Neffs Bancorp Inc - Annual Report (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, 2007.


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		(I.R.S. Employer Identification
incorporation or organization)		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. o

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 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 $41,974,758 as of June 30, 2007 ⁽¹⁾ .

The number of shares of the Issuer’s common stock, par value is $1.00 per share, outstanding as of March 3, 2008 was 190,317.

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, 2007 (the “Annual Report”). Part III incorporates certain information by reference from the registrant’s Proxy Statement for the 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, 2007. 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 1.

Item 1 Business		1
Item 1A Risk Factors		7
Item 1B Unresolved Staff Comments		9
Item 2 Properties		9
Item 3 Legal Proceedings		9
Item 4 Submission of Matters to a Vote of Security Holders		9

Part II.

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		10
Item 6 Selected Financial Data		12
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A Quantitative and Qualitative Disclosures about Market Risk		12
Item 8 Financial Statements and Supplementary Data		13
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure		13
Item 9A Controls and Procedures		13
Item 9A(T) Controls and Procedures		13
Item 9B Other Information		14

Part III.

Item 10 Directors, Executive Officers and Corporate Governance		14
Item 11 Executive Compensation		14
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		15
Item 13 Certain Relationships and Related Transactions, and Director Independence		15
Item 14 Principal Accountant Fees and Services		15

Part IV.

Item 15 Exhibits and Financial Statement Schedules		15

Part I

Item I. Business

Forward-Looking Statements

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

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

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

General

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, 2007, the Corporation has approximately $226 million in assets, $180 million in deposits, $94 million in net loans and $42 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 Bank Insurance Fund (“BIF”) 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.

As of December 31, 2007 the Corporation had 32 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 stockholder 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.

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 assets, capital, and lending limits larger than that of Neffs. 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 Neffs 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 $6,275,000 as of December 31, 2007) 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.

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

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

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

Recent Legislation

USA Patriot Act.

In the wake of the tragic events of September 11, 2001, President Bush signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001 on October 26, 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. For example, the enhanced due diligence policies, procedure, and controls generally required financial institutions to take reasonable steps:

	§		To conduct enhanced scrutiny of account relationships to guard against money laundering and report any suspicious transactions;

	§		To ascertain the identity of the nominal and beneficial owners of and the source of funds deposited into, each account as needed to guard against money laundering and report any suspicious transactions;

	§		To ascertain regarding any foreign bank, the shares of which are not publicly traded, the identity of the owners of the foreign bank, and the nature and extent of the ownership interest of each such owners; and

	§		To ascertain whether any foreign bank provides correspondent accounts to other foreign banks and if so, the identity of those foreign banks and related due diligence information.

Under the USA PATRIOT Act, financial institutions were required to establish anti-money laundering programs by April 25, 2002. The USA PATRIOT Act sets forth minimum standards for these programs, including:

	§		The development of internal policies, procedures, and controls;

	§		The designation of a compliance officer;

	§		An ongoing employee training program; and

	§		An independent audit function to test the programs.

In addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to adopt rules increasing the cooperation and information sharing between financial institutions, regulators, and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institutions complying with these rules will not be deemed to have violated the privacy provisions of the Gramm-Leach Bliley Act. The bank does not have any significant international banking relationships, and finds and anticipates that the USA PATRIOT Act does not and will not have a material effect on its business or operations.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. The Sarbanes-Oxley Act is applicable to all companies with equity or debt securities registered or that file reports under the Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act has established: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of auditors; (iv) increased disclosure of reporting obligations for the reporting company and its directors and executive officers; and (v) new and increased civil and criminal penalties for violations of the securities laws. Many of the provisions were effective immediately while other provisions become effective over a period of time and are subject to rulemaking by the SEC. Because the Corporation’s common stock is registered with the SEC, it is currently subject to this Act.

We have incurred additional expense in complying with the provisions of the Sarbanes-Oxley Act and regulations implemented by the SEC, particularly those regulations relating to the establishment of internal controls over financial reporting.

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 Subject to Interest Rate Risk

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

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

The Corporation’s success depends primarily on the general economic conditions of the Commonwealth of Pennsylvania and the specific local markets in which the Corporation operates. Unlike larger national or other regional banks that are more geographically diversified, the Corporation provides banking and financial services to customers primarily in the 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.

The Corporation Operates in a Highly Competitive Industry and Market Area

Neffs 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 funds 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 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 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.

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, 2007, there were approximately 630 holders of record of the Corporation’s common stock.


	Sales Prices
Quarter Ended:	High		Low
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

March 31, 2006	$	245.00	$	245.00
June 30, 2006		253.00		253.00
September 30, 2006		253.00		253.00
December 31, 2006		256.00		256.00

The Corporation purchased 7,186 shares at $263 per share during 2007 and no shares during 2006.

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

or programs

programs

September 18, 2007

7,186

263.00

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 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. In 2006 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.

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.

Shareholder Return Performance Graph

The following graph compares the yearly dollar change in the cumulative total shareholder return on Neffs Bancorp, Inc.’s common stock against the cumulative total return of the NASDAQ Composite, and the Neffs Bancorp, Inc.’s Peer Groups for the period of five fiscal years commencing December 31, 2002, and ending December 31, 2007. The graph shows the cumulative investment return to shareholders based on the assumption that a $100 investment was made on December 31, 2002, in each of Neffs Bancorp, Inc.’s common stock, the NASDAQ Composite and the Neffs Bancorp, Inc., Peer Groups. We computed returns assuming the reinvestment of all dividends. The shareholder return shown on the following graph is not indicative of future performance.


	Period Ending
Index	12/31/02		12/31/03		12/31/04		12/31/05		12/31/06		12/31/07

Neffs Bancorp, Inc.		100.00		114.83		121.83		129.86		135.45		145.61
NASDAQ Composite		100.00		150.01		162.89		165.13		180.85		198.60
Neffs Bancorp 2006 Peer Group		100.00		122.52		125.56		132.55		129.60		133.95
Neffs Bancorp 2007 Peer Group		100.00		112.96		117.10		123.24		122.90		106.73

“The Neffs Bancorp 2006 Peer Group Index consists of American Bank Inc., East Penn Financial Corp (acquired 11/19/07)., Mauch Chunk Financial Corp., New Tripoli Bancorp. Inc.,

“The Neffs Bancorp 2007 Peer Group Index consists of American Bank Inc., First Star Bancorp Inc., Mauch Chunk Financial Corp., MNB Corp., New Tripoli Bancorp Inc., JTNB Bancorp Inc.,



Source: SNL Financial LC Charlottesville. VA @2008		(434)977-1600 WWW.snl.com

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, 2007, 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, 2007, which pages are included in Exhibit 13 hereto, are incorporated in their entirety by reference in response to this Item 7.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

In an effort to assess market risk, the bank utilizes a simulation model to determine the effect of increases or decreases in market interest rates on net interest income and net income.

The simulation model assumes a hypothetical gradual shift in market interest rates over a twelve-month period. This is based on a review of historical changes in market interest rates and the level and curve of current interest rates. The simulated results represent the hypothetical effects to the bank’s net interest income and net income. Projections for loan and deposit growth were ignored in the simulation model. The simulation model includes all of the bank’s earning assets and interest-bearing liabilities and assumes a parallel and prorated shift in interest rates over a twelve-month period. The percentage declines in the table below are measured as percentage changes from the values of simulated net interest income in the current rate scenario and the impact of those changes on the prior year’s net income.

The aforementioned assumptions are revised based on defined scenarios of assumed speed and direction changes of market interest rates. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions, as well as management strategies, among other factors. Because it is difficult to accurately quantify into assumptions the reaction of depositors and borrowers to market interest rate changes, the actual net interest income and net income results may differ from simulated results. While assumptions are developed based upon current economic and local market conditions, management cannot make any assurances as to the predictive nature of these assumptions.

The following table reflects the bank’s net interest income sensitivity analysis as of December 31, 2007 and 2006. The schedule indicates that as of December 31, 2007, a hypothetical 200 basis point decline in prevailing market interest rates would cause the bank’s net interest income to decline less then 1% from the current rate scenario. The computations do not contemplate any action management or the Asset/Liability Management Committee could undertake in response to changes in market conditions or market interest rates.


	2007						2006
	Change in						Change in
	Net Interest			Percentage			Net Interest			Percentage
(dollars in thousands)	Income			Change			Income			Change
Policy Limit					± 5.0	%					± 5.0	%

Down 200 basis points		$(4	)		(0.1	%)		$(6	)		(0.1	%)
Down 100 basis points		15			0.2	%		19			0.3	%

Up 100 basis points		25			0.4	%		2			0.0	%
Up 200 basis points		(19	)		(0.3	%)		(7	)		(0.1	%)

Item 8. Financial Statements and Supplementary Data

The financial statements in the Corporation’s Annual Report to Shareholders for the year ended December 31, 2007, 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, 2007, 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, 2007, including any corrective actions with regard to significant deficiencies and material weaknesses.

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, 2007. 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 President & CEO				/s/ Kevin A. Schmidt Principle Financial Officer

Item 9B. Other Information

None.

Part III.

Item 10. Directors, Executive Officers and Corporate Governance

The information under the captions “Governance of the Corporation”, “Information about Nominees and Continuing Directors”, “Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance” are incorporated here by reference to Neffs Bancorp, Inc.’s proxy statement for its 2008 Annual Meeting of Shareholders scheduled for May 14, 2008.

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 2008 Annual Meeting of Shareholders scheduled for May 14, 2008.

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 2008 Annual Meeting of Shareholders scheduled for May 14, 2008.

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 2008 Annual Meeting of Shareholders scheduled for May 14, 2008.

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 2008 Annual Meeting of Shareholders scheduled for May 14, 2008.

Part IV

Item 15. Exhibits and Financial Statement Schedules


No.			Description
(a)	(1	)	Financial Statements are incorporated by reference from the 2007 Annual Report.

			Report of Independent Registered Public Accounting Firm
			Consolidated Statements of Financial Condition
			Consolidated Statements of Income
			Consolidated Statements of Stockholders’ Equity
			Consolidated Statements of Cash Flows
			Notes to Consolidated Financial Statements

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

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

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


No.			Description
	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.

Signatures

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


	Neffs Bancorp, Inc.
Date: March 31, 2008	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 31, 2008

/s/Herman P. Snyder Herman P. Snyder	Vice President and Director	March 31, 2008

/s/Robert B. Heintzelman Robert B. Heintzelman	Director	March 31, 2008

/s/Mary Ann Wagner Mary Ann Wagner	Director	March 31, 2008

/s/John F. Simock John F. Simock	Director	March 31, 2008

/s/Kevin A. Schmidt Kevin A. Schmidt	Treasurer and Director	March 31, 2008

/s/John F. Sharkey, Jr. John F. Sharkey, Jr.	Director	March 31, 2008

/s/Duane A. Schleicher Duane A. Schleicher	Director	March 31, 2008