Juniata Valley Financial Corp. (JUVF) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of the Juniata Valley Financial Corp. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Martin Dreibelbis, Chairman of the Board. Mr. Dreibelbis, the floor is yours.

Good morning, ladies and gentlemen. As Chairman, it's my privilege to call to order the 2025 Annual Shareholders Meeting of the Juniata Valley Financial Corp. Thank you for participating in today's meeting. I call your attention to the rules of conduct set forth for this meeting. They were made available to shareholders in the proxy statement and are in the documents folder in the upper right corner of your screen. Comments or questions will be received only from shareholders who have signed in with a control number. These questions and comments can be submitted by clicking on the Q&A icon and typing in the space provided. Please keep your questions and comments brief and limit them to one per shareholder. All appropriate questions and comments will be addressed at the end of the presentation. For your convenience, links to the annual report and proxy statement are also provided in the documents folder. At this time, I'd like to welcome and introduce the other members of the Board of Directors: Vice Chairman, Gary Kelsey, Marcie Barber, Mike Buffington, Christina Calkins-Mazur, Joe Scarnati, Steve Sliver. I would also like to acknowledge Brad Wagner's 11 years of service as a Board member. Mr. Wagner did not stand for reelection at this meeting due to expanded professional responsibilities. In addition to the Board members and management personnel, representatives from Crowe, our independent public accounting firm; from Barley Snyder, our legal advisers; and from Cherry Bekaert, our internal audit firm, are in attendance at this meeting. The first order of business is to determine the presence of a quorum. I have been presented with a certified list of shareholders of record who are entitled to vote at this meeting. I am also in possession of copies of the notice of meeting, proxy statement and proxy card, together with an affidavit as to the timely meeting -- I'm sorry, mailing to the shareholders, all of which will be filed with the minutes of this meeting. I further report that at least 50% of the outstanding shares are represented by person and by proxy at this annual meeting. And therefore, I declare a quorum to be present today. The meeting will proceed. A copy of the minutes of the Annual Shareholders Meeting held May 21, 2024, has been inspected and found to be accurate and will be entered into permanent record. I will now appoint individuals to serve as judges of election for today's meeting. Lisa Snyder, Inspector of Election; Kristi Burdge, Renee Williamson. There are 2 matters to be voted on today. First, the election of directors. The Nominating Committee of the Board of Directors has nominated Marcie Barber and Steven Sliver to serve as Class B directors and continue in office until the 2028 Annual Meeting. The second matter voted on today is the nonbinding say-on-pay proposal to approve the compensation of the named executive officers as set forth in the proxy statement. All proxies with the inspector -- all proxies filed with the Inspector of Election will be voted as indicated thereon. If you have not yet voted or wish to change your vote, you may do so now by clicking on the Vote tab at the top left of the screen. If you have previously voted online by telephone or mail, and are satisfied with your vote, there is no need to cast another vote unless you wish to change it. Your last vote will be the one that is counted. I will pause for 1 minute to allow time for any further voting to take place. [Voting]

I now declare the polls closed and call on the appointed judges to tabulate the results. I call your attention to the disclosure regarding forward-looking statements that may be made in management's following presentation. These statements are to be regarded as management's current view, which is subject to change as facts and circumstances change in the future. I will now turn the meeting over to Marcie Barber, our President and Chief Executive Officer; and Mike Wolf, our Chief Financial Officer. Marcie?

Thank you, Marty. Much of last year was a continuation of the net interest margin compression, which began early in 2023. Through prudent loan and deposit pricing, loan growth and interest rate cuts, the net interest margin compression trend was halted and slightly reversed in the fourth quarter of 2024. Despite the intense focus on margin and pricing assets and liabilities, we successfully completed a bank-wide core system conversion. The new system introduced operating and workflow efficiencies and is designed to support growth and to more seamlessly integrate the fintech solutions our customers value. In June, we relocated our center region loan production office to provide easier access and to accommodate expanded staffing and service delivery. Even though our earnings lagged the previous year, we are pleased with our financial performance in this challenging environment. Mike will summarize the earnings for 2024.

Thank you. As Marcie mentioned, during much of 2024, we faced many of the same challenges that were present in 2023. We reported net income of $6.2 million, which was a decrease of 5.6% from last year's results. Our net interest margin decreased by 3 basis points. However, net interest income rose by 1% in 2024. We continue to place added emphasis on generating fee income which led to a nearly 10% increase in noninterest income. Offsetting these positives was a 5.3% increase in noninterest expense. This increase of nearly $1.1 million was due primarily to several infrequent or onetime costs such as an extra biweekly pay period in 2024, which occurs every 7 years, core conversion costs and lease termination costs for an unprofitable branch. Given these dynamics, our return on average assets and earnings per share decreased in 2024. The return on average equity remains skewed due to the large unrealized losses in our debt securities portfolio, which reduces our GAAP equity. However, the Juniata Valley Bank's regulatory capital, which does not include these unrealized losses remains strong. This slide presents asset trends over a 10-year period. During the 2-year period of 2020 and 2021, assets increased by more than 20% due in large part to government stimulus money. After modest growth in 2022, assets grew by nearly 5% in 2023 due primarily to loan growth of more than 8% in on-balance sheet cash reserves. In 2024, assets decreased by nearly $22 million as the cash reserve and the cash flows from mortgage-backed securities were used to fund loan growth in excess of $8 million and pay down more than $27 million in short- and long-term borrowings. Deposits have grown significantly over the past several years, especially in 2020 and 2021, again, due to the government stimulus programs. In 2022, we experienced modest deposit growth, while in 2023, deposits grew by more than 5%. This was augmented by our purchase of the Path Valley Branch. These onetime occurrences were absent in 2024 as deposits decreased by slightly more than $1 million, primarily in demand deposit accounts as many of our customers dealt with economic uncertainty and persistent inflation. As noted on the previous slide, we have a stable and generally growing deposit base. Deposit stratification has remained relatively consistent over time with recent trends towards time deposits for more liquid transaction accounts due to the higher interest rates available over the last 3 years. After the high-profile bank failures in early 2023 and the subsequent flight of deposits from many community banks, we saw the return of some of those funds in 2024, however, at higher interest rates due to competitive pricing pressure. Our earnings were impacted by muted net loan growth in 2024. In late 2023, we made the decision to decrease our reliance on purchased loan participations and focus on organic loan growth. To that end, we declined multiple participation opportunities throughout 2024 and instead redoubled our efforts on building quality loan relationships within and outside of our branch footprint. These efforts resulted in a 6.2% increase in our commercial real estate portfolio despite the highly competitive market for these loans. Additionally, our efforts to generate consumer mortgage loans led to the third consecutive year of growth in that portfolio after nearly a decade of decline. This increase was accomplished despite persistently high mortgage rates and the absence of a refinance market. The growth we experienced was accomplished without lowering our underwriting standards or at the expense of credit quality. Marcie will now give us an overview of our credit quality.

Thank you, Mike. We are pleased to share this slide, which illustrates continued excellent credit quality. Our allowance for credit losses at year-end was 1.16%, [ provision ] additions of $534,000 throughout 2024 were based on loan growth and not on increasing credit risk. At year-end, we carried $615,000 in nonperforming loans, only 0.1% of total loans. But we do not take credit quality for granted. Tariffs, inflation, workforce reductions, all have the potential to weaken the economy and threaten credit quality. We continue to communicate with clients in these sectors most dramatically impacted by international trade issues and economic uncertainty. Mike will now discuss capital and liquidity.

Thank you, Marcie. A company's strength is dependent on the strength of its capital. And while our GAAP capital has been reduced by the unrealized losses in our debt investment portfolio, JVB's regulatory capital ratios remain strong and well above statutory minimums. Liquidity continues to be a topic of great interest to bank management and the regulatory agencies who supervise them. Due to rising interest rates in 2022 and 2023, our available-for-sale investment portfolios were marked with large unrealized losses and were no longer a viable liquidity option. Fortunately, we have multiple contingent liquidity sources, including a large borrowing capacity with the Federal Home Loan Bank, the Federal Reserve discount window and access to brokered deposits. These sources provide ample liquidity that thus far have been little used due to our ability to retain and expand our core deposits. And based on our December 31, 2024 share price, we provided our shareholders a dividend yield of 6.8%. Marcie will now take a look ahead at 2025.

We expect the fourth quarter trend of net interest margin expansion to continue throughout 2025. Under market rate loans and securities will continue to run off or reprice and aggressive loan origination efforts are underway to enhance gross interest income. Disciplined cost of funds management will continue. While nobody enjoys a core system conversion, our new core system now just over a year in is finally starting to feel good. The conversion was not without issues, but as things settle down, we have workflow efficiencies, security enhancements and greater flexibility to add interfaces for expanded products and services. Having enhanced our physical presence in the State College market last spring, as referenced earlier, we anticipate capitalizing on center region market disruption and originating a record volume of new outstandings. We continue to find opportunities in the Capitol Region and Lancaster County markets. Responsive, customized lending structures for small business and investors is our competitive advantage. We have served clients in the Belleville market for decades, but have never had a branch presence until this year. We are excited to more fully meet the banking needs of our clients in Western Mifflin County with a full-service office expected to open in November. As you can see, we are optimistic about healthy managed growth of the JUVF franchise. Despite the uncertainties, we are confident we can achieve organic growth in assets and earnings. Mike will now review our 2025 first quarter results, which support our optimism. Mike?

Thank you, Marcie. We had a very strong start to 2025, posting net income of $2 million in the first quarter, which represents a nearly 50% increase over the first quarter of 2024. The expansion of our net interest margin, which started in the fourth quarter of 2024, continued into 2025 with a 20 basis point increase over last year's first quarter. We also saw improvements in fee generation and overhead cost containment as noninterest income increased by nearly 4% and noninterest expense was reduced by more than 9%. Additionally, our credit quality remains strong with the nonperforming loan ratio unchanged from the first quarter of 2024 and last year-end at only 0.1% of total loans. We hope to continue the first quarter's momentum by focusing on the initiatives that Marcie just described. And now Marcie will lead us in the Q&A session of the meeting.

We will now address any questions or comments that have been submitted during the presentation. If there are no questions, I'd like to thank you again for joining us today and for your support of Juniata Valley Financial Corp. This presentation will be filed with the SEC following the meeting. We will now bring back our Chairman to wrap up today's meeting. Marty?

Thank you. At this time, I ask Lisa Snyder, Judge of Election, for a report on the results of the voting.

All votes have been tabulated and results are as follows: there were sufficient votes for both of the nominated individuals to be elected as directors of Juniata Valley Financial Corp. A majority of votes cast approved the nonbinding say-on-pay proposal.

Thank you, Lisa. There being no further business to be brought before the group, thank you all for your investment and trust in the Juniata Valley Financial Corp. The 2025 Annual Meeting is now adjourned.

This concludes the meeting. You may now disconnect.