Topic 842. It has four operating leases, one of which is with a related party, comprised of real estate property for branch and office space with terms extending through 2029. Operating leases were previously not recognized on the Company’s consolidated statements of condition, but with the adoption of Topic 842 on January 1, 2019, operating lease agreements are recognized on the consolidated statements of condition as a right-of-use (“ROU”) asset and a corresponding lease liability. As of March 31, 2020, the Company had operating lease ROU assets totaling $440,000 included in other assets and operating lease liabilities totaling $446,000 included in other liabilities.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability.

Topic 842 requires the use of the rate implicit in the lease as the discount rate if that rate is readily determinable. As this rate is rarely determinable, the Company utilized its incremental borrowing rate at lease inception, which is the rate the Company would have incurred to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. Because the four operating leases existed prior to the adoption of Topic 842 on January 1, 2019, the incremental borrowing rate for the remaining lease term at January 1, 2019 was used.

As of March 31, 2020, the weighted-average remaining operating lease term was 6.4 years and the weighted-average discount rate was 4.69%. As of December 31, 2019, the weighted-average remaining operating lease term was 6.8 years and the weighted-average discount rate was 4.95%.

The Company elected, for the real estate class of underlying assets which is currently its only class, not to separate lease and nonlease components and to account for them as a single lease component. The Company has one operating lease agreement containing a monthly ATM surcharge, which is combined with the property rental payment as a result of electing the practical expedient. The Company’s total operating lease cost for the three months ended March 31, 2020 was $29,000.  Total operating lease payments made to a related party totaled $6,000  during both the three months ended March 31, 2020 and the three months ended March 31, 2019.

The future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2020 were as follows:

 

 

 

 

(Dollars in thousands)

    

 

 

 

 

 

 

Twelve Months Ended:

 

 

 

March 31, 2021

 

$

114

March 31, 2022

 

 

97

March 31, 2023

 

 

46

March 31, 2024

 

 

46

March 31, 2025

 

 

47

Thereafter

 

 

194

Total Future Minimum Lease Payments

 

 

544

Amounts Representing Interest

 

 

(98)

Present Value of Net Future Minimum Lease Payments

 

$

446

 

 

 

34

Table of Contents

14. SUBSEQUENT EVENTS

On April 21, 2020, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on May 18, 2020, payable on June 1, 2020.

On March 27, 2020, the CARES Act was enacted,  establishing the Paycheck Protection Program (“PPP”) which is administered by the Small Business Administration (“SBA”). The PPP is intended to provide economic relief to small businesses nationwide adversely impacted under the COVID-19 Emergency Declaration issued on March 13, 2020. The PPP, which began on April 3, 2020, provides small businesses with funds to cover up to eight weeks of payroll costs, including benefits. It also provides for forgiveness of up to the full principal amount of qualifying loans. The Company is participating in the PPP, and as of April 30, 2020, has funded 395 PPP loans totaling $30,041,000.  

Additionally, in an effort to assist clients who were negatively impacted by the COVID-19 pandemic, the Company continues to approve interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of April 30, 2020, Juniata approved interest and/or principal payment deferrals on 200 loans totaling $72,865,000 for individuals and businesses affected by the economic impacts of COVID-19. None of the borrowers approved for these designated deferrals were delinquent as of the date of this quarterly report. The modification terms of these loans are short-term; thus, the loan modifications are not considered to be troubled-debt restructures.

Due to the effects of the COVID-19 pandemic, operations and business results of the Company could be materially adversely affected, negatively impacting material estimates. Material estimates that are particularly susceptible to significant change include the determination of the allowance and those used in valuation methodologies in areas with no observable market, such as loans, deposits, borrowings, goodwill, core deposit and other intangible assets, and mortgage servicing rights. The extent to which COVID-19 may impact business activity or investment results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions required to contain COVID-19 or treat its impact, among others.

35

Table of Contents

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements:

The information contained in this Quarterly Report on Form 10‑Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder) including statements that are not historical facts or that address trends or management’s intentions, plans, beliefs, expectations or opinions. Any forward-looking statement made by us in this document is based only on information currently available to us and speaks only as of the date when made. Juniata undertakes no obligation to publicly update or revise forward looking information, whether as a result of new or updated information, future events, or otherwise. Forward-looking statements are not historical facts or guarantees of future performance, events or results and are subject to potential risks and uncertainties, many of which are outside of our control that could cause actual results to differ materially from this forward-looking information. Important factors that could cause our actual result and financial condition to differ materially from those indicated in the forward-looking statements include, without limitation:

·

the impact of adverse changes in the economy and real estate markets, including protracted periods of low-growth and sluggish loan demand;

·

the effect of market interest rates and uncertainties, and relative balances of rate-sensitive assets to rate-sensitive liabilities, on net interest margin and net interest income;

·

the effect of competition on rates of deposit and loan growth and net interest margin;

·

increases in non-performing assets, which may result in increases in the allowance for credit losses, loan charge-offs and elevated collection and carrying costs related to such non-performing assets;

·

other income growth, including the impact of regulatory changes which have reduced debit card interchange revenue;

·

investment securities gains and losses, including other than temporary declines in the value of securities which may result in charges to earnings;

·

the effects of changes in the applicable federal income tax rate;

·

the level of other expenses, including salaries and employee benefit expenses;

·

the impact of increased regulatory scrutiny of the banking industry;

·

the impact of governmental monetary and fiscal policies, as well as legislative and regulatory changes;

·

the results of regulatory examination and supervision processes;

·

the failure of assumptions underlying the establishment of reserves for loan and lease losses, and estimations of collateral values and various financial assets and liabilities;

·

the increasing time and expense associated with regulatory compliance and risk management;

·

the ability to implement business strategies, including business acquisition activities and organic branch, product, and service expansion strategies;

·

capital and liquidity strategies, including the impact of the capital and liquidity requirements modified by the Basel III standards;

·

the effects of changes in accounting policies, standards, and interpretations on the presentation in the Company’s consolidated balance sheets and consolidated statements of income;

·

the Company’s failure to identify and to address cyber-security risks;

·

the Company’s ability to keep pace with technological changes;

·

the Company’s ability to attract and retain talented personnel;

·

the Company’s reliance on its subsidiary for substantially all of its revenues and its ability to pay dividends;

·

acts of war or terrorism;

·

disruptions due to flooding, severe weather, or other natural disasters;

·

failure of third-party service providers to perform their contractual obligations; and

·

the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities in response to the pandemic and the direct and indirect impacts of the pandemic on the Company, its customers and third parties.

36

Table of Contents

For a more complete discussion of certain risks, uncertainties and other factors affecting the Company, refer to the Company’s Risk Factors, contained in Item 1A of the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019, a copy of which may be obtained from the Company upon request and without charge (except for the exhibits thereto), and Item 1A of Part II of this Quarterly Report on Form 10‑Q.

 

Recent Developments: COVID-19 and the CARES Act:

 

On March 27, 2020, the CARES Act was signed into law, providing relief from certain requirements under U.S. GAAP. The CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the loan modification is made between March 1, 2020 and the earlier of December 31, 2020 or 60 days after the end of the coronavirus emergency declaration. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.

 

On April 7, 2020, the banking agencies issued a statement, “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)” (“Interagency Statement”), to encourage banks to work prudently with borrowers and to describe the agencies’ interpretation of how accounting rules under ASC 310-40 apply to certain COVID-19-related modifications.

 

The interagency statement interprets, but does not suspend, ASC 310-40. It indicates that a lender can conclude that a borrower is not experiencing financial difficulty if either (1) short-term (e.g., six months) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented, or (2) the modification or deferral program is mandated by the federal government or a state government. Accordingly, any loan modification made in response to the COVID-19 pandemic that meets either of these practical expedients would not be considered a TDR because the borrower is not experiencing financial difficulty.

 

In response to the COVID-19 pandemic, the Company established a COVID-19 Modification Program on March 20, 2020 to offer payment relief to certain borrowers. Through this program, the Company has approved interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic.

 

As part of the CARES Act and in recognition of the challenging circumstances faced by small businesses, Congress created the Paycheck Protection Program (“PPP”), which the Company is a participant. PPP covered loans are fully guaranteed as to principal and accrued interest by the SBA, and therefore, require a zero percent risk weight for risk-based capital requirements. The SBA reimburses PPP lenders for any amount of a PPP covered loan that is forgiven. PPP lenders are not held liable for any representations made by PPP borrowers in connection with a borrower's request for PPP covered loan forgiveness.

 

In order to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system, on April 7, 2020, the Federal Reserve Banks extended credit under the Paycheck Protection Program Lending Facility (“PPPLF”). Under the PPPLF, each Federal Reserve Bank can extend non-recourse loans to institutions eligible to make PPP covered loans. Under the PPPLF, only PPP covered loans guaranteed by the SBA under the Paycheck Protection Program with respect to both principal and interest and that are originated by an eligible institution may be pledged as collateral to the Federal Reserve Banks. While the Company has not yet requested advances through the PPPLF, it has been approved to do so.

 

37

Table of Contents

Critical Accounting Policies:

Disclosure of the Company’s significant accounting policies is included in the Company’s critical accounting policies in its Annual Report on Form 10‑K for the year ended December 31, 2019. 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.

General:

The following discussion relates to the consolidated financial condition of the Company as of March 31, 2020, compared to December 31, 2019, and the consolidated results of operations for the three months ended March 31, 2020, compared to the same periods in 2019. 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 be 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 provided to its customers.

Financial Condition:

Total assets as of March 31, 2020, were $673,828,000, an increase of $3,196,000, or 0.5%, compared to December 31, 2019. Comparing asset balances at March 31, 2020 and December 31, 2019, total cash and cash equivalents increased by $25,084,000, while debt securities available for sale and loans declined by $10,048,000 and $10,576,000, respectively. Over the same period, deposits increased by $9,992,000, with growth in both non-interest and interest bearing deposits.

The table below shows changes in deposit volumes by type of deposit between December 31, 2019 and March 31, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

March 31, 

 

December 31, 

 

Change

 

 

    

2020

    

2019

    

$

    

%

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Demand, non-interest bearing

 

$

139,205

 

$

134,703

 

$

4,502

 

3.3

%

Interest bearing demand and money market

 

 

149,483

 

 

150,157

 

 

(674)

 

(0.4)

 

Savings

 

 

101,202

 

 

96,980

 

 

4,222

 

4.4

 

Time deposits, $250,000 and more

 

 

8,259

 

 

6,923

 

 

1,336

 

19.3

 

Other time deposits

 

 

143,780

 

 

143,174

 

 

606

 

0.4

 

Total deposits

 

$

541,929

 

$

531,937

 

$

9,992

 

1.9

%

 

38

Table of Contents

Total loans decreased $10,576,000, or 2.6%, between December 31, 2019 and March 31, 2020. As shown in the table below, most of the decline was in real estate - commercial and mortgage loans, with a smaller decrease in commercial, financial and agricultural loans. These declines were partially offset by an increase in real estate -  construction loans.

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

March 31, 

 

December 31, 

 

Change

 

 

    

2020

    

2019

    

$

    

%

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

48,833

 

$

51,785

 

$

(2,952)

 

(5.7)

%

Real estate - commercial

 

 

118,265

 

 

126,613

 

 

(8,348)

 

(6.6)

 

Real estate - construction

 

 

51,108

 

 

46,459

 

 

4,649

 

10.0

 

Real estate - mortgage

 

 

147,226

 

 

150,538

 

 

(3,312)

 

(2.2)

 

Obligations of states and political subdivisions

 

 

16,621

 

 

16,377

 

 

244

 

1.5

 

Personal

 

 

7,961

 

 

8,818

 

 

(857)

 

(9.7)

 

Total loans

 

$

390,014

 

$

400,590

 

$

(10,576)

 

(2.6)

%

 

A summary of the activity in the allowance for loan losses for each of the three month periods ended March 31, 2020 and 2019 is presented below.

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Three months ended March 31, 

 

 

    

2020

    

2019

 

Balance of allowance - January 1

 

$

2,961

 

$

3,034

 

Loans charged off

 

 

(21)

 

 

(73)

 

Recoveries of loans previously charged off

 

 

37

 

 

18

 

Net charge-offs (recoveries)

 

 

16

 

 

(55)

 

Provision for loan losses

 

 

356

 

 

15

 

Balance of allowance - end of period

 

$

3,333

 

$

2,994

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs (recoveries) during period to average loans outstanding

 

 

0.00

%  

 

0.01

%

 

The $372,000 increase in the allowance at March 31, 2020 compared to December 31, 2019 was the result of an increase in the provision for loan losses due to an expectation, based on an analysis of the allowance for loan losses as of March 31, 2020, that the COVID-19 pandemic will result in more credit risk in all loan segments.

As of March 31, 2020,  33 loans (exclusive of loans acquired with existing credit deterioration) with aggregate outstanding balances of $5,648,000 were individually evaluated for impairment. A collateral analysis was performed on each of these loans in order to establish a portion of the reserve needed to carry the impaired loans at fair value. There was one relationship comprised of two loans totaling $3,204,000, determined to have insufficient collateral at March 31, 2020 requiring the establishment of a  specific reserve totaling $118,000.

As of March 31, 2020, there were $10,573,000 in special mention loans compared to $10,362,000 at December 31, 2019,  $8,065,000 in substandard loans at March 31, 2020 compared to $11,209,000 at December 31, 2019, and $3,327,000 in doubtful loans at March 31, 2020 compared to $144,000 at December 31, 2019.

Management believes that the reserves carried are adequate to cover probable incurred losses related to these relationships as of March 31, 2020. There are uncertainties about the lasting effects of the COVID-19 impact on the economy. Such effects could have a material impact on future results of operations if businesses are not able to remain solvent and unemployment remains at record highs. We believe we have sufficient liquidity, capital and loss allowance reserves to withstand losses that may occur but continue to closely monitor the financial strength of borrowers whose ability to comply with repayment terms may become permanently impaired.

 

39

Table of Contents

The following is a summary of the Bank’s non-performing loans on March 31, 2020 compared to December 31, 2019.

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

December 31, 2019

 

Non-performing loans

 

 

 

 

 

 

 

Non-accrual loans

 

$

4,928

 

$

1,819

 

Accruing loans past due 90 days or more, exclusive of loans acquired with credit deterioration

 

 

134

 

 

383

 

Restructured loans in default and non-accruing

 

 

36

 

 

 —

 

Total

 

$

5,098

 

$

2,202

 

 

 

 

 

 

 

 

 

Average loans outstanding

 

$

390,513

 

$

408,320

 

 

 

 

 

 

 

 

 

Ratio of non-performing loans to average loans outstanding

 

 

1.31

%  

 

0.54

%

 

Total non-performing loans at March 31, 2020 increased $2,896,000 over total non-performing loans at December 31, 2019 mainly due to the addition one non-accrual relationship totaling $3,204,000 as of March 31, 2020. 

Stockholders’ equity increased from December 31, 2019 to March 31, 2020 by $3,659,000, or 5.0%,  mainly due to a $3,900,000 increase in net unrealized gains resulting from the change in market value of debt securities available for sale. This increase was partially offset by treasury stock purchases totaling $186,000 as of March 31, 2020 compared to December 31, 2019.

Subsequent to March 31, 2020, the following event took place:

On April 21, 2020, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on May 18, 2020, payable on June 1, 2020. 

The Company is participating in the PPP established through the CARES Act, and as of April 30, 2020, has funded 395 PPP loans through the SBA, for a total of $30,041,000.

Further, the Company continues to approve interest and/or principal payment deferrals on loans for individuals and businesses affected by the economic impacts of the COVID-19 pandemic. As of April 30, 2020, Juniata approved interest and/or principal payment deferrals on 200 loans totaling $72,865,000 for individuals and businesses affected by the economic impacts of COVID-19. None of the borrowers approved for these designated deferrals were delinquent as of the date of this quarterly report. The modification terms of these loans are short-term; thus, the loan modifications are not considered to be troubled-debt restructures.

40

Table of Contents

Comparison of the Three Months Ended March 31, 2020 and 2019

Operations Overview:

Net income for the first quarter of 2020 was $1,038,000, a decrease of $375,000 when compared to the first quarter of 2019. Basic and diluted earnings per share were $0.20 in the first quarter of 2020 compared to basic and diluted earnings per share of $0.28 in the first quarter of 2019.  

Annualized return on average equity for the three months ended March 31, 2020 was 5.54%, compared to the return on average equity of 8.38% for the same period in 2019. For the three months ended March 31, annualized return on average assets was 0.62% in 2020, compared to 0.90% in 2019. 

Presented below are selected key ratios for the two periods:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2020

    

 

2019

    

Return on average assets (annualized)

 

0.62

%  

 

0.90

%

Return on average equity (annualized)

 

5.54

%  

 

8.38

%

Average equity to average assets

 

11.28

%  

 

10.79

%

Non-interest income, excluding gain/loss on sales and calls of securities and change in value of equity securities, as a percentage of average assets (annualized)

 

0.70

%  

 

0.73

%

Non-interest expense as a percentage of average assets (annualized)

 

2.87

%  

 

3.09

%

 

The discussion that follows further explains changes in the components of net income when comparing the first quarter of 2020 with the first quarter of 2019.

Net Interest Income:

Net interest income, after the provision for loan losses, was $4,645,000 during the three months ended March 31, 2020 when compared to $5,144,000 during the three months ended March 31, 2019.  The loan loss provision for the three months ended March 31, 2020 was $356,000, or $341,000 greater than the loan loss provision for the three months ended March 31, 2019, predominantly due to the economic impact of the COVID-19 pandemic. Total interest income decreased by $89,000 during the first quarter of 2020 compared to the same period in 2019, while total interest expense increased by $69,000.

Overall, average earning assets increased 5.9%, while average interest bearing liabilities increased 4.4%. Net interest margin, on a fully tax equivalent basis, decreased from 3.65% during the three months ended March 31, 2019 to 3.32% during the three months ended March 31, 2020.

Average loan balances decreased by $30,785,000, while interest on loans declined by $377,000 during for the first quarter of 2020 compared to the same period in 2019. The decline in the average volume of loans outstanding decreased interest income by $369,000, while the yield on loans decreased interest income by $8,000. 

The average balance of, and interest earned on, investment securities increased $57,219,000 and $286,000, respectively, in the first quarter of 2020 compared to the first quarter of 2019. The increase in average balance on investment securities during the period increased interest income by $368,000, while the decline in yield on investment securities decreased interest income by  $82,000.  

41

Table of Contents

Average earning assets increased $34,232,000, to $609,964,000, due to a  38.8% increase in average investment securities. The yield on earning assets declined to 4.02% during the three months ended March 31, 2020 from 4.32%  during the same period in 2019. The average balance of interest bearing liabilities increased over the period by $18,807,000 compared to the same 2019 period. In addition, the cost to fund interest bearing assets with interest bearing liabilities increased 2 basis points, to 1.01% during the first quarter of 2020 compared to the same period in 2019. The yields on earning assets and cost of funds were affected by changes in the prime rate and the federal funds target rate between the first quarter of 2019 and the first quarter of 2020.

42

Table of Contents

The table below shows the net interest margin on a fully tax-equivalent basis for the three months ended March 31, 2020 and 2019.

 

Average Balance Sheets and Net Interest Income Analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

March 31, 2020

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

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)

 

$

361,850

 

$

4,651

 

5.14

%  

$

386,432

 

$

4,950

 

5.12

%  

$

(315)

 

$

16

 

$

(299)

Tax-exempt loans

 

 

28,663

 

 

227

 

3.17

 

 

34,866

 

 

305

 

3.50

 

 

(54)

 

 

(24)

 

 

(78)

Total loans

 

 

390,513

 

 

4,878

 

5.00

 

 

421,298

 

 

5,255

 

4.99

 

 

(369)

 

 

(8)

 

 

(377)

Taxable investment securities

 

 

200,322

 

 

1,173

 

2.34

 

 

135,364

 

 

849

 

2.51

 

 

407

 

 

(83)

 

 

324

Tax-exempt investment securities

 

 

4,237

 

 

23

 

2.17

 

 

11,976

 

 

61

 

2.04

 

 

(39)

 

 

 1

 

 

(38)

Total investment securities

 

 

204,559

 

 

1,196

 

2.34

 

 

147,340

 

 

910

 

2.47

 

 

368

 

 

(82)

 

 

286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

 

9,419

 

 

42

 

1.78

 

 

5,361

 

 

43

 

3.21

 

 

32

 

 

(33)

 

 

(1)

Federal funds sold

 

 

5,473

 

 

13

 

0.95

 

 

1,733

 

 

10

 

2.31

 

 

22

 

 

(19)

 

 

 3

Total interest earning assets

 

 

609,964

 

 

6,129

 

4.02

 

 

575,732

 

 

6,218

 

4.32

 

 

53

 

 

(142)

 

 

(89)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets (7)

 

 

54,438

 

 

  

 

  

 

 

49,325

 

 

  

 

  

 

 

  

 

 

  

 

 

  

Total assets

 

$

664,402

 

 

  

 

  

 

$

625,057

 

 

  

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

 

  

Interest bearing liabilities:

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

  

 

 

 

 

 

  

 

 

  

Interest bearing demand deposits (2)

 

$

147,316

 

 

164

 

0.45

 

$

144,582

 

 

299

 

0.83

 

$

 6

 

$

(141)

 

$

(135)

Savings deposits

 

 

98,916

 

 

25

 

0.10

 

 

99,408

 

 

24

 

0.10

 

 

 —

 

 

 1

 

 

 1

Time deposits

 

 

150,980

 

 

641

 

1.70

 

 

149,234

 

 

540

 

1.45

 

 

 6

 

 

95

 

 

101

Short-term and long-term borrowings and other interest bearing liabilities

 

 

50,940

 

 

298

 

2.34

 

 

36,121

 

 

196

 

2.17

 

 

80

 

 

22

 

 

102

Total interest bearing liabilities

 

 

448,152

 

 

1,128

 

1.01

 

 

429,345

 

 

1,059

 

0.99

 

 

92

 

 

(23)

 

 

69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing liabilities:

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

  

 

 

  

 

 

  

 

 

  

Demand deposits

 

 

136,328

 

 

  

 

  

 

 

123,214

 

 

  

 

  

 

 

 

 

 

  

 

 

  

Other

 

 

4,977

 

 

  

 

  

 

 

5,084

 

 

  

 

  

 

 

 

 

 

  

 

 

  

Stockholders’ equity

 

 

74,945

 

 

  

 

  

 

 

67,414

 

 

  

 

  

 

 

 

 

 

  

 

 

  

Total liabilities and stockholders’ equity

 

$

664,402

 

 

  

 

  

 

$

625,057

 

 

  

 

  

 

 

 

 

 

  

 

 

  

Net interest income and net interest rate spread

 

 

  

 

$

5,001

 

3.01

%  

 

  

 

$

5,159

 

3.33

%  

$

(39)

 

$

(119)

 

$

(158)

Net interest margin on interest earning assets (3)

 

 

  

 

 

  

 

3.28

%  

 

  

 

 

  

 

3.58

%  

 

  

 

 

 

 

 

 

Net interest income and net interest margin - Tax equivalent basis (4)

 

 

  

 

$

5,067

 

3.32

%  

 

  

 

$

5,256

 

3.65

%  

 

  

 

 

 

 

 

 

 

Notes:

1)

Average balances were calculated using a daily average.

2)

Includes interest-bearing demand 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 21%.

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.

7)

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

43

Table of Contents

Provision for Loan Losses:

In the first quarter of 2020, a $356,000 provision for loan losses was recorded, compared to a provision of $15,000 in the first quarter of 2019.  Based on an analysis of the allowance of loan losses as of March 31, 2020, the increased provision was primarily the result of an expectation of increased credit risk for all loan segments resulting from the COVID-19 pandemic.  Management regularly reviews the adequacy of the allowance for loan losses and makes assessments as to specific loan impairment, charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. 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 2020 was $994,000 compared to $1,094,000 in the first quarter of 2019, a decline of $100,000, or 9.1%.

Most significantly impacting non-interest income during the comparative three month periods was a decline in the value of equity securities of $172,000 in the first quarter of 2020 compared to an increase in the value of equity securities of $9,000 in the first quarter of 2019. Partially offsetting this decline was a $67,000 increase in the net gains on sales of securities in the first quarter of 2020 compared to the comparable 2019 period.

As a percentage of average assets, annualized non-interest income was 0.60% in the first quarter of 2020 compared to 0.70% in the first quarter of 2019. Excluding the gain/loss on sales and calls of securities and change in value of equity securities, the percentage of average assets to annualized non-interest income was 0.70% in the first quarter of 2020 compared to 0.73% in the first quarter of 2019.

Non-interest Expense:

Non-interest expense was $4,760,000 for the three months ended March 31, 2020 compared to  $4,835,000 for the same period in 2019, a decrease of $75,000.

Non-interest expense decreased in the first quarter of 2020 compared to the same period in 2019, primarily driven by a decline of $89,000 in other non-interest expense due to a decline in expenses associated with the termination of the Company’s defined benefit plan recorded in the first quarter of 2019, with no similar expense recorded in the comparable 2020 period. Declines were also recorded in occupancy expense due to lower maintenance expenses, as well as in professional fees and FDIC insurance. Partially offsetting these declines during the three months ended March 31, 2020 compared to the comparative 2019 period were increases in employee compensation of $35,000,  data processing of $40,000, and equipment expenses of $20,000.

As a percentage of average assets, annualized non-interest expense was 2.87% in the first quarter of 2020 compared to 3.09% in the first quarter of 2019.  

Provision for income taxes:

An income tax benefit of $159,000 was recorded in the first quarter of 2020 compared to a tax benefit of $10,000 recorded in the first quarter of 2019, primarily due to lower taxable income in the 2020 period. Additionally, the Company was able to take advantage of a provision in the CARES Act, allowing carryback of net  operating losses (“NOLs”) from a prior period.  In 2018, the Company acquired Liverpool Community Bank. Liverpool filed a 2018 income tax return for the period prior to the acquisition. An NOL was recognized on that short-period tax return. Under the CARES Act, the NOL is now able to be carried back to years in which the statutory tax rate was 34%, as opposed to the current 21%. The reversal of a portion of the deferred tax asset carried for this NOL, at an amount in excess of its carrying amount, was recorded as a $57,000 credit to income tax expense. The Company qualifies for a federal tax credit for a low-income housing project

44

Table of Contents

investment, and the tax provisions for each period reflect the application of the tax credit. For the first quarters of 2020 and 2019, the tax credits were $225,000 and $226,000, respectively, offsetting $166,000 and $216,000 in tax expense in the 2020 and 2019 periods, respectively. For the first quarter of 2020, the tax credit lowered the effective tax rate from 7.5% to (18.1)% compared to the same period in 2019, when the tax credit lowered the effective tax rate from 15.4% to (0.7)%.

 

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 loans and securities maturing in one year or less, and 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 three months ended March 31, 2020, overnight borrowings from the Federal Home Loan Bank averaged $1,087,000. As of March 31, 2020, the Company had no short-term borrowings, but had $45,000,000 in long-term debt with the Federal Home Loan Bank with a remaining unused borrowing capacity with the Federal Home Loan Bank of $130,871,000.

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 operational cash needs, including those arising from funding of PPP loans during the second quarter of 2020. If additional funding is needed for PPP loans, the Company has been approved to borrow from the Federal Reserve Bank’s PPP Liquidity Facility.

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. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Generally, financial and performance letters of credit have expiration dates within one year of issuance, while commercial letters of credit have longer term commitments. 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 $2,573,000 and $2,624,000 of financial and performance letters of credit commitments outstanding as of March 31, 2020 and December 31, 2019, respectively. Commercial letters of credit as of March 31, 2020 and December 31, 2019 totaled $7,975,000 and $7,725,000, 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, 2020 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 sold qualifying residential mortgage loans to the FHLB as part of its Mortgage Partnership Finance Program (“Program”). Under the terms of the Program, there is limited recourse back to the Company for loans that do not perform in accordance with the terms of the loan agreement. Each loan sold under the Program is “credit

45

Table of Contents

enhanced” such that the individual loan’s rating is raised to “BBB”, as determined by the FHLB. The Program can be terminated by either the FHLB or the Company, without cause. The FHLB has no obligation to commit to purchase any mortgage through, or from, the Company.

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.

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 financial institutions to maintain: (a) a minimum ratio of common equity tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, (b) a minimum ratio of tier 1 capital to risk-weighted assets of at least 6.0%; (c) a minimum ratio of total (that is, tier 1 plus tier 2) capital to risk-weighted assets of at least 8.0%); and (d) a minimum leverage ratio of 3.0%, calculated as the ratio of tier 1 capital balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). In addition, the rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” of 2.5% above the minimum standards stated in (a) - (c) above.

The CARES Act requires banking organizations to apply a zero percent risk weight to PPP covered loans for risk-based capital requirement purposes. In addition, because of the non-recourse nature of the Federal Reserve's extension of credit to the banking organization, the banking organization is not exposed to credit or market risk from the pledged PPP covered loans. Therefore, pledged PPP covered loans are excluded from the banking organization's regulatory capital.

 

In September 2019, the FDIC finalized a rule to simplify the capital calculation for qualifying community banking organizations (i.e., the community bank leverage ratio (“CBLR framework”)), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. The Bank qualified and opted in as of March 31, 2020. The Bank’s Tier One leverage ratio was 9.59% on March 31, 2020; and therefore, is considered to have met the well-capitalized ratio requirements and was not required to report or calculate risk-based capital. 

 

46

Table of Contents

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

As of March 31, 2020, 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.

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, 2020, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.

47

Table of Contents

PART II - OTHER INFORMATION

Item 1.         LEGAL PROCEEDINGS

In the opinion of management of the Company, there are no legal or governmental 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

The outbreak of the COVID-19 pandemic has and may continue to adversely affect the Company’s business, results of operations and financial conditions for an indefinite period.

Beginning in the first quarter of 2020, the COVID-19 pandemic has caused disruption in economic and social activity, both globally and in the United States. The spread of COVID-19, and the related government actions to mandate or encourage temporary closures of businesses, quarantines, social distancing and "stay at home" orders, have caused severe disruptions in the U.S. economy, which has and will likely continue to, in turn, disrupt the business, activities, and operations of the Company’s customers, as well as the Company’s own business and operations.

The national public health crisis arising from the COVID-19 pandemic (and public expectations about it), combined with certain pre-existing factors, including, but not limited to, international trade disputes, inflation risks, and oil price volatility, could further destabilize the financial markets and the economies of the geographic markets in which the Company operates. The resulting impacts of the pandemic on consumers, including the sudden, significant increase in the unemployment rate, is expected to cause changes in consumer and business spending, borrowing needs and saving habits, which will likely affect the demand for loans and other products and services the Company offers, as well as the creditworthiness of current and prospective borrowers. The significant decrease in commercial activity and disruptions in supply chains associated with the pandemic, both nationally and in the Company’s markets, may cause customers, vendors, and counterparties to be unable to meet existing payment or other obligations to the Company. 

The Company’s business is dependent upon the willingness and ability of its customers to conduct banking and other financial transactions. The Company expects the pandemic to limit, at least for a period of time, customer demand for many banking products and services. Many companies and residents in the Company’s market areas are subject to mandatory "non-essential business" shutdowns and stay at home orders, which have reduced banking activity across the Company’s market areas. In response to these mandates, the Company has temporarily limited most locations to drive-up and ATM services, with lobby access available by appointment only, reduced hours of operation at some locations, temporarily closed some locations and encouraged the Company’s customers to use electronic banking platforms. The Company expects these measures to remain in place for an undetermined period of time. The Company has and may continue to offer payment deferrals, forbearances, fee waivers, and other forms of assistance to commercial, small business and consumer customers. In addition, the use of quarantines and social distancing methods to curtail the spread of COVID-19 - whether mandated by governmental authorities or recommended as a public health practice - may adversely affect the Company’s operations as key personnel, employees and customers avoid physical interaction. The continued spread of COVID-19 (or an outbreak of a similar highly contagious disease) could also negatively impact the business and operations of third-party service providers who perform critical services for the Company’s business. It is not yet known what impact these operational changes may have on the Company’s financial performance.

48

Table of Contents

 

There continue to be broad concerns related to the potential effects of the COVID-19 pandemic. Even after government mandated stay at home orders expire, the aftereffects of the pandemic may continue to have an adverse effect on, among other things, (i) the Company’s ability to attract customer deposits, (ii) the ability of the Company’s borrowers to satisfy their obligations to us, (iii) the demand for the Company’s loans or the Company’s other products and services and/or (iv) unemployment rates, financial markets, real estate markets or economic growth.

The outbreak of COVID-19 has significantly affected the financial markets and has resulted in several responses by the U.S. government, including a reduction in interest rates by the FOMC. These reductions in interest rates, especially if prolonged, could adversely affect the Company’s net interest income, margins and profitability.

The COVID-19 pandemic and its impact on the economy heightens the risk associated with many of the risk factors described in the Company’s previous reports filed with the Securities and Exchange Commission, including those related to economic conditions in the Company’s markets areas, interest rates, loan losses, the Company’s reliance on its executives and third party service providers and impairments of goodwill and intangible assets. For example, borrower loan defaults that adversely affect the Company’s earnings correlate with deteriorating economic conditions, which, in turn, may impact borrowers’ creditworthiness. If the Company’s borrowers are unable to meet their payment obligations, the Company will be required to increase its allowance for loan losses through provisions for credit losses. In addition, loan programs adopted by the federal government, such as the Paycheck Protection Program and the Main Street Lending Program, while intended to lessen the impact of the pandemic on businesses, may result in a decreased demand for the Company’s loan products.

The impact of the pandemic on the Company’s financial results is evolving and uncertain. The decline in economic activity occurring due to the COVID-19 pandemic and the actions by the FOMC with respect to interest rates is likely to affect the Company’s net interest income, non-interest income and credit-related losses for an uncertain period. The Company believes that it may experience a material adverse effect in the Company’s business, results of operations and financial condition as a result of the COVID-19 pandemic for an indefinite period.

There have been no other 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, 2019.

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

On March 25, 2020, Juniata’s Board of Directors approved a written trading plan (the “10b5-1 Plan”) under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to facilitate the repurchase of shares of the Juniata’s common stock through May 5, 2020. The Company designated up to 100,000 shares for repurchase under the 10b5-1 Plan. Under a share repurchase program previously approved by the Board of Directors, Juniata was authorized to periodically repurchase shares of its common stock.  As of May 11, 2020,  126,566 shares remained available to purchase under that program. The 10b5-1 Plan replaced the prior repurchase program. Transactions pursuant to the repurchase program in the three month period ended March 31, 2020 are shown below.

49

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Total Number of

    

 

 

 

 

 

 

 

 

Shares Purchased as

 

Maximum Number of

 

 

Total Number

 

Average

 

Part of Publicly

 

Shares that May Yet Be

 

 

of Shares

 

Price Paid

 

Announced Plans or

 

Purchased Under the

Period

 

Purchased

 

per Share

 

Programs

 

Plans or Programs (1)

January 1-31, 2020

 

 —

 

$

 —

 

 —

 

148,266

February 1-29, 2020

 

 —

 

 

 —

 

 —

 

148,266

March 1-31, 2020

 

15,400

 

 

12.06

 

15,400

 

132,866

 

 

 

 

 

 

 

 

 

 

Totals

 

15,400

 

 

  

 

15,400

 

132,866

 

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, 2020, $35,658,000 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

Item 6.        EXHIBITS

 

 

3.1 - Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3(i) to the Company’s Current Report on Form 8‑K filed with the SEC on November 12, 2015)

3.2 - Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8‑K filed with the SEC on February 27, 2019)

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

50

Table of Contents

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

 

 

51

Table of Contents

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:

MAY 11, 2020

By:

/s/ Marcie A. Barber

 

 

 

Marcie A. Barber, President

 

 

 

Chief Executive Officer

 

 

 

(Principal Executive Officer)

 

 

 

 

Date:

May 11, 2020

By:

/s/ JoAnn N. McMinn

 

 

 

JoAnn N. McMinn

 

 

 

Chief Financial Officer

 

 

 

(Principal Accounting Officer and

 

 

 

Principal Financial Officer)

 

52