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EX-32 - EX-32 - Embassy Bancorp, Inc.emyb-20160930xex32.htm
EX-31.2 - EX-31.2 - Embassy Bancorp, Inc.emyb-20160930xex31_2.htm
EX-31.1 - EX-31.1 - Embassy Bancorp, Inc.emyb-20160930xex31_1.htm









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016 OR



 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________________ TO __________________



Commission file number 000-53528





 

Embassy Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Pennsylvania

26-3339011

(State of incorporation)

(I.R.S. Employer Identification No.)

 

 

One Hundred Gateway Drive, Suite 100

Bethlehem, PA

 

18017

(Address of principal executive offices)

(Zip Code)

 

 

(610) 882-8800

(Registrant’s Telephone Number)



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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No



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

Large accelerated filer 

Accelerated filer

Non-accelerated filer  (Do not check if a smaller reporting company) 

Smaller reporting company

 

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

 

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:



 

 



COMMON STOCK

 

 

Number of shares outstanding as of November 4, 2016

($1.00 Par Value)

      7,424,267

 

  (Title Class)

(Outstanding Shares)



 

 

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

 

Table of Contents

 



 

Part I – Financial Information

 

 

Item 1 – Financial Statements

 

Consolidated Balance Sheets (Unaudited)

Consolidated Statements of Income (Unaudited)

Consolidated Statements of Comprehensive Income (Unaudited)

Consolidated Statements of Stockholders’ Equity (Unaudited)

Consolidated Statements of Cash Flows (Unaudited)

Notes to Consolidated Financial Statements (Unaudited)

 

 

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

28 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

38 

 

 

Item 4 – Controls and Procedures

38 

 

 

Part II - Other Information

39 

 

 

Item 1 - Legal Proceedings

39 

 

 

Item 1A - Risk Factors

39 

 

 

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

39 

 

 

Item 3 - Defaults Upon Senior Securities

39 

 

 

Item 4 – Mine Safety Disclosures

39 

 

 

Item 5 - Other Information

39 

 

 

Item 6 - Exhibits

40 



   



   



   



2

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Part I – Financial Information



Item 1 – Financial Statements



Consolidated Balance Sheets (Unaudited)







 

 

 

 

 



 

 

 

 

 



September 30,

 

December 31,

ASSETS

2016

 

2015



(In Thousands, Except Share Data)

Cash and due from banks

$

14,668 

 

$

12,459 

Interest bearing demand deposits with banks

 

13,027 

 

 

6,067 

Federal funds sold

 

1,000 

 

 

1,000 

Cash and Cash Equivalents

 

28,695 

 

 

19,526 

Securities available for sale

 

90,037 

 

 

77,253 

Restricted investment in bank stock

 

538 

 

 

2,178 

Loans receivable, net of allowance for loan losses of $6,240 in 2016; $6,068 in 2015

 

749,945 

 

 

684,047 

Premises and equipment, net of accumulated depreciation

 

2,181 

 

 

2,258 

Bank owned life insurance

 

12,586 

 

 

12,343 

Accrued interest receivable

 

1,604 

 

 

1,637 

Other real estate owned

 

521 

 

 

1,224 

Other assets

 

3,207 

 

 

3,572 

Total Assets

$

889,314 

 

$

804,038 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

$

107,080 

 

$

89,959 

Interest bearing

 

694,679 

 

 

570,307 

Total Deposits

 

801,759 

 

 

660,266 

Securities sold under agreements to repurchase

 

8,844 

 

 

27,535 

Short-term borrowings

 

 -

 

 

39,306 

Long-term borrowings

 

 -

 

 

3,820 

Accrued interest payable

 

718 

 

 

462 

Other liabilities

 

5,018 

 

 

4,548 

Total Liabilities

 

816,339 

 

 

735,937 

Stockholders' Equity:

 

 

 

 

 

Common stock, $1 par value; authorized 20,000,000 shares;

 

 

 

 

 

2016 issued 7,433,257 shares; outstanding 7,424,267 shares;

 

 

 

 

 

2015 issued and outstanding 7,407,547 shares

 

7,433 

 

 

7,408 

Surplus

 

24,602 

 

 

24,299 

Retained earnings

 

39,475 

 

 

35,158 

Accumulated other comprehensive income

 

1,563 

 

 

1,236 

Treasury stock, at cost, 2016:  8,990 shares

 

(98)

 

 

 -

Total Stockholders' Equity

 

72,975 

 

 

68,101 

Total Liabilities and Stockholders' Equity

$

889,314 

 

$

804,038 









See notes to consolidated financial statements.

3

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Income (Unaudited) 







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

2016

 

2015

 

2016

 

 

2015

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands, Except Per Share Data)

 

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

7,137 

 

$

6,736 

 

$

20,837 

 

$

19,363 

 

 

Securities, taxable

 

 

205 

 

 

198 

 

 

605 

 

 

612 

 

 

Securities, non-taxable

 

 

295 

 

 

296 

 

 

864 

 

 

903 

 

 

Federal funds sold, and other

 

 

26 

 

 

25 

 

 

108 

 

 

89 

 

 

Interest on time deposits

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

Total Interest Income

 

 

7,663 

 

 

7,255 

 

 

22,414 

 

 

20,968 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,004 

 

 

732 

 

 

2,823 

 

 

2,099 

 

 

Securities sold under agreements to repurchase

 

 

 

 

 

 

10 

 

 

13 

 

 

Short-term borrowings

 

 

 -

 

 

53 

 

 

31 

 

 

96 

 

 

Long-term borrowings

 

 

 -

 

 

25 

 

 

 

 

93 

 

 

Total Interest Expense

 

 

1,007 

 

 

814 

 

 

2,869 

 

 

2,301 

 

 

Net Interest Income

 

 

6,656 

 

 

6,441 

 

 

19,545 

 

 

18,667 

 

 

PROVISION FOR LOAN LOSSES

 

 

165 

 

 

270 

 

 

420 

 

 

412 

 

 

Net Interest Income after
   Provision for Loan Losses

 

 

6,491 

 

 

6,171 

 

 

19,125 

 

 

18,255 

 

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit card processing fees

 

 

442 

 

 

424 

 

 

1,285 

 

 

1,199 

 

 

Other service fees

 

 

199 

 

 

172 

 

 

534 

 

 

504 

 

 

Bank owned life insurance

 

 

114 

 

 

86 

 

 

243 

 

 

275 

 

 

Gain on sale of securities, net

 

 

350 

 

 

26 

 

 

350 

 

 

165 

 

 

Gain  (loss) on sale of other real estate owned

 

 

(12)

 

 

 

 

 

 

14 

 

 

Impairment on other real estate owned

 

 

 -

 

 

(62)

 

 

(80)

 

 

(104)

 

 

Total Other Income

 

 

1,093 

 

 

653 

 

 

2,335 

 

 

2,053 

 

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,000 

 

 

1,684 

 

 

5,921 

 

 

5,143 

 

 

Occupancy and equipment

 

 

671 

 

 

597 

 

 

2,027 

 

 

1,820 

 

 

Data processing

 

 

411 

 

 

375 

 

 

1,191 

 

 

1,178 

 

 

Credit card processing

 

 

415 

 

 

405 

 

 

1,213 

 

 

1,152 

 

 

Advertising and promotion

 

 

368 

 

 

348 

 

 

1,063 

 

 

1,021 

 

 

Professional fees

 

 

179 

 

 

125 

 

 

456 

 

 

380 

 

 

FDIC insurance

 

 

112 

 

 

100 

 

 

320 

 

 

265 

 

 

Insurance

 

 

16 

 

 

13 

 

 

44 

 

 

40 

 

 

Loan & real estate

 

 

70 

 

 

71 

 

 

180 

 

 

197 

 

 

Charitable contributions

 

 

155 

 

 

143 

 

 

541 

 

 

494 

 

 

Other real estate owned expenses

 

 

26 

 

 

11 

 

 

83 

 

 

51 

 

 

Other

 

 

338 

 

 

314 

 

 

1,011 

 

 

873 

 

 

Total Other Expenses

 

 

4,761 

 

 

4,186 

 

 

14,050 

 

 

12,614 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

2,823 

 

 

2,638 

 

 

7,410 

 

 

7,694 

 

 

INCOME TAX EXPENSE

 

 

816 

 

 

766 

 

 

2,131 

 

 

2,203 

 

 

Net Income

 

$

2,007 

 

$

1,872 

 

$

5,279 

 

$

5,491 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$

0.27 

 

$

0.25 

 

$

0.71 

 

$

0.75 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

 

$

0.27 

 

$

0.25 

 

$

0.71 

 

$

0.74 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER SHARE

 

$

0.13 

 

$

0.10 

 

$

0.13 

 

$

0.10 

 

 



See notes to consolidated financial statements



4

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Comprehensive Income (Unaudited)





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Three Months Ended September 30,



2016

 

2015



 

 

 

 

 

 

 

 

 



 

(In Thousands)

Net Income

$

 

 

2,007 

 

$

 

 

1,872 

Change in Accumulated Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

Unrealized holding (loss) gain on securities available for sale

 

(212)

 

 

 

 

487 

 

 

Less: reclassification adjustment for realized gains

 

(350)

 

 

 

 

(26)

 

 



 

(562)

 

 

 

 

461 

 

 

Income tax effect

 

191 

 

 

 

 

(156)

 

 

Net unrealized (loss) gain

 

(371)

 

 

 

 

305 

 

 

Other comprehensive (loss) gain, net of tax

 

 

 

(371)

 

 

 

 

305 

Comprehensive Income

$

 

 

1,636 

 

$

 

 

2,177 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Nine Months Ended September 30,



2016

 

2015



 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

 

 

 

 

 

 

 

 

Net Income

$

 

 

5,279 

 

$

 

 

5,491 

Change in Accumulated Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on securities available for sale

 

845 

 

 

 

 

(40)

 

 

Less: reclassification adjustment for realized gains

 

(350)

 

 

 

 

(165)

 

 



 

495 

 

 

 

 

(205)

 

 

Income tax effect

 

(168)

 

 

 

 

70 

 

 

Net unrealized gain (loss)

 

327 

 

 

 

 

(135)

 

 

Other comprehensive gain (loss), net of tax

 

 

 

327 

 

 

 

 

(135)

Comprehensive Income

$

 

 

5,606 

 

$

 

 

5,356 



See notes to consolidated financial statements.



 

5

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Stockholders’ Equity (Unaudited)



Nine Months Ended September 30, 2016 and 2015 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

Surplus

 

Retained Earnings

 

Accumulated Other Comprehensive Income

 

Treasury Stock

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(In Thousands, Except Share and Per Share Data)

BALANCE - DECEMBER 31, 2014

$

7,358 

 

$

24,024 

 

$

28,485 

 

$

1,465 

 

$

 -

 

$

61,332 

Net income

 

 -

 

 

 -

 

 

5,491 

 

 

 -

 

 

 -

 

 

5,491 

Other comprehensive income, net of tax

 

 -

 

 

 -

 

 

 -

 

 

(135)

 

 

 -

 

 

(135)

Dividend declared, $.10 per share

 

 -

 

 

 -

 

 

(736)

 

 

 -

 

 

 -

 

 

(736)

Compensation expense recognized on 
   stock options

 

 -

 

 

34 

 

 

 -

 

 

 -

 

 

 -

 

 

34 

Common stock grants to directors,
   9,122 shares

 

 

 

87 

 

 

 

 

 

 

 

 

 

 

 

96 

Shares issued under Dividend Reinvestment
   and Stock Purchase Plan, 16,920 shares

 

17 

 

 

163 

 

 

 -

 

 

 -

 

 

 -

 

 

180 

BALANCE - SEPTEMBER 30, 2015

$

7,384 

 

$

24,308 

 

$

33,240 

 

$

1,330 

 

$

 -

 

$

66,262 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - DECEMBER 31, 2015

$

7,408 

 

$

24,299 

 

$

35,158 

 

$

1,236 

 

$

 -

 

$

68,101 

Net income

 

 -

 

 

 -

 

 

5,279 

 

 

 -

 

 

 -

 

 

5,279 

Other comprehensive income, net of tax

 

 -

 

 

 -

 

 

 -

 

 

327 

 

 

 -

 

 

327 

Dividend declared, $.13 per share

 

 -

 

 

 -

 

 

(962)

 

 

 -

 

 

 -

 

 

(962)

Compensation expense recognized on 
   stock options

 

 -

 

 

21 

 

 

 -

 

 

 -

 

 

 -

 

 

21 

Common stock grants to directors,
   5,934 shares

 

 

 

57 

 

 

 -

 

 

 -

 

 

 -

 

 

62 

Compensation expense recognized on 
   stock grants, net of unearned compensation                        
   expense of $211                                                                

 

 -

 

 

34 

 

 

 -

 

 

 

 

 

 -

 

 

34 

Purchase treasury stock, 8,990 shares
   at $10.85 per share

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(98)

 

 

(98)

Shares issued under Dividend Reinvestment
   and Stock Purchase Plan, 19,776 shares

 

20 

 

 

191 

 

 

 

 

 

 

 

 

 

 

 

211 

BALANCE - SEPTEMBER 30, 2016

$

7,433 

 

$

24,602 

 

$

39,475 

 

$

1,563 

 

$

(98)

 

$

72,975 



See notes to consolidated financial statements.



 

6

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Cash Flows (Unaudited)





 

 

 

 

 



 

 

 

 

 



Nine Months Ended September 30,



2016

 

2015



 

 

 

 

 



(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

5,279 

 

$

5,491 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

420 

 

 

412 

Amortization of deferred loan costs

 

93 

 

 

29 

Depreciation and amortization

 

557 

 

 

450 

Net amortization of investment security premiums and discounts

 

208 

 

 

163 

Stock compensation expense

 

55 

 

 

34 

Net realized gain on sale of other real estate owned

 

(3)

 

 

(14)

Impairment on other real estate owned

 

80 

 

 

104 

Income on bank owned life insurance

 

(243)

 

 

(250)

Net realized gain on sale of securities available for sale

 

(350)

 

 

(165)

Decrease (increase) in accrued interest receivable

 

33 

 

 

(54)

Decrease (increase) in other assets

 

197 

 

 

(182)

Increase in accrued interest payable

 

256 

 

 

81 

Increase in other liabilities

 

535 

 

 

204 

Net Cash Provided by Operating Activities

 

7,117 

 

 

6,303 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of securities available for sale

 

(28,506)

 

 

(18,956)

Maturities, calls and principal repayments of securities available for sale

 

8,608 

 

 

5,552 

Proceeds from sales of securities available for sale

 

7,751 

 

 

10,742 

Net increase in loans

 

(65,929)

 

 

(74,999)

Net redemption (purchases) of restricted investment in bank stock

 

1,640 

 

 

(2,155)

Net maturities of interest bearing time deposits

 

 -

 

 

250 

Proceeds from sale of other real estate owned

 

141 

 

 

53 

Purchases of premises and equipment

 

(480)

 

 

(397)

Net Cash Used in Investing Activities

 

(76,775)

 

 

(79,910)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net increase in deposits

 

141,493 

 

 

22,359 

Net (decrease) increase in securities sold under agreements to repurchase

 

(18,691)

 

 

2,457 

(Decrease) increase in short-term borrowed funds

 

(39,306)

 

 

47,420 

Proceeds from long-term borrowed funds

 

 -

 

 

6,000 

Payments of long-term borrowed funds

 

(3,820)

 

 

(2,862)

Acquistion of treasury stock

 

(98)

 

 

 -

Proceeds from Dividend Reinvestment Plan

 

211 

 

 

180 

Dividends paid

 

(962)

 

 

(736)

Net Cash Provided by Financing Activities

 

78,827 

 

 

74,818 

Net Increase (Decrease) in Cash and Cash Equivalents

 

9,169 

 

 

1,211 

CASH AND CASH EQUIVALENTS - BEGINNING

 

19,526 

 

 

16,390 

CASH AND CASH EQUIVALENTS - ENDING

$

28,695 

 

$

17,601 



 

 

 

 

 

SUPPLEMENTARY CASH FLOWS INFORMATION

 

 

 

 

 

Interest paid

$

2,601 

 

$

2,221 

Income taxes paid

$

1,984 

 

$

2,311 

Other real estate sold through bank financing

$

523 

 

$

58 

Deferral of gain from sale of other real estate sold through bank financing

$

 

$

56 

Other real estate acquired in settlement of loans

$

41 

 

$

518 



See notes to consolidated financial statements.

 

7

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 1 – Basis of Presentation

 

Embassy Bancorp, Inc. (the “Company”) is a Pennsylvania corporation organized in 2008 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company was formed for purposes of acquiring Embassy Bank For The Lehigh Valley (the “Bank”) in connection with the reorganization of the Bank into a bank holding company structure, which was consummated on November 11, 2008. Accordingly, the Company owns all of the capital stock of the Bank, giving the organization more flexibility in meeting its capital needs as the Company continues to grow. Embassy Holdings, LLC (the “LLC”) is a wholly-owned subsidiary of the Bank organized to engage in the holding of property acquired by the Bank in satisfaction of debts previously contracted.  As such, the consolidated financial statements contained herein include the accounts of the Company, the Bank and the LLC. All significant intercompany transactions and balances have been eliminated.



The Bank, which is the Company’s principal operating subsidiary, was originally incorporated as a Pennsylvania bank on May 11, 2001 and opened its doors on November 6, 2001. It was formed by a group of local business persons and professionals with significant prior experience in community banking in the Lehigh Valley area of Pennsylvania, the Bank’s primary market area.



The accompanying unaudited financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“US GAAP”) for interim financial information and in accordance with instructions for Form 10-Q and Rule 10-01 of the Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.



The consolidated financial statements presented in this report should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2015, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2016.  



In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2016 through the date these consolidated financial statements were issued.



Certain amounts in the 2015 financial statements may have been reclassified to conform to 2016 presentation. These reclassifications had no effect on 2015 net income.





Note 2 - Summary of Significant Accounting Policies



The significant accounting policies of the Company as applied in the interim financial statements presented are substantially the same as those followed on an annual basis as presented in the Company’s Form 10-K for the year ended December 31, 2015.

 

Note 3 – Stockholders’ Equity

 

On November 11, 2008, the Company consummated its acquisition of Embassy Bank For The Lehigh Valley pursuant to a Plan of Merger and Reorganization dated April 18, 2008, pursuant to which the Bank was reorganized into a bank holding company structure. At the effective time of the reorganization, each share of common stock of Embassy Bank For The Lehigh Valley issued and outstanding was automatically converted into one share of Company common stock. The issuance of Company common stock in connection with the reorganization was exempt from registration pursuant to Section 3(a)(12) of the Securities Act of 1933, as amended.

 

Note 4 – Stock Incentive Plan and Employee Stock Purchase Plan



At the Company’s annual meeting on June 16, 2010, the shareholders approved the Embassy Bancorp, Inc. 2010 Stock Incentive Plan (the “SIP”).  The SIP authorizes the Board of Directors, or a committee authorized by the Board of Directors, to award a stock based incentive to (i) designated officers (including officers who are directors) and other designated employees at the Company and its subsidiaries, and (ii) non-employee members of the Board of Directors and advisors and consultants to the Company and its subsidiaries. The SIP provides for stock based incentives in the form of incentive stock options as provided in Section 422 of the Internal Revenue Code of 1986, non-qualified stock options, stock appreciation rights, restricted stock and deferred stock awards.  The term of the option, the amount of time for the option to vest after grant, if any, and other terms and limitations will be determined at the time of grant. Options granted under the SIP may not have an exercise period that is more than ten years from the time the option is granted. At inception, the aggregate number of shares available for issuance under the SIP was 500,000. The SIP provides for appropriate adjustments in the number and kind of shares available for grant or subject to outstanding awards under the SIP to avoid

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Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

dilution in the event of merger, stock splits, stock dividends or other changes in the capitalization of the Company. The SIP expires on June 15, 2020. At September 30, 2016,  there were 322,210 shares available for issuance under the SIP.  

The Company grants shares of restricted stock, under the SIP, to certain members of its Board of Directors as compensation for their services, in accordance with the Company’s Non-employee Directors Compensation program adopted in October 2010. The Company also grants restricted stock to certain officers under individual agreements with these officers. Some of these restricted stock awards vest immediately, while the remainder vest over three to nine service years. Management recognizes compensation expense for the fair value of the restricted stock awards on a straight-line basis over the requisite service period. Since inception of the plan and through the period ended September 30, 2016, there have been 65,774 awards granted. No awards were granted during the three months ended September 30, 2016 and 2015.  During the nine months ended September 30, 2016 and 2015 there were 5,934 and 9,122 awards granted, respectively. During the three and nine month months ended September 30, 2016 the Company recognized $12 thousand and $34 thousand, respectively, in compensation expense for the restricted stock awards.  There was no compensation expense recognized for the restricted stock awards during the three and nine months ended September 30, 2015.



In January 2014, February 2013 and February 2012, the Company granted stock options to purchase 29,663,  29,742 and 52,611 shares of stock to certain executive officers in accordance with their respective employment agreements. No stock options were granted in three and nine months ended September 30, 2016 and 2015. Stock compensation expense related to the prior grant of options was $6 thousand and $10 thousand for the three months ended September 30, 2016 and 2015, respectively. Stock compensation expense related to the prior grant of options was $21 thousand and $34 thousand for the nine months ended September 30, 2016 and 2015, respectively. At September 30, 2016, approximately $7 thousand of unrecognized cost related to stock options granted in 2014 will be recognized over the next 0.30 years. The fair value of the options granted in 2014, 2013 and 2012 was determined with the following weighted average assumptions: dividend yield of 0%, risk free interest rate of 2.30%,  1.34% and 1.43%, respectively, expected life of 6.0 years, 6.0 years and 7.5 years, respectively, and expected volatility of 28.93%,  28.79% and 31.10%, respectively. The weighted average fair value of options granted in 2014, 2013 and 2012 was $2.46,  $2.14 and $2.56 per share, respectively.



On July 15, 2016, the Board of Directors of the Company ratified the implementation of the Embassy Bancorp, Inc. Employee Stock Purchase Plan. This plan was approved by the Company’s shareholders at the annual shareholders meeting held on June 16, 2016. Under the plan, each employee of the Company and its subsidiaries who is employed on an offering date and customarily is scheduled to work at least twenty (20) hours per week and more than five (5) months in a calendar year is eligible to participate. Embassy Bancorp, Inc. has authorized 350,000 shares of its common stock for the plan, which will commence January 1, 2017.

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Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 5 – Other Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income (loss).

The components of other comprehensive income (loss), both before tax and net of tax, are as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended September 30,



 

2016

 

2015



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Before

 

Tax

 

Net of

 

Before

 

Tax

 

Net of



 

Tax

 

Effect

 

Tax

 

Tax

 

Effect

 

Tax

Change in accumulated other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains on securities
   available for sale

 

$

(212)

 

$

72 

 

$

(140)

 

$

487 

 

$

(165)

 

$

322 

Reclassification adjustments for gains on securities
   transactions included in net income (A),(B)

 

 

(350)

 

 

119 

 

 

(231)

 

 

(26)

 

 

 

 

(17)

Total other comprehensive (loss) income

 

$

(562)

 

$

191 

 

$

(371)

 

$

461 

 

$

(156)

 

$

305 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended September 30,



 

2016

 

2015



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

Before

 

Tax

 

Net of

 

Before

 

Tax

 

Net of



 

Tax

 

Effect

 

Tax

 

Tax

 

Effect

 

Tax

Change in accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) on securities
   available for sale

 

$

845 

 

$

(287)

 

$

558 

 

$

(40)

 

$

14 

 

$

(26)

Reclassification adjustments for gains on securities
   transactions included in net income (A),(B)

 

 

(350)

 

 

119 

 

 

(231)

 

 

(165)

 

 

56 

 

 

(109)

Total other comprehensive income (loss)

 

$

495 

 

$

(168)

 

$

327 

 

$

(205)

 

$

70 

 

$

(135)



A.

Realized gains on securities transactions included in gain on sales of securities, net, in the accompanying Consolidated Statements of Income.

B.

Tax effect included in income tax expense in the accompanying Consolidated Statements of Income.





A summary of the realized gains on securities available for sale, net of tax, for the three and nine months ended September 30, 2016 and 2015 are as follows:





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

September 30,



 

 

2016

 

 

2015



 

 

 

 

 

 



 

 

(In Thousands)

Securities available for sale:

 

 

 

 

 

 

Realized gains on securities transactions

 

$

(350)

 

$

(26)

Income taxes

 

 

119 

 

 

Net of tax

 

$

(231)

 

$

(17)







 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

 

2016

 

 

2015



 

 

 

 

 

 



 

 

(In Thousands)

Securities available for sale:

 

 

 

 

 

 

Realized gains on securities transactions

 

$

(350)

 

$

(165)

Income taxes

 

 

119 

 

 

56 

Net of tax

 

$

(231)

 

$

(109)

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Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

A summary of the accumulated other comprehensive income, net of tax, is as follows:





















 

 

 



 

 

 



 

Securities



 

Available



 

for Sale

Three Months Ended September 30, 2016 and 2015

 

(In Thousands)

Balance June 30, 2016

 

$

1,934 

Other comprehensive loss before reclassifications

 

 

(140)

Amounts reclassified from accumulated other
   comprehensive income

 

 

(231)

Net other comprehensive loss during the period

 

 

(371)

Balance September 30, 2016

 

$

1,563 



 

 

 

Balance June 30, 2015

 

$

1,025 

Other comprehensive income before reclassifications

 

 

322 

Amounts reclassified from accumulated other
   comprehensive income

 

 

(17)

Net other comprehensive income during the period

 

 

305 

Balance September 30, 2015

 

$

1,330 



 

 

 



 

 

 



 

 

 

Nine Months Ended September 30, 2016 and 2015

 

 

 

Balance January 1, 2016

 

$

1,236 

Other comprehensive income before reclassifications

 

 

558 

Amounts reclassified from accumulated other
   comprehensive income

 

 

(231)

Net other comprehensive income during the period

 

 

327 

Balance September 30, 2016

 

$

1,563 



 

 

 

Balance January 1, 2015

 

$

1,465 

Other comprehensive loss before reclassifications

 

 

(26)

Amounts reclassified from accumulated other
   comprehensive income

 

 

(109)

Net other comprehensive loss during the period

 

 

(135)

Balance September 30, 2015

 

$

1,330