EMYB 10-Q Quarterly Report June 30, 2025 | Alphaminr
Embassy Bancorp, Inc.
ALPHAMINR

EMYB 10-Q Quarter ended June 30, 2025

Balance Sheet
Cash Flow
Income Statement
Debt
EMBASSY BANCORP, INC.
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t

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2025 OR

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

Commission file number 000-53528

Embassy Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania

26-3339011

(State of incorporation)

(I.R.S. Employer Identification No.)

One Hundred Gateway Drive , Suite 100

Bethlehem , PA

18017

(Address of principal executive offices)

(Zip Code)

( 610 ) 882-8800

(Registrant’s Telephone Number)

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

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

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

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

Large Accelerated Filer ¨

Accelerated Filer ¨

Non-Accelerated Filer

Smaller Reporting Company

Emerging Growth Company ¨

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:

COMMON STOCK

Number of shares outstanding as of August 8, 2025

($1.00 Par Value)

7,645,249

(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 (Loss) (Unaudited)

5

Consolidated Statements of Stockholders’ Equity (Unaudited)

6

Consolidated Statements of Cash Flows (Unaudited)

8

Notes to Consolidated Financial Statements (Unaudited)

9

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

28

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

40

Item 4 – Controls and Procedures

41

Part II - Other Information

41

Item 1 - Legal Proceedings

41

Item 1A - Risk Factors

41

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

41

Item 3 - Defaults Upon Senior Securities

41

Item 4 – Mine Safety Disclosures

41

Item 5 - Other Information

41

Item 6 - Exhibits

42

Signatures

43


‎

2

Embassy Bancorp, Inc.

Part I – Financial Information

Item 1 – Fi nan cial Statements

Consolidated Balance Sheets (Current Period Unaudited)

June 30,

December 31,

ASSETS

2025

2024

(In Thousands, Except Share Data)

Cash and due from banks

$

17,824

$

16,399

Interest bearing demand deposits with banks

72,993

79,123

Federal funds sold

1,000

1,000

Cash and Cash Equivalents

91,817

96,522

Securities available for sale

328,290

280,828

Restricted investment in bank stock

1,051

1,663

Loans receivable, net of allowance for credit losses of $ 11,905 in 2025; $ 12,166 in 2024

1,270,028

1,256,256

Premises and equipment, net of accumulated depreciation

3,168

3,322

Bank owned life insurance

37,287

36,652

Accrued interest receivable

4,108

3,604

Other assets

23,566

25,573

Total Assets

$

1,759,315

$

1,704,420

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Deposits:

Non-interest bearing

$

350,263

$

351,371

Interest bearing

1,259,944

1,201,588

Total Deposits

1,610,207

1,552,959

Securities sold under agreements to repurchase

7,927

4,895

Short-term borrowings

-

15,625

Accrued interest payable

7,429

7,812

Other liabilities

19,440

16,649

Total Liabilities

1,645,003

1,597,940

Stockholders' Equity:

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

2025 issued 7,811,611 shares; outstanding 7,645,249 shares;

2024 issued 7,792,654 shares; outstanding 7,626,292 shares;

7,812

7,793

Surplus

29,143

28,802

Retained earnings

125,914

123,259

Accumulated other comprehensive loss

( 45,818 )

( 50,635 )

Treasury stock, at cost: 166,362 shares at June 30, 2025 and

December 31, 2024, respectively

( 2,739 )

( 2,739 )

Total Stockholders' Equity

114,312

106,480

Total Liabilities and Stockholders' Equity

$

1,759,315

$

1,704,420

See notes to consolidated financial statements (unaudited).


‎

3

Embassy Bancorp, Inc.

Consolidated Statements of Income (Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2025

2024

2025

2024

(In Thousands, Except Per Share Data)

INTEREST INCOME

Loans, including fees

$

14,404

$

13,388

$

28,363

$

26,474

Securities, taxable

2,248

1,402

4,218

2,818

Securities, non-taxable

297

296

594

594

Short-term investments, including federal funds sold

777

1,033

1,489

1,330

Total Interest Income

17,726

16,119

34,664

31,216

INTEREST EXPENSE

Deposits

7,270

7,072

14,333

13,340

Securities sold under agreements to repurchase and federal

funds purchased

37

159

82

264

Short-term borrowings

-

-

2

5

Total Interest Expense

7,307

7,231

14,417

13,609

Net Interest Income

10,419

8,888

20,247

17,607

CREDIT FOR CREDIT LOSSES

( 178 )

( 283 )

( 131 )

( 355 )

Net Interest Income after
‎ Credit for Credit Losses

10,597

9,171

20,378

17,962

OTHER NON-INTEREST INCOME

Merchant and credit card processing fees

59

79

128

163

Debit card interchange fees

243

236

459

443

Other service fees

170

154

343

305

Bank owned life insurance

464

235

635

526

Total Other Non-Interest Income

936

704

1,565

1,437

OTHER NON-INTEREST EXPENSES

Salaries and employee benefits

3,827

3,477

7,415

6,927

Occupancy and equipment

1,033

1,036

2,125

2,052

Data processing

952

830

1,693

1,445

Advertising and promotion

218

203

442

390

Professional fees

269

259

568

531

FDIC insurance

196

190

391

378

Loan & real estate

89

67

164

116

Charitable contributions

313

310

537

517

Other

508

505

972

1,022

Total Other Non-Interest Expenses

7,405

6,877

14,307

13,378

Income Before Income Taxes

4,128

2,998

7,636

6,021

INCOME TAX EXPENSE

691

506

1,312

993

Net Income

$

3,437

$

2,492

$

6,324

$

5,028

BASIC EARNINGS PER SHARE

$

0.45

$

0.33

$

0.83

$

0.66

DILUTED EARNINGS PER SHARE

$

0.45

$

0.33

$

0.83

$

0.66

DIVIDENDS PER SHARE

$

0.48

$

0.42

$

0.48

$

0.42

See notes to consolidated financial statements (unaudited).
‎

4

Embassy Bancorp, Inc.

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three Months Ended June 30,

2025

2024

(In Thousands)

Net Income

$

3,437

$

2,492

Change in Accumulated Other Comprehensive Loss:

Unrealized holding gain (loss) on securities available for sale

2,611

( 685 )

Less: reclassification adjustment for realized gains

-

-

2,611

( 685 )

Income tax effect

( 549 )

144

Net unrealized gain (loss)

2,062

( 541 )

Other comprehensive income (loss), net of tax

2,062

( 541 )

Comprehensive Income

$

5,499

$

1,951

Six Months Ended June 30,

2025

2024

(In Thousands)

Net Income

$

6,324

$

5,028

Change in Accumulated Other Comprehensive Loss:

Unrealized holding gain (loss) on securities available for sale

6,098

( 6,708 )

Less: reclassification adjustment for realized gains

-

-

6,098

( 6,708 )

Income tax effect

( 1,281 )

1,409

Net unrealized gain (loss)

4,817

( 5,299 )

Other comprehensive income (loss), net of tax

4,817

( 5,299 )

Comprehensive Income (Loss)

$

11,141

$

( 271 )

See notes to consolidated financial statements (unaudited).

5

Embassy Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

Six Months Ended June 30, 2025

Common Stock

Surplus

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Total

(In Thousands, Except Share Data)

BALANCE - DECEMBER 31, 2024

$

7,793

$

28,802

$

123,259

$

( 50,635 )

$

( 2,739 )

$

106,480

Net income

-

-

2,887

-

-

2,887

Other comprehensive income, net of tax

-

-

-

2,755

-

2,755

Common stock grants to directors,
‎ 16,845 shares

17

250

-

-

-

267

Compensation expense recognized on stock
‎ grants, net of unearned compensation expense
‎ of $ 223

-

32

-

-

-

32

Shares issued under employee stock purchase
‎ plan, 1,005 shares

1

15

-

-

-

16

BALANCE - MARCH 31, 2025

$

7,811

$

29,099

$

126,146

$

( 47,880 )

$

( 2,739 )

$

112,437

Net income

-

-

3,437

-

-

3,437

Other comprehensive income, net of tax

-

-

-

2,062

-

2,062

Dividend declared, $ 0.48 per share

-

-

( 3,669 )

-

-

( 3,669 )

Compensation expense recognized on
‎ stock grants, net of unearned compensation
‎ expense of $ 196

-

27

-

-

-

27

Shares issued under employee stock purchase
‎ plan, 1,107 shares

1

17

-

-

-

18

BALANCE - JUNE 30, 2025

$

7,812

$

29,143

$

125,914

$

( 45,818 )

$

( 2,739 )

$

114,312


‎

6

Embassy Bancorp, Inc.

Consolidated Statements of Stockholders’ Equity (Unaudited)

Six Months Ended June 30, 2024

Common Stock

Surplus

Retained Earnings

Accumulated Other Comprehensive Loss

Treasury Stock

Total

(In Thousands, Except Share Data)

BALANCE - DECEMBER 31, 2023

$

7,758

$

28,246

$

116,018

$

( 43,700 )

$

( 2,667 )

$

105,655

Net income

-

-

2,536

-

-

2,536

Other comprehensive loss, net of tax

-

-

-

( 4,758 )

-

( 4,758 )

Common stock grants to directors,
‎ 18,843 shares

19

248

-

-

-

267

Compensation expense recognized on stock
‎ grants, net of unearned compensation expense
‎ of $ 265

-

67

-

-

-

67

Shares issued under employee stock purchase
‎ plan, 1,393 shares

1

17

-

-

-

18

BALANCE - MARCH 31, 2024

$

7,778

$

28,578

$

118,554

$

( 48,458 )

$

( 2,667 )

$

103,785

Net income

-

-

2,492

-

-

2,492

Other comprehensive loss, net of tax

-

-

-

( 541 )

-

( 541 )

Dividend declared, $ 0.42 per share

-

-

( 3,199 )

-

-

( 3,199 )

Compensation expense recognized on
‎ stock grants, net of unearned compensation
‎ expense of $ 198

-

66

-

-

-

66

Shares issued under employee stock purchase
‎ plan, 1,209 shares

2

15

-

-

-

17

BALANCE - JUNE 30, 2024

$

7,780

$

28,659

$

117,847

$

( 48,999 )

$

( 2,667 )

$

102,620

See notes to consolidated financial statements (unaudited).

7

Embassy Bancorp, Inc.

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,

2025

2024

(In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

6,324

$

5,028

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

Credit for credit losses

( 131 )

( 355 )

Amortization of deferred loan costs

176

148

Depreciation

528

538

Net accretion of investment security premiums and discounts

( 599 )

( 205 )

Stock compensation expense

326

400

Income on bank owned life insurance

( 635 )

( 526 )

Increase in accrued interest receivable

( 504 )

( 115 )

Decrease (increase) in other assets

735

( 2,137 )

Decrease in accrued interest payable

( 383 )

( 61 )

Decrease in other liabilities

( 878 )

( 606 )

Net Cash Provided by Operating Activities

4,959

2,109

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of securities available for sale

( 81,519 )

-

Maturities, calls and principal repayments of securities available for sale

40,754

10,745

Net increase in loans

( 13,817 )

( 8,693 )

Net redemption of restricted investment in bank stock

612

1,420

Purchase of bank owned life insurance

-

( 9,030 )

Purchases of premises and equipment

( 383 )

( 330 )

Net Cash Used in Investing Activities

( 54,353 )

( 5,888 )

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in deposits

57,248

91,367

Net increase in securities sold under agreements to repurchase

3,032

4,340

Decrease in short-term borrowings

( 15,625 )

( 35,000 )

Proceeds from Employee Stock Purchase Plan

34

35

Net Cash Provided by Financing Activities

44,689

60,742

Net (Decrease) Increase in Cash and Cash Equivalents

( 4,705 )

56,963

CASH AND CASH EQUIVALENTS - BEGINNING

96,522

78,923

CASH AND CASH EQUIVALENTS - ENDING

$

91,817

$

135,886

SUPPLEMENTARY CASH FLOWS INFORMATION

Interest paid

$

14,800

$

13,670

Income taxes paid

$

1,366

$

1,036

Non-cash Investing and Financing Activities:

Dividend declared

$

3,669

$

3,199

See notes to consolidated financial statements (unaudited).

8

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 six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

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, 2024, included in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 17, 2025.

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q were issued. Subsequent to June 30, 2025, in July 2025, the Company purchased two ( 2 ) Treasury bonds, three ( 3 ) mortgage-backed securities, and one ( 1 ) government agency bond totaling $ 15.0 million.

Certain amounts in the 2024 consolidated financial statements may have been reclassified to conform to 2025 presentation. These reclassifications had no effect on 2024 net income.

Note 2 - Summary of Significant Accounting Policies

The significant accounting policies of the Company as applied in the interim financial statements presented herein are substantially the same as those followed on an annual basis as presented in the Company’s Form 10-K for the year ended December 31, 2024.


‎

9

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

Note 3 – Securities Available For Sale

At June 30, 2025 and December 31, 2024, respectively, the amortized cost and fair values of securities available-for-sale were as follows:

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

(In Thousands)

June 30, 2025:

U.S. Treasury securities

$

77,723

$

550

$

( 43 )

$

78,230

U.S. Government agency obligations

19,072

91

( 17 )

19,146

Municipal bonds

72,627

19

( 15,021 )

57,625

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

216,865

1

( 43,577 )

173,289

Total

$

386,287

$

661

$

( 58,658 )

$

328,290

December 31, 2024:

U.S. Treasury securities

$

34,777

$

10

$

( 47 )

$

34,740

U.S. Government agency obligations

12,499

3

( 56 )

12,446

Municipal bonds

72,669

13

( 14,682 )

58,000

U.S. Government Sponsored Enterprise (GSE) -
‎ Mortgage-backed securities - commercial

508

-

( 72 )

436

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

224,470

-

( 49,264 )

175,206

Total

$

344,923

$

26

$

( 64,121 )

$

280,828

The amortized cost and fair value of securities as of June 30, 2025, 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)

June 30, 2025:

Due in one year or less

$

33,276

$

33,243

Due after one year through five years

66,131

66,660

Due after five years through ten years

7,596

7,136

Due after ten years

62,419

47,962

169,422

155,001

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

216,865

173,289

Total

$

386,287

$

328,290

There were no sales of securities for the three and six months ended June 30, 2025 and 2024.

Securities with a carrying value of $ 144.4 million and $ 152.4 million at June 30, 2025 and December 31, 2024, respectively, were subject to agreements to repurchase, pledged to secure public deposits, or pledged for other purposes required or permitted by law.


‎

10

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2025 and December 31, 2024:

Less Than 12 Months

12 Months or More

Total

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

June 30, 2025:

(In Thousands)

U.S. Treasury securities

$

32,260

$

( 35 )

$

2,492

$

( 8 )

$

34,752

$

( 43 )

U.S. Government agency obligations

7,492

( 4 )

2,484

( 13 )

9,976

( 17 )

Municipal bonds

11,547

( 1,200 )

43,476

( 13,821 )

55,023

( 15,021 )

U.S. Government Sponsored Enterprise

(GSE) - Mortgage -backed securities -

residential

3

-

173,247

( 43,577 )

173,250

( 43,577 )

Total Temporarily Impaired Securities

$

51,302

$

( 1,239 )

$

221,699

$

( 57,419 )

$

273,001

$

( 58,658 )

.

December 31, 2024:

U.S. Treasury securities

$

-

$

-

$

9,946

$

( 47 )

$

9,946

$

( 47 )

U.S. Government agency obligations

5,009

( 8 )

2,437

( 48 )

7,446

( 56 )

Municipal bonds

13,433

( 1,248 )

43,888

( 13,434 )

57,321

( 14,682 )

U.S. Government Sponsored Enterprise

(GSE) - Mortgage -backed securities -

commercial

-

-

436

( 72 )

436

( 72 )

U.S. Government Sponsored Enterprise

(GSE) - Mortgage -backed securities -

residential

18

-

175,149

( 49,264 )

175,167

( 49,264 )

Total Temporarily Impaired Securities

$

18,460

$

( 1,256 )

$

231,856

$

( 62,865 )

$

250,316

$

( 64,121 )

The Company had two hundred ( 200 ) securities in an unrealized loss position at June 30, 2025 and one hundred ninety-seven ( 197 ) securities in an unrealized loss position at December 31, 2024. The Company reviews its investment portfolio on a quarterly basis for indications of impairment due to credit-related factors or noncredit-related factors. The Company does not intend to sell the securities and has the intent and ability to hold them for a period of time sufficient for recovery of their amortized cost basis without realizing losses on these bonds. This review includes analyzing the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Management believes that the unrealized loss only represents temporary impairment of the securities, which are predominantly backed by the credit of government agencies, and are a result of the increased market interest rates since the time of purchase, and not the credit quality of the issuer. As such, no allowance for credit losses was required on securities available for sale in an unrealized loss position at June 30, 2025 and December 31, 2024.

Note 4 – Restricted Investment in Bank Stock

Restricted investments in bank stock consist of FHLBank of Pittsburgh (“FHLB”) stock and Atlantic Community Bankers Bank (“ACBB”) stock. The restricted stocks are carried at cost. Federal law requires a member institution of the FHLB to hold stock of its district FHLB according to a predetermined formula. The Bank had FHLB stock at a carrying value of $ 1.0 million and $ 1.6 million as of June 30, 2025 and December 31, 2024, respectively. The Bank had ACBB stock at a carrying value of $ 40 thousand at June 30, 2025 and December 31, 2024.

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

11

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

as (1) the significance of the decline in net assets of the issuer as compared to the capital stock amount for the issuer and the length of time this situation has persisted, (2) commitments by the issuer to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuer, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuer.

Based upon its evaluation of the foregoing criteria, management believes no impairment charge is necessary related to the FHLB or ACBB stock as of June 30, 2025.

Note 5 – Loans and Credit Quality

The following table presents the composition of loans receivable at June 30, 2025 and December 31, 2024, respectively:

June 30, 2025

December 31, 2024

Percentage of

Percentage of

Balance

total Loans

Balance

total Loans

(Dollars in Thousands)

Commercial real estate

$

550,735

42.99 %

$

536,594

42.33 %

Commercial construction

17,462

1.36 %

22,556

1.78 %

Commercial

34,966

2.73 %

39,384

3.10 %

Residential real estate

677,392

52.88 %

668,725

52.75 %

Consumer

511

0.04 %

475

0.04 %

Total loans

1,281,066

100.00 %

1,267,734

100.00 %

Unearned origination fees

867

688

Allowance for credit losses

( 11,905 )

( 12,166 )

Net Loans

$

1,270,028

$

1,256,256


‎

12

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weakness), substandard (well defined weakness) and doubtful (full collection unlikely) within the Company's internal risk rating system as of June 30, 2025 by year of origination:

2025

2024

2023

2022

2021

Prior

Revolving

Total

(In Thousands)

Commercial

real estate

Pass

$

30,674

$

51,355

$

58,139

$

140,184

$

51,498

$

209,976

$

7,726

$

549,552

Special Mention

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

1,183

-

1,183

Total

30,674

51,355

58,139

140,184

51,498

211,159

7,726

550,735

Commercial

construction

Pass

263

2,627

6,710

7,544

-

26

-

17,170

Special Mention

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

237

55

292

Total

263

2,627

6,710

7,544

-

263

55

17,462

Commercial

Pass

2,343

6,761

1,324

2,775

473

9,895

8,189

31,760

Special Mention

-

162

-

283

244

77

2,440

3,206

Substandard

-

-

-

-

-

-

-

-

Total

2,343

6,923

1,324

3,058

717

9,972

10,629

34,966

Residential

real estate

Pass

40,797

71,591

60,150

83,663

138,139

255,617

26,239

676,196

Special Mention

-

-

-

-

-

407

-

407

Substandard

-

-

-

137

196

456

-

789

Total

40,797

71,591

60,150

83,800

138,335

256,480

26,239

677,392

Consumer

Pass

86

86

48

44

3

-

244

511

Special Mention

-

-

-

-

-

0

0

-

Substandard

-

-

-

-

-

0

0

-

Total

86

86

48

44

3

-

244

511

Total

Loans Receivable

$

74,163

$

132,582

$

126,371

$

234,630

$

190,553

$

477,874

$

44,893

$

1,281,066

The Company had gross charge-offs of $ 152 thousand during the three and six months ended June 30, 2025. One (1) charge-off of $ 1 thousand was a consumer loan originated in 2022, one (1) charge-off of $ 15 thousand was a commercial loan originated in 2022, and one (1) charge-off of $ 136 thousand was a commercial real estate loan originated in 2021.


‎

13

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention (potential weakness), substandard (well defined weakness) and doubtful (full collection unlikely) within the Company's internal risk rating system as of December 31, 2024 by year of origination:

2024

2023

2022

2021

2020

Prior

Revolving

Total

(In Thousands)

Commercial

real estate

Pass

$

52,579

$

59,016

$

145,905

$

48,420

$

57,430

$

164,989

$

6,920

$

535,259

Special Mention

-

-

-

136

-

-

-

136

Substandard

-

-

-

-

-

1,199

-

1,199

Total

52,579

59,016

145,905

48,556

57,430

166,188

6,920

536,594

Commercial

construction

Pass

4,438

5,092

7,544

5,161

-

28

-

22,263

Special Mention

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

238

55

293

Total

4,438

5,092

7,544

5,161

-

266

55

22,556

Commercial

Pass

7,407

1,501

3,290

606

2,534

11,507

9,309

36,154

Special Mention

182

-

372

354

118

19

2,185

3,230

Substandard

-

-

-

-

-

-

-

-

Total

7,589

1,501

3,662

960

2,652

11,526

11,494

39,384

Residential

real estate

Pass

77,507

64,392

87,315

143,578

128,226

144,049

22,419

667,486

Special Mention

-

-

-

-

-

419

-

419

Substandard

-

-

42

196

-

582

-

820

Total

77,507

64,392

87,357

143,774

128,226

145,050

22,419

668,725

Consumer

Pass

106

64

72

9

-

1

223

475

Special Mention

-

-

-

-

-

-

-

-

Substandard

-

-

-

-

-

-

-

-

Total

106

64

72

9

-

1

223

475

Total

Loans Receivable

$

142,219

$

130,065

$

244,540

$

198,460

$

188,308

$

323,031

$

41,111

$

1,267,734

The Company had gross charge-offs of $ 11 thousand during the year ended December 31, 2024. One (1) charge-off of $ 5 thousand was a consumer loan originated in 2021 and one (1) charge-off of $ 6 thousand was a consumer loan originated in 2023.


‎

14

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The following table presents the carrying value and related allowance for credit losses of individually analyzed loans at June 30, 2025 and December 31, 2024, respectively:

June 30, 2025

December 31, 2024

Recorded Investment

Unpaid Principal Balance

Related Allowance for Credit Losses

Recorded Investment

Unpaid Principal Balance

Related Allowance for Credit Losses

(In Thousands)

With no related allowance recorded:

Commercial real estate (1)

$

1,183

$

1,183

$

1,335

$

1,335

Commercial construction (1)

55

55

55

55

Commercial

-

-

-

-

Residential real estate (1)

918

921

959

963

Consumer

-

-

-

-

With an allowance recorded:

Commercial real estate

$

-

$

-

$

-

$

-

$

-

$

-

Commercial construction (1)

237

237

18

238

238

19

Commercial (2)

17

17

17

34

34

34

Residential real estate (1)

407

407

79

419

419

81

Consumer

-

-

-

-

-

-

Total:

Commercial real estate

$

1,183

$

1,183

$

-

$

1,335

$

1,335

$

-

Commercial construction

292

292

18

293

293

19

Commercial

17

17

17

34

34

34

Residential real estate

1,325

1,328

79

1,378

1,382

81

Consumer

-

-

-

-

-

-

$

2,817

$

2,820

$

114

$

3,040

$

3,044

$

134

1. All loans are real estate collateral dependent.

2. All loans are non-collateral dependent loans.

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

June 30, 2025

December 31, 2024

(In Thousands)

Commercial real estate

$

-

$

136

Commercial construction

-

-

Commercial

-

15

Residential real estate

485

344

Consumer

-

-

Total

$

485

$

495

As of June 30, 2025, there were four (4) loans in non-accrual status in the amount of $ 485 thousand. These loans are all collateral dependent non-accrual loans and did not have a required related allowance. There was interest income recognized of $ 2 thousand for the three and six months ended June 30, 2025, on these non-accrual loans. As of December 31, 2024, there were five (5) loans in non-accrual status in the amount of $ 495 thousand, of which one (1) loan of $ 15 thousand, included in commercial loans above, is non-collateral dependent and required a related allowance of $ 15 thousand. The remaining collateral dependent nonaccrual loans did not have a required related allowance. As of June 30, 2024, there were three (3) loans in non-accrual status in the amount of $ 292 thousand. There was no required related allowance for these collateral dependent non-accrual loans. There was no interest income recognized for the three months ended June 30, 2024 and interest income of $ 1 thousand was recognized for the six months ended June 30, 2024.

15

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of June 30, 2025 and December 31, 2024, 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

June 30, 2025

(In Thousands)

Commercial real estate

$

-

$

-

$

-

$

-

$

550,735

$

550,735

$

-

Commercial construction

-

-

-

-

17,462

17,462

-

Commercial

-

-

-

-

34,966

34,966

-

Residential real estate

1,466

125

292

1,883

675,509

677,392

-

Consumer

-

-

-

-

511

511

-

Total

$

1,466

$

125

$

292

$

1,883

$

1,279,183

$

1,281,066

$

-

December 31, 2024

Commercial real estate

$

-

$

-

$

136

$

136

$

536,458

$

536,594

$

-

Commercial construction

-

-

-

-

22,556

22,556

-

Commercial

-

-

15

15

39,369

39,384

-

Residential real estate

752

-

215

967

667,758

668,725

-

Consumer

-

-

-

-

475

475

-

Total

$

752

$

-

$

366

$

1,118

$

1,266,616

$

1,267,734

$

-

At June 30, 2025, the Company had no foreclosed assets and had one ( 1 ) recorded investment in mortgage loans collateralized by residential real estate in the process of foreclosure in the amount of $ 196 thousand. Subsequent to June 30, 2025, in July 2025, this foreclosure was finalized and the collateralized residential real estate property was taken to other real estate owned. At December 31, 2024, the Company had no foreclosed assets and had two ( 2 ) recorded investments in mortgage loans collateralized by residential real estate in the process of foreclosure in the amount of $ 216 thousand.


‎

16

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The following tables detail the activity in the allowance for credit losses for the three and six months ended June 30, 2025 and June 30, 2024, respectively:

Commercial Real Estate

Commercial Construction

Commercial

Residential Real Estate

Consumer

Total

Allowance for credit losses

(In Thousands)

Three Months Ending June 30, 2025

Beginning Balance - March 31, 2025

$

5,985

$

247

$

527

$

5,433

$

30

$

12,222

Charge-offs

( 136 )

-

( 15 )

-

( 1 )

( 152 )

Recoveries

-

-

-

-

-

-

Provisions (credits) on loans

( 56 )

( 53 )

( 51 )

1

( 6 )

( 165 )

Ending Balance - June 30, 2025

$

5,793

$

194

$

461

$

5,434

$

23

$

11,905

Six Months Ending June 30, 2025

Beginning Balance - December 31, 2024

$

5,897

$

257

$

536

$

5,446

$

30

$

12,166

Charge-offs

( 136 )

-

( 15 )

-

( 1 )

( 152 )

Recoveries

-

-

-

-

-

-

Provisions (credits) on loans

32

( 63 )

( 60 )

( 12 )

( 6 )

( 109 )

Ending Balance - June 30, 2025

$

5,793

$

194

$

461

$

5,434

$

23

$

11,905

Allowance for credit losses

Three Months Ending June 30, 2024

Beginning Balance - March 31, 2024

$

6,216

$

237

$

553

$

5,508

$

29

$

12,543

Charge-offs

-

-

-

-

( 11 )

( 11 )

Recoveries

-

-

-

-

-

-

Provisions (credits) on loans

( 199 )

( 10 )

( 28 )

( 70 )

21

( 286 )

Ending Balance - June 30, 2024

$

6,017

$

227

$

525

$

5,438

$

39

$

12,246

Six Months Ending June 30, 2024

Beginning Balance - December 31, 2023

$

6,108

$

195

$

920

$

5,224

$

14

$

12,461

Charge-offs

-

-

-

-

( 11 )

( 11 )

Recoveries

240

-

-

-

-

240

Provisions (credits) on loans

( 331 )

32

( 395 )

214

36

( 444 )

Ending Balance - June 30, 2024

$

6,017

$

227

$

525

$

5,438

$

39

$

12,246


‎

17

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The following tables represent the allocation for credit losses and the related loan portfolio disaggregated based on impairment methodology at June 30, 2025 and December 31, 2024:

Commercial Real Estate

Commercial Construction

Commercial

Residential Real Estate

Consumer

Total

(In Thousands)

June 30, 2025

Allowance for Credit Losses

Ending Balance

$

5,793

$

194

$

461

$

5,434

$

23

$

11,905

Ending balance: individually evaluated for impairment - real estate collateral dependent

$

-

$

18

$

-

$

79

$

-

$

97

Ending balance: individually evaluated for impairment - non-collateral dependent

$

-

$

-

$

17

$

-

$

-

$

17

Ending balance: collectively evaluated for impairment

$

5,793

$

176

$

444

$

5,355

$

23

$

11,791

Loans receivables:

Ending balance

$

550,735

$

17,462

$

34,966

$

677,392

$

511

$

1,281,066

Ending balance: individually evaluated for impairment - real estate collateral dependent

$

1,183

$

292

$

-

$

1,325

$

-

$

2,800

Ending balance: individually evaluated for impairment - non-collateral dependent

$

-

$

-

$

17

$

-

$

-

$

17

Ending balance: collectively evaluated for impairment

$

549,552

$

17,170

$

34,949

$

676,067

$

511

$

1,278,249

December 31, 2024

Allowance for Credit Losses

Ending Balance

$

5,897

$

257

$

536

$

5,446

$

30

$

12,166

Ending balance: individually evaluated for impairment - real estate collateral dependent

$

-

$

19

$

-

$

81

$

-

$

100

Ending balance: individually evaluated for impairment - non-collateral dependent

$

-

$

-

$

34

$

-

$

-

$

34

Ending balance: collectively evaluated for impairment

$

5,897

$

238

$

502

$

5,365

$

30

$

12,032

Loans receivables:

Ending balance

$

536,594

$

22,556

$

39,384

$

668,725

$

475

$

1,267,734

Ending balance: individually evaluated for impairment - real estate collateral dependent

$

1,335

$

293

$

-

$

1,378

$

-

$

3,006

Ending balance: individually evaluated for impairment - non-collateral dependent

$

-

$

-

$

34

$

-

$

-

$

34

Ending balance: collectively evaluated for impairment

$

535,259

$

22,263

$

39,350

$

667,347

$

475

$

1,264,694


‎

18

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets, totaling $ 2.5 million on both June 30, 2025 and December 31, 2024, and is excluded from the estimate of credit losses.

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

There are additional disclosures for modification of loans with borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows. The disclosures are applicable to situations where there is principal forgiveness, interest rate reductions, other than insignificant payment delays, term extensions, or a combination of any of these items. If the Company modifies any loans to borrowers in financial distress that involves principal forgiveness, the amount of principal that is forgiven is charged off against the allowance for credit losses. The Company had no new loan modifications to borrowers experiencing financial difficulties in the three and six months ended June 30, 2025.

The following table presents new loan modifications for credit concerns during the three and six months ending June 30, 2024:

Number of Loans

Pre-Modification Outstanding Balance

Post- Modification Outstanding Balance

(Dollars In Thousands)

Three and Six Months Ending June 30, 2024

Residential real estate

1

$

79

$

79

1

$

79

$

79

On the loan modification listed above the borrower was experiencing financial stress. The modified home equity loan had an extended maturity date compared to the original loan. There is no commitment to lend additional amounts on this modified loan. This modified loan was paid off in full during the second quarter of 2025.

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. There were $ 59 thousand and $ 136 thousand of modifications to borrowers experiencing financial difficulties that were outstanding at June 30, 2025 and December 31, 2024, respectively.

Note 6 – Deposits

The components of deposits at June 30, 2025 and December 31, 2024 are as follows:

June 30, 2025

December 31, 2024

(In Thousands)

Demand, non-interest bearing

$

350,263

$

351,371

Demand, NOW and money market, interest bearing

279,310

270,775

Savings

453,781

444,102

Time, $250 and over

180,767

167,615

Time, other

346,086

319,096

Total deposits

$

1,610,207

$

1,552,959


‎

19

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

At June 30, 2025, the scheduled maturities of time deposits are as follows (in thousands):

2025 (remainder of the year)

$

351,610

2026

165,646

2027

6,666

2028

2,791

2029

116

2030

24

$

526,853

Note 7 – Short-term and Long-term Borrowings

Securities sold under agreements to repurchase, federal funds purchased, and FHLB short term advances generally represent overnight or less than twelve month borrowings. Long term advances from the FHLB are for periods of twelve months or more and are generally less than sixty months . The Bank has an agreement with the FHLB, which allows for borrowings up to a percentage of qualifying assets. At June 30, 2025, the Bank had a maximum borrowing capacity for short-term and long-term FHLB advances of approximately $ 702.0 million, of which $ 701.8 million is available for borrowing at June 30, 2025. This borrowing capacity with the FHLB includes a line of credit of $ 150.0 million. The Bank had an outstanding FHLB letter of credit in the amount of $ 160 thousand as of June 30, 2025. There were no FHLB short-term or long-term advances outstanding as of June 30, 2025. There were $ 15.6 million short-term FHLB advances outstanding and no long-term FHLB advances outstanding as of December 31, 2024. All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank has a federal funds line of credit with the ACBB of $ 10.0 million, of which none was outstanding at June 30, 2025 and December 31, 2024. Advances from this line are unsecured.

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

The Company has a revolving line of credit facility with the ACBB of $ 7.5 million, of which none was outstanding at June 30, 2025 and December 31, 2024. Advances from this line are unsecured. Under the terms of this facility, availability under the revolving line of credit would be reduced to $ 5.0 million should the Company’s net tangible equity ratio drop below 5 % and availability would be reduced to $ 2.0 million should the Company’s net tangible equity ratio drop below 2 %. If the Company’s net tangible equity ratio drops below 0 %, the commitment is cancelled.

Note 8 – Stock Incentive Plan and Employee Stock Purchase Plan

Stock Incentive Plan:

The Company maintains the Embassy Bancorp, Inc. Stock Incentive Plan (the “SIP”), originally adopted by the Company’s shareholders effective June 16, 2010 and subsequently amended, restated, and approved on June 20, 2019. The SIP authorizes the Board of Directors, or a committee authorized by the Board of Directors, to award a stock based incentive to (i) designated officers (including officers who are directors) and other designated employees at the Company and its subsidiaries, and (ii) non-employee members of the Board of Directors and advisors and consultants to the Company and its subsidiaries. The SIP provides for stock based incentives in the form of incentive stock options as provided in Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, stock appreciation rights, restricted stock and deferred stock awards. The term of the option, the amount of time for the option to vest after grant, if any, and other terms and limitations will be determined at the time of grant. Options granted under the SIP may not have an exercise period that is more than ten years from the time the option is granted. The maximum number of shares of common stock authorized for issuance under the SIP is 756,356 . The SIP provides for appropriate adjustments in the number and kind of shares available for grant or subject to outstanding awards under the SIP to avoid dilution in the event of a merger, stock splits, stock dividends or other changes in the capitalization of the Company. The SIP expires on June 20, 2029 . At June 30, 2025, there were 347,510 shares available for issuance under the SIP.

The Company grants shares of restricted stock, under the SIP, to certain members of its Board of Directors as compensation for their services, in accordance with the Company’s Non-employee Directors Compensation program adopted in October 2010. The Company also grants restricted stock to certain officers under individual agreements with these officers. Some of these restricted stock awards vest immediately, while the remainder vest over the service period of three years to five years . Management recognizes compensation

20

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

expense for the fair value of the restricted stock awards on a straight-line basis over the requisite service period. Since inception of the plan and through the six months ended June 30, 2025, there have been 275,758 awards granted. There were no awards granted during the three months ended June 30, 2025 and 2024. During the three months ended June 30, 2025 and June 30, 2024, the Company recognized compensation expense for restricted stock awards of $ 27 thousand and $ 66 thousand, respectively. During the six months ended June 30, 2025 and 2024 there were 16,845 and 18,843 awards granted, respectively. During the six months ended June 30, 2025 and June 30, 2024, the Company recognized compensation expense for restricted stock awards of $ 326 thousand and $ 400 thousand, respectively.

Employee Stock Purchase Plan:

On January 1, 2017, the Company implemented the Embassy Bancorp, Inc. Employee Stock Purchase Plan (“ESPP”), which was approved by the Company’s shareholders at the annual meeting held on June 16, 2016. Under the ESPP, each employee of the Company and its subsidiaries who is employed on an offering date and customarily is scheduled to work at least twenty ( 20 ) hours per week and more than five ( 5 ) months in a calendar year is eligible to participate. The purchase price for shares purchased under the ESPP is 95 % of the fair market value of such shares on the date of purchase. The purchase price may be adjusted from time to time by the Board of Directors; provided, however, that the discount to fair market value shall not exceed 15 %.  The Company has authorized 350,000 shares of its common stock for the ESPP, of which 33,370 shares have been issued as of June 30, 2025. The Company recognized discount expense in relation to the ESPP of $ 1 thousand and $ 2 thousand during the three and six months ended June 30, 2025 and June 30, 2024, respectively.


‎

21

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

Note 9 – Other Comprehensive Income (Loss)

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

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

Three Months Ended June 30,

2025

2024

(In Thousands)

Before

Tax

Net of

Before

Tax

Net of

Tax

Effect

Tax

Tax

Effect

Tax

Change in accumulated other comprehensive loss:

Unrealized holding gains (losses) on securities
‎ available for sale

$

2,611

$

( 549 )

$

2,062

$

( 685 )

$

144

$

( 541 )

Reclassification adjustments for gains on securities
‎ transactions included in net income (A),(B)

-

-

-

-

-

-

Total other comprehensive income (loss)

$

2,611

$

( 549 )

$

2,062

$

( 685 )

$

144

$

( 541 )

Six Months Ended June 30,

2025

2024

(In Thousands)

Before

Tax

Net of

Before

Tax

Net of

Tax

Effect

Tax

Tax

Effect

Tax

Change in accumulated other comprehensive loss:

Unrealized holding gains (losses) on securities
‎ available for sale

$

6,098

$

( 1,281 )

$

4,817

$

( 6,708 )

$

1,409

$

( 5,299 )

Reclassification adjustments for gains on securities
‎ transactions included in net income (A),(B)

-

-

-

-

-

-

Total other comprehensive income (loss)

$

6,098

$

( 1,281 )

$

4,817

$

( 6,708 )

$

1,409

$

( 5,299 )

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

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

There were no realized gains on securities available for sale for the three and six months ended June 30, 2025 and 2024.


‎

22

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

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

Securities

Available

for Sale

Three Months Ended June 30, 2025 and 2024

(In Thousands)

Balance March 31, 2025

$

( 47,880 )

Other comprehensive income before reclassifications

2,062

Amounts reclassified from accumulated other
‎ comprehensive loss

-

Net other comprehensive income during the period

2,062

Balance June 30, 2025

$

( 45,818 )

Balance March 31, 2024

$

( 48,458 )

Other comprehensive loss before reclassifications

( 541 )

Amounts reclassified from accumulated other
‎ comprehensive loss

-

Net other comprehensive loss during the period

( 541 )

Balance June 30, 2024

$

( 48,999 )

Six Months Ended June 30, 2025 and 2024

Balance January 1, 2025

$

( 50,635 )

Other comprehensive income before reclassifications

4,817

Amounts reclassified from accumulated other
‎ comprehensive loss

-

Net other comprehensive income during the period

4,817

Balance June 30, 2025

$

( 45,818 )

Balance January 1, 2024

$

( 43,700 )

Other comprehensive loss before reclassifications

( 5,299 )

Amounts reclassified from accumulated other
‎ comprehensive loss

-

Net other comprehensive loss during the period

( 5,299 )

Balance June 30, 2024

$

( 48,999 )


‎

23

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

No te 10 – Basic and Diluted Earnings per Share

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2025

2024

2025

2024

(Dollars In Thousands, Except Share and Per Share Data)

Net income

$

3,437

$

2,492

$

6,324

$

5,028

Weighted average shares outstanding

7,644,154

7,616,511

7,640,583

7,609,591

Dilutive effect of potential common shares, stock options

-

-

-

-

Diluted weighted average common shares outstanding

7,644,154

7,616,511

7,640,583

7,609,591

Basic earnings per share

$

0.45

$

0.33

$

0.83

$

0.66

Diluted earnings per share

$

0.45

$

0.33

$

0.83

$

0.66

There were no stock options not considered in computing diluted earnings per common share for the three and six months ended June 30, 2025 and June 30, 2024.

Note 11 – Fair Value Measurements

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

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

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

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

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

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

24

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

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

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy utilized at June 30, 2025 and December 31, 2024, respectively, are as follows:

(Level 1)

(Level 2)

Quoted

Significant

(Level 3)

Prices in Active

Other

Significant

Markets for

Observable

Unobservable

Description

Identical Assets

Inputs

Inputs

Total

(In Thousands)

U.S. Treasury securities

$

-

$

78,230

$

-

$

78,230

U.S. Government agency obligations

-

19,146

-

19,146

Municipal bonds

-

57,625

-

57,625

U.S. Government Sponsored Enterprise (GSE) -

Mortgage-backed securities - residential

-

173,289

-

173,289

June 30, 2025 Securities available for sale

$

-

$

328,290

$

-

$

328,290

U.S. Treasury securities

$

-

$

34,740

$

-

$

34,740

U.S. Government agency obligations

-

12,446

-

12,446

Municipal bonds

-

58,000

-

58,000

U.S. Government Sponsored Enterprise (GSE) -

Mortgage-backed securities - commercial

-

436

-

436

U.S. Government Sponsored Enterprise (GSE) -

Mortgage-backed securities - residential

-

175,206

-

175,206

December 31, 2024 Securities available for sale

$

-

$

280,828

$

-

$

280,828

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

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2025 and December 31, 2024, 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)

June 30, 2025 Loans Individually evaluated for credit losses

$

-

$

-

$

547

$

547

December 31, 2024 Loans Individually evaluated for credit losses

$

-

$

-

$

557

$

557

Loans individually evaluated for credit losses are those that are accounted for under existing Financial Accounting Standards Board (“FASB”) guidance , in which the Bank has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. Fair values may also include qualitative adjustments by management based on economic conditions and liquidation expenses. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

25

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

At June 30, 2025, of the loans individually evaluated for credit losses having an aggregate balance of $ 2.8 million, $ 2.2 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 $ 661 thousand in loans individually evaluated for credit losses , an aggregate valuation allowance of $ 114 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.

At December 31, 2024, of the loans individually evaluated for credit losses having an aggregate balance of $ 3.0 million, $ 2.3 million did not require a valuation allowance because the value of the collateral, including estimated selling costs, securing the loan was determined to meet or exceed the balance owed on the loan. Of the remaining $ 691 thousand in loans individually evaluated for credit losses, an aggregate valuation allowance of $ 134 thousand was required to reflect what was determined to be a shortfall in the value of the collateral as compared to the balance on such loans.

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets would be included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. At June 30, 2025 and December 31, 2024, respectively, the Company had no real estate properties acquired through, or in lieu of, foreclosure.

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

Quantitative Information about Level 3 Fair Value Measurements

Description

Fair Value
‎ Estimate

Valuation Techniques

Unobservable Input

Range
‎ (Weighted Average)

(Dollars In Thousands)

June 30, 2025:

Loans Individually evaluated for credit losses

$

547

Appraisal of real estate collateral

Appraisal adjustments (1)

0 % to - 25 % (- 25.0 %)

and pending agreement of sale

Liquidation expenses (2)

0 % to - 7.5 % (- 7.5 %)

December 31, 2024:

Loans Individually evaluated for credit losses

$

557

Appraisal of real estate collateral

Appraisal adjustments (1)

0 % to - 25 % (- 25.0 %)

and pending agreement of sale

Liquidation expenses (2)

0 % to - 7.5 % (- 7.5 %)

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

2. Appraisals and pending agreements of sale are adjusted by management for liquidation expenses. The range and weighted average of liquidation expense adjustments are presented as a percent of the appraisal or pending agreement of sale.


‎

26

Embassy Bancorp, Inc.

Notes to Consolidated Financial Statements (Unaudited )

The estimated fair values of the Company’s financial instruments were as follows at June 30, 2025 and December 31, 2024:

(Level 1)

Quoted

(Level 2)

Prices in

Significant

(Level 3)

Active

Other

Significant

Carrying

Fair Value

Markets for

Observable

Unobservable

Amount

Estimate

Identical Assets

Inputs

Inputs

(In Thousands)

June 30, 2025:

Financial assets:

Cash and cash equivalents

$

91,817

$

91,817

$

91,817

$

-

$

-

Securities available-for-sale

328,290

328,290

-

328,290

-

Loans receivable, net of allowance

1,270,028

1,190,160

-

-

1,190,160

Restricted investments in bank stock

1,051

1,051

-

1,051

-

Accrued interest receivable

4,108

4,108

-

4,108

-

Financial liabilities:

Deposits

1,610,207

1,607,834

-

1,607,834

-

Securities sold under agreements to

repurchase and federal funds purchased

7,927

7,927

-

7,927

-

Accrued interest payable

7,429

7,429

-

7,429

-

Off-balance sheet financial instruments:

Commitments to grant loans

-

-

-

-

-

Unfunded commitments under lines of credit

-

-

-

-

-

Standby letters of credit

-

-

-

-

-

December 31, 2024:

Financial assets:

Cash and cash equivalents

$

96,522

$

96,522

$

96,522

$

-

$

-

Securities available-for-sale

280,828

280,828

-

280,828

-

Loans receivable, net of allowance

1,256,256

1,155,247

-

-

1,155,247

Restricted investments in bank stock

1,663

1,663

-

1,663

-

Accrued interest receivable

3,604

3,604

-

3,604

-

Financial liabilities:

Deposits

1,552,959

1,550,360

-

1,550,360

-

Securities sold under agreements to

repurchase and federal funds purchased

4,895

4,895

-

4,895

-

Short-term borrowings

15,625

15,625

-

15,625

-

Accrued interest payable

7,812

7,812

-

7,812

-

Off-balance sheet financial instruments:

Commitments to grant loans

-

-

-

-

-

Unfunded commitments under lines of credit

-

-

-

-

-

Standby letters of credit

-

-

-

-

-

27

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

This discussion and analysis provides an overview of the financial condition and results of operations of Embassy Bancorp, Inc. (the “Company”) as of June 30, 2025 and for the three and six months ended June 30, 2025 and 2024, 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, 2024 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, 2024. Some of these policies are particularly sensitive, requiring significant judgments, estimates and assumptions to be made by management, most particularly in connection with determining the provision for credit losses and the appropriate level of the allowance for credit losses. Additional information is contained in this Form 10-Q under the paragraphs titled “Provision for Credit Losses and Reserve for Unfunded Loan Commitments” and “Credit Risk and Loan Quality,” contained on the following pages.

Caution About Forward-looking Statements

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

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

No assurance can be given that the future results covered by forward-looking statements will be achieved. Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could impact the Company’s operating results include, but are not limited to:

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

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

the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact the money supply, the potential effect of tariffs on cost of goods, and market interest rates;

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

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

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

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

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

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

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

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

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

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

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

28

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

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

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

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

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

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

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

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

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

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

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

the Company’s ability to achieve its growth plans;

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

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

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

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

other factors that may affect future results of the Company, as well as the risks described in the Company’s Form 10-K for the year ended December 31, 2024 and subsequent filings with the SEC.

OVERVIEW

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

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

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

At June 30, 2025, the Company continued to be in a strong financial and operational condition. The Bank’s June 30, 2025 capital ratios exceeded the amounts required to be considered “well capitalized” as defined in applicable banking regulations. The Company’s ratio of non-performing loans to total loans at June 30, 2025 was 0.04% and the ratio of non-performing assets to total assets was 0.03%. The Company had its most recent Community Reinvestment Act (“CRA”) examination in 2025 and received a “satisfactory” rating.

The Company’s assets increased by $54.9 million from $1.70 billion at December 31, 2024 to $1.76 billion at June 30, 2025. The increase was due to an increase of $47.5 million in securities available for sale and an increase of $13.8 million in net loans receivable, offset by a decrease of $4.7 million in cash and cash equivalents and a decrease of $2.0 million in other assets. The $4.7 million decrease in cash and cash equivalents was due to a decrease in short term borrowings of $15.6 million, the net loan growth of $13.8 million, and the purchase of $81.5 million in securities available for sale, offset by an increase in deposits of $57.2 million, an increase

29

in securities sold under agreement to repurchase of $3.0 million, and $40.8 million in principal pay downs on mortgage-backed securities and maturities within the securities available for sale portfolio. The $47.5 million increase in securities was net of a decrease in unrealized losses of $6.1 million. The current unrealized loss position of the securities portfolio is due to the increase in market interest rates in response to economic conditions since purchase and not due to the credit quality of the investment portfolio.

The Company's deposits increased by $57.2 million from $1.55 billion at December 31, 2024 to $1.61 billion at June 30, 2025. The increase in deposits was due to an increase of $58.4 million in interest bearing deposits, offset by a decrease of $1.1 million in non-interest bearing deposits. The Company continues to seek deposits using a highly effective relationship building, sales and marketing effort, which serves to further increase the Company’s overall presence in the market it serves, along with deposit relationships developed as a result of cross-marketing efforts to its loan and other non-depository banking service customers. The Company’s success in attracting new deposit relationships is, in part, due to the increased usage of the Company’s online banking platform, competitively offered rates, and the continued convenience and efficiency of our branch network and branch personnel. The Company continues to take advantage of deposit opportunities created by mergers, name changes, competitive branch hour and service adjustments and/or closures in the Company’s market area, and by attracting new customers looking to relocate to a local, reputable community bank.

Net loans receivable of $1.27 billion and $1.26 billion at June 30, 2025 and December 31, 2024, respectively, reflected an increase of $13.8 million. The market continues to be very competitive and the Company is committed to maintaining a high-quality portfolio that returns a reasonable market rate. While the past and current economic and competitive conditions in the marketplace have created more competition for loans to creditworthy customers, the Company continues to expand its market presence and pipeline, and continues to focus on developing a reputation as being a market leader in both commercial and consumer/mortgage lending. Management believes that this combination of relationship building, cross marketing and responsible underwriting will translate into continued long-term growth of a portfolio of quality loans and core deposit relationships. The Company continues to monitor the interest rate exposure of its interest-bearing assets and liabilities. See the expanded discussion under the Financial Condition: Loans section below.

Net income for the three months ended June 30, 2025 was $3.4 million compared to net income for the three months ended June 30, 2024 of $2.5 million, an increase of $945 thousand, or 37.9%. Basic and diluted earnings per share increased to $0.45 for the three months ended June 30, 2025, as compared to $0.33 for the three months ended June 30, 2024. The difference in net income for the three months ended June 30, 2025 and June 30, 2024 resulted primarily from an increase in interest income of $1.6 million and an increase of $232 thousand in non-interest income, offset by an increase in interest expense of $76 thousand, an increase of $528 thousand in non-interest expenses, and a decrease of $105 thousand in the credit for credit losses.

Net income for the six months ended June 30, 2025 was $6.3 million compared to net income for the six months ended June 30, 2024 of $5.0 million, an increase of $1.3 million, or 25.8%. Basic and diluted earnings per share increased to $0.83 for the six months ended June 30, 2025, as compared to $0.66 for the six months ended June 30, 2024. The difference in net income for the six months ended June 30, 2025 and June 30, 2024 resulted primarily from an increase in interest income of $3.4 million and an increase of $128 thousand in non-interest income, offset by an increase in interest expense of $808 thousand, an increase of $929 thousand in non-interest expenses, and a decrease of $224 thousand in the credit for credit losses.

RESULTS OF OPERATIONS

Net Interest Income

The Company determines interest rate spread and margin on both a US GAAP and tax equivalent basis. The use of tax equivalent basis in determining interest rate spread and margin is considered a non-US GAAP measure. The Company believes the use of this measure provides meaningful information to the reader of the consolidated financial statements when comparing taxable and nontaxable assets. However, it is supplemental to US GAAP which is used to prepare the Company’s consolidated financial statements and should not be read in isolation or relied upon as a substitute for US GAAP measures. In addition, the non-US GAAP measure may not be comparable to non-US GAAP measures reported by other companies. The tax rate used to calculate the tax equivalent adjustments was 21% for 2025 and 2024.

Total interest income for the three months ended June 30, 2025 increased $1.6 million to $17.7 million, as compared to $16.1 million for the three months ended June 30, 2024. Average earning assets were $1.68 billion for the three months ended June 30, 2025 as compared to $1.60 billion for the three months ended June 30, 2024. The tax equivalent yield on average earning assets was 4.27% for the second quarter of 2025 compared to 4.08% for the second quarter of 2024.

Total interest expense for the three months ended June 30, 2025 increased $76 thousand to $7.3 million, as compared to $7.2 million for the three months ended June 30, 2024. Average interest bearing liabilities were $1.27 billion for the three months ended June 30, 2025 and $1.21 billion for the three months ended June 30, 2024. The yield on average interest bearing liabilities was 2.31% and

30

2.41% for the second quarter of 2025 and 2024, respectively. The Company’s cost of funds was 1.82%, 1.82%, and 1.87% for the three months ended June 30, 2025, March 31, 2025, and June 30, 2024, respectively.

Net interest income for the three months ended June 30, 2025 was $10.4 million, compared to $8.9 million for the three months ended June 30, 2024. The increase in net interest income is, in part, the result of an increase in the average balances of taxable loans and an increase in the average balances of taxable investments, along with an increase in the rates of taxable and non-taxable loans and taxable and non-taxable investments. Also contributing to the increase in net interest income was a decrease in the average balance of savings and securities sold under agreement to repurchase and other borrowings and a decrease in the rates of interest bearing demand deposits, NOW and money markets, savings, certificates of deposits, and securities sold under agreement to repurchase and other borrowings. The increase in net interest income was offset by a decrease in the average balance of non-taxable loans, a decrease in the average balance of non-taxable investments, a decrease in the average balances of interest bearing deposits with banks, an increase in the average balance of interest bearing demand deposits, NOW and money market and an increase in the average balance of certificates of deposit, along with a decrease in the rate of fed funds sold and interest bearing deposits with banks. The Company’s net interest margin is 2.50% on a US GAAP basis and 2.52% on a tax equivalent (non-US GAAP) basis for the June 30, 2025, as compared to 2.23% on a US GAAP basis and 2.27% on a tax equivalent (non-US GAAP) basis for the June 30, 2024.

Total interest income for the six months ended June 30, 2025 increased $3.4 million to $34.7 million, as compared to $31.2 million for the six months ended June 30, 2024. Average earning assets were $1.66 billion for the six months ended June 30, 2025 as compared to $1.58 billion for the six months ended June 30, 2024. The tax equivalent yield on average earning assets was 4.25% for the six months ended June 30, 2025 compared to 4.01% for the six months ended June 30, 2024.

Total interest expense for the six months ended June 30, 2025 increased $808 thousand to $14.4 million, as compared to $13.6 million for the six months ended June 30, 2024. Average interest bearing liabilities were $1.25 billion for the six months ended June 30, 2025 and $1.18 billion for the six months ended June 30, 2024. The yield on average interest bearing liabilities was 2.33% and 2.31% for the six months ended June 30, 2025 and 2024, respectively. The Company’s cost of funds was 1.82% and 1.80% for the six months ended June 30, 2025 and 2024, respectively.

Net interest income for the six months ended June 30, 2025 was $20.2 million, compared to $17.6 million for the six months ended June 30, 2024. The increase in net interest income is, in part, the result of an increase in the average balances of taxable loans, an increase in the average balances of taxable investments, an increase in the average balances of interest bearing deposits with banks and federal funds sold, along with an increase in the rates of taxable and non-taxable loans and taxable and non-taxable investments. Also contributing to the increase in net interest income was a decrease in the average balance of savings and securities sold under agreement to repurchase and other borrowings, along with a decrease in the rates of interest bearing demand deposits, NOW and money markets, certificates of deposits, and securities sold under agreement to repurchase and other borrowings. The increase in net interest income was offset by a decrease in the average balance of non-taxable loans, a decrease in the average balance of non-taxable investments, an increase in the average balance of interest bearing demand deposits, NOW and money market, and an increase in the average balance of certificates of deposit, along with a decrease in the rate of fed funds sold and interest bearing deposits with banks, and an increase in the rate on savings. The Company’s net interest margin is 2.46% on a US GAAP basis and 2.50% on a tax equivalent (non-US GAAP) basis for the six months ended June 30, 2025, as compared to 2.24% on a US GAAP basis and 2.28% on a tax equivalent (non-US GAAP) basis for the six months ended June 30, 2024.


‎

31

The tables below set forth average balances and corresponding yields for the corresponding periods ended June 30, 2025 and 2024, respectively:

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (quarter to date)

Three Months Ended June 30,

2025

2024

Tax

Tax

Average

Equivalent

Average

Equivalent

Balance

Interest

Yield

Balance

Interest

Yield

(Dollars In Thousands)

ASSETS

Loans - taxable (2)

$

1,248,669

$

14,153

4.55%

$

1,238,627

$

13,160

4.27%

Loans - non-taxable (1)

26,541

251

4.80%

27,211

228

4.26%

Investment securities - taxable

295,172

2,248

3.05%

218,913

1,402

2.58%

Investment securities - non-taxable (1)

38,785

297

3.89%

39,734

296

3.79%

Federal funds sold

1,000

11

4.41%

1,000

13

5.23%

Interest bearing deposits with banks

68,877

766

4.46%

77,334

1,020

5.30%

TOTAL INTEREST EARNING ASSETS

1,679,044

17,726

4.27%

1,602,819

16,119

4.08%

Less allowance for credit losses

(12,136)

(12,422)

Other assets

83,629

84,522

TOTAL ASSETS

$

1,750,537

$

1,674,919

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest bearing demand deposits,
‎ NOW and money market

$

281,400

$

1,000

1.43%

$

277,007

$

1,131

1.64%

Savings

457,996

981

0.86%

467,261

1,034

0.89%

Certificates of deposit

520,899

5,289

4.07%

443,214

4,907

4.45%

Securities sold under agreements to repurchase
‎ and other borrowings

6,219

37

2.39%

19,361

159

3.30%

TOTAL INTEREST BEARING LIABILITIES

1,266,514

7,307

2.31%

1,206,843

7,231

2.41%

Non-interest bearing demand deposits

347,105

344,311

Other liabilities

23,332

23,377

Stockholders' equity

113,586

100,388

TOTAL LIABILITIES AND
‎ STOCKHOLDERS' EQUITY

$

1,750,537

$

1,674,919

Net interest income

$

10,419

$

8,888

Tax equivalent adjustments

Loans

67

61

Investments

79

79

Total tax equivalent adjustments

146

140

Net interest income on a tax equivalent basis

$

10,565

$

9,028

Net interest spread (US GAAP basis)

1.93%

1.63%

Net interest margin (US GAAP basis)

2.50%

2.23%

Net interest spread (non-US GAAP basis) (3)

1.96%

1.67%

Net interest margin (non-US GAAP basis) (3)

2.52%

2.27%

Cost of funds

1.82%

1.87%

(1) Yields on tax exempt assets have been calculated on a fully tax equivalent basis at a tax rate of 21% for the three months ended June 30, 2025 and 2024, respectively.

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

(3) Non-US GAAP net interest spread and net interest margin calculated on a fully tax equivalent basis at a tax rate of 21% for the three months ended June 30, 2025 and 2024, respectively.


‎

32

Distribution of Assets, Liabilities and Stockholders’ Equity:

Interest Rates and Interest Differential (year to date)

Six Months Ended June 30,

2025

2024

Tax

Tax

Average

Equivalent

Average

Equivalent

Balance

Interest

Yield

Balance

Interest

Yield

(Dollars In Thousands)

ASSETS

Loans - taxable (2)

$

1,245,789

$

27,859

4.52%

$

1,236,589

$

26,017

4.23%

Loans - non-taxable (1)

26,584

504

4.85%

27,268

457

4.26%

Investment securities - taxable

282,380

4,218

3.02%

223,420

2,818

2.54%

Investment securities - non-taxable (1)

39,564

594

3.84%

40,570

594

3.73%

Federal funds sold

1,000

22

4.45%

987

27

5.50%

Interest bearing deposits with banks

66,532

1,467

4.46%

49,061

1,303

5.34%

TOTAL INTEREST EARNING ASSETS

1,661,849

34,664

4.25%

1,577,895

31,216

4.01%

Less allowance for credit losses

(12,158)

(12,496)

Other assets

83,347

82,054

TOTAL ASSETS

$

1,733,038

$

1,647,453

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest bearing demand deposits,

NOW and money market

$

274,755

$

1,928

1.42%

$

262,282

$

1,982

1.52%

Savings

456,228

1,938

0.86%

475,154

1,988

0.84%

Certificates of deposit

511,295

10,467

4.14%

429,601

9,370

4.39%

Securities sold under agreements to repurchase
‎ and other borrowings

6,577

84

2.58%

16,979

269

3.19%

TOTAL INTEREST BEARING LIABILITIES

1,248,855

14,417

2.33%

1,184,016

13,609

2.31%

Non-interest bearing demand deposits

348,619

338,211

Other liabilities

23,235

23,387

Stockholders' equity

112,329

101,839

TOTAL LIABILITIES AND
‎ STOCKHOLDERS' EQUITY

$

1,733,038

$

1,647,453

Net interest income

$

20,247

$

17,607

Tax equivalent adjustments

Loans

134

121

Investments

158

158

Total tax equivalent adjustments

292

279

Net interest income on a tax equivalent basis

$

20,539

$

17,886

Net interest spread (US GAAP basis)

1.88%

1.67%

Net interest margin (US GAAP basis)

2.46%

2.24%

Net interest spread (non-US GAAP basis) (3)

1.92%

1.70%

Net interest margin (non-US GAAP basis) (3)

2.50%

2.28%

Cost of funds

1.82%

1.80%

(1) Yields on tax exempt assets have been calculated on a fully tax equivalent basis at a tax rate of 21% for the six months ended June 30, 2025 and 2024, respectively.

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

(3) Non-US GAAP net interest spread and net interest margin calculated on a fully tax equivalent basis at a tax rate of 21% for the six months ended June 30, 2025 and 2024, respectively.


‎

33

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

Three Months Ended

Six Months Ended

June 30, 2025

June 30, 2025

compared to June 30, 2024

compared to June 30, 2024

(In Thousands)

Due to change in:

Due to change in:

Total

# of

Total

# of

Change

Volume

Rate

Days

Change

Volume

Rate

Days

Interest-earning assets:

Loans - taxable

$

993

$

107

$

850

$

36

$

1,842

$

193

$

1,798

$

(149)

Loans - non-taxable

23

(6)

28

1

47

(11)

61

(3)

Investment securities - taxable

846

490

353

3

1,400

741

678

(19)

Investment securities - non-taxable

1

(7)

7

1

-

(15)

18

(3)

Federal funds sold

(2)

-

(2)

-

(5)

-

(5)

-

Interest bearing deposits with banks

(254)

(112)

(145)

3

164

463

(291)

(8)

Total net change in income on

interest-earning assets

1,607

472

1,091

44

3,448

1,371

2,259

(182)

Interest-bearing liabilities:

Interest bearing demand deposits,

NOW and money market

(131)

18

(152)

3

(54)

94

(137)

(11)

Savings

(53)

(20)

(35)

2

(50)

(79)

40

(11)

Certificates of deposit

382

862

(494)

14

1,097

1,777

(625)

(55)

Total deposits

198

860

(681)

19

993

1,792

(722)

(77)

Securities sold under agreements to

repurchase and other borrowings

(122)

(108)

(14)

-

(185)

(164)

(21)

-

Total net change in expense on

interest-bearing liabilities

76

752

(695)

19

808

1,628

(743)

(77)

Change in net interest income

$

1,531

$

(280)

$

1,786

$

25

$

2,640

$

(257)

$

3,002

$

(105)

Provision for Credit Losses and Reserve for Unfunded Loan Commitments

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

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

The allowance consists of a collectively evaluated component and an individually evaluated component. The collectively evaluated component covers non-classified loans and classified loans not considered loans individually evaluated for credit losses, and is based on historical loss experience adjusted for forecasting factors and qualitative factors. The individually evaluated component relates to loans that are classified as loans individually evaluated for credit losses and/or restructured. For loans that are classified as loans individually evaluated for credit losses, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the loans individually evaluated for credit losses is lower than the carrying value of that loan.

34

For the three months ended June 30, 2025, the credit for credit losses on loans was $165 thousand and the credit for credit losses on unused commitments was $13 thousand, compared to credit for credit losses of $286 thousand and the provision for credit losses on unused commitments of $3 thousand for the three months ended June 30, 2024. In the three months ended June 30, 2025, there were $152 thousand of charge-offs and no recoveries. In the three months ended June 30, 2024, there were $11 thousand of charge-offs and no recoveries.

For the six months ended June 30, 2025, the credit for credit losses on loans was $109 thousand and the credit for credit losses on unused commitments was $22 thousand, compared to credit for credit losses on loans of $444 thousand and the provision for credit losses on unused commitments of $89 thousand for the six months ended June 30, 2024. In the six months ended June 30, 2025, there were $152 thousand of charge-offs and no recoveries. In the six months ended June 30, 2024, there were $11 thousand of charge-offs and recoveries of $240 thousand.

The credit for credit losses is a function of the allowance for credit loss methodology that the Company uses to determine the appropriate level of the allowance for inherent credit losses after net charge-offs have been deducted. See the discussion below under “Credit Risk and Loan Quality” regarding the Company’s considerations of its June 30, 2025 allowance for credit loss levels. The allowance for credit losses is $11.9 million as of June 30, 2025, which is 0.93% of total loans receivable, compared to $12.2 million or 0.97% of total loans receivable as of June 30, 2024. At December 31, 2024, the allowance for credit losses was $12.2 million, which represented 0.96% of total loans receivable. Based principally on loan growth, economic conditions, asset quality, and loan-loss experience, including that of comparable institutions in the Company’s market area, the allowance is believed to be adequate to absorb any losses expected in the portfolio. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for credit losses is adequate, or that material increases will not be necessary should the quality of the loans deteriorate. The Company has not participated in any sub-prime lending activity.

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

3

Three Months Ended

Six Months Ended

June 30,

June 30,

2025

2024

2025

2024

(In Thousands)

Loans receivable at end of period

$

1,281,066

$

1,262,132

$

1,281,066

$

1,262,132

Allowance for credit losses:

Balance, beginning

$

12,222

$

12,543

$

12,166

$

12,461

Credit for credit losses

(165)

(286)

(109)

(444)

Loans charged off:

Commercial real estate

(136)

-

(136)

-

Commercial construction

-

-

-

-

Commercial

(15)

-

(15)

-

Residential real estate

-

-

-

-

Consumer

(1)

(11)

(1)

(11)

Total loans charged off

(152)

(11)

(152)

(11)

Recoveries of loans previously charged off:

Commercial real estate

-

-

-

240

Commercial construction

-

-

-

-

Commercial

-

-

-

-

Residential real estate

-

-

-

-

Consumer

-

-

-

-

Total recoveries

-

-

-

240

Net (charge offs) recoveries

(152)

(11)

(152)

229

Balance at end of period

$

11,905

$

12,246

$

11,905

$

12,246

Allowance for credit losses to loans receivable at end of period

0.93%

0.97%

0.93%

0.97%

In addition to the allowance for credit losses, the Company maintains a reserve for unfunded commitments at a level that management believes is adequate to absorb probable losses. At June 30, 2025 and December 31, 2024, a $70 thousand and $92 thousand unfunded commitment reserve was reported, respectively, on the Consolidated Balance Sheets in other liabilities.


‎

35

Non-interest Income

Total non-interest income was $936 thousand for the three months ended June 30, 2025 compared to $704 thousand for the same period in 2024. The increase is, in part, attributable to an increase in bank owned life insurance of $229 and an increase of $16 thousand in other service fees. The increase in the bank owned life insurance income was primarily due to an increase in separate account life insurance assets driven by the effect market conditions had on underlying life insurance assets. Offsetting this increase is a decrease in merchant and credit card processing fees of $20 thousand.

Total non-interest income was $1.6 million for the six months ended June 30, 2025 compared to $1.4 million for the same period in 2024. The increase is, in part, attributable to an increase in bank owned life insurance of $109 thousand and an increase in other service fees of $38 thousand primarily due to overdraft fees, certificate of deposit penalty fees, and wire fees. Offsetting this increase is a decrease in merchant and credit card processing fees of $35 thousand.

Non-interest Expense

Non-interest expenses increased $528 thousand from $6.9 million for the three months ended June 30, 2024 to $7.4 million for the three months ended June 30, 2025. The increase in non-interest expenses is, in part, attributable to a $350 thousand increase in salaries and employee benefits due to annual increases in salaries and bonuses, new hires, and an increase in health insurance cost, offset by a decrease in stock grant expense and an increase in deferred loan costs. Additional increases in non-interest expenses are attributable to an increase of $122 thousand in data processing expenses due, in part, to the implementation of a new content management software and general ledger system, an increase of $15 thousand in advertising and promotion expenses, and an increase of $22 thousand in loan and real estate expenses. The Company’s efficiency ratio, a non-GAAP measure, was 65.2% and 71.7% for the three months ended June 30, 2025 and 2024, respectively.

Non-interest expenses increased $929 thousand from $13.4 million for the six months ended June 30, 2024 to $14.3 million for the six months ended June 30, 2025. The increase in non-interest expenses is, in part, attributable to a $488 thousand increase in salaries and employee benefits due to annual increases in salaries and bonuses, new hires, and an increase in health insurance cost, offset by a decrease in stock grant expense and an increase in deferred loan costs. Additional increases in non-interest expenses are attributable to an increase of $73 thousand in occupancy and equipment in part due to an increase in rent and building maintenance, an increase of $248 thousand in data processing expenses due, in part, to the implementation of a new content management software and general ledger system, an increase of $52 thousand in advertising and promotion expenses, an increase of $37 thousand in professional fees, and an increase of $48 thousand in loan and real estate expenses, offset by a decrease of $50 thousand in other expenses. The Company’s efficiency ratio, a non-GAAP measure, was 65.6% and 70.2% for the six months ended June 30, 2025 and 2024, respectively.

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

Income Taxes

The provision for income taxes for the three months ended June 30, 2025 totaled $691 thousand, or 16.7% of income before taxes, compared to income taxes for the three months ended June 30, 2024 totaling $506 thousand, or 16.9% of income before taxes. The decrease in the tax rate is, in part, the result of an increase in income on bank owned life insurance and the result of the change in the mix of taxable and tax free loans and investments.

The provision for income taxes for the six months ended June 30, 2025 totaled $1.3 million, or 17.2% of income before taxes, compared to income taxes for the six months ended June 30, 2024 totaling $993 thousand, or 16.5% of income before taxes. The increase in the tax rate is, in part, the result of the change in the mix of taxable and tax free loans and investments, offset by an increase in income on bank owned life insurance.

On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act,” into law. The legislation includes several changes to federal tax law that generally allows for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100 percent bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Company is currently evaluating the impact on future periods

FINANCIAL CONDITION

Securities

The Company’s securities portfolio continues to be classified, in its entirety, as “available for sale.” Management believes that a portfolio classification of available for sale allows complete flexibility in the investment portfolio. Using this classification, the Company intends to hold these securities for an indefinite amount of time, but not necessarily to maturity. Such securities are carried

36

at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is structured to provide a return on investments while providing a consistent source of liquidity and meeting strict risk standards. Investment securities consist primarily of mortgage-backed securities issued by FHLMC or FNMA, taxable and non-taxable municipal bonds, government agency bonds, and Treasury bonds. The Company holds no high-risk or direct internationally exposed securities or derivatives as of June 30, 2025. The Company has not made any investments in non-U.S. government agency mortgage backed securities or sub-prime loans. The current liquidity of the portfolio has been impacted by the increase in market interest rates. Selling of securities would not be expected as a primary source of short term liquidity given the unrealized losses currently in the portfolio.

Total securities at June 30, 2025 were $328.3 million compared to $280.8 million at December 31, 2024. The increase in the investment portfolio resulted from the purchase of twenty three (23) Treasury bonds and five (5) government agency bonds totaling $81.5 million and a decrease in unrealized losses of $6.1 million, offset by principal pay downs on mortgage-backed securities, the maturity of one (1) government agency bond, and the maturity of eight (8) Treasury bonds totaling $40.8 million. The carrying value of the securities portfolio as of June 30, 2025 includes a net unrealized loss of $58.0 million, which is recorded as accumulated other comprehensive loss in stockholders’ equity net of income tax effect. This compares to a net unrealized loss of $64.1 million at December 31, 2024. The current unrealized loss position of the securities portfolio is due to increasing market interest rates in 2022 through 2023 in response to economic conditions since initial purchase. Management determined the Company does not have the intent to sell, nor is it more likely than not that it will be required to sell, securities in an unrealized loss position at June 30, 2025. Further, management reviewed the Company's securities as of June 30, 2025 and concluded there were no credit-related declines in fair value. The effective duration of the securities portfolio remains approximately 6 years at June 30, 2025. The Company remains focused on strategically assessing and managing the portfolio to address the unrealized losses.

Loans

The loan portfolio comprises a major component of the Company’s earning assets. All of the Company’s loans are to domestic borrowers. Net loans receivable were at $1.27 billion at June 30, 2025 and $1.26 billion at December 31, 2024, with an increase of $13.8 million. The gross loan-to-deposit ratio decreased to 80% at June 30, 2025, compared to 82% at December 31, 2024. The Company’s loan portfolio at June 30, 2025 was comprised of residential real estate and consumer loans of $677.9 million, an increase of $8.7 million from December 31, 2024, and commercial loans of $603.2 million, an increase of $4.6 million from December 31, 2024. The Company has not originated, nor does it intend to originate, sub-prime mortgage loans.

Credit Risk and Loan Quality

The Company’s allowance for credit losses was $11.9 million and $12.2 million at June 30, 2025 and December 31, 2024, respectively, a decrease of $261 thousand. At June 30, 2025 and December 31, 2024, the allowance for credit losses represented 0.93% and 0.96% of total loans receivable, respectively. The Company’s non-performing loans to total loans receivable were 0.04% at June 30, 2025, compared to 0.06% at June 30, 2024, and 0.04% at December 31, 2024. In the three months ended June 30, 2025, there were charge-offs of $152 thousand and no recoveries. In the three months ended June 30, 2024, there were charge-offs of $11 thousand and no recoveries. In the six months ended June 30, 2025, there were charge-offs of $152 thousand and no recoveries. In the six months ended June 30, 2024, there were charge-offs of $11 thousand and recoveries of $240 thousand. The aggregate balances on non-performing loans are included in the following table.

At June 30, 2025, approximately 96% of the Company’s loan portfolio is collateralized by real estate. Our loan portfolio includes a large amount of commercial real estate loans. Management believes the commercial real estate loan portfolio is well-diversified. At June 30, 2025 and December 31, 2024, high volatility commercial real estate exposures were $7.1 million and $11.0 million, respectively. Commercial real estate loans are originated primarily within Lehigh and Northampton counties, are within the Company’s underwriting criteria, and generally include the guarantee of one or more of the borrowers’ affiliates. At June 30, 2025, the Company’s office space portfolio included no exposure to properties in major metropolitan markets. Commercial real estate loans have drawn the attention of the regulators in recent years as a potential source of risk. The Company monitors these types of loans closely, obtaining updated appraisals on loans when required. As detailed in the Allowance for Credit Losses table, the Company had no charge-offs in this category in 2024, and $136 thousand in commercial real estate charge-offs in 2025. The Company believes it has taken the appropriate steps to implement appropriate risk management practices for its commercial real estate loan portfolio, which are subject to regulatory examination.


‎

37

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

June 30, 2025

December 31, 2024

June 30, 2024

(In Thousands)

Non-accrual - commercial

$

-

$

151

$

-

Non-accrual - consumer

485

344

292

Loans past due 90 or more days, accruing interest

-

-

496

Total nonperforming loans

485

495

788

Foreclosed assets

-

-

-

Total nonperforming assets

$

485

$

495

$

788

Nonperforming loans to total loans

0.04%

0.04%

0.06%

Nonperforming assets to total assets

0.03%

0.03%

0.05%

Non-accrual loans to total loans

0.04%

0.04%

0.02%

Allowance to non-accrual loans

2454.64%

2457.78%

4193.84%

Net charge-offs to average loans

-0.01%

-0.02%

-0.02%

Premises and Equipment

Company premises and equipment, net of accumulated depreciation, decreased $154 thousand from December 31, 2024 to June 30, 2025. This decrease is primarily due to depreciation on existing premises and equipment, offset by new purchases.

Deposits

Total deposits at June 30, 2025 increased by $57.2 million to $1.61 billion from $1.55 billion at December 31, 2024. The increase in the Company’s deposits was due to an increase of $7.4 million in demand, NOW and money market deposits, an increase of $9.7 million in savings, and an increase of $40.1 million in time deposits. Included in the above mentioned increase was a $9.0 million increase in non-interest bearing demand business deposits, offset by a $10.1 million decrease in non-interest bearing demand personal deposits. Included in total deposits at June 30, 2025 were personal deposits of $1.12 billion, business deposits of $392.8 million, and municipal deposits of $102.0 million. Included in total deposits at December 31, 2024 were personal deposits of $1.11 billion, business deposits of $351.9 million, and municipal deposits of $93.4 million. The Company continues to see steady increases in new deposit accounts and customer relationships. The estimated amount of uninsured assessable deposits, including related interest accrued and unpaid, at June 30, 2025 and December 31, 2024 was $550.9 million and $514.1 million, respectively.

Liquidity

Liquidity represents the Company’s ability to meet the demands required for the funding of loans and to meet depositors’ requirements for use of their funds. The Company’s sources of liquidity are cash balances, due from banks, and federal funds sold. Cash and cash equivalents were $91.8 million at June 30, 2025, compared to $96.5 million at December 31, 2024.

Additional asset liquidity sources include principal and interest payments from the investment security and loan portfolios. Long-term liquidity needs may be met by selling unpledged securities available for sale, selling or participating loans, or raising additional capital. As noted above, selling of securities would not be a primary source of short term liquidity given the unrealized losses currently in the portfolio. At June 30, 2025, the Company had $328.3 million of available for sale securities, compared to $280.8 million at December 31, 2024. At June 30, 2025, the Bank had a maximum borrowing capacity for short-term and long-term FHLB advances of approximately $702.0 million, of which $701.8 million is available for borrowing at June 30, 2025. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. The Bank had an outstanding FHLB letter of credit in the amount of $160 thousand as of June 30, 2025. There were no FHLB short-term or long-term advances outstanding as of June 30, 2025. There were $15.6 million short-term FHLB advances outstanding and no long-term FHLB advances outstanding as of December 31, 2024. All FHLB borrowings are secured by qualifying assets of the Bank.

The Bank has a federal funds line of credit with the ACBB of $10.0 million, of which none was outstanding at June 30, 2025 and December 31, 2024. Advances from this line are unsecured.

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

The Company has a revolving line of credit facility with the ACBB of $7.5 million, of which none was outstanding at June 30, 2025 and December 31, 2024. Advances from this line are unsecured.

The Bank is a member of the Certificate of Deposit Account Registry Services (CDARS) program and the Insured Cash Sweep (ICS) program offered by Promontory Interfinancial Network, LLC. CDARS is a funding and liquidity management tool used by banks to access funds and manage their balance sheet. ICS provides liquidity similar to a money market or savings account. Both programs

38

enable financial institutions to provide customers with full FDIC insurance on deposits over $250 thousand that are placed in the program. The Bank also has access to other brokered deposits as a source of liquidity.

Because of the composition of the Company’s balance sheet, its strong capital base, ability to attract new deposit relationships, access to brokered deposits, and borrowing capacity, the Company believes that it remains well positioned with respect to liquidity. The majority of the Company’s funds are invested in loans with a portion invested in investment securities that generally carry a lower yield. While it is desirable to be liquid, it has the effect of a lower interest margin. The Company has no investment in or financial relationship with any unconsolidated entities that are reasonably likely to have a material effect on liquidity or capital resources.

Off-Balance Sheet Arrangements

The Company’s consolidated financial statements do not reflect the various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These off-balance sheet arrangements consist of unfunded loans and commitments, as well as lines of credit made under the same standards as on-balance sheet instruments. These unused commitments totaled $190.4 million and $180.5 million at June 30, 2025 and December 31, 2024, respectively. At June 30, 2025 and December 31, 2024, there was a $70 thousand and $92 thousand allowance for credit losses required for off-balance sheet arrangements, respectively. At June 30, 2025 and December 31, 2024, the Company had letters of credit outstanding of $6.3 million and $6.6 million, respectively. Because these instruments have fixed maturity dates, and because many of them will expire without being drawn upon, they do not generally present any significant liquidity risk to the Company. Management is of the opinion that the Company’s liquidity is sufficient to meet its anticipated needs.

Capital Resources and Adequacy

Total stockholders’ equity was $114.3 million as of June 30, 2025, representing a net increase of $7.8 million from December 31, 2024. The increase in capital was the result of net income of $6.3 million, an increase in common stock of $19 thousand, an increase in surplus of $341 thousand due to employee stock purchases and stock grants with compensation expense, and a decrease of $4.8 million in accumulated other comprehensive loss, offset by dividends declared of $3.7 million. The accumulated other comprehensive losses are excluded from both the Bank’s and the Company’s Tier 1 regulatory capital calculations.

The Company’s tangible book value per share, calculated as total stockholders’ equity divided by outstanding common stock shares, was $14.95 and $13.96 at June 30, 2025 and December 31, 2024, respectively.

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

The regulations require that banks maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined in the regulations), and Tier 1 capital to average assets (as defined in the regulations). As of June 30, 2025, the Bank met the minimum requirements. In addition, the Bank’s capital ratios exceeded the amounts required to be considered “well capitalized” as defined in the regulations.

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

Consolidated Bank

June 30, 2025

December 31, 2024

(Dollars In Thousands)

Tier 1, common stockholders' equity

$

159,880

$

156,892

Tier 2, allowable portion of allowance for credit losses

11,975

12,258

Total capital

$

171,855

$

169,150

Common equity tier 1 capital ratio

14.0

%

13.9

%

Tier 1 risk based capital ratio

14.0

%

13.9

%

Total risk based capital ratio

15.0

%

14.9

%

Tier 1 leverage ratio

8.9

%

9.0

%

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

39

In addition to the risk-based capital guidelines, the federal banking regulators established minimum leverage ratio (Tier 1 capital to total assets) guidelines for bank holding companies. These guidelines provide for a minimum leverage ratio of 3% for those bank holding companies which have the highest regulatory examination ratings and are not contemplating or experiencing significant growth or expansion. All other bank holding companies are required to maintain a leverage ratio of at least 4%.

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

Common equity of 6.5%;

Tier 1 leverage of 5%;

Tier 1 risk-based capital of 8%; and

Total risk-based capital of 10%.

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

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

Consolidated Corporation

June 30, 2025

December 31, 2024

(Dollars In Thousands)

Tier 1, common stockholders' equity

$

160,130

$

157,115

Tier 2, allowable portion of allowance for credit losses

11,975

12,258

Total capital

$

172,105

$

169,373

Common equity tier 1 capital ratio

14.0

%

13.9

%

Tier 1 risk based capital ratio

14.0

%

13.9

%

Total risk based capital ratio

15.1

%

15.0

%

Tier 1 leverage ratio

8.9

%

9.1

%

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

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

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

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

Based on a twelve-month forecast of the balance sheet, the following table sets forth the Company’s interest rate risk profile at June 30, 2025. For income simulation purposes, personal and business savings accounts reprice every two months, personal and business NOW accounts reprice every two months and personal, and business money market accounts reprice every month. Management reviews all assumptions on a periodic basis and believes current assumptions support market conditions. The Company is liability sensitive, which means if interest rates fall, interest income will fall slower than interest expense and interest income will likely

40

increase. The impact on net interest income, illustrated in the following table, would vary if different assumptions were used or if actual experience differs from that indicated by the assumptions.

Change in Interest Rates

Percentage Change in Net Interest Income

Down 100 basis points

3.7%

Down 200 basis points

6.3%

Up 100 basis points

-4.2%

Up 200 basis points

-8.7%

Item 4 – Controls and Procedures

The term “disclosure controls and procedures” is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2025, and they have concluded that, as of this date, our disclosure controls and procedures were effective at ensuring that required information will be disclosed on a timely basis in our reports filed under the Exchange Act. There were no significant changes to our internal controls over financial reporting or in the other factors that could significantly affect our internal controls over financial reporting during the quarter ended June 30, 2025, including any corrective actions with regard to significant deficiencies and material weakness.

Part II - Other Information

I tem 1 - Legal Proceeding s

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

Item 1A - Risk Factors

In addition to the other information set forth in this Quarterly Report, the reader should carefully consider the factors discussed in “Risk Factors” included within the Company’s 2024 Form 10-K and subsequent filings with the SEC. There are no material changes to such risk factors. Such risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently believe to be immaterial also may materially adversely affect our business, financial condition and/or operating results. See “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Caution About Forward-looking Statements.”

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

None.

Ite m 3 - Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

None.

Item 5 - Other Information

During the three months ended June 30, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s common stock that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “ non - Rule 10b5-1 trading arrangement” as such term is defined in Item 408(c) of Regulation S-K.


‎

41

Item 6 - Exhibit s

Exhibit

Number

Description

3.1

Articles of Incorporation as amended (conformed) (Incorporated by reference to Exhibit 3.1 of Registrant's

Form 10-K filed on March 18, 2022).

3.2

Amended and Restated By-Laws (conformed) (Incorporated by reference to Exhibit 3.2 of Registrant's

Form 10-K filed on March 18, 2022).

31.1

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

31.2

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

32

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 1350

of the Sarbanes-Oxley Act of 2002.

101.1

Interactive Data Files (XBRL)

No.

Description

101.INS

XBRL Instance Document.*

101.SCH

XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definitions Linkbase Document.

104

Cover Page Interactive Data File (formatted as inline XBRL

and contained in Exhibit 101)

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


‎

42

SIGNATURES

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

EMBASSY BANCORP, INC.

(Registrant)

Dated: August 13, 2025

By:

/s/ David M. Lobach, Jr.

David M. Lobach, Jr.

President and Chief Executive Officer

Dated: August 13, 2025

By:

/s/ Judith A. Hunsicker

Judith A. Hunsicker

First Executive Officer,

Chief Operating Officer, Secretary and

Chief Financial Officer


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43

TABLE OF CONTENTS