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 March 31, 1996 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 MARCH 31, 1996
Common Stock 5,307,756
($2.50 par value)
Page 1 of 11
ACNB CORPORATION
INDEX
Page No.
-------
Part I. Financial Information
Consolidated Condensed Balance Sheets
March 31, 1996 and December 31, 1995 and
March 31, 1995 3
Consolidated Condensed Statements of Income
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Condensed Financial
Statements 6-7
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 8-10
Part II. Other Information 11
Page 2
PART I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
March 31 December 31 March 31
1996 1995 1995
-------- ----------- --------
ASSETS (000 omitted)
Cash and Due from Banks 27,553 22,900 12,271
Investment Securities
U.S. Treasury 45,280 47,400 77,922
U.S. Government Agencies and
Corporations 53,971 54,000 43,000
State and Municipal 1,125 962 1,720
Other Investments 2,570 2,480 2,420
------ ------ ------
Total Investment Securities 102,946 104,842 125,062
Federal Funds Sold 100 100 100
Loans 320,354 324,002 314,021
Less: Reserve for Loan Losses (3,253) (3,274) (3,349)
------- ------- -------
Net Loans 317,101 320,728 310,672
Premises and Equipment 5,653 5,767 5,943
Other Real Estate 682 689 999
Other Assets 6,531 4,327 5,323
-------- -------- --------
TOTAL ASSETS $460,566 $459,353 $460,370
======== ======== ========
LIABILITIES
Deposits
Noninterest Bearing 41,263 44,318 38,718
Interest Bearing 354,998 347,925 346,182
------- ------- -------
Total Deposits 396,261 392,243 384,900
Securities Sold Under
Agreement To Repurchase 13,236 13,203 14,010
Borrowing Federal Home Loan Bank 0 0 8400
Demand Notes U.S. Treasury 450 199 272
Other Liabilities 3,785 2,245 3,446
------- ------- -------
TOTAL LIABILITIES 413,732 407,890 411,028
SHAREHOLDERS EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,307,756 shares issued and
outstanding at 3/31/96 13,269 13,269 13,290
Surplus 4,396 4,396 4,511
Retained Earnings 29,169 33,798 31,541
------ ------ ------
TOTAL SHAREHOLDERS EQUITY 46,834 51,463 49,342
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $460,566 $459,353 $460,370
======== ======== ========
See accompanying notes to financial statements.
Page 3
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
1996 1995
---- ----
(000 omitted)
INTEREST INCOME
Loan Interest and Fees 6,567 6,147
Interest and Dividends on
Investment Securities 1,352 1,650
Interest on Federal Funds Sold 1 1
Interest on Balances with
Depository Institutions 202 1
----- -----
TOTAL INTEREST INCOME 8,122 7,799
INTEREST EXPENSE
Deposits 3,565 3,047
Other Borrowed Funds 134 311
----- -----
TOTAL INTEREST EXPENSE 3,699 3,358
NET INTEREST INCOME 4,423 4,441
Provision for Loan Losses 0 0
NET INTEREST INCOME AFTER PROVISION _____ _____
FOR LOAN LOSSES 4,423 4,441
OTHER INCOME
Trust Department 103 67
Service Charges on Deposit Accounts 176 146
Other Operating Income 126 219
Securities Gains 0 0
----- -----
TOTAL OTHER INCOME 405 432
OTHER EXPENSES
Salaries and Employee Benefits 1,482 1,405
Premises and Fixed Assets 420 364
Other Expenses 575 812
----- -----
TOTAL OTHER EXPENSE 2,477 2,581
INCOME BEFORE INCOME TAX 2,351 2,292
Applicable Income Tax 770 747
----- -----
NET INCOME $1,581 $1,545
===== =====
EARNINGS PER SHARE* $0.30 $0.29
DIVIDENDS PER SHARE* 1.17 0.16
*Based on 5,307,756 shares outstanding in 1996 and 5,316,122 in 1995
See accompanying notes to financial statements.
Page 4
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Three months ended
March 31
1996 1995
---- -----
(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received 7,755 7,751
Fees and Commissions Received 497 521
Interest Paid (3,020) (2,511)
Cash Paid to Suppliers and Employees (4,047) (3,048)
Income Taxes Paid 4 (764)
Net Cash Provided by Operating Activities 1,189 1,949
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 19,066 20,035
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (17,290) (414)
Principal Collected on Loans 19,682 16,156
Loans Made to Customers (16,049) (24,239)
Capital Expenditures (37) (205)
Net Cash Used in Investing Activities 5,372 11,333
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts (2,143) (8,727)
Proceeds from Sale of Certificates of Deposit 12,527 9,237
Payments for Maturing Certificates of Deposit (6,333) (5,011)
Dividends Paid (6,210) (851)
Increase (Decrease) in Borrowings 251 (8,578)
Net Cash Provided by Financing Activities (1,908) (13,930)
Net Increase in Cash and Cash Equivalents 4,653 (648)
Cash and Cash Equivalents: Beginning of Period 23,000 13,019
End of Period 27,653 12,371
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income 1,581 1,545
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 152 137
Provision for Possible Credit Losses 0 0
Provision for Deferred Taxes 87 88
Amortization of Investment Securities Premiums 120 223
Increase (Decrease) in Taxes Payable 687 (105)
(Increase) Decrease in Interest Receivable (567) (182)
Increase (Decrease) in Interest Payable 679 847
Increase (Decrease) in Accrued Expenses 175 (6)
(Increase) Decrease in Other Assets (1,896) (597)
Increase (Decrease) in Other Liabilities 171 (1)
Net Cash Provided by Operating Activities 1,189 1,949
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 March 31, 1996 and 1995
and December 31, 1995 and the results of its operations for the three months
ended March 31 1996 and 1995 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 1995 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 March 31, 1996
and December 31, 1995 were as follows:
3/31/96 12/31/95
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- ------
(000) omitted)
U.S. Treasury 45,280 45,454 47,400 47,779
U.S. Government Agencies
and Corporations 53,971 53,721 54,000 53,921
State and Municipal 1,125 1,126 962 964
Other Investments 2,570 2,570 2,480 2,480
-------- ------- -------- --------
Total $102,946 $102,871 $104,842 $105,144
======== ======== ======== ========
Income earned on investment securities was as follows:
Three Months Ended March 31
1996 1995
------ ------
(000 omitted)
U.S. Treasury 631 1,040
U.S. Government Agencies and Corporations 664 553
State and Municipal 16 21
Other Investments 41 36
------ ------
$1,352 $1,650
====== ======
Page 6
March 31 December 31
1996 1995
--------- -----------
(000 omitted)
Real Estate 283,564 285,817
Real Estate Construction 11,614 12,951
Commercial and Industrial 9,732 9,268
Consumer 15,444 15,966
-------- --------
Gross Loans 320,354 324,002
Less: Unearned Discount -- --
-------- --------
Total Loans $320,354 $324,002
======== ========
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, 1996 and
1995 were 5,307,756 and 5,316,122 respectively.
5. Dividends per share were $1.17 and $0.16 for the three month periods
ended March 31, 1996 and 1995 respectively. This represented a 390%
payout of net income in 1996 and a 55% payout in 1995. The 1996 dividend
includes a $1.00 special dividend paid in January 1996.
6. The results of operations for the three month periods ended March 31, 1996
and 1995 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 three months of 1996 was $1,581,000,
an increase of 2.3% from $1,545,000 in 1995. Return on Average Total Assets was
1.40% for the first three months of 1996 compared with 1.34% for the same period
of 1995. Return on Average Shareholders Equity was 13.30% for the three months
ended March 31, 1996 compared with 12.54% for 1995.
The increase in 1996 earnings, compared to the same period in 1995, is due to
decreased other expenses. Net interest income is down $18,000 for the first
three months of 1996 compared to 1995, other expenses (salaries and fixed
assets) are up $133,000, and other expenses are down $237,000. Monthly expense
for FDIC insurance declined from $74,000 in 1995 to $166 in 1996. Exclusive of
that change other expenses would be down $15,000.
The Corporation's balance sheet indicates no growth in total assets and while
this is somewhat misleading because the decline in shareholders equity, caused
by the special $1.00 dividend paid in January 1996, offset positive deposit
growth, total growth has not been robust. Loan demand has also been more
sensitive to market conditions and while up 2% from March 31, 1995 to March 31,
1996 is down 1% since December 31, 1995.
Earnings per share was $.30 in 1996 and $.29 in 1995, while the regular dividend
increased from $.16 to $.17 in 1995.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
Three months Ended
3/31/96 3/31/95
Rate Rate
------- --------
Earning Assets 7.48% 7.06%
Interest Bearing Liabilities 4.10 3.67
Interest Rate Spread 3.38 3.39
Net Yield on Earning Assets 4.07 3.98
Page 8
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 1996, was up 9
basis points compared to the same period in 1995. This is a result of improved
loan demand and a shift to loans from lower yielding government securities. Net
yield as income is basically unchanged as total earning assets remained constant
but interest bearing deposits, as a percentage of deposits, increased as capital
decreased year over year.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In thousands)
Nine Months Ended
3/31/96 3/31/95
------- -------
Balance at Beginning of Period 3,274 3,370
Provision Charged to Expense 0 0
Loans Charged Off 26 27
Recoveries 5 6
Balance at End of Period 3,253 3,349
Ratios:
Net Charge-offs to:
Net Income 1.33% 1.36%
Total Loans .01 .01
Reserve for Possible Loan Losses .65 .63
Reserve for Possible Loan Losses to:
Total Loans 1.02 1.07
Page 9
The Reserve for Possible Loan Losses at March 31, 1996 totaled $3,253,000 (1.02%
of Total Loans), a decrease of $96,000 from $3,349,000 (1.07% of Total Loans) at
the end of the first three months of 1995. Loans past due 90 days and still
accruing amounted to $2,376,000 and non-accrual loans totaled $1,041,000 as of
3/31/96. The ratio of non-performing assets plus other real estate owned to
total assets was .89% at 3/31/96. 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 $2,620,000 at yearend 1995 while
non-accruals stood at $1,303,000. 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 $1,041,000 in non-accrual loans, was approximately
$23,000 for the first three months of 1996.
CAPITAL MANAGEMENT
Total Shareholders' Equity amounted to $46,834,000 at 3/31/96 compared to
$49,342,000 at 3/31/95, a decrease of $2,508,000 or 5.4% over that period. The
ratio of Total Shareholders' Equity to Total Assets was 10.72% at 3/31/95,
11.20% at 12/31/95, and 10.18% at 3/31/96. The leverage ratio was 10.32% at
3/31/96 while the total risk-based capital ratio was 18.62%. The reduction in
the capital ratios from yearend 1995 to 3/31/96 was caused by the special
dividend of $1.00 per share paid in January 1996.
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 15.5% of total assets at 3/31/96. This mix of assets
would be readily available for funding any cash requirements.
As of 3/31/96 the cumulative asset sensitive gap was 16% of total assets at one
month, 17.4% at six months, and 32.6% 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.
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 March 31, 1996.
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
/s/ Ronald L. Hankey
April 30, 1996 ----------------------------------
(date) Ronald L. Hankey
President
/s/ John W. Krichten
---------------------------------
John W. Krichten
Secretary/Treasurer
Page 11