Acnb Corp – ‘10-K405’ for 12/31/98 – EX-13

As of:  Monday, 3/29/99   ·   For:  12/31/98   ·   Accession #:  950115-99-422   ·   File #:  0-11783

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Annual Report — [x] Reg. S-K Item 405   —   Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report                                          5     38K 
 2: EX-11       Computation Per Share                                  1      5K 
 3: EX-13       Annual Report                                         55    255K 
 4: EX-21       Subsidiaries                                           1      4K 
 5: EX-27       Financial Data Schedule                                2±     8K 

EX-13   —   Annual Report
Exhibit Table of Contents

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ACNB CORPORATION ANNUAL REPORT o INDEPENDENCE                                   

nineteen                                                                        
98                                                                  

INDEPENDENCE                                                                    

[GRAPHIC OMITTED]                                                               

Antique Bank Photo                                                              

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 Independence.

At ACNB Corporation and its wholly-owned subsidiary,
Adams County National Bank, the past, present and future
are predicated on independence. The strategic choice of 
independence is the foundation of our strength and stability
in the marketplace as a community banking organization. 
The 1998 Annual Report illustrates the significance of
independence as a keystone for ACNB Corporation.

Financial Highlights                                1                           
Business Profile                                    1                           
Report to Stockholders                              2                           
Independence                                        5                           
Index to Financial Information                     14                           
Five-Year Financial Overview                       15                           
Management's Discussion and Analysis               16                           
Independent Auditors' Report                       25                           
Consolidated Financial Statements                  26                           
Notes to Consolidated Financial Statements         30                           
Quarterly Results of Operations                    46                           
Five-Year Financial Summary                        46                           
Form 10-K Cross-Reference Index                    47                           
Form 10-K                                          48                           
Common Stock Information                           53                           
Board of Directors                                 54                           
Officers                                           55                           
Office Locations                                   56                           

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 ACNB CORPORATION & SUBSIDIARY
1998 ANNUAL REPORT

FINANCIAL HIGHLIGHTS                                                            

                                                        [Enlarge/Download Table]


FOR THE YEAR                                            1998                1997               1996
---------------------------------------------------------------------------------------------------
                                                                                                   
Net interest income                              $20,390,000         $20,151,000        $18,770,000
Net income                                         7,221,000           7,229,000          7,109,000
Cash dividends                                     4,360,000           4,150,000          9,018,000
---------------------------------------------------------------------------------------------------

PER SHARE STATISTICS                                                                               
---------------------------------------------------------------------------------------------------
Basic earnings                                       $  1.37             $  1.38            $  1.34
Cash dividends                                           .83                 .79               1.70
Book value (year-end)                                  10.65               10.02               9.37
---------------------------------------------------------------------------------------------------

AT YEAR-END                                                                                        
---------------------------------------------------------------------------------------------------
Total assets                                    $498,814,000        $466,837,000       $472,445,000
Total loans                                      335,127,000         341,808,000        324,927,000
Total deposits                                   416,560,000         395,573,000        403,127,000
Total stockholders' equity                        55,937,000          52,618,000         49,436,000
---------------------------------------------------------------------------------------------------

KEY RATIOS                                                                                         
---------------------------------------------------------------------------------------------------
Return on average stockholders' equity                13.15%              14.14%             14.77%
Return on average assets                               1.49%               1.55%              1.53%
Dividend payout                                          60%                 57%               127%
Stockholders' equity to assets                        11.21%              11.27%             10.46%

BUSINESS PROFILE                                                                

 At December 31, 1998, ACNB Corporation is a single-bank holding company
with Adams County National Bank as its sole and wholly-owned subsidiary. Adams  
County National Bank, a full-service community bank in existence since 1857,    
provides a wide array of consumer, commercial and fiduciary banking services to 
the individuals, businesses, public entities and community organizations in its 
trading area. With assets of $499 million, it is the largest community bank     
headquartered in Adams County.                                                  

    ACNB Corporation and its subsidiary, Adams County National Bank, possess a
history abundant in the traditions of community banking. Indeed, the            
organizational focus remains constant -- providing the basic banking services   
essential to fulfilling the savings and borrowing needs of all community        
members. Integral to this steadfast strategy is the reinvestment of customers'  
deposits in loans to others in our local marketplace. A business philosophy     
predicated upon traditional, customer-oriented values is the common thread      
running through Adams County National Bank's history -- and its future -- as a  
responsible, committed and sound community banking organization.                

Adams County National Bank's marketplace encompasses Adams County,    
Pennsylvania, and its environs -- western York County, eastern Franklin County, 
southern Cumberland County, and the northern sections of those counties in      
Maryland that are adjacent to Adams County. Fourteen banking offices and 229    
employees serve the customers in this marketplace. Each office and each person  
is pivotal to ensuring the strength of Adams County National Bank's community   
banking network.                                                                

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     Independence. This word is not commonplace in today's banking industry. Nor
is it a term arising from the popular business philosophy of the year. At ACNB  
Corporation, independence is simply fundamental to our strategy as a community  
banking organization.                                                           

   This approach to the business of banking results in profitability to ACNB
Corporation and its wholly-owned subsidiary, Adams County National Bank. The    
Corporation completed 1998 with solid earnings of $7.2 million, or $1.37 per    
share. These figures do reflect a slight decline of $8,000, or 0.11%, in        
comparison to year-end 1997. The lack of significant 1998 earnings growth was   
impacted by the trend of downward pressure on the interest rate spread between  
the interest earned on loans and the interest paid on deposits by the Bank.     

  Total assets of ACNB Corporation grew by 6.85% -- primarily funded by an
increase in total deposits of more than $20.9 million, or 5.31%, from December  
31, 1997, to December 31, 1998. Total loans decreased by $6.7 million, or 1.96%,
during this same period. However, a rising percentage of mortgage loans are     
being sold by the Corporation in the secondary mortgage market and, therefore,  
do not appear on the Consolidated Statements of Condition.                      

     The Corporation's capital position continued to expand during 1998. A 6.31%
rise in total stockholders' equity resulted in a stockholders' equity to assets 
ratio of 11.21%.                                                                

     ACNB Corporation earnings generated a return on average assets of 1.49% for
1998. The return on average stockholders' equity was 13.15% for the same annual 
period.                                                                         

    Our Board of Directors approved aggregate cash dividends of $.83 per share
in 1998 -- an increase of 5.06% as compared to 1997. With total cash dividends  
in the amount of $4.4 million, ACNB Corporation realized a dividend payout ratio
of 60%.                                                                         

1998 was a year of refining and monitoring prior business initiatives.
These initiatives include efforts such as the introduction of the Visa(R) Check 
Card program, expansion of the Bank's offering of fiduciary trust services, and 
restructuring of the loan products and functions along the three major business 
lines of commercial, retail mortgage and consumer lending.                      

   More importantly, however, ACNB Corporation focused its resources on Year
2000 endeavors during 1998. The Year 2000 Task Force, which is composed         
primarily of senior managers representing diverse functional areas, was         

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actually established in July of 1996. This task force is responsible for the    
development and implementation of the overall action plan and strategy for      
addressing the potential challenges arising from the change of the millennium.  
The Year 2000 Project is based upon the five project phases as outlined in      
regulatory guidance -- awareness, assessment, renovation, validation and        
implementation. In addition, the project scope encompasses five other major     
components including contingency planning, stakeholder communications,          
commercial loan customer assessments, fiduciary risk control, and ongoing       
reporting to banking regulators and the Board of Directors. The services of     
third-party technology consultants and attorneys have also been retained to     
assist with the implementation of the action plan for Year 2000.                

  On July 28, 1998, ACNB Corporation entered into an Agreement and Plan of
Reorganization with Farmers National Bancorp, Inc. whereby Farmers National     
Bancorp, Inc. and its wholly-owned subsidiary, Farmers National Bank of         
Newville, would affiliate with ACNB Corporation. The shareholders of Farmers    
National Bancorp, Inc. approved the agreement on December 15, 1998. The         
effective date for the consummation of the affiliation is March 1, 1999.        
Shareholders of Farmers National Bancorp, Inc. have a right to receive 2.266    
shares of ACNB Corporation common stock for each share of Farmers National      
Bancorp, Inc. common stock held on this date. ACNB Corporation will issue       
approximately 561,968 shares of common stock in the transaction. Thus, as of    
March 1, 1999, ACNB Corporation becomes a multi-bank holding company with two   
bank subsidiaries -- Adams County National Bank and Farmers National Bank of    
Newville -- and total assets of approximately $545 million. This partnership is 
an opportunity for ACNB Corporation to further support the ideals of community  
banking in another local marketplace of Newville, Cumberland County, where      
Farmers National Bank of Newville serves its customers via three banking        
locations.                                                                      

On a personal note, in the past year, I was elected to the Board of   
Directors of the American Bankers Association and was appointed to the Federal  
Advisory Council as a representative of the Third Federal Reserve District. The 
American Bankers Association is the largest banking trade association in the    
country, whose membership includes community, regional and money center banks   
and holding companies, as well as savings associations, trust companies, and    
savings banks. The Federal Advisory Council was created by the Federal Reserve  
Act of 1913 to be the principal conduit of information and views between the    
Federal Reserve Board of Governors and the banking system. In both roles, I     
represent the interests of the independent community bank in the financial      
services marketplace of                                                         

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today while, simultaneously, being sensitive to the needs and issues for the    
entire industry. I am truly honored to serve in these capacities at a national  
level, and sincerely appreciate the support of ACNB Corporation's Board of      
Directors in allowing me the opportunity to reinforce the virtues of independent
community banking organizations in the industry.                                

   In remembrance, Ralph W. Tyson, Director Emeritus of ACNB Corporation and
Adams County National Bank, died on April 30, 1998. Mr. Tyson had originally    
joined the Board of Directors of The Bendersville National Bank in 1964. Upon   
the merger of The Bendersville National Bank into Adams County National Bank,   
effective March 1987, he became a member of the Board of Directors for both ACNB
Corporation and Adams County National Bank. Mr. Tyson was faithful and diligent 
in his service to the local banking community for 34 years.                     

    In the coming year of 1999, Frank Elsner, Jr. will retire from his role as
a member of the Board of Directors of ACNB Corporation and Adams County National
Bank. As of the Corporation's Annual Meeting of Shareholders on May 4, 1999, Mr.
Elsner will continue his association with the Corporation and the Bank as       
Director Emeritus. Since 1974, he has served on the Board of Directors of Adams 
County National Bank and, later, ACNB Corporation. His involvement in recent    
years included chairing the Board Loan Committee and participating as a member  
of the Board Executive Committee. Mr. Elsner has truly been a friend, as well as
an advocate, of this organization for nearly 25 years.                          

    We, at ACNB Corporation, look forward to a year of promise and challenges.
There is promise in realizing the value of independence as a community banking  
organization for the future. The challenges of business are sometimes daunting  
as they lie ahead. But, frankly, they are really opportunities to assure our    
independence into the next millennium.                                          

    Your commitment, as a stockholder, to the independence of ACNB Corporation
is gratifying. As always, we endeavor to ensure that ACNB Corporation is worthy 
of your investment.                                                             

          Sincerely,

                    /s/ Ronald L. Hankey
                      ----------------------
                Ronald L. Hankey
         President

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Cropped Image of Antique Bank Photo 

INDEPENDENCE

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The history of independence.

ACNB Corporation's history is one woven with the threads of independence. In    
1962, The First National Bank of Gettysburg and Littlestown State Bank and Trust
Company merged to form Adams County National Bank. The mission was simple and   
forthright -- to establish an independent community bank serving all of Adams   
County. ACNB Corporation was then established as a single-bank holding company  
in 1982. The vision endured as local people and businesses depended upon Adams  
County National Bank for the fulfillment of their savings and borrowing needs.  
Today, Adams County National Bank's marketplace extends beyond the eastern      
border of Adams County with community banking offices in Hanover, York County.  
The history of independence for ACNB Corporation serves as an emblem of the     
steadfast commitment to the community in which we do business.                  

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American flag and wood sculpture of ACNB logo photo 

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 The choice of independence.

At ACNB Corporation, independence is a choice. This choice is a strategic       
decision, especially given the dynamic, as well as sometimes tumultuous,        
environment of bank mergers and acquisitions during the last two decades. It is 
fundamental to the vitality of ACNB Corporation and Adams County National Bank. 
Peering into 1999, independence continues to be a focus. With the affiliation of
Farmers National Bancorp, Inc. and its wholly-owned subsidiary, Farmers National
Bank of Newville, as of March 1, 1999, ACNB Corporation becomes a multi-bank    
holding company with the two banking subsidiaries of Adams County National Bank 
and Farmers National Bank of Newville. Each bank stands firm in its unique      
community...committed to the choice of independence for ACNB Corporation.       

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The Value of independence.  

Value to stakeholders is intrinsic to the ideals of ACNB Corporation's          
independence. Corporation stockholders receive value in the form of a fair      
return on their investment. Value is delivered each business day to thousands of
Adams County National Bank customers via personal, responsive service. Bank     
employees are both the providers and the recipients of this value. In response  
to their integral and multifaceted roles in fulfilling customer expectations,   
employees receive value in terms of competitive salaries and benefits. Value to 
the community is not always perceived as tangible, but clearly there is the     
impact of real dollars and cents flowing through Adams County National Bank into
the local economy. It is the synergy of interaction between all groups of       
stakeholders that maximizes the value of ACNB Corporation's independence to each
stakeholder.                                                                    

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 The Future of independence.

To remain independent, ACNB Corporation must enter the future with a balance    
between technology and human resources. Technology enhances both customer       
convenience and operational efficiency through new products and alternative     
channels of service delivery. Technology is also fundamental to the continuous  
flow of payments and information within Adams County National Bank, as well as  
throughout the financial services industry. However, it is the human element    
that differentiates one financial institution from the other in the minds of the
customer and the community. The proper equilibrium of the personal touch versus 
technological advances in the offering of financial services is one of today's  
organizational challenges. Furthermore, it is the key to ACNB Corporation's     
future of independence as a community banking organization.                     

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INDEX TO FINANCIAL INFORMATION

Five-Year Financial Overview                                           15       

Management's Discussion and Analysis of Financial                               
Condition and Results of Operations                                 16-24       

Independent Auditors' Report                                           25       

Consolidated Financial Statements                                               

Consolidated Statements of Condition at                                     
December 31, 1998 and 1997                                           26     

Consolidated Statements of Income for the                                   
years ended December 31, 1998, 1997 and 1996                         27     

Consolidated Statements of Changes in Stockholders' Equity for the          
years ended December 31, 1998, 1997 and 1996                         28     

Consolidated Statements of Cash Flows for the                               
years ended December 31, 1998, 1997 and 1996                         29     

Notes to Consolidated Financial Statements                          30-45       

Quarterly Results of Operations                                        46       

Five-Year Summary of Selected Financial Data                           46       

Form 10-K Cross-Reference Index                                        47       

Form 10-K                                                           48-52       

Common Stock Market Prices and Dividends                               53       

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FIVE-YEAR FINANCIAL OVERVIEW

[GRAPHIC OMITTED] 

TOTAL DEPOSITS

BASIC EARNINGS PER SHARE

 TOTAL LOANS

 DIVIDENDS PER SHARE

RETURN ON AVERAGE ASSETS

BOOK VALUE PER SHARE

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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION AND                                                                
FORWARD-LOOKING STATEMENTS                                                      
------------------------------------------------------------------------------- 

INTRODUCTION                                                                    

The following is management's discussion and analysis of the  
significant changes in the results of operations, capital resources and         
liquidity presented in its accompanying consolidated financial statements for   
ACNB Corporation, a bank holding company, and its wholly-owned subsidiary, Adams
County National Bank. The corporation's consolidated financial condition and    
results of operations consist almost entirely of the bank's financial condition 
and results of operations. Please read this discussion in conjunction with the  
1998 Annual Report to ACNB Corporation stockholders. Current performance does   
not guarantee, assure, or indicate similar performance in the future.           

FORWARD-LOOKING STATEMENTS                                                      

         In addition to historical information, this 1998 Annual Report contains
forward-looking statements. Forward-looking statements are subject to certain   
risks and uncertainties. Actual results may differ materially from those        
projected in the forward-looking statements. Important factors that might cause 
such a difference include, but are not limited to, those discussed in the       
section entitled "Management's Discussion and Analysis of Financial Condition   
and Results of Operations". 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 Quarterly       
Reports on Form 10-Q, to be filed by the corporation in 1999, and any Current   
Reports on Form 8-K filed by the corporation.                                   

------------------------------------------------------------------------------- 
Comparative Average Balance Sheet and Net Interest Analysis                     
------------------------------------------------------------------------------- 

                                                                [Download Table]

                                                        December 31       
                                                           1998           
ASSETS In thousands                          Balance     Interest    Rate 
-------------------                          -------     --------    ---- 
                                                                          
Loans                                       $ 339,447   $  27,602    8.13%
Taxable investment securities                 115,446       7,488    6.49%
Non-taxable investment securities                 794          50    6.30%
Federal funds sold                                 16           1    6.25%
Interest bearing deposits with banks            8,908         487    5.47%
                                            ---------   ---------         
Total interest earning assets                 464,611   $  35,628    7.67%
Cash and due from banks                        12,845                     
Premises and equipment                          5,029                     
Other assets                                    5,218                     
Allowance for loan losses                      (3,275)                    
                                            ---------                     
TOTAL ASSETS                                $ 484,428                     
                                            =========                     

LIABILITIES AND STOCKHOLDERS' EQUITY                                      
Interest bearing demand deposits            $  57,841   $   1,464    2.53%
Savings deposits                              104,503       2,736    2.62%
Time deposits (excluding time certificates                                
  of deposit of $100,000 or more)             178,281       9,199    5.16%
Time certificates of deposit of                                           
  $100,000 or more                             18,507         981    5.30%
Short-term borrowings                          19,380         858    4.43%
                                            ---------   ---------         
Total interest bearing liabilities            378,512   $  15,238    4.03%
INTEREST RATE SPREAD                                                 3.64%

Demand deposits                                47,483                     
Other liabilities                               3,525                     
Stockholders' equity                           54,908                     
                                            ---------                     
TOTAL LIABILITIES AND                                                     
STOCKHOLDERS' EQUITY                        $ 484,428                     
                                            =========                     

INTEREST INCOME/EARNING ASSETS              $ 464,611   $  35,628    7.67%
INTEREST EXPENSE/EARNING ASSETS             $ 464,611   $  15,238    3.28%
NET YIELD ON EARNING ASSETS                             $  20,390    4.39%

Loan fees of $459,000, $531,000 and $569,000 for 1998, 1997 and 1996,           
respectively, are included for rate calculation purposes.                       

Average nonaccrual loans for 1998, 1997 and 1996 were $1,453,000, $1,441,000 and
$1,043,000, respectively.                                                       

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FINANCIAL CONDITION AND                                                         
RESULTS OF OPERATIONS                                                           
------------------------------------------------------------------------------  

EARNINGS PERFORMANCE                                                            

 Net income for years ended December 31, 1998 and 1997 were $7.2
million. Basic earnings per share were $1.37 in 1998 and $1.38 in 1997.         

       We attribute the net income decrease of $8,000 in 1998 to an increase
of $538,000, or 7.7%, in the corporation's interest income from taxable         
securities offset by a shrinkage of 0.11% in net interest margin, and a         
$448,000, or 4.0%, increase in non-interest expense. These items were           
accompanied by a higher provision of $150,000 in the allowance for possible loan
losses.                                                                         

        The corporation recorded net income of $7.2 million for the year ended
December 31, 1997, compared to net income of $7.1 million in 1996. Basic        
earnings per share of $1.38 in 1997 compared to $1.34 per share in 1996.        

         The $120,000 increase in net income in 1997 was primarily due to a $1.2
million, or 6.4%, rise in net interest income after provision for possible loan 
losses. This was partially offset by an increase in income tax expense of       
$80,000, or 2.3%, and a $935,000, or 9.2%, increase in non-interest expense.    

       We intend, in the balance of this discussion and analysis, to provide
details of the operating results, on a comparative basis, for each of the       
periods ended December 31, 1998, 1997 and 1996.                                 

NET INTEREST INCOME                                                             

Net interest income is the difference between the interest and
dividends earned on loans and investment securities (interest earning assets)   
and the interest paid on deposits and borrowings (interest bearing liabilities).
Net interest income is affected principally by the spread between the yield on  
interest earning assets and the cost of interest bearing liabilities, as well as
by the relative dollar amounts of such assets and liabilities.                  

         Net interest income was $20.4 million in 1998. This is an increase over
net interest income of $20.2 million in 1997, and $18.8 million in 1996. The    
increase was the result of growth in average earning assets, which were up by   
$16.9 million, or 3.8%. The rise in 1997 reflected slower growth than 1998.     
Average earning assets increased by $900,000, or 0.2%, in 1997, which caused a  
marked widening in net yield on earning assets from 4.2% to 4.5%. Improved      
yields on securities resulted in the increase of net yield on earning assets.   

     Interest from loans accounted for 77% of the corporation's interest
income in 1998, as compared to 79% in 1997 and 78% in 1996. Interest and        
dividends on investments were $7.5 million in 1998, as compared to $7.0 million 
in 1997 and $6.9 million in 1996. The average yield on the taxable investment   
portfolio decreased to 6.49% for 1998, from 6.88% for the prior year. The yield 
decrease resulted largely from a shift from U.S. Treasuries to mortgage-backed  
securities, as the corporation narrowed its positive gap and lengthened         
maturities.                                                                     

                                                        [Enlarge/Download Table]


                December 31                                              December 31            
---------------------------------------                 --------------------------------------- 
                   1997                                                     1996                
---------------------------------------                 --------------------------------------- 
  Balance       Interest          Rate                   Balance        Interest           Rate 
---------------------------------------                 ----------------------------------------
                                                                                                
 $337,465       $ 27,597          8.18%                 $321,979         $26,463           8.22%
  101,033          6,950          6.88%                  113,818           6,846           6.01%
      841             54          6.42%                    1,013              62           6.12%
      100              6          6.00%                      100               5           5.00%
    8,256            456          5.52%                    9,843             518           5.26%
 --------       --------                                --------         -------                
  447,695       $ 35,063          7.83%                  446,753         $33,894           7.59%
   11,807                                                 11,227                                
    5,196                                                  5,586                                
    5,710                                                  5,666                                
   (3,188)                                                (3,248)                               
 --------                                               --------                                
 $467,220                                               $465,984                                
 ========                                               ========                                

------------------------------------------------------------------------------------------------
$  52,419       $  1,323          2.52%                $  49,288        $  1,207           2.45%
  106,051          2,917          2.75%                  110,740           3,048           2.75%
  176,840          9,044          5.11%                  178,687           9,254           5.18%
   15,969            891          5.58%                   14,903             792           5.31%
   16,805            737          4.39%                   18,248             823           4.51%
 --------       --------                                --------         -------                
  368,084       $ 14,912          4.05%                  371,866         $15,124           4.07%
------------------------------------------------------------------------------------------------
                                  3.78%                                                    3.52%
   44,611                                                 43,073                                
    3,388                                                  2,929                                
   51,137                                                 48,116                                
 --------                                               --------                                
 $467,220                                               $465,984                                
 ========                                               ========                                
 $447,695       $ 35,063          7.83%                 $446,753         $33,894           7.59%
 $447,695       $ 14,912          3.33%                 $446,753         $15,124           3.39%
                $ 20,151          4.50%                                  $18,770           4.20%
------------------------------------------------------------------------------------------------

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    The Comparative Average Balance Sheet and Net Interest Analysis, a
table found on pages 16 and 17, presents for the periods indicated the total    
dollar amount of interest income from average interest earning assets and       
resultant yields, as well as the interest expense on average interest bearing   
liabilities and the resultant costs, expressed both in dollars and rates. The   
average interest earning assets balance includes nonaccrual loans. Interest     
income includes interest from nonaccrual loans only to the extent that payments 
were received and to the extent that the corporation believes it will recover   
the remaining principal balance of the loan. Average balances are computed using
a daily average balance during the period. The net yield on earning assets,     
which reflects the corporation's relative level of interest earning assets to   
interest bearing liabilities, is the difference between interest income on      
interest earning assets and interest expense on interest bearing liabilities,   
divided by average interest earning assets for the period. This table also shows
the net interest income and the interest rate spread.                           

         Changes in the corporation's net interest income are a function of both
changes in rates and changes in volumes of interest earning assets and interest 
bearing liabilities. The Analysis of Changes in Interest Income and Expense Due 
to Volume and Rate Changes, a table found on page 18, shows changes in interest 
income and expense for ACNB Corporation for the years indicated. For each       
category of interest earning assets and interest bearing liabilities, we provide
data on the changes attributed to changes in rate (changes in rate multiplied by
old volume) and changes in volume (changes in volume multiplied by old rate),   
with changes in rate volume (change in rate multiplied by change in volume)     
factored in proportionally. We compute the interest earning asset and interest  
bearing liability balances using daily average balances.                        

NON-INTEREST INCOME                                                             

     Growth in non-interest income is one of the corporation's long-term
strategies. Non-interest income for 1998 increased by $349,000, or 18.2%,       
compared to 1997, and decreased by $66,000, or 3.3%, when 1997 is compared to   
1996. In 1998, ACNB Corporation adjusted service fees on deposit accounts to    
reflect the marketplace more closely and miscellaneous service fees, including  
earnings on cash surrender value and Visa debit card fee income, increased      
$152,000, or 224%.                                                              

 Trust service income rose by 2.0% in 1998 and 0.6% in 1997. The
corporation participated in an ongoing study with a consulting firm to improve  
operations and revenues in the Trust Department. In December 1997, the          
corporation hired a new trust officer to head the department.                   

         Year-to-date service fees improved over the last two years, even though
the corporation continued to experience marginal deposit growth. A reassessment 
of service charges, which took affect in September 1998, was the main reason for
the 11.4% improvement in service fees on deposit accounts in 1998. The small    
improvement experienced in 1997 was due to growth in the demand deposit totals. 
While average interest bearing liabilities were up 2.8% in 1998 and down 1.0% in
1997, average non-interest bearing demand deposits were up 6.4% in 1998 and 3.6%
in 1997.                                                                        

NON-INTEREST EXPENSE                                                            

     Non-interest expense was $11.5 million in 1998, an increase of 4.0%
compared to 1997. In 1997, non-interest expense was $11.1 million, reflecting an
increase of 9.2% compared to 1996. The primary causes of the increases in       
non-interest expense are salaries and employee benefits and equipment expense.  

        Personnel expense increased by $295,000, or 4.5%, in 1998, compared to
1997, and by $648,000, or 11.0%, in 1997, compared to 1996. The rise in 1998 was
due to normal merit raises and an increase in loan personnel. Management has    
studied the impact of the eventual retirement of certain loan officers. In      
anticipation of these retirements, the bank has decided not to add additional   
loan officers at this time, but to evaluate the effect of the loss of these     
personnel and determine if the bank can offset the loss through internal        
promotion.                                                                      

   In addition to salary and employee benefit increases, there was a
significant rise in equipment expense. Costs were up by $93,000, or 9.3%, in    
1998, compared to 1997, and by $67,000, or 7.2%, in 1997, compared to 1996. The 
increase in 1998 is attributable to a full year's operation of telephone banking
and debit cards. While satisfying current technological needs, management       
realizes that this will be an ongoing area of concern because of the rapid      
technological changes taking place in the financial services industry.          

        FDIC insurance cost remained consistent with 1997. This was due to the
final recapitalization of the Federal                                           

Analysis of Changes in Interest Income and Expense Due to Volume and Rate       
Changes                                                                         

                                                        [Enlarge/Download Table]

                                                                       Year ended December 31                                    
                                            -------------------------------------------------------------------------------      
                                            1998 versus 1997             1997 versus 1996                  1996 versus 1995      
                                             Changes Due To               Changes Due To                    Changes Due To       
In thousands                          Volume     Rate       Net      Volume      Rate       Net      Volume     Rate        Net  
------------                          ------     ----       ---      ------      ----       ---      ------     ----        ---  
Interest earned on:                                                                                                              
                                                                                                                                 
Loans                                 $  168     $(163)    $   5     $1,262     $(128)    $1,134     $ 185     $  360     $  545 
Taxable investment securities            953      (415)      538       (386)      490        104      (144)       942        798 
Non-taxable investment securities         (3)       (1)       (4)       (11)        3         (8)      (33)        23        (10)
Federal funds sold                        (5)     --          (5)      --           1          1       --          (1)        (1)
Time deposits with banks                  35        (4)       31        (89)       27        (62)      362        (13)       349 
-------------------------------------------------------------------------------------------------------------------------------- 
Total Interest Earning Assets         $1,148     $(583)    $ 565     $  776     $ 393     $1,169     $ 370     $1,311     $1,681 
-------------------------------------------------------------------------------------------------------------------------------- 
Interest paid on:                                                                                                                
Interest bearing demand deposits      $  136     $   5     $ 141     $   80     $  36     $  116     $  12     $    6     $   18 
Savings deposits                         (43)     (138)     (181)      (131)       --       (131)     (164)        10       (154)
Time deposits                            206        39       245        (38)      (73)      (111)      646        332        978 
Short-term borrowings                    114         7       121        (65)      (21)       (86)      (80)       (75)      (155)
-------------------------------------------------------------------------------------------------------------------------------- 
Total Interest Bearing Liabilities    $  413     $ (87)    $ 326     $ (154)    $ (58)    $ (212)    $ 414     $  273     $  687 
-------------------------------------------------------------------------------------------------------------------------------- 
NET INTEREST EARNINGS                 $  735     $(496)    $ 239     $  930     $ 451     $1,381     $ (44)    $1,038     $  994 
-------------------------------------------------------------------------------------------------------------------------------- 

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Deposit Insurance Corporation's Bank Insurance Fund in May 1995, and the        
dramatic reduction in deposit insurance fees for the second half of that year.  
The costs in 1996 were due to the final recapitalization of the insurance in May
of 1995 and a full year at reduced rates. The cost for deposit insurance was    
$48,000 in 1998 and $49,000 in 1997. The cost should be approximately the same  
in 1999.                                                                        

OVERVIEW OF THE BALANCE SHEET                                                   

 During 1998, ACNB Corporation's total assets increased by $32.0
million, or 6.8%. This is a turnaround from 1997 when total assets shrank by    
$5.6 million, or 1.2%. Deposits were up $21.0 million, or 5.3%. Loans were down 
$6.7 million, or 2.0%, with most of the runoff in residential mortgages. The    
bank continues to compete with its traditional rivals, including several local  
and nonlocal commercial banks, as well as nontraditional rivals, such as        
mortgage brokers and brokerage houses for deposits and for loans.               

   The mix of assets and liabilities continues to change. Investment
securities rose $50.4 million, or 56.7%, as loans fell $6.7 million, or 2.0%, in
1998 after increasing by $16.3 million, or 5.0%, in 1997. Premises and equipment
decreased by $458,000 in 1998 and by $466,000 in 1997, as fixed assets were     
depreciated faster than the value of new equipment placed in service. In        
addition, other real estate decreased by $249,000, or 62.0%, in 1998.           

      On the liability side, non-interest bearing deposits were up by $5.6
million, or 12.0%, in 1998, and down by $5.8 million, or 11.1%, in 1997. Core   
deposits strengthened in 1998, with a total increase of $21.0 million in 1998.  
Fiscal year 1997 showed a decrease of $7.6 million, or 1.9%.                    

     Capital continued to be strong, as it increased by $3.3 million, or
6.3%, in 1998. It increased by $3.2 million, or 6.4%, in 1997 due to internal   
earnings retention.                                                             

ASSET/LIABILITY AND MARKET RISK MANAGEMENT                                      
------------------------------------------------------------------------------- 

INTEREST RATE RISK                                                              

Managing interest rate risk is fundamental to banking. Banking
institutions manage the inherently different maturity and repricing             
characteristics of the lending and deposit-taking lines of business to achieve a
desired interest rate sensitivity position and to limit their exposure to       
interest rate risk. ACNB Corporation manages its balance sheet to achieve       
maximum stockholder value within the constraints of interest rate risk          
discipline, the maintenance of high credit quality, and sound leverage and      
liquidity positions. The primary objective of interest rate sensitivity         
management is to manage net interest income growth, while reducing exposure to  
the risks inherent in interest rate movements.                                  

MARKET RISK                                                                     

        The Quantitative Disclosures of Market Risk, a table found on pages 20
and 21, provides information about the corporation's financial instruments used 
for purposes other than trading that are sensitive to changes in interest rates.
For loans, securities and liabilities with contractual maturities, this table   
presents principal cash flows and related weighted-average interest rates by    
contractual maturities, as well as the corporation's historical experience      
relative to the impact of interest rate fluctuations on the prepayment of       
residential and home equity loans and mortgage-backed securities. For core      
deposits -- such as demand deposit, interest checking, savings and money market 
deposit accounts -- that have no contractual maturity, the table presents       
principal cash flows and, as applicable, related weighted-average interest rates
based on the corporation's historical experience, management's judgment, and    
statistical analysis, as applicable, concerning their most likely withdrawal    
behaviors. Different assumptions would result in a change in cash flows and a   
change in results.                                                              

     Also, ACNB Corporation uses a simulation model as another method of
measuring interest rate risk. The simulation model, because of its dynamic      
nature, forecasts the effects of future balance sheet trends, changing slopes of
the yield curve, different patterns of rate movements, and changing             
relationships between rates. The results of the simulation analysis are used by 
management to evaluate possible corrective actions to reduce any negative impact
to the net interest margin.                                                     

       Traditionally, the investment portfolio is used to alter the interest
rate sensitivity of the corporation. This is accomplished by holding fixed-rate 
debt instruments in the securities portfolio. During 1998 and 1997, ACNB        
Corporation lengthened the maturity of prime rate loans, added fixed-rate       
mortgages with a maturity of 15 years or less to the loan portfolio, and        
continued to purchase mortgage-backed securities; thus, restructuring the asset 
sensitive position resulting from a short maturity investment portfolio.        

LIQUIDITY  MANAGEMENT                                                           

    Liquidity management involves planning to meet anticipated funding
needs at a reasonable cost, as well as contingency plans to meet unanticipated  
funding needs or a loss of funding sources. Liquidity management is governed by 
policies formulated and monitored by senior management, which take into account 
the marketability of assets, the sources and stability of funding, and the level
of unfunded commitments.                                                        

      Long-term liquidity needs are provided by a large core deposit base.
This is the most stable source of liquidity for a bank because of the long-term 
relationship with depositors and the deposit insurance provided by the FDIC. In 
1998, 84% of total assets were funded by core deposits and 5% were funded with  
short-term purchased funds, compared to 85% and 3%, respectively, in 1997. ACNB 
Corporation belongs to the Federal Home Loan Bank of Pittsburgh. This membership
serves the dual purposes of emergency and long-term liquidity. The corporation's
borrowing capacity with the Federal Home Loan Bank stood at $237.0 million at   
year-end 1998.                                                                  

        Parent company liquidity is maintained by the cash flow from dividends
received from the bank. Dividends from the bank are the corporation's primary   
source of funds to pay dividends to the corporation's shareholders. The amount  
of dividends paid by the bank is subject to certain regulatory restrictions,    
detailed in Note L of the Notes to Consolidated Financial Statements,           
"Restrictions on Subsidiary Dividends, Loans and Advances". The parent company  
financial statements are presented in Note Q of the Notes to Consolidated       
Financial Statements, "ACNB Corporation (Parent Company Only) Financial         
Information".                                                                   

OFF-BALANCE  SHEET FINANCIAL INSTRUMENTS                                        

 In the normal course of business, ACNB Corporation does not use
off-balance sheet financial instruments to hedge potential fluctuations in      
income or market values. The corporation's off-balance sheet items consist      
solely of loan commitments and letters of credit.                               

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LOAN REVIEW AND ALLOWANCE                                                       
FOR LOAN LOSS ANALYSIS                                                          
------------------------------------------------------------------------------  

GENERAL                                                                         

        ACNB Corporation's lending activities are carried on through the bank.
As of December 31, 1998, the corporation's total loan portfolio, carried at     
historical cost, of $335.1 million included:                                    

o    $207.4 million in mortgage loans secured by liens on one-to-four 
family residential properties;                              

     o    $88.5 million in mortgage loans secured by commercial properties, such
     as apartment buildings, office buildings, warehouses, and medical
office buildings;                                           

o    $14.0 million in construction loans;                             

o    $13.5 million in consumer loans; and,                            

o    $11.7 million in commercial and agricultural credits.            

        In originating loans, the corporation must compete with savings banks,
savings and loan associations, other commercial banks, mortgage companies, and  
credit unions. The corporation's lending activities are heavily influenced by   
economic trends affecting the availability of funds and by general interest rate
levels. More specifically, the condition of the construction industry and the   
demand for housing have a direct impact on residential lending volumes.         

RESIDENTIAL REAL ESTATE LOANS                                                   

    The corporation makes a full range of residential loans, including
conventional fixed-rate loans for terms of 5, 15 or 30 years and adjustable-rate
mortgage loans, available to borrowers in its primary consumer market area.     
Adjustable-rate mortgages are advantageous to the corporation because           
adjustable-rate loans are a closer match to the repricing of the corporation's  
core deposits. However, the corporation's ability to originate ARMs, in lieu of 
fixed-rate loans, has varied in response to changes in market interest rates.   
Between 1990 and 1993, ARMs were refinanced to fixed-rate loans, reflecting     
continuing lower market interest rates and leading to runoff in the             
corporation's loan portfolio. With the rise in interest rates in 1994 and 1995, 
ARMs comprised a larger share of total originations and the corporation's       
portfolio resumed its long-term growth. In 1996, 1997 and 1998, ACNB Corporation
again suffered runoff in its residential adjustable-rate mortgage portfolio.    
Currently, ARMs are indexed to the Federal Housing Finance Board's Contract Rate
for Major Lenders and One-Year U.S. Treasury Bills with constant maturity, and  
have limits on annual increases of 2% over the prior year's rate.               

     All of the corporation's residential mortgage lending is subject to
nondiscriminatory underwriting standards, and most is subject to loan           
origination and documentation procedures acceptable to the secondary market.    
Residential mortgage loans are originated using standard Federal National       
Mortgage Association and Federal Home Loan Mortgage Corporation applications and
appraisal forms. All loans are subject to underwriting review and approval by   
various levels of bank personnel, depending upon the size of the loan.          
Residential loan applications come in through various channels, primarily via a 
network of 14 community banking offices. However, all residential loans are     
currently originated by the bank, and mortgage insurance is required on all     
residential loans originated at a loan-to-value ratio over 85%.                 

     In addition to interest earned on loans, the bank receives fees for
originating loans and for providing loan commitments. The bank also assesses    
fees for loan modifications, late payments, changes of property ownership, and  
other miscellaneous services as well as receives fees for the servicing of loans
for others, which were sold prior to 1996.                                      

RESIDENTIAL CONSTRUCTION LOANS                                                  

         The bank provides financing for two different categories of residential
construction loans. A custom construction loan is made to the intended occupant 
of a house to finance its construction. Speculative construction loans are made 
to borrowers who are in the business of building homes for resale. Speculative  
construction loans are made on a house-by-house basis, and not as lines of      
credit to builders. This type of construction loan involves somewhat more risk  
than custom construction loans and the bank uses different underwriting         
considerations. All construction loans require approval by various levels of    
bank personnel, depending upon the size of the loan. Construction loans for     
nonconforming residential properties, which are properties other than           
single-family detached houses, are subject to more stringent approval           
requirements.                                                                   

                                                        [Enlarge/Download Table]


Quantitative Disclosures of Market Risk                                                                                    
------------------------------------------------------------------------------                                             

                                                       Principal Amount Maturing In                                        
                                              ---------------------------------------------                                
RATE SENSITIVE ASSETS  In thousands               1999             2000              2001                                  
-------------------------------------------------------------------------------------------                                
                                                                                                                           
Fixed interest rate loans                     $    13,066       $    8,018       $    5,759                                
Average interest rate                                9.11%            9.30%            8.88%                               
Variable interest rate loans                  $    33,709       $   21,826       $   20,326                                
Average interest rate                                7.75%            7.58%            7.53%                               
Fixed interest rate securities                $     3,642       $    8,882       $   19,245                                
Average interest rate                                6.55%            6.28%            6.17%                               
Variable interest rate securities             $        57       $       60       $       66                                
Average interest rate                                5.45%            5.45%            5.45%                               
Other interest bearing assets                 $     3,450       $     --         $     --                                  
Average interest rate                                4.50%            0.00%            0.00%                               

RATE SENSITIVE LIABILITIES                                                                                                 
-------------------------------------------------------------------------------------------                                
Non-interest bearing checking                 $    13,120       $   11,806       $   11,806                                
Average interest rate                                0.00%            0.00%            0.00%                               
Savings and interest bearing checking         $     7,701       $   48,233       $   48,233                                
Average interest rate                                2.50%            2.45%            2.45%                               
Time deposits                                 $   148,542       $   21,955       $   15,326                                
Average interest rate                                4.97%            5.45%            5.85%                               
Variable interest rate borrowings             $    11,328     $      3,399      $     3,399                                
Average interest rate                                4.33%            4.33%            4.33%                               



                                                            Principal Amount Maturing In                        Fair Value 
                                              ------------------------------------------------------------     December 31,
                                                2002              2003         Thereafter          TOTAL           1998    
---------------------------------------------------------------------------------------------------------------------------
                                                                                                                           
Fixed interest rate loans                     $ 3,913          $ 3,484          $ 18,268          $ 52,508       $ 52,834  
Average interest rate                            8.28%            7.08%             7.28%             8.28%                
Variable interest rate loans                  $17,235          $16,367          $169,732          $279,195       $279,948  
Average interest rate                            7.43%            7.40%             7.60%             7.59%                
Fixed interest rate securities                $14,410          $ 4,701          $ 85,672          $136,552       $140,570  
Average interest rate                            6.24%            6.56%             6.42%             6.36%                
Variable interest rate securities             $    75          $    84          $    447          $    789       $    789  
Average interest rate                            5.45%            5.45%             5.45%             5.45%                
Other interest bearing assets                 $    --          $    --          $     --          $  3,450       $  3,450  
Average interest rate                            0.00%            0.00%             0.00%             4.50%                

---------------------------------------------------------------------------------------------------------------------------
Non-interest bearing checking                 $ 5,247          $ 5,247          $  5,247          $ 52,473       $ 52,473  
Average interest rate                            0.00%            0.00%             0.00%             0.00%                
Savings and interest bearing checking         $14,794          $14,794          $ 29,585          $163,340       $163,340  
Average interest rate                            2.45%            2.45%             2.45%             2.45%                
Time deposits                                 $13,924          $    --          $  1,000          $200,747       $204,302  
Average interest rate                            5.73%            0.00%             5.26%             5.13%                
Variable interest rate borrowings              $2,266           $2,266          $     --           $22,658       $ 22,658  
Average interest rate                            4.33%            4.33%             0.00%             4.33%                

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COMMERCIAL REAL ESTATE LOANS                                                    

         In all commercial real estate lending, the bank considers the location,
marketability and overall attractiveness of the project. ACNB Corporation       
underwriting guidelines on commercial real estate loans currently require an    
economic analysis of each property, with regard to the annual revenue and       
expenses, debt service coverage and fair market value, to determine the maximum 
loan amount. Commercial real estate loans require approval at various levels of 
bank personnel, depending upon the size of the loan.                            

     Commercial real estate lending generally entails greater risks than
residential mortgage lending. This form of lending typically involves large loan
balances concentrated with single borrowers or groups of related borrowers. In  
addition, the payment experience on loans secured by income-producing properties
usually depends on the successful operation of the related real estate project  
and, thus, may be subject, to a greater extent, to adverse conditions in the    
real estate market or in the general economy.                                   

         In order to monitor its commercial real estate loan portfolio, the bank
periodically inspects real estate collateral based on the loan risk             
classification, the loan size, and the location of the collateral; analyzes the 
economic condition of markets in which the bank has a geographic concentration; 
and, reviews operating statements and rent rolls, updated financial and tax     
statements of borrowers, evidence of insurance coverage, and evidence that real 
estate taxes have been paid. These procedures are designed to analyze the       
economic viability of the property, as well as to determine whether or not the  
debt service coverage and loan-to-value ratios remain consistent with the bank's
underwriting policies. It is the intention of management to perform a continual 
review of the commercial real estate loan portfolio in light of the condition of
the real estate market. Based upon the above procedures, the bank classifies    
loans that fall below underwriting standards into various risk or watch         
categories.                                                                     

MANUFACTURED HOUSING, SECOND MORTGAGE AND OTHER CONSUMER LOANS                  

    The bank offers consumer loan programs that include the following:

o    manufactured housing loans;                                      
   o    second mortgage loans for a variety of purposes, including purchase,
        renovation, or remodeling of property, and for uses unrelated to the
security;                                                   
     o    loans for the purchase of automobiles, pleasure boats and recreational
vehicles;                                                   
o    student loans; and,                                              
   o    loans for general household purposes, including home equity lines of
credit.                                                     

Consumer loans, in addition to being an important part of the bank's orientation
toward consumer financial services, promote greater net interest income         
stability because of their somewhat shorter maturities and faster prepayment    
characteristics. Lending in this area may involve special risks, including      
decreases in the value of collateral and transaction costs associated with      
foreclosure and repossession.                                                   

     Consumer loans are generally secured loans and are made based on an
evaluation of the collateral and the borrower's creditworthiness, including such
factors as income, other indebtedness and credit history. Secured consumer loan 
amounts typically do not exceed 85% of the value of the collateral, less the    
outstanding balance of any first mortgage loan. Lines of credit are subject to  
periodic review, revision and, when deemed appropriate by the bank, cancellation
as a result of changes in the borrower's financial circumstances.               

ASSET QUALITY                                                                   

      Banks are required to review their assets on a regular basis, and to
classify them if certain weaknesses are noted. Adequate allowances must be      
maintained for assets classified as substandard or doubtful. Any assets         
classified as a loss must be written off immediately. The bank has a            
comprehensive process for classifying assets, and asset reviews are performed on
a quarterly basis. The objective of the review process is to identify any trends
and to determine the levels of loss exposure to evaluate the need for an        
adjustment to the allowance account. Classified assets consist of:              

o    nonaccrual loans;                                                
o    loans under foreclosure;                                         
o    other real estate owned, or OREO; and,                           
o    performing loans and securities that exhibit credit quality      
weaknesses.                                                 

The principal measures of asset problems are:                                   
o    the levels of nonaccruing loans;                                 
o    loans under foreclosure;                                         
o    other real estate owned;                                         
o    the size of the provision for loan losses;                       
o    loan charge-offs; and,                                           
   o    the size of the write-downs in the value of other real estate owned.

         Management ceases to accrue interest income on any loan that becomes 90
days or more delinquent and is                                                  
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not in the process of collection. Thereafter, interest income is accrued only if
and when, in management's opinion, projected cash proceeds are deemed sufficient
to repay both principal and interest. All loans on which interest is not being  
accrued are referred to as loans on nonaccrual status. Nonperforming loans      
include loans on which payment is 90 days or more delinquent, whether or not    
interest is still being accrued. The Nonperforming Assets Analysis, a table     
found on page 22, presents figures relative to nonperforming assets and net     
charge-offs for 1998 and 1997.                                                  

        Real estate that served as security for a defaulted loan and that then
became other real estate owned, is recorded on the corporation's books at the   
lower of the outstanding loan balance or fair market value, the determination of
which takes into account the effect of sales and financing concessions that may 
be required to market the property. If management's estimate of fair market     
value at the time a property becomes OREO is less than the loan balance, the    
loan is written down at that time by a charge to the allowance for loan losses. 
OREO currently consists of three properties valued at $152,000 as of December   
31, 1998, down by $249,000 from $401,000 at December 31, 1997. One of these     
properties has been sold, but must be reported as OREO until the terms, under   
which it was disposed of, meet current regulatory standards. The remaining      
properties are single-family dwellings with an appraised value in excess of book
value.                                                                          

PROVISION FOR LOAN LOSSES AND ALLOWANCE FOR LOAN LOSSES                         

     The provision for loan losses is based upon management's continuing
analysis of certain factors underlying the quality of the loan portfolio. These 
factors include:                                                                

o    changes in the size and composition of the portfolio;            
o    historical loan loss trends;                                     
o    the industry's loss experience; and,                             
o    current and anticipated economic conditions.                     

  To determine adequacy of the allowance for loan losses, the bank reviews
its loan portfolio for specific weaknesses. A portion of the allowance is then  
allocated to reflect the potential loss exposure of those specific weaknesses.  
When the bank confirms that specific loans or portions of loans are             
uncollectible, these amounts are charged against the allowance for loan losses. 
The existence of some or all of the following criteria generally confirms that a
loss has been incurred:                                                         

o    the loan is significantly delinquent and the borrower has not    
evidenced the ability or intent to bring the loan current;  
  o    the corporation has no recourse to the borrower or, if it does, the
borrower has insufficient assets to pay the debt; or,       
  o    the fair market value of the loan collateral is significantly below
          the current loan balance, and there is little or no near-term prospect
for improvement.                                            

Residential real estate and consumer loans are not individually analyzed for    
loss exposure because of the significant number of loans, their relatively small
balances, and historically low level of losses.                                 

       The table, Allocation of the Allowance for Loan Losses, found on page
23, shows a breakdown of the allowance as it applies to different types of loans
in the portfolio.                                                               

CAPITAL MANAGEMENT                                                              
------------------------------------------------------------------------------  

  During 1998, ACNB Corporation's fiscal capital increased by $3.3
million, or 6.3%. During 1997, the capital base increased by $3.2 million, or   
6.4%. At year-end 1998, the risk-based capital ratios of Tier 1 capital and     
Total capital were 18.93% and 20.15%, which exceed the minimum ratios required  
by the Federal Reserve Board. Capital ratios are highlighted in a table, Capital
Ratios at Year-end, on page 24.                                                 

       Capital management is an ongoing process, which consists of providing
equity and long-term debt for current and future financial positioning. ACNB    
Corporation manages its capital as set forth in its strategic business plan and 
to support its growth and investments.                                          

   ACNB Corporation and the bank are subject to the capital adequacy
guidelines of various federal banking agencies, such as the Federal Reserve     
Board and the Office of the Comptroller of the Currency. At December 31, 1998,  
the corporation and the bank were in compliance with the capital requirements of
these regulatory agencies. Management expects them to remain in compliance with 
these capital requirements in the future. Federal banking regulators have set   
the minimum capital ratios for a well-capitalized banking institution at 6% Tier
1 capital, 10% Total capital, and 5% Tier 1 leverage. At December 31, 1998, the 
capital ratios of the corporation exceeded these levels. Management expects the 
corporation's ratios to remain in excess of the minimum ratios required of a    
well-capitalized institution.                                                   

     The corporation's board of directors increased the quarterly common
stock cash dividend to $.19 per share during the third quarter of 1997, and     
further increased the quarterly dividend to $.20 per share during the third     
quarter of 1998. Annual dividends per share during 1998 were $.83, which        
included a $.05 special dividend. The corporation paid dividends of $.79 per    
share in 1997, which included a $.05 special dividend paid in the fourth quarter
of 1997.                                                                        

        The corporation's total stockholders' equity at December 31, 1998, was
$55.9 million, or 11.21%, of total assets, compared with $52.6 million, or      
11.27%, of total assets at December 31, 1997. The growth in capital is the      
direct result of continued strong retained earnings.                            

                                                        [Enlarge/Download Table]


Nonperforming Assets Analysis                                                                                         
----------------------------------------------------------------------------------------------------------------------
                                                                      Year ended December 31                          
                                              ------------------------------------------------------------------------
                                                             1998                                     1997            
                                              -------------------------------         --------------------------------
                                              Nonperforming           Net             Nonperforming           Net     
In thousands                                     Assets           Charge-offs            Assets           Charge-offs 
------------                                  -------------------------------         --------------------------------
                                                                                                                      
Real estate loans (1-to-4 family dwellings)      $1,535            $   (12)              $1,531            $    33    
Real estate loans (other)                         1,773                  4                1,089                 --    
Commercial and industrial                            83                 20                   95                 49    
Consumer                                            120                 98                  122                137    
                                                 ------            -------               ------            -------    
TOTAL                                            $3,511            $   110               $2,837            $   219    
                                                 ======            =======               ======            =======    

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CORPORATION IS IN THE PROCESS OF BECOMING                                       
YEAR 2000 COMPLIANT - EXPENSES NOT MATERIAL                                     
------------------------------------------------------------------------------- 

YEAR 2000 ISSUE                                                                 

 The following section contains forward-looking statements which involve
risks and uncertainties. The actual impact on the corporation of the Year 2000  
issue could materially differ from that which is anticipated in the             
forward-looking statements as a result of certain factors identified below.     

Corporation's State of Readiness                                                

The Year 2000 (Y2K) Problem is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems may be unable to interpret dates beyond the year 1999, which could cause
a system failure or other computer errors, leading to disruptions in operations.
If not corrected, many computer applications could fail or create erroneous     
results by or at the Year 2000. This could cause entire system failures,        
miscalculations, and disruptions of normal business operations including, among 
other things, a temporary inability to process transactions, send statements, or
engage in similar day-to-day business activities. The extent of the potential   
impact of the Year 2000 Problem is not yet known, and if not timely corrected,  
it could affect the global economy.                                             

    The corporation has developed a five-phase program for Y2K information and
non-information systems compliance which includes the following:                

1.  Awareness Phase                                                           
o    Establish Year 2000 Task Force.                                  
o    Define Year 2000 Problem.                                        
o    Develop Year 2000 Plan and Strategy.                             

This phase was completed as of December 31, 1997.                   

2.  Assessment Phase                                                          

o    Identify and inventory all information systems, technology items,
         computer programs, business partners, environmental systems, and data
communication links.                                        
o    Prioritize mission critical systems.                             
  o    Obtain vendor certifications for software, hardware, and outsourced
service providers.                                          
o    Assess impact of Year 2000.                                      

This phase was completed as of December 31, 1998.                   

3.  Renovation Phase                                                          

o    Implement hardware and software upgrades.                        
o    Replace systems and technology items.                            
o    Monitor vendor and service provider progress.                    

This phase was substantially completed as of December 31, 1998.     

4.  Validation Phase                                                          

o    Develop testing plan and strategy.                               
o    Establish test environment(s).                                   
o    Test all internal information systems, technology items, computer
  programs, environmental systems, and data communication links.
 o    Test with and/or monitor testing of vendors and service providers.

This phase began in May 1998 and will continue through June 30, 1999. 

5.  Implementation Phase                                                      

o    Implement Y2K compliant systems and technology items.            

 This phase began in December 1997 and will continue through October 29,
1999.                                                                           

        Based on an ongoing assessment, the corporation has determined that it
will be required to modify or replace portions of its hardware and software so  
that its computer systems will properly use dates beyond December 31, 1999. The 
corporation presently believes that as a result of modifications to existing    
software and hardware and conversions to new software, the Year 2000 Problem can
be mitigated. However, if such modifications and conversions are not made, or   
are not completed on a timely basis, the Year 2000 Problem could have a material
adverse impact on the operations of the corporation.                            

         The major part of the corporation's software is designed and maintained
by companies well known throughout the banking industry. This portion of the    
software has been or is in the process of being renovated for compliance with   
the Year 2000. The cost of renovation will be primarily borne by the third-party
providers. Even though the corporation does not have direct control over the    
software renovation process, it is monitoring the progress of its third-party   
vendors to assess the status of their Y2K readiness efforts. However, because   
most computer systems are, by their very nature, interdependent, it is possible 
that noncompliant third-party computers could impact the corporation's computer 
systems. The corporation could be adversely affected by the Year 2000 Problem if
it or unrelated parties fail to successfully and timely address the problem. The
corporation has taken steps to communicate with the unrelated parties with whom 
it deals to coordinate Year 2000 compliance. Additionally, the corporation is   
dependent on external suppliers, such as wire transfer systems, telephone       
systems, electric companies, and other utility companies, for continuation of   
service. The corporation is also assessing the impact, if any, the century date 
change may have on its credit risk and fiduciary risk.                          

Costs of Year 2000                                                              

The total cost to implement the five-phase program ranges from
approximately $400,000 to $450,000. Internal costs should approximate $235,000, 
while outside consultants for legal work, contingency planning, and verification
of testing will approximate $190,000. Costs in 1998 were $169,000 with $119,000 
being internal costs with very little cash outlay and were absorbed by current  
operations.                                                                     

     $50,000 was spent on consultant and legal work in 1998. Fiscal year
1999 expenses have been budgeted at $108,000 for internal costs and $140,000 for
consultant and legal work. There has been a shift in personnel which will       
require that more work will have to be outsourced at higher costs in 1999.      

                                                        [Enlarge/Download Table]


Allocation of the Allowance for Loan Losses                                                                                     
--------------------------------------------------------------------------------------------------------------------            
                                     1998                 1997                1996                1995                1994      
                               ---------------      ----------------     -------------      ---------------      -------------- 
                                          % of                 % of               % of                 % of               % of  
                                         Gross                 Gross              Gross                Gross              Gross 
                               Amount    Loans      Amount     Loans     Amount   Loans      Amount    Loans     Amount   Loans 
                               ------    -----      ------     -----     ------   -----      ------    -----     ------   ----- 
In thousands                                                                                                                    
------------                                                                                                                    
                                                                                                                                
Commercial, financial and                                                                                                       
  agricultural                 $  798     0.24%     $  696     0.20%     $   92    0.03%     $   95    0.03%     $   98    0.03%
Real estate - construction        102     0.03%         68     0.02%         47    0.01%         48    0.01%         51    0.02%
Real estate - mortgage          1,098     0.33%      1,518     0.45%      1,672    0.52%      1,719    0.53%      1,769    0.58%
Consumer                          227     0.07%        200     0.06%        156    0.05%        160    0.05%        165    0.05%
Unallocated                     1,199     0.35%        692     0.20%      1,216    0.37%      1,252    0.39%      1,287    0.42%
                               ------     ----      ------     ----      ------    ----      ------    ----      ------    ---- 
Total                          $3,424     1.02%     $3,174     0.93%     $3,183    0.98%     $3,274    1.01%     $3,370    1.10%
                               ======     ====      ======     ====      ======    ====      ======    ====      ======    ==== 

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       With actual costs of $169,000 in 1998 and estimated costs of $248,000
for 1999, the financial impact to the corporation of Year 2000 compliance has   
not been and is not anticipated to be material to the corporation's financial   
position or results of operations in any given year. However, if compliance is  
not achieved in a timely manner by the corporation or any of its significant    
related third parties, be it a supplier of services or customer, the Y2K issue  
could possibly have a material effect on the corporation's operations and       
financial position.                                                             

      The cost of the Year 2000 project and the dates when the corporation
plans to complete both Year 2000 modifications and systems conversions are based
on management's best estimates, which were derived utilizing numerous           
assumptions of future events including the continued availability of certain    
resources, third-party modification plans and other factors. However, there can 
be no guarantee that these estimates will be achieved and actual results could  
differ materially from those plans. Specific factors that might cause such      
material differences include, but are not limited to, the availability and cost 
of personnel trained in this area, the ability to locate and correct all        
relevant computer codes, the failure of a related third party to achieve Y2K    
compliance, and similar uncertainties.                                          

RISKS OF YEAR 2000                                                              

At present, management believes its progress in remedying the 
corporation's systems, programs and applications and installing Y2K compliant   
upgrades is on target. The Year 2000 computer problem creates risk for the      
corporation from unforeseen problems in its own computer systems and from       
third-party vendors who provide the majority of mainframe and PC-based computer 
applications. Failure of third-party systems relative to the Y2K issue could    
have a material impact on the corporation's ability to conduct business.        

CONTINGENCY PLANS                                                               

 In compliance with Y2K regulatory guidance, the corporation has
completed remediation contingency planning for mission critical systems and will
finalize its business resumption contingency planning by June 30, 1999.         
Remediation contingency planning for mission critical systems encompassed the   
identification of alternative means of achieving Y2K readiness in the event the 
mission critical system service provider or software vendor cannot complete     
critical efforts by predetermined trigger dates. The corporation's development  
of the business resumption contingency plan includes organizational planning    
guidelines, a business impact analysis, a written disaster recovery/contingency 
plan, and validation of the plan. Both forms of contingency planning are the    
corporation's efforts to minimize any potential disruptions to business         
operations due to a Y2K-related issue.                                          

OTHER YEAR 2000 ENDEAVORS                                                       

     ACNB Corporation has also undertaken other endeavors to address the
challenges of the Year 2000 Problem. These include:                             

1.  Stakeholder Communications                                                
o    Customer awareness program                                       
o    Bank employee communications and training                        
o    Corporation stockholder communications                           

2.  Commercial Customer Credit Risk Control Process                           
o    Due diligence process for current and future material customers  
o    Assessment of customer Year 2000 readiness                       

3.  Fiduciary Client Risk Control Process                                     
   o    Due diligence process for fiduciary account and asset administration
servicers including investment providers, third parties,    
counterparties and transfer agents                          
o    Assessment of servicer Year 2000 readiness                       

REGULATORY ACTIVITY                                                             
---------------------------------------------------------------------------     

   Recently, Pennsylvania enacted a law that permits state-chartered
banking institutions to sell insurance. This follows the U.S. Supreme Court     
decision in favor of nationwide insurance sales by banks, which also bars states
from blocking insurance sales by national banks in towns with populations of no 
more than 5,000. The Office of the Comptroller of the Currency has issued       
guidelines for national banks to sell insurance. The corporation is evaluating  
its options regarding the sale of insurance.                                    

        Congress is currently considering legislative reforms to modernize the
financial services industry, including the repeal of the Glass-Steagall Act,    
which prohibits commercial banks from engaging in the securities industry.      
Consequently, equity underwriting activities of banks may increase in the near  
future. The corporation does not currently anticipate entering into these       
activities.                                                                     

        From time to time, various types of federal and state legislation have
been proposed that could result in additional regulation of, and restrictions   
on, the business of the corporation and the bank. Management cannot predict     
whether such legislation will be enacted or, if enacted, how the legislation    
would affect the business of the corporation and the bank. As a consequence of  
the extensive regulation of commercial banking activities in the United States, 
the corporation's and the bank's business is particularly susceptible to being  
affected by federal legislation and regulations that may increase the cost of   
doing business. Except as specifically described above, management believes that
the impact of the provisions of the aforementioned legislation on the liquidity,
capital resources, and results of operations of the corporation will be         
immaterial. Management is not aware of any other current specific               
recommendations by regulatory authorities or proposed legislation, which, if    
they were implemented, would have a material adverse effect upon the            
corporation's liquidity, capital resources, or results of operations, although  
the general cost of compliance with numerous and multiple federal and state laws
and regulations does have, and in the future may have, a negative impact on the 
corporation's results of operations.                                            

      The business of the corporation is also affected by the state of the
financial services industry in general. As a result of legal and industry       
changes, management predicts that the industry will continue to experience an   
increase in consolidations and mergers as the financial services industry       
strives for greater cost efficiencies and market share. Management also expects 
increased diversification of financial products and services offered by the bank
and its competitors. Management believes that such consolidations and mergers,  
as well as the expanded diversification of products and services, may enhance   
its competitive position as a community bank.                                   

                                                        [Enlarge/Download Table]


Capital Ratios at Year-end                                                                                          
--------------------------------------------------------------------------------------------------------------------
                                                                                          1998            1997      
                                                                                         -----            -----     
                                                                                                                    
Common stockholders' equity to assets                                                    11.21%           11.27%    
Tier 1 leverage ratio                                                                    11.55%           11.26%    
Tier 1 risk-based capital ratio                                                          18.93%           18.14%    
Total risk-based capital ratio                                                           20.15%           19.28%    

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INDEPENDENT AUDITORS' REPORT

Stambaugh o Ness
----------------------------
Certified Public Accountants

To The Stockholders and Board of Directors                                    
ACNB Corporation                                                              
Gettysburg, Pennsylvania                                                      

  We have audited the accompanying consolidated statements of condition of
ACNB Corporation and subsidiary as of December 31, 1998 and 1997, and the       
related consolidated statements of income, stockholders' equity and cash flows  
for each of the three years in the period ended December 31, 1998. These        
financial statements are the responsibility of the corporation's management. Our
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe our audits provide a reasonable basis for our opinion.               

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ACNB        
Corporation and subsidiary as of December 31, 1998 and 1997, and the results of 
their operations and their cash flows for each of the three years in the period 
ended December 31, 1998, in conformity with generally accepted accounting       
principles.                                                                     

Stambaugh o Ness, P.C.                                                          

York, Pennsylvania                                                              
January 15, 1999                                                                

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                                                        [Enlarge/Download Table]


                      Consolidated Statements of Condition                                                     

                                                                                           December 31         
                                                                                  ---------------------------- 
                                                                                                               
ASSETS In thousands                                                                    1998               1997 
-------------------                                                               ---------          --------- 
Cash and due from banks                                                           $  14,354          $  14,674 
Interest bearing deposits with banks                                                  3,450             14,060 
Investment securities                                                                                          
   (fair value $140,570 and $89,053, respectively)                                  139,353             88,923 
Federal funds sold                                                                       --                100 
Mortgage loans held for sale                                                            504                570 
Loans                                                                                                          
   (net of unearned discount of $22 and $166, respectively)                         334,623            341,238 
Allowance for possible loan losses                                                   (3,424)            (3,174)
                                                                                  ---------          --------- 
Net loans                                                                           331,199            338,064 
Premises and equipment                                                                4,491              4,949 
Other real estate                                                                       152                401 
Other assets                                                                          5,311              5,096 
                                                                                  ---------          --------- 
TOTAL ASSETS                                                                      $ 498,814          $ 466,837 
                                                                                  =========          ========= 

LIABILITIES                                                                                                    
-------------------------------------------------------------------------------------------------------------- 
Non-interest bearing deposits                                                     $  52,473          $  46,839 
Interest bearing deposits                                                           364,087            348,734 
                                                                                  ---------          --------- 
TOTAL DEPOSITS                                                                      416,560            395,573 
Securities sold under agreement to repurchase                                        22,658             15,021 
Demand notes, U.S. Treasury                                                             100                450 
Other liabilities                                                                     3,559              3,175 
                                                                                  ---------          --------- 
TOTAL LIABILITIES                                                                   442,877            414,219 

STOCKHOLDERS' EQUITY                                                                                           
-------------------------------------------------------------------------------------------------------------- 
Common stock (par value $2.50; 20,000,000 shares authorized; 5,253,278 issued                                  
  and outstanding shares                                                                                       
  on 12/31/98 and 12/31/97)                                                          13,133             13,133 
Additional paid-in capital                                                            3,647              3,647 
Retained earnings                                                                    37,829             34,968 
Accumulated other comprehensive income                                                1,328                870 
                                                                                  ---------          --------- 
TOTAL STOCKHOLDERS' EQUITY                                                           55,937             52,618 
                                                                                  ---------          --------- 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $ 498,814           $466,837 
                                                                                  =========          ========= 

 The accompanying notes are an integral part of the consolidated
 financial statements.

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 CONSOLIDATED STATEMENTS OF INCOME

                                                        [Enlarge/Download Table]


                                                                                      Year ended December 31      
                                                                                ----------------------------------
INTEREST INCOME In thousands, except per share data                                1998         1997          1996
---------------------------------------------------                             -------      -------       -------
                                                                                                                  
Loans (including fees)                                                          $27,602      $27,597       $26,463
Time deposits with banks                                                            487          456           518
Federal funds sold                                                                    1            6             5
Taxable securities                                                                7,488        6,950         6,846
Non-taxable securities                                                               50           54            62
                                                                                -------      -------       -------
TOTAL INTEREST INCOME                                                            35,628       35,063        33,894

INTEREST EXPENSE                                                                                                  
------------------------------------------------------------------------------------------------------------------
Interest bearing deposits                                                        14,380       14,175        14,301
Other borrowed funds                                                                858          737           823
                                                                                -------      -------       -------
TOTAL INTEREST EXPENSE                                                           15,238       14,912        15,124
NET INTEREST INCOME                                                              20,390       20,151        18,770
Provision for possible loan losses                                                  360          210            30
                                                                                -------      -------       -------
NET INTEREST INCOME AFTER                                                                                         
PROVISION FOR POSSIBLE LOAN LOSSES                                               20,030       19,941        18,740

NON-INTEREST INCOME                                                                                               
------------------------------------------------------------------------------------------------------------------
Trust income                                                                        530          520           517
Service fees on deposit accounts                                                    851          764           756
Other income                                                                        888          636           713
                                                                                -------      -------       -------
TOTAL NON-INTEREST INCOME                                                         2,269        1,920         1,986

NON-INTEREST EXPENSE                                                                                              
------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits                                                    6,824        6,529         5,881
Net occupancy expense                                                               775          802           770
Equipment expense                                                                 1,097        1,004           937
Other taxes                                                                         458          441           424
Other expense                                                                     2,358        2,288         2,117
                                                                                -------      -------       -------
TOTAL NON-INTEREST EXPENSE                                                       11,512       11,064        10,129
INCOME BEFORE INCOME TAXES                                                       10,787       10,797        10,597
Applicable income taxes                                                           3,566        3,568         3,488
                                                                                -------      -------       -------
NETINCOME                                                                       $ 7,221      $ 7,229       $ 7,109
                                                                                =======      =======       =======

PER COMMON SHARE DATA*                                                                                            
------------------------------------------------------------------------------------------------------------------
Basic earnings                                                                    $1.37        $1.38         $1.34
Cash dividends                                                                    $ .83        $ .79         $1.70


*Based on a weighted average of 5,253,278 shares in 1998, 5,254,618 shares      
in 1997, and 5,300,569 shares in 1996.                                          

 The accompanying notes are an integral part of the consolidated
financial statements. 

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CONSOLIDATED STATEMENTS OF CHANGES
 IN STOCKHOLDERS' EQUITY

                                                        [Enlarge/Download Table]


                                                                                                      Accumulated           
                                                                                Additional               Other              
                                                                      Common     Paid-in    Retained  Comprehensive         
                                                                       Stock     Capital    Earnings     Income     Total   
                                                                     --------   ----------  --------  ------------- -----   
                                                                                                                            
In thousands                                                                                                                
BALANCE AT JANUARY 1, 1996                                           $ 13,269    $  4,396   $ 33,798    $     --   $ 51,463 
Comprehensive income:                                                                                                       
    Net income                                                             --          --      7,109          --      7,109 
    Net change in unrealized gains on securities available-for-sale        --          --         --         357        357 
                                                                                                                   -------- 
        Total comprehensive income                                                                                    7,466 
                                                                                                                   -------- 
Cash dividends                                                             --          --     (9,018)         --     (9,018)
Retirement of 29,284 shares                                               (73)       (402)        --          --       (475)
                                                                     --------    --------   --------    --------   -------- 
BALANCE AT DECEMBER 31, 1996                                           13,196       3,994     31,889         357     49,436 
Comprehensive income:                                                                                                       
    Net income                                                             --          --      7,229          --      7,229 
    Net change in unrealized gains on securities available-for-sale        --          --         --         513        513 
                                                                                                                   -------- 
        Total comprehensive income                                                                                    7,742 
                                                                                                                   -------- 
Cash dividends                                                             --          --     (4,150)         --     (4,150)
Retirement of 25,194 shares                                               (63)       (347)        --          --       (410)
                                                                     --------    --------   --------    --------   -------- 
BALANCE AT DECEMBER 31, 1997                                           13,133       3,647     34,968         870     52,618 
Comprehensive income:                                                                                                       
    Net income                                                             --          --      7,221          --      7,221 
    Net change in unrealized gains on securities available-for-sale        --          --         --         458        458 
                                                                                                                   -------- 
        Total comprehensive income                                                                                    7,679 
                                                                                                                   -------- 
Cash dividends                                                             --          --     (4,360)         --     (4,360)
                                                                     --------    --------   --------    --------   -------- 
BALANCE AT DECEMBER 31, 1998                                         $ 13,133    $  3,647   $ 37,829    $  1,328   $ 55,937 
                                                                     ========    ========   ========    ========   ======== 


 The accompanying notes are an integral part of the consolidated
 financial statements.

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 Consolidated Statements of Cash Flows

                                                        [Enlarge/Download Table]


                                                                                      Year ended December 31       
INCREASE (DECREASE) IN CASH                                                     ---------------------------------- 
AND CASH EQUIVALENTS In thousands                                                 1998         1997         1996   
---------------------------------                                               --------     --------     -------- 
                                                                                                                   
CASH FLOWS FROM OPERATING ACTIVITIES                                                                               
Interest and dividends received                                                 $ 35,293     $ 35,015     $ 33,563 
Fees and commissions received                                                      2,728        2,451        2,555 
Interest paid                                                                    (14,997)     (14,768)     (14,940)
Cash paid to suppliers and employees                                             (11,017)     (10,257)     (10,481)
Income taxes paid                                                                 (3,770)      (3,629)      (3,438)
Loans originated for sale                                                        (21,294)      (6,368)     (10,538)
Proceeds of mortgage loans sold                                                   21,360        5,798       11,412 
                                                                                --------     --------     -------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES                                          8,303        8,242        8,133 

CASH FLOWS FROM INVESTING ACTIVITIES                                                                               
Proceeds from maturities of investment securities held-to-maturity                 7,000       67,622       59,124 
Proceeds from maturities of investment securities available-for-sale              12,267        4,485          804 
Purchase of investment securities held-to-maturity                                (5,000)     (20,197)     (37,236)
Purchase of investment securities available-for-sale                             (64,101)     (23,560)     (34,334)
Net decrease (increase) in loans                                                   6,505      (16,530)      (1,927)
Capital expenditures                                                                (167)        (191)        (235)
Proceeds from sale of other real estate owned                                        249          614         (326)
                                                                                --------     --------     -------- 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                              (43,247)      12,243      (14,130)

CASH FLOWS FROM FINANCING ACTIVITIES                                                                               
Net increase (decrease) in demand deposits,                                                                        
  NOW accounts and savings accounts                                               10,357        2,440       (3,186)
Net increase (decrease) in certificates of deposit                                10,630       (9,994)      14,070 
Net increase (decrease) in securities                                                                              
    sold under agreement to repurchase                                             7,637       (1,715)       3,533 
Dividends paid                                                                    (4,360)      (4,150)      (9,018)
Net increase (decrease) in borrowed funds                                           (350)          --          251 
Retirement of common stock                                                            --         (410)        (475)
                                                                                --------     --------     -------- 
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                               23,914      (13,829)       5,175 
                                                                                --------     --------     -------- 
NET INCREASE (DECREASE) IN CASH                                                                                    
AND CASH EQUIVALENTS                                                             (11,030)       6,656         (822)
CASH AND CASH EQUIVALENTS                                                                                          
AT BEGINNING OF YEAR                                                              28,834       22,178       23,000 
                                                                                --------     --------     -------- 
CASH AND CASH EQUIVALENTS AT END OF YEAR                                        $ 17,804     $ 28,834     $ 22,178 
                                                                                ========     ========     ======== 
RECONCILIATION OF NET INCOME TO NET CASH                                                                           
PROVIDED BY OPERATING ACTIVITIES                                                                                   
------------------------------------------------------------------------------------------------------------------ 
Net income                                                                      $  7,221     $  7,229     $  7,109 
ADJUSTMENTS TO RECONCILE NET INCOME                                                                                
TO NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                       
Depreciation and amortization                                                        625          657          633 
Provision for possible loan losses                                                   360          210           30 
Provision for deferred taxes                                                        (291)          73           91 
Amortization (Accretion) of investment securities premiums (discounts)              (148)         (39)         356 
Increase (Decrease) in taxes payable                                                  87         (134)         (41)
Decrease (Increase) in interest receivable                                          (111)         442          (30)
Increase in interest payable                                                         241          144          184 
Increase (Decrease) in accrued expenses                                              (39)         209          301 
Decrease (Increase) in mortgage loans held for sale                                   66         (570)         874 
Increase in other assets                                                             (91)         (59)      (1,233)
Increase (Decrease) in other liabilities                                             383           80         (141)
                                                                                --------     --------     -------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES                                       $  8,303     $  8,242     $  8,133 
                                                                                ========     ========     ======== 

 The accompanying notes are an integral part of the consolidated
 financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A                                                                          
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                      
------------------------------------------------------------------------------- 

    The accounting and reporting policies followed by ACNB Corporation and its
principal subsidiary, Adams County National Bank, conform with generally        
accepted accounting principles and with general practice within the banking     
industry.                                                                       

BASIS OF FINANCIAL STATEMENTS                                                   

The consolidated financial statements include the accounts of the     
corporation and its wholly-owned subsidiary, Adams County National Bank. All    
significant intercompany transactions have been eliminated.                     

Financial statements prepared in accordance with generally accepted   
accounting principles require management to make estimates and assumptions that 
affect the reported amounts and disclosure of contingencies. Actual results     
could differ from these estimates.                                              

     Income and expenses are recorded on the accrual basis of accounting, except
for trust department income and certain other fees which are recorded primarily 
on the cash basis. Recognition of such income on an accrual basis is impractical
and would not materially affect net income.                                     

For comparative purposes, prior years' financial statements have been 
reclassified to conform with report classifications of the current year.        

CASH EQUIVALENTS                                                                

For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents include cash on hand, amounts due from banks,  
and federal funds sold. Generally, federal funds are purchased and sold for     
one-day periods.                                                                

INVESTMENT SECURITIES                                                           

   Under Statement of Financial Accounting Standards No. 115, securities are
required to be classified into one of three categories: held-to-maturity,       
available-for-sale, or trading. Investments in securities which the corporation 
has the positive intent and ability to hold to maturity are classified as       
held-to-maturity. These securities are accounted for at amortized cost. Other   
securities are classified as available-for-sale. The difference between         
amortized cost and fair value is an unrealized holding gain or loss included,   
net of taxes, as accumulated other comprehensive income, in stockholders'       
equity. Management will reassess the appropriateness of the classifications each
quarter.                                                                        

     Amortization of premium and accretion of discount for investment securities
is computed by the straight-line method to the maturity date or call date. There
is not a material difference between the straight-line method and the interest  
method. Gains and losses are determined using the specific identification       
method. Income is accrued the month it is earned.                               

MORTGAGE LOANS HELD FOR SALE                                                    

   The mortgages held for sale are carried at the lower of aggregate cost or
estimated market value.                                                         

LOANS                                                                           

  Loans are stated net of unearned interest on consumer installment loans.
Beginning in 1995, interest on new installment loans is recognized on the simple
interest method. Interest on installment loans opened prior to 1995 is          
recognized using the sum-of-the-month-digits method, which is not materially    
different from the interest method. Interest on commercial and real estate loans
is recognized based upon the principal amount outstanding. Loan fees are        
recorded on the cash basis, since there is not a material difference to the     
amount of income that would be recognized under Statement of Financial          
Accounting Standards No. 91.                                                    

ALLOWANCEFOR POSSIBLE LOAN LOSSES                                               

The provision for possible loan losses charged to income is based upon
management's evaluation of outstanding loans, the historical loan loss          
experience of the subsidiary, and the adequacy of the allowance for possible    
loan losses. A significant change in this estimate could result in a material   
change to net income. Loans are deemed impaired when it is probable that the    
corporation will be unable to collect all amounts due in accordance with the    
loan agreement. The corporation evaluates collectively for impairment large     
groups of smaller balance homogeneous loans. At December 31, 1998 and 1997, all 
of the corporation's impaired loans were on nonaccrual status for all reported  
periods.                                                                        

PREMISES AND EQUIPMENT                                                          

Land is carried at cost. Bank premises and furniture and equipment are
carried at cost, less accumulated depreciation computed principally by the      
straight-line method.                                                           

NONPERFORMING ASSETS                                                            

Nonperforming assets are comprised of loans for which the accrual of  
interest has been discontinued due to a serious weakening of the borrower's     
financial condition.                                                            

     Loans are generally placed on a nonaccrual basis when principal or interest
is past due 90 days or more and when, in the opinion of management, full        
collection of principal or interest is unlikely. At the time a loan is placed on
nonaccrual status, the accrual of interest is discontinued. Income on such loans
is then recognized only to the extent of cash received.                         

    The basis in foreclosed real estate is carried at the lower of fair market
value, less costs to sell, or the carrying value of the related loan at the time
of acquisition.                                                                 

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NOTE A                                                                          
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)                          
------------------------------------------------------------------------------- 

INCOME TAXES                                                                    

Deferred tax assets and liabilities are reflected at currently-enacted
income tax rates applicable to the period in which deferred tax assets or       
liabilities are expected to be realized or settled. As changes in tax laws or   
rates are enacted, deferred tax assets and liabilities are adjusted through the 
provision for income taxes.                                                     

NET INCOME PER SHARE                                                            

  Basic earnings per share of common stock is computed on the basis of the
weighted average number of shares of common stock outstanding. The corporation  
does not have diluted earnings per share.                                       

ADVERTISING COSTS                                                               

Costs of advertising are expensed when incurred.                      

COMPREHENSIVE INCOME                                                            

 The corporation adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", as of January 1, 1998. Accounting        
principles generally require that recognized revenue, expenses, gains and losses
be included in income. Although certain changes in assets and liabilities, such 
as unrealized gains and losses on available-for-sale securities, are reported as
a separate component of the equity section of the statement of condition, such  
items, along with net income, are components of comprehensive income. The       
adoption of Statement of Financial Accounting Standards No. 130 had no effect on
the corporation's net income or stockholders' equity other than expanded        
disclosure.                                                                     

NOTE B                                                                          
RESTRICTIONS ON CASH                                                            
AND DUE FROM BANK ACCOUNTS                                                      
------------------------------------------------------------------------------- 

    The bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of these reserve balances for the years ended  
December 31, 1998 and 1997, were approximately $6,465,000 and $5,554,000,       
respectively.                                                                   
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NOTE C                                                                          
INVESTMENT SECURITIES                                                           
------------------------------------------------------------------------------- 

The amortized cost and estimated fair value of investment securities at December
31, 1998 and 1997, were as follows:                                             

                                                        [Enlarge/Download Table]


                                                                     Gross        Gross                  
                                                   Amortized       Unrealized   Unrealized        Fair   
1998 In thousands                                     Cost           Gains        Losses          Value  
-----------------                                  ---------       ----------  ------------     ---------
                                                                                                         
Held-to-Maturity Securities                                                                              

U.S. Treasury securities and obligations of                                                              
  U.S. Government corporations and agencies        $  30,107       $   1,217   $         --     $  31,324
Obligations of states and political subdivisions         789              --             --           789
                                                   ---------       ---------   ------------     ---------
Total debt securities                                 30,896           1,217             --        32,113
Restricted equity securities                           2,975              --             --         2,975
                                                   ---------       ---------   ------------     ---------
Total Held-to-Maturity Securities                  $  33,871       $   1,217   $         --     $  35,088
                                                   =========       =========   ============     =========
Available-for-Sale Securities                                                                            

U.S. Treasury securities and obligations of                                                              
  U.S. Government corporations and agencies        $ 103,470       $   2,012   $         --     $ 105,482
                                                   =========       =========   ============     =========

1997 In thousands                                                                                        
-----------------                                                                                        
Held-to-Maturity Securities                                                                              

U.S. Treasury securities and obligations of                                                              
  U.S. Government corporations and agencies        $  32,156       $     245   $        115     $  32,286
Obligations of states and political subdivisions         832              --             --           832
                                                   ---------       ---------   ------------     ---------
Total debt securities                                 32,988             245            115        33,118
Restricted equity securities                           2,861              --             --         2,861
                                                   ---------       ---------   ------------     ---------
Total Held-to-Maturity Securities                  $  35,849       $     245   $        115     $  35,979
                                                   =========       =========   ============     =========
Available-for-Sale Securities                                                                            

U.S. Treasury securities and obligations of                                                              
  U.S. Government corporations and agencies        $  51,756       $   1,318   $         --     $  53,074
                                                   =========       =========   ============     =========

                                                       Held-to-Maturity            Available-for-Sale    
                                                   -------------------------   --------------------------
                                                   Amortized          Fair      Amortized         Fair   
In thousands                                         Cost            Value          Cost          Value  
------------                                       ---------       ---------   ------------     ---------
Within one year                                   $       57      $       57      $      --     $      --
After one year through five years                     20,392          20,966         10,000        10,098
After five years through ten years                    10,447          11,090             --            --
After ten years                                           --              --         93,470        95,384
                                                   ---------       ---------   ------------     ---------
Total Debt Securities                              $  30,896      $   32,113      $ 103,470     $ 105,482
                                                   =========       =========   ============     =========

    The amortized cost and estimated fair value of debt securities at December
31, 1998, by contractual maturity are shown below.                              

 Expected maturities may differ from contractual maturities because some
issuers have the right to call or prepay obligations with or without call or    
prepayment penalties.                                                           

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NOTE C                                                                          
INVESTMENT SECURITIES (continued)                                               
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]

                                             U.S.                                                                          
                                          Government                                                               Taxable 
                                          and Federal       State and           Other                            Equivalent
December 31, 1998 In thousands              Agency          Municipal         Securities          Total             Yield  
------------------------------            -----------       ---------         ----------         --------        ----------
                                                                                                                           
Amortized Cost                                                                                                             

Within one year                            $   --            $     57          $     --          $     57            9.55% 
After one year through five years            30,107               285                --            30,392            6.11% 
After five years through ten years           10,000               447                --            10,447            6.31% 
After ten years                              93,470                --                --            93,470            6.48% 
No set maturity                                  --                --             2,975             2,975            6.48% 
                                           --------          --------          --------          --------                  
Total                                      $133,577          $    789          $  2,975          $137,341                  
                                           ========          ========          ========          ========                  
Fair Value                                 $136,806          $    789          $  2,975          $140,570                  

Taxable Equivalent Yield                       6.36%             9.55%           6.45%                                     

December 31, 1997 In thousands                                                                                             
-------------------------------------------------------------------------------------------------------------------------  
Amortized Cost                             $ 83,912          $    832          $  2,861          $ 87,605                  
                                           ========          ========          ========          ========                  
December 31, 1996 In thousands                                                                                             
-------------------------------------------------------------------------------------------------------------------------  
Amortized Cost                             $112,460          $    925          $  2,570          $115,955                  
                                           ========          ========          ========          ========                  

     The weighted average yield of tax-exempt obligations has been calculated on
a taxable equivalent basis. The taxable equivalent adjustments are based on an  
effective tax rate of 34%. The yield information does not give effect to changes
in fair value that are reflected as a component of stockholders' equity.        

    At December 31, 1998 and 1997, assets with a carrying value of $57,788,000
and $47,971,000, respectively, were pledged as required or permitted by law to  
secure certain public and trust deposits, repurchase agreements, or for other   
purposes.                                                                       

The corporation did not sell any securities over the past three years.

NOTE D                                                                          
LOANS                                                                           
------------------------------------------------------------------------------- 

Loans at December 31 are summarized as follows:                                 

                                                        [Enlarge/Download Table]

In thousands                               1998       1997       1996      1995       1994  
------------                            ---------  ---------  --------- ---------  ---------
                                                                                            
Commercial, financial and agricultural  $  11,698  $   9,758  $   9,866 $   9,268  $  10,785
Real estate - construction                 14,018     13,674     11,207    12,951     12,632
Real estate - mortgage                    295,902    303,270    288,588   284,943    268,944
Consumer                                   13,531     15,272     15,994    18,150     17,444
                                        ---------  ---------  --------- ---------  ---------
                                          335,149    341,974    325,655   325,312    309,805
Less: Unearned discount on loans               22        166        728     2,184      3,883
                                        ---------  ---------  --------- ---------  ---------
Total Loans                             $ 335,127  $ 341,808  $ 324,927 $ 323,128  $ 305,922
                                        =========  =========  ========= =========  =========


The following table outlines the repricing opportunities for all loans
outstanding as of December 31, 1998. Loans with immediately adjustable rates,   
such as loans tied to prime rate, are included in the within one year column.   
Loans with rates that are adjustable at some time over the life of the loan are 
included under the time heading when they become adjustable. All fixed-rate     
loans are included under the heading in which they mature.                      

                                                                [Download Table]

                                                  Repricing Period         
                                         ----------------------------------
                                          Within   After One Year          
                                           One        Through              
In thousands                               Year       Five Years    Total  
------------                             --------  --------------  --------
                                                                           
Commercial, financial and agricultural   $  5,986     $  5,712     $ 11,698
Real estate - construction                  5,910        8,108       14,018
                                         --------     --------     --------
Total                                    $ 11,896     $ 13,820     $ 25,716
                                         ========     ========     ========
Loans with predetermined interest rates  $  2,163     $  3,356     $  5,519
Loans with variable interest rates          9,733       10,464       20,197
                                         --------     --------     --------
Total                                    $ 11,896     $ 13,820     $ 25,716
                                         ========     ========     ========

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NOTED                                                                           
LOANS (continued)                                                               
--------------------------------------------------------------------------------

     The aggregate balance of loans (in excess of $60,000) made to directors and
executive officers in the normal course of business as of December 31,          
1998 and 1997, was $3,279,064 and $3,570,156, respectively. The terms for these 
loans were substantially the same as those for unrelated parties.               

                                                                [Download Table]


Balance at                          Balance at       Number   
January 1,                Amounts   December 31,       of     
   1998      Additions   Collected     1998          Debtors  
----------  ----------  ----------  ----------    ------------
                                                              
$3,570,156  $1,352,000  $1,643,092  $3,279,064          5     

NOTE E                                                                          
ALLOWANCE FOR LOAN LOSSES                                                       
------------------------------------------------------------------------------- 

Transactions in the valuation portion of the allowance for loan losses for the  
past five years at December 31 are shown below:                                 

                                                        [Enlarge/Download Table]


In thousands                                                      1998        1997        1996        1995        1994  
------------                                                  --------    --------    --------    --------    --------  
                                                                                                                        
Balance of allowance for loan losses at beginning of period   $  3,174    $  3,183    $  3,274    $  3,370    $  3,581  

Loans charged-off:                                                                                                      

Commercial, financial and agricultural                              20          49          34          --           8  
Real estate - construction                                          --          --          --          --          --  
Real estate - mortgage                                               4          34          31          44         178  
Consumer                                                           185         160         131          90          70  
                                                              --------    --------    --------    --------    --------  
Total loans charged-off                                            209         243         196         134         256  

Recovery of charged-off loans:                                                                                          

Commercial, financial and agricultural                              --           1           6          12           5  
Real estate - construction                                          --          --          --          --          --  
Real estate - mortgage                                              12          --          41           1          13  
Consumer                                                            87          23          28          25          27  
                                                              --------    --------    --------    --------    --------  
Total recoveries                                                    99          24          75          38          45  

Net loans charged-off                                              110         219         121          96         211  
Provision for possible loan losses                                 360         210          30          --          --  
                                                              --------    --------    --------    --------    --------  
Balance at end of period                                      $  3,424    $  3,174    $  3,183    $  3,274    $  3,370  
                                                              ========    ========    ========    ========    ========  

TOTAL LOAN BALANCES  In thousands                                                                                       
---------------------------------                                                                                       
Average total loans                                           $339,448    $337,465    $321,979    $319,712    $289,350  
Total loans at year-end                                        335,127     341,808     324,927     324,002     305,922  

RATIOS                                                                                                                  
----------------------------------------------------------------------------------------------------------------------  
Net charge-offs to:                                                                                                     

Average total loans                                               0.03%       0.06%       0.04%       0.03%       0.07% 
Total loans at year-end                                           0.03%       0.06%       0.04%       0.03%       0.07% 
Allowance for loan losses                                         3.21%       6.90%       3.80%       2.93%       6.26% 

Allowance for loan losses to:                                                                                           

Average total loans                                               1.01%       0.94%       0.99%       1.02%       1.16% 
Total loans at year-end                                           1.02%       0.93%       0.98%       1.01%       1.10% 

The amounts of additional provision to the allowance were based on    
management's judgement after considering an analysis of larger loans, all loans 
known to management to have unusual risk characteristics, nonperforming or      
problem loans, historical patterns of charge-offs and recoveries, and actual net
charge-offs. Further consideration was given to current economic and employment 
conditions both nationally and in the corporation's local service area. Loans   
secured by real estate comprised 92% of the corporation's total loan portfolio  
at December 31, 1998. The majority of loans in both the commercial, financial   
and agricultural category and the consumer category are also secured by personal
property, negotiable assets, or business assets. This conservative policy       
explains the low ratio of losses to loans experienced by the corporation over   
the last five years. This policy did not change during the year ending 1998.    
Management anticipates that charge-off amounts will approximate $200,000 in     
1999.                                                                           

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NOTE E                                                                          
ALLOWANCE FOR LOAN LOSSES (continued)                                           
--------------------------------------------------------------------------------

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES                                     
--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]


                                  1998             1997                1996              1995              1994       
                            ---------------   --------------   -------------------   --------------   --------------  
                                      % of             % of                  % of             % of              % of  
                                      Gross            Gross                 Gross            Gross             Gross 
                             Amount   Loans   Amount   Loans   Amount        Loans   Amount   Loans   Amount    Loans 
                            -------   -----   ------   -----   ------        -----   ------   -----   ------    ----- 
                                                                                                                      
Commercial, financial                                                                                                 
  and agricultural          $   798    0.24%  $  696    0.20%  $   92         0.03%  $   95    0.03%  $   98     0.03%
Real estate - construction      102    0.03%      68    0.02%      47         0.01%      48    0.01%      51     0.02%
Real estate - mortgage        1,098    0.33%   1,518    0.45%   1,672         0.52%   1,719    0.53%   1,768     0.58%
Consumer                        227    0.07%     200    0.06%     156         0.05%     160    0.05%     165     0.05%
Unallocated                   1,199    0.35%     692    0.20%   1,216         0.37%   1,252    0.39%   1,287     0.42%
                            -------    ----   ------    ----   ------         ----   ------    ----   ------     ---- 
Total                       $ 3,424    1.02%  $3,174    0.93%  $3,183         0.98%  $3,274    1.01%  $3,370     1.10%
                            =======    ====   ======    ====   ======         ====   ======    ====   ======     ==== 


NOTE F                                                                          
PREMISES AND EQUIPMENT                                                          
------------------------------------------------------------------------------- 

The composition of corporation premises and equipment at December 31 was as     
follows:                                                                        

                                                                [Download Table]


In thousands                                      1998       1997   
------------                                     -------   -------- 
                                                                    
Land                                             $   857    $   857 
Bank premises                                      5,907      5,835 
Furniture and equipment                            4,616      4,556 
Less: Accumulated depreciation and amortization   (6,889)    (6,299)
                                                 -------    ------- 
Total                                            $ 4,491    $ 4,949 
                                                 =======    ======= 

                                                        [Enlarge/Download Table]

A summary of depreciation and amortization expenses is as follows:                     
                                                                                       
In thousands                                                         1998   1997   1996
------------                                                        -----  -----  -----
Bank premises                                                       $ 182  $ 185  $ 200
Furniture and equipment                                               443    472    433
                                                                    -----  -----  -----
Total                                                               $ 625  $ 657  $ 633
                                                                    =====  =====  =====

NOTE G                                                                          
INVESTMENT IN REAL ESTATE PARTNERSHIP                                           
--------------------------------------------------------------------------------

ACNB Corporation is the sole limited partner in a partnership named   
Gettysburg Scattered Site Associates, whose purpose is to develop, manage and   
operate a residential low-income development comprised of sixteen dwelling      
units. ACNB Corporation owns a 99% limited partner's interest in the            
partnership. The investment is accounted for under the equity method of         
accounting. At December 31, 1998 and 1997, the carrying value of this investment
was approximately $276,019 and $319,219, respectively.                          

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NOTE H                                                                          
NONPERFORMING ASSETS                                                            
--------------------------------------------------------------------------------

The following table presents information concerning the aggregate amount of     
nonperforming assets at December 31:                                            

In thousands                       1998     1997       1996      1995      1994 
------------                      ------   ------    -------    ------   -------
Nonaccrual loans                  $1,281   $1,640    $   994    $1,092   $   854
90 days past due still accruing    2,230    1,197      2,175     2,780     2,219
Restructured loans                    --       --         --        --        --
Other real estate owned              152      401      1,015       689     1,037
                                  ------   ------     ------    ------    ------
Total Nonperforming Assets        $3,663   $3,238     $4,184    $4,561    $4,110
                                  ======   ======     ======    ======    ======

     The gross interest income that would have been recorded on nonaccrual loans
at December 31, 1998, under original terms was approximately $124,000. The      
amount of interest income on these loans that was included in net income for the
year ended December 31, 1998, was $0.                                           

The corporation does not accrue interest on any loan when principal or
interest are in default for 90 days or more, unless the loan is well secured and
in the process of collection. Consumer loans and residential real estate loans  
secured by 1-to-4 family dwellings shall ordinarily not be subject to these     
guidelines.                                                                     

   When a loan is placed in a nonaccrual status, all previously accrued, but
uncollected, interest is charged against the interest income account. Previously
accrued interest is not charged-off if principal and interest are protected by  
sound collateral values.                                                        

NOTE I                                                                          
TIME DEPOSITS                                                                   
--------------------------------------------------------------------------------

     Time deposits in denominations of $100,000 or more at December 31, 1998 and
1997, are summarized in the following table:                                    

In thousands                                       1998         1997  
------------                                     -------      ------- 
Time certificates of deposit                     $19,982      $17,247 
Other time deposits                                1,000        1,000 

Maturities of time deposits of $100,000 or more outstanding at December 31,     
1998, are summarized as follows:                                                

In thousands                                                          
------------                                                          
Three months or less                                        $ 5,894   
Over three through six months                                 4,106   
Over six through twelve months                                5,606   
Over twelve months                                            5,376   
                                                         -------
Total                                                       $20,982   
                                                         =======

The interest expense related to time certificates of deposit in       
denominations of $100,000 or more totaled $981,000 in 1998, $891,000 in 1997 and
$792,000 in 1996.                                                               

NOTE J                                                                          
LEASE COMMITMENTS                                                               
--------------------------------------------------------------------------------

Certain branch offices and equipment are leased under agreements which
expire at varying dates through 2010. Most leases contain renewal provisions at 
the corporation's option.                                                       

     The total rental expense for all operating leases was $104,508, $91,887 and
$96,473 for the years ended December 31, 1998, 1997 and 1996, respectively.     

The following is a schedule by years of future minimum rental payments
required under operating leases that have initial or remaining noncancelable    
lease terms in excess of one year as of December 31:                            

1999                                                    $ 59,400      
2000                                                      47,500      
2001                                                      48,000      
2002                                                      48,000      
2003                                                      48,000      
Later years                                              311,000      
                                                  --------
Total Minimum Payments                                  $561,900      
                                                  ========

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NOTE K                                                                          
SHORT-TERM BORROWINGS                                                           
--------------------------------------------------------------------------------

  Federal funds purchased, securities sold under agreements to repurchase,
and other short-term borrowings generally mature within one to 90 days from the 
date originated.                                                                

     The following is a summary of aggregate short-term borrowings for the years
ended December 31, 1998, 1997 and 1996, respectively:                           

In thousands                                      1998        1997        1996  
------------                                    -------     -------     ------- 
Amount outstanding at year-end                  $22,758     $15,471     $17,186 
Average interest rate at year-end                 4.33%       4.42%       4.36% 
Maximum amount outstanding at any month-end     $25,812     $22,740     $38,057 
Average amount outstanding                      $19,001     $16,805     $18,248 
Weighted average interest rate                    4.41%       4.39%       4.51% 

NOTE L                                                                          
RESTRICTIONS ON SUBSIDIARY                                                      
DIVIDENDS, LOANS AND ADVANCES                                                   
--------------------------------------------------------------------------------

  Certain restrictions exist regarding the ability of the bank to transfer
funds to the corporation in the form of cash dividends, loans or advances. The  
approval of the Office of the Comptroller of the Currency is required to pay    
dividends in excess of earnings retained in the current year plus retained net  
profits for the preceding two years. As of December 31, 1998, $5,272,000 of     
undistributed earnings of the bank, included in consolidated retained earnings, 
was available for distribution to the corporation as dividends without prior    
regulatory approval.                                                            

   Under national banking laws, the bank is also limited as to the amount it
may loan to its affiliates, including the corporation, unless such loans are    
collateralized by specific obligations. At December 31, 1998, the maximum amount
available for transfer from the bank to the corporation in the form of loans was
approximately $5,937,000.                                                       

NOTE M                                                                          
INCOME TAXES                                                                    
--------------------------------------------------------------------------------

    The composition of applicable income taxes for the years ended December 31
was allocated as follows:                                                       

                                                                [Download Table]

In thousands                                          1998    1997    1996 
------------                                         ------  ------  ------
                                                                           
Income from continuing operations                    $3,566  $3,568  $3,488
Stockholders' equity for other comprehensive income     236     264     184
                                                     ------  ------  ------
Total                                                $3,802  $3,832  $3,672
                                                     ======  ======  ======

Income tax expense attributable to other comprehensive income consists of the   
following at December 31:                                                       

                                                        [Enlarge/Download Table]

In thousands                                                            1998    1997    1996 
------------                                                           ------  ------  ------
                                                                                             
Unrealized gains (losses) on securities arising during the period      $  236  $  264  $  184
Reclassification adjustment for gains (losses) included in net income      --      --      --
                                                                       ------  ------  ------
Income Tax Expense (Benefits) Related to Other Comprehensive Income    $  236  $  264  $  184
                                                                       ======  ======  ======

Income tax expense attributable to income from continuing operations consists of
the following at December 31:                                                   

                                                                [Download Table]

In thousands                       1998    1997     1996 
------------                      ------  ------   ------
                                                         
Currently payable                 $3,564  $3,665   $3,453
Deferred taxes payable (benefit)       2     (97)      35
                                  ------  ------   ------
Applicable Income Taxes           $3,566  $3,568   $3,488
                                  ======  ======   ======

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NOTE M                                                                          
INCOME TAXES (continued)                                                        
--------------------------------------------------------------------------------

For the years ended December 31, the applicable income tax expense    
attributable to income from continuing operations differed from the tax expense 
computed by applying the federal statutory rate to pretax earnings. The         
components of the differences are as follows:                                   

In thousands                                       1998       1997       1996   
------------                                      ------     ------     ------  
Income taxes at statutory rates                   $3,775     $3,779     $3,709  
Increases (Decreases) resulting from:                                           
Tax-exempt income                                    (32)       (34)       (45) 
Tax preference interest expense                        3          4          5  
Rehabilitation and low-income housing credits        (73)       (73)       (75) 
Other                                               (107)      (108)      (106) 
                                                ------     ------     ------
Applicable Income Taxes                           $3,566     $3,568     $3,488  
                                                ======     ======     ======

The significant components of deferred tax assets and deferred tax    
liabilities at December 31, 1998 and 1997, are as follows:                      

In thousands                                              1998        1997      
------------                                              ----       -----      
Deferred tax assets:                                                            
Allowance for possible loan losses                        $623       $ 538      
Pension                                                     --          18      
Deferred compensation                                      128          --      
Total gross deferred tax assets                            751         556      
                                                    ----       -----
Deferred tax liabilities:                                                       
Depreciation                                                60         219      
Net unrealized gains on available-for-sale securities      684         448      
Pension                                                     50          --      
Total gross deferred tax liabilities                       794         667      
                                                    ----       -----
Net Deferred Tax Assets (Liabilities)                     $(43)      $(111)     
                                                    ====       =====

Since the corporation has historically had strong earnings, management
believes the deferred tax assets are realizable.                                

  Income taxes paid during 1998, 1997 and 1996 were $3,770,000, $3,629,000
and $3,438,000, respectively. Federal income taxes on securities gains were $0  
in 1998, 1997 and 1996.                                                         

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NOTE N                                                                          
RETIREMENT PLANS                                                                
--------------------------------------------------------------------------------

   The corporation's subsidiary has a non-contributory pension plan covering
all eligible employees. The plan provides retirement benefits which are a       
function of both the years of service and the highest level of compensation     
during any consecutive five-year period. It is the subsidiary's funding policy  
to contribute annually the amount that is sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act. The total
pension expense for the years ended December 31, 1998, 1997 and 1996 was        
$413,000, $419,000 and $374,000, respectively.                                  

  The following tables provide a reconciliation of the changes in the plan
benefit obligation and fair value of assets for the two plan years ending       
December 31, 1998 and 1997, and a statement of the funded status as of December 
31, 1998 and 1997:                                                              

In thousands                                                1998         1997   
------------                                              -------      -------  
Reconciliation of benefit obligation:                                           
Benefit obligation - beginning of year                    $ 7,494      $ 6,342  
Service costs                                                 328          287  
Interest costs                                                485          443  
Actuarial (gains)/losses                                      881          438  
Benefit payments                                              (61)         (16) 
                                                        -------      -------
Benefit obligation - end of year                          $ 9,127      $ 7,494  
                                                        =======      =======
Reconciliation of fair value of plan assets:                                    
Fair value of plan assets - beginning of year             $ 6,052      $ 4,932  
Actual return on plan assets                                  491          770  
Employer contributions                                        611          366  
Benefits paid                                                 (61)         (16) 
                                                        -------      -------
Fair value - end of year                                  $ 7,093      $ 6,052  
                                                        =======      =======
Reconciliation of funded assets:                                                
Funded status at December 31(under funded) over funded    $(2,034)     $(1,442) 
Unrecognized net actuarial loss                             2,038        1,224  
Unrecognized transition asset                                 (52)         (65) 
Unrecognized prior service cost                               193          231  
                                                         -------       -------
Net amount recognized                                     $   145      $   (52) 
                                                        =======      =======

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NOTE N                                                                          
RETIREMENT PLANS (continued)                                                    
--------------------------------------------------------------------------------

  The following table provides the amounts recognized in the statements of
condition as of December 31 of both years:                                      

In thousands                                                    1998      1997  
------------                                                   -----     -----  
Prepaid (Accrued) benefit cost                                 $ 145     $ (52) 
                                                             =====     =====

The following table provides the components of net periodic benefit cost for the
years ending December 31, 1998 and 1997:                                        

In thousands                                                                    
------------                                                                    
Components of net periodic benefit cost:                                        
Service cost                                                   $ 328     $ 287  
Interest cost                                                    485       443  
Expected return on assets                                       (459)     (378) 
Recognized net actuarial loss                                     34        42  
Amortization of transition asset                                 (13)      (13) 
Amortization of prior service costs                               38        38  
                                                             -----     -----
Net periodic benefit cost                                      $ 413     $ 419  
                                                             =====     =====

   The prior service costs and gains/losses are amortized on a straight-line
basis over the average service period of members expected to receive benefits.  

     The assumptions used in the measurement of the benefit obligation are shown
in the following table:                                                         

Weighted average assumption as of December 31:                                  
Discount rate                                                   5.50%     6.50% 
Expected return on plan assets                                  8.25%     7.50% 
Rate of compensation increase                                   4.62%     5.62% 

  Plan assets consist of a deposit administration contract, various pooled
separate accounts, and an investment of 37,560 shares of common stock with ACNB 
Corporation at December 31, 1998 and 1997.                                      

The corporation has a 401(k) Salary Deferral Plan, which covers all   
eligible employees who elect to contribute to the plan. An eligible employee is 
anyone over the age of 20 1/2, who has completed six months of service. The     
corporation's contribution equals 100% of the employee's contribution, up to a  
maximum of 4% of annual salary, for 1998 and 1997. The annual expense included  
in salaries and benefits amounted to $180,000, $159,000 and $159,000 for 1998,  
1997 and 1996, respectively.                                                    

  ACNB Corporation has non-qualified salary continuation plans for certain
senior management. The future commitments under these arrangements have been    
funded through corporate-owned variable life insurance policies. At December 31,
1998 and 1997, the present value of the future obligations was $338,000 and     
$199,000, respectively. The insurance policies included in other assets had     
total cash value of $1,932,000 and $1,841,000, respectively, at December 31,    
1998 and 1997.                                                                  

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NOTE O                                                                          
COMMITMENTS, CONTINGENCIES                                                      
AND CONCENTRATIONS OF CREDIT                                                    
--------------------------------------------------------------------------------

FINANCIAL INSTRUMENTS WITH                                                      
OFF-BALANCE SHEET RISK                                                          

    The corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its        
customers. These financial instruments include commitments to extend credit and 
standby letters of credit and financial guarantees which involve, to varying    
degrees, elements of credit risk in excess of the amount recognized in the      
consolidated statements of condition. The corporation uses the same credit      
policies in making commitments and conditional obligations as it does for       
on-balance sheet instruments. A summary of significant commitments and          
contingent liabilities at December 31, 1998 and 1997, is presented below:       

In thousands                                                1998        1997    
------------                                              -------     -------   
Commitments to extend credit                              $29,237     $32,022   
Standby letters of credit                                   2,039       3,007   

   Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.          
Commitments generally have fixed expiration dates or other termination clauses, 
and may require payment of a fee. Since many of the commitments are expected to 
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The corporation evaluates each customer's   
creditworthiness on a case-by-case basis. The amount of collateral obtained, if 
deemed necessary by the corporation upon extension of credit, is based on       
management's credit evaluation of the creditor. The type of collateral may vary;
however, a significant portion of these financial instruments is secured through
real estate.                                                                    

    Standby letters of credit and financial guarantees written are conditional
commitments issued by the corporation to guarantee the performance of a customer
to a third party. These guarantees are primarily issued to support borrowing    
arrangements. The credit risk involved in issuing letters of credit is          
essentially the same as that involved in extending loans to customers.          

CONCENTRATIONS OF CREDIT RISK                                                   

   The corporation has a diversified loan portfolio and grants agribusiness,
commercial and residential loans to customers, substantially all of whom are    
local residents to the corporation's fourteen offices.                          

CONTINGENT LIABILITIES                                                          

 The corporation is party to litigation and claims arising in the normal
course of business. Management, after consultation with legal counsel, believes 
that the liabilities, if any, arising from such litigation and claims will not  
be material to the consolidated financial position.                             

NOTE P                                                                          
DISCLOSURES ABOUT FAIR VALUE                                                    
OF FINANCIAL INSTRUMENTS                                                        
--------------------------------------------------------------------------------

 Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires all entities to disclose the     
estimated fair value of its financial instrument assets and liabilities. For    
1998 and 1997, approximately 98% of the corporation's assets and 88% of its     
liabilities are considered financial instruments as defined in Statement of     
Financial Accounting Standards No. 107. Many of the corporation's financial     
instruments, however, lack an available trading market as characterized by a    
willing buyer and a willing seller engaging in an exchange transaction.         
Therefore, significant estimations and present value calculations were used by  
the corporation for the purposes of this disclosure.                            

    The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate  
the value.                                                                      

Financial instruments actively traded in a secondary market have been 
valued using quoted available market prices.                                    

                                                        [Enlarge/Download Table]


                                          December 31, 1998         December 31, 1997     
                                      ------------------------  --------------------------
                                      Estimated Fair  Carrying  Estimated Fair    Carrying
In thousands                              Value        Amount       Value          Amount 
------------                          ------------------------  --------------------------
                                                                                          
Cash and due from banks                 $ 14,354      $ 14,354     $14,674        $14,674 
Interest bearing deposits with banks       3,450         3,450      14,060         14,060 
Federal funds sold                            --            --         100            100 
Investment securities                    140,570       139,353      89,053         88,923 
Interest receivable                        2,614         2,614       2,510          2,510 

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NOTE P                                                                          
DISCLOSURES ABOUT FAIR VALUE                                                    
OF FINANCIAL INSTRUMENTS (continued)                                            
--------------------------------------------------------------------------------

Fair values for net loans are estimated for portfolios with similar   
financial characteristics. Loans are segregated into commercial, residential    
real estate, and consumer. The loan categories are further segmented into fixed 
and adjustable types. Fair value for adjustable-rate commercial loans is        
considered to be the same as the carrying value because these loans were made at
the corporation's prime lending rate, which is the same rate these loans would  
be written as of the date of this financial statement. Fixed-rate commercial    
loans have been revalued at a rate the corporation would use if the loans were  
written as of December 31, 1998 and 1997. Mortgages and consumer loans have been
revalued using discounted cash flows. The mortgages were estimated using market 
rates at December 31, 1998 and 1997, and consumer loans were revalued using     
rates being charged by the corporation at year-end 1998 and 1997. Fair value for
nonperforming loans is based on current valuations of underlying collateral.    

                                                                [Download Table]

                                  December 31, 1998            December 31, 1997    
                              --------------------------  --------------------------
                              Estimated Fair    Carrying  Estimated Fair    Carrying
In thousands                      Value          Amount       Value          Amount 
------------                  --------------------------  --------------------------
                                                                                    
Net loans                        $332,278       $331,199     $338,394       $338,064
Mortgage loans held for sale          504            504          570            570

   Under Statement of Financial Accounting Standards No. 107, the fair value
of deposits with no stated maturity, such as non-interest bearing demand        
deposits, savings, NOW accounts, and money market checking accounts, is equal to
the amount payable on demand as of December 31, 1998 and 1997. The fair value of
certificates of deposit is based on the discounted value of contractual cash    
flows. The discount rate is estimated using the rates currently offered for     
deposits of similar remaining maturities. The fair value estimates do not       
include the benefit that results from the low-cost funding provided by the      
deposit liabilities, compared to the cost of borrowing funds in the market.     

                                                        [Enlarge/Download Table]

                                              December 31, 1998            December 31, 1997    
                                          --------------------------  --------------------------
                                          Estimated Fair    Carrying  Estimated Fair    Carrying
In thousands                                  Value          Amount       Value          Amount 
------------                              --------------------------  --------------------------
                                                                                                
Deposits with no stated maturities           $215,813       $215,813     $204,398       $204,398
Deposits with stated maturities               204,302        200,747      191,741        191,175
Repurchase agreements                          22,658         22,658       15,021         15,021
Federal funds purchased and demand notes          100            100          450            450
Interest payable                                2,713          2,713        2,472          2,472

 The fair value of commitments to extend credit is estimated taking into
account the remaining terms of the agreements and the creditworthiness of the   
counterparties. For loan commitments, fair value also considers the difference  
between current levels of interest rates and the committed rates. The fair value
of letters of credit is based on fees currently charged for similar agreements, 
or on the estimated cost to terminate them or otherwise settle the obligations  
with the counterparties. The contract amount and the estimated fair value for   
commitments to extend credit and standby credits are charted.                   

                                                                [Download Table]

                                  December 31, 1998            December 31, 1997    
                              --------------------------  --------------------------
                              Estimated Fair    Carrying  Estimated Fair    Carrying
In thousands                      Value          Amount       Value          Amount 
------------                  --------------------------  --------------------------
                                                                                    
Commitments to extend credit     $ 29,237       $ 29,237     $ 32,022       $ 32,022
Standby letters of credit           2,039          2,039        3,007          3,007

Fair value estimates are based on existing on-and off-balance sheet   
financial instruments without attempting to estimate the value of future        
business and the value of assets and liabilities that are not considered        
financial instruments. Significant assets and liabilities that are not          
considered financial assets or liabilities include deferred tax assets and      
liabilities, and property and equipment. In addition, the tax ramifications     
related to the realization of unrealized gains and losses can have a significant
effect on the fair value estimates.                                             

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NOTE Q                                                                          
ACNB CORPORATION (PARENT COMPANY ONLY)                                          
FINANCIAL INFORMATION                                                           
--------------------------------------------------------------------------------

                                                                [Download Table]

                                                            December 31    
                                                        -------------------
STATEMENTS OF CONDITION In thousands                      1998        1997 
------------------------------------                    -------     -------
                                                                           
ASSETS                                                                     
Cash                                                    $   202     $   202
Securities and other assets                                 276         319
Investment in common stock of subsidiary                 53,124      50,227
Receivable from subsidiary                                1,007       1,000
                                                        -------     -------
TOTAL ASSETS                                            $54,609     $51,748
                                                        =======     =======

STOCKHOLDERS' EQUITY                                                       
Common stock (par value $2.50; 20,000,000 shares                           
   authorized; 5,253,278 issued and outstanding shares                     
   on 12/31/98 and 12/31/97)                            $13,133     $13,133
Additional paid-in capital                                3,647       3,647
Retained earnings                                        37,829      34,968
                                                        -------     -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY              $54,609     $51,748
                                                        =======     =======

                                                                [Download Table]

                                                     Year ended December 31    
                                                  ---------------------------- 
STATEMENTS OF INCOME In thousands                  1998       1997       1996  
---------------------------------                 ------     ------     ------ 
                                                                               
INCOME                                                                         
Dividend from subsidiary                          $4,360     $4,150     $9,018 
EXPENSE                                              166         44         (7)
                                                  ------     ------     ------ 
INCOME BEFORE TAXES AND EQUITY IN                                              
UNDISTRIBUTED NET INCOME OF SUBSIDIARY             4,194      4,106      9,025 
Applicable tax benefit                              (130)       (88)       (72)
                                                  ------     ------     ------ 
INCOME BEFORE EQUITY IN                                                        
UNDISTRIBUTED NET INCOME OF SUBSIDIARY             4,324      4,194      9,097 
Equity in undistributed net income of subsidiary   2,897      3,035     (1,988)
                                                  ------     ------     ------ 
NET INCOME                                        $7,221     $7,229     $7,109 
                                                  ======     ======     ====== 

                                                        [Enlarge/Download Table]

                                                                    Year ended December 31    
                                                                 ---------------------------- 
STATEMENTS OF CASH FLOWS In thousands                             1998       1997       1996  
-------------------------------------                            ------     ------     ------ 
                                                                                              
CASH FLOWS FROM OPERATING ACTIVITIES                                                          
Dividends received                                               $4,360     $4,560     $9,493 
                                                                 ------     ------     ------ 
Net Cash Provided by Operating Activities                         4,360      4,560      9,493 

CASH FLOWS FROM FINANCING ACTIVITIES                                                          
Dividends paid                                                   (4,360)    (4,150)    (9,018)
Retirement of common stock                                           --       (410)      (475)
                                                                 ------     ------     ------ 
Net Cash Used in Financing Activities                            (4,360)    (4,560)    (9,493)
                                                                 ------     ------     ------ 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                      202        202        202 
                                                                 ------     ------     ------ 
CASH AND CASH EQUIVALENTS AT END OF YEAR                         $  202     $  202     $  202 
                                                                 ======     ======     ====== 
RECONCILIATION OF NET INCOME TO NET CASH                                                      
PROVIDED BY OPERATING ACTIVITIES                                                              
Net income                                                       $7,221     $7,229     $7,109 
Decrease (Increase) in investment in common stock of subsidiary  (2,897)    (3,035)     1,988 
Decrease (Increase) in receivable from subsidiary                    (7)       322        403 
Loss (Gain) on equity investment                                     43         44         (7)
                                                                 ------     ------     ------ 
NET CASH PROVIDED BY OPERATING ACTIVITIES                        $4,360     $4,560     $9,493 
                                                                 ======     ======     ====== 

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NOTE R                                                                          
FINANCIAL INFORMATION RELATING                                                  
TO OPERATING SEGMENTS                                                           
--------------------------------------------------------------------------------

In June 1997, the Financial Accounting Standards Board (FASB) issued  
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about  
Segments of an Enterprise and Related Information". SFAS No. 131 establishes    
standards and disclosure requirements for the manner entities report information
about operating segments. Operating segments are defined based upon the way     
management organizes segments for making operating decisions and evaluating     
performance.                                                                    

   Management of the corporation monitors and evaluates four segments of its
operations, which include commercial, consumer and mortgage lending and         
investment securities. The corporation's marketplace is south central           
Pennsylvania which encompasses Adams County and adjoining contiguous counties of
York, Franklin and Cumberland, and sections of northern Maryland. Management    
views its market as a single geographic area.                                   

    Commercial lending includes commercial mortgages, real estate development,
accounts receivable financing, and agricultural loans. Consumer lending programs
include home equity loans, automobile and recreational vehicles loans, and      
manufactured housing loans. Mortgage lending programs include personal          
residential mortgages, residential construction loans, and speculative          
construction loans.                                                             

    Management measures the net interest income of each segment based upon the
earnings and fees for each segment recognized less the charge for the funds     
used. The charge for funds used is based on the average cost of funds used by   
the respective segment. Other non-interest expense, which includes salaries and 
employee benefits, occupancy and equipment expense, and other expenses, is      
allocated to each segment and is netted against net interest income after       
provision for possible loan losses to arrive at income before income taxes for  
each respective segment.                                                        

Management initiated segment reporting in 1998; accordingly, segment  
information for 1997 and 1996 is not presented herein. The following is for year
ending December 31, 1998, by the four operating segments:                       

                                                        [Enlarge/Download Table]


                                     Commercial  Consumer  Mortgage   Investment                     
In thousands                          Lending    Lending   Lending    Securities   Other      Total  
------------                         ----------  --------  --------   ----------  -------   -------- 
                                                                                                     
Total interest income                $ 11,093    $ 3,345   $ 13,164    $  8,026   $    --   $ 35,628 
Charge for funds used                  (4,393)    (1,151)    (5,756)     (3,847)      (91)   (15,238)
                                     --------    -------   --------    --------   -------   -------- 
Net Interest Income                     6,700      2,194      7,406       4,179       (91)    20,390 
Provision for possible                                                                               
    loan losses                          (155)      (115)       (90)         --        --       (360)
                                     --------    -------   --------    --------   -------   -------- 
Net Interest Income After Provision                                                                  
    for Possible Loan Losses            6,545      2,079      7,318       4,179       (91)    20,030 
Non-interest income                        52         89        126          --     2,002      2,269 
Non-interest expense                   (1,087)      (509)      (571)        (55)   (9,290)   (11,512)
                                     --------    -------   --------    --------   -------   -------- 
Income Before Income Taxes           $  5,510    $ 1,659   $  6,873    $  4,124   $(7,379)  $ 10,787 
                                     ========    =======   ========    ========   =======   ======== 
Average Funds Used                   $130,315    $34,207   $171,648    $125,164   $23,094   $484,428 
                                     ========    =======   ========    ========   =======   ======== 

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NOTE S                                                                          
EFFECT OF RECENTLY ISSUED                                                       
ACCOUNTING PRONOUNCEMENTS                                                       
--------------------------------------------------------------------------------

In June 1998, the Financial Accounting Standards Board (FASB) issued  
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for     
Derivative Instruments and Hedging Activities". This statement establishes      
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging purposes. The
statement requires that an entity recognize all derivatives as either assets or 
liabilities in the statement of condition and measure those instruments at fair 
value. The accounting for changes in fair value of a derivative depends on the  
intended use of the derivative and the resulting designation. If conditions are 
met, a derivative may be specifically designated as a hedge of the exposure to  
changes in fair value of a recognized asset or liability or unrecognized        
commitment, a hedge of the exposure to variable cash flows of a forecasted      
transaction, or a hedge of certain foreign currency exposures. SFAS No. 133     
includes a provision for the potential reclassification of investments from     
held-to-maturity to available-for-sale. This statement became effective for the 
fiscal year beginning after December 15, 1998. Management anticipates that the  
adoption of this statement will not have a material effect on operating results 
or financial condition.                                                         

In October 1998, the FASB issued SFAS No. 134, "Accounting for        
Mortgage-Backed Securities Retained After Securitization of Mortgage Loans Held 
for Sale by a Mortgage Banking Enterprise". This statement requires that, after 
securitization of mortgage loans held for sale, an entity engaged in mortgage   
banking activities classify any retained mortgage-backed securities based on the
ability and intent to sell or hold those investments, except that an entity     
engaged in mortgage banking must classify as "trading securities" any retained  
mortgage-backed securities that it commits to sell before or during the         
securitization process. This statement is effective for the first fiscal quarter
beginning after January 30, 1999. The statement provides a one-time opportunity 
for an enterprise to reclassify, based on the ability and intent on the adoption
of this statement, mortgage-backed securities and other beneficial interests    
retained after securitization of mortgage loans held for sale from the trading  
category, except those with commitments in place. The corporation has not       
determined the impact, if any, of this statement on the statement of condition  
or results of operations.                                                       

NOTE T                                                                          
SUBSEQUENT EVENT                                                                
--------------------------------------------------------------------------------

   ACNB Corporation ("ACNB") signed a definitive agreement on July 28, 1998,
to acquire Farmers National Bancorp, Inc. ("FNB") of Newville, Pennsylvania.    
Approximately 562,000 shares of common stock will be issued by ACNB Corporation 
in conjunction with this transaction, based on an exchange ratio of 2.266 shares
of ACNB Corporation common stock for each share of Farmers National Bancorp,    
Inc. common stock. The transaction will be accounted for under                  
"pooling-of-interests" method of accounting. The affiliation is planned to be   
consummated during the first quarter of 1999, at which time the financial       
statements of Farmers National Bancorp, Inc. will be consolidated into the      
financial statements of ACNB Corporation.                                       

A summary of unaudited proforma combined financial information for    
ACNB Corporation and Farmers National Bancorp, Inc. is as follows:              

                                                        [Enlarge/Download Table]


Earnings Data                                                                                           
--------------------------------------------------------------------------------------------------------
                                                        1998                               1997         
                                             --------------------------        -------------------------
                                                ACNB           ACNB/FNB           ACNB          ACNB/FNB
In thousands, except per share data          As Reported       Combined        As Reported      Combined
-----------------------------------          -----------       --------        -----------      --------
                                                                                                        
Net interest income                            $20,390          $22,076          $20,151        $21,814 
Provision for possible loan losses                 360              360              210            210 
Non-interest income                              2,269            2,411            1,920          2,061 
Non-interest expense                            11,512           12,650           11,064         12,111 
                                               -------          -------          -------        ------- 
Income before income taxes                      10,787           11,477           10,797         11,554 
Income taxes                                     3,566            3,753            3,568          3,784 
                                               -------          -------          -------        ------- 
Net Income                                     $ 7,221          $ 7,725          $ 7,229        $ 7,770 
                                               =======          =======          =======        ======= 
Basic Net Income Per Share                       $1.37            $1.34            $1.38          $1.34 
                                               =======          =======          =======        ======= 


Balance Sheet Data                                                                                      
--------------------------------------------------------------------------------------------------------
In thousands                                                                                            
------------                                                                                            
                                                                                                        
Assets                                        $498,814         $544,263         $466,837       $508,211 
Net loans                                      331,199          348,257          338,064        354,375 
Deposits                                       416,560          455,700          395,573        431,054 

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QUARTERLY RESULTS OF OPERATIONS 

Selected quarterly information for the years ended December 31, 1998 and 1997,  
is as follows:                                                                  

                                                                [Download Table]


                                           First   Second    Third   Fourth  
1998 In thousands, except per share data  Quarter  Quarter  Quarter  Quarter 
----------------------------------------  -------  -------  -------  ------- 
                                                                             
Interest income                           $8,710   $8,912   $9,031   $8,975  
Interest expense                           3,683    3,797    3,848    3,910  
Net interest income                        5,027    5,115    5,183    5,065  
Provision for possible loan losses            90       90       90       90  
Net income                                 1,766    1,908    1,848    1,699  
Basic earnings per share                     .34      .36      .35      .32  
Return on average assets                   1.51%     1.59%    1.51%    1.36% 

1997                                                                         
----                                                                         
Interest income                           $8,612   $8,791   $8,859    $8,801 
Interest expense                           3,644    3,698    3,774     3,796 
Net interest income                        4,968    5,093    5,085     5,005 
Provision for possible loan losses            30       60       60       60  
Net income                                 1,706    1,917    1,832     1,774 
Basic earnings per share                     .33      .36      .35       .34 
Return on average assets                   1.48%     1.65%    1.56%     1.51%

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

The following table sets forth financial data for the last five years:          

                                                        [Enlarge/Download Table]


In thousands, except per share data       1998      1997       1996       1995       1994   
-----------------------------------     --------  --------   --------   --------   -------- 
                                                                                            
Total interest income                   $ 35,628  $ 35,063   $ 33,894   $ 32,213   $ 30,639 
Total interest expense                    15,238    14,912     15,124     14,437     12,419 
Net interest income                       20,390    20,151     18,770     17,776     18,220 
Provision for possible loan losses           360       210         30         --         -- 
Net income                                 7,221     7,229      7,109      6,459      6,773 

PER SHARE DATA*                                                                             
---------------                                                                             
Basic earnings                             $1.37     $1.38      $1.34      $1.22   $   1.27 
Cash dividends                               .83       .79       1.70        .66        .64 

BALANCE SHEET TOTALS                                                                        
--------------------                                                                        
Average stockholders' equity            $ 54,908  $ 51,137   $ 48,116   $ 50,317   $ 47,893 
Average assets                           484,428   467,220    465,984    459,136    473,186 

RATIOS                                                                                      
------                                                                                      
Return on average assets                   1.49%      1.55%      1.53%      1.41%      1.43%
Return on average stockholders' equity    13.15%     14.14%     14.77%     12.84%     14.15%
Dividend payout                              60%        57%       127%        54%        50%
Stockholders' equity to assets            11.21%     11.27%     10.46%     11.20%     10.31%

* Data restated to reflect two-for-one stock split in the form of a 100% stock  
dividend issued in 1994.                                                    

See Notes to Consolidated Financial Statements.                                 

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 FORM 10-K CROSS-REFERENCE INDEX

   Portions of this Annual Report are not required by Form 10-K, and are not
filed with the Securities and Exchange Commission as part of the corporation's  
Report on Form 10-K for the year ended December 31, 1998. Only the sections     
referenced in the index below are incorporated into this Form 10-K.             

                                                                [Download Table]


                                                                             PAGE(S)
                                                                             -------
                                                                                    
PART I                                                                              
Item 1 - Business                                                                 49
Item 2 - Properties                                                               49
Item 3 - Legal Proceedings                                                        50
Item 4 - Submission of Matters to a Vote of Stockholders                          50

PART II                                                                             
Item 5 - Market for the Registrant's Common Stock and                               
         Related Stockholder Matters                                              53
Item 6 - Selected Financial Data                                             15 & 46
Item 7 - Management's Discussion and Analysis of                                    
         Financial Condition and Results of Operations                       16 - 24
         a. Quantitative and Qualitative                                            
         b. Disclosures About Market Risk                                    20 & 21
Item 8 - Financial Statements and Supplementary Data                         26 - 45
Item 9 - Changes in and Disagreements with Accountants                              
         on Accounting and Financial Disclosure                                   50

PART III                                                                            
Item 10 - Directors and Executive Officers of the Registrant                      50
Item 11 - Executive Compensation(1)                                                 
Item 12 - Security Ownership of Certain Beneficial Owners and Management(1)         
Item 13 - Certain Relationships and Related Transactions(1)                         

PART IV                                                                             
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K           
          a. Financial Statements and Financial Statement Schedules(2)              
          b. Exhibits                                                             51
          c. Reports on Form 8-K(3)                                                 
Item 15 - Signatures                                                              52

----------                                                                      
(1)  The information required by Item 11, Item 12 and Item 13 is incorporated   
   herein by reference to the corporation's definitive Proxy Statement to be
  filed with the Commission not later than 120 days after the close of the
   year ended December 31, 1998, under the headings "Executive Compensation"
and "Compensation of Directors".                                      

(2)  Financial statement schedules have been omitted because either they are not
applicable or the required information is included in the financial   
statements or the notes thereto.                                      

(3)  No reports on Form 8-K were filed during the quarter ended December 31,    
1998.                                                                 

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Common Stock Market Prices and Dividends

The common stock of ACNB Corporation is traded in the over-the-counter
market. As of December 31, 1998, the approximate number of shareholders of the  
corporation's common stock was 2,994.                                           

As quoted on the OTCBulletin Board, high and low bid prices of common 
shares and dividends for the last two years were:                               

                  1998                            1997
                ----------------------------    ----------------------------

                  Bid Price         Cash          Bid Price         Cash
Quarter           -----------------   Dividend    -----------------   Dividend  
Ended              High        Low      Paid       High        Low      Paid    
------------------------------------------------------------------------------  
March 31          $25.63     $23.38     $.19      $17.50     $16.00     $.18    
June 30            27.50      25.63      .19       18.25      16.63      .18    
September 30       27.75      24.50      .20       22.75      18.25      .19    
December 31        24.50      22.00      .25       24.25      22.75      .24    

    The bid prices for ACNB Corporation common stock for the periods indicated
represent inter-dealer prices without adjustment for retail mark-up, mark-      
down or commission, and do not necessarily represent actual transactions. Trades
have generally occurred in relatively small lots, and the prices quoted herein  
are not necessarily indicative of the market value of a substantial block.      

   While the corporation expects to continue its policy of regular quarterly
dividend payment, no assurance of future dividend payment can be given. Future  
dividend payments will depend upon maintenance of a continued strong financial  
condition, future earnings, and capital requirements. The corporation has no    
restrictions affecting the payment of dividends, except as indicated in Note L  
of the Notes to Consolidated Financial Statements.                              

The following firms make a market in ACNB Corporation common stock:             

Ferris, Baker Watts, Incorporated             F.J. Morrissey & Co., Inc.        
Frederick, MD                                 Philadelphia, PA                  
(301)662-6488/(800)950-6488                   (215) 563-8500/(800)842-8928      

Hopper Soliday & Co., Inc.                    Smith Barney Inc.                 
Lancaster, PA                                 Gettysburg, PA                    
(717) 560-3015/(800)456-9234                  (717) 334-9101/(800)344-3828      

Janney Montgomery Scott, Inc.                                                   
York, PA                                                                        
(717) 845-5611/(800)999-0503                                                    

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                                                        [Enlarge/Download Table]


                               BOARD OF DIRECTORS                                                        

ACNB CORPORATION AND ADAMS COUNTY NATIONAL BANK                                                          
---------------------------------------------------------------------------------------------------------
                                                                                                         
PHILIP P. ASPER                      RONALD L. HANKEY                     THOMAS A. RITTER               
Owner                                Chairman, President & CEO            Insurance Agent                
Philip P. Asper, Builder             ACNB Corporation &                   Northwestern Mutual Life       
                                     Adams County National Bank                                          
GUY F. DONALDSON                                                          RALPH S. SANDOE                
Fruit Grower                         PHILIP M. JONES                      Fruit Broker                   
                                     CEO                                                                 
FRANK ELSNER, JR.                    Times & News                         MARIAN B. SCHULTZ              
Chairman                             Publishing Company                   Assistant Dean                 
Elsner Engineering Works, Inc.                                            Division of Undeclared Majors  
                                     WAYNE E. LAU                         Shippensburg University        
RICHARD L. GALUSHA                   Sales Representative                                                
Realtor                              Destinations: A Travel Company       L. ROBERT SNYDER               
                                                                          Chairman of the Board          
D. RICHARD GUISE                     WILLIAM B. LOWER                     Littlestown Hardware &         
President                            President                            Foundry Co., Inc.              
Adams County Motors Corp.            Boyer Nurseries & Orchards, Inc.                                    
Vice Chairman                                                             JENNIFER L. WEAVER             
ACNB Corporation &                   PAUL G. PITZER                       Director                       
Adams County National Bank           Fruit Grower                         Gettysburg Center of Harrisburg
                                                                          Area Community College         

ACNB CORPORATION AND ADAMS COUNTY NATIONAL BANK                                 
DIRECTORS EMERITI                                                               
--------------------------------------------------------------------------------

C. F. DITZLER                        CHARLES E. RITTER                          

ADAMS COUNTY NATIONAL BANK HONORARY DIRECTOR                                    
--------------------------------------------------------------------------------

DALE G. CRUM                                                                    

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OFFICERS

ACNB CORPORATION                                                                
--------------------------------------------------------------------------------

RONALD L. HANKEY                  JOHN W. KRICHTEN         LYNDA L. GLASS       
Chairman,                         Secretary & Treasurer    Assistant Secretary  
President & CEO                                                                 

ADAMS COUNTY NATIONAL BANK                                                      
--------------------------------------------------------------------------------

RONALD L. HANKEY                                           ASSISTANT            
Chairman,                         VICE PRESIDENTS          VICE PRESIDENTS      
President & CEO                   ---------------          ---------------      

ELIZABETH H. BEALL                ROBERT L. BREWER         DEBRA B. BRENNAN     
Senior Vice President                                                           
Human Resources                   WAYNE G. CRUM            STEVEN E. EBERSOLE   

GARY R. BENNETT                   DAVID W. DEANER          GEORGE R. GUISE      
Senior Vice President &                                                         
Senior Trust Officer              ROBERT A. HAHN           NANCY E. HELWIG      

LYNDA L. GLASS                    L. JOHN HICKS            DOROTHY K. PUHL      
Senior Vice President &                                                         
Chief Operating Officer           RONALD L. HOFFMAN        SHELBY L. STONE      

JOHN M. KIEHL                     RONALD E. LINDBECK                            
Senior Vice President                                      ASSISTANT CASHIERS   
Operations & Security             STANLEY E. MUMMERT       ------------------   

JOHN W. KRICHTEN                  WAYNE A. STEINOUR        BEVERLY S. KRESS     
Senior Vice President, Cashier                                                  
& Chief Financial Officer         WILLIAM H. YOHE, JR.     DIANA K. KUNTZ       

NANCY L. REICHART                                          LINDA L. LEER        
Senior Vice President &                                                         
Trust Officer                                                                   

VICTOR L. REYNOLDS                                                              
Senior Vice President &                                                         
Senior Loan Officer                                                             

CARL L. RICKER                                                                  
Senior Vice President &                                                         
Chief Lending Officer                                                           

JOHN E. SALISBURY                                                               
Senior Vice President                                                           
Audit                                                                           

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 ADAMS COUNTY NATIONAL BANK OFFICE LOCATIONS

ARENDTSVILLE                 FRANKLIN TOWNSHIP          NORTH GETTYSBURG        
101 Main Street              10 High Street             675 Old Harrisburg Road 
Arendtsville, PA 17303       Cashtown, PA 17310         Gettysburg, PA 17325    

BENDERSVILLE                 HANOVER                    SUPER KMART(R) CENTER   
101 North Main Street        1127 Eichelberger Street   400 Eisenhower Drive    
Bendersville, PA 17306       Hanover, PA 17331          Hanover, PA 17331       

BIGLERVILLE                  LINCOLN SQUARE             WEST LITTLESTOWN        
3459 Biglerville Road        2 Chambersburg Street      444 West King Street    
Biglerville, PA 17307        Gettysburg, PA 17325       Littlestown, PA 17340   

CARROLL VALLEY               LITTLESTOWN                YORK SPRINGS            
104 Sanders Road             17 South Queen Street      202 Main Street         
Carroll Valley, PA 17320     Littlestown, PA 17340      York Springs, PA 17372  

EAST BERLIN                  McSHERRYSTOWN                                      
1677 Abbottstown Pike        369 Main Street                                    
East Berlin, PA 17316        McSherrystown, PA 17344                            

ADAMS COUNTY NATIONAL BANK

Banking Convenience is Just a Phone Call Away!

 Toll-Free: 1-888-338-ACNB (2262) Local: 338-ACNB (2262)

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STOCKHOLDER INFORMATION 

ANNUAL MEETING                                                                  

 The Annual Meeting of Shareholders for ACNB Corporation will be held on
Tuesday, May 4, 1999, at 1:00 p.m. at the Main Office of Adams County National  
Bank, 675 Old Harrisburg Road, Gettysburg, PA.                                  

FORM 10-K                                                                       

  A copy of ACNB Corporation's Form 10-K, as filed with the Securities and
Exchange Commission, may be obtained, without charge, by writing to:            

Ronald L. Hankey                                              
President                                                     
ACNB Corporation                                              
P.O. Box 3129                                                 
Gettysburg, PA 17325                                          

The Annual Report and other Corporation reports are also filed        
electronically through the Electronic Data Gathering, Analysis, and Retrieval   
System ("EDGAR"), which performs automated collection, validation, indexing,    
acceptance, and forwarding of submissions to the Securities and Exchange        
Commission, or SEC, and is accessible by the public using the Internet at       
http://www.sec.gov./edgarhp.htm.                                                

TRANSFER AGENT, REGISTRAR                                                       
AND DIVIDEND DISBURSING AGENT                                                   

Registrar and Transfer Company                                
10 Commerce Drive                                             
Cranford, NJ 07016                                            

For stockholder inquiries, call toll-free (800)368-5948.                        

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 [ACNB LOGO]

675 OLD HARRISBURG ROAD    P.O. Box 3129   Gettysburg, PA 17325 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10-K405’ Filing		Date		First		Last			Other Filings
		12/31/99		25					10-K405,  10-K405/A
		10/29/99		25
		6/30/99		25		26			10-Q
		5/4/99		6		54			10-Q
Filed on:		3/29/99
		3/1/99		5		10			8-K
		1/30/99		47
		1/15/99		27
For Period End:		12/31/98		3		50
		12/15/98		5		47
		7/28/98		5		47			8-K
		4/30/98		6
		1/1/98		33
		12/31/97		4		48			10-K405
		12/31/96		16		41			10-K405
		1/1/96		30
									List all Filings