UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q







(Mark
One)


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




For the
quarterly period ended March 31,
2009




OR




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




For the
transition period from ________________________ to
_____________________________




Commission
File Number  000-13232




Juniata Valley Financial Corp.


(Exact
name of registrant as specified in its charter)




Pennsylvania
                    23-2235254(State
      or other jurisdiction of
                    (I.R.S.
      Employerincorporation
      or organization)
                    Identification
      No.)Bridge
      and Main Streets, Mifflintown, Pennsylvania
                    17059(Address
      of principal executive offices)
                    (Zip
      Code)




(717) 436-8211


(Registrant’s
telephone number, including area code)




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





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





Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “accelerated
filer”,” large accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.




Large
      accelerated filer  o
                  
                  Accelerated
      filer  xNon-accelerated
      filer  o (Do not check if
      a smaller reporting company)
                  
                  Smaller
      reporting company  o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     o Yes     x No





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the
latest practicable date.




Class
                      
                      Outstanding as of May 8,
    2009Common
      Stock ($1.00 par value)
                      
                      4,336,129
      shares




1




TABLE
OF CONTENTS








PART I - FINANCIAL
INFORMATION




Item
      1.
                                  
                                  Financial
      StatementsConsolidated
      Statements of Financial Condition as of March 31, 2009 and December 31,
      2008 (Unaudited)
                                  
                                  3Consolidated
      Statements of Income for the Three Months Ended March 31, 2009 and 2008
      (Unaudited)
                                  
                                  4Consolidated
      Statements of Changes in Stockholders’ Equity  for the Three
      Months Ended March 31, 2009 and 2008 (Unaudited)
                                  
                                  5Consolidated
      Statements of Cash Flows for the Three Months Ended March 31, 2009 and
      2008 (Unaudited)
                                  
                                  6Notes
      to Consolidated Financial Statements
                                  
                                  7Item
      2.
                                  
                                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                  
                                  13Item
      3.
                                  
                                  Quantitative
      and Qualitative Disclosures about Market Risk
                                  
                                  19Item
      4.
                                  
                                  Controls
      and Procedures
                                  
                                  20PART
      II - OTHER INFORMATIONItem
      1.
                                  
                                  Legal
      Proceedings
                                  
                                  21Item
      1A.
                                  
                                  Risk
      Factors
                                  
                                  21Item
      2.
                                  
                                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                                  
                                  21Item
      3.
                                  
                                  Defaults
      upon Senior Securities
                                  
                                  21Item
      4.
                                  
                                  Submission
      of Matters to a Vote of Security Holders
                                  
                                  21Item
      5.
                                  
                                  Other
      Information
                                  
                                  21Item
      6.
                                  
                                  Exhibits
                                  
                                  22Signatures
                                  
                                  22




2




PART I - FINANCIAL
INFORMATION


Item 1.  Financial
Statements




Juniata
Valley Financial Corp. and Subsidiary


Consolidated
Statements of Financial Condition


(Unaudited,
Dollar amounts in thousands, except share data)




March 31,
                                
                                
                                December
31,2009
                                
                                
                                2008ASSETSCash and due from
      banks
                                
                                $
                                8,951
                                
                                
                                $
                                12,264Interest bearing deposits with
      banks
                                
                                
                                157
                                
                                
                                
                                193Federal funds
      sold
                                
                                
                                4,000
                                
                                
                                
                                -Cash
      and cash equivalents
                                
                                
                                13,108
                                
                                
                                
                                12,457Interest bearing time deposits
      with banks
                                
                                
                                5,325
                                
                                
                                
                                5,325Securities available for
      sale
                                
                                
                                69,656
                                
                                
                                
                                64,321Restricted investment in Federal
      Home Loan Bank (FHLB) stock
                                
                                
                                2,197
                                
                                
                                
                                2,197Investment in unconsolidated
      subsidiary
                                
                                
                                3,224
                                
                                
                                
                                3,176Total loans, net of unearned
      interest
                                
                                
                                309,642
                                
                                
                                
                                315,132Less: Allowance for loan
      losses
                                
                                
                                (2,532
                                )
                                
                                
                                (2,610
                                )Total loans, net of allowance for
      loan losses
                                
                                
                                307,110
                                
                                
                                
                                312,522Premises and equipment,
      net
                                
                                
                                7,265
                                
                                
                                
                                7,374Bank owned life insurance and
      annuities
                                
                                
                                12,696
                                
                                
                                
                                12,582Core deposit
      intangible
                                
                                
                                333
                                
                                
                                
                                344Goodwill
                                
                                
                                2,046
                                
                                
                                
                                2,046Accrued interest receivable and
      other assets
                                
                                
                                6,582
                                
                                
                                
                                5,740Total
assets
                                
                                $
                                429,542
                                
                                
                                $
                                428,084LIABILITIES AND STOCKHOLDERS'
      EQUITYLiabilities:Deposits:Non-interest
      bearing
                                
                                $
                                49,685
                                
                                
                                $
                                54,200Interest
      bearing
                                
                                
                                316,446
                                
                                
                                
                                302,831Total
    deposits
                                
                                
                                366,131
                                
                                
                                
                                357,031Securities sold under agreements
      to repurchase
                                
                                
                                2,307
                                
                                
                                
                                1,944Short-term
      borrowings
                                
                                
                                -
                                
                                
                                
                                8,635Long-term
    debt
                                
                                
                                5,000
                                
                                
                                
                                5,000Other interest bearing
      liabilities
                                
                                
                                1,102
                                
                                
                                
                                1,096Accrued interest payable and other
      liabilities
                                
                                
                                6,201
                                
                                
                                
                                5,893Total
      liabilities
                                
                                
                                380,741
                                
                                
                                
                                379,599Stockholders'
      Equity:Preferred stock, no par
      value:Authorized - 500,000 shares, none
      issuedCommon stock, par value $1.00 per
      share:Authorized - 20,000,000
      sharesIssued - 4,745,826
      sharesOutstanding
    -4,333,455 shares at March 31,
      2009;4,341,055 shares at December 31,
      2008
                                
                                
                                4,746
                                
                                
                                
                                4,746Surplus
                                
                                
                                18,334
                                
                                
                                
                                18,324Retained
      earnings
                                
                                
                                35,343
                                
                                
                                
                                34,758Accumulated other comprehensive
      loss
                                
                                
                                (1,398
                                )
                                
                                
                                (1,247
                                )Cost of common stock in
      Treasury:412,371 shares at March 31,
      2009;404,771 shares at December 31,
      2008
                                
                                
                                (8,224
                                )
                                
                                
                                (8,096
                                )Total stockholders'
      equity
                                
                                
                                48,801
                                
                                
                                
                                48,485Total liabilities and
      stockholders' equity
                                
                                $
                                429,542
                                
                                
                                $
                                428,084




See
accompanying notes to consolidated financial statements.




3




Juniata
Valley Financial Corp. and Subsidiary


Consolidated
Statements of Income


(Unaudited)


(Dollar
amounts in thousands, except share data)




Three Months
      EndedMarch 31,2009
                                          
                                          
                                          2008Interest
      income:Loans, including
      fees
                                          
                                          $
                                          5,289
                                          
                                          
                                          $
                                          5,526Taxable
      securities
                                          
                                          
                                          308
                                          
                                          
                                          
                                          446Tax-exempt
      securities
                                          
                                          
                                          281
                                          
                                          
                                          
                                          246Federal funds
      sold
                                          
                                          
                                          56
                                          
                                          
                                          
                                          70Other interest
      income
                                          
                                          
                                          2
                                          
                                          
                                          
                                          75Total interest
      income
                                          
                                          
                                          5,936
                                          
                                          
                                          
                                          6,363Interest
      expense:Deposits
                                          
                                          
                                          1,878
                                          
                                          
                                          
                                          2,446Securities sold under agreements
      to repurchase
                                          
                                          
                                          1
                                          
                                          
                                          
                                          26Short-term
      borrowings
                                          
                                          
                                          1
                                          
                                          
                                          
                                          -Long-term
    debt
                                          
                                          
                                          34
                                          
                                          
                                          
                                          -Other interest bearing
      liabilities
                                          
                                          
                                          5
                                          
                                          
                                          
                                          9Total interest
      expense
                                          
                                          
                                          1,919
                                          
                                          
                                          
                                          2,481Net interest
      income
                                          
                                          
                                          4,017
                                          
                                          
                                          
                                          3,882Provision for loan
      losses
                                          
                                          
                                          135
                                          
                                          
                                          
                                          32Net interest income after
      provision for loan losses
                                          
                                          
                                          3,882
                                          
                                          
                                          
                                          3,850Noninterest
      income:Trust fees
                                          
                                          
                                          84
                                          
                                          
                                          
                                          123Customer service
      fees
                                          
                                          
                                          372
                                          
                                          
                                          
                                          392Earnings on bank-owned life
      insurance and annuities
                                          
                                          
                                          106
                                          
                                          
                                          
                                          124Commissions from sales of
      non-deposit products
                                          
                                          
                                          108
                                          
                                          
                                          
                                          211Income from unconsolidated
      subsidiary
                                          
                                          
                                          48
                                          
                                          
                                          
                                          42Gain on sale of
      securities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          13Gain (loss) on sales of other
      assets
                                          
                                          
                                          6
                                          
                                          
                                          
                                          (6
                                          )Prior period income from insurance
      sales
                                          
                                          
                                          323
                                          
                                          
                                          
                                          -Other noninterest
      income
                                          
                                          
                                          195
                                          
                                          
                                          
                                          233Total noninterest
      income
                                          
                                          
                                          1,242
                                          
                                          
                                          
                                          1,132Noninterest
      expense:Employee compensation
      expense
                                          
                                          
                                          1,286
                                          
                                          
                                          
                                          1,255Employee
      benefits
                                          
                                          
                                          444
                                          
                                          
                                          
                                          437Occupancy
                                          
                                          
                                          239
                                          
                                          
                                          
                                          232Equipment
                                          
                                          
                                          162
                                          
                                          
                                          
                                          179Data processing
      expense
                                          
                                          
                                          333
                                          
                                          
                                          
                                          334Director
      compensation
                                          
                                          
                                          110
                                          
                                          
                                          
                                          114Professional
      fees
                                          
                                          
                                          121
                                          
                                          
                                          
                                          84Taxes, other than
      income
                                          
                                          
                                          128
                                          
                                          
                                          
                                          131FDIC Insurance
      premiums
                                          
                                          
                                          88
                                          
                                          
                                          
                                          10Amortization of
      intangibles
                                          
                                          
                                          11
                                          
                                          
                                          
                                          11Other noninterest
      expense
                                          
                                          
                                          269
                                          
                                          
                                          
                                          254Total noninterest
      expense
                                          
                                          
                                          3,191
                                          
                                          
                                          
                                          3,041Income before income
      taxes
                                          
                                          
                                          1,933
                                          
                                          
                                          
                                          1,941Provision for income
      taxes
                                          
                                          
                                          523
                                          
                                          
                                          
                                          539Net income
                                          
                                          $
                                          1,410
                                          
                                          
                                          $
                                          1,402Earnings per
      shareBasic
                                          
                                          $
                                          0.32
                                          
                                          
                                          $
                                          0.32Diluted
                                          
                                          $
                                          0.32
                                          
                                          
                                          $
                                          0.32Cash dividends declared per
      share
                                          
                                          $
                                          0.19
                                          
                                          
                                          $
                                          0.18Weighted average basic shares
      outstanding
                                          
                                          
                                          4,340,633
                                          
                                          
                                          
                                          4,403,132Weighted average diluted shares
      outstanding
                                          
                                          
                                          4,345,622
                                          
                                          
                                          
                                          4,412,846




See
accompanying notes to consolidated financial statements.




4




Juniata
Valley Financial Corp. and Subsidiary


Consolidated
Statements of Changes in Stockholders’ Equity


(Unaudited)


(Amounts
in thousands, except share data)




Three
      Months Ended March 31, 2009Number
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            Accumulatedof
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            Other
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            TotalShares
                                                                                                            
                                                                                                            
                                                                                                            Common
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            Retained
                                                                                                            
                                                                                                            
                                                                                                            Comprehensive
                                                                                                            
                                                                                                            
                                                                                                            Treasury
                                                                                                            
                                                                                                            
                                                                                                            Stockholders'Outstanding
                                                                                                            
                                                                                                            
                                                                                                            Stock
                                                                                                            
                                                                                                            
                                                                                                            Surplus
                                                                                                            
                                                                                                            
                                                                                                            Earnings
                                                                                                            
                                                                                                            
                                                                                                            Loss
                                                                                                            
                                                                                                            
                                                                                                            Stock
                                                                                                            
                                                                                                            
                                                                                                            EquityBalance
      at December 31, 2008
                                                                                                            
                                                                                                            
                                                                                                            4,341,055
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            4,746
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            18,324
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            34,758
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            (1,247
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            (8,096
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            48,485Comprehensive
      income:Net
      income
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,410
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,410Change
      in unrealized losses on securities available
      for sale, net of reclassification
      adjustment and tax
      effects
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (151
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (151
                                                                                                            )Total
      comprehensive income
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,259Cash
      dividends at $0.19 per share
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (825
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (825
                                                                                                            )Stock-based
      compensation activity
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            10
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            10Purchase
      of treasury stock, at cost
                                                                                                            
                                                                                                            
                                                                                                            (7,600
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (128
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            (128
                                                                                                            )Balance
      at March 31, 2009
                                                                                                            
                                                                                                            
                                                                                                            4,333,455
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            4,746
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            18,334
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            35,343
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            (1,398
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            (8,224
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            48,801






Three Months Ended March 31,
      2008Number
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            Accumulatedof
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            Other
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            TotalShares
                                                                                                            
                                                                                                            
                                                                                                            Common
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            Retained
                                                                                                            
                                                                                                            
                                                                                                            Comprehensive
                                                                                                            
                                                                                                            
                                                                                                            Treasury
                                                                                                            
                                                                                                            
                                                                                                            Stockholders'Outstanding
                                                                                                            
                                                                                                            
                                                                                                            Stock
                                                                                                            
                                                                                                            
                                                                                                            Surplus
                                                                                                            
                                                                                                            
                                                                                                            Earnings
                                                                                                            
                                                                                                            
                                                                                                            Loss
                                                                                                            
                                                                                                            
                                                                                                            Stock
                                                                                                            
                                                                                                            
                                                                                                            EquityBalance at December 31,
      2007
                                                                                                            
                                                                                                            
                                                                                                            4,409,445
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            4,746
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            18,297
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            32,755
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            (557
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            (6,669
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            48,572Comprehensive
      income:Net income
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,402
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,402Change
      in unrealized losses on securities available
      for sale, net of reclassification
      adjustment and tax
      effects
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            414
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            414Total comprehensive
      income
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            1,816Implementation of EITF 06-4,
      "Accounting for Deferred Compensation and Postretirement Benefit Aspects
      of Endorsement Split-Dollar Life Insurance
      Arrangements"
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (480
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (480
                                                                                                            )Cash dividends at $0.18 per
      share
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (793
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (793
                                                                                                            )Stock-based compensation
      activity
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            12
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            12Purchase of treasury stock, at
      cost
                                                                                                            
                                                                                                            
                                                                                                            (14,525
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (302
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            (302
                                                                                                            )Balance at March 31,
      2008
                                                                                                            
                                                                                                            
                                                                                                            4,394,920
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            4,746
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            18,309
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            32,884
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            (143
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            (6,971
                                                                                                            )
                                                                                                            
                                                                                                            $
                                                                                                            48,825




See
accompanying notes to consolidated financial statements.




5




Juniata
Valley Financial Corp. and Subsidiary


Consolidated
Statements of Cash Flows


(Unaudited)


(Amounts
in thousands)




Three Months Ended
                                  March 31,2009
                                
                                
                                2008Operating
      activities:Net income
                                
                                $
                                1,410
                                
                                
                                $
                                1,402Adjustments to reconcile net
      income to net cash provided by operating
activities:Provision for loan
      losses
                                
                                
                                135
                                
                                
                                
                                32Provision for
      depreciation
                                
                                
                                154
                                
                                
                                
                                170Net (accretion) amortization of
      securities premiums (discounts)
                                
                                
                                47
                                
                                
                                
                                (18
                                )Amortization of core deposit
      intangible
                                
                                
                                11
                                
                                
                                
                                11Amortization of deferred net loan
      costs
                                
                                
                                12
                                
                                
                                
                                1Deferral of net loan
      costs
                                
                                
                                (10
                                )
                                
                                
                                (10
                                )Net realized gains on sales of
      securities
                                
                                
                                -
                                
                                
                                
                                (13
                                )Losses (gains) on sales of other
      assets
                                
                                
                                (6
                                )
                                
                                
                                6Earnings on bank owned life
      insurance and annuities
                                
                                
                                (106
                                )
                                
                                
                                (124
                                )Deferred income tax
      expense
                                
                                
                                6
                                
                                
                                
                                3Equity in earnings of
      unconsolidated subsidiary, net of dividends of $8 and
      $0
                                
                                
                                (40
                                )
                                
                                
                                (42
                                )Stock-based compensation
      expense
                                
                                
                                10
                                
                                
                                
                                12Increase in accrued interest
      receivable and other assets
                                
                                
                                (447
                                )
                                
                                
                                (891
                                )(Decrease) increase in accrued
      interest payable and other liabilities
                                
                                
                                317
                                
                                
                                
                                (3
                                )Net cash provided by operating
      activities
                                
                                
                                1,493
                                
                                
                                
                                536Investing
      activities:Purchases
    of:Securities available for
      sale
                                
                                
                                (15,339
                                )
                                
                                
                                (10,176
                                )FHLB stock
                                
                                
                                -
                                
                                
                                
                                (166
                                )Premises and
      equipment
                                
                                
                                (45
                                )
                                
                                
                                (384
                                )Bank owned life insurance and
      annuities
                                
                                
                                (29
                                )
                                
                                
                                (28
                                )Proceeds
    from:Maturities of and principal
      repayments onsecurities available for
      sale
                                
                                
                                9,728
                                
                                
                                
                                17,949Bank owned life insurance and
      annuities
                                
                                
                                18
                                
                                
                                
                                19Sale of other real estate
      owned
                                
                                
                                62
                                
                                
                                
                                45Sale of other
      assets
                                
                                
                                4
                                
                                
                                
                                -Net (increase) decrease in loans
      receivable
                                
                                
                                4,884
                                
                                
                                
                                (2,769
                                )Net cash provided by (used in)
      investing activities
                                
                                
                                (717
                                )
                                
                                
                                4,490Financing
      activities:Net increase in
      deposits
                                
                                
                                9,100
                                
                                
                                
                                4,200Net decrease in short-term
      borrowings and securitiessold under agreements to
      repurchase
                                
                                
                                (8,272
                                )
                                
                                
                                (135
                                )Cash
    dividends
                                
                                
                                (825
                                )
                                
                                
                                (793
                                )Purchase of treasury
      stock
                                
                                
                                (128
                                )
                                
                                
                                (302
                                )Net cash  provided by
      (used in) financing activities
                                
                                
                                (125
                                )
                                
                                
                                2,970Net increase in cash and cash
      equivalents
                                
                                
                                651
                                
                                
                                
                                7,996Cash and cash equivalents at
      beginning of period
                                
                                
                                12,457
                                
                                
                                
                                20,524Cash and cash equivalents at end
      of period
                                
                                $
                                13,108
                                
                                
                                $
                                28,520Supplemental
      information:Interest
    paid
                                
                                $
                                1,944
                                
                                
                                $
                                2,531Income taxes
      paid
                                
                                $
                                -
                                
                                
                                $
                                75Supplemental schedule of noncash
      investing and financing activities:Transfer of loans to other real
      estate owned and repossessed assets
                                
                                $
                                391
                                
                                
                                $
                                -




See
accompanying notes to consolidated financial statements.




6




Juniata
Valley Financial Corp. and Subsidiary





NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS





NOTE A –
Basis of Presentation and Accounting Policies





The
financial information includes the accounts of Juniata Valley Financial Corp.
(the “Corporation”) and its wholly owned subsidiary, The Juniata Valley Bank
(the “Bank”).  All significant intercompany accounts and transactions
have been eliminated.





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for fair presentation have been included.  For
comparative purposes, the March 31, 2008 balances have been reclassified to
conform to the 2009 presentation.  Such reclassifications had no impact on
net income. Operating results for the three-month period ended March 31, 2009,
are not necessarily indicative of the results for the year ended December 31,
2009.  For further information, refer to the consolidated financial
statements and footnotes thereto included in Juniata Valley Financial Corp.’s
Annual Report on Form 10-K for the year ended December 31, 2008.





NOTE B –
Recent Accounting Pronouncements





In April 2009, the Financial Accounting
Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS
157-4,Determining
FairValue When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are NotOrderly(FSP FAS 157-4).FASB Statement 157,FairValue
Measurements, defines
fairvalue as the price that would be
received to sell the asset or transfer the liability in an orderly transaction
(that is, not a forced liquidation or distressed sale) between market
participants at the measurement date under current market conditions. FSP FAS
157-4 provides additional guidance on determining when the volume and level of
activity for the asset or liability has significantly decreased. The FSP also
includes guidance on identifying circumstances when a transaction may not be
considered orderly.





FSP FAS 157-4 provides a list of factors
that a reporting entity should evaluate to determine whether there has been a
significant decrease in the volume and level of activity for the asset or
liability in relation to normal market activity for the asset or liability. When
the reporting entity concludes there has been a significant decrease in the
volume and level of activity for the asset or liability, further analysis of the
information from that market is needed and significant adjustments to the
related prices may be necessary to estimate fairvalue in accordance with Statement
157.





This FSP clarifies that when there has
been a significant decrease in the volume and level of activity for the asset or
liability, some transactions may not be orderly. In those situations, the entity
must evaluate the weight of the evidence to determine whether the transaction is
orderly. The FSP provides a list of circumstances that may indicate that a
transaction is not orderly. A transaction price that is not associated with an
orderly transaction is given little, if any, weight when estimating
fairvalue.





This FSP is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  An entity
early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2,Recognition and
Presentation of Other-Than-Temporary Impairments.The Corporation is
currently reviewing the effect this new pronouncement will have on its
consolidated financial statements.





In April 2009, the FASB issued FSP
No. FAS 115-2 and FAS 124-2,Recognition and
Presentation of Other-Than-Temporary Impairments(FSP FAS 115-2 and FAS
124-2).FSP FAS 115-2 and FAS 124-2 clarifies
the interaction of the factors that should be considered when determining
whether a debt security is other-than-temporarily impaired. For debt securities, management must
assess whether (a) it has the intent to sell the security and (b) it
is more likely than not that it will be required to sell the security prior to its
anticipated recovery. These steps are done before assessing whether the entity
will recover the cost basis of the investment. Previously, this assessment
required management to assert it has both the
intent and the ability to hold a security for a period of time sufficient to
allow for an anticipated recovery in fairvalue to avoid recognizing an
other-than-temporary impairment. This change does not affect the
need to forecast recovery of the value of the security through either cash flows
or market price.




7




In instances when a determination is
made that an other-than-temporary impairment exists but the investor does not
intend to sell the debt security and it is not more likely than not that it will
be required to sell the debt security prior to
its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation
and amount of the other-than-temporary impairment recognized in the income statement.
The other-than-temporary impairment is separated into (a) the
amount of the total other-than-temporary impairment related to a decrease in cash flows
expected to be collected from the debt security (the credit loss) and
(b) the amount of the total other-than-temporary impairment related to all other factors. The
amount of the total other-than-temporary impairment related to the credit loss is
recognized in earnings. The amount of the total other-than-temporary
impairment related to all other factors is
recognized in other comprehensive income.





This FSP is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  An entity
early adopting FSP FAS 115-2 and FAS 124-2 must also early adopt FSP FAS
157-4,Determining FairValue When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.The Corporation is
currently reviewing the effect this new pronouncement will have on its
consolidated financial statements.





In April 2009, the FASB issued FSP
No. FAS 107-1 and APB 28-1,Interim Disclosures
about FairValue of Financial
Instruments(FSP FAS 107-1
and APB 28-1).FSP FAS 107-1 and APB 28-1 amends FASB
Statement No. 107,Disclosures about
FairValue of Financial
Instruments, to
require disclosures about fairvalue of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. This FSP also amends APB Opinion No. 28,Interim Financial
Reporting, to
require those disclosures in summarized
financial information at interim reporting periods.





This FSP is effective for interim and
annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP FAS
157-4,Determining FairValue When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderlyand FSP FAS 115-2 and FAS 124-2,Recognition and
Presentation of Other-Than-Temporary Impairments.The
Corporation is currently reviewing the effect this new pronouncement will have
on its consolidated financial statements.





FASB
Statement No. 141 (R) Business
Combinations was issued in December of 2007. This Statement establishes
principles and requirements for how the acquirer of a business recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree. The
Statement also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The guidance became effective as of January
1, 2009, and to date, has had no effect on the Corporation’s consolidated
financial statements.





FASB
Statement No. 160 Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51 was issued
in December of 2007. This Statement establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The guidance became effective as of January 1,
2009 and will not have a material impact on the Corporation’s consolidated
financial statements.





In March 2008, theFASB issued Statement No. 161,Disclosures about
Derivative Instruments and Hedging Activities—an amendment of Statement No.
133(Statement
161).  Statement 161 requires entities that utilize derivative
instruments to provide qualitative disclosures about theirobjectives and strategies for using
such instruments, as well as any details of credit-risk-related contingent
features contained within derivatives. Statement 161 also requires entities to disclose additional
information about the amounts and location of derivatives located within the
financial statements, how the provisions of SFAS 133havebeen applied, and the impact that
hedges have on an entity’s financial position, financial performance, and cash
flows.  Statement 161waseffectiveon January 1, 2009.  TheCorporationis currently not using derivative
instruments and does not
engage in hedging activities.




8




In February 2008, the FASB issued a FASB
Staff Position (FSP) FAS
140-3,Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions. This FSP addresses the issue of
whether or not these transactions should be viewed as two separate transactions
or as one "linked" transaction. The FSP includes a "rebuttable presumption" that
presumes linkage of the two transactions unless the presumption can be overcome
by meeting certain criteria. The FSPwaseffectiveon January 1, 2009. TheCorporationdoes not believe that the new
pronouncement will impact its consolidated financial
statements.






NOTE C –
Comprehensive Income





U.S.
generally accepted accounting principles require that recognized revenue,
expenses, gains, and losses be included in net income.  Although
certain changes in assets and liabilities, such as unrealized gains and losses
on available for sale securities, are reported as a separate component of the
equity section of the consolidated statements of financial condition, such
items, along with net income, are components of comprehensive
income.





The
components of comprehensive income and related tax effects are as follows (in
thousands):




Three Months Ended March 31,
      2009
                              
                              
                              Three Months Ended March 31,
      2008Before
                              
                              
                              Tax Expense
                              
                              
                              
                              
                              
                              Before
                              
                              
                              Tax ExpenseTax
                              
                              
                              or
                              
                              
                              Net-of-Tax
                              
                              
                              Tax
                              
                              
                              or
                              
                              
                              Net-of-TaxAmount
                              
                              
                              (Benefit)
                              
                              
                              Amount
                              
                              
                              Amount
                              
                              
                              (Benefit)
                              
                              
                              AmountNet income
                              
                              $
                              1,933
                              
                              
                              $
                              523
                              
                              
                              $
                              1,410
                              
                              
                              $
                              1,941
                              
                              
                              $
                              539
                              
                              
                              $
                              1,402Other comprehensive income
      (loss):Unrealized gains (losses) on
      available for sale securities:Unrealized gains (losses) arising
      during the period
                              
                              
                              (229
                              )
                              
                              
                              (78
                              )
                              
                              
                              (151
                              )
                              
                              
                              621
                              
                              
                              
                              211
                              
                              
                              
                              410Unrealized gains from
      unconsolidated subsidiary
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              13
                              
                              
                              
                              -
                              
                              
                              
                              13Less reclassification adjustment
      for:(gains) losses included in net
      income
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (13
                              )
                              
                              
                              (4
                              )
                              
                              
                              (9
                              )Other comprehensive income
      (loss)
                              
                              
                              (229
                              )
                              
                              
                              (78
                              )
                              
                              
                              (151
                              )
                              
                              
                              621
                              
                              
                              
                              207
                              
                              
                              
                              414Total comprehensive
      income
                              
                              $
                              1,704
                              
                              
                              $
                              445
                              
                              
                              $
                              1,259
                              
                              
                              $
                              2,562
                              
                              
                              $
                              746
                              
                              
                              $
                              1,816







NOTE D –
Earnings Per Share





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




(Amounts, except earnings per
      share, in thousands)Three
Months
                                                
                                                
                                                Three
MonthsEnded
                                                
                                                
                                                EndedMarch 31,
    2009
                                                
                                                
                                                March 31,
    2008Net income
                                                
                                                $
                                                1,410
                                                
                                                
                                                $
                                                1,402Weighted-average common shares
      outstanding
                                                
                                                
                                                4,341
                                                
                                                
                                                
                                                4,403Basic earnings per
      share
                                                
                                                $
                                                0.32
                                                
                                                
                                                $
                                                0.32Weighted-average common shares
      outstanding
                                                
                                                
                                                4,341
                                                
                                                
                                                
                                                4,403Common stock equivalents due to
      effect of stock options
                                                
                                                
                                                5
                                                
                                                
                                                
                                                10Total weighted-average common
      shares and equivalents
                                                
                                                
                                                4,346
                                                
                                                
                                                
                                                4,413Diluted earnings per
      share
                                                
                                                $
                                                0.32
                                                
                                                
                                                $
                                                0.32




NOTE E –
Commitments, Contingent Liabilities and Guarantees





In the
ordinary course of business, the Corporation makes commitments to extend credit
to its customers through letters of credit, loan commitments and lines of
credit. At March 31, 2009, the Corporation had $47,027,000 outstanding in loan
commitments and other unused lines of credit extended to its customers as
compared to $47,738,000 at December 31, 2008.




9





The
Corporation does not issue any guarantees that would require liability
recognition or disclosure, other than its letters of credit. Letters of credit
are conditional commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Generally, all letters of credit
have expiration dates within one year of issuance. The credit risk involved in
issuing letters of credit is essentially the same as those that are involved in
extending loan facilities to customers. The Corporation generally holds
collateral and/or personal guarantees supporting these commitments. The
Corporation had $624,000 and $639,000 of letters of credit commitments as of
March 31, 2009 and December 31, 2008, respectively.  Management
believes that the proceeds obtained through a liquidation of collateral and the
enforcement of guarantees would be sufficient to cover the potential amount of
future payments required under the corresponding guarantees. The current amount
of the liability as of March 31, 2009 for payments under letters of credit
issued was not material.





NOTE F –
Defined Benefit Retirement Plan





The
Corporation has a defined benefit retirement plan covering substantially all of
its employees, prior to January 1, 2008. Effective January 1, 2008, the plan was
amended to close the plan to new entrants. The benefits are based on years of
service and the employees’ compensation. The Corporation’s funding policy is to
contribute annually the maximum amount that can be deducted for federal income
taxes purposes. Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be earned in the
future. The Corporation has made no contributions in the first three months of
2009 and does not expect to contribute to the defined benefit plan in the
remainder of 2009.





Pension
expense included the following components for the three month periods ended
March 31, 2009 and 2008:




(Dollar amounts in
      thousands)Three Months
      EndedMarch 31,2009
                                    
                                    
                                    2008Components of net periodic pension
      costService
cost
                                    
                                    $
                                    47
                                    
                                    
                                    $
                                    45Interest
    cost
                                    
                                    
                                    112
                                    
                                    
                                    
                                    110Expected return on plan
      assets
                                    
                                    
                                    (115
                                    )
                                    
                                    
                                    (106
                                    )Additional recognized
      amounts
                                    
                                    
                                    40
                                    
                                    
                                    
                                    9Net periodic pension
      cost
                                    
                                    $
                                    84
                                    
                                    
                                    $
                                    58






NOTE G–
Acquisition





In 2006,
the Corporation acquired a branch office in Richfield, PA. The acquisition
included real estate, deposits and loans. The assets and liabilities of the
acquired business were recorded on the consolidated statement of financial
condition at their estimated fair values as of September 8, 2006, and their
results of operations have been included in the consolidated statements of
income since such date.





Included
in the purchase price of the branch was goodwill and core deposit intangible of
$2,046,000 and $449,000, respectively. The core deposit intangible is being
amortized over a ten-year period on a straight line basis. During the first
three months of 2009 and 2008, amortization expense was $11,000. Accumulated
amortization of core deposit intangible through March 31, 2009 was $116,000. The
goodwill is not amortized, but is measured annually for impairment.




10




NOTE H –
Investment in Unconsolidated Subsidiary





The
Corporation owns 39.16% of the outstanding common stock of The First National
Bank of Liverpool (FNBL), Liverpool, PA. This investment is accounted for under
the equity method of accounting, as defined in Accounting Principles Board
Opinion No. 18. The investment is being carried at $3,224,000 as of March 31,
2009.  The Corporation increases its investment in FNBL for its share
of earnings and decreases its investment by any dividends received from FNBL. A
loss in value of the investment which is other than a temporary decline will be
recognized. Evidence of a loss in value might include, but would not necessarily
be limited to, absence of an ability to recover the carrying amount of the
investment or inability of FNBL to sustain an earnings capacity which would
justify the carrying amount of the investment.





NOTE I –
Fair Value Measurements





Effective
January 1, 2008, the Corporation adopted the provisions of SFAS No 157, Fair Value Measurements for
financial assets and financial liabilities and on January 1, 2009, adopted the
provision for non-financial assets and non-financial liabilities. SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements.





SFAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. A
fair value measurement assumes that the transaction to sell the asset or
transfer the liability occurs in the principal market for the asset or liability
or, in the absence of a principal market, the most advantageous market for the
asset or liability. The price in the principal (or most advantageous) market
used to measure the fair value of the asset or liability is not to be adjusted
for transaction costs. An orderly transaction is a transaction that assumes
exposure to the market for a period prior to the measurement date to allow for
marketing activities that are usual and customary for transactions involving
such assets and liabilities; it is not a forced transaction. Market participants
are buyers and sellers in the principal market that are (i) independent, (ii)
knowledgeable, (iii) able to transact and (iv) willing to transact.





SFAS 157
requires the use of valuation techniques that are consistent with the market
approach, the income approach and/or the cost approach. The market approach uses
prices and other relevant information generated by market transactions involving
identical or comparable assets and liabilities. The income approach uses
valuation techniques to convert future amounts, such as cash flows or earnings,
to a single present amount on a discounted basis. The cost approach is based on
the amount that currently would be required to replace the service capacity of
an asset (replacement cost). Valuation techniques should be consistently
applied. Inputs to valuation techniques refer to the assumptions that market
participants would use in pricing the asset or liability. Inputs may be
observable, meaning those that reflect the assumptions market participants would
use in pricing the asset or liability developed based on market data obtained
from independent sources, or unobservable, meaning those that reflect the
reporting entity’s own assumptions about the assumptions market participants
would use in pricing the asset or liability developed based on the best
information available in the circumstances. In that regard, SFAS 157 establishes
a fair value hierarchy for valuation inputs that gives the highest priority to
quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. The fair value hierarchy is as
follows:





Level 1
Inputs – Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the
measurement date.





Level 2
Inputs – Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active,
inputs other than quoted prices that are observable for the asset or liability
(such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or
inputs that are derived principally from or corroborated by market data by
correlation or other means.





Level 3
Inputs – Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity’s own assumptions about the assumptions that
market participants would use in pricing the assets or liabilities.




11




A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation methodologies were
applied to all of the Corporation’s financial assets and financial liabilities
carried at fair value effective January 1, 2008.





In
general, fair value is based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value. These adjustments may include amounts to
reflect counterparty credit quality, the Corporation’s creditworthiness, among
other things, as well as unobservable parameters. Any such valuation adjustments
are applied consistently over time. The Corporation’s valuation methodologies
may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. While management believes
the Corporation’s valuation methodologies are appropriate and consistent with
other market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.





Securities Available for
Sale. Debt securities classified as available for sale are reported at
fair value utilizing Level 2 inputs. For these securities, the Corporation
obtains fair value measurement from an independent pricing service. The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Treasury yield curve, live trading levels,
trade execution data, market consensus prepayment speeds, credit information and
the bond’s terms and conditions, among other things. Equity securities
classified as available for sale are reported at fair value using Level 1
inputs.





Impaired Loans. Certain
impaired loans are reported at the fair value of the underlying collateral if
repayment is expected solely from the collateral. Collateral values are
estimated using Level 3 inputs based on customized discounting
criteria.





Other Real Estate Owned.
Assets included in other real estate owned are reported at fair value on a
non-recurring basis. Values are estimated using Level 3 inputs, based on
appraisals that consider the sales prices of similar properties in the proximate
vicinity.





The
following table summarizes financial assets and financial liabilities measured
at fair value as of March 31, 2009 and December 31, 2008, segregated by the
level of the valuation inputs within the fair value hierarchy utilized to
measure fair value (in thousands).




(Level 1)
                              
                              
                              (Level 2)
                              
                              
                              (Level 3)March 31,
    2009
                              
                              
                              Quoted Prices in Active Markets
      for Identical Assets
                              
                              
                              Significant
                                Other
                                Observable
      Inputs
                              
                              
                              Significant
                                Other
                                Unobservable
      InputsMeasured at fair value on a
      recurring basis:Equity securities
      available-for-sale
                              
                              $
                              654
                              
                              
                              $
                              654
                              
                              
                              $
                              -
                              
                              
                              $
                              -Debt securities
      available-for-sale
                              
                              
                              69,002
                              
                              
                              
                              
                              
                              
                              
                              69,002
                              
                              
                              
                              -Measured at fair value on a
      non-recurring basis:Impaired
    loans
                              
                              
                              867
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              867Other real estate
      owned
                              
                              
                              627
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              627
  (Level 1)
                            
                            
                            (Level 2)
                            
                            
                            (Level 3)December 31,
      2008
                            
                            
                            Quoted Prices in Active Markets
      for Identical Assets
                            
                            
                            Significant
                              Other
                              Observable
      Inputs
                            
                            
                            Significant
                              Other
                              Unobservable
      InputsMeasured at fair value on a
      recurring basis:Equity securities
      available-for-sale
                            
                            $
                            1,014
                            
                            
                            $
                            1,014
                            
                            
                            $
                            -
                            
                            
                            $
                            -Debt securities
      available-for-sale
                            
                            
                            63,307
                            
                            
                            
                            
                            
                            
                            
                            63,307
                            
                            
                            
                            -Measured at fair value on a
      non-recurring basis:Impaired
    loans
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Other real estate
      owned
                            
                            
                            305
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            305
  12


Certain
non-financial assets and non-financial liabilities measured at fair value on a
recurring basis include reporting units measured at fair value in the first step
of a goodwill impairment test. Certain non-financial assets measured at fair
value on a non-recurring basis include non-financial assets and non-financial
liabilities measured at fair value in the second step of a goodwill impairment
test, as well as intangible assets and other non-financial long-lived assets
measured at fair value for impairment assessment. As stated above, SFAS 157 was
applicable to these fair value measurements beginning January 1, 2009 and were
not significant at March 31, 2009.





NOTE J –
Subsequent Events





On April
21, 2009, the Board of Directors declared a regular cash dividend for the second
quarter of 2009 of $0.19 per share to shareholders of record on May 15, 2009,
payable on June 1, 2009.





Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations





Forward
Looking Statements:





The
Private Securities Litigation Reform Act of 1995 contains safe harbor provisions
regarding forward-looking statements. When used in this discussion, the words
"believes," "anticipates," "contemplates," "expects," and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties which could cause actual results, performance
or achievements expressed or implied by such forward-looking statements to
differ materially from those projected. Those risks and uncertainties include
changes in interest rates and their impact on the level of deposits, loan demand
and value of loan collateral, changes in the market value of the securities
portfolio, increased competition from other financial institutions, governmental
monetary policy, legislation and changes in banking regulations, changes in
levels of FDIC deposit insurance premiums and assessments, risks associated with
the effect of opening a new branch, the ability to control costs and expenses,
and general economic conditions. The Corporation undertakes no obligation to
update such forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated
events.





Critical
Accounting Policies:





Disclosure
of the Corporation’s significant accounting policies is included in the notes to
the consolidated financial statements of the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2008.  Some of these policies
require significant judgments, estimates, and assumptions to be made by
management, most particularly in connection with determining the provision for
loan losses and the appropriate level of the allowance for loan losses, as well
as management’s evaluation of the investment portfolio for other-than-temporary
impairment.





General:





The following discusses the consolidated
financial condition of the Corporation as of March 31, 2009, as compared to
December 31, 2008, and the consolidated results of operations for the three
months ended March 31, 2009, compared to the same period in 2008. This
discussion should be read in conjunction with the interim consolidated financial
statements and related footnotes included herein.




13




Introduction:





Juniata Valley Financial Corp. is aPennsylvaniacorporation organized in 1983 to become
the holding company of The Juniata Valley Bank ("Bank"). The Bank is a
state-chartered bank headquartered inMifflintown,Pennsylvania. Juniata Valley Financial Corp. and its
subsidiary bank derive substantially all of theirincome from banking and bank-related
services, including interest earned on residential real estate, commercial
mortgage, commercial and consumer loans, interest earned on investment
securities and fee income from deposit services and other financial services to
its customers through 12 locations in central Pennsylvania. Juniata Valley
Financial Corp. also owns 39.16% of the First National Bank of Liverpool,
located inLiverpool,Pennsylvania. Juniata accounts forLiverpoolas an unconsolidated subsidiary using
the equity method of accounting.





Financial
Condition:





As of
March 31, 2009, total assets increased by $1,458,000, or 0.3%, as compared to
December 31, 2008. Deposits increased $9.1 million, $8.6 million of which was
used to repay short-term debt. Interest-bearing deposits grew by $13.6 million,
while non-interest bearing deposits declined by $4.5 million.




The table
below shows changes in deposit volumes by type of deposit (in thousands of
dollars) between December 31, 2008 and March 31, 2009.




March 31,
                                    
                                    
                                    December
31,
                                    
                                    
                                    Change2009
                                    
                                    
                                    2008
                                    
                                    
                                    $
                                    
                                    
                                    %Deposits:Demand, non-interest
      bearing
                                    
                                    $
                                    49,685
                                    
                                    
                                    $
                                    54,200
                                    
                                    
                                    $
                                    (4,515
                                    )
                                    
                                    
                                    (8.3
                                    %)NOW and money
      market
                                    
                                    
                                    66,067
                                    
                                    
                                    
                                    62,099
                                    
                                    
                                    
                                    3,968
                                    
                                    
                                    
                                    6.4
                                    %Savings
                                    
                                    
                                    39,854
                                    
                                    
                                    
                                    37,114
                                    
                                    
                                    
                                    2,740
                                    
                                    
                                    
                                    7.4
                                    %Time deposits, $100,000 and
      more
                                    
                                    
                                    40,232
                                    
                                    
                                    
                                    39,059
                                    
                                    
                                    
                                    1,173
                                    
                                    
                                    
                                    3.0
                                    %Other time
      deposits
                                    
                                    
                                    170,293
                                    
                                    
                                    
                                    164,559
                                    
                                    
                                    
                                    5,734
                                    
                                    
                                    
                                    3.5
                                    %Total
    deposits
                                    
                                    $
                                    366,131
                                    
                                    
                                    $
                                    357,031
                                    
                                    
                                    $
                                    9,100
                                    
                                    
                                    
                                    2.5
                                    %




Overall,
loans, net of unearned interest, decreased by $5,490,000, or 1.7%, between
December 31, 2008 and March 31, 2009. As shown in the table below (in thousands
of dollars), the decrease in outstanding loans since December 31, 2008 has been
related primarily to commercial, home equity and personal installment loan
activity.




March 31,
                                  
                                  
                                  December
31,
                                  
                                  
                                  Change2009
                                  
                                  
                                  2008
                                  
                                  
                                  $
                                  
                                  
                                  
                                  %Loans:Commercial, financial and
      agricultural
                                  
                                  $
                                  35,373
                                  
                                  
                                  $
                                  38,755
                                  
                                  
                                  $
                                  (3,382
                                  )
                                  
                                  
                                  (8.7
                                  %)Real estate -
      commercial
                                  
                                  
                                  32,142
                                  
                                  
                                  
                                  32,171
                                  
                                  
                                  
                                  (29
                                  )
                                  
                                  
                                  (0.1
                                  %)Real estate -
      construction
                                  
                                  
                                  24,112
                                  
                                  
                                  
                                  22,144
                                  
                                  
                                  
                                  1,968
                                  
                                  
                                  
                                  8.9
                                  %Real estate -
      mortgage
                                  
                                  
                                  139,068
                                  
                                  
                                  
                                  140,016
                                  
                                  
                                  
                                  (948
                                  )
                                  
                                  
                                  (0.7
                                  %)Home equity
                                  
                                  
                                  58,338
                                  
                                  
                                  
                                  60,949
                                  
                                  
                                  
                                  (2,611
                                  )
                                  
                                  
                                  (4.3
                                  %)Obligations of states and
      political subdivisions
                                  
                                  
                                  8,048
                                  
                                  
                                  
                                  7,177
                                  
                                  
                                  
                                  871
                                  
                                  
                                  
                                  12.1
                                  %Personal
                                  
                                  
                                  12,561
                                  
                                  
                                  
                                  13,920
                                  
                                  
                                  
                                  (1,359
                                  )
                                  
                                  
                                  (9.8
                                  %)Total
      loans
                                  
                                  $
                                  309,642
                                  
                                  
                                  $
                                  315,132
                                  
                                  
                                  $
                                  (5,490
                                  )
                                  
                                  
                                  (1.7
                                  %)




14




A summary
of the transactions in the allowance for loan losses for each of the three
months ended March 31, 2009 and 2008 (in thousands) are presented
below.





Periods Ended March
      31,2009
                            
                            
                            2008Balance of allowance - January
      1
                            
                            $
                            2,610
                            
                            
                            $
                            2,322Loans charged
      off
                            
                            
                            (215
                            )
                            
                            
                            (25
                            )Recoveries of loans previously
      charged off
                            
                            
                            2
                            
                            
                            
                            11Net
    charge-offs
                            
                            
                            (213
                            )
                            
                            
                            (14
                            )Provision for loan
      losses
                            
                            
                            135
                            
                            
                            
                            32Balance of allowance - end of
      period
                            
                            $
                            2,532
                            
                            
                            $
                            2,340Ratio of net charge-offs during
      period toaverage loans
      outstanding
                            
                            
                            0.07
                            %
                            
                            
                            0.00
                            %


As of
March 31, 2009, the Corporation had several loan relationships, with an
aggregate carrying balance of $618,000, deemed to be impaired that have been
placed in nonaccrual status. Specific allocations totaling $28,000 have been
included within the loan loss reserve for these loans. Management believes that
the specific reserve is adequate to cover potential future losses related to
these relationships. There are five other significant loan relationships
considered to be impaired, with outstanding balances totaling $2,575,000, on
which interest continues to accrue. Specific allocations within the allowance
for loan losses for these loans total $113,000. Otherwise, there are no material
loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention which management expects to significantly impact future
operating results, liquidity or capital resources. Following is a summary of the
Bank’s non-performing loans on March 31, 2009 as compared to December 31,
2008.


(Dollar amounts in
      thousands)March 31,
    2009
                                  
                                  
                                  December 31,
      2008Non-performing
      loansNonaccrual
      loans
                                  
                                  $
                                  967
                                  
                                  
                                  $
                                  1,255Accruing loans past due 90 days or
      more
                                  
                                  
                                  690
                                  
                                  
                                  
                                  664Restructured
      loans
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Total
                                  
                                  $
                                  1,657
                                  
                                  
                                  $
                                  1,919Average loans
      outstanding
                                  
                                  $
                                  311,525
                                  
                                  
                                  $
                                  307,606Ratio of non-performing loans
      to
                                  
                                  
                                  0.53
                                  %
                                  
                                  
                                  0.62
                                  %average loans
      outstanding





Stockholders’
equity increased by $316,000, or 0.7%, from December 31, 2008 to March 31, 2009.
Net income of $1,410,000 was offset by dividends of $825,000 and net purchases
of treasury stock of $128,000. The Corporation repurchased stock into treasury
pursuant to its stock repurchase program. During the first three months of 2009,
the Corporation purchased 7,600 shares. Securities available for sale decreased
in market value, representing a decrease to equity of $151,000, net of
taxes.





Recently,
the FDIC Board has adopted a restoration plan that raised assessment rates for
deposit insurance premiums for 2009, and has also proposed a special emergency
assessment; these developments are expected to significantly affect operating
results for the Corporation.




15




Management
is not aware of any other current recommendations of applicable regulatory
authorities that, if implemented, would have a material effect on the
Corporation's liquidity, capital resources, or operations.





Subsequent
to March 31, 2009, the following events took place:





On April
21, 2009, the Board of Directors declared a regular cash dividend for the second
quarter of 2009 of $0.19 per share to shareholders of record on May 15, 2009,
payable on June 1, 2009.





Comparison
of the Three Months Ended March 31, 2009 and 2008




Operations Overview:





Net income for the first quarter of 2009 was $1,410,000, an
increase of $8,000, or 0.6%, compared to the first quarter of 2008. Basic and diluted
earnings per share were $.32 in each of the quarters ended March 31, 2009 and
2008. Annualized return on average equity for the first quarter in 2009 was 11.59%,comparedto the prior year’s ratio for the same
period of 11.60%. For the quarter ended March 31, annualized return on average
assets was 1.32% in 2009, versus 1.34% in 2008, reflecting a decrease of 1.5%.
The increase in net income was primarily a result of higher net interest income
and non-interest income, partially offset by an increase in the loan loss
provision and non-interest expense.





Presented below are selected key ratios
for the two periods:




Three Months
      EndedMarch 312009
                              
                              
                              2008Return on average assets
      (annualized)
                              
                              
                              1.32
                              %
                              
                              
                              1.34
                              %Return on average equity
      (annualized)
                              
                              
                              11.59
                              %
                              
                              
                              11.60
                              %Average equity to average
      assets
                              
                              
                              11.42
                              %
                              
                              
                              11.52
                              %Non-interest income, excluding
      securities gains, as a percentage of average assets
      (annualized)
                              
                              
                              1.16
                              %
                              
                              
                              1.07
                              %Non-interest expense as a
      percentage of average assets (annualized)
                              
                              
                              3.00
                              %
                              
                              
                              2.90
                              %




The discussion that follows further
explains changes in the components of net income when comparing the
first quarter of 2009 with the
first quarter of 2008.





Net
Interest Income:





Net
interest income was $4,017,000 for the first quarter of 2009, as compared to
$3,882,000 in the same quarter in 2008. Average earning assets grew by 1.5%,
while the net interest margin on a fully tax equivalent basis increased by 10
basis points.





Interest
on loans decreased $237,000, or 4.3%, in the first quarter of 2009 as compared
to the same period in 2008. The average weighted interest rate decrease of 58
basis points lowered interest income by approximately $438,000, while an
increase in average balances outstanding added approximately $201,000 in
interest income.





Interest
earned on investment securities and money market investments decreased $190,000
in the first quarter of 2009 as compared to 2008, with average balances
decreasing $7.0 million during the period. The yield on money market investments
(federal funds and interest bearing deposits) decreased by 116 basis points in
the first quarter of 2009 as compared to the first quarter of 2008, due to the
reduction in the federal funds target rate from 2.25% in the first quarter of
2008 to 0.25% as of March 31, 2009. Likewise, the overall pre-tax yield on the
investment securities portfolio decreased during that same timeframe by 61 basis
points.





Average
interest-bearing deposits and securities sold under agreements to repurchase
declined by $3,516,000, while average non-interest bearing deposits grew by
$4,343,000. This change in the mix of deposits, in addition to the lower general
rate environment, contributed to the reduction in the cost to fund earning
assets, which was reduced by 61 basis points, to 2.01%, in the first quarter of
2009.




16




Total
average earning assets during the first quarter of 2009 were $387,048,000,
compared to $381,477,000 during the first quarter of 2008, yielding 6.18% in
2009 versus 6.69% in 2008. Funding costs for the earning assets were 2.01% and
2.62%, for the first quarters of 2009 and 2008, respectively. Net interest
margin on a fully tax-equivalent basis for the first quarter of 2009 was 4.35%.
For the same period in 2008, the fully-tax equivalent net interest margin was
4.25%.




Provision
for Loan Losses:





In the
first quarter of 2009, the provision for loan losses was $135,000. Management
regularly reviews the adequacy of the loan loss reserve and makes assessments as
to specific loan impairment, historical charge-off expectations, general
economic conditions in the Bank’s market area, specific loan quality and other
factors. In the first quarter of 2008, the recorded loan loss provision was
$32,000.




Non-interest
Income:





Non-interest
income in the first quarter of 2009, exclusive of gains recorded on securities,
exceeded non-interest income in the previous year’s first quarter by $123,000,
or 11.0%. Included in non-interest income in the first quarter of 2009 was an
adjustment of $323,000, representing previously unrecorded fees earned in prior
periods from the sales of insurance policies on loans. The adjustment was deemed
by management to be immaterial to the consolidated financial statements in and
all prior periods and therefore required no prior period restatement of
earnings. Trust fees earned in the first quarter of 2009 were $39,000 lower than
those earned in the first quarter of 2008. Fees for customer service on deposit
accounts in the first quarter of 2009 decreased compared to the same period in
2008 by $20,000, or 5.1%, due to reduced activity in the overdraft protection
product. At $108,000, commissions from the sale of non-deposit products were 51%
of the $211,000 in commissions earned in 2008. Income from bank owned life
insurance and annuities decreased in the first quarter of 2009 compared to the
first quarter of 2008 by $18,000, or 14.5%, as a result of lower earning rates.
Income from our unconsolidated subsidiary was $48,000, representing earnings
recorded under the equity method of accounting for the ownership of 39.16% of
the First National Bank of Liverpool during the first quarter of 2009, a 14.3%
increase over the previous year’s first quarter. Other non-interest income
decreased by $38,000 in the first quarter of 2009 compared to the same period in
2008. In 2008, the Corporation received funds from VISA for the partial
redemption of Class B shares that were created as a result of VISA’s IPO. The
redemption amount was $38,000 and was recorded as other non-interest
income.





The
Corporation recognized no gains on securities transactions in the first quarter
of 2009 as compared to a gain of $13,000 in the same quarter of
2008.





As a
percentage of average assets, annualized non-interest income, exclusive of net
gains on the sale of securities, was 1.16% in the first quarter of 2009 as
compared to 1.07% in the same period of 2008. Excluding the $323,000 adjustment
noted above, the 2009 ratio would have been 0.86%.




Non-interest
Expense:





Total
non-interest expense increased $150,000, or 4.9%, in the first quarter of 2009
as compared to 2008. Employee compensation and benefits costs increased by
$38,000, or 2.2%, in the first quarter of 2009 compared to the first quarter of
2008. Professional fees in the first quarter of 2009 were $37,000, or 44.0%
higher than in the first quarter of 2008, due to higher consulting fees. The
cost of FDIC insurance rose by $78,000 in the first quarter of 2009 when
compared to the first quarter of 2008.





As a
percentage of average assets, annualized noninterest expense was 3.00% in the
first quarter of 2009 as compared to 2.90% in the same period of
2008.




17




Liquidity:





The
objective of liquidity management is to ensure that sufficient funding is
available, at a reasonable cost, to meet the ongoing operational cash needs of
the Corporation and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of the Corporation to maintain a high level
of liquidity in all economic environments. Principal sources of asset liquidity
are provided by securities maturing in one year or less, other short-term
investments such as federal funds sold and cash and due from banks. Liability
liquidity, which is more difficult to measure, can be met by attracting deposits
and maintaining the core deposit base.  The Corporation is a member of
the Federal Home Loan Bank of Pittsburgh for the purpose of providing short-term
liquidity when other sources are unable to fill these needs. During the first
three months of 2009, the average balance of short-term borrowings from the
Federal Home Loan Bank was $370,000, with none outstanding on March 31, 2009. As
of March 31, 2009, the Corporation had long-term debt of $5,000,000 and had
unused borrowing capacity with the Federal Home Loan Bank of $184
million.





Funding
derived from securities sold under agreements to repurchase is available through
corporate cash management accounts for business customers. This product gives
the Corporation the ability to pay interest on corporate checking
accounts.





In view
of the sources previously mentioned, management believes that the Corporation's
liquidity is capable of providing the funds needed to meet loan
demand.





Off-Balance
Sheet Arrangements:





The
Corporation’s consolidated financial statements do not reflect various
off-balance sheet arrangements that are made in the normal course of business,
which may involve some liquidity risk, credit risk, and interest rate
risk.  These commitments consist mainly of loans approved but not yet
funded, unused lines of credit and letters of credit issued using the same
credit standards as on-balance sheet instruments. Commitments to extend credit
are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Letters of credit are conditional
commitments issued to guarantee the financial performance obligation of a
customer to a third party.  Unused commitments and letters of credit
at March 31, 2009, were $47,027,000 and $624,000,
respectively.  Because these instruments have fixed maturity dates,
and because many of them will expire without being drawn upon, they do not
generally present any significant liquidity risk to the
Corporation.  Management believes that any amounts actually drawn upon
can be funded in the normal course of operations. The Corporation has no
investment in or financial relationship with any unconsolidated entities that
are reasonably likely to have a material effect on liquidity or the availability
of capital resources.





Interest
Rate Sensitivity:





Interest
rate sensitivity management is the responsibility of the Asset/Liability
Management Committee.  This process involves the development and
implementation of strategies to maximize net interest margin, while minimizing
the earnings risk associated with changing interest rates. Traditional gap
analysis identifies the maturity and re-pricing terms of all assets and
liabilities. A simulation analysis is used to assess earnings and capital at
risk from movements in interest rates. See Item 3 for a description of the
complete simulation process and results.





Capital
Adequacy:





Bank
regulatory authorities in the United States issue risk-based capital standards.
These capital standards relate a banking company’s capital to the risk profile
of its assets and provide the basis by which all banking companies and banks are
evaluated in terms of capital adequacy. The risk-based capital standards require
all banks to have Tier 1 capital of at least 4% and total capital, including
Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes
common stockholders’ equity and qualifying perpetual preferred stock together
with related surpluses and retained earnings. Total capital is comprised of Tier
1 capital, limited life preferred stock, qualifying debt instruments, and the
reserves for possible loan losses. Banking regulators have also issued leverage
ratio requirements. The leverage ratio requirement is measured as the ratio of
Tier 1 capital to adjusted average assets. At March 31, 2009, the Bank exceeded
the regulatory requirements to be considered a "well capitalized" financial
institution, i.e., a leverage ratio exceeding 5%, Tier 1 capital exceeding 6%
and total capital exceeding 10%.




18




Item 3. Quantitative and
Qualitative Disclosures About Market Risk





Market
risk is the exposure to economic loss that arises from changes in the values of
certain financial instruments. The types of market risk exposures generally
faced by financial institutions include equity market price risk, interest rate
risk, foreign currency risk and commodity price risk. Due to the nature of its
operations, only equity market price risk and interest rate risk are significant
to the Corporation.





Equity
market price risk is the risk that changes in the values of equity investments
could have a material impact on the financial position or results of operations
of the Corporation. The Corporation’s equity investments consist of common
stocks of publicly traded financial institutions.





Recent
declines and volatility in the values of financial institution stocks have
significantly reduced the likelihood of realizing significant gains in the
near-term. Although the Corporation has realized occasional gains from this
portfolio in the past, the primary objective of the portfolio is to achieve
value appreciation in the long term while earning consistent attractive
after-tax yields from dividends. The carrying value of the financial
institutions stocks accounted for less than 0.2% of the Corporation’s total
assets as of March 31, 2009. Management performs an impairment analysis on the
entire investment portfolio, including the financial institutions stocks on a
quarterly basis. As of March 31, 2009, there was no impairment that was deemed
to be “other-than-temporary”. There is no assurance that further declines in
market values of the common stock portfolio in the future will not result in
“other-than-temporary” impairment charges, depending upon facts and
circumstances present.





The
equity investments in the Corporation’s portfolio had an adjusted cost basis of
approximately $1,210,000 and a fair value of $654,000 at March 31, 2009. Net
unrealized losses in this portfolio were approximately $556,000 at March 31,
2009.





In
addition to its equity portfolio, the Corporation’s investment management and
trust services revenue could be impacted by fluctuations in the securities
markets. A portion of the Corporation’s trust revenue is based on the value of
the underlying investment portfolios. If securities values decline, the
Corporation’s trust revenue could be negatively impacted.





Interest
rate risk creates exposure in two primary areas. First, changes in rates have an
impact on the Corporation’s liquidity position and could affect its ability to
meet obligations and continue to grow.  Second, movements in interest
rates can create fluctuations in the Corporation’s net interest income and
changes in the economic value of equity.





The
primary objective of the Corporation’s asset-liability management process is to
maximize current and future net interest income within acceptable levels of
interest rate risk while satisfying liquidity and capital requirements.
Management recognizes that a certain amount of interest rate risk is inherent,
appropriate and necessary to ensure profitability. A simulation analysis is used
to assess earnings and capital at risk from movements in interest rates. The
model considers three major factors of (1) volume differences, (2) repricing
differences, and (3) timing in its income simulation. As of the most recent
model run, data was disseminated into appropriate repricing buckets, based upon
the static position at that time. The interest-earning assets and
interest-bearing liabilities were assigned a multiplier to simulate how much
that particular balance sheet item would re-price when interest rates change.
Finally, the estimated timing effect of rate changes is applied, and the net
interest income effect is determined on a static basis (as if no other factors
were present). As the table below indicates, based upon rate shock simulations
on a static basis, the Corporation’s balance sheet is slightly asset sensitive.
Over a one-year period, the effect of a 100, 200 and 300 basis point rate
increase would decrease net interest income by $83,000, $167,000 and $250,000,
respectively. No rate shock modeling was done for a declining rate environment,
as the federal funds target rate currently is between zero and 0.25%. The
modeling process is continued by further estimating the impact that imbedded
options and probable internal strategies may have in the changing-rate
environment. Examples of imbedded options are floor and ceiling features in
adjustable rate mortgages and call features on securities in the investment
portfolio.  Applying the likely results of all known imbedded options
and likely internal pricing strategies to the simulation produces quite
different results from the static position assumptions. Over a one-year period,
the effect a 100, 200 and 300 basis point rate increase would add about $27,000,
$115,000 and $237,000, respectively, to net interest income. As the table below
indicates, the net effect of interest rate risk on net interest income is
minimal in a rising rate environment.  Juniata’s rate risk policies
provide for maximum limits on net interest income that can be at risk for 100
through 300 basis point changes in interest rates.




19




Effect of
Interest Rate Risk on Net Interest Income


(Dollars
in thousands)





Change in Interest Rates (Basis
      Points)
                                      
                                      Change in Net Interest Income Due
      to Interest Rate Risk (Static)
                                      
                                      
                                      Change in Net Interest Income Due
      to Imbedded Options
                                      
                                      
                                      Total Change in Net Interest
      Income300
                                      
                                      $
                                      (250
                                      )
                                      
                                      $
                                      237
                                      
                                      
                                      $
                                      (13
                                      )200
                                      
                                      
                                      (167
                                      )
                                      
                                      
                                      115
                                      
                                      
                                      
                                      (52
                                      )100
                                      
                                      
                                      (83
                                      )
                                      
                                      
                                      27
                                      
                                      
                                      
                                      (56
                                      )0
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -




The net
interest income at risk position remained within the guidelines established by
the Corporation’s asset/liability policy.





No
material change has been noted in the Bank’s equity value at
risk.  Please refer to the Annual Report on Form 10-K as of December
31, 2008 for further discussion of this matter.





Item 4.  Controls
and Procedures





Disclosure
Controls and Procedures





As of
March 31, 2009, the Corporation carried out an evaluation, under the supervision
and with the participation of the Corporation’s management, including the
Corporation’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to the Securities Exchange Act of 1934 (“Exchange Act”),
Rule 13a-15(e). Disclosure controls and procedures are controls and procedures
that are designed to ensure that information required to be disclosed in
Corporation reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms. These controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files under the Exchange Act is accumulated and communicated to the
issuer’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Based upon that evaluation, the
Corporation’s Chief Executive Officer and Chief Financial Officer concluded that
the Corporation’s disclosure controls and procedures were effective as of the
end of the period covered by this quarterly report.





It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
conditions, regardless of how remote.





Attached
as Exhibits 31 and 32 to this quarterly report are certifications of the Chief
Executive Officer and the Chief Financial Officer required in accordance with
Rule 13a-14(a) of the Exchange Act. This portion of the Corporation’s quarterly
report includes the information concerning the controls evaluation referred to
in the certifications and should be read in conjunction with the certifications
for a more complete understanding of the topics presented.





Changes
in Internal Control Over Financial Reporting





There
were no significant changes in the Corporation’s internal control over financial
reporting since December 31, 2008.




20




PART
II - OTHER INFORMATION




Item
      1.
                  
                  LEGAL
      PROCEEDINGSIn
      the opinion of management of the Corporation, there are no legal
      proceedings pending to which the Corporation or its subsidiary is a party
      or to which their property is subject, which, if determined adversely to
      the Corporation or its subsidiary, would be material in relation to the
      Corporation’s or its subsidiary’s financial condition. There are no
      proceedings pending other than ordinary routine litigation incident to the
      business of the Corporation or its subsidiary. In addition, no material
      proceedings are pending or are known to be threatened or contemplated
      against the Corporation or its subsidiary by government
      authorities.Item
      1A.
                  
                  RISK
      FACTORSThere
      have been no material changes in risk factors that were disclosed in the
      Annual Report on Form 10-K as of December 31, 2008.Item
      2.
                  
                  UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDSThe
      following table provides information on repurchases by the Corporation of
      its common stock in each month of the quarter ended March 31,
      2009:




Total Number
    ofShares Purchased
      as
                                        
                                        
                                        Maximum Number
      ofTotal
Number
                                        
                                        
                                        Average
                                        
                                        
                                        Part of
      Publicly
                                        
                                        
                                        Shares that May Yet
      Beof Shares
                                        
                                        
                                        Price Paid
                                        
                                        
                                        Announced Plans
      or
                                        
                                        
                                        Purchased Under
      thePeriod
                                        
                                        Purchased
                                        
                                        
                                        per Share
                                        
                                        
                                        Programs
                                        
                                        
                                        Plans or Programs
      (1)January 1-31,
      2009
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        218,536February 1-28,
      2009
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        218,536March 1-31,
      2009
                                        
                                        
                                        7,600
                                        
                                        
                                        
                                        16.90
                                        
                                        
                                        
                                        7,600
                                        
                                        
                                        
                                        210,936Totals
                                        
                                        
                                        7,600
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        7,600
                                        
                                        
                                        
                                        210,936




(1) On March 23, 2001, the
      Corporation announced plans to buy back 100,000 (200,000 on a post-split
      basis) shares of its common stock. There is no expiration date to this
      buyback plan, but subsequent to the initial plan, the Board of Directors
      authorized the repurchase of 400,000 additional shares in 2005 and then
      authorized 200,000 additional shares in September of 2008. As of May 5,
      2009, the number of shares that may yet be purchased under the program was
      210,936. No repurchase plan or program expired during the period covered
      by the table. The Corporation has no stock repurchase plan or program that
      it has determined to terminate prior to expiration or under which it does
      not intend to make further purchases.Item
      3.
                  
                  DEFAULTS UPON SENIOR
      SECURITIESNot applicableItem
      4.
                  
                  SUBMISSION OF MATTERS TO A VOTE OF
      SECURITY HOLDERSNoneItem
      5.
                  
                  OTHER
      INFORMATIONNone  21
  Item
      6.
                  
                  EXHIBITS3.1
      - Amended and Restated Articles of Incorporation (incorporated by
      reference to Exhibit 4.1 to the Company’s Form S-3 Registration Statement
      No. 333-129023 filed with the SEC on October 14,
  2005)


3.2
      – Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s report
      on Form 8-K filed with the SEC on December 21, 2007)31.1
      - Rule 13a – 14(a)/15d – 14(a) Certification of President and Chief
      Executive Officer31.2
      - Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial
      Officer32.1
      - Section 1350 Certification of President and Chief Executive Officer
      (furnished, not filed)32.2
      - Section 1350 Certification of Chief Financial Officer (furnished, not
      filed)


Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




Juniata Valley Financial Corp.
                (Registrant)Date 
      05-08-2009
              By
              /s/ FrancisJ.EvanitskyFrancis J. Evanitsky, President and
                Chief Executive OfficerDate 
      05-08-2009
              By
              /s/
      JoAnn N. McMinnJoAnn
      N. McMinn, Chief Financial Officer




22