ACNB Corporation Annual Report 2016

Plain-text annual report

2016 ANNUAL REVIEW 2016 ANNUAL REVIEW “Many go ﬁ shing all their lives without knowing that it is not ﬁ sh they are after.” —Henry David Thoreau Table of Contents Business Profile and Geography . . . . . . . . . . . . . 1 Consolidated Statements of Condition . . . . . . 10 The Lure of Retirement . . . . . . . . . . . . . . . . . . . . .2 Consolidated Statements of Income . . . . . . . . . . 11 Report to Shareholders . . . . . . . . . . . . . . . . . . . . .4 Boards of Directors . . . . . . . . . . . . . . . . . . . . . . . . 13 Three-Year Financial Highlights . . . . . . . . . . . . . .8 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Five-Year Financial Overview . . . . . . . . . . . . . . .9 Office Locations . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Shareholder Information Annual Meeting The 2017 Annual Meeting of Shareholders for ACNB Corporation will be held on Tuesday, May 2, Transfer Agent, Registrar and Dividend Disbursing Agent Computershare Shareholder Services at 1:00 p.m. at the ACNB Corporation Operations Center, P.O. Box 30170 100 V-Twin Drive, Gettysburg, PA. All proxy and other materials for the Annual Meeting are available at College Station, TX 77842-3170 www.computershare.com/investor acnb.com/acnb-corporation. Stock Listing ACNB Corporation common stock is listed and traded on The NASDAQ Capital Market under the symbol ACNB. Annual Report on Form 10-K A copy of ACNB Corporation’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, may be obtained, without charge, by contacting: Lynda L. Glass Executive Vice President/ Secretary & Chief Governance Officer ACNB Corporation P.O. Box 3129 Gettysburg, PA 17325 717.339.5085 The Annual Report and other Corporation reports are also filed electronically with the Securities and Exchange Commission and are accessible by the public on the Internet at www.sec.gov/edgar.shtml. 1 2 0 1 6 A N N UA L R E V I E W For shareholder inquiries or information regarding the ACNB Corporation Dividend Reinvestment and Stock Purchase Plan, call Computershare toll free at 1.800.368.5948. Market Makers Boenning & Scattergood, Inc. West Conshohocken, PA 610.832.1212/1.800.883.1212 Janney Montgomery Scott, LLC York, PA 717.779.2720/1.800.999.0503 Local Broker Wells Fargo Advisors, LLC Hanover, PA 717.637.3817/1.800.242.1331 Business Proﬁ le & Geography ACNB Corporation, headquartered in Gettysburg, PA, is the ﬁ nancial holding company for the wholly-owned subsidiaries of ACNB Bank, Gettysburg, PA, and Russell Insurance Group, Inc., Westminster, MD. Through its banking subsidiary of ACNB Bank, ACNB Corporation provides a wide array of consumer, commercial and ﬁ duciary services to fulﬁ ll the ﬁ nancial needs of individuals, businesses, public entities, and community organizations in its trading area. Originally founded in 1857, ACNB Bank serves its marketplace via a network of 22 retail banking ofﬁ ces located in the four southcentral Pennsylvania counties of Adams, Cumberland, Franklin and York. In addition, the Bank operates a loan ofﬁ ce in York, York County, PA. Russell Insurance Group, Inc., the insurance subsidiary of ACNB Corporation, offers a broad range of commercial and personal insurance lines through licenses in 43 states. This full-service insurance agency has ofﬁ ce locations in Westminster, Carroll County, MD, and Germantown, Montgomery County, MD. One ACNB Bank Location in Cumberland County Two ACNB Bank Locations in Franklin County Cumberland County Newville Dillsburg Franklin County Chambersburg York County York Hanover Adams County Gettysburg Carroll County Westminster Fourteen ACNB Bank Locations Throughout Adams County Maryland Six ACNB Bank Locations in York County Including the South York Plaza Office Opened at 201 Pauline Drive on June 27, 2016, and the York Loan Office Pennsylvania Two Office Locations for Russell Insurance Group, Inc. Germantown Montgomery County 2 0 1 6 A N N UA L R E V I E W 1 The Lure of Retirement After more than 30 years of experience in the ﬁ nancial services industry, including 16 years at the helm of ACNB Corporation and ACNB Bank, Thomas A. Ritter is retiring as an executive ofﬁ cer effective May 5, 2017. Given his love of ﬂ y ﬁ shing and the southcentral Pennsylvania landscape, his retirement days will surely include standing in a stream of water with waders and his ﬁ shing rod in hand. A Gettysburg, Adams County, native, Mr. Ritter ACNB Corporation also sought ways to expand currently serves as President & Chief Executive Ofﬁ cer of ACNB Corporation and Chief Executive Ofﬁ cer of ACNB Bank. He is a member of both the Corporation’s and the Bank’s Boards of Directors, as well as is a member and Chairman of the Board of Directors of Russell Insurance Group, Inc. — positions that he will continue to hold after retirement as an executive ofﬁ cer. As President & Chief Executive Ofﬁ cer of ACNB Corporation, Mr. Ritter provided valuable insight and guidance in addressing the Corporation’s challenges and strategic goals during years of growth and years of economic and industry adversity. Throughout all, ACNB Corporation retained its focus, its proﬁ tability, and its commitment to employees, customers, shareholders, and the communities served. Mr. Ritter purposed to ensure the ongoing vitality and strength of the organization and its independence. There was determination and resolve, especially during the recessionary years, in the Corporation’s focus on the priorities of earnings, capital, dividends, liquidity, as well as organizational safety and soundness. During the ﬁ rst seven years of his leadership in the new century, then Adams County National Bank’s retail banking ofﬁ ce network grew with the addition of six new locations. In 2001, there was the acquisition of two ofﬁ ces — West Gettysburg and Fairﬁ eld — from Farmers & Mechanics Bank of Maryland. In 2002, the Bank expanded its geographic coverage by opening the Dillsburg Ofﬁ ce in northern York County. In 2005, the New Oxford Ofﬁ ce and the Adams Commerce Center Ofﬁ ce in Gettysburg were established. Then, in 2006, the South Hanover Ofﬁ ce opened as the second location to serve the growing Hanover market. the ﬁ nancial services offered to customers. Thus, in 2005, the Corporation acquired Russell Insurance Group, Inc., an insurance agency based in Westminster, Maryland. Another signiﬁ cant development in 2005 was the completion of the ACNB Corporation Operations Center at 100 V-Twin Drive, Gettysburg. The Chambersburg Loan Ofﬁ ce was the Bank’s ﬁ rst entry into the Franklin County market in 2007. In early 2009, the Hanover Loan Ofﬁ ce was opened to further penetrate this signiﬁ cant market in the Bank’s trading area. The most notable milestone for the Bank in 2010 was the conversion of Adams County National Bank from a national banking association to a Pennsylvania state-chartered bank and trust company — resulting in ACNB Corporation’s banking subsidiary now being ACNB Bank. The Bank’s charter conversion, effective October 4, 2010, was a deliberate and strategic decision as the Bank planned for continued expansion beyond the borders of Adams County. Additionally, in December 2010, ACNB Corporation common stock was listed and began trading on The NASDAQ Capital Market, providing greater shareholder liquidity and value. From 2011 through 2016, ACNB Bank continued to grow its assets and its footprint with the establishment of the York Loan Ofﬁ ce in York County, as well as the opening of new retail banking ofﬁ ces including the Spring Grove Ofﬁ ce and South York Plaza Ofﬁ ce in York County and the Chambersburg Ofﬁ ce and Chambersburg Drive-Up in Franklin County. Always cognizant of our history and our roots, one of Mr. Ritter’s proudest accomplishments was the celebration of the Bank’s 150th Anniversary in 2007. He truly embraced this celebration of independence 2 2 0 1 6 A N N UA L R E V I E W for the community banking organization envisioned in the principles and hopes of the Bank’s founders. Each of these historic milestones required Mr. Ritter’s ability to see beyond the murky waters with clarity for the future; however, the success is in the numbers attributable to his tenure with our organization. Today, ACNB Corporation is a $1.2 billion ﬁ nancial holding company, which is more than double the asset size it was when Mr. Ritter took the lead at the beginning of 2001. Similarly, total loans were $908 million and total deposits were $968 million at December 31, 2016. Capital is fortiﬁ ed, and earnings are strong. In ﬂ y ﬁ shing, the fundamentals of continual skill development, patience, and a knowledge and understanding of the environment all contribute to success when casting for trout in the stream. The ﬁ nancial services industry, likewise, requires these same attributes — especially recognizing that the number of community banks has decreased dramatically and the competition is keen. Mr. Ritter, with his power of observation and experience, has navigated both rough waters and calm waters to protect and ensure the independence of ACNB Corporation. Farewell Message Please accept my sincere thanks and gratitude for the privilege of serving ACNB Corporation, and as the 12th Bank President since 2001. On April 11 of 2017, our Bank will observe its 160th Anniversary as a community bank. In recognition to all of those who have preceded me in executive management, your enduring commitment to the values of Stewardship has enabled us to celebrate this wonderful anniversary. Collectively, we have chosen to make institutional Safety and Soundness our guiding principle, and all growth and proﬁ tability have been achieved by honoring this compelling virtue. With my retirement as an executive ofﬁ cer near at hand, let me now acknowledge the true sentinels of our Company — our senior management, our ofﬁ cers and employees, and our Board of Directors. The ﬁ nancial condition of our Company is in very good standing. Great leadership is ﬁ rmly in place to guide our Company for many years to come. And, this broad leadership will continue to serve the diverse interests of our customers and our shareholders into the future. As for me, now it is time to rediscover pleasing memories from the stream banks of the mighty Conewago and the Yellow Breeches. There are always new places to ﬁ sh and new peaks to climb in the very bucolic countryside of southcentral Pennsylvania. Woody and I plan to scale the Pole Steeple at Pine Grove Furnace again, while we are both still willing and still able. The ascent to the Steeple Overlook is nearly 1.3 miles with an elevation of 1,250 feet, but it is a steep climb and it is tough enough for us. We have gained wisdom over the years, and we know our limitations. For my distinguished colleagues who will be looking after ACNB Corporation following my retirement, I would simply encourage you to never lose your sense of curiosity, nor your will to explore. Remember…not all who wander are lost! Find your own remote ﬁ shing spots, and discover a few quiet places to walk or hike. And, when you do embrace the beauty and serenity of our natural world, you will surely ﬁ nd yourselves energized to accomplish great things in many aspects of life. Farewell, and we will be looking for you near the summit of the Pole Steeple! Tom and Woody at Birch Run Reservoir, January 2011 President & Chief Executive Officer Thomas A. Ritter 2 0 1 6 A N N UA L R E V I E W 3 Report to Shareholders 2016 was a rewarding year for ACNB Corporation. Strategically, the Corporation expanded its market presence in terms of both geography and business lines, executive management succession and leadership were crystallized for the future, and a deﬁ nitive agreement was signed with New Windsor Bancorp, Inc. for entry into the Maryland market. 2016 Financial Performance Shareholder Dividends & Equity ACNB Corporation ended the year of 2016 with net income of $10,869,000, or $1.80 per share. This is a slight decrease of $148,000, or 1%, from earnings of $11,017,000 for the year ended December 31, 2015. However, there were merger-related expenses of $472,000 incurred in 2016 for the proposed acquisition of New Windsor Bancorp, Inc. of Taneytown, Maryland. As always, ACNB Corporation’s net interest income is the driver of earnings. Essentially, this primary source of revenue is the difference between the interest income earned on loans and investments, and the interest expense paid on deposits and borrowings. Net interest income is impacted by changes in interest rates, the volume of interest earning assets and interest bearing liabilities, and the composition of these assets and liabilities. Further, this income source is predominantly inﬂ uenced by market interest rates, local economic conditions, stock market ﬂ uctuations, and competitive market dynamics. In 2016, net interest income increased by 3% to a record $36,566,000, as a result of continued growth in loan volume. This achievement was in spite of the ongoing pressure on the net interest margin — a fundamental measure of changes in net interest income. Due to the prolonged low interest rate environment, the net interest margin tightened to 3.35% for the year ended December 31, 2016, from 3.45% for the year ended December 31, 2015. With the expectation of rising interest rates, ACNB Corporation has been judicious in its approach to loan and deposit growth. Total loans increased by 6% — surpassing the marker of $900 million to ﬁ nish the year at $908 million as of December 31, 2016. Total deposits also increased by 6% from the previous year- end to $968 million at December 31, 2016. In all, total assets of ACNB Corporation at December 31, 2016, were $1.21 billion, up 5% from $1.15 billion at December 31, 2015. A key area of strength and differentiation for ACNB Corporation is its longstanding commitment to its shareholders. In 2016, the Corporation paid an aggregate of $4,840,000, or $0.80 per share, in cash dividends to shareholders. This compares to $4,820,000, or $0.80 per share, paid in 2015. The dividend payout ratio was 45% and 44% for 2016 and 2015, respectively. Unlike many of our competitors in the ﬁ nancial services industry, the Corporation paid a stable quarterly cash dividend throughout the ﬁ nancial crisis and industry turmoil in past years. This was a substantial commitment of ﬁ nancial resources, but also a testament to ACNB Corporation’s continued soundness and determination in providing shareholders value on their investment during these years. At December 31, 2016, total stockholders’ equity remained strong at $120 million, rising by 5% from the end of 2015. Ongoing capital growth is fundamentally dependent upon sustained and strong earnings over time. The ACNB Corporation Dividend Reinvestment and Stock Purchase Plan provides registered shareholders the opportunity to purchase additional shares of the Corporation’s common stock through the automatic reinvestment of cash dividends and voluntary cash purchases on a quarterly basis. The beneﬁ t to the registered shareholders who elect to participate in the plan includes the convenience of the acquisition of additional shares of ACNB Corporation common stock, as well as the ability to do so without paying service fees or brokerage commissions. Since the plan’s introduction in January 2011, 122,687 new shares of ACNB Corporation common stock — totaling approximately $2,400,000 in plan investments — have been issued as of December 31, 2016, to plan participants as a result of both dividend reinvestment and voluntary cash purchases, which continue to fortify the Corporation’s equity position. 4 2 0 1 6 A N N UA L R E V I E W ACNB Bank ACNB Corporation’s banking subsidiary, ACNB Bank, is the dominant business segment for both revenue and proﬁ t. This subsidiary’s history and strength are founded upon the community banking model of reinvesting depositors’ dollars in loans to others for the economic beneﬁ t of the shared community. On April 11, 2017, ACNB Bank will mark 160 years in furthering its mission to serve customers by building relationships. The banking services provided have changed over these many years, but the goal of satisfying the ﬁ nancial needs of customers has been a steadfast constant. ACNB Bank’s geographic footprint includes locations in the four southcentral Pennsylvania counties of Adams, Cumberland, Franklin and York. Today, there are 22 retail banking ofﬁ ces and a loan production ofﬁ ce for the transaction of business with ACNB Bank customers. On June 27, 2016, the retail banking network was expanded in York County with the opening of the South York Plaza Ofﬁ ce at 201 Pauline Drive. Also in 2016, the Bank relocated its South Hanover Ofﬁ ce from 865 Baltimore Street to 1801 Baltimore Pike in order to provide a more convenient banking experience for Hanover area residents and businesses, as well as opened the doors at the newly-renovated Lincoln Square Ofﬁ ce in Gettysburg at the Bank’s original historic site of founding in 1857. Competition for loans and deposits in the Bank’s marketplace is intense. This competition encompasses local banks and credit unions, nonbank entities, and Internet-based providers of ﬁ nancial services. In Fourth Quarter 2016, ACNB Bank established a new business line focusing on agribusiness lending to accommodate the unique banking needs of the many agricultural businesses found in the Bank’s local communities. The growth of ACNB Bank’s loan and deposit portfolios is key to the continued success of the organization; thus, there was signiﬁ cant management emphasis placed on new business development initiatives in 2016. Given the improving local economic conditions, asset quality measures trended positively in 2016. The ratio of non-performing loans to total loans was 0.64% and 0.68%, respectively, for 2016 and 2015. Net charge-offs to average loans outstanding was 0.06% for the year ended December 31, 2016. The allowance for loan losses was strong at more than $14,000,000 on December 31, 2016. ACNB Bank’s ratio of the allowance for loan losses to total loans was favorable in comparison to peers at 1.56% for the year ended December 31, 2016. Moreover, the coverage ratio of the allowance for loan losses to non-performing loans was robust at 243% as of the same date. Today’s banking and regulatory environments, including the requirements related to the Basel III standards and the Dodd-Frank Wall Street Reform and Consumer Protection Act, necessitate an emphasis on capital as the fundamental element for organizational strength and sustainability. The Bank’s total risk-based capital ratio was 14.22% at December 31, 2016, which exceeds the regulatory requirement of 10.00% to be considered a well-capitalized ﬁ nancial institution by regulators. Improvement in the capital position of the Bank is predominantly a function of retained earnings, which is the amount of net income after the payment of dividends to the Corporation for issuance to ACNB Corporation shareholders. Trust & Investment Services ACNB Bank’s Trust & Investment Services staff provides ﬁ duciary, estate, investment and related services to clients. Assets under administration rose by 10% to approximately $195 million as of December 31, 2016. Revenue for 2016 from Trust & Investment Services was $1,684,000, up 6% from $1,589,000 for the year of 2015. On June 24, 2016, Trust & Investment Services completed its relocation to the Bank’s North Gettysburg Ofﬁ ce. This move from Lincoln Square in Gettysburg beneﬁ ted clients due to more parking availability and more convenient access to Trust & Investment Services ofﬁ ces and staff in the Gettysburg market. Russell Insurance Group, Inc. Russell Insurance Group, Inc., the insurance subsidiary of ACNB Corporation, is a full-service insurance agency offering a broad range of property, casualty, life and health insurance to both commercial and individual clients through licenses in 43 states, with a major focus in Maryland and Pennsylvania. The agency is based in Westminster, Maryland, and also conducts business at a second ofﬁ ce location in Germantown, Maryland. 2 0 1 6 A N N UA L R E V I E W 5 Income from this subsidiary’s commissions on insurance sales is the most signiﬁ cant source of other income for ACNB Corporation. 2016 income for Russell Insurance Group was $4,822,000 — up 4% in comparison to 2015, primarily due to higher contingent commissions and increased personal lines commission income. New Windsor Bancorp, Inc. Acquisition On November 21, 2016, ACNB Corporation and ACNB Bank executed the Agreement and Plan of Reorganization whereby New Windsor Bancorp, Inc. and New Windsor State Bank will be acquired and merged into ACNB Corporation and ACNB Bank, respectively. Headquartered in Taneytown, Maryland, New Windsor Bancorp, Inc. upon the announcement of the transaction reported total assets of $311 million, total deposits of $273 million, and total loans of $262 million as of September 30, 2016. Pro forma highlights as of this same date indicate the combined company will have total assets of $1.52 billion, total deposits of $1.24 billion, and total loans of $1.13 billion. This transaction is one of strategic market expansion for ACNB Corporation predicated upon future growth in the desirable northern Maryland market adjacent to the organization’s current footprint. Once the merger is complete, ACNB Bank will have 29 retail community banking ofﬁ ces — 22 in Pennsylvania and seven in Maryland operating as NWSB Bank, a division of ACNB Bank. The aggregate value of the transaction with New Windsor Bancorp, Inc. is approximately $33.3 million. The transaction is subject to regulatory approvals and the afﬁ rmative vote of New Windsor Bancorp, Inc. shareholders. It is anticipated that this acquisition transaction will close early in Third Quarter 2017. Executive Management Succession As we enter 2017, the executive management leadership of the organization continues to evolve. On January 26, 2017, ACNB Corporation announced the retirement of Thomas A. Ritter from the current positions of President & Chief Executive Ofﬁ cer of ACNB Corporation and Chief Executive Ofﬁ cer of ACNB Bank as of May 5, 2017. Under his leadership, the Corporation grew from $567 million in assets to $1.21 billion in assets as of December 31, 2016. Following retirement as an executive ofﬁ cer of the Corporation and the Bank, Mr. Ritter will continue to serve as a Director of ACNB Corporation, ACNB Bank and Russell Insurance Group, Inc. Mr. Ritter was appointed President of ACNB Corporation and President & Chief Executive Ofﬁ cer of ACNB Bank on January 1, 2001. Effective December 31, 2003, he was also designated as ACNB Corporation’s Chief Executive Ofﬁ cer. Mr. Ritter was the President to serve the fourth longest in the history of ACNB Bank upon his relinquishment of this position on September 1, 2015, with the appointment of his successor, James P. Helt, as part of ACNB Corporation’s and ACNB Bank’s long-term strategic succession planning process. Concurrent with the retirement announcement, the ACNB Corporation and ACNB Bank Boards of Directors named Mr. Helt to be Mr. Ritter’s successor as President & Chief Executive Ofﬁ cer of ACNB Corporation and Chief Executive Ofﬁ cer of ACNB Bank as of May 5, 2017. Mr. Helt has been with the organization since 2008, when he was named Executive Vice President of Banking Services of ACNB Bank. On September 1, 2015, he was appointed to his current position of President of ACNB Bank, and was also elected to ACNB Bank’s Board of Directors. Mr. Helt is a nominee for election to the Board of Directors of ACNB Corporation at the 2017 Annual Meeting of Shareholders. The Boards of Directors On February 28, 2017, the Boards of Directors of ACNB Corporation and ACNB Bank accepted the resignation of Director Robert W. Miller effective May 2, 2017. Mr. Miller joined both Boards of Directors in 2007, and also served as one of the Corporation’s ﬁ nancial experts on the Board Audit Committee. His resignation is in pursuit of furthering plans for his retirement years after his long career and leadership role with Miller, Brown, Ohm & Associates, P.C., a certiﬁ ed public accounting ﬁ rm in McSherrystown, Pennsylvania. Mr. Miller’s dedication over the last ten years to ACNB Corporation and its mission is sincerely appreciated and valued. In addition, following the close of the New Windsor Bancorp, Inc. acquisition, two directors from this organization will join the Boards of Directors of ACNB Corporation and ACNB Bank to provide insight and guidance related to the new Maryland market. 6 2 0 1 6 A N N UA L R E V I E W In Closing ACNB Corporation and ACNB Bank are indeed Sincerely, embracing change — from its executive management team to new lines of business and places of business. Change is both invigorating and demanding. However, change also requires the support of two critical groups with a stake in the outcome. The ﬁ rst key group includes the Boards of Directors. The men and women serving in this capacity for ACNB Corporation and its subsidiaries continue to be a source of energy and encouragement for which we are always grateful. The second instrumental group includes all of the dedicated and hardworking staff members of ACNB Corporation’s subsidiaries. The Boards of Directors and executive management set the strategic direction, but it is truly these individuals who achieve the results. We thank each member of the staff for their commitment day in and day out. We also recognize your valuable input, as shareholders, to the success of ACNB Corporation. Over time, our progress as an independent provider of ﬁ nancial services is dependent upon your trust and ongoing investment for the future. Frank Elsner, III Chairman of the Board Thomas A. Ritter President & Chief Executive Officer Lynda L. Glass Executive Vice President/ Secretary & Chief Governance Officer David W. Cathell Executive Vice President/ Treasurer & Chief Financial Officer ACNB Corporation Officers David W. Cathell, Executive Vice President/Treasurer & Chief Financial Officer; Lynda L. Glass, Executive Vice President/Secretary & Chief Governance Officer; Frank Elsner, III, Chairman of the Board; Thomas A. Ritter, President & Chief Executive Officer. 2 0 1 6 A N N UA L R E V I E W 7 Three-Year Financial Highlights For the Year Net interest income Net income Cash dividends paid Per Share Statistics Basic earnings Cash dividends paid Book value (year-end) At Year-End Total assets Total loans Total deposits 2016 2015 2014 $36,566,000 $35,606,000 $33,880,000 10,869,000 1 1 ,0 1 7,000 10,290,000 4,840,000 4, 820,000 4,62 2,000 $ 1.80 0.80 19.80 $ 1.8 3 0.80 18.99 $ 1 .7 1 0.77 18.29 $1,206,320,000 $ 1 ,1 47,9 25,000 $ 1 ,089,808,000 907,9 10,000 8 52,960,000 799,272,000 96 7,62 1,000 9 1 2,980,000 844,876,000 Total stockholders’ equity 120,06 1,000 1 1 4,7 1 5,000 1 1 0,02 2,000 Key Ratios Return on average assets Return on average equity 0.93% 9.17% 0.99% 9.77% Dividend payout 44.53% 4 3.75% Average stockholders’ equity to average assets 10.10% 1 0 .10% 0 .97% 9 .32% 44.92% 1 0.43% 8 2 0 1 6 A N N UA L R E V I E W Five-Year Financial Overview TOTAL ASSETS In millions of dollars TOTAL DEPOSITS In millions of dollars $1,206.3 $1,147.9 $967.6 $913.0 $1,089.8 $1,046.0 $1,050.0 $834.2 $844.9 $800.6 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 TOTAL LOANS In millions of dollars TOTAL STOCKHOLDERS’ EQUITY In millions of dollars $907.9 $853.0 $799.3 $708.1 $728.6 $120.1 $114.7 $110.0 $106.8 $101.3 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 NET INCOME In millions of dollars BOOK VALUE PER SHARE In dollars $11.0 $10.9 $10.3 $9.3 $8.9 $19.80 $18.99 $18.29 $17.83 $16.98 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2 0 1 6 A N N UA L R E V I E W 9 Consolidated Statements of Condition Dollars in thousands, except per share data Assets Cash and due from banks Interest bearing deposits with banks Total Cash and Cash Equivalents Securities available for sale Securities held to maturity (fair value $55,425 in 2016 and $71,363 in 2015) Loans held for sale Loans, net of allowance for loan losses ($14,194 in 2016 and $14,747 in 2015) Premises and equipment Restricted investment in bank stocks Investment in bank-owned life insurance Investments in low-income housing partnerships Goodwill Intangible assets Foreclosed assets held for resale Other assets TOTAL ASSETS Liabilities Deposits Non-interest bearing Interest bearing Total Deposits Short-term borrowings Long-term borrowings Other liabilities TOTAL LIABILITIES Stockholders’ Equity Preferred stock (par value $2.50; 20,000,000 shares authorized; no shares outstanding) Common stock (par value $2.50; 20,000,000 shares authorized; 6,126,738 and 6,102,324 shares issued in 2016 and 2015, respectively; 6,064,138 and 6,039,724 shares outstanding in 2016 and 2015, respectively) Treasury stock, at cost (62,600 shares in 2016 and 2015) Additional paid-in capital Retained earnings Accumulated other comprehensive loss TOTAL STOCKHOLDERS’ EQUITY December 31 2016 2015 $ 1 3 , 7 9 6 $ 1 3 , 4 68 5 , 1 3 5 1 8, 9 3 1 1 42, 990 5 5, 5 6 8 1 , 7 7 0 8 9 3, 7 1 6 1 8, 1 5 3 4, 3 49 40, 7 4 2 2,8 9 9 6 ,308 6 8 8 2 5 6 1 9, 950 5 , 2 89 1 8 , 7 5 7 1 2 5 , 6 93 7 1 , 5 4 2 1 , 8 35 8 3 8, 2 1 3 1 8 , 044 4 , 4 1 4 3 9 , 64 2 3 , 34 5 6 , 308 1 , 0 33 5 80 1 8 , 5 1 9 $ 1, 206, 320 $ 1, 1 4 7 , 9 25 $ 1 8 0 , 5 9 3 $ 1 6 6 , 2 24 7 87, 028 967, 6 2 1 3 4, 590 74 , 2 50 9 , 7 9 8 7 4 6 , 7 56 9 1 2 , 9 80 3 5 , 20 2 7 6 , 500 8 , 5 2 8 1,0 8 6 , 2 5 9 1 , 0 3 3 , 2 1 0 — — 1 5 , 3 1 7 ( 7 28 ) 1 0 , 9 4 1 10 0, 5 55 6 , 024 ( ) 1 2 0, 0 6 1 1 5 , 2 56 (7 2 8 ) 1 0 , 3 87 94 , 5 26 ( 4 , 7 26) 1 1 4 , 7 1 5 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $1, 206, 3 20 $1, 1 4 7 , 9 25 See the consolidated financial statements and accompanying notes presented in the Corporation’s Annual Report on Form 10-K. 10 2 0 1 6 A N N UA L R E V I E W Consolidated Statements of Income Dollars in thousands, except per share data Interest Income Loans, including fees Securities Taxable Tax-exempt Dividends Other Years Ended December 31 2016 2015 2014 $3 6 , 3 3 9 $3 5 , 090 $3 2 , 5 7 3 3, 1 7 9 6 5 1 2 1 2 1 1 9 3 , 1 2 7 8 5 9 30 1 8 7 3 , 6 4 7 1 ,0 4 2 1 94 70 TOTAL INTEREST INCOME 40 , 5 0 0 3 9 ,4 64 3 7 , 5 2 6 Interest Expense Deposits Short-term borrowings Long-term borrowings TOTAL INTEREST EXPENSE NET INTEREST INCOME PROVISION FOR LOAN LOSSES NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES Other Income Service charges on deposit accounts Income from fiduciary activities Earnings on investment in bank-owned life insurance Gains on sales or calls of securities Gain on sales of premises and equipment Service charges on ATM and debit card transactions Commissions from insurance sales Other TOTAL OTHER INCOME Other Expenses Salaries and employee benefits Net occupancy Equipment Other tax Professional services Supplies and postage Marketing and corporate relations FDIC and regulatory Proposed merger expenses Intangible assets amortization Foreclosed real estate expenses Other operating TOTAL OTHER EXPENSES INCOME BEFORE INCOME TAXES PROVISION FOR INCOME TAXES NET INCOME Per Share Data Basic earnings Cash dividends paid 2 , 3 6 9 5 1 1 , 5 1 4 3, 9 3 4 3 6 , 5 6 6 — 3 6 , 5 6 6 2 , 3 6 9 1 , 6 8 4 1 , 1 00 2 6 4 4 9 1 ,4 9 9 4, 8 2 2 1 , 2 5 9 1 3 ,2 0 8 22 , 2 00 2 , 0 6 6 3 , 04 6 7 8 5 8 5 2 6 4 6 5 7 4 6 1 1 4 7 2 3 4 5 5 5 3,4 8 5 3 5 , 1 3 7 1 4, 6 3 7 3,7 6 8 2 , 1 20 4 7 1 , 6 9 1 3 ,8 5 8 3 5 , 6 06 — 3 5 ,6 0 6 2 , 30 8 1 ,5 8 9 1 , 1 00 2 6 1 — 1 ,4 5 6 4 ,6 34 1 ,05 8 1 2 ,40 6 2 0 ,9 3 2 2 , 1 7 0 3 ,00 7 7 7 9 8 4 4 6 3 9 4 5 2 6 6 5 — 3 3 6 1 1 9 3 ,2 9 1 3 3 , 2 34 1 4 ,7 7 8 3 , 7 6 1 1 , 8 1 0 6 3 1 , 7 7 3 3 , 64 6 3 3 , 8 80 1 50 3 3 , 7 30 2 , 1 1 8 1 , 4 1 8 1 ,0 9 9 6 2 — 1 , 5 50 4 , 8 3 9 8 1 8 1 1 , 9 04 1 9 , 5 1 6 2 , 05 0 2 , 7 6 8 7 3 7 9 3 6 6 0 2 5 8 7 7 4 8 — 6 4 9 34 6 3 ,3 2 5 3 2 ,26 4 1 3 , 3 7 0 3 ,0 8 0 $ 1 0 ,8 6 9 $ 1 1 ,0 1 7 $ 1 0 , 2 9 0 $ $ 1.8 0 0.8 0 $ $ 1 .8 3 0 .80 $ $ 1 .7 1 0.7 7 2 0 1 6 A N N UA L R E V I E W 11 12 2 0 1 6 A N N UA L R E V I E W Boards of Directors ACNB Corporation and ACNB Bank Boards of Directors Richard L. Alloway II Pennsylvania State Senator James J. Lott President Daniel W. Potts Partner David L. Sites Owner & Managing Partner 33rd State Senate District Bonnie Brae Fruit Farms, Inc. IBM Banking & Insurance Realty Leasing & Frank Elsner, III Owner & Managing Director Robert W. Miller Vice President ODT Global, LLC Miller, Brown, Ohm & Chairman of the Board Associates, P.C. ACNB Corporation and ACNB Bank James P. Helt* President ACNB Bank Scott L. Kelley, Esquire President Donna M. Newell President & Chief Executive Officer NTM Engineering, Inc. J. Emmett Patterson President & Owner JDCS Enterprise & Stonesifer and Kelley, P.C. Fry Guy Corporation Consulting Practice Management Co. Thomas A. Ritter President & Chief Executive Officer Alan J. Stock Owner Eicholtz Company ACNB Corporation Vice Chairman Chief Executive Officer ACNB Corporation ACNB Bank and ACNB Bank Marian B. Schultz Retired Dean James E. Williams Principal Owner & President Shippensburg University C.E. Williams Sons, Inc. *Serves on ACNB Bank Board only ACNB Corporation and ACNB Bank Directors Front: J. Emmett Patterson; Marian B. Schultz; Richard L. Alloway II; Scott L. Kelley. Back: James E. Williams; David L. Sites; Daniel W. Potts; Frank Elsner, III; Thomas A. Ritter; James P. Helt; Alan J. Stock; James J. Lott; Donna M. Newell; Robert W. Miller. Russell Insurance Group, Inc. Board of Directors Thomas A. Ritter Chairman of the Board Frank Elsner, III Vice Chairman Lynda L. Glass James P. Helt Scott L. Kelley, Esquire Daniel W. Potts Frank C. Russell, Jr. ACNB Bank Honorary Directors Dana P. Brandt Frank C. Egger William B. Lower Mervin J. Morrison W. Irvin Nelson 2 0 1 6 A N N UA L R E V I E W 13 Officers ACNB Corporation Frank Elsner, III Chairman of the Board Thomas A. Ritter President & Lynda L. Glass Executive Vice President/ David W. Cathell Executive Vice President/ Chief Executive Officer Secretary & Treasurer & Chief Governance Officer Chief Financial Officer ACNB Bank Frank Elsner, III Chairman of the Board Laurie A. Laub Executive Vice President/ Sandra A. Deaner Senior Vice President/ Lauren L. Shutt Senior Vice President/ Chief Credit & Operations Human Resources Manager Risk Manager Thomas A. Ritter Chief Executive Officer Officer Douglas A. Seibel Executive Vice President/ Chief Lending & Revenue Officer Thomas R. Stone Executive Vice President/ Chief Community Banking Officer James P. Helt President David W. Cathell Executive Vice President/ Treasurer & Chief Financial Officer Lynda L. Glass Executive Vice President/ Secretary and Chief Risk & Governance Officer Kathy S. Hansel Senior Vice President/ Controller Michelle N. Paulnock Senior Vice President/ Information Systems Wayne A. Steinour Senior Vice President/ Agribusiness Lending Manager Scott A. Yeager Senior Vice President/ Manager Consumer Lending Sales & Training Manager Carl L. Ricker Senior Vice President/ Residential Mortgage Lending Sales Manager ACNB Bank Executive Management Front: Douglas A. Seibel, Executive Vice President/Chief Lending & Revenue Officer; Lynda L. Glass, Executive Vice President/Secretary and Chief Risk & Governance Officer; Laurie A. Laub, Executive Vice President/Chief Credit & Operations Officer; Thomas R. Stone, Executive Vice President/ Chief Community Banking Officer. Back: David W. Cathell, Executive Vice President/Treasurer & Chief Financial Officer; Thomas A. Ritter, Chief Executive Officer; James P. Helt, President. 14 2 0 1 6 A N N UA L R E V I E W First Vice Presidents Karen B. Arthur Barry C. Dillman Scott E. Hartlaub Kevin J. Hayes L. John Hicks Dennis R. Hollinger Vice Presidents Brian T. Adair Daniel K. Baer Mark P. Bernier David S. Campbell Cara Lynn Clabaugh David W. Deaner Tiffany M. Faust Stephen C. Hawbaker Gregory S. Liegey Vickie L. Hoffheins Debra T. Little Gary R. Holder Thomas A. Holmes Leslie R. Horn John E. Kashner Frank E. Koser II Laura L. McCusker Cheryl A. McVay Donald C. McVay Celeste M. Miller Scott A. Miller Lauren J. Muzzy Edward C. Price, Jr. Gary W. Rappoldt Wendy D. Roth Christine R. Settle James E. Showvaker Rhonda L. Winterstein Merle J. Zehr Christina D. Ziser Charlene L. Feuchtenberger Susan R. Lang Claire M. Forbush Beth W. Lesko Jeffrey A. Pottorff Assistant Vice Presidents Kevin L. Cook Andrée V. Dennis Carolyn M. Dull Kim D. Elmo Kimberly S. Flickinger Jacqueline A. Grasley George F. Marguglio Jody M. Shealer Barbara D. Guise Jane E. Gwyn Grant J. Holub R. Mark Purdy Susan M. Saylor Patrick O. Sease Lisa A. Smith Jeffrey B. Stambaugh Ruby L. Sullivan Russell Insurance Group, Inc. Frank C. Russell, Jr. President & Chief Executive Officer Daniel J. Coughlin Vice President David W. Cathell Vice President & Treasurer Lynda L. Glass Vice President & Secretary 2 0 1 6 A N N UA L R E V I E W 15 Office Locations ACNB Bank Arendtsville Arendtsville Office 101 Main Street Arendtsville, PA 17303 Bendersville Bendersville Office 101 North Main Street Bendersville, PA 17306 Biglerville Biglerville Office 3459 Biglerville Road Biglerville, PA 17307 Cashtown Franklin Township Drive-Up 10 High Street Cashtown, PA 17310 Chambersburg Chambersburg Office 850 Norland Avenue Chambersburg, PA 17201 Chambersburg Drive-Up 915 Wayne Avenue Chambersburg, PA 17201 Dillsburg Dillsburg Office 3 Tristan Drive Dillsburg, PA 17019 East Berlin East Berlin Office 1677 Route 194 North East Berlin, PA 17316 Fairfield/Carroll Valley Fairfield/Carroll Valley Office 4910 Fairfield Road Fairfield, PA 17320 Gettysburg Adams Commerce Center Drive-Up 100 V-Twin Drive Gettysburg, PA 17325 Lincoln Square Office 16 Lincoln Square Gettysburg, PA 17325 North Gettysburg Office 675 Old Harrisburg Road Gettysburg, PA 17325 West Gettysburg Office 545 West Middle Street Gettysburg, PA 17325 Hanover North Hanover Office 1127 Eichelberger Street Hanover, PA 17331 South Hanover Office 1801 Baltimore Pike Hanover, PA 17331 Littlestown Littlestown Office 444 West King Street Littlestown, PA 17340 Russell Insurance Group, Inc. Westminster Office 2526 West Liberty Road Westminster, MD 21157 Germantown Office 19500 Amaranth Drive, Suite C Germantown, MD 20874 McSherrystown McSherrystown Office 369 Main Street McSherrystown, PA 17344 New Oxford New Oxford Office 318 Lincoln Way East New Oxford, PA 17350 Newville Newville Office 39 Carlisle Road Newville, PA 17241 Spring Grove Spring Grove Office 221 North Main Street Spring Grove, PA 17362 York South York Plaza Office 201 Pauline Drive York, PA 17402 York Loan Office 1601 South Queen Street York, PA 17403 York Springs York Springs Office 202 Main Street York Springs, PA 17372 16 2 0 1 6 A N N UA L R E V I E W Contact Information ACNB Bank acnb.com Customer Contact Center Toll Free 1.888.334.ACNB (2262) 24-Hour Telephone Banking Line Toll Free 1.888.338.ACNB (2262) Russell Insurance Group, Inc. riginsurance.com Toll Free 1.800.289.4097 Forward-Looking Statements In addition to historical information, this document contains forward-looking statements. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management or the Board of Directors, and (c) statements of assumptions, such as economic conditions in the Corporation’s market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “intends”, “will”, “should”, “anticipates”, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy. Forward- looking statements are subject to certain risks and uncertainties such as local economic conditions, competitive factors, and regulatory limitations. Actual results may differ materially from those projected in the forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: the effects of governmental and fiscal policies, as well as legislative and regulatory changes; the effects of new laws and regulations, specifically the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act; impacts of the new capital and liquidity requirements of the Basel III standards; the effects of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; ineffectiveness of the business strategy due to changes in current or future market conditions; future actions or inactions of the United States government, including the effects of short- and long-term federal budget and tax negotiations and a failure to increase the government debt limit or a prolonged shutdown of the federal government; the effects of economic deterioration and the prolonged economic malaise on current customers, specifically the effect of the economy on loan customers’ ability to repay loans; the effects of competition, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products and services; the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and interest rate protection agreements, as well as interest rate risks; difficulties in acquisitions and integrating and operating acquired business operations, including information technology difficulties; challenges in establishing and maintaining operations in new markets; the effects of technology changes; volatilities in the securities markets; slow economic conditions; the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities; acts of war or terrorism; disruption of credit and equity markets; the ability to manage current levels of impaired assets; the loss of certain key officers; the ability to maintain the value and image of the Corporation’s brand and protect the Corporation’s intellectual property rights; continued relationships with major customers; and, potential impacts to the Corporation from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses. We caution readers not to place undue reliance on these forward-looking statements. They only reflect management’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances. Please carefully review the risk factors described in other documents the Corporation files from time to time with the Securities and Exchange Commission, including the Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. Please also carefully review any Current Reports on Form 8-K filed by the Corporation with the Securities and Exchange Commission. 2 0 1 6 A N N UA L R E V I E W 17 ACNB CORPORATION 16 LINCOLN SQUARE | PO BOX 3129 | GETTYSBURG, PA 17325 | ACNB.COM

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