Acnb Corp: Form 10-Q for the period ended Sep 30, 2025

The following is management’s discussion and analysis of the significant changes in the financial condition, results of operations, comprehensive income, capital resources, and liquidity presented in its accompanying Consolidated Financial Statements for ACNB Corporation, a financial holding company. Please read this discussion in conjunction with the Consolidated Financial Statements and disclosures included herein. Current performance does not guarantee, assure or indicate similar performance in the future.

Forward-Looking Statements

In addition to historical information, this Form 10-Q may contain forward-looking statements. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, noninterest income, earnings or loss per share, asset mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of Management or the Board of Directors, and (c) statements of assumptions, such as economic conditions in the Corporation’s Market Areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “intends”, “will”, “should”, “anticipates”, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy. Forward-looking statements are subject to certain risks and uncertainties such as national, regional and local economic conditions, competitive factors, and regulatory limitations. Actual results may differ materially from those projected in the forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: short-term and long-term effects of inflation and rising costs on the Corporation, customers and economy; legislative and regulatory changes; banking system instability caused by failures and financial uncertainty of various banks which may adversely impact the Corporation and its securities and loan values, deposit stability, capital adequacy, financial condition, operations, liquidity, and results of operations; effects of governmental and fiscal policies, as well as legislative and regulatory changes; effects of new laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) and their application with which the Corporation and its subsidiaries must comply; impacts of the capital and liquidity requirements of the Basel III standards or any similar standards; effects of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters; ineffectiveness of the business strategy due to changes in current or future market conditions; future actions or inactions of the United States government, including the effects of short-term and long-term federal budget and tax negotiations and a failure to increase the government debt limit or a prolonged shutdown of the federal government; effects of economic conditions particularly with regard to the negative impact of any pandemic, epidemic or health-related crisis and the responses thereto on the operations of the Corporation and current customers, specifically the effect of the economy on loan customers’ ability to repay loans; effects of competition, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products and services; inflation, securities market and monetary fluctuations; risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and interest rate protection agreements, as well as interest rate risks; difficulties in acquisitions and integrating and operating acquired business operations, including information technology difficulties; challenges in establishing and maintaining operations in new markets; effects of technology changes; effects of general economic conditions and more specifically in the Corporation’s Market Areas; failure of assumptions underlying the establishment of reserves for credit losses and estimations of values of collateral and various financial assets and liabilities; acts of war or terrorism or geopolitical instability; disruption of credit and equity markets; ability to manage current levels of impaired assets; loss of certain key officers; ability to maintain the value and image of the Corporation’s brand and protect the Corporation’s intellectual property rights; continued relationships with major customers; potential impacts to the Corporation from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses; and, trade and tariff uncertainties and volatility. Management considers subsequent events occurring after the balance sheet date for matters which may require adjustments to, or disclosure in, the Consolidated Financial Statements. We caution readers not to place undue reliance on these forward-looking statements. They only reflect Management’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances. Please carefully review the risk factors described in other documents the Corporation files from time to time with the SEC, including the Annual Reports on Form 10-K and the Quarterly Reports on Form 10-Q. Please also carefully review any Current Reports on Form 8-K filed by the Corporation with the SEC.

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 33 community banking offices and a loan production office in Hunt Valley, Maryland. 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, 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 economies 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.

Traditions Acquisition

ACNB closed the Acquisition of Traditions effective February 1, 2025. Traditions contributed, after acquisition accounting adjustments, $877.7 million in assets, $648.5 million in loans and $741.5 million in deposits at the Acquisition date. Financial results for the nine months ended September 30, 2025 were impacted by two discrete items that were related to the Acquisition: a provision for credit losses on non-PCD loans of $4.2 million, net of taxes, and merger-related expenses, net of taxes, totaling $7.9 million.

The following table presents a summary of the Corporation’s earnings and selected performance and asset quality ratios:

(Dollars in thousands, except per share data)

1 Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate.

Summary Financial Results

• Net Interest Income — Net interest income was $32.1 million for the three months ended September 30, 2025 compared to $20.9 million for the same period of 2024, an increase of $11.2 million. For the nine months ended September 30, 2025, net interest income was $90.2 million compared to $62.5 million for the same period of 2024. The increase in net interest income and growth in average loans and deposits was driven primarily by the Acquisition.
• Net Interest Margin — The Corporation’s FTE net interest margin increased to 4.27% for the three months ended September 30, 2025 compared to 3.77% in the same period of 2024, an increase of 50 bps. The FTE net interest margin for the nine months ended September 30, 2025 was 4.19%, an increase of 40 bps from the same period of 2024. The accretion impact of acquisition accounting adjustments on loans and deposits from the Acquisition was $2.1 million and $5.8 million for the three and nine months ended September 30, 2025, respectively.
• Yield on Average Earning Assets — For the three and nine months ended September 30, 2025, the yield on average earning assets was 5.64% and 5.58%, respectively, an increase of 74 bps compared to both of the same periods of 2024.
• Loan Growth — Average loans increased $675.4 million and $618.5 million for the three and nine months ended September 30, 2025, respectively, compared to the same periods of 2024.
• Deposit Growth — Average interest-bearing deposits increased $575.6 million and $537.6 million for the three and nine months ended September 30, 2025, respectively, compared to the same periods of 2024.
• Asset Quality — The allowance for credit losses was $23.7 million at September 30, 2025 compared to $17.3 million at December 31, 2024. The increase was driven primarily by an initial allowance for credit losses of $5.5 million for non-PCD loans and $1.5 million for accruing PCD loans at the Acquisition date.
• The provision for credit losses was a reversal of $584 thousand and a provision of $5.2 million or the three and nine months ended September 30, 2025, respectively, compared to a provision of $81 thousand and a reversal of $2.7 million, respectively for the same periods of 2024. The reversal of the provisions for credit losses for the three months ended September 30, 2025 was driven primarily by the movement of construction loans, which are a higher loss rate segment, to lower loss rate segments within the loan portfolio and the paydowns of loans with a specific reserve. The provision for the nine months ended September 30, 2025 was driven primarily by the initial allowance for credit losses at the Acquisition date as discussed above.
• Non-performing loans were $10.0 million, or 0.43%, of total loans at September 30, 2025 compared to $6.6 million, or 0.39%, of total loans at September 30, 2024. The increase was driven primarily by the Acquisition.
• Annualized net charge-offs for the three and nine months ended September 30, 2025 were 0.02% and 0.01% of total average loans, respectively, compared to 0.01% for both of the same periods of 2024.
• Noninterest income — Noninterest income was $8.4 million and $24.3 million for the three and nine months ended September 30, 2025, respectively, an increase of $1.6 million and $5.4 million, respectively, for the same periods of 2024. The increase for the three months ended September 30, 2025 was driven primarily by the Acquisition. In addition to impact of the Acquisition, the increase for the nine months ended September 30, 2025 was also driven by a gain on life insurance proceeds.
• Noninterest expenses — Noninterest expense was $22.4 million and $77.1 million for the three and nine months ended September 30, 2025, respectively, an increase of $4.1 million and $24.8 million, respectively, for the same periods of 2024. The increases were driven primarily by the Acquisition.

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 portrayal of its financial condition and results of operations, and that require management’s most difficult, subjective or complex judgment, often result in the need to make estimates about the effect of such matters which are inherently uncertain. The following accounting 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 ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense.

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

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

RESULTS OF OPERATIONS

Three months ended September 30, 2025 compared to three months ended September 30, 2024

Net income for the three months ended September 30, 2025 was $14.9 million, or $1.42 diluted earnings per share, compared to net income of $7.2 million, or $0.84 diluted earnings per share for the same period of 2024, an increase of $7.7 million, or $0.58 diluted earnings per share. The increase in net income was driven primarily by the Acquisition.

Net Interest Income

Net interest income totaled $32.1 million for the three months ended September 30, 2025 compared to $20.9 million for the same period of 2024, an increase of $11.2 million. The FTE net interest margin for the three months ended September 30, 2025 was 4.27%, a 50 bps increase from 3.77% for the same period of 2024. The accretion impact of acquisition accounting adjustments on loans and deposits from the Acquisition was $2.1 million for the three months ended September 30, 2025. The Corporation manages the risk associated with changes in interest rates through the techniques described within Item 3, “Quantitative and Qualitative Disclosures About Market Risk” in this Quarterly Report on Form 10-Q.

The following table provides a comparative average balance sheet and net interest income analysis for the periods presented. The discussion following the table is based on these taxable-equivalent amounts.

(Dollars in thousands)

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.

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 for the three months ended September 30, 2025 compared to the same period of 2024:

(Dollars in thousands)

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.

The increases in FTE interest income, interest expense and the increases to average interest-earning assets and liabilities were driven primarily by the Acquisition.

Total FTE interest income increased $15.3 million during the three months ended September 30, 2025 compared to the same period of 2024. ACNB experienced a $10.7 million increase in FTE interest income due to an increase in the average balance of interest earning assets and $4.5 million attributable to an increase in the yield on interest earning assets. FTE interest income on total loans increased $13.9 million compared to the same period of 2024. Average loans increased $675.4 million contributing $9.7 million to the increase in FTE interest income. The yield on total loans increased 73 bps, contributing $4.2 million to the increase.

Total interest expense increased $4.1 million during the three months ended September 30, 2025 compared to the same period of 2024. Total average interest-bearing deposits increased $575.6 million for the three months ended September 30, 2025 compared to the same period of 2024. Interest expense increased $1.5 million due to higher rates on interest-bearing deposits and increased $2.3 million as a result of the increase in average interest-bearing deposits. The cost of interest-bearing deposits was 1.42% for the three months ended September 30, 2025, an increase of 50 bps from the same period of 2024. Rates on money markets and time deposits increased 85 and 43 bps, respectively, partially offset by a decrease of 5 bps on the rate of interest-bearing demand deposits.

Provision for Credit Losses and Unfunded Commitments

The provision for credit losses and unfunded commitments were reversals of $584 thousand and $145 thousand, respectively, for the three months ended September 30, 2025 compared to provisions of $81 thousand and $40 thousand, respectively, for the same period of 2024. The reversal of the provision for credit losses for the three months ended September 30, 2025 was driven primarily by the movement of construction loans for completed projects, which are a higher loss rate segment, primarily to commercial real estate loans and other lower loss rate segments within the loan portfolio and the paydowns of loans with a specific reserve. The Corporation assesses risks and reserves required compared with the balances in the ACL and unfunded commitments quarterly.

Noninterest Income

The following table presents the components of noninterest income:

(In thousands)

Total noninterest income was $8.4 million for the three months ended September 30, 2025 compared to $6.8 million for the same period of 2024. The increase was driven primarily by the Acquisition. The decrease in insurance commissions was driven primarily by timing of policy renewals and a decrease of $121 thousand from the cancellation of policies related to one customer.

Noninterest Expenses

The following table presents the components of noninterest expense:

(In thousands)

Noninterest expenses increased $4.1 million for the three months ended September 30, 2025 compared to the same period of

2024 driven primarily by the Acquisition. The more significant fluctuations by category are explained below:

• Salaries and employee benefits, the largest component of noninterest expenses, increase was driven primarily by an increased number of employees attributable to the Acquisition, merit increases, and higher mortgage commissions.
• Equipment expenses increase was driven primarily by the Acquisition and the implementation of additional products into the core processing system.
• Other increased $738 thousand driven primarily by the Acquisition and higher internet banking services.
• Merger-related expenses included professional services, lease terminations and fixed asset disposals, among other expenses incurred for the Acquisition.

Provision for Income Taxes

The Corporation recognized income tax expense of $4.0 million during the three months ended September 30, 2025 compared to $2.2 million during the same period of 2024. The provision for income taxes for the three months ended September 30, 2025 reflects a combined Federal and State ETR of 21.4% compared to an ETR of 23.4% for the same period of the prior year. Any variances from the federal statutory rate of 21% are generally due to tax-free income, which includes, but not limited to, interest income on tax-free loans and investment securities and income from bank-owned life insurance policies, federal income tax credits, the impact of non-tax deductible expenses and state taxes. Additionally, ACNB has incurred non-deductible costs related to the Acquisition which are recorded within merger-related expenses on the Consolidated Statements of Income.

Nine months ended September 30, 2025 compared to nine months ended September 30, 2024

Net income for the nine months ended September 30, 2025 was $26.2 million, or $2.56 diluted earnings per share, compared to net income of $25.3 million, or $2.96 diluted earnings per share for the same period of 2024, an increase of $1.0 million and a decrease of $0.40 diluted earnings per share. The increase in net income for the nine months ended September 30, 2025 was driven primarily by increases in net interest income, gain from mortgage loans held for sale, and service charges on deposits primarily due to the Acquisition, partially offset by a higher provision for credit losses, higher merger-related expenses, and higher salaries and employee benefits expenses and other noninterest expenses compared to the same period of 2024.

Net Interest Income

Net interest income totaled $90.2 million for the nine months ended September 30, 2025 compared to $62.5 million for the same period of 2024, an increase of $27.7 million. The FTE net interest margin for the nine months ended September 30, 2025 was 4.19%, a 40 bps increase from 3.79% for the same period of 2024. The accretion impact of acquisition accounting adjustments on loans and deposits from the Acquisition was $5.8 million for the nine months ended September 30, 2025.

The following table provides a comparative average balance sheet and net interest income analysis for the periods presented. The discussion following this table is based on these taxable-equivalent amounts.

(Dollars in thousands)

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.

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 for the nine months ended September 30, 2025 compared to the same period of 2024:

(Dollars in thousands)

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.

The increases in FTE interest income, interest expense and the increases to average interest-earning assets and liabilities were driven primarily by the Acquisition.

Total FTE interest income increased $40.3 million during the nine months ended September 30, 2025 compared to the same period of 2024. Of the $40.3 million increase, $27.9 million was attributable to an increase in the average balance of interest earning assets and $12.4 million attributable to an increase in the yield on interest earning assets. FTE interest income on total loans increased $37.9 million compared to the same period of 2024. Average loans increased $618.5 million contributing $26.1 million to the increase in FTE interest income. The yield on total loans increased 74 bps, contributing $11.8 million to the increase.

Total interest expense increased $12.5 million during the nine months ended September 30, 2025 compared to the same period of 2024. Total average interest-bearing deposits increased $537.6 million for the nine months ended September 30, 2025 compared to the same period of 2024. Interest expense increased $6.5 million due to higher rates on interest-bearing deposits as a result of the Acquisition and increased $5.7 million as a result of the increase in average interest-bearing deposits. The average cost of interest-bearing deposits was 1.43% for the nine months ended September 30, 2025, an increase of 64 bps compared to the same period of 2024. The largest increases in rates were in money markets and time deposits which increased 95 and 81 bps, respectively.

Provision for Credit Losses and Unfunded Commitments

During the nine months ended September 30, 2025, the provision for credit losses was $5.2 million and the provision for unfunded commitments was a reversal of $979 thousand compared to reversals of both the provision for credit losses and the provision for unfunded commitments of $2.7 million and $370 thousand, respectively, for the same period of 2024. In 2025, ACNB recorded an allowance for credit losses of $6.9 million at the Acquisition date, comprised of $5.5 million for non-PCD loans, which was recognized through the provision for credit losses, and $1.5 million for accruing PCD loans, which was recognized as an acquisition accounting adjustment to the amortized cost basis of the acquired loans. The reversal of the provision for unfunded commitments was impacted by the incorporation of post-COVID data which resulted in lower loss rates utilized within the Bank’s ACL model. During the nine months ended September 30, 2024, the reversals of both the provision for credit losses and the provision for unfunded commitments were a result of the Corporation’s revision to estimates driven by a realignment of the peer group used for the CECL allowance process, an update to loss driver factors from third-party data, and an update to the application of prepayment and curtailment rate studies since implementation of CECL on January 1, 2023. These estimates, which were based on more current information available as of June 30, 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 reversal of the provision for credit losses and unfunded commitments for the nine months ended September 30, 2024. The Corporation assesses risks and reserves required compared with the balances in the ACL and unfunded commitments quarterly.

Noninterest Income

The following table presents the components of noninterest income:

(In thousands)

Total noninterest income was $24.3 million for the nine months ended September 30, 2025 compared to $18.9 million for the same period of 2024. The increases were driven primarily by the Acquisition and changes to customer products. Gain on life insurance proceeds for the nine months ended September 30, 2025 was a result of a death benefit received on a life insurance policy.

Noninterest Expenses

The following table presents the components of noninterest expense:

(In thousands)

Noninterest expenses increased $24.8 million during the nine months ended September 30, 2025 compared to the same period of 2024 driven primarily by the Acquisition. The more significant fluctuations by category explained below:

• Salaries and employee benefits, the largest component of noninterest expenses, increased driven primarily by an increased number of employees attributable to the Acquisition, merit increases and higher mortgage commissions.
• Professional services increases were driven primarily by timing of expenses, collection fees, higher audit fees, Acquisition-related expenses and expenses related to loan review and rate studies.
• Other increased driven primarily by the Acquisition, earned income tax related donations, and higher internet banking services.
• Merger-related expenses included professional fees, legal, external accounting, loan review, advisory fees, lease terminations, fixed asset disposals and severance and change in control expenses incurred for the Acquisition.

Provision for Income Taxes

The Corporation recognized income taxes of $7.0 million for the nine months ended September 30, 2025 compared to $6.9 million during the same period of 2024. The provision for income taxes for the nine months ended September 30, 2025 reflects a combined Federal and State ETR of 21.1% compared to an ETR of 21.5% for the same period of 2024. Any variances from the federal statutory rate of 21% are generally due to tax-free income, which includes, but not limited to, interest income on tax-free loans and investment securities and income from bank-owned life insurance policies, federal income tax credits, the impact of non-tax deductible expenses, and state taxes. Additionally, ACNB has incurred non-deductible costs related to the Acquisition which are recorded within merger-related expenses on the Consolidated Statements of Income.

FINANCIAL CONDITION

Assets totaled $3.25 billion at September 30, 2025 and $2.39 billion at December 31, 2024. The Acquisition contributed $877.7 million to total assets.

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. The investment portfolio is comprised of U.S. Government and agencies, mortgage-backed, state and municipal, and corporate securities. These securities provide the appropriate characteristics with respect to credit quality, yield and maturity relative to the management of the overall balance sheet.

Total investment securities were $526.6 million at September 30, 2025 compared to $459.5 million at December 31, 2024, an increase of 14.6%. Following the Acquisition date, ACNB completed the sale of approximately $98.0 million of investment securities previously held by Traditions with a yield of 5.03%. ACNB paid off $40.2 million of Traditions’ FHLB borrowings with a cost of 4.73% with the proceeds from the sale of the investment securities, and invested the remainder of the proceeds into investment securities with a yield of 5.07%. At September 30, 2025, the securities balance included a net unrealized loss on AFS securities of $31.0 million on amortized cost of $493.3 million compared to a net unrealized loss of $47.7 million on amortized cost of $441.6 million at December 31, 2024. At September 30, 2025, the securities balance included HTM securities with an amortized cost of $63.4 million and a fair value of $56.9 million as compared to an amortized cost of $64.6 million and a fair value of $56.9 million at December 31, 2024.

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

Loans

The following table presents the composition of the loan portfolio as follows:

(In thousands)

Total loans, net of unearned income, outstanding increased $653.7 million, or 38.8%, from December 31, 2024 to September 30, 2025. The increase was driven primarily by the $648.5 million in loans purchased at the Acquisition date. Total acquisition accounting adjustments on loans were $20.1 million at September 30, 2025. The majority of the loan acquisition accounting adjustments are expected to accrete back through as income as loans pay off or mature. 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.

The commercial real estate portfolio, which includes farmland, multifamily, owner-occupied and non-owner occupied commercial real-estate, grew $294.4 million, or 30.4%, compared to December 31, 2024. The following data related to the commercial real estate portfolio through the breakout charts excludes the impact of the acquisition accounting adjustments on loans. The collateral for these loans is primarily spread across Pennsylvania and Maryland, 65.7% and 32.0%, respectively, at September 30, 2025, compared to 56.0% and 42.1%, respectively, at December 31, 2024. Less than 3% of the portfolio is for real estate in Urban areas of Baltimore, Maryland and Philadelphia, Pennsylvania. The largest sectors of the commercial real estate portfolio are retail and mixed-use commercial rental units, office complexes and hotels, motels and bed and breakfast entities. Non-owner occupied commercial real estate represented 65.6% of the commercial real estate portfolio. 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 categories included in the portfolio:

1 Constitutes over 40 loan categories that do not fit into the categories presented above, with no loan category representing more than 3% of the total.

The concentration of non-owner occupied commercial real estate, construction, and multi-family was 242.9% of total risk-based capital of the Bank as of September 30, 2025 compared to 207.0% of total risk-based capital of the Bank as of December 31, 2024. The increase was primarily a result of the addition of Traditions’ portfolio.

Residential real estate mortgages totaled $593.3 million, an increase of $191.3 million, or 47.6%, compared to December 31, 2024. Included in the residential real estate mortgages are $217.3 million of commercial loans and $64.0 million of consumer loans secured by residential real estate mortgages. Total residential real estate mortgages include $52.0 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 $218.4 million, an increase of $77.5 million, or 55.0% compared to December 31, 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.

Allowance for Credit Losses and Asset Quality

The ACL at September 30, 2025 was $23.7 million, or 1.01% of total loans, net of unearned income as compared to $17.3 million, or 1.03% of loans, at December 31, 2024 and $17.2 million, or 1.03% of loans, at September 30, 2024. The increases of $6.4 million compared to December 31, 2024 and $6.4 million compared to September 30, 2024 were driven primarily by an initial $5.5 million ACL for non-PCD loans, which was recognized through the provision for credit losses, and a $1.5 million ACL for accruing PCD loans, which was recognized as an acquisition accounting adjustment to the amortized cost basis of the acquired loans, at the Acquisition date.

Changes in the ACL were as follows for the periods presented:

(In thousands)

Information on nonaccrual loans, by collateral type rather than loan segment, at September 30, 2025, as compared to December 31, 2024, is as follows:

(Dollars in thousands)

Nonaccrual loans increased $1.2 million from December 31, 2024 to September 30, 2025 driven primarily by the Acquisition. All nonaccrual loans are to borrowers located within ACNB’s Market Area and were originated by ACNB’s banking subsidiary or were part of the Acquisition and were originated by Traditions’ banking subsidiary.

Deposits

Deposits were comprised of the following for the periods presented:

(In thousands)

ACNB relies on deposits as a primary source of funds for lending activities. The increase in deposits from December 31, 2024 to September 30, 2025 was driven primarily by the Acquisition. ACNB acquired $741.5 million in deposits at the Acquisition date. Historically, deposit balances fluctuate reflecting different balance levels held by local companies, government units and school districts during different times of the year. Included in total deposits at September 30, 2025 were municipal deposits totaling $139.8 million, or 5.7%, of total deposits compared to $111.0 million, or 6.2%, of total deposits at December 31, 2024. Time deposits increased $173.4 million and included brokered deposits totaling $44.0 million at September 30, 2025 compared to $24.1 million at December 31, 2024. ACNB Bank issued a net $20.0 million in short-term brokered time deposits during the nine months ended September 30, 2025. The loan-to-deposit ratio was 94.76% at September 30, 2025 compared to 93.89% at December 31, 2024.

ACNB’s deposit pricing function employs a disciplined pricing approach based upon liquidity needs and alternative funding rates, but also strives to price deposits to be competitive with relevant local competition, including local government investment trusts, credit unions and larger regional banks. Based on total Bank deposits outstanding, consumer and commercial constituted approximately 59% and 41%, respectively, of total Bank deposits as of September 30, 2025 compared to approximately 63% and 37%, respectively, as of December 31, 2024. The ratio of uninsured and non-collateralized Bank deposits to total Bank deposits was 20.5% at September 30, 2025. As of September 30, 2025, 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 292.7% of uninsured and non-collateralized Bank deposits. At September 30, 2025, deposits from the 20 largest unrelated depositors, excluding internal accounts, of the Bank totaled $175.7 million, or 7.1%, of total Bank deposits compared to $143.4 million, or 7.9%, of total Bank deposits at December 31, 2024.

Borrowings

Short-term borrowings are comprised primarily of securities sold under agreements to repurchase and short-term borrowings from the FHLB. As of September 30, 2025, short-term borrowings were $80.5 million, an increase of $64.6 million compared to $15.8 million at December 31, 2024. Short-term FHLB advances at September 30, 2025 were $50.0 million compared to none at December 31, 2024. Short-term FHLB borrowings are used for general balance sheet management. Compared to December 31, 2024, securities sold under repurchase agreements balances increased by $11.3 million, or 71.4%, due to normal changes in the cash flow position of ACNB’s commercial and local government customer base. 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. During the first quarter of 2025, ACNB paid off $40.2 million of short-term and long-term FHLB borrowings held by Traditions with a cost of 4.73% shortly following the Acquisition date.

Long-term borrowings consist of longer-term advances from the FHLB, trust preferred subordinated debt and subordinated debt. Long-term borrowings totaled $255.4 million at September 30, 2025 compared to $255.3 million at December 31, 2024. 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 risk-adjusted rate of return, in the opinion of management, to shareholders, while maintaining levels above its internal minimums and “well-capitalized” regulatory position in relationship to its risk exposure. Total stockholders’ equity was $408.6 million at September 30, 2025 compared to $303.3 million at December 31, 2024. The primary driver of the increase to stockholders’ equity was the issuance of 2,035,246 shares of common stock, or $83.6 million, to acquire Traditions. Other impacts to stockholders’ equity during the nine months ended September 30, 2025 were net income of $26.2 million, a $13.1 million change in unrealized gains in AFS investment securities, cash dividends paid to ACNB Corporation stockholders of $10.5 million, and common stock repurchases of $8.7 million.

ACNB Corporation has a Dividend Reinvestment and Stock Purchase Plan that provides registered holders of ACNB Corporation common stock with a convenient way to purchase additional shares of common stock by permitting participants in the plan to automatically reinvest cash dividends on all or a portion of the shares owned and to make quarterly voluntary cash payments under the terms of the plan. Participation in the plan is voluntary, and there are eligibility requirements to participate in the plan. During the nine months ended September 30, 2025, 17,050 shares were issued under this plan with proceeds in the amount of $838 thousand.

Regulatory Capital

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.

The capital ratios are as follows:

1 Ratios do not include capital conservation buffer.

2 N/A - Not applicable as “well capitalized” applies only to banks.

Liquidity

Effective liquidity management ensures the cash flow requirements of depositors and borrowers as well as the operating cash needs of ACNB are met. ACNB’s funds are available from a variety of sources, including assets that are readily convertible such as interest-bearing deposits 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, Federal Reserve Discount Window and unsecured Federal Funds line providers.

At September 30, 2025, ACNB’s banking subsidiary had borrowing capacity of approximately $1.29 billion from the FHLB, of which $1.01 billion was available. At September 30, 2025, ACNB’s banking subsidiary could borrow approximately $56.7 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 September 30, 2025, Fed Funds line capacity at the banking subsidiary was $192.0 million, of which the full amount was available. ACNB Corporation maintains a $5.0 million unsecured line of credit with a correspondent bank, all of which was available for borrowing as of September 30, 2025. The Corporation also 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 a wholly-owned subsidiary of ACNB Corporation. The commercial line of credit is for general working capital needs as they arise by ACNB Insurance Services and did not have any outstanding balance as of September 30, 2025.

Another source of liquidity is securities sold under repurchase agreements to customers of ACNB’s banking subsidiary totaling approximately $27.1 million and $15.8 million at September 30, 2025, and December 31, 2024, respectively. These agreements vary in balance according to the cash flow needs of customers and competing accounts at other financial organizations.

The liquidity of the parent company also represents an important aspect of liquidity management. The parent company’s cash outflows consist principally of dividends to shareholders and corporate expenses. The main source of funding for the parent company is the dividends it receives from its subsidiaries. Federal and state banking regulations place certain legal restrictions and other practicable safety and soundness restrictions on dividends paid to the parent company from the subsidiary bank.

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 September 30, 2025, the Corporation had unfunded outstanding commitments to extend credit of $553.5 million and outstanding standby letters of credit of $26.0 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.

The primary objective of ACNB’s ALCO, with direct oversight from the Board, is to maximize net interest income within established policy parameters. This objective is accomplished through the management of balance sheet composition and duration, market risk exposures arising from changing economic conditions, and liquidity risk.

Market risk comprises exposure to interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks. Specific to the banking industry, one of the greatest risk exposures is to that of changing market interest rates. The primary objective of monitoring ACNB’s interest rate sensitivity risk is to provide management the flexibility necessary to manage the statement of condition to minimize adverse changes in net interest income as a result of changes in the direction and level of interest rates. FOMC monetary policy, economic uncertainty, and fiscal policy changes have been significant factors affecting the task of managing interest rate sensitivity positions in recent years.

ACNB’s ALCO is a management committee responsible for monitoring and managing interest rate risk within approved policy limits utilizing earnings sensitivity simulation and economic value-at-risk models. These models are highly dependent on various assumptions, which change regularly as the statement of condition composition and market interest rates change. The key assumptions and strategies employed are analyzed, reviewed and documented at least annually by the ALCO as well as provided to the Board.

Interest Rate Risk

Interest rate risk is the exposure to fluctuations in the Bank’s future earnings (earnings at risk) and value (value at risk) resulting from changes in interest rates. This exposure results from differences between the amounts of interest-earning assets and interest-bearing liabilities that reprice within a specified time period as a result of scheduled maturities, scheduled and unscheduled repayments, the propensity of borrowers and depositors to react to changes in their economic interests, and contractual loan interest rate changes.

Management attempts to manage the level of repricing and maturity mismatch through its asset/liability management processes so that fluctuations in net interest income are maintained within policy limits across a range of market conditions while satisfying liquidity and capital requirements. Management recognizes that a certain amount of interest rate risk is inherent, appropriate, and necessary to ensure the Bank’s profitability. Thus, the goal of the Bank’s interest rate risk management is to minimize the fluctuations of net interest income across all interest rate scenarios.

Management endeavors to control the exposure to changes in interest rates by understanding, reviewing, and making decisions based on its risk position. The Bank primarily uses its securities portfolio, FHLB advances, derivatives and brokered deposits to manage its interest rate risk position. Additionally, pricing, promotion, and product development activities are directed in an effort to emphasize the loan and deposit repricing characteristics that best meet current interest rate risk objectives.

ACNB uses simulation analysis to assess earnings at risk and net present value analysis to assess value at risk. These methods allow management to regularly monitor both the direction and magnitude of its interest rate risk exposure. These analyses require numerous assumptions including, but are not limited to, changes in statement of condition mix, prepayment rates on loans and securities, cash flows and repricing of all financial instruments, changes in volumes and pricing, future shapes of the yield curve, relationship of market interest rates to each other (basis risk), credit spread, and deposit sensitivity. Assumptions are based on management’s best estimates, but may not accurately reflect actual results under certain changes in interest rates due to the timing, magnitude, and frequency of rate changes and changes in market conditions and management strategies, among other factors. However, the analyses are useful in quantifying risk and providing a relative gauge of the Corporation’s interest rate risk position over time.

ACNB’s ALCO operates under management policies, approved by the Board, which define guidelines and limits on the level of risk. ALCO meets regularly and reviews its interest rate risk position and monitors various liquidity ratios to ensure a satisfactory liquidity position. By utilizing the analyses, management can determine changes that may need to be made to the asset and liability mixes to mitigate the change in net interest income under various interest rate scenarios. Management continually evaluates the condition of the economy, the pattern of market interest rates, and other economic data to inform the committee. Regulatory authorities also monitor the Corporation’s interest rate risk position along with other liquidity ratios.

Net Interest Income Sensitivity

Simulation analysis evaluates the effect of upward and downward changes in market interest rates on future net interest income. The analysis involves changing the interest rates used in determining net interest income over the next twelve months. The resulting percentage change in net interest income in various rate scenarios is an indication of Corporation’s short-term interest rate risk. The analysis assumes recent pricing trends in new loan and deposit volumes will continue while balances remain constant. Additional assumptions are applied to modify pricing under the various rate scenarios.

The simulation analysis results are presented in the table below. At September 30, 2025, results in the falling interest rate scenario project a decrease in net interest income. The Bank is currently modestly asset-sensitive according to the model in a down rate environment as interest-earning assets are expected to reprice faster than interest-bearing liabilities.

12-Month Earnings at Risk Ramps

Economic Value

Net present value analysis provides information on the risk inherent in the statement of condition that might not be considered in the simulation analysis due to the short time horizon used. The net present value of the statement of condition incorporates the discounted present value of expected asset cash flows minus the discounted present value of expected liability cash flows. The analysis involves changing the interest rates used in determining the expected cash flows and in discounting the cash flows. The resulting percentage change in net present value in various rate scenarios is an indication of the longer-term repricing risk and options embedded in the statement of condition.

The results at September 30, 2025 and December 31, 2024 are reflected in the following table. Funding cost and repricing speed will continue to be a factor in the results of the model. The behavior of the business and retail clients also varies across the rate scenarios, which is reflected in the results. To improve comparability across periods, the Bank strives to follow best practices related to the assumption setting and maintains the size and mix of the period end statement of condition; thus, the results do not reflect actions management may take through the normal course of business that would impact results.

Value at Risk Ramps

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

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

There were no changes in the Corporation’s internal control over financial reporting during the three months ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. Risk Factors of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024 except as described below:

Changes to trade policies and tariffs can have an adverse impact on our business and our customers.

Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve. Our customers-particularly local businesses engaged in agriculture, manufacturing, and retail-may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair our customers' ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If our customers experience financial stress, we could see an increase in loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.