EMYB 10-Q Quarterly Report Sept. 30, 2015

EMBASSY BANCORP, INC.

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10-Q 1 emyb-20150930x10q.htm 10-Q EMYB-2015_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, 2015 OR

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

Commission file number 000-53528


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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically 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 6, 2015	($1.00 Par Value)	7,383,794
	(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	2015		2014
	(In Thousands, Except Share Data)
Cash and due from banks	$	15,087	$	14,779
Interest bearing demand deposits with banks		1,514		611
Federal funds sold		1,000		1,000
Cash and Cash Equivalents		17,601		16,390
Interest bearing time deposits		-		250
Securities available for sale		79,655		77,197
Restricted investment in bank stock		2,939		784
Loans receivable, net of allowance for loan losses of $5,964 in 2015; $5,614 in 2014		679,065		604,967
Premises and equipment, net of accumulated depreciation		1,462		1,515
Bank owned life insurance		12,188		11,938
Accrued interest receivable		1,653		1,599
Other real estate owned		1,405		1,106
Other assets		3,601		3,348
Total Assets	$	799,569	$	719,094
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing	$	83,172	$	68,467
Interest bearing		550,855		543,201
Total Deposits		634,027		611,668
Securities sold under agreements to repurchase		32,761		30,304
Short-term borrowings		56,420		9,000
Long-term borrowings		5,038		1,900
Accrued interest payable		430		349
Other liabilities		4,631		4,541
Total Liabilities		733,307		657,762
Stockholders' Equity:
Common stock, $1 par value; authorized 20,000,000 shares;
2015 issued 7,383,794 shares; outstanding 7,383,794 shares;
2014 issued 7,357,752 shares; outstanding 7,357,752 shares		7,384		7,358
Surplus		24,308		24,024
Retained earnings		33,240		28,485
Accumulated other comprehensive income		1,330		1,465
Total Stockholders' Equity		66,262		61,332
Total Liabilities and Stockholders' Equity	$	799,569	$	719,094

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Income (Unaudited)



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

	2015		2014		2015			2014

	(In Thousands, Except Per Share Data)
INTEREST INCOME
Loans receivable, including fees	$	6,736	$	6,058	$	19,363	$	17,781
Securities, taxable		198		184		612		575
Securities, non-taxable		296		332		903		949
Federal funds sold, and other		25		19		89		56
Interest on time deposits		-		1		1		10
Total Interest Income		7,255		6,594		20,968		19,371
INTEREST EXPENSE
Deposits		732		694		2,099		2,010
Securities sold under agreements to repurchase		4		4		13		13
Short-term borrowings		53		5		96		7
Long-term borrowings		25		65		93		207
Total Interest Expense		814		768		2,301		2,237
Net Interest Income		6,441		5,826		18,667		17,134
PROVISION FOR LOAN LOSSES		270		40		412		250
Net Interest Income after Provision for Loan Losses		6,171		5,786		18,255		16,884
OTHER INCOME
Credit card processing fees		424		362		1,199		1,051
Other service fees		172		172		504		492
Bank owned life insurance		86		70		275		191
Gain on sale of securities, net		26		-		165		31
Profit on sale of other real estate owned		7		7		14		4
Impairment on other real estate owned		(62)		-		(104)		(9)
Total Other Income		653		611		2,053		1,760
OTHER EXPENSES
Salaries and employee benefits		1,684		1,753		5,143		5,353
Occupancy and equipment		597		613		1,820		1,857
Data processing		375		322		1,178		947
Credit card processing		405		321		1,152		940
Advertising and promotion		348		277		1,021		807
Professional fees		125		127		380		391
FDIC insurance		100		92		265		290
Insurance		13		13		40		40
Loan & real estate		71		59		197		165
Charitable contributions		143		133		494		454
Other real estate owned expenses		11		66		51		83
Other		314		240		873		741
Total Other Expenses		4,186		4,016		12,614		12,068

Income before Income Taxes		2,638		2,381		7,694		6,576
INCOME TAX EXPENSE		766		672		2,203		1,847
Net Income	$	1,872	$	1,709	$	5,491	$	4,729

BASIC EARNINGS PER SHARE	$	0.25	$	0.23	$	0.75	$	0.64

DILUTED EARNINGS PER SHARE	$	0.25	$	0.23	$	0.74	$	0.64

DIVIDENDS PER SHARE	$	0.10	$	0.06	$	0.10	$	0.06

See notes to consolidated financial statements

Embassy Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)



	Three Months Ended September 30,
	2015			2014

		(In Thousands)
Net Income	$		1,872	$		1,709
Change in Accumulated Other Comprehensive Income:
Unrealized holding gain on securities available for sale		487			174
Less: reclassification adjustment for realized gains		(26)			-
		461			174
Income tax effect		(156)			(59)
Net unrealized gain		305			115
Other comprehensive gain, net of tax			305			115
Comprehensive Income	$		2,177	$		1,824



	Nine Months Ended September 30,
	2015			2014

		(In Thousands)

Net Income	$		5,491	$		4,729
Change in Accumulated Other Comprehensive Income:
Unrealized holding (loss) gain on securities available for sale		(40)			1,326
Less: reclassification adjustment for realized gains		(165)			(31)
		(205)			1,295
Income tax effect		70			(440)
Net unrealized (loss) gain		(135)			855
Other comprehensive (loss) gain, net of tax			(135)			855
Comprehensive Income	$		5,356	$		5,584

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

Nine Months Ended September 30, 2015 and 2014



	Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income		Total

	(In Thousands, Except Share and Per Share Data)
BALANCE - DECEMBER 31, 2013	$	7,324	$	23,671	$	22,520	$	540	$	54,055
Net income		-		-		4,729		-		4,729
Other comprehensive income, net of tax		-		-		-		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

BALANCE - DECEMBER 31, 2014	$	7,358	$	24,024	$	28,485	$	1,465	$	61,332
Net income		-		-		5,491		-		5,491
Other comprehensive loss, net of tax		-		-		-		(135)		(135)
Dividend declared, $.10 per share		-		-		(736)		-		(736)
Compensation expense recognized on stock options		-		34		-		-		34
Common stock grants to directors, 9,122 shares		9		87		-		-		96
Shares issued under Dividend Reinvestment
and Stock Purchase Plan, 16,920 shares		17		163		-		-		180
BALANCE - SEPTEMBER 30, 2015	$	7,384	$	24,308	$	33,240	$	1,330	$	66,262

See notes to consolidated financial statements.

Embassy Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30,
	2015		2014

	(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	5,491	$	4,729
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		412		250
Amortization of deferred loan costs		29		7
Depreciation and amortization		450		495
Net amortization of investment security premiums and discounts		163		122
Stock compensation expense		34		73
Net realized (gain) loss on sale of other real estate owned		(14)		4
Impairment on other real estate owned		104		9
Income on bank owned life insurance		(250)		(191)
Net realized gain on sale of securities available for sale		(165)		(31)
Increase in accrued interest receivable		(54)		(16)
Increase in other assets		(182)		(639)
Increase in accrued interest payable		81		145
Increase in other liabilities		204		1,147
Net Cash Provided by Operating Activities		6,303		6,104
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale		(18,956)		(13,799)
Maturities, calls and principal repayments of securities available for sale		5,552		4,964
Proceeds from sales of securities available for sale		10,742		528
Net increase in loans		(74,999)		(26,432)
Net (purchases) redemption of restricted investment in bank stock		(2,155)		147
Net maturities of interest bearing time deposits		250		1,572
Purchase of bank owned life insurance		-		(4,000)
Proceeds from sale of other real estate owned		53		46
Purchases of premises and equipment		(397)		(130)
Net Cash Used in Investing Activities		(79,910)		(37,104)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits		22,359		36,150
Net increase (decrease) in securities sold under agreements to repurchase		2,457		(741)
Increase in short-term borrowed funds		47,420		5,625
Proceeds from long-term borrowed funds		6,000		-
Payments of long-term borrowed funds		(2,862)		(1,250)
Proceeds from Dividend Reinvestment Plan		180		129
Dividends paid		(736)		(440)
Net Cash Provided by Financing Activities		74,818		39,473
Net Increase in Cash and Cash Equivalents		1,211		8,473
CASH AND CASH EQUIVALENTS - BEGINNING		16,390		17,831
CASH AND CASH EQUIVALENTS - ENDING	$	17,601	$	26,304

SUPPLEMENTARY CASH FLOWS INFORMATION
Interest paid	$	2,221	$	2,092
Income taxes paid	$	2,311	$	2,080
Other real estate sold through bank financing	$	58	$	57
Deferral of gain from sale of other real estate sold through bank financing	$	56	$	80
Other real estate acquired in settlement of loans	$	518	$	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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31 , 2015.

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, 2014 , included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2015 .

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2015 through the date these consolidated financial statements were issued.

Certain amounts in the 2014 financial statements may have been reclassified to conform to 2015 presentation. These reclassifications had no effect on 2014 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, 2014 .

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 2015 and 2014, February 2013 and 2012, the Company granted 9,122 , 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 2014, 2013, 2012 and 2011, respectively, in accordance with the Company’s Non-employee Directors Compensation program adopted in October of 2010. Such compensation was accrued for as of December 31, 2014, 2013, 2012 and 2011. In January 2014, February 2013 and 2012, the Company also granted stock options to purchase 29,663 , 29,742 and 52,611 shares of stock to certain executive officers in accordance with their respective employment agreements. No stock options were granted in the nine months ended September 30, 2015. S tock compensation expense related to the options granted was $10 thousand and $3 4 thousand for the three and nine months ended September 30, 2015 and $25 thousand and $73 thousand for the three and nine months ended September 30, 2014, respectively. At September 30, 2015 , approximately $ 38 thousand of unrecognized cost related to stock options granted in 2014 and 2013 will be recognized over the next 1.30 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. The 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, 2015 , there were 351,897 shares available for issuance under the SIP.

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,
	2015						2014
	(In Thousands)

	Before		Tax		Net of		Before		Tax		Net of
	Tax		Effect		Tax		Tax		Effect		Tax
Change in accumulated other comprehensive income:
Unrealized holding gains on securities available for sale	$	487	$	(165)	$	322	$	174	$	(59)	$	115
Reclassification adjustments for gains on securities transactions included in net income (A),(B)		(26)		9		(17)		-		-		-
Total other comprehensive income	$	461	$	(156)	$	305	$	174	$	(59)	$	115



	Nine Months Ended September 30,
	2015						2014

	(In Thousands)
	Before		Tax		Net of		Before		Tax		Net of
	Tax		Effect		Tax		Tax		Effect		Tax
Change in accumulated other comprehensive (loss) income:
Unrealized holding (losses) gains on securities available for sale	$	(40)	$	14	$	(26)	$	1,326	$	(450)	$	876
Reclassification adjustments for gains on securities transactions included in net income (A),(B)		(165)		56		(109)		(31)		10		(21)
Total other comprehensive (loss) income	$	(205)	$	70	$	(135)	$	1,295	$	(440)	$	855

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)

A summary of the realized gains on securities available for sale, net of tax, for the three and nine months ended September 30, 2015 and 2014 are as follows:


	Three Months Ended
	September 30,
		2015		2014

		(In Thousands)
Securities available for sale:
Realized gains on securities transactions	$	(26)	$	-
Income taxes		9		-
Net of tax	$	(17)	$	-



	Nine Months Ended
	September 30,
		2015		2014

		(In Thousands)
Securities available for sale:
Realized gains on securities transactions	$	(165)	$	(31)
Income taxes		56		10
Net of tax	$	(109)	$	(21)

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


	Securities
	Available
	for Sale
Three Months Ended September 30, 2015 and 2014	(In Thousands)
Balance June 30, 2015	$	1,025
Other comprehensive income before reclassifications		322
Amounts reclassified from accumulated other comprehensive income		(17)
Net other comprehensive income during the period		305
Balance September 30, 2015	$	1,330

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



Nine Months Ended September 30, 2015 and 2014
Balance January 1, 2015	$	1,465
Other comprehensive loss before reclassifications		(26)
Amounts reclassified from accumulated other comprehensive income		(109)
Net other comprehensive loss during the period		(135)
Balance September 30, 2015	$	1,330

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

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,
	2015		2014		2015		2014

	(Dollars In Thousands, Except Per Share Data)
Net income	$	1,872	$	1,709	$	5,491	$	4,729

Weighted average shares outstanding		7,367		7,334		7,366		7,333
Dilutive effect of potential common shares, stock options		32		11		31		9
Diluted weighted average common shares outstanding		7,399		7,345		7,397		7,342

Basic earnings per share	$	0.25	$	0.23	$	0.75	$	0.64
Diluted earnings per share	$	0.25	$	0.23	$	0.74	$	0.64

There were no stock options not considered in computing diluted earnings per common share for the three and nine months ended September 30 , 2015, as compared to stock options of 87,912 and 94,752, respectively, not considered in computing diluted earnings per common share for the three and nine months ended September 30, 2014 , 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 commitments. The Company had $3.6 million of standby letters of credit outstanding as of September 30, 2015 . The approximate value of underlying collateral upon liquidation that would be expected to cover this maximum potential exposure was $ 3.5 million. Management does not consider the current amount of the liability as of September 30, 2015 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 qualifying assets. At September 30, 2015 , the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $ 386.6 million. This borrowing capacity with the FHLB includes a line of credit of $ 150.0 million. Short-term loans outstanding with FHLB totaled $56.4 million as of September 30, 2015 and $9.0 million were outstanding as of December 31, 2014 . The increase in short-term loans outstanding with the FHLB was primarily used to fund loan growth and investment security purchases. Long-term advances outstanding with FHLB totaled $4.6 million as of September 30, 2015 and no long-term advances were outstanding as of December 31, 2014 . 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 $ 10.0 million , of which none was outstanding at September 30, 2015 and December 31, 2014 . Advances from this line are unsecured.

The Company has two lines of credit with Univest Bank and Trust Co. (“Univest”) totaling $ 10.0 million. As of September 30, 2015 and December 31, 2014 , the outstanding balance was $400 thousand and $ 1.9 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)

The components of long-term borrowings with the FHLB at September 30, 2015 are as follows:



	September 30, 2015
	(Dollars in Thousands)
Maturity Date	Interest Rate		Outstanding
April 2016	0.26%	$	1,167
April 2017	0.48%		792
April 2018	0.69%		862
April 2019	0.88%		898
April 2020	1.06%		919
Total Outstanding Borrowings		$	4,638

The components of long-term borrowings with Univest at September 30, 2015 and December 31, 2014 are as follows:



	September 30, 2015			December 31, 2014

	(Dollars in Thousands)
Maturity Date	Interest Rate		Outstanding	Interest Rate		Outstanding
November 2015	7.50%	$	400	7.50%	$	1,900

Note 9 – Securities Available For Sale

At September 30, 2015 and December 31, 2014 , 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, 2015 :
U.S. Government agency obligations	$	35,718	$	119	$	(4)	$	35,833
Municipal bonds		40,474		1,832		(96)		42,210
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		1,449		163		-		1,612
Total	$	77,641	$	2,114	$	(100)	$	79,655

December 31, 2014 :
U.S. Government agency obligations	$	30,192	$	46	$	(162)	$	30,076
Municipal bonds		36,618		2,023		(17)		38,624
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		7,168		333		-		7,501
Corporate bonds		1,000		-		(4)		996
Total	$	74,978	$	2,402	$	(183)	$	77,197

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The amortized cost and fair value of securities as of September 30, 2015 , 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	$	5,605	$	5,622
Due after one year through five years		35,671		35,883
Due after five years through ten years		18,582		19,337
Due after ten years		16,334		17,201
		76,192		78,043
U.S. Government Sponsored Enterprise (GSE) - Mortgage-backed securities - residential		1,449		1,612
	$	77,641	$	79,655

Gross gains of $26 thousand and $165 thousand were realized on sales of securities for the three and nine months ended September 30, 2015. There were no gains realized for the three months ended September 30, 2014. Gross gains of $31 thousand were realized on the 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, 2015 and 2014.

Securities with a carrying value of $64.2 million and $ 62.7 million at September 30, 2015 and December 31, 2014 , respectively, were subject to agreements to repurchase, pledged to secure public deposits, or pledged for other purpose s required or permitted by law.

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2015 and December 31, 2014 , respectively:



		Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2015 :	(In Thousands)
U.S. Government agency obligations	$	4,073	$	(4)	$	-	$	-	$	4,073	$	(4)
Municipal bonds		6,231		(96)		-		-		6,231		(96)
Total Temporarily Impaired Securities	$	10,304	$	(100)	$	-	$	-	$	10,304	$	(100)

December 31, 2014 :
U.S. Government agency obligations	$	11,074	$	(44)	$	9,959	$	(118)	$	21,033	$	(162)
Municipal bonds		2,987		(17)		-		-		2,987		(17)
Corporate Bonds		996		(4)		-		-		996		(4)
Total Temporarily Impaired Securities	$	15,057	$	(65)	$	9,959	$	(118)	$	25,016	$	(183)

The Company had thirteen (13) securities in an unrealized loss position at September 30, 2015 . The unrealized losses are due only to market rate fluctuations. As of September 30, 2015 , 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 .

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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 $428 thousand and $542 thousand repurchased during the three and nine months ended September 30, 2015, respectively, and $120 thousand and $1.2 million was repurchased during the three and nine months ended September 30, 2014 , respectively. Stock purchases of $855 thousand and $2.7 million were made during the three and nine months ended September 30, 2015, respectively, and $745 thousand and $1.1 million during the three and nine months ending September 30, 2014 , respectively. Dividend payments of $22 thousand and $80 thousand were received during the three and nine months ended September 30, 2015, respectively, and $14 thousand and $41 thousand were received during the three and nine months ended September 30, 2014 , 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, 2015 .

Note 11 – Loans Receivable and Credit Quality

The following table presents the composition of loans receivable at September 30, 2015 and December 31, 2014 , respectively:



	September 30, 2015			December 31, 2014
			Percentage of			Percentage of
	Balance		total Loans	Balance		total Loans

		(Dollars in Thousands)

Commercial real estate	$	291,100	42.49%	$	249,454	40.84%
Commercial construction		16,088	2.35%		23,220	3.80%
Commercial		35,195	5.14%		34,182	5.60%
Residential real estate		341,936	49.91%		302,908	49.60%
Consumer		749	0.11%		972	0.16%
Total loans		685,068	100.00%		610,736	100.00%
Unearned origination fees		(39)			(155)
Allowance for loan losses		(5,964)			(5,614)
	$	679,065		$	604,967

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weaknesses), substandard (well defined weaknesses) and doubtful (full collection unlikely) within the Company's internal risk rating system as of September 30, 2015 and December 31, 2014 , respectively:



	Pass		Special Mention		Substandard		Doubtful		Total

September 30, 2015		(In Thousands)
Commercial real estate	$	289,545	$	-	$	1,555	$	-	$	291,100
Commercial construction		15,273		-		815		-		16,088
Commercial		35,129		66		-		-		35,195
Residential real estate		341,072		-		864		-		341,936
Consumer		749		-		-		-		749
Total	$	681,768	$	66	$	3,234	$	-	$	685,068

December 31, 2014
Commercial real estate	$	244,805	$	1,989	$	2,660	$	-	$	249,454
Commercial construction		21,844		-		1,376		-		23,220
Commercial		33,672		510		-		-		34,182
Residential real estate		302,533		154		221		-		302,908
Consumer		972		-		-		-		972
Total	$	603,826	$	2,653	$	4,257	$	-	$	610,736

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

The following table summarizes information in regards to impaired loans by loan portfolio class as of September 30, 2015 and December 31, 2014 , 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, 2015		(In Thousands)
With no related allowance recorded:
Commercial real estate	$	2,919	$	3,179			$	3,438	$	(28)	$	3,924	$	38
Commercial construction		815		815				1,096		(5)		1,236		20
Commercial		-		-				-		-		1		-
Residential real estate		913		920				1,136		1		943		6
Consumer		-		-				-		-		-		-
With an allowance recorded:
Commercial real estate	$	746	$	770	$	72	$	397	$	18	$	475	$	18
Commercial construction		-		-		-		-		-		-		-
Commercial		322		322		116		323		3		324		8
Residential real estate		978		981		266		912		1		884		4
Consumer		-		-		-		-		-		-		-
Total:
Commercial real estate	$	3,665	$	3,949	$	72	$	3,835	$	(10)	$	4,399	$	56
Commercial construction		815		815		-		1,096		(5)		1,236		20
Commercial		322		322		116		323		3		325		8
Residential real estate		1,891		1,901		266		2,048		2		1,827		10
Consumer		-		-		-		-		-		-		-
	$	6,693	$	6,987	$	454	$	7,302	$	(10)	$	7,787	$	94
December 31, 2014
With no related allowance recorded:
Commercial real estate	$	4,649	$	4,984							$	5,729	$	172
Commercial construction		1,376		1,376								2,197		78
Commercial		4		4								48		1
Residential real estate		413		431								488		8
Consumer		-		-								-		-
With an allowance recorded:
Commercial real estate	$	555	$	555	$	76					$	575	$	108
Commercial construction		-		-		-						-		-
Commercial		326		326		119						229		9
Residential real estate		858		858		202						925		15
Consumer		-		-		-						-		-
Total:
Commercial real estate	$	5,204	$	5,539	$	76					$	6,304	$	280
Commercial construction		1,376		1,376		-						2,197		78
Commercial		330		330		119						277		10
Residential real estate		1,271		1,289		202						1,413		23
Consumer		-		-		-						-		-
	$	8,181	$	8,534	$	397					$	10,191	$	391

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited)

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



	September 30, 2015		December 31, 2014

	(In Thousands)
Commercial real estate	$	164	$	1,251
Commercial construction		-		-
Commercial		66		66
Residential real estate		864		366
Consumer		-		-
Total	$	1,094	$	1,683

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2015 and December 31, 2014 , respectively:


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

September 30, 2015	(In Thousands)
Commercial real estate	$	95	$	94	$	164	$	353	$	290,747	$	291,100	$	-
Commercial construction		500		-		-		500		15,588		16,088		-
Commercial		625		-		66		691		34,504		35,195		-
Residential real estate		149		3		864		1,016		340,920		341,936		-
Consumer		-		-		-		-		749		749		-
Total	$	1,369	$	97	$	1,094	$	2,560	$	682,508	$	685,068	$	-

December 31, 2014
Commercial real estate	$	1,018	$	182	$	937	$	2,137	$	247,317	$	249,454	$	-
Commercial construction		1,061		-		-		1,061		22,159		23,220		-
Commercial		-		-		66		66		34,116		34,182		-
Residential real estate		540		154		366		1,060		301,848		302,908		-
Consumer		25		-		-		25		947		972		-
Total	$	2,644	$	336	$	1,369	$	4,349	$	606,387	$	610,736	$	-

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, 2015 and 2014 :



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

Allowance for loan losses	(In Thousands)
Three Months Ending September 30, 2015
Beginning Balance - June 30, 2015	$	2,005	$	333	$	391	$	2,417	$	32	$	522	$	5,700
Charge-offs		(14)		-		-		(2)		-		-		(16)
Recoveries		10		-		-		-		-		-		10
Provisions		212		(67)		13		91		(6)		27		270
Ending Balance - September 30, 2015	$	2,213	$	266	$	404	$	2,506	$	26	$	549	$	5,964

Nine Months Ending September 30, 2015
Beginning Balance - December 31, 2014	$	1,704	$	401	$	407	$	1,955	$	22	$	1,125	$	5,614
Charge-offs		(60)		-		-		(12)		-		-		(72)
Recoveries		10		-		-		-		-		-		10
Provisions		559		(135)		(3)		563		4		(576)		412
Ending Balance - September 30, 2015	$	2,213	$	266	$	404	$	2,506	$	26	$	549	$	5,964

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

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, 2015 and December 31, 2014 .



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

	(In Thousands)
September 30, 2015
Allowance for Loan Losses
Ending Balance	$	2,213	$	266	$	404	$	2,506	$	26	$	549	$	5,964
Ending balance: individually evaluated for impairment	$	72	$	-	$	116	$	266	$	-	$	-	$	454
Ending balance: collectively evaluated for impairment	$	2,141	$	266	$	288	$	2,240	$	26	$	549	$	5,510

Loans receivables:
Ending balance	$	291,100	$	16,088	$	35,195	$	341,936	$	749			$	685,068
Ending balance: individually evaluated for impairment	$	3,665	$	815	$	322	$	1,891	$	-			$	6,693
Ending balance: collectively evaluated for impairment	$	287,435	$	15,273	$	34,873	$	340,045	$	749			$	678,375

December 31, 2014
Allowance for Loan Losses
Ending Balance	$	1,704	$	401	$	407	$	1,955	$	22	$	1,125	$	5,614
Ending balance: individually evaluated for impairment	$	76	$	-	$	119	$	202	$	-	$	-	$	397
Ending balance: collectively evaluated for impairment	$	1,628	$	401	$	288	$	1,753	$	22	$	1,125	$	5,217

Loans receivables:
Ending balance	$	249,454	$	23,220	$	34,182	$	302,908	$	972			$	610,736
Ending balance: individually evaluated for impairment	$	5,204	$	1,376	$	330	$	1,271	$	-			$	8,181
Ending balance: collectively evaluated for impairment	$	244,250	$	21,844	$	33,852	$	301,637	$	972			$	602,555

Beginning with the allowance for loan losses calculation of March 31, 2015, management added a new qualitative factor into the calculation which resulted in a reduction of the unallocated portion of the allowance. This new factor was based on management's best judgment using relevant information available at the time of the evaluation and is supported through documentation in a narrative accompanying the allowance for loan loss calculation.

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 presents TDRs outstanding:



	September 30, 2015
	Accrual Loans		Non-Accrual Loans		Total Modifications

	(In Thousands)
Commercial real estate	$	3,160	$	-	$	3,160
Commercial construction		260		-		260
Commercial		256		-		256
Residential real estate		1,027		-		1,027
Consumer		-		-		-
	$	4,703	$	-	$	4,703

	December 31, 2014
	Accrual Loans		Non-Accrual Loans		Total Modifications

	(In Thousands)
Commercial real estate	$	3,401	$	314	$	3,715
Commercial construction		260		-		260
Commercial		264		-		264
Residential real estate		1,050		-		1,050
Consumer		-		-		-
	$	4,975	$	314	$	5,289

As of September 30, 2015 , no available commitments were outstanding on TDRs.

There were no newly restructured loans that occurred during the three and nine months ended September 30, 2015. There were no newly restructured loans that occurred during the three months ended September 30, 2014. The following table presents newly restructured loans that occurred during the nine months ended September 30, 2014 .



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

	(Dollars In Thousands)
Nine Months Ending September 30, 2014
Commercial	1	$	262	$	262
	1	$	262	$	262

The commercial loan above was restructured through a rate reduction and payment modification. The impairment reserve on this TDR described was $54 thousand recorded in the allowance for loan loss for the three and nine months ending September 30, 2014.

There were no loans that were modified and classified as a TDR within the prior twelve months that experienced a payment default (loans ninety days or more past due) during the three and nine months ended September 30, 2015 and 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, 2015 and December 31, 2014, respectively, are as follows:



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

		(In Thousands)
U.S. Government agency obligations	$	-	$	35,833	$	-	$	35,833
Municipal bonds		-		42,210		-		42,210
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - residential		-		1,612		-		1,612
September 30, 2015 Securities available for sale	$	-	$	79,655	$	-	$	79,655

U.S. Government agency obligations	$	-	$	30,076	$	-	$	30,076
Municipal bonds		-		38,624		-		38,624
U.S. Government Sponsored Enterprise (GSE) -
Mortgage-backed securities - residential		-		7,501		-		7,501
Corporate bonds		-		996		-		996
December 31, 2014 Securities available for sale	$	-	$	77,197	$	-	$	77,197

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, 2015 and December 31, 2014, respectively, are as follows:



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

		(In Thousands)
September 30, 2015 Impaired loans (1)	$	-	$	-	$	1,591	$	1,591
September 30, 2015 Impaired loans (2)	$	-	$	-	$	-	$	-
September 30, 2015 Other real estate owned (1)	$	-	$	-	$	1,405	$	1,405
December 31, 2014 Impaired loans (1)	$	-	$	-	$	863	$	863
December 31, 2014 Impaired loans (2)	$	-	$	-	$	479	$	479
December 31, 2014 Other real estate owned (1)	$	-	$	-	$	1,106	$	1,106

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 September 30, 2015 , of the impaired loans having an aggregate balance of $ 6.7 million, $4.5 million did not require a valuation allowance because the value of the collateral, including estimated selling costs, securing the loan was determined to meet or exceed the balance owed on the loan. Of the remaining $ 2.2 million in impaired loans, an aggregate valuation allowance of $ 454 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, 2015:
Impaired loans	$	1,591	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -25% (-22.8%)
				Liquidation expenses (3)	0 to -8.5% (-7.7%)
Other real estate owned	$	1,405	Listings, Letters of Intent	Liquidation expenses (3)	-5% (-5%)
			& Third Party Evaluations (4)
December 31, 2014:
Impaired loans	$	863	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -25% (-17.6%)
				Liquidation expenses (3)	0 to -8.5% (-8.2%)
Impaired loans	$	479	Discounted Cash Flows (5)
Other real estate owned	$	1,106	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, 2015 and December 31, 2014:

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, 2015 and December 31, 20 14 :



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

	(In Thousands)
September 30, 2015:
Financial assets:
Cash and cash equivalents	$	17,601	$	17,602	$	17,602	$	-	$	-
Interest bearing time deposits		-		-		-		-		-
Securities available-for-sale		79,655		79,655		-		79,655		-
Loans receivable, net of allowance		679,065		684,596		-		-		684,596
Restricted investments in bank stock		2,939		2,939		-		2,939		-
Accrued interest receivable		1,653		1,653		-		1,653		-
Financial liabilities:
Deposits		634,027		634,349		-		634,349		-
Securities sold under agreements to
repurchase and federal funds purchased		32,761		32,758		-		32,758		-
Short-term borrowings		56,420		56,402		-		56,402		-
Long-term borrowings		5,038		4,978		-		-		4,978
Accrued interest payable		430		430		-		430		-
Off-balance sheet financial instruments:
Commitments to grant loans		-		-		-		-		-
Unfunded commitments under lines of credit		-		-		-		-		-
Standby letters of credit		-		-		-		-		-

December 31, 2014:
Financial assets:
Cash and cash equivalents	$	16,390	$	16,390	$	16,390	$	-	$	-
Interest bearing time deposits		250		251		-		251		-
Securities available-for-sale		77,197		77,197		-		77,197		-
Loans receivable, net of allowance		604,697		611,256		-		-		611,256
Restricted investments in bank stock		784		784		-		784		-
Accrued interest receivable		1,599		1,599		-		1,599		-
Financial liabilities:
Deposits		611,668		611,975		-		611,975		-
Securities sold under agreements to
repurchase and federal funds purchased		30,304		30,302		-		30,302		-
Short-term borrowings		9,000		9,000		-		9,000		-
Long-term borrowings		1,900		1,877		-		-		1,877
Accrued interest payable		349		349		-		349		-
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, 2015 and December 31, 2014 :



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

		(In Thousands)
September 30, 2015
Repurchase Agreements:
Corporate Institutions	$	32,761	$	-	$	32,761	$	(32,761)	$	-	$	-

December 31, 2014
Repurchase Agreements:
Corporate Institutions	$	30,304	$	-	$	30,304	$	(30,304)	$	-	$	-

As of September 30, 2015 and December 31, 2014 , the fair value of securities pledged was $3 4 .4 million and $34.5 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. At September 30, 2015 and December 31, 2014 the Company had no foreclosed residential real estate held. At September 30, 2015 the Company had no recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. At December 31, 2014 the Company had $375 thousand, respectively , in recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure.

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, 2017, 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, 2015 and for the three and nine months ended September 30, 2015 a nd 2014 , 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, 2014 , 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, 2014 . Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management, most particularly in connection with determining the provision for loan losses and the appropriate level of the allowance for loan losses and the valuation of deferred tax assets. Additional information is contained in this Form 10-Q under the paragraphs titled “Provision for Loan Losses,” “Credit Risk and Loan Quality,” and “Income Taxes” contained on the following pages.

Forward-looking Statements

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

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

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

OVERVIEW

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

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

The Company’s assets increased $ 80.5 million from $ 719.1 million at December 31, 2014 to $ 799.6 million at September 30, 2015 due primarily to an increase in loans receivable .

Net income for the three months ended September 30, 2015 was $1.9 million compared to a net income f or the three months ended September 30, 2014 of $1.7 million. Net income for the nine months ended September 30, 2015 was $5.5 million compared to a net income for the nine months ended September 30, 2014 of $4.7 million. Loans receivable, net of the allowance for loan losses, increased $ 74.1 million to $ 679.1 million at September 30, 2015 from $ 605.0 million at December 31, 2014 . With the market being

very competitive , the Company remains committed to maintaining a high quality portfolio that returns a reasonable market rate. The Company expects to increase lending activity, as the Company expands its presence in its market and continues to become 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. The Company continues to monitor interest rate exposure of its interest bearing assets and liabilities and believes that it is well positioned for any future market rate adjustments.

RESULTS OF OPERATIONS

Net Interest Income

Total interest income for the three months ended September 30, 2015 and 2014 totaled $ 7.3 million and $6.6 million, respectively. Average earning assets were $ 763.1 million for the three months ended September 30, 2015 compared to $ 685.4 million for the three months ended September 30, 2014 . The tax equivalent yield on average earning assets was 3.87% for the third quarter of 2015 compared to 3.93% for the third quarter of 2014 .

Total interest expense for the three months ended September 30, 2015 increased $ 46 thousand to $ 814 thousand as compared to $ 768 thousand for the three months ended September 30, 2014 , primarily due to an increase in average certificates of deposit balances, an increase in short-term borrowings and an increase in deposit rates. Average interest bearing liabilities were $ 640.3 million for the three months ended September 30, 2015 compared to $ 580.5 million for the three months ended September 30, 2014 . The yield on average interest bearing liabili ties was 0.50% and 0.52% for the third quarter s of 2015 and 2014 , respectively .

Net interest income for the three months ended September 30, 2015 was $ 6.4 million compared to $ 5.8 million for the three months ended September 30, 2014 . The improvement in net interest income for the three months ended September 30, 2015 is a result of the growth in the loan portfolio , offset by growth in certificates of deposits and short-term borrowings. The Company’s net interest margin for the three months ended September 30, 2015 decreased six (6) basis points to 3.45% as compared to 3.51% for the three months ended September 30, 2014 , due to the current interest rate environment, including decreased interest rates on the loan portfolio due to the competitive interest rate pressure of lending and increased interest rates on certificate of deposits , offset by the decreased cost of borrowed funds.

Total interest income for the nine months ended September 30, 2015 and 2014 totaled $21.0 million and $19.4 million, respectively. Average earning assets we re $734.1 million for the nine months ended September 30, 2015 compared to $675.8 million for the nine months ended September 30, 2014 . The tax equivalent yield on average earning assets for the nine months ended September 30, 2015 decreased two (2) basis points to 3.93% as compared to 3.95% for the nine months ended September 30, 2014.

Total interest expense for the nine months ended September 30, 2015 increased $6 4 thousand to $2.3 million as compared to $2.2 million for the nine months ended September 30, 2014 . Average interest bearing liabilities were $617.8 million for the nine months ended September 30, 2015 compared to $575.1 million for the nine months ended September 30, 2014 . The yield on average interest bearing liabilities for the nine months ended September 30, 2015 decreased two (2) basis points to 0.50% from 0.52% as of September 30, 2014 . The decrease is primarily the result of the decrease in the cost of borrowed funds.

Net interest income for the nine months ended September 30, 2015 was $18.7 million compared to $17.1 million for the nine months ended September 30, 2014 . The improvement in net interest income for the nine months ended September 30, 2015 is a result of the growth in the loan portfolio , offset by growth in savings , short-term borrowings, and certificate of deposits. The Company’s net interest margin for the nine months ended September 30, 2015 increased one (1) basis point to 3.51% as compared to 3.50% for the nine months ended September 30, 2014 , due to the current interest rate environment, including decreased cost of borrowed funds , offset by decreased interest rates on the loan and investment securities portfolios 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, 2015 and 2014 , respectively:

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (quarter to date)


	Three Months Ended September 30,
	2015			2014
			Tax			Tax
	Average		Equivalent	Average		Equivalent
	Balance	Interest	Yield	Balance	Interest	Yield

	(Dollars In Thousands)
ASSETS
Loans - taxable	$ 663,271	$ 6,655	3.98%	$ 582,286	$ 5,999	4.09%
Loans - non-taxable	10,050	81	4.84%	8,928	59	3.97%
Investment securities - taxable	49,719	198	1.60%	45,581	184	1.62%
Investment securities - non-taxable	32,196	295	5.51%	36,441	332	5.48%
Federal funds sold	715	1	0.21%	969	1	0.22%
Time deposits	242	-	0.58%	602	1	1.04%
Interest bearing deposits with banks	6,941	25	1.43%	10,560	18	0.68%
TOTAL INTEREST EARNING ASSETS	763,134	7,255	3.87%	685,367	6,594	3.93%
Less allowance for loan losses	(5,821)			(5,430)
Other assets	36,954			31,504
TOTAL ASSETS	$ 794,267			$ 711,441

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits, NOW and money market	$ 59,255	$ 10	0.07%	$ 59,292	$ 7	0.05%
Savings	402,198	492	0.49%	405,321	501	0.49%
Certificates of deposit	86,898	230	1.05%	76,030	186	0.97%
Securities sold under agreements to repurchase, and short & long-term borrowings	91,921	82	0.35%	39,820	74	0.74%
TOTAL INTEREST BEARING LIABILITIES	640,272	814	0.50%	580,463	768	0.52%

Non-interest bearing demand deposits	77,714			62,804
Other liabilities	6,409			5,552
Stockholders' equity	69,872			62,622
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 794,267			$ 711,441

Net interest income		$ 6,441			$ 5,826
Net interest spread			3.37%			3.41%
Net interest margin			3.45%			3.51%

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential ( year to date)


	Nine Months Ended September 30,

	2015			2014

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

	(Dollars In Thousands)
ASSETS
Loans - taxable	$ 633,135	$ 19,125	4.04%	$ 574,564	$ 17,615	4.10%
Loans - non-taxable	9,845	238	4.90%	7,970	166	4.22%
Investment securities - taxable	50,408	612	1.61%	46,166	575	1.66%
Investment securities - non-taxable	33,379	903	5.47%	34,528	949	5.56%
Federal funds sold	674	1	0.21%	940	2	0.22%
Time deposits	247	1	0.56%	1,286	10	1.06%
Interest bearing deposits with banks	6,366	88	1.85%	10,386	54	0.70%
TOTAL INTEREST EARNING ASSETS	734,054	20,968	3.93%	675,840	19,371	3.95%
Less allowance for loan losses	(5,691)			(5,382)
Other assets	34,383			29,095
TOTAL ASSETS	$ 762,746			$ 699,553

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits,
NOW and money market	$ 58,204	$ 25	0.06%	$ 60,100	$ 24	0.05%
Savings	407,419	1,480	0.49%	403,988	1,456	0.48%
Certificates of deposit	79,538	594	1.00%	73,835	530	0.96%
Securities sold under agreements to repurchase, and short & long-term borrowings	72,677	202	0.37%	37,199	227	0.82%
TOTAL INTEREST BEARING LIABILITIES	617,838	2,301	0.50%	575,122	2,237	0.52%

Non-interest bearing demand deposits	72,406			60,855
Other liabilities	5,703			4,533
Stockholders' equity	66,799			59,043
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 762,746			$ 699,553

Net interest income		$ 18,667			$ 17,134
Net interest spread			3.43%			3.43%
Net interest margin			3.51%			3.50%

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, 2015 , the provision for loan losses was $270 thousand, as compared to $40 thousand for the same period ended September 30, 2014 . In the three months ended September 30, 2015 , there were charge-offs in the amount of $16 thousand , as compared to $58 thousand in the three months ended September 30, 2014 . For the nine months ended September 30, 2015 , the provision for loan losses was $412 thousand, as compared to $250 thousand for the same period ended September 30, 2014 . In the nine months ended September 30, 2015 , there were charge-offs in the amount of $72 thousand and $10 thousand in recoveries, compared to $161 thousand in charge-offs and $199 thousand in recoveries during the same period in 2014 . The allowance for loan losses is $ 6.0 million as of September 30, 2015 , which is 0.87% of outstanding loans, compared to $ 5.6 million or 0.94% of outstanding loans as of September 30, 2014 . At December 31, 2014 , the allowance for loan losses of $5.6 million represented 0.92% of total outstanding loans. Based principally on economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Bank’s market area, the allowance is believed to be adequate to absorb any losses inherent in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate. The Bank has not participated in any sub-prime lending activity.

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,
	2015		2014		2015		2014

	(In Thousands)
Loans receivable at end of period	$	685,068	$	594,927	$	685,068	$	594,927
Allowance for loan losses:
Balance, beginning	$	5,700	$	5,434	$	5,614	$	5,326
Provision for loan losses		270		40		412		250
Loans charged off:
Commercial real estate		(14)		(8)		(60)		(10)
Commercial construction		-		(50)		-		(50)
Commercial		-		-		-		(38)
Residential real estate		(2)		-		(12)		(63)
Consumer		-		-		-		-
Total loans charged off		(16)		(58)		(72)		(161)
Recoveries of loans previously charged off:
Commercial real estate		10		-		10		-
Commercial construction		-		198		-		198
Commercial		-		-		-		1
Residential real estate		-		-		-		-
Consumer		-		-		-		-
Total recoveries		10		198		10		199
Net charge offs		(6)		140		(62)		38
Balance at end of period	$	5,964	$	5,614	$	5,964	$	5,614
Allowance for loan losses to loans receivable at end of period		0.87%		0.94%		0.87%		0.94%

Non-interest Income

Total non-interest income was $653 thousand for the three months ended September 30, 2015 compared to $611 thousand for the same period in 2014. The increase is due primarily to growth in the Bank’s credit card and merchant processing customer base, an increase in income associated with bank owned life insurance and a $26 thousand gain on the sale of securities, offset by a $62 thousand increase in impairment losses on other real estate ow ned. Total non-interest income was $2.1 million for the nine months ended September 30, 2015 compared to $1.8 million for the same period in 2014. The increase is due primarily to the $165 thousand gain on sale of securities realized in 2015 compared to $31 thousand for the same period in 2014, growth in the Bank’s credit card and merchant processing customer base and an increase in income associated with bank owned life insurance, offset by a $95 thousand increase in impairment losses on other real estate owned.

Non-interest Expense

Non-interest expenses increased $170 thousand from $4.0 million for the three months ended September 30, 2014 to $4.2 million for the same period ended September 30, 2015 . The increase is due to: an increase of $53 thousand in data processing expense due primarily to a network virtualization project and installation of fiber connectivity ; an increase of $84 thousand due to credit card processing volume; an increase of $71 thousand in advertising and promotion expense due primarily to the launch of a new advertising program ; an increase of $12 thousand in loan and real estate fees; and an increase of $74 in other expenses due primarily to stationery and printing expense and costs associated with supplemental executive retirement plans, offset by a decrease in salaries and employee benefits of $69 thousand due primarily to a decrease in non-qualified pension expense; a decrease of $16 thousand in occupancy and equipment expense; and a decrease of $55 thousand in other real estate owned expenses.

Non-interest expenses increased $546 thousand from $12.1 million for the nine months ended September 30, 2014 to $12.6 million for the same period ended September 30, 2015 . The increase is due to: an increase of $231 thousand in data processing expense due primarily to the implementation of mobile banking, a network virtualization project and installation of fiber connectivity ; an increase of $212 thousand due to credit card processing volume; an increase of $214 thousand in advertising and promotion expense due to the launch of new online banking initia tives, mortgage promotions and a new advertising program ; an increase of $32 thousand in loan and real estate fees; an increase of $40 thousand in charitable contributions; and an increase of $132 thousand in other expenses due primarily to operating expenses, customer entertainment expense and costs associated with supplemental executive retirement plans, offset by a decrease in salaries and employee benefits of $210 thousand, due primarily to a decrease in non-qualified pension expense;

a decrease of $37 thousand in occupancy and equipment expense; a decrease of $25 thousand in FDIC insurance expense; and a decrease of $32 thousand in other real estate owned 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, 2015 totaled $766 thousand, or 29.0% of income before taxes. The provision for income taxes for the three months ended September 30, 2014 totaled $ 672 thousand, or 28.2% of income before taxes. The allocated provision for income taxes for the nine months ended September 30, 2015 totaled $2.2 million, or 28.6% of income before taxes. The provision for income taxes for the nine months ended September 30, 2014 totaled $1.8 million, or 28.1% of income before taxes. The sligh t increase in the tax rate is primarily the result of the change in the mix of taxa ble and tax free loans .

FINANCIAL CONDITION

Securities

The Bank’s securities portfolio continues to be classified, in its entirety, as “available for sale.” Management believes that a portfolio classification of available for sale allows complete flexibility in the investment portfolio. Using this classification, the Bank intends to hold these securities for an indefinite amount of time, but not necessarily to maturity. Such securities are carried at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is structured to provide maximum return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of U.S. government agency securities, mortgage-backed securities issued by FHLMC or FNMA, and taxable and non-taxable municipal bonds. The Bank holds no high-risk securities or derivatives as of September 30, 2015 . 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, 2015 were $79.7 million compared to $77.2 million at December 31, 2014. The increase in the investment portfolio is the result of the purchase of eleven (11) U.S. Government agency obligations totaling $12.6 million, the purchase of eight (8) municipal obligations totaling $6. 4 million, offset by pay downs on mortgage-backed securities, maturities, calls, a decrease in unrealized gains, the sale of five (5) mortgage-backed securities totaling $5.3 million, the sale of one (1) municipal obligation totaling $443 thousand, and the sale of two (2) U.S. Government agency obligations totaling $5.0 million. The carrying value of the securities portfolio as of September 30, 2015 includes a net unrealized gain of $2.0 million, which is recorded as accumulated other comprehensive income in stockholders’ equity net of income tax effect. This compares to a net unrealized gain of $2.2 million at December 31, 2014. 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, 2015 increased $74.1 million to $679.1 million from $605.0 million at December 31, 2014. The loan-to-deposit ratio increased from 100% at December 31, 2014 to 108% at September 30, 2015. The Bank’s loan portfolio at September 30, 2015 was comprised of residential real estate and consumer loans of $342.7 million, an increase of $38.8 million from December 31, 2014, and commercial loans of $342.4 million, an increase of $35.5 million from December 31, 2014. The Bank has not originated, nor does it intend to originate, sub-prime mortgage loans.

Credit Risk and Loan Quality

The allowance for loan losses increased $350 thousand totaling $6.0 million at September 30, 2015 compared to $5.6 million at December 31, 2014. At September 30, 2015 and December 31, 2014, the allowance for loan losses represented 0.87% and 0.92%, respectively, of total loans. Based upon current economic conditions, the composition of the loan portfolio, the perceived credit risk in the portfolio and loan-loss experience of the Bank and comparable institutions in the Bank’s market area, management feels the allowance is adequate to absorb reasonably anticipated losses.

At September 30, 2015, December 31, 2014, and September 30, 2014 aggregate balances on non-performing loans equaled $5.8 million, $6.7 million and $6.8 million, respectively, representing 0.85%, 1.09% and 1.15% of total loans at September 30, 2015, December 31, 2014 and September 30, 2014, 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, 2015. The Company has eight (8) foreclosed assets in the amount of $1.4 million as of September 30, 2015, as compared to six (6) foreclosed

assets at December 31, 2014 in the amount of $1.1 million. The net change is a result of: the acquisition of five (5) assets in the amount of $518 thousand, the sale of three (3) assets in the amount of $ 152 thousand, and a $104 thousand impairment loss.

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



		September 30,			December 31,			September 30,
		2015			2014			2014

	(In Thousands)
Non-accrual - commercial	$	230		$	1,318		$	1,553
Non-accrual - consumer		864			366			221
Restructured loans, accruing interest and less than 90 days past due		4,703			4,975			5,061
Loans past due 90 or more days, accruing interest		-			-			-
Total nonperforming loans		5,797			6,659			6,835
Foreclosed assets		1,405			1,106			879
Total nonperforming assets	$	7,202		$	7,765		$	7,714
Nonperforming loans to total loans at period-end		0.85	%		1.09	%		1.15	%
Nonperforming assets to total assets		0.90	%		1.08	%		1.08	%

Premises and Equipment

Company premises and equipment, net of accumulated depreciation, decreased $ 53 thousand from December 31, 2014 to September 30, 2015 . This decrease is due primarily to depreciation on existing premises and equipment , offset by increases related to purchases .

Deposits

Total deposits at September 30, 2015 increased $ 22.3 million to $ 634.0 million from $ 611.7 million at December 31, 2014 . Demand deposits increased $8.8 million and time deposits increased $17.8 million, offset by a decrease in savings deposits of $6.1 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 $ 17.6 million at September 30, 2015 , compared to $ 16.4 million at December 31, 2014 .

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, 2015 , the Company had $ 79.7 million of available for sale securities. Securities with carrying values of approximately $64.2 million and $62.7 million at September 30, 2015 and December 31, 2014 , 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 $386.6 million, which includes a line of credit for $150.0 million. Long-term loans outstanding with the FHLB totaled $4.6 million as of September 30, 2015. There were no outstanding long-term loans as of December 31, 2014 . Short-term loans outstanding with FHLB totaled $56.4 million and $9.0 million as of September 30, 2015 and December 31, 2014 , respectively . The increase in short-term loans outstanding with FHLB was primarily used to fund loan growth and investment security purchases. All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank also has a line of credit with ACBB of approximately $10.0 million, of which none was outstanding at September 30, 2015 . 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 $400 thousand was outstanding at September 30, 2015 , and $1.9 million was outstanding at December 31, 2014. 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 $93.9 million a t September 30, 2015 . The Company also has letters of credit outstanding of $3.6 million at September 30, 2015 . 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 $66.3 million as of September 30, 2015 , representing a net increase of $ 4.9 million from December 31, 2014 . The increase in capital was primarily the result of the net income of $ 5.5 million, offset by dividends declared of $736 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, 2015 , the Bank met the minimum requirements. In addition, the Bank’s capital ratios exceeded the amounts required to be considered “well capitalized” as defined in the regulations.

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




	September 30, 2015			December 31, 2014

	(Dollars In Thousands)
Tier I, common stockholders' equity	$	65,114		$	61,510
Tier II, allowable portion of allowance for loan losses		5,964			5,614
Total capital	$	71,078		$	67,124

Common equity tier 1 capital ratio		11.4	%		-
Tier I risk based capital ratio		11.4	%		12.4	%
Total risk based capital ratio		12.4	%		13.5	%
Tier I leverage ratio		8.3	%		8.5	%

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

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

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

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



	September 30, 2015			December 31, 2014

	(Dollars In Thousands)
Tier I, common stockholders' equity	$	64,933		$	59,868
Tier II, allowable portion of allowance for loan losses		5,964			5,614
Total capital	$	70,897		$	65,482

Common equity tier 1 capital ratio		11.3	%		-
Tier I risk based capital ratio		11.3	%		12.0	%
Total risk based capital ratio		12.4	%		13.2	%
Tier I leverage ratio		8.2	%		8.2	%

In July 2013, the FDIC and the Federal Reserve approved a new rule that will substantially amend the regulatory risk based capital rules applicable to the Bank and the Company. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement will be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

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, 2015 , 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, 2015 , 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).
	10.1		Lease dated September 1, 2015 by and between Embassy Bank for the Lehigh Valley and Orwig Property
			Management Center Square, LLC (Incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed
			on September 3, 2015).
	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, 2015	By:	/s/ David M. Lobach, Jr.
		David M. Lobach, Jr.
		President and Chief Executive Officer


Dated: November 10, 2015	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).
	10.1		Lease dated September 1, 2015 by and between Embassy Bank for the Lehigh Valley and Orwig Property
			Management Center Square, LLC (Incorporated by reference to Exhibit 10.1 of Registrant's Form 8-K filed
			on September 3, 2015).
	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, 2015