# ACNB CORP (ACNB) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from ACNB CORP's 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/715579/000071557925000030/acnb-20241231.htm Accession: 0000715579-25-000030 Filing date: 2025-03-14 Report date: 2024-12-31 Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Confidence: high Company profile: /company/ACNB/ All MD&A years: /company/ACNB/mda/ Previous year: /company/ACNB/mda/fy2023/ (FY 2023) Next year: /company/ACNB/mda/fy2025/ (FY 2025) EXECUTIVE OVERVIEW ACNB Corporation is the financial holding company for the wholly-owned subsidiaries of ACNB Bank and ACNB Insurance Services. ACNB Bank provides a full range of retail and commercial financial services in Pennsylvania and Maryland primarily through its network of 27 community banking offices. ACNB Insurance Services offers a broad range of property, casualty, health, life and disability insurance serving personal and commercial clients through office locations in Westminster and Jarrettsville, Maryland, and Gettysburg, Pennsylvania and is licensed to do business in 46 states. The primary source of the Corporation’s revenues is net interest income derived from interest earned on loans and investments, less deposit and borrowing funding costs. Revenues are influenced by general economic factors, including market interest rates, the economy of the markets served, stock market conditions, as well as competitive forces within the markets. The Corporation also generates revenue through commissions and fees earned on various services and financial products offered to its customers and through gains on sales of assets, such as loans, investments and properties. The Corporation incurs expenses to generate the revenue through provision for credit losses, noninterest expense and income taxes. The Corporation’s overall strategy is to increase loan growth in its local markets, while maintaining a reasonable funding base by offering competitive deposit products and services. ACNB reported earnings of $31.8 million in 2024 impacted by $1.6 million merger-related expenses, net of tax impact, incurred as a result of the acquisition of Traditions. In addition, the financial results for the year ended December 31, 2024 were impacted by a $2.8 million reversal of the provisions for credit losses and unfunded commitments. The following table presents a summary of the Corporation’s earnings and selected performance and asset quality ratios for the years ended December 31: [[GREPCENT_TABLE]] [["(Dollars in thousands, except per share data)","2024","","2023","","2022"],["Net income","$","31,846","","","$","31,688","","","$","35,752"],["Diluted earnings per share","$","3.73","","$","3.71","","$","4.15"],["Cash dividends declared","$","1.26","","","$","1.14","","","$","1.06"],["Return on average assets","1.31","%","","1.32","%","","1.31","%"],["Return on average equity","10.94","%","","12.23","%","","14.35","%"],["Net interest margin 1","3.79","%","","4.07","%","","3.36","%"],["Non-performing assets to total assets","0.30","%","","0.19","%","","0.17","%"],["Net charge-offs to average loans outstanding","0.02","%","","0.02","%","","0.08","%"],["Allowance for credit losses to total loans","1.03","%","","1.23","%","","1.16","%"]] [[/GREPCENT_TABLE]] ________________________________________ 1 Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate. Traditions Acquisition On July 23, 2024, ACNB entered into an agreement and plan of reorganization to acquire Traditions Bancorp, Inc. and its banking subsidiary Traditions Bank, a Pennsylvania state-chartered community bank headquartered in York, Pennsylvania which operated eight community banking offices located in South Central Pennsylvania. The Traditions Acquisition was closed effective February 1, 2025. As of December 31, 2024 and 2023, Traditions had total assets of $870.1 million and $840.1 million, respectively, total loans of $674.4 million and $668.8 million, respectively, and total deposits of $749.3 million and $731.1 million, respectively. Common shares outstanding totaled 2,788,164 and 2,736,544 at December 31, 2024 and 2023, respectively. 32 Table of Contents Summary Financial Results for the year ended December 31, 2024 •Net Income — Net income was $31.8 million, a $158 thousand, or 0.5%, increase compared to $31.7 million for the same period in 2023. The 2024 financial results were impacted by $2.0 million in merger-related expenses related to the Traditions Acquisition offset by a $2.8 million reversal of the provisions for credit losses and unfunded commitments. The 2023 financial results were impacted by an after-tax loss of approximately $3.5 million on the repositioning of the investment securities portfolio. •Net Interest Income — Net interest income was $83.6 million in 2024 compared to $88.3 million in 2023, a decrease of $4.7 million, or 5.3%, driven primarily by a higher cost of funds and an increase in long-term borrowings. ◦Net Interest Margin — The Corporation’s FTE net interest margin decreased to 3.79% in 2024 compared to 4.07% in 2023, a decrease of 28 basis points. ◦Yield on Average Interest-earning Assets — 4.86% for 2024, an increase of 41 basis points compared to the same period of 2023. ◦Loan Growth — Average loans grew $94.9 million, or 6.0%, compared to the same period of 2023. The growth was largely driven by increases in commercial real estate and residential mortgages. ◦Deposit Decline — Average interest-bearing deposits decreased $113.8 million, or 7.8%, compared to the same period of 2023. The overall decrease in average interest-bearing deposits was partially offset by a $28.1 million, or 12.2%, increase in time deposits as a result of ongoing promotions and brokered time deposits issued by the Bank. During the same period, average noninterest-bearing deposits decreased $65.3 million, or 12.0%. •Asset Quality — Asset quality metrics continue to be stable despite increases in non-performing loans during the year. The provision for credit losses was a reversal of $2.4 million and the provision for unfunded commitments was a reversal of $326 thousand for the year ended December 31, 2024 compared to the $860 thousand provision for credit losses and the reversal of $16 thousand for unfunded commitments for the year ended December 31, 2023. ◦Non-performing loans were $6.8 million, or 0.40% of total loans at December 31, 2024 compared to $4.2 million, or 0.26% of total loans at December 31, 2023. The increase in non-performing loans at December 31, 2024 compared to the prior year was primarily the result of one long-standing commercial relationship in the healthcare industry comprised of both owner-occupied commercial real estate and commercial and industrial loans. ◦Annualized net charge-offs for the year ended December 31, 2024 were 0.04% of total average loans compared to 0.02% for the year ended December 31, 2023. •Noninterest income — Noninterest income was $24.7 million and $18.4 million in 2024 and 2023, respectively. The increase was driven primarily by the net loss on sales of securities as a result of the repositioning of the investment securities portfolio in 2023. In addition, higher wealth management income, insurance commissions and gain from mortgage loans held for sale in 2024 compared to 2023 contributed to the increase. •Noninterest expenses — Noninterest expenses totaled $70.7 million, an increase of $4.6 million, or 7.0%, in 2024 compared to $66.1 million in 2023. The increase was driven primarily by merger-related, salary and employee benefits and equipment expenses. A more thorough discussion of the Corporation’s results of operations and financial condition is included in the following pages. CRITICAL ACCOUNTING POLICIES The accounting policies that the Corporation’s management deems to be most important to the presentation of its financial condition and results of operations, because they 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 estimate is deemed to be critical by management: Allowance for Credit Losses - The 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 33 Table of Contents ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for (reversal of) 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 Net income for the year ended December 31, 2024 was $31.8 million, an increase of $158 thousand, or 0.5%, compared to net income of $31.7 million for the same period of 2023. Diluted earnings per share for the years ended December 31, 2024 and 2023 were $3.73 and $3.71, respectively. Net Interest Income The primary source of ACNB’s traditional banking revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets. Earning assets include loans, securities, and interest-bearing deposits with banks. Interest-bearing liabilities include deposits and borrowings. Net interest income is affected by changes in interest rates, volume of interest-bearing assets and liabilities, and the composition of those assets and liabilities. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item 7a, “Quantitative and Qualitative Disclosures About Market Risk”. 34 Table of Contents The following table provides a comparative average Consolidated Statement of Condition and net interest income analysis for the years ended December 31. Interest income and yields are presented on a FTE basis. The discussion following this table is based on these tax equivalent amounts. [[GREPCENT_TABLE]] [["","2024","","2023","","2022"],["(Dollars in thousands)","Average Balance","","Interest 1","","Yield/ Rate","","Average Balance","","Interest 1","","Yield/ Rate","","Average Balance","","Interest 1","","Yield/ Rate"],["ASSETS"],["Loans"],["Taxable","$","1,605,976","","","$","90,547","","","5.64","%","","$","1,499,635","","","$","79,433","","","5.30","%","","$","1,428,150","","","$","68,898","","","4.82","%"],["Tax-exempt","62,532","","","1,559","","","2.49","","","73,993","","","1,778","","","2.40","","","78,204","","","1,706","","","2.18"],["Total Loans 2","1,668,508","","","92,106","","","5.52","","","1,573,628","","","81,211","","","5.16","","","1,506,354","","","70,604","","","4.69"],["Investment Securities"],["Taxable","445,531","","","11,718","","","2.63","","","491,208","","","11,316","","","2.30","","","516,126","","","9,799","","","1.90"],["Tax-exempt","54,596","","","1,438","","","2.63","","","57,670","","","1,478","","","2.56","","","53,242","","","1,448","","","2.72"],["Total Investment Securities 3","500,127","","","13,156","","","2.63","","","548,878","","","12,794","","","2.33","","","569,368","","","11,247","","","1.98"],["Interest-bearing deposits with banks","53,482","","","2,832","","","5.30","","","66,246","","","3,318","","","5.01","","","427,706","","","5,860","","","1.37"],["Total Earning Assets","2,222,117","","","108,094","","","4.86","","","2,188,752","","","97,323","","","4.45","","","2,503,428","","","87,711","","","3.50"],["Cash and due from banks","20,920","","","","","","","30,684","","","","","","","31,511"],["Premises and equipment","25,873","","","","","","","26,582","","","","","","","29,205"],["Other assets","185,037","","","","","","","165,175","","","","","","","175,492"],["Allowance for credit losses","(18,589)","","","","","","","(18,915)","","","","","","","(18,679)"],["Total Assets","$","2,435,358","","","","","","","$","2,392,278","","","","","","","$","2,720,957"],["LIABILITIES"],["Interest-bearing demand deposits","$","516,033","","","$","1,603","","","0.31","%","","$","569,357","","","$","757","","","0.13","%","","$","600,366","","","$","749","","","0.12","%"],["Money markets","248,733","","","2,588","","","1.04","","","283,918","","","1,192","","","0.42","","","346,498","","","342","","","0.10"],["Savings deposits","324,034","","","118","","","0.04","","","377,498","","","122","","","0.03","","","409,839","","","167","","","0.04"],["Time deposits","258,560","","","6,885","","","2.66","","","230,431","","","1,624","","","0.70","","","370,766","","","1,303","","","0.35"],["Total Interest-Bearing Deposits","1,347,360","","","11,194","","","0.83","","","1,461,204","","","3,695","","","0.25","","","1,727,469","","","2,561","","","0.15"],["Short-term borrowings","36,492","","","859","","","2.35","","","49,433","","","898","","","1.82","","","35,882","","","77","","","0.21"],["Long-term borrowings","253,671","","","11,801","","","4.65","","","78,262","","","3,727","","","4.76","","","24,814","","","986","","","3.97"],["Total Borrowings","290,163","","","12,660","","","4.36","","","127,695","","","4,625","","","3.62","","","60,696","","","1,063","","","1.75"],["Total Interest-Bearing Liabilities","1,637,523","","","23,854","","","1.46","","","1,588,899","","","8,320","","","0.52","","","1,788,165","","","3,624","","","0.20"],["Noninterest-bearing demand deposits","478,534","","","","","","","543,843","","","","","","","609,622"],["Other liabilities","28,276","","","","","","","442","","","","","","","74,096"],["Stockholders\u2019 Equity","291,025","","","","","","","259,094","","","","","","","249,074"],["Total Liabilities and Stockholders\u2019 Equity","$","2,435,358","","","","","","","$","2,392,278","","","","","","","$","2,720,957"],["Taxable Equivalent Net Interest Income","","","84,240","","","","","","","89,003","","","","","","","84,087"],["Taxable Equivalent Adjustment","","","(629)","","","","","","","(683)","","","","","","","(662)"],["Net Interest Income","","","$","83,611","","","","","","","$","88,320","","","","","","","$","83,425"],["Cost of Funds","","","","","1.13","%","","","","","","0.39","%","","","","","","0.15","%"],["FTE Net Interest Margin","","","","","3.79","%","","","","","","4.07","%","","","","","","3.36","%"]] [[/GREPCENT_TABLE]] ________________________________________ 1 Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate. 2 Average balances include non-accrual loans and are net of unearned income. 3 Average balance of investment securities is computed at fair value. FTE net interest income totaled $84.2 million for the year ended December 31, 2024 compared to $89.0 million for the same period of 2023, a decrease of $4.8 million, or 5.4%. The decrease was driven primarily by higher deposit costs, primarily in the form of special product offerings, and an increase in long-term borrowings. The FTE net interest margin for 2024 was 3.79%, a decrease of 28 basis points from 4.07% for the same period of 2023. 35 Table of Contents The following table analyzes the relative impact on FTE net interest income attributed to changes in the volume of interest-earning assets and interest-bearing liabilities and changes in yields and rates: [[GREPCENT_TABLE]] [["","2024 versus 2023","","2023 versus 2022"],["","Increase (Decrease)","","Increase (Decrease)"],["(In thousands)","Volume","","Yield/Rate 1","","Net","","Volume","","Yield/Rate 1","","Net"],["INTEREST EARNING ASSETS"],["Loans"],["Taxable","$","5,636","","","$","5,478","","","$","11,114","","","$","2,505","","","$","8,030","","","$","10,535"],["Tax-exempt","(275)","","","56","","","(219)","","","(148)","","","220","","","72"],["Total Loans 2","5,361","","","5,534","","","10,895","","","2,357","","","8,250","","","10,607"],["Investment Securities"],["Taxable","(1,051)","","","1,453","","","402","","","(873)","","","2,390","","","1,517"],["Tax-exempt","(79)","","","39","","","(40)","","","155","","","(125)","","","30"],["Total Investment Securities 3","(1,130)","","","1,492","","","362","","","(718)","","","2,265","","","1,547"],["Interest-bearing deposits with banks","(639)","","","153","","","(486)","","","(12,664)","","","10,122","","","(2,542)"],["Total Interest Income","$","3,592","","","$","7,179","","","$","10,771","","","$","(11,025)","","","$","20,637","","","$","9,612"],["INTEREST-BEARING LIABILITIES"],["Interest-bearing demand deposits","$","(69)","","","$","915","","","$","846","","","$","(47)","","","$","55","","","$","8"],["Money markets","(148)","","","1,544","","","1,396","","","(95)","","","945","","","850"],["Savings deposits","(16)","","","12","","","(4)","","","(49)","","","4","","","(45)"],["Time deposits","197","","","5,064","","","5,261","","","(212)","","","533","","","321"],["Total Interest-Bearing Deposits","(36)","","","7,535","","","7,499","","","(403)","","","1,537","","","1,134"],["Short-term borrowings","(236)","","","197","","","(39)","","","20","","","801","","","821"],["Long-term borrowings","8,349","","","(275)","","","8,074","","","81","","","2,660","","","2,741"],["Total Borrowings","8,113","","","(78)","","","8,035","","","101","","","3,461","","","3,562"],["Total Interest Expense","8,077","","","7,457","","","15,534","","","(302)","","","4,998","","","4,696"],["Change in Net Interest Income","$","(4,485)","","","$","(278)","","","$","(4,763)","","","$","(10,723)","","","$","15,639","","","$","4,916"]] [[/GREPCENT_TABLE]] ________________________________________ 1 The effect of changing volume and rate, which cannot be segregated, has been allocated entirely to the rate column. 2 Based on average balances and includes non-accrual loans and are net of unearned income. 3 Average balance of investment securities is computed at fair value. FTE total interest income increased $10.8 million, or 11.1%, during 2024 compared to 2023. ACNB experienced a $7.2 million increase in interest income due to an increase in the yield on interest earning assets and a $3.6 million increase attributable to growth of interest earning assets. The average yield on interest-earning assets was 4.86% for 2024, an increase of 41 basis points from 2023. FTE interest income on loans increased $10.9 million, or 13.4%, compared to 2023 due to an increase in the yield and loan growth. The yield increased 36 basis points while average loans increased $94.9 million, or 6.0%. FTE interest income on investment securities increased $362 thousand, or 2.8%, due to an increase in the yield partially offset by a lower volume of investment securities. The higher FTE interest income on loans and investment securities was partially offset by a decrease in interest income from interest-bearing deposits with banks of $486 thousand, or 14.6%. Total interest expense increased $15.5 million, or 186.7%, during 2024 compared to 2023. The increase was primarily due to a higher cost of funds and an increase in long-term borrowings. The average rate paid on interest-bearing deposits was 0.83%, an increase of 58 basis points during 2024. The largest increases in rates were in time deposits and money markets which increased 196 and 62 basis points, respectively. The average rate paid on total borrowings was 4.36% during 2024, an increase of 74 basis points compared to 2023. Total average borrowings increased $162.5 million, or 127.2%, during 2024 compared to 2023 and were used primarily to fund loan growth and deposit outflows during 2024. 36 Table of Contents Provision for Credit Losses and Unfunded Commitments For the year ended December 31, 2024, there were reversals to the provisions for credit losses and unfunded commitments of $2.4 million and $326 thousand, respectively, compared to a provision for credit losses of $860 thousand and a $16 thousand reversal to the provision for unfunded commitments for the year ended December 31, 2023. The decrease in the provisions for credit losses and unfunded commitments for the year ended December 31, 2024 compared to the prior year was driven primarily by updated estimates utilized as input assumptions within the CECL model calculation. These estimates, which were based on more current information available during 2024, drive input assumptions which are used in the determination of the Corporation’s allowance for credit losses and the reserve for unfunded commitments. 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. Nonaccrual loans increased $2.9 million during 2024 primarily the result of one long-standing commercial relationship in the healthcare industry, comprised of both owner-occupied commercial real estate and commercial and industrial loans. This relationship is adequately secured and did not impact the allowances for credit losses. For additional discussion of the provision and the associated loans, please refer to the Asset Quality section of this Management’s Discussion and Analysis. Noninterest Income [[GREPCENT_TABLE]] [["","","","","","","","$ Variance","","% Variance","","$ Variance","","% Variance"],["(In thousands)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022"],["NONINTEREST INCOME"],["Insurance commissions","$","9,754","","","$","9,319","","","$","8,307","","","$","435","","","4.7","%","","$","1,012","","","12.2","%"],["Wealth management","4,226","","","3,644","","","3,160","","","582","","","16.0","","","484","","","15.3"],["Service charges on deposits","4,144","","","3,958","","","4,066","","","186","","","4.7","","","(108)","","","(2.7)"],["ATM debit card charges","3,303","","","3,348","","","3,322","","","(45)","","","(1.3)","","","26","","","0.8"],["Earnings on investment in bank-owned life insurance","1,979","","","1,878","","","1,532","","","101","","","5.4","","","346","","","22.6"],["Gain from mortgage loans held for sale","301","","","56","","","487","","","245","","","N/M","","(431)","","","(88.5)"],["Net gains (losses) on sales or calls of investment securities","69","","","(5,240)","","","(234)","","","5,309","","","101.3","","","(5,006)","","","N/M"],["Net (losses) gains on equity securities","(9)","","","18","","","(298)","","","(27)","","","(150.0)","","","316","","","106.0"],["Net gains on sales of low-income housing partnership","\u2014","","","\u2014","","","421","","","\u2014","","","\u2014","","","(421)","","","(100.0)"],["Gain on assets held for sale","\u2014","","","337","","","\u2014","","","(337)","","","(100.0)","","","337","","","100.0"],["Other","963","","","1,127","","","1,044","","","(164)","","","(14.6)","","","83","","","8.0"],["Total Noninterest Income","$","24,730","","","$","18,445","","","$","21,807","","","$","6,285","","","34.1","%","","$","(3,362)","","","(15.4)","%"]] [[/GREPCENT_TABLE]] Total noninterest income, excluding net gains (losses) on sales or calls of investment securities, totaled $24.7 million in 2024 compared to $23.7 million in 2023, a $976 thousand, or 4.1% increase. On December 15, 2023, ACNB completed a repositioning of the investment securities portfolio by selling $51.1 million in book value of AFS debt securities, consisting of lower-yielding agency debt securities, for an estimated after-tax loss of $3.5 million. The more significant fluctuations in noninterest income are explained below: •Insurance commissions in 2024 increased $435 thousand, or 4.7%, compared to 2023 driven primarily by growth in commissions on policy renewals and new business. •Wealth management income for 2024 increased $582 thousand, or 16.0%, compared to 2023 driven primarily by portfolio market appreciation, estate income and new business generation. •Gain from mortgage loans held for sale increased $245 thousand as a result of a higher volume of mortgage loans sold. •There were no gains on assets held for sale in 2024 compared to $337 thousand in 2023 due to the sale of three community banking offices during 2023. 37 Table of Contents Noninterest Expenses [[GREPCENT_TABLE]] [["","","","","","","","$ Variance","","% Variance","","$ Variance","","% Variance"],["(In thousands)","2024","","2023","","2022","","2024 vs. 2023","","2023 vs. 2022"],["NONINTEREST EXPENSES"],["Salaries and employee benefits","$","42,929","","","$","40,931","","","$","35,979","","","$","1,998","","","4.9","%","","$","4,952","","","13.8","%"],["Equipment","7,321","","","6,514","","","6,612","","","807","","","12.4","","","(98)","","","(1.5)"],["Net occupancy","4,162","","","3,908","","","4,076","","","254","","","6.5","","","(168)","","","(4.1)"],["Professional services","2,140","","","2,320","","","2,086","","","(180)","","","(7.8)","","","234","","","11.2"],["Other tax","1,446","","","1,269","","","1,632","","","177","","","13.9","","","(363)","","","(22.2)"],["FDIC and regulatory","1,425","","","1,388","","","1,128","","","37","","","2.7","","","260","","","23.0"],["Intangible assets amortization","1,244","","","1,424","","","1,492","","","(180)","","","(12.6)","","","(68)","","","(4.6)"],["Merger-related","2,045","","","\u2014","","","\u2014","","","2,045","","","100.0","","","\u2014","","","\u2014"],["Other","7,973","","","8,318","","","7,276","","","(345)","","","(4.1)","","","1,042","","","14.3"],["Total Noninterest Expenses","$","70,685","","","$","66,072","","","$","60,281","","","$","4,613","","","7.0","%","","$","5,791","","","9.6","%"]] [[/GREPCENT_TABLE]] Noninterest expenses increased to $70.7 million in 2024 compared to $66.1 million in 2023, a $4.6 million, or 7.0%, increase. The more significant fluctuations in noninterest expenses by category are explained below: •Salaries and employee benefits, the largest component of noninterest expenses, increased 4.9% in 2024 compared to 2023, driven primarily by higher employee health insurance expense and higher base wages. •Equipment increased $807 thousand, or 12.4%, driven primarily by higher core processing and software maintenance expenses coupled with incremental purchases of office equipment related to the Traditions Acquisition of $355 thousand. •Net occupancy increased $254 thousand, or 6.5%, driven primarily by higher lease expense and general maintenance. •Other tax increased $177 thousand, or 13.9%, driven primarily by an increase in PA shares taxes. PA shares tax is an equity based tax and increased due to a higher equity base compared to 2023. •Professional services decreased $180 thousand, or 7.8%, driven primarily by a decrease in consulting expenses. •Merger-related expenses, which include legal, external auditing, loan review and advisory fees, occurred due to the Traditions Acquisition. Provision for Income Taxes The Corporation recognized income taxes of $8.6 million during 2024 compared to $8.2 million during 2023. The provision for income taxes reflects an ETR of 21.2% for 2024 and 20.5% for 2023. The variances from the federal statutory rate of 21% are generally due to tax-free income, which includes interest income on tax-free loans, investment securities and income from life insurance policies, federal income tax credits, and the impact of non-tax deductible expenses such as certain merger-related costs incurred during 2024. Note 13 — “Income Taxes”, to the Consolidated Financial Statements under Part II, Item 8, “Financial Statements and Supplementary Data,” includes a reconciliation of the federal statutory tax rate to the Corporation’s ETR, which measures income tax expense as a percentage of pretax income. FINANCIAL CONDITION Total assets were $2.39 billion at December 31, 2024 compared to $2.42 billion at December 31, 2023, a decrease of 1.0%. The decrease was driven primarily by a reduction in cash and cash equivalents of $18.7 million and investment securities of $57.7 million partially offset by loan growth. Investment Securities ACNB uses investment securities to manage interest rate risk, provide collateral for certain funding products, provide liquidity and generate interest and dividend income. These securities provide the appropriate characteristics with respect to credit quality, yield and maturity relative to the management of the overall Consolidated Statement of Condition. 38 Table of Contents CECL Adoption On January 1, 2023, the Corporation adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, universally referred to as CECL. ASU 2016-13 applies to all financial instruments carried at amortized cost, including HTM securities, and makes targeted improvements to the accounting for credit losses on AFS securities. In addition, Topic 326 amends the accounting for credit losses on certain other debt securities. The Corporation did not record any allowance for credit losses on its HTM debt securities and did not record any impairment on its AFS debt securities as a result of adopting Topic 326. The table below presents the carrying amount of investment securities: [[GREPCENT_TABLE]] [["","","","","","Increase (Decrease)"],["(In thousands)","December 31, 2024","","December 31, 2023","","$","","%"],["Available for Sale"],["U.S. Government and agencies","$","143,193","","","$","156,795","","","$","(13,602)","","","(8.7)","%"],["Collateralized mortgage obligations","35,654","","","41,084","","","(5,430)","","","(13.2)"],["Residential mortgage-backed securities","138,540","","","158,830","","","(20,290)","","","(12.8)"],["Commercial mortgage-backed securities","60,785","","","65,290","","","(4,505)","","","(6.9)"],["Corporate bonds","15,803","","","29,694","","","(13,891)","","","(46.8)"],["Total AFS investment securities","$","393,975","","","$","451,693","","","$","(57,718)","","","(12.8)","%"],["Held to Maturity"],["State and municipal","$","62,838","","","$","62,133","","","$","705","","","1.1","%"],["Residential mortgage-backed securities","1,740","","","2,467","","","(727)","","","(29.5)"],["Total HTM investment securities","$","64,578","","","$","64,600","","","$","(22)","","","\u2014","%"]] [[/GREPCENT_TABLE]] Total AFS investment securities were $394.0 million at December 31, 2024 compared to $451.7 million at December 31, 2023, a decrease of 12.8%. The Corporation sold securities and allowed the portfolio to naturally cash flow to support loan growth and offset deposit outflows during 2024 as a result of general balance sheet management. At December 31, 2024, the investment securities balance included a net unrealized loss on AFS investment securities of $38.2 million, net of taxes, on amortized cost of $441.6 million compared to a net unrealized loss of $41.0 million, net of taxes, on amortized cost of $501.9 million at December 31, 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 stable. At December 31, 2024, the securities balance included HTM investment securities with an amortized cost of $64.6 million and a fair value of $56.9 million as compared to an amortized cost of $64.6 million and a fair value of $59.1 million at December 31, 2023. The Corporation does not own investments consisting of pools of Alt-A or subprime mortgages, private label mortgage-backed securities, or trust preferred investments. 39 Table of Contents The following table discloses AFS and HTM investment securities at the scheduled maturity date and weighted average yield at amortized cost at December 31, 2024. Mortgage-backed securities are allocated based upon scheduled maturities. Expected maturities may differ from contractual maturities because debt issuers may have the right to call or prepay obligations without call or prepayment penalties. Therefore, the stated yield may not be recognized in future periods. Additionally, residential mortgage-backed securities, which are collateralized by residential mortgage loans, typically prepay at a rate faster than the stated maturity. See “Note 3 — Investment Securities” for additional details. [[GREPCENT_TABLE]] [["","Maturing"],["","1 Year or Less","","Over 1 - 5 Years","","Over 5 - 10 Years","","Over 10 Years or No Maturity","","Total"],["(Dollars in thousands)","Amortized Cost","","WeightedAverageYield1","","Amortized Cost","","WeightedAverageYield1","","Amortized Cost","","WeightedAverageYield1","","Amortized Cost","","WeightedAverageYield1","","Amortized Cost","","WeightedAverageYield 1"],["Available for Sale"],["U.S. Government and agencies","$","18,009","","","0.74","%","","$","100,083","","","1.06","%","","$","41,707","","","1.16","%","","$","\u2014","","","\u2014","%","","$","159,799","","","1.05","%"],["Collateralized mortgage obligations","\u2014","","","\u2014","","","85","","","2.22","","","282","","","2.53","","","39,173","","","2.76","","","39,540","","","2.76"],["Residential mortgage-backed securities","86","","","2.16","","","1,443","","","2.25","","","11,029","","","2.24","","","146,791","","","2.18","","","159,349","","","2.18"],["Commercial mortgage-backed securities","\u2014","","","\u2014","","","22,514","","","4.68","","","10,007","","","5.02","","","32,829","","","2.89","","","65,350","","","3.83"],["Corporate bonds","\u2014","","","\u2014","","","2,000","","","3.82","","","13,600","","","4.55","","","2,000","","","5.25","","","17,600","","","4.55"],["Total","$","18,095","","","0.75","%","","$","126,125","","","1.76","%","","$","76,625","","","2.48","%","","$","220,793","","","2.41","%","","$","441,638","","","2.16","%"],["Held to Maturity"],["State and municipal","$","\u2014","","","\u2014","%","","$","4,188","","","1.51","%","","$","27,266","","","2.47","%","","$","31,384","","","2.35","%","","$","62,838","","","2.41","%"],["Residential mortgage-backed securities","\u2014","","","\u2014","","","1,484","","","2.04","","","256","","","2.50","","","\u2014","","","\u2014","","","1,740","","","2.11"],["Total","$","\u2014","","","\u2014","%","","$","5,672","","","1.65","%","","$","27,522","","","2.62","%","","$","31,384","","","2.35","%","","$","64,578","","","2.41","%"]] [[/GREPCENT_TABLE]] ________________________________________ 1 Weighted Average Yield has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate. The fair value of CRA Mutual Fund equity security has a readily determinable fair value of $919 thousand at December 31, 2024 with no stated maturity. Loans The following table presents the composition of the loan portfolio: [[GREPCENT_TABLE]] [["","","","","","Increase (Decrease)"],["(In thousands)","December 31, 2024","","December 31, 2023","","$","","%"],["Commercial real estate","$","969,514","","","$","898,709","","","$","70,805","","","7.9","%"],["Residential mortgage","401,950","","","394,189","","","7,761","","","2.0"],["Commercial and industrial","140,906","","","152,344","","","(11,438)","","","(7.5)"],["Home equity lines of credit","85,685","","","90,163","","","(4,478)","","","(5.0)"],["Real estate construction","76,773","","","84,341","","","(7,568)","","","(9.0)"],["Consumer","9,318","","","9,954","","","(636)","","","(6.4)"],["Gross loans","1,684,146","","","1,629,700","","","54,446","","","3.3"],["Unearned income","(1,236)","","","(1,712)","","","476","","","27.8"],["Total Loans, Net of Unearned Income","$","1,682,910","","","$","1,627,988","","","$","54,922","","","3.4","%"]] [[/GREPCENT_TABLE]] Total loans, net of unearned income, outstanding increased $54.9 million, or 3.4%, in 2024. The increase was driven mainly by growth in the commercial real estate and residential mortgage portfolios. Growth in both portfolios was spread throughout ACNB’s geographic footprint and across various property types. The collateral for these loans is primarily spread across our Pennsylvania and Maryland market areas. Despite the intense competition in the Corporation’s Market Areas, management continues to focus on asset quality and disciplined underwriting standards in the loan origination process. ACNB does not have a significant concentration of credit risk with any single borrower, industry or geographic location. Most of the Corporation’s lending activities are with customers located within the Bank’s Market Area. 40 Table of Contents The commercial real estate portfolio grew $70.8 million, or 7.9%, in 2024. The collateral for these loans is primarily spread across Pennsylvania and Maryland, 56.0% and 42.1%, respectively, at December 31, 2024 compared to 54.0% and 44.0%, respectively, at December 31, 2023. Less than 3% of the portfolio is for real estate in Urban areas such as Baltimore, Maryland and Philadelphia, Pennsylvania. The largest sectors of the commercial real estate portfolio are retail and mixed-use commercial rental units, hotels, motels and bed and breakfast entities and office complexes. Non-owner occupied commercial real estate represented 62.3% of the commercial real estate portfolio at December 31, 2024, compared to 60.9% at December 31, 2023. Non-owner occupied commercial real estate borrowers are geographically dispersed throughout ACNB’s Market Area 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. The following chart details the percentage of the various segments included in the portfolio: ______________________________________________________________ 1 Constitutes over 40 loan categories that do not fit into the categories presented above The concentration of non-owner occupied commercial real estate, construction, and multi-family was 207.0% of total risk-based capital of the Bank. Residential real estate mortgages totaled $402.0 million, an increase of $7.8 million, or 2.0%, in 2024. Included in the residential real estate mortgages were $45.5 million in junior liens. Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a senior security position in the case of foreclosure liquidation of collateral to extinguish the debt. Commercial and industrial loans totaled $140.9 million, a decrease of $11.4 million, or 7.5% in 2024. This segment includes loans to school districts, municipalities (including townships) and essential purpose authorities. In many cases, these loans are obtained through a bid process that includes other local and regional banks and are especially subject to refinancing in certain rate environments. 41 Table of Contents The following table presents the maturity schedule of the loan portfolio, segmented based on the underlying collateral, at December 31, 2024. Loans with variable rates or floating interest rates include adjustable rate instruments that may have a remaining period of fixed rate interest, and in some instances, multiple years of a fixed rate interest period. LOANS MATURING [[GREPCENT_TABLE]] [["(In thousands)","Due in One Year or Less","","Due After One Year to Five Years","","Due After Five Years to Fifteen Years","","Due After Fifteen Years","","Total"],["Loans with predetermined (fixed) interest rates"],["Commercial real estate","$","17,505","","","$","54,943","","","$","31,179","","","$","464","","","$","104,091"],["Residential mortgage","5,745","","","11,499","","","78,750","","","78,425","","","174,419"],["Commercial and industrial","3,534","","","49,593","","","6,454","","","\u2014","","","59,581"],["Home equity lines of credit","360","","","90","","","33","","","167","","","650"],["Real estate construction","14,147","","","10,628","","","1,400","","","6,467","","","32,642"],["Consumer","298","","","4,190","","","2,076","","","36","","","6,600"],["Total predetermined (fixed) interest rates","$","41,589","","","$","130,943","","","$","119,892","","","$","85,559","","","$","377,983"],["Loans with variable or floating interest rates"],["Commercial real estate","$","22,358","","","$","27,867","","","$","337,755","","","$","477,443","","","$","865,423"],["Residential mortgage","797","","","2,056","","","52,890","","","171,788","","","227,531"],["Commercial and industrial","36,078","","","2,079","","","31,111","","","12,057","","","81,325"],["Home equity lines of credit","6,412","","","197","","","20,799","","","57,627","","","85,035"],["Real estate construction","12,921","","","3,089","","","7,393","","","20,728","","","44,131"],["Consumer","48","","","958","","","1,181","","","531","","","2,718"],["Total variable or floating interest rates","$","78,614","","","$","36,246","","","$","451,129","","","$","740,174","","","$","1,306,163"],["Total fixed and floating interest rates","$","120,203","","","$","167,189","","","$","571,021","","","$","825,733","","","$","1,684,146"]] [[/GREPCENT_TABLE]] Asset Quality The ACNB loan portfolio is subject to varying degrees of credit risk. Credit risk is mitigated through prudent and disciplined underwriting standards, ongoing credit review, and monitoring and reporting asset quality measures. Additionally, loan portfolio diversification, limiting exposure to a single industry or borrower, and requiring collateral also reduces ACNB’s credit risk. ACNB’s commercial, consumer and residential mortgage loans are principally to borrowers in ACNB’s Market Area. As the majority of ACNB’s loans are located in this area, a substantial portion of the debtor’s ability to honor the obligation may be affected by the level of economic activity in the Market Area. The accrual of interest on residential mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well secured and in the process of collection. Consumer loans (consisting of home equity lines of credit and consumer loan categories) are typically charged off no later than 120 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. ACNB occasionally returns nonaccrual loans to performing status when the borrower brings the loan current and performs in accordance with contractual terms for a reasonable period of time. 42 Table of Contents The following table sets forth the Corporation’s nonperforming assets as of December 31: [[GREPCENT_TABLE]] [["(Dollars in thousands)","2024","","2023"],["Nonaccrual loans","$","5,871","","","$","3,011"],["Greater than or equal to 90 days past due and accruing","941","","","1,162"],["Total Nonperforming Loans","6,812","","","4,173"],["Foreclosed assets","438","","","467"],["Total Nonperforming Assets","$","7,250","","","$","4,640"],["Ratios:"],["Nonperforming loans to total loans","0.40","%","","0.26","%"],["Nonperforming assets to total assets","0.30","","","0.19"],["Allowance for credit losses to nonperforming loans","253.67","","","478.53"]] [[/GREPCENT_TABLE]] Nonperforming assets include nonaccrual loans, loans greater than or equal to 90 days past due and accruing and foreclosed assets held for resale. The increase in nonperforming loans was primarily the result of one long-standing commercial relationship in the healthcare industry, comprised of both owner-occupied commercial real estate and commercial and industrial loans that is adequately secured. For loans to borrowers with commercial purposes, an internal risk rating process is used to monitor credit quality. For a complete description of the Corporation’s risk ratings, refer to the “Allowance for Credit Losses” section within “Note 1 — Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data”. Total internally risk rated loans were $1.36 billion as of December 31, 2024 with a related allowance for credit losses of $15.1 million. Foreclosed assets held for resale consist of the fair value of real estate acquired through foreclosure on real estate loan collateral or the acceptance of ownership of real estate in lieu of the foreclosure process. Fair values are based on appraisals that consider the sales prices of similar properties in the proximate vicinity less estimated selling costs. Foreclosed assets held for resale totaled $438 thousand, consisting of two properties, at December 31, 2024 compared to one property totaling $467 thousand at December 31, 2023. Allowance for Credit Losses The Corporation adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaced the incurred loss methodology and is referred to as CECL in 2023. The measurement of expected credit losses under CECL is applicable to financial assets measured at amortized cost, including loans, HTM securities and purchased financial assets, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. It also applies to OBS credit exposures, such as loan commitments, standby letters of credit, financial guarantees and other similar instruments. Financial institutions and other organizations will now use forecasted information to better inform their credit loss estimates. Many of the loss estimation techniques applied previously are still permitted, although the inputs to those techniques changed to reflect the full amount of expected credit losses. CECL requires estimated credit losses on loans to be determined based on an expected life of loan model as compared to an incurred loss model, which was in effect for periods prior to 2023. Accordingly, ACL disclosures subsequent to January 1, 2023 are not always comparable to prior periods. As a result, the tables that follow present the appropriate method for each period. ACNB maintains the allowance for credit losses at a level believed to be adequate by management to absorb current expected losses in the loan portfolio, and it is funded through a provision for credit losses charged to earnings. 43 Table of Contents A summary of ACNB’s activity in the ACL as of December 31: [[GREPCENT_TABLE]] [["(Dollars in thousands)","2024","","2023","","2022"],["Beginning balance","$","19,969","","","$","17,861","","","$","19,033"],["Impact of CECL adoption","\u2014","","","1,618","","","\u2014"],["(Reversal of) provision for credit losses","(2,437)","","","860","","","\u2014"],["Loans charged-off:"],["Commercial and industrial","138","","","110","","","238"],["Commercial real estate and construction","\u2014","","","\u2014","","","831"],["Residential mortgage and home equity lines of credit","\u2014","","","\u2014","","","36"],["Consumer","218","","","396","","","181"],["Total Loans Charged-Off","356","","","506","","","1,286"],["Recoveries:"],["Commercial and industrial","26","","","64","","","58"],["Residential mortgage and home equity lines of credit","\u2014","","","\u2014","","","27"],["Consumer","78","","","72","","","29"],["Total Recoveries","104","","","136","","","114"],["Net charge-offs","252","","","370","","","1,172"],["Ending balance","$","17,280","","","$","19,969","","","$","17,861"],["Ratios:"],["Net charge-offs to average loans","0.02","%","","0.02","%","","0.08","%"],["Allowance for credit losses to total loans","1.03","%","","1.23","%","","1.16","%"]] [[/GREPCENT_TABLE]] The provision for 2024 was a reversal of $2.4 million compared to $860 thousand for 2023 and none for 2022. The decrease in the provisions for credit losses and unfunded commitments for the year ended December 31, 2024 compared to the prior year was driven primarily by updated estimates utilized as input assumptions within the CECL model calculation. These estimates, which were based on more current information available during 2024, drive input assumptions which are used in the determination of the Corporation’s allowance for credit losses and the reserve for unfunded commitments. These updated estimates were the primary drivers for the $2.4 million reversal of the provision for credit losses for the year ended December 31, 2024. The ACL as a percentage of total loans was at 1.03% December 31, 2024 compared to 1.23% and 1.16% at December 31, 2023 and 2022, respectively. The allocation of the allowance for credit losses as of December 31: [[GREPCENT_TABLE]] [["","2024","","2023"],["(Dollars in thousands)","Amount","","Percent of Loan Type to Total Loans","","Amount","","Percent of Loan Type to Total Loans"],["Commercial real estate","$","10,578","","","57.6","%","","$","12,010","","","55.2","%"],["Residential mortgage","2,976","","","23.9","","","3,303","","","24.2"],["Commercial and industrial","1,416","","","8.4","","","2,048","","","9.3"],["Home equity lines of credit","294","","","5.1","","","397","","","5.5"],["Real estate construction","1,918","","","4.5","","","2,070","","","5.2"],["Consumer","98","","","0.5","","","141","","","0.6"],["Total","$","17,280","","","100.0","%","","$","19,969","","","100.0","%"]] [[/GREPCENT_TABLE]] 44 Table of Contents Additional information on nonaccrual loans is as follows: [[GREPCENT_TABLE]] [["(Dollars in thousands)","Number of Credit Relationships","","Balance","","Current Specific Loss Allocations","","Current Year Charge-Offs","","Location","","Originated"],["December 31, 2024"],["Owner occupied commercial real estate","6","","","$","3,564","","","$","138","","","$","\u2014","","","In market","","2006-2022"],["Commercial and industrial","4","","","2,307","","","569","","","\u2014","","","In market","","2009-2023"],["Total","10","","","$","5,871","","","$","707","","","$","\u2014"],["December 31, 2023"],["Owner occupied commercial real estate","7","","","$","1,822","","","$","175","","","$","\u2014","","","In market","","2006-2019"],["Commercial and industrial","4","","","1,004","","","901","","","\u2014","","","In market","","2014-2021"],["Home equity line of credit","1","","","185","","","\u2014","","","\u2014","","","In market","","2009"],["Total","12","","","$","3,011","","","$","1,076","","","$","\u2014"]] [[/GREPCENT_TABLE]] All nonaccrual loans are to borrowers located within the Market Area served by the Corporation in southcentral Pennsylvania and northern Maryland. All nonaccrual individually evaluated loans were originated by the Bank. Deposits The following table presents ending deposits, by type as of December 31: [[GREPCENT_TABLE]] [["","","","","","Increase (Decrease)"],["(In thousands)","2024","","2023","","$","","%"],["Noninterest-bearing demand deposits","$","451,503","","","$","500,332","","","$","(48,829)","","","(9.8)","%"],["Interest-bearing demand deposits","505,096","","","524,289","","","(19,193)","","","(3.7)"],["Money market","251,667","","","264,907","","","(13,240)","","","(5.0)"],["Savings","311,207","","","340,134","","","(28,927)","","","(8.5)"],["Total demand and savings","1,519,473","","","1,629,662","","","(110,189)","","","(6.8)"],["Time","273,028","","","232,151","","","40,877","","","17.6"],["Total Deposits","$","1,792,501","","","$","1,861,813","","","$","(69,312)","","","(3.7)","%"]] [[/GREPCENT_TABLE]] The Bank relies on deposits as a primary source of funds for lending activities. The Bank’s deposit pricing function employs a disciplined 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. Total deposits were $1.79 billion at December 31, 2024, a decrease of $69.3 million, or 3.7%, since December 31, 2023. Total demand and savings deposits decreased $110.2 million, or 6.8%, partially offset by time deposits which increased $40.9 million, or 17.6%. Included in time deposits was $24.1 million in brokered time deposits issued by the Bank. Total deposits as of December 31, 2024, were comprised of approximately 63% consumer deposits and 37% commercial deposits, compared to approximately 59% consumer deposits and 41% commercial deposits as of December 31, 2023. Interest-bearing deposit costs for 2024 were 0.83% compared to 0.25% for 2023. Despite the decline in deposits in 2024, the loan-to-deposit ratio was 93.89% at December 31, 2024. Included in total deposits at December 31, 2024 were municipal deposits totaling $111.0 million, or 6.2%, of total deposits compared to $176.6 million, or 9.5%, of total deposits at December 31, 2023. The decrease in public funds was the result of public entities reinvesting excess funds in alternative investment products outside the Corporation. Uninsured and non-collateralized deposits to total Bank deposits was 16.3% compared to 17.3% at December 31, 2024 and 2023, respectively. As of December 31, 2024, cash on hand, the fair value of unencumbered investment securities and collateralized borrowing capacities at the FHLB and the Federal Reserve discount window at the Bank were 368.8% of uninsured and non-collateralized Bank deposits. At December 31, 2024 deposits from the 20 largest depositors, excluding internal accounts, of the Bank totaled $143.4 million, or 7.9%, of total Bank deposits compared to $192.7 million, or 10.3%, of total Bank deposits at December 31, 2023. See Note 9 — “Deposits”, to the Consolidated Financial Statements under Part II, Item 8. “Financial Statements and Supplementary Data,” for more information. 45 Table of Contents Borrowings The Corporation’s borrowings as of December 31: [[GREPCENT_TABLE]] [["","","","","","Increase (Decrease)"],["(In thousands)","2024","","2023","","$","","%"],["Securities sold under repurchase agreements","$","15,826","","","$","26,882","","","$","(11,056)","","","(41.1)","%"],["Short-term FHLB advances","\u2014","","","30,000","","","(30,000)","","","(100.0)"],["Total short-term borrowings","15,826","","","56,882","","","(41,056)","","","(72.2)"],["Long-term FHLB advances","235,000","","","175,000","","","60,000","","","34.3"],["Trust preferred subordinated debt1","5,333","","","5,292","","","41","","","0.8"],["Subordinated debt","15,000","","","15,000","","","\u2014","","","\u2014"],["Total long-term borrowings","255,333","","","195,292","","","60,041","","","30.7"],["Total Borrowings","$","271,159","","","$","252,174","","","$","18,985","","","7.5","%"]] [[/GREPCENT_TABLE]] ________________________________________ 1Net of purchase accounting fair value mark. Short-term borrowings are comprised primarily of securities sold under agreements to repurchase and short-term borrowings from the FHLB. As of December 31, 2024, short-term borrowings were $15.8 million, a decrease of $41.1 million, or 72.2%, from December 31, 2023. Agreements to repurchase accounts 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 December 31, 2023, repurchase agreement balances were down due to normal changes in the cash flow position of ACNB’s commercial and local government customer base. There were no short-term FHLB borrowings at December 31, 2024 compared to $30.0 million at December 31, 2023. Short-term FHLB borrowings are used to supplement 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 $255.3 million at December 31, 2024 compared to $195.3 million at December 31, 2023. During 2024 the Bank borrowed $60.0 million from the FHLB at a weighted average fixed rate of 4.30% for a weighted average term of 4.00 years to fund loan growth and deposit outflows. 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 stockholders, while maintaining levels above its internal minimums and “well capitalized” regulatory position in relationship to its risk exposure. Total stockholders’ equity was $303.3 million at December 31, 2024 compared to $277.5 million at December 31, 2023. The primary source of additional capital to ACNB is earnings retention, which represents net income less dividends declared. During 2024, ACNB retained $21.1 million, or 66.4%, of its net income compared to $22.0 million, or 69.4%, in 2023. Quarterly cash dividends paid to ACNB Corporation stockholders in 2024 totaled $10.7 million, or $1.26 per common share, compared to $9.7 million, or $1.14 per common share in 2023, an increase of 10.5%. Stockholders’ equity also increased primarily due to a $3.2 million change in unrealized gains in AFS investment securities and pension plan assets. ACNB has a Dividend Reinvestment and Stock Purchase Plan that provides registered holders of ACNB 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. Cumulative to December 31, 2024, 277,514 shares were issued under this plan. Proceeds from the plan are used for general corporate purposes. 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. There were 6,842 shares repurchased during 2024. As of December 31, 2024, 67,908 shares of common stock have been repurchased under this plan. 46 Table of Contents Regulatory Capital Requirements The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain OBS items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Minimum regulatory capital requirements established by Basel III rules require the Corporation and the Bank to: •Meet a minimum Tier 1 leverage capital ratio of 4.0% of average assets; •Meet a minimum Common Equity Tier 1 capital ratio of 4.5% of risk-weighted assets; •Meet a minimum Tier 1 capital ratio of 6.0% of risk-weighted assets; •Meet a minimum Total capital ratio of 8.0% of risk-weighted assets; •Maintain a “capital conservation buffer” of 2.5% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus; and, •Comply with the definition of capital to improve the ability of regulatory capital instruments to absorb losses. ACNB considers the capital ratios of the banking subsidiary to be the relevant measurement of capital adequacy. The banking subsidiary’s capital ratios are as follows: [[GREPCENT_TABLE]] [["","2024","","2023","","To be Well Capitalized under Prompt Corrective Action Regulations"],["Tier 1 leverage ratio (to average assets)","12.03","%","","11.12","%","","5.00","%"],["Common Tier 1 capital (to risk-weighted assets)","16.03","%","","14.86","%","","6.50","%"],["Tier 1 risk-based capital ratio (to risk-weighted assets)","16.03","%","","14.86","%","","8.00","%"],["Total risk-based capital ratio (to risk-weighted assets)","17.02","%","","15.99","%","","10.00","%"]] [[/GREPCENT_TABLE]] Quantitative measures established by regulation to ensure capital adequacy require ACNB to maintain minimum amounts and ratios of total and Tier 1 capital to average and risk adjusted assets. Management believes, as of December 31, 2024 and 2023, 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. For further information on the actual and required capital amounts and ratios, please refer to Note 14 — “Regulatory Matters” in the Notes to Consolidated Financial Statements. Liquidity Effective liquidity management ensures the cash flow requirements of depositors and borrowers, as well as the operating cash needs of the Corporation, are met. ACNB’s funds are available from a variety of sources, including assets that are readily convertible such as interest-bearing deposits with banks, maturities and repayments from the securities portfolio, scheduled repayments of loans receivable, the core deposit base, the ability to raise brokered deposits, and the ability to borrow from the FHLB and Federal Reserve Discount Window and unsecured Federal Funds line providers. At December 31, 2024, ACNB’s banking subsidiary could borrow $926.5 million from the FHLB of which $690.4 million was available. At December 31, 2024, ACNB’s banking subsidiary could borrow approximately $54.0 million from the Discount Window, of which the full amount was available. The underlying collateral at the Discount Window is made up of eligible loan collateral held in a joint-custody account under the Bank’s name. ACNB’s banking subsidiary maintains several unsecured Fed Funds lines with correspondent banks. As of December 31, 2024, Fed Funds line capacity at the banking subsidiary was $192.0 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 customary terms and conditions for such a line, for ACNB Insurance Services, the borrower and wholly-owned subsidiary of ACNB 47 Table of Contents Corporation. The commercial line of credit is for general working capital needs as they arise by ACNB Insurance Services. The Corporation maintains a $5.0 million unsecured line of credit with a correspondent bank, all of which was available for borrowing at December 31, 2024. Another source of liquidity is securities sold under repurchase agreements to customers of the Bank totaling $15.8 million and $26.9 million at December 31, 2024 and 2023, 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 stockholders 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. For a discussion of ACNB’s dividend restrictions, please refer to Item 1 — “Business” and Note 14 — “Regulatory Matters” in the Notes to Consolidated Financial Statements. 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. Off-Balance Sheet Arrangements The Corporation is party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and, to a lesser extent, standby letters of credit. At December 31, 2024 the Corporation had unfunded outstanding commitments to extend credit of $372.8 million and outstanding standby letters of credit of $15.1 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. Please refer to Note 15 — “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for a discussion of the nature, business purpose, and importance of the Corporation’s OBS arrangements. New Accounting Pronouncements See Note 1 — “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for a summary of these new accounting pronouncements not yet adopted.