Exhibit 3
| Neffs Bancorp, Inc. | Table of Contents |
TABLE OF CONTENTS
| | I. | Valuation Report: Value range of Neffs Bancorp common stock absent a going private transaction. |
| | II. | Going Private Analysis: Value range of Neffs Bancorp common stock in a going private transaction. |
| | III. | Tables: Tables referenced in Valuation Report and Going Private Analysis. |
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| Neffs Bancorp, Inc. | Valuation Report |
I - VALUATION REPORT
Overview
Neffs Bancorp, Inc., of Neffs, Pennsylvania (“Neffs Bancorp”) retained Danielson Associates, LLC (“Danielson”) to provide an independent valuation of the fair market value of its common stock. Fair market value is defined as the price at which shares of Neffs Bancorp common stock would change hands between a willing seller and a willing buyer, each having reasonable knowledge of relevant facts, in a free and open market, either on an exchange or over-the-counter.
Danielson has relied on some public data as well as data supplied by Neffs Bancorp, all of which is believed to be reliable. However, the accuracy or completeness of such information cannot be guaranteed and was not independently verified by Danielson. In particular, this valuation assumes that there are no formal regulatory agreements in existence or any anticipated in the near future, or significant loan problems beyond that which has been stated to Danielson and in the most recent reports filed with regulatory agencies.
In preparing this valuation report, Danielson considered: (i) the markets served by Neffs Bancorp, (ii) Neffs Bancorp’s historical and current financial condition as well as future prospects, (iii) Neffs Bancorp’s earnings, capital and assets in relation to the pricing multiples of other comparable banks, (iv) the value and quantity of known trades in Neffs Bancorp common stock, (v) the value determined by investment calculations such as the discounted dividends method, and (vi) any other unique characteristics. This valuation does not take into account the sale value of Neffs Bancorp in which there may be a premium associated with a change-of-control.
Based on these considerations, and other analyses as deemed appropriate, it has been determined that any price from $255 per share to $275 per share is the fair market value range of Neffs Bancorp’s common stock as of March 15, 2011.
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Description of Neffs Bancorp and Neffs National
Neffs Bancorp, established in 1986, is a Pennsylvania business corporation, which is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. Neffs Bancorp has one wholly-owned subsidiary, The Neffs National Bank (“Neffs National”), which was established in 1923. Neffs Bancorp and Neffs National operate out of a single location in Neffs, Pennsylvania.
Neffs Bancorp is regulated by the Federal Reserve Bank. Neffs National is regulated by the Office of the Comptroller of the Currency and its deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation.
Neffs National provides a full range of retail and commercial banking services for consumers and small to mid-sized companies. Lending and investment activities are funded principally by retail deposits gathered through its retail banking facility.
As of December 31, 2010, Neffs Bancorp had consolidated assets of $278.5 million (which included net loans of $120.8 million), deposits of $230.7 million and equity of $46.7 million. In 2010, Neffs Bancorp had consolidated net income of $3.4 million, which was a 1.27% return on average assets and a 7.42% return on average equity.
Board and Management
In 2010 and in 2011 through March 15, 2011, there were no changes to the board of Neffs Bancorp or to the executive management of Neffs Bancorp or Neffs National.
As of March 15, 2011, the board and management of Neffs Bancorp beneficially owned 22.7% of the outstanding common stock.
Common Stock Outstanding and Tangible Book Value
Neffs Bancorp’s common stock is quoted on the NASDAQ Pink Sheets under the trading symbol NEFB and is traded over-the-counter (“OTC”).
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As of December 31, 2010, Neffs Bancorp had 179,460 shares of common stock outstanding and the tangible common book value was $260.21 per share. As of March 15, 2011, after stock repurchases by Neffs Bancorp in January and February of 2011, common stock outstanding was reduced to 178,430 and the tangible common book value increased to $260.24 per share.
As of the date of this valuation report, Neffs Bancorp had no options or warrants outstanding.
Shareholders of Record and Significant Shareholders
As of December 31, 2010, three persons or groups owned in excess of 5% of the common stock. Dean H. Snyder owned 8.2%, William F. and Alma P Deibert owned 6.7% and John J. Remaley owned 6.1%. Mr. Snyder is a director of Neffs Bancorp. Mr. Remaley serves as the President and Chief Executive Officer of Neffs Bancorp.
As of February 10, 2011, Neffs Bancorp had 631 shareholders of record.
Dividends
Neffs Bancorp typically pays a dividend twice a year, which is declared at, or near, the end of March and September. On March 16, 2010, Neffs Bancorp declared a dividend of $2.00 per share and on September 21, 2010, Neffs Bancorp declared a dividend of $2.25 per share and a special dividend of $0.50 per share.
Goodwill
As of December 31, 2010, Neffs Bancorp and Neffs National had no goodwill or intangible assets on their balance sheets.
Market
Neffs National’s Primary Market is Neffs and the immediate surrounding area, and its Extended Market includes the nearby portions of the Lehigh Valley and Carbon County. The Primary Market is defined by zip codes 18078 for Schnecksville and 18080 for Slatington. The Lehigh Valley is defined as Lehigh County and Northampton County.
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Neffs Bancorp’s Primary Market is small, but growing and relatively affluent. In 2010, the estimated population was 19,253 and is projected to grow at an annual rate of 0.9% through 2015. The median household income was $66,745 (see Tables 1 and 2).
The Extended Market includes the Lehigh Valley to the south and Carbon County to the north, which are very different from each other. The Lehigh Valley is a commercial hub that benefits from its access to New York City and Philadelphia along major interstate highways. Carbon County is a much smaller, rural county with a small employment base. In 2010, the Lehigh Valley had an estimated population of 646,222, and is projected to grow at an annual rate of 0.9% through 2015. Carbon County had an estimated population of 63,859 and is projected to grow at an annual rate of 0.7% through 2015. Median household income in 2010 was estimated to be $58,554 in the Lehigh Valley and $44,833 in Carbon County. Comparatively, Pennsylvania’s population is projected to grow at an annual rate of 0.1% through 2015 and its median household income was $52,723.
The Primary Market is relatively small with only six different banking organizations and aggregate deposits as of June 30, 2010 of $391 million in eight retail banking locations. Neffs Bancorp is the market leader with local deposits of $222 million for a 56.6% share of local deposits. However, as Neffs Bancorp operates out of a single location, it is likely that significant portions of these deposits are from beyond the Primary Market. The other market leaders are Wells Fargo with local deposits of $92 million and a 23.5% share, and First Niagara with local deposits of $47 million and a 12.0% share. Both Wells Fargo and First Niagara have two branches in the Primary Market (see Table 3).
The Lehigh Valley portion of the Extended Market is a large and highly competitive market with deposits as of June 30, 2010 of $13.4 billion held by 47 different banks, thrifts and credit unions. In mid-2010, Wells Fargo was the market leader with local deposits of $3.5 billion, a 26.5% share and 42 branches. A distant second was National Penn with local deposits of $1.6 billion, a 12.1% share and 36 branches. Overall, including Wells Fargo and National Penn, large banks and regional banks had aggregate local deposits of $9.4 billion, a 70% share and 186 branches. Locally-based banks and thrifts held aggregate local deposits of $2.4 billion, a 15.5% share and had 48 branches. This includes Neffs Bancorp with deposits of $222 million, a 1.7% share and a single location (see Table 4).
Carbon County, also in the Extended Market, is a much smaller market with local deposits as of June 30, 2010 of $927 million and a more significant local
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bank presence. In mid-2010, large and regional banks had aggregate local deposits of $476 million, a 51.4% share and 16 branches. The remaining deposits were held by three locally-based banks with aggregate local deposits of $451 million, a 48.6% share and 12 branches. Neffs Bancorp does not have a presence in the county (see Table 5).
Financial Profile
In 2010, Neffs Bancorp grew its assets and posted record earnings. However, earnings would have been greater if not for larger than normal contributions to its loan loss reserve and a second year of losses related to an impairment of securities, both of which combined to hold net income down. As a result, Neffs Bancorp assets as of December 31, 2010, were $278 million, up $20 million from a year earlier, and net income was $3.4 million, up only $265,000 from a year earlier (see Tables 6, 7 and 8).
Neffs Bancorp has had good earnings in relation to assets for many years, but because it maintains such a high level of capital, returns on equity are relatively low. Since 2006, annual returns on average assets have ranged from 1.21% to 1.32%, and tangible equity-to-tangible assets at year-end have been above 16%. As a result, annual returns on average equity have not been higher than the 7.42% recorded in 2010 (see Table 6).
At year-end 2010, Neffs Bancorp assets reached $278.5 million, an increase of $20.3 million over the prior year-end. On the asset side of the balance sheet, loans were $121.9 million, up $9.9 million; investment securities available for sale were $41.8 million, up $6.8 million; and cash items were $7.4 million, up $5.3 million. On the liabilities side of the balance sheet, deposits were $230.7 million, up $19.3 million (see Table 7).
In 2010, Neffs Bancorp continued to increase its net operating income as net interest income improved, and increases in non-interest expense were controlled. For the year ended December 31, 2010, net interest income was $8.6 million, up $618,000 from the prior year, and non-interest expenses were $3.6 million, up $156,000. Non-interest income was almost unchanged at $265,000, down $4,000 from the prior year (see Table 8).
The year-over-year improvement did not build steadily throughout the last year as quarter-to-quarter performance was uneven and flat. In 2010, net operating income was $1.2 million in the first quarter, $1.4 million in the second quarter,
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$1.3 million in the third quarter and $1.3 million in the fourth quarter. With the uneven contributions to the loan loss reserve and losses on impaired securities in the first and fourth quarters, net income was $0.8 million in the first quarter, $1.0 million in the second quarter, $0.9 million in the third quarter and $0.7 million in the fourth quarter (see Table 9).
The losses on impaired securities were the result of write-downs in the value of Pooled Trust Preferred Securities (“Pretsls”). As of December 31, 2010, Neffs Bancorp held Pretsls with a total book value of $2.78 million and a market value of $242,000, for an unrealized loss of $2.54 million. As these Pretsls are being held to maturity and the unrealized loss deemed temporary because of market conditions, they are not considered to be further impaired and the loss has not been recognized.
In comparison to its Northeast Pennsylvania peers (“NEP Peers”), Neffs Bancorp had similar tax equivalent margins and less fee income; but with much lower overhead, it had higher earnings. In 2010 as a percentage of average assets, Neffs Bancorp had net interest income of 3.67%, identical to its NEP Peers; and non-interest income of 0.10%, 62 basis points lower than its NEP Peers. The latter deficit was more than offset by non-interest expense to average assets of 1.33%, 129 basis points lower than the NEP Peers. Overall, Neffs Bancorp had a return on average assets of 1.27%, 35 basis points higher than the NEP Peers (see Table 10).
While Neffs Bancorp’s net interest margin is similar to the NEP Peers, it relies on lower yielding tax free municipals to compensate for a higher cost of funds. In 2010, Neffs Bancorp’s yield on earning assets was 5.28%, which in spite of having fewer assets committed to loans, was 32 basis points higher than the NEP Peers. Offsetting this advantage was a cost of funds of 2.20%, 110 basis points higher than the NEP Peers. This should create a margin substantially lower than the NEP Peers; but, as previously discussed, Neffs Bancorp had a tax equivalent margin comparable to the NEP Peers. The disadvantage in cost of funds has been completely compensated for with the non-taxable income from its municipal investments (see Table 11).
In terms of loan mix, Neffs Bancorp is similar to the NEP Peers in that 91% of loans are backed by real estate; but differed in that it held more residential mortgages, home equity loans and consumer loans. As of December 31, 2010, Neffs Bancorp’s loan portfolio consisted of 53% residential mortgages, 8% home equity loans and 7% consumer loans. As of the same date, its NEP Peers had loan
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portfolios with a median of 42% residential mortgages, 3% home equity loans and 2% consumer loans (see Table 12).
In terms of deposit mix, Neffs Bancorp was more reliant on certificates of deposits (“CDs”) for funding than the NEP Peers. As of December 31, 2010, 59% of Neffs Bancorp’s deposits were retail and jumbo CDs, versus a median of 38% for the NEP Peers. As of the same date, non-interest bearing deposits and NOW accounts, which are typically low rate accounts, were 11% of Neffs Bancorp’s deposits, compared to a median of 18% for the NEP Peers (see Table 12).
Neffs Bancorp, in comparison to the NEP Peers, has much higher capitalization and better asset quality. The lower level of reserves is not material, particularly given this high level of capitalization and asset quality. As of December 31, 2010, Neffs Bancorp had tangible equity-to-tangible assets of 16.77%, well above the NEP Peer median of 8.96%. As of the same date, Neffs Bancorp had non-performing assets (“NPAs”) that were 0.97% of assets, compared to a median of 1.68% for the NEP Peers. Also as of the same date, Neffs Bancorp had reserves-to-loans of 0.91%, compared to a higher 1.25% for the NEP Peers (see Table 13).
While Neffs Bancorp has maintained a high level of asset quality, it has made more contributions to the loan loss reserve and charged-off more loans in recent years. In 2010, the contribution to the loan loss reserve was $368,000 and charge offs were $83,000. As recently as 2007, the contribution to the loan loss reserve was zero and charge-offs only $33,000 (see Table 14).
At the bank level, Neffs National has maintained regulatory capital ratios well in excess of the NEP Peers and regulatory minimums. As of December 31, 2010, Neffs National had risk-based capital to risk-weighted assets of 31.57%, Tier 1 risk-based capital to risk-weighted assets of 30.83% and a leverage ratio (Tier 1 capital to average assets) of 16.63%; while the NEP Peers had regulatory ratios of 13.56%, 12.47% and 9.00%, respectively. The regulatory minimums to be considered “well-capitalized” are 10.00%, 6.00% and 5.00%, respectively (see Table 15).
Overall, Neffs Bancorp is a small community bank that differentiates itself from its peers in that it has a very high level of capitalization, very low expenses, fewer assets committed to loans and operates out of a single location. Asset quality, while good, is not a differentiator from its peers as most in northeast Pennsylvania also have good asset quality. Neffs Bancorp, however, consistently
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posts good earnings in relation to assets, which are higher than its peers; yet because of the high level of capitalization, returns on equity are relatively low given the level of earnings.
Valuation
There are numerous methodologies that can be used in valuing an institution’s common stock including:
| | · | Comparative pricing analysis – An analysis of the pricing multiples of comparable banks that have their stock actively traded in a free and open market, either on an exchange or OTC, and the application of these multiples to the institution. The multiples typically used are price times earnings, price-to-book or tangible book, and price-to-assets. |
| | · | Trading analysis – An analysis of trading volumes and price levels of the institution’s common stock. |
| | · | Discounted dividends analysis – Return on investment calculations such as the discounted dividends model. |
| | · | Liquidation value – A mark-to-market valuation of the institution’s assets and liabilities. |
The first three methods value the institution as a “going concern,” as they focus on the prospects and/or earnings power of the institution. The last method, liquidation value, focuses on the quick sale of the tangible assets of the institution.
A liquidation analysis was not performed as the institution is profitable, has a long history of profitability, has excess capital and is not in danger of failing.
This valuation report does not take into account the sale value of the institution in which there may be a premium paid for a change-in-control.
Comparative Pricing Analysis
In a comparative pricing analysis the best valuation method, if earnings are normal and consistent, is price times earnings. Price-to-book or tangible book is typically used when earnings are low and/or inconsistent and the application of a price times earnings multiple results in a value that is too low to be realistic. Price
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to-assets often provides a good check on values determined by price times earnings or price-to-book or tangible book, but is not applicable if an institution is not fully leveraged, which is the case for Neffs Bancorp.
In valuing Neffs Bancorp using stock pricing multiples, it was necessary to select three groups of comparable institutions (collectively the “Comparable Groups”). The first group was comprised of 11 banks and thrifts across the nation that, like Neffs Bancorp, had excess capital, good asset quality and good earnings (“Targeted Comparables”). The second group was comprised of 10 banks in northeast Pennsylvania (“Northeast PA Comparables”). The third group was all the publicly traded banks in Pennsylvania with assets of less than $20 Billion (“PA Banks under $20 Billion”). A description of each group is as follows (see Table 16):
| | · | Targeted Comparables (11 institutions): Banks and thrifts from across the nation with assets between $100 million and $600 million; tangible equity as a percent of tangible assets greater than 11%; a return on average assets greater than 0.75%; non-interest income as a percent of average assets less than 2%; NPAs-to-assets less than 2.50%; and an average daily trading volume of more than 400 shares on the OTC bulletin board, NASDAQ or an exchange. Excludes banks with large changes in earnings during the fourth quarter of 2010. |
| | · | Northeast PA Comparables (10 institutions): Banks based in northeast Pennsylvania1 with a stock that trades on the OTC bulletin board, NASDAQ or on an exchange. Excludes banks with NPAs-to-assets of more than 2.50% |
| | · | PA Banks under $20 Billion (85 institutions): All publicly traded banks in Pennsylvania with assets under $20 Billion. This size limit eliminates one bank – PNC Financial Service Group, Inc. |
While no bank is identical to Neffs Bancorp, the Targeted Comparables are the most similar in that they all have a high level of capital, good asset quality and meaningful earnings not generated through non-interest income. The most significant differences are in size and geography, and the size difference is mitigated by the use of pricing multiples. With the largest having assets of less
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1 Includes the counties of Bradford, Carbon, Columbia, Lackawanna, Lehigh, Luzerne, Monroe, Northampton, Pike, Schuylkill, Sullivan, Susquehanna, Wayne and Wyoming.
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than $600 million, none of the banks is so large that they are uncomparable. Since the geographic difference cannot be compensated for by the use of pricing multiples, the second group, the Northeast PA Comparables, became necessary.
The Northeast PA Comparables, with no restrictions other than geography, had individual differences from Neffs Bancorp; but as a group, they were not too dissimilar and provide a good check on prices derived from the Targeted Comparables.
The PA Banks under $20 Billion group was chosen only to provide a reasonableness check on the two groups.
A comparison the Targeted Comparables to Neffs Bancorp is as follows:
| | · | The Targeted Comparables had median assets of $329 million, which is similar to Neffs Bancorp’s assets of $278 million (see Table 17). |
| | · | The Targeted Comparables had median tangible equity to tangible assets of 12.60%. This is lower than the 16.77% of Neffs Bancorp, but still well in excess of normal capitalization levels which is closer to the 9.15% of the PA Banks under $20 Billion. |
| | · | The Targeted Comparables had median NPAs-to-assets of 0.97% which is equal to the 0.97% of Neffs Bancorp. It is notable that the Northeast PA Comparables also had good asset quality with median NPAs to assets of 0.83%. |
| | · | The Targeted Comparables had returns on equity of 7.36%, which is similar to the 7.42% of Neffs Bancorp. The Northeast PA Comparables had a higher median return on equity of 10.62%, but this can be attributed to a lower level of capitalization which boosts returns on equity. |
| | · | The Targeted Comparables had a median dividend yield of 2.54% and the Northeast PA Comparables had an even higher median dividend yield of 3.87%. Based on Neffs Bancorp’s closing price on March 7, 2011 of $260 per share, its dividend yield was 1.82% (see Table 18). |
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| | · | The Targeted Comparables had median average daily shares traded of 1,299, which is low volume, but far more than Neffs Bancorp, which had little trading activity outside of stock repurchases. |
Comparison of Neffs Bancorp and Comparable Groups*
| | | | | | | | | Northeast | | | PA Banks | |
| | | Neffs | | | Targeted | | | PA | | | under | |
| | | Bancorp | | | Comparables | | | Comparables | | | $20 Billion | |
| | | | | | | | | | | | | |
| Number in group | | | 1 | | | | 11 | | | | 10 | | | | 85 | |
| | | | | | | | | | | | | | | | | |
| Assets (in millions) | | $ | 278 | | | $ | 329 | | | $ | 548 | | | $ | 491 | |
| | | | | | | | | | | | | | | | | |
| Tang equity/ | | | | | | | | | | | | | | | | |
| Tang assets | | | 16.77 | % | | | 12.60 | % | | | 9.15 | % | | | 8.82 | % |
| | | | | | | | | | | | | | | | | |
| NPAs/assets | | | .97 | % | | | .97 | % | | | .83 | % | | | 1.35 | % |
| | | | | | | | | | | | | | | | | |
| Return on: | | | | | | | | | | | | | | | | |
| Average assets | | | 1.27 | % | | | .88 | % | | | 1.07 | % | | | .76 | % |
| Average equity | | | 7.42 | | | | 7.36 | | | | 10.62 | | | | 8.15 | |
| | | | | | | | | | | | | | | | | |
| Dividend yield | | | 1.82 | % | | | 2.62 | % | | | 3.91 | % | | | 2.75 | % |
| | | | | | | | | | | | | | | | | |
| Average daily | | | | | | | | | | | | | | | | |
| Volume of Trades | | | 10 | | | | 1,299 | | | | 509 | | | | 266 | |
| | | | | | | | | | | | | | | | | |
| *For Comparable Groups, financial data are medians. | |
| | | | | | | | | | | | | | | | | |
| Source: SNL Financial, Charlottesville, Virginia and Neffs Bancorp. | |
The pricing of the individual banks within the comparable groups varied, but the median pricing multiples were reasonably similar. The medians of the comparable groups were as follows (see Table 18):
| | · | Price times earnings: The Targeted Comparables traded at 14.6 times earnings, the Northeast PA Comparables at 10.5 times earnings and the PA Banks under $20 Billion at 11.2 times earnings. |
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| | · | Price-to-tangible book: The Targeted Comparables traded at 107% of tangible book, the Northeast PA Comparables at 121% of tangible book and the PA Banks under $20 Billion at 104% of tangible book. |
| | · | Price-to-assets: The Targeted Comparables traded at 13.9% of assets, the Northeast PA Comparables at 11.2% of assets and the PA Banks under $20 Billion at 8.8% of assets. |
If these multiples were applied to Neffs Bancorp, the resulting values vary widely. However, the application of the most meaningful multiples – price times earnings and price-to-tangible book – from the most comparable group, the Targeted Comparables, provides a much narrower value range.
| | | | | | Northeast | | | PA Banks | |
| | | Targeted | | | PA | | | Under | |
| | | Comparables | | | Comparables | | | $20 Billion | |
| | | | | | | | | | |
| Number in group | | | 11 | | | | 10 | | | | 85 | |
| | | | | | | | | | | | | |
| Price times earnings | | | 14.6 | X | | | 10.5 | X | | | 11.2 | X |
| Price/tangible book | | | 107 | % | | | 121 | % | | | 104 | % |
| Price/assets | | | 13.9 | % | | | 11.2 | % | | | 8.8 | % |
| | | | | | | | | | | | | |
| | | Multiples Applied to Neffs Bancorp* | |
| | | | |
| Price times earnings | | $ | 275 | | | $ | 198 | | | $ | 211 | |
| Price/tangible book | | | 278 | | | | 315 | | | | 271 | |
| Price/assets | | | 227 | | | | 183 | | | | 144 | |
| | | | | | | | | | | | | |
| *Based on fully-diluted earnings per share of $18.86 and dividends of $4.75 per share in 2010; and tangible book value per share of $260.21 and assets per share of $1,634 as of December 31, 2010. | |
| | · | The Targeted Comparables, which were selected based on their financial similarity to Neffs Bancorp, had very similar values based on price times earnings and price-to-tangible book. The median price times earnings multiple of 14.6 results in a value of $275 per share, and the median price-to-tangible book percentage of 107% results in a higher value of $278 per share. |
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| | · | The Northeast PA Comparables, which were selected based on the geographic proximity to Neffs Bancorp, had a much wider range of results. The median price times earnings multiple of 10.5 results in a value of $198 per share, and the median price-to-tangible book percentage of 116% results in a much higher price of $315 per share. |
Prices based on assets or on the PA Banks under $20 Billion were less meaningful and given a much lower emphasis, but may provide a reasonableness check on the two selected groups.
Trading Analysis
Trades in Neffs Bancorp common stock occur either OTC or are part of Neffs Bancorp’s “No-Fee, Odd-Lot Sales Program” stock repurchase program (“stock repurchase program”). OTC trades are reported on the Pink Sheets and are trades between two parties, one of which may be Neffs Bancorp repurchasing stock outside the stock repurchase program. Shares sold as part of the Neffs Bancorp stock repurchase program are sales from existing shareholders with less than 100 shares back to Neffs Bancorp.
OTC trades in 2010 and in January and February of 2011 of Neffs Bancorp common stock were infrequent and the dollar value traded was relatively low. Typically, the stock is traded on one-to-three days each month. The total dollar volume of shares traded in 2010 was $338,000; in January and February of 2011 was $72,000; and a trade on March 1, 2011 was $19,500. The weighted average price of trades in Neffs Bancorp common stock was $259 per share in 2010; $258 per share in January and February of 2011; and $260 per share on March 1, 2011 (see Table 19).
Stock repurchased by Neffs Bancorp OTC or through the stock repurchase program in 2010 and in January and February of 2011 had a total value of $1.4 million. The weighted average price of shares repurchased by Neffs Bancorp was $259 per share in 2010 and $254 per share in January and February of 2011 (see Table 20).
Discounted Dividends Analysis
The discounted dividends method is an alternative method for determining fair market value based on certain assumptions. This method projects net income
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over a period of seven years and determines the excess capital that is paid to shareholders in the form of a dividend. Each year, this dividend is discounted back to its present value. At the end of seven years, a residual value is obtained and is also discounted back to its present value.
Results from a discounted dividend model are highly dependent on the various assumptions that are made regarding the discount rate, projected future earnings, and the terminal value. This analysis assumes two scenarios based on different levels of capitalization. Scenario 1 assumes Neffs Bancorp maintains its current level of capitalization and Scenario 2 assumes a lower level of capitalization, slightly lower than that of the Targeted Comparables (see Table 21).
| | · | Scenario 1 – Maintains current level of capitalization: Assumes 7%2 annual asset growth, assets of $278 million, tangible equity of $46.7 million, return on assets going forward of 1.27%3 and a “normalized” capital ratio of 16.77%4. |
| | · | Scenario 2 – Reduces capitalization: Assumes 7% annual asset growth, assets of $278 million, tangible equity of $46.7 million, return on assets going forward of 1.27% and a “normalized” capital ratio of 12.00%5. |
These assumptions are not based upon any projections or budgets from Neffs Bancorp, and are subject to significant uncertainties, including changes in the interest rates, the competitive landscape, and the regulatory environment.
It was also necessary to apply a terminal value and a discount rate. Terminal values of 10 times and 14 times earnings were based on the median price times earnings of the Targeted Comparables at 14.6X and the median price of the Northeast PA Comparables at 10.5X. Discount rates of 14% and 12% were chosen based on the compounded annual return for small company stocks for the 10-year period from 1996 to 2006, which was 13.62%6 and as the market entered a down cycle starting in 2007, a lower discount rate of 10% was also used.
Scenario 1, where capitalization is maintained at current levels, results in much lower prices than Scenario 2 where capitalization is reduced. Scenario 1 prices range from $119 per share to $214 per share. Scenario 2 prices range from $211 per share to $312 per share. The lower prices in Scenario 1 are the result of the excess capital which is not as well utilized to generate earnings as in Scenario 2.
____________________2 Neffs Bancorp’s 10-year (2000-2010) and 20 year (1990-2010) annualized asset growth is 7%.
3 Neff Bancorp’s 5-year (2006-2010) average return on average assets is 1.27%.
4 Neff Bancorp’s current tangible equity-to-tangible asset ratio is 16.77% as of December 31, 2010.
| 5 | The Targeted Comparables had median tangible equity-to-tangible assets of 12.60% and the Northeast PA comparables had median tangible equity-to-tangible assets of 9.39%. |
| 6 | The Ibbotson Associates Inc., 2006 Yearbook: Market Results for Small Company Stocks - 1926 to 2006. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Valuation Report |
Fair Value Price Range
Based on these comparisons, our analyses and our knowledge of the banking industry, the valuation range was determined to be from $255 per share to $275 per share. The valuation range is from 13.5 to 14.6 times fully-diluted 2010 earnings and from 98% to 106% of tangible book value as of December 31, 2010 (see Table 22).
Primary emphasis in setting the valuation range was given to the price times earnings of the Targeted Comparables and to OTC trades and repurchases of common stock.
| | · | The price times earnings median of the Targeted Comparables of 14.6X results in a price of $275 per share. These banks are the most comparable to Neffs Bancorp based on selected financial criteria, and, when earnings are normal and consistent, this method often provides the best method of valuation. |
| | · | The trades that took place in stock repurchases in January and February of 2011 and on the OTC bulletin board were in the $254 per share to $259 per share range. As these prices were reported, available to the public, and were consistent, these prices were also given primary emphasis. |
Secondary emphasis in setting the valuation range was given to the price times earnings of the Northeast PA Comparables and PA Banks under $20 Billion and differences in dividend yields. Secondary emphasis was also given to the price-to-tangible book median of the Targeted Comparables.
| | · | The price times earnings of the Northeast PA Comparables and the PA Banks under $20 Billion were 10.5 and 11.2 times earnings, respectively, and result in prices of $198 per share and $211 per share. These multiples are much lower than the 14.6 times earnings of the Targeted Comparables and indicate an earnings-based price may be lower than $275 per share. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Valuation Report |
| | · | The median dividend yield of the Targeted Comparables was 2.62%, the Northeast PA Comparables was 3.91% and the PA Banks under $20 million was 2.75%. Based on the valuation range, Neffs Bancorp’s dividend yield ranges from 1.72% to 1.86%. This lower yield may make Neffs Bancorp common stock less attractive than its peers, thereby suggesting a lower price. |
| | · | The price-to-tangible book median of the Targeted Comparables of 107% results in a price of $278 per share. This price is $3 above the top end of the valuation range. |
Other Comparable Groups and valuation methods were given tertiary emphasis or no emphasis:
| | · | The Northeast PA Comparables had median price-to-tangible book of 121%, which resulted in a price of $315 per share. While these banks were the most geographically comparable to Neffs Bancorp, this value is 16.7 times earnings, which is too high, particularly given that none of the banks in the group trade at more than 13.4 times earnings and the median is 10.5 times earnings. |
| | · | Price-to-asset calculations were not applicable as this method assumes a bank is fully leveraged, which Neffs Bancorp is not. The medians of all three comparable groups resulted in prices that were unrealistically low and ranged from $153 per share to $223 per share. |
| | · | Discounted dividends calculations varied widely based on assumptions about normalized capital. If current levels of capital are maintained at more than 16%, which is likely, the resulting values are too far below book value to be realistic. If capital levels are decreased to 12%, a less likely scenario given the banks history of high capitalization, the resulting value is $282 per share. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
II - GOING PRIVATE ANALYSIS
Overview
Neffs Bancorp retained Danielson to provide an independent valuation of their common stock in a going private transaction.
In preparing this going private analysis, Danielson considered: (i) reasons for a going private transaction; (ii) the cost associated with a going private transaction; (iii) the projected cost savings from deregistration with the Securities and Exchange Commission (“SEC”); (iv) the impact of the going private transaction on book value per share, capital, earnings and earnings per share; (v) comparable going private transactions with a “cash-out” feature; and (vi) any other unique characteristics. This going private analysis does not take into account the sale value of Neffs Bancorp in which there may be a premium associated with a change-of-control.
Based on these considerations, and other analyses as deemed appropriate, it has been determined that any price from $276 per share to $296 per share is the fair market value range of Neffs Bancorp common stock as of March 15, 2011 in a going private transaction.
Description of the Going Private Transaction (the “Merger”)
Neffs Bancorp is proposing to undergo a merger transaction (the “Merger”) designed to reduce the number of Neffs Bancorp common shareholders of record to fewer than 300 persons, as required for the termination of its registration of common stock with the SEC.
At the effective time of the Merger, three tiers of record holders will be created. First Tier Record Holders will receive cash (the “Cash Consideration”) from Neffs Bancorp for each share of common stock held. Second Tier Record Holders will have the opportunity to elect to receive the Cash Consideration for each share of common stock held, or one share of newly authorized Series A preferred stock. Third Tier Record Holders will continue to hold the same number of shares of common stock. The terms and conditions of the Merger are more fully described in the proxy statement.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
Reasons for a Going Private Transaction
The primary reasons for Neffs Bancorp to undertake a going private transaction are as follows:
| | · | Lack of corporate benefit to continued filing; |
| | · | To better leverage capital and increase earnings per share and return on equity; and |
| | · | To allow the company to refocus attention of management from quarterly performance to long-term performance. |
An additional reason is to allow small shareholders the opportunity to liquidate their common stock holdings with no brokerage fee and at a price equal to, or at a premium to, the current market value of the common stock.
Number of Shareholders and Definition of Tiers
As of March 15, 2011, Neffs Bancorp had 178,430 shares of common stock outstanding and 631shareholders of record. The three tiers are defined as follows:
| | · | First tier record holders are holders of 25 or fewer shares of common stock. |
| | · | Second tier record holders are holders of more than 25 shares and fewer than 101 shares of common stock. |
| | · | Third tier record holders are holders of 101 or more share of common stock. |
Costs Associated with the Merger
The projected costs associated with the Merger were estimated by Neffs Bancorp to be $150,000 (see Table 23).
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
Projected Cost Savings from SEC Deregistration
The projected cost savings in 2012 as a result of the Merger were estimated by Neffs Bancorp to be $146,000 (see Table 24).
Comparable Going Private Transactions and Premiums Paid
Since the beginning of 2008, there has been only a limited number of going private transactions and an even smaller number that had a mandatory “cash-out,” or cash consideration provision. Our research found seven such transactions (see Table 25).
The seven comparable going private transactions were divided into two groups based on profitability – the “Profitable Going Private Comparables” and the “Unprofitable Going Private Comparables.” In the quarter or quarter-end prior to the announcement of the going private transaction:
| | · | The four Profitable Going Private Comparables had returns on average assets ranging from 0.39% to 0.69%, and returns on average equity ranging from 3.43% to 5.01%. |
| | · | The three Unprofitable Going Private Comparables had returns on average assets ranging from (.08%) to (4.92%), and returns on average equity ranging from (0.87%) to (80.68%). |
| | · | Neffs Bancorp’s returns on average assets and equity in the fourth quarter of 2010 were 0.97% and 5.76%7. |
We also noted that as of the quarter-end prior to the announcement of the going private transaction:
| | · | The four Profitable Going Private Comparables had cash-out prices of 95%, 109%, 111% and 126% of tangible book. |
__________________
| 7 | Returns on average assets and equity were 1.27% and 7.42%, respectively, in 2010. The lower returns in the fourth quarter reflected lower earnings primarily from a securities impairment. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
| | · | The three Unprofitable Going Private Comparables had cash out prices of 80%, 94% and 94% of tangible book. |
As Neffs Bancorp has been consistently profitable and the Valuation Report set a fair value range for Neffs Bancorp common stock from 100% to 106% of tangible book, the three Unprofitable Going Private Comparables are not applicable to this Merger.
In further analyzing the Profitable Going Private Comparables in relation to Neffs Bancorp we noted that:
| | · | The Profitable Going Private Comparables had median assets of $239 million versus $278 million for Neffs Bancorp. |
| | · | The Profitable Going Private Comparables had median tangible equity to tangible assets of 11.13% versus 16.77% for Neffs Bancorp. |
| | · | The Profitable Going Private Comparables had median NPAs-to-assets of 1.19% versus 0.97% for Neffs Bancorp. |
Based on their profitability and financial similarities, the four Profitable Going Private Comparables were considered applicable. The Profitable Going Private Comparables had a median cash-out price-to-tangible book of 110%, and they also had a median cash-out premium to the trading price on the day prior to the announcement of 19.3%. Individually, the median premiums to the trading price on the day prior to the announcement were 7.8%, 16.3%, 22.2% and 79.6%. The 79.6% premium is an outlier, but in terms of price-to-tangible book it was 126%, which implies the stock was trading very low prior to announcement.
Fair Value Price Range in a Going Private Transaction
The fair value price range in a going private transaction should consider the fair value price range absent the going private transaction and any premium necessary to entice and/or compensate the shareholders being cashed-out or electing to be cashed-out. The Valuation Report set the fair value range from $255 per share to $275 per share, which is from 98% to 106% of tangible book. Thus, the fair value price range in a going private transaction should be in excess of 106% of tangible book.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
The four Profitable Going Private Comparables had cash-out price-to-tangible book percentages that ranged from 95% to 126%, with a median of 110%. As the median of 110% of tangible book is in excess of the high-end of the fair value price range absent a going private transaction, it is our opinion that it should be used as the basis for setting the Cash Consideration per share.
A price of 110% of tangible book results in a price of $286 per share. Using a similar price range of $10 more and less, the result is a range from $276 per share to $296 per share (see Table 26).
We also considered application of a premium to the trading price of Neffs Bancorp common stock. As Neffs Bancorp and the four Profitable Going Private Comparables are all relatively small and thinly traded, the influence of premium based pricing was considered, but given secondary emphasis. The difficulty in using this method is illustrated by the one bank in the Profitable Going Private Comparables with a one-day premium of 79.6%. The other three, however, appear in a reasonable range from 7.8% to 22.2%. ��Applying premiums from 7.8% to 22.2% to Neffs Bancorp’s recent closing price of $260 per share, results in prices ranging from $280 per share to $318 per share.
Based on these comparisons, our analyses and our knowledge of the banking industry, the valuation range in a going private transaction has been determined to be from $276 per share to $296 per share. This range is 14.5 to 15.5 times earnings, 106% to 114% of tangible book and represents a premium over the valuation range midpoint of 4.2% to 11.7%.
Projections of Total Cash Paid-Out
Once a price range for the Cash Consideration has been established, the total cash paid out to shareholders can be calculated. The total cash paid out to shareholders in the Merger will be 100% of First Tier Record Holders plus Second Tier Record Holders who elect to receive cash.
The following cash-out analysis will use a price range from $276 per share to $296 per share and the total cash paid out will vary depending on the Cash Consideration (See Table 27):
| | · | First Tier Record Holders: |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
| | o | Based on Cash Consideration of $276 per share, total cash paid out to First Tier Record Holders is $767,000. |
| | o | Based on Cash Consideration of $296 per share, total cash paid out to First Tier Record Holders is $822,000. |
| | · | Second Tier Record Holders: |
| | o | Based on Cash Consideration of $276 per share, total cash paid out to Second Tier Record Holders varies from zero if none of these shareholders elect to receive cash, $1.5 million if 50% elect to receive cash, and $3.1 million if 100% elect to receive cash. |
| | o | Based on Cash Consideration of $296 per share, total cash paid out to Second Tier Record Holders varies from zero if none of these shareholders elect to receive cash, $1.7 million if 50% elect to receive cash, and $3.3 million if 100% elect to receive cash. |
| | · | First Tier Record Holders plus Second Tier Record Holders: |
| | o | Based on Cash Consideration of $276 per share and including First Tier Record Holders, if 50% of the Second Tier Record Holders elect to receive cash, the total cash paid out will be $2.3 million. If the election is 100%, the total cash paid out will be $3.9 million. |
| | o | Based on Cash Consideration of $296 per share and including First Tier Record Holders, if 50% of the Second Tier Record Holders elect to receive cash, the total cash paid out will be $2.5 million. If the election is 100%, the total cash paid out will be $4.1 million. |
Analysis of the Merger’s Impact
By establishing the total cash paid out in the Merger, the impact of the Merger on book value per share, capital, earnings and earnings per share can be analyzed. Our analysis is based on 50% and 100% of the Second Tier Record Holders electing cash. This is not an estimate how many Second Tier Record Holders will elect to receive the Cash Consideration, but a method of testing the
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
financial impact under various scenarios, including the maximum amount cash being paid out to Second Tier Record Holders.
Based on pro-forma financial projections, the Merger will be dilutive to book value per share and reduce capital as a percent of assets. The dilution to tangible book value per share and the reduction in capital as a percent of assets, if the maximum amount of cash is paid-out, is small and not material.
The pro-forma financials are based on Neffs Bancorp’s balance sheet as of December 31, 2010. Adjustments were made for shares repurchased and for cash paid out for those shares in January and February 2011. Cash Consideration is assumed to be $286 per share, which is the midpoint of the value range of $276 per share to $296 per share (see Table 28).
| | · | If 50% of the Second Tier Record Holders elect to receive the Cash Consideration, tangible book value will decline from $260.24 per share to $258.09 per share, which is a decrease of $2.15 per share, or (0.8%); and, capital as a percentage of assets will decline from 16.77% to 15.92%. |
| | · | If 100% of the Second Tier Record Holders elect to receive the Cash Consideration, tangible book value will decline from $260.24 per share to $257.14 per share, which is a decrease of $3.11 per share, or (1.2%); and, capital as a percentage of assets will decline from 16.77% to 15.43%. |
Based on pro-forma financial projections, the Merger will be accretive to earnings and earnings per share. The accretion to earnings and earnings per share increases as more Second Tier Record Holders elect to receive the Cash Consideration.
The pro-forma financials use Neffs Bancorp’s income statement for the year ended December 31, 2010. Adjustments are made for shares repurchased and the lost earnings potential on the cash paid out for those shares in January and February 2011 (see Table 29).
| | · | If 50% of the Second Tier Record Holders elect to receive the Cash Consideration, net income increases by $49,000 and earnings per share increase from $19.17 per share to $20.41 per share, an increase of $1.23 per share, or 6.0%. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Going Private Analysis |
| | · | If 100% of the Second Tier Record Holders elect to receive the Cash Consideration, net income increases by $17,000 and earnings per share increase from $19.17 per share to $20.91 per share, an increase of $1.74 per share, or 9.1%. |
Based on the preceding analysis, the overall financial impact of the Merger on the capital and earnings of Neffs Bancorp is positive. The Merger, under even a 100% cash payout of Second Tier Record Holders, has only a small negative impact on capital and book value per share, and while the increase in earnings is relatively small, the increase in earnings per share is meaningful.
Conclusions
Based on these comparisons, our analyses and our knowledge of the banking industry, the valuation range, absent a going private transaction, was determined to be from $255 per share to $275 per share. This range is from 13.5 to 14.6 times fully-diluted 2010 earnings and from 98% to 106% of tangible book value as of December 31, 2010.
The valuation range in a going private transaction has been determined to be from $276 per share to $296 per share. This range is from 14.5 to 15.5 times fully-diluted 2010 earnings; from 106% to 114% of tangible book value as of December 31, 2010; represents a premium from 4.2% to 11.7% over the valuation range midpoint; and represents a premium from 6.2% to 13.8% over a recent trade on March 1, 2011.
| | | Per Share Price Ranges* | |
| Fair value range | | Low | | | Midpoint | | | High | |
| | | | | | | | | | |
| Absent a going private transaction | | $ | 255 | | | $ | 265 | | | $ | 275 | |
| Price times earnings | | | 13.5 | X | | | 14.1 | X | | | 14.6 | X |
| Price-to-tangible book | | | 98 | % | | | 102 | % | | | 106 | % |
| | | | | | | | | | | | | |
| In a going private transaction | | $ | 276 | | | $ | 286 | | | $ | 296 | |
| Price times earnings | | | 14.6 | X | | | 15.2 | X | | | 15.5 | X |
| Price-to-tangible book | | | 106 | % | | | 110 | % | | | 114 | % |
| Premium from midpoint - $265 | | | 4.2 | % | | | 7.9 | % | | | 11.7 | % |
| Premium from 3/1/11 trade - $260 | | | 6.2 | % | | | 10.0 | % | | | 13.8 | % |
| | | | | | | | | | | | | |
| *Based on fully-diluted earnings per share of $18.86 and dividends of $4.75 per share in 2010; and tangible book value per share of $260.21 as of December 31, 2010. | |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 1
Population Growth
| | | Population | | | Annual | |
| | | Projected | | | Estimated | | | Actual | | | Growth Rate | |
| | | 2015 | | | 2010 | | | 2000 | | | | 2010-15 | | | | 2000-10 | |
| | | | | | | | | | | | | | | | | | |
| Primary Market | | | | | | | | | | | | | | | | | |
| Schnecksville* | | | 7,167 | | | | 6,749 | | | | 6,021 | | | | 1.2 | % | | | 1.1 | % |
| Slatington** | | | 12,920 | | | | 12,504 | | | | 11,967 | | | | .7 | | | | .4 | |
| Total Primary Market | | | 20,087 | | | | 19,253 | | | | 17,988 | | | | .9 | % | | | .7 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Extended Market | | | | | | | | | | | | | | | | | | | | |
| Lehigh County | | | 365,371 | | | | 346,455 | | | | 312,090 | | | | 1.1 | % | | | 1.1 | % |
| Northampton County | | | 309,668 | | | | 299,767 | | | | 267,066 | | | | .7 | | | | 1.2 | |
| Total Lehigh Valley | | | 675,039 | | | | 646,222 | | | | 579,156 | | | | .9 | % | | | 1.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Carbon County | | | 66,129 | | | | 63,859 | | | | 58,802 | | | | .7 | % | | | .8 | % |
| Total Extended Mkt. | | | 741,168 | | | | 710,081 | | | | 637,958 | | | | .9 | % | | | 1.1 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Pennsylvania | | | 12,637,100 | | | | 12,574,407 | | | | 12,281,054 | | | | .1 | % | | | .2 | % |
| * | Neffs, Pennsylvania is located within the Schnecksville zip code of 18078. |
| ** | Slatington zip code 18080. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 2
Businesses and Income - 2010
| | | | | | | | | Median | |
| | | Number of | | | Household | |
| | | Businesses | | | Employees | | | Income | |
| | | | | | | | | | |
| Primary Market | | | | | | | | | |
| Schnecksville* | | | 219 | | | | 1,836 | | | $ | 77,186 | |
| Slatington** | | | 288 | | | | 1,341 | | | | 61,492 | |
| Total Primary Market | | | 507 | | | | 3,177 | | | $ | 66,745 | |
| | | | | | | | | | | | | |
| Extended Market | | | | | | | | | | | | |
| Lehigh County | | | 12,800 | | | | 160,501 | | | $ | 57,746 | |
| Northampton County | | | 10,567 | | | | 104,730 | | | | 59,487 | |
| Total Lehigh Valley | | | 23,367 | | | | 265,231 | | | $ | 58,554 | |
| | | | | | | | | | | | | |
| Carbon County | | | 2,178 | | | | 18,362 | | | | 44,833 | |
| Total Extended Mkt. | | | 25,5445 | | | | 283,953 | | | $ | 57,320 | |
| | | | | | | | | | | | | |
| Pennsylvania | | | 478,567 | | | | 5,663,816 | | | $ | 52,723 | |
| * | Neffs, Pennsylvania is located within the Schnecksville zip code of 18078. |
| ** | Slatington zip code 18080. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 3
Primary Market*
| | | June 30th | | | Number | |
| | | Deposits | | | Fully Pooled Market Share | | | of | |
| | | 2010 | | | 2010 | | | 2009 | | | 2008 | | | 2006 | | | Branches | |
| | | (In mill.) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Large Banks | | | | | | | | | | | | | | | | | | |
| Wells Fargo | | $ | 92 | | | | 23.5 | % | | | 25.2 | % | | | 25.4 | % | | | 23.0 | % | | | 2 | |
| M&T | | | 8 | | | | 2.1 | | | | 2.5 | | | | 2.3 | | | | 2.6 | | | | 1 | |
| Subtotal | | $ | 100 | | | | 25.6 | % | | | 27.7 | % | | | 27.7 | % | | | 25.6 | % | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Regionals | | | | | | | | | | | | | | | | | | | | | | | | |
| First Niagara** | | $ | 47 | | | | 12.0 | % | | | 13.5 | % | | | 14.4 | % | | | 15.4 | % | | | 2 | |
| National Penn | | | 22 | | | | 5.7 | | | | 4.9 | | | | 4.9 | | | | 10.0 | | | | 1 | |
| Subtotal | | $ | 69 | | | | 17.7 | % | | | 18.4 | % | | | 19.3 | % | | | 25.4 | % | | | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Local Banks | | | | | | | | | | | | | | | | | | | | | | | | |
| Neffs Bancorp | | $ | 222 | | | | 56.6 | % | | | 53.9 | % | | | 53.0 | % | | | 49.0 | % | | | 1 | |
| ESSA** | | | - | | | | .1 | | | | - | | | | - | | | | - | | | | 1 | |
| Subtotal | | $ | 222 | | | | 56.7 | % | | | 53.9 | % | | | 53.0 | % | | | 49.0 | % | | | 2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 391 | | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 8 | |
| * | Defined by zip codes 18078 for Schnecksville and 18080 for Slatington. |
| ** | Thrifts. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 4
Extended Market - Lehigh Valley*
| | | June 30th | | | Number | |
| | | Deposits | | | Fully Pooled Market Share | | | of | |
| | | 2010 | | | 2010 | | | 2009 | | | 2008 | | | 2006 | | | Branches | |
| | | (In mill.) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Large Banks | | | | | | | | | | | | | | | | | | |
| Wells Fargo | | $ | 3,542 | | | | 26.5 | % | | | 23.9 | % | | | 25.0 | % | | | 25.4 | % | | | 42 | |
| PNC | | | 760 | | | | 5.7 | | | | 5.8 | | | | 6.0 | | | | 6.9 | | | | 21 | |
| Banco Santander | | | 540 | | | | 4.0 | | | | 4.9 | | | | 6.0 | | | | 5.8 | | | | 14 | |
| Bank of America | | | 532 | | | | 4.0 | | | | 4.5 | | | | 4.2 | | | | 4.6 | | | | 16 | |
| TD Bank | | | 358 | | | | 2.7 | | | | 2.1 | | | | 1.4 | | | | .5 | | | | 6 | |
| M&T | | | 91 | | | | .7 | | | | .8 | | | | .8 | | | | .9 | | | | 8 | |
| Subtotal | | $ | 5,823 | | | | 43.6 | % | | | 42.0 | % | | | 43.4 | % | | | 44.1 | % | | | 107 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Regionals | | | | | | | | | | | | | | | | | | | | | | | | |
| National Penn | | $ | 1,614 | | | | 12.1 | % | | | 12.8 | % | | | 13.6 | % | | | 14.1 | % | | | 36 | |
| Fulton | | | 1,160 | | | | 8.7 | | | | 8.8 | | | | 8.0 | | | | 9.1 | | | | 23 | |
| First Niagara | | | 534 | | | | 4.0 | | | | 4.1 | | | | 4.3 | | | | 4.1 | | | | 13 | |
| Susquehanna | | | 220 | | | | 1.6 | | | | 2.0 | | | | 2.0 | | | | 1.8 | | | | 7 | |
| Subtotal | | $ | 3,528 | | | | 26.4 | % | | | 27.7 | % | | | 27.9 | % | | | 29.1 | % | | | 79 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Local Banks & Thrifts | | | | | | | | | | | | | | | | | | | | | |
| Embassy | | $ | 407 | | | | 3.0 | % | | | 2.9 | % | | | 2.3 | % | | | 2.0 | % | | | 7 | |
| American | | | 345 | | | | 2.6 | | | | 2.7 | | | | 3.1 | | | | 3.3 | | | | 1 | |
| First Star** | | | 338 | | | | 2.5 | | | | 2.9 | | | | 2.9 | | | | 3.2 | | | | 9 | |
| MNB | | | 227 | | | | 1.7 | | | | 1.8 | | | | 1.9 | | | | 1.8 | | | | 8 | |
| Neffs Bancorp | | | 222 | | | | 1.7 | | | | 1.7 | | | | 1.6 | | | | 1.5 | | | | 1 | |
| New Tripoli | | | 216 | | | | 1.6 | | | | 1.6 | | | | 1.6 | | | | 1.5 | | | | 2 | |
| Team Capital** | | | 181 | | | | 1.3 | | | | 1.3 | | | | .8 | | | | .1 | | | | 3 | |
| Palm | | | 177 | | | | 1.3 | | | | 1.1 | | | | 1.1 | | | | 1.0 | | | | 5 | |
| QNB | | | 129 | | | | 1.0 | | | | .9 | | | | .6 | | | | .6 | | | | 2 | |
| Firstrust** | | | 118 | | | | .9 | | | | 1.2 | | | | 1.3 | | | | .9 | | | | 2 | |
| Subtotal | | $ | 2,360 | | | | 15.1 | % | | | 15.2 | % | | | 14.3 | % | | | 12.7 | % | | | 40 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other banks | | $ | 35 | | | | .3 | % | | | .3 | % | | | .2 | % | | | - | | | | 3 | |
| Other thrifts | | | 10 | | | | .1 | | | | .1 | | | | .1 | | | | .1 | % | | | 5 | |
| Credit unions | | | 1,608 | | | | 12.0 | | | | 11.8 | | | | 11.2 | | | | 10.8 | | | | - | |
| Total | | $ | 13,364 | | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 234 | |
| * | Lehigh and Northampton counties. |
| ** | Thrifts. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 5
Extended Market - Carbon County
| | | June 30th | | | Number | |
| | | Deposits | | | Fully Pooled Market Share | | | of | |
| | | 2010 | | | 2010 | | | 2009 | | | 2008 | | | 2006 | | | Branches | |
| | | (In mill.) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Large Banks | | | | | | | | | | | | | | | | | | |
| Bank of America | | $ | 74 | | | | 8.0 | % | | | 8.5 | % | | | 7.9 | % | | | 8.1 | % | | | 4 | |
| PNC | | | 62 | | | | 6.7 | | | | 6.9 | | | | 7.4 | | | | 7.6 | | | | 2 | |
| Wells Fargo | | | 46 | | | | 4.9 | | | | 5.6 | | | | 5.3 | | | | 4.3 | | | | 1 | |
| M&T | | | 37 | | | | 4.0 | | | | 4.0 | | | | 4.7 | | | | 4.5 | | | | 1 | |
| Subtotal | | $ | 219 | | | | 23.6 | % | | | 25.0 | % | | | 25.3 | % | | | 24.5 | % | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Regionals | | | | | | | | | | | | | | | | | | | | | | | | |
| First Niagara* | | $ | 177 | | | | 19.1 | % | | | 20.2 | % | | | 19.9 | % | | | 17.8 | % | | | 4 | |
| National Penn | | | 80 | | | | 8.7 | | | | 8.7 | | | | 7.9 | | | | 7.3 | | | | 3 | |
| Woodforest** | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | |
| Subtotal | | $ | 257 | | | | 27.8 | % | | | 28.9 | % | | | 27.8 | % | | | 25.1 | % | | | 8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Local Banks | | | | | | | | | | | | | | | | | | | | | | | | |
| Mauch Chunk | | $ | 193 | | | | 20.8 | % | | | 19.7 | % | | | 20.6 | % | | | 25.5 | % | | | 6 | |
| Palm | | | 132 | | | | 14.3 | | | | 13.7 | | | | 13.8 | | | | 13.0 | | | | 1 | |
| JTNB | | | 126 | | | | 13.5 | | | | 12.7 | | | | 12.5 | | | | 11.9 | | | | 5 | |
| Subtotal | | $ | 451 | | | | 48.6 | % | | | 46.1 | % | | | 46.9 | % | | | 50.4 | % | | | 12 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 927 | | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 28 | |
| * | Thrifts. |
| ** | Walmart branch opened in October 2010. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 6
Neffs Bancorp
Consolidated Financial Summary
| | | | | | | | | | | | | Tangible | | | | |
| | | | | | | | | | | | | Equity/ | | | Return on | |
| | | | | | | Tang. | | | Net | | | Tang. | | | Average | | | Average | |
| | | | Assets | | | Equity | | | Income | | | Assets | | | Assets | | | Equity | |
| | | | (In mill.) | | | (In thous.) | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2010 | | | $ | 278 | | | $ | 46.7 | | | $ | 3,426 | | | | 16.77 | % | | | 1.27 | % | | | 7.42 | % |
| 2009 | | | | 258 | | | | 45.6 | | | | 3,161 | | | | 17.67 | | | | 1.25 | | | | 7.02 | |
| 2008 | | | | 239 | | | | 44.5 | | | | 3,037 | | | | 18.65 | | | | 1.30 | | | | 7.09 | |
| 2007 | | | | 226 | | | | 41.8 | | | | 2,701 | | | | 18.53 | | | | 1.21 | | | | 6.56 | |
| 2006 | | | | 216 | | | | 41.2 | | | | 2,823 | | | | 19.10 | | | | 1.32 | | | | 7.11 | |
| 2005 | | | | 214 | | | | 39.3 | | | | 3,072 | | | | 18.40 | | | | 1.45 | | | | 8.07 | |
| 2004 | | | | 210 | | | | 37.3 | | | | 3,205 | | | | 17.79 | | | | 1.56 | | | | 8.89 | |
| 2003 | | | | 199 | | | | 35.1 | | | | 2,774 | | | | 17.65 | | | | 1.45 | | | | 8.16 | |
| 2002 | | | | 180 | | | | 32.8 | | | | 2,815 | | | | 18.21 | | | | 1.67 | | | | 8.85 | |
| 2001 | | | | 156 | | | | 30.5 | | | | 2,514 | | | | 19.49 | | | | 1.70 | | | | 8.49 | |
| 2000 | | | | 143 | | | | 28.7 | | | | 2,659 | | | | 19.98 | | | | 1.90 | | | | 9.54 | |
| 1999 | | | | 137 | | | | 26.8 | | | | 2,632 | | | | 19.50 | | | | 1.94 | | | | 10.18 | |
| 1998* | | | | 133 | | | | 24.5 | | | | 2,313 | | | | 18.47 | | | | 1.81 | | | | 9.87 | |
| 1997 | | | | 124 | | | | 22.4 | | | | 2,314 | | | | 18.10 | | | | 1.91 | | | | 10.80 | |
| 1996 | | | | 119 | | | | 20.4 | | | | 2,243 | | | | 17.15 | | | | 1.91 | | | | 11.51 | |
| 1995 | | | | 116 | | | | 18.6 | | | | 2,101 | | | | 16.08 | | | | 1.89 | | | | 11.97 | |
| 1994 | | | | 107 | | | | 16.4 | | | | 2,276 | | | | 15.40 | | | | 2.19 | | | | 14.58 | |
| 1993 | | | | 100 | | | | 14.5 | | | | 2,505 | | | | 14.47 | | | | 2.62 | | | | 18.83 | |
| 1992 | | | | 90 | | | | 12.1 | | | | 1,855 | | | | 13.47 | | | | 2.19 | | | | 16.38 | |
| 1991 | | | | 81 | | | | 10.4 | | | | 1,346 | | | | 12.92 | | | | 1.75 | | | | 13.72 | |
| 1990 | | | | 73 | | | | 9.2 | | | | 1,330 | | | | 12.63 | | | | 1.94 | | | NA | |
| * | Bank level data in this and preceding years. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 7
Neffs Bancorp
Consolidated Balance Sheet
| | | December 31st | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| Assets | | | | | | | | | |
| Cash & balance due | | $ | 7,448 | | | $ | 2,187 | | | $ | 2,489 | |
| Interest bearing deposits | | | 141 | | | | 101 | | | | 109 | |
| Federal funds sold | | | - | | | | 2,933 | | | | 1,379 | |
| Investment securities (AFS) | | | 41,828 | | | | 34,991 | | | | 37,950 | |
| Investment securities (HTM) | | | 101,932 | | | | 100,976 | | | | 91,557 | |
| | | | | | | | | | | | | |
| Total loans | | $ | 121,886 | | | $ | 111,988 | | | $ | 100,953 | |
| Reserves | | | 1,114 | | | | 829 | | | | 761 | |
| Net loans | | $ | 120,772 | | | $ | 111,159 | | | $ | 100,192 | |
| | | | | | | | | | | | | |
| Premises & fixed assets | | $ | 2,341 | | | $ | 2,446 | | | $ | 2,326 | |
| Restricted investment in bank stock | | | 809 | | | | 848 | | | | 803 | |
| Other assets | | | 3,192 | | | | 2,536 | | | | 1,977 | |
| Total assets | | $ | 278,463 | | | $ | 258,177 | | | $ | 238,782 | |
| | | | | | | | | | | | | |
| Liabilities | | | | | | | | | | | | |
| Deposits | | $ | 230,687 | | | $ | 211,391 | | | $ | 192,938 | |
| Other liabilities | | | 1,079 | | | | 1,158 | | | | 1,315 | |
| Total liabilities | | $ | 231,766 | | | $ | 212,549 | | | $ | 194,253 | |
| | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | |
| Common stock and paid-in capital | | $ | 953 | | | $ | 953 | | | $ | 953 | |
| Retained earnings | | | 50,818 | | | | 48,255 | | | | 45,836 | |
| Accumulated other comprehensive income | | | 138 | | | | 556 | | | | 422 | |
| Treasury stock | | | (5,212 | ) | | | (4,136 | ) | | | (2,702 | ) |
| Total equity | | $ | 46,697 | | | $ | 45,625 | | | $ | 44,529 | |
Source: Neffs Bancorp Annual Report on Form 10-K.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 8
Neffs Bancorp
Consolidated Income Statement – Last Three Years
| | | For the Year | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| | | | | | | | | | |
| Net interest income | | $ | 8,615 | | | $ | 7,997 | | | $ | 6,750 | |
| | | | | | | | | | | | | |
| Non-interest income | | | | | | | | | | | | |
| Charges on deposits | | $ | 114 | | | $ | 120 | | | $ | 130 | |
| Other noninterest inc. | | | 151 | | | | 149 | | | | 147 | |
| Total noninterest inc. | | $ | 265 | | | $ | 269 | | | $ | 277 | |
| | | | | | | | | | | | | |
| Non-interest expense | | | | | | | | | | | | |
| Compensation & benefits | | $ | 1,594 | | | $ | 1,446 | | | $ | 1,427 | |
| Occupancy and equip. | | | 490 | | | | 473 | | | | 423 | |
| Other expenses | | | 1,493 | | | | 1,502 | | | | 1,166 | |
| Total noninterest exp. | | $ | 3,577 | | | $ | 3,421 | | | $ | 3,016 | |
| | | | | | | | | | | | | |
| Net operating income | | $ | 5,303 | | | $ | 4,845 | | | $ | 4,011 | |
| | | | | | | | | | | | | |
| Provision for loan losses | | $ | 368 | | | $ | 84 | | | $ | 145 | |
| Net securities impairment | | | 533 | | | | 659 | | | | - | |
| | | | | | | | | | | | | |
| Pre-tax income | | $ | 4,402 | | | $ | 4,102 | | | $ | 3,866 | |
| Tax | | | 976 | | | | 941 | | | | 829 | |
| Net income | | $ | 3,426 | | | $ | 3,161 | | | $ | 3,037 | |
Source: Neffs Bancorp Annual Reports.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 9
Neffs Bancorp
Consolidated Income Statement - Last Five Quarters
| | | 2010 | | | 2009 | |
| | | 4th Qtr | | | 3rd Qtr | | | 2nd Qtr | | | 1st Qtr | | | 4th Qtr | |
| | | (In thousands) | |
| | | | | | | | | | | | | | | | |
| Net interest income | | $ | 2,142 | | | $ | 2,192 | | | $ | 2,262 | | | $ | 2,019 | | | $ | 2,120 | |
| | | | | | | | | | | | | | | | | | | | | |
| Non-interest income | | | | | | | | | | | | | | | | | | | | |
| Charges on deposits | | $ | 32 | | | $ | 30 | | | $ | 26 | | | $ | 26 | | | $ | 32 | |
| Other noninterest inc. | | | 35 | | | | 34 | | | | 46 | | | | 36 | | | | 35 | |
| Total noninterest inc. | | $ | 67 | | | $ | 64 | | | $ | 72 | | | $ | 62 | | | $ | 67 | |
| | | | | | | | | | | | | | | | | | | | | |
| Non-interest expense | | | | | | | | | | | | | | | | | | | | |
| Compensation & benefits | | $ | 399 | | | $ | 398 | | | $ | 397 | | | $ | 400 | | | $ | 359 | |
| Occupancy and equip. | | | 113 | | | | 137 | | | | 126 | | | | 114 | | | | 101 | |
| Other expenses | | | 402 | | | | 381 | | | | 363 | | | | 347 | | | | 399 | |
| Total noninterest exp. | | $ | 914 | | | $ | 916 | | | $ | 886 | | | $ | 861 | | | $ | 859 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net operating income | | $ | 1,295 | | | $ | 1,340 | | | $ | 1,448 | | | $ | 1,220 | | | $ | 1,328 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision for loan losses | | $ | 94 | | | $ | 154 | | | $ | 90 | | | $ | 30 | | | $ | 23 | |
| Net securities impairment | | | 419 | | | | - | | | | - | | | | 114 | | | | 122 | |
| | | | | | | | | | | | | | | | | | | | | |
| Pre-tax income | | $ | 782 | | | $ | 1,186 | | | $ | 1,358 | | | $ | 1,076 | | | $ | 1,183 | |
| Tax | | | 117 | | | | 268 | | | | 338 | | | | 253 | | | | 293 | |
| Net income | | $ | 665 | | | $ | 918 | | | $ | 1,020 | | | $ | 823 | | | $ | 890 | |
Source: SNL Financial, Charlottesville, Virginia.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 10
Neffs Bancorp
Income Statement Ratios
| | | As a Percent of Average Assets | |
| | | FTE | | | | | | | | | Net | | | | | | | |
| | | Net Int. | | | Non Int. | | | Non Int. | | | Oper. | | | Contr. to | | | Net | |
| | | Income | | | Income | | | Expense | | | Income | | | Reserves | | | Income | |
| | | | | | | | | | | | | | | | | | | |
| 2010 | | | 3.67 | %* | | | .10 | % | | | 1.33 | % | | | 2.44 | % | | | .14 | % | | | 1.27 | % |
| 2009 | | | 3.48 | | | | .10 | | | | 1.35 | | | | 2.23 | | | | .03 | | | | 1.25 | |
| 2008 | | | 2.89 | | | | .12 | | | | 1.29 | | | | 1.72 | | | | .06 | | | | 1.30 | |
| 2007 | | | 2.61 | | | | .12 | | | | 1.29 | | | | 1.44 | | | | - | | | | 1.21 | |
| 2006 | | | 2.75 | | | | .12 | | | | 1.32 | | | | 1.55 | | | | - | | | | 1.32 | |
| 2005 | | | 2.82 | | | | .13 | | | | 1.23 | | | | 1.72 | | | | - | | | | 1.45 | |
| | | | | | | | | | | | | | | | | | | �� | | | | | | |
| NEP Peers** | | | 3.67 | % | | | .72 | % | | | 2.62 | % | | | 1.66 | % | | | .20 | % | | | .92 | % |
| * | Full tax equivalent for the fourth quarter of 2010 estimated by Danielson based on the third quarter of 2010. |
| ** | Northeast Pennsylvania Bank Holding Companies and Commercial Banks for the three months ended December 31, 2010, annualized. Northeast Pennsylvania is defined as the following counties: Bradford, Carbon, Columbia, Lackawanna, Lehigh, Luzerne, Monroe, Northampton, Pike, Schuylkill, Sullivan, Susquehanna, Wayne and Wyoming. Financial data are medians and will not add across. |
| | |
| Source: SNL Financial, Charlottesville, Virginia and Danielson calculations. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 11
Neffs Bancorp and Neffs National
Margin Comparison
| | | | | | Yield | | | Yield on | | | | |
| | | Percent of Assets* | | | On | | | Earning | | | Cost of | |
| | | Loans | | | Deposits | | | Loans** | | | Assets** | | | Funds** | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| 2010 | | | 44 | % | | | 83 | % | | | 6.07 | % | | | 5.28 | % | | | 2.20 | % |
| 2009 | | | 43 | | | | 82 | | | | 6.41 | | | | 5.58 | | | | 2.67 | |
| 2008 | | | 42 | | | | 81 | | | | 6.62 | | | | 5.74 | | | | 3.26 | |
| 2007 | | | 42 | | | | 80 | | | | 6.55 | | | | 5.54 | | | | 3.40 | |
| 2006 | | | 41 | | | | 80 | | | | 6.34 | | | | 5.30 | | | | 2.97 | |
| 2005 | | | 39 | | | | 81 | | | | 6.31 | | | | 5.10 | | | | 2.59 | |
| | | | | | | | | | | | | | | | | | | | | |
| NEP Peers*** | | | 66 | % | | | 81 | % | | | 5.77 | % | | | 4.96 | % | | | 1.10 | % |
| * | Neffs Bancorp. |
| ** | Neffs National. |
| *** | December 31, 2010, or the three months ended December 31, 2010 annualized. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 12
Neffs National Bank
Loan and Deposit Mix
| | | As a Percent of Loans | |
| | | Backed by Real Estate | | | | | | | | | | |
| Year | | Res. | | | | | | Multi- | | | Comm. | | | Home | | | Con- | | | | | | | |
| End | | Mtge. | | | Constr. | | | Family | | | RE | | | Equity | | | Sumer | | | C&I | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| 2010 | | | 53 | % | | | - | | | | - | | | | 30 | % | | | 8 | % | | | 7 | % | | | 2 | % | | | 100 | % |
| 2009 | | | 59 | | | | - | | | | - | | | | 27 | | | | 6 | | | | 6 | | | | 2 | | | | 100 | |
| 2008 | | | 59 | | | | 1 | % | | | - | | | | 25 | | | | 6 | | | | 7 | | | | 2 | | | | 100 | |
| 2007 | | | 60 | | | | 1 | | | | - | | | | 26 | | | | 4 | | | | 7 | | | | 2 | | | | 100 | |
| 2006 | | | 60 | | | | 1 | | | | - | | | | 26 | | | | 3 | | | | 8 | | | | 2 | | | | 100 | |
| 2005 | | | 60 | | | | - | | | | - | | | | 25 | | | | 4 | | | | 9 | | | | 2 | | | | 100 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NEP Peers* | | | 42 | % | | | 4 | % | | | 1 | % | | | 32 | % | | | 3 | % | | | 2 | % | | | 7 | % | | | n/a | |
| | | | | | | | | | | | CDs | | | | | | | |
Year | | Non-Int. | | | | | | MMDA & | | | | | | | | | | | | | |
| End | | Bearing | | | NOW | | | Savings | | | Retail | | | Jumbo | | | Total | | | Brokered | |
| | | | | | | | | | | | | | | | | | | | | | |
| 2010 | | | 8 | % | | | 3 | % | | | 30 | % | | | 37 | % | | | 22 | % | | | 100 | % | | | - | |
| 2009 | | | 9 | | | | 3 | | | | 29 | | | | 38 | | | | 21 | | | | 100 | | | | - | |
| 2008 | | | 9 | | | | 3 | | | | 25 | | | | 40 | | | | 23 | | | | 100 | | | | - | |
| 2007 | | | 10 | | | | 4 | | | | 24 | | | | 41 | | | | 21 | | | | 100 | | | | - | |
| 2006 | | | 10 | | | | 4 | | | | 27 | | | | 40 | | | | 19 | | | | 100 | | | | - | |
| 2005 | | | 10 | | | | 5 | | | | 32 | | | | 35 | | | | 18 | | | | 100 | | | | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NEP Peers* | | | 13 | % | | | 5 | % | | | 46 | % | | | 26 | % | | | 12 | % | | | 100 | % | | | n/a | |
| * | December 31, 2010. Financial data are medians and will not add across. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 13
Neffs Bancorp
Equity and Asset Quality Comparison
| | | As a Percent of Assets | | | | |
| | | Tang. | | | | | | | | | | 30-89 | | | Reserves/ | |
| | | Equity | | | Reserves | | | NPAs* | | | Days | | | Loans | |
| | | | | | | | | | | | | | | | | |
| 2010 | | | | | | | | | | | | | | | | |
| Dec. 31st | | | 16.77 | % | | | .40 | % | | | .97 | % | | | 1.78 | % | | | .91 | % |
| Sept. 30th | | | 17.16 | | | | .38 | | | | 1.39 | | | | 1.25 | | | | .87 | |
| June 30th | | | 17.27 | | | | .34 | | | | 1.14 | | | | 1.12 | | | | .78 | |
| March 31st | | | 17.35 | | | | .31 | | | | .33 | | | | 1.34 | | | | .73 | |
| | | | | | | | | | | | | | | | | | | | | |
| 2010 | | | 16.77 | % | | | .40 | % | | | .97 | % | | | 1.78 | % | | | .91 | % |
| 2009 | | | 17.67 | | | | .32 | | | | .10 | | | | .66 | | | | .74 | |
| 2008 | | | 18.65 | | | | .32 | | | | .07 | | | | .57 | | | | .75 | |
| 2007 | | | 18.53 | | | | .27 | | | | .02 | | | | .54 | | | | .66 | |
| 2006 | | | 19.10 | | | | .30 | | | | .02 | | | | .45 | | | | .74 | |
| 2005 | | | 18.40 | | | | .31 | | | | .03 | | | | .57 | | | | .79 | |
| | | | | | | | | | | | | | | | | | | | | |
| NEP Peers** | | | 8.96 | % | | | .82 | % | | | 1.68 | % | | | .67 | % | | | 1.25 | % |
| * | Includes loans 90 days or more past due and restructured loans. |
| ** | December 31, 2010. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 14
Neffs National Bank
Loan Loss Provision and Net Charge-Offs
| | | 2010 | | | 2009 | | | 2008 | | | 2007 | | | 2006 | |
| | | (In thousands) | |
| | | | | | | | | | | | | | | | |
| Balance at beginning of period | | $ | 829 | | | $ | 761 | | | $ | 620 | | | $ | 653 | | | $ | 657 | |
| | | | | | | | | | | | | | | | | | | | | |
| Provision for loan losses | | $ | 368 | | | $ | 84 | | | $ | 145 | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Charge-offs | | $ | 111 | | | $ | 16 | | | $ | 5 | | | $ | 38 | | | $ | 6 | |
| Recoveries | | | 28 | | | | - | | | | 1 | | | | 5 | | | | 2 | |
| Net charge-offs | | $ | 83 | | | $ | 16 | | | $ | 4 | | | $ | 33 | | | $ | 4 | |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at end of period | | $ | 1,114 | | | $ | 829 | | | $ | 761 | | | $ | 620 | | | $ | 653 | |
| | | | | | | | | | | | | | | | | | | | | |
| Reserves/total loans | | | .91 | % | | | .74 | % | | | .75 | % | | | .66 | % | | | .74 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Reserves/Non-performing loans | | | 41 | % | | | 309 | % | | | 440 | % | | | 1,722 | % | | | 1,256 | % |
Source: SNL Financial, Charlottesville, Virginia.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 15
Neffs National Bank
Regulatory Ratios
| | | | | | Tier 1 | | | | |
| | | Risk Based | | | Risk Based | | | Leverage | |
| End of Period | | Capital | | | Capital | | | Ratio | |
| | | | | | | | | | |
| Regulatory minimums | | | | | | | | | |
| to be considered | | | | | | | | | |
| “well-capitalized” | | >10.00% | | | >6.00% | | | >5.00% | |
| | | | | | | | | | |
| 2010 | | | 31.57 | % | | | 30.83 | % | | | 16.63 | % |
| 2009 | | | 32.65 | | | | 32.06 | | | | 17.45 | |
| 2008 | | | 38.49 | | | | 37.83 | | | | 18.62 | |
| 2007 | | | 38.49 | | | | 37.92 | | | | 18.69 | |
| 2006 | | | 41.27 | | | | 40.64 | | | | 19.44 | |
| 2005 | | | 41.22 | | | | 40.55 | | | | 18.66 | |
| | | | | | | | | | | | | |
| NEP Peers* | | | 13.56 | % | | | 12.47 | % | | | 9.00 | % |
| * | Bank level data for December 31, 2010. |
| | |
| Source: SNL Financial, Charlottesville, Virginia. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 16
Comparable Banks
Description
| | | | | | | | | No. of | |
| Full Name | City, State | | Assets* | | Ticker | Exchange | | Offices | |
| | | | (In mill.) | | | | | | |
Targeted Comparables** | | | | | | | | | |
| Commercial National Financial Corporation | Latrobe, PA | | $ | 355 | | CNAF | NASDAQ | | | 11 | |
| Eagle Bancorp Montana, Inc. | Helena, MT | | | 333 | | EBMT | NASDAQ | | | 6 | |
| First West Virginia Bancorp, Inc. | Wheeling, WV | | | 283 | *** | FWV | NYSE | | | 9 | |
| Fresno First Bank | Fresno, CA | | | 137 | *** | FSNF | OTCBB | | | 1 | |
| Heritage Bankshares, Inc. | Norfolk, VA | | | 267 | | HBKS | OTCBB | | | 6 | |
| Juniata Valley Financial Corp. | Mifflintown, PA | | | 436 | | JUVF | OTCBB | | | 12 | |
| Louisiana Bancorp, Inc. | Metairie, LA | | | 321 | | LABC | NASDAQ | | | 3 | |
| Norwood Financial Corp. | Honesdale, PA | | | 537 | | NWFL | NASDAQ | | | 11 | |
| Oak Valley Bancorp | Oakdale, CA | | | 553 | | OVLY | NASDAQ | | | 12 | |
| Osage Bancshares, Inc. | Pawhuska, OK | | | 154 | | OSBK | OTCBB | | | 3 | |
| Somerset Hills Bancorp | Bernardsville, NJ | | | 329 | | SOMH | NASDAQ | | | 6 | |
| Median (11 banks) | | | $ | 329 | | | | | | 6 | |
| | | | | | | | | | | | |
Northeast PA Comparables **** | | | | | | | | | | | |
| American Bank Incorporated | Allentown, PA | | $ | 485 | | AMBK | OTCBB | | | 1 | |
| CCFNB Bancorp, Inc. | Bloomsburg, PA | | | 614 | | CCFN | OTCBB | | | 14 | |
| Fidelity D & D Bancorp, Inc. | Dunmore, PA | | | 562 | | FDBC | OTCBB | | | 11 | |
| First Keystone Corporation | Berwick, PA | | | 797 | | FKYS | OTCBB | | | 15 | |
| Honat Bancorp, Inc. | Honesdale, PA | | | 533 | *** | HONT | OTCBB | | | 9 | |
| Luzerne National Bank Corporation | Luzerne, PA | | | 263 | *** | LUZR | OTCBB | | | 7 | |
| MNB Corporation | Bangor, PA | | | 293 | | MNBC | OTCBB | | | 8 | |
| Norwood Financial Corp. | Honesdale, PA | | | 537 | | NWFL | NASDAQ | | | 11 | |
| Penseco Financial Services Corporation | Scranton, PA | | | 916 | | PFNS | OTCBB | | | 12 | |
| Peoples Financial Services Corp. | Hallstead, PA | | | 559 | | PFIS | OTCBB | | | 11 | |
| Median (10 banks) | | | $ | 548 | | | | | | 11 | |
| | | | | | | | | | | | |
| PA Banks under $20 Billion***** (85 banks) | - | | $ | 491 | | - | Various | | | 9 | |
| | | | | | | | | | | | |
| Neffs Bancorp, Inc. | Neffs, PA | | $ | 278 | | NEFB | Pink Sheets | | | 1 | |
| ** | December 31, 2010, or as indicated. |
| *** | Publicly traded banks and thrifts with assets between $100 million and $600 million, tangible equity as a percent of tangible assets greater than 11%, Non-interest income as a percent of average assets less than 2%, return on average assets over 0.75%, NPAs as a percent of assets under 2.50% and average daily volume over 400 shares. Also excludes mutual holding companies and institutions that have announced a deal to sell the bank or thrift. |
| **** | September 30, 2010. |
| ***** | Publicly traded banks traded on the NYSE, NASDAQ or OTCBB located in Northeast Pennsylvania. Northeast Pennsylvania is defined as the following counties: Bradford, Carbon, Columbia, Lackawanna, Lehigh, Luzerne, Monroe, Northampton, Pike, Schuylkill, Sullivan, Susquehanna, Wayne and Wyoming. Excludes banks with NPAs to assets over 2.50%. |
| ****** | Medians of all publicly traded banks located in Pennsylvania excluding banks with assets over $20 Billion. |
Source: SNL Financial, Charlottesville, Virginia.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 17
Comparable Banks
Financial Data*
| | | | | | Tang. | | | | | | | |
| | | | | | Equity/ | | | | | | Return on | |
| | | | | | Tang. | | | NPAs**/ | | | Avg. | | | Avg. | |
| Short Name | | Assets | | | Assets | | | Assets | | | Assets | | | Equity | |
| | | (In mill.) | | | | | | | | | | | | | |
| Targeted Comparables | | | | | | | | | | | | | | | |
| Commercial National | | $ | 355 | | | | 12.91 | % | | | .44 | % | | | 1.49 | % | | | 12.12 | % |
| Eagle Bancorp | | | 333 | | | | 15.85 | | | | 1.16 | | | | .79 | | | | 5.65 | |
| First West Virginia*** | | | 283 | | | | 11.08 | | | | 1.77 | | | | .99 | | | | 9.05 | |
| Fresno First*** | | | 137 | | | | 11.67 | | | | 1.13 | | | | 1.10 | | | | 9.51 | |
| Heritage | | | 267 | | | | 14.07 | | | | .10 | | | | .75 | | | | 5.62 | |
| Juniata Valley | | | 436 | | | | 11.00 | | | | .55 | | | | 1.12 | | | | 9.70 | |
| Louisiana Bancorp | | | 321 | | | | 18.79 | | | | .75 | | | | .78 | | | | 3.79 | |
| Norwood Financial | | | 537 | | | | 12.60 | | | | 2.11 | | | | 1.37 | | | | 10.97 | |
| Oak Valley | | | 553 | | | | 11.69 | | | | 2.22 | | | | .88 | | | | 7.36 | |
| Osage Bancshares | | | 154 | | | | 14.30 | | | | .97 | | | | .84 | | | | 5.56 | |
| Somerset Hills | | | 329 | | | | 11.98 | | | | .30 | | | | .80 | | | | 6.38 | |
| Median (11 banks) | | $ | 329 | | | | 12.60 | % | | | .97 | % | | | .88 | % | | | 7.36 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Northeast PA Comparables | | | | | | | | | | | | | | | | | | | | |
| American Bank | | $ | 485 | | | | 5.80 | % | | | .37 | | | | .82 | % | | | 15.17 | % |
| CCFNB | | | 614 | | | | 9.55 | | | | .68 | | | | 1.03 | | | | 9.41 | |
| Fidelity D & D | | | 562 | | | | 8.33 | | | | 2.34 | | | | (.55 | ) | | | (6.69 | ) |
| First Keystone | | | 797 | | | | 7.56 | | | | .68 | | | | 1.11 | | | | 11.08 | |
| Honat Bancorp*** | | | 533 | | | | 11.53 | | | | .94 | | | | 1.30 | | | | 11.65 | |
| Luzerne National*** | | | 263 | | | | 9.43 | | | | .13 | | | | .93 | | | | 10.27 | |
| MNB | | | 293 | | | | 8.86 | | | | 1.39 | | | | .47 | | | | 5.05 | |
| Norwood | | | 537 | | | | 12.60 | | | | 2.11 | | | | 1.37 | | | | 10.97 | |
| Penseco Financial | | | 916 | | | | 10.60 | | | | .71 | | | | 1.32 | | | | 9.67 | |
| Peoples Financial | | | 559 | | | | 8.99 | | | | 1.94 | | | | 1.18 | | | | 13.88 | |
| Median (10 banks) | | $ | 548 | | | | 9.15 | % | | | .83 | % | | | 1.07 | % | | | 10.62 | % |
| | | | | | | | | | | | | | | | | | | | | |
PA Banks under $20 Billion (85 banks) | | $ | 491 | | | | 8.82 | % | | | 1.35 | % | | | .76 | % | | | 8.15 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Neffs Bancorp | | $ | 278 | | | | 16.77 | % | | | .97 | % | | | 1.27 | % | | | 7.42 | % |
| ** | Financial data is for the twelve months ended December 31, 2010, or December 31, 2010. |
| *** | Includes loans 90 days past due and restructured loans. |
| **** | Financial data is for the nine months ended September 30, 2010 annualized, or September 30, 2010. |
Source: SNL Financial, Charlottesville, Virginia.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 18
Comparable Banks
Stock Data*
| | | | | | Price*/ | | | | | | Average | |
| | | Stock | | | | | | Tangible | | | | | | Dividend | | | Daily | |
| Short Name | | Price* | | | Earnings | | | Book | | | Assets | | | Yield | | | Volume** | |
| | | | | | | | | | | | | | | | | | | |
| Targeted Comparables | | | | | | | | | | | | | | | | | | |
| Commercial National | | $ | 18.81 | | | | 9.8 | X | | | 117 | % | | | 15.1 | % | | | 4.68 | % | | | 984 | |
| Eagle Bancorp | | | 11.38 | | | | 18.1 | | | | 88 | | | | 14.0 | | | | 2.46 | | | | 7,569 | |
| First West Virginia*** | | | 18.00 | | | | 11.1 | | | | 96 | | | | 10.5 | | | | 4.22 | | | | 472 | |
| Fresno First*** | | | 9.50 | | | NA | | | | 113 | | | | 11.7 | | | | 0.00 | | | | 439 | |
| Heritage | | | 12.75 | | | | 19.6 | | | | 107 | | | | 11.5 | | | | 1.88 | | | | 520 | |
| Juniata Valley | | | 16.90 | | | | 14.8 | | | | 151 | | | | 16.5 | | | | 4.97 | | | | 1,196 | |
| Louisiana Bancorp | | | 14.78 | | | | 21.4 | | | | 89 | | | | 16.8 | | | | 0.00 | | | | 6,386 | |
| Norwood Financial | | | 27.02 | | | | 10.2 | | | | 111 | | | | 13.9 | | | | 4.29 | | | | 3,022 | |
| Oak Valley | | | 6.24 | | | | 12.7 | | | | 93 | | | | 8.9 | | | | 0.00 | | | | 2,118 | |
| Osage Bancshares | | | 8.25 | | | | 14.5 | | | | 95 | | | | 13.4 | | | | 4.12 | | | | 1,299 | |
| Somerset Hills | | | 9.15 | | | | 19.9 | | | | 126 | | | | 15.1 | | | | 2.62 | | | | 2,004 | |
| Median (11 banks) | | | | | | | 14.6 | X | | | 107 | % | | | 13.9 | % | | | 2.62 | % | | | 1,299 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Northeast PA Comparables | | | | | | | | | | | | | | | | | | | | | | | | |
| American Bank | | $ | 6.50 | | | | 10.0 | X | | | 132 | % | | | 7.6 | % | | | 3.08 | % | | | 215 | |
| CCFNB | | | 29.50 | | | | 10.5 | | | | 114 | | | | 10.7 | | | | 4.20 | | | | 559 | |
| Fidelity D & D | | | 20.00 | | | NM | | | | 93 | | | | 7.8 | | | | 5.00 | | | | 459 | |
| First Keystone | | | 17.00 | | | | 10.3 | | | | 158 | | | | 11.6 | | | | 5.65 | | | | 1,183 | |
| Honat Bancorp*** | | | 308.00 | | | | 11.7 | | | | 129 | | | | 14.8 | | | | 1.30 | | | | 11 | |
| Luzerne National*** | | | 37.00 | | | | 10.3 | | | | 101 | | | | 9.5 | | | | 1.62 | | | | 139 | |
| MNB | | | 15.45 | | | | 13.2 | | | | 68 | | | | 6.0 | | | | 3.62 | | | | 35 | |
| Norwood | | | 27.02 | | | | 10.2 | | | | 111 | | | | 13.9 | | | | 4.29 | | | | 3,022 | |
| Penseco Financial | | | 38.00 | | | | 10.6 | | | | 132 | | | | 13.6 | | | | 4.42 | | | | 997 | |
| Peoples Financial | | | 27.65 | | | | 13.4 | | | | 176 | | | | 15.6 | | | | 2.89 | | | | 667 | |
| Median (10 banks) | | | | | | | 10.5 | X | | | 121 | % | | | 11.2 | % | | | 3.91 | % | | | 509 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
PA Banks under $20 Billion (85 banks) | | | | | | | 11.2 | X | | | 104 | % | | | 8.8 | % | | | 2.75 | % | | | 266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Neffs Bancorp**** | | $ | 260.00 | | | | 13.8 | X | | | 100 | % | | | 15.9 | % | | | 1.82 | % | | | 10 | |
| ** | Stock price as of March 7, 2011. Financial data is for the twelve months ended December 31, 2010, or December 31, 2010. |
| *** | For last twelve months. |
| **** | Stock price as of March 7, 2011. Financial data is for the nine months ended September 30, 2010 annualized, or September 30, 2010. |
| ***** | Based on fully-diluted earnings per share of $18.86 and dividends of $4.75 per share in 2010; and tangible book value per share of $260.21 and assets per share of $1,634 as of December 31, 2010. |
Source: SNL Financial, Charlottesville, Virginia.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 19
Neffs Bancorp
Stock Trades Reported on the OTC Bulletin Board
From January 1, 2010 through March 7, 2011*
| | | Average | | | Estimated | | | Estimated | |
| | | Weighted | | | Number | | | Value | |
| | | Price | | | of Shares | | | of Shares | |
| Period | | Per Share | | | Traded* | | | Traded* | |
| | | | | | | | | | |
| 2011 | | | | | | | | | |
| March 1st | | $ | 260 | | | | 75 | | | $ | 19,500 | |
| January and February | | | 258 | | | | 280 | | | $ | 72,090 | |
| | | | | | | | | | | | | |
| 2010 | | | | | | | | | | | | |
| 4th quarter | | $ | 251 | | | | 312 | | | $ | 78,422 | |
| 3rd quarter | | | 266 | | | | 280 | | | | 74,613 | |
| 2nd quarter | | | 260 | | | | 639 | | | | 166,248 | |
| 1st quarter | | | 255 | | | | 75 | | | | 19,125 | |
| Avg./total full year 2010 | | $ | 259 | | | | 1,306 | | | $ | 338,408 | |
*Trades reported on electronic exchanges with no physical location, such as the OTC bulletin board, are usually reported twice by the market maker when they purchase and sell a security to facilitate a trade. To compensate, Danielson estimated the number and value of shares traded to be 50% of reported amounts. The average weighted price per share is not materially impacted.
Source: OTCBB.com and Danielson calculations.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 20
Neffs Bancorp
Stock Repurchases*
| | | Weighted | | | | | | | |
| | | Average | | | Number | | | Value | |
| | | Price | | | of Shares | | | of Shares | |
| Period | | Per Share | | | Repurchased | | | Repurchased | |
| | | | | | | | | | |
| 2011 | | | | | | | | | |
| February | | $ | 253 | | | | 955 | | | $ | 241,615 | |
| January | | | 260 | | | | 75 | | | | 19500 | |
| Avg./total Jan. and Feb. | | $ | 254 | | | | 1,030 | | | $ | 261,115 | |
| | | | | | | | | | | | | |
| 2010 | | | | | | | | | | | | |
| December | | $ | 256 | | | | 65 | | | $ | 16,640 | |
| November | | | 260 | | | | 1,190 | | | | 309,400 | |
| October | | | 262 | | | | 130 | | | | 34,060 | |
| Avg./total 4th quarter | | $ | 260 | | | | 1,385 | | | $ | 360,100 | |
| | | | | | | | | | | | | |
| September | | $ | 270 | | | | 50 | | | $ | 13,500 | |
| August | | | 270 | | | | 175 | | | | 47,250 | |
| July | | | 270 | | | | 25 | | | | 6,750 | |
| Avg./total 3rd quarter | | $ | 270 | | | | 250 | | | $ | 67,500 | |
| | | | | | | | | | | | | |
| June | | $ | 263 | | | | 726 | | | $ | 190,938 | |
| May | | | 256 | | | | 1,145 | | | | 293,120 | |
| April | | | 260 | | | | 25 | | | | 6,500 | |
| Avg./total 2nd quarter | | $ | 259 | | | | 1,896 | | | $ | 490,558 | |
| | | | | | | | | | | | | |
| March | | $ | 260 | | | | 25 | | | $ | 6,500 | |
| February | | | - | | | | - | | | | - | |
| January | | | 256 | | | | 592 | | | | 151,552 | |
| Avg./total 1st quarter | | $ | 256 | | | | 617 | | | $ | 158,052 | |
| | | | | | | | | | | | | |
| Avg./total full year 2010 | | $ | 259 | | | | 4,148 | | | $ | 1,076,210 | |
*In April 2009, Neffs Bancorp, Inc. initiated a “No-Fee, Odd-Lot Sales Program” through which shareholders holding less than 100 shares of common stock can sell their shares to Neffs Bancorp. Neffs Bancorp also purchases shares Over-The-Counter from shareholders holding more than 100 shares, but these repurchases are not part of the program.
Source: Neffs Bancorp’s 10-Q’s and 10-K’s.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 21
Neffs Bancorp
Discounted Dividend Model*
| | Discount Rate8 | |
| | Scenario 1 (Normalized capital of 16.77%)* | | | Scenario 2 (Normalized capital of 12.00%)** | |
Terminal value9 | | 10 | % | | | 12 | % | | | 14 | % | | | 10 | % | | | 12 | % | | | 14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Value | | | Value | |
| | (In millions) | | | (In millions) | |
| 10X earnings | $ | 27.3 | | | $ | 24.3 | | | $ | 21.3 | | | $ | 45.4 | | | $ | 41.3 | | | $ | 37.7 | |
| 12X earnings | | 33.0 | | | | 28.8 | | | | 25.1 | | | | 50.6 | | | | 45.7 | | | | 41.5 | |
| 14X earnings | | 38.2 | | | | 33.2 | | | | 29.0 | | | | 55.7 | | | | 50.1 | | | | 45.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Per share*** | | | Per share*** | |
| 10X earnings | $ | 156 | | | $ | 136 | | | $ | 119 | | | $ | 254 | | | $ | 231 | | | $ | 211 | |
| 12X earnings | | 185 | | | | 161 | | | | 141 | | | | 284 | | | | 256 | | | | 233 | |
| 14X earnings | | 214 | | | | 186 | | | | 163 | | | | 312 | | | | 281 | | | | 254 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Price times earnings | | | Price times earnings | |
| 10X earnings | | 8.1 | X | | | 7.1 | X | | | 6.2 | X | | | 13.3 | X | | | 12.1 | X | | | 11.0 | X |
| 12X earnings | | 9.6 | | | | 8.4 | | | | 7.3 | | | | 14.8 | | | | 13.3 | | | | 12.1 | |
| 14X earnings | | 11.2 | | | | 9.7 | | | | 8.5 | | | | 16.3 | | | | 14.6 | | | | 13.3 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Price as a percent of tang. book | | | Price as a percent of tang. book | |
| 10X earnings | | 60 | % | | | 52 | % | | | 46 | % | | | 97 | % | | | 88 | % | | | 81 | % |
| 12X earnings | | 71 | | | | 62 | | | | 54 | | | | 108 | | | | 98 | | | | 89 | |
| 14X earnings | | 82 | | | | 71 | | | | 62 | | | | 119 | | | | 107 | | | | 97 | |
| ** | Assumes 7%10 annual asset growth, assets of $278 million, tangible equity of $46.7million, return on assets going forward of 1.27%11 and a “normalized” capital ratio of 16.77%12. |
| *** | Assumes 7% annual asset growth, assets of $278 million, tangible equity of $46.7million, return on assets going forward of 1.27% and a “normalized” capital ratio of 12.00%13. |
| **** | Assumes shares outstanding of 178,430 as of March 15, 2011. |
____________________8 Discount rates of 10%, 12% and 14% were based on the compounded annual return for “Small Company Stocks” for the 10-year period from
1996 to 2006 was 13.62% (The Ibbotson Associates Inc., 2006 Yearbook: Market Results for 1926 to 2006), which set the high end at 14%, and returns since 2006 which were lower and set the low end at 10%.
9 Terminal value of 10 times and 12 times earnings were based on the median price times earnings multiple of the Comparable Banks which were 10.5, 11.2 and 14.6 times earnings.
10 Neffs Bancorp’s 10-year (2000-2010) and 20-year (1990-2010) annualized asset growth was 7%.
11 Neff Bancorp’s 5-year (2006-2010) average return on average assets was 1.27%.
12 Neff Bancorp’s tangible equity to tangible asset ratio was 16.77% as of December 31, 2010.
13 The Targeted Comparables reported a median tangible equity to tangible asset ratio of 12.60% and the Northeast PA Comparables reported a median tangible equity to tangible asset ratio of 9.15%.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 22
Pricing Applied to Neffs Bancorp*
| | | Price | | | Price/ | | | | | | Number | |
| | | Times | | | Tangible | | | Price/ | | | In | |
| Comparable Group | | Earnings | | | Book | | | Assets | | | Group | |
| | | | | | | | | | | | | |
| Targeted Comparables | | | 14.6 | X | | | 107 | % | | | 13.9 | % | | | 11 | |
| - Applied to Neffs Bancorp | | $ | 275 | | | $ | 278 | | | $ | 227 | | | | | |
| | | | | | | | | | | | | | | | | |
| Northeast PA Comparables | | | 10.5 | X | | | 121 | % | | | 11.2 | % | | | 10 | |
| - Applied to Neffs Bancorp | | $ | 198 | | | $ | 315 | | | $ | 183 | | | | | |
| | | | | | | | | | | | | | | | | |
| PA Banks under $20 Billion | | | 11.2 | X | | | 104 | % | | | 8.8 | % | | | 85 | |
| - Applied to Neffs Bancorp | | $ | 211 | | | $ | 271 | | | $ | 144 | | | | | |
| | | | | | | | | | | | | | | | | |
| | Weighted | | | | | | Estimated | | | | | | |
| | Average | | | Number | | | Value of | | | | | | |
| | Price | | | of Shares | | | Shares | | | | | | |
| Common stock trades | Per Share | | | Traded | | | Traded | | | | | | |
| | | | | | | | | | | | | | |
| OTC BB Trades | | | | | | | | | | | | | |
| - Trade on March 1, 2011 | $ | 260 | | | | 75 | | | $ | 19,500 | | | | | | |
| - January/February 2011 | $ | 258 | | | | 559 | | | | 72,090 | | | | | | |
| - 2010 | | 259 | | | | 2,612 | | | | 338,408 | | | | | | |
| | | | | | | | | | | | | | | | | |
| Stock repurchase program | | | | | | | | | | | | | | | | |
| - January/February 2011 | $ | 254 | | | | 1,030 | | | $ | 261,620 | | | | | | |
| - 2010 | | 259 | | | | 4,148 | | | | 1,076,210 | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | Capital Normalized at | | |
| | | | 12.00 | % | | | 16.77 | % | |
| 10% Discounted dividends/12X terminal value | | | | | | | | | |
| - Applied to Neffs Bancorp | | $ | 284 | | | $ | 185 | | |
| * | Based on fully-diluted earnings per share of $18.86 for the year ended December 31, 2010 and on tangible book value per share of $260.21 and assets per share of $1,634 as of December 31, 2010. |
| | | |
| Sources: Danielson, OTCBB.com and Neffs Bancorp 10-K. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 23
Projected Cost of Merger
| Legal fees and expenses | | $ | 80,000 | |
| Printing, solicitation and mailing costs | | | 19,000 | |
| Financial advisory /valuation fees and exp. | | | 17,000 | |
| Transfer agent fees and expenses | | | 10,000 | |
| Accounting fees and expenses | | | 5,000 | |
| SEC EDGAR and filing fees | | | 5,000 | |
| Miscellaneous | | | 14,000 | |
| Total | | $ | 150,000 | |
Source: Neffs Bancorp internal projections.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 24
Projected Cost Savings from Merger in 2012
| | | | | | | |
| | | 2012 | |
| | | With | | | Without | |
| Expenses | | Delisting | | | Delisting | |
| | | | | | | |
| Accounting | | $ | 25,000 | | | $ | 70,875 | |
| Employee costs | | | - | | | | 65,000 | |
| Review of SEC filings/internal controls | | | - | | | | 20,000 | |
| Legal | | | 1,000 | | | | 10,000 | |
| Proxy material | | | 3,000 | | | | 4,500 | |
| Filing fees | | | - | | | | 3,500 | |
| IT consultant | | | - | | | | 1,000 | |
| Proxy servicing | | | 800 | | | | 850 | |
| Total expense | | $ | 29,800 | | | $ | 175,725 | |
| | | | | | | | | |
| Expected 2012 cost savings | | $ | 145,925 | | | | | |
Note: In 2011, the delisting will cost between $100,000 and $150,000.
Source: Neffs Bancorp internal projections.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 25
Comparable Going Private Transactions - with a Cash-Out Provision*
| | | For the Quarter or Quarter-End Prior to Announcement | |
| | | | | | Tang. | | | | | | | |
| | | | | | Equity/ | | | | | | Return on | |
| | | | | | Tang. | | | NPAs**/ | | | Avg. | | | Avg. | |
| Institution | | Assets | | | Assets | | | Assets | | | Assets | | | Equity | |
| | | (in mill.) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Profitable Going Private Comparables | | | | | | | | | | | | | | | |
| First BancTrust Corporation | | $ | 340 | | | | 7.66 | % | | | 1.56 | % | | | .40 | % | | | 5.01 | % |
| Gouverneur Bancorp, Inc (MHC) | | | 133 | | | | 15.16 | | | | .82 | | | | .69 | | | | 4.37 | |
| Liberty Bancorp, Inc | | | 373 | | | | 11.23 | | | | 2.13 | | | | .39 | | | | 3.43 | |
| Peoples-Sidney Financial Corp. | | | 138 | | | | 11.03 | | | | .79 | | | | .56 | | | | 5.08 | |
| Median | | $ | 239 | | | | 11.13 | % | | | 1.19 | % | | | .48 | % | | | 4.69 | % |
| | | | | | | | | | | | | | | | | | | | | |
| Unprofitable Going Private Comparables | | | | | | | | | | | | | | | | | | | | |
| Greenville Federal Financial Corp. (MHC) | | $ | 121 | | | | 15.69 | % | | | 1.49 | % | | | (4.79 | )% | | | (29.41 | )% |
| Clarkston Financial Corp. | | | 201 | | | | 5.68 | | | | 3.24 | | | | (4.92 | ) | | | (80.68 | ) |
| First Bancorp of Indiana Inc. | | | 363 | | | | 7.61 | | | | .11 | | | | (.08 | ) | | | (.87 | ) |
| Median | | $ | 201 | | | | 7.61 | % | | | 1.49 | % | | | (4.79 | )% | | | (29.41 | )% |
| | | | | | | | | | | | | | | | | | | | | |
| Neffs Bancorp, Inc. | | $ | 278 | | | | 16.77 | % | | | .97 | % | | | .97 | % | | | 5.70 | % |
| | | | | | | | | | Cash-Out | | | Cash-Out | |
| | | | | | | Cash-Out | | | Premium on | | | Price/ | |
| | | | | Announced | | Stock | | | Day | | | Tang. Book | |
| Institution | | City, State | | Date | | Price | | | Announced | | | Prior Qtr. | |
| | | | | | | | | | | | | | |
| Profitable Going Private Comparables | | | | | | | | | | | | | |
| First BancTrust Corporation | | Paris, IL | | 4/18/08 | | $ | 11.00 | | | | 22.2 | % | | | 95 | % |
| Gouverneur Bancorp, Inc (MHC) | | Gouverneur, NY | | 6/24/08 | | | 10.00 | | | | 16.3 | | | | 111 | |
| Liberty Bancorp, Inc | | Liberty, MO | | 9/22/09 | | | 15.00 | | | | 79.6 | | | | 126 | |
| Peoples-Sidney Financial Corp. | | Sidney, OH | | 2/19/08 | | | 13.47 | | | | 7.8 | | | | 109 | |
| Median | | | | | | | | | | | 19.3 | % | | | 110 | % |
| | | | | | | | | | | | | | | | | |
| Unprofitable Going Private Comparables | | | | | | | | | | | | | | | | |
| Greenville Federal Financial Corp. (MHC) | | Greenville, OH | | 7/7/09 | | $ | 6.50 | | | | 97.0 | % | | | 80 | % |
| Clarkston Financial Corp. | | Clarkston, MI | | 1/10/08 | | | 10.00 | | | | 37.9 | | | | 94 | |
| First Bancorp of Indiana Inc. | | Evansville, IN | | 2/20/08 | | | 14.00 | | | | 12.9 | | | | 94 | |
| Median | | | | | | | | | | | 37.9 | % | | | 94 | % |
| * | Bank and thrift going private transactions after 2007 with a cash-out provision for shareholders below a certain threshold. |
| ** | Includes loans 90-days past due and restructured loans. |
| | | |
| Source: Various SEC regulatory filings. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 26
Going Private Pricing Applied to Neffs Bancorp
| | | Cash-out Price/ | | | Premium | | | Number | |
| | | Tang. Book | | | On Day | | | In | |
| Comparable Group | | Prior Quarter | | | Announced | | | Group | |
| | | | | | | | | | |
| Profitable Going Private Comps. | | | 110 | % | | | 7.8%-22.2 | %* | | | 4 | |
| - Applied to Neffs Bancorp | | $ | 286 | ** | | $ | 280-$318 | *** | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| * | Excludes one outlier at 79.6% premium. |
| ** | Based on tangible book value of $260.21 per share as of December 31, 2010. |
| *** | Based on reported closing price of $260 per share on March 1, 2011. |
| | |
| Source: Neffs Bancorp and Danielson calculations. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 27
Projections of Cash Consideration Paid Out
To First and Second Tier Record Holders
| | | | | | | Second Tier |
| | | | Cash Paid Out | | | Record Holders |
| Cash | | | To First Tier | | | Cash | | | Cash |
| Consideration | | | Record | | | Election | | | Election |
| Per Share | | | Holders | | | of 50% | | | of 100% |
| | | | | | | | | | |
| | | | Cash Consideration Paid Out by Tier ($000) |
| | | | | | | | | | |
| $ | 276 | | | $ | 767 | | | $ | 1,549 | | | $ | 3,099 |
| | 286 | | | | 795 | | | | 1,606 | | | | 3,211 |
| | 296 | | | | 822 | | | | 1,662 | | | | 3,323 |
| | | | | | | | | | | | | | |
| | | | | Total Cash Consideration Paid Out ($000) * |
| | | | | | | | | | | | | | |
| $ | 276 | | | | n/a | | | $ | 2,316 | | | $ | 3,866 |
| | 286 | | | | n/a | | | | 2,400 | | | | 4,006 |
| | 296 | | | | n/a | | | | 2,484 | | | | 4,146 |
*Includes cash paid out to First Tier Record Holders.
Source: Danielson calculations.
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 28
Neffs Bancorp – Pro-Forma Consolidated Balance Sheet
With Cash Consideration of $286 Per Share
| | | As Reported | | | Adj. for Stock | | | Adj. for | | | Pro Forma | |
| | | 12/31/2010 | | | Repurch Prog.* | | | Merger | | | 2010 | |
| | | | | | | | | | | | | |
| Assumes First Tier and 50% of Second Tier are Cashed-Out ($ in thousands) | |
| Assets | | | | | | | | | | | | |
| Cash & balance due | | $ | 7,589 | | | $ | (262 | ) | | $ | (2,550 | )** | | $ | 4,777 | |
| Investments, net loans and other | | | 270,874 | | | | - | | | | - | | | | 270,874 | |
| Total assets | | $ | 278,463 | | | $ | (262 | ) | | $ | (2,550 | ) | | $ | 275,651 | |
| | | | | | | | | | | | | | | | | |
| Liabilities and equity | | | | | | | | | | | | | | | | |
| Liabilities | | $ | 231,766 | | | | - | | | | - | | | $ | 231,766 | |
| Equity | | | 46,697 | | | $ | (262 | ) | | $ | (2,550 | ) | | $ | 43,885 | |
| Total liabilities and equity | | $ | 278,463 | | | $ | (262 | ) | | $ | (2,550 | ) | | $ | 275,651 | |
| | | | | | | | | | | | | | | | | |
| Change in shares outstanding | | | n/a | | | | (1,030 | ) | | | (8,392 | ) | | | n/a | |
| Shares outstanding*** | | | 179,460 | | | | 178,430 | | | | 170,038 | | | | 170,038 | |
| | | | | | | | | | | | | | | | | |
| Book value per common equivalent share | | $ | 260.21 | | | $ | 260.24 | | | $ | 258.09 | | | $ | 258.09 | |
| Change in book value per share | | | n/a | | | $ | 0.03 | | | $ | (2.15 | ) | | $ | (2.12 | ) |
| Equity as a percent of assets | | | 16.77 | % | | | - | | | | - | | | | 15.92 | % |
| | | | | | | | | | | | | | | | | |
| Assumes First Tier and 100% of Second Tier is Cashed-Out ($ in thousands) | |
| Assets | | | | | | | | | | | | | | | | |
| Cash & balance due | | $ | 7,589 | | | $ | (262 | ) | | $ | (4,156 | )** | | $ | 3,171 | |
| Investments, net loans and other | | | 270,874 | | | | - | | | | - | | | | 270,874 | |
| Total assets | | $ | 278,463 | | | $ | (262 | ) | | $ | (4,156 | ) | | $ | 274,045 | |
| | | | | | | | | | | | | | | | | |
| Liabilities and equity | | | | | | | | | | | | | | | | |
| Liabilities | | $ | 231,766 | | | | - | | | | - | | | $ | 231,766 | |
| Equity | | | 46,697 | | | $ | (262 | ) | | $ | (4,156 | ) | | | 42,279 | |
| Total liabilities and equity | | $ | 278,463 | | | $ | (262 | ) | | $ | (4,156 | ) | | | 274,045 | |
| | | | | | | | | | | | | | | | | |
| Change in shares outstanding | | | n/a | | | | (1,030 | ) | | | (14,006 | ) | | | n/a | |
| Shares outstanding*** | | | 179,460 | | | | 178,430 | | | | 164,424 | | | | 164,424 | |
| | | | | | | | | | | | | | | | | |
| Book value per common equivalent share | | $ | 260.21 | | | $ | 260.24 | | | $ | 257.14 | | | $ | 257.14 | |
| Change in book value per share | | | n/a | | | $ | 0.03 | | | $ | (3.11 | ) | | $ | (3.07 | ) |
| Equity as a percent of assets | | | 16.77 | % | | | - | | | | - | | | | 15.43 | % |
| * | Adjustment for shares repurchased in January and February 2011. |
| ** | Includes cash paid out to shareholders and estimated Merger expenses of $150,000. |
| *** | Includes common and Series A Preferred. |
| | |
| Source: Neffs Bancorp and Danielson calculations. |
| Danielson Associates, LLC | March 15, 2011 |
| Neffs Bancorp, Inc. | Tables |
Table 29
Neffs Bancorp – Pro-Forma Consolidated Income Statement
With Cash Consideration of $286 Per Share
| | | As Reported | | | Adj. for Stock | | | Adj. for | | | Pro-Forma | |
| | | 2010 | | | Repurch Prog.* | | | Merger | | | 2010 | |
| | | | | | | | | | | | | |
| Assumes First Tier is Cashed-Out and 50% of Second Tier is Cashed-Out ($ in thousands) | |
| | | | | | | | | | | | | |
| Net interest income | | $ | 8,615 | | | $ | (8 | )** | | $ | (72 | )** | | $ | 8,535 | |
| Non-interest income | | | 265 | | | | - | | | | - | | | $ | 265 | |
| Non-interest expense | | | 3,577 | | | | - | | | | (146 | )** | | $ | 3,431 | |
| Net operating income | | $ | 5,303 | | | $ | (8 | ) | | $ | (74 | ) | | $ | 5,369 | |
| | | | | | | | | | | | | | | | | |
| Provision for loan losses | | $ | 368 | | | | - | | | | - | | | $ | 368 | |
| Net securities impairment | | | 533 | | | | - | | | | - | | | $ | 533 | |
| | | | | | | | | | | | | | | | | |
| Pre-tax income | | $ | 4,402 | | | $ | (8 | ) | | $ | 74 | | | $ | 4,468 | |
| Tax*** | | | 976 | | | | (3 | ) | | | 25 | | | $ | 998 | |
| Net income | | $ | 3,426 | | | $ | (5 | ) | | $ | 49 | | | $ | 3,470 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share | | $ | 19.09 | **** | | $ | 19.17 | | | $ | 20.41 | | | $ | 20.41 | |
| Change in earnings per share | | | n/a | | | $ | 0.08 | | | $ | 1.23 | | | $ | 1.31 | |
| | | | | | | | | | | | | | | | | |
| Shares outstanding***** | | | 179,460 | | | | 178,430 | | | | 170,038 | | | | 170,038 | |
| | | | | | | | | | | | | | | | | |
| Assumes First Tier and 100% of Second Tier is Cashed-Out ($ in thousands) | |
| | | | | | | | | | | | | | | | | |
| Net interest income | | $ | 8,615 | | | $ | (8 | )** | | $ | (120 | )** | | $ | 8,487 | |
| Non-interest income | | | 265 | | | | - | | | | - | | | | 265 | |
| Non-interest expense | | | 3,577 | | | | - | | | | ( 146 | )** | | | 3,431 | |
| Net operating income | | $ | 5,303 | | | $ | (8 | ) | | $ | 26 | | | $ | 5,321 | |
| | | | | | | | | | | | | | | | | |
| Provision for loan losses | | $ | 368 | | | | - | | | | - | | | $ | 368 | |
| Net securities impairment | | | 533 | | | | - | | | | - | | | $ | 533 | |
| | | | | | | | | | | | | | | | | |
| Pre-tax income | | $ | 4,402 | | | $ | (8 | ) | | $ | 26 | | | $ | 4,420 | |
| Tax*** | | | 976 | | | | (3 | ) | | | 9 | | | $ | 982 | |
| Net income | | $ | 3,426 | | | $ | (5 | ) | | $ | 17 | | | $ | 3,342 | |
| | | | | | | | | | | | | | | | | |
| Earnings per common equivalent share | | $ | 19.09 | **** | | $ | 19.17 | | | $ | 20.91 | | | $ | 20.91 | |
| Change in earnings per share | | | n/a | | | $ | 0.08 | | | $ | 1.74 | | | $ | 1.82 | |
| | | | | | | | | | | | | | | | | |
| Shares outstanding***** | | | 179,460 | | | | 178,430 | | | | 164,424 | | | | 164,424 | |
| * | Adjustment for shares repurchased in January and February 2011. |
| ** | Assumes 3% loss on cash paid out and $146,000 in annual cost savings. |
| *** | Assumes a 34% tax rate for adjustments. |
| **** | Based on shares outstanding as of December 31, 2010. Fully-diluted 2010 EPS was lower at $18.86. |
| ***** | Includes common and Series A Preferred. |
| | |
| Source: Neffs Bancorp and Danielson calculations. |
| Danielson Associates, LLC | March 15, 2011 |
53
