FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For quarter ended June 30, 1994 Commission file no. 0-11783
------------------
ACNB CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2233457
(state or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
675 OLD HARRISBURG ROAD, GETTYSBURG, PA 17325
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 717-334-3161
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes--X No--.
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1994
Common Stock ($5.00 par value) 2,673,918
ACNB CORPORATION
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets
June 30, 1994 and December 31, 1993 and
June 30, 1993 3
Consolidated Condensed Statements of Income
Six Months Ended June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Condensed Financial
Statements 6-7
Management's Discussion and Analysis of the
Financial Condition and Results of Operations 8-10
Part II.Other Information 11
PART I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
June 30 December 31 June 30
1994 1993 1993
(000 omitted)
ASSETS
Cash and Due from Banks 12,983 15,970 10,626
Investment Securities
U.S. Treasury 98,011 118,982 101,294
U.S. Government Agencies and
Corporations 46,001 23,787 17,098
State and Municipal 2,635 1,296 1,347
Other Investments 2,728 3,737 5,351
-------- -------- --------
Total Investment Securities 149,375 147,802 125,090
Federal Funds Sold 15,100 17,060 23,150
Loans 284,893 283,298 288,903
Less: Reserve for Loan Losses (3,397) (3,581) (3,533)
-------- -------- --------
Net Loans 281,496 279,717 285,370
Premises and Equipment 5,828 5,384 4,603
Other Real Estate 565 850 843
Other Assets 4,721 4,632 4,691
-------- -------- --------
TOTAL ASSETS $470,068 $471,415 $454,373
======== ======== ========
LIABILITIES
Deposits
Noninterest Bearing 37,415 37,042 31,859
Interest Bearing 374,987 375,644 371,284
-------- -------- --------
Total Deposits 412,402 412,686 403,143
Securities Sold Under Agreement
To Repurchase 7,919 10,802 4,823
Demand Notes U.S. Treasury 450 450 450
Other Liabilities 1,582 1,615 1,819
-------- -------- --------
TOTAL LIABILITIES 422,353 425,553 410,235
SHAREHOLDERS EQUITY
Common Stock ($5 par value)
10,000,000 shares authorized:
2,673,918 shares issued and
outstanding at 6/30/94 13,370 13,370 13,370
Surplus 5,002 5,002 5,002
Retained Earnings 29,343 27,490 25,766
-------- -------- --------
TOTAL SHAREHOLDERS EQUITY 47,715 45,862 44,138
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $470,068 $471,415 $454,373
======== ======== ========
See accompanying notes to financial statements.
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months End Six Months Ended
June 30 June 30
1994 1993 1994 1993
(000 omitted) (000 omitted)
INTEREST INCOME
Loan Interest and Fees 5,631 6,360 11,300 12,666
Interest and Dividends on
Investment Securities 1,849 1,625 3,604 3,328
Interest on Federal Funds Sold 112 135 258 256
Interest on Balances with
Depository Institutions 36 45 74 93
----- ----- ------ ------
TOTAL INTEREST INCOME 7,628 8,165 15,236 16,343
INTEREST EXPENSE
Deposits 2,959 3,458 6,029 7,010
Other Borrowed Funds 69 45 146 79
----- ----- ----- ------
TOTAL INTEREST EXPENSE 3,028 3,503 6,175 7,089
NET INTEREST INCOME 4,600 4,662 9,061 9,254
Provision for Loan Losses 0 105 0 210
NET INTEREST INCOME AFTER PROVISION ----- ----- ----- ------
FOR LOAN LOSSES 4,600 4,557 9,061 9,044
OTHER INCOME
Trust Department 74 51 139 95
Service Charges on Deposit Accounts 171 146 291 288
Other Operating Income 75 150 315 319
Securities Gains 0 0 0 93
----- ----- ----- ------
TOTAL OTHER INCOME 320 347 745 795
OTHER EXPENSES
Salaries and Employee Benefits 1,267 1,240 2,558 2,449
Premises and Fixed Assets 322 291 691 576
Other Expenses 770 731 1,519 1,456
----- ----- ----- ------
TOTAL OTHER EXPENSE 2,359 2,262 4,768 4,481
INCOME BEFORE INCOME TAX 2,561 2,642 5,038 5,358
Applicable Income Tax 852 894 1,634 1,807
----- ----- ----- ------
NET INCOME $1,709 $1,748 $3,404 $3,551
===== ===== ===== ======
EARNINGS PER SHARE* $0.64 $0.65 $1.27 $1.33
DIVIDENDS PER SHARE* 0.29 0.27 $0.58 0.54
*Based on 2,673,918 shares outstanding in 1994 and 1993.
See accompanying notes to financial statements.
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Six months ended
June 30
1994 1993
(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received 15,902 17,251
Fees and Commissions Received 954 1,061
Interest Paid (6,339) (7,255)
Cash Paid to Suppliers and Employees (4,445) (4,315)
Income Taxes Paid (1,565) (1,885)
Net Cash Provided by Operating Activities 4,507 4,857
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 33,032 32,605
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (35,610) (37,270)
Principal Collected on Loans 46,611 51,729
Loans Made to Customers (48,111) (52,662)
Capital Expenditures (658) (641)
Net Cash Used in Investing Activities (4,736) (6,239)
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 6,153 15,749
Proceeds from Sale of Certificates of Deposit 5,758 7,015
Payments for Maturing Certificates of Deposit (15,078) (21,525)
Dividends Paid (1,551) (1,444)
Net Cash Provided by Financing Activities (4,718) (205)
Net Increase in Cash and Cash Equivalents (4,947) (1,587)
Cash and Cash Equivalents: Beginning of Period 33,030 35,363
End of Period 28,083 33,776
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income 3,404 3,551
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 220 200
Provision for Possible Credit Losses 0 210
Provision for Deferred Taxes (67) 18
Amortization of Investment Securities Premiums 989 920
Increase (Decrease) in Taxes Payable 136 (96)
(Increase) Decrease in Interest Receivable (114) 254
Increase (Decrease) in Interest Payable (164) (166)
Increase (Decrease) in Accrued Expenses 196 101
(Increase) Decrease in Other Assets (87) (109)
Increase (Decrease) in Deferred Loan Production Costs (6) (26)
Net Cash Provided by Operating Activities 4,507 4,857
DISCLOSURE OF ACCOUNTING POLICY
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
ACNB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly ACNB Corporation's financial position as of June 30, 1994
and 1993 and December 31, 1993 and the results of its operations for
the six months ended June 30, 1994 and 1993 and changes in
financial position for the six months then ended. All such
adjustments are of a normal recurring nature.
The accounting policies followed by the company are set forth in Note
A to the company's financial statements in the 1993 ACNB Corporation
Annual Report and Form 10-K filed with the Securities and Exchange
Commission under file no. 0-11783.
2. The book and approximate market values of securities owned at
June 30, 1994 and December 31, 1993 were as follows:
6/30/94 12/31/93
Amortized Fair Amortized Fair
Cost Value Cost Value
(000 omitted)
U.S. Treasury 98,011 96,230 118,982 119,379
U.S. Government Agencies
and Corporations 46,001 45,101 23,787 23,821
State and Municipal 2,635 2,627 1,296 1,301
Other Investments 2,728 2,731 3,737 3,767
------- ------- ------- -------
TOTAL $149,375 $146,689 $147,802 $148,268
======= ======= ======= =======
Income earned on investment securities was as follows:
Six Months Ended June 30
1994 1993
(000 omitted)
U.S. Treasury 2,566 2,574
U.S. Government Agencies
and Corporations 917 490
State and Municipal 55 43
Other Investments 66 221
------ ------
$3,604 $3,328
====== ======
3. Gross loans are summarized as follows:
June 30 December 31
1994 1993
(000 omitted)
Real Estate 254,555 250,242
Real Estate Construction 4,701 4,791
Commercial and Industrial 12,340 14,100
Consumer 17,067 17,950
-------- --------
Gross Loans 288,663 287,083
Less: Unearned Discount 3,770 3,785
-------- --------
Total Loans $284,893 $283,298
======== ========
4. Earnings per share are based on the weighted average number of shares
of stock outstanding during each period. Weighted average shares
outstanding for the six month periods ended June 30, 1994 and 1993
were 2,673,918.
5. Dividends per share were $0.58 and $0.54 for the six month periods
ended June 30, 1994 and 1993 respectively. This represented a
45.7% payout of net income in 1994 and a 40.6% payout in 1993.
6. The results of operations for the six month periods ended June
30, 1994 and 1993 are not necessarily indicative of the results to be
expected for the full year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Corporation's net income for the first six months of 1994 was $3,404,000, a
decrease of 4.1% from $3,551,000 in 1993. Return on Average Total Assets was
1.44% for the first six months of 1994 compared with 1.58% for the same period
of 1993. Return on Average Shareholders Equity was 14.48% for the six months
ended June 30, 1994 compared with 16.37% for 1993.
The decline in 1994 earnings, compared to the same period in 1993, is due to
weaker net interest income, lack of securities gains, and increased other
expenses. Net interest income is down $193,000 for the first six months of 1994
compared to 1993, securities gains are down $93,000 from last year's total, and
other expenses (salaries and fixed assets) are up $287,000.
The Corporation is facing intensified competition in its search for residential
mortgages and has been unable to increase loan totals for the past several
years. This has taken its toll on net interest margin and that measure has
dropped 31 basis points compared to the first half of 1993. This, coupled with a
lack of securities gains and increased expenses, will continue to put pressure
on earnings throughout 1994.
Earnings per share was $1.27 in 1994 and $1.33 in 1993, while the dividend
increased from $.54 to $.58 in 1994.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Taxable equivalent)
Six months Ended
6/30/94 6/30/93
Rate Rate
Earning Assets 6.71% 7.59%
Interest Bearing Liabilities 3.18 3.82
Interest Rate Spread 3.53 3.77
Interest Expense as a % of earning assets 2.71 3.28
Net Yield on Earning Assets 4.00 4.31
Net Yield on Earning Assets is the difference, stated in percentages, between
the interest earned on loans and other investments and the interest paid on
deposits and other sources of funds. The rate on earning assets is adjusted to a
"taxable equivalent" basis to recognize the income tax savings on tax exempt
items such as interest on municipal securities. The Net Yield on Earnings Assets
is one of the best analytical tools available to demonstrate the effect of
interest rate changes on the Corporation's earning capacity.
The Net Yield on Earning Assets for the first six months of 1994 was down 31
basis points compared to the same period in 1993. This is a direct result of
lower loan demand and increased competition in the Corporation's home mortgage
market. Until loan volume recovers, and the bank can book higher yielding
assets, net yield on earning assets will remain under pressure.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In thousands) Six Months Ended
6/30/94 6/30/93
Balance at Beginning of Period 3,581 3,417
Provision Charged to Expense 0 210
Loans Charged Off 218 112
Recoveries 34 18
Balance at End of Period 3,397 3,533
Ratios:
Net Charge-offs to:
Net Income 5.41% 2.65%
Total Loans .06 .03
Reserve for Possible Loan Losses 5.42 2.66
Reserve for Possible Loan Losses to:
Total Loans 1.19 1.22
The Reserve for Possible Loan Losses at June 30, 1994 totaled $3,397,000 (1.19%
of Total Loans), a decrease of $136,000 from $3,533,000 (1.22% of Total Loans)
at the end of the first six months of 1993. Loans past due 90 days and still
accruing amounted to $1,798,000 and non-accrual loans totaled $1,014,000 as of
6/30/94. The ratio of non-performing assets plus other real estate owned to
total assets was .72% at 6/30/94. $454,000 of the bank's other real estate total
of $565,000 has been sold and represents interest paying loans but are carried
here for regulatory purposes. All other properties are carried at the lower of
market or book value and are not considered to represent significant threat of
loss to the bank.
Loans past due 90 days and still accruing were $2,614,000 at yearend 1993 while
non-accruals stood at $977,000. The bulk of the Corporation's real estate loans
are in owner occupied dwellings but it is hoped that internal loan review
procedures will be effective in recognizing and helping correct any real estate
lending problems that may occur due to current economic conditions. Interest not
accrued, due to an average of $1,008,000 in non-accrual loans, was approximately
$40,000 for the first six months of 1994.
CAPITAL MANAGEMENT
Total Shareholders' Equity amounted to $47,715,000 at 6/30/94 compared to
$44,138,000 at 6/30/93, an increase of $3,577,000 or 8.1% over that period. The
ratio of Total Shareholders' Equity to Total Assets was 9.71% at 6/30/93, 9.73%
at 12/31/93, and 10.15% at 6/30/94. The leverage ratio was 10.06% at 6/30/94
while the total risk-based capital ratio was 22.51% at year end 1993.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The Corporation's liquidity is adequate. Liquid assets (cash and due from banks,
federal funds sold, money market instruments, and investment securities maturing
within one year) equal 22.5% of total assets at 6/30/94. This mix of assets
would be readily available for funding any cash requirements.
As of 6/30/94 rate sensitive assets were 108% of rate sensitive liabilities at
one month, 96% at six months, and 121% at one year. Adjustable rate mortgages,
which have an annual interest rate cap of 2%, are considered rate sensitive. The
core deposit portion of passbook savings and NOW accounts are carried in the
over one year category while the rate sensitive amount is spread over the one
month and six month categories.
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(b) There were no reports on Form 8-K filed for the three month period
ended June 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACNB CORPORATION
August 2, 1994 ------------------------------
(date) Ronald L. Hankey
President
------------------------------
John W. Krichten
Secretary/Treasurer