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, 2001 -------------------------------------------------- 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 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 - -------------------------------------------------------------------------------- (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 March 31, 2001 - 5,436,101
<TABLE> <CAPTION> PART I ITEM I FINANCIAL INFORMATION ACNB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CONDITION 3/31 3/31 12/31 2001 2000 2000 ASSETS (000 omitted) <S> <C> <C> <C> Cash and Due from Banks $ 20,616 $ 26,755 $ 20,202 Investment Securities Securities Held to Maturity 62,134 67,243 63,724 Securities Available for Sale 103,911 92,597 108,342 -------- -------- -------- Total Investment Securities 166,045 159,840 172,066 Federal Funds Sold 8,659 1,146 3,514 Loans 358,879 347,340 360,990 Less: Reserve for Loan Losses (3,712) (3,558) (3,695) -------- -------- -------- Net Loans 355,167 343,782 357,295 Premises and Equipment 4,989 4,467 4,688 Other Real Estate 1,077 120 981 Other Assets 13,979 9,279 8,584 -------- -------- -------- TOTAL ASSETS $570,532 $545,389 $567,330 ======== ======== ======== LIABILITIES Deposits Noninterest Bearing 63,858 64,707 66,739 Interest Bearing 393,412 392,579 386,410 -------- ------- -------- Total Deposits 457,270 457,286 453,149 Securities Sold Under Agreement To Repurchase 27,341 23,331 32,207 Borrowing Federal Home Loan Bank 16,965 0 16,300 Demand Notes U.S. Treasury 450 450 450 Other Liabilities 6,503 5,044 4,787 -------- -------- -------- TOTAL LIABILITIES 508,529 486,111 506,893 SHAREHOLDERS' EQUITY Common Stock ($2.50 par value) 20,000,000 shares authorized: 5,436,101 shares issued and outstanding at 3/31/01 13,590 14,223 13,602 Surplus 0 1,016 0 Retained Earnings 47,135 46,593 46,258 Net unrealized gains (losses) on securities available for sale 1,278 (2,554) 577 -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 62,003 59,278 60,437 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $570,532 $545,389 $567,330 ======== ======== ======== </TABLE> See accompanying notes to financial statements. Page 2
<TABLE> <CAPTION> ACNB CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three Months Ended 3/31 2001 2000 (000 omitted) INTEREST INCOME <S> <C> <C> Loan Interest and Fees $7,232 $6,827 Interest and Dividends on Investment Securities 2,792 2,628 Interest on Federal Funds Sold 71 15 Interest on Balances with Depository Institutions 38 111 ------ ------ TOTAL INTEREST INCOME 10,133 9,581 INTEREST EXPENSE Deposits 3,840 3,621 Other Borrowed Funds 674 317 ------ ------ TOTAL INTEREST EXPENSE 4,514 3,938 NET INTEREST INCOME 5,619 5,643 Provision for Loan Losses 60 60 NET INTEREST INCOME AFTER PROVISION ------ ------ FOR LOAN LOSSES 5,559 5,583 OTHER INCOME Trust Department 158 121 Service Charges on Deposit Accounts 238 219 Other Operating Income 454 278 Securities Gains 0 24 ------ ------ TOTAL OTHER INCOME 850 642 OTHER EXPENSES Salaries and Employee Benefits 1,846 1,842 Premises and Fixed Assets 563 503 Other Expenses 990 952 ------ ------ TOTAL OTHER EXPENSE 3,399 3,297 INCOME BEFORE INCOME TAX 3,010 2,928 Applicable Income Tax 982 945 ------ ------ NET INCOME $2,028 $1,983 ====== ====== EARNINGS PER SHARE* $0.37 $0.35 DIVIDENDS PER SHARE* 0.20 0.20 </TABLE> *Based on 5,436,165 shares outstanding in 2001 and 5,661,063 in 2000 See accompanying notes to financial statements. Page 3
<TABLE> <CAPTION> ACNB CORPORATION AND SUBSIDIARIES STATEMENT OF CASH FLOWS Three months ended 3/31 2001 2000 (000 omitted) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS <S> <C> <C> Cash Flows from Operating Activities: Interest and Dividends Received $ 9,705 $ 9,263 Fees and Commissions Received 938 817 Interest Paid (3,975) (3,464) Cash Paid to Suppliers and Employees (8,479) (3,620) Income Taxes Paid 0 (130) Net Cash (Used in) Provided by Operating Activities (1,811) 2,866 Cash Flows from Investing Activities: Proceeds from Maturities of Investment Securities and Interest Bearing Balances with Other Banks 7,047 3,493 Purchase of Investment Securities and Interest Bearing Balances with Other Banks 0 (10,549) Principal Collected on Loans 17,862 18,030 Loans Made to Customers (15,889) (17,577) Capital Expenditures (409) (113) Net Cash (Used in) Provided by Investing Activities 8,611 (6,716) Cash Flow from Financing Activities: Net Increase in Demand Deposits, NOW Accounts, and Savings Accounts (4,488) 560 Proceeds from Sale of Certificates of Deposit 8,837 6,196 Payments for Maturing Certificates of Deposit (5,094) (8,149) Dividends Paid (1,087) (1,150) Increase (Decrease) in Borrowings 665 0 Retirement of Common Stock (74) (1,096) Net Cash Used in Financing Activities (1,241) (3,639) Net Increase (Decrease) in Cash and Cash Equivalents 5,559 (7,489) Cash and Cash Equivalents: Beginning of Period 23,716 35,390 End of Period $29,275 $27,901 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Income $ 2,028 $ 1,983 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 108 170 Provision for Possible Credit Losses 60 60 Provision for Deferred Taxes 0 (12) (Amortization) Accretion of Investment Securities Premiums 59 0 Increase (Decrease) in Taxes Payable 982 827 (Increase) Decrease in Interest Receivable 6 (194) Increase (Decrease) in Interest Payable 539 474 Increase (Decrease) in Accrued Expenses 364 74 (Increase) Decrease in Other Assets (5,552) (567) Increase (Decrease) in Other Liabilities (405) 51 Net Cash (Used in) Provided by Operating Activities $(1,811) $ 2,866 </TABLE> 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
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, 2001 and 2000 and December 31, 2000 and the results of its operations for the three months ended March 31, 2001 and 2000 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 2000 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, 2001 and December 31, 2000 were as follows: 3/31/01 12/31/00 Amortized Fair Amortized Fair Cost Value Cost Value (000 omitted) U.S. Treasury and U.S. Government Agencies (held to maturity) 50,743 52,176 50,955 51,711 State and Municipal (held to maturity) 2,468 2,485 2,624 2,606 Corporate (held to maturity) 5,397 5,444 6,619 6,639 U.S. Government Agencies (available for sale) 101,971 103,911 107,467 108,342 Restricted Equity Securities 3,526 3,526 3,526 3,526 -------- -------- -------- -------- TOTAL $164,105 $167,542 $171,191 $172,824 Income earned on investment securities was as follows: Three Months Ended March 31 2001 2000 (000 omitted) U.S. Treasury 245 255 U.S. Government Agencies 2,339 2,136 State and Municipal 30 48 Other Investments 178 189 ----- ----- 2,792 2,628 Page 5
3. Gross loans are summarized as follows: March 31 December 31 (000 omitted) 2001 2000 Real Estate 313,496 314,385 Real Estate Construction 15,262 15,786 Commercial and Industrial 17,210 18,376 Consumer 12,911 12,443 -------- -------- Total Loans $358,879 $360,990 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, 2001 and 2000 were 5,436,165 and 5,661,063 respectively. 5. Dividends per share were $.20 and $.20 for the three month periods ended March 31, 2001 and 2000 respectively. This represented a 54% payout of net income in 2001 and a 57% payout in 2000. 6. The results of operations for the three month periods ended March 31, 2001 and 2000 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 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 subsidiary, Adams County National Bank, follow. The Registrant'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 2000 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, 2001 compared to three months ended March 31, 2000 - ------------------------------------------------------------------------------- Net Income for the three month period ending March 31, 2001 was $2,028,000, up $45,000 from the first quarter of 2000. Net interest income was down, but total other income was up and other expense was up. The first quarter increase is due to cost control in wages and salaries and improvements in other income. Net income per share, for the first quarter, was $.37, compared to the $.35 earned in the same period in 2000. For the three month period (annualized) in 2001, the return on average assets and return on average equity were 1.44% and 13.32%, respectively, compared to 1.47% and 12.84%, respectively for 2000. 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 2001 was $10,133,000, up $552,000 or 5.8% above the $9,581,000 earned in the same period of 2000. The $552,000 increase in interest income was due to improved yield on earning assets. The average yield on earning assets has increased 20 basis points over the same quarter in 2000. In an effort to manage interest rate risk, the Registrant continues to invest in mortgage-backed securities classified as available-for-sale and now holds a total volume of over $85 million. Income from loans and securities during the current period increased approximately $569,000 due to increased volume and interest rates. Page 7
Total interest expense for the first three month period of 2001 was $4,514,000, up $576,000 or 14.6% from the $3,938,000 incurred for the same period in 2000. The $576,000 increase in interest expense was due to increased interest rates and increased borrowings at the Federal Home Loan Bank. Since the increase in interest expense exceeded the increase in interest income, net interest income was adversely effected and narrowed by $24,000. Total other income for the first three month period of 2001 at $850,000, was $208,000 greater than the same quarter in 2000. This was primarily due to new premium income earned from an investment in Pennbanks Insurance Company of $132,000. This was offset by an equal amount of expense (see below). The additional increase was spread across Trust, service charges on deposits, and an investment known as bank owned life insurance (BOLI). Total other expense for the first three month period of 2001 was $3,399,000, up $102,000 from the $3,297,000 incurred for the first quarter of 2000. The increase was centered in Pennbanks Insurance Company expense of $132,000. Tight cost control kept other expenses, including salary and employment benefits, at or below the year 2000, though this trend is not expected to continue through the remainder of the year. The provision for income taxes in the first quarter increased $37,000 due to a higher level of pretax earnings. INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS Three Months Ended 3/31/01 3/31/00 Rate Rate Earning Assets 7.58% 7.38% Interest Bearing Liabilities 4.12% 3.77% Interest Rate Spread 3.46% 3.61% Net Yield on Earning Assets 4.21% 4.35% 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 2001, was down 14 basis points compared to the same period in 2000. Yields on loans and securities have changed more rapidly than deposit rates as interest rates in the general economy have risen and fallen over the last twelve months. This was beneficial during the last half of 2000, but not during first quarter 2001. PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES Reserve for Possible Loan Losses (In Thousands) Three Months Ended 3/31/01 3/31/00 Balance at Beginning of Period 3,695 3,543 Provision Charged to Expense 60 60 Loans Charged Off 62 63 Recoveries 19 18 Balance at End of Period 3,712 3,558 Ratios: Net Charge-offs to: Net Income 2.12% 2.27% Total Loans .01% .01% Reserve for Possible Loan Losses 1.16% 1.26% Reserve for Possible Loan Losses to: Total Loans 1.03% 1.02% Page 8
The Reserve for Possible Loan Losses at March 31, 2001 was $3,712,000 (1.03% of Total Loans), an increase of $154,000 from $3,558,000 (1.02% of Total Loans) at the end of the first three months of 2000. Loans past due 90 days and still accruing were $1,390,000 and non-accrual loans were $1,572,000, as of March 31, 2001. The ratio of non-performing assets plus other real estate owned to total assets was .71%, at March 31, 2001. 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 $1,528,000, at year end 2000, while non-accruals were at $1,318,000. 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 $1,445,000 in non-accrual loans, was approximately $31,000 for the first three months of 2001. The bank considers a loan impaired when, based on current information and events, it is probable that a lender 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 lender 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 was $62,003,000 at March 31, 2001, compared to $59,278,000 at March 31, 2000, an increase of $2,725,000 or 4.6% over that period. The ratio of Total Shareholders' Equity to Total Assets was 10.65% at December 31, 2000, 10.87% at March 31, 2000, and 10.87% at March 31, 2001. The total risk-based capital ratio was 20.37% at March 31, 2001. The leverage ratio was 10.99% at March 31, 2001, and 10.96% during the same period in 2000. Capital at the corporation remains strong even with a 54% 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 27% of total assets at March 31, 2001. This mix of assets would be readily available for funding any cash requirements. In addition, the Bank has an approved line of credit of $266,238,000 at the Federal Home Loan Bank of Pittsburgh with $16,965,000 outstanding at March 31, 2001. Page 9
As of March 31, 2001, the cumulative asset sensitive gap was 8.8% of total assets at one month, 5.1% at six months, and 12.5% 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. 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 10.2 Executive Employment Agreement Dated as of January 1, 2000 between Adams County National Bank, ACNB Corporation and Thomas A. Ritter (Incorporated by Reference to Exhibit 99 of the Registrant's Current Report on Form 8-K, filed with the Commission on March 26, 2001). Exhibit 11 Statement Regarding Computation of Earnings Per Share. (b) Report on Form 8-K. 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 Thomas A. Ritter, President May 4, 2001 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, 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 10.2 Executive Employment Agreement Dated as of January 1, 2000 between Adams County National Bank, ACNB Corporation and Thomas A. Ritter (Incorporated by Reference to Exhibit 99 of the Registrant's Current Report on Form 8-K, filed with the Commission on March 26, 2001). Exhibit 11 Statement Regarding Computation of Earnings Per Share. Page 12