##### 



Exhibit 13
 Neffs Bancorp, Inc.
 Consolidated Financial Report
 December 31, 2006




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Directorsof theCorporationandBank
 Robert Heintzelman 
Kevin A. Schmidt 
Herman P. Snyder
    
    Duane A. Schleicher
John F. Simock
    
    John J. Remaley
John F. Sharkey, Jr.
Mary Ann Wagner
 Officers of the Corporation
 John J. Remaley
    
    Herman P. SnyderPresident
    
    Vice PresidentKevin A. Schmidt
    
    Michael J. BaileyTreasurer
    
    Assistant Secretary
 Officers of the Bank
 Chairman of the Board
 John J. Remaley
    
    Kevin A. SchmidtPresident
    
    Executive Vice President andChief Executive OfficerMichael J. Bailey
    
    Carol L. JonesCashier and
    
    Assistant Cashier andChief Operations Officer
    
    Operations Officer




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Report of Independent Registered Public Accounting Firm




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Neffs
Bancorp, Inc. and Subsidiary   Consolidated Statements of Financial Condition
 December 31,2006
    
    
    2005(In Thousands, Except Share Data)AssetsCash and due from banks
    
    $
    2,201
    
    
    $
    2,958Interest bearing deposits with banks
    
    
    144
    
    
    
    163Federal funds sold
    
    
    
    
    
    
    2,348Securities available for sale
    
    
    36,705
    
    
    
    42,021Securities held to maturity, fair value 2006 $84,561; 2005 $79,248
    
    
    84,308
    
    
    
    78,923Loans receivable, net of allowance for loan losses 2006 $653; 2005 $657
    
    
    87,418
    
    
    
    82,385Premises and equipment, net
    
    
    2,505
    
    
    
    2,549Other assets
    
    
    2,595
    
    
    
    2,200Total Assets
    
    $
    215,876
    
    
    $
    213,547Liabilities and Stockholders EquityLiabilities:Deposits:Non-interest bearing
    
    $
    17,554
    
    
    $
    16,912Interest bearing
    
    
    155,547
    
    
    
    156,364Total Deposits
    
    
    173,101
    
    
    
    173,276Federal funds purchased
    
    
    357
    
    
    
    Other liabilities
    
    
    1,196
    
    
    
    977Total Liabilities
    
    
    174,654
    
    
    
    174,253Stockholders equity:Common stock, $1 par value; authorized 2,500,000 shares;
issued 200,000 shares; outstanding 197,941 shares
    
    
    200
    
    
    
    200Paid-in capital
    
    
    753
    
    
    
    753Retained earnings
    
    
    41,634
    
    
    
    39,603Accumulated other comprehensive loss
    
    
    (947
    )
    
    
    (844
    )Treasury stock, at cost 2,059 shares
    
    
    (418
    )
    
    
    (418
    )Total Stockholders Equity
    
    
    41,222
    
    
    
    39,294Total Liabilities and Stockholders Equity
    
    $
    215,876
    
    
    $
    213,547
 See notes to consolidated financial statements.
 2




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Neffs
Bancorp, Inc. and Subsidiary   Consolidated Statements of Income
 Years Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in Thousands, Except per Share Data)Interest IncomeInterest and fees on loans
    
    $
    5,419
    
    
    $
    5,001
    
    
    $
    4,747Interest and dividends on investments:Taxable
    
    
    3,546
    
    
    
    3,313
    
    
    
    3,075Exempt from federal income taxes
    
    
    1,975
    
    
    
    2,058
    
    
    
    2,158Interest on federal funds sold and other
    
    
    51
    
    
    
    82
    
    
    
    67Total Interest Income
    
    
    10,991
    
    
    
    10,454
    
    
    
    10,047Interest ExpenseDeposits
    
    
    5,115
    
    
    
    4,469
    
    
    
    4,082Federal funds purchased
    
    
    14
    
    
    
    
    
    
    
    Total Interest Expense
    
    
    5,129
    
    
    
    4,469
    
    
    
    4,082Net Interest Income
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,965Provision for Loan Losses
    
    
    
    
    
    
    
    
    
    
    36Net Interest Income after Provision for Loan Losses
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,929Other IncomeService charges on deposit accounts
    
    
    144
    
    
    
    161
    
    
    
    177Other service charges and fees
    
    
    66
    
    
    
    78
    
    
    
    44Other income
    
    
    48
    
    
    
    37
    
    
    
    47Total Other Income
    
    
    258
    
    
    
    276
    
    
    
    268Other ExpensesSalaries and employee benefits
    
    
    1,347
    
    
    
    1,242
    
    
    
    1,137Occupancy
    
    
    162
    
    
    
    154
    
    
    
    148Furniture and equipment
    
    
    243
    
    
    
    210
    
    
    
    151Pennsylvania shares tax
    
    
    381
    
    
    
    312
    
    
    
    288Other expenses
    
    
    676
    
    
    
    694
    
    
    
    661Total Other Expenses
    
    
    2,809
    
    
    
    2,612
    
    
    
    2,385Income before Income Taxes
    
    
    3,311
    
    
    
    3,649
    
    
    
    3,812Income Tax (Benefit) ExpenseCurrent
    
    
    574
    
    
    
    631
    
    
    
    710Deferred
    
    
    (86
    )
    
    
    (54
    )
    
    
    (103
    )Total Income Tax Expense
    
    
    488
    
    
    
    577
    
    
    
    607Net Income
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205Earnings per Share, Basic
    
    $
    14.26
    
    
    $
    15.58
    
    
    $
    16.26Weighted Average Common Shares Outstanding
    
    
    197,941
    
    
    
    197,117
    
    
    
    197,091
 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, 2006, 2005 and 2004
 AccumulatedOther
    
    
    
    
    
    
    TotalCommon
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    (Loss)
    
    
    Stock
    
    
    Equity(Dollars in Thousands, Except per Share Data)Balance  December 31, 2003
    
    $
    200
    
    
    $
    690
    
    
    $
    34,853
    
    
    $
    (126
    )
    
    $
    (562
    )
    
    $
    35,055Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    3,205
    
    
    
    
    
    
    
    
    
    
    
    3,205Change in unrealized net gains (losses) on
securities available for sale, net of taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (205
    )
    
    
    
    
    
    
    (205
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Cash dividends declared on common stock, $3.75
per share
    
    
    
    
    
    
    
    
    
    
    (739
    )
    
    
    
    
    
    
    
    
    
    
    (739
    )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
    )
    
    $
    41,222
 See notes to consolidated financial statements.
 4




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Neffs
Bancorp, Inc. and Subsidiary   Consolidated Statements of Cash Flows
 Years Ended December 31,2006
    
    
    2005
    
    
    2004(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    214
    
    
    
    170
    
    
    
    124Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    36Net amortization of securities
    
    
    130
    
    
    
    228
    
    
    
    193Deferred income tax benefit
    
    
    (86
    )
    
    
    (54
    )
    
    
    (103
    )(Increase) decrease in assets:Accrued interest receivable
    
    
    (204
    )
    
    
    (28
    )
    
    
    (47
    )Other assets
    
    
    (52
    )
    
    
    (17
    )
    
    
    46Increase (decrease) in liabilities:Accrued interest payable
    
    
    201
    
    
    
    131
    
    
    
    (19
    )Other liabilities
    
    
    18
    
    
    
    11
    
    
    
    33Net Cash Provided by Operating Activities
    
    
    3,044
    
    
    
    3,513
    
    
    
    3,468Cash Flows from Investing ActivitiesNet (increase) decrease in interest bearing deposits with banks
    
    
    19
    
    
    
    (140
    )
    
    
    23Net (increase) decrease in federal funds sold
    
    
    2,348
    
    
    
    (570
    )
    
    
    7,612Purchases of securities available for sale
    
    
    (1,888
    )
    
    
    (8,438
    )
    
    
    (24,647
    )Purchases of securities held to maturity
    
    
    (10,343
    )
    
    
    (4,116
    )
    
    
    (9,623
    )Proceeds from maturities/calls and principal repayments of
securities available for sale
    
    
    6,899
    
    
    
    9,566
    
    
    
    7,370Proceeds from maturities/calls of securities held to maturity
    
    
    4,977
    
    
    
    4,505
    
    
    
    13,017Net increase in loans
    
    
    (5,033
    )
    
    
    (6,070
    )
    
    
    (6,102
    )Proceeds from sale of foreclosed real estate
    
    
    
    
    
    
    
    
    
    
    10Purchases of premises and equipment
    
    
    (170
    )
    
    
    (411
    )
    
    
    (77
    )Net Cash Used in Investing Activities
    
    
    (3,191
    )
    
    
    (5,674
    )
    
    
    (12,417
    )Cash Flows from Financing ActivitiesNet increase (decrease) in deposits
    
    
    (175
    )
    
    
    1,624
    
    
    
    8,958Net increase in federal funds purchased
    
    
    357
    
    
    
    
    
    
    
    Dividends paid
    
    
    (792
    )
    
    
    (788
    )
    
    
    (739
    )Sales of treasury stock
    
    
    
    
    
    
    207
    
    
    
    Net Cash Provided by (Used in) Financing Activities
    
    
    (610
    )
    
    
    1,043
    
    
    
    8,219Net Decrease in Cash and Cash Equivalents
    
    
    (757
    )
    
    
    (1,118
    )
    
    
    (730
    )Cash and Cash Equivalents  Beginning
    
    
    2,958
    
    
    
    4,076
    
    
    
    4,806Cash and Cash Equivalents  Ending
    
    $
    2,201
    
    
    $
    2,958
    
    
    $
    4,076Supplementary Cash Flows InformationInterest paid
    
    $
    4,928
    
    
    $
    4,337
    
    
    $
    4,101Income taxes paid
    
    $
    531
    
    
    $
    655
    
    
    $
    645
 5




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Neffs
Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies
 Basis of Presentation
 The accompanying consolidated financial statements include the accounts of Neffs Bancorp, Inc.
(the Corporation) and its wholly-owned subsidiary, The Neffs National Bank (the Bank). All
material intercompany transactions have been eliminated.
 Nature of Operations
 The Bank operates from one location in Lehigh County, Pennsylvania. The Bank provides a full
range of financial services to individuals, small businesses and corporate customers. The
primary source of revenue is providing residential mortgages, consumer loans and commercial
loans to customers located within the Lehigh Valley. The Banks primary deposits are checking
accounts, savings accounts and certificates of deposit. As a national bank, the Bank is subject
to regulation of the Office of the Comptroller of Currency and the Federal Deposit Insurance
Corporation. The Corporation is subject to regulations of the Federal Reserve Bank.
 Estimates
 In preparing financial statements in conformity with accounting principles generally accepted in
the United States of America, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and income and expenses during the
reporting period. Actual results could differ from those estimates. Material estimates that
are particularly susceptible to significant changes in the near term relate to the determination
of the allowance for loan losses and the valuation of deferred tax assets.
 Significant Concentrations of Credit Risk
 Most of the Corporations activities are with customers located within the Lehigh Valley of
Pennsylvania. Note 3 discusses the types of securities that the Corporation invests in. Note 4
discusses the types of lending that the Corporation engages in. The Corporation does not have
any significant concentrations to any one industry or customer. Although, the Corporation has a
diversified loan portfolio, exposure to credit loss can be adversely impacted by downturns in
local economic and employment conditions.
 SecuritiesSecurities classified as held to maturity are those debt securities the Corporation has both the
intent and ability to hold to maturity regardless of changes in market conditions, liquidity
needs or changes in general economic conditions. These securities are carried at cost adjusted
for the amortization of premium and accretion of discount, computed by the interest method over
the terms of the securities.Securities classified as available for sale are those debt securities that the Corporation
intends to hold for an indefinite period of time but not necessarily to maturity. Any decision
to sell a security classified as available for sale would be based on various factors, including
significant movement in interest rates, changes in the maturity mix of the Corporations assets
and liabilities, liquidity needs, regulatory capital considerations and other similar factors.
Securities available for sale are carried at fair value. Unrealized gains or losses are
reported as increases or decreases in other comprehensive income (loss), net of the related
deferred tax effect. Realized gains or losses, determined on the basis of the cost of the
specific securities sold, are included in
earnings. Premiums and discounts are recognized in interest income using the interest method
over the terms of the securities.
 6




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Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Securities (Continued)
 Management determines the appropriate classification of debt securities at the time of purchase
and re-evaluates such designation as of each balance sheet date.Declines in the fair value of held to maturity and available for sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as realized losses.
In estimating other-than-temporary impairment losses, management considers (1) the length of
time and the extent to which the fair value has been less than cost, (2) the financial condition
and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to
retain its investment in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.Equity securities include restricted investments, primarily Federal Home Loan Bank stock, which
is carried at cost. Federal law requires a member institution of the Federal Home Loan Bank
system to hold stock of its district Federal Home Loan Bank according to a predetermined
formula.
 Loans
 Loans receivable that management has the intent and ability to hold for the foreseeable future
or until maturity or payoff are stated at their outstanding unpaid principal balances. Interest
income is accrued on the unpaid principal balance.The accrual of interest is generally discontinued when the contractual payment of principal or
interest has become 90 days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is currently performing. A loan
may remain on accrual status if it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in
the current year is reversed and unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest received on nonaccrual loans generally is either applied
against principal or reported as interest income, according to managements judgment as to the
collectibility of principal. Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
 Allowance for Loan Losses
 The allowance for loan losses is established through provisions for loan losses charged against
income. Loans deemed to be uncollectible are charged against the allowance for loan losses and,
subsequent recoveries, if any, are credited to the allowance.The allowance for loan losses is maintained at a level considered adequate to provide for losses
that can be reasonably anticipated. Managements periodic evaluation of the adequacy of the
allowance is based on the Corporations past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated
value of any underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently subjective as it requires
material estimates that may be susceptible to significant revision as more information becomes
available.
 7




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Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Allowance for Loan Losses (Continued)
 The allowance consists of specific, general and unallocated components. The specific component
relates to loans that are classified as either doubtful, substandard or special mention. For
such loans that are also classified as impaired, an allowance is established when the discounted
cash flows (or collateral value or observable market price) of the impaired loan is lower than
the carrying value of that loan. The general component covers non-classified loans and is based
on historical loss experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect managements estimate of probable losses.
The unallocated component of the allowance reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and general losses in
the portfolio.A loan is considered impaired when, based on current information and events, it is probable that
the Corporation will be unable to collect the scheduled payments of principal or interest when
due according to the contractual terms of the loan agreement. Factors considered by management
in determining impairment include payment status, collateral value and the probability of
collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the delay, the borrowers prior
payment record and the amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan by loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loans effective interest
rate, the loans obtainable market price or the net realizable value of the collateral if the
loan is collateral dependent.Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Corporation does not separately identify individual residential and consumer
loans for impairment disclosures, unless such loans are subject of a restructuring agreement.
 Foreclosed Assets
 Foreclosed assets are comprised of property acquired through a foreclosure proceeding or
acceptance of a deed in lieu of foreclosure and loans classified as in-substance foreclosure.
The Corporation includes such property in other assets. A loan is classified as in-substance
foreclosure when the Corporation has taken possession of the collateral regardless of whether
formal foreclosure proceedings take place. Foreclosed assets initially are recorded at fair
value, net of estimated selling costs, at the date of foreclosure establishing a new cost basis.
After foreclosure, valuations are periodically performed by management and the assets are
carried at the lower of cost or fair value minus estimated costs to sell. Revenues and expenses
from operations and changes in the valuation allowance are included in other expenses. The
Corporation had foreclosed assets totaling $71,000 as of December 31, 2006 and no foreclosed
assets as of December 31, 2005.
 Transfers of Financial Assets
 Transfers of financial assets, including sales of loan participations, are accounted for as
sales, when control over the assets has been surrendered. Control over transferred assets is
deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the
transferee obtains the right (free of conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets and (3) the Corporation does not maintain
effective control over the transferred assets through an agreement to repurchase them before
their maturity.
 8




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##### 



Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Premises and Equipment
 Premises and equipment are carried at cost less accumulated depreciation and amortization.
Depreciation is computed on the straight-line method over the estimated useful lives of the
premises and equipment. Charges for maintenance and repairs are expensed as incurred.
 Advertising Costs
 The Corporation follows the policy of charging the costs of advertising to expense as incurred.
Total advertising expense for the years ended December 31, 2006, 2005 and 2004 was $46,000,
$64,000 and $25,000, respectively.
 Income Taxes
 Deferred taxes are provided on the liability method whereby deferred tax assets are recognized
for deductible temporary differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion of
the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment. The Corporation
files a consolidated federal income tax return.
 Earnings per Share
 Earnings per share is based on the weighted average shares of common stock outstanding during
each year. The Corporation currently maintains a simple capital structure, thus there are no
dilutive effects on earnings per share.
 Employee Benefit Plan
 The Bank has a non-contributory defined contribution pension plan covering all employees having
at least one year of service. Contribution amounts are determined annually by the Corporation
and are charged to current operating expense. The expense amounted to $59,000, $64,000 and
$57,000, for 2006, 2005 and 2004, respectively.
 Comprehensive Income
 Accounting principles generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and liabilities, such as unrealized
gains and losses on available for sale securities, are reported as a separate component of the
equity section of the statement of financial condition, such items, along with net income, are
components of comprehensive income.
 Cash and Cash Equivalents
 For purposes of reporting cash flows, the Corporation has defined cash and cash equivalents as
cash on hand and amounts due from banks.
 Treasury Stock
 The acquisition of treasury stock is recorded under the cost method. At the date of subsequent
reissue, the treasury stock is reduced by the cost of such stock on the first-in first-out basis
with any excess proceeds being credited to paid-in-capital.
 9




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##### 



Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Note 1  Significant Accounting Policies (Continued)
 Segment Reporting
 The Corporation acts as an independent community financial services provider and offers
traditional banking and related financial services to individual, business and government
customers. The Corporation offers a full array of commercial and retail financial services,
including the taking of time, savings and demand deposits; the making of commercial, consumer
and mortgage loans and the providing of other financial services.Management does not separately allocate expenses, including the cost of funding loan demand,
between the commercial and retail operations of the Corporation. As such, discrete information
is not available and segment reporting would not be meaningful.
 New Accounting Standards
 In February 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 155,
Accounting for Certain Hybrid Financial Instruments. Statement No. 155 amends FASB Statement
No. 133 and FASB Statement No. 140, and improves the financial reporting of certain hybrid
financial instruments by requiring more consistent accounting that eliminates exemptions and
provides a means to simplify the accounting for these instruments. Specifically, Statement No.
155 allows financial instruments that have embedded derivatives to be accounted for as a whole
(eliminating the need to bifurcate the derivative from its host) if the holder elects to account
for the whole instrument on a fair value basis. Statement No. 155 is effective for all
financial instruments acquired or issued after the beginning of an entitys first fiscal year
that begins after September 15, 2006. The Corporation is required to adopt the provisions of
Statement No. 155, as applicable, beginning in fiscal year 2007. Management does not believe
the adoption of Statement No. 155 will have any impact on the Corporations financial position
and results of operations.In March 2006, the FASB issued Statement No. 156, Accounting for Servicing of Financial Assets
 An Amendment of FASB Statement No. 140. Statement No. 156 requires that all separately
recognized servicing assets and servicing liabilities be initially measured at fair value, if
practicable. The statement permits, but does not require, the subsequent measurement of
servicing assets and servicing liabilities at fair value. Statement No. 156 is effective as of
the beginning of an entitys first fiscal year that begins after September 15, 2006, which for
the Corporation will be as of the beginning of fiscal 2007. The Corporation does not believe
that the adoption of Statement No. 156 will have any effect on its financial statements.In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48,Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation
requires that companies recognize in their financial statements the impact of a tax position, if
that position is more likely than not of being sustained on audit, based on the technical merits
of the position. The provisions of FIN 48 are effective for fiscal years beginning after
December 15, 2006, with the cumulative effect of the change in accounting principle recorded as
an adjustment to opening retained earnings. We do not expect that there will be any impact of
adopting FIN 48 on our financial statements.In September 2006, the FASB issued Statement No. 157, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures
about fair value measurements. The new guidance is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal
years. We are currently evaluating the potential impact, if any, of the adoption of FASB
Statement No. 157 on our consolidated financial position, results of operations and cash flows.
 10




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 On September 13, 2006, the Securities and Exchange Commission SEC issued Staff Accounting
Bulleting No. 108 (SAB 108). SAB 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in quantifying a
potential current year misstatement. Prior to SAB 108, companies might evaluate the materiality
of financial-statement misstatements using either the income statement or balance sheet
approach, with the income statement approach focusing on new misstatements added in the current
year, and the balance sheet approach focusing on the cumulative amount of misstatement present
in a companys balance sheet. Misstatements that would be material under one approach could be
viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that
companies view financial statement misstatements as material if they are material according to
either the income statement or balance sheet approach. The Corporation has analyzed SAB 108 and
determined that upon adoption it will have no impact on the reported results of operations or
financial condition.
 In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits
entities to choose to measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for our
Corporation January 1, 2008. The Corporation is evaluating the impact that the adoption of SFAS
No. 159 will have on our consolidated financial statements.
 Note 2  Cash and Due from Banks
 Regulations of the Board of Governors of the Federal Reserve System impose uniform reserve
requirements on all depository institutions with transaction accounts (checking accounts, NOW
accounts, etc.). Reserves are maintained in the form of vault cash or a non-interest bearing
balance held with the Federal Reserve Bank. The Bank also, from time to time, maintains deposits
with the Federal Reserve Bank and other banks for various services such as check clearing. The
reserve requirement at December 31, 2006 and 2005 was $496,000 and $520,000, respectively.
 11




---



##### 



Neffs Bancorp, Inc. and Subsidiary   Notes to Consolidated Financial Statements
 Note 3  Securities
  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
    
    
    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
 12




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 Note 3  Securities (Continued)
 December 31, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value(In Thousands)Securities Available for Sale:Mortgage-backed securities
    
    $
    42,731
    
    
    $
    14
    
    
    $
    (1,293
    )
    
    $
    41,452Equity securities
    
    
    569
    
    
    
    
    
    
    
    
    
    
    
    569$
    43,300
    
    
    $
    14
    
    
    $
    (1,293
    )
    
    $
    42,021Securities Held to Maturity:Obligations of U.S. Government
agencies
    
    $
    29,683
    
    
    $
    
    
    
    $
    (781
    )
    
    $
    28,902Obligations of states and political
subdivisions
    
    
    45,424
    
    
    
    1,217
    
    
    
    (63
    )
    
    
    46,578Corporate securities
    
    
    1,848
    
    
    
    38
    
    
    
    (124
    )
    
    
    1,762Mortgage-backed securities
    
    
    1,968
    
    
    
    40
    
    
    
    (2
    )
    
    
    2,006$
    78,923
    
    
    $
    1,295
    
    
    $
    (970
    )
    
    $
    79,248
  Available for Sale
    
    
    Held to MaturityAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In Thousands)Due in one year or less
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    100
    
    
    
    100
    
    
    
    6,316
    
    
    
    6,334Due after five years through ten years
    
    
    
    
    
    
    
    
    
    
    35,217
    
    
    
    35,241Due after ten years
    
    
    
    
    
    
    
    
    
    
    41,265
    
    
    
    41,465100
    
    
    
    100
    
    
    
    82,798
    
    
    
    83,040Mortgage-backed securities
    
    
    37,389
    
    
    
    35,954
    
    
    
    1,510
    
    
    
    1,521Equity securities
    
    
    651
    
    
    
    651
    
    
    
    
    
    
    
    $
    38,140
    
    
    $
    36,705
    
    
    $
    84,308
    
    
    $
    84,561
  13




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 Note 3  Securities (Continued)
  2006
    
    
    2005
    
    
    2004(In Thousands)Gross change in unrealized gains
(losses) on securities available for
sale
    
    $
    (156
    )
    
    $
    (778
    )
    
    $
    (310
    )Reclassification adjustment for
gains realized in income
    
    
    
    
    
    
    
    
    
    
    Net Unrealized Losses
    
    
    (156
    )
    
    
    (778
    )
    
    
    (310
    )Tax effect
    
    
    53
    
    
    
    265
    
    
    
    105Net of Tax Amount
    
    $
    (103
    )
    
    $
    (513
    )
    
    $
    (205
    )
   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
 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, 2005:Securities Available for Sale:Mortgage-backed securities
    
    $
    10,181
    
    
    $
    196
    
    
    $
    29,332
    
    
    $
    1,097
    
    
    $
    39,513
    
    
    $
    1,293Securities Held to Maturity:Obligations of U.S. Government
agencies
    
    
    26,006
    
    
    
    677
    
    
    
    2,896
    
    
    
    104
    
    
    
    28,902
    
    
    
    781Obligations of states and
political subdivisions
    
    
    2,351
    
    
    
    12
    
    
    
    2,233
    
    
    
    51
    
    
    
    4,584
    
    
    
    63Corporate securities
    
    
    789
    
    
    
    59
    
    
    
    185
    
    
    
    65
    
    
    
    974
    
    
    
    124Mortgage-backed securities
    
    
    383
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    2Total Temporarily Impaired
Securities
    
    $
    39,710
    
    
    $
    946
    
    
    $
    34,646
    
    
    $
    1,317
    
    
    $
    74,356
    
    
    $
    2,263
  Note 4  Loans
  2006
    
    
    2005(In Thousands)Commercial
    
    $
    4,664
    
    
    $
    4,832Commercial real estate
    
    
    18,820
    
    
    
    16,440Residential real estate
    
    
    37,088
    
    
    
    37,057Real estate construction
    
    
    1,053
    
    
    
    384Home equity
    
    
    19,176
    
    
    
    17,072Other consumer
    
    
    7,270
    
    
    
    7,25788,071
    
    
    
    83,042Allowance for loan losses
    
    
    (653
    )
    
    
    (657
    )$
    87,418
    
    
    $
    82,385
 15




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 Note 5  Allowance for Loan Losses
  2006
    
    
    2005
    
    
    2004(In Thousands)Balance, beginning
    
    $
    657
    
    
    $
    663
    
    
    $
    637Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    36Recoveries on loans previously charged off
    
    
    2
    
    
    
    7
    
    
    
    15Loans charged off
    
    
    (6
    )
    
    
    (13
    )
    
    
    (25
    )Balance, ending
    
    $
    653
    
    
    $
    657
    
    
    $
    663
   Note 6  Premises and Equipment
  2006
    
    
    2005(In Thousands)Premises
    
    $
    2,775
    
    
    $
    2,633Furniture, fixtures and equipment
    
    
    1,987
    
    
    
    1,9574,762
    
    
    
    4,590Accumulated depreciation
    
    
    (2,495
    )
    
    
    (2,279
    )2,267
    
    
    
    2,311Land
    
    
    238
    
    
    
    238$
    2,505
    
    
    $
    2,549
 16




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 Note 7  Interest Bearing Deposits
   2006
    
    
    2005(In Thousands)Savings accounts
    
    $
    45,881
    
    
    $
    55,531NOW accounts
    
    
    7,781
    
    
    
    9,106Certificates and other time deposits
    
    
    101,885
    
    
    
    91,727$
    155,547
    
    
    $
    156,364
  2007
    
    $
    56,5192008
    
    
    18,3702009
    
    
    6,4942010
    
    
    12,4742011
    
    
    8,028$
    101,885
 Note 8  Borrowing Capacity
   17




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 Note 9  Income Taxes
  2006
    
    
    2005(In Thousands)AMT credit carryforward
    
    $
    384
    
    
    $
    300Unrealized losses on securities available for sale
    
    
    488
    
    
    
    436Allowance for loan losses
    
    
    171
    
    
    
    172Accrued benefits
    
    
    14
    
    
    
    12Total Deferred Tax Assets
    
    
    1,057
    
    
    
    920Securities accretion
    
    
    8
    
    
    
    21Depreciation
    
    
    29
    
    
    
    17Total Deferred Tax Liabilities
    
    
    37
    
    
    
    38Net Deferred Tax Asset
    
    $
    1,020
    
    
    $
    882
  2006
    
    
    2005
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofPretax
    
    
    
    
    
    
    Pretax
    
    
    
    
    
    
    PretaxAmount
    
    
    Income
    
    
    Amount
    
    
    Income
    
    
    Amount
    
    
    Income(Dollars in Thousands)Tax at statutory rate
    
    $
    1,125
    
    
    
    34
    %
    
    $
    1,242
    
    
    
    34
    %
    
    $
    1,296
    
    
    
    34
    %Increase (decrease)
resulting from:Tax-exempt interest
income
    
    
    (714
    )
    
    
    (21
    )
    
    
    (735
    )
    
    
    (20
    )
    
    
    (756
    )
    
    
    (20
    )TEFRA interest expense
disallowance
    
    
    77
    
    
    
    2
    
    
    
    70
    
    
    
    2
    
    
    
    67
    
    
    
    2$
    488
    
    
    
    15
    %
    
    $
    577
    
    
    
    16
    %
    
    $
    607
    
    
    
    16
    %
 18




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Notes to Consolidated Financial Statements
 Note 10  Related Party Transactions
   Balances, January 1, 2006
    
    $
    1,975Advances
    
    
    665Repayments
    
    
    (297
    )Balances, December 31, 2006
    
    $
    2,343
 Note 11  Financial Instruments with Off-Balance Sheet Risk
   2006
    
    
    2005(In Thousands)Commitments to grant loans
    
    $
    1,334
    
    
    $
    1,934Unfunded commitments under lines of credit
    
    
    4,238
    
    
    
    3,714Letters of credit
    
    
    665
    
    
    
    361$
    6,237
    
    
    $
    6,009
  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, 2006:Total capital (to risk-weighted assets):Neffs Bancorp, Inc.
    
    $
    42,822
    
    
    
    41.8
    %
    
    $
    38,192
    
    
    
    38.0
    %
    
    
    N/AThe Neffs National Bank
    
    
    42,376
    
    
    
    41.3
    
    
    
    38,214
    
    
    
    38.0
    
    
    $
    310,268
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted assets):Neffs Bancorp, Inc.
    
    
    42,169
    
    
    
    41.2
    
    
    
    34,096
    
    
    
    34.0
    
    
    
    N/AThe Neffs National Bank
    
    
    41,723
    
    
    
    40.6
    
    
    
    34,107
    
    
    
    34.0
    
    
    
    3  6,161
    
    
    
    3  6.0Tier 1 capital (to average assets):Neffs Bancorp, Inc.
    
    
    42,169
    
    
    
    19.6
    
    
    
    38,493
    
    
    
    34.0
    
    
    
    N/AThe Neffs National Bank
    
    
    41,723
    
    
    
    19.4
    
    
    
    38,585
    
    
    
    34.0
    
    
    
    310,732
    
    
    
    3  5.0As of December 31, 2005:Total capital (to risk-weighted assets):Neffs Bancorp, Inc.
    
    $
    40,795
    
    
    
    41.6
    %
    
    $
    37,840
    
    
    
    38.0
    %
    
    
    N/AThe Neffs National Bank
    
    
    40,278
    
    
    
    41.2
    
    
    
    37,817
    
    
    
    38.0
    
    
    $
    39,771
    
    
    
    310.0
    %Tier 1 capital (to risk-weighted assets):Neffs Bancorp, Inc.
    
    
    40,138
    
    
    
    41.0
    
    
    
    33,920
    
    
    
    34.0
    
    
    
    N/AThe Neffs National Bank
    
    
    39,621
    
    
    
    40.6
    
    
    
    33,908
    
    
    
    34.0
    
    
    
    3  5,862
    
    
    
    3  6.0Tier 1 capital (to average assets):Neffs Bancorp, Inc.
    
    
    40,138
    
    
    
    18.9
    
    
    
    38,493
    
    
    
    34.0
    
    
    
    N/AThe Neffs National Bank
    
    
    39,621
    
    
    
    18.7
    
    
    
    38,493
    
    
    
    34.0
    
    
    
    310,616
    
    
    
    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)
  2006
    
    
    2005Estimated
    
    
    
    
    
    
    EstimatedCarrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value(In Thousands)Financial assets:Cash and short-term
investments
    
    $
    2,345
    
    
    $
    2,345
    
    
    $
    5,469
    
    
    $
    5,469Securities available for sale
    
    
    36,705
    
    
    
    36,705
    
    
    
    42,021
    
    
    
    42,021Securities held to maturity
    
    
    84,308
    
    
    
    84,561
    
    
    
    78,923
    
    
    
    79,248Loans, net
    
    
    87,418
    
    
    
    86,495
    
    
    
    82,385
    
    
    
    81,548Accrued interest receivable
    
    
    1,417
    
    
    
    1,417
    
    
    
    1,213
    
    
    
    1,213Financial liabilities:Deposits
    
    
    173,101
    
    
    
    172,847
    
    
    
    173,276
    
    
    
    173,344Accrued interest payable
    
    
    1,103
    
    
    
    1,103
    
    
    
    902
    
    
    
    902Federal funds purchased
    
    
    357
    
    
    
    357
    
    
    
    
    
    
    
    Off-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 31,2006
    
    
    2005(In Thousands)AssetsCash
    
    $
    155
    
    
    $
    243Investment in subsidiary
    
    
    40,776
    
    
    
    38,778Premises and equipment
    
    
    250
    
    
    
    260Other assets
    
    
    62
    
    
    
    34Total Assets
    
    $
    41,243
    
    
    $
    39,315Liability and Stockholders EquityLiability, accounts payable
    
    $
    21
    
    
    $
    21Stockholders equity
    
    
    41,222
    
    
    
    39,294Total Liability and Stockholders Equity
    
    $
    41,243
    
    
    $
    39,315
 Statements of Income
 Years Ended December 31,2006
    
    
    2005
    
    
    2004(In Thousands)Dividends from subsidiary
    
    $
    792
    
    
    $
    788
    
    
    $
    739Rental income
    
    
    13
    
    
    
    7
    
    
    
    8Expenses
    
    
    111
    
    
    
    122
    
    
    
    140Income before Income Taxes and Equity in
Undistributed Earnings of Subsidiary
    
    
    694
    
    
    
    673
    
    
    
    607Income tax benefit
    
    
    27
    
    
    
    33
    
    
    
    45721
    
    
    
    706
    
    
    
    652Equity in undistributed earnings of subsidiary
    
    
    2,102
    
    
    
    2,366
    
    
    
    2,553Net Income
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205
 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 31,2006
    
    
    2005
    
    
    2004(In Thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205Adjustments to reconcile net income to
net cash provided by operating
activities:Depreciation
    
    
    10
    
    
    
    9
    
    
    
    7Equity in undistributed earnings of
subsidiary
    
    
    (2,102
    )
    
    
    (2,366
    )
    
    
    (2,553
    )(Increase) decrease in other assets
    
    
    (27
    )
    
    
    91
    
    
    
    (44
    )Increase in other liabilities
    
    
    
    
    
    
    1
    
    
    
    19Net Cash Provided by Operating Activities
    
    
    704
    
    
    
    807
    
    
    
    634Cash Flows Used in Investing ActivitiesPurchases of premises and equipment
    
    
    
    
    
    
    (15
    )
    
    
    (2
    )Cash Flows Used in Financing ActivitiesDividends paid
    
    
    (792
    )
    
    
    (788
    )
    
    
    (739
    )Sale of treasury stock
    
    
    
    
    
    
    207
    
    
    
    Net Cash Used in Financing Activities
    
    
    (792
    )
    
    
    (581
    )
    
    
    (739
    )Net Increase (Decrease) in Cash
    
    
    (88
    )
    
    
    211
    
    
    
    (107
    )Cash  Beginning
    
    
    243
    
    
    
    32
    
    
    
    139Cash  Ending
    
    $
    155
    
    
    $
    243
    
    
    $
    32
 25




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Selected Financial Data
  At or For the Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in Thousands, Except Per Share Data)Interest IncomeInterest and fees on loans
    
    $
    5,419
    
    
    $
    5,001
    
    
    $
    4,747
    
    
    $
    5,044
    
    
    $
    5,470Interest and dividends on
securities
    
    
    5,521
    
    
    
    5,371
    
    
    
    5,233
    
    
    
    4,461
    
    
    
    4,699Interest on federal funds sold
    
    
    51
    
    
    
    82
    
    
    
    67
    
    
    
    128
    
    
    
    133Total interest income
    
    
    10,991
    
    
    
    10,454
    
    
    
    10,047
    
    
    
    9,633
    
    
    
    10,302Interest ExpenseDeposits
    
    
    5,115
    
    
    
    4,469
    
    
    
    4,082
    
    
    
    4,434
    
    
    
    4,977Short-term borrowings
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total interest expense
    
    
    5,129
    
    
    
    4,469
    
    
    
    4,082
    
    
    
    4,434
    
    
    
    4,977Net interest income
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,965
    
    
    
    5,199
    
    
    
    5,325Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    88
    
    
    
    170Net interest income after provision
for loan losses
    
    
    5,862
    
    
    
    5,985
    
    
    
    5,929
    
    
    
    5,111
    
    
    
    5,155Other operating income
    
    
    258
    
    
    
    276
    
    
    
    268
    
    
    
    273
    
    
    
    287Other operating expense
    
    
    2,809
    
    
    
    2,612
    
    
    
    2,385
    
    
    
    2,269
    
    
    
    1,986Income before taxes
    
    
    3,311
    
    
    
    3,649
    
    
    
    3,812
    
    
    
    3,115
    
    
    
    3,456Applicable income taxes
    
    
    488
    
    
    
    577
    
    
    
    607
    
    
    
    341
    
    
    
    641Net income
    
    $
    2,823
    
    
    $
    3,072
    
    
    $
    3,205
    
    
    $
    2,774
    
    
    $
    2,815Per Share DataBasic earnings
    
    $
    14.26
    
    
    $
    15.58
    
    
    $
    16.26
    
    
    $
    14.11
    
    
    $
    14.33Dividends declared
    
    $
    4.00
    
    
    $
    4.00
    
    
    $
    3.75
    
    
    $
    2.70
    
    
    $
    3.10Average shares outstanding
    
    
    197,941
    
    
    
    197,117
    
    
    
    197,091
    
    
    
    196,529
    
    
    
    196,431At End of PeriodTotal assets
    
    $
    215,876
    
    
    $
    213,547
    
    
    $
    209,803
    
    
    $
    198,570
    
    
    $
    180,293Securities
    
    
    121,013
    
    
    
    120,944
    
    
    
    123,467
    
    
    
    110,087
    
    
    
    94,397Loans, net of unearned income
    
    
    87,418
    
    
    
    83,042
    
    
    
    76,978
    
    
    
    70,886
    
    
    
    69,598Allowance for loan losses
    
    
    653
    
    
    
    657
    
    
    
    663
    
    
    
    637
    
    
    
    564Deposits
    
    
    173,101
    
    
    
    173,276
    
    
    
    171,652
    
    
    
    162,694
    
    
    
    146,535Stockholders equity
    
    
    41,222
    
    
    
    39,294
    
    
    
    37,316
    
    
    
    35,055
    
    
    
    32,825Key RatiosReturn on average assets
    
    
    1.32
    %
    
    
    1.46
    %
    
    
    1.57
    %
    
    
    1.45
    %
    
    
    1.67
    %Return on average equity
    
    
    7.11
    %
    
    
    8.08
    %
    
    
    8.89
    %
    
    
    8.16
    %
    
    
    8.85
    %Net loans to deposit ratio
    
    
    50.50
    %
    
    
    47.55
    %
    
    
    44.46
    %
    
    
    43.18
    %
    
    
    47.11
    %Dividend payout ratio (dividends
declared divided by net income)
    
    
    28.05
    %
    
    
    25.66
    %
    
    
    23.06
    %
    
    
    19.14
    %
    
    
    21.63
    %Equity to asset ratio (average
equity
divided by average total assets)
    
    
    18.61
    %
    
    
    17.95
    %
    
    
    17.56
    %
    
    
    17.73
    %
    
    
    18.93
    %
 26




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Quarterly Summary of Financial Data (unaudited)
 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
 2005Three Months EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in Thousands, Except Per Share Data)Interest income
    
    $
    2,569
    
    
    $
    2,600
    
    
    $
    2,645
    
    
    $
    2,640Interest expense
    
    
    1,036
    
    
    
    1,108
    
    
    
    1,171
    
    
    
    1,154Net interest income
    
    
    1,533
    
    
    
    1,492
    
    
    
    1,474
    
    
    
    1,486Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expenses, net of other
income
    
    
    517
    
    
    
    584
    
    
    
    608
    
    
    
    627Income before income taxes
    
    
    1,016
    
    
    
    908
    
    
    
    866
    
    
    
    859Income tax expense
    
    
    178
    
    
    
    139
    
    
    
    127
    
    
    
    133Net income
    
    $
    838
    
    
    $
    769
    
    
    $
    739
    
    
    $
    726Earnings per share-Basic
    
    $
    4.25
    
    
    $
    3.90
    
    
    $
    3.75
    
    
    $
    3.68
 27




---



##### 



Neffs Bancorp, Inc. and Subsidiary
 Common Stock Information
    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
 Cash Dividends2005
    
    HIGH
    
    LOW
    
    Per ShareFirst Quarter
    
    $
    230.00
    
    
    $
    230.00
    
    
    
    Second Quarter
    
    $
    235.00
    
    
    $
    230.00
    
    
    $
    2.00Third Quarter
    
    $
    236.00
    
    
    $
    235.00
    
    
    
    Fourth Quarter
    
    $
    243.00
    
    
    $
    240.00
    
    
    $
    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
  2006 Compared to 2005
    2005 Compared to 2004
  30




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
    Year Ended December 31,2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance1
    
    
    Interest
    
    
    Rate
    
    
    Balance1
    
    
    Interest
    
    
    Rate
    
    
    Balance1
    
    
    Interest
    
    
    Rate(Dollars in Thousands)Interest earning assets:Loan receivable2
    
    $
    85,565
    
    
    $
    5,419
    
    
    
    6.33
    %
    
    $
    79,294
    
    
    $
    5,001
    
    
    
    6.31
    %
    
    $
    72,744
    
    
    $
    4,747
    
    
    
    6.53
    %Investment securities:Taxable
    
    
    75,390
    
    
    
    3,546
    
    
    
    4.70
    %
    
    
    77,177
    
    
    
    3,313
    
    
    
    4.29
    %
    
    
    71,430
    
    
    
    3,075
    
    
    
    4.30
    %Non-taxable3
    
    
    43,817
    
    
    
    1,975
    
    
    
    4.51
    %
    
    
    45,980
    
    
    
    2,058
    
    
    
    4.48
    %
    
    
    47,640
    
    
    
    2,158
    
    
    
    4.53
    %Other interest earning assets4
    
    
    357
    
    
    
    51
    
    
    
    14.29
    %
    
    
    2,411
    
    
    
    82
    
    
    
    3.40
    %
    
    
    4,982
    
    
    
    67
    
    
    
    1.34
    %Total interest earning assets
    
    
    205,129
    
    
    
    10,991
    
    
    
    5.36
    %
    
    
    204,862
    
    
    
    10,454
    
    
    
    5.10
    %
    
    
    196,796
    
    
    
    10,047
    
    
    
    5.11
    %Noninterest earning assets
    
    
    8,155
    
    
    
    
    
    
    
    
    
    
    
    7,067
    
    
    
    
    
    
    
    
    
    
    
    8,517Total assets
    
    $
    213,284
    
    
    
    
    
    
    
    
    
    
    $
    211,929
    
    
    
    
    
    
    
    
    
    
    $
    205,313Interest bearing liabilities:NOW
    
    $
    7,697
    
    
    
    126
    
    
    
    1.64
    %
    
    $
    8,373
    
    
    
    87
    
    
    
    1.04
    %
    
    $
    8,426
    
    
    
    56
    
    
    
    0.66
    %Savings
    
    
    49,428
    
    
    
    867
    
    
    
    1.75
    %
    
    
    62,033
    
    
    
    1,000
    
    
    
    1.61
    %
    
    
    68,955
    
    
    
    1,074
    
    
    
    1.56
    %Certificates of deposit
    
    
    97,273
    
    
    
    4,122
    
    
    
    4.24
    %
    
    
    86,372
    
    
    
    3,382
    
    
    
    3.92
    %
    
    
    77,508
    
    
    
    2,952
    
    
    
    3.81
    %Federal funds purchased
    
    
    343
    
    
    
    14
    
    
    
    4.08
    %
    
    
    0
    
    
    
    0
    
    
    
    0
    %
    
    
    0
    
    
    
    0
    
    
    
    0
    %Total interest bearing liabilities
    
    
    154,741
    
    
    
    5,129
    
    
    
    3.31
    %
    
    
    156,777
    
    
    
    4,469
    
    
    
    2.85
    %
    
    
    154,889
    
    
    
    4,082
    
    
    
    2.64
    %Noninterest bearing liabilities:Demand deposits
    
    
    17,571
    
    
    
    
    
    
    
    
    
    
    
    16,133
    
    
    
    
    
    
    
    
    
    
    
    13,565Other liabilities
    
    
    1,287
    
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    
    
    
    
    
    
    
    
    816Stockholders equity
    
    
    39,685
    
    
    
    
    
    
    
    
    
    
    
    38,046
    
    
    
    
    
    
    
    
    
    
    
    36,043Total liabilities and
stockholders equity
    
    $
    213,284
    
    
    
    
    
    
    
    
    
    
    $
    211,929
    
    
    
    
    
    
    
    
    
    
    $
    205,313Net interest income/spread5
    
    
    
    
    
    $
    5,862
    
    
    
    2.05
    %
    
    
    
    
    
    $
    5,985
    
    
    
    2.25
    %
    
    
    
    
    
    $
    5,965
    
    
    
    2.47
    %Net interest margin6
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    3.03
    %
 
 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 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 31,2006/2005 Increase/(Decrease)
    
    
    2005/2004 Increase/(Decrease)Due to Change in
    
    
    Due to Change inVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    Net(In Thousands)Interest Income:Loans receivable
    
    $
    397
    
    
    $
    21
    
    
    $
    418
    
    
    $
    417
    
    
    $
    (163
    )
    
    $
    254Securities
    
    
    (183
    )
    
    
    333
    
    
    
    150
    
    
    
    178
    
    
    
    (40
    )
    
    
    138Other interest earning assets
    
    
    (293
    )
    
    
    262
    
    
    
    (31
    )
    
    
    (48
    )
    
    
    63
    
    
    
    15Total interest earning assets
    
    
    (79
    )
    
    
    616
    
    
    
    537
    
    
    
    547
    
    
    
    (140
    )
    
    
    407Interest Expense:NOW
    
    
    (11
    )
    
    
    50
    
    
    
    39
    
    
    
    
    
    
    
    31
    
    
    
    31Savings
    
    
    (221
    )
    
    
    88
    
    
    
    (133
    )
    
    
    (111
    )
    
    
    37
    
    
    
    (74
    )Certificates of Deposit
    
    
    462
    
    
    
    278
    
    
    
    740
    
    
    
    345
    
    
    
    85
    
    
    
    430Federal funds purchased
    
    
    14
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Total interest bearing
liabilities
    
    
    244
    
    
    
    416
    
    
    
    660
    
    
    
    234
    
    
    
    153
    
    
    
    387Net change in net interest income
    
    $
    (323
    )
    
    $
    200
    
    
    $
    (123
    )
    
    $
    313
    
    
    $
    (293
    )
    
    $
    20
 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 312006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in Thousands)Average loans outstanding
    
    $
    85,565
    
    
    $
    79,294
    
    
    $
    72,744
    
    
    $
    69,730
    
    
    $
    71,337Total gross loans at year end
    
    $
    88,071
    
    
    $
    83,042
    
    
    $
    76,978
    
    
    $
    70,886
    
    
    $
    69,598Allowance for loan losses at January 1
    
    $
    657
    
    
    $
    663
    
    
    $
    637
    
    
    $
    564
    
    
    $
    445Losses charge to allowanceCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    Consumer
    
    
    6
    
    
    
    13
    
    
    
    25
    
    
    
    5
    
    
    
    30Total losses charged to allowance
    
    
    6
    
    
    
    13
    
    
    
    25
    
    
    
    33
    
    
    
    57Recoveries credited to allowanceCommercial
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    2
    
    
    
    7
    
    
    
    15
    
    
    
    9
    
    
    
    6Total recoveries credit to allowance
    
    
    2
    
    
    
    7
    
    
    
    15
    
    
    
    18
    
    
    
    6Net charge-offs
    
    
    4
    
    
    
    6
    
    
    
    10
    
    
    
    15
    
    
    
    51Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    88
    
    
    
    170Allowance for loan losses at December 31
    
    $
    653
    
    
    $
    657
    
    
    $
    663
    
    
    $
    637
    
    
    $
    564Ratio of net charge offs to average loans
outstanding
    
    
    0.00
    %
    
    
    0.01
    %
    
    
    0.01
    %
    
    
    0.02
    %
    
    
    0.07
    %Allowance as a percentage of total
gross loans
    
    
    0.74
    %
    
    
    0.79
    %
    
    
    0.86
    %
    
    
    0.90
    %
    
    
    0.81
    %
 33




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
   2006
    
    2005
    
    2004
    
    2003
    
    2002% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan
    
    Amount
    
    Loan(Dollars in Thousands)Commercial
    
    $
    161
    
    
    
    26.67
    %
    
    $
    122
    
    
    
    25.62
    %
    
    $
    130
    
    
    
    23.41
    %
    
    $
    115
    
    
    
    20.39
    %
    
    $
    108
    
    
    
    21.25
    %Real estate
    
    
    281
    
    
    
    43.31
    %
    
    
    271
    
    
    
    45.08
    %
    
    
    256
    
    
    
    48.71
    %
    
    
    246
    
    
    
    50.20
    %
    
    
    235
    
    
    
    69.25
    %Consumer
    
    
    121
    
    
    
    30.02
    %
    
    
    125
    
    
    
    29.30
    %
    
    
    135
    
    
    
    27.88
    %
    
    
    167
    
    
    
    29.41
    %
    
    
    126
    
    
    
    9.50
    %Unallocated
    
    
    90
    
    
    
    
    
    
    
    139
    
    
    
    
    
    
    
    142
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    95Total
    
    $
    653
    
    
    
    100
    %
    
    $
    657
    
    
    
    100
    %
    
    $
    663
    
    
    
    100
    %
    
    $
    637
    
    
    
    100
    %
    
    $
    564
    
    
    
    100
    %
 Non-Interest Income
 2006 Compared to 2005
  2005 Compared to 2004
  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,
    
    cost 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
 2006 Compared to 2005
     2005 Compared to 2004
    Income Taxes
  Net Income
 2006 Compared to 2005
   35




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
 2005 Compared to 2004
   FINANCIAL CONDITION
 Securities
      36




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
  December 312006
    
    
    2005
    
    
    2004(Dollars in Thousands)Held to maturity securities:U.S. Government
agencies and corporations
    
    $
    38,537
    
    
    $
    29,683
    
    
    $
    27,162State and political subdivisions
    
    
    42,512
    
    
    
    45,424
    
    
    
    46,425Mortgage-backed securities
    
    
    1,510
    
    
    
    1,968
    
    
    
    3,135Corporate securities
    
    
    1,749
    
    
    
    1,848
    
    
    
    2,597Available for sale securities:Mortgage-backed securities
    
    
    35,954
    
    
    
    41,452
    
    
    
    43,475Equity securities
    
    
    651
    
    
    
    569
    
    
    
    673U.S. Treasury Note
    
    
    100
    
    
    
    
    
    
    
    Total securities
    
    $
    121,013
    
    
    $
    120,944
    
    
    $
    123,467
  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
    
    $
    
    
    
    
    
    
    
    $
    5,497
    
    
    
    4.00
    %
    
    $
    5,829
    
    
    
    4.30
    %
    
    $
    24,628
    
    
    
    4.87
    %U.S. Treasury
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    4.92
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,597
    
    
    
    
    
    
    
    5,829
    
    
    
    
    
    
    
    24,628Held to maturity:U.S. Government agencies
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    4.44
    %
    
    
    18,380
    
    
    
    4.39
    %
    
    
    18,156
    
    
    
    4.25
    %State and political
subdivisions1
    
    
    
    
    
    
    
    
    
    
    3,267
    
    
    
    6.56
    %
    
    
    17,137
    
    
    
    6.93
    %
    
    
    22,109
    
    
    
    7.47
    %Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    11.91
    %
    
    
    1,509
    
    
    
    6.29
    %Other securities
    
    
    
    
    
    
    
    
    
    
    1,049
    
    
    
    6.24
    %
    
    
    700
    
    
    
    6.82
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,316
    
    
    
    
    
    
    
    36,218
    
    
    
    
    
    
    
    41,774Total
    
    $
    
    
    
    
    
    
    
    $
    11,913
    
    
    
    
    
    
    $
    42,047
    
    
    
    
    
    
    $
    66,402
 
 1
    
    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)2006
    
    2005
    
    2004
    
    2003
    
    2002% of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    Total
    
    Amount
    
    TotalCommercial
    
    $
    4,664
    
    
    
    5.30
    %
    
    $
    4,832
    
    
    
    5.82
    %
    
    $
    4,095
    
    
    
    5.32
    %
    
    $
    2,832
    
    
    
    4.00
    %
    
    $
    3,490
    
    
    
    5.01
    %Commercial
real estate
    
    
    18,820
    
    
    
    21.37
    %
    
    
    16,440
    
    
    
    19.80
    %
    
    
    13,925
    
    
    
    18.09
    %
    
    
    11,615
    
    
    
    16.39
    %
    
    
    11,300
    
    
    
    16.24
    %Residential
real estate
    
    
    37,088
    
    
    
    42.11
    %
    
    
    37,057
    
    
    
    44.62
    %
    
    
    36,115
    
    
    
    46.92
    %
    
    
    35,239
    
    
    
    49.71
    %
    
    
    35,046
    
    
    
    50.35
    %Real estate
construction
    
    
    1,053
    
    
    
    1.20
    %
    
    
    384
    
    
    
    0.46
    %
    
    
    1,376
    
    
    
    1.79
    %
    
    
    350
    
    
    
    0.49
    %
    
    
    657
    
    
    
    0.94
    %Home equity
    
    
    19,176
    
    
    
    21.77
    %
    
    
    17,072
    
    
    
    20.56
    %
    
    
    14,560
    
    
    
    18.91
    %
    
    
    14,136
    
    
    
    19.94
    %
    
    
    12,493
    
    
    
    17.96
    %Other
consumer
    
    
    7,270
    
    
    
    8.25
    %
    
    
    7,257
    
    
    
    8.74
    %
    
    
    6,907
    
    
    
    8.97
    %
    
    
    6,714
    
    
    
    9.47
    %
    
    
    6,612
    
    
    
    9.50
    %Total loans
outstanding
    
    $
    88,071
    
    
    
    100.00
    %
    
    $
    83,042
    
    
    
    100.00
    %
    
    $
    76,978
    
    
    
    100.00
    %
    
    $
    70,886
    
    
    
    100.00
    %
    
    $
    69,598
    
    
    
    100.00
    %
 38




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
  As of December 31, 2006Due Under
    
    
    Due 1- 5
    
    
    Due OverOne Year
    
    
    Years
    
    
    Five Years
    
    
    Total(In Thousands)Maturity of loans receivable:Commercial and commercial
real estate
    
    $
    7,436
    
    
    $
    7,380
    
    
    $
    8,668
    
    
    $
    23,484Real estate construction
    
    
    
    
    
    
    
    
    
    
    1,053
    
    
    
    1,053Total
    
    $
    7,436
    
    
    $
    7,380
    
    
    $
    9,721
    
    
    $
    24,537
 Due 1-5
    
    
    Due OverYears
    
    
    Five YearsFixed interest rates
    
    $
    1,940
    
    
    $
    3,252Floating or adjustable interest rates
    
    
    5,440
    
    
    
    6,469Total
    
    $
    7,380
    
    
    $
    9,721
 Credit Risk and Loan Quality
    39




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
  December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in Thousands)Non-accruing loans
    
    $
    
    
    
    $
    
    
    
    $
    126
    
    
    $
    148
    
    
    $
    227Accruing loans past due 90 days or more
    
    
    52
    
    
    
    67
    
    
    
    63
    
    
    
    327
    
    
    
    203Total nonperforming loans
    
    
    52
    
    
    
    67
    
    
    
    189
    
    
    
    475
    
    
    
    430Foreclosed real estate/repossessed assets
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    Total nonperforming assets
    
    $
    123
    
    
    $
    67
    
    
    $
    189
    
    
    $
    485
    
    
    $
    430Non-accrual loans:Interest income that would have been
recorded on non-accrual loans
    
    $
    
    
    
    $
    
    
    
    $
    11
    
    
    $
    15
    
    
    $
    18Interest income for above loans
included in net income for the period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10
    
    
    $
    20Ratios:Nonperforming loans to total loans
    
    
    0.06
    %
    
    
    0.08
    %
    
    
    0.25
    %
    
    
    0.67
    %
    
    
    0.62
    %Allowance for loan losses to
nonperforming loans
    
    
    1,255.77
    %
    
    
    980.60
    %
    
    
    350.79
    %
    
    
    134.11
    %
    
    
    131.16
    %Nonperforming assets to total assets
    
    
    0.06
    %
    
    
    0.03
    %
    
    
    0.09
    %
    
    
    0.24
    %
    
    
    0.24
    %Commitments to lend additional funds
to
Nonperforming loan customers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Deposits
  Non-interest bearing demand deposits
    
    
    3.80
    %Interest-bearing demand deposits
    
    
    (14.55
    %)Savings deposits
    
    
    (17.38
    %)Time deposits
    
    
    11.07
    %
 40




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
  Time(In Thousands)
    
    CertificatesThree months or less
    
    $
    2,348Over three months but within six months
    
    
    4,803Over six months but within twelve months
    
    
    10,182Over twelve months
    
    
    15,030Total
    
    $
    32,363
 Liquidity
     Contractual Obligations
  Less than
    
    
    1-3
    
    
    3-5
    
    
    Over 51 Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(In Thousands)Time Deposits
    
    $
    56,519
    
    
    $
    24,864
    
    
    $
    20,502
    
    
    
    
    
    
    $
    101,885
 41




---



##### 



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




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
  December 31,
    
    
    December 31,2006
    
    
    2005(Dollars in Thousands)Tier I, common stockholders equity
    
    $
    41,723
    
    
    $
    39,621Tier II, allowable portion of allowance
for loan losses
    
    
    653
    
    
    
    657Total capital
    
    $
    42,376
    
    
    $
    40,278Tier I risk-based capital ratio
    
    
    40.64
    %
    
    
    40.60
    %Tier II risk-based capital ratio
    
    
    41.27
    %
    
    
    41.20
    %
   Effect of Inflation
   Interest Rate Sensitivity and Market Risk
    43




---



##### 



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




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
  Maturity/Repricing Intervals1-3
    
    
    3-12
    
    
    1-3
    
    
    3-5
    
    
    Over 5Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(In Thousands)Federal funds sold
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest bearing deposits
with banks
    
    
    
    
    
    
    144
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    144Other securities
    
    
    
    
    
    
    
    
    
    
    3,147
    
    
    
    3,268
    
    
    
    76,483
    
    
    
    82,898Mortgage-backed securities
    
    
    2,118
    
    
    
    6,425
    
    
    
    5,594
    
    
    
    4,987
    
    
    
    18,340
    
    
    
    37,464Total securities
    
    
    2,118
    
    
    
    6,425
    
    
    
    8,741
    
    
    
    8,255
    
    
    
    94,823
    
    
    
    120,362Total loans
    
    
    29,814
    
    
    
    17,768
    
    
    
    15,969
    
    
    
    8,546
    
    
    
    15,974
    
    
    
    88,071Total interest earning assets
    
    
    31,932
    
    
    
    24,337
    
    
    
    24,710
    
    
    
    16,801
    
    
    
    110,797
    
    
    
    208,577NOW Accounts
    
    
    1,712
    
    
    
    
    
    
    
    6,069
    
    
    
    
    
    
    
    
    
    
    
    7,781Savings
    
    
    8,259
    
    
    
    
    
    
    
    37,622
    
    
    
    
    
    
    
    
    
    
    
    45,881Total savings deposits
    
    
    9,971
    
    
    
    
    
    
    
    43,691
    
    
    
    
    
    
    
    
    
    
    
    53,662CDs<$100,000
    
    
    7,823
    
    
    
    31,363
    
    
    
    19,274
    
    
    
    11,063
    
    
    
    
    
    
    
    69,523CDs>$100,000
    
    
    2,348
    
    
    
    14,985
    
    
    
    5,590
    
    
    
    9,439
    
    
    
    
    
    
    
    32,362Total time deposits
    
    
    10,171
    
    
    
    46,348
    
    
    
    24,864
    
    
    
    20,502
    
    
    
    
    
    
    
    101,885Fed funds purchased
    
    
    357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357Total interest bearing
liabilities
    
    
    20,499
    
    
    
    46,348
    
    
    
    68,555
    
    
    
    20,502
    
    
    
    
    
    
    
    155,904Rate sensitive gap
    
    $
    11,433
    
    
    $
    (22,011
    )
    
    $
    (43,845
    )
    
    $
    (3,701
    )
    
    $
    110,797
    
    
    $
    52,673Cumulative gap
    
    $
    11,433
    
    
    $
    (10,578
    )
    
    $
    (54,423
    )
    
    $
    (58,124
    )
    
    $
    52,673
    
    
    
    
 45




---



##### 



Neffs
Bancorp, Inc. and Subsidiary
 Managements Discussion and Analysis
 Regulatory Activity
   Form 10-K
  
 46