UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016 OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________________ TO __________________
Commission file number 000-53528
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act.) Yes ☐ No ☒
Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:
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|
|
COMMON STOCK |
|
|
Number of shares outstanding as of August 5 , 201 6 |
($1.00 Par Value) |
7,413,481 |
|
(Title Class) |
(Outstanding Shares) |
Embassy Bancorp, Inc. |
2
Embassy Bancorp, Inc. |
Part I – Financial Information
Item 1 – Fi nan cial Statements
Consolidated Balance Sheets (Unaudited)
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June 30, |
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December 31, |
||
ASSETS |
2016 |
|
2015 |
||
|
(In Thousands, Except Share Data) |
||||
Cash and due from banks |
$ |
14,318 |
|
$ |
12,459 |
Interest bearing demand deposits with banks |
|
8,807 |
|
|
6,067 |
Federal funds sold |
|
1,000 |
|
|
1,000 |
Cash and Cash Equivalents |
|
24,125 |
|
|
19,526 |
Securities available for sale |
|
89,879 |
|
|
77,253 |
Restricted investment in bank stock |
|
624 |
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|
2,178 |
Loans receivable, net of allowance for loan losses of $6,279 in 2016; $6,068 in 2015 |
|
725,299 |
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|
684,047 |
Premises and equipment, net of accumulated depreciation |
|
2,192 |
|
|
2,258 |
Bank owned life insurance |
|
12,472 |
|
|
12,343 |
Accrued interest receivable |
|
1,692 |
|
|
1,637 |
Other real estate owned |
|
621 |
|
|
1,224 |
Other assets |
|
3,870 |
|
|
3,572 |
Total Assets |
$ |
860,774 |
|
$ |
804,038 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
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|
|
Liabilities: |
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|
|
|
Deposits: |
|
|
|
|
|
Non-interest bearing |
$ |
97,298 |
|
$ |
89,959 |
Interest bearing |
|
677,196 |
|
|
570,307 |
Total Deposits |
|
774,494 |
|
|
660,266 |
Securities sold under agreements to repurchase |
|
8,603 |
|
|
27,535 |
Short-term borrowings |
|
- |
|
|
39,306 |
Long-term borrowings |
|
- |
|
|
3,820 |
Accrued interest payable |
|
671 |
|
|
462 |
Other liabilities |
|
5,800 |
|
|
4,548 |
Total Liabilities |
|
789,568 |
|
|
735,937 |
Stockholders' Equity: |
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|
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|
Common stock, $1 par value; authorized 20,000,000 shares; |
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2016 issued and outstanding 7,413,481 shares |
|
|
|
|
|
2015 issued and outstanding 7,407,547 shares |
|
7,413 |
|
|
7,408 |
Surplus |
|
24,393 |
|
|
24,299 |
Retained earnings |
|
37,466 |
|
|
35,158 |
Accumulated other comprehensive income |
|
1,934 |
|
|
1,236 |
Total Stockholders' Equity |
|
71,206 |
|
|
68,101 |
Total Liabilities and Stockholders' Equity |
$ |
860,774 |
|
$ |
804,038 |
See notes to consolidated financial statements.
3
Embassy Bancorp, Inc. |
Consolidated Statements of Income (Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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|||||||||
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2016 |
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2015 |
|
2016 |
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2015 |
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||||
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(In Thousands, Except Per Share Data) |
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|||||||||||
INTEREST INCOME |
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Loans receivable, including fees |
|
$ |
6,891 |
|
$ |
6,332 |
|
$ |
13,700 |
|
$ |
12,627 |
|
|
|
Securities, taxable |
|
|
221 |
|
|
207 |
|
|
400 |
|
|
414 |
|
|
|
Securities, non-taxable |
|
|
284 |
|
|
304 |
|
|
569 |
|
|
607 |
|
|
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Federal funds sold, and other |
|
|
41 |
|
|
15 |
|
|
82 |
|
|
64 |
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Interest on time deposits |
|
|
- |
|
|
1 |
|
|
- |
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|
1 |
|
|
|
Total Interest Income |
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7,437 |
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|
6,859 |
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|
14,751 |
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|
13,713 |
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INTEREST EXPENSE |
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|
|
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Deposits |
|
|
962 |
|
|
694 |
|
|
1,819 |
|
|
1,367 |
|
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Securities sold under agreements to repurchase |
|
|
3 |
|
|
5 |
|
|
7 |
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|
9 |
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Short-term borrowings |
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|
1 |
|
|
28 |
|
|
31 |
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|
43 |
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Long-term borrowings |
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- |
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|
33 |
|
|
5 |
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|
68 |
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Total Interest Expense |
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|
966 |
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|
760 |
|
|
1,862 |
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|
1,487 |
|
|
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Net Interest Income |
|
|
6,471 |
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|
6,099 |
|
|
12,889 |
|
|
12,226 |
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PROVISION FOR LOAN LOSSES |
|
|
70 |
|
|
120 |
|
|
255 |
|
|
142 |
|
|
|
Net Interest Income after
|
|
|
6,401 |
|
|
5,979 |
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|
12,634 |
|
|
12,084 |
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OTHER INCOME |
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|
|
|
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|
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|
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Credit card processing fees |
|
|
429 |
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|
412 |
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|
843 |
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|
775 |
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Other service fees |
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|
174 |
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|
173 |
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|
335 |
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|
332 |
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Bank owned life insurance |
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|
81 |
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|
91 |
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|
129 |
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|
189 |
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Gain on sale of securities, net |
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- |
|
|
- |
|
|
- |
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|
139 |
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|
Gain on sale of other real estate owned |
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5 |
|
|
1 |
|
|
15 |
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|
7 |
|
|
|
Impairment on other real estate owned |
|
|
(80) |
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|
- |
|
|
(80) |
|
|
(42) |
|
|
|
Total Other Income |
|
|
609 |
|
|
677 |
|
|
1,242 |
|
|
1,400 |
|
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OTHER EXPENSES |
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|
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Salaries and employee benefits |
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|
1,951 |
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|
1,717 |
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|
3,921 |
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|
3,459 |
|
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Occupancy and equipment |
|
|
681 |
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|
594 |
|
|
1,356 |
|
|
1,223 |
|
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Data processing |
|
|
391 |
|
|
444 |
|
|
780 |
|
|
803 |
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Credit card processing |
|
|
396 |
|
|
393 |
|
|
798 |
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|
747 |
|
|
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Advertising and promotion |
|
|
371 |
|
|
381 |
|
|
695 |
|
|
673 |
|
|
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Professional fees |
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|
150 |
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|
133 |
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|
277 |
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|
255 |
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FDIC insurance |
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|
106 |
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|
78 |
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|
208 |
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|
165 |
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Insurance |
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|
15 |
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|
13 |
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|
28 |
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|
27 |
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Loan & real estate |
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|
46 |
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|
82 |
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|
110 |
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|
126 |
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|
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Charitable contributions |
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|
149 |
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|
142 |
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|
386 |
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|
351 |
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Other real estate owned expenses |
|
|
20 |
|
|
4 |
|
|
57 |
|
|
40 |
|
|
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Other |
|
|
400 |
|
|
341 |
|
|
673 |
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|
559 |
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|
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Total Other Expenses |
|
|
4,676 |
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|
4,322 |
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|
9,289 |
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|
8,428 |
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Income before Income Taxes |
|
|
2,334 |
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|
2,334 |
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4,587 |
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|
5,056 |
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INCOME TAX EXPENSE |
|
|
670 |
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|
656 |
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|
1,315 |
|
|
1,437 |
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Net Income |
|
$ |
1,664 |
|
$ |
1,678 |
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$ |
3,272 |
|
$ |
3,619 |
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BASIC EARNINGS PER SHARE |
|
$ |
0.22 |
|
$ |
0.23 |
|
$ |
0.44 |
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$ |
0.49 |
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DILUTED EARNINGS PER SHARE |
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$ |
0.22 |
|
$ |
0.23 |
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$ |
0.44 |
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$ |
0.49 |
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DIVIDENDS PER SHARE |
|
$ |
0.13 |
|
$ |
0.10 |
|
$ |
0.13 |
|
$ |
0.10 |
|
|
See notes to consolidated financial statements
4
Embassy Bancorp, Inc. |
Consolidated Statements of Comprehensive Income (Unaudited)
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Three Months Ended June 30, |
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2016 |
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2015 |
|||||||||||||
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(In Thousands) |
||||||||||||||
Net Income |
$ |
|
|
1,664 |
|
$ |
|
|
1,678 | |||||||
Change in Accumulated Other Comprehensive Income: |
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|
|
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|||||||
Unrealized holding gain (loss) on securities available for sale |
|
626 |
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|
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(865) |
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|||||||
Less: reclassification adjustment for realized gains |
|
- |
|
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- |
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|||||||
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|
626 |
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(865) |
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|
|||||||
Income tax effect |
|
(212) |
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|
294 |
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|||||||
Net unrealized gain (loss) |
|
414 |
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(571) |
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|||||||
Other comprehensive gain (loss), net of tax |
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|
414 |
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(571) | |||||||
Comprehensive Income |
$ |
|
|
2,078 |
|
$ |
|
|
1,107 |
See notes to consolidated financial statements.
5
Embassy Bancorp, Inc. |
Consolidated Statements of Stockholders’ Equity (Unaudited)
Six Months Ended June 30, 2016 and 2015
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Common Stock |
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Surplus |
|
Retained Earnings |
|
Accumulated Other Comprehensive Income |
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Total |
|||||
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(In Thousands, Except Share and Per Share Data) |
|||||||||||||
BALANCE - DECEMBER 31, 2014 |
$ |
7,358 |
|
$ |
24,024 |
|
$ |
28,485 |
|
$ |
1,465 |
|
$ |
61,332 |
Net income |
|
- |
|
|
- |
|
|
3,619 |
|
|
- |
|
|
3,619 |
Other comprehensive income, net of tax |
|
- |
|
|
- |
|
|
- |
|
|
(440) |
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|
(440) |
Dividend declared, $.10 per share |
|
- |
|
|
- |
|
|
(736) |
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|
- |
|
|
(736) |
Compensation expense recognized on
|
|
- |
|
|
25 |
|
|
- |
|
|
- |
|
|
25 |
Common stock grants to directors,
|
|
9 |
|
|
87 |
|
|
- |
|
|
- |
|
|
96 |
BALANCE - JUNE 30, 2015 |
$ |
7,367 |
|
$ |
24,136 |
|
$ |
31,368 |
|
$ |
1,025 |
|
$ |
63,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
BALANCE - DECEMBER 31, 2015 |
$ |
7,408 |
|
$ |
24,299 |
|
$ |
35,158 |
|
$ |
1,236 |
|
$ |
68,101 |
Net income |
|
- |
|
|
- |
|
|
3,272 |
|
|
- |
|
|
3,272 |
Other comprehensive income, net of tax |
|
- |
|
|
- |
|
|
- |
|
|
698 |
|
|
698 |
Dividend declared, $.13 per share |
|
- |
|
|
- |
|
|
(964) |
|
|
- |
|
|
(964) |
Compensation expense recognized on
|
|
- |
|
|
15 |
|
|
- |
|
|
- |
|
|
15 |
Common stock grants to directors,
|
|
5 |
|
|
57 |
|
|
- |
|
|
- |
|
|
62 |
Compensation expense recognized on
expense of $234 |
|
- |
|
|
22 |
|
|
- |
|
|
- |
|
|
22 |
BALANCE - JUNE 30, 2016 |
$ |
7,413 |
|
$ |
24,393 |
|
$ |
37,466 |
|
$ |
1,934 |
|
$ |
71,206 |
See notes to consolidated financial statements.
6
Embassy Bancorp, Inc. |
Consolidated Statements of Cash Flows (Unaudited)
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Six Months Ended June 30, |
||||
|
2016 |
|
2015 |
||
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(In Thousands) |
||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
Net income |
$ |
3,272 |
|
$ |
3,619 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Provision for loan losses |
|
255 |
|
|
142 |
Amortization of deferred loan costs |
|
57 |
|
|
12 |
Depreciation and amortization |
|
374 |
|
|
306 |
Net amortization of investment security premiums and discounts |
|
130 |
|
|
105 |
Stock compensation expense |
|
37 |
|
|
25 |
Net realized gain on sale of other real estate owned |
|
(15) |
|
|
(7) |
Impairment on other real estate owned |
|
80 |
|
|
42 |
Income on bank owned life insurance |
|
(129) |
|
|
(189) |
Net realized gain on sale of securities available for sale |
|
- |
|
|
(139) |
Increase in accrued interest receivable |
|
(55) |
|
|
(39) |
Increase in other assets |
|
(657) |
|
|
(22) |
Increase (decrease) in accrued interest payable |
|
209 |
|
|
(12) |
Increase (decrease) in other liabilities |
|
365 |
|
|
(20) |
Net Cash Provided by Operating Activities |
|
3,923 |
|
|
3,823 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
Purchases of securities available for sale |
|
(15,416) |
|
|
(13,869) |
Maturities, calls and principal repayments of securities available for sale |
|
3,717 |
|
|
981 |
Proceeds from sales of securities available for sale |
|
- |
|
|
5,726 |
Net increase in loans |
|
(41,041) |
|
|
(46,448) |
Net redemption (purchases) of restricted investment in bank stock |
|
1,554 |
|
|
(1,728) |
Proceeds from sale of other real estate owned |
|
- |
|
|
53 |
Purchases of premises and equipment |
|
(308) |
|
|
(282) |
Net Cash Used in Investing Activities |
|
(51,494) |
|
|
(55,567) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
Net increase in deposits |
|
114,228 |
|
|
7,424 |
Net (decrease) increase in securities sold under agreements to repurchase |
|
(18,932) |
|
|
3,491 |
(Decrease) increase in short-term borrowed funds |
|
(39,306) |
|
|
35,440 |
Proceeds from long-term borrowed funds |
|
- |
|
|
5,455 |
Payments of long-term borrowed funds |
|
(3,820) |
|
|
(1,000) |
Net Cash Provided by Financing Activities |
|
52,170 |
|
|
50,810 |
Net Increase (Decrease) in Cash and Cash Equivalents |
|
4,599 |
|
|
(934) |
CASH AND CASH EQUIVALENTS - BEGINNING |
|
19,526 |
|
|
16,390 |
CASH AND CASH EQUIVALENTS - ENDING |
$ |
24,125 |
|
$ |
15,456 |
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOWS INFORMATION |
|
|
|
|
|
Interest paid |
$ |
1,641 |
|
$ |
1,500 |
Income taxes paid |
$ |
1,482 |
|
$ |
1,560 |
Other real estate sold through bank financing |
$ |
523 |
|
$ |
- |
Deferral of gain from sale of other real estate sold through bank financing |
$ |
15 |
|
$ |
195 |
See notes to consolidated financial statements.
7
Note 1 – Basis of Presentation
Embassy Bancorp, Inc. (the “Company”) is a Pennsylvania corporation organized in 2008 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company was formed for purposes of acquiring Embassy Bank For The Lehigh Valley (the “Bank”) in connection with the reorganization of the Bank into a bank holding company structure, which was consummated on November 11, 2008. Accordingly, the Company owns all of the capital stock of the Bank, giving the organization more flexibility in meeting its capital needs as the Company continues to grow. Embassy Holdings, LLC (the “LLC”) is a wholly-owned subsidiary of the Bank organized to engage in the holding of property acquired by the Bank in satisfaction of debts previously contracted. As such, the consolidated financial statements contained herein include the accounts of the Company, the Bank and the LLC. All significant intercompany transactions and balances have been eliminated.
The Bank, which is the Company’s principal operating subsidiary, was originally incorporated as a Pennsylvania bank on May 11, 2001 and opened its doors on November 6, 2001. It was formed by a group of local business persons and professionals with significant prior experience in community banking in the Lehigh Valley area of Pennsylvania, the Bank’s primary market area.
The accompanying unaudited financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“US GAAP”) for interim financial information and in accordance with instructions for Form 10-Q and Rule 10-01 of the Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31 , 201 6 .
The consolidated financial statements presented in this report should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2015 , included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2016 .
In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after June 30, 2016 through the date these consolidated financial statements were issued. On July 15 , 2016, the Board of Directors of the Compan y ratified the execution of the Embassy Bancorp, Inc. Employee Stock Purchase Plan. This plan had previously been approved by the Company’s shareholders at the annual shareholders meeting held on June 16, 2016. Under the plan, each employee of the Company and its subsidiaries who is employed on an offering date when options are granted, scheduled to work at least twenty (20) hours per week and for more than five (5) months is eligible to participate once th e y have completed the appropriate documentation. Embassy Bancorp, Inc. has authorized 350,000 of its common stock for the plan.
Certain amounts in the 201 5 financial statements may have been reclassified to conform to 201 6 presentation. These reclassifications had no effect on 201 5 net income.
Note 2 - Summary of Significant Accounting Policies
The significant accounting policies of the Company as applied in the interim financial statements presented are substantially the same as those followed on an annual basis as presented in the Company’s Form 10-K for the year ended December 31, 2015 .
Note 3 – Stockholders’ Equity
On November 11, 2008, the Company consummated its acquisition of Embassy Bank For The Lehigh Valley pursuant to a Plan of Merger and Reorganization dated April 18, 2008, pursuant to which the Bank was reorganized into a bank holding company structure. At the effective time of the reorganization, each share of common stock of Embassy Bank For The Lehigh Valley issued and outstanding was automatically converted into one share of Company common stock. The issuance of Company common stock in connection with the reorganization was exempt from registration pursuant to Section 3(a)(12) of the Securities Act of 1933, as amended.
Note 4 – Stock Incentive Plan
At the Company’s annual meeting on June 16, 2010, the shareholders approved the Embassy Bancorp, Inc. 2010 Stock Incentive Plan (the “SIP”). The SIP authorizes the Board of Directors, or a committee authorized by the Board of Directors, to award a stock based incentive to (i) designated officers (including officers who are directors) and other designated employees at the Company and its subsidiaries, and (ii) non-employee members of the Board of Directors and advisors and consultants to the Company and its subsidiaries. The SIP provides for stock based incentives in the form of incentive stock options as provided in Section 422 of the
8
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Internal Revenue Code of 1986, non-qualified stock options, stock appreciation rights, restricted stock and deferred stock awards. The term of the option, the amount of time for the option to vest after grant, if any, and other terms and limitations will be determined at the time of grant. Options granted under the SIP may not have an exercise period that is more than ten years from the time the option is granted. At inception, the aggregate number of shares available for issuance under the SIP was 500,000 . The SIP provides for appropriate adjustments in the number and kind of shares available for grant or subject to outstanding awards under the SIP to avoid dilution in the event of merger, stock splits, stock dividends or other changes in the capitalization of the Company. The SIP expires on June 15, 2020. At June 30, 2016 there were 322,210 shares available for issuance under the SIP.
The Company grants shares of restricted stock, under the SIP, to certain members of its Board of Directors as compensation for their services, in accordance with the Company’s Non-employee Directors Compensation program adopted in October 2010. The Company also grants restricted stock to certain officers under individual agreements with these officers. Some of these restricted stock awards vest immediately, while the remainder vest over three to nine service years. Management recognizes compensation expense for the fair value of the restricted stock awards on a straight-line basis over the requisite service period. Since inception of the plan and through the period ended June 30, 2016 , there have been 65,774 awards granted. No awards were granted during the three months ended June 30, 2016 and 2015. During the six months ended June 30, 2016 and 2015 there were 5,934 and 9,122 awards granted, respectively. During the three and six month months ended June 30, 2016 the Company recognized $10 thousand and $22 thousand , respectively, in compensation expense for the restricted stock awards. There was no compensation expense recognized for the restricted stock awards during the three and six months ended June 30, 2015.
In January 2014, February 2013 and February 2012, the Company granted stock options to purchase 29,663, 29,742 and 52,611 shares of stock to certain executive officers in accordance with their respective employment agreements. No stock options were granted in quarter and year to date periods ended June 30, 2016 and 2015 . Stock compensation expense related to these options was $6 thousand and $10 thousand for the three months ended June 30, 2016 and 2015 , respectively. Stock compensation expense related to these options was $15 thousand and $25 thousand for the six months ended June 30, 2016 and 2015 , respectively. At June 30, 2016 , approximately $13 thousand unrecognized cost related to stock options granted in 2014 will be recognized over the next 0.55 years. The fair value of the options granted in 2014, 2013 and 2012 was determined with the following weighted average assumptions: dividend yield of 0%, risk free interest rate of 2.30%, 1.34% and 1.43%, respectively, expected life of 6.0 years, 6.0 years and 7.5 years, respectively, and expected volatility of 28.93%, 28.79% and 31.10%, respectively. The weighted average fair value of options granted in 2014, 2013 and 2012 was $2.46, $2.14 and $2.56 per share, respectively.
9
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Note 5 – Other Comprehensive Income (Loss)
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income (loss).
The components of other comprehensive income (loss), both before tax and net of tax, are as follows:
|
A. |
|
Realized gains on securities transactions included in gain on sales of securities, net, in the accompanying Consolidated Statements of Income. |
|
B. |
|
Tax effect included in income tax expense in the accompanying Consolidated Statements of Income. |
There were no realized gains on securities for the three months ended June 30, 2016 and 2015 . A summary of the realized gains on securities available for sale, net of tax, for the six months ended June 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||
|
|
June 30, |
||||
|
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|||
Securities available for sale: |
|
|
|
|
|
|
Realized gains on securities transactions |
|
$ |
- |
|
$ |
(139) |
Income taxes |
|
|
- |
|
|
47 |
Net of tax |
|
$ |
- |
|
$ |
(92) |
10
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
A summary of the accumulated other comprehensive income, net of tax, is as follows:
11
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Note 6 – Basic and Diluted Earnings per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period, as adjusted for stock dividends and splits. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method.
There were no stock options not considered in computing diluted earnings per common share for the three and six months ended June 30, 2016, as compared to stock options of 9,122 not considered in computing diluted earnings per common share for the three and six months ended June 30, 2015 because they were not dilutive to earnings .
Note 7 – Guarantees
The Company, through the Bank, does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit and FHLBank of Pittsburgh (“FHLB”) deposit letters of credit. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments. The Company had $3.7 million of standby letters of credit outstanding as of June 30, 2016 . The approximate value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $ 3.6 million. Management does not consider the current amount of the liability as of June 30, 2016 for guarantees under standby letters of credit issued to be material .
FHLB deposit letters of credit are standby letters of credit commitments issued by the Bank for the benefit of a third party (the “Beneficiary”), which secure public deposits in the Bank. FHLB deposit letter s of credit are secured by qualifying assets of the Bank. The Company, through the Bank, had $7.9 million of FHLB deposit letters of credit outstanding as of June 30, 2016 .
Note 8 – Short-term and Long-term Borrowings
Securities sold under agreements to repurchase, federal funds purchased and FHLB short term advances generally represent overnight or less than twelve month borrowings. Long term advances from the FHLB are for periods of twelve months or more and are generally less than sixty months . The Bank has an agreement with the FHLB which allows for borrowings up to a percentage of qualifying assets. At June 30, 2016 , the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $ 426.5 million. This borrowing capacity with the FHLB includes a line of credit of $ 150.0 million. There were no short-term FHLB advances outstanding as of June 30, 2016 and $39.3 million were outstanding as of December 31, 2015 . No l ong-term advances were outstanding with FHLB as of June 30, 2016 and $3.8 million were outstanding as of December 31, 2015 . All FHLB borrowings are secured by qualifying assets of the Bank.
The Bank has a federal funds line of credit with the Atlantic Community Bankers Bank (“ACBB”) of $ 10.0 million , of which none was outstanding at June 30, 2016 and December 31, 2015 . Advances from this line are unsecured.
The Company has one line of credit with Univest Bank and Trust Co. (“Univest”) totaling $4.0 million, of which none was outstanding at June 30, 2016 and December 31, 2015 . This line of credit is secured by 333,333 shares of Bank common stock .
12
Note 9 – Securities Available For Sale
At June 30, 2016 and December 31, 2015 , respectively, the amortized cost and approximate fair values of securities available-for-sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Gross |
|
|
|
||
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
||||
|
Cost |
|
Gains |
|
Losses |
|
Value |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
||||||||||
June 30, 2016 : |
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations |
$ |
31,596 |
|
$ |
267 |
|
$ |
- |
|
$ |
31,863 |
Municipal bonds |
|
39,045 |
|
|
2,508 |
|
|
- |
|
|
41,553 |
U.S. Government Sponsored Enterprise (GSE) -
|
|
16,309 |
|
|
154 |
|
|
- |
|
|
16,463 |
Total |
$ |
86,950 |
|
$ |
2,929 |
|
$ |
- |
|
$ |
89,879 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 : |
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency obligations |
$ |
34,676 |
|
$ |
15 |
|
$ |
(121) |
|
$ |
34,570 |
Municipal bonds |
|
39,378 |
|
|
1,970 |
|
|
(144) |
|
|
41,204 |
U.S. Government Sponsored Enterprise (GSE) -
|
|
1,327 |
|
|
152 |
|
|
- |
|
|
1,479 |
Total |
$ |
75,381 |
|
$ |
2,137 |
|
$ |
(265) |
|
$ |
77,253 |
The amortized cost and fair value of securities as of June 30, 2016 , 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.
There were no sales of securities during the three and six months ended June 30, 2016. There were no sales of securities during the three months ended June 30, 2015. Gross gains of $139 thousand were realized on sales of securities for the six months ended June 30, 2015. Th ere were no gross losses on the sales of securities during the six months ended June 30, 2015.
Securities with a carrying value of $57.4 million and $64.9 million at June 30, 2016 and December 31, 2015 , respectively, were subject to agreements to repurchase, pledged to secure public deposits, or pledged for other purpose s required or permitted by law.
13
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
The Company had no securities in an unrealized loss position at June 30, 2016. 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 December 31, 2015 :
Note 10 – Restricted Investment in Bank Stock
Restricted investments in bank stock consist of FHL Bank 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 $ 262 thousand and $2.1 million repurchased during the three and six months ended June 30, 2016 and $114 thousand was repurchased during the three and six months ended June 30, 2015 , respectively. Stock purchases of $352 thousand and $537 thousand were made during the three and six months ended June 30, 2016 and $983 thousand and $1.8 million during the three and six months ended June 30, 2015 , respectively. Dividend payments of $17 thousand and $42 thousand were received during the three and six months ended June 30, 2016 and $13 thousand and $58 thousand were received during the three and six months ended June 30, 2015 , respectively.
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 June 30, 2016 .
Note 11 – Loans Receivable and Credit Quality
The following table presents the composition of loans receivable at June 30, 2016 and December 31, 2015 , respectively:
14
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 weaknesses), substandard (well defined weaknesses) and doubtful (full collection unlikely) within the Company's internal risk rating system as of June 30, 2016 and December 31, 2015 , respectively:
15
The following table summarizes information in regards to impaired loans by loan portfolio class as of June 30, 2016 and December 31, 2015 , respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter to Date |
|
Year to Date |
|
||||||||
|
|
Recorded Investment |
|
Unpaid Principal Balance |
|
Related Allowance |
|
Average Recorded Investment |
|
Interest Income Recognized |
|
Average Recorded Investment |
|
Interest Income Recognized |
|
|||||||
June 30, 2016 |
|
|
(In Thousands) |
|
||||||||||||||||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
3,655 |
|
$ |
3,974 |
|
|
|
|
$ |
3,667 |
|
$ |
19 |
|
$ |
3,659 |
|
$ |
37 |
|
Commercial construction |
|
|
815 |
|
|
815 |
|
|
|
|
|
815 |
|
|
7 |
|
|
815 |
|
|
14 |
|
Commercial |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Residential real estate |
|
|
800 |
|
|
808 |
|
|
|
|
|
811 |
|
|
2 |
|
|
793 |
|
|
3 |
|
Consumer |
|
|
- |
|
|
- |
|
|
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Commercial construction |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Commercial |
|
|
268 |
|
|
268 |
|
|
61 |
|
|
261 |
|
|
3 |
|
|
281 |
|
|
6 |
|
Residential real estate |
|
|
1,113 |
|
|
1,113 |
|
|
349 |
|
|
970 |
|
|
3 |
|
|
925 |
|
|
4 |
|
Consumer |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
3,655 |
|
$ |
3,974 |
|
$ |
- |
|
$ |
3,667 |
|
$ |
19 |
|
$ |
3,659 |
|
$ |
37 |
|
Commercial construction |
|
|
815 |
|
|
815 |
|
|
- |
|
|
815 |
|
|
7 |
|
|
815 |
|
|
14 |
|
Commercial |
|
|
268 |
|
|
268 |
|
|
61 |
|
|
261 |
|
|
3 |
|
|
281 |
|
|
6 |
|
Residential real estate |
|
|
1,913 |
|
|
1,921 |
|
|
349 |
|
|
1,781 |
|
|
5 |
|
|
1,718 |
|
|
7 |
|
Consumer |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
$ |
6,651 |
|
$ |
6,978 |
|
$ |
410 |
|
$ |
6,524 |
|
$ |
34 |
|
$ |
6,473 |
|
$ |
64 |
|
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Commercial real estate |
|
$ |
3,644 |
|
$ |
3,928 |
|
|
|
|
|
|
|
|
|
|
$ |
3,672 |
|
$ |
139 |
|
Commercial construction |
|
|
815 |
|
|
815 |
|
|
|
|
|
|
|
|
|
|
|
1,096 |
|
|
38 |
|
Commercial |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
Residential real estate |
|
|
758 |
|
|
758 |
|
|
|
|
|
|
|
|
|
|
|
1,029 |
|
|
10 |
|
Consumer |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
- |
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
$ |
336 |
|
$ |
- |
|
Commercial construction |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
Commercial |
|
|
321 |
|
|
321 |
|
|
115 |
|
|
|
|
|
|
|
|
323 |
|
|
10 |
|
Residential real estate |
|
|
834 |
|
|
834 |
|
|
255 |
|
|
|
|
|
|
|
|
878 |
|
|
5 |
|
Consumer |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
$ |
3,644 |
|
$ |
3,928 |
|
$ |
- |
|
|
|
|
|
|
|
$ |
4,008 |
|
$ |
139 |
|
Commercial construction |
|
|
815 |
|
|
815 |
|
|
- |
|
|
|
|
|
|
|
|
1,096 |
|
|
38 |
|
Commercial |
|
|
321 |
|
|
321 |
|
|
115 |
|
|
|
|
|
|
|
|
323 |
|
|
10 |
|
Residential real estate |
|
|
1,592 |
|
|
1,592 |
|
|
255 |
|
|
|
|
|
|
|
|
1,907 |
|
|
15 |
|
Consumer |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
- |
|
|
- |
|
|
|
$ |
6,372 |
|
$ |
6,656 |
|
$ |
370 |
|
|
|
|
|
|
|
$ |
7,334 |
|
$ |
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The following table presents non-accrual loans by classes of the loan portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016 |
|
December 31, 2015 |
|
||
|
|
|
|
|
|
|
|
(In Thousands) |
|
||||
Commercial real estate |
$ |
221 |
|
$ |
164 |
|
Commercial construction |
|
- |
|
|
- |
|
Commercial |
|
15 |
|
|
66 |
|
Residential real estate |
|
865 |
|
|
529 |
|
Consumer |
|
- |
|
|
- |
|
Total |
$ |
1,101 |
|
$ |
759 |
|
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 June 30, 2016 and December 31, 2015 , respectively:
17
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
The following tables detail the activity in the allowance for loan losses for the three and six months ended June 30, 2016 and 2015 :
18
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
The following tables represent the allocation for loan losses and the related loan portfolio disaggregated based on impairment methodology at June 30, 2016 and December 31, 2015 .
Troubled Debt Restructurings
The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition tha t it would not otherwise consider, resulting in a modified loan which is then identified as troubled debt restructuring (“TDR”). The Company may modify loans through rate reductions, extensions to maturity, interest only payments, or payment modifications to better coincide the timing of payments due under the modified terms with the expected timing of cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.
The Company identifies loans for potential restructure primarily through direct communication with the borrower and the evaluation of the borrower’s financial statements, revenue projections, tax returns, and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.
19
The following table presents TDRs outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016 |
|||||||
|
Accrual Loans |
|
Non-Accrual Loans |
|
Total Modifications |
|||
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|||||||
Commercial real estate |
$ |
3,111 |
|
$ |
- |
|
$ |
3,111 |
Commercial construction |
|
260 |
|
|
- |
|
|
260 |
Commercial |
|
253 |
|
|
- |
|
|
253 |
Residential real estate |
|
1,048 |
|
|
- |
|
|
1,048 |
Consumer |
|
- |
|
|
- |
|
|
- |
|
$ |
4,672 |
|
$ |
- |
|
$ |
4,672 |
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|||||||
|
Accrual Loans |
|
Non-Accrual Loans |
|
Total Modifications |
|||
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|||||||
Commercial real estate |
$ |
3,145 |
|
$ |
- |
|
$ |
3,145 |
Commercial construction |
|
260 |
|
|
- |
|
|
260 |
Commercial |
|
255 |
|
|
- |
|
|
255 |
Residential real estate |
|
1,063 |
|
|
- |
|
|
1,063 |
Consumer |
|
- |
|
|
- |
|
|
- |
|
$ |
4,723 |
|
$ |
- |
|
$ |
4,723 |
As of June 30, 2016 , no available commitments were outstanding on TDRs.
There were no newly restructured loans that occurred during the three and six months ended June 30, 2016 and 2015.
There were no loans that were modified and classified as a TDR within the prior twelve months that experienced a payment default (loans ninety days or more past due) during the three and six months ended June 30, 2016 and 2015.
Note 12 – 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.
20
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
ASC Topic 860 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 860 are as follows:
Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 : Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 : Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy utilized at June 30, 2016 and December 31, 2015 , respectively, are as follows:
21
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2016 and December 31, 2015 , respectively, are as follows:
Impaired loans are those that are accounted for under existing FASB guidance , in which the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the
properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
At June 30, 2016 , of the impaired loans having an aggregate balance of $6.7 million, $5.3 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 $ 1.4 million in impaired loans, an aggregate valuation allowance of $ 410 thousand was required to reflect what was determined to be a shortfall in the value of the collateral as compared to the balance on such loans.
Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement.
22
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
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:
|
1. |
|
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include Level 3 inputs which are not identifiable. |
|
2. |
|
Appraisals may be adjusted by management for qualitative factors including economic conditions and the age of the appraisal. The range and weighted average of appraisal adjustments are presented as a percent of the appraisal. |
|
3. |
|
Appraisals and pending agreements of sale are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percent of the appraisal or pending agreement of sale. |
|
4. |
|
Fair value is determined by listings, letters of intent or third-party evaluations. |
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at June 30, 2016 and December 31, 2015 :
Cash and Cash Equivalents (Carried at Cost)
The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.
Interest Bearing Time Deposits (Carried at Cost)
Fair values for fixed-rate time certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits. The Company generally purchases amounts below the insured limit, limiting the amount of credit risk on these time deposits.
Securities Available for Sale (Carried at Fair Value)
The fair value of securities available for sale are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.
Loans Receivable (Carried at Cost)
The fair values of loans, excluding impaired loans carried at fair value of collateral, are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, and projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
23
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Restricted Investment in Bank Stock (Carried at Cost)
The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.
Accrued Interest Receivable and Payable (Carried at Cost)
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit Liabilities (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Securities Sold Under Agreements to Repurchase, Federal Funds Purchased and Short-Term Borrowings (Carried at Cost)
These borrowings are short term and the carrying amount approximates the fair value.
Long-Term Borrowings (Carried at Cost)
Fair values of FHLB and Univest advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB and Univest advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.
24
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Off-Balance Sheet Financial Instruments (Disclosed at Cost)
Fair values for the Company’s off-balance sheet financial instruments (lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account, the remaining terms of the agreements and the counterparties’ credit standing.
The estimated fair values of the Company’s financial instruments were as follows at June 30, 2016 and December 31, 2015 :
25
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Note 13 – Offsetting Assets and Liabilities
The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal ownership over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company's consolidated statements of condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Company does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.
The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Company be in default (e.g., fails to make an interest payment to the counterparty). For private institution repurchase agreements, if the private institution counterparty were to default (e.g., declare bankruptcy), the Company could cancel the repurchase agreement (i.e., cease payment of principal and interest), and attempt collection on the amount of collateral value in excess of the repurchase agreement fair value. The collateral is held by a third party financial institution in the counterparty's custodial account. The counterparty has the right to sell or repledge the investment securities. For government entity repurchase agreements, the collateral is held by the Company in a segregated custodial account under a tri-party agreement.
The following table presents the liabilities subject to an enforceable master netting arrangement or repurchase agreements as of June 30, 2016 and December 31, 2015 :
As of June 30, 2016 and December 31, 2015 , the fair value of securities pledged was $ 11.9 million and $ 35.0 million, respectively.
26
Embassy Bancorp, Inc. |
Notes to Consolidated Financial Statements (Unaudited)
Note 14 – New Accounting Standards
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU 2015-14 which deferred the effective date of ASU 2014-09 by one year. The new guidance will be effective for public companies for periods beginning after December 15, 2017 with private companies provided a one-year deferral until periods beginning after December 15, 2018. The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Company has not yet determined which application method it will use or the potential effects of the new standard on the financial statements, if any. The Company is currently assessing the impact this new standard will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of income. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the current guidance. The new guidance will be effective for years beginning after December 15, 2018 for public companies and for years beginning after December 15, 2019 for private companies. Once effective, the standard will be applied using a modified retrospective transition method to the beginning of the earliest period presented. The Company is currently assessing the impact this new standard will have on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718). This ASU was issued as part of FASB’s Simplification Initiative. The areas for simplification in this Update include income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows for share-based payment transactions. For public companies, this ASU will be effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments will be effective for annual periods beginning after December 31, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact this new standard will have on its consolidated financial statements.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016 - 13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this u pdate are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and results of operations.
27
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 June 30, 2016 and for the three and six months ended June 30, 2016 a nd 2015 , 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, 2015 , 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, 2015 . Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses and the valuation of deferred tax assets. Additional information is contained in this Form 10-Q under the paragraphs titled “Provision for Loan Losses,” “Credit Risk and Loan Quality,” and “Income Taxes” contained on the following pages.
Forward-looking Statements
This report contains forward-looking statements, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. These forward-looking statements are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. These statements are based upon current and anticipated economic conditions, nationally and in the Company’s market, interest rates and interest rate policy, competitive factors and other conditions that, by their nature, are not susceptible to accurate forecast, and are subject to significant uncertainty.
Such forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “intends”, “will”, “should”, “anticipates”, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.
No assurance can be given that the future results covered by forward-looking statements will be achieved. Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could impact the Company’s operating results include, but are not limited to, (i) the effects of changing economic conditions in the Company’s market areas and nationally, (ii) credit risks of commercial, real estate, consumer and other lending activities, (iii) significant changes in interest rates, (iv) changes in federal and state banking laws and regulations which could impact the Company’s operations, and ( v ) other external developments which could materially affect the Company’s business and operations.
OVERVIEW
The Company is a Pennsylvania corporation organized in 2008 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act ” ). The Company was formed for purposes of acquiring Embassy Bank For The Lehigh Valley (the “Bank”) in connection with the reorganization of the Bank into a bank holding company structure, which was consummated on November 11, 2008. Accordingly, the Company owns all of the capital stock of the Bank, giving the organization more flexibility in meeting its capital needs as the Company continues to grow. Embassy Holdings, LLC (the “LLC”) is a wholly-owned subsidiary of the B ank organized to engage in the holding of property acquired by the Bank in satisfaction of debts previously contracted. As such, the consolidated financial statements contained herein include the accounts of the Company, the Bank and the LLC.
The Bank, which is the Company’s primary operating subsidiary, was originally incorporated as a Pennsylvania bank on May 11, 2001 and opened its doors on November 6, 2001. It was formed by a group of local business persons and professionals with significant prior experience in community banking in the Lehigh Valley area of Pennsylvania, the Bank’s primary market area.
The Company’s assets increased $ 56.7 million from $ 804.0 million at December 31, 2015 to $ 860.8 million at June 30, 2016 due primarily to an increase in loans receivable and securities .
Net income for the three months ended June 30, 2016 and June 30, 2015 was $1.7 million . Net income for the six months ended June 30, 2016 was $3.3 million compared to a net income for the six months ended June 30, 2015 of $3.6 million. The difference in net income for the six months ended June 30, 2016 and June 30, 2015 resulted, in part, from an increase in the provision for loans and lease losses of $ 113 thousand due to loan growth in the six months ended June 30, 2016, the personnel costs associated with opening a
28
new branch in December 2015, no gains on sales of securities in the six months ended June 30, 2016, compared to gross gains of $139 thousand realized on sales of securities in the six months ended June 30, 2015, and a commercial loan recovery of $169 thousand in interest income during the six months ended June 30, 2015 .
Loans receivable, net of the allowance for loan losses, increased $ 41.3 million to $ 725.3 million at June 30, 2016 from $ 684.0 million at December 31, 2015 . With the market being very competitive , the Company remains committed to maintaining a high quality portfolio that returns a reasonable market rate. The Company expects to increase lending activity, as the Company expands its presence and benefits from the impact of recent mergers within its marketplace. The past and current economic conditions have created lower demand for loans by credit-worthy customers. The lending staff has been active in contacting new prospects and promoting the Company’s name in the community. Management believes that this will translate into continued growth of a portfolio of quality loans and core deposit relationships, although there can be no assurance of this. The Company continues to monitor interest rate exposure of its interest bearing assets and liabilities and believes that it is well positioned for any future market rate adjustments.
RESULTS OF OPERATIONS
Net Interest Income
Total interest income for the three months ended June 30, 2016 and 2015 totaled $ 7.4 million and $6.9 million, respectively. Average earning assets were $ 824.7 million for the three months ended June 30, 2016 compared to $ 730.4 million for the three months ended June 30, 2015 . The tax equivalent yield on average earning assets was 3.72% for the second quarter of 2016 compared to 3.88% for the second quarter of 2015 .
Total interest expense for the three months ended June 30, 2016 increased $ 206 thousand to $ 966 thousand as compared to $ 760 thousand for the three months ended June 30, 2015 , primarily due to growth in savings balances and certificates of deposit balances and rates, offset by a decrease in securities sold under agreements to repurchase balances and a decrease in FHLB short-term and long-term borrowings. Average interest bearing liabilities were $ 682.1 million for the three months ended June 30, 2016 compared to $ 614.8 million for the three months ended June 30, 2015 . The yield on average interest bearing liabili ties was 0.57% and 0.50% for the second quarter s of 2016 and 2015 , respectively .
Net interest income for the three months ended June 30, 2016 was $ 6.5 million compared to $ 6.1 million for the three months ended June 30, 2015 . The improvement in net interest income for the three months ended June 30, 2016 is a result of the growth in the loan portfolio and decrease in securities sold under ag reements to repurchase balances and FHLB short-term and long-term borrowing s , offset by growth in savings and certificate s of deposit . The Company’s net interest margin for the three months ended June 30, 2016 decreased twenty-three (23) basis points to 3.25% as compared to 3.48% for the three months ended June 30, 2015 , due to the current interest rate environment and competitive pressure, inclusive of decreased interest rates on the loan portfolio and increased interest rates on certificate s of deposit, offset by a decrease in securities sold under ag reements to repurchase balances and FHLB short-term and long-term borrowing s .
Total interest income for the six months ended June 30, 2016 and 2015 totaled $14.8 million and $13.7 million, respectively. Average earning assets we re $808.4 million for the six months ended June 30, 2016 compared to $719.3 million for the six months ended June 30, 2015 . The tax equivalent yield on average earning assets for the six months ended June 30, 2016 decreased twenty (20) basis points to 3.76% as compared to 3.96% for the six months ended June 30, 2015 .
Total interest expense for the six months ended June 30, 2016 increased $ 375 thousand to $ 1.9 million as compared to $ 1.5 million for the six months ended June 30, 2015 . The increase is primarily due to growth in savings balances and growth in certificates of deposit balances and rates, offset by a decrease in securities sold under agreements to repurchase balances and a decrease in FHLB short-term and long-term borrowing s. Average interest bearing liabilities were $669.7 million for the six months ended June 30, 2016 compared to $606.4 million for the six months ended June 30, 2015 . The yield on average interest bearing liabilities for the six months ended June 30, 2016 increased seven (7) basis points to 0.56% from 0.49% as of June 30, 2015 .
Net interest income for the six months ended June 30, 2016 was $12.9 million compared to $12.2 million for the six months ended June 30, 2015 . The improvement in net interest income for the six months ended June 30, 2016 is a result of the growth in the loan portfolio, offset by growth in savings and certificate s of deposit. The Company’s net interest margin for the six months ended June 30, 2016 decreased twenty-four (24) basis point s to 3.30% as compared to 3.54% for the six months ended June 30, 2015 , due to the current interest rate environment and competitive pressure, inclusive of decreased interest rates on the loan portfolio and increased interest rates on certificate s of deposit.
29
The table below sets forth average balances and corresponding yields for the corresponding periods ended June 30, 2016 and 2015 , respectively:
Distribution of Assets, Liabilities and Stockholders’ Equity:
Interest Rates and Interest Differential (quarter to date)
30
Distribution of Assets, Liabilities and Stockholders’ Equity:
Interest Rates and Interest Differential ( year to date)
31
Provision for Loan Losses
The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan l osses is maintained at a level management considers to be adequate to provide for losses that can be reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant change.
The allowance consists of general, specific, qualitative and unallocated components. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. The specific component relates to loans that are classified as watch, other assets especially mentioned, sub standard, doubtful or loss. S uch loans may also be classified as im paired and/or restructured. For loans that are further classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. I mpairment is measured on a loan-by- loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the colla teral if the loan is collateral- dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and home equ ity loans for impairment disclosures, unless such loans are the subject of a restructuring agreement or there is a possible loss expected.
For the three months ended June 30, 2016 , the provision for loan losses was $70 thousand, as compared to $120 thousand for the same period ended June 30, 2015 . There were no charge-offs in the three months ended June 30, 2016 , as compared to $55 thousand in the three months ended June 30, 2015 . For the six months ended June 30, 2016 , the provision for loan losses was $255 thousand, as compared to $142 thousand for the same period ended June 30, 2015 . In the six months ended June 30, 2016 , there were charge-offs in the amount of $44 thousand, as compared to $56 thousand in charge-offs during the same period in 2015 . The allowance for loan losses is $ 6.3 million as of June 30, 2016 , which is 0.86% of outstanding loans, compared to $ 5.7 million or 0.87% of outstanding loans as of June 30, 2015 . At December 31, 2015 , the allowance for loan losses of $ 6.1 million represented 0. 88 % of total outstanding loans. Based principally on economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Bank’s market area, the allowance is believed to be adequate to absorb any losses inherent in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate, or that material increases will not be necessary should the qu ality of the loans deteriorate. The Bank has not participated in any sub-prime lending activity.
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The activity in the allowance for loan losses is shown in the following table, as well as period end loans receivable and the allowance for loan losses as a percent of the total loan portfolio:
Non-interest Income
Total non-interest income was $609 thousand for the three months ended June 30, 2016 compared to $677 thousand for the same period in 2015 . The decrease is due primarily to an $80 thousand impairment loss on other real estate owned in the quarter ending June 30, 2016, compared to no impairment losses in the same period in 2015 and a decrease in the income associated with bank owned life insurance valuation, offset by increased fee income due to growth in the Bank’s credit card and merchant processing customer base. Total non-interest income was $1.2 million for the six months ended June 30, 2016 compared to $1.4 million for the same period in 2015 . The decrease is due primarily to the $139 thousand gain on the sale of securities realized in 2015, compared to no gains on the sale of securities during the same period in 2016, a decrease in the income associated with bank owned life insurance valuation, and an increase of $38 thousand in impairment losses of other real estate owned, offset by increased fee income due to growth in the Bank’s credit card and merchant processing customer base .
Non-interest Expense
Non-interest expenses increased $354 t housand from $4.3 million for the three months ended June 30, 2015 to $4.7 million for the same period ended June 30, 2016 . The increase is due to: an increase of $234 thousand in salaries and employee benefits due to salary increases and new hires including those for the new Nazareth branch in December 2015; an increase of $87 thousand in occupancy and equipment due primarily to the addition of the Nazareth branch; an increase of $28 thousand in FDIC insurance expense; and an increase of $59 thousand in other operating expenses, offset by a decrease of $53 thousand in data processing primarily due to m obile banking implementation in the second quarter of 2015; and a decrease of $36 thousand in loan and real estate expenses.
Non-interest expenses increased $861 thousand from $8.4 million for the six months ended June 30, 2015 to $9.3 million for the same period ended June 30, 2016 . The increase is due to: an increase of $ 462 thousand in salaries and employee benefits due to salary increases and new hires including those for the new Nazareth branch in December 2015; an increase of $133 thousand in occupancy and equipment due primarily to the addition of the Nazareth branch; an increase of $51 thousand in credit card processing due to increased processing volume; an increase of $43 thousand in FDIC insurance expense; an increase of $35 thousand in charitable contributions due to EITC contributions; an increase of $22 thousand in advertising and promotion expense due primarily to the new advertising campaign; an increase of $22 thousand in professional fees; and an increase of $114 thousand in other operating expenses, offset by a decrease of $23 thousand in data processing primarily due to m obile banking implementation in the second quarter of 2015 and ATM network fees.
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A breakdown of other expenses can be found in the statements of income.
Income Taxes
The allocated provision for income taxes for the three months ended June 30, 2016 totaled $670 thousand, or 28.7% of income before taxes. The provision for income taxes for the three months ended June 30, 2015 totaled $ 656 thousand, or 28.1% of income before taxes. The allocated provision for income taxes for the six months ended June 30, 2016 totaled $1.3 million, or 28.7% of income before taxes. The provision for income taxes for the six months ended June 30, 2015 totaled $1.4 million, or 28.4% of income before taxes. The slight increase in the tax rate is primarily the result of the change in the mix of taxable and tax free loans and investments.
FINANCIAL CONDITION
Securities
The Bank’s securities portfolio continues to be classified, in its entirety, as “available for sale.” Management believes that a portfolio classification of available for sale allows complete flexibility in the investment portfolio. Using this classification, the Bank intends to hold these securities for an indefinite amount of time, but not necessarily to maturity. Such securities are carried at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is structured to provide maximum return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of U.S. government agency securities, mortgage-backed securities issued by FHLMC or FNMA, and taxable and non-taxable municipal bonds. The Bank holds no high-risk securities or derivatives as of June 30, 2016 . The Bank has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans.
Total securities at June 30, 2016 were $89.9 million compared to $77.3 million at December 31, 2015 . The increase in the investment portfolio is the result of the purchase of two ( 2 ) mortgage-backed securities totaling $ 15.4 million , offset by pay downs on mortgage-backed securities, maturities, calls , and an increase in unrealized gains. The carrying value of the securities portfolio as of June 30, 2016 includes a net unrealized gain of $2.9 million , which is recorded as accumulated other comprehensive income in stockholders’ equity net of income tax effect. This compares to a net unrealized gain of $1.9 million at December 31, 2015 . The current unrealized gain position of the securities portfolio is due to the changes in market rates since purchase. No securities are deemed to be other than temporarily impaired.
Loans
The loan portfolio comprises a major component of the Bank’s earning assets. All of the Bank’s loans are to domestic borrowers. Total net loans at June 30, 2016 increased $41.3 million to $725.3 million from $684.0 million at December 31, 2015 . The loan-to- deposit ratio decreased from 105% at December 31, 2015 to 94% at June 30, 2016 . The Bank’s loan portfolio at June 30, 2016 was comprised of residential real estate and consumer loans of $372.1 million, an increase of $24.0 million from December 31, 2015 , and commercial loans of $359.4 million, an increase of $17.3 million from December 31, 2015 . The Bank has not originated, nor does it intend to originate, sub-prime mortgage loans.
Credit Risk and Loan Quality
The allowance for loan losses increased $211 thousand totaling $6.3 million at June 30, 2016 compared to $6.1 million at December 31, 2015 . At June 30, 2016 and December 31, 2015 , the allowance for loan losses represented 0.86% and 0.88%, respectively, of total loans. Based upon current economic conditions, the composition of the loan portfolio, the perceived credit risk in the portfolio and loan-loss experience of the Bank and comparable institutions in the Bank’s market area, management feels the allowance is adequate to absorb reasonably anticipated losses.
At June 30, 2016 , December 31, 2015 , and June 30, 2015 aggregate balances on non-performing loans equaled $5.8 million, $5.5 million and $6.2 million, respectively, representing 0.79% , 0.79% and 0.95% of total loans at June 30, 2016 , December 31, 2015 and June 30, 2015 , respectively. Troubled debt restructurings, included in the following table, represent loans where the Company, for economic or legal reasons related to the debtor’s financial difficulties, has granted a concession to the debtor that it would not oth erwise consider. There were no loans that were modified and classified as a TDR within the prior twelve months that experienced a payment default (loans ninety or more days past due) for the six months ended June 30, 2016 . The Company has three (3) foreclosed assets in the amount of $621 thousand as of June 30, 2016 , of which $141 thousand is residential real estate, as compared to four (4) foreclosed assets at December 31, 2015 in the amount of $1.2 million with $221 thousand in residential real estate. The net change is a result of: the sale of one (1) asset in the amount of $123 thousand and the sale of a portion of a foreclosed property in the amount of $400 thousand, and an $80 thousand impairment loss. At June 30, 2016 and December 31, 2015 the Company had $510 thousand and $529 thousand, respectively, in recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure.
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The details for non-performing loans are included in the following table:
Premises and Equipment
Company premises and equipment, net of accumulated depreciation, decreased $ 66 thousand from December 31, 2015 to June 30, 2016 . This decrease is due primarily to depreciation on existing premises and equipment, offset by increases related to purchases.
Deposits
Total deposits at June 30, 2016 increased $ 114.2 million to $ 774.5 million from $ 660.3 million at December 31, 2015 due to enhanced d eposit advertising, opening of the Nazareth branch, expansion of existing deposit relationships , and customer migration due to recent merger activity in the Company’s local marketplace . Demand deposits increased $13.0 million, time deposits increased $26.8 million, and savings deposits increased $74.4 million.
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 $ 24.1 million at June 30, 2016 , compared to $ 19.5 million at December 31, 2015 .
Additional asset liquidity sources include principal and interest payments from the investment security and loan portfolios. Long-term liquidity needs may be met by selling unpledged securities available for sale, selling loans or raising additional capital. At June 30, 2016 , the Company had $ 89.9 million of available for sale securities. Securities with carrying values of approximately $ 57.4 million and $ 64.9 million at June 30, 2016 and December 31, 2015 , respectively, were pledged as collateral to secure securities sold under agreements to repurchase, public deposits, and for other purposes required or permitted by law.
At June 30, 2016 , the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $426.5 million. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. There were no short-term FHLB advances outstanding as of June 30, 2016 and $39.3 million were outstanding as of December 31, 2015 . No long-term FHLB advances were outstanding as of June 30, 2016 and $3.8 million were outstanding as of December 31, 2015 . All FHLB borrowings are secured by qualifying assets of the Bank.
The Bank has a federa l funds line of credit with ACBB of $ 10.0 million, of which none was outstanding at June 30, 2016 and December 31, 2015 . Advances from this line are unsecured.
The Company has one line of credit with Univest totaling $4.0 million , of which none was outstanding at June 30, 2016 and December 31, 2015 . Th is line of credit is secured by 333,333 shares of Bank common stock.
The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or capital resources.
35
Off-Balance Sheet Arrangements
The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These off-balance sheet arrangements consist of unfunded loans and commitments, as well as lines of credit made under the same standards as on-balance sheet instruments. These unused commitments totaled $96 .7 million a t June 30, 2016 . At June 30, 2016 the Company also had letters of credit outstanding of $3.7 million and FHLB deposit letters of credit outstanding of $7.9 million. 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 $71.2 million as of June 30, 2016 , representing a net increase of $ 3.1 million from December 31, 2015 . The increase in capital was primarily the result of the net income of $ 3.3 million and an increase of $698 thousand in unrealized gains on available for sale securities, offset by dividends declared of $964 thousand.
The Company and the Bank are subject to various regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the consolidated financial statements.
The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and Tier I capital to average assets (as defined). As of June 30, 2016 , 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 capi tal ratios and leverage ratios:
Note: Unrealized gains on securities available for sale are excluded from regulatory capita l components of risk-based capital and leverage ratios .
The Federal banking regulators have adopted risk-based capital guidelines for bank holding companies. Currently, the required minimum ratio of total capital to risk-weighted assets (including off-balance sheet activities, such as standby letters of credit) is 8%. At least half of the total capital is required to be Tier I capital, consisting principally of common shareholders’ equity, non-cumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill. The remainder (Tier II capital) may consist of a limited amount of subordinated debt and intermediate-term preferred stock, certain hybrid capital instruments and other debt securities, perpetual preferred stock and a limited amount of the general loan loss allowance.
In addition to the risk-based capital guidelines, the federal banking regulators established minimum leverage ratio (Tier I capital to total assets) guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of 3% for those bank holding companies which have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to maintain a leverage ratio of at least 4%.
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The following table provides the Company’s risk-based capital ratios and leverage ratios:
In July 2013, the FDIC and the Federal Reserve approved a new rule that substantially revised the regulatory risk based capital rules applicable to the Bank and the Company. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.
The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. In January 2016, the new capital conservation buffer requirement started being phased in at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
Item 4 – Controls and Procedures
The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2016 , 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 June 30, 2016 , including any corrective actions with regard to significant deficiencies and material weakness.
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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.
Not Applicable .
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable .
Item 3 - Defaults Upon Senior Securities
Not Applicable.
Item 4 – Mine Safety Disclosures
Not Applicable .
None .
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No. |
Description |
101.INS |
XBRL Instance Document. |
101.SCH |
XBRL Taxo nomy Extension Schema Document. |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
XBRL Taxonomy Ext ension Label Linkbase Document. |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF |
XBRL Taxonomy Extension Definitions Linkbase Document. |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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EMBASSY BANCORP, INC. |
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(Registrant) |
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Dated: August 12 , 201 6 |
By: |
/s/ David M. Lobach, Jr. |
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David M. Lobach, Jr. |
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President and Chief Executive Officer |
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Dated: August 12, 201 6 |
By: |
/s/ Judith A. Hunsicker |
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Judith A. Hunsicker |
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Senior Executive Vice President, |
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Chief Oper ating Officer, Secretary and |
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Chief Financial Officer |
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EXHIBIT INDEX
No. |
Description |
101.INS |
XBRL Instance Document. |
101.SCH |
XBRL Taxo nomy Extension Schema Document. |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
XBRL Taxonomy Ext ension Label Linkbase Document. |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF |
XBRL Taxonomy Extension Definitions Linkbase Document. |
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Exhibit 3.1
ARTICLES OF INCORPORATION OF
EMBASSY
BANCORP
, INC.
(a Pennsylvania Business Stock Entity 15 Pa.C.S. §1306)
(conformed – as amended through July 15, 2016 )
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FIRST: The name of the Corporation is Embassy Bancorp, Inc . |
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SECOND: The exact location and post office address of the principal place of business is: 100 Gateway Drive, Suite 100 Bethlehem, Pennsylvania 18017. |
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THIRD: The purpose of the Corporation is and it shall have unlimited power to engage in and to do any lawful act concerning any or all lawful business for which corporations may be incorporated under provisions of the Business Corporation Law of 1988, the Act approved December, 1988, P.L. 1444, as amended (the "Pennsylvania Business Corporation Law"). |
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FOURTH: The Corporation is incorporated under the provisions of the Pennsylvania Business Corporation Law. |
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FIFTH: The Corporation is to exist perpetually. |
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SIXTH: The Corporation shall have authority to issue 30,000,000 shares of stock, of which 20,000,000 shall be common stock, $1.00 par value per share, and 10,000,000 shares shall be preferred stock, $1.00 par value per share. The Board of Directors is hereby authorized from time to time to provide by resolution for the issuance of any of the authorized but unissued shares of common stock of the Corporation. Except as otherwise provided in this Article SIXTH (or in any supplementary sections hereto), the holders of common stock shall exclusively possess all voting power. Each holder of shares of common stock shall be entitled to one vote for each share held by such holder. |
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The Board of Directors is hereby authorized to issue, in one or more classes or series, shares of preferred stock, with full, limited, multiple, fractional or no voting rights, and with such designations, preferences, qualifications, privileges, limitations, restrictions, options, conversion rights or other special or relative rights as shall be fixed from time to time by the Board of Directors. |
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Except as otherwise provided in any resolution or resolutions of the Board of Directors providing for the issuance of any particular class or series of preferred stock, the number of shares of stock of any such class or series so set forth in such resolution or resolutions may be increased or decreased (but not below the number of shares of such class or series then outstanding) by a resolution or resolutions adopted by the Board of Directors. |
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Except as otherwise provide in any resolution or resolutions of the Board of Directors providing for the issuance of any particular class or series of preferred stock, preferred stock redeemed or otherwise acquired by the Corporation shall assume the status of authorized but unissued preferred stock, shall be unclassified as to class or series and may thereafter, subject to the provisions of this Article SIXTH and to any restrictions contained in any resolution or resolutions of the Board of Directors providing for the issue of any such class or series of preferred stock, be reissued in the same manner as other authorized but unissued preferred stock. |
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SEVENTH: The name and address of each of the incorporators, each having subscribed for one (1) share of common stock, are: |
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EIGHTH: No holder of shares of any class or of any series of any class shall have any preemptive right to subscribe for, purchase or receive any shares of the Corporation, whether now or hereafter authorized, or any obligations or other securities convertible into or carrying options or warrants to purchase any such shares of the Corporation, or any options or rights to purchase any such shares or securities, issued or sold by the Corporation for cash or any other form of consideration, and any such shares, securities, options, warrants or rights may be issued or disposed by the Board of Directors to such persons and on such terms as the Board of Directors, in its discretion, shall deem advisable. |
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NINTH: (a) The Board of Directors may, if it deems it advisable, oppose a tender or other offer for the Corporation’s securities, whether the offer is in cash or in the securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but is not legally obligated to, consider any relevant, germane or pertinent issue; by way of illustration, but not to be considered any limitation on the power of the Board of Directors to oppose a tender or other offer for this Corporation’s securities, the Board of Directors may, but shall not be legally obligated to, consider any or all of the following: |
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(i) Whether the offer price is acceptable based on the historical and present operating results or financial condition of the Corporation; |
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(ii) Whether a more favorable price could be obtained for this Corporation’s securities in the future; |
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(iii) The social and economic effects of the offer or transaction on this Corporation and any of its subsidiaries, employees, depositors, loan and other customers, creditors, shareholders and other elements of the communities in which this Corporation and any of its subsidiaries operate or are located; |
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(iv) The value of the securities (if any) which the offeror is offering in exchange for the Corporation’s securities, based on an analysis of the worth of the offeror or other entity whose securities are being offered; |
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(v) The business and financial conditions and earnings prospects of the offeror, including, but not limited to, debt service and other existing or likely financial obligations of the offeror, and the possible affect of such conditions upon this Corporation and any of its subsidiaries in the communities in which they operate or are located; and |
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(vi) Any antitrust or other legal and regulatory issues that are raised by the offer. |
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(b) If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose, including, but not limited to, any or all of the following: advising shareholders not to accept the offer; litigation against the offeror; filing complaints with all governmental and regulatory authorities; acquiring the offeror institution’s securities; selling or otherwise issuing authorized but unissued securities or treasury stock or granting options with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the offeror; and obtaining a more favorable offer from another individual or entity. |
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TENTH: The power to make, alter, amend and repeal the Bylaws is expressly vested in the Board of Directors (except as to Bylaws fixing the qualifications, classifications or terms of office of Directors), subject however to the right of the shareholders to change such action by the affirmative vote of seventy percent (70%) of the outstanding shares of common stock. |
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ELEVENTH: No merger, consolidation, liquidation or dissolution of the Corporation nor any action that would result in the sale or other disposition of all or substantially all of the assets of the Corporation shall be valid unless first approved by the affirmative vote of the holders of at least seventy percent (70%) of the outstanding shares of common stock of the Corporation. This Eleventh Article may not be amended unless first approved by the affirmative vote of the holders of at least seventy percent (70%) of the outstanding shares of common stock of the Corporation. |
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TWELFTH: Subchapter E of Chapter 25 of the Pennsylvania Business Corporation Law (relating to the right of shareholders to receive payment for shares following a control transaction) shall not apply to the Corporation. |
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THIRTEENTH: Cumulative voting rights shall not exist with respect to the election of directors. |
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AMENDED AND RESTATED BYLAWS
OF
EMBASSY BANCORP, INC.
Effective as of July 15, 201 6
ARTICLE
I
Meetings of Shareholders
Section 1.1 . Annual Meeting. The annual meeting of the shareholders, to elect Directors and transact whatever business that may properly be brought before the meeting, shall be held in each calendar year at such time and place as the Board of Directors may legally designate.
Section 1.2. Special Meeting. Except as otherwise specifically provided by applicable statute, special meetings of the shareholders may be called for any proper purpose at any time by the President, the Board of Directors, or by any two or more shareholders owning, in the aggregate, not less than twenty (20) percent of the shares entitled to vote at the particular meeting.
Section 1.3. Notice of Meeting. A written or printed notice of the time, place and, if a special meeting, purpose of such special meeting, unless otherwise provided by law, shall be given to every shareholder of record entitled to vote at the meeting, by mailing, postage prepaid, not less than ten (10) days prior to the date fixed for the meeting, at the address appearing on the books of the Corporation. Business transacted at all special meetings shall be confined to the business and purposes stated in the notice of such meeting (other than procedural matters relating to the conduct of the meeting).
Section 1.4. Shareholders of Record. The Board of Directors may fix a date for the determination of the shareholders entitled to receive notice of and to vote at any meeting or to receive any dividend, distribution or allotment of rights or a date for any change, conversion or exchange of shares by fixing a record date not more than ninety (90) days prior thereto. Only shareholders of record on the date fixed shall be so entitled notwithstanding any transfer of shares on the books of the Corporation after any record date fixed as provided in this Section. When a determination of shareholders of record has been made as provided in this Section 1.4 for purposes of a meeting, the determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date for the adjourned meeting.
Section 1.5. Quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares entitled to vote on a particular matter shall constitute a quorum for purposes of considering and acting on such matter. If a proxy casts a vote on behalf of a shareholder on any issue other than a procedural motion considered at a meeting of shareholders, the shareholder shall be deemed to be present during the entire meeting for purposes of determining whether a quorum is present for consideration of any other issue. If a meeting cannot be organized for lack of a quorum, those present, in person or by proxy, may
adjourn the meeting to such time and place as they may determine, without notice other than an announcement at the meeting, until the requisite number of shareholders for a quorum shall be present, in person or by proxy, except that, in the case of any meeting called for the election of Directors, those shareholders entitled to vote who attend a meeting at which Directors are to be elected that has been previously adjourned for lack of a quorum, although less than a quorum, shall nevertheless constitute a quorum for the purpose of electing Directors. At any adjourned meeting at which a quorum shall be present or so represented, any business may be transacted which might have been transacted at the original meeting if a quorum had been present. The shareholders present, in person or by proxy, at a duly organized meeting can continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.
Section 1.6. Voting Rights. Except as provided by applicable statute or by the articles of incorporation, a majority of votes cast shall decide every question or matter submitted to the shareholders at any meeting. A shareholder may vote in person or by proxy duly authorized in writing in accordance with the law, and be entitled to one vote for each share standing in his name on the books of the Corporation.
Section 1.7. Judges of Election. The Board of Directors shall appoint three judges, not candidates for office and who need not be shareholders, to conduct the election or vote at any meeting. After a meeting, the judges shall make a report in writing of any question or matters determined by them and execute a certificate of any fact found by them, which the Secretary shall cause to be recorded in the minutes of the meeting. The decision, act or certificate of a majority shall be the decision, act or certificate of all. If any judge of election shall not be present at a meeting the vacancy shall be filled by the chairman of the meeting.
Section 1. 8. Business at Meetings of Shareholders.
(a) Except as otherwise provided by applicable statute or these bylaws, nominations of persons for election to the Board of Directors and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i) by or at the direction of the Board of Directors; (ii) pursuant to the Corporation’s notice of meeting (or any supplement thereto); or (iii) by any shareholder of the Corporation who (A) is a shareholder of record at the time of giving of notice provided for in this Section 1.8 and will be such at the time of the meeting; (B) is entitled to vote at the meeting; and (C) complies with the notice and other procedures set forth in subsections (b) and (c) of this Section 1.8.
(b) For nominations or other business to be properly brought before an annual meeting by a shareholder, pursuant to clause (iii) of subsection (a) of this Section 1.8 (or before a special meeting of shareholders pursuant to subsection (d) of this Section 1.8), the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and any such proposed business other than the nominations of persons for election to the Board of Directors must constitute a proper matter for shareholder action. To be timely, a shareholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not less than one hundred twenty (120) days prior to the first anniversary of the date of the Corporation’s proxy statement released to shareholders in connection with the preceding year’s annual meeting; provided, however, that if the Corporation did not hold an annual meeting
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the preceding year or if the date of the annual meeting is changed by more than thirty (30) days from the date of the preceding year’s annual meeting, to be timely, notice by the shareholder must be delivered not later than the one hundred twentieth (120 th ) day prior to the date of the annual meeting (or, if later, the tenth (10 th ) day following the day on which public announcement is first made of the date of the annual meeting). In no event shall the adjournment of an annual meeting commence a new time period for the giving of a shareholder’s notice as described above. Such shareholder’s notice shall set forth (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in each case including any successor Rule or regulation thereto, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected; (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and of any beneficial owner on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and any beneficial owner on whose behalf the nomination or proposal is made (A) the name and address of such shareholder, as they appear on the Corporation’s books, and the name, address and telephone number of such beneficial owner, (B) the number and class of shares of capital stock of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner, (C) a description of any and all agreements, arrangements or understandings entered into by the shareholder, the beneficial owner or their respective affiliates with respect to equity securities of the Corporation, including any put or call arrangements, derivative securities, short positions, borrowed shares or swap or similar arrangements, specifying in each case the effect of such agreements, arrangements or understandings on any voting or economic rights with respect to equity securities of the Corporation, in each case as of the date of the notice and in each case describing any changes in voting or economic rights which may arise pursuant to the terms of such agreements, arrangements or understandings, (D) to the extent not covered by clauses (B) and (C), any disclosures that would be required pursuant to Item 5 or Item 6 of Schedule 13D promulgated under the Exchange Act if the requirements therein were applicable to the shareholder or the beneficial owner, and a representation as to whether the shareholder or the beneficial owner, if any, intends or is part of a group which intends (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (ii) otherwise to solicit proxies from shareholders in support of such proposal or nomination and (E) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination. If, after the shareholder has delivered such notice, any information required to be contained in such notice as described in clauses (A) through (E) above changes prior to the date of the meeting, such notice shall be deemed to be not in compliance with this Section 1.8 and not effective unless such shareholder, within three New York Stock Exchange business days of the date of the event causing such change in information, delivers to the Secretary of the Corporation an updated notice containing such change. The foregoing notice requirements shall be deemed satisfied by a shareholder if the shareholder has notified the Corporation of his or her intention to present a proposal at an annual meeting in compliance with
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Rule l4a-8 (or any successor thereto) promulgated under the Exchange Act and such shareholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Director of the Corporation.
(c) Subject to Section 1.5, nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which Directors are to be elected pursuant to the notice or waiver of notice of the meeting (i) by or at the direction of the Board of Directors; (ii) by the shareholder or shareholders who called such meeting; or (iii) by any other shareholder of the Corporation who is entitled to vote at such meeting, who complies with the notice procedures set forth in this Section 1.8 and who is a shareholder of record at the time such notice is delivered to the Secretary of the Corporation and will be such at the time of the meeting. Nominations by such shareholders of persons for election to the Board of Directors may be made at such special meeting of shareholders if the shareholder’s notice as required by subsection (b) of this Section 1.8 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the ninetieth (90 th ) day prior to the date of the special meeting (or, if later, the tenth (10 th ) day following the day on which public announcement is first made of the date of the special meeting). In no event shall the adjournment of a special meeting commence a new time period for the giving of a shareholder’s notice as described above.
(d) Other than as set forth in Section 2.3 hereof, only persons who are nominated in accordance with the procedures set forth in this Section 1.8 and who satisfy the requirements of Section 2.1 shall be eligible to serve as Directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.8. Except as otherwise provided by statute, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 1.8 and, if any proposed nomination or business is not in compliance with this Section 1.8, to declare that such defective proposal or nomination shall be disregarded.
ARTICLE II
Board of Directors
Section 2. 1. Number and Tenure.
(a) The business of the Corporation shall be managed by a Board of Directors of not less than five nor more than twenty-five in number who shall hold office for a three year term or until their successors are duly elected and qualified. Within the foregoing limits, the Board of Directors may from time to time fix the number of Directors. The Directors shall be natural persons of full age.
(b) Every Director shall be a shareholder of the Corporation.
(c) The Directors shall be divided into three classes, to be known as Class 1, Class 2
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and Class 3. Each class shall consist of approximately one third of the total Board of Directors. All Directors shall serve for terms of three years and until his or her successor shall be elected and shall qualify, or until his or her earlier death, resignation or removal. Election of Directors of Class 1 shall be at the annual meeting of shareholders in 2008 and every three years thereafter. Election of Directors of Class 2 and 3 shall be at the annual meeting of shareholders in 2009 and 2010, respectively, and every three years thereafter.
Section 2. 2 . Advisory or Honorary Directors. The Board of Directors may appoint each year such number of Advisory or Honorary Directors as the Board of Directors may from time to time determine. Such persons shall not be entitled to vote at meetings of the Board of Directors.
Section 2. 3 . Vacancies. Any vacancy in the Board of Directors, including vacancies resulting from an increase in the number of Directors, may be filled by a majority vote of the remaining members of the Board of Directors, though less than a quorum. Each person so elected shall be a Director to serve for the balance of the unexpired term.
Section 2. 4 . Organization. A meeting for the purpose of organizing the new Board of Directors and electing and appointing officers of the Corporation for the succeeding year shall be held on the first regularly scheduled meeting of the Board following the annual meeting of the shareholders.
Section 2. 5 . Meetings. Regular meetings of the Board of Directors may be held at such time and place as shall be determined from time to time by resolution of at least a majority of the Board at a duly convened meeting, or by unanimous consent of the Board provided pursuant to Section 2.10. Notice of each regular meeting of the Board shall specify the date, place and hour of the meeting and shall be given to each Director at least 24 hours before the meeting.
Special meetings may be called by the President or the Chairman and Lead Director, if any, acting together. Notice of such special meeting shall be given to each member of the Board by the Secretary at least 24 hours before the meeting.
Section 2. 6 . Quorum; Action by the Board of Directors. At all meetings of the Board, a majority of the Directors in office shall be necessary to constitute a quorum for the transaction of business, and the acts of a majority of the Directors present at a meeting at which a quorum is present shall be the acts of the Board of Directors, except as may be otherwise specifically provided by applicable statute or by the articles of incorporation or by these bylaws. If a quorum shall not be present at any meeting of Directors, the majority of Directors present thereat may adjourn the meeting. It shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted thereat other than by announcement at the meeting at which such adjournment is taken .
Section 2. 7 . Telephone Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or similar communications equipment and be deemed present at the meetings.
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Section 2. 8 . Fees. Each Director and Advisory Director, not a salaried officer, may receive a fee for attendance at each meeting of the Board of Directors, or any committee, in such amount as the Board of Directors may from time to time determine.
Section 2. 9 . Minutes. The Board of Directors and each committee hereinafter provided for shall each keep minutes of the meetings. Minutes of the committees shall be submitted at the next regular meeting of the Board of Directors, and any action taken by the Board of Directors with respect thereto shall be entered in the minutes of the Board of Directors.
Section 2. 10 . Board of Directors or Committee Action by Unanimous Consent . Any action which may be taken at a meeting of the Board of Directors or of the members of a committee of the Board may be taken without a meeting if, prior or subsequent to the action, a consent or consents setting forth the action so taken shall be provided by all of the Directors in office (or the members of the committee with regard to committee action), and shall be filed with the Secretary of the Corporation. For purposes of this Section 2.10, a consent may be given by means of a physical written copy or may be transmitted by facsimile transmission, e-mail or similar electronic communication technology, provided that the means of giving consent shall be convertible into reasonably legible written form within a reasonable time.
Section 2. 11 . Lead Director . The Board may elect from its non-employee members a Lead Director, who shall have such powers and duties as prescribed by the Board. A Director shall be deemed to be a non-employee member of the Board if he or she is not employed by the Corporation or any of its subsidiaries .
ARTICLE
III
Committees
Section 3. 1 . Standing Committees . The standing committees which shall be appointed from time to time by the Board of Directors shall be the Audit Committee and such other committees as may be deemed necessary by the Board or shareholders for efficient operation of the Corporation.
Section 3. 2 . Audit Committee . The Audit Committee shall consist of not less than three nor more than five Directors, none of whom shall be active officers of the Corporation nor provide any paid consulting or other services to the Corporation. Three members of the Committee shall constitute a quorum. The Committee shall effect its own organization.
The Audit Committee or the Board of Directors shall at least once in each year cause to be made by a certified public accountant selected for the purpose, a complete audit of the books and affairs of the Corporation. Upon completion of the audit, the certified public accountant shall make a report thereof and its recommendations in accordance with the Securities Exchange Commission’s minimum acceptable requirements for directors’ audits to the Board of Directors.
Section 3. 3 . Special Committees. The President shall have the authority to appoint all special committees and designate alternate members of all committees to serve temporarily for members unable to attend any meeting of a standing committee.
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Section 3. 4 . Telephone Participation. Directors may participate in meetings of the various committees of the Board of Directors by means of conference telephone or similar communications equipment and be deemed present at the meetings.
ARTICLE IV
Officers
Section 4. 1 . Officers. The Board of Directors, at their annual organization meeting, shall appoint a President, a Secretary and a Treasurer. The Board of Directors may also appoint one or more Vice Presidents and such other officers and appoint such agents as it shall deem necessary, who shall hold offices for such terms, have such authority and perform such duties as may from time to time be prescribed by the Board of Directors. Any two or more offices may be held by the same person. The Board of Directors may delegate to any officer or committee the power to appoint subordinate officers and to specify their duties and authority and determine their compensation.
Section 4. 2 . President. The President shall be the chief administrative officer of the Corporation and shall have supervision of the operations of the Corporation. He shall be a member of the Board of Directors and ex officio member of all committees except the Audit Committee.
Section 4. 3 . Secretary. The Secretary shall keep the minutes of the meetings of the shareholders and of the Board of Directors. He shall have charge of the corporate records, papers and the corporate seal of the Corporation. He shall give notice of all meetings of shareholders and of the Board of Directors.
Section 4. 4 . Treasurer. The Treasurer, who shall be the Chief Financial Officer of the Corporation, shall be responsible for all money, funds, securities, fidelity and indemnity bonds and other valuables belonging to the Corporation, shall cause to be kept proper records of the transactions of the Corporation; and shall perform such other duties as may be assigned to him from time to time by the Board of Directors or the President.
Section 4. 5 . Vice Presidents. The Vice Presidents shall have such duties and powers as may from time to time be assigned to them by the Board of Directors or the President in the absence of any assignment by the Board of Directors. One or more may be designated Executive Vice President, Senior Executive Vice President or Senior Vice President.
Section 4. 6 . Chairman and Vice Chairman. The Directors may elect from among the Directors, a Chairman and Vice Chairman of the Board who shall have such duties and powers as may from time to time be assigned by the Board of Directors.
Section 4. 7. Assistant Officers. The Board of Directors may appoint one or more Assistant Officers. Each Assistant Officer shall assist in the performance of the duties of the officer to whom he is assistant and shall perform such duties in the absence of the officer. He shall perform such additional duties as the Board of Directors, the President, or the officer to
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whom he is assistant, may from time to time assign to him.
ARTICLE
V
Authorities of Officers
Section 5. 1 . Seal. The President, the Secretary, the Treasurer, and any Assistant Secretary or Treasurer, if any, shall each have authority to affix and attest the corporate seal of the Corporation .
Section 5. 2 . Corporate Act. The President, acting in conjunction with the Secretary or Treasurer, or any Assistant Secretary or Treasurer, is authorized to perform such corporate and official acts as are necessary to carry on the business of the Corporation, subject to the directions of the Board of Directors .
Section 5. 3 . Duties of the President. The President, acting in conjunction with the Secretary or Treasurer, or any Assistant Secretary or Treasurer, subject to the directions of the Board of Directors, is fully empowered:
a. To sell, assign and transfer any and all shares of stock, bonds or other personal property standing in the name of the Corporation or held by the Corporation either in its own name or as agent;
b. To assign and transfer any and all registered bonds and to execute requests for payment or reissue of any such bonds that may be issued now or hereafter and held by the Corporation in its own right or as agent;
c. To sell at public or private sale, lease, mortgage or otherwise dispose of any real estate or otherwise dispose of any real estate or interest therein held or acquired by the Corporation in its own right or as agent, except the real estate and buildings occupied by the Corporation in the transaction of its business, and to execute and deliver any instrument necessary to completion of the transaction;
d. To receive and receipt for any sums of money or property due or owing to this Corporation in its own right or as agent and to execute any instrument of satisfaction thereof or any lien of record; and
e. To execute and deliver any deeds, contracts, agreements, leases, conveyances, bills of sale, petitions, writings, instruments, releases, acquaintances and obligations necessary in the exercise of the corporate powers of the Corporation, including any bond required in the execution or administration of any fiduciary capacity.
Section 5. 4 . Signatures. Such of the officers and other employees as may from time to time be designated by the Board of Directors shall have the authority to sign checks, drafts, letters of credit, orders, receipts, and to endorse checks, bills of exchange, orders, drafts, and vouchers made payable or endorsed to the Corporation.
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Section 5. 5 . Loans and Pledge of Collateral. Each of the President, (any Vice President), the Secretary or the Treasurer, acting in conjunction with any other of these designated officers, may effect loans on behalf of this Corporation from any banking institution, to the extent permitted by law, executing notes or obligations and pledging assets of this Corporation thereof.
ARTICLE VI
Amendments
Section 6. 1 . Amendments. These bylaws may be altered, amended, added to or repealed by a vote of a majority of the Board of Directors at any regular meeting of the Board, or at any special meeting of the Board called for that purpose, except they shall not make or alter any bylaws fixing their qualifications, classifications or term of office, without the approval of the holders of 70% of the outstanding shares. Any action by the Board of Directors which alters, amends, adds to, or repeals the Bylaws is subject, however, to the right of the shareholders to change such action by the affirmative vote of the holders of 70% of the outstanding shares.
ARTICLE VII
Capital Stock
Section 7. 1 . Execution. Except as otherwise provided in the articles of incorporation, the shares of the Corporation shall be represented by certificates. The certificates of shares of the Corporation shall be numbered and registered in a share register as they are issued. They shall exhibit the name of the registered holder and the number and class of shares and the series, if any, represented thereby and the par value of each share or a statement that such shares are without par value, as the case may be.
Section 7. 2 . Certificates. Unless otherwise provided by the Board of Directors, every share certificate shall be signed by two executive officers and sealed with the corporate seal, which may be a facsimile, engraved or printed, but where such certificate is signed by a transfer agent or by a transfer clerk of the Corporation or a registrar, the signature of any executive officer upon such certificate may be a facsimile, engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise, before the certificate is issued, it may be issued by the Corporation with the same effect as if the officer had not ceased to be such at the time of its issue.
Section 7. 3 . Uncertificated Shares. Notwithstanding anything herein to the contrary, any or all classes and series of shares, or any part thereof, may be represented by uncertificated shares, except that shares represented by a certificate that is issued and outstanding shall continue to be represented thereby until the certificate is surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof, a written notice containing the information required to be set forth or stated on certificates. The rights and obligations of the holders of shares represented by certificates and the rights and obligations of the holders of uncertificated shares of the same class or series shall be identical. Notwithstanding anything herein to the contrary, the provisions of Section 7.5 hereof shall be inapplicable to uncertificated shares and in lieu thereof the Board
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of Directors shall adopt alternative procedures for registration of transfers.
Section 7. 4 . Fractional Shares. Except as otherwise determined by the Board of Directors, shares or certificates therefore may be issued as fractional shares for shares held by any dividend reinvestment plan or employee benefit plan created or approved by the Corporation’s board of directors, but not by any other person.
Section 7. 5 . Transfer of Shares. Transfer of shares shall be made on the books of the Corporation only upon surrender of the share certificate, duly endorsed or with duly executed stock powers attached and otherwise in proper form for transfer, which certificate shall be cancelled at the time of the transfer. Notwithstanding anything herein to the contrary, the provisions of this Section 7.5 shall be inapplicable to uncertificated shares if the representation of any shares of the Corporation by uncertificated shares is authorized by the articles of incorporation and the issuance of uncertificated shares has been authorized by the Board of Directors, and in lieu of the provisions of this Section 7.5, the Board of Directors shall adopt alternative procedures for registration of transfers.
Section 7. 6 . Registered Shareholders. Prior to due presentment for transfer of any share or shares, the Corporation shall treat the registered owner thereof as the person exclusively entitled to vote, to receive notifications and to all other benefits of ownership with respect to such share or shares, and shall not be bound to recognize any equitable or other claim or interest in such share or shares, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Pennsylvania.
Section 7. 7 . Lost Share Certificates. Unless waived in whole or in part by the Board of Directors or any of the Chairman of the Board, the Chief Executive Officer, the President, the Secretary or the Treasurer, unless the Board of Directors prohibits such waiver by such officer, any person requesting the issuance of a new certificate in lieu of an alleged lost, destroyed, mislaid or wrongfully taken certificate shall (a) give to the Corporation his or her bond of indemnity with an acceptable surety, and (b) satisfy such other requirements as may be imposed by the Corporation. Thereupon, a new share certificate shall be issued to the registered owner or his or her assigns in lieu of the alleged lost, destroyed, mislaid or wrongfully taken certificate; provided that the request therefore and issuance thereof have been made before the Corporation has notice that such shares have been acquired by a bona fide purchaser.
ARTICLE VIII
Emergencies
Section 8. 1 . Emergencies. In the event of any emergency declared by governmental authorities, the result of a regional or national disaster and of such severity as to prevent the normal conduct and management of the affairs of this Corporation by its Directors and Officers as contemplated by these bylaws, any three available Directors (which must include either the Chairman or Lead Director), acting together, shall have the full authority of the Board of Directors until such time as a duly elected Board of Directors can again assume full responsibility and control of the Corporation .
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ARTICLE IX
Indemnification
Section 9. 1 . Indemnification of Officers and Directors. Subject to the limitation hereinafter set forth, the institution shall indemnify each Director and each Officer of the institution or of any organization that he is serving as a Director or Officer at the request of the institution and his heirs and executors or administrators to the full extent permitted by law against, and reimburse him for, all liability and reasonable expense, including but not limited to, court costs, attorney’s fees and the amount paid in any settlement approved as hereinafter provided, incurred or expended in connection with any claim or proceeding in which he may be involved because of anything he may have done or omitted to do as a Director or Officer of the institution or of any organization that he may have served as a Director or Officer at the request of the institution. Such indemnification shall not impair any other right any such person may have.
The indemnity and reimbursement herein provided for shall not extend or apply to any liability and expense of any such Director or Officer in any proceeding in which he shall be finally adjudged to have been grossly negligent or to have willfully misconducted himself in the performance of his duties as such Director or Officer, nor to any amount paid to the institution itself. Indemnity shall apply to and reimbursement be given for an amount paid in settlement only if there shall be a determination, with the advice of counsel for the institution, by members of the Board of Directors not involved in the claim or proceeding and forming a majority of the whole Board of Directors, or by a disinterested person or persons named by the Board of Directors, that the amount is reasonable and that the Director or Officer has not been grossly negligent and has not willfully misconducted himself in his acts or omissions as such Director or Officer in the matter settled.
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CERTIFICATION
I, David M. Lobach, Jr., certify that:
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I have reviewed this quarterly report on Form 10-Q of Embassy Bancorp, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to th e period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal c ontrol over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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By: /s/ David M. Lobach, Jr. |
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DAVID M. LOBACH, JR. |
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President and Chief Executive Officer |
DATED: August 12 , 2016
CERTIFICATION
I, Judith A. Hunsicker, certify that:
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I have reviewed this quarterly report on Form 10-Q of Embassy Bancorp, Inc.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to th e period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal c ontrol over financial reporting; and |
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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By: /s/ Judith A. Hunsicker |
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JUDITH A. HUNSICKER |
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Senior Executive Vice President, Chief |
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Operating Officer and Chief Financial Officer |
DATED: August 12 , 2016
Certification Pursuant to 18 U.S.C. 1350 and
Section 906 of Sarbanes-Oxley Act of 2002
We hereby certify that the foregoing Form 10-Q of Embassy Bancorp, Inc. for the quarter end ing June 30 , 201 6 c omplies in all respects with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of Embassy Bancorp, Inc.
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By: /s/ David M. Lobach, Jr. |
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DAVID M. LOBACH, JR. |
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President and Chief Executive Officer |
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By: /s/ Judith A. Hunsicker |
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JUDITH A. HUNSICKER |
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Senior Executive Vice President, |
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Chief Operating Officer and |
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Chief Financial Officer |
Dated: August 12 , 2016