UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________________
Commission file number 0-11783
-------
ACNB CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2233457
- -------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 OLD HARRISBURG ROAD, GETTYSBURG, PA 17325
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(717) 334-3161
--------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class - Common Stock ($2.50 par value)
Outstanding at March 31, 1997 - 5,253,278
<PAGE>
ACNB CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Condensed Balance Sheets
March 31, 1997 and December 31, 1996 and
March 31, 1996 3
Consolidated Condensed Statements of Income
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Condensed Financial Statements 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operation 8-11
Part II. Other Information 11
Page 2
<PAGE>
PART I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
-------- ----------- --------
<S> <C> <C> <C>
ASSETS (000 omitted)
Cash and Due from Banks 12,250 22,078 27,553
Investment Securities
Securities Held to Maturity 59,829 79,855 102,946
Securities Available for Sale 49,156 36,641 0
--------- --------- ---------
Total Investment Securities 108,985 116,496 102,946
Federal Funds Sold 100 100 100
Loans 331,593 324,927 320,354
Less: Reserve for Loan Losses (3,168) (3,183) (3,253)
--------- --------- ---------
Net Loans 328,425 321,744 317,101
Premises and Equipment 5,278 5,415 5,653
Other Real Estate 916 1,015 682
Other Assets 6,545 5,597 6,531
--------- --------- ---------
TOTAL ASSETS $ 462,499 $ 472,445 $ 460,566
========= ========= =========
LIABILITIES
Deposits
Noninterest Bearing 43,409 52,666 41,263
Interest Bearing 351,584 350,461 354,998
--------- --------- ---------
Total Deposits 394,993 403,127 396,261
Securities Sold Under
Agreement To Repurchase 13,207 16,736 13,236
Borrowing Federal Home Loan Bank 0 0 0
Demand Notes U.S. Treasury 450 450 450
Other Liabilities 4,533 2,696 3,785
--------- --------- ---------
TOTAL LIABILITIES 413,183 423,009 413,732
SHAREHOLDERS EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,253,278 shares issued and
outstanding at 3/31/97 13,133 13,196 13,269
Surplus 3,647 3,994 4,396
Retained Earnings 32,649 31,889 29,169
Net unrealized gains on securities available
for sale (113) 357 0
--------- --------- ---------
TOTAL SHAREHOLDERS EQUITY 49,316 49,436 46,834
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $ 462,499 $ 472,445 $ 460,566
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
1997 1996
---- ----
(000 omitted)
INTEREST INCOME
Loan Interest and Fees 6,675 6,567
Interest and Dividends on
Investment Securities 1,877 1,352
Interest on Federal Funds Sold 1 1
Interest on Balances with
Depository Institutions 59 202
------ ------
TOTAL INTEREST INCOME 8,612 8,122
INTEREST EXPENSE
Deposits 3,473 3,565
Other Borrowed Funds 171 134
------ ------
TOTAL INTEREST EXPENSE 3,644 3,699
NET INTEREST INCOME 4,968 4,423
Provision for Loan Losses 30 0
NET INTEREST INCOME AFTER PROVISION _____ _____
FOR LOAN LOSSES 4,938 4,423
OTHER INCOME
Trust Department 96 103
Service Charges on Deposit Accounts 189 176
Other Operating Income 167 126
Securities Gains 0 0
------ ------
TOTAL OTHER INCOME 452 405
OTHER EXPENSES
Salaries and Employee Benefits 1,749 1,482
Premises and Fixed Assets 433 420
Other Expenses 663 575
------ ------
TOTAL OTHER EXPENSE 2,845 2,477
INCOME BEFORE INCOME TAX 2,545 2,351
Applicable Income Tax 839 770
------ ------
NET INCOME $1,706 $1,581
====== ======
EARNINGS PER SHARE* $ 0.32 $ 0.30
DIVIDENDS PER SHARE* 0.18 1.17
*Based on 5,258,537 shares outstanding in 1997 and 5,307,756 in 1996
See accompanying notes to financial statements.
Page 4
<PAGE>
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Three months ended
March 31
------------------
1997 1996
---- ----
(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received 7,717 7,755
Fees and Commissions Received 570 497
Interest Paid (3,044) (3,020)
Cash Paid to Suppliers and Employees (2,925) (4,047)
Income Taxes Paid 0 4
Net Cash Provided by Operating Activities 2,318 1,189
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 21,071 19,066
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (13,560) (17,290)
Principal Collected on Loans 17,853 19,682
Loans Made to Customers (24,465) (16,049)
Capital Expenditures (26) (37)
Net Cash Used in Investing Activities 873 5,372
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts (3,943) (2,143)
Proceeds from Sale of Certificates of Deposit 9,859 12,527
Payments for Maturing Certificates of Deposit (17,579) (6,333)
Dividends Paid (946) (6,210)
Increase (Decrease) in Borrowings 0 251
Repurchase of Common Stock (410) 0
Net Cash Provided by Financing Activities (13,019) (1,908)
Net Increase in Cash and Cash Equivalents (9,828) 4,653
Cash and Cash Equivalents: Beginning of Period 22,178 23,000
End of Period 12,350 27,653
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income 1,706 1,581
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 163 152
Provision for Possible Credit Losses 30 0
Provision for Deferred Taxes 0 87
Amortization of Investment Securities Premiums 0 120
Increase (Decrease) in Taxes Payable 839 687
(Increase) Decrease in Interest Receivable (423) (567)
Increase (Decrease) in Interest Payable 600 679
Increase (Decrease) in Accrued Expenses 282 175
(Increase) Decrease in Other Assets (525) (1,896)
Increase (Decrease) in Other Liabilities (354) 171
Net Cash Provided by Operating Activities 2,318 1,189
DISCLOSURE OF ACCOUNTING POLICY
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.
Page 5
<PAGE>
ACNB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly ACNB
Corporation's financial position as of March 31, 1997 and 1996 and December
31, 1996 and the results of its operations for the three months ended March
31, 1997 and 1996 and changes in financial position for the three months then
ended. All such adjustments are of a normal recurring nature.
The accounting policies followed by the company are set forth in Note A to
the company's financial statements in the 1996 ACNB Corporation Annual Report
and Form 10-K filed with the Securities and Exchange Commission under file
no. 0-11783.
2. The book and approximate market values of securities owned at March 31, 1997
and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
3/31/97 12/31/96
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(000 omitted)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
Agencies (held to maturity) 58,947 58,698 78,930 79,020
State and Municipal (held to
maturity) 882 882 925 926
U.S. Government Agencies
(available for sale) 46,466 46,295 33,530 34,071
Other Investments (avail for sale) 2,861 2,861 2,570 2,570
-------- -------- -------- --------
TOTAL $109,156 $108,736 $115,955 $116,587
</TABLE>
Income earned on investment securities was as follows:
Three Months Ended March 31
---------------------------
1997 1996
---- ----
(000 omitted)
U.S. Treasury 410 631
U.S. Government Agencies 1,414 664
State and Municipal 14 16
Other Investments 39 41
----- -----
1,877 1,352
Page 6
<PAGE>
3. Gross loans are summarized as follows:
March 31 December 31
-------- -----------
(000 omitted)
Real Estate 296,208 288,588
Real Estate Construction 11,030 11,207
Commercial and Industrial 9,539 9,866
Consumer 14,816 15,266
------- -------
Total Loans $331,593 $324,927
4. Earnings per share are based on the weighted average number of shares of
stock outstanding during each period. Weighted average shares outstanding for
the three month periods ended March 31, 1997 and 1996 were 5,258,537 and
5,307,756 respectively.
5. Dividends per share were $.18 and $1.17 for the three month periods ended
March 31, 1997 and 1996 respectively. This represented a 56% payout of net
income in 1997 and a 390% payout in 1996. The 1996 dividend includes a $1.00
special dividend paid in January 1996.
6. The results of operations for the three month periods ended March 31, 1997
and 1996 are not necessarily indicative of the results to be expected for the
full year.
Page 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following is management's discussion and analysis of the significant changes
in the results of operations, capital resources and liquidity presented in its
accompanying consolidated financial statements for ACNB Corporation, a bank
holding company (the Corporation), and its wholly-owned subsidiary, Adams County
National Bank (the Bank). The Corporation's consolidated financial condition and
results of operations consist almost entirely of the Bank's financial condition
and results of operations. This discussion should be read in conjunction with
the 1996 Annual Report. Current performance does not guarantee, assure, or is
necessarily indicative of similar performance in the future.
In addition to historical information, this Form 10-Q contains forward-looking
statements. The forward-looking statements contained herein are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. Important
factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations". Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date hereof. The Corporation undertakes no
obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date hereof. Readers should
carefully review the risk factors described in other documents the Corporation
files from time to time with the Securities and Exchange Commission, including
the Quarterly Reports on Form 10-Q to be filed by the Corporation in 1997 and
1998, and any Current Reports on Form 8-K filed by the Corporation.
Three months ended March 31,1997 compared to three months ended March 31, 1996
Net Income for the first three months of 1997 was $1,706,000, up $125,000 or 8%
above the first quarter of 1996. The increase in net income was due primarily to
a six (6%) percent improvement in Total Interest Income. Net income per share,
for the first quarter, was $.32, up $.02 or 6% above the $.30 earned in the
comparable period in 1996.
An explanation of the factors and trends that caused changes between the two
periods, by major earnings category, follows.
Total interest income for the first three month period of 1997 was $8,612,000,
up $490,000 or 6% above the $8,122,000 earned in the same period of 1996. The
$490,000 increase in interest income was due primarily to a larger volume of
earning assets, principally investments in the securities portfolio. The average
volume of securities available-for-sale was $35.2 million more in the current
quarter than in the comparable quarter of 1996, when there were none. In an
effort to manage interest rate risk, the Bank purchased $35 million of mortgage
backed securities classified as available-for-sale over the last nine months.
Income from loans during the current period was also improved by loan growth of
approximately $6.3 million.
Total interest expense for the first three month period of 1997 was $3,644,000,
down $55,000 or 1% below the $3,697,000 incurred for the same period in 1996.
The $55,000 decrease in interest expense was due primarily to a slight falloff
in cost of interest bearing deposits. This happened in spite of the fact that
the average volume of interest bearing liabilities was $3.3 million higher in
the current quarter compared to the same quarter in 1996.
Page 8
<PAGE>
Net interest income after provision for loan losses for the first three month
period of 1997 was $4,938,000, up $515,000 or 11.6% above the $4,423,000 earned
in the same period of 1996. The increase in current period net interest income
was achieved from a larger average volume of earning assets and improvement in
yield on securities.
Total non-interest income for the first three month period of 1997 at $452,000,
was $47,000 or 11.6% greater than the same quarter in 1996. This was due to
increased service charges on deposit accounts of $13,000 and greater
miscellaneous fees of $47,000.
Total non-interest expense for the first three month period of 1997 was
$2,845,000, up $368,000 or 14.9% greater than the $2,477,000 incurred for the
third quarter of 1996. Most of the increase was in salaries and benefits which
were up $267,000 or 18%.
The provision for income taxes in the first quarter increased $69,000 or 9.0%
due to a higher level of pretax earnings.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
Three Months Ended
--------------------
3/31/97 3/31/96
Rate Rate
------- -------
Earning Assets 7.81% 7.48%
Interest Bearing Liabilities 4.03% 4.10%
Interest Rate Spread 3.78% 3.38%
---- ----
Net Yield on Earning Assets 4.47% 4.07%
Net Yield on Earning Assets is the difference, stated in percentages, between
the interest earned on loans and other investments and the interest paid on
deposits and other sources of funds. The Net Yield on Earning Assets is one of
the best analytical tools available to demonstrate the effect of interest rate
changes on the Corporation's earning capacity.
The Net Yield on Earning Assets, for the first three months of 1997, was up 40
basis points compared to the same period in 1996. This is a result of improved
yields on government securities and a larger volume of earning assets.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In Thousands)
Three Months Ended
--------------------
3/31/97 3/31/96
------- -------
Balance at Beginning of Period 3,183 3,274
Provision Charged to Expense 30 0
Loans Charged Off 50 26
Recoveries 5 5
----- -----
Balance at End of Period 3,168 3,253
Page 9
<PAGE>
Ratios:
Net Charge-offs to:
Net Income 2.64% 1.33%
Total Loans .01% .01%
Reserve for Possible Loan Losses 1.42% .65%
Reserve for Possible Loan Losses to:
Total Loans .96% 1.02%
The Reserve for Possible Loan Losses at March 31, 1997 totaled $3,168,000 (.96%
of Total Loans), a decrease of $85,000 from $3,253,000 (1.02% of Total Loans) at
the end of the first three months of 1996. Loans past due 90 days and still
accruing amounted to $2,407,000 and non-accrual loans totaled $1,001,000 as of
3/31/97. The ratio of non-performing assets plus other real estate owned to
total assets was .93% at 3/31/97. All properties are carried at the lower of
market or book value and are not considered to represent significant threat of
loss to the bank.
Loans past due 90 days and still accruing were $2,175,000 at year end 1996 while
non-accruals stood at $994,000. The bulk of the Corporation's real estate loans
are in owner occupied dwellings but it is hoped that internal loan review
procedures will be effective in recognizing and helping correct any real estate
lending problems that may occur due to current economic conditions. Interest not
accrued, due to an average of $998,000 in non-accrual loans, was approximately
$22,000 for the first three months of 1997.
A loan is considered impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all amounts due. Impaired
loans are measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. If the measure of the impaired loan is less than
its recorded investment a creditor must recognize an impairment by creating, or
adjusting, a valuation allowance with a corresponding charge to loan loss
expense. The Corporation uses the cash basis method to recognize interest income
on loans that are impaired. All of the Corporation's impaired loans were on a
non-accrual status for all reported periods.
CAPITAL MANAGEMENT
Total Shareholders' Equity amounted to $49,316,000 at 3/31/97 compared to
$46,834,000 at 3/31/96, an increase of $2,482,000 or 5% over that period. The
ratio of Total Shareholders' Equity to Total Assets was 10.66% at 3/31/96,
10.46% at 12/31/96, and 10.17% at 3/31/97. The total risk-based capital ratio
was 19.18% at 3/31/97. Capital at ACNB Corporation remains strong even with a
56% dividend payout ratio. See Note #5 for information regarding dividends paid
during 1997.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation's liquidity is adequate. Liquid assets (cash and due from banks,
federal funds sold, money market instruments, available for sale securities and
hold to maturity investment securities maturing within one year) equal 17.7% of
total assets at 3/31/97. This mix of assets would be readily available for
funding any cash requirements. In addition, the Bank has an approved line of
credit of $223,738,000 at the Federal Home Loan Bank of Pittsburgh with $0
outstanding at 3/31/97.
Page 10
<PAGE>
As of 3/31/97, the cumulative asset sensitive gap was 10.1% of total assets at
one month, 12.0% at six months, and 22.0% at one year. Adjustable rate
mortgages, which have an annual interest rate cap of 2%, are considered rate
sensitive. Passbook savings and NOW accounts are carried in the one to five year
category while half of money market deposit accounts are spread over the four to
twelve month category and the other half are shown to mature in the one to three
year category.
There are no known trends or demands, commitments, events or uncertainties that
will result in, or that are reasonably likely to result in, liquidity increasing
or decreasing in any material way. Aside from those matters described above,
management does not currently believe that there are any known trends or
uncertainties which would have a material impact on future operating results,
liquidity or capital resources nor is it aware of any current recommendations by
the regulatory authorities which if they were to be implemented would have such
an effect, although the general cost of compliance with numerous and multiple
federal and state laws and regulation does have and in the future may have a
negative impact on the corporation's results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Management is not aware of any litigation that would have a material adverse
effect on the consolidated financial position of the Corporation. There are no
proceedings pending other than the ordinary routine litigation incident to the
business of the Corporation and its subsidiary. In addition, no material
proceedings are pending or are known to be threatened or contemplated against
the Corporation and the Bank by government authorities.
Item 2. Changes in Securities - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders - Nothing to report.
Item 5. Change of composition of Board of Directors - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K - Nothing to report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACNB CORPORATION
/s/ Ronald L. Hankey
---------------------------
Ronald L. Hankey, President
April 30, 1997
(Date)
/s/ John W. Krichten
---------------------------
John W. Krichten,
Secretary/Treasurer
Page 11
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,250
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,156
<INVESTMENTS-CARRYING> 59,829
<INVESTMENTS-MARKET> 59,580
<LOANS> 331,593
<ALLOWANCE> 3,168
<TOTAL-ASSETS> 462,499
<DEPOSITS> 394,993
<SHORT-TERM> 13,657
<LIABILITIES-OTHER> 4,533
<LONG-TERM> 0
0
0
<COMMON> 13,133
<OTHER-SE> 36,183
<TOTAL-LIABILITIES-AND-EQUITY> 462,499
<INTEREST-LOAN> 6,675
<INTEREST-INVEST> 1,877
<INTEREST-OTHER> 60
<INTEREST-TOTAL> 8,612
<INTEREST-DEPOSIT> 3,473
<INTEREST-EXPENSE> 3,644
<INTEREST-INCOME-NET> 4,968
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,845
<INCOME-PRETAX> 2,545
<INCOME-PRE-EXTRAORDINARY> 2,545
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,706
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 4.47
<LOANS-NON> 1,001
<LOANS-PAST> 2,407
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,408
<ALLOWANCE-OPEN> 3,183
<CHARGE-OFFS> 50
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 3,168
<ALLOWANCE-DOMESTIC> 3,168
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
