Edgar Filing: ACNB CORP

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year-ended December 31, 2007
OR
o	TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 0-11783

ACNB CORPORATION
(Exact name of registrant as specified in its charter)

Pennsylvania (State or other jurisdiction of incorporation or organization)		23-2233457 (I.R.S. Employer Identification No.)
16 Lincoln Square, Gettysburg, Pennsylvania (Address of principal executive offices)		17325-3129 (Zip Code)

Registrant's telephone number, including area code: (717) 334-3161

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $2.50 per Share
(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the voting stock held by nonaffiliates of the Registrant at June 30, 2007, was approximately $101,505,000.

The number of shares of the Registrant's Common Stock outstanding on March 6, 2008, was 5,990,943.

Documents Incorporated by Reference

Portions of the Registrant's 2008 definitive Proxy Statement are incorporated by reference into Part III of this report.

ACNB CORPORATION

Table of Contents

		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	14
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of Stockholders	14
Part II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item 6.	Selected Financial Data	17
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	72
Item 9A.	Controls and Procedures	72
Item 9B.	Other Information	76
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	77
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters	77
Item 13.	Certain Relationships and Related Transactions and Director Independence	77
Item 14.	Principal Accountant Fees and Services	77
Part IV
Item 15.	Exhibits and Financial Statement Schedules	77
	Signatures	80

PART I

The management of ACNB Corporation has made forward-looking statements in this Annual Report on Form 10-K. These forward-looking statements may be subject to risks and uncertainties. Forward-looking statements include the information concerning possible or assumed future results of operations of ACNB Corporation and its wholly-owned subsidiaries—Adams County National Bank, BankersRe Insurance Group, SPC (formerly Pennbanks Insurance Co., SPC), and Russell Insurance Group, Inc. When words such as "believes," "expects," "anticipates," "may," "could," "should," "estimates," or similar expressions occur in this annual report, management is making forward-looking statements.

Stockholders should note that many factors, some of which are discussed elsewhere in this report, could affect the future financial results of ACNB Corporation and its subsidiaries, both individually and collectively, and could cause those results to differ materially from those expressed in this report. These risk factors include the following:

•: Operating, legal and regulatory risks;
•: Economic, political and competitive forces impacting our various lines of business;
•: The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful;
•: The possibility that increased demand or prices for ACNB's financial services and products may not occur;
•: Volatility in interest rates; and/or,
•: Other risks and uncertainties.

ACNB undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should carefully review the risk factors described in other documents ACNB files periodically with the Securities and Exchange Commission, including Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

ITEM 1—BUSINESS

ACNB CORPORATION

ACNB Corporation is a $927 million financial holding company headquartered in Gettysburg, Pennsylvania. Through its banking and nonbanking subsidiaries, ACNB provides a full range of banking and financial services to individuals and businesses, including commercial and retail banking, trust and investment management, and insurance. ACNB's operations are conducted through its primary operating subsidiary, Adams County National Bank, with twenty-one retail banking offices in Adams, Cumberland and York Counties, as well as a loan production office in Franklin County, Pennsylvania. The Corporation was formed in 1982, then became the holding company for Adams County National Bank in 1983.

On November 19, 2004, ACNB Corporation entered into a definitive agreement to purchase Russell Insurance Group, Inc. Under the terms of the definitive agreement, ACNB Corporation agreed to pay $4,750,000 in cash to acquire Russell Insurance Group, Inc. Additional consideration of up to $3,000,000 was subject to the achievement of performance criteria over the next three years. On January 5, 2005, ACNB Corporation completed the acquisition of Russell Insurance Group, Inc. and Russell Insurance Group, Inc. began to operate as a separate subsidiary of ACNB Corporation. In addition, ACNB entered into a three-year employment contract with Frank C. Russell, Jr., President and Chief Executive Officer of Russell Insurance Group, Inc. Another three-year employment agreement commencing January 1, 2008, was entered into on November 9, 2007.

ACNB's major source of operating funds is dividends that it receives from its subsidiary bank. ACNB's expenses consist principally of losses from low-income housing investments and interest paid on a term loan used to purchase Russell Insurance Group. Inc. Dividends that ACNB pays to stockholders consist of dividends declared and paid to ACNB by the subsidiary bank.

ACNB and its subsidiaries are not dependent upon a single customer or a small number of customers, the loss of which would have a material adverse effect on the Corporation. ACNB does not depend on foreign sources of funds, nor does it make foreign loans.

The common stock of ACNB is listed on the Over The Counter Bulletin Board under the symbol ACNB.

Russell Insurance Group, Inc. is managed separately from the banking and related financial services that the Corporation offers and is reported as a separate segment.

BANKING SUBSIDIARY

Adams County National Bank

Adams County National Bank is a full-service commercial bank operating under charter from the Office of the Comptroller of the Currency. The Bank's principal market area is Adams County, Pennsylvania, which is located in southcentral Pennsylvania. Adams County depends on agriculture, industry and tourism to provide employment for its residents. No single sector dominates the county's economy. At December 31, 2007, Adams County National Bank had total assets of $911 million, total loans of $549 million, and total deposits of $671 million.

The main office of the Bank is located at 16 Lincoln Square, Gettysburg, Pennsylvania. In addition to its main office, the Bank has fourteen branches in Adams County, three branches in York County, and three branches in Cumberland County, as well as a loan production office in Franklin County, Pennsylvania. Adams County National Bank's service delivery channels for its customers also include the ATM network, Customer Contact Center, and Internet and Telephone Banking. The Bank is subject to regulation and periodic examination by the Office of the Comptroller of the Currency. The Federal Deposit Insurance Corporation, as provided by law, insures the Bank's deposits.

Commercial lending includes commercial mortgages, real estate development and construction, accounts receivable and inventory financing, and agricultural loans. Consumer lending programs include home equity loans and lines of credit, automobile and recreational vehicle loans, manufactured housing loans, and personal lines of credit. Mortgage lending programs include personal residential mortgages, residential construction loans, and investment mortgage loans.

NONBANKING SUBSIDIARIES

BankersRe Insurance Group, SPC

BankersRe Insurance Group, SPC (formerly Pennbanks Insurance Co., SPC) was organized in 2000 and holds an unrestricted Class "B" Insurer's License under Cayman Islands Insurance Law. The segregated portfolio is engaged in the business of reinsuring credit life and credit accident and disability risks. Total assets of the segregated portfolio as of December 31, 2007, totaled $276,000.

Russell Insurance Group, Inc.

On November 19, 2004, ACNB Corporation entered into a definitive agreement to acquire Russell Insurance Group, Inc., a full-service insurance agency that offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients. This acquisition was finalized on January 5, 2005. Based in Westminster, Maryland, with a satellite office in Timonium,

Maryland, Russell Insurance Group, Inc. has served the needs of its clients since its founding as an independent insurance agency by Frank C. Russell, Jr. in 1978.

COMPETITION

The financial services industry in ACNB's market area is highly competitive, including competition for similar products and services from commercial banks, credit unions, finance and mortgage companies, and other nonbank providers of financial services. Several of ACNB's competitors have legal lending limits that exceed those of ACNB's subsidiary, as well as funding sources on the capital markets that exceed ACNB's availability. The increased competition has resulted from a changing legal and regulatory environment, as well as from the economic climate, customer expectations, and service alternatives via the Internet.

Many bank holding companies have elected to become financial holding companies under the Gramm-Leach-Bliley Act, which gives them a broader range of products with which the Bank must compete. Although the long-range effects of this development cannot be predicted, it will probably further narrow the differences and intensify competition among commercial banks, investment banks, insurance firms, and other financial services companies.

SUPERVISION AND REGULATION

Bank Holding Company Regulation

BANK HOLDING COMPANY ACT OF 1956—ACNB is a financial holding company and is subject to the regulations of the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956. Bank holding companies are required to file periodic reports with and are subject to examination by the Federal Reserve. The Federal Reserve has issued regulations under the Bank Holding Company Act that require a financial holding company to serve as a source of financial and managerial strength to its subsidiary bank. As a result, the Federal Reserve may require ACNB to stand ready to use its resources to provide adequate capital funds to the Bank during periods of financial stress or adversity.

In addition, the Federal Reserve may require a financial holding company to end a nonbanking business if the nonbanking business constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the financial holding company.

The Bank Holding Company Act prohibits ACNB from acquiring direct or indirect control of more than 5% of the outstanding voting stock of any bank, or substantially all of the assets of any bank, or merging with another bank holding company, without the prior approval of the Federal Reserve. The Bank Holding Company Act allows interstate bank acquisitions and interstate branching by acquisition and consolidation in those states that had not elected out by the required deadline. The Pennsylvania Department of Banking also must approve any similar consolidation. Pennsylvania law permits Pennsylvania financial holding companies to control an unlimited number of banks.

In addition, the Bank Holding Company Act restricts ACNB's nonbanking activities to those that are determined by the Federal Reserve Board to be financial in nature, incidental to such financial activity, or complementary to a financial activity. The Bank Holding Company Act does not place territorial restrictions on the activities of nonbank subsidiaries of financial holding companies.

GRAMM-LEACH-BLILEY ACT OF 1999—The Gramm-Leach-Bliley Act of 1999 eliminated many of the restrictions placed on the activities of bank holding companies that become financial holding companies. Among other things, the Gramm-Leach-Bliley Act repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the Bank Holding Company Act to permit bank holding companies that are financial holding companies to engage in activities, and acquire companies engaged in activities, that are: financial in nature (including insurance

underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities); incidental to financial activities; or, complementary to financial activities if the Federal Reserve determines that they pose no substantial risk to the safety or soundness of depository institutions or the financial system in general. The Gramm-Leach-Bliley Act also permits national banks, under certain circumstances, to engage through special financial subsidiaries in the financial and other incidental activities authorized for financial holding companies.

REGULATION W—Transactions between a bank and its "affiliates" are quantitatively and qualitatively restricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System. The Federal Reserve has also issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act, and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules, but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank's holding company and companies that are under common control with the bank. ACNB Corporation and Russell Insurance Group, Inc. are considered to be affiliates of Adams County National Bank.

USA PATRIOT ACT OF 2001—In October 2001, the USA Patriot Act of 2001 was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C., which occurred on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement's and the intelligence communities' abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

SARBANES-OXLEY ACT OF 2002 (SOA)—On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The stated goals of the SOA are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities law.

The SOA is the most far-reaching U.S. securities legislation enacted in some time. The SOA generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, or the Exchange Act. Given the extensive SEC role in implementing rules relating to many of the SOA's new requirements, the final scope of these requirements remains to be determined.

The SOA includes very specific additional disclosure requirements and new corporate governance rules; requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance, and other related rules; and, mandates further studies of certain issues by the SEC. The SOA represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

The SOA addresses, among other matters:

•: Audit committees for all reporting companies;
•: Certification of financial statements by the chief executive officer and the chief financial officer;
•: The forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer's securities by directors and senior officers in the twelve-month period following initial publication of any financial statements that later require restatement;
•: A prohibition on insider trading during pension plan black out periods;
•: Disclosure of off-balance sheet transactions;
•: A prohibition on personal loans to directors and officers;
•: Expedited filing requirements for Forms 4;
•: Disclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
•: "Real time" filing of periodic reports;
•: Formation of a public accounting oversight board;
•: Auditor independence; and,
•: Increased criminal penalties for violations of securities laws.

The SEC has been delegated the task of enacting rules to implement various provisions with respect to, among other matters, disclosure in periodic filings pursuant to the Exchange Act.

AMERICAN JOBS CREATION ACT OF 2004—In 2004, the American Jobs Creation Act was enacted as the first major corporate tax act in years. The act addresses a number of areas of corporate taxation including executive deferred compensation restrictions. The impact of the act on ACNB is unknown at this time due to pending final guidelines, but management is monitoring its developments.

Dividends

ACNB is a legal entity separate and distinct from its subsidiary bank. ACNB's revenues, on a parent company only basis, result almost entirely from dividends paid to the Corporation by its subsidiary. Federal and state laws regulate the payment of dividends by ACNB's subsidiary. See "Regulation of Bank" below.

Regulation of Bank

The operations of the subsidiary bank are subject to federal and state statutes applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System, and to banks whose deposits are insured by the FDIC. The subsidiary bank's operations are also subject to regulations of the Office of the Comptroller of the Currency, Federal Reserve and FDIC.

The Office of the Comptroller of the Currency, which has primary supervisory authority over national banks, regularly examines banks in such areas as reserves, loans, investments, management practices, and other aspects of operations. These examinations are designed for the protection of the subsidiary bank's depositors rather than ACNB's shareholders. The subsidiary bank must file quarterly and annual reports to the Federal Financial Institutions Examinations Council, or FFIEC.

NATIONAL BANK ACT—The National Bank Act requires the subsidiary national bank to obtain the prior approval of the Office of the Comptroller of the Currency for the payment of dividends if the total of all dividends declared by the bank in one year would exceed the bank's net profits in the current year, as defined and interpreted by regulation, plus retained earnings for the two preceding

years, less any required transfers to surplus. In addition, the bank may only pay dividends to the extent that the retained net profits, including the portion transferred to surplus, exceed statutory bad debts, as defined by regulation. These restrictions have not had, nor are they expected to have, any impact on the Corporation's dividend policy.

FEDERAL DEPOSIT INSURANCE CORPORATION ACT OF 1991—Under the Federal Deposit Insurance Corporation Insurance Act of 1991, any depository institution, including the Bank, is prohibited from paying any dividends, making other distributions or paying any management fees if, after such payment, it would fail to satisfy the minimum capital requirement.

FEDERAL RESERVE ACT—A subsidiary bank of a bank holding company is subject to certain restrictions and reporting requirements imposed by the Federal Reserve Act, including:

•: Extensions of credit to the bank holding company, its subsidiaries, or principal shareholders;
•: Investments in the stock or other securities of the bank holding company or its subsidiaries; and,
•: Taking such stock or securities as collateral for loans.

COMMUNITY REINVESTMENT ACT OF 1977—Under the Community Reinvestment Act of 1977, the Office of the Comptroller of the Currency (the "OCC") is required to assess the record of all financial institutions regulated by it to determine if these institutions are meeting the credit needs of the community, including low and moderate income neighborhoods, which they serve and to take this record into account in its evaluation of any application made by any of such institutions for, among other things, approval of a branch or other deposit facility, office relocation, a merger, or an acquisition of bank shares. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 amended the CRA to require, among other things, that the OCC make publicly available the evaluation of a bank's record of meeting the credit needs of its entire community, including low and moderate income neighborhoods. This evaluation includes a descriptive rating like "outstanding," "satisfactory," "needs to improve" or "substantial noncompliance" and a statement describing the basis for the rating. These ratings are publicly disclosed.

FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)—The Federal Deposit Insurance Corporation Improvement Act requires that institutions be classified, based on their risk-based capital ratios into one of five defined categories, as illustrated below: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.

		Total Risk Based Ratio	Tier 1 Risk Based Ratio	Tier 1 Leverage Ratio		Under a Capital Order or Directive
Capital Category
	Well capitalized	³10.0	³6.0	³5.0	%	NO
	Adequately capitalized	³8.0	³4.0	³4.0	%*
	Undercapitalized	<8.0	<4.0	<4.0	%*
	Significantly undercapitalized	<6.0	<3.0	<3.0	%
	Critically undercapitalized			<2.0	%

*: 3.0 for those banks having the highest available regulatory rating.

In the event an institution's capital deteriorates to the undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including: the institution of a capital restoration plan and a guarantee of the plan by a parent institution; and the placement of a hold on increases in assets, number of branches or lines of business. If capital has reached the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on

interest payable on accounts, dismissal of management and, in critically undercapitalized situations, appointment of a receiver. For well capitalized institutions, FDICIA provides authority for regulatory intervention where the institution is deemed to be engaging in unsafe or unsound practices or receives a less than satisfactory examination report rating for asset quality, management, earnings or liquidity. All but well capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Under FDICIA, financial institutions are subject to increased regulatory scrutiny and must comply with certain operational, managerial and compensation standards to be developed by Federal Reserve Board regulations. FDICIA also requires the regulators to issue new rules establishing certain minimum standards to which an institution must adhere including standards requiring a minimum ratio of classified assets to capital, minimum earnings necessary to absorb losses, and minimum ratio of market value to book value for publicly held institutions. Additional regulations are required to be developed relating to internal controls, loan documentation, credit underwriting, interest rate exposure, asset growth, and excessive compensation, fees and benefits.

Monetary and Fiscal Policy

ACNB and its subsidiary bank are affected by the monetary and fiscal policies of government agencies, including the Federal Reserve and FDIC. Through open market securities transactions and changes in its discount rate and reserve requirements, the Board of Governors of the Federal Reserve exerts considerable influence over the cost and availability of funds for lending and investment. The nature of monetary and fiscal policies on future business and earnings of ACNB cannot be predicted at this time. From time to time, various federal and state legislation is proposed that could result in additional regulation of, and restrictions on, the business of ACNB and the subsidiary bank, or otherwise change the business environment. Management cannot predict whether any of this legislation will have a material effect on the business of ACNB.

ACCOUNTING POLICY DISCLOSURE

Disclosure of the Corporation's significant accounting policies is included in Note A to the consolidated financial statements. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by management. Additional information is contained in Management's Discussion and Analysis for the most sensitive of these issues, including the provision and allowance for loan losses which are located in Note D to the consolidated financial statements.

Management, in determining the allowance for loan losses, makes significant estimates. Consideration is given to a variety of factors in establishing this estimate. In estimating the allowance for loan losses, management considers current economic conditions, diversification of the loan portfolio, delinquency statistics, results of internal loan review, financial and managerial strengths of borrowers, adequacy of collateral, if collateral dependent, or present value of future cash flows, and other relevant factors.

STATISTICAL DISCLOSURES

The following statistical disclosures are included in Management's Discussion and Analysis, Item 7 hereof, and are incorporated by reference in this Item 1:

•: Interest Rate Sensitivity Analysis
•: Interest Income and Expense, Volume and Rate Analysis
•: Investment Portfolio
•: Loan Maturity and Interest Rate Sensitivity
•: Loan Portfolio

•: Allocation of Allowance for Loan Losses
•: Deposits
•: Short-Term Borrowings

AVAILABLE INFORMATION

The Corporation's reports, proxy statements, and other information are available for inspection and copying at the SEC Public Reference Room at 100 F Street, N.E., Room 1580, Washington, DC, 20549, at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the Commission at (202) 551-8090. The Corporation is an electronic filer with the Commission. The Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the Commission. The address of the Commission's website is http://www.sec.gov.

Upon a stockholder's written request, a copy of the Corporation's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as required to be filed with the SEC pursuant to Securities Exchange Act Rule 13a-1, may be obtained, without charge, from Lynda L. Glass, Executive Vice President, Secretary and Treasurer, 16 Lincoln Square, P.O. Box 3129, Gettysburg, PA 17325, or visit our website at http://www.acnb.com.

EMPLOYEES

As of December 31, 2007, ACNB had 266 full-time equivalent employees. None of these employees are represented by a collective bargaining agreement, and ACNB believes it enjoys good relations with its personnel.

ITEM 1A—RISK FACTORS

ACNB IS SUBJECT TO INTEREST RATE RISK.

ACNB's earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond ACNB's control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, could influence not only the interest ACNB receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) ACNB's ability to originate loans and obtain deposits, (ii) the fair value of ACNB's financial assets and liabilities, and (iii) the average duration of ACNB's mortgage-backed securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, ACNB's net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on ACNB's results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on ACNB's financial condition and results of operations.

ACNB IS SUBJECT TO CREDIT RISK.

As of December 31, 2007, approximately 42% of ACNB's loan portfolio consisted of commercial and industrial, construction, and commercial real estate loans. These types of loans are generally viewed as having more risk of default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real estate loans and consumer loans. Because ACNB's loan portfolio contains a significant number of commercial and industrial, construction, and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans. An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses, and an increase in loan charge-offs, all of which could have a material adverse effect on ACNB's financial condition and results of operations.

ACNB'S ALLOWANCE FOR LOAN LOSSES MAY BE INSUFFICIENT.

ACNB maintains an allowance for loan losses, which is a reserve established through a provision for possible loan losses charged to expense, that represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management's continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and, unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires ACNB to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of ACNB's control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review ACNB's allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for loan losses, ACNB will need additional provisions to increase the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on ACNB's financial condition and results of operations.

COMPETITION FROM OTHER FINANCIAL INSTITUTIONS MAY ADVERSELY AFFECT ACNB'S PROFITABILITY.

ACNB's banking subsidiary faces substantial competition in originating, both commercial and consumer loans. This competition comes principally from other banks, savings institutions, credit unions, mortgage banking companies, and other lenders. Many of its competitors enjoy advantages, including greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. This competition could reduce the Corporation's net income by decreasing the number and size of loans that its banking subsidiary originate and the interest rates they may charge on these loans.

In attracting business and consumer deposits, its banking subsidiary faces substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many of ACNB's competitors enjoy advantages, including greater financial resources, more aggressive marketing campaigns, better brand recognition, and more convenient branch locations. These competitors may offer higher interest rates than ACNB, which could decrease the deposits that it attracts or require it to

increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect ACNB's ability to generate the funds necessary for lending operations. As a result, it may need to seek other sources of funds that may be more expensive to obtain and could increase its cost of funds.

ACNB's banking subsidiary also competes with nonbank providers of financial services, such as brokerage firms, consumer finance companies, credit unions, insurance agencies, and governmental organizations which may offer more favorable terms. Some of its nonbank competitors are not subject to the same extensive regulations that govern its banking operations. As a result, such nonbank competitors may have advantages over ACNB's banking subsidiary in providing certain products and services. This competition may reduce or limit its margins on banking services, reduce its market share, and adversely affect its earnings and financial condition.

ACNB'S CONTROLS AND PROCEDURES MAY FAIL OR BE CIRCUMVENTED.

Management regularly reviews and updates ACNB's internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of ACNB's controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on ACNB's business, results of operations and financial condition.

ACNB'S ABILITY TO PAY DIVIDENDS DEPENDS PRIMARILY ON DIVIDENDS FROM ITS BANKING SUBSIDIARY, WHICH IS SUBJECT TO REGULATORY LIMITS.

ACNB is a bank holding company and its operations are conducted by its subsidiaries. Its ability to pay dividends depends on its receipt of dividends from its subsidiaries. Dividend payments from its banking subsidiary are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of its subsidiaries to pay dividends is also subject to its profitability, financial condition, capital expenditures, and other cash flow requirements. There is no assurance that its subsidiaries will be able to pay dividends in the future or that ACNB will generate adequate cash flow to pay dividends in the future. ACNB's failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.

ACNB'S PROFITABILITY DEPENDS SIGNIFICANTLY ON ECONOMIC CONDITIONS IN THE COMMONWEALTH OF PENNSYLVANIA AND THE STATE OF MARYLAND.

ACNB's success depends primarily on the general economic conditions of the Commonwealth of Pennsylvania, the State of Maryland, and the specific local markets in which ACNB operates. Unlike larger national or other regional banks that are more geographically diversified, ACNB provides banking and financial services to customers primarily in the southcentral Pennsylvania and northern Maryland region of the country. The local economic conditions in these areas have a significant impact on the demand for ACNB's products and services as well as the ability of ACNB's customers to repay loans, the value of the collateral securing loans, and the stability of ACNB's deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, have a material adverse effect on ACNB's financial condition and results of operations.

NEW LINES OF BUSINESS OR NEW PRODUCTS AND SERVICES MAY SUBJECT ACNB TO ADDITIONAL RISKS.

From time to time, ACNB may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, ACNB may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of ACNB's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on ACNB's business, results of operations and financial condition.

ACNB MAY NOT BE ABLE TO ATTRACT AND RETAIN SKILLED PEOPLE.

ACNB's success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by ACNB can be intense, and ACNB may not be able to hire people or to retain them. The unexpected loss of services of one or more of ACNB's key personnel could have a material adverse impact on ACNB's business because of their skills, knowledge of ACNB's market, years of industry experience, and the difficulty of promptly finding qualified replacement personnel. ACNB does not currently have employment agreements or non-competition agreements with any of its senior officers, except its President and Executive Vice President.

ACNB IS SUBJECT TO CLAIMS AND LITIGATION PERTAINING TO FIDUCIARY RESPONSIBILITY.

From time to time, customers make claims and take legal action pertaining to ACNB's performance of its fiduciary responsibilities. Whether customer claims and legal action related to ACNB's performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to ACNB they may result in significant financial liability and/or adversely affect the market perception of ACNB and its products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on ACNB's business, which, in turn, could have a material adverse effect on ACNB's financial condition and results of operations.

THE TRADING VOLUME IN ACNB'S COMMON STOCK IS LESS THAN THAT OF OTHER LARGER FINANCIAL SERVICES COMPANIES.

ACNB's common stock trades on the Over The Counter Bulletin Board, and the trading volume in its common stock is less than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of ACNB's common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which ACNB has no control. Given the lower trading volume of ACNB's common stock, significant sales of ACNB's common stock, or the expectation of these sales, could cause ACNB's stock price to fall.

ACNB OPERATES IN A HIGHLY REGULATED ENVIRONMENT AND MAY BE ADVERSELY AFFECTED BY CHANGES IN FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS.

ACNB is subject to extensive regulation, supervision and/or examination by federal and state banking authorities. Any change in applicable regulations or federal, state or local legislation could have a substantial impact on ACNB and its operations. Additional legislation and regulations that could significantly affect ACNB's powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on its financial condition and results of operations. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory authority may have a negative impact on ACNB's results of operations and financial condition.

Like other bank holding companies and financial institutions, ACNB must comply with significant anti-money laundering and anti-terrorism laws. Under these laws, ACNB is required, among other things, to enforce a customer identification program and file currency transaction and suspicious activity reports with the federal government. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws or make required reports.

ITEM 1B—UNRESOLVED STAFF COMMENTS

None.

ITEM 2—PROPERTIES

Adams County National Bank, in addition to its main office, had a retail banking office network of twenty offices at December 31, 2007. All offices are located in Adams County with the exception of three offices located in Cumberland County and three offices located in York County. There is also a loan production office situated in Franklin County. Offices at fifteen locations are owned, while seven are leased. All real estate owned by the subsidiary bank is free and clear of encumbrances.

ITEM 3—LEGAL PROCEEDINGS

As of December 31, 2007, there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which ACNB or its subsidiaries are a party or by which any of their property is the subject. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation or the Bank by governmental authorities.

ITEM 4—SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

There were no matters submitted to a vote of stockholders during the fourth quarter of 2007.

PART II

ITEM 5—MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ACNB Corporation's common stock trades on the Over The Counter Bulletin Board under the symbol ACNB. There were 20,000,000 shares of common stock authorized at December 31, 2007, and 5,990,943 shares outstanding. As of November 30, 2007, ACNB had approximately 2,643 stockholders of record. There is no other class of stock authorized or outstanding. ACNB is restricted as to the amount of dividends that it can pay to stockholders by virtue of the restrictions on the banking subsidiary's ability to pay dividends to ACNB. ACNB Corporation has no equity compensation plans.

There have been no unregistered sales of stock in 2007, 2006 or 2005.

The following table reflects the quarterly high and low prices of ACNB's common stock for the periods indicated and the cash dividends on the common stock for the periods indicated.

		Price Range Per Share
		Price Range Per Share				Per Share Dividend
		High		Low		Per Share Dividend
2007:
	First Quarter	$	19.38	$	17.25	$	0.19
	Second Quarter		18.48		17.10		0.19
	Third Quarter		17.60		15.95		0.19
	Fourth Quarter		16.85		14.80		0.19
2006:
	First Quarter	$	19.28	$	17.50	$	0.19
	Second Quarter		19.90		17.78		0.19
	Third Quarter		19.05		17.32		0.19
	Fourth Quarter		19.76		17.91		0.19

All amounts restated for the 5% common stock dividends distributed in 2006 and 2007.

	Period Ending
Index	Period Ending
Index	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06	12/31/07
ACNB Corporation	100.00	130.25	130.79	104.60	114.68	95.92
NASDAQ Composite	100.00	150.01	162.89	165.13	180.85	198.60
Mid-Atlantic Custom Peer Group*	100.00	153.01	167.55	165.85	173.43	159.74

*: Mid-Atlantic Custom Peer Group consists of Mid-Atlantic commercial banks with assets less than $1B.

ITEM 6—SELECTED FINANCIAL DATA

		Year-ended December 31,
		2007			2006			2005			2004			2003
		Dollars in thousands, except per share data
INCOME STATEMENT DATA
	Interest income	$	51,581		$	48,287		$	42,284		$	37,752		$	36,689
	Interest expense		26,561			23,448			17,370			13,183			13,945

	Net interest income		25,020			24,839			24,914			24,569			22,744
	Provision for loan losses		500			870			516			300			265

	Net interest income after provision for loan losses		24,520			23,969			24,398			24,269			22,479
	Proceeds recognized from life insurance proceeds		—			—			—			—			2,161
	Other income		10,364			9,912			8,885			5,865			7,268
	Other expenses		25,030			24,666			24,497			18,571			17,998

	Income before income taxes		9,854			9,215			8,786			11,563			13,910
	Applicable income taxes		1,917			1,925			1,410			2,255			3,142

	Net income	$	7,937		$	7,290		$	7,376		$	9,308		$	10,768

BALANCE SHEET DATA (AT YEAR-END)
	Assets	$	926,665		$	964,757		$	945,136		$	924,188		$	873,083
	Securities		290,496			352,797			367,878			405,943			388,252
	Loans, net		542,354			518,843			489,008			436,631			411,051
	Deposits		670,640			669,705			679,381			646,872			639,388
	Borrowings		161,012			205,503			185,085			196,966			156,676
	Stockholders' equity		85,130			77,304			74,010			74,521			72,743
COMMON SHARE DATA*
	Earnings per share—basic	$	1.32		$	1.22		$	1.23		$	1.55		$	1.80
	Cash dividends paid		.76			.76			.83			.82			.81
	Book value per share		14.21			12.90			12.32			12.44			12.13
	Weighted average number of common shares		5,990,943			5,990,943			5,990,943			5,990,943			5,990,943
	Dividend payout ratio		57.52	%		62.63	%		67.07	%		52.56	%		44.93	%
PROFITABILITY RATIOS AND CONDITION
	Return on average assets		0.81	%		0.76	%		0.79	%		1.04	%		1.32	%
	Return on average equity		9.83	%		9.72	%		10.03	%		12.84	%		15.41	%
	Average stockholders' equity to average assets		8.23	%		7.82	%		7.92	%		8.11	%		8.55	%
SELECTED ASSET QUALITY RATIOS
	Non-performing loans to total loans		0.41	%		0.79	%		1.40	%		1.86	%		1.21	%
	Net charge-offs to average loans outstanding		—	%		—	%		—	%		0.08	%		0.03	%
	Allowance for loan losses to total loans		1.07	%		1.03	%		0.90	%		0.89	%		0.96	%
	Allowance for loan losses to non-performing loans		258.99	%		130.42	%		64.36	%		47.94	%		79.26	%

*: All amounts restated for the 5% common stock dividends distributed in December 2006 and 2007.

ITEM 7—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 financial condition, results of operations, capital resources and liquidity presented in its accompanying consolidated financial statements for ACNB Corporation (the Corporation or ACNB), a financial holding company. Please read this discussion in conjunction with the consolidated financial statements and disclosures included herein. Current performance does not guarantee, assure or indicate similar performance in the future.

Forward-Looking Statements

In addition to historical information, this Form 10-K contains forward-looking statements. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management or the Board of Directors, and (c) statements of assumptions, such as economic conditions in the Corporation's market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "intends", "will", "should", "anticipates", or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy. Forward-looking statements are subject to certain risks and uncertainties such as local economic conditions, competitive factors, and regulatory limitations. Actual results may differ materially from those projected in the forward-looking statements. 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 and any Current Reports on Form 8-K filed by the Corporation.

Critical Accounting Policies

The accounting policies that the Corporation's management deems to be most important to the portrayal of its financial condition and results of operations, and that require management's most difficult, subjective or complex judgment, often result in the need to make estimates about the effect of such matters which are inherently uncertain. The following policies are deemed to be critical accounting policies by management:

The allowance for loan losses represents management's estimate of probable losses inherent in the loan portfolio. Management makes numerous assumptions, estimates and adjustments in determining an adequate allowance. The Corporation assesses the level of potential loss associated with its loan portfolio and provides for that exposure through an allowance for loan losses. The allowance is established through a provision for loan losses charged to earnings. The allowance is an estimate of the losses inherent in the loan portfolio as of the end of each reporting period. The Corporation assesses the adequacy of its allowance on a quarterly basis. The specific methodologies applied on a consistent basis are discussed in greater detail under the caption, "Allowance for Loan Losses", in a subsequent section of the following Management's Discussion and Analysis of Financial Condition and Results of Operations.

The evaluation of securities for other than temporary impairment requires a significant amount of judgment. In estimating other than temporary impairment losses, management considers various factors, including length of time the fair value has been below cost, the financial condition

of the issuer, and the intent and ability of the Corporation to hold the securities until recovery. Declines in fair value that are determined to be other than temporary are charged against earnings.

SFAS No. 142, "Goodwill and Other Intangible Assets", requires that goodwill is not amortized to expense, but rather that it be tested for impairment at least annually. Impairment write-downs are charged to results of operations in the period in which the impairment is determined. The Corporation did not identify any impairment on its goodwill from its most recent testing, which was performed as of December 31, 2007. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested when such events occur. Other acquired intangible assets with finite lives, such as customer lists, are required to be amortized over the estimated lives. These intangibles are generally amortized using the straight line method over estimated useful lives of ten years.

EXECUTIVE OVERVIEW

The primary source of the Corporation's revenues is net interest income derived from loans and investments, less deposit and borrowing funding costs. Revenues are influenced by general economic factors, including market interest rates, the economy of the markets served, stock market conditions, as well as competitive forces within the markets.

The Corporation's overall strategy is to increase loan growth in local markets, while maintaining a reasonable funding base by offering competitive deposit products and services. The very competitive local interest rate environment resulted in net income of $7,937,000, or $1.32 per share, in 2007, compared to $7,290,000, or $1.22 per share, in 2006 and $7,376,000, or $1.23 per share, in 2005. Returns on average equity were 9.83%, 9.72% and 10.03% in 2007, 2006 and 2005, respectively.

Because of a flat to inverted yield curve for most of 2007 and consumer demand for higher interest rates, the Corporation's net interest margin declined on average to 2.74% in 2007 compared to 2.79% and 2.89% in 2006 and 2005, respectively. The net interest margin at year-end 2007, however, had increased to 3.05% due to the restructuring of the investment portfolio that culminated in the fourth quarter of 2007 when relatively low yield investments were called. As has been the trend for the last two years, savers shifted deposits from lower-cost transactional products to higher-cost certificates of deposit and money market accounts; the result was a 34 basis point increase in funding costs. Offsetting the higher cost of funds in 2007 was earning asset yield improvement through the ongoing planned restructuring of earning assets. Lower-earning investment securities and residential mortgage maturities were replaced with higher-earning commercial loans. Net interest income was $25,020,000 in 2007, as compared to $24,839,000 in 2006 and $24,914,000 in 2005.

Other income was $10,364,000, $9,912,000 and $8,885,000 in 2007, 2006 and 2005, respectively. The largest source of other income is commissions from insurance sales from Russell Insurance Group, Inc., which increased by 1% in 2007 with increased volume slightly overtaking the effects of a soft insurance market due to lower premiums. In 2007, a $42,000 gain was recognized on investments compared to a gain of $204,000 in 2006 and a loss of $264,000 in 2005. Income from fiduciary activities totaled $906,000 for 2007, as compared to $770,000 for 2006 and $717,000 for 2005. Trust income benefited from 20% organic growth in assets under administration. Service charges on deposit accounts increased 9% to $2,110,000, and revenue from ATM/debit card transactions increased 9% to $941,000 on higher volume and as a result of changing vendors.

Other expenses increased to $25,030,000, or by 1%, in 2007, as compared to $24,666,000 in 2006 and $24,497,000 in 2005. The largest component of other expenses is salaries and employee benefits, which increased 3% to $13,251,000 compared to $12,895,000 in 2006. Occupancy and equipment expenditures decreased 5% in 2007 compared to 2006 due to fully depreciated assets and lower maintenance expense despite the ever increasing technology demands associated with growth and a changing, competitive marketplace. Other expenditures increased by 4% in 2007 as the Corporation's

investment to advance its brand awareness, primarily due to the 150^th anniversary celebration for the banking subsidiary and large announced bank mergers in the marketplace, overtook efficiencies gained in Sarbanes-Oxley Act compliance. Expenses were lower in 2006 compared to 2005 as a result of varying levels of marketing and promotional activity.

A more thorough discussion of the Corporation's results of operations is included in the following pages.

NEW ACCOUNTING STANDARDS

FIN NO. 48

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109" (FIN No. 48), which clarifies the accounting for uncertainty in tax positions. This interpretation requires that companies recognize in their financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN No. 48 were effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The impact of adopting FIN No. 48 on the Corporation's financial statements was not material.

SFAS NO. 157

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The Corporation is currently evaluating the potential impact, if any, of the adoption of SFAS No. 157 on its consolidated financial position, results of operations, and cash flows.

FSP 157-b

In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, "Effective Date of FASB Statement No. 157" that would permit a one-year deferral in applying the measurement provisions of SFAS No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of SFAS No. 157 to that item is deferred until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies SFAS No. 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Corporation is currently evaluating the impact, if any, that the adoption of FSP 157-b will have on the Corporation's financial position, results of operating and cash flows.

SFAS NO. 159

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115". This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities, including not-for-profit organizations. Most of the provisions in SFAS No. 159 are elective; however, the amendment to FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", applies to all entities with available-for-sale and trading securities. The FASB's stated objective in issuing this standard is as follows: "to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings

caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions."

The fair value option established by SFAS No. 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and, (c) is applied only to the entire instruments and not to portions of instruments.

SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The Corporation did not elect to adopt this standard.

EITF 06-5

On September 7, 2006, the Emerging Issues Task Force reached a conclusion on EITF Issue No. 06-5 (EITF 06-5), "Accounting for Purchases of Life Insurance—Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance". The scope of EITF 06-5 consists of six separate issues relating to accounting for life insurance policies purchased by entities protecting against the loss of "key persons". The six issues are clarifications of previously issued guidance on FASB Technical Bulletin No. 85-4. EITF 06-5 is effective for fiscal years beginning after December 15, 2006. The impact of adopting EITF 06-5 on the Corporation's consolidated financial statements was not material.

EITF 06-10

In March 2007, the FASB ratified Emerging Issues Task Force Issue No. 06-10 (EITF 06-10), "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements". EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation, as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The Corporation is preparing the adjustments necessary to implement the impact of EITF 06-10 on its consolidated financial position and results of operations.

RESULTS OF OPERATIONS

Net Interest Income

The primary source of ACNB's traditional banking revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets. Earning assets include loans, securities, and federal funds sold. Interest bearing liabilities include deposits and borrowings.

Net interest income is affected by changes in interest rates, volume of interest bearing assets and liabilities, and the composition of those assets and liabilities. The "interest rate spread" and "net interest margin" are two common statistics related to changes in net interest income. The interest rate spread represents the difference between the yields earned on interest earning assets and the rates paid for interest bearing liabilities. The net interest margin is defined as the percentage of net interest income to average earning assets, which also considers the Corporation's net non-interest bearing funding sources, the largest of which are non-interest bearing demand deposits and stockholders' equity.

The following table includes average balances, rates and interest income and expense, interest rate spread and net interest margin:

Table 1—Average Balances, Rates and Interest Income and Expense

			2007							2006							2005
			Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
			Dollars in thousands
INTEREST EARNING ASSETS
	Loans		$	543,256		$	35,740	6.58	%	$	517,675		$	33,281	6.43	%	$	464,338		$	27,243	5.87	%
	Taxable securities			322,839			13,670	4.23	%		338,543			13,260	3.92	%		365,204			13,729	3.76	%
	Tax-exempt securities			33,779			1,348	3.99	%		23,483			931	3.96	%		23,179			916	3.95	%

		Total Securities		356,618			15,018	4.21	%		362,026			14,191	3.92	%		388,383			14,645	3.77	%
	Other			12,484			823	6.59	%		11,536			815	7.06	%		10,023			396	3.95	%

		Total Interest Earning Assets		912,358			51,581	5.65	%		891,237			48,287	5.42	%		862,744			42,284	4.90	%

Cash and due from banks				15,316							15,672							17,476
Premises and equipment				14,340							14,832							14,017
Other assets				43,823							42,368							38,121
Allowance for loan losses				(5,513	)						(4,917	)						(4,123	)

		Total Assets	$	980,324						$	959,192						$	928,235

LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES
	Interest bearing demand deposits		$	111,006		$	600	0.54	%	$	112,908		$	754	0.67	%	$	116,933		$	761	0.65	%
	Savings deposits			202,774			3,840	1.89	%		225,116			4,501	2.00	%		235,317			3,349	1.42	%
	Time deposits			290,595			12,447	4.28	%		256,890			9,682	3.77	%		239,075			7,418	3.10	%

		Total Interest Bearing Deposits		604,375			16,887	2.79	%		594,914			14,937	2.51	%		591,325			11,528	1.95	%
	Short-term borrowings			78,139			3,216	4.12	%		69,754			2,856	4.09	%		48,976			1,253	2.56	%
	Long-term borrowings			128,173			6,458	5.04	%		132,826			5,655	4.26	%		130,501			4,589	3.52	%

		Total Interest Bearing Liabilities		810,687			26,561	3.28	%		797,494			23,448	2.94	%		770,802			17,370	2.25	%

Non-interest bearing demand deposits				76,570							76,570							77,754
Other liabilities				12,344							10,137							6,133
Stockholders' equity				80,723							74,991							73,546

		Total Liabilities and Stockholders' Equity	$	980,324						$	959,192						$	928,235

NET INTEREST INCOME						$	25,020						$	24,839						$	24,914

INTEREST RATE SPREAD								2.37	%						2.48	%						2.65	%

NET INTEREST MARGIN								2.74	%						2.79	%						2.89	%

For yield calculation purposes, nonaccruing loans are included in average loan balances. Yields on tax-exempt securities are not tax effected.

Table 1 presents balance sheet items on a daily average basis, net interest income, interest rate spread, and net interest margin for the years ending December 31, 2007, 2006 and 2005. Table 2 analyzes the relative impact on net interest income for changes in the volume of earning assets and interest bearing liabilities and changes in rates earned and paid by the Corporation on such assets and liabilities.

Net interest income totaled $25,020,000 in 2007, as compared to $24,839,000 in 2006 and $24,914,000 in 2005. During 2007, net interest income increased as a result of higher funding costs exceeded by improvements in interest income due to increased loan volume, a better mix of higher-earning loans, and increased yield on earning assets. The decrease in net interest income in 2006 was

primarily related to an increase in funding costs without a corresponding increase in yield on earning assets.

The net interest margin during 2007 was 2.74% compared to 2.79% during 2006. The margin declined due to the cost of funding increasing from customer expectations for higher rates on deposits. The Federal Open Market Committee increased market rates seventeen times from June 2004 to June 2006. These expectations caused savers to shift deposits from lower-cost transactional products to higher-cost certificates of deposit at the same time that rates were increasing on these products; the result was a 0.24% increase in funding costs. Offsetting the higher cost of funds in 2007 was earning asset yield improvement through the strategic planned restructuring of earning assets. Lower-earning investment securities and residential mortgage maturities were replaced with higher-earning commercial lending. In addition, to avoid timing risk, a large block of expected fourth quarter investment calls were reinvested evenly through the year which improved the yield on securities. The result of this redeployment of earning assets and investment management increased earning asset yields by 0.23%. The net interest margin at December 31, 2007, was 3.05%.

The net interest margin during 2006 was 2.79% compared to 2.89% during 2005. The margin decreased due to the higher cost on interest sensitive deposits and borrowings and a flat yield curve.

Average earning assets were $912,358,000 in 2007, an increase of 2.4% over the 2006 balance of $891,237,000 and $862,744,000 in 2005. Loan growth was the primary contributor to the increase in average earning assets during this period, with securities decreasing. Average interest bearing liabilities were $810,687,000 in 2007, up from $797,494,000 in 2006 and $770,802,000 in 2005. Loans and the prepurchases of securities in 2007 were funded by an increase in time deposits and short-term borrowings, which were paid off from proceeds of the securities called in the fourth quarter. The shift in mix to more time deposits and less lower-cost demand and savings deposits continued in 2007 as local competition kept time deposit rates relatively high.

The rate/volume analysis detailed in Table 2 shows that the increase in interest income change in 2007 was divided between improvement in loan volume and overall yields. The increase in interest income was 6% higher than the increase in interest expense. Interest expense increased due to higher rates and the shift in mix to more expensive time deposits. Positive volume and rate changes in interest income in 2006 were offset by increased rates on deposits and borrowings funding those assets in that year.

The following table shows changes in net interest income attributed to changes in rates and changes in average balances of interest earning assets and interest bearing liabilities:

Table 2—Rate/Volume Analysis

			2007 versus 2006								2006 versus 2005
			Due to Changes in								Due to Changes in
			Volume			Rate			Total		Volume			Rate		Total
			In thousands
INTEREST EARNING ASSETS
	Loans		$	1,671		$	788		$	2,459	$	3,293		$	2,745	$	6,038
	Taxable securities			(633	)		1,043			410		(1,029	)		560		(469	)
	Tax-exempt securities			411			6			417		12			3		15

		Total Securities		(222	)		1,049			827		(1,017	)		563		(454	)
	Other			65			(57	)		8		67			352		419

		Total	$	1,514		$	1,780		$	3,294	$	2,343		$	3,660	$	6,003

			2007 versus 2006									2006 versus 2005
			Due to Changes in									Due to Changes in
			Volume			Rate			Total			Volume			Rate			Total
			In thousands
INTEREST BEARING LIABILITIES
	Interest bearing demand deposits		$	(13	)	$	(141	)	$	(154	)	$	(27	)	$	20		$	(7	)
	Savings deposits			(431	)		(230	)		(661	)		(151	)		1,303			1,152
	Time deposits			1,355			1,410			2,765			583			1,681			2,264
	Short-term borrowings			346			14			360			664			939			1,603
	Long-term borrowings			(204	)		1,007			803			83			983			1,066

		Total		1,053			2,060			3,113			1,152			4,926			6,078

		Change in Net Interest Income	$	461		$	(280	)	$	181		$	1,191		$	(1,266	)	$	(75	)

The net change attributable to the combination of rate and volume has been allocated on a consistent basis between volume and rate based on the absolute value of each. For yield calculation purposes, nonaccruing loans are included in average balances.

Provision for Loan Losses

The provision for loan losses charged against earnings was $500,000 in 2007, as compared to $870,000 in 2006 and $516,000 in 2005. ACNB adjusts the provision for loan losses periodically as necessary to maintain the allowance at a level deemed to meet the risk characteristics of the loan portfolio.

See further information in the "Asset Quality" section of this Management's Discussion and Analysis.

Other Income

Other income was $10,364,000 for the year-ended December 31, 2007, a $452,000, or 5%, increase from 2006. The largest source of other income is commissions from insurance sales from Russell Insurance Group, which increased 1% to $4,283,000 on volume despite a soft insurance market.

In 2006, a $204,000 investment gain was recognized compared to a gain of $42,000 in 2007. The 2006 gain was on an investment in a banking company that was purchased by another banking company. In 2005, a loss of $264,000 was recognized on sales of securities, resulting in a positive change of $468,000 when comparing 2006 to 2005.

Income from fiduciary activities, which includes fees from both institutional and personal trust management services and estate settlement services, totaled $906,000 for the year-ended December 31, 2007, as compared to $770,000 for 2006 and $717,000 for 2005. At December 31, 2007, ACNB had total assets under administration of approximately $112,000,000, up 20% from $93,000,000 at the end of 2006 and $76,000,000 at the end of 2005. The increase in income was the result of growth in assets under management and higher aggregate estate settlement fees.

Service charges on deposit accounts increased 9% to $2,110,000 on better collection and new fee sources. Revenue from ATM/debit card transactions increased 9% to $941,000 on higher volume and as a result of changing vendors.

Other income was $9,912,000 for the year-ended December 31, 2006, an increase of $1,027,000 compared to income of $8,885,000 during 2005. The major factor in the increase for 2006, as compared to 2005, was the increased commissions at Russell Insurance Group and improved fees related to deposit accounts. In addition, the gain on investment sales discussed above increased other income for 2006.

Other Expenses

Other expenses increased 1% to $25,030,000 for the year-ended December 31, 2007. The largest component of other expenses is salaries and employee benefits, which increased 3% to $13,251,000 compared to $12,895,000 in 2006. The reasons for the increase in salaries and employee benefits expenses include the following:

•: an increase in full-time equivalent employees including skilled lending and trust officers;
•: normal merit, promotion and production-based incentive compensation increases to employees;
•: increased benefit plan costs; and,
•: partially offsetting these increases was lower pension cost due to the funded position of the defined benefit pension plan.

Salaries and employee benefits also increased less than 1% from 2005 to 2006. Lower pension and other benefit costs contributed to the stability of expenses between those two years.

Net occupancy expense was $2,232,000 in 2007, $2,206,000 in 2006, and $1,772,000 in 2005. Furniture and equipment expense totaled $2,214,000 during 2007, as compared to $2,475,000 during 2006 and $2,395,000 during 2005. Occupancy and equipment expense decreased in 2007 despite the opening of a new loan production office and ever increasing technology demands. Overall, these expenses decreased due to the management of expenditures, more fully depreciated assets, efficiency gained by the new operations center, and renegotiated outsourcing arrangements. The majority of the increase in 2006 from 2005 was due to the opening of the new operations center in mid-year 2005. The increases were also the result of three additional retail banking offices, as well as technology expenditures associated with overall growth, more sophisticated delivery channels offered to the banking subsidiary's customers, and increasing regulations.

Professional services expense totaled $824,000 for 2007, as compared to $1,136,000 for 2006 and $1,147,000 for 2005. Lower Sarbanes-Oxley direct compliance costs and the use of less consulting services accounted for the decrease in 2007. Higher Sarbanes-Oxley compliance costs were the primary cause of higher professional services expense in 2006 and 2005.

Marketing expenses increased 70% during 2007 due to both brand awareness and product-specific promotional campaigns, as well as new media channels. The expenditures were to demonstrate stability and independence, enhance market share, and celebrate the 150^th anniversary of the banking subsidiary in a year marked by market upheaval and mergers impacting local competitors. The decrease in 2006 from 2005 was primarily related to varying levels of marketing and promotional activity.

Other operating expenses increased 4% in 2007 as a result of higher delivery channel costs, loan collection costs, and deposit losses. The decrease in 2006 from 2005 was mainly a result of lower telephone and loan collection costs.

Income Tax Expense

ACNB recognized income taxes of $1,917,000, or 19.5% of pretax income, during 2007, as compared to $1,925,000, or 20.9%, during 2006 and $1,410,000, or 16.0%, during 2005. The variances from the federal statutory rate are generally due to tax-exempt income and investments in low-income housing partnerships (which qualify for federal tax credits).

The decrease in the effective tax rate during 2007 was a result of higher tax-exempt income in relationship to pretax income. The effective tax rate for 2005 was lower due to a one-time historic rehabilitation tax credit.

At December 31, 2007, net deferred tax assets amounted to $1,606,000. Deferred tax assets are realizable primarily through future reversal of existing taxable temporary differences. Management currently anticipates future earnings will be adequate to utilize the net deferred tax assets.

FINANCIAL CONDITION

Average earning assets increased in 2007 to $912,358,000, or 2.4%, from $891,237,000 in 2006 and $862,744,000 in 2005. ACNB's investment portfolio decreased in 2007 and 2006 as a result of the planned objective to fund higher-earning loans. Besides funds provided by investment pay-downs, growth in commercial and consumer loans was funded by increased customer deposits and wholesale borrowings. Average deposits and borrowings increased in 2007 to $810,687,000 from $797,494,000 in 2006 and $770,802,000 in 2005.

Investment Securities

ACNB uses investment securities to generate interest and dividend income, manage interest rate risk, provide collateral for certain funding products, and provide liquidity. The contraction in the securities portfolio during 2007 and 2006 was designed to increase the level of commercial lending in the earning asset mix for the fulfillment of the strategic direction to provide lending in the marketplace and to improve overall earning asset yields. The investment portfolio is comprised of U.S. Government agency, tax-free municipal, and corporate securities. These securities provide the appropriate characteristics with respect to credit quality, yield and maturity relative to the management of the overall balance sheet.

At December 31, 2007, the securities balance included a net unrealized gain on available for sale securities of $749,000, net of taxes, versus a net unrealized loss of $3,437,000, net of taxes, at December 31, 2006. A 2007 program to prepurchase expected security calls when new rates were favorable and improvements in the rate curve that effect fair values caused the increase in value in 2007. The increase in relevant interest rates during 2006 led to the increase in the fair value of securities during 2006 compared to 2005, although there was still a net unrealized loss. All individual securities in which the fair value is less than the book value are not considered other-than-temporarily impaired because the temporary impairment is caused by a general increase in interest rates since purchase. All mortgage-backed security investments are pass through instruments issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments. There is no exposure to subprime mortgages in the mortgage-backed securities.

The following tables set forth the composition of the securities portfolio and the securities maturity schedule, including weighted average yield, as of the end of the years indicated:

Table 3—Investment Securities

			2007		2006		2005
			In thousands
AVAILABLE FOR SALE SECURITIES AT FAIR VALUE
	U.S. Government and agencies		$	99,827	$	156,810	$	156,350
	Mortgage-backed securities			130,659		96,179		117,802
	State and municipal			36,862		30,826		22,860
	Corporate bonds			18,373		51,660		50,978
	Stock in other banks			625		776		723

				286,346		336,251		348,713

HELD TO MATURITY SECURITIES AT AMORTIZED COST
	U.S. Government and agencies			—		10,000		10,000
	Mortgage-backed securities			4,150		6,415		8,916
	State and municipal			—		131		249

				4,150		16,546		19,165

		TOTAL	$	290,496	$	352,797	$	367,878

The Corporation owned two securities of non-investment grade at year-end 2006 and 2005. They were 6.125% GMAC notes due on August 28, 2007, with a par value of $6,000,000 and 6.50% Ford Motor Credit notes due on January 25, 2007, with a par value of $6,200,000. Both paid as agreed at maturity.

Table 4 discloses investment securities at the scheduled maturity date. Many securities have call features that make them liable for redemption before the stated maturity date.

Table 4—Securities Maturity Schedule

	1 Year or Less				Over 1-5 Years				Over 5-10 Years				Over 10 Years or No Maturity				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	Dollars in thousands
U.S. Government and agencies	$	—	—	%	$	47,269	5.42	%	$	50,460	4.79	%	$	990	5.63	%	$	98,719	5.10	%
Mortgage-backed securities		15,200	2.87			22,161	3.57			—	—			97,756	5.04			135,117	4.55
State and municipal		—	—			3,330	3.62			11,973	4.02			21,117	4.03			36,420	3.99
Corporate bonds		18,400	3.72			—	—			—	—			—	—			18,400	3.72
Stock in other banks		—	—			—	—			—	—			704	—			704	—

	$	33,600	3.34	%	$	72,760	4.78	%	$	62,433	4.64	%	$	120,567	4.84	%	$	289,360	4.60	%

Securities are at amortized cost. Mortgage-backed securities are allocated based upon scheduled maturities.

Loans

Loans outstanding increased by $23,984,000, or 4.6%, in 2007, as compared to 6.2% growth experienced in 2006. The slower growth was a result of increased competition in the local economy and a decrease in residential mortgages. The commercial loan portfolio experienced planned growth during 2007, increasing by approximately $21,074,000, or 50%, in commercial loans and $11,118,000, or 10%, in commercial real estate loans while declining $3,305,000, or 8%, in construction loans. The commercial loan growth in 2007 was the result of actively marketing to local businesses and participation with other financial institutions on larger loans in the region. Residential real estate and home equity lending decreased by $2,965,000, or 1%, as a result of a slowing local housing market and customer desire for long-term fixed rate mortgages which the Corporation generally sells.

Table 5—Loan Portfolio

Loans at December 31 were as follows:

			2007		2006		2005		2004		2003
			In thousands
Commercial, financial and agricultural			$	62,844	$	41,770	$	36,583	$	31,187	$	18,080
Real estate:
	Commercial			127,465		116,347		103,501		99,988		100,536
	Construction			38,370		41,675		31,907		20,232		22,298
	Residential			310,459		313,424		311,865		278,519		262,893
Installment				9,064		11,002		9,608		10,643		11,222

		Total Loans	$	548,202	$	524,218	$	493,464	$	440,569	$	415,029

The repricing range of the loan portfolio and the amounts of loans with predetermined and fixed rates are presented in the table below:

Table 6—Loan Sensitivities

				Less than 1 Year		1-5 Years		Over 5 Years		Total
				In thousands
LOANS MATURING
	Commercial, financial and agricultural			$	8,575	$	18,647	$	35,622	$	62,844
	Real estate:
		Commercial			3,107		43,323		81,035		127,465
		Construction			17,486		14,441		6,443		38,370

			Total	$	29,168	$	76,411	$	123,100	$	228,679

				Less than 1 Year		1-5 Years		Over 5 Years		Total
				In thousands
LOANS BY REPRICING OPPORTUNITY
	Commercial, financial and agricultural			$	36,275	$	24,030	$	2,539	$	62,844
	Real estate:
		Commercial			31,317		74,755		21,393		127,465
		Construction			27,725		5,281		5,364		38,370

			Total	$	95,317	$	104,066	$	29,296	$	228,679

	Loans with a fixed interest rate			$	4,050	$	16,550	$	20,133	$	40,733
	Loans with a variable interest rate				91,267		87,516		9,163		187,946

			Total	$	95,317	$	104,066	$	29,296	$	228,679

Most of the Corporation's activities are with customers located within the southcentral Pennsylvania and northern Maryland region of the country. The Corporation does not have any significant concentrations greater than 10% of loans to any one industry or customer, as well as did not originate or hold subprime mortgages in its loan portfolio.

ASSET QUALITY

The ACNB loan portfolio is subject to varying degrees of credit risk. Credit risk is mitigated through prudent underwriting standards, ongoing credit review, and monitoring and reporting asset quality measures. Additionally, loan portfolio diversification, limiting exposure to a single industry or borrower, and requiring collateral also reduces ACNB's credit risk.

ACNB's commercial, consumer and residential mortgage loans are principally to borrowers in southcentral Pennsylvania and northern Maryland. As the majority of ACNB's loans are located in this area, a substantial portion of the debtor's ability to honor the obligation may be affected by the level of economic activity in the market area.

The unemployment rate in ACNB's market area remained below the national average during 2007. Additionally, reasonably low interest rates, a stable local economy, and minimal inflation continued to support economic conditions in the area. During 2007, contraction in new residential real estate development and construction slowed that segment of the Corporation's marketplace activity.

Non-performing assets include nonaccrual and restructured loans, accruing loans past due 90 days or more, and other foreclosed assets. ACNB's general policy has been to cease accruing interest on

loans when management determines that a reasonable doubt exists as to the collectibility of additional interest. When management places a loan on nonaccrual status, it reverses unpaid interest credited to income in the current year. ACNB recognizes income on these loans only to the extent that it receives cash payments. ACNB occasionally returns nonaccrual loans to performing status when the borrower brings the loan current and performs in accordance with contractual terms for a reasonable period of time. ACNB categorizes a loan as restructured if it changes the terms of the loan, such as interest rate, repayment schedule or both, to terms that it otherwise would not have granted originally.

The following table sets forth the Corporation's non-performing assets as of the end of the years indicated:

Table 7—Non-Performing Assets

			2007			2006			2005			2004			2003
			Dollars in thousands
Nonaccrual loans			$	854		$	3,900		$	7,354		$	8,054		$	4,413
Accruing loans 90 days past due				1,404			220			199			160			606

		Total Non-Performing Loans		2,258			4,120			7,553			8,214			5,019
Foreclosed real estate				136			—			—			213			394

		Total Non-Performing Assets	$	2,394		$	4,120		$	7,553		$	8,427		$	5,413

Ratios:
	Non-performing loans to total loans			0.41	%		0.79	%		1.40	%		1.86	%		1.21	%
	Non-performing assets to total assets			0.26	%		0.43	%		0.73	%		0.91	%		0.62	%
	Allowance for loan losses to non- performing loans			258.99	%		130.46	%		64.36	%		47.94	%		79.26	%

If interest due on all nonaccrual loans had been accrued at original contract rates, it is estimated that income before income taxes would have been greater by $38,000 in 2007, $137,000 in 2006, and $501,000 in 2005. The decrease in nonaccrual loans was primarily related to one well collateralized loan that was returned to accruing status after an extended period of timely payments.

Impaired loans at December 31, 2007 and 2006, totaled $15,765,000 and $6,982,000, respectively. The related allowance for loan losses totaled $2,725,000 and $1,899,000, respectively. The increase in impaired loans was mainly related to residential real estate development projects in which repayment from sales is expected to be delayed. Other loans were deemed to be impaired due to a slowing economy or other specific attributes.

Potential problem loans are defined as performing loans that have characteristics that cause management to have doubts as to the ability of the borrower to perform under present loan repayment terms and which may result in the reporting of these loans as non-performing loans in the future. Total potential problem loans approximated $4,600,000 at December 31, 2007. The majority of these loans are secured by real estate with acceptable loan-to-value ratios.

Allowance for Loan Losses

ACNB maintains the allowance for loan losses at a level believed adequate by management to absorb potential losses in the loan portfolio, and it is funded through a provision for loan losses charged to earnings. On a quarterly basis, the Corporation utilizes a defined methodology in determining the adequacy of the allowance for loan losses, which considers specific credit reviews, past loan loss, historical experience, and qualitative factors. This methodology results in an allowance that is considered appropriate in light of the high degree of judgment required and that is prudent and conservative, but not excessive.

Management assigns internal risk ratings for each significant commercial lending relationship. Utilizing historical loss experience, adjusted for changes in trends, conditions and other relevant factors, management derives estimated losses for non-rated and non-classified loans. When management finds loans with uncertain collectibility of principal and interest, it places those loans on a watch list and evaluates a specific reserve on a quarterly basis in order to estimate potential losses. Management's analysis considers:

•: adverse situations that may affect the borrower's ability to repay;
•: the estimated value of underlying collateral; and,
•: prevailing market conditions.

If management determines that a specific reserve allocation is not required, it assigns the general loss factor to determine the reserve. For homogeneous loan types, such as consumer and residential mortgage loans, management bases specific allocations on the average loss ratio for the previous five years for each specific loan pool. Additionally, management adjusts projected loss ratios for other factors, including the following:

•: trends in delinquency levels;
•: trends in non-performing and potential problem loans;
•: trends in composition, volume and terms of loans;
•: effects of changes in lending policies or underwriting procedures;
•: experience, ability and depth of management;
•: national and local economic conditions;
•: concentrations in lending activities; and,
•: other factors that management may deem appropriate.

Management determines the unallocated portion of the allowance for loan losses based on the following criteria:

•: risk of error in the specific and general reserve allocations;
•: the perceived level of consumer and small business loans with demonstrated weaknesses for which it is not practicable to develop specific allocations;
•: other potential exposure in the loan portfolio;
•: variances in management's assessment of national and local economic conditions; and,
•: other internal or external factors that management believes appropriate at that time.

Management believes the above methodology accurately reflects losses inherent in the portfolio. Management charges actual loan losses to the allowance for loan losses. Management periodically updates the methodology and the assumptions discussed above.

Management bases the provision for loan losses, or lack of provision, on the overall analysis taking into account the methodology discussed above.

The following tables set forth information on the analysis of the allowance for loan losses and the allocation of the allowance for loan losses as of the dates indicated:

Table 8—Analysis of Allowance for Loan Losses

			Year-Ended December 31,
			2007			2006			2005			2004			2003
			Dollars in thousands
Beginning balance			$	5,375		$	4,456		$	3,938		$	3,978		$	3,837
Provision for loan losses				500			870			516			300			265
Loans charged-off:
	Commercial, financial and agricultural			6			26			41			316			90
	Real estate			—			—			4			31			32
	Consumer			39			11			42			43			47

		Total Loans Charged-Off		45			37			87			390			169

Recoveries:
	Commercial, financial and agricultural			14			46			22			8			6
	Real estate			—			—			54			—			7
	Consumer			4			40			13			42			32

		Total Recoveries		18			86			89			50			45

Net charge-offs (recoveries)				27			(49	)		(2	)		340			124

Ending balance			$	5,848		$	5,375		$	4,456		$	3,938		$	3,978

Ratios:
Net charge-offs to average loans				—	%		—	%		—	%		0.08	%		0.03	%
Allowance for loan losses to total loans				1.07	%		1.03	%		0.90	%		0.89	%		0.96	%

Table 9—Allocation of the Allowance for Loan Losses

			2007				2006				2005				2004				2003
			Amount		Percent of Loan Type to Total Loans		Amount		Percent of Loan Type to Total Loans		Amount		Percent of Loan Type to Total Loans		Amount		Percent of Loan Type to Total Loans		Amount		Percent of Loan Type to Total Loans
			Dollars in thousands
Commercial, financial and agricultural			$	1,204	11.5	%	$	457	8.0	%	$	539	7.4	%	$	941	7.1	%	$	875	4.4	%
Real estate:
	Commercial			1,226	23.3			1,275	22.2			1,760	21.0			1,288	22.7			1,388	24.2
	Construction			2,494	7.0			2,323	7.9			735	6.5			248	4.6			308	5.4
	Residential			605	56.6			583	59.8			592	63.2			674	63.2			684	63.3
Consumer				207	1.6			228	2.1			369	1.9			420	2.4			504	2.7
Unallocated				112	N/A			509	N/A			461	N/A			367	N/A			219	N/A

		Total	$	5,848	100.0	%	$	5,375	100.00	%	$	4,456	100.00	%	$	3,938	100.00	%	$	3,978	100.00	%

The allocation of the allowance for loan losses between the various loan categories changes consistent with the estimated specific losses measured at each period-end and the historical net loss experience in each of the categories. The unallocated portion of the allowance reflects estimated inherent losses within the portfolio that have not been detected. The unallocated portion of the reserve exists due to risk of error in the specific and general reserve allocations, as well as to allow for

consumer and small business loans with demonstrated weaknesses where it is not practicable to develop specific allocations, variances in management's assessment of national and local economic conditions, and other internal and external factors that management believes appropriate at the time. The unallocated portion of the reserve has decreased due to three years without significant loan charge-offs.

While management believes ACNB's allowance for loan losses is adequate based on information currently available, future adjustments to the reserve may be necessary due to changes in economic conditions and management's assumptions as to future delinquencies or loss rates.

Deposits

ACNB relies on deposits as the primary source of funds for lending activities. Average deposits increased 1.6%, or $9,461,000, during 2007, as compared to 0.6% during 2006. ACNB's deposit pricing function priced deposits to be competitive with relevant local competition; however, 2007 exhibited a continued increase in consumer demands for higher rates and a wider group of financial institutions, including credit unions and larger regional banks, marketing promotional products to meet the demands of rate-conscious savers. The 2007 deposit growth continued to be centered in premium-rate certificates of deposits sold in the primary marketplace. Other deposit products such as money market savings and interest-bearing transaction accounts suffered declines as customers became sensitized to higher rates by this marketplace activity. With recent marked declines in market rates and a slowing economy, ACNB's ability to maintain and add to its deposit base may be impacted by the reluctance of consumers to accept lower rates and by competition willing to pay above market rates to attract market share.

Table 10—Time Deposits

Maturities of time deposits of $100,000 or more outstanding at December 31, 2007, are summarized as follows:

		In thousands
Three months or less		$	14,437
Over three through six months			17,060
Over six through twelve months			21,870
Over twelve months			9,827

	Total	$	63,194

Borrowings

Short-term borrowings are comprised primarily of securities sold under agreements to repurchase and overnight borrowings at the Federal Home Loan Bank of Pittsburgh (FHLB). As of December 31, 2007, short-term borrowings were $30,768,000, a decrease of $29,215,000, or 48.7%, from the December 31, 2006, balance of $59,983,000. Short-term borrowings were paid down with proceeds of securities called in late 2007, thus eliminating a low spread leverage position. Repurchase agreements

have attributes of core deposits and were increased by actively marketing to businesses and government units.

		2007		2006		2005
		In thousands
Amounts outstanding at end of year:
FHLB overnight advance		$	390	$	39,614	$	34,965
Securities sold under repurchase agreements			29,928		19,919		23,892
Treasury tax and loan note			450		450		450

	Total	$	30,768	$	59,983	$	59,307

	2007			2006			2005
	Dollars in thousands
Average interest rate at year-end		2.87	%		4.32	%		3.38	%
Maximum amount outstanding at any month-end	$	119,765		$	97,896		$	70,793
Average amount outstanding	$	78,519		$	69,754		$	48,976
Weighted average interest rate		4.11	%		4.09	%		2.56	%

Long-term debt consists of advances from the Federal Home Loan Bank to fund ACNB's growth in its earning asset portfolio and a loan from a commercial bank to fund the purchase of Russell Insurance Group. Long-term debt totaled $130,244,000 at December 31, 2007, versus $145,520,000 at December 31, 2006.

Capital

The management of capital in a regulated financial services industry must properly balance return on equity to stockholders, while maintaining sufficient capital levels and related risk-based capital ratios to satisfy regulatory requirements. Capital management must also consider growth opportunities that may exist, and the resulting need for additional capital. ACNB's capital management strategies have been developed to provide attractive rates of returns to stockholders, while maintaining its "well-capitalized" position.

The primary source of additional capital to ACNB is earnings retention, which represents net income less dividends declared. During 2007, ACNB retained $3,371,000, or 42%, of its net income, as compared to $2,707,000, or 37%, in 2006 and $2,429,000, or 33%, in 2005.

ACNB is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on ACNB. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, ACNB must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require ACNB to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. Management believes, as of December 31, 2007 and 2006, that ACNB's banking subsidiary met all minimum capital adequacy requirements to which it is subject and is categorized as "well-capitalized". There are no conditions or events since the notification that management believes have changed the banking subsidiary's category.

Table 11—Risk-Based Capital

ACNB's capital ratios are as follows:

	2007		2006
Tier 1 leverage ratio (to average assets)	7.97	%	7.74	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	12.84	%	12.65	%
Total risk-based capital ratio	13.82	%	13.58	%

For further information on the actual and required capital amounts and ratios, please refer to Note M of the consolidated financial statements.

Liquidity

Effective liquidity management ensures the cash flow requirements of depositors and borrowers, as well as the operating cash needs of ACNB, are met.

ACNB's funds are available from a variety of sources, including assets that are readily convertible such as cash and federal funds sold, maturities and repayments from the securities portfolio, scheduled repayments of loans receivable, the core deposit base, and the ability to borrow from the FHLB. At December 31, 2007, ACNB could borrow approximately $496,831,000 from the FHLB of which $371,441,000 was available.

Another source of liquidity is securities sold under repurchase agreement to customers of ACNB's banking subsidiary totaling $29,928,000 and $19,919,000 at December 31, 2007 and 2006, respectively.

The liquidity of the parent company also represents an important aspect of liquidity management. The parent company's cash outflows consist principally of dividends to stockholders and corporate expenses. The main source of funding for the parent company is the dividends it receives from its banking subsidiary. Federal and state banking regulations place certain restrictions on dividends paid to the parent company from the subsidiary bank. The total amount of dividends that may be paid from the subsidiary bank to ACNB was $5,582,000 at December 31, 2007. For a discussion of ACNB's dividend restrictions, see Item 1—"Business".

ACNB manages liquidity by monitoring projected cash inflows and outflows on a daily basis, and believes it has sufficient funding sources to maintain sufficient liquidity under varying degrees of business conditions.

Aggregate Contractual Obligations

The following table represents the Corporation's on- and off-balance sheet aggregate contractual obligations to make future payments as of December 31, 2007:

		Less than 1 Year		1 - 3 Years		4 - 5 Years		Over 5 Years		Total
		In thousands
Time deposits		$	239,847	$	47,820	$	9,447	$	—	$	297,114
Long-term debt			70,298		35,659		20,749		3,538		130,244
Operating leases			418		549		301		440		1,708
Payments under benefit plans			86		172		219		3,625		4,102

	Total	$	310,649	$	84,200	$	30,716	$	7,603	$	433,168

In addition, the Corporation in the conduct of business operations routinely enters into contracts for services and equipment. These contracts may require payment to be provided in the future, and

may also contain penalty clauses for the early termination of the contracts. Major expenditures are controlled by various approval authorities.

Management is not aware of any other commitments or contingent liabilities which may have a material adverse impact on the liquidity or capital resources of the Corporation.

Off-Balance Sheet Arrangements

The Corporation is 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, to a lesser extent, standby letters of credit. At December 31, 2007, the Corporation had unfunded outstanding commitments to extend credit of $128,000,000 and outstanding standby letters of credit of $5,524,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. Refer to Note N of the consolidated financial statements for a discussion of the nature, business purpose, and importance of the Corporation's off-balance sheet arrangements.

Financial institutions can be exposed to several market risks that may impact the value or future earnings capacity of the organization. These risks involve interest rate risk, foreign currency exchange risk, commodity price risk, and equity market price risk. ACNB's primary market risk is interest rate risk. Interest rate risk is inherent because, as a financial institution, ACNB derives a significant amount of its operating revenue from "purchasing" funds (customer deposits and wholesale borrowings) at various terms and rates. These funds are then invested into earning assets (primarily loans and investments) at various terms and rates. This risk is further discussed below.

ACNB does not have any exposure to foreign currency exchange risk, commodity price risk, or equity market risk.

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Interest rate risk is the exposure to fluctuations in the Corporation's future earnings (earnings at risk) and value (value at risk) resulting from changes in interest rates. This exposure results from differences between the amounts of interest earning assets and interest bearing liabilities that reprice within a specified time period as a result of scheduled maturities and repayment and contractual interest rate changes.

The primary objective of the Corporation's asset/liability management process is to maximize current and future net interest income within acceptable levels of interest rate risk while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate and necessary to ensure the Corporation's profitability. Thus, the goal of interest rate risk management is to maintain a balance between risk and reward such that net interest income is maximized while risk is maintained at a tolerable level.

Management endeavors to control the exposure to changes in interest rates by understanding, reviewing and making decisions based on its risk position. The banking subsidiary's asset/liability committee is responsible for these decisions. The Corporation primarily uses the securities portfolio and FHLB advances to manage its interest rate risk position. Additionally, pricing, promotion and product development activities are directed in an effort to emphasize the loan and deposit term or repricing characteristics that best meet current interest rate risk objectives. At present, there is no use of hedging instruments.

The asset/liability committee operates under management policies defining guidelines and limits on the level of risk. These policies are approved by the Board of Directors.

The Corporation uses simulation analysis to assess earnings at risk and net present value analysis to assess value at risk. These methods allow management to regularly monitor both the direction and magnitude of the Corporation's interest rate risk exposure. These modeling techniques involve assumptions and estimates that inherently cannot be measured with complete precision. Key assumptions in the analyses include maturity and repricing characteristics of both assets and liabilities, prepayments on amortizing assets, non-maturity deposit sensitivity, and loan and deposit pricing. These assumptions are inherently uncertain due to the timing, magnitude and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and provide a relative gauge of the Corporation's interest rate risk position over time.

Earnings at Risk

Simulation analysis evaluates the effect of upward and downward changes in market interest rates on future net interest income. The analysis involves changing the interest rates used in determining net interest income over the next twelve months. The resulting percentage change in net interest income in various rate scenarios is an indication of the Corporation's short-term interest rate risk. The analysis utilizes a "static" balance sheet approach. The measurement date balance sheet composition (or mix) is maintained over the simulation time period, with maturing and repayment dollars being rolled back into like instruments for new terms at current market rates. Additional assumptions are applied to modify volumes and pricing under the various rate scenarios. These include prepayment assumptions on mortgage assets, sensitivity of non-maturity deposit rates, and other factors deemed significant.

The simulation analysis results are presented in Table 13a. These results, as of December 31, 2007, indicate that the Corporation would expect net interest income to increase over the next twelve months by 0.5% assuming an upward ramp in market interest rates of 3.00%, and to decrease by 1.90% if rates ramped downward 3.00%. This profile reflects an acceptable short-term interest rate risk position. A decrease of 3.00% would create an environment in which deposit rates could not decline further, thus decreasing net interest income.

Earnings at risk simulations for December 31, 2006, exhibited lower liability sensitivity due to the varying mix of earning assets and liabilities, differing assumptions on prepayments and sensitivity on non-maturity deposit products, as well as an interest rate environment in which larger rate declines could be accommodated.

Value at Risk

The net present value analysis provides information on the risk inherent in the balance sheet that might not be taken into account in the simulation analysis due to the shorter time horizon used in that analysis. The net present value of the balance sheet is defined as the discounted present value of expected asset cash flows minus the discounted present value of the expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The resulting percentage change in net present value in various rate scenarios is an indication of the longer term repricing risk and options embedded in the balance sheet.

The net present value analysis results are presented in Table 13b. These results, as of December 31, 2007, indicate that the net present value would decrease 10.70% assuming an upward shift in market interest rates of 3.00% and decrease 2.20% if rates shifted 1.00% in the same manner.

December 31, 2007				December 31, 2007
Table 13a Net Interest Income Projections				Table 13b Present Value of Equity
Changes in Basis Points		% Change		Changes in Basis Points		% Change
(300	)	(1.90	)%	(300	)	(25.40	)%
(100	)	(0.80	)%	(100	)	(5.40	)%
—		—	%	—		—	%
100		0.90	%	100		(2.20	)%
300		0.50	%	300		(10.70	)%

December 31, 2006				December 31, 2006
Table 13a Net Interest Income Projections				Table 13b Present Value of Equity
Changes in Basis Points		% Change		Changes in Basis Points		% Change
(300	)	(0.20	)%	(300	)	(8.30	)%
(100	)	1.00	%	(100	)	0.20	%
—		—	%	—		—	%
100		0.40	%	100		(0.80	)%
300		(0.30	)%	300		(10.10	)%

ITEM 8—FINANCIAL STATEMENTS

(a) The following audited consolidated financial statements and related documents are set forth in this Annual Report on Form 10-K on the following pages:

		Page
Report of Independent Registered Public Accounting Firm		40
Consolidated Statements of Condition		41
Consolidated Statements of Income		42
Consolidated Statements of Changes in Stockholders' Equity		43
Consolidated Statements of Cash Flows		44
Notes to Consolidated Financial Statements		45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated statements of condition of ACNB Corporation and Subsidiaries as of December 31, 2007 and 2006, and the related statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2007. ACNB Corporation's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 that 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 Subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note L to the consolidated financial statements, the Company changed its method of accounting for its defined benefit pension plan in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ACNB Corporation's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2008 expressed an unqualified opinion.

Beard Miller Company LLP
Harrisburg, Pennsylvania
March 10, 2008

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CONDITION

			December 31,
			2007			2006
			Dollars in thousands
ASSETS
	Cash and due from banks		$	18,319		$	19,764
	Interest bearing deposits in banks			893			892

		Cash and Cash Equivalents		19,212			20,656
	Securities available for sale			286,346			336,251
	Securities held to maturity, fair value 2007 $4,123; 2006 $16,496			4,150			16,546
	Loans held for sale			1,175			601
	Loans, net of allowance for loan losses 2007 $5,848; 2006 $5,375			542,354			518,843
	Premises and equipment			14,530			14,871
	Restricted investment in bank stocks			9,045			10,263
	Investment in bank-owned life insurance			24,297			21,901
	Investments in low-income housing partnerships			5,028			5,202
	Other assets			20,528			19,623

		Total Assets	$	926,665		$	964,757

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
	Deposits:
		Non-interest bearing	$	77,192		$	74,919
		Interest bearing		593,448			594,786

		Total Deposits		670,640			669,705
	Short-term borrowings			30,768			59,983
	Long-term borrowings			130,244			145,520
	Other liabilities			9,883			12,245

		Total Liabilities		841,535			887,453

STOCKHOLDERS' EQUITY
	Common stock, $2.50 par value; 20,000,000 shares authorized; 5,990,943 and 5,706,970 shares issued and outstanding 2007 and 2006, respectively			14,977			14,267
	Additional paid-in capital			8,787			4,741
	Retained earnings			61,439			62,845
	Accumulated other comprehensive loss			(73	)		(4,549	)

		Total Stockholders' Equity		85,130			77,304

		Total Liabilities and Stockholders' Equity	$	926,665		$	964,757

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

				Years Ended December 31,
				2007		2006		2005
				Dollars in thousands, except per share data
INTEREST INCOME
	Loans, including fees			$	35,740	$	33,281	$	27,243
	Securities:
		Taxable			13,670		13,260		13,729
		Tax-exempt			1,348		931		916
		Dividends			665		676		288
	Other				158		139		108

			Total Interest Income		51,581		48,287		42,284

INTEREST EXPENSE
	Deposits				16,887		14,937		11,528
	Short-term borrowings				3,216		2,856		1,253
	Long-term borrowings				6,458		5,655		4,589

			Total Interest Expense		26,561		23,448		17,370

			Net Interest Income		25,020		24,839		24,914
PROVISION FOR LOAN LOSSES					500		870		516

			Net Interest Income after Provision for Loan Losses		24,520		23,969		24,398

OTHER INCOME
	Service charges on deposit accounts				2,110		1,938		1,742
	Income from fiduciary activities				906		770		717
	Earnings on investment in bank-owned life insurance				922		834		768
	Gains (losses) on sales of securities				42		204		(264	)
	Service charges on ATM and debit card transactions				941		866		738
	Commissions from insurance sales				4,283		4,245		4,090
	Other				1,160		1,055		1,094

			Total Other Income		10,364		9,912		8,885

OTHER EXPENSES
	Salaries and employee benefits				13,251		12,895		12,884
	Net occupancy expense				2,232		2,206		1,772
	Equipment expense				2,214		2,475		2,395
	Professional services				824		1,136		1,147
	Other tax expense				666		756		782
	Supplies and postage				794		758		761
	Advertising expense				1,158		682		830
	Other operating				3,891		3,758		3,926

			Total Other Expenses		25,030		24,666		24,497

			Income before Income Taxes		9,854		9,215		8,786
PROVISION FOR INCOME TAXES					1,917		1,925		1,410

			Net Income	$	7,937	$	7,290	$	7,376

PER SHARE DATA
	Basic earnings			$	1.32	$	1.22	$	1.23

	Cash dividends declared			$	0.76	$	0.76	$	0.83

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Years Ended December 31, 2007, 2006 and 2005

		Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive (Loss)			Total Stockholders' Equity
		In thousands
BALANCE—DECEMBER 31, 2004		$	13,590	$	—	$	63,127		$	(2,196	)	$	74,521

Comprehensive income:
	Net income		—		—		7,376			—			7,376
	Other comprehensive loss, net of taxes		—		—		—			(2,940	)		(2,940	)

	Total Comprehensive Income												4,436

	Cash dividends declared		—		—		(4,947	)		—			(4,947	)

BALANCE—DECEMBER 31, 2005			13,590		—		65,556			(5,136	)		74,010

5% stock dividend declared			677		4,741		(5,435	)		—			(17	)
Comprehensive income:
	Net income		—		—		7,290			—			7,290
	Other comprehensive income, net of taxes		—		—		—			1,288			1,288

	Total Comprehensive Income												8,578

	Adjustment to initially apply FASB Statement No. 158, net of tax		—		—		—			(701	)		(701	)
	Cash dividends declared		—		—		(4,566	)		—			(4,566	)

BALANCE—DECEMBER 31, 2006			14,267		4,741		62,845			(4,549	)		77,304
5% stock dividend declared			710		4,046		(4,777	)		—			(21	)
Comprehensive income:
	Net income		—		—		7,937			—			7,937
	Other comprehensive income, net of taxes		—		—		—			4,476			4,476

	Total Comprehensive Income												12,413

	Cash dividends declared		—		—		(4,566	)		—			(4,566	)

BALANCE—DECEMBER 31, 2007		$	14,977	$	8,787	$	61,439		$	(73	)	$	85,130

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Years Ended December 31,
				2007			2006			2005
				In thousands
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income			$	7,937		$	7,290		$	7,376
	Adjustments to reconcile net income to net cash provided by operating activities:
		Gains on sales of loans, property and foreclosed real estate			(332	)		(251	)		(311	)
		Earnings on investment in bank-owned life insurance			(922	)		(834	)		(768	)
		(Gains) losses on sales of securities			(42	)		(204	)		264
		Depreciation and amortization			1,696			1,761			1,605
		Provision for loan losses			500			870			516
		Net amortization of investment securities premiums			360			918			1,555
		Increase in interest receivable			(256	)		(406	)		(84	)
		Increase (decrease) in interest payable			183			1,298			543
		Increase (decrease) in mortgage loans held for sale			(316	)		(329	)		451
		Decrease in other assets			(2,303	)		(87	)		(242	)
		Increase (decrease) in other liabilities			(1,994	)		(78	)		487

			Net Cash Provided by Operating Activities		4,511			9,948			11,392

CASH FLOWS FROM INVESTING ACTIVITIES
	Proceeds from maturities of investment securities held to maturity				12,335			2,520			5,188
	Proceeds from maturities of investment securities available for sale				192,813			21,615			38,550
	Proceeds from sales of investment securities available for sale				11,024			—			22,761
	Purchase of investment securities available for sale				(147,845	)		(5,475	)		(34,813	)
	Net sale (purchase) of restricted investment in bank stocks				1,218			(1,210	)		1,218
	Net increase in loans				(24,147	)		(30,938	)		(52,893	)
	Purchase of bank-owned life insurance				(1,525	)		—			(1,200	)
	Cash paid for insurance agency acquisitions, net of cash acquired				(637	)		—			(5,810	)
	Investments in low-income housing partnerships				(131	)		—			(95	)
	Capital expenditures				(1,133	)		(1,509	)		(4,092	)
	Proceeds from sale of property and foreclosed real estate				216			272			692

			Net Cash Provided by (Used in) Investing Activities		42,188			(14,725	)		(30,494	)

CASH FLOWS FROM FINANCING ACTIVITIES
	Net increase (decrease) in demand deposits, interest bearing deposits, and savings accounts				2,273			(37,566	)		11,447
	Net increase (decrease) in time certificates of deposit				(1,338	)		27,890			21,062
	Net increase (decrease) in short-term borrowings				(29,215	)		676			(5,659	)
	Dividends paid				(4,566	)		(4,566	)		(4,947	)
	Cash in lieu of fractional shares, stock dividend				(21	)		(17	)		—
	Proceeds from long-term borrowings				55,000			75,000			51,000
	Repayments on long-term borrowings				(70,276	)		(55,258	)		(57,222	)

			Net Cash Provided by (Used in) Financing Activities		(48,143	)		6,159			15,681

			Net Increase (Decrease) in Cash and Cash Equivalents		(1,444	)		1,382			(3,421	)
CASH AND CASH EQUIVALENTS—BEGINNING					20,656			19,274			22,695

CASH AND CASH EQUIVALENTS—ENDING				$	19,212		$	20,656		$	19,274

Interest paid				$	26,378		$	22,150		$	16,827

Income taxes paid				$	1,625		$	2,234		$	3,202

Loans transferred to foreclosed real estate				$	136		$	230		$	—

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

ACNB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A—SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

ACNB Corporation provides banking, insurance, and financial services to businesses and consumers through its wholly-owned subsidiaries, Adams County National Bank and Russell Insurance Group, Inc. The Bank engages in full-service commercial and consumer banking and trust services through its twenty-one retail banking locations in Adams, Cumberland and York Counties of Pennsylvania. There is also a loan production office situate in Franklin County.

On November 19, 2004, the Corporation entered into a definitive agreement to acquire Russell Insurance Group, Inc., a full-service insurance agency, based in Westminster, Maryland, with a satellite office in Timonium, Maryland. The agency offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients. This acquisition was finalized on January 5, 2005.

The Corporation, along with seven other banks, entered into a joint venture to form BankersRe Insurance Group, SPC (formerly Pennbanks Insurance Co., SPC), an offshore reinsurance company. Each participating entity owns an insurance cell through which its premiums and losses from credit life, health and accident insurance are funded. Each entity is responsible for the activity in its respective cell. The financial activity for the insurance cell has been reported in the consolidated financial statements and is not material to the consolidated financial statements.

The Corporation's primary source of revenue is interest income on loans and investment securities and fee income on its products and services. Expenses consist of interest expense on deposits and borrowed funds, provisions for loan losses, and other operating expenses.

Basis of Financial Statements

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Corporation and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.

Financial statements prepared in accordance with accounting principles generally accepted in the United States of America require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, fair value disclosures, the valuation of deferred tax assets, and the evaluation of other than temporary impairment of securities.

Assets held by the Trust Department in an agency or fiduciary capacity for its customers are excluded from the financial statements since they do not constitute assets of the Corporation. Assets held by the Trust Department amounted to $112,000,000 and $93,000,000 at December 31, 2007 and 2006, respectively. Income from fiduciary activities is recognized on the cash method, which approximates the accrual method.

Significant Group Concentrations of Credit Risk

Most of the Corporation's activities are with customers located within southcentral Pennsylvania and northern Maryland. Note C discusses the types of securities in which the Corporation invests.

Note D discusses the types of lending in which the Corporation engages. The Corporation does not have any significant concentrations greater than 10% of loans to any one industry or customer.

Reclassifications

For comparative purposes, prior years' consolidated financial statements have been reclassified to conform with the 2007 presentation. Such reclassifications had no impact on net income.

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, balances due from banks, and federal funds sold, all of which mature within ninety days.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as "held to maturity" and recorded at amortized cost. Securities not classified as held to maturity or trading, including equity securities with readily determinable fair values, are classified as "available for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in other comprehensive income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Restricted Investment in Bank Stocks

Restricted investment in bank stocks includes Federal Reserve, Atlantic Central Bankers Bank and Federal Home Loan Bank (FHLB) stocks. Federal law requires a member institution of the FHLB to hold stock of its district FHLB according to a predetermined formula. The stock is carried at cost.

Loans Held for Sale

Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. Net unrealized losses are recognized through a valuation allowance by charges to income.

Mortgage loans held for sale are sold with the mortgage servicing rights released to another financial institution through a correspondent relationship. The correspondent financial institution absorbs all of the risk related to rate lock commitments. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

Loans

The Corporation grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout southcentral Pennsylvania

and northern Maryland. The ability of the Corporation's debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Personal loans are typically charged off no later than 120 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the

reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Corporation has entered into commitments to extend credit, including commitments under commercial lines of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. Foreclosed assets were $136,000 and $0 at December 31, 2007 and 2006, respectively.

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 over the assets' estimated useful lives.

Investments in Low-Income Housing Partnerships

The Corporation's investments in low-income housing partnerships are accounted for using the "cost method" prescribed by Emerging Issues Task Force (EITF) No. 94-1. In accordance with EITF No. 94-1, tax credits are recognized as they become available. Any residual loss is amortized as the tax credits are received.

Bank-Owned Life Insurance

The Corporation's banking subsidiary maintains nonqualified compensation plans for selected senior officers. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the nonqualified retirement plans. Investment in bank-owned life insurance policies was used to finance the nonqualified compensation plans and provide tax-exempt income to the Corporation.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Income Taxes

Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Deferred tax assets are recognized subject to management's judgment that those assets will more likely than not be recognized.

Retirement Plan

The compensation cost of an employee's pension benefit is recognized on the projected unit credit method over the employee's approximate service period. The aggregate cost method is utilized for funding purposes.

Net Income per Share

The Corporation has a simple capital structure. Basic earnings per share of common stock is computed based on 5,990,943 weighted average shares of common stock outstanding for all years presented. The weighted average shares have been retroactively adjusted to give effect to the 5% common stock dividends effective December 2007 and 2006.

Advertising Costs

Costs of advertising are expensed when incurred.

Intangible Assets

The Corporation accounts for its acquisitions using the purchase accounting method required by Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets and liabilities acquired, including certain intangible assets that must be recognized. Generally, this results in a residual amount in excess of the net fair values, which is recorded as goodwill.

SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill is not amortized to expense, but rather that it be tested for impairment at least annually. Impairment write-downs are charged to results of operations in the period in which the impairment is determined. The Corporation did not identify any impairment on its outstanding goodwill from its most recent testing, which was performed as of December 31, 2007. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested when such events occur. Other acquired intangible assets with finite lives, such as customer lists, are required to be amortized over the estimated lives. Theses intangibles are generally amortized using the straight line method over estimated useful lives of ten years.

Goodwill totaled $5,415,000 and $5,494,000 at December 31, 2007 and 2006, respectively. Intangible assets totaled $2,896,000 and $2,604,000 at December 31, 2007 and 2006, respectively. These amounts are included in Other Assets in the Statement of Condition.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Changes in certain assets and liabilities, such as unrealized gains (losses) on securities available for sale and the pension liability, are reported as a separate component of the stockholders' equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.

The components of other comprehensive income (loss) and the related tax effects are as follows:

			Years Ended December 31,
			2007			2006			2005
			In thousands
Unrealized holding gains (losses) arising during the period			$	6,386		$	2,266		$	(4,824	)
Reclassification adjustment for (gains) losses realized in net income				(42	)		(204	)		264

	Net unrealized gains (losses)			6,344			2,062			(4,560	)
Tax effect				(2,158	)		(774	)		1,598

				4,186			1,288			(2,962	)

Change in pension liability				439			—			34
Tax effect				(149	)		—			(12	)

				290			—			22

		Net of Tax Amount	$	4,476		$	1,288		$	(2,940	)

The December 31 components of the accumulated other comprehensive loss are as follows:

	Unrealized Gains (Losses) on Securities			Pension Liability			Accumulated Other Comprehensive Loss
	In thousands
BALANCE—DECEMBER 31, 2005	$	(4,725	)	$	(411	)	$	(5,136	)
Change during 2006		1,288			(701	)		587
BALANCE, DECEMBER 31, 2006		(3,437	)		(1,112	)		(4,549	)
Change during 2007		4,186			290			4,476

BALANCE—DECEMBER 31, 2007	$	749		$	(822	)	$	(73	)

Segment Reporting

The Bank acts as an independent community financial services provider, which offers traditional banking and related financial services to individual business and government customers. Through its branch and automated teller machine networks, the Bank offers a full array of commercial and retail financial services, including the taking of time, savings, and demand deposits; the making of commercial, consumer, and mortgage loans; and the providing of other financial services. Management does not separately allocate expenses, including the cost of funding loan demand, between the commercial, retail and mortgage banking operations of the Bank. As such, discrete financial information is not available and segment reporting would not be meaningful. See Note S for a discussion of insurance operations.

New Accounting Standards

FIN No. 48

SFAS No. 157

FSP 157-b

In December 2007, the FASB issued proposed FASB Staff Position (FSP) 157-b, "Effective Date of FASB Statement No. 157", that would permit a one-year deferral in applying the measurement provisions of SFAS No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of SFAS No. 157 to that item is deferred until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applies SFAS No. 157 in interim or annual financial statements before proposed FSP 157-b is finalized. The Corporation is currently evaluating the impact, if any, that the adoption of FSP 157-b will have on the Corporation's financial position, results of operating and cash flows.

SFAS No. 159

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115". This standard

permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities, including not-for-profit organizations. Most of the provisions in SFAS No. 159 are elective; however, the amendment to FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", applies to all entities with available-for-sale and trading securities. The FASB's stated objective in issuing this standard is as follows: "to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions."

SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The Corporation did not elect to adopt this standard.

EITF 06-5

EITF 06-10

NOTE B—RESTRICTIONS ON CASH AND DUE FROM BANKS

In return for services obtained through correspondent banks, the Corporation is required to maintain non-interest bearing cash balances in those correspondent banks. At December 31, 2007 and 2006, compensating balances approximated $3,270,000 and $3,077,000, respectively. During 2007 and 2006, average required balances approximated $3,146,000 and $2,816,000, respectively.

NOTE C—SECURITIES

Amortized cost and fair value at December 31, 2007 and 2006, were as follows:

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
			In thousands
SECURITIES AVAILABLE FOR SALE:
	December 31, 2007:
		U.S. Government and agencies	$	98,719	$	1,116	$	8	$	99,827
		Mortgage-backed securities		130,967		490		798		130,659
		State and municipal		36,420		487		45		36,862
		Corporate bonds		18,400		—		27		18,373
		Stock in other banks		704		—		79		625

			$	285,210	$	2,093	$	957	$	286,346

	December 31, 2006:
		U.S. Government and agencies	$	158,913	$	—	$	2,103	$	156,810
		Mortgage-backed securities		98,983		—		2,804		96,179
		State and municipal		30,560		335		69		30,826
		Corporate bonds		52,300		—		640		51,660
		Stock in other banks		704		72		—		776

			$	341,460	$	407	$	5,616	$	336,251

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
			In thousands
SECURITIES HELD TO MATURITY:
	December 31, 2007:
		Mortgage-backed securities	$	4,150	$	—	$	27	$	4,123

	December 31, 2006:
		U.S. Government and agencies	$	10,000	$	81	$	—	$	10,081
		Mortgage-backed securities		6,415		—		131		6,284
		State and municipal		131		—		—		131

			$	16,546	$	81	$	131	$	16,496

At December 31, 2007, 13 mortgage-backed and 1 U.S. Government and agency securities have unrealized losses, and 12 of the securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of specific securities. None of the securities in this category had an unrealized loss that exceeded 6% of amortized cost and a majority had unrealized losses totaling less than 3% of amortized cost.

At December 31, 2007, 13 state and municipal securities and 3 corporate bonds have unrealized losses, and 11 of the securities have been in a continuous loss position for 12 months or more. In analyzing the issuer's financial condition, management considers industry analysts' reports, financial performance and projected target prices of investment analysts within a one-year time frame. None of the securities in this category had an unrealized loss that exceeded 3% of amortized cost and a majority had unrealized losses totaling less than 2% of amortized cost.

The Corporation owned two securities of non-investment grade at year-end 2006. They were 6.125% GMAC notes due on August 28, 2007, with a par value of $6,000,000 and 6.50% Ford Motor Credit notes due on January 25, 2007, with a par value of $6,200,000. Both paid as agreed at maturity.

Management routinely sells securities from its available for sale portfolio in an effort to manage and allocate the portfolio. At December 31, 2007, management had not identified any securities with an unrealized loss that it intends to sell. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

The following table shows the Corporation's investments' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2007 and 2006:

			Less than 12 Months				12 Months or More				Total
			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			In thousands
SECURITIES AVAILABLE FOR SALE:
	DECEMBER 31, 2007:
		U.S. Government and agencies	$	—	$	—	$	24,992	$	8	$	24,992	$	8
		Mortgage-backed securities		6,959		34		61,651		763		68,610		797
		State and municipal		1,558		14		2,397		31		3,955		45
		Corporate bonds		—		—		18,373		28		18,373		28
		Stock in other banks		625		79		—		—		625		79

			$	9,142	$	127	$	107,413	$	830	$	116,555	$	957

SECURITIES HELD TO MATURITY:
		Mortgage-backed securities	$	4,123	$	27	$	—	$	—	$	4,123	$	27

			Less than 12 Months				12 Months or More				Total
			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			In thousands
SECURITIES AVAILABLE FOR SALE:
	DECEMBER 31, 2006:
		U.S. Government and agencies	$	—	$	—	$	156,810	$	2,103	$	156,810	$	2,103
		Mortgage-backed securities		—		—		96,179		2,804		96,179		2,804
		State and municipal		5,659		69		—		—		5,659		69
		Corporate bonds		—		—		51,660		640		51,660		640

			$	5,659	$	69	$	304,649	$	5,547	$	310,308	$	5,616

SECURITIES HELD TO MATURITY:
		Mortgage-backed securities	$	—	$	—	$	6,284	$	131	$	6,284	$	131

Amortized cost and fair value at December 31, 2007, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	In thousands
1 year or less	$	18,400	$	18,373	$	—	$	—
Over 1 year through 5 years		50,598		51,264		—		—
Over 5 years through 10 years		62,433		63,200		—		—
Over 10 years		22,108		22,225		—		—
Mortgage-backed securities		130,967		130,659		4,150		4,123
Equity securities		704		625		—		—

	$	285,210	$	286,346	$	4,150	$	4,123

The Corporation realized gross gains of $42,000 during 2007, $204,000 during 2006, and $0 during 2005 and gross losses of $0 during 2007, $0 during 2006, and $264,000 during 2005 on sales of securities available for sale.

At December 31, 2007 and 2006, securities with a carrying value of $80,004,000 and $80,389,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements and for other purposes.

NOTE D—LOANS

Loans at December 31, 2007 and 2006, were as follows:

			2007			2006
			In thousands
Commercial, financial and agricultural			$	62,844		$	41,770
Real estate:
	Commercial			127,465			116,347
	Construction			38,370			41,675
	Residential			311,152			313,406
Consumer				8,785			10,804

		Total Loans		548,616			524,002
Deferred loan fees and costs, net				(414	)		216
Allowance for loan losses				(5,848	)		(5,375	)

		Net Loans	$	542,354		$	518,843

The Bank grants commercial, residential and consumer loans to customers primarily within southcentral Pennsylvania and northern Maryland and the surrounding area. A large portion of the loan portfolio is secured by real estate. Although the Bank has a diversified loan portfolio, its debtors' ability to honor their contracts is influenced by the region's economy.

Changes in the allowance for loan losses were as follows:

		Years Ended December 31,
		2007			2006			2005
		In thousands
Balance, beginning		$	5,375		$	4,456		$	3,938
	Provision charged to operations		500			870			516
	Recoveries on charged-off loans		18			86			89
	Loans charged-off		(45	)		(37	)		(87	)

Balance, ending		$	5,848		$	5,375		$	4,456

Nonaccrual loans totaled $854,000 and $3,900,000 at December 31, 2007 and 2006, respectively. Loans past due 90 days or more and still accruing totaled $1,404,000 and $220,000 at December 31, 2007 and 2006, respectively. If interest on all nonaccrual loans had been accrued at original contract rates, it is estimated interest income would have been higher by $38,000 in 2007, $137,000 in 2006, and $501,000 in 2005.

The following is a summary of information pertaining to impaired loans:

	December 31,
	2007		2006
	In thousands
Impaired loans with a valuation allowance	$	14,982	$	6,982

Impaired loans without a valuation allowance	$	783	$	669

Valuation allowance related to impaired loans	$	2,725	$	1,899

	Years Ended December 31,
	2007		2006		2005
	In thousands
Average investment in impaired loans	$	13,847	$	6,788	$	5,479

Interest income recognized on impaired loans	$	1,016	$	493	$	14

No additional funds are committed to be advanced in connection with impaired loans.

NOTE E—PREMISES AND EQUIPMENT

Premises and equipment at December 31 were as follows:

	2007			2006
	In thousands
Land	$	1,323		$	1,370
Buildings and improvements		15,429			15,509
Furniture and equipment		8,239			7,712
Fixed assets in process		104			274

		25,095			24,865
Accumulated depreciation		(10,565	)		(9,994	)

	$	14,530		$	14,871

NOTE F—INVESTMENTS IN LOW-INCOME HOUSING PARTNERSHIPS

ACNB Corporation is a limited partner in five partnerships, whose purpose is to develop, manage and operate residential low-income properties. At December 31, 2007 and 2006, the carrying value of these investments was approximately $5,028,000 and $5,202,000, respectively.

NOTE G—DEPOSITS

Deposits were comprised of the following as of December 31:

	2007		2006
	In thousands
Non-interest bearing demand	$	77,192	$	74,919
Interest bearing demand		99,856		109,697
Savings		196,478		212,318
Time certificates of deposit less than $100,000		233,920		214,475
Time certificates of deposit greater than $100,000		63,194		58,296

	$	670,640	$	669,705

Scheduled maturities of time certificates of deposit at December 31, 2007, were as follows:

	In thousands
2008	$	239,847
2009		27,297
2010		20,523
2011		6,029
2012		3,418

	$	297,114

NOTE H—LEASE COMMITMENTS

Certain branch offices and equipment are leased under agreements which expire at varying dates through 2016. Most leases contain renewal provisions at the Corporation's option. The total rental expense for all operating leases was $545,000, $560,000 and $528,000 for the years ended December 31, 2007, 2006 and 2005, respectively.

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

	In thousands
2008	$	418
2009		339
2010		210
2011		163
2012		138
Later years		440

	$	1,708

NOTE I—BORROWINGS

Short-term borrowings and weighted-average interest rates at December 31 are as follows:

	2007				2006
	Amount		Rate		Amount		Rate
	Dollars in thousands
Treasury tax and loan note	$	450	4.96	%	$	450	4.66	%
Federal Home Loan Bank (FHLB) overnight advance		390	3.81			39,614	5.41
Securities sold under repurchase agreements		29,928	2.61			19,919	2.13

	$	30,768	2.66	%	$	59,983	4.39	%

Under an agreement with the FHLB, the Bank has a line of credit available in the amount of $100,000,000, of which $390,000 was outstanding at December 31, 2007. All FHLB advances are collateralized by a security agreement covering qualifying loans and unpledged U.S. Treasury, agency and mortgage-backed securities. In addition, all FHLB advances are secured by the FHLB capital stock owned by the Bank having a par value of $8,725,000 at December 31, 2007, and $9,943,000 at December 31, 2006.

The Corporation offers a short-term investment program for corporate customers for secured investing. This program consists of overnight and short-term repurchase agreements that are secured by designated investment securities of the Corporation. The investment securities are under the control of the Corporation.

A summary of long-term debt as of December 31 is as follows:

		2007				2006
		Amount		Rate		Amount		Rate
		Dollars in thousands
FHLB fixed-rate advances maturing:
	2007	$	—	—	%	$	70,000	4.54	%
	2008		70,000	4.70			50,000	4.55
	2009		35,000	4.45			—	—
	2012		10,000	4.41			10,000	4.41
FHLB convertible advance maturing:
	2012		10,000	4.27			10,000	4.27
Loan payable to local bank			5,244	6.50			5,520	6.50

		$	130,244	4.65	%	$	145,520	4.59	%

The FHLB advances are collateralized by the security agreement and FHLB capital stock described previously. The Corporation can borrow a maximum of $496,831,000 from the FHLB, of which $371,441,000 was available at December 31, 2007. The FHLB has the option to convert the $10,000,000 convertible advance but not before three-month LIBOR reaches 8%. Upon the FHLB's conversion, the Bank has the option to repay the respective advance in full.

The loan payable to a local bank is payable in monthly installments of $52,569 and matures in January 2020. The loan is unsecured.

NOTE J—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, 2007, $5,582,000 of undistributed earnings of the bank, included in consolidated retained earnings, was available for distribution to the Corporation as dividends without prior regulatory approval. Additionally, dividends paid by the Bank to the Corporation would be prohibited if the effect thereof would cause the Bank's capital to be reduced below applicable minimum capital requirements.

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, 2007, the maximum amount available for transfer from the Bank to the Corporation in the form of loans was approximately $7,951,000.

NOTE K—INCOME TAXES

The components of income tax expense for the years ended December 31, 2007, 2006 and 2005, are as follows:

		2007		2006		2005
		In thousands
Federal:
	Current	$	1,652	$	1,821	$	1,483
	Deferred		192		22		(140	)

			1,844		1,843		1,343
State:
	Current		73		82		67

		$	1,917	$	1,925	$	1,410

Reconciliations of the statutory federal income tax at a rate of 34% to the income tax expense reported in the consolidated statements of income for the years ended December 31, 2007, 2006 and 2005, are as follows:

	Percentage of Income before Income Taxes
	2007		2006		2005
Federal income tax at statutory rate	34.0	%	34.0	%	34.0	%
State income taxes, net of federal benefit	0.5		0.6		0.5
Tax-exempt income	(5.1	)	(3.8	)	(4.4	)
Earnings on investment in life insurance	(3.2	)	(3.1	)	(2.8	)
Rehabilitation and low-income housing credits	(7.0	)	(7.5	)	(9.0	)
Other	0.3		0.7		(2.3	)

	19.5	%	20.9	%	16.0	%

The provision for federal income taxes includes $14,000, $69,000 and $(90,000) of income taxes related to net gains (losses) on sales of securities in 2007, 2006 and 2005, respectively. Rehabilitation and low-income housing income tax credits were $689,000 during 2007, $692,000 during 2006, and $790,000 for 2005. Projected credits are $689,000 in 2008, $679,000 in 2009, and $2,467,000 thereafter.

Components of deferred tax assets and liabilities at December 31 were as follows:

			2007		2006
			In thousands
Deferred tax assets:
	Allowance for loan losses		$	2,006	$	1,845
	Available for sale securities			—		1,772
	Accrued deferred compensation			391		373
	Pension			424		573
	Deferred loan fees			74		81
	Other			658		585

				3,553		5,229

Deferred tax liabilities:
	Available for sale securities			386		—
	Prepaid benefit cost			1,044		691
	Prepaid expenses			277		277
	Accumulated depreciation			240		204

				1,947		1,172

		Net Deferred Tax Assets	$	1,606	$	4,057

In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation ("FIN") No. 48, Accounting for Uncertainty in Income Taxes. This interpreatation requires an entity to analyze each tax position taken in its tax returns and determine the likelihood that that position will be realized. Only tax postions that are "more-likely-than-not" to be realized can be recognized in an entity's financial statements. For tax postions that do not meet this recognition threshold, an entity will record an unrecognized tax benefit for the difference between the position taken on the tax return and the amount recognized on the financial statements. The Corporation adopted this interpretation on January 1, 2007. The Corporation does not have any unrecognized tax benefits at December 31, 2007 or during the year ended December 31, 2007. No recognized tax benefits are expected to arise within the next twelve months.

NOTE L—RETIREMENT PLANS

The Corporation's banking subsidiary has a non-contributory pension plan. Retirement benefits are a function of both years of service and compensation. The funding policy is to contribute annually the amount that is sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act.

A measurement date of November 1 has been used for the fiscal years ending December 31, 2007 and 2006.

				2007			2006
				In thousands
Change in benefit obligation:
	Benefit obligation, at beginning of year			$	15,096		$	15,831
	Service cost				500			566
	Interest cost				844			852
	Actuarial (gain) loss				25			(1,310	)
	Benefits paid				(753	)		(843	)

	Benefit obligation, at end of year				15,712			15,096

Change in plan assets:
	Fair value of plan assets at beginning of year				15,427			13,643
	Actual return on plan assets				1,594			1,377
	Employer contribution				1,250			1,250
	Benefits paid				(753	)		(843	)

	Fair value of plan assets at end of year				17,518			15,427

		Funded Status, included in other assets		$	1,806		$	331

Amounts recognized in accumulated other comprehensive income:
Total net loss				$	878		$	1,264
Transition obligation					59			71
Prior service cost					309			349

			Total accumulated other comprehensive income (pretax)	$	1,246		$	1,684

The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost during the next fiscal year are as follows (in thousands):

Prior service cost	$	46
Net transition obligation		14

	$	60

The accumulated benefit obligation totaled $13,947,000 and $13,297,000 at December 31, 2007 and 2006, respectively.

The components of net periodic benefit cost for the years ended December 31 are as follows:

			2007			2006			2005
			In thousands
Components of net periodic benefit cost:
	Service cost		$	500		$	566		$	538
	Interest cost			844			852			825
	Expected return on assets			(1,182	)		(1,015	)		(876	)
	Recognized net actuarial loss			—			125			152
	Amortization of transition asset			12			12			12
	Amortization of prior service cost			40			39			40

		Net Periodic Benefit Cost	$	214		$	579		$	691

For the years ended December 31, 2007, 2006 and 2005, the assumptions used to determine the net periodic benefit cost are as follows:

	2007		2006		2005
Discount rate	5.78	%	5.50	%	5.50	%
Expected long-term rate of return on plan assets	8.00	%	7.75	%	7.50	%
Rate of compensation increase	3.66	%	4.62	%	4.69	%

The Corporation's pension plan weighted-average assets' allocations at December 31, 2007 and 2006, are as follows:

	2007		2006
Equity securities	57	%	54	%
Debt securities	37		40
Real estate	6		6

	100	%	100	%

Equity securities included Corporation common stock in amounts of $720,000, 4% of total plan assets, and $797,000, 5% of total plan assets, at December 31, 2007 and 2006, respectively.

The Bank expects to contribute $1,250,000 to its pension plan in 2008.

Based on current data and assumptions, the following benefit payments, which reflect expected future service, as appropriate, are:

	In thousands
2008	$	680
2009		730
2010		800
2011		890
2012		920
2013–2017	$	5,620

December 31, 2006	Before Application of Statement 158			Adjustments			After Application Statement 158
	In thousands
Other pension benefits asset	$	2,015		$	(1,684	)	$	331
Intangible pension asset		472			(472	)		—
Deferred tax asset		3,699			358			4,057
Total assets		966,555			(1,798	)		964,757
Other pension benefits liability		1,098			(1,098	)		—
Total liabilities		888,551			(1,098	)		887,453
Accumulated other comprehensive loss		(3,848	)		(701	)		(4,549	)
Total stockholders' equity		78,005			(701	)		77,304
Total liabilities and stockholders' equity		966,555			(1,798	)		964,757

The Corporation's banking subsidiary maintains a 401(k) plan for the benefit of eligible employees. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The Bank makes matching contributions up to 100% of the first 4% of an employee's compensation contributed to the plan. Matching contributions vest immediately to the employee. Bank contributions to the Plan were $330,000, $288,000 and $289,000 for 2007, 2006 and 2005, respectively.

The Corporation's banking subsidiary maintains non-qualified compensation plans for selected senior officers. The estimated present value of future benefits is accrued over the period from the effective date of the agreements until the expected retirement dates of the individuals. The balance accrued for these plans included in other liabilities as of December 31, 2007 and 2006 totaled $1,140,000 and $1,088,000, respectively. The annual expense included in salaries and benefits expense totaled $138,000, $146,000 and $142,000 during the years ended December 31, 2007, 2006 and 2005, respectively. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the non-qualified retirement plans. At December 31, 2007 and 2006, the cash surrender value of these policies was $3,755,000 and $3,625,000, respectively.

NOTE M—REGULATORY MATTERS

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios (set forth below) of Tier 1 capital to average assets and of Tier 1 and total capital (as defined in the regulations) to risk weighted assets. Management believes, as of December 31, 2007, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2007, the most recent notification from the regulators categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's category.

The actual and required capital amounts and ratios were as follows:

		Actual				For Capital Adequacy Purposes			To be Well Capitalized under Prompt Corrective Action Provisions
		Amount		Ratio		Amount	Ratio		Amount		Ratio
		Dollars in thousands
CORPORATION:
As of December 31, 2007:
	Tier 1 leverage ratio (to average assets)	$	76,812	7.97	%	³38,559	³4.0	%		N/A	N/A
	Tier 1 risk-based capital ratio (to risk- weighted assets)		76,812	12.84		³23,929	³4.0			N/A	N/A
	Total risk-based capital ratio (to risk- weighted assets)		82,660	13.82		³47,858	³8.0			N/A	N/A
As of December 31, 2006:
	Tier 1 leverage ratio (to average assets)		73,756	7.74	%	³38,122	³4.0	%		N/A	N/A
	Tier 1 risk-based capital ratio (to risk- weighted assets)		73,756	12.65		³23,316	³4.0			N/A	N/A
	Total risk-based capital ratio (to risk- weighted assets)		79,164	13.58		³46,632	³8.0			N/A	N/A
BANK:
As of December 31, 2007:
	Tier 1 leverage ratio (to average assets)	$	73,659	7.71	%	³38,215	³4.0	%	$	47,769	5.0	%
	Tier 1 risk-based capital ratio (to risk- weighted assets)		73,659	12.64		³23,315	³4.0			34,973	6.0
	Total risk-based capital ratio (to risk- weighted assets)		79,507	13.64		³46,630	³8.0			58,288	10.0
As of December 31, 2006:
	Tier 1 leverage ratio (to average assets)		71,350	7.55	%	³37,794	³4.0	%		³47,242	³5.0	%
	Tier 1 risk-based capital ratio (to risk- weighted assets)		71,350	12.57		³22,699	³4.0			³34,049	³6.0
	Total risk-based capital ratio (to risk- weighted assets)		76,625	13.52		³45,398	³8.0			³56,748	³10.0

NOTE N—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 consist primarily of commitments to extend credit (typically mortgages and commercial loans) and, to a lesser extent, standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.

The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The Corporation does not anticipate any material losses from these commitments.

Commitments to extend credit, including commitments to grant loans and unfunded commitments under lines of 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 extensions of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing commercial properties. On loans secured by real estate, the Corporation generally requires loan to value ratios of no greater than 80%.

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements and similar transactions. The terms of the letters of credit vary and may have renewal features. The credit risk involved in using letters of credit is essentially the same as that involved in extending loans to customers. The Corporation holds collateral supporting those commitments for which collateral is deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees. The current amount of the liability as of December 31, 2007 and 2006, for guarantees under standby letters of credit issued is not material.

The Corporation has not been required to perform on any financial guarantees, and has not incurred any losses on its commitments, during the past two years.

A summary of the Corporation's commitments at December 31 were as follows:

	2007		2006
	In thousands
Commitments to extend credit	$	128,359	$	133,722
Standby letters of credit		5,524		3,965

NOTE O—FAIR VALUE OF FINANCIAL INSTRUMENTS

Management uses its best judgment in estimating the fair value of the Corporation's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year ends and have not been re-evaluated or updated for purposes of these consolidated financial statements subsequent to those

respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each year-end.

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation's disclosures and those of other companies may not be meaningful. For the following financial instruments, the carrying amount is a reasonable estimate of fair value:

Cash and cash equivalents
Interest bearing deposits in banks
Accrued interest receivable
Restricted investment in bank stocks
Short-term borrowings
Accrued interest payable

Securities

Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value is based on quoted market prices of comparable securities.

Mortgage Loans Held for Sale

Fair values of mortgage loans held for sale are based on existing commitments from investors or prevailing market prices.

Loans

For variable rate loans that reprice frequently and which entail no significant changes in credit risk, the carrying amount is a reasonable estimate of fair value. For fixed rate loans, fair value is estimated using discounted cash flow analysis, at interest rates currently offered for loans with similar terms to borrowers of similar credit quality.

Deposits

For demand deposits, the carrying amount is a reasonable estimate of fair value. For time deposits, fair value is estimated using discounted cash flow analysis, at interest rates currently offered for time deposits with similar maturities.

Long-Term Borrowings

The fair values of the Corporation's long-term borrowings are estimated using discounted cash flow analyses based on the Corporation's current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Credit-Related Instruments

Off-balance sheet instruments of the Bank consist of letters of credit, loan commitments and unfunded lines of credit. Fair value is estimated using fees currently charged for similar agreements, taking into account the remaining terms of the agreements and the counterparties credit standings. Any fees charged are immaterial.

Estimated fair values of financial instruments at December 31 were as follows:

			2007				2006
			Carrying Amount		Fair Value		Carrying Amount		Fair Value
			In thousands
Financial assets:
	Cash and due from banks		$	18,319	$	18,319	$	19,764	$	19,764
	Interest bearing deposits in banks			893		893		892		892
	Investment securities:
		Available for sale		286,346		286,346		336,251		336,251
		Held to maturity		4,150		4,123		16,546		16,496
	Loans held for sale			1,175		1,175		601		601
	Loans, less allowance for loan losses			542,354		560,224		518,843		521,004
	Accrued interest receivable			5,009		5,009		4,773		4,773
	Restricted investment in bank stocks			9,045		9,045		10,263		10,263
Financial liabilities:
	Deposits			670,640		670,889		669,705		667,391
	Short-term borrowings			30,768		30,768		59,983		59,983
	Long-term borrowings			130,244		130,996		145,520		143,458
	Accrued interest payable			4,301		4,301		4,118		4,118
Off-balance sheet financial instruments				—		—		—		—

NOTE P—CONTINGENCIES

The Corporation is subject to claims and lawsuits which arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Corporation in connection with any such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of any such claims and lawsuits will not have a material adverse effect on the consolidated financial position, consolidated results of operations or liquidity of the Corporation.

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

STATEMENTS OF CONDITION

			December 31,
			2007		2006
			In thousands
ASSETS
	Cash		$	175	$	310
	Investment in banking subsidiary			73,666		66,817
	Investment in other subsidiaries			7,749		7,113
	Investments in low-income housing partnerships			5,028		5,202
	Securities and other assets			1,269		1,314
	Receivable from banking subsidiary			2,655		2,208

		Total Assets	$	90,542	$	82,964

LIABILITIES AND STOCKHOLDERS' EQUITY
	Long-term debt		$	5,244	$	5,520
	Other liabilities			168		140
	Stockholders' equity			85,130		77,304

		Total Liabilities and Stockholders' Equity	$	90,542	$	82,964

STATEMENTS OF INCOME

		Years Ended December 31,
		2007		2006		2005
		In thousands
Dividends from banking subsidiary		$	4,566	$	4,566	$	4,947
Gains on sales of securities			—		204		—
Other income			335		147		32

			4,901		4,917		4,979
Expenses			686		1,092		924

			4,215		3,825		4,055
Income tax benefit			813		933		1,092

			5,028		4,758		5,147
Equity in undistributed earnings of subsidiaries			2,909		2,532		2,229

	Net Income	$	7,937	$	7,290	$	7,376

STATEMENTS OF CASH FLOWS

			Years Ended December 31,
			2007			2006			2005
			In thousands
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income		$	7,937		$	7,290		$	7,376
	Equity in undistributed earnings of subsidiaries			(2,909	)		(2,532	)		(2,229	)
	Increase in receivable from banking subsidiary			(447	)		(529	)		(744	)
	Gains on sales of securities			—			(204	)		—
	Other			278			578			499

		Net Cash Provided by Operating Activities		4,859			4,603			4,902

CASH FLOWS FROM INVESTING ACTIVITIES
	Investments in low-income housing partnerships			(131	)		—			(95	)
	Purchase of insurance agency			—			—			(5,565	)

		Net Cash Used in Investing Activities		(131	)		—			(5,660	)

CASH FLOWS USED IN FINANCING ACTIVITIES
	Proceeds from long-term debt			—			—			6,000
	Repayments on long-term debt			(276	)		(258	)		(222	)
	Cash paid in lieu of fractional shares-stock dividend			(21	)		(17	)		—
	Dividends paid			(4,566	)		(4,566	)		(4,947	)

		Net Cash Provided by (Used in) Financing Activities		(4,863	)		(4,841	)		831

		Net Increase (Decrease) in Cash and Cash Equivalents		(135	)		(238	)		73
CASH AND CASH EQUIVALENTS - BEGINNING				310			548			475

CASH AND CASH EQUIVALENTS - ENDING			$	175		$	310		$	548

NOTE R—ACQUISITION

On January 5, 2005, the Corporation acquired 100 percent of Russell Insurance Group, Inc. (RIG), a Westminster, Maryland-based full service insurance agency, as a subsidiary of the Corporation. The results of RIG's operations have been included in the consolidated financial statements since that date. RIG offers a broad range of property and casualty, life and health insurance to both commercial and individual clients in northern Maryland and southcentral Pennsylvania.

The carrying amounts of the tangible assets acquired and the liabilities assumed on January 5, 2005, approximated their fair value. The excess of the acquisition cost over the fair value of the net assets acquired has been recorded as goodwill. The aggregate purchase price was $5,663,000, including certain capitalized costs. In accordance with the terms of the acquisition, there was contingent consideration associated with this transaction of up to $3,000,000, payable in 2008 for the three-year period subject to performance criteria subsequent to the acquisition. The liability for this consideration was recorded at December 31, 2006, with a related increase in goodwill. In addition, on November 9, 2007, the Corporation entered into another three-year employment contract with Frank C. Russell, Jr., President and Chief Executive Officer of RIG, effective as of January 1, 2008.

The intangible asset, representing the customer base, is being amortized over 10 years on a straight line basis. Goodwill will not be amortized, but will be analyzed annually for impairment. Amortization of goodwill and the intangible asset will be deductible for tax purposes.

In 2005, RIG acquired two additional books of business with an aggregate purchase price of $368,000. In 2007, RIG acquired two additional books of business with an aggregate purchase price of

$637,000. These amounts were recorded as an intangible asset and are being amortized over ten years on a straight line basis.

Amortization for the five years subsequent to December 31, 2007, is expected to be as follows:

	In thousands
2008	$	391
2009		391
2010		391
2011		391
2012		391

NOTE S—SEGMENT AND RELATED INFORMATION

Russell Insurance Group, Inc. is managed separately from the banking and related financial services that the Corporation offers. Russell Insurance Group offers a broad range of property and casualty, life and health insurance to both commercial and individual clients.

Segment information for 2007, 2006 and 2005 is as follows:

	2007		2006		2005
	In thousands
Commissions from insurance sales	$	4,029	$	4,067	$	3,941
Intercompany commissions		254		178		149
Income before income taxes		1,037		998		959
Total assets	$	11,629	$	11,579	$	7,729

QUARTERLY RESULTS OF OPERATIONS

Selected quarterly information for the years ended December 31, 2007 and 2006, is as follows:

In thousands, except per share data	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2007
Interest income	$	12,377	$	12,713	$	13,396	$	13,095
Interest expense		6,378		6,522		7,095		6,566

Net interest income		5,999		6,191		6,301		6,529
Provision for loan losses		140		—		25		335

Net interest income after provision for loan losses		5,859		6,191		6,276		6,194
Net gains on sales of securities		10		—		—		32
Other income		2,730		2,542		2,441		2,609
Other expenses and provision for income taxes		6,743		6,857		6,635		6,712

Net income	$	1,856	$	1,876	$	2,082	$	2,123

Basic earnings per share	$	0.31	$	0.31	$	0.35	$	0.35

Dividends per share	$	0.19	$	0.19	$	0.19	$	0.19

2006
Interest income	$	11,590	$	11,943	$	12,301	$	12,453
Interest expense		5,403		5,633		6,076		6,336

Net interest income		6,187		6,310		6,225		6,117
Provision for loan losses		225		225		225		195

Net interest income after provision for loan losses		5,962		6,085		6,000		5,922
Net gains on sales of securities		—		204		—		—
Other income		2,494		2,413		2,346		2,455
Other expenses and provision for income taxes		6,730		6,771		6,440		6,650

Net income	$	1,726	$	1,931	$	1,906	$	1,727

Basic earnings per share	$	0.29	$	0.32	$	0.31	$	0.30

Dividends per share	$	0.19	$	0.19	$	0.19	$	0.19

ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A—CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Corporation carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in our periodic SEC filings.

Based on our evaluation of the effectiveness of the design and operation of the disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2007. The Corporation believes that the accompanying financial statements fairly present the financial condition and results of operations for the fiscal years presented in this report on Form 10-K.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

We have made no significant changes in the Corporation's internal controls over financial reporting in connection with our fourth quarter evaluation that would materially affect, or are reasonably likely to materially affect, our internal controls over financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

ACNB Corporation ("ACNB") is responsible for the preparation, integrity, and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with United States generally accepted accounting principles, and as such, include some amounts that are based on management's best estimates and judgments.

ACNB's management is responsible for establishing and maintaining effective internal control over financial reporting. The system of internal control over financial reporting, as it relates to the financial statements, is evaluated for effectiveness by management and tested for reliability through a program of internal audits and management testing and review. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

The Board of Directors of ACNB, through its Audit Committee, meets regularly with management, internal auditors, and the independent registered public accounting firm. The Audit Committee provides oversight to ACNB by reviewing audit plans and results, and evaluates management's actions for internal control, accounting and financial reporting matters. The internal auditors and independent registered public accounting firm have direct and confidential access to the Audit Committee to discuss the results of their examinations.

Management assessed the effectiveness of ACNB's internal control over financial reporting as of December 31, 2007. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment, management concluded that as of December 31, 2007, ACNB's internal control over financial reporting is effective and meets the criteria of the Internal Control—Integrated Framework.

ACNB's independent registered public accounting firm, Beard Miller Company LLP, has issued an attestation report on ACNB's internal control over financial reporting. This report appears on pages 73 and 74.

/s/ THOMAS A. RITTER

Thomas A. Ritter
President and Chief Executive Officer

/s/ DAVID W. CATHELL

David W. Cathell
Senior Vice President and Chief Financial Officer

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited ACNB Corporation's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ACNB Corporation's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, ACNB Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of condition and the related statements

of income, changes in stockholders' equity, and cash flows of ACNB Corporation, and our report dated March 10, 2008 expressed an unqualified opinion.

Beard Miller Company LLP
Harrisburg, Pennsylvania
March 10, 2008

Item 9B—OTHER INFORMATION

None.

PART III

ITEM 10—DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10, relating to directors, executive officers, and control persons, is set forth in sections "Information as to Nominees and Directors", "Executive Officers of ACNB Corporation", "Meetings and Committees of the Board of Directors", "Audit Committee Report" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the Registrant's definitive Proxy Statement to be used in connection with the 2008 Annual Meeting of Shareholders, which pages are incorporated herein by reference.

The Corporation has adopted a Code of Ethics that applies to directors, officers and employees of the Corporation and its subsidiaries. A copy of the Code of Ethics is included as an exhibit to the Form 8-K filed by the Corporation on January 31, 2008. A request for the Corporation's Code of Ethics can be made either in writing to Lynda L. Glass, ACNB Corporation, 16 Lincoln Square, P.O. Box 3129, Gettysburg, Pennsylvania 17325-0129 or by telephone to 717-334-3161.

ITEM 11—EXECUTIVE COMPENSATION

Incorporated by reference in response to this Item 11 is the information under the headings "Compensation and Plan Information", "Potential Payments Upon Termination or Change In Control", "Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" in ACNB Corporation's 2008 definitive Proxy Statement.

ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference in response to this Item 12 is the information appearing under the heading "Share Ownership" in ACNB Corporation's 2008 definitive Proxy Statement.

ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Incorporated by reference in response to this Item 13 is the information appearing under the headings "Transactions with Directors and Executive Officers" and "Governance of the Corporation" in ACNB Corporation's 2008 definitive Proxy Statement.

ITEM 14—PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference in response to this Item 14 is the information appearing under the heading "Independent Auditors" in ACNB Corporation's 2008 definitive Proxy Statement.

PART IV

ITEM 15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a): 1. FINANCIAL STATEMENTS

The following financial statements are filed as part of this report:

•: Report of Independent Registered Public Accounting Firm
•: Consolidated Statements of Condition
•: Consolidated Statements of Income

•: Consolidated Statements of Changes in Stockholders' Equity
•: Consolidated Statements of Cash Flows
•: Notes to Consolidated Financial Statements

2.: FINANCIAL STATEMENT SCHEDULES

Financial statement schedules are omitted because the required information is either not applicable, not required, or is shown in the respective financial statements or in the notes thereto.

(b): EXHIBITS

The following Exhibits are included in this Report:

Exhibit 3(i)		Articles of Incorporation of ACNB Corporation, as amended. (Incorporated by reference to Exhibit 3(i) of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2006, filed with the Commission on March 15, 2007.)
Exhibit 3(ii)		Bylaws of Registrant; a copy of the Bylaws, as amended. (Incorporated by reference to Exhibit 99 of the Registrant's Current Report on Form 8-K, filed with the Commission on December 19, 2003.)
Exhibit 10.1		ACNB Corporation, ACNB Acquisition Subsidiary LLC, and Russell Insurance Group, Inc. Stock Purchase Agreement. (Incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)
Exhibit 10.2		Salary Continuation Agreement—Applicable to Ronald L. Hankey, Thomas A. Ritter and Lynda L. Glass. (Incorporated by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)
Exhibit 10.3		Executive Supplemental Life Insurance Plan—Applicable to Ronald L. Hankey, Thomas A. Ritter and Lynda L. Glass. (Incorporated by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)
Exhibit 10.4		Director Supplemental Life Insurance Plan—Applicable to Philip P. Asper, Frank Elsner III, D. Richard Guise, Wayne E. Lau, Daniel W. Potts, Marian B. Schultz, Alan J. Stock, Jennifer L. Weaver and Harry L. Wheeler. (Incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)
Exhibit 10.5		Director Fee Deferral Agreement—Applicable to Frank Elsner III, D. Richard Guise, Wayne E. Lau, Marian B. Schultz, Alan J. Stock, Jennifer L. Weaver and Harry L. Wheeler. (Incorporated by reference to Exhibit 10.6 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)
Exhibit 10.6		Adams County National Bank Salary Savings Plan. (Incorporated by reference to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)
Exhibit 10.7		Group Pension Plan for Employees of Adams County National Bank. (Incorporated by reference to Exhibit 10.8 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)

Exhibit 10.8		Complete Settlement Agreement and General Release made among ACNB Corporation, Adams County National Bank and John W. Krichten effective June 13, 2006. (Incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K, filed with the Commission on June 15, 2006.)
Exhibit 10.9		Employment Agreement between ACNB Corporation, Adams County National Bank and Thomas A. Ritter dated as of July 3, 2006. (Incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K, filed with the Commission on July 6, 2006.)
Exhibit 10.10		Employment Agreement between ACNB Corporation, Adams County National Bank and Lynda L. Glass dated as of July 3, 2006. (Incorporated by reference to Exhibit 99.2 of the Registrant's Current Report on Form 8-K, filed with the Commission on July 6, 2006.)
Exhibit 11		Statement re Computation of Earnings (Incorporated by reference from page 46 of this Form 10-K.)
Exhibit 14		Code of Ethics. (Incorporated by reference to Exhibit 14 of the Registrant's Current Report on Form 8-K, filed with Commision on January 31, 2008.)
Exhibit 21		Subsidiaries of the Registrant.
Exhibit 31.1		Chief Executive Officer Certification of Annual Report on Form 10-K.
Exhibit 31.2		Chief Financial Officer Certification of Annual Report on Form 10-K.
Exhibit 32.1		Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 as Added by Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2		Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 as Added by Section 906 of the Sarbanes-Oxley Act of 2002.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ACNB CORPORATION (Registrant)

March 13, 2008

Date

By:

/s/ THOMAS A. RITTER

Thomas A. Ritter
President and Chief Executive Officer

By:

/s/ DAVID W. CATHELL

David W. Cathell
Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on March 13, 2008, by the following persons in the capacities indicated.

/s/ PHILIP P. ASPER Philip P. Asper Director		/s/ THOMAS A. RITTER Thomas A. Ritter Director, President and Chief Executive Officer
/s/ FRANK ELSNER, III Frank Elsner, III Director and Vice Chairman of the Board		/s/ MARIAN B. SCHULTZ Marian B. Schultz Director
/s/ RONALD L. HANKEY Ronald L. Hankey Director and Chairman of the Board		/s/ ALAN J. STOCK Alan J. Stock Director
/s/ WAYNE E. LAU Wayne E. Lau Director		/s/ JENNIFER L. WEAVER Jennifer L. Weaver Director
/s/ JAMES J. LOTT James J. Lott Director		/s/ HARRY L. WHEELER Harry L. Wheeler Director
/s/ ROBERT W. MILLER Robert W. Miller Director		/s/ JAMES E. WILLIAMS James E. Williams Director
/s/ DANIEL W. POTTS Daniel W. Potts Director

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ACNB CORPORATION
Table of Contents
PART I
PART II
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ACNB CORPORATION CONSOLIDATED STATEMENTS OF CONDITION
ACNB CORPORATION CONSOLIDATED STATEMENTS OF INCOME
ACNB CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Years Ended December 31, 2007, 2006 and 2005
ACNB CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
ACNB CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J—RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS AND ADVANCES

NOTE K—INCOME TAXES

NOTE L—RETIREMENT PLANS

QUARTERLY RESULTS OF OPERATIONS
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PART III

ITEM 10—DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11—EXECUTIVE COMPENSATION

ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

ITEM 14—PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15—EXHIBITS AND FINANCIAL STATEMENT SCHEDULES