UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number 000-13232

Juniata Valley Financial Corp.

(Exact name of registrant as specified in its charter)

Pennsylvania		23-2235254
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Bridge and Main Streets, Mifflintown, Pennsylvania		17059
(Address of principal executive offices)		(Zip Code)

(717) 436-8211

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. þ 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). o 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 þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ 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 7, 2010
Common Stock ($1.00 par value)		4,301,487 shares

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of March 31, 2010 and December 31, 2009 (Unaudited)			3
Consolidated Statements of Income for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			4
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009 (Unaudited)			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			23
Item 4. Controls and Procedures			25
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			26
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 3. Defaults upon Senior Securities			26
Item 4. (Removed and Reserved)			26
Item 5. Other Information			26
Item 6. Exhibits			27
Signatures			27
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

Juniata Valley Financial Corp. and Subsidiary

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

		March 31,				December 31,
		2010				2009
ASSETS
Cash and due from banks		$	8,729			$	18,613
Interest bearing deposits with banks			93				82
Federal funds sold			10,000				1,200
Cash and cash equivalents			18,822				19,895
Interest bearing time deposits with banks			1,345				1,420
Securities available for sale			74,973				77,356
Restricted investment in Federal Home Loan Bank (FHLB) stock			2,197				2,197
Investment in unconsolidated subsidiary			3,391				3,338
Total loans, net of unearned interest			311,663				311,630
Less: Allowance for loan losses			(2,863	)			(2,719	)
Total loans, net of allowance for loan losses			308,800				308,911
Premises and equipment, net			6,849				6,878
Other real estate owned			291				476
Bank owned life insurance and annuities			13,196				13,066
Core deposit intangible			288				299
Goodwill			2,046				2,046
Accrued interest receivable and other assets			6,581				6,227
Total assets		$	438,779			$	442,109
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing		$	54,758			$	55,030
Interest bearing			319,873				322,367
Total deposits			374,631				377,397
Securities sold under agreements to repurchase			2,552				3,207
Long-term debt			5,000				5,000
Other interest bearing liabilities			1,152				1,146
Accrued interest payable and other liabilities			4,631				4,756
Total liabilities			387,966				391,506
Stockholders’ Equity:
Preferred stock, no par value:
Authorized - 500,000 shares, none issued			—				—
Common stock, par value $1.00 per share:
Authorized - 20,000,000 shares
Issued - 4,745,826 shares
Outstanding -
4,321,487 shares at March 31, 2010;
4,337,587 shares at December 31, 2009			4,746				4,746
Surplus			18,327				18,315
Retained earnings			36,799				36,478
Accumulated other comprehensive loss			(644	)			(805	)
Cost of common stock in Treasury:
424,339 shares at March 31, 2010;
408,239 shares at December 31, 2009			(8,415	)			(8,131	)
Total stockholders’ equity			50,813				50,603
Total liabilities and stockholders’ equity		$	438,779			$	442,109

See accompanying notes to consolidated financial statements.

Juniata Valley Financial Corp. and Subsidiary

(Unaudited)

(Dollar amounts in thousands, except share data)

		Three Months Ended
		March 31,
		2010				2009
Interest income:
Loans, including fees		$	5,036			$	5,289
Taxable securities			233				308
Tax-exempt securities			275				281
Federal funds sold			1				2
Other interest income			9				56
Total interest income			5,554				5,936
Interest expense:
Deposits			1,519				1,878
Securities sold under agreements to repurchase			1				1
Short-term borrowings			1				1
Long-term debt			34				34
Other interest bearing liabilities			3				5
Total interest expense			1,558				1,919
Net interest income			3,996				4,017
Provision for loan losses			285				135
Net interest income after provision for loan losses			3,711				3,882
Noninterest income:
Trust fees			120				84
Customer service fees			382				372
Earnings on bank-owned life insurance and annuities			122				106
Commissions from sales of non-deposit products			96				108
Income from unconsolidated subsidiary			56				48
Gain on sale of securities			12				—
(Loss) Gain on sales of other assets			(1	)			6
Prior period income from insurance sales			—				323
Other noninterest income			236				195
Total noninterest income			1,023				1,242
Noninterest expense:
Employee compensation expense			1,286				1,286
Employee benefits			416				444
Occupancy			233				239
Equipment			119				162
Data processing expense			365				333
Director compensation			87				110
Professional fees			93				121
Taxes, other than income			130				128
FDIC Insurance premiums			147				88
Amortization of intangibles			11				11
Other noninterest expense			258				269
Total noninterest expense			3,145				3,191
Income before income taxes			1,589				1,933
Provision for income taxes			401				523
Net income		$	1,188			$	1,410
Earnings per share
Basic		$	0.27			$	0.32
Diluted		$	0.27			$	0.32
Cash dividends declared per share		$	0.20			$	0.19
Weighted average basic shares outstanding			4,330,136				4,340,633
Weighted average diluted shares outstanding			4,334,000				4,345,622

See accompanying notes to consolidated financial statements.

Juniata Valley Financial Corp. and Subsidiary

(Unaudited)

(Amounts in thousands, except share data)

Three Months Ended March 31, 2010
		Number																Accumulated
		of																Other								Total
		Shares				Common								Retained				Comprehensive				Treasury				Stockholders’
		Outstanding				Stock				Surplus				Earnings				Loss				Stock				Equity
Balance at December 31, 2009			4,337,587			$	4,746			$	18,315			$	36,478			$	(805	)		$	(8,131	)		$	50,603
Comprehensive income:
Net income															1,188												1,188
Change in unrealized gains on securities available for sale, net of reclassification adjustment and tax effects																			140								140
Defined benefit retirement plan adjustments, net of tax effects																			21								21
Total comprehensive income																											1,349
Cash dividends at $0.20 per share															(867	)											(867	)
Stock-based compensation activity											12																12
Purchase of treasury stock, at cost			(16,100	)																			(284	)			(284	)
Balance at March 31, 2010			4,321,487			$	4,746			$	18,327			$	36,799			$	(644	)		$	(8,415	)		$	50,813

Three Months Ended March 31, 2009
		Number																Accumulated
		of																Other								Total
		Shares				Common								Retained				Comprehensive				Treasury				Stockholders’
		Outstanding				Stock				Surplus				Earnings				Loss				Stock				Equity
Balance at December 31, 2008			4,341,055			$	4,746			$	18,324			$	34,758			$	(1,247	)		$	(8,096	)		$	48,485
Comprehensive income:
Net income															1,410												1,410
Change in unrealized losses on securities available for sale, net of reclassification adjustment and tax effects																			(151	)							(151	)
Total comprehensive income																											1,259
Cash dividends at $0.19 per share															(825	)											(825	)
Stock-based compensation activity											10																10
Purchase 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

See accompanying notes to consolidated financial statements.

Juniata Valley Financial Corp. and Subsidiary

(Unaudited)

(Amounts in thousands)

		Three Months Ended March 31,
		2010				2009
Operating activities:
Net income		$	1,188			$	1,410
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			285				135
Depreciation			127				154
Net amortization of securities premiums			70				47
Amortization of core deposit intangible			11				11
Amortization of deferred net loan costs			5				12
Deferral of net loan costs (fees)			39				(10	)
Net realized gains on sales of securities			(12	)			—
Losses (gains) on sales of other assets			1				(6	)
Earnings on bank owned life insurance and annuities			(122	)			(106	)
Deferred income tax expense			19				6
Equity in earnings of unconsolidated subsidiary, net of dividends of $9 and $8			(47	)			(40	)
Stock-based compensation expense			12				10
Increase in accrued interest receivable and other assets			(432	)			(447	)
(Decrease) increase in accrued interest payable and other liabilities			(114	)			317
Net cash provided by operating activities			1,030				1,493
Investing activities:
Purchases of:
Securities available for sale			(10,226	)			(15,339	)
Premises and equipment			(98	)			(45	)
Bank owned life insurance and annuities			(30	)			(29	)
Proceeds from:
Maturities of and principal repayments on securities available for sale			12,754				9,728
Bank owned life insurance and annuities			17				18
Sale of other real estate owned			296				62
Sale of other assets			11				4
Net decrease in interest-bearing time deposits			75				—
Net (increase) decrease in loans receivable			(330	)			4,884
Net cash provided by (used in) investing activities			2,469				(717	)
Financing activities:
Net (decrease) increase in deposits			(2,766	)			9,100
Net decrease in short-term borrowings and securities sold under agreements to repurchase			(655	)			(8,272	)
Cash dividends			(867	)			(825	)
Purchase of treasury stock			(284	)			(128	)
Net cash used in financing activities			(4,572	)			(125	)
Net (decrease) increase in cash and cash equivalents			(1,073	)			651
Cash and cash equivalents at beginning of period			19,895				12,457
Cash and cash equivalents at end of period		$	18,822			$	13,108
Supplemental information:
Interest paid		$	1,595			$	1,944
Income taxes paid		$	200			$	—
Supplemental schedule of noncash investing and financing activities:
Transfer of loans to other real estate owned and repossessed assets		$	112			$	391

See accompanying notes to consolidated financial statements.

Juniata Valley Financial Corp. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — 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. Operating results for the three-month period ended March 31, 2010, are not necessarily indicative of the results for the year ended December 31, 2010. 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, 2009.

The Corporation has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2010 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

NOTE 2 — Recent Accounting Pronouncements

ASU 2010-09

The FASB has issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the SEC’s literature.

In addition, the amendments in the ASU require an entity that is a conduit bond obligor for conduit debt securities that are traded in a public market to evaluate subsequent events through the date of issuance of its financial statements and must disclose such date.

All of the amendments in the ASU were effective upon issuance (February 24, 2010) except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010.

This guidance did not have an impact on the Corporation’s financial position or results of operations.

ASU 2010-13

The FASB issued ASU 2010-13, Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The ASU codifies the consensus reached in Emerging Issues Task Force (EITF) Issue No. 09-J. The amendments to the Codification clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity.

The amendments in the ASU are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier adoption is permitted. The amendments are to be applied by recording a cumulative-effect adjustment to beginning retained earnings. The amendments will not have an impact on the Corporation’s financial position or results of operations.

NOTE 3 — 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, 2010												Three Months Ended March 31, 2009
		Before				Tax Expense								Before				Tax Expense
		Tax				or				Net-of-Tax				Tax				or				Net-of-Tax
		Amount				(Benefit)				Amount				Amount				(Benefit)				Amount
Net income		$	1,589			$	401			$	1,188			$	1,933			$	523			$	1,410
Other comprehensive income (loss):
Unrealized gains (losses) on available for sale securities:
Unrealized gains (losses) arising during the period			221				75				146				(229	)			(78	)			(151	)
Unrealized gains from unconsolidated subsidiary			6				—				6				—				—				—
Less reclassification adjustment for:
gains included in net income			(18	)			(6	)			(12	)			—				—				—
Change in pension liability			32				11				21				—				—				—
Other comprehensive income (loss)			241				80				161				(229	)			(78	)			(151	)
Total comprehensive income		$	1,830			$	481			$	1,349			$	1,704			$	445			$	1,259

Components of accumulated other comprehensive loss, net of tax consist of the following (in thousands):

		3/31/2010				12/31/2009				3/31/2009
Unrealized gains on available for sale securities		$	916			$	776			$	556
Unrecognized expense for defined benefit pension			(1,560	)			(1,581	)			(1,954	)
Accumulated other comprehensive loss		$	(644	)		$	(805	)		$	(1,398	)

NOTE 4 — 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 Months
		Ended				Ended
		March 31, 2010				March 31, 2009
Net income		$	1,188			$	1,410
Weighted-average common shares outstanding			4,330				4,341
Basic earnings per share		$	0.27			$	0.32
Weighted-average common shares outstanding			4,330				4,341
Common stock equivalents due to effect of stock options			4				5
Total weighted-average common shares and equivalents			4,334				4,346
Diluted earnings per share		$	0.27			$	0.32

NOTE 5 — 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, 2010, the Corporation had $45,905,000 outstanding in loan commitments and other unused lines of credit extended to its customers as compared to $46,589,000 at December 31, 2009.

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 the risks that are involved in extending loan facilities to customers. The Corporation generally holds collateral and/or personal guarantees supporting these commitments. The Corporation had outstanding $1,051,000 and $974,000 of letters of credit commitments as of March 31, 2010 and December 31, 2009, 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, 2010 for payments under letters of credit issued was not material. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk.

NOTE 6 — Defined Benefit Retirement Plan

The Corporation had 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 2010 and does not expect to contribute to the defined benefit plan in the remainder of 2010. Pension expense included the following components for the three month periods ended March 31, 2010 and 2009:

(Dollar amounts in thousands)

		Three Months Ended
		March 31,
		2010				2009
Components of net periodic pension cost
Service cost		$	46			$	47
Interest cost			118				112
Expected return on plan assets			(142	)			(115	)
Additional recognized amounts			31				40
Net periodic pension cost		$	53			$	84

NOTE 7 — 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 2010 and 2009, amortization expense was $11,000. Accumulated amortization of core deposit intangible through March 31, 2010 was $161,000. The goodwill is not amortized, but is measured annually for impairment.

NOTE 8 — 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. The investment is being carried at $3,391,000 as of March 31, 2010. 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 9 — Securities

Accounting Standards Codification (ASC) Topic 320, Investments — Debt and Equity Securities, 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 fair value 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.

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, this guidance 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.

The amortized cost and fair value of securities as of March 31, 2010 and December 31, 2009, by contractual maturity, are shown below (in thousands). Expected maturities may differ from contractual maturities because the securities may be called or prepaid with or without prepayment penalties.

		March 31, 2010
										Gross				Gross
Securities Available for Sale		Amortized				Fair				Unrealized				Unrealized
Type and maturity		Cost				Value				Gains				Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations
After one year but within five years		$	30,524			$	30,739			$	235			$	(20	)
After five years but within ten years			1,999				1,998				5				(6	)
			32,523				32,737				240				(26	)
Obligations of state and political subdivisions
Within one year			6,171				6,234				63				—
After one year but within five years			31,005				31,950				974				(29	)
After five years but within ten years			544				572				28				—
			37,720				38,756				1,065				(29	)
Corporate notes
After one year but within five years			1,000				1,027				27				—
			1,000				1,027				27				—
Mortgage-backed securities			1,381				1,480				99				—
Equity securities			975				973				100				(102	)
Total		$	73,599			$	74,973			$	1,531			$	(157	)

		December 31, 2009
										Gross				Gross
Securities Available for Sale		Amortized				Fair				Unrealized				Unrealized
Type and maturity		Cost				Value				Gains				Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations
After one year but within five years		$	32,503			$	32,620			$	194			$	(77	)
After five years but within ten years			940				933				—				(7	)
			33,443				33,553				194				(84	)
Obligations of state and political subdivisions
Within one year			6,775				6,863				88				—
After one year but within five years			32,022				32,972				958				(8	)
After five years but within ten years			544				562				18				—
			39,341				40,397				1,064				(8	)
Corporate notes
After one year but within five years			1,000				1,026				26				—
			1,000				1,026				26				—
Mortgage-backed securities			1,425				1,515				90				—
Equity securities			975				865				58				(168	)
Total		$	76,184			$	77,356			$	1,432			$	(260	)

The following table shows gross unrealized losses and fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2010 and December 31, 2009 (in thousands):

		Unrealized Losses at March 31, 2010
		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations		$	6,509			$	(26	)		$	—			$	—			$	6,509			$	(26	)
Obligations of state and political subdivisions			2,546				(29	)			—				—				2,546				(29	)
Debt securities			9,055				(55	)			—				—				9,055				(55	)
Equity securities			—				—				555				(102	)			555				(102	)
Total temporarily impaired securities		$	9,055			$	(55	)		$	555			$	(102	)		$	9,610			$	(157	)

		Unrealized Losses at December 31, 2009
		Less Than 12 Months								12 Months or More								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
U.S. Treasury securities and obligations of U.S. Government agencies and corporations		$	10,897			$	(84	)		$	—			$	—			$	10,897			$	(84	)
Obligations of state and political subdivisions			2,532				(8	)			—				—				2,532				(8	)
Debt securities			13,429				(92	)			—				—				13,429				(92	)
Equity securities			140				(23	)			496				(145	)			636				(168	)
Total temporarily impaired securities		$	13,569			$	(115	)		$	496			$	(145	)		$	14,065			$	(260	)

The unrealized losses noted above are considered to be temporary impairments. Decline in the value of our debt securities is due only to interest rate fluctuations, rather than erosion of quality. As a result, we believe that the payment of contractual cash flows, including principal repayment, is not at risk. As management does not intend to sell the securities, does not believe the Corporation will be required to sell the securities before recovery and expects to recover the entire amortized cost basis, none of the debt securities are deemed to be other-than-temporarily impaired. There are no debt securities that have had unrealized losses for more than 12 months.

Equity securities owned by the Corporation consist of common stock of various financial services providers (“Bank Stocks”) that have traditionally been high-performing stocks prior to 2008. During 2008 and into 2009, market values of most of the Bank Stocks materially declined. Considerations used to determine other-than-temporary impairment status for individual holdings include the length of time the stock has remained in an unrealized loss position, the percentage of unrealized loss compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations, and other pertinent news that would affect expectations for recovery or further decline. There are eight equity securities that comprise the group of securities with unrealized losses for 12 months or more at March 31, 2010 and December 31, 2009. Unrealized losses in the aggregate group decreased by 30% from period to period, as all but two of the equities in our portfolio appreciated in value between December 31, 2009 and March 31, 2010. Of the two that deteriorated slightly, one has declined to 81% of cost and continues to pay full dividends. The other has sustained unrealized losses, but of an immaterial nature. Therefore, based on the quarterly analysis performed as of March 31, 2010 to assess impairment of its investment portfolio, management has determined that none of the unrealized losses in the Bank stock portfolio are “other than temporary”.

We understand that stocks can be cyclical and will experience some down periods. Historically, bank stocks have sustained cyclical losses, followed by periods of substantial gains. When market values of the bank stocks recover, accounting standards do not allow reversal of any previous other-than-temporary impairment charge until the security is sold, at which time any proceeds above the carrying value will be recognized as gains on the sale of investment securities.

Certain obligations of the U.S. Government and state and political subdivisions are pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law. The fair value of the pledged assets amounted to $31,432,000 and $30,403,000 at March 31, 2010 and December 31, 2009, respectively.

In addition to cash received from the scheduled maturities of securities, some investment securities available for sale are sold at current market values during the course of normal operations. Following is a summary of proceeds received from all investment securities transactions, and the resulting realized gains and losses (in thousands):

		Three Months Ended
		March 31,
		2010				2009
Gross proceeds from sales of securities		$	—			$	—
Securities available for sale:
Gross realized gains		$	12			$	—
Gross realized losses			—				—

NOTE 10 — Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosures, is effective January 1, 2008, for financial assets and financial liabilities and on January 1, 2009, for non-financial assets and non-financial liabilities. This guidance defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements.

Fair value measurement and disclosure guidance defines fair value 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. Additional guidance is provided on determining when the volume and level of activity for the asset or liability has significantly decreased. The guidance also includes guidance on identifying circumstances when a transaction may not be considered orderly.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed, and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

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

Fair value measurement and disclosure guidance 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.

Fair value measurement and disclosure guidance 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, the guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity 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.

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.

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, 2010 and December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands). There were no transfers of assets between fair value Level 1 and Level 2 for the quarter ended March 31, 2010.

						(Level 1)				(Level 2)				(Level 3)
						Quoted Prices in				Significant				Significant
						Active Markets				Other				Other
		March 31,				for Identical				Observable				Unobservable
		2010				Assets				Inputs				Inputs
Measured at fair value on a recurring basis:
Equity securities available-for-sale		$	973			$	973			$	—			$	—
Debt securities available-for-sale			74,000								74,000				—
Measured at fair value on a non-recurring basis:
Impaired loans			3,351				—				—				3,351
Other real estate owned			291				—				—				291

						(Level 1)				(Level 2)				(Level 3)
						Quoted Prices in				Significant				Significant
						Active Markets				Other				Other
		December 31,				for Identical				Observable				Unobservable
		2009				Assets				Inputs				Inputs
Measured at fair value on a recurring basis:
Equity securities available-for-sale		$	865			$	865			$	—			$	—
Debt securities available-for-sale			76,491								76,491				—
Measured at fair value on a non-recurring basis:
Impaired loans			1,167				—				—				1,167
Other real estate owned			476				—				—				476

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, this guidance was applicable to these fair value measurements beginning January 1, 2009 and were not significant at March 31, 2010.

Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.

The estimated fair values of the Corporation’s financial instruments are as follows (in thousands):

Financial Instruments
(in thousands)

		March 31, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		Value				Value				Value				Value
Financial assets:
Cash and due from banks		$	8,729			$	8,729			$	18,613			$	18,613
Interest bearing deposits with banks			93				93				82				82
Federal funds sold			10,000				10,000				1,200				1,200
Interest bearing time deposits with banks			1,345				1,486				1,420				1,447
Securities			74,973				74,973				77,356				77,356
Restricted investment in FHLB stock			2,197				2,197				2,197				2,197
Total loans, net of unearned interest			311,663				325,945				311,630				324,061
Accrued interest receivable			2,473				2,473				2,284				2,284
Financial liabilities:
Non-interest bearing deposits			54,758				54,758				55,030				55,030
Interest bearing deposits			319,873				325,891				322,367				327,724
Securities sold under agreements to repurchase			2,552				2,552				3,207				3,207
Long-term debt			5,000				5,065				5,000				5,077
Other interest bearing liabilities			1,152				1,154				1,146				1,148
Accrued interest payable			644				644				681				681
Off-balance sheet financial instruments:
Commitments to extend credit			—				—				—				—
Letters of credit			—				—				—				—

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in sales transactions on the dates indicated. The estimated fair value amounts have been measured as of their respective quarter ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each quarter end.

The information presented above should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is provided only for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

The following describes the estimated fair value of the Corporation’s financial instruments as well as the significant methods and assumptions used to determine these estimated fair values.

Carrying values approximate fair value for cash and due from banks, interest-bearing demand deposits with other banks, federal funds sold, restricted stock in the Federal Home Loan Bank, interest receivable, non-interest bearing demand deposits, securities sold under agreements to repurchase, other interest bearing liabilities and interest payable.

Interest bearing time deposits with banks - The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.

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.

Loans - For variable-rate loans that reprice frequently and which entail no significant changes in credit risk, carrying values approximated fair value. Substantially all commercial loans and real estate mortgages are variable rate loans. The fair value of other loans (i.e. consumer loans and fixed-rate real estate mortgages) are estimated by calculating the present value of the cash flow difference between the current rate and the market rate, for the average maturity, discounted quarterly at the market rate.

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.

Fixed rate time deposits - The estimated fair value is determined by discounting the contractual future cash flows, using the rates currently offered for deposits of similar remaining maturities.

Long-term debt - The fair values of long-term debt are estimated using discounted cash flow analysis, based on incremental borrowing rates for similar types of borrowing arrangements.

Commitments to extend credit and letters of credit - The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit worthiness of the counterparties. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements.

NOTE 11 — Subsequent Events

On April 20, 2010, the Board of Directors declared a regular cash dividend for the second quarter of 2010 of $0.20 per share to shareholders of record on May 14, 2010, payable on June 1, 2010.

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, 2009. 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, 2010, as compared to December 31, 2009, and the consolidated results of operations for the three months ended March 31, 2010, compared to the same period in 2009. This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes included herein.

Introduction:

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

Financial Condition:

As of March 31, 2010, total assets decreased by $3,330,000, or 0.8%, as compared to December 31, 2009. Deposits decreased $2.8 million, with interest-bearing deposits declining by $2.5 million, and non-interest bearing deposits declining by $0.3 million.

The table below shows changes in deposit volumes by type of deposit (in thousands of dollars) between December 31, 2009 and March 31, 2010.

		March 31,				December 31,				Change
		2010				2009				$				%
Deposits:
Demand, non-interest bearing		$	54,758			$	55,030			$	(272	)			(0.5	%)
NOW and money market			69,042				75,766				(6,724	)			(8.9	%)
Savings			47,320				42,536				4,784				11.2	%
Time deposits, $100,000 and more			39,376				38,453				923				2.4	%
Other time deposits			164,135				165,612				(1,477	)			(0.9	%)
Total deposits		$	374,631			$	377,397			$	(2,766	)			(0.7	%)

Overall, loans, net of unearned interest remained relatively flat, increasing by only $33,000, between December 31, 2009 and March 31, 2010. As shown in the table below (in thousands of dollars), the net increase in outstanding loans since December 31, 2009 has been related primarily to increases in commercial and tax-free loan activity, offset by decreases in home equity activity.

		March 31,				December 31,				Change
		2010				2009				$				%
Loans:
Commercial, financial and agricultural		$	33,829			$	33,783				46				0.1	%
Real estate — commercial			40,552				39,299				1,253				3.2	%
Real estate — construction			24,535				24,578				(43	)			(0.2	%)
Real estate — mortgage			135,253				135,854				(601	)			(0.4	%)
Home equity			50,803				52,893				(2,090	)			(4.0	%)
Obligations of states and political subdivisions			15,432				13,553				1,879				13.9	%
Personal			11,259				11,670				(411	)			(3.5	%)
Total loans		$	311,663			$	311,630			$	33				0.0	%

A summary of the transactions in the allowance for loan losses for each of the three months ended March 31, 2010 and 2009 (in thousands) are presented below.

		Periods Ended March 31,
		2010				2009
Balance of allowance — January 1		$	2,719			$	2,610
Loans charged off			(145	)			(215	)
Recoveries of loans previously charged off			4				2
Net charge-offs			(141	)			(213	)
Provision for loan losses			285				135
Balance of allowance — end of period		$	2,863			$	2,532
Ratio of net charge-offs during period to average loans outstanding			0.04	%			0.07	%