- --------------------------------------------------------------------------------
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, 1998
-------------------------------------------------
OR
|_| 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
--------------------------------------------------------
ACNB CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
PENNSYLVANIA 23-2233457
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
675 OLD HARRISBURG ROAD, GETTYSBURG, PA 17325
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(717) 334-3161
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark 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 such 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 ____
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant 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 ____
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 May 5, 1998 - 5,253,278
- --------------------------------------------------------------------------------
PART I ITEM I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
31-Mar 31-Mar 31-Dec
1998 1997 1997
--------- --------- ---------
ASSETS (000 omitted)
Cash and Due from Banks 26,518 12,250 28,734
Investment Securities
Securities Held to Maturity 32,933 59,829 32,988
Securities Available for Sale 68,998 49,156 55,935
--------- --------- ---------
Total Investment Securities 101,931 108,985 88,923
Federal Funds Sold 0 100 100
Loans 341,382 331,593 341,808
Less: Reserve for Loan Losses (3,239) (3,168) (3,174)
--------- --------- ---------
Net Loans 338,143 328,425 338,634
Premises and Equipment 4,800 5,278 4,949
Other Real Estate 454 916 401
Other Assets 5,733 6,545 5,096
--------- --------- ---------
TOTAL ASSETS $ 477,579 $ 462,499 $ 466,837
========= ========= =========
LIABILITIES
Deposits
Noninterest Bearing 45,908 43,409 46,839
Interest Bearing 356,657 351,584 348,734
--------- --------- ---------
Total Deposits 402,565 394,993 395,573
Securities Sold Under
Agreement To Repurchase 16,392 13,207 15,021
Borrowing Federal Home Loan Bank 0 0 0
Demand Notes U.S. Treasury 450 450 450
Other Liabilities 4,767 4,533 3,175
--------- --------- ---------
TOTAL LIABILITIES 424,174 413,183 414,219
SHAREHOLDERS EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,253,278 shares issued and
outstanding at 3/31/98 13,133 13,133 13,133
Surplus 3,647 3,647 3,647
Retained Earnings 35,737 32,649 34,968
Net unrealized gains on securities available
for sale 888 (113) 870
--------- --------- ---------
TOTAL SHAREHOLDERS EQUITY 53,405 49,316 52,618
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $ 477,579 $ 462,499 $ 466,837
========= ========= =========
See accompanying notes to financial statements.
PAGE 2
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31
----------------------
1998 1997
------ ------
(000 omitted)
INTEREST INCOME
Loan Interest and Fees 6,980 6,675
Interest and Dividends on
Investment Securities 1,630 1,877
Interest on Federal Funds Sold 1 1
Interest on Balances with
Depository Institutions 99 59
------ ------
TOTAL INTEREST INCOME 8,710 8,612
INTEREST EXPENSE
Deposits 3,524 3,473
Other Borrowed Funds 159 171
------ ------
TOTAL INTEREST EXPENSE 3,683 3,644
NET INTEREST INCOME 5,027 4,968
Provision for Loan Losses 90 30
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,937 4,938
OTHER INCOME
Trust Department 70 96
Service Charges on Deposit Accounts 182 189
Other Operating Income 218 167
Securities Gains 0 0
------ ------
TOTAL OTHER INCOME 470 452
OTHER EXPENSES
Salaries and Employee Benefits 1,668 1,749
Premises and Fixed Assets 463 433
Other Expenses 638 663
------ ------
TOTAL OTHER EXPENSE 2,769 2,845
INCOME BEFORE INCOME TAX 2,638 2,545
Applicable Income Tax 872 839
------ ------
NET INCOME $1,766 $1,706
====== ======
EARNINGS PER SHARE* $ 0.34 $ 0.32
DIVIDENDS PER SHARE* 0.19 0.18
*Based on 5,253,278 shares outstanding in 1998 and 5,258,537 in 1997
See accompanying notes to financial statements.
Page 3
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Three months ended
March 31
----------------------
1998 1997
------- --------
(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received 8,398 7,717
Fees and Commissions Received 576 570
Interest Paid (3,116) (3,044)
Cash Paid to Suppliers and Employees (2,905) (2,925)
Income Taxes Paid 0 0
Net Cash Provided by Operating Activities 2,953 2,318
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 1,861 21,071
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (14,873) (13,560)
Principal Collected on Loans 15,483 17,853
Loans Made to Customers (15,135) (24,465)
Capital Expenditures (10) (26)
Net Cash Used in Investing Activities (12,674) 873
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 4,431 (3,943)
Proceeds from Sale of Certificates of Deposit 10,926 9,859
Payments for Maturing Certificates of Deposit (6,954) (17,579)
Dividends Paid (998) (946)
Increase (Decrease) in Borrowings 0 0
Repurchase of Common Stock 0 (410)
Net Cash Provided by Financing Activities 7,405 (13,019)
Net Increase in Cash and Cash Equivalents (2,316) (9,828)
Cash and Cash Equivalents: Beginning of Period 28,834 22,178
End of Period 26,518 12,350
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income 1,766 1,706
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 159 163
Provision for Possible Credit Losses 90 30
Provision for Deferred Taxes 0 0
Amortization of Investment Securities Premiums 4 0
Increase (Decrease) in Taxes Payable 872 839
(Increase) Decrease in Interest Receivable (213) (423)
Increase (Decrease) in Interest Payable 567 600
Increase (Decrease) in Accrued Expenses 151 282
(Increase) Decrease in Other Assets (446) (525)
Increase (Decrease) in Other Liabilities 3 (354)
Net Cash Provided by Operating Activities 2,953 2,318
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, 1998 and 1997 and
December 31, 1997 and the results of its operations for the three months
ended March 31, 1998 and 1997 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 1997 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, 1998
and December 31, 1997 were as follows:
3/31/98 12/31/97
Amortized Fair Amortized Fair
Cost Value Cost Value
(000 omitted)
U.S. Treasury and U.S. Government
Agencies (held to maturity) 32,144 32,488 32,156 32,286
State and Municipal (held to
maturity) 789 789 832 832
U.S. Government Agencies
(available for sale) 64,791 66,137 51,756 53,074
Other Investments (avail for sale) 2,861 2,861 2,861 2,861
-------- -------- ------- -------
TOTAL $100,585 $102,275 $87,605 $89,053
Income earned on investment securities was as follows:
Three Months Ended March 31
---------------------------
1998 1997
----- -----
(000 omitted)
U.S. Treasury 228 410
U.S. Government Agencies 1,344 1,414
State and Municipal 13 14
Other Investments 45 39
----- -----
1,630 1,877
Page 5
3. Gross loans are summarized as follows:
March 31 December 31
1998 1997
-------- -----------
(000 omitted)
Real Estate 302,048 303,270
Real Estate Construction 13,134 13,674
Commercial and Industrial 9,835 9,758
Consumer 16,365 15,106
-------- -------
Total Loans $341,382 $341,808
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, 1998 and 1997 were 5,253,278
and 5,258,537 respectively.
5. Dividends per share were $.19 and $.18 for the three month periods ended
March 31, 1998 and 1997 respectively. This represented a 57% payout of net
income in 1998 and a 53% payout in 1997.
6. The results of operations for the three month periods ended March 31, 1998
and 1997 are not necessarily indicative of the results to be expected for
the full year.
Page 6
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The following is management's discussion and analysis of the significant
changes in the results of operations, capital resources and liquidity presented
in its accompanying consolidated financial statements for ACNB Corporation, a
bank holding company (the Corporation), and its wholly-owned subsidiary, Adams
County National Bank (the Bank). The Corporation's consolidated financial
condition and results of operations consist almost entirely of the Bank's
financial condition and results of operations. This discussion should be read in
conjunction with the Corporation's 1997 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, 1998 compared to three months ended March 31, 1997
- --------------------------------------------------------------------------------
Net Income for the three month period ending March 31, 1998 was $1,766,000,
up $60,000 or 4% over the first quarter of 1997. The increase in net income was
due primarily to a 4% increase in other income and a 10% decrease in other
expenses as discussed below. Net income per share, for the first quarter, was
$.34, up $.02 or 6% above the $.32 earned in the comparable period in 1997.
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 1998 was
$8,710,000, up $98,000 or 1% above the $8,612,000 earned in the same period of
1997. The $98,000 increase in interest income was due to greater volume of
loans. The average yield on earning assets has increased only 2 basis points
over the same quarter in 1997. In an effort to manage interest rate risk, the
Bank continues to invest in mortgage-backed securities classified as
available-for-sale and now holds a total volume of over $56 million. Income from
loans during the current period increased due to loan growth of approximately
$9.8 million.
Total interest expense for the first three month period of 1998 was
$3,683,000, up $39,000 or 1% above the $3,644,000 incurred for the same period
in 1997. The $39,000 increase in interest expense was due primarily to an
increase in the average volume of interest bearing liabilities, which was $1.1
million greater in the current quarter compared to the same quarter in 1997.
Page 7
Net interest income after provision for loan losses for the first three
month period of 1998 was almost the same as the $4,938,000 earned in the same
period of 1997. Income before provision for loan losses was actually greater in
1998, but a $60,000 greater provision reduced it to within $1,000 of 1997.
Total non-interest income for the first three month period of 1998 at
$470,000, was $18,000 or 4% greater than the same quarter in 1997. This was
primarily due to ATM surcharges, which the Company did not levy in 1997, and
Visa debit card fees, another service instituted in late 1997.
Total non-interest expense for the first three month period of 1998 was
$2,769,000, down $76,000 or 2.7% less than the $2,845,000 incurred for the first
quarter of 1997. Most of the decrease was in salaries and benefits which were
down $81,000 or 2.8%.
The provision for income taxes in the first quarter increased $33,000 or
3.9% due to a higher level of pretax earnings.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
Three Months Ended
--------------------------
3/31/98 3/31/97
------- -------
Rate Rate
Earning Assets 7.83% 7.81%
Interest Bearing Liabilities 4.07% 4.04%
Interest Rate Spread 3.76% 3.77%
Net Yield on Earning Assets 4.50% 4.47%
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 1998, was up
3 basis points compared to the same period in 1997. This is a result of improved
yields on government securities and a larger volume of earning assets.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In Thousands)
Three Months Ended
-------------------------
3/31/98 3/31/97
------- -------
Balance at Beginning of Period 3,174 3,183
Provision Charged to Expense 90 30
Loans Charged Off 56 50
Recoveries 31 5
Balance at End of Period 3,239 3,168
Page 8
Ratios:
Net Charge-offs to:
Net Income 1.42% 2.64%
Total Loans .01% .01%
Reserve for Possible Loan Losses .77% 1.42%
Reserve for Possible Loan Losses to:
Total Loans .95% .96%
The Reserve for Possible Loan Losses at March 31, 1998 was $3,239,000 (.95%
of Total Loans), an increase of $71,000 from $3,168,000 (.96% of Total Loans) at
the end of the first three months of 1997. Loans past due 90 days and still
accruing amounted to $2,006,000 and non-accrual loans totaled $1,371,000 as of
March 31, 1998. The ratio of non-performing assets plus other real estate owned
to total assets was .80% at March 31, 1998. 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 $1,197,000 at year end 1997
while non-accruals stood at $1,640,000. 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 $1,505,000 in non-accrual loans, was
approximately $34,000 for the first three months of 1998.
A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due. Impaired loans are measured 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 $53,405,000 at March 31, 1998
compared to $49,316,000 at March 31, 1997, an increase of $4,089,000 or 8.3%
over that period. The ratio of Total Shareholders' Equity to Total Assets was
10.66% at March 31, 1997, 11.27% at December 31, 1997, and 11.18% at March 31,
1998. The total risk-based capital ratio was 19.3% at March 31, 1998. The
leverage ratio was 11.44% at March 31, 1998, and 10.67% during the same period
in 1997. Capital at ACNB Corporation remains strong even with a 57% dividend
payout ratio. See Note #5 to the Corporation's financial statements for
information regarding dividends paid during 1998.
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 21.1% of total assets at March 31, 1998. This mix
of assets would be readily available for funding any cash requirements. In
addition, the Bank has an approved line of credit of $200,902,000 at the Federal
Home Loan Bank of Pittsburgh with $0 outstanding at March 31, 1998.
Page 9
As of March 31, 1998, the cumulative asset sensitive gap was 13.1% of total
assets at one month, 10.7% at six months, and 18.0% 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
The Company is in the process of assessing the cost and extent of
vulnerability of the Company's computer systems to the "Year 2000 problem".
Modifications or replacements of computer systems to attain Year 2000 compliance
have begun, and the Company expects to attain Year 2000 compliance and institute
appropriate testing of its modifications and replacements before the Year 2000
date change. The Company believes that, with modifications to existing software
and conversions to new software, the Year 2000 problem will not pose a
significant operational problem for the Company. However, because most computer
systems are, by their very nature, interdependent, it is possible that
non-compliant third party computers could "reinfect" the Company's computer
systems. The Company could be adversely affected by the Year 2000 problem if it
or unrelated parties fail to successfully address this problem. The Company has
taken steps to communicate with the unrelated parties with whom it deals to
coordinate Year 2000 compliance. Most of the costs incurred in addressing the
Year 2000 problem are expected to be expenses as incurred, in compliance with
GAAP.
The financial impact to the Company of Year 2000 compliance has not been
and is not anticipated to be material to the Company's financial position or
results of operations in any given year.
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.
Page 10
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, 1994).
Exhibit 3(ii) Bylaws of Registrant (Incorporated by Reference to
Exhibit 3(ii) in Registrant's 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.
The Registrant filed a Current Report on Form 8-K on March 25, 1998 to file
certain Exhibits with the Commission.
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
---------------------------------------
Ronald L. Hankey, President
May 5, 1998
---------------------------------------
John W. Krichten, Secretary/Treasurer
Page 11
EXHIBIT INDEX
Exhibit Number
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, 1994).
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 11 Statement Regarding Computation of Earnings Per Share.
Exhibit 27 Financial Data Schedule.
Page 12