##### 



Exhibit 13
 Neffs Bancorp, Inc.
 Consolidated Financial Report
 December 31, 2007




---



##### 



Directors of the Corporation
and BANK
 Robert B. Heintzelman
    
    
    
    John J. RemaleyDuane A. SchleicherKevin A. Schmidt
    
    
    
    John F. Sharkey, Jr.John F. SimockHerman P. Snyder
    
    
    
    Mary Ann Wagner
 Officers of the Corporation
 John J. RemaleyPresident
    
    
    
    Herman P. SnyderVice PresidentKevin A. SchmidtTreasurerDavid C. MatulevichSecretary
    
    
    
    Michael J. BaileyAssistant Secretary
 Officers of the Bank
 Chairman of the Board
 John J. RemaleyPresident
    
    
    
    Kevin A. SchmidtExecutive Vice President
and
Chief Executive OfficerMichael J. BaileyCashier and 
Chief Operations Officer
    
    
    
    Carol L. JonesAssistant Cashier and
Operations Officer




---



##### 








---



##### 



Report of Independent Registered Public Accounting Firm
 
    /s/ Beard Miller Company LLP




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Consolidated Statements of Financial Condition
 December 31,2007
    
    
    2006(In Thousands, Except Share Data)AssetsCash and cash equivalents
    
    $
    3,888
    
    
    $
    2,201Interest bearing deposits with banks
    
    
    118
    
    
    
    144Securities available for sale
    
    
    36,394
    
    
    
    36,705Securities held to maturity, fair value 2007 $87,896; 2006 $84,561
    
    
    86,811
    
    
    
    84,308Loans receivable, net of allowance for loan losses 2007 $620;
2006 $653
    
    
    93,990
    
    
    
    87,418Premises and equipment, net
    
    
    2,347
    
    
    
    2,505Other assets
    
    
    2,249
    
    
    
    2,595Total Assets
    
    $
    225,797
    
    
    $
    215,876Liabilities and Stockholders EquityLiabilities:Deposits:Non-interest bearing
    
    $
    17,205
    
    
    $
    17,554Interest bearing
    
    
    163,186
    
    
    
    155,547Total Deposits
    
    
    180,391
    
    
    
    173,101Federal funds purchased
    
    
    2,249
    
    
    
    357Other liabilities
    
    
    1,327
    
    
    
    1,196Total Liabilities
    
    
    183,967
    
    
    
    174,654Stockholders equity:Common stock, $1 par value; authorized 2,500,000 shares;
issued 200,000 shares; outstanding shares 2007 190,755; 2006 197,941
    
    
    200
    
    
    
    200Paid-in capital
    
    
    753
    
    
    
    753Retained earnings
    
    
    43,558
    
    
    
    41,634Accumulated other comprehensive loss
    
    
    (373
    )
    
    
    (947
    )Treasury stock, at cost 2007 9,245 shares; 2006 2,059 shares
    
    
    (2,308
    )
    
    
    (418
    )Total Stockholders Equity
    
    
    41,830
    
    
    
    41,222Total Liabilities and Stockholders Equity
    
    $
    225,797
    
    
    $
    215,876
 See notes to consolidated financial statements.
 2




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##### 



Neffs Bancorp, Inc. and Subsidiary  Consolidated Statements of Income
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in Thousands, Except per Share Data)Interest IncomeInterest and fees on loans
    
    $
    5,988
    
    
    $
    5,419
    
    
    $
    5,001Interest and dividends on investments:Taxable
    
    
    4,086
    
    
    
    3,546
    
    
    
    3,313Exempt from federal income taxes
    
    
    1,783
    
    
    
    1,975
    
    
    
    2,058Interest on federal funds sold and other
    
    
    78
    
    
    
    51
    
    
    
    82Total Interest Income
    
    
    11,935
    
    
    
    10,991
    
    
    
    10,454Interest ExpenseDeposits
    
    
    6,085
    
    
    
    5,115
    
    
    
    4,469Federal funds purchased
    
    
    4
    
    
    
    14
    
    
    
    Total Interest Expense
    
    
    6,089
    
    
    
    5,129
    
    
    
    4,469Net Interest Income
    
    
    5,846
    
    
    
    5,862
    
    
    
    5,985Provision for Loan Losses
    
    
    
    
    
    
    
    
    
    
    Net Interest Income after
Provision for Loan Losses
    
    
    5,846
    
    
    
    5,862
    
    
    
    5,985Other IncomeService charges on deposit accounts
    
    
    136
    
    
    
    144
    
    
    
    161Other service charges and fees
    
    
    91
    
    
    
    66
    
    
    
    78Other income
    
    
    44
    
    
    
    48
    
    
    
    37Total Other Income
    
    
    271
    
    
    
    258
    
    
    
    276Other ExpensesSalaries and employee benefits
    
    
    1,367
    
    
    
    1,347
    
    
    
    1,242Occupancy
    
    
    175
    
    
    
    162
    
    
    
    154Furniture and equipment
    
    
    256
    
    
    
    243
    
    
    
    210Pennsylvania shares tax
    
    
    403
    
    
    
    381
    
    
    
    312Other expenses
    
    
    678
    
    
    
    676
    
    
    
    694Total Other Expenses
    
    
    2,879
    
    
    
    2,809
    
    
    
    2,612Income before Income Taxes
    
    
    3,238
    
    
    
    3,311
    
    
    
    3,649Income Tax (Benefit) ExpenseCurrent
    
    
    560
    
    
    
    574
    
    
    
    631Deferred
    
    
    (23
    )
    
    
    (86
    )
    
    
    (54
    )Total Income Tax Expense
    
    
    537
    
    
    
    488
    
    
    
    577Net Income
    
    $
    2,701
    
    
    $
    2,823
    
    
    $
    3,072Earnings per Share, Basic
    
    $
    13.79
    
    
    $
    14.26
    
    
    $
    15.58Weighted Average Common Shares
Outstanding
    
    
    195,893
    
    
    
    197,941
    
    
    
    197,117
 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, 2007, 2006 and 2005
 AccumulatedOther
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    (Loss)
    
    
    Stock
    
    
    Equity(Dollars in Thousands, Except per Share Data)Balance  December 31, 2004
    
    $
    200
    
    
    $
    690
    
    
    $
    37,319
    
    
    $
    (331
    )
    
    $
    (562
    )
    
    $
    37,316Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    3,072
    
    
    
    
    
    
    
    
    
    
    
    3,072Change in unrealized net gains (losses) on
securities available for sale, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (513
    )
    
    
    
    
    
    
    (513
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,559Cash dividends declared on common stock, $4.00
per share
    
    
    
    
    
    
    
    
    
    
    (788
    )
    
    
    
    
    
    
    
    
    
    
    (788
    )Sale of treasury stock (850 shares)
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    144
    
    
    
    207Balance  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
    )
    
    $
    41,830
 See notes to consolidated financial statements.
 4




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##### 



Neffs Bancorp, Inc. and Subsidiary  Consolidated Statements of Cash Flow
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    2,701
    
    
    $
    2,823
    
    
    $
    3,072Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    205
    
    
    
    214
    
    
    
    170Net amortization (accretion) of securities
    
    
    (92
    )
    
    
    130
    
    
    
    228Deferred income tax benefit
    
    
    (23
    )
    
    
    (86
    )
    
    
    (54
    )(Increase) decrease in assets:Accrued interest receivable
    
    
    7
    
    
    
    (204
    )
    
    
    (28
    )Other assets
    
    
    67
    
    
    
    (52
    )
    
    
    (17
    )Increase (decrease) in liabilities:Accrued interest payable
    
    
    139
    
    
    
    201
    
    
    
    131Other liabilities
    
    
    (8
    )
    
    
    18
    
    
    
    11Net Cash Provided by Operating Activities
    
    
    2,996
    
    
    
    3,044
    
    
    
    3,513Cash Flows from Investing ActivitiesNet (increase) decrease in interest bearing deposits with banks
    
    
    26
    
    
    
    19
    
    
    
    (140
    )Net (increase) decrease in federal funds sold
    
    
    
    
    
    
    2,348
    
    
    
    (570
    )Purchases of securities available for sale
    
    
    (5,246
    )
    
    
    (1,888
    )
    
    
    (8,438
    )Purchases of securities held to maturity
    
    
    (12,935
    )
    
    
    (10,343
    )
    
    
    (4,116
    )Proceeds from maturities/calls and principal repayments of
securities available for sale
    
    
    6,335
    
    
    
    6,899
    
    
    
    9,566Proceeds from maturities/calls of securities held to maturity
    
    
    10,615
    
    
    
    4,977
    
    
    
    4,505Net increase in loans
    
    
    (6,572
    )
    
    
    (5,033
    )
    
    
    (6,070
    )Purchases of premises and equipment
    
    
    (47
    )
    
    
    (170
    )
    
    
    (411
    )Net Cash Used in Investing Activities
    
    
    (7,824
    )
    
    
    (3,191
    )
    
    
    (5,674
    )Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    7,290
    
    
    
    (175
    )
    
    
    1,624Net increase in federal funds purchased
    
    
    1,892
    
    
    
    357
    
    
    
    Dividends paid
    
    
    (777
    )
    
    
    (792
    )
    
    
    (788
    )Sales (purchase) of treasury stock
    
    
    (1,890
    )
    
    
    
    
    
    
    207Net Cash Provided by (Used in) Financing Activities
    
    
    6,515
    
    
    
    (610
    )
    
    
    1,043Net Increase (Decrease)
in Cash and Cash
Equivalents
    
    
    1,687
    
    
    
    (757
    )
    
    
    (1,118
    )Cash and Cash Equivalents  Beginning
    
    
    2,201
    
    
    
    2,958
    
    
    
    4,076Cash and Cash Equivalents  Ending
    
    $
    3,888
    
    
    $
    2,201
    
    
    $
    2,958Supplementary Cash Flows InformationInterest paid
    
    $
    5,950
    
    
    $
    4,928
    
    
    $
    4,337Income taxes paid
    
    $
    614
    
    
    $
    531
    
    
    $
    655
 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




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Securities (Continued)
    Loans
   Allowance for Loan Losses
   7




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Allowance for Loan Losses (Continued)
    Foreclosed Assets
  Transfers of Financial Assets
  8




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Premises and Equipment
  Advertising Costs
  Income Taxes
  Earnings per Share
  Employee Benefit Plan
  Comprehensive Income
  Cash and Cash Equivalents
  Treasury Stock
  9




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Segment Reporting
   New Accounting Standards
     10




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##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
       11




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
  Note 2  Cash and Cash Equivalents
  Note 3  Securities
  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
    )
    
    
    35,579Equity securities, at cost
    
    
    714
    
    
    
    
    
    
    
    
    
    
    
    714$
    36,959
    
    
    $
    72
    
    
    $
    (637
    )
    
    $
    36,394Securities 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




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 3  Securities (Continued)
 December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In Thousands)Securities Available for Sale:U.S. Treasury note
    
    $
    100
    
    
    $
    
    
    
    $
    
    
    
    $
    100Mortgage-backed securities
    
    
    37,389
    
    
    
    2
    
    
    
    (1,437
    )
    
    
    35,954Equity securities, at cost
    
    
    651
    
    
    
    
    
    
    
    
    
    
    
    651$
    38,140
    
    
    $
    2
    
    
    $
    (1,437
    )
    
    $
    36,705Securities Held to Maturity:Obligations of U.S. Government
agencies
    
    $
    38,537
    
    
    $
    23
    
    
    $
    (694
    )
    
    $
    37,866Obligations of states and political
subdivisions
    
    
    42,512
    
    
    
    980
    
    
    
    (52
    )
    
    
    43,440Corporate securities
    
    
    1,749
    
    
    
    20
    
    
    
    (35
    )
    
    
    1,734Mortgage-backed securities
    
    
    1,510
    
    
    
    18
    
    
    
    (7
    )
    
    
    1,521$
    84,308
    
    
    $
    1,041
    
    
    $
    (788
    )
    
    $
    84,561
  Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Due in one year or less
    
    $
    100
    
    
    $
    101
    
    
    $
    550
    
    
    $
    549Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    7,504
    
    
    
    7,533Due after five years through ten years
    
    
    
    
    
    
    
    
    
    
    32,655
    
    
    
    33,154Due after ten years
    
    
    
    
    
    
    
    
    
    
    44,862
    
    
    
    45,399100
    
    
    
    101
    
    
    
    85,571
    
    
    
    86,635Mortgage-backed securities
    
    
    36,145
    
    
    
    35,579
    
    
    
    1,240
    
    
    
    1,261Equity securities, at cost
    
    
    714
    
    
    
    714
    
    
    
    
    
    
    
    $
    36,959
    
    
    $
    36,394
    
    
    $
    86,811
    
    
    $
    87,896
  13




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 3  Securities (Continued)
  2007
    
    
    2006
    
    
    2005(In Thousands)Gross change in unrealized gains (losses)
on securities available for sale
    
    $
    870
    
    
    $
    (156
    )
    
    $
    (778
    )Reclassification adjustment for gains
realized in income
    
    
    
    
    
    
    
    
    
    
    Net Unrealized Gains (Losses)
    
    
    870
    
    
    
    (156
    )
    
    
    (778
    )Tax effect
    
    
    (296
    )
    
    
    53
    
    
    
    265Net of Tax Amount
    
    $
    574
    
    
    $
    (103
    )
    
    $
    (513
    )
   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 3  Securities (Continued)
 Less than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses(In Thousands)DECEMBER 31, 2006:Securities Available for Sale:Mortgage-backed securities
    
    $
    2,681
    
    
    $
    47
    
    
    $
    32,927
    
    
    $
    1,390
    
    
    $
    35,608
    
    
    $
    1,437Securities Held to Maturity:Obligations of U.S.
Government agencies
    
    
    7,507
    
    
    
    96
    
    
    
    28,091
    
    
    
    598
    
    
    
    35,598
    
    
    
    694Obligations of states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    3,988
    
    
    
    52
    
    
    
    3,988
    
    
    
    52Corporate securities
    
    
    
    
    
    
    
    
    
    
    813
    
    
    
    35
    
    
    
    813
    
    
    
    35Mortgage-backed securities
    
    
    328
    
    
    
    2
    
    
    
    290
    
    
    
    5
    
    
    
    618
    
    
    
    7Total
Temporarily
Impaired
Securities
    
    $
    10,516
    
    
    $
    145
    
    
    $
    66,109
    
    
    $
    2,080
    
    
    $
    76,625
    
    
    $
    2,225
  Note 4  Loans
  2007
    
    
    2006(In Thousands)Commercial
    
    $
    4,635
    
    
    $
    4,664Commercial real estate
    
    
    22,779
    
    
    
    18,820Residential real estate
    
    
    39,221
    
    
    
    37,088Real estate construction
    
    
    879
    
    
    
    1,053Home equity
    
    
    20,043
    
    
    
    19,176Other consumer
    
    
    7,053
    
    
    
    7,27094,610
    
    
    
    88,071Allowance for loan losses
    
    
    (620
    )
    
    
    (653
    )$
    93,990
    
    
    $
    87,418
 15




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 5  Allowance for Loan Losses
  2007
    
    
    2006
    
    
    2005(In Thousands)Balance, beginning
    
    $
    653
    
    
    $
    657
    
    
    $
    663Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    Recoveries on loans previously charged off
    
    
    5
    
    
    
    2
    
    
    
    7Loans charged off
    
    
    (38
    )
    
    
    (6
    )
    
    
    (13
    )Balance, ending
    
    $
    620
    
    
    $
    653
    
    
    $
    657
   Note 6  Premises and Equipment
  EstimatedUseful Lives
    
    2007
    
    
    2006(In Thousands)Premises
    
    15-39 years
    
    $
    2,813
    
    
    $
    2,775Furniture, fixtures and equipment
    
    5-10 years
    
    
    1,996
    
    
    
    1,9874,809
    
    
    
    4,762Accumulated depreciation
    
    
    
    
    (2,700
    )
    
    
    (2,495
    )2,109
    
    
    
    2,267Land
    
    
    
    
    238
    
    
    
    238$
    2,347
    
    
    $
    2,505
 16




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 7  Interest Bearing Deposits
   2007
    
    
    2006(In Thousands)Savings accounts
    
    $
    45,086
    
    
    $
    45,881NOW accounts
    
    
    6,542
    
    
    
    7,781Certificates and other time deposits
    
    
    111,558
    
    
    
    101,885$
    163,186
    
    
    $
    155,547
  2008
    
    $
    61,6112009
    
    
    18,4612010
    
    
    11,3072011
    
    
    8,1292012
    
    
    12,050$
    111,558
 Note 8  Borrowing Capacity
   17




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 9  Income Taxes
  2007
    
    
    2006(In Thousands)AMT credit carryforward
    
    $
    416
    
    
    $
    384Unrealized losses on securities available for sale
    
    
    192
    
    
    
    488Allowance for loan losses
    
    
    160
    
    
    
    171Accrued benefits
    
    
    20
    
    
    
    14Total Deferred Tax Assets
    
    
    788
    
    
    
    1,057Securities accretion
    
    
    37
    
    
    
    8Depreciation
    
    
    4
    
    
    
    29Total Deferred Tax Liabilities
    
    
    41
    
    
    
    37Net Deferred Tax Asset
    
    $
    747
    
    
    $
    1,020
  2007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPretax
    
    
    
    
    
    
    Pretax
    
    
    
    
    
    
    PretaxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    Income(Dollars in Thousands)Tax at statutory rate
    
    $
    1,101
    
    
    
    34
    %
    
    $
    1,125
    
    
    
    34
    %
    
    $
    1,242
    
    
    
    34
    %Increase (decrease)
resulting from:Tax-exempt interest
income
    
    
    (643
    )
    
    
    (20
    )
    
    
    (714
    )
    
    
    (21
    )
    
    
    (735
    )
    
    
    (20
    )TEFRA interest expense
disallowance
    
    
    79
    
    
    
    3
    
    
    
    77
    
    
    
    2
    
    
    
    70
    
    
    
    2$
    537
    
    
    
    17
    %
    
    $
    488
    
    
    
    15
    %
    
    $
    577
    
    
    
    16
    %
 18




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 10  Related Party Transactions
   Balances, January 1, 2007
    
    $
    2,343Advances
    
    
    1,603Repayments
    
    
    (789
    )Balances, December 31, 2007
    
    $
    3,157
 Note 11  Financial Instruments with Off-Balance Sheet Risk
   2007
    
    
    2006(In Thousands)Commitments to grant loans
    
    $
    2,335
    
    
    $
    1,334Unfunded commitments under lines of credit
    
    
    4,053
    
    
    
    4,238Letters of credit
    
    
    627
    
    
    
    665$
    7,015
    
    
    $
    6,237
  19




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 11  Financial Instruments with Off-Balance Sheet Risk (Continued)
  Note 12  Dividend Restrictions
  Note 13  Capital Requirements
    20




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 13  Capital Requirements (Continued)
  To be Well Capitalizedunder PromptFor Capital Adequacy
    
    
    Corrective ActionActual
    
    
    Purposes
    
    
    ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)As of December 31, 2007:Total capital (to risk-weighted assets):
    
    $
    42,453
    
    
    
    38.5
    
    
    
    38,825
    
    
    
    38.0
    
    
    $
    311,031
    
    
    
    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  5.0As of December 31, 2006:Total capital (to risk-weighted assets):
    
    $
    42,376
    
    
    
    41.3
    
    
    
    38,214
    
    
    
    38.0
    
    
    $
    310,268
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted assets):
    
    
    41,723
    
    
    
    40.6
    
    
    
    34,107
    
    
    
    34.0
    
    
    
    3  6,161
    
    
    
    3  6.0Tier 1 capital (to average assets):
    
    
    41,723
    
    
    
    19.4
    
    
    
    38,585
    
    
    
    34.0
    
    
    
    310,732
    
    
    
    3  5.0
 
 Note 14  Fair Value of Financial Instruments
   21




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 14  Fair Value of Financial Instruments (CONTINUED)
   Cash and Due from Banks, Interest Bearing Deposits with Banks and Federal Funds Sold and Purchased
  Securities
  Loans Receivable
  Accrued Interest Receivable
  Deposit Liabilities
  Accrued Interest Payable
  Off-Balance Sheet Instruments
  22




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 14  Fair Value of Financial Instruments (CONTINUED)
  2007
    
    2006Estimated
    
    
    
    
    
    EstimatedCarrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In Thousands)Financial assets:Cash and short-term
investments
    
    $
    4,006
    
    
    $
    4,006
    
    
    $
    2,345
    
    
    $
    2,345Securities available for sale
    
    
    36,394
    
    
    
    36,394
    
    
    
    36,705
    
    
    
    36,705Securities held to maturity
    
    
    86,811
    
    
    
    87,896
    
    
    
    84,308
    
    
    
    84,561Loans, net
    
    
    93,990
    
    
    
    95,263
    
    
    
    87,418
    
    
    
    86,495Accrued interest receivable
    
    
    1,410
    
    
    
    1,410
    
    
    
    1,417
    
    
    
    1,417Financial liabilities:Deposits
    
    
    180,391
    
    
    
    180,955
    
    
    
    173,101
    
    
    
    172,847Accrued interest payable
    
    
    1,242
    
    
    
    1,242
    
    
    
    1,103
    
    
    
    1,103Federal funds purchased
    
    
    2,249
    
    
    
    2,249
    
    
    
    357
    
    
    
    357Off-balance sheet financial
instruments:Commitments to extend credit
and letters of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 23




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 15  Condensed Financial Information of Neffs Bancorp, Inc. (Parent Only)
 Balance Sheets
 December 31,2007
    
    
    2006(In Thousands)AssetsCash
    
    $
    53
    
    
    $
    155Investment in subsidiary
    
    
    41,459
    
    
    
    40,776Premises and equipment
    
    
    245
    
    
    
    250Other assets
    
    
    94
    
    
    
    62Total Assets
    
    $
    41,851
    
    
    $
    41,243Liability and Stockholders EquityLiability, accounts payable
    
    $
    21
    
    
    $
    21Stockholders equity
    
    
    41,830
    
    
    
    41,222Total Liability and Stockholders Equity
    
    $
    41,851
    
    
    $
    41,243
 Statements of Income
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(In Thousands)Dividends from subsidiary
    
    $
    2,667
    
    
    $
    792
    
    
    $
    788Rental income
    
    
    13
    
    
    
    13
    
    
    
    7Expenses
    
    
    127
    
    
    
    111
    
    
    
    122Income before Income Taxes and Equity in
Undistributed Earnings of Subsidiary
    
    
    2,553
    
    
    
    694
    
    
    
    673Income tax benefit
    
    
    39
    
    
    
    27
    
    
    
    332,592
    
    
    
    721
    
    
    
    706Equity in undistributed earnings of subsidiary
    
    
    109
    
    
    
    2,102
    
    
    
    2,366Net Income
    
    $
    2,701
    
    
    $
    2,823
    
    
    $
    3,072
 24




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Notes to Consolidated Financial Statements
 Note 15  Condensed Financial Information of Neffs Bancorp, Inc. (Parent Only) (Continued)
 Statements of Cash Flows
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    2,701
    
    
    $
    2,823
    
    
    $
    3,072Adjustments to reconcile net income to
net cash provided by operating
activities:Depreciation
    
    
    9
    
    
    
    10
    
    
    
    9Equity in undistributed earnings of
subsidiary
    
    
    (109
    )
    
    
    (2,102
    )
    
    
    (2,366
    )(Increase) decrease in other assets
    
    
    (32
    )
    
    
    (27
    )
    
    
    91Increase in other liabilities
    
    
    
    
    
    
    
    
    
    
    1Net Cash Provided by Operating Activities
    
    
    2,569
    
    
    
    704
    
    
    
    807Cash Flows Used in Investing ActivitiesPurchases of premises and equipment
    
    
    (4
    )
    
    
    
    
    
    
    (15
    )Cash Flows Used in Financing ActivitiesDividends paid
    
    
    (777
    )
    
    
    (792
    )
    
    
    (788
    )Sale (purchase) of treasury stock
    
    
    (1,890
    )
    
    
    
    
    
    
    207Net Cash Used in Financing Activities
    
    
    (2,667
    )
    
    
    (792
    )
    
    
    (581
    )Net Increase (Decrease) in Cash
    
    
    (102
    )
    
    
    (88
    )
    
    
    211Cash  Beginning
    
    
    155
    
    
    
    243
    
    
    
    32Cash  Ending
    
    $
    53
    
    
    $
    155
    
    
    $
    243
 25




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Selected Financial Data
  At or For the Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in Thousands, Except Per Share Data)Interest IncomeInterest and fees on loans
    
    $
    5,988
    
    
    $
    5,419
    
    
    $
    5,001
    
    
    $
    4,747
    
    
    $
    5,044Interest and dividends on
securities
    
    
    5,869
    
    
    
    5,521
    
    
    
    5,371
    
    
    
    5,233
    
    
    
    4,461Interest on federal funds sold
    
    
    78
    
    
    
    51
    
    
    
    82
    
    
    
    67
    
    
    
    128Total interest income
    
    
    11,935
    
    
    
    10,991
    
    
    
    10,454
    
    
    
    10,047
    
    
    
    9,633Interest ExpenseDeposits
    
    
    6,085
    
    
    
    5,115
    
    
    
    4,469
    
    
    
    4,082
    
    
    
    4,434Short-term borrowings
    
    
    4
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Total interest expense
    
    
    6,089
    
    
    
    5,129
    
    
    
    4,469
    
    
    
    4,082
    
    
    
    4,434Net interest income
    
    
    5,846
    
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,965
    
    
    
    5,199Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    88Net interest income after provision
for loan losses
    
    
    5,846
    
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,929
    
    
    
    5,111Other operating income
    
    
    271
    
    
    
    258
    
    
    
    276
    
    
    
    268
    
    
    
    273Other operating expense
    
    
    2,879
    
    
    
    2,809
    
    
    
    2,612
    
    
    
    2,385
    
    
    
    2,269Income before taxes
    
    
    3,238
    
    
    
    3,311
    
    
    
    3,649
    
    
    
    3,812
    
    
    
    3,115Applicable income taxes
    
    
    537
    
    
    
    488
    
    
    
    577
    
    
    
    607
    
    
    
    341Net income
    
    $
    2,701
    
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205
    
    
    $
    2,774Per Share DataBasic earnings
    
    $
    13.79
    
    
    $
    14.26
    
    
    $
    15.58
    
    
    $
    16.26
    
    
    $
    14.11Book value
    
    $
    213.53
    
    
    $
    208.25
    
    
    $
    199.34
    
    
    $
    189.33
    
    
    $
    178.37Dividends declared
    
    $
    4.00
    
    
    $
    4.00
    
    
    $
    4.00
    
    
    $
    3.75
    
    
    $
    2.70Average shares outstanding
    
    
    195,893
    
    
    
    197,941
    
    
    
    197,117
    
    
    
    197,091
    
    
    
    196,529At End of PeriodTotal assets
    
    $
    225,797
    
    
    $
    215,876
    
    
    $
    213,547
    
    
    $
    209,803
    
    
    $
    198,570Securities
    
    
    123,205
    
    
    
    121,013
    
    
    
    120,944
    
    
    
    123,467
    
    
    
    110,087Loans, net of unearned income
    
    
    93,990
    
    
    
    87,418
    
    
    
    83,042
    
    
    
    76,978
    
    
    
    70,886Allowance for loan losses
    
    
    620
    
    
    
    653
    
    
    
    657
    
    
    
    663
    
    
    
    637Deposits
    
    
    180,391
    
    
    
    173,101
    
    
    
    173,276
    
    
    
    171,652
    
    
    
    162,694Stockholders equity
    
    
    41,830
    
    
    
    41,222
    
    
    
    39,294
    
    
    
    37,316
    
    
    
    35,055Key RatiosReturn on average assets
    
    
    1.21
    %
    
    
    1.32
    %
    
    
    1.46
    %
    
    
    1.57
    %
    
    
    1.45
    %Return on average equity
    
    
    6.56
    %
    
    
    7.11
    %
    
    
    8.08
    %
    
    
    8.89
    %
    
    
    8.16
    %Net loans to deposit ratio
    
    
    52.10
    %
    
    
    50.50
    %
    
    
    47.55
    %
    
    
    44.46
    %
    
    
    43.18
    %Dividend payout ratio (dividends
declared divided by net income)
    
    
    29.01
    %
    
    
    28.05
    %
    
    
    25.66
    %
    
    
    23.06
    %
    
    
    19.14
    %Equity to asset ratio (average
equity
divided by average total assets)
    
    
    18.41
    %
    
    
    18.61
    %
    
    
    17.95
    %
    
    
    17.56
    %
    
    
    17.73
    %
 26




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Quarterly Summary of Financial Data (unaudited)
 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
 2006Three Months EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in Thousands, Except Per Share Data)Interest income
    
    $
    2,682
    
    
    $
    2,707
    
    
    $
    2,787
    
    
    $
    2,815Interest expense
    
    
    1,212
    
    
    
    1,233
    
    
    
    1,308
    
    
    
    1,376Net interest income
    
    
    1,470
    
    
    
    1,474
    
    
    
    1,479
    
    
    
    1,439Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expenses, net of other
income
    
    
    639
    
    
    
    684
    
    
    
    667
    
    
    
    561Income before income taxes
    
    
    831
    
    
    
    790
    
    
    
    812
    
    
    
    878Income tax expense
    
    
    117
    
    
    
    107
    
    
    
    114
    
    
    
    150Net income
    
    $
    714
    
    
    $
    683
    
    
    $
    698
    
    
    $
    728Earnings per share-Basic
    
    $
    3.61
    
    
    $
    3.45
    
    
    $
    3.52
    
    
    $
    3.68
 27




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Common Stock Information
    Cash Dividends2007
    
    HIGH
    
    LOW
    
    Per ShareFirst Quarter
    
    $
    256.00
    
    
    $
    256.00
    
    
    
    Second Quarter
    
    $
    262.00
    
    
    $
    260.00
    
    
    $
    2.00Third Quarter
    
    $
    263.00
    
    
    $
    263.00
    
    
    
    Fourth Quarter
    
    $
    263.00
    
    
    $
    263.00
    
    
    $
    2.00
 Cash Dividends2006
    
    HIGH
    
    LOW
    
    Per ShareFirst Quarter
    
    $
    245.00
    
    
    $
    245.00
    
    
    
    Second Quarter
    
    $
    253.00
    
    
    $
    253.00
    
    
    $
    2.00Third Quarter
    
    $
    253.00
    
    
    $
    253.00
    
    
    
    Fourth Quarter
    
    $
    256.00
    
    
    $
    256.00
    
    
    $
    2.00
  28




---



##### 



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
   29




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  OVERVIEW
   RESULTS OF OPERATIONS
 Net Interest Income and Net Interest Margin
  2007 Compared to 2006
    2006 Compared to 2005
  30




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
    Year Ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance1
    
    
    Interest
    
    
    Rate
    
    
    Balance1
    
    
    Interest
    
    
    Rate
    
    
    Balance1
    
    
    Interest
    
    
    Rate(Dollars in Thousands)Interest earning assets:Loans receivable2
    
    $
    92,006
    
    
    $
    5,988
    
    
    
    6.51
    %
    
    $
    85,565
    
    
    $
    5,419
    
    
    
    6.33
    %
    
    $
    79,294
    
    
    $
    5,001
    
    
    
    6.31
    %Investment securities:Taxable
    
    
    81,916
    
    
    
    4,086
    
    
    
    4.99
    %
    
    
    75,390
    
    
    
    3,546
    
    
    
    4.70
    %
    
    
    77,177
    
    
    
    3,313
    
    
    
    4.29
    %Non-taxable3
    
    
    39,387
    
    
    
    1,783
    
    
    
    4.53
    %
    
    
    43,817
    
    
    
    1,975
    
    
    
    4.51
    %
    
    
    45,980
    
    
    
    2,058
    
    
    
    4.48
    %Other interest earning assets4
    
    
    1,747
    
    
    
    78
    
    
    
    4.46
    %
    
    
    357
    
    
    
    51
    
    
    
    14.29
    %
    
    
    2,411
    
    
    
    82
    
    
    
    3.40
    %Total interest earning assets
    
    
    215,056
    
    
    
    11,935
    
    
    
    5.55
    %
    
    
    205,129
    
    
    
    10,991
    
    
    
    5.36
    %
    
    
    204,862
    
    
    
    10,454
    
    
    
    5.10
    %Noninterest earning assets
    
    
    8,554
    
    
    
    
    
    
    
    
    
    
    
    8,155
    
    
    
    
    
    
    
    
    
    
    
    7,067Total assets
    
    $
    223,610
    
    
    
    
    
    
    
    
    
    
    $
    213,284
    
    
    
    
    
    
    
    
    
    
    $
    211,929Interest bearing liabilities:NOW
    
    $
    6,517
    
    
    
    105
    
    
    
    1.61
    %
    
    $
    7,697
    
    
    
    126
    
    
    
    1.64
    %
    
    $
    8,373
    
    
    
    87
    
    
    
    1.04
    %Savings
    
    
    48,147
    
    
    
    926
    
    
    
    1.92
    %
    
    
    49,428
    
    
    
    867
    
    
    
    1.75
    %
    
    
    62,033
    
    
    
    1,000
    
    
    
    1.61
    %Certificates of deposit
    
    
    108,275
    
    
    
    5,054
    
    
    
    4.67
    %
    
    
    97,273
    
    
    
    4,122
    
    
    
    4.24
    %
    
    
    86,372
    
    
    
    3,382
    
    
    
    3.92
    %Federal funds purchased
    
    
    562
    
    
    
    4
    
    
    
    0.71
    %
    
    
    343
    
    
    
    14
    
    
    
    4.08
    %
    
    
    0
    
    
    
    0
    
    
    
    0
    %Total interest bearing liabilities
    
    
    163,501
    
    
    
    6,089
    
    
    
    3.72
    %
    
    
    154,741
    
    
    
    5,129
    
    
    
    3.31
    %
    
    
    156,777
    
    
    
    4,469
    
    
    
    2.85
    %Noninterest bearing liabilities:Demand deposits
    
    
    17,455
    
    
    
    
    
    
    
    
    
    
    
    17,571
    
    
    
    
    
    
    
    
    
    
    
    16,133Other liabilities
    
    
    1,494
    
    
    
    
    
    
    
    
    
    
    
    1,287
    
    
    
    
    
    
    
    
    
    
    
    993Stockholders equity
    
    
    41,160
    
    
    
    
    
    
    
    
    
    
    
    39,685
    
    
    
    
    
    
    
    
    
    
    
    38,046Total liabilities and
stockholders equity
    
    $
    223,610
    
    
    
    
    
    
    
    
    
    
    $
    213,284
    
    
    
    
    
    
    
    
    
    
    $
    211,929Net interest income/spread5
    
    
    
    
    
    $
    5,846
    
    
    
    1.83
    %
    
    
    
    
    
    $
    5,862
    
    
    
    2.05
    %
    
    
    
    
    
    $
    5,985
    
    
    
    2.25
    %Net interest margin6
    
    
    
    
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %
 
 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. 31




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  For Year Ended December 31,2007/2006 Increase/(Decrease)
    
    
    2006/2005 Increase/(Decrease)Due to Change in
    
    
    Due to Change inVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    Net(In Thousands)Interest Income:Loans receivable
    
    $
    419
    
    
    $
    150
    
    
    $
    569
    
    
    $
    397
    
    
    $
    21
    
    
    $
    418Securities
    
    
    101
    
    
    
    247
    
    
    
    348
    
    
    
    (183
    )
    
    
    333
    
    
    
    150Other interest earning assets
    
    
    62
    
    
    
    (35
    )
    
    
    27
    
    
    
    (293
    )
    
    
    262
    
    
    
    (31
    )Total interest earning assets
    
    
    582
    
    
    
    362
    
    
    
    944
    
    
    
    (79
    )
    
    
    616
    
    
    
    537Interest Expense:NOW
    
    
    (19
    )
    
    
    (2
    )
    
    
    (21
    )
    
    
    (11
    )
    
    
    50
    
    
    
    39Savings
    
    
    (25
    )
    
    
    84
    
    
    
    59
    
    
    
    (221
    )
    
    
    88
    
    
    
    (133
    )Certificates of Deposit
    
    
    513
    
    
    
    418
    
    
    
    931
    
    
    
    462
    
    
    
    278
    
    
    
    740Federal funds purchased
    
    
    2
    
    
    
    (11
    )
    
    
    (9
    )
    
    
    14
    
    
    
    
    
    
    
    14Total interest bearing
liabilities
    
    
    471
    
    
    
    489
    
    
    
    960
    
    
    
    244
    
    
    
    416
    
    
    
    660Net change in net interest income
    
    $
    111
    
    
    $
    (127
    )
    
    $
    (16
    )
    
    $
    (323
    )
    
    $
    200
    
    
    $
    (123
    )
 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.
   32




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
     Year Ended December 312007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in Thousands)Average loans outstanding
    
    $
    92,006
    
    
    $
    85,565
    
    
    $
    79,294
    
    
    $
    72,744
    
    
    $
    69,730Total gross loans at year end
    
    $
    94,610
    
    
    $
    88,071
    
    
    $
    83,042
    
    
    $
    76,978
    
    
    $
    70,886Allowance for loan losses at January 1
    
    $
    653
    
    
    $
    657
    
    
    $
    663
    
    
    $
    637
    
    
    $
    564Losses charged to allowanceCommercial
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Consumer
    
    
    15
    
    
    
    6
    
    
    
    13
    
    
    
    25
    
    
    
    5Total losses charged to allowance
    
    
    38
    
    
    
    6
    
    
    
    13
    
    
    
    25
    
    
    
    33Recoveries credited to allowanceCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Real estate
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    2
    
    
    
    2
    
    
    
    7
    
    
    
    15
    
    
    
    9Total recoveries credited to allowance
    
    
    5
    
    
    
    2
    
    
    
    7
    
    
    
    15
    
    
    
    18Net charge-offs
    
    
    33
    
    
    
    4
    
    
    
    6
    
    
    
    10
    
    
    
    15Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    88Allowance for loan losses at December 31
    
    $
    620
    
    
    $
    653
    
    
    $
    657
    
    
    $
    663
    
    
    $
    637Ratio of net charge offs to average loans
outstanding
    
    
    0.04
    %
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.02
    %Allowance as a percentage of total
gross loans
    
    
    0.66
    %
    
    
    0.74
    %
    
    
    0.79
    %
    
    
    0.86
    %
    
    
    0.90
    %
 33




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
   2007
    
    2006
    
    2005
    
    2004
    
    2003% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan(Dollars in Thousands)Commercial
    
    $
    179
    
    
    
    28.98
    %
    
    $
    161
    
    
    
    26.67
    %
    
    $
    122
    
    
    
    25.62
    %
    
    $
    130
    
    
    
    23.41
    %
    
    $
    115
    
    
    
    20.39
    %Real estate
    
    
    287
    
    
    
    42.39
    %
    
    
    281
    
    
    
    43.31
    %
    
    
    271
    
    
    
    45.08
    %
    
    
    256
    
    
    
    48.71
    %
    
    
    246
    
    
    
    50.20
    %Consumer
    
    
    131
    
    
    
    28.63
    %
    
    
    121
    
    
    
    30.02
    %
    
    
    125
    
    
    
    29.30
    %
    
    
    135
    
    
    
    27.88
    %
    
    
    167
    
    
    
    29.41
    %Unallocated
    
    
    23
    
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    142
    
    
    
    
    
    
    
    109Total
    
    $
    620
    
    
    
    100
    %
    
    $
    653
    
    
    
    100
    %
    
    $
    657
    
    
    
    100
    %
    
    $
    663
    
    
    
    100
    %
    
    $
    637
    
    
    
    100
    %
 Non-Interest Income
 2007 Compared to 2006
  2006 Compared to 2005
  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.
 34




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 2007 Compared to 2006
     2006 Compared to 2005
     Income Taxes
  Net Income
 2007 Compared to 2006
   35




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 2006 Compared to 2005
   FINANCIAL CONDITION
 Securities
      36




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  December 312007
    
    
    2006
    
    
    2005(Dollars in Thousands)Held to maturity securities:U.S. Government agencies and
corporations
    
    $
    43,627
    
    
    $
    38,537
    
    
    $
    29,683State and political subdivisions
    
    
    37,507
    
    
    
    42,512
    
    
    
    45,424Mortgage-backed securities
    
    
    1,240
    
    
    
    1,510
    
    
    
    1,968Corporate securities
    
    
    4,437
    
    
    
    1,749
    
    
    
    1,848Available for sale securities:Mortgage-backed securities
    
    
    35,579
    
    
    
    35,954
    
    
    
    41,452Equity securities
    
    
    714
    
    
    
    651
    
    
    
    569U.S. Treasury Note
    
    
    101
    
    
    
    100
    
    
    
    Total securities
    
    $
    123,205
    
    
    $
    121,013
    
    
    $
    120,944
  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
    
    $
    5
    
    
    
    5.74
    %
    
    $
    4,651
    
    
    
    3.99
    %
    
    $
    5,850
    
    
    
    4.40
    %
    
    $
    25,073
    
    
    
    4.97
    %U.S. Treasury
    
    
    101
    
    
    
    4.92
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    4,651
    
    
    
    
    
    
    
    5,850
    
    
    
    
    
    
    
    25,073Held to maturity:U.S. Government agencies
    
    
    
    
    
    
    
    
    
    
    1,659
    
    
    
    4.94
    %
    
    
    14,726
    
    
    
    4.90
    %
    
    
    27,243
    
    
    
    5.54
    %State and political
subdivisions7
    
    
    300
    
    
    
    2.55
    %
    
    
    4,846
    
    
    
    4.02
    %
    
    
    17,679
    
    
    
    4.40
    %
    
    
    14,682
    
    
    
    4.59
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239
    
    
    
    6.27
    %Other securities
    
    
    250
    
    
    
    6.04
    %
    
    
    999
    
    
    
    6.40
    %
    
    
    250
    
    
    
    6.50
    %
    
    
    2,938
    
    
    
    6.24
    %550
    
    
    
    
    
    
    
    7,504
    
    
    
    
    
    
    
    32,655
    
    
    
    
    
    
    
    46,102Total
    
    $
    656
    
    
    
    
    
    
    $
    12,155
    
    
    
    
    
    
    $
    38,505
    
    
    
    
    
    
    $
    71,175
 
 7
    
    Yields on tax-exempt debt securities have been computed
on a fully tax-equivalent basis. 37




---



##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 Loans
     December 31,(Dollars in Thousands)2007
    
    2006
    
    2005
    
    2004
    
    2003% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    TotalCommercial
    
    $
    4,635
    
    
    
    4.90
    %
    
    $
    4,664
    
    
    
    5.30
    %
    
    $
    4,832
    
    
    
    5.82
    %
    
    $
    4,095
    
    
    
    5.32
    %
    
    $
    2,832
    
    
    
    4.00
    %Commercial
real estate
    
    
    22,779
    
    
    
    24.08
    %
    
    
    18,820
    
    
    
    21.37
    %
    
    
    16,440
    
    
    
    19.80
    %
    
    
    13,925
    
    
    
    18.09
    %
    
    
    11,615
    
    
    
    16.39
    %Residential
real estate
    
    
    39,221
    
    
    
    41.46
    %
    
    
    37,088
    
    
    
    42.11
    %
    
    
    37,057
    
    
    
    44.62
    %
    
    
    36,115
    
    
    
    46.92
    %
    
    
    35,239
    
    
    
    49.71
    %Real estate
construction
    
    
    879
    
    
    
    0.93
    %
    
    
    1,053
    
    
    
    1.20
    %
    
    
    384
    
    
    
    0.46
    %
    
    
    1,376
    
    
    
    1.79
    %
    
    
    350
    
    
    
    0.49
    %Home equity
    
    
    20,043
    
    
    
    21.18
    %
    
    
    19,176
    
    
    
    21.77
    %
    
    
    17,072
    
    
    
    20.56
    %
    
    
    14,560
    
    
    
    18.91
    %
    
    
    14,136
    
    
    
    19.94
    %Other consumer
    
    
    7,053
    
    
    
    7.45
    %
    
    
    7,270
    
    
    
    8.25
    %
    
    
    7,257
    
    
    
    8.74
    %
    
    
    6,907
    
    
    
    8.97
    %
    
    
    6,714
    
    
    
    9.47
    %Total loans
outstanding
    
    $
    94,610
    
    
    
    100.00
    %
    
    $
    88,071
    
    
    
    100.00
    %
    
    $
    83,042
    
    
    
    100.00
    %
    
    $
    76,978
    
    
    
    100.00
    %
    
    $
    70,886
    
    
    
    100.00
    %
 38




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  As of December 31, 2007Due Under
    
    
    Due 1- 5
    
    
    Due OverOne Year
    
    
    Years
    
    
    Five Years
    
    
    Total(In Thousands)Maturity of loans receivable:Commercial and commercial
real estate
    
    $
    9,202
    
    
    $
    9,649
    
    
    $
    8,563
    
    
    $
    27,414Real estate construction
    
    
    
    
    
    
    
    
    
    
    879
    
    
    
    879Total
    
    $
    9,202
    
    
    $
    9,649
    
    
    $
    9,442
    
    
    $
    28,293
 Due 1-5
    
    
    Due OverYears
    
    
    Five YearsFixed interest rates
    
    $
    1,517
    
    
    $
    3,832Floating or adjustable interest rates
    
    
    8,132
    
    
    
    5,610Total
    
    $
    9,649
    
    
    $
    9,442
 Credit Risk and Loan Quality
    39




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in Thousands)Non-accruing loans
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    126
    
    
    $
    148Accruing loans past due 90 days or more
    
    
    36
    
    
    
    52
    
    
    
    67
    
    
    
    63
    
    
    
    327Total nonperforming loans
    
    
    36
    
    
    
    52
    
    
    
    67
    
    
    
    189
    
    
    
    475Foreclosed real estate/repossessed assets
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    10Total nonperforming assets
    
    $
    36
    
    
    $
    123
    
    
    $
    67
    
    
    $
    189
    
    
    $
    485Non-accrual loans:Interest income that would have been
recorded on non-accrual loans
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11
    
    
    $
    15Interest income for above loans
included in net income for the period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10Ratios:Nonperforming loans to total loans
    
    
    0.04
    %
    
    
    0.06
    %
    
    
    0.08
    %
    
    
    0.25
    %
    
    
    0.67
    %Allowance for loan losses to
nonperforming loans
    
    
    1,722.22
    %
    
    
    1,255.77
    %
    
    
    980.60
    %
    
    
    350.79
    %
    
    
    134.11
    %Nonperforming assets to total assets
    
    
    0.02
    %
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.09
    %
    
    
    0.24
    %Commitments to lend additional funds
to
Nonperforming loan customers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Deposits
  Non-interest bearing demand deposits
    
    
    (2.0
    %)Interest-bearing demand deposits
    
    
    (15.9
    %)Savings deposits
    
    
    (1.7
    %)Time deposits
    
    
    9.5
    %
 40




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  Time(In Thousands)
    
    CertificatesThree months or less
    
    $
    2,948Over three months but within six months
    
    
    5,817Over six months but within twelve months
    
    
    9,683Over twelve months
    
    
    18,737Total
    
    $
    37,185
 Liquidity
     Contractual Obligations
  Less than
    
    
    1-3
    
    
    3-5
    
    
    Over 5(In Thousands)
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalTime Deposits
    
    $
    61,611
    
    
    $
    29,768
    
    
    $
    20,179
    
    
    
    
    
    
    $
    111,558
 41




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 Off-Balance Sheet Arrangements
   Stockholders Equity and Capital Requirements/Ratios
      42




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
  December 31,
    
    
    December 31,2007
    
    
    2006(Dollars in Thousands)Tier I, common stockholders equity
    
    $
    41,833
    
    
    $
    41,723Tier II, allowable portion of allowance for
loan losses
    
    
    620
    
    
    
    653Total capital
    
    $
    42,453
    
    
    $
    42,376Tier I risk-based capital ratio
    
    
    37.92
    %
    
    
    40.64
    %Tier II risk-based capital ratio
    
    
    38.49
    %
    
    
    41.27
    %
   Effect of Inflation
   Interest Rate Sensitivity and Market Risk
    43




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
      44




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##### 



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)Interest bearing deposits with
banks
    
    $
    
    
    
    $
    118
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    118Other securities
    
    
    22,112
    
    
    
    112
    
    
    
    1,598
    
    
    
    4,070
    
    
    
    57,779
    
    
    
    85,671Mortgage-backed securities
    
    
    2,032
    
    
    
    6,170
    
    
    
    5,049
    
    
    
    4,134
    
    
    
    19,435
    
    
    
    36,820Total securities
    
    
    24,144
    
    
    
    6,282
    
    
    
    6,647
    
    
    
    8,204
    
    
    
    77,214
    
    
    
    122,491Total loans
    
    
    31,599
    
    
    
    20,053
    
    
    
    16,830
    
    
    
    9,542
    
    
    
    16,586
    
    
    
    94,610Total interest earning assets
    
    
    55,743
    
    
    
    26,453
    
    
    
    23,477
    
    
    
    17,746
    
    
    
    93,800
    
    
    
    217,219NOW Accounts
    
    
    1,439
    
    
    
    
    
    
    
    5,102
    
    
    
    
    
    
    
    
    
    
    
    6,541Savings
    
    
    8,116
    
    
    
    
    
    
    
    36,971
    
    
    
    
    
    
    
    
    
    
    
    45,087Total savings deposits
    
    
    9,555
    
    
    
    
    
    
    
    42,073
    
    
    
    
    
    
    
    
    
    
    
    51,628CDs<$100,000
    
    
    10,491
    
    
    
    32,583
    
    
    
    22,181
    
    
    
    9,017
    
    
    
    
    
    
    
    74,272CDs>$100,000
    
    
    2,948
    
    
    
    15,500
    
    
    
    7,612
    
    
    
    11,125
    
    
    
    
    
    
    
    37,185Total time deposits
    
    
    13,439
    
    
    
    48,183
    
    
    
    29,793
    
    
    
    20,142
    
    
    
    
    
    
    
    111,558Fed funds purchased
    
    
    2,249
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,249Total interest bearing liabilities
    
    
    25,243
    
    
    
    48,183
    
    
    
    71,866
    
    
    
    20,142
    
    
    
    
    
    
    
    165,434Rate sensitive gap
    
    $
    30,500
    
    
    $
    (21,730
    )
    
    $
    (48,389
    )
    
    $
    (2,396
    )
    
    $
    93,800
    
    
    $
    51,785Cumulative gap
    
    $
    30,500
    
    
    $
    8,770
    
    
    $
    (39,619
    )
    
    $
    (42,015
    )
    
    $
    51,785
    
    
    
    
 45




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##### 



Neffs Bancorp, Inc. and Subsidiary  Managements Discussion and Analysis
 Regulatory Activity
   Form 10-K
  Neffs Bancorp, Inc.P.O. Box 10Neffs, PA 18065
 46