-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RT4uRW43l1mLkouoknYSSri1TA7tCvegGqzOAr63bbh+dMGhxIt/7cSQ7e1hf7zo V0yVXXmABHt6o/IEvbJQGQ== 0001135428-04-000190.txt : 20040504 0001135428-04-000190.hdr.sgml : 20040504 20040504122117 ACCESSION NUMBER: 0001135428-04-000190 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACNB CORP CENTRAL INDEX KEY: 0000715579 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 232233457 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11783 FILM NUMBER: 04776354 BUSINESS ADDRESS: STREET 1: 675 OLD HARRISBURG RD STREET 2: P O BOX 3129 CITY: GETTYSBURG STATE: PA ZIP: 17325 BUSINESS PHONE: 7173343161 MAIL ADDRESS: STREET 1: P O BOX 3129 STREET 2: 675 OLD HARRISBURG RD CITY: GETTYSBURG STATE: PA ZIP: 17325 10-Q 1 acnbcorp10-q.txt 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 EX-11 2 exhibit11.txt EXHIBIT 11 Statement Regarding the Computation of Earnings Per Share For the three month period ending March 31 ------------------------------- 2004 2003 ------------------------------- Weighted average shares outstanding: 5,436,101 5,436,101 Net Income $ 2,121,000 $ 2,467,000 Net Income Per Share $ 0.39 $ 0.45 Fully Diluted Income Per Share $ 0.39 $ 0.45 EX-31.1 3 exibit311.txt EXHIBIT 31.1 CERTIFICATION I, Thomas A. Ritter, President/Chief Executive Officer, certify, that: 1. I have reviewed this quarterly report on Form 10-Q of ACNB Corporation. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of the internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. By: /s/ Thomas A. Ritter ----------------------------------- /s/ Thomas A. Ritter, President/CEO Date: April 30, 2004 EX-31.2 4 exhibit312.txt EXHIBIT 31.2 CERTIFICATION I, John W. Krichten, Secretary/Treasurer, certify, that: 1. I have reviewed this quarterly report on Form 10-Q of ACNB Corporation. 2. Based on my knowledge, the quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies and material weaknesses in the design or operation of the internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. By: /s/ John W. Krichten ------------------------------------- John W. Krichten, Secretary/Treasurer Date: April 30, 2004 EX-32.1 5 exhibit321.txt EXHIBIT 32.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Adams County National Bank Corporation (the "company") on Form 10-Q for the period ending March 31, 2004, as filed with the Securities and Exchange Commission (the "Report"), I, Thomas A. Ritter, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or15(d)of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. /s/ Thomas A. Ritter ----------------------------------------- Thomas A. Ritter, Chief Executive Officer Date: April 30, 2004 EX-32.2 6 exhibit322.txt EXHIBIT 32.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Adams County National Bank Corporation (the "company") on Form 10-Q for the period ending March 31, 2004, as filed with the Securities and Exchange Commission (the "Report"), I, John W. Krichten, Secretary/Treasurer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) of 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. /s/ John W. Krichten ------------------------------------- John W. Krichten, Secretary/Treasurer Date: April 30, 2004 -----END PRIVACY-ENHANCED MESSAGE-----