ACNB Corporation Annual Report 2016

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FY2016 Annual Report · ACNB Corporation

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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.

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

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 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

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.

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

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.

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

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%

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

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.

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

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

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

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.

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

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

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

ACNB CORPORATION

16 LINCOLN SQUARE | PO BOX 3129 | GETTYSBURG, PA 17325 | ACNB.COM