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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2002.
or
| | 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
incorporation or organization) Identification Number)
5629 Route 873, P.O. Box 10, Neffs, PA 18065-0010
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(Address of principal executive offices)
Registrant's telephone number including area code: (610)767-3875
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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 whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 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 |X| No | |
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 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. |X|
Indicate by a check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes | | No |X|
The aggregate market value of voting stock held by non-affiliates of
the registrant is $32,178,315, as of June 30, 2002.
The aggregate market value of voting stock held by non-affiliates of
the registrant is $32,139,315, as of March 11, 2003.
The number of shares of the Issuer's common stock, par value $1.00 per
share, outstanding as of March 11, 2003 was 196,431.
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, 2002 (the "Annual Report"). Part III incorporates certain information by
reference from the registrant's Proxy Statements 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 February
25, 2003. 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 TABLE OF CONTENTS
Page
Part I.
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 6
Item 3. Legal Proceedings............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders........... 6
Part II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................... 6
Item 6. Selected Financial Data....................................... 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk................................................... 7
Item 8. Financial Statements and Supplementary Data................... 8
Item 9. Changes In and Disagreements with Account and on
Accounting and Financial Disclosure........................... 9
Part III.
Item 10. Directors and Executive Officers of the Registrant............ 9
Item 11. Executive Compensation........................................ 9
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 9
Item 13. Certain Relationships and Related Transactions................ 9
Part IV.
Item 14. Controls and Procedures....................................... 9
Item 15. Exhibits, Financial Statement Schedules and Reports
On Form 8-K................................................... 9
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 company, which
are made in good faith by the company 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 System
(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.
As of December 31, 2002, the corporation has approximately $180 million
in assets, $147 million in deposits, $69 million in net loans, and $33 million
in stockholder's equity. The bank is a member of the Federal Reserve System
(FRB) and substantially all of the Bank's deposits are insured up to 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 PA
Route 873, Neffs, Pennsylvania 18065, and its telephone number is 610-767-3875.
As of December 31, 2002, the corporation had 34 employees, of which 28
were full-time employees. Management believes the corporation's relationship
with its employees is good.
The Neffs National Bank ("Neffs" or 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. Copies of such reports are available at
not 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 from its main
office in Neffs, 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), home equity. 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 Northern Lehigh 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.
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 $4,900,000 as of December 31, 2002) 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, the fullest extent possible, the
flexibility which independent status permits. This includes an emphasis on
specialized services for the small businessperson 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 Regulation
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 Securities and
Exchange Commission ("SEC") and of state securities commissions for matters
relating to the offering and sale of it 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 provision of the Bank Holding Company
Act of 1956, as amended. The corporation is subject to supervision and
examination by the Federal Reserve Board ("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 connections 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 charted commercial banking association, the bank is
subject to regulation, supervision and regular examination by the Office of
Comptroller of the Currency ("OCC") and is required to furnish quarterly reports
to the OCC. The bank is a member of the Federal Reserve System. 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 Banking 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 Financial Institutions Supervisory 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 Federal Reserve Board 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 which may
affect the cost of doing business.
Recent Legislation
USA PATRIOT ACT. In the wake of the tragic events, of September 11th,
on October 26, 2001, President Bush signed the Uniting and Strengthening America
by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT) Act of 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 for 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 it 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 does not anticipate that the USA PATRIOT Act will 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
establishes: (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
audits; (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.
REGULATION W. Transactions between a bank and its "affiliates" are
quantitatively and qualitatively restricted under the Federal Reserve Act. The
Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember
banks in the same manner and to the same extent as if they were members of the
Federal Reserve System. The Federal Reserve Board has also recently issued
Regulation W, which codifies prior regulations under Sections 23A and 23 B of
the Federal Reserve Act and interpretative guidance with respect to affiliate
transactions. Affiliates of a bank include, among other entities, the banks'
holding company and companies that are under common control with the bank. The
corporation is considered to be an affiliate of the bank. In general, subject to
certain specified exemptions, a bank or its subsidiaries are limited in their
ability to engage in "covered transactions" with affiliates:
- To an amount equal to 10% of the bank's capital and surplus, in the
case of covered transactions with any one affiliate; and
- To an amount equal to 20% of the bank's capital and surplus, in the
case of covered transactions with all affiliates.
In addition, a bank and its subsidiaries may engage in certain transactions
only on terms and under circumstances that are substantially the same, or at
least as favorable to the bank or its subsidiary, as those prevailing at the
time for comparable transactions with nonaffiliated companies.
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.
Effects 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.
Consolidated Financial and Statistical Profile
The data presented on the following pages provides additional
information to assist in reviewing the corporation's business activities and
must be read with the understanding that it is a supplement to Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
annual report to stockholders for the year ended December 31, 2002 which is
incorporated herein by reference.
Table 1 provides the allocation of the allowance for loan losses to the
various loan types and provides percentages of those loan types to the total
loan portfolio. Based on evaluation of prior years losses and the credit risk,
the bank allocated more of the allowance for loan loss to real estate loans for
the year-end 2002.
TABLE 1
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(in thousands)
2002 2001
Percent of Percent of
Loan Type to Loan Type to
Amount Total Loans Amount Total Loans
Commercial $ 108 21.25% $ 92 20.47%
Real estate 235 69.25% 262 70.87%
Installment 126 9.50% 83 8.66%
Unallocated 95 - 8 -
------------------------------------------------
Total $ 564 100% $ 445 100%
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, by a third party.
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
None.
Part II.
Item 5. Market For Registrant's Common Equity
And Related Stockholder Matters
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 for which common stock has
traded during the last two (2) fiscal years. The prices per share have been
adjusted to reflect common stock dividends with record dates of April 30, 2002
and October 31, 2002. As of December 31, 2002, there were approximately 613
holders of record of the corporation's common stock.
Sales Prices
Quarter Ended: High Low
March 31, 2002 226.00 182.00
June 30, 2002 205.00 188.00
September 30, 2002 205.00 192.00
December 31, 2002 205.00 192.00
March 31, 2001 216.00 186.00
June 30, 2001 210.00 188.00
September 30, 2001 200.00 192.00
December 31, 2001 205.00 186.00
Dividends and Dividend History
The corporation has historically distributed to stockholders a dividend
on May 15th and November 15th of each year. In 2002, a dividend of $1.10 per
share was paid to stockholders on May 15th, a dividend of $1.20 per share was
paid on November 15th and a special dividend of $.80 was also paid on November
15th.
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. Presently, the bank cannot
declare a dividend in excess of its accumulated retained earnings.
Item 6. Selected Financial Data
The information required by this item is set forth in the corporation's
2002 Annual Report and is incorporated by reference herein, and files as Exhibit
13.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated by reference from
the corporation's 2002 Annual Report.
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.
Table 2 reflects the bank's net interest income and net income
sensitivity analysis as of December 31, 2002 and 2001. The schedule indicates
that as of December 31, 2002, a hypothetical 200 basis point decline in
prevailing market interest rates would cause the bank's net interest income to
decline less then 3% from the current rate scenario and after adjusting for
income taxes a 200 basis point rise in rates would not cause a decline to net
income in comparison to the net income earned in 2002. 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.
TABLE 2
SENSITIVITY ANALYSIS
Percent Decrease in Categories
Market Interest Market Interest
Rate Decline of Current Market Rate Increase of
200 Basis Points Interest Rates 200 Basis Points
Net Interest Income:
Policy Limit 5% 5%
Hypothetical Percent Decrease
From Current Rate Scenario:
As of December 31, 2002 <3% N/A
As of December 21, 2001 <3% <1%
Net Income:
Hypothetical Percent Decrease
From Prior Year's Net Income:
As of December 31, 2002 6% N/A
As of December 31, 2001 7% <3%
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference from
the corporation's 2002 Annual Report.
Item 9. Changes In and Disagreements with Accountants and on Accounting and
Financial Disclosure
None.
Part III.
Item 10. Directors and Executive Officers of the Registrant
The information required in this part has been incorporated by
reference from the corporation's definitive proxy statement to be filed pursuant
to Regulation 14A for the election of directors at the corporation's 2003 Annual
Meeting. Dated and filed with the U.S. Securities and Exchange Commission on
March 7, 2003.
Item 11. Executive Compensation
The information required in this part has been incorporated by
reference from the corporation's definitive proxy statement to be filed pursuant
to Regulation 14A for the election of directors at the corporation's 2003 Annual
Meeting. Dated and filed with the U.S. Securities and Exchange Commission on
March 7, 2003.
Item 12. Security Ownership of Certain Beneficial Owners and Management
And Related Stockholder Matters.
The information required in this part has been incorporated by
reference from the corporation's definitive proxy statement to be filed pursuant
to Regulation 14A for the election of directors at the corporation's 2003 Annual
Meeting. Dated and filed with the U.S. Securities and Exchange Commission on
March 7, 2003.
The corporation currently does not maintain any equity compensation
plans.
Item 13. Certain Relationships and Related Transactions
The information required in this part has been incorporated by
reference from the corporation's definitive proxy statement to be filed pursuant
to Regulation 14A for the election of directors at the corporation's 2003 Annual
Meeting. Dated and filed with the U.S. Securities and Exchange Commission on
March 7, 2003.
Part IV
Item 14. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of management,
including the Chief Executive Officer and Principal Financial Officer, the
effectiveness of the design and operation of the corporation's disclosure
controls and procedures (as defined in Rule 13a-14(c) and 15d-14 under the
Securities Exchange Act of 1934) was evaluated as of a date (the "Evaluation
Date") within 90 days prior to the filing date of this report. Based upon that
evaluation, the Chief Executive Officer and Principal Financial Officer
concluded that, as of the Evaluation Date, the corporation's disclosure controls
and procedures were effective in timely alerting them to the material
information relating to the corporation (or the corporation's consolidated
subsidiaries) required to be included in its periodic SEC filings.
(b) Changes in internal controls.
There were no significant changes made in the corporation's internal
controls during the period covered by this report or, to their knowledge, in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements are incorporated by reference in Part
II, Item 8 hereof:
Annual Report Page #
--------------------
Report of Independent Auditors 3
Consolidated Balance Sheet 4
Consolidated Statements of Income 5
Consolidated Statements of Stockholder's Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
(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.
No Description
3.1 Amended and Restated Articles of Incorporation of The
Neffs Bancorp, Inc. (Incorporated by reference to
Exhibit
3(i) of the Registration Statement on Form 10 dated
and as filed with Commission on April 27, 2001.)
3.2 Amended and Restated Bylaws of the 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.)
4 Instruments defining the Rights of Security Holders
(See exhibits 3.1 and 3.2 above.)
11 Statement re: computation of per share earnings. See
Note 1 to the Consolidated Financial Statements
included in the Annual Report set forth as Exhibit 13
hereto.
12 Statement of Computation of Ratios (See the
information appearing on page 42 of the Registrant's
Summary of Selected Financial Data, which page is
included in Exhibit 11 and page 40 of Registrant's
2001 Annual Report, which pages are include in
Exhibit 13.)
13 Excerpts from Neffs Bancorp, Inc. Annual Report to
Stockholders.
21 Subsidiary of the Registrant (incorporated by
reference to Exhibit 21 to the Form 10-K of the
registrant, filed on April 1, 2002.)
99.1 Certification of Chief Executive Officer of Neffs
Bancorp, Inc., Pursuant to section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer of
Neffs Bancorp, Inc., Pursuant to section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports filed on Form 8-K
None
(c) 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, 2003 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, 2003
/s/ Herman P. Snyder
- -------------------
Herman P. Snyder Vice President and Director March 31, 2003
/s/ Robert B. Heintzelman
- ------------------------
Robert B. Heintzelman Director March 31, 2003
/s/ Robert L. Wagner
- -------------------
Robert L. Wagner Director March 31, 2003
/s/ John F. Simock
- -----------------
John F. Simock Director March 31, 2003
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002
I, John J. Remaley, Chief Executive Officer, certify that:
1) I have reviewed this annual report on Form 10-K of Neffs Bancorp, Inc.
2) Based on my knowledge, the annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report.
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
(c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation
of the internal controls which could adversely affect
the registrant's ability to record, process, summarize
and report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls.
5) The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003 By: /s/ John J. Remaley
John J. Remaley
Chief Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADDED BY SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Duane J. Costenbader, Principal Financial Officer, certify that:
1) I have reviewed this annual report on Form 10-K of Neffs Bancorp, Inc.
2) Based on my knowledge, the annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report.
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this annual report
(the "Evaluation Date"); and
c. presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation
of the internal controls which could adversely affect
the registrant's ability to record, process, summarize
and report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls.
6) The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect the
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 28, 2003 By: /s/ Duane J. Costenbader
Duane J. Costenbader
Principal Financial Officer