UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter endedMarch 31, 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
 
 NEFFS BANCORP, INC.
  Pennsylvania
    
    23-2400383(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification No.)
 
 
  þ o
  o o
  Large
accelerated
filer: oAccelerated
filer: oNon-Accelerated
filer: o(Do not check if a smaller reporting company)Smaller reporting company: þ  o þ




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##### 



PART 1.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial StatementsConsolidated Statements of Financial Condition (Unaudited)
March 31, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Income (Unaudited)
Three months ended March 31, 2009 and March 31, 2008
    
    
    4Consolidated Statements of Stockholders Equity (Unaudited)
Three months ended March 31, 2009 and March 31, 2008
    
    
    5Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2009 and March 31, 2008
    
    
    6Notes to the Interim Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4T.
    
    Controls and Procedures
    
    
    22PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3.
    
    Defaults Upon Senior Securities
    
    
    24Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24Item 5.
    
    Other Information
    
    
    24Item 6.
    
    Exhibits
    
    
    24SIGNATURES
    
    
    26
 2




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##### 



March 31,
    
    December 31,Dollars in thousands, except share data
    
    2009
    
    2008ASSETSCash and due from banks
    
    $
    1,866
    
    
    $
    2,489Interest bearing deposits with banks
    
    
    101
    
    
    
    109Federal funds sold
    
    
    5,158
    
    
    
    1,379Securities available for sale
    
    
    37,654
    
    
    
    37,950Securities held to maturity, fair value
$93,374 in 2009; $89,111 in 2008
    
    
    96,860
    
    
    
    91,557Loans
    
    
    101,757
    
    
    
    100,953Less allowance for loan losses
    
    
    (757
    )
    
    
    (761
    )Net loans
    
    
    101,000
    
    
    
    100,192Premises and equipment, net
    
    
    2,488
    
    
    
    2,326Restricted investments in bank stock
    
    
    811
    
    
    
    803Other assets
    
    
    2,052
    
    
    
    1,977Total assets
    
    $
    247,990
    
    
    $
    238,782LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:DepositsNon-interest bearing
    
    $
    19,479
    
    
    $
    16,740Interest bearing
    
    
    181,797
    
    
    
    176,198Total deposits
    
    
    201,276
    
    
    
    192,938Other liabilities
    
    
    1,617
    
    
    
    1,315Total liabilities
    
    
    202,893
    
    
    
    194,253Stockholders Equity:Common stock, $1 par value, authorized 2,500,000 shares;
issued 200,000 shares;
    
    
    200
    
    
    
    200Paid-in capital
    
    
    753
    
    
    
    753Retained earnings
    
    
    46,306
    
    
    
    45,836Accumulated other comprehensive gain
    
    
    770
    
    
    
    442Treasury stock, at cost 2009 11,751 shares; 2008 10,750 shares
    
    
    (2,932
    )
    
    
    (2,702
    )Total stockholders equity
    
    
    45,097
    
    
    
    44,529Total liabilities and stockholders equity
    
    $
    247,990
    
    
    $
    238,782
  3




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##### 



Three Months EndedMarch 31,Dollars in thousands, except per share data
    
    2009
    
    2008Interest income:Interest and fees on loans
    
    $
    1,609
    
    
    $
    1,556Interest and dividends on investments:Taxable
    
    
    1,310
    
    
    
    1,182Exempt from federal income taxes
    
    
    354
    
    
    
    405Interest on federal funds sold and other
    
    
    2
    
    
    
    1Total interest income
    
    
    3,275
    
    
    
    3,144Interest ExpenseDeposits
    
    
    1,404
    
    
    
    1,588Borrowings
    
    
    
    
    
    
    9Total interest expense
    
    
    1,404
    
    
    
    1,597Net interest income
    
    
    1,871
    
    
    
    1,547Provision for loan losses
    
    
    
    
    
    
    15Net interest income after Provision for loan losses
    
    
    1,871
    
    
    
    1,532Other income:Service charges on deposit accounts
    
    
    27
    
    
    
    30Other service charges and fees
    
    
    22
    
    
    
    24Other income
    
    
    10
    
    
    
    12Total other income
    
    
    59
    
    
    
    66Other expenses:Salaries and employee benefits
    
    
    363
    
    
    
    353Occupancy
    
    
    42
    
    
    
    44Furniture and equipment
    
    
    67
    
    
    
    67Pennsylvania shares tax
    
    
    111
    
    
    
    106Other expenses
    
    
    235
    
    
    
    149Total other expenses
    
    
    818
    
    
    
    719Income before income taxes
    
    
    1,112
    
    
    
    879Income tax expense
    
    
    265
    
    
    
    174Net income
    
    $
    847
    
    
    $
    705Per share data:Earnings per share, basic
    
    $
    4.49
    
    
    $
    3.70Weighted average common shares outstanding
    
    
    188,567
    
    
    
    190,316Cash dividends declared per share
    
    $
    2.00
    
    
    $
    2.00
  4




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##### 



AccumulatedOther
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersDollars in thousands, except per share data
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Stock
    
    
    EquityBalance, December 31, 2007
    
    $
    200
    
    
    $
    753
    
    
    $
    43,558
    
    
    $
    (373
    )
    
    $
    (2,308
    )
    
    $
    41,830Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    705
    
    
    
    
    
    
    
    
    
    
    
    705Change in unrealized net losses
on securities available for sale,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370
    
    
    
    
    
    
    
    370Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075Cash dividends declared on common
stock, $2.00 per share
    
    
    
    
    
    
    
    
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    (381
    )Purchase of treasury stock
(488 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (128
    )
    
    
    (128
    )Balance, March 31, 2008
    
    $
    200
    
    
    $
    753
    
    
    $
    43,882
    
    
    $
    (3
    )
    
    $
    (2,436
    )
    
    $
    42,396AccumulatedOther
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersDollars in thousands, except per share data
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Gain
    
    
    Stock
    
    
    EquityBalance, December 31, 2008
    
    $
    200
    
    
    $
    753
    
    
    $
    45,836
    
    
    $
    442
    
    
    $
    (2,702
    )
    
    $
    44,529Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    847
    
    
    
    
    
    
    
    
    
    
    
    847Change in unrealized net losses
on securities available for sale,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    328Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,175Cash dividends declared on common
stock, $2.00 per share
    
    
    
    
    
    
    
    
    
    
    (377
    )
    
    
    
    
    
    
    
    
    
    
    (377
    )Purchase of treasury stock
(1,001 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (230
    )
    
    
    (230
    )Balance, March 31, 2009
    
    $
    200
    
    
    $
    753
    
    
    $
    46,306
    
    
    $
    770
    
    
    $
    (2,932
    )
    
    $
    45,097
  5




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##### 



Dollars in thousandsThree Months Ended March 31,
    
    2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    847
    
    
    $
    705Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    
    
    
    
    15Depreciation
    
    
    55
    
    
    
    55Net accretion of securities premiums/discounts
    
    
    (211
    )
    
    
    (100
    )Change in assets and liabilities:Increase in:Accrued interest receivable
    
    
    (152
    )
    
    
    (99
    )Other assets
    
    
    (92
    )
    
    
    (646
    )Increase in:Other liabilities
    
    
    (75
    )
    
    
    357Net cash provided by operating activities
    
    
    372
    
    
    
    287CASH FLOWS FROM INVESTING ACTIVITIESDecrease (increase) in interest bearing deposits
with banks
    
    
    8
    
    
    
    (54
    )Decrease (increase) in federal funds sold
    
    
    (3,779
    )
    
    
    (2,080
    )Purchase of securities available for sale
    
    
    (1,221
    )
    
    
    (3,897
    )Proceeds from maturities/calls of securities available
for sale
    
    
    1,998
    
    
    
    1,532Purchase of securities held to maturity
    
    
    (14,461
    )
    
    
    (16,946
    )Proceeds from maturities/calls of securities held to
maturity
    
    
    9,385
    
    
    
    19,490Net decrease (increase) in investment in restricted bank
stock
    
    
    (8
    )
    
    
    70Net increase in loans
    
    
    (808
    )
    
    
    (473
    )Purchases of premises and equipment
    
    
    (217
    )
    
    
    (13
    )Net cash used in investing activities
    
    
    (9,103
    )
    
    
    (2,371
    )CASH FLOWS FROM FINANCING ACTIVITIESNet increase (decrease) in deposits
    
    
    8,338
    
    
    
    4,278Net decrease in federal funds purchased
    
    
    
    
    
    
    (2,249
    )Purchase of treasury stock
    
    
    (230
    )
    
    
    (128
    )Net cash provided (used) by financing activities
    
    
    8,108
    
    
    
    1,901Increase (decrease) in cash and cash equivalents
    
    
    (623
    )
    
    
    (183
    )Cash and cash equivalents:Beginning
    
    
    2,489
    
    
    
    3,888Ending
    
    $
    1,866
    
    
    $
    3,705Supplementary Cash Flows InformationInterest Paid
    
    $
    1,499
    
    
    $
    1,551Income Taxes Paid
    
    $
    
    
    
    $
    141
  6




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##### 



NEFFS BANCORP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2009
(Unaudited)
 Note 1. BASIS OF PRESENTATION
     Note 2. COMMITMENTS AND CONTINGENCIES
  7




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##### 



Note 3. COMPREHENSIVE INCOME
  Three MonthsEndedMarch 31,2009
    
    
    2008(In Thousands)Unrealized holding gains on
available for sale securities
    
    $
    497
    
    
    $
    561Tax effect
    
    
    (169
    )
    
    
    (191
    )Other comprehensive income, net of tax
    
    $
    328
    
    
    $
    370
 Note 4. EARNINGS PER SHARE
  Note 5. GUARANTEES
  Note 6. FAIR VALUE MEASUREMENTS
   8




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(Level 1)
    
    (Level 2)Quoted Prices in
    
    Significant
    
    (Level 3)Active Markets
    
    Other
    
    Significantfor Identical
    
    Observable
    
    UnobservableDescription
    
    Total
    
    Assets
    
    Inputs
    
    Inputs(In Thousands)Securities
available for sale,
March 31, 2009
    
    $
    37,654
    
    
    $
    37,654Securities
available for sale,
December 31, 2008
    
    $
    37,950
    
    
    $
    37,950
   9




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10




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
    
    The few observable transactions and market quotations that are available are not reliable for
purposes of determining fair value at March 31, 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.
  1.
    
    The credit quality of the collateral is estimated using average risk-neutral
probability of default values for each industry (i.e. banks, REITs and insurance companies
are evaluated separately).2.
    
    Asset defaults are then generated taking account both the probability of default of the
asset and an assumed level of correlation among the assets.3.
    
    A higher level of correlation is assumed among assets from the same industry (e.g.
banks with other banks) than among those from different industries.4.
    
    The loss given default was assumed to be 95% (i.e. a 5 % recovery).5.
    
    The cash flows were forecast for the underlying collateral and applied to each CDO
tranche to determine the resulting distribution among the securities.6.
    
    The calculations were modeled in several thousand scenarios using a Monte Carlo engine.7.
    
    The expected cash flows for each scenario were discounted at the risk-free rate plus
200 basis points (for illiquidity) to calculate the present value of the security.8.
    
    The average price was used for valuation purposes.
  11




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##### 



Note 7. NEW ACCOUNTING STANDARDS
    12




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13




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##### 



Item 2.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
   14




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##### 




    
    operating, legal and regulatory risks;
    
    economic, political, and competitive forces affecting banking, securities, asset
management and credit services businesses; and
    
    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.
  CRITICAL ACCOUNTING POLICIES
  OVERVIEW
  15




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RESULTS OF OPERATIONS
 Average Balances and Average Interest Rates
   Net Interest Income and Net Interest Margin
     Provision for Loan Losses
  Non-interest Income
  16




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##### 



Non-interest Expense
        Provision for Federal Income Taxes
  Return on Average Assets
  Return on Average Equity
  17




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##### 



FINANCIAL CONDITION
 Securities
     Net Loans Receivable
  Loan and Asset Quality and Allowance for Loan Losses
  18




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##### 



Nonperforming Loans and Assets
 March 31,
    
    
    March 31,2009
    
    
    2008Nonaccrual loans:
    
    $
    
    
    
    $
    Commercial
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Real Estate:Construction
    
    
    
    
    
    
    Mortgage
    
    
    
    
    
    
    Total nonaccrual
    
    
    
    
    
    
    Loans past due 90 days or more
    
    
    65
    
    
    
    32Restructured loans
    
    
    
    
    
    
    Total nonperforming loans
    
    
    65
    
    
    
    32Foreclosed real estate
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    65
    
    
    $
    32Nonperforming loans to total loans
    
    
    0.06
    %
    
    
    0.03
    %Nonperforming assets to total assets
    
    
    0.03
    %
    
    
    0.01
    %
  Allowance for Loan Losses
 Three Months
    
    
    Three MonthsEnding 3/31/09
    
    
    Ending 3/31/08Balance at beginning of period
    
    $
    761
    
    
    $
    620Provisions charged to operating expenses
    
    
    
    
    
    
    15Recoveries of loans previously charged-offCommercial
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    1Real Estate
    
    
    
    
    
    
    Total recoveries
    
    
    
    
    
    
    1Loans charged-off:Commercial
    
    
    
    
    
    
    Consumer
    
    
    4
    
    
    
    Real Estate
    
    
    
    
    
    
    Total charged-off
    
    
    4
    
    
    
    Net charge-offs
    
    
    4
    
    
    
    1Balance at end of period
    
    $
    757
    
    
    $
    636Net charge-offs as a percentage of average
loans outstanding
    
    
    0.00
    %
    
    
    0.00
    %Allowance for loan losses as a percentage
of
period-end loans
    
    
    0.74
    %
    
    
    0.67
    %
 19




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##### 



Deposits
  At March 31,(Dollars in thousands)2009
    
    
    2008Average
    
    
    
    
    
    
    AverageBalance
    
    
    Yield
    
    
    Balance
    
    
    YieldDemand deposits:Noninterest-bearing
    
    $
    19,479
    
    
    
    
    
    
    $
    16,224Interest-bearing
    
    
    6,074
    
    
    
    0.46
    %
    
    
    5,316
    
    
    
    1.34
    %Savings
    
    
    51,142
    
    
    
    1.39
    %
    
    
    46,309
    
    
    
    1.88
    %Time deposits:<$100,000
    
    
    80,172
    
    
    
    3.81
    %
    
    
    77,149
    
    
    
    4.61
    %>$100,000
    
    
    44,409
    
    
    
    4.25
    %
    
    
    39,671
    
    
    
    4.96
    %Total deposits
    
    $
    201,276
    
    
    
    
    
    
    $
    184,669
 Interest Rate Sensitivity
     20




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Liquidity
   Off-Balance Sheet Arrangements
   Capital Adequacy
  21




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##### 



To be WellCapitalizedFor Capital
    
    Under PromptMarch 31,
    
    December 31,
    
    Adequacy
    
    Corrective Action2009
    
    2008
    
    Purposes
    
    ProvisionRisk-based capital
ratios:Tier 1 Capital
    
    
    31.6
    %
    
    
    37.8
    %
    
    
    4.0
    %
    
    
    6.0
    %Total Capital
    
    
    32.2
    %
    
    
    38.5
    %
    
    
    8.0
    %
    
    
    10.0
    %Leveraged Capital
    
    
    18.1
    %
    
    
    18.6
    %
    
    
    4.0
    %
    
    
    5.0
    %
  Item 3.
 Quantitative and Qualitative Disclosures about Market Risk
  Item 4T.
 Controls and Procedures
   22




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##### 



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 its subsidiary are a party or to which their property is
subject, which, if determined adversely to the Corporation or its subsidiary, would
be material in relation to the Corporations or its subsidiarys financial condition.
There are no proceedings pending other than ordinary routine litigation incident to
the business of the Corporation or its subsidiary. In addition, no material
proceedings are pending or are known to be threatened or contemplated against the
Corporation or its subsidiary by government authorities.
 Item 1A.
    
    Risk Factors
 During 2008 and 2009 the capital and credit markets experienced severe volatility and
disruption. From the third quarter of 2008 through the the first 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.
 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
 23




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##### 



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.
 Although there was no formal stock repurchase plan through the first quarter of 2009,
the Corporation repurchased Bancorp stock during the quarter as presented in the
table below.
 MaximumTotal Number
    
    
    Number ofTotal
    
    
    
    
    
    
    of Shares
    
    
    Shares that mayNumber
    
    
    Average
    
    
    Purchased as Part
    
    
    yet be Purchasedof
    
    
    Price
    
    
    of Publicly
    
    
    Under theShares
    
    
    Paid per
    
    
    Announced Plans
    
    
    Plans orPurchased
    
    
    Share
    
    
    or Programs
    
    
    ProgramsJanuary 1 through January 31, 2009
    
    
    560
    
    
    $
    240
    
    
    NA
    
    NAFebruary 1 through February 28, 2009
    
    
    261
    
    
    
    214
    
    
    NA
    
    NAMarch 1 through March 31, 2009
    
    
    180
    
    
    
    224
    
    
    NA
    
    NATotal
    
    
    1,001
    
    
    $
    230
    
    
    NA
    
    NA
 Item 3.
    
    Defaults Upon Senior SecuritiesNot applicable
 Item 4.
    
    Submission of Matters to a Vote of Security HoldersNot applicable
 Item 5.
    
    Other InformationNot applicable
 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.
 24




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##### 



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.
 25




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##### 



SIGNATURES
  NEFFS BANCORP, INC.Date:  May 5, 2009
    /s/ John J. RemaleyJohn J. Remaley, President 26