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Embassy Bancorp, Inc. - Quarter Report: 2012 September (Form 10-Q)

 

THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON NOVEMBER 15, 2012 PURSUANT TO A  RULE 201 TEMPORARY HARDSHIP EXEMPTION.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012 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 000-1449794

 

 

 

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

(Issuer’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  x 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 x  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 x

 

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

 

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 9, 2012

($1.00 Par Value)

       7,229,879

 

  (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

25 

 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

35 

 

 

Item 4 – Controls and Procedures

35 

 

 

Part II - Other Information

36 

 

 

Item 1 - Legal Proceedings

36 

 

 

Item 1A - Risk Factors

36 

 

 

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

36 

 

 

Item 3 - Defaults Upon Senior Securities

36 

 

 

   Item 4 – Mine Safety Disclosures

36 

 

 

Item 5 - Other Information

36 

 

 

Item 6 - Exhibits

36 

EXHIBIT 31.1

   

EXHIBIT 31.2

   

EXHIBIT 32

   

 

2

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Part I – Financial Information

 

Item 1 – Financial Statements

 

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

ASSETS

2012

 

2011

 

 

 

 

 

 

 

(In Thousands, Except Share and Per Share Data)

Cash and due from banks

$

15,825 

 

$

12,039 

Interest bearing demand deposits with banks

 

33,335 

 

 

33,605 

Federal funds sold

 

1,904 

 

 

491 

 

 

 

 

 

 

Cash and Cash Equivalents

 

51,064 

 

 

46,135 

 

 

 

 

 

 

Interest bearing time deposits

 

5,906 

 

 

7,698 

Securities available for sale

 

98,661 

 

 

92,110 

Restricted investment in bank stock

 

1,454 

 

 

1,641 

Loans receivable, net of allowance for loan losses of $4,820 in 2012; $4,215 in 2011

 

478,959 

 

 

419,126 

Premises and equipment, net of accumulated depreciation

 

2,122 

 

 

2,095 

Accrued interest receivable

 

1,747 

 

 

1,568 

Other real estate owned

 

2,869 

 

 

3,388 

Other assets

 

1,998 

 

 

1,719 

 

 

 

 

 

 

Total Assets

$

644,780 

 

$

575,480 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits:

 

 

 

 

 

Non-interest bearing

$

48,154 

 

$

38,386 

Interest bearing

 

495,253 

 

 

443,389 

 

 

 

 

 

 

Total Deposits

 

543,407 

 

 

481,775 

 

 

 

 

 

 

Securities sold under agreements to repurchase

 

36,971 

 

 

33,953 

Long-term borrowings

 

12,786 

 

 

13,086 

Accrued interest payable

 

391 

 

 

582 

Other liabilities

 

2,484 

 

 

1,751 

 

 

 

 

 

 

Total Liabilities

 

596,039 

 

 

531,147 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

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

 

 

 

 

 

2012 issued 7,229,879 shares; outstanding 7,229,879 shares;

 

 

 

 

 

2011 issued 7,171,551 shares; outstanding 7,171,198 shares

 

7,230 

 

 

7,171 

Surplus

 

23,100 

 

 

22,872 

Retained earnings

 

15,789 

 

 

11,905 

Accumulated other comprehensive income

 

2,622 

 

 

2,388 

Treasury stock, at cost, 2011:  353 shares

 

 -

 

 

(3)

 

 

 

 

 

 

Total Stockholders' Equity

 

48,741 

 

 

44,333 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

$

644,780 

 

$

575,480 

 

 

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,

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME

(In Thousands, Except Per Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable, including fees

 

$

5,490 

 

$

5,378 

 

$

16,196 

 

$

15,532 

Securities, taxable

 

 

329 

 

 

379 

 

 

969 

 

 

1,280 

Securities, non-taxable

 

 

344 

 

 

285 

 

 

1,000 

 

 

781 

Federal funds sold, and other

 

 

26 

 

 

 

 

79 

 

 

21 

Interest on time deposits

 

 

23 

 

 

29 

 

 

76 

 

 

90 

Total Interest Income

 

 

6,212 

 

 

6,077 

 

 

18,320 

 

 

17,704 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

790 

 

 

1,010 

 

 

2,658 

 

 

3,035 

Securities sold under agreements to repurchase and federal funds purchased

 

 

10 

 

 

38 

 

 

53 

 

 

136 

Long-term borrowings

 

 

176 

 

 

186 

 

 

528 

 

 

556 

Total Interest Expense

 

 

976 

 

 

1,234 

 

 

3,239 

 

 

3,727 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

 

5,236 

 

 

4,843 

 

 

15,081 

 

 

13,977 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR LOAN LOSSES

 

 

235 

 

 

238 

 

 

810 

 

 

541 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Income after

 

 

 

 

 

 

 

 

 

 

 

 

    Provision for Loan Losses

 

 

5,001 

 

 

4,605 

 

 

14,271 

 

 

13,436 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit card processing fees

 

 

282 

 

 

243 

 

 

848 

 

 

702 

Other service fees

 

 

119 

 

 

109 

 

 

337 

 

 

318 

Gain on sale of securities, net

 

 

633 

 

 

487 

 

 

633 

 

 

487 

Loss on sale of other real estate owned

 

 

 -

 

 

 -

 

 

(8)

 

 

 -

Impairment on other real estate owned

 

 

(100)

 

 

 -

 

 

(200)

 

 

 -

Total Other Income

 

 

934 

 

 

839 

 

 

1,610 

 

 

1,507 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,406 

 

 

1,369 

 

 

4,320 

 

 

4,136 

Occupancy and equipment

 

 

579 

 

 

532 

 

 

1,736 

 

 

1,626 

Data processing

 

 

300 

 

 

231 

 

 

839 

 

 

738 

Credit card processing

 

 

258 

 

 

231 

 

 

751 

 

 

674 

Advertising and promotion

 

 

241 

 

 

233 

 

 

665 

 

 

650 

Professional fees

 

 

149 

 

 

123 

 

 

398 

 

 

294 

FDIC insurance

 

 

101 

 

 

169 

 

 

289 

 

 

509 

Insurance

 

 

14 

 

 

13 

 

 

38 

 

 

41 

Loan & Real Estate

 

 

58 

 

 

43 

 

 

161 

 

 

137 

Charitable Contributions

 

 

112 

 

 

95 

 

 

365 

 

 

306 

Other real estate owned

 

 

14 

 

 

23 

 

 

58 

 

 

73 

Other

 

 

132 

 

 

262 

 

 

474 

 

 

537 

Total Other Expenses

 

 

3,364 

 

 

3,324 

 

 

10,094 

 

 

9,721 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

2,571 

 

 

2,120 

 

 

5,787 

 

 

5,222 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

750 

 

 

637 

 

 

1,615 

 

 

1,514 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

1,821 

 

$

1,483 

 

$

4,172 

 

$

3,708 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$

0.25 

 

$

0.21 

 

$

0.58 

 

$

0.52 

 

 

 

 

 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER SHARE

 

$

0.25 

 

$

0.21 

 

$

0.58 

 

$

0.51 

 

 

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS PER SHARE

 

$

0.04 

 

$

0.03 

 

$

0.04 

 

$

0.03 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

4

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Comprehensive Income (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

1,821 

 

 

$

1,483 

Other Comprehensive income:

 

 

 

 

 

 

 

 

Unrealized holding gains on securities available for sale

 

523 

 

 

 

750 

 

 

Less: reclassification adjustment for realized gains

 

(633)

 

 

 

(487)

 

 

 

 

(110)

 

 

 

263 

 

 

Income tax effect

 

37 

 

 

 

(89)

 

 

Net unrealized (losses) gains

 

(73)

 

 

 

174 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive (expense) income, net of tax

 

 

 

(73)

 

 

 

174 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

$

1,748 

 

 

$

1,657 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

4,172 

 

 

$

3,708 

Other Comprehensive income:

 

 

 

 

 

 

 

 

Unrealized holding gains on securities available for sale

 

988 

 

 

 

2,998 

 

 

Less: reclassification adjustment for realized gains

 

(633)

 

 

 

(487)

 

 

 

 

355 

 

 

 

2,511 

 

 

Income tax effect

 

(121)

 

 

 

(853)

 

 

Net unrealized gains

 

234 

 

 

 

1,658 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive income, net of tax

 

 

 

234 

 

 

 

1,658 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

 

$

4,406 

 

 

$

5,366 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements.

 

 

5

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Stockholders’ Equity (Unaudited)

 

Nine Months Ended September 30, 2012 and 2011 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Common

 

 

 

 

Retained

 

Comprehensive

 

Treasury

 

 

 

 

Stock

 

Surplus

 

Earnings

 

Income

 

Stock

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands, Except Share Data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - DECEMBER 31, 2010

$

7,157 

 

$

22,303 

 

$

6,976 

 

$

296 

 

$

(3)

 

$

36,729 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

3,708 

 

 

 -

 

 

 -

 

 

3,708 

Net change in unrealized gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on securities available for sale, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 of reclassification adjustment and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 income tax effects

 

 -

 

 

 -

 

 

 -

 

 

1,658 

 

 

 -

 

 

1,658 

Dividend declared, $0.03 per share

 

 -

 

 

 -

 

 

(215)

 

 

 

 

 

 

 

 

(215)

Exercise of stock options, 34,119 shares

 

34 

 

 

80 

 

 

 -

 

 

 -

 

 

 -

 

 

114 

Stock tendered for funding exercise of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

options, 19,925 shares

 

(20)

 

 

(113)

 

 

 -

 

 

 -

 

 

 -

 

 

(133)

Tax benefit of stock options exercised

 

 

 

 

602 

 

 

 

 

 

 

 

 

 

 

 

602 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - SEPTEMBER 30, 2011

$

7,171 

 

$

22,872 

 

$

10,469 

 

$

1,954 

 

$

(3)

 

$

42,463 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance -  December 31, 2011

$

7,171 

 

$

22,872 

 

$

11,905 

 

$

2,388 

 

$

(3)

 

$

44,333 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 -

 

 

 -

 

 

4,172 

 

 

 -

 

 

 -

 

 

4,172 

Net change in unrealized gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 on securities available for sale, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 of reclassification adjustment and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 income tax effects

 

 -

 

 

 -

 

 

 -

 

 

234 

 

 

 -

 

 

234 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividend declared, $.04 per share

 

 -

 

 

 -

 

 

(288)

 

 

 -

 

 

 -

 

 

(288)

Exercise of stock options, 40,432 shares

 

41 

 

 

115 

 

 

 -

 

 

 -

 

 

 -

 

 

156 

Exercise of stock options,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasury issued 353 shares

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

Tax benefit of stock options exercised

 

 -

 

 

14 

 

 

 -

 

 

 -

 

 

 -

 

 

14 

Stock tendered for funding exercise of stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

options, 10,481 shares

 

(10)

 

 

(63)

 

 

 -

 

 

 -

 

 

 -

 

 

(73)

Compensation expense recognized on

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock options

 

 -

 

 

28 

 

 

 -

 

 

 -

 

 

 -

 

 

28 

Common stock grants to directors, 7,992 shares

 

 

 

48 

 

 

 -

 

 

 -

 

 

 -

 

 

56 

Shares issued under Dividend Reinvestment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and Stock Purchase Plan, 20,385 shares

 

20 

 

 

86 

 

 

 -

 

 

 -

 

 

 -

 

 

106 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE - SEPTEMBER 30, 2012

$

7,230 

 

$

23,100 

 

$

15,789 

 

$

2,622 

 

$

 -

 

$

48,741 

 

See notes to consolidated financial statements.

 

 

6

 


 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2012

 

2011

 

 

 

 

 

 

 

(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

$

4,172 

 

$

3,708 

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

 

 

 

 

 

Provision for loan losses

 

810 

 

 

541 

Accretion of deferred loan costs

 

(50)

 

 

(22)

Depreciation and amortization

 

466 

 

 

470 

Net amortization of investment security premiums and discounts

 

302 

 

 

254 

Stock compensation expense

 

28 

 

 

 -

Net realized loss on sale of other real estate owned

 

 

 

 -

Impairment on other real estate owned

 

200 

 

 

 -

Net realized gain on sale of securities available for sale

 

(633)

 

 

(487)

Increase in accrued interest receivable

 

(179)

 

 

(115)

(Increase) decrease in other assets

 

(279)

 

 

15 

Decrease in accrued interest payable

 

(191)

 

 

(289)

Increase in other liabilities

 

668 

 

 

1,519 

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

5,322 

 

 

5,594 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Purchases of securities available for sale

 

(19,670)

 

 

(11,572)

Maturities, calls and principal repayments of securities available for sale

 

9,520 

 

 

8,969 

Proceeds from sales of securities available for sale

 

4,285 

 

 

6,592 

Net increase in loans

 

(60,593)

 

 

(23,785)

Redemption of restricted investment in bank stock

 

187 

 

 

281 

Maturities of interest bearing time deposits

 

1,792 

 

 

691 

Proceeds from sale of other real estate owned

 

311 

 

 

 -

Purchases of premises and equipment

 

(493)

 

 

(152)

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

(64,661)

 

 

(18,976)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net increase in deposits

 

61,632 

 

 

33,416 

Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased

 

3,018 

 

 

(16,659)

Payment of long-term borrowed funds

 

(300)

 

 

(300)

Exercise of stock options, net of payment for stock tendered

 

86 

 

 

(19)

Proceeds from Dividend Reinvestment Plan

 

106 

 

 

 -

Tax benefit of stock options exercised

 

14 

 

 

602 

Dividends paid

 

(288)

 

 

(215)

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Financing Activities

 

64,268 

 

 

16,825 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

4,929 

 

 

3,443 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS - BEGINNING

 

46,135 

 

 

19,643 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS - ENDING

$

51,064 

 

$

23,086 

 

 

 

 

 

 

SUPPLEMENTARY CASH FLOWS INFORMATION

 

 

 

 

 

Interest paid

$

3,430 

 

$

4,016 

 

 

 

 

 

 

Income taxes paid

$

1,850 

 

$

500 

 

 

 

 

 

 

 

 

 

 

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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

 

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, 2011, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2012.

 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2012 through the date these consolidated financial statements were issued.

 

Certain amounts in the 2011 financial statements may have been reclassified to conform to 2012 presentation. These reclassifications had no effect on 2011 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, 2011.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

8

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 4 – 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 Board of Directors believes that the SIP will encourage the designated participants to contribute materially to the growth of the Company. 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. 

The aggregate number of shares available for issuance under the SIP is 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.  There were no awards granted under the SIP for the years ended December 31, 2011 and 2010.  In February 2012, the Company granted 7,992 shares of restricted stock to certain members of its Board of Directors as compensation for their service in 2011 in accordance with the Company’s Non-employee Directors Compensation program adopted in October of 2010.  Such compensation was accrued for as of December 31, 2011.  In February 2012, the Company also granted stock options to purchase 52,611 shares of stock to certain executive officers in accordance with their respective employment agreements.  Stock compensation expense related to these options was $11 thousand and $28 thousand for the three and nine months ended September 30, 2012, respectively.  At September 30, 2012, approximately $107 thousand unrecognized cost related to these stock options will be recognized over the next 2.4 years.

 

Note 5 – 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 September 30,

 

Nine Months Ended September 30,

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,821 

 

$

1,483 

 

$

4,172 

 

$

3,708 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

7,192 

 

 

7,167 

 

 

7,183 

 

 

7,162 

Dilutive effect of potential common shares, stock options

 

 

22 

 

 

34 

 

 

26 

 

 

40 

  

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

7,214 

 

 

7,201 

 

 

7,209 

 

 

7,202 

Basic earnings per share

 

$

0.25 

 

$

0.21 

 

$

0.58 

 

$

0.52 

Diluted earnings per share

 

$

0.25 

 

$

0.21 

 

$

0.58 

 

$

0.51 

 

 

 

Stock options of 122,200 and 72,439 for the three and nine months ended September 30, 2012 and 2011, respectively, were not considered in computing diluted earnings per common share because they are not dilutive to earnings.

 

 

 

 

 

 

 

9

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 6 – 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 $5.0 million of standby letters of credit outstanding as of September 30, 2012. The approximate value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $4.6 million. Management does not consider the current amount of the liability as of September 30, 2012 for guarantees under standby letters of credit issued to be material.

  

Note 7 – Short-term and Long-term Borrowings

 

Securities sold under agreements to repurchase, federal funds purchased and Federal Home Loan Bank of Pittsburgh (“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 September 30, 2012, the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $228.5 million, of which $7.9 million were outstanding in long-term loans.  This borrowing capacity with the FHLB includes a line of credit of $25.0 million. Long-term loans with FHLB of $7.9 million were outstanding at December 31, 2011. There were no short-term advances outstanding from the FHLB at September 30, 2012 and December 31, 2011. All FHLB borrowings are secured by qualifying assets of the Bank.

 

The Bank has a federal funds line of credit with the Atlantic Central Bankers Bank (“ACBB”) of approximately $6.0 million, of which none was outstanding at September 30, 2012 and December 31, 2011. Advances from this line are unsecured.

 

The Company has two lines of credit with Univest Bank and Trust Co. (“Univest”) totaling $10 million. As of September 30, 2012 and December 31, 2011, the outstanding balance was $4.9 million and $5.2 million, respectively. Advances from these lines of credit are secured by 833,333 shares of Bank common stock. Under the terms of the loan agreement, the Bank is required to remain well capitalized. The proceeds of the loan were primarily used for the holding company’s investment in the Bank, thus providing additional capital to support the Bank’s growth.

 

Note 8 – Securities Available For Sale                                                

 

At September 30, 2012 and December 31, 2011, respectively, the amortized cost and fair values of securities available-for-sale were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

September 30, 2012 :

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

40,283 

 

$

267 

 

$

(3)

 

$

40,547 

Municipal bonds

 

41,595 

 

 

3,089 

 

 

(11)

 

 

44,673 

U.S. Government Sponsored Enterprise (GSE) -

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

9,554 

 

 

652 

 

 

 -

 

 

10,206 

Corporate Bonds

 

3,256 

 

 

41 

 

 

(62)

 

 

3,235 

Total

$

94,688 

 

$

4,049 

 

$

(76)

 

$

98,661 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011 :

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

33,399 

 

$

297 

 

$

(7)

 

$

33,689 

Municipal bonds

 

37,415 

 

 

2,633 

 

 

 -

 

 

40,048 

U.S. Government Sponsored Enterprise (GSE) -

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities - residential

 

13,164 

 

 

677 

 

 

 -

 

 

13,841 

Corporate Bonds

 

4,514 

 

 

91 

 

 

(73)

 

 

4,532 

Total

$

88,492 

 

$

3,698 

 

$

(80)

 

$

92,110 

 

 

 

10

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 8 – Securities Available For Sale (Continued)

 

The amortized cost and fair value of securities as of September 30, 2012, 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

 

$

22,341 

 

$

22,451 

 

Due after one year through five years

 

 

20,308 

 

 

20,592 

 

Due after five years through ten years

 

 

20,193 

 

 

21,239 

 

Due after ten years

 

 

22,292 

 

 

24,173 

 

 

 

 

85,134 

 

 

88,455 

 

 

 

 

 

 

 

 

 

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

 

 

9,554 

 

 

10,206 

 

 

 

$

94,688 

 

$

98,661 

 

 

 

 

 

 

 

 

 

Proceeds from the sales of securities for the three and nine months ended September 30, 2012 totaled $4.3 million, with gross gains of $633 thousand and gross losses of $0.  Proceeds from the sales of securities for the three and nine months ended September 30, 2011 totaled $7 million, with gross gains of $487 thousand and gross losses of $0

 

Securities with a carrying value of $50 million and $47.7 million at September 30, 2012 and December 31, 2011, 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, 2012 and December 31, 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less Than 12 Months

 

 

12 Months or More

 

 

Total

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

Fair Value

 

Unrealized Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012 :

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obigations

$

5,052 

 

$

(3)

 

$

 -

 

$

 -

 

$

5,052 

 

$

(3)

Municipal bonds

 

1,070 

 

 

(11)

 

 

 -

 

 

 -

 

 

1,070 

 

 

(11)

Corporate Bonds

 

942 

 

 

(54)

 

 

991 

 

 

(8)

 

 

1,933 

 

 

(62)

Total Temporarily Impaired Securities

$

7,064 

 

$

(68)

 

$

991 

 

$

(8)

 

$

8,055 

 

$

(76)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011 :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

2,007 

 

$

(7)

 

$

 -

 

$

 -

 

$

2,007 

 

$

(7)

Corporate Bonds

 

1,922 

 

 

(73)

 

 

 -

 

 

 -

 

 

1,922 

 

 

(73)

Total Temporarily Impaired Securities

$

3,929 

 

$

(80)

 

$

 -

 

$

 -

 

$

3,929 

 

$

(80)

 

 

The Company had eight (8) securities in an unrealized loss position at September 30, 2012. The unrealized losses are due only to market rate fluctuations. As of September 30, 2012, the Company either has the intent and ability to hold the securities until maturity or market price recovery, or believes that it is more likely than not that it will not be required to sell such securities. Management believes that the unrealized loss only represents temporary impairment of the securities.  None of the individual losses are significant.

 

11

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 9 – Restricted Investment in Bank Stock

 

Restricted investments in bank stock consist of Federal Home Loan Bank of Pittsburgh (“FHLB”) stock and Atlantic Central Bankers Bank (“ACBB”) stock.  The restricted stocks are carried at cost.  Federal law requires a member institution of the FHLB to hold stock of its district FHLB according to a predetermined formula.

In December 2008, the FHLB of Pittsburgh notified member banks that it was suspending dividend payments and the repurchase of capital stock, and any future capital stock repurchases will be made on a quarterly basis if conditions warrant such repurchases.  During 2012, 2011 and 2010, the FHLB conducted limited excess capital stock repurchases based upon positive quarterly net income.  Any future capital stock repurchases will be made on a quarterly basis if conditions warrant such repurchases.  In connection with this program, the Bank had stock at a carrying value of $187 thousand and $281 thousand repurchased during the nine months ended September 30, 2012 and 2011, respectively. Any future capital stock repurchases are expected to be made on a quarterly basis if conditions warrant such repurchases.  In February 2012, the FHLB announced that dividend payments would resume in 2012.

 

Management evaluates the FHLB and ACBB restricted stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the issuer as compared to the capital stock amount for the issuer and the length of time this situation has persisted, (2) commitments by the issuer to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuer, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuer.

 

Based upon its evaluation of the foregoing criteria, management believes no impairment charge is necessary related to the FHLB stock as of September 30, 2012.

 

Note 10Loans Receivable and Credit Quality

 

The following table presents the composition of loans receivable at September 30, 2012 and December 31, 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

Percentage of

 

 

 

Percentage of

 

Balance

 

total Loans

 

Balance

 

total Loans

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in Thousands)

Commercial real estate

$

192,030 

 

39.67% 

 

$

171,792 

 

40.56% 

Commercial construction

 

17,547 

 

3.62% 

 

 

13,414 

 

3.17% 

Commercial

 

29,927 

 

6.18% 

 

 

26,879 

 

6.35% 

Residential real estate

 

238,513 

 

49.27% 

 

 

210,361 

 

49.65% 

Consumer

 

6,081 

 

1.26% 

 

 

1,140 

 

0.27% 

 

 

 

 

 

 

 

 

 

 

Gross loans

 

484,098 

 

100.00% 

 

 

423,586 

 

100.00% 

Unearned origination fees

 

(319)

 

 

 

 

(245)

 

 

Allowance for loan losses

 

(4,820)

 

 

 

 

(4,215)

 

 

 

 

 

 

 

 

 

 

 

 

 

$

478,959 

 

 

 

$

419,126 

 

 

 

12

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

Note 10Loans Receivable and Credit Quality (Continued)

 

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weaknesses), substandard (well defined weaknesses) and doubtful (full collection unlikely) within the Company's internal risk rating system as of September 30, 2012 and December 31, 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

Special Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

184,588 

 

$

876 

 

$

6,194 

 

$

372 

 

$

192,030 

Commercial construction

 

13,932 

 

 

341 

 

 

3,274 

 

 

 -

 

 

17,547 

Commercial

 

29,813 

 

 

39 

 

 

75 

 

 

 -

 

 

29,927 

Residential real estate

 

237,391 

 

 

157 

 

 

664 

 

 

301 

 

 

238,513 

Consumer

 

6,081 

 

 

 -

 

 

 -

 

 

 -

 

 

6,081 

            Total

$

471,805 

 

$

1,413 

 

$

10,207 

 

$

673 

 

$

484,098 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

163,828 

 

$

865 

 

$

7,099 

 

$

 -

 

$

171,792 

Commercial construction

 

9,090 

 

 

 -

 

 

4,324 

 

 

 -

 

 

13,414 

Commercial

 

26,612 

 

 

194 

 

 

73 

 

 

 -

 

 

26,879 

Residential real estate

 

209,810 

 

 

282 

 

 

269 

 

 

 -

 

 

210,361 

Consumer

 

1,140 

 

 

 -

 

 

 -

 

 

 -

 

 

1,140 

            Total

$

410,480 

 

$

1,341 

 

$

11,765 

 

$

 -

 

$

423,586 

 

13

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

Note 10Loans Receivable and Credit Quality (Continued)

 

The following table summarizes information in regards to impaired loans by loan portfolio class as of, and for the periods ended, September 30, 2012 and December 31, 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter to Date

 

Year to Date

 

September 30, 2012

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

 

Average Recorded Investment

 

Interest Income Recognized

 

Average Recorded Investment

 

Interest Income Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

$

6,367 

 

$

6,470 

 

 

 

 

$

6,187 

 

$

78 

 

$

6,489 

 

$

246 

 

  Commercial construction

 

 

2,117 

 

 

2,117 

 

 

 

 

 

3,216 

 

 

(12)

 

 

3,682 

 

 

58 

 

  Commercial

 

 

306 

 

 

306 

 

 

 

 

 

304 

 

 

(2)

 

 

319 

 

 

 

  Residential real estate

 

 

458 

 

 

458 

 

 

 

 

 

368 

 

 

11 

 

 

401 

 

 

18 

 

  Consumer

 

 

 -

 

 

 -

 

 

 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

$

1,674 

 

$

1,674 

 

$

440 

 

$

1,932 

 

$

17 

 

$

1,658 

 

$

123 

 

  Commercial construction

 

 

1,498 

 

 

1,498 

 

 

198 

 

 

749 

 

 

33 

 

 

375 

 

 

33 

 

  Commercial

 

 

12 

 

 

61 

 

 

10 

 

 

 

 

 -

 

 

19 

 

 

 -

 

  Residential real estate

 

 

664 

 

 

664 

 

 

130 

 

 

690 

 

 

 

 

524 

 

 

12 

 

  Consumer

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

$

8,041 

 

$

8,144 

 

$

440 

 

$

8,119 

 

$

95 

 

$

8,147 

 

$

369 

 

  Commercial construction

 

 

3,615 

 

 

3,615 

 

 

198 

 

 

3,965 

 

 

21 

 

 

4,057 

 

 

91 

 

  Commercial

 

 

318 

 

 

367 

 

 

10 

 

 

311 

 

 

(2)

 

 

338 

 

 

 

  Residential real estate

 

 

1,122 

 

 

1,122 

 

 

130 

 

 

1,058 

 

 

15 

 

 

925 

 

 

30 

 

  Consumer

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

$

13,096 

 

$

13,248 

 

$

778 

 

$

13,453 

 

$

129 

 

$

13,467 

 

$

495 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

$

7,814 

 

$

7,863 

 

 

 

 

 

 

 

 

 

 

$

5,787 

 

$

492 

 

  Commercial construction

 

 

3,974 

 

 

3,974 

 

 

 

 

 

 

 

 

 

 

 

3,360 

 

 

156 

 

  Commercial

 

 

362 

 

 

362 

 

 

 

 

 

 

 

 

 

 

 

363 

 

 

15 

 

  Residential real estate

 

 

552 

 

 

552 

 

 

 

 

 

 

 

 

 

 

 

498 

 

 

24 

 

  Consumer

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

$

670 

 

$

670 

 

$

107 

 

 

 

 

 

 

 

$

463 

 

$

42 

 

  Commercial construction

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 -

 

 

 -

 

  Commercial

 

 

55 

 

 

55 

 

 

19 

 

 

 

 

 

 

 

 

61 

 

 

 

  Residential real estate

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 -

 

 

 -

 

  Consumer

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Commercial real estate

 

$

8,484 

 

$

8,533 

 

$

107 

 

 

 

 

 

 

 

$

6,250 

 

$

534 

 

  Commercial construction

 

 

3,974 

 

 

3,974 

 

 

 -

 

 

 

 

 

 

 

 

3,360 

 

 

156 

 

  Commercial

 

 

417 

 

 

417 

 

 

19 

 

 

 

 

 

 

 

 

424 

 

 

19 

 

  Residential real estate

 

 

552 

 

 

552 

 

 

 -

 

 

 

 

 

 

 

 

498 

 

 

24 

 

  Consumer

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 -

 

 

 -

 

 

 

$

13,427 

 

$

13,476 

 

$

126 

 

 

 

 

 

 

 

$

10,532 

 

$

733 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 10Loans Receivable and Credit Quality (Continued)

 

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2012 and December 31, 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

  Commercial real estate

$

2,373 

 

$

1,869 

 

  Commercial construction

 

 -

 

 

 -

 

  Commercial

 

 -

 

 

 -

 

  Residential real estate

 

301 

 

 

 -

 

  Consumer

 

 -

 

 

 -

 

      Total

$

2,674 

 

$

1,869 

 

 

 

 

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2012 and December 31, 2011, respectively:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

30-59 Days Past Due

 

60-89 Days Past Due

 

Greater than 90 Days

 

Total         Past Due

 

Current

 

Total Loan
Receivables

 

Loan Receivables > 90 Days and Accruing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

Commercial real estate

$

127 

 

$

1,683 

 

$

1,627 

 

$

3,437 

 

$

188,593 

 

$

192,030 

 

$

 -

Commercial construction

 

260 

 

 

2,559 

 

 

 -

 

 

2,819 

 

 

14,728 

 

 

17,547 

 

 

 -

Commercial

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

29,927 

 

 

29,927 

 

 

 -

Residential real estate

 

313 

 

 

 -

 

 

301 

 

 

614 

 

 

237,899 

 

 

238,513 

 

 

 -

Consumer

 

 -

 

 

16 

 

 

 -

 

 

16 

 

 

6,065 

 

 

6,081 

 

 

 -

            Total

$

700 

 

$

4,258 

 

$

1,928 

 

$

6,886 

 

$

477,212 

 

$

484,098 

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

$

300 

 

$

1,222 

 

$

2,074 

 

$

3,596 

 

$

168,196 

 

$

171,792 

 

$

205 

Commercial construction

 

 -

 

 

1,412 

 

 

 -

 

 

1,412 

 

 

12,002 

 

 

13,414 

 

 

 -

Commercial

 

 -

 

 

 -

 

 

61 

 

 

61 

 

 

26,818 

 

 

26,879 

 

 

61 

Residential real estate

 

 -

 

 

269 

 

 

 -

 

 

269 

 

 

210,092 

 

 

210,361 

 

 

 -

Consumer

 

22 

 

 

 -

 

 

 -

 

 

22 

 

 

1,118 

 

 

1,140 

 

 

 -

            Total

$

322 

 

$

2,903 

 

$

2,135 

 

$

5,360 

 

$

418,226 

 

$

423,586 

 

$

266 

 

 

 

 

 

 

 

 

 

 

 

 

15

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 10Loans Receivable and Credit Quality (Continued)

 

The following tables detail the activity in the allowance for loan losses for the three and nine months ended September 30, 2012 and 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

Commercial Construction

 

Commercial

 

Residential Real Estate

 

Consumer

 

Unallocated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ending September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance - June 30, 2012

 

$

1,951 

 

$

440 

 

$

408 

 

$

1,886 

 

$

50 

 

$

25 

 

$

4,760 

  Charge-offs

 

 

(176)

 

 

 -

 

 

 -

 

 

(4)

 

 

 -

 

 

 -

 

 

(180)

  Recoveries

 

 

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

 -

 

 

  Provisions

 

 

187 

 

 

167 

 

 

(5)

 

 

(245)

 

 

(17)

 

 

148 

 

 

235 

Ending Balance - September 30, 2012

 

$

1,963 

 

$

607 

 

$

403 

 

$

1,641 

 

$

33 

 

$

173 

 

$

4,820 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ending September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance - December 31, 2011

 

$

1,264 

 

$

352 

 

$

423 

 

$

1,691 

 

$

40 

 

$

445 

 

$

4,215 

  Charge-offs

 

 

(179)

 

 

 -

 

 

 -

 

 

(39)

 

 

 -

 

 

 -

 

 

(218)

  Recoveries

 

 

 

 

 -

 

 

 -

 

 

12 

 

 

 -

 

 

 -

 

 

13 

  Provisions

 

 

877 

 

 

255 

 

 

(20)

 

 

(23)

 

 

(7)

 

 

(272)

 

 

810 

Ending Balance - September 30, 2012

 

$

1,963 

 

$

607 

 

$

403 

 

$

1,641 

 

$

33 

 

$

173 

 

$

4,820 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ending September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance - June 30, 2011

 

 

1,384 

 

 

340 

 

 

309 

 

 

1,413 

 

 

53 

 

 

413 

 

 

3,912 

  Charge-offs

 

 

(50)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(50)

  Recoveries

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

  Provisions

 

 

(40)

 

 

54 

 

 

98 

 

 

72 

 

 

(12)

 

 

66 

 

 

238 

Ending Balance - September 30, 2011

 

$

1,294 

 

$

394 

 

$

407 

 

$

1,485 

 

$

45 

 

$

479 

 

$

4,104 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ending September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance - December 31, 2010

 

$

1,014 

 

$

443 

 

$

325 

 

$

1,309 

 

$

35 

 

$

583 

 

$

3,709 

  Charge-offs

 

 

(137)

 

 

 -

 

 

(1)

 

 

(25)

 

 

 -

 

 

 -

 

 

(163)

  Recoveries

 

 

 

 

 -

 

 

 

 

 

 

 

12 

 

 

 -

 

 

17 

  Provisions

 

 

416 

 

 

(49)

 

 

79 

 

 

201 

 

 

(2)

 

 

(104)

 

 

541 

Ending Balance - September 30, 2011

 

$

1,294 

 

$

394 

 

$

407 

 

$

1,485 

 

$

45 

 

$

479 

 

$

4,104 

 

16

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

Note 10Loans Receivable and Credit Quality (Continued)

 

The following tables represent the allocation of the allocation for loan losses and the related loan portfolio disaggregated based on impairment methodology at September 30, 2012 and December 31, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

Commercial Construction

 

Commercial

 

Residential Real Estate

 

Consumer

 

Unallocated

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

$

1,963 

 

$

607 

 

$

403 

 

$

1,641 

 

$

33 

 

$

173 

 

$

4,820 

Ending balance: individually evaluated for impairment

$

440 

 

$

198 

 

$

10 

 

$

130 

 

$

 -

 

$

 -

 

$

778 

Ending balance: collectively evaluated for impairment

$

1,523 

 

$

409 

 

$

393 

 

$

1,511 

 

$

33 

 

$

173 

 

$

4,042 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

$

192,030 

 

$

17,547 

 

$

29,927 

 

$

238,513 

 

$

6,081 

 

 

 

 

$

484,098 

Ending balance: individually evaluated  for impairment

$

8,041 

 

$

3,615 

 

$

318 

 

$

1,122 

 

$

 -

 

 

 

 

$

13,096 

Ending balance: collectively evaluated for impairment

$

183,989 

 

$

13,932 

 

$

29,609 

 

$

237,391 

 

$

6,081 

 

 

 

 

$

471,002 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for Loan Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

$

1,264 

 

$

352 

 

$

423 

 

$

1,691 

 

$

40 

 

$

445 

 

$

4,215 

Ending balance: individually evaluated for impairment

$

107 

 

$

 -

 

$

19 

 

$

 -

 

$

 -

 

$

 -

 

$

126 

Ending balance: collectively evaluted for impairment

$

1,157 

 

$

352 

 

$

404 

 

$

1,691 

 

$

40 

 

$

445 

 

$

4,089 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

$

171,792 

 

$

13,414 

 

$

26,879 

 

$

210,361 

 

$

1,140 

 

 

 

 

$

423,586 

Ending balance: individually evaluted  for impairment

$

8,484 

 

$

3,974 

 

$

417 

 

$

552 

 

$

 -

 

 

 

 

$

13,427 

Ending balance: collectively evaluated for impairment

$

163,308 

 

$

9,440 

 

$

26,462 

 

$

209,809 

 

$

1,140 

 

 

 

 

$

410,159 

 

 

 

Troubled Debt Restructurings

 

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition than it would not otherwise consider, resulting in a modified loan which is then identified as troubled debt restructuring (“TDR”).  The Company may modify loans through rate reductions, extensions to maturity, interest only payments, or payment modifications to better coincide the timing of payments due under the modified terms with the expected timing of cash flows from the borrowers’ operations.  Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.  TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

 

The Company identifies loans for potential restructure primarily through direct communication with the borrower and the evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports.  Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

 

 

 

17

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 10Loans Receivable and Credit Quality (Continued)

 

The following table presents TDRs outstanding  as of September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

Accrual Loans

 

Non-Accrual Loans

 

Total Modifications

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

Commercial real estate

$

5,107 

 

$

650 

 

$

5,757 

 

Commercial construction

 

2,099 

 

 

 -

 

 

2,099 

 

Commercial

 

194 

 

 

 -

 

 

194 

 

Residential real estate

 

821 

 

 

 -

 

 

821 

 

Consumer

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

$

8,221 

 

$

650 

 

$

8,871 

 

 

 

                          As of September 30, 2012, no available commitments were outstanding on TDRs.

 

 

The following table presents newly restructured loans that occurred during the nine months ended September 30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Loans

 

Pre-Modification Outstanding Balance

 

Post- Modification Outstanding Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands)

 

Nine Months Ending September 30, 2012

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

$

1,259 

 

$

1,259 

 

Commercial construction

 

 

 

341 

 

 

341 

 

Residential real estate

 

 

 

670 

 

 

670 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

2,270 

 

$

2,270 

 

 

 

Of the TDRs described above, two loans required an impairment reserve of $206 thousand recorded in the allowance for loan losses for the nine months ended September 30, 2012.  For the three months ended September 30, 2012  there were no newly restructured loans.

 

There were no loans that were modified and classified as  a TDR within the prior twelve months that experienced a payment default (loans ninety or more days past due) for the period ended September 30, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 11 – Fair Value Measurements 

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

18

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 11 – Fair Value Measurements (Continued)

 

ASC Topic 860 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 860 are as follows:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. 

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy utilized at September 30, 2012 and December 31, 2011, respectively, are as follows: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

(Level 1)       Quoted Prices in Active Markets for Identical Assets

 

(Level 2) Significant Other Observable Inputs

 

(Level 3) Significant Unobservable Inputs

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

U.S. Government agency obligations

$

 -

 

$

40,547 

 

$

 -

 

$

40,547 

Municipal Bonds

 

 -

 

 

44,673 

 

 

 -

 

 

44,673 

U.S. Government Sponored Enterprise (GSE) -

 

 

 

 

 

 

 

 

 

 

 

  Mortgage-backed securities - residential

 

 -

 

 

10,206 

 

 

 -

 

 

10,206 

Corporate bonds

 

 -

 

 

3,235 

 

 

 -

 

 

3,235 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012 Securities available for sale

$

 -

 

$

98,661 

 

$

 -

 

$

98,661 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency obligations

$

 -

 

$

33,689 

 

$

 -

 

$

33,689 

Municipal Bonds

 

 -

 

 

40,048 

 

 

 -

 

 

40,048 

U.S. Government Sponored Enterprise (GSE) -

 

 

 

 

 

 

 

 

 

 

 

  Mortgage-backed securities - residential

 

 -

 

 

13,841 

 

 

 -

 

 

13,841 

Corporate bonds

 

 -

 

 

4,532 

 

 

 -

 

 

4,532 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011 Securities available for sale

$

 -

 

$

92,110 

 

$

 -

 

$

92,110 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 11 – Fair Value Measurements (Continued)

 

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2012 and December 31, 2011, respectively, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description

(Level 1)       Quoted Prices in Active Markets for Identical Assets

 

(Level 2) Significant Other Observable Inputs

 

(Level 3) Significant Unobservable Inputs

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

September 30, 2012 Impaired loans (1)

$

 -

 

$

 -

 

$

3,070 

 

$

3,070 

 

September 30, 2012 Other real estate owned (2)

$

 -

 

$

 -

 

$

2,869 

 

$

2,869 

 

December 31, 2011 Impaired loans (1)

$

 -

 

$

 -

 

$

599 

 

$

599 

 

December 31, 2011 Other real estate owned (2)

$

 -

 

$

 -

 

$

3,388 

 

$

3,388 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not

identifiable.  Fair values may also include qualitative adjustments by management based on economic conditions and liquidation expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)  Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not

identifiable.  Fair values may also include qualitative adjustments by management and estimated liquidation expenses.

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans are those that are accounted for under existing FASB guidance,  in which the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the

properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

 

At September 30, 2012, of the impaired loans having an aggregate balance of $13.1 million, $9.3 million did not require a valuation allowance because the value of the collateral securing the loan was determined to meet or exceed the balance owed on the loan. Of the remaining $3.8 million in impaired loans, an aggregate valuation allowance of $778 thousand was required to reflect what was determined to be a shortfall in the value of the collateral as compared to the balance on such loans.

 

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell.  Fair value is based upon independent market prices or appraised value of the property.  These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 11 – Fair Value Measurements (Continued)

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quantitative Information about Level 3 Fair Value Measurements

 

Description

Fair Value Estimate

 

Valuation Techniques

 

Unobservable Input

 

Range                (Weighted Average)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands)

 

September 30, 2012 Impaired loans

$

3,070 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

0% to -25% (-17.5%)

 

 

 

 

 

 

 

 

Liquidation expenses (3)

 

-7 to -10% (-8.3%)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012 Other real estate owned

$

2,869 

 

Pending agreement of sale (4)

 

Liquidation expenses (3)

 

-5% (-5%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not

 

 

identifiable. 

 

(2)

Appraisals may be adjusted by management for qualitative factors including economic conditions and the age of the appraisal.  The range and weighted

 

 

average of appraisal adjustments are presented as a percent of the appraisal.

 

(3)

Appraisals and pending agreements of sale are adjusted by management for liquidation expenses.  The range and weighted average of liquidation expense

 

 

adjustments are presented as a percent of the appraisal or pending agreement of sale.

 

(4)

Fair value is determined by a pending agreements of sale, of a portion of the real estate.

 

 

 

 

 

 

 

 

 

 

 

 

 

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2012 and December 31, 2011:

 

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

Interest Bearing Time Deposits (Carried at Cost)

Fair values for fixed-rate time certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Company generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.

Securities Available for Sale (Carried at Fair Value)

The fair value of securities available for sale are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices. For these securities, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

 

Loans Receivable (Carried at Cost)

The fair values of loans, excluding impaired loans carried at fair value of collateral, are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, and projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

 

 

21

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 11 – Fair Value Measurements (Continued)

Restricted Investment in Bank Stock (Carried at Cost)

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Securities Sold Under Agreements to Repurchase and Federal Funds Purchased (Carried at Cost)

These borrowings are short term and the carrying amount approximates the fair value.

Long-Term Borrowings (Carried at Cost)

Fair values of FHLB and Univest advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB and Univest advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Off-Balance Sheet Financial Instruments (Disclosed at Cost)

 

Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.

 

 

 

 

 

 

 

 

 

 

 

 

22

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 11 – Fair Value Measurements (Continued)

The estimated fair values of the Company’s financial instruments were as follows at September 30, 2012 and December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

Carrying Amount

 

 

Fair Value Estimate

 

 

(Level 1) Quoted Prices in Active Markets for Identical Assets

 

 

(Level 2) Significant Other Observable Inputs

 

 

(Level 3) Significant Unobservable Inputs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

51,064 

 

$

51,064 

 

$

51,064 

 

$

 -

 

$

 -

Interest bearing time deposits

 

5,906 

 

 

5,969 

 

 

 -

 

 

5,969 

 

 

 -

Securities available-for-sale

 

98,661 

 

 

98,661 

 

 

 -

 

 

98,661 

 

 

 -

Loans receivable, net of allowance

 

478,959 

 

 

491,108 

 

 

 -

 

 

 -

 

 

491,108 

Restricted investments in bank stock

 

1,454 

 

 

1,454 

 

 

1,454 

 

 

 -

 

 

 -

Accrued interest receivable

 

1,747 

 

 

1,747 

 

 

1,747 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

543,407 

 

 

544,000 

 

 

481,613 

 

 

62,387 

 

 

 -

Securities sold under agreements to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  repurchase and federal funds purchased

 

36,971 

 

 

36,971 

 

 

36,971 

 

 

 -

 

 

 -

Long-term borrowings

 

12,786 

 

 

12,969 

 

 

 -

 

 

 -

 

 

12,969 

Accrued interest payable

 

391 

 

 

391 

 

 

391 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Off-balance sheet finanacial instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments to grant loans

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Unfunded commitments under lines of credit

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

Standby letters of credit

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

Carrying

 

 

Fair Value

 

 

 

 

 

Amount

 

 

Estimate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In Thousands)

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

46,135 

 

$

46,135 

 

 

 

Interest bearing time deposits

 

7,698 

 

 

7,720 

 

 

 

Securities available-for-sale

 

92,110 

 

 

92,110 

 

 

 

Loans receivable, net of allowance

 

419,126 

 

 

427,861 

 

 

 

Restricted investments in bank stock

 

1,641 

 

 

1,641 

 

 

 

Accrued interest receivable

 

1,568 

 

 

1,568 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

Deposits

 

481,775 

 

 

482,344 

 

 

 

Securities sold under agreements to

 

 

 

 

 

 

 

 

  repurchase and federal funds purchased

 

33,953 

 

 

33,953 

 

 

 

Long-term borrowings

 

13,086 

 

 

13,422 

 

 

 

Accrued interest payable

 

582 

 

 

582 

 

 

 

 

 

 

 

 

 

 

 

 

Off-balance sheet financial instruments:

 

 

 

 

 

 

 

 

Commitments to grant loans

 

 -

 

 

 -

 

 

 

Unfunded commitments under lines of credit

 

 -

 

 

 -

 

 

 

Standby letters of credit

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23

 


 

 

 

Embassy Bancorp, Inc.                                                                                                                          

 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 12 – New Accounting Standards

 

ASU 2011-04 (Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs):

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This update amends FASB ASC Topic 820, Fair Value Measurements, to bring U.S. GAAP for fair value measurements in line with International Accounting Standards. The Update clarifies existing guidance for items such as: the application of the highest and best use concept to non-financial assets and liabilities; the application of fair value measurement to financial instruments classified in a reporting entity’s stockholder’s equity; and disclosure requirements regarding quantitative information about unobservable inputs used in the fair value measurements of level 3 assets. The Update also creates an exception to Topic 820 for entities which carry financial instruments within a portfolio or group, under which the entity is now permitted to base the price used for fair valuation upon a price that would be received to sell the net asset position or transfer a net liability position in an orderly transaction. The Update also allows for the application of premiums and discounts in a fair value measurement if the financial instrument is categorized in level 2 or 3 of the fair value hierarchy. Lastly, the ASU contains new disclosure requirements regarding fair value amounts categorized as level 3 in the fair value hierarchy such as: disclosure of the valuation process used; effects of and relationships between unobservable inputs; usage of nonfinancial assets for purposes other than their highest and best use when that is the basis of the disclosed fair value; and categorization by level of items disclosed at fair value, but not measured at fair value for financial statement purposes. For public entities, this Update is effective for interim and annual periods beginning after December 15, 2011. Early adoption was not permitted.  The Company adopted this update on January 1, 2012 and the new disclosures are included in Note 11.

 

ASU 2011-05 (Comprehensive Income: Presentation of Comprehensive Income):

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income.  The provisions of this update amend FASB ASC Topic 220, Comprehensive Income, to facilitate the continued alignment of U.S. GAAP with International Accounting Standards. The Update prohibits the presentation of the components of comprehensive income in the statement of stockholder’s equity. Reporting entities are allowed to present either: a statement of comprehensive income, which reports both net income and other comprehensive income; or separate statements of net income and other comprehensive income. Under previous GAAP, all 3 presentations were acceptable. Regardless of the presentation selected, the Reporting Entity is required to present all reclassifications between other comprehensive and net income on the face of the new statement or statements. The provisions of this Update were effective for fiscal years and interim periods beginning after December 31, 2011 for public entities.  The Company adopted this update on January 1, 2012, and the new Consolidated Statements of Comprehensive Income is included in these financial statements.

 

 

 

24

 


 

 

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

 

This discussion and analysis provides an overview of the financial condition and results of operations of Embassy Bancorp, Inc. (the “Company”) as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011, respectively. This discussion should be read in conjunction with the preceding consolidated financial statements and related footnotes, as well as with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2011, included in the Company’s Form 10-K filed with the Securities and Exchange Commission. Current performance does not guarantee and may not be indicative of similar performance in the future.

 

Critical Accounting Policies

 

Disclosure of the Company’s significant accounting policies is included in Note 1 to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2011. Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses and the valuation of deferred tax assets. Additional information is contained in this Form 10-Q under the paragraphs titled “Provision for Loan Losses,” “Credit Risk and Loan Quality,” and “Income Taxes” contained on the following pages.

 

Forward-looking Statements

 

This report contains forward-looking statements, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.  These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors and other conditions that, by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty.

 

Such forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “intends”, “will”, “should”, “anticipates”, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.

 

No assurance can be given that the future results covered by forward-looking statements will be achieved. Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could impact the Company’s operating results include, but are not limited to, (i) the effects of changing economic conditions in the Company’s market areas and nationally, (ii) credit risks of commercial, real estate, consumer and other lending activities, (iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could impact the Company’s operations, and (iv) other external developments which could materially affect the Company’s business and operations.

 

OVERVIEW

 

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.

 

The Bank, which is the Company’s primary 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 Company’s assets grew $69.3 million from $575.5 million at December 31, 2011 to $644.8 million at September 30, 2012 due primarily to a $59.8 million increase in loans which was funded by a $61.6 million increase in deposits.

 

Net income for the three months ended September 30, 2012 was $1.8 million compared to a net income for the three months ended September 30, 2011 of $1.5 million.  Net income for the nine months ended September 30, 2012 was $4.2 million compared to a net income for the nine months ended September 30, 2011 of $3.7 million.  Loans receivable, net of the allowance for loan losses, increased $59.8 million to $479.0 million at September 30, 2012 from $419.1 million at December 31, 2011. The market is very

25

 


 

 

competitive and the Company is committed to maintaining a high quality portfolio that returns a reasonable market rate. The Company expects to increase lending activity, as the Company expands its presence in its market and becomes more widely known.  The past and current economic conditions have created lower demand for loans by credit-worthy customers.  The lending staff has been active in contacting new prospects and promoting the Company’s name in the community. Management believes that this will translate into continued growth of a portfolio of quality loans, although there can be no assurance of this.

 

RESULTS OF OPERATIONS

 

Net Interest Income

 

Total interest income for the three months ended September 30, 2012 increased $135.0 thousand to $6.2 million, as compared to $6.1 million for the three months ended September 30, 2011, due to the increase in average earning assets offset by a decrease in the yield on earning assets.  Average earning assets were $622.6 million for the three months ended September 30, 2012 compared to $513.6 million for the three months ended September 30, 2011. The tax equivalent yield on average earning assets was 4.07% for the third quarter of 2012 compared to 4.82% for the third quarter of 2011.

 

Total interest expense for the three months ended    September 30, 2012 decreased $258.0 thousand to $1.0 million as compared to $1.2 million for the three months ended September 30, 2011, primarily due to decreases in deposit rates offset by an increase in average deposits. Average interest bearing liabilities were $546.0 million for the three months ended months ended September 30, 2012 compared to $449.4 million for the three months ended September 30, 2011.  The yield on average interest bearing liabilities was 0.71% for the third quarter of 2012 compared to 1.09% for the third quarter of 2011. This decrease was the result of market conditions, deposit mix, competition, and management’s resulting adjustments to the interest rates provided to depositors.

 

Net interest income for the three months ended September 30, 2012 was  $5.2 million compared to $4.8 million for the three months ended September 30, 2011. The improvement in net interest income for the three months ended September 30, 2012 is a result of decreases in the interest expense associated with deposits and other borrowed funds and growth in interest earning assets, offset by a reduction in rates received on a higher level of interest earning assets. The Company’s net interest margin for the three months ended September 30, 2012 decreased thirty-nine (39)  basis points to 3.48% as compared to 3.87% for the three months ended September 30, 2011, due to the current interest rate environment, including decreased cost of deposits offset by decreased interest rates on the investment securities portfolio and the competitive interest rate pressure of lending.

 

Total interest income for the nine months ended September 30, 2012 increased $615.0 thousand to $18.3 million, as compared to $17.7 million for the nine months ended September 30, 2011, due to the increase in average earning assets offset by a decrease in the yield on earning assets.  Average earning assets were $602.6 million for the nine months ended September 30, 2012 compared to $505.4 million for the nine months ended September 30, 2011. The tax equivalent yield on average earning assets was 4.05% for the nine months ended September 30, 2012 compared to 4.80% for the nine months ended September 30, 2011.

 

Total interest expense for the nine months ended September 30, 2012 decreased $488.0 thousand to $3.2 million as compared to $3.7 million for the nine months ended September 30, 2011, primarily due to decreases in deposit rates offset by an increase in average deposits. Average interest bearing liabilities were $530.1 million for the nine months ended September 30, 2012 compared to $448.0 million for the nine months ended months ended September 30, 2011.  The yield on average interest bearing liabilities was 0.82% for the nine months ended September 30, 2012 compared to 1.12% for the nine months ended September 30, 2011. This decrease was the result of market conditions, deposit mix, competition, and management’s resulting adjustments to the interest rates provided to depositors.

 

Net interest income for the nine months ended September 30, 2012  was $15.1 million compared to $14.0 million for the nine months ended September 30, 2011. The improvement in net interest income for the nine months ended September 30, 2012 is a result of decreases in the interest expense associated with deposits and other borrowed funds and growth in interest earning assets, offset by a reduction in rates received on increased levels of interest earning assets. The Company’s net interest margin for the nine months ended September 30, 2012 decreased thirty-three (33) basis points to 3.48% as compared to 3.81% for the nine months ended September 30, 2011, due to the current interest rate environment, including the decreased cost of deposits offset by decreased interest rates on the investment securities portfolio and the competitive interest rate pressure of lending.

 

 

 

 

 

 

 

 

 

26

 


 

 

Below are tables which set forth average balances and corresponding yields for the corresponding September 30, 2012 and September 30, 2011, respectively:

 

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (quarter to date)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax

 

 

 

 

 

Tax

 

 

Average

 

 

 

Equivalent

 

Average

 

 

 

Equivalent

 

 

Balance

 

Interest

 

Yield

 

Balance

 

Interest

 

Yield

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Loans - taxable

$          467,512 

 

$        5,452 

 

4.64%

 

$            399,592 

 

$        5,342 

 

5.30%

 

Loans - non-taxable

3,868 

 

38 

 

5.91%

 

3,594 

 

36 

 

5.90%

 

Investment securities - taxable

59,015 

 

329 

 

2.24%

 

60,835 

 

379 

 

2.49%

 

Investment securities - non-taxable

39,831 

 

344 

 

5.26%

 

29,422 

 

285 

 

5.79%

 

Federal funds sold

919 

 

-

 

0.02%

 

1,198 

 

-

 

-

 

Time deposits

6,871 

 

23 

 

1.31%

 

7,535 

 

29 

 

1.53%

 

Interest bearing deposits with banks

44,598 

 

26 

 

0.23%

 

11,427 

 

 

0.21%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INTEREST EARNING ASSETS

622,614 

 

6,212 

 

4.07%

 

513,603 

 

6,077 

 

4.82%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less allowance for loan losses

(4,807)

 

 

 

 

 

(3,985)

 

 

 

 

 

Other assets

27,829 

 

 

 

 

 

23,257 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$          645,636 

 

 

 

 

 

$            532,875 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand deposits, NOW and money market

$            55,823 

 

$             13 

 

0.09%

 

$              40,033 

 

$             18 

 

0.18%

 

Savings

380,747 

 

586 

 

0.61%

 

283,122 

 

670 

 

0.94%

 

Certificates of deposit

63,026 

 

190 

 

1.20%

 

78,757 

 

322 

 

1.62%

 

Securities sold under agreements to

 

 

 

 

 

 

 

 

 

 

 

 

repurchase, federal funds purchased and

 

 

 

 

 

 

 

 

 

 

 

 

long-term borrowings

46,426 

 

187 

 

1.60%

 

47,473 

 

224 

 

1.87%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INTEREST BEARING LIABILITIES

546,022 

 

976 

 

0.71%

 

449,385 

 

1,234 

 

1.09%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing demand deposits

43,943 

 

 

 

 

 

35,155 

 

 

 

 

 

Other liabilities

4,150 

 

 

 

 

 

4,015 

 

 

 

 

 

Stockholders' equity

51,521 

 

 

 

 

 

44,320 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

$          645,636 

 

 

 

 

 

$            532,875 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

$        5,236 

 

 

 

 

 

$        4,843 

 

 

 

Net interest spread

 

 

 

 

3.36%

 

 

 

 

 

3.73%

 

Net interest margin

 

 

 

 

3.48%

 

 

 

 

 

3.87%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 


 

 

Below are tables which set forth average balances and corresponding yields for the corresponding nine months ended September 30, 2012 and September 30, 2011, respectively:

 

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (year to date)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax

 

 

 

 

 

Tax

 

 

Average

 

 

 

Equivalent

 

Average

 

 

 

Equivalent

 

 

Balance

 

Interest

 

Yield

 

Balance

 

Interest

 

Yield

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Loans - taxable

$              446,209 

 

$           16,084 

 

4.81%

 

$              388,441 

 

$         15,442 

 

5.32%

 

Loans - non-taxable

3,839 

 

112 

 

5.92%

 

3,054 

 

90 

 

5.85%

 

Investment securities - taxable

60,054 

 

969 

 

2.16%

 

62,885 

 

1,280 

 

2.72%

 

Investment securities - non-taxable

38,292 

 

1,000 

 

5.23%

 

28,133 

 

781 

 

5.67%

 

Federal funds sold

1,448 

 

 

0.17%

 

3,464 

 

 

0.12%

 

Time deposits

7,426 

 

76 

 

1.36%

 

7,643 

 

90 

 

1.57%

 

Interest bearing deposits with banks

45,291 

 

76 

 

0.22%

 

11,814 

 

18 

 

0.20%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INTEREST EARNING ASSETS

602,559 

 

18,319 

 

4.05%

 

505,434 

 

17,704 

 

4.80%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less allowance for loan losses

(4,505)

 

 

 

 

 

(3,861)

 

 

 

 

 

Other assets

24,809 

 

 

 

 

 

22,961 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

$              622,863 

 

 

 

 

 

$              524,534 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing demand deposits, NOW and money market

$                54,112 

 

$                  55 

 

0.14%

 

$                39,192 

 

$                64 

 

0.22%

 

Savings

365,500 

 

1,964 

 

0.72%

 

268,466 

 

1,883 

 

0.94%

 

Certificates of deposit

66,269 

 

639 

 

1.29%

 

87,631 

 

1,088 

 

1.66%

 

Securities sold under agreements to

 

 

 

 

 

 

 

 

 

 

 

 

repurchase, federal funds purchased and

 

 

 

 

 

 

 

 

 

 

 

 

long-term borrowings

44,216 

 

581 

 

1.76%

 

52,708 

 

692 

 

1.76%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL INTEREST BEARING LIABILITIES

530,097 

 

3,239 

 

0.82%

 

447,997 

 

3,727 

 

1.12%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest bearing demand deposits

40,143 

 

 

 

 

 

32,299 

 

 

 

 

 

Other liabilities

3,888 

 

 

 

 

 

3,212 

 

 

 

 

 

Stockholders' equity

48,735 

 

 

 

 

 

41,026 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

$              622,863 

 

 

 

 

 

$              524,534 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

$           15,080 

 

 

 

 

 

$         13,977 

 

 

 

Net interest spread

 

 

 

 

3.23%

 

 

 

 

 

3.68%

 

Net interest margin

 

 

 

 

3.48%

 

 

 

 

 

3.81%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

 


 

 

Provision for Loan Losses

 

The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is maintained at a level considered by management to be adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change.

 

The allowance consists of general, specific, qualitative and unallocated components. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors.  The specific component relates to loans that are classified as watch, other assets especially mentioned, substandard, doubtful or loss. For such loans they may also be classified as impaired or restructured.  For loans that are further classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. 

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

 

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and home equity loans for impairment disclosures, unless such loans are the subject of a restructuring agreement or there is a possible loss expected.

 

For the three months ended September 30, 2012,  the provision for loan losses was $235 thousand, as compared to $238 thousand, for the same period ended September 30, 2011.  For the nine months ended September 30, 2012, the provision for loan losses was $810 thousand compared to $541 thousand for the same period in 2011.  In the nine months ended 2012, there were charge-offs in the amount of $218 thousand,  however principal in the amount of $13 thousand was recovered.  The allowance for loan losses is $4.8 million as of September 30, 2012, which is 1.00% of outstanding loans, compared to $4.1 million or 1.00% of outstanding loans as of September 30, 2011. At December 31, 2011, the allowance for loan losses of $4.2 million represented 1.00% of total outstanding loans. Based principally on economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Bank’s market area, the allowance is believed to be adequate to absorb any losses inherent in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate.  The Bank has not participated in any sub-prime lending activity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29

 


 

 

The activity in the allowance for loan losses is shown in the following table, as well as period end loans receivable and the allowance for loan losses as a percent of the total loan portfolio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

2012

 

2011

 

 

 

 

 

 

 

 

 

(In Thousands)

 

Loans receivable at end of period

$

483,779 

 

$

411,826 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

Balance, beginning

$

4,215 

 

$

3,709 

 

  Provision for loan losses

 

810 

 

 

541 

 

  Loans charged off

 

(218)

 

 

(163)

 

  Recoveries

 

13 

 

 

17 

 

Balance at end of period

$

4,820 

 

$

4,104 

 

 

 

 

 

 

 

 

Allowance for loan losses to loans

 

 

 

 

 

 

  receivable at end of period

$

1.00% 

 

$

1.00% 

 

 

 

 

 

 

 

 

 

 

Non-interest Income

 

Total non-interest income was $934 thousand for the three months ended September 30, 2012 compared to $839 thousand for the same period in 2011The increase is primarily due to the growth in the Bank’s credit card and merchant processing customer baseTotal non-interest income was $1.6 million for the nine months ended September 30, 2012 compared to $1.5 million for the same period in 2011The increase is due to $146 increase in the gain on sale of securities and increased fee income due to the growth in the Bank’s credit card and merchant processing customer base, offset by $208 thousand of other real estate losses in 2012.

 

Non-interest Expense

 

Non-interest expenses increased $40.0 thousand, or 1.2%, from $3.3 million for the three months ended September 30, 2011 to $3.4 million for the same period ended September 30, 2012. The increase is due to: an increase of $37 thousand in salary and employee benefits, the majority of which are in conjunction with increased branch staffing and salary adjustments; an increase of $27 thousand in credit card expense due to an increase in volume; an increase of $47 thousand in occupancy and equipment; an increase of $17 thousand in charitable contributions; an increase of $26 thousand in professional services due to the costs incurred relating to the implementation of the Dividend Reinvestment Plan; an increase of $15 thousand in loan and real estate expenses; an increase of $8  thousand in advertising expense and an increase of $69 thousand in data processing; offset by a decrease of $68 thousand in FDIC insurance expense; a decrease of $9 thousand in other real estate owned expenses and a decrease of $130 thousand in other operating expenses due primarily to decreased check/theft/fraud losses and the change in valuation of officer’s life insurance.

 

Non-interest expenses increased $373.0 thousand, or 3.7%, from $9.7 million for the nine months ended September 30, 2011 to $10.1 million for the same period ended September 30, 2012. The increase is due to: an increase of $184 thousand in salary and employee benefits, the majority of which are in conjunction with increased branch staffing and salary adjustments; an increase of $77 thousand in credit card expense due to an increase in volume; an increase of $110 thousand in occupancy and equipment; an increase of $101 thousand in data processing; an increase of $59 thousand in charitable contributions; an increase of $104 thousand in professional services due to the costs incurred relating to the implementation of the Dividend Reinvestment Plan and the services agreement between entities; an increase of $24 thousand in loan and real estate expenses and an increase of $15 thousand in advertising expense; offset by a decrease of $220 thousand in FDIC insurance expenses; a decrease of $15 thousand in other real estate owned expenses and a decrease of $63 thousand in other operating expenses.

 

A breakdown of other expenses can be found in the statements of income.

 

Income Taxes

 

The provision for income taxes for the three months ended September 30, 2012 totaled $750 thousand, or 29.2% of income before taxes. The provision for income taxes for the three months ended September 30, 2011 totaled $637 thousand, or 30.0% of income before taxes.  The provision for income taxes for the nine months ended September 30, 2012 totaled $1.6 thousand, or 27.9% of income before taxes. The provision for income taxes for the nine months ended September 30, 2011 totaled $1.5 thousand, or 29.0%.  The decrease in the tax rate is a result of an increase in tax-free investments and loans.

 

30

 


 

 

FINANCIAL CONDITION

 

Securities

 

The Bank’s securities portfolio continues to be classified, in its entirety, as “available for sale.” Management believes that a portfolio classification of available for sale allows complete flexibility in the investment portfolio. Using this classification, the Bank intends to hold these securities for an indefinite amount of time, but not necessarily to maturity. Such securities are carried at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is structured to provide maximum return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of U.S. government agency securities, mortgage-backed securities issued by FHLMC or FNMA, corporate bonds, and taxable and non-taxable municipal bonds. The Bank holds no high-risk securities or derivatives as of September 30, 2012. The Bank has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans.

 

Total securities at September 30, 2012 were $98.7 million compared to $92.1 million at December 31, 2011. The increase in the investment portfolio is the result of purchases of municipal and government agency securities, offset by principal payments on U.S. GSEs, sales of municipal securities and the maturity of corporate bonds.  The carrying value of the securities portfolio as of September 30, 2012 includes a net unrealized gain of $4.0 million, which is recorded as accumulated other comprehensive income in stockholders’ equity net of income tax effect. This compares to a net unrealized gain of $3.6 million at December 31, 2011. The current unrealized gain position of the securities portfolio is due to the changes in market rates since purchase. No securities are deemed to be other than temporarily impaired.

 

Loans

 

The loan portfolio comprises a major component of the Bank’s earning assets. All of the Bank’s loans are to domestic borrowers. Total net loans at September 30, 2012 increased $59.8 million to $479.0 million from $419.1 million at December 31, 2011. The loan to deposit ratio decreased slightly from 88% at December 31, 2011 to 89% at September 30, 2012. The Bank’s loan portfolio at September 30, 2012 was comprised of residential real estate and consumer loans of $244.6 million, an increase of $33.0 million from December 31, 2011, and commercial loans of $239.4 million, an increase of $27.4 million from December 31, 2011The Bank has not originated, nor does it intend to originate, sub-prime mortgage loans.

 

Credit Risk and Loan Quality

 

The allowance for loan losses increased $605 thousand to $4.8 million at September 30, 2012 from $4.2 million at December 31, 2011. At September 30, 2012 and December 31, 2011, the allowance for loan losses represented 1.00% of total loans. Based upon current economic conditions, the composition of the loan portfolio, the perceived credit risk in the portfolio and loan-loss experience of comparable institutions in the Bank’s market area, management feels the allowance is adequate to absorb reasonably anticipated losses.

 

At September 30, 2012, aggregate balances on non-performing loans equaled $10.9 million compared to $9.4 million at December 31, 2011 and $7.5 million at September 30, 2011, representing 2.25%, 2.22% and 1.82% of total loans at September 30, 2012,  December 31, 2011 and September 30, 2011, respectively. Troubled debt restructurings, included in the following table, represent loans where the Company, for economic or legal reasons related to the debtor’s financial difficulties, has granted a concession to the debtor that it would not otherwise consider.  There were no loans that were modified and classified as a TDR within the prior twelve months that experienced a payment default (loans ninety or more days past due) for the period ended September 30, 2012.  The Company has one foreclosed asset in the amount of $2.9 million as of September 30, 2012, as compared to two foreclosed assets at December 31, 2011 in the amount of $3.4 million.  The net change is a result of the sale of one asset with a loss of $8 thousand and net proceeds of $311 thousand, along with two write-downs totaling $200 thousand on the remaining foreclosed asset.  The details for non-performing loans are included in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

December 31,

 

 

 

September 30,

 

 

 

 

2012

 

 

 

2011

 

 

 

2011

 

 

Non-accrual - commercial

$

2,373 

 

 

$

1,869 

 

 

$

1,066 

 

 

Non-accrual - consumer

 

301 

 

 

 

 -

 

 

 

356 

 

 

Restructured loans (still accruing interest)

 

8,221 

 

 

 

7,264 

 

 

 

5,213 

 

 

Loans past due 90 or more days, accruing interest

 

 -

 

 

 

265 

 

 

 

857 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total nonperforming loans

 

10,895 

 

 

 

9,398 

 

 

 

7,492 

 

 

Foreclosed assets

 

2,869 

 

 

 

3,388 

 

 

 

3,069 

 

 

Total nonperforming assets

$

13,764 

 

 

$

12,786 

 

 

$

10,561 

 

 

Nonperforming loans to total loans at period-end

 

2.25 

%

 

 

2.22 

%

 

 

1.82 

%

 

Nonperforming assets to total assets

 

2.13 

%

 

 

2.22 

%

 

 

1.97 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 


 

 

 

 Premises and Equipment

 

Company premises and equipment, net of accumulated depreciation, increased $27 thousand from December 31, 2011 to September 30, 2012. This increase is due primarily to the leasehold improvements placed in service in January 2012 due to the lease expansion addendum detailed below, offset by depreciation on existing premises and equipment.

 

On May 4, 2012, the Bank entered into a lease renewal and modification agreement (the “Agreement”) with Red Bird Associates, LLC (“Red Bird”) providing for an extension of the term of the lease of the Bank’s principal office located at 100 Gateway Drive in Bethlehem, Pennsylvania (the “Lease”).   The agreement provided for an additional five year term.  The new term continues through February 28, 2017 and is subject to a 2.0% increase on March 1 of each year.  The agreement further provides coterminous terms and options to the original lease agreement for Suite 100, the first lease expansion agreement for Suite 200, and the second lease expansion addendum for Suite 210 of the Gateway office building.  As disclosed in the Company’s definitive proxy statement filed with the SEC on April 27, 2012, Red Bird is a real estate holding company owned by six Directors of the Company, as well as Judith A. Hunsicker, Senior Executive Vice President and Chief Operating and Financial Officer.  Prior to its execution, the terms of the Agreement, including the rental amount, were determined by a majority of the disinterested Directors to be no less favorable to the Bank than the terms then prevailing in the relevant market.

 

 Deposits

 

Total deposits at September 30, 2012 increased $61.6 million to $543.4 million from $481.8 million at December 31, 2011. Savings deposits increased by $57.9 million and demand deposits increased by $18.9 million, while time deposits decreased $14.4 million. The significant growth in savings and demand deposits is attributed to successful promotions, as well as migration from time deposits.

 

Liquidity

 

Liquidity represents the Company’s ability to meet the demands required for the funding of loans and to meet depositors’ requirements for use of their funds. The Company’s sources of liquidity are cash balances, due from banks, and federal funds sold. Cash and cash equivalents were $51.1 million at September 30, 2012, compared to $46.1 million at December 31, 2011.

 

Additional asset liquidity sources include principal and interest payments from the investment security and loan portfolios. Long-term liquidity needs may be met by selling unpledged securities available for sale, selling loans or raising additional capital. At September 30, 2012, the Company had $98.7 million of available for sale securities. Securities with carrying values of approximately $50.0 million and $47.7 million at September 30, 2012 and December 31, 2011, respectively, were pledged as collateral to secure securities sold under agreements to repurchase, public deposits, and for other purposes required or permitted by law.

 

The Bank also has borrowing capacity with the FHLB of approximately $228.5 million, of which $7.9 million was outstanding in long-term loans at September 30, 2012 and December 31, 2011.  This borrowing capacity with the FHLB includes a line of credit for $25 million, of which there is no balance outstanding as of September 30, 2012.   Both of the long-term loans mature in 2013.  There were no short-term advances outstanding at September 30, 2012 and December 31, 2011. All FHLB borrowings are secured by qualifying assets of the Bank.

 

The Bank also has a line of credit with ACBB of approximately $6.0 million, of which none was outstanding at September 30, 2012.    Advances from this line are unsecured.

 

The Company has two lines of credit totaling an aggregate of $10 million with Univest, of which an aggregate of $4.9 million was outstanding at September 30, 2012. These lines of credit are secured by 833,333 shares of Bank common stock.

 

The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or capital resources.

 

Off-Balance Sheet Arrangements

 

The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These off-balance sheet arrangements consist of unfunded loans and commitments, as well as lines of credit made under the same standards as on-balance sheet instruments. These unused commitments totaled $88.0 million at September 30, 2012. The Company also has letters of credit outstanding of $5.0 million at September 30, 2012. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Company. Management is of the opinion that the Company’s liquidity is sufficient to meet its anticipated needs.

 

32

 


 

 

Capital Resources and Adequacy

 

Total stockholders’ equity was $48.7 million as of September 30, 2012,  representing a net increase of $4.4 million from December 31, 2011The increase in capital was primarily the result of the net income of $4.2 million and the increase in unrealized holding gains on available for sale securities of $234 thousand, offset by a dividend declared in the amount of $288 thousand.

 

The Company and the Bank are subject to various regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the consolidated financial statements. 

The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and Tier I capital to average assets (as defined). As of September 30, 2012, the Bank met the minimum requirements. In addition, the Bank’s capital ratios exceeded the amounts required to be considered “well capitalized” as defined in the regulations.

The following table provides a comparison of the Bank’s risk-based capital ratios and leverage ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I, common stockholders' equity

$

50,502 

 

 

$

46,648 

 

 

 

Tier II, allowable portion of allowance for loan losses

 

4,820 

 

 

 

4,215 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital

$

55,322 

 

 

$

50,863 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I risk based capital ratio

 

12.30 

%

 

 

12.7 

%

 

 

 

 

 

 

 

 

 

 

 

 

Total risk based capital ratio

 

13.47 

%

 

 

13.8 

%

 

 

 

 

 

 

 

 

 

 

 

 

Tier I leverage ratio

 

7.87 

%

 

 

8.3 

%

 

 

 

 

 

 

 

 

 

 

 

 

Note: Unrealized gains on securities available for sale are excluded from regulatory capital components of risk-based                                         capital and leverage ratios

 

The Federal banking regulators have adopted risk-based capital guidelines for bank holding companies. Currently, the required minimum ratio of total capital to risk-weighted assets (including off-balance sheet activities, such as standby letters of credit) is 8%. At least half of the total capital is required to be Tier I capital, consisting principally of common shareholders’ equity, non-cumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill. The remainder (Tier II capital) may consist of a limited amount of subordinated debt and intermediate-term preferred stock, certain hybrid capital instruments and other debt securities, perpetual preferred stock and a limited amount of the general loan loss allowance.

 

In addition to the risk-based capital guidelines, the federal banking regulators established minimum leverage ratio (Tier I capital to total assets) guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of 3% for those bank holding companies which have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to maintain a leverage ratio of at least 4%. 

 

 

 

 

 

 

33

 


 

 

The following table provides the Company’s risk-based capital ratios and leverage ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars In Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I, common stockholders' equity

$

46,119 

 

 

$

41,945 

 

 

 

Tier II, allowable portion of allowance for loan losses

 

4,820 

 

 

 

4,215 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total capital

$

50,939 

 

 

$

46,160 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier I risk based capital ratio

 

11.23 

%

 

 

11.4 

%

 

 

 

 

 

 

 

 

 

 

 

 

Total risk based capital ratio

 

12.41 

%

 

 

12.6 

%

 

 

 

 

 

 

 

 

 

 

 

 

Tier I leverage ratio

 

7.14 

%

 

 

7.4 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34

 


 

 

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

 

Not Applicable.

 

Item 4 – Controls and Procedures

 

The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012, and they have concluded that, as of this date, our disclosure controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

 

There were no significant changes to our internal controls over financial reporting or in the other factors that could significantly affect our internal controls over financial reporting during the quarter ended September 30, 2012, including any corrective actions with regard to significant deficiencies and material weakness.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 


 

 

 

Part II - Other Information

 

Item 1 - Legal Proceedings

 

The Company and the Bank are an occasional party to legal actions arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses and/or insurance coverage respecting any and each of these actions and does not believe that they will materially affect the Company’s operations or financial position.

 

Item 1A - Risk Factors

 

Not Applicable

 

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

 

Not Applicable

 

Item 3 - Defaults Upon Senior Securities

 

Not Applicable.

 

Item 4 – Mine Safety Disclosures

 

Not Applicable

 

Item 5 - Other Information

 

Not Applicable.

 

Item 6 - Exhibits

 

Exhibit

Number  

Description

 

 

3.1

Articles of Incorporation as amended (conformed) (Incorporated by reference to Exhibit 3.1 of Registrant’s Form 10-Q filed on May 14, 2010).

3.2

 

 

By-Laws (Incorporated by reference to Exhibit 2 of Registrant’s Form 8-A filed on December 11, 2008).

 

 

11.1

The statement regarding computation of per share earnings required by this exhibit is contained in Note 5 to the financial statements under the caption “Basic and Diluted Earnings Per Share.”

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32.

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002.

 

The following Exhibits are being furnished* as part of this report:

 

No.

Description

101.INS

XBRL Instance Document.*

101.SCH

XBRL Taxonomy Extension Schema Document.*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.*

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.*

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document.*

______________________

* These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.   

36

 


 

 

 

SIGNATURES

 In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

 

 

EMBASSY BANCORP, INC.

 

 

 

(Registrant)

 

 

 

 

 

 

By:

/s/ David M. Lobach, Jr.                                                                               

 

Dated: November 14, 2012

 

      David M. Lobach, Jr.

 

 

 

      President and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

Dated: November 14, 2012

By:

/s/ Judith A. Hunsicker                                                                     

 

 

 

      Judith A. Hunsicker

 

 

 

      Senior Executive Vice President,

 

 

 

      Chief Operating Officer, Secretary and   

 

 

 

     Chief Financial Officer

 

 

 

 

37

 


 

 

EXHIBIT INDEX

 

 

Exhibit

Number     

Description

 

 

3.1

Articles of Incorporation as amended (conformed) (Incorporated by reference to Exhibit 3.1 of Registrant’s Form 10-Q filed on May 14, 2010).

3.2

By-Laws (Incorporated by reference to Exhibit 2 of Registrant’s Form 8-A filed on December 11, 2008).

 

 

11.1

The statement regarding computation of per share earnings required by this exhibit is contained in Note 5 to the financial statements under the caption “Basic and Diluted Earnings Per Share.”

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32.

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002.

 

 

The following Exhibits are being furnished* as part of this report:

 

No.

Description

101.INS

XBRL Instance Document.*

101.SCH

XBRL Taxonomy Extension Schema Document.*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.*

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.*

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document.*

______________________

* These interactive data files are being furnished as part of this Quarterly Report, and, in accordance with Rule 402 of Regulation S-T, shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections. 

38