UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-K




x
Annual Report pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934 for the fiscal year ended December 31, 2010.




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.


(Exact name of registrant as in its charter)




Pennsylvania



23-2400383(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer IdentificationNumber)




5629 Route 873, P.O. Box 10, Neffs, PA  18065-0010


(Address of principal executive offices)




Registrant’s telephone number including area code:  610-767-3875




Securities registered under Section 12 (b) of the Exchange Act:
 None
  Securities registered under Section 12 (g) of the Exchange Act:
 Common Stock, $1.00 par value


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


Yes o   No x




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


Yes o   No x




Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes x   No o




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).


Yes o    No o




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.


Yes o   No x





Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One)




Large accelerated filer o    Accelerated filer                    o


Non-accelerated filer   o      Smaller reporting company x




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


Yes o                      No x










The aggregate market value of voting stock held by non-affiliates of the registrant is $37,235,680 as of June 30, 2010(1).




The number of shares of the Issuer’s common stock, par value is $1.00 per share, outstanding as of March 28, 2011 was 178,430.




DOCUMENTS INCORPORATED BY REFERENCE:




Part II incorporates certain information by reference from the registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2010 (the “Annual Report”).  Part III incorporates certain information by reference from the registrant’s Proxy Statement for the 2011 Annual Meeting of Stockholders.




(1)  The aggregate dollar amount of the voting stock set forth equals the number of shares of the registrant’s Common Stock outstanding, reduced by the amount of Common Stock held by executive officers, directors and stockholders owning in excess of 10% of the registrant’s Common Stock, multiplied by the last sale price for the registrant’s Common Stock on June 30, 2010.  The information provided shall in no way be construed as an admission that the officers, directors, or 10% stockholders in the registrant may be deemed an affiliate of the registrant or that such person is the beneficial owner of the shares reported as being held by him and any such inference is hereby disclaimed.  The information provided herein is included solely for the record keeping purpose of the Securities and Exchange Commission.







NEFFS BANCORP, INC.


FORM 10-K TABLE OF CONTENTS




Part I.
PageItem 1
Business
1Item 1A
Risk Factors
7Item 1B
Unresolved Staff Comments
9Item 2
Properties
9Item 3
Legal Proceedings
10Item 4
[Removed and Reserved]
10Part II.Item 5
Market for Registrant’s Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities
10Item 6
Selected Financial Data
11Item 7
Management’s Discussion and Analysis of FinancialCondition and Results of Operations
11Item 7A
Quantitative and Qualitative Disclosures about Market RiskThe information required by this Item is contained in Item 7 of this Part II under the caption “Interest Rate Sensitivity and Market Risk.”Item 8
Financial Statements and Supplementary Data
12Item 9
Changes In and Disagreements with Accountants onAccounting and Financial Disclosure
12Item 9A
Controls and Procedures
12Item 9B
Other Information
14Part III.Item 10
Directors, Executive Officers and Corporate Governance
14Item 11
Executive Compensation
14Item 12
Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters
14Item 13
Certain Relationships and Related Transactions, andDirector Independence
14Item 14
Principal Accountant Fees and Services
14Part IV.Item 15
Exhibits and Financial Statement Schedules
15
  
  Part I




Item I.     Business




Forward-Looking Statements


Neffs Bancorp, Inc. (the “Corporation”) may from time to time make written or oral “forward-looking statements,” including statements contained in the Corporation’s filings with the Securities and Exchange Commission (including the Annual Report and this Form 10-K and the exhibits hereto and thereto), in its reports to stockholders and in other communications by the Corporation, which are made in good faith by the Corporation pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.




These forward-looking statements include statements with respect to the Corporation’s beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors (some of which are beyond the Corporation’s control).  The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and similar expressions are intended to identify forward-looking statements.  The following factors, among others, could cause the Corporation’s financial performance to differ materially from that expressed in such forward-looking statements:  the strength of the United States economy in general and the strength of the local economies in which the Corporation conducts operations; the effects of, and changes in, trade, monetary and fiscal  policies, including interest rate policies of the Board of Governors of the Federal Reserve Bank (the “FRB”); inflation; interest rates; market and monetary fluctuations; the timely development of competitive new services; the willingness of customers to substitute competitors’ products and services for the Corporation’s products and services and vice versa; the impact of the changes in financial services’ laws and regulations (including laws concerning taxes, banking, securities and insurance); technological acquisitions being less than expected; the growth and profitability of the Corporation’s noninterest or fee income being less than expected; unanticipated regulatory or judicial proceedings; changes in consumer spending and saving habits; and the success of the Corporation at managing the risks involved in the foregoing.




The Corporation cautions that the foregoing list of important factors is not exclusive.  The Corporation does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Corporation.




General


The Corporation is a Pennsylvania business corporation, which is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “Holding Company Act”).  The Corporation was incorporated on March 24, 1986 and became an active bank holding company on October 31, 1986.  The Corporation owns all of the outstanding stock of The Neffs National Bank (the “Bank”).




As of December 31, 2010, the Corporation had approximately $278 million in assets, $231 million in deposits, $121 million in net loans and $47 million in stockholders’ equity.  The Bank is a member of the Federal Reserve Bank (“FRB”) and the Bank’s deposits are insured up to the applicable limits by the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) to the fullest extent permitted by law.




The Corporation’s principal executive office is located at 5629 Route 873, Neffs, Pennsylvania, 18065 and its telephone number is 610-767-3875.




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As of December 31, 2010 the Corporation had 33 employees, of which 29 were full-time employees.  Management believes the Corporation’s working relationship with its employees is good.




The Bank is organized under the laws of the United States and headquartered in Neffs, Pennsylvania and has one location.  The Bank was incorporated in 1923 pursuant to the United States National Bank Act under a charter granted by the Office of the Comptroller of Currency.  The FDIC insures deposit accounts to the maximum extent provided by laws.




The Bank provides a full range of retail and commercial banking services for consumers and small and mid-sized companies.  The Bank’s lending and investment activities are funded principally by retail deposits gathered through its retail banking facility.




The Corporation’s website address is www.neffsnatl.com.  The Corporation makes available free of charge its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after it electronically files such reports with the Securities and Exchange Commission (“SEC”).  Copies of such reports are available at no charge by contacting The Neffs National Bank, 5629 Route 873, P.O. Box 10, Neffs, PA 18065-0010.  (The information found on the Corporation’s website does not constitute a part of this or any other report.)




On March 17, 2010, the Corporation’s Board of Directors approved a plan to deregister the Corporation’s common stock under the Securities Exchange Act of 1934, as amended, and therefore end the Corporation’s obligation to file reports with the Securities and Exchange Commission (the “SEC”).  The plan will be accomplished through a merger transaction with an interim corporation to be established by the Corporation, together with a share reclassification, as discussed below.  As a result of the merger of the to-be-formed interim corporation into the Corporation and the share reclassification, the following would occur:




●
Shareholders of record owning 25 or fewer shares of common stock of the Corporation will receive $286 in cash for each share held;




●
Shareholders of record owning more than 25 but fewer than 101 shares of common stock of the Corporation will have the option of choosing between $286 in cash per share or receipt of shares of a proposed new class of preferred stock of the Corporation called “Series A Preferred Stock” on a share for share basis; and




●
Shareholders of record owning 101 or more shares of common stock of the Corporation will retain their shares without change.




The Series A Preferred Stock will have priority as to the payment of cash dividends relative to the common stock, and will convert to common on a share for share basis in the event of a change in control of the Corporation.  The Series A Preferred Stock generally will not have voting rights.






The proposed transaction is subject to shareholder approval.  The Corporation expects to present the proposal for approval by shareholders at the Corporation’s annual meeting of shareholders currently anticipated to be held in June 2011.




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Market Area


The Bank’s primary market area is Neffs, Pennsylvania, which is the location of its main office, and the immediate surrounding area, which include the cities of Schnecksville and Slatington, Pennsylvania.  The primary market area is small, but growing and relatively affluent.  According to SNL Financial, the estimated population is projected to grow at an annual rate of 0.9% from 2010 through 2015 compared to 1.0% for the Commonwealth of Pennsylvania and 0.8% for the entire United States.  The median income for the primary market area is $66,745 compared to $52,723 for the Commonwealth of Pennsylvania and $54,442 for the entire United States.




The extended service area includes the nearby portions of the Lehigh Valley (which includes Lehigh and Northhampton counties, Pennsylvania) and Carbon County, Pennsylvania.  The Lehigh Valley is a commercial hub that benefits from its access to New York City and Philadelphia along major interstate highways.  Carbon County is a much smaller, rural county with a small employment base.  In 2010, the Lehigh Valley had an estimated population of 646,222, and is projected to grow at an annual rate of 0.9% through 2015.  Carbon County had an estimated population of 63,859 and is projected to grow at an annual rate of 0.7% through 2015.  The median household income for 2010 for the Lehigh Valley and Carbon County was estimated at $58,554 and $44,833, respectively.




According to the Bureau of Labor Statistics of the U.S. Department of Labor, the unemployment rates for Lehigh, Northhampton and Carbon Counties were 9.2%, 8.9% and 11.1% as of December 2009, respectively, compared to 8.6%, 8.7% and 10.1% as of December 2010, respectively. This compares to 8.1% for the entire Commonwealth of Pennsylvania and 9.4% for the United States as a whole, each as of December 2010.




The market areas include a broad range of employers where no specific employer or industry dominates employment.  However, major private employers include the Lehigh Valley Hospital and Health Network, St. Luke’s Hospital, Air Products & Chemicals, PPL Corporation, B. Braun, Lehigh University, Guardian Life Insurance Co. of America and Mack Trucks.




Retail and Commercial Banking Activities


The Bank provides a broad range of retail banking services and products including free personal checking accounts and business checking accounts, regular savings accounts, interest checking accounts, overdraft checking protection, fixed rate certificates of deposits, individual retirement accounts, club accounts and safe deposit facilities.  Its services also include a full range of lending activities including commercial construction and real estate loans, land development and business loans, business lines of credit, consumer loan programs (including installment loans for home improvement and the purchase of consumer goods and automobiles) and home equity loans.  The Bank also offers construction loans and permanent mortgage loans for homes.




The Bank directs its commercial lending principally toward businesses that require funds within the Bank’s legal limits, as determined from time to time, and that otherwise do business and/or are depositors with The Neffs National Bank.  The Bank also participates in inter-bank credit arrangements in order to take part in loans for amounts that are in excess of its lending limit.  In consumer lending, the Bank offers various types of loans, including revolving credit lines, automobile loans and home improvement loans.




The Corporation has focused its strategy for growth primarily on the further development of its community-based retail-banking facility.  The objective of this corporate strategy is to maximize the total return to the Corporation so as to adequately reward the stockholders and to continue as a sound and successful community-oriented and independently-operated financial institution.




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The Corporation is not dependent upon a single customer, or a few customers, the loss of which would have a material adverse effect on the Corporation.




Competitive Business Conditions/Competitive Position


The Corporation’s current primary service area, generally characterized as Greater Northern Lehigh County and Southern Carbon County, Pennsylvania, is characterized by intense competition for banking business.  The Bank competes with local commercial banks as well as numerous regionally based commercial banks, most of which have larger assets, capital and lending limits larger than that of The Neffs National Bank.  The Bank competes with respect to its lending activities as well as in attracting demand, savings and time deposits with other commercial banks, savings banks, insurance companies, regulated small loan companies, credit unions and with issuers of commercial paper and other securities such as shares in money market funds.  The business of the Bank is not seasonal in nature.




Other institutions may have the ability to finance wide-ranging advertising campaigns, and to allocate investment assets to regions of highest yield and demand.  Many institutions offer services such as trust services and international banking which The Neffs National Bank does not directly offer (but which the Bank may offer indirectly through other institutions).




The Bank’s legal lending limit to a single borrower (approximately $7,100,000 as of December 31, 2010) enables it to compete effectively for the business of smaller companies.




In consumer transactions, the Bank believes it is able to compete on a substantially equal basis with larger financial institutions because it offers longer hours of operation, personalized service and competitive interest rates on savings and time accounts with low or no minimum deposit requirements.




In order to compete with other financial institutions both within and beyond its primary service area, the Bank uses, to the fullest extent possible, the flexibility which independent status permits.  This includes an emphasis on specialized services for the small business person and professional contacts by the Bank’s officers, directors and employees, and the greatest possible efforts to understand fully the financial situation of relatively small borrowers.  The size of such borrowers, in management’s opinion, often inhibits close attention to their needs by larger institutions.




The Bank endeavors to be competitive with all competing financial institutions in this primary service area with respect to interest rates paid on time and savings deposits, its overdraft charges on deposit accounts and interest rates charged on loans.




Supervision and Regulation


The following discussion sets forth certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides certain specific information relevant to the Corporation.  The regulatory framework is intended primarily for the protection of depositors, other customers and the Federal Deposit Insurance Funds and not for the protection of security holders.  To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions.  A change in applicable statutes or regulatory policy may have a material effect on the business of the company.




4




The Corporation


The Corporation is subject to the jurisdiction of the SEC and of state securities commissions for matters relating to the offering and sale of its securities and is subject to the SEC’s rules and regulations relating to periodic reporting, reporting to stockholders, proxy solicitation and insider trading.




The Corporation is subject to the provisions of the Bank Holding Company Act of 1956, as amended.  The Corporation is subject to supervision and examination by the FRB.  Under the Bank Holding Company Act, the Corporation must secure the prior approval of the FRB before it may own or control, directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any institution, including another bank (unless it already owns a majority of the voting stock of the bank).




Satisfactory financial condition, particularly with regard to capital adequacy, and satisfactory Community Reinvestment Act ratings are generally prerequisites to obtaining federal regulatory approval to make acquisitions.  Neffs Bancorp, Inc. is currently rated “satisfactory” under the Community Reinvestment Act.




The Corporation is required to file an annual report with the FRB and any additional information the FRB may require pursuant to the Bank Holding Company Act.  The FRB may also make examinations of the Corporation and its subsidiaries.  Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit or provision for any property or service.  Thus, an affiliate of the Corporation, such as the Bank, may not condition the extension of credit, the lease or sale of property or furnishing of any services on (i) the customer’s obtaining or providing some additional credit, property or services from or to the Corporation or its subsidiary or (ii) the customer’s refraining from doing business with a competitor of the Corporation or of its subsidiary.  The Corporation or the Bank may impose conditions to the extent necessary to reasonably assure the soundness of credit extended.




Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on (i) any extension of credit to the bank holding company or any of its subsidiaries, (ii) investments in the stock or other securities of the bank holding company, and (iii) taking the stock or securities of the bank holding company as collateral for loans to any borrower.




The Bank


As a nationally chartered commercial banking association, the Bank is subject to regulation, supervision and regular examination by the Office of the Comptroller of the Currency (“OCC”) and is required to furnish quarterly reports to the OCC.  The Bank is a member of the FRB.  The Bank’s deposits are insured by the FDIC up to applicable legal limits.  Some of the aspects of the lending and deposit business of the Bank that are regulated by these agencies include personal lending, mortgage lending and reserve requirements with respect to the extension of credit, credit practices, the disclosure of credit terms and discrimination in credit transactions.




The approval of the OCC is required for the establishment of additional branch offices.




Under the Change in Bank Control Act of 1978, subject to certain exceptions, no person may acquire control of the Bank without giving at least 60 days prior written notice to the OCC.  Under this Act and the regulations promulgated there under, control of the Bank is generally presumed to be the power to vote 10% or more of the common stock.  The OCC is empowered to disapprove any such acquisition of control.




5




The amount of funds that The Neffs National Bank may lend to a single borrower is limited generally under the National Bank Act to 15% of the aggregate of its capital, surplus and undivided profits and capital securities (all as defined by statute and regulation).




The OCC has authority under the National Bank Act to prohibit national banks from engaging in any activity that, in the OCC’s opinion, constitutes an unsafe or unsound practice in conducting their businesses.  The FRB has similar authority with respect to the Corporation.




As a consequence of the extensive regulation of commercial banking activities in the United States, the Bank’s business is particularly susceptible to being affected by federal and state legislation and regulations that may affect the cost of doing business.




The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) made extensive changes in the regulation of depository institutions.  The Dodd-Frank Act creates a new Consumer Financial Protection Bureau as an independent bureau of the Federal Reserve Board.  The Consumer Financial Protection Bureau will assume responsibility for the implementation of the federal financial consumer protection and fair lending laws and regulations, a function currently assigned to prudential regulators, and will have authority to impose new requirements.  However, institutions of less than $10 billion in assets, such as the Bank, will continue to be examined for compliance with consumer protection and fair lending laws and regulations by, and be subject to the primary enforcement authority of, their prudential regulator, rather than the Consumer Financial Protection Bureau.




In addition, the Dodd-Frank Act, among other things, directs changes in the way that institutions are assessed for deposit insurance, mandates the imposition of stricter capital requirements on bank holding companies of greater than $500 million in consolidated assets, requires originators of securitized loans to retain a percentage of the risk for the transferred loans, provided for regulatory rate-setting for certain debit card interchange fees, repeals restrictions on the payment of interest on commercial demand deposits and contains a number of reforms related to mortgage originations.  Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations.  Their impact on operations cannot yet fully be assessed.  However, there is significant possibility that the Dodd-Frank Act will, at a minimum, result in increased regulatory burden, compliance costs and interest expense for the Corporation and Bank.




National Monetary Policy


In addition to being affected by general economic conditions, the earnings and growth of the Corporation are affected by the policies of regulatory authorities, including the OCC, the FRB and the FDIC.  An important function of the FRB is to regulate the money supply and credit conditions.  Among the instruments used to implement these objectives are open market operations in U. S. Government securities, setting the discount rate, and changes in reserve requirements against bank deposits.




The monetary policies and regulations of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.  The effects of such policies upon the future business, earnings, and growth of the Corporation cannot be predicted.




Effect of Inflation


Inflation has some impact on the Bank’s operating costs.  Unlike industrial companies, however, substantially all of the Bank’s assets and liabilities are monetary in nature.  As a result, interest rates have a more significant impact on the Bank’s performance than the general levels of inflation.  Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as prices of goods and services.




6




Environmental Laws


There are several federal and state statutes that regulate the obligations and liabilities of financial institutions pertaining to environmental issues.  In addition to the potential for attachment of liability resulting from its own actions, a bank may be held liable, under certain circumstances, for the actions of its borrowers, or third parties, when such actions result in environmental problems on properties that collateralize loans held by the Bank.  Further, the liability has the potential to far exceed the original amount of the loan issued by the Bank.  Currently, neither the Corporation nor the Bank is a party to any pending legal proceeding pursuant to any environmental statute, nor are the Corporation and the Bank aware of any circumstances that may give rise to liability under any such statue.




Item 1A.  Risk Factors




The Corporation is operating in a very uncertain environment for financial institutions.  In 2009 and into 2010, there has been a series of events in financial and credit markets that have led to liquidity and credit crises throughout the world.  There has also been considerable concern about the deepening economic downturn, both in the United States and internationally, and its ultimate impact on financial institutions.  U.S. and foreign governmental agencies have taken unprecedented steps in an attempt to stabilize the markets, but there is no assurance these steps will be effective.  Future developments in the financial and credit markets that the Corporation cannot currently predict could have a material impact on the Corporation’s financial condition and results of operations.




The Corporation Is Subject to Interest Rate Risk


Income and cash flows and the value of assets depend to a great extent on the difference between the interest rates earned on interest-earning assets, such as loans and investment securities, and the interest rates paid on interest-bearing liabilities such as deposits and borrowings.  These rates are highly sensitive to many factors which are beyond the Bank’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System.  Changes in monetary policy, including changes in interest rates, will influence not only the interest received on loans and investment securities and the amount of interest paid on deposits and borrowings but it will also affect the ability to originate loans and obtain deposits and the value of the investment portfolio.  If the rate of interest paid on deposits and other borrowings increases more than the rate of interest earned on loans and other investments, net interest income and earnings could be adversely affected.  Earnings also could be adversely affected if the rates on loans and other investments fall more quickly than those on deposits and other borrowings.




The Corporation’s Profitability Depends Significantly on Economic Conditions in the Commonwealth of Pennsylvania


The Corporation’s success depends primarily on the general economic conditions of the Commonwealth of Pennsylvania and the specific local markets in which the Corporation operates. Unlike larger national or other regional banks that are more geographically diversified, the Corporation provides banking and financial services to customers primarily in the Greater Northern Lehigh Valley and Southern Carbon County, Pennsylvania area. The local economic conditions in these areas have a significant impact on the demand for the Corporation’s products and services as well as the ability of the Corporation’s customers to repay loans, the value of the collateral securing loans and the stability of the Corporation’s deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, subprime loan deterioration, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on the Corporation’s financial condition and results of operations.




7




The Corporation’s Allowance for Loan Losses May Be Insufficient


The Corporation’s financial condition and results of operations could be adversely affected if the allowance for loan losses is not sufficient to absorb actual losses or if the Bank is required to increase the allowance.  Despite underwriting criteria, the Bank may experience loan delinquencies and losses.  In order to absorb losses associated with nonperforming loans, the allowance for loan losses is based on, among other things, historical experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality.  Determination of the allowance inherently involves a high degree of subjectivity and requires significant estimates of current credit risks and future trends, all of which may undergo material changes.  At any time there are likely to be loans in the portfolio that will result in losses but that have not been identified as nonperforming or potential problem credits.  The Bank cannot be sure that all deteriorating credits are identified before they become nonperforming assets or that losses will be able to be limited on those loans that are identified.  The Bank may be required to increase the allowance for loan losses for any of several reasons.  Federal regulators, in reviewing the loan portfolio as part of a regulatory examination, may request that an increase be made to the allowance for loan losses.  Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Bank’s control, may require an increase in the allowance.  In addition, if charge-offs in future periods exceed the allowance for loan losses, the Bank will need additional increases in the allowance for loan losses.  Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may materially affect the results of operations in the period in which the allowance is increased.




The Corporation Operates in a Highly Competitive Industry and Market Area


The Corporation faces substantial competition in all phases of operation from a variety of different competitors, including commercial banks, savings and loan associations, mutual savings banks, credit unions, consumer finance companies, factoring companies, leasing companies, insurance companies and money market mutual funds.  There is very strong competition among financial services providers in the principal service area.  Competitors may have greater resources, higher lending limits or larger branch systems.  Accordingly, they may be able to offer a broader range of products and services as well as better pricing for those products or services.




In addition, some of the competing financial services organizations are not subject to the same degree of regulations as are imposed on federally insured financial institutions.  As a result, those non-bank competitors may be able to access funding and provide various services more easily or at less cost, adversely affecting the ability to compete effectively.




The Corporation is Subject to Extensive Government Regulation and Supervision


The banking industry is heavily regulated.  Banking regulations are primarily intended to protect the federal deposit insurance fund and depositors, not shareholders.  Changes in laws, regulations, and regulatory practices affecting the banking industry may increase costs of doing business or otherwise adversely affect banks and create competitive advantages for others.  Regulations affecting banks and financial services companies undergo continuous change, and the Bank cannot predict the ultimate effect of these changes, which could have a material adverse effect on profitability or financial condition.




The Corporation May Not Be Able to Attract and Retain Skilled People


The Corporation’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by the Corporation can be intense and the Corporation may not be able to hire people or to retain them. The unexpected loss of services of one or more of the Corporation’s key personnel could have a material adverse impact on the Corporation’s





8





business because of their skills, knowledge of the Corporation’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. The Corporation does not currently have employment agreements or non-competition agreements with any of its senior officers.




The Corporation is Subject to Environmental Liability Risk Associated with Lending Activities


Environmental liability associated with lending activities could result in losses.  In the course of business, the Bank may foreclose on and take title to properties securing loans.  If hazardous substances were discovered on any of these properties, the Bank could be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage.  Many environmental laws can impose liability regardless of whether the Bank knew of, or was responsible for, the contamination.  In addition, if the Bank arranges for the disposal of hazardous or toxic substances at another site, costs may be incurred for cleaning up and removing those substances from the site even if the Bank neither owned nor operated the disposal site.  Environmental laws may require the Bank to incur substantial expenses and may materially limit the use of properties acquired through foreclosure, reduce their value or limit the ability to sell them in the event of a default on the loans they secure.  In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase exposure to environmental liability.




The Corporation Continually Encounters Technological Change


Failure to implement new technologies for operations may adversely affect growth or profits.  The market for financial services, including banking services and consumer finance services is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, Internet-based banking and telebanking.  The ability to compete successfully in markets may depend on the ability to exploit such technological changes.  However management may not be able to properly or timely anticipate or implement such technologies or properly train employees to use such technologies.  Any failure to adapt to new technologies could adversely affect the financial condition or operating results of the Corporation.




The Corporation’s Ability to Pay Dividends Depends Primarily on Dividends From Its Banking Subsidiary, Which Is Subject to Regulatory Limits.


The Corporation is a bank holding company and a majority of its operations are conducted by its subsidiary, The Neffs National Bank. The Corporation’s ability to pay dividends depends on its receipt of dividends from its subsidiary. Dividend payments from its banking subsidiary are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of its subsidiary to pay dividends is also subject to its profitability, financial condition, capital expenditures and other cash flow requirements. There is no assurance that its subsidiary will be able to pay dividends in the future or that the Corporation will generate adequate cash flow to pay dividends in the future. The Corporation’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.




Item 1B.  Unresolved Staff Comments


None.




Item 2.  Properties




Main Office


The main office of Neffs Bancorp, Inc. and The Neffs National Bank is located at 5629 PA Route 873, North Whitehall Township, Neffs, PA 18065.  The Bank owns and occupies a 12,475 square feet building, containing a banking floor, lobby, administrative offices, lending offices, operations center, and executive offices.  During 2001, the Bank completed construction of two additional lanes, for a total




9





of five lanes, to its drive thru facility located adjacent to the main building.  The Bank also owns a vacant lot behind the headquarters.  Situated on the lot are a baseball field, basketball court and playground facility, all of which are available for use by the public.




The Corporation also owns property at 5645 PA Route 873, Neffs, PA  18065, which is a one and one half (1 1⁄2) story single family dwelling with approximately 2,570 square feet of living space. This property is currently being leased.




Item 3.  Legal Proceedings


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




Item 4.  [Removed and Reserved]




Part II.




Item 5.  Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


The Corporation’s common stock is currently quoted on the over the counter bulletin board (“Pink Sheet”) under the trading symbol NEFB.  The Corporation’s common stock is traded over-the-counter from time to time, primarily in the Corporation’s geographic service area, through several local market makers.




The following table sets forth the prices at which common stock has traded during the last two fiscal years as reported on the Pink Sheet.  As of December 31, 2010, there were approximately 629 holders of record of the Corporation’s common stock.




Sales PricesQuarter Ended:

High


LowMarch 31, 2010

$
255.00


$
255.00June 30, 2010


265.00



230.00September 30, 2010


270.00



265.00December 31, 2010


266.00



237.25March 31, 2009

$
265.00


$
190.00June 30, 2009


265.00



228.00September 30, 2009


324.00



255.00December 31, 2009


265.00



249.00




10


The Corporation purchased 4,148 shares at a weighted average of $259 per share during 2010 and 5,642 shares at a weighted average of $254 per share during 2009.  Purchases during the fourth quarter of 2010 were as follows:




Total Number of

Shares Purchased


Average Price

Paid per Share


Total Number

of Shares Purchased as Part of Publicly

Announced Plans

or Programs


Maximum Number of Shares that may yet be Purchased Under the

Plans or ProgramsOctober 1 through October 31, 2010


130


$
262



30



N/ANovember 1 through November 30, 2010


1,190



260



-



N/ADecember 1 through December 31, 2010


65



256



15



N/ATotal


1,385


$
260



45



N/A




Dividends and Dividend History


The Corporation has historically distributed to stockholders a dividend on May 15th and November 15th of each year.  In 2010 a dividend of $2.00 per share was paid to stockholders on May 15and a dividend of $2.75 per share was paid on November 15.  In 2009 a dividend of $2.00 per share was paid to stockholders on May 15 and November 15.




The holders of common stock of the Corporation are entitled to receive dividends as may be declared by the Board of Directors with respect to the common stock out of funds of the Corporation. While the Corporation is not subject to certain restrictions on dividends and stock redemptions applicable to a bank, the ability of the Corporation to pay dividends to the holders of its common stock depends to a large extent upon the amount of dividends paid by the Bank to the Corporation.




The ability of the Bank to pay dividends to the Corporation depends on the earnings and the financial condition of the Bank.  The Corporation’s ability to pay dividends will be subject to the prior payment by the Corporation of principal and interest on any debt obligations it may incur in the future as well as other factors that may exist at the time.




Regulatory authorities restrict the amount of cash dividends the Bank can declare without prior regulatory approval.  Also see Note 12of the Notes to the Consolidated Financial Statements for additional dividend restriction disclosure.




The Corporation currently does not maintain any equity compensation plans.




Item 6.  Selected Financial Data


The information under the caption “Selected Financial Data” in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2010, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 6.




Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations


The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2010, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 7.




11




Item 8.  Financial Statements and Supplementary Data


The financial statements in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2010, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 8.




Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure


None.




Item 9A.  Controls and Procedures




Disclosure Controls and Procedures


The Corporation maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Corporation files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.  Based upon their evaluation of those controls and procedures as of December 31, 2010, the principal executive officer and principal financial officer of the Corporation concluded that the Corporation’s disclosure controls and procedures were effective.




Internal Controls Over Financial Reporting


The Corporation made no changes in its internal controls over financial reporting during the fourth quarter of the year ended December 31, 2010, that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.




Report of Management’s Assessment of Internal Control over Financial Reporting


Management is responsible for designing, implementing, documenting, and maintaining an adequate system of internal control over financial reporting.  An adequate system of internal control over financial reporting encompasses the processes and procedures that have been established by management to:


▪
maintain records that accurately reflect the company’s transactions;


▪
prepare financial statement and footnote disclosures in accordance with generally accepted accounting principles (“GAAP”) that can be relied upon by external users;


▪
prevent and detect unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.




Management conducted an evaluation of the effectiveness of the Corporation’s internal control over financial reporting based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation under the criteria in Internal Control- Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2010.  Furthermore, during the conduct of its assessment, management identified no material weakness in its financial reporting control system.




The Board of Directors of Neffs Bancorp, Inc., through its Audit Committee, provides oversight to management conduct of the financial reporting process.  The Audit Committee, which is composed entirely of independent directors, is also responsible to recommend the appointment of independent public accountants.  The Audit Committee also meets with management, the internal audit staff, and the independent public accountants throughout the year to provide assurance as to the adequacy of the financial reporting process and to monitor the overall scope of the work performed by the internal audit staff and the independent public accountants.




12




Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements.  A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.




This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting.  Management’s report is not subject to attestation by the Corporation’s registered public accounting firm pursuant to provisions of the Dodd-Frank Act that permit the Corporation to provide only management’s report in this annual report.




/s/ John J. Remaley

/s/ Kevin A. SchmidtPresident and CEO

Principal Financial Officer

and Principal Accounting Officer


13


Item 9B.  Other Information


None.




Part III.




Item 10.  Directors, Executive Officers and Corporate Governance


The information under the captions “Governance of the Corporation,” “Information about Nominees and Continuing Directors,” “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2011 Annual Meeting of Shareholders scheduled.




The Corporation has adopted a Code of Ethics that applies to directors, officers and employees of the Corporation and the Bank, including the Chief Executive Officer and senior financial officers.  A copy of the Code of Ethics was filed as Exhibit 14 to the Form 10-K of the registrant filed April 1, 2002.  A request for the Corporation’s Code of Ethics can be made in either writing to David C. Matulevich, Neffs Bancorp, Inc., 5629 Route 873, P.O. Box 10, Neffs, PA   18065-0010 or by telephone to 610-767-3875.




Item 11.  Executive Compensation


The information under the caption “Executive Compensation” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2011 Annual Meeting of Shareholders.




Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.


The information under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2011 Annual Meeting of Shareholders.




The Corporation currently does not maintain any equity compensation plans.




Item 13.  Certain Relationships and Related Transactions, and Director Independence


The information under the caption “Transactions with Directors and Executive Officers” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2011 Annual Meeting of Shareholders.




Item 14.  Principal Accountant Fees and Services


The information under the caption “Report of the Audit Committee” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2011 Annual Meeting of Shareholders.


14


Part IV




Item 15.  Exhibits and Financial Statement Schedules


No.

Description(a)(1)

Financial Statements are incorporated by reference from the 2010 Annual Report.Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition

Consolidated Statements of Income

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements(2)

Financial Statements Schedules (This item is omitted since information required is either not applicable or is included in the footnotes to the Annual Financial Statements.)(3)

The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibits Index.3 (i)

Amended and Restated Articles of Incorporation of Neffs Bancorp, Inc. (Filed as Exhibit 3(i) of the Registration Statement on Form 10 dated and as filed with Commission on April 27, 2001.)3 (ii)

Amended and Restated Bylaws of Neffs Bancorp, Inc. (Filed as Exhibit 99.1 of the Current Report on Form 8-K dated and as filed with the Commission on February 27, 2002.)11

Statement re: computation of per share earnings. See Consolidated Statements of Income and Note 1 to the Consolidated Financial Statements included in the Annual Report set forth as Exhibit 13 hereto.13

Excerpts from Neffs Bancorp, Inc. Annual Report to Stockholders.14

Code of Ethics (Filed as Exhibit 14 to the Form 10-K of the registrant filed on April 1, 2002.)21

Subsidiary of the Registrant (Filed as Exhibit 21 to the Form 10-K of the registrant filed on April 1, 2002.)31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)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.
  (b)

Exhibits required by item 601 of Regulation SK.See Item 15(a) (3) above.
  15




Signatures




Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




Neffs Bancorp, Inc.Date:  March 31, 2011

By:
/s/ John J. RemaleyJohn J. Remaley

President and

Chief Executive Officer




Pursuant to the requirement of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.




Signatures

Title

Date/s/ John J. RemaleyJohn J. Remaley

President, Chief Executive Officer and Director

March 31, 2011/s/Kevin A. SchmidtKevin A. Schmidt

Vice President and Director (Principal Financial

Officer and Principal Accounting Officer)

March 31, 2011/s/Robert B. HeintzelmanRobert B. Heintzelman

Director

March 31, 2011/s/Mary Ann WagnerMary Ann Wagner

Director

March 31, 2011/s/John F. SimockJohn F. Simock

Director

March 31, 2011/s/John F. Sharkey, Jr.John F. Sharkey, Jr.

Director

March 31, 2011/s/Duane A. SchleicherDuane A. Schleicher

Director

March 31, 2011/s/Dean H. SnyderDean H. Snyder

Director

March 31, 2011




16