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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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OR
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to
Commission file number 0-11783
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ACNB CORPORATION
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(Exact name of corporation as specified in its charter)
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PENNSYLVANIA 23-2233457
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 OLD HARRISBURG ROAD, GETTYSBURG, PA 17325
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(Address of principal executive offices) (Zip Code)
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(717) 334-3161
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(corporation's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
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Indicate by check mark whether the corporation (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
corporation was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the corporation has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class - Common Stock ($2.50 par value)
Outstanding at March 31, 2000 - 5,689,264
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PART I ITEM I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
31-Mar 31-Mar 31-Dec
2000 1999 1999
-------- -------- ---------
ASSETS (000 omitted)
Cash and Due from Banks $ 26,755 $ 31,373 $ 33,679
Investment Securities
Securities Held to Maturity 67,243 50,959 57,930
Securities Available for Sale 92,597 106,753 95,175
-------- -------- ---------
Total Investment Securities 159,840 157,712 153,105
Federal Funds Sold 1,146 3,935 1,711
Loans 347,340 345,109 347,787
Less: Reserve for Loan Losses (3,558) (3,608) (3,543)
-------- -------- ---------
Net Loans 343,782 341,501 344,244
Premises and Equipment 4,467 4,703 4,524
Other Real Estate 120 249 171
Other Assets 9,279 7,291 8,518
-------- -------- ---------
TOTAL ASSETS $545,389 $546,764 $545,952
======== ======== ========
LIABILITIES
Deposits
Noninterest Bearing 64,707 59,073 61,711
Interest Bearing 392,579 402,271 390,922
-------- -------- ---------
Total Deposits 457,286 461,344 452,633
Securities Sold Under
Agreement To Repurchase 23,331 18,274 29,377
Borrowing Federal Home Loan Bank 0 0 0
Demand Notes U.S. Treasury 450 418 450
Other Liabilities 5,044 5,439 3,629
_______ _______ _______
TOTAL LIABILITIES 486,111 485,475 486,089
SHAREHOLDERS EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,689,264 shares issued and
outstanding at 3/31/00 14,223 14,459 14,372
Surplus 1,016 2,620 1,963
Retained Earnings 46,593 43,573 45,761
Net unrealized gains (losses) on securities
available for sale (2,554) 637 (2,233)
-------- -------- ---------
TOTAL SHAREHOLDERS EQUITY 59,278 61,289 59,863
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $545,389 $546,764 $545,952
======== ======== ========
See accompanying notes to financial statements.
Page 2
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
3/31
2000 1999
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(000 omitted)
INTEREST INCOME
Loan Interest and Fees $6,827 $6,823
Interest and Dividends on
Investment Securities 2,628 2,501
Interest on Federal Funds Sold 15 40
Interest on Balances with
Depository Institutions 111 87
------ ------
TOTAL INTEREST INCOME 9,581 9,451
INTEREST EXPENSE
Deposits 3,621 3,818
Other Borrowed Funds 317 204
------ ------
TOTAL INTEREST EXPENSE 3,938 4,022
NET INTEREST INCOME 5,643 5,429
Provision for Loan Losses 60 90
NET INTEREST INCOME AFTER PROVISION ------ ------
FOR LOAN LOSSES 5,583 5,339
OTHER INCOME
Trust Department 121 153
Service Charges on Deposit Accounts 219 233
Other Operating Income 278 275
Securities Gains 24 0
------ ------
TOTAL OTHER INCOME 642 661
OTHER EXPENSES
Salaries and Employee Benefits 1,842 1,848
Premises and Fixed Assets 503 523
Other Expenses 952 822
------ ------
TOTAL OTHER EXPENSE 3,297 3,193
INCOME BEFORE INCOME TAX 2,928 2,807
Applicable Income Tax 945 903
------ ------
NET INCOME $1,983 $1,904
====== ======
EARNINGS PER SHARE* $0.35 $0.33
DIVIDENDS PER SHARE* 0.20 0.20
*Based on 5,720,310 shares outstanding in 2000 and 5,804,648 in 1999
See accompanying notes to financial statements.
Page 3
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Three months ended
3/31
2000 1999
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(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received $ 9,263 $ 9,349
Fees and Commissions Received 817 734
Interest Paid (3,464) (3,573)
Cash Paid to Suppliers and Employees (3,620) (2,043)
Income Taxes Paid (130) (249)
Net Cash Provided by Operating Activities 2,866 4,218
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 3,493 6,896
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (10,549) (3,900)
Principal Collected on Loans 18,030 13,484
Loans Made to Customers (17,577) (6,313)
Capital Expenditures (113) (7)
Net Cash Used in Investing Activities (6,716) 10,160
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 560 1,026
Proceeds from Sale of Certificates of Deposit 6,196 9,865
Payments for Maturing Certificates of Deposit (8,149) (12,151)
Dividends Paid (1,150) (1,163)
Increase (Decrease) in Borrowings 0 318
Retirement of Common Stock (1,096) (486)
Net Cash Provided by Financing Activities (3,639) (2,591)
Net Increase in Cash and Cash Equivalents (7,489) 11,787
Cash and Cash Equivalents: Beginning of Period 35,390 23,521
End of Period $ 27,901 $ 35,308
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income $ 1,983 $ 1,904
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 170 181
Provision for Possible Credit Losses 60 90
Provision for Deferred Taxes (12) (206)
Amortization of Investment Securities Premiums 0 (55)
Increase (Decrease) in Taxes Payable 827 860
(Increase) Decrease in Interest Receivable (194) (163)
Increase (Decrease) in Interest Payable 474 449
Increase (Decrease) in Accrued Expenses 74 815
(Increase) Decrease in Other Assets (567) 123
Increase (Decrease) in Other Liabilities 51 220
Net Cash Provided by Operating Activities $ 2,866 $ 4,218
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 4
ACNB CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
ACNB Corporation's financial position as of March 31, 2000 and 1999 and
December 31, 1999 and the results of its operations for the three months
ended March 31, 2000 and 1999 and changes in financial position for the
three months then ended. All such adjustments are of a normal recurring
nature.
The accounting policies followed by the company are set forth in Note A to
the company's financial statements in the 1999 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 value of securities owned at March 31, 2000
and December 31, 1999 were as follows:
3/31/00 12/31/99
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- ---------
(000 omitted)
U.S. Treasury and U.S. Government
Agencies (held to maturity) 51,294 50,202 42,249 41,477
State and Municipal (held to
maturity) 4,061 3,999 4,321 4,266
Corporate (held to maturity) 8,432 8,376 7,904 7,860
U.S. Government Agencies
(available for sale) 96,467 92,597 98,558 95,175
Restricted Equity Securities 3,456 3,456 3,456 3,456
-------- -------- -------- ---------
TOTAL $163,710 $158,630 $156,488 $152,234
Income earned on investment securities was as follows:
Three Months Ended March 31
2000 1999
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(000 omitted)
U.S. Treasury 255 318
U.S. Government Agencies 2,136 1,998
State and Municipal 48 89
Other Investments 189 96
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2,628 2,501
Page 5
3. Gross loans are summarized as follows:
March 31 December 31
(000 omitted)
2000 1999
-------- --------
Real Estate 305,663 308,241
Real Estate Construction 12,725 13,188
Commercial and Industrial 15,890 12,697
Consumer 13,062 13,661
-------- --------
Total Loans $347,340 $347,787
4. Earnings per share are based on the weighted average number of shares of
stock outstanding during each period. Weighted average shares outstanding
for the three month periods ended March 31, 2000 and 1999 were 5,720,310
and 5,804,648 respectively.
5. Dividends per share were $.20 and $.20 for the three month periods ended
March 31, 2000 and 1999 respectively. This represented a 57% payout of net
income in 2000 and a 61% payout in 1999.
6. The results of operations for the three month periods ended March 31, 2000
and 1999 are not necessarily indicative of the results to be expected for
the full year.
7. All financial results have been restated to reflect the acquisition of
Farmers National Bancorp, Inc. by ACNB Corporation effective March 1, 1999.
Page 6
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Registrant's discussion and analysis of the significant changes in the
results of operations, capital resources and liquidity presented in the
accompanying consolidated financial statements for the Registrant, and its
wholly-owned subsidiaries, Adams County National Bank and Farmers National
Bancorp, Inc., follow. The Registrant's consolidated financial condition and
results of operations consist almost entirely of the banks' financial condition
and results of operations. This discussion should be read in conjunction with
the corporation's 1999 Annual Report to Shareholders. Current performance does
not guarantee, assure, and is not necessarily indicative of similar performance
in the future.
In addition to historical information, this Form 10-Q contains forward-looking
statements. From time to time, the corporation may publish forward-looking
statements relating to such matters as anticipated financial performance,
business prospects, technological developments, new products, research and
development activities and similar matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the corporation notes that a
variety of factors could cause the corporation's actual results and experience
to differ materially from the anticipated results or other expectations
expressed in the corporation's forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the corporation's business include the following: general economic
conditions, including their impact on capital expenditures; business conditions
in the banking industry; the regulatory environment; rapidly changing technology
and evolving banking industry standards; competitive factors, including
increased competition with community, regional and national financial
institutions; new service and product offerings by competitors and price
pressures; and similar items.
Three months ended March 31, 2000 compared to three months ended March 31, 1999
Net Income for the three month period ending March 31, 2000 was $1,983,000, up
$79,000 from the first quarter of 1999. Total other income was down and other
expense was up, but improved interest income and parent company income helped
fuel the first quarter increase. Net income per share, for the first quarter,
was $.35, compared to the $.33 earned in the same period in 1999. For the three
month period (annualized) in 2000, the return on average assets and return on
average equity were 1.47% and 12.84%, respectively, compared to 1.41% and
12.27%, respectively for 1999.
An explanation of the factors and trends that caused changes between the two
periods, by major earnings category, follows.
Total interest income for the first three month period of 2000 was $9,581,000,
up $130,000 or 1.4% above the $9,451,000 earned in the same period of 1999. The
$130,000 increase in interest income was due to improved yield on earning
assets. The average yield on earning assets has increased 18 basis points over
the same quarter in 1999. In an effort to manage interest rate risk, the
Corporation continues to invest in mortgage-backed securities classified as
available-for-sale and now holds a total volume of over $77 million. Income from
securities and due from banks during the current period increased approximately
$127,000 due mainly to increased interest rates.
Page 7
Total interest expense for the first three month period of 2000 was $3,938,000,
down $84,000 or 2.1% from the $4,022,000 incurred for the same period in 1999.
The $84,000 decrease in interest expense was due primarily to a $10,000,000
shift from interest bearing accounts to demand deposits, interest bearing
transaction accounts and securities sold under agreement to repurchase.
Total other income for the first three month period of 2000 at $642,000, was
$19,000 less than the same quarter in 1999. This was primarily due to a down
quarter for the Bank's Trust Department which was caused by less income from
estates and power of attorney categories. Service charges on deposits were also
down.
Total other expense for the first three month period of 2000 was $3,297,000, up
$104,000 or 3.3% more than the $3,193,000 incurred for the first quarter of
1999. The increase was centered in other expenses which was up $130,000 and
included advertising up $18,000, FDIC up $9,000, various taxes up $18,000,
meetings and conventions up $11,000 and Federal Reserve shipping charges (Y2K
related) up $8,000, and others of a lesser nature.
As mentioned above, the parent company contributed additional earnings in the
first quarter 2000 through lessened expense on acquisition costs and greater tax
benefit through a low income housing project funded in 1999.
The provision for income taxes in the first quarter increased $42,000 due to a
higher level of pretax earnings.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
Three Months Ended
3/31/00 3/31/99
Rate Rate
---- ----
Earning Assets 7.38% 7.25%
Interest Bearing Liabilities 3.77% 3.94%
Interest Rate Spread 3.61% 3.31%
Net Yield on Earning Assets 4.35% 4.17%
Net Yield on Earning Assets is the difference, stated in percentages, between
the interest earned on loans and other investments and the interest paid on
deposits and other sources of funds. The Net Yield on Earning Assets is one of
the best analytical tools available to demonstrate the effect of interest rate
changes on the corporation's earning capacity.
The Net Yield on Earning Assets, for the first three months of 2000, was up 18
basis points compared to the same period in 1999. Higher yields on loans and
securities and a shift from certificates of deposits to demand and interest
bearing transaction accounts has caused the net yield on earning assets to
increase.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In Thousands) Three Months Ended
3/31/00 3/31/99
------- -------
Balance at Beginning of Period 3,543 3,594
Provision Charged to Expense 60 90
Loans Charged Off 63 87
Recoveries 18 11
Balance at End of Period 3,558 3,608
Page 8
Ratios:
Net Charge-offs to:
Net Income 2.27% 3.99%
Total Loans .01% .02%
Reserve for Possible Loan Losses 1.26% 2.11%
Reserve for Possible Loan Losses to:
Total Loans 1.02% 1.05%
The Reserve for Possible Loan Losses at March 31, 2000 was $3,558,000 (1.02% of
Total Loans), a decrease of $50,000 from $3,608,000 (1.05% of Total Loans) at
the end of the first three months of 1999. Loans past due 90 days and still
accruing amounted to $1,457,000 and non-accrual loans totaled $1,449,000 as of
March 31, 2000. The ratio of non-performing assets plus other real estate owned
to total assets was .55% at March 31, 2000. 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 $1,920,000 at year end 1999 while
non-accruals stood at $1,615,000. The bulk of the corporation's real estate
loans are in owner occupied dwellings. Management believes that internal loan
review procedures will be effective in recognizing and correcting any real
estate lending problems that may occur due to current economic conditions.
Interest not accrued, due to an average of $1,532,000 in non-accrual loans, was
approximately $33,000 for the first three months of 2000.
The bank considers a loan impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due. We measure impaired loans based on the present value of expected future
cash flows, discounted at the loan's effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than its recorded investment a creditor must recognize an
impairment by creating, or adjusting, a valuation allowance with a corresponding
charge to loan loss expense. The corporation uses the cash basis method to
recognize interest income on loans that are impaired. All of the corporation's
impaired loans were on a non-accrual status for all reported periods.
CAPITAL MANAGEMENT
Total Shareholders' Equity amounted to $59,278,000 at March 31, 2000 compared to
$61,289,000 at March 31, 1999, a decrease of $2,011,000 or 3.3% over that
period. The ratio of Total Shareholders' Equity to Total Assets was 11.21% at
March 31, 1999, 10.96% at December 31, 1999, and 10.87% at March 31, 2000. The
total risk-based capital ratio was 20.75% at March 31, 2000. The leverage ratio
was 10.96% at March 31, 2000, and 11.33% during the same period in 1999. Capital
at the corporation remains strong even with a 57% dividend payout ratio. The
decrease in capital is due to a stock repurchase plan and a change in the value
of securities available for sale.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Management believes that the corporation's liquidity is adequate. Liquid assets
(cash and due from banks, federal funds sold, money market instruments,
available for sale securities and held to maturity investment securities
maturing within one year) were 25% of total assets at March 31, 2000. This mix
of assets would be readily available for funding any cash requirements. In
addition, the Bank has an approved line of credit of $198,433,000 at the Federal
Home Loan Bank of Pittsburgh with $.00 outstanding at March 31, 2000.
Page 9
As of March 31, 2000, the cumulative asset sensitive gap was 10.1% of total
assets at one month, 6.9% at six months, and 14.0% at one year. Adjustable rate
mortgages, which have an annual interest rate cap of 2%, are considered rate
sensitive. Passbook savings and NOW accounts are carried in the one to five year
category while half of money market deposit accounts are spread over the four to
twelve month category and the other half are shown to mature in the one to three
year category.
There are no known trends or demands, commitments, events or uncertainties that
will result in, or that are reasonably likely to result in, liquidity increasing
or decreasing in any material way. Aside from those matters described above,
management does not currently believe that there are any known trends or
uncertainties which would have a material impact on future operating results,
liquidity or capital resources nor is it aware of any current recommendations by
the regulatory authorities which if they were to be implemented would have such
an effect, although the general cost of compliance with numerous and multiple
federal and state laws and regulation does have and in the future may have a
negative impact on the corporation's results of operations.
COMPANY IS IN THE PROCESS OF BECOMING YEAR 2000 COMPLIANT - EXPENSES NOT
MATERIAL
YEAR 2000 ISSUE
The Year 2000 Problem resulted because many computer programs were written using
two digits rather than four to define the applicable year. As disclosed in other
filings, in 1999, we developed and implemented an enterprise-wide program to
ensure that our date-sensitive information, telephone and business systems, and
other certain equipment would properly recognize the Year 2000 as a result of
the century date change in January 1, 2000. The program focused on the hardware,
software, embedded chips, third-party vendors and suppliers as well as
third-party networks that were associated with the identified systems. We
substantially completed the program during the third quarter of 1999. We also
took actions we believed would mitigate our Year 2000 risks related to our
critical business partners including customers, suppliers, vendors and other
service providers (primarily data processing partners). We have not experienced
any significant disruptions of our operating or financial activities caused by a
failure of our information technology systems or embedded technology
applications or unexpected business problems resulting from Year 2000 issues.
Given the absence of any significant problems to date, we do not expect Year
2000 issues to have a material adverse effect on our operations or financial
results in 2000.
In total, we spent approximately $206,000 in external costs on this program
through March 31, 2000 and do not expect to incur any significant additional
costs related to Year 2000 compliance. While there can be no assurance that no
legal claims will arise due to perceived or real Year 2000 issues, the
Corporation does not expect a material impact on its liquidity, financial
position or results of operations caused by internal Year 2000 issues or by
possible claims asserted by third parties.
We have funded the costs related to our Year 2000 plan through cash flows from
operations.
Page 10
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Management monitors and evaluates changes in market conditions on a regular
basis. Based upon the most recent review management has determined that there
have been no material changes in market risks since year end. For further
discussion of year end information, refer to the annual report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Nothing to report.
Item 2. Changes in Securities and Use of Proceeds - Nothing to report.
Item 3. Defaults Upon Senior Securities - Nothing to report.
Item 4. Submission of Matters to a Vote of Security Holders - Nothing to report.
Item 5. Other Information - Nothing to report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are included in this Report:
Exhibit 3(i) Articles of Incorporation of Registrant (Incorporated by
Reference to Exhibit 3 ( i ) in Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999).
Exhibit 3(ii) Bylaws of Registrant (Incorporated by Reference to Exhibit
3(ii) in Registrant's Report of 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 (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 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
(b) Report on Form 8-K.
None
Pursuant to the requirements of the Securities Exchange Act of 1934, the
corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACNB CORPORATION
/s/ Ronald L. Hankey
--------------------------------------
Ronald L. Hankey, President
May 5, 2000
/s/ John W. Krichten
--------------------------------------
John W. Krichten, Secretary/Treasurer
Page 11
EXHIBIT INDEX
Exhibit Number
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Exhibit 3(i) Articles of Incorporation of Registrant (Incorporated by
Reference to Exhibit 3 (i) of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999).
Exhibit 3(ii) Bylaws of Registrant (Incorporated by Reference to Exhibit
3(ii) of Registrant's 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 (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 Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
Page 12