JUNIATA VALLEY FINANCIAL CORP

Previous wording

The following discussion relates to the consolidated financial condition of the Company as of March 31, 2024, compared to December 31, 2023, and the consolidated results of operations for the three months ended March 31, 2024, compared to the same period in 2023. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.

Current wording

The following discussion relates to the consolidated financial condition of the Company as of June 30, 2024, compared to December 31, 2023, and the consolidated results of operations for the three and six months ended June 30, 2024, compared to the same periods in 2023. This discussion should be read in conjunction with the interim consolidated financial statements and related notes included herein.

Previous wording

Total assets as of March 31, 2024, were $864.4 million, a decrease of $6.1 million, or 0.7%, compared to December 31, 2023. Comparing asset balances as of March 31, 2024 and December 31, 2023, total cash and cash equivalents decreased $15.4 million, or 53.6%, due primarily to borrowing $14.0 million from the FRB on December 29, 2023. These funds have since primarily been used to fund loan growth, with total loans increasing by $11.3 million, or 2.2%, mainly due to an increase in real estate – commercial loans. Total deposits decreased by $10.6 million, or 1.4%, as of March 31, 2024 compared to December 31, 2023 due to a decline in interest bearing demand deposits, while short-term borrowings and repurchase agreements increased by $4.4 million, or 8.3%, due to an increase in repurchase agreement accounts from additional customer relationships.

Current wording

Total assets as of June 30, 2024 were $862.7 million, a decrease of $7.9 million, or 0.9%, compared to December 31, 2023. Cash and cash equivalents decreased by $18.0 million, or 62.2%, as of June 30, 2024 compared to December 31, 2023, as cash was used primarily to fund loan growth, with total loans increasing by $16.0 million, or 3.0%, mainly due to an increase in real estate – commercial and commercial, financial and agricultural loans. Total deposits decreased by $3.9 million, or 0.5%, as of June 30, 2024 compared to December 31, 2023 primarily due to a decline in interest bearing demand and money market deposits. Short-term borrowings and repurchase agreements increased by $8.6 million, or 16.3%, as of June 30, 2024 compared to year end 2023 as overnight borrowings replaced a 5-year FHLB advance that matured in May 2024, leading to the $15.0 million, or 75.0%, decline in long-term debt.

Previous wording

Total deposits decreased $10.6 million, or 1.4%, as of March 31, 2024 compared to December 31, 2023. The table below shows changes in deposit volumes by type of deposit, illustrating that the decrease between periods is the result of a decline in interest bearing demand and money market accounts.

Current wording

The table below illustrates the changes in deposit volumes by type of deposit as of June 30, 2024 compared to December 31, 2023.

Previous wording

A summary of the activity in the allowance for credit losses for the three month periods ended March 31, 2024 and 2023, respectively, is presented below.

Current wording

A summary of the activity in the allowance for credit losses for the six month periods ended June 30, 2024 and 2023, respectively, is presented below.

Previous wording

As of March 31, 2024, there were $23.0 million of loans classified as special mention compared to $21.4 million at December 31, 2023, $1.6 million of loans classified as substandard at March 31, 2024 compared to $5.9 million at December 31, 2023, and $72,000 of loans classified as doubtful at March 31, 2024 compared to none at December 31, 2023. The increase in special mention loans as of March 31, 2024 compared to December 31, 2023 was primarily due to the downgrade of a commercial loan relationship in the first quarter of 2024, while the decline in substandard loans was due to the pay-off of a participated real estate-commercial loan during the first quarter of 2024.

Current wording

As of June 30, 2024, there were $21.9 million of loans classified as special mention compared to $21.4 million at December 31, 2023, $1.8 million of loans classified as substandard at June 30, 2024 compared to $5.9 million at December 31, 2023, and $72,000 of loans classified as doubtful at June 30, 2024 compared to none at December 31, 2023. The decline in

Previous wording

Management believes the allowance for credit losses carried were adequate to cover forecasted expected credit losses related to these relationships as of March 31, 2024. Management also believes the Company has sufficient liquidity and capital to absorb losses that may occur but continues to closely monitor the financial strength of borrowers and their ability to comply with repayment terms.

Current wording

Management believes the allowance for credit losses carried were adequate to cover forecasted expected credit losses as of June 30, 2024. Management also believes the Company has sufficient liquidity and capital to absorb losses that may occur but continues to closely monitor the financial strength of borrowers and their ability to comply with repayment terms.

Previous wording

Total non-performing loans as of March 31, 2024 decreased $4.7 million compared to December 31, 2023, due to a decline in non-accrual loans resulting from the pay-off of a participated real estate-commercial loan during the first quarter of 2024.

Current wording

Total non-performing loans as of June 30, 2024 decreased $4.5 million compared to December 31, 2023, due to a decline in non-accrual loans resulting from the pay-off of a participated non-accrual real estate-commercial loan during the first quarter of 2024.

Previous wording

Management analyzes the adequacy of the ACL regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrowers’ ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan monitoring procedures, the Company utilizes an outside party to conduct an independent loan review of commercial loan and commercial real estate loan relationships. Management utilizes the results of this outside loan review to assess the effectiveness of its internal loan grading system as well as to assist in the assessment of the overall adequacy of the ACL associated with these types of loans.

Current wording

Management analyzes the adequacy of the ACL regularly through reviews of the loan portfolio. Consideration is given to economic conditions, changes in interest rates and the effect of such changes on collateral values and borrowers’ ability to pay, changes in the composition of the loan portfolio and trends in past due and non-performing loan balances. The ACL is a material estimate that is susceptible to significant fluctuation and is established through a provision for credit losses based on management’s evaluation of the inherent risk in the loan portfolio. In addition to extensive in-house loan

Previous wording

The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans monthly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established. The Company also considers the impacts of any Small Business Administration guarantees. The specific reserve portion of the ACL was $19,000 at March 31, 2024 and $4,000 at December 31, 2023.

Current wording

The ACL is made up of two basic components. The first component of the allowance for credit loss is the specific reserve in which the Company sets aside reserves based on the analysis of individual analyzed credits. In establishing specific reserves, the Company analyzes all substandard, doubtful and loss graded loans monthly and makes judgments about the risk of loss based on the cash flow of the borrower, the value of any collateral and the financial strength of any guarantors. If the loan is individually analyzed and cash flow dependent, then a specific reserve is established for the discount on the net present value of expected future cash flows. If the loan is individually analyzed and collateral dependent, then any shortfall is either charged off or a specific reserve is established. The Company also considers the impacts of any Small Business Administration guarantees. The specific reserve portion of the ACL was $62,000 at June 30, 2024 and $4,000 at December 31, 2023.

Previous wording

The quantitative general allowance was $2.6 million at March 31, 2024 and $2.5 million at December 31, 2023.

Current wording

The quantitative general allowance was $2.7 million at June 30, 2024 and $2.5 million at December 31, 2023.

Previous wording

The qualitative analysis resulted in a general reserve of $3.1 million at March 31, 2024, compared to $3.2 million at December 31, 2023.

Current wording

The qualitative analysis resulted in a general reserve of $3.2 million at June 30, 2024, compared to $3.2 million at December 31, 2023.

Previous wording

Net income for the three months ended March 31, 2024 was $1.4 million, a decrease of $378,000, or 21.8%, compared to the three months ended March 31, 2023. Basic and diluted earnings per share was $0.27 for the three months ended March 31, 2024 compared to basic and diluted earnings per share of $0.35 for the comparable 2023 period. Annualized return on average assets for the three months ended March 31, 2024 was 0.63%, compared to the annualized return on average assets of 0.84% for the same period in 2023. For the three months ended March 31, annualized return on average equity was 13.38% in 2024 compared to 19.46% in 2023.

Current wording

Net income for the three months ended June 30, 2024 was $1.7 million, an increase of $348,000, or 24.9%, compared to the three months ended June 30, 2023. Basic and diluted earnings per share was $0.35 for the three months ended June 30, 2024, an increase of 25.0% compared to basic and diluted earnings per share of $0.28 for the comparable 2023 period.

Previous wording

Average interest earning assets increased 3.3%, to $857.1 million, for the three months ended March 31, 2024 compared to the same period in 2023, due to an increase of $46.9 million, or 9.6%, in average loans. The increase in average loans was partially offset by a decline of $21.2 million, or 6.2%, in average investment securities as principal paydowns on the mortgage-backed securities portfolio were used to fund loan growth rather than being reinvested into the securities portfolio. Average interest bearing liabilities increased by $31.1 million, or 5.3%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This increase was due to increases of $34.7 million, or 21.1%, in average time deposits as customers moved to preferred higher-rate deposit products and $5.4 million, or 7.3%, in average borrowings and other interest bearing liabilities due to an increase in repurchase agreements resulting from the addition of new customer relationships in the three months end March 31, 2024.

Current wording

Average interest earning assets increased 2.9%, to $858.5 million, for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase of $43.0 million, or 8.7%, in average loans. The increase in average loans was partially offset by a decline of $20.7 million, or 6.2%, in average investment securities as principal paydowns on the mortgage-backed securities portfolio were used to fund loan growth rather than being reinvested into the securities portfolio. Average interest bearing liabilities increased by $19.9 million, or 3.3%, compared to the corresponding 2023 period. This increase was primarily due to increases of $19.7 million, or 10.7%, in average time deposits as customers moved to preferred higher-rate deposit products and $9.5 million, or 14.8%, in average borrowings and other interest bearing liabilities.

Previous wording

The yield on earning assets increased 44 basis points, to 4.23%, for the three months ended March 31, 2024 compared to same period last year, driven by an increase in loan yields of 53 basis points. The cost to fund interest earning assets with interest bearing liabilities increased 88 basis points, to 2.24%, when comparing the two periods as the costs of interest bearing demand and time deposits as well as borrowings increased 197 basis points and 120 basis points, respectively. The prime rate and federal funds target range rose 50 basis points between March 31, 2023 and March 31, 2024, affecting rates on Juniata’s interest earning assets and, to a greater extent, interest bearing liabilities because the average rate paid on interest bearing liabilities has increased at a faster pace than the increase in rates on interest earning assets, impacting the net interest margin in the 2024 period. The net interest margin, on a fully tax equivalent basis, decreased from 2.85% for the three months ended March 31, 2023 to 2.63% for the three months ended March 31, 2024. The Company anticipates continued margin compression throughout 2024 as the Federal Reserve continues to work to control inflation by maintaining target ranges for the prime rate and federal funds rate at the current levels with rate cuts, if any, occurring only later in the year.

Current wording

The yield on earning assets increased 44 basis points, to 4.36%, for the three months ended June 30, 2024 compared to same period last year, driven by an increase in loan yields of 55 basis points, while the cost to fund interest earning assets with interest bearing liabilities increased 63 basis points, to 2.29%, when comparing the two periods. The net interest margin, on a fully tax equivalent basis, decreased from 2.76% for the three months ended June 30, 2023 to 2.73% for the three months ended June 30, 2024. The Company anticipates continued margin compression as the Federal Reserve continues to work to control inflation by maintaining target ranges for the prime rate and federal funds rate.

Previous wording

Non-interest income was $1.3 million in the three months ended March 31, 2024 compared to $1.2 million in the three months ended March 31, 2023, an increase of 6.8%. Most significantly impacting non-interest income in the comparative three month periods were increases of $66,000 in fees derived from loan activity due to increases in title insurance commissions and fees on guidance lines and lines of credit. Also contributing to the increase in non-interest income between the comparative three month periods was a $48,000 increase in customer service fees. Partially offsetting these increases between the three months ended March 31, 2024 and March 31, 2023 was a decline in trust fee income.

Current wording

Non-interest income was $1.5 million for the three months ended June 30, 2024, an increase of 7.3%, over the three months ended June 30, 2023. Most significantly impacting non-interest income in the comparative three month periods were increases of $117,000 in customer service fees and $86,000 in fees derived from loan activity, resulting primarily from an increase in title insurance commissions in the 2024 period. Partially offsetting these increases in the comparative three month periods was a decrease of $161,000 in life insurance proceeds as no item in this category was recorded in the three months ended June 30, 2024.

Previous wording

For the three months ended March 31, 2024, the tax credit lowered the effective tax rate from 18.2% to 12.9% compared to the same period in 2023, when the tax credit lowered the effective tax rate from 18.5% to 12.5%.

Current wording

For the three months ended June 30, 2024, the tax credit lowered the effective tax rate from 18.6% to 14.5% compared to the same period in 2023, when the tax credit lowered the effective tax rate from 15.1% to 9.7%.

Previous wording

Juniata recorded a provision for credit losses of $120,000 in the three months ended March 31, 2024 compared to a provision for credit losses of $243,000 in the three months ended March 31, 2023 following Juniata’s adoption of ASU 2016-13 – Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments on January 1, 2023.

Current wording

Juniata recorded a provision for credit losses of $239,000 in the six months ended June 30, 2024 compared to a provision for credit losses of $290,000 in the six months ended June 30, 2023.

Previous wording

An income tax provision of $201,000 was recorded for the three months ended March 31, 2024 compared to $247,000 recorded for the three months ended March 31, 2024. Juniata qualifies for a federal tax credit for investments in low-income housing partnerships. The tax credit decreased from $119,000 for the three months ended March 31, 2023 to $82,000 in the three months ended March 31, 2024 due to the completion of the amortization period for one of Juniata’s investments in low-income housing partnerships.

Current wording

An income tax provision of $497,000 was recorded during the six months ended June 30, 2024 compared to an income tax provision of $398,000 recorded during the six months ended June 30, 2023. Juniata qualifies for a federal tax credit for investments in low-income housing partnerships. The tax credit decreased from $202,000 in the six months ended June 30, 2023 to $165,000 in the six months ended June 30, 2024 due to the completion of the amortization period for one of Juniata’s low-income housing partnership investments in January 2023.

Previous wording

The Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity to supplement other sources of liability liquidity. During the three months ended March 31, 2024, overnight borrowings from the FHLB averaged $5.2 million. As of March 31, 2024, the Company had no short-term borrowings and $20.0 million in long-term debt with the Federal Home Loan Bank, with a remaining unused borrowing capacity of $216.9 million with the FHLB. These credit facilities are secured by qualifying loans and investment securities held in safekeeping at the FHLB.

Current wording

The Company is a member of the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term liquidity to supplement other sources of liability liquidity. During the six months ended June 30, 2024, overnight borrowings from the FHLB averaged $9.3 million. As of June 30, 2024, the Company had $23.0 million in short-term borrowings and $5.0 million in long-term debt with the Federal Home Loan Bank, with a remaining unused borrowing capacity of $219.0 million with the FHLB. These credit facilities are secured by qualifying loans and investment securities held in safekeeping at the FHLB.

Previous wording

As of March 31, 2024, the Company had $40.0 million in short-term borrowings with the Federal Reserve’s Bank Term Funding Program (“BTFP”) with $16.0 million maturing in May 2024 and $24.0 million maturing in December 2024 and remaining unused borrowing capacity at the Federal Reserve of $16.5 million. The Company opted to utilize this additional contingent liquidity source in order to take advantage of the program’s advantageous borrowing rate.

Current wording

As of June 30, 2024, the Company had $24.0 million in short-term borrowings with the Federal Reserve’s Bank Term Funding Program (“BTFP”) that matures in December 2024 with remaining unused borrowing capacity at the Federal Reserve of $16.7 million. The Company opted to utilize this additional contingent liquidity source in order to take advantage of the program’s advantageous borrowing rate.

Previous wording

In addition, the Company also has an unsecured line of credit with a correspondent bank totaling $11.0 million, of which no funds were drawn at March 31, 2024. This line of credit is tested periodically to ensure the availability of funds.

Current wording

In addition, the Company also has an unsecured line of credit with a correspondent bank totaling $11.0 million, of which no funds were drawn at June 30, 2024. This line of credit is tested at least annually to ensure the availability of funds.

Previous wording

At March 31, 2024, uninsured deposits represented 20.2% of the Company’s total deposits. This amount excludes deposits of state and political subdivisions because the Company pledges debt securities for deposits in excess of the $250,000 FDIC insurance limit in the case of those deposits.

Current wording

At June 30, 2024, uninsured deposits represented 20.3% of the Company’s total deposits. This amount excludes deposits of state and political subdivisions because the Company pledges debt securities for deposits in excess of the $250,000 FDIC insurance limit in the case of those deposits.

Previous wording

In view of the sources previously mentioned and the steps taken by the Company through the three months ended March 31, 2024, management believes the Company’s liquidity can provide the funds needed to meet operational cash needs.

Current wording

In view of the sources previously mentioned and the steps taken by the Company through the six months ended June 30, 2024, management believes the Company’s liquidity can provide the funds needed to meet operational cash needs.

Previous wording

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

Current wording

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.

Previous wording

As of March 31, 2024 and December 31, 2023, the Company had $3.7 million and $3.6 million, respectively, of financial and performance letters of credit commitments outstanding. Commercial letters of credit as of March 31, 2024 and December 31, 2023 totaled $10.4 million and $9.3 million, respectively.

Current wording

As of June 30, 2024, the Company had $133.0 million outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $137.4 million at December 31, 2023. As of June 30, 2024 and December 31, 2023, the Company had $3.8 million and $3.6 million, respectively, of financial and performance letters of credit commitments outstanding. Commercial letters of credit as of June 30, 2024 and December 31, 2023 totaled $9.5 million and $9.3 million, respectively.

Previous wording

The Company’s principal source of funds for dividend payments is dividends received from the Bank. 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, 2024, $40.5 million in 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.

Current wording

The Company’s principal source of funds for dividend payments is dividends received from the Bank. 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 June 30, 2024, $42.4 million in 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.