SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark one)
__XX__ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required) For the fiscal year ended
December 31, 1995
or
______ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act Of 1934 (No Fee Required)
For the Transition Period from______to_____
Commission file no. 0-11783
ACNB CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2233457
(State of incorporation) (IRS employer Identification Number)
675 OLD HARRISBURG ROAD, GETTYSBURG, PA 17325
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 717-334-3161
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON CAPITAL STOCK PAR VALUE $2.50 A SHARE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __X__
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past ninety (90) days. YES _X_ NO__
As of February 29, 1996, ACNB Corporation had outstanding 5,307,756 shares of
Common Stock. The aggregate market value of such Common Stock held by
nonaffiliates as of February 29, 1996 was approximately $84,668,000. Shares of
Common Stock held by each officer and director and by each person who owns 5%
or more of the outstanding Common Stock have been excluded because they may be
deemed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report for the year ended 12/31/95 are incorporated by
reference into Parts II and IV. Portions of the Proxy Statement for the annual
shareholders meeting to be held May 7, 1996 are incorporated by reference into
Part III.
Page 1 of 17
ACNB CORPORATION
FORM 10-K
INDEX
PAGE
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Part II
Item 5. Market for the Registrant's Common Stock and
Related Security Holder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Disagreements on Accounting and Financial
Disclosure 12
Part III
Item 10. Directors and Executive Officers of the Registrant 12
Item 11. Management Remuneration 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 13
Signatures 17
2
PART I
ITEM 1. BUSINESS
The Registrant owns all the outstanding shares of Adams County National Bank
(hereinafter the "Bank"). The Registrant and the Bank have the same Board of
Directors. The Registrant, organized in 1983, presently has no significant
operations other than serving as a holding company. The Bank engages in a
full service commercial and consumer banking and trust business. With its
main office at 675 Old Harrisburg Road, Gettysburg, Pa., the Bank provides
services to its customers through its branch network of 12 full service
offices located throughout Adams County, Pa. and 2 in York County, Pa.
The Bank's services include accepting time, demand, and savings deposits
including NOW, supernow, money market, and regular savings accounts, a
diversified array of certificates of deposit, IRA's, and club accounts. Its
services also include making secured and unsecured commercial and consumer
loans, financing commercial transactions, making construction and mortgage
loans, and the renting of safe deposit facilities. Additional services include
making residential mortgage loans, small business loans, and student loans. The
Bank's business loans include seasonal credit, collateral loans and term loans.
Trust services provided by the Bank include services as executor and trustee
under wills and deeds, estate planning services, and custodian and agent for
various investment companies. Trust services also include transfer agent,
registrar of stock and bond issues, and escrow agent. The Bank has a relatively
stable deposit base and no material amount of deposits is obtained from a single
depositor or group of depositors (including federal, state, and local
governments). See Management's Discussion and Analysis in the Annual Report. The
Bank has not experienced any significant seasonal fluctuations in the amount of
its deposits.
As of December 31, 1995, the Registrant had a total of 152 full-time and 73
part-time employees.
SUPERVISION AND REGULATION
The Registrant and the Bank are considered "affiliates" for purposes of
Section 23A of the Federal Reserve Act and as such are subject to certain
limitations specified therein on the making of loans on, extensions of credit
to, or investments in each other. The Federal Bank Holding Company Act of
1956 restricts the Registrant's activities, whether conducted directly or
through subsidiary corporations, to specified activities functionally related
to banking. Permissible activities under that Act include lending, certain
leasing activities, fiduciary and investment advisory services, acting as
insurance agent or broker in connection with loans by subsidiary or
affiliated companies, and certain bookkeeping or data processing services.
COMPETITION
All phases of the Bank's business are highly competitive. The Bank's market
area is the primary trade area of Adams County, Pa., a western portion of
York County, Pa. and the northernmost portions of those counties in Maryland
which are immediately adjacent to the southern border of Adams County, with
concentration in the Gettysburg, Pa. area. The Bank competes with local
commercial banks as well as other commercial banks with branches in the
Bank's market area. The Bank considers its major competition to be PNC
Corporation, Farmers Bank and Trust Company, a subsidiary of Dauphin Deposit
Corporation, and Bank of Hanover and Trust Co.
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the Bank are affected by the policies of the
regulatory authorities including the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, and the Federal Deposit Insurance
Corporation. An important function of the Federal Reserve System is to
regulate the money supply and interest rates. Among the instruments used to
implement these objectives are open market operations in U.S. Government
Securities and changes in reserve requirements against member bank deposits.
These instruments are used in varying combinations to influence overall
growth and distribution of Bank loans, investments, and deposits. Their use
may also affect interest rates charged on loans or paid for deposits. The
policies and regulations of the Federal Reserve Board have had and will
probably continue to have a significant effect on the Bank's deposits, loans,
and investment growth, as well as the rate of interest earned and paid. The
effect of such policies and regulations upon the future business and earnings
of the Bank cannot be accurately predicted.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
Ronald L. Hankey 55 Director and President of the
Corporation and the Bank
John W. Krichten 49 Secretary/Treasurer of the
Corporation and Senior Vice
President, Cashier, and Chief
Financial Officer of the Bank
Lynda L. Glass 35 Assistant Secretary of the
Corporation and Senior Vice
President of the Bank
CONSOLIDATED FINANCIAL AND STATISTICAL PROFILE
The following tables set forth statistical information relating to the
Registrant and the Bank. The tables should be read in conjunction with the
consolidated financial statements of the Registrant which are incorporated by
reference hereinafter.
INVESTMENT PORTFOLIO
The following tables show the year-end composition of the investment security
portfolio for the three years ended December 31, 1995; the maturity
distribution of the portfolio at December 31,1995; and the weighted average
yield of the portfolio at December 31, 1995.
Book Value
December 31,
HELD TO MATURITY 1995 1994 1993
(in thousands)
U.S. Government and Federal Agency
Obligations $101,400 $141,140 $142,769
State and Political Subdivision
Obligations 962 1,509 1,296
Other Securities 2,480 2,256 3,737
-------- -------- --------
TOTAL $104,842 $144,905 $147,802
Maturity Distribution
Book Value
After After
1 year 1 to 5 5 to 10 Over
or less years years 10 years
(in thousands)
U.S. Government and Federal Agency
Obligations $39,326 $62,074 $ 0 $ 0
State and Political Subdivision
Obligations 37 253 423 249
Other Securities 0 0 0 2,480
------- ------- ------- -------
TOTAL $39,363 $62,327 $ 423 $ 2,729
* Federal Reserve Bank stock and Federal Home Loan Bank stock, having no
stated maturity, have been included in "Over 10 years" in the above table.
Weighted Average Yield
After After
1 year 1 to 5 5 to 10 Over 10
or less years years years Total
(in thousands)
U.S. Government and Federal
Agency Obligations 4.63% 6.12% 5.54%
State and Political Subdivision
Obligations 9.09% 9.09% 9.09% 9.09% 9.09%
Other Securities 6.00% 6.00%
The weighted average yield of tax exempt obligations has been calculated on a
tax equivalent basis. The amounts of the taxable equivalent adjustments are
based on an effective tax rate of 34%.
LOAN PORTFOLIO
The following summary shows the composition of the loan portfolio for the
five years ended December 31, 1995:
1995 1994 1993 1992 1991
Domestic Loans:
Commercial, Financial,
and Agricultural $ 9,268 $ 10,785 $ 14,100 $ 16,104 $ 17,038
Real Estate Loans 284,943 268,944 250,242 250,359 261,145
R/E Construction 12,951 12,632 4,791 4,732 4,938
Consumer 18,150 17,444 17,950 20,867 23,387
-------- -------- -------- -------- --------
Total Loans $325,312 309,805 287,083 292,062 306,508
Unearned Discount 2.184 3,883 3,785 4,239 4,708
-------- -------- -------- -------- --------
Total $323,128 $305,922 $283,298 $287,823 $301,800
The following table shows the repricing opportunities for all loans outstanding
as of December 31, 1995. Those loans with immediately adjustable rates (such as
loans tied to prime) will be totaled in the thirty day column. Those loans with
rates that are adjustable at some time over the life of the loan will be
totaled under the time heading when they become adjustable. All fixed rate
loans will be totaled under the heading which they mature.
REPRICING
From 30 After
Thirty Days To 1 to 5 After
Days 1 year Years 5 Years Total
(in thousands)
Commercial, Financial,
and Agricultural $56,915 $ 14,103 $27,486 $2,866 $101,370
Consumer 5,565 14,519 18,512 38,596
Real Estate 7,922 145,961 30,288 1,175 185,346
------- -------- ------- ------ --------
Total $70,402 $174,583 $76,286 $4,041 $325,312
Included in the Real Estate total due within one year are $151,000,000 of
Adjustable Rate Mortgages (ARM). The Bank's ARM has a 2% per year interest rate
cap with a lifetime cap of 5%. The index used is the Federal Housing Finance
Board's National Average Mortgage Contract Rate for Mortgage Lenders on the
Purchase of Previously Occupied Homes.
The following table presents information concerning the aggregate amount of
nonperforming assets. Nonperforming assets comprise (a) loans accounted for
on a nonaccrual basis; (b) loans contractually past due ninety days or more
but still accruing; (c) loans with deferral of interest or principal because
of deterioration in the financial position of the borrower (exclusive of
loans in (a) or (b)); (d) loans now current where there are serious doubts
as to the ability of the borrower to comply with present loan repayment
terms; and (e) other real estate owned.
December 31
1995 1994 1993 1992 1991
(in thousands)
Loans accounted for on
a nonaccrual basis $1,093 $ 854 $ 977 $ 905 $1,093
Loans contractually past due
90 days or more as to inte-
rest or principal payments 2.780 2,219 2,614 3,900 3,800
Loans whose terms have been
renegotiated to provide a
reduction or deferral of inte-
rest or principal because of a
deterioration in the financial
position of the borrower 0 0 377 0 0
Loans now current where there
are serious doubts as to the
ability of the borrower to
comply with present loan
repayment terms 0 0 0 0 0
Other real estate owned 689 1,037 850 1,110 0
The Bank does not accrue interest on any loan when principal or interest are
in default for 90 days or more unless the loan is well secured and in the
process of collection. Consumer loans and residential real estate loans
secured by 1 to 4 family dwellings shall ordinarily not be subject to these
guidelines.
When a loan is placed in a nonaccrual status all previously accrued but
uncollected interest is charged against the interest income account.
Previously accrued interest is not charged off if principal and interest are
protected by sound collateral values.
SUMMARY OF LOAN LOSS EXPERIENCES
A detailed analysis of the Bank's Reserve for Loan Losses for the past five
years is shown below:
Year ended December 31
1995 1994 1993 1992 1991
Balance of reserve for loan
losses at beginning of period $3,370 $3,581 $3,417 $2,815 $2,366
Loans charged off:
Commercial, financial, and
agricultural 0 8 37 90 77
Real estate-mortgage 44 178 35 75 102
Real estate-construction 0 0 0 0 34
Consumer 90 70 120 125 148
------ ------ ------ ------ ------
Total loans charged off 134 256 192 290 361
Recovery of charged off loans:
Commercial, financial, and
agricultural 12 5 8 22 3
Real estate-mortgage 1 13 1 1 22
Real estate-construction 0 0 0 0 17
Consumer 25 27 32 14 23
------ ------ ------ ------ ------
Total recoveries 38 45 41 37 65
Net loans charged off 96 211 151 253 296
Additions to reserve 0 0 315 855 745
Balance at end of period $3,274 $3,370 $3,581 $3,417 $2,815
The amounts of additional provision to the reserve were based on management's
judgment after considering an analysis of larger loans, all loans known to
management to have unusual risk characteristics, non-performing or problem
loans, historical patterns of charge-offs and recoveries, and actual net
charge-offs. Further consideration was given to current economic and
employment conditions both nationally and in the Bank's local service area.
Loans secured by real estate comprise 92% of the Bank's total loan portfolio
at December 31, 1995. The majority of loans in both the commercial,
financial, and agricultural category and the consumer category are also
secured by personal property, negotiable assets, or business assets. This
conservative policy explains the low ratio of losses to loans experienced by
the Bank over the last five years. This policy did not change during the year
ending 1995. 1996 net losses for all loan categories are expected to
approximate $150,000.
The following table reflects certain historical statistics of the Bank
relative to the relationship among loans (net of unearned discount), net
charge-offs, and the reserve:
Year ended December 31
1995 1994 1993 1992 1991
(in thousands)
Balances
Average total loans $319,712 $289,350 $288,790 $293,075 $307,489
Total loans at yearend 323,128 305,922 283,298 287,823 301,800
Net charge-offs 96 211 151 253 296
Reserve for loan losses
at yearend 3,274 3,370 3,581 3,417 2,815
Ratios
Net charge-offs to:
Average total loans .03% .07% .05% .09% .10%
Total loans at yearend .03 .07 .05 .09 .10
Reserve for loan losses 2.93 6.26 4.22 7.40 10.52
Reserve for loan losses to:
Average total loans 1.02 1.16 1.24 1.17 .92
Total loans at yearend 1.01 1.10 1.26 1.19 .93
DEPOSITS
The average daily amounts of deposits are summarized below:
Year ended December 31
1995 1994 1993
(in thousands)
Demand deposits $40,027 $ 38,772 $ 33,906
Interest-bearing demand deposits 48,805 56,420 50,563
Savings 116,660 137,910 127,785
Time deposits (excluding time cer-
tificates of deposit of $100,000
or more) 169,276 162,366 173,880
Time certificates of $100,000 or
more 11.720 13,856 18,255
-------- -------- --------
Total $386,488 $409,324 $404,389
Maturities of time deposits of $100,000 or more outstanding at December 31,
1995 are summarized as follows (in thousands):
3 months or less $ 4,324
Over 3 through 6 months 3,785
Over 6 through 12 months 5,276
Over 12 months 3,064
-------
Total $16,449
FINANCIAL RATIOS
The following ratios are among those commonly used in analyzing bank holding
company statements.
Year ended December 31
1995 1994 1993 1992 1991
Profitability ratios:
Rate of return on average:
Earning assets 1.47% 1.49% 1.57% 1.66% 1.51%
Total assets 1.41 1.43 1.51 1.59 1.45
Total stockholders equity 12.84 14.15 15.61 17.63 16.85
Liquidity and capital ratios:
Average primary (1) capital
to average total assets 11.68 10.85 10.48 9.74 9.21
Average total stockholders eq-
uity to average earning assets 11.41 10.54 10.07 9.40 8.95
Average total stockholders eq-
uity to average total assets 10.96 10.12 9.70 9.04 8.62
Common dividend payout ratio (2) 54.30 50.45 44.73 40.68 42.74
(1) includes total stockholders equity and reserve for loan losses.
(2) Cash dividends paid on common stock as a percentage of net income.
ITEM 2. PROPERTIES
The principal properties of the Registrant and its subsidiary are those held by
the Bank. The Bank's main office and executive offices are located at 675 Old
Harrisburg Road, Gettysburg, Adams County, Pa. Additionally, the Bank owns 13
other properties located at 2 Chambersburg St., 18-20 Chambersburg St., 22-22
1/2 Chambersburg St., Gettysburg, Pa.; 17 S. Queen St., W. King St.,
Littlestown, Pa.; 369 Main St., McSherrystown; 1677 Abbottstown Pike, East
Berlin, Pa.; 202 Main St., York Springs, Pa.; 101 Main St., Arendtsville, Pa.;
U.S. Rte. 30, Cashtown, Pa.; 101 N. Main St., Bendersville, Pa.; Rte. 116 and
Sanders Road, Fairfield, Pa.; and Eichelberger St. and Kennedy Ct., Hanover,
Pa. The Bank also leases a full service office at South Main St., Biglerville,
Pa.; and a supermarket office at 400 Eisenhower Drive, Hanover, Pa.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Registrant or the
Bank. Note K on page 33 of the Annual Report is herein incorporated by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Page 37, entitled "Common Stock Market Prices and Dividends" and Note G on
page 31 of the Annual Report to Shareholders for the year ended December 31,
1995, are herein incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 36 of the Annual Report to Shareholders for
the year ended December 31, 1995, is herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 15 through 21 of the Annual Report to Shareholders for
the year ended December 31, 1995, is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPLEMENTARY DATA
The consolidated financial statements of the Registrant and the Bank,
included in the Annual Report to Shareholders, on pages 22 through 34 for the
year ended December 31, 1995, are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
That portion of the Registrant's Proxy Statement dated April 10, 1996, entitled
"Election of Directors", appearing on pages 5 through 9 thereof, is hereby
incorporated by reference. Information regarding executive officers of the
Registrant is included in PART I, ITEM I, BUSINESS.
ITEM 11. MANAGEMENT REMUNERATION
Those portions of the Registrant's Proxy Statement dated April 10, 1996,
entitled "Executive Compensation" and "Compensation of Directors", appearing
on page 9 through 14 thereof, are hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 29,1996, there were no persons known to the Registrant to be
beneficial owners of more than 5% of the Registrant's common capital stock.
Those portions of the Registrant's Proxy Statement dated April 10, 1996,
entitled "Beneficial Ownership by Officers, Directors and Nominees",
appearing on pages 3 through 5 are hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 15 through 16 of the Registrant's Proxy Statement
dated April 10, 1996, is hereby incorporated by reference. Footnote M--Loans
to Related Parties included in the Annual Report to Shareholders, on page 34,
for the year ended December 31, 1995, is herein incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The Report of Independent Certified Public Accountants is on page 14.
Item 14(a)(1) Financial Statements:
The following consolidated financial statements of the Registrant and its
wholly-owned subsidiary included in the Annual Report to Shareholders, page
22 through 34, for the year ended December 31, 1995, are incorporated by
reference in Item 8:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income - Years ended December 31, 1995, 1994, and
1993
Consolidated Statements of Cash Flows - December 31, 1995, 1994, and 1993
Consolidated Statements of Changes in Equity Capital - Years ended December
31, 1995, 1994, and 1993
Condensed Financial Information of Registrant - Years ended December 31, 1995
and 1994
Notes to Consolidated Financial Statements - December 31, 1995 and 1994
Schedules not listed above are omitted since the required information is
either not applicable, not deemed material, or is shown in the respective
financial statements or in the notes thereto.
ITEM 14(a)(3) EXHIBITS
Exhibit 3(a) Copy of Articles of Incorporation of ACNB Corporation is
incorporated by reference to Exhibit 3(a), of the Annual Report on Form 10-K
for the year ended December 31, 1992.
Exhibit 3(b) Copy of By-laws of ACNB Corporation is incorporated by
reference to Exhibit 3(b) of the Annual Report on Form 10-K for the year
ended December 31, 1992.
Exhibit 13 Annual Report to Shareholders.
Exhibit 21 Subsidiary of the Registrant.
Exhibit 23 Consent of Experts and Counsel.
ITEM 14(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ACNB CORPORATION
(Registrant)
By
-----------------------------
Ronald L. Hankey, President
By
--------------------------------------
John W. Krichten, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and
on the dates indicated.
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EXHIBIT 13
1995 Annual Report
[GRAPHIC - LEAF]
ACNB Corporation 1995 Annual Report
CONTENTS
Inherent in the process of adaptation is responsiveness to changes in
the environment. These changes may be in the physical or the cultural
environment, or both, depending upon the context. Regardless, however,
adaptation is a necessity. A necessity for long-term survival.
Like a living tree, Adams County National Bank is subject to the
elements of the environment. These elements may not be the weather, the
changing of seasons, or the surrounding flora and fauna. But, similarly, a
multitude of environmental forces are beyond the control of the Bank. External
changes in the financial services industry and in the local community require
organizational adaptation. Still, at the core of the Bank's adaptation
processes is the simultaneous commitment to customers, employees, ACNB
Corporation stockholders, and the local marketplace. Both prudent adaptation
and this steadfast commitment ensure the ongoing vitality of Adams County
National Bank as a community banking organization.
ACNB Corporation is a single-bank holding company with Adams County
National Bank as its sole and wholly-owned subsidiary. These two entities
are, thus, closely intertwined. ACNB Corporation's 1995 Annual Report
reflects this relationship, as well as the means of organizational adaptation
in the past, present and future.
Financial Highlights 1
Business Profile 1
Report to Stockholders 2
Organizational Adaptation 5
Five-Year Financial Overview 14
Management's Discussion and Analysis 15
Consolidated Financial Statements 22
Notes to Consolidated Financial Statements 26
Report of Independent Accountants 35
Quarterly Results of Operations 36
Five-Year Financial Summary 36
Common Stock Information 37
Board of Directors 38
Officers 39
Community Banking Office Locations 40
ACNB CORPORATION & SUBSIDIARY
1995 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
FOR THE YEAR 1995 1994 1993
---- ---- ----
Net interest income $17,776,000 $18,220,000 $18,228,000
Net income 6,459,000 6,773,000 6,933,000
Cash dividends 3,507,000 3,417,000 3,101,000
PER SHARE STATISTICS*
Net income $1.22 $1.27 $1.30
Cash dividends .66 .64 .58
Book value (year-end) 9.70 9.15 8.58
AT YEAR-END
Total assets $459,353,000 $472,032,000 $471,415,000
Total loans 323,128,000 305,922,000 283,298,000
Total deposits 392,243,000 388,798,000 412,686,000
Total stockholders' equity 51,463,000 48,647,000 45,862,000
KEY RATIOS
Return on average stockholders' equity 12.84% 14.15% 15.61%
Return on average assets 1.41% 1.43% 1.51%
Dividend payout 54% 50% 45%
Stockholders' equity to assets 11.20% 10.31% 9.73%
*Data restated to reflect two-for-one stock split in the form of a 100% stock
dividend issued in 1994.
BUSINESS PROFILE
ACNB Corporation is a single-bank holding company with Adams County
National Bank as its sole and wholly-owned subsidiary. Adams County National
Bank, a full-service community bank in existence since 1857, provides a wide
array of consumer, commercial and fiduciary banking services to the individuals,
businesses, public entities and community organizations in its trading area.
With assets of $459 million, it is the largest community bank headquartered in
Adams County.
ACNB Corporation and its subsidiary, Adams County National Bank, possess
a history abundant in the traditions of community banking. Indeed, the
organizational focus remains constant -- providing the basic banking services
essential to fulfilling the savings and borrowing needs of all community
members. Integral to this steadfast strategy is the reinvestment of customers'
deposits in loans to others in our local marketplace -- primarily via mortgage
loans. A business philosophy predicated upon traditional, customer-oriented
values is the common thread running through Adams County National Bank's history
- -- and its future -- as a responsible, committed and sound community banking
organization.
Adams County National Bank's marketplace encompasses Adams County,
Pennsylvania, and its environs -- western York County, eastern Franklin County,
southern Cumberland County, and the northern sections of those counties in
Maryland that are adjacent to Adams County. Fourteen banking offices and 215
employees serve the customers in this marketplace. Each office and each person
is pivotal to ensuring the strength of Adams County National Bank's community
banking network.
REPORT TO STOCKHOLDERS
During my twenty years as President of Adams County National Bank and
then ACNB Corporation, I have had the privilege to communicate with you, the
stockholders, on many occasions -- recounting the achievements of the past and
projecting the plans for the future. But, rarely have I peered into the face
of the future with such excitement.
This optimism is founded in the knowledge that many internal
strides have been taken to ensure the future growth of Adams County National
Bank as an independent community banking organization. These strides reflect
the need to adapt in an ever-changing environment. They also take various
forms such as product and service enhancements, organizational restructuring,
and technological advancements.
In the fourth quarter of 1995, the Bank's Board of Directors and
senior management embarked upon a formalized strategic planning process.
After the initial assessment of the organization's strengths and weaknesses,
as well as the identification of the opportunities and threats posed by the
external environment, this process prompted a dialogue with regard to the
challenges ahead for Adams County National Bank and ACNB Corporation.
Specific to our organization, the intent of strategic planning is
to focus future endeavors on the organization's quest to remain independent
as a community bank. This mission can be fulfilled only through efforts to
maximize stockholder value; to meet or exceed customers' needs and wants in
the financial services arena; to provide a productive and growth-oriented
work environment for employees; and, to contribute to the community as a
responsible and caring business leader. It is clearly evident at this
stage of the strategic planning process that Adams County National Bank
must attain, and then maintain, a proper balance of technology and human
resources -- supported by proactive marketing endeavors -- as a financial
services provider in the local marketplace.
Organizational adaptation has been and is currently underway
throughout Adams County National Bank, as is evidenced in this 1995 Annual
Report for ACNB Corporation. Adaptation in response to changes in the
environment is a necessity. In fact, without a commitment to organizational
adaptation, there exists a high probability that the organization will lose
its vitality and, therefore, its very existence. At Adams County National
Bank and ACNB Corporation, long-term survival through organizational adaptation
is a given, not a choice.
From a financial perspective, ACNB Corporation ended 1995 with
earnings of $6,459,000. This amount reflects a decrease of $314,000, or 5%, in
comparison to year-end 1994. Not only did weaker net interest income
contribute to this decline, but expenses associated with salaries and employee
benefits, occupancy and equipment rose by 9%. The aggregate increase in these
key operating expenses was directly related to the establishment of the Bank's
Retail Mortgage Division and the opening of the new Super Kmart (Registration
Mark) Center Office in Hanover. However, these expenses also represent an
investment in the future of the Corporation's subsidiary, Adams County National
Bank.
Expense control continues to be a strength of the organization.
One measurement of this is the efficiency ratio, which is calculated by
dividing other operating expense by the sum of net interest income and other
operating income. At year-end 1995, the efficiency ratio for ACNB
Corporation stood at 51% -- far better than the ratios experienced by the
Corporation's peers in recent years.
Other key financial performance ratios include the Corporation's
return on average assets and return on average stockholders' equity. These
ratios were 1.41% and 12.84%, respectively, as of year-end 1995.
With a dividend payout ratio of 54%, the stockholders of ACNB
Corporation received an annual cash dividend of $.66 per share as of December
15, 1995. In 1994, the total annual cash dividend paid to stockholders was
$.64 per share, after restatement to reflect the two-for-one common stock
split effective December 31, 1994. Annual cash dividends, therefore, rose by
3% in the last year.
The Board of Directors also announced the declaration of a Special
Dividend in November 1995. This Special Dividend, in the amount of $1.00 per
share, was payable on January 15, 1996, to stockholders of record on January
4, 1996. As the Special Dividend was the result of a strong capital base due
to the prior performance of the Corporation's bank subsidiary, it served as a
means to distribute these prior earnings to the stockholders -- as well as to
enhance long-term stockholder value.
On a more somber note, S. M. Raffensperger died on January 16,
1996. Mr. Raffensperger, as a partner in Bigham & Raffensperger, was legal
counsel to our organization for many years. He was initially elected to the
Board of Directors of The First National Bank of Gettysburg, a predecessor
institution, in 1955. He later joined the Board of Directors of Adams County
National Bank and ACNB Corporation upon their respective formations in 1962
and 1983. This gentleman was a true friend to our organization for more than
four decades. His presence will be missed, and his imprint on the lives of
others will be long remembered.
In closing, I assure you that there is a niche for community banks
in today's banking environment -- despite the acceleration of consolidations
in the industry and the advent of multistate bank holding companies in
anticipation of nationwide interstate banking as of June 1997. Adaptation
will continue to be integral to the future of Adams County National Bank. In
this sense, adaptation does not imply a transformation, but a reaffirmation
of our role as a true community bank.
In addition, I would like to express my confidence in the personnel
of Adams County National Bank. They demonstrate the spirit it takes to make
our organization a success in our marketplace. As a valued investor in ACNB
Corporation, your continued support of Adams County National Bank helps to
further ensure our success. Thank you for sharing my enthusiasm for the
future, as well as for your ongoing investment in ACNB Corporation.
Sincerely,
Ronald L. Hankey
President & CEO
1995 ADAPTATION
[GRAPHIC- ACORNS]
PHYSICAL ADAPTATION
Physically, Adams County National Bank is like a mature tree. Once
just a fragile mass of roots and a single stem, but now grown and branching out
to new heights.
Each successive year, since the founding of the Bank in 1857, another
annual ring is formed -- strengthening the trunk that supports the future
growth of this community banking organization. The trunk expands; however,
it still continues in its fundamental role of providing sustenance and
protection to the organizational structure.
[GRAPHIC--ROOT]
In late March 1995, Adams County National Bank branched out with
the opening of another office location in Hanover, York County. The site
of this community banking office is inside the new Super Kmart (Registration
Mark) Center at 400 Eisenhower Drive. Adapting to in-store banking presents
many challenges from the numerous physical accommodations necessary --
primarily due to the size limitations of the office -- to modifications in
training for staff members, who are required to be in the store aisles
speaking to current and prospective Bank customers about their financial
service needs.
Adams County National Bank's roots run deep in the local marketplace.
Fourteen community banking offices located throughout Adams County and in
Hanover stem from this fact.
[GRAPHIC -- TREE BRANCH]
PROCESS ADAPTATION
[GRAPHIC -- LOG]
Raw materials are transformed into everyday, usable products by means
of various processes. Trees provide consumers with a wide spectrum of
products resulting from varying levels of refinement. From firewood to ornate,
hand carved furniture. From paper towels to elegant, embossed writing papers.
In banking, there is a direct correlation between process adaptation
and technology. Adams County National Bank's experience is no exception to
this statement. As technology advances at an ever-quickening pace, the Bank
adapts by modifying its portfolio of products and services. Sometimes, these
adaptations are simply an alternative means of delivering the banking service
to the consumer. Other times, too, technological changes enhance levels of
customer service due to the more efficient use of the Bank's human and other
resources. Nevertheless, Adams County National Bank is still in the basic
banking business of protecting customers' deposits and making loans in the
local community.
Adams County National Bank converted to new computer system hardware
and software in the third quarter of 1994. During 1995, the technological
changes continued with the implementation of additional software to generate
nearly all deposit account forms via laser printer, as a result of data
entered at the teller station. Further, the focal emphasis switched in the
latter part of the year to realizing the full potential of this new technology.
On the loan side, there was also a need to adapt to new processes in
1995 due to the efforts of the Retail Mortgage Division. With a presence in
the secondary mortgage market and specialized retail mortgage loan officers,
Adams County National Bank's portfolio of mortgage loan products now includes an
expanded array of options for home buyers -- both on an adjustable-rate and
fixed-rate basis.
[GRAPHIC -- PAPER TOWELS]
ENVIRONMENTAL ADAPTATION
[GRAPHIC -- TREE BRANCH]
In reality, many of the physical and process adaptations in
the banking industry are behaviors in response to the stimuli presented by
the environment and its uncontrollable factors. Illustrations of these
environmental stimuli include competition from banks and other financial
service providers, located both inside and outside of the local trading
area; changing consumer demographics exemplified in new needs and wants;
and, banking industry regulations. But, the economic climate is still the
predominant factor in the environment.
As the seasons change -- producing bud, then leaf -- in the life of a
tree, the business cycles of the local and national economies impact Adams
County National Bank over time. The Bank is not isolated from economic
conditions -- or, in some scenarios, the consumer perception of economic
conditions. The peaks and valleys of the business cycle reflect the natural
expansion and contraction of the economy, as market forces of supply and
demand interact.
Continuing the trend originated in the second half of 1994, loan
demand at Adams County National Bank climbed in 1995. The supply of
deposits, however, grew by only a modest amount. Market interest rates, which
are a direct function of the economic climate, contributed to these results.
The cyclical progression of the seasons is predictable...spring
precedes summer, and winter follows autumn. The same can be said for
business cycles. The unknown manifests itself in the duration and the
severity of each phase in the cycle, as well as via any abrupt changes in
conditions. Adams County National Bank adapts to the fluctuations in
economic conditions by managing interest rate risk and sensitivity -- thus,
preparing itself to weather the volatility caused by any storms on the horizon.
[GRAPHIC -- LEAF]
THE SYNERGIES OF ADAPTATION
[GRAPHIC -- APPLES]
An apple tree bears fruit each fall. But, good soil and a favorable
climate are not enough to ensure this occurrence. At harvest time, the size of
the apple crop is dependent upon the ability of each tree in the orchard to
adapt during the growing season, throughout the year, and during its lifetime.
The fruit grower -- the human element -- nurtures this adaptation process by
various means such as carefully pruning the tree, while it is in its dormant
stage.
Likewise, it is the human element that guides and directs the
process of organizational adaptation at Adams County National Bank. People
provide the synergistic energy to create change, the total effect of which
is greater than the sum of the individual pieces. Further, to yield fruit
year after year, the Bank's human resources must be properly blended with
the technological advances to optimize the positive attributes of both,
individually and in concert.
The yield is not measured solely in the form of profits at Adams
County National Bank. Rather, profits are at the center of attaining other
goals...similar to apples becoming the filling for a pie. Customer
satisfaction, a rewarding work environment for people, a fair return on the
investment of ACNB Corporation stockholders, and a responsibility to the
community are organizational values predicated upon, as well as contributing
to, profitability. Ultimately, the mixing of all these ingredients serves to
strengthen Adams County National Bank's position as an independent community
banking organization in the marketplace.
[GRAPHIC -- PIE]
ACNB Corporation & Subsidiary
FIVE-YEAR FINANCIAL OVERVIEW
[GRAPHIC]
The printed version shows a bar graph with the plot points outlined below:
1995 392.2
1994 388.8
1993 412.7
1992 402.4
1991 384.6
TOTAL DEPOSITS in millions of dollars
[GRAPHIC]
The printed version shows a bar graph with the plot points outlined below:
1995 323.1
1994 305.9
1993 283.3
1992 287.8
1991 301.8
TOTAL LOANS in millions of dollars
[GRAPHIC]
The printed version shows a bar graph with the plot points outlined below:
1995 1.41
1994 1.43
1993 1.51
1992 1.59
1991 1.45
RETURN ON AVERAGE ASSETS Percent
[GRAPHIC]
The printed version shows a bar graph with the plot points outlined below:
1995 1.22
1994 1.27
1993 1.30
1992 1.32
1991 1.15
EARNINGS PER SHARE in dollars
[GRAPHIC]
The printed version shows a bar graph with the plot points outlined below:
1995 .66
1994 .64
1993 .58
1992 .54
1991 .49
DIVIDENDS PER SHARE in dollars
[GRAPHIC]
The printed version shows a bar graph with the plot points outlined below:
1995 9.70
1994 9.15
1993 8.58
1992 7.86
1991 7.08
BOOK VALUE PER SHARE in dollars
ACNB Corporation & Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EARNINGS PERFORMANCE
ACNB Corporation had a second consecutive year of reduced
profitability with net income of $6.5 million for the year ended December 31,
1995, compared to the $6.8 million in net income recognized in 1994. Earnings
per share of $1.22 in 1995 compare to 1994 earnings per share of $1.27.
The reduction in net income by $314,000 in 1995 represents a 4.5%
decrease from 1994, and can be attributed to a decline of $444,000, or 2.4%,
in the Corporation's net interest income and an increase of $149,000, or
1.5%, in other operating expense. However, the Corporation's other operating
income in 1995 was higher than the previous period by $126,000, or 8.4%. The
cumulative impact of these items was partially offset by lower income tax
expense, which decreased by $153,000.
The Corporation also recorded lower net income of $6.8 million for
the year ended December 31, 1994, compared to net income of $6.9 million in
1993. Earnings per share of $1.27 in 1994 compare to the $1.30 per share in
1993.
Reduced net income of $160,000 in 1994 was primarily due to a
$94,000, or 5.9%, decrease in other operating income and an increase of
$468,000, or 5.1 %, in other operating expense. These trends were not offset
by any rise in net interest income because this item was essentially flat
from 1993 to 1994.
The balance of this discussion and analysis is intended to provide
details on the operating results, on a comparative basis, for each of the
periods ended December 31, 1995, 1994 and 1993.
NET INTEREST INCOME
Net interest income is the difference between the interest and
dividends earned on loans and investment securities, or interest earning
assets, and the interest paid on deposits and borrowings, or interest bearing
liabilities. Net interest income is affected principally by the spread
between the yield on interest earning assets and the cost of interest bearing
liabilities, as well as by the relative dollar amounts of such assets and
liabilities.
Net interest income was $17.8 million in 1995. This result is down
from $18.2 million in both 1994 and 1993, respectively. The decline reflects
an involuntary downsizing in 1995, as average interest earning assets
decreased by $13.5 million, or 3.0%. The slight decline in net interest
income for 1994 was caused primarily by a contraction in the net yield on
earning assets from 4.13% in 1993 to 4.01% in 1994. The decline and leveling
off of net yield on earning assets is a result, in part, of the rising interest
rate environment which began in 1994, as the Corporation's deposits
repriced more rapidly than the loan portfolio.
Interest from loans accounted for 80.5% of the Corporation's
interest income in 1995, as compared to 75.1% and 76.8% in 1994 and 1993,
respectively. Interest and dividends on investments amounted to $6.1 million
in 1995, as compared to $7.1 million in 1994 and $6.7 million in 1993. The
average yield on the taxable investment portfolio rose to 5.18% at year-end
1995 from 4.67% at the prior year end. This increase resulted largely from
the higher prevailing interest rates paid on short-term investments in which
the Corporation invests to maintain its liquidity ratios.
The Comparative Average Balance Sheet And Net Interest Analysis, a
table found on pages 18 and 19, presents for the period indicated the total
dollar amount of interest income from average interest earning assets and
resultant yields, as well as the interest expense on average interest bearing
liabilities and the resultant costs, expressed both in dollars and rates.
Nonaccrual loans are included in the average interest earning assets balance.
Interest from nonaccrual loans is included in interest income only to the
extent that payments were received and the Corporation believes it will recover
the remaining principal balance of the loan. Average balances are computed
using a daily average balance during the period. The net yield on earning
assets, which reflects the Corporation's relative level of interest earning
assets to interest bearing liabilities, equals the difference between interest
income on interest earning assets and interest expense on interest bearing
liabilities, divided by average interest earning assets for the period. This
table also sets forth the net interest income and the interest rate spread.
Changes in the Corporation's net interest income are a function of
both changes in rates and changes in volumes of interest earning assets and
interest bearing liabilities. The Analysis of Changes in Interest Income and
Expense Due to Volume and Rate Changes, a table found on page 16, sets forth
information regarding changes in interest income and expense for ACNB
Corporation for the years indicated. For each category of interest earning
asset and interest bearing liability, data is provided on the changes
attributed to changes in rate (changes in rate multiplied by old volume),
changes in volume (changes in volume multiplied by old rate) with changes in
rate and volume (change in rate multiplied by change in volume) factored in
proportionally. Interest earning asset and interest bearing liability
balances in the calculations are computed using daily average balances.
OTHER OPERATING INCOME
The Corporation stresses the importance of growth in other
operating, or non-interest, income as one of its key long-term strategies.
Non-interest income increased by $126,000, or 8.4%, when comparing 1995 to
1994; but, decreased by $94,000, or 5.9%, when comparing 1994 to 1993. In
1995, ACNB Corporation began to sell fixed-rate mortgages on the secondary
market to increase non-interest income, as well as adjusted service charges
on deposit accounts to reflect the marketplace more closely.
Trust income increased by 21.9% in 1995 and 5.0% in 1994. The Bank
has initiated a study with a consulting firm to improve operations and
revenues in the Trust Department. These recommendations should show positive
results late this year and into 1997.
Service charges on deposit accounts have improved over the last two
years, even though the Corporation continued to experience marginal deposit
growth. The reasons for the 12.6% improvement in service charges on deposit
accounts in 1995 over 1994, and the 5.9% improvement in 1994 over 1993,
include growth in the demand deposit area and service charge adjustments as
ACNB Corporation & Subsidiary
mentioned above. While overall deposits were up only 0.9% in 1995 and down
5.8% in 1994, demand deposits were up 19.6% over that same two-year period.
OTHER OPERATING EXPENSE
Other operating, or non-interest, expense was $9.8 million in 1995,
an increase of 1.5% compared to 1994. In 1994, non-interest expense was $9.7
million, rising 5.1% in comparison to 1993. The primary causes of the
increases in non-interest expense are salaries and employee benefits and
equipment expense.
Personnel expense increased by $437,000, or 8.4%, in 1995, compared to
1994, and by $178,000, or 3.6%, in 1994, compared to 1993. The increase in 1994
was due to merit raises and a slight increase in the number of employees to
handle normal growth. In 1995, however, in addition to normal recurring
increases, the Bank opened a new branch office in Hanover, PA, and hired new
personnel to create a separate mortgage division. The Retail Mortgage Division
has begun to generate fee income for the Corporation by packaging and selling
fixed-rate mortgages into the secondary market. It is anticipated that this
division will create enough new fees and the new community banking office will
generate enough new deposits to have a positive effect on net income within the
next several years.
Marketing expense increased by $44,000, or 26.1%, as a result of
several factors, including the Bank's entry into new market segments and
additional advertising programs. The new community banking office in Hanover
necessitated specific expenditures, since it was a start-up operation, and
loan advertising required additional attention to assist the Retail Mortgage
Division in its penetration of the local market.
In addition to these increases there was a significant rise in
equipment expense. Costs were up by $115,000, or 16.2%, in 1995, compared to
1994, and by $84,000, or 13.5%, in 1994, compared to 1993. This is directly
attributable to a complete upgrading of computer hardware and software in
1994. While this satisfied a critical need at the time, management realizes
this will be an ongoing area of concern, particularly because of the rapid
technological changes taking place in the financial services industry.
Partially offsetting these increases was the decrease in FDIC
insurance. After rising by $27,000, or 3.0%, in 1994, the annual expense for
deposit insurance fell by $467,000, or 50.3%, in 1995. This was due to the
final recapitalization of the Federal Deposit Insurance Corporation's Bank
Insurance Fund in May of 1995 and, the dramatic reduction in insurance fees for
the second half of the year. The savings in 1996 should be every bit as
impressive, since the Bank is currently paying a rate that will total $2,000 for
the entire year.
OVERVIEW OF THE BALANCE SHEET
During 1995, ACNB Corporation's total assets shrank by $12.7
million, or 2.7%. The primary cause of this reduction was management's
decision to allow federal funds purchased to be reduced to zero as government
securities matured. These federal funds were purchased to replace deposits
that had been withdrawn in the search for higher rates during heated
competition in 1994. During 1995, the flow of deposits reversed and were up
by $3.5 million, or 0.9%.
The mix of assets and liabilities continued to change in 1995.
Investment securities fell by $40.1 million, or 27.7%, as maturities were
used to fund loans or reduce federal funds purchased. Loans increased by
$18.1 million, or 5.9%, while federal funds were repaid entirely in the
amount of $16.8 million. Additionally, interest bearing deposits with banks
increased from $47,000 to $8.8 million. Premises and equipment showed a
slight decrease as fixed assets were depreciated faster than new equipment was
put into service, while other real estate declined by $348,000, or 33.6%, as
efforts to reduce the number of properties were successful.
On the liability side, non-interest bearing deposits were up by
$5.7 million, or 14.7%. This is a result of lower rates on savings and NOW
accounts. While most of the shift from these accounts went into certificates
of deposit, some did move to demand deposits as lower rates lessened the
urgency to move funds to an interest paying transaction account. As noted
above, federal funds purchased were completely liquidated and core deposits
showed weak, but positive, growth.
Capital continued to increase, up $2.8 million, or 5.8%, despite
the Corporation's liberal dividend policy.
Analysis of Changes in Interest Income and Expense Due to Volume and Rate
Changes
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------------------------------------
1995 versus 1994 1994 versus 1993 1993 versus 1992
Changes Due To Changes Due To Changes Due To
-------------------------------------------------------------------------------------------------
IN THOUSANDS Volume Rate Net Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 2,450 $ 470 $ 2,920 $ 48 $(1,721) $(1,673) $ (399) $(2,607) $(3,006)
Taxable investment securities (1,902) 929 (973) 976 (615) 361 1,332 (1,294) 38
Non-taxable investment
securities (75) 40 (35) 56 (30) 26 (15) (6) (21)
Federal funds sold (1,035) 640 (395) (261) 104 (157) (65) (85) (150)
Time deposits with banks 76 (19) 57 (77) 37 (40) (80) (39) (119)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Interest Earning
Assets $ (486) $ 2,060 $ 1,574 $ 742 $(2,225) $(1,483) $ 773 $(4,031) $(3,258)
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest paid on:
Interest bearing demand
deposits $ (187) $ (7) $ (194) $ 153 $ (165) $ (12) $ 135 $ (380) $ (245)
Savings deposits (581) (41) (622) 307 (698) (391) 921 (830) 91
Time deposits 190 2,060 2,250 (639) (605) (1,244) (1,149) (2,459) (3,608)
Short-term borrowings 203 381 584 209 (37) 172 90 (16) 74
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Interest Bearing
Liabilities $ (375) $ 2,393 $ 2,018 $ 30 $(1,505) $(1,475) $ (3) $(3,685) $(3,688)
------- ------- ------- ------- ------- ------- ------- ------- -------
NET INTEREST EARNINGS $ (111) $ (333) $ (444) $ 712 $ (720) $ (8) $ 776 $ (346) $ 430
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
ACNB Corporation & Subsidiary
ASSET/LIABILITY RISK MANAGEMENT
INTEREST RATE RISK
Managing interest rate risk is fundamental to banking. Banking
institutions manage the inherently different maturity and repricing
characteristics of the lending and deposit-taking lines of business to
achieve a desired interest rate sensitivity position and to limit their
exposure to interest rate risk. ACNB Corporation manages its balance sheet to
achieve maximum stockholder value within the constraints of its interest rate
risk discipline, the maintenance of high credit quality, and sound leverage
and liquidity positions. The primary objective of interest rate sensitivity
management is to maintain net interest income growth, while reducing exposure
to the risks inherent in interest rate movements.
MEASUREMENT OF INTEREST RATE SENSITIVITY RISK
One measure of interest rate risk is the gap report, which details the
repricing differences for assets and liabilities for given periods. As the table
below indicates at December 31, 1995, the balance sheet was asset sensitive with
$134.3 million more in assets than liabilities repricing within one year. The
Corporation maintains such a position because of a major investment in
adjustable-rate mortgages, which reprice slowly. An asset sensitive gap
indicates that, over the course of a year, an upward movement in interest rates
will positively impact the net interest margin, since assets will reprice faster
than liabilities. The gap report has some limitations, including the fact that
it is a static measurement (point in time); it does not capture basis risk; and,
it does not capture risk that varies non-proportionally with interest rate
movements.
Due to the limitations of gap reports, ACNB Corporation has begun
to use a simulation model as its primary method of measuring interest rate
risk. The simulation model, because of its dynamic nature, forecasts the
effects of future balance sheet trends, changing slopes of the yield curve,
different patterns of rate movements, and changing relationships between
rates. The results of the simulation analysis will be used by management to
evaluate possible corrective actions to reduce any negative impact to net
interest margin.
The traditional investment portfolio is used to alter the interest
rate sensitivity position of the Corporation. This is accomplished by holding
fixed-rate debt instruments in the securities. During 1994 and 1995, ACNB
Corporation lengthened the maturity of prime rate loans and, thus,
restructured the asset sensitive position resulting from a short maturity
investment portfolio.
LIQUIDITY MANAGEMENT
Liquidity management involves planning to meet anticipated funding
needs at a reasonable cost, as well as contingency plans to meet
unanticipated funding needs or a loss of funding sources. Liquidity
management is governed by policies formulated and monitored by senior
management, which take into account the marketability of assets, the sources
and stability of funding, and the level of unfunded commitments.
Long-term liquidity needs are provided by a large core deposit
base, which is the most stable source of liquidity a bank can have due to the
long-term relationship with depositors and the deposit insurance provided by
the FDIC. In 1995, 85.5% of total assets were funded by core deposits and
2.9% were funded with short-term purchased funds, compared to 82.4% and 6.8%,
respectively, in 1994. ACNB Corporation joined the Federal Home Loan Bank of
Pittsburgh in 1994 to serve the dual purpose of emergency and long-term
liquidity. The Corporation's borrowing capacity stood at $227.8 million at
year-end 1995.
ACNB Corporation liquidity is maintained by cash flows stemming
from dividends collected from the Bank, which represents the primary source
of funds to pay dividends to stockholders. The amount of dividends from bank
subsidiaries is subject to certain regulatory restrictions, as detailed in
Note G of the Notes to Consolidated Financial Statements. The parent company's
financial statements are presented in Note F of the Notes to Consolidated
Financial Statements.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the normal course of business, ACNB Corporation does not use
off-balance sheet financial instruments to hedge potential fluctuations in
income or market values. Off-balance sheet items consist solely of
commitments to lend and letters of credit.
LOAN REVIEW AND PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
GENERAL
ACNB Corporation's lending activities are carried on through its
banking subsidiary, Adams County National Bank. As of December 31, 1995, the
Corporation's total loan portfolio, carried at historical cost, of $324
million included $197 million in mortgage loans secured by first liens on
one-to-four family residential properties; $57 million in mortgage loans
secured by commercial properties such as apartment buildings, office
buildings, warehouses, and medical office buildings; $13 million in
Interest Rate Sensitivity Gap at December 31, 1995
<TABLE>
<CAPTION>
Repricing Period
---------------------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
days days days days years years
----------------------------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets $ 90,140 $ 34,475 $ 62,321 $125,313 $121,916 $ 3,084
Funds supporting interest
earning assets 28,544 41,279 49,932 58,213 194,830 35,012
--------- --------- --------- --------- --------- ---------
Interest rate sensitivity gap $ 61,596 $ (6,804) $ 12,389 $ 67,100 $ (72,914) $ (31,928)
--------- --------- --------- --------- --------- ---------
Cumulative gap $ 61,596 $ 54,792 $ (67,181) $ 134,281 $ 61,367 $ 29,439
--------- --------- --------- --------- --------- ---------
Cumulative gap as a percentage
of total assets 13.4% 11.9% 14.6% 29.2% 13.4% 6.4%
--------- --------- --------- --------- --------- ---------
</TABLE>
ACNB Corporation & Subsidiary
construction loans; $40 million in consumer loans; and, $17 million in
commercial and agricultural credits.
The amounts for 1994 were total loans of $306 million; mortgage
loans secured by first liens on one-to-four family residential properties of
$188 million; mortgage loans secured by commercial properties of $48 million;
construction loans of $13 million; consumer loans of $37 million; and,
commercial and agricultural credits of $20 million.
In originating loans, the Corporation must compete with savings
banks, savings and loan associations, other commercial banks, mortgage
companies, and credit unions. In addition, the Corporation's lending
activities are heavily influenced by economic trends affecting the
availability of funds and by general interest rate levels. More specifically,
the condition of the construction industry and the demand for housing
directly impact residential lending volumes.
RESIDENTIAL REAL ESTATE LOANS
The Corporation makes available to borrowers in its primary
consumer market area a full range of residential real estate loans, including
conventional fixed-rate mortgage loans for terms of 5, 15 or 30 years and
adjustable-rate mortgage loans, or ARMs. Adjustable-rate mortgages are
advantageous to the Corporation because adjustable-rate loans better match
its natural liability base. However, the ability to originate ARMs, in lieu
of fixed-rate loans, has varied in response to changes in market interest
rates. Between 1990 and 1993, ARMs were refinanced to fixed-rate loans,
reflecting continuing lower market interest rates and leading to runoff in the
Corporation's loan portfolio. With the rise in interest rates in 1994 and 1995,
ARMs have been a larger share of total loan originations and the Corporation's
portfolio has resumed its long-term growth. Currently, the Corporation's
adjustable-rate mortgage loans are indexed to the Federal Housing Finance
Board's Contract Rate for Major Lenders and have an annual cap of 2%.
All of the Corporation's residential mortgage lending is subject to
nondiscriminatory underwriting standards, and most is subject to loan
origination and documentation procedures acceptable to the secondary market.
Residential mortgage loans are originated using standard Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation, or FHLMC,
applications and appraisal forms. All loans are subject to underwriting
review and approval by various levels of Bank personnel, depending upon the
size of the loan. Residential real estate loan applications come through
various channels, primarily the Corporation's community
Comparative Average Balance Sheet And Net Interest Analyis
December 31,
------------------------------------
1995
------------------------------------
ASSETS IN THOUSANDS Balance Interest Rate
------- -------- ----
Loans $ 319,712 $ 25,918 8.11%
Taxable investment securities 116,672 6,048 5.18%
Non-taxable investment securities 1,407 72 5.12%
Federal funds sold 100 6 6.00%
Interest bearing deposits with banks 2,947 169 5.73%
--------- ---------
Total interest earning assets 440,838 $ 32,213 7.31%
Cash and due from banks 10,996
Premises and equipment 5,922
Other assets 4,703
Reserve for loan losses (3,323)
---------
TOTAL ASSETS $ 459,136
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits $ 48,805 $ 1,189 2.44%
Savings deposits 116,660 3,202 2.74%
Time deposits 180,996 9,068 5.01%
Short-term borrowings 19,953 978 4.90%
--------- --------- -----
Total interest bearing liabilities 366,414 $ 14,437 3.94%
--------- --------- -----
INTEREST RATE SPREAD 3.37%
--------- --------- -----
Demand deposits 40,027
Other liabilities 2,378
Stockholders' equity 50,317
---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 459,136
=========
INTEREST INCOME/EARNING ASSETS $ 440,838 $ 32,213 7.31%
INTEREST EXPENSE/EARNING ASSETS $ 440,838 $ 14,437 3.28%
NET YIELD ON EARNING ASSETS $ 17,776 4.03%
Loan fees of $396,000, $442,000 and $485,000 for 1995, 1994 and 1993,
respectively, are included for rate calculation purposes.
ACNB Corporation & Subsidiary
banking offices. However, all residential real estate loans are originated by
the Corporation's banking subsidiary, and mortgage insurance is currently
required on all residential real estate loans originated at a loan-to-value
ratio over 85%.
In addition to interest earned on loans, the Corporation receives
fees for originating loans and for providing loan commitments. The
Corporation also assesses fees for loan modifications, late payments, changes
of property ownership, and other miscellaneous services.
RESIDENTIAL CONSTRUCTION LOANS
ACNB Corporation provides financing for two different categories of
residential construction loans. A custom construction loan is made to the
intended occupant of a house to finance its construction. Speculative
construction loans are made to borrowers who are in the business of building
homes for resale. Speculative construction loans are made on a house-by-house
basis, and not as lines of credit to builders. Nevertheless, this type of
construction loan involves somewhat more risk than custom construction loans
and different underwriting considerations. All construction loans require
approval by various levels of Bank personnel, depending upon the size of the
loan. Construction loans for nonconforming residential properties, which are
properties other than single-family detached houses, are subject to more
stringent approval requirements.
COMMERCIAL REAL ESTATE LOANS
In all commercial real estate lending, the Corporation considers
the location, marketability and overall attractiveness of the project.
Current underwriting guidelines on commercial real estate loans require an
economic analysis of each property, with regard to the annual revenue and
expenses, debt service coverage and fair market value, to determine the
maximum loan amount. Commercial real estate loans require approval by various
levels of Bank personnel, depending upon the size of the loan.
Commercial real estate lending generally entails greater risks than
residential mortgage lending. This type of lending typically involves large
loan balances concentrated with single borrowers or groups of related
borrowers. In addition, the payment experience on loans secured by
income-producing properties usually depends on the successful operation of
the related real estate project and, thus, may be subject, to a greater
extent, to adverse conditions in the real estate market or in the general
economy.
In order to monitor its commercial real estate loan
ACNB Corporation & Subsidiary
<TABLE>
<CAPTION>
December 31 December 31
-------------------------------------- --------------------------------
1994 1993
-------------------------------------- --------------------------------
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Loans $ 289,350 $ 22,998 7.95% $ 288,790 $ 24,671 8.54%
Taxable investment securities 150,188 7,021 4.67% 129,953 6,660 5.12%
Non-taxable investment securities 2,605 107 4.11% 1,394 81 5.81%
Federal funds sold 10,766 401 3.72% 18,258 558 3.06%
Interest bearing deposits with banks 1,457 112 7.69% 2,539 152 5.99%
--------- --------- --------- ---------
Total interest earning assets 454,366 $ 30,639 6.74% 440,934 $ 32,122 7.28%
Cash and due from banks 11,582 10,463
Premises and equipment 5,702 4,712
Other assets 4,984 5,121
Reserve for loan losses (3,448) (3,538)
--------- ---------
TOTAL ASSETS $ 473,186 $ 457,692
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing demand deposits $ 56,420 $ 1,383 2.45% $ 50,563 $ 1,395 2.76%
Savings deposits 137,910 3,824 2.77% 127,785 4,215 3.30%
Time deposits 176,222 6,818 3.87% 192,135 8,062 4.20%
Short-term borrowings 14,186 394 2.78% 6,812 222 3.26%
--------- --------- --------- ---------
Total interest bearing liabilities 384,738 $ 12,419 3.23% 377,295 $ 13,894 3.68%
--------- --------- ----- --------- --------- -----
INTEREST RATE SPREAD 3.51% 3.60%
Demand deposits 38,772 33,906
Other liabilities 1,783 2,080
Stockholders' equity 47,893 44,411
--------- ---------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 473,186 $ 457,692
========= =========
INTEREST INCOME/EARNING ASSETS $ 454,366 $ 30,639 6.74% $ 440,934 $ 32,122 7.28%
INTEREST EXPENSE/EARNING ASSETS $ 454,366 $ 12,419 2.73% $ 440,934 $ 13,894 3.15%
NET YIELD ON EARNING ASSETS $ 18,220 4.01% $ 18,228 4.13%
</TABLE>
portfolio, the Corporation periodically inspects real estate collateral based
on the loan risk classification, the loan size, and the location of the
collateral; analyzes the economic condition of markets in which the company has
a geographic concentration; and, reviews operating statements and rent rolls,
updated financial and tax statements of borrowers, evidence of insurance
coverage, and evidence that real estate taxes have been paid. These procedures
are designed to analyze the economic viability of the property, as well as to
determine whether or not the debt service coverage and loan-to-value ratios
remain consistent with the Corporation's underwriting policies. It is the
intention of management to perform a continual review of the commercial real
estate loan portfolio in light of the condition of the real estate market.
Based upon the above procedures, the Corporation classifies loans that fall
below underwriting standards into various risk categories.
MANUFACTURED HOUSING, SECOND MORTGAGE AND OTHER CONSUMER LOANS
The Corporation offers consumer loan programs that include the
following: manufactured housing loans; second mortgage loans for a variety of
purposes such as for purchase, renovation or remodeling of property, and for
uses unrelated to the security; loans for the purchase of automobiles,
pleasure boats and recreational vehicles; student loans; and, loans for
general household purposes, including home equity lines of credit. Consumer
loans, in addition to being an important part of the Corporation's orientation
toward consumer financial services, promote greater net interest income
stability because of their somewhat shorter maturities and faster prepayment
characteristics. Lending in this area may involve special risks, including
decreases in the value of collateral and transaction costs associated with
foreclosure and repossession.
Consumer loans are generally secured loans and are made based on an
evaluation of the collateral and the borrower's creditworthiness, including
such factors as income, other indebtedness and credit history. Secured
consumer loan amounts typically do not exceed 85% of the value of the
collateral, less the outstanding balance of any first mortgage loan. Lines of
credit are subject to periodic review, revision and, when deemed appropriate
by the Corporation, cancellation as a result of changes in the borrower's
financial circumstances.
ASSET QUALITY
Banks are required to review their assets on a regular basis, and
to classify them if any weaknesses are noted. Adequate reserves must be
maintained for assets classified as substandard or doubtful. Any assets
classified as a loss must be immediately written off. ACNB Corporation has a
comprehensive process for classifying assets, and asset reviews are performed
on a quarterly basis. The objective of the review process is to identify any
trends and to determine the levels of loss exposure in evaluating the need
for an adjustment to the reserve accounts. Classified assets consist of
nonaccrual loans, loans under foreclosure, other real estate owned, and
performing loans and securities that exhibit credit quality weaknesses. The
principal measures of asset problems are the levels of nonaccruing loans,
loans under foreclosure, other real estate owned, the size of the provision
for loan losses, loan charge-offs, and the size of the write-downs in the
value of other real estate owned. See below.
Management ceases to accrue interest income on any loan that
becomes 90 days or more delinquent and is not in the process of collection.
Thereafter, interest income is accrued only if and when, in management's
opinion, projected cash proceeds are deemed sufficient to repay both
principal and interest. All loans on which interest is not being accrued are
referred to as loans on nonaccrual status. Nonperforming loans include those
loans which are on nonaccrual status and loans on which payment is 90 days or
more delinquent, but still accruing.
Real estate that served as security for a defaulted loan and that
then became other real estate owned is recorded on the Corporation's books at
the lower of the outstanding loan balance or fair market value, the
determination of which takes into account the effect of sales and financing
concessions that may be required to market the property. If management's
estimate of fair market value at the time a property becomes other real
estate owned is less than the loan balance, the loan is written down at that
time by a charge to the reserve for loan losses. Other real estate owned
consisted of four properties valued at $689,000 as of December 31, 1995, down
from $1.0 million as of December 31, 1994.
PROVISION AND RESERVE FOR LOAN LOSSES
Reserves are based upon management's continuing analysis of
pertinent factors underlying the quality of the loan portfolio. These factors
include changes in the size and composition of the portfolio, historical loan
loss trends, the industry's loss experience, and current and anticipated
economic conditions.
As part of the process of determining the adequacy of the reserve
for loan losses, the Corporation reviews its loan portfolio for specific
weaknesses. A portion of the reserve is then allocated to reflect the
potential loss exposure of those specific weaknesses. When available
information confirms that specific loans or portions thereof are
uncollectible, these amounts are charged-off against the reserve for loan
losses. The existence of some or all of the following criteria generally
confirm that a loss has been incurred the loan is significantly delinquent
and the
Nonperforming Assets Analysis
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------
1995 1994
-------------------------- --------------------------
Nonperforming Net Nonperforming Net
IN THOUSANDS Assets Charge-offs Assets Charge-offs
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Real estate loans (1-4 family dwellings) $2,000 $ 31 $2,080 $ 76
Real estate loans (other) 1,589 12 796 89
Commercial and industrial 184 -- 98 3
Consumer 100 53 99 43
------ ----- ------ ------
TOTAL $3,873 $ 96 $3,073 $ 211
====== ===== ====== ======
</TABLE>
ACNB Corporation & Subsidiary
borrower has not evidenced the ability or intent to bring the loan current; the
Corporation has no recourse to the borrower or, if it does, the borrower has
insufficient assets to pay the debt; or, the fair market value of the loan
collateral is significantly below the current loan balance, and there is little
or no near-term prospect for improvement. Residential real estate and consumer
loans are not individually analyzed for loss exposure because of the significant
number of loans, as well as their relatively small balances and historically low
level of losses. After study of economic conditions, review of loan quality and
collateral, and past history of bad debts, management has not seen the need for
additional provisions to the reserve over the last two years. This decision will
be closely reviewed in 1996 and thereafter.
CAPITAL MANAGEMENT
During 1995, ACNB Corporation increased its capital base through
retained earnings. At year-end 1995, the risk-based capital ratios of Tier 1
capital and Total capital were 20.11% and 21.36%, respectively, exceeding the
minimum ratios specified by the Federal Reserve Board. Capital ratios
are included in the table below.
Capital management is an ongoing process that consists of providing
equity and long-term debt for both current and future financial positioning.
ACNB Corporation manages its capital to execute its strategic business plans
and to support its growth and investments.
ACNB Corporation and its banking subsidiary are subject to the
capital adequacy guidelines of various federal banking agencies, such as the
Federal Reserve Board and the Office of the Comptroller of the Currency. At
December 31, 1995, the Corporation and its banking subsidiary were in
compliance with the capital requirements of their respective regulatory
agencies and, further, are expected to remain in compliance in the future.
Additionally, pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991, or FDICIA, the federal banking regulators have set the minimum
capital ratios for a well-capitalized banking institution at 6% Tier 1 capital,
10% Total capital, and 5% Tier 1 leverage. At December 31, 1995, the capital
ratios of the Corporation's banking subsidiary exceeded these levels and are
expected to be in excess of the minimum ratios required of a well-capitalized
institution in the future. The risk-based capital guidelines are designed to
measure Tier 1 and Total capital, which is comprised of Tier 1 and Tier 2, in
relation to the credit risk of both on- and off-balance sheet items.
In the fourth quarter of 1995, ACNB Corporation announced a stock
repurchase program to purchase up to 100,000 shares of its common stock over
the next 12 to 18 months. Management believes this is a prudent use of the
Corporation's ample capital, and the repurchased shares will be retired.
The Corporation's Board of Directors increased the quarterly common
stock cash dividend to $.16 per share during the first quarter of 1995, and
further increased the quarterly dividend to $.17 per share during the third
quarter of 1995. The annual dividend during 1994 was $.64 and $.58 in 1993.
The Corporation's total stockholders' equity at December 31, 1995,
was $51.5 million, or 11.2%, of total assets, compared with $48.7 million, or
10.31%, at December 31, 1994. The growth in stockholders' equity was due to
the increase from retained earnings, reduced by the repurchase of common
stock of $136,000 and the declaration of dividends of $3.5 million.
OUTLOOK ON FUTURE OPERATING RESULTS AND SUBSEQUENT EVENTS
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights", which was effective January 1, 1996. It will not effect the
Corporation since mortgage servicing rights are not retained on sold
residential mortgages.
The Financial Accounting Standards Board also issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation", which was effective January 1, 1996. The Corporation does not
offer stock-based compensation and, therefore, Statement of Financial
Accounting Standards No. 123 is not applicable.
Another accounting pronouncement that took effect on January 1, 1996,
is Statement of Financial Accounting Standards No. 121, and this statement
concerns impairment of long-lived assets. The Corporation reviews such assets
as conditions warrant and makes adjustments that are necessary to reflect the
value of its assets accurately.
On January 15, 1996, the Corporation paid to its stockholders a
special cash dividend of $1.00 per share. This dividend had the dual effect
of lowering the Corporation's capital ratio, which should improve return on
equity, and sharing the earnings of the last decade with the Corporation's
stockholders.
The trend that will have the greatest effect in 1996, and beyond,
is the increasing difficulty experienced in attracting deposits. Should this
difficulty continue, the Corporation will be required to look elsewhere for
funding sources. Management has considered this and, while core deposits have
been the foundation of historic growth, future growth may have to come from
the Federal Home Loan Bank and similar sources.
Capital Ratios at Year-end
1995 1994
---- ----
Common stockholders' equity to assets 11.20% 10.31%
Tier I leverage ratio 11.21% 10.25%
Tier I risk-based capital ratio 20.11% 20.61%
Total risk-based capital ratio 21.36% 21.86%
ACNB Corporation & Subsidiary
CONSOLIDATED STATEMENTS OF CONDITION
December 31
----------------------
ASSETS In thousands 1995 1994
---- ----
Cash and due from banks $ 14,135 $ 12,872
Interest bearing deposits with banks 8,765 47
Investment securities
(market value $105,144 and
$140,604, respectively) 104,842 144,905
Federal funds sold 100 100
Mortgage loans held for sale 874 --
Loans
(net of unearned discount of
$2,184 and $3,883, respectively) 323,128 305,922
Reserve for possible loan losses (3,274) (3,370)
--------- ---------
Net loans 319,854 302,552
Premises and equipment 5,767 5,874
Other real estate 689 1,037
Other assets 4,327 4,645
--------- ---------
TOTAL ASSETS $ 459,353 $ 472,032
========= =========
LIABILITIES
Non-interest bearing deposits $ 44,318 $ 38,639
Interest bearing deposits 347,925 350,159
--------- ---------
TOTAL DEPOSITS 392,243 388,798
Securities sold under agreement
to repurchase 13,203 14,613
Federal funds purchased -- 16,800
Demand notes, U.S. Treasury 199 450
Other liabilities 2,245 2,724
--------- ---------
TOTAL LIABILITIES 407,890 423,385
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 20,000,000
shares authorized; 5,307,756 issued and
outstanding shares on 12/31/95 and
5,316,122 on 12/31/94) 13,269 13,290
Additional paid-in capital 4,396 4,511
Retained earnings 33,798 30,846
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 51,463 48,647
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 459,353 $ 472,032
========= =========
ACNB Corporation & Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31
---------------------------
INTEREST INCOME
In thousands, except per share data 1995 1994 1993
---- ---- ----
Loans (including fees) $25,918 $22,998 $24,671
Time deposits with banks 169 112 152
Federal funds sold 6 401 558
Taxable securities 6,048 7,021 6,660
Non-taxable securities 72 107 81
------- ------- -------
TOTAL INTEREST INCOME 32,213 30,639 32,122
INTEREST EXPENSE
Interest bearing deposits 13,459 12,025 13,672
Other borrowed funds 978 394 222
------- ------- -------
TOTAL INTEREST EXPENSE 14,437 12,419 13,894
NET INTEREST INCOME 17,776 18,220 18,228
Provision for possible loan losses -- -- 315
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 17,776 18,220 17,913
OTHER OPERATING INCOME
Trust income 356 292 278
Service charges on deposit accounts 672 597 564
Other income 599 612 660
Securities gains -- -- 93
------- ------- -------
TOTAL OTHER OPERATING INCOME 1,627 1,501 1,595
OTHER OPERATING EXPENSE
Salaries and employee benefits 5,610 5,173 4,995
Net occupancy expense 695 651 589
Equipment expense 823 708 624
FDIC insurance 461 928 901
Other taxes 401 392 353
Other expense 1,819 1,808 1,730
------- ------- -------
TOTAL OTHER OPERATING EXPENSE 9,809 9,660 9,192
INCOME BEFORE INCOME TAXES 9,594 10,061 10,316
Applicable income taxes 3,135 3,288 3,383
------- ------- -------
NET INCOME $ 6,459 $ 6,773 $ 6,933
======= ======= =======
PER COMMON SHARE DATA*
Net income $ 1.22 $ 1.27 $ 1.30
Cash dividends $ .66 $ .64 $ .58
* Based on a weighted average of 5,314,521 shares in 1995, 5,342,101
shares in 1994, and 5,347,836 shares in 1993. Data restated to reflect
two-for-one stock split in the form of a 100% stock dividend issued in 1994.
ACNB Corporation & Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Paid-in Retained
Stock Capital Earnings Total
----- ------- -------- -----
In thousands
BALANCE AT JANUARY 1, 1993 $ 13,370 $ 5,002 $ 23,658 $(42,030)
Net income -- -- 6,933 6,933
Cash dividends -- -- (3,101) (3,101)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1993 13,370 5,002 (7,490) 45,862
Net income -- -- 6,773 6,773
Cash dividends -- -- (3,417) (3,417)
Retirement of 31,714 shares (80) (491) -- (571)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1994 13,290 4,511 30,846 48,647
Net income -- -- (6,459) 6,459
Cash dividends -- -- (3,507) (3,507)
Retirement of 8,366 shares (21) (115) -- (136)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 $ 13,269 $ 4,396 $ 33,798 $ 51,463
======== ======== ======== ========
ACNB Corporation & Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH Year ended December 31
AND CASH EQUIVALENTS ---------------------------------
In thousands 1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and dividends received $ 32,634 $ 31,895 $ 35,002
Fees and commissions received 2,023 1,943 2,080
Interest paid (13,875) (12,394) (14,166)
Cash paid to suppliers and employees (9,759) (8,920) (8,755)
Income taxes paid (3,478) (2,419) (2,705)
Loans originated for sale (5,138) -- --
Proceeds of mortgage loans sold 4,264 -- --
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,671 10,105 11,456
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment
securities and interest bearing balances
with other banks 68,885 56,677 47,526
Purchase of investment securities and
interest bearing balances with
other banks (29,481) (55,559) (77,954)
Net (increase) decrease in loans (16,961) (23,031) 4,595
Capital expenditures (474) (938) (1,615)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 21,969 (22,851) (27,448)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts (12,741) (4,787) 35,225
Net increase (decrease) in certificates of
deposit 14,776 (15,290) (18,465)
Dividends paid (3,507) (3,417) (3,101)
Net increase (decrease) in federal funds
purchased (17,051) 16,800 --
Retirement of common stock (136) (571) --
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (18,659) (7,265) 13,659
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 9,981 (20,011) (2,333)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 13,019 33,030 35,363
-------- -------- --------
CASH AND CASH EQUIVALENTS AT ENDOFYEAR $ 23,000 $ 13,019 $ 33,030
======== ======== ========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 6,459 $ 6,773 $ 6,933
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Securities gains -- -- 93
Depreciation and amortization 588 457 406
Provision for possible loan losses -- -- 315
Provision (Benefit) for deferred taxes 88 (67) 943
Amortization of investment securities
premiums 760 1,850 1,798
Increase (Decrease) in taxes payable (431) 936 (265)
Decrease (Increase) in interest receivable 414 (152) 1,474
Increase (Decrease) in interest payable 562 25 (272)
Increase (Decrease) in accrued expenses (351) 275 107
Increase in mortgage loans held for
sale (874) -- --
Decrease (Increase) in other assets (180) 17 (37)
Decrease in other liabilities (364) (9) (39)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,671 $ 10,105 $ 11,456
======== ======== ========
ACNB Corporation & Subsidiary
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies followed by ACNB Corporation and
its principal subsidiary, Adams County National Bank, conform with generally
accepted accounting principles and with general practice within the banking
industry.
Financial statements prepared in accordance with generally accepted
accounting principles require management to make estimates and assumptions
that affect the reported amounts and disclosure of contingencies. Actual
results could differ from these estimates.
BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, Adams County National Bank. All
significant intercompany transactions have been eliminated.
Income and expenses are recorded on the accrual basis of accounting,
except for trust department income and certain other fees which are recorded
primarily on the cash basis. Recognition of such income on an accrual basis is
impractical and would not materially affect net income.
For comparative purposes, prior years' financial statements have been
reclassified to conform with report classifications of the current year.
INVESTMENT SECURITIES
On December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Statement requires each debt and equity security to be
classified into one of three categories: held-to-maturity, available for sale,
or trading. Investments in securities which the Corporation has the positive
intent and ability to hold to maturity are classified as held-to-maturity.
These securities are accounted for at amortized cost. The Corporation
classified all securities as held-to-maturity at December 31, 1995 and 1994.
Management will reassess the appropriateness of the classifications each
quarter.
Amortization of premium and accretion of discount for investment
securities is computed by the straight-line method to the maturity date or call
date. There is not a material difference between the straight-line method and
the interest method. Book value is the basis for reporting security gains and
losses on the income statement. Income is accrued the month it is earned.
INCOME TAXES
Under Statement of Financial Accounting Standards No. 109, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to the
differences between the financial statement carrying amounts and the tax bases
of the existing assets and liabilities. The effect of deferred taxes is
recognized in income in the period that includes the enactment date.
LOANS
Loans are stated net of unearned interest on consumer installment
loans. Interest on installment loans is recognized using the
sum-of-the-month-digits method, which is not materially different from the
interest method. Interest on commercial and real estate loans is recognized
based upon the principal amount outstanding. Loan fees are recorded on the
cash basis, since there is not a material difference to the recording methods
under Statement of Financial Accounting Standards No. 91.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is charged over the estimated
useful life of buildings and equipment, computed generally by the
straight-line method. When property is retired or sold, the accounts
are relieved of the applicable cost and accumulated depreciation, and any
gain or loss is reflected in operating income. Maintenance and repairs are
charged to operating expenses, and the cost of major improvements are
capitalized.
RESERVE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to income is based upon
management's evaluation of outstanding loans, the historical loan loss
experience of the subsidiary, and the adequacy of the reserve for possible loan
losses. A significant change in this estimate could result in a material change
to net income.
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended by Statement of Financial
Accounting Standards No. 118, was effective January 1, 1995. The Corporation
considers all consumer loans and residential mortgage loans to be excluded,
unless restructured in a troubled debt restructuring. Other real estate loans
are also excluded because the loans are carried at the lower of fair value or
carrying value at the time of acquisition. At December 31, 1995, the
Corporation did not have any loans that would be classified as impaired under
Statement of Financial Accounting Standards No. 114.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for which the accrual of
interest has been discontinued due to a serious weakening of the borrower's
financial condition.
Loans are generally placed on a nonaccrual basis when principal or
interest is past due 90 days or more and when, in the opinion of management,
full collection of principal or interest is unlikely. At the time a loan is
placed on nonaccrual status, the accrual of interest is discontinued. Income on
such loans is then recognized only to the extent of cash received.
The basis in other real estate is carried at the lower of fair market
value or the carrying value of the related loan at the time of acquisition.
ADVERTISING COSTS
Costs of advertising are expensed when incurred.
ACNB Corporation & Subsidiary
NOTE B
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires all entities to disclose the
estimated fair value of its financial instrument assets and liabilities. For
1995 and 1994, approximately 98% of the Corporation's assets and 88% and 89%,
respectively, of its liabilities are considered financial instruments as
defined in Statement of Financial Accounting Standards No. 107. Many of the
Corporation's financial instruments, however, lack an available trading market
as characterized by a willing buyer and a willing seller engaging in an
exchange transaction. Therefore, significant estimations and present value
calculations were used by the Corporation for the purposes of this disclosure.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate the value.
Financial instruments actively traded in a secondary market have been
valued using quoted available market prices.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------------- ------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
In thousands --------------- --------- ---------------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 14,135 $ 14,135 $ 12,872 $ 12,872
Interest bearing deposits with banks 8,765 8,765 47 47
Federal funds sold 100 100 100 100
Investment securities 105,144 104,842 140,604 144,905
Interest receivable 2,766 2,766 3,270 3,270
</TABLE>
Fair values for net loans are estimated for portfolios with similar
financial characteristics. Loans are segregated into commercial, residential
real estate, and consumer. The loan categories are further segmented into
fixed and adjustable types. Fair value for adjustable-rate commercial loans is
considered to be the same as the carrying value because these loans were made
at the Corporation's prime lending rate, which is the same rate these loans
would be written as of the date of this financial statement. Fixed-rate
commercial loans have been revalued at a rate the Corporation would use if the
loans were written as of December 31, 1995 and 1994. Mortgages and consumer
loans have been revalued using discounted cash flows. The mortgages were
estimated using the Federal Housing Finance Board Index at December 31, 1995
and 1994, which was 7.52% and 7.56%, respectively, and consumer loans were
revalued using rates being charged by the Corporation at year-end 1995 and
1994. Fair value for nonperforming loans is based on current valuations of
underlying collateral.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------------- ------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
In thousands --------------- --------- ---------------- -----------
<S> <C> <C> <C> <C>
Net loans $320,778 $319,854 $302,036 $302,552
Mortgage loans held for sale 874 874 -- --
</TABLE>
Under Statement of Financial Accounting Standards No. 107, the fair
value of deposits with no stated maturity, such as non-interest bearing demand
deposits, savings, NOW accounts, and Money Market checking accounts, is equal
to the amount payable on demand as of December 31, 1995 and 1994. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
estimates do not include the benefit that results from the low-cost funding
provided by the deposit liabilities, compared to the cost of borrowing funds
in the market.
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------------- ------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
In thousands --------------- --------- ---------------- -----------
<S> <C> <C> <C> <C>
Deposits with no stated maturities $204,779 $204,779 $216,227 $216,227
Deposits with stated maturities 185,034 187,464 171,269 172,571
Repurchase agreements 13,203 13,203 14,613 14,613
Federal funds purchased and demand notes 199 199 17,250 17,250
Interest payable 2,145 2,145 1,582 1,582
</TABLE>
The fair value of commitments to extend credit is estimated taking into
account the remaining terms of the agreements and the creditworthiness of the
counterparties. For loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates. The fair
value of letters of credit is based on fees currently charged for similar
agreements, or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. The contract amount and the estimated fair
value for commitments to extend credit and standby credits are charted.
December 31, 1995 December 31, 1994
---------------------- ---------------------
Estimated Carrying Estimated Carrying
Fair Value Amount Fair Value Amount
----------- -------- ---------- --------
In thousands
Commitments to extend credit $28,993 $28,993 $24,821 $24,821
Standby letters of credit 1,837 1,837 1,324 1,324
Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include deferred tax assets and
liabilities, and property and equipment. In addition, the tax ramifications
related to the realization of unrealized gains and losses can have a
significant effect on the fair value estimates.
ACNB Corporation & Subsidiary
NOTE C
INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities
were as follows:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity Securities In thousands Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $101,400 $619 $319 $101,700
Obligations of states and political subdivisions 962 2 -- 964
-------- ----- ---- --------
Total debt securities 102,362 621 319 102,664
Other equity securities 2,480 -- -- 2,480
-------- ----- ---- --------
Total Investment Securities $104,842 $621 $319 $105,144
======== ===== ==== ========
<CAPTION>
December 31, 1994
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Held-to-Maturity Securities In thousands Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $141,139 $ 9 $4,307 $136,841
Obligations of states and political subdivisions 1,509 1 4 1,506
Mortgage-backed securities 1 -- -- 1
-------- --- ------ --------
Total debt securities 142,649 10 4,311 138,348
Other equity securities 2,256 -- -- 2,256
-------- --- ------ --------
Total Investment Securities $144,905 $10 $4,311 $140,604
======== === ====== ========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because
some issuers have the right to call or prepay obligations with or without call
or prepayment penalties.
December 31, 1994 December 31, 1995
----------------- -----------------
Amortized Fair Amortized Fair
Held-to-Maturity Securities In thousands Cost Value Cost Value
--------- -------- --------- --------
Due in one year or less $ 54,363 $ 54,288 $ 54,813 $ 54,236
Due after one year through five years 47,327 47,704 87,103 83,379
Due after five years through ten years 423 423 378 378
Due after ten years 249 249 354 354
Mortgage-backed securities -- -- 1 1
-------- -------- -------- --------
Total Debt Securities $102,362 $102,664 $142,649 $138,348
======== ======== ======== ========
At December 31, 1995 and 1994, assets with an amortized cost of
$37,731,000 and $34,866,000, respectively, were pledged as required or
permitted by law to secure certain public and trust deposits, repurchase
agreements, or for other purposes.
ACNB Corporation & Subsidiary
NOTE D
LOANS AND RESERVES FOR LOAN LOSSES
Loans at December 31 are summarized as follows:
In thousands 1995 1994 1993
---- ---- ----
Real estate $284,943 $268,944 $250,242
Real estate - construction 12,951 12,632 4,791
Commercial, financial and agricultural 9,268 10,785 14,100
Consumer 18,150 17,444 17,950
-------- -------- --------
325,312 309,805 287,083
Less: Unearned discount on loans 2,184 3,883 3,785
-------- -------- --------
Total Loans $323,128 $305,922 $283,298
======== ======== ========
Transactions in the valuation portion of the
reserve for loan losses were as follows:
In thousands 1995 1994 1993
---- ---- ----
Balance - January 1 $3,370 $3,581 $3,417
Recoveries credited to reserve 38 45 41
Provision charged to operating expense -- -- 315
Loans charged-off (134) (256) (192)
------ ------ ------
Balance - December 31 $3,274 $3,370 $3,581
====== ====== ======
The reserve for loan losses for federal income tax purposes was
$1,591,000 in 1995, 1994 and 1993. Total nonaccrual loans for 1995 and 1994
were $1,093,000 and $854,000, respectively. Interest lost due to nonaccrual
loans was $100,000 and $75,000 for 1995 and 1994, respectively.
At December 31, 1995, residential mortgage loans with a book value of
$873,500 were committed for sale and awaiting settlement. The cumulative
market value exceeded the book value of these loans.
NOTE E
INCOME TAXES
The composition of applicable income taxes for the years 1995, 1994
and 1993 was as follows:
In thousands 1995 1994 1993
---- ---- ----
Current $3,049 $3,199 $3,451
Deferred 86 89 (68)
------ ------ ------
$3,135 $3,288 $3,383
====== ====== ======
Income taxes paid during 1995, 1994 and 1993 were $2,931,000,
$3,265,000 and $3,640,000, respectively. Differences between applicable income
taxes (benefit) included in net income and the maximum federal income tax
rates were comprised as follows:
In thousands 1995 1994 1993
---- ---- ----
Income taxes at statutory rates $3,262 $3,421 $ 3,511
Increases (Decreases) resulting from:
Tax-free income (60) (84) (95)
Tax preference interest expense 6 8 6
Rehabilitation and low-income housing credit (73) (57) (120)
Other, net -- -- 81
------- ------- -------
Applicable Income Tax $3,135 $3,288 $3,383
======= ======= =======
At December 31, 1995 and 1994, the Corporation had deferred
liabilities of $303,000 and $244,000 and deferred tax assets of $572,000 and
$605,000, respectively. The principal temporary differences were depreciation
($165,000), reserve for bad debts ($572,000), and accounting for pension
contributions ($135,000) in 1995 and depreciation ($118,000), reserve for bad
debts ($605,000), and accounting for pension contributions ($127,000) in 1994.
Federal income taxes on securities gains were $0 in 1995, $0 in 1994
and $32,000 in 1993. Since the Corporation has historically had strong
earnings, management believes the deferred tax asset is realizable.
ACNB Corporation & Subsidiary
NOTE F
ACNB CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
December 31
-------------------
STATEMENTS OF CONDITION In thousands 1995 1994
---- ----
ASSETS
Cash $ 202 $ 202
Securities and other assets 356 417
Investment in common stock of subsidiary 49,180 48,011
Receivable from subsidiary 1,725 17
------- -------
TOTAL ASSETS $51,463 $48,647
======= =======
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 20,000,000 shares
authorized; 5,307,756 issued and outstanding shares
on 12/31/95 and 5,316,122 on 12/31/94) $13,269 $13,290
Additional paid-in capital 4,396 4,511
Retained earnings 33,798 30,846
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,463 $48,647
======= =======
Year ended December 31
-------------------------------
STATEMENTS OF INCOME In thousands 1995 1994 1993
---- ---- ----
INCOME
Dividend from subsidiary $5,257 $5,851 $3,381
Other -- -- 93
------ ------ ------
EXPENSE 61 37 25
------ ------ ------
INCOME BEFORE TAXES AND EQUITY IN
UNDISTRIBUTED NET INCOME OF SUBSIDIARY 5,196 5,814 3,449
Applicable tax benefit (93) (70) (97)
------ ------ ------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
NET INCOME OF SUBSIDIARY 5,289 5,884 3,546
Equity in undistributed net income of
subsidiary 1,170 889 3,387
------ ------ ------
NET INCOME $6,459 $6,773 $6,933
====== ====== ======
ACNB Corporation & Subsidiary
Year ended December 31
----------------------------------
STATEMENTS OF CASH FLOWS In thousands 1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Dividends received $ 3,643 $ 5,851 $ 3,381
------- ------- -------
Net Cash Provided by Operating Activities 3,643 5,851 3,381
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment securities -- -- 200
Purchase of equity investment -- -- (480)
------- ------- -------
Net Cash Used in Investing Activities -- -- (280)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (3,507) (3,417) (3,101)
Purchase of common stock of subsidiary -- (2,000) --
Retirement of common stock (136) (434) --
------- ------- -------
Net Cash Used in Financing Activities (3,643) (5,851) (3,101)
------- ------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 202 202 202
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 202 $ 202 $ 202
======= ======= =======
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 6,459 $ 6,773 $ 6,933
Securities gains -- -- (93)
Increase in investment in common stock
of subsidiary (1,170) (889) (3,387)
Decrease in due to subsidiary -- -- (14)
Decrease (Increase) in receivable from
subsidiary (1,707) 66 (83)
Loss on equity investment 61 38 25
Non-cash dividend -- (137) --
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,643 $ 5,851 $ 3,381
======= ======= =======
NOTE G
RESTRICTIONS ON SUBSIDIARY
DIVIDENDS, LOANS AND ADVANCES
Certain restrictions exist regarding the ability of the Bank to
transfer funds to the Corporation in the form of cash dividends, loans or
advances. The approval of the Office of the Comptroller of the Currency is
required to pay dividends in excess of earnings retained in the current year
plus retained net profits for the preceding two years. As of December 31,
1995, $5,447,000 of undistributed earnings of the Bank, included in
consolidated retained earnings, was available for distribution to the
Corporation as dividends without prior regulatory approval.
Under national banking laws, the Bank is also limited as to the amount
it may loan to its affiliates, including the Corporation, unless such loans
are collateralized by specific obligations. At December 31, 1995, the maximum
amount available for transfer from the Bank to the Corporation in the form of
loans was approximately $5,474,000.
NOTE H
INVESTMENT IN REAL ESTATE PARTNERSHIP
ACNB Corporation is the sole limited partner in a partnership named
Gettysburg Scattered Site Associates, whose purpose is to develop, manage and
operate a residential low-income development comprised of sixteen dwelling
units. ACNB Corporation owns a 99% limited partner's interest in the
partnership. The investment is accounted for under the equity method of
accounting. At December 31, 1995 and 1994, the carrying value of this
investment was approximately $356,514 and $417,704, respectively.
ACNB Corporation & Subsidiary
NOTE I
PREMISES AND EQUIPMENT
The composition of Corporation premises and equipment at December 31
was as follows:
In thousands 1995 1994
---- ----
Land $ 857 $ 857
Bank premises 5,746 5,492
Furniture and equipment 4,784 4,594
Less: Accumulated depreciation and amortization (5,620) (5,069)
------- -------
TOTAL $ 5,767 $ 5,874
======= =======
A summary of depreciation and amortization
expenses is as follows:
In thousands 1995 1994 1993
---- ---- ----
Bank premises $193 $158 $127
Furniture and equipment 388 291 240
---- ---- ----
TOTAL $581 $449 $367
==== ==== ====
NOTE J
RETIREMENT PLANS
The subsidiary has a non-contributory pension plan covering all
eligible employees. The plan provides retirement benefits which are a function
of both the years of service and the highest level of compensation during any
consecutive five-year period. It is the subsidiary's funding policy to
contribute annually the amount that is sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act. The
total pension expense for the years ended December 31, 1995, 1994 and 1993 was
$277,000, $266,000 and $260,000, respectively.
The following table sets forth the plan's funded status as of October
31, 1995 and 1994, and amounts recognized in the Corporation's consolidated
financial statements at December 31:
In thousands 1995 1994
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $3,755 for 1995 and $2,905 for 1994 $ 3,792 $(2,929)
======= =======
In thousands
Projected benefit obligation for service rendered to date $(5,794) $(4,325)
Plan assets at fair value 4,462 4,029
------- -------
Projected benefit obligation in excess of plan assets (1,332) (296)
Unrecognized transition asset (92) (105)
Unrecognized loss 1,191 133
Unrecognized prior service cost 307 344
Contributions from November 1 through December 31 300 60
------- -------
Prepaid pension cost included in other assets $ 374 $ 136
======= =======
In thousands
Net pension cost for 1995 and 1994 included the following components:
Service cost $ 216 $ 230
Interest cost 355 360
Actual return on plan assets (262) (188)
Amortization and deferral (32) (136)
------- -------
Net periodic pension cost $ 277 $ 266
======= =======
There was a settlement during 1994 under Statement of Financial
Accounting Standards No. 88, resulting in an additional cost of $27,275 due to
annuity purchases.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.00% and 8.00% for 1995
and 1994, respectively, and the rate of increase in future compensation levels
was 6.00% for 1995 and 1994. The weighted-average expected long-term rate of
return on plan assets was 7.50% for 1995 and 1994.
Plan assets consist of certificates of deposit, government securities,
a deposit administration contract, and an investment of 37,560 shares of
common stock with ACNB Corporation at December 31, 1995 and 1994.
The Corporation has a 401(k) Salary Deferral Plan, which covers all
eligible employees who elect to contribute to the plan. An eligible employee
is anyone over the age of 20 1/2, who has completed six months of service. The
Corporation's contribution equals 100% of the employee's contribution, up to a
maximum of 2% of annual salary. The annual expense included in salaries and
benefits amounted to $84,000 and $77,000 for 1995 and 1994, respectively.
ACNB Corporation & Subsidiary
NOTE K
COMMITMENTS, CONTINGENCIES AND
CONCENTRATIONS OF CREDIT
FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
The Corporation is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit and financial guarantees which involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated statements of condition. The Corporation uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. A summary of significant commitments and
contingent liabilities at December 31, 1995 and 1994, is presented below:
In thousands 1995 1994
---- ----
Commitments to extend credit $28,993 $24,821
Standby letters of credit 1,837 1,324
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses, and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Corporation evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Corporation upon extension of
credit, is based on management's credit evaluation of the creditor. The type
of collateral may vary; however, a significant portion of these financial
instruments is secured through real estate.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Corporation to guarantee the performance
of a customer to a third party. Those guarantees are primarily issued to support
borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
CONCENTRATIONS OF CREDIT RISK
The Corporation has a diversified loan portfolio and grants agribusiness
commercial and residential loans to customers, substantially all of whom are
local residents to the Corporation's fourteen offices.
CONTINGENT LIABILITIES
The Corporation is party to litigation and claims arising in
the normal course of business. Management, after consultation with legal
counsel, believes that the liabilities, if any, arising from such litigation
and claims will not be material to the consolidated financial position.
NOTE L
RESTRICTIONS ON CASH
AND DUE FROM BANK ACCOUNTS
The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for the
year ended December 31, 1995, was approximately $4,386,000.
NOTE M
TIME DEPOSITS
Time deposits in denominations of $100,000 or more at December 31,
1995 and 1994, are summarized in the following table:
In Thousands 1995 1994
---- ----
Time certificates of deposit $15,449 $10,942
Other time deposits 1,000 1,000
The interest expense related to time certificates of deposit in
denominations of $100,000 or more totaled $589,000 in 1995, $526,000 in 1994
and $757,000 in 1993.
ACNB Corporation & Subsidiary
NOTE N
LOANS TO RELATED PARTIES
The aggregate balance of loans (in excess of $60,000) made to directors
and executive officers in the normal course of business as of December 31, 1995
and 1994, was $3,752,565 and $2,649,901, respectively. The terms for these loans
were substantially the same as those for unrelated parties.
Balance at Balance at Number
January 1, Amounts December 31, of
1995 Additions Collected 1995 Debtors
- -----------------------------------------------------------------------------
$2,649,901 $2,351,373 $1,248,709 $3,752,565 11
NOTE O
LEASE COMMITMENTS
Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2010. Most leases contain renewal provisions
at the Corporation's option.
The total rental expense for all operating leases was $72,816, $44,873
and $41,873 for the years ended December 31, 1995, 1994 and 1993, respectively.
The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 31:
1996 $ 64,200
1997 $ 64,200
1998 $ 64,200
1999 $ 59,400
2000 $ 47,500
Later years $455,000
--------
Total Minimum Payments $754,500
========
NOTE P
FUTURE EFFECT OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights", which is effective January 1, 1996. Statement of Financial Accounting
Standards No. 122 will not effect the Corporation since mortgage servicing
rights are not retained on sold residential mortgages.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation", which is effective January 1, 1996. Since the Corporation does
not offer stock-based compensation, Statement of Financial Accounting Standards
No. 123 is not applicable.
ACNB Corporation & Subsidiary
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To The Stockholders and Board of Directors
ACNB Corporation
Gettysburg, Pennsylvania
We have audited the accompanying consolidated statements of condition of
ACNB Corporation and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ACNB
Corporation and Subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
York, Pennsylvania
January 11, 1996
ACNB Corporation & Subsidiary
QUARTERLY RESULTS OF OPERATIONS
Selected quarterly information for the years ended
December 31, 1995 and 1994, is as follows:
First Second Third Fourth
1995 In thousands, except per share data Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income $7,799 $8,002 $8,146 $8,266
------ ------ ------ ------
Interest expense 3,358 3,610 3,713 3,756
------ ------ ------ ------
Net income 1,545 1,466 1,682 1,766
------ ------ ------ ------
Net income per share .29 .28 .32 .33
------ ------ ------ ------
Return on average assets 1.34% 1.28% 1.47% 1.53%
------ ------ ------ ------
1994
Interest income $7,608 $7,628 $7,665 $7,738
------ ------ ------ ------
Interest expense 3,147 3,028 3,087 3,157
------ ------ ------ ------
Net income 1,695 1,709 1,686 1,683
------ ------ ------ ------
Net income per share** .32 .32 .31 .32
------ ------ ------ ------
Return on average assets 1.43% 1.44% 1.42% 1.43%
------ ------ ------ ------
FIVE-YEAR SUMMARY OF
SELECTED FINANCIAL DATA
The following table sets forth financial data
for the last five years:
In thousands, except
per share data 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total interest income $ 32,213 $ 30,639 $ 32,122 $ 35,380 $ 39,189
Total interest expense 14,437 12,419 13,894 17,582 22,446
Net interest income 17,776 18,220 18,228 17,798 16,743
Provision for loan losses -- -- 315 855 745
Net income* 6,459 6,773 6,933 7,038 6,130
PER SHARE DATA**
Net income* $ 1.22 $ 1.27 $ 1.30 $ 1.32 $ 1.15
Cash dividends .66 .64 .58 .54 .49
BALANCE SHEET TOTALS
Average stockholders'
equity $ 50,317 $ 47,893 $ 44,411 $ 39,930 $ 36,387
Average assets 459,136 473,186 457,692 441,880 421,915
RATIOS
Return on average
stockholders' equity 12.84% 14.15% 15.61% 17.63% 16.85%
Return on average assets 1.41% 1.43% 1.51% 1.59% 1.45%
Dividend payout 54% 50% 45% 41% 43%
Stockholders' equity to
assets 11.20% 10.31% 9.73% 9.32% 8.82%
* 1992 includes $446,000, or $.09 per share, related to the cumulative effect
of the change in accounting for income taxes.
** Data restated to reflect two-for-one stock split in the form of a 100% stock
dividend issued in 1994.
See Notes to Consolidated Financial Statements.
ACNB Corporation & Subsidiary
COMMON STOCK MARKET
PRICES AND DIVIDENDS
The common stock of ACNB Corporation is traded in the over-the-counter
market. As of December 31, 1995, the approximate number of shareholders of the
Corporation's common stock was 3,036.
Prices were provided by the local office of Smith Barney Inc. and F.J.
Morrissey & Co., Inc. of Philadelphia. High and low bid prices of common
shares and dividends for the last two years were:
1995 1994
--------------------------- ---------------------------
Bid Price Cash Bid Price* Cash
Quarter ---------------- Dividend ----------------- Dividend
Ended High Low Paid High Low Paid*
------ ------ -------- ------- ------ --------
March 31 $18.00 $14.25 $.16 $23.50 $21.00 $.15
June 30 20.00 18.00 .16 23.50 23.00 .15
September 30 19.50 15.75 .17 23.75 21.00 .15
December 31 18.50 15.75 .17 18.00 15.37 .20
* Data restated to reflect two-for-one stock split in the form of a 100% stock
dividend issued in 1994.
The bid prices for ACNB Corporation common stock for the periods
indicated represent inter-dealer prices without adjustment for retail mark-up,
mark-down or commission, and do not necessarily represent actual transactions.
Trades have generally occurred in relatively small lots, and the prices quoted
herein are not necessarily indicative of the market value of a substantial
block.
While the Corporation expects to continue its policy of regular
quarterly dividend payment, no assurance of future dividend payment can be
given. Future dividend payments will depend upon maintenance of a continued
strong financial condition, future earnings, and capital requirements. The
Corporation has no restrictions affecting the payment of dividends, except as
indicated in Note G of the Notes to Consolidated Financial Statements.
The following firms make a market in
ACNB Corporation common stock:
Ferris, Baker Watts, Incorporated
Frederick, MD
(301)662-6488/(800)950-6488
Janney Montgomery Scott, Inc.
York, PA
(717)845-5611/(800)999-0503
Hopper Soliday & Co., Inc.
Lancaster, PA
(717)560-3015/(800)456-9234
F.J. Morrissey & Co., Inc.
Philadelphia, PA
(215)563-8500/(800)842-8928
Smith Barney Inc.
Gettysburg, PA
(717)334-9101
ACNB Corporation & Subsidiary
BOARD OF DIRECTORS
ACNB CORPORATION AND ADAMS COUNTY NATIONAL BANK
Philip P. Asper
Owner
Philip P. Asper, Builder
Robert G. Bigham
Partner
Bigham & Raffensperger
Attorneys-at-Law
Vice Chairman
ACNB Corporation &
Adams County National Bank
C. F. Ditzler
Home Builder
Guy F. Donaldson
Fruit Grower
Frank Elsner, Jr.
Chairman
Elsner Engineering Works, Inc.
Richard L. Galusha
Realtor
D. Richard Guise
President
Adams County Motors Corp.
J. Glenn Guise
Chairman
Adams County Motors Corp.
Ronald L. Hankey
Chairman, President & CEO
ACNB Corporation &
Adams County National Bank
Jennifer W. Hartman
Director
Gettysburg Center of
Harrisburg Area
Community College
Philip M. Jones
CEO
Times & News
Publishing Company
Wayne E. Lau
Sales Representative
Destinations: A Travel Company
William B. Lower
President
Boyer Nurseries & Orchards, Inc.
Paul G. Pitzer
Fruit Grower
S. M. Raffensperger
Partner
Bigham & Raffensperger
Attorneys-at-Law
Charles E. Ritter
Retired Shoe Manufacturer
Ralph S. Sandoe
Fruit Broker
Marian B. Schultz
Assistant Dean
Division of Undeclared Majors
Shippensburg University
L. Robert Snyder
Chairman of the Board & President
Littlestown Hardware & Foundry Co., Inc.
Ralph W. Tyson
Fruit Grower
ADAMS COUNTY NATIONAL BANK ADVISORY BOARD
Donald H. Hershey
Marvin G. Kime
William T. Timmins, Jr.
ADAMS COUNTY NATIONAL BANK HONORARY DIRECTORS
Dale G. Crum
J. C. Donley
ACNB Corporation & Subsidiary
OFFICERS
ACNB CORPORATION
RONALD L. HANKEY
President & CEO
JOHN W. KRICHTEN
Secretary & Treasurer
Lynda L. Glass
Assistant Secretary
ADAMS COUNTY NATIONAL BANK
Ronald L. Hankey
President & CEO
Elizabeth H. Beall
Senior Vice President
Human Resources
Lynda L. Glass
Senior Vice President
Community Banking Administration & Marketing
John M. Kiehl
Senior Vice President
Operations & Security
John W. Krichten
Senior Vice President,
Cashier & Chief Financial Officer
Nancy L. Reichart
Senior Vice President & Trust Officer
Victor L. Reynolds
Senior Vice President & Senior Loan Officer
CARL L. RICKER
Senior Vice President
Retail Mortgage Division
John E. Salisbury
Senior Vice President
Audit
VICE PRESIDENTS
- ---------------
Helen L. Altland
H. William Black
Robert L. Brewer
Jack W. Chambers
Wayne G. Crum
David W. Deaner
Thelma E. Griffie
Robert A. Hahn
Ronald L. Hoffman
Ronald E. Lindbeck
Stanley E. Mummert
William H. Yohe, Jr.
ASSISTANT
VICE PRESIDENTS
- ---------------
Steven E. Ebersole
George R. Guise
Terry L. Pottorff
Shelby L. Stone
ASSISTANT CASHIERS
- ------------------
Beverly S. Kress
Diana K. Kuntz
Linda L. Leer
TRUST OFFICER
- -------------
Ronald D. Baker
ACNB Corporation & Subsidiary
ADAMS COUNTY NATIONAL BANK
OFFICE LOCATIONS
Arendtsville
101 Main Street
Arendtsville, PA 17303
BENDERSVILLE
101 North Main Street
Bendersville, PA 17306
BIGLERVILLE
3459 South Main Street
Biglerville, PA 17307
CARROLL VALLEY
104 Sanders Road
Carroll Valley, PA 17320
EAST BERLIN
1677 Abbottstown Pike
East Berlin, PA 17316
FRANKLIN TOWNSHIP
10 High Street
Cashtown, PA 17310
HANOVER
1127 Eichelberger Street
Hanover, PA 17331
LINCOLN SQUARE
2 Chambersburg Street
Gettysburg, PA 17325
LITTLES TOWN
17 South Queen Street
Littlestown, PA 17340
McSHERRYSTOWN
369 Main Street
McSherrystown, PA 17344
NORTH GETTYSBURG
675 Old Harrisburg Road
Gettysburg, PA 17325
SUPER KMART(Registration Mark) CENTER
400 Eisenhower Drive
Hanover, PA 17331
WEST LITTLESTOWN
444 West King Street
Littlestown, PA 17340
YORK SPRINGS
202 Main Street
York Springs, PA 17372
The Registrant has one subsidiary, Adams County National Bank, a national bank,
which is wholly owned by the Registrant.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Form 10-K of ACNB
Corporation and Subsidiary of our report dated January 11, 1996, included in
the 1995 Annual Report to Stockholders of ACNB Corporation and Subsidiary.
/s/ HARRY NESS & COMPANY
York, Pennsylvania
March 21, 1996
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