ACNB Corporation & Subsidiary
----------

ACNB CORPORATION & SUBSIDIARY
1994 ANNUAL REPORT

FINANCIAL HIGHLIGHTS

FOR THE YEAR 1994 1993 1992
---------------------------------------------------------------------------------------

Net interest income $18,220,000 $18,228,000 $17,798,000
---------------------------------------------------------------------------------------
Net income* 6,773,000 6,933,000 7,038,000
---------------------------------------------------------------------------------------
Cash dividends 3,417,000 3,101,000 2,861,000
---------------------------------------------------------------------------------------

PER SHARE STATISTICS**
---------------------------------------------------------------------------------------
Net income* $1.27 $1.30 $1.32
---------------------------------------------------------------------------------------
Cash dividends .64 .58 .54
---------------------------------------------------------------------------------------
Book value (year-end) 9.15 8.58 7.86
---------------------------------------------------------------------------------------

AT YEAR-END
---------------------------------------------------------------------------------------
Total assets $472,032,000 $471,415,000 $451,154,000
---------------------------------------------------------------------------------------
Total loans 305,922,000 283,298,000 287,823,000
---------------------------------------------------------------------------------------
Total deposits 388,798,000 412,686,000 402,376,000
---------------------------------------------------------------------------------------
Total stockholders' equity 48,647,000 45,862,000 42,030,000
---------------------------------------------------------------------------------------

KEY RATIOS
---------------------------------------------------------------------------------------
Return on average stockholders' equity 14.15% 15.61% 17.63%
---------------------------------------------------------------------------------------
Return on average assets 1.43% 1.51% 1.59%
---------------------------------------------------------------------------------------
Dividend payout 50% 45% 41%
---------------------------------------------------------------------------------------
Stockholders' equity to assets 10.31% 9.73% 9.32%
---------------------------------------------------------------------------------------

*1992 includes $446,000, or $.09 per share, related to the cumulative effect
of the change in accounting for income taxes.

See Notes to Consolidated Financial Statements.

**Data restated to reflect two-for-one stock split in the form of a 100%
stock dividend issued in 1994.

BUSINESS PROFILE

ACNB Corporation is a single-bank holding company with Adams County
National Bank as its sole and wholly-owned subsidiary. Adams County National
Bank, a full-service community bank in existence since 1857, provides a wide
array of consumer, commercial and fiduciary banking services to the individuals,
businesses, public entities and community organizations in its trading area.
With assets of $472 million, it is the largest community bank headquartered in
Adams County.

ACNB Corporation and its subsidiary, Adams County National Bank, possess a
history abundant in the traditions of community banking. Indeed, the
organizational focus remains constant -- providing the basic banking services
essential to fulfilling the savings and borrowing needs of all community
members. Integral to this steadfast strategy is the reinvestment of customers'
deposits in loans to others in our local marketplace -- primarily via mortgage
loans. A business philosophy predicated upon traditional, customer-oriented
values is the common thread running through Adams County National Bank's
history -- and its future -- as a responsible, committed and sound community
banking organization.

Adams County National Bank's marketplace encompasses Adams County,
Pennsylvania, and its environs -- western York County, eastern Franklin County,
southern Cumberland County, and the northern sections of those counties in
Maryland that are adjacent to Adams County. Thirteen banking offices and 200
employees serve the customers in this marketplace. Each office and each person
is pivotal to ensuring the strength of Adams County National Bank's community
banking network.

1
16

REPORT TO STOCKHOLDERS

To recap 1994, only two words are necessary--change and progress. Change
repeatedly manifested itself throughout ACNB Corporation's sole and wholly-owned
subsidiary, Adams County National Bank, during the year. Progress, however, was
the end result of change.

From a technological perspective, change was indeed pervasive. The Bank
converted to new computer system hardware and software at the end of July 1994.
The check and item processing functions were upgraded as well. Technology is a
significant factor driving the success of a bank in today's operating
environment. It also requires a substantial commitment of monetary and human
resources. At ACNB Corporation and Adams County National Bank, this challenge
was met due to the dedication of many individuals--those who researched and
implemented the new system, those who trained and communicated the workings of
the system and, of course, those who were trained both at the point of customer
contact and in operational areas. The aim of technology is to increase
productivity; but, more importantly, it is the means by which the Bank can
better meet the financial needs of current and potential customers.

Change impacted the Bank's portfolio of products and services. In the second
quarter of 1994, a new Home Equity Line of Credit was introduced to the
marketplace. The interest rate for this open-end loan product, which is accessed
by check, is tied to Prime Rate. The product was designed to complement the
organization's desire to concentrate on variable-rate lending instruments in its
strategy for managing interest rate sensitivity. To date, the Home Equity Line
of Credit has been a contributing factor in the emergence of stronger loan
growth after declines in recent years.

Change was also evident in the arena of human resource management. From the
community banking office network to operational functions to the senior
management level, the organizational structure evolved in 1994 to better
position the Bank for the future in terms of customer service and profitability.
In illustration, peak-time tellers are now commonplace in many of the Bank's
offices for more efficient operations and enhanced levels of service during
those times of peak customer demand and activity.

Change will not cease at ACNB Corporation and Adams County National Bank. In
fact, two major projects are under way for the first quarter of 1995. First, the
Bank is planning the opening of its first in-store office location inside the
new Super Kmart/(R)/ Center at 400 Eisenhower Drive, Hanover, for late March.
Second, the Retail Mortgage Division is in its formative stages. This new
functional area will seek additional opportunities for the Bank to realize
profitability in the one-to-four family residential mortgage market. The
fundamental objective of both of these endeavors is to expand the product
delivery system through improved customer options and accessibility.

Change is not undertaken haphazardly; nor, simply for the sake of
experimentation. Our commitment in embracing change is to ensure progress for
the mutual benefit of those living in our service community, our internal staff
members, and our stockholders.

Amidst change internally, as well as in the financial services industry, ACNB
Corporation continued to profitably pursue its steadfast strategy as an
independent community bank. The year of 1994 ended with earnings of
$6,773,000 -- a decrease of $160,000, or 2%, over the comparative figure of
$6,933,000 for year-end 1993. The slight fall in earnings can be attributed to a
decline in net interest income and a rise in expenses relative to technology
enhancements and human resources. These expense items, however, are investments
in the continued strength of the organization.

As of year-end 1994, the Corporation's return on average assets and return on
average stockholders' equity were 1.43% and 14.15%, respectively. The
stockholders' equity to assets ratio advanced to 10.31%, as stockholders' equity
grew by 6% and the Corporation's capital base expanded.

A key goal of the Corporation is to maximize the investment value for its
stockholders. Again, in 1994, ACNB Corporation was able to accomplish this goal.
The annual cash dividend for the Corporation's stockholders was $1.28 per share
as of December 15, 1994, which included an extra dividend of $.10 per share in
the fourth quarter. Dividends for 1994 improved by 10% over those paid in 1993.

The Board of Directors also adopted an Amendment to the Corporation's Articles
of Incorporation on November 22, 1994. The Amendment changed the par value per
share of Common Stock from $5.00 per share to $2.50 per share and increased the
number of authorized shares of the Corporation's Common Stock from 10,000,000
shares to 20,000,000 shares, thereby effecting a two-for-one stock split of the
Corporation's Common Stock. The two-for-one Common Stock split and the increase
in the number of authorized shares of the Corporation's Common Stock are
significant in effectively planning for the long-term growth of the Corporation
and the Bank. These actions will afford the Corporation and the Bank more
financial flexibility, as well as will allow the organization to better serve
the communities in which it does business. The Corporation and the Bank will,
therefore, be more strategically positioned for the opportunities and challenges
that may arise in the future.

Sadly, in 1994, the Corporation lost two individuals who were integral to the
formation and development of Adams County National Bank and, then, ACNB
Corporation. At the time of their respective deaths, Wilbur A. Bankert and
Franklin R. Bigham were both members of the Board of Directors. These gentlemen
demonstrated a commitment and foresight unparalleled in the history of the Bank.

In looking forward, ACNB Corporation's vision is focused on its role as an
independent community banking organization. As always, your ongoing investment
in our future sustains this vision.

Sincerely,

Ronald L. Hankey
President

ACNB Corporation & Subsidiary
---------

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

ACNB Corporation reported net income of $6,773,000, or $1.27 per share, for
the year 1994. This produced a return on average assets of 1.43% and a return on
average stockholders' equity of 14.15%. The following is a discussion of those
results and the factors that helped cause them. All per share figures have been
restated to reflect the two-for-one common stock split in the form of a 100%
stock dividend dated December 31, 1994.

FINANCIAL CONDITION
--------------------------------------------------------------------------------
The Corporation continued to grow in 1994 with average assets increasing by
$15,494,000, or 3.4%, to $473,186,000 -- though total assets rose by only
$617,000 from December 31, 1993, to December 31, 1994. This percentage increase
was lower than the 3.6% growth in average assets experienced in 1993, and can be
attributed to the pressure on deposits as consumers searched elsewhere for
higher yields. Deposits and securities sold under agreement to repurchase that
were generated in the Corporation's local market area declined by $20,077,000,
or 4.7%, during 1994.

The Corporation's growth during 1994 exhibited contradictory
characteristics. Average loans, for example, showed positive growth of $560,000
in 1994 versus a decline of $4,285,000 in 1993, but total loans increased by
$22,624,000 from year-end 1993 to year-end 1994. Lending activity rose
significantly in the second half of 1994, after a continued decline during the
first four months of the year. The growth was evident in all loan categories,
including the Corporation's new open-end home equity lines of credit which were
introduced in the second quarter.

Average investment securities showed positive growth with 1994 totals being
16.3% higher than 1993 totals -- which were 21.7% higher than 1992. However, the
Corporation's management is committed to lending in its local service area and,
thus, reversed this trend as total investments fell by $2,897,000, or 2.0%,
during 1994. The Corporation continues to follow a policy of acquiring debt
securities with the intention that they remain in the portfolio until maturity.

Short-term investments, which include federal funds sold and securities
maturing within 90 days, declined by $15,915,000, or 40.7%, during 1994. The
Corporation owns $20,034,000 in investments that could be converted for
liquidity purposes, without compromising its hold-to-maturity portfolio
designation. The federal funds component of this category was the cause of most
of the decrease. Any additional liquidity needs caused by this shift could be
met by the U.S. Treasury portfolio, which is structured to meet the
Corporation's requirements.

Average balances for premises and equipment were up 13.8% in 1993, due to
the relocation of the Bank's East Berlin Office and the expansion of the main
office in Gettysburg. These balances rose again in 1994, by 21.0%, due to the
purchase of a new computer system and accompanying software. Other real estate
increased 22.0% to $1,037,000 during 1994.

As indicated above, deposits and securities sold under agreement to
repurchase declined 4.7% during 1994. This was caused by slack loan demand,
which hampered the Corporation's ability to compete effectively for consumer
deposits. To counter this trend, the Corporation raised interest rates
substantially and joined the Federal Home Loan Bank of Pittsburgh during the
fourth quarter of 1994. Federal Home Loan Bank borrowings were $14,613,000 at
year-end 1994.

Lower interest rates in 1993 not only slowed deposit growth, but also
caused a dramatic change in the mix. Time deposits declined, while interest
bearing demand deposits and savings grew significantly as consumers waited for
an upward trend in rates. Average interest bearing demand deposits grew 9.2% in
1993. Average savings deposits, which include passbook savings and money market
accounts, were up 24.8% in that same year. Average time deposits were down 10.6%
in 1993, and demand deposits increased 10.0%. These averages continued their
upward trend for 1994 as a whole, but actually reversed direction during the
year as low cost deposits began to shift toward time deposits. This was
particularly evident in the monthly average savings category, which peaked at
$142,839,000 in May and then fell to $129,744,000 by December of 1994.

Stockholders' equity continued to be an important funding source in 1994.
Average stockholders' equity grew by $3,482,000, or 7.8%, in 1994 and
$4,481,000, or 11.2%, in 1993. This internal growth was achieved in conjunction
with regularly increased dividends, and depends on sustained strong earnings
performance.

ACNB Corporation & Subsidiary
---------

RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Corporate net earnings of $6,773,000 for 1994 were down 2.3% from last
year. This was a decrease of $160,000 from the $6,933,000 earned in 1993, and
was the result of declining net interest income due to several years of reduced
loan demand. Return on average assets and return on average stockholders' equity
declined compared to last year. Return on average assets was 1.43% in 1994,
1.51% in 1993, and 1.59% in 1992. Return on average stockholders' equity was
14.15% in 1994, 15.61% in 1993, and 17.63% in 1992. The declines from 1993 and
1992 are due to shrinking net interest margin, the cumulative effect of the
change in accounting for income taxes, and the Corporation's growing capital
base. These ratios are closely-watched indicators of performance in the banking
industry, and the Corporation's results are better than average.

Since the Corporation is in the business of borrowing and lending money,
net interest income is the major component of net income. The net yield on
earning assets continued under pressure for the second straight year. Net
interest income was down by $8,000 in 1994, compared to an increase of $430,000,
or 2.4%, in 1993. These results translated into a net yield on average earning
assets of 4.01%, 4.13% and 4.19% in 1994, 1993 and 1992, respectively. Lack of
significant loan demand in 1992, 1993 and through the first quarter of 1994
caused a marked shift to lower yielding government securities. This, in turn,
caused the interest rate spread to narrow, and is the primary factor
contributing to the earnings decline in 1994. Loan demand picked up
significantly in the second half of the year, but interest rates on deposits
also showed a sustained rise. This rise, along with what may be a major shift
from savings deposits to certificates of deposit, will continue to make
improvement in net interest income difficult to achieve.

Other operating income decreased 5.9% in 1994, compared to a 14.4% increase
in 1993. The major reasons for the increase in 1993 were improvements in service
charges on deposit accounts and securities gains. A survey of competitive
financial institutions in 1992 indicated that there was an opportunity for a
realignment of deposit service charges. The increase in 1993 was the result of
changes made due to the survey. The other significant item was securities gains.
The Corporation's policy is to hold debt securities until maturity, but these
gains resulted from equities held at the holding company level. The lack of
capital gains is the reason for the decline in other operating income for 1994.

Service charges on deposit accounts was up 77.9% in 1993 and 5.9% in 1994,
while trust income fell 10.0% and then rose 5.0% in those same years. Trust
services provided by the Corporation include estate planning services, executor
and trustee under wills and deeds, and registrar of stock and bond issues. The
trust department had total assets of $44,626,000 under management at year-end
1993 and $51,121,000 at year-end 1994. This was an increase of 14.6%. The trust
department is not a major earnings center for the Corporation because of the
large number of assets necessary to make such a department profitable.
Nevertheless, the Corporation is committed to providing this service to the
communities in which it operates.

Other operating expense increased 6.2% in 1993 and 5.1% in 1994. The
major factors driving the increase were salaries and employee benefits and
net occupancy and equipment expense. Salaries and employee benefits is the
largest single component of other operating expense, and it rose by $278,000,
or 5.9%, in 1993 and $178,000, or 3.6%, in 1994. Net occupancy and equipment
expense was up $74,000, or 6.5%, in 1993 and $146,000, or 12.0%, in 1994.
These increases were due to the expansion of the Bank's main office,
relocation of another community banking office, and a complete upgrading of
the Corporation's computer system. Another major expense, FDIC insurance, was
also up 2.3% in 1993 and 3.0% in 1994. If the Bank Insurance Fund reaches its
federally-mandated level and the Federal Deposit Insurance Corporation
reduces premiums, both of which are predicted to happen in the third quarter
of 1995, FDIC insurance expense may decline as much as $300,000 in the coming
year.

The provision for income taxes was $3,288,000 in 1994, compared to
$3,383,000 in 1993. The Corporation was subject to federal taxes at the 35%
marginal rate in 1994 and 1993 and 34% in 1992. The overall effective rates were
32.7% in 1994, 32.8% in 1993, and 31.9% in 1992. The major differences between
the statutory rates and the effective rates result from state and municipal loan
and security income, rehabilitation and low-income housing credits, and the
difference between the provision for loan losses and actual net losses.

In 1992, the Corporation adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. The cumulative effect of this
accounting change was $446,000, or $.09 per share, which was recognized in the
first quarter of 1992.

ACNB Corporation & Subsidiary
----------

LOAN REVIEW AND PROVISION AND
RESERVE FOR POSSIBLE LOAN LOSSES
--------------------------------------------------------------------------------
Total loans of $305,922,000 at year-end 1994 were 8.0% higher than year-end
1993. Loans were down 1.6% in 1993. In fact, 1994 reversed the trend of the
previous four years with a return to strong loan growth. This is attributable to
a stronger economy and the end of the mortgage rewrite phenomenon which occurred
during the early 1990s. The Corporation also responded with a new commercial
loan product and home equity line of credit. The commercial product may have a
fixed interest rate for a maximum of five years, while the interest rate on the
home equity line of credit is tied to the national prime rate. For
asset/liability management reasons, most of the Corporation's lending is done
with variable-rate instruments. Residential real estate loans, of which 98% have
variable rates adjusted annually, are a major part of the Corporation's loan
portfolio at $176,495,000. Adjustable-rate mortgages continue to play a
significant role in the management of the Corporation's interest rate
sensitivity position. They also are less likely to cause significant loan
portfolio weaknesses due to the nature of the borrower and the collateral. The
loans are tied to the Federal Housing Finance Board's Contract Rate for Major
Lenders, which is based on current mortgage rates.

The reserve for possible loan losses totaled $3,370,000 at December 31,
1994, a decrease of 5.9% from 1993. This followed an increase of 4.8% in 1993.
There were no additional provisions made to the reserve during 1994. The
adequacy of the reserve is determined by a consideration of management's
assessment of the quality of the loan portfolio, the trend of past due loans,
the type of collateral, the history of loan losses, and the state of the
economy. Net charge-offs increased $60,000 in 1994 to $211,000. As a percentage
of average total loans, they were 0.07% for all of 1994.

The reserve is not broken down by industry or type because management feels
that such allocation is not meaningful. Considering the Corporation's charge-off
history, the amount of nonaccrual loans, and the information provided by the
loan review function, management feels the present reserve is adequate. At
December 31, 1994, loans past due 90 days and still accruing amounted to
$2,219,000 and nonaccrual loans totaled $854,000. Interest lost due to
nonaccrual loans during 1994 was approximately $75,000.

Total nonperforming assets were down 14.4% from year-end 1993, and were
0.65% of total assets. Loan loss coverage of nonperforming assets was 110% at
year-end 1994, compared to 100% in 1993. The table below indicates the recent
history of the Corporation's nonperforming assets and charge-offs.

Other real estate owned went from five properties valued at $850,000 at
year-end 1993 to eight properties valued at $1,037,000 at year-end 1994. One of
the eight properties, a commercial building valued at $454,000, was actually
sold in December of 1992, but has not performed as expected and continues to be
considered as other real estate owned. Of the other seven properties, one was
sold in the first quarter of 1995 and another is under option to a nonprofit
agency for use as low-income housing.

Nonperforming Assets Analysis
-------------------------------------------------------------------------------------------------------
Year ended December 31
---------------------------------------------------------
1994 1993
-------------------------- ---------------------------
Nonperforming Net Nonperforming Net
In thousands Assets Charge-offs Assets Charge-offs
-------------------------- ---------------------------

Real estate loans (1-4 family dwellings)..... $2,080 $ 276 $1,633 $ 34
Real estate loans (other).................... 796 89 1,659 --
Commercial and industrial.................... 98 3 135 29
Consumer..................................... 99 43 164 88
------ ------ ------ ------
TOTAL $3,073 $ 211 $3,591 $ 151
====== ====== ====== ======

ACNB Corporation & Subsidiary
----------

Comparative Average Balance Sheet And Net Interest Analysis
-------------------------------------------------------------------------
December 31
--------------------------------
1994
--------------------------------
ASSETS In thousands Balance Interest Rate
-------------------------------------------------------------------------

Loans $289,350 $22,998 7.95%
Taxable investment securities 150,188 7,021 4.67%
Non-taxable investment securities 2,605 107 4.11%
Federal funds sold 10,766 401 3.72%
Interest bearing deposits with banks 1,457 112 7.69%
-------- -------
Total interest earning assets 454,366 $30,639 6.74%
Cash and due from banks 11,582
Premises and equipment 5,702
Other assets 4,984
Reserve for loan losses (3,448)
--------
TOTAL ASSETS $473,186
========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------
Interest bearing demand deposits $ 56,420 $ 1,383 2.45%
Savings deposits 137,910 3,824 2.77%
Time deposits 176,222 6,818 3.87%
Short-term borrowings 14,186 394 2.78%
-------- -------
Total interest bearing liabilities 384,738 $12,419 3.23%
-------------------------------------------------------------------------
INTEREST RATE SPREAD 3.51%
-------------------------------------------------------------------------
Demand deposits 38,772
Other liabilities 1,783
Stockholders' equity 47,893
--------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $473,186
========
-------------------------------------------------------------------------
INTEREST INCOME/EARNING ASSETS $454,366 $30,639 6.74%
INTEREST EXPENSE/EARNING ASSETS $454,366 $12,419 2.73%
NET YIELD ON EARNING ASSETS $18,220 4.01%
-------------------------------------------------------------------------

Loan fees of $442,000, $485,000 and $590,000 for 1994, 1993 and 1992,
respectively, are included for rate calculation purposes.

ACNB Corporation & Subsidiary
----------

--------------------------------------------------------------------------------------------------------------
December 31 December 31
-------------------------------- --------------------------------
1993 1992
-------------------------------- --------------------------------
ASSETS In thousands Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------------------------

Loans $288,790 $24,671 8.54% $293,075 $27,677 9.44%
Taxable investment securities 129,953 6,660 5.12% 106,260 6,622 6.23%
Non-taxable investment securities 1,394 81 5.81% 1,647 102 6.19%
Federal funds sold 18,258 558 3.06% 20,215 708 3.50%
Interest bearing deposits with banks 2,539 152 5.99% 3,785 271 7.16%
-------- ------- -------- -------
Total interest earning assets 440,934 $32,122 7.28% 424,982 $35,380 8.33%
Cash and due from banks 10,463 10,328
Premises and equipment 4,712 4,140
Other assets 5,121 5,538
Reserve for loan losses (3,538) (3,108)
-------- --------
TOTAL ASSETS $457,692 $441,880
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
Interest bearing demand deposits $ 50,563 $ 1,395 2.76% $ 46,302 $ 1,640 3.54%
Savings deposits 127,785 4,215 3.30% 102,406 4,124 4.03%
Time deposits 192,135 8,062 4.20% 215,032 11,670 5.43%
Short-term borrowings 6,812 222 3.26% 4,064 148 3.64%
-------- ------- -------- -------
Total interest bearing liabilities 377,295 $13,894 3.68% 367,804 $17,582 4.78%
--------------------------------------------------------------------------------------------------------------
INTEREST RATE SPREAD 3.60% 3.55%
--------------------------------------------------------------------------------------------------------------
Demand deposits 33,906 30,826
Other liabilities 2,080 3,320
Stockholders' equity 44,411 39,930
-------- --------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $457,692 $441,880
======== ========
--------------------------------------------------------------------------------------------------------------
INTEREST INCOME/EARNING ASSETS $440,934 $32,122 7.28% $424,982 $35,380 8.33%
INTEREST EXPENSE/EARNING ASSETS $440,934 $13,894 3.15% $424,982 $17,582 4.14%
NET YIELD ON EARNING ASSETS $18,228 4.13% $17,798 4.19%
--------------------------------------------------------------------------------------------------------------

ACNB Corporation & Subsidiary
----------

LIQUIDITY AND INTEREST RATE SENSITIVITY
--------------------------------------------------------------------------------
The maintenance of adequate liquidity is necessary for the Corporation to
meet its financial obligations to depositors, investors and loan customers. In
order to meet these demands for funds, liquidity must be actively managed
through the use of federal funds and short-term securities.

As of December 31, 1994, liquid assets -- consisting of cash, federal
funds, and investment securities maturing within one year -- totaled
$56,553,000. Of this amount, $33,053,000 is available without compromising the
Corporation's hold-to-maturity investment strategy. An additional $86,050,000 in
investment securities, predominantly U.S. Government, are scheduled to mature
throughout 1996 and 1997. All of these assets could be used to fund the
Corporation's obligations.

Core deposits, defined as those deposits drawn from a bank's local
community of businesses and consumers, comprised 100% of the Corporation's
deposits at year-end. The Corporation had $11,942,000 in time deposits in
denominations of $100,000 or more; however, these deposits were drawn from the
local community and do not represent purchased funds. Although core deposits are
generally more stable than purchased funds, the Corporation did experience
deposit runoff during 1994 as consumers searched for higher yields. In order to
manage this in an orderly fashion and to provide an additional source of
liquidity, the Corporation joined the Federal Home Loan Bank of Pittsburgh in
the fourth quarter of 1994.

Interest rate sensitivity must be managed as carefully as liquidity. As the
general level of interest rates change through the business cycle and control by
the Federal Reserve, the Corporation's net interest income can widen or narrow
as the average yield on assets changes more rapidly or more slowly than does the
average cost of funds. The table below illustrates the results of the steps
taken to minimize the effects of these changes.

The table indicates that $187,227,000 in liabilities and $199,371,000 in
assets will be eligible for repricing within six months. By the end of twelve
months, liabilities of $251,601,000 and assets of $300,251,000 will be eligible.
NOW accounts, savings and demand deposits are interest rate sensitive to a
different degree than other assets and liabilities. Historical data has shown
some of these funds are longer term funds parked in these accounts until
interest rates rise, and that interest rates paid on the funds remaining do not
change as often or as much as other rates. The amounts of these funds estimated
to be affected by interest rates have been placed in the appropriate categories
across the repricing spectrum.

Interest rates rose steadily throughout 1994. Interest expense on deposits
began to rise while loan demand was still soft and the net interest margin
continued to decline through the first half of the year. The yield on average
interest earning assets fell 0.54% from 1993 to 1994, while the cost of average
interest bearing liabilities fell only 0.45%. This produced a net yield on
earning assets 0.12% lower than in 1993. There were four factors that affected
net yield on earning assets in 1994: improved loan demand, movement from lower
yielding assets to higher yielding assets, movement of lower cost deposits to
higher cost liabilities, and significantly higher deposit rates. These same four
factors will influence the Corporation in 1995. The Corporation is in position
to take advantage of a greater loan volume, higher rate situation. The speed of
the deposit shift to higher rates will be one of the major determining factors
in the financial results for 1995. Management continues to feel that an
adjustable-rate loan portfolio is one of the Corporation's main strengths, and
the ratio of adjustable-rate loans to total loans at year-end was approximately
86%. Approximately $22,000,000 of these loans have a five-year fixed rate before
they convert to the Corporation's prime rate.

Interest Rate Sensitivity Gap at December 31, 1994
----------------------------------------------------------------------------------------------------------------------------
Repricing Period
-------------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
In thousands days days days days years years
-------------------------------------------------------------------------

Interest earning assets $ 90,416 $ 40,315 $ 68,640 $100,880 $149,553 $ 1,170
Funds supporting interest earning assets 96,859 37,341 53,027 64,374 80,766 49,655
----------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ (6,443) $ 2,974 $ 15,613 $ 36,506 $ 68,787 $(48,485)
----------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ (6,443) $ (3,469) $ 12,144 $ 48,650 $117,437 $ 68,952
----------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage of total assets (1.4%) (0.7%) 2.6% 10.3% 24.9% 14.6%
----------------------------------------------------------------------------------------------------------------------------

ACNB Corporation & Subsidiary
--------

CAPITAL MANAGEMENT
--------------------------------------------------------------------------------
As of December 31, 1992, banking organizations are required to have capital
equivalent to 8% of assets, weighted by risk. The Corporation's capital position
must consist of at least 4% Tier 1 capital (common stockholders' equity,
retained earnings, and perpetual preferred stock) and 4% Tier 2 capital
(limited-life preferred stock and subordinated debt, and loan loss reserves up
to certain limits). Total capital resources of the Corporation, including
stockholders' equity and the reserve for possible loan losses, showed steady
growth in 1994, rising 5.2% after increasing 8.8% in 1993. The following table
shows the Corporation's capital ratios at year-end.

Cash dividends declared totaled $3,417,000 in 1994, a 10.2% increase over
the $3,101,000 declared in 1993, which exceeded the 1992 total of $2,861,000 by
8.4%. These dividend levels resulted in a dividend payout ratio of 50%, 45% and
41% in 1994, 1993 and 1992, respectively. In addition, the Corporation acquired
and then retired 31,714 shares at public auction during the fourth quarter of
1994.

Capital Ratios at Year-end
--------------------------------------------------------------------------------
1994 1993
------ ------

Common stockholders' equity to assets 10.31% 9.73%
Tier I leverage ratio 10.28% 10.02%
Tier I risk-based capital ratio 20.61% 21.26%
Total risk-based capital ratio 21.86% 22.51%

ACNB Corporation & Subsidiary
-----------------------------

CONSOLIDATED STATEMENTS OF CONDITION

December 31
-----------------------
ASSETS In thousands 1994 1993
---------------------------------------------------------------------------

Cash and due from banks........................... $ 12,872 $ 13,949
Interest bearing deposits with banks.............. 47 2,021
Investment securities.............................
(market value $140,604 and $148,268,
respectively)................................ 144,905 147,802
Federal funds sold................................ 100 17,060
Loans
(net of unearned discount of $3,883
and $3,785, respectively).................... 305,922 283,298
Reserve for possible loan losses.................. (3,370) (3,581)
-------- --------
Net loans......................................... 302,552 279,717
Premises and equipment............................ 5,874 5,384
Other real estate................................. 1,037 850
Other assets...................................... 4,645 4,632
-------- --------
TOTAL ASSETS...................................... $472,032 $471,415
======== ========

LIABILITIES
---------------------------------------------------------------------------
Non-interest bearing deposits..................... $ 38,639 $ 37,042
Interest bearing deposits......................... 350,159 375,644
-------- --------
TOTAL DEPOSITS.................................... 388,798 412,686
Securities sold under agreement to repurchase..... 14,613 10,802
Federal funds purchased........................... 16,800 --
Demand notes, U.S. Treasury....................... 450 450
Other liabilities................................. 2,724 1,615
-------- --------
TOTAL LIABILITIES................................. 423,385 425,553

STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------
Common stock (par value $2.50; 20,000,000
shares authorized; 5,316,122 issued
and outstanding shares on 12/31/94
and 5,347,836 on 12/31/93)................... 13,290 13,370
Additional paid-in capital........................ 4,511 5,002
Retained earnings................................. 30,846 27,490
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 48,647 45,862
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.......... $472,032 $471,415
======== ========

---------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
12

ACNB Corporation & Subsidiary
-----------------------------

CONSOLIDATED STATEMENTS OF INCOME

Year ended December 31
-----------------------------
INTEREST INCOME In thousands, except per share data 1994 1993 1992
-------------------------------------------------------------------------------------

Loans (including fees)................................ $22,998 $24,671 $27,677
Time deposits with banks.............................. 112 152 271
Federal funds sold.................................... 401 558 708
Taxable securities.................................... 7,021 6,660 6,622
Non-taxable securities................................ 107 81 102
------- ------- -------
TOTAL INTEREST INCOME................................. 30,639 32,122 35,380

INTEREST EXPENSE
-------------------------------------------------------------------------------------
Interest bearing deposits............................. 12,025 13,672 17,434
Other borrowed funds.................................. 394 222 148
------- ------- -------
TOTAL INTEREST EXPENSE................................ 12,419 13,894 17,582
NET INTEREST INCOME................................... 18,220 18,228 17,798
Provision for possible loan losses.................... -- 315 855
------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES.................... 18,220 17,913 16,943

OTHER OPERATING INCOME
-------------------------------------------------------------------------------------
Trust income.......................................... 292 278 309
Service charges on deposit accounts................... 597 564 317
Other income.......................................... 612 660 713
Securities gains...................................... -- 93 55
------- ------- -------
TOTAL OTHER OPERATING INCOME.......................... 1,501 1,595 1,394

OTHER OPERATING EXPENSE
-------------------------------------------------------------------------------------
Salaries and employee benefits........................ 5,173 4,995 4,717
Net occupancy expense................................. 651 589 575
Equipment expense..................................... 708 624 564
FDIC insurance........................................ 928 901 881
Other taxes........................................... 392 353 330
Other expense......................................... 1,808 1,730 1,590
------- ------- -------
TOTAL OTHER OPERATING EXPENSE......................... 9,660 9,192 8,657

INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF THE CHANGE IN ACCOUNTING FOR INCOME TAXES.......... 10,061 10,316 9,680
Applicable income taxes............................... 3,288 3,383 3,088
------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT
OF THE CHANGE IN ACCOUNTING FOR INCOME TAXES.......... 6,773 6,933 6,592
Cumulative effect of the change in accounting for
income taxes..................................... -- -- 446
------- ------- -------
NET INCOME............................................ $ 6,773 $ 6,933 $ 7,038
======= ======= =======

PER COMMON SHARE DATA*
-------------------------------------------------------------------------------------
Income before cumulative effect of the change
in accounting for income taxes................... $1.27 $1.30 $1.23
Cumulative effect of the change in accounting for
income taxes..................................... -- -- $ .09
Net income............................................ $1.27 $1.30 $1.32
Cash dividends........................................ $ .64 $ .58 $ .54

*Based on a weighted average of 5,342,101 shares in
--------------------------------------------------
1994 and 5,347,836 shares in 1993 and 1992. Data
------------------------------------------------
restated to reflect two-for-one stock split in the
--------------------------------------------------
form of a 100% stock dividend issued in 1994.
--------------------------------------------

------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.

Additional
Common Paid-in Retained
Stock Capital Earnings Total
--------------------------------------------------------------------------------------------------

In thousands
------------
BALANCE AT JANUARY 1, 1992.......... $13,370 $5,002 $19,481 $37,853
Net income.......................... -- -- 7,038 7,038
Cash dividends...................... -- -- (2,861) (2,861)
------- ------ ------- -------
BALANCE AT DECEMBER 31, 1992........ 13,370 5,002 23,658 42,030
Net income.......................... -- -- 6,933 6,933
Cash dividends...................... -- -- (3,101) (3,101)
------- ------ ------- -------
BALANCE AT DECEMBER 31, 1993........ 13,370 5,002 27,490 45,862
Net income.......................... -- -- 6,773 6,773
Cash dividends...................... -- -- (3,417) (3,417)
Retirement of 31,714 shares......... (80) (491) -- (571)
------- ------ ------- -------
BALANCE AT DECEMBER 31, 1994........ $13,290 $4,511 $30,846 $48,647
======= ====== ======= =======

-------------------------------------------------------------------------------
The accompanying notes are an integral part of
the consolidated financial statements.

ACNB Corporation & Subsidiary
-----------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH Year ended December 31
AND CASH EQUIVALENTS In thousands ------------------------------------
------------ 1994 1993 1992
-----------------------------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Interest and dividends received........................ $31,895 $35,002 $35,789
Fees and commissions received.......................... 1,943 2,080 1,984
Interest paid.......................................... (12,394) (14,166) (18,133)
Cash paid to suppliers and employees................... (8,920) (8,755) (8,354)
Income taxes paid...................................... (2,419) (2,705) (3,528)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 10,105 11,456 7,758

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities and
interest bearing balances with other banks........... 56,677 47,526 42,888
Purchase of investment securities and
interest bearing balances with other banks........... (55,559) (77,954) (72,871)
Principal collected on loans........................... 86,383 100,281 121,131
Loans made to customers................................ (109,414) (95,686) (108,518)
Capital expenditures................................... (938) (1,615) (257)
------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES.................. (22,851) (27,448) (17,627)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
accounts and savings accounts......................... (4,787) 35,225 37,134
Proceeds from sale of certificates of deposit.......... 14,677 15,265 24,468
Payments for maturing certificates of deposit.......... (29,967) (33,730) (42,586)
Dividends paid......................................... (3,417) (3,101) (2,861)
Net increase in federal funds purchased................ 16,800 -- --
Retirement of common stock............................. (571) -- --
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.... (7,265) 13,659 16,155
------- ------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS................................... (20,011) (2,333) 6,286
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR................................... 33,030 35,363 29,077
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR............... $13,019 $33,030 $35,363
======= ======= =======

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
-----------------------------------------------------------------------------------------------
Income before cumulative effect of the change in
accounting for income taxes........................... $6,773 $6,933 $6,592

ADJUSTMENTS TO RECONCILE INCOME BEFORE CUMULATIVE
EFFECT TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Securities gains....................................... -- 93 55

Depreciation and amortization.......................... 457 406 452
Provision for possible loan losses..................... -- 315 855
Provision (Benefit) for deferred taxes................. (67) 943 (659)
Amortization of investment securities premiums......... 1,850 1,798 1,196
Increase (Decrease) in taxes payable................... 936 (265) 219
Decrease (Increase) in interest receivable............. (152) 1,474 (253)
Increase (Decrease) in interest payable................ 25 (272) (551)
Increase (Decrease) in accrued expenses................ 275 107 (55)
Decrease (Increase) in prepaid expenses................ 17 (37) 23
Decrease in deferred loan production costs............. (9) (39) (116)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. $10,105 $11,456 $7,758
======= ======= =======

------------------------------------------------------------------------------
The accompanying notes are an integral part of
the consolidated financial statements.

ACNB Corporation & Subsidiary
-----------------------------

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

NOTE A
------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------------------------------------------
The accounting and reporting policies followed by ACNB Corporation
and its principal subsidiary, Adams County National Bank, conform with
generally accepted accounting principles and with general practice within the
banking industry.

BASIS OF FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary, Adams County National Bank. All
significant intercompany transactions have been eliminated.
Income and expenses are recorded on the accrual basis of
accounting, except for trust department income and certain other fees which
are recorded primarily on the cash basis. Recognition of such income on an
accrual basis is impractical and would not materially affect net income.
For comparative purposes, prior years' financial statements have
been reclassified to conform with report classifications of the current year.

INVESTMENT SECURITIES
On December 31, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Statement requires each debt and equity
security to be classified into one of three categories: held-to-maturity,
available for sale, or trading. Investments in securities which the
Corporation has the positive intent and ability to hold to maturity are
classified as held-to-maturity. These securities are accounted for at
amortized cost. The Corporation classified all securities as held-to-maturity
at December 31, 1994 and 1993. Management will reassess the appropriateness
of the classifications each quarter.
Amortization of premium and accretion of discount for investment
securities is computed by the straight-line method to the maturity date or
call date. There is not a material difference between the straight-line
method and the interest method. Book value is the basis for reporting
security gains and losses on the income statement. Income is accrued the
month it is earned.

INCOME TAXES
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes, which required a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to the differences between the financial
statement carrying amounts and the tax bases of the existing assets and
liabilities. Under Statement of Financial Accounting Standards No. 109, the
effect of deferred taxes is recognized in income in the period that includes
the enactment date. Under the deferred method, deferred taxes were recognized
using the tax rate applicable to the year of the calculation and were not
adjusted for subsequent changes in tax rates.
The Corporation elected to adopt Statement of Financial Accounting
Standards No. 109 in 1992, and has reported the cumulative effect of the
change in the method of accounting for income taxes as of the beginning of
the 1992 fiscal year in the consolidated statements of income.

LOANS
Loans are stated net of unearned interest on consumer installment
loans. Interest on installment loans is recognized using the
sum-of-the-month-digits method, which is not materially different from the
interest method. Interest on commercial and real estate loans is recognized
based upon the principal amount outstanding. Loan fees are recorded on the
cash basis since there is not a material difference to the recording methods
under Statement of Financial Accounting Standards No. 91.

PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is charged over the estimated
useful life of buildings and equipment, computed generally by the
straight-line method. When property is retired or sold, the accounts are
relieved of the applicable cost and accumulated depreciation, and any gain or
loss is reflected in operating income. Maintenance and repairs are charged to
operating expenses, and the costs of major improvements are capitalized.

RESERVE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses charged to income is based
upon management's evaluation of outstanding loans, the historical loan loss
experience of the subsidiary, and the adequacy of the reserve for possible
loan losses.

STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from banks, and
federal funds sold. Generally, federal funds are purchased and sold for
one-day periods.

NONPERFORMING ASSETS
Nonperforming assets are comprised of loans for
which the accrual of interest has been discontinued due to a serious
weakening of the borrower's financial condition.
Loans are generally placed on a nonaccrual basis
when principal or interest is past due 90 days
or more and when, in the opinion of management, full collection of principal
or interest is unlikely. At the time a loan is placed on nonaccrual status,
the accrual of interest is discontinued. Income on such loans is then
recognized only to the extent of cash received.
The basis in other real estate is carried at the lower of fair
market value or the carrying
value of the related loan at the time of acquisition.

ACNB Corporation & Subsidiary
-----------------------------

NOTE B
------
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires all entities to disclose the estimated
fair value of its financial instrument assets and liabilities. For 1994 and
1993, approximately 98% of the Corporation's assets and 89% and 90%,
respectively, of its liabilities are considered financial instruments as defined
in Statement of Financial Accounting Standards No. 107. Many of the
Corporation's financial instruments, however, lack an available trading market
as characterized by a willing buyer and a willing seller engaging in an exchange
transaction. Therefore, significant estimations and present value calculations
were used by the Corporation for the purposes of this disclosure.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate the value.
Financial instruments actively traded in a secondary market have
been valued using quoted available market prices.

December 31, 1994 December 31, 1993
---------------------------- -----------------------------
Estimated Fair Carrying Estimated Fair Carrying
In thousands Value Amount Value Amount
------------ -------------- ------- ------------- --------

Cash and due from banks............... $ 12,872 $ 12,872 $ 13,949 $ 13,949
Interest bearing deposits with banks.. 47 47 2,036 2,021
Federal funds sold.................... 100 100 17,060 17,060
Investment securities................. 140,604 144,905 148,268 147,802

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, 1994 and 1993. Adjustable-rate residential mortgages
and consumer loans reprice frequently at market rates, and the estimate of their
fair value is considered to be the same as carrying value. Fixed-rate mortgages
and consumer loans have been revalued using discounted cash flows. The mortgages
were estimated using the Federal Housing Finance Board Index at December 31,
1994 and 1993, which was 7.56% and 6.59%, respectively, and consumer loans were
revalued using rates being charged by the Corporation at year-end 1994 and 1993.
Fair value for nonperforming loans is based on current valuations of underlying
collateral.

Net loans............................. $302,036 $302,552 $285,009 $279,717

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, 1994 and 1993. 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.

Deposits with no stated maturities.... $216,227 $216,227 $225,022 $225,022
Deposits with stated maturities....... 171,269 172,571 188,534 187,664
Repurchase agreements................. 14,613 14,613 10,802 10,802
Federal funds purchased and
demand notes..................... 17,250 17,250 -- --

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.

Commitments to extend credit.......... $ 24,821 $ 24,821 $ 17,686 $ 17,686
Standby letters of credit............. 1,324 1,324 1,088 1,088

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.