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EX-32 - EX-32 - Embassy Bancorp, Inc.emyb-20170630xex32.htm
EX-31.2 - EX-31.2 - Embassy Bancorp, Inc.emyb-20170630xex31_2.htm
EX-31.1 - EX-31.1 - Embassy Bancorp, Inc.emyb-20170630xex31_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 JUNE 30, 2017 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,  “smaller reporting company” and “emerging growth 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

Emerging growth company    

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



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 August 4, 2017

($1.00 Par Value)

      7,443,902

 

  (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)







 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,

ASSETS

2017

 

2016



(In Thousands, Except Share Data)

Cash and due from banks

$

16,371 

 

$

14,574 

Interest bearing demand deposits with banks

 

21,034 

 

 

8,644 

Federal funds sold

 

1,000 

 

 

1,000 

Cash and Cash Equivalents

 

38,405 

 

 

24,218 

Securities available for sale

 

91,916 

 

 

85,598 

Restricted investment in bank stock

 

583 

 

 

624 

Loans receivable, net of allowance for loan losses of $6,761 in 2017; $6,517 in 2016

 

822,562 

 

 

792,598 

Premises and equipment, net of accumulated depreciation

 

2,023 

 

 

2,109 

Bank owned life insurance

 

12,915 

 

 

12,728 

Accrued interest receivable

 

1,792 

 

 

1,749 

Other real estate owned

 

480 

 

 

480 

Other assets

 

4,233 

 

 

4,129 

Total Assets

$

974,909 

 

$

924,233 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

$

124,945 

 

$

117,208 

Interest bearing

 

756,276 

 

 

716,176 

Total Deposits

 

881,221 

 

 

833,384 

Securities sold under agreements to repurchase

 

9,448 

 

 

11,889 

Accrued interest payable

 

730 

 

 

813 

Other liabilities

 

6,351 

 

 

4,869 

Total Liabilities

 

897,750 

 

 

850,955 

Stockholders' Equity:

 

 

 

 

 

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

 

 

 

 

 

2017 issued 7,459,449 shares; outstanding 7,443,902 shares;

 

 

 

 

 

2016 issued 7,452,462 shares; outstanding 7,443,472 shares;

 

7,459 

 

 

7,453 

Surplus

 

24,742 

 

 

24,603 

Retained earnings

 

44,287 

 

 

41,344 

Accumulated other comprehensive income (loss)

 

866 

 

 

(24)

Treasury stock, at cost:  15,547 shares

 

(195)

 

 

(98)

Total Stockholders' Equity

 

77,159 

 

 

73,278 

Total Liabilities and Stockholders' Equity

$

974,909 

 

$

924,233 









See notes to consolidated financial statements.

3

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Income (Unaudited) 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

 

 

 

 

 

 

 

 

 

 

 



 

2017

 

2016

 

2017

 

 

2016



 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands, Except Per Share Data)

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

7,763 

 

$

6,891 

 

$

15,294 

 

$

13,700 

Securities, taxable

 

 

216 

 

 

221 

 

 

393 

 

 

400 

Securities, non-taxable

 

 

345 

 

 

284 

 

 

660 

 

 

569 

Federal funds sold, and other

 

 

67 

 

 

41 

 

 

101 

 

 

82 

Total Interest Income

 

 

8,391 

 

 

7,437 

 

 

16,448 

 

 

14,751 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

1,051 

 

 

962 

 

 

2,079 

 

 

1,819 

Securities sold under agreements to repurchase

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

 

 

 

 

 

 

31 

Long-term borrowings

 

 

 -

 

 

 -

 

 

 -

 

 

Total Interest Expense

 

 

1,060 

 

 

966 

 

 

2,094 

 

 

1,862 

Net Interest Income

 

 

7,331 

 

 

6,471 

 

 

14,354 

 

 

12,889 

PROVISION FOR LOAN LOSSES

 

 

235 

 

 

70 

 

 

415 

 

 

255 

Net Interest Income after
   Provision for Loan Losses

 

 

7,096 

 

 

6,401 

 

 

13,939 

 

 

12,634 

OTHER NON-INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Credit card processing fees

 

 

466 

 

 

429 

 

 

926 

 

 

843 

Other service fees

 

 

223 

 

 

174 

 

 

428 

 

 

335 

Bank owned life insurance

 

 

86 

 

 

81 

 

 

187 

 

 

129 

Gain on sale of other real estate owned

 

 

 

 

 

 

11 

 

 

15 

Impairment on other real estate owned

 

 

 -

 

 

(80)

 

 

 -

 

 

(80)

Total Other Non-Interest Income

 

 

781 

 

 

609 

 

 

1,552 

 

 

1,242 

OTHER NON-INTEREST EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,117 

 

 

1,951 

 

 

4,352 

 

 

3,921 

Occupancy and equipment

 

 

648 

 

 

681 

 

 

1,298 

 

 

1,356 

Data processing

 

 

494 

 

 

391 

 

 

931 

 

 

780 

Credit card processing

 

 

426 

 

 

396 

 

 

860 

 

 

798 

Advertising and promotion

 

 

373 

 

 

371 

 

 

666 

 

 

695 

Professional fees

 

 

153 

 

 

150 

 

 

304 

 

 

277 

FDIC insurance

 

 

134 

 

 

106 

 

 

253 

 

 

208 

Insurance

 

 

15 

 

 

15 

 

 

31 

 

 

28 

Loan & real estate

 

 

70 

 

 

46 

 

 

123 

 

 

110 

Charitable contributions

 

 

168 

 

 

149 

 

 

426 

 

 

386 

Other real estate owned expenses

 

 

 

 

20 

 

 

20 

 

 

57 

Other

 

 

334 

 

 

400 

 

 

626 

 

 

673 

Total Other Non-Interest Expenses

 

 

4,940 

 

 

4,676 

 

 

9,890 

 

 

9,289 



 

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

2,937 

 

 

2,334 

 

 

5,601 

 

 

4,587 

INCOME TAX EXPENSE

 

 

854 

 

 

670 

 

 

1,616 

 

 

1,315 

Net Income

 

$

2,083 

 

$

1,664 

 

$

3,985 

 

$

3,272 



 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$

0.28 

 

$

0.22 

 

$

0.54 

 

$

0.44 



 

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

 

$

0.28 

 

$

0.22 

 

$

0.53 

 

$

0.44 



 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER SHARE

 

$

0.14 

 

$

0.13 

 

$

0.14 

 

$

0.13 



See notes to consolidated financial statements

4

 


 

Embassy Bancorp, Inc.                                                                                                                          

 



Consolidated Statements of Comprehensive Income (Unaudited)





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Three Months Ended June 30,



2017

 

2016



 

 

 

 

 

 

 

 

 



 

(In Thousands)

Net Income

$

 

 

2,083 

 

$

 

 

1,664 

Change in Accumulated Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

Unrealized holding gain on securities available for sale

 

862 

 

 

 

 

626 

 

 

Less: reclassification adjustment for realized gains

 

 -

 

 

 

 

 -

 

 



 

862 

 

 

 

 

626 

 

 

Income tax effect

 

(294)

 

 

 

 

(212)

 

 

Net unrealized gain

 

568 

 

 

 

 

414 

 

 

Other comprehensive gain, net of tax

 

 

 

568 

 

 

 

 

414 

Comprehensive Income

$

 

 

2,651 

 

$

 

 

2,078 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Six Months Ended June 30,



2017

 

2016



 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

 

 

 

 

 

 

 

 

Net Income

$

 

 

3,985 

 

$

 

 

3,272 

Change in Accumulated Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

Unrealized holding gain on securities available for sale

 

1,350 

 

 

 

 

1,057 

 

 

Less: reclassification adjustment for realized gains

 

 -

 

 

 

 

 -

 

 



 

1,350 

 

 

 

 

1,057 

 

 

Income tax effect

 

(460)

 

 

 

 

(359)

 

 

Net unrealized gain

 

890 

 

 

 

 

698 

 

 

Other comprehensive gain, net of tax

 

 

 

890 

 

 

 

 

698 

Comprehensive Income

$

 

 

4,875 

 

$

 

 

3,970 



See notes to consolidated financial statements.



 

5

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Stockholders’ Equity (Unaudited)



Six Months Ended June 30, 2017 and 2016 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

Surplus

 

Retained Earnings

 

Accumulated Other Comprehensive Income (Loss)

 

Treasury Stock

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(In Thousands, Except Share Data)

BALANCE - DECEMBER 31, 2015

$

7,408 

 

$

24,299 

 

$

35,158 

 

$

1,236 

 

$

 -

 

$

68,101 

Net income

 

 -

 

 

 -

 

 

3,272 

 

 

 -

 

 

 -

 

 

3,272 

Other comprehensive income, net of tax

 

 -

 

 

 -

 

 

 -

 

 

698 

 

 

 -

 

 

698 

Dividend declared, $.13 per share

 

 -

 

 

 -

 

 

(964)

 

 

 -

 

 

 -

 

 

(964)

Compensation expense recognized on 
   stock options

 

 -

 

 

15 

 

 

 -

 

 

 -

 

 

 -

 

 

15 

Common stock grants to directors,
   5,934 shares

 

 

 

57 

 

 

 -

 

 

 -

 

 

 -

 

 

62 

Compensation expense recognized on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 stock grants, net of unearned compensation   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 expense of $234

 

 -

 

 

22 

 

 

 -

 

 

 -

 

 

 -

 

 

22 

BALANCE - JUNE 30, 2016

$

7,413 

 

$

24,393 

 

$

37,466 

 

$

1,934 

 

$

 -

 

$

71,206 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - DECEMBER 31, 2016

$

7,453 

 

$

24,603 

 

$

41,344 

 

$

(24)

 

$

(98)

 

$

73,278 

Net income

 

 -

 

 

 -

 

 

3,985 

 

 

 -

 

 

 -

 

 

3,985 

Other comprehensive income, net of tax

 

 -

 

 

 -

 

 

 -

 

 

890 

 

 

 -

 

 

890 

Dividend declared, $.14 per share

 

 -

 

 

 -

 

 

(1,042)

 

 

 -

 

 

 -

 

 

(1,042)

Compensation expense recognized on 
   stock options

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

Common stock grants to directors,
   5,156 shares

 

 

 

63 

 

 

 -

 

 

 -

 

 

 -

 

 

68 

Compensation expense recognized on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 stock grants, net of unearned compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  expense of $403                                                               

 

 -

 

 

48 

 

 

 -

 

 

 

 

 

 -

 

 

48 

Shares issued under employee stock purchase
   plan, 1,830 shares

 

 

 

25 

 

 

 

 

 

 

 

 

 

 

 

26 

Purchase treasury stock, 6,557 shares
   at $14.80 per share

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(97)

 

 

(97)

BALANCE - JUNE 30, 2017

$

7,459 

 

$

24,742 

 

$

44,287 

 

$

866 

 

$

(195)

 

$

77,159 



See notes to consolidated financial statements.



 

6

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Cash Flows (Unaudited)





 

 

 

 

 



 

 

 

 

 



Six Months Ended June 30,



2017

 

2016



 

 

 

 

 



(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

3,985 

 

$

3,272 

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

 

 

 

 

 

Provision for loan losses

 

415 

 

 

255 

Amortization of deferred loan costs

 

77 

 

 

57 

Depreciation and amortization

 

326 

 

 

374 

Net amortization of investment security premiums and discounts

 

143 

 

 

130 

Stock compensation expense

 

51 

 

 

37 

Net realized gain on sale of other real estate owned

 

(11)

 

 

(15)

Impairment on other real estate owned

 

 -

 

 

80 

Income on bank owned life insurance

 

(187)

 

 

(129)

Increase in accrued interest receivable

 

(43)

 

 

(55)

Increase in other assets

 

(564)

 

 

(657)

(Decrease) increase in accrued interest payable

 

(83)

 

 

209 

Increase in other liabilities

 

519 

 

 

365 

Net Cash Provided by Operating Activities

 

4,628 

 

 

3,923 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of securities available for sale

 

(10,826)

 

 

(15,416)

Maturities, calls and principal repayments of securities available for sale

 

5,715 

 

 

3,717 

Net increase in loans

 

(30,456)

 

 

(41,041)

Net redemption of restricted investment in bank stock

 

41 

 

 

1,554 

Purchases of premises and equipment

 

(240)

 

 

(308)

Net Cash Used in Investing Activities

 

(35,766)

 

 

(51,494)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net increase in deposits

 

47,837 

 

 

114,228 

Net decrease in securities sold under agreements to repurchase

 

(2,441)

 

 

(18,932)

Proceeds from Employee Stock Purchase Plan

 

26 

 

 

 -

Decrease in short-term borrowed funds

 

 -

 

 

(39,306)

Payments of long-term borrowed funds

 

 -

 

 

(3,820)

Acquistion of treasury stock

 

(97)

 

 

 -

Net Cash Provided by Financing Activities

 

45,325 

 

 

52,170 

Net Increase in Cash and Cash Equivalents

 

14,187 

 

 

4,599 

CASH AND CASH EQUIVALENTS - BEGINNING

 

24,218 

 

 

19,526 

CASH AND CASH EQUIVALENTS - ENDING

$

38,405 

 

$

24,125 



 

 

 

 

 

SUPPLEMENTARY CASH FLOWS INFORMATION

 

 

 

 

 

Interest paid

$

2,177 

 

$

1,641 

Income taxes paid

$

1,703 

 

$

1,482 

Other real estate sold through bank financing

$

 -

 

$

523 

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

$

11 

 

$

15 



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 six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.



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, 2016, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2017.  



In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after June 30, 2017 through the date these consolidated financial statements were issued.



Certain amounts in the 2016 financial statements may have been reclassified to conform to 2017 presentation. These reclassifications had no effect on 2016 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, 2016.

 

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



Stock Incentive 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

8

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

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 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 June 30, 2017 there were 293,622 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 June 30, 2017, there have been 90,135  awards granted. No awards were granted during the three months ended June 30, 2017 and 2016. During the six months ended June 30, 2017 and 2016 there were 5,156 and 5,934 awards granted, respectively. During the three months ended June 30, 2017 and 2016 the Company recognized $24 thousand and $10 thousand, respectively, in compensation expense for the restricted stock awards. During the six months ended June 30, 2017 and 2016 the Company recognized $48 thousand and $22 thousand, respectively, in compensation expense for the restricted stock awards. 



In December 2016, January 2014, February 2013 and 2012, the Company granted stock options to purchase 4,227,  29,663,  29,742 and 52,611 shares of stock to certain executive officers under individual agreements and/or in accordance with their respective employment agreements.  No stock options were granted in 2015. Stock compensation expense related to these options was $1 thousand and $6 thousand for the three months ended June 30, 2017 and 2016, respectively.  Stock compensation expense related to these options was $3 thousand and $15 thousand for the six months ended June 30, 2017 and 2016, respectively.  At June 30, 2017,  approximately $11 thousand unrecognized cost related to these stock options granted in 2016 will be recognized over the next 2.47 years, respectively.   The fair value of the options granted in 2016, 2014, 2013 and 2012 was determined with the following weighted average assumptions: dividend yield of 1.03% in 2016 and 0.00% in 2014, 2013 and 2012, respectively, risk free interest rate of 2.35%,  2.30%,  1.34% and 1.43%, respectively, expected life of 6.0 years, 6.0 years, 6.0 years and 7.5 years, respectively, and expected volatility of 25.58%,  28.93%,  28.79% and 31.10%, respectively.  The weighted average fair value of options granted in 2016, 2014, 2013 and 2012 was $3.28,  $2.46,  $2.14 and $2.56 per share, respectively.



Employee Stock Purchase Plan:



On January 1, 2017, the Company implemented the Embassy Bancorp, Inc. Employee Stock Purchase Plan, which was approved by the Company’s shareholders at the annual 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. The purchase price for shares purchased under the plan shall initially equal 95% of the fair market value of such shares on the date of purchase.  The purchase price may be adjusted from time to time by the Board of Directors; provided, however, that the discount to fair market value shall not exceed 15%.  The Company has authorized 350,000 shares of its common stock for the plan, of which 1,830 shares have been issued as of June 30, 2017.



9

 


 

 

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.

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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,



 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Before

 

Tax

 

Net of

 

Before

 

Tax

 

Net of



 

Tax

 

Effect

 

Tax

 

Tax

 

Effect

 

Tax

Change in accumulated other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on securities
   available for sale

 

$

862 

 

$

(294)

 

$

568 

 

$

626 

 

$

(212)

 

$

414 

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

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Total other comprehensive income

 

$

862 

 

$

(294)

 

$

568 

 

$

626 

 

$

(212)

 

$

414 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Six Months Ended June 30,



 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

Before

 

Tax

 

Net of

 

Before

 

Tax

 

Net of



 

Tax

 

Effect

 

Tax

 

Tax

 

Effect

 

Tax

Change in accumulated other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on securities
   available for sale

 

$

1,350 

 

$

(460)

 

$

890 

 

$

1,057 

 

$

(359)

 

$

698 

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

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Total other comprehensive income

 

$

1,350 

 

$

(460)

 

$

890 

 

$

1,057 

 

$

(359)

 

$

698 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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.





There were no realized gains on securities available for sale for the three and six months ended June 30, 2017 and 2016.







10

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

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









































 

 

 



 

 

 



 

Securities



 

Available



 

for Sale

Three Months Ended June 30, 2017 and 2016

 

(In Thousands)

Balance March 31, 2017

 

$

298 

Other comprehensive income before reclassifications

 

 

568 

Amounts reclassified from accumulated other
   comprehensive income

 

 

 -

Net other comprehensive income during the period

 

 

568 

Balance June 30, 2017

 

$

866 



 

 

 

Balance March 31, 2016

 

$

1,520 

Other comprehensive income before reclassifications

 

 

414 

Amounts reclassified from accumulated other
   comprehensive income

 

 

 -

Net other comprehensive income during the period

 

 

414 

Balance June 30, 2016

 

$

1,934 



 

 

 



 

 

 



 

 

 

Six Months Ended June 30, 2017 and 2016

 

 

 

Balance January 1, 2017

 

$

(24)

Other comprehensive income before reclassifications

 

 

890 

Amounts reclassified from accumulated other
   comprehensive income

 

 

 -

Net other comprehensive income during the period

 

 

890 

Balance June 30, 2017

 

$

866 



 

 

 

Balance January 1, 2016

 

$

1,236 

Other comprehensive income before reclassifications

 

 

698 

Amounts reclassified from accumulated other
   comprehensive income

 

 

 -

Net other comprehensive income during the period

 

 

698 

Balance June 30, 2016

 

$

1,934 



 

 

 















11

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 



Note 6 – Basic and Diluted Earnings per Share



Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period, as adjusted for stock dividends and splits. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Three Months Ended

 

Six Months Ended



 

 

June 30,

 

June 30,



 

 

2017

 

2016

 

2017

 

2016



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

(Dollars In Thousands, Except Share and Per Share Data)



Net income

 

$

2,083 

 

$

1,664 

 

$

3,985 

 

$

3,272 



 

 

 

 

 

 

 

 

 

 

 

 

 



Weighted average shares outstanding

 

 

7,447,830 

 

 

7,413,482 

 

 

7,446,894 

 

 

7,412,438 



Dilutive effect of potential common shares, stock options

 

 

57,213 

 

 

33,744 

 

 

57,175 

 

 

33,325 



Diluted weighted average common shares outstanding

 

 

7,505,043 

 

 

7,447,226 

 

 

7,504,069 

 

 

7,445,763 



 

 

 

 

 

 

 

 

 

 

 

 

 



Basic earnings per share

 

$

0.28 

 

$

0.22 

 

$

0.54 

 

$

0.44 



Diluted earnings per share

 

$

0.28 

 

$

0.22 

 

$

0.53 

 

$

0.44 



 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options of 4,227 were not considered in computing diluted earnings per common share for the three and six months ended June 30, 2017. There were no stock options not considered in computing diluted earnings per common share for the three and six months ended June 30, 2016.



Note 7 – Guarantees



The Company, through the Bank, does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments. The Company had $4.1 million of standby letters of credit outstanding as of June 30, 2017. The approximate value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $3.7 million. Management does not consider the current amount of the liability as of June 30, 2017 for guarantees under standby letters of credit issued to be material.  



Note 8 – Short-term and Long-term Borrowings



Securities sold under agreements to repurchase, federal funds purchased and FHLB short term advances generally represent overnight or less than twelve month borrowings. Long term advances from the FHLB are for periods of twelve months or more and are generally less than sixty months. The Bank has an agreement with the FHLB which allows for borrowings up to a percentage of qualifying assets. At June 30, 2017, the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $482.1 million.  This borrowing capacity with the FHLB includes a line of credit of $150.0 million. There were no short-term or long-term FHLB advances outstanding as of June 30, 2017 and December 31, 2016.  All FHLB borrowings are secured by qualifying assets of the Bank.



The Bank has a federal funds line of credit with the Atlantic Community Bankers Bank (“ACBB”) of $10.0 million, of which none was outstanding at June 30, 2017 and December 31, 2016. Advances from this line are unsecured.















12

 


 

 

Embassy Bancorp, Inc.