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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, 1999
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11783
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ACNB CORPORATION
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(Exact name of corporation 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
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(corporation'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 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 ____
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 ____
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 4, 1999 - 5,783,453
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PART 1 ITEM I
FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
31-Mar 31-Mar 31-Dec
1999 1998 1998
ASSETS (000 omitted)
Cash and Due from Banks 31,373 29,073 20,803
Investment Securities
Securities Held to Maturity 47,503 46,629 47,505
Securities Available for Sale 110,209 73,568 113,258
--------- --------- ---------
Total Investment Securities 157,712 120,197 160,763
Federal Funds Sold 3,935 3,845 2,718
Loans 345,109 357,876 352,355
Less: Reserve for Loan Losses (3,608) (3,416) (3,594)
--------- --------- ---------
Net Loans 341,501 354,460 348,761
Premises and Equipment 4,703 5,214 4,877
Other Real Estate 249 552 250
Other Assets 7,291 6,365 6,091
--------- --------- ---------
TOTAL ASSETS $ 546,764 $ 519,706 $ 544,263
========= ========= =========
LIABILITIES
Deposits
Noninterest Bearing 59,073 53,338 60,745
Interest Bearing 402,271 385,442 394,955
--------- --------- ---------
Total Deposits 461,344 438,780 455,700
Securities Sold Under
Agreement To Repurchase 18,274 16,392 22,658
Borrowing Federal Home Loan Bank 0 0 0
Demand Notes U.S. Treasury 418 450 100
Other Liabilities 5,439 5,110 4,060
--------- --------- ---------
TOTAL LIABILITIES 485,475 460,732 482,518
SHAREHOLDERS EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,783,453 shares issued and
outstanding at 3/31/99 14,459 14,538 14,538
Surplus 2,620 3,028 3,028
Retained Earnings 43,573 40,514 42,845
Net unrealized gains on securities available
for sale 637 894 1,334
--------- --------- ---------
TOTAL SHAREHOLDERS EQUITY 61,289 58,974 61,745
TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY $ 546,764 $ 519,706 $ 544,263
========= ========= =========
See accompanying notes to financial statements.
Page 2
ACNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
3/31
1999 1998
(000 omitted)
------ ------
INTEREST INCOME
Loan Interest and Fees 6,823 7,367
Interest and Dividends on
Investment Securities 2,501 1,916
Interest on Federal Funds Sold 40 31
Interest on Balances with
Depository Institutions 87 99
------ ------
TOTAL INTEREST INCOME 9,451 9,413
INTEREST EXPENSE
Deposits 3,818 3,817
Other Borrowed Funds 204 159
------ ------
TOTAL INTEREST EXPENSE 4,022 3,976
NET INTEREST INCOME 5,429 5,437
Provision for Loan Losses 90 90
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,339 5,347
OTHER INCOME
Trust Department 153 70
Service Charges on Deposit Accounts 233 185
Other Operating Income 244 261
Securities Gains 0 0
------ ------
TOTAL OTHER INCOME 630 516
OTHER EXPENSES
Salaries and Employee Benefits 1,848 1,816
Premises and Fixed Assets 523 492
Other Expenses 791 723
------ ------
TOTAL OTHER EXPENSE 3,162 3,031
INCOME BEFORE INCOME TAX 2,807 2,832
Applicable Income Tax 903 925
------ ------
NET INCOME $1,904 $1,907
====== ======
EARNINGS PER SHARE* $ 0.33 $ 0.33
DIVIDENDS PER SHARE* 0.20 0.18
*Based on 5,804,648 shares outstanding in 1999 and 5,815,246 in 1998
See accompanying notes to financial statements.
Page 3
ACNB CORPORATION AND SUBSIDIARY
STATEMENT OF CASH FLOWS
Three months ended
March 31
1999 1998
(000 omitted)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash Flows from Operating Activities:
Interest and Dividends Received $ 9,349 $ 9,101
Fees and Commissions Received 734 622
Interest Paid (3,573) (3,409)
Cash Paid to Suppliers and Employees (2,043) (3,352)
Income Taxes Paid (249) 0
Net Cash Provided by Operating Activities 4,218 2,962
Cash Flows from Investing Activities:
Proceeds from Maturities of Investment Securities
and Interest Bearing Balances with Other Banks 6,896 4,481
Purchase of Investment Securities and Interest
Bearing Balances with Other Banks (3,900) (15,913)
Principal Collected on Loans 13,484 15,483
Loans Made to Customers (6,313) (15,141)
Capital Expenditures (7) (23)
Net Cash Used in Investing Activities 10,160 (11,113)
Cash Flow from Financing Activities:
Net Increase in Demand Deposits, NOW Accounts, and
Savings Accounts 1,026 4,864
Proceeds from Sale of Certificates of Deposit 9,865 11,227
Payments for Maturing Certificates of Deposit (12,151) (6,954)
Dividends Paid (1,163) (1,029)
Increase (Decrease) in Borrowings 318 0
Repurchase of Dissenting Shares (486) 0
Net Cash Provided by Financing Activities (2,591) 8,108
Net Increase in Cash and Cash Equivalents 11,787 (43)
Cash and Cash Equivalents: Beginning of Period 23,521 32,961
End of Period $ 35,308 $ 32,918
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net Income $ 1,904 $ 1,907
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 181 177
Provision for Possible Credit Losses 90 90
Provision for Deferred Taxes (206) 4
Amortization of Investment Securities Premiums (55) 11
Increase (Decrease) in Taxes Payable 860 872
(Increase) Decrease in Interest Receivable (163) (219)
Increase (Decrease) in Interest Payable 449 560
Increase (Decrease) in Accrued Expenses 815 153
(Increase) Decrease in Other Assets 123 (519)
Increase (Decrease) in Other Liabilities 220 (74)
Net Cash Provided by Operating Activities $ 4,218 $ 2,962
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, 1999 and 1998 and
December 31, 1998 and the results of its operations for the three months
ended March 31, 1999 and 1998 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 1998 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, 1999
and December 31, 1998 were as follows:
3/31/99 12/31/98
Amortized Fair Amortized Fair
Cost Value Cost Value
(000 omitted)
U.S. Treasury and U.S. Government
Agencies (held to maturity) 35,093 35,774 36,309 37,727
State and Municipal (held to
maturity) 8,788 8,816 5,090 5,139
Corporate (held to maturity) 3,622 3,622 3,131 3,135
U.S. Government Agencies 7
(available for sale) 106,234 107,198 111,184 113,221
Other Investments (avail for sale) 3,011 3,011 3,012 3,012
-------- -------- -------- --------
TOTAL $156,748 $158,421 $158,726 $162,234
Income earned on investment securities was as follows:
Three Months Ended March 31
1999 1998
(000 omitted)
U.S. Treasury 318 379
U.S. Government Agencies 1,998 1,427
State and Municipal 89 56
Other Investments 96 54
----- -----
2,501 1,916
Page 5
3. Gross loans are summarized as follows:
March 31 December 31
(000 omitted)
1999 1998
Real Estate 303,802 309,673
Real Estate Construction 14,632 14,018
Commercial and Industrial 11,902 13,163
Consumer 14,773 15,501
-------- --------
Total Loans $345,109 $352,355
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, 1999 and 1998 were 5,804,648
and 5,815,246 respectively.
5. Dividends per share were $.20 and $.18 for the three month periods ended
March 31, 1999 and 1998 respectively. This represented a 61% payout of net
income in 1999 and a 55% payout in 1998.
6. The results of operations for the three month periods ended March 31, 1999
and 1998 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 1998 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, 1999 compared to three months ended March 31, 1998
- -------------------------------------------------------------------------------
Net Income for the three month period ending March 31, 1999 was $1,904,000, down
$3,000 from the first quarter of 1998. Total other income was up, but other
expense was also up resulting in a break-even situation. Net income per share,
for the first quarter, was $.33, comparable to the $.33 earned in the same
period in 1998. For the three month period (annualized) in 1999, the return on
average assets and return on average equity were 1.41% and 12.27%, respectively,
compared to 1.50% and 12.96%, respectively for 1998.
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 1999 was $9,451,000,
up $38,000 or .4% above the $9,413,000 earned in the same period of 1998. The
$38,000 increase in interest income was due to greater volume of securities and
due from banks. The average yield on earning assets has decreased 44 basis
points over the same quarter in 1998. 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 $88 million. Income from
securities and due from banks during the current period increased due to growth
of approximately $38 million.
Page 7
Total interest expense for the first three month period of 1999 was $4,022,000,
up $46,000 or 2% above the $3,976,000 incurred for the same period in 1998. The
$46,000 increase in interest expense was due primarily to an increase in the
average volume of interest bearing liabilities, which was $18.0 million greater
in the current quarter compared to the same quarter in 1998.
Total non-interest income for the first three month period of 1999 at $630,000,
was $114,000 or 22% greater than the same quarter in 1998. This was primarily
due to a good quarter for the Bank's Trust Department which changed to an
accrual method for charging for trust fees and higher service charges on
deposits. The new deposit service charges went into effect in the third quarter
of 1998 and so are not reflected in first quarter results of 1998.
Total non-interest expense for the first three month period of 1999 was
$3,162,000, up $131,000 or 4% more than the $3,031,000 incurred for the first
quarter of 1998. The increase was spread evenly over all major categories with
no particular area being a major contribution to the increase.
The provision for income taxes in the first quarter decreased $22,000 due to a
lower level of pretax earnings.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
Three Months Ended
3/31/99 3/31/98
Rate Rate
Earning Assets 7.25% 7.69%
Interest Bearing Liabilities 3.94% 4.07%
Interest Rate Spread 3.31% 3.62%
Net Yield on Earning Assets 4.17% 4.44%
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 1999, was down 27
basis points compared to the same period in 1998. This is a result of lower
market yields on loans and securities, and a shift from loans to securities with
insufficient rate relief on the deposit side.
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
Reserve for Possible Loan Losses
(In Thousands) Three Months Ended
3/31/99 3/31/98
Balance at Beginning of Period 3,594 3,350
Provision Charged to Expense 90 90
Loans Charged Off 87 56
Recoveries 11 32
Balance at End of Period 3,608 3,416
Page 8
Ratios:
Net Charge-offs to:
Net Income 3.99% 1.26%
Total Loans .02% .01%
Reserve for Possible Loan Losses 2.11% .70%
Reserve for Possible Loan Losses to:
Total Loans 1.05% .95%
The Reserve for Possible Loan Losses at March 31, 1999 was $3,608,000 (1.05% of
Total Loans), an increase of $92,000 from $3,416,000 (.95% of Total Loans) at
the end of the first three months of 1998. Loans past due 90 days and still
accruing amounted to $2,074,000 and non-accrual loans totaled $1,281,000 as of
March 31, 1999. The ratio of non-performing assets plus other real estate owned
to total assets was .66% at March 31, 1999. 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 $2,350,000 at year end 1998 while
non-accruals stood at $1,450,000. 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 $1,366,000 in non-accrual loans, was
approximately $27,000 for the first three months of 1999.
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 $61,289,000 at March 31, 1999 compared to
$58,974,000 at March 31, 1998, an increase of $2,315,000 or 4% over that period.
The ratio of Total Shareholders' Equity to Total Assets was 11.35% at March 31,
1998, 11.34% at December 31, 1998, and 11.21% at March 31, 1999. The total
risk-based capital ratio was 21.02% at March 31, 1999. The leverage ratio was
11.33% at March 31, 1999, and 11.60% during the same period in 1998. Capital at
the corporation remains strong even with a 61% dividend payout ratio.
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 28% of total assets at March 31, 1999. This mix
of assets would be readily available for funding any cash requirements. In
addition, the Bank has an approved line of credit of $234,135,000 at the Federal
Home Loan Bank of Pittsburgh with $.00 outstanding at March 31, 1999.
Page 9
As of March 31, 1999, the cumulative asset sensitive gap was 10.5% of total
assets at one month, 8.2% at six months, and 12.7% 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 following section contains forward-looking statements which involve risks
and uncertainties. The actual impact on the corporation of the Year 2000 issue
could materially differ from that which is anticipated in the forward-looking
statements as a result of certain factors identified below.
Corporation's State of Readiness
- --------------------------------
The Year 2000 Problem is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
may be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors, leading to disruptions in operations.
If not corrected, many computer applications could fail or create erroneous
results by or at the Year 2000. This could cause entire system failures,
miscalculations, and disruptions of normal business operations including, among
other things, a temporary inability to process transactions, send statements, or
engage in similar day-to-day business activities. The extent of the potential
impact of the Year 2000 Problem is not yet known, and if not timely corrected,
it could affect the global economy.
The corporation has developed a five-phase program for Y2K information and
non-information systems compliance which includes the following:
1. Awareness Phase
o Establish Year 2000 Task Force
o Define Year 2000 Problem
o Develop Year 2000 Plan and Strategy
This phase was completed as of December 31, 1997.
2. Assessment Phase
o Identify and inventory information systems, technology items,
computer programs, business partners, environmental systems, and
data communication links
o Prioritize mission critical systems
o Obtain vendor status for software, hardware, and
outsourced service providers
o Assess impact of Year 2000
This phase was completed as of December 31, 1998.
Page 10
3. Renovation Phase
o Implement hardware and software upgrades
o Replace systems and technology items
o Monitor vendor and service provider progress
This phase was substantially completed as of December 31, 1998.
4. Validation Phase
o Develop testing plan and strategy
o Establish test environment(s)
o Test internal information systems, technology items, computer
programs, environmental systems, and data communication links
o Test with and/or monitor testing of vendors and service
providers
o Obtain vendor certifications
This phase began in May 1998 and will continue through June 30, 1999.
5. Implementation Phase
o Implement Y2K compliant systems and technology items
This phase began in December 1997 and will continue through
October 29, 1999.
Based on an ongoing assessment, the corporation has determined that it will be
required to modify or replace portions of its hardware and software so that its
computer systems will properly use dates beyond December 31, 1999. The
corporation presently believes, that as a result of modifications to existing
software and hardware and conversions to new software, the Year 2000 Problem can
be mitigated. However, if such modifications and conversions are not made, or
are not completed on a timely basis, the Year 2000 Problem could have a material
adverse impact on the operations of the corporation.
The major part of the corporation's software is designed and maintained by
companies well known throughout the banking industry. This portion of the
software has been or is in the process of being renovated for compliance with
the Year 2000. The cost of renovation will be primarily borne by the third-party
providers. Even though the corporation does not have direct control over the
software renovation process, it is monitoring the progress of its third-party
vendors to assess the status of their Y2K readiness efforts. However, because
most computer systems are, by their very nature, interdependent, it is possible
that noncompliant third-party computers could impact the corporation's computer
systems. The corporation could be adversely affected by the Year 2000 Problem if
it or unrelated parties fail to successfully and timely address the problem. The
corporation has taken steps to communicate with the unrelated parties with whom
it deals to coordinate Year 2000 compliance. Additionally, the corporation is
dependent on external suppliers, such as wire transfer systems, telephone
systems, electric companies, and other utility companies, for continuation of
service. The corporation is also assessing the impact, if any, the century date
change may have on its credit risk and fiduciary risk.
Costs of Year 2000
- ------------------
The total cost to implement the five-phase program ranges from approximately
$400,000 to $450,000. Internal costs should approximate $235,000, while outside
consultants for legal work, contingency planning, and verification of testing
will approximate $190,000. Actual costs during the first quarter of 1999 were
$87,000 with $25,000 being internal costs with very little cash outlay and will
be absorbed by current operations.
$53,000 was spent on consultant and legal work in 1998. Fiscal year 1999
expenses have been budgeted at $109,000 for internal costs and $140,000 for
consultant and legal work. There has been a shift in personnel which will
require that more work will have to be outsourced at higher costs in 1999.
Page 11
With actual costs of $184,000 in 1998 and estimated costs of $250,000 for 1999,
the financial impact to the corporation of Year 2000 compliance has not been and
is not anticipated to be material to the corporation's financial position or
results of operations in any given year. However, if compliance is not achieved
in a timely manner by the corporation or any of its significant related third
parties, be it a supplier of services or customer, the Y2K issue could possibly
have a material effect on the corporation's operations and financial position.
The cost of the Y2K project and the dates when the corporation plans to complete
both Year 2000 modifications and systems conversions are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third-party
modification plans, and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to locate and correct all relevant computer codes, the
failure of a related third party to achieve Y2K compliance, and similar
uncertainties.
Risks of Year 2000
- ------------------
At present, management believes its progress in remedying the corporation's
systems, programs and applications and installing Y2K compliant upgrades is on
target. The Y2K computer problem creates risk for the corporation from
unforeseen problems in its own computer systems and from third-party vendors who
provide the majority of mainframe and PC-based computer applications. Failure of
third-party systems relative to the Y2K issue could have a material impact on
the corporation's ability to conduct business.
Contingency Plans
- -----------------
In compliance with Y2K regulatory guidance, the corporation has completed
remediation contingency planning for mission critical systems and will finalize
its business resumption contingency planning by June 30, 1999. Remediation
contingency planning for mission critical systems encompassed the identification
of alternative means of achieving Y2K readiness in the event the mission
critical system service provider or software vendor cannot complete critical
efforts by predetermined trigger dates. The corporation's development of the
business resumption contingency plan includes organizational planning
guidelines, a business impact analysis, a written disaster recovery/contingency
plan, and validation of the plan. Both forms of contingency planning are the
corporation's efforts to minimize any potential disruptions to business
operations due to a Y2K-related issue.
Other Year 2000 Endeavors
- -------------------------
The corporation has also undertaken other endeavors to address the challenges of
the Year 2000 Problem. These include:
1. Stakeholder Communications
o Customer awareness program
o Bank employee communications and training
o Corporation shareholder communications
2. Commercial Customer Credit Risk Control Process
o Due diligence process for current and future material customers
o Assessment of customer Year 2000 readiness
3. Fiduciary Client Risk Control Process
o Due diligence process for fiduciary account and asset
administration servicers including investment
providers, third parties, counterparties and
transfer agents
o Assessment of servicer Year 2000 readiness
Page 12
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, 1994).
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.
The Registrant filed a Current Report on Form 8-K dated March 1, 1999,
reporting Registrant's acquisition of Farmers National Bancorp, Inc., which
Current Report was filed on March 3, 1999 with the Commission.
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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
-------------------------------------
Ronald L. Hankey, President
May 5, 1999
-------------------------------------
John W. Krichten, Secretary/Treasurer
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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 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 15