---

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UNITED STATES SECURITIES
AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549


FORM 10-Q

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|x | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  |                                                                                          
|  | For the quarter ended June 30, 2009                                                      
|  |                                                                                          
|  | OR                                                                                       
|  |                                                                                          
|o | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to
__________

Commission File 0 - 32605

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|                                                      
|------------------------------------------------------
|NEFFS
 BANCORP, INC.                                  
|                                                      
|(Exact name of registrant as specified in its charter)

|                                |  |                                  
|------------------------------- |  | ---------------------------------
|Pennsylvania                    |  | 23-2400383                       
|                                |  |                                  
|(State or other jurisdiction of |  | (IRS Employer Identification No.)
|incorporation or organization)  |  |                                  

|                                                    
|----------------------------------------------------
|5629 PA Route 873, P.O. Box 10, Neffs, PA l8065-0010
|                                                    
|(Address of principal executive offices)            
|                                                    
|(610) 767-3875                                      
|                                                    
|(Issuers telephone number)                         

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
past 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.

Yes x
          No o

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).

Yes o
          No o

1

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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 definition of
accelerated filer, large accelerated filer and small reporting company in
Rule 12-b-2 of the Exchange Act. (Check one):

| |                             |  |                               | 
| | --------------------------- |  | ----------------------------- | 
| | Large
 accelerated filer: o |  | Accelerated
 filer: o         | 
| | Non-Accelerated
 filer: o   |  | Smaller
 reporting company: x | 

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)

Yes o
          No x

As of July 31,
2009, there were 186,989 shares of common stock, par value of $1.00,
outstanding.

2

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NEFFS BANCORP, INC.

INDEX

|           |                                                                                                                                                     |    |   
|---------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | -- | --
|PART 1.    | FINANCIAL INFORMATION                                                                                                                               |    |   
|           |                                                                                                                                                     |    |   
|Item 1.    | Consolidated Financial Statements                                                                                                                   |    |   
|           |                                                                                                                                                     |    |   
|           | Consolidated Statements of Financial
 Condition (Unaudited) June 30, 2009 and December 31, 2008                                                     |    | 4 
|           |                                                                                                                                                     |    |   
|           | Consolidated Statements of Income
 (Unaudited) Three months ended June 30, 2009 and June 30, 2008 Six months
 ended June 30, 2009 and June 30, 2008 |    | 5 
|           |                                                                                                                                                     |    |   
|           | Consolidated Statements of Stockholders
 Equity (Unaudited) Six months ended June 30, 2009 and June 30, 2008                                       |    | 6 
|           |                                                                                                                                                     |    |   
|           | Consolidated Statements of Cash Flows
 (Unaudited) Six months ended June 30, 2009 and June 30, 2008                                                 |    | 7 
|           |                                                                                                                                                     |    |   
|           | Notes to the Interim Consolidated Financial
 Statements                                                                                             |    | 8 
|           |                                                                                                                                                     |    |   
|Item 2.    | Managements Discussion and Analysis of
 Financial Condition and Results of Operations                                                              |    | 18
|           |                                                                                                                                                     |    |   
|Item 3.    | Quantitative and Qualitative Disclosures
 about Market Risk                                                                                         |    | 25
|           |                                                                                                                                                     |    |   
|Item 4T.   | Controls and Procedures                                                                                                                             |    | 25
|           |                                                                                                                                                     |    |   
|PART II.   | OTHER INFORMATION                                                                                                                                   |    |   
|           |                                                                                                                                                     |    |   
|Item 1.    | Legal Proceedings                                                                                                                                   |    | 25
|           |                                                                                                                                                     |    |   
|Item 1A.   | Risk Factors                                                                                                                                        |    | 25
|           |                                                                                                                                                     |    |   
|Item 2.    | Unregistered Sales of Equity Securities and
 Use of Proceeds                                                                                        |    | 26
|           |                                                                                                                                                     |    |   
|Item 3.    | Defaults Upon Senior Securities                                                                                                                     |    | 26
|           |                                                                                                                                                     |    |   
|Item 4.    | Submission of Matters to a Vote of Security
 Holders                                                                                                |    | 26
|           |                                                                                                                                                     |    |   
|Item 5.    | Other Information                                                                                                                                   |    | 26
|           |                                                                                                                                                     |    |   
|Item 6.    | Exhibits                                                                                                                                            |    | 27
|           |                                                                                                                                                     |    |   
|SIGNATURES |                                                                                                                                                     | 27

3

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NEFFS
BANCORP, INC AND SUBSIDIARYCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)

|                                                                                 |  |                 |         |                     |   |         |  
|-------------------------------------------------------------------------------- |  | --------------- | ------- | ------------------- | - | ------- | -
|Dollars in thousands, except share
 data                                         |  | June
 30,
 2009 |         | December
 31,
 2008 |  
|                                                                                 |  |                 |         |                     |  
|ASSETS                                                                           |  |                 |         |                     |   |         |  
|                                                                                 |  |                 |         |                     |   |         |  
|Cash and due from banks                                                          |  | $               | 1,733   |                     | $ | 2,489   |  
|Interest bearing deposits with banks                                             |  |                 | 100     |                     |   | 109     |  
|Federal funds sold                                                               |  |                 | 6,015   |                     |   | 1,379   |  
|Securities available for sale                                                    |  |                 | 38,130  |                     |   | 37,950  |  
|Securities held to maturity, fair value $93,953 in 2009; $89,111 in
 2008        |  |                 | 97,762  |                     |   | 91,557  |  
|                                                                                 |  |                 |         |                     |   |         |  
|Loans                                                                            |  |                 | 105,080 |                     |   | 100,953 |  
|Less allowance for loan losses                                                   |  |                 | (755    | )                   |   | (761    | )
|                                                                                 |  |                 |         |                     |   |         |  
|Net loans                                                                        |  |                 | 104,325 |                     |   | 100,192 |  
|                                                                                 |  |                 |         |                     |   |         |  
|                                                                                 |  |                 |         |                     |   |         |  
|Premises and equipment, net                                                      |  |                 | 2,473   |                     |   | 2,326   |  
|Restricted investments in bank stock                                             |  |                 | 813     |                     |   | 803     |  
|Other assets                                                                     |  |                 | 1,993   |                     |   | 1,977   |  
|                                                                                 |  |                 |         |                     |   |         |  
|Total assets                                                                     |  | $               | 253,344 |                     | $ | 238,782 |  
|                                                                                 |  |                 |         |                     |   |         |  
|                                                                                 |  |                 |         |                     |   |         |  
|LIABILITIES AND
 STOCKHOLDERS EQUITY                                            |  |                 |         |                     |   |         |  
|                                                                                 |  |                 |         |                     |   |         |  
|Liabilities:                                                                     |  |                 |         |                     |   |         |  
|Deposits                                                                         |  |                 |         |                     |   |         |  
|Non-interest bearing                                                             |  | $               | 17,511  |                     | $ | 16,740  |  
|Interest bearing                                                                 |  |                 | 188,970 |                     |   | 176,198 |  
|                                                                                 |  |                 |         |                     |   |         |  
|Total deposits                                                                   |  |                 | 206,481 |                     |   | 192,938 |  
|Other liabilities                                                                |  |                 | 1,373   |                     |   | 1,315   |  
|                                                                                 |  |                 |         |                     |   |         |  
|Total liabilities                                                                |  |                 | 207,854 |                     |   | 194,253 |  
|                                                                                 |  |                 |         |                     |   |         |  
|                                                                                 |  |                 |         |                     |   |         |  
|Stockholders Equity:                                                            |  |                 |         |                     |   |         |  
|Common stock, $1 par value, authorized 2,500,000 shares; issued
 200,000 shares; |  |                 | 200     |                     |   | 200     |  
|Paid-in capital                                                                  |  |                 | 753     |                     |   | 753     |  
|Retained earnings                                                                |  |                 | 47,178  |                     |   | 45,836  |  
|Accumulated other comprehensive income                                           |  |                 | 590     |                     |   | 442     |  
|Treasury stock, at cost 2009 12,971 shares; 2008 10,750
shares                   |  |                 | (3,231  | )                   |   | (2,702  | )
|                                                                                 |  |                 |         |                     |   |         |  
|Total stockholders equity                                                       |  |                 | 45,490  |                     |   | 44,529  |  
|                                                                                 |  |                 |         |                     |   |         |  
|                                                                                 |  |                 |         |                     |   |         |  
|Total liabilities and stockholders equity                                       |  | $               | 253,344 |                     | $ | 238,782 |  
|                                                                                 |  |                 |         |                     |   |         |  

See Notes to Consolidated Financial Statements.

4

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NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|---------------------------------------------------- |  | --------------------------- | ------- | -------------------------- | - | ------- |  | ---- | ------- |  | - | ------- | 
|Dollars in
 thousands, except per share data         |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  | Three Months Ended June 30, |         | Six Months Ended
 June 30, |  
|                                                     |  | 2009                        |         | 2008                       |   | 2009    |  | 2008 |        
|                                                     |  |                             |         |                            |  
|Interest
 income:                                    |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Interest and fees on loans                           |  | $                           | 1,684   |                            | $ | 1,615   |  | $    | 3,293   |  | $ | 3,171   | 
|Interest and dividends on investments:               |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Taxable                                              |  |                             | 1,349   |                            |   | 1,179   |  |      | 2,659   |  |   | 2,361   | 
|Exempt from federal income taxes                     |  |                             | 348     |                            |   | 398     |  |      | 702     |  |   | 803     | 
|Interest on federal funds sold and other             |  |                             | 2       |                            |   | 9       |  |      | 4       |  |   | 10      | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Total interest income                                |  |                             | 3,383   |                            |   | 3,201   |  |      | 6,658   |  |   | 6,345   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Interest
 Expense                                    |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Deposits                                             |  |                             | 1,397   |                            |   | 1,536   |  |      | 2,801   |  |   | 3,124   | 
|Borrowings                                           |  |                             |        |                            |   | 1       |  |      |        |  |   | 10      | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Total interest expense                               |  |                             | 1,397   |                            |   | 1,537   |  |      | 2,801   |  |   | 3,134   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Net interest income                                  |  |                             | 1,986   |                            |   | 1,664   |  |      | 3,857   |  |   | 3,211   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Provision
 for loan losses                           |  |                             | 1       |                            |   | 15      |  |      | 1       |  |   | 30      | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Net interest
 income after Provision for loan losses |  |                             | 1,985   |                            |   | 1,649   |  |      | 3,856   |  |   | 3,181   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Other
 income:                                       |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Service charges on deposit accounts                  |  |                             | 27      |                            |   | 32      |  |      | 54      |  |   | 62      | 
|Other service charges and fees                       |  |                             | 23      |                            |   | 25      |  |      | 45      |  |   | 49      | 
|Other income                                         |  |                             | 17      |                            |   | 13      |  |      | 27      |  |   | 25      | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Total other income                                   |  |                             | 67      |                            |   | 70      |  |      | 126     |  |   | 136     | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Other
 expenses:                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Salaries and employee benefits                       |  |                             | 359     |                            |   | 351     |  |      | 722     |  |   | 704     | 
|Occupancy                                            |  |                             | 62      |                            |   | 49      |  |      | 104     |  |   | 93      | 
|Furniture and equipment                              |  |                             | 70      |                            |   | 67      |  |      | 137     |  |   | 134     | 
|Pennsylvania shares tax                              |  |                             | 118     |                            |   | 106     |  |      | 229     |  |   | 212     | 
|Other expenses                                       |  |                             | 301     |                            |   | 203     |  |      | 536     |  |   | 352     | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Total other expenses                                 |  |                             | 910     |                            |   | 776     |  |      | 1,728   |  |   | 1,495   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Income before income taxes                           |  |                             | 1,142   |                            |   | 943     |  |      | 2,254   |  |   | 1,822   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Income tax
 expense                                  |  |                             | 272     |                            |   | 196     |  |      | 537     |  |   | 370     | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Net income                                           |  | $                           | 870     |                            | $ | 747     |  | $    | 1,717   |  | $ | 1,452   | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Per share
 data:                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Earnings per share, basic                            |  | $                           | 4.64    |                            | $ | 3.93    |  | $    | 9.13    |  | $ | 7.63    | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Weighted average common shares outstanding           |  |                             | 187,501 |                            |   | 190,152 |  |      | 188,031 |  |   | 190,233 | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 
|Cash dividends declared per share                    |  | $                           |        |                            | $ |        |  | $    | 2.00    |  | $ | 2.00    | 
|                                                     |  |                             |         |                            |   |         |  |      |         |  |   |         | 

See Notes to
Consolidated Financial Statements.

5

---



NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Six Months Ended June 30, 2009 and 2008
(Unaudited)

|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|----------------------------------------------------------------------------- |  | ------------- | --- | ---------------- | - | ------------------ |  | --------------------------------------- | ------ | --------------- | - | ----------------------------- | - | - | ------ | - | - | ------ | -
|Dollars in
 thousands, except per share data                                  |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|                                                                              |  | Common
 Stock |     | Paid-In
 Capital |   | Retained
 Earnings |  | Accumulated
 Other
 Comprehensive
 Loss |        | Treasury
 Stock |   | Total 
 Stockholders
 Equity |  
|                                                                              |  |               |    
|Balance,
 December 31, 2007                                                   |  | $             | 200 |                  | $ | 753                |  | $                                       | 43,558 |                 | $ | (373                          | ) | $ | (2,308 | ) | $ | 41,830 |  
|Comprehensive Income:                                                         |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|Net income                                                                    |  |               |    |                  |   |                   |  |                                         | 1,452  |                 |   |                              |   |   |       |   |   | 1,452  |  
|Change in unrealized net losses on
 securities available for sale, net of tax |  |               |    |                  |   |                   |  |                                         |       |                 |   | (187                          | ) |   |       |   |   | (187   | )
|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|Total comprehensive income                                                    |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   | 1,265  |  
|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|Cash dividends declared on common stock,
 $2.00 per share                     |  |               |    |                  |   |                   |  |                                         | (381   | )               |   |                              |   |   |       |   |   | (381   | )
|Purchase of treasury stock (1,058 shares)                                     |  |               |    |                  |   |                   |  |                                         |       |                 |   |                              |   |   | (278   | ) |   | (278   | )
|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  
|Balance,
 June 30, 2008                                                       |  | $             | 200 |                  | $ | 753                |  | $                                       | 44,629 |                 | $ | (560                          | ) | $ | (2,586 | ) | $ | 42,436 |  
|                                                                              |  |               |     |                  |   |                    |  |                                         |        |                 |   |                               |   |   |        |   |   |        |  

|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|---------------------------------------------------------------------------- |  | ------------- | --- | ---------------- | - | ------------------ |  | ----------------------------------------- | ------ | --------------- | - | ----------------------------- |  | - | ------ | - | - | ------ | -
|Dollars in
 thousands, except per share data                                 |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|                                                                             |  | Common
 Stock |     | Paid-In
 Capital |   | Retained
 Earnings |  | Accumulated
 Other
 Comprehensive
 Income |        | Treasury
 Stock |   | Total 
 Stockholders
 Equity | 
|                                                                             |  |               |    
|Balance,
 December 31, 2008                                                  |  | $             | 200 |                  | $ | 753                |  | $                                         | 45,836 |                 | $ | 442                           |  | $ | (2,702 | ) | $ | 44,529 |  
|Comprehensive Income:                                                        |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|Net income                                                                   |  |               |    |                  |   |                   |  |                                           | 1,717  |                 |   |                              |  |   |       |   |   | 1,717  |  
|Change in unrealized net gains on securities
 available for sale, net of tax |  |               |    |                  |   |                   |  |                                           |       |                 |   | 148                           |  |   |       |   |   | 148    |  
|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|Total comprehensive income                                                   |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   | 1,865  |  
|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|Cash dividends declared on common stock,
 $2.00 per share                    |  |               |    |                  |   |                   |  |                                           | (375   | )               |   |                              |  |   |       |   |   | (375   | )
|Purchase of treasury stock (2,221 shares)                                    |  |               |    |                  |   |                   |  |                                           |       |                 |   |                              |  |   | (529   | ) |   | (529   | )
|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  
|Balance,
 June 30, 2009                                                      |  | $             | 200 |                  | $ | 753                |  | $                                         | 47,178 |                 | $ | 590                           |  | $ | (3,231 | ) | $ | 45,490 |  
|                                                                             |  |               |     |                  |   |                    |  |                                           |        |                 |   |                               |  |   |        |   |   |        |  

See Notes to
Consolidated Financial Statements.

6

---



NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                                                   |  |      |         |      |   |         |  
|---------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|Dollars in
 thousands                                                              |  |      |         |      |  
|                                                                                   |  |      |         |      |  
|Six Months
 Ended June 30,                                                         |  | 2009 |         | 2008 |  
|                                                                                   |  |      |         |      |  
|CASH FLOWS
 FROM OPERATING ACTIVITIES                                              |  |      |         |      |   |         |  
|Net income                                                                         |  | $    | 1,717   |      | $ | 1,452   |  
|Adjustments to reconcile net income to net
 cash provided by operating activities: |  |      |         |      |   |         |  
|Depreciation                                                                       |  |      | 111     |      |   | 110     |  
|Provision for loan losses                                                          |  |      | 1       |      |   | 30      |  
|Net accretion of securities premiums/discounts                                     |  |      | (416    | )    |   | (201    | )
|Change in assets and liabilities:                                                  |  |      |         |      |   |         |  
|Increase in:                                                                       |  |      |         |      |   |         |  
|Accrued interest receivable                                                        |  |      | (73     | )    |   | (105    | )
|Other assets                                                                       |  |      | (19     | )    |   | (241    | )
|Increase (decrease) in:                                                            |  |      |         |      |   |         |  
|Other liabilities                                                                  |  |      | 58      |      |   | (67     | )
|                                                                                   |  |      |         |      |   |         |  
|Net cash provided by operating activities                                          |  |      | 1,379   |      |   | 978     |  
|                                                                                   |  |      |         |      |   |         |  
|                                                                                   |  |      |         |      |   |         |  
|CASH FLOWS
 FROM INVESTING ACTIVITIES                                              |  |      |         |      |   |         |  
|Decrease in interest bearing deposits with
 banks                                  |  |      | 9       |      |   | 6       |  
|Increase in federal funds sold                                                     |  |      | (4,636  | )    |   |        |  
|Purchase of securities available for sale                                          |  |      | (4,839  | )    |   | (7,531  | )
|Proceeds from maturities/calls of
 securities available for sale                   |  |      | 4,851   |      |   | 3,509   |  
|Purchase of securities held to maturity                                            |  |      | (32,741 | )    |   | (28,858 | )
|Proceeds from maturities/calls of
 securities held to maturity                     |  |      | 26,984  |      |   | 28,093  |  
|Net increase in restricted investment in
 bank stock                               |  |      | (10     | )    |   | (46     | )
|Net increase in loans                                                              |  |      | (4,134  | )    |   | (3,460  | )
|Purchases of premises and equipment                                                |  |      | (258    | )    |   | (57     | )
|                                                                                   |  |      |         |      |   |         |  
|Net cash used in investing activities                                              |  |      | (14,774 | )    |   | (8,344  | )
|                                                                                   |  |      |         |      |   |         |  
|                                                                                   |  |      |         |      |   |         |  
|CASH FLOWS
 FROM FINANCING ACTIVITIES                                              |  |      |         |      |   |         |  
|Net increase in deposits                                                           |  |      | 13,543  |      |   | 7,218   |  
|Net increase in federal funds purchased                                            |  |      |        |      |   | 601     |  
|Purchase of treasury stock                                                         |  |      | (529    | )    |   | (278    | )
|Dividends paid                                                                     |  |      | (375    | )    |   | (381    | )
|                                                                                   |  |      |         |      |   |         |  
|Net cash provided by financing activities                                          |  |      | 12,639  |      |   | 7,160   |  
|                                                                                   |  |      |         |      |   |         |  
|                                                                                   |  |      |         |      |   |         |  
|Decrease in cash and cash equivalents                                              |  |      | (756    | )    |   | (206    | )
|Cash and
 cash equivalents:                                                        |  |      |         |      |   |         |  
|Beginning                                                                          |  |      | 2,489   |      |   | 3,888   |  
|                                                                                   |  |      |         |      |   |         |  
|Ending                                                                             |  | $    | 1,733   |      | $ | 3,682   |  
|                                                                                   |  |      |         |      |   |         |  
|                                                                                   |  |      |         |      |   |         |  
|Supplementary
 Cash Flows Information                                              |  |      |         |      |   |         |  
|Interest Paid                                                                      |  | $    | 2,881   |      | $ | 3,129   |  
|                                                                                   |  |      |         |      |   |         |  
|Income Taxes Paid                                                                  |  | $    | 250     |      | $ | 426     |  
|                                                                                   |  |      |         |      |   |         |  

See Notes to
Consolidated Financial Statements.

7

---



NEFFS BANCORP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited)

Note 1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Neffs
Bancorp, Inc. (the Corporation) and its wholly owned subsidiary, The Neffs
National Bank (the Bank). All material intercompany accounts and transactions
have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America and the rules and regulations of the Securities and
Exchange Commission (SEC) for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal, recurring nature.
Operating results for the six-month period ended June 30, 2009, are not
necessarily indicative of the results that may be expected for the year ending
December 3l, 2009. These statements should be read in conjunction with the
financial statements and notes contained in the 2008 Annual Report to
Stockholders.

In addition to historical information, this Form 10-Q Report contains
forward-looking statements. The forward-looking statements contained herein are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected in the forward-looking statements.
Important factors that might cause such differences include, but are not
limited to, those discussed in the section entitled Managements Discussion
and Analysis of Financial Condition and Results of Operations. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect managements analysis only as of the date hereof. Readers should
carefully review the risk factors described in the Form 10-K filed with the SEC
by the Corporation.

For further information, refer to the financial statements and
footnotes thereto included in Neffs Bancorp, Inc.s Annual Report to
stockholders for the year ended December 31, 2008.

Note 2. COMMITMENTS AND CONTINGENCIES

The Corporation is subject to certain routine legal proceedings and
claims arising in the ordinary course of business. It is managements opinion
that the ultimate resolution of these claims will not have a material adverse
effect on the Corporations financial position and results of operations.

Note 3. COMPREHENSIVE
INCOME

The components
of other comprehensive income (loss) and related tax effects for the six months
ended June 30, 2009 and 2008 are as follows:

|                                                                   |  |                               |      |                             |   |      |   |      |     |   |   |      |  
|------------------------------------------------------------------ |  | ----------------------------- | ---- | --------------------------- | - | ---- | - | ---- | --- | - | - | ---- | -
|                                                                   |  | Three Months
 Ended
 June 30, |      | Six Months
 Ended
 June 30, |  
|Dollars in
 thousands                                              |  | 2009                          |      | 2008                        |   | 2009 |   | 2008 |    
|                                                                   |  |                               |      |                             |   |      |   |      |    
|                                                                   |  |                               |      |                             |   |      |   |      |     |   |   |      |  
|Unrealized holding gains (losses) on available for sale
securities |  | $                             | (273 | )                           | $ | (844 | ) | $    | 224 |   | $ | (283 | )
|Tax effect                                                         |  |                               | 93   |                             |   | 287  |   |      | (76 | ) |   | 96   |  
|                                                                   |  |                               |      |                             |   |      |   |      |     |   |   |      |  
|                                                                   |  |                               |      |                             |   |      |   |      |     |   |   |      |  
|Other comprehensive income (loss), net of tax                      |  | $                             | (180 | )                           | $ | (557 | ) | $    | 148 |   | $ | (187 | )
|                                                                   |  |                               |      |                             |   |      |   |      |     |   |   |      |  

8

---



Note 4. EARNINGS PER
SHARE

Earnings per share is based on the weighted average shares of common
stock outstanding during each period. The Corporation currently maintains a
simple capital structure and does not issue potentially dilutive securities;
thus there are no dilutive effects on earnings per share.

Note 5. GUARANTEES

The Corporation does not issue any guarantees that would require
liability recognition or disclosure, other than its standby letters of credit.
Standby letters of credit written are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party.
Generally, all letters of credit when issued have expiration dates within one
year. The credit risks involved in issuing letters of credit are 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 $690,000 of standby letters
of credit as of June 30, 2009. 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 June 30,
2009 for guarantees under standby letters of credit issued is not material.

Note 6. SECURITIES

The amortized cost and fair values of securities are as follows:

|                                                  |  |                 |        |                          |   |                           |  |             |        |   |   |        | 
|------------------------------------------------- |  | --------------- | ------ | ------------------------ | - | ------------------------- |  | ----------- | ------ | - | - | ------ | 
|                                                  |  | June 30, 2009   |       
|                                                  |  |                 |       
|                                                  |  | Amortized
 Cost |        | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Fair
 Value |       
|                                                  |  |                 |        |                          |   |                           |  |             |       
|                                                  |  | (In Thousands)  |       
|SECURITIES AVAILABLE FOR  SALE:                   |  |                 |        |                          |   |                           |  |             |        |   |   |        | 
|U.S. Treasury note                                |  | $               | 100    |                          | $ | 3                         |  | $           |       |   | $ | 103    | 
|Mortgage-backed securities                        |  |                 | 37,137 |                          |   | 905                       |  |             | (15    | ) |   | 38,027 | 
|                                                  |  |                 |        |                          |   |                           |  |             |        |   |   |        | 
|                                                  |  | $               | 37,237 |                          | $ | 908                       |  | $           | (15    | ) | $ | 38,130 | 
|                                                  |  |                 |        |                          |   |                           |  |             |        |   |   |        | 
|SECURITIES HELD TO MATURITY:                      |  |                 |        |                          |   |                           |  |             |        |   |   |        | 
|Obligations of U.S. Government agencies           |  | $               | 59,132 |                          | $ | 308                       |  | $           | (2,567 | ) | $ | 56,873 | 
|Obligations of states and political
 subdivisions |  |                 | 32,482 |                          |   | 1,033                     |  |             | (115   | ) |   | 33,400 | 
|Corporate securities                              |  |                 | 5,210  |                          |   | 27                        |  |             | (2,533 | ) |   | 2,704  | 
|Mortgage-backed securities                        |  |                 | 938    |                          |   | 38                        |  |             |       |   |   | 976    | 
|                                                  |  |                 |        |                          |   |                           |  |             |        |   |   |        | 
|                                                  |  | $               | 97,762 |                          | $ | 1,406                     |  | $           | (5,215 | ) | $ | 93,953 | 
|                                                  |  |                 |        |                          |   |                           |  |             |        |   |   |        | 

9

---



|                                                  |  |                   |        |                          |   |                           |  |             |        |   |   |        | 
|------------------------------------------------- |  | ----------------- | ------ | ------------------------ | - | ------------------------- |  | ----------- | ------ | - | - | ------ | 
|                                                  |  | December 31, 2008 |       
|                                                  |  |                   |       
|                                                  |  | Amortized
 Cost   |        | Gross
 Unrealized
 Gains |   | Gross
 Unrealized
 Losses |  | Fair
 Value |       
|                                                  |  |                   |        |                          |   |                           |  |             |       
|                                                  |  | (In Thousands)    |       
|SECURITIES AVAILABLE FOR SALE:                    |  |                   |        |                          |   |                           |  |             |        |   |   |        | 
|U.S. Treasury note                                |  | $                 | 100    |                          | $ | 7                         |  | $           |       |   | $ | 107    | 
|Mortgage-backed securities                        |  |                   | 37,181 |                          |   | 702                       |  |             | (40    | ) |   | 37,843 | 
|                                                  |  |                   |        |                          |   |                           |  |             |        |   |   |        | 
|                                                  |  | $                 | 37,281 |                          | $ | 709                       |  | $           | (40    | ) | $ | 37,950 | 
|                                                  |  |                   |        |                          |   |                           |  |             |        |   |   |        | 
|SECURITIES HELD TO MATURITY:                      |  |                   |        |                          |   |                           |  |             |        |   |   |        | 
|Obligations of U.S. Government agencies           |  | $                 | 52,871 |                          | $ | 568                       |  | $           | (1,393 | ) | $ | 52,046 | 
|Obligations of states and political
 subdivisions |  |                   | 32,300 |                          |   | 833                       |  |             | (66    | ) |   | 33,067 | 
|Corporate securities                              |  |                   | 5,341  |                          |   |                          |  |             | (2,413 | ) |   | 2,928  | 
|Mortgage-backed securities                        |  |                   | 1,045  |                          |   | 25                        |  |             |       |   |   | 1,070  | 
|                                                  |  |                   |        |                          |   |                           |  |             |        |   |   |        | 
|                                                  |  | $                 | 91,557 |                          | $ | 1,426                     |  | $           | (3,872 | ) | $ | 89,111 | 
|                                                  |  |                   |        |                          |   |                           |  |             |        |   |   |        | 

The amortized cost and fair values of securities at June 30, 2009, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

|                                        |  |                    |        |                  |   |                 |  |             |        |  |   |        | 
|--------------------------------------- |  | ------------------ | ------ | ---------------- | - | --------------- |  | ----------- | ------ |  | - | ------ | 
|                                        |  | Available for Sale |        | Held to Maturity |  
|                                        |  |                    |        |                  |  
|                                        |  | Amortized
 Cost    |        | Fair
 Value      |   | Amortized
 Cost |  | Fair
 Value |       
|                                        |  |                    |        |                  |   |                 |  |             |       
|                                        |  | (In Thousands)     |       
|Due in one
 year or less                |  | $                  |       |                  | $ |                |  | $           | 785    |  | $ | 790    | 
|Due after
 one year through five years  |  |                    | 100    |                  |   | 103             |  |             | 6,969  |  |   | 7,087  | 
|Due after
 five years through ten years |  |                    |       |                  |   |                |  |             | 17,498 |  |   | 18,124 | 
|Due after
 ten years                    |  |                    |       |                  |   |                |  |             | 71,572 |  |   | 66,976 | 
|                                        |  |                    |        |                  |   |                 |  |             |        |  |   |        | 
|                                        |  |                    | 100    |                  |   | 103             |  |             | 96,824 |  |   | 92,977 | 
|Mortgage-backed
 securities             |  |                    | 37,137 |                  |   | 38,027          |  |             | 938    |  |   | 976    | 
|                                        |  |                    |        |                  |   |                 |  |             |        |  |   |        | 
|                                        |  | $                  | 37,237 |                  | $ | 38,130          |  | $           | 97,762 |  | $ | 93,953 | 
|                                        |  |                    |        |                  |   |                 |  |             |        |  |   |        | 

There were no
sales of securities during 2009 and 2008.

Securities with an amortized cost and fair value of approximately
$12,000,000 and $12,095,000 at June 30, 2009 and $7,698,000 and $7,721,000 at
December 31, 2008 were pledged to secure public deposits and for other
purposes required or permitted by law.

10

---



The following
tables show the Corporations investments gross unrealized losses and fair
value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, at June 30, 2009
and December 31, 2008:

|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|------------------------------------------------- |  | ------------------- | ------ | ----------------- | - | ----------- |  | ----------------- | ------ | ----------- | - | ----------------- |  | - | ------ |  | - | ----- | 
|                                                  |  | Less than 12 Months |        | 12 Months or More |   | Total       | 
|                                                  |  |                     |        |                   |   |             | 
|                                                  |  | Fair
 Value         |        | Unrealized Losses |   | Fair
 Value |  | Unrealized Losses |        | Fair
 Value |   | Unrealized Losses | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   | 
|                                                  |  | (In Thousands)      |       
|June 30, 2009:                                    |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Securities Available for Sale:                    |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Mortgage-backed securities                        |  | $                   | 2,069  |                   | $ | 12          |  | $                 | 279    |             | $ | 3                 |  | $ | 2,348  |  | $ | 15    | 
|Securities Held to Maturity:                      |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Obligations of U.S. Government agencies           |  |                     | 27,586 |                   |   | 1,301       |  |                   | 19,178 |             |   | 1,266             |  |   | 46,764 |  |   | 2,567 | 
|Obligations of states and political
 subdivisions |  |                     | 3,237  |                   |   | 108         |  |                   | 741    |             |   | 7                 |  |   | 3,978  |  |   | 115   | 
|Corporate securities                              |  |                     |       |                   |   |            |  |                   | 2,027  |             |   | 2,533             |  |   | 2,027  |  |   | 2,533 | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Total Temporarily Impaired Securities             |  | $                   | 32,892 |                   | $ | 1,421       |  | $                 | 22,225 |             | $ | 3,809             |  | $ | 55,117 |  | $ | 5,230 | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|                                                  |  | Less than 12 Months |        | 12 Months or More |   | Total       | 
|                                                  |  |                     |        |                   |   |             | 
|                                                  |  | Fair
 Value         |        | Unrealized Losses |   | Fair
 Value |  | Unrealized Losses |        | Fair
 Value |   | Unrealized Losses | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   | 
|                                                  |  | (In Thousands)      |       
|DECEMBER
31, 2008:                                |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Securities Available for Sale:                    |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Mortgage-backed securities                        |  | $                   | 38     |                   | $ | 1           |  | $                 | 5,866  |             | $ | 39                |  | $ | 5,904  |  | $ | 40    | 
|Securities Held to Maturity:                      |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Obligations of U.S. Government agencies           |  |                     | 26,576 |                   |   | 1,206       |  |                   | 2,572  |             |   | 187               |  |   | 29,148 |  |   | 1,393 | 
|Obligations of states and political
subdivisions  |  |                     | 3,818  |                   |   | 44          |  |                   | 627    |             |   | 22                |  |   | 4,445  |  |   | 66    | 
|Corporate securities                              |  |                     | 1,613  |                   |   | 448         |  |                   | 1,165  |             |   | 1,965             |  |   | 2,778  |  |   | 2,413 | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 
|Total Temporarily Impaired Securities             |  | $                   | 32,045 |                   | $ | 1,699       |  | $                 | 10,230 |             | $ | 2,213             |  | $ | 42,275 |  | $ | 3,912 | 
|                                                  |  |                     |        |                   |   |             |  |                   |        |             |   |                   |  |   |        |  |   |       | 

The
Corporation had 96 and 88 securities in an unrealized loss position at June 30,
2009 and December 31, 2008, respectively. The decline in fair value is due
only to interest rate fluctuations. As the Corporation has the intent and
ability to hold such investments until maturity or market price recovery, no
securities are deemed to be other-than-temporarily impaired.

Note 7. FAIR VALUE MEASUREMENTS

Below
are various estimated fair values at June 30, 2009 and December 31, 2008,
as required by Statement of Financial Accounting Standards No. 107 (FAS 107).
Such information, which pertains to the Corporations financial instruments, is
based on the requirements set forth in FAS 107 and does not purport to
represent the aggregate net fair value of the Corporation. It is the
Corporations general practice and intent to hold its financial instruments to
maturity, except for certain securities designated as securities available for
sale, and not to engage in trading activities. Many of the financial
instruments lack an available trading market, as characterized by a willing
buyer and seller engaging in an exchange transaction. Therefore, the
Corporation had to use significant estimations and present value calculations
to prepare this disclosure.

Changes in the assumptions or methodologies used to
estimate fair values may materially affect the estimated amounts. Further, the
fair value estimates are based on various assumptions, methodologies and
subjective considerations, which vary widely among different financial
institutions and which are subject to change.

The
estimated fair value amounts have been measured as of their respective quarter
ends, and have not been reevaluated or updated for purposes of these 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 year end.

11

---



The
following methods and assumptions were used by the Corporation in estimating
financial instrument fair values:

Cash and Due from Banks, Interest Bearing Deposits with Banks
and Federal Funds Sold and Purchased

The
statement of financial condition carrying amounts for cash and due from banks,
interest bearing deposits with banks and federal funds sold and purchased
approximate the estimated fair values of such assets.

Securities

The
Corporation adopted FASB Statement No. 157 Fair Value Measurements (SFAS 157)
effective January 1, 2008 for financial assets and liabilities that are
measured and reported at fair value. There was no impact from the adoption of
SFAS 157 on the amounts reported in the consolidated financial statements. The
primary effect of SFAS 157 on the Corporation was to expand the required
disclosures pertaining to the methods used to determine fair values.

SFAS
157 establishes a fair value hierarchy that prioritizes the inputs to valuation
methods used to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy under SFAS 157 are
as follows:

Level
1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.

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

Level
3: Prices or valuation techniques that require inputs that are both significant
to the fair value measurement and unobservable (i.e. supported with little or
no market activity).

An
asset or liabilitys level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement.

For
assets measured at fair value on a recurring basis, the fair value measurements
by level within the fair value hierarchy used are as follows:

|                                                  |  |                |        |                                                                      |   |                                                 |  |                                              |   |  |  |   | 
|------------------------------------------------- |  | -------------- | ------ | -------------------------------------------------------------------- | - | ----------------------------------------------- |  | -------------------------------------------- | - |  |  | - | 
|Description                                       |  | Total          |        | (Level 1)
 Quoted
 Prices in
 Active
 Markets for
 Identical
 Assets |   | (Level 2)
 Significant Other
 Observable Inputs |  | (Level 3)
 Significant
 Unobservable
 Inputs |  
|                                                  |  |                |        |                                                                      |   |                                                 |  |                                              |  
|                                                  |  | (In Thousands) |       
|Securities available for
 sale, June 30, 2009     |  | $              | 38,130 |                                                                      | $ | 38,130                                          |  |                                              |  |  |  |  | 
|Securities available for
 sale, December 31, 2008 |  | $              | 37,950 |                                                                      | $ | 37,950                                          |  |                                              |  |  |  |  | 

The
Corporations adoption of SFAS 157 applies only to its financial instruments
required to be reported at fair value. The Corporation does not have
non-financial assets and non-financial liabilities for which adoption would
apply in accordance with FSP FAS 157-2.

On
October 10, 2008, the FASB issued FSP 157-3, which clarifies the
application of FAS 157 in an inactive market and illustrates how an entity
would determine fair value when the market for a financial asset is not active.
The FSP states that an entity should not automatically conclude that a
particular transaction price is determinative of fair value. In a dislocated
market, judgment is required to evaluate whether individual transactions are
forced liquidations or distressed sales. When relevant observable market
information is not available, a valuation approach that incorporates
managements judgments about the assumptions that market participants would use
in pricing the asset in a current sale transaction would be

12

---



acceptable.
The FSP also indicates that quotes from brokers or pricing services may be
relevant inputs when measuring fair value, but are not necessarily
determinative in the absence of an active market for the asset. In weighing a
broker quote as an input to a fair value measurement, an entity should place
less reliance on quotes that do not reflect the result of market transactions.
Further, the nature of the quote (for example, whether the quote is an
indicative price or a binding offer) should be considered when weighing the
available evidence. The FSP is effective immediately and applies to prior
periods for which financial statements have not been issued, including interim
or annual periods ending on or before September 30, 2008. Accordingly, the
Corporation adopted the FSP prospectively, beginning July 1, 2008 and
considered this guidance in determining fair value measurements at June 30,
2009.

The
Corporation conducts other-than-temporary impairment analysis on a quarterly
basis. The initial indication of other-than-temporary impairment for both debt
and equity securities is a decline in the market value below the amount
recorded for an investment. A decline in value that is considered to be
other-than-temporary is recorded as a loss within non-interest income in the consolidated
statement of income.

In
determining whether an impairment is other than temporary, the Corporation
considers a number of factors, including, but not limited to, the length of
time and extent to which the market value has been less than cost, recent
events specific to the issuer, including investment downgrades by rating
agencies and economic conditions of its industry, and the Corporations intent
and ability to retain the security for a period of time sufficient to allow for
a recovery in market value or maturity. Among the factors that are considered
in determining the Corporations intent and ability is a review of its capital
adequacy, interest rate risk position and liquidity.

The
Corporation also considers the issuers financial condition, capital strength
and near-term prospects. In addition, for debt securities and perpetual
preferred securities that are treated as debt securities for the purpose of
other-than-temporary analysis, the Corporation considers the cause of the price
decline (general level of interest rates and industry- and issuer-specific
factors), current ability to make future payments in a timely manner and the
issuers ability to service debt.

The
assessment of a securitys ability to recover any decline in market value, the
ability of the issuer to meet contractual obligations and the Corporations
intent and ability to retain the security until recovery in value require
considerable judgment.

Certain
of the corporate debt securities are accounted for under EITF 99-20, Recognition
of Interest Income and Impairment on Purchased Beneficial Interests that
Continue to Be Held by a Transferor in Securitized Financial Assets. For
investments within the scope of EITF 99-20 at acquisition, the Corporation
evaluates current available information in estimating the future cash flows of
these securities and determines whether there have been favorable or adverse
changes in estimated cash flows from the cash flows previously projected. The
Corporation considers the structure and term of the pool and the financial
condition of the underlying issuers. Specifically, the evaluation incorporates
factors such as interest rates and appropriate risk premiums, the timing and
amount of interest and principal payments and the allocation of payments to the
various note classes. Current estimates of cash flows are based on the most
recent trustee reports, announcements of deferrals or defaults, expected future
default rates and other relevant market information. At June 30, 2009, the
Corporation concluded that no adverse change in cash flows occurred during the
quarter.

The
Corporation analyzed the cash flow characteristics of these securities. Based
on this analysis and because the Corporation has the intent and ability to hold
these securities until recovery of fair value, which may be at maturity, and,
for investments within the scope of EITF 99-20, determined that there was no
adverse change in the cash flows as viewed by a market participant, the
Corporation does not consider the investments in these assets to be
other-than-temporarily impaired at June 30, 2009. However, there is a risk that
this review could result in recognition of other-than-temporary impairment
charges in the future.

We
own 4 collateralized debt obligation securities totaling $3,992,000 par value
and $1,416,000 fair value that are backed by trust preferred securities issued
by banks, thrifts, and insurance companies (TRUP CDOs). These securities are
included in corporate held to maturity securities. The market for these securities
at June 30, 2009 is not active and markets for similar securities are also not
active. The inactivity was evidenced first by a significant widening of the
bid-ask spread in the brokered markets in which TRUP CDOs trade and then by a
significant decrease in the volume of trades relative to historical levels. The
new issue market is also inactive as no new TRUP CDOs have been issued since
2007. There are currently very few market participants who are willing and or
able to transact for these securities.

The
market values for these securities (and any securities other than those issued
or guaranteed by the US Treasury) are very depressed relative to historical
levels. The yield spreads for the broad market of investment grade and high
yield corporate

13

---



bonds
recently reached all time wide levels and remain near those levels today. Thus
in todays market, a low market price for a particular bond may only provide
evidence of stress in the credit markets in general versus being an indicator
of credit problems with a particular issuer.

Given
conditions in the debt markets today and the absence of observable transactions
in the secondary and new issue markets, we determined:

|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                      | §   | The
 few observable transactions and market quotations that are available are not
 reliable for purposes of determining fair value at June 30, 2009,                                                                                                                                                                                                                                                                                                            
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | §   | An
 income valuation approach technique (present value technique) that maximizes
 the use of relevant observable inputs and minimizes the use of unobservable
 inputs will be equally or more representative of fair value than the market
 approach valuation technique used at prior measurement dates and                                                                                                                                                    
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | §   | Our
 TRUP CDOs will be classified within Level 3 of the fair value hierarchy
 because we determined that significant adjustments are required to determine
 fair value at the measurement date.                                                                                                                                                                                                                                                                 
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Our
 TRUP CDO valuations were prepared by an independent third party. Their
 approach to determining fair value involved these steps:
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 1.  | Intex
 was used for cash flow modeling. There were a number of assumptions used and
 the results of the modeling were highly dependent upon the assumptions.                                                                                                                                                                                                                                                                                                    
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 2.  | Credit
 and prepayment assumptions were used for each quarter.                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 3.  | Forward
 interest rates were used to project future principal and interest payments.
 This allowed the analysts to model the impact of over- or
 under-collateralization for each transaction. (Higher interest rates
 generally increase the credit stress on under-collateralized transactions by
 reducing excess interest, which is the difference between the interest
 received from the underlying collateral and the interest paid on the rated
 bonds.)
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 4.  | Original
 face purchased and current book value (as of June 30, 2009) were used to
 produce the calculations.                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 5.  | The
 basic methodology of EITF 99-20 was to compare the present value of the cash
 flows from quarter to quarter. A decline in the present value versus that for
 the previous quarter was considered to be an adverse change.                                                                                                                                                                                                                                
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 6.  | EITF
 99-20 prescribes using a discount rate equal to the current yield used to
 accrete the beneficial interest. The current book value and the projected
 cash flows for the previous quarter were used to calculate the discount rate.                                                                                                                                                                                                                     
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 7.  | The
 discount rate was then used to calculate the present value for the current
 quarters projected cash flows.                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 8.  | The
 result was then compared to the previous quarter to determine if the change
 is favorable or adverse.                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 9.  | Book
 value was used as the present value for the previous period.                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                      |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                                                                                                                                      | 10. | The
 credit component of any impairment should be the difference between book
 value and the projected present value.                                                                                                                                                                                                                                                                                                                                           

We recalculated the overall
effective discount rates for these valuations. The overall discount rates range
from 4.70% to 31.09% and are highly dependent upon the credit quality of the
collateral, the relative position of the tranche in the capital structure of
the CDO and the prepayment assumptions.

The Corporation owns 3
Federal Home Loan Mortgage (FHLB) securities and 1 Ford Motor Credit security
that have an unrealized loss greater than 20% of their book value. The
unrealized loss on the FHLB securities is due to increases in overall rates.
There is no increase in credit risk for these securities. The unrealized loss
for the Ford Motor Credit security is mainly due to general decline in the
automotive industry. Based on the analysis of the factors described above,
management does not believe any unrealized loss in these securities represent
an other-than-temporary impairment.

As of June 30, 2009,
management does not believe any unrealized loss in its other debt securities
represent an other-than-temporary impairment. The unrealized losses at June 30,
2009 were primarily interest rate-related.

In January 2009, the FASB
issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue
No. 99-20 (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance
in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be
Held by a Transferor in Securitized Financial Assets, to achieve more
consistent determination of whether an other-than-temporary impairment has
occurred. FSP EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary
impairment assessment and the related disclosure requirements in SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and other
related guidance. FSP EITF 99-20-1 is effective for interim and annual reporting
periods ending after December 15, 2008, and shall be applied prospectively.
Retrospective application to a prior interim or annual reporting period is not
permitted. The implementation of this standard did not have a material effect
on its results of operations or consolidated financial statements.

14

---



In April 2009, the FASB
issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. This FSP relates to determining
fair values when there is no active market or where the price inputs being used
represent distressed sales. It reaffirms the need to use judgment to ascertain
if a formerly active market has become inactive and in determining fair values
when markets have become inactive. FSP No. FAS 157-4 is effective for interim
and annual periods ending after June 15, 2009, but entities may early adopt
this FSP for the interim and annual periods ending after March 15, 2009. The implementation
of this standard did not have a material effect on its results of operations or
consolidated financial statements.

In
April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments, which relates to fair value
disclosures for any financial instruments that are not currently reflected on
the balance sheet of companies at fair value. Prior to issuing this FSP, fair
values for these assets and liabilities were only disclosed once a year. The
FSP now requires these disclosures on a quarterly basis, providing qualitative
and quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value. FSP No. FAS 107-1
and APB 28-1 is effective for interim and annual periods ending after June 15,
2009. The Corporation has presented the necessary disclosures in Note
6 herein.

In
April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments, which provides additional
guidance designed to create greater clarity and consistency in accounting for
and presenting impairment losses on securities. FSP No. FAS 115-2 and FAS 124-2
are effective for interim and annual periods ending after June 15, 2009. The
adoption of FSP No. FAS 115-2 and FAS 124-2 did not have a material impact on
the Corporations financial position or results of operations.

Loans Receivable

Fair
values of variable rate loans subject to frequent repricing and which entail no
significant credit risk are based on the carrying amounts. The estimated fair
values of other loans are estimated by discounting the future cash flows using
interest rates currently offered for loans with similar terms to borrowers of
similar credit quality.

Accrued Interest Receivable

The
carrying amount of accrued interest is considered a reasonable estimate of fair
value.

Deposit Liabilities

For
deposits which are payable on demand, the carrying amount is a reasonable
estimate of fair value. Fair values of fixed rate time deposits are estimated
by discounting the future cash flows using interest rates currently being
offered and a schedule of aggregate expected maturities.

Accrued Interest Payable

The
carrying amount of accrued interest approximates its fair value.

Off-Balance Sheet Instruments

The
fair value of commitments to extend credit and for outstanding letters of
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.

Restricted Investments in Bank Stocks

Restricted
stocks include primarily Federal Home Loan Bank stock, which is carried at
cost. Federal law requires a member institution of the Federal Home Loan Bank
system to hold stock of its district Federal Home Loan Bank according to a
predetermined formula.

In December 2008, the FHLB of Pittsburgh notified member banks that it
was suspending dividend payments and the repurchase of capital stock.
Management evaluates the restricted stock for impairment in accordance with
Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including
Entities With Trade Receivables) That Lend to or Finance the Activities of
Others. Managements determination of whether these investments are impaired is
based on their assessment of

15

---



the ultimate recoverability of their cost rather than by recognizing
temporary declines in value. The determination of whether a decline affects the
ultimate recoverability of their cost is influenced by criteria such as (1) the
significance of the decline in net assets of the FHLB as compared to the
capital stock amount for the FHLB and the length of time this situation has
persisted, (2) commitments by the FHLB to make payments required by law or
regulation and the level of such payments in relation to the operating
performance of the FHLB, and (3) the impact of legislative and regulatory
changes on institutions and, accordingly, on the customer base of the FHLB.
Management believes no impairment charge is necessary related to the restricted
stock as of June 30, 2009.

The estimated fair values of the Corporations financial instruments at
December 31, 2008 and June 30, 2009 are as follows:

|                                                    |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|--------------------------------------------------- |  | ---------------- | ------- | ---------------------- | - | ---------------- |  | ---------------------- | ------- |  | - | ------- | 
|                                                    |  | June 30, 2009    |         | December 31, 2008      |  
|                                                    |  |                  |         |                        |  
|                                                    |  | Carrying
 Amount |         | Estimated
 Fair
 Value |   | Carrying
 Amount |  | Estimated
 Fair
 Value |        
|                                                    |  |                  |         |                        |   |                  |  |                        |        
|                                                    |  | (In Thousands)   |        
|Financial assets:                                   |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Cash and short-term investments                     |  | $                | 1,833   |                        | $ | 1,833            |  | $                      | 2,598   |  | $ | 2,598   | 
|Securities available for sale                       |  |                  | 38,130  |                        |   | 38,130           |  |                        | 37,950  |  |   | 37,950  | 
|Securities held to maturity                         |  |                  | 97,762  |                        |   | 93,953           |  |                        | 91,557  |  |   | 89,111  | 
|Loans, net                                          |  |                  | 104,325 |                        |   | 108,686          |  |                        | 100,192 |  |   | 104,130 | 
|Accrued interest receivable                         |  |                  | 1,568   |                        |   | 1,568            |  |                        | 1,496   |  |   | 1,496   | 
|Federal funds sold                                  |  |                  | 6,015   |                        |   | 6,015            |  |                        | 1,379   |  |   | 1,379   | 
|                                                    |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Financial liabilities:                              |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Deposits                                            |  |                  | 206,481 |                        |   | 210,249          |  |                        | 192,938 |  |   | 194,495 | 
|Accrued interest payable                            |  |                  | 1,139   |                        |   | 1,139            |  |                        | 1,219   |  |   | 1,219   | 
|                                                    |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Off-balance sheet financial instruments:            |  |                  |         |                        |   |                  |  |                        |         |  |   |         | 
|Commitments to extend credit and letters of
 credit |  |                  |        |                        |   |                 |  |                        |        |  |   |        | 

Note 8. NEW ACCOUNTING STANDARDS

In September 2008, the FASB ratified EITF Issue No. 08-5, Issuers
Accounting for Liabilities Measured at Fair Value With a Third-Party Credit
Enhancement (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities
issued with an attached third-party credit enhancement (such as a guarantee).
It clarifies that the issuer of a liability with a third-party credit
enhancement should not include the effect of the credit enhancement in the fair
value measurement of the liability. EITF 08-5 is effective for the first
reporting period beginning after December 15, 2008. The implementation of this
standard did not have a material impact on our consolidated financial position
or results of operations.

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 FSP will be effective for fiscal years beginning after
November 15, 2008 and will apply only to original transfers made after that
date; early adoption will not be allowed. The implementation of this standard
did not have a material impact on our consolidated financial position or
results of operations.

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 determining what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. The guidance will become effective as of the beginning of a
companys fiscal year beginning after December 15, 2008. This new pronouncement
did not have a material impact on our consolidated financial position or
results of operations because the Corporation did not acquire control of any
business during the quarter ended June 30, 2009.

16

---



In April 2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies. This FSP requires companies acquiring contingent assets or
assuming contingent liabilities in business combinations to either (a) if the
assets or liabilities fair value can be determined, recognize them at fair
value, at the acquisition date, or (b) if the assets or liabilities fair
value cannot be determined, but (i) it is probable that an asset existed
or that a liability had been incurred at the acquisition date and (ii) the
amount of the asset or liability can be reasonably estimated, recognize them at
their estimated amount, at the acquisition date. If the fair value of these
contingencies cannot be determined and they are not probable or cannot be
reasonably estimated, then companies should not recognize these contingencies
as of the acquisition date and instead should account for them in subsequent
periods by following other applicable GAAP. This FSP also eliminates the FAS
141R requirement of disclosing in the footnotes to the financial statements the
range of expected outcomes for a recognized contingency. This FSP shall be
effective for assets or liabilities arising from contingencies in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
adoption of this FSP is not expected to have a material effect on the Companys
results of operations or financial position.

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 will become effective as of the beginning of a
companys fiscal year beginning after December 15, 2008. The implementation of
this standard will not have a material impact on our consolidated financial
position or results of operations.

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers
Disclosures about Postretirement Benefit Plan Assets. This FSP amends SFAS
132(R), Employers Disclosures about Pensions and Other Postretirement
Benefits, to provide guidance on an employers disclosures about plan assets
of a defined benefit pension or other postretirement plan. The disclosures
about plan assets required by this FSP shall be provided for fiscal years
ending after December 15, 2009. The Corporation is currently reviewing the
effect this new pronouncement will have on its consolidated financial
statements.

In November 2008, the SEC released a proposed roadmap regarding the
potential use by U.S. issuers of financial statements prepared in accordance
with International Financial Reporting Standards (IFRS). IFRS is a
comprehensive series of accounting standards published by the International
Accounting Standards Board (IASB). Under the roadmap, the Corporation may be
required to prepare financial statements in accordance with IFRS as early as 2014.
The SEC will make a determination in 2011 regarding the mandatory adoption of
IFRS. The Corporation is currently assessing the impact that this potential
change would have on its consolidated financial statements, and it will
continue to monitor the development of the potential implementation of IFRS.

In May 2009, the FASB issued FAS No. 165, Subsequent Events, which
requires companies to evaluate events and transactions that occur after the
balance sheet date but before the date the financial statements are issued, or
available to be issued in the case of non-public entities. FAS No. 165 requires
entities to recognize in the financial statements the effect of all events or
transactions that provide additional evidence of conditions that existed at the
balance sheet date, including the estimates inherent in the financial statement
preparation process. Entities shall not recognize the impact of events or
transactions that provide evidence about conditions that did not exist at the
balance sheet date but arose after that date. FAS No. 165 also requires
entities to disclose the date through which subsequent events have been
evaluated. FAS No. 165 was effective for interim and annual reporting periods
ending after June 15, 2009. The Corporation adopted the provisions of FAS No.
165 for the quarter ended June 30, 2009, as required, and adoption did not have
a material impact on Corporations results of operations or financial position.
The Corporation has evaluated subsequent events through August 13, 2009, the date
the financial statements were issued.

In June 2009, the FASB issued FAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles. FAS No. 168 establishes the FASB Accounting Standards Codification
(Codification), which was officially launched on July 1, 2009, and became
the primary source of authoritative U.S. GAAP recognized by the FASB to be
applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under the authority of Federal
securities laws are also sources of authoritative GAAP for SEC registrants. The
subsequent issuances of new standards will be in the form of Accounting
Standards Updates that will be included in the Codification. FAS No. 168 is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. As such, the Corporation plans to adopt FAS
No.168 in connection with its third quarter 2009 reporting. As the Codification
is neither expected nor intended to change GAAP, the adoption of FAS No.168
will not have a material impact on its results of operations or financial
position.

17

---



Item
2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Managements Discussion and Analysis of Financial Condition and Results
of Operations analyzes the major elements of the Corporations balance sheets
and statements of income. This section should be read in conjunction with the
Corporations financial statements and accompanying notes.

Management of the Corporation has made forward-looking statements in
this Form 10-Q. These forward-looking statements may be subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Corporation and its
subsidiary. When words such as believes, expects, anticipates or similar
expressions occur in this Form 10-Q, management is making forward-looking
statements.

Readers should note that many factors, some of which are discussed
elsewhere in this report and in the documents that management incorporates by
reference, could affect the future financial results of the Corporation and its
subsidiary, both individually and collectively, and could cause those results
to differ materially from those expressed in the forward-looking statements
contained or incorporated by reference in this Form 10-Q. These factors include
the following:

| |   |                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | v | operating,
 legal and regulatory risks;                                                                                                                       
| |   |                                                                                                                                                               
| | v | economic,
 political, and competitive forces affecting banking, securities, asset
 management and credit services businesses; and                             
| |   |                                                                                                                                                               
| | v | the risk
 that managements analyses of these risks and forces could be incorrect
 and/or that the strategies developed to address them could be unsuccessful.

The Corporation undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date of this report. Readers should carefully review the risk factors
described in other documents that the Corporation files periodically with the
Securities and Exchange Commission.

CRITICAL
ACCOUNTING POLICIES

Disclosure of the Corporations significant accounting policies is
included in Note 1 to the financial statements of the Corporations Annual
Report to Stockholders for the year ended December 31, 2008. Some of these
policies are particularly sensitive, requiring significant judgments, estimates
and assumptions to be made by management, most particularly in connection with
determining the provision for loan losses, the appropriate level of the
allowance for loan losses, and considerations of other-than-temporary
impairment of investments. Additional information is contained in this Form
10-Q under the paragraphs titled Provision for Loan Losses, Loan and Asset
Quality and Allowance for Loan Losses, and Securities.

OVERVIEW

Net income for the second quarter of 2009 increased 16.5% to $870,000
as compared to $747,000 for the second quarter of 2008. Total revenues
increased 5.5% from $3.3 million to $3.5 million for the quarter and total
expenses increased 2.2% from $2.5 million to $2.6 million. Net income per
common share increased 18.1% to $4.64 per share from $3.93 per share in the
second quarter a year ago. At June 30, 2009, the Corporation had total assets
of $253.3 million, total loans of $105.1 million, and total deposits of $206.5
million.

Net income for the first half of 2009 increased 18.3% to $1.7 million
as compared to $1.5 million for the first half of 2008. Total revenues
increased 4.7% from $6.5 million to $6.8 million for the first six months of
2009 and total expenses increased 0.8% from $5.0 million to $5.1 million. Net
income per common share increased 19.7% to $9.13 per share from $7.63 per share
from the first two quarters of 2009 to the same period of 2008.

18

---



RESULTS
OF OPERATIONS

Average
Balances and Average Interest Rates

Interest earning assets averaged $239.1 million for the second quarter
of 2009 as compared to $222.8 million for the same period in 2008. The growth
in interest earning assets was mainly the result of an increase of $7.7 million
in average total loans and an increase of $8.6 million in investments. Average
interest-bearing liabilities increased from $170.5 million during the second
quarter of 2008 to $185.3 million during the second quarter of 2009. The
increase in average interest bearing liabilities was the result of increases in
time deposits, savings, and demand deposits, of $8.4 million, $5.4 million, and
$1.3 million, respectively, offset by a decrease in Federal funds purchased of
$292,000.

The average yield on earning assets was 5.7% for the second quarter of
2009 as compared to 5.8% for the same quarter in 2008. The average rate paid on
interest-bearing liabilities was 3.0% for the second quarter of 2009 and 3.6%
for the second quarter of 2008. This was the result of the decreasing interest
rate environment that was experienced during the latter part 2008 and into
2009.

Net
Interest Income and Net Interest Margin

Net interest income is the difference between interest income earned on
assets and interest expense incurred on liabilities used to fund those assets.
Interest earning assets primarily include loans, securities and Federal funds
sold. Liabilities used to fund such assets include deposits and borrowed funds.
Changes in net interest income and margin result from the interaction between
the volume and composition of earning assets, related yields and associated
funding costs.

Interest income for the second quarter of 2009 increased by $182,000 or
5.7% over the second quarter of 2008 due mainly to an increase in loans and
securities. Interest expense for the second quarter of 2009 decreased by
$140,000 or 9.1%, as compared to the second quarter of 2008. The decrease was
due mainly to decreases in deposit rates offset by increases in deposits.

Net interest income increased by $322,000 or 19.4% to $2.0 million for
the second quarter of 2009 as compared to $1.7 million for the second quarter
of 2008. This increase resulted from a net increase in interest bearing assets
over net interest bearing liabilities and increasing net spread between yields
on average assets and average rate paid.

For the six months ended June 30, 2009, interest income increased by
$313,000 or 4.9% over the same period in 2008. The increase for the first six
months was mostly related to the increase in loans and securities. Interest
earning assets for the first six months of 2009 averaged $236.3 million versus
$221.1 million for the comparable period in 2008. The yield on those assets was
5.6% for the first six months of 2009 and 5.7% for the same period of 2008.

Interest expense for the first six months of 2009 decreased $333,000 or
10.6% as compared to the first six months of 2008. The level of average
interest-bearing liabilities increased from $169.0 million for the first half
of 2008 to $182.3 million for the first six months of 2009. The average rate
paid for the first half of 2009 and 2008 was 3.1% and 3.7%, respectively.

Net interest income for the first six months of 2009 increased by
$646,000 or 20.1% over the same period in 2008. The companys net interest
margin increased to 3.3% for the six months ended June 30, 2009 from 2.9% for
the same period last year.

Net interest margin represents the difference between interest income,
including net loan fees earned, and interest expense, reflected as a percentage
of average earning assets.

Net interest margin for the second quarter of 2009 was 3.3% compared to
3.0% for the second quarter of 2008. During the second quarter of 2009, the
yield on earning assets was 5.7%, a 10 basis point decrease over the 5.8%
reported in the second quarter of 2008. The average rate paid on
interest-bearing deposits decreased to 3.0% as compared to 3.6% for the second
quarter of 2008.

Provision
for Loan Losses

Provision for loan losses decreased from $15,000 for the second quarter
of 2008 to $1,000 for the second period of 2009. The decrease is due in part to
the minimal loan charge-offs in 2008 and 2009.

For the six months ending June 30, 2009, provision for loan losses
decreased to $1,000 compared to $30,000 in the same period of 2008.

19

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Management regularly assesses the appropriateness and adequacy of the
allowance for loan losses in relation to credit exposure associated with
individual borrowers, overall trends in the loan portfolio and other relevant
factors, and believes the allowance is reasonable and adequate for each of the
periods presented. The Corporation has no credit exposure to foreign countries
or foreign borrowers. The Corporation has no exposure to subprime mortgage
loans.

Non-interest
Income

Non-interest income for the second quarter of 2009 decreased by $3,000
or 4.3% from the same period in 2008. The decrease was attributable to a decrease
in service charges and fees offset by an increase in other income. Non-interest
income for the first six months of 2009 decreased by $10,000 or 7.4% from the
same period in 2008.

Non-interest
Expense

For the second quarter of 2009, non-interest expenses increased by
$134,000 or 17.3% to $910,000 compared to $776,000 over the same period in
2008. The increase was due to increases in other expenses, occupancy expenses,
PA shares tax, employee expenses, and furniture and equipment expenses.

Salaries and employee benefits, which represent the largest component
of non-interest expenses, increased by $8,000 or 2.3%, for the second quarter
of 2009. This increase was due in part to an increase in employee salaries.

Occupancy expense for the second quarter of 2009 increased by $13,000
or 26.5% as compared to the second quarter of 2008. This increase was mainly
due to an increase in rental property expenses.

Furniture and equipment expense increased $3,000 to $70,000 for the
second quarter of 2009 over the same period of 2008.

Shares tax increased from $106,000 to $118,000 from the second quarter
of 2008 to the second quarter of 2009.

Other expenses increased by $98,000, or 48.3%, to $301,000 in the
second quarter of 2009 from the same period in 2008. This increase was mainly
due to an increase in FDIC assessment expense.

Total non-interest expense was $1.7 million for the first six months of
2009 compared to $1.5 million for the same period of 2008.

Salary expenses and employee benefits, which represent the largest
component, 41.8%, of non-interest expenses, increased by $18,000 or 2.6% over
the first six months of 2008.

Occupancy expense for the first six months of 2009 increased by $11,000
or 11.8% as compared to the first six months of 2008 due mainly to increased
rental property expenses.

Furniture and equipment expense increased by $3,000 to $137,000 for the
first half of 2009 as compared to 2008.

Shares tax expense increased by $17,000 or 8.0% for the first six
months of 2009 from the same period in 2008. This increase was mainly due to
continued capital growth.

Net other expenses increased by $184,000 or 52.3% for the first six
months ended June 30, 2009 over the first half of 2008 due mainly to the
increase in the FDIC assessment expense.

One key measure used to monitor progress in controlling overhead
expenses is the ratio of net non-interest expenses to average assets. The ratio
equals non-interest expenses (excluding foreclosed real estate expenses) less
non-interest income (exclusive of non-recurring gains), divided by average
assets. This ratio equaled 1.3% and 1.2% for the three months ended June 30,
2009 and 2008, respectively. The overhead expense ratio equaled 1.3% for the
first half of 2009 and 1.2% for the same period in 2008.

Another productivity measure is the operating efficiency ratio. This
ratio expresses the relationship of non-interest expense (excluding foreclosed
real estate expenses) to net interest income plus non-interest income
(excluding non-recurring gains). For the quarter ended June 30, 2009, the
operating efficiency ratio was 44.3% compared to 44.8% for the same period in
2008. For the six months ended June 30, 2009, this ratio was 43.4% compared to
44.7% for the six months ended June 30, 2008. This decrease is due mainly to the
increase in net interest income.

20

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Provision
for Federal Income Taxes

The provision for federal income taxes was $272,000 for the second
quarter of 2009 compared to $196,000 for this same period in 2008. For the
first six months the provision was $537,000 and $370,000 for 2009 and 2008,
respectively. The effective tax rate, which is the ratio of income tax expense
to income before income taxes, was 23.8% for the second quarter of 2009 and
20.8% for the same period in 2008. The effective tax rate is below 34% due to
the number of tax-exempt securities held by the Corporation. The effective tax
rate and provision for Federal income taxes increased due to the increase in
pre-tax income while tax-exempt income declined.

Return
on Average Assets

Return on average assets (ROA) measures the Corporations net income in
relation to its total average assets. The Corporations annualized ROA for the
second quarter of 2009 was 1.4% compared to 1.3% for the second quarter of 2008
and 1.4% and 1.3% for the first half of 2009 and 2008, respectively. The
increase in ROA was mainly due to the increase in net income period to period.

Return
on Average Equity

Return on average equity (ROE) indicates how effectively the
Corporation can generate net income on the capital invested by its
stockholders. ROE is calculated by dividing net income by average stockholders
equity. For purposes of calculating ROE, average stockholders equity included
the effect of unrealized gains or losses, net of income taxes, on securities
available for sale. The annualized ROE for the second quarter of 2009 and 2008
is 7.7% and 7.0%, respectively. The annualized ROE for the first half of 2009
increased to 7.6% from 6.9% in the same period of 2008. This increase is due
mainly to the increase in net income in 2009 over 2008 for the respective
periods.

FINANCIAL
CONDITION

Securities

Securities available for sale increased $180,000 to $38.1 million as of
June 30, 2009, from $38.0 million at December 31, 2008.

The securities available for sale portfolio had an unrealized gain of
$590,000, net of taxes, at the end of the second quarter of 2009, compared to
an unrealized gain of $442,000, net of taxes, at December 31, 2008. This
increase was mainly due to current market conditions.

During the first six months of 2009, the securities held to maturity
portfolio increased $6.2 million to $97.8 million from $91.6 million at
December 31, 2008, primarily due to growth in deposits exceeding growth in
loans.

There are 96 debt securities in unrealized loss positions; however, the
Corporation does not intend to sell nor be required to sell these securities
and therefore no securities are deemed to be other-than-temporarily impaired.

Net
Loans Receivable

During the first six months of 2009, net loans receivable increased by
$4.1 million from $100.2 million at December 31, 2008 to $104.3 million at June
30, 2009. Net loans receivable represented 50.5% of total deposits and 41.2% of
total assets at June 30, 2009 as compared to 51.9% and 42.0%, respectively, at
December 31, 2008.

Loan
and Asset Quality and Allowance for Loan Losses

Total non-performing loans (comprised of non-accruing loans and loans
past due 90 days or more and still accruing interest) were $232,000 at June 30,
2009 as compared to $173,000 at December 31, 2008. There were no repossessed
assets held by the Corporation as of June 30, 2009 and December 31, 2008.

21

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The following summary table presents information regarding
non-performing loans and assets as of June 30, 2009 and December 31, 2008:

Nonperforming
Loans and Assets
(Dollars in Thousands)

|                                     |  |                 |      |                    |   |      |  
|------------------------------------ |  | --------------- | ---- | ------------------ | - | ---- | -
|                                     |  | June 
 30, 2009 |      | December
 31, 2008 |  
|                                     |  |                 |      |                    |  
|Nonaccrual loans:                    |  | $               |     |                    | $ |     |  
|Commercial                           |  |                 |     |                    |   |     |  
|Consumer                             |  |                 |     |                    |   |     |  
|Real Estate:                         |  |                 |      |                    |   |      |  
|Construction                         |  |                 |     |                    |   |     |  
|Mortgage                             |  |                 |     |                    |   |     |  
|                                     |  |                 |      |                    |   |      |  
|Total nonaccrual                     |  |                 |     |                    |   |     |  
|Loans past due 90 days or more       |  |                 | 232  |                    |   | 173  |  
|Restructured loans                   |  |                 |     |                    |   |     |  
|                                     |  |                 |      |                    |   |      |  
|Total nonperforming loans            |  |                 | 232  |                    |   | 173  |  
|Repossessed assets                   |  |                 |     |                    |   |     |  
|                                     |  |                 |      |                    |   |      |  
|Total nonperforming assets           |  | $               | 232  |                    | $ | 173  |  
|                                     |  |                 |      |                    |   |      |  
|                                     |  |                 |      |                    |   |      |  
|Nonperforming loans to total loans   |  |                 | 0.22 | %                  |   | 0.17 | %
|Nonperforming assets to total assets |  |                 | 0.09 | %                  |   | 0.07 | %

The following table sets forth the Corporations provision and
allowance for loan losses.

Allowance
for Loan Losses
(Dollars in Thousands)

|                                                               |  |                            |      |                            |   |      |  
|-------------------------------------------------------------- |  | -------------------------- | ---- | -------------------------- | - | ---- | -
|                                                               |  |                            |      |                            |   |      |  
|                                                               |  | Six Months
 Ending 6/30/09 |      | Six Months
 Ending 6/30/08 |  
|                                                               |  |                            |      |                            |  
|Balance at beginning of period                                 |  | $                          | 761  |                            | $ | 620  |  
|Provisions charged to operating expenses                       |  |                            | 1    |                            |   | 30   |  
|Recoveries of loans previously charged-off                     |  |                            |      |                            |   |      |  
|Commercial                                                     |  |                            |     |                            |   |     |  
|Consumer                                                       |  |                            |     |                            |   | 1    |  
|Real Estate                                                    |  |                            |     |                            |   |     |  
|                                                               |  |                            |      |                            |   |      |  
|Total recoveries                                               |  |                            |     |                            |   | 1    |  
|Loans charged-off:                                             |  |                            |      |                            |   |      |  
|Commercial                                                     |  |                            |     |                            |   |     |  
|Consumer                                                       |  |                            | (7   | )                          |   | (1   | )
|Real Estate                                                    |  |                            |     |                            |   |     |  
|                                                               |  |                            |      |                            |   |      |  
|Total charged-off                                              |  |                            | (7   | )                          |   | (1   | )
|                                                               |  |                            |      |                            |   |      |  
|Net charge-offs                                                |  |                            | (7   | )                          |   |     |  
|                                                               |  |                            |      |                            |   |      |  
|Balance at end of period                                       |  | $                          | 755  |                            | $ | 650  |  
|                                                               |  |                            |      |                            |   |      |  
|Net charge-offs as a percentage of average
 loans outstanding  |  |                            | 0.01 | %                          |   | 0.00 | %
|Allowance for loan losses as a percentage
 of period-end loans |  |                            | 0.72 | %                          |   | 0.66 | %

22

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Deposits

Total deposits at June 30, 2009 were $206.5 million, an increase of
$13.5 million, or 7.0%, over total deposits of $192.9 million at December 31,
2008. The outstanding balances by deposit classification at June 30, 2009 and
2008 are presented in the following table.

|                    |  |                                     |         |               |      |         |   |               |  |      | 
|------------------- |  | ----------------------------------- | ------- | ------------- | ---- | ------- | - | ------------- |  | ---- | 
|                    |  | At June 30,
 (Dollars in thousands) |        
|                    |  | 2009                                |         | 2008          |     
|                    |  | Balance                             |         | Average
 Rate |      | Balance |   | Average
 Rate | 
|                    |  |                                     |         |               |      |         |   |               |  |      | 
|Demand
 Deposits:   |  |                                     |         |               |      |         |   |               |  |      | 
|Noninterest-bearing |  | $                                   | 17,511  |               |      |         | $ | 16,575        |  |      | 
|Interest-bearing    |  |                                     | 8,006   |               | 0.43 |         |   | 6,128         |  | 1.01 | 
|Savings             |  |                                     | 54,234  |               | 1.38 |         |   | 48,027        |  | 1.81 | 
|Time
 deposits:     |  |                                     |         |               |      |         |   |               |  |      | 
|<$100,000           |  |                                     | 80,961  |               | 3.96 |         |   | 77,767        |  | 4.50 | 
|>$100,000           |  |                                     | 45,769  |               | 3.82 |         |   | 39,112        |  | 4.85 | 
|                    |  |                                     |         |               |      |         |   |               |  |      | 
|Total
 Deposits     |  | $                                   | 206,481 |               |      |         | $ | 187,609       |  |      | 
|                    |  |                                     |         |               |      |         |   |               |  |      | 

Interest Rate
Sensitivity

The management of interest rate sensitivity seeks to avoid fluctuating
net interest margins and to provide consistent net interest income through
periods of changing interest rates.

The Corporations risk of loss arising from adverse changes in the fair
value of financial instruments, or market risk, is composed primarily of
interest rate risk. The primary objective of the Corporations asset/liability
management activities is to maximize net interest income while maintaining
acceptable levels of interest rate risk. The Banks Asset/Liability Committee
(ALCO) is responsible for establishing policies to limit exposure to interest
rate risk, and to ensure procedures are established to monitor compliance with
those policies. The Corporations Board of Directors approves the guidelines
established by ALCO.

An interest rate sensitive asset or liability is one that, within a
defined period, either matures or experiences an interest rate change in line
with general market interest rates. Historically, the most common method of
estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities
at specific points in time (GAP), typically one year. Under this method, a
company is considered liability sensitive when the amount of its
interest-bearing liabilities exceeds the amount of its interest-bearing assets
within the one-year horizon. However, assets and liabilities with similar
repricing characteristics may not reprice at the same time or to the same
degree. As a result, the Corporations GAP does not necessarily predict the
impact of changes in general levels of interest rates on net interest income.

Management believes the simulation of net interest income in different
interest rate environments provides a more meaningful measure of interest rate
risk. Income simulation analysis captures not only the potential of all assets
and liabilities to mature or reprice, but also the probability that they will
do so. Income simulation also attends to the relative interest rate
sensitivities of these items, and projects their behavior over an extended
period of time. Finally, income simulation permits management to assess the
probable effects on the balance sheet not only of changes in interest rates,
but also of proposed strategies for responding to them.

The Corporations income simulation model analyzes interest rate sensitivity
by projecting net interest income over the next 12 months in a flat rate
scenario versus net income in alternative interest rate scenarios. Management
continually reviews and refines its interest rate risk management process in
response to the changing economic climate. Currently, the Corporations model
projects a proportionate 200 basis point change during the next year.

The Corporations ALCO policy has established that income sensitivity
will be considered acceptable if overall net income volatility in a plus or
minus 200 basis point scenario is within 5% of net interest income in a flat
rate scenario. At June 30, 2009, the Corporations simulation model indicated
net interest income would increase 10.0% within the first year if rates
increased as described above. The model projected that net interest income
would decrease by 4.8% in the first year if rates decreased as described above.

23

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Liquidity

Liquidity management involves the ability to generate cash or otherwise
obtain funds at reasonable rates to support asset growth and reduce assets to
meet deposit withdrawals, to maintain reserve requirements, and to otherwise
operate the Corporation on an ongoing basis. Liquidity needs are generally met
by converting assets into cash or obtaining sources of additional funds, mainly
deposits. Primarily cash and federal funds sold, and the cash flow from the
amortizing securities and loan portfolios provide liquidity sources from asset
categories. The primary source of liquidity from liability categories is the
generation of additional core deposit balances.

Additionally, the Corporation has established secondary sources of
liquidity consisting of federal funds lines of credit and borrowing capacity at
the Federal Home Loan Bank, which can be drawn upon if needed. In view of the
primary and secondary sources as previously mentioned, management believes that
the Corporation is capable of meeting its anticipated liquidity needs.

Off-Balance Sheet
Arrangements

The Corporations financial statements do not reflect off-balance sheet
arrangements that are made in the normal course of business. Those off-balance
sheet arrangements consist of unfunded loans and letters of credit made under
the same standards as on-balance sheet instruments. These commitments, at June
30, 2009 totaled $8.2 million. This consisted of $2.3 million in commercial
real estate, construction, and land development loans, $5.2 million in home
equity lines of credit, $690,000 in standby letters of credit and the remainder
in other unused commitments. 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.

Capital Adequacy

At June 30, 2009, stockholders equity totaled $45.5 million, an
increase of 2.2% over stockholders equity of $44.5 million at December 31,
2008. The increase in stockholders equity for the six months ended June 30,
2009 is net of a $529,000 increase in treasury stock and an unrealized gain,
net of income taxes, of $148,000 on securities available for sale. Excluding
this unrealized gain and treasury stock purchase, stockholders equity changed
by an increase of $1.3 million in retained net income.

Risk-based capital provides the basis for which all 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 together with related surpluses and retained earnings.
Total capital may be comprised of total Tier 1 capital plus qualifying debt
instruments and the allowance for loan losses.

The following table provides a comparison of the Banks risk-based
capital ratios and leverage ratios to the minimum regulatory requirements for
the period indicated. The consolidated ratios are not materially different from
those presented below.

|                            |  |                |  |                    |  |                                 |  |                                                                     |   | 
|--------------------------- |  | -------------- |  | ------------------ |  | ------------------------------- |  | ------------------------------------------------------------------- | - | 
|                            |  | June 30,
 2009 |  | December 31,
 2008 |  | For Capital
 Adequacy
 Purposes |  | To be Well
 Capitalized
 Under Prompt
 Corrective Action
 Provision |  
|                            |  |                |  |                    |  |                                 |  |                                                                     |  
|                            |  |                |  |                    |  |                                 |  |                                                                     |   | 
|Risk-based
 capital ratios: |  |                |  |                    |  |                                 |  |                                                                     |   | 
|                            |  |                |  |                    |  |                                 |  |                                                                     |   | 
|Tier 1 Capital              |  | 31.4%          |  | 37.8%              |  | 4.0%                            |  | 6.0                                                                 | % | 
|                            |  |                |  |                    |  |                                 |  |                                                                     |   | 
|Total Capital               |  | 32.0%          |  | 38.5%              |  | 8.0%                            |  | 10.0                                                                | % | 
|                            |  |                |  |                    |  |                                 |  |                                                                     |   | 
|Leveraged Capital           |  | 17.8%          |  | 18.6%              |  | 4.0%                            |  | 5.0                                                                 | % | 

The decrease in Risk-based capital ratios from December 31, 2008 to
June 30, 2009 is due mainly to an increase in assets. At June 30, 2009, the
capital levels of the Bank met the definition of a well capitalized
institution.

24

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Item
3.

Quantitative and
Qualitative Disclosures about Market Risk

The Corporations exposure to market risk has not changed significantly
since March 31, 2009. The market risk principally includes interest rate risk,
which is discussed in the Managements Discussion and Analysis above.

Item
4T.

Controls and
Procedures

Management of the Corporation, including the Chief Executive Officer
and the Chief Financial Officer, evaluated the effectiveness of the design and
operation of the Corporations disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this report. 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 report.

There have not been any changes in the Corporations internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2009
that have materially affected, or are reasonably likely to materially affect,
the Corporations internal control over financial reporting.

Part
II.

OTHER INFORMATION

|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1. Legal Proceedings
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                          | In the opinion of the management of the Corporation, there are no
 proceedings pending to which the Corporation or the Bank is a party or to
 which their property is subject, which, if determined adversely to the
 Corporation or the Bank, would be material in relation to the Corporations
 or the Banks financial condition. There are no proceedings pending other
 than ordinary routine litigation incident to the business of the Corporation
 or the Bank. In addition, no material proceedings are pending or are known to
 be threatened or contemplated against the Corporation or the Bank by
 government authorities.                                                                                                                                                                                                                                               
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Item 1A.                  | Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                          | During 2008 and 2009 the capital and credit markets experienced
 severe volatility and disruption. From the third quarter of 2008 through the
 second quarter of 2009, the volatility and disruption reached unprecedented levels.
 Reflecting concern about the stability of the financial markets generally and
 the strength of counterparties, many lenders and institutional investors have
 reduced, and in some cases ceased to provide, funding to borrowers, including
 other financial institutions. Although to date we have not suffered liquidity
 problems, we are part of the financial system and a systemic lack of
 available credit, a lack of confidence in the financial sector, increased
 volatility in the financial markets and reduced business activity could
 materially and adversely affect our business, financial condition and results
 of operations.
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                          | In response to the turmoil in the banking system and financial
 markets, the U.S. government has taken unprecedented actions, including the
 U.S. Treasurys plan to inject capital into financial institutions for
 the purpose of stabilizing the financial markets generally or particular
 financial institutions. There is no assurance that government actions
 will achieve their purpose.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                          | The failure to help stabilize the financial markets and a
 continuation or worsening of the current financial market conditions could
 have a material adverse affect on our business, our financial condition, the
 financial condition of our customers, our common stock trading price, as well
 as our ability to access credit. It could also result in further declines in
 our investment portfolio which could become other-than-temporary impairments.                                                                                                                                                                                                                                                                                                                                                                                                                        
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                          | Please refer to Part 1, Item 1A, Risk Factors, of the Corporations
 Form 10-K for the year ended December 31, 2008 for additional disclosures
 regarding the risks and uncertainties related to the Corporations business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

25

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|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | In April
 2009 the Corporation offered its shareholders a No-Fee, Odd-Lot Sales
 Program, which shareholders can use to sell Neffs Bancorp, Inc. common
 shares held by persons who are the owners of less than 100 shares. The price
 per share will equal the average closing price during the previous ninety-day
 period in which the shareholders instructions to sell are received in the
 corporate office. Shareholders owning 100 or more shares are not included in
 the offer and are ineligible to participate in the program. The program will
 expire at 5:00 P. M., Eastern Standard Time, on December 31, 2009, unless
 extended or earlier terminated. The Corporation reserves the right to
 terminate or extend the program at any time in its sole discretion.
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | The
 Corporation repurchased Bancorp stock during the quarter as presented in the
 table below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                |  |                                       |  |                                   |  |                                                                                      |     |                                                                                        |  |    |  |  |  |    | 
|------------------------------- |  | ------------------------------------- |  | --------------------------------- |  | ------------------------------------------------------------------------------------ | --- | -------------------------------------------------------------------------------------- |  | -- |  |  |  | -- | 
|                                |  | Total 
 Number of
 Shares 
 Purchased |  | Average 
 Price
 Paid per 
 Share |  | Total Number
 of Shares Purchased as
 Part of Publicly
 Announced Plans
 or Programs |     | Maximum Number 
 of Shares that may 
 yet be Purchased 
 Under the 
 Plans or Programs | 
|                                |  |                                       |  |                                   |  |                                                                                      |     |                                                                                        | 
|April 1
 through April 30, 2009 |  | 792                                   |  |                                   |  | $                                                                                    | 237 |                                                                                        |  | 24 |  |  |  | NA | 
|May 1
 through May 31, 2009     |  | 150                                   |  |                                   |  |                                                                                      | 247 |                                                                                        |  | 2  |  |  |  | NA | 
|June 1
 through June 30, 2009   |  | 278                                   |  |                                   |  |                                                                                      | 264 |                                                                                        |  | 32 |  |  |  | NA | 
|                                |  |                                       |  |                                   |  |                                                                                      |     |                                                                                        | 
|                               
|Total                           |  | 1,220                                 |  |                                   |  | $                                                                                    | 244 |                                                                                        |  | 58 |  |  |  | NA | 

|        |                                                     |                                                                                               
|------- | --------------------------------------------------- | ----------------------------------------------------------------------------------------------
|Item 3. | Defaults Upon Senior Securities                    
|        |                                                    
|        | Not
 applicable                                    
|        |                                                     |                                                                                               
|Item 4. | Submission of Matters to a Vote of Security Holders
|        |                                                     |                                                                                               
|        | a)                                                  | An annual
 meeting of shareholders was held on May 13, 2009 at The NOVA Building,
 Coplay, PA.
|        |                                                     |                                                                                               
|        | b)                                                  | Two matters
 were voted on at the May 13, 2009, meeting as follows:                           

| |                        |  |               |           |                 |  |                            |  |  |       | 
| | ---------------------- |  | ------------- | --------- | --------------- |  | -------------------------- |  |  | ----- | 
| | Election
 of Directors |  | Term
 Expires |           | Votes Cast
 For |  | Votes
 against or Withheld | 
| |                        |  |               |           |                 |  |                            | 
| | Duane A.
 Schleicher   |  |               | May, 2012 |                 |  | 150,220                    |  |  | 3,201 | 
| | John F.
 Simock        |  |               | May, 2012 |                 |  | 152,091                    |  |  | 1,330 | 
| | Mary Ann
 Wagner       |  |               | May, 2012 |                 |  | 152,321                    |  |  | 1,100 | 

| |                                                   |  |               |           | 
| | ------------------------------------------------- |  | ------------- | --------- | 
| | Directors
 whose term continued after the meeting |  | Term
 Expires |          
| |                                                   |  |               |          
| | Robert B.
 Heintzelman                            |  |               | May, 2010 | 
| | Kevin A.
 Schmidt                                 |  |               | May, 2010 | 
| | John J.
 Remaley                                  |  |               | May, 2011 | 
| | John F.
 Sharkey, Jr.                             |  |               | May, 2011 | 
| | Herman P.
 Snyder                                 |  |               | May, 2011 | 
| |                                                   |  |               |           | 

| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Ratification
 of the selection of Beard Miller Company LLP, Certified Public Accountants,
 as the Independent Auditors for the year ending December 31, 2009:

| |         |         |        
| | ------- | ------- | -------
| | For     | Against | Abstain
| | 152,902 | 139     | 380    

|        |                  
|------- | -----------------
|Item 5. | Other Information
|        |                  
|        | Not
 applicable  

26

---



|        |          |                                                                                                                                                                                                                                 
|------- | -------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 6. | Exhibits
|        |          |                                                                                                                                                                                                                                 
|        | 3(i)     | Amended and
 Restated Articles of Incorporation for Neffs Bancorp, Inc. (Incorporated by
 reference to Exhibit 3(i) to the Form 10 filed with the Commission on April
 27, 2001, as amended on June 29, 2001 and July 20, 2001.)
|        |          |                                                                                                                                                                                                                                 
|        | 3(ii)    | Amended and
 Restated By-laws of Neffs Bancorp, Inc. (Incorporated by reference to Exhibit
 99.1 to the Form 8K filed with the Commission on February 27, 2002.)                                                                
|        |          |                                                                                                                                                                                                                                 
|        | 31.1     | Certification
 of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act
 of 2002.                                                                                                                           
|        |          |                                                                                                                                                                                                                                 
|        | 31.2     | Certification
 of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley
 Act of 2002.                                                                                                                       
|        |          |                                                                                                                                                                                                                                 
|        | 32.1     | Certification
 of Chief Executive Officer pursuant to Section 1350 of the Sarbanes Oxley Act
 of 2002.                                                                                                                          
|        |          |                                                                                                                                                                                                                                 
|        | 32.2     | Certification
 of Principal Financial Officer pursuant to Section 1350 of the Sarbanes Oxley
 Act of 2002.                                                                                                                      

SIGNATURES

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

|                       |                            
|---------------------- | ---------------------------
|                       | NEFFS BANCORP, INC.        
|                       |                            
|Date: August
 13, 2009 | /s/ John J.
 Remaley       
|                       | John J.
 Remaley, President

27

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