FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999.
Commission file no. 0-11783.
ACNB CORPORATION
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(Exact name of registrant as specified in its charter)
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Pennsylvania 23-2233457
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(State of Incorporation) (IRS Employer Identification Number)
675 Old Harrisburg Road
Gettysburg, PA 17325
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(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (717)334-3161
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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
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(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
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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
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As of February 29, 2000, ACNB Corporation had outstanding 5,705,530 shares
of Common Stock. The aggregate market value of such Common Stock held by
nonaffiliates as of February 29, 2000, was approximately $98,449,544. 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 Proxy Statement for the Annual Meeting of Shareholders to
be held May 2, 2000, are incorporated by reference into Part III.
<PAGE>
FORM 10-K
PART I
ITEM 1. BUSINESS
The Registrant owns all of the outstanding shares of Adams County National
Bank and Farmers National Bank of Newville (hereinafter the "Banks"). The
Registrant, organized in 1983 and headquartered in Gettysburg, Pennsylvania,
presently has no significant operations other than serving as a bank holding
company.
On March 31, 1999, ACNB Corporation acquired Farmers National Bancorp,
Inc., a single-bank holding company located in Newville, Cumberland County,
Pennsylvania, with assets of $44 million. The sole and wholly-owned subsidiary
of Farmers National Bancorp, Inc. was Farmers National Bank of Newville. The
rate of exchange was 2.266 shares of ACNBCorporation for every share of Farmers
National Bancorp, Inc. The town of Newville had a 1996 population of 1,354, but
the surrounding townships of North Newton, with a population of 1,939, and West
Pennsboro, with a population of 5,343, have shown marked growth over the last
several decades. Cumberland County had a 1996 population of 207,042. The
Newville area is mainly agricultural. The Banks engage in a full-service
commercial and consumer banking and trust business. Adams County National Bank
provides financial services to its customers through its community banking
network of thirteen full-service offices located throughout Adams County,
Pennsylvania, and in Hanover, York County, Pennsylvania. Farmers National Bank
of Newville serves its marketplace via three banking offices in the Newville,
Cumberland County, Pennsylvania area.
The Banks' services include accepting demand, savings and time deposits
including NOW, SuperNOW, money market, passbook savings, a diversified array of
certificates of deposit, IRAs, and club accounts. The services also include
making secured and unsecured commercial and consumer loans; financing commercial
transactions; making construction and mortgage loans; making residential
mortgage loans and home equity lines of credit; making small business loans;
making student loans; and, the renting of safe deposit box facilities. Further,
the Banks' business loans include seasonal credit, collateral loans and term
loans.
Trust services provided by Adams County National 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 and registrar of bond issues and escrow agent.
The Banks have 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 1999 Annual Report. The Banks have not experienced any significant
seasonal fluctuations in the amount of its deposits.
As of December 31, 1999, the Registrant had a total of 174 full-time and 73
part-time employees.
SUPERVISION AND REGULATION
The Registrant and the Banks 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 the 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 Banks' business are highly competitive. The Banks' market
area is the primary trading area of Adams County, Pennsylvania; a western
portion of York County, Pennsylvania; central Cumberland County, Pennsylvania,
and, the northernmost portions of those counties in Maryland which are
immediately adjacent to the southern border of Adams County. The market
concentration is in the area of Gettysburg, Pennsylvania. The Banks compete with
local commercial banks, other commercial banks with branches in the Banks'
market area, savings associations, and other financial service providers. The
Banks consider their major competition to be PNC Bank, Allfirst, Bank of Hanover
and Trust Co, Peoples State Bank of East Berlin, Keystone Financial, F & M
Trust, and Orrstown Bank.
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the Banks are affected by the policies of the
regulatory authorities including the Office of 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 Banks' deposits, loans and investment growth,
as well as the rate of interest earned and paid. The impact of such policies and
regulations upon the future business and earnings of the Banks cannot be
accurately predicted.
ITEM 2. PROPERTIES
ACNB Corporation owns two offices in Gettysburg, PA. The office at 675 Old
Harrisburg Road is the main office and administrative headquarters. The
Corporation also owns nine offices and leases one, which are spread throughout
and serve Adams County. In addition, the Corporation owns one office in western
York County and three in central Cumberland County. All three counties are
located in south central Pennsylvania.
2
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FORM 10-K
ITEM 3. LEGAL PROCEEDINGS
In the opinion of the management of the Corporation, there are no
proceedings pending to which the Corporation and the Banks are a party or to
which its property is subject, which, if determined adversely to the Corporation
and the Banks, would be material in relation to the Corporation's and Banks'
financial condition. There are no proceedings pending other than ordinary
routine litigation incident to the business of the Corporation and the Banks. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against the Corporation and the Banks by government authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by this Item, regarding market value, dividend
payment, and number of shareholders, is set forth on page 53 of the Registrant's
1999 Annual Report and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth on pages 15 and 46 of
the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is set forth on pages 16 through 25
of the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth on pages 20 and 21 of
the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth on pages 26 through 45
of the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, relating to directors, executive
officers, and control persons, is set forth in sections "Principal Beneficial
Owners of the Corporation's Stock", "Information as to Nominees, Directors and
Executive Officers" and "Principal Officers of the Corporation" of the
Registrant's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Shareholders, which pages are incorporated herein by
reference.
Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Registrant's officers
and directors, and persons who own more than 10 percent of a registered class of
the Registrant's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission, or SEC. Officers,
directors and greater than 10 percent shareholders are required by SEC
regulation to furnish the Registrant with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Registrant believes that during the period of
January 1, 1999, through December 31, 1999, its officers and directors were in
compliance with all filing requirements applicable to them.
3
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PART IV
ITEM 14b. EXHIBITS
EXHIBIT 3(i) Articles of Incorporation of ACNB Corporation, as amended.
EXHIBIT 3(ii) Bylaws of Registrant
A copy of the Bylaws, as amended, of ACNB Corporation is incorporated by
reference to Exhibit 3(ii) of the Registrant's Current Report on Form 8-K, filed
with the Commission on March 25, 1998.
EXHIBIT 10.1 Executive Employment Agreement Dated as of January 1, 1998,
between Adams County National Bank, ACNB Corporation and
Ronald L. Hankey
A copy of the Executive Employment Agreement dated as of January 1, 1998,
between Adams County National Bank, ACNB Corporation and Ronald L. Hankey is
incorporated by reference to Exhibit 99 of the Registrant's Current Report on
Form 8-K, filed with the Commission on March 25, 1998.
EXHIBIT 11 Statement Regarding the Computation of Earnings Per Share
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For the Fiscal Year
ended December 31
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1999 1998 1997
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Weighted average shares outstanding ................. 5,782,930 5,815,246 5,817,273
Common stock
Common Stock equivalents
Stock options ..................................... -- -- --
Stock awards ...................................... -- -- --
ESOP shares ....................................... -- -- --
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Total common stock equivalents ...................... -- -- --
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Total Weighted Average Shares Outstanding ........... 5,782,930 5,815,246 5,817,273
========== ========== ==========
Net Income .......................................... $7,823,000 $7,725,000 $7,770,000
Net Income Per Share ................................ $1.35 $1.33 $1.34
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EXHIBIT 12 Statements Regarding the Computation of Ratios
The information required by this Exhibit is set forth on page 46 of the
Registrant's 1999 Annual Report and incorporated herein by reference.
EXHIBIT 21 Subsidiaries of the Registrant
The Registrant has two banking subsidiaries, Adams County National Bank and
Farmers National Bank of Newville, both national banks, which are wholly-owned
by the Registrant.
EXHIBIT 27 Financial Data Schedule
4
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FORM 10-K
ITEM 15. 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) March 21, 2000
----------------------
Date
BY: /s/ Ronald L. Hankey BY: /s/ John W. Krichten
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Ronald L. Hankey John W. Krichten
Chairman, Secretary & Treasurer
President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 21, 2000, by the following persons in the
capacities indicated.
/s/ Philip P. Asper /s/ William B. Lower
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Philip P. Asper William B. Lower
Director Director
/s/ Guy F. Donaldson /s/ Paul G. Pitzer
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Guy F. Donaldson Paul G. Pitzer
Director Director
/s/ Richard L. Galusha /s/ Ralph S. Sandoe
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Richard L. Galusha Ralph S. Sandoe
Director Director
/s/ D. Richard Guise /s/ Marian B. Schultz
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D. Richard Guise Marian B. Schultz
Director & Vice Chairman of the Director
Board
/s/ Ronald L. Hankey /s/ L. Robert Snyder
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Ronald L. Hankey L. Robert Snyder
Director, Chairman, President & CEO Director
/s/ Edgar S. Heberlig /s/ Jennifer L. Weaver
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Edgar S. Heberlig Jennifer L. Weaver
Director Director
/s/ Philip M. Jones /s/ Harry L. Wheeler
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Philip M. Jones Harry L. Wheeler
Director Director
/s/ Wayne E. Lau
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Director
5
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
ACNB CORPORATION
FIRST: The name of the Corporation is ACNB Corporation.
SECOND: The address of the Corporation's registered office in this
Commonwealth is 675 Old Harrisburg Road, Gettysburg, Adams County,
Pennsylvania 17325.
THIRD: The purposes for which the Corporation is incorporated are to have
unlimited power to engage in and do any lawful act concerning any or
all lawful business for which corporations may be incorporated under
the provisions of the Business Corporation Law of the Commonwealth of
Pennsylvania. The Corporation is incorporated under the provisions of
the Business Corporation Law of the Commonwealth of Pennsylvania (Act
of May 5, 1993, P. L. 364 as amended).
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is: Twenty Million (20,000,000) shares of Common
Stock of the par value of $2.50 per share (the "Common Stock").
FIFTH: The term of existence of the Corporation is perpetual.
SIXTH: Intentionally Omitted.
SEVENTH: Cumulative voting rights shall not exist with respect to the election
of Directors.
EIGHTH: A. The Board of Directors may, if it deems it advisable, oppose
a tender, or other offer for the Corporation's securities,
whether the offer is in cash or in securities of a
corporation or otherwise. When considering whether to oppose
an offer, the Board of Directors may, but it is not legally
obligated to, consider any pertinent issues; by way of
illustration, but not of limitation, the Board of Directors
may, but shall not be legally obligated to, consider any and
all of the following:
1. Whether the offer price is acceptable based on the
historical and present operating results or
financial condition of the corporation.
2. Whether a more favorable price could be obtained
for the corporation's securities in the future.
3. The impact which an acquisition of the Corporation
would have on its employees, depositors and
customers of the Corporation and its subsidiaries
in the community which they serve.
4. The reputation and business practices of the
offeror and its management and affiliates as they
would affect the employees, depositors and
customers
<PAGE>
of the corporation and its subsidiaries and the future
value of the corporation's stock.
5. The value of the securities, if any, which the
offeror is offering in exchange for the
corporation's securities, based on an analysis of
the worth of the corporation as compared to the
corporation or other entity whose securities are
being offered.
6. Any antitrust or other legal and regulatory issues
that are raised by the offer.
B. If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its
purpose including, but not limited to, any and all of the
following: advising shareholders not to accept the offer;
litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the
corporation's securities; selling or otherwise issuing
authorized but unissued securities or treasury stock or
granting options with respect thereto; acquiring a company
to create an anti-trust or other regulatory problem for the
offeror; and obtaining a more favorable offer from another
individual or entity.
NINTH: No merger, consolidation, liquidation or dissolution of the
Corporation, or any action that would result in the sale or other
disposition of all or substantially all of the assets of the
Corporation shall be valid unless first approved by the affirmative
vote of the holders of at least seventy-five percent (75%) of the
outstanding shares of Common Stock. This Article 9 may not be amended
unless first approved by the affirmative vote of the holders of at
least seventy-five percent (75%) of the outstanding shares of Common
Stock.
TENTH: Classification of Directors. The Directors shall be divided into three
(3) classes, as nearly equal in number as possible, known as Class 1,
consisting of not more than eight (8) Directors; Class 2, consisting
of not more than eight (8) Directors; and Class 3, consisting of not
more than nine (9) Directors. The initial Directors of Class shall
serve until the third (3rd) annual meeting of shareholders. At the
third (3rd) annual meeting of the shareholders, the Directors of Class
1 shall be elected for a term of three (3) years and, after expiration
of such term, shall thereafter be elected every three (3) years for
three (3) year terms. The initial Directors of Class 2 shall serve
until the second (2nd) annual meeting of the shareholders. At the
second (2nd) annual meeting of the shareholders, the Directors of
Class 2 shall be elected for a term of three (3) years and, after the
expiration of such term, shall thereafter be elected every three (3)
years for three (3) year terms. The initial Directors of Class 3 shall
serve until the first (1st) annual meeting of shareholders. At the
first (1st) annual meeting of the shareholders the Directors of Class
3 shall be elected for a term of three (3) years and, after the
expiration of such term, shall thereafter be elected every three (3)
years for three (3) years terms. Each Director shall serve until
his/her successor shall have been elected and shall qualify, even
though his/her term of office as herein provided has otherwise
expired, except in the event of his/her earlier resignation, removal
or disqualification.
2
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ELEVENTH: The Board of Directors shall consist of not less than five (5) nor
more than twenty-five (25) shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the
shareholders at any annual or special meeting thereof.
TWELFTH: No holder of shares of any class or of any series of any class shall
have any preemptive right to subscribe for, purchase or receive any
shares of the corporation, whether now or hereafter authorized, or any
obligations or other securities convertible into or carrying options
to purchase any such shares of the corporation, or any options or
rights to purchase any such shares or securities, issued or sold by
the corporation for cash or any other form of consideration, and any
such shares, securities or rights may be issued or disposed of by the
Board of Directors to such persons and on such terms as the Board in
its discretion shall deem advisable.
ACNB CORPORATION 1999 ANNUAL REPORT
Generating Momentum
<PAGE>
Generating momentum in the labyrinth
of business challenges. This is the goal of
ACNB Corporation and its bank subsidiaries
from 1999 through 2000. The 1999 Annual
Report focuses on the forward-looking course
set for ACNB Corporation, as a community
banking organization, in the financial
services marketplace.
1 Financial Highlights
1 Business Profile
2 Report to Stockholders
5 Generating Momentum
14 Index to Financial Information
15 Five-Year Financial Overview
16 Management's Discussion and Analysis
25 Independent Auditors' Report
26 Consolidated Financial Statements
30 Notes to Consolidated Financial Statements
46 Quarterly Results of Operations
46 Five-Year Financial Summary
47 Form 10-K Cross-Reference Index
48 Form 10-K
53 Common Stock Information
54 Board of Directors
55 Officers
56 Office Locations
<PAGE>
ACNB CORPORATION & SUBSIDIARIES 1999 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
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FOR THE YEAR 1999 1998 1997
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Net interest income $ 22,228,000 $ 22,076,000 $ 21,814,000
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Net income 7,823,000 7,725,000 7,770,000
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Cash dividends 4,908,000 4,519,000 4,274,000
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PER SHARE STATISTICS
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Basic earnings $ 1.35 $ 1.33 $ 1.34
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Cash dividends .85 .78 .73
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Book value (year-end) 10.41 10.51 9.26
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AT YEAR-END
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Total assets $545,952,000 $544,263,000 $508,211,000
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Total loans 347,787,000 352,355,000 358,294,000
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Total deposits 452,633,000 455,699,000 431,054,000
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Total stockholders' equity 59,863,000 61,118,000 57,454,000
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KEY RATIOS
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Return on average stockholders' equity 12.88% 12.75% 13.78%
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Return on average assets 1.42% 1.46% 1.53%
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Dividend payout 63% 58% 55%
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Stockholders' equity to assets 10.96% 11.23% 11.31%
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BUSINESS PROFILE
ACNB Corporation is a multi-bank holding company headquartered in
Gettysburg, PA. Its two bank subsidiaries include Adams County National Bank,
Gettysburg, PA, and Farmers National Bank of Newville, Cumberland County, PA.
Both Adams County National Bank and Farmers Natonal Bank of Newville are
commercial banks with a history of service and commitment to their respective
communities.
Through its bank subsidiaries, ACNB Corporation provides a wide array of
consumer, commercial and fiduciary services to fulfill the financial needs of
individuals, businesses, public entities, and community organizations in its
trading area. Adams County National Bank serves its marketplace via a network of
thirteen banking offices located throughout Adams County, PA, and in Hanover,
York County, PA. Farmers National Bank of Newville operates three banking
offices in the Newville, Cumberland County, PA, area.
At December 31, 1999, ACNB Corporation had total assets of $546 million. On
this same date, the bank subsidiaries employed 247 persons throughout all
community banking offices and functional support areas.
<PAGE>
REPORT TO STOCKHOLDERS
In the financial services industry today, it is critical to generate
momentum for future growth and profitability. ACNB Corporation, like other
community banking organizations, needs to move forward both in outlook and its
business practices. It is not enough to offer just checking, savings and loans
via traditional brick-and-mortar banking offices. Customers expect alternative
investment products, additional service delivery channels, as well as enhanced
access to their accounts twenty-four hours a day. These initiatives require an
investment of both time and dollars. ACNB Corporation made these investments in
1999, and will continue to do so in 2000.
Specifically, the Corporation--through its bank subsidiary of Adams County
National Bank--entered into an agreement with Raymond James Financial Services,
Inc. in October 1999. Customers, in an effort to attain their financial goals,
can now choose from a full array of alternative investment products, as well as
financial planning services, retirement account planning, and some insurance
products. In December 1999, a contract was signed with an Internet banking
service provider. This new product will be available for both retail and
commercial customers in the Second Quarter of 2000 and will be accessible via
the Web at www.acnb.com.
Throughout 1999, a significant amount of staff time and resources was
dedicated to the Year 2000 Project. And, although ACNB Corporation experienced
no adverse impact during the century date change event, hours upon hours of
effort were put forth across the organization. I would like to take this
opportunity to express my sincere gratitude, as well as that of the ACNB
Corporation Board of Directors, to the members of the Year 2000 Task Force,
which was formed in 1996 and composed primarily of senior managers representing
various functional areas. I would also like to personally thank all staff
members for their individual roles in ensuring the viability of our business in
this project.
March 1, 1999, marked the consummation of the affiliation of Farmers
National Bancorp, Inc. and its wholly-owned subsidiary, Farmers National Bank of
Newville, with ACNB Corporation. As a multi-bank holding company, the
Corporation posted 1999 earnings of $7,823,000--up from $7,725,000 for 1998.
Strong profits resulted in a return on average assets and return on average
stockholders' equity of 1.42% and 12.88%, respectively.
ACNB Corporation's Board of Directors approved quarterly cash dividends
totaling $.85 per share in 1999, which is an increase from the restated $.78 per
share paid in 1998. In 1999 and 1998, the total cash dividends per share
included an extra dividend of $.05 per share paid in the fourth
ACNB Corporation & Subsidiaries 2
<PAGE>
quarter of each year. With aggregate cash dividends in the amount of
$4,908,000 for 1999, ACNB Corporation realized a dividend payout ratio of 63%.
The Board of Directors also announced on October 20, 1999, the approval of
a plan to repurchase, in open market and privately-negotiated transactions, up
to 282,440 shares of ACNB Corporation common stock. The intent of the common
stock repurchase program is to use available excess capital to fund the
purchases for the benefit of the organization and its stockholders.
Effective December 31, 1999, Thomas A. Ritter was appointed as Executive
Vice President of both ACNB Corporation and Adams County National Bank. He had
previously been associated with ACNB Corporation and Adams County National Bank
as a member of the Boards of Directors since December 31, 1997. In his position
as Executive Vice President, Mr. Ritter will assume responsibility for the
overall management of the Corporation in the years ahead.
At the Board level, Edgar S. Heberlig and Harry L. Wheeler joined ACNB
Corporation's Board of Directors in conjunction with the affiliation of Farmers
National Bancorp, Inc. as of March 1, 1999. Both of these gentlemen also
continue to serve on the Board of Directors of Farmers National Bank of
Newville. Mr. Heberlig and Mr. Wheeler began their directorships with Farmers
National Bank of Newville in 1970 and 1987, respectively--thus bringing years of
business and banking experience to ACNB Corporation.
Further, due to ACNB Corporation's retirement policy for the Board of
Directors, there will be four directors retiring from active service on the
Boards of Directors of ACNB Corporation and Adams County National Bank as of the
Corporation's Annual Meeting of Shareholders on May 2, 2000. These four persons,
as well as their respective years of service to ACNB Corporation and predecessor
institutions, include Richard L. Galusha, 38 years; Philip M. Jones, 21 years;
Paul G. Pitzer, 33 years; and, L. Robert Snyder, 21 years. The longevity of
service displayed by these individuals is reflective of their commitment to
community banking in the local marketplace. Each of them will continue his
association with the organization as Director Emeritus.
As I mentioned last year in my message to you, the stockholders, I was
elected to the Board of Directors of the American Bankers Association and was
appointed to the Federal Advisory Council as a representative of the Third
Federal Reserve District. I am now serving in my second year of a three-year
term for each of these organizations. The American Bankers Association is the
largest banking
3 ACNB Corporation & Subsidiaries
<PAGE>
trade association in the country, whose members include community, regional
and money center banks and holding companies, as well as savings associations,
trust companies, and savings banks. The Federal Advisory Council was created by
the Federal Reserve Act of 1913 to be the principal conduit of information and
views between the Federal Reserve Board of Governors and the banking system. In
both roles, I represent the interests of the independent community bank in the
financial services marketplace today while, simultaneously, being sensitive to
the needs and issues for the entire industry. The learning and networking
experiences garnered from my involvement with these two organizations has
directly impacted, in a positive manner, my primary role as Chairman, President
and Chief Executive Officer of ACNB Corporation and Adams County National Bank.
Once again, for these opportunities, I am extremely honored to serve the
industry at the national level and grateful for the continued encouragement of
ACNB Corporation's Board of Directors to pursue these interests.
In closing, we, at ACNB Corporation, have been in the process of generating
momentum for the future success of our organization and its subsidiary
banks--Adams County National Bank and Farmers National Bank of Newville. Each of
these banks serves the customers in their respective and unique communities.
Each of you, as stockholders, contributes to the advancement of these two
community banks due to your ongoing investment in ACNB Corporation. In exchange,
we constantly strive to maximize the return on your investment in our
organization.
Sincerely,
/s/ Ronald L. Hankey
-------------------------------
Ronald L. Hankey
President
ACNB Corporation & Subsidiaries 4
<PAGE>
[GRAPHIC OMITTED] Generating Momentum
<PAGE>
generating momentum in the labyrinth of business challenges. This is the
goal of ACNB Corporation and its bank subsidiaries from 1999 through 2000.
Historically, prior to the initial moves during the 1980s towards
deregulation of the product offerings and geographical boundaries for banks, the
labyrinth board was steady, the marble's path was clear, and the maze walls were
insurmountable. Banks were banks. Banks competed against other local banks. All
banks offered the customer essentially the same products and services. Interest
rates were controlled. Banking was not really much of a challenge. Nor was the
maze much more than a single channel with bends and turns determined by the
local economic environment.
Today, the labyrinth in which banks do business encompasses the entirety of
the financial services industry. The financial products offered by the industry
are diverse. The competition is keen. The expectations of consumers are high.
The workforce is tight. The demands of stockholders are real. In short, the
labyrinth--called business--is fraught with challenges, both positive and
negative, for all financial service providers in the marketplace.
Banking is a business at ACNB Corporation. But, in recognizing the
unsteadiness of the labyrinth board and the possibilities for wrong turns in
negotiating the maze, ACNB Corporation enters 2000 positioned to move
forward...beyond the conceptual box delineating traditional community bank
products and delivery systems.
Moving the marble forward in the channels of the business maze does not,
however, mean that the Corporation's strong foundation as a community banking
organization is lost at a turn. Quite the opposite, this commitment to remain a
community banking organization is paramount in efforts to generate momentum for
the future.
[GRAPHIC OMITTED]
Adams County celebrated its bicentennial on January 22, 2000. Two
hundred years after its founding, Adams County is still growing.
So is ACNB Corporation, which shares much of this
history--tracing its origins to April 11, 1857.
ACNB Corporation & Subsidiaries 6
<PAGE>
GROWTH & EXPANSION
Growth and expansion was attained by ACNB Corporation in its becoming a
multi-bank holding company with the affiliation of Farmers National Bancorp, and
its wholly-owned subsidiary, Farmers National Bank of Newville, as of March 1,
1999. This affiliation extends the Corporation's geographic presence beyond
Adams County, PA, to the northwest into Cumberland County, PA.
[GRAPHIC OMITTED]
7 ACNB Corporation & Subsidiaries
<PAGE>
The course in 1999 was set on four primary foci--growth and expansion,
investments and brokerage, technology and commerce, as well as people and
service.
Growth and expansion was attained by ACNB Corporation in its becoming a
multi-bank holding company with the affiliation of Farmers National Bancorp,
Inc. and its wholly-owned subsidiary, Farmers National Bank of Newville, as of
March 1, 1999. At year-end 1998, prior to the affiliation, ACNB Corporation was
a single-bank holding company with $499 million in assets and Adams County
National Bank as its sole and wholly-owned subsidiary. On December 31, 1999,
ACNB Corporation had two bank subsidiaries--Adams County National Bank and
Farmers National Bank of Newville--with assets of $546 million. Not only did
this affiliation result in asset growth, as well as increased deposit and loan
volumes, for ACNB Corporation, but there was also an expansion of the
Corporation's trading area. Farmers National Bank of Newville operates three
community banking offices in the Newville area, which extends the Corporation's
geographic presence beyond Adams County, PA, to the northwest into Cumberland
County, PA.
Due to consumer wants and needs for higher yielding investments, the
Corporation's subsidiary, Adams County National Bank, entered into an agreement
with Raymond James Financial Services, Inc. in October 1999 to effectively
fulfill these wants and needs. The firm of Raymond James Financial Services,
Inc. is a leading full-service provider of financial services through community
financial institutions. Engaged principally in the securities brokerage
business, Raymond James Financial Services, Inc.--located at Adams County
National Bank--offers financial planning services, retirement account planning,
some insurance products, as well as a comprehensive line of investment products
including bonds, fixed and variable annuities, mutual funds, and stocks. An
on-site financial advisor, who is an employee of the Bank, provides investors
with one-on-one guidance and assistance with respect to financial planning and
[GRAPHIC OMITTED]
Times change...and so have the worlds of
business and banking. The constant,
however, is the desire to invest for the
future. ACNB Corporation strives to
respond to the financial needs of both
the commercial and retail customer
today, just as in decades past.
ACNB Corporation & Subsidiaries 8
<PAGE>
INVESTMENTS & BROKERAGE
ACNB Corporation's subsidiary, Adams County National Bank, entered into an
agreement with Raymond James Financial Services, Inc. in October 1999. Through
this firm and the guidance of an on-site financial advisor, investors can now
secure financial planning services, retirement account planning, some insurance
products, well as a comprehensive line of investment products.
[GRAPHIC OMITTED]
9 ACNB Corporation & Subsidiaries
<PAGE>
investments. This personal attention ensures that each investor's preferences,
with regard to portfolio risk, growth and income, are assessed prior to any
purchase or sale transactions.
New technology initiatives were not the highest priority in 1999 due to
ACNB Corporation's Year 2000 Project, which was an enterprise-wide endeavor
demanding the concerted effort of organizational resources. Nonetheless, the
Corporation's subsidiary, Adams County National Bank, accomplished two
significant technology-related objectives in the Fourth Quarter of 1999. First,
the initial Web site design plan changed directions to become more than an
on-line source of Bank information. This Web site, www.acnb.com, is now an
Internet portal site with links to other sites of interest to consumers. The
on-screen portal buttons include local news, national news, weather, stock
reports, community events, as well as links to Web sites for community
organizations, Civil War history, governmental agencies, financial information
sources, and kids' education and entertainment. All are connected to the Bank's
Web site with a simple click, or two, of the Internet user's mouse. Second, the
Bank signed a contract with nFront, an Internet banking service provider. Upon
the completion of this project in Second Quarter 2000, Adams County National
Bank retail and business customers will be able to access their account
information, conduct banking transactions, and pay bills on-line via the
Internet. In the meantime, customers can be assured that security and privacy
are key factors in the development and introduction of this new product delivery
system, the purpose of which is to connect the customer to convenience.
People are the generators of momentum. Service is the catalyst for
momentum. ACNB Corporation is still an organization of people. And, the
customers served are people. Providing financial services is essentially a
people-to-people business...built upon trust and confidence. In the
Corporation's view, there are both internal and external customers. There are
the internal customers, the
[GRAPHIC OMITTED]
In 1900, RFD Carriers delivered
information throughout Adams County by
horse power. Today, information can be
delivered worldwide almost
instantaneously. ACNB Corporation
utilizes technological advancements to
enhance customer satisfaction and
convenience in the delivery of financial
services.
ACNB Corporation & Subsidiaries 10
<PAGE>
TECHNOLOGY & COMMERCE
In 1999, ACNB Corporation's highest technology-related priority was the Year
2000 Project. Nonetheless, the Corporation's subsidiary, Adams County National
Bank, introduced www.acnb.com - an Internet portal site with links to other Web
sites of interest to consumers - and signed a contract with an Internet banking
service provider for a targeted launch date of Second Quarter 2000.
[GRAPHIC OMITTED]
11 ACNB Corporation & Subsidiaries
<PAGE>
employees, who support one another to serve the external customers, the
users of banking products and delivery systems. A major initiative during 2000
will be the development of a program to renew and reinforce the organization's
commitment to people and service.
The path of the marble throughout the business labyrinth today is never
straight and narrow. Rather, the course must adjust to shifts in the industry,
the local marketplace, and the paradigms of doing business. It must curve to
avoid competitive threats and other obstacles--or to benefit from its strengths
and opportunities. And, sometimes, the course may be blocked, thus creating a
new challenge.
At ACNB Corporation, the course for 2000 is to grow and expand, not
necessarily in terms of asset size or bricks and mortar. But, to grow and expand
via alternative investment options, new technology-based delivery systems, and a
strong resolve to further its commitment to serving both internal and external
customers. This emphasis on growth, apart from the traditional, is predicated on
the fundamental business strategies of enhancing customer relationships through
retention and attraction, improving organizational productivity, embracing
technology that adds value in the delivery of financial services, furthering the
image of the bank subsidiaries in their respective communities, increasing
profitability, and ensuring a return on the investment of stockholders in ACNB
Corporation.
Generating momentum in the labyrinth of business challenges is not easy. It
takes hard work, dedication, and the synergy of many in the organization. It is
easy to sit still in the maze...awaiting some movement that rolls the marble
forward or backward at random.
Unequivocally, ACNB Corporation is poised to compete as a community banking
organization in the labyrinth of business during 2000.
[GRAPHIC OMITTED]
In the small retail shops of yesteryear,
people were integral to serving each and
every customer. Likewise, ACNB
Corporation is still an organization of
people. And, the customers served are
people. Providing financial services is
essentially a people-to-people
business...built upon trust and
confidence.
ACNB Corporation & Subsidiaries 12
<PAGE>
PEOPLE & SERVICE
People are the generators of momentum.
Service is the catalyst for momentum. In
ACNB corporation's view, there are both
internal and external customers. There
are the internal customers, the
employees, who support one another to
serve the external customers, the users
of banking products and delivery
systems.
[GRAPHIC OMITTED]
13 ACNB Corporation & Subsidiaries
<PAGE>
INDEX TO FINANCIAL INFORMATION
Five-Year Financial Overview ............................................ 15
Management's Discussion and Analysis of
Financial Condition and
Results of Operations ................................................... 16-25
Independent Auditors' Report ............................................ 25
Consolidated Financial Statements
Consolidated Statements of Condition at December 31,
1999 and 1998 ...................................................... 26
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 ............................. 27
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 ............... 28
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 ............................. 29
Notes to Consolidated Financial Statements .............................. 30-45
Quarterly Results of Operations ......................................... 46
Five-Year Summary of Selected Financial Data ............................ 46
Form 10-K Cross-Reference Index ......................................... 47
Form 10-K ............................................................... 48-52
Common Stock Market Prices and Dividends ................................ 53
ACNB Corporation & Subsidiaries 14
<PAGE>
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points.
FIVE-YEAR FINANCIAL OVERVIEW
TOTAL DEPOSITS BASIC EARNNGS PER SHARE
In millions of dollars In dollars
1999 ............. 452.6 1999 ................ 1.35
1998 ............. 455.7 1998 ................ 1.33
1997 ............. 431.1 1997 ................ 1.34
1996 ............. 438.5 1996 ................ 1.29
1995 ............. 425.1 1995 ................ 1.17
TOTAL LOANS DIVIDENDS PER SHARE
In millions of dollars In dollars
1999 ............. 347.8 1999 ........... .85
1998 ............. 352.4 1998 ........... .78
1997 ............. 358.3 1997 ........... .75
1996 ............. 340.5 1996 ........... 1.56
1995 ............. 338.1 1995 ........... .61
RETURN ON AVERAGE ASSETS BOOK VALUE PER SHARE
Percent In dollars
1999 ............. 1.42 1999 .............. 10.41
1998 ............. 1.46 1998 .............. 10.51
1997 ............. 1.53 1997 .............. 9.26
1996 ............. 1.50 1996 .............. 9.38
1995 ............. 1.38 1995 .............. 9.62
15 ACNB Corporation & Subsidiaries
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION AND
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
INTRODUCTION
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. Please read this discussion in conjunction with the 1999
Annual Report to ACNB Corporation stockholders. Current performance does not
guarantee, assure, or indicate similar performance in the future.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this 1999 Annual Report contains
forward-looking statements. Forward-looking statements are subject to certain
risks and uncertainties. Actual results may 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". We caution readers not to place undue reliance on
these forward-looking statements. They only reflect management's analysis as of
this date. The corporation does not revise or update these forward-looking
statements to reflect events or changed circumstances. Please 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 2000, and any Current
Reports on Form 8-K filed by the corporation.
<TABLE>
<CAPTION>
Comparative Average Balance Sheet and Net Interest Analysis
- -------------------------------------------------------------------------------------------------------
December 31
----------------------------------------
1999
----------------------------------------
ASSETS In thousands Balance Interest Rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans .................................................. $ 344,323 $ 27,137 7.88%
Taxable investment securities .......................... 149,453 9,609 6.43%
Non-taxable investment securities ...................... 8,485 350 4.12%
Federal funds sold ..................................... 3,005 148 4.93%
Interest bearing deposits with banks ................... 18,990 950 5.00%
------- ---------
Total interest earning assets .......................... 524,256 $ 38,194 7.29%
Cash and due from banks ................................ 18,366
Premises and equipment ................................. 4,779
Other assets ........................................... 6,653
Allowance for loan losses .............................. (3,594)
---------
TOTAL ASSETS ........................................... $ 550,460
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------
Interest bearing demand deposits ....................... $ 67,191 $ 1,621 2.41%
Savings deposits ....................................... 117,991 2,833 2.40%
Time deposits (excluding time certificates of deposit of
$100,000 or more) ...................................... 195,315 9,446 4.84%
Time certificates of deposit of $100,000 or more ....... 21,469 1,093 5.09%
Short-term borrowings .................................. 22,711 973 4.28%
------- ---------
Total interest bearing liabilities ..................... 424,677 $ 15,966 3.76%
- -------------------------------------------------------------------------------------------------------
INTEREST RATE SPREAD ................................... 3.53%
- -------------------------------------------------------------------------------------------------------
Demand deposits ........................................ 60,363
Other liabilities ...................................... 4,678
Stockholders' equity ................................... 60,742
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................................... $ 550,460
=========
- -------------------------------------------------------------------------------------------------------
INTEREST INCOME/EARNING ASSETS ......................... $ 524,256 $ 38,194 7.29%
INTEREST EXPENSE/EARNING ASSETS ........................ $ 524,256 $ 15,966 3.05%
NET YIELD ON EARNING ASSETS ............................ $ 22,228 4.24%
- -------------------------------------------------------------------------------------------------------
</TABLE>
Loan fees of $451,000, $495,000 and $556,000 for 1999, 1998 and 1997,
respectively, are included for rate calculation purposes.
Average nonaccrual loans for 1999, 1998 and 1997 were $1,532,000,
$1,641,000 and $1,207,000, respectively.
ACNB Corporation & Subsidiaries 16
<PAGE>
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
EARNINGS PERFORMANCE
Net income for the year ended December 31, 1999, was $7.8 million, and for
the year ended 1998 was $7.7 million. Basic earnings per share were $1.35 in
1999 and $1.33 in 1998.
We attribute the net income increase of $98,000 in 1999 to an increase of
$152,000, or 6.9%, in the corporation's net interest income and a reduction in
the provision for possible loan losses of $107,000, or 29.7%. These items were
accompanied by an increase of $477,000 in total non-interest income.
The corporation recorded net income of $7.7 million for the year ended
December 31, 1998, compared to net income of $7.8 million in 1997. Basic
earnings per share of $1.33 in 1998 compared to $1.34 per share in 1997.
The $45,000 decrease in net income in 1998 was due to a $539,000, or 4.5%,
rise in total non-interest expense. This was partially offset by an increase of
$350,000, or 17.0%, in non-interest income.
We intend, in the balance of this discussion and analysis, to provide
details of the operating results, on a comparative basis, for each of the
periods ended December 31, 1999, 1998 and 1997.
NET INTEREST INCOME
Net interest income is the difference between the interest and dividends
earned on loans and investment securities (interest earning assets) and the
interest paid on deposits and borrowings (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 $22.2 million in 1999. This is an increase over net
interest income of $22.1 million in 1998 and $21.8 million in 1997. The increase
was the result of growth in average earning assets, which were up by $19.5
million, or 3.9%. The rise in 1998 reflected slower growth than 1999. Average
earning assets increased by $18.3 million, or 3.8%, in 1998. The lessening of
yields on earning assets, which happened at a greater rate than that on interest
bearing liabilities, caused a lowering of the net interest margin from 4.49% in
1997 to 4.37% in 1998 to 4.24% in 1999.
Interest from loans accounted for 71% of the corporation's interest income
in 1999, as compared to 76% in 1998 and 77% in 1997. Interest and dividends on
investments were $10.0 million in 1999, as compared to $8.6 million in 1998 and
$8.1 million in 1997. The average yield on the taxable investment portfolio
decreased to 6.43% for 1999, from 6.45% for the prior year. The yield decrease
resulted largely from a downward shift in interest rates during 1998, which
carried over into early 1999.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
December 31 December 31
- --------------------------------------- ----------------------------------------
1998 1997
- --------------------------------------- ----------------------------------------
Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$356,154 $ 29,176 8.19% $353,553 $29,123 8.24%
130,553 8,417 6.45% 117,433 7,949 6.77%
4,719 218 4.62% 4,151 194 4.67%
3,765 201 5.34% 2,979 162 5.44%
9,519 520 5.46% 8,256 459 5.56%
-------- -------- ------- -------
504,710 $ 38,532 7.63% 486,372 $37,887 7.79%
14,868 13,487
5,430 5,571
5,952 6,317
(3,450) (3,379)
-------- --------
$527,510 $508,368
======== ========
$ 60,985 $ 1,542 2.53% $ 55,534 $ 1,401 2.52%
114,348 3,007 2.63% 116,206 3,197 2.75%
192,327 9,936 5.17% 190,952 9,778 5.12%
20,891 1,113 5.33% 17,369 960 5.53%
19,380 858 4.43% 16,805 737 4.39%
-------- -------- ------- -------
407,931 $ 16,456 4.03% 396,866 $16,073 4.05%
- ----------------------------------------------------------------------------------------
3.60% 3.74%
- ----------------------------------------------------------------------------------------
55,076 51,366
3,935 3,736
60,568 56,400
- --------- --------
$527,510 $508,368
======== ========
- ----------------------------------------------------------------------------------------
$504,710 $ 38,532 7.63% $486,372 $37,887 7.79%
$504,710 $ 16,456 3.26% $486,372 $16,073 3.30%
$ 22,076 4.37% $21,814 4.49%
- ----------------------------------------------------------------------------------------
</TABLE>
17 ACNB Corporation & Subsidiaries
<PAGE>
The Comparative Average Balance Sheet and Net Interest Analysis, a table
found on pages 16 and 17, presents for the periods 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. The average
interest earning assets balance includes nonaccrual loans. Interest income
includes interest from nonaccrual loans only to the extent that payments were
received and to the extent that the corporation believes it will recover the
remaining principal balance of the loan. Average balances are principally
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, is 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 shows 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 18, shows changes in interest
income and expense for ACNB Corporation for the years indicated. For each
category of interest earning assets and interest bearing liabilities, we provide
data on the changes attributed to changes in rate (changes in rate multiplied by
old volume) and changes in volume (changes in volume multiplied by old rate),
with changes in rate volume (change in rate multiplied by change in volume)
factored in proportionally. We compute the interest earning asset and interest
bearing liability balances principally using daily average balances.
NON-INTEREST INCOME
Growth in non-interest income is one of the corporation's long-term
strategies. Non-interest income for 1999 increased by $477,000, or 19.8%,
compared to 1998, and increased by $350,000, or 17.0%, when 1998 is compared to
1997. In 1998, ACNB Corporation adjusted service fees on deposit accounts to
reflect the marketplace more closely. This adjustment occurred in the second
half of 1998 causing an increase to both 1998 and 1999 results. The largest part
of the increase in non-interest income was the proceeds of a life insurance
policy paid on the death of a key employee. The proceeds were $287,000, and
amounted to 60% of the total increase in this category.
Trust service income rose by $20,000, or 3.8%, in 1999 and by $10,000, or
1.9%, in 1998. The trust department engaged a financial advisor and registered
principal who will work through Raymond James Financial Services, Inc. He was
engaged in the fourth quarter of 1999, and should contribute to trust earnings
in the first quarter of 2000.
Year-to-date service fees on deposit accounts increased over the last two
years due to improved average deposit growth and a reassessment of service fees.
This took effect in September 1998, and was the main reason for the 11.3%
improvement in service fees on deposit accounts in 1998 and the 9.5% improvement
experienced in 1999. Average interest bearing liabilities were up 2.8% in 1998
and 4.1% in 1999. Average non-interest bearing demand deposits were up 7.2% in
1998 and 9.6% in 1999.
NON-INTEREST EXPENSE
Non-interest expense was $13.3 million in 1999, an increase of 4.9%
compared to 1998. In 1998, non-interest expense was $12.7 million, reflecting an
increase of 4.5% compared to 1997. The primary cause of the increase in
non-interest expense is an increase in the other expenses.
Personnel expense increased by $70,000, or 0.9%, in 1999, compared to 1998,
and by $341,000, or 4.8%, in 1998, compared to 1997. The small increase in 1999
was due to normal merit raises and the retirement of several highly paid
employees. Management studied the impact of the eventual retirement of certain
loan officers. In anticipation of these retirements, the corporation decided not
to add additional loan officers, but to evaluate the effect of the loss of these
personnel and determine if the corporation could offset the loss through
internal promotion. This was successful in controlling personnel costs for 1999.
In addition to salary and employee benefit increases, there was a
significant rise in other expenses. Costs were up by $498,000, or 18.9%, in
1999, compared to 1998, and by $81,000, or 3.2%, in 1998, compared to 1997. The
increase in 1999 is attributable to increased pension insurance premiums of
$31,000 caused by a change in plan year, litigation costs of $156,000, Farmers
National Bancorp, Inc. acquisition costs and other holding company costs of
$125,000, Y2K professional costs of $79,000, waived loan
<TABLE>
<CAPTION>
Analysis of Changes in Interest Income and Expense Due to Volume and Rate Changes
- -------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
----------------------------------------------------------------------------------------
1999 versus 1998 1998 versus 1997 1997 versus 1996
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 ................................ $ (953) $(1,086) $(2,039) $ 216 $(163) $ 53 $1,384 $(196) $1,188
Taxable investment securities ........ 1,219 (27) 1,192 967 (499) 468 (404) 597 193
Non-taxable investment securities .... 158 (26) 132 18 6 24 40 4 44
Federal funds sold ................... (37) (16) (53) 39 -- 39 (37) 11 (26)
Time deposits with banks ............. 478 (48) 430 71 (10) 61 (101) 31 (70)
----------------------------------------------------------------------------------------
Total Interest Earning Assets ........ $ 865 $(1,203) $ (338) $1,311 $(666) $ 645 $ 882 $ 447 $1,329
----------------------------------------------------------------------------------------
Interest paid on:
Interest bearing demand deposits ..... $ 154 $ (75) $ 79 $ 136 $ 5 $ 141 $ 86 $ 41 $ 127
Savings deposits ..................... 94 (268) (174) (45) (145) (190) (132) (19) (151)
Time deposits ........................ 181 (691) (510) 280 31 311 (28) (54) (82)
Short-term borrowings ................ 145 (30) 115 114 7 121 (65) (21) (86)
----------------------------------------------------------------------------------------
Total Interest Bearing Liabilities ... $ 574 $(1,064) $ (490) $ 485 $(102) $ 383 $ (139) $ (53) $ (192)
----------------------------------------------------------------------------------------
NET INTEREST EARNINGS ................ $ 291 $ (139) $ 152 $ 826 $(564) $ 262 $1,021 $ 500 $1,521
----------------------------------------------------------------------------------------
</TABLE>
ACNB Corporation & Subsidiaries 18
<PAGE>
costs in consumer loan promotions, and several other unusual items that
will probably not be repeated.
FDIC insurance cost remained consistent with 1998. The cost for deposit
insurance was $49,000 in 1999 and $48,000 in 1998. This cost may rise in 2000,
as there were several notorious and expensive bank failures in 1999.
OVERVIEW OF THE BALANCE SHEET
During 1999, ACNB Corporation's total assets increased by $1.7 million. In
1998, total assets grew by $36.2 million, or 7.1%. Deposits were down $3.1
million in 1999. Loans were down $4.6 million with most of the runoff in
residential mortgages. The corporation continues to compete with traditional
rivals, including several local and nonlocal commercial banks, as well as
nontraditional rivals, such as mortgage brokers and brokerage houses for
deposits and for loans.
The mix of assets and liabilities continues to change. Investment
securities declined $7.7 million, or 4.8%, and loans fell $4.6 million, or 1.3%,
in 1999 after decreasing by $5.8 million, or 1.6%, in 1998. Premises and
equipment decreased by $353,000 in 1999 and by $473,000 in 1998, as fixed assets
were depreciated faster than the value of new equipment placed in service. In
addition, other real estate decreased by $79,000, or 31.6%, in 1999.
On the liability side, non-interest bearing deposits were up by $1.0
million, or 1.6%, in 1999, and up by $6.7 million, or 12.5%, in 1998. Core
deposits decreased in 1999 by a total of $4.0 million. Fiscal year 1998 showed
an increase of $17.9 million, or 4.7%.
Capital continued to be strong, though it decreased by $1.3 million, or
2.1%, in 1999. It increased by $3.7 million, or 6.4%, in 1998 due to internal
earnings retention. The decrease in 1999 was caused by a loss in fair market
value in securities available for sale and the beginning effects of a stock
repurchase program.
ASSET/LIABILITY ANDMARKET 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 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 manage net interest
income growth, while reducing exposure to the risks inherent in interest rate
movements.
MARKET RISK
The Quantitative Disclosures of Market Risk, a table found on pages 20 and
21, provides information about the corporation's financial instruments used for
purposes other than trading that are sensitive to changes in interest rates. For
loans, securities and liabilities with contractual maturities, this table
presents principal cash flows and related weighted-average interest rates by
contractual maturities, as well as the corporation's historical experience
relative to the impact of interest rate fluctuations on the prepayment of
residential and home equity loans and mortgage-backed securities. For core
deposits -- such as demand deposit, interest checking, savings and money market
deposit accounts -- that have no contractual maturity, the table presents
principal cash flows and, as applicable, related weighted-average interest rates
based on the corporation's historical experience, management's judgment, and
statistical analysis, as applicable, concerning their most likely withdrawal
behaviors. Different assumptions would result in a change in cash flows and a
change in results.
Also, ACNB Corporation uses a simulation model as another 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 are used by
management to evaluate possible corrective actions to reduce any negative impact
on the net interest margin.
Traditionally, the investment portfolio is used to alter the interest rate
sensitivity of the corporation. This is accomplished by holding fixed-rate debt
instruments in the securities portfolio. During 1999 and 1998, ACNB Corporation
lengthened the maturity of prime rate loans, added fixed-rate mortgages with a
maturity of 15 years or less to the loan portfolio, and continued to purchase
mortgage-backed securities; thus, restructuring 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. This
is the most stable source of liquidity for a bank because of the long-term
relationship with depositors and the deposit insurance provided by the FDIC. In
1999, 83% of total assets were funded by core deposits and 5% were funded with
short-term purchased funds, compared to 84% and 4%, respectively, in 1998. ACNB
Corporation belongs to the Federal Home Loan Bank of Pittsburgh. This membership
serves the dual purposes of emergency and long-term liquidity. The corporation's
borrowing capacity with the Federal Home Loan Bank stood at $197 million at
year-end 1999.
Parent company liquidity is maintained by the cash flow from dividends
received from the subsidiary banks. Dividends from the subsidiary banks are the
corporation's primary source of funds to pay dividends to the corporation's
shareholders. The amount of dividends paid by the subsidiary banks is subject to
certain regulatory restrictions, detailed in Note L of the Notes to Consolidated
Financial Statements, "Restrictions on Subsidiary Dividends, Loans and
Advances". The parent company financial statements are presented in Note Q of
the Notes to Consolidated Financial Statements, "ACNB Corporation (Parent
Company Only) Financial Information".
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. The corporation's off-balance sheet items consist
solely of loan commitments and letters of credit.
19 ACNB Corporation & Subsidiaries
<PAGE>
LOAN REVIEW AND ALLOWANCE FOR LOAN LOSS ANALYSIS
- --------------------------------------------------------------------------------
GENERAL
ACNB Corporation's lending activities are carried on through the subsidiary
banks. As of December 31, 1999, the corporation's total loan portfolio, carried
at historical cost, of $348 million included:
o $218.7 million in mortgage loans, secured by liens on one-to-four
family residential properties;
o $89.6 million in mortgage loans secured by commercial properties, such
as apartment buildings, office buildings, warehouses, and medical
office buildings;
o $13.2 million in construction loans;
o $13.8 million in consumer loans; and,
o $12.7 million in commercial and agricultural credits.
In originating loans, the corporation must compete with savings banks,
savings and loan associations, other commercial banks, mortgage companies, and
credit unions. 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 have a direct impact on residential lending volumes.
RESIDENTIAL REAL ESTATE LOANS
The corporation makes a full range of residential loans, including
conventional fixed-rate loans and adjustable-rate mortgage loans, available to
borrowers in its primary consumer market area. Adjustable-rate mortgages are
advantageous to the corporation because adjustable-rate loans are a closer match
to the repricing of the corporation's core deposits. However, the corporation's
ability to originate ARMs, in lieu of fixed-rate loans, varies in response to
changes in market interest rates. ARMs are often refinanced to fixed-rate loans
when market interest rates fall, which leads to runoff in the corporation's loan
portfolio. With the rise in interest rates in 1994 and 1995, ARMs comprised a
larger share of total originations and the corporation's portfolio resumed its
long-term growth. In 1997, 1998 and 1999, ACNB Corporation suffered runoff in
its residential adjustable-rate mortgage portfolio. Currently, ARMs are indexed
to the Federal Housing Finance Board's Contract Rate for Major Lenders and
One-Year U.S. Treasury Bills with constant maturity, and have limits on annual
increases of 2% over the prior year's rate.
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 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 loan applications come in through various channels, primarily via a
network of 16 community banking offices. However, all residential loans are
currently originated by the subsidiary banks, and mortgage insurance is required
on all residential 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, as well as receives fees for the
servicing of loans for others.
RESIDENTIAL CONSTRUCTION LOANS
The 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. This type of construction loan involves somewhat more risk
than custom construction loans, and the corporation uses 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.
<TABLE>
<CAPTION>
Quantitative Disclosures of Market Risk
- ------------------------------------------------------------------------------------------
Principal Amount Maturing In
--------------------------------------------
RATE SENSITIVE ASSETS In thousands 2000 2001 2002
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed interest rate loans $ 10,188 $10,178 $10,738
Average interest rate 9.01% 8.46% 7.84%
Variable interest rate loans $ 49,450 $43,503 $44,749
Average interest rate 7.50% 7.99% 7.42%
Fixed interest rate securities $ 4,579 $20,412 $13,508
Average interest rate 5.88% 6.07% 6.07%
Variable interest rate securities $ 60 $ 66 $ 75
Average interest rate 5.45% 5.45% 5.45%
Other interest bearing assets $ 5,550 $ -- $ --
Average interest rate 5.50% 0.00% 0.00%
RATE SENSITIVE LIABILITIES
- ------------------------------------------------------------------------------------------
Non-interest bearing checking $ 15,428 $13,885 $13,885
Average interest rate 0.00% 0.00% 0.00%
Savings and interest bearing checking $ 9,285 $53,635 $53,635
Average interest rate 2.48% 2.29% 2.29%
Time deposits $154,248 $30,149 $16,051
Average interest rate 4.61% 5.34% 5.56%
Variable interest rate borrowings $ 14,913 $ 4,474 $ 4,474
Average interest rate 4.63% 4.63% 4.63%
</TABLE>
[Right-Hand side of TABLE cont. on p. 21]
ACNB Corporation & Subsidiaries 20
<PAGE>
COMMERCIAL REAL ESTATE LOANS
In all commercial real estate lending, the corporation considers the
location, marketability and overall attractiveness of the project. ACNB
Corporation underwriting guidelines on commercial real estate loans currently
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 form 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 portfolio, the
corporation periodically inspects real estate collateral based upon the loan
risk classification, the loan size, and the location of the collateral; analyzes
the economic condition of markets in which the corporation 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 practice 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 or watch categories.
MANUFACTURED HOUSING, SECOND MORTGAGE AND OTHER
CONSUMER LOANS
The corporation offers consumer loan programs that include the following:
o manufactured housing loans;
o second mortgage loans for a variety of purposes, including purchase,
renovation, or remodeling of property, and for uses unrelated to the
security;
o loans for the purchase of automobiles, pleasure boats, and
recreational vehicles;
o student loans; and,
o 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 the 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 upon 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 certain weaknesses are noted. Adequate allowances must be
maintained for assets classified as substandard or doubtful. Any assets
classified as a loss must be written off immediately. The 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 to evaluate the need for an
adjustment to the allowance account. Classified assets consist of:
o nonaccrual loans;
o loans under foreclosure;
o other real estate owned, or OREO; and,
o performing loans and securities that exhibit credit quality
weaknesses.
The principal measures of asset problems are:
o the levels of nonaccruing loans;
o loans under foreclosure;
o other real estate owned;
o the size of the provision for loan losses;
o loan charge-offs; and, o the size of the write-downs in the value of
other real estate owned.
Management ceases to accrue interest income on any
[RESTUBBED TABLE CONT. FROM p. 20]
<TABLE>
<CAPTION>
Quantitative Disclosures of Market Risk
- --------------------------------------------------------------------------------------------------------------------------------
Principal Amount Maturing In Fair Value
---------------------------------------------------------------- December 31,
RATE SENSITIVE ASSETS In thousands 2003 2004 Thereafter TOTAL 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed interest rate loans $ 8,910 $ 5,910 $ 26,404 $ 72,328 $ 71,837
Average interest rate 7.61% 7.66% 8.15% 8.16%
Variable interest rate loans $ 24,960 $15,483 $ 97,314 $275,459 $270,272
Average interest rate 6.76% 6.79% 7.36% 7.41%
Fixed interest rate securities $ 8,205 $ 3,100 $105,952 $155,756 $151,502
Average interest rate 5.91% 6.37% 6.49% 6.35%
Variable interest rate securities $ 84 $ 93 $ 354 $ 732 $ 732
Average interest rate 5.45% 5.45% 5.45% 5.45%
Other interest bearing assets $ -- $ -- $ -- $ 5,550 $ 5,550
Average interest rate 0.00% 0.00% 0.00% 5.50%
RATE SENSITIVE LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing checking $ 6,171 $ 6,171 $ 6,171 $ 61,711 $ 61,711
Average interest rate 0.00% 0.00% 0.00% 0.00%
Savings and interest bearing checking $ 16,326 $16,326 $ 32,880 $182,087 $182,087
Average interest rate 2.27% 2.27% 2.27% 2.29%
Time deposits $ 7,387 $ -- $ 1,000 $208,835 $208,881
Average interest rate 5.16% 0.00% 5.50% 4.81%
Variable interest rate borrowings $ 2,983 $ 2,983 $ -- $ 29,827 $ 29,827
Average interest rate 4.63% 4.63% 0.00% 4.63%
</TABLE>
21 ACNB Corporation & Subsidiaries
<PAGE>
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 loans
on which payment is 90 days or more delinquent, whether or not interest is still
being accrued. The Nonperforming Assets Analysis, a table found on page 22,
presents figures relative to nonperforming assets and net charge-offs for 1999
and 1998.
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 OREO is less than the loan balance, the
loan is written down at that time by a charge to the allowance for loan losses.
OREO currently consists of three properties valued at $171,000 as of December
31, 1999, down from $250,000 at December 31, 1998. One of these properties has
been sold, but must be reported as OREO until the terms, under which it was
disposed of, meet current regulatory standards. The remaining properties are
general real estate with an appraised value in excess of book value and less
than $100,000 per property.
PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is based upon management's continuing
analysis of certain factors underlying the quality of the loan portfolio. These
factors include:
o changes in the size and composition of the portfolio;
o historical loan loss trends;
o the industry's loss experience; and,
o current and anticipated economic conditions.
To determine adequacy of the allowance for loan losses, the corporation
reviews its loan portfolio for specific weaknesses. A portion of the allowance
is then allocated to reflect the potential loss exposure of those specific
weaknesses. When the corporation confirms that specific loans or portions of
loans are uncollectible, these amounts are charged against the allowance for
loan losses. The existence of some or all of the following criteria generally
confirms that a loss has been incurred:
o the loan is significantly delinquent and the borrower has not
evidenced the ability or intent to bring the loan current;
o the corporation has no recourse to the borrower or, if it does, the
borrower has insufficient assets to pay the debt; or,
o 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, their relatively
small balances, and historically low level of losses.
The Allocation of the Allowance for Loan Losses is presented in Note E of
the Notes to Consolidated Financial Statements, "Allowance for Loan Losses".
This table shows a breakdown of the allowance as it applies to different types
of loans in the portfolio.
CAPITAL MANAGEMENT
- --------------------------------------------------------------------------------
During 1999, ACNB Corporation's capital decreased by $1.3 million, or 2.1%.
During 1998, the capital base increased by $3.7 million, or 6.4%. At year-end
1999, the risk-based capital ratios of Tier 1 capital and Total capital were
19.54% and 20.68%, which exceed the minimum ratios required by the Federal
Reserve Board. Capital ratios are highlighted in a table, Capital Ratios at
Year-End, on page 23.
Capital management is an ongoing process, which consists of providing
equity and long-term debt for current and future financial positioning. ACNB
Corporation manages its capital as set forth in its strategic business plan and
to support its growth and investments.
ACNB Corporation and its banks 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, 1999,
the corporation and banks were in compliance with the capital requirements of
these regulatory agencies. Management expects them to remain in compliance with
these capital requirements in the future. 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, 1999, the
capital ratios of the corporation exceeded these levels. Management expects the
corporation's ratios to remain in excess of the minimum ratios required of a
well-capitalized institution.
The corporation's quarterly common stock cash dividend remained at $.20 per
share during 1999, with a special dividend of $.05 per share during the fourth
quarter for a total of $.85 per share. Annual dividends per share during 1998
were $.78, which also included a $.05 special dividend.
The corporation's total stockholders' equity at December 31, 1999, was $59.9
million, or 10.96% of total assets, compared with $61.1 million, or 11.23% of
total assets, at December 31, 1998. The decrease in capital is the result of
unrealized losses on securities of $2,233,000; repurchase of dissenters' shares
concerning the Farmers National Bancorp, Inc. acquisition of $624,000; excess
purchase price of Farmers National Bancorp, Inc. over book value of $1,026,000;
and, repurchase of ACNB Corporation shares of $605,000.
<TABLE>
<CAPTION>
Nonperforming Assets Analysis
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31
-----------------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Nonperforming Net Nonperforming Net
In thousands Assets Charge-offs Assets Charge-offs
------------------------------- ------------- -----------
<S> <C> <C> <C> <C>
Real estate loans (1-to-4 family dwellings) $2,506 $ 43 $1,802 $ (12)
Real estate loans (other) 988 50 1,776 4
Commercial and industrial -- 53 83 20
Consumer 41 158 139 104
------ ------ ------ -----
TOTAL $3,535 $ 304 $3,800 $ 116
====== ====== ====== =====
</TABLE>
ACNB Corporation & Subsidiaries 22
<PAGE>
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
CORPORATION'S STATE OF READINESS
The Year 2000 (Y2K) Problem was the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems would have been unable to interpret dates beyond the year 1999, which
would have caused a system failure or other computer errors, leading to
disruptions in operations. If not corrected, many computer applications could
have failed or created erroneous results by or at the Year 2000. This could have
caused entire system failures, miscalculations, and disruptions of normal
business operations including, among other things, a temporary inability to
process transactions, send statements, or engage in similar day-to-day business
activities.
The corporation developed a five-phase program for Y2K information and
non-information systems compliance, which included the following:
1. Awareness Phase
o Establish Year 2000 Task Force.
o Define Year 2000 Problem.
o Develop Year 2000 Plan and Strategy.
This phase was completed as of December 31, 1997.
2. Assessment Phase
o Identify and inventory information systems, technology items, computer
programs, business partners, environmental systems, and data
communication links.
o Prioritize mission critical systems.
o Obtain vendor certifications for software, hardware, and outsourced
service providers.
o Assess impact of Year 2000.
This phase was completed December 31, 1998.
3. Renovation Phase
o Implement hardware and software upgrades.
o Replace systems and technology items.
o Monitor vendor and service provider progress.
This phase was substantially completed as of December 31, 1998.
4. Validation Phase
o Develop testing plan and strategy.
o Establish test environment(s).
o Test internal information systems, technology items, computer programs,
environmental systems, and data communication links.
o Test with and/or monitor testing of vendors and service providers.
This phase began in May 1998 and was
substantially completed as of June 30, 1999.
5. Implementation Phase
o Implement Y2K compliant systems and technology items.
This phase began in December 1997 and continued through October 29, 1999.
Based upon an ongoing assessment, the corporation determined that it was
required to modify or replace portions of its hardware and software so that its
computer systems would properly use dates beyond December 31, 1999. The
corporation believes that as a result of modifications to existing software and
hardware and conversions to new software, the Year 2000 Problem was mitigated.
COSTS OF YEAR 2000
The total cost to implement the five-phase program was approximately
$394,000. Internal costs approximated $188,000, while outside consultants for
legal work, contingency planning, and verification of testing approximated
$206,000.
Costs in 1998 were $169,000, with $119,000 being internal costs with very
little cash outlay that were absorbed by current operations. $50,000 was spent
on consultant and legal work in 1998. Fiscal year 1999 expenses were budgeted at
$108,000 for internal costs and $140,000 for consultant and legal work. There
was a shift in personnel, which required more work to be outsourced at higher
costs in 1999.
With actual costs of $169,000 in 1998 and $225,000 for 1999, the financial
impact to the corporation of Year 2000 compliance has not been and is not
anticipated to be material to the corporation's financial position or results of
operations in any given year.
Risks of Year 2000
Management believes it has remedied the corporation's systems, programs and
applications. The Year 2000 computer problem created risk for the corporation
from unforeseen problems in its own computer systems and from third-party
vendors who provide the majority of mainframe and PC-based computer
applications. Failure of third-party systems relative to the Y2K issue could
have had a material impact on the corporation's ability to conduct business.
Other Year 2000 Endeavors
ACNB Corporation also undertook other endeavors to address the challenges
of the Year 2000 Problem. These included:
1. Stakeholder Communications
o Customer awareness program.
o Bank employee communications and training.
o Corporation shareholder communications.
2. Commercial Customer Credit Risk Control Process
o Due diligence process for current and future material customers.
o Assessment of customer Year 2000 readiness.
3. Fiduciary Client Risk Control Process
o Due diligence process for fiduciary account and asset administration
servicers including investment providers, third parties, counterparties and
transfer agents.
o Assessment of servicer Year 2000 readiness.
During the fourth quarter of 1999, ACNB Corporation increased cash reserves
for anticipated customer withdrawals by approximately $12 million. These funds
were found to be unnecessary and returned to the Federal Reserve Bank of
Philadelphia within the first week following the Y2K rollover event and promptly
reinvested.
As of February 29, 2000, ACNB Corporation has suffered no disruptions due
to the Year 2000 issue. In addition, a verification process was initiated in
January 2000 to determine the effect of the Year 2000 event on commercial loan
customers. As of February 29, 2000, there have been no reported incidences of
significance from loan officers or customers that a negative Y2K event has
occurred.
Capital Ratios at Year-End
- -------------------------------------------------------------------------
1999 1998
---- ----
Common stockholders' equity to assets 10.96% 11.23%
Tier 1 leverage ratio 10.88% 11.71%
Tier 1 risk-based capital ratio 19.54% 19.55%
Total risk-based capital ratio 20.68% 20.74%
23 ACNB Corporation & Subsidiaries
<PAGE>
REGULATORY ACTIVITY
Recently, Pennsylvania enacted a law that permits state-chartered banking
institutions to sell insurance. This follows the U.S. Supreme Court decision in
favor of nationwide insurance sales by banks, which also bars states from
blocking insurance sales by national banks in towns with populations of no more
than 5,000. The Office of the Comptroller of the Currency has issued guidelines
for national banks to sell insurance. The corporation is evaluating its options
regarding the sale of insurance.
Congress repealed the Glass-Steagall Act, which prohibits commercial banks
from engaging in the securities industry. Consequently, equity underwriting
activities of banks may increase in the near future. The corporation does not
currently anticipate entering into these activities.
FINANCIAL SERVICES MODERNIZATION LEGISLATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, also called the Financial Services Modernization
Act. The Financial Services Modernization Act repeals the two affiliation
provisions of the Glass-Steagall Act:
o Section 20, which restricted the affiliation of Federal Reserve Member
Banks with firms "engaged principally" in specified securities
activities; and,
o Section 32, which restricted officer, director or employee interlocks
between a member bank and any company or person "primarily engaged" in
specified securities activities.
In addition, the Financial Services Modernization Act contains provisions
that expressly preempt any state insurance law. The general effect of the law is
to establish a comprehensive framework to permit affiliations among commercial
banks, insurance companies, securities firms, and other financial service
providers by revising and expanding the Bank Holding Company Act framework to
permit a holding company system to engage in a full range of financial
activities through a new entity known as a Financial Holding Company. "Financial
activities" is broadly defined to include not only banking, insurance and
securities activities, but also merchant banking and additional activities that
the Federal Reserve, in consultation with the Secretary of the Treasury,
determines to be financial in nature, incidental to such financial activities,
or complementary activities that do not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally.
In brief, the Financial Services Modernization Act:
o Repeals historical restrictions on, and eliminates many federal and
state law barriers to, affiliations among banks, securities firms,
insurance companies, and other financial service providers;
o Provides a uniform framework for the functional regulation of the
activities of banks, savings institutions, and their holding
companies;
o Broadens the activities that may be conducted by national banks,
banking subsidiaries of bank holding companies, and their financial
subsidiaries;
o Provides an enhanced framework for protecting the privacy of consumer
information;
o Adopts a number of provisions related to the capitalization,
membership, corporate governance, and the other measures designed to
modernize the Federal Home Loan Bank system;
o Modifies the laws governing the implementation of the Community
Reinvestment Act (CRA); and,
o Addresses a variety of other legal and regulatory issues affecting
both day-to-day operations and long-term activities of financial
institutions.
In order for the corporation to take advantage of the ability to affiliate
with other financial services providers, the corporation must become a Financial
Holding Company, as permitted under an amendment to the Bank Holding Company
Act. To become a Financial Holding Company, the corporation would file a
declaration with the Federal Reserve, electing to engage in activities
permissible for Financial Holding Companies and certifying that it is eligible
to do so because all of its insured depository institution subsidiaries are
well-capitalized and well-managed. In addition, the Federal Reserve must
determine that each insured depository institution subsidiary of the corporation
has at least a "satisfactory" CRA rating. The corporation currently meets the
requirements to make an election to become a Financial Holding Company. The
corporation's management has not determined at this time whether it will seek an
election to become a Financial Holding Company. The corporation is examining its
strategic business plan to determine whether, based on market conditions, the
relative financial conditions of the corporation and its subsidiaries,
regulatory capital requirements, general economic conditions, and other factors,
the corporation desires to utilize any of its expanded powers provided in the
Financial Services Modernization Act.
The Financial Services Modernization Act also permits national banks to
engage in expanded activities through the formation of financial subsidiaries. A
national bank may have a subsidiary engaged in any activity authorized for
national banks directly or any financial activity, except for insurance
underwriting, insurance investments, real estate investment or development, or
merchant banking, which may only be conducted through a subsidiary of a
Financial Holding Company. Financial activities include all activities permitted
under new sections of the Bank Holding Company Act or permitted by regulation.
A national bank seeking to have a financial subsidiary, and each of its
depository institution affiliates, must be "well-capitalized" and
"well-managed". The total assets of all financial subsidiaries may not exceed
the lesser of 45% of a bank's total assets or $50 billion. A national bank must
exclude from its assets and equity all equity investments, including retained
earnings, in a financial subsidiary. The assets of the subsidiary may not be
consolidated with the bank's assets. The bank must also have policies and
procedures to assess financial subsidiary risk and to protect the bank from such
risks and potential liabilities.
The corporation and
the subsidiary banks do not believe that the Financial Services Modernization
Act will have a material adverse effect on our operations in the near term.
However, to the extent that it permits banks, securities firms, and insurance
companies to affiliate, the financial services industry may experience further
consolidation. The Financial Services Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, this act may have the result
of increasing the amount of competition that the
ACNB Corporation & Subsidiaries 24
<PAGE>
corporation and the subsidiary banks face from larger institutions and other
types of companies offering financial products, many of which may have
substantially more financial resources than the corporation.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of the corporation and the banks. Management cannot predict whether
such legislation will be enacted or, if enacted, how the legislation would
affect the business of the corporation and the banks. As a consequence of the
extensive regulation of commercial banking activities in the United States, the
corporation's and the banks' business is particularly susceptible to being
affected by federal legislation and regulations that may increase the cost of
doing business. Except as specifically described above, management believes that
the impact of the provisions of the aforementioned legislation on the liquidity,
capital resources, and results of operations of the corporation will be
immaterial. Management is not aware of any other current specific
recommendations by regulatory authorities or proposed legislation, which, if
they were implemented, would have a material adverse effect upon the
corporation's liquidity, capital resources, or results of operations, although
the general cost of compliance with numerous and multiple federal and state laws
and regulations does have, and in the future may have, a negative impact on the
corporation's results of operations.
The business of the corporation is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, management predicts that the industry will continue to experience an
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management also expects
increased diversification of financial products and services offered by the
corporation and its competitors. Management believes that such consolidations
and mergers, as well as the expanded diversification of products and services,
may enhance its competitive position as a community banking organization.
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors Stambaugh o Ness
ACNB Corporation -----------------------------
Gettysburg, Pennsylvania CERTIFIED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated statements of condition of
ACNB Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ACNB
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
Stambaugh o Ness, P.C.
York, Pennsylvania
January 14, 2000
25 ACNB Corporation & Subsidiaries
<PAGE>
CONSOLIDATED STATEMENTS OF CONDITIONS
<TABLE>
<CAPTION>
December 31
---------------------------
ASSETS In thousands 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks...................................................... $ 29,840 $ 16,728
Interest bearing deposits with banks......................................... 5,839 4,075
Investment securities
(fair value $152,234 and $162,414, respectively)........................... 158,105 160,762
Federal funds sold........................................................... 1,711 2,718
Mortgage loans held for sale................................................. 433 504
Loans
(net of unearned discount of $0 and $22, respectively)..................... 347,354 351,851
Allowance for possible loan losses........................................... (3,543) (3,594)
-------- ---------
Net loans.................................................................... 343,811 348,257
Premises and equipment....................................................... 4,524 4,877
Other real estate............................................................ 171 250
Other assets................................................................. 8,518 6,092
-------- --------
TOTAL ASSETS................................................................. $545,952 $544,263
======== ========
LIABILITIES
- -----------------------------------------------------------------------------------------------------------
Non-interest bearing deposits................................................ $ 61,711 $ 60,744
Interest bearing deposits.................................................... 890,922 394,955
-------- --------
TOTAL DEPOSITS............................................................... 452,633 455,699
Securities sold under agreement to repurchase................................ 29,377 22,658
Demand notes, U.S. Treasury.................................................. 450 100
Other liabilities............................................................ 3,629 4,688
-------- --------
TOTAL LIABILITIES............................................................ 486,089 483,145
STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Common stock (par value $2.50; 20,000,000 shares authorized;
5,748,732 and 5,783,567 issued and outstanding shares
on 12/31/99 and 12/31/98, respectively).................................... 14,372 14,458
Additional paid-in capital................................................... 1,963 2,480
Retained earnings............................................................ 45,761 42,846
Accumulated other comprehensive income....................................... (2,233) 1,334
-------- --------
TOTAL STOCKHOLDERS' EQUITY................................................... 59,863 61,118
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................... $545,952 $544,263
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
ACNB Corporation & Subsidiaries 26
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
INTEREST INCOME In thousands, except per share data 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans (including fees).................................... $27,137 $29,176 $29,123
Time deposits with banks.................................. 950 520 459
Federal funds sold........................................ 148 201 162
Taxable securities........................................ 9,609 8,417 7,949
Non-taxable securities.................................... 350 218 194
------- ------- -------
TOTAL INTEREST INCOME..................................... 38,194 38,532 37,887
INTEREST EXPENSE
- --------------------------------------------------------------------------------------------------
Interest bearing deposits................................. 14,993 15,598 15,336
Other borrowed funds...................................... 973 858 737
------- ------- -------
TOTAL INTEREST EXPENSE.................................... 15,966 16,456 16,073
NET INTEREST INCOME....................................... 22,228 22,076 21,814
Provision for possible loan losses........................ 253 360 210
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES........................ 21,975 21,716 21,604
NON-INTEREST INCOME
- --------------------------------------------------------------------------------------------------
Trust income.............................................. 550 530 520
Service fees on deposit accounts.......................... 964 880 791
Other income.............................................. 1,374 1,001 750
------- ------- -------
TOTAL NON-INTEREST INCOME................................. 2,888 2,411 2,061
NON-INTEREST EXPENSE
- --------------------------------------------------------------------------------------------------
Salaries and employee benefits............................ 7,555 7,485 7,144
Net occupancy expense..................................... 871 809 843
Equipment expense......................................... 1,174 1,185 1,090
Other taxes............................................... 536 536 480
Other expense............................................. 3,134 2,635 2,554
------- ------- -------
TOTAL NON-INTEREST EXPENSE................................ 13,270 12,650 12,111
INCOME BEFORE INCOME TAXES................................ 11,593 11,477 11,554
Applicable income taxes................................... 3,770 3,752 3,784
------- ------- -------
NET INCOME................................................ $ 7,823 $ 7,725 $ 7,770
======= ======= =======
PER COMMON SHARE DATA*
- --------------------------------------------------------------------------------------------------
Basic earnings............................................ $1.35 $1.33 $1.34
Cash dividends............................................ $ .85 $ .78 $ .73
</TABLE>
*Based on a weighted average of 5,782,930 shares in 1999,
5,815,246 shares in 1998, and 5,817,273 shares in 1997.
The accompanying notes are an integral part of the consolidated financial
statements.
27 ACNB Corporation & Subsidiaries
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income Total
- --------------------------------------------------------------------------------------------------------------------------
In thousands
BALANCE AT JANUARY 1, 1997
<S> <C> <C> <C> <C> <C>
As previously reported........................................... $13,196 $ 3,994 $31,889 $ 357 $49,436
Adjustment for pooling of interest............................... 1,325 (1,167) 4,255 (2) 4,411
------- ------- ------- ------- -------
As restated.................................................... 14,521 2,827 36,144 355 53,847
Comprehensive income:
Net income....................................................... -- -- 7,770 -- 7,770
Net change in unrealized gains on securities available-for-sale.. -- -- -- 521 521
-------
Total comprehensive income..................................... 8,291
-------
Cash dividends..................................................... -- -- (4,274) -- (4,274)
Retirement of 25,194 shares........................................ (63) (347) -- -- (410)
------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1997....................................... 14,458 2,480 39,640 876 57,454
Comprehensive income:
Net income....................................................... -- -- 7,725 -- 7,725
Net change in unrealized gains on securities available-for-sale.. -- -- -- 458 458
-------
Total comprehensive income..................................... 8,183
-------
Cash dividends..................................................... -- -- (4,519) -- (4,519)
------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1998....................................... 14,458 2,480 42,846 1,334 61,118
Comprehensive income:
Net income....................................................... -- -- 7,823 -- 7,823
Net change in unrealized losses on securities available-for-sale. -- -- -- (3,567) (3,567)
-------
Total comprehensive income..................................... 4,256
-------
Cash dividends..................................................... -- -- (4,908) -- (4,908)
Retirement of 34,721 shares........................................ (86) (517) -- -- (603)
------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1999....................................... $14,372 $ 1,963 $45,761 $(2,233) $59,863
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
ACNB Corporation & Subsidiaries 28
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
INCREASE (DECREASE) IN CASH ----------------------------------
AND CASH EQUIVALENTS In thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Interest and dividends received............................................... $ 37,141 $ 38,197 $ 37,839
Fees and commissions received................................................. 3,038 2,870 2,592
Interest paid................................................................. (16,190) (16,215) (15,930)
Cash paid to suppliers and employees.......................................... (14,420) (12,155) (11,304)
Income taxes paid............................................................. (4,061) (4,013) (3,813)
Loans originated for sale..................................................... (11,888) (21,294) (6,368)
Proceeds of mortgage loans sold............................................... 11,959 21,360 5,798
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,579 8,750 8,814
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities held-to-maturity............ 11,168 12,925 73,857
Proceeds from maturities of investment securities available-for-sale.......... 18,732 16,822 6,785
Purchase of investment securities held-to-maturity............................ (21,299) (10,403) (26,200)
Purchase of investment securities available-for-sale.......................... (4,700) (70,757) (27,598)
Net decrease (increase) in loans.............................................. 4,279 5,758 (17,422)
Capital expenditures.......................................................... (288) (197) (280)
Proceeds from sale of other real estate owned................................. 64 249 614
Proceeds from officer life insurance policies................................. 383 -- --
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........................... 8,339 (45,603) 9,756
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts........................................................ 6,604 14,014 2,562
Net increase (decrease) in certificates of deposit............................ (9,583) 10,630 (9,994)
Net increase (decrease) in securities
sold under agreement to repurchase.......................................... 6,719 7,637 (1,715)
Dividends paid................................................................ (4,908) (4,519) (4,274)
Net increase (decrease) in borrowed funds..................................... 350 (350) --
Retirement of common stock.................................................... (1,231) -- (460)
-------- -------- --------
NET CASH PROVIDED BY (USEDIN) FINANCING ACTIVITIES............................ (2,049) 27,412 (13,881)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS.......................................................... 11,869 (9,441) 4,689
CASH AND CASH EQUIVALENTS
AT BEGINNINGOFYEAR............................................................ 23,521 32,962 28,273
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................................... $ 35,390 $ 23,521 $ 32,962
======== ======== ========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
- ------------------------------------------------------------------------------------------------------------------
Net income.................................................................... $ 7,823 $ 7,725 $ 7,770
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization................................................. 641 670 703
Provision for possible loan losses............................................ 253 360 210
Provision (Benefit) for deferred taxes........................................ (200) (312) 70
Amortization (Accretion) of investment securities premiums (discounts)........ (45) (122) 2
Increase (Decrease) in taxes payable.......................................... (105) 87 (134)
Decrease (Increase) in interest receivable.................................... (127) (129) 470
Increase (Decrease) in interest payable....................................... (225) 257 144
Increase (Decrease) in accrued expenses....................................... 801 (39) 209
Decrease (Increase) in mortgage loans held for sale........................... 71 66 (570)
Increase in other assets...................................................... (2,612) (252) (232)
Increase (Decrease) in other liabilities...................................... (696) 439 172
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... $ 5,579 $ 8,750 $ 8,814
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
29 ACNB Corporation & Subsidiaries
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
BUSINESS
ACNB Corporation provides banking and financial services to businesses and
consumers through its wholly-owned banking subsidiaries of Adams County National
Bank and Farmers National Bank of Newville. The corporation engages in
full-service commercial and consumer banking and trust services through its
sixteen locations in Adams, Cumberland and York counties.
The corporation's primary source of revenue is interest income on loans and
investment securities and fee income on its products and services. Expenses
consist of interest expense on deposits and borrowed funds, provisions for loan
losses, and other operating expenses.
BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the
corporation and its wholl y-owned subsidiaries. All significant intercompany
transactions have been eliminated. 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.
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' consolidated financial statements
have been reclassified to conform with report classifications of the current
year.
CASH EQUIVALENTS
For the purpose of presentation in the consolidated statements of 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.
INVESTMENT SECURITIES
Under Statement of Financial Accounting Standards No. 115, securities are
required 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. Other
securities are classified as available-for-sale. The difference between
amortized cost and fair value is an unrealized holding gain or loss included,
net of taxes, as accumulated other comprehensive income, in stockholders'
equity. 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. Gains and losses are determined using the specific identification
method. Income is accrued the month it is earned
MORTGAGE LOANS HELD FOR SALE
The mortgages held for sale are carried at the lower of aggregate cost or
estimated market value.
LOANS
Loans are stated net of unearned interest on consumer installment loans.
Beginning in 1995, interest on new installment loans is recognized on the simple
interest method. Interest on installment loans opened prior to 1995 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.
ALLOWANCE 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 subsidiaries, and the adequacy of the allowance for possible
loan losses. A significant change in this estimate could result in a material
change to net income.
Loans are deemed impaired when it is probable that the corporation will be
unable to collect all amounts due in accordance with the loan agreement. The
corporation evaluates collectively for impairment large groups of smaller
balance homogeneous loans. At December 31, 1999 and 1998, all of the
corporation's impaired loans were on nonaccrual status for all reported periods.
PREMISES AND EQUIPMENT
Land is carried at cost. Bank premises and furniture and equipment are
carried at cost, less accumulated depreciation computed principally by the
straight-line method.
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 foreclosed real estate is carried at the lower of fair market
value, less costs to sell, or the carrying value of the related loan at the time
of acquisition.
ACNB Corporation & Subsidiaries 30
<PAGE>
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- -------------------------------------------------------------------------------
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently-enacted
income tax rates applicable to the period in which deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
NET INCOME PER SHARE
Basic earnings per share of common stock is computed on the basis of the
weighted average number of shares of common stock outstanding. The corporation
does not have diluted earnings per share.
ADVERTISING COSTS
Costs of advertising are expensed when incurred.
COMPREHENSIVE INCOME
The corporation adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", as of January 1, 1998. Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in income. Although certain changes in assets and liabilities, such
as unrealized gains and losses on available-for-sale securities, are reported as
a separate component of the equity section of the statement of condition, such
items, along with net income, are components of comprehensive income. The
adoption of Statement of Financial Accounting Standards No. 130 had no effect on
the corporation's net income or stockholders' equity other than expanded
disclosure.
NOTE B
RESTRICTIONS ON CASH
AND DUE FROM BANK ACCOUNTS
- -------------------------------------------------------------------------------
The banks are required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for the years
ended December 31, 1999 and 1998, were approximately $7,622,000 and $5,686,000,
respectively.
31 ACNB Corporation & Subsidiaries
<PAGE>
NOTE C
INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
The amortized cost and estimated fair value of investment securities at December
31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1999 In Thousands Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
Held-to-Maturity Securities
U.S. Treasury securities and obligations of
<S> <C> <C> <C> <C>
U.S. Government corporations and agencies............. $ 42,249 $ 93 $ 865 $ 41,477
Obligations of states and political subdivisions........ 4,321 4 59 4,266
Corporate debt.......................................... 7,904 2 46 7,860
-------- ------- ------- --------
Total debt securities................................... 54,474 99 970 53,603
Restricted equity securities............................ 3,456 -- -- 3,456
-------- ------- ------- --------
Total Held-to-Maturity Securities....................... $ 57,930 $ 99 $ 970 $ 57,059
======== ======= ======= ========
Available-for-Sale Securities
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies............. $ 98,558 $ 74 $ 3,457 $ 95,175
======== ======= ======= ========
1998 In thousands
- ------------------------------------------------------------------------------------------------------------------
Held-to-Maturity Securities
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies............. $ 36,309 $ 1,418 $ -- $ 37,727
Obligations of states and political subdivisions........ 5,090 53 5 5,138
Corporate debt.......................................... 3,131 5 1 3,135
-------- ------- ------- --------
Total debt securities................................... 44,530 1,476 6 46,000
Restricted equity securities............................ 3,012 -- -- 3,012
-------- ------- ------- --------
Total Held-to-Maturity Securities....................... $ 47,542 $ 1,476 $ 6 $ 49,012
======== ======= ======= ========
Available-for-Sale Securities
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies............. $111,184 $ 2,046 $ 10 $113,220
======== ======= ======= ========
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1999, 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.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------ -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
In thousands --------- ------- --------- --------
<S> <C> <C> <C> <C>
Within one year......................................... $ 4,289 $ 4,279 $ 350 $ 349
After one year through five years....................... 27,614 27,453 17,929 17,552
After five years through ten years...................... 21,633 20,931 774 738
After ten years......................................... 938 940 79,505 76,536
-------- ------- ------- --------
Total Debt Securities................................... $ 54,474 $53,603 $98,558 $ 95,175
======== ======= ======= ========
</TABLE>
ACNB Corporation & Subsidiaries 32
<PAGE>
<TABLE>
<CAPTION>
NOTE C
INVESTMENT SECURITIES (continued)
- -------------------------------------------------------------------------------------------------------------------
U.S.
Government Taxable
and Federal State and Other Equivalent
December 31, 1999 In thousands Agency Municipal Securities Total Yield
- -------------------------------------------------------------------------------------------------------------------
Amortized Cost
<S> <C> <C> <C> <C> <C>
Within one year................................. $ 1,249 $1,616 $ 1,774 $ 4,639 5.91%
After one year through five years............... 38,185 1,228 6,130 45,543 6.12%
After five years through ten years.............. 21,325 1,082 -- 22,407 6.78%
After ten years................................. 80,048 395 -- 80,443 6.45%
No set maturity................................. -- -- 3,456 3,456 6.57%
-------- ------ ------- --------
Total........................................... $140,807 $4,321 $11,360 $156,488
======== ====== ======= ========
Fair Value...................................... $136,652 $4,266 $11,316 $152,234
======== ====== ======= ========
Taxable Equivalent Yield........................ 6.38% 6.84% 6.32%
December 31, 1998 In thousands
- -------------------------------------------------------------------------------------------------------------------
Amortized Cost.................................. $147,493 $5,090 $ 6,143 $158,726
======== ====== ======= ========
December 31, 1997 In thousands
- -------------------------------------------------------------------------------------------------------------------
Amortized Cost.................................. $ 99,242 $4,912 $ 3,282 $107,436
======== ====== ======= ========
</TABLE>
The weighted average yield of tax-exempt obligations has been calculated on
a taxable equivalent basis. The taxable equivalent adjustments are based on an
effective tax rate of 35%. The yield information does not give effect to changes
in fair value that are reflected as a component of stockholders' equity.
At December 31, 1999 and 1998, assets with a carrying value of $82,964,000
and $57,982,000, respectively, were pledged as required or permitted by law to
secure certain public and trust deposits, repurchase agreements, or for other
purposes.
The corporation did not sell any securities over the past three years.
<TABLE>
<CAPTION>
NOTE D
LOANS
- -------------------------------------------------------------------------------------------------------------------
Loans at December 31 are summarized as follows:
In thousands 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural.................. $ 12,697 $ 13,163 $ 11,160 $ 11,029 $ 10,436
Real estate - construction.............................. 13,188 14,661 13,923 11,453 13,130
Real estate - mortgage.................................. 308,241 309,030 316,078 301,010 296,870
Consumer................................................ 13,661 15,523 17,299 17,775 19,867
-------- -------- -------- -------- --------
347,787 352,377 358,460 341,267 340,303
Less: Unearned discount on loans........................ -- 22 166 728 2,184
-------- -------- -------- -------- --------
Total Loans............................................. $347,787 $352,355 $358,294 $340,539 $338,119
======== ======== ======== ======== ========
</TABLE>
The following table outlines the repricing opportunities for all loans
outstanding as of December 31, 1999. Loans with immediately adjustable rates,
such as loans tied to prime rate, are included in the within one year column.
Loans with rates that are adjustable at some time over the life of the loan are
included under the time heading when they become adjustable. All fixed-rate
loans are included under the heading in which they mature.
<TABLE>
<CAPTION>
Repricing Period
------------------------------------
Within After One Year
One Through
In thousands Year Five Years Total
--------- ---------- -------
<S> <C> <C> <C>
Commercial, financial and agricultural................................. $ 6,354 $ 6,343 $12,697
Real estate - construction............................................. 5,175 8,013 13,188
------- ------- -------
Total.................................................................. $11,529 $14,356 $25,885
======= ======= =======
Loans with predetermined interest rates................................ $ 2,523 $ 3,881 $ 6,404
Loans with variable interest rates..................................... 11,530 7,951 19,481
------- ------- -------
Total.................................................................. $14,053 $11,832 $25,885
======= ======= =======
</TABLE>
33 ACNB Corporation & Subsidiaries
<PAGE>
NOTE D
LOANS (continued)
- --------------------------------------------------------------------------------
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, 1999 and
1998, was $3,502,082 and $3,279,064, respectively. The terms for these loans
were substantially the same as those for unrelated parties.
<TABLE>
<CAPTION>
Balance at Balance at Numbers
January 1, Amounts December 31, of
1999 Additions Collected 1999 Debtors
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$3,279,064 $933,058 $710,040 $3,502,082 5
</TABLE>
NOTE E
ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
Transactions in the valuation portion of the allowance for loan losses for
the past five years at December 31 are shown below:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance of allowance for loan losses at beginning of period.... $ 3,594 $ 3,350 $ 3,376 $ 3,475 $ 3,573
Loans charged-off:
Commercial, financial and agricultural......................... 58 20 49 34 --
Real estate - construction..................................... -- -- -- -- --
Real estate - mortgage......................................... 128 4 34 31 44
Consumer....................................................... 204 195 181 142 98
-------- -------- -------- -------- --------
Total loans charged-off........................................ 390 219 264 207 142
Recovery of charged-off loans:
Commercial, financial and agricultural......................... 5 -- 1 6 12
Real estate - construction..................................... -- -- -- -- --
Real estate - mortgage......................................... 35 12 -- 41 1
Consumer....................................................... 46 91 27 31 31
-------- -------- -------- -------- --------
Total recoveries............................................... 86 103 28 78 44
Net loans charged-off.......................................... 304 116 236 129 98
Provision for possible loan losses............................ 253 360 210 30 --
-------- -------- -------- -------- --------
Balance at end of period....................................... $ 3,543 $ 3,594 $ 3,350 $ 3,376 $ 3,475
======== ======== ======== ======== ========
TOTAL LOAN BALANCE In thousands
- --------------------------------------------------------------------------------------------------------------------
Average total loans............................................ $344,323 $356,154 $353,553 $337,259 $334,190
Total loans at year-end........................................ 347,787 352,355 358,294 340,539 338,119
RATIOS
- --------------------------------------------------------------------------------------------------------------------
Net charge-offs to:
Average total loans............................................ 0.09% 0.03% 0.07% 0.04% 0.03%
Total loans at year-end........................................ 0.09% 0.03% 0.07% 0.04% 0.03%
Allowance for loan losses...................................... 8.58% 3.23% 7.04% 3.82% 2.82%
Allowance for loan losses to:
Average total loans............................................ 1.03% 1.01% 0.95% 1.00% 1.04%
Total loans at year-end........................................ 1.02% 1.02% 0.93% 0.99% 1.03%
</TABLE>
The amounts of additional provision to the allowance were based on
management's judgement after considering an analysis of larger loans, all loans
known to management to have unusual risk characteristics, nonperforming 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 corporation's local service area. Loans
secured by real estate comprised 92% of the corporation's total loan portfolio
at December 31, 1999. 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 corporation over
the last five years. This policy did not change during the year ending 1999.
Management anticipates that charge-off amounts will approximate $250,000 in
2000.
ACNB Corporation & Subsidiaries 34
<PAGE>
NOTE E
ALLOWANCE FOR LOAN LOSSES (continued)
- --------------------------------------------------------------------------------
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- -------------- -------------- -------------- --------------
% of % of % of % of % of
Gross Gross Gross Gross Gross
In thousands Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural..$1,042 0.30% $ 838 0.24% $ 735 0.20% $ 98 0.03% $ 101 0.03%
Real estate - construction.............. 246 0.07% 107 0.03% 72 0.02% 50 0.01% 51 0.01%
Real estate - mortgage.................. 1,474 0.43% 1,152 0.33% 1,602 0.45% 1,773 0.52% 1,824 0.54%
Consumer................................ 251 0.07% 238 0.07% 211 0.06% 165 0.05% 170 0.05%
Unallocated............................. 530 0.15% 1,259 0.35% 730 0.20% 1,290 0.38% 1,329 0.39%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total...................................$3,543 1.02% $3,594 1.02% $3,350 0.93% $3,376 0.99% $3,475 1.02%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
NOTE F
PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The composition of corporation premises and
equipment at December 31 was as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998
------- -------
<S> <C> <C>
Land............................................................. $ 904 $ 904
Bank premises.................................................... 6,389 6,389
Furniture and equipment.......................................... 5,410 5,139
Less: Accumulated depreciation and amortization.................. (8,179) (7,555)
-------- -------
Total............................................................ $ 4,524 $ 4,877
======== =======
</TABLE>
<TABLE>
<CAPTION>
A summary of depreciation and amortization
expenses is as follows:
In thousands 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Bank premises.................................................... $224 $198 $201
Furniture and equipment.......................................... 417 473 502
---- ---- ----
Total............................................................ $641 $670 $703
==== ==== ====
</TABLE>
NOTE G
INVESTMENT IN REAL ESTATE PARTNERSHIPS
- --------------------------------------------------------------------------------
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
in Gettysburg, PA. ACNB Corporation owns a 99% limited partner's interest in the
partnership. The corporation also owns a 62% share, as a limited partner, of a
residential low-income project called Poplar Creek Apartments in York, PA. These
investments are accounted for under the equity method of accounting. At December
31, 1999 and 1998, the carrying value of these investments was approximately
$918,988 and $276,019, respectively.
35 ACNB Corporation & Subsidiaries
<PAGE>
NOTE H
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
The following table presents information concerning the aggregate amount of
nonperforming assets at December 31:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997 1996 1995
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans___________________________ $ 1,615 $ 1,450 $1,908 $ 1,092 $1,092
90 days past due still accruing____________ 1,920 2,350 1,360 2,515 2,947
Restructured loans_________________________ -- -- -- -- --
Other real estate owned____________________ 171 250 401 1,015 689
------- ------- ------- ------- -------
Total Nonperforming Assets_________________ $ 3,706 $ 4,050 $ 3,669 $ 4,622 $ 4,728
======= ======= ======= ======= =======
</TABLE>
The gross interest income that would have been recorded on nonaccrual loans
at December 31, 1999, under original terms was approximately $130,000. The
amount of interest income on these loans that was included in net income for the
year ended December 31, 1999, was $0.
The corporation 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.
NOTE I
TIME DEPOSITS
- --------------------------------------------------------------------------------
Time deposits in denominations of $100,000 or more at December 31, 1999 and
1998, are summarized in the following table:
<TABLE>
<CAPTION>
In thousands 1999 1998
-------- -------
<S> <C> <C>
Time certificates of deposit___________________ $ 20,149 $23,030
Other time deposits____________________________ 1,000 1,000
</TABLE>
Maturities of time deposits of $100,000 or more outstanding
at December 31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
In thousands
<S> <C>
Three months or less______________________ $ 5,387
Over three through six months_____________ 4,762
Over six through twelve months____________ 5,388
Over twelve months________________________ 5,612
------
Total_____________________________________ $21,149
=======
</TABLE>
The interest expense related to time certificates of deposit in
denominations of $100,000 or more totaled $1,044,000 in 1999, $1,113,000 in
1998, and $960,000 in 1997.
NOTE J
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
$119,140, $109,308 and $91,887 for the years ended December 31, 1999, 1998 and
1997, 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:
2000_____________________ $ 62,880
2001_____________________ 41,310
2002_____________________ 20,553
2003_____________________ 6,900
2004_____________________ 7,500
Later years______________ 3,900
------
Total Minimum Payments___ $ 143,043
=========
ACNB Corporation & Subsidiaries 36
<PAGE>
NOTE K
SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements to repurchase,
and other short-term borrowings generally mature within one to 90 days from the
date originated.
The following is a summary of aggregate short-term borrowings for the years
ended December 31, 1999, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Amount outstanding at year-end___________________________ $ 29,827 $ 22,758 $15,471
Average interest rate at year-end________________________ 4.70% 4.33% 4.42%
Maximum amount outstanding at any month-end______________ $ 29,827 $ 25,812 $ 22,740
Average amount outstanding_______________________________ $ 22,711 $ 19,001 $ 16,805
Weighted average interest rate___________________________ 4.29% 4.41% 4.39%
</TABLE>
NOTE L
RESTRICTIONS ON SUBSIDIARY
DIVIDENDS, LOANS AND ADVANCES
- --------------------------------------------------------------------------------
Certain restrictions exist regarding the ability of the banks 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, 1999, $8,687,000 of
undistributed earnings of the banks, included in consolidated retained earnings,
was available for distribution to the corporation as dividends without prior
regulatory approval.
Under national banking laws, the banks are 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, 1999, the maximum amount
available for transfer from the banks to the corporation in the form of loans
was approximately $6,341,000.
NOTE M
INCOME TAXES
- --------------------------------------------------------------------------------
The composition of applicable taxes (benefits) for the years ended December 31
was alloacated as follows
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations_________________________ $ 3,770 $ 3,752 $ 3,784
Stockholders' equity for other comprehensive income_______ (1,842) 240 268
Total_____________________________________________________ $ 1,928 $ 3,992 $ 4,052
======= ====== =======
</TABLE>
Income tax expense attributable to other comprehensive income consists of
the following at December 31:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Unrealized gains (losses) on securities arising during the period___________ $(1,842) $ 240 $ 268
Reclassification adjustment for gains (losses) included in net income_______ -- -- --
------- -------- --------
Income Tax (Benefits) Expense Related to Other Comprehensive Income_________ $(1,842) $ 240 $ 268
======== ======== ========
</TABLE>
Income tax expense attributable to income from continuing operations
consists of the following at December 31: 37
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Currently payable________________________________________________ $ 3,945 $ 3,771 $ 3,884
Deferred tax benefits____________________________________________ (175) (19) (100)
------- ------- --------
Applicable Income Taxes__________________________________________ $ 3,770 $ 3,752 $ 3,784
======= ======= ========
</TABLE>
37
<PAGE>
NOTE M
INCOME TAXES (continued)
- --------------------------------------------------------------------------------
For the years ended December 31, the applicable income tax expense
attributable to income from continuing operations differs from the tax expense
computed by applying the federal statutory rate to pretax earnings. The
components of the differences are as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Income taxes at statutory rate $ 4,054 $ 4,009 $ 4,037
Increase (Decrease) resulting from:
Tax-exempt income (103) (91) (82)
Rehabilitation and low-income housing credits (73) (73) (73)
Other (108) (93) (98)
-------- -------- ---------
Applicable Income Taxes $ 3,770 $ 3,752 $ 3,784
======== ======== =========
</TABLE>
The significant components of deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998
-------- --------
Deferred tax assets:
<S> <C> <C>
Allowance for possible loan losses_______________________________ $ 683 $ 642
Deferred compensation____________________________________________ 234 163
Net unrealized losses on available-for-sale securities___________ 1,150 --
Other____________________________________________________________ 62 46
------- ---------
Total gross deferred tax assets__________________________________ 2,129 851
------- ---------
Deferred tax liabilities:
Depreciation_____________________________________________________ 45 87
Net unrealized gains on available-for-sale securities____________ -- 692
Pension__________________________________________________________ 45 50
------ ------
Total gross deferred tax liabilities_____________________________ 90 829
------- -------
Net Deferred Tax Assets__________________________________________ $2,039 $ 22
======= ==========
</TABLE>
Since the corporation has historically had strong earnings, management
believes the deferred tax assets are realizable.
Income taxes paid during 1999, 1998 and 1997 were $3,969,000, $3,992,000
and $3,644,000, respectively.
ACNB Corporation & Subsidiaries 38
<PAGE>
NOTE N
RETIREMENT PLANS
- --------------------------------------------------------------------------------
The corporation's subsidiaries have non-contributory pension plans. The
plan covering the employees of the subsidiary acquired in March 1999 was frozen
under the terms of the plan as of March 1993. Retirement benefits under both
plans are a function of both years of service and compensation. The funding
policy of each subsidiary is 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, 1999, 1998 and 1997 was $408,000, $427,000 and $429,000,
respectively.
The following tables provide a reconciliation of the changes in the plan
benefit obligations and fair value of plan assets for the two plan years ending
December 31, 1999 and 1998, and a statement of the funded status as of December
31, 1999 and 1998:
<TABLE>
<CAPTION>
In thousands 1999 1998
-------- --------
Reconciliation of benefit obligations:
<S> <C> <C>
Benefit obligations - beginning of year_________________________________ $ 9,845 $ 8,144
Service costs___________________________________________________________ 367 328
Interest costs__________________________________________________________ 536 517
Actuarial (gains) losses________________________________________________ (1,275) 923
Benefit payments________________________________________________________ (188) (67)
------- ------
Benefit Obligations - End of Year_______________________________________ 9,285 9,845
======= ======
Reconciliation of fair value of plan assets:____________________________
Fair value of plan assets - beginning of year___________________________ 7,630 6,562
Actual return on plan assets____________________________________________ 255 524
Employer contributions__________________________________________________ 260 611
Benefits paid___________________________________________________________ (188) (67)
------ ------
Fair Value of Plan Assets - End of Year_________________________________ 7,957 7,630
-------- ------
Reconciliation of funded assets:
Funded status at December 31(under funded) over funded___________________ (1,328) (2,215)
Unrecognized net actuarial loss_________________________________________ 1,054 2,053
Unrecognized transition asset___________________________________________ 116 114
Adjustment for minimum pension liability________________________________ -- (181)
Unrecognized prior service costs________________________________________ 156 193
------- -------
Net Accrued Pension_____________________________________________________ $ (2) $ (36)
======== =======
</TABLE>
39 ACNB Corporation & Subsidiary
<PAGE>
NOTE N
RETIREMENT PLANS (continued)
- --------------------------------------------------------------------------------
The following table provides the components of net periodic benefit costs for
the years ending December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
In thousands
Components of net periodic benefit costs: 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service costs______________________________________ $ 367 $ 328 $ 287
Interest costs_____________________________________ 535 517 470
Expected return on assets__________________________ (613) (492) (401)
Recognized net actuarial loss______________________ 83 34 42
Amortization of transition asset___________________ (14) 2 (13)
Amortization of prior service costs________________ 50 38 44
---------- -------- -------
Net Periodic Benefit Costs_________________________ $ 408 $ 427 $ 429
========= ========= ========
</TABLE>
The assumptions used in the measurement of the benefit obligations are
shown in the following table:
<TABLE>
<CAPTION>
Weighted average assumptions as of December 31: 1999 1998 1997
-------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Discount rate______________________________________________ 6.00 - 6.50% 5.00 - 5.50% 6.00 - 6.50%
Expected return on plan assets_____________________________ 6.00 - 8.25% 6.00 - 8.25% 6.00 - 7.50%
Rate of compensation increase
(Frozen plan assumes no increase in compensation)_______ 4.69% 4.62% 5.62%
</TABLE>
Plan assets consist of a deposit administration contract, various pooled
separate accounts, annuities, and an investment of 37,560 shares of common stock
with ACNB Corporation at December 31, 1999 and 1998.
The corporation's subsidiaries have a 401(k) Salary Deferral Plan, which
covers all eligible employees. The annual expense included in salaries and
benefits amounted to $221,000, $222,000 and $197,000 for 1999, 1998 and 1997,
respectively.
The corporation has non-qualified salary agreements with certain senior
management. The future commitments under these arrangements have been funded
through corporate-owned variable life insurance policies. At December 31, 1999
and 1998, the present value of the future obligations was $688,000 and $301,000,
respectively. The insurance policies included in other assets had a total cash
value of $1,701,000 and $2,028,000, respectively, at December 31, 1999 and 1998.
ACNB Corporation & Subsidiaries 40
<PAGE>
NOTE O
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, 1999 and 1998, is presented below:
<TABLE>
<CAPTION>
In thousands 1999 1998
------- --------
<S> <C> <C>
Commitments to extend credit__________________________________________ $ 31,226 $ 29,636
Standby letters of credit_____________________________________________ 3,457 2,191
</TABLE>
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. These 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 in the corporation's primary marketplace.
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 P
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
1999 and 1998, approximately 98% of the corporation's assets and 88% 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, 1999 December 31, 1998
---------------------------------- -----------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
------------- -------- ----------------- ----------------
In thousands
<S> <C> <C> <C> <C>
Cash and due from banks____________________ $ 29,840 $ 29,840 $ 16,728 $ 16,728
Interest bearing deposits with banks_______ 3,839 3,839 4,075 4,075
Federal funds sold_________________________ 1,711 1,711 2,718 2,718
Investment securities______________________ 152,234 153,105 162,235 160,762
Interest receivable________________________ 3,225 3,225 2,714 2,714
</TABLE>
41 ACNB Corporation & Subsidiaries
<PAGE>
NOTE P
DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS (continued)
- --------------------------------------------------------------------------------
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, 1999 and 1998. Mortgages and consumer loans have been
revalued using discounted cash flows. The mortgages were estimated using market
rates at December 31, 1999 and 1998, and consumer loans were revalued using
rates being charged by the corporation at year-end 1999 and 1998. Fair value for
nonperforming loans is based on current valuations of underlying collateral.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------- ----------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
-------------- -------------- ---------------- ----------------
In thousands
<S> <C> <C> <C> <C>
Net loans_____________________________ $344,189 $343,811 $349,762 $348,257
Mortgage loans held for sale__________ 433 433 504 504
</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, 1999 and 1998. 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, 1999 December 31, 1998
----------------------------------- --------------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
----------------- ------------- ---------------- -----------
In thousands
<S> <C> <C> <C> <C>
Deposits with no stated maturities___________ $243,817 $243,817 $237,689 $237,689
Deposits with stated maturities______________ 208,862 208,816 221,261 218,010
Repurchase agreements________________________ 29,377 29,377 22,658 22,658
Federal funds purchased and demand notes_____ 450 450 100 100
Interest payable_____________________________ 2,637 2,637 2,862 2,862
</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.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------- -------------------------------------
Estimated Fair Carrying Estimated Fair Carrying
Value Amount Value Amount
------------------ ------------ ------------------ -------------
In thousands
<S> <C> <C> <C> <C>
Commitments to extend credit____________ $31,226 $31,226 $29,636 $29,636
Standby letters of credit_______________ 3,457 3,457 2,191 2,191
</TABLE>
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 & Subsidiaries 42
<PAGE>
NOTE Q
ACNB CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
----------------------------
STATEMENTS OF CONDITION In thousands 1999 1998
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash____________________________________________________________ $ 291 $ 202
Securities and other assets_____________________________________ 919 276
Investment in common stock of subsidiaries______________________ 60,845 58,926
Receivable from subsidiaries____________________________________ 41 1,007
--------- --------
TOTAL ASSETS____________________________________________________ $ 62,096 $ 60,411
========= =========
LIABILITIES
Accrued Expenses________________________________________________ $ -- $ 627
--------- ----------
STOCKHOLDERS' EQUITY
Common stock (par value $2.50; 20,000,000 shares authorized; 5,748,732 and
5,783,567 issued and outstanding shares
on 12/31/99 and 12/31/98, respectively)___________________________________ 14,372 14,458
Additional paid-in capital___________________________________________________ 1,963 2,480
Retained earnings____________________________________________________________ 45,761 42,846
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY___________________________________ $ 62,096 $ 60,411
======= =======
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
STATEMENTS OF INCOME In thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
INCOME
<S> <C> <C> <C>
Dividend from subsidiaries____________________________________________ $5,928 $4,519 $4,274
EXPENSE_______________________________________________________________ 107 167 45
----- ------ ------
INCOME BEFORE TAXES AND EQUITY IN
UNDISTRIBUTED NET INCOME OF SUBSIDIARIES______________________________ 5,821 4,352 4,229
Applicable tax benefit________________________________________________ (84) (130) (88)
INCOME BEFORE EQUITY IN ------- ----- ------
UNDISTRIBUTED NET INCOME OF SUBSIDIARIES______________________________ 5,905 4,482 4,317
Equity in undistributed net income of subsidiaries____________________ 1,918 3,243 3,453
------- ------- -------
NET INCOME____________________________________________________________ $7,823 $7,725 $7,770
====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
STATEMENTS OF CASH FLOWS In thousands 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Dividends received_________________________________________________ $5,928 $4,519 $ 4,684
------- ------ -------
Net Cash Provided by Operating Activities__________________________ 5,928 4,519 4,684
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in equity investments___________________________________ (188) -- --
------- ------- --------
Net Cash Used in Investing Activities______________________________ (188) -- --
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid_____________________________________________________ (4,908) (4,519) (4,274)
Retirement of common stock_________________________________________ (603) -- (460)
Purchase of dissenters' shares_____________________________________ (140) -- --
-------- ------- --------
Net Cash Used in Financing Activities______________________________ (5,651) (4,519) (4,734)
-------- ------- --------
NET INCREASE (DECREASE) IN CASAH AND CASH EQUIVALENTS______________ 89 -- (50)
------- ------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR_____________________ 202 202 252
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR___________________________ $ 291 $ 202 $ 202
======= ======= =========
</TABLE>
43 ACNB Corporation & Subsidiaries
<PAGE>
NOTE Q
ACNB CORPORATION (PARENT COMPANY ONLY)
FINANCIAL INFORMATION (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------
STATEMENTS OF CASH FLOWS (continued) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income________________________________________________________ $ 7,823 $7,725 $7,770
Increase in investment in common stock of subsidiaries____________ (1,918) (3,243) (3,453)
Decrease (Increase) in receivable from subsidiaries_______________ 966 (7) 322
Loss on equity investment_________________________________________ 39 44 45
Increase in equity investment_____________________________________ (496) -- --
Decrease in accrued expenses (486) -- --
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES_________________________ $ 5,928 $4,519 $4,684
======== ======= =======
</TABLE>
NOTE R
FINANCIAL INFORMATION RELATING
TO OPERATING SEGMENTS
- --------------------------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
standards and disclosure requirements for the manner entities report information
about operating segments. Operating segments are defined based upon the way
management organizes segments for making operating decisions and evaluating
performance.
Management of the corporation monitors and evaluates four segments of its
operations, which include commercial, consumer and mortgage lending and
investment securities. The corporation's marketplace is southcentral
Pennsylvania which encompasses Adams County and areas in contiguous counties of
York, Franklin and Cumberland, as well as sections of northern Maryland.
Commercial lending includes commercial mortgages, real estate development,
accounts receivable financing, and agricultural loans. Consumer lending programs
include home equity loans, automobile and recreational vehicle loans, and
manufactured housing loans. Mortgage lending programs include personal
residential mortgages, residential construction loans, and speculative
construction loans.
Management measures the net interest income of each segment based upon the
earnings and fees for each segment recognized less the charge for the funds
used. The charge for funds used is based on the average cost of funds used by
the respective segment. Other non-interest expense, which includes salaries and
employee benefits, occupancy and equipment expense, and other expenses, is
allocated to each segment and is netted against net interest income after
provision for possible loan losses to arrive at income before income taxes for
each respective segment.
The following is for year ending December 31, 1999, by the four operating
segments:
<TABLE>
<CAPTION>
In thousands Commercial Consumer Mortgage Investment
Lending Lending Lending Securities Other Total
--------- --------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total interest income_________________ $ 10,874 $ 3,531 $ 12,696 $ 11,057 $ 36 $ 38,194
Charge for funds used_________________ (6,674) (1,905) (8,458) (8,069) 9,140 (15,966)
------- ------- ------- ------ ----- --------
Net Interest Income___________________ 4,200 1,626 4,238 2,988 9,176 22,228
Provision for possible
loan losses_______________________ (95) (70) (88) -- -- (253)
Net Interest Income After Provision ------- ------- ------- ------ ----- ---------
for Possible Loan Losses__________ 4,105 1,556 4,150 2,988 9,176 21,975
Non-interest income___________________ 100 118 232 90 2,348 2,888
Non-interest expense__________________ (1,075) (442) (1,236) (68) (10,449) (13,270)
------- ------ ------- ------ ------ --------
Income Before Income Taxes____________ $ 3,130 $ 1,232 $ 3,146 $ 3,010 $ 1,075 $ 11,593
======== ====== ========== ======== ========= =========
Average Funds Used____________________ $135,074 $ 38,465 $170,780 $162,096 $ 44,045 $ 550,460
======== ======= ========== ======== ========= =========
</TABLE>
ACNB Corporation & Subsidiaries 44
NOTE S
EFFECT OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging purposes. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of condition and measure those instruments at fair
value. The accounting for changes in fair value of a derivative depends on the
intended use of the derivative and the resulting designation. If conditions are
met, a derivative may be specifically designated as a hedge of the exposure to
changes in fair value of a recognized asset or liability or unrecognized
commitment, a hedge of the exposure to variable cash flows of a forecasted
transaction, or a hedge of certain foreign currency exposures. SFAS No. 133
includes a provision for the potential reclassification of investments from
held-to-maturity to available-for-sale. This statement became effective for the
fiscal year beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued
deferring the effective date of SFAS No. 133 to all years beginning after June
15, 2000. Management anticipates that the adoption of this statement will not
have a material effect on operating results or financial condition.
NOTE T
BUSINESS COMBINATION
- --------------------------------------------------------------------------------
On March 1, 1999, the corporation issued approximately 530,000 shares of
ACNBCorporation common stock in exchange for approximately 234,000 shares of
Farmers National Bancorp, Inc. The transaction was accounted for as a pooling of
interests and, accordingly, the consolidated financial statements for the
periods presented have been restated to include the accounts of ACNBCorporation
and Farmers National Bancorp, Inc.
Net interest income and net earnings of the separate entities for the
periods preceding the acquisition were as follows:
EARNING DATAa
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Interest Net
In thousands (unaudited) Income Earnings
------------ ----------
Two months ended February 28, 1999:
<S> <C> <C>
ACNB Corporation_____________________________________ $ 3,359 $ 1,223
Farmers National Bancorp, Inc.______________________ 271 97
-------- --------
Combined____________________________________________ $ 3,630 $ 1,320
======== ========
Year ended December 31, 1998:
ACNB Corporation, as previously reported_____________ $20,390 $ 7,221
Farmers National Bancorp, Inc.______________________ 1,686 504
-------- --------
Combined____________________________________________ $22,076 $ 7,725
======== ========
Year ended December 31, 1997:
ACNB Corporation, as previously reported_____________ $20,151 $ 7,229
Farmers National Bancorp, Inc.______________________ 1,663 541
-------- --------
Combined____________________________________________ $21,814 $ 7,770
======== ========
</TABLE>
45 ACNB Corporation & Subsidiaries
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
Selected quarterly information for the years ended
December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
1999 In thousands, except per share data Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $9,451 $9,486 $9,597 $9,660
- --------------------------------------------------------------------------------------------------------------------
Interest expense 4,022 4,010 3,970 3,964
- --------------------------------------------------------------------------------------------------------------------
Net interest income 5,429 5,476 5,627 5,696
- --------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 90 90 50 23
- --------------------------------------------------------------------------------------------------------------------
Net income 1,904 1,909 1,945 2,065
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share .33 .33 .34 .35
- --------------------------------------------------------------------------------------------------------------------
Return on average assets 1.41% 1.38% 1.46% 1.49%
- --------------------------------------------------------------------------------------------------------------------
1998
- --------------------------------------------------------------------------------------------------------------------
Interest income $9,413 $9,625 $9,766 $9,728
- --------------------------------------------------------------------------------------------------------------------
Interest expense 3,976 4,097 4,156 4,227
- --------------------------------------------------------------------------------------------------------------------
Net interest income 5,437 5,528 5,610 5,501
- --------------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 90 90 90 90
- --------------------------------------------------------------------------------------------------------------------
Net income 1,907 2,064 2,001 1,753
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share .33 .35 .34 .31
- --------------------------------------------------------------------------------------------------------------------
Return on average assets 1.50% 1.58% 1.50% 1.29%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The following table sets forth financial data
for the last five years:
In thousands, except per share data .. 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income ................ $ 38,194 $ 38,532 $ 37,887 $ 36,573 $ 34,747
Total interest expense ............... 15,966 16,456 16,073 16,265 15,490
Net interest income .................. 22,228 22,076 21,814 20,308 19,257
Provision for possible loan losses ... 253 360 210 30 --
Net income ........................... 7,823 7,725 7,770 7,589 6,874
PER SHARE DATA
- -------------------------------------------------------------------------------------------------
Basic earnings ....................... $ 1.35 $ 1.33 $ 1.34 $ 1.29 $ 1.17
Cash dividends ....................... .85 .78 .73 1.56 .61
BALANCE SHEET TOTALS
- -------------------------------------------------------------------------------------------------
Average stockholders' equity ......... $ 60,742 $ 60,568 $ 56,600 $ 53,022 $ 54,851
Average assets ....................... 550,460 527,510 508,568 505,340 496,409
RATIOS
- -------------------------------------------------------------------------------------------------
Return on average assets ............. 1.42% 1.46% 1.53% 1.50% 1.38%
Return on average stockholders'
equity ............................. 12.88% 12.75% 13.78% 14.31% 12.53%
Dividend payout ...................... 63% 58% 55% 120% 53%
Stockholders' equity to assets ....... 10.96% 11.23% 11.31% 10.62% 11.30%
</TABLE>
ACNB CORPORATION & SUBSIDIARIES 46
<PAGE>
FORM 10-K CROSS-REFERENCE INDEX
Portions of this Annual Report are not required by Form 10-K, and are not
filed with the Securities and Exchange Commission as part of the corporation's
Report on Form 10-K for the year ended December 31, 1999. Only the sections
referenced in the index below are incorporated into this Form 10-K.
<TABLE>
<CAPTION>
PART I PAGE(S)
-------
<S> <C>
Item 1 - Business ...................................................................... 49
Item 2 - Properties ................................................................... 49
Item 3 - Legal Proceedings ............................................................. 50
Item 4 - Submission of Matters to a Vote of Stockholders ............................... 50
PART II
Item 5 - Market for the Registrant's Common Stock
and Related Stockholder Matters .............................................. 53
Item 6 - Selected Financial Data ................................................. 15 & 46
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................... 16 - 25
a. Quantitative and Qualitative
Disclosures About Market Risk ....................................... 20 & 21
Item 8 - Financial Statements and Supplementary Data ............................. 26 - 45
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ....................................... 50
PART III
Item 10 - Directors and Executive Officers of the Registrant .......................... 50
Item 11 - Executive Compensation(1)
Item 12 - Security Ownership of Certain Beneficial Owners and Management(1)
Item 13 - Certain Relationships and Related Transactions(1)
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. Financial Statements and Financial Statement Schedules(2)
b. Exhibits ................................................................. 51
c. Reports on Form 8-K(3)
Item 15 - Signatures .................................................................. 52
</TABLE>
(1) The information required by Item 11, Item 12 and Item 13 is incorporated
herein by reference to the corporation's definitive Proxy Statement to be
filed with the Commission not later than 120 days after the close of the
year ended December 31, 1999, under the headings "Executive Compensation"
and "Compensation of Directors".
(2) Financial statement schedules have been omitted because either they are
not applicable or the required information is included in the financial
statements or the notes thereto.
(3) No reports on Form 8-K were filed during the quarter ended December 31,
1999.
47 ACNB CORPORATION & SUBSIDIARIES
<PAGE>
FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999.
Commission file no. 0-11783.
ACNB CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 23-2233457
- --------------------------------------- ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
675 Old Harrisburg Road
Gettysburg, PA 17325
- --------------------------------------- ------------------------------------
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
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, 2000, ACNB Corporation had outstanding 5,705,530 shares
of Common Stock. The aggregate market value of such Common Stock held by
nonaffiliates as of February 29, 2000, was approximately $98,449,544. 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 Proxy Statement for the Annual Meeting of Shareholders to
be held May 2, 2000, are incorporated by reference into Part III.
ACNB CORPORATION & SUBSIDIARIES 48
<PAGE>
FORM 10-K
PART I
ITEM 1. BUSINESS
The Registrant owns all of the outstanding shares of Adams County National
Bank and Farmers National Bank of Newville (hereinafter the "Banks"). The
Registrant, organized in 1983 and headquartered in Gettysburg, Pennsylvania,
presently has no significant operations other than serving as a bank holding
company.
On March 31, 1999, ACNB Corporation acquired Farmers National Bancorp,
Inc., a single-bank holding company located in Newville, Cumberland County,
Pennsylvania, with assets of $44 million. The sole and wholly-owned subsidiary
of Farmers National Bancorp, Inc. was Farmers National Bank of Newville. The
rate of exchange was 2.266 shares of ACNBCorporation for every share of Farmers
National Bancorp, Inc. The town of Newville had a 1996 population of 1,354, but
the surrounding townships of North Newton, with a population of 1,939, and West
Pennsboro, with a population of 5,343, have shown marked growth over the last
several decades. Cumberland County had a 1996 population of 207,042. The
Newville area is mainly agricultural. The Banks engage in a full-service
commercial and consumer banking and trust business. Adams County National Bank
provides financial services to its customers through its community banking
network of thirteen full-service offices located throughout Adams County,
Pennsylvania, and in Hanover, York County, Pennsylvania. Farmers National Bank
of Newville serves its marketplace via three banking offices in the Newville,
Cumberland County, Pennsylvania area.
The Banks' services include accepting demand, savings and time deposits
including NOW, SuperNOW, money market, passbook savings, a diversified array of
certificates of deposit, IRAs, and club accounts. The services also include
making secured and unsecured commercial and consumer loans; financing commercial
transactions; making construction and mortgage loans; making residential
mortgage loans and home equity lines of credit; making small business loans;
making student loans; and, the renting of safe deposit box facilities. Further,
the Banks' business loans include seasonal credit, collateral loans and term
loans.
Trust services provided by Adams County National 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 and registrar of bond issues and escrow agent.
The Banks have 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 1999 Annual Report. The Banks have not experienced any significant
seasonal fluctuations in the amount of its deposits.
As of December 31, 1999, the Registrant had a total of 174 full-time and 73
part-time employees.
SUPERVISION AND REGULATION
The Registrant and the Banks 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 the 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 Banks' business are highly competitive. The Banks' market
area is the primary trading area of Adams County, Pennsylvania; a western
portion of York County, Pennsylvania; central Cumberland County, Pennsylvania,
and, the northernmost portions of those counties in Maryland which are
immediately adjacent to the southern border of Adams County. The market
concentration is in the area of Gettysburg, Pennsylvania. The Banks compete with
local commercial banks, other commercial banks with branches in the Banks'
market area, savings associations, and other financial service providers. The
Banks consider their major competition to be PNC Bank, Allfirst, Bank of Hanover
and Trust Co, Peoples State Bank of East Berlin, Keystone Financial, F & M
Trust, and Orrstown Bank.
GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS
The earnings and growth of the Banks are affected by the policies of the
regulatory authorities including the Office of 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 Banks' deposits, loans and investment growth,
as well as the rate of interest earned and paid. The impact of such policies and
regulations upon the future business and earnings of the Banks cannot be
accurately predicted.
ITEM 2. PROPERTIES
ACNB Corporation owns two offices in Gettysburg, PA. The office at 675 Old
Harrisburg Road is the main office and administrative headquarters. The
Corporation also owns nine offices and leases one, which are spread throughout
and serve Adams County. In addition, the Corporation owns one office in western
York County and three in central Cumberland County. All three counties are
located in south central Pennsylvania.
49 ACNB CORPORATION & SUBSIDIARIES
<PAGE>
FORM 10-K
ITEM 3. LEGAL PROCEEDINGS
In the opinion of the management of the Corporation, there are no
proceedings pending to which the Corporation and the Banks are a party or to
which its property is subject, which, if determined adversely to the Corporation
and the Banks, would be material in relation to the Corporation's and Banks'
financial condition. There are no proceedings pending other than ordinary
routine litigation incident to the business of the Corporation and the Banks. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against the Corporation and the Banks by government authorities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by this Item, regarding market value, dividend
payment, and number of shareholders, is set forth on page 53 of the Registrant's
1999 Annual Report and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth on pages 15 and 46 of
the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by this Item is set forth on pages 16 through 25
of the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth on pages 20 and 21 of
the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth on pages 26 through 45
of the Registrant's 1999 Annual Report and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, relating to directors, executive
officers, and control persons, is set forth in sections "Principal Beneficial
Owners of the Corporation's Stock", "Information as to Nominees, Directors and
Executive Officers" and "Principal Officers of the Corporation" of the
Registrant's definitive Proxy Statement to be used in connection with the 2000
Annual Meeting of Shareholders, which pages are incorporated herein by
reference.
Section 16(a) Beneficial Ownership Compliance. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires the Registrant's officers
and directors, and persons who own more than 10 percent of a registered class of
the Registrant's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission, or SEC. Officers,
directors and greater than 10 percent shareholders are required by SEC
regulation to furnish the Registrant with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Registrant believes that during the period of
January 1, 1999, through December 31, 1999, its officers and directors were in
compliance with all filing requirements applicable to them.
ACNB CORPORATION & SUBSIDIARIES 50
<PAGE>
PART IV
ITEM 14b. EXHIBITS
EXHIBIT 3(i) Articles of Incorporation of ACNB Corporation, as amended.
EXHIBIT 3(ii) Bylaws of Registrant
A copy of the Bylaws, as amended, of ACNB Corporation is incorporated by
reference to Exhibit 3(ii) of the Registrant's Current Report on Form 8-K, filed
with the Commission on March 25, 1998.
EXHIBIT 10.1 Executive Employment Agreement Dated as of January 1, 1998,
between Adams County National Bank, ACNB Corporation and
Ronald L. Hankey
A copy of the Executive Employment Agreement dated as of January 1, 1998,
between Adams County National Bank, ACNB Corporation and Ronald L. Hankey is
incorporated by reference to Exhibit 99 of the Registrant's Current Report on
Form 8-K, filed with the Commission on March 25, 1998.
EXHIBIT 11 Statement Regarding the Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Fiscal Year
ended December 31
-------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding ................. 5,782,930 5,815,246 5,817,273
Common stock
Common Stock equivalents
Stock options ..................................... -- -- --
Stock awards ...................................... -- -- --
ESOP shares ....................................... -- -- --
---------- ---------- ----------
Total common stock equivalents ...................... -- -- --
---------- ---------- ----------
Total Weighted Average Shares Outstanding ........... 5,782,930 5,815,246 5,817,273
========== ========== ==========
Net Income .......................................... $7,823,000 $7,725,000 $7,770,000
Net Income Per Share ................................ $1.35 $1.33 $1.34
</TABLE>
EXHIBIT 12 Statements Regarding the Computation of Ratios
The information required by this Exhibit is set forth on page 46 of the
Registrant's 1999 Annual Report and incorporated herein by reference.
EXHIBIT 21 Subsidiaries of the Registrant
The Registrant has two banking subsidiaries, Adams County National Bank and
Farmers National Bank of Newville, both national banks, which are wholly-owned
by the Registrant.
EXHIBIT 27 Financial Data Schedule
51 ACNB CORPORATION & SUBSIDIARIES
<PAGE>
FORM 10-K
ITEM 15. 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) March 21, 2000
----------------------
Date
BY: /s/ Ronald L. Hankey BY: /s/ John W. Krichten
- ---------------------------------- ----------------------------
Ronald L. Hankey John W. Krichten
Chairman, Secretary & Treasurer
President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 21, 2000, by the following persons in the
capacities indicated.
/s/ Philip P. Asper /s/ William B. Lower
- ---------------------------------- ----------------------------
Philip P. Asper William B. Lower
Director Director
/s/ Guy F. Donaldson /s/ Paul G. Pitzer
- ---------------------------------- ----------------------------
Guy F. Donaldson Paul G. Pitzer
Director Director
/s/ Richard L. Galusha /s/ Ralph S. Sandoe
- ---------------------------------- ----------------------------
Richard L. Galusha Ralph S. Sandoe
Director Director
/s/ D. Richard Guise /s/ Marian B. Schultz
- ---------------------------------- ----------------------------
D. Richard Guise Marian B. Schultz
Director & Vice Chairman of the Director
Board
/s/ Ronald L. Hankey /s/ L. Robert Snyder
- ---------------------------------- ----------------------------
Ronald L. Hankey L. Robert Snyder
Director, Chairman, President & CEO Director
/s/ Edgar S. Heberlig /s/ Jennifer L. Weaver
- ---------------------------------- ----------------------------
Edgar S. Heberlig Jennifer L. Weaver
Director Director
/s/ Philip M. Jones /s/ Harry L. Wheeler
- ---------------------------------- ----------------------------
Philip M. Jones Harry L. Wheeler
Director Director
/s/ Wayne E. Lau
- ----------------------------------
Director
ACNB CORPORATION SUBSIDIARIES 52
<PAGE>
COMMON STOCK MARKET PRICES AND DIVIDENDS
The common stock of ACNB Corporation is traded in the over-the-counter
market. As of December 31, 1999, the approximate number of shareholders of the
corporation's common stock was 3,120. As quoted on the OTC Bulletin Board, high
and low bid prices of common shares and dividends for the last two years were:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ---------------------------------
Bid Price Cash Bid Price Cash
Quarter --------------------- Dividend ------------------- Dividend
Ended High Low Paid High Low Paid
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $23.50 $21.00 $.20 $25.63 $23.38 $.19
June 30 21.00 18.25 .20 27.50 25.63 .19
September 30 18.75 16.25 .20 27.75 24.50 .20
December 31 18.00 16.63 .25 24.50 22.00 .25
</TABLE>
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 L
of the Notes to Consolidated Financial Statements.
The following firms make a market in ACNB Corporation common stock:
Ferris, Baker Watts, Incorporated F.J. Morrissey & Co., Inc.
Frederick, MD Philadelphia, PA
(301)662-6488/(800)950-6488 (215)563-8500/(800)842-8928
Hopper Soliday & Co., Inc. Salomon Smith Barney Inc.
Lancaster, PA Gettysburg, PA
(717)519-6060/(800)456-9234 (717)334-9101/(800)344-3828
Janney Montgomery Scott, Inc.
York, PA
(717)845-5611/(800)999-0503
53 ACNB CORPORATION & SUBSIDIARIES
<PAGE>
BOARD OF DIRECTORS
<TABLE>
ACNB CORPORATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PHILIP P. ASPER EDGAR S. HEBERLIG RALPH S. SANDOE
Building Contractor Retired Fruit Broker
PHILIP M. JONES MARIAN B. SCHULTZ
GUY F. DONALDSON CEO Interim Dean
Fruit Grower Times & News Special Academic Programs
Publishing Company Shippensburg University
RICHARD L. GALUSHA WAYNE E. LAU L. ROBERT SNYDER
Retired Sales Representative Chairman of the Board
Destinations: A Travel Company Littlestown Hardware &
D. RICHARD GUISE Foundry Co., Inc.
President WILLIAM B. LOWER
Adams County Motors Corp. President JENNIFER L. WEAVER
Vice Chairman Boyer Nurseries & Orchards, Inc. Director
ACNB Corporation & Gettysburg Campus
Adams County National Bank PAUL G. PITZER Harrisburg Area Community College
Fruit Grower
RONALD L. HANKEY HARRY L. WHEELER
Chairman, President & CEO Proprietor
ACNB Corporation & Wheeler Drywall
Adams County National Bank
ADAMS COUNTY NATIONAL BANK
- ----------------------------------------------------------------------------------------------------------
PHILIP P. ASPER PHILIP M. JONES RALPH S. SANDOE
GUY F. DONALDSON WAYNE E. LAU MARIAN B. SCHULTZ
RICHARD L. GALUSHA WILLIAM B. LOWER L. ROBERT SNYDER
D. RICHARD GUISE PAUL G. PITZER JENNIFER L. WEAVER
RONALD L. HANKEY
FARMERS NATIONAL BANK OF NEWVILLE
- ----------------------------------------------------------------------------------------------------------
DANA P. BRANDT EDGAR S. HEBERLIG W. IRVIN NELSON
J. THOMAS DERICK CAROLYN H. KOUGH FRANK A. REEDER
FRANK C. EGGER MERVIN J. MORRISON HARRY L. WHEELER
RONALD L. HANKEY
</TABLE>
<TABLE>
ADAMS COUNTY NATIONAL BANK HONORARY DIRECTOR
DIRECTORS EMERITI
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
C. F. DITZLER FRANK ELSNER, JR. CHARLES E. RITTER
ADAMS COUNTY NATIONAL BANK HONORARY DIRECTOR
- ----------------------------------------------------------------------------------------------------------
DALE G. CRUM
ACNB CORPORATION & SUBSIDIARIES 54
</TABLE>
<PAGE>
OFFICERS
<TABLE>
ACNB CORPORATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
RONALD L. HANKEY JOHN W. KRICHTEN
Chairman, Secretary & Treasurer
President & Ceo
LYNDA L. GLASS
Assistant Secretary
THOMAS A. RITTER
Executive Vice President
ADAMS COUNTY NATIONAL BANK
- ----------------------------------------------------------------------------------------------------------
RONALD L. HANKEY GARY R. BENNETT JOHN W. KRICHTEN
Chairman, Senior Vice President & Senior Vice President, Cashier &
President & CEO Senior Trust Officer Chief Financial Officer
THOMAS A. RITTER LYNDA L. GLASS NANCY L. REICHART
Executive Vice President Senior Vice President & Senior Vice President &
Chief Operating Officer Trust Officer
ELIZABETH H. BEALL
Senior Vice President JOHN M. KIEHL CARL L. RICKER
Human Resources Senior Vice President Senior Vice President &
Operations & Security Chief Lending Officer
ASSISTANT
VICE PRESIDENTS VICE PRESIDENTS ASSISTANT CASHIERS
- ------------------------------ ---------------------------------- -------------------------------------
ROBERT L. BREWER DEBRA B. BRENNAN BEVERLY S. KRESS
KIRK B. COWDEN SANDRA A. DEANER DIANA K. KUNTZ
WAYNE G. CRUM STEVEN E. EBERSOLE LINDA L. LEER
DAVID W. DEANER GEORGE R. GUISE
ROBERT A. HAHN NANCY E. HELWIG
L. JOHN HICKS DOROTHY K. PUHL
RONALD L. HOFFMAN M. PATRICIA SHARP
CHARLES D. MARTIER, JR. SHELBY L. STONE
WAYNEA. STEINOUR
WILLIAM H. YOHE, JR.
FARMERS NATIONAL BANK OF NEWVILLE
- ----------------------------------------------------------------------------------------------------------
MERVIN J. MORRISON JAMES E. SHOWVAKER
President Cashier
CAROLYN H. KOUGH DOUGLAS R. LINDSAY
Executive Vice President Assistant Cashier
</TABLE>
55 ACNB CORPORATION & SUBSIDIARIES
<PAGE>
OFFICE LOCATIONS
<TABLE>
<S> <C> <C>
ADAMS COUNTY NATIONAL BANK
- ----------------------------------------------------------------------------------------------------------
ARENDTSVILLE EAST BERLIN McSHERRYSTOWN
101 Main Street 1677 Abbottstown Pike 369 Main Street
Arendtsville, PA 17303 East Berlin, PA 17316 McSherrystown, PA 17344
BENDERSVILLE FRANKLIN TOWNSHIP NORTH GETTYSBURG
101 North Main Street 10 High Street 675 Old Harrisburg Road
Bendersville, PA 17306 Cashtown, PA 17310 Gettysburg, PA 17325
BIGLERVILLE HANOVER WEST LITTLESTOWN
3459 Biglerville Road 1127 Eichelberger Street 444 West King Street
Biglerville, PA 17307 Hanover, PA 17331 Littlestown, PA 17340
CARROLL VALLEY LINCOLN SQUARE YORK SPRINGS
104 Sanders Road 2 Chambersburg Street 202 Main Street
Carroll Valley, PA 17320 Gettysburg, PA 17325 York Springs, PA 17372
LITTLESTOWN
17 South Queen Street
Littlestown, PA 17340
</TABLE>
<TABLE>
<S> <C>
ADAMS COUNTY NATIONAL BANK ADAMS COUNTY NATIONAL BANK
INTERNET BANKING TELEPHONE BANKING
www.acnb.com Banking Convenience is Just a Phone Call Away!
Toll-Free: 1-888-338-ACNB (2262) Local: 338-ACNB (2262)
</TABLE>
FARMERS NATIONAL BANK OF NEWVILLE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
MAIN OFFICE DRIVE-UP BIG SPRING
1 West Big Spring Avenue 2 East Big Spring Avenue 36 Carlisle Road
Newville, PA 17241 Newville, PA 17241 Newville, PA 17241
</TABLE>
ACNB CORPORATION & SUBSIDIARIES 56
<PAGE>
ANNUAL MEETING
The Annual Meeting of Shareholders for ACNB Corporation will be held on
Tuesday, May 2, 2000, at 1:00 p.m. at the Main Office of Adams County National
Bank, 675 Old Harrisburg Road, Gettysburg, PA.
FORM 10-K
A copy of ACNB Corporation's Form 10-K, as filed with the Securities and
Exchange Commission, may be obtained, without charge, by writing to:
Ronald L. Hankey
President
ACNB Corporation
P. O. Box 3129
Gettysburg, PA 17325
The Annual Report and other Corporation reports are also filed
electronically through the Electronic Data Gathering, Analysis, and Retrieval
System ("EDGAR"), which performs automated collection, validation, indexing,
acceptance, and forwarding of submissions to the Securities and Exchange
Commission, or SEC, and is accessible by the public using the Internet at
http://www.sec.gov./edgarhp.htm.
TRANSFER AGENT, REGISTRAR
AND DIVIDEND DISBURSING AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
For stockholder inquiries, call toll-free (800)368-5948.
57 ACNB CRPORATION & SUBSIDIARIES
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