EMYB 10-Q Quarterly Report Sept. 30, 2014

EMBASSY BANCORP, INC.

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10-Q 1 c794-20140930x10q.htm 10-Q EMYB-2014_0930 10Q Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014 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 numb er 000- 53528


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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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:


COMMON STOCK
Number of shares outstanding as of November 7 , 2014	($1.00 Par Value)	7, 348,47 1
	(Title Class)	(Outstanding Shares)

Embassy Bancorp, Inc.

Table of Contents


Part I – Financial Information	3

Item 1 – Financial Statements
Consolidated Balance Sheets (Unaudited)	3
Consolidated Statements of Income (Unaudited)	4
Consolidated Statements of Comprehensive Income (Unaudited)	5
Consolidated Statements of Stockholders’ Equity (Unaudited)	6
Consolidated Statements of Cash Flows (Unaudited)	7
Notes to Consolidated Financial Statements (Unaudited)	8

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

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	38

Item 4 – Controls and Procedures	38

Part II - Other Information	39

Item 1 - Legal Proceedings	39

Item 1A - Risk Factors	39

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3 - Defaults Upon Senior Securities	39

Item 4 – Mine Safety Disclosures	39

Item 5 - Other Information	39

Item 6 - Exhibits	40

Embassy Bancorp, Inc.

Part I – Financial Information

Item 1 – Fi nan cial Statements

Consolidated Balance Sheets (Unaudited)



	September 30,		December 31,
ASSETS	2014		2013

	(In Thousands, Except Share Data)
Cash and due from banks	$	20,424	$	14,148
Interest bearing demand deposits with banks		4,880		2,683
Federal funds sold		1,000		1,000
Cash and Cash Equivalents		26,304		17,831
Interest bearing time deposits		250		1,822
Securities available for sale		80,799		71,288
Restricted investment in bank stock		2,010		2,157
Loans receivable, net of allowance for loan losses of $5,614 in 2014; $5,326 in 2013		589,142		563,257
Premises and equipment, net of accumulated depreciation		1,517		1,882
Bank owned life insurance		11,821		7,630
Accrued interest receivable		1,549		1,533
Other real estate owned		879		659
Other assets		2,975		2,776
Total Assets	$	717,246	$	670,835
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	66,366	$	58,705
Interest bearing		538,821		510,332
Total Deposits		605,187		569,037
Securities sold under agreements to repurchase		29,677		30,418
Short-term borrowings		15,625		10,000
Long-term borrowings		2,650		3,900
Accrued interest payable		380		235
Other liabilities		4,249		3,190
Total Liabilities		657,768		616,780
Stockholders' Equity:
Common stock, $1 par value; authorized 20,000,000 shares;
2014 issued 7,348,470 shares; outstanding 7,348,470 shares;
2013 issued 7,323,555 shares; outstanding 7,323,555 shares		7,348		7,324
Surplus		23,926		23,671
Retained earnings		26,809		22,520
Accumulated other comprehensive income		1,395		540
Total Stockholders' Equity		59,478		54,055
Total Liabilities and Stockholders' Equity	$	717,246	$	670,835

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Income (Unaudited)



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

	2014		2013		2014			2013

INTEREST INCOME	(In Thousands, Except Per Share Data)
Loans receivable, including fees	$	6,058	$	5,697	$	17,781	$	16,776
Securities, taxable		184		195		575		628
Securities, non-taxable		332		290		949		868
Federal funds sold, and other		19		4		56		10
Interest on time deposits		1		6		10		29
Total Interest Income		6,594		6,192		19,371		18,311
INTEREST EXPENSE
Deposits		694		601		2,010		1,814
Securities sold under agreements to repurchase		4		4		13		13
Short-term borrowings		5		2		7		3
Long-term borrowings		65		101		207		413
Total Interest Expense		768		708		2,237		2,243
Net Interest Income		5,826		5,484		17,134		16,068
PROVISION FOR LOAN LOSSES		40		310		250		842
Net Interest Income after Provision for Loan Losses		5,786		5,174		16,884		15,226
OTHER INCOME
Credit card processing fees		362		333		1,051		1,010
Other service fees		172		157		492		430
Bank owned life insurance		70		86		191		185
Gain on sale of securities, net		-		-		31		-
Profit on sale of other real estate owned		7		6		4		16
Impairment on other real estate owned		-		(23)		(9)		(103)
Total Other Income		611		559		1,760		1,538
OTHER EXPENSES
Salaries and employee benefits		1,753		1,711		5,353		5,158
Occupancy and equipment		613		603		1,857		1,777
Data processing		322		289		947		920
Credit card processing		321		302		940		904
Advertising and promotion		277		253		807		704
Professional fees		127		128		391		383
FDIC insurance		92		102		290		318
Insurance		13		13		40		40
Loan & real estate		59		50		165		141
Charitable contributions		133		130		454		410
Other real estate owned expenses		66		14		83		58
Other		240		199		741		641
Total Other Expenses		4,016		3,794		12,068		11,454

Income before Income Taxes		2,381		1,939		6,576		5,310
INCOME TAX EXPENSE		672		535		1,847		1,464
Net Income	$	1,709	$	1,404	$	4,729	$	3,846

BASIC EARNINGS PER SHARE	$	0.23	$	0.19	$	0.64	$	0.53

DILUTED EARNINGS PER SHARE	$	0.23	$	0.19	$	0.64	$	0.53

DIVIDENDS PER SHARE	$	0.06	$	0.05	$	0.06	$	0.05

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended September 30,
	2014			2013

		(In Thousands)
Net Income	$		1,709	$		1,404
Change in Accumulated Other Comprehensive Income:
Unrealized holding gain (loss) on securities available for sale		174			(224)
Less: reclassification adjustment for realized gains		-			-
		174			(224)
Income tax effect		(59)			76
Net unrealized gain (loss)		115			(148)
Other comprehensive gain (loss), net of tax			115			(148)
Comprehensive Income	$		1,824	$		1,256



	Nine Months Ended September 30,
	2014			2013

		(In Thousands)

Net Income	$		4,729	$		3,846
Change in Accumulated Other Comprehensive Income:
Unrealized holding gain (loss) on securities available for sale		1,326			(2,748)
Less: reclassification adjustment for realized gains		(31)			-
		1,295			(2,748)
Income tax effect		(440)			934
Net unrealized gain (loss)		855			(1,814)
Other comprehensive gain (loss), net of tax			855			(1,814)
Comprehensive Income	$		5,584	$		2,032

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

Nine Months Ended September 30, 2014 and 2013



	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income		Total

	(In Thousands, Except Share and Per Share Data)
BALANCE - DECEMBER 31, 2012	$	7,239	$	23,146	$	17,360	$	2,282	$	50,027
Net income		-		-		3,846		-		3,846
Other comprehensive loss		-		-		-		(1,814)		(1,814)
Dividend declared, $.05 per share		-		-		(362)		-		(362)
Compensation expense recognized on stock options		-		45		-		-		45
Common stock grants to directors, 8,764 shares		9		53		-		-		62
Shares issued under Dividend Reinvestment
and Stock Purchase Plan, 54,900 shares		54		317		-		-		371

BALANCE - SEPTEMBER 30, 2013	$	7,302	$	23,561	$	20,844	$	468	$	52,175

BALANCE - DECEMBER 31, 2013	$	7,324	$	23,671	$	22,520	$	540	$	54,055
Net income		-		-		4,729		-		4,729
Other comprehensive income		-		-		-		855		855
Dividend declared, $.06 per share		-		-		(440)		-		(440)
Compensation expense recognized on stock options		-		73		-		-		73
Common stock grants to directors, 10,209 shares		10		67		-		-		77
Shares issued under Dividend Reinvestment
and Stock Purchase Plan, 14,706 shares		14		115		-		-		129
BALANCE - SEPTEMBER 30, 2014	$	7,348	$	23,926	$	26,809	$	1,395	$	59,478

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)




	Nine Months Ended September 30,
	2014		2013

	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	4,729	$	3,846
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		250		842
Amortization (accretion) of deferred loan costs		7		(65)
Depreciation and amortization		495		454
Net amortization of investment security premiums and discounts		122		236
Stock compensation expense		73		45
Loss (gain) on sale of other real estate owned		4		(16)
Impairment on other real estate owned		9		103
Income on bank owned life insurance		(191)		(185)
Net realized gain on sale of securities available for sale		(31)		-
(Increase) decrease in accrued interest receivable		(16)		58
(Increase) decrease in other assets		(639)		58
Increase (decrease) in accrued interest payable		145		(75)
Increase in other liabilities		1,147		454
Net Cash Provided by Operating Activities		6,104		5,755
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale		(13,799)		(10,866)
Maturities, calls and principal repayments of securities available for sale		4,964		18,976
Proceeds from sales of securities available for sale		528		-
Net increase in loans		(26,432)		(45,808)
Net redemption (purchases) of restricted investment in bank stock		147		(381)
Net maturities of interest bearing time deposits		1,572		4,126
Purchase of bank owned life insurance		(4,000)		-
Proceeds from sale of other real estate owned		46		-
Purchases of premises and equipment		(130)		(188)
Net Cash Used in Investing Activities		(37,104)		(34,141)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		36,150		5,603
Net (decrease) increase in securities sold under agreements to repurchase		(741)		5,639
Increase in short-term borrowed funds		5,625		14,000
Payment of long-term borrowed funds		(1,250)		(8,486)
Proceeds from Dividend Reinvestment Plan		129		371
Dividends paid		(440)		(362)
Net Cash Provided by Financing Activities		39,473		16,765
Net Increase (Decrease) in Cash and Cash Equivalents		8,473		(11,621)
CASH AND CASH EQUIVALENTS - BEGINNING		17,831		29,940
CASH AND CASH EQUIVALENTS - ENDING	$	26,304	$	18,319

SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid	$	2,092	$	2,318

Income taxes paid	$	2,080	$	1,925

Other real estate sold through bank financing	$	57	$	964

Deferral of gain from sale of other real estate sold through bank financing	$	80	$	103

Other real estate acquired in settlement of loans	$	347	$	-

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1 – Basis of Presentation

Embassy Bancorp, Inc. (the “Company”) is a Pennsylvania corporation organized in 2008 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company was formed for purposes of acquiring Embassy Bank For The Lehigh Valley (the “Bank”) in connection with the reorganization of the Bank into a bank holding company structure, which was consummated on November 11, 2008. Accordingly, the Company owns all of the capital stock of the Bank, giving the organization more flexibility in meeting its capital needs as the Company continues to grow. Embassy Holdings, LLC (the “LLC”) is a wholly-owned subsidiary of the Bank organized to engage in the holding of property acquired by the Bank in satisfaction of debts previously contracted. As such, the consolidated financial statements contained herein include the accounts of the Company, the Bank and the LLC. All significant intercompany transactions and balances have been eliminated.

The Bank, which is the Company’s principal operating subsidiary, was originally incorporated as a Pennsylvania bank on May 11, 2001 and opened its doors on November 6, 2001. It was formed by a group of local business persons and professionals with significant prior experience in community banking in the Lehigh Valley area of Pennsylvania, the Bank’s primary market area.

The accompanying unaudited financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“US GAAP”) for interim financial information and in accordance with instructions for Form 10-Q and Rule 10-01 of the Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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, 2013 , included in the Company’s Form 10-K filed with the Securities and Exchang e Commission (“SEC”) on March 28 , 201 4 .

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2014 through the date these consolidated financial statements were issued.

Certain amounts in the 201 3 financial statements may have been reclassified to conform to 201 4 presentation. These reclassifications had no effect on 201 3 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, 2013 .

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 Board of Directors believes that the SIP will encourage the designated participants to contribute materially to the growth of the Company. The SIP provides for stock based incentives in the form of incentive stock options as provided in Section 422 of the Internal Revenue Code of 1986, non-qualified stock options, stock appreciation rights, restricted stock and deferred stock awards. The term of the option, the amount of time for the option to vest after grant, if any, and other terms and limitations will be determined at the time of grant. Options granted under the SIP may not have an exercise period that is more than ten years from the time the option is granted.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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 . There were no awards granted under the SIP for the years ended December 31, 2011 and 2010. In January 2014, February 2013 and February 2012, the Company granted 10,209 , 8,764 and 7,992 shares of restricted stock, respectively, to certain members of its Board of Directors as compensation for their service in 2013, 2012 and 2011, respectively, in accordance with the Company’s Non-employee Directors Compensation program adopted in October o f 2010. Such compensation was accrued for as of December 31, 2013, 2012 and 2011. In January 2014, February 2013 and February 2012, the Company also granted stock options to purchase 29,663 , 29,742 and 52,611 shares of stock, respectively to certain executive officers in accordance with their respective employment agreements. Stock compensation expense related to these options was $ 25 thousand and $73 thousand for the three and nine months ended September 30, 2014 and $16 thousand and $45 thousand for the three and nine months ended September 30, 2013. At September 30, 2014 , approxi mately $ 98 thousand unrecognized cost related to stock options granted in 2014, 2013 and 2012 will be recognized over the next 2.30 , 1.40 and 0.40 years , respectively. 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 o f 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. Th e weighted average fair value of options granted in 2014, 2013 and 2012 was $2.46 per share, $ 2 .14 per share and $ 2.56 per share , respectively. At September 30, 2014 , there were 361,019 shares available for issuance under the SIP.

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:



	Three Months Ended September 30,
	2014						2013

	(In Thousands)

	Before		Tax		Net of		Before		Tax		Net of
	Tax		Effect		Tax		Tax		Effect		Tax
Change in accumulated other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	$	174	$	(59)	$	115	$	(224)	$	76	$	(148)
Reclassification adjustments for gains on securities transactions included in net income (A),(B)		-		-		-		-		-		-
Total other comprehensive income (loss)	$	174	$	(59)	$	115	$	(224)	$	76	$	(148)



			Nine Months Ended September 30,
			2014					2013

			(In Thousands)
	Before			Tax		Net of		Before		Tax		Net of
	Tax			Effect		Tax		Tax		Effect		Tax
Change in accumulated other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	$	1,326		$	(450)	$	876	$	(2,748)	$	934	$	(1,814)
Reclassification adjustments for gains on securities transactions included in net income (A),(B)		(31)			10		(21)		-		-		-
Total other comprehensive income (loss)	$	1,295		$	(440)	$	855	$	(2,748)	$	934	$	(1,814)

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

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

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

There were no realized gains on securities available-for-sale for the three months ended September 30, 2014 and 2013 . A summary of the realized gains on securities available for sale, net of tax, for the nine months ended September 30, 2014 and 2013 is as follows:



	Nine Months Ended
	September 30,
		2014		2013

		(In Thousands)
Securities available for sale:
Realized gains on securities transactions	$	(31)	$	-
Income taxes		10		-
Net of tax	$	(21)	$	-

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


	Securities
	Available
	for Sale
Three Months Ended September 30, 2014 and 2013	(In Thousands)
Balance June 30, 2014	$	1,280
Other comprehensive income before reclassifications		115
Amounts reclassified from accumulated other comprehensive income		-
Net other comprehensive income during the period		115
Balance September 30, 2014	$	1,395

Balance June 30, 2013	$	616
Other comprehensive loss before reclassifications		(148)
Amounts reclassified from accumulated other comprehensive income		-
Net other comprehensive loss during the period		(148)
Balance September 30, 2013	$	468



Nine Months Ended September 30, 2014 and 2013
Balance January 1, 2014	$	540
Other comprehensive income before reclassifications		876
Amounts reclassified from accumulated other comprehensive income		(21)
Net other comprehensive income during the period		855
Balance September 30, 2014	$	1,395

Balance January 1, 2013	$	2,282
Other comprehensive loss before reclassifications		(1,814)
Amounts reclassified from accumulated other comprehensive income		-
Net other comprehensive loss during the period		(1,814)
Balance September 30, 2013	$	468

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 6 – Basic and Diluted Earnings per Share

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013

	(Dollars In Thousands, Except Per Share Data)
Net income	$	1,709	$	1,404	$	4,729	$	3,846

Weighted average shares outstanding		7,334		7,248		7,333		7,246
Dilutive effect of potential common shares, stock options		11		5		9		5
Diluted weighted average common shares outstanding		7,345		7,253		7,342		7,251

Basic earnings per share	$	0.23	$	0.19	$	0.64	$	0.53
Diluted earnings per share	$	0.23	$	0.19	$	0.64	$	0.53

Stock options of 87,912 and 94,752 for the three and nine months ended September 30, 2014 , respectively, were not considered in computing diluted earnings per common share because they are not dilutive to earnings. Stock options of 149,692 for the three and nine months ended September 30, 2013, respectively, were not considered in computing diluted earnings per common share because they are 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. 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 commitmen ts. The Company had $4.7 million of standby letters of credit outstanding as of September 30, 2014 . The approximate value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $ 4.3 million. Management does n ot consider the current amount of the liability as of September 30, 2014 for guarantees under standby letters of credit issued to be material.

Note 8 – Short-term and Long-term Borrowings

Securities sold under agreements to repurchase, federal funds purchased and Federal Home Loan Bank of Pittsburgh (“FHLB”) short term advances generally represent overnight or less than twelve month borrowings. Long term advances from the FHLB are for periods of twelve months or more and are generally less than sixty months . The Bank has an agreement with the FHLB which allows for borrowings up to a percentage of qu alifying assets. At September 30, 2014 , the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $ 346.1 million. This borrowing capacity with the FHLB includes a line of credit of $ 25.0 million. Short-term loans outstanding with FHLB totaled $15.6 million as of September 30, 2014 and $10.0 million were outstanding as of December 31, 2013. No long-term advances were outstanding as of September 30, 2014 and December 31, 2013 . 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 approximately $ 6.0 million, of which none was outstanding at September 30, 2014 and December 31, 2013 . Advances from this line are unsecured.

The Company has two lines of credit with Univest Bank and Trust Co. (“Univest”) totaling $ 10 million. As of September 30, 2014 and December 31, 2013 , the outstanding balance was $ 2.7 million and $ 3.9 million, respectively. Advances from these lines of credit are secured by 833,333 shares of Bank common stock. Under the terms of the loan agreement, the Bank is required to remain well capitalized. The proceeds of the loan were primarily used for the holding company’s investment in the Bank, thus providing additional capital to support the Bank’s growth.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 9 – Securities Available For Sale

At September 30, 2014 and December 31, 2013 , respectively, the amortized cost and approximate fair values of securities available-for-sale were as follows:



			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

	(In Thousands)
September 30, 2014 :
U.S. Government agency obligations	$	30,210	$	68	$	(172)	$	30,106
Municipal bonds		38,885		1,923		(32)		40,776
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		7,593		311		-		7,904
Corporate bonds		1,998		16		(1)		2,013
Total	$	78,686	$	2,318	$	(205)	$	80,799

December 31, 2013 :
U.S. Government agency obligations	$	27,191	$	118	$	(304)	$	27,005
Municipal bonds		32,220		902		(222)		32,900
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		9,062		300		-		9,362
Corporate bonds		1,997		24		-		2,021
Total	$	70,470	$	1,344	$	(526)	$	71,288

The amortized cost and fair value of securities as of September 30, 2014 , by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations with or without any penalties.



		Amortized		Fair
		Cost		Value

	(In Thousands)
Due in one year or less	$	3,980	$	4,055
Due after one year through five years		33,889		33,796
Due after five years through ten years		14,187		14,949
Due after ten years		19,038		20,095
		71,094		72,895
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		7,592		7,904
	$	78,686	$	80,799

There were no gains realized in the three months ended September 30, 2014 . Gross gains of $31 thousand were realized on sales of securities for the nine months ended September 30, 2014 . There were no gross losses on the sales of securities during the three and nine months ended September 30, 2014 . There were no sales of securities for the three and nine months ended September 30, 2013 .

Securities with a carryin g value of $56.8 millio n and $ 43.6 million at September 30, 2014 and December 31, 2013 , respectively, were subject to agreements to repurchase, pledged to secure pub lic deposits, or pledged for other purposes required or permitted by law.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2014 and December 31, 2013 , respectively:



		Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2014 :	(In Thousands)
U.S. Government agency obligations	$	5,085	$	(13)	$	13,952	$	(159)	$	19,037	$	(172)
Municipal bonds		2,999		(23)		971		(9)		3,970		(32)
Corporate Bonds		998		(1)		-		-		998		(1)
Total Temporarily Impaired Securities	$	9,082	$	(37)	$	14,923	$	(168)	$	24,005	$	(205)

December 31, 2013 :
U.S. Government agency obligations	$	16,895	$	(304)	$	-	$	-	$	16,895	$	(304)
Municipal bonds		7,441		(222)		-		-		7,441		(222)
Total Temporarily Impaired Securities	$	24,336	$	(526)	$	-	$	-	$	24,336	$	(526)

The Company had twenty-four (24) securities in an unrealized loss position at September 30, 2014. The unrealized losses are due only to market rate fluctuations. As of September 30, 2014, the Company either has the intent and ability to hold the securities until maturity or market price recovery, or believes that it is more likely than not that it will not be required to sell such securities. Management believes that the unrealized loss only represents temporary impairment of the securities. None of the individual losses are significant .

Note 10 – Restricted Investment in Bank Stock

Restricted investments in bank stock consist of Federal Home Loan 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 $120 thousand and $1.2 million repurchased during the three and nine months ended September 30, 2014 , respectively, and $470 thousand was repurchased during the three and nine months ended September 30, 2013 , respectively . S tock purchases of $745 thousand and $1.1 million were made during the three and nine months ended September 30, 2014 , respectively, and $419 thousand and $850 thousand during the three and nine months ended September 30, 2013 , respectively. Dividend payments of $14 and $41 thousand were received during the three and nine months ended September 30, 2014 , respectively, and $4 thousand and $6 thousand were received during the three and nine months ended September 30, 2013 , 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 September 30, 2014 .

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 11 – Loans Receivable and Credit Quality

The following table presents the composition of loans receivable at September 30, 2014 and December 31, 2013 , respectively:



	September 30, 2014			December 31, 2013
			Percentage of			Percentage of
	Balance		total Loans	Balance		total Loans

		(Dollars in Thousands)

Commercial real estate	$	243,941	41.00%	$	235,545	41.40%
Commercial construction		22,758	3.83%		21,109	3.71%
Commercial		29,562	4.97%		28,017	4.92%
Residential real estate		297,793	50.05%		283,421	49.82%
Consumer		873	0.15%		846	0.15%
Total loans		594,927	100.00%		568,938	100.00%
Unearned origination fees		(171)			(355)
Allowance for loan losses		(5,614)			(5,326)
	$	589,142		$	563,257

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weaknesses) , substandard (well defined weaknesses) and doubtful (full collection unlikely) within the Company's internal risk rating system as of September 30, 2014 and December 31, 2013 , respectively :



	Pass		Special Mention		Substandard		Doubtful		Total

September 30, 2014		(In Thousands)
Commercial real estate	$	239,037	$	2,003	$	2,843	$	58	$	243,941
Commercial construction		21,382		-		1,376		-		22,758
Commercial		29,046		516		-		-		29,562
Residential real estate		297,572		-		221		-		297,793
Consumer		873		-		-		-		873
Total	$	587,910	$	2,519	$	4,440	$	58	$	594,927

December 31, 2013
Commercial real estate	$	229,987	$	703	$	4,794	$	61	$	235,545
Commercial construction		18,091		902		2,116		-		21,109
Commercial		27,499		480		38		-		28,017
Residential real estate		282,296		644		481		-		283,421
Consumer		846		-		-		-		846
Total	$	558,719	$	2,729	$	7,429	$	61	$	568,938

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table summarizes information in regards to impaired loan s by loan portfolio class as of September 30, 2014 and December 31, 2013 , 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
September 30, 2014		(In Thousands)
With no related allowance recorded:
Commercial real estate	$	4,904	$	5,265			$	5,778	$	32	$	6,104	$	132
Commercial construction		1,376		1,376				2,197		12		2,607		65
Commercial		8		8				10		(3)		90		1
Residential real estate		470		488				471		3		539		7
Consumer		-		-				-		-		-		-
With an allowance recorded:
Commercial real estate	$	560	$	560	$	76	$	563	$	27	$	650	$	81
Commercial construction		-		-		-		-		-		-		-
Commercial		327		327		120		295		6		157		6
Residential real estate		864		864		194		867		8		989		13
Consumer		-		-		-		-		-		-		-
Total:
Commercial real estate	$	5,464	$	5,825	$	76	$	6,341	$	59	$	6,754	$	213
Commercial construction		1,376		1,376		-		2,197		12		2,607		65
Commercial		335		335		120		305		3		247		7
Residential real estate		1,334		1,352		194		1,338		11		1,528		20
Consumer		-		-		-		-		-		-		-
	$	8,509	$	8,888	$	390	$	10,181	$	85	$	11,136	$	305

December 31, 2013
With no related allowance recorded:
Commercial real estate	$	6,383	$	6,737							$	6,321	$	302
Commercial construction		3,017		3,215								2,992		106
Commercial		171		170								241		8
Residential real estate		618		656								465		26
Consumer		-		-								-		-
With an allowance recorded:
Commercial real estate	$	623	$	623	$	82					$	881	$	114
Commercial construction		-		-		-						325		-
Commercial		38		38		1						15		2
Residential real estate		1,113		1,113		322						985		37
Consumer		-		-		-						-		-
Total:
Commercial real estate	$	7,006	$	7,360	$	82					$	7,202	$	416
Commercial construction		3,017		3,215		-						3,317		106
Commercial		209		208		1						256		10
Residential real estate		1,731		1,769		322						1,450		63
Consumer		-		-		-						-		-
	$	11,963	$	12,552	$	405					$	12,225	$	595

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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



	September 30, 2014		December 31, 2013

	(In Thousands)
Commercial real estate	$	1,487	$	1,635
Commercial construction		-		-
Commercial		66		189
Residential real estate		221		481
Consumer		-		-
Total	$	1,774	$	2,305

The performance and credit quality of the loan po rtfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2014 and December 31, 2013 , respectively :



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

September 30, 2014	(In Thousands)
Commercial real estate	$	350	$	-	$	1,164	$	1,514	$	242,427	$	243,941	$	-
Commercial construction		1,061		-		-		1,061		21,697		22,758		-
Commercial		-		-		66		66		29,496		29,562		-
Residential real estate		467		145		221		833		296,960		297,793		-
Consumer		-		-		-		-		873		873		-
Total	$	1,878	$	145	$	1,451	$	3,474	$	591,453	$	594,927	$	-

December 31, 2013
Commercial real estate	$	776	$	415	$	2,049	$	3,240	$	232,305	$	235,545	$	763
Commercial construction		-		2,622		-		2,622		18,487		21,109		-
Commercial		-		-		189		189		27,828		28,017		-
Residential real estate		-		-		481		481		282,940		283,421		-
Consumer		-		-		-		-		846		846		-
Total	$	776	$	3,037	$	2,719	$	6,532	$	562,406	$	568,938	$	763

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 nine months ended September 30, 2014 and 2013 :



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

Allowance for loan losses
Three Months Ending September 30, 2014
Beginning Balance - June 30, 2014	$	1,626	$	416	$	361	$	1,859	$	13	$	1,159	$	5,434
Charge-offs		(8)		(50)		-		-		-		-		(58)
Recoveries		-		198		-		-		-		-		198
Provisions		51		(171)		27		57		4		72		40
Ending Balance - September 30, 2014	$	1,669	$	393	$	388	$	1,916	$	17	$	1,231	$	5,614

Nine Months Ending September 30, 2014
Beginning Balance - December 31, 2013	$	1,791	$	495	$	349	$	2,068	$	24	$	599	$	5,326
Charge-offs		(10)		(50)		(38)		(63)		-		-		(161)
Recoveries		-		198		1		-		-		-		199
Provisions		(112)		(250)		76		(89)		(7)		632		250
Ending Balance - September 30, 2014	$	1,669	$	393	$	388	$	1,916	$	17	$	1,231	$	5,614

Three Months Ending September 30, 2013
Beginning Balance - June 30, 2013	$	1,690	$	659	$	423	$	1,967	$	32	$	298	$	5,069
Charge-offs		(42)		-		(13)		(29)		(5)		-		(89)
Recoveries		-		-		1		-		-		-		1
Provisions		76		(233)		(33)		70		(3)		433		310
Ending Balance - September 30, 2013	$	1,724	$	426	$	378	$	2,008	$	24	$	731	$	5,291

Nine Months Ending September 30, 2013
Beginning Balance - December 31, 2012	$	2,007	$	660	$	394	$	1,677	$	33	$	376	$	5,147
Charge-offs		(423)		(197)		(13)		(103)		(5)		-		(741)
Recoveries		13		-		2		28		-		-		43
Provisions		127		(37)		(5)		406		(4)		355		842
Ending Balance - September 30, 2013	$	1,724	$	426	$	378	$	2,008	$	24	$	731	$	5,291

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 September 30, 2014 and December 31, 2013 .



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

	(In Thousands)
September 30, 2014
Allowance for Loan Losses
Ending Balance	$	1,669	$	393	$	388	$	1,916	$	17	$	1,231	$	5,614
Ending balance: individually evaluated for impairment	$	76	$	-	$	120	$	194	$	-	$	-	$	390
Ending balance: collectively evaluated for impairment	$	1,593	$	393	$	268	$	1,722	$	17	$	1,231	$	5,224

Loans receivables:
Ending balance	$	243,941	$	22,758	$	29,562	$	297,793	$	873			$	594,927
Ending balance: individually evaluated for impairment	$	5,464	$	1,376	$	335	$	1,334	$	-			$	8,509
Ending balance: collectively evaluated for impairment	$	238,477	$	21,382	$	29,227	$	296,459	$	873			$	586,418

December 31, 2013
Allowance for Loan Losses
Ending Balance	$	1,791	$	495	$	349	$	2,068	$	24	$	599	$	5,326
Ending balance: individually evaluated for impairment	$	82	$	-	$	1	$	322	$	-	$	-	$	405
Ending balance: collectively evaluated for impairment	$	1,709	$	495	$	348	$	1,746	$	24	$	599	$	4,921

Loans receivables:
Ending balance	$	235,545	$	21,109	$	28,017	$	283,421	$	846			$	568,938
Ending balance: individually evaluated for impairment	$	7,006	$	3,017	$	209	$	1,731	$	-			$	11,963
Ending balance: collectively evaluated for impairment	$	228,539	$	18,092	$	27,808	$	281,690	$	846			$	556,975

Troubled Debt Restructurings

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

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

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table present s TDR s outstanding:



	September 30, 2014
	Accrual Loans		Non-Accrual Loans		Total Modifications

	(In Thousands)
Commercial real estate	$	3,419	$	323	$	3,742
Commercial construction		260		-		260
Commercial		269		-		269
Residential real estate		1,113		-		1,113
Consumer		-		-		-
	$	5,061	$	323	$	5,384

As of September 30, 2014 , no available commitments were outstanding on TDRs .

The following table presents newly restructured loans that occurred during the nine months ended September 30, 2014 and the three and nine months ended September 30, 2013 .



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


Three Months Ending September 30, 2013
Residential real estate	2	$	226	$	226

	2	$	226	$	226



Nine Months Ending September 30, 2014
Commercial	1	$	262	$	262
	1	$	262	$	262
Nine Months Ending September 30, 2013
Residential real estate	2	$	226	$	226

	2	$	226	$	226

The impairment reserve on the TDR described above was $5 4 thousand recorded in the allowance for loan loss for the three and nine months ending September 30, 2014. There were no newly res tructured loans that occurred during the three months ended September 30, 2014 .

The re 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 nine months ended September 30, 2014 .

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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.

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.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy utilized at September 30, 2014 and December 31, 2013 , respectively, are as follows:



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

		(In Thousands)
U.S. Government agency obligations	$	-	$	30,106	$	-	$	30,106
Municipal bonds		-		40,776		-		40,776
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - residential		-		7,903		-		7,903
Corporate bonds		-		2,014		-		2,014
September 30, 2014 Securities available for sale	$	-	$	80,799	$	-	$	80,799

U.S. Government agency obligations	$	-	$	27,005	$	-	$	27,005
Municipal bonds		-		32,900		-		32,900
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - residential		-		9,362		-		9,362
Corporate bonds		-		2,021		-		2,021
December 31, 2013 Securities available for sale	$	-	$	71,288	$	-	$	71,288

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2014 and December 31, 2013 , respectively, are as follows:



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

		(In Thousands)
September 30, 2014 Impaired loans (1)	$	-	$	-	$	876	$	876
September 30, 2014 Impaired loans (2)	$	-	$	-	$	484	$	484
September 30, 2014 Other real estate owned (1)	$	-	$	-	$	879	$	879
December 31, 2013 Impaired loans (1)	$	-	$	-	$	870	$	870
December 31, 2013 Impaired loans (2)	$	-	$	-	$	499	$	499
December 31, 2013 Other real estate owned (1)	$	-	$	-	$	659	$	659

Fair Value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 input which are not identifiable. Fair values may also include qualitative adjustments by management based on economic conditions and liquidation expenses.

Fair Value determined using the debt service of the borrower.

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 Se ptember 30, 2014, of the impaired loans having an aggregate balance of $8.5 million, $ 6.8 million did not require a valuation allowance because the value of the collateral securing the loan was determined to meet or exceed the balance owed on the loan. Of the remaining $ 1.7 million in impaired loans, an aggregate valuation allowance of $ 390 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.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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.

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



	Quantitative Information about Level 3 Fair Value Measurements
Description	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)

		(Dollars In Thousands)
September 30, 2014:
Impaired loans	$	876	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -25% (-16.4%)
				Liquidation expenses (3)	0 to -10% (-8.4%)
Impaired loans	$	484	Discounted Cash Flows (5)
Other real estate owned	$	879	Listings, Letters of Intent	Liquidation expenses (3)	-5% (-5%)
			& Third Party Evaluations (4)

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

Appraisals may be adjusted by management for qualitative factors including economic conditions and the age of the The range and weighted average of appraisal adjustments are presented as a percent of the appraisal.

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.

Fair value is determined by listings, letters of intent or third-party evaluations.

Fair value is determined using the debt service of the borrower.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at September 30, 2014 and December 31, 2013 :

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.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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.

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.

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 September 30, 2014 and December 31, 2013 :



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

	(In Thousands)
September 30, 2014:
Financial assets:
Cash and cash equivalents	$	26,304	$	26,306	$	26,306	$	-	$	-
Interest bearing time deposits		250		251		-		251		-
Securities available-for-sale		80,799		80,799		-		80,799		-
Loans receivable, net of allowance		589,142		592,496		-		-		592,496
Restricted investments in bank stock		2,010		2,010		-		2,010		-
Accrued interest receivable		1,549		1,549		-		1,549		-
Financial liabilities:
Deposits		605,187		605,369		-		605,369		-
Securities sold under agreements to
repurchase and federal funds purchased		29,677		29,675		-		29,675		-
Short-term borrowings		15,625		15,625		-		15,625		-
Long-term borrowings		2,650		2,606		-		-		2,606
Accrued interest payable		380		380		-		380		-
Off-balance sheet financial instruments:
Commitments to grant loans		-		-		-		-		-
Unfunded commitments under lines of credit		-		-		-		-		-
Standby letters of credit		-		-		-		-		-

December 31, 2013:
Financial assets:
Cash and cash equivalents	$	17,831	$	17,831	$	17,831	$	-	$	-
Interest bearing time deposits		1,822		1,830		-		1,830		-
Securities available-for-sale		71,288		71,288		-		71,288		-
Loans receivable, net of allowance		563,257		563,444		-		-		563,444
Restricted investments in bank stock		2,157		2,157		-		2,157		-
Accrued interest receivable		1,533		1,533		-		1,533		-
Financial liabilities:
Deposits		569,037		569,400		-		569,400		-
Securities sold under agreements to
repurchase and federal funds purchased		30,418		30,415		-		30,415		-
Short-term borrowings		10,000		10,000				10,000
Long-term borrowings		3,900		3,797		-		-		3,797
Accrued interest payable		235		235		-		235		-
Off-balance sheet financial instruments:
Commitments to grant loans		-		-		-		-		-
Unfunded commitments under lines of credit		-		-		-		-		-
Standby letters of credit		-		-		-		-		-

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 control 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 September 30, 2014 and December 31, 2013 :



						Net Amounts
		Gross		Gross Amounts		of Liabilities
		Amounts of		Offset in the		Presented in the
		Recognized		Consolidated		Consolidated		Financial		Cash Collateral
		Liabilities		Balance Sheet		Balance Sheet		Instruments		Pledged		Net Amount

		(In Thousands)
September 30, 2014
Repurchase Agreements:
Corporate Institutions	$	29,677	$	-	$	29,677	$	(29,677)	$	-	$	-

December 31, 2013
Repurchase Agreements:
Corporate Institutions	$	30,418	$	-	$	30,418	$	(30,418)	$	-	$	-

As of September 30, 2014 and December 31, 2013 , the fair value of securities pledged was $ 32 .9 million and $ 34.3 million, respectively.

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 14 – New Accounting Standards

In January 2014, the Financial Accounting Standards Board (FASB) issued an accounting standard update (ASU 2014-04) related to; Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The update applies to all creditors who obtain physical possession of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable. The amendments in this update clarify when an in-substance repossession or foreclosure occurs and requires disclosure of both (1) the amount of foreclosed residential real estate property held by a creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. Early adoption is permitted. The Company is currently analyzing the impact of the updated guidance on its financial statements.

In May 2014, FASB issued ASU 2014-09 Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition—Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised 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. To achieve that core principle, an entity should apply the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

For a public business entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently analyzing the impact of the guidance on its financial statements.

An entity should apply the amendments in this ASU using one of the following two methods:

Retrospectively to each prior reporting period presented and the entity may elect any of the following practical expedients:

For completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period.

For completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.

For all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as revenue.

Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects this transition method it also should provide the additional disclosures in reporting periods that include the date of initial application of:

The amount by which each financial statement line item is affected in the current reporting period by the application of this ASU as compared to the guidance that was in effect before the change.

An explanation of the reasons for significant changes.

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

This discussion and analysis provides an overview of the financial condition and results of operations of Embassy Bancorp, Inc. (the “Company”) as of September 30, 2014 and for the three and nine months ended September 30, 2014 a nd 2013 , 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, 2013 , 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, 2013 . Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses and the valuation of deferred tax assets. Additional information is contained in this Form 10-Q under the paragraphs titled “Provision for Loan Losses,” “Credit Risk and Loan Quality,” and “Income Taxes” contained on the following pages.

Forward-looking Statements

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

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

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

OVERVIEW

The Company is a Pennsylvania corporation organized in 2008 and registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended (the “BHC Act). The Company was formed for purposes of acquiring Embassy Bank For The Lehigh Valley (the “Bank”) in connection with the reorganization of the Bank into a bank holding company structure, which was consummated on November 11, 2008. Accordingly, the Company owns all of the capital stock of the Bank, giving the organization more flexibility in meeting its capital needs as the Company continues to grow. Embassy Holdings, LLC (the “LLC”) is a wholly-owned subsidiary of the 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 $ 46.4 million from $ 670.8 million at December 31, 2013 to $ 717.2 million at September 30, 2014 due primarily to an increase in loans receivable and an in crease in securities available for sale.

Net income for the three months ended September 30, 2014 was $1.7 million compared to a net income for the three months ended September 30, 2013 of $1.4 million. Net income for the nine months ended September 30, 2014 was $4.7 million compared to a net income for the nine months ended September 30, 2013 of $3.8 million. Loans receivable, net of the allowance for loan losses, increased $ 25.8 million to $ 589.1 million at September 30, 2014 from $ 563.3 million at December 31, 2013 . The market is very

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

RESULTS OF OPERATIONS

Net Interest Income

Total interest income for the three months ended September 30, 2014 and 2013 totaled $ 6.6 million and $6.2 million, respectively. Average earning assets were $ 685.4 million for the three months ended September 30, 2014 compared to $ 628.6 million for the three months ended September 30, 2013 . The tax equivalent yield on average earning assets was 3.93% for the third quarter of 2014 compared to 4.01 % for the third quarter of 2013 .

Total interest expense for the three months ended September 30, 2014 increased $ 60.0 thousand to $ 768.0 thousand as compared to $ 708.0 thousand for the three months ended September 30, 2013 , primarily due to an increase in average deposits offset by a decrease in deposit rates. Average interest bearing liabilities were $ 580.5 million for the three months ended September 30, 2014 compared to $ 542.6 million for the three months ended September 30, 2013 . The yield on average interest bearing liabili ties was consistent at 0.52% for the third quarter of 2014 and 2013 .

Net interest income for the three months ended September 30, 2014 was $ 5.8 million compared to $ 5.5 million for the three months ended September 30, 2013 . The improvement in net interest income for the three months ended September 30, 2014 is a result of increases in the interest expense associated with the growth in deposi ts and other borrowed funds, offset by growth in interest earning assets, offset by a reduction in rates received on a higher level of interest earning assets. The Company’s net interest margin for the three months ended September 30, 2014 decreased eight ( 8 ) basis points to 3.51% as compared to 3.59% for the three months ended September 30, 2013 , due to the current interest rate environment, including decreased interest rates on the investment securities portfolio and the competitive in terest rate pressure of lending, offset by the decreased cost of deposits.

Total interest income for the nine months ended September 30, 2014 and 2013 totaled $19.4 million and $18.3 million, respectively. Average earning assets were $675.8 million for the nine months ended September 30, 2014 compared to $620.6 million for the nine months ended September 30, 2013 . The tax equivalent yie ld on average earning assets as of September 30, 2014 decreased eleven (11) basis points to 3.95% from 4.06% for the nine months ended September 30, 2013.

Total interest expense for the nine months ended September 30, 2014 and 2013 totaled $2.2 million . Average interest bearing liabilities were $575.1 million for the nine months ended September 30, 2014 compared to $537.3 million for the nine months ended September 30, 2013 . The yield on average interest bearing liabilities as of September 30, 2014 decreased seventeen (17) basis points to 0.39% from 0.56% as of September 30, 2013. This decrease was the result of market conditions, deposit m ix, competition and management’s resulting adjustments to the interest ra tes provided to depositors.

Net interest income for the nine months ended September 30, 2014 was $17.1 million compared to $16.1 million for the nine months ended September 30, 2013 . The improvement in net interest income for the nine months ended September 30, 2014 is a result of decreases in the interest expense associated with deposits and other borrowed funds and growth in interest earning assets, offset by a reduction in rates received on a higher level of interest earning assets. The Company’s net interest margin for the nine months ended September 30, 2014 decreased eight ( 8 ) basis point s to 3.50% , as compared to 3.58% for the nine months ended September 30, 2013 , due to the current interest rate environment, including decreased cost of deposits offset by decreased interest rates on the investment securities portfolio and the competitive interest rate pressure of lending.

The table below sets forth average balances and corresponding yields for the corresponding periods ended September 30, 2014 and 2013 , respectively:

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (quarter to date)


	Three Months Ended September 30,
	2014			2013
			Tax			Tax
	Average		Equivalent	Average		Equivalent
	Balance	Interest	Yield	Balance	Interest	Yield

	(Dollars In Thousands)
ASSETS
Loans - taxable	$ 582,286	$ 5,999	4.09%	$ 536,475	$ 5,661	4.19%
Loans - non-taxable	8,928	59	3.97%	3,631	36	6.10%
Investment securities - taxable	45,581	184	1.62%	46,190	195	1.69%
Investment securities - non-taxable	36,441	332	5.48%	32,004	290	5.51%
Federal funds sold	969	1	0.22%	916	-	0.02%
Time deposits	602	1	1.04%	2,951	6	0.81%
Interest bearing deposits with banks	10,560	18	0.68%	6,472	4	0.25%
TOTAL INTEREST EARNING ASSETS	685,367	6,594	3.93%	628,639	6,192	4.01%
Less allowance for loan losses	(5,430)			(5,167)
Other assets	31,504			29,246
TOTAL ASSETS	$ 711,441			$ 652,718

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits, NOW and money market	$ 59,292	$ 7	0.05%	$ 58,910	$ 12	0.08%
Savings	405,321	501	0.49%	388,553	454	0.46%
Certificates of deposit	76,030	186	0.97%	56,097	135	0.95%
Securities sold under agreements to repurchase, and short & long-term borrowings	39,820	74	0.74%	38,999	107	1.09%
TOTAL INTEREST BEARING LIABILITIES	580,463	768	0.52%	542,559	708	0.52%

Non-interest bearing demand deposits	62,804			51,612
Other liabilities	5,552			3,948
Stockholders' equity	62,622			54,599
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 711,441			$ 652,718

Net interest income		$ 5,826			$ 5,484
Net interest spread			3.41%			3.49%
Net interest margin			3.51%			3.59%

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential ( year to date)


	Nine Months Ended September 30,

	2014			2013

			Tax			Tax
	Average		Equivalent	Average		Equivalent
	Balance	Interest	Yield	Balance	Interest	Yield

	(Dollars In Thousands)
ASSETS
Loans - taxable	$ 574,564	$ 17,615	4.10%	$ 521,888	$ 16,670	4.28%
Loans - non-taxable	7,970	166	4.22%	3,650	106	5.85%
Investment securities - taxable	46,166	575	1.66%	51,427	628	1.64%
Investment securities - non-taxable	34,528	949	5.56%	33,414	868	5.24%
Federal funds sold	940	2	0.22%	784	1	0.20%
Time deposits	1,286	10	1.06%	4,049	29	0.96%
Interest bearing deposits with banks	10,386	54	0.70%	5,400	9	0.22%
TOTAL INTEREST EARNING ASSETS	675,840	19,371	3.95%	620,613	18,311	4.06%
Less allowance for loan losses	(5,382)			(5,087)
Other assets	29,095			27,651
TOTAL ASSETS	$ 699,553			$ 643,177

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits,
NOW and money market	$ 60,100	$ 24	0.05%	$ 57,950	$ 29	0.07%
Savings	403,988	1,456	0.48%	382,345	1,357	0.48%
Certificates of deposit	73,835	530	0.96%	56,963	428	1.01%
Securities sold under agreements to repurchase, and short & long-term borrowings	37,199	227	0.82%	40,000	429	1.44%
TOTAL INTEREST BEARING LIABILITIES	575,122	2,237	0.39%	537,258	2,243	0.56%

Non-interest bearing demand deposits	60,855			48,937
Other liabilities	4,533			3,754
Stockholders' equity	59,043			53,228
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 699,553			$ 643,177

Net interest income		$ 17,134			$ 16,068
Net interest spread			3.56%			3.50%
Net interest margin			3.50%			3.58%

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 September 30, 2014 , the provision for loan losses was $40 thousand, as compared to $310 thousand, for the same period ended September 30, 2013 . In the three months ended September 30, 2014 , there were charge-offs in the amount of $58 thousand , as compared to $89 thousand in the three months ended September 30, 2013 . For the nine months ended September 30, 2014 , the provision for loan losses was $250 thousand, as compared to $842 thousand for the same period ended September 30, 2013 . In the nine months ended September 30, 2014 , there were charge-offs in the amount of $161 thousand offset by $199 thousand in recoveries, compared to $741 thousand in charge-offs and $43 thousand in recoveries during the same period in 2013 . The allowance for loan losses is $ 5.6 million as of September 30, 2014 , which is 0.94% of outstanding loans, compared to $ 5.3 million or 0.96% of outstanding loans as of September 30, 2013 . At December 31, 2013 , the allowance for loan losses of $5.3 million represented 0.94% of total outstanding loans. Based principally on economic conditions, asset quality, and loan-loss experience, i ncluding that of comparable institutions in the Bank’s market area, the allowance is believed to be adequate to absorb any losses inherent in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate. The Bank has not participated in any sub-prime lending activity.

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:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014		2013

	(In Thousands)
Loans receivable at end of period	$	594,927	$	551,787	$	594,927	$	551,787
Allowance for loan losses:
Balance, beginning	$	5,434	$	5,069	$	5,326	$	5,147
Provision for loan losses		40		310		250		842
Loans charged off:
Commercial real estate		(8)		(42)		(10)		(423)
Commercial construction		(50)		-		(50)		(197)
Commercial		-		(13)		(38)		(13)
Residential real estate		-		(29)		(63)		(103)
Consumer		-		(5)		-		(5)
Total loans charged off		(58)		(89)		(161)		(741)
Recoveries of loans previously charged off:
Commercial real estate		-		-		-		13
Commercial construction		198		-		198		-
Commercial		-		1		1		2
Residential real estate		-		-		-		28
Total recoveries		198		1		199		43
Net recoveries (charge offs)		140		(88)		38		(698)
Balance at end of period	$	5,614	$	5,291	$	5,614	$	5,291
Allowance for loan losses to loans receivable at end of period		0.94%		0.96%		0.94%		0.96%

Non-interest Income

Total non-intere st income was $611 thousand for the three months ended September 30, 2014 compared to $559 thousand for the same period in 2013. Total non-interest income was $1.8 million for the nine months ended September 30, 2014 compare d to $1.5 million for the same period in 2013. The increase is due to the $31 thousand gain on sale of securities realized in 2014, a $94 thousand decrease in impairment losses on other real estate owned, growth in the Bank’s credit card and merchant processing customer base , an increase in fee income on deposit accounts and an increase in income associated with bank owned life insurance .

Non-interest Expense

Non-interest expenses increased $222.0 thousand, or 5.9% , from $3.8 million for the three months ended September 30, 2013 to $4.0 million for the same period ended September 30, 2014 . The increase is due to: an increase of $ 33 thousand in data processing expense; an increase of $9 thousand in loan and real estate fees due to the re-evaluation of deferred loan fees and costs; and an increase of $5 2 thousand in other real estate owned expenses due to the accrual of anticipated property repairs and an increase of $41 thousand in other expenses .

Non-interest expenses increased $614.0 thousand, or 5.4% , from $11.5 million for the nine months ended September 30, 2013 to $12.1 million for the same period ended September 30, 2014 . The increa se is due to: an increase of $103 thousand in advertising and promotion expense due to the launch of a new campaign; an increase of $24 thousand in loan and real estate expense due to the re-evaluation of deferred loan fees and costs ; an increase of $44 thousand in charitable contributions due to the approved increase in EITC cont ributions; an increase of $25 thousand in other real estate owned expenses due to the accrual of anticipated property repairs and an increase of $100 thousand in other expenses .

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 September 30, 2014 totaled $672 thousand, or 28.2% of income before taxes. The provision for income taxes for the three months ended September 30, 2013 totaled $ 535 thousand, or 27.6% of income before taxes. The allocated provision for income taxes for the nine months ended September 30, 2014 totaled $1.8 million, or 28.1% of income before taxes. The provision for income taxes for the nine months ended September 30, 2013 totaled $1.5 million, or 27.6% of income before taxes. The slight increase in the tax rate is a result of the change in the mix of taxa ble 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, corporate bonds, and taxable and non-taxable municipal bonds. The Bank holds no high-risk securities or derivatives as of September 30, 2014 . The Bank has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans.

Total securities at September 30, 2014 were $ 80.8 million compared to $ 71.3 million at December 31, 2013 . The in crease in the inves tment portfolio is the result of the purchase of five (5) U.S. Government agency obligations totaling $5.1 million, the purchase of eighteen (18) tax-free municipal obligations totaling $7.7 million and an increase in the unrealized gain offset by pay downs on mortgage-backed securities . The carrying value of the securities portfolio as of September 30, 2014 includes a net unrealized gain of $2.1 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 $ 818 thousand at December 31, 2013 . The current unrealized gain position of the securities portfolio is due to the changes in market rates since purchase. No securities are deemed to be other than temporarily impaired.

Loans

The loan portfolio comprises a major component of the Bank’s earning assets. All of the Bank’s loans are to domestic borrowers. Total net loans at September 30, 2014 increased $ 25.8 million to $ 589.1 million from $ 563.3 million at December 31, 2013 . The loan-to-deposit ratio de creased from 100% at December 31, 2013 to 98% at September 30, 2014 . The Bank’s loan portfolio at September 30, 2014 was comprised of residential real estate and consumer loans of $298.7 million, an increase of $14.4 million from December 31, 2013 , and commercial loans of $296.3 million, an increase of $11.6 million from December 31, 2013 . The Bank has not originated, nor does it intend to originate, sub-prime mortgage loans.

Credit Risk and Loan Quality

The allowance for loan loss es in crease d $288 thousand to taling $ 5.6 million at September 30, 2014 compared to $5.3 million at December 31, 2013 . At September 30, 2014 and December 31, 201 3 , the allowance for loan losses represented 0.94% of total loans. Based upon current economic conditions, the composition of the loan portfolio, the perceived credit risk in the portfolio and loan-loss experience of comparable institutions in the Bank’s market area, management feels the allowance is adequate to absorb reasonably anticipated losses.

At September 30, 2014 , December 31, 2013 , and September 30, 2013 aggregate balances on non-performing loans equaled $ 6.8 million, $ 10.4 million and $ 10.6 million , respectively , representing 1.15 %, 1.83 % and 1.91 % of total loans at September 30, 2014 , December 31, 2013 and September 30, 2013 , respectively. Troubled debt restructurings, included in the following table, represent loans where the Company, for economic or legal reasons related to the debtor’s financial difficulties, has granted a concession to the debtor that it would not otherwise consider. There were no loans that were modified and classified as a TDR within the prior twelve months that experienced a payment default (loans ninety or more days past due) for the nine months ended September 30, 2014 . The Company has two forecl osed assets in the amount of $879 thousand as of September 30, 2014 , as compared to four foreclosed assets at December 31, 2013 in the amount of $659 thousand . The net change is a result of : the acquisition of an asset in the amount of $348 thousand, the sal e of three assets , net of deferred gains, in the amount of $117 thousand and a $9 thousand impairment loss.

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



		September 30,			December 31,			September 30,
		2014			2013			2013

	(In Thousands)
Non-accrual - commercial	$	1,553		$	1,824		$	1,951
Non-accrual - consumer		221			481			490
Restructured loans (accruing interest and less than 90 days past due)		5,061			7,354			8,119
Loans past due 90 or more days, accruing interest		-			763			-
Total nonperforming loans		6,835			10,422			10,560
Foreclosed assets		879			659			2,091
Total nonperforming assets	$	7,714		$	11,081		$	12,651
Nonperforming loans to total loans at period-end		1.15	%		1.83	%		1.91	%
Nonperforming assets to total assets		1.08	%		1.65	%		1.91	%

Premises and Equipment

Company premises and equipment, net of accumulated depreciation, decreased $ 365.0 thousand from December 31, 2013 to September 30, 2014 . This decrease is due primarily to depreciation on existing premises and equipment , offset by increases related to purchases .

Deposits

Total deposits at September 30, 2014 in creased $ 36.2 million to $ 605.2 million from $ 569.0 million at December 31, 2013 . Savings deposits in creased by $ 12.6 million, demand deposits increased by $8.6 million and time deposits increased $14.5 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 $ 26.3 million at September 30, 2014 , compared to $ 17.8 million at December 31, 2013 , primarily due to the increase in deposit growth, offset by the increases in loans and available for sale securities.

Additional asset liquidity sources include principal and interest payments from the investment security and loan portfolios. Long-term liquidity needs may be met by selling unpledged securities available for sale, selling loans or raising additional capital. At September 30, 2014 , the Company had $ 80.8 million of available for sale securities. Securities with carrying values of approximately $ 56.8 million and $ 43.6 million at September 30, 2014 and December 31, 2013 , respectively, were pledged as collateral to secure securities sold under agreements to repurchase, public deposits, and for other purposes required or permitted by law.

The Bank also has borrowing capacity with the FHLB of approximately $ 346.1 million, which includes a line of credit for $25 .0 million . There were no outstanding long-term loans as of September 30, 2014 a nd December 31, 2013 . S hort-term loans outstanding with FHLB totaled $15.6 million and $10 million as of September 30, 2014 and December 31, 2013 , respectively . All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank also has a line of credit with ACBB of approximately $6.0 million, of which none was outstanding at September 30, 2014 . Advances from this line are unsecured.

The Company has two lines of credit totaling an aggregate of $10 million with Univest, of which an aggregate of $2.7 million was outstanding at September 30, 2014 , and $3.9 million was outstanding at December 31, 2013. These lines of credit are secured by 833,333 shares of Bank common stock.

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

Off-Balance Sheet Arrangements

The Company’s consolidated financial statements do not reflect various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These off-balance sheet arrangements consist of unfunded loans and commitments, as well as lines of credit made under the same standards as on-balance sheet instruments. These unused commitments totaled $78.6 million a t September 30, 2014 . The Company also has lett ers of credit outstanding of $4.7 million at September 30, 2014 . 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 $59.5 million as of September 30, 2014 , representing a net increase of $ 5.4 million from December 31, 2013 . The increase in capital was primarily the result of the net income of $ 4.7 million and an increase in unrealized gains on available for sale securities of $855 thousand.

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

The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk weighted assets (as defined), and Tier I capital to average assets (as defined). As of September 30, 2014 , the Bank met the minimum requirements. In addition, the Bank’s capital ratios exceeded the amounts required to be considered “well capitalized” as defined in the regulations.

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



	September 30, 2014			December 31, 2013

	(Dollars In Thousands)
Tier I, common stockholders' equity	$	60,338		$	56,820
Tier II, allowable portion of allowance for loan losses		5,614			5,326
Total capital	$	65,952		$	62,146

Tier I risk based capital ratio		12.3	%		12.0	%
Total risk based capital ratio		13.5	%		13.2	%
Tier I leverage ratio		8.5	%		8.5	%

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

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

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

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



	September 30, 2014			December 31, 2013

	(Dollars In Thousands)
Tier I, common stockholders' equity	$	58,084		$	53,515
Tier II, allowable portion of allowance for loan losses		5,614			5,326
Total capital	$	63,698		$	58,841

Tier I risk based capital ratio		11.9	%		11.3	%
Total risk based capital ratio		13.0	%		12.5	%
Tier I leverage ratio		8.2	%		7.9	%

In July 2013, the Federal Deposit Insurance Corporation and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4.0% to 6.0% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. Additional constraints will also be imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interest. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for the Bank and the Company on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4 – Controls and Procedures

The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2014 , and they have concluded that, as of this date, our disclosure controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

There were no significant changes to our internal controls over financial reporting or in the other factors that could significantly affect our internal controls over financial reporting during the quarter ended September 30, 2014 , including any corrective actions with regard to significant deficiencies and material weakness.

Part II - Other Information

Item 1 - Legal Proceedings

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

Item 1A - Risk Factors

Not Applicable .

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

Not Applicable .

Item 3 - Defaults Upon Senior Securities

Not Applicable.

Item 4 – Mine Safety Disclosures

Not Applicable .

Item 5 - Other Information

None .

Item 6 - Exhibits



	Exhibit
	Number		Description
	3.1		Articles of Incorporation as amended (conformed) (Incorporated by reference to Exhibit 3.1 of
			Registrant’s Form 10-Q filed on May 14, 2010).
	3.2		Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.2 of Registrant’s Form 8-K
			filed on August 19, 2014).
	11.1		The statement regarding computation of per share earnings required by this exhibit is contained in Note 6
			to the financial statements under the caption “Basic and Diluted Earnings Per Share.”
	31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
	31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
	32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 1350
			of the Sarbanes-Oxley Act of 2002.
	101.1		Interactive Data Files (XBRL)

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.

SIGNATURES

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


		EMBASSY BANCORP, INC.
		(Registrant)

Dated: November 10 , 201 4	By:	/s/ David M. Lobach, Jr.
		David M. Lobach, Jr.
		President and Chief Executive Officer


Dated: November 10 , 201 4	By:	/s/ Judith A. Hunsicker
		Judith A. Hunsicker
		Senior Executive Vice President,
		Chief Oper ating Officer, Secretary and
		Chief Financial Officer

EXHIBIT INDEX



	Exhibit
	Number		Description
	3.1		Articles of Incorporation as amended (conformed) (Incorporated by reference to Exhibit 3.1 of
			Registrant’s Form 10-Q filed on May 14, 2010).
	3.2		Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.2 of Registrant’s Form 8-K
			filed on August 19, 2014).
	11.1		The statement regarding computation of per share earnings required by this exhibit is contained in Note 6
			to the financial statements under the caption “Basic and Diluted Earnings Per Share.”
	31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
	31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
	32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 1350
			of the Sarbanes-Oxley Act of 2002.
	101.1		Interactive Data Files (XBRL)

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.

TABLE OF CONTENTS

Part I Item 1 Fi Note 1 Basis Of Presentation Note 2 - Summary Of Significant Accounting Policies Note 3 Stockholders Equity Note 4 Stock Incentive Plan Note 5 Other Comprehensive Income (loss)Note 6 Basic and Diluted Earnings Per Share Note 7 Guarantees Note 8 Short-term and Long-term Borrowings Note 9 Securities Available For Sale Note 10 Restricted Investment in Bank Stock Note 11 Loans Receivable and Credit Quality Note 12 Fair Value Measurements Note 13 Offsetting Assets and Liabilities Note 14 New Accounting Standards Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4 Controls and Procedures Part II - Other Information Item 1 - Legal Proceedings Item 1A - Risk Factors Item 2 - Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3 - Defaults Upon Senior Securities Item 4 Mine Safety Disclosures Item 5 - Other Information Item 6 - Exhibits

EMYB 10-Q Quarter ended Sept. 30, 2014