10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ Annual Report pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934

for the fiscal year ended December 31, 2008.

o Transition Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the transition period from                     to                     .

Commission File # 0-32605

NEFFS BANCORP, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2400383
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

5629 Route 873, P.O. Box 10, Neffs, PA 18065-0010
(Address of principal executive offices)

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

Securities registered under Section 12 (b) of the Exchange Act:
None

Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $1.00 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o 

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o 
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of voting stock held by non-affiliates of the registrant is $38,802,140 as of June 30, 2008⁽¹⁾.

The number of shares of the Issuer’s common stock, par value is $1.00 per share, outstanding as of March 3, 2009 was 188,429.

DOCUMENTS INCORPORATED BY REFERENCE:

Part II incorporates certain information by reference from the registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2008 (the “Annual Report”). Part III incorporates certain information by reference from the registrant’s Proxy Statement for the 2009 Annual Meeting of Stockholders.

⁽¹⁾ The aggregate dollar amount of the voting stock set forth equals the number of shares of the registrant’s Common Stock outstanding, reduced by the amount of Common Stock held by executive officers, directors, and stockholders owning in excess of 10% of the registrant’s Common Stock, multiplied by the last sale price for the registrant’s Common Stock on June 30, 2008. The information provided shall in no way be construed as an admission that the officers, directors, or 10% stockholders in the registrant may be deemed an affiliate of the registrant or that such person is the beneficial owner of the shares reported as being held by him and any such inference is hereby disclaimed. The information provided herein is included solely for the record keeping purpose of the Securities and Exchange Commission.

NEFFS BANCORP, INC.
FORM 10-K TABLES OF CONTENTS

			Page
Part I.
	Item 1	Business		1
	Item 1A	Risk Factors		5
	Item 1B	Unresolved Staff Comments		8
	Item 2	Properties		8
	Item 3	Legal Proceedings		8
	Item 4	Submission of Matters to a Vote of Security Holders		8
Part II.
	Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		9
	Item 6	Selected Financial Data		10
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
	Item 7A	Quantitative and Qualitative Disclosures about Market Risk
		The information required by this Item is contained in Item 7 of this Part II under the caption “Interest Rate Sensitivity and Market Risk.”
	Item 8	Financial Statements and Supplementary Data		10
	Item 9	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		10
	Item 9A	Controls and Procedures		10
	Item 9A(T)	Controls and Procedures		11
	Item 9B	Other Information		11
Part III.
	Item 10	Directors, Executive Officers and Corporate Governance		12
	Item 11	Executive Compensation		12
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		12
	Item 13	Certain Relationships and Related Transactions, and Director Independence		12
	Item 14	Principal Accountant Fees and Services		12
Part IV.
	Item 15	Exhibits and Financial Statement Schedules		12

Part I

Item I. Business

Forward-Looking Statements

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

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

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

General

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

As of December 31, 2008, the Corporation has approximately $239 million in assets, $193 million in deposits, $100 million in net loans and $45 million in stockholders’ equity. The bank is a member of the Federal Reserve Bank (“FRB”) and the bank’s deposits are insured up to the applicable limits by the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) to the fullest extent permitted by law.

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

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As of December 31, 2008 the Corporation had 34 employees, of which 26 were full-time employees. Management believes the Corporation’s relationship with its employees is good.

The bank is organized under the laws of the United States and headquartered in Neffs, Pennsylvania and has one (1) location. The bank was incorporated in 1923 pursuant to the United States National Bank Act under a charter granted by the Office of the Comptroller of Currency. The FDIC insures deposit accounts to the maximum extent provided by laws.

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

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

Service Area

The bank offers its lending and depository services to surrounding areas from its main office in Neffs, Pennsylvania. The Corporation’s primary service area is Greater Northern Lehigh County and Southern Carbon County, Pennsylvania.

Retail and Commercial Banking Activities

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

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

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

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

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Competitive Business Conditions/Competitive Position

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

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

In commercial transactions, the bank’s legal lending limit to a single borrower (approximately $6,679,000 as of December 31, 2008) enables it to compete effectively for the business of smaller companies.

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

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

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

Supervision and Regulations

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

The Corporation

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

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

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

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

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

The Bank

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

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

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

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

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

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

National Monetary Policy

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

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

Effect of Inflation

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

Environmental Laws

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

Item 1A. Risk Factors

The Corporation is operating in a very uncertain environment for financial institutions. In 2008 and into 2009, there has been a series of events in financial and credit markets that have led to liquidity and credit crises throughout the world. There has also been considerable concern about the deepening economic downturn, both in the United States and internationally, and its ultimate impact on financial institutions. U.S. and foreign governmental agencies have taken unprecedented steps in an attempt to stabilize the markets, but there is no assurance these steps will be effective. Future developments in the financial and credit markets that the Corporation cannot currently predict could have a material impact on the Corporation’s financial condition and results of operations.

The Corporation is Subject to Interest Rate Risk

Income and cash flows and the value of assets depend to a great extent on the difference between the interest rates earned on interest-earning assets, such as loans and investment securities, and the interest

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

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

The Corporation’s success depends primarily on the general economic conditions of the Commonwealth of Pennsylvania and the specific local markets in which the Corporation operates. Unlike larger national or other regional banks that are more geographically diversified, the Corporation provides banking and financial services to customers primarily in the Northern Lehigh Valley area. The local economic conditions in these areas have a significant impact on the demand for the Corporation’s products and services as well as the ability of the Corporation’s customers to repay loans, the value of the collateral securing loans and the stability of the Corporation’s deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, subprime loan deterioration, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on the Corporation’s financial condition and results of operations. The Corporation is not directly involved in any type of subprime lending.

The Corporation’s Allowance for Loan Losses May be Insufficient

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

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The Corporation Operates in a Highly Competitive Industry and Market Area

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

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

The Corporation is Subject to Extensive Government Regulation and Supervision

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

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

The Corporation’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by the Corporation can be intense and the Corporation may not be able to hire people or to retain them. The unexpected loss of services of one or more of the Corporation’s key personnel could have a material adverse impact on the Corporation’s business because of their skills, knowledge of the Corporation’s market, years of industry experience and the difficulty of promptly finding qualified replacement personnel. The Corporation does not currently have employment agreements or non-competition agreements with any of its senior officers.

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

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

The Corporation Continually Encounters Technological Change

Failure to implement new technologies for operations may adversely affect growth or profits. The market for financial services, including banking services and consumer finance services is increasingly affected by advances in technology, including developments in telecommunications, data processing, computers, automation, Internet-based banking and telebanking. The ability to compete successfully in

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markets may depend on the ability to exploit such technological changes. However, no assurance can be given that management will be able to properly or timely anticipate or implement such technologies or properly train employees to use such technologies. Any failure to adapt to new technologies could adversely affect the financial condition or operating results of the Corporation.

The Corporation’s ability to pay dividends depends primarily on dividends from its banking subsidiary, which is subject to regulatory limits.

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Main Office

The main office of Neffs Bancorp, Inc. and The Neffs National Bank is located at 5629 PA Route 873, North Whitehall Township, Neffs, PA 18065. The bank owns and occupies a 12,475 square feet building, containing a banking floor, lobby, administrative offices, lending offices, operations center, and executive offices. During 2001, the bank completed construction of two (2) additional lanes, for a total of five (5) lanes, to its drive thru facility located adjacent to the main building. The bank also owns a vacant lot behind the headquarters. Situated on the lot are a baseball field, basketball court and playground facility, all of which are available for use by the public.

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

Item 3. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.

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Part II.

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

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

The following table sets forth the prices at which common stock has traded during the last two (2) fiscal years. As of December 31, 2008, there were approximately 640 holders of record of the Corporation’s common stock.

	Sales Prices
Quarter Ended:	High		Low
March 31, 2008	$	255.00	$	255.00
June 30, 2008		260.00		260.00
September 30, 2008		265.00		245.00
December 31, 2008		235.00		221.00
March 31, 2007	$	256.00	$	256.00
June 30, 2007		262.00		262.00
September 30, 2007		263.00		263.00
December 31, 2007		263.00		263.00

The Corporation purchased 1,505 shares at $262 weighted average per share during 2008 and 7,186 shares at $263 per share during 2007.

							Maximum number
					Total number of		(or dollar value) of
					shares purchased		shares that may
					as part of publicly		yet be purchased
	Total number of		Price paid per		announced plans		under the plans or
Period	shares purchased		share		or programs		programs
October 3, 2008		184	$	263.00		N/A		N/A
November 19, 2008		102	$	245.00		N/A		N/A

Dividends and Dividend History

The Corporation has historically distributed to stockholders a dividend on May 15^th and November 15^th of each year. In 2008 a dividend of $2.00 per share was paid to stockholders on May 15 and a dividend of $2.00 per share was paid on November 15. In 2007 a dividend of $2.00 per share was paid to stockholders on May 15, and a dividend of $2.00 per share was paid on November 15.

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

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

Regulatory authorities restrict the amount of cash dividends the bank can declare without prior regulatory approval.

The Corporation currently does not maintain any equity compensation plans.

Item 6. Selected Financial Data

The information under the caption “Selected Financial Data” in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2008, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 6.

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

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2008, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 7.

Item 8. Financial Statements and Supplementary Data

The financial statements in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2008, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 8.

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

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

The Corporation maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Corporation files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon their evaluation of those controls and procedures as of December 31, 2008, the chief executive officer and principal financial officer of the Corporation concluded that the Corporation’s disclosure controls and procedures were effective.

Internal Controls Over Financial Reporting

The Corporation made no significant changes in its internal controls or in other factors that could significantly affect these controls during the fourth quarter of the year ended December 31, 2008, including any corrective actions with regard to significant deficiencies and material weaknesses.

10

Item 9A(T). Controls and Procedures

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

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

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

• prepare financial statement and footnote disclosures in accordance with GAAP that can be relied upon by external users;

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

Management conducted an evaluation of the effectiveness of the Corporation’s internal control over financial reporting based on the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation under the criteria in Internal Control- Integrated Framework, management concluded that internal control over financial reporting was effective as of December 31, 2008. Furthermore, during the conduct of its assessment, management identified no material weakness in its financial reporting control system.

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

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

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Corporation to provide only management’s report in this annual report.

/s/ John J. Remaley	/s/ Kevin A. Schmidt
President & CEO	Principle Financial Officer

Item 9B. Other Information

None.

11

Part III.

Item 10. Directors, Executive Officers and Corporate Governance

The information under the captions “Governance of the Corporation”, “Information about Nominees and Continuing Directors”, “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” are incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2009 Annual Meeting of Shareholders scheduled for May 13, 2009.

The Corporation has adopted a Code of Ethics that applies to directors, officers and employees of the Corporation and the bank, including the Chief Executive Officer and senior financial officers. A copy of the Code of Ethics was included as an exhibit to the Corporation’s Form 10-K for the year ended December 31, 2003 and filed with the Securities and Exchange Commission. A request for the Corporation’s Code of Ethics can be made in either writing to David C. Matulevich, Neffs Bancorp, Inc., 5629 Route 873, P.O. Box 10, Neffs, PA 18065-0010 or by telephone to 610-767-3875.

Item 11. Executive Compensation

The information under the caption “Executive Compensation” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2009 Annual Meeting of Shareholders scheduled for May 13, 2009.

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

The information under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2009 Annual Meeting of Shareholders scheduled for May 13, 2009.

The Corporation currently does not maintain any equity compensation plans.

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

The information under the caption “Transactions with Directors and Executive Officers” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2009 Annual Meeting of Shareholders scheduled for May 13, 2009.

Item 14. Principal Accountant Fees and Services

The information under the caption “Report of the Audit Committee” is incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2009 Annual Meeting of Shareholders scheduled for May 13, 2009.

Part IV

Item 15. Exhibits and Financial Statement Schedules

No.			Description
(a)	(1	)	Financial Statements are incorporated by reference from the 2008 Annual Report.
			Report of Independent Registered Public Accounting Firm
			Consolidated Statements of Financial Condition
			Consolidated Statements of Income
			Consolidated Statements of Stockholders’ Equity

12

No.				Description
				Consolidated Statements of Cash Flows
				Notes to Consolidated Financial Statements
		(2	)	Financial Statements Schedules (This item is omitted since information required is either not applicable or is included in the footnotes to the Annual Financial Statements.)
		(3	)	The following exhibits are filed as part of this Form 10-K, and this list includes the Exhibits Index.
		3	(i)	Amended and Restated Articles of Incorporation of Neffs Bancorp, Inc. (Incorporated by reference to Exhibit 3(i) of the Registration Statement on Form 10 dated and as filed with Commission on April 27, 2001.)
	3 (ii)			Amended and Restated Bylaws of Neffs Bancorp, Inc. (Incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated and as filed with the Commission on February 27, 2002.)
		11		Statement re: computation of per share earnings. See Consolidated Statements of Income and Note 1 to the Consolidated Financial Statements included in the Annual Report set forth as Exhibit 13 hereto.
		13		Excerpts from Neffs Bancorp, Inc. Annual Report to Stockholders.
		14		Code of Ethics (incorporated by reference to Exhibit 14 to the Form 10-K of the registrant filed on April 1, 2002.)
		21		Subsidiary of the Registrant (incorporated by reference to Exhibit 21 to the Form 10-K of the registrant filed on April 1, 2002.)
		31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
		31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
		32.1		Certification of Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002.
		32.2		Certification of Principal Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002.
(b)	Exhibits required by item 601 of Regulation SK.
	See Item 15(a) (3) above.

13

Signatures

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

	Neffs Bancorp, Inc.
Date: March 24, 2009	By:	/s/ John J. Remaley
		John J. Remaley
		President and Chief Executive Officer

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

Signatures	Title	Date
/s/ John J. Remaley John J. Remaley	President, Chief Executive Officer and Director	March 24, 2009
/s/ Herman P. Snyder Herman P. Snyder	Vice President and Director	March 24, 2009
/s/ Robert B. Heintzelman Robert B. Heintzelman	Director	March 24, 2009
/s/ Mary Ann Wagner Mary Ann Wagner	Director	March 24, 2009
/s/ John F. Simock John F. Simock	Director	March 24, 2009
/s/ Kevin A. Schmidt Kevin A. Schmidt	Treasurer and Director	March 24, 2009
/s/ John F. Sharkey, Jr. John F. Sharkey, Jr.	Director	March 24, 2009
/s/ Duane A. Schleicher Duane A. Schleicher	Director	March 24, 2009

14

EX-13

Exhibit 13

Neffs Bancorp, Inc.

Consolidated Financial Report

December 31, 2008

Directors of the Corporation
and Bank

Robert B. Heintzelman John J. Remaley

Duane A. Schleicher

Kevin A. Schmidt John F. Sharkey, Jr.

John F. Simock

Herman P. Snyder Mary Ann Wagner

Officers of the Corporation

John J. Remaley Herman P. Snyder

President Vice President

Kevin A. Schmidt

Treasurer

David C. Matulevich Michael J. Bailey

Secretary Assistant Secretary

Officers of the BANK

Herman P. Snyder

Chairman of the Board

John J. Remaley Kevin A. Schmidt

President Executive Vice President
and
Chief Executive Officer

Michael J. Bailey Carol L. Jones

Cashier and
Chief Operations Officer Assistant Cashier and
Operations Officer

Dear Shareholder:

Opening last year’s Annual Shareholders’ letter, I began, “If the word “uncertainty” adequately describes the future — whether it is days, weeks, months or years — 2007 proved to be a period of uncertainty.” Those same words and phrases could be used to describe banking during 2008, because the profession only deteriorated further into uncertainty. In an attempt to stabilize not only the banks, but the entire economy, the federal government invested billions of its “resources” which ultimately had little effect. We learned new acronyms in the process — “TARP — Troubled Asset Relief Program” being one most-often mentioned, because some of our contemporaries finally admitted that their corporate balance sheets contained figures representing assets of little value, or which might not be assets at all.

Your organization refused the funds distributed under the federal government’s program, and reached its new status — nearly $239,000,000.00 in total assets — and achieving in excess of $3,000,000.00 in profitability. Several years ago, in a company referred to in a television advertisement, the company executive touted that their profits were “earned the old-fashioned way. They earned it!” Your management team works the same way, and takes pride in recording exceptional results.

The projections for the current year, developed under the guidance of the board of directors, include allowances for the challenges already being experienced. However, with the prudent processes instituted some time ago, high confidence exists, and the uncontrollable outside forces appear to be manageable.

Your confidence, evidenced by your investment in the organization, is sincerely appreciated. If you have not yet done so, why not invite your family, friends and neighbors to participate in furthering the success of the corporation?

Cordially yours,

John J. Remaley
President & CEO

Neffs Bancorp, Inc. and Subsidiary

Table of Contents

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

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Neffs Bancorp, Inc. and Subsidiary
Neffs, Pennsylvania

     We have audited the accompanying consolidated statements of financial condition of Neffs Bancorp, Inc. and subsidiary as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Neffs Bancorp, Inc. and subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/s/ Beard Miller Company LLP

Beard Miller Company LLP
Allentown, Pennsylvania
March 19, 2009

Neffs Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

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

See notes to consolidated financial statements.

2

Neffs Bancorp, Inc. and Subsidiary

Consolidated Statements of Income

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

See notes to consolidated financial statements.

3

Neffs Bancorp, Inc. and Subsidiary Consolidated Statements of Stockholders’ Equity
     Years Ended December 31, 2008, 2007 and 2006

								Accumulated
								Other						Total
	Common		Paid-in		Retained			Comprehensive			Treasury			Stockholders’
	Stock		Capital		Earnings			Income (Loss)			Stock			Equity
	(Dollars in Thousands, Except per Share Data)
Balance — December 31, 2005		200		753		39,603			(844	)		(418	)		39,294
Comprehensive income:
Net income		—		—		2,823			—			—			2,823
Change in unrealized net gains (losses) on securities available for sale, net of taxes		—		—		—			(103	)		—			(103	)
Total Comprehensive Income															2,720
Cash dividends declared on common stock, $4.00 per share		—		—		(792	)		—			—			(792	)
Balance — December 31, 2006		200		753		41,634			(947	)		(418	)		41,222
Comprehensive income:
Net income		—		—		2,701			—			—			2,701
Change in unrealized net gains (losses) on securities available for sale, net of taxes		—		—		—			574			—			574
Total Comprehensive Income															3,275
Cash 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
Comprehensive income:
Net income		—		—		3,037			—			—			3,037
Change in unrealized net gains (losses) on securities available for sale, net of taxes		—		—		—			815			—			815
Total Comprehensive Income															3,852
Cash dividends declared on common stock, $4.00 per share		—		—		(759	)		—			—			(759	)
Purchase of treasury stock (1,505 shares)		—		—		—			—			(394	)		(394	)
Balance — December 31, 2008	$	200	$	753	$	45,836		$	442		$	(2,702	)	$	44,529

See notes to consolidated financial statements.

4

Neffs Bancorp, Inc. and Subsidiary Consolidated Statements of Cash Flow

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

See notes to consolidated financial statements.

5

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 interest and fees earned from 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 also 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, the valuation of deferred tax assets, and the determination of other than temporary impairment of securities.

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.

Securities

Securities 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

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

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.

Restricted Investment in Bank Stocks

Restricted stocks include 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.

In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock. Management evaluates the restricted stock for impairment in accordance with Statement of Position (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade Receivables) That Lend to or Finance the Activities of Others. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge is necessary related to the restricted stock as of December 31, 2008.

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.

7

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

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.

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 no foreclosed assets as of December 31, 2008 and December 31, 2007.

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

8

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

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.

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, 2008, 2007 and 2006 was $42,000, $28,000 and $46,000, 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 $60,000, $58,000 and $59,000, for 2008, 2007 and 2006, 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, all of which mature within ninety days.

9

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

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.

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

The Corporation adopted FASB Statement No. 157 “Fair Value Measurements” (SFAS 157) effective January 1, 2008 for financial assets and liabilities that are measured and reported at fair value. There was no impact from the adoption of SFAS 157 on the amounts reported in the consolidated financial statements. The primary effect of SFAS 157 on the Corporation was to expand the required disclosures pertaining to the methods used to determine fair values.

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 implementation of this standard did not have a material impact on our consolidated financial position or results of operations because the Corporation did not apply the provisions of FAS 159 to any financial assets or liabilities.

In September 2008, the FASB ratified EITF Issue No. 08-5, “Issuer’s Accounting for Liabilities Measured at Fair Value With a Third-Party Credit Enhancement” (EITF 08-5). EITF 08-5 provides guidance for measuring liabilities issued with an attached third-party credit enhancement (such as a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement should not include the effect of the credit enhancement in the fair value measurement of the liability. EITF 08-5 is effective for the first reporting period beginning after December 15, 2008. The Corporation does not expect the implementation of this standard to have a material impact on our consolidated financial position or results of operations.

In May 2008, the FASB issued FAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. FAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). FAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Corporation does not expect the adoption of FAS No. 162 to have a material effect on its results of operations and financial position.

10

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

In February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” This FSP addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one “linked” transaction. The FSP includes a “rebuttable presumption” that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will be effective for fiscal years beginning after November 15, 2008 and will apply only to original transfers made after that date; early adoption will not be allowed. The implementation of this standard did not have a material impact on our consolidated financial position or results of operations.

FASB statement No. 141(R) “Business Combinations” was issued in December of 2007. This Statement establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determining what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. This new pronouncement will impact the Corporation’s accounting for business combinations beginning January 1, 2009.

FASB statement No. 160 “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” was issued in December of 2007. This Statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. The implementation of this standard will not have a material impact on our consolidated financial position or results of operations.

Staff Accounting Bulletin No. 109 (SAB 109), “Written Loan Commitments Recorded at Fair Value Through Earnings” expresses the views of the staff regarding written loan commitments that are accounted for at fair value through earnings under generally accepted accounting principles. To make the staff’s views consistent with current authoritative accounting guidance, the SAB revises and rescinds portions of SAB No. 105, “Application of Accounting Principles to Loan Commitments.” Specifically, the SAB revises the SEC staff’s views on incorporating expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment. The SAB retains the staff’s views on incorporating expected net future cash flows related to internally-developed intangible assets in the fair value measurement of a written loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Corporation does not expect SAB 109 to have a material impact on its financial statements.

Note 2 — Cash and Cash Equivalents

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, 2008 and 2007 was $344,000 and $400,000, respectively.

11

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Note 3 — Securities

The amortized cost and fair values of securities are as follows:

	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
Securities Available for Sale:
U.S. Treasury note	$	100	$	7	$	—		$	107
Mortgage-backed securities		37,181		702		(40	)		37,843
	$	37,281	$	709	$	(40	)	$	37,950
Securities Held to Maturity:
Obligations of U.S. Government agencies	$	52,871	$	568	$	(1,393	)	$	52,046
Obligations of states and political subdivisions		32,300		833		(66	)		33,067
Corporate securities		5,341		—		(2,413	)		2,928
Mortgage-backed securities		1,045		25		—			1,070
	$	91,557	$	1,426	$	(3,872	)	$	89,111

	December 31, 2007
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In Thousands)
Securities Available for Sale:
U.S. Treasury note	$	100	$	1	$	—		$	101
Mortgage-backed securities		36,145		71		(637	)		35,579
	$	36,245	$	72	$	(637	)	$	35,680
Securities Held to Maturity:
Obligations of U.S. Government agencies	$	43,627	$	466	$	(69	)	$	44,024
Obligations of states and political subdivisions		37,507		972		(18	)		38,461
Corporate securities		4,437		18		(305	)		4,150
Mortgage-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

The amortized cost and fair values of securities at December 31, 2008, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In Thousands)
Due in one year or less	$	100	$	107	$	1,000	$	1,014
Due after one year through five years		—		—		7,795		7,738
Due after five years through ten years		—		—		19,618		20,178
Due after ten years		—		—		62,099		59,111
		100		107		90,512		88,041
Mortgage-backed securities		37,181		37,843		1,045		1,070
	$	37,281	$	37,950	$	91,557	$	89,111

There were no sales of securities during 2008, 2007, and 2006.

The changes in net unrealized holding gains (losses) on securities available for sale that have been included in other comprehensive income (loss) for the years ended December 31, 2008, 2007 and 2006 are as follows:

	2008			2007			2006
	(In Thousands)
Gross change in unrealized gains (losses) on securities available for sale	$	1,235		$	870		$	(156	)
Reclassification adjustment for gains realized in income		—			—			—
Net Unrealized Gains (Losses)		1,235			870			(156	)
Tax effect		(420	)		(296	)		53
Net of Tax Amount	$	815		$	574		$	(103	)

Securities with an amortized cost and fair value of approximately $7,698,000 and $7,721,000 at December 31, 2008 and $7,264,000 and $7,405,000 at December 31, 2007 were pledged to secure public deposits and for other purposes required or permitted by law.

13

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

The following tables show the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2008 and 2007:

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In Thousands)
DECEMBER 31, 2008:
Securities Available for Sale:
Mortgage-backed securities	$	38	$	1	$	5,866	$	39	$	5,904	$	40
Securities Held to Maturity:
Obligations of U.S. Government agencies		26,576		1,206		2,572		187		29,148		1,393
Obligations of states and political subdivisions		3,818		44		627		22		4,445		66
Corporate securities		1,613		448		1,165		1,965		2,778		2,413
Total Temporarily Impaired Securities	$	32,045	$	1,699	$	10,230	$	2,213	$	42,275	$	3,912

	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
					(In Thousands)
DECEMBER 31, 2007:
Securities Available for Sale:
Mortgage-backed securities	$	—	$	—	$	27,588	$	637	$	27,588	$	637
Securities Held to Maturity:
Obligations of U.S. Government agencies		1,909		35		10,069		34		11,978		69
Obligations of states and political subdivisions		—		—		2,104		18		2,104		18
Corporate securities		2,688		249		794		56		3,482		305
Mortgage-backed securities		—		—		248		2		248		2
Total Temporarily Impaired Securities	$	4,597	$	284	$	40,803	$	747	$	45,400	$	1,031

The Corporation had 88 and 111 securities in an unrealized loss position at December 31, 2008 and 2007, respectively. The decline in fair value is due only to interest rate fluctuations. As the Corporation has the intent and ability to hold such investments until maturity or market price recovery, no securities are deemed to be other-than-temporarily impaired. None of the individual unrealized losses are significant.

14

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Note 4 — Loans

The composition of the Corporation’s loan portfolio at December 31, 2008 and 2007 is as follows:

	2008			2007
	(In Thousands)
Commercial	$	3,627		$	4,635
Commercial real estate		26,142			22,779
Residential real estate		43,799			39,221
Real estate construction		873			879
Home equity		19,688			20,043
Other consumer		6,824			7,053
		100,953			94,610
Allowance for loan losses		(761	)		(620	)
	$	100,192		$	93,990

Note 5 — Allowance for Loan Losses

Transactions in the allowance for loan losses are summarized as follows:

	2008			2007			2006
	(In Thousands)
Balance, beginning	$	620		$	653		$	657
Provision for loan losses		145			—			—
Recoveries on loans previously charged off		1			5			2
Loans charged off		(5	)		(38	)		(6	)
Balance, ending	$	761		$	620		$	653

Loans on which the accrual of interest has been discontinued amounted to $-0- at December 31, 2008 and 2007. Loan balances past due 90 days or more and still accruing interest, but which management expects will eventually be paid in full, amounted to $483,000 and $36,000 at December 31, 2008 and 2007, respectively.

There were no impaired loans as of December 31, 2008 and 2007. The average recorded investment in impaired loans during 2008, 2007 and 2006 was $-0-, $-0- and $-0-, respectively.

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Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Note 6 — Premises and Equipment

The following summarizes premises and equipment at December 31, 2008 and 2007:

	Estimated
	Useful Lives	2008			2007
		(In Thousands)
Premises	5-39 years	$	2,845		$	2,813
Furniture, fixtures and equipment	5-10 years		2,136			1,996
			4,981			4,809
Accumulated depreciation			(2,893	)		(2,700	)
			2,088			2,109
Land			238			238
		$	2,326		$	2,347

Note 7 — Interest Bearing Deposits

Interest bearing deposits include certificates of deposit issued in denominations of $100,000 or greater which amounted to $44,312,000 and $37,185,000 at December 31, 2008 and 2007, respectively.

Interest bearing deposits at December 31, 2008 and 2007 are further detailed as follows:

	2008		2007
	(In Thousands)
Savings accounts	$	48,338	$	45,086
NOW accounts		6,038		6,542
Certificates and other time deposits		121,822		111,558
	$	176,198	$	163,186

Time deposits at December 31, 2008 had the following scheduled maturities (in thousands):

2009	$	59,059
2010		24,660
2011		9,498
2012		11,001
2013		17,604
	$	121,822

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Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Note 8 — Borrowing Capacity

The Bank has a line of credit commitment available from Atlantic Central Bankers Bank for borrowings up to $4,000,000 in federal funds. Borrowings on this line are repaid on a daily basis. There were no borrowings under this line as of December 31, 2008 and $2,249,000 of borrowings under this line of credit as of December 31, 2007 with interest at 3.86%.

The Bank has maximum borrowing capacity with the Federal Home Loan Bank of $130,597,000. There were no borrowings outstanding at December 31, 2008 and 2007. Advances from the Federal Home Loan Bank are secured by qualifying assets of the Bank.

Note 9 — Income Taxes

The components of the net deferred tax asset at December 31, 2008 and 2007 are as follows:

	2008		2007
	(In Thousands)
AMT credit carryforward	$	276	$	416
Unrealized losses on securities available for sale		—		192
Allowance for loan losses		208		160
Accrued benefits		23		20
Total Deferred Tax Assets		507		788
Securities accretion		37		37
Unrealized gains on securities available for sale		228		—
Depreciation		20		4
Total Deferred Tax Liabilities		285		41
Net Deferred Tax Asset	$	222	$	747

17

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

The income tax provision for financial reporting purposes differs from the amount computed by applying the statutory income tax rate to income before income taxes. The differences for the years ended December 31, 2008, 2007 and 2006 are as follows:

	2008						2007						2006
				% of						% of						% of
				Pretax						Pretax						Pretax
	Amount			Income			Amount			Income			Amount			Income
	(Dollars in Thousands)
Tax at statutory rate	$	1,315			34	%	$	1,101			34	%	$	1,125			34	%
Increase (decrease) resulting from:
Tax-exempt interest income		(550	)		(14	)		(643	)		(20	)		(714	)		(21	)
TEFRA interest expense disallowance		64			2			79			3			77			2
	$	829			22	%	$	537			17	%	$	488			15	%

Note 10 — Related Party Transactions

Some of the Corporation’s or the Bank’s directors, principal officers, principal shareholders and their related interests had transactions with the Bank in the ordinary course of business. All loans and loan commitments were made on substantially the same terms, including collateral and interest rates, as those prevailing at the time for comparable transactions. In the opinion of management, these transactions do not involve more than normal risk of collectibility or present other unfavorable features. It is anticipated that further extensions of such credit will be made in the future.

The following is an analysis of loans to these related parties during 2008 (in thousands):

Balances, January 1, 2008	$	5,243
Advances		1,814
Repayments		(1,676	)
Balances, December 31, 2008	$	5,381

Note 11 — Financial Instruments with Off-Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition. The contract or notional amounts of these instruments reflect the extent of involvement the Corporation has in particular classes of financial instruments.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit written is represented by the contract or notional amount of those instruments. The Corporation uses the same credit policies in making commitments and

18

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

conditional obligations as it does for on-balance sheet instruments. The following table identifies the contract or notional amount of those instruments at December 31, 2008 and 2007:

	2008		2007
	(In Thousands)
Commitments to grant loans	$	806	$	2,335
Unfunded commitments under lines of credit		4,771		4,053
Letters of credit		594		627
	$	6,171	$	7,015

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory, and equipment.

Outstanding letters of credit written are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. The majority of these standby letters of credit expire within the next twelve months. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending other loan commitments. The Corporation requires collateral supporting these letters of credit as deemed necessary. The maximum undiscounted exposure related to these commitments at December 31, 2008 and 2007 was $594,000 and $627,000, respectively. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2008 and 2007 for guarantees under standby letters of credit issued is not material.

Note 12 — Dividend Restrictions

The amount of funds available to a parent from its subsidiary bank is limited for all national banks by restrictions imposed by the Comptroller of the Currency. A national bank is required to obtain the approval of the Comptroller of the Currency if the total of all dividends declared in any calendar year exceeds the Bank’s net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years. Under this formula, the Bank can declare dividends in 2009 of approximately $2,102,000 plus an additional amount equal to the Bank’s net profits for 2009, up to the date of any such dividend declaration.

Note 13 — Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities

19

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the tables below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 Capital (as defined) to average assets (as defined). Management believes, as of December 31, 2008, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2008, the most recent notification from the regulatory agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Bank’s actual capital ratios as of December 31, 2008 and 2007, and the maximum ratios required for capital adequacy purposes and to be well capitalized under the prompt corrective action provisions are as follows:

To be Well Capitalized

under Prompt

For Capital Adequacy

Corrective Action

Actual

Purposes

Provisions

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in Thousands)

As of December 31, 2008:

Total capital (to risk-weighted assets):

$

44,587

38.5

³9,267

³8.0

$

³11,584

³10.0

%

Tier 1 capital (to risk-weighted assets):

43,826

37.8

³4,633

³4.0

³  6,950

³ 6.0

Tier 1 capital (to average assets):

43,826

18.6

³9,413

³4.0

³11,767

³ 5.0

As of December 31, 2007:

Total capital (to risk-weighted assets):

$

42,453

38.5

³8,825

³8.0

$

³  11,031

³10.0

%

Tier 1 capital (to risk-weighted assets):

41,833

37.9

³4,412

³4.0

³    6,618

³ 6.0

Tier 1 capital (to average assets):

41,833

18.7

³8,952

³4.0

³11,190

³ 5.0

The Federal Reserve Board approved a final rule in February 2006 that expands the definition of a small bank holding company (“BHC”) under the Board’s Small Bank Holding Company Policy Statement and the Board’s risk-based and leverage capital guidelines for bank holding companies. In its revisions to the Policy Statement, the Federal Reserve Board has raised the small BHC asset size threshold from $150 million to $500 million and amended the related qualitative criteria for determining eligibility as a small BHC for the purposes of the policy statement and the capital guidelines. The policy statement facilitates the transfer of ownership of small community banks by permitting debt levels at small BHCs that are higher than what would typically be permitted for larger BHCs. Because small BHCs may, consistent with the policy statement, operate at a level of leverage that generally is inconsistent with the capital guidelines, the capital guidelines provide an exemption for small BHCs. Based on the ruling, Neffs Bancorp, Inc. meets the eligibility criteria of a small BHC and is exempt from regulatory capital requirements administered by the federal banking agencies.

20

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Note 14 — Fair Value of Financial Instruments

Below are various estimated fair values at December 31, 2008 and 2007, as required by Statement of Financial Accounting Standards No. 107 (“FAS 107”). Such information, which pertains to the Corporation’s financial instruments, is based on the requirements set forth in FAS 107 and does not purport to represent the aggregate net fair value of the Corporation. It is the Corporation’s general practice and intent to hold its financial instruments to maturity, except for certain securities designated as securities available for sale, and not to engage in trading activities. Many of the financial instruments lack an available trading market, as characterized by a willing buyer and seller engaging in an exchange transaction. Therefore, the Corporation had to use significant estimations and present value calculations to prepare this disclosure.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Further, the fair value estimates are based on various assumptions, methodologies and subjective considerations, which vary widely among different financial institutions and which are subject to change.

The estimated fair value amounts have been measured as of their respective year ends, and have not been reevaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at year end.

The following methods and assumptions were used by the Corporation in estimating financial instrument fair values:

Cash and Due from Banks, Interest Bearing Deposits with Banks and Federal Funds Sold and Purchased

The statement of financial condition carrying amounts for cash and due from banks, interest bearing deposits with banks and federal funds sold and purchased approximate the estimated fair values of such assets.

Securities

Fair values for securities held to maturity and securities available for sale are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

The carrying amount of restricted investments in bank stocks, such as Federal Reserve Bank stock, Atlantic Central Bankers Bank stock and Federal Home Loan Bank stock, is considered a reasonable estimate of fair value.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

21

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:

			(Level 1)
			Quoted Prices in		(Level 2)	(Level 3)
			Active Markets		Significant Other	Significant
	December 31,		for Identical		Observable	Unobservable
Description	2008		Assets		Inputs	Inputs
			(In Thousands)
Securities Available for sale	$	37,950	$	37,950

The Corporation’s adoption of SFAS 157 applies only to its financial instruments required to be reported at fair value. The adoption did not apply to those non-financial assets and non-financial liabilities for which adoption was delayed until January 1, 2009 in accordance with FSP FAS 157-2.

On October 10, 2008, the FASB issued FSP 157-3, which clarifies the application of FAS 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. The FSP states that an entity should not automatically conclude that a particular transaction price is determinative of fair value. In a dislocated market, judgment is required to evaluate whether individual transactions are forced liquidations or distressed sales. When relevant observable market information is not available, a valuation approach that incorporates management’s judgments about the assumptions that market participants would use in pricing the asset in a current sale transaction would be acceptable. The FSP also indicates that quotes from brokers or pricing services may be relevant inputs when measuring fair value, but are not necessarily determinative in the absence of an active market for the asset. In weighing a broker quote as an input to a fair value measurement, an entity should place less reliance on quotes that do not reflect the result of market transactions. Further, the nature of the quote (for example, whether the quote is an indicative price or a binding offer) should be considered when weighing the available evidence. The FSP is effective immediately and applies to prior periods for which financial statements have not been issued, including interim or annual periods ending on or before September 30, 2008. Accordingly, the Corporation adopted the FSP prospectively, beginning July 1, 2008 and considered this guidance in determining fair value measurements on September 30, 2008.

The Corporation conducts other-than-temporary impairment analysis on a quarterly basis. The initial indication of other-than-temporary impairment for both debt and equity securities is a decline in the market value below the amount recorded for an investment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the consolidated statement of income.

In determining whether an impairment is other than temporary, the Corporation considers a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and the Corporation’s intent and ability to retain the security for a period of time sufficient to allow for a recovery in market value or maturity. Among the factors that are considered in determining the Corporation’s intent and ability is a review of its capital adequacy, interest rate risk position and liquidity.

22

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

The Corporation also considers the issuer’s financial condition, capital strength and near-term prospects. In addition, for debt securities and perpetual preferred securities that are treated as debt securities for the purpose of other-than-temporary analysis, the Corporation considers the cause of the price decline (general level of interest rates and industry- and issuer-specific factors), current ability to make future payments in a timely manner and the issuer’s ability to service debt.

The assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and the Corporation’s intent and ability to retain the security until recovery in value require considerable judgment.

Certain of the corporate debt securities are accounted for under EITF 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests that Continue to Be Held by a Transferor in Securitized Financial Assets. For investments within the scope of EITF 99-20 at acquisition, the Corporation evaluates current available information in estimating the future cash flows of these securities and determines whether there have been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Corporation considers the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporates factors such as interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various note classes. Current estimates of cash flows are based on the most recent trustee reports, announcements of deferrals or defaults, expected future default rates and other relevant market information. At December 31, 2008, the Corporation concluded that no adverse change in cash flows occurred during the year.

The Corporation analyzed the cash flow characteristics of these securities. Based on this analysis and because the Corporation has the intent and ability to hold these securities until recovery of fair value, which may be at maturity; and, for investments within the scope of EITF 99-20, determined that there was no adverse change in the cash flows as viewed by a market participant, the Corporation does not consider the investments in these assets to be other-than-temporarily impaired at December 31, 2008. However, there is a risk that this review could result in recognition of other-than-temporary impairment charges in the future.

We own 4 collateralized debt obligation securities totaling $3,975,000 par value and $1,624,000 fair value that are backed by trust preferred securities issued by banks, thrifts, and insurance companies (TRUP CDOs). These securities are included in corporate held to maturity securities. The market for these securities at December 31, 2008 is not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which TRUP CDOs trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive as no new TRUP CDOs have been issued since 2007. There are currently very few market participants who are willing and or able to transact for these securities.

The market values for these securities (and any securities other than those issued or guaranteed by the US Treasury) are very depressed relative to historical levels. For example, the yield spreads for the broad market of investment grade and high yield corporate bonds reached all time wide levels versus Treasuries at the end of November and remain near those levels today. Thus in today’s market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general versus being an indicator of credit problems with a particular issuer.

Given conditions in the debt markets today and the absence of observable transactions in the secondary and new issue markets, we determined:

• The few observable transactions and market quotations that are available are not reliable for purposes of determining fair value at December 31, 2008,

23

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

• An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at prior measurement dates and

• Our TRUP CDOs will be classified within Level 3 of the fair value hierarchy because we determined that significant adjustments are required to determine fair value at the measurement date.

Our TRUP CDO valuations were prepared by an independent third party. Their approach to determining fair value involved these steps:

1. The credit quality of the collateral is estimated using average probability of default values for each issuer (adjusted for rating levels)

2. The default probabilities also considered the potential for correlation among issuers within the same industry (e.g. banks with other banks).

3. The loss given default was assumed to be 95% (i.e. a 5 % recovery).

4. The cash flows were forecast for the underlying collateral and applied to each CDO tranche to determine the resulting distribution among the securities

5. The expected cash flows were discounted to calculate the present value of the security

6. The calculations were modeled in several thousand scenarios using a Monte Carlo engine and the average price was used for valuation purposes

7. The effective discount rates on an overall basis range from 6.57%to 23.10% and are highly dependent upon the credit quality of the collateral, the relative position of the tranche in the capital structure of the CDO and the prepayment assumptions.

As of December 31, 2008, management does not believe any unrealized loss in its other debt securities represents an other-than-temporary impairment. The unrealized losses at December 31, 2008 were primarily interest rate-related.

Loans Receivable

Fair values of variable rate loans subject to frequent repricing and which entail no significant credit risk are based on the carrying amounts. The estimated fair values of other loans are estimated by discounting the future cash flows using interest rates currently offered for loans with similar terms to borrowers of similar credit quality.

Accrued Interest Receivable

The carrying amount of accrued interest is considered a reasonable estimate of fair value.

Deposit Liabilities

For deposits which are payable on demand, the carrying amount is a reasonable estimate of fair value. Fair values of fixed rate time deposits are estimated by discounting the future cash flows using interest rates currently being offered and a schedule of aggregate expected maturities.

Accrued Interest Payable

The carrying amount of accrued interest approximates its fair value.

24

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Off-Balance Sheet Instruments

The fair value of commitments to extend credit and for outstanding letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account market interest rates, the remaining terms and present credit worthiness of the counterparties.

The estimated fair values of the Corporation’s financial instruments at December 31 are as follows:

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

25

Neffs Bancorp, Inc. and Subsidiary Notes to Consolidated Financial Statements

Note 15 — Condensed Financial Information of Neffs Bancorp, Inc. (Parent Only)

Balance Sheets

	December 31,
	2008		2007
	(In Thousands)
Assets
Cash	$	8	$	53
Investment in subsidiary		44,268		41,459
Premises and equipment		241		245
Other assets		33		94
Total Assets	$	44,550	$	41,851
Liability and Stockholders’ Equity
Liability, accounts payable	$	21	$	21
Stockholders’ equity		44,529		41,830
Total Liability and Stockholders’ Equity	$	44,550	$	41,851

Statements of Income

	Years Ended December 31,
	2008			2007			2006
	(In Thousands)
Dividends from subsidiary	$	1,107		$	2,667		$	792
Rental income		11			13			13
Expenses		(107	)		(127	)		(111	)
Income before Income Taxes and Equity in Undistributed Earnings of Subsidiary		1,011			2,553			694
Income tax benefit		33			39			27
		1,044			2,592			721
Equity in undistributed earnings of subsidiary		1,993			109			2,102
Net Income	$	3,037		$	2,701		$	2,823

26

Neffs Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements

Statements of Cash Flows

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

27

Neffs Bancorp, Inc. and Subsidiary
Selected Financial Data

The following financial information is not covered by the auditor’s report and must be read in conjunction with the consolidated financial statements and related notes along with Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

28

Neffs Bancorp, Inc. and Subsidiary
Quarterly Summary of Financial Data (unaudited)

	2008
	Three Months Ended
	March 31		June 30		September 30		December 31
	(Dollars in Thousands, Except Per Share Data)
Interest income	$	3,144	$	3,201	$	3,251	$	3,276
Interest expense		1,597		1,537		1,503		1,485
Net interest income		1,547		1,664		1,748		1,791
Provision for loan losses		15		15		38		77
Other expenses, net of other income		653		706		708		672
Income before income taxes		879		943		1,002		1,042
Income tax expense		174		196		232		227
Net income	$	705	$	747	$	770	$	815
Earnings per share-Basic	$	3.70	$	3.93	$	4.06	$	4.31

	2007
	Three Months Ended
	March 31		June 30		September 30		December 31
	(Dollars in Thousands, Except Per Share Data)
Interest income	$	2,878	$	2,951	$	3,039	$	3,067
Interest expense		1,470		1,505		1,534		1,580
Net interest income		1,408		1,446		1,505		1,487
Provision for loan losses		—		—		—		—
Other expenses, net of other income		655		664		653		636
Income before income taxes		753		782		852		851
Income tax expense		105		117		148		167
Net income	$	648	$	665	$	704	$	684
Earnings per share-Basic	$	3.27	$	3.36	$	3.57	$	3.59

29

Neffs Bancorp, Inc. and Subsidiary Common Stock Information

The Corporation’s common stock is currently quoted on the National Quotations Bureau’s Electronic Quotation Service (“Pink Sheets”) under the trading symbol NEFB. The Corporation’s common stock is traded over-the-counter from time to time, primarily in the Corporation’s geographic service area, through several local market makers.

The following table sets forth the high and low bid quotations for the Corporation’s common stock as reported for each quarterly period of the 2008 and 2007 fiscal years. This information is based on monthly reports from a third party investment broker. There may have been other bids or transactions not known to the Corporation. The quotations reflect inter-dealer prices, do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

Common Stock Information

					Cash Dividends
2008	HIGH		LOW		Per Share
First Quarter	$	255.00	$	255.00		—
Second Quarter	$	260.00	$	260.00	$	2.00
Third Quarter	$	245.00	$	265.00		—
Fourth Quarter	$	221.00	$	235.00	$	2.00

					Cash Dividends
2007	HIGH		LOW		Per Share
First Quarter	$	256.00	$	256.00		—
Second Quarter	$	262.00	$	262.00	$	2.00
Third Quarter	$	263.00	$	263.00		—
Fourth Quarter	$	263.00	$	263.00	$	2.00

As of December 31, 2008, Neffs Bancorp, Inc. had 189,250 outstanding shares and approximately 640 stockholders, including beneficial owners whose stock is held in nominee name.

30

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Years Ending December 31, 2008, 2007, and 2006

The following is management’s discussion and analysis of the significant changes in the financial condition and results of operations of Neffs Bancorp, Inc. (the “Corporation”) and it’s wholly owned subsidiary The Neffs National Bank (the “Bank”). The consolidated financial condition and results of operations consist almost entirely of the Bank’s financial condition and results of operations. This discussion should be read in conjunction with the financial tables, consolidated financial statements and notes to consolidated financial statements appearing elsewhere in this report. Current performance does not guarantee, assure or may not be indicative of similar performance in the future.

We have made forward-looking statements in this document and in documents that we incorporated by reference that are subject to risk and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of the Corporation and the Bank. When we use words such as “believes”, “expects”, “anticipates” or other similar expressions, we are making forward-looking statements.

Stockholders should note that many factors, some of which are discussed elsewhere in this document and in the documents that we incorporate by reference, could affect the future financial results of the Bank and could cause those results to differ materially from those expressed in our forward-looking statements contained or incorporated by reference in this document. These factors include the following:

• 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.

The Corporation undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the risk factors described in other documents that the Corporation files periodically with the Securities and Exchange Commission.

Critical Accounting Policies

Disclosure of the Corporation’s significant accounting policies is included in Note 1 of the consolidated financial statements. Certain of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management. The allowance for loan losses and other-than-temporary-impairment are the critical accounting policies that require significant management judgment.

Management, in determining the allowance for loan losses, makes significant estimates. Consideration is given to a variety of factors in establishing this estimate. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews, borrowers’ perceived financial and managerial strengths, the adequacy of the underlying collateral, if collateral dependent, or present value of future cash flows and other relevant factors. Since the sufficiency of the allowance for loan losses is dependent to a great extent on conditions that may be beyond our control, it is possible that management’s estimates of the allowance for loan losses and actual results could differ in the near term. In addition, regulatory authorities, as an integral part of their examination, periodically review the allowance for loan losses. They may require additions to the allowance based upon their judgments about information available to them at the time of examination. Future increases to our allowance for loan losses,

31

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

whether due to unexpected changes in economic conditions or otherwise, would adversely affect our future results of operations.

OVERVIEW

The Corporation and its wholly owned subsidiary, The Neffs National Bank, continue to strive to provide quality products and services to the community with a personal touch. During 2008, the Corporation realized improvement in net interest income due to increasing yields on interest earning assets and decreasing cost of funds.

The Corporation’s assets increased by 5.8% to $238,782,000 at December 31, 2008 from $225,797,000 at December 31, 2007. During the same period, net loans receivable increased $6,202,000 or 6.6% to $100,192,000 from $93,990,000, and deposits increased $12,547,000 or 7.0% to $192,938,000 from $180,391,000. Securities increased $7,016,000 or 5.7% to $129,507,000 from $122,491,000. In 2008, the Corporation recorded net income of $3,037,000, an increase of 12.4% as compared with $2,701,000 in 2007.

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

The single largest component of the Corporation’s primary operating income is net interest income. It is the amount by which interest earned on interest earning assets exceeds the interest paid on interest bearing liabilities. The change in interest income from year to year may be due to changes in interest rates, changes in volumes on interest earning assets and liabilities as well as changes in the mix of such assets and liabilities. The Corporation’s primary interest earning assets are loans to businesses and individuals and investment securities. Interest bearing liabilities consist primarily of time deposits, NOW deposits and savings deposits. Generally, changes in net interest income are measured by net interest rate spread and net interest margin. Net interest rate spread is equal to the difference between the average rate earned on interest earning assets and the average rate incurred on interest bearing liabilities. Net interest margin represents the difference between interest income (including net loan fees earned) and interest expense calculated as a percentage of average earning assets.

2008 Compared to 2007

Total interest income increased by $937,000 or 7.9% to $12,872,000 for the year ended December 31, 2008 from $11,935,000 at December 31, 2007. This increase is mainly the result of the average balance of the loan portfolio increasing by $5.8 million in 2008 over 2007, which generated additional interest and fees on loans throughout 2008. The yield on interest earning assets also increased from 5.55% in 2007 to 5.71% in 2008.

Total interest expense increased by $33,000 or 0.5% to $6,122,000 in 2008 from $6,089,000 in 2007. This increase is mainly the result of the average balance of interest bearing deposits increasing by $9.7 million in 2008 over 2007 offset by a decreased cost of funds on interest bearing liabilities from 3.72% in 2007 to 3.53% in 2008.

Net interest income increased by $904,000 or 15.5% to $6,750,000 in 2008 from $5,846,000 in 2007. The Corporation’s net interest rate spread for 2008 was 2.18% as compared to 1.83% for 2007. The net interest margin for 2008 was 3.00% as compared to 2.72% for 2007.

2007 Compared to 2006

Total interest income increased by $944,000 or 8.6% to $11,935,000 for the year ended December 31, 2007 from $10,991,000 at December 31, 2006. This increase is mainly the result of the average balance of the loan portfolio increasing by $6.4 million in 2007 over 2006, which generated additional interest and fees on loans throughout 2007. The yield on interest earning assets also increased from 5.36% in 2006 to 5.55% in 2007.

32

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

Total interest expense increased by $960,000 or 18.7% to $6,089,000 in 2007 from $5,129,000 in 2006. This increase in interest expense is due mainly to the increasing interest rate environment experienced throughout 2007. The cost of funds on interest bearing liabilities increased from 3.31% in 2006 to 3.72% in 2007. The average balance of interest bearing liabilities increased $8.8 million in 2007 from 2006.

Net interest income decreased by $16,000 or 0.3% to $5,846,000 in 2007 from $5,862,000 in 2006. The Corporation’s net interest rate spread for 2007 was 1.8% as compared to 2.1% for 2006. The net interest margin for 2007 was 2.72% as compared to 2.86% for 2006.

Following is a summary of the Bank’s average balances, yields, interest income, and interest expense, the interest rate spread and the net interest margin for the years ended December 31, 2008, 2007, and 2006.

								Year Ended December 31,
	2008							2007							2006
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance1		Interest		Rate			Balance1		Interest		Rate			Balance1		Interest		Rate
								(Dollars in Thousands)
Interest earning assets:
Loans receivable2	$	97,774	$	6,456		6.60	%	$	92,006	$	5,988		6.51	%	$	85,565	$	5,419		6.33	%
Investment securities:
Taxable		92,674		4,876		5.26	%		81,916		4,086		4.99	%		75,390		3,546		4.70	%
Non-taxable3		33,871		1,528		4.51	%		39,387		1,783		4.53	%		43,817		1,975		4.51	%
Other interest earning assets4		990		12		1.21	%		1,747		78		4.46	%		357		51		14.29	%
Total interest earning assets		225,309		12,872		5.71	%		215,056		11,935		5.55	%		205,129		10,991		5.36	%
Noninterest earning assets		8,588							8,554							8,155
Total assets	$	233,897						$	223,610						$	213,284
Interest bearing liabilities:
NOW	$	5,932		49		0.83	%	$	6,517		105		1.61	%	$	7,697		126		1.64	%
Savings		47,649		830		1.74	%		48,147		926		1.92	%		49,428		867		1.75	%
Certificates of deposit		118,746		5,220		4.40	%		108,275		5,054		4.67	%		97,273		4,122		4.24	%
Federal funds purchased		861		23		2.67	%		562		4		0.71	%		343		14		4.08	%
Total interest bearing liabilities		173,188		6,122		3.53	%		163,501		6,089		3.72	%		154,741		5,129		3.31	%
Noninterest bearing liabilities:
Demand deposits		16,393							17,455							17,571
Other liabilities		1,466							1,494							1,287
Stockholders’ equity		42,850							41,160							39,685
Total liabilities and stockholders’ equity	$	233,897						$	223,610						$	213,284
Net interest income/spread5			$	6,750		2.18	%			$	5,846		1.83	%			$	5,862		2.05	%
Net interest margin6						3.00	%						2.72	%						2.86	%

1	Averages are not computed on daily average. Average balances are computed based on an average of quarter-end balances.
2	Average balances include non-accrual loans.
3	There have been no tax equivalent adjustments made to yields.
4	This reflects average balance for Federal Funds Sold and Purchased and is calculated by utilizing quarterly ending balance. The actual daily balance may differ greatly from this average balance due to the nature of these funds.
5	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.
6	Net interest margin represents net interest income as a percentage of average interest earning assets.

33

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

The following table attributes increases and decreases in components of net interest income either to changes in average volume or to changes in average rates for interest earning assets and interest bearing liabilities. Numerous and simultaneous balance and rate changes occur during the year. The amount of change that is not due solely to volume or rate is allocated proportionally to each.

	For Year Ended December 31,
	2008/2007 Increase/(Decrease)									2007/2006 Increase/(Decrease)
	Due to Change in									Due to Change in
	Volume			Rate			Net			Volume			Rate			Net
							(In Thousands)
Interest Income:
Loans receivable	$	381		$	87		$	468		$	419		$	150		$	569
Securities		265			270			535			101			247			348
Other interest earning assets		(9	)		(57	)		(66	)		62			(35	)		27
Total interest earning assets		637			300			937			582			362			944
Interest Expense:
NOW		(5	)		(51	)		(56	)		(19	)		(2	)		(21	)
Savings		(9	)		(87	)		(96	)		(25	)		84			59
Certificates of Deposit		460			(293	)		167			513			418			931
Federal funds purchased		8			11			19			2			(11	)		(9	)
Total interest bearing liabilities		454			(420	)		34			471			489			960
Net change in net interest income	$	183		$	720		$	903		$	111		$	(127	)	$	(16	)

Provision for Loan Losses

Although the Corporation maintains sound credit practices, loan deterioration may occur resulting in the eventual charge off of the loans as losses. The provision for loan losses and the allowance for loan losses are based upon management’s ongoing assessment of the Bank’s credit exposure and consideration of other relevant factors. The allowance for loan losses is a valuation that is available to absorb potential yet undetermined future charge offs. The provision for loan losses is the amount charged against the Bank’s earnings. Its appropriateness and adequacy are determined based upon several factors including:

• 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.

The allowance is allocated to specific loan categories based upon management’s classification of loans under the Corporation’s internal loan grading system and to pools of other loans that are not individually analyzed. Management makes allocations to specific loans based on the present value of expected future cash flows or the fair value of the underlying collateral for impaired loans and to other classified loans based on various credit risk factors. These factors include collateral values, the financial condition of the borrower and industry and current economic trends.

Allocations to commercial loan pools are developed by internal risk ratings and are based on management’s judgment concerning historical loss trends and other relevant factors. Installment and residential mortgage loan allocations are made at a portfolio level based on historical loss experience adjusted for portfolio activity and current conditions. Estimated credit losses are based on the average annual rate of net charge-offs experienced

34

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

over the previous two or three years on similar loans, adjusted for current condition and trends. While allocations are made to specific loans and pools of loans, the allowance is available for all loan losses.

The provision for loan losses made during 2008 was $145,000 due mainly to the increase in the loan portfolio and general deteriorating economic conditions. There was no provision made for 2007 or 2006. Management concluded that the for Loan Losses had an adequate balance to justify no provision being made during 2007 and 2006, due to minimal net charge offs and declining non-performing loans.

The Allowance for Loan Losses represented .75% of total loans receivable at December 31, 2008 as compared with .66% and .74% at December 31, 2007, and 2006, respectively. Management regularly assesses the appropriateness and adequacy of the allowance for loan losses in relation to credit exposure associated with individual borrowers, overall trends in the loan portfolio and other relevant factors, and believes the allowance is reasonable and adequate for each of the periods presented. The Corporation has no credit exposure to foreign countries or foreign borrowers. The Corporation also has no exposure to subprime mortgage loans.

The Bank’s loan loss experience for each of the five years ended December 31 is presented below.

	Year Ended December 31
	2008			2007			2006			2005			2004
				(Dollars in Thousands)
Average loans outstanding	$	97,774		$	92,006		$	85,565		$	79,294		$	72,744
Total gross loans at year end	$	100,953		$	94,610		$	88,071		$	83,042		$	76,978
Allowance for loan losses at January 1	$	620		$	653		$	657		$	663		$	637
Losses charged to allowance
Commercial		—			20			—			—			—
Real estate		—			3			—			—			—
Consumer		5			15			6			13			25
Total losses charged to allowance		5			38			6			13			25
Recoveries credited to allowance
Commercial		—			—			—			—			—
Real estate		—			3			—			—			—
Consumer		1			2			2			7			15
Total recoveries credited to allowance		1			5			2			7			15
Net charge-offs		4			33			4			6			10
Provision for loan losses		145			—			—			—			36
Allowance for loan losses at December 31	$	761		$	620		$	653		$	657		$	663
Ratio of net charge offs to average loans outstanding		0.00	%		0.04	%		0.00	%		0.01	%		0.01	%
Allowance as a percentage of total gross loans		0.75	%		0.66	%		0.74	%		0.79	%		0.86	%

35

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

The amount charged to operations and the related balance in the allowance for loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience and management’s estimates of potential losses.

Management maintains an allowance for loan losses that it considers adequate based on the evaluation process that is performed on a quarterly basis. As part of this process, management considers it appropriate to maintain a portion of the allowance that is based on credit quality trends, loan volume, current economic trends and other uncertainties. This portion of the allowance for loan losses is reflected as the unallocated portion in the table below that indicates the distribution of the allowance as of the end of each of the last five years.

	2008					2007					2006					2005					2004
			% of					% of					% of					% of					% of
	Amount		Loan			Amount		Loan			Amount		Loan			Amount		Loan			Amount		Loan
	(Dollars in Thousands)
Commercial	$	231		29.5	%	$	179		29.0	%	$	161		26.7	%	$	122		25.6	%	$	130		23.4	%
Real estate		404		44.2	%		287		42.4	%		281		43.3	%		271		45.1	%		256		48.7	%
Consumer		91		26.3	%		131		28.6	%		121		30.0	%		125		29.3	%		135		27.9	%
Unallocated		35					23					90					139					142
Total	$	761		100	%	$	620		100	%	$	653		100	%	$	657		100	%	$	663		100	%

Non-Interest Income

2008 Compared to 2007

Non-interest income consists primarily of service charges. Non-interest income for 2008 had an increase of $6,000 or 2.2% over 2007. This was mainly due to an increase in fees derived from the sale of loan related insurance offset by a decrease in service charges on deposit accounts.

2007 Compared to 2006

Non-interest income consists primarily of service charges. Non-interest income for 2007 had an increase of $13,000 or 5.0% over 2006. This was mainly due to an increase in fees derived from the sale of loan related insurance offset by a decrease in service charges on deposit accounts.

Non-Interest Expense

Salary expense and employee benefits represent the largest component, or 47.3%, of non-interest expenses. Non-interest expenses also include an array of other expenses such as:

• occupancy and equipment expenses,

• stationery, printing and Bank supplies,

• advertising,

• outside service providers, relating to data processing and ATM services,

• professional fees for legal, accounting, and consulting services,

• costs associated with the due diligence process of extending and maintaining loans and the collection process,

• Pennsylvania shares tax and FDIC assessment, and

• other types of expenses incurred as part of the normal course of operation of the Bank.

36

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

2008 Compared to 2007

Non-interest expenses for 2008 were $3,016,000, an increase of $137,000 or 4.8% as compared to non-interest expense of $2,879,000 for 2007.

Salary and employee benefits represent the largest portion of non-interest expense. For 2008, salary and employee benefits increased by $60,000, or 4.4%. At December 31, 2008 and 2007 the Bank employed 29 full-time equivalent employees.

Occupancy and equipment expenses decreased by $8,000 or 1.9% to $423,000 as compared to $431,000 at December 31, 2007. This decrease was mainly due to full depreciation of assets with minimal purchase of new assets offset by an increase in building repairs and maintenance.

PA Shares Tax increased by $20,000 or 5.0% to $423,000 for 2008. This increase was due mainly to the increase in total equity on which the tax is calculated.

Other expenses increased $65,000 or 9.6%. This increase was due mainly to an FDIC credit used in 2007 but not available for 2008 along with increases in bank account maintenance expense, advertising expense, and bookkeeping and data processing expense.

2007 Compared to 2006

Non-interest expenses for 2007 were $2,879,000, an increase of $70,000 or 2.5% as compared to non-interest expense of $2,809,000 for 2006.

Salary and employee benefits represent the largest portion of non-interest expense. For 2007, salary and employee benefits increased by $20,000, or 1.5%. At December 31, 2007 the Bank employed 29 full-time equivalent employees compared to 32 full-time equivalent employees at December 31, 2006.

Occupancy and equipment expenses increased by $26,000 or 6.4% to $431,000 as compared to $405,000 at December 31, 2006. Increased use of internet banking, bill pay and imaging resulted in additional maintenance, repair and depreciation expenses over those reported in 2006.

PA Shares Tax increased by $22,000 or 5.8% to $403,000 for 2007. This increase was due mainly to the increase in total equity on which the tax is calculated.

Income Taxes

Income tax expense was $829,000 for 2008 as compared to $537,000 for 2007 and $488,000 for 2006. The 54.4% increase experienced during 2008 resulted from an increase in net income before income taxes and the decrease in interest income on tax-exempt securities. The Corporation’s effective income tax rate for 2008, 2007 and 2006 was 21.4%, 16.6% and 14.7%, respectively.

Net Income

2008 Compared to 2007

Net income for 2008 was $3,037,000, which is an increase of $336,000 or 12.4% as compared to 2007. The Bank’s net interest income increased in 2008 due to an increase in the Bank’s net interest spread and margin as the yield on interest-bearing assets increased more than the cost of interest-bearing deposits.

Basic earnings per share for 2008 increased to $16.00 from $13.79 in 2007, due to the increase in the net income for 2008 and the purchase of treasury stock in 2008 and 2007.

37

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

2007 Compared to 2006

Net income for 2007 was $2,701,000, which is a decline of $122,000 or 4.3% as compared to 2006. The Bank’s net interest income declined in 2007 due to a decrease in the Bank’s net interest spread and margin as the cost of interest-bearing deposits increased more than the yield on interest-bearing assets.

Basic earnings per share for 2007 decreased to $13.79 from $14.26 in 2006, due to the decline in the net income for 2007.

FINANCIAL CONDITION

Securities

The Corporation’s securities portfolio is composed of investments that not only provide interest income, including tax-exempt income, but also provide a source of liquidity. The portfolio allows management to better respond to the Bank’s interest sensitivity position, to diversify the earning asset portfolio and provide collateral for public fund deposits. Established policies that address various aspects in managing the portfolio, including but not limited to, concentrations, liquidity, credit quality, interest rate sensitivity and regulatory guidelines are in place.

Although the Bank generally intends to hold its securities portfolio until maturity, a portion of the portfolio is classified as available-for-sale. Securities in the held to maturity category are accounted for at amortized cost. Available for sale securities are accounted for at fair value with unrealized gains or losses, net of income taxes, reported as a separate component of stockholder’s equity. The Bank invests in securities for the yield they produce and not to profit from trading. The Bank holds no trading securities in its portfolio.

The securities portfolio at December 31, 2008 totaled $129,507,000 as compared to $122,491,000 at December 31, 2007, an increase of $7,016,000, or 5.7%. Securities available-for-sale increased to $37,950,000 at December 31, 2008 compared to $35,680,000 at December 31, 2007. In addition, securities held to maturity increased to $91,557,000 at December 31, 2008 from $86,811,000 at December 31, 2007. Other than the U.S. Government and its agencies, the Bank holds no other securities of a single issuer whose aggregate carrying value exceeds 10% of stockholders’ equity.

The carrying value of the available-for-sale securities portfolio as of December 31, 2008, includes net unrealized gains of $669,000 (reflected as accumulated other comprehensive gain of $442,000 in stockholders’ equity, net of deferred income taxes of $228,000) compared to net unrealized losses of $565,000 (reflected as accumulated other comprehensive loss of $373,000 in stockholders’ equity, net of deferred income taxes of $192,000) as of December 31, 2007. This change is due to the change in interest rates.

The Corporation has gross unrealized gains of $2,135,000 offset by gross unrealized losses of $3,912,000 for a net unrealized loss of $1,777,000 at December 31, 2008. The portfolio of securities in an unrealized loss position has an aggregate fair value of $42,275,000. The unrealized gains and losses are attributed to the current interest rate environment and illiquidity in the market. The unrealized losses are temporary and management has the intent and ability to hold them until maturity or market price recovery. All securities are rated investment grade or better according to the Corporation’s policy except for three securities with a combined book value of approximately $1,340,000 which is 1.0% of the total security portfolios. The securities rated below investment grade are classified as held to maturity. The Corporation has minimal exposure to problem collateralized debt obligations in the mortgage-backed securities portfolio. The problem collateralized debt obligations consist of four securities with a combined book value of $3,841,000 and market value of $1,624,000. These securities are classified as held to maturity. As the Corporation has the intent and ability to hold such investments until maturity or market price recovery, no securities are deemed to be other-than-temporarily impaired.

38

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

The composition of the securities portfolio for the periods ending December 31, 2008, 2007 and 2006 is presented below.

	December 31
	2008		2007		2006
	(Dollars in Thousands)
Held to maturity securities:
U.S. Government agencies and corporations	$	52,871	$	43,627	$	38,537
State and political subdivisions		32,300		37,507		42,512
Mortgage-backed securities		1,045		1,240		1,510
Corporate securities		5,341		4,437		1,749
Available for sale securities:
Mortgage-backed securities		37,843		35,579		35,954
U.S. Treasury Note		107		101		100
Total securities	$	129,507	$	122,491	$	120,362

The following table presents the maturities and average weighted yields of the debt securities portfolio as of December 31, 2008.

						After one but					After five but
	Within one year					within five years					within ten years					After ten years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in Thousands)
Available for sale:
Mortgage-backed securities	$	—		—		$	4,773		4.00	%	$	10,768		4.60	%	$	22,302		5.15	%
U.S. Treasury		107		3.13	%		—		—			—		—			—		—
		107					4,773					10,768					22,302
Held to maturity:
U.S. Government agencies		—		—			1,500		4.27	%		3,496		5.40	%		47,875		5.75	%
State and political subdivisions7		850		6.87	%		5,445		6.59	%		16,122		7.10	%		9,883		7.48	%
Mortgage-backed securities		—		—			—		—			—		—			1,045		6.28	%
Other securities		150		6.30	%		850		6.42	%		—		—			4,341		4.75	%
		1,000					7,795					19,618					63,144
Total	$	1,107				$	12,568				$	30,386				$	85,446

⁷ Yields on tax-exempt debt securities have been computed on a fully tax-equivalent basis.

39

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

Loans

The loan portfolio comprises a major component of the Corporation’s earning assets. Net loans receivable increased $6,202,000 or 6.6% to $100,192,000 as of December 31, 2008 from $93,990,000 at December 31, 2007. Net loans receivable represent 42.0% of total assets and 51.9% of total deposits as of December 31, 2008 as compared to 41.6% and 52.1%, respectively, at December 31, 2007. All of the Corporation’s loans are to domestic borrowers.

Loan concentrations are considered to exist when the total amount of loans to any one or a multiple number of borrowers engaged in similar activities or having similar economic characteristics exceeds 10% of loans outstanding in any one category. At December 31, 2008, real estate loans amounted to $90,502,000 or 89.6% of total loans, and commercial and industrial loans amounted to $3,627,000 or 3.6% of total loans. Although such loans were not made to one specific borrower or industry, it is important to note that the quality of these loans is affected by the region’s economy and real estate market. Management does not believe such a concentration poses a problem to the Bank at this time.

Other than as described herein, management does not believe there are any trends, events, or uncertainties which are reasonably expected to have a material adverse impact on future results of operations, liquidity, or capital resources.

The composition of the total loan portfolio is shown in the table below for the periods presented.

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

40

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

The loan maturities and interest sensitivity for a segment of the loan portfolio are reflected in the table below.

	As of December 31, 2008
	Due Under		Due 1- 5		Due Over
	One Year		Years		Five Years		Total
	(In Thousands)
Maturity of loans receivable:
Commercial and commercial real estate	$	8,164	$	11,968	$	9,637	$	29,769
Real estate construction		—		—		873		873
Total	$	8,164	$	11,968	$	10,510	$	30,642

	Due 1-5		Due Over
	Years		Five Years
Fixed interest rates	$	1,341	$	3,429
Floating or adjustable interest rates		10,627		7,081
Total	$	11,968	$	10,510

Credit Risk and Loan Quality

The Corporation continues to strive to minimize credit risk. The Bank’s written lending policy requires underwriting, loan documentation and credit analysis standards to be met prior to the approval and funding of any loan. In accordance with that policy, internal loan review monitors the loan portfolio on an ongoing basis. The loan committee then prepares an analysis each quarter of the allowance for loan losses, which is then submitted to the Board of Directors for its assessment as to the adequacy of the allowance.

The lending policy is executed through the tiered assignment of loan limit authorities (secured and unsecured), to individual officers of the Bank, the Loan Committee and the Board of Directors. Although the Corporation maintains sound credit policies, certain loans may deteriorate for a variety of reasons. The Corporation’s policy is to place all loans on a non-accrual status upon becoming 90 days delinquent in their payments, unless there is a documented, reasonable expectation of the collection of the delinquent amount. Loans are reviewed monthly as to their delinquency status and on a quarterly basis through review and preparation of a troubled loans report, which is presented to the Board of Directors.

Total nonperforming loans (comprised of non-accruing loans and loans past due for more than 90 days) as of December 31, 2008 were $483,000 compared to $36,000 as of December 31, 2007. Total nonperforming loans as a percentage of total loans were .17% at December 31, 2008 as compared to  .04% at December 31, 2007. There were no foreclosed assets as of December 31, 2008 or 2007. Lenders continue to work with customers to minimize losses associated with non-accrual and delinquent accounts. In addition, management is not aware of any material potential loan problems that have not been disclosed herein.

41

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

Detailed information about the Corporation’s nonperforming loans and nonperforming assets for the last five years is shown in the table below.

	December 31,
	2008			2007			2006			2005			2004
	(Dollars in Thousands)
Non-accruing loans	$	—		$	—		$	—		$	—		$	126
Accruing loans past due 90 days or more		173			36			52			67			63
Total nonperforming loans		173			36			52			67			189
Foreclosed real estate/repossessed assets		—			—			71			—			—
Total nonperforming assets	$	173		$	36		$	123		$	67		$	189
Non-accrual loans:
Interest income that would have been recorded on non-accrual loans	$	—		$	—		$	—		$	—		$	11
Interest income for above loans included in net income for the period	$	—		$	—		$	—		$	—		$	—
Ratios:
Nonperforming loans to total loans		0.17	%		0.04	%		0.06	%		0.08	%		0.25	%
Allowance for loan losses to nonperforming loans		439.88	%		1,722.22	%		1,255.77	%		980.60	%		350.79	%
Nonperforming assets to total assets		0.07	%		0.02	%		0.06	%		0.03	%		0.09	%
Commitments to lend additional funds to Nonperforming loan customers		—			—			—			—			—

Deposits

Deposits are the major source of the Corporation’s funds for lending and other investment purposes. Total deposits at December 31, 2008 were $192,938,000, an increase of $12,547,000 or 7.0%, over total deposits of $180,391,000 as of December 31, 2007. The Corporation experienced the following increase/(decrease) percentages for the year 2008 as compared to 2007.

Non-interest bearing demand deposits	(2.7	%)
Interest-bearing demand deposits	(7.7	%)
Savings deposits	7.2	%
Time deposits	9.2	%

42

Neffs Bancorp, Inc. and Subsidiary
Management’s Discussion and Analysis

The following table displays the maturities of time deposits issued in denominations of $100,000 or more at December 31, 2008.

	Time
(In Thousands)	Certificates
Three months or less	$	3,420
Over three months but within six months		3,955
Over six months but within twelve months		7,127
Over twelve months		29,710
Total	$	44,212

Liquidity

Liquidity represents the Corporation’s ability to efficiently manage cash flows at reasonable rates to support possible commitments to borrowers or the demands of depositors. Liquidity is essential to compensate for fluctuations in the balance sheet and provide funds for growth and normal operating expenditures. Liquidity needs may be met by converting assets into cash or obtaining sources of additional funding.

Sources of asset liquidity are provided through cash, amounts due from banks, interest-bearing deposits with banks and federal funds sold, which totaled $3,977,000 at December 31, 2008 as compared to $4,006,000 at December 31, 2007. Additional liquidity sources include principal payments on securities in the Bank’s securities portfolio and cash flow from its amortizing loan portfolio. Selling securities available-for-sale, selling loans or raising additional capital may be used to meet longer-term liquidity needs. At December 31, 2008, available-for-sale securities totaling $37,950,000 were available for liquidity purposes as compared with $36,394,000 at December 31. 2007.

Liability liquidity sources include attracting deposits at competitive rates. Core deposits at December 31, 2008 totaled $65,078,000 as compared to $62,191,000 at December 31, 2007. The Bank has a $4 million federal funds line of credit with its main correspondent bank, Atlantic Central Bankers Bank. The Bank had no federal funds purchased under this line at December 31, 2008 and $2,249,000 at December 31, 2007. The Bank also has established a line of credit and other credit facilities with the Federal Home Loan Bank, which are reliable sources for short and long-term funds. Maximum borrowing capacity with the Federal Home Loan Bank is approximately $130,597,000.

Management is not aware of any demands, trends, commitments, or events that would result in the Bank’s inability to meet anticipated or unexpected needs.

Off-Balance Sheet Arrangements

The Corporation’s financial statements do not reflect off-balance sheet arrangements that are made in the normal course of business. Those off-balance sheet arrangements consist of unfunded loans and letters of credit made under the same standards as on-balance sheet instruments. These commitments at December 31, 2008 totaled $6,171,000. This consisted of $806,000 in commercial real estate, construction, land development loans, and one to four family purchase/refinance loans, $4,734,000 in home equity lines of credit, $594,000 in standby letters of credit and the remainder in other unused commitments. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Corporation.

43

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

Management believes that any amounts actually drawn upon can be funded in the normal course of operations. The Corporation has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or the availability of capital resources.

Stockholders’ Equity and Capital Requirements/Ratios

The net effect of the activity in stockholders’ equity resulted in an increase of $2,699,000 in total stockholders’ equity to $44,529,000 at December 31, 2008 from $41,830,000 at December 31, 2007. Stockholders’ equity increased in 2008 as a result of an increase in retained earnings of $2,278,000, and a change from an accumulated other comprehensive loss of $373,000 at December 31, 2007 to an accumulated other comprehensive gain of $442,000 at December 31, 2008. This was offset by an increase in treasury stock of $394,000. FAS 115 requires banks to report securities classified as “available-for-sale” at fair value, with unrealized gains or losses, net of deferred income taxes, reported as a separate component of stockholders’ equity. The FAS 115 adjustment is not included in the Corporation’s calculations of regulatory capital ratios.

The Corporation places a significant emphasis on maintaining a strong capital base. The goals for capital planning are to build a strong capital base to allow for future growth, to support risks inherent in the banking industry, to retain earnings to meet regulatory requirements and to provide an adequate return to stockholders.

Current capital guidelines issued by federal regulatory authorities require the Corporation and the Bank to meet minimum risk-based capital ratios in an effort to make regulatory capital more responsive to the risk exposure related to on and off-balance sheet items.

Risk-based capital provides the basis for which all banks are evaluated in terms of capital adequacy. Risk-based capital guidelines redefine the components of capital, categorize assets into risk classes and include certain off-balance sheet items in the calculation of capital requirements. The components of risk-based capital are segregated as Tier I and Tier II capital. Tier I capital is composed of total stockholders’ equity reduced by goodwill and other intangible assets. Tier II capital is comprised of the allowance for loan losses and any qualifying debt obligations. Risk-based capital standards require the Corporation and the Bank to have Tier I capital of at least 4% and total capital (including Tier I capital) of at least 8% of risk-weighted assets.

The Corporation and the Bank are also subject to leverage capital requirements. This requirement compares capital (using the definition of Tier I capital) to average balance sheet assets and is intended to supplement the risk-based capital ratio in measuring capital adequacy. The guidelines set a minimum leverage ratio of 3% for institutions that are highly rated in terms of safety and soundness, and which are not experiencing or anticipating any significant growth. Other institutions are expected to maintain capital levels of at least 1% or 2% above the minimum.

A comparison of the Bank’s risk-based capital ratios and leverage ratios is shown in the following table. The Corporation’s ratios are not significantly different.

	December 31,			December 31,
	2008			2007
	(Dollars in Thousands)
Tier I, common stockholders’ equity	$	43,826		$	41,833
Tier II, allowable portion of allowance for loan losses		761			620
Total capital	$	44,587		$	42,453
Tier I risk-based capital ratio		37.83	%		37.92	%
Tier II risk-based capital ratio		38.49	%		38.49	%
Tier I leverage ratio		18.62	%		18.69	%

44

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

At December 31, 2008 and 2007, the Bank exceeded the minimum regulatory capital requirements to be considered a “well capitalized” financial institution under applicable federal regulations.

Banking laws and regulations limit the amount of dividends that may be paid by the Bank to the Corporation without prior approval of the Bank’s regulatory agency. These restrictions have not had, and are not expected to have, a significant impact on the Corporation’s ability to pay dividends.

Effect of Inflation

The majority of assets and liabilities of the Corporation are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. The precise impact of inflation upon the Bank is difficult to measure. Inflation may affect the borrowing needs of consumers, thereby impacting the growth rate of the Corporation’s assets. Inflation may also affect the general level of interest rates, which can have a direct bearing on the Corporation.

Management believes the most significant impact on the financial results is the Corporation’s ability and timing to react to changes in interest rates. On an ongoing basis, management attempts to maintain an essentially balanced position between interest sensitive assets and liabilities, where such balancing is dependent on whether there is a rising or falling interest rate environment.

Interest Rate Sensitivity and Market Risk

In the normal course of conducting business activities, the Corporation is exposed to market risk, principally interest rate risk. Interest rate risk arises from market driven fluctuations in interest rates that may affect cash flows, income, expenses and the values of financial instruments. The Asset/Liability Committee manages interest rate risk.

The operations of the Corporation do not expose it to foreign currency exchange or commodity price risks. Also, the Corporation does not utilize interest rate swaps, caps or other hedging transactions. The Corporation does not own any trading assets.

The principal objective of the asset/liability management activities is to provide consistently higher levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the funding needs of the Corporation. The Corporation utilizes an interest rate sensitivity model as the primary quantitative tool in measuring the amount of interest rate risk that is present. The traditional maturity “gap” analysis, which reflects the volume difference between interest rate sensitive assets and liabilities during a given time period, is reviewed quarterly by management and the Asset/Liability Committee (ALCO) of the Bank. A positive gap occurs when the amount of interest sensitive assets exceeds interest sensitive liabilities. This position would contribute positively to net income in a rising rate environment. Conversely, if the balance sheet is liability sensitive or negatively gapped, this position would contribute positively to net income in a falling rate environment. Management continues to monitor sensitivity in order to avoid overexposure to changing interest rates, while maintaining adequate capital and liquidity levels. Adjustments to the mix of assets and liabilities are made periodically in an effort to give the Bank dependable and steady growth in net interest income regardless of the behavior of interest rates in general.

Another method used by management to review its interest sensitive position is through “simulation”. In simulation, the Bank projects the future net interest streams in light of the current gap position. Various interest rate scenarios are used to measure levels of interest income associated with potential changes in our operating environment. Management cannot measure levels of interest income associated with potential changes in the Bank’s operating environment. Nor can it predict the direction of interest rates or how the mix of assets and liabilities will change. The use of this information will help formulate strategies to minimize the unfavorable effect on net interest income caused by interest rate changes.

45

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

A simple rate “gap” analysis by itself may not be an accurate indicator of how net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. Although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates. In the event of a change in interest rates, prepayments and early withdrawal levels also could deviate significantly from those assumed in calculating the interest rate gap. Because of uncertainties, the Corporation utilizes more than one measurement tool in assessing interest rate sensitivity and market risk.

As of December 31, 2008 the Corporation was less negatively gapped than at December 31, 2007 in terms of its “One Year” gap position. A negative gap position reflects the volume of interest rate sensitive liabilities to be greater than the volume of interest rate sensitive assets. In consideration of interest rates decreasing, it is preferable to be in a negatively gapped position since there are more interest rate sensitive liabilities that are either maturing or whose interest rates will be repricing downward, quicker than the maturity/repricing of the interest rate sensitive assets. This will enhance the Corporation’s bottom line by improving the Corporation’s net interest rate spread since it is expected that interest expense will decrease faster than interest income.

The Corporation’s overall sensitivity to interest rate risk is low due to its non-complex balance sheet. The Corporation has the ability to expedite several strategies to manage interest rate risk, which include but are not limited to selling of residential mortgages, increasing/decreasing deposits via interest rate changes, borrowing from the Federal Home Loan Bank of Pittsburgh and Atlantic Central Bankers Bank, and buying/selling investments.

46

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

The following table represents the gap position for the Bank at December 31, 2008. This schedule summarizes how many fixed rate assets and liabilities will pay down over the periods of time defined in the table.

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

47

Neffs Bancorp, Inc. and Subsidiary Management’s Discussion and Analysis

Regulatory Activity

From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and restrictions on, the business of the Corporation. It cannot be predicted whether such legislation will be adopted or, if adopted, how such legislation would affect the business of the Corporation. As a consequence of the extensive regulation of commercial banking activities in the United States, the Bank’s business is particularly susceptible to being affected by federal regulation and regulations that may increase the cost of doing business. Management is not aware of any other current specific recommendations or proposals by regulatory authorities that will impact the Corporation’s or the Bank’s, operations, although the general cost of compliance with numerous and multiple federal and state laws and regulations does have, and in the future may have, a negative impact on the Corporation’s results of operations.

Further, the business of the Corporation is also affected by the state of the financial services industry in general. As a result of legal and industry changes, management predicts that the industry will continue to experience a certain amount of consolidations and mergers. Management believes that such consolidations and mergers may enhance its competitive position as a community bank.

Form 10-K

The Corporation will provide, without charge to any stockholder, a copy of its 2008 Annual Report on Form 10-K as required to be filed with the Securities and Exchange Commission. Requests should be made in writing to:

Neffs Bancorp, Inc.
P.O. Box 10
Neffs, PA 18065

48

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, John J. Remaley, President and Chief Executive Officer, certify that:

     1. I have reviewed this annual report on Form 10-K of Neffs Bancorp, Inc.;

     2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

     3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

     (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and

     (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the

49

audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 24, 2009	By:	/s/John J. Remaley
		President & CEO

50

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kevin A. Schmidt, Principal Financial Officer, certify that:

     1. I have reviewed this annual report on Form 10-K of Neffs Bancorp, Inc.;

     2. Based on my knowledge, the annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

     3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

     (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based upon such evaluation; and

     (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant’s auditors and the

51

audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 24, 2009	By:	/s/Kevin A. Schmidt
		Principal Financial Officer

52

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this annual report on Form 10K, that:

• the report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities and Exchange Act of 1934, as amended, and

• the information contained in the report fairly presents, in all material respects, the Company’s financial condition and results of operations.

/s/ John J. Remaley  

John J. Remaley, Chief Executive Officer 

Dated: March 24, 2009

53

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and in connection with this annual report on Form 10K, that:

• the report fully complies with the requirements of Sections 13(a) and 15(d) of the Securities and Exchange Act of 1934, as amended, and

• the information contained in the report fairly presents, in all material respects, the Company’s financial condition and results of operations.

/s/ Kevin A. Schmidt  

Kevin A. Schmidt, Principal Financial Officer 

Dated: March 24, 2009

54