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EX-32 - EX-32 - Embassy Bancorp, Inc.emyb-20180930xex32.htm
EX-31.2 - EX-31.2 - Embassy Bancorp, Inc.emyb-20180930xex31_2.htm
EX-31.1 - EX-31.1 - Embassy Bancorp, Inc.emyb-20180930xex31_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, 2018 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 every Interactive Data File required to be submitted 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 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  

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 November 1, 2018

($1.00 Par Value)

      7,477,500

 

  (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

27 

 

 

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

2018

 

2017



 

 

 

 

 



(In Thousands, Except Share Data)

Cash and due from banks

$

16,528 

 

$

14,021 

Interest bearing demand deposits with banks

 

16,783 

 

 

18,513 

Federal funds sold

 

1,000 

 

 

1,000 

Cash and Cash Equivalents

 

34,311 

 

 

33,534 

Securities available for sale

 

87,130 

 

 

90,296 

Restricted investment in bank stock

 

2,671 

 

 

583 

Loans receivable, net of allowance for loan losses of $7,533 in 2018; $7,040 in 2017

 

924,161 

 

 

851,711 

Premises and equipment, net of accumulated depreciation

 

1,916 

 

 

1,929 

Bank owned life insurance

 

19,524 

 

 

13,186 

Accrued interest receivable

 

2,110 

 

 

1,983 

Other real estate owned

 

480 

 

 

458 

Other assets

 

4,494 

 

 

3,286 

Total Assets

$

1,076,797 

 

$

996,966 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

$

146,583 

 

$

139,974 

Interest bearing

 

769,493 

 

 

760,880 

Total Deposits

 

916,076 

 

 

900,854 

Securities sold under agreements to repurchase

 

17,875 

 

 

9,999 

Short-term borrowings

 

50,921 

 

 

 -

Accrued interest payable

 

1,296 

 

 

874 

Other liabilities

 

6,248 

 

 

5,470 

Total Liabilities

 

992,416 

 

 

917,197 

Stockholders' Equity:

 

 

 

 

 

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

 

 

 

 

 

2018 issued 7,512,547 shares; outstanding 7,487,200 shares;

 

 

 

 

 

2017 issued 7,491,692 shares; outstanding 7,466,345 shares;

 

7,513 

 

 

7,492 

Surplus

 

25,491 

 

 

24,998 

Retained earnings

 

53,898 

 

 

47,602 

Accumulated other comprehensive (loss) income

 

(2,179)

 

 

19 

Treasury stock, at cost:  25,347 shares

 

(342)

 

 

(342)

Total Stockholders' Equity

 

84,381 

 

 

79,769 

Total Liabilities and Stockholders' Equity

$

1,076,797 

 

$

996,966 





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,

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



2018

 

2017

 

2018

 

 

2017

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



(In Thousands, Except Per Share Data)

 

 

INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

$

9,224 

 

$

8,075 

 

$

26,277 

 

$

23,369 

 

 

Securities, taxable

 

328 

 

 

246 

 

 

961 

 

 

639 

 

 

Securities, non-taxable

 

312 

 

 

323 

 

 

942 

 

 

983 

 

 

Federal funds sold, and other

 

99 

 

 

117 

 

 

232 

 

 

218 

 

 

Total Interest Income

 

9,963 

 

 

8,761 

 

 

28,412 

 

 

25,209 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

1,469 

 

 

1,094 

 

 

3,857 

 

 

3,173 

 

 

Securities sold under agreements to repurchase

 

11 

 

 

 

 

23 

 

 

 

 

Short-term borrowings

 

204 

 

 

 -

 

 

340 

 

 

 

 

Total Interest Expense

 

1,684 

 

 

1,097 

 

 

4,220 

 

 

3,191 

 

 

Net Interest Income

 

8,279 

 

 

7,664 

 

 

24,192 

 

 

22,018 

 

 

PROVISION FOR LOAN LOSSES

 

60 

 

 

320 

 

 

540 

 

 

735 

 

 

Net Interest Income after
   Provision for Loan Losses

 

8,219 

 

 

7,344 

 

 

23,652 

 

 

21,283 

 

 

OTHER NON-INTEREST INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit card processing fees

 

78 

 

 

444 

 

 

260 

 

 

1,370 

 

 

Debit card interchange fees

 

133 

 

 

111 

 

 

391 

 

 

323 

 

 

Other service fees

 

121 

 

 

108 

 

 

340 

 

 

324 

 

 

Bank owned life insurance

 

157 

 

 

115 

 

 

338 

 

 

302 

 

 

Gain on sale of securities, net

 

 -

 

 

19 

 

 

 -

 

 

19 

 

 

(Loss) gain on sale of other real estate owned

 

 -

 

 

 

 

(16)

 

 

16 

 

 

Impairment on other real estate owned

 

(56)

 

 

 -

 

 

(83)

 

 

 -

 

 

Total Other Non-Interest Income

 

433 

 

 

802 

 

 

1,230 

 

 

2,354 

 

 

OTHER NON-INTEREST EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

2,472 

 

 

2,177 

 

 

7,319 

 

 

6,529 

 

 

Occupancy and equipment

 

794 

 

 

665 

 

 

2,216 

 

 

1,963 

 

 

Data processing

 

588 

 

 

493 

 

 

1,632 

 

 

1,424 

 

 

Credit card processing

 

24 

 

 

406 

 

 

90 

 

 

1,266 

 

 

Advertising and promotion

 

458 

 

 

381 

 

 

1,282 

 

 

1,047 

 

 

Professional fees

 

193 

 

 

149 

 

 

590 

 

 

453 

 

 

FDIC insurance

 

115 

 

 

124 

 

 

326 

 

 

377 

 

 

Insurance

 

14 

 

 

14 

 

 

42 

 

 

45 

 

 

Loan & real estate

 

96 

 

 

62 

 

 

286 

 

 

185 

 

 

Charitable contributions

 

194 

 

 

169 

 

 

660 

 

 

595 

 

 

Other real estate owned expenses

 

38 

 

 

23 

 

 

86 

 

 

43 

 

 

Other

 

389 

 

 

330 

 

 

1,089 

 

 

956 

 

 

Total Other Non-Interest Expenses

 

5,375 

 

 

4,993 

 

 

15,618 

 

 

14,883 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

3,277 

 

 

3,153 

 

 

9,264 

 

 

8,754 

 

 

INCOME TAX EXPENSE

 

597 

 

 

920 

 

 

1,697 

 

 

2,536 

 

 

Net Income

$

2,680 

 

$

2,233 

 

$

7,567 

 

$

6,218 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

$

0.36 

 

$

0.30 

 

$

1.01 

 

$

0.84 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

$

0.35 

 

$

0.30 

 

$

1.00 

 

$

0.83 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER SHARE

$

0.17 

 

$

0.14 

 

$

0.17 

 

$

0.14 

 

 



See notes to consolidated financial statements

4

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Comprehensive Income (Unaudited)



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Three Months Ended September 30,



2018

 

2017



 

 

 

 

 

 

 

 

 



 

(In Thousands)

Net Income

$

 

 

2,680 

 

$

 

 

2,233 

Change in Accumulated Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

Unrealized holding loss on securities available for sale

 

(783)

 

 

 

 

(162)

 

 

Less: reclassification adjustment for realized gains

 

 -

 

 

 

 

(19)

 

 



 

(783)

 

 

 

 

(181)

 

 

Income tax effect

 

164 

 

 

 

 

62 

 

 

Net unrealized loss

 

(619)

 

 

 

 

(119)

 

 

Other comprehensive loss, net of tax

 

 

 

(619)

 

 

 

 

(119)

Comprehensive Income

$

 

 

2,061 

 

$

 

 

2,114 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



Nine Months Ended September 30,



2018

 

2017



 

 

 

 

 

 

 

 

 



 

(In Thousands)



 

 

 

 

 

 

 

 

 

Net Income

$

 

 

7,567 

 

$

 

 

6,218 

Change in Accumulated Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

Unrealized holding (loss) gain on securities available for sale

 

(2,782)

 

 

 

 

1,188 

 

 

Less: reclassification adjustment for realized gains

 

 -

 

 

 

 

(19)

 

 



 

(2,782)

 

 

 

 

1,169 

 

 

Income tax effect

 

584 

 

 

 

 

(398)

 

 

Net unrealized (loss) gain

 

(2,198)

 

 

 

 

771 

 

 

Other comprehensive (loss) income, net of tax

 

 

 

(2,198)

 

 

 

 

771 

Comprehensive Income

$

 

 

5,369 

 

$

 

 

6,989 



See notes to consolidated financial statements.



 

5

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Stockholders’ Equity (Unaudited)



Nine Months Ended September 30, 2018 and 2017 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Common Stock

 

Surplus

 

Retained Earnings

 

Accumulated Other Comprehensive (Loss) Income

 

Treasury Stock

 

Total



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



(In Thousands, Except Share Data)

BALANCE - DECEMBER 31, 2016

$

7,453 

 

$

24,603 

 

$

41,344 

 

$

(24)

 

$

(98)

 

$

73,278 

Net income

 

 -

 

 

 -

 

 

6,218 

 

 

 -

 

 

 -

 

 

6,218 

Other comprehensive income, net of tax

 

 -

 

 

 -

 

 

 -

 

 

771 

 

 

 -

 

 

771 

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 $379

 

 -

 

 

72 

 

 

 -

 

 

 -

 

 

 -

 

 

72 

Shares issued under employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  plan, 2,820 shares

 

 

 

38 

 

 

 -

 

 

 -

 

 

 -

 

 

41 

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

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(97)

 

 

(97)

Shares issued under Dividend Reinvestment
   and Stock Purchase Plan, 14,091 shares

 

14 

 

 

196 

 

 

 

 

 

 

 

 

 

 

 

210 

BALANCE - SEPTEMBER 30, 2017

$

7,475 

 

$

24,977 

 

$

46,520 

 

$

747 

 

$

(195)

 

$

79,524 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - DECEMBER 31, 2017

$

7,492 

 

$

24,998 

 

$

47,602 

 

$

19 

 

$

(342)

 

$

79,769 

Net income

 

 -

 

 

 -

 

 

7,567 

 

 

 -

 

 

 -

 

 

7,567 

Other comprehensive loss, net of tax

 

 -

 

 

 -

 

 

 -

 

 

(2,198)

 

 

 -

 

 

(2,198)

Dividend declared, $.17 per share

 

 -

 

 

 -

 

 

(1,271)

 

 

 -

 

 

 -

 

 

(1,271)

Compensation expense recognized on 
   stock options

 

 -

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

Common stock grants to directors,
   6,731 shares

 

 

 

105 

 

 

 -

 

 

 -

 

 

 -

 

 

111 

Compensation expense recognized on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 stock grants, net of unearned compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  expense of $459                                          

 

 -

 

 

151 

 

 

 -

 

 

 -

 

 

 -

 

 

151 

Shares issued under employee stock purchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  plan, 2,525 shares

 

 

 

40 

 

 

 -

 

 

 -

 

 

 -

 

 

43 

Shares issued under Dividend Reinvestment
   and Stock Purchase Plan, 11,599 shares

 

12 

 

 

194 

 

 

 

 

 

 

 

 

 

 

 

206 

BALANCE - SEPTEMBER 30, 2018

$

7,513 

 

$

25,491 

 

$

53,898 

 

$

(2,179)

 

$

(342)

 

$

84,381 



See notes to consolidated financial statements.



 

6

 


 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Cash Flows (Unaudited)





 

 

 

 

 



 

 

 

 

 



Nine Months Ended September 30,



2018

 

2017



 

 

 

 

 



(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

7,567 

 

$

6,218 

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

 

 

 

 

 

Provision for loan losses

 

540 

 

 

735 

Amortization of deferred loan costs

 

163 

 

 

55 

Depreciation and amortization

 

557 

 

 

494 

Net amortization of investment security premiums and discounts

 

138 

 

 

203 

Stock compensation expense

 

154 

 

 

77 

Net realized loss (gain) on sale of other real estate owned

 

18 

 

 

(16)

Impairment on other real estate owned

 

83 

 

 

 -

Income on bank owned life insurance

 

(338)

 

 

(302)

Net realized gain on sale of securities available for sale

 

 -

 

 

(19)

Increase in accrued interest receivable

 

(127)

 

 

(84)

Increase in other assets

 

(624)

 

 

(336)

Increase (decrease) in accrued interest payable

 

422 

 

 

(32)

Increase in other liabilities

 

889 

 

 

776 

Net Cash Provided by Operating Activities

 

9,442 

 

 

7,769 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of securities available for sale

 

(9,793)

 

 

(36,348)

Maturities, calls and principal repayments of securities available for sale

 

10,039 

 

 

11,615 

Proceeds from sales of securities available for sale

 

 -

 

 

14,920 

Net increase in loans

 

(73,492)

 

 

(39,371)

Net (purchase) redemption of restricted investment in bank stock

 

(2,088)

 

 

41 

Purchase of bank owned life insurance

 

(6,000)

 

 

 -

Proceeds from sale of other real estate owned

 

216 

 

 

53 

Purchases of premises and equipment

 

(544)

 

 

(322)

Net Cash Used in Investing Activities

 

(81,662)

 

 

(49,412)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net increase in deposits

 

15,222 

 

 

59,827 

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

 

7,876 

 

 

(1,694)

Proceeds from shares issued under employee stock purchase plan

 

43 

 

 

41 

Increase in short-term borrowed funds

 

50,921 

 

 

 -

Acquisition of treasury stock

 

 -

 

 

(97)

Proceeds from Dividend Reinvestment Plan

 

206 

 

 

210 

Dividends paid

 

(1,271)

 

 

(1,042)

Net Cash Provided by Financing Activities

 

72,997 

 

 

57,245 

Net Increase in Cash and Cash Equivalents

 

777 

 

 

15,602 

CASH AND CASH EQUIVALENTS - BEGINNING

 

33,534 

 

 

24,218 

CASH AND CASH EQUIVALENTS - ENDING

$

34,311 

 

$

39,820 



 

 

 

 

 

SUPPLEMENTARY CASH FLOWS INFORMATION

 

 

 

 

 

Interest paid

$

3,798 

 

$

3,223 



 

 

 

 

 

Income taxes paid

$

1,903 

 

$

2,530 



 

 

 

 

 

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

$

 

$

16 



 

 

 

 

 

Other real estate acquired in settlement of loans

$

339 

 

$

 -



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, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.



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, 2017, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 15, 2018.



In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2018 through the date these consolidated financial statements were issued.



Certain amounts in the 2017 consolidated financial statements may have been reclassified to conform to 2018 presentation. These reclassifications had no effect on 2017 net income.





Note 2 - Summary of Significant Accounting Policies



Except as discussed in the following paragraphs, 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, 2017.



On January 1, 2018 the Company adopted ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue, establishing principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle of ASU 2014-09 requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. ASU 2014-09 establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. The guidance does not apply to revenue associated with financial instruments, including loans and investment securities that are accounted for under other GAAP, which comprises a significant portion of the Company’s revenue stream. ASU 2014-09 had no material effect on the Company’s revenue recognition or to its consolidated financial statements and disclosures.



The majority of the Company’s revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as its loans, letters of credit and investment securities, as these activities are subject to other GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of ASC 606, which are presented in the consolidated statement of income as components of non-interest income, are credit card processing fees, debit card interchange fees, other service fees on deposit accounts, and gains and losses on other real estate owned. Credit card processing fees include income from commercial credit cards and merchant processing income. Income for such performance obligations are generally received at the time the performance obligations are satisfied or within the monthly service period. Service fees on deposit accounts represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual

8

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). The Company recognizes debit card interchange fees daily from debit cardholder transactions conducted through the MasterCard payment network. The Company records a gain or loss from the sale of other real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of other real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.  Once these criteria are met, the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction prices and related gain or loss on the sale if a significant financing component is present. The Company does not sell its mortgages on the secondary market, nor does it offer trust or investment brokerage services to its customers to generate fee income.



On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10).  ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. In accordance with (5) above, the Company measured the fair value of its loan portfolio as of September 30, 2018 using an exit price notion. ASU 2016-01 had no material effect on the Company’s financial condition or results of operations.

 

Note 3 – Securities Available For Sale



At September 30, 2018 and December 31, 2017, respectively, the amortized cost and approximate fair values of securities available-for-sale were as follows:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



 

 

 

Gross

 

Gross

 

 

 



Amortized

 

Unrealized

 

Unrealized

 

Fair



Cost

 

Gains

 

Losses

 

Value



 

 

 

 

 

 

 

 

 

 

 



(In Thousands)

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

6,008 

 

$

 -

 

$

(19)

 

$

5,989 

Municipal bonds

 

35,759 

 

 

475 

 

 

(1,277)

 

 

34,957 

U.S. Government Sponsored Enterprise (GSE) -
   Mortgage-backed securities - residential

 

48,121 

 

 

39 

 

 

(1,976)

 

 

46,184 

Total

$

89,888 

 

$

514 

 

$

(3,272)

 

$

87,130 



 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

10,039 

 

$

 -

 

$

(51)

 

$

9,988 

Municipal bonds

 

37,701 

 

 

1,089 

 

 

(469)

 

 

38,321 

U.S. Government Sponsored Enterprise (GSE) -
   Mortgage-backed securities - residential

 

42,532 

 

 

80 

 

 

(625)

 

 

41,987 

Total

$

90,272 

 

$

1,169 

 

$

(1,145)

 

$

90,296 



9

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

The amortized cost and fair value of securities as of September 30, 2018, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without any penalties.





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Amortized

 

 

Fair

 



 

 

Cost

 

 

Value

 



 

 

 

 

 

 

 



 

(In Thousands)

 

Due in one year or less

 

$

7,547 

 

$

7,551 

 

Due after one year through five years

 

 

5,461 

 

 

5,528 

 

Due after five years through ten years

 

 

8,576 

 

 

8,184 

 

Due after ten years

 

 

20,183 

 

 

19,683 

 



 

 

41,767 

 

 

40,946 

 

U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential

 

 

48,121 

 

 

46,184 

 



 

$

89,888 

 

$

87,130 

 



 

 

 

 

 

 

 

There were no sales of securities for the three and nine months ended September 30, 2018. Gross gains of $19 thousand were realized on the sales of securities for the three and nine months ended September 30, 2017, respectively.  There were no gross losses on the sales of securities during the three and nine months ended September 30, 2018 and 2017.



Securities with a carrying value of $82.8 million and $87.3 million at September 30, 2018 and December 31, 2017, respectively, were subject to agreements to repurchase, pledged to secure public deposits, or pledged for other purposes required or permitted by law.



The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2018 and December 31, 2017, respectively:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Less Than 12 Months

 

 

12 Months or More

 

 

Total



Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses



 

(In Thousands)

September 30, 2018

 

U.S. Government agency obligations

$

1,000 

 

$

 -

 

$

4,989 

 

$

(19)

 

$

5,989 

 

$

(19)

Municipal bonds

 

6,473 

 

 

(361)

 

 

6,714 

 

 

(916)

 

 

13,187 

 

 

(1,277)

U.S. Government Sponsored Enterprise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (GSE) - Mortgage -backed securities -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  residential 

 

15,096 

 

 

(333)

 

 

30,543 

 

 

(1,643)

 

 

45,639 

 

 

(1,976)

Total Temporarily Impaired Securities

$

22,569 

 

$

(694)

 

$

42,246 

 

$

(2,578)

 

$

64,815 

 

$

(3,272)



 

.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

7,003 

 

$

(24)

 

$

2,985 

 

$

(27)

 

$

9,988 

 

$

(51)

Municipal bonds

 

2,415 

 

 

(77)

 

 

6,235 

 

 

(392)

 

 

8,650 

 

 

(469)

U.S. Government Sponsored Enterprise

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (GSE) - Mortgage -backed securities -