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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 1934

For the quarterly period ended March 31, 2021

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

NONE

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.

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).

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

Non-accelerated filer

Smaller reporting company

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        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 14, 2021

Common Stock ($1.00 par value)

5,006,695 shares

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Statements of Financial Condition as of March 31, 2021 (Unaudited) and December 31, 2020

3

Consolidated Statements of Income for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

4

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

5

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

6

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (Unaudited)

7

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2.

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

37

Item 3.

Not applicable.

Item 4.

Controls and Procedures

48

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

Item 3.

Defaults upon Senior Securities

49

Item 4.

Mine Safety Disclosures

49

Item 5.

Other Information

50

Item 6.

Exhibits

50

Signatures

51

2

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, 2021

    

December 31, 2020

ASSETS

 

  

 

  

Cash and due from banks

$

11,533

$

11,868

Interest bearing deposits with banks

 

460

 

19,753

Federal funds sold

 

10,000

 

10,000

Cash and cash equivalents

 

21,993

 

41,621

Interest bearing time deposits with banks

 

735

 

735

Equity securities

 

1,183

 

1,091

Debt securities available for sale

 

301,076

 

286,415

Restricted investment in bank stock

 

3,374

 

3,423

Total loans

 

437,007

 

422,661

Less: Allowance for loan losses

 

(4,056)

 

(4,094)

Total loans, net of allowance for loan losses

 

432,951

 

418,567

Premises and equipment, net

 

8,686

 

8,808

Other real estate owned

 

110

 

Bank owned life insurance and annuities

 

16,628

 

16,568

Investment in low income housing partnerships

 

2,905

 

3,105

Core deposit and other intangible assets

 

225

 

241

Goodwill

 

9,047

 

9,047

Mortgage servicing rights

 

147

 

158

Accrued interest receivable and other assets

 

6,573

 

3,939

Total assets

$

805,633

$

793,718

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Liabilities:

 

  

 

  

Deposits:

 

  

 

  

Non-interest bearing

$

183,437

$

168,115

Interest bearing

 

486,023

 

454,751

Total deposits

 

669,460

 

622,866

Short-term borrowings and repurchase agreements

 

22,622

 

24,750

Federal Reserve Bank ("FRB") advances

27,955

Long-term debt

 

35,000

 

35,000

Other interest bearing liabilities

 

1,557

 

1,584

Accrued interest payable and other liabilities

 

4,420

 

4,966

Total liabilities

 

733,059

 

717,121

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, 2021; 5,151,279 shares at December 31, 2020 Outstanding - 5,006,695 shares at March 31, 2021; 5,025,441 shares at December 31, 2020

 

5,151

 

5,151

Surplus

 

24,893

 

25,011

Retained earnings

 

45,629

 

45,096

Accumulated other comprehensive (loss) income

 

(590)

 

3,518

Cost of common stock in Treasury: 144,584 shares at March 31, 2021; 125,838 shares at December 31, 2020

 

(2,509)

 

(2,179)

Total stockholders’ equity

 

72,574

 

76,597

Total liabilities and stockholders’ equity

$

805,633

$

793,718

See Notes to Consolidated Financial Statements

3

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Income (Unaudited)

Three Months Ended

(Dollars in thousands, except share data)

March 31, 

    

2021

    

2020

Interest and dividend income:

  

Loans, including fees

$

4,777

$

4,878

Taxable securities

 

1,006

 

1,173

Tax-exempt securities

 

38

 

23

Other interest income

 

5

 

55

Total interest income

 

5,826

 

6,129

Interest expense:

 

  

 

  

Deposits

 

619

 

830

Short-term borrowings and repurchase agreements

 

32

 

8

FRB advances

18

Long-term debt

 

212

 

283

Other interest bearing liabilities

 

2

 

7

Total interest expense

 

883

 

1,128

Net interest income

 

4,943

 

5,001

Provision for loan losses

 

(79)

 

356

Net interest income after provision for loan losses

 

5,022

 

4,645

Non-interest income:

 

  

 

  

Customer service fees

 

325

 

415

Debit card fee income

 

413

 

324

Earnings on bank-owned life insurance and annuities

 

54

 

64

Trust fees

 

112

 

113

Commissions from sales of non-deposit products

 

80

 

74

Fees derived from loan activity

 

104

 

67

Mortgage banking income

 

8

 

16

Gain on sales and calls of securities

 

4

 

11

Change in value of equity securities

 

93

 

(172)

Other non-interest income

 

79

 

82

Total non-interest income

 

1,272

 

994

Non-interest expense:

 

  

 

  

Employee compensation expense

 

1,969

 

2,003

Employee benefits

 

545

 

728

Occupancy

 

330

 

314

Equipment

 

189

 

234

Data processing expense

 

583

 

501

Professional fees

 

188

 

173

Taxes, other than income

 

124

 

138

FDIC Insurance premiums

 

81

 

40

Gain on other real estate owned

 

(49)

 

Amortization of intangible assets

 

16

 

19

Amortization of investment in low-income housing partnerships

 

200

 

200

Other non-interest expense

 

412

 

410

Total non-interest expense

 

4,588

 

4,760

Income before income taxes

 

1,706

 

879

Income tax provision (benefit)

 

71

 

(159)

Net income

$

1,635

$

1,038

Earnings per share

 

  

 

  

Basic

$

0.33

$

0.20

Diluted

$

0.33

$

0.20

See Notes to Consolidated Financial Statements

4

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)

Three Months Ended March 31, 

2021

2020

Before Tax

Tax

Net of Tax

Before Tax

Tax

Net of Tax

    

Amount

    

Effect

    

Amount

    

Amount

    

Effect

    

Amount

Net income

$

1,706

$

(71)

$

1,635

$

879

$

159

$

1,038

Other comprehensive (loss) income:

 

  

 

  

 

  

 

  

 

  

 

  

Available for sale securities:

 

  

 

  

 

  

 

  

 

  

 

  

Unrealized holding (losses) gains arising during the period

 

(5,911)

 

1,241

 

(4,670)

 

4,948

 

(1,039)

 

3,909

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

 

(4)

 

1

 

(3)

 

(11)

 

2

 

(9)

Unrealized gains on cash flow hedge

712

(150)

562

Less reclassification adjustment for losses included in net income (2) (3)

4

(1)

3

Other comprehensive (loss) income

 

(5,199)

 

1,091

 

(4,108)

 

4,937

 

(1,037)

 

3,900

Total comprehensive (loss) income

$

(3,493)

$

1,020

$

(2,473)

$

5,816

$

(878)

$

4,938

(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 interest expense on short-term borrowings and repurchase agreements on the Consolidated Statements of Income.
(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

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Stockholders’ Equity (Unaudited)

Three months ended March 31, 2021

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, 2021

5,025,441

$

5,151

$

25,011

$

45,096

$

3,518

$

(2,179)

$

76,597

Net income

 

  

 

  

 

  

 

1,635

 

  

 

  

 

1,635

Other comprehensive loss

 

  

 

  

 

  

 

 

(4,108)

 

  

 

(4,108)

Cash dividends at $0.22 per share

 

  

 

  

 

  

 

(1,102)

 

  

 

  

 

(1,102)

Stock-based compensation

 

  

 

  

 

35

 

  

 

  

 

  

 

35

Purchase of treasury stock

 

(27,585)

(483)

 

(483)

Treasury stock issued for stock plans

 

8,839

(153)

153

 

Balance, March 31, 2021

 

5,006,695

$

5,151

$

24,893

$

45,629

$

(590)

$

(2,509)

$

72,574

Three months ended 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 (Loss)

    

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

See Notes to Consolidated Financial Statements

6

Juniata Valley Financial Corp. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Operating activities:

Net income

$

1,635

$

1,038

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

 

  

 

  

Provision for loan losses

 

(79)

 

356

Depreciation

 

187

 

206

Net amortization of securities premiums

 

394

 

228

Net amortization of loan origination fees

 

151

 

5

Deferred net loan origination costs

 

(92)

 

(83)

Amortization of intangibles

 

16

 

19

Amortization of investment in low income housing partnerships

 

200

 

200

Net amortization of purchase fair value adjustments

 

(48)

 

(27)

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

 

(4)

 

(11)

Change in value of equity securities

 

(93)

 

172

Net gain on other real estate owned

 

(49)

 

Earnings on bank owned life insurance and annuities

 

(54)

 

(64)

Deferred income tax (benefit) expense

 

(9)

 

125

Stock-based compensation expense

 

35

 

29

Proceeds from mortgage loans sold to others

 

19

 

20

Mortgage banking income

 

(8)

 

(16)

Increase in accrued interest receivable and other assets

 

(817)

 

(1,561)

Decrease in accrued interest payable and other liabilities

 

(573)

 

(109)

Net cash provided by operating activities

 

811

 

527

Investing activities:

 

  

 

  

Purchases of:

 

  

 

  

Securities available for sale

 

(61,579)

 

(23,275)

Premises and equipment

 

(65)

 

(136)

Bank owned life insurance and annuities

 

(6)

 

(6)

Proceeds from:

 

 

  

Sales of securities available for sale

 

16,815

 

15,704

Maturities of and principal repayments on securities available for sale

 

23,799

 

22,339

Redemption of FHLB stock

 

49

 

406

Net decrease in interest bearing time deposits with banks

 

 

490

Net (increase) decrease in loans

 

(14,377)

 

10,698

Net cash (used in) provided by investing activities

 

(35,364)

 

26,220

Financing activities:

 

  

 

  

Net increase in deposits

 

46,593

 

9,991

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

 

(2,128)

 

(10,346)

Repayment of FRB advances

(27,955)

Cash dividends

 

(1,102)

 

(1,122)

Purchase of treasury stock

 

(483)

 

(186)

Net cash provided by (used in) financing activities

 

14,925

 

(1,663)

Net (decrease) increase in cash and cash equivalents

 

(19,628)

 

25,084

Cash and cash equivalents at beginning of year

 

41,621

 

12,740

Cash and cash equivalents at end of period

$

21,993

$

37,824

(Dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Supplemental information:

Interest paid

$

967

$

1,135

Income tax paid

 

75

 

Supplemental schedule of noncash investing and financing activities:

 

  

 

  

Transfer of loans to other real estate owned

$

61

$

Transfer of loans to repossessed vehicles

$

1

$

See Notes to Consolidated Financial Statements

7

JUNIATA VALLEY FINANCIAL CORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Juniata Valley Financial Corp. (the “Company” 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, the ongoing effects of the COVID-19 pandemic may negatively impact significant estimates and the assumptions underlying those estimates. Estimates that are particularly susceptible to material change include the determination of the allowance for loan losses, and possible impairment of 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 period ended March 31, 2021 are not necessarily indicative of the results for the year ending December 31, 2021. 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, 2020.

The Company has evaluated events and transactions occurring subsequent to the consolidated statement of financial condition date of March 31, 2021 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

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, 2021

    

Gains and (Losses) on Cash Flow Hedges

    

Unrealized Gains and (Losses) on Available for Sale Securities

    

Total

Beginning balance, December 31, 2020

$

(45)

$

3,563

$

3,518

Current period other comprehensive income (loss):

Other comprehensive income (loss) before reclassification

562

(4,670)

(4,108)

Amounts reclassified from accumulated other comprehensive loss

3

(3)

Net current period other comprehensive income (loss)

 

565

 

(4,673)

 

(4,108)

Ending balance, March 31, 2021

$

520

$

(1,110)

$

(590)

(Dollars in thousands)

December 31, 2020

    

Gains and (Losses) on Cash Flow Hedges

    

Unrealized Gains and (Losses) on Available for Sale Securities

    

Total

Beginning balance, December 31, 2019

$

$

516

$

516

Current period other comprehensive income:

Other comprehensive income before reclassification

(38)

3,727

3,689

Amounts reclassified from accumulated other comprehensive income

(7)

(675)

(682)

Net current period other comprehensive income

 

(45)

 

3,052

 

3,007

Reclassification for ASU 2018-02

(5)

(5)

Ending balance, December 31, 2020

$

(45)

$

3,563

$

3,518

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

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

(Amounts in thousands, except earnings per share data)

Three Months Ended March 31, 

2021

    

2020

Net income

$

1,635

$

1,038

Weighted-average common shares outstanding

 

5,017

 

5,103

Basic earnings per share

$

0.33

$

0.20

Weighted-average common shares outstanding

$

5,017

$

5,103

Common stock equivalents due to effect of stock options

 

9

 

8

Total weighted-average common shares and equivalents

5,026

5,111

Diluted earnings per share

$

0.33

$

0.20

Anti-dilutive stock options outstanding

 

8

 

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, 2021, the Company had $1,183,000 in equity securities recorded at fair value, and $1,091,000 in equity securities were recorded at fair value at December 31, 2020. The Company recorded a net gain of $93,000 during the three months ended March 31, 2021 and a net loss of $172,000 during the three months ended March 31, 2020 because 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 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 13% of the investment portfolio), mortgage-backed securities issued by Government-sponsored entities and backed by residential mortgages (approximately 79%), corporate debt securities (approximately 5%) and municipal bonds (approximately 3%) as of March 31, 2021. Most of the municipal bonds are general obligation bonds with maturities or pre-refunding dates within 5 years.

10

The amortized cost and fair value of securities available for sale as of March 31, 2021 and December 31, 2020, 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, 2021

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 five years but within ten years

$

39,054

$

37,634

$

$

(1,420)

 

39,054

 

37,634

 

 

(1,420)

Obligations of state and political subdivisions

 

  

 

  

 

  

 

  

Within one year

 

30

 

30

 

After one year but within five years

 

4,705

4,750

 

45

After five years but within ten years

 

3,294

 

3,395

 

139

(38)

 

8,029

 

8,175

 

184

 

(38)

Corporate debt securities

 

  

 

  

 

  

 

  

After five years but within ten years

 

15,487

16,039

580

(28)

 

15,487

 

16,039

 

580

 

(28)

Mortgage-backed securities

 

239,912

239,228

2,352

(3,036)

Total

$

302,482

$

301,076

$

3,116

$

(4,522)

(Dollars in thousands)

December 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 five years but within ten years

$

22,994

$

22,949

$

7

$

(52)

 

22,994

 

22,949

 

7

 

(52)

Obligations of state and political subdivisions

 

  

 

  

 

  

 

  

Within one year

 

31

 

31

 

After one year but within five years

 

4,708

4,767

 

59

After five years but within ten years

 

3,289

 

3,484

 

195

 

8,028

 

8,282

 

254

 

Corporate debt securities

 

  

 

  

 

  

 

  

Within one year

 

1,033

 

1,039

 

6

 

After five years but within ten years

 

10,058

10,484

485

(59)

 

11,091

 

11,523

 

491

 

(59)

Mortgage-backed securities

 

239,793

243,661

3,999

(131)

Total

$

281,906

$

286,415

$

4,751

$

(242)

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 $66,521,000 and $74,614,000 on March 31, 2021 and December 31, 2020, 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 normal operations.

11

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, 2021 and 2020.

(Dollars in thousands)

Three Months Ended

March 31, 

    

2021

    

2020

Gross proceeds from sales and calls of securities

$

16,815

$

15,704

Securities available for sale:

 

 

  

Gross realized gains from sold and called securities

$

18

$

41

Gross realized losses from sold and called securities

 

(14)

 

(30)

Net gains from sales and calls of securities

$

4

$

11

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, 2021 and December 31, 2020:

Unrealized Losses at March 31, 2021

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

 

7

$

37,634

$

(1,420)

 

$

$

 

7

$

37,634

$

(1,420)

Obligations of state and political subdivisions

 

4

1,191

 

(38)

 

 

 

 

4

 

1,191

 

(38)

Corporate debt securities

2

1,972

(28)

 

 

2

1,972

(28)

Mortgage-backed securities

 

27

143,709

(3,036)

 

 

27

143,709

(3,036)

Total temporarily impaired securities

 

40

$

184,506

$

(4,522)

 

$

$

 

40

$

184,506

$

(4,522)

Unrealized Losses at December 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

Obligations of U.S. Government sponsored enterprises

 

3

$

18,948

$

(52)

 

$

$

 

3

$

18,948

$

(52)

Corporate debt securities

1

2,972

(59)

 

 

1

2,972

(59)

Mortgage-backed securities

 

7

43,583

(131)

 

 

7

43,583

(131)

Total temporarily impaired securities

 

11

$

65,503

$

(242)

 

$

$

 

11

$

65,503

$

(242)

12

At March 31, 2021, seven obligations of U.S. Government sponsored enterprises, four obligations of state and political subdivisions, two corporate debt securities, and twenty-seven mortgage-backed securities had unrealized losses. None 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.

The unrealized losses noted in the tables above are considered 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, 2021 and December 31, 2020, 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 were normally sold to the buyer immediately. The Company maintains servicing rights on these loans.

13

When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in fair value of servicing assets in earnings in the period in which the changes occur, which are included with mortgage banking income on the income statement. The fair values of servicing rights are subject to fluctuations because of changes in estimated and actual prepayment speeds and default rates and losses.

Servicing fee income, which is reported on the income statement as mortgage banking income, is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. Late fees and ancillary fees related to loan servicing are not material.

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.

14

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.

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.

15

Obligations of States and Political Subdivisions

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

Personal Lending

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

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

Personal loans may entail greater credit risk than do residential mortgage loans, particularly in the case of personal loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted personal loan may not provide an adequate source of repayment of the outstanding loan balance because 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 Loan 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 and loan loss provision credits. 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

16

modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDRs”) and classified as impaired.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020 permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment 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. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the 2021 Consolidated Appropriations Act (“CAA”) on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.  

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 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.

Impairment for substantially all 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.

17

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.

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.

Paycheck Protection Program Loans

The CARES Act established 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.

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (“PPP Flexibility Act”) extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks. The 24 week period applies to all borrowers, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight week period. The PPP Flexibility Act also amended the requirements regarding forgiveness of PPP loans, reducing the portion of PPP loan proceeds that must be used for payroll costs for the full amount of the PPP loan to be eligible for forgiveness from 75% to 60%. Additionally, the PPP Flexibility Act extended the maturity date for PPP loans made on, or after June 5, 2020, from two years to five years; however, lenders and borrowers may mutually agree to modify PPP loans made before such date to reflect the longer maturity.

The SBA began approving PPP forgiveness applications and remitting forgiveness payments to PPP lenders for PPP borrowers on October 2, 2020. On October 8, 2020, the SBA, in consultation with the U.S. Treasury Department, released a simpler loan forgiveness application for PPP loans of $50,000 or less to streamline the PPP forgiveness process to provide financial and administrative relief to American’s smallest businesses and eased the burden on PPP lenders, allowing them to process forgiveness applications more swiftly.

18

The CAA provided several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, extending the program to May 31, 2021.  

The Company participates in the PPP and has funded 508 first round PPP loans totaling $32,064,000 in 2020 and, as of March 31, 2021, funded 261 second round PPP loans totaling $17,027,000. Juniata has been receiving forgiveness payments from the SBA on first round PPP loans. As of March 31, 2021, 592 PPP loans remained with a total balance of $36,377,000, net of remaining deferred fees of $1,094,000.

Loan Portfolio Classification

The following table presents the loan portfolio by class at March 31, 2021 and December 31, 2020.

(Dollars in thousands)

    

    

 

March 31, 2021

 

December 31, 2020

Commercial, financial and agricultural

$

80,884

$

73,057

Real estate - commercial

150,992

122,698

Real estate - construction

 

40,587

 

61,051

Real estate - mortgage

 

138,308

 

141,438

Obligations of states and political subdivisions

19,916

18,550

Personal

 

6,320

 

5,867

Total

$

437,007

$

422,661

The following table summarizes the activity in the allowance for loan losses by loan class, for the three months ended March 31, 2021 and 2020.

(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, 2021

Balance, beginning of period

$

302

$

908

$

1,586

$

28

$

1,200

$

70

$

4,094

Provision for loan losses

 

(6)

 

612

 

(668)

 

2

 

(33)

 

14

 

(79)

Charge-offs

 

 

 

 

 

 

(5)

 

(5)

Recoveries

 

 

 

28

 

 

16

 

2

 

46

Balance, end of period

$

296

$

1,520

$

946

$

30

$

1,183

$

81

$

4,056

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

19

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, 2021 and December 31, 2020.

(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, 2021

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Loans allocated by:

individually evaluated for impairment

$

$

3,491

$

$

$

616

$

$

4,107

acquired with credit deterioration

330

604

934

collectively evaluated for impairment

80,884

147,171

40,587

19,916

137,088

6,320

431,966

$

80,884

$

150,992

$

40,587

$

19,916

$

138,308

$

6,320

$

437,007

Allowance for loan losses allocated by:

individually evaluated for impairment

$

$

$

$

$

1

$

$

1

acquired with credit deterioration

collectively evaluated for impairment

296

1,520

946

30

1,182

81

4,055

$

296

$

1,520

$

946

$

30

$

1,183

$

81

$

4,056

December 31, 2020

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Loans allocated by:

individually evaluated for impairment

$

$

3,483

$

$

$

744

$

$

4,227

acquired with credit deterioration

339

623

962

collectively evaluated for impairment

73,057

118,876

61,051

18,550

140,071

5,867

417,472

$

73,057

$

122,698

$

61,051

$

18,550

$

141,438

$

5,867

$

422,661

Allowance for loan losses allocated by:

individually evaluated for impairment

$

$

$

$

$

2

$

$

2

acquired with credit deterioration

collectively evaluated for impairment

302

908

1,586

28

1,198

70

4,092

$

302

$

908

$

1,586

$

28

$

1,200

$

70

$

4,094

The Company has certain loans in its portfolio that it considers 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, 2021 and December 31, 2020 totaled $92,000 and $152,000, 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.

20

The following table summarizes information regarding impaired loans by portfolio class as of March 31, 2021 and December 31, 2020.

(Dollars in thousands)

As of March 31, 2021

As of December 31, 2020

    

Recorded

    

Unpaid Principal

    

Related

    

Recorded

    

Unpaid Principal

    

Related

Investment

Balance

Allowance

Investment

Balance

Allowance

Impaired loans

With no related allowance recorded:

 

  

 

  

 

  

 

  

 

  

 

  

Real estate - commercial

$

3,491

$

3,587

$

$

3,483

$

3,580

$

Acquired with credit deterioration

 

330

381

 

 

339

386

 

Real estate – construction

 

 

882

 

 

 

894

 

Real estate - mortgage

 

540

 

1,274

 

 

666

 

1,396

 

Acquired with credit deterioration

 

604

792

 

 

623

801

 

With an allowance recorded:

 

 

  

 

  

 

 

  

 

  

Real estate - mortgage

$

76

$

75

$

1

$

78

$

77

$

2

Total:

 

  

 

  

 

  

 

  

 

  

 

  

Real estate - commercial

$

3,491

$

3,587

$

$

3,483

$

3,580

$

Acquired with credit deterioration

 

330

 

381

 

 

339

 

386

 

Real estate - construction

 

 

882

 

 

 

894

 

Real estate – mortgage

 

616

 

1,349

 

1

 

744

 

1,473

 

2

Acquired with credit deterioration

 

604

 

792

 

 

623

 

801

 

$

5,041

$

6,991

$

1

$

5,189

$

7,134

$

2

Average recorded investment of impaired loans and related interest income recognized for the three months ended March 31, 2021 and 2020 are summarized in the tables below.

(Dollars in thousands)

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

    

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:

 

  

 

  

 

  

 

  

 

  

 

  

Real estate - commercial

$

2,434

$

13

$

$

2,080

$

5

$

12

Acquired with credit deterioration

 

333

 

 

 

361

 

 

Real estate - mortgage

 

603

 

3

 

10

 

1,139

 

4

 

11

Acquired with credit deterioration

 

612

 

 

 

693

 

 

Personal

 

 

 

 

9

 

 

With an allowance recorded:

 

 

  

 

  

 

  

 

  

 

  

Commercial, financial and agricultural

$

$

$

$

187

$

$

Real estate - mortgage

77

126

Total:

 

 

  

 

  

 

  

 

  

 

  

Commercial, financial and agricultural

$

$

$

$

187

$

$

Real estate - commercial

2,434

13

2,080

5

12

Acquired with credit deterioration

 

333

 

 

 

361

 

 

Real estate - mortgage

 

680

 

3

 

10

 

1,265

 

4

 

11

Acquired with credit deterioration

 

612

 

 

 

693

 

 

Personal

 

 

 

 

9

 

 

$

4,059

$

16

$

10

$

4,595

$

9

$

23

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.

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 if (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

21

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 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, 2021 and December 31, 2020.

(Dollars in thousands)

    

    

 

March 31, 2021

 

December 31, 2020

Non-accrual loans:

Real estate - commercial

$

39

$

41

Real estate - mortgage

 

296

 

381

Total

$

335

$

422

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, 2021 and December 31, 2020.

    

    

    

    

    

    

    

Loans

Past Due

Greater

(Dollars in thousands)

Greater

than 89

3059 Days

6089 Days

than 89

Total Past

Days and

Current

Past Due(2)

Past Due

Days

Due

Total Loans

Accruing(1)

As of March 31, 2021

Commercial, financial and agricultural

$

80,880

$

4

$

$

$

4

$

80,884

$

Real estate - commercial

 

150,495

 

128

 

 

39

 

167

 

150,662

 

Real estate - construction

 

40,587

 

 

 

 

 

40,587

 

Real estate - mortgage

 

137,347

 

263

 

63

 

31

 

357

 

137,704

 

Obligations of states and political subdivisions

 

19,916

 

 

 

 

 

19,916

 

Personal

 

6,308

 

12

 

 

 

12

 

6,320

 

Subtotal

435,533

407

63

70

540

436,073

Loans acquired with credit deterioration

Real estate - commercial

 

285

 

45

 

 

 

45

 

330

 

Real estate - mortgage

 

512

 

 

 

92

 

92

 

604

 

92

Subtotal

797

45

92

137

934

92

$

436,330

$

452

$

63

$

162

$

677

$

437,007

$

92

22

Loans

Past Due

Greater

(Dollars in thousands)

Greater

than 89

3059 Days

6089 Days

than 89

Total Past

Days and

    

Current

    

Past Due(2)

    

Past Due

    

Days

    

Due

    

Total Loans

    

Accruing(1)

As of December 31, 2020

Commercial, financial and agricultural

$

73,028

$

7

$

$

22

$

29

$

73,057

$

22

Real estate - commercial

 

122,318

 

 

 

41

 

41

 

122,359

 

Real estate - construction

 

61,051

 

 

 

 

 

61,051

 

Real estate - mortgage

 

139,842

 

351

 

453

 

169

 

973

 

140,815

 

Obligations of states and political subdivisions

 

18,550

 

 

 

 

 

18,550

 

Personal

 

5,853

 

 

14

 

 

14

 

5,867

 

Subtotal

420,642

358

467

232

1,057

421,699

22

Loans acquired with credit deterioration

Real estate - commercial

 

293

 

 

46

 

 

46

 

339

 

Real estate - mortgage

 

481

 

50

 

 

92

 

142

 

623

 

92

Subtotal

774

50

46

92

188

962

92

$

421,416

$

408

$

513

$

324

$

1,245

$

422,661

$

114

(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

As of March 31, 2021 and December 31, 2020, the Company had a recorded investment in troubled debt restructurings of $3,768,000 and $3,802,000, respectively.

(Dollars in thousands)

Pre-Modification

Post-Modification

Number of

Outstanding

Outstanding

    

Contracts

    

Recorded Investment

    

Recorded Investment

    

Recorded Investment

As of March 31, 2021

 

  

 

  

 

  

 

  

Accruing troubled debt restructurings:

 

  

 

  

 

  

 

  

Real estate - commercial

2

$

3,461

$

3,484

$

3,449

Real estate - mortgage

 

6

434

450

319

 

8

$

3,895

$

3,934

$

3,768

(Dollars in thousands)

Pre-Modification

Post-Modification

Number of

Outstanding

Outstanding

    

Contracts

    

Recorded Investment

    

Recorded Investment

    

Recorded Investment

As of December 31, 2020

 

  

 

  

 

  

 

  

Accruing troubled debt restructurings:

 

  

 

  

 

  

 

  

Real estate - commercial

 

3

$

3,349

$

3,487

$

3,440

Real estate - mortgage

 

7

483

511

362

 

10

$

3,832

$

3,998

$

3,802

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, 2021, 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, 2021 or 2020. On December 31, 2020, 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

23

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, 2021 nor the three months ended March 31, 2020.

The CARES Act permits financial institutions to exclude loan modifications to borrowers affected by the COVID-19 pandemic from TDR treatment 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. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the CAA on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.  

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 of March 31, 2021, one loan for $4,964,000 remained in deferment status while all other loans previously placed in deferment resumed contractual debt service.

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 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

24

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, 2021 and December 31, 2020.

(Dollars in thousands)

Special

As of March 31, 2021

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

Commercial, financial and agricultural

$

79,357

$

596

$

931

$

$

80,884

Real estate - commercial

 

103,747

 

40,008

 

7,198

 

39

 

150,992

Real estate - construction

 

36,813

 

3,634

 

140

 

 

40,587

Real estate - mortgage

 

136,810

 

278

 

1,181

 

39

 

138,308

Obligations of states and political subdivisions

 

19,916

 

 

 

 

19,916

Personal

 

6,320

 

 

 

 

6,320

Total

$

382,963

$

44,516

$

9,450

$

78

$

437,007

(Dollars in thousands)

Special

As of December 31, 2020

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

Commercial, financial and agricultural

$

71,983

$

495

$

579

$

$

73,057

Real estate - commercial

 

99,828

 

15,198

 

7,631

 

41

 

122,698

Real estate - construction

 

36,332

 

24,644

 

75

 

 

61,051

Real estate - mortgage

 

139,787

 

289

 

1,317

 

45

 

141,438

Obligations of states and political subdivisions

 

18,550

 

 

 

 

18,550

Personal

 

5,867

 

 

 

 

5,867

Total

$

372,347

$

40,626

$

9,602

$

86

$

422,661

The decline in special mention real estate – construction loans and the increase in special mention real estate – commercial loans as of March 31, 2021 compared to December 31, 2020 was largely due to two relationships transitioning from a construction phase to permanent loan status.

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, 2021 and December 31, 2020 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. There was no goodwill impairment during the three months ended March 31, 2021 or March 31, 2020.

25

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, 2021 was $7,000.

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, 2021 was $9,000.

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, 2020

 

190

 

84

Amortization expense recorded in the twelve months

 

  

 

  

ended December 31, 2020

 

33

 

44

Unamortized balance as of December 31, 2020

 

80

 

161

Amortization expense recorded in the

 

three months ended March 31, 2021

7

 

9

Unamortized balance as of March 31, 2021

$

73

$

152

Scheduled remaining amortization expense for years ended:

 

 

December 31, 2021

$

20

$

30

December 31, 2022

22

 

33

December 31, 2023

 

16

 

28

December 31, 2024

 

10

23

December 31, 2025

 

5

17

December 31, 2026

12

After December 31, 2026

9

8. BORROWINGS

Borrowings consisted of the following as of March 31, 2021 and December 31, 2020.

(Dollars in thousands)

March 31, 

December 31, 

    

2021

    

2020

Securities sold under agreements to repurchase

$

2,622

$

4,750

Short-term debt with FHLB

20,000

20,000

Federal Reserve Bank advances

27,955

Long-term debt with FHLB

 

35,000

 

35,000

$

57,622

$

87,705

26

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, 2021.

(Dollars in thousands)

Scheduled

Weighted Average

Year

    

Maturities

    

Interest Rate

2022

$

%

2023

 

2024

 

20,000

 

2.42

2025

 

15,000

 

2.41

2026

 

 

Thereafter

$

35,000

 

2.42

%

9. STOCK COMPENSATION PLAN

The Company maintains the 2016 Long-Term Incentive Plan (the “Plan”), that amended and restated the former 2011 Stock Option Plan (the “2011 Plan”). The Plan continues in effect for any outstanding awards under the 2011 Plan in accordance with the terms and conditions governing such awards immediately prior to the effective date of the Plan but expanded the types of awards authorized to include, among others, restricted stock. Under the provisions of the Plan, while active, awards may consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and performance shares to officers and key employees of the Company, as well as directors. The Plan is administered by a committee of the Board of Directors.

The maximum number of shares of common stock that may be issued under the Plan is 300,000 shares, and 152,251 shares were available for grant as of March 31, 2021. Shares of common stock issued under the Plan may be treasury shares or authorized but unissued shares. Forfeited awards are returned to the pool of shares available for grant for future awards.

In the first quarter of 2021, 8,839 restricted shares were awarded to certain officers and all directors. Each of the awards vest after three-years, with no interim vesting. As of March 31, 2021, there was $289,000 of unrecognized compensation cost related to all non-vested restricted stock awards. This cost is expected to be recognized through February 2024.

Compensation expense for stock options granted and restricted stock awarded is measured using the fair value of the award on the grant date and is recognized over the vesting period. The Company recognized $35,000 and $29,000 of expense for the three months ended March 31, 2021 and 2020, respectively, for stock-based compensation.

The following table presents a summary of the status of the Company’s non-vested restricted stock awards as of March 31, 2021, and changes during the period then ended is presented below:

    

    

Weighted

Average

Grant Date

Shares

Fair Value

Non-vested at January 1, 2021

 

20,175

$

19.62

Vested

 

(4,460)

 

19.80

Forfeited

Granted

 

8,839

 

16.55

Non-vested at March 31, 2021

 

24,554

$

18.48

27

No stock options were awarded in the first quarter of 2021. Previously granted stock options vest over three to five years and are exercisable at the grant price, which is at least the fair market value of the stock on the grant date. The Plan provides that the option price per share is not to be less than the fair market value of the stock on the day the option was granted, but in no event less than the par value of such stock. Options granted under the Plan are exercisable no earlier than one year after the date of grant and expire ten years after the date of the grant. All options previously granted under the Plans are scheduled to expire by February 17, 2025.

Total options outstanding as of March 31, 2021 have exercise prices between $17.65 and $18.00, with a weighted average exercise price of $17.78 and a weighted average remaining contractual life of 2.53 years.

As of March 31, 2021, there was no unrecognized compensation cost related to options granted under the Plan and no options were exercised under the Plans during the period.

A summary of the status of the outstanding stock options as of March 31, 2021, and changes during the period then ended is presented below:

    

    

Weighted

Average

Exercise

Shares

Price

Outstanding at beginning of year

 

81,547

$

17.78

Granted

 

 

Exercised

 

 

Forfeited

 

 

Outstanding at end of year

 

81,547

$

17.78

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

28

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.

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 can access at the measurement date.

Level 2 Inputs – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 Inputs – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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.

Debt Securities Available for Sale – For debt securities available for sale where quoted prices are not available, fair values are calculated based on market prices of similar securities and 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 debt securities’ terms

29

and conditions, among other things. For debt securities available for sale where quoted prices or market prices of similar securities are not available, fair values are calculated using other market indicators and are reported at fair value utilizing Level 3 inputs.

Derivatives – The fair values of derivatives are based on valuation models using observable market data as of the measurement date utilizing Level 2 inputs. The Company’s derivatives are comprised of interest rate swaps traded in an over-the-counter market where quoted market prices are not always available; therefore, the fair values are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of curves, prepayment rates and volatility factors used to value the position. Most market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

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, 2021 and December 31, 2020 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Quoted Prices in

Significant

Significant

(Dollars in thousands)

Active Markets

Other

Other

for Identical

Observable

Unobservable

March 31, 2021

Assets

Inputs

Inputs

Total

Assets measured at fair value on a recurring basis:

 

  

 

  

 

  

 

  

Debt securities available for sale:

 

  

 

  

 

  

 

  

Obligations of U.S. Government agencies and corporations

$

$

37,634

$

$

37,634

Obligations of state and political subdivisions

 

 

8,175

 

 

8,175

Corporate debt securities

14,039

2,000

16,039

Mortgage-backed securities

 

 

239,228

 

 

239,228

Total debt securities available for sale

$

$

299,076

$

2,000

$

301,076

Equity securities

$

1,183

$

$

$

1,183

Mortgage servicing rights

$

$

$

147

$

147

Interest rate swaps

$

$

659

$

$

659

Assets measured at fair value on a non-recurring basis:

 

  

 

  

 

  

 

  

Impaired loans

$

$

$

78

$

78

30

    

(Level 1)

    

(Level 2)

    

(Level 3)

    

Quoted Prices in

Significant

Significant

(Dollars in thousands)

Active Markets

Other

Other

for Identical

Observable

Unobservable

December 31, 2020

Assets

Inputs

Inputs

Total

Assets measured at fair value on a recurring basis:

 

  

 

  

 

  

 

  

Debt securities available for sale:

 

  

 

  

 

  

 

  

Obligations of U.S. Government agencies and corporations

$

$

22,949

$

$

22,949

Obligations of state and political subdivisions

 

 

8,282

 

 

8,282

Corporate debt securities

9,523

2,000

11,523

Mortgage-backed securities

 

 

243,661

 

 

243,661

Total debt securities available for sale

$

$

284,415

$

2,000

$

286,415

Equity securities

$

1,091

$

$

$

1,091

Mortgage servicing rights

$

$

$

158

$

158

Liabilities measured at fair value on a recurring basis:

 

  

 

  

 

  

 

  

Interest rate swaps

$

$

57

$

$

57

Assets measured at fair value on a non-recurring basis:

 

  

 

  

 

  

 

  

Impaired loans

$

$

$

84

$

84

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.

31

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

Financial Instruments

(Dollars in thousands)

March 31, 2021

December 31, 2020

    

Carrying

    

Fair

    

Carrying

    

Fair

Value

Value

Value

Value

Financial assets:

Cash and due from banks

$

11,533

$

11,533

$

11,868

$

11,868

Interest bearing deposits with banks

 

460

 

460

 

19,753

 

19,753

Federal funds sold

 

10,000

 

10,000

 

 

Interest bearing time deposits with banks

 

735

 

735

 

735

 

735

Securities

 

302,259

 

302,259

 

287,506

 

287,506

Restricted investment in bank stock

3,374

 

N/A

 

3,423

 

N/A

Loans, net of allowance for loan losses

 

432,951

 

434,033

 

418,567

 

424,791

Interest rate swaps

659

659

Accrued interest receivable

 

2,233

 

2,233

 

2,105

 

2,105

Financial liabilities:

 

  

 

  

 

  

 

  

Non-interest bearing deposits

$

183,437

$

183,437

$

168,115

$

168,115

Interest bearing deposits

 

486,023

 

489,985

 

454,751

 

459,224

Securities sold under agreements to repurchase

 

2,622

 

N/A

 

475

 

N/A

Short-term borrowings

 

20,000

 

20,002

 

20,000

 

20,002

FRB advances

27,955

27,955

Long-term debt

 

35,000

 

36,745

 

35,000

 

37,365

Interest rate swaps

57

57

Other interest bearing liabilities

 

1,557

 

1,557

 

1,584

 

1,585

Accrued interest payable

 

364

 

364

 

448

 

448

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, 2021 and December 31, 2020. 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, 2021

Financial instruments - Assets

 

  

 

  

 

  

 

  

 

  

Interest bearing time deposits with banks

$

735

$

735

$

$

735

$

Loans, net of allowance for loan losses

 

432,951

 

434,033

 

 

 

434,033

Financial instruments - Liabilities

 

 

 

  

 

 

  

Interest bearing deposits

$

486,023

$

489,985

$

$

489,985

$

Long-term debt

 

35,000

 

36,745

 

 

36,745

 

Other interest bearing liabilities

 

1,557

 

1,557

 

 

1,557

 

32

(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, 2020

Financial instruments - Assets

 

  

 

  

 

  

 

  

 

  

Interest bearing time deposits with banks

$

735

$

735

$

$

735

$

Loans, net of allowance for loan losses

 

418,567

 

424,791

 

 

 

424,791

Financial instruments - Liabilities

 

 

 

  

 

 

  

Interest bearing deposits

$

454,751

$

459,224

$

$

459,224

$

Long-term debt

 

35,000

 

37,365

 

 

37,365

 

Other interest bearing liabilities

 

1,584

 

1,585

 

 

1,585

 

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, 2021, the Company had $92,688,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $95,089,000 at December 31, 2020.

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 $3,991,000 and $2,371,000 of financial and performance letters of credit commitments as of March 31, 2021 and $1,541,000 and $2,365,000 of financial and performance letters of credit commitments as of December 31, 2020. Commercial letters of credit as of March 31, 2021 and December 31, 2020 totaled $7,475,000 and $6,975,000, 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, 2021 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.

33

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 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, 2021 and March 31, 2020 totaled $92,000 and $85,000, respectively. 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 periods ended March 31, 2021 and March 31, 2020 totaled $20,000 and $28,000, respectively.

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.

34

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.

13. DERIVATIVES

The Company began utilizing interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position in the second quarter of 2020. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Interest rate swaps with a notional amount totaling $40,000,000 as of March 31, 2021 and December 31, 2020, were designated as cash flow hedges on certain FHLB advances. The interest rate swaps were determined to be fully effective during the periods presented, and as such, no amount of ineffectiveness have been included in net income. The aggregate fair value of the swaps is recorded in either other assets or other liabilities on the Consolidated Statements of Condition with changes in fair value recorded in other comprehensive income. The Company expects the hedges to remain fully effective during the remaining terms of the swaps.

The Company presents derivative positions gross on the balance sheet. The following table reflects the derivatives recorded on the Consolidated Statements of Condition as of March 31, 2021 and December 31, 2020.

(Dollars in thousands)

March 31, 2021

December 31, 2020

    

Notional

    

Fair

    

Notional

    

Fair

Amount

Value

Amount

Value

Included in other assets:

Derivatives designated as hedges:

Interest rate swap - pay fixed / receive floating on 3-month FHLB advance

$

20,000

$

(66)

$

$

Interest rate swaps - forward-starting on long-term FHLB advances

20,000

725

Total included in other assets

$

659

$

Included in other liabilities:

Derivatives designated as hedges:

Interest rate swap - pay fixed / receive floating on 3-month FHLB advance

$

$

$

20,000

$

(123)

Interest rate swaps - forward-starting on long-term FHLB advances

 

 

 

20,000

 

66

Total included in other liabilities

$

$

(57)

35

The effect of cash flow hedge accounting on accumulated other comprehensive income for the period ended March 31, 2021 is as follows:

(Dollars in thousands)

March 31, 2021

    

Amount of Gain

    

Location of (Gain)

    

Amount of (Gain)

(Loss) Recognized in

Loss Reclassified

Loss Reclassified

OCI on Derivatives

from OCI into Income

from OCI into Income

Interest rate contracts

$

712

Interest expense on short-term borrowings and repurchase agreements

$

4

The effect of cash flow hedge accounting on the Consolidated Statements of Income for the three months ended March 31, 2021 was as follows:

Location and Amount of Gain or Loss Recognized in Income on Fair Value and Cash Flow Hedging Relationships

Three Months Ended

(Dollars in thousands)

March 31, 2021

    

Interest

    

Other

Income

Income

(Expense)

(Expense)

Effects of cash flow hedging:

Gain on cash flow hedging relationships:

Amount reclassified from AOCI into income

$

(4)

$

Total

(4)

14. SUBSEQUENT EVENTS

On April 20, 2021, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on May 17, 2021, payable on June 1, 2021.

36

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 results 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.

37

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, 2020, 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.

COVID-19 Update:

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. This period has since been expanded to the earlier of January 1, 2022 or 60 days after the end of the coronavirus emergency declaration following the passing of the CAA on December 27, 2020. A loan modification accounted for in accordance with the CARES Act is not treated as a TDR for accounting or disclosure purposes.

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 of March 31, 2021, one loan for $4,964,000 remained in deferment status while all other loans previously placed in deferment resumed contractual debt service.

As part of the CARES Act and in recognition of the challenging circumstances faced by small businesses, Congress created the Paycheck Protection Program (“PPP”), in 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.

The CAA also provided several amendments to the PPP, including additional funding for first and second draws of PPP loans up to March 31, 2021. On March 30, 2021, the PPP Extension Act of 2021 was signed into law, extending the program to May 31, 2021.  

The Company participates in the PPP and has funded 508 first round PPP loans totaling $32,064,000 in 2020, and as of March 31, 2021, funded 261 second round PPP loans totaling $17,027,000. Juniata has been receiving forgiveness payments from the SBA on first round PPP loans. As of March 31, 2021, 592 PPP loans remained with a total balance of $36,377,000, net of remaining deferred fees of $1,094,000.

On April 7, 2020, the Federal Reserve Banks extended credit under the Paycheck Protection Program Liquidity Facility (“PPPLF”) to provide liquidity to small business lenders and the broader credit markets, and to help stabilize the financial system. 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. The Company participated in the PPPLF and as of March 31, 2021, had repaid all remaining Federal Reserve Bank advances.

38

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, 2020. 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, 2021, compared to December 31, 2020, and the consolidated results of operations for the three months ended March 31, 2021, compared to the same period in 2020. 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, 2021, were $805,633,000, an increase of $11,915,000, or 1.5%, compared to December 31, 2020. Comparing asset balances on March 31, 2021 and December 31, 2020, total cash and cash equivalents decreased by $19,628,000, as excess cash was used to repay the remaining $27,955,000 in FRB advances in the first quarter of 2021. Over the same period, debt securities available for sale and loans increased by $14,661,000 and $14,346,000, respectively. As of March 31, 2021, total deposits increased by $46,594,000, or 7.5%, compared to December 31, 2020, with growth in both non-interest and interest bearing deposits, primarily due to government stimulus payments and PPP loan balances on deposit.

The table below shows changes in deposit volumes by type of deposit between December 31, 2020 and March 31, 2021.

(Dollars in thousands)

March 31, 

December 31, 

Change

 

    

2021

    

2020

    

$

    

%

 

Deposits:

Demand, non-interest bearing

 

$

183,437

 

$

168,115

 

$

15,322

 

9.1

%

Interest bearing demand and money market

196,196

176,469

19,727

 

11.2

Savings

137,601

123,572

14,029

 

11.4

Time deposits, $250,000 and more

13,688

13,475

213

 

1.6

Other time deposits

138,538

141,235

(2,697)

 

(1.9)

Total deposits

 

$

669,460

 

$

622,866

 

$

46,594

 

7.5

%

39

As shown in the table below, total loans increased $14,346,000, or 3.4%, between December 31, 2020 and March 31, 2021. PPP loans, which are included in the commercial, financial and agricultural class, accounted for approximately half of the growth, with the rest primarily in the real estate – commercial class. Also contributing to the increase in the real estate – commercial class was the transition of two large relationships from the real estate – construction loan class as of December 31, 2020 to permanent loan status in the real estate – commercial loan class as of March 31, 2021.

(Dollars in thousands)

March 31, 

December 31, 

Change

 

    

2021

    

2020

    

$

    

%

 

Loans:

Commercial, financial and agricultural

 

$

80,884

 

$

73,057

 

$

7,827

 

10.7

%

Real estate - commercial

150,992

122,698

28,294

 

23.1

Real estate - construction

40,587

61,051

(20,464)

 

(33.5)

Real estate - mortgage

138,308

141,438

(3,130)

 

(2.2)

Obligations of states and political subdivisions

19,916

18,550

1,366

 

7.4

Personal

6,320

5,867

453

 

7.7

Total loans

 

$

437,007

 

$

422,661

 

$

14,346

 

3.4

%

A summary of the activity in the allowance for loan losses for each of the three month periods ended March 31, 2021 and 2020 is presented below.

(Dollars in thousands)

Three months ended March 31, 

 

    

2021

    

2020

 

Balance of allowance - January 1

 

$

4,094

 

$

2,961

Loans charged off

(5)

(21)

Recoveries of loans previously charged off

46

37

Net recoveries

41

16

Provision for loan losses

(79)

356

Balance of allowance - end of period

 

$

4,056

 

$

3,333

Ratio of net recoveries during period to average loans outstanding

(0.01)

%  

0.00

%

Juniata continued to experience favorable asset quality trends and net recoveries during the first quarter of 2021. One loan, in the amount of $4,964,000, placed on payment deferral in accordance with the CARES Act remained in deferment as of March 31, 2021, while all other loans previously placed in deferment resumed contractual debt service. Juniata applied elevated qualitative risk factors to all loan segments in the loan portfolio in its allowance for loan loss analysis in the first quarter of 2021 due to the remaining uncertainty as to the strength of the economy once it fully reopens and the ability of borrowers no longer on payment deferral to continue making payments; however, due to the positive trends noted above and sustained performance of the loan portfolio, the analysis resulted in a provision credit of $79,000 in the first quarter of 2021 compared to a provision expense of $356,000 recorded in the first quarter of 2020.

As of March 31, 2021, 23 loans (exclusive of loans acquired with existing credit deterioration) with aggregate outstanding balances of $4,107,000 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 no higher than fair value. As a result of this analysis, two loans, totaling $76,000, were determined to have insufficient collateral at March 31, 2021 requiring the establishment of specific reserves totaling $1,000.

As of March 31, 2021, there were $44,516,000 loans classified as special mention compared to $40,626,000 at December 31, 2020, $9,450,000 in substandard loans at March 31, 2021 compared to $9,602,000 at December 31, 2020, and $78,000 in doubtful loans at March 31, 2021 compared to $86,000 at December 31, 2020.

40

Management believes that the reserves carried are adequate to cover probable incurred losses related to these relationships as of March 31, 2021. 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 high. 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.

The following is a summary of the Bank’s non-performing loans, exclusive of loans acquired with credit deterioration, on March 31, 2021 compared to December 31, 2020.

(Dollar amounts in thousands)

March 31, 2021

December 31, 2020

Non-performing loans

Non-accrual loans

$

335

$

422

Accruing loans past due 90 days or more

 

 

22

Total

$

335

$

444

Loans outstanding

$

437,007

$

422,661

Ratio of non-performing loans to loans outstanding

0.08

%  

0.11

%

Total non-performing loans as of March 31, 2021 decreased $109,000 over total non-performing loans as of December 31, 2020. The change was primarily due to foreclosure upon a non-accrual loan during the first quarter of 2021, which reduced non-performing loans by $61,000.

Stockholders’ equity decreased from December 31, 2020 to March 31, 2021 by $4,023,000, or 5.3%, mainly due to unrealized losses resulting from the change in market value of debt securities available for sale.

Subsequent to March 31, 2021, the following event took place:

On April 20, 2021, the Board of Directors declared a cash dividend of $0.22 per share to shareholders of record on May 17, 2021, payable on June 1, 2021.

41

Comparison of the Three Months Ended March 31, 2021 and 2020

Operations Overview:

Net income for the first quarter of 2021 was $1,635,000, an increase of $597,000 when compared to the first quarter of 2020. Basic and diluted earnings per share were $0.33 in the first quarter of 2021 compared to basic and diluted earnings per share of $0.20 in the first quarter of 2020.

Annualized return on average equity for the three months ended March 31, 2021 was 8.68%, compared to the return on average equity of 5.54% for the same period in 2020. For the three months ended March 31, annualized return on average assets was 0.82% in 2021, compared to 0.62% in 2020.

Presented below are selected key ratios for the two periods:

Three Months Ended

March 31, 

    

2021

    

2020

    

Return on average assets (annualized)

 

0.82

%  

0.62

%

Return on average equity (annualized)

 

8.68

%  

5.54

%

Average equity to average assets

9.48

%  

11.28

%

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)

 

0.59

%  

0.70

%

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

 

2.31

%  

2.87

%

The discussion that follows further explains changes in the components of net income when comparing the first quarter of 2021 with the first quarter of 2020.

Net Interest Income:

Net interest income, after the provision for loan losses, was $5,022,000 during the three months ended March 31, 2021 when compared to $4,645,000 during the three months ended March 31, 2020. A $79,000 loan loss provision credit was recorded for the three months ended March 31, 2021 while a $356,000 loan loss provision expense was recorded for the three months ended March 31, 2020, a decrease of $435,000 between periods. The decline was mainly the result of continued improvement in asset quality and net recoveries. Total interest income decreased by $303,000 during the first quarter of 2021 compared to the same period in 2020, while total interest expense decreased by $245,000.

Overall, average earning assets increased 21.5%, while average interest bearing liabilities increased 21.8%. The net interest margin, on a fully tax equivalent basis, decreased from 3.32% during the three months ended March 31, 2020 to 2.71% during the three months ended March 31, 2021.

Average loan balances increased by $39,555,000, while interest on loans declined by $101,000 during for the first quarter of 2021 compared to the same period in 2020. The increase in the average volume of loans outstanding increased interest income by $495,000, while the yield on loans decreased interest income by $596,000.

The average balance of investment securities increased $88,521,000, while interest earned on investment securities declined by $152,000 in the first quarter of 2021 compared to the first quarter of 2020. The increase in average balance on investment securities during the period increased interest income by $519,000, while the decline in yield on investment securities decreased interest income by $671,000.

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Average earning assets increased $130,928,000, to $740,892,000, when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 due to a 43.3% increase in average investment securities, as well as a 10.1% increase in average loans. The yield on earning assets declined to 3.15% during the three months ended March 31, 2021 from 4.02% during the same period in 2020. The average balance of interest bearing liabilities increased over the period by $97,684,000 compared to the same 2020 period, while the cost to fund interest bearing assets with interest bearing liabilities decreased 36 basis points, to 0.65% during the first quarter of 2021 compared to the same period in 2020. The yields on earning assets and cost of funds were affected by changes in interest rates between the first quarter of 2021 and the first quarter of 2020.

43

The table below shows the net interest margin on a fully tax-equivalent basis for the three months ended March 31, 2021 and 2020.

Average Balance Sheets and Net Interest Income Analysis

Three Months Ended

Three Months Ended

(Dollars in thousands)

March 31, 2021

March 31, 2020

Increase (Decrease) Due To (6)

Average

Yield/

Average

Yield/

    

Balance(1)

    

Interest

    

Rate

    

Balance(1)

    

Interest

    

Rate

    

Volume

    

Rate

    

Total

ASSETS

  

  

  

  

  

  

  

  

  

Interest earning assets:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Taxable loans (5)

$

398,664

$

4,543

 

4.56

%  

$

361,850

$

4,651

 

5.14

%  

$

473

$

(581)

 

$

(108)

Tax-exempt loans

 

31,404

 

234

 

2.98

 

28,663

 

227

 

3.17

 

22

 

(15)

 

 

7

Total loans

 

430,068

 

4,777

 

4.44

 

390,513

 

4,878

 

5.00

 

495

 

(596)

 

 

(101)

Taxable investment securities

 

286,778

 

1,006

 

1.40

 

200,322

 

1,173

 

2.34

 

508

 

(675)

 

 

(167)

Tax-exempt investment securities

 

6,302

 

38

 

2.41

 

4,237

 

23

 

2.17

 

11

 

4

 

 

15

Total investment securities

 

293,080

 

1,044

 

1.42

 

204,559

 

1,196

 

2.34

 

519

 

(671)

 

 

(152)

Interest bearing deposits

 

10,855

 

5

 

0.19

 

9,419

 

42

 

1.78

 

6

 

(43)

 

 

(37)

Federal funds sold

 

6,889

 

0

 

0.02

 

5,473

 

13

 

0.95

 

3

 

(16)

 

 

(13)

Total interest earning assets

 

740,892

 

5,826

 

3.15

 

609,964

 

6,129

 

4.02

 

1,023

 

(1,326)

 

 

(303)

Other assets (7)

 

53,987

 

  

 

  

 

54,438

 

  

 

  

 

  

 

  

 

 

  

Total assets

$

794,879

 

  

 

  

$

664,402

 

  

 

  

 

  

 

  

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  

Interest bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  

 

 

  

Interest bearing demand deposits (2)

$

182,591

 

68

 

0.15

$

147,316

 

164

 

0.45

$

32

$

(128)

 

$

(96)

Savings deposits

 

129,408

 

16

 

0.05

 

98,916

 

25

 

0.10

 

8

 

(17)

 

 

(9)

Time deposits

 

153,161

 

535

 

1.40

 

150,980

 

641

 

1.70

 

16

 

(122)

 

 

(106)

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

 

80,676

 

264

 

1.31

 

50,940

 

298

 

2.34

 

273

 

(307)

 

 

(34)

Total interest bearing liabilities

 

545,836

 

883

 

0.65

 

448,152

 

1,128

 

1.01

 

329

 

(574)

 

 

(245)

Non-interest bearing liabilities:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  

Demand deposits

 

168,866

 

  

 

  

 

136,328

 

  

 

  

 

 

  

 

 

  

Other

 

4,825

 

  

 

  

 

4,977

 

  

 

  

 

 

  

 

 

  

Stockholders’ equity

 

75,352

 

  

 

  

 

74,945

 

  

 

  

 

 

  

 

 

  

Total liabilities and stockholders’ equity

$

794,879

 

  

 

  

$

664,402

 

  

 

  

 

  

 

 

  

Net interest income and net interest rate spread

 

  

$

4,943

 

2.50

%  

 

  

$

5,001

 

3.01

%  

$

694

$

(752)

 

$

(58)

Net interest margin on interest earning assets (3)

 

  

 

  

 

2.67

%  

 

  

 

  

 

3.28

%  

 

  

 

 

 

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

 

  

$

5,016

 

2.71

%  

 

  

$

5,067

 

3.32

%  

 

  

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.

44

Provision for Loan Losses:

In the first quarter of 2021, a $79,000 loan loss provision credit was recorded, compared to a provision expense of $356,000 in the first quarter of 2020. Based on an analysis of the allowance of loan losses as of March 31, 2021, the decreased provision was primarily the result of continued improvement in asset quality trends and net recoveries. 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 2021 was $1,272,000 compared to $994,000 in the first quarter of 2021, an increase of $278,000, or 28.0%.

Most significantly impacting non-interest income during the comparative three month periods was the increase in the value of equity securities of $93,000 in the first quarter of 2021 compared to a decrease in the value of equity securities of $172,000 in the first quarter of 2020, as well as an $89,000 increase in debit card fee income. Partially offsetting these increases was a $90,000 decline in customer service fees in the first quarter of 2021 compared to the comparable 2020 period.

As a percentage of average assets, annualized non-interest income was 0.64% in the first quarter of 2021 compared to 0.60% in the first quarter of 2020. 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 0.59% in the first quarter of 2021 compared to 0.70% in the first quarter of 2020.

Non-interest Expense:

Non-interest expense was $4,588,000 for the three months ended March 31, 2021 compared to $4,760,000 for the same period in 2020, a decrease of $172,000, or 3.6%.

Non-interest expense decreased in the first quarter of 2021 compared to the same period in 2020, primarily driven by a decline of $183,000 in employee benefits expense due to lower medical claims expenses. Also contributing to the decline in non-interest expense between periods was a $49,000 gain on other real estate owned recorded in the first quarter of 2021 while no gain was reported in the comparable 2020, as well a $45,000 decrease in equipment expense. Partially offsetting these declines during the three months ended March 31, 2021 compared to the comparative 2020 period was an $82,000 increase in data processing expense, predominantly due to expenses associated with Juniata’s new online deposit account opening platform launched in the fourth quarter of 2020.

As a percentage of average assets, annualized non-interest expense was 2.31% in the first quarter of 2021 compared to 2.87% in the first quarter of 2020.

Provision for income taxes:

Income tax expense of $71,000 was recorded in the first quarter of 2021 compared to an income tax benefit of $159,000 recorded in the first quarter of 2020, primarily due to higher taxable income recorded in the 2021 period. Additionally, under the provisions of the CARES Act, the Company recorded a tax refund in excess of its deferred tax carrying value, resulting in a $57,000 credit to income tax expense in the first quarter of 2020.

The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. For the first quarters of 2021 and 2020, the tax credits were $225,000 in each of the periods, offsetting $296,000 and $66,000 in tax expense in the first quarter of 2021 and the first quarter of

45

2020, respectively. For the first quarter of 2021, the tax credit lowered the effective tax rate from 17.4% to 4.2% compared to the same period in 2020, when the tax credit lowered the effective tax rate from 7.5% to (18.1)%.

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, 2021, the Company did not borrow overnight borrowings from the Federal Home Loan Bank. As of March 31, 2021, the Company also had no short-term borrowings, but had $35,000,000 in long-term debt with the Federal Home Loan Bank with a remaining unused borrowing capacity with the Federal Home Loan Bank of $110,691,000.

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 the cash needs arising from funding of PPP loans.

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 $3,991,000 and $2,371,000 of financial and performance letters of credit commitments outstanding as of March 31, 2021 and December 31, 2020, respectively. Commercial letters of credit as of March 31, 2021 and December 31, 2020 totaled $7,475,000 and $6,975,000, 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, 2021 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 through, or from, the Company.

46

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.

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 was effective on January 1, 2020 and is designed to reduce the burden of calculating a risk-based capital ratio by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework. Qualifying banking organizations that elect to use the CBLR framework and maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act. Under the interim final rules, the community bank leverage ratio minimum requirement is 8.5% for calendar year 2021 and 9.0% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided the Bank maintains a leverage ratio of 7.5% for calendar year 2021 and 8.0% for calendar year 2022 and beyond.

Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of March 31, 2021, the Bank was a qualifying community banking organization as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework. The Bank’s Tier One leverage ratio was 8.3% on March 31, 2021; and therefore, did not meet the minimum requirement of 8.5%, but does qualify for the two-quarter grace period allowed to correct the ratio. In the event an organization fails to meet the CBLR framework requirements following the two-quarter grace period, it will become subject to the Basel III capital requirements, described below.

The Basel III 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.

 

47

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of March 31, 2021, 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, 2021, that has materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting.

48

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

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, 2020.

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

The Company periodically repurchases shares of its common stock under the share repurchase program approved by the Board of Directors. In December of 2016, the Board of Directors authorized the repurchase of an additional 200,000 shares of its common stock through its share repurchase program. The program will remain authorized until all approved shares are repurchased, unless terminated by the Board of Directors. As of May 14, 2021, 32,404 shares remained available to purchase under that program. Transactions pursuant to the repurchase program in the three month period ended March 31, 2021 are shown below.

    

    

    

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, 2021

 

$

 

59,989

February 1-28, 2021

 

15,585

17.63

15,585

44,404

March 1-31, 2021

 

12,000

17.40

12,000

32,404

Totals

 

27,585

 

  

 

27,585

 

32,404

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, 2021, $35,808,000 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

49

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.INS

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase

104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

50

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 14, 2021

By:

/s/ Marcie A. Barber

Marcie A. Barber, President

Chief Executive Officer

(Principal Executive Officer)

Date:

May 14, 2021

By:

/s/ JoAnn N. McMinn

JoAnn N. McMinn

Chief Financial Officer

(Principal Accounting Officer and

Principal Financial Officer)

51

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