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, 2004
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.)
16 LINCOLN SQUARE, 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 [ ]
Indicate by check mark whether the corporation is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X} No [ ]
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, 2004 - 5,436,101
PART I
ITEM I FINANCIAL INFORMATION
ACNB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
Unaudited
March 31 December 31
------------------------ -----------
2004 2003 2003
--------- --------- ---------
ASSETS
Dollars In thousands-except per share data
Cash and Due from Banks $ 19,362 $ 21,565 $ 32,381
Interest bearing deposits with banks 1,047 6,033 1,033
Investment Securities
Securities Held to Maturity 47,729 32,941 49,730
Securities Available for Sale 349,018 323,037 345,569
--------- --------- ---------
Total Investment Securities 396,747 355,978 395,299
(Fair value $397,916, $358,807
and $396,192 respectively)
Mortgage loans held for sale 286 -- 86
Loans 418,744 380,728 415,029
Less: Allowance for Loan Losses (4,043) (3,849) (3,978)
--------- --------- ---------
Net Loans 414,701 376,879 411,051
Premises and Equipment 6,901 7,357 7,053
Other Real Estate 561 515 561
Other Assets 25,988 23,665 25,267
--------- --------- ---------
TOTAL ASSETS $ 865,593 $ 791,992 $ 872,731
========= ========= =========
LIABILITIES
Deposits
Noninterest Bearing $ 73,137 $ 75,266 $ 75,819
Interest Bearing 579,586 529,527 563,569
--------- --------- ---------
Total Deposits 652,723 604,793 639,388
Securities Sold Under
Agreement To Repurchase 28,744 33,089 39,906
Borrowings Federal Home Loan Bank 104,961 75,000 116,320
Demand Notes U.S. Treasury 450 469 450
Other Liabilities 5,547 7,034 4,276
--------- --------- ---------
TOTAL LIABILITIES 792,425 720,385 800,242
SHAREHOLDERS' EQUITY
Common Stock ($2.50 par value)
20,000,000 shares authorized:
5,436,101 shares issued and
outstanding 13,590 13,590 13,590
Retained Earnings 59,667 54,054 58,711
Accumulated Other Comprehensive
Income (Loss) (89) 3,963 90
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY 73,168 71,607 72,489
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 865,593 $ 791,992 $ 872,731
========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
Page 2
ACNB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31
---------------------------
2004 2003
------ ------
INTEREST INCOME,
Dollars In thousands, except per share data
Loan Interest and Fees $5,887 $6,053
Time deposits with banks 59 15
Taxable securities 2,762 3,325
Non-taxable securities 230 172
------ ------
TOTAL INTEREST INCOME 8,938 9,565
INTEREST EXPENSE
Interest bearing deposits 2,386 3,109
Other borrowed funds 683 587
------ ------
TOTAL INTEREST EXPENSE 3,069 3,696
------ ------
NET INTEREST INCOME 5,869 5,869
Provision for Loan Losses 75 60
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,794 5,809
NON-INTEREST INCOME
Trust Income 169 162
Service Charges on Deposit Accounts 435 417
Other Operating Income 436 561
Gain (Loss) on Other Real Estate -- 222
Bank Owned Life Insurance 99 127
Securities Gains 817 450
------ ------
TOTAL NON-INTEREST INCOME 1,956 1,939
NON-INTEREST EXPENSE
Salaries and Employee Benefits 2,627 2,452
Net occupancy expense 270 247
Equipment expense 527 400
Other taxes 319 243
Professional services 124 67
Other expense 969 893
------ ------
TOTAL NON-INTEREST EXPENSE 4,836 4,302
INCOME BEFORE INCOME TAXES 2,914 3,446
Applicable Income Taxes 793 979
------ ------
NET INCOME $2,121 $2,467
====== ======
PER COMMON SHARE DATA
Basic earnings $ 0.39 $ 0.45
Cash dividends paid $ 0.21 $ 0.21
The accompanying notes are an integral part of the
consolidated financial statements.
Page 3
ACNB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
---------------------------
2004 2003
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS In thousands
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest and Dividends Received $ 10,970 $ 10,821
Fees and Commissions Received 2,111 2,109
Interest Paid (2,972) (3,593)
Cash Paid to Suppliers and Employees (5,085) (5,043)
Income Taxes Paid (1,237) 0
Loans Originated for Sale (1,587) (4,476)
Proceeds of Mortgage Loans Sold 1,387 5,214
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,587 5,032
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities
Held-to-Maturity 2,675 404
Proceeds from Sales and Maturities of
Investment Securities Available - for Sale 121,868 58,960
Purchase of Investment Securities Held - to - Maturity (674) (1,687)
Purchase of Investment Securities Available - for - Sale (126,358) (98,757)
Net Decrease (Increase) in Loans (3,714) (5,879)
Capital Expenditures (61) (359)
Proceeds From Sale of Other Real Estate Owned 0 494
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,264) (46,824)
CASH FLOW FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Demand Deposits, NOW Accounts, and
Net Increase (Decrease) in Savings Accounts 2,972 19,388
Net Increase (Decrease) in Certificates of Deposit 10,363 (67)
Net Decrease in Securities Sold Under Agreement to Repurchase (11,162) (2,856)
Dividends Paid (1,142) (1,142)
Net Increase (Decrease) in Borrowings (11,359) 34,969
--------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,328) 50,292
--------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (13,005) 8,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,414 19,098
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,409 $ 27,598
========= ========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
- -----------------------------------------------------------------------------------------
Net Income $ 2,121 $ 2,467
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation and Amortization 213 184
Provision for Loan Losses 75 60
Benefit for Deferred Taxes 146 (404)
Amortization (Accretion) of Investment Securities
Premiums (Discounts) 827 656
Increase (Decrease) in Taxes Payable (590) 1,383
(Increase) Decrease in Interest Receivable 138 257
Increase (Decrease) in Interest Payable 97 103
Increase (Decrease) in Accrued Expenses 495 251
Decrease (Increase) in Mortgage Loans Held for Sale (200) 738
(Increase) Decrease in Other Assets (957) (1,176)
Increase (Decrease) in Other Liabilities 1,222 513
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,587 $ 5,032
========= ========
The accompanying notes are an integral part of the
consolidated financial statements.
Page 4
ITEM 1
ACNB CORPORATION AND SUBSIDIARIES
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, 2004 and
2003 and December 31, 2003 and the results of its operations for the
three months ended March 31, 2004 and 2003 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 Corporation are set forth in
Note A to the corporation's financial statements in the 2003 ACNB
Corporation Annual Report and Form 10-K, filed with the SEC on March
12, 2004. The results of operations for the three month periods ended
March 31, 2004 are not necessarily indicative of the results to be
expected for the full year.
2. The book and approximate fair value of securities owned at March 31,
2004 and December 31, 2003 were as follows:
3/31/04 12/31/03
--------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-------- -------- -------- --------
(000 omitted)
U.S. Treasury and U.S. Government
Agencies (held to maturity) $ 15,534 $ 16,877 $ 15,535 $ 16,800
State and Municipal (held to
maturity) 354 354 447 447
State and Municipal
(available for sale) 22,921 23,116 22,922 23,271
U.S. Government Agencies
(available for sale) 70,000 69,571 40,000 39,836
Mortgage Backed Securities
(available for sale) 152,337 152,771 176,467 176,061
Mortgage Backed Securites
(held to maturity) 23,621 23,447 26,201 25,829
Corporate (available for sale) 103,356 103,560 105,500 106,401
Restricted Equity Securities 8,220 8,220 7,547 7,547
-------- -------- -------- --------
TOTAL $396,343 $397,916 $394,619 $396,192
======== ======== ======== ========
Page 5
Income earned on investment securities was as follows:
Three Months Ended March 31
---------------------------
2004 2003
------ ------
(000 omitted)
U.S. Treasury and U.S.
Government Agencies $ 480 $ 545
Mortgage Backed Securities 1,442 1,945
State and Municipal 230 172
Other Investments 840 835
------ ------
$2,992 $3,497
====== ======
3. Gross loans are summarized as follows:
March 31 December 31
-------- -----------
(000 omitted)
2004 2003
-------- --------
Real Estate $368,490 $363,515
Real Estate Construction 20,089 22,298
Commercial and Industrial 18,967 18,080
Consumer 11,484 11,222
-------- --------
Total Loans $419,030 $415,115
======== ========
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, 2004 and 2003
were 5,436,101 and 5,436,101, respectively. The Corporation does not
have dilutive securities outstanding.
5. Dividends paid per share were $.21 and $.21 for the three month periods
ended March 31, 2004 and 2003, respectively. This represented a 54%
payout of net income in 2004 and a 47% payout in 2003.
6. Components of Net Periodic Benefit Cost
The components of net periodic benefit costs for the three months ended
March 31 was as follows:
(in thousands)
2004 2003
----- -----
Service Cost $ 109 $ 89
Interest Cost 196 184
Expected Return on Plan Assets (185) (161)
Recognized Net Actuarial Loss 19 12
Amortization of Transition Asset 3 3
Amortization of Prior Service Cost 12 18
----- -----
Net Periodic Benefit Cost $ 154 $ 145
Page 6
The Corporation previously disclosed in its financial statements for
the year ended December 31, 2003, that it expected to contribute
$1,155,000 to its pension plan in 2004. As of March 31, 2004,
$1,155,000 of contributions have been made. The Corporation further
anticipates to contribute additional funds to its pension plan in the
fourth quarter of 2004.
7. Guarantees
The Corporation does not issue any guarantees that would require
liability recognition or disclosure, other than its standby letters of
credit. Standby letters of credit are written conditional commitments
issued by the Corporation to guarantee the performance of a customer to
a third party. Generally, all letters of credit, when issued have
expiration dates within one year. The credit risk involved in issuing
letters of credit is essentially the same as those that are involved in
extending loan facilities to customers. The Corporation, generally,
holds collateral and/or personal guarantees supporting these
commitments. The Corporation had $5,492,000 in standby letters of
credit, as of March 31, 2004. Management believes that the proceeds
obtained through a liquidation of collateral and the enforcement of
guarantees should be sufficient to cover the potential amount of future
payment required under the corresponding guarantees. The current amount
of the liability, as of March 31, 2004, for guarantees under standby
letters of credit issued is not material.
8. Comprehensive Income
The Corporation's other comprehensive income items are unrealized gains
(losses) on securities available for sale and unfunded pension
liability. There was no change in the unfunded pension liability during
the three month periods ended March 31, 2004 and 2003. The components
of total comprehensive income for the three months ended March 31 were
as follows:
(in thousands)
2004 2003
------- -------
Unrealized holding gains
on available for sale securities
arising during the period $ 541 $ 810
Reclassification of gains
realized in net income (817) (450)
------- -------
Net unrealized gains (losses) (276) 360
Tax effect 97 (126)
------- -------
Other Comprehensive Income (loss) (179) 234
Net Income 2,121 2,467
------- -------
Total Comprehensive Income $ 2,033 $ 2,701
======= =======
Page 7
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
The Corporation'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 Corporation, and its
wholly-owned subsidiaries, Adams County National Bank and Pennbanks Insurance
Company, follow. The corporation's consolidated statement of financial condition
and results of operations consist principally of the bank's financial condition
and results of operations. This discussion should be read in conjunction with
the Corporation's 2003 Annual Report to Shareholders. Current performance does
not guarantee or 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.
Critical Accounting Policies
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America, which require the
Corporation to make estimates and assumptions (see footnote A to the December
31, 2003 financial statements). The Corporation believes that of its significant
accounting policies, the allowance for loan losses may involve a higher degree
of judgment and complexity.
The allowance for loan losses is established through a charge to the provision
for loan losses. In determining the balance in the allowance for loan losses,
consideration is given to a variety of factors in establishing this estimate. In
estimating the allowance for loan losses, management considers current economic
conditions, diversification of the loan portfolio, delinquency statistics,
results of internal loan reviews, borrowers' perceived financial and managerial
strengths, the adequacy of the underlying collateral, if collateral dependent,
or present value of future cash flows and other relevant factors. The use of
different estimates or assumptions could produce different provisions for loan
losses. Additional information is provided in the discussion below about the
Provision for Loan Losses.
Page 8
Three months ended March 31, 2004 compared to three months ended March 31, 2003
- -------------------------------------------------------------------------------
Net Income for the three month period ending March 31, 2004 was $2,121,000, down
$346,000 from the first quarter of 2003. Net interest income was flat, total
other income was up and other expense was up. The first quarter decrease is due
to salaries, and net occupancy and equipment expense. Net income per share, for
the first quarter, was $.39, compared to the $.45 earned in the same period in
2003. For the three month period (annualized) in 2004, the return on average
assets and return on average equity were 1.01% and 11.83%, respectively,
compared to 1.30% and 14.14%, respectively for 2003.
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 2004 was $8,938,000,
down $627,000 or 6.6% less than the $9,565,000 earned in the same period of
2003. The $627,000 decrease in interest income was due to lower yield on earning
assets during 2004 compared to 2003. The average yield on earning assets
declined 72 basis points compared to the same quarter in 2003. In an effort to
manage interest rate risk, the corporation continues to lower interest rates on
transaction accounts and keep securities maturities short. Income from loans was
down approximately $166,000 due to lower interest rates while security income
was down approximately $505,000, also due to lower interest rates.
Total interest expense for the first three month period of 2004 was $3,069,000,
down $627,000 or 17.0% from the $3,696,000, incurred for the same period in
2003. The $627,000 decrease in interest expense was due to lower overall
interest rates, especially for transaction accounts. Because the decrease in
interest expense matched the decrease in interest income, net interest income
remained at $5,869,000.
Total other income for the first three month period of 2004 at $1,956,000, was
$17,000 greater than the same quarter in 2003. Although the increase was only 1%
in other income, there were significant changes within the following categories:
o Gain on sale of other real estate. The former Carroll Valley
Office was sold in March of 2003, and a gain of $222,000 was
recognized. There was no similar result in 2004.
o Realized gains on securities of $817,000, up $367,000 or 82%
over $450,000 in 2004. Short term securities with terms of
approximately 12 to 18 months were sold for gains, and the
proceeds reinvested in callable agencies of 36 to 45 months at
similar or higher rates.
o Bank owned life insurance income declined approximately
$28,000.
o Gains on sales of mortgages (included in other operating
income) decreased $110,000 or 87% to $17,000 in 2004. Fewer
mortgages are being sold because of a decline in refinancing
activity.
Total other expense for the first three month period of 2004 was $4,836,000, up
$534,000 from the $4,302,000, incurred for the first quarter of 2003. The
following are the primary causes of the 12% increase in other expense:
Page 9
o A $175,000 or 7% increase in salaries and benefits primarily
caused by year-end merit increases and increase in staffing
levels.
o A $150,000 or 23% increase in premises and equipment expense.
This increase was in the operations area as new processes such
as check imaging and a wide area network came on-stream.
o A $209,000 or 17% increase spread across items such as taxes,
professional services, and electronic information delivery
services.
The provision for income taxes in the first quarter decreased $186,000 or 19%
due to a drop in pre-tax income of $532,000.
OVERVIEW OF THE BALANCE SHEET
The changes in the balance sheet have been driven by strong growth in interest
bearing transaction accounts and borrowings. The following are some of the
results:
o Total investment securities were $396,747,000, at March 31,
2004, an increase of $40,769,000 or 11% since March 31, 2003.
Securities now make up 46% of total assets. Of these
securities, $42,000,000 mature in 2004, with a total of
$23,500,000 maturing in 2005. In addition, mortgage backed
securities are returning approximately $5,000,000 per month.
These funds should be available for reinvestment when interest
rates rise.
o Total deposits have grown from $604,793,000, at March 31,
2003, to $652,723,000, at March 31, 2004, an increase of
$47,930,000 or 8%. Approximately $90,434,000 of total deposits
are classic money market at March 31,2004. This is a
transaction account, which will require a movement of interest
rates, similar to general money market rates, when the economy
improves. Borrowings have increased from $108,089,000, at
March 31, 2003, to $133,705,000, at March 31, 2004. Of these,
$87,000,000 are term borrowings ranging from ten months to 8.5
years in maturity.
o Accumulated other comprehensive income has decreased from
$3,963,000, at March 31, 2003, to ($89,000), at March 31,
2004. This indicates the after tax effect in the change in
fair value of the available for sale securities portfolio.
This shift is the result of management's decision to realize
these securities gains and changes in interest rates. The
resulting cash flow was reinvested in short term (18 to 45
months) corporates and callable agencies. The portfolio has
sufficient liquidity to cope with changes in interest rates.
INTEREST RATE SPREAD AND NET YIELD ON EARNING ASSETS
Three Months Ended
------------------
3/31/04 3/31/03
Rate Rate
------- -------
Earning Assets 4.61% 5.33%
Interest Bearing Liabilities 1.76% 2.39%
Interest Rate Spread 2.85% 2.94%
Net Yield on Earning Assets 3.03% 3.28%
Page 10
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 2004, was down 25
basis points compared to the same period in 2003. Yields on loans and securities
have changed more rapidly than deposit rates as interest rates in the general
economy have remained at record low levels after falling dramatically in 2001
and 2002.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
(In Thousands)
Three Months Ended
---------------------
3/31/04 3/31/03
------- -------
Balance at Beginning of Period $ 3,978 $ 3,837
Provision Charged to Expense 75 60
Loans Charged Off (27) (60)
Recoveries 18 12
Balance at End of Period $ 4,043 $ 3,849
------- -------
Ratios:
Net Charge-offs to:
Net Income .42% 1.95%
Total Loans .00% .01%
Allowance for Loan Losses .22% 1.25%
Allowance for Loan Losses to:
Total Loans .96% 1.01%
The Allowance for Loan Losses at March 31, 2004 was $4,043,000 (.96% of Total
Loans), an increase of $194,000 from $3,849,000 (1.01% of Total Loans) at the
end of the first quarter of 2003. Loans past due 90 days and still accruing were
$852,000 and non-accrual loans were $4,359,000, as of March 31, 2004. The ratio
of non-performing assets plus real estate owned to total assets was .67%, at
March 31, 2004. All properties are carried at the lower of market or book value
and are not considered to represent a significant threat of loss to the bank.
Loans past due 90 days and still accruing were $606,000, at year end 2003, while
non-accruals were $4,413,000. The bulk of the corporation's real estate loans
are in residential mortgages. 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 $4,386,000 in non-accrual loans, was approximately
$47,000 for the first quarter of 2004.
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
Page 11
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 $73,168,000, at March 31, 2004, compared to
$71,607,000, at March 31, 2003, an increase of $1,661,000 or 2.3% over that
period. The ratio of Total Shareholders' Equity to Total Assets was 8.31%, at
December 31, 2003, 9.04%, at March 31, 2003, and 8.46%, at March 31, 2004. The
total risk-based capital ratio was 14.94%, at March 31, 2004. The leverage ratio
was 8.64%, at March 31, 2004, and 8.65%, during the same period in 2003. Capital
growth of $1,661,000 was generated internally through retained earnings.
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 43% of total assets, at March 31, 2004. This mix
of assets would be readily available for funding any cash requirements. In
addition, the Bank has an approved line of credit of $365,913,000 at the Federal
Home Loan Bank of Pittsburgh with $104,961,000 outstanding at March 31, 2004.
As of March 31, 2004, the cumulative asset sensitive gap was -1.8% of total
assets at one month, 5.7% at six months, and 13.0% at one year. Adjustable rate
mortgages, which have an annual interest rate cap of 2%, are considered rate
sensitive. Twenty-five percent (25%) of passbook and statement savings, NOW and
money market deposit accounts are calculated to reprice overnight. The remaining
75% are carried in the over 5-year category.
Other than the construction of a new operations center, costing approximately
$7,000,000 over the next 12 months, and $2,500,000 for low income housing
projects, yet to be disbursed, 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 that 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 12
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES 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.
ITEM 4
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the corporation carried out
an evaluation, under the supervision and with the participation of the
corporation's management, including the corporation's Chief Financial Officer,
of the effectiveness of the design and operation of the corporation's disclosure
controls and procedures pursuant to the Securities Exchange Act of 1934
("Exchange Act") Rule 13a-14. Based upon that evaluation, the corporation's
Chief Executive Officer along with the corporation's Chief Financial Officer
concluded that the corporation's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
corporation (including its consolidated subsidiaries) required to be included in
the corporation's periodic SEC filings. There have been no significant changes
in the corporation's internal controls or in other factors which could
significantly affect these controls subsequent to the date the corporation
carried out its evaluation.
Disclosure controls and procedures are corporation controls and other procedures
that are designed to ensure that information required to be disclosed by the
Corporation in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms.
There was no change in our internal control over financial reporting during our
fiscal quarter ended March 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Management is not aware of any litigation that would have a material
adverse effect on the consolidated financial position of the Corporation. There
are no proceedings pending other than the ordinary routine litigation incident
to the business of the Corporation and its subsidiaries. In addition, no
material proceedings are pending or are known to be threatened or contemplated
against the Corporation and its subsidiaries by government authorities.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities - 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 13
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, filed with the Commission on
April 26, 2000).
Exhibit 3(ii) Bylaws of Registrant (Incorporated by Reference to Exhibit 99 in
Registrant's Report of Form 8-K, filed with the Commission on
December 19, 2003).
Exhibit 10.1 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
Exhibit 31.1 Chief Executive Officer Certification of Form 10-Q
Exhibit 31.2 Chief Financial Officer Certification of Form 10-Q
Exhibit 32.1 Certification of Chief Executive Officer
Exhibit 32.2 Certification of Chief Financial Officer
(b) Report on Form 8-K
Form 8-K filed February 10, 2004 - Press Release announcing
Registrant's Fourth Quarter Earnings
Form 8-K filed March 30, 2004 - Changes in Registrant's Certifying
Accountant
Page 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACNB CORPORATION
/s/ Thomas A. Ritter
-------------------------------
Thomas A. Ritter, President/CEO
April 30, 2004
/s/ John W. Krichten
-------------------------------------
John W. Krichten, Secretary/Treasurer
Page 15
EXHIBIT INDEX
Exhibit Number
- --------------
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, filed with the Commission on
April 26, 2000).
Exhibit 3(ii) Bylaws of Registrant (Incorporated by Reference to Exhibit 99 in
Registrant's Report of Form 8-K, filed with the Commission on
December 19, 2003).
Exhibit 10.1 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
Exhibit 31.1 Chief Executive Officer Certification of Form 10-Q
Exhibit 31.2 Chief Financial Officer Certification of Form 10-Q
Exhibit 32.1 Certification of Chief Executive Officer
Exhibit 32.2 Certification of Chief Financial Officer
Page 16