ACNB 10-Q Quarterly Report Sept. 30, 2023

ACNB CORP

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acnb-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 1-35015

ACNB CORPORATION

(Exact name of Registrant as specified in its charter)


Pennsylvania						23-2233457
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)


16 Lincoln Square , Gettysburg , Pennsylvania						17325
(Address of principal executive offices)						(Zip Code)

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $2.50 par value per share

ACNB

The NASDAQ Stock Market, LLC

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 ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares of the Registrant’s Common Stock outstanding on October 31, 2023, was 8,507,708 .

PART I - FINANCIAL INFORMATION

ACNB CORPORATION

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)


Dollars in thousands, except per share data	September 30, 2023		December 31, 2022

ASSETS

Cash and due from banks	$	22,786	$	40,067
Interest bearing deposits with banks	41,255		128,094

Total Cash and Cash Equivalents	64,041		168,161

Equity securities with readily determinable fair values	888		1,719
Debt securities available for sale	435,559		553,554
Securities held to maturity, fair value $ 53,843 ; $ 58,078	64,616		64,977
Loans held for sale	—		123
Loans, net of allowance for credit losses $ 19,264 ; $ 17,861	1,596,702		1,520,749
Assets held for sale	—		3,393
Premises and equipment, net	25,740		27,053
Right of use assets	2,784		3,162
Restricted investment in bank stocks	5,477		1,629
Investment in bank-owned life insurance	79,391		77,993
Investments in low-income housing partnerships	1,034		1,129
Goodwill	44,185		44,185
Intangible assets, net	9,434		10,332
Foreclosed assets held for resale	467		474
Other assets	58,204		46,874

Total Assets	$	2,388,522	$	2,525,507

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Deposits:
Non-interest bearing	$	565,530	$	595,049
Interest bearing	1,385,829		1,603,926

Total Deposits	1,951,359		2,198,975

Short-term borrowings	33,106		41,954
Long-term borrowings	120,282		21,000
Lease liabilities	2,784		3,162
Allowance for unfunded commitments	1,962		92
Other liabilities	23,391		15,282

Total Liabilities	2,132,884		2,280,465

STOCKHOLDERS’ EQUITY
Preferred stock, $ 2.50 par value; 20,000,000 shares authorized; no shares outstanding	—		—
Common stock, $ 2.50 par value; 20,000,000 shares authorized; 8,892,374 and 8,838,720 shares issued; 8,521,546 and 8,515,120 shares outstanding	22,224		22,086
Treasury stock, at cost; 370,828 and 323,600 shares	( 10,502 )		( 8,927 )
Additional paid-in capital	96,744		96,022
Retained earnings	211,939		193,873
Accumulated other comprehensive loss	( 64,767 )		( 58,012 )

Total Stockholders’ Equity	255,638		245,042

Total Liabilities and Stockholders’ Equity	$	2,388,522	$	2,525,507

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

2ACNB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


	Three months ended September 30,				Nine Months Ended September 30,
Dollars in thousands, except per share data	2023		2022		2023		2022
INTEREST AND DIVIDEND INCOME
Loans, including fees
Taxable	$	20,285	$	17,789	$	58,130	$	50,078
Tax-exempt	361		424		1,069		995
Securities:
Taxable	2,477		2,830		8,451		7,102
Tax-exempt	284		189		883		618
Dividends	104		20		196		79
Other	723		2,130		2,627		3,283
Total Interest Income	24,234		23,382		71,356		62,155
INTEREST EXPENSE
Deposits	928		605		1,887		1,989
Short-term borrowings	439		23		564		60
Long-term borrowings	1,122		234		2,078		729
Total Interest Expense	2,489		862		4,529		2,778
Net Interest Income	21,745		22,520		66,827		59,377
Provision for Credit Losses	250		—		74		—
(Reversal of) Provision for Unfunded Commitments	( 171 )		—		226		—
Net Interest Income after Provisions for (Reversal of) Credit Losses and Unfunded Commitments	21,666		22,520		66,527		59,377
OTHER INCOME
Commissions from insurance sales	2,629		2,429		7,371		6,437
Service charges on deposit accounts	1,000		1,082		2,951		3,046
Income from fiduciary, investment management and brokerage activities	953		823		2,772		2,449
Gain from mortgage loans held for sale	—		42		31		468
Earnings on investment in bank-owned life insurance	473		362		1,399		1,052

Net losses on sales or calls of securities	—		—		( 739 )		—
Net losses on equity securities	( 27 )		( 88 )		( 22 )		( 345 )
Gain on assets held for sale	14		—		337		—

Service charges on ATM and debit card transactions	845		837		2,502		2,455
Other	410		362		873		822
Total Other Income	6,297		5,849		17,475		16,384
OTHER EXPENSES
Salaries and employee benefits	10,069		9,320		30,335		26,193
Net occupancy	942		1,000		2,981		3,098
Equipment	1,554		1,521		4,784		4,566
Other tax	323		411		965		1,229
Professional services	617		589		1,600		1,328
Supplies and postage	229		254		633		630
Marketing and corporate relations	159		57		472		227
FDIC and regulatory	388		263		932		798

Intangible assets amortization	352		395		1,072		1,093

Other operating	1,703		1,510		5,125		4,446
Total Other Expenses	16,336		15,320		48,899		43,608
Income before Income Taxes	11,627		13,049		35,103		32,153
PROVISION FOR INCOME TAXES	2,583		2,725		7,512		6,600
Net Income	$	9,044	$	10,324	$	27,591	$	25,553
PER SHARE DATA
Basic earnings	$	1.06	$	1.20	$	3.24	$	2.95
Diluted earnings	$	1.06	$	1.20	$	3.23	$	2.95

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three months ended September 30,				Nine months ended September 30,
Dollars in thousands	2023		2022		2023		2022

NET INCOME	$	9,044	$	10,324	$	27,591	$	25,553

OTHER COMPREHENSIVE INCOME

SECURITIES
Unrealized losses arising during the period, net of income tax benefit of $( 2,133 ), $( 5,443 ), $( 3,575 ) and $( 15,122 ), respectively	( 7,033 )		( 19,766 )		( 8,288 )		( 53,382 )
Reclassification adjustment for net losses included in net income, net of income tax (benefit) cost of $ 0 , $ 0 , $ 171 and $ 0 , respectively (A) (C)	—		—		556		—
Total unrealized loss on investment securities	( 7,033 )		( 19,766 )		( 7,732 )		( 53,382 )

Amortization of unrealized losses on securities previously transferred to held to maturity, net of income taxes of $ 32 , $ 150 , $ 110 , and $ 0 , respectively (D)	244		523		731		—
Total amortization of unrealized losses on investment securities	244		523		731		—

PENSION

Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $ 52 , $ 23 , $ 76 and $ 68 , respectively (B) (C)	74		79		246		237

Total unrealized loss on pension	74		79		246		237

TOTAL OTHER COMPREHENSIVE LOSS	( 6,715 )		( 19,164 )		( 6,755 )		( 53,145 )

TOTAL COMPREHENSIVE INCOME (LOSS)	$	2,329	$	( 8,840 )	$	20,836	$	( 27,592 )

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

(A) Gross amounts are included in net gains on sales or call of securities on the Consolidated Statements of Income in total other income.

(B) Gross amounts are included in the computation of net periodic benefit cost and are included in salaries and employee benefits on the Consolidated Statements of Income in total other expenses.

(D) Total unrealized loss remaining on investment securities held to maturity, net of income taxes, was $ 2.3 million at September 30, 2023 .

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Nine Months Ended September 30, 2023 and 2022



Dollars in thousands, except per share data	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Stockholders’ Equity

BALANCE – January 1, 2023	$	22,086	$	( 8,927 )	$	96,022	$	193,873	$	( 58,012 )	$	245,042
Cumulative effect for adoption of Topic 326, net of tax	—		—		—		( 2,368 )		—		( 2,368 )
Net income	—		—		—		9,023		—		9,023
Other comprehensive income, net of taxes	—		—		—		—		6,052		6,052
Common stock shares issued ( 5,889 shares)	15		—		173		—		—		188
Repurchase of common stock ( 850 shares)	—		( 29 )		—		—		—		( 29 )
Issuance of restricted common shares, net of forfeiture and shares withheld for taxes ( 43,074 shares)	97		—		( 97 )		—		—		—
Compensation expense for restricted shares	—		—		317		—		—		317
Cash dividends declared ($ 0.28 per share)	—		—		—		( 2,384 )		—		( 2,384 )
BALANCE – March 31, 2023	22,198		( 8,956 )		96,415		198,144		( 51,960 )		255,841
Net income	—		—		—		9,524		—		9,524
Other comprehensive loss, net of taxes	—		—		—		—		( 6,092 )		( 6,092 )
Common stock shares issued ( 5,526 shares)	14		—		171		—		—		185



Cash dividends declared ($ 0.28 per share)	—		—		—		( 2,389 )		—		( 2,389 )
BALANCE – June 30, 2023	22,212		( 8,956 )		96,586		205,279		( 58,052 )		257,069
Net income	—				—		9,044		—		9,044
Other comprehensive loss, net of taxes	—		—		—		—		( 6,715 )		( 6,715 )
Common stock shares issued ( 5,165 shares)	12		—		158		—		—		170
Repurchased shares ( 46,378 shares)	—		( 1,546 )		—		—		—		( 1,546 )


Cash dividends declared ($ 0.28 per share)	—		—		—		( 2,384 )		—		( 2,384 )
BALANCE – September 30, 2023	$	22,224	$	( 10,502 )	$	96,744	$	211,939	$	( 64,767 )	$	255,638


Dollars in thousands, except per share data	Common Stock		Treasury Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity

BALANCE – January 1, 2022	$	21,978	$	( 2,245 )	$	94,688	$	167,238	$	( 9,545 )	$	272,114
Net income	—		—		—		6,599		—		6,599
Other comprehensive loss, net of taxes	—		—		—		—		( 21,359 )		( 21,359 )
Common stock shares issued ( 5,587 shares)	14		—		169		—		—		183
Restricted stock grants ( 21,935 shares)	56		—		673		—		—		729
Cash dividends declared ($ 0.26 per share)	—		—		—		( 2,257 )		—		( 2,257 )
BALANCE – March 31, 2022	22,048		( 2,245 )		95,530		171,580		( 30,904 )		256,009
Net income	—		—		—		8,630		—		8,630
Other comprehensive loss, net of taxes	—		—		—		—		( 12,622 )		( 12,622 )
Common stock shares issued ( 5,532 shares)	13		—		171		—		—		184
Repurchased shares ( 88,225 shares)	—		( 2,905 )		—		—		—		( 2,905 )


Cash dividends declared ($ 0.26 per share)	—		—		—		( 2,264 )		—		( 2,264 )
BALANCE – June 30, 2022	22,061		( 5,150 )		95,701		177,946		( 43,526 )		247,032
Net income	—		—		—		10,324		—		10,324
Other comprehensive loss, net of taxes	—		—		—		—		( 19,164 )		( 19,164 )
Common stock shares issued ( 5,107 shares)	13		—		155		—		—		168
Repurchased shares ( 109,931 shares)	—		( 3,777 )		—		—		—		( 3,777 )


Cash dividends declared ($ 0.26 per share)	—		—		—		( 2,213 )		—		( 2,213 )
BALANCE – September 30, 2022	$	22,074	$	( 8,927 )	$	95,856	$	186,057	$	( 62,690 )	$	232,370

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
Dollars in thousands	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	27,591	$	25,553
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of loans originated for sale	( 31 )		( 468 )
Gain on sales of assets held for sale	( 337 )		—

Earnings on investment in bank-owned life insurance	( 1,399 )		( 1,052 )

Loss on sales or calls of securities	739		—
Loss on equity securities	22		345
Restricted stock compensation expense	317		243

Depreciation and amortization	2,559		2,788
Provision for credit losses and provision for unfunded commitments	300		—
Net amortization of investment securities premiums	494		988
Increase in interest receivable	( 812 )		( 902 )
Increase (decrease) in interest payable	397		( 57 )
Mortgage loans originated for sale	( 1,191 )		( 30,365 )
Proceeds from loans originated for sale	1,345		33,026
Increase in other assets	1,414		( 3,348 )
(Increase) decrease in deferred tax expense	( 4,436 )		1,062
Increase in other liabilities	5,019		1,660
Net Cash Provided by Operating Activities	31,991		29,473
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from calls/maturities of investment securities held to maturity	904		2,505
Proceeds from calls/maturities of investment securities available for sale	26,375		41,852
Proceeds from sales of investment securities available for sale	78,624		—
Proceeds from sale of equity securities	591		—
Purchase of investment securities available for sale	—		( 218,195 )
Purchase of investment securities held to maturity	—		( 22,204 )
Purchase of equity securities	—		( 35 )
(Purchase) redemption of restricted investment in bank stocks	( 3,848 )		650
Net increase in loans	( 77,486 )		( 60,256 )

Purchase of bank-owned life insurance	—		( 12,200 )


Acquisition of insurance books of business/agency	( 174 )		( 7,800 )
Capital expenditures	( 174 )		( 1,206 )
Proceeds from sales of premises and equipment	—		1,093
Proceeds from sales of assets held for sale	3,730		—
Net Cash Provided by (Used in) Investing Activities	28,542		( 275,796 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits	( 29,519 )		( 33,945 )
Net decrease in time certificates of deposits and interest bearing deposits	( 218,097 )		( 56,231 )
Net (decrease) increase in short-term borrowings	( 8,848 )		6,439
Proceeds from long-term borrowings	100,000		1,500
Repayments on long-term borrowings	—		( 12,150 )
Dividends paid	( 7,157 )		( 6,734 )
Common stock repurchased	( 1,575 )		( 6,682 )
Common stock issued	543		1,021
Net Cash Used In Financing Activities	( 164,653 )		( 106,782 )
Net Decrease in Cash and Cash Equivalents	( 104,120 )		( 353,105 )
CASH AND CASH EQUIVALENTS — BEGINNING	168,161		710,131
CASH AND CASH EQUIVALENTS — ENDING	$	64,041	$	357,026
Supplemental disclosures of cash flow information:
Cash paid for interest	$	3,717	$	2,834
Cash paid for income taxes	7,350		4,400
Supplemental disclosures of certain noncash activities:
Investments transferred from available for sale to held to maturity	$	—	$	39,683
Premises and equipment transferred to fixed assets held for sale	—		3,393
Loans transferred to foreclosed assets held for resale and other foreclosed transactions	—		474

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

ACNB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation and Nature of Operations

ACNB Corporation (the Corporation or ACNB), headquartered in Gettysburg, Pennsylvania, provides banking, insurance, and financial services to businesses and consumers through its wholly-owned subsidiaries, ACNB Bank (Bank) and ACNB Insurance Services, Inc. The Bank engages in full-service commercial and consumer banking and wealth management services, including trust and retail brokerage, through its 26 community banking offices, including 17 community banking office locations in Adams, Cumberland, Franklin and York Counties, Pennsylvania, and 9 community banking office locations in Carroll and Frederick Counties, Maryland. There are also loan production offices situated in Lancaster and York, Pennsylvania, and Hunt Valley, Maryland.

ACNB Insurance Services, Inc. is a full-service insurance agency based in Westminster, Maryland, with additional locations in Jarrettsville, Maryland, and Gettysburg, Pennsylvania. The agency offers a broad range of property, casualty, health, life and disability insurance to both individual and commercial clients.

The Corporation’s primary sources of revenue are 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 credit losses, and other operating expenses.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly ACNB Corporation’s statement of condition, statement of income, comprehensive (loss) income, changes in stockholders’ equity, and cash flows. All such adjustments are of a normal recurring nature.

The accounting policies followed by the Corporation are set forth in Note A to the Corporation’s consolidated financial statements in the 2022 ACNB Corporation Annual Report on Form 10-K, filed with the SEC on March 3, 2023. It is suggested that the consolidated financial statements contained herein be read in conjunction with the consolidated financial statements and notes included in the Corporation’s Annual Report on Form 10-K. The results of operations for the three and nine month periods ended September 30, 2023, are not necessarily indicative of the results to be expected for the full year.

Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation. Reclassifications had no material effect on prior year net income or stockholders’ equity.

The Corporation has evaluated events and transactions occurring subsequent to the balance sheet date of September 30, 2023, for items that should potentially be recognized or disclosed in the consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, universally referred to as Current Expected Credit Loss (CECL). The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets, including but not limited to loans, held to maturity securities and purchased financial assets, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied previously are still permitted, although the inputs to those techniques changed to reflect the full amount of expected credit losses. In addition, Topic 326 amends the accounting for credit losses on certain other debt securities. The Corporation did not record any allowance for credit losses on its debt securities as a result of adopting Topic 326. For smaller reporting companies, such as the Corporation, this standard (Topic 326) was effective as of January 1, 2023.

The Bank’s CECL Committee, which includes members from Credit Administration, Accounting/Finance, Risk Management and Internal Audit, has oversight by the Chief Executive Officer, Chief Financial Officer, and Chief Credit Officer. The Bank engaged a third-party to assist in developing the CECL model and to assist with evaluation of data and methodologies related to this standard.

As part of its process of adopting CECL, management implemented a third party software solution and determined appropriate loan segments, methodologies, model assumptions and qualitative components. The Bank’s CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. The Bank’s implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management had a third party independent consultant review and validate the CECL model.

The ultimate impact of adopting Topic 326, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, composition of the loans and securities portfolio, along with other management judgments. The Corporation adopted Topic 326 using the modified retrospective method. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

In connection with the adoption of Topic 326, the Corporation made changes to the loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Refer to Note 8 — “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements for further discussion of these portfolio segments.

The adoption of Topic 326 resulted in a Day 1 adjustment of $ 3.3 million, including an increase to the allowance for credit losses (ACL) of $ 1.6 million and a $ 1.6 million reserve on unfunded loan commitments recorded in the liabilities section on the Consolidated Statements of Condition on January 1, 2023. As of January 1, 2023, the Corporation recorded a cumulative effect adjustment of $ 2.4 million to decrease retained earnings related to the adoption of Topic 326. Upon CECL adoption the Corporation elected to implement the regulatory agencies’ capital transition relief over the permissible three-year period. The following table illustrates the impact of Topic 326:


	January 1, 2023
In thousands	As Reported Under Topic 326		Pre Topic 326		Impact of Topic 326 Adoption
Allowance for Credit Losses on Loans:
Commercial and industrial	$	( 2,086 )	$	( 2,848 )	$	762
Commercial real estate	( 11,122 )		( 10,016 )		( 1,106 )
Commercial real estate construction	( 2,347 )		( 1,000 )		( 1,347 )
Residential mortgage	( 3,326 )		( 3,029 )		( 297 )
Home equity lines of credit	( 364 )		( 347 )		( 17 )
Consumer	( 234 )		( 376 )		142
Unallocated	—		( 245 )		245
Allowance for credit losses on loans	$	( 19,479 )	$	( 17,861 )	$	( 1,618 )
Assets:
Total Loans, net of allowance for credit losses	$	1,519,131	$	1,520,749	$	1,618
Net deferred tax asset	18,452		17,718		734
Liabilities:
Allowance for unfunded commitments	1,735		92		1,643
Equity:
Retained earnings	242,674		245,042		2,368

The ACL represents an amount which, in management’s judgment, is adequate to absorb expected losses on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense.

Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.

Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.

The adoption of CECL accounting did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, nonaccrual practices or charge-off policy.

The Corporation’s methodology for estimating the ACL includes:

Segmentation. The Corporation’s loan portfolio is segmented by loan types that have similar risk characteristics and behave similarly during economic cycles.

Specific Analysis. A specific reserve analysis is applied to certain individually evaluated loans. These loans are evaluated quarterly generally based on collateral value, observable market value or the present value of expected future cash flows. A specific reserve is established if the fair value is less than the loan balance. A charge-off is recognized when the loss is quantifiable. Individually evaluated loans not specifically analyzed reside in the Quantitative Analysis.

Quantitative Analysis . The Corporation elected to use Discounted Cash Flow (DCF) and chose unemployment rate as the driving factor of their economic forecasts. In regards to unemployment rates, the Corporation elected to forecast economic factors over the period of the next four quarters. The Corporation chose not to extend beyond four quarters given the inherent risks associated with forecasting. The Corporation utilizes relevant third party forecasts as a basis and support for its own forecast. These forecasts are assumed to revert to the long-term average and utilized in the model to estimate the probability of default and loss given default through regression. The Corporation elected a reversion period of four quarters. The Corporation deemed four quarters to be a reasonable time period to ensure it did not include irrelevant information, but also not too short to introduce unnecessary volatility. Model assumptions include, but are not limited to the discount rate, prepayment speeds, funding rates, and curtailments. The product of the probability of default and the loss given default is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumptions related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values.

Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. Management reviews the peaks and troughs of the model’s calibration, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary. This process challenges unexpected variability resulting from outputs beyond the model’s calibration that appear to be unreasonable. Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective. The current expected losses of $ 1.6 million were recorded due to the adoption of CECL, which now incorporates the concept of lifetime losses.

Included in the allowance for unfunded commitments in the first quarter of 2023, was $ 1.6 million recorded upon Day 1 CECL adoption. Between the Day 1 CECL model and the model ended September 30, 2023, an additional $ 226,000 of provision was recognized, which resulted in a total allowance for unfunded commitments of $ 2.0 million at September 30, 2023.

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 made certain targeted amendments specific to troubled debt restructurings (TDRs) by creditors and vintage disclosure related to gross write-offs. Upon adoption, the Corporation is required to apply the loan and refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan, rather than applying the recognition and measurement guidance for TDRs. The ASU also requires companies to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within scope of Subtopic 326-20. ASU 2022-02 is effective March 31, 2023, for entities that have adopted ASU 2016-13, otherwise effective date is the same as ASU 2016-13. The Corporation adopted ASU 2016-13 on January 1, 2023 and simultaneously implemented ASU 2022-02.

Accounting Standards Pending Adoption

In December 2022, the FASB issued ASU 2022-06, “Deferral of the Sunset Date of Reference Rate Reform (Topic 848)” . This ASU extends the sunset date of ASC Topic 848 (Reference Rate Reform) to December 31, 2024, in response to the United Kingdom’s Financial Conduct Authority (FCA) extension of the intended cessation date of LIBOR in the United States. The Corporation evaluated the impact of this standard, and believes that its adoption will not have a material impact on the Corporation’s consolidated financial condition or results of operations.

Note 2 - Earnings Per Share and Restricted Stock

The Corporation has a simple capital structure. Basic earnings per share of common stock is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding less unvested restricted stock at the end of the period. Diluted earnings per share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Weighted average shares outstanding (basic)	8,517,917		8,587,826		8,518,006		8,658,972
Dilutive effect of unvested shares	33,628		—		26,726		—
Weighted average shares outstanding (diluted)	8,551,545		8,587,826		8,544,732		8,658,972
Per share:
Basic	$	1.06	$	1.20	$	3.24	$	2.95
Diluted	1.06		1.20		3.23		2.95

Stock Incentive Plan

As of September 30, 2023, 100,746 shares were issued under this plan, of which 33,100 were unvested. Plan expense is recognized over the vesting period of the stock issued and resulted in $ 265 thousand and $ 116 thousand of compensation expense during the three months ended September 30, 2023 and 2022, respectively, and $ 1.0 million and $ 474 thousand of compensation expenses during the nine months ended September 30, 2023 and 2022, respectively.

Note 3 - Retirement Benefits

The components of net periodic benefit income related to the non-contributory, defined benefit pension plan were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands	2023		2022		2023		2022
Service cost	$	124	$	194	$	372	$	582
Interest cost	373		263		1,119		789
Expected return on plan assets	( 663 )		( 784 )		( 1,989 )		( 2,352 )
Amortization of net loss	98		102		294		305



Net Periodic Benefit Income	$	( 68 )	$	( 225 )	$	( 204 )	$	( 676 )

The Corporation has determined that it will not be contributing to the defined benefit plan in 2023 based on current levels and expected returns on plan assets. Effective April 1, 2012, no inactive or former participant in the plan is eligible to again participate in the plan, and no employee hired after March 31, 2012, is eligible to participate in the plan.

Note 4 - Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year . The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Corporation generally holds collateral and/or personal guarantees supporting these commitments. The Corporation had $ 22.8 million in standby letters of credit as of September 30, 2023. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.

Note 5 - Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of taxes, are as follows:


In thousands	Unrealized Losses on Securities		Pension Liability		Accumulated Other Comprehensive Loss


Balance at December 31, 2022	$	( 52,734 )	$	( 5,278 )	$	( 58,012 )

Unrealized loss on available for sale securities, net of tax	( 8,288 )		—		( 8,288 )
Realized losses on securities, net of tax	556		—		556
Amortization of unrealized losses on securities previously transferred to held to maturity, net of tax	731		—		731
Amortization of pension net loss, transition liability and prior service cost, net of tax	—		246		246

Net current period other comprehensive (loss) income	( 7,001 )		246		( 6,755 )
Balance at September 30, 2023	$	( 59,735 )	$	( 5,032 )	$	( 64,767 )

Balance at December 31, 2021	$	( 3,474 )	$	( 6,071 )	$	( 9,545 )
Unrealized loss on available for sale securities, net of tax	( 53,382 )		—		( 53,382 )


Amortization of pension net loss, transition liability and prior service cost, net of tax	—		237		237

Net current period other comprehensive (loss) income	( 53,382 )		237		( 53,145 )
Balance at September 30, 2022	$	( 56,856 )	$	( 5,834 )	$	( 62,690 )

Note 6 - Segment Reporting

The Corporation has two reporting segments, the Bank and ACNB Insurance Services, Inc. ACNB Insurance Services, Inc., is managed separately from the banking segment, which includes the Bank and related financial services that the Corporation offers through its banking subsidiary. ACNB Insurance Services, Inc., offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients.

Segment information for the three month periods ended September 30, 2023 and 2022, is as follows:


In thousands	Banking		Insurance		Total
2023
Interest income and other income from external customers	$	28,080	$	2,451	$	30,531
Interest expense	2,489		—		2,489
Depreciation and amortization expense	613		212		825
Income before income taxes	11,107		520		11,627
Total assets	2,369,705		18,817		2,388,522
Capital expenditures	68		—		68

2022
Interest income and other income from external customers	$	27,029	$	2,202	$	29,231
Interest expense	850		12		862
Depreciation and amortization expense	728		226		954
Income before income taxes	12,565		484		13,049
Total assets	2,634,037		20,116		2,654,153
Capital expenditures	475		11		486

Segment information for the nine month periods ended September 30, 2023 and 2022, is as follows:


In thousands	Banking		Insurance		Total
2023
Interest income and other income from external customers	$	81,638	$	7,193	$	88,831
Interest expense	4,529		—		4,529
Depreciation and amortization expense	1,925		634		2,559
Income before income taxes	33,508		1,595		35,103
Total assets	2,369,705		18,817		2,388,522
Capital expenditures	168		6		174

2022
Interest income and other income from external customers	$	72,329	$	6,210	$	78,539
Interest expense	2,748		30		2,778
Depreciation and amortization expense	2,221		567		2,788
Income before income taxes	30,727		1,426		32,153
Total assets	2,634,037		20,116		2,654,153
Capital expenditures	1,178		28		1,206

Note 7 - Securities

Amortized cost and fair value of securities at September 30, 2023, and December 31, 2022, were as follows:


In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

SECURITIES AVAILABLE FOR SALE

September 30, 2023
U.S. Government and agencies	$	228,045	$	—	$	31,270	$	196,775
Mortgage-backed securities	264,621		—		40,896		223,725

Corporate bonds	18,116		—		3,057		15,059
	$	510,782	$	—	$	75,223	$	435,559

December 31, 2022
U.S. Government and agencies	$	241,467	$	—	$	30,468	$	210,999
Mortgage-backed securities	327,535		342		32,159		295,718
State and municipal	15,235		196		196		15,235
Corporate bonds	33,404		15		1,817		31,602
	$	617,641	$	553	$	64,640	$	553,554

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
SECURITIES HELD TO MATURITY

September 30, 2023
Mortgage-backed securities	$	2,660	$	—	$	181	$	2,479
State and municipal	61,956		—		10,592		51,364
	$	64,616	$	—	$	10,773	$	53,843
December 31, 2022

Mortgage-backed securities	$	3,279	$	—	$	194	$	3,085
State and municipal	61,698		—		6,705		54,993
	$	64,977	$	—	$	6,899	$	58,078

Fair value of equity securities with readily determinable fair values at September 30, 2023 and December 31, 2022, are as follows:


In thousands	Fair Value at January 1, 2023		Purchases		Sales/reclassification		Gains/(Losses)		Gains/(Losses) on sales of securities		Fair Value at September 30, 2023
September 30, 2023
CRA Mutual Fund	$	915	$	—	$	—	$	( 27 )	$	—	$	888
Canapi Ventures SBIC Fund	206		—		206		—		—		—
Stock in other banks	598		—		592		5		( 11 )		—
	$	1,719	$	—	$	798	$	( 22 )	$	( 11 )	$	888


In thousands	Fair Value at January 1, 2022		Purchases		Sales		Gains/(Losses)		Gains/(Losses) on sales of securities		Fair Value at December 31, 2022
December 31, 2022
CRA Mutual Fund	$	1,036	$	—	$	—	$	( 121 )	$	—	$	915
Canapi Ventures SBIC Fund	—		206		—		—		—		206
Stock in other banks	1,573		—		811		( 177 )		13		598
	$	2,609	$	206	$	811	$	( 298 )	$	13	$	1,719

The following table shows the Corporation’s investments’ gross unrealized and unrecognized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2023, and December 31, 2022:


	Less than 12 Months				12 Months or More				Total
In thousands	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

SECURITIES AVAILABLE FOR SALE

September 30, 2023
U.S. Government and agencies	$	—	$	—	$	196,775	$	31,270	$	196,775	$	31,270
Mortgage-backed securities	4,155		298		219,570		40,598		223,725		40,896

Corporate bonds	1,745		255		13,314		2,802		15,059		3,057
	$	5,900	$	553	$	429,659	$	74,670	$	435,559	$	75,223

December 31, 2022
U.S. Government and agencies	$	25,426	$	1,461	$	185,573	$	29,007	$	210,999	$	30,468
Mortgage-backed securities	221,249		19,362		63,145		12,797		284,394		32,159
State and municipal	6,229		196		—		—		6,229		196
Corporate bonds	24,337		1,217		5,250		600		29,587		1,817
	$	277,241	$	22,236	$	253,968	$	42,404	$	531,209	$	64,640

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
SECURITIES HELD TO MATURITY

September 30, 2023
Mortgage-backed securities	$	—	$	—	$	2,479	$	181	$	2,479	$	181
State and municipal	—		—		51,364		10,592		51,364		10,592
	$	—	$	—	$	53,843	$	10,773	$	53,843	$	10,773

December 31, 2022

Mortgage-backed securities	$	3,085	$	194	$	—	$	—	$	3,085	$	194
State and municipal	38,086		3,875		16,907		2,830		54,993		6,705
	$	41,171	$	4,069	$	16,907	$	2,830	$	58,078	$	6,899

All mortgage-backed security investments are pass-through instruments issued by the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments.

The Corporation adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2023 and did not record an allowance for credit losses on its investment securities during the quarter ended September 30, 2023. The Corporation regularly reviews debt securities for expected credit loss using both qualitative and quantitative criteria, as necessary, based on the composition of the portfolio at period end. Management buys and sells securities from its available for sale portfolio due to general balance sheet and interest rate risk management.

Amortized cost and fair value at September 30, 2023, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties. Securities not due at a single maturity date are shown separately.


	Available for Sale				Held to Maturity
In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	9,165	$	8,791	$	—	$	—
Over 1 year through 5 years	157,062		139,342		1,117		1,003
Over 5 years through 10 years	77,934		62,247		18,994		16,498
Over 10 years	2,000		1,454		41,845		33,863
Mortgage-backed securities	264,621		223,725		2,660		2,479
	$	510,782	$	435,559	$	64,616	$	53,843

The proceeds from sales of securities and the associated gains and losses are listed below:


	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands	2023		2022		2023		2022
Proceeds	$	—	$	—	$	79,215	$	—
Gross gains	—		—		243		—
Gross losses	—		—		982		—

At September 30, 2023, and December 31, 2022, securities with a carrying value of $ 276.5 million and $ 342.2 million, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.

Note 8 - Loans and Allowance for Credit Losses

The following table presents the composition of the loan portfolio:


In thousands	September 30, 2023		December 31, 2022
Commercial and industrial	$	154,027	$	178,762
Commercial real estate	892,365		821,805
Commercial real estate construction	86,508		80,470
Residential mortgage	384,304		362,098
Home equity lines of credit	88,687		84,141
Consumer	10,075		11,334
Total Loans	$	1,615,966	$	1,538,610

The following table presents nonaccrual loans:


In thousands	September 30, 2023		December 31, 2022
Commercial and industrial	$	470	$	781
Commercial real estate	1,541		1,873

Residential mortgage	343		—
Home equity lines of credit	195		—
	$	2,549	$	2,654

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2023 and December 31, 2022, totaled $ 777 thousand and $ 1.1 million, respectively.

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

Loan Modifications

On January 1, 2023, the Corporation adopted the accounting guidance in ASU 2022-02, which eliminates the recognition and measurement of troubled debt restructurings (TDRs). Due to the removal of the TDR designation, the Corporation evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the above. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

As of September 30, 2023, the Corporation had no modified loans or any commitments to lend any additional funds on modified loans. As of September 30, 2023, the Corporation had no loans that defaulted during the period and had been modified preceding the payment default when the borrower was experiencing financial difficulty at the time of modification. For purposes of this disclosure, a default occurs when, within 12 months of the original modification, either a full or partial charge-off occurs or the loan becomes 90 days or more past due.

Allowance for Credit Losses

The Corporation maintains an allowance for credit losses (ACL) at a level determined to be adequate to absorb expected credit losses associated with the Corporation’s financial instruments over the life of those instruments as of the balance sheet date. The Corporation develops and documents a systematic ACL methodology based on the following portfolio segments: 1) Commercial and Industrial, 2) Commercial Real Estate, 3) Commercial Real Estate Construction, 4) Residential Mortgage, and 5) Home Equity Lines of Credit. The Corporation’s loan portfolio is segmented by loan types that have similar risk characteristics and behave similarly during economic cycles. The segmentation in the CECL model is different from the segmentation in the incurred loss model, however there was minimal impact on the presentation of the financial statement disclosures. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.

Commercial and Industrial Lending — The Corporation originates commercial and industrial loans primarily to businesses located in its primary market area and surrounding areas. These loans are used for various business purposes which include short-term loans and lines of credit to finance machinery and equipment purchases, inventory, and accounts receivable. Generally, the maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment. Most business lines of credit are written on demand and may be renewed annually.

Commercial and industrial loans are generally secured with short-term assets; however, in many cases, additional collateral such as real estate is provided as additional security for the loan. Loan-to-value maximum values have been established by the Corporation and are specific to the type of collateral. Collateral values may be determined using invoices, inventory reports, accounts receivable aging reports, collateral appraisals, etc.

In underwriting commercial and industrial loans, an analysis is performed to evaluate the borrower’s character and capacity to repay the loan, the adequacy of the borrower’s capital and collateral, as well as the conditions affecting the borrower. Evaluation of the borrower’s past, present and future cash flows is also an important aspect of the Corporation’s

analysis. Commercial loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions.

Commercial Real Estate Lending — The Corporation engages in commercial real estate lending in its primary market area and surrounding areas. The Corporation’s commercial loan portfolio is secured primarily by commercial retail space, office buildings, and hotels. Generally, commercial real estate loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80 % of the appraised value of the property, and are typically secured by personal guarantees of the borrowers.

In underwriting these loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Corporation are performed by independent appraisers. Commercial real estate loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral.

Commercial Real Estate Construction Lending — The Corporation engages in commercial real estate construction lending in its primary market area and surrounding areas. The Corporation’s commercial real estate construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.

The Corporation’s commercial real estate construction loans are generally secured with the subject property. Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.

In underwriting commercial real estate construction loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate construction loans originated by the Corporation are performed by independent appraisers. Commercial real estate construction loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the uncertainties surrounding total construction costs.

Residential Mortgage Lending — One-to-four family residential mortgage loan originations, including home equity closed-end loans, are generated by the Corporation’s marketing efforts, its present customers, walk-in customers, and referrals. These loans originate primarily within the Corporation’s market area or with customers primarily from the market area.

The Corporation offers fixed-rate and adjustable-rate mortgage loans with terms up to a maximum of 30 years for both permanent structures and those under construction. The Corporation’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The majority of the Corporation’s residential mortgage loans originate with a loan-to-value of 80 % or less. Loans in excess of 80 % are required to have private mortgage insurance.

In underwriting one-to-four family residential real estate loans, the Corporation evaluates both the borrower’s financial ability to repay the loan as agreed and the value of the property securing the loan. Properties securing real estate loans made by the Corporation are appraised by independent appraisers. The Corporation generally requires borrowers to obtain an attorney’s title opinion or title insurance, as well as fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. The Corporation has not engaged in subprime residential mortgage originations. Residential mortgage loans are subject to risk due primarily to general economic conditions, as well as periods of weak housing markets.

Home Equity Lines of Credit Lending — The Corporation originates home equity lines of credit primarily within the Corporation’s market area or with customers primarily from the market area. Home equity lines of credit are generated by the Corporation’s marketing efforts, its present customers, walk-in customers, and referrals.

Home equity lines of credit are secured by the borrower’s primary residence with a maximum loan-to-value of 90 % and a maximum term of 20 years. In underwriting home equity lines of credit, the Corporation evaluates both the value of the property securing the loan and the borrower’s financial ability to repay the loan as agreed. The ability to repay is determined by the borrower’s employment history, current financial condition, and credit background.

Home equity lines of credit generally present a moderate level of risk due primarily to general economic conditions, as well as periods of weak housing markets. Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt. Generally, foreclosure actions could become more prevalent if the real estate markets are weak and property values deteriorate.

Consumer Lending — The Corporation offers a variety of secured and unsecured consumer loans, including those for vehicles and mobile homes and loans secured by savings deposits. These loans originate primarily within the Corporation’s market area or with customers primarily from the market area.

Consumer loan terms vary according to the type and value of collateral and the creditworthiness of the borrower. In underwriting consumer loans, a thorough analysis of the borrower’s financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower’s employment history, current financial condition, and credit background.

Consumer loans may entail greater credit risk than residential mortgage loans or home equity lines of credit, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets such as automobiles or recreational equipment. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Credit Quality Indicators

The Corporation’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Non-commercial-purpose loans are defaulted to a pass grade until a loan migrates to past due status.

Special Mention – Considered “Other Assets Especially Mentioned”, these loans are currently protected, but are potentially weak. Loans in this rating category constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. The credit risk may be relatively minor, yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan.

Substandard – Loans in this category are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual loans classified as substandard.

Doubtful – Loans in this category have all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-related loans.

The following table presents loan balances by year of origination and internally assigned risk rating for ACNB’s portfolio segments as of September 30, 2023:


In thousands	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Commercial and industrial
Pass	$	4,701	$	25,535	$	36,090	$	16,390	$	14,406	$	24,086	$	28,544	$	149,752
Special Mention	113		367		323		484		157		558		1,042		3,044
Substandard	8		18		145		17		11		748		284		1,231

Total Commercial and industrial	$	4,822	$	25,920	$	36,558	$	16,891	$	14,574	$	25,392	$	29,870	$	154,027
Year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	110	$	—	$	110

Commercial real estate
Pass	$	113,782	$	145,145	$	143,203	$	63,474	$	70,536	$	302,565	$	16,004	$	854,709
Special Mention	302		5,705		1,360		1,933		4,880		15,023		1,409		30,612
Substandard	—		—		—		1,540		721		4,783		—		7,044

Total Commercial real estate	$	114,084	$	150,850	$	144,563	$	66,947	$	76,137	$	322,371	$	17,413	$	892,365
Year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate construction
Pass	$	19,757	$	46,386	$	6,392	$	927	$	338	$	3,612	$	7,721	$	85,133
Special Mention	—		471		—		93		—		741		—		1,305
Substandard	—		—		—		—		—		70		—		70

Total Commercial real estate construction	$	19,757	$	46,857	$	6,392	$	1,020	$	338	$	4,423	$	7,721	$	86,508
Year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential mortgage
Pass	$	54,153	$	73,756	$	56,526	$	31,915	$	20,120	$	140,911	$	486	$	377,867
Special Mention	542		83		598		404		697		3,083		62		5,469
Substandard	—		—		—		—		—		968		—		968

Total Residential Mortgage	$	54,695	$	73,839	$	57,124	$	32,319	$	20,817	$	144,962	$	548	$	384,304
Year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Home equity lines of credit
Pass	$	953	$	39	$	—	$	—	$	97	$	4,775	$	81,557	$	87,421
Special Mention	—		—		—		—		—		35		743		778
Substandard	—		—		—		—		—		488		—		488

Total Home equity lines of credit	$	953	$	39	$	—	$	—	$	97	$	5,298	$	82,300	$	88,687
Year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Pass	$	2,334	$	2,861	$	872	$	595	$	310	$	1,248	$	1,830	$	10,050
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		25		25

Total Consumer	$	2,334	$	2,861	$	872	$	595	$	310	$	1,248	$	1,855	$	10,075
Year-to-date gross charge-offs	$	14	$	68	$	35	$	45	$	20	$	64	$	33	$	279

Total Portfolio loans
Pass	$	195,680	$	293,722	$	243,083	$	113,301	$	105,807	$	477,197	$	136,142	$	1,564,932
Special Mention	957		6,626		2,281		2,914		5,734		19,440		3,256		41,208
Substandard	8		18		145		1,557		732		7,057		309		9,826

Total Portfolio loans	$	196,645	$	300,366	$	245,509	$	117,772	$	112,273	$	503,694	$	139,707	$	1,615,966
Year-to-date gross charge-offs	$	14	$	68	$	35	$	45	$	20	$	174	$	33	$	389

The following table presents the recorded investment in loan classes by internally assigned risk ratings and loan classes by performing and nonperforming status as of December 31, 2022:


In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Total
December 31, 2022
Pass	$	173,437	$	786,711	$	78,652	$	356,081	$	83,044	$	11,334	$	1,489,259
Special Mention	4,035		29,540		1,818		5,803		712		—		41,908
Substandard	1,290		5,554		—		214		385		—		7,443
Doubtful	—		—		—		—		—		—		—

Total Portfolio Loans	$	178,762	$	821,805	$	80,470	$	362,098	$	84,141	$	11,334	$	1,538,610

Performing Loans	$	177,981	$	819,932	$	80,470	$	361,393	$	83,643	$	11,334	$	1,534,753
Nonperforming Loans	781		1,873		—		705		498		—		3,857
Total Portfolio Loans	$	178,762	$	821,805	$	80,470	$	362,098	$	84,141	$	11,334	$	1,538,610

The following table presents loan balances by year of origination and performing and nonperforming status for ACNB’s portfolio segments as of September 30, 2023:


In thousands	2023		2022		2021		2020		2019		2018 and Prior		Revolving		Total
Commercial and industrial
Performing	$	4,822	$	25,920	$	36,558	$	16,891	$	14,574	$	25,206	$	29,586	$	153,557
Nonperforming	—		—		—		—		—		186		284		470
Total Commercial and industrial	4,822		25,920		36,558		16,891		14,574		25,392		29,870		154,027
Commercial real estate
Performing	114,084		150,850		144,563		66,947		75,816		321,004		17,413		890,677
Nonperforming	—		—		—		—		321		1,367		—		1,688
Total Commercial real estate	114,084		150,850		144,563		66,947		76,137		322,371		17,413		892,365
Commercial real estate construction
Performing	19,757		46,857		6,392		1,020		338		4,423		7,721		86,508
Nonperforming	—		—		—		—		—		—		—		—
Total Commercial real estate construction	19,757		46,857		6,392		1,020		338		4,423		7,721		86,508
Residential mortgage
Performing	54,695		73,839		57,124		32,319		20,817		143,962		548		383,304
Nonperforming	—		—		—		—		—		1,000		—		1,000
Total Residential Mortgage	54,695		73,839		57,124		32,319		20,817		144,962		548		384,304
Home equity lines of credit
Performing	953		39		—		—		97		4,888		82,300		88,277
Nonperforming	—		—		—		—		—		410		—		410
Total Home equity lines of credit	953		39		—		—		97		5,298		82,300		88,687
Consumer
Performing	2,334		2,861		872		595		310		1,222		1,855		10,049
Nonperforming	—		—		—		—		—		26		—		26
Total Consumer	2,334		2,861		872		595		310		1,248		1,855		10,075
Total Portfolio loans
Performing	196,645		300,366		245,509		117,772		111,952		500,705		139,423		1,612,372
Nonperforming	—		—		—		—		321		2,989		284		3,594
Total Portfolio loans	$	196,645	$	300,366	$	245,509	$	117,772	$	112,273	$	503,694	$	139,707	$	1,615,966

The following tables present the classes of the loan portfolio summarized by the past due status:


In thousands	30–59 Days Past Due		60–89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
September 30, 2023
Commercial and industrial	$	59	$	91	$	160	$	310	$	153,717	$	154,027	$	—
Commercial real estate	193		422		147		762		891,603		892,365		147
Commercial real estate construction	—		—		—		—		86,508		86,508		—
Residential mortgage	157		526		1,000		1,683		382,621		384,304		657
Home equity lines of credit	412		493		215		1,120		87,567		88,687		215
Consumer	1		7		26		34		10,041		10,075		26
Total Loans	$	822	$	1,539	$	1,548	$	3,909	$	1,612,057	$	1,615,966	$	1,045


In thousands	30–59 Days Past Due		60–89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
December 31, 2022
Commercial and industrial	$	287	$	—	$	162	$	449	$	178,313	$	178,762	$	—
Commercial real estate	2,026		350		255		2,631		819,174		821,805		—
Commercial real estate construction	24		—		—		24		80,446		80,470		—
Residential mortgage	2,969		970		705		4,644		357,454		362,098		705
Home equity lines of credit	438		117		498		1,053		83,088		84,141		498
Consumer	155		80		—		235		11,099		11,334		—
Total Loans	$	5,899	$	1,517	$	1,620	$	9,036	$	1,529,574	$	1,538,610	$	1,203

The following table summarizes information relative to individually evaluated loans by loan portfolio class as of September 30, 2023 and December 31, 2022:


	Individually Evaluated Loans with Allowance				Individually Evaluated Loans with No Allowance
In thousands	Recorded Investment		Related Allowance		Recorded Investment		Related Allowance
September 30, 2023
Commercial and industrial	$	470	$	368	$	—	$	—
Commercial real estate	321		181		1,220		—
Commercial real estate construction	—		—		—		—
Residential mortgage	—		—		343		—
Home equity lines of credit	—		—		195		—
	$	791	$	549	$	1,758	$	—
December 31, 2022
Commercial and industrial	$	781	$	628	$	—	$	—
Commercial real estate	350		192		4,984		—
Commercial real estate construction	—		—		—		—
Residential mortgage	—		—		—		—
Home equity lines of credit	—		—		—		—
	$	1,131	$	820	$	4,984	$	—

All loans on nonaccrual status are individually evaluated in the specific analysis for the allowance for credit loss. An accruing TDR was included in the table above as of December 31, 2022. That loan was moved to performing status due to its loan repayment history upon the adoption of Topic 326.

During the three and nine months ended September 30, 2023, no material amount of interest income was recognized on individually evaluated loans subsequent to their classification as individually evaluated loans.

The following table presents the amortized cost basis of individually evaluated loans as of September 30, 2023. Changes in the fair value of the collateral for individually evaluated loans are reported as provision for credit losses or a reversal of provision for credit losses in the period of change.


	September 30, 2023
	Type of Collateral
In thousands	Business Assets		Real Estate
Commercial and industrial	$	470	$	—
Commercial real estate	—		1,541
Commercial real estate construction	—		—
Residential mortgage	—		343
Home equity lines of credit	—		195
Consumer	—		—
Total	$	470	$	2,079

The following tables summarize the allowance for credit losses and allowance for loan losses and recorded investment in loans receivable:


In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total
AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2023
Allowance for Credit Losses
Beginning balance - July 1, 2023	$	1,941	$	11,728	$	1,885	$	3,075	$	388	$	131	$	—	$	19,148

Charge-offs	( 81 )		—		—		—		—		( 109 )		—		( 190 )
Recoveries	32		—		—		—		—		24		—		56
Provisions (credits)	( 381 )		170		279		78		5		99		—		250
Ending balance - September 30, 2023	$	1,511	$	11,898	$	2,164	$	3,153	$	393	$	145	$	—	$	19,264

Beginning balance - January 1, 2023	$	2,848	$	10,016	$	1,000	$	3,029	$	347	$	376	$	245	$	17,861
Impact of CECL adoption	( 762 )		1,106		1,347		297		17		( 142 )		( 245 )		$	1,618
Charge-offs	( 110 )		—		—		—		—		( 279 )		—		( 389 )
Recoveries	42		—		—		—		—		58		—		100
Provisions (credits)	( 507 )		776		( 183 )		( 173 )		29		132		—		74
Ending balance - September 30, 2023	$	1,511	$	11,898	$	2,164	$	3,153	$	393	$	145	$	—	$	19,264
Ending balance: individually evaluated for impairment	$	368	$	181	$	—	$	—	$	—	$	—	$	—	$	549
Ending balance: collectively evaluated for impairment	$	1,143	$	11,717	$	2,164	$	3,153	$	393	$	145	$	—	$	18,715
Loans Receivable
Ending balance	$	154,027	$	892,365	$	86,508	$	384,304	$	88,687	$	10,075	$	—	$	1,615,966
Ending balance: individually evaluated for impairment	$	470	$	1,541	$	—	$	343	$	195	$	—	$	—	$	2,549
Ending balance: collectively evaluated for impairment	$	153,557	$	890,824	$	86,508	$	383,961	$	88,492	$	10,075	$	—	$	1,613,417

AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2022
Allowance for Loan Losses
Beginning balance - July 1, 2022	$	3,116	$	10,839	$	818	$	3,199	$	396	$	427	$	148	$	18,943
Charge-offs	( 70 )		( 831 )		—		—		( 33 )		( 80 )		—		( 1,014 )
Recoveries	20		—		—		—		—		3		—		23
Provisions (credits)	( 128 )		( 19 )		13		( 89 )		3		88		132		—
Ending balance - September 30, 2022	$	2,938	$	9,989	$	831	$	3,110	$	366	$	438	$	280	$	17,952

Beginning balance - January 1, 2022	$	3,176	$	10,716	$	616	$	3,235	$	501	$	408	$	381	$	19,033
Charge-offs	( 167 )		( 831 )		—		( 3 )		( 33 )		( 100 )		—		( 1,134 )
Recoveries	35		—		—		5		—		13		—		53
Provisions (credits)	( 106 )		104		215		( 127 )		( 102 )		117		( 101 )		—
Ending balance - September 30, 2022	$	2,938	$	9,989	$	831	$	3,110	$	366	$	438	$	280	$	17,952
Ending balance: individually evaluated for impairment	$	687	$	—	$	—	$	—	$	—	$	—	$	—	$	687
Ending balance: collectively evaluated for impairment	$	2,251	$	9,989	$	831	$	3,110	$	366	$	438	$	280	$	17,265
Loans Receivable
Ending balance	$	176,692	$	823,827	$	66,189	$	360,661	$	87,555	$	12,204	$	—	$	1,527,128
Ending balance: individually evaluated for impairment	$	839	$	5,076	$	—	$	—	$	—	$	—	$	—	$	5,915
Ending balance: collectively evaluated for impairment	$	175,853	$	818,751	$	66,189	$	360,661	$	87,555	$	12,204	$	—	$	1,521,213



AS OF DECEMBER 31, 2022
Allowance for Loan Losses
Ending balance	$	2,848	$	10,016	$	1,000	$	3,029	$	347	$	376	$	245	$	17,861
Ending balance: individually evaluated for impairment	$	628	$	192	$	—	$	—	$	—	$	—	$	—	$	820
Ending balance: collectively evaluated for impairment	$	2,220	$	9,824	$	1,000	$	3,029	$	347	$	376	$	245	$	17,041

Loans Receivable
Ending balance	$	178,762	$	821,805	$	80,470	$	362,098	$	84,141	$	11,334	$	—	$	1,538,610
Ending balance: individually evaluated for impairment	$	781	$	5,334	$	—	$	—	$	—	$	—	$	—	$	6,115
Ending balance: collectively evaluated for impairment	$	177,981	$	816,471	$	80,470	$	362,098	$	84,141	$	11,334	$	—	$	1,532,495

Note 9 - Fair Value Measurements

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 reporting dates and have not been reevaluated 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 period end.

Fair value measurement and disclosure guidance defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions.

Fair value measurement and disclosure guidance provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with fair value measurement and disclosure guidance.

This guidance further clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The guidance provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

Fair value measurement and disclosure guidance establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets measured at fair value, the fair value measurements by level within the fair value hierarchy, and the basis of measurement used at September 30, 2023, and December 31, 2022, are as follows:


		September 30, 2023
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	196,775	$	—	$	196,775	$	—
Mortgage-backed securities		223,725		—		223,725		—

Corporate bonds		15,059		—		15,059		—


Total securities available for sale	Recurring	$	435,559	$	—	$	435,559	$	—
Equity securities with readily determinable fair values	Recurring	$	888	$	888	$	—	$	—
Individually evaluated loans	Nonrecurring	$	242	$	—	$	—	$	242


		December 31, 2022
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	210,999	$	—	$	210,999	$	—
Mortgage-backed securities		295,718		—		295,718		—
State and municipal		15,235		—		15,235		—
Corporate bonds		31,602		—		31,602		—


Total securities available for sale	Recurring	$	553,554	$	—	$	553,554	$	—
Equity securities with readily determinable fair values	Recurring	$	1,719	$	1,719	$	—	$	—
Individually evaluated loans	Nonrecurring	$	3,773	$	—	$	—	$	3,773

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Corporation has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements

Dollars in thousands

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

September 30, 2023

Individually evaluated loans

242

Appraisal of collateral

(a)

Appraisal adjustments

(b)

( 16 ) – ( 100 )%

( 91 )%

December 31, 2022

Individually evaluated loans

3,773

Appraisal of collateral

(a)

Appraisal adjustments

(b)

( 10 ) – ( 50 )%

( 48 )%

(a) Fair value is generally determined through management’s estimate or independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.

(b) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal. Higher downward adjustments are caused by negative changes to the collateral or conditions in the real estate market, actual offers or sales contracts received, and/or age of the appraisal.

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.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments:


	September 30, 2023
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	22,786	$	22,786	$	6,448	$	16,338	$	—
Interest-bearing deposits with banks	41,255		41,255		41,255		—		—
Equity securities with readily determinable fair values	888		888		888		—		—
Debt securities available for sale	435,559		435,559		—		435,559		—
Securities held to maturity	64,616		53,843		—		53,843		—

Loans, net of allowance for credit losses	1,596,702		1,526,341		—		—		1,526,341
Accrued interest receivable	7,727		7,727		—		7,727		—
Restricted investment in bank stocks	5,477		N/A		—		N/A		—

Financial liabilities:
Demand deposits and savings	1,738,090		1,556,838		—		1,556,838		—
Time deposits	213,269		199,052		—		199,052		—
Short-term borrowings	33,106		33,861		—		33,861		—
Long-term FHLB advances	100,000		99,389		—		99,389		—
Trust preferred and subordinated debt	20,282		18,037		—		18,037		—
Accrued interest payable	448		448		—		448		—

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments:


	December 31, 2022
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	40,067	$	40,067	$	6,977	$	33,090	$	—
Interest-bearing deposits with banks	128,094		128,094		128,094		—		—
Equity securities with readily determinable fair values	1,719		1,719		1,719		—		—
Debt securities available for sale	553,554		553,554		—		553,554		—
Securities held to maturity	64,977		58,078		—		58,078		—
Loans held for sale	123		123		—		123		—
Loans, less allowance for credit losses	1,520,749		1,458,556		—		—		1,458,556
Accrued interest receivable	6,915		6,915		—		6,915		—
Restricted investment in bank stocks	1,629		1,629		—		1,629		—

Financial liabilities:
Demand deposits and savings	1,905,845		1,905,845		—		1,905,845		—
Time deposits	293,130		276,182		—		276,182		—
Short-term borrowings	41,954		41,954		—		41,954		—

Trust preferred and subordinated debt	21,000		18,648		—		18,648		—
Accrued interest payable	51		51		—		51		—

Note 10 - Deposits

The following table presents the composition of deposits at the dates presented:


In thousands	September 30, 2023		December 31, 2022
Noninterest-bearing demand	$	565,530	$	595,049
Interest-bearing checking, savings, and money markets	1,172,560		1,310,796
Certificates of deposit of $250,000 or less	178,308		241,562
Certificates of deposit greater than $250,000	34,961		51,568
Total	$	1,951,359	$	2,198,975

All deposit accounts are insured by the FDIC up to $250 thousand, the maximum amount allowed by law.

The scheduled maturities of certificates of deposit are as follows:


In thousands
Less than 1 year	$	143,607
1 through 2 years	53,362
2 through 3 years	9,236
3 through 4 years	4,160
4 through 5 years	2,694
Thereafter	210
Total	$	213,269

Note 11 - Borrowings

The Corporation had short-term debt outstanding as follows:


In thousands	September 30, 2023		December 31, 2022
Securities sold under repurchase agreements	$	33,106	$	41,954

	$	33,106	$	41,954

Borrowings with original maturities of one year or less are classified as short-term. Securities sold under repurchase agreements are comprised of customer repurchase agreements, which are sweep accounts with next-day maturities utilized by larger commercial customers to earn interest on their funds. Securities are pledged to these customers in an amount at least equal to the outstanding balance.

The Corporation had long-term debt outstanding as follows:


In thousands	September 30, 2023		December 31, 2022
FHLB advances	$	100,000	$	—



Trust preferred subordinated debt	5,282		6,000
Subordinated debt	15,000		15,000
	$	120,282	$	21,000

The long-term FHLB advances mature between 2026 and 2028 and have a weighted average rate of 4.63 %, with a prepayment penalty. The advances are collateralized by the assets defined in the security agreement and FHLB capital stock. Based on this collateral and ACNB’s holding of FHLB stock, ACNB is eligible to borrow up to $ 845.5 million, of which $ 745.2 million was available at September 30, 2023.

The trust preferred subordinated debt is comprised of debt securities issued by Frederick County Bancorp, Inc. (FCBI) in December 2006 and assumed by ACNB Corporation through the acquisition. FCBI completed the private placement of an aggregate of $ 6.0 million of trust preferred securities. The interest rate on the subordinated debentures is adjusted quarterly to

163 basis points over the three-month Chicago Mercantile Exchange (CME) Term Secured Overnight Financing Rate (SOFR) plus applicable tenor spread adjustment. The debenture has a provision for when LIBOR is no longer available. On September 15, 2023, the most recent interest rate reset date, the interest rate was adjusted to 7.30 % for the period ending December 14, 2023. The trust preferred securities mature on December 15, 2036, and may be redeemed at par, at the Corporation’s option, on any interest payment date.

On March 30, 2021, ACNB Corporation (the Company) entered into Subordinated Note Purchase Agreements (Purchase Agreements) with certain institutional accredited investors and qualified institutional buyers (the Purchasers) pursuant to which the Company sold and issued $ 15.0 million in aggregate principal amount of its 4.00 % fixed-to-floating rate subordinated notes due March 31, 2031 (the Notes). The Notes will bear interest at a fixed rate of 4.00 % per year, from and including March 30, 2021 to, but excluding, March 31, 2026 or earlier redemption date. From and including March 31, 2026 to, but excluding the maturity date or earlier redemption date, the interest rate will reset quarterly at a variable rate equal to the then current 90-day average SOFR plus 329 basis points. As provided in the Notes, the interest rate on the Notes during the applicable floating rate period may be determined based on a rate other than the 90-day average SOFR. The Notes were issued by the Company to the Purchasers at a price equal to 100 % of their face amount. The Notes have a stated maturity of March 31, 2031, are redeemable by the Company at its option, in whole or in part, on or after March 30, 2026, and at any time upon the occurrences of certain events.

ACNB CORPORATION

ITEM 2 – 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, comprehensive income, 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-Q may contain 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 national, regional and local market area economic conditions, competitive factors, and regulatory limitations. Actual results may differ materially from those projected in the forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: short-term and long-term effects of inflation and rising costs on the Corporation, customers and economy; banking system instability caused by failures and continuing financial uncertainty of various banks which may adversely impact the Corporation and its securities and loan values, deposit stability, capital adequacy, financial condition, operations, liquidity, and results of operations; effects of governmental and fiscal policies, as well as legislative and regulatory changes; effects of new laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) and their application with which the Corporation and its subsidiaries must comply; impacts of the capital and liquidity requirements of the Basel III standards or any future standards; effects of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; ineffectiveness of the business strategy due to changes in current or future market conditions; future actions or inactions of the United States government, including the effects of short-term and long-term federal budget and tax negotiations and a failure to increase the government debt limit or a prolonged shutdown of the federal government; effects of economic conditions particularly with regard to the negative impact of any pandemic, epidemic or health-related crisis and the responses thereto on the operations of the Corporation and current customers, specifically the effect of the economy on loan customers’ ability to repay loans; effects of competition, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products and services; inflation, securities market and monetary fluctuations; risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and interest rate protection agreements, as well as interest rate risks; difficulties in acquisitions and integrating and operating acquired business operations, including information technology difficulties; challenges in establishing and maintaining operations in new markets; effects of technology changes; failure of assumptions underlying the establishment of reserves for credit losses and estimations of values of collateral and various financial assets and liabilities; acts of war or terrorism or geopolitical instability; disruption of credit and equity markets; ability to manage current levels of impaired assets; loss of certain key officers; ability to maintain the value and image of the Corporation’s brand and protect the Corporation’s intellectual property rights; continued relationships with major customers; and, potential impacts to the Corporation from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses. We caution readers not to place undue reliance on these forward-looking statements. They only reflect Management’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances. Please carefully review the risk factors described in other documents the Corporation files from time to time with the Securities and Exchange Commission, including the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q. Please also carefully review any Current Reports on Form 8-K filed by the Corporation with the Securities and Exchange Commission.

CRITICAL ACCOUNTING ESTIMATES

The accounting estimates 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 accounting estimates are deemed to be critical by management:

The allowance for credit losses (ACL) represents an amount which, in management’s judgment, is adequate to absorb expected credit losses on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense.

Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.

Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes in the interest rate environment which may directly impact prepayment and curtailment rate assumption, and changes in the financial condition of borrowers.

RESULTS OF OPERATIONS

Quarter ended September 30, 2023, compared to Quarter ended September 30, 2022

Executive Summary

Net income for the three months ended September 30, 2023 was $9.0 million compared to net income of $10.3 million for the comparable quarter of the prior year, a decrease of $1.3 million or 12.4%. Basic and diluted earnings per share for the three months ended September 30, 2023 and 2022 were $1.06 and $1.20 , respectively, an 11.7% decrease. The decrease in net income for the third quarter of 2023 was driven primarily by a decrease in net interest income and higher noninterest expenses, partially offset by an increase in noninterest income.

Net Interest Income

Net interest income totaled $21.7 million for the three months ended September 30, 2023 compared to $22.5 million for the comparable quarter of the prior year, a decrease of $775 thousand, or 3.4%. The decrease in net interest income was driven primarily by a decrease in earning assets, an increase in the cost of funds, and a decrease in purchase accounting accretion. Paycheck Protection Program (PPP) fees and purchase accounting accretion totaled $208 thousand for the three months ended September 30, 2023 compared to $853 thousand for the three months ended September 30, 2022. There were no PPP fees for the three months ended September 30, 2023 compared to $24 thousand for the comparable quarter of last year. The fully taxable equivalent (FTE) net interest margin for the three months ended September 30, 2023 was 4.01%, a 41 basis points increase from 3.60% for the comparable quarter of last year.

Average earning assets declined year-over-year driven primarily by a decrease in cash balances and investments, partially offset by loan growth. Interest income increased by $852 thousand for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 driven primarily by higher interest rates and a shift to higher-yielding assets. The average yield on earnings assets was 4.46% for the three months ended September 30, 2023, an increase of 72 basis points from the comparable quarter of the prior year. Interest expense increased by $1.6 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 driven primarily by an increase in cost and amount of short-term and long-term borrowings to fund loan growth and deposit outflows. The average rate paid on interest bearing deposits was 0.26% for the three months ended September 30, 2023, an increase of 12 basis points from the comparable quarter of the prior year. The average rate paid on total borrowings was 3.83% for the three months ended September 30, 2023, an increase of 218 basis points from the comparable quarter last year.

Provision for Credit Losses and Unfunded Commitments

Based on the forward-looking metrics utilized within the CECL model, combined with the current market environment applied to the Bank’s loan portfolio, the provision for credit losses for the three months ended September 30, 2023 was $250 thousand, and the provision for unfunded commitments was a reversal of $171 thousand compared to no provision for the comparable quarter of the prior year. The determination of the provisions was a result of the analysis of the adequacy of the allowances for credit losses and unfunded commitments calculations. Each quarter, the Corporation assesses risks and reserves required compared with the balances in the allowance for credit losses and unfunded commitments.

Other Income

Total other income was $6.3 million for the three months ended September 30, 2023, an increase of $448 thousand, or 7.7%, from the comparable quarter of the prior year. The higher income was driven primarily by an increase of $200 thousand in commissions from insurance sales due to organic growth. In addition, income from fiduciary, investment management and brokerage activities increased $130 thousand, or 15.8%, driven primarily by strong market returns, an increase in estate settlement income and new business generation. Earnings on investment in bank-owned life insurance increased by $111 thousand due to additional purchases of insurance with a cash surrender value of $12.2 million during the second half of 2022. The net loss on equity securities for the three months ended September 30, 2023, improved to a $27 thousand net loss as compared to an $88 thousand net loss during the comparable quarter of the prior year. Other income in the three months ended September 30, 2023, increased $48 thousand, or 13.3%, to $410 thousand primarily driven by increases in third-party fee income and increases in letter of credit income.

Other Expenses

Other expenses for the quarter ended September 30, 2023 were $16.3 million an increase of $1.0 million, or 6.6%, from the comparable quarter of the prior year. Salaries and employee benefits increased by $749 thousand, or 8.0%, from the comparable quarter of the prior year, primarily driven by a general increase in base wages and commissions and an increase to accrued incentive compensation. Other operating increased $193 thousand, or 12.8%, driven primarily by an increase of $111 thousand in holding company related costs and $97 thousand in director-related fees partially offset by various miscellaneous expenses. Marketing and corporate relations expenses were $159 thousand for the third quarter of 2023 compared to $57 thousand for the comparable quarter of last year. The increase was driven by $73 thousand in expenses related to the rebranding of ACNB Bank’s Maryland banking divisions. FDIC and regulatory increased $125 thousand during the quarter ended September 30, 2023 compared to the same quarter of the prior year due to the timing of expense recognition.

Provision for Income Taxes

The Corporation recognized income taxes of $2.6 million during the third quarter of 2023 compared to $2.7 million income, during the comparable quarter in 2022. The provision for income taxes for the third quarter of 2023 reflects an effective combined Federal and state tax rate (ETR) of 22.2% compared to an ETR of 20.9% for the comparable period of 2022. Any variances from the federal statutory rate of 21% are generally due to tax-free income, which includes interest income on tax-free loans and investment securities and income from life insurance policies, federal income tax credits, and the impact of non-tax deductible expense. Low-income housing tax credits were $3 thousand and $70 thousand for the three months ended September 30, 2023 and 2022, respectively.

Nine Months ended September 30, 2023, compared to Nine Months ended September 30, 2022

Executive Summary

Net income for the nine months ended September 30, 2023, was $27.6 million compared to $25.6 million for the comparable period in 2022, an increase of $2.0 million, or 8.0%. Basic and diluted earnings per share for the nine month period in 2023 was $3.24 and $3.23, respectively, and $2.95 for both basic and diluted earnings per share for the comparable period of last year. The higher net income for the nine months ended September 30, 2023 was driven primarily by increases in net interest income and other income partially offset by an increase in total other expenses.

Net Interest Income

Net interest income totaled $66.8 million for the nine months ended September 30, 2023 compared to $59.4 million for the comparable period of last year, an increase of $7.5 million, or 12.5%. The increase in net interest income was primarily a result

of growth in higher-yielding interest earning assets coupled with higher interest rates. The FTE net interest margin for the first nine months of 2023 was 4.11%, a 96 basis points increase from 3.15% for the comparable period of last year. Year-to-date, PPP fees and purchase accounting accretion totaled $832 thousand compared to $2.8 million for the comparable period of the prior year. PPP fees were $8 thousand for the nine months ended September 30, 2023 compared to $1.3 million for the comparable period of the prior year.

Average earning assets declined year-over-year driven primarily by cash balances decreasing attributed to anticipated deposit outflows as market rates increased in 2022 and 2023. Given ACNB’s funding level, Management continued to restrain deposit rates despite an increase in market interest rates and an increase in rates by competitors. As a result, average deposits declined year-over-year as customers continued to seek higher yielding alternative deposit and investment products. However, interest income increased by $9.2 million for the nine months ended September 30, 2023 compared to the comparable period of last year driven by higher interest rates and a shift into higher yielding assets. The average yield on earnings assets increased to 4.39% for the nine months ended September 30, 2023 compared to 3.29% for the comparable period of the prior year, an increase of 110 basis points. Interest expense increased by $1.8 million for the nine months ended September 30, 2023 compared to the comparable period of the prior year driven by an increase in short-term and long-term borrowings. The average rate paid on interest-bearing deposits was 0.17% for the nine months ended September 30, 2023, an increase of 2 basis points as compared to 0.15% for the comparable period of last year. The average rate paid on total borrowings was 3.33% for the nine months ended September 30, 2023 , an increase of 161 basis points from the comparable period last year.

Provision for Credit Losses and Unfunded Commitments

Based on the forward-looking metrics utilized within the CECL model, combined with the current market environment applied to the Bank’s loan portfolio, the provision for credit losses for the first nine months of 2023 was $74 thousand, and the provision for unfunded commitments was $226 thousand compared to no provision for the comparable period of the prior year. The determination of the provisions was a result of the analysis of the adequacy of the allowances for credit losses and unfunded commitments calculations. Each quarter, the Corporation assesses risks and reserves required compared with the balances in the allowance for credit losses and unfunded commitments.

Other Income

Total other income was $17.5 million for the nine months ended September 30, 2023, an increase of $1.1 million, or 6.7%, from the first nine months of 2022. At the Corporation’s wholly-owned insurance subsidiary, ACNB Insurance Services, Inc., commissions from insurance sales increased $934 thousand, or 14.5%, to $7.4 million during the period primarily due to the acquisition of the business and assets of the Hockley & O’Donnell Agency in the first quarter of 2022 and higher contingent income. Earnings on bank-owned life insurance increased by $347 thousand, or 33.0%, driven primarily by additional purchases of insurance with a cash surrender value of $12.2 million during the second half of 2022. Income from fiduciary, investment management and brokerage activities totaled $2.8 million for the nine months ended September 30, 2023, as compared to $2.4 million for the first nine months of 2022, a $323 thousand, or 13.2%, increase driven primarily by strong market returns and new business generation. A $22 thousand net loss on equity securities was recognized during the first nine months of 2023 compared to a $345 thousand net loss during the first nine months of 2022. A net loss of $739 thousand was recognized on the sales of securities during the first nine months of 2023, compared to no securities sold during the first nine months of 2022. Income from mortgage loans held for sale decreased by $437 thousand, or 93.4%, due to less mortgage activity as a result of an increase in the current rate environment and the strategic decision to retain more mortgage production.

Other Expenses

Other expenses for the nine months ended September 30, 2023 were $48.9 million an increase of $5.3 million, or 12.1%, from the first nine months of 2022. The increase was driven primarily by increases in salaries and employee benefits, other operating, professional services, marketing and corporate relations and equipment expenses. Salaries and employee benefits increased $4.1 million, or 15.8%, when comparing the first nine months of 2023 to the comparable period of the prior year. The increase in salaries and employee benefits expense was driven primarily by a $750 thousand partial reversal of incentive compensation in the first quarter of 2022, higher incentive compensation accrual for 2023 of $277 thousand, a reversal of $484 thousand of net deferred loan expense in the first quarter of 2022 as well as an increase in stock-based compensation expense of $539 thousand, an increase in pension expense of $470 thousand, an increase in the Bank’s salary continuation plan expense of $317 thousand and a general increase in base wages due to merit increases and the acquisition of Hockley & O’Donnell Agency in the first quarter of 2022. Other operating increased $679 thousand, or 15.3%, driven primarily by a loss of $142 thousand as a result of writing off an investment in a title agency, a $131 thousand of increased loan-related and general purpose insurance costs, an increase in costs for the Bank’s internet banking activity costs of $109 thousand, an increase of $118 thousand in director-related fees, and a mark-to-market loss of $66 thousand related to an SBIC fund. Professional services expense totaled $1.6

million during the first nine months of 2023 compared to $1.3 million for the comparable period of the prior year, an increase of $272 thousand or 20.5%. The increase in professional expenses was a result of additional expenses related to the transition of the Corporation’s independent audit firm, higher expenses for third-party consulting services for various projects within the organization, higher expenses for employee recruiting and increased legal fees. Marketing and corporate relations expenses were $472 thousand for the first nine months of 2023 compared to $227 thousand for the comparable period of last year. The increase was driven by $248 thousand expenses related to the rebranding of ACNB Bank’s Maryland banking divisions. Equipment expense increased by $218 thousand, or 4.8%, driven primarily by increases in third-party vendor software costs related to the Bank’s new loan origination system that was implemented in late 2022. FDIC and regulatory costs increased $134 thousand, or 16.8%, due to the timing of expense recognition.

Provision for Income Taxes

The Corporation recognized income taxes of $7.5 million, during the first nine months of 2023, compared to $6.6 million during the comparable period of 2022. The provision for income taxes for the first nine months of 2023 reflects an effective combined ETR of 21.4% compared to an ETR of 20.5% for the comparable period of 2022. Any variances from the federal statutory rate of 21% in the respective periods are generally due to tax-free income, which includes interest income on tax-free loans and investment securities and income from life insurance policies, federal income tax credits, and the impact of non-tax deductible expense. Low-income housing tax credits were $11 thousand and $211 thousand for the nine months ended September 30, 2023 and 2022, respectively.

FINANCIAL CONDITION

Assets totaled $2.4 billion at September 30, 2023 compared to $2.5 billion at December 31, 2022. The decrease from December 31, 2022 was driven primarily by a reduction in cash and cash equivalents to fund loan growth and deposit outflows driven by customers continuing to seek higher yielding alternative deposit and investment products as market interest rates rose during 2022 and 2023 and a reduction in available for sale securities due to general balance sheet and interest rate risk management. Total loans outstanding were $1.6 billion at September 30, 2023 compared to $1.5 billion at December 31, 2022. Loans increased by $77.4 million, or 5.0%, from December 31, 2022 to September 30, 2023, primarily from strong organic loan growth in 2023. Total securities were $501.1 million at September 30, 2023 compared to $620.3 million at December 31, 2022, a decrease of 19.2%. Total deposits were $2.0 billion at September 30, 2023. Deposits decreased by $247.6 million, or 11.3%, since December 31, 2022. Total borrowings were $153.4 million at September 30, 2023. Total borrowings increased by $90.4 million or 143.7%, since December 31, 2022 to fund deposit outflows and loan growth.

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 investment portfolio is comprised of U.S. Government and agency, mortgage-backed, state and 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 September 30, 2023, the securities balance included a net unrealized loss on available for sale securities of $59.7 million, net of taxes, on amortized cost of $510.8 million versus a net unrealized loss of $52.7 million, net of taxes, on amortized cost of $617.6 million at December 31, 2022. The change in fair value of available for sale securities was a result of an increase in market interest rates in 2022 and 2023. The changes in value are deemed to be related solely to changes in market interest rates as the credit quality of the portfolio remained strong.

At September 30, 2023, the securities balance included held to maturity securities with an amortized cost of $64.6 million and a fair value of $53.8 million as compared to an amortized cost of $65.0 million and a fair value of $58.1 million at December 31, 2022. These balances include unamortized, unrealized losses of $3.0 million and $3.9 million as of each respective period end which resulted from the transfer of approximately $39.7 million securities from available for sale to held to maturity during the second quarter of 2022.

The Corporation does not own investments consisting of pools of Alt-A or subprime mortgages, private label mortgage-backed securities, or trust preferred investments.

The fair values of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1) or by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific security but

rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing. Please refer to Note 7 — “Securities” in the Notes to Consolidated Financial Statements for more information on the security portfolio and Note 9 — “Fair Value Measurements” in the Notes to Consolidated Financial Statements for more information about fair value.

Loans

Loans outstanding increased by $77.4 million, or 5.0%, from December 31, 2022 to September 30, 2023. The increase in loans is largely attributable to growth in the commercial lending portfolio. Total commercial loans increased $51.9 million, or 4.8%, as compared to December 31, 2022. Commercial loans are spread among diverse categories that include municipal governments/school districts, commercial real estate, commercial real estate construction, and commercial and industrial. Residential real estate mortgage lending increased by $22.2 million, or 6.1%, as compared to December 31, 2022.

Most of the Corporation’s lending activities are with customers located within the Bank’s market area of southcentral Pennsylvania and northern Maryland. Non-owner occupied commercial real estate represented 60.4% of the commercial real estate portfolio. These borrowers are geographically dispersed throughout ACNB’s marketplace and are leasing commercial properties to a varied group of tenants including medical offices, retail space, and other commercial purpose facilities. Because of the varied nature of the tenants, in aggregate, management believes that these loans present an acceptable risk when compared to commercial loans in general. ACNB does not originate or hold Alt-A or subprime mortgages in its loan portfolio. For more information please see Note 8 — “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements.

Allowance for Credit Losses and Asset Quality

The allowance for credit losses at September 30, 2023, was $19.3 million, or 1.19% of total loans as compared to $17.9 million, or 1.16% of loans, at December 31, 2022. As of January 1, 2023, upon adoption of ASU 2016-13, the allowance for credit losses was $19.5 million, or 1.27% of total loans. The increase from year-end was primarily driven by the adoption of CECL as shown in the table below. For more information please see Note 8 — “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements.

Changes in the allowance for credit losses were as follows:


In thousands	Nine Months Ended September 30, 2023		Year Ended December 31, 2022
Beginning balance – January 1	$	17,861	$	19,033
Impact of CECL adoption	1,618		—
Provision for credit losses	74		—
Recoveries on charged-off loans	100		114
Loans charged-off	(389)		(1,286)
Ending balance	$	19,264	$	17,861

Loans past due 90 days and still accruing were $1.0 million and $1.2 million as of September 30, 2023 and December 31, 2022, respectively. Nonaccrual loans totaled $2.5 million and $2.7 million as of September 30, 2023 and December 31, 2022, respectively.

Information on nonaccrual loans, by collateral type rather than loan class, at September 30, 2023, as compared to December 31, 2022, is as follows:


Dollars in thousands	Number of Credit Relationships	Balance		Specific Loss Allocations		Current Year Charge-Offs		Location	Originated
September 30, 2023

Owner occupied commercial real estate	7	$	1,884	$	181	$	—	In market	2012 - 2020
Commercial and industrial	3	470		368		—		In market	2017 - 2018
Home equity line of credit	1	195		—		—		In market	2017
Total	11	$	2,549	$	549	$	—

December 31, 2022

Owner occupied commercial real estate	5	$	1,772	$	192	$	—	In market	2012 - 2019
Investment/rental residential real estate	1	101		—		—		In market	2016
Commercial and industrial	2	781		628		—		In market	2017 - 2018
Total	8	$	2,654	$	820	$	—

All nonaccrual loans are to borrowers located within the market area served by the Corporation in southcentral Pennsylvania and northern Maryland. All nonaccrual individually evaluated loans were originated by ACNB’s banking subsidiary.

Premises and Equipment

On January 12, 2022, ACNB Bank announced plans to build a full-service community banking office to serve the Upper Adams area of Adams County, PA. The Upper Adams Office opened in October 2022 and, as a result, three community banking offices were consolidated into the new community banking office. Two of the former community banking offices were subsequently transferred to Assets Held for Sale at fair market value. Also, as part of the Bank’s branch optimization program, in the third quarter of 2022, the Bank announced the planned closure of three additional community banking offices effective December 2022. As a result, two of the former community banking offices were transferred to Assets Held for Sale at fair market value. During the nine months ended September 30, 2023, the Bank sold four community banking offices for a net gain on sale of $337 thousand which was recorded as a gain on assets held for sale.

Foreclosed Assets Held for Resale

The carrying value of real estate acquired through foreclosure was $467 thousand which was comprised of one property at September 30, 2023. This same property was recorded in foreclosed assets held for resale as of December 31, 2022. All acquired properties are actively marketed.

Deposits

ACNB relies on deposits as a primary source of funds for lending activities with total deposits of $2.0 billion as of September 30, 2023. Deposits decreased by $247.6 million, or 11.3%, from December 31, 2022, to September 30, 2023. The decrease in deposits were in both non-interest bearing and interest bearing deposits, as a result of customers seeking higher yielding alternative investment or deposit products as market interest rates rose during 2022 and 2023 and management’s continued strategy of discipline deposit rate structure. Historically, deposits vary between quarters mostly reflecting different levels held by local companies, government units and school districts during different times of the year. Despite the decline in deposits in 2023, the loan-to-deposit ratio was 82.81% at September 30, 2023.

ACNB’s deposit pricing function employs a disciplined pricing approach based upon liquidity needs and alternative funding rates, but also strives to price deposits to be competitive with relevant local competition, including local government investment trusts, credit unions and larger regional banks. Given the Corporation’s funding level, the Corporation continued to restrain deposit rates despite an increase in market interest rates and increases in rates by competitors. Interest bearing deposit costs for

the third quarter of 2023 were 0.26% compared to 0.14% for the third quarter of 2022. The ratio of uninsured and non-collateralized deposits to total deposits was approximately 17.4% at September 30, 2023.

Borrowings

Short-term borrowings are comprised primarily of securities sold under agreements to repurchase and short-term borrowings from the FHLB. As of September 30, 2023, short-term Bank borrowings were $33.1 million, as compared to $42.0 million at December 31, 2022. Securities sold under repurchase agreements are within the commercial and local government customer base and have attributes similar to core deposits. Investment securities are pledged in sufficient amounts to collateralize these agreements. Compared to year-end 2022, securities sold under repurchase agreements balances decreased by $8.8 million, or 21.1%, due to changes in the cash flow position of ACNB’s commercial and local government customer base and competition from non-bank sources. There were no short-term FHLB borrowings at September 30, 2023 and December 31, 2022. Short-term FHLB borrowings are used to even out Bank funding from seasonal and daily fluctuations in the deposit base.

Long-term borrowings consist of longer-term advances from the FHLB, trust preferred subordinated debt and subordinated debt. Long-term borrowings totaled $120.3 million at September 30, 2023, versus $21.0 million at December 31, 2022. During 2023, the bank borrowed $100.0 million from the FHLB at a weighted average fixed rate of 4.63% for a weighted average term of 3.88 years to fund deposit outflows and loan growth. Further borrowings will be used when necessary for a variety of risk management and funding purposes. Please refer to the Liquidity discussion below for more information on the Corporation’s ability to borrow.

Capital

ACNB’s capital management strategies have been developed to provide an appropriate rate of return, in the opinion of management, to shareholders, while maintaining its “well-capitalized” regulatory position in relationship to its risk exposure. Please refer to the Risk-Based Capital section below for more information on the Corporation’s capital ratio.

The primary source of additional capital to ACNB is earnings retention, which represents net income less dividends declared. During the first nine months of 2023, ACNB earned $27.6 million and paid dividends of $7.2 million for a dividend payout ratio of 25.94%. Comparatively, during the first nine months of 2022, ACNB earned $25.6 million and paid dividends of $6.7 million for a dividend payout ratio of 26.35%.

On October 24, 2022, the Corporation announced that the Board of Directors approved on October 18, 2022, a new plan to repurchase, in open market and privately negotiated transactions, up to 255,575, or approximately 3%, of the outstanding shares of the Corporation’s common stock. This new common stock repurchase program replaces and supersedes any and all earlier announced repurchase plans. As of September 30, 2023, 47,228 shares of common stock have been repurchased under this new plan.

ACNB Corporation has a Dividend Reinvestment and Stock Purchase Plan that provides registered holders of ACNB Corporation common stock with a convenient way to purchase additional shares of common stock by permitting participants in the plan to automatically reinvest cash dividends on all or a portion of the shares owned and to make quarterly voluntary cash payments under the terms of the plan. Participation in the plan is voluntary, and there are eligibility requirements to participate in the plan. During the nine months ended September 30, 2023, 16,580 shares were issued under this plan with proceeds in the amount of $543 thousand and during the nine months September 30, 2022, 16,226 shares were issued under this plan with proceeds in the amount of $535 thousand.

On March 30, 2021, the Corporation issued $15.0 million of subordinated debt in order to pay off existing higher rate debt, to potentially repurchase ACNB common stock and to use for inorganic growth opportunities. Otherwise, the $15.0 million of subordinated debt qualifies as Tier 2 capital at the Holding Company level, but can be transferred to the Bank where it qualifies as Tier 1 Capital. The debt has a 4.00% fixed-to-floating rate and a stated maturity of March 31, 2031. The debt is redeemable by the Corporation at its option, in whole or in part, on or after March 30, 2026, and at any time upon occurrences of certain unlikely events such as receivership, insolvency, or liquidation of ACNB or ACNB Bank.

The Corporation has trust preferred subordinated debt that was assumed by ACNB Corporation through the acquisition of Frederick County Bancorp, Inc. (FCBI). FCBI completed the private placement of an aggregate of $6.0 million of trust preferred securities. The interest rate on the trust preferred subordinated debt is adjusted quarterly to 163 basis points over the three-month Chicago Mercantile Exchange (CME) Term Secured Overnight Financing Rate (SOFR) plus applicable tenor spread adjustment. On September 15, 2023 the most recent interest rate reset date, the interest rate was adjusted to 7.30% for the period ending December 14, 2023. The trust preferred securities mature on December 15, 2036, and may be redeemed at

par, at the Corporation’s option, on any interest payment date. The trust preferred subordinated debt qualifies as Tier 1 capital.

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 its 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. Management believes, as of September 30, 2023, and December 31, 2022, that ACNB’s banking subsidiary met all minimum capital adequacy requirements to which it is subject and is categorized as “well capitalized” for regulatory purposes. There are no subsequent conditions or events that management believes have changed the banking subsidiary’s category.

Regulatory Capital

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations began January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began compliance effective January 1, 2014. The final rules call for the following capital requirements:

• a minimum ratio of common Tier 1 capital to risk-weighted assets of 4.50%;

• a minimum ratio of Tier 1 capital to risk-weighted assets of 6.00%;

• a minimum ratio of total capital to risk-weighted assets of 8.00%; and,

• a minimum leverage ratio of 4.00%.

In addition, the final rules established a common equity Tier 1 capital conservation buffer of 2.50% of risk-weighted assets applicable to all banking organizations.

Risk-Based Capital

In December 2018, the FDIC approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL. The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. The Corporation adopted CECL effective January 1, 2023 and elected to implement the capital transition relief over the permissible three-year period.

In 2019, the federal banking agencies issued a final rule to provide an optional simplified measure of capital adequacy for qualifying community banking organizations, including the community bank leverage ratio (CBLR) framework. Generally, under the CBLR framework, qualifying community banking organizations with total assets of less than $10.0 billion, and limited amounts of off-balance sheet exposures and trading assets and liabilities, may elect whether to be subject to the CBLR framework if they have a CBLR of greater than 9.00% (subsequently reduced to 8.00% as a COVID-19 relief measure). Qualifying community banking organizations that elect to be subject to the CBLR framework and continue to meet all requirements under the framework would not be subject to risk-based or other leverage capital requirements and, in the case of an insured depository institution, would be considered to have met the well capitalized ratio requirements for purposes of the FDIC’s Prompt Corrective Action framework. The CBLR framework was available for banks to use in their March 31, 2020 Call Report. The Corporation has performed changes to capital adequacy and reporting requirements within the quarterly Call Report, and it opted out of the CBLR framework.

The capital ratios are as follows:


	Actual		For Capital Adequacy Purposes 1		To Be Well Capitalized Under Prompt Corrective Action Regulations
September 30, 2023
Tier 1 leverage ratio (to average assets)
ACNB Corporation	11.97	%	4.00	%	N/A
ACNB Bank	11.16	%	4.00	%	5.00	%
Common Tier 1 capital ratio (to risk-weighted assets)
ACNB Corporation	15.30	%	4.50	%	N/A
ACNB Bank	14.99	%	4.50	%	6.50	%
Tier 1 risk-based capital ratio (to risk-weighted assets)
ACNB Corporation	15.59	%	6.00	%	N/A
ACNB Bank	14.99	%	6.00	%	8.00	%
Total risk-based capital ratio (to risk-weighted assets)
ACNB Corporation	17.49	%	8.00	%	N/A
ACNB Bank	16.04	%	8.00	%	10.00	%













December 31, 2022
Tier 1 leverage ratio (to average assets)
ACNB Corporation	9.91	%	4.00	%	N/A
ACNB Bank	9.50	%	4.00	%	5.00	%
Common Tier 1 capital ratio (to risk-weighted assets)
ACNB Corporation	15.00	%	4.50	%	N/A
ACNB Bank	14.68	%	4.50	%	6.50	%
Tier 1 risk-based capital ratio (to risk-weighted assets)
ACNB Corporation	15.36	%	6.00	%	N/A
ACNB Bank	14.68	%	6.00	%	8.00	%
Total risk-based capital ratio (to risk-weighted assets)
ACNB Corporation	17.32	%	8.00	%	N/A
ACNB Bank	15.76	%	8.00	%	10.00	%

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 interest bearing deposits wit h banks, maturities and repayments from the securities portfolio, scheduled repayments of loans receivable, the core deposit bas e, the ability to raise brokered deposits, and the ability to borrow from, including but not limited to, the FHLB, Federal Reserve Discount Window and other contingent sources.

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 for liquidity and capital resource requirements for all material short- and long-term cash requirements from known contractual and other obligations.

At September 30, 2023, ACNB’s banking subsidiary could borrow approximately $845.5 million from the FHLB, of which $745.2 million was available. At September 30, 2023, ACNB’s banking subsidiary could borrow approximately $3.6 million from the Discount Window, of which the full amount was available. The underlying collateral at the Discount Window is made up of investment securities held in a joint-custody account under the Bank’s name.

1 Ratios do not include capital conservation buffer.

A new Federal Reserve lending facility, named the Bank Term Funding Program, was enacted in March 2023 that provides banks the ability to borrow on the par value of certain investment securities used to collateralize the account. As of September 30, 2023, ACNB’s banking subsidiary could borrow approximately $169.0 million from the Bank Term Funding Program, of which the full amount was available.

ACNB’s banking subsidiary maintains several unsecured Fed Funds lines with correspondent banks. As of September 30, 2023, Fed Funds line capacity at the banking subsidiary was $132.0 million, of which the full amount was available. In 2018, ACNB Corporation executed a guaranty for a note related to a $1.5 million commercial line of credit from a local bank, with normal terms and conditions for such a line, for ACNB Insurance Services, Inc., the borrower and a wholly-owned subsidiary of ACNB Corporation. The commercial line of credit is for general working capital needs as they arise and did not have any outstanding balance as of September 30, 2023. ACNB Corporation maintains a $5.0 million unsecured line of credit with a correspondent bank. The line of credit remains at full capacity as of September 30, 2023.

Another source of liquidity is securities sold under repurchase agreements to customers of ACNB’s banking subsidiary totaling approximately $33.1 million and $42.0 million at September 30, 2023, and December 31, 2022, respectively. These agreements vary in balance according to the cash flow needs of customers and competing accounts at other financial organizations.

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 shareholders and corporate expenses. The main source of funding for the parent company is the dividends it receives from its subsidiaries. Federal and state banking regulations place certain legal restrictions and other practicable safety and soundness restrictions on dividends paid to the parent company from the subsidiary bank.

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 September 30, 2023, the Corporation had unfunded outstanding commitments to extend credit of $423.4 million and outstanding standby letters of credit of $22.8 million. 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.

Market Risks

During March and April 2023 three significant bank failures occurred (Silicon Valley Bank, Signature Bank and First Republic Bank). This was and continues to be accompanied by financial instability at certain additional banks. These bank failures and bank instabilities have created and may continue to create market and other risks, for all financial institutions and banks, including ACNB. These risks include, but are not limited to:

• market risk and loss of confidence in the financial services sector, and/or specific banks;

• deterioration of securities and loan portfolios;

• deposit volatility and/or reductions with higher volumes and occurring over shorter periods of time;

• increased liquidity demand and utilization of sources of liquidity; and,

• interest rate volatility and abrupt, sudden and greater than usual rate changes.

These factors individually, or in any combination, could materially and adversely affect:

• financial condition;

• operations and results thereof; and,

• stock price.

In addition, the previously mentioned bank failures and instabilities may result in an increase of FDIC deposit insurance premiums and/or result in special FDIC deposit insurance assessments, which may adversely affect the Corporation’s financial

condition, operations, results thereof or stock price.

The Corporation cannot predict the impact, timing or duration of such events.

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.

RECENT LEGAL AND REGULATORY DEVELOPMENTS

Management has reviewed the recent development sections that were previously disclosed in the Annual Report on Form 10-K for the fiscal period ended December 31, 2022. There are no material changes in the recent legal and regulatory development section as previously disclosed in the recent developments section on the Form 10-K.

SUPERVISION AND REGULATION

Dividends

ACNB is a legal entity separate and distinct from its subsidiary bank. ACNB’s revenues, on a parent company only basis, result primarily from dividends paid to the Corporation by its subsidiaries. Federal and state laws regulate the payment of dividends by ACNB’s subsidiary bank and state laws effect dividends by ACNB’s insurance subsidiary. For further information, please refer to Regulation of Bank below.

Regulation of Bank

The operations of the subsidiary bank are subject to statutes applicable to banks chartered under the banking laws of Pennsylvania, to state nonmember banks of the Federal Reserve, and to banks whose deposits are insured by the FDIC. The subsidiary bank’s operations are also subject to regulations of the Pennsylvania Department of Banking and Securities, Federal Reserve, and FDIC.

The Pennsylvania Department of Banking and Securities, which has primary supervisory authority over banks chartered in Pennsylvania, regularly examines banks in such areas as reserves, loans, investments, management practices, and other aspects of operations. The subsidiary bank is also subject to examination by the FDIC for safety and soundness, as well as consumer compliance. 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 Examination Council, or FFIEC.

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 and impact 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.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management monitors and evaluates changes in market conditions on a regular basis. Based upon the most recent review, management has determined that there have been no material changes in market risks since year-end 2022. For further discussion of year-end information, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

ITEM 4 – CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Corporation carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its 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 periodic SEC filings.

Disclosure controls and procedures are Corporation controls and other procedures that are designed to ensure that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Corporation’s internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

PART II – OTHER INFORMATION

ACNB CORPORATION

ITEM 1 – LEGAL PROCEEDINGS

As of September 30, 2023, 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 assets are the subject, which could have a material adverse effect on ACNB or its subsidiaries or their results of operations. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation or its subsidiaries by governmental authorities.

ITEM 1A – RISK FACTORS

Management has reviewed the risk factors that were previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There are no material changes in risk factors as previously disclosed in the Form 10-K except as described below.

CALENDAR YEAR 2023 NEGATIVE DEVELOPMENTS AFFECTING THE BANKING INDUSTRY, INCLUDING BANK FAILURES OR CONCERNS REGARDING LIQUIDITY, HAVE ERODED CUSTOMER CONFIDENCE IN THE BANKING SYSTEM AND MAY HAVE A MATERIAL ADVERSE EFFECT ON THE CORPORATION.

During 2023 events impacting the banking industry, including the high-profile failures or instability of certain banking institutions, have resulted in general uncertainty and eroded confidence in the safety, soundness, and financial strength of the financial services sector. In particular, the bank failures highlighted the potential serious impact of a financial institution unable to meet withdrawal requests by depositors. This has resulted in a growing concern about liquidity in the banking industry, access to and volatile capital markets and reduced stock valuations for certain financial institutions. Similar future events, including additional bank failures or bank instability, could directly or indirectly adversely impact the Corporation’s own liquidity, access to capital markets, stock price, financial condition and results of operations. Further, these recent events may also result in: greater regulatory scrutiny and enforcement; additional and more stringent laws and regulations for the financial services industry; increased FDIC deposit insurance premiums or special FDIC assessments; and higher capital ratio requirements, which as a result could have a material negative impact and adverse effect on the Corporation’s business, financial condition and results of operations.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 5, 2009, shareholders approved and adopted the amendment to the Articles of Incorporation of ACNB Corporation to authorize up to 20,000,000 shares of preferred stock, par value $2.50 per share. As of September 30, 2023, there were no issued or outstanding shares of preferred stock.

On May 1, 2018, shareholders approved and ratified the ACNB Corporation 2018 Omnibus Stock Incentive Plan, effective as of March 20, 2018, in which awards shall not exceed, in the aggregate, 400,000 shares of common stock, plus any shares that were authorized, but not issued, under the ACNB Corporation 2009 Restricted Stock Plan. The ACNB Corporation 2009 Restricted Stock Plan expired by its own terms after 10 years on February 24, 2019. No further shares may be issued under this plan and the remaining 174,055 shares were transferred to the ACNB Corporation 2018 Omnibus Stock Incentive Plan. As of September 30, 2023, there were 100,746 shares issued under this plan. The maximum number of shares that may yet be granted under this plan is 473,309. The Corporation’s Registration Statement under the Securities Act of 1933 on Form S-8 for the ACNB Corporation 2018 Omnibus Stock Incentive Plan was filed with the Securities and Exchange Commission on March 8, 2019. In addition, on March 8, 2019, the Corporation filed Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 for the ACNB Corporation 2009 Restricted Stock Plan to add the ACNB Corporation 2018 Omnibus Stock Incentive Plan to the registration statement.

On October 24, 2022, the Corporation announced that the Board of Directors approved on October 18, 2022, a new plan to repurchase, in open market and privately negotiated transactions, up to 255,575, or approximately 3%, of the outstanding shares of the Corporation’s common stock. This new common stock repurchase program replaces and supersedes any and all earlier announced repurchase plans. During the quarter ended September 30, 2023, 46,378 shares of common stock had been repurchased under this new plan.


	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan	Maximum number of shares that may yet be purchased under the plan
July 1 - July 31, 2023	—	$	—	850	254,725
August 1 - August 31, 2023	20,444	33.35		21,294	234,281
September 1 - September 30, 2023	25,934	32.69		47,228	208,347

On November 23, 2022, ACNB Corporation entered into an issuer stock repurchase agreement with an independent third-party broker under which the broker was authorized to repurchase the Corporation’s common stock on behalf of the Corporation, subject to certain price, market and volume constraints specified in the agreement. The agreement was established in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (Exchange Act), and commenced on December 26, 2022, and terminated, subject to certain other conditions set forth in the agreement, on January 27, 2023. The shares were to be purchased pursuant to the Corporation’s common stock repurchase program, as previously announced on October 24, 2022, and in a manner consistent with applicable laws and regulations, including the provisions of the safe harbor contained in Rule 10b-18 under the Exchange Act.

On August 10, 2023, ACNB Corporation entered into an issuer stock repurchase agreement with an independent third-party broker under which the broker was authorized to repurchase the Corporation’s common stock on behalf of the Corporation, subject to certain price, market and volume constraints specified in the agreement. The agreement was established in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (Exchange Act), and commenced on September 16, 2023. The shares were to be purchased pursuant to the Corporation’s common stock repurchase program, as previously announced on October 24, 2022, and in a manner consistent with applicable laws and regulations, including the provisions of the safe harbor contained in Rule 10b-18 under the Exchange Act.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES – NOTHING TO REPORT.

ITEM 4 – MINE SAFETY DISCLOSURES – NOT APPLICABLE.

ITEM 5 – OTHER INFORMATION – NOTHING TO REPORT.

ITEM 6 – EXHIBITS

The following exhibits are included in this report:


Exhibit 2.1						Agreement and Plan of Reorganization by and among ACNB Corporation, ACNB South Acquisition Subsidiary, LLC, ACNB Bank, New Windsor Bancorp, Inc., and New Windsor State Bank dated as of November 21, 2016, as amended. (Incorporated by reference to Annex A of the Registrant’s Registration Statement No. 333-215914 on Form S-4, filed with the Commission on February 6, 2017.) Schedules are omitted; the Registrant agrees to furnish copies of Schedules to the Securities and Exchange Commission upon request.

Exhibit 2.2						Amendment No. 2 to Agreement and Plan of Reorganization by and among ACNB Corporation, ACNB South Acquisition Subsidiary, LLC, ACNB Bank, New Windsor Bancorp, Inc., and New Windsor State Bank dated as of April 18, 2017. (Incorporated by reference to Exhibit 2.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the Commission on August 4, 2017.)

Exhibit 2.3						Agreement and Plan of Reorganization by and among ACNB Corporation, ACNB South Acquisition Subsidiary, LLC, ACNB Bank, Frederick County Bancorp, Inc. and Frederick County Bank dated as of July 1, 2019. (Incorporated by reference to Annex A of the Registrant’s Registration Statement No. 333-233791 on Form S-4, filed with the Commission on September 16, 2019.) Schedules are omitted; the Registrant agrees to furnish copies of Schedules to the Securities and Exchange Commission upon request.

Exhibit 3(i)						Amended and Restated Articles of Incorporation of ACNB Corporation. (Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on May 7, 2018.)

Exhibit 3(ii)						Amended and Restated Bylaws of ACNB Corporation. (Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on November 21, 2022.)

Exhibit 4.1						Form of ACNB Corporation 4.00% Fixed-to-Floating Rate Subordinated Note due March 31, 2031. (Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2021.)

Exhibit 10.1						ACNB Bank Amended and Restated Executive Supplemental Life Insurance Plan — Applicable to James P. Helt, David W. Cathell, Lynda L. Glass and Douglas A. Seibel. (Incorporated by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Commission on March 6, 2015.)

Exhibit 10.2						ACNB Bank Amended and Restated Director Supplemental Life Insurance Plan — Applicable to Kimberly S. Chaney, Frank Elsner, III, Todd L. Herring, Scott L. Kelley, James J. Lott, Donna M. Newell, Daniel W. Potts, D. Arthur Seibel, Jr. and Alan J. Stock. (Incorporated by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Commission on March 6, 2015.)

Exhibit 10.3						ACNB Bank Amended and Restated Director Deferred Fee Plan — Applicable to Kimberly S. Chaney, Frank Elsner, III, Todd L. Herring, Scott L. Kelley, James J. Lott, Donna M. Newell, Marian B. Schultz, D. Arthur Seibel, Jr., Alan J. Stock and James E. Williams. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on January 6, 2012.)

Exhibit 10.4						ACNB Bank Salary Savings Plan. (Incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, filed with the Commission on November 4, 2022.)

Exhibit 10.5						Group Pension Plan for Employees of ACNB Bank. (Incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, filed with the Commission on November 4, 2022.)


Exhibit 10.6						Amended and Restated Employment Agreement between ACNB Corporation, Adams County National Bank and Lynda L. Glass dated as of December 31, 2008. (Incorporated by reference to Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Commission on March 13, 2009.)

Exhibit 10.7						ACNB Corporation 2009 Restricted Stock Plan. (Incorporated by reference to Appendix C of the Registrant’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 25, 2009.)

Exhibit 10.8						Salary Continuation Agreement by and between ACNB Bank and Lynda L. Glass dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

Exhibit 10.9						Salary Continuation Agreement by and between ACNB Bank and David W. Cathell dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

Exhibit 10.10						Amended and Restated 1996 Salary Continuation Agreement by and between ACNB Bank and Lynda L. Glass dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.5 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

Exhibit 10.11						Salary Continuation Agreement by and between ACNB Bank and James P. Helt dated as of March 28, 2012. (Incorporated by reference to Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Commission on March 7, 2014.)

Exhibit 10.12						ACNB Bank Variable Compensation Plan effective January 1, 2014, as amended. (Incorporated by reference to Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Commission on March 14, 2022.)

Exhibit 10.13						First Amendment to Amended and Restated Employment Agreement by and between ACNB Corporation, ACNB Bank and Lynda L. Glass dated as of December 27, 2016. (Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on December 28, 2016.)

Exhibit 10.14						Amended and Restated Employment Agreement by and among ACNB Corporation, ACNB Bank and James P. Helt dated as of October 5, 2022. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)

Exhibit 10.15						ACNB Corporation 2018 Omnibus Stock Incentive Plan. (Incorporated by reference to Exhibit A of the Registrant’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 27, 2018.)

Exhibit 10.16						Form of Exhibit B Split Dollar Policy Endorsement to ACNB Bank Amended and Restated Director Supplemental Life Insurance Plan dated November 27, 2018. (Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2018.)

Exhibit 10.17						Salary Continuation Agreement by and between ACNB Bank and James P. Helt dated as of November 27, 2018. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2018.)

Exhibit 10.18						Form of Subordinated Note Purchase Agreement dated March 30, 2021, by and among ACNB Corporation and the Purchasers. (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2021.)

Exhibit 10.19						Amended and Restated Employment Agreement by and among ACNB Corporation, ACNB Bank and Jason H. Weber dated as of October 5, 2022. (Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)


Exhibit 10.20						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Employees dated as of March 15, 2022. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on March 21, 2022.)

Exhibit 10.21						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Non-Employee Directors dated as of March 15, 2022. (Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the Commission on March 21, 2022.)

Exhibit 10.22						Salary Continuation Agreement by and between ACNB Bank and James P. Helt dated as of October 5, 2022. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)

Exhibit 10.23						Salary Continuation Agreement by and between ACNB Bank and Jason H. Weber dated as of October 5, 2022. (Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)

Exhibit 10.24						First Amendment to ACNB Bank Salary Continuation Agreement by and between ACNB Bank and James P. Helt dated as of October 5, 2022. (Incorporated by reference to Exhibit 99.5 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)

Exhibit 10.25						First Amendment to ACNB Bank Salary Continuation Agreement by and between ACNB Bank and Jason H. Weber dated as of October 5, 2022. (Incorporated by reference to Exhibit 99.7 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)

Exhibit 10.26						Salary Continuation Agreement by and between ACNB Bank and Jason H. Weber dated as of January 31, 2022. (Incorporated by reference to Exhibit 99.8 of the Registrant’s Current Report on Form 8-K, filed with the Commission on October 7, 2022.)

Exhibit 10.27						Amended and Restated Employment Agreement between ACNB Bank and Douglas A. Seibel dated as of October 20, 2022. (Incorporated by reference to Exhibit 10.31 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Commission on March 3, 2023.)

Exhibit 10.28						Supplemental Executive Retirement Plan by and between ACNB Bank and Douglas A. Seibel dated as of November 27, 2018. (Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2018.)

Exhibit 10.29						Supplemental Executive Retirement Plan by and between ACNB Bank and Douglas A. Seibel dated as of October 20, 2022. (Incorporated by reference to Exhibit 10.33 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Commission on March 3, 2023.)

Exhibit 10.30						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Employees dated as of March 15, 2023. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on March 21, 2023.)

Exhibit 18						Preferability Letter from ParenteBeard LLC dated as of August 3, 2012. (Incorporated by reference to Exhibit 18 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, filed with the Commission on August 3, 2012.)

Exhibit 31.1						Chief Executive Officer Certification of Quarterly Report on Form 10-Q.

Exhibit 31.2						Chief Financial Officer Certification of Quarterly Report on Form 10-Q.

Exhibit 32.1						Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to 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 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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Exhibit 101.SCH						XBRL Taxonomy Extension Schema.

Exhibit 101.CAL						XBRL Taxonomy Extension Calculation Linkbase.

Exhibit 101.DEF						XBRL Taxonomy Extension Definition Linkbase.

Exhibit 104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

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)

Date:	November 3, 2023	/s/ James P. Helt
		James P. Helt
		President & Chief Executive Officer

		/s/ Jason H. Weber
		Jason H. Weber
		Executive Vice President/Treasurer &
		Chief Financial Officer (Principal Financial Officer)

TABLE OF CONTENTS

Part I - Financial Information Item 1 - Financial Statements Note 1 - Basis Of Presentation and Nature Of Operations Note 2 - Earnings Per Share and Restricted Stock Note 3 - Retirement Benefits Note 4 - Guarantees Note 5 - Accumulated Other Comprehensive Loss Note 6 - Segment Reporting Note 7 - Securities Note 8 - Loans and Allowance For Credit Losses Note 9 - Fair Value Measurements Note 10 - Deposits Note 11 - Borrowings Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2 Management S Discussion and Analysis Of Financial Item 3 Quantitative and Qualitative Disclosures About Market Risk Item 4 Controls and Procedures Part II Other Information Item 1 Legal Proceedings Item 1A Risk Factors Item 2 Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3 Defaults Upon Senior Securities Nothing To Report Item 3 Defaults Upon Senior Securities Item 4 Mine Safety Disclosures Not Applicable Item 4 Mine Safety Disclosures Item 5 Other Information Nothing To Report Item 5 Other Information Item 6 Exhibits

Exhibits

ACNB 10-Q Quarter ended Sept. 30, 2023

Exhibits