UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the quarter ended
June 30, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File
0
-
32605
NEFFS BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Pennsylvania
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23-2400383
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(State or other jurisdiction of
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(IRS Employer Identification No.)
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incorporation or organization)
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5629 PA Route 873, P.O. Box 10, Neffs, PA l8065-0010
(Address of principal executive offices)
(610) 767-3875
(Issuers telephone number)
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 past 12 months (or for
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 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):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting Company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act.)
Yes
o
No
þ
As of July 31, 2008, there were 189,697 shares of common stock, par value of $1.00, outstanding.
NEFFS BANCORP, INC.
INDEX
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PART 1. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
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3
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4
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5
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6
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7
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10
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19
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19
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20
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20
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20
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20
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20
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21
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21
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22
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2
NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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June 30,
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December 31,
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Dollars in thousands, except share data
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2008
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2007
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ASSETS
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Cash and due from banks
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$
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3,682
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$
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3,888
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Interest bearing deposits with banks
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112
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118
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Securities available for sale
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40,137
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36,394
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Securities held to maturity, fair value
$86,898 in 2008; $87,896 in 2007
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87,819
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86,811
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Loans
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98,070
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94,610
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Less allowance for loan losses
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(650
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)
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(620
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)
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Net loans
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97,420
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93,990
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Premises and equipment, net
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2,294
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2,347
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Other assets
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2,691
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2,249
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Total assets
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$
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234,155
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$
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225,797
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LIABILITIES AND STOCKHOLDERS EQUITY
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Liabilities:
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Deposits
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Non-interest bearing
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$
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16,575
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$
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17,205
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Interest bearing
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171,034
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163,186
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Total deposits
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187,609
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180,391
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Federal funds purchased
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2,850
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2,249
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Other liabilities
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1,260
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1,327
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Total liabilities
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191,719
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183,967
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Stockholders Equity:
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Common stock, $1 par value, authorized 2,500,000 shares;
issued 200,000 shares
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200
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200
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Paid-in capital
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753
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753
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Retained earnings
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44,629
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43,558
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Accumulated other comprehensive loss
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(560
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)
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(373
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)
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Treasury stock, at cost 2008 10,303 shares; 2007 9,245 shares
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(2,586
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)
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(2,308
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)
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Total stockholders equity
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42,436
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41,830
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Total liabilities and stockholders equity
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$
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234,155
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$
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225,797
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See Notes to Consolidated Financial Statements.
3
NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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Dollars in thousands, except per share data
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2008
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2007
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2008
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2007
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Interest income:
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Interest and fees on loans
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$
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1,615
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$
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1,484
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$
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3,171
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$
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2,905
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Interest and dividends on investments:
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Taxable
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1,179
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992
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2,361
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1,960
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Exempt from federal income taxes
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398
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456
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803
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929
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Interest on federal funds sold and other
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9
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19
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10
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35
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Total interest income
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3,201
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2,951
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6,345
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5,829
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Interest Expense
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Deposits
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1,536
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1,504
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3,124
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2,974
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Borrowings
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1
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1
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10
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1
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Total interest expense
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1,537
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1,505
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3,134
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2,975
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Net interest income
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1,664
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1,446
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3,211
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2,854
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Provision for loan losses
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15
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30
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Net interest income after Provision for loan losses
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1,649
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1,446
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3,181
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2,854
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Other income:
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Service charges on deposit accounts
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32
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33
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62
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64
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Other service charges and fees
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25
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22
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|
|
49
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|
44
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Other income
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|
13
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|
13
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25
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22
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Total other income
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70
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|
68
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136
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130
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|
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Other expenses:
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Salaries and employee benefits
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|
351
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|
|
|
342
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|
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|
704
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|
688
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Occupancy
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49
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37
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|
93
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|
70
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Furniture and equipment
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67
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|
65
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134
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|
132
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|
Pennsylvania shares tax
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|
106
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|
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|
101
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|
212
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|
|
|
202
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|
Other expenses
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|
203
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|
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|
187
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|
|
|
352
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|
|
|
357
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|
|
|
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Total other expenses
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|
|
776
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|
|
|
732
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|
|
|
1,495
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1,449
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|
|
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|
|
|
|
|
|
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|
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|
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Income before income taxes
|
|
|
943
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|
|
|
782
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|
|
|
1,822
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|
|
|
1,535
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
196
|
|
|
|
117
|
|
|
|
370
|
|
|
|
222
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income
|
|
$
|
747
|
|
|
$
|
665
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|
|
$
|
1,452
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|
|
$
|
1,313
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|
|
|
|
|
|
|
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|
|
|
|
|
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|
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Per share data:
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Earnings per share, basic
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$
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3.93
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|
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$
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3.36
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|
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$
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7.63
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|
$
|
6.63
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average common shares outstanding
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|
|
190,152
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|
|
|
197,941
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|
|
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190,233
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|
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|
197,941
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|
|
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|
|
|
|
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|
|
|
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|
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|
|
|
|
|
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|
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Cash dividends declared per share
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|
$
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|
|
|
$
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|
|
$
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2.00
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|
|
$
|
2.00
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|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
4
NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Six Months Ended June 30, 2008 and 2007
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
Other
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|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
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|
|
Treasury
|
|
|
Stockholders
|
|
Dollars in thousands, except per share data
|
|
Stock
|
|
|
Capital
|
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Earnings
|
|
|
Loss
|
|
|
Stock
|
|
|
Equity
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
200
|
|
|
$
|
753
|
|
|
$
|
41,634
|
|
|
$
|
(947
|
)
|
|
$
|
(418
|
)
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|
$
|
41,222
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
|
1,313
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|
Change in unrealized net losses
on securities available for sale,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common
stock, $2.00 per share
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007
|
|
$
|
200
|
|
|
$
|
753
|
|
|
$
|
42,551
|
|
|
$
|
(1,110
|
)
|
|
$
|
(418
|
)
|
|
$
|
41,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Stockholders
|
|
Dollars in thousands, except per share data
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Stock
|
|
|
Equity
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
200
|
|
|
$
|
753
|
|
|
$
|
43,558
|
|
|
$
|
(373
|
)
|
|
$
|
(2,308
|
)
|
|
$
|
41,830
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
1,452
|
|
|
|
|
|
|
|
|
|
|
|
1,452
|
|
Change in unrealized net losses
on securities available for sale,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common
stock, $2.00 per share
|
|
|
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
(1,058 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278
|
)
|
|
|
(278
|
)
|
|
|
|
Balance, June 30, 2008
|
|
$
|
200
|
|
|
$
|
753
|
|
|
$
|
44,629
|
|
|
$
|
(560
|
)
|
|
$
|
(2,586
|
)
|
|
$
|
42,436
|
|
|
|
|
See Notes to Consolidated Financial Statements.
5
NEFFS BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,452
|
|
|
$
|
1,313
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
110
|
|
|
|
98
|
|
Provision for loan losses
|
|
|
30
|
|
|
|
|
|
Net accretion of securities premiums/discounts
|
|
|
(201
|
)
|
|
|
(15
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
(105
|
)
|
|
|
(53
|
)
|
Other assets
|
|
|
(241
|
)
|
|
|
(135
|
)
|
Decrease in:
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(67
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
978
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Decrease (increase) in interest bearing deposits
with banks
|
|
|
6
|
|
|
|
(50
|
)
|
Increase in federal funds sold
|
|
|
|
|
|
|
(616
|
)
|
Purchase of securities available for sale
|
|
|
(7,577
|
)
|
|
|
(1,925
|
)
|
Proceeds from maturities/calls of securities available
for sale
|
|
|
3,509
|
|
|
|
3,471
|
|
Purchase of securities held to maturity
|
|
|
(28,858
|
)
|
|
|
(5,487
|
)
|
Proceeds from maturities/calls of securities held to
maturity
|
|
|
28,093
|
|
|
|
3,756
|
|
Net increase in loans
|
|
|
(3,460
|
)
|
|
|
(4,139
|
)
|
Purchases of premises and equipment
|
|
|
(57
|
)
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(8,344
|
)
|
|
|
(5,021
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits
|
|
|
7,218
|
|
|
|
5,010
|
|
Net decrease in federal funds purchased
|
|
|
601
|
|
|
|
(357
|
)
|
Purchase of treasury stock
|
|
|
(278
|
)
|
|
|
|
|
Dividends paid
|
|
|
(381
|
)
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
7,160
|
|
|
|
4,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(206
|
)
|
|
|
436
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
3,888
|
|
|
|
2,201
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
3,682
|
|
|
$
|
2,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Cash Flows Information
|
|
|
|
|
|
|
|
|
Interest Paid
|
|
$
|
3,129
|
|
|
$
|
2,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes Paid
|
|
$
|
426
|
|
|
$
|
267
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
6
NEFFS BANCORP, INC.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2008
(Unaudited)
Note 1. BASIS OF PRESENTATION
The 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 accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America and the rules and
regulations of the Securities and Exchange Commission (SEC) for interim financial information.
Accordingly, they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included and are of a
normal, recurring nature. Operating results for the six-month period ended June 30, 2008, are not
necessarily indicative of the results that may be expected for the year ending December 3l, 2008.
These statements should be read in conjunction with the financial statements and notes contained in
the 2007 Annual Report to Stockholders.
In addition to historical information, this Form 10-Q Report contains forward-looking statements.
The forward-looking statements contained herein are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such differences include, but are not limited to,
those discussed in the section entitled Managements Discussion and Analysis of Financial
Condition and Results of Operations. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements analysis only as of the date hereof.
Readers should carefully review the risk factors described in the Form 10-K filed with the SEC by
the Corporation.
For further information, refer to the financial statements and footnotes thereto included in Neffs
Bancorp, Inc.s Annual Report to stockholders for the year ended December 31, 2007.
Note 2. COMMITMENTS AND CONTINGENCIES
The Corporation is subject to certain routine legal proceedings and claims arising in the ordinary
course of business. It is managements opinion that the ultimate resolution of these claims will
not have a material adverse effect on the Corporations financial position and results of
operations.
7
Note 3. COMPREHENSIVE INCOME
The components of other comprehensive income (loss) and related tax effects for the six months
ended June 30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Dollars in thousands
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Unrealized holding gains (losses)
on available for sale securities
|
|
$
|
(844
|
)
|
|
$
|
(492
|
)
|
|
$
|
(283
|
)
|
|
$
|
(247
|
)
|
Tax effect
|
|
|
287
|
|
|
|
167
|
|
|
|
96
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
$
|
(557
|
)
|
|
$
|
(325
|
)
|
|
$
|
(187
|
)
|
|
$
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 4. EARNINGS PER SHARE
Earnings per share is based on the weighted average shares of common stock outstanding during each
period. The Corporation currently maintains a simple capital structure and does not issue
potentially dilutive securities; thus there are no dilutive effects on earnings per share.
Note 5. GUARANTEES
The Corporation does not issue any guarantees that would require liability recognition or
disclosure, other than its standby letters of credit. Standby letters of credit written are
conditional commitments issued by the Corporation to guarantee the performance of a customer to a
third party. Generally, all letters of credit when issued have expiration dates within one year.
The credit risks involved in issuing letters of credit are essentially the same as those that are
involved in extending loan facilities to customers. The Corporation, generally, holds collateral
and/or personal guarantees supporting these commitments. The Corporation had $612,000 of standby
letters of credit as of June 30, 2008. Management believes that the proceeds obtained through a
liquidation of collateral and the enforcement of guarantees would be sufficient to cover the
potential amount of future payments required under the corresponding guarantees. The current
amount of the liability as of June 30, 2008 for guarantees under standby letters of credit issued
is not material.
Note 6. ADOPTION OF 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.
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
8
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).
An asset or liabilitys 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 June 30, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
|
Active Markets for
|
|
Significant Other
|
|
Significant
|
Description
|
|
June 30, 2008
|
|
Identical Assets
|
|
Observable Inputs
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
Securities Available for sale
|
|
$
|
40,137
|
|
|
$
|
40,137
|
|
|
|
|
|
|
|
|
|
The Corporations 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.
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.
Note 7. NEW ACCOUNTING STANDARDS
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 SECs 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 Company does not expect the adoption
of FAS No. 162 to have a material effect on its results of operations and financial position.
9
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 Corporation is currently
evaluating the potential impact the new pronouncement will have on its consolidated financial
statements.
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 companys
fiscal year beginning after December 15, 2008. This new pronouncement will impact the
Corporations accounting for business combinations beginning January 1, 2009.
FASB statement No. 160 Noncontrolling Interests in Consolidated Financial Statementsan 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 companys fiscal year
beginning after December 15, 2008. The Corporation is currently evaluating the potential impact the
new pronouncement will have on its consolidated financial statements.
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 staffs 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 staffs 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 staffs 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.
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Managements Discussion and Analysis of Financial Condition and Results of Operations analyzes the
major elements of the Corporations balance sheets and statements of income. This section should
be read in conjunction with the Corporations financial statements and accompanying notes.
10
Management of the Corporation has made forward-looking statements in this Form 10-Q. These
forward-looking statements may be subject to risks and uncertainties. Forward-looking statements
include the information concerning possible or assumed future results of operations of the
Corporation and its subsidiary. When words such as believes, expects, anticipates or similar
expressions occur in this Form 10-Q, management is making forward-looking statements.
Readers should note that many factors, some of which are discussed elsewhere in this report and in
the documents that management incorporates by reference, could affect the future financial results
of the Corporation and its subsidiary, both individually and collectively, and could cause those
results to differ materially from those expressed in the forward-looking statements contained or
incorporated by reference in this Form 10-Q. These factors include the following:
|
v
|
|
operating, legal and regulatory risks;
|
|
|
v
|
|
economic, political, and competitive forces affecting banking, securities, asset
management and credit services businesses; and
|
|
|
v
|
|
the risk that managements analyses 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 Corporations significant accounting policies is included in Note 1 to the
financial statements of the Corporations Annual Report to Stockholders for the year ended December
31, 2007. Some of these policies are particularly sensitive, requiring significant judgments,
estimates and assumptions to be made by management, most particularly in connection with
determining the provision for loan losses, the appropriate level of the allowance for loan losses,
and considerations of other-than-temporary impairment of investments. Additional information is
contained in this Form 10-Q under the paragraphs titled Provision for Loan Losses, Loan and
Asset Quality and Allowance for Loan Losses, and Securities.
OVERVIEW
Net income for the second quarter of 2008 increased 12.3% to $747,000 as compared to $665,000 for
the second quarter of 2007. Total revenues increased 8.3% from $3.0 million to $3.3 million for
the quarter and total expenses increased 7.2% from $2.4 million to $2.5 million. Net income per
common share increased 17.0% to $3.93 per share from $3.36 per share in the second quarter a year
ago. At June 30, 2008, the Corporation had total assets of $234.2 million, total loans of $98.1
million, and total deposits of $187.6 million.
Net income for the first half of 2008 increased 10.6% to $1.5 million as compared to $1.3 million
for the first half of 2007. Total revenues increased 8.8% from $6.0 million to $6.5 million for
the first six months of 2008 and total expenses increased 8.2% from $4.6 million to $5.0 million. Net income per
11
common share increased 15.1% to $7.63 per share from $6.63 per share from the first two quarters of
2008 to the same period of 2007.
RESULTS OF OPERATIONS
Average Balances and Average Interest Rates
Interest earning assets averaged $222.8 million for the second quarter of 2008 as compared to
$214.3 million for the same period in 2007. The growth in interest earning assets was mainly the
result of an increase of $5.5 million in average total loans and an increase of $2.9 million in
investments. Average interest-bearing liabilities increased from $160.5 million during the second
quarter of 2007 to $170.5 million during the second quarter of 2008. The increase in average
interest bearing liabilities was the result of increases in time deposits and Federal funds
purchased of $11.7 million and $213,000, respectively, offset by decreases in savings and demand
deposits of $1.2 million and $797,000, respectively.
The average yield on earning assets was 5.8% for the second quarter of 2008 as compared to 5.5% for
the same quarter in 2007. The average rate paid on interest-bearing liabilities was 3.6% for the
second quarter of 2008 and 3.8% for the second quarter of 2007. This was the result of the
decreasing interest rate environment that was experienced during the latter part 2007 and into
2008.
Net Interest Income and Net Interest Margin
Net interest income is the difference between interest income earned on assets and interest expense
incurred on liabilities used to fund those assets. Interest earning assets primarily include
loans, securities and Federal Funds Sold. Liabilities used to fund such assets include deposits
and borrowed funds. Changes in net interest income and margin result from the interaction between
the volume and composition of earning assets, related yields and associated funding costs.
Interest income for the second quarter of 2008 increased by $250,000 or 8.5% over the second
quarter of 2007 due mainly to an increase in loans and securities. Interest expense for the second
quarter of 2008 increased by $32,000 or 2.1%, as compared to the second quarter of 2007. The
increase was due mainly to an increase in certificates of deposit.
Net interest income increased by $218,000 or 15.1% to $1.7 million for the second quarter of 2008
as compared to $1.4 million for the second quarter of 2007. This increase resulted from an
increase in interest-bearing assets.
For the six months ended June 30, 2008, interest income increased by $516,000 or 8.9% over the same
period in 2007. The increase for the first six months was mostly related to the increase in loans
and securities. Interest earning assets for the first six months of 2008 averaged $221.1 million
versus $213.3 million for the comparable period in 2007. The yield on those assets increased from
5.5% for the first six month of 2007 to 5.7% for the same period in 2008.
Interest expense for the first six months of 2008 increased $159,000 or 5.3% as compared to the
first six months of 2007. The level of average interest-bearing liabilities increased from $160.0
million for the first half of 2007 to $169.0 million for the first six months of 2008. The average
rate paid for the first half of 2008 and 2007 was 3.7%.
12
Net interest income for the first six months of 2008 increased by $357,000 or 12.5% over the same
period in 2007. The companys net interest margin increased to 2.9% for the six months ended June
30, 2008 from 2.7% for the same period last year.
Net interest margin represents the difference between interest income, including net loan fees
earned, and interest expense, reflected as a percentage of average earning assets. Net interest
margin for the second quarter of 2008 was 3.0% compared to 2.7% for the second quarter of 2007.
During the second quarter of 2008, the yield on earning assets was 5.8%, a 30 basis point increase
over the 5.5% reported in the second quarter of 2007. The average rate paid on interest-bearing
deposits decreased to 3.6% as compared to 3.8% for the second quarter of 2007.
Provision for Loan Losses
Provision for loan losses increased $15,000 for the second quarter of 2008 from no provision in the
second quarter of 2007. The increase is due in part to an increase in loans.
For the six months ending June 30, 2008, provision for loan losses increased $30,000 compared to no
provision for loan losses in the same period of 2007.
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.
Non-interest Income
Non-interest income for the second quarter of 2008 increased by $2,000 or 2.9% from the same period
in 2007. The increase was attributable to an increase in other service charges and fees.
Non-interest income for the first six months of 2008 increased by $6,000 or 4.6% from the same
period in 2007.
Non-interest Expense
For the second quarter of 2008, non-interest expenses increased by $44,000 or 6.0% to $776,000
compared to $732,000 over the same period in 2007. The increase was due to increases in employee
expenses, occupancy expenses, PA shares tax, and other expenses.
Salary expenses and employee benefits, which represent the largest component of non-interest
expenses, increased by $9,000 or 2.6%, for the second quarter of 2008. This increase was due in
part to an increase in employee benefits.
Occupancy expense for the second quarter of 2008 increased by $12,000 or 32.4% as compared to the
second quarter of 2007. Increased use of internet banking, bill pay and imaging resulted in
additional maintenance, repair and depreciation expenses over the second quarter of 2007.
Furniture and equipment expense increased $2,000 to $67,000 for the second quarter of 2008 over the
same period of 2007.
Shares tax increased from $101,000 to $106,000 from the second quarter of 2007 to the second
quarter of 2008.
13
Other expenses increased by $16,000, or 8.6%, to $203,000 in the second quarter of 2008 from the
same period in 2007. This increase was mainly due to increases in advertising, stationary and
supplies, loan and collections, and director training expenses.
Total non-interest expense was $1.5 million for the first six months of 2008 compared to $1.4
million for the same period of 2007.
Salary expenses and employee benefits, which represent the largest component, 47.1%, of
non-interest expenses, increased by $16,000 or 2.3% over the first six months of 2007.
Occupancy expense for the first six months of 2008 increased by $23,000 or 32.9% as compared to the
first six months of 2007 due mainly to increased use of internet banking, bill pay, and imaging.
Furniture and equipment expense increased by $2,000 to $134,000 for the first half of 2008 as
compared to 2007.
Shares tax expense increased by $10,000 or 5.0% for the first six months of 2008 from the same
period in 2007. This increase was mainly due to continued capital growth.
Net other expenses decreased by $5,000 or 1.4% for the first six months ended June 30, 2008 over
the first half of 2007.
One key measure used to monitor progress in controlling overhead expenses is the ratio of net
non-interest expenses to average assets. The ratio equals non-interest expenses (excluding
foreclosed real estate expenses) less non-interest income (exclusive of non-recurring gains),
divided by average assets. This ratio equaled 1.2% for the three months and six months ended June
30, 2008 and in the same periods in 2007.
Another productivity measure is the operating efficiency ratio. This ratio expresses the
relationship of non-interest expense (excluding foreclosed real estate expenses) to net interest
income plus non-interest income (excluding non-recurring gains). For the quarter ended June 30,
2008, the operating efficiency ratio was 44.8% compared to 48.4% for the same period in 2007. For
the six months ended June 30, 2008, this ratio was 44.7% compared to 48.6% for the six months ended
June 30, 2007. This decrease is due mainly to the increase in interest income.
Provision for Federal Income Taxes
The provision for federal income taxes was $196,000 for the second quarter of 2008 compared to
$117,000 for this same period in 2007. For the first six months the provision was $370,000 and
$222,000 for 2008 and 2007, respectively. The effective tax rate, which is the ratio of income tax
expense to income before income taxes, was 20.8% for the second quarter of 2008 and 15.0% for the
same period in 2007. The effective tax rate is below 34% due to the number of tax-exempt
securities held by the Corporation. The effective tax rate and provision for Federal income taxes
increased due to the increase in pre-tax income while tax-exempt income declined.
Return on Average Assets
Return on average assets (ROA) measures the Corporations net income in relation to its total
average assets. The Corporations annualized ROA for the second quarter of 2008 was 1.3% compared
to 1.2% for the second quarter of 2007 and 1.3% and 1.2% for the first half of 2008 and 2007,
respectively. The increase in ROA was mainly due to the increase in net income period to period.
14
Return on Average Equity
Return on average equity (ROE) indicates how effectively the Corporation can generate net income on
the capital invested by its stockholders. ROE is calculated by dividing net income by average
stockholders equity. For purposes of calculating ROE, average stockholders equity included the
effect of unrealized gains or losses, net of income taxes, on securities available for sale. The
annualized ROE for the second quarter of 2008 and 2007 is 7.0% and 6.4%, respectively. The
annualized ROE for the first half of 2008 increased to 6.9% from 6.3% in the same period of 2007.
This increase is due mainly to the increase in net income in 2008 over 2007 for the respective
periods.
FINANCIAL CONDITION
Securities
Securities available for sale increased $3.7 million to $40.1 million as of June 30, 2008, from
$36.4 million at December 31, 2007. This increase was due mainly to growth in deposits and
pre-funding anticipated security calls.
The securities available for sale portfolio had an unrealized loss of $560,000, net of taxes, at
the end of the second quarter of 2008, compared to an unrealized loss of $373,000, net of taxes, at
December 31, 2007. This increase was mainly due to current market conditions.
During the first six months of 2008, the securities held to maturity portfolio increased $1.0
million to $87.8 million from $86.8 million at December 31, 2007, primarily due to growth in
deposits.
There are 91 debt securities in unrealized loss positions; however, the Corporation has the intent
and ability to hold these securities until maturity or market price recovery and therefore no
securities are deemed to be other-than-temporarily impaired.
Net Loans Receivable
During the first six months of 2008, net loans receivable increased by $3.4 million from $94.0
million at December 31, 2007 to $97.4 million at June 30, 2008. Net loans receivable represented
51.9% of total deposits and 41.6% of total assets at June 30, 2008 as compared to 52.1% and 41.6%,
respectively, at December 31, 2007.
Loan and Asset Quality and Allowance for Loan Losses
Total non-performing loans (comprised of non-accruing loans and loans past due 90 days or more and
still accruing interest) were $47,000 at June 30, 2008 as compared to $36,000 at December 31, 2007.
There were $13,338 in repossessed assets held by the Corporation as of June 30, 2008 and no
foreclosed assets at December 31, 2007.
15
The following summary table presents information regarding non-performing loans and assets as of
June 30, 2008 and December 31, 2007:
Nonperforming Loans and Assets
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
June
|
|
|
December
|
|
|
|
30, 2008
|
|
|
31, 2007
|
|
Nonaccrual loans:
|
|
$
|
|
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual
|
|
|
|
|
|
|
|
|
Loans past due 90 days or more
|
|
|
47
|
|
|
|
36
|
|
Restructured loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming loans
|
|
|
47
|
|
|
|
36
|
|
Repossessed assets
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
60
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans to total loans
|
|
|
0.05
|
%
|
|
|
0.04
|
%
|
Nonperforming assets to total assets
|
|
|
0.03
|
%
|
|
|
0.02
|
%
|
The following table sets forth the Corporations provision and allowance for loan losses.
Allowance for Loan Losses
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ending 6/30/08
|
|
|
Ending 6/30/07
|
|
Balance at beginning of period
|
|
$
|
620
|
|
|
$
|
653
|
|
Provisions charged to operating expenses
|
|
|
30
|
|
|
|
|
|
Recoveries of loans previously charged-off
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
1
|
|
|
|
1
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
1
|
|
|
|
1
|
|
Loans charged-off:
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
(1
|
)
|
|
|
(9
|
)
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charged-off
|
|
|
(1
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
650
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
Net charge-offs as a percentage of average
loans outstanding
|
|
|
0.00
|
%
|
|
|
0.01
|
%
|
Allowance for loan losses as a percentage
of period-end loans
|
|
|
0.66
|
%
|
|
|
0.70
|
%
|
16
Deposits
Total deposits at June 30, 2008 were $187.6 million, an increase of $7.2 million, or 4.0%, over
total deposits of $180.4 million at December 31, 2007. The outstanding balances by deposit
classification at June 30, 2008 and 2007 are presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30,
|
|
|
|
(Dollars in thousands)
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
Balance
|
|
|
Rate
|
|
|
Balance
|
|
|
Rate
|
|
Demand Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
$
|
16,575
|
|
|
|
|
|
|
$
|
17,346
|
|
|
|
|
|
Interest-bearing
|
|
|
6,128
|
|
|
|
1.01
|
|
|
|
6,764
|
|
|
|
1.53
|
|
Savings
|
|
|
48,027
|
|
|
|
1.81
|
|
|
|
47,037
|
|
|
|
1.95
|
|
Time deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<$100,000
|
|
|
77,767
|
|
|
|
4.50
|
|
|
|
73,264
|
|
|
|
4.58
|
|
>$100,000
|
|
|
39,112
|
|
|
|
4.85
|
|
|
|
33,700
|
|
|
|
4.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
187,609
|
|
|
|
|
|
|
$
|
178,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity
The management of interest rate sensitivity seeks to avoid fluctuating net interest margins and to
provide consistent net interest income through periods of changing interest rates.
The Corporations risk of loss arising from adverse changes in the fair value of financial
instruments, or market risk, is composed primarily of interest rate risk. The primary objective of
the Corporations asset/liability management activities is to maximize net interest income while
maintaining acceptable levels of interest rate risk. The Banks Asset/Liability Committee (ALCO)
is responsible for establishing policies to limit exposure to interest rate risk, and to ensure
procedures are established to monitor compliance with those policies. The Corporations Board of
Directors approves the guidelines established by ALCO.
An interest rate sensitive asset or liability is one that, within a defined period, either matures
or experiences an interest rate change in line with general market interest rates. Historically,
the most common method of estimating interest rate risk was to measure the maturity and repricing
relationships between interest-earning assets and interest-bearing liabilities at specific points
in time (GAP), typically one year. Under this method, a company is considered liability sensitive
when the amount of its interest-bearing liabilities exceeds the amount of its interest-bearing
assets within the one-year horizon. However, assets and liabilities with similar repricing
characteristics may not reprice at the same time or to the same degree. As a result, the
Corporations GAP does not necessarily predict the impact of changes in general levels of interest
rates on net interest income.
Management believes the simulation of net interest income in different interest rate environments
provides a more meaningful measure of interest rate risk. Income simulation analysis captures not
only the potential of all assets and liabilities to mature or reprice, but also the probability
that they will do so. Income simulation also attends to the relative interest rate sensitivities
of these items, and projects their
behavior over an extended period of time. Finally, income simulation permits management to assess
the
17
probable effects on the balance sheet not only of changes in interest rates, but also of
proposed strategies for responding to them.
The Corporations income simulation model analyzes interest rate sensitivity by projecting net
interest income over the next 12 months in a flat rate scenario versus net income in alternative
interest rate scenarios. Management continually reviews and refines its interest rate risk
management process in response to the changing economic climate. Currently, the Corporations
model projects a proportionate 200 basis point change during the next year.
The Corporations ALCO policy has established that income sensitivity will be considered acceptable
if overall net income volatility in a plus or minus 200 basis point scenario is within 5% of net
interest income in a flat rate scenario. At June 30, 2008, the Corporations simulation model
indicated net interest income would increase 0.74% within the first year if rates increased as
described above. The model projected that net interest income would decrease by 0.24% in the first
year if rates decreased as described above. All of these forecasts are within an acceptable level
of interest rate risk per the policies established by ALCO.
Liquidity
Liquidity management involves the ability to generate cash or otherwise obtain funds at reasonable
rates to support asset growth and reduce assets to meet deposit withdrawals, to maintain reserve
requirements, and to otherwise operate the Corporation on an ongoing basis. Liquidity needs are
generally met by converting assets into cash or obtaining sources of additional funds, mainly
deposits. Primarily cash and federal funds sold, and the cash flow from the amortizing securities
and loan portfolios provide liquidity sources from asset categories. The primary source of
liquidity from liability categories is the generation of additional core deposit balances.
Additionally, the Corporation has established secondary sources of liquidity consisting of federal
funds lines of credit and borrowing capacity at the Federal Home Loan Bank, which can be drawn upon
if needed. In view of the primary and secondary sources as previously mentioned, management
believes that the Corporation is capable of meeting its anticipated liquidity needs.
Off-Balance Sheet Arrangements
The Corporations 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 June 30, 2008 totaled $6.6 million. This consisted of $1.9 million in tax-exempt
loans, commercial real estate, construction, and land development loans, $4.0 million in home
equity lines of credit, $612,000 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.
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.
Capital Adequacy
At June 30, 2008, stockholders equity totaled $42.4 million, an increase of 1.4% over
stockholders equity of $41.8 million at December 31, 2007. The increase in stockholders equity
for the six months
18
ended June 30, 2008 is net of a $278,000 increase in treasury stock and an
unrealized loss, net of income taxes, of $187,000 on securities available for sale. Excluding this
unrealized loss and treasury stock purchase, stockholders equity changed by an increase of $1.1
million in retained net income.
Risk-based capital provides the basis for which all banks are evaluated in terms of capital
adequacy. The risk-based capital standards require all banks to have Tier 1 capital of at least 4%
and total capital, including Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1
capital includes common stockholders equity together with related surpluses and retained earnings.
Total capital may be comprised of total Tier 1 capital plus qualifying debt instruments and the
allowance for loan losses.
The following table provides a comparison of the Banks risk-based capital ratios and leverage
ratios to the minimum regulatory requirements for the period indicated. The consolidated ratios
are not materially different from those presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
|
|
|
|
|
|
|
|
|
|
|
For Capital
|
|
Under Prompt
|
|
|
June 30,
|
|
December 31,
|
|
Adequacy
|
|
Corrective Action
|
|
|
2008
|
|
2007
|
|
Purposes
|
|
Provision
|
Risk-based capital
ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital
|
|
|
37.2
|
%
|
|
|
37.9
|
%
|
|
|
4.0
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital
|
|
|
37.8
|
%
|
|
|
38.5
|
%
|
|
|
8.0
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leveraged Capital
|
|
|
18.5
|
%
|
|
|
18.7
|
%
|
|
|
4.0
|
%
|
|
|
5.0
|
%
|
At June 30, 2008, the capital levels of the Bank met the definition of a well capitalized
institution.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
The Corporations exposure to market risk has not changed significantly since March 31, 2008. The
market risk principally includes interest rate risk, which is discussed in the Managements
Discussion and Analysis above.
Item 4T.
Controls and Procedures
Management of the Corporation, including the Chief Executive Officer and the Chief Financial
Officer, evaluated the effectiveness of the design and operation of the Corporations disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon
that evaluation, the Corporations Chief Executive Officer and Chief Financial Officer concluded
that the Corporations disclosure controls and procedures were effective as of the end of the
period covered by this report.
There have not been any changes in the Corporations internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter
19
ended June 30, 2008 that have materially affected, or are reasonably likely to materially
affect, the Corporations internal control over financial reporting.
Part II.
OTHER INFORMATION
Item 1. Legal Proceedings
In the opinion of the management of the Corporation, there are no proceedings pending
to which the Corporation or the Bank is a party or to which their property is
subject, which, if determined adversely to the Corporation or the Bank, would be
material in relation to the Corporations or the Banks financial condition. There
are no proceedings pending other than ordinary routine litigation incident to the
business of the Corporation or the Bank. In addition, no material proceedings are
pending or are known to be threatened or contemplated against the Corporation or the
Bank by government authorities.
Item 1A. Risk Factors
There are no material changes to the risk factors set forth in Part 1, Item 1A, Risk
Factors, of the Corporations Form 10-K for the year ended December 31, 2007.
Please refer to that section for disclosures regarding the risks and uncertainties
related to the Corporations business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
|
a)
|
|
An annual meeting of shareholders was held on May 14, 2008 at The
NOVA Building, Coplay, PA.
|
|
|
b)
|
|
One matter was voted on at the May 14, 2008, meeting as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes against or
|
Election of Directors
|
|
Term Expires
|
|
Votes Cast For
|
|
Withheld
|
John J. Remaley
|
|
May, 2011
|
|
|
156,473
|
|
|
|
1,367
|
|
John F. Sharkey, Jr.
|
|
May, 2011
|
|
|
156,740
|
|
|
|
1,100
|
|
Herman P. Snyder
|
|
May, 2011
|
|
|
155,819
|
|
|
|
2,021
|
|
|
|
|
|
|
Directors whose term continued after the meeting
|
|
Term Expires
|
Duane A. Schleicher
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May, 2009
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John F. Simock
|
|
May, 2009
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Mary Ann Wagner
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|
May, 2009
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Robert B. Heintzelman
|
|
May, 2010
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Kevin A. Schmidt
|
|
May, 2010
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20
Item 5. Other Information
Not applicable
Item 6. Exhibits
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3(i)
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Amended and Restated Articles of Incorporation for Neffs Bancorp, Inc.
(Incorporated by reference to Exhibit 3(i) to the Form 10 filed with the
Commission on April 27, 2001, as amended on June 29, 2001 and
July 20, 2001.)
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3(ii)
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Amended and Restated By-laws of Neffs Bancorp, Inc. (Incorporated by
reference to Exhibit 99.1 to the Form 8K filed with the Commission
on February 27, 2002.)
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.
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31.2
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Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer pursuant to Section 1350 of the
Sarbanes Oxley Act of 2002.
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32.2
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Certification of Principal Financial Officer pursuant to Section 1350 of
the Sarbanes Oxley Act of 2002.
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21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf be the undersigned thereunto duly authorized.
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NEFFS BANCORP, INC.
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Date: August 13, 2008
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/s/ John J. Remaley
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John J. Remaley, President
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22
Neffs Bancorp (PK) (USOTC:NEFB)
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Neffs Bancorp (PK) (USOTC:NEFB)
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