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, 1995 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, 1995
Common Stock ($2.50 par value) 5,316,122
Page 1 of 11
ACNB CORPORATION
INDEX
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets
June 30, 1995 and December 31, 1994 and
June 30, 1994 3
Consolidated Condensed Statements of Income
Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994 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
Page 2
PART I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
June 30 December 31 June 30
1995 1994 1994
ASSETS (000 omitted)
Cash and Due from Banks 11,729 12,919 12,983
Investment Securities
U.S. Treasury 67,717 96,140 98,011
U.S. Government Agencies and
Corporations 43,000 45,000 46,001
State and Municipal 1,465 1,509 2,635
Other Investments 2,480 2,256 2,728
------- ------- -------
Total Investment Securities 114,662 144,905 149,375
Federal Funds Sold 100 100 15,100
Loans 322,136 305,922 284,893
Less: Reserve for Loan Losses (3,296) (3,370) (3,397)
------- ------- -------
Net Loans 318,840 302,552 281,496
Premises and Equipment 5,949 5,874 5,828
Other Real Estate 769 1,037 565
Other Assets 4,715 4,645 4,721
-------- -------- --------
TOTAL ASSETS $456,764 $472,032 $470,068
======== ======== ========
LIABILITIES
Deposits
Noninterest Bearing 39,569 38,639 37,415
Interest Bearing 345,456 350,159 374,987
------- ------- -------
Total Deposits 385,025 388,798 412,402
Securities Sold Under
Agreement To Repurchase 15,549 14,613 7,919
Borrowing Federal Home Loan Bank 3,550 16,800 -
Demand Notes U.S. Treasury 450 450 450
Other Liabilities 2,233 2,724 1,582
------- ------- -------
TOTAL LIABILITIES 406,807 423,385 422,353
SHAREHOLDERS EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,316,122 shares issued and
outstanding at 6/30/95 13,290 13,290 13,370
Surplus 4,511 4,511 5,002
Retained Earnings 32,156 30,846 29,343
------ ------ ------
TOTAL SHAREHOLDERS EQUITY 49,957 48,647 47,715
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $456,764 $472,032 $470,068
======== ======== ========
See accompanying notes to financial statements.
Page 3
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months End Six Months Ended
June 30 June 30
1995 1994 1995 1994
(000 omitted) (000 omitted)
INTEREST INCOME
Loan Interest and Fees 6,462 5,631 12,609 11,300
Interest and Dividends on
Investment Securities 1,530 1,849 3,180 3,604
Interest on Federal Funds Sold 2 112 3 258
Interest on Balances with
Depository Institutions 8 36 9 74
----- ----- ----- -----
TOTAL INTEREST INCOME 8,002 7,628 15,801 15,236
INTEREST EXPENSE
Deposits 3,342 2,959 6,389 6,029
Other Borrowed Funds 268 69 579 146
----- ----- ----- -----
TOTAL INTEREST EXPENSE 3,610 3,028 6,968 6,175
NET INTEREST INCOME 4,392 4,600 8,833 9,061
Provision for Loan Losses 0 0 0 0
NET INTEREST INCOME AFTER PROVISION ----- ----- ----- -----
FOR LOAN LOSSES 4,392 4,600 8,833 9,061
OTHER INCOME
Trust Department 85 74 152 139
Service Charges on Deposit Account 155 171 301 291
Other Operating Income 104 75 323 315
Securities Gains 0 0 0 0
----- ----- ----- -----
TOTAL OTHER INCOME 344 320 776 745
OTHER EXPENSES
Salaries and Employee Benefits 1,400 1,267 2,805 2,558
Premises and Fixed Assets 345 322 709 691
Other Expenses 819 770 1,631 1,519
----- ----- ----- -----
TOTAL OTHER EXPENSE 2,564 2,359 5,145 4,768
INCOME BEFORE INCOME TAX 2,172 2,561 4,464 5,038
Applicable Income Tax 706 852 1,453 1,634
----- ----- ----- -----
NET INCOME $1,466 $1,709 $3,011 $3,404
===== ===== ===== =====
EARNINGS PER SHARE* $0.28 $0.32 $0.57 $0.64
DIVIDENDS PER SHARE* 0.16 0.15 0.32 0.29
*Based on 5,316,122 shares outstanding in 1995 and 5,347,836 in 1994.
See accompanying notes to financial statements.
Page 4
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Six months ended
June 30
1995 1994
(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received 16,499 15,902
Fees and Commissions Received 992 954
Interest Paid (6,660) (6,339)
Cash Paid to Suppliers and Employees (5,377) (4,445)
Income Taxes Paid (2,296) (1,565)
Net Cash Provided by Operating Activities 3,158 4,507
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 30,285 33,032
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (474) (35,610)
Principal Collected on Loans 32,573 46,611
Loans Made to Customers (48,597) (48,111)
Capital Expenditures (347) (658)
Net Cash Used in Investing Activities 13,440 (4,736)
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts (11,357) 6,153
Proceeds from Sale of Certificates of Deposit 21,117 5,758
Payments for Maturing Certificates of Deposit (12,597) (15,078)
Dividends Paid (1,701) (1,551)
Increase (Decrease) in Borrowings (13,250) 0
Net Cash Provided by Financing Activities (17,788) (4,718)
Net Increase in Cash and Cash Equivalents (1,190) (4,947)
Cash and Cash Equivalents: Beginning of Period 13,019 33,030
End of Period 11,829 28,083
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income 3,011 3,404
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 276 220
Provision for Possible Credit Losses 0 0
Provision for Deferred Taxes 88 (67)
Amortization of Investment Securities Premiums 440 989
Increase (Decrease) in Taxes Payable (931) 136
(Increase) Decrease in Interest Receivable 473 (114)
Increase (Decrease) in Interest Payable 308 (164)
Increase (Decrease) in Accrued Expenses (75) 196
(Increase) Decrease in Other Assets (429) (87)
Increase (Decrease) in Deferred Loan Production Costs (3) (6)
Net Cash Provided by Operating Activities 3,158 4,507
DISCLOSURE OF ACCOUNTING POLICY
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Page 5
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, 1995 and 1994 and December
31, 1994 and the results of its operations for the six months ended June 30,
1995 and 1994 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 1994 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, 1995
and December 31, 1994 were as follows:
6/30/95 12/31/94
Amortized Fair Amortized Fair
Cost Value Cost Value
(000 omitted)
U.S. Treasury 67,717 67,575 96,140 93,762
U.S. Government Agencies
and Corporations 43,000 42,144 45,000 43,080
State and Municipal 1,465 1,466 1,509 1,506
Other Investments 2,480 2,480 2,256 2,256
------- ------- ------- -------
TOTAL $114,662 $113,665 $144,905 $140,604
======= ======= ======= =======
Income earned on investment securities was as follows:
Six Months Ended June 30
1995 1994
(000 omitted)
U.S. Treasury 1,956 2,566
U.S. Government Agencies
and Corporations 1,109 917
State and Municipal 41 55
Other Investments 74 66
------ ------
$3,180 $3,604
====== ======
Page 6
3. Gross loans are summarized as follows:
June 30 December 31
1995 1994
(000 omitted)
Real Estate 282,919 268,944
Real Estate Construction 12,137 12,632
Commercial and Industrial 10,638 10,785
Consumer 16,442 17,444
------- -------
Gross Loans 322,136 309,805
Less: Unearned Discount --- 3,883
-------- --------
Total Loans $322,136 $305,922
======== ========
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, 1995 and 1994 were 5,347,836 and
5,316,122 respectively.
5. Dividends per share were $0.32 and $0.29 for the six month periods ended June
30, 1995 and 1994 respectively. This represented a 56.1% payout of net income
in 1995 and a 45.3% payout in 1994.
6. The results of operations for the six month periods ended June 30, 1995 and
1994 are not necessarily indicative of the results to be expected for the
full year.
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Corporation's net income for the first six months of 1995 was $3,011,000, a
decrease of 11.5% from $3,404,000 in 1994. Return on Average Total Assets was
1.31% for the first six months of 1995 compared with 1.44% for the same period
of 1994. Return on Average Shareholders Equity was 12.14% for the six months
ended June 30, 1995 compared with 14.48% for 1994.
The decline in 1995 earnings, compared to the same period in 1994, is due to
weaker net interest income and increased other expenses. Net interest income is
down $228,000 for the first six months of 1995 compared to 1994 and other
expenses (salaries and fixed assets) are up $377,000.
The rapid rise in interest rates and increased competition for deposits along
with greater personnel and other noninterest expenses have combined to continue
pressure on net income. Although the corporation is asset sensitive deposit
rates have risen more rapidly than loan rates. Coupled with a marked shift from
savings accounts to time accounts this rise has prevented new loan growth from
adding to net income during the first half. In addition the corporation has
opened a new office in a supermarket/discount store and upgraded mortgage
marketing capabilities to prepare for the future. These added costs have already
begun to flow through the income statement but the benefits will be realized
over the long term.
Earnings per share was $.57 in 1995 and $.64 in 1994, while the dividend
increased from $.29 to $.32 in 1995.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
(Taxable equivalent)
Six months Ended
6/30/95 6/30/94
Rate Rate
Earning Assets 7.18% 6.71%
Interest Bearing Liabilities 3.77 3.18
Interest Rate Spread 3.41 3.53
Interest Expense as a % of earning assets 3.16 2.71
Net Yield on Earning Assets 4.02 4.00
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 Earning Assets
is one of the best analytical tools available to demonstrate the effect of
interest rate changes on the Corporation's earning capacity.
Page 8
The Net Yield on Earning Assets for the first six months of 1995 was up 2 basis
points compared to the same period in 1994. This is a result of improved loan
demand and a shift to loans from lower yielding government securities. Net yield
as income is down due to a lower earning asset base. This was caused by a runoff
in deposits during the last quarter of 1994 and continued during the first
quarter of 1995.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In thousands) Six Months Ended
6/30/95 6/30/94
Balance at Beginning of Period 3,370 3,581
Provision Charged to Expense 0 0
Loans Charged Off 86 218
Recoveries 12 34
Balance at End of Period 3,296 3,397
Ratios:
Net Charge-offs to:
Net Income 2.46% 5.41%
Total Loans .02 .06
Reserve for Possible Loan Losses 2.25 5.42
Reserve for Possible Loan Losses to:
Total Loans 1.02 1.19
The Reserve for Possible Loan Losses at June 30, 1995 totaled $3,296,000 (1.02%
of Total Loans), a decrease of $101,000 from $3,397,000 (1.19% of Total Loans)
at the end of the first six months of 1994. Loans past due 90 days and still
accruing amounted to $1,599,000 and non-accrual loans totaled $1,227,000 as of
6/30/95. The ratio of non-performing assets plus other real estate owned to
total assets was .79% at 6/30/95. All properties are carried at the lower of
market or book value and are not considered to represent significant threat of
loss to the bank.
Loans past due 90 days and still accruing were $2,219,000 at yearend 1994 while
non-accruals stood at $854,000. 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 $1,040,000 in non-accrual loans, was approx-
imately $47,000 for the first six months of 1995.
Page 9
CAPITAL MANAGEMENT
Total Shareholders' Equity amounted to $49,957,000 at 6/30/95 compared to
$47,715,000 at 6/30/94, an increase of $2,242,000 or 4.7% over that period. The
ratio of Total Shareholders' Equity to Total Assets was 10.15% at 6/30/94,
10.31% at 12/31/94, and 10.94% at 6/30/95. The leverage ratio was 10.87% at
6/30/95 while the total risk-based capital ratio was 21.86% at year end 1994.
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 9.9% of total assets at 6/30/95. This mix of assets would
be readily available for funding any cash requirements.
As of 6/30/95 rate sensitive assets were 102% of rate sensitive liabilities at
one month, 108% at six months, and 125% 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.
Page 10
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, 1995.
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
July 25, 1995 /s/ Ronald L. Hankey
(date) ------------------------------
Ronald L. Hankey
President
/s/ John W. Krichten
------------------------------
John W. Krichten
Secretary/Treasurer
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