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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

OR

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 SymbolName of each exchange on which registered
Common Stock, $2.50 par value per share ACNBThe 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 filerSmaller 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 dataSeptember 30,
2023
December 31,
2022
ASSETS  
Cash and due from banks$22,786 $40,067 
Interest bearing deposits with banks41,255 128,094 
Total Cash and Cash Equivalents64,041 168,161 
Equity securities with readily determinable fair values888 1,719 
Debt securities available for sale435,559 553,554 
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, net25,740 27,053 
Right of use assets2,784 3,162 
Restricted investment in bank stocks5,477 1,629 
Investment in bank-owned life insurance79,391 77,993 
Investments in low-income housing partnerships1,034 1,129 
Goodwill44,185 44,185 
Intangible assets, net9,434 10,332 
Foreclosed assets held for resale467 474 
Other assets58,204 46,874 
Total Assets$2,388,522 $2,525,507 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
LIABILITIES  
Deposits:  
Non-interest bearing$565,530 $595,049 
Interest bearing1,385,829 1,603,926 
Total Deposits1,951,359 2,198,975 
Short-term borrowings33,106 41,954 
Long-term borrowings120,282 21,000 
Lease liabilities2,784 3,162 
Allowance for unfunded commitments1,962 92 
Other liabilities23,391 15,282 
Total Liabilities2,132,884 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 capital96,744 96,022 
Retained earnings211,939 193,873 
Accumulated other comprehensive loss(64,767)(58,012)
Total Stockholders’ Equity255,638 245,042 
Total Liabilities and Stockholders’ Equity$2,388,522 $2,525,507 
The accompanying notes are an integral part of the consolidated financial statements.
2


2ACNB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 Three months ended September 30,Nine Months Ended September 30,
Dollars in thousands, except per share data2023202220232022
INTEREST AND DIVIDEND INCOME  
Loans, including fees
Taxable$20,285 $17,789 $58,130 $50,078 
Tax-exempt361 424 1,069 995 
Securities:  
Taxable2,477 2,830 8,451 7,102 
Tax-exempt284 189 883 618 
Dividends104 20 196 79 
Other723 2,130 2,627 3,283 
Total Interest Income24,234 23,382 71,356 62,155 
INTEREST EXPENSE  
Deposits928 605 1,887 1,989 
Short-term borrowings439 23 564 60 
Long-term borrowings1,122 234 2,078 729 
Total Interest Expense2,489 862 4,529 2,778 
Net Interest Income21,745 22,520 66,827 59,377 
Provision for Credit Losses250  74  
(Reversal of) Provision for Unfunded Commitments(171) 226  
Net Interest Income after Provisions for (Reversal of) Credit Losses and Unfunded Commitments21,666 22,520 66,527 59,377 
OTHER INCOME  
Commissions from insurance sales2,629 2,429 7,371 6,437 
Service charges on deposit accounts1,000 1,082 2,951 3,046 
Income from fiduciary, investment management and brokerage activities953 823 2,772 2,449 
Gain from mortgage loans held for sale 42 31 468 
Earnings on investment in bank-owned life insurance473 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 sale14  337  
Service charges on ATM and debit card transactions845 837 2,502 2,455 
Other410 362 873 822 
Total Other Income6,297 5,849 17,475 16,384 
OTHER EXPENSES  
Salaries and employee benefits10,069 9,320 30,335 26,193 
Net occupancy942 1,000 2,981 3,098 
Equipment1,554 1,521 4,784 4,566 
Other tax323 411 965 1,229 
Professional services617 589 1,600 1,328 
Supplies and postage229 254 633 630 
Marketing and corporate relations159 57 472 227 
FDIC and regulatory388 263 932 798 
Intangible assets amortization352 395 1,072 1,093 
Other operating1,703 1,510 5,125 4,446 
Total Other Expenses16,336 15,320 48,899 43,608 
Income before Income Taxes11,627 13,049 35,103 32,153 
PROVISION FOR INCOME TAXES2,583 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.
3


ACNB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
 Three months ended September 30,Nine months ended September 30,
Dollars in thousands2023202220232022
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 securities244 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 pension74 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.

(C) Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.

(D) Total unrealized loss remaining on investment securities held to maturity, net of income taxes, was $2.3 million at September 30, 2023.
4


ACNB CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
Nine Months Ended September 30, 2023 and 2022
Dollars in thousands, except per share dataCommon StockTreasury StockAdditional Paid-in CapitalRetained
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, 202322,198 (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, 202322,212 (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 dataCommon StockTreasury StockAdditional Paid-in CapitalRetained
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, 202222,048 (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, 202222,061 (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.
5


ACNB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine Months Ended September 30,
Dollars in thousands20232022
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 securities739  
Loss on equity securities22 345 
Restricted stock compensation expense317 243 
Depreciation and amortization2,559 2,788 
Provision for credit losses and provision for unfunded commitments300  
Net amortization of investment securities premiums494 988 
Increase in interest receivable(812)(902)
Increase (decrease) in interest payable397 (57)
Mortgage loans originated for sale(1,191)(30,365)
Proceeds from loans originated for sale1,345 33,026 
Increase in other assets1,414 (3,348)
(Increase) decrease in deferred tax expense(4,436)1,062 
Increase in other liabilities5,019 1,660 
Net Cash Provided by Operating Activities31,991 29,473 
CASH FLOWS FROM INVESTING ACTIVITIES  
Proceeds from calls/maturities of investment securities held to maturity904 2,505 
Proceeds from calls/maturities of investment securities available for sale26,375 41,852 
Proceeds from sales of investment securities available for sale78,624  
Proceeds from sale of equity securities591  
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 sale3,730  
Net Cash Provided by (Used in) Investing Activities28,542 (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 borrowings100,000 1,500 
Repayments on long-term borrowings (12,150)
Dividends paid(7,157)(6,734)
Common stock repurchased(1,575)(6,682)
Common stock issued543 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 — BEGINNING168,161 710,131 
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.
6


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.

7


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 $2.4 million to decrease retained earnings related to the adoption of Topic 326. Upon CECL adoption the Corporation elected to implement the regulatory agencies’ capital transition relief over the permissible three-year period. The following table illustrates the impact of Topic 326:
January 1, 2023
In thousandsAs Reported Under Topic 326Pre Topic 326Impact of Topic 326 Adoption
Allowance for Credit Losses on Loans:
   Commercial and industrial$(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 asset18,452 17,718 734 
Liabilities:
   Allowance for unfunded commitments1,735 92 1,643 
Equity:
   Retained earnings242,674 245,042 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.

8


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.

9


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,
2023202220232022
Weighted average shares outstanding (basic)8,517,917 8,587,826 8,518,006 8,658,972 
Dilutive effect of unvested shares33,628  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 
Diluted1.06 1.20 3.23 2.95 

Stock Incentive Plan

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. The remaining 174,055 shares were transferred to the ACNB Corporation 2018 Omnibus 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 thousands2023202220232022
Service cost$124 $194 $372 $582 
Interest cost373 263 1,119 789 
Expected return on plan assets(663)(784)(1,989)(2,352)
Amortization of net loss98 102 294 305 
Net Periodic Benefit Income$(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.
 
10


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 thousandsUnrealized Losses on SecuritiesPension
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 tax556  556 
Amortization of unrealized losses on securities previously transferred to held to maturity, net of tax731  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.

11


Segment information for the three month periods ended September 30, 2023 and 2022, is as follows:
In thousandsBankingInsuranceTotal
2023   
Interest income and other income from external customers$28,080 $2,451 $30,531 
Interest expense2,489  2,489 
Depreciation and amortization expense613 212 825 
Income before income taxes11,107 520 11,627 
Total assets2,369,705 18,817 2,388,522 
Capital expenditures68  68 
2022   
Interest income and other income from external customers$27,029 $2,202 $29,231 
Interest expense850 12 862 
Depreciation and amortization expense728 226 954 
Income before income taxes12,565 484 13,049 
Total assets2,634,037 20,116 2,654,153 
Capital expenditures475 11 486 
Segment information for the nine month periods ended September 30, 2023 and 2022, is as follows:
In thousandsBankingInsuranceTotal
2023   
Interest income and other income from external customers$81,638 $7,193 $88,831 
Interest expense4,529  4,529 
Depreciation and amortization expense