Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-K**

 

**FORANNUAL AND TRANSITION REPORTS**

**PURSUANTTO SECTIONS 13 OR 15(D) OF THE**

**SECURITIESEXCHANGE ACT OF 1934**

 

| **x** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31,2008**

 

**OR**

 

| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the transition period from             to           **

 

**Commissionfile number 333-153486-99**

 

**RIVERVIEWFINANCIAL CORPORATION**

(Exact Name of Registrantas Specified in its Charter)

 

| **Pennsylvania**                                                     | ** ** | **26-3853402**                          |
|----------------------------------------------------------------------|------------|-----------------------------------------|
| (State or Other  Jurisdiction ofIncorporation or  Organization)      |       | (I.R.S. EmployerIdentification  Number) |
|                                                                 |       |                                    |
| **3****rd**** and Market Streets********Halifax, Pennsylvania** |       | **17032**                               |
| (Address of Principal  Executive Offices)                            |       | (Zip Code)                              |

 

Registrant’stelephone number, including area code**717.896.3433**

 

Securitiesregistered pursuant to Section 12(b) of the Act:**  None.**

 

Securitiesregistered pursuant to Section 12(g) of the Act: **None.**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct.    Yes  o     No  x

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.    Yes  o    No  x

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.  Yes   o     No   x

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer or asmaller reporting company. See definition of “large accelerated filer,” “acceleratedfiler,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check One).

 
| Large accelerated filer  o | Accelerated Filer  o | Non-accelerated Filer  o | Smaller Reporting Company  x |
|--------------------------------------|--------------------------------|------------------------------------|----------------------------------------|

 

Indicated by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act).

 

Yes   o       No   x

 

**The aggregate market value of the registrant’svoting and non-voting common equity held by non-affiliates, on June 30,2008, the last business day of the registrant’s most recently completed secondfiscal quarter, was approximately $27,888,000. The registrant was formed on December 31, 2008 from theconsolidation of First Perry Bancorp, Inc. and HNB Bancorp, Inc.  Therefore the calculation is based on the aggregatemarket value or First Perry Bancorp, Inc.’s and HNB Bancorp, Inc.’svoting and non-voting common equity held by non-affiliates on June 30,2008.**

 

As of March 31, 2009, the registrant had1,750,003 shares of common stock outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Portions of the registrant’s definitive proxystatement to be used in connection with the 2009 Annual Meeting of Shareholdersis incorporated herein by reference in partial response to Part III,hereof.

 

 

 

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**RIVERVIEW FINANCIAL CORPORATION**

**FORM 10-K**

**TABLE OF CONTENTS**

 
|                |                                                                                                               | **PAGE** |
|---------------------|--------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**     |                                                                                                               |     |
| Item 1-             | Business                                                                                                           | 1        |
|                |                                                                                                               |     |
| Item 1A-       | Risk Factors                                                                                                       | 13       |
|                |                                                                                                               |     |
| Item 1B-       | Unresolved  Staff Comments                                                                                         | 16       |
|                |                                                                                                               |     |
| Item 2 -            | Properties                                                                                                         | 16       |
|                |                                                                                                               |     |
| Item 3 -            | Legal Proceedings                                                                                                  | 17       |
|                |                                                                                                               |     |
| Item 4 -            | Submission  of Matters to a Vote of Security Holders                                                               | 17       |
|                |                                                                                                               |     |
| **PART II**    |                                                                                                               |     |
| Item 5 -            | Market for Registrant’s Common Equity,  Related Stockholder Matters And Issuer Purchases of Equity Securities | 17       |
|                |                                                                                                               |     |
| Item 6 -            | Selected  Financial Data                                                                                           | 17       |
|                |                                                                                                               |     |
| Item 7 -            | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        | 18       |
|                |                                                                                                               |     |
| Item 7A - | Quantitative  and Qualitative Disclosure About Market Risk                                                         | 40       |
|                |                                                                                                               |     |
| Item 8 -            | Financial  Statements and Supplementary Data                                                                       | 41       |
|                |                                                                                                               |     |
| Item 9 -            | Changes In and Disagreements With  Accountants on Accounting and Financial Disclosure                              | 76       |
|                |                                                                                                               |     |
| Item 9A - | Controls and Procedures                                                                                            | 76       |
|                |                                                                                                               |     |
| Item 9B-       | Other Information                                                                                                  | 76       |
|                |                                                                                                               |     |
| **PART III**   |                                                                                                               |     |
| Item 10 - | Directors and Executive Officers and  Corporate Governance                                                         | 77       |
|                |                                                                                                               |     |
| Item 11 - | Executive Compensation                                                                                             | 80       |
|                |                                                                                                               |     |
| Item 12 - | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    | 82       |
|                |                                                                                                               |     |
| Item 13 - | Certain Relationships and Related  Transactions, and Director Independence                                         | 83       |
|                |                                                                                                               |     |
| Item 14 - | Principal Accountant Fees and  Services                                                                            | 85       |
|                |                                                                                                               |     |
| **PART IV**    |                                                                                                               |     |
| Item 15 - | Exhibits and Financial Statement  Schedules                                                                        | 85       |
|                |                                                                                                               |     |
| Signatures          |                                                                                                               | 87       |
|                |                                                                                                               |     |
| **EXHIBIT INDEX**   |                                                                                                               | 89       |

 

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**PART I**

 

**ITEM 1****. BUSINESS.**

 

The disclosures set forth inthis Item are qualified by the section captioned “Special Cautionary NoticeRegarding Forward-Looking Statements” contained in Part II, Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations ofthis report and other cautionary statements set forth elsewhere in this report.

 

**Riverview Financial Corporation**

 

Riverview FinancialCorporation is a one bank holding company, incorporated in the Commonwealth ofPennsylvania on December 31, 2008 and is headquartered in Halifax,Pennsylvania.

 

Riverview was formed uponthe consolidation of First Perry Bancorp, Inc., Marysville, Pennsylvania,and HNB Bancorp, Inc., Halifax, Pennsylvania.  Riverview is a registered bank holdingcompany and its sole business is to act as a holding company for RiverviewNational Bank.

 

**RiverviewNational Bank**

 

Riverview National Bank wasformed upon the consolidation of the charters of The First National Bank ofMarysville and Halifax National Bank on December 31, 2008 and isheadquartered in Marysville, Pennsylvania. However, after the consolidation,the branches of The First National Bank of Marysville and Halifax National Bankcontinue to operate under their current names as trade names of RiverviewNational Bank.

 

Riverview National Bank is afull service commercial bank providing a wide range of services to individualsand small to medium sized businesses in its Central Pennsylvania market area ofPerry and Dauphin counties.  RiverviewNational Bank’s commercial banking activities include accepting time, demand,and savings deposits and making secured and unsecured commercial, real estateand consumer loans.

 

**Supervisionand Regulation of Riverview**

 

*TheHolding Company Act of 1956. *Riverview issubject to the provisions of the Bank Holding Company Act of 1956, as amended,and to supervision by the Federal Reserve Board. The following restrictionsapply:

 

·*General Supervision by the Federal Reserve Board.*Asa bank holding company, Riverview’s activities are limited to the business ofbanking and activities closely related or incidental to banking. Bank holdingcompanies are required to file periodic reports with and are subject toexamination by the Federal Reserve Board. The Federal Reserve Board has adopteda risk-focused supervision program for small shell bank holding companies thatis tied to the examination results of the subsidiary bank. The Federal ReserveBoard has issued regulations under the Holding Company Act that require a bankholding company to serve as a source of financial and managerial strength toits subsidiary banks. As a result, the Federal Reserve Board may require thatRiverview stand ready to provide adequate capital funds to Riverview NationalBank during periods of financial stress or adversity.

 

·*Restrictions on Acquiring Control of other Banks andCompanies.*A bank holding company may not:

 

· acquire director indirect control of more than 5% of the outstanding shares of any class ofvoting stock, or substantially all of the assets of, any bank, or

 

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· merge orconsolidate with another bank holding company,

 

without prior approval ofthe Federal Reserve Board.

 

In addition, a bank holdingcompany may not:

 

· engage in a non-bankingbusiness, or

· acquireownership or control of more than 5% of the outstanding shares of any class ofvoting stock of any company engaged in a non-banking business,

 

unless the business isdetermined by the Federal Reserve Board to be so closely related to banking asto be a proper incident to banking. In making this determination, the FederalReserve Board considers whether these activities offer benefits to the publicthat outweigh any possible adverse effects.

 

·*Anti-Tie-In Provisions.*A bank holdingcompany and its subsidiaries may not engage in tie-in arrangements inconnection with any extension of credit or provision of any property orservices.  These anti-tie-in provisionsstate generally that a bank may not:

 

· extend credit,

 

· lease or sell property, or

 

· furnish any service to acustomer

 

on the condition that thecustomer provides additional credit or service to a bank or its affiliates, oron the condition that the customer not obtains other credit or service from acompetitor of the bank.

 

·*Restrictions on Extensions of Credit by Banks totheir Holding Companies.*Subsidiary banks of a bank holding companyare also subject to restrictions imposed by the Federal Reserve Act on:

 

· any extensions of credit tothe bank holding company or any of its subsidiaries,

 

· investments in the stock orother securities of Riverview, and

 

· taking these stock orsecurities as collateral for loans to any borrower.

 

·*Risk-Based Capital Guidelines.*Generally,bank holding companies must comply with the Federal Reserve Board’s risk-basedcapital guidelines. However, small bank holding companies are sometimeseligible for certain exemptions. The required minimum ratio of total capital torisk-weighted assets, including some off-balance sheet activities, such asstandby letters of credit, is 8%. At least half of the total capital isrequired to be Tier I Capital, consisting principally of common stockholders’equity, less certain intangible assets. The remainder, Tier II Capital, mayconsist of:

 

· some types of preferredstock,

 

· a limited amount ofsubordinated debt,

 

· some hybrid capitalinstruments,

 

· other debt securities, and

 

· a limited amount of thegeneral loan loss allowance.

 

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The risk-based capitalguidelines are required to take adequate account of interest rate risk,concentration of credit risk, and risks of nontraditional activities.

 

·*Capital Leverage Ratio Requirements.*TheFederal Reserve Board requires a bank holding company to maintain a leverageratio of a minimum level of Tier I capital, as determined under the risk-basedcapital guidelines, equal to 3% of average total consolidated assets for thosebank holding companies that have the highest regulatory examination rating andare not contemplating or experiencing significant growth or expansion. Allother bank holding companies are required to maintain a ratio of at least 1% to2% above the stated minimum. Riverview National Bank is subject to similarcapital requirements pursuant to the Federal Deposit Insurance Act.

 

·*Restrictions on Control Changes.*TheChange in Bank Control Act of 1978 requires persons seeking control of a bankor bank holding company to obtain approval from the appropriate federal bankingagency before completing the transaction. The law contains a presumption thatthe power to vote 10% or more of voting stock confers control of a bank or bankholding company. The Federal Reserve Board is responsible for reviewing changesin control of bank holding companies. In doing so, the Federal Reserve Board reviewsthe financial position, experience and integrity of the acquiring person andthe effect on the financial condition of Riverview, relevant markets andfederal deposit insurance funds.

 

*Sarbanes-OxleyAct of 2002.*The Sarbanes-Oxley Act represents a comprehensiverevision of laws affecting corporate governance, accounting obligations andcorporate reporting. The Sarbanes-Oxley Act is applicable to all companies withequity or debt securities registered or that file reports under the SecuritiesExchange Act of 1934. In particular, the Sarbanes-Oxley Act establishes: (i) requirementsfor audit committees, including independence, expertise, and responsibilities; (ii) additionalresponsibilities regarding financial statements for the Principal Executive Officerand Principal Financial Officer of the reporting company; (iii) standardsfor auditors and regulation of audits; (iv) increased disclosure andreporting obligations for the reporting company and its directors and executiveofficers; and (v) increased civil and criminal penalties for violations ofthe securities laws. Many of the provisions were effective immediately whileother provisions become effective over a period of time and are subject torulemaking by the SEC. Because neither First Perry’s nor HNB’s common stock wasregistered with the SEC, they were not currently subject to the 1934 Act.However, Riverview is subject to the 1934 Act.

 

*PermittedActivities for Bank Holding Companies*

 

The Federal Reserve Boardpermits bank holding companies to engage in activities so closely related tobanking or managing or controlling banks as to be a proper incident of banking.In 1997, the Federal Reserve Board significantly expanded its list ofpermissible non-banking activities to improve the competitiveness of bankholding companies. The following list includes activities that a holdingcompany may engage in, subject to change by the Federal Reserve Board:

 

· Making,acquiring or servicing loans and other extensions of credit for its own accountor for the account of others.

 

· Any activityused in connection with making, acquiring, brokering, or servicing loans orother extensions of credit, as determined by the Federal Reserve Board. TheFederal Reserve Board has determined that the following activities arepermissible:

 

· real estate and personalproperty appraising;

· arranging commercial realestate equity financing;

· check-guaranty services;

· collection agency services;

· credit bureau services;

· asset management,servicing, and collection activities;

 

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· acquiring debtin default, if a holding company divests shares or assets securing debt indefault that are not permissible investments for bank holding companies withinprescribed time periods, and meets various other conditions; and

· real estate settlementservices.

 

· Leasingpersonal and real property or acting as agent, broker, or advisor in leasingproperty, provided that:

 

· the lease is anon-operating lease;

· the initial term of thelease is at least 90 days;

· if realproperty is being leased, the transaction will compensate the lessor for atleast the lessor’s full investment in the property and costs, with variousother conditions.

 

· Operatingnonbank depository institutions, including an industrial bank or savingsassociation.

 

· Performingfunctions or activities that may be performed by a trust company, includingactivities of a fiduciary, agency or custodial nature, in the manner authorizedby federal or state law, so long as the holding company is not a bank.

 

· Acting as investment orfinancial advisor to any person, including:

 

· serving asinvestment advisor to an investment company registered under the InvestmentCompany Act of 1940;

 

· furnishinggeneral economic information and advice, general economic statisticalforecasting services, and industry studies;

 

· providingadvice in connection with mergers, acquisitions, divestitures, investments,joint ventures, capital structuring, financing transactions, and conductingfinancial feasibility studies;

 

· providinggeneral information, statistical forecasting, and advice concerning anytransaction in foreign exchange, swaps and similar transactions, commodities,and options, futures and similar instruments;

 

· providingeducational courses and instructional materials to consumers on individualfinancial management matters; and

 

· providing tax planning andtax preparation services to any person.

 

· Agency transactionalservices for customer investments, including:

 

· Securitiesbrokerage—Providing securities brokerage services, whether alone or incombination with investment advisory services, and incidental activities,including related securities credit activities compliant with Federal ReserveBoard Regulation T and custodial services, if the securities brokerage servicesare restricted to buying and selling securities solely as agent for the accountof customers and do not include securities underwriting or dealing;

 

·Riskless-principal transactions—Buying and selling all types of securities inthe secondary market on the order of customers as ‘‘riskless principal’’;

 

·Private-placement services—Acting as agent for the private placement ofsecurities in accordance with the requirements of the Securities Act of 1933and the rules of the SEC; and

 

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· Futurescommission merchant—Acting as a futures commission merchant for unaffiliatedpersons in the execution and clearance of any futures contract and option on afutures contract traded on an exchange in the United States or abroad, if theactivity is conducted through a separately incorporated subsidiary of theholding company and the company satisfies various other conditions.

 

· Investment transactions asprincipal:

 

· Underwritingand dealing in government obligations and money market instruments, includingbankers’ acceptances and certificates of deposit, under the same limitationsapplicable if the activity were performed by a holding company’s subsidiarymember banks.

 

· Engaging as principal in:

 

· foreign exchanges, and

· forwardcontracts, options, futures, options on futures, swaps, and similar contracts,with various conditions.

 

· Buying and selling bullion,and related activities.

 

· Management consulting andcounseling activities:

 

· Subject tovarious limitations, management consulting on any matter to unaffiliateddepository institutions, or on any financial, economic, accounting, or auditmatter to any other company; and

 

· Providingconsulting services to employee benefit, compensation, and insurance plans,including designing plans, assisting in the implementation of plans, providingadministrative services to plans, and developing employee communicationprograms for plans.

 

· Providing career counselingservices to:

 

· a financialorganization and individuals currently employed by, or recently displaced from,a financial organization;

 

· individuals who are seekingemployment at a financial organization; and

 

· individualswho are currently employed in or who seek positions in the finance, accounting,and audit departments of any company.

 

· Support services:

 

· providing limited courierservices; and

 

· printing andselling checks and related items requiring magnetic ink character recognition.

 

· Insurance agency andunderwriting:

 

· Subject tovarious limitations, acting as principal, agent, or broker for credit life,accident health and unemployment insurance that is directly related to anextension of credit to a holding company or any of its subsidiaries;

 

· Engaging inany insurance agency activity in a place where Riverview or a subsidiary ofRiverview has a lending office and that has a population not exceeding 5,000 orhas inadequate insurance agency facilities, as determined by the FederalReserve Board;

 

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· Supervising,on behalf of insurance underwriters, the activities of retail insurance agentswho sell fidelity insurance and property and casualty insurance on the real andpersonal property used in Riverview’s operations or its subsidiaries, and groupinsurance that protects the employees of Riverview or its subsidiaries;

 

· Engaging inany insurance agency activities if Riverview has total consolidated assets of$50 million or less, with the sale of life insurance and annuities beinglimited to sales in small towns or as credit insurance.

 

· Making equity and debtinvestments in corporations or projects designed primarily to promote communitywelfare, and providing advisory services to these programs.

 

· Subject to variouslimitations, providing others financially oriented data processing orbookkeeping services.

 

· Issuing and selling moneyorders, travelers’ checks and United States savings bonds.

 

· Providing consumerfinancial counseling that involves counseling, educational courses anddistribution of instructional materials to individuals on consumer-orientedfinancial management matters, including debt consolidation, mortgageapplications, bankruptcy, budget management, real estate tax shelters, taxplanning, retirement and estate planning, insurance and general investmentmanagement, so long as this activity does not include the sale of specificproducts or investments.

 

· Providing tax planning andpreparation advice.

 

*PermittedActivities for Financial Holding Companies*

 

The Gramm-Leach-BlileyFinancial Services Modernization Act, became law in November 1999, andamends the Holding Company Act of 1956 to create a new category of holdingcompany—the financial holding company. To be designated as a financial holdingcompany, a bank holding company must file an application with the FederalReserve Board. In order to become a financial holding company, Riverview mustbe and remain well capitalized and well managed, as  determined by Federal Reserve Boardregulations and maintain at least a “satisfactory” examination rating under theCommunity Reinvestment Act. Once a bank holding company becomes a financialholding company, the holding company or its affiliates may engage in anyfinancial activities that are financial in nature or incidental to financialactivities. Furthermore, the Federal Reserve may approve a proposed activity ifit is complementary to financial activities and does not threaten the safetyand soundness of banking.  The Actprovides an initial list of activities that constitute activities that arefinancial in nature, including:

 

· lending and depositactivities,

 

· insurance activities,including underwriting, agency and brokerage,

 

· providing financialinvestment advisory services,

 

· underwriting in, and actingas a broker or dealer in, securities,

 

· merchant banking, and

 

· insurance company portfolioinvestment.

 

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**Supervisionand Regulation of Riverview National Bank**

 

*GeneralOverview*

 

Banks operate in a highlyregulated environment and are regularly examined by federal and stateregulatory authorities. The following discussion concerns various federal andstate laws and regulations and the potential impact of such laws andregulations on Riverview National Bank.

 

To the extent that thefollowing information describes statutory or regulatory provisions, it isqualified in its entirety by reference to the particular statutory orregulatory provisions themselves. Proposals to change laws and regulations are frequently introduced inCongress, the state legislatures, and before the various bank regulatoryagencies. We cannot determine the likelihood or timing of any such proposals orlegislation, or the impact they may have on Riverview National Bank. A changein law, regulations or regulatory policy may have a material effect onRiverview National Bank’s business.

 

The operations of RiverviewNational Bank are subject to federal and state statutes applicable to bankschartered under the banking laws of the United States, to members of theFederal Reserve System, and to banks whose deposits are insured by the FDIC.Riverview National Bank operations are subject to regulations of the OCC, theBoard of Governors of the Federal Reserve System and the FDIC.

 

*Safety andSoundness*

 

The primary regulator forRiverview National Bank is the Office of the Comptroller of the Currency (“OCC”).The OCC has the authority under the Financial Institutions Supervisory Act andthe Federal Deposit Insurance Act to prevent a national bank from engaging inany unsafe or unsound practice in conducting business or from otherwiseconducting activities in violation of the law.

 

Federal and state bankinglaws and regulations govern, but are not limited to, the following:

 

· Scope of a bank’s business

 

· Investments a bank may make

 

· Reserves that must bemaintained against certain deposits

 

· Loans a bank makes andcollateral it takes

 

· Merger and consolidationactivities

 

· Establishment of branches

 

Riverview National Bank is amember of the Federal Reserve System and, therefore, the policies andregulations of the Federal Reserve Board have a significant impact on manyelements of Riverview National Bank’s operations including:

 

· Loan and deposit growth

 

· Rate of interest earned andpaid

 

· Levels of liquidity

 

· Levels of required capital

 

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Management cannot predictthe effect of changes to such policies and regulations upon Riverview NationalBank’s business model and the corresponding impact they may have on futureearnings.

 

*FDICInsurance Assessments*

 

The FDIC imposes arisk-related premium schedule for all insured depository institutions thatresults in the assessment of premiums based on a bank’s capital and supervisorymeasures. Under the risk-related premium schedule, the FDIC assigns, on asemiannual basis, each depository institution to one of three capital groups,the best of these being well capitalized. For purposes of calculating theinsurance assessment, Riverview National Bank is expected to be wellcapitalized. The FDIC adjusts the insurance rates every six months and hasindicated the possibility that all banks may again be required to pay depositinsurance premiums in the future if current trends related to insured depositsversus insurance funds continue.

 

Riverview National Bank isnot expected to pay premiums for deposit insurance; however, it is subject to assessmentsto pay interest on Financing Corporation bonds. Congress created the FinancingCorporation to issue bonds to finance the resolution of failed thriftinstitutions. These assessment rates are set quarterly.

 

*CommunityReinvestment Act*

 

Under the CommunityReinvestment Act (‘‘CRA’’), as amended, the OCC is required to assess allfinancial institutions that it regulates to determine whether theseinstitutions are meeting the credit needs of the community that they serve. TheAct focuses specifically on low and moderate-income neighborhoods. The OCCtakes an institution’s CRA record into account in its evaluation of anyapplication made by any of such institutions for, among other things:

 

· Approval of a new branch orother deposit facility

 

· Closing of a branch orother deposit facility

 

· An office relocation or amerger

 

· Any acquisition of bankshares

 

The CRA, as amended, alsorequires that the OCC make publicly available the evaluation of a bank’s recordof meeting the credit needs of its entire community, includinglow-and-moderate-income neighborhoods. This evaluation includes a descriptiverating of either outstanding, satisfactory, needs to improve, or substantialnoncompliance, and a statement describing the basis for the rating. These ratingsare publicly disclosed.

 

*CapitalAdequacy*

 

Under the Federal DepositInsurance Corporation Improvement Act of 1991 (‘‘FDICIA’’) institutions areclassified in one of five defined categories as illustrated below.

 
| **Capital Category**      | ** ** | **Total  Risk-Based  Ratio** | ** ** | **Tier 1  Risk-Based  Ratio** | ** ** | **Tier 1  Leverage  Ratio** | ** ** |
|--------------------------------|------------|------------------------------|------------|------------------------------------|------------|----------------------------------|------------|
| Well capitalized               |       | >10.0                     |       | >6.0                            |       | >5.0                          |       |
| Adequately capitalized         |       | >8.0                      |       | >4.0                            |       | >4.0*                         |       |
| Undercapitalized               |       | <8.0                      |       | <4.0                            |       | <4.0*                         |       |
| Significantly undercapitalized |       | <6.0                      |       | <3.0                            |       | <3.0                          |       |
| Critically undercapitalized    |       |                         |       |                               |       | <2.0                          |       |

 

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*              3.0 for those banks having the highest availableregulatory rating.

 

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RiverviewNational Bank’s capital ratios exceed the regulatory requirements to beconsidered well capitalized for Total Risk-Based Capital, Tier 1 Risk-BasedCapital, and Tier 1 Leverage Capital.

 

*PromptCorrective Action*

 

In the event an institution’scapital deteriorates to the undercapitalized category or below, FDICIAprescribes an increasing amount of regulatory intervention, including:

 

· Implementationof a capital restoration plan and a guarantee of the plan by a parentinstitution

 

· Placement of a hold onincreases in assets, number of branches, or lines of business

 

If capital reaches thesignificantly or critically undercapitalized level, further materialrestrictions can be imposed, including restrictions on interest payable onaccounts, dismissal of management and (in critically undercapitalizedsituations) appointment of a receiver. For well-capitalized institutions,FDICIA provides authority for regulatory intervention where they deem theinstitution to be engaging in unsafe or unsound practices, or if theinstitution receives a less than satisfactory examination report rating forasset quality, management, earnings, liquidity, or sensitivity to market risk.

 

*Legislationand Regulatory Changes*

 

From time to time,legislation is enacted that has the effect of increasing the cost of doingbusiness, limiting or expanding permissible activities, or affecting thecompetitive balance between banks and other financial institutions. Proposalsto change the laws and regulations governing the operations and taxation ofbanks, bank holding companies and other financial institutions are frequentlymade in Congress, and before various regulatory agencies. No prediction can bemade as to the likelihood of any major changes or the impact such changes mighthave on Riverview National Bank’s operations. Certain changes of potentialsignificance to Riverview National Bank that have been enacted recently andothers, which are currently under consideration by Congress or variousregulatory or professional agencies, are discussed below.

 

*NewLegislation and Regulations*

 

***USA Patriot Act***

 

The USA Patriot Improvementand Reauthorization Act of 2005 became law on March 9, 2006.  This enactment extended the requirements ofthe original act signed into law in October of 2001.

 

The rules, developed by theSecretary of the Treasury, require that banks have procedures in place to:

 

· Verify the identity ofpersons applying to open an account

 

· Ensure adequate maintenanceof the records used to verify a person’s identity, and

 

· Determinewhether a person is on any US governmental agency list of known or suspectedterrorists or a terrorist organization

 

The regulators continue tostress the importance of the Bank Secrecy Act. The OCC is enhancing the riskassessment requirements for banks. These include requiring banks to report riskassessments on bank products, customers, and geographies.

 

Riverview National Bank isimplementing the required internal controls and continues to enhance thepolicies, procedures, and monitoring programs to ensure proper compliance. Manyof the new provisions 

 

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added by the USA Patriot Actapply to accounts at or held by foreign banks, or accounts of, or transactionswith foreign entities.

 

*MultifactorAuthentification*

 

The bank regulatory agenciesjointly published the “*Interagency Guidanceon Authentification in an Internet Banking Environment*.” Thisguidance requires banks to implement enhanced security measures to authenticatecustomers using internet based services to process transactions that eitheraccess customer information or transfer funds to third parties. The principlesof this guidance apply to telephone banking systems and call centers if thesame level of access is available through these services.

 

*FDICInsurance Reform*

 

The banking industry hadpushed for reform beginning in 1999 with the top two goals of merging the BankInsurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) andincreasing the coverage levels. The banking industry was highly concerned aboutthe fairness and efficiency of the fund. Specifically, a historical approachwas utilized through which credits and dividends would be paid back to thosebanks that contributed on a historical basis if and when the reserve ratioreaches a cap. Importantly, the previous 23 basis point premium that was to beenforced when the fund dropped below 1.25% was addressed because the sharpincrease of higher premiums would be impacting the industry when it could leastafford to pay the higher premiums.

 

On February 8, 2006,President Bush signed into law the Deficit Reduction Act of 2005. Includedwithin that legislation, however, is the Deposit Insurance Reform Act of 2005.This new law makes the following changes:

 

· Merge the BankInsurance Fund (BIF) and the Savings Association Insurance Fund (SAIF)

 

· Index the insurancecoverage level to account for inflation

 

· Provides$250,000 in coverage for retirement accounts, the first increase in coveragesince 1980

 

· Removed the 23basis point premium assessment required if the fund balance dropped below 1.25%

 

· Provide acredit pool of about $4.7 billion to offset premiums for banks that had paidinto the funds before 1997

 

· Begin capping the fund andpaying dividends when the reserve ratio is at 1.35%

 

· All FDIC logoand signage displayed must comply with the new information by November 2007.

 

*BankruptcyAbuse Prevention and Consumer Protection Act of 2005*

 

The Bankruptcy Abuse andConsumer Protection Act of 2005 was passed by Congress on April 14, 2005and signed into law by the President on April 20, 2005.

 

This Act amends both theBankruptcy Code and the Truth in Lending Act. The Bankruptcy Code revisionsbecame effective October 15, 2005. The Bankruptcy Code was amended, addingrequirements to the process for filing for bankruptcy. The provisions relatedto the Truth in Lending did not become effective until October of 2006. Itrequires lenders to:

 

· Warn customersabout the impact of making only the minimum payment under an open-end consumercredit plan

 

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· Provide a tollfree number for consumers to call for information regarding the consequences ofmaking only minimum required payments

 

· Informcustomers that interest attributed to the portion of a home secured loan thatexceeds the property’s fair market value is not tax deductible

 

· Provide newdisclosures on solicitations and applications for open-end credit plans containingan introductory rate

 

*OngoingLegislation*

 

As a consequence of theextensive regulation of commercial banking activities in the United States,Riverview National Bank’s business is particularly susceptible to changes inthe federal and state legislation and regulations. Over the course of time,various federal and state proposals for legislation could result in additionalregulatory and legal requirements for Riverview National Bank. RiverviewNational Bank can predict neither if any such legislation will be adopted norif adopted how it would affect the business of Riverview National Bank. Pasthistory has demonstrated that new legislation or changes to existinglegislation usually results in a heavier compliance burden and, therefore,generally increases the cost of doing business.

 

**Recent Developments**

 

The global and U.S. economies are experiencingsignificantly reduced business activity as a result of, among other factors,disruptions in the financial system during the past few months.  Dramatic declines in the housing marketduring the past year, with falling home prices and increasing foreclosures andunemployment, have resulted in significant write-downs of asset values byfinancial institutions, including government-sponsored entities and major commercialand investment banks.  These write-downs,initially of mortgage-backed securities but spreading to credit default swapsand other derivative securities have caused many financial institutions to seekadditional capital, to merge with larger and stronger institutions and, in somecases, to fail.

 

Reflecting concern about the stability of thefinancial markets generally and the strength of counterparties, many lendersand institutional investors have reduced, and in some cases, ceased to providefunding to borrowers, including other financial institutions.  The availability of credit, confidence in thefinancial sector, and the level of volatility in the financial markets havebeen significantly adversely affected as a result.  Recently, volatility and disruption in thecapital and credit markets has reached unprecedented levels.  In some cases, the markets have produceddownward pressure on stock prices and credit capacity for certain issuerswithout regard to those issuers’ underlying financial strength.

 

In response to the financial crises affecting thebanking system and financial markets and going concern threats to investmentbanks and other financial institutions, on October 3, 2008, the EmergencyEconomic Stabilization Act of 2008 (the “EESA”) was signed into law.  Pursuant to the EESA, the U.S. Treasury willhave the authority to, among other things, purchase up to $700 billion ofmortgages, mortgage-backed securities and certain other financial instrumentsfrom financial institutions for the purpose of stabilizing and providingliquidity to the U.S. financial markets. The EESA included a provision for a temporary increase in FDIC insurancefrom $100,000 to $250,000 per depositor through December 31, 2009.

 

On October 14, 2008, Secretary Paulson, afterconsulting with the Federal Reserve and the FDIC, announced that the Departmentof the Treasury will purchase equity stakes in a wide variety of banks andthrifts.  Under this program, known asthe Troubled Asset Relief Program (“TARP”) Capital Purchase Program, from the$700 billion authorized by the EESA, the Treasury will make $250 billion ofcapital available to U.S. financial institutions in the form of preferredstock.  In conjunction with the purchaseof preferred stock, the Treasury will receive warrants to purchase common stockwith an aggregate market price equal to 15% of the preferred investment.  Participating financial institutions will berequired to adopt the 

 

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Treasury’s standards for executive compensation andcorporate governance for the period during which the Treasury holds equityissued under TARP Capital Purchase Program.

 

Also on October 14, 2008, after receiving arecommendation from the boards of the FDIC and the Federal Reserve, andconsulting with the President, Secretary Paulson signed the systemic riskexception to the FDIC Act, enabling the FDIC to temporarily provide a 100%guarantee of the senior debt of all FDIC-insured institutions and their holdingcompanies, as well as deposits in non-interest bearing transaction depositaccounts under a Temporary Liquidity Guarantee Program.  Coverage under the Temporary LiquidityGuarantee Program was available until November 12, 2008 without charge andthereafter at a cost of 75 basis points per annum for senior unsecured debt and10 basis points per annum for non-interest bearing transaction deposits.  Management had decided not to participate inthe program but is continually monitoring developments.

 

It is not clear at this time what impact the EESA,TARP Capital Purchase Program, the Temporary Liquidity Guarantee Program, otherliquidity and funding initiatives of the Federal Reserve and other agenciesthat have been previously announced, and any additional programs that may beinitiated in the future will have on the financial markets and the otherdifficulties described above, including the extreme levels of volatility andlimited credit availability currently being experienced, or on the U.S. bankingand financial industries and the broader U.S. and global economies.  Further adverse effects could have an adverseeffect on the Riverview and its business.

 

**Available Information**

 

RiverviewFinancial Corporation is subject to the informational requirements of Section 15(d) ofthe Exchange Act, and, accordingly, files reports, and other information withthe Securities and Exchange Commission. The reports and other information filedwith the SEC are available for inspection and copying at the SEC’s PublicReference Room at 100 F Street, NE, Room 1580, Washington, D.C.20549. You may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330. Riverview Financial Corporation is anelectronic filer with the SEC. The SEC maintains an Internet site that containsreports and information statements, and other information regarding issuersthat file electronically with the SEC. The SEC’s Internet site address ishttp://www.sec.gov.

 

RiverviewFinancial Corporation’s headquarters are located at 3rd and Market Streets, Halifax, Pennsylvania17032, and its telephone number is (717) 896-3433.

 

AtDecember 31, 2008, Riverview Financial Corporation had 54 full time employeesand 8 part time employees.  In theopinion of management, Riverview Financial Corporation enjoys a satisfactoryrelationship with its employees. Riverview Financial Corporation is not a party to any collectivebargaining agreement.

 

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**ITEM 1A****. RISKFACTORS.**

 

*Riverview Is Subject To Interest Rate Risk*

 

Riverview’searnings and cash flows are largely dependent upon its net interest income. Netinterest income is the difference between interest income earned oninterest-earning assets such as loans and securities and interest expense paidon interest-bearing liabilities such as deposits and borrowed funds. Interestrates are highly sensitive to many factors that are beyond Riverview’s control,including general economic conditions and policies of various governmental andregulatory agencies and, in particular, the Board of Governors of the FederalReserve System. Changes in monetary policy, including changes ininterest rates, couldinfluence not only the interest Riverview receives on loans and securities andthe amount of interest it pays on deposits and borrowings, but such changescould also affect (i) Riverview’s ability to originate loans and obtaindeposits, (ii) the fair value of Riverview’s financial assets andliabilities, and (iii) the average duration of Riverview’s mortgage-backedsecurities portfolio. If the interest rates paid on deposits and other borrowingsincrease at a faster rate than the interest rates received on loans and otherinvestments, Riverview’s net interest income, and therefore earnings, could beadversely affected. Earnings could also be adversely affected if the interestrates received on loans and other investments fall more quickly than theinterest rates paid on deposits and other borrowings.

 

Althoughmanagement believes it has implemented effective asset and liability managementstrategies, to reduce the potential effects of changes in interest rates onRiverview’s results of operations, any substantial, unexpected, prolongedchange in market interest rates could have a material adverse effect onRiverview’s financial condition and results of operations.

 

*Riverview Is Subject To Lending Risk*

 

Riverview’sloan portfolio mainly consists of residential real estate loans.  Other loan types included in the portfolioare commercial and industrial, construction and commercial real estate loansand consumer loans.  The deterioration ofone or a few of the loans in the portfolio could cause a significant increasein non-performing loans. An increase in non-performing loans could result in anet loss of earnings from these loans, an increase in the provision forpossible loan and lease losses and an increase in loan charge-offs, all ofwhich could have a material adverse effect on Riverview’s financial conditionand results of operations.

 

*Riverview’s Allowance For Possible Loan Losses May BeInsufficient*

 

Riverviewmaintains an allowance for possible loan losses, which is a reserve establishedthrough a provision for possible losses charged to expense, that representsmanagement’s best estimate of probable losses that have been incurred withinthe existing portfolio of loans. The allowance, in the judgment of management,is necessary to reserve for estimated loan losses and risks inherent in theloan portfolio. The level of the allowance reflects management’s continuingevaluation of industry concentrations; specific credit risks; loan loss experience;current loan portfolio quality; present economic, political and regulatoryconditions and unidentified losses inherent in the current loan portfolio. Thedetermination of the appropriate level of the allowance for possible loanlosses inherently involves a high degree of subjectivity and requires Riverviewto make significant estimates of current credit risks and future trends, all ofwhich may undergo material changes. Changes in economic conditions affectingborrowers, new information regarding existing loans, identification ofadditional problem credits and other factors, both within and outside ofRiverview’s control, may require an increase in the allowance. In addition,bank regulatory agencies periodically review Riverview and may require anincrease in the provision for possible loan losses or the recognition offurther loan charge-offs, based on judgments different than those ofmanagement. In addition, if charge-offs in future periods exceed the allowance,Riverview will need additional provisions to increase the allowance forpossible loan losses. Any increases in the allowance will result in a decreasein net income and, possibly, capital, and may have a material adverse effect onRiverview’s financial condition and results of operations.

 

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*Riverview may fail to realize the cost savings and benefits it expectsto achieve from the consolidation*

 

OnDecember 31, 2008, Riverview was formed upon the consolidation of FirstPerry and HNB.  The success of theconsolidation depends, in part, on Riverview’s ability to realize the estimatedcost savings and benefits from combining the businesses of First Perry andHNB.  While we believe that the costsavings and benefit estimates are achievable, it is possible that the potentialcost savings and benefits could be more difficult to achieve than weanticipated.  Riverview’s cost savingsand benefits estimates also depend on its ability to combine the businesses ofFirst Perry and HNB in a manner that permits those cost savings and benefits tobe realized.  If our estimates areincorrect or we are unable to combine the two companies successfully, theanticipated cost savings may not be realized fully or at all, or may takelonger to realize than expected.

 

*Competition from other financial institutions may adverselyaffect Riverview’s profitability*

 

Riverview’sbanking subsidiary faces substantial competition in originating, bothcommercial and consumer loans. This competition comes principally from otherbanks, savings institutions, mortgagebanking companies and other lenders. Many ofits competitors enjoy advantages, including greater financial resources andhigher lending limits, a wider geographic presence, more accessible branchoffice locations, the ability to offer a wider array of services or morefavorable pricing alternatives, as well as lower origination and operatingcosts. This competition could reduce Riverview’s net income by decreasing thenumber and size of loans that its banking subsidiary originates and theinterest rates they may charge on these loans.

 

Inattracting business and consumer deposits, Riverview’s banking subsidiary facessubstantial competition from other insured depository institutions such asbanks, savings institutions and credit unions, as well as institutions offeringuninsured investment alternatives, including money market funds. Many ofRiverview’s competitors enjoy advantages, including greater financialresources, more aggressive marketing campaigns, better brand recognition andmore convenient branch locations. These competitors may offer higher interestrates than Riverview, which could decrease the deposits that it attracts orrequire it to increase its rates to retain existing deposits or attract newdeposits. Increased deposit competition could adversely affect Riverview’sability to generate the funds necessary for lending operations. As a result, itmay need to seek other sources of funds that may be more expensive to obtainand could increase its cost of funds.

 

Riverview’sbanking subsidiary also competes with non-bank providers of financial services,such as brokerage firms, consumer finance companies, credit unions, insuranceagencies and governmental organizations which may offer more favorable terms.Some of its non-bank competitors are not subject to the same extensiveregulations that govern its banking operations. As a result, such non-bankcompetitors may have advantages over Riverview’s banking subsidiary inproviding certain products and services. This competition may reduce or limitits margins on banking services, reduce its market share and adversely affectits earnings and financial condition.

 

*Riverview’s Controls and Procedures May Fail or BeCircumvented*

 

Managementregularly reviews and updates Riverview’s internal controls, disclosurecontrols and procedures, and corporate governance policies and procedures. Anysystem of controls, however well designed and operated, is based in part oncertain assumptions and can provide only reasonable, not absolute, assurancesthat the objectives of the system are met. Any failure or circumvention ofRiverview’s controls and procedures or failure to comply with regulationsrelated to controls and procedures could have a material adverse effect onRiverview’s business, results of operations and financial condition.

 

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*Riverview’s ability to pay dividends depends primarily ondividends from its banking subsidiary, which is subject to regulatory limits*

 

Riverviewis a bank holding company and its operations are conducted by its subsidiary.Its ability to pay dividends depends on its receipt of dividends from itssubsidiary. Dividend payments from its banking subsidiary are subject to legaland regulatory limitations, generally based on net profits and retainedearnings, imposed by the various banking regulatory agencies. The ability ofits subsidiary to pay dividends is also subject to its profitability, financialcondition, capital expenditures and other cash flow requirements. There is noassurance that its subsidiary will be able to pay dividends in the future orthat Riverview will generate adequate cash flow to pay dividends in the future.Riverview’s failure to pay dividends on its common stock could have a materialadverse effect on the market price of its common stock.

 

*Riverview May Not Be Able To Attract and Retain SkilledPeople*

 

Riverview’ssuccess depends, in large part, on its ability to attract and retain keypeople. Competition for the best people in most activities engaged in byRiverview can be intense and Riverview may not be able to hire people or toretain them. The unexpected loss of services of one or more of Riverview’s keypersonnel could have a material adverse impact on Riverview’s business becauseof their skills, knowledge of Riverview’s market, years of industry experienceand the difficulty of promptly finding qualified replacement personnel.Riverview currently has employment agreements containing non-competitionagreements with six of its executive officers.

 

*Riverview Is Subject To Claims and Litigation Pertaining ToFiduciary Responsibility*

 

Fromtime to time, customers make claims and take legal action pertaining toRiverview’s performance of its fiduciary responsibilities. Whether customerclaims and legal action related to Riverview’s performance of its fiduciaryresponsibilities are founded or unfounded, if such claims and legal actions arenot resolved in a manner favorable to Riverview they may result in significantfinancial liability and/or adversely affect the market perception of Riverviewand its products and services as well as impact customer demand for thoseproducts and services. Any financial liability or reputation damage could havea material adverse effect on Riverview’s business, which, in turn, could have amaterial adverse effect on Riverview’s financial condition and results ofoperations.

 

*The Trading Volume In Riverview’s Common Stock Is Less ThanThat Of Other Larger Financial Services Companies*

 

Riverview’scommon stock is not listed for trading on any market or exchange.  Instead, its common stock is traded in thelocal over-the-counter markets and privately negotiated transactions under thesymbol “RIVE”.  The trading volume in itscommon stock is less than that of other larger financial services companies. Apublic trading market having the desired characteristics of depth, liquidityand orderliness depends on the presence in the marketplace of willing buyersand sellers of Riverview’s common stock at any given time. This presencedepends on the individual decisions of investors and general economic andmarket conditions over which Riverview has no control. Given the lower tradingvolume of Riverview’s common stock, significant sales of Riverview’s commonstock, or the expectation of these sales, could cause Riverview’s stock priceto fall.

 

*Riverview operates in a highly regulated environment and maybe adversely affected by changes in federal, state and local laws andregulations*

 

Riverviewis subject to extensive regulation, supervision and examination by federal andstate banking authorities. Any change in applicable regulations or federal,state or local legislation could have a substantial impact on Riverview and itsoperations. Additional legislation and regulations that could significantlyaffect Riverview’s powers, authority and operations may be enacted or adoptedin the future, which could have a material adverse effect on its financialcondition and results of operations. Further, regulators have significantdiscretion and authority to prevent or remedy unsafe or unsound practices orviolations of laws by banks and bank holding companies in the performance oftheir supervisory and 

 

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enforcementduties. The exercise of regulatory authority may have a negative impact onRiverview’s results of operations and financial condition.

 

Likeother bank holding companies and financial institutions, Riverview must complywith significant anti-money laundering and anti-terrorism laws. Under theselaws, Riverview is required, among other things, to enforce a customeridentification program and file currency transaction and suspicious activityreports with the federal government. Government agencies have substantialdiscretion to impose significant monetary penalties on institutions which failto comply with these laws or make required reports.

 

**ITEM 1B****. UNRESOLVEDSTAFF COMMENTS.**

 

None.

 

**ITEM 2****. PROPERTIES.**

 

Riverview owns a parking lotlocated at 110 Verbeke Street, Marysville, Pennsylvania 17053, which isadjacent to the main office of Riverview National Bank.  The table below sets forth the locations ofthe properties that are owned and leased in the name of Riverview NationalBank, which include its main office, branch offices and certain parkingfacilities related to its banking offices. As for those properties that are owned, all are owned free and clear ofany lien. The Bank’s main office and all branch offices are located inPennsylvania.

 

Operating under the name “TheFirst National Bank of Marysville, a division of Riverview National Bank”:

 

**Office andAddress**

** **

2040 Good Hope Road, Enola,Pennsylvania 17025 (leases)

1288 North Mountain Road,Harrisburg, Pennsylvania 17112 (leases)

55 South Main Street,Duncannon, Pennsylvania 17020 (leases)

200 Front Street,Marysville, Pennsylvania 17053 (owns)

500 South State Road,Marysville, Pennsylvania 17053 (owns)

 

Operating under the name “HalifaxNational Bank, a division of Riverview National Bank”:

 

**Office andAddress**

** **

Third and Market Streets,Halifax, Pennsylvania 17032 (owns)

311 South Market Street,Millersburg, Pennsylvania 17061 (owns)

Drive-through facility on 16N. 3rd Street, Halifax, Pennsylvania 17032 (owns)

15 N. 3rd Street, Halifax, Pennsylvania 17032 (owns)

Parking Lot on N. 3rd Street, Halifax, Pennsylvania 17032 (owns)

Market Street Main Building(owns)

34 South Market Street,  Elizabethville, Pennsylvania 17023 (leases)

 

Allof these properties are in good condition and are deemed by management to beadequate for Riverview’s purposes.

 

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**ITEM 3****. LEGALPROCEEDINGS.**

 

Managementis not aware of any litigation that would have a material adverse effect on theconsolidated financial position or results of operations of Riverview. Thereare no proceedings pending other than ordinary routine litigation incident tothe business of Riverview and of the Riverview National Bank. In addition,management does not know of any material proceedings contemplated bygovernmental authorities against Riverview or the Riverview National Bank orany of its properties.

 

**ITEM 4****. SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

None.

 

**PART II**

 

**ITEM 5****. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES.**

 

As of March 31, 2009,there were 1,750,003 shares of Riverview common stock outstanding, which wereheld by approximately 340 holders of record. The number of shareholders doesnot reflect the number of individuals or institutional investors holding stockin nominee name through banks, brokerage firms, and others.

 

Additionally, a substantialsource of Riverview’s income from which it can pay dividends is the receipt ofdividends from Riverview National Bank. The availability of dividends fromRiverview National Bank is limited by various statutes and regulations. It alsois possible, depending on the financial condition of Riverview National Bank,and other factors, that the applicable regulatory authorities could assert thatpayment of dividends or other payments is an unsafe or unsound bankingpractice. In the event that Riverview National Bank is unable to pay dividendsto Riverview, Riverview may not be able to pay dividends on its common stock.

 

Riverviewcommon stock is not listed or traded on any market or exchange but instead istraded in a local over-the-counter market and privately negotiated transactionsunder the symbol “RIVE”. Therefore, the stock is traded at irregular intervals.

 

**ITEM 6****. SELECTEDFINANCIAL DATA.**

 

Not Required.

 

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**ITEM7****. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OFRIVERVIEW FINANCIAL CORPORATION.**

 

**SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKINGSTATEMENTS**

 

Certainof the matters discussed in this document and in documents incorporated byreference herein, including matters discussed below, may constituteforward-looking statements for purposes of the Securities Act of 1933, asamended, and the Securities Exchange Act of 1934, as amended, and as such mayinvolve known and unknown risks, uncertainties and other factors which maycause the actual results, performance or achievements of Riverview to bematerially different from future results, performance or achievements expressedor implied by such forward-looking statements. The words “expect,” “anticipate,”“intend,” “plan,” “believe,” “estimate,” and similar expressions are intendedto identify such forward-looking statements.

 

Riverview’sactual results may differ materially from the results anticipated in theseforward-looking statements due to a variety of factors, including, withoutlimitation:

 

·                  anticipated cost savings and synergies fromthe consolidation may not be realized;

·                  the effects of future economic conditions onRiverview and the Riverview National Bank’s customers;

·                  the costs and effects of litigation and ofunexpected or adverse outcomes in such litigation;

·                  governmental monetary and fiscal policies, aswell as legislative and regulatory changes;

·                  the effect of changes in accounting policiesand practices, as may be adopted by the regulatory agencies, as well as theFinancial Accounting Standards Board and other accounting standard setters;

·                  the risks of changes in interest rates on thelevel and composition of deposits, loan demand, and the values of loancollateral, securities and interest rate protection agreements, as well asinterest rate risks;

·                  the effects of competition from othercommercial banks, thrifts, mortgage banking firms, consumer finance companies,credit unions, securities brokerage firms, insurance companies, money marketand other mutual funds and other financial institutions operating in Riverview’smarket area and elsewhere, including institutions operating locally,regionally, nationally and internationally, together with such competitorsoffering banking products and services by mail, telephone, computer and theInternet;

·                  technological changes;

·                  acquisitions and integration of acquiredbusinesses;

·                  the failure of assumptions underlying theestablishment of reserves for loan and lease losses and estimations of valuesof collateral and various financial assets and liabilities; and

·                  acts of war or terrorism;

·                  volatilities in the securities market; and

·                  deteriorating economic conditions.

 

All written or oralforward-looking statements attributable to Riverview are expressly qualified intheir entirety by these cautionary statements.

 

Management’s Discussion andAnalysis of Financial Condition and Results of Operations analyzes the majorelements of Riverview’s consolidated financial statements and should be read inconjunction with the Consolidated Financial Statements of Riverview and Notesthereto and other detailed information appearing elsewhere in this AnnualReport.

 

**CriticalAccounting Policies and Estimates**

 

The consolidated financialstatements include Riverview and its wholly-owned subsidiary, the Bank.  All significant intercompany accounts andtransactions have been eliminated.

 

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The accounting and reportingpolicies followed by Riverview conform, in all material respects, to accountingprinciples generally accepted in the United States of America.  In preparing the consolidated financialstatements, management has made estimates, judgments and assumptions thataffect the reported amounts of assets and liabilities as of the date of theconsolidated balance sheets and results of operations for the periodsindicated.  Actual results could differsignificantly from those estimates.

 

Riverview’saccounting policies are fundamental to understanding Management’s Discussionand Analysis of Financial Condition and Results of Operations.  The most significant accounting policiesfollowed by Riverview are presented in Note 1 of the consolidated financialstatements.  Note 1 lists significantaccounting policies used in the development and presentation of its financialstatements.  This discussion and analysis,the significant accounting policies, and other financial statement disclosuresidentify and address key variables and other qualitative and quantitativefactors that are necessary for an understanding and evaluation of Riverview andits results of operations.  Riverview hasidentified several policies as being critical because they require managementto make particularly difficult, subjective and/or complex judgments aboutmatters that are inherently uncertain and because of the likelihood that materiallydifferent amounts would be reported under different conditions or usingdifferent assumptions. These policies relate to the allowance for loan losses,valuation of its securities and accounting for income taxes.

 

Theallowance for loan losses is established through a charge to earnings for theprovision for loan losses.  Indetermining the balance in the allowance for loan losses, consideration isgiven to a variety of factors in establishing the estimate.  In estimating the allowance for loan losses,management considers current economic conditions, diversification of the loanportfolio, delinquency statistics and trends in actual and forecasted creditquality, results of internal loan reviews, borrowers’ perceived financial andmanagerial strengths , the adequacy of the underlying collateral, if collateraldependent, or present value of future cash flows and other relevantfactors.  The use of different estimatesand assumptions could produce different provisions for loan losses.  Additional information is provided in the “Provisionsfor Loan Losses”, “Allowance for Loan Losses” and “Credit Risk and Loan Quality”sections.

 

Declines in the fair valueof securities held to maturity and available for sale securities below theircosts that are deemed to be other than temporarily impaired are reflected inearnings as realized losses.  Inestimating other-than-temporary impairment losses, management considers (1) thelength of time and the extent to which the fair value has been less than cost, (2) thefinancial condition and near-term prospects of the issuer, and (3) theintent and ability of Riverview to retain its investment in the issuer for aperiod of time sufficient to allow for any recovery in fair value.  No securities were deemed to be other-than-temporarilyimpaired as of December 31, 2008.

 

Deferredincome tax assets and liabilities are determined using the liabilitymethod.  Under this method, the netdeferred tax asset or liability is recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities aremeasured using enacted tax rates applied to taxable income in the years inwhich those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income tax expense in theperiod that includes the enactment date. To the extent that current available evidence about the future raisesdoubt about the likelihood of a deferred tax asset being realized, a valuationallowance is established.  The judgmentabout the level of future taxable income, including that which is consideredcapital, is inherently subjective and is reviewed on a continual basis asregulatory and business factors change. Riverview has deemed that its deferred tax assets will more likely thannot be realized, and accordingly, has not established a valuation allowance onthem.

 

**OVERVIEW**

 

*Business Combination*

 

On December 31, 2008and pursuant to the Agreement and Plan of Consolidation (the “Agreement”),dated, June 18, 2008, as amended, by and between First Perry Bancorp, Inc.(“First Perry”) and HNB Bancorp, 

 

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Inc. (“HNB”), RiverviewFinancial Corporation (“Riverview”), a Pennsylvania Corporation, was formedupon the completion of the consolidation of First Perry and HNB underPennsylvania law.  Each outstanding shareof common stock of First Perry and HNB was converted into 2.435 and 2.520shares of Riverview’s common stock, respectively.  Further, the First National Bank ofMarysville, the wholly owned subsidiary of First Perry, and Halifax NationalBank, the wholly owned subsidiary of HNB, consolidated to form RiverviewNational Bank (the “Bank”), which is the wholly owned subsidiary ofRiverview.  Riverview issued 1,750,003shares of common stock and incurred $299,000 in transaction costs.  The primary reason for the combination was topool resources to provide greater products and services to customers in thecontiguous counties, and provide cost savings through the consolidation of operations.

 

As a community-focusedfinancial institution, Riverview, through its wholly-owned banking subsidiary,generates the majority of its revenues from net interest income derived fromits core banking activities.  During 2008,Riverview continued to experience strong financial performance and achievingsolid growth in assets, loans and deposits. Riverview was able to successfully grow while maintaining its commitmentto ensure strong credit quality, retain and expand customer relationships andprudently manage interest rate risk.  Inaddition, Riverview continues to be focused on business practices that not onlyprovide value to its customers but to its shareholders as well.

 

Riverview’s financial results reflect the business combination.  The combined financial information reflectsthe impact of the consolidation of First Perry’s and HNB’s combined financialcondition under the purchase method of accounting with First Perry treated asthe acquirer from an accounting standpoint. Under this method of accounting, Riverview was formed and treated as arecapitalization of First Perry, with First Perry’s assets and liabilitiesrecorded at their historical values, and HNB’s at their fair values on the datethe consolidation was completed.  Inaccordance with Financial Accounting Standards Board Statement No. 141, *Business Combinations*, the balance sheet includes the formerHNB assets, however the income statement does not include their results ofoperations since the transaction was only consummated on December 31,2008.  Consolidated total assets were$231.9 million at December 31, 2008, an increase of 89.0% or $109.2million over $122.7 million in total assets reported December 31,2007.  Asset growth was attributable tothe acquisition. As a result, loans grew $94.3 million or 112.4%, to $178.2million, while deposits increased $79.9 million or 84.6% to $174.4 million andshort-term borrowings increased $20.1 million to $21.3 million.  As of the effective date of the consolidation,HNB had $91.9 million in total assets, $67.6 in loans, $73.7 million indeposits and $3.4 million in short-term borrowings, which are included in theabove totals.

 

Riverview’s results ofoperations are primarily derived from the management of spread income generatedbetween the interest received on its interest earning assets and the interestpaid on its interest bearing liabilities. Changes in net interest income are not only affected by changes ininterest rates, but are also impacted by changes in the make-up of the balancesheet as well as the level of yield generated from interest earning assetsversus the costs associated with interest bearing liabilities.  Riverview also generates non-interest incomefrom fees associated with various products and services offered to customers,mortgage banking activities, bank owned life insurance (“BOLI”) and from thesale of assets, such as loans or investments.  Offsetting these revenues are provisions for potential losses on loans,administrative expenses and income taxes.

 

As of the 2008 year end,Riverview achieved net income of $371,000, a decrease of 30.7% from net incomeof $535,000 for the 2007 year end.  Basicearnings per share in 2008 were $0.39 per share, a decrease of 30.4% from $0.56per share in 2007.  The decrease in netincome is attributable to the costs associated with the consolidation of HNBand its impact on operations.  Return onaverage assets was 0.29% in 2008 compared to 0.47% in 2007.  Return on average equity was 2.90% in 2008compared to 4.34% in 2007.  The decreasein the 2008 ratios for the return on average assets and the return on averageequity was the result of increases in average assets and average equity coupledwith lower net income as a result of higher provision for loan losses and bankshares tax expense, along with expenses associated with the consolidation ofHNB.

 

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**RESULTS OF OPERATIONS**

 

**Net Interest Income andNet Interest Margin**

 

Net interest income is themost significant component of Riverview’s net income as a result of its focuson traditional banking activities.  It isthe difference between interest income earned on interest earning assets andinterest expense paid on interest bearing liabilities.  The change in net interest income from yearto year may be due to changes in interest rates, changes in volumes ofinterest-earning assets and liabilities as well as changes in the mix of suchassets and liabilities.  Riverview’sprincipal interest-earning assets are loans to individuals and smallbusinesses, with a secondary source of income earned from the investmentsecurities portfolio and other interest earning deposits with banks.  Interest-bearing liabilities consistprimarily of time deposits, money market accounts, savings deposits, securitiessold under agreement to repurchase and borrowings.  Generally, changes in net interest income areportrayed by net interest rate spread and net interest margin.  Net interest rate spread is equal to thedifference between the average rate earned on interest-earning assets and theaverage rate incurred on interest-bearing liabilities.  Net interest margin is the average yield oninterest earning assets minus the average interest rate paid on interestbearing deposits.  Net interest incomegrowth is generally dependent upon balance sheet growth and maintaining orgrowing the net interest margin.  Foranalysis purposes, net interest income is evaluated on a fully tax-equivalent (“FTE”)basis.  The FTE basis is calculated bygrossing up the yield on tax-exempt securities and loans by the Federal taxrate of 34% in order that the yield on tax-exempt assets may be comparable tointerest earned on taxable assets.

 

**2008 Compared to 2007**

 

Total interest incomeincreased on a fully tax equivalent basis (as adjusted for the tax benefitderived from tax exempt assets – see Table 1 for calculation), by $692,000, or10.4%, to $7,322,000 for 2008 from $6,630,000 for 2007.  Total interest income increased in light ofthe fact that the yield on interest-earning assets decreased to 6.14% for 2008as compared with 6.29% for 2007. Mitigating the impact of a lower yield was the 13.1% increase in averageinterest-earning assets, which grew to $119,246,000 during 2008, from$105,476,000 during 2007.  Thecomposition of Riverview’s interest sensitive assets continued to shift, wherethe balance of the investment portfolio decreased due to reinvesting the cashflow into loans, which produce a higher interest yield.  The growth in average interest-earning assetswas attributable to a 23.7% increase in loans, which aided in producing a moreprofitable asset mix.

 

Total interest expense for2008 was $3,044,000 compared with $3,258,000 in 2007.  The decrease of $214,000, or 6.6%, in totalinterest expense is attributable to a decline in cost of funds, which decreasedto 2.87% for 2008 from 3.49% for 2007. This decline in interest rates mitigated the impact of the 13.5%increase in total interest bearing liabilities, which increased to $106,069,000for 2008 from $93,452,000 for 2007 as a result of increased borrowings.  As the demand to fund interest earning assetsincreased and the growth in deposits was flat, the Bank utilized its borrowingfacilities with the FHLB.  While theborrowings carried a higher cost to fund as compared with deposits, totalinterest income outpaced this higher expense.

 

Net interest income on afully tax equivalent basis increased by $906,000, or 26.9%, to $4,278,000 forthe year ended December 31, 2008 from $3,372,000 for the year ended December 31,2007.  This increase was attributable tothe growth in interest sensitive assets, in particular loans, and prime ratedecreases which had the impact of reducing cost of funds.  The net interest spread (on a fully taxequivalent basis) increased to 3.27% for 2008 from 2.80% for 2007, while thenet interest margin (on a fully tax equivalent basis) increased to 3.58% for2008 from 3.20% for 2007.

 

Riverview’s ability tomanage net interest income over a variety of interest rate and economicenvironments is important to its financial success.  Growth in net interest income is generallydependent upon the growth of the balance sheet and maintaining or growing thenet interest margin.

 

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**2007 Compared to 2006**

 

Total interest incomeincreased on a fully tax equivalent basis, by $426,000, or 6.9%, to $6,630,000for the year ended December 31, 2007 from $6,204,000 for the year ended December 31,2006.  This increase was attributable toa shift in the composition of interest earning assets where the cash flow frominvestment securities was reinvested in loans and interest bearing depositswhich generated higher yields than the securities portfolio.

 

Total interest expenseincreased $370,000, or 12.8%, to $3,258,000 in 2007 from $2,888,000 in2006.  While total interest bearingliabilities increased 0.02% to $93,452,000 by the 2007 year end, management wasable to change its funding mix, shifting out of borrowings and migrating tolower costing deposits.

 

Net interest income on afully tax equivalent basis increased by $56,000, or 1.7%, to $3,372,000 for theyear ended December 31, 2007 from $3,316,000 for the year ended December 31,2006.  Riverview’s net interest ratespread increased to 2.80% in 2007 from 2.75% in 2006, while the net interestmargin increased to 3.20% in 2007 from 3.16% in 2006.  Management’s actions in proactively managingthe composition of interest earning assets and interest bearing liabilitieshelped to protect the Bank’s interest rate spread and margin during a period ofmultiple yield curve swings and changes due to increasingly unstable economicconditions.

 

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**Table 1** presents a summary of Riverview’s averagebalances, interest rates, interest income and expense, the interest rate spreadand the net interest margin for the years ended December 31, 2008, 2007and 2006.

 

**TABLE 1**

 

**AVERAGEBALANCES, RATES AND INTEREST INCOME AND EXPENSE**

 
| **Year  Ended December 31,**                    | ** ** | **2008**             | ** **  | **2007**     | ** ** | **2006**       | ** ** |
|------------------------------------------------------|------------|----------------------|-------------|--------------|------------|----------------|------------|
| **(Dollars  in thousands)**                          | ** ** | **Average  Balance** | ** **  | **Interest** | ** ** | **Yield/Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Yield/Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Yield/Rate** | ** ** |
| **Assets**                                           |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Earning  Assets                             |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities:                                          |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable  securities (2)                              | ** ** | **$**                | **15,917**  | ** **   | **$**      | **596**        | ** ** | **3.74** | **%** | $ | 17,187 |   | $ | 664 |   | 3.86 | % | $ | 22,891 |   | $ | 840 |   | 3.67 | % |
| Tax-exempt  securities (1)(2)                        | ** ** | **3,061**            | ** **  | **208**      | ** ** | **6.80**       | **%**      | 5,045 |   | 344 |   | 6.82 | % | 6,251 |   | 424 |   | 6.78 | % |
| Total securities                                     | ** ** | **18,978**           | ** **  | **804**      | ** ** | **4.24**       | **%**      | 22,232 |   | 1,008 |   | 4.53 | % | 29,142 |   | 1,264 |   | 4.34 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)(3)                                         |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer                                             | ** ** | **3,622**            | ** **  | **276**      | ** ** | **7.62**       | **%**      | 4,440 |   | 348 |   | 7.84 | % | 4,949 |   | 375 |   | 7.58 | % |
| Commercial                                           | ** ** | **9,030**            | ** **  | **626**      | ** ** | **6.93**       | **%**      | 7,086 |   | 560 |   | 7.90 | % | 6,394 |   | 478 |   | 7.48 | % |
| Real estate                                          | ** ** | **86,553**           | ** **  | **5,585**    | ** ** | **6.45**       | **%**      | 68,703 |   | 4,575 |   | 6.66 | % | 63,054 |   | 4,019 |   | 6.37 | % |
| Total loans                                          | ** ** | **99,205**           | ** **  | **6,487**    | ** ** | **6.54**       | **%**      | 80,229 |   | 5,483 |   | 6.83 | % | 74,397 |   | 4,872 |   | 6.55 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Other interest  earning assets                       | ** ** | **1,063**            | ** **  | **31**       | ** ** | **2.92**       | **%**      | 3,015 |   | 139 |   | 4.61 | % | 1,364 |   | 68 |   | 4.99 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Interest  Earning Assets                       | ** ** | **119,246**          | ** **  | **7,322**    | ** ** | **6.14**       | **%**      | 105,476 |   | 6,630 |   | 6.29 | % | 104,903 |   | 6,204 |   | 5.91 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest  earning assets                         | ** ** | **10,007**           | ** **  | ** **   | ** ** | ** **     | ** ** | 9,450 |   |   |   |   |   | 7,452 |   |   |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  Assets**                                    | ** ** | **$**                | **129,253** | ** **   | ** ** | ** **     | ** ** | ** ** | **$** | 114,926 |   |   |   |   |   | $ | 112,355 |   |   |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities  and Shareholders’ Equity**       |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Bearing  Liabilities                        |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                            |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand  deposits                    |       | **$**                | **17,020**  |         | **$**      | **216**        |       | **1.27** | **%** | $ | 16,759 |   | $ | 436 |   | 2.60 | % | $ | 13,527 |   | $ | 253 |   | 1.87 | % |
| Savings deposits                                     | ** ** | **15,067**           | ** **  | **137**      | ** ** | **0.91**       | **%**      | 15,617 |   | 203 |   | 1.30 | % | 15,032 |   | 125 |   | 0.83 | % |
| Time deposits                                        | ** ** | **51,059**           | ** **  | **1,942**    | ** ** | **3.80**       | **%**      | 50,989 |   | 2,103 |   | 4.12 | % | 50,635 |   | 1,945 |   | 3.84 | % |
| Total deposits                                       | ** ** | **83,146**           | ** **  | **2,295**    | ** ** | **2.76**       | **%**      | 83,365 |   | 2,742 |   | 3.29 | % | 79,194 |   | 2,323 |   | 2.93 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings:                                          |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term  borrowings                               | ** ** | **9,743**            | ** **  | **152**      | ** ** | **1.56**       | **%**      | 3,579 |   | 190 |   | 5.31 | % | 7,262 |   | 343 |   | 4.72 | % |
| Long-term  borrowings                                | ** ** | **13,180**           | ** **  | **597**      | ** ** | **4.53**       | **%**      | 6,508 |   | 326 |   | 5.01 | % | 5,018 |   | 222 |   | 4.42 | % |
| Total borrowings                                     | ** ** | **22,923**           | ** **  | **749**      | ** ** | **3.27**       | **%**      | 10,087 |   | 516 |   | 5.12 | % | 12,280 |   | 565 |   | 4.60 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Interest  Bearing Liabilities                  | ** ** | **106,069**          | ** **  | **3,044**    | ** ** | **2.87**       | **%**      | 93,452 |   | 3,258 |   | 3.49 | % | 91,474 |   | 2,888 |   | 3.16 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-Interest  Bearing Liabilities:                   |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                      | ** ** | **9,684**            |        |         |       |           | ** ** | 8,279 |   |   |   |   |   | 7,974 |   |   |   |   |   |
| Other liabilities                                    | ** ** | **692**              |        |         |       |           | ** ** | 857 |   |   |   |   |   | 853 |   |   |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’  Equity                           | ** ** | **12,808**           |        |         |       |           | ** ** | 12,338 |   |   |   |   |   | 12,054 |   |   |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total  Liabilities and Shareholders’ Equity** |       | **$**                | **129,253** |         |       |           |       | ** ** | $ | 114,926 |   |   |   |   |   | $ | 112,355 |   |   |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest  Income                                 |       |                 | ** **  | **$**        | **4,278**  | ** **     | ** ** | ** ** | ** ** |   | $ | 3,372 |   |   |   |   |   | $ | 3,316 |   |   |   |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest  Spread                                 |       |                 |        |         | ** ** | **3.27**       | **%**      |   |   |   |   | 2.80 | % |   |   |   |   | 2.75 | % |
|                                                 |       |                 |        |         |       |           | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest  Margin                                 |       |                 |        |         | ** ** | **3.58**       | **%**      |   |   |   |   | 3.20 | % |   |   |   |   | 3.16 | % |

 

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(1)   Yields on tax-exempt assets have beencalculated on a fully tax equivalent basis assuming a tax rate of 34%.

 

(2)   Available for sale securities are reported atamortized cost for purposes of calculating yields.

 

(3)   For yield calculation purposes, non-accruingloans are included in the average loan balances, and any income recognized onthese loans is included in interest income.

 

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**Table 2** presents a summary of changes in interestincome and interest expense resulting from changes in volumes (average balances)and changes in rates for the periods indicated.

 

**TABLE 2**

 

**RATEVOLUME ANALYSIS OF NET INTEREST INCOME**

 

**FOR THEYEARS ENDED DECEMBER 31,**

 
| ** **                                              | ** ** | **2008 vs. 2007** | ** ** | **2007 vs. 2006** | ** ** |
|---------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                              | ** ** | **Increase/(Decrease)**     | ** ** | **Increase/(Decrease)**     | ** ** |
| **(In thousands)**                                 | ** ** | **Volume**                  | ** ** | **Rate**                    | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
|                                                    |       |                        |       |                        |       |   | ** ** |   |   |   |   |   |   |
| **Interest-Earning Assets:**                            |       |                        |       |                        |       |   | ** ** |   |   |   |   |   |   |
| Interest bearing due from banks and federal  funds sold |       | **$**                       | **(53**    | **)**                       | **$**      | **(57** | **)** | **$** | **(108** | **)** | $ | 76 |   | $ | (5 | ) | $ | 71 |   |
| Securities, taxable (1)                                 | ** ** | **(47**                     | **)**      | **(21**                     | **)**      | **(68** | **)** | (219 | ) | 43 |   | (176 | ) |
| Securities, tax-exempt (1)                              | ** ** | **(134**                    | **)**      | **(2**                      | **)**      | **(136** | **)** | (83 | ) | 3 |   | (80 | ) |
| Loans (1)                                               | ** ** | **1,237**                   | ** ** | **(233**                    | **)**      | **1,004** | ** ** | 403 |   | 208 |   | 611 |   |
| **Net Change in Interest Income**                       | ** ** | **1,003**                   | ** ** | **(313**                    | **)**      | **692** | ** ** | 177 |   | 249 |   | 426 |   |
|                                                    |       |                        |       |                        |       |   | ** ** |   |   |   |   |   |   |
| **Interest-Bearing Liabilities:**                       |       |                        |       |                        |       |   | ** ** |   |   |   |   |   |   |
| Interest bearing demand deposits                        |       | **3**                       |       | **(223**                    | **)**      | **(220** | **)** | 84 |   | 99 |   | 183 |   |
| Savings deposits                                        | ** ** | **(5**                      | **)**      | **(61**                     | **)**      | **(66** | **)** | 7 |   | 71 |   | 78 |   |
| Time deposits                                           | ** ** | **2**                       | ** ** | **(163**                    | **)**      | **(161** | **)** | 16 |   | 142 |   | 158 |   |
| Borrowings:                                             |       |                        |       |                        |       |   | ** ** |   |   |   |   |   |   |
| Short-term borrowings                                   | ** ** | **97**                      | ** ** | **(135**                    | **)**      | **(38** | **)** | (196 | ) | 43 |   | (153 | ) |
| Long-term borrowings                                    | ** ** | **302**                     | ** ** | **(31**                     | **)**      | **271** | ** ** | 74 |   | 30 |   | 104 |   |
| **Net Change in Interest Expense**                      | ** ** | **399**                     | ** ** | **(613**                    | **)**      | **(214** | **)** | (15 | ) | 385 |   | 370 |   |
|                                                    |       |                        |       |                        |       |   | ** ** |   |   |   |   |   |   |
| **CHANGE IN NET INTEREST INCOME:**                      |       | **$**                       | **604**    | ** **                  | **$**      | **300** | ** ** | **$** | **906** | ** ** | $ | 192 |   | $ | (136 | ) | $ | 56 |   |

 

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(1)                                  Yields on tax-exempt assets have beencomputed on a fully tax-equivalent basis assuming a tax rate of 34%.

 

**Provision for Loan Losses**

 

Riverview provides forcredit risk associated with lending activities through its provision for loanlosses and allowance for loan losses. Although Riverview maintains sound credit practices, loan deteriorationmay occur resulting in the eventual charge off of certain loans as losses.  The provision for loan losses, which is anexpense that is recorded in the income statement, is used to increase theallowance for loan losses to an appropriate balance that is available to absorbestimated losses inherent in the portfolio. The determination of the appropriateness and adequacy of the allowanceis based upon management’s ongoing analysis of the loan portfolio, assessmentof historical loan loss experience, and other relevant factors inherent in theloan portfolio.  Since no singlestatistic or measurement is accurate enough to determine the adequacy of theallowance, such an estimate is based on a number of factors including:

 

·                  anongoing review of delinquent, classified and non-accrual loans, large loans andoverall portfolio quality and trends;

 

·                  analyticalreview of loan charge-off experience, delinquency rates and other relevanthistorical and peer statistical ratios;

 

·                  management’sjudgment with respect to the composition and nature of the portfolio,concentrations of credit, regulatory recommendations and current and projectedeconomic and business conditions and their impact on the existing portfolio;and

 

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·                  observationsderived from examinations and reviews of the portfolio by regulatory examinersand independent loan reviewers.

 

The provision for loanlosses was $380,000 for 2008 and $120,000 for 2007.  The provision expense for 2008 was increasedby 216.7% as compared with 2007.  Theincrease in the provision for 2008 was primarily attributable to loan growth,as the credit quality of the portfolio continues to be solid as evidenced bythe asset quality ratios.  Theconsistency in the asset quality is a key factor considered by management indetermining an appropriate level of the allowance for loan losses in light ofthe growth of the loan portfolio.

 

**Non-Interest Income**

 

Non-interest incomecontinues to represent a considerable source of income for Riverview,representing 12.0% of the total revenues (comprised of net interest income andnon-interest income) in 2008 and 12.3% in 2007. Non-interest income consists primarily of customer service fees andcharges derived from deposit accounts, mortgage banking activities, theinvestment in bank owned life insurance (“BOLI”) and gains from the sale ofloans and available for sale securities.

 

Non-interestincome for the year ended December 31, 2008 increased $115,000, or 25.5%,to $566,000 from $451,000 for the year ended December 31, 2007.  Service charges on deposit accounts grew30.0% or $36,000 to $156,000 in 2008 from $120,000 in 2007.  This growth in fees was attributable toincreased core deposit activity. Earnings on the cash value of bank owned life insurance increased$4,000, or 4.2%, to $100,000 in 2008 from $96,000 in 2007.  The Bank recorded $40,000 in gains from thesale of available for sale securities as compared with no gains recorded in2007.  During 2008, the Bank entered intoan agreement with the FHLB to sell loans service released under the FHLBMortgage Partnership Finance program (“MPF”). As a result, in 2008 the Bank recorded $50,000 in the gains from thesale of mortgage loans under the MPF program as compared to 2007 where no suchgains were recorded.  Offsetting theseincreases was a decrease in other service charges to $220,000 in 2008 from$235,000 in 2007.  This was attributableto data processing service income, which declined as a result of management’sdecision to discontinue offering shared data processing services to other smallfinancial institutions.

 

The following table presentsthe components of non-interest income and related fluctuations for the yearsended December 31, 2008 and 2007.

 

**Non-Interest Income**

** **
| ** **                                      | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                      | ** ** | **(Dollars in thousands)**        | ** ** |
| ** **                                      | ** ** | **2008**                                    | ** ** | **Increase  (Decrease)  Amount** | ** ** | **%** | ** ** | **2007** | ** ** |
| Service charges on deposit accounts             | ** ** | **$**                                       | **156**    |   | $ | 36 |   | 30.0 | % | $ | 120 |   |
| Other service charges and fees                  | ** ** | **220**                                     |       | (15 | ) | (6.4 | )% | 235 |   |
| Earnings on cash value of life insurance        | ** ** | **100**                                     |       | 4 |   | 4.2 | % | 96 |   |
| Gain on sale of available for sale  securities  | ** ** | **40**                                      |       | 40 |   | 100.0 | % | — |   |
| Gain from sale of held for sale mortgage  loans | ** ** | **50**                                      |       | 50 |   | 100.0 | % | — |   |
| ** **                                      |       | **$**                                       | **566**    |   | $ | 115 |   | 25.5 | % | $ | 451 |   |

 

**Non-Interest Expenses**

 

Non-interest expenses are acombination of general and administrative expenses that are the result of beingin business.  For the year ended December 31,2008, total non-interest expenses increased $1,063,000, or 36.4%, to $3,983,000from $2,920,000 for 2007.  The followingsummarizes the changes in each of the expense categories:

 

·                  Salariesand employee benefits – In the second quarter of 2008, an experiencedcommercial lender was hired to head up and manage the loan area.  In addition, individuals were hired to staffnew 

 

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branch offices opened in June 2008 and June 2007.  Other personnel related expenses increased inconjunction with additional operations staff needed to support these strategicdecisions;

 

·                  Occupancyexpense – Increased costs are associated with realizing a full year’s expensefrom the opening of a new branch office in June 2007 and a half of a year’sexpense related to the opening of another new branch in June 2008 as wellas the renovation of the operations area;

 

·                  Equipmentexpense –Increases in depreciation expense attributable to expenses incurred inmigrating to remote capture and acceptance of check images from branchlocations and banking clients are the primary factors resulting in increasedequipment expenses;

 

·                  Telecommunicationsand processing charges – In 2007, the Bank established an MPLS network toreplace a point-to-point frame relay network for the purpose of enhancing itsdisaster recovery plan.  In addition, anew branch office was established in June of 2007 and another in June 2008.  Full year expenses are being realized forthese two items in 2008 versus only a partial period recognition in 2007;

 

·                  Bankshares tax – This remains to be a significant expense for Riverview, with$104,000 expensed in 2008.   The increasein this expense in 2008 as compared with the ($83,000) recorded for 2007 wasdue to the benefit of $216,000 out of a $250,000 tax credit relating to thePennsylvania Enterprise Zone Tax Credit program, of which $133,000 was used tooffset the Bank’s shares tax expense for 2007. In July 2008, the Pennsylvania Department of Revenue made a finaldetermination that the Bank was entitled to the full $250,000 credit, and theremaining $34,000 was recognized in 2008, and will be used to offset 2009shares tax liability;

 

·                  Professionalservices – This is comprised of accounting, tax and audit expenses whichincreased 126.2% to $138,000 for the year ended 2008 from $61,000 for the 2007year end.  This increase is attributableto the due diligence process that was required in hiring and transitioning to anew independent registered public accounting firm and the resulting re-audit ofthe financial statements to register Riverview with the Securities and ExchangeCommission; and

 

·                  Otherexpenses – The Bank’s other expenses increased $127,000, or 34.8%, to $492,000in 2008 from $365,000 in 2007 as a result of its growth and the change in itsbusiness plan to form Riverview and the consolidation of HNB.  Also contributing to the increase in otherexpenses is the increase in the Bank’s FDIC assessment for 2008 as comparedwith 2007.  Due to a change in the FDIC’sassessment methodology, this expense increased to $45,000 for 2008 from $10,000in 2007 and is expected to be higher in 2009.

 

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The following table presentsthe components of non-interest expenses and the related changes for the yearsended 2008 and 2007:

 

**Non-Interest Expenses**

** **
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                | ** ** | **(Dollars in thousands)**        | ** ** |
| ** **                                | ** ** | **2008**                                    | ** ** | **Increase  (Decrease)  Amount** | ** ** | **%** | ** ** | **2007** | ** ** |
| Salaries and employee benefits            |       | $                                           | 2,205      |   | $ | 564 |   | 34.4 | % | $ | 1,641 |   |
| Occupancy expense                         |       | 449                                         |       | 84 |   | 23.0 | % | 365 |   |
| Equipment expense                         |       | 213                                         |       | 36 |   | 20.3 | % | 177 |   |
| Telecommunications and processing charges |       | 183                                         |       | (22 | ) | (10.7 | )% | 205 |   |
| Postage and office supplies               |       | 94                                          |       | 11 |   | 13.3 | % | 83 |   |
| Bank shares tax expense (credit)          |       | 104                                         |       | 187 |   | 225.3 | % | (83 | ) |
| Directors’ compensation              |       | 105                                         |       | (1 | ) | (0.9 | )% | 106 |   |
| Professional services                     |       | 138                                         |       | 77 |   | 126.2 | % | 61 |   |
| Other expenses                            |       | 492                                         |       | 127 |   | 34.8 | % | 365 |   |
|                                      |       |                                        |       |   |   |   |   |   |   |
| Total non-interest expenses               |       | $                                           | 3,983      |   | $ | 1,063 |   | 36.4 | % | $ | 2,920 |   |

 

**Income Taxes**

 

The provision for federalincome tax expense (benefit) was ($42,000) for the year ended December 31,2008 as compared to $80,000 for the same period in 2007.  The tax provision decreased $122,000, or152.5%, as a result of a decline in pretax income that was negatively affectedby higher level of loan losses, bank shares tax, FDIC premiums and non-recurringexpenses recorded in the fourth quarter of 2008 that were associated with theconsolidation of HNB.

 

Theeffective tax rate for the twelve months ended December 31, 2008 was a13.0% benefit in 2008 versus a 13% expense in 2007 with the decrease a result oflower pre-tax income.  The effective taxrate continues to be less than the statutory Federal tax rate of 34%.  The difference between the statutory andeffective tax rates reflects the tax-exempt status of interest income on loansand obligations of state and political subdivisions and the impact of theearnings from the cash surrender value of bank owned life insurance.

 

**FINANCIAL CONDITION**

 

## **Securities**

## ** **

Riverview’ssecurities portfolio is comprised of securities, which not only provideinterest income, including tax-exempt income, but also provide a source ofliquidity, diversify the earning assets portfolio, allow for the management ofrisk and tax liability, and provide collateral for repurchase agreements andpublic fund deposits.  Policies are in placeto address various aspects of managing the portfolio, including but not limitedto, concentrations, liquidity, credit quality, interest rate sensitivity andregulatory guidelines.  Adherence tothese policies is monitored by Riverview’s Asset/Liability Committee (“ALCO”)on a monthly basis.

 

Becauseof the changing nature of the banking environment and the need tocorrespondingly position assets, all investment securities are characterized asavailable-for-sale and carried at fair value with net unrealized gains andlosses, net of taxes, reported as a separate component of comprehensiveincome.  Riverview invests in securitiesfor the yield they produce and not to profit from trading.  Riverview holds no trading securities in itsportfolio, and the securities portfolio contained no high-risk securities orderivatives as of December 31, 2008.

 

Thesecurities portfolio at December 31, 2008 was $28,120,000, compared to$20,290,000 at December 31, 2007, an increase of $7,830,000, or38.6%.  The increase is attributable to$13,124,000 in securities acquired 

 

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inthe consolidation from HNB offset by a $5,294,000 decline attributable to thesale of $2,773,000 in securities and generic cash flow of principal repaymentsof $2,521,000.

 

Liquidity generated from thesecurities portfolio continues to be used to fund loan growth.  Within the securities portfolio there has beena continuing shift out of U.S. Government agencies as well as state andmunicipal securities into mortgage-backed securities in order to structure cashflow over an extended period of time.  State and municipal securities holdings have decreased as securitieshave been sold as a precaution against downgrades in insurer ratings within thebond insurer industry.

 

Included in the carryingvalues of investment securities at December 31, 2008 is a net unrealizedgain of $56,000, compared to a net unrealized loss of ($40,000) at December 31,2007.  At December 31, 2008, theunrealized gain (loss) on securities available for sale, net of tax, includedin shareholders’ equity totaled $37,000, compared to ($26,000) at December 31,2007.  The net increase in the carryingvalue of securities is reflective of declines in the interest rate environmentand a shorter duration of the portfolio which will cause the securities totrade closer to par.  No securities aredeemed to be other-than-temporarily impaired based on management’s evaluationof the individual securities, including the extent and length of the unrealizedloss, and Riverview’s ability to hold the security until maturity or until thefair value recovers.

 

**Table 3** illustratesthe composition of the securities portfolio for the periods presented.

 

**TABLE 3**

 

**SECURITIES**

 
| ** **                     | ** ** | **December 31,**   | ** ** |
|--------------------------------|------------|-------------------------|------------|
| ** **                     | ** ** | **2008**                | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                     | ** ** | **(In thousands)** | ** ** |
| Available for sale securities: |       |                    |       |   |   |   |   |
| U.S. Government agencies       | ** ** | **$**                   | **7,264**  |   | $ | 4,092 |   | $ | 7,509 |   |
| State and municipal            | ** ** | **9,373**               |       | 4,480 |   | 5,889 |   |
| Mortgage-backed securities     | ** ** | **11,181**              |       | 11,718 |   | 11,235 |   |
| Corporate debt securities      | ** ** | **302**                 |       | — |   | — |   |
| ** **                     |       | **$**                   | **28,120** |   | $ | 20,290 |   | $ | 24,633 |   |

 

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**Table 4** presents thematurities and average weighted yields of the securities portfolio at fairvalue as of December 31, 2008. Yields are based on amortized cost.

 

**TABLE 4**

 

**MATURITIESAND WEIGHTED AVERAGE YIELDS OF SECURITIES**

 
| **(Dollars in thousands)** | ** ** | ** **                        | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | **Over 10 Years or ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|---------------------------------|------------|----------------------------------|------------|----------------------|------------|------------|------------|------------|------------|-------------------------------------------|------------|------------|------------|------------|------------|
| **Due In:**                     | ** ** | **1 Year or Less** | ** ** | **1 to 5 Years** | ** ** | **5 to 10 Years** | ** ** | **No Maturity** | ** ** | **Total**  | ** ** |
| ** **                           | ** ** | **Amount**                        | ** ** | **Yield**                       | ** ** | **Amount**                       | ** ** | **Yield**            | ** ** | **Amount** | ** ** | **Yield**  | ** ** | **Amount**                                | ** ** | **Yield**  | ** ** | **Amount** | ** ** | **Yield** | ** ** |
| **U.S.  Government agencies**        | ** ** | **$**                             | **—** | ** **                      | **—** | **%**                            | **$**      | **5,218**            | ** ** | **3.59**   | **%**      | **$**      | **2,046**  | ** **                                | **4.88**   | **%**      | **$**      | **—** | ** ** | **—** | ** ** | **$** | **7,264** | ** ** | **3.96** | **%** |
| ** **                           | ** ** | ** **                        | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **State  and municipal**             | ** ** | **386**                           | ** ** | **5.22**                        | **%**      | **2,097**                        | ** ** | **5.76**             | **%**      | **3,174**  | ** ** | **6.16**   | **%**      | **3,716**                                 | ** ** | **6.38**   | **%**      | **9,373**  | ** ** | **6.12** | **%** |
| **Mortgage-backed  securities**      | ** ** | **1,467**                         | ** ** | **4.02**                        | **%**      | **1,525**                        | ** ** | **3.97**             | **%**      | **2,032**  | ** ** | **3.69**   | **%**      | **6,157**                                 | ** ** | **4.10**   | **%**      | **11,181** | ** ** | **4.00** | **%** |
| **Corporate  debt securities**       | ** ** | **—**                        | ** ** | **—**                      | **%**      | **302**                          | ** ** | **6.39**             | **%**      | **—** | ** ** | **—** | ** ** | **—**                                | ** ** | **—** | ** ** | **302**    | ** ** | **6.39** | **%** |
| ** **                           | ** ** | ** **                        | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                           | ** ** | **$**                             | **1,853**  | ** **                      | **4.27**   | **%**                            | **$**      | **9,142**            | ** ** | **4.25**   | **%**      | **$**      | **7,252**  | ** **                                | **5.11**   | **%**      | **$**      | **9,873**  | ** ** | **4.96** | **%** | **$** | **28,120** | ** ** | **4.72** | **%** |
|                                      |            |                                   |            |                                 |            |                                  |            |                      |            |            |            |            |            |                                           |            |            |            |            |            |  |  |  |  |  |  |  |  |

 

*All securities are available for sale and are accounted for at fairvalue.*

 

*Weighted average yields are calculated on a fully taxable equivalentbasis assuming a tax rate of 34%.*

 

**Loans**

 

The loan portfolio comprises the majorcomponent of Riverview’s earning assets and is the highest yielding assetcategory.  At December 31, 2008,total loans receivable (net of the allowance for loan losses, unearned fees andorigination costs) amounted to $176,469,000, an increase of $93,535,000, or112.8%, as compared with $82,934,000 as of December 31, 2007.  Loans receivable, net of the allowance forloan losses, represent 76.1% of total assets and 101.2% of total deposits as ofDecember 31, 2008, as compared to 67.6% and 87.8%, respectively, at December 31,2007.  All of Riverview’s loans are todomestic borrowers.

 

During2008, the majority of the loan growth was attributable to the acquisition of$67,083,000 in net loans as part of the consolidation with HNB with theremaining increase of $26,452,000, or 31.9%, attributable to organic growth.  This organic growth is due to continuedlending opportunities that have resulted from growth in the area coupled withthe hiring of a dedicated commercial lender. In addition, all areas of real estate secured lending have experiencedsignificant increases in production. During 2008, the Bank entered into an agreement with the FHLB to sellloans service released under the FHLB Mortgage Partnership Finance program (“MPF”).  The benefit of selling mortgage loans versuskeeping them in the portfolio resulted in generating fee income whileeliminating the interest rate risk associated with those loans.  Going forward, the Bank will continue toevaluate its options regarding residential mortgage loans in consideration ofits relationship with its customers, the interest rate environment and overalleconomic conditions.  In general,management projects continued growth in the loan portfolio as additional staffhas been hired and opportunities are identified in Riverview’s market area.

 

During2008, Riverview did not experience any substantial problems within its loanportfolio.  Riverview manages riskassociated with its loan portfolio by maintaining diversification within theportfolio, consistently applying prudent underwriting standards, ongoingmonitoring efforts with attention to portfolio dynamics and mix, and proceduresthat are consistently applied and updated on an annual basis.  Riverview conducts a semi-annual independentreview of the loan portfolio to provide continual assessment of asset qualitythrough an evaluation of the established underwriting criteria used inoriginating credits.  Separately, everyloan and loan turndown undergoes an internal audit review for conformity toestablished policies and a review for compliance with current regulatorylending laws. Riverview has not lessened its loan originating criteria duringthis time, and management believes the standards remain conservative, comparedto its peer group.

 

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Other than as describedherein, management does not believe there are any trends, events, oruncertainties that are reasonably expected to have a materially adverse impacton future results of operations, liquidity, or capital resources.

 

**Table 5** presents thecomposition of the total loan portfolio for the periods presented:

 

**TABLE 5**

 

**TOTAL LOANS OUTSTANDING**

** **
| ** **                           | ** ** | **December 31,** | ** **  |
|--------------------------------------|------------|-----------------------|-------------|
| **(Dollars in thousands)** | ** ** | **2008**              | ** **  | **% of  Total** | ** ** | **2007** | ** ** | **% of  Total** | ** ** | **2006** | ** ** | **% of  Total** | ** ** | **2005** | ** ** | **% of  Total** | ** ** | **2004** | ** ** | **% of  Total** | ** ** |
| ** **                           | ** ** | ** **            | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Commercial,  financial, agricultural | ** ** | **$**                 | **12,967**  | ** ** | **7.3** | **%** | $ | 8,845 |   | 10.5 | % | $ | 5,722 |   | 7.4 | % | $ | 6,822 |   | 9.9 | % | $ | 7,175 |   | 12.0 | % |
| Real Estate:                         |       |                  |        |   | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction                         | ** ** | **18,173**            | ** **  | **10.2** | **%** | 9,059 |   | 10.8 | % | 3,936 |   | 5.1 | % | 1,411 |   | 2.0 | % | 2,590 |   | 4.4 | % |
| Mortgage                             | ** ** | **94,322**            | ** **  | **52.8** | **%** | 47,324 |   | 56.3 | % | 47,082 |   | 60.6 | % | 43,741 |   | 63.2 | % | 37,511 |   | 63.0 | % |
| Commercial                           | ** ** | **48,773**            | ** **  | **27.3** | **%** | 15,352 |   | 18.2 | % | 16,061 |   | 20.7 | % | 12,213 |   | 17.7 | % | 8,261 |   | 13.9 | % |
| Consumer installment                 | ** ** | **4,210**             | ** **  | **2.4** | **%** | 3,558 |   | 4.2 | % | 4,795 |   | 6.2 | % | 4,983 |   | 7.2 | % | 3,995 |   | 6.7 | % |
|                                 | ** ** | ** **            | ** **  | ** ** | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans                          | ** ** | **178,445**           | ** **  | **100.0** | **%** | 84,138 |   | 100.0 | % | 77,596 |   | 100.0 | % | 69,170 |   | 100.0 | % | 59,532 |   | 100.0 | % |
| Deferred loan  fees                  | ** ** | **(266**              | **)**       |   |   | (234 | ) |   |   | (248 | ) |   |   | (236 | ) |   |   | (191 | ) |   |   |
| Total loans, net  of fees            | ** ** | **178,179**           |        |   |   | 83,904 |   |   |   | 77,348 |   |   |   | 68,934 |   |   |   | 59,341 |   |   |   |
|                                 | ** ** | ** **            | ** **  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for  loan losses           | ** ** | **(1,710**            | **)**       |   |   | (970 | ) |   |   | (867 | ) |   |   | (591 | ) |   |   | (466 | ) |   |   |
|                                 | ** ** | ** **            |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total loans, net                     | ** ** | **$**                 | **176,469** |   |   |   | $ | 82,934 |   |   |   | $ | 76,481 |   |   |   | $ | 68,343 |   |   |   | $ | 58,875 |   |   |   |

 

**Table 6** summarizes theloan maturities and interest sensitivity for a segment of the loan portfolio.

 

**TABLE 6**

 

**LOANMATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES**

 

**COMMERCIALAND CONSTRUCTION LOANS**

**December 31,2008**

** **
| **(In thousands)**                 | ** ** | **Due Within  1 Year** | ** ** | **Due 1 - 5  Years** | ** ** | **Due Over 5  Years** | ** ** | **Total**  | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|-------------------------------------|------------|---------------------------------|------------|------------|------------|
| **Commercial, financial, agricultural** | ** ** | **$**                            | **5,337**  | ** **                          | **$**      | **4,779**                       | ** ** | **$**      | **2,851**  | ** ** | **$** | **12,967** | ** ** |
| **Real estate, construction**           | ** ** | **13,232**                       | ** ** | **3,238**                           | ** ** | **1,703**                       | ** ** | **18,173** | ** ** |
| **Total**                               | ** ** | **$**                            | **18,569** | ** **                          | **$**      | **8,017**                       | ** ** | **$**      | **4,554**  | ** ** | **$** | **31,140** | ** ** |
| ** **                              | ** ** | ** **                       | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| **By interest rate structure:**         | ** ** | ** **                       | ** ** | ** **                          | ** ** | ** **                      | ** ** | ** ** | ** ** |
| **Fixed rate**                          | ** ** | **7,683**                        | ** ** | **5,649**                           | ** ** | **4,157**                       | ** ** | **17,489** | ** ** |
| **Variable rate**                       | ** ** | **10,886**                       | ** ** | **2,368**                           | ** ** | **397**                         | ** ** | **13,651** | ** ** |
| **Total**                               | ** ** | **$**                            | **18,569** | ** **                          | **$**      | **8,017**                       | ** ** | **$**      | **4,554**  | ** ** | **$** | **31,140** | ** ** |

 

**Credit Risk and Loan Quality**

 

Riverview strives toproactively monitor credit risk and exposure to ensure and protect the highquality of its loan portfolio.  Creditpolicy requires underwriting, loan documentation and credit analysis standardsbe met prior to the approval and funding of any loan.  These practices have contributed to thestrength and credit quality of the Riverview’s loan portfolio and haveprotected the portfolio during economic periods of uncertainty.

 

Total nonperforming loans(comprised of non-accruing loans and loans past due for more than 90 days) asof December 31, 2008, decreased $862,000, to $280,000 as compared to$1,142,000 as of December 31, 2007, despite the consolidation of HNB’snonperforming assets into the amounts presented in 2008.  The ultimate resolution and payoff of asignificant amount of loans on non-accrual status has resulted in totalnon-performing

 

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loans.  Totalnonperforming loans as a percentage of total loans were 0.16% at December 31,2008 as compared to 1.36% at December 31, 2007.  To minimize losses that may occur onnon-accrual and delinquent loans, loan officers work with borrowers on anongoing basis.  Based on the repaymentplan and collateral protection afforded these loans, management does not expecta materially adverse impact to the allowance for loan losses.

 

Riverview had $144,000 inforeclosed real estate acquired through foreclosure as of December 31,2008 as compared with $327,000 as of December 31, 2007.

 

Loan concentrations areconsidered to exist when the total amount of loans to any one or a multiplenumber of borrowers engaged in similar activities or have similar economiccharacteristics, exceed 10% of loans outstanding in any one category.  At December 31, 2008, loans to lessorsof residential buildings and dwellings amounted to $18,068,000, or 10.2% oftotal loans as compared with $6,107,000 as of December 31, 2007.  The increase in 2008 was attributable to theacquisition of $10,247,000 of loans in this category as a result of theconsolidation with HNB.  The balance ofthe remaining increase in this category year over year, which amounted to$1,714,000, was the result of generic growth. Although such loans were not made to any one particular borrower orindustry, it is important to note that the quality of these loans could beaffected by the region’s economy and overall real estate market.  Management does not believe such aconcentration is an adverse trend to Riverview at this time.

 

Riverview’s lending policyis executed through the assignment of tiered loan limit authorities toindividual officers of Riverview and the Board of Directors.  Although Riverview maintains sound creditpolicies, certain loans may deteriorate for a variety of reasons.  Riverview’s policy is to place all loans in anon-accrual status upon becoming 90 days delinquent in their payments, unlessthere is a documented, reasonable expectation of the collection of thedelinquent amount.  Loans are reviewedbi-monthly as to their status. Management is not aware of any materially potential loan problems thathave not been disclosed in this report.

 

As a result of worseninglocal and national economic conditions and the softness in real estate in themarket served by Riverview, management continues to be attentive to potentialdeterioration in credit quality due to economic pressures.  Although management is proactive inidentifying and dealing with credit issues that it can control, it anticipatesthat going forward, additional provisions to its loan loss allowance may bewarranted as a result of those economic factors it cannot control.

 

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** **

**Table 7** presentsdetailed information about Riverview’s nonperforming loans and nonperformingassets for the periods presented.

 

**TABLE 7**

 

**RISKELEMENTS AND ASSET QUALITY RATIO**

 
| ** **                                                            | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**                                  | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                  |       |                  |       |   |   |   |   |   |   |   |   |
| Non-accruing loans                                                    | ** ** | **$**                 | **128**    |   | $ | 210 |   | $ | 765 |   | $ | 25 |   | $ | 78 |   |
| Accruing loans past due 90 days or more                               | ** ** | **152**               |       | 932 |   | 515 |   | 68 |   | 22 |   |
| Total nonperforming loans                                             | ** ** | **280**               |       | 1,142 |   | 1,280 |   | 93 |   | 100 |   |
| Restructured loans                                                    | ** ** | **—**            |       | — |   | — |   | — |   | — |   |
| Foreclosed real estate                                                | ** ** | **144**               |       | 327 |   | — |   | — |   | — |   |
| Total nonperforming assets                                            | ** ** | **$**                 | **424**    |   | $ | 1,469 |   | 1,280 |   | $ | 93 |   | 100 |   |
|                                                                  |       |                  |       |   |   |   |   |   |   |   |   |
| Non-accrual loans:                                                    |       |                  |       |   |   |   |   |   |   |   |   |
| Interest income that would have been recorded on non-accruing loans   |       | **$**                 | **10**     |   | $ | 64 |   | $ | 55 |   | $ | 3 |   | $ | 22 |   |
|                                                                  |       |                  |       |   |   |   |   |   |   |   |   |
| Interest income for above loans included in net income for the period |       | **$**                 | **8**      |   | $ | 51 |   | $ | 34 |   | $ | 1 |   | $ | 1 |   |
|                                                                  |       |                  |       |   |   |   |   |   |   |   |   |
| Ratios:                                                               |       |                  |       |   |   |   |   |   |   |   |   |
| Nonperforming loans to total loans                                    | ** ** | **0.16**              | **%**      | 1.38 | % | 1.67 | % | 0.14 | % | 0.17 | % |
|                                                                  |       |                  | ** ** |   |   |   |   |   |   |   |   |
| Allowance for loan losses to nonperforming loans                      |       | **610.71**            | **%**      | 84.94 | % | 67.73 | % | 635.48 | % | 466.00 | % |
|                                                                  |       |                  | ** ** |   |   |   |   |   |   |   |   |
| Nonperforming assets to total assets                                  | ** ** | **0.18**              | **%**      | 1.20 | % | 1.12 | % | 0.09 | % | 0.09 | % |
|                                                                  |       |                  | ** ** |   |   |   |   |   |   |   |   |
| Commitments to lend additional funds to nonperforming loan customers  |       | **$**                 | **0**      | ** ** | $ | 0 |   | $ | 0 |   | $ | 0 |   | $ | 0 |   |

 

**Allowance for Loan Losses**

 

The allowance for loan losses is a reserveestablished in the form of a provision expense for loan losses and is reducedby loan charge-offs net of recoveries. When loans are deemed to be uncollectible, they are charged off.  Management has established a reserve that itbelieves is adequate for estimated losses in the loan portfolio. In conjunctionwith an external loan review function that operates independent of the lendingfunction, management monitors the loan portfolio to identify risks on a timelybasis so that an appropriate allowance is maintained.  Based on an evaluation of the loan portfolio,management presents a quarterly review of the allowance for loan losses to theBank’s audit committee detailing significant events that have occurred sincethe last review.

 

The allowance for loan losses is evaluated on aregular basis by management and is based upon management’s periodic review ofthe collectability of the loans in light of historical experience, the natureand volume of the loan portfolio, adverse situations that may affect theborrower’s ability to repay, estimated value of any underlying collateral, andprevailing economic conditions.  Thisevaluation is inherently subjective as it requires estimates that aresusceptible to significant revisions as more information becomes available.

 

The allowance consists of specific, general and unallocatedcomponents.  The specific componentrelates to loans that are classified as either doubtful, substandard or specialmention.  For such loans that are 

 

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alsoclassified as impaired, an allowance is established when the discounted cashflows (or collateral value or observable market price) of the impaired loan islower than the carrying value of that loan. The general component covers non-classified loans and is based onhistorical loss experience adjusted for qualitative factors.  An unallocated component is maintained to coveruncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowancereflects the margin of imprecision inherent in the underlying assumptions usedin the methodologies for estimating specific and general losses in theportfolio.

 

A loan is considered impaired when, based on currentinformation and events, it is probable that Riverview will be unable to collectthe scheduled payments of principal or interest when due according to thecontractual terms of the loan agreement. Factors considered by management in determining impairment includepayment status, collateral value, and the probability of collecting scheduledprincipal and interest payments when due. Loans that experience insignificant payment delays and paymentshortfalls generally are not classified as impaired.  Management determines the significance ofpayment delays and payment shortfalls on a case-by-case basis, taking intoconsideration all of the circumstances surrounding the loan and the borrower,including the length of the delay, the reasons for the delay, the borrower’sprior payment record, and the amount of the shortfall in relation to theprincipal and interest owed.  Impairmentis measured on a loan by loan basis for commercial and construction loans byeither the present value of expected future cash flows discounted at the loan’seffective interest rate, the loan’s obtainable market price, or the fair valueof the collateral if the loan is collateral dependent.

 

Large groups of smaller balance homogeneous loansare collectively evaluated for impairment. Accordingly, Riverview does not separately identify individual consumerand residential loans for impairment disclosures, unless the loans are thesubject of a restructuring agreement.

 

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The following **Table 8** sets forth information as to the analysis of theallowance for loan losses and the allocation of the loan losses as of the datesindicated:

 

**TABLE 8**

 

**ANALYSIS OFTHE ALLOWANCE FOR LOAN LOSSES**

 
| ** **                               | ** ** | **December 31,** | ** ** |
|------------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)**     | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                     |       |                  |       |   |   |   |   |   |   |   |   |
| Allowance, beginning of year             | ** ** | **$**                 | **970**    |   | $ | 867 |   | $ | 591 |   | $ | 466 |   | $ | 477 |   |
| Provision for loan losses                | ** ** | **380**               |       | 120 |   | 295 |   | 150 |   | 25 |   |
| Allowance acquired from HNB              | ** ** | **496**               |       | — |   | — |   | — |   | — |   |
|                                     |       |                  |       |   |   |   |   |   |   |   |   |
| Loans charged off:                       |       |                  |       |   |   |   |   |   |   |   |   |
| Commercial, financial, agricultural      | ** ** | **32**                |       | — |   | — |   | — |   | — |   |
| Real estate mortgage                     | ** ** | **125**               |       | 14 |   | — |   | — |   | 14 |   |
| Installment                              | ** ** | **2**                 |       | 15 |   | 26 |   | 26 |   | 22 |   |
| Total charged-off                        | ** ** | **159**               |       | 29 |   | 26 |   | 26 |   | 36 |   |
|                                     |       |                  |       |   |   |   |   |   |   |   |   |
| Loan recoveries:                         |       |                  |       |   |   |   |   |   |   |   |   |
| Real estate mortgage                     | ** ** | **23**                |       | 4 |   | 2 |   | — |   | — |   |
| Installment                              |       | —                |       | 8 |   | 5 |   | 1 |   | — |   |
| Total recoveries                         | ** ** | **23**                |       | 12 |   | 7 |   | 1 |   | — |   |
| Net loans charged off                    | ** ** | **136**               |       | 17 |   | 19 |   | 25 |   | 36 |   |
|                                     |       |                  |       |   |   |   |   |   |   |   |   |
| Allowance, end of year                   | ** ** | **$**                 | **1,710**  |   | $ | 970 |   | $ | 867 |   | $ | 591 |   | $ | 466 |   |
|                                     |       |                  | ** ** |   |   |   |   |   |   |   |   |
| Net charge-offs to average loans         | ** ** | **0.14**              | **%**      | 0.02 | % | 0.03 | % | 0.04 | % | 0.06 | % |
| Allowance for loan losses to total loans | ** ** | **0.96**              | **%**      | 1.16 | % | 1.12 | % | 0.86 | % | 0.79 | % |

 

For the year ended December 31,2008, Riverview experienced an increase in loan charge-offs related to itsestablished product lines due to changes in the financial condition of oneborrower, in particular, and evaluations associated with other loans that theBank foreclosed on.  Management continuesto assess the effects of potential declines in the local economy and the localreal estate values when determining specific allocations related to loans ratedsubstandard and below.

 

The following **Table 9** details the allocation of theallowance for loan losses to the various loan categories at December 31,2008, 2007, 2006, 2005 and 2004.  Theallocation is made for analytical purposes and is not necessarily indicative ofthe loan categories in which future credit losses may occur.  The total allowance is available to absorblosses from any segment of loans.

 

**TABLE 9**

 

**ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES**

 
| ** **                             | ** ** | **2008**   | ** ** | **2007**                | ** ** | **2006**   | ** ** | **2005**                | ** ** | **2004**   | ** ** |
|----------------------------------------|------------|------------|------------|-------------------------|------------|------------|------------|-------------------------|------------|------------|------------|
| **(Dollars in thousands)**   | ** ** | **Amount** | ** ** | **% Gross  Loans** | ** ** | **Amount** | ** ** | **% Gross  Loans** | ** ** | **Amount** | ** ** | **% Gross  Loans** | ** ** | **Amount** | ** ** | **% Gross  Loans** | ** ** | **Amount** | ** ** | **% Gross  Loans** | ** ** |
| Commercial, financial and agricultural |       | **$**      | **124**    |                    | **7.3**    | **%**      | $          | 165                     |       | 10.5       | %          | $ | 114 |   | 7.4 | % | $ | 139 |   | 9.9 | % | $ | 5 |   | 12.1 | % |
| Real estate loans:                     |       |       |       |                    | ** ** |       |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Construction                           | ** ** | **77**     | ** ** | **10.2**                | **%**      | 47         |       | 10.8                    | %          | 50         |       | 5.0 | % | 2 |   | 2.0 | % | 1 |   | 4.3 | % |
| Mortgage                               | ** ** | **403**    | ** ** | **52.8**                | **%**      | 419        |       | 56.2                    | %          | 427        |       | 60.7 | % | 82 |   | 63.2 | % | 23 |   | 63.0 | % |
| Commercial                             | ** ** | **928**    | ** ** | **27.3**                | **%**      | 216        |       | 18.3                    | %          | 226        |       | 20.7 | % | 359 |   | 17.7 | % | 418 |   | 13.9 | % |
| Consumer loans                         | ** ** | **116**    | ** ** | **2.4**                 | **%**      | 43         |       | 4.2                     | %          | 36         |       | 6.2 | % | 9 |   | 7.2 | % | 6 |   | 6.7 | % |
| Unallocated                            | ** ** | **62**     | ** ** | **n/a**                 | ** ** | 80         |       | n/a                     |       | 14         |       | n/a |   | — |   | n/a |   | 13 |   | n/a |   |
|                                   | ** ** | ** ** | ** ** | ** **              | ** ** |       |       |                    |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Total                                  | ** ** | **$**      | **1,710**  | ** **              | **100.0**  | **%**      | $          | 970                     |       | 100.0      | %          | $ | 867 |   | 100.0 | % | $ | 591 |   | 100.0 | % | $ | 466 |   | 100.0 | % |

 

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A greater percentage of theallocation of the allowance for loan losses shifted towards commercial realestate loans at December 31, 2008 versus December 31, 2007, which isconsistent with the growth in this portfolio combined with weakening economicfactors.  With the inherently higherlevel of credit risk associated with commercial borrowings in general, theallocation to the allowance for loan losses for 2008 was appropriated to addressthe risk associated with this particular type of borrowing.  However, consideration was also given to theconsistent credit quality of the portfolio, which remained high as evidenced bythe asset quality ratios.  Theunallocated portion of the reserve considers risk of error in the specific andgeneral reserve allocation, and the imprecision associated with the estimate.

 

While mortgage loansincreased 99.3% to $94,322,000 at December 31, 2008 from $47,324,000 at December 31,2007 as a result of the HNB consolidation, there was a decline in thepercentage of the allowance dedicated to mortgage loans.  This was due to the fact the Bank has notexperienced deterioration in the credit quality of its mortgage portfolio.

 

Management currently believes the allowance for loanlosses at December 31, 2008 and 2007 is adequate to absorb losses inherentin the loan portfolio.  Althoughmanagement believes that it uses the best information available to make suchdeterminations, future adjustments to the allowance for loan losses may benecessary, and the results of operations could be significantly and adverselyaffected if circumstances differ substantially from the assumptions used inmaking the determinations.  In addition,because future events affecting borrowers and collateral cannot be predictedwith certainty, there can be no assurance that the existing allowance for loanlosses is adequate or that material increases will not be necessary should thequality of the loans deteriorate as a result of factors discussed above.

 

**Deposits**

 

Riverview generates andservices deposits through the Bank’s traditional branch banking deliverysystem.  Deposits are Riverview’s majorsource of funds available for lending and other investment purposes.  Total deposits at December 31, 2008,were $174,353,000, an increase of $79,881,000, or 84.6%, over total deposits of$94,472,000 as of December 31, 2007. This increase was due to $73,706,000 in deposits acquired as part of theHNB consolidation and organic growth of $6,175,000.   The trend during 2008 portrayed modestorganic deposit growth of 6.5%.  Whilenon-interest bearing demand deposits and time deposits respectively increased57.5% and 14.0% in 2008, interest bearing demand deposits decreased 25.2% witha drop of 25.2% in savings and money market accounts.  The organic growth in deposits wasattributable to the opening of two new branch offices.

 

**Table 10** sets forth theaverage balance of the Bank’s deposits and the average rates paid on thosedeposits for the years ended December 31, 2008, 2007 and 2006.  All deposits are domestic deposits.

 

**TABLE 10**

 

**AVERAGE DEPOSITS BY MAJORCLASSIFICATION**

 
| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** |
| **(Dollars in thousands)** | ** ** | **Average  Balance**  | ** ** | **Average  Rate** | ** ** | **Average  Balance** | ** ** | **Average  Rate** | ** ** | **Average  Balance** | ** ** | **Average  Rate** | ** ** |
| Non-interest bearing demand          | ** ** | **$**                 | **9,684**  | ** ** | **0.00** | **%** | $ | 8,279 |   | 0.00 | % | $ | 7,974 |   | 0.00 | % |
| Interest-bearing demand              | ** ** | **17,020**            | ** ** | **1.27** | **%** | 16,759 |   | 2.60 | % | 13,527 |   | 1.87 | % |
| Savings                              | ** ** | **15,067**            | ** ** | **0.91** | **%** | 15,617 |   | 1.30 | % | 15,032 |   | 0.83 | % |
| Time                                 | ** ** | **51,059**            | ** ** | **3.80** | **%** | 50,989 |   | 4.12 | % | 50,635 |   | 3.84 | % |
|                                 |       |                  |       |   | ** ** |   |   |   |   |   |   |   |   |
| Total deposits                       | ** ** | **$**                 | **92,830** |   |   | ** ** | $ | 91,644 |   |   |   | $ | 87,168 |   |   |   |

 

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**Table 11** displays theremaining maturities and amounts of time certificates issued in denominationsof $100,000 or more at December 31, 2008.

 

**TABLE 11**

 

**DEPOSIT MATURITIES**

 
| **(In thousands)**                  | ** ** | **Time  Certificates** | ** ** |
|------------------------------------------|------------|------------------------|------------|
| ** **                               | ** ** | ** **             | ** ** |
| Three months or less                     | ** ** | **$**                  | **5,009**  | ** ** |
| Over three months but within six months  | ** ** | **3,677**              | ** ** |
| Over six months but within twelve months | ** ** | **8,730**              | ** ** |
| Over twelve months                       | ** ** | **13,640**             | ** ** |
| Total                                    | ** ** | **$**                  | **31,056** | ** ** |

 

##### **Borrowings**

##### ** **

Short-term borrowings aregenerally used to meet temporary funding needs and consist of federal fundspurchased, securities sold under agreements to repurchase, and overnight andshort-term borrowings from the Federal Home Loan Bank of Pittsburgh.  Short-term borrowings increased $20,058,000to $21,323,000 at December 31, 2008 as compared with $1,265,000 as of December 31,2007.  This increase is due to short-termborrowings of $3,436,000 acquired as part of the consolidation of HNB with theexcess of $16,622,000 representing additional borrowings that the Bank utilizedduring 2008 to take advantage of the low interest rates and to make up for themodest growth in deposits in order to fund loan demand.

 

Long-term borrowings aregenerally utilized as a resource to fund growth.  This strategy has helped Riverview to manageits cost of funds.  Long-term borrowingsare also utilized as a tool to control interest rate positions within theoverall asset-liability management function. All borrowings of this nature have been provided through the FederalHome Loan Bank of Pittsburgh.  Long-termborrowings as of December 31, 2008 decreased $3,378,000 from the prioryear end to $10,033,000 as compared to $13,411,000 as of December 31, 2007as a result of a shift from borrowing on a long term basis to short-term inorder to take advantage of lower interest rates.  While Riverview acquired $2,533,000 inlong-term borrowings as part of the HNB consolidation, it paid off $5,911,000during 2008

 

Additional informationrelating borrowings can be found in Note 11 of the Notes to the ConsolidatedFinancial Statements contained herein this Report.

 

**Shareholders’ Equity and Capital Requirements/Ratios**

 

The net result of activitythat affected shareholders’ equity during the year resulted in an increase of$11,450,000 in total shareholders’ equity to $24,205,000, at December 31,2008, from $12,755,000, at December 31, 2007.  A summary of the transactions include:

 

·                  As of December 31, 2008, Riverview wasformed upon the completion of the consolidation of First Perry and HNB.  Each outstanding share of common stock ofFirst Perry and HNB was converted into 2.435 and 2.520 shares of Riverview’scommon stock, respectively.  Riverviewissued 1,750,003 shares of common stock in exchange for HNB common stock thusresulting in additional capital of $11,316,000;

 

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·                  Net income of $371,000 generated in 2008;

 

·                  An increase of $63,000 in the change ofaccumulated other comprehensive income associated with the net unrealized gainson securities available for sale;

 

·                  The payment of quarterly cash dividends toshareholders totaling $300,000 in 2008 reduced shareholders’ equity.

 

Riverview places significantemphasis on maintaining strong capital levels. The goals for capital planning are to build a strong capital base tofund future growth, to support risks inherent in the banking industry, toretain earnings to meet regulatory requirements and to provide an adequatereturn to shareholders.

 

Riverviewmeets the eligibilitycriteria of a small bank holding company in accordance with the Federal ReserveBoard’s Small Bank Holding Company Policy Statement.  Accordingly, Riverview is exempt fromregulatory requirements administered by the federal banking agencies.  However, the Bank is subject to various regulatorycapital adequacy requirements administered by the Federal Reserve Board.  Current capital guidelines issued by federalregulatory authorities require the Bank to meet minimum risk-based capital ratiosin an effort to make regulatory capital more responsive to possible riskexposure related to a corporation’s on and off-balance sheet items.

 

Risk-based capital providesthe basis for which all companies are evaluated in terms of capitaladequacy.  Risk-based capital guidelinesredefine the components of capital and establish a risk-adjusted ratio relatingcapital to different categories of assets and off-balance sheet items.  The components of risk-based capital aresegregated as Tier I and Tier II capital. Tier I capital is composed of total stockholders’ equity reduced bygoodwill and other intangible assets. Tier II capital is comprised of the allowance for loan losses and anyqualifying debt obligations.  The minimumrisk-based capital standards require all banks to have Tier I capital of atleast 4% and total capital (which includes Tier I capital) of at least 8% ofrisk-weighted assets.

 

The Bank is also subject toleverage capital requirements.  Thisrequirement compares capital (using the definition of Tier I capital) toquarterly average balance sheet assets and is intended to supplement therisk-based capital ratio in measuring capital adequacy.  The guidelines set a minimum leverage ratioof 3% for institutions that are highly rated in terms of safety and soundness,and which are not experiencing or anticipating any significant growth.  Other institutions are expected to maintaincapital levels of at least 1% or 2% above that minimum.  As of December 31, 2008, the Bank had aTier I leverage ratio of 9.50%.

 

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**Table 13**provides acomparison of the Bank’s risk-based capital ratios and leverage ratios at December 31,2008 and 2007, including the consolidation of Halifax National Bank at December 31,2008:

** **

**TABLE 13**

** **

**CAPITAL RATIOS**

** **
| ** **                           | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-----------------------|------------|
| **(Dollars in thousands)** | ** ** | **2008**              |       | **2007** | ** ** |
|                                 |       |                  |       |   |   |
| Tier I capital                       | ** ** | **$**                 | **21,732** |   | $ | 12,528 |   |
| Tier II, allowable portion of:       |       |                  |       |   |   |
| Allowance for loan losses            | ** ** | **1,710**             |       | 970 |   |
|                                 |       |                  | ** ** |   |   |
| Total capital                        | ** ** | **$**                 | **23,442** | ** ** | $ | 13,498 |   |
|                                 |       |                  | ** ** |   |   |
| Tier I risk-based capital ratio      | ** ** | **14.3**              | **%**      | 17.3 | % |
|                                 |       |                  | ** ** |   |   |
| Total risk-based capital ratio       | ** ** | **13.2**              | **%**      | 16.1 | % |
|                                 |       |                  | ** ** |   |   |
| Tier I leverage ratio                | ** ** | **9.5**               | **%**      | 10.4 | % |

 
| Note: | Unrealized gains or losses  on securities available for sale and goodwill and intangible assets are  excluded from regulatory capital components of risk-based capital and  leverage ratios. |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

At December 31, 2008and 2007, the Bank exceeded the minimum regulatory capital requirements andwere considered to be “well capitalized” under applicable federal regulations.

 

The maintenance of a solidcapital foundation continues to be a primary goal for Riverview.   An objective of the capital planning processis to balance effectively the retention of capital to support future growth,while at the same time, providing shareholders with an attractive long-termreturn on their investment.  Managementbelieves that Riverview’s capital position is adequate to support currentoperations and growth, and anticipates earnings to grow in tandem with assetgrowth.  However, management is consciousof the impact that either rapid expansion or lower than projected earnings maypotentially have on deteriorating Riverview’s capital position.  Management proactively monitors the capitallevels to ensure that they remain well in line with regulatory requirements,and is ever positioned to enact appropriate measures to ensure the strength ofRiverview’s capital position.  WhileRiverview continues to look for growth opportunities, there are no other knownevents, trends or circumstances that would adversely impact capital.

 

**Off-Balance Sheet Arrangements**

** **

Riverview’s financialstatements do not reflect various off-balance sheet arrangements that are madein the normal course of business, which may involve some liquidity risk.  These commitments consist mainly of loansapproved but not yet funded, unused lines of credit and letters of credit madeunder the same standards as on-balance sheet instruments.  Unused commitments at December 31, 2008,were $17,825,000.  Because theseinstruments have fixed maturity dates, and because many of them will expirewithout being drawn upon, they do not generally present any significantliquidity risk to Riverview.  Refer toNote 12 of the consolidated financial statements for a discussion of thenature, business purpose and importance of Riverview’s off-balance sheetarrangements.

 

Management believes that anyamounts actually drawn upon can be funded in the normal course ofoperations.  Riverview has no investmentin or financial relationship with any unconsolidated entities that arereasonably likely to have a material effect on liquidity or the availability ofcapital resources.

 

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**Liquidity**

 

Liquidity refers toRiverview’s ability to generate adequate amounts of cash to meet financialobligations to its customers in order to fund loans, to respond to depositoutflows and to cover operating expenses. Maintaining a level of liquid funds through asset/liability managementseeks to ensure that these needs are met at a reasonable cost.  Liquidity is essential to compensate for fluctuationsin the balance sheet and provide funds for growth and normal operatingexpenditures.  Sources of liquidity areprovided on a continuous basis through scheduled and unscheduled principalreductions and interest payments on outstanding loans and investmentsecurities.  Liquidity needs may also bemet by converting assets into cash or obtaining sources of additional funding,whether through deposit growth, securities sold under agreements to repurchaseor borrowings under lines of credit with correspondent banks.

 

Liquidityfrom the asset category is provided through cash, amounts due from banks,interest-bearing deposits with banks and federal funds sold, which totaled$6,968,000 at December 31, 2008 as compared to $9,083,000 at December 31,2007.  While liquidity sources generatedfrom assets include scheduled and prepayments of principal and interest fromsecurities and loans in Riverview’s portfolios, longer-term liquidity needs maybe met by selling securities available for sale, selling loans or raisingadditional capital.  At December 31,2008, unpledged available for sale securities with a carrying value of$11,362,000 were readily available for liquidity purposes, as compared with$4,688,000 at December 31, 2007. The increase of $6,674,000 in unpledged available for sale securitieswas the result of the available for sale securities acquired as part of the HNBconsolidation.

 

On the liability side, theprimary source of funds available to meet liquidity needs is to attractdeposits at competitive rates.  The Bank’score deposits, which exclude certificates of deposit over $100,000, were$143,279,000 at December 31, 2008 as compared to $78,883,000 at December 31,2007.  The increase in core deposits isprimarily the result of deposits acquired as part of the HNBconsolidation.  Core deposits havehistorically provided a source of relatively stable and low cost liquidity, ashas also been the case for securities sold under agreements to repurchase.  Short-term and long-term borrowings utilizingthe federal funds line and credit facility established with a correspondentfinancial institution and the FHLB, are also considered to be reliable sourcesfor funding.  As of December 31,2008, Riverview has access to two formal borrowing lines totaling $57,562,000with the aggregate amount outstanding on these lines totaling $30,796,000.

 

There are a number offactors that may impact Riverview’s liquidity position.  Changes in interest rates, local economicconditions and the competitive marketplace can influence prepayments oninvestment securities, loan fundings and payments, and deposit flows.  Management is of the opinion that itsliquidity position at December 31, 2008 is adequate to respond tofluctuations “on” and “off” the balance sheet since it manages liquidity on adaily basis and expects to have sufficient funds to meet all of its fundingrequirements.

 

Except as discussed above,there are no known demands, trends, commitments, events or uncertainties thatmay result in, or that are reasonably likely to result in Riverview’s inabilityto meet anticipated or unexpected needs.

 

**Effects of Inflation**

** **

The impact of inflation uponfinancial institutions can affect assets and liabilities through the movementof interest rates.  The exact impact ofinflation on Riverview is difficult to measure. Inflation may cause operating expenses to change at a rate not matchedby the change in earnings.  Inflation mayaffect the borrowing needs and desires of consumer and commercial customers, inturn affecting the growth of Riverview’s assets.  Inflation may also affect the level ofinterest rates in the general market, which in turn can affect Riverview’sprofitability and the market value of assets held.  Riverview actively manages its interest ratesensitive assets and liabilities countering the effects of inflation.

 

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##### **Return on Equity and Assets**

##### ** **

Thefollowing table presents ratios as of the dates presented:

 
| ** **             | ** ** | **December 31,** | ** ** |
|------------------------|------------|-----------------------|------------|
| ** **             | ** ** | **2008**              | ** ** | **2007** | ** ** | **2006** | ** ** |
|                   |       |                  | ** ** |   |   |   |   |
| Return on assets       | ** ** | **0.29**              | **%**      | 0.47 | % | 0.42 | % |
| Return on equity       | ** ** | **2.90**              | **%**      | 4.34 | % | 3.94 | % |
| Dividend payout ratio  | ** ** | **79.49**             | **%**      | 55.36 | % | 63.27 | % |
| Equity to assets ratio | ** ** | **9.91**              | **%**      | 10.74 | % | 10.73 | % |

 

***New Financial AccountingStandards***

 

Note 1 to the consolidatedfinancial statements discusses the expected impact on Riverview’s financialcondition and results of operations for recently issued or proposed accountingstandards that have not been adopted.  Tothe extent we anticipate a significant impact to Riverview’s financialcondition or results of operations, appropriate discussion takes place in theapplicable note to the consolidated financial statements.

 

**ITEM 7A****. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

NotApplicable.

 

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** **

**ITEM 8****. FINANCIALSTATEMENTS AND SUPPLEMENTAL DATA.**

** **

**TABLE OFCONTENTS**

**December 31,2008 and 2007**

** **
| ** **                                                       | **Page**   |
|------------------------------------------------------------------|------------|
| ** **                                                       | ** ** |
| **Report of Independent  Registered Public Accounting Firm**     | 42         |
| ** **                                                       | ** ** |
| **Consolidated  Financial Statements**                           | ** ** |
| ** **                                                       | ** ** |
| Consolidated  Balance Sheets                                     | 43         |
| Consolidated  Statements of Income                               | 44         |
| Consolidated  Statements of Changes in Shareholders’ Equity | 45         |
| Consolidated  Statements of Cash Flows                           | 46         |
| Notes  to Consolidated Financial Statements                      | 47         |

 

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** **

**Report of IndependentRegistered Public Accounting Firm**

** **

Tothe Board of Directors and ShareholdersRiverview Financial CorporationHalifax, Pennsylvania

 

Wehave audited the accompanying consolidated balance sheets of RiverviewFinancial Corporation and subsidiary as of December 31, 2008 and 2007, andthe related consolidated statements of income, changes in shareholders’ equity,and cash flows for the years then ended. Riverview Financial Corporation’s management is responsible for theseconsolidated financial statements.  Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  The Corporationis not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting. Our audits included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Corporation’s internal control over financialreporting.  Accordingly, we express nosuch opinion.  An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Riverview FinancialCorporation and subsidiary as of December 31, 2008 and 2007, and theresults of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in the United Statesof America.

 

 
|   | /s/ Beard Miller Company LLP |
|--------|------------------------------|

 

 

Beard Miller Company LLP

Harrisburg,Pennsylvania

April 7,2009

 

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**CONSOLIDATEDBALANCE SHEETS**

**December31, 2008 and 2007**

 
| ** **                                                                                                                 | ** ** | **2008**                                                  | ** **  | **2007** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|-------------|----------|------------|
| ** **                                                                                                                 | ** ** | **(In thousands, except share data)** | ** **  |
| **Assets**                                                                                                                 |       |                                                      |        |     |       |
| Cash and due from banks                                                                                                    |       | **$**                                                     | **4,545**   |     | $          | 2,600 |   |
| Federal funds sold                                                                                                         |       | **1,034**                                                 |        | 6,403    |       |
| Interest bearing deposits                                                                                                  |       | **439**                                                   |        | 80       |       |
| Cash and Cash Equivalents                                                                                                  |       | **6,018**                                                 |        | 9,083    |       |
|                                                                                                                       |       | ** **                                                |        |     |       |
| Interest bearing time deposits with banks                                                                                  |       | **950**                                                   |        | —   |       |
| Investment securities available for sale                                                                                   |       | **28,120**                                                |        | 20,290   |       |
| Mortgage loans held for sale                                                                                               |       | **1,124**                                                 |        | —   |       |
| Loans, net of allowance for loan losses of $1,710 and $970                                                                 |       | **176,469**                                               |        | 82,934   |       |
| Premises and equipment                                                                                                     |       | **7,472**                                                 |        | 5,041    |       |
| Accrued interest receivable                                                                                                |       | **812**                                                   |        | 485      |       |
| Restricted investments in bank stocks                                                                                      |       | **2,075**                                                 |        | 949      |       |
| Cash value of life insurance                                                                                               |       | **5,258**                                                 |        | 2,875    |       |
| Foreclosed assets                                                                                                          |       | **144**                                                   |        | 327      |       |
| Goodwill                                                                                                                   |       | **1,785**                                                 |        | —   |       |
| Intangible assets                                                                                                          |       | **173**                                                   |        | —   |       |
| Other assets                                                                                                               |       | **1,511**                                                 |        | 696      |       |
|                                                                                                                       |       | ** **                                                |        |     |       |
| **Total Assets**                                                                                                           |       | **$**                                                     | **231,911** |     | $          | 122,680 |   |
| **Liabilities and Shareholders’  Equity**                                                                             |       | ** **                                                |        |     |       |
| **Liabilities**                                                                                                            |       | ** **                                                |        |     |       |
| Deposits:                                                                                                                  |       | ** **                                                |        |     |       |
| Demand, non-interest bearing                                                                                               |       | **$**                                                     | **19,614**  |     | $          | 7,546 |   |
| Demand, interest bearing                                                                                                   |       | **25,789**                                                |        | 21,870   |       |
| Savings and money market                                                                                                   |       | **27,877**                                                |        | 15,751   |       |
| Time                                                                                                                       |       | **101,073**                                               |        | 49,305   |       |
|                                                                                                                       |       | ** **                                                |        |     |       |
| Total Deposits                                                                                                             |       | **174,353**                                               |        | 94,472   |       |
|                                                                                                                       |       | ** **                                                |        |     |       |
| Short-term borrowings                                                                                                      |       | **21,323**                                                |        | 1,265    |       |
| Long-term borrowings                                                                                                       |       | **10,033**                                                |        | 13,411   |       |
| Accrued interest payable                                                                                                   |       | **499**                                                   |        | 319      |       |
| Other liabilities                                                                                                          |       | **1,498**                                                 |        | 458      |       |
|                                                                                                                       |       | ** **                                                |        |     |       |
| **Total Liabilities**                                                                                                      |       | **207,706**                                               |        | 109,925  |       |
| ** **                                                                                                                 |       | ** **                                                |        |     |       |
| **Shareholders’ Equity**                                                                                              |       | ** **                                                |        |     |       |
| Common stock, par value $0.50 per share; authorized 5,000,000 shares;  issued and outstanding 1,750,003 and 962,585 shares |       | **875**                                                   |        | 481      |       |
| Surplus                                                                                                                    |       | **11,239**                                                |        | 317      |       |
| Retained earnings                                                                                                          |       | **12,054**                                                |        | 11,983   |       |
| Accumulated other comprehensive income (loss)                                                                              |       | **37**                                                    |        | (26      | )          |
|                                                                                                                       |       | ** **                                                |        |     |       |
| **Total Shareholders’ Equity**                                                                                        |       | **24,205**                                                |        | 12,755   |       |
| ** **                                                                                                                 |       | ** **                                                |        |     |       |
| **Total Liabilities and Shareholders’ Equity**                                                                        |       | **$**                                                     | **231,911** |     | $          | 122,680 |   |

* *

*Seenotes to consolidated financial statements.*

 

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**CONSOLIDATED STATEMENTS OF INCOME**

**Years Ended December 31, 2008 and 2007**

 
| ** **                                               | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------|------------|
| ** **                                               | ** ** | **(In thousands, except per share data)** | ** ** |
| **Interest and Dividend Income**                         |       | ** **                                                         |       |     |       |
| Loans, including fees                                    |       | **$**                                                              | **6,406**  |     | $          | 5,431 |   |
| Investment securities - taxable                          |       | **558**                                                            |       | 617      |       |
| Investment securities - tax exempt                       |       | **137**                                                            |       | 228      |       |
| Federal funds sold                                       |       | **28**                                                             |       | 125      |       |
| Interest-bearing deposits                                |       | **3**                                                              |       | 14       |       |
| Dividends                                                |       | **38**                                                             |       | 47       |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Total Interest Income**                                |       | **7,170**                                                          |       | 6,462    |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Interest Expense**                                     |       | ** **                                                         |       |     |       |
| Deposits                                                 |       | **2,295**                                                          |       | 2,742    |       |
| Short-term borrowings                                    |       | **152**                                                            |       | 190      |       |
| Long-term debt                                           |       | **597**                                                            |       | 326      |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Total Interest Expense**                               |       | **3,044**                                                          |       | 3,258    |       |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Net Interest Income**                                  |       | **4,126**                                                          |       | 3,204    |       |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Provision for Loan Losses**                            |       | **380**                                                            |       | 120      |       |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Net Interest Income after Provision for Loan  Losses** |       | **3,746**                                                          |       | 3,084    |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Noninterest Income**                                   |       | ** **                                                         |       |     |       |
| Service charges on deposit accounts                      |       | **156**                                                            |       | 120      |       |
| Other service charges and fees                           |       | **220**                                                            |       | 235      |       |
| Earnings on cash value of life insurance                 |       | **100**                                                            |       | 96       |       |
| Gain on sale of available for sale securities            |       | **40**                                                             |       | —   |       |
| Gain on sale of mortgage loans                           |       | **50**                                                             |       | —   |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Total Noninterest Income**                             |       | **566**                                                            |       | 451      |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Noninterest Expenses**                                 |       | ** **                                                         |       |     |       |
| Salaries and employee benefits                           |       | **2,205**                                                          |       | 1,641    |       |
| Occupancy expenses                                       |       | **449**                                                            |       | 365      |       |
| Equipment expenses                                       |       | **213**                                                            |       | 177      |       |
| Telecommunication and processing charges                 |       | **183**                                                            |       | 205      |       |
| Postage and office supplies                              |       | **94**                                                             |       | 83       |       |
| Bank shares tax expense (credit)                         |       | **104**                                                            |       | (83      | )          |
| Directors’ compensation                             |       | **105**                                                            |       | 106      |       |
| Professional services                                    |       | **138**                                                            |       | 61       |       |
| Other expenses                                           |       | **492**                                                            |       | 365      |       |
|                                                     |       | ** **                                                         |       |     |       |
| **Total Noninterest Expenses**                           |       | **3,983**                                                          |       | 2,920    |       |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Income before Income Taxes (Benefit)**                 |       | **329**                                                            |       | 615      |       |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Applicable Federal Income Taxes (Benefit)**            |       | **(42**                                                            | **)**      | 80       |       |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Net Income**                                           |       | **$**                                                              | **371**    |     | $          | 535 |   |
| ** **                                               |       | ** **                                                         |       |     |       |
| **Earnings Per Share - Basic**                           |       | **$**                                                              | **0.39**   |     | $          | 0.56 |   |

* *

***See notes to consolidated financialstatements.***

 

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**CONSOLIDATEDSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY**

**Years Ended December 31, 2008 and 2007**

 
| **(In thousands, except per share data)**            | ** ** | **Common  Stock** | ** ** | **Surplus** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------|------------|-------------|------------|------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **             | ** ** | ** **                                                | ** ** | ** **                            | ** ** |
| **Balance - January 1, 2007**                                            |       | $                 | 481        |        | $          | 317                    |       | $                                                         | 11,748     |                                  | $          | (166 | ) | $ | 12,380 |   |
|                                                                          |       |              |       |        |       |                   |       |                                                      |       |                                  |       |
| Comprehensive income:                                                         |       |              |       |        |       |                   |       |                                                      |       |                                  |       |
| Net income                                                                    |       | —            |       | —      |       | 535                    |       | —                                                    |       | 535                                   |       |
| Other comprehensive income                                                    |       | —            |       | —      |       | —                 |       | 140                                                       |       | 140                                   |       |
|                                                                          |       |              |       |        |       |                   |       |                                                      |       |                                  |       |
| **Total Comprehensive Income**                                                |       |              |       |        |       |                   |       |                                                      |       | 675                                   |       |
|                                                                          |       |              |       |        |       |                   |       |                                                      |       |                                  |       |
| Cash dividends, $0.31 per share                                               |       | —            |       | —      |       | (300                   | )          | —                                                    |       | (300                                  | )          |
|                                                                          |       |              |       |        |       |                   |       |                                                      |       |                                  |       |
| **Balance - December 31, 2007**                                          |       | 481               |       | 317         |       | 11,983                 |       | (26                                                       | )          | 12,755                                |       |
|                                                                          |       |              |       |        |       |                   |       |                                                      |       |                                  |       |
| Comprehensive income:                                                         | ** ** | ** **        | ** ** | ** **  | ** ** | ** **             | ** ** | ** **                                                | ** ** | ** **                            | ** ** |
| Net income                                                                    | ** ** | **—**        | ** ** | **—**  | ** ** | **371**                | ** ** | **—**                                                | ** ** | **371**                               | ** ** |
| Other comprehensive income                                                    | ** ** | **—**        | ** ** | **—**  | ** ** | **—**             | ** ** | **63**                                                    | ** ** | **63**                                | ** ** |
| ** **                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **             | ** ** | ** **                                                | ** ** | ** **                            | ** ** |
| **Total Comprehensive Income**                                                | ** ** | ** **        | ** ** | ** **  | ** ** | ** **             | ** ** | ** **                                                | ** ** | **434**                               | ** ** |
| ** **                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **             | ** ** | ** **                                                | ** ** | ** **                            | ** ** |
| Issuance of common stock in exchange for HNB Bancorp, Inc.  common stock | ** ** | **394**           | ** ** | **10,922**  | ** ** | **—**             | ** ** | **—**                                                | ** ** | **11,316**                            | ** ** |
| ** **                                                                    | ** ** | ** **        | ** ** | ** **  | ** ** | ** **             | ** ** | ** **                                                | ** ** | ** **                            | ** ** |
| Cash dividends, $0.31 per share                                               | ** ** | **—**        | ** ** | **—**  | ** ** | **(300**               | **)**      | **—**                                                | ** ** | **(300**                              | **)**      |
|                                                                          | ** ** |              | ** ** |        | ** ** | ** **             | ** ** |                                                      | ** ** | ** **                            | ** ** |
| **Balance - December 31, 2008**                                          | ** ** | **$**             | **875**    | ** **  | **$**      | **11,239**             | ** ** | **$**                                                     | **12,054** | ** **                            | **$**      | **37** | ** ** | **$** | **24,205** | ** ** |

 

*Seenotes to consolidated financial statements.*

 

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**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**Years Ended December 31, 2008 and 2007**

 
| ** **                                                                                   | ** ** | **2008**                | ** ** | **2007**   | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                                                                   | ** ** | **(In thousands)** | ** ** |
| **Cash Flows from Operating Activities**                                                     | ** ** | ** **              | ** ** | ** ** | ** ** |
| Net income                                                                                   |       | **$**                   | **371**    | ** ** | $          | 535 |   |
| Adjustments to reconcile net income to net cash provided by (used in)  operating activities: |       | ** **              | ** ** |       |       |
| Depreciation                                                                                 |       | **332**                 | ** ** | 284        |       |
| Provision for loan losses                                                                    |       | **380**                 | ** ** | 120        |       |
| Net amortization of premiums on securities available for sale                                |       | **48**                  | ** ** | 32         |       |
| Net realized gain on sale of securities available for sale                                   |       | **(40**                 | **)**      | —     |       |
| Deferred income taxes                                                                        |       | **(147**                | **)**      | (11        | )          |
| Proceeds from sale of mortgage loans                                                         |       | **3,715**               | ** ** | —     |       |
| Net gain on sale of mortgage loans                                                           |       | **(50**                 | **)**      | —     |       |
| Mortgage loans originated for sale                                                           |       | **(4,789**              | **)**      | —     |       |
| Earnings on cash value of life insurance                                                     |       | **(100**                | **)**      | (96        | )          |
| Increase in accrued interest receivable and other assets                                     |       | **(458**                | **)**      | (324       | )          |
| Increase in accrued interest payable and other liabilities                                   |       | **330**                 | ** ** | 82         |       |
|                                                                                         |       | ** **              | ** ** |       |       |
| **Net Cash Provided by (Used in) Operating  Activities**                                     |       | **(408**                | **)**      | 622        |       |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| **Cash Flows from Investing Activities**                                                     |       | ** **              | ** ** |       |       |
| Securities available for sale:                                                               |       | ** **              | ** ** |       |       |
| Proceeds from maturities, calls and principal repayments                                     |       | **8,651**               | ** ** | 8,592      |       |
| Proceeds from sales                                                                          |       | **2,731**               | ** ** | —     |       |
| Purchases                                                                                    |       | **(6,001**              | **)**      | (4,070     | )          |
| Net increase in restricted stock                                                             |       | **(566**                | **)**      | (24        | )          |
| Net increase in loans                                                                        |       | **(26,976**             | **)**      | (6,900     | )          |
| Net cash acquired in business combination                                                    |       | **2,870**               | ** ** | —     |       |
| Purchases of premises and equipment                                                          |       | **(279**                | **)**      | (896       | )          |
| Proceeds from sale of foreclosed assets                                                      |       | **327**                 | ** ** | —     |       |
|                                                                                         |       | ** **              | ** ** |       |       |
| **Net Cash Used in Investing Activities**                                                    |       | **(19,243**             | **)**      | (3,298     | )          |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| **Cash Flows from Financing Activities**                                                     |       | ** **              | ** ** |       |       |
| Net increase in deposits                                                                     |       | **6,175**               | ** ** | 5,909      |       |
| Net increase (decrease) in short-term borrowings                                             |       | **16,622**              | ** ** | (5,544     | )          |
| Proceeds from long-term borrowings                                                           |       | **2,500**               | ** ** | 12,000     |       |
| Payments on long-term borrowings                                                             |       | **(8,411**              | **)**      | (4,048     | )          |
| Dividends paid                                                                               |       | **(300**                | **)**      | (300       | )          |
|                                                                                         |       | ** **              | ** ** |       |       |
| **Net Cash Provided by Financing Activities**                                                |       | **16,586**              | ** ** | 8,017      |       |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| **Net Increase (Decrease) in Cash and Cash  Equivalents**                                    |       | **(3,065**              | **)**      | 5,341      |       |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| **Cash and Cash Equivalents - Beginning**                                                    |       | **9,083**               | ** ** | 3,742      |       |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| **Cash and Cash Equivalents - Ending**                                                       |       | **$**                   | **6,018**  | ** ** | $          | 9,083 |   |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| **Supplementary Cash Flows Information**                                                     |       | ** **              | ** ** |       |       |
| ** **                                                                                   |       | ** **              | ** ** |       |       |
| Interest paid                                                                                |       | **$**                   | **3,067**  | ** ** | $          | 3,226 |   |
|                                                                                         |       | ** **              | ** ** |       |       |
| Income taxes paid                                                                            |       | **$**                   | **58**     | ** ** | $          | 113 |   |
|                                                                                         |       | ** **              | ** ** |       |       |
| Transfer of loans to foreclosed assets                                                       |       | **$**                   | **144**    | ** ** | $          | 327 |   |

* *

*Seenotes to consolidated financial statements**.*

 

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**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**December 31,2008 and 2007**

** **

**Note 1 - Summary of SignificantAccounting Policies**

** **

**Nature of Operations**

** **

On December 31, 2008, RiverviewFinancial Corporation (the “Corporation”) was formed and effected theconsolidation of First Perry Bancorp (“First Perry”), Inc. and itswholly-owned subsidiary, The First National Bank of Marysville, and HNB Bancorp(“HNB”), Inc. and its wholly owned subsidiary, Halifax National Bank.  Immediately thereafter, The First NationalBank of Marysville and Halifax National Bank were consolidated with and intoRiverview National Bank (the “Bank”), the wholly owned subsidiary of theCorporation.  The current branches of TheFirst National Bank of Marysville and Halifax National Bank continue to operateunder their current names as divisions of the Bank.

 

The Corporation and its wholly-owned banksubsidiary provide loan, deposit and other commercial banking services throughfour full service offices in Marysville, Duncannon and Enola, Perry County,Pennsylvania, one full service office in Hampden Township, Cumberland County,Pennsylvania and three full service and one drive-up office in Halifax, Millersburgand Elizabethville, Dauphin County, Pennsylvania.  The Corporation competes with several otherfinancial institutions to provide its services to individuals, businesses,municipalities and other organizations. The Corporation is subject to regulation and supervision by the FederalReserve Board while the Bank is subject to regulation and supervision by theOffice of the Comptroller of the Currency and the Federal Deposit InsuranceCorporation.

 

The accounting and reporting policiesfollowed by the Corporation conform to generally accepted accounting principlesand to general practices within the banking industry.  The following paragraphs briefly describe themore significant accounting policies.

 

**Basis of Consolidation**

** **

The accompanying consolidated financialstatements include the accounts of Riverview Financial Corporation and itswholly-owned subsidiary, Riverview National Bank.  The Corporation was formed in 2008 and becameoperational upon its acquisition of First Perry, pursuant to an Agreement andPlan of Consolidation that was consummated on December 31, 2008.  The combined financial information reflects the impact of theconsolidation of First Perry’s and HNB’s combined financial condition under thepurchase method of accounting with First Perry treated as the acquirer from anaccounting standpoint.  Under this methodof accounting, Riverview was formed and treated as a recapitalization of FirstPerry, with First Perry’s assets and liabilities recorded at their historicalvalues, and HNB’s at their fair values on the date the consolidation wascompleted.  The financial information relating to theperiods prior to December 31, 2008 of First Perry, the acquirer, arereported under the name of Riverview Financial Corporation.  All significant intercompany accounts andtransactions have been eliminated in consolidation.

 

**Use of Estimates**

** **

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

 

assets and liabilities at the date of thefinancial statements and the reported amounts of income and expenses during thereporting period.  Actual results coulddiffer significantly from those estimates.

 

Material estimates that are particularlysusceptible to significant change in the near term relate to the determinationof the allowance for loan losses, the potential impairment of  goodwill and restricted stock, the valuationof deferred tax assets, the determination of other-than-temporary impairment onsecurities and the valuation of real estate acquired by foreclosure or insatisfaction of loans.  The determinationof the adequacy of the allowance for loan losses is based on estimates that areparticularly susceptible to significant changes in the economic environment andmarket conditions.  In connection withthe determination of the estimated losses on loans and foreclosed real estate,management obtains independent appraisals for significant collateral.

 

While management uses available informationto recognize losses on loans, further reductions in the carrying amounts ofloans may be necessary based on changes in local economic conditions.  In addition, regulatory agencies, as an integralpart of their examination process, periodically review the estimated losses onloans.  Such agencies may require theBank to recognize additional losses based on their judgments about informationavailable to them at the time of their examination.  Because of these factors, it is reasonablypossible that the estimated losses on loans may change materially in the nearterm.  However, the amount of the changethat is reasonably possible cannot be estimated.

 

**Cash and Cash Equivalents**

** **

Cash and cash equivalents, for purposes ofthe statement of cash flows, consists of cash and due from banks, federal fundssold and interest-bearing deposits in other banks.  Generally, federal funds are purchased andsold for one day periods.

 

**Investment Securities**

** **

Management determines the appropriateclassification of debt securities at the time of purchase and re-evaluates theclassifications as of each balance sheet date.

 

Investment securities available for saleare those securities that the Corporation intends to hold for an indefiniteperiod of time, but not necessarily to maturity.  Any decision to sell a security classified asavailable for sale would be based on various factors, including movements ininterest rates, changes in the maturity mix of the Corporation’s assets andliabilities, liquidity needs, regulatory considerations and other similarfactors.  Investment securities availablefor sale are carried at fair value. Unrealized gains or losses are reported as changes in othercomprehensive income, net of the related deferred tax effect.  Any realized gains or losses, based on theamortized cost of specific securities sold, are included in currentoperations.  Premiums and discounts are recognized**in interest income using the interest method over the termsof the securities.

 

Declines in the fair value of individualsecurities below their cost that are other than temporary result in write-downsof the individual securities to their fair value.  The related write-downs are included in earningsas realized losses.  In estimatingother-than-temporary impairment losses, management considers (1) thelength of time and the extent to which the fair value has been less than cost, (2) thefinancial condition and near-term prospects of the issuer, and (3) theintent and

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

 

ability of the Corporation to retain its investmentin the issuer for a period of time sufficient to allow for any anticipatedrecovery in fair value.

 

**Mortgage LoansHeld for Sale**

 

Mortgage loansoriginated and held for sale in the secondary market are carried at the lowerof cost or estimated  fair value in theaggregate.  During 2008, the Bank enteredinto an agreement with the Federal Home Loan Bank of Pittsburgh (“FHLB”) tosell loans with servicing released, under the FHLB Mortgage Partnership Finance(“MPF”) program.  Premiums and discountsand origination fees and costs, on loans held for sale are deferred andrecognized as a component of the gain or loss on sale.  Loan sales under the MPF program have beenmade on a recourse basis.  Recourseobligations, if any, are determined based upon an estimate of probable creditlosses over the term of the loan, and are not material to the consolidatedfinancial statements.

 

**Loans**

** **

**Loans**thatmanagement has the intent and ability to hold for the foreseeable future oruntil maturity or payoff are stated at unpaid principal balances net ofunearned income, deferred loan fees, and the allowance for loan losses.  Interest is computed based on the principalbalances outstanding and is credited to income as earned.  Loan fees collected net of the costs of originatingthe loans are deferred and recognized as an adjustment of the yield over thecontractual life of the related loan.

 

The accrual of interest is discontinuedwhen the contractual payment of principal or interest has become 90 days pastdue or management has serious doubts about further collectability of principalor interest, even though the loan is currently performing.  A loan may remain on accrual status if it isin the process of collection and is either guaranteed or well secured.  When a loan is placed on nonaccrual status,unpaid interest credited to income in the current year is reversed and unpaidinterest accrued in prior years is charged against the allowance for loanlosses.  Interest received on nonaccrualloans generally is either applied against principal or reported as interestincome, according to management’s judgment as to the collectability ofprincipal.  Generally, loans are restoredto accrual status when the obligation is brought current, has performed inaccordance with the contractual terms for a reasonable period of time and theultimate collectability of the total contractual principal and interest is nolonger in doubt.

 

Purchased loans with evidence of creditquality deterioration for which it is probable at purchase that allcontractually required payments will not be collected are accounted for underAICPA Statement of Position (“SOP”) 03-3, *Accounting for CertainLoans or Debt Securities Acquired at Transfer*.  SOP 03-3 addresses accounting for differencesbetween contractual cash flows and cash flows expected to be collected from aninvestor’s initial investment in loans acquired in a transfer if thosedifferences are attributable, at least in part, to credit quality.  SOP 03-3 requires impaired loans to berecorded at fair value and prohibits carrying over valuation allowances in theinitial accounting for loans acquired in a transfer, including loans acquiredin a purchase business combination. Under SOP 03-3, the excess of cash flows expected at purchase over thepurchase price is recognized as interest income over the life of theloans.  Subsequent increases in cashflows expected to be collected are recognized prospectively through anadjustment of the loan’s yield over its remaining life.  Decreases in expected cash flows arerecognized as impairments.

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

** **

**Allowance for Loan Losses**

** **

The allowance for loan losses isestablished as losses are estimated to have occurred through a provision forloan losses charged to earnings.  Loanlosses are charged against the allowance when management believes theuncollectability of a loan balance is confirmed.  Subsequent recoveries, if any, are creditedto the allowance.

 

The allowance for loan losses is evaluatedon a regular basis by management and is based upon management’s periodic reviewof the collectability of the loans in light of historical experience, thenature and volume of the loan portfolio, adverse situations that may affect theborrower’s ability to repay, estimated value of any underlying collateral, andprevailing economic conditions.  Thisevaluation is inherently subjective as it requires estimates that aresusceptible to significant revision as more information becomes available.

 

The allowance consists of specific, generaland unallocated components.  The specificcomponent relates to loans that are classified as either doubtful, substandardor special mention.  For such loans thatare also classified as impaired, an allowance is established when thediscounted cash flows (or collateral value or observable market price) of theimpaired loan is lower than the carrying value of that loan.  The general component covers non-classifiedloans and is based on historical loss experience adjusted for qualitativefactors.  An unallocated component ismaintained to cover uncertainties that could affect management’s estimate ofprobable losses.  The unallocatedcomponent of the allowance reflects the margin of imprecision inherent in theunderlying assumptions used in the methodologies for estimating specific andgeneral losses in the portfolio.

 

A loan is considered impaired when, basedon current information and events, it is probable that the Corporation will beunable to collect the scheduled payments of principal or interest when dueaccording to the contractual terms of the loan agreement.  Factors considered by management indetermining impairment include payment status, collateral value, and theprobability of collecting scheduled principal and interest payments whendue.  Loans that experience insignificantpayment delays and payment shortfalls generally are not classified asimpaired.  Management determines thesignificance of payment delays and payment shortfalls on a case-by-case basis,taking into consideration all of the circumstances surrounding the loan and theborrower, including the length of the delay, the reasons for the delay, theborrower’s prior payment record, and the amount of the shortfall in relation tothe principal and interest owed. Impairment is measured on a loan by loan basis for commercial andconstruction loans by either the present value of expected future cash flowsdiscounted at the loan’s effective interest rate, the loan’s obtainable marketprice, or the fair value of the collateral if the loan is collateral dependent.

 

Large groups of smaller balance homogeneousloans are collectively evaluated for impairment.  Accordingly, the Corporation does notseparately identify individual consumer and residential loans for impairmentdisclosures, unless such loans are the subject of a restructuring agreement.

 

**Premises and**Equipment

** **

Premises and equipment are stated at costless accumulated depreciation. Depreciation is computed using the straight-line method for financialreporting and the straight-line and accelerated methods for income taxpurposes.  When property is retired ordisposed of, the cost and related accumulated depreciation are removed from theaccounts, and any resulting gain or

 

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**Note 1 - Summary of Significant AccountingPolicies (Continued)**

 

loss is reflected in operations.  Major additions or replacements arecapitalized, while repairs and maintenance are charged to expense as incurred.

 

**Accrued Interest**

 

Accrued interest is interest that hasaccumulated over a period of time and has been recognized even though theobligation to receive or pay has not occurred. Accrued interest can either be income, such as the receipt of interestfrom loans or securities, or it can be an expense, such as the payment ofinterest on deposits and borrowings.

 

**Restricted Investments in Bank Stocks**

** **

Restrictedstock, which represents required investments in the common stock ofcorrespondent banks, is carried at cost and as of December 31, 2008 and2007, consists of the common stock of the Federal Reserve Bank, Federal HomeLoan Bank of Pittsburgh (FHLB) and Atlantic Central Bankers Bank.  In December 2008, the FHLB of Pittsburghnotified member banks that it was suspending dividend payments and therepurchase of capital stock.

 

Managementevaluates the restricted stock for impairment in accordance with Statement ofPosition (SOP) 01-6, *Accounting by CertainEntities (Including Entities With Trade Receivables) That Lend to or Financethe Activities of Others*. Management’s determination of whether these investments are impaired isbased on their assessment of the ultimate recoverability of their cost ratherthan by recognizing temporary declines in value.  The determination of whether a declineaffects the ultimate recoverability of their cost is influenced by criteriasuch as (1) the significance of the decline in net assets of the FHLB ascompared to the capital stock amount for the FHLB and the length of time thissituation has persisted, (2) commitments by the FHLB to make paymentsrequired by law or regulation and the level of such payments in relation to theoperating performance of the FHLB, and (3) the impact of legislative andregulatory changes on institutions and, accordingly, on the customer base ofthe FHLB.

 

Managementbelieves no impairment charge is necessary related to the restricted stock asof December 31, 2008.

 

**Transfers of Financial Assets**

 

Transfers of financial assets, includingloans and loan participation sales, are accounted for as sales, when controlover the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) theassets have been isolated from the Corporation, (2) the transferee obtainsthe right (free of conditions that constrain it from taking advantage of thatright) to pledge or exchange the transferred assets and (3) theCorporation does not maintain effective control over the transferred assetsthrough an agreement to repurchase them before their maturity.

 

**Cash Value of Life Insurance**

** **

The Corporation invests in bank owned lifeinsurance (“BOLI”) as a source of funding employee benefit expenses.  BOLI involves the purchase of life insuranceby the Corporation on a chosen group of directors and executive officers.  The Corporation is the owner and beneficiaryof the policies.  The life insuranceinvestment is carried at the cash surrender value of the underlyingpolicies.  These amounts are immediatelyavailable to the Corporation upon surrender of the

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

** **

policies. Income generated from the increase in the cash surrender value of thepolicies is included in other income on the income statement.

 

**Foreclosed Assets**

 

Real estate and other foreclosed assetsacquired in settlement of loans are carried at fair value of the property atthe date of acquisition.  Subsequent toacquisition, foreclosed assets are carried at the lower of cost or estimatedfair value of the  property less sellingcosts.  Any write-down, at or prior tothe dates the assets are foreclosed on, is charged to the allowance for loanlosses.  Subsequent write-downs andexpenses incurred in connection with holding such assets are reported in otherexpenses.  Any gains or losses resultingfrom the sale of foreclosed assets are recorded in other income.

 

**Goodwill**

 

Goodwill represents the excess of the costof an acquisition over the fair value of the tangible and identifiableintangible assets acquired.  As a resultof the adoption of Statement No. 142, *Goodwill and OtherIntangible Assets*, business acquisition goodwill is no longeramortized into the income statement over an estimated life, but rather istested at least annually for impairment.

 

**Intangible Assets**

 

Intangible assets represent purchasedassets that lack physical substance but can be distinguished from goodwillbecause of contractual or other legal rights. The Corporation’s intangible assets consist of a core depositintangible, which has a finite life and is amortized over its estimated usefullife.  Intangible assets are also subjectto impairment testing when an indication of impairment exists.

 

**Federal Income Taxes**

** **

The provision for income taxes is based onincome as reported in the financial statements. Certain items of income and expense are recognized in different periodsfor financial reporting purposes than for federal income tax purposes.  Deferred income tax assets and liabilitiesare determined using the liability (or balance sheet) method.  Under this method, the net deferred tax assetor liability is determined based on the tax effects of the temporarydifferences between book and tax basis of the various balance sheet assets andliabilities given current recognition to changes in tax rates and laws.  As changes in tax laws or rates are enacted,deferred tax assets and liabilities are adjusted through the provision forapplicable income taxes.

 

On January 1, 2008, the Corporationadopted the provisions of FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes — an interpretation of FASB No. 109*(FIN 48), which clarifies the accounting for uncertainty in tax positions.  The adoption of FIN 48 did not have an impacton the Corporation’s financial statements. The Corporation’s policy is to recognize interest and penalties onunrecognized tax benefits, if any, in the income tax expense in theconsolidated statements of income.  Thetax years subject to examination by the taxing authorities are the tax yearsended December 2008, 2007, 2006 and 2005.

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

** **

**Advertising**

** **

Advertising costs are expensed as incurredand totaled $29,000 and $36,000 for the years ending December 31, 2008 and2007, respectively.

 

**Earnings and Dividends Per Share**

** **

Earnings per share are computed based uponthe weighted average number of shares outstanding during each year.  Weighted average shares outstanding were962,585 in 2008 and in 2007.  The Corporationhas a simple capital structure in that they do not have any common stockequivalents.  Earnings and dividends pershare have been adjusted to reflect the additional shares exchanged to FirstPerry shareholders upon the formation of the Corporation.

 

**Off Balance Sheet Financial Instruments**

** **

In the ordinary course of business, theCorporation has entered into off balance sheet financial instruments consistingof commitments to extend credit and standby letters of credit.  Such financial instruments are recorded inthe financial statements when they become payable.

 

**Segment Reporting**

** **

The Corporation operates in a singlebusiness segment consisting of traditional banking activities.

 

**Comprehensive Income**

** **

Accounting principles generally accepted inthe United States of America require that recognized revenue, expenses, gains,and losses be included in net income. Changes in certain assets and liabilities, such as unrealized gains andlosses on available for sale securities, are reported as a separate componentof the equity section of the balance sheet. Such items, along with net income, are components of comprehensiveincome.  Accumulated other comprehensiveincome (loss), which represents a component of shareholders’ equity, representsthe net unrealized gain (loss) on securities available for sale, net of taxes.

 

The components of other comprehensiveincome and related tax effects for the years ended December 31, 2008 and2007 are as follows:

 
| ** **                                                        | ** ** | **2008**                | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                                        | ** ** | **(In thousands)** | ** ** |
| ** **                                                        | ** ** | ** **              | ** ** |
| Unrealized holding gains on available for sale securities         |       | **$**                   | **135**    | ** ** | $          | 212 |   |
| Less reclassification adjustment for gains realized in net income |       | **(40**                 | **)**      | —     |       |
|                                                              |       | ** **              | ** ** |       |       |
| **Net Unrealized Gains**                                          |       | **95**                  | ** ** | 212        |       |
|                                                              |       | ** **              | ** ** |       |       |
| Tax effect                                                        |       | **32**                  | ** ** | 72         |       |
|                                                              |       | ** **              | ** ** |       |       |
| **Net of Tax Amount**                                             |       | **$**                   | **63**     | ** ** | $          | 140 |   |

 

**Reclassifications**

** **

For purposes of comparability, certainprior period amounts have been reclassified to conform with the 2008presentation.  Such reclassifications hadno impact on net income.

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

** **

**New Accounting Standards**

** **

FASB Statement No. 141(R) *Business Combinations* was issued in December of2007.  This Statement establishesprinciples and requirements for how the acquirer of a business recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, and any non-controlling interest in the acquiree.  The Statement also provides guidance for recognizingand measuring the goodwill acquired in the business combination and determineswhat information to disclose to enable users of the financial statements toevaluate the nature and financial effects of the business combination.  The new pronouncement will impact theCorporation’s accounting for business combinations consummated after January 1,2009.

 

In February 2007, the FASB issued SFASNo. 159, *The Fair Value Option for Financial Assetsand Financial Liabilities-Including an Amendment of FASB Statement No. 115*(“SFAS 159”).  SFAS 159 permits entitiesto choose to measure many financial instruments and certain other items at fairvalue.  Unrealized gains and losses onitems for which the fair value option has been elected will be recognized inearnings at each subsequent reporting date. SFAS 159  was effective for theCorporation on January 1, 2008.  TheCorporation has not elected to measure any financial instruments at fair valueunder this standard.

 

In September 2006, the FASB’s EmergingIssues Task Force (EITF) issued EITF Issue No. 06-4, “Accounting forDeferred Compensation and Postretirement Benefit Aspects of EndorsementSplit-Dollar Life Insurance Arrangements” (“EITF 06-4”).  EITF 06-4 requires the recognition of aliability related to the postretirement benefits covered by an endorsementsplit-dollar life insurance arrangement. The consensus highlights that the employer (who is also thepolicyholder) has a liability for the benefit it is providing to its employee.  As such, if the policyholder has agreed tomaintain the insurance policy in force for the employee’s benefit during his orher retirement, then the liability recognized during the employee’s activeservice period should be based on the future cost of insurance to be incurredduring the employee’s retirement. Alternatively, if the policyholder has agreed to provide the employeewith a death benefit, then the liability for the future death benefit should berecognized by following the guidance in SFAS No. 106 or AccountingPrinciples Board (APB) Opinion No. 12, as appropriate.  For transition, an entity can choose to applythe guidance using either of the following approaches: (a) a change inaccounting principle through retrospective application to all periods presentedor (b) a change in accounting principle through a cumulative-effectadjustment to the balance in retained earnings at the beginning of the year ofadoption.  The adoption of EITF 06-04 on January 1,2008 had no an impact on the Corporation’s consolidated financial condition orresults of operations.

 

In January 2009,the FASB issued FSP EITF 99-20-1, *Amendmentsto the Impairment of Guidance of EITF Issue No. 99-20*  (FSPEITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20,*Recognition of Interest Income andImpairment on Purchased Beneficial Interests and Beneficial Interests ThatContinue to Be Held by a Transferor in Securitized Financial Assets*,to achieve more consistent determination of whether an other-than-temporaryimpairment has occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessmentand the related disclosure requirements in SFAS No. 115, *Accounting for Certain Investments in Debt and EquitySecurities*, and other related guidance. FSP EITF 99-20-1 is effectivefor interim and annual reporting periods ending after December 15, 2008,and shall be applied prospectively. Retrospective application to a priorinterim or annual reporting period is not permitted. The

 

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**Note 1 - Summary of SignificantAccounting Policies (Continued)**

** **

**New Accounting Standards (Continued)**

** **

Adoption of FSP EITF 99-20-1 had no impacton the Corporation’s consolidated financial condition or results of operations.

 

**Note 2 — Business Combinations**

** **

Effective December 31, 2008, theCorporation completed its consolidation of First Perry and HNB in accordancewith the Agreement and Plan of Consolidation dated June 18, 2008.  As part of the transaction, The FirstNational Bank of Marysville, the wholly-owned subsidiary of First Perry, andHalifax National Bank, the wholly owned subsidiary of HNB, consolidated withand into Riverview National Bank, the wholly owned subsidiary of theCorporation.  The primary reason for thecombination was to pool resources to provide greater products and services tocustomers in the contiguous counties, and provide cost savings through theconsolidation of operations.

 

In the consolidation, the Corporationissued 1,750,003 shares of common stock with a par value of $0.50 pershare.  The shareholders of First Perryreceived 2.435 shares of the Corporation’s common stock for each share of FirstPerry common stock they owned on the effective date of the consolidation.  HNB shareholders received 2.520 shares of theCorporation’s common stock for each share of HNB common stock they owned on theeffective date of the consolidation.  Theshareholders of First Perry and HNB did not recognize gain or loss for federalincome tax purposes on the shares that were exchanged for the Corporation’scommon stock in the consolidation.

 

The following table summarizes the fairvalues of the assets acquired and the liabilities assumed as of the effectivedate of the consolidation.  Thistransaction was accounted for using the purchase method of accounting inaccordance with SFAS No. 141, *Business Combinations*.  Accordingly the purchase price was allocatedto the respective assets acquired and liabilities assumed based upon theirestimated fair values as of the effective date of the consolidation.

 
|                            | ** ** | **At December 31, 2008** | ** ** |
|---------------------------------|------------|-----------------------------------------|------------|
|                            | ** ** | **(In thousands)**                 | ** ** |
|                            | ** ** | ** **                              | ** ** |
| Assets:                         | ** ** | ** **                              | ** ** |
| Cash and cash equivalents       | ** ** | **$**                                   | **2,870**  | ** ** |
| Investment securities           | ** ** | **13,124**                              | ** ** |
| Loans                           | ** ** | **67,579**                              | ** ** |
| Less: Allowance for loan losses | ** ** | **(496**                                | **)**      |
| Net loans                       | ** ** | **67,083**                              | ** ** |
| Other assets                    | ** ** | **7,318**                               | ** ** |
| Total assets                    | ** ** | **90,395**                              | ** ** |
| Liabilities:                    | ** ** | ** **                              | ** ** |
| Noninterest-bearing deposits    | ** ** | **$**                                   | **7,725**  | ** ** |
| Interest-bearing deposits       | ** ** | **65,981**                              | ** ** |
| Short-term borrowings           | ** ** | **3,436**                               | ** ** |
| Long-term borrowings            | ** ** | **2,533**                               | ** ** |
| Other liabilities               | ** ** | **890**                                 | ** ** |
| Total liabilities               | ** ** | **80,565**                              | ** ** |
| Net assets acquired             | ** ** | **$**                                   | **9,830**  | ** ** |

 

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**Note 2 — Business Combinations (Continued)**

** **

**The excess of purchase price over the fair value of net assets acquiredwas recorded as goodwill.  Goodwill of$1,785,000 was recorded in connection with the consolidation.  The goodwill will not be amortized inaccordance with SFAS No. 142 and is not deductible for tax purposes.**

** **

**The following table provides the calculation of the goodwill (dollarsin thousands, except per share data):**

 
| Purchase Price:                                                                   |       |        |       | ** ** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------|------------|------------|------------|
| HNB common shares outstanding                                                     | ** ** | **312,500** | ** ** | ** ** | ** ** |
| Exchange ratio                                                                    | ** ** | **2.52**    | ** ** | ** ** | ** ** |
| Riverview common stock issued                                                     |       | **787,478** | ** ** | ** ** | ** ** |
| Fair market value of Riverview common share                                       |       | **$**       | **14.37**  | ** ** | ** ** | ** ** |
| Purchase price assigned to shares exchanged for stock                             |       | ** **  | ** ** | **$**      | **11,316** | ** ** |
| Transaction costs                                                                 |       | ** **  | ** ** | **299**    | ** ** |
| Total Purchase Price                                                              |       | ** **  | ** ** | **11,615** | ** ** |
|                                                                              |       | ** **  | ** ** | ** ** | ** ** |
| Net Assets Acquired:                                                              |       | ** **  | ** ** | ** ** | ** ** |
| HNB shareholders’ equity                                                     |       | **9,881**   | ** ** | ** ** | ** ** |
|                                                                              |       | ** **  | ** ** | ** ** | ** ** |
| Increase (decrease) to reflect assets acquired at fair value:                     |       | ** **  | ** ** | ** ** | ** ** |
| Loans (sum of the years method amortized over 13 years)                           |       | **(164**    | **)**      | ** ** | ** ** |
| Core deposit intangible (sum of the years method amortized over 8  years)         |       | **173**     | ** ** | ** ** | ** ** |
| Bank premises, furniture, fixtures and equipment (39 year weighted  average life) |       | **71**      | ** ** | ** ** | ** ** |
| Deferred tax asset                                                                |       | **26**      | ** ** | ** ** | ** ** |
|                                                                              |       | ** **  | ** ** | ** ** | ** ** |
| Decrease to reflect liabilities acquired at fair value:                           |       | ** **  | ** ** | ** ** | ** ** |
| Time deposits (level yield amortization method over 3 years)                      |       | **(124**    | **)**      | ** ** | ** ** |
| Borrowings (level yield amortization method over 3 years)                         |       | **(33**     | **)**      | ** ** | ** ** |
| Net assets acquired                                                               |       | ** **  | ** ** | **9,830**  | ** ** |
| Goodwill resulting from consolidation                                             |       | ** **  | ** ** | **$**      | **1,785**  | ** ** |
|                                                                                   |            |             |            |            |            |  |  |

** **

The fair value of certain assets andcertain liabilities were based on quoted prices from reliable marketsources.  When quoted market prices werenot available, the estimated fair values were based upon the best informationavailable, including obtaining prices for similar assets and liabilities, andthe results of using other valuation techniques.  The prominent other valuation techniques usedwere the present value technique and appraisal/third party valuations.  When the present value technique wasemployed, the associated cash flow estimates incorporated assumptions thatmarketplace participants would use in estimating fair values.  In instances where reliable marketinformation was not available, the Corporation assumed the historical bookvalue of certain assets and liabilities represented a reasonable proxy of fairvalue.  The Corporation determined thatthere were no other categories of identifiable intangible assets arising fromthe HNB consolidation other than the core deposit intangible.

 

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**Note 2 — Business Combinations (Continued)**

** **

The following are the unaudited *pro forma* consolidated results of operations of theCorporation for the years ended December 31, 2008 and 2007 as though HNBhad been consolidated on January 1, 2007:

 
| ** **                                          | ** ** | **2008**                                                           | ** ** | **2007** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------------------------------|------------|----------|------------|
| ** **                                          | ** ** | **(In thousands, except per share data)** | ** ** |
|                                                |       |                                                               |       |     |       |
| Total interest income                               | ** ** | **$**                                                              | **12,285** |     | $          | 11,148 |   |
| Total interest expense                              | ** ** | **5,184**                                                          |       | 5,361    |       |
| Net interest income                                 | ** ** | **7,101**                                                          |       | 5,787    |       |
|                                                |       |                                                               |       |     |       |
| Provision for loan losses                           | ** ** | **955**                                                            |       | 220      |       |
| Net interest income after provision for loan losses | ** ** | **6,146**                                                          |       | 5,567    |       |
|                                                |       |                                                               |       |     |       |
| Total noninterest income                            | ** ** | **1,333**                                                          |       | 745      |       |
| Total noninterest expense                           | ** ** | **7,383**                                                          |       | 5,052    |       |
| Income before taxes (benefit)                       | ** ** | **96**                                                             |       | 1,260    |       |
| Income tax expense (benefit)                        | ** ** | **(201**                                                           | **)**      | 155      |       |
| Net income                                          | ** ** | **$**                                                              | **297**    |     | $          | 1,105 |   |
|                                                |       |                                                               |       |     |       |
| Basic earnings per share                            | ** ** | **$**                                                              | **0.17**   |     | $          | 0.63 |   |

 

The above 2008 *pro forma*amounts include HNB’s pre-tax one time gain from the sale of real estate for$456,000, and pre-tax expenses associated with the merger of $455,000.

 

**Note 3 - Restriction on Cash and Due fromBanks**

 

The Bank isrequired to maintain average reserve balances in cash or on deposit with theFederal Reserve Bank.  Therequired reserve at December 31, 2008 and 2007 approximated $581,000 and $614,000,respectively.  In addition, the Bank’s other correspondents may requireaverage compensating balances as part of theiragreements to provide services.

 

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**Note 4 - Investment Securities Available forSale**

 

The amortized cost and estimated fairvalues of investment securities available for sale are reflected in thefollowing schedules at December 31, 2008 and 2007:

 
| ** **                  | ** ** | **2008**                | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| ** **                  | ** ** | **(In thousands)** | ** ** |
| ** **                  | ** ** | ** **              | ** ** |
| U.S. Government agencies    | ** ** | **$**                   | **7,236**  | ** ** | **$** | **28** | ** ** | **$** | **—** | ** ** | **$** | **7,264** | ** ** |
| State and municipal         | ** ** | **9,363**               | ** ** | **10** | ** ** | **—** | ** ** | **9,373** | ** ** |
| Mortgaged-backed securities | ** ** | **11,163**              | ** ** | **56** | ** ** | **38** | ** ** | **11,181** | ** ** |
| Corporate debt securities   | ** ** | **302**                 | ** ** | **—** | ** ** | **—** | ** ** | **302** | ** ** |
|                        | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                  | ** ** | **$**                   | **28,064** | ** ** | **$** | **94** | ** ** | **$** | **38** | ** ** | **$** | **28,120** | ** ** |

 
|                        | ** ** | **2007**                | ** ** |
|-----------------------------|------------|-------------------------|------------|
|                        | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|                        | ** ** | **(In thousands)** | ** ** |
|                        | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| U.S. Government agencies    |       | $                       | 4,100      |   | $ | — |   | $ | 8 |   | $ | 4,092 |   |
| State and municipal         |       | 4,413                   |       | 67 |   | — |   | 4,480 |   |
| Mortgaged-backed securities |       | 11,817                  |       | 2 |   | 101 |   | 11,718 |   |
|                        |       |                    |       |   |   |   |   |   |   |
|                        |       | $                       | 20,330     |   | $ | 69 |   | $ | 109 |   | $ | 20,290 |   |

 

The amortized cost and fair value of debtsecurities available for sale at December 31, 2008, by contractualmaturity, are shown below.  Expectedmaturities will differ from contractual maturities because issuers may have theright to prepay obligations with or without call or prepayment penalties:

 
|                                   | ** ** | **Amortized  Cost**     | ** ** | **Fair  Value** | ** ** |
|----------------------------------------|------------|-------------------------|------------|-----------------|------------|
|                                   | ** ** | **(In thousands)** | ** ** |
|                                   | ** ** | ** **              | ** ** | ** **      | ** ** |
| Due in one year or less                | ** ** | **$**                   | **386**    | ** **      | **$**      | **386** | ** ** |
| Due after one year through five years  | ** ** | **7,604**               | ** ** | **7,617**       | ** ** |
| Due after five years through ten years | ** ** | **5,195**               | ** ** | **5,220**       | ** ** |
| Due after ten years                    | ** ** | **3,716**               | ** ** | **3,716**       | ** ** |
|                                   | ** ** | ** **              | ** ** | ** **      | ** ** |
|                                   | ** ** | **16,901**              | ** ** | **16,939**      | ** ** |
| Mortgage-backed securities             | ** ** | **11,163**              | ** ** | **11,181**      | ** ** |
|                                   | ** ** | ** **              | ** ** | ** **      | ** ** |
|                                   | ** ** | **$**                   | **28,064** | ** **      | **$**      | **28,120** | ** ** |

 

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**Note 4 - Investment SecuritiesAvailable for Sale (Continued)**

** **

Securities with an amortized cost of$16,702,000 and $15,642,000 and a fair value of $16,755,000 and $15,622,000 at December 31,2008 and 2007, respectively, were pledged as collateral for public deposits andfor other purposes as required or permitted by law.

 

Information pertaining to securities withgross unrealized losses at December 31, 2008 and 2007 aggregated byinvestment category and length of time that individual securities have been ina continuous loss position are as follows:

 
|                        | ** ** | **Less Than 12 Months** | ** ** | **More Than 12 Months** | ** ** | **Total**       | ** ** |
|-----------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|-----------------|------------|
|                        | ** ** | **Fair  Value**                        | ** ** | **Unrealized  Losses**                 | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair  Value** | ** ** | **Unrealized  Losses** | ** ** |
|                        | ** ** | **(In thousands)**                | ** ** |
| **December 31, 2008:** | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Available for Sale:         |       |                                   | ** ** |                                   | ** ** |            | ** ** |   | ** ** |   | ** ** |   |   |
| Mortgage-backed securities  | ** ** | **$**                                  | **4,980**  | ** **                             | **$**      | **37**          | ** ** | **$** | **99** | ** ** | **$** | **1** | ** ** | **$** | **5,079** | ** ** | **$** | **38** | ** ** |
|                        | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **December 31, 2007:** | ** ** | ** **                             |       | ** **                             |       | ** **      |       | ** ** |   | ** ** |   | ** ** | ** ** |
| Available for Sale:         | ** ** | ** **                             |       | ** **                             |       | ** **      |       | ** ** |   | ** ** |   | ** ** | ** ** |
| U.S. Government agencies    |       | $                                      | —     | ** **                             | $          | —          | ** ** | $ | 2,992 | ** ** | $ | 8 | ** ** | $ | 2,992 | ** ** | $ | 8 |   |
| Mortgage-backed securities  |       | 3,812                                  | ** ** | 19                                     | ** ** | 7,347           | ** ** | 82 | ** ** | 11,159 | ** ** | 101 |   |
|                        |       |                                   | ** ** |                                   | ** ** |            | ** ** |   | ** ** |   | ** ** |   |   |
|                        |       | $                                      | 3,812      |                                   | $          | 19              |       | $ | 10,339 |   | $ | 90 |   | $ | 14,151 |   | $ | 109 |   |

 

Management evaluates securities forother-than-temporary impairment, at least on a quarterly basis, but management’sintent is to hold all investments until maturity unless market, economic orspecific investment concerns warrant a sale of securities.  Consideration is given to (1) the lengthof time and the extent to which the fair value has been less than cost, (2) thefinancial condition and near-term prospects of the issuer, and (3) theintent and ability of the Corporation to retain its investment in the issuerfor a period of time sufficient to allow for any anticipated recovery in fairvalue.

 

At December 31, 2008, eightmortgage-backed securities have unrealized losses.  At December 31, 2007, four U.S.Government agencies and fifteen mortgage-backed securities had unrealizedlosses.  Management believes theunrealized losses relate to changes in interest rates since the individualsecurities were purchased and not to underlying credit issues.  As management has both the ability and intentto hold these securities until maturity, or market price recovery, no declinesare deemed to be other-than-temporary.

 

As part of the Bank’s strategy to reducesome of the risk inherent within the investment portfolio, the Corporation sold12 available for sale securities during 2008 totaling $2,731,000.  Gross realized gains amounted to $43,000,while gross realized losses amounted to $3,000, resulting in a $40,000 net gainon sale.

 

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**Note 5 - Loans Receivable andAllowance for Loan Losses**

** **

Loans receivable consist of the followingat December 31:

 
| ** **                              | ** ** | **2008**                | ** **  | **2007**   | ** ** |
|-----------------------------------------|------------|-------------------------|-------------|------------|------------|
| ** **                              | ** ** | **(In thousands)** | ** **  |
| ** **                              | ** ** | ** **              | ** **  | ** ** | ** ** |
| Commercial, financial, and agricultural |       | **$**                   | **12,967**  | ** ** | $          | 8,845 |   |
| Real estate secured:                    |       | ** **              | ** **  |       |       |
| Construction                            |       | **18,173**              | ** **  | 9,059      |       |
| Mortgage                                |       | **94,322**              | ** **  | 47,324     |       |
| Commercial                              |       | **48,773**              | ** **  | 15,352     |       |
| Consumer installment                    |       | **4,210**               | ** **  | 3,558      |       |
|                                    |       | ** **              | ** **  |       |       |
|                                    |       | **178,445**             | ** **  | 84,138     |       |
| Deferred loan fees                      |       | **(266**                | **)**       | (234       | )          |
| Allowance for loan losses               |       | **(1,710**              | **)**       | (970       | )          |
|                                    |       | ** **              | ** **  |       |       |
|                                    |       | **$**                   | **176,469** | ** ** | $          | 82,934 |   |

 

Included within the loan portfolio areloans on which the Corporation has discontinued the accrual of interest.  Such loans approximated $128,000 and $932,000at December 31, 2008 and 2007, respectively.  If interest income had been recorded on allnon-accrual loans outstanding during 2008 and 2007, interest income would haveincreased by $2,000 and $13,000, respectively.

 

Loans 90 days or more past due but stillaccruing interest at December 31, 2008 and 2007 approximated $152,000 and$210,000, respectively.

 

At December 31, 2008 and 2007, thetotal recorded investment in impaired loans was approximately $3,203,000 and$932,000, respectively, of which $668,000 and $6,000 required a valuationallowance, which approximated $225,000 and $6,000, respectively.  The average investment in impaired loans for2008 and 2007 was approximately $1,395,000 and $1,046,000, respectively.  Interest income recognized on impaired loanswas approximately $122,000 in 2008 and $34,000 in 2007.

 

The Corporation’s assessment of loansacquired in the acquisition of HNB as of December 31, 2008 identifiedloans totaling $3,010,000 for which a $475,000 purchase accounting adjustmentwas netted against the loan balance in accordance with the provisions of SOP03-3.  As a result of the application ofSOP 03-3, the Corporation recorded a purchase accounting adjustment of$475,000, which reduced loans and the allowance for loan losses.  Management does not expect to recover any ofthe $475,000.

 

The Corporation, in the ordinary course ofbusiness, has loan, deposit and other routine transactions with its executiveofficers, directors and entities in which they have principal ownership.  Loans are made to such related parties at substantiallythe same credit terms as other borrowers and do not represent more than theusual risk of collection.

 

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**Note 5 - Loans Receivable andAllowance for Loan Losses (Continued)**

** **

Activity for these related party loans wasas follows for the year ended December 31, 2008 (in thousands):

 
| Balance - January 1   | ** ** | **$**      | **1,901**  | ** ** |
|----------------------------|------------|------------|------------|------------|
| Advances                   | ** ** | **573**    | ** ** |
| Loans of new directors     | ** ** | **2,782**  | ** ** |
| Payments                   | ** ** | **(459**   | **)**      |
|                       | ** ** | ** ** | ** ** |
| Balance - December 31 | ** ** | **$**      | **4,797**  | ** ** |

 

An analysis of the changes in the allowancefor loan losses is as follows for the years ended December 31:

 
| ** **                      | ** ** | **2008**                | ** ** | **2007**   | ** ** |
|---------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                      | ** ** | **(In thousands)** | ** ** |
| ** **                      | ** ** | ** **              | ** ** | ** ** | ** ** |
| Balance – January 1   |       | **$**                   | **970**    | ** ** | $          | 867 |   |
| Provision charged to operations |       | **380**                 | ** ** | 120        |       |
| Acquired from HNB acquisition   |       | **496**                 | ** ** | —     |       |
| Recoveries on charged off loans |       | **23**                  | ** ** | 12         |       |
| Loans charged off               |       | **(159**                | **)**      | (29        | )          |
|                            |       | ** **              | ** ** |       |       |
| Balance - December 31      |       | **$**                   | **1,710**  | ** ** | $          | 970 |   |

 

**Note 6 - Premises and Equipment**

** **

Premises and equipment consisted of thefollowing at December 31:

 
| ** **                | ** ** | **Estimated Useful  Life** | ** ** | **2008**                | ** ** | **2007**   | ** ** |
|---------------------------|------------|---------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                | ** ** |                            | ** ** | **(In thousands)** | ** ** |
| ** **                | ** ** |                            | ** ** | ** **              | ** ** | ** ** | ** ** |
| Land                      | ** ** | —                          |       | **$**                   | **741**    | ** ** | $          | 386 |   |
| Bank premises             | ** ** | 7  - 50 years                   |       | **4,459**               | ** ** | 3,186      |       |
| Leasehold improvements    | ** ** | 10  - 30 years                  |       | **1,899**               | ** ** | 1,499      |       |
| Furnishings and equipment | ** ** | 3  - 10 years                   |       | **1,910**               | ** ** | 1,228      |       |
|                      | ** ** |                            |       | ** **              | ** ** |       |       |
|                      |       |                            |       | **9,009**               | ** ** | 6,299      |       |
| Accumulated depreciation  |       |                            |       | **(1,537**              | **)**      | (1,359     | )          |
|                      |       |                            |       | ** **              | ** ** |       |       |
|                      |       |                            |       | **7,472**               | ** ** | 4,940      |       |
| Construction in process   |       |                            |       | **—**              | ** ** | 101        |       |
|                      |       |                            |       | ** **              | ** ** |       |       |
|                      |       |                            |       | **$**                   | **7,472**  | ** ** | $          | 5,041 |   |

 

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**Note 6 - Premises and Equipment(Continued)**

** **

**Operating Leases**

** **

The Corporation entered into a fifteen yearoperating lease agreement in 2003 for the land on which the Duncannon office islocated.  In 2005, the Corporationentered into an agreement to lease an office on Good Hope Road in HampdenTownship, Cumberland County, on which lease payments began in 2006 and extendthrough 2017.  In January 2007, theCorporation entered into an agreement to lease office space in Linglestown,Dauphin County, on which lease payments began in 2007 and extend for a threeyear period. As part of the consolidation, the Corporation assumed the lease ofHNB’s branch in Elizabethville, Dauphin County, which began in 2008 and expires2018.  The Corporation is responsible fortaxes, utilities and other expenses related to the properties.  All of the lease agreements contain renewaloptions.  Total expense for operatingleases in 2008 and 2007 was $77,000 and $61,000, respectively.

 

At December 31, 2008, future minimumlease payments under non-cancelable lease arrangements are as follows (inthousands):

 
| Years ending December 31, | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------|------------|
| 2009                           | ** ** | **$**      | **122**    | ** ** |
| 2010                           | ** ** | **86**     | ** ** |
| 2011                           | ** ** | **86**     | ** ** |
| 2012                           | ** ** | **89**     | ** ** |
| 2013                           | ** ** | **92**     | ** ** |
| Thereafter                     | ** ** | **377**    | ** ** |
|                                |            |            |            |  |

 

**Note 7 —Goodwill and Intangible Assets**

 

Goodwilland intangible assets were $1,958,000 at December 31, 2008 and $0 at December 31,2007.

 

Thechanges in the carrying amount of goodwill were as follows (in thousands):

 
| Balance, January 1, 2008                 |   | **$**     | **—** | ** ** |
|-----------------------------------------------|--------|-----------|------------|------------|
| Additions to goodwill from acquisition of HNB |   | **1,785** | ** ** |
| Balance, December 31, 2008               |   | **$**     | **1,785**  | ** ** |

 

Thegross carrying amount and accumulated amortization related to the core depositintangible at December 31, 2008 and 2007 are presented below:

 
| ** **              | ** ** | **December 31,**   | ** ** |
|-------------------------|------------|-------------------------|------------|
| ** **              | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **              | ** ** | **Gross**               | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **              | ** ** | **Carrying**            | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** |
| ** **              | ** ** | **Amount**              | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
| ** **              | ** ** | **(In thousands)** | ** ** |
|                    |       |                    |       |   |   |   |   |   |   |
| Core deposit intangible | ** ** | **$**                   | **173**    | ** ** | **$** | **—** |   | $ | — |   | $ | — |   |
|                         |            |                         |            |  |  |  |  |  |  |  |  |  |  |

 

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**Note 7 —Goodwill and Intangible Assets (Continued)**

 

Theamortization period of the core deposit intangible is based on the sum of theyears method over an eight year period. The Corporation estimates the amortization expense for the core depositintangible as follows (in thousands):

 
| Years ending December 31, | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------|------------|
| 2009                           | ** ** | **$**      | **31**     | ** ** |
| 2010                           | ** ** | **28**     | ** ** |
| 2011                           | ** ** | **25**     | ** ** |
| 2012                           | ** ** | **22**     | ** ** |
| 2013                           | ** ** | **19**     | ** ** |
| Thereafter                     | ** ** | **48**     | ** ** |
| ** **                     | ** ** | **$**      | **173**    | ** ** |

 

**Note 8 - Deposits**

** **

Scheduled contractual maturities of timedeposits at December 31, 2008 are as follows (in thousands):

 
| Years ending December 31, | ** ** | ** ** | ** **  |
|--------------------------------|------------|------------|-------------|
| 2009                           | ** ** | **$**      | **56,851**  | ** ** |
| 2010                           | ** ** | **25,523** | ** **  |
| 2011                           | ** ** | **6,734**  | ** **  |
| 2012                           | ** ** | **4,476**  | ** **  |
| 2013                           | ** ** | **7,257**  | ** **  |
| Thereafter                     | ** ** | **232**    | ** **  |
|                           | ** ** | ** ** | ** **  |
|                           | ** ** | **$**      | **101,073** | ** ** |

 

Time deposits of $100,000 or more at December 31,2008 and 2007 approximated $31,056,000 and $15,589,000, respectively.

 

Interest expense on time deposits of$100,000 or more*,*approximated $624,000 and $703,000in 2008 and 2007, respectively.

 

The Corporation accepts deposits of itsexecutive officers, directors, their immediate families, and affiliatedcompanies on the same terms as those for comparable transactions of unrelatedcustomers.  The amount of these depositstotaled $2,365,000 and $1,003,000 at December 31, 2008 and 2007,respectively.

 

**Note 9 - Pension and Other BenefitPlans**

** **

**Defined**Contribution Plan

** **

The Corporation maintains a contributory401(k) retirement plan for all eligible employees.  Currently, the Corporation’s policy is tomatch 50% of the employees’ voluntary contributions to the plan up to a maximumpayment of 3% of the employees’ compensation. Additionally, the Corporation may make discretionary contributions tothe plan after considering current profits and business conditions.  The amount charged to expense in 2008 and2007 totaled $105,000 and

 

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**Note 9 - Pension and Other BenefitPlans (Continued)**

** **

$89,000, respectively.  Of these amounts, discretionary contributionsapproximated $84,000 and $73,000, respectively.

 

**Director Emeritus Plan**

** **

To promote orderly succession of theCorporation’s Board of Directors, the Corporation adopted the “DirectorEmeritus Agreement” in 2001.  Theagreement provides for a defined annual benefit based on the Director’s finalfee.  The benefit can be offered to aDirector upon termination of service on or after 65 years of age and with tenor more continuous years of service. Provisions of the agreement are contingent on the Director electing tobecome a Director Emeritus, being available to act in the capacity of consultantto the Board, continuing to act as a “Goodwill Ambassador” for the Corporation,and avoiding any competitive arrangements that are contrary to the bestinterests of the Corporation.  Theagreement also contains other general limitations and death benefit provisions.  Expenses recorded under the terms of thisagreement were $12,000 in 2008 and 2007, respectively.

 

**Deferred Compensation Agreements**

** **

The Corporation maintains four SupplementalExecutive Retirement Plan (SERP) agreements to provide specified benefits forkey executives.  The agreements werespecifically designed to encourage key executives to remain as employees of theCorporation.  The agreements are unfundedwith benefits to be paid from the Corporation’s general assets.  After normal retirement, benefits are payableto the executive or his or her beneficiary in equal monthly installments for aperiod of 20 years.  There are provisionsfor death benefits should a participant die before his or her retirement date.  These benefits are also subject to change ofcontrol and other provisions

 

The Corporation also maintains a “DirectorDeferred Fee Agreement” (DDFA) which allows electing directors to defer paymentof their directors’ fees until a future date. The estimated present value of the future benefits is accrued over theeffective dates of the agreement using an interest factor computed as a percentof the Corporation’s return on equity. The agreements are unfunded, with benefits to be paid from theCorporation’s general assets.

 

The accrued benefit obligations of the twoplans of $357,000 at December 31, 2008 and $238,000 at December 31,2007 are included in other liabilities. Expense related to these plans totaled $33,000 and $44,000 in the yearsended December 31, 2008 and 2007, respectively.

 

**Note 10 - Taxes**

** **

Income tax expense (benefit) and therelated effective income tax rates are comprised of the following items for theyears ended December 31:

 
| **(Dollars in thousands)** | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|
|                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Tax at statutory rates               | ** ** | **$**      | **112**    | ** ** | **34**     | **%** | $ | 209 |   | 34 | % |
| Tax-exempt interest income           | ** ** | **(101**   | **)**      | **(31**    | **)**      | (111 | ) | (18 | ) |
| Life insurance income                | ** ** | **(34**    | **)**      | **(10**    | **)**      | (33 | ) | (5 | ) |
| Interest disallowance                | ** ** | **10**     | ** ** | **3**      | ** ** | 14 |   | 2 |   |
| Other                                | ** ** | **(29**    | **)**      | **(9**     | **)**      | 1 |   | — |   |
|                                 |       |       |       |       | ** ** |   |   |   |   |
| **Federal Income Taxes (Benefit)**   | ** ** | **$**      | **(42**    | **)**      | **(13**    | **)%** | $ | 80 |   | 13 | % |

 

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**Note 10 — Taxes (Continued)**

** **

Deferred income taxes result from incomeand expense items which are recognized for financial statement purposes indifferent reporting periods than for federal income tax purposes.  The current and deferred portions ofapplicable income taxes (benefit) for the years ended December 31 are asfollows:

 
| **(In thousands)**                     | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current tax                                 |       | **$**      | **105**    | ** ** | $          | 91 |   |
| Deferred tax benefit                        |       | **(147**   | **)**      | (11        | )          |
|                                        |       | ** ** | ** ** |       |       |
| **Applicable Federal Income Tax (Benefit)** |       | **$**      | **(42**    | **)**      | $          | 80 |   |

 

**The Corporation provides deferred taxes, at the 34% tax rate, oncumulative temporary differences. Components of deferred tax assets andliabilities are as follows at December 31:**

 
| **(In thousands)**                  | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deferred tax assets:                     |       | ** ** | ** ** |       |       |
| Allowance for loan losses                |       | **$**      | **665**    | ** ** | $          | 284 |   |
| Loans                                    |       | **5**      | ** ** | 4          |       |
| Unrealized loss on investment securities |       | **—** | ** ** | 13         |       |
| Deferred directors’ fees            |       | **36**     | ** ** | 31         |       |
| Deferred compensation                    |       | **238**    | ** ** | 50         |       |
| Purchase accounting adjustments          |       | **128**    | ** ** | —     |       |
| Alternative minimum tax                  |       | **90**     | ** ** | 49         |       |
| Other                                    |       | **5**      | ** ** | —     |       |
|                                     |       | **1,167**  | ** ** | 431        |       |
|                                     |       | ** ** | ** ** |       |       |
| Deferred tax liabilities:                |       | ** ** | ** ** |       |       |
| Accumulated depreciation                 |       | **(362**   | **)**      | (180       | )          |
| Unrealized gain on investment securities |       | **(19**    | **)**      | —     |       |
|                                     |       | **(381**   | **)**      | (180       | )          |
|                                     |       | ** ** | ** ** |       |       |
| **Net Deferred Tax Asset**               |       | **$**      | **786**    | ** ** | $          | 251 |   |

 

The Corporation has not recorded avaluation allowance for the deferred tax assets as management believes it ismore likely than not that they will be ultimately realized.

 

The Corporation has alternative minimum taxcarryforwards that expire through the year 2028.

 

The Corporation recorded a $40,000 net gainfrom the sale of available for sale securities during 2008, which was taxed at34%, or $14,000.

 

**Pennsylvania Corporate Tax Credit**

** **

In 2007, the Bank completed theconstruction of its new main office in Marysville.  As part of this project, the Bank applied fora $250,000 tax credit under the Pennsylvania Enterprise Zone Tax Credit Programwhich authorizes tax credits to private companies that make qualified

 

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**Note 10 — Taxes (Continued)**

** **

investments in designated enterprise zonesby rehabilitating, expanding or improving buildings within an enterprisezone.  The Corporation recorded a$216,000 credit in 2007, representing the amount of costs management initiallyestimated it was eligible to receive as a tax credit and included it in theBank shares tax expense (credit) on the consolidated statement of income.  In July 2008, the PennsylvaniaDepartment of Revenue made a final determination that the Bank was entitled tothe full $250,000 credit, and an additional $34,000 was recognized in 2008.  The credit was used to offset the Bank’s 2008Pennsylvania Bank Shares Tax liability, with the remainder available to offsetthe 2009 tax liability.

 

**Note 11 - Borrowings**

** **

The Corporation has an unsecured line ofcredit agreement with Atlantic Central Bankers Bank in the amount of $6,250,000at December 31, 2008 and $3,000,000 at December 31, 2007.  Interest accrues based on the daily FederalFunds rate.  There were no amountsoutstanding on the line of credit at December 31, 2008 or 2007.

 

Repurchase agreements are treated ascollateralized financing transactions and are carried on the consolidatedbalance sheets at the amount the securities will be subsequently sold orrepurchased for, plus accrued interest.  TheCorporation requires investment securities to be held as collateral for therepurchase agreements.  The securitiesunderlying the agreements were under the Corporation’s control.

 

The Corporation has entered into agreementswith the Federal Home Loan Bank (FHLB) which allow for borrowings up to apercentage of certain qualifying collateral assets.  At December 31, 2008, the Bank had amaximum borrowing capacity of approximately $51,312,000.  The borrowing capacity is collateralized bysecurity agreements in certain residential real estate backed assets of theCorporation, including loans and investments. Borrowings from the FHLB include long-term borrowing agreements whichare subject to restrictions and penalties for early repayment under certaincircumstances and borrowings under repurchase advance agreements.

 

A summary of short-term borrowings is asfollows at December 31:

 
|                                                |   | **2008**                             | ** ** | **2007**   | ** ** |
|-----------------------------------------------------|--------|--------------------------------------|------------|------------|------------|
|                                                |   | **(Dollars in thousands)** | ** ** |
|                                                |   | ** **                           | ** ** | ** ** | ** ** |
| Repurchase agreements with customers                |   | **$**                                | **527**    | ** ** | $          | 1,265 |   |
| FHLB short-term borrowings                          |   | **20,796**                           | ** ** | —     |       |
|                                                |   | ** **                           | ** ** |       |       |
|                                                |   | **$**                                | **21,323** | ** ** | $          | 1,265 |   |
|                                                |   | ** **                           | ** ** |       |       |
| Weighted average rate at end of year                |   | **0.54**                             | **%**      | 3.44       | %          |
| Maximum amount outstanding at any end of month      |   | **$**                                | **21,323** | ** ** | $          | 3,591 |   |
| Daily average amount outstanding                    |   | **9,743**                            | ** ** | 3,579      |       |
| Approximate weighted average interest rate for year |   | **1.56**                             | **%**      | 5.31       | %          |

 

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**Note 11 - Borrowings (Continued)**

** **

FHLB borrowings under long-termarrangements are summarized as follows at December 31:

 
| **Maturity Date** | ** ** | **Interest Rate** | ** ** | ** **                 | ** ** | **2008**                | ** ** | **2007**   | ** ** |
|------------------------|------------|------------------------|------------|----------------------------|------------|-------------------------|------------|------------|------------|
|                   | ** ** | ** **             | ** ** | ** **                 | ** ** | **(In thousands)** | ** ** |
|                   | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** |
| 06/18/09               |       | 5.41                   | %          | Fixed  rate                | ** ** | **$**                   | **5,000**  |       | $          | 5,000 |   |
| 11/30/09               |       | 3.99                   |       | Fixed  rate                | ** ** | **—**              |       | 7,000      |       |
| 04/09/18               |       | 2.90                   |       | Fixed  rate until 04/09/11 |       | **5,033**               |       | —     |       |
| 01/26/26               |       | 4.88                   |       | Amortizing  fixed rate     | ** ** | **—**              |       | 1,411      |       |
|                   |       |                   |       |                       | ** ** | ** **              |       |       |       |
|                   | ** ** | ** **             | ** ** | ** **                 | ** ** | **$**                   | **10,033** |       | $          | 13,411 |   |

 

Scheduled contractual maturities of FHLBborrowings are as follows at December 31, 2008 (in thousands):

 
| 2009   | ** ** | **$**      | **5,000**  | ** ** |
|--------|------------|------------|------------|------------|
| 2018   | ** ** | **5,033**  | ** ** |
|   | ** ** | ** ** | ** ** |
|   | ** ** | **$**      | **10,033** | ** ** |

 

**Note 12 - Financial Instrumentswith Off Balance Sheet Risk**

** **

The Bank is a party to financialinstruments with off balance sheet risk in the normal course of business tomeet the financing needs of its customers. These financial instruments consist primarily of commitments to extendcredit, typically residential mortgage loans and commercial loans and, to alesser extent, standby letters of credit. These instruments involve, to varying degrees, elements of credit andinterest rate risk in excess of the amount recognized on the balance sheet.

 

The Bank’s exposure to credit loss in theevent of nonperformance by the other party to the financial instrument forcommitments to extend credit and standby letters of credit is represented bythe contractual amount of those instruments. The Bank uses the same credit policies in making commitments andconditional obligations as it does for on balance sheet instruments.  The Bank does not anticipate any materiallosses from those commitments.

 

Commitments to extend credit are agreementsto lend to a customer as long as there are no violations of any conditionestablished in the contract.  Commitmentsgenerally have fixed expiration dates or other termination clauses and may requirepayment of a fee.  Since many of thecommitments are expected to expire without being drawn upon, the totalcommitment amounts do not necessarily represent future cash requirements.  The Bank evaluates each customer’screditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank uponextensions of credit, is based on management’s credit evaluation of thecustomer.  Collateral held varies but mayinclude investments, property, plant and equipment, and income-producingcommercial properties.  On loans securedby real estate, the Bank generally requires loan to value ratios of no greaterthan 85%.

 

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**Note 12 - Financial Instrumentswith Off Balance Sheet Risk (Continued)**

** **

**Standby letters of credit are conditional commitments issued by theBank to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued tosupport public and private borrowing arrangements and similartransactions.  The terms of the lettersof credit vary and may have renewal features. The credit risk involved inissuing letters of credit is essentially the same as that involved in extendingloans to customers.  The Bank holdscollateral supporting those commitments for which collateral is deemednecessary.  The current amount of theliability as of December 31, 2008 for guarantees under standby letters ofcredit is not material.**

** **

The Bank’s exposure to credit loss for loancommitments (unfunded loans and unused lines of credit, including home equitylines of credit) and standby and performance letters of credit was as followsat December 31:

 
| ** **                                | ** ** | **2008**                | ** ** | **2007**   | ** ** |
|-------------------------------------------|------------|-------------------------|------------|------------|------------|
| ** **                                | ** ** | **(In thousands)** | ** ** |
|                                      |       |                    |       |       |       |
| Commitments to grant loans                |       | **$**                   | **6,428**  | ** ** | $          | 2,778 |   |
| Unfunded commitments of existing loans    |       | **10,334**              | ** ** | 11,384     |       |
| Standby and performance letters of credit |       | **1,063**               | ** ** | 1,442      |       |
|                                      |       | ** **              | ** ** |       |       |
|                                      |       | **$**                   | **17,825** | ** ** | $          | 15,604 |   |

 

**Note 13 - Concentrations of CreditRisk**

** **

Substantially all of the Corporation’sbusiness activity, including loans and loan commitments, is with customerslocated within its trade area of the counties of Perry, Cumberland and Dauphin,Pennsylvania.  The concentration ofcredit by type of loan is set forth in the Loans note to the financialstatements.

 

**Note 14 - Regulatory Matters andShareholders’ Equity**

** **

Certain restrictions exist regarding theability of the Bank to transfer funds to the Corporation in the form of cashdividends, loans or advances.  Regulatoryapproval is required if the total of all dividends declared by a national bankin any calendar year exceeds net profits (as defined) for that year combinedwith the retained net profits for the two preceding years.  At December 31, 2008, $84,000 ofundistributed earnings of the Bank, included in consolidated shareholders’equity, was available for distribution to the Corporation as dividends withoutprior regulatory approval.

 

The Bank is subject to various regulatorycapital requirements administered by the Federal Deposit Insurance Corporation(FDIC).  Failure to meet the minimumregulatory capital requirements can initiate certain mandatory and possibleadditional discretionary actions by regulators that if undertaken, could have adirect material effect on the Corporation and the consolidated financialstatements.  Under the regulatory capitaladequacy guidelines and the regulatory framework for prompt corrective action,the Bank must meet specific capital guidelines involving quantitative measuresof their assets, liabilities and certain off-balance-sheet items as calculatedunder regulatory accounting practices. The capital amounts and classification under the prompt correctiveaction guidelines are also subject to qualitative judgments by the regulatorsabout components, risk-weightings and other factors.

 

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**Note 14 - Regulatory Matters andShareholders’ Equity (Continued)**

 

Quantitative measures established byregulation to ensure capital adequacy require the Bank to maintain minimumamounts and ratios of: total risk-based capital and Tier 1 capital torisk-weighted assets (as defined in the regulations), and Tier 1 capitalto average total assets (as defined). Management believes, as of December 31, 2008, that the Bank meetsall the capital adequacy requirements to which they are subject.

 

As of December 31, 2008, the mostrecent notification from the regulators, the Bank was categorized as wellcapitalized under the regulatory framework for prompt corrective action.  To remain categorized as well capitalized,the Bank will have to maintain minimum total risk-based, Tier 1 risk-basedand Tier 1 leverage ratios as disclosed in the table below.  There are no conditions or events since themost recent notification that management believes have changed the Bank’scategory.

 

The Federal Reserve Board approved a final rule in2006 that expands the definition of a small bank holding company (“BHC”) underthe Board’s Small Bank Holding Company Policy Statement and the Board’srisk-based and leverage capital guidelines for bank holding companies.  Based on the ruling, the Corporation meetsthe eligibility criteria of a small BHC and is exempt from regulatoryrequirements administered by the federal banking agencies.

 

The Bank’s actual capital ratios,  at December 31, 2008 and 2007 and theminimum ratios required for capital adequacy purposes and to be wellcapitalized under the prompt corrective action provisions are summarized below.

 
|                                               |       | **Actual**                           |       | **For Capital Adequacy  Purposes** |       | **To be Well Capitalized  under Prompt  Corrective Action  Provisions** |       |
|----------------------------------------------------|------------|--------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|
|                                               |       | **Amount**                           | ** ** | **Ratio**                                    | ** ** | **Amount**                                                                                       | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** |   |
|                                               |       | **(Dollars in thousands)** |       |
|                                               |       |                                 |       |                                         |       |                                                                                             |       |   |   |   |   |   |   |
| **As of December 31, 2008:**                  | ** ** | ** **                           | ** ** | ** **                                   | ** ** | ** **                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total risk-based capital (to risk-weighted assets) | ** ** | **$**                                | **23,442** | ** **                                   | **14.3**   | **%**                                                                                            | **$**      | **3****13,146** | ** ** | **3****8.0** | **%** | **$** | **>16,433** | ** ** | **>10.0** | **%** |
| Tier 1 capital (to risk-weighted assets)           | ** ** | **21,655**                           | ** ** | **13.2**                                     | ** ** | **3****6,573**                                                                              | ** ** | **3****4.0** | ** ** | **3****9,860** | ** ** | **3****6.0** | ** ** |
| Tier 1 capital (to average total assets)           | ** ** | **21,655**                           | ** ** | **9.5**                                      | ** ** | **>9,150**                                                                                    | ** ** | **>4.0** | ** ** | **3****11,437** | ** ** | **3****5.0** | ** ** |
| ** **                                         | ** ** | ** **                           | ** ** | ** **                                   | ** ** | ** **                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **As of December 31, 2007:**                  | ** ** | ** **                           | ** ** | ** **                                   | ** ** | ** **                                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total risk-based capital (to risk-weighted assets) |       | $                                    | 13,498     |                                         | 17.3       | %                                                                                                | $          | 36,243 |   | 38.0 | % | $ | >7,804 |   | >10.0 | % |
| Tier 1 capital (to risk-weighted assets)           |       | 12,530                               |       | 16.1                                         |       | 33,122                                                                                      |       | 34.0 |   | 34,682 |   | 3 6.0 |   |
| Tier 1 capital (to average total assets)           |       | 12,530                               |       | 10.4                                         |       | >4,810                                                                                        |       | >4.0 |   | 36,012 |   | 35.0 |   |

 

#### **Note 15 -Fair Value Measurements and Fair Values of Financial Instruments**

#### ** **

Managementuses its best judgment in estimating the fair value of the Corporation’sfinancial instruments; however, there are inherent weaknesses in any estimationtechnique.  Therefore, for substantiallyall financial instruments, the fair value estimates herein are not necessarily

 

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#### **Note 15 -Fair Value Measurements and Fair Values of Financial Instruments (Continued)**

 

indicativeof the amounts the Corporation could have realized in a sales transaction onthe dates indicated.  The estimated fairvalue amounts have been measured as of their respective year-ends and have notbeen re-evaluated or updated for purposes of these financial statementssubsequent to those respective dates.  Assuch, the estimated fair values of these financial instruments subsequent tothe respective reporting dates may be different than the amounts reported ateach year-end.

 

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement No. 157, *Fair Value Measurements*(“SFAS 157”), which defines fair value, establishes a framework for measuringfair value under GAAP, and expands disclosures about fair valuemeasurements.  SFAS 157 applies to other accounting pronouncementsthat require or permit fair value measurements.   The Corporationadopted SFAS 157 effective for its fiscal year beginning January 1, 2008.

 

InDecember 2007, the FASB issued FASB Staff Position 157-2, *Effective Date of FASB Statement No. 157*(“FSP 157-2”).  FSP 157-2 delays the effective date of SFAS 157 forall non-financial assets and liabilities, except those that are recognized ordisclosed at fair value on a recurring basis (at least annually) to fiscalyears beginning after November 15, 2008 and interim periods within thosefiscal years.   As such, theCorporation only partially adopted the provisions of SFAS 157, and will beginto account and report for non-financial assets and liabilities in 2009.   In October 2008, the FASB issuedFASB Staff Position 157-3,*Determiningthe Fair Value of a Financial Asset When the Market for that Asset is NotActive* (“FSP 157-3”), to clarify the application of theprovisions of SFAS 157 in an inactive market and how an entity woulddetermine fair value in an inactive market.  FSP 157-3 iseffective immediately and applies to the Corporation’s December 31, 2008consolidated financial statements. The adoption of SFAS 157 andFSP 157-3 had no impact on the amounts reported in the financialstatements*.*

 

SFAS157 establishes a fair value hierarchy that prioritizes the inputs to valuationmethods used to measure fair value.  The hierarchy gives the highestpriority to unadjusted quoted prices in active markets for identical assets orliabilities (Level 1 measurements) and the lowest priority to unobservableinputs (Level 3 measurements).  The three levels of the fair value hierarchyunder SFAS 157 are as follows:

 

*Level 1*:                            Unadjustedquoted prices in active markets that are accessible at the measurement date foridentical, unrestricted assets or liabilities.

 

*Level 2:**                          *Quoted prices in markets that are not active, or inputs that are observableeither directly or indirectly, for substantially the full term of the asset orliability.

 

*Level 3:**                          *Prices or valuation techniques that require inputs that are bothsignificant to the fair value measurement and unobservable (i.e., supportedwith little or no market activity).

 

Anasset’s or liability’s level within the fair value hierarchy is based on thelowest level of input that is significant to the fair value measurement.

 

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#### **Note 15 -Fair Value Measurements and Fair Values of Financial Instruments (Continued)**

 

Forfinancial assets measured at fair value on a recurring basis, the fair valuemeasurements by level within the fair value hierarchy used at December 31,2008 are as follows:

 
| ** **                    | ** ** | ** **              | ** ** | **(Level 1)**             | ** ** | **(Level 2)** | ** ** | ** **         | ** ** |
|-------------------------------|------------|-------------------------|------------|--------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                    | ** ** | ** **              | ** ** | **Quoted Prices in** | ** ** | **Significant**    | ** ** | **(Level 3)** | ** ** |
| ** **                    | ** ** | ** **              | ** ** | **Active Markets**        | ** ** | **Other**          | ** ** | **Significant**    | ** ** |
| ** **                    | ** ** | **December 31,**   | ** ** | **for Identical**         | ** ** | **Observable**     | ** ** | **Unobservable**   | ** ** |
| **Description**               | ** ** | **2008**                | ** ** | **Assets**                     | ** ** | **Inputs**         | ** ** | **Inputs**         | ** ** |
| ** **                    | ** ** | **(In thousands)** | ** ** |
|                          |       |                    |       |                           |       |               |       |               |       |
| Securities available for sale | ** ** | **$**                   | **28,120** | ** **                     | **$**      | **—**         | ** ** | **$**              | **28,120** | ** ** | **$** | **—** | ** ** |
|                               |            |                         |            |                                |            |                    |            |                    |            |  |  |  |  |

 

Forfinancial assets measured at fair value on a nonrecurring basis, the fair valuemeasurements by level within the fair value hierarchy used at December 31,2008 are as follows:

 
| **Description** | ** ** | **December 31,  2008** | ** ** | **(Level 1)  Quoted Prices  in Active  Markets for  Identical  Assets** | ** ** | **(Level 2)  Significant  Other  Observable  Inputs** | ** ** | **(Level 3)  Significant  Unobservable  Inputs** | ** ** |
|-----------------|------------|-----------------------------|------------|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **      | ** ** | **(In thousands)**     | ** ** |
|            |       |                        |       |                                                                                        |       |                                                       |       |                                                  |       |
| Impaired loans  | ** ** | **$**                       | **443**    | ** **                                                                                  | **$**      | **—**                                                 | ** ** | **$**                                                 | **—** | ** ** | **$** | **443** | ** ** |
|                 |            |                             |            |                                                                                             |            |                                                            |            |                                                       |            |  |  |  |  |

 

#### **As discussed above, the Corporation has delayed itsdisclosure requirements of non-financial assets and liabilities.  Certain foreclosed real estate is carried atfair value at the balance sheet date, for which the Corporation has not yetadopted the provisions of SFAS 157.**

#### ** **

Thefollowing information should not be interpreted as an estimate of the fairvalue of the entire Corporation since a fair value calculation is only providedfor a limited portion of the Corporation’s assets and liabilities.  Due to a wide range of valuation techniquesand the degree of subjectivity used in making the estimates, comparisonsbetween the Corporation’s disclosures and those of other companies may not bemeaningful.  The following methods andassumptions were used to estimate the fair values of the Corporation’sfinancial instruments at December 31, 2008 and 2007.

 

***Cash and cash equivalents (carried atcost):***

Thecarrying amounts reported in the balance sheet for cash and short-terminstruments approximate those assets’ fair values.

 

***Interest bearing time deposit (carried at cost):***

Fairvalues for fixed-rate time certificates of deposit are estimated using adiscounted cash flow calculation that applies interest rates currently beingoffered in the market on certificates to a schedule of aggregated expectedmonthly maturities on time deposits.  TheCorporation generally purchases amounts below the insured limit, limiting theamount of credit risk on these time deposits.

 

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#### **Note 15 -Fair Value Measurements and Fair Values of Financial Instruments (Continued)**

 

***Securities:***

Thefair value of securities available for sale (carried at fair value) aredetermined by obtaining quoted market prices on nationally recognizedsecurities exchanges (Level 1), or matrix pricing (Level 2), which is amathematical technique used widely in the industry to value debt securitieswithout relying exclusively on quoted market prices for the specific securitiesbut rather by relying on the securities’ relationship to other benchmark quotedprices.  For certain securities which arenot traded in active markets or are subject to transfer restrictions,valuations are adjusted to reflect illiquidity and/or non-transferability, andsuch adjustments are generally based on available market evidence (Level 3).  In the absence of such evidence, management’sbest estimate is used.  Management’s bestestimate consists of both internal and external support on certain Level 3investments.  Internal cash flow modelsusing a present value formula that includes assumptions market participantswould use along with indicative exit pricing obtained from broker/dealers(where available) are used to support fair values of certain Level 3investments, if applicable.

 

***Mortgage loans held for sale (carried at lower of cost or fair value):***

Thefair value of mortgages held for sale is determined, when possible, usingquoted secondary market prices.  If nosuch quoted prices exist, the fair value of the loan is determined using quotedmarket prices for a similar loan or loans, adjusted for the specific attributesof that loan.

 

#### ***Loans (carried at cost):***

Thefair values of loans are estimated using discounted cash flow analyses, usingmarket rates at the balance sheet date that reflect the credit and interestrate-risk inherent in the loans. Projected future cash flows are calculated based upon contractualmaturity or call dates, projected repayments and prepayments of principal.   Generally, for variable rate loans thatreprice frequently and with no significant change in credit risk, fair valuesare based on carrying values.

 

***Impaired loans (generally carriedat fair value):***

Impairedloans are those that are accounted for under FASB Statement No. 114,*Accounting by Creditors for Impairment of a Loan*(“SFAS114”)*,*in which the Corporationhas measured impairment generally based on the fair value of the loan’scollateral.  Fair value is generally determined based uponindependent third-party appraisals of the properties, or discounted cash flowsbased upon the expected proceeds.  These assets are included as Level3 fair values, based upon the lowest level of input that is significant to thefair value measurements.  The fair value consists of the loanbalances of 668,000, net of a valuation allowance of $225,000.  Additional provisions for loan losses of$225,000 were recorded during the period.

 

***Restricted investment in Bank stocks(carried at cost):***

The carrying amount ofrestricted investment in Bank stock approximates fair value, and considers thelimited marketability of such securities.

 

***Accrued interest receivable and payable(carried at cost):***

Thecarrying amount of accrued interest receivable and accrued interest payableapproximates its fair value.

 

***Deposit liabilities (carried at cost):***

Thefair values disclosed for demand deposits (e.g., interest and noninterestchecking, passbook savings and money market accounts) are, by definition, equalto the amount payable on demand

 

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#### **Note 15 -Fair Value Measurements and Fair Values of Financial Instruments (Continued)**

#### ** **

atthe reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates ofdeposit are estimated using a discounted cash flow calculation that appliesinterest rates currently being offered in the market on certificates to aschedule of aggregated expected monthly maturities on time deposits.

 

***Short-term borrowings (carried at cost):***

The carrying amounts ofshort-term borrowings approximate their fair values.

 

***Long-term borrowings (carried at cost):***

Fairvalues of FHLB advances are estimated using discounted cash flow analysis,based on quoted prices for new FHLB advances with similar credit riskcharacteristics, terms and remaining maturity.  The prices were obtained from an active marketand represent a fair value that is deemed to represent the transfer price ifthe liability were assumed by a third party.

 

***Off-balance sheet financial instruments(disclosed at cost):***

Fairvalues for the Corporation’s off-balance sheet financial instruments (lendingcommitments and letters of credit) are based on fees currently charged in themarket to enter into similar agreements, taking into account, the remainingterms of the agreements and the counterparties’ credit standing.

 

Theestimated fair values of the Corporation’s financial instruments were asfollows at December 31, 2008 and 2007.

 
| ** **                              | ** ** | **2008**                | ** ** | **2007**            | ** ** |
|-----------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                              | ** ** | **Carrying  Amount**    | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| ** **                              | ** ** | **(In thousands)** | ** ** |
|                                    |       |                    |       |                |       |   |   |   |   |
| Financial assets:                       |       |                    |       |                |       |   |   |   |   |
| Cash and cash equivalents               |       | **$**                   | **6,018**  |                | **$**      | **6,018** |   | $ | 9,083 |   | $ | 9,083 |   |
| Interest bearing time deposits          |       | **950**                 |       | **950**             |       | — |   | — |   |
| Investment securities                   |       | **28,120**              |       | **28,120**          |       | 20,290 |   | 20,290 |   |
| Mortgage loans held for sale            |       | **1,124**               |       | **1,124**           |       | — |   | — |   |
| Loans, net                              |       | **176,469**             |       | **176,816**         |       | 82,934 |   | 82,803 |   |
| Accrued interest receivable             |       | **812**                 |       | **812**             |       | 485 |   | 485 |   |
| Restricted investments in bank stocks   |       | **2,075**               |       | **2,075**           |       | 949 |   | 949 |   |
|                                    |       | ** **              |       | ** **          |       |   |   |   |   |
| Financial liabilities:                  |       | ** **              |       | ** **          |       |   |   |   |   |
| Deposits                                |       | **174,353**             |       | **175,173**         |       | 94,472 |   | 94,550 |   |
| Short-term borrowings                   |       | **21,323**              |       | **21,323**          |       | 1,265 |   | 1,265 |   |
| Long-term borrowings                    |       | **10,033**              |       | **10,137**          |       | 13,411 |   | 13,318 |   |
| Accrued interest payable                |       | **499**                 |       | **499**             |       | 319 |   | 319 |   |
|                                    |       | ** **              |       | ** **          |       |   |   |   |   |
| Off balance sheet financial instruments |       | **—**              |       | **—**          |       | — |   | — |   |
|                                         |            |                         |            |                     |            |  |  |  |  |  |  |  |  |

 

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**Note 16 - Commitments andContingencies**

** **

The Corporation is subject to numerousclaims and lawsuits which arise primarily in the normal course ofbusiness.  At December 31, 2008,there were no such claims or lawsuits which, in the opinion of management,would have a material adverse effect on the financial position or results ofoperations of the Corporation.

 

**Note 17 — Riverview FinancialCorporation (Parent Company Only) Financial Information**

** **

**BalanceSheets**

 
| ** **                                     | ** ** | **December 31,**   | ** ** |
|------------------------------------------------|------------|-------------------------|------------|
| ** **                                     | ** ** | **2008**                | ** ** | **2007** | ** ** |
| ** **                                     | ** ** | **(In thousands)** | ** ** |
| ** **                                     | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Assets**                                     |       |                    |       |   |   |
|                                           |       |                    |       |   |   |
| Cash and cash equivalents                      |       | **$**                   | **579**    |   | $ | 179 |   |
| Investment in bank subsidiary                  |       | **23,554**              |       | 12,504 |   |
| Real estate, net                               |       | **72**                  |       | 72 |   |
|                                           |       | ** **              |       |   |   |
|                                           |       | **$**                   | **24,205** |   | $ | 12,755 |   |
|                                           |       | ** **              |       |   |   |
| **Liabilities and Shareholders’  Equity** |       | ** **              |       |   |   |
|                                           |       | ** **              |       |   |   |
| Shareholders’ equity                      |       | **$**                   | **24,205** |   | $ | 12,755 |   |

** **

**Statementsof Income**

 
| ** **                                                                                       | ** ** | **Years Ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                       | ** ** | **2008**                                | ** ** | **2007** | ** ** |
| ** **                                                                                       | ** ** | **(In thousands)**                 | ** ** |
| ** **                                                                                       | ** ** | ** **                              | ** ** | ** ** | ** ** |
| Income, dividends from bank subsidiary                                                           | ** ** | **$**                                   | **700**    |   | $ | 300 |   |
|                                                                                             |       |                                    |       |   |   |
| Expenses                                                                                         |       | —                                  |       | — |   |
|                                                                                             |       |                                    |       |   |   |
| **Income Before Equity in Undistributed  (Distributions in Excess of) Net Income of Subsidiary** | ** ** | **700**                                 |       | 300 |   |
|                                                                                             |       |                                    |       |   |   |
| Undistributed (distributions in excess of) net income of subsidiary                              | ** ** | **(329**                                | **)**      | 235 |   |
|                                                                                             |       |                                    |       |   |   |
| **Net Income**                                                                                   | ** ** | **$**                                   | **371**    |   | $ | 535 |   |

 

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**Note 17 — Riverview FinancialCorporation (Parent Company Only) Financial Information (Continued)**

** **

**Statementsof Cash Flows**

 
| ** **                                                                         | ** ** | **Years Ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                         | ** ** | **2008**                                | ** ** | **2007** | ** ** |
| ** **                                                                         | ** ** | **(In thousands)**                 | ** ** |
| ** **                                                                         | ** ** | ** **                              | ** ** | ** ** | ** ** |
| **Cash Flows from Operating Activities**                                           |       |                                    |       |   |   |
|                                                                               | ** ** | ** **                              |       |   |   |
| Net income                                                                         | ** ** | **$**                                   | **371**    |   | $ | 535 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |       |                                    |       |   |   |
| Undistributed (distributions in excess of) net income of subsidiary                | ** ** | **329**                                 |       | (235 | ) |
|                                                                               |       |                                    |       |   |   |
| **Net Cash Provided by Operating Activities**                                      | ** ** | **700**                                 |       | 300 |   |
|                                                                               |       |                                    |       |   |   |
| **Cash Flows from Financing Activities**                                           |       |                                    |       |   |   |
|                                                                               | ** ** | ** **                              | ** ** |   |   |
| Dividends paid                                                                     | ** ** | **(300**                                | **)**      | (300 | ) |
|                                                                               |       |                                    |       |   |   |
| **Net Cash Used in Financing Activities**                                          | ** ** | **(300**                                | **)**      | (300 | ) |
| ** **                                                                         |       |                                    |       |   |   |
| **Net Increase in Cash and Cash Equivalents**                                      | ** ** | **400**                                 |       | — |   |
| ** **                                                                         |       |                                    |       |   |   |
| **Cash and Cash Equivalents - Beginning**                                          | ** ** | **179**                                 |       | 179 |   |
| ** **                                                                         |       |                                    |       |   |   |
| **Cash and Cash Equivalents - Ending**                                             |       | $                                       | 579        |   | $ | 179 |   |

** **

**Note 18— Subsequent Events**

** **

InJanuary 2009, the Corporation approved a non-qualified stock incentiveplan for the issuance of up to 170,000 stock options that will be granted tomanagement and members of the Board of Directors.  The Corporation will account for these awardsin accordance with Statement of Financial Accounting Standards No. 123(R),*Share Based Payment*, which requires thatthe fair values of the equity awards be recognized as compensation expense overthe period during which the employee is required to provide service in exchangefor such an award.

 

Subsequentto the approval of the plan, the Corporation awarded 155,000 options tomanagement and members of the Board of Directors.  Each award has a fair value of $0.86, basedon the following: fair value of stock on date of grant — $14.00; exercise price —$16.00; life — 8 years; volatility — 12.22%; dividend yield — 2.50%; discountrate — 2.07%.  The Corporation expects torecognize compensation expense over the vesting period, or 7 years.

 

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** **

**ITEM 9****. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE.**

** **

None.

 

**ITEM 9A****. CONTROLS AND PROCEDURES.**

 

**Evaluation of Disclosure Controls and Procedures**

 

Riverviewcarried out an evaluation, under the supervision and with the participation ofits management, including the Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures pursuant to Exchange Act Rule 13a-15 as of December 31,2008. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that, Riverview’s disclosure controls andprocedures are effective in timely alerting them to material informationrelating to Riverview (including its consolidated subsidiaries) required to beincluded in our periodic SEC filings.

 

**Changes in Internal Controls Over Financial Reporting**

 

Therehave been no material changes in Riverview’s internal control over financialreporting during the fourth quarter of 2008 that have materially affected, orare reasonably likely to materially affect, Riverview’s internal control overfinancial reporting.

 

**Riverview Financial Corporation Management Report on InternalControls Over Financial Reporting**

 

Thisannual report does not include a report of management’s assessment regardinginternal control over financial reporting or an attestation report of theCorporation’s independent registered public accounting firm due to a transitionperiod established by rules of the Securities and Exchange Commission fornewly public companies.

 

**ITEM 9B****. OTHER INFORMATION.**

 

None.

 

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** **

**PART III**

 

**ITEM 10****. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE.**

 

**Information about Directors**

** **

                Information as of March 1,2009, concerning the thirteen nominees to the Board of Directors.

 
| **Name  and Age**           | ** ** | **Director  Since(*)** | ** ** | **Principal Occupation for the Past Five Years and****Positions Held with Riverview Financial Corporation and  Subsidiaries**                                                                                                                                                                                                                                                                                                                                                              |
|-----------------------------|------------|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| William  L. Hummel, 60      |       | 1998                   |       | Mr. Hummel  is the former President and Chief Executive Officer of First Perry and Chief  Executive Officer of The First National Bank of Marysville from 1997 until  December 31, 2008. He formerly served as a director of First Perry  Bancorp, Inc. and The First National Bank of Marysville since 1998.                                                                                                                                                               |
| John  M. Schrantz, 58       |       | 1998                   |       | Mr. Schrantz  is President of H.E. Rohrer, Inc. (Rohrer Bus Service). He formerly  served as a director of First Perry Bancorp, Inc. and The First National  Bank of Marysville since 1998.                                                                                                                                                                                                                                                                                 |
| Roland  R. Alexander, 58    |       | 2001                   |       | Mr. Alexander  is Medical Oncologist with East Shore Oncology, P.C., Harrisburg, PA. He  formerly served as a director of First Perry Bancorp, Inc. and The First  National Bank of Marysville since 2001.                                                                                                                                                                                                                                                                       |
| Arthur  M. Feld, 66         |       | 1997                   |       | Mr. Feld  is an Attorney-at-Law. He formerly served as a director of First Perry  Bancorp, Inc. and The First National Bank of Marysville since 1997.                                                                                                                                                                                                                                                                                                                            |
| James  G. Ford, II, 61 |       | 2006                   |       | Mr. Ford  is President of the J. LeRue Hess Agency, Inc. He formerly served as a  director of First Perry Bancorp, Inc. and The First National Bank of  Marysville since 2006.                                                                                                                                                                                                                                                                                              |
| Robert  M. Garst, 50        |       | 2008                   |       | Mr. Garst  is Chief Executive Officer of Riverview Financial Corporation and Riverview  National Bank. Prior to that Mr. Garst was Executive Vice President of  First Perry and President of The First National Bank of Marysville from  May 2006 to December 31, 2008. Prior to that, Mr. Garst was  Executive Vice President and Chief Lending Officer of Pennsylvania State  Bank.                                                                             |
| R.  Keith Hite, 61          |       | 2006                   |       | Mr. Hite  is Executive Director of the Pennsylvania State Association of Township  Supervisors. He formerly served as a director of First Perry  Bancorp, Inc. and The First National Bank of Marysville since 2006.                                                                                                                                                                                                                                                             |
| Kirk  D. Fox, 41            |       | 2007                   |       | Mr. Fox  is President of Riverview Financial Corporation and Riverview National Bank.  Mr. Fox had been Executive Vice President of HNB Bancorp, Inc. and  Chief Lending Officer of Halifax National Bank since August 2004 to  December 31, 2008. Prior to that he was Vice President and Commercial  Loan Officer for another bank, where he worked since 1988. He formerly served  as director of HNB Bancorp, Inc. and Halifax National Bank since 2007. |
| David  W. Hoover, 47        |       | 2006                   |       | Mr. Hoover  is President of Hoover Financial Services, Inc., located in Halifax,  Pennsylvania. He formerly served as a director of HNB Bancorp, Inc. and  Halifax National Bank since 2006.                                                                                                                                                                                                                                                                                |

 

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| **Name  and Age**      | ** ** | **Director  Since(*)** | ** ** | **Principal Occupation for the Past Five Years and****Positions Held with Riverview Financial Corporation and  Subsidiaries**                                                                                                         |
|------------------------|------------|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Joseph  D. Kerwin, 44  |       | 2005                   |       | Mr. Kerwin  is an attorney with the law firm of Kerwin & Kerwin located in  Elizabethville, Pennsylvania. He formerly served as a director of HNB  Bancorp, Inc. and Halifax National Bank since 2005.             |
| James  M. Lebo, 63     |       | 1996                   |       | Mr. Lebo  is President of the Lebo Agency and is a licensed insurance agent. He  formerly served as a director of HNB Bancorp, Inc. and Halifax National  Bank since 1996.                                                  |
| Paul  R. Reigle, 79    |       | 1995                   |       | Mr. Reigle  is a retired banker. Mr. Reigle was Chairman of the Board of HNB  Bancorp, Inc. and Halifax National Bank since 1995. Mr. Reigle  served as Cashier for Halifax National Bank from 1960 through 1990. |
| David  A. Troutman, 52 |       | 2002                   |       | Mr. Troutman  is President of A.W. Troutman, an automobile dealership in Millersburg,  Pennsylvania. He formerly served as a director of Halifax National Bank since  2002.                                                      |

 

----

(*)  Includes service as director of The FirstNational Bank of Marysville and Halifax National Bank.

 

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**ExecutiveOfficers**

 

The following table providesinformation, as of March 1, 2009, about the Corporation’s executiveofficers.

 
| **Name**          | ** ** | **Age** | ** ** | **Principal  Occupation For the Past Five Years and Position********Held with Riverview Financial Corporation and Subsidiaries**                                                                                                                                                                                                                                                                                                                                             |
|-------------------|------------|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Robert M. Garst   |       | 50      |       | Mr. Garst is Chief  Executive Officer of Riverview Financial Corporation and Riverview National  Bank. Prior to that, Mr. Garst was Executive Vice President of First  Perry and President of The First National Bank of Marysville from  May 2006 to December 31, 2008. Prior to that, Mr. Garst was  Executive Vice President and Chief Lending Officer of Pennsylvania State  Bank.                                                              |
| Kirk D. Fox       |       | 41      |       | Mr. Fox is President  of Riverview Financial Corporation and Riverview National Bank. Mr. Fox  had been Executive Vice President of HNB and Executive Vice President and  Chief Lending Officer of Halifax National Bank from August 2004 until  December 31, 2008. Prior to that, he was Vice President and Commercial  Loan Officer for another bank, where he worked since 1988. He has served as  director of Halifax National Bank since 2007.      |
| Theresa M. Wasko  |       | 56      |       | Ms. Wasko is Chief  Financial Officer of Riverview Financial Corporation and Riverview National  Bank beginning January 20, 2009. Prior to that, Ms. Wasko served as  Chief Financial Officer of Great Bear Bank (a bank in organization) from 2007  to 2009 and Chief Financial Officer of East Penn Bank from 1998 to 2007.                                                                                                                                 |
| Robert B. Weidler |       | 38      |       | Mr. Weidler is the  Controller of Riverview Financial Corporation and Riverview National Bank.  Prior to that, Mr. Weidler was the Chief Financial Officer of First  Perry and The First National Bank of Marysville since 2002. Prior to that,  Mr. Weidler was Controller of First Perry and The First National Bank of  Marysville.                                                                                                                        |
| Paul B. Zwally    |       | 44      |       | Mr. Zwally is an  Executive Vice President and the Chief Lending Officer of Riverview Financial  Corporation and Riverview National Bank. Prior to that, Mr. Zwally was a  Senior Vice President and Chief Lending Officer of First Perry  Bancorp, Inc. and The First National Bank of Marysville since  March 2008. Prior to that, Mr. Zwally was a Vice President and  commercial lending officer with PNC Banks and Community Banks since 1989. |

 

The Board of Directors ofRiverview Financial Corporation has a separate Audit Committee comprised ofindependent directors.  The members ofthe Audit Committee are R. Keith Hite, Chairman, Arthur M. Feld and Joseph D.Kerwin. There is no “audit committee financial expert” at this time.  However, Riverview is in the process ofevaluating its committee members to determine if any qualify under thedefinition of “financial expert”.

 

Riverview has adopted a Codeof Ethics that applies to directors, officers and employees of Riverview andthe Riverview National Bank. The Code of Ethics is attached as Exhibit 14.1to this Form 10-K filed.

 

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There have been no materialchanges to the procedures by which security holders may recommend nominees toRiverview’s Board of Directors.

 

**ITEM 11****. EXECUTIVECOMPENSATION.**

 

**DirectorCompensation**

 

The Corporation was formedon December 31, 2008, and, therefore, no directors received compensationfrom the Corporation during 2008.

 

However, prior to December 31,2008, the directors received compensation from either First Perry Bancorp, Inc.or HNB Bancorp, Inc.  The tablebelow sets forth the compensation received by the directors from thosecompanies during 2008.

 
| **Name**               | ** ** | **Fees Earned or  Paid in Cash ($)** | ** ** | **Total ($)** | ** ** |
|------------------------|------------|---------------------------------------------------------------|------------|--------------------|------------|
| Roland R. Alexander    |       | $                                                             | 13,450     |               | $          | 13,450 |   |
| Arthur M. Feld         |       | 14,050                                                        |       | 14,050             |       |
| James G. Ford, II |       | 13,000                                                        |       | 13,000             |       |
| R. Keith Hite          |       | 12,150                                                        |       | 12,150             |       |
| David W. Hoover        |       | 15,000                                                        |       | 15,000             |       |
| William L. Hummel      |       | 13,700                                                        |       | 13,700             |       |
| Joseph D. Kerwin       |       | 15,000                                                        |       | 15,000             |       |
| James M. Lebo          |       | 15,000                                                        |       | 15,000             |       |
| Paul R. Reigle         |       | 15,000                                                        |       | 15,000             |       |
| John M. Schrantz       |       | 13,900                                                        |       | 13,900             |       |
| David A. Troutman      |       | 15,000                                                        |       | 15,000             |       |
|                        |            |                                                               |            |                    |            |  |  |

 

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**ExecutiveCompensation**

 

*SummaryCompensation Table*

 

The following tablesummarizes the total compensation for 2008 and 2007 for Robert M. Garst,Riverview Financial Corporation’s Chief Executive Officer, Kirk D. Fox,Riverview Financial Corporation’s President, and Robert B. Weidler, RiverviewFinancial Corporation’s Controller.  Allcompensation paid in 2008 and 2007 to each executive officer was paid by eitherFirst Perry Bancorp, Inc. or HNB Bancorp, Inc. prior to theirconsolidation into Riverview Financial Corporation on December 31,2008.  These individuals are referred toas the “Named Executive Officers.”

 
| **Name and  Principal Position** | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|--------------------------------------------|------------|----------|------------|------------|------------|-----------|------------|----------------------------------|------------|-----------|------------|
| Robert M. Garst,                           |       | 2008     |       | $          | 132,600    |      | $          | 30,000                           |       | $         | 73,444     | (1) | $ | 236,044 |   |
| Chief Executive Officer                    |       | 2007     |       | 128,750    |       | 30,000    |       | 18,143                           | (2)        | 176,893   |       |
|                                       |       |     |       |       |       |      |       |                             |       |      |       |
| Robert B. Weidler,                         |       | 2008     |       | 97,000     |       | —    |       | 37,098                           | (3)        | 134,098   |       |
| Controller                                 |       | 2007     |       | 77,250     |       | 15,000    |       | 9,038                            | (4)        | 101,288   |       |
|                                       |       |     |       |       |       |      |       |                             |       |      |       |
| Kirk D. Fox,                               |       | 2008     |       | 105,000    |       | 30,000    |       | 74,019                           | (5)        | 209,019   |       |
| President                                  |       | 2007     |       | 90,000     |       | 10,000    |       | 10,497                           | (6)        | 110,497   |       |
|                                            |            |          |            |            |            |           |            |                                  |            |           |            |  |  |  |  |

 

----

(1) Includes an automobile stipend of $6,000; 401(k) matchof $3,210; life insurance premiums of $468; profit sharing of $13,766; and aone-time award for $50,000 in recognition of Mr. Garst’s extraordinaryservice related to consolidation activity.

(2) Includes an automobile stipend of $6,000; 401(k) matchof $2,021 for 2007; and profit sharing of $10,122.

(3) Includes a 401(k) match of $2,910; lifeinsurance premiums of $468; profit sharing of $8,720; and a one-time award in2008 for $25,000 in recognition of Mr. Weidler’s extraordinary servicerelated to consolidation activity.

(4) Includes a 401(k) match of $2,317; andprofit sharing of $6,721.

(5) Includes life insurance premiums of $259; 401(k) matchof $3,150; profit sharing of $5,038; change of $5,012 in pension value ofsupplemental retirement plan; automobile reimbursements of $560; and a one-timeaward for $60,000 in recognition of Mr. Fox’s extraordinary servicerelated to consolidation activity.

(6) Includes life insurance premiums of $268; 401(k) matchof $2,708; profit sharing of $2,451; change of $4,475 in pension value ofsupplemental retirement plan; and automobile reimbursements of $595.

 

Mr. Garst was awarded adiscretionary bonus of $30,000 for his services to First Perry and The FirstNational Bank of Marysville for the year 2008 and 2007.  For the year 2008, Mr. Fox received adiscretionary bonus of $30,000 as compared to $10,000 in 2007 for his servicesto HNB and Halifax National Bank.  Messrs. Garstand Fox are each parties to three-year term rolling employment agreements withRiverview Financial Corporation and Riverview National Bank, wherein on everyanniversary date of the agreement, the agreement will be extended for anotheryear unless notice of nonrenewal is given. The agreements provide that the executives may participate in thoseemployee benefit plans in which they are eligible.  It also provides that if the executives areterminated without cause or if after a change in control there is a reductionin salaries or benefits, or a change in their 

 

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reporting responsibilities,duties or titles, they will receive three times their Annual Compensation asdefined in the agreement in 24 monthly installments.  The executives will receive a continuation ofall non-cash benefits for three years. If the payments are determined to be parachute payments and theexecutives are subject to excise taxes, they will receive an additional cashpayment in an amount such that the after-tax proceeds of such payment will beequal to the amount of the excise tax.

 

Mr. Fox is a party to asupplemental executive retirement plan, wherein he will receive $44,000 peryear for 15 years beginning upon his termination of employment after age65.  Upon his termination of employment,he shall become fully vested in the benefit.

 

**ITEM 12****. SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS .**

 

**PrincipalHolders**

 

The following table shows,to the best of our knowledge, those persons or entities who owned of record orbeneficially, on March 1, 2009, more than 5% of the outstanding RiverviewFinancial Corporation common stock.

 
| **Name and Address  of Beneficial Owner**                                                               | ** ** | **Amount and Nature  of  Beneficial  Ownership** | ** ** | **Percent of Class** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                  | ** ** | ** **                                                 | ** ** | ** **                     | ** ** |
| Arlene G. Deckard  c/o The First National Bank of Marysville  101 Lincoln Street, PO Box B  Marysville, PA  17053-1314 |       | 108,601                                                    |       | 6.21                           | %          |

 

**BeneficialOwnership of Executive Officers, Directors and Nominees**

 

The following table shows,as of December 31, 2008 the amount and percentage of Riverview FinancialCorporation common stock beneficially owned by each director, each nominee,each named executive officer and all directors, nominees and executive officersof the Corporation as a group.

 

Beneficial ownership ofshares of Riverview Financial Corporation common stock is determined inaccordance with Securities and Exchange Commission Rule 13d-3, whichprovides that a person should be credited with the ownership of any stock held,directly or indirectly, through any contract, arrangement, understanding,relationship, or otherwise has or shares:

 

·                  Voting power, which includesthe power to vote or to direct the voting of the stock; or

·                  Investment power, whichincludes the power to dispose or direct the disposition of the stock; or

·                  The right to acquirebeneficial ownership within 60 days after December 31, 2008.

 

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Unless otherwise indicatedin a footnote appearing below the table, all shares reported in the table beloware owned directly by the reporting person. The number of shares owned by the directors, nominees and executiveofficers is rounded to the nearest whole share. The percentage of all Riverview Financial Corporation common stock ownedby each director, nominee or executive officer is less than 1%.

 

Name of Individual orIdentity of Group

 
| **Directors and Nominees**                         | ** ** | **Amount and  Nature of  Beneficial  Ownership** | ** ** | **Percent of  Class** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------|------------|----------------------------|------------|
|                                                         |       |                                                       |       |                       |       |
| Roland R. Alexander                                          |       | 17,045                                                     |       | 0.97                       | %          |
| Arthur M. Feld                                               |       | 13,636                                                     |       | 0.78                       | %          |
| James G. Ford, II                                       |       | 9,925                                                      |       | 0.57                       | %          |
| Kirk D. Fox                                                  |       | 660                                                        |       | 0.04                       | %          |
| Robert M. Garst                                              |       | 1,217                                                      |       | 0.07                       | %          |
| R. Keith Hite                                                |       | 14,731                                                     |       | 0.84                       | %          |
| David W. Hoover                                              |       | 5,418                                                      |       | 0.31                       | %          |
| William L. Hummel                                            |       | 11,444                                                     |       | 0.65                       | %          |
| Joseph D. Kerwin                                             |       | 9,513                                                      |       | 0.54                       | %          |
| James M. Lebo                                                |       | 3,225                                                      |       | 0.18                       | %          |
| Paul R. Reigle                                               |       | 15,120                                                     |       | 0.86                       | %          |
| John M. Schrantz                                             |       | 12,043                                                     |       | 0.69                       | %          |
| David A. Troutman                                            |       | 13,230                                                     |       | 0.76                       | %          |
|                                                         |       |                                                       |       |                       |       |
| Executive Officers                                           |       |                                                       |       |                       |       |
| Robert Weidler                                               |       | 121                                                        |       | 0.00                       | %          |
|                                                         |       |                                                       |       |                       |       |
| All directors and executive officers as a group (16 persons) |       | 127,328                                                    |       | 7.28                       | %          |

 

**ITEM 13****. CERTAIN RELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

 

Currently, the Board ofDirectors has thirteen members.  Underthe Nasdaq Stock Market standards for independence, the following directorsmeet the standards for independence:  Messrs. Alexander,Feld, Ford, Hite, Hoover, Hummel, Kerwin, Lebo, Reigle, Schrantz and Troutman.This constitutes more than a majority of our Board of Directors.  Only independent directors serve on our AuditCommittee, Compensation Committee and Governance and Nominating Committee.

 

In determining thedirectors’ independence, the Board of Directors considered loan transactionsbetween Riverview National Bank and the directors, their family members and 

 

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businesses with whom theyare associated, as well as any contributions made to non-profit organizationswith whom they are associated.

 

The table below includes adescription of other categories or types of transactions, relationships orarrangements considered by the Board (in addition to those listed above andunder the section entitled “Transactions with Directors and Executive Officers”below) in reaching its determination that the directors are independent.

* *
| **Name**           | ** ** | **Independent** | ** ** | **Other  Transactions/Relationships/Arrangements** |
|--------------------|------------|-----------------|------------|----------------------------------------------------|
| Mr. Alexander |       | Yes             |       | None                                               |
| Mr. Feld      |       | Yes             |       | Legal services —  collection work             |
| Mr. Ford      |       | Yes             |       | Insurance consulting                               |
| Mr. Hite      |       | Yes             |       | None                                               |
| Mr. Hoover    |       | Yes             |       | Payroll processing  services                       |
| Mr. Hummel    |       | Yes             |       | None                                               |
| Mr. Kerwin    |       | Yes             |       | Legal services — contracts                    |
| Mr. Lebo      |       | Yes             |       | Insurance consulting                               |
| Mr. Reigle    |       | Yes             |       | None                                               |
| Mr. Schrantz  |       | Yes             |       | None                                               |
| Mr. Troutman  |       | Yes             |       | None                                               |

 

In each case, the Boarddetermined that none of the transactions above impaired the independence of thedirector.

 

Some of Riverview FinancialCorporation’s directors and executive officers and the companies with whichthey are associated were customers of, and had banking transactions with,Riverview Financial Corporation’s subsidiary bank, Riverview National Bank orpredecessor banks, The First National Bank of Marysville and Halifax NationalBank, during 2008.  All loans and loancommitments made to them and to their companies were made in the ordinarycourse of bank business, on substantially the same terms, including interestrates, collateral and repayment terms, as those prevailing at the time forcomparable transactions with other customers of the bank, and did not involvemore than a normal risk of collectability or present other unfavorablefeatures.  Riverview FinancialCorporation’s subsidiary bank anticipates that they will enter into similartransactions in the future.

 

The Board of Directors mustapprove all related party transactions that are significant.  The director in question is excused from theboard meeting at the time the decision is made.

 

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** **

**ITEM 14****. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

** **

Priorto the formation of Riverview Financial Corporation on December 31, 2008,Beard Miller Company LLP was the independent registered public accounting firmfor First Perry Bancorp, Inc. and HNB Bancorp, Inc.,individually.  Aggregate fees billed byBeard Miller Company LLP, the independent registered public accounting firm forRiverview, for services rendered to First Perry Bancorp, Inc. and HNBBancorp, Inc., in the aggregate during the year ended December 31,2008 were as follows:

 
| ** **            | ** ** | **2008** | ** ** |
|-----------------------|------------|----------|------------|
| Audit fees(1)         |       | $        | 228,823    |   |
| Audit-related fees(2) |       | 6,238    |       |
| Tax fees(3)           |       | 2,845    |       |
| All other fees        |       | —   |       |
| Total                 |       | $        | 237,906    |   |

 

----

(1)                                  Includes professionalservices rendered for the audit of Riverview’s 2008 consolidated financialstatements, and First Perry Bancorp, Inc. and HNB Bancorp, Inc.’s2007 and 2006 consolidated financial statements, review of the interimconsolidated financial statements included in Forms 10-Q and proceduresassociated with the registration statement on Form S-4, includingout-of-pocket expenses.

 

(2)                                  Includes certain review,analysis and consultations in regard certain accounting transactions.

 

(3)                                  Includes review, analysisand consultations in regard to 280G compliance..

 

TheAudit Committee pre-approves all audit and permissible non-audit servicesprovided by the independent auditors. These services may include audit services, audit related services, taxservices and other services.  The AuditCommittee pre-approval process is generally provided for up to one year and anypre-approval is detailed as to the particular service or category of servicesand is subject to a specific budget.  Inaddition, the Audit Committee may also pre-approve particular services on acase by case basis.  For each proposedservice, the independent auditor is required to provide detailed back-updocumentation at the time of approval.

 

**PART IV**

 

**ITEM 15****.  EXHIBITS AND FINANCIALSTATEMENT SCHEDULES.**

** **
| (a)    | 1.     | Financial  statements are incorporated by reference in Part II, Item 8 hereof.                                                                                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | Report  of Independent Registered Public Accounting Firm                                                                                                                                          |
|   |   | Consolidated  Balance Sheets                                                                                                                                                                      |
|   |   | Consolidated  Statements of Income                                                                                                                                                                |
|   |   | Consolidated  Statements of Changes in Shareholders’ Equity                                                                                                                                  |
|   |   | Consolidated  Statements of Cash Flows                                                                                                                                                            |
|   |   | Notes  to Consolidated Financial Statements                                                                                                                                                       |
|   |   |                                                                                                                                                                                              |
|   | 2.     | The  financial statement schedules, required by Regulation S-X, are omitted  because the information is either not applicable or is included elsewhere in  the consolidated financial statements. |
|   |   |                                                                                                                                                                                              |
|   | 3.     | The  following Exhibits are filed as part of this filing on Form 10-K, or  incorporated by reference hereto:                                                                                 |

 

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|   | 3(i)   | The  Registrant’s Articles of Incorporation.   (Incorporated by reference to Annex B included in Riverview’s  Amendment No. 2 to Registration Statement on Form S-4 (Registration  No. 333-153486) filed November 4, 2008). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                           |
|   | 3(ii)  | The  Registrant’s By-laws.  (Incorporated by  reference to Annex C included in Riverview’s Amendment No. 2 to  Registration Statement on Form S-4 (Registration No. 333-153486)  filed November 4, 2008).                   |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.1   | Amended  and Restated Executive Employment Agreement of Robert M. Garst.                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.2   | Amended  and Restated Executive Employment Agreement of Kirk D. Fox.                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.3   | Employment  Agreement of Theresa M. Wasko.                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.4   | Executive  Employment Agreement of Paul B. Zwally.                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.5   | Employment  Agreement of William L. Hummel.                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.6   | Acknowledgement  and Release Agreement of William L. Hummel                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.7   | Form of  Director Deferred Fee Agreements with Directors Roland R. Alexander, Robert  M. Garst and Kirk D. Fox.                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                           |
|   | 10.8   | 2009  Stock Option Plan.                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                           |
|   | 14.1   | Code  of Ethics.                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                           |
|   | 21     | Subsidiaries  of Registrant.                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                           |
|   | 31.1   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Executive Officer.                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                           |
|   | 31.2   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Financial Officer.                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                           |
|   | 32.1   | Chief  Executive Officer’s §1350 Certification.                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                           |
|   | 32.2   | Chief  Financial Officer’s §1350 Certification.                                                                                                                                                                                                      |

 

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#### **SIGNATURES**

#### ** **

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

 

|   |   |   | By:    | /s/  Robert M. Garst           |
|--------|--------|--------|--------|--------------------------------|
|   |   |   |   | Robert  M. Garst               |
|   |   |   |   | Chief  Executive Officer       |
|   |   |   |   | (Principal  Executive Officer) |
|   |   |   |   |                           |
|   |   |   | Date:  | April 9,  2009            |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

 

 

| ** ** | ** **                                              | **DATE** |
|------------|---------------------------------------------------------|----------|
|       |                                                    |     |
| By:        | /s/  Robert M. Garst                                    |     | April 9,  2009 |
|       | Robert  M. Garst   Chief Executive Officer and Director |     |   |
|       | (Principal  Executive Officer)                          |     |   |
|       |                                                    |     |   |
| By:        | /s/  Theresa M. Wasko                                   |     | April 9,  2009 |
|       | Theresa  M. Wasko                                       |     |   |
|       | Chief  Financial Officer                                |     |   |
|       | (Principal  Financial Officer)                          |     |   |
|       |                                                    |     |   |
| By:        | /s/  Roland R. Alexander                                |     | April 9,  2009 |
|       | Roland  R. Alexander, Director                          |     |   |
|       |                                                    |     |   |
| By:        | /s/  Arthur M. Feld                                     |     | April 9,  2009 |
|       | Arthur  M. Feld, Director                               |     |   |
|       |                                                    |     |   |
| By:        | /s/  James G. Ford, II                             |     | April 9,  2009 |
|       | James  G. Ford, II, Director                       |     |   |
|       |                                                    |     |   |
| By:        | /s/  Kirk D. Fox                                        |     | April 9,  2009 |
|       | Kirk  D. Fox, President & Director             |     |   |
|       |                                                    |     |   |
| By:        | /s/  R. Keith Hite                                      |     | April 9,  2009 |
|       | R.  Keith Hite, Director                                |     |   |

 

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| By:    | /s/  David W. Hoover                          |   | April 9,  2009 |
|--------|-----------------------------------------------|--------|---------------------|
|   | David  W. Hoover, Chairman of the Board       |   |                |
|   | and  Director                                 |   |                |
|   |                                          |   |                |
| By:    | /s/  Joseph D. Kerwin                         |   | April 9,  2009 |
|   | Joseph  D. Kerwin, Director                   |   |                |
|   |                                          |   |                |
| By:    | /s/  James M. Lebo                            |   | April 9,  2009 |
|   | James  M. Lebo, Director                      |   |                |
|   |                                          |   |                |
| By:    | /s/  Paul R. Reigle                           |   | April 9,  2009 |
|   | Paul  R. Reigle, Director                     |   |                |
|   |                                          |   |                |
| By:    | /s/  John M. Schrantz                         |   | April 9,  2009 |
|   | John  M. Schrantz, Vice Chairman of the Board |   |                |
|   | and  Director                                 |   |                |
|   |                                          |   |                |
| By:    | /s/  David A. Troutman                        |   | April 9,  2009 |
|   | David  A. Troutman, Director                  |   |                |

 

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Table of Contents

** **

**EXHIBIT INDEX**

** **
| 3(i)   | The  Registrant’s Articles of Incorporation. (Incorporated by reference to Annex B  included in Riverview’s Amendment No. 2 to Registration Statement on  Form S-4 (Registration No. 333-153486) filed November 4,  2008). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                     |
| 3(ii)  | The  Registrant’s By-laws. (Incorporated by reference to Annex C included in  Riverview’s Amendment No. 2 to Registration Statement on Form S-4  (Registration No. 333-153486) filed November 4, 2008).                    |
|   |                                                                                                                                                                                                                                                     |
| 10.1   | Amended  and Restated Executive Employment Agreement of Robert M. Garst.                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                     |
| 10.2   | Amended  and Restated Executive Employment Agreement of Kirk D. Fox.                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                     |
| 10.3   | Employment  Agreement of Theresa M. Wasko.                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                     |
| 10.4   | Executive  Employment Agreement of Paul B. Zwally.                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                     |
| 10.5   | Employment  Agreement of William L. Hummel.                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                     |
| 10.6   | Acknowledgement  and Release Agreement of William L. Hummel.                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                     |
| 10.7   | Form of  Director Deferred Fee Agreements with Directors Roland R. Alexander, Robert  M. Garst and Kirk D. Fox.                                                                                                                                     |
|   |                                                                                                                                                                                                                                                     |
| 10.8   | 2009  Stock Option Plan.                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                     |
| 14.1   | Code  of Ethics.                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                     |
| 21     | Subsidiaries  of Registrant.                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                     |
| 31.1   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Executive Officer.                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                     |
| 31.2   | Rule 13a-14(a)/15d-14(a) Certification  of the Chief Financial Officer.                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                     |
| 32.1   | Chief  Executive Officer’s §1350 Certification.                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                     |
| 32.2   | Chief  Financial Officer’s §1350 Certification.                                                                                                                                                                                                |

** **

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