Table ofContents

** **

 

** **

**UNITED STATES**

**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 thefiscal year ended December 31, 2009**

 

**OR**

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

 

**Forthe transition period from             to             **

 

**Commissionfile number 333-153486-99**

 

**RIVERVIEW FINANCIAL CORPORATION**

(Exact Name of Registrantas Specified in its Charter)

 

| **Pennsylvania**                                                 | ** ** | **26-3853402**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification 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 Securities Act. 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 90 days. Yes x   No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate web site, if any, everyInteractive Data File, required to be submitted and posted pursuant to Rule 405of Regulation S-T (d 232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files). Yes o   No o

 

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 30,2009, the last business day of the registrant’s most recently completed secondfiscal quarter, was approximately $20,934,000.**

 

As of March 18, 2010, the registrant had1,750,003 shares of common stock outstanding.

 

 

 

----

Table of Contents

 

**RIVERVIEW FINANCIAL CORPORATION**

**FORM 10-K**

**TABLE OF CONTENTS**

 
| ** **          | ** **                                                                                                         | **PAGE** |
|---------------------|--------------------------------------------------------------------------------------------------------------------|----------|
| **PART I**     |                                                                                                               |     |
| Item 1-             | Business                                                                                                           | 1        |
|                |                                                                                                               |     |
| Item 1A-       | Risk Factors                                                                                                       | 12       |
|                |                                                                                                               |     |
| Item 1B-       | Unresolved  Staff Comments                                                                                         | 12       |
|                |                                                                                                               |     |
| Item 2 -            | Properties                                                                                                         | 13       |
|                |                                                                                                               |     |
| Item 3 -            | Legal Proceedings                                                                                                  | 13       |
|                |                                                                                                               |     |
| Item 4 -            | (Removed and  Reserved)                                                                                            | 13       |
|                |                                                                                                               |     |
| **PART II**    |                                                                                                               |     |
| Item 5 -            | Market for Registrant’s Common Equity,  Related Stockholder Matters And Issuer Purchases of Equity Securities | 14       |
|                |                                                                                                               |     |
| Item 6 -            | Selected Financial Data                                                                                            | 14       |
|                |                                                                                                               |     |
| Item 7 -            | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        | 15       |
|                |                                                                                                               |     |
| Item 7A - | Quantitative and Qualitative  Disclosure About Market Risk                                                         | 37       |
|                |                                                                                                               |     |
| Item 8 -            | Financial Statements and Supplementary  Data                                                                       | 38       |
|                |                                                                                                               |     |
| Item 9 -            | Changes In and Disagreements With  Accountants on Accounting and Financial Disclosure                              | 80       |
|                |                                                                                                               |     |
| Item 9A(T)     | Controls and  Procedures                                                                                           | 80       |
|                |                                                                                                               |     |
| Item 9B-       | Other Information                                                                                                  | 81       |
|                |                                                                                                               |     |
| **PART III**   |                                                                                                               |     |
| Item 10 - | Directors,  Executive Officers and Corporate Governance                                                            | 81       |
|                |                                                                                                               |     |
| Item 11 - | Executive  Compensation                                                                                            | 85       |
|                |                                                                                                               |     |
| Item 12 - | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                    | 88       |
|                |                                                                                                               |     |
| Item 13 - | Certain  Relationships and Related Transactions, and Director Independence                                         | 90       |
|                |                                                                                                               |     |
| Item 14 - | Principal  Accountant Fees and Services                                                                            | 91       |
|                |                                                                                                               |     |
| **PART IV**    |                                                                                                               |     |
| Item 15 - | Exhibits  and Financial Statement Schedules                                                                        | 92       |
|                |                                                                                                               |     |
| Signatures          |                                                                                                               | 95       |
|                |                                                                                                               |     |
| **EXHIBIT  INDEX**  |                                                                                                               | 97       |

 

----

Table of Contents

 

**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’s Discussion andAnalysis of Financial Condition and Results of Operations of this report andother cautionary statements are 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 NationalBank of Marysville and Halifax National Bank continue to operate under theircurrent names as trade names of Riverview National 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 restrictions apply:

 

·*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 holding companies are required to fileperiodic reports with and are subject to examination by the Federal ReserveBoard.  The Federal Reserve Board hasadopted a risk-focused supervision program for small shell bank holdingcompanies that is tied to the examination results of the subsidiary bank.  The Federal Reserve Board has issuedregulations under the Holding Company Act that require a bank holding companyto serve as a source of financial and managerial strength to its subsidiarybanks.  As a result, the Federal ReserveBoard may require that Riverview stand ready to provide adequate capital fundsto Riverview National Bank during periods of financial stress or adversity.

 

·*Restrictions on Acquiring Control of other Banks andCompanies. *A bank holdingcompany 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

 

1

----

Table of Contents

 

· merge orconsolidate with another bank holding company,

 

without prior approval ofthe Federal Reserve Board.

 

Inaddition, a bank holding company 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.  Inmaking this determination, the Federal Reserve Board considers whether theseactivities offer benefits to the public that outweigh any possible adverseeffects.

 

·*Anti-Tie-In Provisions. *A bank holding company and itssubsidiaries may not engage in tie-in arrangements in connection with anyextension of credit or provision of any property or services.  These anti-tie-in provisions state generallythat 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 does not obtain other credit or service froma competitor of the bank.

 

·*Restrictions on Extensions of Credit by Banks totheir Holding Companies. *Subsidiarybanks of a bank holding company are also subject to restrictions imposed by theFederal Reserve Act on:

 

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

 

· investments in the stock orother securities of the corporation, and

 

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

 

·*Risk-Based Capital Guidelines. *Generally, bank holding companiesmust comply with the Federal Reserve Board’s risk-based capitalguidelines.  However, small bank holdingcompanies are sometimes eligible for certain exemptions.  The required minimum ratio of total capitalto risk-weighted assets, including some off-balance sheet activities, such asstandby letters of credit, is 8%.  Atleast half of the total capital is required to be Tier I Capital, consistingprincipally of common stockholders’ equity, less certain intangibleassets.  The remainder, Tier II Capital,may consist 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.

 

2

----

Table of Contents

 

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. *The Federal Reserve Board requiresa bank holding company to maintain a leverage ratio of a minimum level of TierI capital, as determined under the risk-based capital guidelines, equal to 3%of average total consolidated assets for those bank holding companies that havethe highest regulatory examination rating and are not contemplating orexperiencing significant growth or expansion. All other bank holding companies are required to maintain a ratio of atleast 1% to 2% above the stated minimum. Riverview National Bank is subject to similar capital requirementspursuant to the Federal Deposit Insurance Act.

 

·*Restrictions on Control Changes. *The Change in Bank Control Act of1978 requires persons seeking control of a bank or bank holding company toobtain approval from the appropriate federal banking agency before completingthe transaction.  The law contains apresumption that the power to vote 10% or more of voting stock confers controlof a bank or bank holding company.  TheFederal Reserve Board is responsible for reviewing changes in control of bankholding companies.  In doing so, theFederal Reserve Board reviews the financial position, experience and integrityof the acquiring person and the effect on the financial condition of thecorporation, relevant markets and federal 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-OxleyAct is applicable to all companies with equity or debt securities registered orthat file reports under the Securities Exchange Act of 1934.  In particular, the Sarbanes-Oxley Actestablishes: (i) requirements for audit committees, includingindependence, expertise, and responsibilities; (ii) additionalresponsibilities regarding financial statements for the Principal ExecutiveOfficer and 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 theprovisions were effective immediately while other provisions become effectiveover a period of time and are subject to rulemaking by the SEC.  Because neither First Perry’s nor HNB’scommon stock was registered with the SEC, they were not subject to the 1934Act.  However, Riverview is subject tothe 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 ofbanking.  In 1997, the Federal ReserveBoard significantly expanded its list of permissible non-banking activities toimprove the competitiveness of bank holding companies.  The following list includes activities that aholding company 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.  The Federal Reserve Board has determined thatthe following activities are permissible:

 

· 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;

 

3

----

Table of Contents

 

· 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

 

4

----

Table of Contents

 

· 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;

 

5

----

Table of Contents

 

· 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 holding company, a bank holding companymust file an application with the Federal Reserve Board.  In order to become a financial holdingcompany, Riverview must be and remain well capitalized and well managed, asdetermined by Federal Reserve Board regulations and maintain at least a ‘‘satisfactory’’examination rating under the Community Reinvestment Act.  Once a bank holding company becomes afinancial holding company, the holding company or its affiliates may engage inany financial activities that are financial in nature or incidental tofinancial activities.  Furthermore, theFederal Reserve may approve a proposed activity if it is complementary tofinancial activities and does not threaten the safety and soundness ofbanking.  The Act provides an initiallist of activities that constitute activities that are financial 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.

 

6

----

Table of Contents

 

**Supervisionand Regulation of Riverview National Bank**

 

*GeneralOverview*

 

Banks operate in a highlyregulated environment and are regularly examined by federal and stateregulatory authorities.  The followingdiscussion concerns various federal and state laws and regulations and thepotential impact of such laws and regulations 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 thelikelihood or timing of any such proposals or legislation, or the impact theymay have on Riverview National Bank.  Achange in 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 theFDIC.  Riverview National Bank operationsare subject to regulations of the Office of the Comptroller of the Currency (“OCC”),the Board of Governors of the Federal Reserve System and the FDIC.

 

*Safety andSoundness*

 

The primary regulator forRiverview National Bank is the OCC.  TheOCC has the authority under the Financial Institutions Supervisory Act and theFederal Deposit Insurance Act to prevent a national bank from engaging in anyunsafe or unsound practice in conducting business or from otherwise conductingactivities 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

 

7

----

Table of Contents

 

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 Federal DepositInsurance Corporation (“FDIC”) imposes an assessment against financialinstitutions for deposit insurance.  TheFDIC imposes a risk-related premium schedule for all insured depositoryinstitutions that results in the assessment of premiums based on a bank’scapital and supervisory measures.  Underthe risk-related premium schedule, the FDIC assigns, on a semiannual basis,each depository institution to one of three capital groups, the best of thesebeing well capitalized.  For purposes ofcalculating the insurance assessment, Riverview National Bank is expected to bewell capitalized.  The FDIC adjusts theinsurance rates every six months and has indicated the possibility that allbanks may again be required to pay deposit insurance premiums in the future ifcurrent trends related to insured deposits versus insurance funds continue.

 

Federal law requires thatthe designated reserve ratio for the deposit insurance fund be established bythe FDIC at 1.15% to 1.50% of estimated insured deposits.  If this reserve ratio drops below 1.15% orthe FDIC expects that it will do so within six months, the FDIC must, within 90days, establish and implement a plan to restore the designated reserve ratio to1.15% of estimated insured deposits within five years (absent extraordinarycircumstances).

 

Recent bank failures coupledwith deteriorating economic conditions have significantly reduced the depositinsurance fund’s reserve ratio.  As of June 30,2008, the designated reserve ratio was 1.01% of estimated insured deposits asof March 31, 2008.  As a result ofthis reduced reserve ratio, on October 16, 2008, the FDIC published aproposed rule that would restore the ratio to its required level of 1.15%within five years.  On February 27,2009, the FDIC took action to extend the restoration plan horizon to sevenyears.

 

The amended restoration planwas accompanied by a final rule that sets assessment rates and makesadjustments that improve how the assessment system differentiates forrisk.  Currently, most banks are in thebest risk category and pay anywhere from 12 to 14 cents per $100 of depositsfor insurance.  Under the final rule,banks in this category pay initial base rates ranging from 12 to 16 cents per$100 of deposits on an annual basis beginning April 1, 2009.

 

The FDIC also imposed a 5basis point emergency special assessment on the banking industry on June 30,2009, where the assessment was required to be accrued during the second quarterof 2009 and paid on September 30, 2009. All FDIC insured financial institutions were required to pay the specialassessment.

 

On November 12, 2009the FDIC approved a final rule requiring banks to prepay on December 30,2009 their estimated quarterly assessments for the fourth quarter of 2009, aswell as all of 2010, 2011 and 2012.  Theassessment rate that was used for the entire period was the Bank’s baseassessment rate that was in effect as of September 30, 2009.  The rate will be increased by 3 basis pointsfor all of 2011 and 2012 based on the FDIC’s expectation that industry earningswill be stronger.  Each institution recordedthe entire amount of its prepaid assessment as a prepaid expense (asset) as of December 31,2009.  As of December 31, 2009, andeach quarter thereafter, each institution records an expense (charge toearnings) for its regular quarterly assessment for the quarter and anoffsetting credit to the prepaid assessment until the asset is exhausted.  Once the asset is exhausted, the institutionwill record an accrued expense payable each quarter for the assessment payment,which will be paid in arrears to the FDIC at the end of the followingquarter.  If the prepaid assessment isnot exhausted by December 31, 2014, any remaining amount will be returnedto the depository institution.

 

*FDICInsurance*

 

As a member institution ofthe FDIC, deposit accounts at the bank were insured generally up to a maximumof $100,000 for each separately insured depositor, and up to a maximum of$250,000 for self-

 

8

----

Table of Contents

 

directed retirementaccounts.  In 2009, the FDIC increasedthe deposit insurance available on all deposit accounts to $250,000, effectiveuntil December 31, 2013. Additionally, certain non-interest-bearing transaction accounts maintainedwith financial institutions participating in the FDIC’s Temporary LiquidityGuarantee Program (“TLG Program”) are fully insured regardless of the dollaramount until June 30, 2010.  TheFDIC implemented the TLG Program on November 21, 2008.

 

*CommunityReinvestment Act*

 

All FDIC insuredinstitutions have a responsibility under the Community Reinvestment Act (‘‘CRA’’)and related regulations to help meet the credit needs of their communities,including low- and moderate-income neighborhoods.  The OCC, which is a governmental agency thatoverviews national banks, is required to assess all financial institutions thatit regulates to determine whether these institutions are meeting the creditneeds of the community that they serve. The Act focuses specifically on low and moderate-incomeneighborhoods.  The OCC takes aninstitution’s CRA record into account in its evaluation of any application madeby any of such institutions.  A financialinstitution’s failure to comply with the CRA provisions could, at a minimum,result in regulatory restrictions on its activities including:

 

· 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 descriptive rating of either outstanding,satisfactory, needs to improve, or substantial noncompliance, and a statementdescribing the basis for the rating. These ratings are publicly disclosed.

 

*Payment of Dividends and OtherRestrictions*

 

Dividends are paid by theCorporation from its earnings, which are mainly provided by dividends from theBank.  However, certain regulatoryrestrictions exist regarding the ability of the Bank to transfer funds to theCorporation in the form of cash dividends, loans or advances.  The approval of the OCC is required if thetotal of all dividends declared by a national bank in any calendar year exceedsthe Bank’s net profits for that year combined with its retained net profits forthe preceding two calendar years.  Underthis restriction, at December 31, 2009, the Bank could declare dividendsof $609,000 to the Corporation without prior regulatory approval.

 

*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                                  |       |

 

----

*                3.0for those banks having the highest available regulatory rating.

 

9

----

Table ofContents

 

Riverview National Bank’scapital ratios exceed the regulatory requirements to be considered wellcapitalized for Total Risk-Based Capital, Tier 1 Risk-Based Capital, and Tier 1Leverage 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 forregulatory intervention where they deem the institution to be engaging inunsafe or unsound practices, or if the institution receives a less thansatisfactory examination report rating for asset 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.  Proposals to change the laws and regulationsgoverning the operations and taxation of banks, bank holding companies andother financial institutions are frequently made in Congress, and beforevarious regulatory agencies.  Noprediction can be made as to the likelihood of any major changes or the impactsuch changes might have on Riverview National Bank’s operations.  Certain changes of potential significance toRiverview National Bank that have been enacted recently and others, which arecurrently under consideration by Congress or various regulatory or professionalagencies, are discussed below.

 

*Legislationand 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 2001 and was renewed in March 2006.  The USA PATRIOT Act gives the federalgovernment powers to address terrorist threats through enhanced domesticsecurity measures, expanded surveillance powers, increased information sharing,and broadened anti-money laundering requirements.  By way of amendments to the Bank Secrecy Act,Title III of the USA PATRIOT Act included measures intended to encourage informationsharing among bank regulatory agencies and law enforcement bodies.  Further, certain provisions of Title IIIimposed affirmative obligations on a broad range of financial institutions,including banks, thrifts, brokers, dealers, credit unions, money transferagents and parties registered under the Commodity Exchange Act.

 

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

 

10

----

Table of Contents

 

The bank regulatory agencieshave increased the regulatory scrutiny of the Bank Secrecy Act and anti-moneylaundering programs maintained by financial institutions.  Significant penalties and fines, as well asother supervisory orders may be imposed on a financial institution fornon-compliance with these requirements. In addition, federal bank regulatory agencies must consider theeffectiveness of financial institutions engaging in a merger transaction incombating money laundering activities. Riverview National Bank has adopted policies and procedures which are incompliance with these requirements

 

*MultifactorAuthentification*

 

The bank regulatory agenciesjointly published the ‘‘*Interagency Guidanceon Authentification in an Internet Banking Environment*’’.  This guidance requires banks to implementenhanced security measures to authenticate customers using internet basedservices to process transactions that either access customer information ortransfer funds to third parties.  Theprinciples of this guidance apply to telephone banking systems and call centersif the same level of access is available through these services.

 

*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 revisions became effective October 15,2005.  The Bankruptcy Code was amended,adding requirements to the process for filing for bankruptcy.  The provisions related to the Truth inLending did not become effective until October of 2006.  It requires lenders to:

 

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

 

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

 

· Inform customersthat interest attributed to the portion of a home secured loan that exceeds theproperty’s fair market value is not tax deductible

 

· Provide newdisclosures on solicitations and applications for open-end credit planscontaining an 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 andstate proposals for legislation could result in additional regulatory and legalrequirements for Riverview National Bank. Riverview National Bank can neither predict if any such legislation willbe adopted nor if adopted how it would affect the business of RiverviewNational Bank.  Past history hasdemonstrated that new legislation or changes to existing legislation usuallyresults in a heavier compliance burden and, therefore, generally increases thecost of doing business.

 

**Recent Developments**

 

***Emergency Economic Stabilization Act of 2008 and American Recovery andReinvestment Act of 2009.****** ***In response to the financialcrises affecting the banking system and financial markets and going concernthreats to investment banks and other financial institutions, on October 3,2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signedinto law and subsequently amended by the American 

 

11

----

Table of Contents

 

Recoveryand Reinvestment Act of 2009 on February 17, 2009.  Under the authority of the EESA, as amended,the United States Department of the Treasury (the “Treasury”) created the TroubledAsset Relief Program (“TARP”) Capital Purchase Program and through this programinvested in financial institutions by purchasing preferred stock and warrantsto purchase either common stock or additional shares of preferred stock.  As of December 31, 2009, the Treasurywill not make additional investments under the TARP Capital Purchase Programbut is considering continuing a similar program for banks under $10 billion inassets under a different program.

 

**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 filed with the SEC are available forinspection and copying at the SEC’s Public Reference Room at 100 F Street,NE, Room 1580, and 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 an electronic filer with theSEC.  The SEC maintains an internet sitethat contains reports and information statements, and other informationregarding issuers that 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, 2009, Riverview Financial Corporation had 53 full time employeesand 10 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.

 

**ITEM 1A****. RISK FACTORS.**

 

Not required for smaller reporting companies.

 

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

 

None.

 

12

----

Table of Contents

 

**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 allbranch offices are located in Pennsylvania.

 

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

 
| **Office and  Address**                                            |
|--------------------------------------------------------------------|
| ** **                                                         |
| 2040 Good Hope Road,  Enola, Pennsylvania 17025 (leased)           |
| 1288 North Mountain Road,  Harrisburg, Pennsylvania 17112 (leased) |
| 55 South Main Street,  Duncannon, Pennsylvania 17020 (leased)      |
| 200 Front Street,  Marysville, Pennsylvania 17053 (owned)          |
| 500 South State Road,  Marysville, Pennsylvania 17053 (owned)      |

 

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

 
| **Office and  Address**                                                               |
|---------------------------------------------------------------------------------------|
| ** **                                                                            |
| Third and Market Streets,  Halifax, Pennsylvania 17032 (owned)                        |
| 311 South Market Street,  Millersburg, Pennsylvania 17061 (owned)                     |
| Drive-through facility on  16 N. 3rd Street, Halifax, Pennsylvania 17032 (owned) |
| 15 N. 3rd Street, Halifax, Pennsylvania 17032 (owned)                            |
| Parking Lot on N. 3rd Street, Halifax, Pennsylvania 17032 (owned)                |
| Market Street Main  Building (owned)                                                  |
| 34 South Market Street,  Elizabethville, Pennsylvania 17023 (leased)                  |

 

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

 

**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.  There are no proceedings pending other thanordinary routine litigation incident to the business of Riverview and RiverviewNational Bank.  In addition, managementdoes not know of any material proceedings contemplated by governmentalauthorities against Riverview or Riverview National Bank or any of itsproperties.

 

**ITEM 4****. (REMOVED AND RESERVED).**

 

13

----

Table of Contents

 

**PART II**

 

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

 

Theauthorized common stock of Riverview consists of 5,000,000 shares of commonstock with a par value of $0.50 per share of which 1,750,003 shares wereoutstanding as of March 18, 2010 and held by approximately 370 holders ofrecord.  The number of shareholders doesnot reflect the number of individuals or institutional investors holding stockin nominee name through banks, brokerage firms, and others.  Riverview common stock is not listed ortraded on any market or exchange but instead is traded in a localover-the-counter market and privately negotiated transactions under the symbol “RIVE”.Therefore, the stock is traded at irregular intervals.

 

Riverview pays dividends onthe outstanding shares of common stock on a quarterly basis at the discretionof the Board of Directors which bases its decision on Riverview’s earnings,cash requirements and overall financial position.  The following table presents the per sharecash dividends declared by the Board of Directors and paid for the yearspresented.  Dividend information for theyear 2008 reflects the dividends paid by First Perry Bancorp, Inc.

 
| ** ** | ** **         | ** ** | **Per Share Cash  Dividends Paid** | ** ** |
|------------|--------------------|------------|---------------------------------------------------|------------|
| **2009**   | **First quarter**  | ** ** | **$**                                             | **0.100**  | ** ** |
| ** ** | **Second quarter** | ** ** | **0.100**                                         | ** ** |
| ** ** | **Third quarter**  | ** ** | **0.100**                                         | ** ** |
| ** ** | **Fourth quarter** | ** ** | **0.120**                                         | ** ** |
| ** ** | ** **         | ** ** | **$**                                             | **0.420**  | ** ** |
| ** ** | ** **         | ** ** | ** **                                        | ** ** |
| **2008**   | **First quarter**  |       | $                                                 | 0.078      | ** ** |
| ** ** | **Second quarter** |       | 0.078                                             | ** ** |
| ** ** | **Third quarter**  |       | 0.078                                             | ** ** |
| ** ** | **Fourth quarter** |       | 0.078                                             | ** ** |
| ** ** |               |       | $                                                 | 0.312      | ** ** |

 

On March 3, 2010, theBoard of Directors declared a quarterly cash dividend of $0.125 per commonshare, payable on March 31, 2010 to all common shareholders of record asof March 17, 2010.

 

Additional informationrelating to dividend restrictions can be found in Note 14 — Regulatory Mattersand Shareholders’ Equity — in Part II, Item 8 — Financial Statements andSupplementary Data - incorporated in this Form 10-K.

 

Information about Riverview’sEquity Compensation Plans can be found in Part II, Item 7 under thecaption “Securities Authorized for Issuance Under Equity Compensation Plans”and is incorporated herein by reference.

 

**ITEM 6****. SELECTED FINANCIAL DATA.**

 

Not Required.

 

14

----

Table of Contents

 

**ITEM 7****. 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 intended to identify such forward-lookingstatements.

 

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.

 

We caution readers not toplace undue reliance on these forward-looking statements.  They only reflect management’s analysis as ofthis date.  Riverview does not revise orupdate these forward-looking statements to reflect events or changed circumstances.  Please carefully review the risk factorsdescribed in this Annual Report on Form 10-K and other documents Riverviewfiles from time to time with the Securities and Exchange Commission, includingthe Quarterly Reports on Form 10-Q and any other Current Reports on Form 8-K.

 

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 

 

15

----

Table of Contents

 

the Consolidated FinancialStatements of Riverview and Notes thereto and other detailed informationappearing elsewhere in this Annual Report.

 

**CriticalAccounting Policies and Estimates**

 

The consolidated financialstatements include Riverview and its wholly-owned subsidiary, the RiverviewNational Bank.  All significantintercompany accounts and transactions have been eliminated.

 

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 financial statements,management has made estimates, judgments and assumptions that affect thereported amounts of assets and liabilities as of the date of the consolidatedbalance sheets and results of operations for the periods indicated.  Actual results could differ significantlyfrom 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 presents significantaccounting policies used in the development and presentation of its financialstatements.  This discussion andanalysis, the significant accounting policies, and other financial statementdisclosures identify and address key variables and other qualitative andquantitative factors that are necessary for an understanding and evaluation ofRiverview and its results of operations. Riverview has identified several policies as being critical because theyrequire management to make particularly difficult, subjective and/or complexjudgments about matters that are inherently uncertain and because of thelikelihood that materially different amounts would be reported under differentconditions or using different assumptions. These policies relate to the allowance for loan losses, valuation of itssecurities and accounting for income taxes.

 

The allowance for loanlosses is established through a charge to earnings for the provision for loanlosses.  In determining the balance inthe allowance for loan losses, consideration is given to a variety of factorsin establishing the estimate.  Inestimating the allowance for loan losses, management considers current economicconditions, diversification of the loan portfolio, delinquency statistics andtrends in actual and forecasted credit quality, results of internal loanreviews, borrowers’ perceived financial strengths, the adequacy of theunderlying collateral, if collateral dependent, or present value of future cashflows and other relevant factors.  Theuse of different estimates and assumptions could produce different provisionsfor loan losses.  Additional informationis provided in the “Provisions for 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, below their costs thatare deemed to be other-than-temporarily impaired, are reflected in earnings asrealized losses.  In estimating other-than-temporaryimpairment losses, management considers (1) the length of time and theextent to which the fair value has been less than cost, (2) the financialcondition and near-term prospects of the issuer, and (3) the intent andability of Riverview to retain its investment in the issuer for a period oftime sufficient to allow for any recovery in fair value.  No securities were deemed to beother-than-temporarily impaired as of December 31, 2009.

 

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 

 

16

----

Table of Contents

 

valuation allowance forthem.

 

**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, Inc. (“HNB”), Riverview FinancialCorporation (“Riverview”), a Pennsylvania Corporation, was formed upon thecompletion of the consolidation of First Perry and HNB under Pennsylvanialaw.  Each outstanding share of commonstock of First Perry and HNB was converted into 2.435 and 2.520 shares ofRiverview’s common stock, respectively. Further, The First National Bank of Marysville, the wholly ownedsubsidiary of First Perry, and Halifax National Bank, the wholly ownedsubsidiary of HNB, consolidated to form Riverview National Bank (the “Bank”),which is the wholly owned subsidiary of Riverview.  Riverview issued 1,750,003 shares of commonstock and incurred $310,000 in transaction costs.  The primary reason for the combination was topool resources to provide greater products and services to customers in thecontiguous counties, and to provide better efficiencies and cost savingsthrough 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.  During2009, Riverview continued to experience strong financial performance andachieved solid growth in assets, loans and deposits.  Riverview was able to successfully grow whilemaintaining its commitment to ensure strong credit quality, retain and expandcustomer relationships and prudently manage interest rate risk.  In addition, Riverview continues to befocused on business practices that not only provide value to its customers butto its shareholders as well.

 

Thecombined financial information for the year ended December 31, 2008reflects the impact of the consolidation of First Perry’s and HNB’s combinedfinancial condition under the purchase method of accounting with First Perrytreated as the acquirer from an accounting standpoint.  Under this method of accounting, Riverviewwas formed and treated as a recapitalization of First Perry, with First Perry’sassets and liabilities recorded at their historical values, and HNB’s at theirfair values on the date the consolidation was completed.  In accordance withFinancial Accounting Standards Board Statement No. 141, *Business Combinations*, the financial information relating to the periods prior to December 31,2008 of First Perry, the acquirer, is reported under the name of RiverviewFinancial Corporation.

 

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.

 

Asof the 2009 year end, Riverview achieved net income of $1,111,000, an increaseof 199.5% from net income of $371,000 for the 2008 year end.  Basic earnings per share in 2009 were $0.63per share, an increase of 61.5% from $0.39 per share in 2008.  The increase is primarily due to the factthat 2009 net income reflects the combined earnings of First Perry Bancorp, Inc.and HNB Bancorp, Inc. and their wholly-owned subsidiaries, The FirstNational Bank of Marysville and Halifax National Bank (the “consolidation”),which were consolidated on December 31, 2008 to form Riverview FinancialCorporation, as compared with 2008 net income, which only represents theearnings of First Perry Bancorp, Inc., the holding company of The FirstNational Bank of Marysville.  Furtherimpacting the increase in net income was the growth of assets as a result ofthe consolidation, and Riverview’s management of its net interest margin duringa period in which short-term interest rates remained at historic lows.  Return on average assets was 0.46% in 2009 comparedto

 

17

----

Table of Contents

 

0.29% in 2008.  Return on average equity was 4.45% in 2009compared to 2.90% in 2008.  The increasein both ratios is attributable to the increase in net income during 2009.

 

**RESULTS OF OPERATIONS**

 

**Net Interest Income andNet Interest Margin**

 

Netinterest income is the most significant component of Riverview’s net income asa result of its focus on traditional banking activities.  It is the difference between interest incomeearned on interest-earning assets and interest expense paid on interest-bearingliabilities.  The change in net interestincome from year to year may be due to changes in interest rates, changes involumes of interest-earning assets and liabilities as well as changes in themix of such assets and liabilities. Riverview’s principal interest-earning assets are loans to individualsand small businesses, with a secondary source of income earned from theinvestment securities portfolio and other interest-earning deposits withbanks.  Interest-bearing liabilitiesconsist primarily of demand deposit accounts, time deposits, money marketaccounts, savings deposits, securities sold under agreements to repurchase andborrowings.  Generally, changes in netinterest income are portrayed by net interest rate spread and net interestmargin.  Net interest rate spread is equalto the difference between the average rate earned on interest-earning assetsand the average rate incurred on interest-bearing liabilities.  Net interest margin is the average yield oninterest-earning assets minus the average interest rate paid oninterest-bearing deposits.  Net interestincome growth is generally dependent upon balance sheet growth and maintainingor growing 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.

 

**2009 Compared to 2008**

 

Totalinterest income increased on a fully tax equivalent basis (as adjusted for thetax benefit derived from tax exempt assets — see Table 1 for calculation), by$5,135,000, or 70.1 %, to $12,457,000 for 2009 from $7,322,000 for 2008.  This increase was due to the consolidationand organic growth, which contributed to the 85.8% increase in average interest-earningassets to $221,605,000 in 2009 from $119,246,000 in 2008.  The growth in average interest-earning assetswas attributable to a 43.6 % increase in investment securities, 77.2% increasein loans and a 1651.3% increase in other interest-earning assets, mostlycomprised of deposits with banks.  Theincreased volume offset the decline in yields (calculated on a fullytax-equivalent basis) to 5.62% for 2009 from 6.14% in 2008.  The decline in the yield on earning assetswas attributable to changes in market interest rates.

 

Total interest expenseincreased $1,816,000, or 59.7% to $4,860,000 for the year ended December 31,2009 from $3,044,000 for the year ended December 31, 2008.  Cost of funds decreased to 2.48% at the endof 2009 from 2.87% at the end of 2008. The decline in the cost of funds offset the increase in the volume ofaverage interest-bearing liabilities. While average interest-bearing liabilities increased due to theconsolidation and deposit growth, Riverview paid off $20,796,000 in short-termborrowings and took advantage of declining interest rates by securing more costeffective long-term borrowings from the Federal Home Loan Bank of Pittsburgh (“FHLB”).

 

Net interest incomecalculated on a fully tax equivalent basis increased $3,319,000, or 77.6%, to$7,597,000 for the year ended December 31, 2009 from $4,278,000 for theyear ended December 31, 2008. Riverview’s net interest spread decreased to 3.14% at December 31,2009 from 3.27% at December 31, 2008, while its net interest margindecreased to 3.43% at December 31, 2009 from 3.58% at December 31,2008.  In consideration of the increasedvolume of interest-earning assets and interest-bearing liabilities, managementproactively managed the cost associated with interest-bearing liabilities andwas able to improve its net interest spread and margin even though the yieldsfrom interest-earning assets declined. Riverview’s ability to manage net interest income over a variety ofinterest rate and economic environments is important to its financialsuccess.  Growth in net interest incomeis generally dependent upon the growth of the balance sheet and managing thenet interest margin.

 

18

----

Table of Contents

 

**2008 Compared to 2007**

 

Total interest incomeincreased on a fully tax equivalent basis, by $692,000, or 10.4%, to $7,322,000for the year ended December 31, 2008 from $6,630,000 for the year ended December 31,2007.  This increase was attributable toa shift in the composition of interest-earning assets where the cash flows frominvestment securities and other interest-earning assets were reinvested inloans which generated a higher yield.

 

Total interest expensedecreased $214,000, or 6.6%, to $3,044,000 in 2008 from $3,258,000 in2007.  The decrease was attributable to adecline in cost of funds, which mitigated the impact of the 13.5% growth intotal interest-bearing liabilities, which increased to $106,069,000 at the 2008year end from $93,452,000 for 2007 as a result of increased borrowings.

 

Netinterest income on a fully tax equivalent basis increased by $906,000, or26.9%, to $4,278,000 for the year ended December 31, 2008 from $3,372,000for the year ended December 31, 2007. This was attributable to the growth in interest sensitive assets andprime rate decreases, 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 2008, while the netinterest margin (on a fully tax equivalent basis) increased to 3.58% for 2008from 3.20% for 2007.

 

19

----

Table of Contents

 

**Table 1** presents asummary of the Bank’s average balances, interest rates, interest income andexpense, the interest rate spread and the net interest margin, adjusted to afully tax-equivalent basis, for the years ended December 31, 2009, 2008and 2007.

 

**TABLE 1**

 

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

 
| ** **                                              | ** ** | **2009**         | ** **  | **2008**     | ** ** | **2007**       | ** ** |
|---------------------------------------------------------|------------|------------------|-------------|--------------|------------|----------------|------------|
| **Year  Ended December 31,**                       | ** ** | **Average**      | ** **  | ** **   | ** ** | ** **     | ** ** | **Average** | ** ** | ** ** | ** ** | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **(Dollars  in thousands)**                             | ** ** | **Balance**      | ** **  | **Interest** | ** ** | **Yield/Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Yield/Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Yield/Rate** | ** ** |
| **Assets**                                              |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-earning Assets                                 |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Securities:                                             |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable securities (2)                                  | ** ** | **$**            | **15,731**  | ** **   | **$**      | **514**        | ** ** | **3.27** | **%** | $ | 15,917 |   | $ | 596 |   | 3.74 | % | $ | 17,187 |   | $ | 664 |   | 3.86 | % |
| Tax-exempt securities (1)(2)                            | ** ** | **11,516**       | ** **  | **686**      | ** ** | **5.96**       | **%**      | 3,061 |   | 208 |   | 6.80 | % | 5,045 |   | 344 |   | 6.82 | % |
| Total securities                                        | ** ** | ** 27,247** | ** **  | **1,200**    | ** ** | **4.40**       | **%**      | 18,978 |   | 804 |   | 4.24 | % | 22,232 |   | 1,008 |   | 4.53 | % |
|                                                    |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Loans (1)(3)                                            |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Consumer                                                | ** ** | **4,959**        | ** **  | **281**      | ** ** | **5.67**       | **%**      | 3,622 |   | 276 |   | 7.62 | % | 4,440 |   | 348 |   | 7.84 | % |
| Commercial                                              | ** ** | **11,647**       | ** **  | **749**      | ** ** | **6.43**       | **%**      | 9,030 |   | 626 |   | 6.93 | % | 7,086 |   | 560 |   | 7.90 | % |
| Real estate                                             | ** ** | 1**59,136**      | ** **  | **10,065**   | ** ** | **6.32**       | **%**      | 86,553 |   | 5,585 |   | 6.45 | % |  68,703 |   | 4,575 |   | 6.66 | % |
| Total loans                                             | ** ** | **175,742**      | ** **  | **11,095**   | ** ** | **6.31**       | **%**      | 99,205 |   | 6,487 |   | 6.54 | % | 80,229 |   | 5,483 |   | 6.83 | % |
|                                                    | ** ** | ** **       | ** **  | ** **   | ** ** | ** **     | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Other interest-earning assets                           | ** ** | **18,616**       | ** **  | **162**      | ** ** | **0.87**       | **%**      | 1,063 |   | 31 |   | 2.92 | % | 3,015 |   | 139 |   | 4.61 | % |
|                                                    | ** ** | ** **       | ** **  | ** **   | ** ** | ** **     | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest-earning assets                           | ** ** | **221,605**      | ** **  | **12,457**   | ** ** | **5.62**       | **%**      | 119,246 |   | 7,322 |   | 6.14 | % | 105,476 |   | 6,630 |   | 6.29 | % |
|                                                    | ** ** | ** **       | ** **  | ** **   | ** ** | ** **     | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest earning assets                             | ** ** | **21,217**       |        |         |       |           |       | 10,007 |   |   |   |   |   |  9,450 |   |   |   |   |   |
|                                                    | ** ** | ** **       |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Assets**                                        | ** ** | **$**            | **242,822** | ** **   |       |           |       |   | **$** | 129,253 |   |   |   |   |   | $ | 114,926 |   |   |   |   |   |
| ** **                                              | ** ** | ** **       | ** **  |         |       |           |       | ** ** |   |   |   |   |   |   |   |   |   |   |   |
| **Liabilities and Shareholders’ Equity**           |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| ** **                                              |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing  Liabilities                           |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Deposits:                                               |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest-bearing demand deposits                        |       | **$**            | **40,337**  |         | **$**      | **602**        |       | **1.49** | **%** | $ | 17,020 |   | $ | 216 |   | 1.27 | % | $ | 16,759 |   | $ | 436 |   | 2.60 | % |
| Savings deposits                                        | ** ** | **28,709**       | ** **  | **302**      | ** ** | **1.05**       | **%**      | 15,067 |   | 137 |   | 0.91 | % | 15,617 |   | 203 |   | 1.30 | % |
| Time deposits                                           | ** ** | **108,321**      | ** **  | **3,569**    | ** ** | **3.29**       | **%**      | 51,059 |   | 1,942 |   | 3.80 | % | 50,989 |   | 2,103 |   | 4.12 | % |
| Total deposits                                          | ** ** | **177,367**      | ** **  | **4,473**    | ** ** | **2.52**       | **%**      | 83,146 |   | 2,295 |   | 2.76 | % | 83,365 |   | 2,742 |   | 3.29 | % |
|                                                    |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Borrowings:                                             |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term borrowings                                   | ** ** | **8,111**        | ** **  | **49**       | ** ** | **0.60**       | **%**      | 9,743 |   | 152 |   | 1.56 | % | 3,579 |   | 190 |   | 5.31 | % |
| Long-term borrowings                                    | ** ** | **10,391**       | ** **  | **338**      | ** ** | **3.25**       | **%**      | 13,180 |   | 597 |   | 4.53 | % | 6,508 |   | 326 |   | 5.01 | % |
| Total borrowings                                        | ** ** | **18,502**       | ** **  | **387**      | ** ** | **2.09**       | **%**      | 22,923 |   | 749 |   | 3.27 | % |  10,087 |   | 516 |   | 5.12 | % |
|                                                    | ** ** | ** **       | ** **  | ** **   | ** ** | ** **     | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Total interest-bearing liabilities                      | ** ** | **195,869**      | ** **  | **4,860**    | ** ** | **2.48**       | **%**      | 106,069 |   | 3,044 |   | 2.87 | % | 93,452 |   | 3,258 |   | 3.49 | % |
|                                                    | ** ** | ** **       | ** **  | ** **   | ** ** | ** **     | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-interest bearing  liabilities:                      |       |             |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Demand deposits                                         | ** ** | **20,338**       |        |         |       |           |       | 9,684 |   |   |   |   |   | 8,279 |   |   |   |   |   |
| Other liabilities                                       | ** ** | **1,652**        |        |         |       |           |       | 692 |   |   |   |   |   | 857 |   |   |   |   |   |
|                                                    | ** ** | ** **       |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity                               | ** ** | ** 24,963** |        |         |       |           |       | 12,808 |   |   |   |   |   | 12,338 |   |   |   |   |   |
|                                                    | ** ** | ** **       |        |         |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total Liabilities and****Shareholders’  Equity** |       | **$**            | **242,822** |         |       |           |       |   | $ | 129,253 |   |   |   |   |   | $ | 114,926 |   |   |   |   |   |
|                                                    | ** ** | ** **       |        | ** **   |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Income                                     | ** ** | ** **       |        | **$**        | **7,597**  |           |       |   |   |   | $ | 4,278 |   |   |   |   |   | $ | 3,372 |   |   |   |
|                                                    | ** ** | ** **       |        | ** **   |       |           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Spread                                     | ** ** |             |        |         |       | **3.14**       | **%**      |   |   |   |   | 3.27 | % |   |   |   |   | 2.80 | % |
|                                                    | ** ** |             |        |         |       | ** **     | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Interest Margin                                     | ** ** |             |        |         |       | **3.43**       | **%**      |   |   |   |   | 3.58 | % |   |   |   |   | 3.20 | % |

 

----

(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.

 

20

----

Table of Contents

 

**Table 2** presents asummary of changes in interest income and interest expense resulting fromchanges in volumes (average balances) and changes in rates for the periodsindicated.

 

**TABLE 2**

 

**RATEVOLUME ANALYSIS OF NET INTEREST INCOME**

 

**FOR THEYEARS ENDED DECEMBER 31,**

 
| ** **                                                | ** ** | **2009 vs. 2008**       | ** ** | **2008 vs. 2007**       | ** ** |
|-----------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                | ** ** | **Increase/(Decrease)** | ** ** | **Increase/(Decrease)** | ** ** |
| **(In thousands)**                                        | ** ** | **Volume**              | ** ** | **Rate**                | ** ** | **Total** | ** ** | **Volume** | ** ** | **Rate** | ** ** | **Total** | ** ** |
| ** **                                                | ** ** | ** **              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest-Earning Assets:**                              |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Interest-bearing****due from banks and federal funds sold | ** ** | **$**                   | **151**    | ** **              | **$**      | **(20** | **)** | **$** | **131** | ** ** | $ | **(**53 | ) | $ | (55 | ) | $ | (108 | ) |
| Securities,  taxable (1)                                  |       | (**7**                  | **)**      | **(75**                 | **)**      | **(82** | **)** | (47 | ) | (21 | ) | (68 | ) |
| Securities,  tax-exempt (1)                               | ** ** | **503**                 | ** ** | **(25**                 | **)**      | **478** |   | (134 | ) | (2 | ) | (136 | ) |
| Loans  (1)                                                | ** ** | **4,836**               | ** ** | **(228**                | **)**      | **4,608** |   | 1,237 |   | (233 | ) | 1,004 |   |
| **Net Change in Interest Income**                         | ** ** | **5,483**               | ** ** | **(348**                | **)**      | **5,135** |   | 1,003 |   | (311 | ) | 692 |   |
| ** **                                                | ** ** | ** **              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest-Bearing Liabilities:**                         |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Interest-bearing  demand deposits                         | ** ** | **349**                 | ** ** | **37**                  | ** ** | **386** |   | 3 |   | (223 | ) | (220 | ) |
| Savings  deposits                                         | ** ** | **144**                 | ** ** | **21**                  | ** ** | **165** |   | (5 | ) | (61 | ) | (66 | ) |
| Time  deposits                                            | ** ** | **1,887**               | ** ** | **(260**                | **)**      | **1,627** |   | 2 |   | (163 | ) | (161 | ) |
| Borrowings:                                               |       |                    |       |                    |       |   |   |   |   |   |   |   |   |
| Short-term  borrowings                                    | ** ** | **(8**                  | **)**      | **(95**                 | **)**      | **(103** | **)** | 97 |   | (135 | ) | (38 | ) |
| Long-term  borrowings                                     | ** ** | **(90**                 | **)**      | **(169**                | **)**      | **(259** | **)** | 302 |   | (31 | ) | 271 |   |
| **Net Change in Interest Expense**                        | ** ** | **2,282**               | ** ** | **(466**                | **)**      | **1,816** |   | 399 |   | (613 | ) | (214 | ) |
| ** **                                                | ** ** | ** **              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **CHANGE IN NET INTEREST INCOME**                         | ** ** | **$**                   | **3,201**  | ** **              | **$**      | **118** | ** ** | **$** | **3,319** |   | $ | 604 |   | $ | 302 |   | $ | 906 |   |

 

----

(1)                                  Yields on tax-exempt assets have been computed on a fully tax-equivalentbasis assuming a tax rate of 34%.

 

**Provision for Loan Losses**

 

Provisions for loan lossesare charged to operations in order to maintain the allowance for loan losses ata level management considers adequate to absorb credit losses inherent in theloan portfolio.  Credit exposures deemeduncollectible are charged against the allowance for loan losses.  Recoveries of previously charged-off loansare credited to the allowance for loan losses. The Bank performs periodic evaluations of the allowance for loan losseswith consideration given to historical, internal and external factors.  In evaluating the adequacy of the allowancefor loan losses, management considers historical loss experience, delinquencytrends and charge-off activity, status of past due and non-performing loans,growth within the portfolio, the amount and types of loans comprising the loanportfolio, adverse situations that may affect a borrower’s ability to pay, theestimated value of underlying collateral, peer group information and prevailingeconomic conditions.  This evaluation isinherently subjective as it requires estimates that are caused to undergointerpretation and possible revision as events occur or as more informationbecomes available.  Loans are alsoreviewed for impairment based on discounted cash flows using the loans’ initialeffective interest rates or the fair value of the collateral for certaincollateral dependent loans as provided under the accounting standard relatingto *Accounting by Creditors for Impairment of a Loan*.  After an evaluation of these factors, theprovision recorded for the year ended December 31, 2009 was $1,125,000 ascompared with $380,000 for the year ended December 31, 2008.   A higher provision was made to the allowancefor loan losses in 2009 due to an increase in criticized loans, andparticularly, the adverse classification of two large commercial loans deemedto be impaired which required specific reserves.  The allowance for loan losses was $2,560,000or 1.48% of total loans outstanding at December 31, 2009 as compared to$1,710,000, or 0.96% of total loans at December 31, 2008.

 

21

----

Table of Contents

 

Management assesses theallowance for loan losses on a quarterly basis and makes provisions for loanlosses, if necessary, in order to maintain the adequacy of the allowance.  Management believes the reserve for loanlosses at December 31, 2009 is maintained at a level that is currentlyadequate to absorb probable and potential losses inherent in the loanportfolio.  At the same time, managementcontinues to allocate dedicated resources to continue to manage at-riskcredits.

 

**Non-Interest Income**

 

Non-interest incomecontinues to represent a considerable source of income for Riverview,representing 18.3% of the total revenues (comprised of net interest income andnon-interest income) in 2009 and 12.1% in 2008. 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.

 

The increases in servicecharges on deposit accounts and other fee income for 2009 were generallyattributable to the consolidation as well as increased core depositactivity.  Earnings from the cash valueof life insurance increased in 2009 as compared with 2008 as a result of theconsolidation as well as a gain of $26,000 from the proceeds of bank owned lifeinsurance paid as a result of the death of a former director.  Also contributing to the increase in the 2009non-interest income were gains from the sale of available-for-sale securities,which were $247,000 higher than the gains on sale recorded in 2008.  During 2009 the Bank recorded $443,000 inincome, as compared with $50,000 recorded in 2008, that was generated from thesale of mortgage loans sold servicing released to Freddie Mac and to theFederal Home Loan Bank of Pittsburgh (“FHLB”) under its Mortgage PartnershipFinance program (“MPF”).  The reason why thisincome is so much lower for 2008 is because the Bank did not partake in thesale of mortgage loans until the latter part of 2008 and due to a lowerinterest rate environment.

 

The following table presentsthe components of non-interest income and related fluctuations for the yearsended December 31, 2009 and 2008.

 
| ** **                                     | ** ** | **Years Ended December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                     | ** ** | **(Dollars in thousands)**        | ** ** |
| **Non-Interest Income**                        | ** ** | **2009**                          | ** ** | **Increase   (Decrease)********Amount** | ** ** | **%** | ** ** | **2008** | ** ** |
| Service charges on deposit accounts            | ** ** | **$**                             | **288**    |   | $ | 132 |   | 84.6 | % | $ | 156 |   |
| Other service charges and fees                 | ** ** | **358**                           |       | 138 |   | 62.7 | % | 220 |   |
| Earnings on cash value of life insurance       | ** ** | **262**                           |       | 162 |   | 162.0 | % | 100 |   |
| Gain on sale of available-for-sale securities  | ** ** | **287**                           |       | 247 |   | 617.5 | % | 40 |   |
| Gain from sale of held for sale mortgage loans | ** ** | **443**                           |       | 393 |   | 786.0 | % | 50 |   |
|                                           | ** ** | **$**                             | **1,638**  |   | $ | 1,072 |   | 189.4 | % | $ | 566 |   |

 

**Non-Interest Expenses**

 

The increase of $2,556,000or 64.2% in non-interest expenses is primarily attributable to theconsolidation, increased professional fees relating to the consolidation andcosts associated with the merger of systems and processes to expedite the unionof First Perry Bancorp, Inc. and HNB Bancorp, Inc. and theirwholly-owned subsidiaries, The First National Bank of Marysville and HalifaxNational Bank.

 

During the second quarter of2009, the Bank updated its standard costs relating to the origination of alltypes of loans.  Generally acceptedaccounting principles relating to *Accounting forNonrefundable Fees and Costs Associated with Originating of Acquiring Loans andInitial Direct Costs of Leases*establish the accounting treatmentfor fees and initial direct costs associated with the origination of a loan,where direct loan costs may be deferred and capitalized.  These costs will be expensed over the life ofthe related loan as a reduction of the loan yield.  Direct loan costs capitalized during 2009increased $330,000 over 2008 as a 

 

22

----

Table of Contents

 

result of the updated cost structure, theconsolidation of the loan portfolios of the two merged banks, and the volumeloan originations.  In recording thedeferral of these direct loan costs, it had the immediate impact of reducing salaryexpense by $376,000 during the twelve months ended December 31, 2009 ascompared with $46,000 recorded in 2008.

 

With regard to the FDICpremium, on November 12, 2009, the Board of Directors of the FDIC adopteda final rulemaking requiring insured institutions to prepay their estimated quarterlyrisk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011and 2012.  The FDIC also voted to adopt auniform three-basis point increase in assessment rates effective on January 1,2011.  Each institution recorded theentire amount of its prepaid assessment as a prepaid expense (asset) as of December 31,2009.  As of December 31, 2009, andeach quarter thereafter, each institution will record an expense (charge toearnings) for its regular quarterly assessment for the quarter and anoffsetting credit to the prepaid assessment until the asset is exhausted.  Once the asset is exhausted, the institutionwill record an accrued expense payable each quarter for the assessment payment,which will be paid in arrears to the FDIC at the end of the followingquarter.  If the prepaid assessment isnot exhausted by December 31, 2014, any remaining amount will be returnedto the depository institution.  Thisexpense for 2009  is higher than that of2008 because of the expense incurred to record the special FDIC assessment thatwas required to be accrued during the second quarter but paid at the end of thethird quarter of 2009.  All FDIC insuredfinancial institutions were required to pay this special assessment.  In addition, there was a higher expenseassociated with the “regular” FDIC assessment as compared with the 2008assessment, at which time the Bank received a one-time credit.

 

The following table presentsthe components of non-interest expenses and the related changes for the yearsended 2009 and 2008:

 
| ** **                                | ** ** | **Years Ended December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------|------------|
| ** **                                | ** ** | **(Dollars in thousands)**        | ** ** |
| **Non-Interest Expenses**                 | ** ** | **2009**                          | ** ** | **Increase********(Decrease)********Amount** | ** ** | **%** | ** ** | **2008** | ** ** |
| Salaries and employee benefits            |       | $                                 | 3,048      |   | $ | 843 |   | 38.2 | % | $ | 2,205 |   |
| Occupancy expense                         |       | 675                               |       | 226 |   | 50.3 | % | 449 |   |
| Equipment expense                         |       | 425                               |       | 212 |   | 99.5 | % | 213 |   |
| Telecommunications and processing charges |       | 480                               |       | 237 |   | 97.5 | % | 243 |   |
| Postage and office supplies               |       | 225                               |       | 131 |   | 139.4 | % | 94 |   |
| FDIC premium                              |       | 433                               |       | 388 |   | 862.2 | % | 45 |   |
| Bank shares tax expense                   |       | 257                               |       | 153 |   | 147.1 | % | 104 |   |
| Directors’ compensation              |       | 219                               |       | 114 |   | 108.6 | % | 105 |   |
| Professional services                     |       | 266                               |       | 79 |   | 42.3 | % | 187 |   |
| Other expenses                            |       | 511                               |       | 173 |   | 51.2 | % | 338 |   |
| Total non-interest expenses               |       | $                                 | 6,539      |   | $ | 2,556 |   | 64.2 | % | $ | 3,983 |   |

 

**Income Taxes**

 

Theprovision for federal income tax expense (benefit) was $153,000 for the yearended December 31, 2009 as compared to ($42,000) for the year ended December 31,2008.  The tax provision increased$195,000, or 464.3%, as a result of the increased level of net income achievedin 2009.  The tax provision reflects aneffective tax rate of approximately a 12.1% expense for 2009 and a 13.0%benefit for 2008.  The effective tax ratecontinues 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.

 

23

----

Table of Contents

 

**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 inplace to address various aspects of managing the portfolio, including but notlimited to, concentrations, liquidity, credit quality, interest ratesensitivity and regulatory guidelines. Adherence to these policies is monitored by Riverview’s Asset/LiabilityCommittee (“ALCO”) on a quarterly 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 comprehensive income.

 

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

 

**TABLE 3**

 

**SECURITIES**

 
| ** **                     | ** ** | **December 31,** | ** ** |
|--------------------------------|------------|-----------------------|------------|
| ** **                     | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                     | ** ** | **(In thousands)**    | ** ** |
| Available-for-sale securities: |       |                  |       |   |   |   |   |
| U.S. Government agencies       | ** ** | **$**                 | **2,375**  |   | $ | 7,264 |   | $ | 4,092 |   |
| State and municipal            | ** ** | **14,950**            |       | 9,373 |   | 4,480 |   |
| Mortgage-backed securities     | ** ** | **17,258**            |       | 11,181 |   | 11,718 |   |
| Corporate debt securities      | ** ** | **—**            |       | 302 |   | — |   |
|                           | ** ** | **$**                 | **34,583** |   | $ | 28,120 |   | $ | 20,290 |   |

 

During 2009 U.S. Governmentagencies declined as a result of investment maturities, prepayments andcalls.  The balance of state andmunicipal bonds increased during 2009 due to the Bank’s need to generate moretax-exempt income to complement the increase in its net income.  In addition, mortgage-backed securitiesincreased during 2009.  During the thirdquarter of 2009, management decided to sell most of its mortgage-backedsecurities that were issued by the Federal National Mortgage Association (“FNMA”)and the Federal Home Loan Mortgage Corporation (“FHLMC”).  The reason for doing this was to alleviatesome of the credit risk associated with these particular U.S. Governmentagencies in light of the fact that they do not carry a full-faith creditguaranty by the government.  The proceedsof the sale of these securities plus additional funds that were on deposit withbanks were reinvested in mortgage-backed securities issued by the GovernmentNational Mortgage Association (“GNMA”), which is a government owned corporationand carries the full-faith credit guarantee of the United States federalgovernment.

 

Included in the carryingvalues of investment securities at December 31, 2009 is a net unrealizedgain of $245,000, compared to a net unrealized gain of $56,000 at December 31,2008.  At December 31, 2009, theunrealized gain on securities available-for-sale, net of tax, included inshareholders’ equity totaled $161,000, compared to $37,000 at December 31,2008.  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 are consideredother-than-temporarily-impaired based on management’s evaluation of theindividual securities, including the extent and length of the unrealized loss,Riverview’s ability to hold the 

 

24

----

Table of Contents

 

security until maturity or until the fair valuerecovers, and management’s opinion that it will not have to sell the securitiesprior to recovery of value.  Riverviewinvests in securities for the cash flow and yields they produce and not toprofit from trading.  Riverview holds notrading securities in its portfolio, and the portfolio does not contain highrisk securities or derivatives as of December 31, 2009.

 

Investment in stock of theFHLB is required for membership in the organization and is carried at costsince there is no market value available. The amount that Riverview is required to invest is based upon a formulawhich weighs a dependence upon the relative size of outstanding borrowings thatit has with the FHLB.  Excess stock wastypically repurchased at par by the FHLB from Riverview if borrowings declinedto a predetermined level.  Throughoutmost of 2008, Riverview earned a return or dividend based upon the amountinvested.  In late December 2008,the FHLB announced that it had suspended the payment of dividends and therepurchase of excess capital stock to preserve its capital level.  That decision was based on FHLB’s analysisand consideration of certain negative market trends and the impact those trendshad on its financial condition.  The FHLBhas not violated its agreement with its member banks by not repurchasing excesscapital stock in that it is not generally required to redeem membership stockuntil five years after the membership has terminated.  Based on the financial results of the FHLBfor the years ended December 31, 2009 and 2008, management believes thatthe suspension of both the dividend payment and excess capital stock repurchaseis temporary in nature.  Managementfurther believes that the FHLB will continue to be a primary source ofwholesale liquidity for both short- and long-term funding and has concludedthat its investment in FHLB stock is not other-than-temporarily impaired.  Riverview will continue to monitor thefinancial condition of the FHLB quarterly to assess its ability to resume theseactivities in the future.

 

**Table 4** presents thematurities and average weighted yields of the securities portfolio at fairvalue as of December 31, 2009. Yields are based on amortized cost.

 

**TABLE 4**

**MATURITIES AND WEIGHTED AVERAGEYIELDS OF SECURITIES**

 
| **(Dollars  in thousands)**    | ** ** | **1 Year or Less** | ** ** | **1 to 5 Years** | ** ** | **5 to 10 Years** | ** ** | **Over 10 Years or   No Maturity** | ** ** | **Total**  | ** ** |
|--------------------------------|------------|--------------------|------------|------------------|------------|-------------------|------------|------------------------------------|------------|------------|------------|
| **Due In:**                    | ** ** | **Amount**         | ** ** | **Yield**        | ** ** | **Amount**        | ** ** | **Yield**                          | ** ** | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** |
| **U.S. Government agencies**   | ** ** | **$**              | **512**    | ** **       | **1.32**   | **%**             | **$**      | **1,357**                          | ** ** | **2.84**   | **%**      | **$** | **506** | ** ** | **4.35** | **%** | **$** | **—** | ** ** | **—** | ** ** | **$** | **2,375** | ** ** | **2.84** | **%** |
| **State and municipal**        | ** ** | **—**         | ** ** | **—**       | ** ** | **1,391**         | ** ** | **5.47**                           | **%**      | **4,809**  | ** ** | **5.71** | **%** | **8,750** | ** ** | **5.80** | **%** | **14,950** | ** ** | **5.74** | **%** |
| **Mortgage-backed securities** | ** ** | **—**         | ** ** | **—**       | ** ** | **—**        | ** ** | **—**                         | ** ** | **2,736**  | ** ** | **2.69** | **%** | **14,522** | ** ** | **3.63** | **%** | **17,258** | ** ** | **3.48** | **%** |
| ** **                     | ** ** | **$**              | **512**    | ** **       | **1.32**   | **%**             | **$**      | **2,748**                          | ** ** | **4.17**   | **%**      | **$** | **8,051** | ** ** | **4.60** | **%** | **$** | **23,272** | ** ** | **4.45** | **%** | **$** | **34,583** | ** ** | **4.42** | **%** |

 

*All securities are available-for-sale and areaccounted for at fair value.*

* *

*Weighted average yields are calculated on a fullytaxable equivalent basis assuming a tax rate of 34%.*

 

**Loans**

 

The loan portfolio comprises the major componentof Riverview’s earning assets and is the highest yielding asset category.  At December 31, 2009, total loansreceivable (net of the allowance for loan losses, unearned fees and originationcosts) amounted to $170,384,000, a decrease of $6,085,000, or 3.4%, as comparedwith $176,469,000 as of December 31, 2008. Loans receivable, net of the allowance for loan losses, represent 67.4%of total assets and 79.3% of total deposits as of December 31, 2009, ascompared to 76.1% and 101.2%, respectively, at December 31, 2008.  All of Riverview’s loans are to domesticborrowers.

 

25

----

 

Table of Contents

 

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

 

**TABLE 5**

 

**TOTAL LOANS OUTSTANDING**

** **
| ** **                           | ** ** | **December 31,** | ** **  |
|--------------------------------------|------------|-----------------------|-------------|
| ** **                           | ** ** | ** **            | ** **  | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** |
| **(Dollars in thousands)**           | ** ** | **2009**              | ** **  | **Total** | ** ** | **2008** | ** ** | **Total** | ** ** | **2007** | ** ** | **Total** | ** ** | **2006** | ** ** | **Total** | ** ** | **2005** | ** ** | **Total** | ** ** |
| ** **                           | ** ** | ** **            | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Commercial,  financial, agricultural |       | **$**                 | **13,614**  | ** ** | **7.9** | **%** | $ | 12,967 |   | 7.3 | % | $ | 8,845 |   | 10.5 | % | $ |    5,722 |   | 7.4 | % | $ | 6,822 |   | 9.9 | % |
| Real Estate:                         |       | ** **            | ** **  | ** ** |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction                         |       | **17,372**            | ** **  | **10.1** | **%** | 18,173 |   | 10.2 | % | 9,059 |   | 10.8 | % | 3,936 |   | 5.1 | % | 1,411 |   | 2.0 | % |
| Mortgage                             |       | **92,206**            | ** **  | **53.3** | **%** | 94,322 |   | 52.8 | % | 47,324 |   | 56.3 | % | 47,082 |   | 60.6 | % | 43,741 |   | 63.2 | % |
| Commercial                           |       | **46,728**            | ** **  | **27.0** | **%** | 48,773 |   | 27.3 | % | 15,352 |   | 18.2 | % | 16,061 |   | 20.7 | % | 12,213 |   | 17.7 | % |
| Consumer  installment                |       | **2,988**             | ** **  | **1.7** | **%** | 4,210 |   | 2.4 | % | 3,558 |   | 4.2 | % | 4,795 |   | 6.2 | % | 4,983 |   | 7.2 | % |
| Total loans                          |       | **172,908**           | ** **  | **100.0** | **%** | 178,445 |   | 100.0 | % | 84,138 |   | 100.0 | % | 77,596 |   | 100.0 | % | 69,170 |   | 100.0 | % |
| Deferred loan  fees                  |       | **36**                | ** **  | ** ** |   | (266 | ) |   |   | (234 | ) |   |   | (248 | ) |   |   | (236 | ) |   |   |
| Total loans, net  of fees            |       | **172,944**           | ** **  | ** ** |   | 178,179 |   |   |   | 83,904 |   |   |   | 77,348 |   |   |   | 68,934 |   |   |   |
| Allowance for  loan losses           |       | **(2,560**            | **)**       | ** ** |   | (1,710 | ) |   |   | (970 | ) |   |   | (867 | ) |   |   | (591 | ) |   |   |
| Total loans, net                     |       | **$**                 | **170,384** | ** ** | ** ** |   | $ | 176,469 |   |   |   | $ | 82,934 |   |   |   | $ | 76,481 |   |   |   | $ | 68,343 |   |   |   |

 

The decline in loans isattributable to an increase in the sale of loan participations.  In addition, less mortgage loans wererecorded in the portfolio during 2009 since the Bank sold a greater number ofmortgage loans servicing released to Freddie Mac and to the FHLB under its MPFprogram.  The benefit of selling mortgageloans versus keeping them in the portfolio resulted in generating fee incomewhile eliminating 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 as the economy improves and opportunities are identified inRiverview’s market area.

 

Riverviewmanages risk associated with its loan portfolio by maintaining diversificationwithin the portfolio, consistently applying prudent underwriting standards,ongoing monitoring efforts with attention to portfolio dynamics and mix, andprocedures that 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 booked and loan turndown undergoes an internal audit review for conformitywith established policies and a review for compliance with current regulatorylending laws.  Riverview has not lessenedits loan underwriting criteria during this time, and management believes itsstandards continue to remain conservative.

 

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.

 

26

----

Table of Contents

 

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

 

**TABLE 6**

**LOAN MATURITIES AND SENSITIVITY TO CHANGESIN INTEREST RATES**

 

**COMMERCIAL AND CONSTRUCTION LOANS**

 

**December 31, 2009**

 
| **(In  thousands)**                      | ** ** | **Due Within   1 Year** | ** ** | **Due 1 - 5   Years** | ** ** | **Due Over 5   Years** | ** ** | **Total**  | ** ** |
|------------------------------------------|------------|-------------------------|------------|-----------------------|------------|------------------------|------------|------------|------------|
| **Commercial, financial,  agricultural** | ** ** | **$**                   | **5,576**  | ** **            | **$**      | **5,488**              | ** ** | **$**      | **2,550**  | ** ** | **$** | **13,614** | ** ** |
| **Real estate, construction**            | ** ** | **10,451**              | ** ** | **6,319**             | ** ** | **602**                | ** ** | **17,372** | ** ** |
| **Total**                                | ** ** | **$**                   | **16,027** | ** **            | **$**      | **11,807**             | ** ** | **$**      | **3,152**  | ** ** | **$** | **30,986** | ** ** |
| ** **                               | ** ** | ** **              | ** ** | ** **            | ** ** | ** **             | ** ** | ** ** | ** ** |
| **By interest rate structure:**          | ** ** | ** **              | ** ** | ** **            | ** ** | ** **             | ** ** | ** ** | ** ** |
| **Fixed rate**                           | ** ** | **$**                   | **4,169**  | ** **            | **$**      | **6,791**              | ** ** | **$**      | **3,151**  | ** ** | **$** | **14,111** | ** ** |
| **Variable rate**                        | ** ** | **11,858**              | ** ** | **5,016**             | ** ** | **1**                  | ** ** | **16,875** | ** ** |
| **Total**                                | ** ** | **$**                   | **16,027** | ** **            | **$**      | **11,807**             | ** ** | **$**      | **3,152**  | ** ** | **$** | **30,986** | ** ** |

 

**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 that 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.

 

27

----

Table of Contents

 

**Table 7** presents information about Riverview’snonperforming loans and nonperforming assets for the periods presented.

 

**TABLE 7**

 

**RISK ELEMENTS AND ASSET QUALITY RATIO**

 
| ** **                                                             | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars  in thousands)**                                            | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Non-accruing  loans                                                    | ** ** | **$**                 | **3,123**  |   | $ | 128 |   | $ | 210 |   | $ | 765 |   | $ | 25 |   |
| Accruing loans  past due 90 days or more                               | ** ** | **219**               |       | 152 |   | 932 |   | 515 |   | 68 |   |
| Total nonperforming  loans                                             | ** ** | **3,342**             |       | 280 |   | 1,142 |   | 1,280 |   | 93 |   |
| Foreclosed real  estate                                                | ** ** | **312**               |       | 144 |   | 327 |   | — |   | — |   |
| Total  nonperforming assets                                            | ** ** | **$**                 | **3,654**  |   | $ | 424 |   | $ | 1,469 |   | $ | 1,280 |   | $ | 93 |   |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Non-accrual  loans:                                                    | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Interest income  that would have been recorded on non-accruing loans   | ** ** | **$**                 | **193**    |   | $ | 10 |   | $ | 64 |   | $ | 55 |   | $ | 3 |   |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Interest income  for above loans included in net income for the period | ** ** | **$**                 | **89**     |   | $ | 8 |   | $ | 51 |   | $ | 34 |   | $ | 1 |   |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Ratios:                                                                | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Nonperforming  loans to total loans                                    | ** ** | **1.93**              | **%**      | 0.16 | % | 1.38 | % | 1.67 | % | 0.14 | % |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Nonperforming  assets to total assets                                  | ** ** | **1.44**              | **%**      | 0.18 | % | 1.20 | % | 1.12 | % | 0.09 | % |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Allowance for  loan losses to nonperforming loans                      | ** ** | **76.60**             | **%**      | 610.71 | % | 84.94 | % | 67.73 | % | 635.48 | % |
|                                                                   | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Commitments to  lend additional funds to nonperforming loan customers  | ** ** | **$**                 | **0**      |   | $ | 0 |   | $ | 0 |   | $ | 0 |   | $ | 0 |   |

 

Total nonperforming loans(comprised of non-accruing loans and loans past due for more than 90 days) asof December 31, 2009, increased $3,062,000, to $3,342,000 as compared to$280,000 as of December 31, 2008. The increase in nonperforming loans at the 2009 year end as comparedwith the 2008 year end is largely attributable to two particular commercialloans, whose businesses were negatively affected by the downturn in the economyand were place in a non-accrual status. At December 31, 2009, the loans to these two borrowers were deemedimpaired, evaluated in accordance with the accounting standard relating to *Accounting by Creditors for Impairment of a Loan* andappropriate additions to the loan loss reserve were made.  Management continues to be vigilant in itsefforts to minimize, identify and evaluate credit risk and potentiallosses.  Management is proactive in addressingand managing risk appropriate to the increasing level of loan volume anddelinquencies in the loan portfolio through its implementation of an enhancedcredit administration process - including a more structured loan collectionprocess and close monitoring of compliance with underwriting and loan to valueguidelines.

 

Riverview had $312,000 inforeclosed real estate acquired through foreclosure as of December 31,2009 as compared with $144,000 as of December 31, 2008.  Foreclosed real estate is recorded at fairvalue.

 

Potential problem loans areloans not disclosed as non-performing or troubled debt restructurings but wherethere is known information about possible credit problems of borrowers thatcause serious doubts as to the ability of such borrowers to comply with loanrepayment terms.  As of December 31,2009 and 2008 there were no such potential problem loans.

 

28

----

Table of Contents

 

Asa result of worsening local and national economic conditions and the softnessin real estate in the market served by Riverview, management continues to beattentive to potential deterioration in credit quality due to economicpressures.  Riverview’s residential loanportfolio is centered in properties at price points which have held up welllocally as evidenced by appraisals. Loan-to-value ratios in this portfolio continue to provide adequatecollateral support and management does not anticipate any material decline inRiverview’s ability to collect on these loans. Although management is proactive in identifying and dealing with creditissues that it can control, it anticipates that going forward, additionalprovisions to its loan loss allowance may be warranted as a result of thoseeconomic factors it cannot control.

 

A loan concentration isconsidered to exist when the total amount of loans to any one or multiplenumber of borrowers engaged in similar activities or have similar economiccharacteristics, exceed 10% of loans outstanding in any one category.  The following table presents loanconcentrations as of December 31, 2009 and 2008:

 
| **(Dollars  in thousands)**          | ** ** | **December 31,   2009** | ** ** | **December 31,   2008** | ** ** |
|--------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Loans to Lessors of:                 |       |                         |       |                         |       |
| Residential buildings and  dwellings | ** ** | **$**                        | **31,934** |                         | $          | 18,068 |   |
| Nonresidential buildings             | ** ** | **19,321**                   |       | 13,344                       |       |
|                                      |            |                              |            |                              |            |  |  |

 

Although such loans were notmade to any one particular borrower or industry, it is important to note thatthe quality of these loans could be affected by the region’s economy andoverall real estate market.  Managementhas stress tested this portfolio by applying a 24% vacancy factor to theproperties securing these loans and determined that the loans can stillgenerally perform as agreed.

 

It is noted that the actualvacancy factors in Riverview’s market area in each class of non-residential spaceincreased 1% to 4% during 2009, ending the year with total vacancies rangingfrom 6% to 12%.  Riverview’snon-residential market has not suffered the serious deterioration evident incertain other areas of the country. Management does not believe that this concentration is an adverse trendto 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 material potential loan problems thathave not been disclosed in this report.

 

**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 toRiverview’s audit committee detailing significant events that have occurredsince the 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 

 

29

----

Table of Contents

 

subjectiveas it requires estimates that are susceptible to significant revisions as moreinformation becomes available.

 

The allowance consists of specific, general andunallocated components.  The specificcomponent relates to loans that are classified as substandard or doubtful anddeemed to be impaired.  For such loans anallowance is established when the discounted cash flows (or collateral value orobservable market price) of the impaired loan is lower than the carrying valueof that loan.  The general componentcovers non-impaired loans and is based on historical loss experience adjustedfor qualitative factors.  An unallocatedcomponent is maintained to cover uncertainties that could affect management’sestimate of probable losses.  Theunallocated component of the allowance reflects the margin of imprecisioninherent in the underlying assumptions used in the methodologies for estimatingspecific and general losses in the portfolio.

 

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.

 

30

----

Table of Contents

 

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 OF THE ALLOWANCE FOR LOANLOSSES**

 
| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| **(Dollars  in thousands)**               | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                      | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Allowance,  beginning of year             | ** ** | **$**                 | **1,710**  |   | $ | 970 |   | $ | 867 |   | $ | 591 |   | $ | 466 |   |
| Provision for  loan losses                | ** ** | **1,125**             |       | 380 |   | 120 |   | 295 |   | 150 |   |
| Allowance  acquired from HNB              | ** ** | **—**            |       | 496 |   | — |   | — |   | — |   |
|                                      | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Loans charged  off:                       | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Commercial,  financial, agricultural      | ** ** | **217**               |       | 32 |   | — |   | — |   | — |   |
| Real estate  mortgage                     | ** ** | **59**                |       | 125 |   | 14 |   | — |   | — |   |
| Installment                               | ** ** | **—**            |       | 2 |   | 15 |   | 26 |   | 26 |   |
| Total  charged-off                        | ** ** | **276**               |       | 159 |   | 29 |   | 26 |   | 26 |   |
|                                      | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Loan recoveries:                          | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Real estate  mortgage                     | ** ** | **—**            |       | 23 |   | 4 |   | 2 |   | — |   |
| Installment                               | ** ** | **1**                 |       | — |   | 8 |   | 5 |   | 1 |   |
| Total recoveries                          | ** ** | **1**                 |       | 23 |   | 12 |   | 7 |   | 1 |   |
| Net loans  charged off                    | ** ** | **275**               |       | 136 |   | 17 |   | 19 |   | 25 |   |
|                                      | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Allowance, end  of year                   | ** ** | **$**                 | **2,560**  |   | $ | 1,710 |   | $ | 970 |   | $ | 867 |   | $ | 591 |   |
|                                      | ** ** | ** **            |       |   |   |   |   |   |   |   |   |
| Net charge-offs  to average loans         | ** ** | **0.16**              | **%**      | 0.14 | % | 0.02 | % | 0.03 | % | 0.04 | % |
| Allowance for  loan losses to total loans | ** ** | **1.48**              | **%**      | 0.96 | % | 1.16 | % | 1.12 | % | 0.86 | % |

 

In consideration of therisks and trends associated with the loan portfolio and the increase innon-performing loans, management allocated a $1,125,000 provision to theallowance for loan losses during 2009, which resulted in a total allowance of$2,560,000 as of December 31, 2009 as compared with $1,710,000 as of December 31,2008.  Management continues to assess theeffects of potential declines in the local economy and the local real estatevalues when determining specific allocations related to impaired loans.

 

The following **Table 9** details the allocation of the allowancefor loan losses to the various loan categories at December 31, 2009, 2008,2007, 2006 and 2005.  The allocation ismade for analytical purposes and is not necessarily indicative of the loancategories in which future credit losses may occur.  The total allowance is available to absorblosses from any segment of loans.

 

**TABLE 9**

 

**ALLOCATIONOF THE ALLOWANCE FOR LOAN LOSSES**

 
| ** **                             | ** ** | **2009**   | ** ** | **2008**    | ** ** | **2007**   | ** ** | **2006**    | ** ** | **2005**   | ** ** |
|----------------------------------------|------------|------------|------------|-------------|------------|------------|------------|-------------|------------|------------|------------|
| ** **                             | ** ** | ** ** | ** ** | **% Gross** | ** ** | ** ** | ** ** | **% Gross** | ** ** | ** ** | ** ** | **% Gross** | ** ** | ** ** | ** ** | **% Gross** | ** ** | ** ** | ** ** | **% Gross** | ** ** |
| **(Dollars  in thousands)**            | ** ** | **Amount** | ** ** | **Loans**   | ** ** | **Amount** | ** ** | **Loans**   | ** ** | **Amount** | ** ** | **Loans** | ** ** | **Amount** | ** ** | **Loans** | ** ** | **Amount** | ** ** | **Loans** | ** ** |
| Commercial, financial and agricultural |       | **$**      | **819**    |        | **7.9**    | **%**      | $          | 124         |       | 7.3        | %          | $ | 165 |   | 10.5 | % | $ | 114 |   | 7.4 | % | $ | 139 |   | 9.9 | % |
| Real estate loans:                     |       |       |       |        |       |       |       |        |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Construction                           | ** ** | **18**     | ** ** | **10.1**    | **%**      | 77         |       | 10.2        | %          | 47         |       | 10.8 | % | 50 |   | 5.0 | % | 2 |   | 2.0 | % |
| Mortgage                               | ** ** | **356**    | ** ** | **53.3**    | **%**      | 403        |       | 52.8        | %          | 419        |       | 56.2 | % | 427 |   | 60.7 | % | 82 |   | 63.2 | % |
| Commercial                             | ** ** | **1,293**  | ** ** | **27.0**    | **%**      | 928        |       | 27.3        | %          | 216        |       | 18.3 | % | 226 |   | 20.7 | % | 359 |   | 17.7 | % |
| Consumer loans                         | ** ** | **74**     | ** ** | **1.7**     | **%**      | 116        |       | 2.4         | %          | 43         |       | 4.2 | % | 36 |   | 6.2 | % | 9 |   | 7.2 | % |
| Unallocated                            | ** ** | **—** | ** ** | **n/a**     |       | 62         |       | n/a         |       | 80         |       | n/a |   | 14 |   | n/a |   | — |   | n/a |   |
|                                   |       |       |       |        |       |       |       |        |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Total                                  | ** ** | **$**      | **2,560**  | ** **  | **100.0**  | **%**      | $          | 1,710       |       | 100.0      | %          | $ | 970 |   | 100.0 | % | $ | 867 |   | 100.0 | % | $ | 591 |   | 100.0 | % |

 

31

----

 

Table of Contents

 

A significantly greaterpercentage of the allowance for loan losses shifted towards the commercial,financial, and agricultural loans segment at December 31, 2009 versus December 31,2008.  This primarily reflects onecommercial borrower whose business was negatively affected by the downturn inthe economy.  This loan was deemedimpaired and a specific allocation to the allowance for loan losses wasmade.  The remaining increase in theallocation for this segment of loans is consistent with the growth in thisportfolio combined with weakened economic factors and the inherently higherlevel of credit risk associated with commercial borrowings in general.  The percentage of the allowance allocated tocommercial real estate loans increased at December 31, 2009 compared to December 31,2008.  The overall quality of commercialreal estate portfolio has remained consistent and the size of the portfolio wasreduced by $2,045,000 since the 2008 year end. However, the increase in the dollar amount of reserves in this segmentrelates to one land development loan which, due to market conditions, wasdeemed impaired and required a specific allocation to the allowance for loan losses.

 

Management currently believes the allowance for loanlosses at December 31, 2009 is adequate to absorb losses inherent in theloan portfolio.  Although managementbelieves 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, 2009,were $214,936,000, an increase of $40,583,000, or 23.3%, over total deposits of$174,353,000 as of December 31, 2008. This increase was due to the consolidation and attributable to organicgrowth particularly in the interest-bearing demand deposit category, whichexperienced growth of 170.8 % at December 31, 2009 since the 2008 yearend.  This increase is attributable tocustomer demand for the Bank’s Hometown Checking demand deposit product.

 

**Table 10** sets forth theaverage balance of the Bank’s deposits and the average rates paid on thosedeposits for the years ended December 31, 2009, 2008 and 2007.  All deposits are domestic deposits.

 

**TABLE 10**

 

**AVERAGE DEPOSITS BY MAJOR CLASSIFICATION**

 
| ** **                  | ** ** | **December 31,** | ** **  |
|-----------------------------|------------|-----------------------|-------------|
| ** **                  | ** ** | **2009**              | ** **  | **2008** | ** ** | **2007** | ** ** |
| **(Dollars in thousands)**  | ** ** | **Average   Balance** | ** **  | **Average   Rate** | ** ** | **Average   Balance** | ** ** | **Average   Rate** | ** ** | **Average   Balance** | ** ** | **Average   Rate** | ** ** |
| Non-interest bearing demand | ** ** | **$**                 | **20,338**  | ** ** | **0.00** | **%** | $ |  9,684 |   | 0.00 | % | $ | 8,279 |   | 0.00 | % |
| Interest-bearing demand     | ** ** | **40,337**            | ** **  | **1.49** | **%** | 17,020 |   | 1.27 | % | 16,759 |   | 2.60 | % |
| Savings                     | ** ** | **28,709**            | ** **  | **1.05** | **%** | 15,067 |   | 0.91 | % | 15,617 |   | 1.30 | % |
| Time                        | ** ** | **108,321**           | ** **  | **3.29** | **%** | 51,059 |   | 3.80 | % | 50,989 |   | 4.12 | % |
|                        | ** ** | ** **            | ** **  | ** ** |   |   |   |   |   |   |   |   |   |
| Total deposits              | ** ** | **$**                 | **197,705** | ** ** | ** ** |   | $ | 92,830 |   |   |   | $ | 91,644 |   |   |   |

 

32

----

Table of Contents

 

**Table 11** displays theremaining maturities and amounts of time certificates issued in denominationsof $100,000 or more at December 31, 2009.

 

**TABLE 11**

 

**DEPOSIT MATURITIES**

 
| **(In  thousands)**                       | ** ** | **Time   Certificates** | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
|                                      |       | ** **              | ** ** |
| Three months or  less                     | ** ** | **$**                   | **5,380**  | ** ** |
| Over three  months but within six months  | ** ** | **5,785**               | ** ** |
| Over six months but  within twelve months | ** ** | **7,040**               | ** ** |
| Over twelve  months                       | ** ** | **11,926**              | ** ** |
| Total                                     | ** ** | **$**                   | **30,131** | ** ** |

 

##### **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 decreased $20,516,000to $807,000 at December 31, 2009 as compared with $21,323,000 as of December 31,2008.  Management’s decision to utilizethe proceeds from the growth in deposits during 2009 to pay off all of theshort-term borrowings that were outstanding with the FHLB was initiated for thepurpose of lowering the Bank’s cost of funds

 

Long-term borrowings aregenerally utilized as a resource to fund growth.  Riverview also considers the use of long-termborrowings as a means of managing its cost of funds.  Long-term borrowings are also utilized as atool to control interest rate positions within the overall asset-liabilitymanagement function.  All borrowings ofthis nature have been provided through the FHLB.  Long-term borrowings as of December 31,2009 increased $664,000 from the prior year end to $10,697,000 as compared to$10,033,000 as of December 31, 2008.

 

Additional informationrelating borrowings can be found in Note 11 — Borrowings — in Part II,Item 8 — Financial Statements and Supplementary Data — incorporated in this Form 10-K.

 

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

 

The net result of activitythat affected shareholders’ equity during the year resulted in an increase of$512,000 in total shareholders’ equity to $24,717,000, at December 31,2009, from $24,205,000, at December 31, 2008.  A summary of the transactions include:

 

·                  Net income of $1,111,000 generated in 2009;

 

·                  An increase of $124,000 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 $736,000 in 2009 reduced shareholders’ equity.

 

·                  The recording of $13,000 in compensation costassociated with the granting of options.

 

33

----

Table of Contents

 

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, 2009, the Bank had aTier I leverage ratio of 9.0%.

 

**Table 13**provides acomparison of the Bank’s risk-based capital ratios and leverage ratios at December 31,2009 and 2008, including the consolidation of The First National Bank ofMarysville and Halifax National Bank at December 31, 2008:

 

**TABLE 13**

**CAPITAL RATIOS**

 
| ** **                                                    | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|
| **(Dollars  in thousands)**                                   | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                                                          | ** ** | ** **            | ** ** | ** ** | ** ** |
| Tier 1 capital                                                | ** ** | **$**                 | **22,532** | ** ** | $ | 21,732 |   |
| Tier II,  allowable portion of:      | ** ** | ** **            | ** ** |   |   |
| Allowance for  loan losses                                    | ** ** | **1,981**             | ** ** | 1,710 |   |
|                                                          | ** ** | ** **            | ** ** |   |   |
| Total capital                                                 | ** ** | **$**                 | **24,513** | ** ** | $ | 23,442 |   |
|                                                          | ** ** | ** **            | ** ** |   |   |
| Tier I  risk-based capital ratio                              | ** ** | **14.3**              | **%**      | 14.3 | % |
|                                                          | ** ** | ** **            | ** ** |   |   |
| Total risk-based  capital ratio                               | ** ** | **15.5**              | **%**      | 13.2 | % |
|                                                          | ** ** | ** **            | ** ** |   |   |
| Tier I leverage  ratio                                        | ** ** | **9.0**               | **%**      | 9.5 | % |

 

Note:      Unrealized gains or losseson securities available-for-sale and goodwill and intangible assets areexcluded from regulatory capital components of risk-based capital and leverageratios.

 

At December 31, 2009and 2008, the Bank exceeded the minimum regulatory capital requirements and wasconsidered to be “well capitalized” under applicable federal regulations.  Additional information 

 

34

----

Table of Contents

 

relating to regulatory capital ratios can be foundin Note 14 — Regulatory Matters and Shareholders’ Equity — in Part II,Item 8 — Financial Statements and Supplementary Data incorporated in this Form 10-K.

 

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 current operationsand growth, and anticipates earnings to grow in tandem with asset growth.  However, management is conscious of theimpact 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 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.

 

**Securities Authorized for Issuance Under Equity Compensation Plans**

 

                InJanuary 2009, Riverview implemented a nonqualified stock option plan.  The purpose of the 2009 Stock Option Plan wasto advance the development, growth and financial condition of the Corporationby providing incentives through participation in the appreciation of the commonstock of the Corporation to secure, retain and motivate the Corporation’sdirectors, officers and key employees and to align such person’s interests withthose of the Corporation’s shareholders. The following table discloses the number of outstanding options grantedby Riverview to participants in equity compensation plans not approved byshareholders, as well as the number of securities remaining available forfuture issuance under the plans.

 
| ** **                          | ** ** | **Number  of Securities to be   Issued Upon Exercise of   Outstanding Options** | ** ** | **Weighted  Average   Exercise Price of   Outstanding Options** | ** ** | **Number  of Securities   Remaining Available   for Future Issuance   Under Equity   Compensation Plans** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|------------|
|                                | ** ** | ** **                                                                      | ** ** |                                                            |       |                                                                                                      |       |
| 2009 Non-Qualified StockOption Plan | ** ** | **170,000**                                                                     | ** ** | **$**                                                           | **16.00**  |                                                                                                      | **-0-**    | ** ** |
|                                     |            |                                                                                 |            |                                                                 |            |                                                                                                           |            |  |

 

The vesting schedule is a seven year cliff,which means that the options are 100% vested in 2016, which is the seventh yearfollowing the grant date and expire in 2019, which is ten years following thegrant date.  Additional informationrelating to the 2009 Stock Option Plan can be found in Note 9 — Pension andOther Benefit Plans — in Part II, Item 8 — Financial Statements andSupplementary Data — incorporated in this Form 10-K.

 

**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, 2009,were $19,991,000.  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.

 

35

----

Table of Contents

 

**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 forfluctuations in the balance sheet and provide funds for growth and normaloperating expenditures.  Sources ofliquidity are provided on a continuous basis through scheduled and unscheduledprincipal reductions 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$27,533,000 at December 31, 2009 as compared to $6,968,000 at December 31,2008.  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 31,2009, unpledged available-for-sale securities with a carrying value of$13,203,000 were readily available for liquidity purposes, as compared with$11,362,000 at December 31, 2008. The increase of $1,841,000 in unpledged available-for-sale securitieswas attributable to the growth in the investment portfolio and reducingcollateral requirements as a result of paying off short-term FHLB borrowings.

 

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 $100,000 and over, were$184,805,000 at December 31, 2009 as compared to $143,279,000 at December 31,2008.  The increase in core deposits isthe result of the consolidation and organic deposit growth attributable to theBank’s Hometown Checking demand deposit product.  Core deposits have historically provided asource of relatively stable and low cost liquidity, as has also been the casefor 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 31,2009, Riverview had access to two formal borrowing lines totaling $95,218,000with the aggregate amount outstanding on these lines totaling $10,678,000.

 

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, 2009 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.

 

36

----

Table of Contents

 

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

 

Thefollowing table presents ratios as of the dates presented:

 
| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                    |       |                  |       |   |   |   |   |
| Return  on average assets               |       | **0.46**              | **%**      | 0.29 | % | 0.47 | % |
| Return  on average equity               |       | **4.45**              | **%**      | 2.90 | % | 4.34 | % |
| Dividend  payout ratio                  |       | **66.25**             | **%**      | 79.49 | % | 55.36 | % |
| Average  equity to average assets ratio |       | **10.28**             | **%**      | 9.91 | % | 10.74 | % |

 

**New Financial Accounting Standards**

 

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****.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK.**

 

NotApplicable.

 

37

----

Table of Contents

 

**ITEM 8****.FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.**

 

**TABLE OFCONTENTS**

**December 31,2009 and 2008**

** **
| ** **                                                       | **Page** |
|------------------------------------------------------------------|----------|
| **Report  of Independent Registered Public Accounting Firms**    | 39       |
| ** **                                                       |     |
| **Consolidated  Financial Statements**                           |     |
| ** **                                                       |     |
| Consolidated Balance Sheets                                      | 41       |
| Consolidated Statements of Income                                | 42       |
| Consolidated Statements of Changes in Shareholders’  Equity | 43       |
| Consolidated Statements of Cash Flows                            | 44       |
| Notes to Consolidated Financial Statements                       | 45       |

 

38

----

Table of Contents

 

 

**Report of IndependentRegistered Public Accounting Firm**

** **

Tothe Board of Directors and ShareholdersRiverview Financial CorporationHalifax, Pennsylvania

 

Wehave audited the accompanying consolidated balance sheet of Riverview FinancialCorporation and subsidiary as of December 31, 2009, and the relatedconsolidated statements of income, changes in shareholders’ equity, and cashflows for the year then ended.  RiverviewFinancial Corporation’s management is responsible for these consolidatedfinancial statements.  Our responsibilityis to express an opinion on these consolidated financial statements based onour audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement.  Thecorporation is not required to have, nor were we engaged to perform, an auditof its internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the corporation’s internal control overfinancial reporting.  Accordingly, weexpress no such opinion.  An audit alsoincludes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audit provides 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, 2009, and the results of itsoperations and cash flows for the year then ended in conformity with accountingprinciples generally accepted in the United States of America.

 

 
|                        | /s/  Smith Elliott Kearns & Company, LLC |
|-----------------------------|---------------------------------------------------|
|                        |                                              |
|                        |                                              |
| Chambersburg,  Pennsylvania |                                              |
| March 24,  2010        |                                              |

 

39

----

 

Table ofContents

 

 

**Report of Independent Registered Public AccountingFirm**

** **

Tothe Board of Directors and ShareholdersRiverview Financial CorporationHalifax, Pennsylvania

 

Wehave audited the accompanying consolidated balance sheet of Riverview FinancialCorporation and subsidiary as of December 31, 2008, and the relatedconsolidated statements of income, changes in shareholders’ equity, and cashflows for the year then ended.  RiverviewFinancial Corporation’s management is responsible for these consolidatedfinancial statements.  Our responsibilityis to express an opinion on these consolidated financial statements based onour audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements arefree of material misstatement.  Thecorporation is not required to have, nor were we engaged to perform, an auditof its internal control over financial reporting.  Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the corporation’s internal control overfinancial reporting.  Accordingly, weexpress no such opinion.  An audit alsoincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audit provides 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 the results of itsoperations and cash flows for the year then ended in conformity with accountingprinciples generally accepted in the United States of America.

 

 

 

 

ParenteBeardLLC

Harrisburg,Pennsylvania

April 7,2009

 

40

----

Table of Contents

 

**CONSOLIDATEDBALANCE SHEETS**

**December 31,2009 and 2008**

 
| ** **                                                                                                     | ** ** | **2009**                              | ** **  | **2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|-------------|----------|------------|
| ** **                                                                                                     | ** ** | **(In thousands, except share data)** | ** **  |
| **Assets**                                                                                                     |       |
| Cash and due from banks                                                                                        | ** ** | **$**                                 | **6,339**   |     | $          | 4,545 |   |
| Federal funds sold                                                                                             | ** ** | **—**                            |        | 1,034    |       |
| Interest-bearing deposits                                                                                      | ** ** | **18,494**                            |        | 439      |       |
| Cash and Cash Equivalents                                                                                      | ** ** | **24,833**                            |        | 6,018    |       |
|                                                                                                           |       |                                  |        |     |       |
| Interest-bearing time deposits with banks                                                                      | ** ** | **2,700**                             |        | 950      |       |
| Investment securities available-for-sale                                                                       | ** ** | **34,583**                            |        | 28,120   |       |
| Mortgage loans held for sale                                                                                   | ** ** | **—**                            |        | 1,124    |       |
| Loans, net of allowance for loan losses of $2,560  and $1,710                                                  | ** ** | **170,384**                           |        | 176,469  |       |
| Premises and equipment                                                                                         | ** ** | **7,238**                             |        | 7,472    |       |
| Accrued interest receivable                                                                                    | ** ** | **782**                               |        | 812      |       |
| Restricted investments in bank stocks                                                                          | ** ** | **2,410**                             |        | 2,075    |       |
| Cash value of life insurance                                                                                   | ** ** | **5,574**                             |        | 5,258    |       |
| Foreclosed assets                                                                                              | ** ** | **312**                               |        | 144      |       |
| Goodwill                                                                                                       | ** ** | **1,796**                             |        | 1,785    |       |
| Intangible assets                                                                                              | ** ** | **141**                               |        | 173      |       |
| Other assets                                                                                                   | ** ** | **2,185**                             |        | 1,511    |       |
|                                                                                                           |       |                                  |        |     |       |
| **Total Assets**                                                                                               | ** ** | **$**                                 | **252,938** |     | $          | 231,911 |   |
| **Liabilities and Shareholders’ Equity**                                                                  |       |
| **Liabilities**                                                                                                |       |                                  |        |     |       |
| Deposits:                                                                                                      |       |                                  |        |     |       |
| Demand, non-interest bearing                                                                                   | ** ** | **$**                                 | **19,299**  |     | $          | 19,614 |   |
| Demand, interest-bearing                                                                                       | ** ** | **69,833**                            |        | 25,789   |       |
| Savings and money market                                                                                       | ** ** | **27,999**                            |        | 27,877   |       |
| Time                                                                                                           | ** ** | **97,805**                            |        | 101,073  |       |
|                                                                                                           |       |                                  |        |     |       |
| Total Deposits                                                                                                 | ** ** | **214,936**                           |        | 174,353  |       |
|                                                                                                           |       |                                  |        |     |       |
| Short-term borrowings                                                                                          | ** ** | **807**                               |        | 21,323   |       |
| Long-term borrowings                                                                                           | ** ** | **10,697**                            |        | 10,033   |       |
| Accrued interest payable                                                                                       | ** ** | **389**                               |        | 499      |       |
| Other liabilities                                                                                              | ** ** | **1,392**                             |        | 1,498    |       |
|                                                                                                           | ** ** | ** **                            |        |     |       |
| **Total Liabilities**                                                                                          |       | **228,221**                           |        | 207,706  |       |
|                                                                                                           |       |                                  |        |     |       |
| **Shareholders’ Equity**                                                                                  |       |                                  |        |     |       |
| Common stock, par value $0.50 per share;  authorized 5,000,000 shares; issued and outstanding 1,750,003 shares | ** ** | **875**                               |        | 875      |       |
| Surplus                                                                                                        | ** ** | **11,252**                            |        | 11,239   |       |
| Retained earnings                                                                                              | ** ** | **12,429**                            |        | 12,054   |       |
| Accumulated other comprehensive income                                                                         | ** ** | **161**                               |        | 37       |       |
|                                                                                                           | ** ** |                                  |        |     |       |
| **Total Shareholders’ Equity**                                                                            | ** ** | **24,717**                            |        | 24,205   |       |
|                                                                                                           | ** ** |                                  |        |     |       |
| **Total Liabilities and  Shareholders’ Equity**                                                           | ** ** | **$**                                 | **252,938** |     | $          | 231,911 |   |

 

*Theaccompanying notes are an integral part of these statements.*

 

41

----

Table of Contents

 

**CONSOLIDATEDSTATEMENTS OF INCOME**

**YearsEnded December 31, 2009 and 2008**

* *
| ** **                                               | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|----------|------------|
| ** **                                               | ** ** | **(In thousands, except per share data)** | ** ** |
| **Interest and Dividend Income**                         | ** ** |                                      |       |     |       |
| Loans, including fees                                    | ** ** | **$**                                     | **11,021** |     | $          | 6,406 |   |
| Investment securities - taxable                          | ** ** | **514**                                   |       | 558      |       |
| Investment securities - tax exempt                       | ** ** | **453**                                   |       | 137      |       |
| Federal funds sold                                       | ** ** | **4**                                     |       | 28       |       |
| Interest-bearing deposits                                | ** ** | **140**                                   |       | 3        |       |
| Dividends                                                | ** ** | **18**                                    |       | 38       |       |
|                                                     | ** ** |                                      |       |     |       |
| **Total Interest Income**                                | ** ** | **12,150**                                |       | 7,170    |       |
|                                                     | ** ** |                                      |       |     |       |
| **Interest Expense**                                     | ** ** |                                      |       |     |       |
| Deposits                                                 | ** ** | **4,473**                                 |       | 2,295    |       |
| Short-term borrowings                                    | ** ** | **49**                                    |       | 152      |       |
| Long-term debt                                           | ** ** | **338**                                   |       | 597      |       |
|                                                     | ** ** | ** **                                |       |     |       |
| **Total Interest Expense**                               | ** ** | **4,860**                                 |       | 3,044    |       |
|                                                     | ** ** |                                      |       |     |       |
| **Net Interest Income**                                  | ** ** | **7,290**                                 |       | 4,126    |       |
|                                                     | ** ** |                                      |       |     |       |
| **Provision for Loan Losses**                            | ** ** | **1,125**                                 |       | 380      |       |
|                                                     | ** ** |                                      |       |     |       |
| **Net Interest Income after  Provision for Loan Losses** | ** ** | **6,165**                                 |       | 3,746    |       |
| ** **                                               | ** ** | ** **                                |       |     |       |
| **Noninterest Income**                                   | ** ** |                                      |       |     |       |
| Service charges on deposit accounts                      | ** ** | **288**                                   |       | 156      |       |
| Other service charges and fees                           | ** ** | **358**                                   |       | 220      |       |
| Earnings on cash value of life insurance                 | ** ** | **262**                                   |       | 100      |       |
| Gain on sale of available-for-sale securities            | ** ** | **287**                                   |       | 40       |       |
| Gain on sale of mortgage loans                           | ** ** | **443**                                   |       | 50       |       |
|                                                     | ** ** | ** **                                |       |     |       |
| **Total  Noninterest Income**                            | ** ** | **1,638**                                 |       | 566      |       |
| ** **                                               | ** ** |                                      |       |     |       |
| **Noninterest Expenses**                                 | ** ** |                                      |       |     |       |
| Salaries and employee benefits                           | ** ** | **3,048**                                 |       | 2,205    |       |
| Occupancy expenses                                       | ** ** | **675**                                   |       | 449      |       |
| Equipment expenses                                       | ** ** | **425**                                   |       | 213      |       |
| Telecommunication and processing charges                 | ** ** | **480**                                   |       | 243      |       |
| Postage and office supplies                              | ** ** | **225**                                   |       | 94       |       |
| FDIC premium                                             | ** ** | **433**                                   |       | 45       |       |
| Bank shares tax expense                                  | ** ** | **257**                                   |       | 104      |       |
| Directors’ compensation                             | ** ** | **219**                                   |       | 105      |       |
| Professional services                                    | ** ** | **266**                                   |       | 187      |       |
| Other expenses                                           | ** ** | **511**                                   |       | 338      |       |
|                                                     | ** ** |                                      |       |     |       |
| **Total  Noninterest Expenses**                          | ** ** | **6,539**                                 |       | 3,983    |       |
|                                                     | ** ** |                                      |       |     |       |
| **Income before Income Taxes  (Benefit)**                | ** ** | **1,264**                                 |       | 329      |       |
|                                                     | ** ** |                                      |       |     |       |
| **Applicable Federal Income Taxes  (Benefit)**           | ** ** | **153**                                   |       | (42      | )          |
|                                                     | ** ** |                                      |       |     |       |
| **Net Income**                                           | ** ** | **$**                                     | **1,111**  |     | $          | 371 |   |
|                                                     | ** ** |                                      |       |     |       |
| **Earnings Per Share - Basic and  Diluted**              | ** ** | **$**                                     | **0.63**   |     | $          | 0.39 |   |

 

*The accompanying notes are anintegral part of these statements.*

 

42

----

Table of Contents

 

**CONSOLIDATEDSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY**

**Years EndedDecember 31, 2009 and 2008**

* *
| **(In  thousands, except per share data)**                                    | ** ** | **Common  Stock** | ** ** | **Surplus** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------|------------|-------------|------------|------------------------|------------|------------------------------------------------------|------------|---------------------------------------|------------|
|                                                                          | ** ** |              |       |        |       |                   |       |                                                 | ** ** |                                  |       |
| **Balance - January 1, 2008**                                            |       | $                 | 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                                |       |
|                                                                          |       |              |       |        |       |                   |       |                                                 |       |                                  |       |
| Comprehensive income:                                                         | ** ** |              |       |        |       |                   |       |                                                 |       |                                  | ** ** |
| Net income                                                                    | ** ** | **—**        |       | **—**  |       | **1,111**              |       | **—**                                           |       | **1,111**                             | ** ** |
| Other comprehensive income                                                    | ** ** | **—**        |       | **—**  |       | **—**             |       | **124**                                              |       | **124**                               | ** ** |
|                                                                          | ** ** |              |       |        |       |                   |       |                                                 |       |                                  | ** ** |
| **Total Comprehensive Income**                                                | ** ** |              |       |        |       |                   |       |                                                 |       | **1,235**                             | ** ** |
|                                                                          | ** ** |              |       |        |       |                   |       |                                                 |       |                                  | ** ** |
| Compensation cost of option grants                                            | ** ** | **—**        |       | **13**      |       | **—**             |       | **—**                                           |       | **13**                                | ** ** |
|                                                                          | ** ** |              |       |        |       |                   |       |                                                 |       |                                  | ** ** |
| Cash dividends, $0.42 per share                                               | ** ** | **—**        |       | **—**  |       | **(736**               | **)**      | **—**                                           |       | **(736**                              | **)**      |
|                                                                          | ** ** |              |       |        |       |                   |       |                                                 |       |                                  | ** ** |
| **Balance - December 31,  2009**                                         | ** ** | **$**             | **875**    |        | **$**      | **11,252**             |       | **$**                                                | **12,429** |                                  | **$**      | **161** |   | **$** | **24,717** | ** ** |

 

*Theaccompanying notes are an integral part of these statements.*

 

43

----

Table ofContents

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**YearsEnded December 31, 2009 and 2008**

 
| ** **                                                                                   | ** ** | **2009**           | ** ** | **2008** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------|------------|----------|------------|
| ** **                                                                                   | ** ** | **(In thousands)** | ** ** |
| **Cash Flows from Operating  Activities**                                                    | ** ** |               |       |     |       |
| Net income                                                                                   | ** ** | **$**              | **1,111**  |     | $          | 371 |   |
| Adjustments to reconcile net income to net cash  provided by (used in) operating activities: | ** ** |               |       |     |       |
| Depreciation                                                                                 | ** ** | **567**            |       | 332      |       |
| Provision for loan losses                                                                    | ** ** | **1,125**          |       | 380      |       |
| Granting of stock options                                                                    | ** ** | **13**             |       | —   |       |
| Net amortization of premiums on securities  available-for-sale                               | ** ** | **150**            |       | 48       |       |
| Net realized gain on sale of securities  available-for-sale                                  | ** ** | **(287**           | **)**      | (40      | )          |
| Amortization of intangible assets                                                            | ** ** | **32**             |       | —   |       |
| Deferred income taxes                                                                        | ** ** | **(115**           | **)**      | (147     | )          |
| Proceeds from sale of mortgage loans                                                         | ** ** | **30,862**         |       | 3,715    |       |
| Net gain on sale of mortgage loans                                                           | ** ** | **(443**           | **)**      | (50      | )          |
| Mortgage loans originated for sale                                                           | ** ** | **(29,295**        | **)**      | (4,789   | )          |
| Earnings on cash value of life insurance                                                     | ** ** | **(236**           | **)**      | (100     | )          |
| Increase in accrued interest receivable and other  assets                                    | ** ** | **(593**           | **)**      | (458     | )          |
| Increase (decrease) in accrued interest payable  and other liabilities                       | ** ** | **(216**           | **)**      | 330      |       |
| ** **                                                                                   | ** ** | ** **         |       |     |       |
| **Net Cash Provided by (Used in)  Operating Activities**                                     | ** ** | **2,675**          |       | (408     | )          |
| ** **                                                                                   | ** ** | ** **         |       |     |       |
| **Cash Flows from Investing  Activities**                                                    | ** ** |               |       |     |       |
| Net purchases of interest-bearing time deposits                                              | ** ** | **(1,750**         | **)**      | —   |       |
| Securities available-for-sale:                                                               | ** ** |               |       |     |       |
| Proceeds from maturities, calls and principal  repayments                                    | ** ** | **13,515**         |       | 8,651    |       |
| Proceeds from sales                                                                          | ** ** | **6,942**          |       | 2,731    |       |
| Purchases                                                                                    | ** ** | **(26,595**        | **)**      | (6,001   | )          |
| Net increase in restricted stock                                                             | ** ** | **(335**           | **)**      | (566     | )          |
| Net (increase) decrease in loans                                                             | ** ** | **4,648**          |       | (26,976  | )          |
| Net cash acquired in business combination                                                    | ** ** | **—**         |       | 2,870    |       |
| Purchases of premises and equipment                                                          | ** ** | **(333**           | **)**      | (279     | )          |
| Proceeds from sale of foreclosed assets                                                      | ** ** | **144**            |       | 327      |       |
| Capitalized business combination transaction costs                                           | ** ** | **(11**            | **)**      | —   |       |
| Purchase of life insurance                                                                   | ** ** | **(249**           | **)**      | —   |       |
| Proceeds from life insurance                                                                 | ** ** | **169**            |       | —   |       |
|                                                                                         | ** ** | ** **         |       |     |       |
| **Net Cash Used in Investing  Activities**                                                   | ** ** | **(3,855**         | **)**      | (19,243  | )          |
| ** **                                                                                   | ** ** | ** **         | ** ** |     |       |
| **Cash Flows from Financing  Activities**                                                    | ** ** |               |       |     |       |
| Net increase in deposits                                                                     | ** ** | **40,583**         |       | 6,175    |       |
| Net increase (decrease) in short-term borrowings                                             | ** ** | **(20,516**        | **)**      | 16,622   |       |
| Proceeds from long-term borrowings                                                           | ** ** | **5,678**          |       | 2,500    |       |
| Payments on long-term borrowings                                                             | ** ** | **(5,014**         | **)**      | (8,411   | )          |
| Dividends paid                                                                               | ** ** | **(736**           | **)**      | (300     | )          |
|                                                                                         | ** ** | ** **         | ** ** |     |       |
| **Net Cash Provided by Financing  Activities**                                               | ** ** | **19,995**         |       | 16,586   |       |
| ** **                                                                                   | ** ** | ** **         |       |     |       |
| **Net Increase (Decrease) in Cash  and Cash Equivalents**                                    | ** ** | **18,815**         |       | (3,065   | )          |
| ** **                                                                                   | ** ** | ** **         |       |     |       |
| **Cash and Cash Equivalents -  Beginning**                                                   | ** ** | **6,018**          |       | 9,083    |       |
| ** **                                                                                   | ** ** | ** **         |       |     |       |
| **Cash and Cash Equivalents -  Ending**                                                      | ** ** | **$**              | **24,833** |     | $          | 6,018 |   |
| ** **                                                                                   | ** ** | ** **         |       |     |       |
| **Supplementary Cash Flows  Information**                                                    | ** ** |               |       |     |       |
| ** **                                                                                   | ** ** |               |       |     |       |
| Interest paid                                                                                | ** ** | **$**              | **4,928**  |     | $          | 3,067 |   |
|                                                                                         | ** ** | ** **         |       |     |       |
| Income taxes paid                                                                            | ** ** | **$**              | **255**    |     | $          | 58 |   |
|                                                                                         | ** ** | ** **         |       |     |       |
| Transfer of loans to foreclosed assets                                                       | ** ** | **$**              | **312**    |     | $          | 144 |   |

 

*Theaccompanying notes are an integral part of these statements**.*

 

44

----

Table of Contents

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**December 31,2009 and 2008**

 

**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,Millersburg and 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, isreported 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

 

45

----

Table of Contents

 

**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 valuation ofdeferred 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 anintegral part of their examination process, periodically review the estimatedlosses on loans.  Such agencies mayrequire the Bank to recognize additional losses based on their judgments aboutinformation available 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, consist 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 securitiesavailable-for-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.

 

Through December 31, 2009, unrealizedholding gains and losses, net of tax, on investment securitiesavailable-for-sale were reported as a net amount in a separate component (“accumulatedother comprehensive income”) of shareholders’ equity until realized.  In April 2009, the Financial AccountingStandards Board (FASB) issued an accounting pronouncement (ASC 320, *Investments-Debt and Equity Securities*) that amendsother-than-temporary

 

46

----

Table of Contents

 

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

 

impairment (OTTI) guidance for debtsecurities.  The pronouncement changesexisting guidance for determining whether an impairment is other-than-temporaryto debt securities and replaces the existing requirement that the Corporation’smanagement assert it has both the intent and ability to hold an impairedsecurity until recovery with the requirement that management assert: (a) itdoes not have the intent to sell the security; and (b) whether it is morelikely than not that it will not have to sell the security before recovery ofits cost basis.  Declines in the fairvalue of held-to-maturity and available-for-sale securities below their costthat are considered to be other-than-temporary are reflected in earnings asrealized losses to the extent the impairment is related to credit losses.  The amount of the impairment related to otherfactors is recognized in other comprehensive income.  The pronouncement does not amend existingrecognition and measurement guidance related to OTTI of equity securities.  The pronouncement is effective for the yearended December 31, 2009 and had no significant impact to the Corporation’sfinancial statements.

 

**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 the aggregate.  During 2009, the Bank entered into anagreement with Freddie Mac to sell loans with servicing release.  This was in addition to the agreement thatthe Bank entered into in 2008 to sell loans service released under the FederalHome Loan Bank of Pittsburgh’s (“FHLB”) Mortgage Partnership Finance program (“MPF”).Premiums and discounts and origination fees and cost on loans held for sale aredeferred and recognized as a component of the gain or loss on sale.  Loan sales under the Freddie Mac and MPFprograms have been made on a recourse basis. Recourse obligations, if any, are determined based upon an estimate ofprobable credit losses over the term of the loan, and are not material to theconsolidated financial 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 oforiginating the loans are deferred and recognized as an adjustment of the yieldover the contractual 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 allunpaid interest accrued is charged against the allowance for loan losses.  Interest received on nonaccrual loansgenerally is either applied against principal or reported as interest income,according to management’s judgment as to the collectability of principal.  Generally, loans are restored to accrualstatus when the obligation is brought current, has performed in accordance withthe contractual terms for a reasonable period of time and the ultimatecollectability of the total contractual principal and interest is no longer indoubt.

 

47

----

Table of Contents

 

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

 

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 underan accounting standard relating to *Accounting for CertainLoans or Debt Securities Acquired at Transfer*.  This standard addresses accounting fordifferences between contractual cash flows and cash flows expected to becollected from an investor’s initial investment in loans acquired in a transferif those differences are attributable, at least in part, to creditquality.  This standard requires impairedloans to be recorded at fair value and prohibits carrying over valuationallowances in the initial accounting for loans acquired in a transfer,including loans acquired in a purchase business combination.  Under this standard, the excess of cash flowsexpected at purchase over the purchase price is recognized as interest incomeover the life of the loans.  Subsequentincreases in cash flows expected to be collected are recognized prospectivelythrough an adjustment of the loan’s yield over its remaining life.  Decreases in expected cash flows arerecognized as impairments.

 

**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 the uncollectabilityof a loan balance is confirmed. Subsequent recoveries, if any, are credited to 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 substandard or doubtful anddeemed to be impaired.  For such loans,an allowance is established when the discounted cash flows (or collateral valueor observable market price) of the impaired loan is lower than the carryingvalue of that loan.  The generalcomponent covers non-impaired loans and is based on historical loss experienceadjusted for qualitative factors.  Anunallocated component is maintained to cover uncertainties that could affectmanagement’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, 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

 

48

----

Table of Contents

 

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

 

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 not separatelyidentify individual consumer and residential loans for impairment disclosures,unless such loans are the subject of a restructuring agreement.

 

**Premises and**Equipment

** **

Premises and equipment are stated at costless accumulated depreciation.  Depreciationis computed using the straight-line method for financial reporting and thestraight-line and accelerated methods for income tax purposes.  When property is retired or disposed of, thecost and related accumulated depreciation are removed from the accounts, andany resulting gain or 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, 2009 and2008, 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 the accountingstandard relating to *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 its assessment of the ultimate recoverability of the cost rather thanby recognizing temporary declines in value. The determination of whether a decline affects the ultimaterecoverability of the cost is influenced by criteria such as (1) thesignificance of the decline in net assets of the FHLB as compared to thecapital stock amount for the FHLB and the length of time this situation haspersisted, (2) commitments by the FHLB to make payments required by law orregulation and the level of such payments in relation to the operatingperformance of the FHLB, and (3) the impact of legislative and regulatorychanges on institutions and, accordingly, on the customer base of the FHLB.

 

Managementbelieves no impairment charge is necessary related to the restricted stock asof December 31, 2009.

 

**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

 

49

----

Table of Contents

 

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

** **

transferee obtains the right (free ofconditions that constrain it from taking advantage of that right) to pledge orexchange the transferred assets and (3) the corporation does not maintaineffective control over the transferred assets through an agreement torepurchase 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 select management of theBank.  The Corporation is the owner andbeneficiary of the policies.  The lifeinsurance investment is carried at the cash surrender value of the underlyingpolicies.  These amounts are immediatelyavailable to the Corporation upon surrender of the policies.  Income generated from the increase in thecash surrender value of the policies is included in other income on the incomestatement.

 

**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 selling costs. Any write-down, at or prior to the dates the assets are foreclosed on,is charged to the allowance for loan losses. Subsequent write-downs and expenses incurred in connection with holdingsuch assets are reported in other expenses. Any gains or losses resulting from the sale of foreclosed assets arerecorded 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 the accounting standard relating to *Goodwill andOther Intangible Assets*, business acquisition goodwill is no longeramortized into the income statement over an estimated life, but rather istested at least annually for impairment. Based upon the goodwill analysis performed by an independent thirdparty, there was no goodwill impairment for the 2009 year end.

 

**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

 

50

----

Table of Contents

 

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

 

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 an accounting standard relating to *Accounting for Uncertainty in Income Taxes — an interpretation ofAccounting for Income Taxes*, which clarifies the accounting foruncertainty in tax positions.  Theadoption of this accounting standard did not have an impact on the Corporation’sfinancial statements.  The Corporation’spolicy is to recognize interest and penalties on unrecognized tax benefits, ifany, in the income tax expense in the consolidated statements of income.  The tax years subject to examination by thetaxing authorities are the tax years ended December 2009, 2008, 2007 and2006.  See Note 10 for further discussion.

 

**Advertising**

 

Advertising costs are expensed as incurredand totaled $43,000 and $29,000 for the years ending December 31, 2009 and2008, respectively.

 

**Earnings Per Common Share**

** **

Basicearnings per share represents income available to common stockholders dividedby the weighted-average number of common shares outstanding during theperiod.  For diluted earnings per share,net income is divided by the weighted average number of shares outstanding plusthe incremental number of shares added as a result of converting common stockequivalents.  The Corporation’s commonstock equivalents consist of outstanding common stock options, which amountedto 170,000 options as of the 2009 year end as compared with none as of the 2008year end.  The following table presentsthe amounts used in computing earnings per share for the years ended December 31,2009 and 2008.

 
| ** ** | ** **                                        | **Income  Numerator**                                              | ** ** | **Common Shares  Denominator** | ** ** | **EPS**    | ** ** |
|------------|---------------------------------------------------|--------------------------------------------------------------------|------------|-------------------------------------|------------|------------|------------|
| ** ** | ** **                                        | **(In thousands, except per share data)** | ** ** |
| ** ** | ** **                                        | ** **                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** |
| **2009:**  | ** **                                        | ** **                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** |
|       | Basic EPS                                         | ** **                                                         | **$**      | **1,111**                           | ** ** | **1,750**  | ** ** | **$** | **0.63** | ** ** |
|       | Dilutive effect of potential common stock options | ** **                                                         | **—** | ** **                          | **—** | ** ** | **—** | ** ** |
|       |                                              | ** **                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** |
|       | Diluted EPS                                       | ** **                                                         | **$**      | **1,111**                           | ** ** | **1,750**  | ** ** | **$** | **0.63** | ** ** |
|       |                                              | ** **                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** |
| **2008:**  |                                              | ** **                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** |
|       | Basic EPS                                         | ** **                                                         | **$**      | **371**                             | ** ** | **963**    | ** ** | **$** | **0.39** | ** ** |
|       | Dilutive effect of potential common stock options | ** **                                                         | **—** | ** **                          | **—** | ** ** | **—** | ** ** |
|       |                                              | ** **                                                         | ** ** | ** **                          | ** ** | ** ** | ** ** | ** ** |
|       | Diluted EPS                                       | ** **                                                         | **$**      | **371**                             | ** ** | **963**    | ** ** | **$** | **0.39** | ** ** |

 

Earnings and dividends per share have beenadjusted to reflect the additional shares exchanged to First Perry and HNBshareholders upon the formation of the Corporation as of December 31,2008.

 

51

----

Table of Contents

 

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

 

**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, 2009 and2008 are as follows:

 
| ** **                                                         | ** ** | **2009**                | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                                                         | ** ** | **(In thousands)** | ** ** |
|                                                               | ** ** |                    |       |     |       |
| Unrealized  holding gains on available-for-sale securities         | ** ** | **$**                   | **475**    |     | $          | 135 |   |
| Less  reclassification adjustment for gains realized in net income | ** ** | **(287**                | **)**      | (40      | )          |
|                                                               | ** ** |                    |       |     |       |
| **Net Unrealized Gains**                                           | ** ** | **188**                 |       | 95       |       |
|                                                               | ** ** |                    |       |     |       |
| Tax  effect                                                        | ** ** | **64**                  |       | 32       |       |
|                                                               | ** ** |                    |       |     |       |
| **Net of Tax Amount**                                              | ** ** | **$**                   | **124**    |     | $          | 63 |   |

 

**Reclassifications**

** **

**For purposes ofcomparability, certain prior period amounts have been reclassified to conformwith the 2009 presentation.  Suchreclassifications had no impact on net income.**

** **

**New Accounting Standards**

** **

InDecember 2007, a new standard relating to *BusinessCombinations* was released. The standard significantly changed the financial accounting andreporting of business combination transactions. It establishes principles for how an acquirer recognizes and measuresthe identifiable assets acquired, liabilities assumed, and any non-controllinginterest in the acquiree; recognizes and measures the goodwill acquired in thebusiness combination or a gain from a bargain purchase; and determines whatinformation to disclose to enable users of the financial statements to evaluatethe nature and financial effects of the business combination.  This standard is effective for acquisitiondates on or after the beginning of an entity’s first year that begins after December 15,2008.  This pronouncement will impact theCorporation’s accounting for business combinations consummated after January 1,2009.

 

52

----

Table of Contents

 

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

** **

In April 2009, a newaccounting standard was issued relating to *Accounting for AssetsAcquired and Liabilities Assumed in a Business Combination That Arise fromContingencies*.  This standardamends and clarifies the *Business Combination*standard to address application issues on initial recognition and measurement,subsequent measurement and accounting, and disclosure of assets and liabilitiesarising from contingencies in a business combination.  This new standard is effective for assets andliabilities arising from contingencies in business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008.  The Corporation does not expect the adoptionof this standard to have a material impact on its consolidated financialstatements.

 

InApril 2009, the Securities and Exchange Commission issued Staff AccountingBulletin No. 111 (SAB 111).  SAB 111amended and replaced SAB Topic 5.M. in the SAB Series entitled *Other Than Temporary Impairment of Certain Investments in Debt andEquity Securities*.  SAB 111maintains the SEC Staff’s previous views related to equity securities andamends Topic 5.M. to exclude debt securities from its scope.  The Corporation does not expect theimplementation of SAB 111 to have a material impact on its consolidatedfinancial statements.

 

InJune 2009, a new standard was released regarding *Accounting for Transfers of Financial Assets*, an amendment to the *Accounting for Transfers and Servicing of FinancialAssets and Extinguishment of Liabilities* standard.  This statement prescribes theinformation that a reporting entity must provide in its financial reports abouta transfer of financial assets; the effects of a transfer on its financialposition, financial performance and cash flows; and a transferor’s continuinginvolvement in transferred financial assets. Specifically, among other aspects, this standard also amends theprevious standard by removing the concept of a qualifying special-purposeentity and removes the exception from applying generally accepted accountingprinciples related to variable interest entities that are qualifyingspecial-purpose entities.  It alsomodifies the financial-components approach previously used in accordance withthe original standard.  This new standardis effective for fiscal years beginning after November 15, 2009.  The adoption of this standard did not have animpact on the Corporation’s financial position or results of operations.

 

InJune 2009, a new standard relating to *The FASB Accounting StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles —replacement of FASB Statement No. 162* was issued.  This standard establishes the FASB AccountingStandards Codification will become the source of authoritative U.S. generallyaccepted accounting principles (GAAP) recognized by the FASB to be applied bynongovernmental entities.  This standardis effective immediately. The adoption of this standard did not have an impacton the Corporation’s financial position or results of operations.

 

In June 2009, theSecurities and Exchange Commission issued Staff Accounting Bulletin No. 112(SAB 112). SAB 112 revises or rescinds portions of the interpretative guidanceincluded in the codification of SABs in order to make the interpretive guidanceconsistent with current U.S. GAAP.  TheCorporation does not expect the adoption of SAB 112 to have a material impacton its consolidated financial statements.

 

In August 2009, theFASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), *Fair Value Measurements and Disclosures (Topic 820) — MeasuringLiabilities at Fair Value*. ASU 2009-05 amends Subtopic 820-10, *Fair Value Measurements and Disclosures — Overall*,

 

53

----

Table of Contents

 

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

 

and provides clarificationfor the fair value measurement of liabilities. ASU 2009-05 is effective for thefirst reporting period including interim period beginning after issuance.  The Corporation does not expect the adoptionof ASU 2009-05 to have a material impact on its consolidated financialstatements.

 

In September 2009, theFASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), *Fair Value Measurements and Disclosures (Topic 820): Investments inCertain Entities That Calculate Net Asset Value per Share (or Its Equivalent)*.ASU 2009-12 provides guidance on estimating the fair value of alternativeinvestments. ASU 2009-12 is effective for interim and annual periods endingafter December 15, 2009.  TheCorporation does not expect the adoption of ASU 2009-12 to have a materialimpact on its consolidated financial statements.

 

In October 2009,the Securities and Exchange Commission issued Release No. 33-99072, *Internal Control over Financial Reporting in Exchange Act PeriodicReports of Non-Accelerated Filers*. Release No. 33-99072 delays the requirement for non-acceleratedfilers to include an attestation report of their independent auditor oninternal control over financial reporting with their annual report until thefiscal year ending on or after June 15, 2010.

 

In May 2009,the FASB issued accounting guidance ASC Topic 855, *SubsequentEvents*.  The guidance establishesgeneral standards of accounting for and disclosure of subsequent events.  Subsequent events are events that occur afterthe balance sheet date but before financial statements are issued or areavailable to be issued.  The guidance iseffective for interim or annual periods ending after June 15, 2009.  The adoption of this guidance was notmaterial to the consolidated financial statements.

 

The FASB issuedAccounting Standards Update No. 2010-6 (ASU 2010-6), *Fair ValueMeasurements and Disclosures about Fair Value Measurements*.  The ASU amends Subtopic 820-10 with newdisclosure requirements and clarification of existing disclosurerequirements.  New disclosures requiredinclude the amount of significant transfers in and out of levels 1 and 2 fair valuemeasurements and the reasons for the transfers. In addition, the reconciliation for level 3 activity will be required ona gross rather than net basis.  The ASUprovides additional guidance related to the level of disaggregation indetermining classes of assets and liabilities and disclosures about inputs andvaluation techniques.  The amendments areeffective for annual or interim reporting periods beginning after December 15,2009, except for the requirement to provide the reconciliation for Level 3activity on a gross basis which will be effective for fiscal years beginningafter December 15, 2010.

 

**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

 

54

----

Table of Contents

 

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

 

common stock for each share of First Perrycommon 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 the accountingstandard relating to *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      |   |

 

55

----

Table of Contents

 

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

 

**The excess of purchase price over the fair value of net assets acquiredwas recorded as goodwill.  Goodwill of$1,796,000 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                                                                 |   |    |       | 310        |       |
| Total Purchase Price                                                              |   |    |       | 11,626     |       |
|                                                                              |   |    |       |       |       |
| 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                                             |   |    |       | $          | 1,796      |   |
|                                                                                   |        |         |            |            |            |  |  |

 

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.

 

56

----

Table of Contents

 

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

 

The following are the unaudited *pro forma* consolidated results of operations of theCorporation for the year ended December 31, 2008 as though HNB had beenconsolidated on January 1, 2008:

 
| **(In thousands, except per share data)** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|
|                                                               |       |     |       |
| Total interest income                                              |       | $        | 12,285     |   |
| Total interest expense                                             |       | 5,184    |       |
| Net interest income                                                |       | 7,101    |       |
|                                                               |       |     |       |
| Provision for loan losses                                          |       | 955      |       |
| Net interest income after provision for loan  losses               |       | 6,146    |       |
|                                                               |       |     |       |
| Total noninterest income                                           |       | 1,333    |       |
| Total noninterest expense                                          |       | 7,383    |       |
| Income before taxes (benefit)                                      |       | 96       |       |
| Income tax expense (benefit)                                       |       | (201     | )          |
| Net income                                                         |       | $        | 297        |   |
|                                                               |       |     |       |
| Basic earnings per share                                           |       | $        | 0.17       |   |

 

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, 2009 and 2008 approximated $3,055,000 and $581,000,respectively.  In addition, the Bank’sother correspondents may require average compensating balances as part of theiragreements to provide services.

 

57

----

Table of Contents

 

**Note 4 - Investment SecuritiesAvailable-for-Sale**

 

The amortized cost and estimated fairvalues of investment securities available-for-sale are reflected in thefollowing schedules at December 31, 2009 and 2008:

 
| ** **                  | ** ** | **2009**                | ** ** |
|-----------------------------|------------|-------------------------|------------|
| ** **                  | ** ** | **Amortized  Cost**     | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
| ** **                  | ** ** | **(In thousands)** | ** ** |
| ** **                  | ** ** | ** **              | ** ** |
| U.S. Government agencies    | ** ** | **$**                   | **2,354**  | ** ** | **$** | **21** | ** ** | **$** | **—** | ** ** | **$** | **2,375** | ** ** |
| State and municipal         | ** ** | **14,746**              | ** ** | **220** | ** ** | **16** | ** ** | **14,950** | ** ** |
| Mortgaged-backed securities | ** ** | **17,238**              | ** ** | **82** | ** ** | **62** | ** ** | **17,258** | ** ** |
|                        | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                        | ** ** | **$**                   | **34,338** | ** ** | **$** | **323** | ** ** | **$** | **78** | ** ** | **$** | **34,583** | ** ** |

 
| ** **                  | ** ** | **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 |   |

 

The amortized cost and fair value of debtsecurities available-for-sale at December 31, 2009, 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                | ** ** | **$**                   | **508**    | ** **      | **$**      | **512** | ** ** |
| Due after one year through five years  | ** ** | **2,726**               | ** ** | **2,748**       | ** ** |
| Due after five years through ten years | ** ** | **5,192**               | ** ** | **5,315**       | ** ** |
| Due after ten years                    | ** ** | **8,674**               | ** ** | **8,750**       | ** ** |
|                                   | ** ** |                    | ** ** |            | ** ** |
|                                   | ** ** | **17,100**              | ** ** | **17,325**      | ** ** |
| Mortgage-backed securities             | ** ** | **17,238**              | ** ** | **17,258**      | ** ** |
|                                   | ** ** |                    | ** ** |            | ** ** |
|                                   | ** ** | **$**                   | **34,338** | ** **      | **$**      | **34,583** | ** ** |

 

58

----

Table ofContents

 

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

 

Securities with an amortized cost of$21,157,000 and $16,702,000 and a fair value of $21,380,000 and $16,755,000 at December 31,2009 and 2008, 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, 2009 and 2008 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, 2009:** | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Available-for-sale:         |       |                                   |       |                                   |       |                    |       |   |   |   |   |   |   |
| State and municipal         | ** ** | **$**                                  | **1,448**  | ** **                             | **$**      | **16**                  | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** | **$** | **1,448** | ** ** | **$** | **16** | ** ** |
| Mortgage-backed securities  | ** ** | **6,138**                              | ** ** | **46**                                 | ** ** | **1,386**               | ** ** | **16** | ** ** | **7,524** | ** ** | **62** | ** ** |
|                        | ** ** | **$**                                  | **7,586**  | ** **                             | **$**      | **62**                  | ** ** | **$** | **1,386** | ** ** | **$** | **16** | ** ** | **$** | **8,972** | ** ** | **$** | **78** | ** ** |
|                        |       |                                   |       |                                   |       |                    |       |   |   |   |   |   |   |
| **December 31, 2008:** | ** ** | ** **                             | ** ** | ** **                             | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Available-for-sale:         |       |                                   |       |                                   |       |                    |       |   |   |   |   |   |   |
| Mortgage-backed securities  |       | $                                      | 4,980      |                                   | $          | 37                      |       | $ | 99 |   | $ | 1 |   | $ | 5,079 |   | $ | 38 |   |

 

Management evaluates securities forother-than-temporary impairment, at least on a quarterly basis.  It is management’s intent to hold allinvestments until maturity unless market, economic, credit quality or specificinvestment 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) thecredit quality or financial condition and near-term prospects of the issuer,and (3) the intent and ability of the Corporation to retain its investmentin the issuer for a period of time sufficient to allow for any anticipatedrecovery in fair value.

 

At December 31, 2009, threemortgage-backed securities and four state and municipal bonds had unrealizedlosses as compared with eight mortgage-backed securities at December 31,2008.  Management believes the unrealizedlosses relate to changes in interest rates since the individual securities werepurchased and as opposed to underlying credit issues.  As management does not intend to sell anydebt securities, and it is more likely than not that management will not berequired to sell any debt securities before the cost bases are recovered, nodeclines are deemed to be other-than-temporary.

 

As part of its strategy to reduce some ofthe risk inherent within the investment portfolio, the Bank sold 21available-for-sale securities during 2009 totaling $6,683,000.  Gross realized gains amounted to $294,000,while gross realized losses amounted to $7,000, resulting in a $287,000 netgain on sale.

 

59

----

Table of Contents

 

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

 

Loans receivable consist of the followingat December 31:

 
| ** **                               | ** ** | **2009**                | ** **  | **2008** | ** ** |
|------------------------------------------|------------|-------------------------|-------------|----------|------------|
| ** **                               | ** ** | **(In thousands)** | ** **  |
|                                     | ** ** |                    |        |     |       |
| Commercial,  financial, and agricultural | ** ** | **$**                   | **13,614**  |     | $          | 12,967 |   |
| Real  estate secured:                    | ** ** |                    |        |     |       |
| Construction                             | ** ** | **17,372**              |        | 18,173   |       |
| Mortgage                                 | ** ** | **92,206**              |        | 94,322   |       |
| Commercial                               | ** ** | **46,728**              |        | 48,773   |       |
| Consumer  installment                    | ** ** | **2,988**               |        | 4,210    |       |
|                                     | ** ** |                    |        |     |       |
|                                     | ** ** | **172,908**             |        | 178,445  |       |
| Deferred  loan fees                      | ** ** | **36**                  |        | (266     | )          |
| Allowance  for loan losses               | ** ** | **(2,560**              | **)**       | (1,710   | )          |
|                                     | ** ** |                    |        |     |       |
|                                     | ** ** | **$**                   | **170,384** |     | $          | 176,469 |   |

 

Included within the loan portfolio areloans on which the Corporation discontinued the accrual of interest.  Such loans approximated $3,123,000 and$128,000 at December 31, 2009 and 2008, respectively.  If interest income had been recorded on allnon-accrual loans outstanding during 2009 and 2008, interest income would haveincreased by $193,000 and $2,000, respectively.

 

Loans 90 days or more past due but stillaccruing interest at December 31, 2009 and 2008 approximated $219,000 and$152,000, respectively.

 

At December 31, 2009 and 2008, thetotal recorded investment in impaired loans was approximately $4,328,000 and$3,203,000, respectively, of which $3,550,000 and $668,000 required a valuationallowance, which approximated $1,047,000 and $225,000, respectively.  The average investment in impaired loans for2009 and 2008 was approximately $4,963,000 and $1,395,000, respectively.  Interest income recognized on impaired loanswas approximately $185,000 in 2009 and $122,000 in 2008.

 

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 $475,000as of the 2008 year end, which reduced loans and the allowance for loanlosses.  Management does not expect torecover any of the $475,000.  During2009, the remaining balance of all of the loans giving rise to the $475,000purchase accounting adjustment were either collected or charged against theallowance for loan losses.

 

60

----

Table of Contents

 

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

 

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

 
| ** **                       | ** ** | **2009**                | ** ** | **2008** | ** ** |
|----------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                       | ** ** | **(In thousands)** | ** ** |
| Balance  – January 1   | ** ** | **$**                   | **1,710**  |     | $          | 970 |   |
| Provision  charged to operations | ** ** | **1,125**               |       | 380      |       |
| Acquired  from HNB acquisition   | ** ** | **—**              |       | 496      |       |
| Recoveries  on charged off loans | ** ** | **1**                   |       | 23       |       |
| Loans  charged off               | ** ** | **(276**                | **)**      | (159     | )          |
|                             | ** ** |                    |       |     |       |
| Balance  - December 31      | ** ** | **$**                   | **2,560**  |     | $          | 1,710 |   |

 

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 atsubstantially the same credit terms as other borrowers and do not representmore than the usual risk of collection.

 

Activity for these related party loans wasas follows for the year ended December 31, 2009 (in thousands):

 
| Balance  - January 1   | ** ** | **$**     | **4,708**  | ** ** |
|-----------------------------|------------|-----------|------------|------------|
| Advances                    | ** ** | **945**   | ** ** |
| Payments                    | ** ** | **1,360** | ** ** |
|                        | ** ** |      | ** ** |
| Balance  - December 31 | ** ** | **$**     | **4,293**  | ** ** |

 

**Note 6 - Premises and Equipment**

** **

Premises and equipment consisted of thefollowing at December 31:

 
| ** **                 | ** ** | **Estimated Useful  Life** | ** ** | **2009**                | ** ** | **2008** | ** ** |
|----------------------------|------------|---------------------------------|------------|-------------------------|------------|----------|------------|
| ** **                 | ** ** | ** **                      | ** ** | **(In thousands)** | ** ** |
|                       |       |                            | ** ** |                    |       |     |       |
| Land                       |       | —                          | ** ** | **$**                   | **741**    |     | $          | 741 |   |
| Bank  premises             |       | 7 - 50 years                    | ** ** | **4,545**               |       | 4,459    |       |
| Leasehold  improvements    |       | 10 - 30 years                   | ** ** | **1,899**               |       | 1,899    |       |
| Furnishings  and equipment |       | 3 - 10 years                    | ** ** | **2,145**               |       | 1,910    |       |
|                       | ** ** |                            | ** ** |                    |       |     |       |
|                       | ** ** |                            | ** ** | **9,330**               |       | 9,009    |       |
| Accumulated  depreciation  | ** ** |                            | ** ** | **(2,092**              | **)**      | (1,537   | )          |
|                       | ** ** |                            | ** ** |                    |       |     |       |
|                       | ** ** |                            | ** ** | **$**                   | **7,238**  |     | $          | 7,472 |   |

 

61

----

Table of Contents

 

**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 2009 and 2008 was $120,000 and $77,000, respectively.

 

At December 31, 2009, future minimumlease payments under non-cancelable lease arrangements are as follows (inthousands):

 
| Years  ending December 31, |       |    |       |
|---------------------------------|------------|---------|------------|
| 2010                            | ** ** | **$**   | **122**    | ** ** |
| 2011                            | ** ** | **127** | ** ** |
| 2012                            | ** ** | **127** | ** ** |
| 2013                            | ** ** | **92**  | ** ** |
| 2014                            | ** ** | **93**  | ** ** |
| Thereafter                      | ** ** | **197** | ** ** |
|                                 |            |         |            |  |

 

**Note 7 —Goodwill and Intangible Assets**

 

Goodwilland intangible assets were $1,937,000 at December 31, 2009 and $1,958,000at December 31, 2008.

 

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

 
| ** **                                    | ** ** | **2009** | ** ** | **2008**   | ** ** |
|-----------------------------------------------|------------|----------|------------|------------|------------|
| Balance - January 1                      | ** ** | **$**    | **1,785**  | ** ** | **$**      | **—** | ** ** |
| Additions to goodwill from acquisition of HNB | ** ** | **11**   | ** ** | **1,785**  | ** ** |
| Balance - December 31                    | ** ** | **$**    | **1,796**  | ** ** | **$**      | **1,785** | ** ** |

 

Thegross carrying amount and accumulated amortization related to the core depositintangible at December 31, 2009 and 2008 are presented below:

 
| ** **               | ** ** | **December 31,** | ** ** |
|--------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **               | ** ** | **Gross**             | ** ** | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Carrying**          | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** |
| ** **               | ** ** | **Amount**            | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
| ** **               | ** ** | ** **            | ** ** | **(In thousands)** | ** ** | ** ** | ** ** |
|                     | ** ** | ** **            | ** ** | ** ** |   |   |   |   |   |
| Core  deposit intangible | ** ** | **$**                 | **173**    | ** ** | **$** | **32** |   | $ | 173 |   | $ | — |   |
|                          |            |                       |            |  |  |  |  |  |  |  |  |  |  |

 

Amortizedexpense of $32,000 and $-0- for 2009 and 2008, respectively, is included inother expenses.

 

62

----

Table of Contents

 

**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, | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------|------------|
| 2010                           | ** ** | **$**      | **28**     | ** ** |
| 2011                           | ** ** | **25**     | ** ** |
| 2012                           | ** ** | **22**     | ** ** |
| 2013                           | ** ** | **19**     | ** ** |
| 2014                           | ** ** | **19**     | ** ** |
| Thereafter                     | ** ** | **28**     | ** ** |
| ** **                     | ** ** | **$**      | **141**    | ** ** |

 

Based upon the goodwill analysis performedby an independent third party, there was no goodwill impairment for the 2009year end.

 

**Note 8 - Deposits**

 

Scheduled contractual maturities of timedeposits at December 31, 2009 are as follows (in thousands):

 
| Years  ending December 31, |       |       |       |
|---------------------------------|------------|------------|------------|
| 2010                            | ** ** | **$**      | **59,419** | ** ** |
| 2011                            | ** ** | **16,016** | ** ** |
| 2012                            | ** ** | **5,751**  | ** ** |
| 2013                            | ** ** | **11,781** | ** ** |
| 2014                            | ** ** | **4,082**  | ** ** |
| Thereafter                      | ** ** | **756**    | ** ** |
|                            |       |       |       |
|                            | ** ** | **$**      | **97,805** | ** ** |

 

Time deposits of $100,000 or more at December 31,2009 and 2008 approximated $30,131,000 and $31,056,000, respectively.

 

Interest expense on time deposits of$100,000 or more*,*approximated $1,172,000 and$624,000 in 2009 and 2008, 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 $2,747,000 and $2,365,000 at December 31, 2009 and 2008,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 100% of the employees’ voluntary contribution to the plan up to a maximumof 4% of the employees’ compensation. Additionally, the Corporation

 

63

----

Table of Contents

 

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

 

may make discretionary contributions to theplan after considering current profits and business conditions.  The amount charged to expense in 2009 and2008 totaled $198,000 and $105,000, respectively.  Of these amounts, discretionary contributionsapproximated $111,000 and $84,000, 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 upon a percentage of theDirector’s final fee.  The benefit can beoffered to a Director upon termination of service on or after 65 years of ageprovided the Director has ten or more years of continuous service at the dateof termination.  Provisions of theagreement are contingent on the Director electing to become a DirectorEmeritus, being available to act in the capacity of consultant to the Board,continuing to act as a “Goodwill Ambassador” for the Corporation, and avoidingany competitive arrangements that are contrary to the best interests of theCorporation.  The agreement also containsother general limitations and death benefit provisions.  Expenses recorded under the terms of thisagreement were $12,000 in 2009 and 2008, 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 either 15 for the two executives who were formally with HalifaxNational Bank and 20 years for the two executives who were formally with TheFirst National Bank of Marysville.  Thereare provisions for death benefits should a participant die before his or herretirement date.  These benefits are alsosubject to change of control 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 $466,000 at December 31, 2009 and $357,000 at December 31,2008 are included in other liabilities. Expense related to these plans totaled $72,000 and $33,000 in the yearsended December 31, 2009 and 2008, respectively.

 

**Stock Option Plan**

 

In January 2009 the Corporationimplemented a nonqualified stock option plan. The purpose of the 2009 Stock Option Plan was to advance thedevelopment, growth and financial condition of the Corporation by providingincentives through participation in the appreciation of the common stock of theCorporation to secure, retain and motivate the Corporation’s directors,officers and key employees and to align such person’s interests with those ofthe Corporation’s shareholders.  Sharesof the Corporation’s common stock that may be issued or transferred under thisplan shall not exceed, in the aggregate, 170,000 shares at an exercise price of$16.00 per share.  The vesting scheduleis a seven year cliff, which means that the options are 100% vested in theseventh year

 

64

----

Table ofContents

 

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

 

following the grant date and the expirationdate is ten years following the grant date. As of December 31, 2009 none of the option grants were vested orexercisable.

 

During 2009, the Corporation granted155,000 options on January 21, 2009, of which 7,000 options were forfeitedin April 2009, and 22,000 options on September 16, 2009.  A summary of the status of the Corporation’sstock option plan as of December 31, 2009 is as follows:

 
| **Options**                                                               | ** ** | **Shares**  | ** ** | **Weighted Average  Exercise Price Per  Share** | ** ** |
|---------------------------------------------------------------------------|------------|-------------|------------|----------------------------------------------------------------|------------|
|                                                                      | ** ** | ** **  | ** ** | ** **                                                     | ** ** |
| Outstanding  – January 1, 2009                                  | ** ** | **—**  | ** ** | **$**                                                          | **—** | ** ** |
| Granted                                                                   | ** ** | **177,000** | ** ** | **16.00**                                                      | ** ** |
| Forfeited                                                                 | ** ** | **7,000**   | ** ** | **—**                                                     | ** ** |
| Exercised                                                                 | ** ** | **—**  | ** ** | **—**                                                     | ** ** |
|                                                                      | ** ** | ** **  | ** ** | ** **                                                     | ** ** |
| Outstanding  – December 31, 2009                                | ** ** | **170,000** | ** ** | **$**                                                          | **16.00**  | ** ** |
| Options  exercisable at year end                                          | ** ** | **—**  | ** ** | ** **                                                     | ** ** |
| Weighted  average fair value of options per share granted during the year | ** ** | **$**       | **0.86**   | ** **                                                     | ** ** | ** ** |
| Remaining  contractual life                                               | ** ** | **9 years** | ** ** | ** **                                                     | ** ** |
|                                                                           |            |             |            |                                                                |            |  |  |

 

No stock option plans were in existenceprior to January 2009.

 

There was no intrinsic value associatedwith the outstanding stock options at December 31, 2009 because theexercise price for each of the options was higher than the trading price of thestock.  No options were exercised during 2009.

 

The fair value of each option granted isestimated on the date of grant using the Black-Scholes option-pricing modelwith the following weighted average assumptions.

 
| ** **               | ** ** | **2009 Option Grants** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **January**                      | ** ** | **September** | ** ** |
|                     | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Dividend  yield          | ** ** | **2.50**                         | **%**      | **3.31** | **%** |
| Expected  life           | ** ** | **8 years**                      | ** ** | **8 years** | ** ** |
| Expected  volatility     | ** ** | **12.22**                        | **%**      | **12.22** | **%** |
| Risk-free  interest rate | ** ** | **2.07**                         | **%**      | **3.07** | **%** |

 

65

----

Table of Contents

 

**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)** | ** ** | **2009** | ** ** | **2008**   | ** ** |
|--------------------------------------|------------|----------|------------|------------|------------|
|                                 | ** ** |     |       |       |       |   |   |   |   |
| Tax  at statutory rates              | ** ** | **$**    | **430**    | ** ** | **34**     | **% ** | $ | 112 |   | 34 | % |
| Tax-exempt  interest income          | ** ** | **(206** | **)**      | **(16**    | **)**      | (101 | ) | (31 | ) |
| Life  insurance income               | ** ** | **(89**  | **)**      | **(7**     | **)**      | (34 | ) | (10 | ) |
| Interest  disallowance               | ** ** | **20**   | ** ** | **1**      |       | 10 |   | 3 |   |
| Other                                | ** ** | **(2**   | **)**      | **—** |       | (29 | ) | (9 | ) |
|                                 | ** ** |     |       |       |       |   |   |   |   |
| **Federal Income Taxes (Benefit)**   | ** ** | **$**    | **153**    | ** ** | **12**     | **% ** | $ | (42 | ) | (13 | )% |

 

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 of applicableincome taxes (benefit) for the years ended December 31 are as follows:

 
| **(In thousands)**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------|------------|----------|------------|----------|------------|
|                                         | ** ** |     |       |     |       |
| Current tax                                  | ** ** | **$**    | **267**    |     | $          | 105 |   |
| Deferred tax benefit                         | ** ** | **(114** | **)**      | (147     | )          |
|                                         | ** ** |     |       |     |       |
| **Applicable Federal Income Tax  (Benefit)** | ** ** | **$**    | **153**    |     | $          | (42 | ) |

 

**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)**                       | ** ** | **2009**  | ** ** | **2008** | ** ** |
|------------------------------------------|------------|-----------|------------|----------|------------|
|                                     | ** ** |      |       |     |       |
| Deferred tax assets:                     | ** ** |      |       |     |       |
| Allowance for loan losses                | ** ** | **$**     | **793**    |     | $          | 665 |   |
| Loans                                    | ** ** | **36**    |       | 5        |       |
| Bank shares tax                          | ** ** | **41**    |       | —   |       |
| Deferred directors’ fees            | ** ** | **53**    |       | 36       |       |
| Deferred compensation                    | ** ** | **175**   |       | 238      |       |
| Purchase accounting adjustments          | ** ** | **45**    |       | 128      |       |
| Alternative minimum tax                  | ** ** | **104**   |       | 90       |       |
| Other                                    | ** ** | **30**    |       | 5        |       |
|                                     | ** ** | **1,277** |       | 1,167    |       |
|                                     | ** ** |      |       |     |       |
| Deferred tax liabilities:                | ** ** |      |       |     |       |
| Accumulated depreciation                 | ** ** | **(356**  | **)**      | (362     | )          |
| Unrealized gain on investment securities | ** ** | **(83**   | **)**      | (19      | )          |
|                                     | ** ** | **(439**  | **)**      | (381     | )          |
|                                     | ** ** |      |       |     |       |
| **Net Deferred Tax Asset**               | ** ** | **$**     | **838**    |     | $          | 786 |   |

 

66

----

Table of Contents

 

**Note 10 — Taxes (Continued)**

 

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 recorded a $287,000 netgain from the sale of available-for-sale securities during 2009, which wastaxed at 34%, or $98,000.  This is incomparison with a $40,000 net gain from the sale of available-for-salesecurities during 2008, which was taxed at 34%, or $14,000.

 

*Uncertain Tax Position*

 

The Corporation files income tax returns inthe U.S. federal jurisdiction and the Commonwealth of Pennsylvania.  With few exceptions, the Corporation is nolonger subject to U.S. federal, state or local income tax examinations by taxauthorities for years before 2006.  TheCorporation adopted the provisions of ASC 740, *Income Taxes*on January 1, 2009, with no impact on the financial statements.

 

When tax returns are filed, it is highlycertain that some positions taken would be sustained upon examination by thetaxing authorities, while others are subject to uncertainty about the merits ofthe position taken or the amount of the position that would be ultimatelysustained.  The benefit of a tax positionis recognized in the financial statements in the period in which, based on allavailable evidence, management believes it is more likely than not that theposition will be sustained upon examination, including the resolution ofappeals or litigation processes, if any. Tax positions taken are not offset or aggregated with otherpositions.  Tax positions that meet themore-likely-than-not recognition threshold are measured as the largest amountof tax benefit that is more than 50 percent likely of being realized uponsettlement with the applicable taxing authority.  The portion of the benefits associated withtax positions taken that exceeds the amount measured as described above wouldbe reflected as a liability for unrecognized tax benefits in the accompanyingconsolidated balance sheet along with any associated interest and penaltiesthat would be payable to the taxing authorities upon examination.  Interest and penalties associated withunrecognized tax benefits would be classified as additional income taxes in theConsolidated Statement of Income.  At December 31,2009, there was no liability for unrecognized tax benefits.

 

**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 qualifiedinvestments in designated enterprise zones by rehabilitating, expanding orimproving buildings within an enterprise zone. The Bank recorded a $216,000 credit in 2007, representing the amount ofcosts management initially estimated it was eligible to receive as a tax creditand included it in Bank shares tax expense (credit) on the consolidatedstatement of income.  In July 2008,the Pennsylvania Department of Revenue made a final determination that the Bankwas entitled to the full $250,000 credit, and the additional $34,000 wasrecognized and used to offset the Bank’s 2008 Pennsylvania Bank Shares Tax liability.  In 2009, the Bank recorded $257,000 in Bankshare tax expense as compared with $104,000 recorded in 2008.

 

**Note 11 - Borrowings**

 

The Corporation has an unsecured line ofcredit agreement with Atlantic Central Bankers Bank in

 

67

----

Table of Contents

 

**Note 11 - Borrowings (Continued)**

 

the amount of $6,250,000 at December 31,2009 and December 31, 2008. Interest accrues based on the daily Federal Funds rate.  There were no amounts outstanding on thisline of credit at December 31, 2009 or 2008.

 

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. The Corporation requires investment securities to be held as collateralfor the repurchase agreements.  Thesecurities underlying 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, 2009, the Bank had amaximum borrowing capacity of approximately $88,968,000.  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:

 
| ** **                                           | ** ** | **2009**                             | ** ** | **2008** | ** ** |
|------------------------------------------------------|------------|--------------------------------------|------------|----------|------------|
| ** **                                           | ** ** | **(Dollars in thousands)** | ** ** |
|                                                 | ** ** | ** **                           |       |     |       |
| Repurchase agreements with customers                 | ** ** | **$**                                | **807**    |     | $          | 527 |   |
| FHLB short-term borrowings                           | ** ** | **—**                           |       | 20,796   |       |
|                                                 | ** ** | ** **                           |       |     |       |
|                                                 | ** ** | **$**                                | **807**    |     | $          | 21,323 |   |
|                                                 | ** ** | ** **                           |       |     |       |
| Weighted average rate at end of year                 | ** ** | **0.54**                             | **%**      | 0.54     | %          |
| Maximum amount outstanding at any end of month       | ** ** | **$**                                | **28,902** |     | $          | 21,323 |   |
| Daily average amount outstanding                     | ** ** | **8,111**                            |       | 9,743    |       |
| Approximate weighted average interest rate for  year | ** ** | **0.60**                             | **%**      | 1.56     | %          |

 

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

 
| **Maturity Date** | ** ** | **Interest Rate** | ** ** | ** **     | ** ** | **2009**                | ** ** | **2008** | ** ** |
|------------------------|------------|------------------------|------------|----------------|------------|-------------------------|------------|----------|------------|
| ** **             | ** ** | ** **             | ** ** | ** **     | ** ** | **(In thousands)** | ** ** |
|                   |       |                   |       |           | ** ** |                    |       |     |       |
| 06/18/09               |       | 5.41                   | %          | Fixed rate     | ** ** | **$**                   | **—** |     | $          | 5,000 |   |
| 06/18/12               |       | 2.24                   |       | Fixed rate     | ** ** | **1,128**               |       | —   |       |
| 09/18/12               |       | 2.33                   |       | Fixed rate     | ** ** | **2,000**               |       | —   |       |
| 06/18/13               |       | 2.67                   |       | Fixed rate     | ** ** | **2,550**               |       | —   |       |
| 04/09/18               |       | 2.90                   |       | Fixed rate     | ** ** | **5,019**               |       | 5,033    |       |
|                   |       |                   |       | until 04/09/11 | ** ** |                    |       |     |       |
|                   | ** ** |                   | ** ** |           | ** ** |                    |       |     |       |
|                   | ** ** |                   | ** ** |           | ** ** | **$**                   | **10,697** |     | $          | 10,033 |   |

 

68

----

Table of Contents

 

**Note 11 - Borrowings (Continued)**

 

Scheduled contractual maturities of FHLBborrowings are as follows at December 31, 2009 (in thousands):

 
| **Years Ending December 31,** | ** ** |      | ** ** |
|------------------------------------|------------|-----------|------------|
| 2012                               | ** ** | **$**     | **3,128**  | ** ** |
| 2013                               | ** ** | **2,550** | ** ** |
| 2018                               | ** ** | **5,019** | ** ** |
|                               | ** ** |      | ** ** |
|                               | ** ** | **$**     | **10,697** | ** ** |

 

**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 and conditionalobligations 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 mayrequire payment of a fee.  Since many ofthe commitments 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.  For loans securedby real estate, the Bank generally requires loan to value ratios of no greaterthan 80%.

 

**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 similar transactions.  The terms of the letters of credit vary andmay have renewal features. The credit risk involved in issuing letters ofcredit is essentially the same as that involved in extending loans tocustomers.  The Bank holds collateralsupporting those commitments for which collateral is deemed necessary.  The current amount of the liability as of December 31,2009 for guarantees under standby letters of credit is not material.**

 

69

----

Table of Contents

 

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

 

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:

 
| ** **                                | ** ** | **Contract or Notional Amount** | ** ** |
|-------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                | ** ** | **2009**                                       | ** ** | **2008** | ** ** |
| ** **                                | ** ** | **(In thousands)**                        | ** ** |
|                                      | ** ** |                                           |       |   |   |
| Commitments to grant loans                | ** ** | **$**                                          | **8,549**  |   | $ | 6,428 |   |
| Unfunded commitments of existing loans    | ** ** | **10,331**                                     |       | 10,334 |   |
| Standby and performance letters of credit | ** ** | **1,111**                                      |       | 1,063 |   |
|                                      | ** ** |                                           |       |   |   |
|                                      | ** ** | **$**                                          | **19,991** |   | $ | 17,825 |   |

 

**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, 2009, $609,000 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.

 

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, 2009, that the Bank meetsall the capital adequacy requirements to which they are subject.

 

70

----

Table of Contents

 

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

 

As of December 31, 2009 the Bank wascategorized as well capitalized under the regulatory framework for promptcorrective action.  To remain categorizedas well capitalized the Bank will have to maintain minimum total risk-based,Tier 1 risk-based and Tier 1 leverage ratios as disclosed in thetable below.  There are no conditions orevents since that management believes have changed the Bank’s category.

 

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 31,2009 and 2008 and the minimum ratios required for capital adequacy purposes andto be well capitalized under the prompt corrective action provisions aresummarized 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, 2009:**                  | ** ** |                                 | ** ** |                                         | ** ** |                                                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Total risk-based capital (to risk-weighted assets) | ** ** | **$**                                | **24,513** | ** **                                   | **15.5**   | **% **                                                                                      | **$**      | **3****12,635** | ** ** | **3****8.0** | **% ** | **$** | **>15,794** | ** ** | **>10.0** | **%** |
| Tier 1 capital (to risk-weighted assets)           | ** ** | **22,532**                           | ** ** | **14.3**                                     | ** ** | **3****6,317**                                                                              | ** ** | **3****4.0** | ** ** | **3****9,476** | ** ** | **3****6.0** | ** ** |
| Tier 1 capital (to average total assets)           | ** ** | **22,532**                           | ** ** | **9.0**                                      | ** ** | **>10,036**                                                                                   | ** ** | **>4.0** | ** ** | **3****12,545** | ** ** | **3****5.0** | ** ** |
|                                               | ** ** |                                 | ** ** |                                         | ** ** |                                                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **As of December 31, 2008:**                  | ** ** |                                 | ** ** |                                         | ** ** |                                                                                             | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Total risk-based capital (to risk-weighted assets) |       | $                                    | 23,442     |                                         | 14.3       | %                                                                                           | $          | 313,146 |   | 38.0 | %  | $ | >16,433 |   | >10.0 | % |
| Tier 1 capital (to risk-weighted assets)           |       | 21,655                               |       | 13.2                                         |       | 36,573                                                                                      |       | 34.0 |   | 39,860 |   | 3 6.0 |   |
| Tier 1 capital (to average total assets)           |       | 21,655                               |       | 9.5                                          |       | >9,150                                                                                        |       | >4.0 |   | 311,437 |   | 3 5.0 |   |

 

#### **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, thereare inherent weaknesses in any estimation technique.  Therefore, for substantially all financialinstruments, the fair value estimates herein are not necessarily indicative ofthe amounts the Corporation could have realized in a sales transaction on thedates indicated.  The estimated fair valueamounts have been measured as of their respective year-ends and have not beenre-evaluated or updated for purposes of these financial statements subsequentto those respective dates.  As such, theestimated fair values of these financial instruments subsequent to therespective reporting dates may be different than the amounts reported at eachyear-end.

 

71

----

Table of Contents

 

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

 

InSeptember 2006, a new accounting standard was released relating to *Fair Value Measurements*. This standard defines fair value, establishes a framework for measuringfair value under GAAP, and expands disclosures about fair valuemeasurements.  The standard establishes afair value hierarchy regarding the assumptions used to measure fair value andclarifies assumptions about risk and the effect of a restriction on the sale oruse of an asset.  The standard was effectivefor the Corporation as of January 1, 2008. However, in February 2008 the effective date of this standard forall nonfinancial assets and nonfinancial liabilities, except those that arerecognized or disclosed at fair value on a recurring basis (at least annually)was extended to the fiscal years beginning after November 15, 2008, andinterim periods within those fiscal years. The impact of this standard did not have a material effect on theCorporation’s consolidated financial statements upon adoption on January 1,2009.

 

InOctober 2008, a new accounting standard was issued related to *Determining the Fair Value of a Financial Asset When the Market forthat Asset is Not Active*to clarify the application of theprovisions of *Fair Value Measurements* in anactive market and how an entity would determine fair value in an inactivemarket.  This standard was effectiveimmediately and applied to the Corporation’s December 31, 2008 and laterconsolidated financial statements.

 

InApril 2009, a new accounting standard with regard to *Determining Fair Value When the Volume and Level ofActivity for the Asset or Liability Have Significantly Decreased andIdentifying Transactions That Are Not Orderly* was issued.  The standardfor *Fair Value Measurements*defines fair value as the price that would be received to sell the asset ortransfer the liability in an orderly transaction (that is, not a forcedliquidation or distressed sale) between market participants at the measurementdate under current market conditions.  Thenew standard provides additional guidance for determining when the volume andlevel of activity for the asset or liability has significantly decreased.  The standard also includes guidance onidentifying circumstances when a transaction may not be consideredorderly.  This standard also provides alist of factors that a reporting entity should evaluate to determine whetherthere has been a significant decrease in the volume and level of activity forthe asset or liability in relation to normal market activity for the asset orliability.  When the reporting entityconcludes there has been a significant decrease in the volume and level ofactivity for the asset or liability, further analysis of the information fromthat market is needed and significant adjustments to the related prices may benecessary to estimate fair value in accordance with the *Fair ValueMeasurements* standard.  Thisstandard clarifies that when there has been a significant decrease in thevolume and level of activity for the asset or liability, some transactions maynot be orderly.  In those situations, theentity must evaluate the weight of the evidence to determine whether thetransaction is orderly.  The standardprovides a list of circumstances that may indicate that a transaction is notorderly.  A transaction price that is notassociated with an orderly transaction is given little, if any, weight whenestimating fair value.  This standard iseffective for the Corporation for interim and annual reporting periods ending June 30,2009 and after.  Adoption of thispronouncement did not have a material impact on the Corporation’s financialstatements.

 

The*Fair Value Measurements* standardestablishes 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 valuehierarchy under this standard are as follows:

 

72

----

Table ofContents

 

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

#### ** **

*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 areobservable either directly or indirectly, for substantially the full term ofthe asset or liability.

 

*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.  At December 31, 2009, the Corporationhad no liabilities subject to fair value reporting requirements.  For financial assets measured at fair valueon a recurring basis, the fair value measurements by level within the fairvalue hierarchy used at December 31 are as follows:

 
| **Description**                | ** ** | **Balance**        | ** ** | **(Level 1)********Quoted Prices in  Active Markets  for Identical  Assets** | ** ** | **(Level 2)********Significant********Other********Observable********Inputs** | ** ** | **(Level 3)********Significant********Unobservable  Inputs** | ** ** |
|--------------------------------|------------|--------------------|------------|------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                     | ** ** | **(In thousands)** | ** ** |
| December 31, 2009:        |       |               |       |                                                                         |       |                                                                          |       |                                                         |       |
| Securities available-for- sale | ** ** | **$**              | **34,583** | ** **                                                                   | **$**      | **—**                                                                    | ** ** | **$**                                                        | **34,583** | ** ** | **$** | **—** | ** ** |
|                           | ** ** | ** **         | ** ** | ** **                                                                   | ** ** | ** **                                                                    | ** ** | ** **                                                   | ** ** |
| December 31, 2008:        | ** ** | ** **         | ** ** | ** **                                                                   | ** ** | ** **                                                                    | ** ** | ** **                                                   | ** ** |
| Securities available-for- sale |       | $                  | 28,120     |                                                                         | $          | —                                                                        |       | $                                                            | 28,120     |   | $ | — |   |

 

#### **Certain financial assets are measured at fair value on anonrecurring basis in accordance with accounting principles generally acceptedin the United States of America. Adjustments to the fair value of these assets usually result from theapplication of lower-of-cost-or-market accounting or write-downs of individualassets.**

#### ** **

Thefollowing describes the valuation techniques used by the Corporation to measurecertain financial assets recorded at fair value on a nonrecurring basis in thefinancial statements.

 

*LoansHeld for Sale*

 

Loansheld for sale are carried at the lower of cost or fair value.  These loans typically consist of one-to-fourfamily residential loans originated for sale in the secondary market.  Fair value is based on the price secondarymarkets are currently offering for similar loans using observable market datawhich is not materially different than cost due to the short duration betweenorigination and sale (Level 2).  As such,the Corporation records any fair value adjustments on a nonrecurringbasis.  The Corporation had no loans heldfor sale as of December 31, 2009 as compared with $1,124,000 in mortgageloans held for sale as of December 31, 2008, which were recorded at fairvalue.

 

73

----

Table ofContents

 

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

#### ** **

*OtherReal Estate Owned*

 

Certainassets such as other real estate owned (OREO) are measured at fair value ofreal estate acquired through foreclosure at an estimated fair value less costto sell.  At or near the time offoreclosure, real estate appraisals are obtained on the properties acquiredthrough foreclosure.  The real estate isthen valued at the lesser of the appraised value or the loan balance, includinginterest receivable, at the time of foreclosure less an estimate of costs tosell the property.  Appraised values aretypically determined utilizing an income or market valuation approach based onan appraisal conducted by an independent, licensed appraiser outside of theCorporation using observable market data (Level 2).  However, if the acquired property is a houseor building in the process of construction or if an appraisal of the real estateproperty is over two years old, then the fair value is considered a Level3.  The estimate of costs to sell theproperty is based on historical transactions of similar holdings.  The Corporation has OREO property valued at$312,000 (Level 2) at December 31, 2009.

 

*ImpairedLoans*

 

ASC820 applies to loans measured for impairment using the practical expedientspermitted by generally accepted accounting principles (GAAP), includingimpaired loans measured at an observable market price (if available), or at thefair value of the loan’s collateral (if the loan is collateral dependent).  Fair value of the loan’s collateral, when theloan is dependent on collateral, is determined by appraisals or independentvaluation which is then adjusted for the cost related to liquidation ofcollateral.  The impairment of loans ismeasured based on the estimated value of underlying collateral if theloan.  The value of the collateral istypically determined utilizing an income or market valuation approach based onan appraisal conducted by an independent, licensed appraiser outside of theCorporation using observable market data (Level 2).  However, if the collateral is a house orbuilding in the process of construction or if an appraisal of the real estateproperty is over two years old, then the fair value is considered Level 3.  The value of business equipment is based uponan outside appraisal if deemed significant, or the net book value of theapplicable business’ financial statements if not considered significant usingobservable market data.  Likewise, valuesfor inventory and accounts receivable collateral are based on financialstatement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measuredat fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as aprovision for loan losses on the Consolidated Statement of Income.  The Corporation had impaired loans of$4,328,000 at December 31, 2009 out of which $3,550,000 required avaluation allowance of $1,047,000.  Thiscompares with impaired loans of $3,203,000 at December 31, 2008, out ofwhich $668,000 required a valuation allowance of $225,000.

 

*Goodwill*

 

Thefair value of goodwill is determined in the same manner as goodwill recognizedin a business combination and uses standard valuation methodologies.  Fair value may be determined using marketprices, comparison to similar assets, market multiples, discounted cash flowanalysis and other factors.  Estimatedcash flows may extend far into the future and by their nature are difficult todetermine over an extended time frame. Factors that may significantly affect the estimates included specificindustry or market sector conditions, changes in revenue growth trends,customer behavior, competitive forces, cost structures and changes in discountrates.  The Corporation did not incurgoodwill impairment during the year ended December 31, 2009.

 

74

----

Table ofContents

 

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

#### ** **

Thefollowing information should not be interpreted as an estimate of the fairvalue of the Corporation since a fair value calculation is only provided for alimited portion of Riverview’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, 2009 and 2008.

 

***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 a discountedcash flow calculation that applies interest rates currently being offered inthe market on certificates to a schedule of aggregated expected monthlymaturities on time deposits.  TheCorporation generally purchases amounts below the insured limit, limiting theamount of credit risk on these time deposits.

 

***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 (Level3).  In the absence of such evidence,management’s best estimate is used. Management’s best estimate consists of both internal and externalsupport on certain Level 3 investments. Internal cash flow models using a present value formula that includesassumptions market participants would use along with indicative exit pricingobtained from broker/dealers (where available) are used to support fair valuesof certain Level 3 investments, 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 interest rate-riskinherent in the loans.  Projected futurecash flows are calculated based upon contractual maturity 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.

 

75

----

Table ofContents

 

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

#### ** **

***Impaired loans (generally carried at fair value):***

Impairedloans are those that are accounted for under the standard regarding *Accounting by Creditors for Impairment of a Loan,*inwhich the Corporation has measured impairment generally based on the fair valueof the loan’s collateral.  Fair value is generally determined basedupon independent third-party appraisals of the properties, or discounted cashflows based upon the expected proceeds.  These assets are included asLevel 3 fair values, based upon the lowest level of input that is significantto the fair value measurements.  At December 31, 2009, the fairvalue consists of the loan balances of $3,550,000, net of a valuation allowanceof $1,047,000.  Additional provisions forloan losses of $1,047,000 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 demandat the reporting date (i.e.,their carrying amounts).  Fair values forfixed-rate certificates of deposit are estimated using a discounted cash flowcalculation that applies interest rates currently being offered in the marketon certificates to a schedule of aggregated expected monthly maturities on timedeposits.

 

***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 market and represent a fairvalue that is deemed to represent the transfer price if the liability were assumedby 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.

 

76

----

Table ofContents

 

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

#### ** **

Theestimated fair values of the Corporation’s financial instruments at December 31,2009 and 2008 are presented in the following table:

 
| ** **                              | ** ** | **2009**             | ** ** | **2008**       | ** ** |
|-----------------------------------------|------------|----------------------|------------|----------------|------------|
| ** **                              | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** | **Carrying  Amount** | ** ** | **Fair Value** | ** ** |
| ** **                              | ** ** | **(In thousands)**   | ** ** |
| ** **                              | ** ** | ** **           | ** ** |
| Financial assets:                       |       |                 |       |           |       |   |   |   |   |
| Cash and cash equivalents               | ** ** | **$**                | **24,833** | ** **     | **$**      | **24,833** |   | $ | 6,018 |   | $ | 6,018 |   |
| Interest-bearing time deposits          | ** ** | **2,700**            | ** ** | **2,700**      |       | 950 |   | 950 |   |
| Investment securities                   | ** ** | **34,583**           | ** ** | **34,583**     |       | 28,120 |   | 28,120 |   |
| Mortgage loans held for sale            | ** ** | **—**           | ** ** | **—**     |       | 1,124 |   | 1,124 |   |
| Loans, net                              | ** ** | **170,384**          | ** ** | **173,973**    |       | 176,469 |   | 176,816 |   |
| Accrued interest receivable             | ** ** | **782**              | ** ** | **782**        |       | 812 |   | 812 |   |
| Restricted investments in bank stocks   | ** ** | **2,410**            | ** ** | **2,410**      |       | 2,075 |   | 2,075 |   |
|                                    | ** ** |                 | ** ** |           |       |   |   |   |   |
| Financial liabilities:                  | ** ** |                 | ** ** |           |       |   |   |   |   |
| Deposits                                | ** ** | **214,936**          | ** ** | **211,249**    |       | 174,353 |   | 175,173 |   |
| Short-term borrowings                   | ** ** | **807**              | ** ** | **807**        |       | 21,323 |   | 21,323 |   |
| Long-term borrowings                    | ** ** | **10,697**           | ** ** | **10,180**     |       | 10,033 |   | 10,137 |   |
| Accrued interest payable                | ** ** | **389**              | ** ** | **389**        |       | 499 |   | 499 |   |
|                                    | ** ** |                 | ** ** |           |       |   |   |   |   |
| Off balance sheet financial instruments | ** ** | **—**           | ** ** | **—**     |       | — |   | — |   |
|                                         |            |                      |            |                |            |  |  |  |  |  |  |  |  |

 

**Note 16 - Commitments andContingencies**

** **

The Corporation is subject to numerousclaims and lawsuits which arise primarily in the normal course ofbusiness.  At December 31, 2009,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.

 

77

----

Tableof Contents

 

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

** **

**BalanceSheets**

 
| ** **                                    | ** ** | **December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | **(In thousands)**    | ** ** |
| ** **                                    | ** ** |                  |       |   |   |
| **Assets**                                    | ** ** |                  |       |   |   |
| ** **                                    | ** ** |                  |       |   |   |
| Cash and cash equivalents                     | ** ** | **$**                 | **2**      |   | $ | 579 |   |
| Investment in bank subsidiary                 | ** ** | **24,630**            |       | 23,554 |   |
| Real estate, net                              | ** ** | **72**                |       | 72 |   |
| Other assets                                  | ** ** | **13**                |       | — |   |
|                                          | ** ** | ** **            |       |   |   |
|                                          | ** ** | **$**                 | **24,717** |   | $ | 24,205 |   |
| ** **                                    | ** ** |                  |       |   |   |
| **Liabilities and Shareholders’ Equity** | ** ** |                  |       |   |   |
| ** **                                    | ** ** |                  |       |   |   |
| Shareholders’ equity                     | ** ** | **$**                 | **24,717** |   | $ | 24,205 |   |

** **

**Statementsof Income**

 
| ** **                                                                                       | ** ** | **Years Ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                       | ** ** | **2009**                           | ** ** | **2008** | ** ** |
| ** **                                                                                       | ** ** | **(In thousands)**                 | ** ** |
|                                                                                             | ** ** | ** **                         |       |   |   |
| Income, dividends from bank subsidiary                                                           | ** ** | **$**                              | **160**    |   | $ | 700 |   |
|                                                                                             | ** ** | ** **                         |       |   |   |
| Interest expense                                                                                 | ** ** | **1**                              |       | — |   |
|                                                                                             | ** ** | ** **                         |       |   |   |
| **Income Before Equity in  Undistributed (Distributions in Excess of) Net Income of Subsidiary** | ** ** | **159**                            |       | 700 |   |
|                                                                                             | ** ** | ** **                         |       |   |   |
| Undistributed (distributions in excess of) net  income of subsidiary                             | ** ** | **952**                            |       | (329 | ) |
|                                                                                             | ** ** | ** **                         |       |   |   |
| **Net Income**                                                                                   | ** ** | **$**                              | **1,111**  |   | $ | 371 |   |

 

78

----

Table of Contents

 

**Note 17 — Riverview Financial Corporation (ParentCompany Only) Financial Information (Continued)**

** **

**Statementsof Cash Flows**

 
| ** **                                                                         | ** ** | **Years Ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                           | ** ** | **2008** | ** ** |
| ** **                                                                         | ** ** | **(In thousands)**                 | ** ** |
|                                                                               | ** ** | ** **                         |       |   |   |
| **Cash Flows from Operating  Activities**                                          | ** ** | ** **                         |       |   |   |
| ** **                                                                         | ** ** | ** **                         |       |   |   |
| Net income                                                                         | ** ** | **$**                              | **1,111**  |   | $ | 371 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: | ** ** | ** **                         |       |   |   |
| Undistributed (distributions in excess of) net  income of subsidiary               | ** ** | **(952**                           | **)**      | 329 |   |
|                                                                               | ** ** | ** **                         |       |   |   |
| **Net Cash Provided by Operating  Activities**                                     | ** ** | **159**                            |       | 700 |   |
| ** **                                                                         | ** ** | ** **                         |       |   |   |
| **Cash Flows from Financing  Activities**                                          | ** ** | ** **                         |       |   |   |
| ** **                                                                         | ** ** | ** **                         |       |   |   |
| Dividends paid                                                                     | ** ** | **(736**                           | **)**      | (300 | ) |
|                                                                               | ** ** | ** **                         |       |   |   |
| **Net Cash Used in Financing  Activities**                                         | ** ** | **(736**                           | **)**      | (300 | ) |
|                                                                               | ** ** | ** **                         |       |   |   |
| **Net Increase (Decrease) in Cash  and Cash Equivalents**                          | ** ** | **(577**                           | **)**      | 400 |   |
|                                                                               | ** ** | ** **                         |       |   |   |
| **Cash and Cash Equivalents -  Beginning**                                         | ** ** | **579**                            |       | 179 |   |
|                                                                               | ** ** | ** **                         |       |   |   |
| **Cash and Cash Equivalents -  Ending**                                            | ** ** | **$**                              | **2**      |   | $ | 579 |   |

 

**Note 18— Subsequent Events**

 

The Corporation has evaluated events andtransactions subsequent to December 31, 2009 through March 24, 2010,the date these consolidated financial statements were issued.  Based on the definitions and requirements ofgenerally accepted accounting principles, we have identified one event thatoccurred subsequent to December 31, 2009 and through March 24, 2010that requires disclosure in the consolidated financial statements.  On March 17, 2010, the Board ofDirectors approved the modification of the exercise price of the 170,000options granted during 2009 to $13.00 from $16.00.  The Corporation did not incur any additionalexpense as a result of this change, nor were the Corporation’s financialstatements impacted by this transaction.

 

79

----

Table ofContents

 

**ITEM 9****. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE.**

 

None.

 

**ITEM 9A (T)****. CONTROLSAND 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 31,2009.  Based upon that evaluation, theChief Executive Officer and Chief Financial Officer concluded that, Riverview’sdisclosure controls and procedures are effective in timely alerting them tomaterial information relating to Riverview (including its consolidatedsubsidiaries) required to be included in our periodic SEC filings.

 

**Changes in Internal Controls Over Financial Reporting**

 

Therehave been no changes in Riverview’s internal control over financial reportingduring the fourth quarter of 2009 that have materially affected, or arereasonably likely to materially affect, Riverview’s internal control overfinancial reporting.

 

**Riverview Financial Corporation Management’s Report onInternal Controls Over Financial Reporting**

 

TheCorporation is responsible for the preparation, integrity, and fairpresentation of the financial statements included in this annual report.  The financial statements and notes includedin this annual report have been prepared in conformity with United Statesgenerally accepted accounting principles and necessarily include some amountsthat are based on management’s best estimates and judgments.

 

Managementof the Corporation is responsible for establishing and maintaining effectiveinternal control over financial reporting that is designed to produce reliablefinancial statements in conformity with United States generally acceptedaccounting principles.  The system ofinternal control over financial reporting as it relates to the financialstatements is evaluated for effectiveness by management and tested for reliabilitythrough a program of internal audits. Actions are taken to correct potential deficiencies as they areidentified.  Any system of internalcontrol, no matter how well designed, has inherent limitations, including thepossibility that a control can be circumvented or overridden and misstatementsdue to error or fraud may occur and not be detected.  Also, because of changes in conditions,internal control effectiveness may vary over time.  Accordingly, even an effective system ofinternal control will provide only reasonable assurance with respect tofinancial statement preparation.

 

Managementassessed the Corporation’s system of internal control over financial reportingas of December 31, 2009, in relation to criteria for effective internalcontrol over financial reporting as described in “Internal Control — IntegratedFramework”, issued by the Committee of Sponsoring Organizations of the TreadwayCommission.  Based on this assessment,management concludes that as of December 31, 2009, its system of internalcontrol over financial reporting is effective and meets the criteria of the “InternalControl — Integrated Framework”.

 

80

----

Table ofContents

 

Thisannual report does not include an attestation report of the Corporation’sindependent registered public accounting firm regarding internal control overfinancial reporting.  Management’s reportwas not subject to attestation by the Corporation’s registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit the Corporation to provide only management’s report inthis annual report.

 

 
| /s/  Robert M. Garst     |   | /s/  Theresa M. Wasko    |
|--------------------------|--------|--------------------------|
| Robert  M. Garst         |   | Theresa  M. Wasko        |
| Chief  Executive Officer |   | Chief  Financial Officer |

 

**ITEM 9B****. OTHERINFORMATION.**

 

None.

 

**PART III**

 

**ITEM 10****. DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

 

**Information about Directors**

 

Information, as of December 31,2009, concerning the three director nominees and the ten continuing directorscomprising the Board of Directors is as follows:

 

81

----

Table of Contents

 
| **Name and Age**           | ** ** | **Director  Since(*)** | ** ** | **Principal Occupation for the Past Five Years and  Positions Held with Riverview Financial Corporation and Subsidiaries**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|----------------------------|------------|------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       | ** ** | ** **             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Nominees:**              | ** ** | ** **             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                 | ** ** | ** **             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| James G. Ford, II, 62 |       | 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. We  believe Mr. Ford’s qualifications to sit on our Board of Directors  include his 40 years of extensive sales and marketing experience in the  insurance industry as well as his leadership as president of the company.                                                                                                                                                                                                                         |
|                       |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Robert M. Garst, 51        |       | 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. We believe Mr. Garst’s qualifications to sit  on our Board of Directors include his vast banking knowledge and experience,  his executive leadership skills and his expertise in organizing and  developing corporate strategies. |
|                       |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Paul R. Reigle, 80         |       | 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. We believe Mr. Reigle’s qualifications to sit on our  Board of Directors include his experience in the banking industry, which  exceeds 40 years, as well as his leadership role as the former Chairman of  the Board of a bank holding company and bank.                                                                                                                                                 |
|                       |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **Incumbent Directors:**   |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                 |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Roland R. Alexander, 60    |       | 2001                   |       | Dr. Alexander is a physician with and owner of 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. We believe Dr. Alexander’s qualifications to sit on our Board of  Directors include his entrepreneurial experience and leadership in operating  a local medical practice, his experience in public and federal grant  administration and his nine years of experience as a Board member.                                                                                                                             |
|                       |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Arthur M. Feld, 67         |       | 1998                   |       | 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 1998. We believe Mr. Feld’s qualifications to be on our  Board of Directors include his extensive legal and business expertise and his  12 years of experience as a Board member.                                                                                                                                                                                                                                                                                                     |

 

82

----

Table of Contents

 
| **Name and Age**      | ** ** | **Director  Since(*)** | ** ** | **Principal Occupation for the Past Five Years and  Positions Held with Riverview Financial Corporation and Subsidiaries**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------------|------------|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Kirk D. Fox, 43       |       | 2007                   |       | Mr. Fox is President of Riverview Financial Corporation and  Riverview National Bank. Mr. Fox was an Executive Vice President of HNB  Bancorp, Inc. and Chief Lending Officer of Halifax National Bank from  August 2004 to December 31, 2008. Prior to that Mr. Fox was  Vice President and Commercial Loan Officer for another bank, where he worked  since 1988. He formerly served as a director of HNB Bancorp, Inc. and  Halifax National Bank since 2007. We believe Mr. Fox’s qualifications to  sit on our Board of Directors include his vast banking knowledge and  experience, leadership skills and his familiarity with the communities that  the bank serves. |
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| R. Keith Hite, 62     |       | 2006                   |       | Mr. Hite is a  principal with Malady-Wooten, a Harrisburg based public affairs agency. He  recently retired after 30 years as 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. We believe  Mr. Hite’s qualifications to sit on our Board of Directors include his  executive leadership skills in managing a state association and his extensive  knowledge of local markets served by the bank.                                                                                                                                              |
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| David W. Hoover, 49   |       | 2007                   |       | 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 2007. We  believe Mr. Hoover’s qualifications to sit on our Board of Directors  include his leadership skills, financial expertise and his knowledge of the communities  served by the bank.                                                                                                                                                                                                                                                                                                               |
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| William L. Hummel, 62 |       | 1983                   |       | 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 April 1997 until December 31, 2008. He formerly  served as a director of First Perry Bancorp, Inc. and The First National  Bank of Marysville since 1983. We believe Mr. Hummel’s qualifications to  sit on our Board of Directors include his extensive banking experience, his  knowledge of the communities the bank serves and his leadership role as the  former President and Chief Executive Officer of the bank holding company and  bank.                                                                                |
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Joseph D. Kerwin, 46  |       | 2005                   |       | Mr. Kerwin is a partner and 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. We believe Mr. Kerwin’s qualifications to sit on our Board  of Directors include his extensive legal and business expertise and his experience  as a Board member.                                                                                                                                                                                                                                                                                                         |
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| James M. Lebo, 65     |       | 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. We believe Mr. Lebo’s qualifications  to sit on our Board of Directors include his experience as a local  businessman knowledgeable of local markets and his 14 years experience as a  Board member.                                                                                                                                                                                                                                                                                                                        |

 

83

----

Table of Contents

 
| **Name and Age**      | ** ** | **Director  Since(*)** | ** ** | **Principal Occupation for the Past Five Years and  Positions Held with Riverview Financial Corporation and Subsidiaries**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-----------------------|------------|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| John M. Schrantz, 59  |       | 1994                   |       | 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 1994. We  believe Mr. Schrantz’s qualifications to sit on our Board of Directors  include his financial expertise and leadership as president of a local  company combined further enhanced by his knowledge of the communities served  by the bank.                                                                                                                                                                   |
|                  |       |                   |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| David A. Troutman, 53 |       | 2002                   |       | Mr. Troutman is President and owner of A.W. Troutman DBA/  Troutman’s Chevrolet — Buick - GMC, an automobile dealership in Millersburg,  PA; owner of W.C. Troutman Company, a finance company in Millersburg, PA; and  owner of Lykens Valley Golf Course in Millersburg, PA. He formerly served as  a director of Halifax National Bank since 2002. We believe  Mr. Troutman’s qualifications to sit on our Board of Directors include  his business and entrepreneurial experience, his leadership in managing  various enterprises and his knowledge of the people and communities served by  the bank. |

 

----

(*) Includes service as director of First Perry Bancorp, Inc. and itssubsidiary, The First National Bank of Marysville and HNB Bancorp, Inc.and its subsidiary, Halifax National Bank.

 

**Executive Officers**

 

Thefollowing table provides information, as of March 18, 2009, about theCorporation’s executive officers.

 
| **Name**         | ** ** | **Age** | ** ** | **Principal Occupation For the Past Five Years and Position********Held with Riverview Financial Corporation and Subsidiaries**                                                                                                                                                                                                                                                                                                                                                |
|------------------|------------|---------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Robert M. Garst  |       | 51      |       | 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      |       | 43      |       | Mr. Fox is President of Riverview  Financial Corporation and Riverview National Bank. Mr. Fox was an  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 Mr. Fox 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 |       | 57      |       | Ms. Wasko is Chief Financial  Officer of Riverview Financial Corporation and Riverview National Bank since  January 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.                                                                                                                                            |
|             |       |    |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Paul B. Zwally   |       | 45      |       | 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 at  PNC Bank and Community Bank since 1989.      |

 

84

----

Table ofContents

 

TheBoard of Directors of Riverview Financial Corporation has a separate AuditCommittee comprised of independent directors. The members of the Audit Committeeare R. Keith Hite, Chairman, Arthur M. Feldand Joseph D. Kerwin.  While the Audit Committee is of the opinionthat none of the individual committee members alone qualify as a “financialexpert”, the committee further believes that the aggregate experience of thecommittee members as a whole provide the skills and understanding that meet thequalifications for a “financial expert”.

 

Riverview adopted a Code of Ethics that applies to directors, officersand employees of Riverview and the Riverview National Bank.  The Code of Ethics defines the standards ofhonesty, integrity, impartiality and conduct that are essential to ensure theproper performance of the bank’s business and to ensure the public’strust.   The Code of Ethics was attachedas Exhibit 14.1 to the Corporation’s Annual Report on Form 10-K forthe year ended December 31, 2008 as filed with the Securities and ExchangeCommission on April 10, 2009.  Acopy of the full text of the Code of Ethics may be obtained by contacting KandiLopp, Riverview Financial Corporation, 3rd & Market Streets, Halifax, Pennsylvania 17032.

 

Therehave been no material changes to the procedures by which security holders mayrecommend nominees to Riverview’s Board of Directors.

 

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

 

**DirectorCompensation**

 

Thefollowing table sets forth the compensation received by directors of thecorporation in 2009.

 
| **Name**                | ** ** | **Fees Earned or********Paid in Cash****(1)****($)** | ** ** | **Option  Awards****(2)****($)** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|-------------------------|------------|------------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|-----------|------------|
| Roland  R. Alexander    |       | $                                                    | 15,000     |                             | $          | 4,945                       |       | $         | —     |   | $ | 19,945 |   |
| Arthur  M. Feld         |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| James  G. Ford, II |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| R.  Keith Hite          |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| David  W. Hoover        |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| William  L. Hummel      |       | 15,000                                               |       | 4,945                            |       | 146,929                     | (3)        | 166,874   |       |
| Joseph  D. Kerwin       |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| James  M. Lebo          |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| Paul  R. Reigle         |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| John  M. Schrantz       |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
| David  A. Troutman      |       | 15,000                                               |       | 4,945                            |       | —                      |       | 19,945    |       |
|                         |            |                                                      |            |                                  |            |                             |            |           |            |  |  |  |  |

 

----

(1) Retainer fee for services as a director.

(2) During 2009, each director was granted 5,750 common stock options under theCorporation’s 2009 non-qualified Stock Option Plan at an exercise price of$16.00 per share.  The per share grantdate fair market value under the accounting standard relating to *Accounting for Stock-Based Compensation* on the common stockoption grants for the named executives was $0.86 per share.  Because the vesting schedule is a seven-yearcliff, the options are not exercisable until 2016.

(3) Includes salary of $40,000; bonus of $5,000; an automobile allowance of $2,072for personal use; 401(k) match of $4,274; life insurance premiums of $194;profit sharing of $4,336; change of $21,150 in the pension value ofsupplemental retirement plan; $3,603 in payments under the supplementalretirement plan; and the first of two contractual severance payments for$66,300 related to consolidation activity.

 

85

----

Table ofContents

 

**Executive Compensation**

 

The following table summarizes thetotal compensation for 2009 and 2008 for Robert M. Garst, Riverview FinancialCorporation’s Chief Executive Officer, Kirk D. Fox, Riverview FinancialCorporation’s President, Theresa M. Wasko, Riverview Financial Corporation’sChief Financial Officer and Paul B. Zwally, Riverview Financial Corporation’sChief Lending Officer.  All compensationpaid in 2008 to each executive officer was paid by either First Perry Bancorp, Inc.or HNB Bancorp, Inc. prior to their consolidation into Riverview FinancialCorporation on December 31, 2008. These individuals are referred to as the “Named Executive Officers.”

 

**Summary Compensation Table**

 
| **Name  and Principal  Position**                | ** ** | **Year** | ** ** | **Salary** | ** ** | **Bonus** | ** ** | **Option  Awards****(1)********($)** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|--------------------------------------------------|------------|----------|------------|------------|------------|-----------|------------|--------------------------------------|------------|-----------------------------|------------|-----------|------------|
| Robert  M. Garst,

Chief  Executive Officer      |       | 2009     |       | $          | 132,600    |      | $          | 42,500                               |       | $                           | 23,220     |      | $          | 37,070 | (2) | $ | 235,390 |   |
|                                             |       | 2008     |       | 132,600    |       | 30,000    |       | —                               |       | 73,444                      | (3)        | 236,044   |       |
|                                             |       |     |       |       |       |      |       |                                 |       |                        |       |      |       |
| Kirk  D. Fox,President                           |       | 2009     |       | 130,000    |       | 40,000    |       | 24,080                               |       | 34,244                      | (4)        | 228,324   |       |
|                                             |       | 2008     |       | 105,000    |       | 30,000    |       | —                               |       | 74,019                      | (5)        | 209,019   |       |
|                                             |       |     |       |       |       |      |       |                                 |       |                        |       |      |       |
| Theresa  M. Wasko,

Chief  Financial Officer (6) |       | 2009     |       | 110,769    |       | 12,500    |       | 12,900                               |       | 10,194                      | (7)        | 146,363   |       |
|                                             |       |     |       |       |       |      |       |                                 |       |                        |       |      |       |
| Paul  B. Zwally,

Chief  Lending Officer         |       | 2009     |       | 118,450    |       | 37,000    |       | 14,405                               |       | 20,622                      | (8)        | 190,477   |       |
|                                             |       | 2008     |       | 91,608     | (9)        | 32,500    |       | —                               |       | 4,768                       | (10)       | 128,876   |       |
|                                                  |            |          |            |            |            |           |            |                                      |            |                             |            |           |            |  |  |  |  |  |

 

----

(1)     The per share grant date fair market valueunder the accounting standard relating to *Accounting for Stock-BasedCompensation* on the common stock option grants for the namedexecutives was $0.86 per share.  Becausethe vesting schedule is a seven-year cliff, the options are not exercisableuntil 2016.

(2)     Includes an automobile stipend of $6,000;401(k) match of $5,555; life insurance premiums of $194; profit sharing of$10,320; and directors’ fees of $15,000.

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

(4)     Includes an automobile allowance forpersonal use of $480; 401(k) match of $5,205; life insurance premiums of$194; profit sharing of $8,749; change of $4,616 in pension value ofsupplemental retirement plan; and directors’ fees of $15,000.

(5)     Includes an automobile allowance forpersonal use of $560; 401(k) match of $3,150; life insurance premiums of$259; profit sharing of $5,038; change of $5,012 in pension value ofsupplemental retirement plan; and a one-time award for $60,000 in recognitionof Mr. Fox’s extraordinary service related to consolidation activity.

(6)     There is nothing to report for 2008 since Mrs. Waskowas employed by Riverview National Bank January 2009

(7)     Includes life insurance premiums of $194;and a one-time sign-on bonus of $10,000.

(8)     Includes a country club allowance of$7,049; 401(k) match of $4,875; life insurance premiums of $194; andprofit sharing of $8,504.

(9)     Mr. Zwally was employed by RiverviewNational Bank March 2008.

(10)   Includes a country club allowance of $4,534;and life insurance premiums of $234.

 

86

----

Table ofContents

 

Eachof the named executive officers are respectively parties to either a one-yearor three-year term rolling employment agreement with Riverview FinancialCorporation and Riverview National Bank, wherein on every anniversary date ofthe agreement, the agreement will be extended for another year unless notice ofnonrenewal is given.  The agreementsprovide that the executives may participate in those employee benefit plans inwhich they are eligible.  It alsoprovides that if the executives are terminated without cause or if after achange in control there is a reduction in salaries or benefits, or a change intheir reporting responsibilities, duties or titles, the following will occur:

 

·                  Messrs Garst and Fox will receive three timestheir Annual Compensation as defined in the agreement in 24 monthlyinstallments.  The executives willreceive a continuation of all non-cash benefits for three years.

 

·                  Mrs. Wasko will receive one times herannual base salary, payable in 12 equal monthly installments.  She will also be reimbursed for the monthlypremium paid to obtain substantially similar employee benefits for 12 monthsfollowing the date of termination.

 

·                  Mr. Zwally will receive one times hisAnnual Compensation as defined in the agreement in 24 monthlyinstallments.  He will also receive acontinuation of all non-cash benefits for one year.

 

Ifthe payments are determined to be parachute payments and the executives aresubject to excise taxes, they will receive an additional cash payment in anamount such that the after-tax proceeds of such payment will be equal to theamount of the excise tax.

 

**2009Grants of Plan-Based Awards**

 

InJanuary 2009 the Corporation implemented a nonqualified stock optionplan.  The purpose of the 2009 StockOption Plan was to advance the development, growth and financial condition ofthe Corporation by providing incentives through participation in theappreciation of the common stock of the Corporation to secure, retain andmotivate the Corporation’s directors, officers and key employees and to alignsuch person’s interests with those of the Corporation’s shareholders.  Shares of the Corporation’s common stock thatmay be issued or transferred under this plan shall not exceed, in theaggregate, 170,000 shares at a purchase price of $16.00 per share.  The vesting schedule is a seven year cliff,which means that the options are 100% vested in the seventh year following thegrant date and the expiration date is ten years following the grant date.

 

87

----

Table ofContents

 

Thefollowing table represents each stock option grant awarded to the named executiveofficer in 2009 and their total value calculated in accordance with theaccounting standard relating to *Accounting for Stock-BasedCompensation*.  In addition,the information presented also represents the stock options outstanding foreach named executive as of December 31, 2009.

 
| ** **        | ** ** | **Grant  Date********(1)** | ** ** | **All Other  Option  Awards:********Number of  Securities  Underlying  Options (#)** | ** ** | **Exercise  or Base  Price of  Option  Awards********($/Share)** | ** ** | **Grant  Date Fair  Value of  Stock and  Option  Awards********($)** | ** ** | **Option  Expiration  Date** | ** ** |
|-------------------|------------|----------------------------|------------|--------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------|------------|
| Robert  M. Garst  |       | 1/21/2009                  |       | 25,000                                                                               |       | $                                                                | 16.00      |                                                                 | $          | 21,500                       |       | 1/21/2019 |   |
|              |       | 9/16/2009                  |       | 2,000                                                                                |       | $                                                                | 16.00      |                                                                 | 1,720      |                         | 9/16/2019  |   |
| Kirk  D. Fox      |       | 1/21/2009                  |       | 25,000                                                                               |       | $                                                                | 16.00      |                                                                 | 21,500     |                         | 1/21/2019  |   |
|              |       | 9/16/2009                  |       | 3,000                                                                                |       | $                                                                | 16.00      |                                                                 | 2,580      |                         | 9/16/2019  |   |
| Theresa  M. Wasko |       | 1/21/2009                  |       | 10,000                                                                               |       | $                                                                | 16.00      |                                                                 | 8,600      |                         | 1/21/2019  |   |
|              |       | 9/16/2009                  |       | 5,000                                                                                |       | $                                                                | 16.00      |                                                                 | 4,300      |                         | 9/16/2019  |   |
| Paul  B. Zwally   |       | 1/21/2009                  |       | 15,000                                                                               |       | $                                                                | 16.00      |                                                                 | 12,900     |                         | 1/21/2019  |   |
|              |       | 9/16/2009                  |       | 1,750                                                                                |       | $                                                                | 16.00      |                                                                 | 1,505      |                         | 9/16/2019  |   |
|                   |            |                            |            |                                                                                      |            |                                                                  |            |                                                                      |            |                              |            |  |  |

 

----

(1)  The per sharegrant date fair market value under the accounting standard relating to *Accounting for Stock-Based Compensation* on the stock optiongrants for the named executives was $0.86.

 

Asof December 31, 2009 none of the options were vested or exercisable.

 

**ITEM 12****. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS.**

 

**Principal Holders**

 

Thefollowing table shows, to the best of our knowledge, those persons or entitieswho owned of record or beneficially, on December 31, 2009, more than 5% ofthe outstanding Riverview Financial Corporation common stock.

 
| **Name  and Address********of Beneficial Owner**                                                                      | ** ** | **Amount and Nature of********Beneficial Ownership** | ** ** | **Percent of Class** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|----------------------|------------|
| Arlene  G. Deckard

c/o  First National Bank of Marysville

101  Lincoln Street, PO Box B

Marysville,  PA 17053-1314 |       | 108,601                                              |       | 6.21                 | %          |

 

**Beneficial Ownership of Executive Officers, Directors and Nominees**

 

The following table shows, as of December 31,2009, the amount and percentage of Riverview Financial Corporation common stockbeneficially owned by each director, each nominee, each named executive officerand all directors, nominees and executive officers of the Corporation as agroup.

 

Beneficial ownership of shares ofRiverview Financial Corporation common stock is determined in accordance withSecurities and Exchange Commission Rule 13d-3, which provides

 

88

----

Table of Contents

 

that a person should be creditedwith the ownership of any stock held, directly or indirectly, through anycontract, arrangement, understanding, relationship, or otherwise has or shares:

 

·                  Votingpower, which includes the power to vote or to direct the voting of the stock;or

·                  Investmentpower, which includes the power to dispose or direct the disposition of thestock; or

·                  Theright to acquire beneficial ownership within 60 days after December 31,2009.

 

Unless otherwise indicated in afootnote appearing below the table, all shares reported in the table below areowned 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 individual director, nominee or executive officer is less than 1.18%.

 
| **Name of Individual or Identity of Group**                   | ** ** | **Amount and  Nature of  Beneficial  Ownership** | ** ** | **Percent of Class** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------------------|------------|----------------------|------------|
| Directors and Nominees                                        |       |                                             |       |                 |       |
| Roland R. Alexander                                           |       | 20,500                                           |       | 1.17                 | %          |
| Arthur M. Feld                                                |       | 14,100                                           |       | 0.81                 | %          |
| James G. Ford, II                                        |       | 9,925                                            |       | 0.57                 | %          |
| Kirk D. Fox                                                   |       | 660                                              |       | 0.04                 | %          |
| Robert M. Garst                                               |       | 1,217                                            |       | 0.07                 | %          |
| R. Keith Hite                                                 |       | 18,100                                           |       | 1.03                 | %          |
| David W. Hoover                                               |       | 9,630                                            |       | 0.55                 | %          |
| William L. Hummel                                             |       | 11,444                                           |       | 0.65                 | %          |
| Joseph D. Kerwin                                              |       | 12,140                                           |       | 0.69                 | %          |
| James M. Lebo                                                 |       | 3,525                                            |       | 0.20                 | %          |
| Paul R. Reigle                                                |       | 15,120                                           |       | 0.86                 | %          |
| John M. Schrantz                                              |       | 13,510                                           |       | 0.77                 | %          |
| David A. Troutman                                             |       | 15,930                                           |       | 0.91                 | %          |
|                                                          |       |                                             |       |                 |       |
| Named Executive  Officers                                     |       |                                             |       |                 |       |
| Paul B. Zwally                                                |       | 100                                              |       | 0.01                 | %          |
|                                                          |       |                                             |       |                 |       |
| All directors and  executive officers as a group (14 persons) |       | 145,901                                          |       | 8.34                 | %          |

 

Information about Riverview’s Equity CompensationPlans can be found in Part II, Item 7 under the caption “SecuritiesAuthorized for Issuance Under Equity Compensation Plans” and is incorporatedherein by reference.

 

89

----

Table ofContents

 

**ITEM 13****. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

 

Currently,the Board of Directors has thirteen members. Under the Nasdaq Stock Market standards for independence, the followingten directors meet the standards for independence:  Messrs. Alexander, Feld, Ford, Hite,Hoover, Kerwin, Lebo, Reigle, Schrantz and Troutman. This constitutes more thana majority of our Board of Directors. Only independent directors serve on our Audit Committee, Compensation Committeeand Governance and Nominating Committee.

 

Indetermining the directors’ independence, the Board of Directors considered loantransactions between Riverview National Bank and the directors, their familymembers and businesses with whom they are associated, as well as anycontributions made to non-profit organizations with whom they are associated.

 

Thetable below includes a description of other categories or types oftransactions, relationships or arrangements considered by the Board (inaddition to those listed above and under the section entitled “Transactionswith Directors and Executive Officers” below) in reaching its determinationthat 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. Kerwin    |       | Yes             |       | Legal  services — contracts                   |
| Mr. Lebo      |       | Yes             |       | Insurance  consulting                              |
| Mr. Reigle    |       | Yes             |       | None                                               |
| Mr. Schrantz  |       | Yes             |       | None                                               |
| Mr. Troutman  |       | Yes             |       | None                                               |

 

Ineach case, the Board determined that none of the transactions above impairedthe independence of the director.

 

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 2009.  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 must approveall related party transactions that are significant.  The director in question is excused from theboard meeting at the time the decision is made.

 

90

----

Table of Contents

 

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

 

Prior to the formation of Riverview FinancialCorporation on December 31, 2008, Beard Miller Company LLP, now known asParenteBeard LLC, was the independent registered public accounting firm forFirst Perry Bancorp, Inc. and HNB Bancorp, Inc., individually.  On August 19, 2009, theBoard of Directors approved the dismissal of ParenteBeard LLC as theCorporation’s independent registered public accounting firm and approved theengagement of Smith Elliott Kearns & Company, LLC as the Corporation’snew independent registered public accounting firm.  Riverview Financial Corporation notifiedParenteBeard LLC of the dismissal on August 20, 2009.

 

The report issued by ParenteBeard LLC in connection with the audit ofthe Corporation for the year ended December 31, 2008 did not contain anadverse opinion or a disclaimer of opinion, nor was such report qualified ormodified as to uncertainty, audit scope, or accounting principles.

 

There were no disagreements with ParenteBeard LLC on any matters ofaccounting principles or practices, financial statement disclosure or auditingscope or procedure, which disagreement, if not resolved to the satisfaction ofParenteBeard LLC would have caused them to make reference to the subject matterof such disagreement in connection with its audited report or interim financialstatements.

 

There were no reportable events within the meaning of Item 304(a)(1)(v) ofRegulation S-K during the two most recent fiscal years or the subsequentinterim period.

 

Aggregate fees billed by Smith Elliott Kearns &Company, LLC, the independentregistered public accounting firm for Riverview, for services rendered in theaggregate for the year ended December 31, 2009 were as follows:

 
| ** **            | ** ** | **2009** | ** ** |
|-----------------------|------------|----------|------------|
| Audit fees(1)         |       | $        | 46,008     |   |
| Audit-related fees(2) |       | —   |       |
| Tax fees(3)           |       | 2,750    |       |
| All other fees(4)     |       | —   |       |
| Total                 |       | $        | 48,758     |   |

 

----

(1)                                Audit feesinclude professional services rendered for the audits of the consolidatedfinancial statements of the corporation, quarterly review of the financialstatements included in the corporation’s Quarterly Report on Form 10-Q,consents and other assistance required to complete the year-end audit of theconsolidated financial statements, including review of the corporation’s AnnualReport on Form 10-K, and review and consents of documents filed with the SEC,including out-of-pocket expenses.

 

(2)                                Audit-relatedfees include reviews, analysis and consultations in regard to certainaccounting transactions.

 

(3)                                Tax feesinclude fees billed for professional services rendered for tax compliance, taxadvice and tax planning.

 

(4)                                All other feesinclude fees billed for products and services provided that are other than theservices reported under the Audit fees, Audit-related and Tax fees sections ofthe table above..

 

91

----

Table ofContents

 

Aggregate fees billed by ParenteBeard LLC, the independent registered publicaccounting firm for Riverview, for services rendered in the aggregate for aportion of 2009 and the 2008 year end were as follows:

 
| ** **            | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
| Audit fees(1)         |       | $        | 13,201     |     | $          | 241,823 |   |
| Audit-related fees(2) |       | —   |       | 6,238    |       |
| Tax fees(3)           |       | —   |       | 2,845    |       |
| All other fees(4)     |       | 2,700    |       | —   |       |
| Total                 |       | $        | 15,901     |     | $          | 250,906 |   |

 

----

(1)                                Includesprofessional services rendered for the audit of Riverview’s 2008 consolidatedfinancial statements and First Perry Bancorp, Inc. and HNB Bancorp, Inc.’s 2007and 2006 consolidated financial statements, review of the interim consolidatedfinancial statements included in Forms 10-Q, and procedures associated withregistration statement on Form S-4, including out-of-pocket expenses.  Fees in 2009 are limited to Form 10-Q.

 

(2)                                Includescertain review, analysis and consultations in regard to certain accountingtransactions.

 

(3)                                Includesreview, analysis and consultations in regard to 280G compliance.

 

(4)                                Includesprocedures in connection with transitioning to a new independent registeredaccounting firm.

 

TheAudit Committee pre-approved 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 subjectto a specific budget.  In addition, theAudit Committee may also pre-approve particular services on a case by casebasis.  For each proposed service, theindependent auditor is required to provide detailed back-up documentation atthe time of approval.

 

Smith Elliott Kearns & Company, LLC has beenselected by the Board of Directors as the independent registered publicaccounting firm for 2010.

 

Representativesof Smith Elliott Kearns & Company, LLC are expected to be present at the annualmeeting. While the representatives will not have an opportunity to make astatement, the representatives will be available to respond to appropriatequestions.

 

**PART IV**

 

**ITEM 15****.  EXHIBITSAND FINANCIAL STATEMENT SCHEDULES.**

 

(a)                                  1.                                       Financialstatements are incorporated by reference in Part II, Item 8 hereof.

Reportof Independent Registered Public Accounting Firm

ConsolidatedBalance Sheets

ConsolidatedStatements of Income

ConsolidatedStatements of Changes in Shareholders’ Equity

ConsolidatedStatements of Cash Flows

Notesto Consolidated Financial Statements

 

92

----

Table ofContents

 

2.                                       The financialstatement schedules, required by Regulation S-X, are omitted because theinformation is either not applicable or is included elsewhere in theconsolidated financial statements.

 

3.                                       The followingExhibits are filed as part of this filing on Form 10-K, or incorporated byreference hereto:

3(i)                             The Registrant’sArticles of Incorporation.  (Incorporatedby reference to Annex B included in Riverview’s Amendment No. 2 toRegistration Statement on Form S-4 (Registration No. 333-153486)filed November 4, 2008).

 

3(ii)                          The Registrant’sBy-laws.  (Incorporated by reference toAnnex C included in Riverview’s Amendment No. 2 to Registration Statementon Form S-4 (Registration No. 333-153486) filed November 4,2008).

 

10.1                         Amended andRestated Executive Employment Agreement of Robert M. Garst. (Incorporated byreference to Exhibit 10.1 to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2008 as filed with the Securities andExchange Commission on April 10, 2009.)

 

10.2                         Amended andRestated Executive Employment Agreement of Kirk D. Fox.  (Incorporated by reference to Exhibit 10.2to Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 as filed with the Securities and Exchange Commission on April 10,2009.)

 

10.3                         EmploymentAgreement of Theresa M. Wasko. (Incorporated by reference to Exhibit 10.3to Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 as filed with the Securities and Exchange Commission on April 10,2009.)

 

10.4                         ExecutiveEmployment Agreement of Paul B. Zwally. (Incorporated by reference to Exhibit 10.4 to Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2008 as filedwith the Securities and Exchange Commission on April 10, 2009.)

 

10.5                         EmploymentAgreement of William L. Hummel. (Incorporated by reference to Exhibit 10.5 to Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2008 as filedwith the Securities and Exchange Commission on April 10, 2009.)

 

10.6                         Acknowledgementand Release Agreement of William L. Hummel. (Incorporated by reference to Exhibit 10.6 to Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2008 as filedwith the Securities and Exchange Commission on April 10, 2009.)

 

10.7                         Form ofDirector Deferred Fee Agreements with Directors Roland R. Alexander, Robert M.Garst and Kirk D. Fox.  (Incorporated byreference to Exhibit 10.7 to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2008 as filed with the Securities andExchange Commission on April 10, 2009.)

 

93

----

Table of Contents

 

10.8                         2009 StockOption Plan.  (Incorporated by referenceto Exhibit 10.8 to Registrant’s Annual Report on Form 10-K for theyear ended December 31, 2008 as filed with the Securities and Exchange Commissionon April 10, 2009.)

 

10.9                         ReleaseAgreement of Thomas N. Wasson. (Incorporated by reference to Exhibit 99.1 of Registrant’s Form 8-Kas filed with the Securities and Exchange Commission on April 30, 2009.)

 

10.10                   ConsultingAgreement of Thomas N. Wasson. (Incorporated by reference to Exhibit 99.2 of Registrant’s Form 8-Kas filed with the Securities and Exchange Commission on April 30, 2009.)

 

10.11                   SecondAmendment to the Supplemental Executive Retirement Agreement Plan Agreement forKirk D. Fox dated March 29, 2007, amended June 18, 2008 and enteredinto between Kirk D. Fox and Riverview National Bank on September 2,2009.  (Incorporated by reference to Exhibit 10.11ofRegistrant’s Form 10-Q for the quarterly period ended September 30,2009 as filed with the Securities and Exchange Commission on November 12,2009.)

 

14.1                         Code ofEthics.  (Incorporated by reference to Exhibit 14.1of Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 as filed with the Securities and Exchange Commission on April 10,2009.)

 

21                                  Subsidiaries ofRegistrant.

 

31.1                         Section 302Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

 

31.2                         Section 302Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

 

32.1                         Chief ExecutiveOfficer’s §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

 

32.2                         Chief FinancialOfficer’s §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

 

94

----

Table of Contents

 

#### **SIGNATURES**

#### ** **

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|   | By:    | /s/  Robert M. Garst           |
|--------|--------|--------------------------------|
|   |   | Robert  M. Garst               |
|   |   | Chief  Executive Officer       |
|   |   | (Principal  Executive Officer) |
|   |   |                           |
|   | Date:  | March 24,  2010           |
|   |   |                           |
|   | By:    | /s/  Theresa M. Wasko          |
|   |   | Theresa  M. Wasko              |
|   |   | Chief  Financial Officer       |
|   |   | (Principal  Executive Officer) |
|   |   |                           |
|   | Date:  | March 24, 2010            |

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the Registrant and in the capacities and onthe dates indicated.

 
| ** ** | ** **                                  | ** ** | **DATE**             |
|------------|---------------------------------------------|------------|----------------------|
|       |                                        |       |                 |
| By:        | /s/  Robert M. Garst                        |       | March 24,  2010 |
|       | Robert  M. Garst                            |       |                 |
|       | Chief  Executive Officer and Director       |       |                 |
|       | (Principal  Executive Officer)              |       |                 |
|       |                                        |       |                 |
| By:        | /s/  Theresa M. Wasko                       |       | March 24,  2010 |
|       | Theresa  M. Wasko                           |       |                 |
|       | Chief  Financial Officer                    |       |                 |
|       | (Principal  Financial Officer)              |       |                 |
|       |                                        |       |                 |
| By:        | /s/  Roland R. Alexander                    |       | March 24,  2010 |
|       | Roland  R. Alexander, Director              |       |                 |
|       |                                        |       |                 |
| By:        | /s/  Arthur M. Feld                         |       | March 24,  2010 |
|       | Arthur  M. Feld, Director                   |       |                 |
|       |                                        |       |                 |
| By:        | /s/  James G. Ford, II                 |       | March 24,  2010 |
|       | James  G. Ford, II, Director           |       |                 |
|       |                                        |       |                 |
| By:        | /s/  Kirk D. Fox                            |       | March 24,  2010 |
|       | Kirk  D. Fox, President & Director |       |                 |
|       |                                        |       |                 |
| By:        | /s/  R. Keith Hite                          |       | March 24,  2010 |
|       | R.  Keith Hite, Director                    |       |                 |

 

95

----

Table of Contents

 
| By:    | /s/  David W. Hoover                          |   | March 24,  2010 |
|--------|-----------------------------------------------|--------|----------------------|
|   | David  W. Hoover, Chairman of the Board       |   |                 |
|   | and  Director                                 |   |                 |
|   |                                          |   |                 |
| By:    | /s/  William L. Hummel                        |   | March 24,  2010 |
|   | William  L. Hummel, Director                  |   |                 |
|   |                                          |   |                 |
| By:    | /s/  Joseph D. Kerwin                         |   | March 24,  2010 |
|   | Joseph  D. Kerwin, Director                   |   |                 |
|   |                                          |   |                 |
| By:    | /s/  James M. Lebo                            |   | March 24,  2010 |
|   | James  M. Lebo, Director                      |   |                 |
|   |                                          |   |                 |
| By:    | /s/  Paul R. Reigle                           |   | March 24,  2010 |
|   | Paul  R. Reigle, Director                     |   |                 |
|   |                                          |   |                 |
| By:    | /s/  John M. Schrantz                         |   | March 24,  2010 |
|   | John  M. Schrantz, Vice Chairman of the Board |   |                 |
|   | and  Director                                 |   |                 |
|   |                                          |   |                 |
| By:    | /s/  David A. Troutman                        |   | March 24,  2010 |
|   | David  A. Troutman, Director                  |   |                 |

 

96

----

Table of Contents

 

**EXHIBITINDEX**

 

3(i)                             The Registrant’sArticles of Incorporation.  (Incorporatedby reference to Annex B included in Riverview’s Amendment No. 2 toRegistration Statement on Form S-4 (Registration No. 333-153486)filed November 4, 2008).

 

3(ii)                          The Registrant’sBy-laws.  (Incorporated by reference toAnnex C included in Riverview’s Amendment No. 2 to Registration Statementon Form S-4 (Registration No. 333-153486) filed November 4,2008).

 

10.1                         Amended andRestated Executive Employment Agreement of Robert M. Garst. (Incorporated byreference to Exhibit 10.1 to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2008 as filed with the Securities andExchange Commission on April 10, 2009.)

 

10.2                         Amended andRestated Executive Employment Agreement of Kirk D. Fox.  (Incorporated by reference to Exhibit 10.2to Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 as filed with the Securities and Exchange Commission on April 10,2009.)

 

10.3                         EmploymentAgreement of Theresa M. Wasko. (Incorporated by reference to Exhibit 10.3to Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 as filed with the Securities and Exchange Commission on April 10,2009.)

 

10.4                         ExecutiveEmployment Agreement of Paul B. Zwally. (Incorporated by reference to Exhibit 10.4 to Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2008 as filedwith the Securities and Exchange Commission on April 10, 2009.)

 

10.5                         EmploymentAgreement of William L. Hummel. (Incorporated by reference to Exhibit 10.5 to Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2008 as filedwith the Securities and Exchange Commission on April 10, 2009.)

 

10.6                         Acknowledgementand Release Agreement of William L. Hummel. (Incorporated by reference to Exhibit 10.6 to Registrant’s AnnualReport on Form 10-K for the year ended December 31, 2008 as filedwith the Securities and Exchange Commission on April 10, 2009.)

 

10.7                         Form ofDirector Deferred Fee Agreements with Directors Roland R. Alexander, Robert M.Garst and Kirk D. Fox.  (Incorporated byreference to Exhibit 10.7 to Registrant’s Annual Report on Form 10-Kfor the year ended December 31, 2008 as filed with the Securities andExchange Commission on April 10, 2009.)

 

10.8                         2009 StockOption Plan.  (Incorporated by referenceto Exhibit 10.8 to Registrant’s Annual Report on Form 10-K for theyear ended December 31, 2008 as filed with the Securities and ExchangeCommission on April 10, 2009.)

 

97

----

Table ofContents

 

10.9                         ReleaseAgreement of Thomas N. Wasson. (Incorporated by reference to Exhibit 99.1 of Registrant’s Form 8-Kas filed with the Securities and Exchange Commission on April 30, 2009.)

 

10.10                   Consulting Agreement ofThomas N. Wasson.  (Incorporated byreference to Exhibit 99.2 of Registrant’s Form 8-K as filed with theSecurities and Exchange Commission on April 30, 2009.)

 

10.11                   Second Amendment to theSupplemental Executive Retirement Agreement Plan Agreement for Kirk D. Foxdated March 29, 2007, amended June 18, 2008 and entered into betweenKirk D. Fox and Riverview National Bank on September 2, 2009.  (Incorporated by reference to Exhibit 10.11ofRegistrant’s Form 10-Q for the quarterly period ended September 30,2009 as filed with the Securities and Exchange Commission on November 12,2009.)

 

14.1                         Code ofEthics.  (Incorporated by reference to Exhibit 14.1of Registrant’s Annual Report on Form 10-K for the year ended December 31,2008 as filed with the Securities and Exchange Commission on April 10,2009.)

 

21                                  Subsidiaries ofRegistrant.

 

31.1                         Section 302Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

 

31.2                         Section 302Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

 

32.1                         Chief ExecutiveOfficer’s §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

 

32.2                         Chief FinancialOfficer’s §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

 

98

----