Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis provides an overview of the consolidated financial condition and results of operations of the Company for the years ended December 31, 2025 and 2024. This discussion should be read in conjunction with the consolidated financial statements and notes to consolidated financial statements appearing elsewhere in this report.
Critical Accounting Estimates and Judgements
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which require the Company to make estimates and assumptions. The Company believes that its determination of the allowance for credit losses (“ACL”) involves a higher degree of judgment and complexity than the Company’s other significant accounting policies. Further, this estimate can be materially impacted by changes in market conditions or the actual or perceived financial condition of the Company’s borrowers, subjecting the Company to significant volatility of earnings.
A material estimate that is particularly susceptible to significant change is the determination of the allowance for credit losses. The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. Management believes the allowance for credit losses is adequate and reasonable. For additional discussion concerning the Company’s allowance for credit losses and related matters, see “Provision for Credit Losses” and “Allowance for Credit Losses” in Notes 1 and 3 to
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the consolidated financial statements. Given the very subjective nature of identifying and valuing credit losses, it is likely that well-informed individuals could make materially different assumptions, and could, therefore calculate a materially different allowance value. While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in future years. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments of information available to them at the time of their examination.
GENERAL
The Company is a Pennsylvania corporation organized in 2008 and registered as a bank holding company pursuant to the BHC Act. The Company was formed for purposes of acquiring 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.
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.
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.
OVERVIEW
The Company’s assets increased by $96.2 million from $1.70 billion at December 31, 2024 to $1.80 billion at December 31, 2025. The increase was due to a $16.3 million increase in cash and cash equivalents, an increase of $61.1 million in securities available for sale, an increase of $22.9 million in net loans receivable, and an increase of $1.3 million in bank owned life insurance, offset by a decrease of $5.2 million in other assets. The $16.3 million increase in cash and cash equivalents was due to an increase in deposits of $87.3 million, $64.7 million in principal pay downs on mortgage-backed securities and maturities within the securities available for sale portfolio, an increase in securities sold under agreement to repurchase of $5.0 million, offset by a decrease in short term borrowings of $15.6 million, the net loan growth of $22.9 million, and the purchase of $108.9 million in securities available for sale. The $61.1 million increase in securities available for sale was net of a decrease in unrealized losses of $15.9 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.
Net loans receivable increased by $22.9 million to $1.28 billion at December 31, 2025, as compared to $1.26 billion at December 31, 2024. 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 and less demand for commercial real estate financing or refinancing. 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.
The Company's deposits increased by $87.3 million from $1.55 billion at December 31, 2024 to $1.64 billion at December 31, 2025. The increase in deposits was due to a $5.8 million increase in non-interest bearing deposits and an increase of $81.4 million in interest bearing deposits. The Company continues to seek deposits using a highly effective relationship building, sales and marketing effort, which serves to further increase the Company’s overall
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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.
The Company’s net income increased $3.3 million, or 31.2%, to $13.7 million in 2025 from $10.4 million in 2024. Basic and diluted earnings per share increased to $1.79 in 2025, as compared to $1.37 in 2024. The difference in net income for the year ended December 31, 2025 and December 31, 2024 resulted primarily from an increase in interest income and an increase in non-interest income, offset by an increase in interest expense, an increase in non-interest expenses, and an increase in the provision for credit losses.
Subsequent to the December 31, 2025 balance sheet date, in January 2026 the Company purchased two (2) government agency bonds and one (1) mortgage-backed security totaling $7.5 million and in February 2026 the Company purchased two (2) Treasury bonds and one (1) mortgage-backed security totaling $7.0 million.
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
The majority of the Company’s earnings derives from net interest income, which is the difference between income earned on assets and the cost supporting those assets. The net interest margin is the ratio of net interest income to average earning assets. Earning assets are composed primarily of loans and investments, along with interest-bearing deposits with other banks. Interest-bearing deposits and borrowings make up the cost of funds. Non-interest bearing deposits and capital are other components representing funding sources. Changes in the volume and mix of assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income and net interest margin. The timing of deposit and loan growth also impacts net interest income.
Generally, changes in net interest income are measured by net interest rate spread and net interest margin. Interest rate spread is the mathematical difference between the average interest earned on earning assets and interest paid on interest bearing liabilities. Interest margin represents the net interest yield on earning assets. The interest margin gives a reader a better indication of asset earning results when compared to peer groups or industry standards.
The Company determines interest rate spread and margin on both 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 use of this measure provides meaningful information to the reader of the consolidated financial statements when comparing taxable and non-taxable 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.
2025 Compared to 2024
Total interest income for the year ended December 31, 2025 increased $6.5 million to $71.5 million, as compared to $65.0 million for the year ended December 31, 2024. Average earning assets were $1.68 billion for the year ended December 31, 2025, as compared to $1.60 billion for the year ended December 31, 2024. The tax equivalent yield on average earning assets was 4.28%, or an increase of 19 basis points, for the year ended December 31, 2025, compared to 4.09% for the year ended December 31, 2024.
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Total interest expense for the year ended December 31, 2025 increased $251 thousand to $29.0 million, as compared to $28.8 million for the year ended December 31, 2024. Average interest bearing liabilities were $1.27 billion for the year ended December 31, 2025, as compared to $1.20 billion for the year ended December 31, 2024. The yield on average interest bearing liabilities was 2.29%, or a decrease of 10 basis points, for the year ended December 31, 2025, compared to 2.39% for the year ended December 31, 2024. The Company’s overall cost of funds for the year ended December 31, 2025 decreased to 1.80% from 1.87% for the year ended December 31, 2024.
Net interest income for the year ended December 31, 2025 was $42.4 million, compared to $36.2 million for the year ended December 31, 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, and an increase in the average balance of interest bearing deposits with banks, 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, a decrease in the average balance of securities sold under agreement to repurchase, and a decrease in the average balance of other borrowings, along with 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, an increase in the average balances of NOW accounts, money markets, and 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 2.52% on a US GAAP basis and 2.55% on a tax equivalent (non-US GAAP) basis for the year ended December 31, 2025, an improvement, as compared to 2.26% on a US GAAP basis and 2.29% on a tax equivalent (non-US GAAP) basis for the year ended December 31, 2024.
For the fourth quarter of 2025, the Company’s net interest margin is 2.61% on a US GAAP basis and 2.65% on a tax equivalent (non-US GAAP) basis, respectively. These are both increases from the quarter ended December 31, 2024, when the net interest margin was 2.24% on a US GAAP basis and 2.28% on a tax equivalent (non-US GAAP) basis, respectively. The quarterly results for the fourth quarter of 2025 were consistent with the quarter ended September 30, 2025, when the net interest margin was 2.54% on a US GAAP basis and 2.58% on a tax equivalent (non-US GAAP) basis, respectively.
For the fourth quarter of 2025, the Company’s overall cost of funds decreased to 1.75% from 1.81% for the third quarter of 2025.
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Embassy Bancorp, Inc.
The following table includes the average balances, interest income and expense and the average rates earned and paid for assets and liabilities for the periods presented. All average balances are daily average balances.
Average Balances, Rates and Interest Income and Expense
Average Tax Equivalent Average Tax Equivalent
Balance Interest Yield Balance Interest Yield
(Dollars in Thousands)
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND
Tax equivalent adjustments:
Total tax equivalent adjustments 581 560
Net interest income on a tax equivalent basis $ 43,005 $ 36,744
Net interest spread (US GAAP basis) 1.95% 1.66%
Net interest margin (US GAAP basis) 2.52% 2.26%
Net interest spread (non-US GAAP basis) (3) 1.99% 1.70%
Net interest margin (non-US GAAP basis) (3) 2.55% 2.29%
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Embassy Bancorp, Inc.
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.
Increase (decrease) due to changes in:
(In Thousands)
Volume Rate Total
Interest-earning assets:
Investment securities - non-taxable (24) 28 4
Federal funds sold - (10) (10)
Interest bearing deposits with banks 917 (781) 136
Total net change in income on
Interest-bearing liabilities:
Interest bearing demand deposits,
Securities sold under agreements to
repurchase and other borrowings (264) (146) (410)
Total net change in expense on
Provision for Credit Losses
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 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
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Embassy Bancorp, Inc.
credit losses and/or restructured. For loans that are classified as loans individually evaluated for credit losses, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the loans individually evaluated for credit losses is lower than the carrying value of that loan.
For additional information on ASC Topic 326, see Note 1 “Summary of Significant Accounting Policies.”
For the year ended December 31, 2025, the provision for credit losses was $25 thousand, compared to the credit for credit losses of $525 thousand for the year ended December 31, 2024. In the year ended December 31, 2025, there were $152 thousand in charge-offs and no recoveries, compared to $11 thousand in charge-offs and $241 thousand in recoveries for the year ended December 31, 2024. The provision (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 December 31, 2025 allowance for credit loss levels. The allowance for credit losses is $12.0 million as of December 31, 2025, which is 0.93% of total loans receivable, compared to $12.2 million or 0.96% of total loans receivable as of December 31, 2024. 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.
Non-interest Income
Non-interest income is derived from the Company’s operations and represents primarily merchant and credit card processing fees, debit card interchange fees, service fees on deposit and loan relationships and income from bank owned life insurance. Non-interest income also may include net gains and losses from the sale of available for sale securities, loans, and other real estate owned.
Total non-interest income was $3.3 million for the year ended December 31, 2025, compared to $3.2 million for the same period in 2024. The increase is, in part, attributable to an increase of $19 thousand in debit card interchange fees, an increase of $10 thousand in bank owned life insurance, an increase of $29 thousand from the gain on the sale of other real estate owned, and an increase in other service fees of $82 thousand primarily due to overdraft fees, wire fees, and certificate of deposit penalty fees. Offsetting this increase is a decrease in merchant and credit card processing fees of $66 thousand.
As the deposit customer account base continues to grow and the Company continues to mature and develop additional sources of fee income, non-interest income is expected to become a larger contributor to the overall profitability of the Company. Currently, and unlike many in the industry, the Company does not derive additional non-interest fee income by selling its mortgages in the secondary market, nor does it offer trust or investment/brokerage services to its customers, that traditionally increase non-interest income.
Non-interest Expense
Non-interest expenses represent the normal operating expenses of the Company. These expenses include salaries, employee benefits, occupancy, equipment, data processing, advertising and other expenses related to the overall operation of the Company.
Non-interest expenses for the year ended December 31, 2025 was $29.0 million, compared to $27.3 million for the year ended December 31, 2024. The increase in non-interest expenses is, in part, attributable to a $857 thousand increase in salaries and employee benefits due to annual increases in salaries and benefits, incentives and bonuses, employee taxes, and health insurance cost, offset by an increase in deferred loan costs, a decrease in stock grant expense, and a decrease in non-qualified pension expense. Additional increases in non-interest expenses are attributable to an increase of $91 thousand in occupancy and equipment expenses due in part to an increase in rent
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Embassy Bancorp, Inc.
expense, building maintenance, and utility expenses, as well as an increase of $629 thousand in data processing expenses due, in part, to the implementation of a new content management software and general ledger system and an increase in maintenance contracts, an increase of $59 thousand in loan and real estate expenses, an increase of $51 thousand in charitable contributions, and an increase of $71 thousand in other expenses. These increases in non-interest expenses were offset, in part, by a $81 thousand decrease in advertising and promotion expenses. The Company’s efficiency ratio improved to 63.4% from 69.3% for the years ending December 31, 2025 and 2024, respectively.
A breakdown of other non-interest expenses is included in the Consolidated Statements of Income included in Item 8 of this Report.
Income Taxes
The provision for income taxes was $2.9 million and $2.1 million for December 31, 2025 and December 31, 2024, respectively. The effective rate on income taxes for the years ended December 31, 2025 and 2024 was 17.5% and 16.5%, respectively. 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 a slight 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 at fair value with unrealized gains or losses reported as a separate component of stockholders’ equity. The portfolio is generally structured to provide maximum 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 December 31, 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 during 2022 and 2023. Selling of securities would not be expected as a primary source of short term liquidity given the unrealized losses currently in the portfolio.
The Company’s securities portfolio was $341.9 million at December 31, 2025, a $61.1 million increase from securities of $280.8 million at December 31, 2024.The increase in the investment portfolio resulted from the purchase of twenty-five (25) Treasury bonds, seven (7) government agency bonds, and seven (7) mortgage-backed securities totaling $108.9 million and a decrease in unrealized losses of $15.9 million, offset by principal pay downs on mortgage-backed securities, the maturity of three (3) government agency bonds, and the maturity of ten (10) Treasury bonds totaling $64.7 million. The carrying value of the securities portfolio as of December 31, 2025 includes a net unrealized loss of $48.2 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 December 31, 2025. Further, management reviewed the Company's securities as of December 31, 2025 and concluded
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there were no credit-related declines in fair value. The effective duration of the securities portfolio is approximately 5 to 6 years at December 31, 2025. The Company remains focused on strategically assessing and managing the portfolio to address the unrealized losses.
The following table sets forth the composition of the securities portfolio at fair value as of December 31, 2025 and December 31, 2024.
(In Thousands)
U.S. Government sponsored enterprise (GSE)
- Mortgage-backed securities - commercial - 436
U.S. Government sponsored enterprise (GSE)
The following table presents the maturities and average weighted yields of the debt securities portfolio as of December 31, 2025. Maturities of mortgage-backed securities are based on estimated life. Yields are based on amortized cost.
Securities by Maturities
1 year or Less 1-5 Years 5-10 Years Over 10 Years Total
Average Average Average Average Average
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars In Thousands)
U.S. Government agency
U.S. GSE - Mortgage-
backed securities-
Loans
The loan portfolio comprises a major component of the Company’s earning assets. All of the Company’s loans are to domestic borrowers. Total net loans receivable increased by $22.9 million to $1.28 billion at December 31, 2025 from $1.26 billion at December 31, 2024. The gross loan-to-deposit ratio decreased to 79% at December 31, 2025, compared to 82% at December 31, 2024. The Company’s loan portfolio at December 31, 2025 was comprised of residential real estate and consumer loans of $688.3 million, an increase of $19.1 million from December 31, 2024, and commercial loans of $602.0 million, an increase of $3.4 million from December 31, 2024. The Company has not originated, nor does it intend to originate, sub-prime mortgage loans.
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Embassy Bancorp, Inc.
The following table sets forth information on the composition of the loan portfolio by type at December 31, 2025 and 2024. All of the Company’s loans are to domestic borrowers.
Percentage of Percentage of
Balance total Loans Balance total Loans
(Dollars in Thousands)
Unearned origination costs 980 688
The following table shows the maturities of the commercial and consumer loan portfolios and the loans subject to interest rate fluctuations at December 31, 2025.
(In Thousands)
Credit Risk and Loan Quality
The Company’s allowance for credit losses decreased slightly to $12.0 million at December 31, 2025 from $12.2 million at December 31, 2024. At December 31, 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 both December 31, 2025 and December 31, 2024. At December 31, 2025, approximately 97% of the Company’s loan portfolio is collateralized by real estate.
The aggregate balances on non-performing loans are included in the following table. At December 31, 2025, the Company had no foreclosed assets and no recorded investments in mortgage loans collateralized by residential real estate property in the process of foreclosure. At December 31, 2024, the Company had no foreclosed assets and had
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Embassy Bancorp, Inc.
two (2) recorded investments in mortgage loans collateralized by residential real estate property in the process of foreclosure in the amount of $216 thousand.
The details for the non-performing loans and assets are included in the following table:
December 31,
(Dollars In Thousands)
Non-accrual - commercial $ - $ 151
Restructured, accruing interest - -
Loans past due 90 or more days, accruing interest - -
Total nonperforming loans 482 495
Foreclosed assets - -
Total nonperforming assets $ 482 $ 495
Nonperforming loans to total loans 0.04% 0.04%
Nonperforming assets to total assets 0.03% 0.03%
Non-accrual loans to total loans 0.04% 0.04%
Net charge-offs (recoveries) to average loans 0.01% -0.02%
In the year ended December 31, 2025, there were $152 thousand in charge-offs and no recoveries, compared to $11 thousand in charge-offs and $241 thousand in recoveries for the year ended December 31, 2024.
Our loan portfolio includes a large amount of commercial real estate loans. Management believes the commercial real estate loan portfolio is well-diversified. At December 31, 2025 and 2024, high volatility commercial real estate exposures were $3.5 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 December 31, 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 $136 thousand and no charge-offs in this category in 2025 or 2024, respectively. 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.
Allowance for Credit Losses
Based upon current economic conditions, the composition of the loan portfolio, the perceived credit risk in the portfolio and loan-loss experience of the Company and comparable institutions in the Company’s market area, management feels, as of December 31, 2025, the allowance is adequate to absorb reasonably anticipated losses. The Company will continue to evaluate the allowance for credit losses as new information becomes available.
As of December 31, 2025, the Company had $2.4 million of individually evaluated loans (defined as those loans that do not share the same risk characteristics as the remaining pooled portfolio and legacy debt restructurings) compared to $3.0 million at December 31, 2024. Most of the Company’s individually evaluated loans required no specific reserves due to adequate collateral. As of December 31, 2025, the Company had individually evaluated loans of $577 thousand requiring a specific reserve of $115 thousand. As of December 31, 2024, the Company had individually evaluated loans of $691 thousand requiring a specific reserve of $134 thousand.
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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:
December 31,
(Dollars In Thousands)
Allowance for credit losses:
Provision (credit) for credit losses 25 (525)
Loans charged off:
Commercial real estate (136) -
Commercial construction - -
Commercial (15) -
Residential real estate - -
Consumer (1) (11)
Total charged off (152) (11)
Recoveries of loans previously charged-off:
Commercial real estate - 240
Commercial construction - -
Commercial - -
Residential real estate - -
Consumer - 1
Total recoveries - 241
Allowance for credit losses to loans
receivable at end of year 0.93% 0.96%
Allocation of the Allowance for Credit Losses
The following table details the allocation of the allowance for credit losses to various loan categories. While allocations have been established for particular loan categories, management considers the entire allowance to be available to absorb losses in any category.
(Dollars in Thousands)
Commercial construction 64 257
Total Allowance for Credit Losses $ 12,039 $ 12,166
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Embassy Bancorp, Inc.
Deposits
As growth continues, the Company expects that the principal sources of its funds will be deposits, consisting of demand deposits, NOW accounts, money market accounts, savings accounts, and certificates of deposit from the local market areas surrounding the Company’s offices. These accounts provide the Company with a source of fee income and a relatively stable source of funds.
Total deposits at December 31, 2025 were $1.64 billion, an increase of $87.3 million, or 5.6%, from total deposits of $1.55 billion as of December 31, 2024. The increase in the Company’s deposits was due to an increase of $5.8 million in non-interest bearing demand, an increase of $10.5 million in interest bearing demand, NOW and money market deposits, an increase of $5.8 million in savings deposits, and a $65.2 million increase in time deposits. The increase in time deposits is primarily due to higher yielding rates, due to the competitive pressure and current rate environment. Included in the above mentioned increase was an $8.9 million increase in non-interest bearing demand business deposits, offset by a $3.0 million decrease in non-interest bearing demand personal deposits. Included in total deposits at December 31, 2025 were personal deposits of $1.15 billion, business deposits of $397.1 million, and municipal deposits of $95.7 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 estimated amount of uninsured assessable deposits, including related interest accrued and unpaid, at December 31, 2025 and December 31, 2024 was $554.9 million and $514.1 million, respectively.
The following table reflects the Company’s deposits by category for the periods indicated. All deposits are domestic deposits.
(In Thousands)
Demand, NOW and money market, interest bearing 281,285 270,775
The following table sets forth the average balance of the Company’s deposits and the average rates paid on those deposits:
Average Average Average Average
Amount Rate Amount Rate
(Dollars In Thousands)
Demand, NOW and money market,
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Embassy Bancorp, Inc.
The following table displays the maturities and the amounts of the Company’s certificates of deposit of $250,000 or more:
(In Thousands)
As a FDIC member institution, the Company’s deposits are insured to a maximum of $250,000 per depositor through the DIF that is administered by the FDIC and each institution is required to pay quarterly deposit insurance premium assessments to the FDIC.
Liquidity
Liquidity is a measure of 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 $112.9 million at December 31, 2025, compared to $96.5 million at December 31, 2024. There are other sources of liquidity that are available to the Company, as well, including those described below.
Additional asset liquidity sources include principal and interest payments from investment securities, unpledged investment securities, 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. Currently, selling of securities would not be a primary source of short term liquidity needs given the unrealized losses in the portfolio. At December 31, 2025, the Company had $341.9 million of available for sale securities, compared to $280.8 million at December 31, 2024. Securities with a carrying value of $141.4 million and $152.4 million at December 31, 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.
At December 31, 2025, the Bank had a maximum borrowing capacity for short-term and long-term advances of approximately $711.4 million, of which $711.2 million is available for borrowing at December 31, 2025 due to an outstanding letter of credit in amount of $160 thousand. This borrowing capacity with the FHLB includes a line of credit of $150.0 million. There were no FHLB short-term or long term advances outstanding as of December 31, 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 also has a federal funds line of credit with the ACBB of $10.0 million, of which none was outstanding at December 31, 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 Bank is a member of the Certificate of Deposit Account Registry Services (CDARS) program and the Insured Cash Sweep (ICS) program offered by Promontory Interfinancial Network, LLC. CDARS is a funding and liquidity management tool used by banks to access funds and manage their balance sheet. ICS provides liquidity similar to a money market or savings account. Both programs enable financial institutions to provide customers with full FDIC insurance on deposits over $250 thousand that are placed in the program. The Bank also has access to other brokered deposits as a source of liquidity.
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Embassy Bancorp, Inc.
The Company has a revolving line of credit facility with the ACBB of $7.5 million, of which none was outstanding at December 31, 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 ratio drop below 5% and availability would be reduced to $2.0 million should the Company’s net tangible ratio drop below 2%. If the Company’s net tangible ratio drops below 0%, the commitment is cancelled.
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 various off-balance sheet arrangements that are made in the normal course of business, which may involve some liquidity risk. These commitments consist of unfunded loans and commitments, lines of credit, and letters of credit made under the same standards as on-balance sheet loan instruments. These off-balance sheet arrangements at December 31, 2025 and December 31, 2024 totaled $204.8 million and $180.5 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. For further information see Note 4, in Item 8 of this report. 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 $127.6 million as of December 31, 2025, representing a net increase of $21.1 million from December 31, 2024. The increase in capital was the result of net income of $13.7 million, an increase in common stock of $30 thousand, an increase in surplus of $421 thousand due to stock grants with compensation expense and employee stock purchases, and a decrease of $12.5 million in accumulated other comprehensive loss, offset by dividends paid of $3.7 million and treasury stock purchases of $1.9 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 $16.90 and $13.96 at December 31, 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 adverse 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), and Tier 1 capital to average assets (as defined). As of December 31, 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.
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Embassy Bancorp, Inc.
The following table provides a comparison of the Bank’s risk-based capital ratios and leverage ratios:
(Dollars In Thousands)
Tier 2, allowable portion of allowance for credit losses 12,215 12,258
Common equity tier 1 capital ratio 14.4% 13.9%
Tier 1 risk based capital ratio 14.4% 13.9%
Total risk based capital ratio 15.4% 14.9%
Tier 1 leverage ratio 9.1% 9.0%
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 new capital rules are:
Common equity of 6.5%;
Tier 1 leverage of 5%;
Tier 1 risk-based capital of 8%; and
Total Risk-Based capital of 10%.
The Company qualifies as a small bank holding company and is not subject to the Federal Reserve’s consolidated capital rules, although an institution that so qualifies may continue to file reports that include such capital amounts and ratios. The Company has elected to continue to report those amounts and ratios.
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Embassy Bancorp, Inc.
The following table provides the Company’s risk-based capital ratios and leverage ratios:
(Dollars In Thousands)
Tier 2, allowable portion of allowance for credit losses 12,215 12,258
Common equity tier 1 capital ratio 14.4% 13.9%
Tier 1 risk based capital ratio 14.4% 13.9%
Total risk based capital ratio 15.5% 15.0%
Tier 1 leverage ratio 9.1% 9.1%
Interest Rate Risk Management
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), which meets as part of the Board of Directors meeting, oversees this review, which establishes policies to control interest rate sensitivity. The Company also has an internal ALCO committee consisting of members of management that supplements the work of the Board ALCO Committee. 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. 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.
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Embassy Bancorp, Inc.
GAP, a measure of the difference in volume between interest bearing assets and interest bearing liabilities, is a means of monitoring the sensitivity of a financial institution to changes in interest rates. The chart below provides an indicator of the rate sensitivity of the Company. NOW and savings accounts are categorized by their respective estimated decay rates. The Company is liability sensitive, which means that if interest rates fall, interest income will fall slower than interest expense and net interest income will likely increase. If interest rates rise, interest income will rise slower than interest expense and net interest income will likely decrease. The Company continues to monitor interest rate exposure of its interest bearing assets and liabilities and believes that it is well positioned for any future market rate adjustments.
Over 3 Over 1 Over 3
0 to 3 Months to Year to Years to Over 5
Months 12 Months 3 Years 5 Years Years Total
(In Thousands)
Interest-earning assets
Federal funds sold and interest-
Interest-bearing liabilities
Repurchase agreements
and federal funds purchased 9,880 - - - - 9,880
GAP TO INTEREST EARNING
CUMULATIVE GAP TO
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Embassy Bancorp, Inc.
Based on a twelve-month forecast of the balance sheet, the following table sets forth our interest rate risk profile at December 31, 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 believe current assumptions support market conditions. The impact on net interest income, illustrated in the following table, would vary if different assumptions were used or if actual experience differs from that indicated by the assumptions.
Change in Interest Rates Percentage Change in Net Interest Income
Down 100 basis points 2.8%
Down 200 basis points 4.1%
Return on Assets and Equity
For the year ended December 31, 2025, the return on average assets was 0.78%, the return on average equity was 11.71%, and the ratio of average shareholders’ equity to average total assets was 6.67%.
For the year ended December 31, 2024, the return on average assets was 0.62%, the return on average equity was 9.86%, and the ratio of average shareholders’ equity to average total assets was 6.33%.
Dividend Payout Ratio
For the years ended December 31, 2025 and 2024, the dividend payout ratio was 26.79% and 30.64%, respectively.
Effects of Inflation
The majority of assets and liabilities of the Company are monetary in nature, and therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. The precise impact of inflation upon the Company is difficult to measure. Inflation may affect the borrowing needs of consumers, thereby impacting the growth rate of the Company’s assets. Inflation may also affect the general level of interest rates, which can have a direct bearing on the Company.
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Embassy Bancorp, Inc.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Table of Contents
PageNumber
Management Report on Internal Controls Over Financial Reporting 51
Report of Independent Registered Public Accounting Firm (PCAOB ID: 23) 52
Consolidated Balance Sheets 54
Consolidated Statements of Income 55
Consolidated Statements of Comprehensive Income 56
Consolidated Statements of Stockholders’ Equity 57
Consolidated Statement of Cash Flows 58
Notes to Financial Statements 59
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Embassy Bancorp, Inc.
Management Report on Internal Controls Over Financial Reporting
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, First Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures, as defined in SEC Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Company’s Chief Executive Officer, First Executive Officer and Chief Financial Officer concluded that, as of December 31, 2025, the Company’s disclosure controls and procedures are effective. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that, as of December 31, 2025, the Company’s internal control over financial reporting is effective based on those criteria.
/s/
/s/ David M. Lobach, Jr.
David M. Lobach, Jr.
Chairman, President and
Chief Executive Officer
/s/ Judith A. Hunsicker
Judith A. Hunsicker
First Executive Officer, Chief Operating
Officer and Secretary
/s/ Jeffrey C. Skumin
Jeffrey C. Skumin
Executive Vice President and Chief
Financial Officer
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Embassy Bancorp, Inc.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Embassy Bancorp, Inc. and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Embassy Bancorp, Inc. and Subsidiary (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025 and 2024, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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Embassy Bancorp, Inc.
Allowance for Credit Losses – Loans – Qualitative Factors
Critical Audit Matter Description
As discussed in Notes 1 and 3 to the Company’s consolidated financial statements, the Company accounts for credit losses under ASC 326, Financial Instruments – Credit Losses. ASC 326 requires the measurement of expected credit losses over the estimated life of the existing portfolio of loans. As described in the notes, the allowance for credit losses is measured on a pool basis when similar risk characteristics exist. For the loans collectively evaluated on a pool basis, the allowance for credit losses is estimated via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts.
The qualitative factors used by the Company include factors such as changes in lending policies and procedures, national and local economic conditions, experience, ability and depth of lenders and staff, quality of the loan review system and Board oversight, the volume and severity of past due loans and non-accrual loans, portfolio concentrations, and the effect of external factors such as competition, and legal and regulatory requirements. The adjustments for qualitative factors require a significant amount of judgment by management and involve a high degree of estimation uncertainty.
We identified the qualitative factor component of the allowance for credit losses for loans as a critical audit matter as auditing the underlying qualitative factors required significant auditor judgment as amounts determined by management involve a high degree of subjectivity.
How We Addressed the Matter in Our Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to the qualitative factor component of the allowance for credit losses for loans included the following, among others:
Testing the completeness and accuracy of data used by management in determining qualitative factor adjustments by agreeing to internal and external source data.
Testing the mathematical accuracy of the qualitative factor adjustments within the allowance calculation.
Evaluating the reasonableness of management’s conclusions regarding the appropriateness of the qualitative factor adjustments when compared to the underlying internal and external source data.
/s/ Baker Tilly US, LLP
Allentown, Pennsylvania
March 16, 2026
We have served as the Company’s auditor since 2001.
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Embassy Bancorp, Inc.
Consolidated Balance Sheets
December 31, December 31,
(In Thousands, Except Share Data)
Interest bearing demand deposits with banks 98,400 79,123
Restricted investment in bank stock 1,051 1,663
Premises and equipment, net of accumulated depreciation 2,879 3,322
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Securities sold under agreements to repurchase 9,880 4,895
Short-term borrowings - 15,625
Stockholders' Equity:
Common stock, $1 par value; authorized 20,000,000 shares;
Accumulated other comprehensive loss (38,098) (50,635)
See notes to consolidated financial statements.
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Embassy Bancorp, Inc.
Consolidated Statements of Income
Year Ended December 31,
INTEREST INCOME (In Thousands, Except Per Share Data)
Short-term investments, including federal funds sold 3,262 3,136
INTEREST EXPENSE
Securities sold under agreements to repurchase and
federal funds purchased 144 545
Short-term borrowings 2 11
PROVISION (CREDIT) FOR CREDIT LOSSES 109 (433)
Net Interest Income after Provision (Credit) for Credit Losses 42,315 36,617
OTHER NON-INTEREST INCOME
Merchant and credit card processing fees 257 323
Debit card interchange fees 929 910
Gain on sale of other real estate owned 29 -
Total Other Non-Interest Income 3,259 3,185
OTHER NON-INTEREST EXPENSES
Advertising and promotion 847 928
Charitable contributions 985 934
BASIC EARNINGS PER SHARE $ 1.79 $ 1.37
DILUTED EARNINGS PER SHARE $ 1.79 $ 1.37
DIVIDENDS PER SHARE $ 0.48 $ 0.42
See notes to consolidated financial statements.
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Embassy Bancorp, Inc.
Consolidated Statements of ComprehensiveIncome
Year Ended December 31,
(In Thousands)
Change in Accumulated Other Comprehensive Loss:
Unrealized holding gain (loss)
on securities available for sale 15,870 (8,779)
Less: reclassification adjustment
for realized gains - -
Other comprehensive income (loss), net of tax 12,537 (6,935)
See notes to consolidated financial statements.
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Embassy Bancorp, Inc.
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2025 and 2024
(In Thousands, Except Share and Per Share Data)
Other comprehensive loss, net of tax - - - (6,935) - (6,935)
Dividend declared and paid, $0.42 per share - - (3,199) - - (3,199)
Shares issued under employee stock purchase plan, 4,766 shares 5 65 - - - 70
Purchase treasury stock, 4,351 shares at$16.50 per share - - - - (72) (72)
Other comprehensive income, net of tax - - - 12,537 - 12,537
Dividend declared and paid, $0.48 per share - - (3,669) - - (3,669)
Shares issued under employee stock purchase plan, 4,098 shares 4 65 - - - 69
Purchase treasury stock, 615 shares at$18.34 per share - - - - (11) (11)
See notes to consolidated financial statements.
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Embassy Bancorp, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31,
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Provision (credit) for credit losses 109 (433)
Amortization of deferred loan costs 405 309
Net accretion of investment security premiums and discounts (1,054) (922)
Stock compensation expense 382 521
Net realized gain on sale of other real estate owned (29) -
Income on bank owned life insurance (1,322) (1,312)
Deferred income taxes (76) (46)
Increase in accrued interest receivable (672) (306)
Decrease in accrued interest payable (614) (32)
Decrease in other liabilities (1,197) (1,009)
Net Cash Provided by Operating Activities 12,833 9,944
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale (108,901) (44,262)
Net redemption of restricted investment in bank stock 612 795
Purchase of bank owned life insurance - (9,030)
Purchases of premises and equipment (632) (739)
Net Cash Used in Investing Activities (67,628) (36,153)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Employee Stock Purchase Plan 69 70
Decrease in short-term borrowed funds (15,625) (19,375)
Purchase of treasury stock (11) (72)
Purchase of treasury stock under stock repurchase plan (1,910) -
Net Cash Provided by Financing Activities 71,132 43,808
Net Increase in Cash and Cash Equivalents 16,337 17,599
CASH AND CASH EQUIVALENTS - BEGINNING 96,522 78,923
SUPPLEMENTARY CASH FLOWS INFORMATION
Federal income taxes paid $ 2,900 $ 1,975
Other real estate sold through bank financing $ 225 $ -
Other real estate acquired in settlement of loans $ 196 $ -
Non-cash Investing and Financing Activities:
See notes to consolidated financial statements.
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Embassy Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 – Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
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.
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.
Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses on loans.
Concentrations of Credit Risk
Most of the Company’s activities are with customers located in the Lehigh Valley area of Pennsylvania. Note 2 discusses the types of securities in which the Company invests. The concentrations of credit by type of loan are set forth in Note 3. The Company does not have any significant concentrations to any one specific industry or customer, with the exception of lending activity to a broad range of lessors of residential and non-residential real estate within the Lehigh Valley. Although the Company has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.
Presentation of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest-bearing demand deposits with banks, and federal funds sold. Generally, federal funds are purchased or sold for less than one week periods.
Securities
Securities classified as available for sale are those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Securities available for sale are carried at fair value. Any decision to sell a security classified as available for sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Unrealized gains and losses are reported as increases or decreases in other comprehensive income (loss). Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
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Embassy Bancorp, Inc.
Restricted Investments in Bank Stock
Restricted investments in bank stock consist of FHLBank Pittsburgh (“FHLB”) stock and Atlantic Community Bankers Bank (“ACBB”) stock. The restricted stocks have no quoted market value and 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.
Management evaluates the FHLB and ACBB restricted stock for impairment. Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the issuer as compared to the capital stock amount for the issuer and the length of time this situation has persisted, (2) commitments by the issuer to make payments required by law or regulation and the level of such payments in relation to the operating performance of the issuer, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuer.
Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock as of December 31, 2025. No impairment charge was taken related to the FHLB or ACBB restricted stock as of December 31, 2024.
Loans Receivable
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield using the effective interest method. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective interest method. Delinquency fees are recognized in income when collected.
The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans consist of the
following classes: commercial real estate, commercial construction and commercial term loans. Consumer loans consist of the following classes: residential real estate and other consumer loans.
The Company makes commercial loans for real estate development and other business purposes required by the customer base. The Company’s credit policies determine advance rates against the different forms of collateral that can be pledged for commercial loans. Typically, the majority of loans will be limited to a percentage of their underlying collateral values such as real estate values, equipment, eligible accounts receivable and inventory. Individual loan advance rates may be higher or lower depending upon the financial strength of the borrower and/or term of the loan. The assets financed through commercial term loans are used within the business for its ongoing operation. Repayment of these kinds of loans generally comes from the cash flow of the business or the ongoing conversion of assets. Commercial real estate loans include long-term loans financing commercial properties. Repayments of these loans are dependent upon either the ongoing cash flow of the borrowing entity or the resale of or lease of the subject property. Commercial real estate loans typically require a loan to value ratio of not greater than 80% and vary in terms.
Residential mortgages and home equity loans are secured by the borrower’s residential real estate in either a first or second lien position. Residential mortgages and home equity loans have varying interest rates (fixed or variable) depending on the financial condition of the borrower and the loan to value ratio. Residential mortgages may have amortizations up to 30 years and home equity loans may have maturities up to 25 years. Other consumer loans include installment loans, car loans, and overdraft lines of credit. Some of these loans may be unsecured.
For all classes of loans receivable, the accrual of interest may be discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of
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Embassy Bancorp, Inc.
principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed. Interest received on nonaccrual loans, including impaired loans, generally is applied against principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.
Allowance for Credit Losses
The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the Consolidated Balance Sheets. The expected credit loss for unfunded lending commitments and unfunded loan commitments, if required, is reported on the Consolidated Balance Sheets in other liabilities while the provision for credit losses related to unfunded commitments is reported on the Consolidated Statements of Income in provision (credit) for credit losses.
Federal regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses and may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for credit losses is adequate.
Allowance for Credit Losses on Loans Receivable
The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics. If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.
The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include commercial real estate, commercial construction, commercial, residential real estate and consumer. The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. The Company utilizes the Open Pool method in determining expected future credit losses. This technique considers losses over the full life cycle of loan pools. The loss rate method measures the amount of loan charge–offs, net of recoveries (“credit losses”), recognized over the life of a pool by loan segment and vintage and compares those credit losses to the original loan balance of that pool as of a similar vintage. A vintage is a group of loans originated in the same annual time period. To estimate a loss rate for the pool, management first identifies the credit losses recognized between the pool date and the reporting date for the pool and determines which credit losses were related to loans outstanding at the pool date. The loss rate method then divides the credit losses recognized on loans outstanding as of the pool date by the outstanding loan balance as of the pool
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date. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data.
The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts. Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors that the Company considers include changes in lending policies and procedures, national and local economic conditions, peer factors, experience, ability and depth of lenders and staff, quality of the loan review system and Board oversight, the volume and severity of past due loans and non-accrual loans, business conditions, portfolio concentrations, and the effect of external factors such as competition, legal and regulatory requirement, among others. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built upon historical data.
Individually Evaluated Loans
On a loan-by-loan basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. Collateral dependent loans are those for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.
Allowance for Credit Losses on Off-Balance Sheet Commitments
The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment, along with a 1% reserve on unused construction lines. As noted above, the allowance for credit losses on unfunded loan commitments, if required, is included in other liabilities on the Consolidated Balance Sheets and the related provision (credit) expense is recorded on the Consolidated Statements of Income in provision (credit) for credit losses. At December 31, 2025 and 2024, the allowance for credit losses on off-balance sheet commitments was $176 thousand and $92 thousand, respectively.
Allowance for Credit Losses on Available for Sale Securities
For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more than likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale (“AFS”) that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company did not record an allowance for AFS securities on December 31, 2025 or December 31, 2024as the investment portfolio consists primarily of mortgage-backed securities issued by FHLMC or FNMA, taxable and non-taxable
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municipal bonds, government agency bonds and Treasury bonds in which credit risk is deemed minimal. The securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major agencies and have a long history of no credit losses. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios, as well as the economic conditions at future reporting periods. See Note 2 – Securities Available For Sale.
Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the collectability of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.
Accrued Interest Receivable
The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans and available for sale securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Balance Sheets and totaled $2.6 million and $2.5 million at December 31, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses. Accrued interest receivable on available for sale securities, also a component of accrued interest receivable on the Consolidated Balance Sheets, totaled $1.6 million and $1.1 million at December 31, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses.
Other Real Estate Owned
Other real estate owned is comprised of properties acquired through foreclosure proceedings or acceptance of a deed-in-lieu of foreclosure and loans classified as in-substance foreclosures. A loan is classified as an in-substance foreclosure when the Company has taken possession of the collateral, regardless of whether formal foreclosure proceedings take place. Other real estate owned is recorded at fair value less cost to sell at the time of acquisition. Any excess of the loan balance over the recorded value is charged to the allowance for credit losses at the time of acquisition. After foreclosure, valuations are periodically performed and the assets are carried at the lower of cost or fair value less cost to sell. Changes in the valuation allowance on foreclosed assets are included in other non-interest income. Costs to maintain the assets are included in other non-interest expenses. Any gain or loss realized upon disposal of other real estate owned is included in other non-interest income. No other real estate owned was recorded by the Company as of December 31, 2025 and 2024.
Bank Owned Life Insurance
The Company invests in bank owned life insurance (“BOLI”) as a tax deferred investment and a source of funding for employee benefit expenses. BOLI involves the purchasing of life insurance by the Company on certain of its employees and directors. The Company is the owner and primary beneficiary of the policies. This life insurance investment is carried at the cash surrender value of the underlying policies. Income from increases in cash surrender value of the policies is included in non-interest income and is not subject to income taxes unless surrendered. The Company does not intend to surrender these policies, and accordingly, no deferred taxes have been recorded on the earnings from these policies.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the following estimated useful lives of the related assets: furniture, fixtures and equipment for five years to ten years, leasehold improvements for the life of the lease, building for forty years, computer equipment and data processing software for one year to five years, and automobiles for five years.
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Transfers of Financial Assets
Transfers of financial assets, including sales of loan participations, are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Advertising Costs
The Company follows the policy of charging the costs of advertising to expense as incurred.
Income Taxes
Income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to taxable income. Deferred income taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and net operating loss carry forwards and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
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.
Year Ended December 31,
(Dollars In Thousands, Except Per Share Data)
Dilutive effect of potential common
shares, stock options - -
Diluted weighted average common
Basic earnings per share $ 1.79 $ 1.37
Diluted earnings per share $ 1.79 $ 1.37
There were no stock options omitted from consideration in computing diluted earnings per common share for the years ended December 31, 2025 and December 31, 2024.
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Employee Benefit Plan
The Company has a 401(k) Plan (the “Plan”) for employees. All employees are eligible to participate after they have attained the age of 21 and have also completed 6 consecutive months of service during which at least 500 hours of service are completed. The employees may contribute up to the maximum percentage allowable by law of their compensation to the Plan, and the Company provides a match of fifty percent of the first 8% percent to eligible participating employees. Full vesting in the Plan is prorated equally over a four year period. The Company’s contributions to the Plan for the years ended December 31, 2025 and 2024 were $338thousand and $318 thousand, respectively.
Off Balance Sheet Financial Instruments
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated balance sheet when they are funded.
Comprehensive Income
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 consolidated balance sheets, such items, along with net income, are components of comprehensive income.
Stock-Based Compensation
The Company measures and records compensation expense for share-based payments based on the instrument's fair value on the date of grant. The fair value of each stock option grant is measured using the Black-Scholes option pricing model. The fair value of stock awards is based on the Company's stock price. Share-based compensation expense is recognized over the service period, generally defined as the vesting period.
Non-Interest Income
The majority of the Company’s revenue-generating transactions are not subject to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, including revenue generated from financial instruments, such as its loans and investment securities, as these activities are subject to other US GAAP discussed elsewhere within the Company’s disclosures. Descriptions of the Company’s revenue-generating activities that are within the scope of Topic 606, which are presented in the consolidated statements of income as components of non-interest income, are merchant processing and credit card processing fees, debit card interchange fees, other service fees on deposit accounts, and gains and losses on other real estate owned. Credit card processing fees include income from consumer and commercial credit cards and merchant processing income. Income for such performance obligations are generally received at the time the performance obligations are satisfied or within the monthly service period. Service fees on deposit accounts represent general service fees for monthly account maintenance and activity or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when the Company’s performance obligation is completed, which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer). The Company recognizes debit card interchange fees daily from debit cardholder transactions conducted through the MasterCard payment network. The Company records a gain or loss from the sale of other real estate owned when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of other real estate owned to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction prices and related gain or loss on the sale if a significant financing component is present. The Company does not sell its
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mortgages on the secondary market, nor does it offer trust or investment brokerage services to its customers to generate fee income.
Recent Accounting Pronouncements
InDecember 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosureswhichimproves the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. ASU No. 2023-09is effective for public business entities for annual periods beginning after December 15, 2024. The ASUwas adopted on a retrospective basis. The adoption of ASU 2023-09 did not have an impact on the Company’s consolidated financial statements.
Recently Issued but Not Yet Effective Accounting Pronouncements
In December of 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure of certain costs and expenses in the notes to the consolidated financial statements. The amendments in this ASU will become effective for fiscal years beginning after December 15, 2026, and will be effective for interim periods with fiscal years beginning after December 15, 2027, with early adoption permitted. The amendments will be applied prospectively with the option for retrospective application. The Company is currently evaluating the impact of the standard to our consolidated financial statement disclosures.
Operating Segments
The Company operates as a single reportable segment under ASC 280, as the Chief Operating Decision Maker (CODM) reviews financial performance and allocates resources based on the consolidated results of the Company as a whole. The Company, through its bank subsidiary, provides banking services to individuals, businesses and government customers in the Lehigh Valley area of Pennsylvania. These services include a full array of commercial and retail financial services, including the taking of time, savings, and demand deposits; the making of commercial, consumer, residential mortgage and home equity loans; and the providing of other financial services. The Company’s primary measures of profitability and CODM key measures of overall financial performance is net interest income, which represents interest earned on loans and investment securities, net of interest expense on deposits and borrowings, levels of non-interest income and non-interest expenses and net income as reported in the consolidated statements of income. The measure of segment assets is reported on the consolidated balance sheets as total assets. Accounting policies for segments are the same as described in this Note. The Company’s CODM is the President and Chief Executive Officer.
Subsequent Events
The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2025 through the date these consolidated financial statements were available for issuance for items that should potentially be recognized or disclosed in these consolidated financial statements. Subsequent to year end, in January 2026 the Company purchased two (2) government agency bonds and one (1) mortgage-backed security totaling $7.5 million and in February 2026 the Company purchased two (2) Treasury bonds and one (1) mortgage-backed security totaling $7.0 million.
Reclassification
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.
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Note 2 – Securities Available For Sale
The amortized cost and approximate fair values of securities available-for-sale were as follows at December 31, 2025 and 2024, respectively:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(In Thousands)
The amortized cost and fair value of securities as of December 31, 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)
Due after one year through five years 66,230 66,966
Due after five years through ten years 9,489 8,979
There were no sales of securities for the years ended December 31, 2025 and December 31, 2024.
Securities with a carrying value of $141.4 million and $152.4 million at December 31, 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.
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The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2025 and December 31, 2024, respectively:
Less Than 12 Months 12 Months or More Total
December 31, 2025 : (In Thousands)
U.S. Government agency obligations $ 2,496 $ (4) $ - $ - $ 2,496 $ (4)
U.S. Treasury securities $ - $ - $ 9,946 $ (47) $ 9,946 $ (47)
The Company had one hundred eighty nine (189) securities in an unrealized loss position at December 31, 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 and the Company does not intend to sell the securities and has the intent and ability to hold them for a period of time sufficient for recovery of their amortized cost basis. This review includes analyzing the extent to which the fair value has been lower than the cost, the market liquidity for the investment, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. Management believes that the unrealized loss only represents temporary impairment of the securities, which are predominantly backed by credit of government agencies, and are a result of the increased market interest rates since the time of purchase, and not the credit quality of the issuer. As such, no allowance for credit losses was required on securities available for sale in an unrealized loss position at December 31, 2025 and December 31, 2024.
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Note 3 – Loans Receivable and Credit Quality
The following table presents the composition of loans receivable at December 31, 2025 and December 31, 2024, respectively:
December 31,
(In Thousands)
Unearned net loan origination costs 980 688
The following tables detail the activity in the allowance for credit losses at December 31, 2025 and December 31, 2024, respectively:
Allowance for credit losses (In Thousands)
Recoveries - - - - - -
Charge-offs - - - - (11) (11)
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The following tables represent the allocation for credit losses and the related loan portfolio disaggregated based on impairment methodology at December 31, 2025 and December 31, 2024:
(In Thousands)
Allowance for Credit Losses
Loans receivables:
Allowance for Credit Losses
Loans receivables:
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