Embassy Bancorp 10Q 2024 Q3 Quarterly report

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, 2024 OR

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

Commission file number 000-53528


Embassy Bancorp, Inc.
(Exact name of registrant as specified in its charter)

Pennsylvania	26-3339011
(State of incorporation)	(I.R.S. Employer Identification No.)

One Hundred Gateway Drive, Suite 100 Bethlehem, PA	18017
(Address of principal executive offices)	(Zip Code)

(610) 882-8800
(Registrant’s Telephone Number)

Securities registered pursuant to Section 12(b) of the Act: None.

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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


Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer 	Smaller Reporting Company
Emerging Growth Company ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act.) Yes ¨ No 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 8, 2024	($1.00 Par Value)	7,618,715
	(Title Class)	(Outstanding Shares)

Embassy Bancorp, Inc.

Table of Contents


Part I – Financial Information	3

Item 1 – Financial Statements
Consolidated Balance Sheets (Unaudited)	3
Consolidated Statements of Income (Unaudited)	4
Consolidated Statements of ComprehensiveIncome (Loss) (Unaudited)	5
Consolidated Statements of Stockholders’ Equity (Unaudited)	6
Consolidated Statements of Cash Flows (Unaudited)	8
Notes to Consolidated Financial Statements (Unaudited)	9

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	41

Item 4 – Controls and Procedures	42

Part II - Other Information	42

Item 1 - Legal Proceedings	42

Item 1A - Risk Factors	42

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3 - Defaults Upon Senior Securities	42

Item 4 – Mine Safety Disclosures	42

Item 5 - Other Information	42

Item 6 - Exhibits	43

Signatures	44

‎

Embassy Bancorp, Inc.

Part I – Financial Information

Item 1 – Financial Statements

Consolidated Balance Sheets (Current Period Unaudited)



	September 30,		December 31,
ASSETS	2024		2023

	(In Thousands, Except Share Data)
Cash and due from banks	$	17,202	$	16,133
Interest bearing demand deposits with banks		73,705		61,790
Federal funds sold		1,000		1,000
Cash and Cash Equivalents		91,907		78,923
Securities available for sale		308,057		276,060
Restricted investment in bank stock		1,913		2,458
Loans receivable, net of allowance for credit losses of $12,206 in 2024; $12,461 in 2023		1,246,524		1,241,578
Premises and equipment, net of accumulated depreciation		3,411		3,734
Bank owned life insurance		36,226		26,310
Accrued interest receivable		3,457		3,298
Other assets		23,699		24,135
Total Assets	$	1,715,194	$	1,656,496
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	330,590	$	328,669
Interest bearing		1,204,585		1,147,564
Total Deposits		1,535,175		1,476,233
Securities sold under agreements to repurchase		18,223		15,237
Short-term borrowings		21,875		35,000
Accrued interest payable		8,126		7,844
Other liabilities		17,301		16,527
Total Liabilities		1,600,700		1,550,841
Stockholders' Equity:
Common stock, $1 par value; authorized 20,000,000 shares;
2024 issued 7,780,727 shares; outstanding 7,618,715 shares;
2023 issued 7,758,247 shares; outstanding 7,596,236 shares;		7,781		7,758
Surplus		28,736		28,246
Retained earnings		120,561		116,018
Accumulated other comprehensive loss		(39,917)		(43,700)
Treasury stock, at cost: 162,011 shares at September 30, 2024 and
December 31, 2023, respectively		(2,667)		(2,667)
Total Stockholders' Equity		114,494		105,655
Total Liabilities and Stockholders' Equity	$	1,715,194	$	1,656,496

See notes to consolidated financial statements (unaudited).

‎

Embassy Bancorp, Inc.

Consolidated Statements of Income (Unaudited)



	Three Months Ended September 30,				Nine Months Ended September 30,

	2024		2023		2024			2023

	(In Thousands, Except Per Share Data)

INTEREST INCOME
Loans, including fees	$	13,803	$	12,523	$	40,277	$	35,890
Securities, taxable		1,694		1,548		4,512		4,650
Securities, non-taxable		296		305		890		915
Short-term investments, including federal funds sold		1,129		137		2,459		936
Total Interest Income		16,922		14,513		48,138		42,391
INTEREST EXPENSE
Deposits		7,587		4,956		20,927		11,824
Securities sold under agreements to repurchase and federal
funds purchased		161		66		425		209
Short-term borrowings		4		91		9		98
Total Interest Expense		7,752		5,113		21,361		12,131
Net Interest Income		9,170		9,400		26,777		30,260
CREDIT FOR CREDIT LOSSES		(30)		(300)		(385)		(190)
Net Interest Income after ‎ Credit for Credit Losses		9,200		9,700		27,162		30,450
OTHER NON-INTEREST INCOME
Merchant and credit card processing fees		84		91		247		273
Debit card interchange fees		233		222		676		671
Other service fees		176		158		481		468
Bank owned life insurance		360		99		886		491
Total Other Non-Interest Income		853		570		2,290		1,903
OTHER NON-INTEREST EXPENSES
Salaries and employee benefits		3,671		3,487		10,598		10,805
Occupancy and equipment		1,001		979		3,053		2,915
Data processing		679		694		2,124		2,224
Advertising and promotion		235		257		625		824
Professional fees		283		310		814		809
FDIC insurance		204		192		582		569
Loan & real estate		59		58		175		155
Charitable contributions		208		208		725		721
Other		468		416		1,490		1,309
Total Other Non-Interest Expenses		6,808		6,601		20,186		20,331

Income Before Income Taxes		3,245		3,669		9,266		12,022
INCOME TAX EXPENSE		531		667		1,524		2,186
Net Income	$	2,714	$	3,002	$	7,742	$	9,836

BASIC EARNINGS PER SHARE	$	0.36	$	0.39	$	1.02	$	1.29

DILUTED EARNINGS PER SHARE	$	0.36	$	0.39	$	1.02	$	1.29

DIVIDENDS PER SHARE	$	-	$	-	$	0.42	$	0.40

See notes to consolidated financial statements (unaudited).
‎

Embassy Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)



	Three Months Ended September 30,
	2024			2023

		(In Thousands)
Net Income	$		2,714	$		3,002
Change in Accumulated Other Comprehensive Loss:
Unrealized holding gain (loss) on securities available for sale		11,496			(15,833)
Less: reclassification adjustment for realized gains		-			-
		11,496			(15,833)
Income tax effect		(2,414)			3,325
Net unrealized gain (loss)		9,082			(12,508)
Other comprehensive income (loss), net of tax			9,082			(12,508)
Comprehensive Income (Loss)	$		11,796	$		(9,506)



	Nine Months Ended September 30,
	2024			2023

		(In Thousands)

Net Income	$		7,742	$		9,836
Change in Accumulated Other Comprehensive Loss:
Unrealized holding gain (loss) on securities available for sale		4,789			(12,466)
Less: reclassification adjustment for realized gains		-			-
		4,789			(12,466)
Income tax effect		(1,006)			2,618
Net unrealized gain (loss)		3,783			(9,848)
Other comprehensive income (loss), net of tax			3,783			(9,848)
Comprehensive Income (Loss)	$		11,525	$		(12)

See notes to consolidated financial statements (unaudited).

Embassy Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)


	Nine Months Ended September 30, 2024
	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total

	(In Thousands, Except Share Data)
BALANCE - DECEMBER 31, 2023	$	7,758	$	28,246	$	116,018	$	(43,700)	$	(2,667)	$	105,655
Net income		-		-		2,536		-		-		2,536
Other comprehensive loss, net of tax		-		-		-		(4,758)		-		(4,758)
Common stock grants to directors, ‎ 18,843 shares		19		248		-		-		-		267
Compensation expense recognized on stock ‎grants, net of unearned compensation expense ‎ of $265		-		67		-		-		-		67
Shares issued under employee stock purchase ‎plan, 1,393 shares		1		17		-		-		-		18
BALANCE - MARCH 31, 2024	$	7,778	$	28,578	$	118,554	$	(48,458)	$	(2,667)	$	103,785

Net income		-		-		2,492		-		-		2,492
Other comprehensive loss, net of tax		-		-		-		(541)		-		(541)
Dividend declared, $0.42 per share		-		-		(3,199)		-		-		(3,199)
Compensation expense recognized on ‎stock grants, net of unearned compensation ‎ expense of $198		-		66		-		-		-		66
Shares issued under employee stock purchase ‎plan, 1,209 shares		2		15		-		-		-		17
BALANCE - JUNE 30, 2024	$	7,780	$	28,659	$	117,847	$	(48,999)	$	(2,667)	$	102,620

Net income		-		-		2,714		-		-		2,714
Other comprehensive income, net of tax		-		-		-		9,082		-		9,082
Compensation expense recognized on ‎stock grants, net of unearned compensation ‎ expense of $136		-		62		-		-		-		62
Shares issued under employee stock purchase ‎plan, 1,035 shares		1		15		-		-		-		16
BALANCE - SEPTEMBER 30, 2024	$	7,781	$	28,736	$	120,561	$	(39,917)	$	(2,667)	$	114,494

‎

Embassy Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)


	Nine Months Ended September 30, 2023
	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total

	(In Thousands, Except Share Data)
BALANCE - DECEMBER 31, 2022	$	7,740	$	27,627	$	106,551	$	(51,107)	$	(2,535)	$	88,276
Net income		-		-		3,787		-		-		3,787
Other comprehensive income, net of tax		-		-		-		3,356		-		3,356
Common stock grants to directors, ‎ 13,877 shares		14		243		-		-		-		257
Compensation expense recognized on stock ‎grants, net of unearned compensation expense ‎of $560		-		82		-		-		-		82
Shares issued under employee stock purchase ‎plan, 939 shares		1		15		-		-		-		16
Cumulative effect from change in accounting ‎ principle - CECL		-		-		(148)		-		-		(148)
BALANCE - MARCH 31, 2023	$	7,755	$	27,967	$	110,190	$	(47,751)	$	(2,535)	$	95,626

Net income		-		-		3,047		-		-		3,047
Other comprehensive loss, net of tax		-		-		-		(696)		-		(696)
Dividend declared, $0.40 per share		-		-		(3,041)		-		-		(3,041)
Compensation expense recognized on ‎ stock grants, net of unearned compensation ‎expense of $484		-		76		-		-		-		76
Shares issued under employee stock purchase ‎plan, 1,357 shares		1		18		-		-		-		19
BALANCE - JUNE 30, 2023	$	7,756	$	28,061	$	110,196	$	(48,447)	$	(2,535)	$	95,031

Net income		-		-		3,002		-		-		3,002
Other comprehensive loss, net of tax		-		-		-		(12,508)		-		(12,508)
Compensation expense recognized on ‎ stock grants, net of unearned compensation ‎expense of $407		-		77		-		-		-		77
Shares issued under employee stock purchase ‎plan, 1,027 shares		1		15		-		-		-		16
BALANCE - SEPTEMBER 30, 2023	$	7,757	$	28,153	$	113,198	$	(60,955)	$	(2,535)	$	85,618

See notes to consolidated financial statements (unaudited).

Embassy Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30,
	2024		2023

	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,742	$	9,836
Adjustments to reconcile net income to net cash provided by operating activities:
Credit for credit losses		(385)		(190)
Amortization of deferred loan costs		234		169
Depreciation		810		663
Net accretion of investment security premiums and discounts		(526)		(431)
Stock compensation expense		462		492
Income on bank owned life insurance		(886)		(491)
Increase in accrued interest receivable		(159)		(331)
Decrease in other assets		561		260
Increase in accrued interest payable		282		6,346
(Decrease) increase in other liabilities		(357)		415
Net Cash Provided by Operating Activities		7,778		16,738
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale		(44,262)		(4,874)
Maturities, calls and principal repayments of securities available for sale		17,580		14,809
Net increase in loans		(4,795)		(41,031)
Net redemption (purchase) of restricted investment in bank stock		545		(3,365)
Purchase of bank owned life insurance		(9,030)		-
Purchases of premises and equipment		(487)		(599)
Proceeds on bank owned life insurance		-		29
Net Cash Used in Investing Activities		(40,449)		(35,031)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits		58,942		(48,848)
Net increase (decrease) in securities sold under agreements to repurchase		2,986		(2,044)
(Decrease) increase in short-term borrowings		(13,125)		82,542
Proceeds from Employee Stock Purchase Plan		51		51
Dividends paid		(3,199)		(3,041)
Net Cash Provided by Financing Activities		45,655		28,660
Net Increase in Cash and Cash Equivalents		12,984		10,367
CASH AND CASH EQUIVALENTS - BEGINNING		78,923		67,295
CASH AND CASH EQUIVALENTS - ENDING	$	91,907	$	77,662

SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid	$	21,079	$	5,785
Income taxes paid	$	1,841	$	3,000


Non-cash Investing and Financing Activities:

Right of use assets obtained in exchange for new operating lease liabilities	$	1,131	$	-

See notes to consolidated financial statements (unaudited).

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, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

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, 2023, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 28, 2024.

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

Certain amounts in the 2023 consolidated financial statements may have been reclassified to conform to 2024 presentation. These reclassifications had no effect on 2023 net income.

Note 2 - Summary of Significant Accounting Policies

The significant accounting policies of the Company as applied in the interim financial statements presented herein 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, 2023.

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Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 3 – Securities Available For Sale

At September 30, 2024 and December 31, 2023, 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, 2024:
U.S. Treasury securities	$	39,507	$	39	$	(78)	$	39,468
U.S. Government agency obligations		17,429		35		(60)		17,404
Municipal bonds		72,691		45		(11,637)		61,099
U.S. Government Sponsored Enterprise (GSE) - ‎ Mortgage-backed securities - commercial		508		-		(53)		455
U.S. Government Sponsored Enterprise (GSE) - ‎ Mortgage-backed securities - residential		228,449		2		(38,820)		189,631
Total	$	358,584	$	121	$	(50,648)	$	308,057

December 31, 2023:
U.S. Treasury securities	$	14,867	$	-	$	(277)	$	14,590
U.S. Government agency obligations		2,463		-		(124)		2,339
Municipal bonds		73,128		73		(12,405)		60,796
U.S. Government Sponsored Enterprise (GSE) - ‎ Mortgage-backed securities - commercial		509		-		(67)		442
U.S. Government Sponsored Enterprise (GSE) - ‎ Mortgage-backed securities - residential		240,409		2		(42,518)		197,893
Total	$	331,376	$	75	$	(55,391)	$	276,060

The amortized cost and fair value of securities as of September 30, 2024, 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)
September 30, 2024:
Due in one year or less	$	51,915	$	51,833
Due after one year through five years		7,370		7,312
Due after five years through ten years		6,874		6,644
Due after ten years		63,468		52,182
		129,627		117,971
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - commercial		508		455
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		228,449		189,631
Total	$	358,584	$	308,057

There were no sales of securities for the three and nine months ended September 30, 2024 and 2023.

Securities with a carrying value of $163.9 million and $145.7 million at September 30, 2024 and December 31, 2023, respectively, were subject to agreements to repurchase, pledged to secure public deposits, or pledged for other purposes required or permitted by law.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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, 2024 and December 31, 2023:



		Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

September 30, 2024:	(In Thousands)
U.S. Treasury securities	$	-	$	-	$	9,895	$	(78)	$	9,895	$	(78)
U.S. Government agency obligations		-		-		2,420		(60)		2,420		(60)
Municipal bonds		12,675		(664)		46,360		(10,973)		59,035		(11,637)
U.S. Government Sponsored Enterprise
(GSE) - Mortgage -backed securities -
commercial		-		-		455		(53)		455		(53)
U.S. Government Sponsored Enterprise
(GSE) - Mortgage -backed securities -
residential		-		-		189,564		(38,820)		189,564		(38,820)
Total Temporarily Impaired Securities	$	12,675	$	(664)	$	248,694	$	(49,984)	$	261,369	$	(50,648)
		.
December 31, 2023:
U.S. Treasury securities	$	-	$	-	$	14,590	$	(277)	$	14,590	$	(277)
U.S. Government agency obligations		-		-		2,339		(124)		2,339		(124)
Municipal bonds		5,561		(201)		52,267		(12,204)		57,828		(12,405)
U.S. Government Sponsored Enterprise
(GSE) - Mortgage -backed securities -
commercial		-		-		442		(67)		442		(67)
U.S. Government Sponsored Enterprise
(GSE) - Mortgage -backed securities -
residential		-		-		197,796		(42,518)		197,796		(42,518)
Total Temporarily Impaired Securities	$	5,561	$	(201)	$	267,434	$	(55,190)	$	272,995	$	(55,391)

The Company had one hundred eighty-eight (188) securities in an unrealized loss position at September 30, 2024 and one hundred eighty-nine (189) securities in an unrealized loss position at December 31, 2023. The Company reviews its investment portfolio on a quarterly basis for indications of impairment due to credit-related factors or noncredit-related factors. The Company does not intend to sell the securities and has the intent and ability to hold them for a period of time sufficient for recovery of their amortized cost basis. This review includes analyzing the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Management believes that the unrealized loss only represents temporary impairment of the securities, which are predominantly backed by credit of government agencies, and are a result of the increased market interest rates since the time of purchase, and not the credit quality of the issuer. As such, no allowance for credit losses was required on securities available for sale in an unrealized loss position at September 30, 2024 and December 31, 2023.

Note 4 – Restricted Investment in Bank Stock

Restricted investments in bank stock consist of FHLBank of Pittsburgh (“FHLB”) stock and Atlantic Community 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. The Bank had FHLB stock at a carrying value of $1.9 million and $2.4 million as of September 30, 2024 and December 31, 2023, respectively. The Bank had ACBB stock at a carrying value of $40 thousand at September 30, 2024 and December 31, 2023.

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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 or ACBB stock as of September 30, 2024.

Note 5 – Loans and Credit Quality

The following table presents the composition of loans receivable at September 30, 2024 and December 31, 2023, respectively:



	September 30, 2024			December 31, 2023
			Percentage of			Percentage of
	Balance		total Loans	Balance		total Loans

		(Dollars in Thousands)

Commercial real estate	$	534,004	42.45%	$	539,034	43.00%
Commercial construction		19,886	1.58%		16,840	1.34%
Commercial		37,185	2.95%		33,951	2.71%
Residential real estate		666,491	52.98%		663,127	52.90%
Consumer		518	0.04%		565	0.05%
Total loans		1,258,084	100.00%		1,253,517	100.00%
Unearned origination fees		646			522
Allowance for credit losses		(12,206)			(12,461)
Net Loans	$	1,246,524		$	1,241,578

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weakness), substandard (well defined weakness) and doubtful (full collection unlikely) within the Company's internal risk rating system as of September 30, 2024 by year of origination:


		2024		2023		2022		2021		2020		Prior		Revolving		Total

		(In Thousands)
Commercial
real estate
	Pass	$	39,974	$	59,399	$	147,920	$	49,038	$	58,286	$	168,955	$	9,084	$	532,656
	Special Mention		-		-		-		136		-		-		-		136
	Substandard		-		-		-		-		-		1,212		-		1,212
	Total		39,974		59,399		147,920		49,174		58,286		170,167		9,084		534,004

Commercial
construction
	Pass		2,617		4,264		7,544		5,139		-		29		-		19,593
	Special Mention		-		-		-		-		-		-		-		-
	Substandard		-		-		-		-		-		238		55		293
	Total		2,617		4,264		7,544		5,139		-		267		55		19,886

Commercial
	Pass		5,985		1,717		3,534		754		2,668		12,435		6,643		33,736
	Special Mention		191		-		409		922		147		20		1,760		3,449
	Substandard		-		-		-		-		-		-		-		-
	Total		6,176		1,717		3,943		1,676		2,815		12,455		8,403		37,185

Residential
real estate
	Pass		57,133		67,023		89,936		146,767		131,372		151,130		21,879		665,240
	Special Mention		-		-		-		-		-		425		-		425
	Substandard		-		-		43		196		-		587		-		826
	Total		57,133		67,023		89,979		146,963		131,372		152,142		21,879		666,491

Consumer
	Pass		98		73		83		13		-		4		247		518
	Special Mention		-		-		-		-		-		-		-		-
	Substandard		-		-		-		-		-		-		-		-
	Total		98		73		83		13		-		4		247		518
Total
Loans Receivable		$	105,998	$	132,476	$	249,469	$	202,965	$	192,473	$	335,035	$	39,668	$	1,258,084

The Company had gross charge-offs of $11 thousand during the nine months ending September 30, 2024. One (1) charge-off of $5 thousand was a consumer loan originated in 2021 and one (1) charge-off of $6 thousand was a consumer loan originated in 2023.

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)


		2023		2022		2021		2020		2019		Prior		Revolving		Total

		(In Thousands)
Commercial
real estate
	Pass	$	62,467	$	160,257	$	58,094	$	64,146	$	26,835	$	157,888	$	8,094	$	537,781
	Special Mention		-		-		-		-		-		-		-		-
	Substandard		-		-		-		-		-		1,253		-		1,253
	Total		62,467		160,257		58,094		64,146		26,835		159,141		8,094		539,034

Commercial
construction
	Pass		2,071		8,591		5,412		-		440		30		-		16,544
	Special Mention		-		-		-		-		-		-		-		-
	Substandard		-		-		-		-		-		241		55		296
	Total		2,071		8,591		5,412		-		440		271		55		16,840

Commercial
	Pass		2,236		4,851		2,260		3,312		5,388		9,311		6,572		33,930
	Special Mention		-		-		-		-		21		-		-		21
	Substandard		-		-		-		-		-		-		-		-
	Total		2,236		4,851		2,260		3,312		5,409		9,311		6,572		33,951

Residential
real estate
	Pass		75,372		96,032		158,135		142,318		46,035		122,252		21,423		661,567
	Special Mention		-		-		-		-		-		443		-		443
	Substandard		-		-		-		-		173		944		-		1,117
	Total		75,372		96,032		158,135		142,318		46,208		123,639		21,423		663,127

Consumer
	Pass		130		118		22		1		13		11		270		565
	Special Mention		-		-		-		-		-		-		-		-
	Substandard		-		-		-		-		-		-		-		-
	Total		130		118		22		1		13		11		270		565
Total
Loans Receivable		$	142,276	$	269,849	$	223,923	$	209,777	$	78,905	$	292,373	$	36,414	$	1,253,517

The Company had no loans that were charged off during the year ended December 31, 2023.

At September 30, 2024, the Company had no foreclosed assets and had one (1) recorded investment in mortgage loans collateralized by residential real estate property in the process of foreclosure in the amount of $173 thousand. At December 31, 2023, the Company had no foreclosed assets and had one (1) recorded investment in a mortgage loan collateralized by residential real estate property in the process of foreclosure in the amount of $121 thousand.

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the carrying value and related allowance for credit losses of individually analyzed loans at September 30, 2024 and December 31, 2023, respectively:


	September 30, 2024						December 31, 2023
	Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses		Recorded Investment		Unpaid Principal Balance		Related Allowance for Credit Losses
	(In Thousands)
With no related allowance recorded:
Commercial real estate (1)	$	1,348	$	1,348			$	1,303	$	1,543
Commercial construction (1)		55		55				55		55
Commercial (1)		513		513				-		-
Residential real estate (1)		970		973				1,202		1,206
Consumer		-		-				-		-
With an allowance recorded:
Commercial real estate	$	-	$	-	$	-	$	-	$	-	$	-
Commercial construction (1)		238		238		19		241		241		22
Commercial (2)		35		35		35		21		21		21
Residential real estate (1)		425		425		82		516		516		152
Consumer		-		-		-		-		-		-
Total:
Commercial real estate	$	1,348	$	1,348	$	-	$	1,303	$	1,543	$	-
Commercial construction		293		293		19		296		296		22
Commercial		548		548		35		21		21		21
Residential real estate		1,395		1,398		82		1,718		1,722		152
Consumer		-		-		-		-		-		-
	$	3,584	$	3,587	$	136	$	3,338	$	3,582	$	195

1.All loans are real estate collateral dependent.

2.All loans are non-collateral dependent loans.

The following table presents non-accrual loans by classes of the loan portfolio:



	September 30, 2024		December 31, 2023

	(In Thousands)
Commercial real estate	$	136	$	-
Commercial construction		-		-
Commercial		528		-
Residential real estate		544		366
Consumer		-		-
Total	$	1,208	$	366

As of September 30, 2024, there were seven (7) loans in non-accrual status in the amount of $1.2 million, of which one (1) loan of $15 thousand is non-collateral dependent and required a related allowance of $15 thousand. The remaining collateral dependent non-accrual loans did not have a required related allowance. There was interest income of $7 thousand and $32 thousand recognized for the three and nine months ended September 30, 2024, respectively, on non-accrual loans. As of December 31, 2023, there were three (3) loans in non-accrual status in the amount of $366 thousand. There was a required related allowance of $66 thousand for these collateral dependent non-accrual loans.
‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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, 2024 and December 31, 2023, respectively:


					Greater								Loan
					than								Receivables >
	30-59 Days		60-89 Days		90 Days		Total				Total Loan		90 Days and
	Past Due		Past Due		Past Due		Past Due		Current		Receivables		Accruing

September 30, 2024	(In Thousands)
Commercial real estate	$	349	$	-	$	136	$	485	$	533,519	$	534,004	$	-
Commercial construction		-		-		-		-		19,886		19,886		-
Commercial		-		15		-		15		37,170		37,185		-
Residential real estate		1,490		-		501		1,991		664,500		666,491		-
Consumer		4		-		-		4		514		518		-
Total	$	1,843	$	15	$	637	$	2,495	$	1,255,589	$	1,258,084	$	-
December 31, 2023
Commercial real estate	$	630	$	-	$	-	$	630	$	538,404	$	539,034	$	-
Commercial construction		-		-		-		-		16,840		16,840		-
Commercial		-		-		-		-		33,951		33,951		-
Residential real estate		344		-		193		537		662,590		663,127		-
Consumer		-		-		-		-		565		565		-
Total	$	974	$	-	$	193	$	1,167	$	1,252,350	$	1,253,517	$	-

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following tables detail the activity in the allowance for credit losses for the three and nine months ended September 30, 2024 and September 30, 2023, respectively:


	Commercial Real Estate		Commercial Construction		Commercial		Residential Real Estate		Consumer		Unallocated		Total

Allowance for credit losses	(In Thousands)
Three Months Ending September 30, 2024
Beginning Balance - June 30, 2024	$	6,017	$	227	$	525	$	5,438	$	39	$	-	$	12,246
Charge-offs		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-
Provisions (credits) on loans		(22)		6		(9)		(9)		(6)		-		(40)
Ending Balance - September 30, 2024	$	5,995	$	233	$	516	$	5,429	$	33	$	-	$	12,206

Nine Months Ending September 30, 2024
Beginning Balance - December 31, 2023	$	6,108	$	195	$	920	$	5,224	$	14	$	-	$	12,461
Charge-offs		-		-		-		-		(11)		-		(11)
Recoveries		240		-		-		-		-		-		240
Provisions (credits) on loans		(353)		38		(404)		205		30		-		(484)
Ending Balance - September 30, 2024	$	5,995	$	233	$	516	$	5,429	$	33	$	-	$	12,206

Allowance for credit losses
Three Months Ending September 30, 2023
Beginning Balance - June 30, 2023	$	5,941	$	317	$	973	$	5,299	$	23	$	195	$	12,748
Charge-offs		-		-		-		-		-		-		-
Recoveries		-		-		-		1		-		-		1
Provisions (credits) on loans		(158)		46		(37)		29		3		(183)		(300)
Ending Balance - September 30, 2023	$	5,783	$	363	$	936	$	5,329	$	26	$	12	$	12,449

Nine Months Ending September 30, 2023
Beginning Balance - December 31, 2022	$	5,113	$	200	$	1,289	$	4,960	$	13	$	874	$	12,449
January 1, 2023 adoption of ASU 2016-13		492		77		(172)		522		19		(750)		188
Charge-offs		-		-		-		-		-		-		-
Recoveries		-		-		-		2		-		-		2
Provisions (credits) on loans		178		86		(181)		(155)		(6)		(112)		(190)
Ending Balance - September 30, 2023	$	5,783	$	363	$	936	$	5,329	$	26	$	12	$	12,449

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following tables represent the allocation for credit losses and the related loan portfolio disaggregated based on impairment methodology at September 30, 2024 and December 31, 2023:



	Commercial Real Estate		Commercial Construction		Commercial		Residential Real Estate		Consumer		Unallocated		Total

	(In Thousands)
September 30, 2024
Allowance for Credit Losses
Ending Balance	$	5,995	$	233	$	516	$	5,429	$	33	$	-	$	12,206
Ending balance: individually evaluated for impairment - real estate collateral dependent	$	-	$	19	$	-	$	82	$	-	$	-	$	101
Ending balance: individually evaluated for impairment - non-collateral dependent	$	-	$	-	$	35	$	-	$	-	$	-	$	35
Ending balance: collectively evaluated for impairment	$	5,995	$	214	$	481	$	5,347	$	33	$	-	$	12,070

Loans receivables:
Ending balance	$	534,004	$	19,886	$	37,185	$	666,491	$	518			$	1,258,084
Ending balance: individually evaluated for impairment - real estate collateral dependent	$	1,348	$	293	$	513	$	1,395	$	-			$	3,549
Ending balance: individually evaluated for impairment - non-collateral dependent	$	-	$	-	$	35	$	-	$	-			$	35
Ending balance: collectively evaluated for impairment	$	532,656	$	19,593	$	36,637	$	665,096	$	518			$	1,254,500

December 31, 2023
Allowance for Credit Losses
Ending Balance	$	6,108	$	195	$	920	$	5,224	$	14	$	-	$	12,461
Ending balance: individually evaluated for impairment - real estate collateral dependent	$	-	$	22	$	-	$	152	$	-	$	-	$	174
Ending balance: individually evaluated for impairment - non-collateral dependent	$	-	$	-	$	21	$	-	$	-	$	-	$	21
Ending balance: collectively evaluated for impairment	$	6,108	$	173	$	899	$	5,072	$	14	$	-	$	12,266

Loans receivables:
Ending balance	$	539,034	$	16,840	$	33,951	$	663,127	$	565			$	1,253,517
Ending balance: individually evaluated for impairment - real estate collateral dependent	$	1,303	$	296	$	-	$	1,718	$	-			$	3,317
Ending balance: individually evaluated for impairment - non-collateral dependent	$	-	$	-	$	21	$	-	$	-			$	21
Ending balance: collectively evaluated for impairment	$	537,731	$	16,544	$	33,930	$	661,409	$	565			$	1,250,179

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Based on the guidance in ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, a loan modification or refinancing results in a new loan if the terms of the new loan are at least as favorable to the lender as the terms with customers with similar collection risks that are not refinancing or restricting their loans and the modification to the terms of the loan are more than minor. If a loan modification or refinancing does not result in a new loan, it is classified as a loan modification.

There are additional disclosures for modification of loans with borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows. The disclosures are applicable to situations where there is principal forgiveness, interest rate reductions, other than insignificant payment delays, term extensions, or a combination of any of these items. If the Company modifies any loans to borrowers in financial distress that involves principal forgiveness, the amount of principal that is forgiven is charged off against the allowance for credit losses. The Company had no new loan modifications to borrowers experiencing financial difficulties in the three months ending September 30, 2024. The Company had no new loan modifications to borrowers experiencing financial difficulties in the three and nine months ending September 30, 2023, and there were no modifications to borrowers experiencing financial difficulties that were outstanding at September 30, 2023.

The following table presents new loan modifications for credit concerns during the nine months ending September 30, 2024:


	Number of Loans	Pre-Modification Outstanding Balance		Post- Modification Outstanding Balance

	(Dollars In Thousands)
Nine Months Ending September 30, 2024
Residential real estate	1	$	79	$	79
	1	$	79	$	79

The loan modification listed above was to a borrower experiencing financial distress and had no reserve recorded in the allowance for credit losses at September 30, 2024. The loan also was not past due at September 30, 2024. The modified home equity loan had an extended maturity date compared to the original loan, which represents less than 0.01% of the total residential real estate loans outstanding at September 30, 2024. There is no commitment to lend additional amounts on this modified loan. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. There were $138 thousand of modifications to borrowers experiencing financial difficulties that were outstanding at September 30, 2024.

Note 6 – Deposits

The components of deposits at September 30, 2024 and December 31, 2023 are as follows:


	September 30, 2024		December 31, 2023
	(In Thousands)

Demand, non-interest bearing	$	330,590	$	328,669
Demand, NOW and money market, interest bearing		280,034		252,400
Savings		445,881		493,129
Time, $250 and over		168,578		138,765
Time, other		310,092		263,270
Total deposits	$	1,535,175	$	1,476,233

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

At September 30, 2024, the scheduled maturities of time deposits are as follows (in thousands):


2024 (remainder of the year)	$	153,578
2025		292,285
2026		29,532
2027		1,902
2028		1,265
2029		108
	$	478,670

Note 7 – Short-term and Long-term Borrowings

Securities sold under agreements to repurchase, federal funds purchased, and FHLB short term advances generally represent overnight or less than twelve month borrowings. Long term advances from the FHLB are for periods of twelve months or more and are generally less than sixty months. The Bank has an agreement with the FHLB, which allows for borrowings up to a percentage of qualifying assets. At September 30, 2024, the Bank had a maximum borrowing capacity for short-term and long-term FHLB advances of approximately $686.8 million, of which $664.8 million is available for borrowing at September 30, 2024. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. The Bank had an outstanding FHLB letter of credit in the amount of $160 thousand as of September 30, 2024. There were $21.9 million FHLB short-term advances outstanding as of September 30, 2024 with an interest rate of 5.239%, which matured and was repaid on October 1, 2024. The Company had no long-term FHLB advances outstanding as of September 30, 2024. There were $35.0 million short-term FHLB advances outstanding and no long-term FHLB advances outstanding as of December 31, 2023. All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank has a federal funds line of credit with the ACBB of $10.0 million, of which none was outstanding at September 30, 2024 and December 31, 2023. Advances from this line are unsecured.

The Bank is also eligible to borrow under the Federal Reserve Bank’s discount window borrowing programs.

The Company has a revolving line of credit facility with the ACBB of $7.5 million, of which none was outstanding at September 30, 2024 and December 31, 2023. Advances from this line are unsecured. Under the terms of this renewed facility, availability under the revolving line of credit would be reduced to $5.0 million should the Company’s net tangible equity ratio drop below 5% and availability would be reduced to $2.0 million should the Company’s net tangible equity ratio drop below 2%. If the Company’s net tangible equity ratio drops below 0%, the commitment is cancelled.

Note 8 – Stock Incentive Plan and Employee Stock Purchase Plan

Stock Incentive Plan:

The Company maintains the Embassy Bancorp, Inc. Stock Incentive Plan (the “SIP”), originally adopted by the Company’s shareholders effective June 16, 2010 and subsequently amended, restated, and approved on June 20, 2019. The SIP authorizes the Board of Directors, or a committee authorized by the Board of Directors, to award a stock based incentive to (i) designated officers (including officers who are directors) and other designated employees at the Company and its subsidiaries, and (ii) non-employee members of the Board of Directors and advisors and consultants to the Company and its subsidiaries. The SIP provides for stock based incentives in the form of incentive stock options as provided in Section 422 of the Internal Revenue Code of 1986, non-qualified stock options, stock appreciation rights, restricted stock and deferred stock awards. The term of the option, the amount of time for the option to vest after grant, if any, and other terms and limitations will be determined at the time of grant. Options granted under the SIP may not have an exercise period that is more than ten years from the time the option is granted. The maximum number of shares of common stock authorized for issuance under the SIP is 756,356. 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 a merger, stock splits, stock dividends or other changes in the capitalization of the Company. The SIP expires on June 20, 2029. At September 30, 2024, there were 375,155 shares available for issuance under the SIP.

The Company grants shares of restricted stock, under the SIP, to certain members of its Board of Directors as compensation for their services, in accordance with the Company’s Non-employee Directors Compensation program adopted in October 2010. The Company also grants restricted stock to certain officers under individual agreements with these officers. Some of these restricted stock awards

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

vest immediately, while the remainder vest over the service period of two years to nine years. Management recognizes compensation expense for the fair value of the restricted stock awards on a straight-line basis over the requisite service period. Since inception of the plan and through the nine months ended September 30, 2024, there have been 264,958 awards granted. There were no awards granted during the three months ended September 30, 2024 and September 30, 2023. During the nine months ended September 30, 2024 and September 30, 2023 there were 18,843 and 13,877 awards granted, respectively. During the three and nine months ended September 30, 2024, the Company recognized compensation expense for restricted stock awards of $62 thousand and $462 thousand, respectively. During the three and nine months ended September 30, 2023, the Company recognized compensation expense for restricted stock awards of $77 thousand and $492 thousand, respectively.

Employee Stock Purchase Plan:

On January 1, 2017, the Company implemented the Embassy Bancorp, Inc. Employee Stock Purchase Plan (“ESPP”), which was approved by the Company’s shareholders at the annual meeting held on June 16, 2016. Under the ESPP, each employee of the Company and its subsidiaries who is employed on an offering date and customarily is scheduled to work at least twenty (20) hours per week and more than five (5) months in a calendar year is eligible to participate. The purchase price for shares purchased under the ESPP is 95% of the fair market value of such shares on the date of purchase. The purchase price may be adjusted from time to time by the Board of Directors; provided, however, that the discount to fair market value shall not exceed 15%. The Company has authorized 350,000 shares of its common stock for the ESPP, of which 30,129 shares have been issued as of September 30, 2024. The Company recognized discount expense in relation to the ESPP of $1 thousand and $3 thousand for the three and nine months ended September 30, 2024 and September 30, 2023, respectively.

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 9 – Other Comprehensive Income (Loss)

US GAAP requires that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income (loss). Management believes that the unrealized losses on securities available for sale are primarily a result of the increasing market interest rates since the time of purchase and the overall current market conditions.

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



	Three Months Ended September 30,
	2024						2023

	(In Thousands)

	Before		Tax		Net of		Before		Tax		Net of
	Tax		Effect		Tax		Tax		Effect		Tax
Change in accumulated other comprehensive loss:
Unrealized holding gains (losses) on securities ‎ available for sale	$	11,496	$	(2,414)	$	9,082	$	(15,833)	$	3,325	$	(12,508)
Reclassification adjustments for gains on securities ‎ transactions included in net income (A),(B)		-		-		-		-		-		-
Total other comprehensive income (loss)	$	11,496	$	(2,414)	$	9,082	$	(15,833)	$	3,325	$	(12,508)



	Nine Months Ended September 30,
	2024						2023

	(In Thousands)

	Before		Tax		Net of		Before		Tax		Net of
	Tax		Effect		Tax		Tax		Effect		Tax
Change in accumulated other comprehensive loss:
Unrealized holding gains (losses) on securities ‎ available for sale	$	4,789	$	(1,006)	$	3,783	$	(12,466)	$	2,618	$	(9,848)
Reclassification adjustments for gains on securities ‎ transactions included in net income (A),(B)		-		-		-		-		-		-
Total other comprehensive income (loss)	$	4,789	$	(1,006)	$	3,783	$	(12,466)	$	2,618	$	(9,848)

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

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

There were no realized gains on securities available for sale for the three and nine months ended September 30, 2024 and 2023.

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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


	Securities
	Available
	for Sale
Three Months Ended September 30, 2024 and 2023	(In Thousands)
Balance June 30, 2024	$	(48,999)
Other comprehensive income before reclassifications		9,082
Amounts reclassified from accumulated other ‎ comprehensive loss		-
Net other comprehensive income during the period		9,082
Balance September 30, 2024	$	(39,917)

Balance June 30, 2023	$	(48,447)
Other comprehensive loss before reclassifications		(12,508)
Amounts reclassified from accumulated other ‎ comprehensive loss		-
Net other comprehensive loss during the period		(12,508)
Balance September 30, 2023	$	(60,955)

Nine Months Ended September 30, 2024 and 2023
Balance January 1, 2024	$	(43,700)
Other comprehensive income before reclassifications		3,783
Amounts reclassified from accumulated other ‎ comprehensive loss		-
Net other comprehensive income during the period		3,783
Balance September 30, 2024	$	(39,917)

Balance January 1, 2023	$	(51,107)
Other comprehensive loss before reclassifications		(9,848)
Amounts reclassified from accumulated other ‎ comprehensive loss		-
Net other comprehensive loss during the period		(9,848)
Balance September 30, 2023	$	(60,955)

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 10 – 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				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

	(Dollars In Thousands, Except Share and Per Share Data)
Net income	$	2,714	$	3,002	$	7,742	$	9,836

Weighted average shares outstanding		7,617,691		7,603,175		7,612,311		7,598,968
Dilutive effect of potential common shares, stock options		-		-		-		-
Diluted weighted average common shares outstanding		7,617,691		7,603,175		7,612,311		7,598,968

Basic earnings per share	$	0.36	$	0.39	$	1.02	$	1.29
Diluted earnings per share	$	0.36	$	0.39	$	1.02	$	1.29

There were no stock options not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2024 and September 30, 2023.

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.

US GAAP 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 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).
‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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, 2024 and December 31, 2023, respectively, are as follows:


		(Level 1)		(Level 2)
		Quoted		Significant		(Level 3)
		Prices in Active		Other		Significant
		Markets for		Observable		Unobservable
Description	Identical Assets		Inputs		Inputs		Total

		(In Thousands)
U.S. Treasury securities	$	-	$	39,468	$	-	$	39,468
U.S. Government agency obligations		-		17,404		-		17,404
Municipal bonds		-		61,099		-		61,099
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - commercial		-		455		-		455
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - residential		-		189,631		-		189,631
September 30, 2024 Securities available for sale	$	-	$	308,057	$	-	$	308,057

U.S. Treasury securities	$	-	$	14,590	$	-	$	14,590
U.S. Government agency obligations		-		2,339		-		2,339
Municipal bonds		-		60,796		-		60,796
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - commercial		-		442		-		442
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - residential		-		197,893		-		197,893
December 31, 2023 Securities available for sale	$	-	$	276,060	$	-	$	276,060

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.

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, 2024 and December 31, 2023, respectively, are as follows:


		(Level 1)		(Level 2)
		Quoted		Significant		(Level 3)
		Prices in Active		Other		Significant
		Markets for		Observable		Unobservable
Description	Identical Assets		Inputs		Inputs		Total
		(In Thousands)
September 30, 2024 Loans Individually evaluated for credit losses	$	-	$	-	$	562	$	562
December 31, 2023 Loans Individually evaluated for credit losses	$	-	$	-	$	583	$	583

Loans individually evaluated for credit losses are those that are accounted for under existing Financial Accounting Standards Board (“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

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

proceeds. Fair values may also include qualitative adjustments by management based on economic conditions and liquidation expenses. 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, 2024, of the loans individually evaluated for credit losses having an aggregate balance of $3.6 million, $2.9 million did not require a valuation allowance because the value of the collateral, including estimated selling costs, securing the loan was determined to meet or exceed the balance owed on the loan. Of the remaining $698 thousand in loans individually evaluated for credit losses, an aggregate valuation allowance of $136 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 would be included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. At September 30, 2024 and December 31, 2023, respectively, the Company had no real estate properties acquired through, or in lieu of, foreclosure.

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, 2024:
Loans Individually evaluated for credit losses	$	562	Appraisal of real estate collateral	Appraisal adjustments (1)	0% to -25% (-25.0%)
			and pending agreement of sale	Liquidation expenses (2)	0% to -7.5% (-7.5%)
December 31, 2023:
Loans Individually evaluated for credit losses	$	583	Appraisal of real estate collateral	Appraisal adjustments (1)	0% to -25% (-24.8%)
			and pending agreement of sale	Liquidation expenses (2)	0% to -10.0% (-7.5%)

1.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.

2.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.

‎

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The estimated fair values of the Company’s financial instruments were as follows at September 30, 2024 and December 31, 2023:



						(Level 1)
						Quoted		(Level 2)
						Prices in		Significant		(Level 3)
						Active		Other		Significant
		Carrying		Fair Value		Markets for		Observable		Unobservable
		Amount		Estimate		Identical Assets		Inputs		Inputs

	(In Thousands)
September 30, 2024:
Financial assets:
Cash and cash equivalents	$	91,907	$	91,907	$	91,907	$	-	$	-
Securities available-for-sale		308,057		308,057		-		308,057		-
Loans receivable, net of allowance		1,246,524		1,174,043		-		-		1,174,043
Restricted investments in bank stock		1,913		1,913		-		1,913		-
Accrued interest receivable		3,457		3,457		-		3,457		-
Financial liabilities:
Deposits		1,535,175		1,533,455		-		1,533,455		-
Securities sold under agreements to
repurchase and federal funds purchased		18,223		18,223		-		18,223		-
Short-term borrowings		21,875		21,875		-		21,875		-
Accrued interest payable		8,126		8,126		-		8,126		-
Off-balance sheet financial instruments:
Commitments to grant loans		-		-		-		-		-
Unfunded commitments under lines of credit		-		-		-		-		-
Standby letters of credit		-		-		-		-		-

December 31, 2023:
Financial assets:
Cash and cash equivalents	$	78,923	$	78,923	$	78,923	$	-	$	-
Securities available-for-sale		276,060		276,060		-		276,060		-
Loans receivable, net of allowance		1,241,578		1,150,233		-		-		1,150,233
Restricted investments in bank stock		2,458		2,458		-		2,458		-
Accrued interest receivable		3,298		3,298		-		3,298		-
Financial liabilities:
Deposits		1,476,233		1,472,497		-		1,472,497		-
Securities sold under agreements to
repurchase and federal funds purchased		15,237		15,237		-		15,237		-
Short-term borrowings		35,000		35,000		-		35,000		-
Accrued interest payable		7,844		7,844		-		7,844		-
Off-balance sheet financial instruments:
Commitments to grant loans		-		-		-		-		-
Unfunded commitments under lines of credit		-		-		-		-		-
Standby letters of credit		-		-		-		-		-

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, 2024 and for the three and nine months ended September 30, 2024 and 2023, 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, 2023 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, 2023. 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 credit losses and the appropriate level of the allowance for credit losses. Additional information is contained in this Form 10-Q under the paragraphs titled “Provision for Credit Losses” and “Credit Risk and Loan Quality,” contained on the following pages.

Caution About 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:

the impact of adverse conditions in the economy and financial markets, including increasing or elevated interest rates, on the performance of the Company's loan portfolio and demand for the Company's products and services;

the potential impact of recent events affecting the financial services industry on the Company, including increased competition for, and costs of, deposits and other funding sources, more stringent regulatory requirements relating to liquidity, interest rate risk management, capital adequacy and increased FDIC insurance expenses;

the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact the money supply and market interest rates;

the effects of market interest rates, and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities, on net interest margin and net interest income;

the composition of the Company's loan portfolio, including commercial real estate and residential real estate, which collectively represent a majority of the loan portfolio, may expose the Company to increased credit risk;

the effects of changes in interest rates on demand for the Company's products and services;

investment securities gains and losses, including declines in the fair value of securities which may result in changes to earnings or shareholders' equity;

the effects of changes in interest rates or disruptions in liquidity markets on the Company's sources of funding;

capital and liquidity strategies, including the Company's ability to comply with applicable capital and liquidity requirements, and the Company's ability to generate capital internally or raise capital on favorable terms;

the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;

the impact of operational risks, including the risk of human error, inadequate or failed internal processes and systems, computer and telecommunications systems failures, faulty or incomplete data and an inadequate risk management framework;

the loss of, or failure to safeguard, confidential or proprietary information;

the Company's failure to identify and adequately and promptly address cybersecurity risks, including data breaches and cyberattacks;

the impact of failures from third-party vendors upon which the Company relies to perform in accordance with contractual arrangements and the effects of concerns about other financial institutions on the Company;
‎

the potential effects of increases in non-performing assets, which may require the Company to increase the allowance for credit losses, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;

the determination of the allowance for credit losses, which depends significantly upon assumptions and judgments with respect to a variety of factors, including the performance of the loan portfolio, the weighted-average remaining lives of different classifications of loans within the loan portfolio and current and forecasted economic conditions, among other factors;

the effects of the extensive level of regulation and supervision to which the Company and Bank are subject;

changes in regulation and government policy, which could result in significant changes in banking and financial services regulation;

the continuing impact of the Dodd-Frank Act on the Company’s business and results of operations;

the potential for negative consequences resulting from regulatory violations, investigations and examinations, including potential supervisory actions, the assessment of fines and penalties, the imposition of sanctions, the need to undertake remedial actions and possible damage to the Company’s reputation;

the effects of adverse outcomes in litigation and governmental or administrative proceedings;

the effects of changes in U.S. federal, state or local tax laws;

the effects of the significant amounts of time and expense associated with regulatory compliance and risk management;

geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

public health crises and pandemics and their effects on the economic and business environments in which the Company operates, including on the Company’s credit quality and business operations, as well as the impact on general economic and financial market conditions;

the Company’s ability to achieve its growth plans;

the Company’s ability to attract and retain talented personnel;

the effects of competition from financial service companies and other companies offering bank services;

the Company’s ability to keep pace with technological changes;

the effects of negative publicity on the Company’s reputation; and

other factors that may affect future results of the Company, as well as the risks described in the Company’s Form 10-K for the year ended December 31, 2023 and subsequent filings with the SEC.

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, for the purpose of providing a local community bank to serve Lehigh and Northampton Counties in Pennsylvania.

Since its inception, the Board’s philosophy has been that, by running the Bank with a view toward the long term, only good things will happen for the Bank’s customers, team members, shareholders and the Lehigh Valley community.

At September 30, 2024, the Company continued to be in a strong financial and operational condition. The Bank’s September 30, 2024 capital ratios exceeded the amounts required to be considered “well capitalized” as defined in applicable banking regulations. The Company’s ratio of non-performing loans to total loans at September 30, 2024 was 0.10% and the ratio of non-performing assets to total assets was 0.07%. The Company had its last Community Reinvestment Act (“CRA”) examination in 2022 and received a “satisfactory” rating.

The Company’s assets increased by $58.7 million from $1.66 billion at December 31, 2023 to $1.72 billion at September 30, 2024. The increase was due to a $13.0 million increase in cash and cash equivalents, an increase of $32.0 million in securities available for sale, an increase of $4.9 million in net loans receivable, and an increase of $9.9 million in bank owned life insurance. The $13.0 million increase in cash and cash equivalents was due to an increase in deposits of $58.9 million, an increase in securities sold under agreement to repurchase of $3.0 million, $17.6 million in principal pay downs on mortgage-backed securities and maturities within the

securities available for sale portfolio, offset by a decrease in short term borrowings of $13.1 million, the net loan growth of $4.9 million, the purchase of $44.3 million in securities available for sale, and the purchase of $9.0 million of bank owned life insurance policies in the first quarter of 2024. The $32.0 million increase in securities was net of a decrease in unrealized losses of $4.8 million. The current unrealized loss position of the securities portfolio is due to the increase in market interest rates in response to economic conditions since purchase and not due to the credit quality of the investment portfolio.

The Company's deposits increased by $58.9 million from $1.48 billion at December 31, 2023 to $1.54 billion at September 30, 2024. The increase in deposits was due to a $1.9 million increase in non-interest bearing deposits and an increase of $57.0 million in interest bearing deposits. The Company continues to seek deposits using a highly effective relationship building, sales and marketing effort, which serves to further increase the Company’s overall presence in the market it serves, along with deposit relationships developed as a result of cross-marketing efforts to its loan and other non-depository banking service customers. The Company’s success in attracting new deposit relationships is, in part, due to the increased usage of the Company’s online banking platform, competitively offered rates, and the continued convenience and efficiency of our branch network and branch personnel. The Company continues to take advantage of deposit opportunities created by mergers, name changes, competitive branch hour and service adjustments and/or closures in the Company’s market area, and by attracting new customers looking to relocate to a local, reputable community bank.

Net loans receivable increased by $4.9 million to $1.25 billion at September 30, 2024, as compared to $1.24 billion at December 31, 2023. The market continues to be very competitive and the Company is committed to maintaining a high-quality portfolio that returns a reasonable market rate. While the past and current economic and competitive conditions in the marketplace have created more competition for loans to creditworthy customers, the Company continues to expand its market presence and pipeline, and continues to focus on developing a reputation as being a market leader in both commercial and consumer/mortgage lending. Management believes that this combination of relationship building, cross marketing and responsible underwriting will translate into continued long-term growth of a portfolio of quality loans and core deposit relationships. The Company continues to monitor the interest rate exposure of its interest-bearing assets and liabilities. See the expanded discussion under the Financial Condition: Loans section below.

Net income for the three months ended September 30, 2024 was $2.7 million compared to net income for the three months ended September 30, 2023 of $3.0 million, a decrease of $288 thousand, or 9.6%. Basic and diluted earnings per share decreased to $0.36 for the three months ended September 30, 2024, as compared to $0.39 for the three months ended September 30, 2023. The difference in net income for the three months ended September 30, 2024 and September 30, 2023 resulted primarily from an increase in interest expense of $2.6 million, or 51.6%, due to the rate environment, as well as a slight increase in non-interest expense and a decrease in the credit for credit losses; offset by a $2.4 million increase in interest income and an increase in non-interest income.

Net income for the nine months ended September 30, 2024 was $7.7 million compared to net income for the nine months ended September 30, 2023 of $9.8 million, a decrease of $2.1 million, or 21.3%. Basic and diluted earnings per share decreased to $1.02 for the nine months ended September 30, 2024, as compared to $1.29 for the nine months ended September 30, 2023. The difference in net income for the nine months ended September 30, 2024 and September 30, 2023 resulted primarily from an increase in interest expense of $9.2 million, or 76.1%, due to the rate environment; offset by a $5.7 million increase in interest income, an increase in non-interest income, a slight decrease in non-interest expenses, and an increase in the credit for credit losses.

RESULTS OF OPERATIONS

Net Interest Income

The Company determines interest rate spread and margin on both a US GAAP and tax equivalent basis. The use of tax equivalent basis in determining interest rate spread and margin is considered a non-US GAAP measure. The Company believes the use of this measure provides meaningful information to the reader of the consolidated financial statements when comparing taxable and nontaxable assets. However, it is supplemental to US GAAP which is used to prepare the Company’s consolidated financial statements and should not be read in isolation or relied upon as a substitute for US GAAP measures. In addition, the non-US GAAP measure may not be comparable to non-US GAAP measures reported by other companies. The tax rate used to calculate the tax equivalent adjustments was 21% for 2024 and 2023.

Total interest income for the three months ended September 30, 2024 increased $2.4 million to $16.9 million, as compared to $14.5 million for the three months ended September 30, 2023. Average earning assets were $1.63 billion for the three months ended September 30, 2024 as compared to $1.57 billion for the three months ended September 30, 2023. The tax equivalent yield on average earning assets was 4.16% for the third quarter of 2024 compared to 3.71% for the third quarter of 2023.

Total interest expense for the three months ended September 30, 2024 increased $2.6 million to $7.8 million, as compared to $5.1 million for the three months ended September 30, 2023. Average interest bearing liabilities were $1.23 billion for the three months ended September 30, 2024 and $1.18 billion for the three months ended September 30, 2023. The yield on average interest bearing liabilities was 2.51% and 1.72% for the third quarter of 2024 and 2023, respectively.

Net interest income for the three months ended September 30, 2024 was $9.2 million, compared to $9.4 million for the three months ended September 30, 2023. The decrease in net interest income is, in part, the result of a decrease in the average balance of taxable investments, an increase in the average balance of certificates of deposit, an increase in the average balance of NOW and money markets, and an increase in the average balances of securities under agreement to repurchase, along with a decrease in the rate of non-taxable investments and an increase in the rates of interest bearing demand deposits, NOW, money market, savings, certificates of deposit, and securities under agreements to repurchase. The decrease in net interest income was offset by an increase in the average balances of taxable and non-taxable loans, an increase in the average balances of interest bearing deposits with banks and federal funds sold, along with an increase in the rates of taxable and non-taxable loans, taxable investments, federal funds sold, and interest bearing deposits with banks. Also offsetting the decrease in net interest income was a decrease in the average balance of savings and a decrease in the balance and rate of FHLB short term borrowings. The Company’s net interest margin is 2.24% on a US GAAP basis and 2.27% on a tax equivalent (non-US GAAP) basis for the three months ended September 30, 2024, as compared to 2.38% on a US GAAP basis and 2.42% on a tax equivalent (non-US GAAP) basis for the three months ended September 30, 2023.

Total interest income for the nine months ended September 30, 2024 increased $5.7 million to $48.1 million, as compared to $42.4 million for the nine months ended September 30, 2023. Average earning assets were $1.60 billion for the nine months ended September 30, 2024 as compared to $1.57 billion for the nine months ended September 30, 2023. The tax equivalent yield on average earning assets was 4.07% for the nine months ended September 30, 2024 compared to 3.64% for the nine months ended September 30, 2023.

Total interest expense for the nine months ended September 30, 2024 increased $9.2 million to $21.4 million, as compared to $12.1 million for the nine months ended September 30, 2023. Average interest bearing liabilities were $1.20 billion for the nine months ended September 30, 2024 and $1.17 billion for the nine months ended September 30, 2023. The yield on average interest bearing liabilities was 2.38% and 1.39% for the nine months ended September 30, 2024 and 2023, respectively.

Net interest income for the nine months ended September 30, 2024 was $26.8 million, compared to $30.3 million for the nine months ended September 30, 2023. The decrease in net interest income is, in part, the result of a decrease in the average balance of taxable investments and non-taxable investments, an increase in the average balance of certificates of deposit, an increase in the average balance of NOW and money markets, and an increase in the average balances of securities under agreement to repurchase, along with a decrease in the rate of non-taxable investments and an increase in the rates of interest bearing demand deposits, NOW, money market, savings, certificates of deposit, and securities under agreements to repurchase. The decrease in net interest income was offset by an increase in the average balances of taxable and non-taxable loans, an increase in the average balance of interest bearing deposits with banks, along with an increase in the rate of taxable and non-taxable loans, taxable investments, federal funds sold, and interest bearing deposits with banks. Also offsetting the decrease in net interest income was a decrease in the average balance of savings and a decrease in the balance and rate of FHLB short term borrowings. The Company’s net interest margin is 2.24% on a US GAAP basis and 2.28% on a tax equivalent (non-US GAAP) basis for the nine months ended September 30, 2024, as compared to 2.58% on a US GAAP basis and 2.61% on a tax equivalent (non-US GAAP) basis for the nine months ended September 30, 2023.

‎

The tables below set forth average balances and corresponding yields for the corresponding periods ended September 30, 2024 and 2023, respectively:

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (quarter to date)


	Three Months Ended September 30,
	2024					2023
					Tax					Tax
	Average				Equivalent	Average				Equivalent
	Balance			Interest	Yield	Balance			Interest	Yield

		(Dollars In Thousands)

ASSETS
Loans - taxable (2)	$	1,235,284	$	13,568	4.37%	$	1,218,905	$	12,295	4.00%
Loans - non-taxable (1)		27,530		235	4.30%		27,184		228	4.21%
Investment securities - taxable		247,014		1,694	2.73%		269,704		1,548	2.28%
Investment securities - non-taxable (1)		40,718		296	3.66%		40,612		305	3.77%
Federal funds sold		1,000		14	5.57%		666		9	5.36%
Interest bearing deposits with banks		78,392		1,115	5.66%		9,210		128	5.51%
TOTAL INTEREST EARNING ASSETS		1,629,938		16,922	4.16%		1,566,281		14,513	3.71%
Less allowance for credit losses		(12,257)					(12,745)
Other assets		81,704					74,247
TOTAL ASSETS	$	1,699,385				$	1,627,783

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits, ‎ NOW and money market	$	290,046	$	1,250	1.71%	$	244,771	$	507	0.82%
Savings		448,229		1,000	0.89%		545,059		881	0.64%
Certificates of deposit		468,302		5,337	4.53%		368,947		3,568	3.84%
Securities sold under agreements to repurchase ‎and other borrowings		20,049		165	3.27%		18,085		157	3.44%
TOTAL INTEREST BEARING LIABILITIES		1,226,626		7,752	2.51%		1,176,862		5,113	1.72%

Non-interest bearing demand deposits		339,961					333,367
Other liabilities		24,888					23,073
Stockholders' equity		107,910					94,481
TOTAL LIABILITIES AND ‎STOCKHOLDERS' EQUITY	$	1,699,385				$	1,627,783

Net interest income			$	9,170				$	9,400
Tax equivalent adjustments
Loans				62					61
Investments				79					81
Total tax equivalent adjustments				141					142
Net interest income on a tax equivalent basis			$	9,311				$	9,542
Net interest spread (US GAAP basis)					1.62%					1.95%
Net interest margin (US GAAP basis)					2.24%					2.38%
Net interest spread (non-US GAAP basis) (3)					1.65%					1.99%
Net interest margin (non-US GAAP basis) (3)					2.27%					2.42%

(1)Yields on tax exempt assets have been calculated on a fully tax equivalent basis at a tax rate of 21% as of September 30, 2024 and 2023, respectively.

(2)The average balance of taxable loans includes loans in which interest is no longer accruing.

(3)Non-US GAAP net interest spread and net interest margin calculated on a fully tax equivalent basis at a tax rate of 21% as of September 30, 2024 and 2023, respectively.

‎

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (year to date)


		Nine Months Ended September 30,

	2024						2023
					Tax					Tax
	Average				Equivalent	Average				Equivalent
	Balance		Interest		Yield	Balance		Interest		Yield

		(Dollars In Thousands)
ASSETS
Loans - taxable (2)	$	1,236,151	$	39,585	4.28%	$	1,206,869	$	35,377	3.92%
Loans - non-taxable (1)		27,356		692	4.28%		20,699		513	4.19%
Investment securities - taxable		231,342		4,512	2.61%		275,132		4,650	2.26%
Investment securities - non-taxable (1)		40,620		890	3.70%		41,017		915	3.77%
Federal funds sold		991		41	5.53%		885		33	4.99%
Interest bearing deposits with banks		58,910		2,418	5.48%		24,445		903	4.94%
TOTAL INTEREST EARNING ASSETS		1,595,370		48,138	4.07%		1,569,047		42,391	3.64%
Less allowance for credit losses		(12,416)					(12,674)
Other assets		81,936					74,385
TOTAL ASSETS	$	1,664,890				$	1,630,758

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits,
NOW and money market	$	271,604	$	3,232	1.59%	$	239,379	$	1,034	0.58%
Savings		466,114		2,988	0.86%		588,538		2,339	0.53%
Certificates of deposit		442,595		14,707	4.44%		324,291		8,451	3.48%
Securities sold under agreements to repurchase ‎and other borrowings		18,010		434	3.22%		14,881		307	2.76%
TOTAL INTEREST BEARING LIABILITIES		1,198,323		21,361	2.38%		1,167,089		12,131	1.39%

Non-interest bearing demand deposits		338,799					348,087
Other liabilities		23,890					20,585
Stockholders' equity		103,878					94,997
TOTAL LIABILITIES AND ‎STOCKHOLDERS' EQUITY	$	1,664,890				$	1,630,758

Net interest income			$	26,777				$	30,260
Tax equivalent adjustments
Loans				184					136
Investments				237					243
Total tax equivalent adjustments				421					379
Net interest income on a tax equivalent basis			$	27,198				$	30,639
Net interest spread (US GAAP basis)					1.65%					2.23%
Net interest margin (US GAAP basis)					2.24%					2.58%
Net interest spread (non-US GAAP basis) (3)					1.69%					2.25%
Net interest margin (non-US GAAP basis) (3)					2.28%					2.61%

‎

The table below demonstrates the relative impact on net interest income of changes in the volume of interest-earning assets and interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities:


	Three Months Ended								Nine Months Ended
	September 30, 2024								September 30, 2024
	compared to September 30, 2023								compared to September 30, 2023
	(In Thousands)
	Due to change in:								Due to change in:
	Total						# of		Total						# of
	Change		Volume		Rate		Days		Change		Volume		Rate		Days
Interest-earning assets:
Loans - taxable	$	1,273	$	164	$	1,142	$	(33)	$	4,208	$	860	$	3,314	$	34
Loans - non-taxable		7		3		5		(1)		179		165		14		-
Investment securities - taxable		146		(130)		280		(4)		(138)		(741)		598		5
Investment securities - non-taxable		(9)		1		(9)		(1)		(25)		(9)		(17)		1
Federal funds sold		5		5		-		-		8		4		3		1
Interest bearing deposits with banks		987		959		28		-		1,515		1,274		240		1
Total net change in income on
interest-earning assets		2,409		1,002		1,446		(39)		5,747		1,553		4,152		42

Interest-bearing liabilities:
Interest bearing demand deposits,
NOW and money market		743		93		651		(1)		2,198		139		2,058		1
Savings		119		(156)		277		(2)		649		(487)		1,134		2
Certificates of deposit		1,769		958		821		(10)		6,256		3,086		3,162		8
Total deposits		2,631		895		1,749		(13)		9,103		2,738		6,354		11
Securities sold under agreements to
repurchase and other borrowings		8		18		(9)		(1)		127		64		62		1
Total net change in expense on
interest-bearing liabilities		2,639		913		1,740		(14)		9,230		2,802		6,416		12
Change in net interest income	$	(230)	$	89	$	(294)	$	(25)	$	(3,483)	$	(1,249)	$	(2,264)	$	30

Provision for Credit Losses and Reserve for Unfunded Loan Commitments

The Company adopted ASC Topic 326 on January 1, 2023, and applied the standard’s provisions as a cumulative-effect adjustment to retained earnings, as of January 1, 2023 (i.e., modified retrospective approach). Upon adoption of the standard, the Company recorded a $188 thousand increase to the allowance for credit losses, which resulted in a $148 thousand after-tax decrease to retained earnings as of January 1, 2023. The tax effect resulted in a $40 thousand increase to deferred tax assets.

The allowance for credit losses is established through provisions for credit losses charged against income. Loans deemed to be uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance. The measurement of expected credit losses also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit.

The allowance for credit losses is maintained at a level management considers to be adequate to provide for losses that can be reasonably anticipated over the expected life of the loans. 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 and forecasted 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 a collectively evaluated component and an individually evaluated component. The collectively evaluated component covers non-classified loans and classified loans not considered loans individually evaluated for credit losses, and is based

on historical loss experience adjusted for forecasting factors and qualitative factors. The individually evaluated component relates to loans that are classified as loans individually evaluated for credit losses and/or restructured. For loans that are classified as loans individually evaluated for credit losses, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the loans individually evaluated for credit losses is lower than the carrying value of that loan.

For the three months ended September 30, 2024, the credit for credit losses on loans was $40 thousand and the provision for credit losses on unused commitments was $10 thousand, compared to credit for credit losses of $300 thousand for the three months ended September 30, 2023. In the three months ended September 30, 2024, there were no charge-offs and no recoveries. In the three months ended September 30, 2023, there were no charge-offs and recoveries of $1 thousand. For the nine months ended September 30, 2024, the credit for credit losses on loans was $484 thousand and the provision for credit losses on unused commitments was $99 thousand, compared to credit for credit losses of $190 thousand for the nine months ended September 30, 2023. In the nine months ended September 30, 2024, there were charge-offs of $11 thousand and recoveries of $240 thousand. In the nine months ended September 30, 2023, there were no charge-offs and recoveries of $2 thousand.

The (credit) provision for credit losses is a function of the allowance for credit loss methodology that the Company uses to determine the appropriate level of the allowance for inherent credit losses after net charge-offs have been deducted. See the discussion below under “Credit Risk and Loan Quality” regarding the Company’s considerations of its September 30, 2024 allowance for credit loss levels. The allowance for credit losses is $12.2 million as of September 30, 2024, which is 0.97% of total loans receivable, compared to $12.4 million or 1.00% of total loans receivable as of September 30, 2023. At December 31, 2023, the allowance for credit losses was $12.5 million, which represented 0.99% of total loans receivable. Based principally on loan growth, economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Company’s market area, the allowance is believed to be adequate to absorb any losses expected 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 credit losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate. The Company has not participated in any sub-prime lending activity.

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

	(In Thousands)
Loans receivable at end of period	$	1,258,084	$	1,249,289	$	1,258,084	$	1,249,289
Allowance for credit losses:
Balance, beginning	$	12,246	$	12,748	$	12,461	$	12,449
Cumulative effect of change in accounting principle		-		-		-		188
Credit for credit losses		(40)		(300)		(484)		(190)
Loans charged off:
Commercial real estate		-		-		-		-
Commercial construction		-		-		-		-
Commercial		-		-		-		-
Residential real estate		-		-		-		-
Consumer		-		-		(11)		-
Total loans charged off		-		-		(11)		-
Recoveries of loans previously charged off:
Commercial real estate		-		-		240		-
Commercial construction		-		-		-		-
Commercial		-		-		-		-
Residential real estate		-		1		-		2
Consumer		-		-		-		-
Total recoveries		-		1		240		2
Net recoveries		-		1		229		2
Balance at end of period	$	12,206	$	12,449	$	12,206	$	12,449
Allowance for credit losses to loans receivable at end of period		0.97%		1.00%		0.97%		1.00%

In addition to the allowance for credit losses, the Company maintains a reserve for unfunded commitments at a level that management believes is adequate to absorb probable losses. At September 30, 2024 and December 31, 2023, a $99 thousand compared to zero

unfunded commitment reserve was reported, respectively, on the Consolidated Balance Sheets in other liabilities and reported on the Consolidated Statements of Income in credit for credit losses.

Non-interest Income

Total non-interest income was $853 thousand for the three months ended September 30, 2024 compared to $570 thousand for the same period in 2023. The increase is, in part, attributable to an increase in bank owned life insurance of $261 thousand primarily due to the purchase of $9.0 million of new bank owned life insurance policies and the conversion of $2.0 million in previous BOLI policies to higher yielding BOLI products through a 1035 exchange transaction in the first quarter of 2024. Also, contributing to the increase in non-interest income was an increase of $11 thousand in debit card interchange fees and an increase of $18 thousand in other service fees. Offsetting this increase is a decrease in merchant and credit card processing fees of $7 thousand.

Total non-interest income was $2.3 million for the nine months ended September 30, 2024 compared to $1.9 million for the same period in 2023. The increase is, in part, attributable to an increase in bank owned life insurance of $395 thousand primarily due to the purchase of $9.0 million of new bank owned life insurance policies and the conversion of $2.0 million in previous BOLI policies to higher yielding BOLI products through a 1035 exchange transaction in the first quarter of 2024. Offsetting this increase is a decrease in merchant and credit card processing fees of $26 thousand.

Non-interest Expense

Non-interest expenses increased $207 thousand from $6.6 million for the three months ended September 30, 2023 to $6.8 million for the three months ended September 30, 2024. The increase in non-interest expenses is, in part, attributable to a $184 thousand increase in salaries and employee benefits due to annual increases in salaries, new hires, and an increase in health insurance cost, offset by a decrease in stock grant expense and a decrease in non-qualified pension expense. The Company had a 7.5% increase in full-time equivalent employees from one hundred seven (107) at September 30, 2023 to one hundred fifteen (115) at September 30, 2024. New hires included various branch and operational personnel. Additional increases in non-interest expenses are attributable to an increase of $22 thousand in occupancy and equipment expense and an increase of $52 thousand in other expenses primarily due to an increase in bank shares tax. The increases in non-interest expenses were offset, in part, by a decrease of $22 thousand in advertising and promotion expense and a $27 thousand decrease in professional fees. The Company’s efficiency ratio, a non-GAAP measure, was 67.9% and 66.2% for the three months ending September 30, 2024 and 2023, respectively.

Non-interest expenses decreased $145 thousand from $20.3 million for the nine months ended September 30, 2023 to $20.2 million for the nine months ended September 30, 2024. The decrease in non-interest expenses is, in part, attributable to a $207 thousand decrease in salaries and employee benefits due to decreases in health insurance cost, stock grant expense, incentive and bonuses expense, temporary agency services expense, and non-qualified pension expense, as well as an increase in deferred loan costs, offset by an increase in team compensation due to annual increases in salaries and an increase in the number of employees. Additional decreases in non-interest expenses are attributable to a decrease of $199 thousand in advertising and promotion expense and a decrease of $100 thousand in data processing expense due to credits applied during the nine months ended September 30, 2024 and a decrease in escrow management services due to implementation costs of transitioning to a new vendor in 2023, offset by an increase in data processing maintenance contracts and an increase in network support expense. The decreases in non-interest expenses were offset, in part, by an increase of $138 thousand in occupancy and equipment expense and an increase of $181 thousand in other expenses due, in part, to increases in bank shares tax, losses from check fraud, cash over and short, shareholder relations and other operating expenses, offset by decreases in dispute and fraud losses on debit cards and wire fraud losses. The Company’s efficiency ratio, a non-GAAP measure, was 69.5% and 63.2% for the nine months ending September 30, 2024 and 2023, respectively.

A breakdown of other expenses can be found in the Consolidated Statements of Income.

Income Taxes

The provision for income taxes for the three months ended September 30, 2024 totaled $531 thousand, or 16.4% of income before taxes, compared to income taxes for the three months ended September 30, 2023 totaling $667 thousand, or 18.2% of income before taxes. The decrease in the tax rate is, in part, the result of an increase in income on bank owned life insurance and the result of the change in the mix of taxable and tax free loans and investments.

The provision for income taxes for the nine months ended September 30, 2024 totaled $1.5 million, or 16.4% of income before taxes, compared to income taxes for the nine months ended September 30, 2023 totaling $2.2 million, or 18.2% of income before taxes. The decrease in the tax rate is, in part, the result of an increase in income on bank owned life insurance and the result of the change in the mix of taxable and tax free loans and investments.

‎

FINANCIAL CONDITION

Securities

The Company’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 Company 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 a return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of mortgage-backed securities issued by FHLMC or FNMA, taxable and non-taxable municipal bonds, government agency bonds, and Treasury bonds. The Company holds no high-risk or direct internationally exposed securities or derivatives as of September 30, 2024. The Company has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans. The current liquidity of the portfolio has been impacted by the increase in market interest rates. Selling of securities would not be expected as a primary source of short term liquidity given the unrealized losses currently in the portfolio.

Total securities at September 30, 2024 were $308.1 million compared to $276.1 million at December 31, 2023. The increase in the investment portfolio resulted from the purchase of seven (7) Treasury bonds and three (3) government agency bonds totaling $44.3 million and a decrease in unrealized losses of $4.8 million, offset by principal pay downs on mortgage-backed securities, the maturity of one (1) non-taxable municipal bond, and the maturity of two (2) Treasury bonds totaling $17.6 million. The carrying value of the securities portfolio as of September 30, 2024 includes a net unrealized loss of $50.5 million, which is recorded as accumulated other comprehensive loss in stockholders’ equity net of income tax effect. This compares to a net unrealized loss of $55.3 million at December 31, 2023. The current unrealized loss position of the securities portfolio is due to increasing market interest rates in 2022 through 2023 in response to economic conditions since initial purchase. Management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell, securities in an unrealized loss position at September 30, 2024. Further, management reviewed the Company's securities as of September 30, 2024 and concluded there were no credit-related declines in fair value. The effective duration of the securities portfolio remains approximately 6 to 7 years at September 30, 2024.

Loans

The loan portfolio comprises a major component of the Company’s earning assets. All of the Company’s loans are to domestic borrowers. Total net loans receivable increased by $4.9 million to $1.25 billion at September 30, 2024 from $1.24 billion at December 31, 2023. The gross loan-to-deposit ratio decreased to 82% at September 30, 2024, compared to 85% at December 31, 2023. The Company’s loan portfolio at September 30, 2024 was comprised of residential real estate and consumer loans of $667.0 million, an increase of $3.3 million from December 31, 2023, and commercial loans of $591.1 million, an increase of $1.3 million from December 31, 2023. The Company has not originated, nor does it intend to originate, sub-prime mortgage loans.

Credit Risk and Loan Quality

The Company’s allowance for credit losses decreased $255 thousand to $12.2 million at September 30, 2024, compared to $12.5 million at December 31, 2023. At September 30, 2024 and December 31, 2023, the allowance for credit losses represented 0.97% and 0.99% of total loans receivable, respectively. The Company’s non-performing loans to total loans receivable were 0.10% at September 30, 2024, compared to 0.03% at September 30, 2023, and 0.03% at December 31, 2023. In the three months ended September 30, 2024, there were no charge-offs and no recoveries. In the three months ended September 30, 2023, there were no charge-offs and recoveries of $1 thousand. In the nine months ended September 30, 2024, there were charge-offs of $11 thousand and $240 thousand of recoveries. In the nine months ended September 30, 2023, there were no charge-offs and recoveries of $2 thousand. The aggregate balances on non-performing loans are included in the following table.

At September 30, 2024, approximately 95% of the Company’s loan portfolio is collateralized by real estate. Our loan portfolio includes a large amount of commercial real estate loans. Management believes the commercial real estate loan portfolio is well-diversified. At September 30, 2024 and December 31, 2023, high volatility commercial real estate exposures were $10.0 million and $7.4 million, respectively. Commercial real estate loans are originated primarily within Lehigh and Northampton counties, are within the Company’s underwriting criteria, and generally include the guarantee of one or more of the borrowers’ affiliates. At September 30, 2024, the Company’s office space portfolio included no exposure to properties in major metropolitan markets. Commercial real estate loans have drawn the attention of the regulators in recent years as a potential source of risk. The Company monitors these types of loans closely, obtaining updated appraisals on loans when required. As detailed in the Allowance for Credit Losses table, the Company had no charge-offs in this category in 2024 or 2023. The Company believes it has taken the appropriate steps to implement appropriate risk management practices for its commercial real estate loan portfolio, which are subject to regulatory examination.

‎

The details for non-performing loans and assets are included in the following table:


		September 30, 2024		December 31, 2023		September 30, 2023

	(In Thousands)
Non-accrual - commercial	$	664	$	-	$	-
Non-accrual - consumer		544		366		297
Loans past due 90 or more days, accruing interest		-		-		73
Total nonperforming loans		1,208		366		370
Foreclosed assets		-		-		-
Total nonperforming assets	$	1,208	$	366	$	370
Nonperforming loans to total loans		0.10%		0.03%		0.03%
Nonperforming assets to total assets		0.07%		0.02%		0.02%
Non-accrual loans to total loans		0.10%		0.03%		0.02%
Allowance to non-accrual loans		1010.43%		3404.64%		4191.58%
Net charge-offs (recoveries) to average loans		0.00%		0.00%		0.00%

Premises and Equipment

Company premises and equipment, net of accumulated depreciation, decreased $323 thousand from December 31, 2023 to September 30, 2024. This decrease is due to depreciation on existing premises and equipment, offset by new purchases.

Deposits

Total deposits at September 30, 2024 increased by $58.9 million to $1.54 billion from $1.48 billion at December 31, 2023. The increase in the Company’s deposits was due to an increase of $29.6 million in demand, NOW and money market deposits and an increase of $76.6 million in time deposits, offset by a $47.2 million decrease in savings deposits. The slight shift from savings to time deposits is primarily due to higher yielding rates on time deposits, due to competitive pressure and the current rate environment. Included in the above mentioned increase was a $21.6 million increase in non-interest bearing demand business deposits, offset by a $19.7 million decrease in non-interest bearing demand personal deposits. Included in total deposits at September 30, 2024 were personal deposits of $1.08 billion, business deposits of $361.9 million, and municipal deposits of $94.8 million. Included in total deposits at December 31, 2023 were personal deposits of $1.09 billion, business deposits of $293.6 million, and municipal deposits of $89.5 million. The estimated amount of uninsured assessable deposits, including related interest accrued and unpaid, at September 30, 2024 and December 31, 2023 was $501.2 million and $464.3 million, respectively.

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 $91.9 million at September 30, 2024, compared to $78.9 million at December 31, 2023.

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 or participating loans, or raising additional capital. As noted above, selling of securities would not be a primary source of short term liquidity given the unrealized losses currently in the portfolio. At September 30, 2024, the Company had $308.1 million of available for sale securities. Securities with a carrying value of $163.9 million and $145.7 million at September 30, 2024 and December 31, 2023, respectively, were subject to agreements to repurchase, pledged to secure public deposits, or pledged for other purposes required or permitted by law.

At September 30, 2024, the Bank had a maximum borrowing capacity for short-term and long-term FHLB advances of approximately $686.8 million, of which $664.8 million is available for borrowing at September 30, 2024. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. The Bank had an outstanding FHLB letter of credit in the amount of $160 thousand as of September 30, 2024. There were $21.9 million FHLB short-term advances outstanding as of September 30, 2024 with an interest rate of 5.239%, which matured and was repaid on October 1, 2024. The Company had no long-term FHLB advances outstanding as of September 30, 2024. There were $35.0 million short-term FHLB advances outstanding and no long-term FHLB advances outstanding as of December 31, 2023. All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank has a federal funds line of credit with the ACBB of $10.0 million, of which none was outstanding at September 30, 2024 and December 31, 2023. Advances from this line are unsecured.

The Bank is also eligible to borrow under the Federal Reserve Bank’s discount window borrowing programs.

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The Bank is a member of the Certificate of Deposit Account Registry Services (CDARS) program and the Insured Cash Sweep (ICS) program offered by Promontory Interfinancial Network, LLC. CDARS is a funding and liquidity management tool used by banks to access funds and manage their balance sheet. ICS provides liquidity similar to a money market or savings account. Both programs enable financial institutions to provide customers with full FDIC insurance on deposits over $250 thousand that are placed in the program. The Bank also has access to other brokered deposits as a source of liquidity.

Because of the composition of the Company’s balance sheet, its strong capital base, ability to attract new deposit relationships, access to brokered deposits, and borrowing capacity, the Company believes that it remains well positioned with respect to liquidity. The majority of the Company’s funds are invested in loans with a portion invested in investment securities that generally carry a lower yield. While it is desirable to be liquid, it has the effect of a lower interest margin. 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 the 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 $173.4 million and $182.7 million at September 30, 2024 and December 31, 2023, respectively. At September 30, 2024 there was a $99 thousand allowance for credit losses required for off-balance sheet arrangements and no allowance amount at December 31, 2023. At September 30, 2024 and December 31, 2023, the Company had letters of credit outstanding of $8.7 million and $9.0 million, respectively. 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.

Capital Resources and Adequacy

Total stockholders’ equity was $114.5 million as of September 30, 2024, representing a net increase of $8.8 million from December 31, 2023. The increase in capital was the result of net income of $7.7 million, an increase in common stock of $23 thousand, an increase in surplus of $490 thousand due to employee stock purchases and stock grants with compensation expense, and a decrease of $3.8 million in accumulated other comprehensive loss, offset by dividends paid of $3.2 million. The accumulated other comprehensive losses are excluded from both the Bank’s and the Company’s Tier 1 regulatory capital calculations.

The Company’s tangible book value per share, calculated as total stockholders’ equity divided by outstanding common stock shares, was $15.03 and $13.91 at September 30, 2024 and December 31, 2023, respectively. The Company’s tangible book value per share not including accumulated other comprehensive loss in the total stockholders’ equity numerator (a non-GAAP measure) was $20.27 and $19.66 at September 30, 2024 and December 31, 2023, respectively. The Company believes this non-GAAP measurement enhances the overall understanding of Company performance and increases comparability of period to period results, but should not be viewed as a substitute for the measure as determined in accordance with GAAP or an inference that future results will be unaffected by similar adjustments to be determined in accordance with GAAP.

The following table presents the computation of this non-GAAP based measure shown together with its most directly comparable GAAP measure:


	September 30, 2024		December 31, 2023
	(Dollars In Thousands Except Per Share Data)
Tangible Book Value Per Share
Total stockholders' equity	$	114,494	$	105,655
Addback: accumulated other comprehensive loss ("AOCL")		39,917		43,700
Total stockholders' equity not included AOCL (non-GAAP)	$	154,411	$	149,355

Common stock shares outstanding		7,618,715		7,596,236
Book value per share (most directly comparable GAAP based measure)	$	15.03	$	13.91
AOCL per share		5.24		5.75
Book value per share not including AOCL (non-GAAP)	$	20.27	$	19.66

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 1 capital (as defined in the regulations) to risk weighted assets (as defined in the regulations), and Tier 1 capital to average assets (as defined in the regulations). As of September 30, 2024, 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:



Consolidated Bank

	September 30, 2024			December 31, 2023

	(Dollars In Thousands)
Tier 1, common stockholders' equity	$	154,171		$	149,299
Tier 2, allowable portion of allowance for credit losses		12,305			12,461
Total capital	$	166,476		$	161,760

Common equity tier 1 capital ratio		13.6	%		13.3	%
Tier 1 risk based capital ratio		13.6	%		13.3	%
Total risk based capital ratio		14.7	%		14.5	%
Tier 1 leverage ratio		8.8	%		8.9	%

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

In addition to the risk-based capital guidelines, the federal banking regulators established minimum leverage ratio (Tier 1 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%.

The capital ratios to be considered “well capitalized” under the capital rules are:

Common equity of 6.5%;

 Tier 1 leverage of 5%;

 Tier 1 risk-based capital of 8%; and

Total risk-based capital of 10%.

The Company qualifies as a small bank holding company and is not subject to the Federal Reserve’s consolidated capital rules, although an institution that so qualifies may continue to file reports that include such capital amounts and ratios. The Company has elected to continue to report those amounts and ratios.

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



Consolidated Corporation

	September 30, 2024			December 31, 2023

	(Dollars In Thousands)
Tier 1, common stockholders' equity	$	154,411		$	149,355
Tier 2, allowable portion of allowance for credit losses		12,305			12,461
Total capital	$	166,716		$	161,816

Common equity tier 1 capital ratio		13.7	%		13.3	%
Tier 1 risk based capital ratio		13.7	%		13.3	%
Total risk based capital ratio		14.8	%		14.5	%
Tier 1 leverage ratio		8.9	%		8.9	%

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

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary source of market risk is interest rate risk. A principal objective of the Company’s asset/liability management policy is to minimize the Company’s exposure to changes in interest rates by an ongoing review of the maturity and repricing of interest earning assets and interest bearing liabilities. The Asset Liability Committee (ALCO), included as part of the Board of Directors meetings, oversees this review, which establishes policies to control interest rate sensitivity. Interest rate sensitivity is the volatility of a company’s earnings resulting from a movement in market interest rates. The Company monitors rate sensitivity in order to reduce vulnerability to interest rate fluctuations while maintaining adequate capital levels and acceptable levels of liquidity. Beginning in 2022 through 2023, the Federal Reserve raised its key interest rate in an attempt to tame inflation. Conversely, in September 2024 the Federal Reserve decreased its key interest rate by 50 basis points and in November 2024 by 25 basis points. The Company’s asset/liability management policy, monthly and quarterly financial reports, along with simulation modeling, supplies management with guidelines to evaluate and manage rate sensitivity.

Because income simulations assume that the Company’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that management could implement in response to rate shifts. Computations of future effects of hypothetical interest rate changes are based on numerous assumptions and should not be relied upon as indicative of actual results. Assets and liabilities may react differently than projected to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag changes in market interest rates. Interest rate shifts may not be parallel.

Based on a twelve-month forecast of the balance sheet, the following table sets forth the Company’s interest rate risk profile at September 30, 2024. For income simulation purposes, personal and business savings accounts reprice every two months, personal and business NOW accounts reprice every two months and personal, and business money market accounts reprice every month. Management reviews all assumptions on a periodic basis and believes current assumptions support market conditions. The impact on net interest income, illustrated in the following table, would vary if different assumptions were used or if actual experience differs from that indicated by the assumptions.



	Change in Interest Rates		Percentage Change in Net Interest Income

	Down 100 basis points		1.6%
	Down 200 basis points		2.5%

	Up 100 basis points		-2.8%
	Up 200 basis points		-6.9%

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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, 2024, 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, 2024, including any corrective actions with regard to significant deficiencies and material weakness.

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

In addition to the other information set forth in this Quarterly Report, the reader should carefully consider the factors discussed in “Risk Factors” included within the Company’s 2023 Form 10-K and subsequent filings with the SEC. There are no material changes to such risk factors. Such risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Caution About Forward-looking Statements.”

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

None.

Item 3 - Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

None.

Item 5 - Other Information

During the three months ended September 30, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s common stock that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as such term is defined in Item 408(c) of Regulation S-K.

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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-K filed on March 18, 2022).
	3.2		Amended and Restated By-Laws (conformed) (Incorporated by reference to Exhibit 3.2 of Registrant's
			Form 10-K filed on March 18, 2022).
	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.
	101.1		Interactive Data Files (XBRL)

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.
104	Cover Page Interactive Data File (formatted as inline XBRL
	and contained in Exhibit 101)

* This instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL.

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SIGNATURES

Pursuant to 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)

Dated: November 13, 2024	By:	/s/ David M. Lobach, Jr.
		David M. Lobach, Jr.
		President and Chief Executive Officer


Dated: November 13, 2024	By:	/s/ Judith A. Hunsicker
		Judith A. Hunsicker
		First Executive Officer,
		Chief Operating Officer, Secretary and
		Chief Financial Officer

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Embassy Bancorp (EMYB) 10-Q2024 Q3 Quarterly report

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