Exhibit 13
 Neffs Bancorp, Inc.
 Consolidated Financial Report
 December 31, 2008




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##### 



Directors of the Corporation  and Bank
 Robert B. Heintzelman
    
    John J. Remaley
  Kevin A. Schmidt
    
    John F. Sharkey, Jr.
  Herman P. Snyder
    
    Mary Ann Wagner
 Officers of the Corporation
 John J. Remaley
    
    Herman P. Snyder
 President
    
    Vice President
  Treasurer
 David C. Matulevich
    
    Michael J. Bailey
 Secretary
    
    Assistant Secretary
 Officers of the BANK
  Chairman of the Board
 John J. Remaley
    
    Kevin A. Schmidt
 President
    
    Executive Vice President
and
Chief Executive Officer
 Michael J. Bailey
    
    Carol L. Jones
 Cashier and 
Chief Operations Officer
    
    Assistant Cashier and
Operations Officer




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##### 








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##### 



Neffs Bancorp, Inc. and Subsidiary
 Table of Contents
 PAGE NO.CONSOLIDATED FINANCIAL STATEMENTS:Report of Independent Registered Public Accounting Firm
    
    
    1Consolidated Statements of Financial Condition
    
    
    2Consolidated Statements of Income
    
    
    3Consolidated Statements of Stockholders Equity
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Selected Financial Data
    
    
    28Quarterly Summary of Financial Data
    
    
    29Common Stock Information
    
    
    30Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    31




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##### 



Report of Independent Registered Public Accounting Firm




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##### 



Neffs Bancorp, Inc. and Subsidiary
 Consolidated Statements of Financial Condition
 December 31,2008
    
    
    2007(In Thousands, Except Share Data)AssetsCash and cash equivalents
    
    $
    2,489
    
    
    $
    3,888Interest bearing deposits with banks
    
    
    109
    
    
    
    118Federal funds sold
    
    
    1,379
    
    
    
    Securities available for sale
    
    
    37,950
    
    
    
    35,680Securities held to maturity, fair value 2008 $89,111; 2007 $87,896
    
    
    91,557
    
    
    
    86,811Loans receivable, net of allowance for loan losses 2008 $761;
2007 $620
    
    
    100,192
    
    
    
    93,990Premises and equipment, net
    
    
    2,326
    
    
    
    2,347Restricted investments in bank stock
    
    
    803
    
    
    
    714Other assets
    
    
    1,977
    
    
    
    2,249Total Assets
    
    $
    238,782
    
    
    $
    225,797Liabilities and Stockholders EquityLiabilities:Deposits:Non-interest bearing
    
    $
    16,740
    
    
    $
    17,205Interest bearing
    
    
    176,198
    
    
    
    163,186Total Deposits
    
    
    192,938
    
    
    
    180,391Federal funds purchased
    
    
    
    
    
    
    2,249Other liabilities
    
    
    1,315
    
    
    
    1,327Total Liabilities
    
    
    194,253
    
    
    
    183,967Stockholders equity:Common stock, $1 par value; authorized 2,500,000 shares;
issued 200,000 shares; outstanding shares 2008 189,250; 2007 190,755
    
    
    200
    
    
    
    200Paid-in capital
    
    
    753
    
    
    
    753Retained earnings
    
    
    45,836
    
    
    
    43,558Accumulated other comprehensive gain (loss)
    
    
    442
    
    
    
    (373
    )Treasury stock, at cost 2008 10,750 shares; 2007 9,245 shares
    
    
    (2,702
    )
    
    
    (2,308
    )Total Stockholders Equity
    
    
    44,529
    
    
    
    41,830Total Liabilities and Stockholders Equity
    
    $
    238,782
    
    
    $
    225,797
 See notes to
consolidated financial statements.
 2




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##### 



Neffs Bancorp, Inc. and Subsidiary
 Consolidated Statements of Income
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(Dollars in Thousands, Except per Share Data)Interest IncomeInterest and fees on loans
    
    $
    6,456
    
    
    $
    5,988
    
    
    $
    5,419Interest and dividends on investments:Taxable
    
    
    4,876
    
    
    
    4,086
    
    
    
    3,546Exempt from federal income taxes
    
    
    1,528
    
    
    
    1,783
    
    
    
    1,975Interest on federal funds sold and other
    
    
    12
    
    
    
    78
    
    
    
    51Total Interest Income
    
    
    12,872
    
    
    
    11,935
    
    
    
    10,991Interest ExpenseDeposits
    
    
    6,099
    
    
    
    6,085
    
    
    
    5,115Federal funds purchased
    
    
    23
    
    
    
    4
    
    
    
    14Total Interest Expense
    
    
    6,122
    
    
    
    6,089
    
    
    
    5,129Net Interest Income
    
    
    6,750
    
    
    
    5,846
    
    
    
    5,862Provision for Loan Losses
    
    
    145
    
    
    
    
    
    
    
    Net Interest Income after
Provision for Loan Losses
    
    
    6,605
    
    
    
    5,846
    
    
    
    5,862Other IncomeService charges on deposit accounts
    
    
    130
    
    
    
    136
    
    
    
    144Other service charges and fees
    
    
    98
    
    
    
    91
    
    
    
    66Other income
    
    
    49
    
    
    
    44
    
    
    
    48Total Other Income
    
    
    277
    
    
    
    271
    
    
    
    258Other ExpensesSalaries and employee benefits
    
    
    1,427
    
    
    
    1,367
    
    
    
    1,347Occupancy
    
    
    190
    
    
    
    175
    
    
    
    162Furniture and equipment
    
    
    233
    
    
    
    256
    
    
    
    243Pennsylvania shares tax
    
    
    423
    
    
    
    403
    
    
    
    381Other expenses
    
    
    743
    
    
    
    678
    
    
    
    676Total Other Expenses
    
    
    3,016
    
    
    
    2,879
    
    
    
    2,809Income before Income Taxes
    
    
    3,866
    
    
    
    3,238
    
    
    
    3,311Income Tax (Benefit) ExpenseCurrent
    
    
    724
    
    
    
    560
    
    
    
    574Deferred
    
    
    105
    
    
    
    (23
    )
    
    
    (86
    )Total Income Tax Expense
    
    
    829
    
    
    
    537
    
    
    
    488Net Income
    
    $
    3,037
    
    
    $
    2,701
    
    
    $
    2,823Earnings per Share, Basic
    
    $
    16.00
    
    
    $
    13.79
    
    
    $
    14.26Weighted Average Common
Shares Outstanding
    
    
    189,861
    
    
    
    195,893
    
    
    
    197,941
 See notes to
consolidated financial statements.
 3




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##### 



Neffs Bancorp, Inc. and Subsidiary  Consolidated Statements of Stockholders Equity  Years Ended December 31, 2008, 2007 and 2006
 AccumulatedOther
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Equity(Dollars in Thousands, Except per Share Data)Balance  December 31, 2005
    
    
    200
    
    
    
    753
    
    
    
    39,603
    
    
    
    (844
    )
    
    
    (418
    )
    
    
    39,294Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,823
    
    
    
    
    
    
    
    
    
    
    
    2,823Change in unrealized net gains (losses) on
securities available for sale, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (103
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,720Cash dividends declared on common stock, $4.00
per share
    
    
    
    
    
    
    
    
    
    
    (792
    )
    
    
    
    
    
    
    
    
    
    
    (792
    )Balance  December 31, 2006
    
    
    200
    
    
    
    753
    
    
    
    41,634
    
    
    
    (947
    )
    
    
    (418
    )
    
    
    41,222Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    2,701
    
    
    
    
    
    
    
    
    
    
    
    2,701Change in unrealized net gains (losses) on
securities available for sale, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574
    
    
    
    
    
    
    
    574Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,275Cash dividends declared on common stock, $4.00
per share
    
    
    
    
    
    
    
    
    
    
    (777
    )
    
    
    
    
    
    
    
    
    
    
    (777
    )Purchase of treasury stock (7,186 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,890
    )
    
    
    (1,890
    )Balance  December 31, 2007
    
    
    200
    
    
    
    753
    
    
    
    43,558
    
    
    
    (373
    )
    
    
    (2,308
    )
    
    
    41,830Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    3,037
    
    
    
    
    
    
    
    
    
    
    
    3,037Change in unrealized net gains (losses) on
securities available for sale, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    815
    
    
    
    
    
    
    
    815Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,852Cash dividends declared on common stock, $4.00
per share
    
    
    
    
    
    
    
    
    
    
    (759
    )
    
    
    
    
    
    
    
    
    
    
    (759
    )Purchase of treasury stock (1,505 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (394
    )
    
    
    (394
    )Balance  December 31, 2008
    
    $
    200
    
    
    $
    753
    
    
    $
    45,836
    
    
    $
    442
    
    
    $
    (2,702
    )
    
    $
    44,529
 See notes to consolidated financial statements.
 4




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##### 



Neffs Bancorp, Inc. and Subsidiary  Consolidated Statements of Cash Flow
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    3,037
    
    
    $
    2,701
    
    
    $
    2,823Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    193
    
    
    
    205
    
    
    
    214Provision for loan loss
    
    
    145
    
    
    
    
    
    
    
    Net amortization (accretion) of securities
    
    
    (512
    )
    
    
    (92
    )
    
    
    130Deferred income tax expense (benefit)
    
    
    105
    
    
    
    (23
    )
    
    
    (86
    )(Increase) decrease in assets:Accrued interest receivable
    
    
    (86
    )
    
    
    7
    
    
    
    (204
    )Other assets
    
    
    (167
    )
    
    
    67
    
    
    
    (52
    )Increase (decrease) in liabilities:Accrued interest payable
    
    
    (23
    )
    
    
    139
    
    
    
    201Other liabilities
    
    
    11
    
    
    
    (8
    )
    
    
    18Net Cash Provided by Operating Activities
    
    
    2,703
    
    
    
    2,996
    
    
    
    3,044Cash Flows from Investing ActivitiesNet decrease in interest bearing deposits with banks
    
    
    9
    
    
    
    26
    
    
    
    19Net (increase) decrease in federal funds sold
    
    
    (1,379
    )
    
    
    
    
    
    
    2,348Purchases of securities available for sale
    
    
    (7,961
    )
    
    
    (5,183
    )
    
    
    (1,806
    )Purchases of securities held to maturity
    
    
    (39,150
    )
    
    
    (12,935
    )
    
    
    (10,343
    )Proceeds from maturities/calls and principal repayments of
securities available for sale
    
    
    6,851
    
    
    
    6,335
    
    
    
    6,899Proceeds from maturities/calls of securities held to maturity
    
    
    34,991
    
    
    
    10,615
    
    
    
    4,977Net increase in restricted investment in bank stock
    
    
    (89
    )
    
    
    (63
    )
    
    
    (82
    )Net increase in loans
    
    
    (6,347
    )
    
    
    (6,572
    )
    
    
    (5,033
    )Purchases of premises and equipment
    
    
    (172
    )
    
    
    (47
    )
    
    
    (170
    )Net Cash Used in Investing Activities
    
    
    (13,247
    )
    
    
    (7,824
    )
    
    
    (3,191
    )Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    12,547
    
    
    
    7,290
    
    
    
    (175
    )Net increase (decrease) in federal funds purchased
    
    
    (2,249
    )
    
    
    1,892
    
    
    
    357Dividends paid
    
    
    (759
    )
    
    
    (777
    )
    
    
    (792
    )Purchase of treasury stock
    
    
    (394
    )
    
    
    (1,890
    )
    
    
    Net Cash Provided by (Used in) Financing Activities
    
    
    9,145
    
    
    
    6,515
    
    
    
    (610
    )Net Increase (Decrease) in Cash and Cash
Equivalents
    
    
    (1,399
    )
    
    
    1,687
    
    
    
    (757
    )Cash and Cash Equivalents  Beginning
    
    
    3,888
    
    
    
    2,201
    
    
    
    2,958Cash and Cash Equivalents  Ending
    
    $
    2,489
    
    
    $
    3,888
    
    
    $
    2,201Supplementary Cash Flows InformationInterest paid
    
    $
    6,145
    
    
    $
    5,950
    
    
    $
    4,928Income taxes paid
    
    $
    901
    
    
    $
    614
    
    
    $
    531
 See notes to consolidated financial statements.
 5




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies
 Basis of Presentation
  Nature of Operations
  Estimates
  Significant Concentrations of Credit Risk
  Securities
   6




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
   Restricted Investment in Bank Stocks
  Accounting by Certain Entities
(Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others
 Loans
   Allowance for Loan Losses
  7




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
     Foreclosed Assets
  Transfers of Financial Assets
  8




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
  Premises and Equipment
  Advertising Costs
  Income Taxes
  Earnings per Share
  Employee Benefit Plan
  Comprehensive Income
  Cash and Cash Equivalents
  9




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Treasury Stock
  Segment Reporting
   New Accounting Standards
     10




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
     Note 2  Cash and Cash Equivalents
 
 11




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 3  Securities
  December 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In Thousands)Securities Available for Sale:U.S. Treasury note
    
    $
    100
    
    
    $
    7
    
    
    $
    
    
    
    $
    107Mortgage-backed securities
    
    
    37,181
    
    
    
    702
    
    
    
    (40
    )
    
    
    37,843$
    37,281
    
    
    $
    709
    
    
    $
    (40
    )
    
    $
    37,950Securities Held to Maturity:Obligations of U.S. Government
agencies
    
    $
    52,871
    
    
    $
    568
    
    
    $
    (1,393
    )
    
    $
    52,046Obligations of states and political
subdivisions
    
    
    32,300
    
    
    
    833
    
    
    
    (66
    )
    
    
    33,067Corporate securities
    
    
    5,341
    
    
    
    
    
    
    
    (2,413
    )
    
    
    2,928Mortgage-backed securities
    
    
    1,045
    
    
    
    25
    
    
    
    
    
    
    
    1,070$
    91,557
    
    
    $
    1,426
    
    
    $
    (3,872
    )
    
    $
    89,111
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In Thousands)Securities Available for Sale:U.S. Treasury note
    
    $
    100
    
    
    $
    1
    
    
    $
    
    
    
    $
    101Mortgage-backed securities
    
    
    36,145
    
    
    
    71
    
    
    
    (637
    )
    
    
    35,579$
    36,245
    
    
    $
    72
    
    
    $
    (637
    )
    
    $
    35,680Securities Held to Maturity:Obligations of U.S. Government
agencies
    
    $
    43,627
    
    
    $
    466
    
    
    $
    (69
    )
    
    $
    44,024Obligations of states and political
subdivisions
    
    
    37,507
    
    
    
    972
    
    
    
    (18
    )
    
    
    38,461Corporate securities
    
    
    4,437
    
    
    
    18
    
    
    
    (305
    )
    
    
    4,150Mortgage-backed securities
    
    
    1,240
    
    
    
    23
    
    
    
    (2
    )
    
    
    1,261$
    86,811
    
    
    $
    1,479
    
    
    $
    (394
    )
    
    $
    87,896
 12




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
  Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Due in one year or less
    
    $
    100
    
    
    $
    107
    
    
    $
    1,000
    
    
    $
    1,014Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    7,795
    
    
    
    7,738Due after five years through ten years
    
    
    
    
    
    
    
    
    
    
    19,618
    
    
    
    20,178Due after ten years
    
    
    
    
    
    
    
    
    
    
    62,099
    
    
    
    59,111100
    
    
    
    107
    
    
    
    90,512
    
    
    
    88,041Mortgage-backed securities
    
    
    37,181
    
    
    
    37,843
    
    
    
    1,045
    
    
    
    1,070$
    37,281
    
    
    $
    37,950
    
    
    $
    91,557
    
    
    $
    89,111
   2008
    
    
    2007
    
    
    2006(In Thousands)Gross change in unrealized gains (losses)
on securities available for sale
    
    $
    1,235
    
    
    $
    870
    
    
    $
    (156
    )Reclassification adjustment for gains
realized in income
    
    
    
    
    
    
    
    
    
    
    Net Unrealized Gains (Losses)
    
    
    1,235
    
    
    
    870
    
    
    
    (156
    )Tax effect
    
    
    (420
    )
    
    
    (296
    )
    
    
    53Net of Tax Amount
    
    $
    815
    
    
    $
    574
    
    
    $
    (103
    )
  13




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
  Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In Thousands)DECEMBER 31, 2008:Securities Available for Sale:Mortgage-backed securities
    
    $
    38
    
    
    $
    1
    
    
    $
    5,866
    
    
    $
    39
    
    
    $
    5,904
    
    
    $
    40Securities Held to Maturity:Obligations of U.S.
Government agencies
    
    
    26,576
    
    
    
    1,206
    
    
    
    2,572
    
    
    
    187
    
    
    
    29,148
    
    
    
    1,393Obligations of states
and political
subdivisions
    
    
    3,818
    
    
    
    44
    
    
    
    627
    
    
    
    22
    
    
    
    4,445
    
    
    
    66Corporate securities
    
    
    1,613
    
    
    
    448
    
    
    
    1,165
    
    
    
    1,965
    
    
    
    2,778
    
    
    
    2,413Total Temporarily
Impaired Securities
    
    $
    32,045
    
    
    $
    1,699
    
    
    $
    10,230
    
    
    $
    2,213
    
    
    $
    42,275
    
    
    $
    3,912
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In Thousands)DECEMBER 31, 2007:Securities Available for Sale:Mortgage-backed securities
    
    $
    
    
    
    $
    
    
    
    $
    27,588
    
    
    $
    637
    
    
    $
    27,588
    
    
    $
    637Securities Held to Maturity:Obligations of U.S.
Government agencies
    
    
    1,909
    
    
    
    35
    
    
    
    10,069
    
    
    
    34
    
    
    
    11,978
    
    
    
    69Obligations of states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    2,104
    
    
    
    18
    
    
    
    2,104
    
    
    
    18Corporate securities
    
    
    2,688
    
    
    
    249
    
    
    
    794
    
    
    
    56
    
    
    
    3,482
    
    
    
    305Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    2
    
    
    
    248
    
    
    
    2Total Temporarily Impaired
Securities
    
    $
    4,597
    
    
    $
    284
    
    
    $
    40,803
    
    
    $
    747
    
    
    $
    45,400
    
    
    $
    1,031
  14




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 4  Loans
  2008
    
    
    2007(In Thousands)Commercial
    
    $
    3,627
    
    
    $
    4,635Commercial real estate
    
    
    26,142
    
    
    
    22,779Residential real estate
    
    
    43,799
    
    
    
    39,221Real estate construction
    
    
    873
    
    
    
    879Home equity
    
    
    19,688
    
    
    
    20,043Other consumer
    
    
    6,824
    
    
    
    7,053100,953
    
    
    
    94,610Allowance for loan losses
    
    
    (761
    )
    
    
    (620
    )$
    100,192
    
    
    $
    93,990
 Note 5  Allowance for Loan Losses
  2008
    
    
    2007
    
    
    2006(In Thousands)Balance, beginning
    
    $
    620
    
    
    $
    653
    
    
    $
    657Provision for loan losses
    
    
    145
    
    
    
    
    
    
    
    Recoveries on loans previously charged off
    
    
    1
    
    
    
    5
    
    
    
    2Loans charged off
    
    
    (5
    )
    
    
    (38
    )
    
    
    (6
    )Balance, ending
    
    $
    761
    
    
    $
    620
    
    
    $
    653
   15




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 6  Premises and Equipment
  EstimatedUseful Lives
    
    
    2008
    
    
    2007(In Thousands)Premises
    
    5-39 years
    
    $
    2,845
    
    
    $
    2,813Furniture, fixtures and equipment
    
    5-10 years
    
    
    2,136
    
    
    
    1,9964,981
    
    
    
    4,809Accumulated depreciation
    
    
    
    
    
    
    (2,893
    )
    
    
    (2,700
    )2,088
    
    
    
    2,109Land
    
    
    
    
    
    
    238
    
    
    
    238$
    2,326
    
    
    $
    2,347
 Note 7  Interest Bearing Deposits
   2008
    
    
    2007(In Thousands)Savings accounts
    
    $
    48,338
    
    
    $
    45,086NOW accounts
    
    
    6,038
    
    
    
    6,542Certificates and other time deposits
    
    
    121,822
    
    
    
    111,558$
    176,198
    
    
    $
    163,186
  2009
    
    $
    59,0592010
    
    
    24,6602011
    
    
    9,4982012
    
    
    11,0012013
    
    
    17,604$
    121,822
 16




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 8  Borrowing Capacity
   Note 9  Income Taxes
  2008
    
    
    2007(In Thousands)AMT credit carryforward
    
    $
    276
    
    
    $
    416Unrealized losses on securities available for sale
    
    
    
    
    
    
    192Allowance for loan losses
    
    
    208
    
    
    
    160Accrued benefits
    
    
    23
    
    
    
    20Total Deferred Tax Assets
    
    
    507
    
    
    
    788Securities accretion
    
    
    37
    
    
    
    37Unrealized gains on securities available for sale
    
    
    228
    
    
    
    Depreciation
    
    
    20
    
    
    
    4Total Deferred Tax Liabilities
    
    
    285
    
    
    
    41Net Deferred Tax Asset
    
    $
    222
    
    
    $
    747
 17




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
  2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPretax
    
    
    
    
    
    
    Pretax
    
    
    
    
    
    
    PretaxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    Income(Dollars in Thousands)Tax at statutory rate
    
    $
    1,315
    
    
    
    34
    %
    
    $
    1,101
    
    
    
    34
    %
    
    $
    1,125
    
    
    
    34
    %Increase (decrease)
resulting from:Tax-exempt interest
income
    
    
    (550
    )
    
    
    (14
    )
    
    
    (643
    )
    
    
    (20
    )
    
    
    (714
    )
    
    
    (21
    )TEFRA interest expense
disallowance
    
    
    64
    
    
    
    2
    
    
    
    79
    
    
    
    3
    
    
    
    77
    
    
    
    2$
    829
    
    
    
    22
    %
    
    $
    537
    
    
    
    17
    %
    
    $
    488
    
    
    
    15
    %
 Note 10  Related Party Transactions
   Balances, January 1, 2008
    
    $
    5,243Advances
    
    
    1,814Repayments
    
    
    (1,676
    )Balances, December 31, 2008
    
    $
    5,381
 Note 11  Financial Instruments with Off-Balance Sheet Risk
   18




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
  2008
    
    
    2007(In Thousands)Commitments to grant loans
    
    $
    806
    
    
    $
    2,335Unfunded commitments under lines of credit
    
    
    4,771
    
    
    
    4,053Letters of credit
    
    
    594
    
    
    
    627$
    6,171
    
    
    $
    7,015
   Note 12  Dividend Restrictions
  Note 13  Capital Requirements
  19




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
     To be Well Capitalizedunder PromptFor Capital Adequacy
    
    
    Corrective ActionActual
    
    
    Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)As of December 31, 2008:Total capital (to risk-weighted assets):
    
    $
    44,587
    
    
    
    38.5
    
    
    
    39,267
    
    
    
    38.0
    
    
    $
    311,584
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted assets):
    
    
    43,826
    
    
    
    37.8
    
    
    
    34,633
    
    
    
    34.0
    
    
    
    3  6,950
    
    
    
    3  6.0Tier 1 capital (to average assets):
    
    
    43,826
    
    
    
    18.6
    
    
    
    39,413
    
    
    
    34.0
    
    
    
    311,767
    
    
    
    3  5.0As of December 31, 2007:Total capital (to risk-weighted assets):
    
    $
    42,453
    
    
    
    38.5
    
    
    
    38,825
    
    
    
    38.0
    
    
    $
    3  11,031
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted assets):
    
    
    41,833
    
    
    
    37.9
    
    
    
    34,412
    
    
    
    34.0
    
    
    
    3    6,618
    
    
    
    3  6.0Tier 1 capital (to average assets):
    
    
    41,833
    
    
    
    18.7
    
    
    
    38,952
    
    
    
    34.0
    
    
    
    311,190
    
    
    
    3  5.0
  20




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 14  Fair Value of Financial Instruments
     Cash and Due from Banks, Interest Bearing Deposits with Banks and Federal Funds Sold and Purchased
  Securities
       21




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
   (Level 1)Quoted Prices in
    
    
    (Level 2)
    
    
    (Level 3)Active Markets
    
    
    Significant Other
    
    
    SignificantDecember 31,
    
    
    for Identical
    
    
    Observable
    
    
    UnobservableDescription
    
    2008
    
    
    Assets
    
    
    Inputs
    
    
    Inputs(In Thousands)Securities
Available for sale
    
    $
    37,950
    
    
    $
    37,950
     22




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
        
    
    The few observable transactions and market quotations that are available are not reliable
for purposes of determining fair value at December 31, 2008,
 23




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 
    
    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.
          Loans Receivable
  Accrued Interest Receivable
  Deposit Liabilities
  Accrued Interest Payable
  24




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Off-Balance Sheet Instruments
   2008
    
    
    2007Estimated
    
    
    
    
    
    
    EstimatedCarrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In Thousands)Financial assets:Cash and short-term
investments
    
    $
    2,598
    
    
    $
    2,598
    
    
    $
    4,006
    
    
    $
    4,006Securities available for sale
    
    
    37,950
    
    
    
    37,950
    
    
    
    35,680
    
    
    
    35,680Securities held to maturity
    
    
    91,557
    
    
    
    89,111
    
    
    
    86,811
    
    
    
    87,896Loans, net
    
    
    100,192
    
    
    
    104,130
    
    
    
    93,990
    
    
    
    95,263Accrued interest receivable
    
    
    1,496
    
    
    
    1,496
    
    
    
    1,410
    
    
    
    1,410Federal funds sold
    
    
    1,379
    
    
    
    1,379
    
    
    
    
    
    
    
    Financial liabilities:Deposits
    
    
    192,938
    
    
    
    194,495
    
    
    
    180,391
    
    
    
    180,955Accrued interest payable
    
    
    1,219
    
    
    
    1,219
    
    
    
    1,242
    
    
    
    1,242Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    2,249
    
    
    
    2,249Off-balance sheet financial
instruments:Commitments to extend credit
and letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 25




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 15  Condensed Financial Information of Neffs Bancorp, Inc. (Parent Only)
 Balance Sheets
 December 31,2008
    
    
    2007(In Thousands)AssetsCash
    
    $
    8
    
    
    $
    53Investment in subsidiary
    
    
    44,268
    
    
    
    41,459Premises and equipment
    
    
    241
    
    
    
    245Other assets
    
    
    33
    
    
    
    94Total Assets
    
    $
    44,550
    
    
    $
    41,851Liability and Stockholders EquityLiability, accounts payable
    
    $
    21
    
    
    $
    21Stockholders equity
    
    
    44,529
    
    
    
    41,830Total Liability and Stockholders Equity
    
    $
    44,550
    
    
    $
    41,851
 Statements of Income
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Dividends from subsidiary
    
    $
    1,107
    
    
    $
    2,667
    
    
    $
    792Rental income
    
    
    11
    
    
    
    13
    
    
    
    13Expenses
    
    
    (107
    )
    
    
    (127
    )
    
    
    (111
    )Income before Income Taxes and Equity in
Undistributed Earnings of Subsidiary
    
    
    1,011
    
    
    
    2,553
    
    
    
    694Income tax benefit
    
    
    33
    
    
    
    39
    
    
    
    271,044
    
    
    
    2,592
    
    
    
    721Equity in undistributed earnings of subsidiary
    
    
    1,993
    
    
    
    109
    
    
    
    2,102Net Income
    
    $
    3,037
    
    
    $
    2,701
    
    
    $
    2,823
 26




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Statements of Cash Flows
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    3,037
    
    
    $
    2,701
    
    
    $
    2,823Adjustments to reconcile net income to
net cash provided by operating
activities:Depreciation
    
    
    11
    
    
    
    9
    
    
    
    10Equity in undistributed earnings of
subsidiary
    
    
    (1,993
    )
    
    
    (109
    )
    
    
    (2,102
    )(Increase) decrease in other assets
    
    
    61
    
    
    
    (32
    )
    
    
    (27
    )Net Cash Provided by Operating Activities
    
    
    1,116
    
    
    
    2,569
    
    
    
    704Cash Flows Used in Investing ActivitiesPurchases of premises and equipment
    
    
    (8
    )
    
    
    (4
    )
    
    
    Cash Flows Used in Financing ActivitiesDividends paid
    
    
    (759
    )
    
    
    (777
    )
    
    
    (792
    )Purchase of treasury stock
    
    
    (394
    )
    
    
    (1,890
    )
    
    
    Net Cash Used in Financing Activities
    
    
    (1,153
    )
    
    
    (2,667
    )
    
    
    (792
    )Net Decrease in Cash
    
    
    (45
    )
    
    
    (102
    )
    
    
    (88
    )Cash  Beginning
    
    
    53
    
    
    
    155
    
    
    
    243Cash  Ending
    
    $
    8
    
    
    $
    53
    
    
    $
    155
 27




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Selected Financial Data
  At or For the Year Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in Thousands, Except Per Share Data)Interest IncomeInterest and fees on loans
    
    $
    6,456
    
    
    $
    5,988
    
    
    $
    5,419
    
    
    $
    5,001
    
    
    $
    4,747Interest and dividends on
securities
    
    
    6,404
    
    
    
    5,869
    
    
    
    5,521
    
    
    
    5,371
    
    
    
    5,233Interest on federal funds sold
    
    
    12
    
    
    
    78
    
    
    
    51
    
    
    
    82
    
    
    
    67Total interest income
    
    
    12,872
    
    
    
    11,935
    
    
    
    10,991
    
    
    
    10,454
    
    
    
    10,047Interest ExpenseDeposits
    
    
    6,099
    
    
    
    6,085
    
    
    
    5,115
    
    
    
    4,469
    
    
    
    4,082Short-term borrowings
    
    
    23
    
    
    
    4
    
    
    
    14
    
    
    
    
    
    
    
    Total interest expense
    
    
    6,122
    
    
    
    6,089
    
    
    
    5,129
    
    
    
    4,469
    
    
    
    4,082Net interest income
    
    
    6,750
    
    
    
    5,846
    
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,965Provision for loan losses
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Net interest income after provision
for loan losses
    
    
    6,605
    
    
    
    5,846
    
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,929Other operating income
    
    
    277
    
    
    
    271
    
    
    
    258
    
    
    
    276
    
    
    
    268Other operating expense
    
    
    3,016
    
    
    
    2,879
    
    
    
    2,809
    
    
    
    2,612
    
    
    
    2,385Income before taxes
    
    
    3,866
    
    
    
    3,238
    
    
    
    3,311
    
    
    
    3,649
    
    
    
    3,812Applicable income taxes
    
    
    829
    
    
    
    537
    
    
    
    488
    
    
    
    577
    
    
    
    607Net income
    
    $
    3,037
    
    
    $
    2,701
    
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205Per Share DataBasic earnings
    
    $
    16.00
    
    
    $
    13.79
    
    
    $
    14.26
    
    
    $
    15.58
    
    
    $
    16.26Book value
    
    $
    234.53
    
    
    $
    213.53
    
    
    $
    208.25
    
    
    $
    199.34
    
    
    $
    189.33Dividends declared
    
    $
    4.00
    
    
    $
    4.00
    
    
    $
    4.00
    
    
    $
    4.00
    
    
    $
    3.75Average shares outstanding
    
    
    189,861
    
    
    
    195,893
    
    
    
    197,941
    
    
    
    197,117
    
    
    
    197,091At End of PeriodTotal assets
    
    $
    238,782
    
    
    $
    225,797
    
    
    $
    215,876
    
    
    $
    213,547
    
    
    $
    209,803Securities
    
    
    129,507
    
    
    
    122,491
    
    
    
    120,362
    
    
    
    120,375
    
    
    
    122,794Loans, net of unearned income
    
    
    100,192
    
    
    
    93,990
    
    
    
    87,418
    
    
    
    83,042
    
    
    
    76,978Allowance for loan losses
    
    
    761
    
    
    
    620
    
    
    
    653
    
    
    
    657
    
    
    
    663Deposits
    
    
    192,938
    
    
    
    180,391
    
    
    
    173,101
    
    
    
    173,276
    
    
    
    171,652Stockholders equity
    
    
    44,529
    
    
    
    41,830
    
    
    
    41,222
    
    
    
    39,294
    
    
    
    37,316Key RatiosReturn on average assets
    
    
    1.30
    %
    
    
    1.21
    %
    
    
    1.32
    %
    
    
    1.46
    %
    
    
    1.57
    %Return on average equity
    
    
    7.09
    %
    
    
    6.56
    %
    
    
    7.11
    %
    
    
    8.08
    %
    
    
    8.89
    %Net loans to deposit ratio
    
    
    51.93
    %
    
    
    52.10
    %
    
    
    50.50
    %
    
    
    47.55
    %
    
    
    44.46
    %Dividend payout ratio (dividends
declared divided by net income)
    
    
    25.01
    %
    
    
    29.01
    %
    
    
    28.05
    %
    
    
    25.66
    %
    
    
    23.06
    %Equity to asset ratio (average
equity
divided by average total assets)
    
    
    18.32
    %
    
    
    18.41
    %
    
    
    18.61
    %
    
    
    17.95
    %
    
    
    17.56
    %
 28




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Quarterly Summary of Financial Data (unaudited)
 2008Three Months EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in Thousands, Except Per Share Data)Interest income
    
    $
    3,144
    
    
    $
    3,201
    
    
    $
    3,251
    
    
    $
    3,276Interest expense
    
    
    1,597
    
    
    
    1,537
    
    
    
    1,503
    
    
    
    1,485Net interest income
    
    
    1,547
    
    
    
    1,664
    
    
    
    1,748
    
    
    
    1,791Provision for loan losses
    
    
    15
    
    
    
    15
    
    
    
    38
    
    
    
    77Other expenses, net of other
income
    
    
    653
    
    
    
    706
    
    
    
    708
    
    
    
    672Income before income taxes
    
    
    879
    
    
    
    943
    
    
    
    1,002
    
    
    
    1,042Income tax expense
    
    
    174
    
    
    
    196
    
    
    
    232
    
    
    
    227Net income
    
    $
    705
    
    
    $
    747
    
    
    $
    770
    
    
    $
    815Earnings per share-Basic
    
    $
    3.70
    
    
    $
    3.93
    
    
    $
    4.06
    
    
    $
    4.31
 2007Three Months EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in Thousands, Except Per Share Data)Interest income
    
    $
    2,878
    
    
    $
    2,951
    
    
    $
    3,039
    
    
    $
    3,067Interest expense
    
    
    1,470
    
    
    
    1,505
    
    
    
    1,534
    
    
    
    1,580Net interest income
    
    
    1,408
    
    
    
    1,446
    
    
    
    1,505
    
    
    
    1,487Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expenses, net of other
income
    
    
    655
    
    
    
    664
    
    
    
    653
    
    
    
    636Income before income taxes
    
    
    753
    
    
    
    782
    
    
    
    852
    
    
    
    851Income tax expense
    
    
    105
    
    
    
    117
    
    
    
    148
    
    
    
    167Net income
    
    $
    648
    
    
    $
    665
    
    
    $
    704
    
    
    $
    684Earnings per share-Basic
    
    $
    3.27
    
    
    $
    3.36
    
    
    $
    3.57
    
    
    $
    3.59
 29




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Common Stock Information
    Cash Dividends2008
    
    HIGH
    
    LOW
    
    Per ShareFirst Quarter
    
    $
    255.00
    
    
    $
    255.00
    
    
    
    Second Quarter
    
    $
    260.00
    
    
    $
    260.00
    
    
    $
    2.00Third Quarter
    
    $
    245.00
    
    
    $
    265.00
    
    
    
    Fourth Quarter
    
    $
    221.00
    
    
    $
    235.00
    
    
    $
    2.00
 Cash Dividends2007
    
    HIGH
    
    LOW
    
    Per ShareFirst Quarter
    
    $
    256.00
    
    
    $
    256.00
    
    
    
    Second Quarter
    
    $
    262.00
    
    
    $
    262.00
    
    
    $
    2.00Third Quarter
    
    $
    263.00
    
    
    $
    263.00
    
    
    
    Fourth Quarter
    
    $
    263.00
    
    
    $
    263.00
    
    
    $
    2.00
  30




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 
    
    
    operating, legal and regulatory risks,
    
    economic, political and competitive forces affecting our Banking business, and
    
    the risk that our analysis of these risks and forces could be incorrect and/or that the
strategies developed to address them could be unsuccessful.
  Critical Accounting Policies
   31




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  OVERVIEW
   RESULTS OF OPERATIONS
 Net Interest Income and Net Interest Margin
  2008 Compared to 2007
    2007 Compared to 2006
  32




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
    Year Ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance1
    
    
    Interest
    
    
    Rate
    
    
    Balance1
    
    
    Interest
    
    
    Rate
    
    
    Balance1
    
    
    Interest
    
    
    Rate(Dollars in Thousands)Interest earning assets:Loans receivable2
    
    $
    97,774
    
    
    $
    6,456
    
    
    
    6.60
    %
    
    $
    92,006
    
    
    $
    5,988
    
    
    
    6.51
    %
    
    $
    85,565
    
    
    $
    5,419
    
    
    
    6.33
    %Investment securities:Taxable
    
    
    92,674
    
    
    
    4,876
    
    
    
    5.26
    %
    
    
    81,916
    
    
    
    4,086
    
    
    
    4.99
    %
    
    
    75,390
    
    
    
    3,546
    
    
    
    4.70
    %Non-taxable3
    
    
    33,871
    
    
    
    1,528
    
    
    
    4.51
    %
    
    
    39,387
    
    
    
    1,783
    
    
    
    4.53
    %
    
    
    43,817
    
    
    
    1,975
    
    
    
    4.51
    %Other interest earning assets4
    
    
    990
    
    
    
    12
    
    
    
    1.21
    %
    
    
    1,747
    
    
    
    78
    
    
    
    4.46
    %
    
    
    357
    
    
    
    51
    
    
    
    14.29
    %Total interest earning assets
    
    
    225,309
    
    
    
    12,872
    
    
    
    5.71
    %
    
    
    215,056
    
    
    
    11,935
    
    
    
    5.55
    %
    
    
    205,129
    
    
    
    10,991
    
    
    
    5.36
    %Noninterest earning assets
    
    
    8,588
    
    
    
    
    
    
    
    
    
    
    
    8,554
    
    
    
    
    
    
    
    
    
    
    
    8,155Total assets
    
    $
    233,897
    
    
    
    
    
    
    
    
    
    
    $
    223,610
    
    
    
    
    
    
    
    
    
    
    $
    213,284Interest bearing liabilities:NOW
    
    $
    5,932
    
    
    
    49
    
    
    
    0.83
    %
    
    $
    6,517
    
    
    
    105
    
    
    
    1.61
    %
    
    $
    7,697
    
    
    
    126
    
    
    
    1.64
    %Savings
    
    
    47,649
    
    
    
    830
    
    
    
    1.74
    %
    
    
    48,147
    
    
    
    926
    
    
    
    1.92
    %
    
    
    49,428
    
    
    
    867
    
    
    
    1.75
    %Certificates of deposit
    
    
    118,746
    
    
    
    5,220
    
    
    
    4.40
    %
    
    
    108,275
    
    
    
    5,054
    
    
    
    4.67
    %
    
    
    97,273
    
    
    
    4,122
    
    
    
    4.24
    %Federal funds purchased
    
    
    861
    
    
    
    23
    
    
    
    2.67
    %
    
    
    562
    
    
    
    4
    
    
    
    0.71
    %
    
    
    343
    
    
    
    14
    
    
    
    4.08
    %Total interest bearing liabilities
    
    
    173,188
    
    
    
    6,122
    
    
    
    3.53
    %
    
    
    163,501
    
    
    
    6,089
    
    
    
    3.72
    %
    
    
    154,741
    
    
    
    5,129
    
    
    
    3.31
    %Noninterest bearing liabilities:Demand deposits
    
    
    16,393
    
    
    
    
    
    
    
    
    
    
    
    17,455
    
    
    
    
    
    
    
    
    
    
    
    17,571Other liabilities
    
    
    1,466
    
    
    
    
    
    
    
    
    
    
    
    1,494
    
    
    
    
    
    
    
    
    
    
    
    1,287Stockholders equity
    
    
    42,850
    
    
    
    
    
    
    
    
    
    
    
    41,160
    
    
    
    
    
    
    
    
    
    
    
    39,685Total liabilities and
stockholders equity
    
    $
    233,897
    
    
    
    
    
    
    
    
    
    
    $
    223,610
    
    
    
    
    
    
    
    
    
    
    $
    213,284Net interest income/spread5
    
    
    
    
    
    $
    6,750
    
    
    
    2.18
    %
    
    
    
    
    
    $
    5,846
    
    
    
    1.83
    %
    
    
    
    
    
    $
    5,862
    
    
    
    2.05
    %Net interest margin6
    
    
    
    
    
    
    
    
    
    
    3.00
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
 
 1
    
    Averages are not computed on daily average. Average
balances are computed based on an average of quarter-end balances.2
    
    Average balances include non-accrual loans.3
    
    There have been no tax equivalent adjustments made to
yields.4
    
    This reflects average balance for Federal Funds Sold
and Purchased and is calculated by utilizing quarterly ending balance. The
actual daily balance may differ greatly from this average balance due to the
nature of these funds.5
    
    Interest rate spread represents the difference between
the average yield on interest earning assets and the average cost of
interest bearing liabilities.6
    
    Net interest margin represents net interest income as a
percentage of average interest earning assets. 33




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
  For Year Ended December 31,2008/2007 Increase/(Decrease)
    
    
    2007/2006 Increase/(Decrease)Due to Change in
    
    
    Due to Change inVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    Net(In Thousands)Interest Income:Loans receivable
    
    $
    381
    
    
    $
    87
    
    
    $
    468
    
    
    $
    419
    
    
    $
    150
    
    
    $
    569Securities
    
    
    265
    
    
    
    270
    
    
    
    535
    
    
    
    101
    
    
    
    247
    
    
    
    348Other interest earning assets
    
    
    (9
    )
    
    
    (57
    )
    
    
    (66
    )
    
    
    62
    
    
    
    (35
    )
    
    
    27Total interest earning assets
    
    
    637
    
    
    
    300
    
    
    
    937
    
    
    
    582
    
    
    
    362
    
    
    
    944Interest Expense:NOW
    
    
    (5
    )
    
    
    (51
    )
    
    
    (56
    )
    
    
    (19
    )
    
    
    (2
    )
    
    
    (21
    )Savings
    
    
    (9
    )
    
    
    (87
    )
    
    
    (96
    )
    
    
    (25
    )
    
    
    84
    
    
    
    59Certificates of Deposit
    
    
    460
    
    
    
    (293
    )
    
    
    167
    
    
    
    513
    
    
    
    418
    
    
    
    931Federal funds purchased
    
    
    8
    
    
    
    11
    
    
    
    19
    
    
    
    2
    
    
    
    (11
    )
    
    
    (9
    )Total interest bearing
liabilities
    
    
    454
    
    
    
    (420
    )
    
    
    34
    
    
    
    471
    
    
    
    489
    
    
    
    960Net change in net interest income
    
    $
    183
    
    
    $
    720
    
    
    $
    903
    
    
    $
    111
    
    
    $
    (127
    )
    
    $
    (16
    )
 Provision for Loan Losses
  
    
    a continuing review of delinquent, classified and non-accrual loans, large loans and
overall portfolio quality,
    
    analytical review of loan charge-off experience, delinquency rates and other relevant
historical and peer statistical ratios,
    
    managements judgment with respect to the nature of the portfolio, concentrations of
credit and current and projected economic and business conditions and their impact on the
existing portfolio, and
    
    regular examinations and review of the portfolio by regulatory authorities.
   34




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
     Year Ended December 312008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in Thousands)Average loans outstanding
    
    $
    97,774
    
    
    $
    92,006
    
    
    $
    85,565
    
    
    $
    79,294
    
    
    $
    72,744Total gross loans at year end
    
    $
    100,953
    
    
    $
    94,610
    
    
    $
    88,071
    
    
    $
    83,042
    
    
    $
    76,978Allowance for loan losses at January 1
    
    $
    620
    
    
    $
    653
    
    
    $
    657
    
    
    $
    663
    
    
    $
    637Losses charged to allowanceCommercial
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    5
    
    
    
    15
    
    
    
    6
    
    
    
    13
    
    
    
    25Total losses charged to allowance
    
    
    5
    
    
    
    38
    
    
    
    6
    
    
    
    13
    
    
    
    25Recoveries credited to allowanceCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    7
    
    
    
    15Total recoveries credited to allowance
    
    
    1
    
    
    
    5
    
    
    
    2
    
    
    
    7
    
    
    
    15Net charge-offs
    
    
    4
    
    
    
    33
    
    
    
    4
    
    
    
    6
    
    
    
    10Provision for loan losses
    
    
    145
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Allowance for loan losses at December 31
    
    $
    761
    
    
    $
    620
    
    
    $
    653
    
    
    $
    657
    
    
    $
    663Ratio of net charge offs to average loans
outstanding
    
    
    0.00
    %
    
    
    0.04
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.01
    %Allowance as a percentage of total
gross loans
    
    
    0.75
    %
    
    
    0.66
    %
    
    
    0.74
    %
    
    
    0.79
    %
    
    
    0.86
    %
 35




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
   2008
    
    2007
    
    2006
    
    2005
    
    2004% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan(Dollars in Thousands)Commercial
    
    $
    231
    
    
    
    29.5
    %
    
    $
    179
    
    
    
    29.0
    %
    
    $
    161
    
    
    
    26.7
    %
    
    $
    122
    
    
    
    25.6
    %
    
    $
    130
    
    
    
    23.4
    %Real estate
    
    
    404
    
    
    
    44.2
    %
    
    
    287
    
    
    
    42.4
    %
    
    
    281
    
    
    
    43.3
    %
    
    
    271
    
    
    
    45.1
    %
    
    
    256
    
    
    
    48.7
    %Consumer
    
    
    91
    
    
    
    26.3
    %
    
    
    131
    
    
    
    28.6
    %
    
    
    121
    
    
    
    30.0
    %
    
    
    125
    
    
    
    29.3
    %
    
    
    135
    
    
    
    27.9
    %Unallocated
    
    
    35
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    142Total
    
    $
    761
    
    
    
    100
    %
    
    $
    620
    
    
    
    100
    %
    
    $
    653
    
    
    
    100
    %
    
    $
    657
    
    
    
    100
    %
    
    $
    663
    
    
    
    100
    %
 Non-Interest Income
 2008 Compared to 2007
  2007 Compared to 2006
  Non-Interest Expense
  
    
    occupancy and equipment expenses,
    
    stationery, printing and Bank supplies,
    
    advertising,
    
    outside service providers, relating to data processing and ATM services,
    
    professional fees for legal, accounting, and consulting services,
    
    costs associated with the due diligence process of extending and maintaining loans and
the collection process,
    
    Pennsylvania shares tax and FDIC assessment, and
    
    other types of expenses incurred as part of the normal course of operation of the Bank.
 36




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
 2008 Compared to 2007
      2007 Compared to 2006
     Income Taxes
  Net Income
 2008 Compared to 2007
   37




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
 2007 Compared to 2006
   FINANCIAL CONDITION
 Securities
      38




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
  December 312008
    
    
    2007
    
    
    2006(Dollars in Thousands)Held to maturity securities:U.S. Government agencies and
corporations
    
    $
    52,871
    
    
    $
    43,627
    
    
    $
    38,537State and political subdivisions
    
    
    32,300
    
    
    
    37,507
    
    
    
    42,512Mortgage-backed securities
    
    
    1,045
    
    
    
    1,240
    
    
    
    1,510Corporate securities
    
    
    5,341
    
    
    
    4,437
    
    
    
    1,749Available for sale securities:Mortgage-backed securities
    
    
    37,843
    
    
    
    35,579
    
    
    
    35,954U.S. Treasury Note
    
    
    107
    
    
    
    101
    
    
    
    100Total securities
    
    $
    129,507
    
    
    $
    122,491
    
    
    $
    120,362
  After one but
    
    
    After five butWithin one year
    
    
    within five years
    
    
    within ten years
    
    
    After ten yearsAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield(Dollars in Thousands)Available for sale:Mortgage-backed securities
    
    $
    
    
    
    
    
    
    
    $
    4,773
    
    
    
    4.00
    %
    
    $
    10,768
    
    
    
    4.60
    %
    
    $
    22,302
    
    
    
    5.15
    %U.S. Treasury
    
    
    107
    
    
    
    3.13
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    4,773
    
    
    
    
    
    
    
    10,768
    
    
    
    
    
    
    
    22,302Held to maturity:U.S. Government agencies
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    4.27
    %
    
    
    3,496
    
    
    
    5.40
    %
    
    
    47,875
    
    
    
    5.75
    %State and political
subdivisions7
    
    
    850
    
    
    
    6.87
    %
    
    
    5,445
    
    
    
    6.59
    %
    
    
    16,122
    
    
    
    7.10
    %
    
    
    9,883
    
    
    
    7.48
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,045
    
    
    
    6.28
    %Other securities
    
    
    150
    
    
    
    6.30
    %
    
    
    850
    
    
    
    6.42
    %
    
    
    
    
    
    
    
    
    
    
    4,341
    
    
    
    4.75
    %1,000
    
    
    
    
    
    
    
    7,795
    
    
    
    
    
    
    
    19,618
    
    
    
    
    
    
    
    63,144Total
    
    $
    1,107
    
    
    
    
    
    
    $
    12,568
    
    
    
    
    
    
    $
    30,386
    
    
    
    
    
    
    $
    85,446
 
 7
    
    Yields on tax-exempt debt securities have been computed
on a fully tax-equivalent basis. 39




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
 Loans
     December 31,(Dollars in Thousands)2008
    
    2007
    
    2006
    
    2005
    
    2004% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    TotalCommercial
    
    $
    3,627
    
    
    
    3.6
    %
    
    $
    4,635
    
    
    
    4.9
    %
    
    $
    4,664
    
    
    
    5.3
    %
    
    $
    4,832
    
    
    
    5.8
    %
    
    $
    4,095
    
    
    
    5.3
    %Commercial
real estate
    
    
    26,142
    
    
    
    25.9
    %
    
    
    22,779
    
    
    
    24.1
    %
    
    
    18,820
    
    
    
    21.4
    %
    
    
    16,440
    
    
    
    19.8
    %
    
    
    13,925
    
    
    
    18.1
    %Residential
real estate
    
    
    43,799
    
    
    
    43.4
    %
    
    
    39,221
    
    
    
    41.5
    %
    
    
    37,088
    
    
    
    42.1
    %
    
    
    37,057
    
    
    
    44.6
    %
    
    
    36,115
    
    
    
    46.9
    %Real estate
construction
    
    
    873
    
    
    
    0.9
    %
    
    
    879
    
    
    
    0.9
    %
    
    
    1,053
    
    
    
    1.2
    %
    
    
    384
    
    
    
    0.5
    %
    
    
    1,376
    
    
    
    1.8
    %Home equity
    
    
    19,688
    
    
    
    19.5
    %
    
    
    20,043
    
    
    
    21.2
    %
    
    
    19,176
    
    
    
    21.8
    %
    
    
    17,072
    
    
    
    20.6
    %
    
    
    14,560
    
    
    
    18.9
    %Other
consumer
    
    
    6,824
    
    
    
    6.7
    %
    
    
    7,053
    
    
    
    7.4
    %
    
    
    7,270
    
    
    
    8.2
    %
    
    
    7,257
    
    
    
    8.7
    %
    
    
    6,907
    
    
    
    9.0
    %Total loans
outstanding
    
    $
    100,953
    
    
    
    100.0
    %
    
    $
    94,610
    
    
    
    100.0
    %
    
    $
    88,071
    
    
    
    100.0
    %
    
    $
    83,042
    
    
    
    100.0
    %
    
    $
    76,978
    
    
    
    100.0
    %
 40




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##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
  As of December 31, 2008Due Under
    
    
    Due 1- 5
    
    
    Due OverOne Year
    
    
    Years
    
    
    Five Years
    
    
    Total(In Thousands)Maturity of loans receivable:Commercial and commercial real estate
    
    $
    8,164
    
    
    $
    11,968
    
    
    $
    9,637
    
    
    $
    29,769Real estate construction
    
    
    
    
    
    
    
    
    
    
    873
    
    
    
    873Total
    
    $
    8,164
    
    
    $
    11,968
    
    
    $
    10,510
    
    
    $
    30,642
 Due 1-5
    
    
    Due OverYears
    
    
    Five YearsFixed interest rates
    
    $
    1,341
    
    
    $
    3,429Floating or adjustable interest rates
    
    
    10,627
    
    
    
    7,081Total
    
    $
    11,968
    
    
    $
    10,510
 Credit Risk and Loan Quality
    41




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##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
  December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in Thousands)Non-accruing loans
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    126Accruing loans past due 90 days or more
    
    
    173
    
    
    
    36
    
    
    
    52
    
    
    
    67
    
    
    
    63Total nonperforming loans
    
    
    173
    
    
    
    36
    
    
    
    52
    
    
    
    67
    
    
    
    189Foreclosed real estate/repossessed assets
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    173
    
    
    $
    36
    
    
    $
    123
    
    
    $
    67
    
    
    $
    189Non-accrual loans:Interest income that would have been
recorded on non-accrual loans
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11Interest income for above loans
included in net income for the period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Ratios:Nonperforming loans to total loans
    
    
    0.17
    %
    
    
    0.04
    %
    
    
    0.06
    %
    
    
    0.08
    %
    
    
    0.25
    %Allowance for loan losses to
nonperforming loans
    
    
    439.88
    %
    
    
    1,722.22
    %
    
    
    1,255.77
    %
    
    
    980.60
    %
    
    
    350.79
    %Nonperforming assets to total assets
    
    
    0.07
    %
    
    
    0.02
    %
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.09
    %Commitments to lend additional funds
to
Nonperforming loan customers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Deposits
  Non-interest bearing demand deposits
    
    
    (2.7
    %)Interest-bearing demand deposits
    
    
    (7.7
    %)Savings deposits
    
    
    7.2
    %Time deposits
    
    
    9.2
    %
 42




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##### 



Neffs Bancorp, Inc. and Subsidiary   Managements Discussion and Analysis
  Time(In Thousands)
    
    CertificatesThree months or less
    
    $
    3,420Over three months but within six months
    
    
    3,955Over six months but within twelve months
    
    
    7,127Over twelve months
    
    
    29,710Total
    
    $
    44,212
 Liquidity
     Off-Balance Sheet Arrangements
  43




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  Stockholders Equity and Capital Requirements/Ratios
       December 31,
    
    
    December 31,2008
    
    
    2007(Dollars in Thousands)Tier I, common stockholders equity
    
    $
    43,826
    
    
    $
    41,833Tier II, allowable portion of allowance for
loan losses
    
    
    761
    
    
    
    620Total capital
    
    $
    44,587
    
    
    $
    42,453Tier I risk-based capital ratio
    
    
    37.83
    %
    
    
    37.92
    %Tier II risk-based capital ratio
    
    
    38.49
    %
    
    
    38.49
    %Tier I leverage ratio
    
    
    18.62
    %
    
    
    18.69
    %
 44




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
   Effect of Inflation
   Interest Rate Sensitivity and Market Risk
     45




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
    46




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  Maturity/Repricing Intervals1-3
    
    
    3-12
    
    
    1-3
    
    
    3-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(In Thousands)Federal funds sold
    
    $
    1,379
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,379Interest bearing deposits with banks
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109Other securities
    
    
    26,542
    
    
    
    678
    
    
    
    1,703
    
    
    
    3,818
    
    
    
    57,878
    
    
    
    90,619Mortgage-backed securities
    
    
    2,600
    
    
    
    7,890
    
    
    
    5,082
    
    
    
    3,709
    
    
    
    19,607
    
    
    
    38,888Total securities
    
    
    29,142
    
    
    
    8,568
    
    
    
    6,785
    
    
    
    7,527
    
    
    
    77,485
    
    
    
    129,507Total loans
    
    
    35,118
    
    
    
    21,218
    
    
    
    18,034
    
    
    
    8,932
    
    
    
    17,651
    
    
    
    100,953Total interest earning assets
    
    
    65,639
    
    
    
    29,895
    
    
    
    24,819
    
    
    
    16,459
    
    
    
    95,136
    
    
    
    231,948NOW Accounts
    
    
    1,328
    
    
    
    
    
    
    
    4,710
    
    
    
    
    
    
    
    
    
    
    
    6,038Savings
    
    
    8,701
    
    
    
    
    
    
    
    39,637
    
    
    
    
    
    
    
    
    
    
    
    48,338Total savings deposits
    
    
    10,029
    
    
    
    
    
    
    
    44,347
    
    
    
    
    
    
    
    
    
    
    
    54,376CDs<$100,000
    
    
    11,400
    
    
    
    33,057
    
    
    
    24,031
    
    
    
    9,022
    
    
    
    
    
    
    
    77,510CDs>$100,000
    
    
    3,420
    
    
    
    11,181
    
    
    
    10,126
    
    
    
    19,585
    
    
    
    
    
    
    
    44,312Total time deposits
    
    
    14,820
    
    
    
    44,238
    
    
    
    34,157
    
    
    
    28,607
    
    
    
    
    
    
    
    121,822Total interest bearing liabilities
    
    
    24,849
    
    
    
    44,238
    
    
    
    78,504
    
    
    
    28,607
    
    
    
    
    
    
    
    176,198Rate sensitive gap
    
    $
    40,790
    
    
    $
    (14,343
    )
    
    $
    (53,685
    )
    
    $
    (12,148
    )
    
    $
    95,136
    
    
    $
    55,750Cumulative gap
    
    $
    40,790
    
    
    $
    26,447
    
    
    $
    (27,238
    )
    
    $
    (39,386
    )
    
    $
    55,750
    
    
    
    
 47




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 Regulatory Activity
   Form 10-K
  
 48