Common Stock, $2.50 par value per share $219,025,336. 8,709,393. Item 4. Item 5. Item 10. Item 12. Item 15. Maryland, and Gettysburg, Pennsylvania. bank, ACNB Bank. The main community banking office of the Bank is located at 16 Lincoln Square, Gettysburg, Pennsylvania. In addition to its main office, as of December 31, 2020. $159,000,000. $13,803,000. Franklin County, Pennsylvania, and all of Carroll County and Frederick County, Maryland. Approximately 60% of the population resides in areas designated rural. Major types of employers include those focused on manufacturing, education, healthcare, agriculture, tourism, and transportation/warehousing, as well as local governments. A material amount of land surrounding Gettysburg, Pennsylvania, is under the control of the National Park Service, limiting certain types of development. Unemployment figures in the subsidiary GRAMM-LEACH-BLILEY ACT OF 1999 (GLBA)—The Gramm-Leach-Bliley Act of 1999 eliminated many of the restrictions placed on the activities of bank holding companies that become financial holding companies. Among other things, the Gramm-Leach-Bliley Act repealed certain Glass-Steagall Act restrictions on affiliations between banks and securities firms, and amended the Bank Holding Company Act to permit bank holding companies that are financial holding companies to engage in activities, and acquire companies engaged in activities, that are: financial in nature (including insurance underwriting, insurance company portfolio investment, financial advisory, securities underwriting, dealing and market-making, and merchant banking activities); incidental to financial activities; or, complementary to financial activities if the Federal Reserve determines that they pose no substantial risk to the safety or soundness of depository institutions or the financial system in general. provide banking services to foreign individuals are required to take measures to avoid dealing with certain foreign individuals or entities, including foreign banks with profiles that raise money laundering concerns and are prohibited from dealing with foreign stockholders. Additionally, Dodd-Frank directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded. Dodd-Frank also gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters. minimum standards for the origination of residential mortgages including a determination of the Undercapitalized investments, management practices, and other aspects of operations. The subsidiary bank is also subject to examination by the FDIC for safety and soundness, as well as consumer compliance. These examinations are designed for the protection of the subsidiary AVAILABLE INFORMATION sec.gov/edgar. investor.acnb.com. exchange for fractional shares based upon $36.43, the determined market share price of ACNB Corporation common stock in accordance with the Reorganization Agreement. ACNB IS SUBJECT TO CREDIT RISK. and operating costs. These competitors may offer higher interest rates than ACNB, which could decrease the deposits that it attracts or require it to increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect the opportunities; additional regulatory scrutiny and possible regulatory penalties; litigation; and, reputational damage adversely affecting customer or investor confidence. other things, any of which could have a material adverse impact on THE TRADING VOLUME IN liquidated at prices not sufficient to recover the full amount of the credit exposure due to ACNB. Any such losses could have a material adverse effect on THE SEVERITY AND DURATION OF A FUTURE ECONOMIC DOWNTURN AND THE COMPOSITION OF THE BANKING Local economic conditions could impact the loan portfolio of ACNB. For example, an increase in unemployment, a decrease in real estate values, or increases in interest rates, as well as other factors, could weaken the economies of the communities ACNB serves. Weakness in the market areas served by ACNB could depress the technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in FEDERAL INCOME TAX REFORM COULD HAVE UNFORESEEN EFFECTS ON In addition, recent electoral changes and results may result in new tax legislation which may have an adverse impact on the Corporation and its operations. measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the INDUSTRY RISKS THE WEALTH MANAGEMENT INDUSTRY IS SUBJECT TO EXTENSIVE REGULATION, SUPERVISION AND EXAMINATION BY REGULATORS, AND ANY ENFORCEMENT ACTION OR ADVERSE CHANGES IN THE LAWS OR REGULATIONS GOVERNING Post-Effective Amendment No. 1 to this Form S-8 was filed with the Commission on March 8, 2019, effectively transferring the 174,055 authorized, but not issued, shares under the ACNB Corporation 2009 Restricted Stock Plan to the ACNB Corporation 2018 Omnibus Stock Incentive Plan. As of December 31, 2020, there were 35,587 shares issued under this plan. The maximum number of shares that may yet be granted under this plan is 538,468. The Corporation’s Registration Statement under the Securities Act of 1933 on Form S-8 for the ACNB Corporation 2018 Omnibus Stock Incentive Plan was filed with the Securities and Exchange Commission on March 8, 2019. In addition, on March 8, 2019, the Corporation filed Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 for the ACNB Corporation 2009 Restricted Stock Plan to add the ACNB Corporation 2018 Omnibus Stock Incentive Plan to the registration statement. INCOME STATEMENT DATA Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Other income Other expenses Income before income taxes Provision for income taxes Net income BALANCE SHEET DATA (AT YEAR-END) Assets Securities Loans, net Deposits Borrowings Stockholders' equity COMMON SHARE DATA Earnings per share—basic Cash dividends declared Book value per share Weighted average number of common shares Dividend payout ratio PROFITABILITY RATIOS AND CONDITION Return on average assets Return on average equity Average stockholders' equity to average assets SELECTED ASSET QUALITY RATIOS Non-performing loans to total loans Net charge-offs to average loans outstanding Allowance for loan losses to total loans Allowance for loan losses to non-performing loans Customer renewal lists are amortized using the straight line method over their estimated useful lives which range from eight to fifteen years. remained financially well capitalized operating measures to the most directly comparable GAAP financial measures are included in the tables below. INCOME STATEMENT DATA Interest income Interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Other income Merger-related expenses Other expenses Income before income taxes Deferred tax write-down due to Tax Act Provision for income taxes Net income Basic earnings per share NON-GAAP MEASURES INCOME STATEMENT DATA Net Income Merger-related expenses, net of income taxes Deferred tax write-down due to Tax Act Net income without nonrecurring items (non-GAAP) Basic earnings per share (non-GAAP) This 2019. expenses (including nonrecurring merger-related) resulting in 2019. use of electronic products during shutdowns. funding sources, the largest of which are non-interest bearing demand deposits and INTEREST EARNING ASSETS Loans Taxable securities Tax-exempt securities Total Securities Other Total Interest Earning Assets Cash and due from banks Premises and equipment Other assets Allowance for loan losses Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY INTEREST BEARING LIABILITIES Interest bearing demand deposits Savings deposits Time deposits Total Interest Bearing Deposits Short-term borrowings Long-term borrowings Total Interest Bearing Liabilities Non-interest bearing demand deposits Other liabilities Stockholders' equity Total Liabilities and Stockholders' Equity NET INTEREST INCOME INTEREST RATE SPREAD NET INTEREST MARGIN Net interest income totaled liquidity assets. INTEREST EARNING ASSETS Loans Taxable securities Tax-exempt securities Total Securities Other Total INTEREST BEARING LIABILITIES Interest bearing demand deposits Savings deposits Time deposits Short-term borrowings Long-term borrowings Total Change in Net Interest Income The net change attributable to the combination of rate and volume has been allocated on a consistent basis between volume and rate based on the absolute value of each. For yield calculation purposes, nonaccruing loans are included in average balances. periods due to lags in metrics after renewed COVID-19 flare ups. 2019. $2,000,000 in 2020 charge-offs were not COVID-19 related. which activity, and higher transaction-based fees on brokerage relationships. As noted above, commissions from insurance sales were rates. This expense decreased by $450,000 in sporadic refills. products; and to promote and inform the FCBI marketplace of the ACNB acquisition, and ACNB’s products and systems. integrating all systems into one system was important to the 2020. 2020. 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. The changes in value are deemed to be related solely to changes in interest rates as the credit quality of the portfolio is high. FCBI. AVAILABLE FOR SALE SECURITIES AT FAIR VALUE U.S. Government and agencies Mortgage-backed securities State and municipal Corporate bonds HELD TO MATURITY SECURITIES AT AMORTIZED COST U.S. Government and agencies Mortgage-backed securities EQUITY SECURITIES WITH READILY DETERMINABLE FAIR VALUES CRA Mutual Fund Stock in other Banks Table 4 discloses investment securities at the scheduled maturity date at December 31, U.S. Government and agencies Mortgage-backed securities State and municipal Securities are at amortized cost. Mortgage-backed securities are allocated based upon scheduled maturities. CRA Mutual Fund Stock in other Banks Year over year, loans outstanding increased by 2019 due Commercial, financial and agricultural Real estate: Commercial Construction Residential Consumer Total Loans The repricing range of the loan portfolio at December 31, Commercial, financial and agricultural Real estate: Commercial Construction Residential Total LOANS BY REPRICING OPPORTUNITY Commercial, financial and agricultural Real estate: Commercial Construction Residential Total Loans with a fixed interest rate Loans with a variable interest rate Total Most of the The unemployment rate in Nonaccrual loans, including TDRs Accruing loans 90 days past due Total Non-Performing Loans Foreclosed assets Total Non-Performing Assets Total Accruing Troubled Debt Restructurings Ratios: Non-performing loans to total loans Non-performing assets to total assets Allowance for loan losses to non-performing loans If interest due on all nonaccrual loans had been accrued at original contract rates, it is estimated that income before income taxes would have been greater by borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve interest rates being granted below current market rates for the credit risk of the loan or an extension of a 2019. home. years for each specific loan pool. Additionally, management adjusts projected loss ratios for other factors, including the following: time, such as COVID-19. credit quality in the loan credits were, in the opinion of management, adequately collateralized. Beginning balance Provision for loan losses Loans charged-off: Commercial, financial and agricultural Commercial real estate and construction Residential mortgage Consumer Total Loans Charged-Off Recoveries: Commercial, financial and agricultural Commercial real estate and construction Residential mortgage Consumer Total Recoveries Net charge-offs Ending balance Ratios: Net charge-offs to average loans Allowance for loan losses to total loans Commercial, financial and agricultural Real estate: Commercial Construction Residential Consumer Unallocated Total The allowance for loan losses at December 31, 2019. $3,919,000. December 31, 2018 Owner occupied commercial real estate Investment/rental residential real estate Commercial and industrial Total December 31, 2017 Commercial real estate construction Owner occupied commercial real estate Investment/rental residential real estate Commercial and industrial Total Management deemed it appropriate to provide this type of more detailed information by collateral type in order to provide additional The Corporation had no impaired and nonaccrual loans included in commercial real estate construction at December 31, 2020. allocation. $17,000; this loan is currently making payments. 2017 and five properties acquired from FCBI at $7,514,000 at January 11, 2020. Three months or less Over three through six months Over six through twelve months Over twelve months Total Short-term borrowings outstanding at end of year: FHLB overnight advance Securities sold under repurchase agreements Total Average interest rate at year-end Maximum amount outstanding at any month-end Average amount outstanding Weighted average interest rate $28,620,000 in 2017. The acquisition of FCBI resulted in 1,590,547 new ACNB shares of common stock issued to the FCBI shareholders valued at $57,721,000. 2019. banking organizations began January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began compliance effective January 1, 2014. The final rules call for the following capital requirements: Tier 1 leverage ratio (to average assets) Common Tier 1 capital (to risk-weighted assets) Tier 1 risk-based capital ratio (to risk-weighted assets) Total risk-based capital ratio For further information on the actual and required capital amounts and ratios, please refer to Note capital adequacy for qualifying community banking organizations, including the community bank leverage ratio (CBLR) framework. Generally, under the CBLR framework, qualifying community banking organizations with total assets of less than $10 billion, and limited amounts of off-balance sheet exposures and trading assets and liabilities, may elect whether to be subject to the CBLR framework if they have a CBLR of greater than 9%. Qualifying community banking organizations that elect to be subject to the CBLR framework and continue to meet all requirements under the framework would not be subject to risk-based or other leverage capital requirements and, in the case of an insured depository institution, would be considered to have met the well capitalized ratio requirements for purposes of the FDIC’s Prompt Corrective Action framework. The CBLR framework will be available for banks to use in their March 31, 2020 Call Report. The Corporation has performed a preliminary analysis of the changes to capital adequacy and reporting requirements within the quarterly Call Report, and expects that it will opt into the CBLR framework if qualified on March 31, 2020. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. ASSETS Cash and due from banks Interest bearing deposits with banks Total Cash and Cash Equivalents Equity securities with readily determinable fair values Debt securities available for sale Securities held to maturity, fair value $26,911; $44,549 Loans held for sale Loans, net of allowance for loan losses $13,964; $13,976 Premises and equipment Restricted investment in bank stocks Investment in bank-owned life insurance Investments in low-income housing partnerships Goodwill Intangible assets Foreclosed assets held for resale Other assets Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Non-interest bearing Interest bearing Total Deposits Short-term borrowings Long-term borrowings Other liabilities Total Liabilities 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; 7,108,620 and 7,086,258 shares issued; 7,046,020 and 7,023,658 shares outstanding Treasury stock, at cost (62,600 shares) Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total Stockholders' Equity Total Liabilities and Stockholders' Equity The accompanying notes are an integral part of the consolidated financial statements. INTEREST AND DIVIDEND INCOME Loans, including fees Securities: Taxable Tax-exempt Dividends Other Total Interest Income INTEREST EXPENSE Deposits Short-term borrowings Long-term borrowings Total Interest Expense Net Interest Income PROVISION FOR LOAN LOSSES Net Interest Income after Provision for Loan Losses OTHER INCOME Service charges on deposit accounts Income from fiduciary, investment management and brokerage activities Earnings on investment in bank-owned life insurance Gain on life insurance proceeds Net gains on sales or calls of securities Net losses on equity securities Service charges on ATM and debit card transactions Commissions from insurance sales Other Total Other Income OTHER EXPENSES Salaries and employee benefits Net occupancy Equipment Other tax Professional services Supplies and postage Marketing and corporate relations FDIC and regulatory Merger related expenses Intangible assets amortization Foreclosed real estate expenses Other operating Total Other Expenses Income Before Income Taxes PROVISION FOR INCOME TAXES Net Income PER SHARE DATA Basic earnings Cash dividends declared The accompanying notes are an integral part of the consolidated financial statements. NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) SECURITIES Unrealized losses arising during the period, net of income taxes of $(153) and $(227), respectively Reclassification adjustment for net gains included in net income, net of income taxes of $(46) and $0, respectively(A)(C) PENSION Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $116 and $237, respectively(B)(C) Unrecognized net (loss) gain, net of income taxes of $(534) and $(26), respectively(C) TOTAL OTHER COMPREHENSIVE (LOSS) INCOME TOTAL COMPREHENSIVE INCOME BALANCE—January 1, 2017 Net income Other comprehensive income, net of taxes Reclass of stranded AOCI tax reform adjustment Common stock shares issued (953,327 shares) Restricted stock grants (6,193 shares) Restricted stock compensation expense Cash dividends declared BALANCE—December 31, 2017 Net income Other comprehensive loss, net of taxes Reclass of stranded AOCI tax reform adjustment Common stock shares issued (15,618 shares) Restricted stock grants (6,744 shares) Restricted stock compensation expense Cash dividends declared BALANCE—December 31, 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Gain on sales of loans originated for sale Loss (gain) on sales of foreclosed assets held for resale, including writedowns Earnings on investment in bank-owned life insurance Gain on sales or calls of securities Loss on equity securities Restricted stock compensation expense Depreciation and amortization Provision for loan losses Net amortization of investment securities premiums Increase in accrued interest receivable Increase in accrued interest payable Mortgage loans originated for sale Proceeds from sales of loans originated for sale Decrease in other assets Decrease in deferred tax expense (Decrease) increase in other liabilities Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities held to maturity Proceeds from maturities of investment securities available for sale Proceeds from sales of investment securities available for sale Purchase of investment securities available for sale Redemption (purchase) of restricted investment in bank stocks Net increase in loans Purchase of bank-owned life insurance Bank acquisition, net of cash acquired Insurance book- acquisition Capital expenditures Proceeds from sale of premises and equipment Proceeds from sale of foreclosed real estate Net Cash Used in Investing Activities CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits Net increase in time certificates of deposits and interest bearing deposits Net (decrease) increase in short-term borrowings Proceeds from long-term borrowings Repayments on long-term borrowings Dividends paid Common stock issued Net Cash Provided by Financing Activities Net Increase in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS—BEGINNING CASH AND CASH EQUIVALENTS—ENDING Supplemental disclosures of cash flow information Interest paid Income taxes paid Loans transferred to foreclosed assets held for resale and other foreclosed transactions Transactions related to acquisition Increase in assets and liabilities: Securities Loans Premises and equipment Investment in bank-owned life insurance Restricted investments in bank stocks Foreclosed assets held for resale Goodwill Core deposit intangible assets Other assets Noninterest bearing deposits Interest bearing deposits Trust preferred subordinated debt Other liabilities The accompanying notes are an integral part of the consolidated financial statements. with additional locations in Germantown and Jarrettsville, Maryland. The agency offers a broad range of property and casualty and group life and health insurance to both individual and commercial clients. particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the determination of other than temporary impairment on securities, and the potential impairment of goodwill. recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard, or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance homogeneous loans, such as residential real estate, home equity, and other consumer loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative risk factors. These qualitative risk factors include: A specific allocation within the allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. The estimated fair values of the the repayment prospects. Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass. Commercial Real Estate Construction Lending—The Corporation engages in commercial real estate construction lending in its primary market area and surrounding areas. The Home equity lines of credit generally Upon acquisition, in accordance with US GAAP, the Corporation has individually determined whether each acquired loan is within the scope of ASC 310-30. The $2.6 million. Premises and Equipment Investments in Low-Income Housing Partnerships There was no outstanding foreclosed asset balance held at December 31, 2020. Current income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Corporation determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Advertising Costs BALANCE—DECEMBER 31, 2018 BALANCE—DECEMBER 31, 2017 Segment Reporting From the provided to the lessee apart from the right to use the underlying asset. The practical expedient must be applied consistently for all lease contracts. adopted ASU 2017-08, The ASU The amendments apply to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans, not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated. The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date. The 10-K. The SECURITIES AVAILABLE FOR SALE December 31, 2018 U.S. Government and agencies Mortgage-backed securities, residential State and municipal December 31, 2017 U.S. Government and agencies Mortgage-backed securities, residential State and municipal Corporate bonds SECURITIES HELD TO MATURITY December 31, 2018 U.S. Government and agencies Mortgage-backed securities, residential December 31, 2017 U.S. Government and agencies Mortgage-backed securities, residential The DECEMBER 31, 2018 CRA Mutual Fund Stock in other banks DECEMBER 31, 2017 CRA Mutual Fund Stock in other banks The following table shows the SECURITIES AVAILABLE FOR SALE December 31, 2018 U.S. Government and agencies Mortgage-backed securities, residential State and municipal December 31, 2017 U.S. Government and agencies Mortgage-backed securities, residential State and municipal CRA Mutual Fund SECURITIES HELD TO MATURITY December 31, 2018 U.S. Government and agencies Mortgage-backed securities, residential December 31, 2017 U.S. Government and agencies Mortgage-backed security, residential All mortgage-backed security investments are government sponsored enterprise (GSE) pass-through instruments issued by the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or Federal Home Loan Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments. Amortized cost and fair value at December 31, 1 year or less Over 1 year through 5 years Over 5 years through 10 years Over 10 years Mortgage-backed securities, residential The Corporation sale during 2019 or 2020. December 31, 2018 Originated Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Originated Loans Acquired Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Acquired Loans Total Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Loans December 31, 2017 Originated Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Originated Loans Acquired Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Acquired Loans Total Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Loans Balance at beginning of period Acquisitions of impaired loans Reclassification from non-accretable differences Accretion to loan interest income Balance at end of period Cash flows expected to be collected on acquired loans are estimated quarterly by incorporating several key assumptions similar to the initial estimate of fair value. These key assumptions include probability of default and the amount of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured. Decreases in expected cash flows are recognized as impairment through a charge to the provision for loan losses and credit to the allowance for loan losses. December 31, 2018 Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Total December 31, 2017 Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Total The following table summarizes information in regards to average of impaired loans and related interest income by loan portfolio class: December 31, 2018 Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Total December 31, 2017 Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Total No additional funds are committed to be advanced in connection with impaired loans. If interest on all nonaccrual loans had been accrued at original contract rates, interest income would have increased by 2019. Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Total December 31, 2018 Originated Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total originated loans Acquired Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total acquired loans Total Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Loans December 31, 2017 Originated Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total originated loans Acquired Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total acquired loans Total Loans Commercial and industrial Commercial real estate Commercial real estate construction Residential mortgage Home equity lines of credit Consumer Total Loans December 31, 2018 Allowance for loan losses Beginning balance—January 1, 2018 Charge-offs Recoveries Provisions Ending balance—December 31, 2018 Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Loans receivables Ending balance Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment December 31, 2017 Allowance for loan losses Beginning balance—January 1, 2017 Charge-offs Recoveries Provisions Ending balance—December 31, 2017 Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Loans receivables Ending balance Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment The Bank has granted loans to certain of its executive officers, directors and their related interests. These loans were made on substantially the same basis, including interest rates and collateral as those prevailing for comparable transactions with other borrowers at the same time. The aggregate amount of these loans was Land Buildings and improvements Furniture and equipment Construction in process Accumulated depreciation Depreciation expense was Non-interest bearing demand Interest bearing demand Savings Time certificates of deposit of $250,000 or less Time certificates of deposit greater than $250,000 Scheduled maturities of time certificates of deposit at December 31, 2019 2020 2021 2022 2023 The Corporation enters into noncancellable lease arrangements primarily for some of its community offices. Certain 2019 2020 2021 2022 2023 Later years ACNB FHLB overnight advance Securities sold under repurchase agreements Under an agreement with the FHLB, the Bank has short-term borrowing capacity included within its maximum borrowing capacity. All FHLB advances are collateralized by a security agreement covering qualifying loans and unpledged U.S. Treasury, agency and mortgage-backed securities. In addition, all FHLB advances are secured by the FHLB capital stock owned by the Bank having a par value of 2019. in default (e.g., fails to make an interest payment to the counterparty). For private institution repurchase agreements, if the private institution counterparty were to default (e.g., declare bankruptcy), the Corporation could cancel the repurchase agreement (i.e., cease payment of principal and interest), and attempt collection on the amount of collateral value in excess of the repurchase agreement fair value. The collateral is held by a third-party financial institution in the December 31, 2018 Repurchase agreements Commercial customers and government entities(a) December 31, 2017 Repurchase agreements Commercial customers and government entities(a) FHLB fixed-rate advances maturing: 2018 2019 2020 2021 2022 Loan Payable to local bank Loan Payable to local bank Trust preferred subordinated debt The FHLB advances are collateralized by the assets defined in the security agreement and FHLB capital stock described previously. The Corporation can borrow a maximum of The first loan payable to a local bank has a fixed rate of is unsecured. Federal: Current Deferred State: Current Deferred Reconciliations of the statutory federal income tax to the income tax expense reported in the consolidated statements of income for the years ended December 31, Federal income tax at statutory rate State income taxes, net of federal benefit Tax-exempt income Earnings on investment in bank-owned life insurance Rehabilitation and low-income housing credits Reduction of federal tax rate Other 2019, respectively. Deferred tax assets: Allowance for loan losses Available for sale securities Accrued deferred compensation Pension Other-than-temporary impairment Nonaccrual interest Deferred director fees Acquisition accounting Other Deferred tax liabilities: Deferred loan fees Available for sale securities Prepaid pension benefit cost Prepaid expenses Accumulated depreciation Goodwill/intangibles Net Deferred Tax Asset included in Other Assets The Corporation did not have any uncertain tax positions at December 31, 2020. provision. the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: U.S. Government and agencies Mortgage-backed securities, residential State and municipal Total securities available for sale Equity securities with readily determinable fair values Collateral dependent impaired loans U.S. Government and agencies Mortgage-backed securities, residential State and municipal Corporate bonds Total securities available for sale Equity securities with readily determinable fair values Collateral dependent impaired loans December 31, 2018 Impaired loans December 31, 2017 Impaired loans Financial assets: Cash and due from banks Interest-bearing deposits in banks Equity securities available for sale Investment securities available for sale Investment securities held to maturity Loans held for sale Loans, less allowance for loan losses Accrued interest receivable Restricted investment in bank stocks Financial liabilities: Demand deposits and savings Time deposits Short-term borrowings Long-term borrowings Trust preferred subordinated debt Accrued interest payable Off-balance sheet financial instruments The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Financial assets: Cash and due from banks Interest-bearing deposits in banks Equity securities available for sale Investment securities available for sale Investment securities held to maturity Loans held for sale Loans, less allowance for loan losses Accrued interest receivable Restricted investment in bank stocks Financial liabilities: Demand deposits and savings Time deposits Short-term borrowings Long-term borrowings Trust preferred subordinated debt Accrued interest payable Off-balance sheet financial instruments NOTE Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Change in assumptions Benefits paid Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contribution Benefits paid Fair value of plan assets at end of year Funded Status, included in other assets Amounts recognized in accumulated other comprehensive loss: Total net actuarial loss Prior service cost Total included in accumulated other comprehensive loss (pretax) Net loss Prior service cost For the years ended December 31, Components of net periodic benefit (income) cost: Service cost Interest cost Expected return on plan assets Recognized net actuarial loss Amortization of prior service cost Net Periodic Benefit (Income) Cost Net loss (gain) Amortization of net loss Amortization of prior service cost Total recognized in other comprehensive loss (income) Total recognized in net periodic benefit cost and other comprehensive loss (income) For the years ended December 31, Discount rate Rate of compensation increase Discount rate Expected long-term rate of return on plan assets Rate of compensation increase The Equity securities Debt securities Short-term fixed income Real estate Equity securities Debt securities Real estate Equity securities Debt securities Real estate It has not yet been determined the amount that the Bank may contribute to the Plan in 2019 2020 2021 2022 2023 2024-2028 The RIG has a similar but separate 401(k) plan with the match of 6% for non-highly compensated employees and 3% match for highly compensated employees. these plans. The acquisition of FCBI resulted in 1,590,547 new ACNB shares of common stock issued to the FCBI shareholders valued at $57,721,000. with assets of $250 billion or more) began compliance effective January 1, 2014. The final rules call for the following capital requirements: 2020. CORPORATION As of December 31, 2018 Tier 1 leverage ratio (to average assets) Common Tier 1 risk-based capital ratio (to risk-weighted assets) Tier 1 risk-based capital ratio (to risk-weighted assets) Total risk-based capital ratio (to risk-weighted assets) As of December 31, 2017 Tier 1 leverage ratio (to average assets) Common Tier 1 risk-based capital ratio (to risk-weighted assets) Tier 1 risk-based capital ratio (to risk-weighted assets) Total risk-based capital ratio (to risk-weighted assets) BANK As of December 31, 2018 Tier 1 leverage ratio (to average assets) Common Tier 1 risk-based capital ratio (to risk-weighted assets) Tier 1 risk-based capital ratio (to risk-weighted assets) Total risk-based capital ratio (to risk-weighted assets) As of December 31, 2017 Tier 1 leverage ratio (to average assets) Common Tier 1 risk-based capital ratio (to risk-weighted assets) Tier 1 risk-based capital ratio (to risk-weighted assets) Total risk-based capital ratio (to risk-weighted assets) Commitments to extend credit Standby letters of credit The Corporation is subject to claims and lawsuits which arise primarily in the ordinary course of business. Based on information presently available and advice received from legal counsel representing the Corporation in connection with any such claims and lawsuits, it is the opinion of management that the disposition or ultimate determination of any such claims and lawsuits will not have a material adverse effect on the consolidated financial position, consolidated results of operations or liquidity of the Corporation. ASSETS Cash Investment in banking subsidiary Investment in other subsidiaries Investments in low-income housing partnerships Securities and other assets Receivable from banking subsidiary Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Long-term debt Other liabilities Stockholders' equity Total Liabilities and Stockholders' Equity Dividends from banking subsidiary Gain on sale of securities Other income Expenses Income tax benefit Equity in undistributed earnings of subsidiaries Net Income Comprehensive Income CASH FLOWS FROM OPERATING ACTIVITIES Net income Equity in undistributed earnings of subsidiaries (Increase) Decrease in receivable from banking subsidiary Gain on sale of securities Other Net Cash Provided by Operating Activities CASH FLOWS FROM INVESTING ACTIVITIES Return of investment from subsidiary Outlay for business combination Net Cash Used in Investing Activities CASH FLOWS USED IN FINANCING ACTIVITIES Proceeds from long-term debt Repayments on long-term debt Proceeds from issuance of common stock Dividends paid Net Cash Used in Financing Activities Net (Decrease) Increase in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS—BEGINNING CASH AND CASH EQUIVALENTS—ENDING NOTE The carrying value and accumulated amortization of the intangible assets 2005 2007 2008 2009 2010 2014 2015 2018 2017 Amortization expense was 2019 2020 2021 2022 2023 Thereafter NOTE Segment information for 2018 Net interest income and other income from external customers Income before income taxes Total assets Capital expenditures 2017 Net interest income and other income from external customers Income before income taxes Total assets Capital expenditures New Windsor shares of common stock outstanding Shares paid cash consideration Cash consideration (per New Windsor share) Cash portion of purchase price New Windsor shares of common stock outstanding Shares of common stock paid stock consideration Exchange ratio Total ACNB shares of common stock issued ACNB's share price of common stock for purposes of calculation Equity portion of purchase price Cost of shares owned by buyer Total consideration paid Total Purchase Price Fair Value of Assets Acquired Cash and cash equivalents Investment securities Loans held for sale Loans Restricted stock Premises and equipment Core deposit intangible asset Other assets Total assets Fair Value of Liabilities Assumed Non-interest bearing deposits Interest bearing deposits Subordinated debt Other liabilities Total liabilities Net Assets Acquired Goodwill Recorded in Acquisition Pursuant to the accounting requirements, the Corporation assigned a fair value to the assets acquired and liabilities assumed of A fair value premium of $163,000 was recorded and will be amortized over the estimated life of the investments using the interest rate method. Gross amortized cost basis at July 1, 2017 Interest rate fair value adjustment on pools of homogeneous loans Credit fair value adjustment on pools of homogeneous loans Credit fair value adjustment on purchased credit impaired loans Fair value of acquired loans at July 1, 2017 $2.6 million. 2) estimated fair value adjustment for certain qualitative factors. The expected lifetime losses were calculated using historical losses observed at the Bank, Contractual principal and interest at acquisition Nonaccretable difference Expected cash flows at acquisition Accretable yield Fair value of purchased impaired loans and are recognized as expense when incurred within noninterest expense in the consolidated statements of income. Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Exhibit 2.1 Exhibit 10.1 Exhibit Exhibit Exhibit Exhibit Exhibit 31.1 XBRL Taxonomy Extension Label Linkbase. XBRL Taxonomy Extension Presentation Linkbase. XBRL Instance XBRL Taxonomy Extension Schema. XBRL Taxonomy Extension Calculation Linkbase. XBRL Taxonomy Extension Definition Linkbase.Use these links to rapidly review the documentITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 10-K(Mark One) ý☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year-ended December 31, 2018ORo☐
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Pennsylvania 23-2233457 (State or other jurisdiction of
incorporation or organization)23-2233457
(I.R.S. Employer
Identification No.)
16 Lincoln Square, Gettysburg, Pennsylvania17325 (Address of principal executive offices) 17325
(Zip Code)Registrant'sTitle of each class Trading Symbol Name of each exchange on which registered ACNB The NASDAQ Stock Market, LLC Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý"large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company,"” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.o☐Accelerated filer ý☐ Non-accelerated filer o☒ Smaller reporting company ý☒ Emerging growth company o☐ o☐o☐ No ý☒2018,2020, was approximately $232,057,049.registrant'sregistrant’s common stock outstanding on March 8, 2019,5, 2021, was 7,046,020.registrant's 2019registrant’s 2021 definitive Proxy Statement are incorporated by reference into Part III of this report.PagePart IPage Item 1.Business4Properties30Legal Proceedings30Part II Item 9B.Other Information127Executive Compensation128Part IV Signatures133containsmay contain forward-looking statements. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management or the Board of Directors, and (c) statements of assumptions, such as economic conditions in the Corporation'sCorporation’s market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes"“believes”, "expects"“expects”, "may"“may”, "intends"“intends”, "will"“will”, "should"“should”, "anticipates"“anticipates”, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy. Forward-looking statements are subject to certain risks and uncertainties such as local economic conditions, competitive factors, and regulatory limitations. Actual results may differ materially from those projected in the forward-looking statements. 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: the effects of governmental and fiscal policies, as well as legislative and regulatory changes; the effects of new laws and regulations, specifically the impact of the Coronavirus Response and Relief Supplemental Appropriations Act, the Coronavirus Aid, Relief, and Economic Security Act, the Tax Cuts and Jobs Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act; impacts of the capital and liquidity requirements of the Basel III standards; the 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- 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; the effects of economic conditions particularly with regard to the negative impact of severe, wide-ranging and continuing disruptions caused by the spread of Coronavirus Disease 2019 (COVID-19) and the responses thereto on the operations of the Corporation and current customers, specifically the effect of the economy on loan customers'customers’ ability to repay loans; the effects of competition, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products and services; the 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; the effects of technology changes; volatilities in the securities markets; the effect of general economic conditions and more specifically in the Corporation'sCorporation’s market area;areas; the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities; acts of war or terrorism; disruption of credit and equity markets; the ability to manage current levels of impaired assets; the loss of certain key officers; the ability to maintain the value and image of the Corporation'sCorporation’s brand and protect the Corporation'sCorporation’s intellectual property rights; continued relationships with major customers; and, potential impacts to the Corporation from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses. We caution readers not to place undue reliance on these forward-looking statements. They only reflect management'smanagement’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances. Please carefully review the risk factors described in other documents the Corporation files from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.2221 community banking offices, located in the four southcentral Pennsylvania counties of Adams, Cumberland, Franklin and York, as well as loan offices in Lancaster and viaYork, Pennsylvania, and Hunt Valley, Maryland. NWSB Bank, a division of ACNB Bank and itsoperating in Maryland, serves the local marketplace with a network of seven community banking offices located in Carroll County, Maryland. There are also loan productionFCB Bank, a division of ACNB Bank operating in Maryland, serves the local marketplace with a network of five community banking offices located in York, York County, Pennsylvania, and Hunt Valley, BaltimoreFrederick County, Maryland. RIG, the Corporation'sCorporation’s insurance subsidiary, is a full-service agency with licenses in 44 states. The agency offers a broad range of property, casualty, health, life and disability insurance serving personal and commercial and personal insurance linesclients through officesoffice locations in Westminster, Carroll County; Germantown Montgomery County; and Jarrettsville, Harford County, Maryland.And, effectiveOn July 1, 2017, ACNB Corporation completed the acquisition of New Windsor Bancorp, Inc. and its wholly-owned subsidiary, New Windsor State Bank, a Maryland state-chartered, FDIC-insured community bank headquartered in Taneytown, Maryland. ACNB's On January 11, 2020, ACNB completed its acquisition of Frederick County Bancorp, Inc. (FCBI) and its wholly-owned subsidiary, Frederick County Bank, a Maryland state-chartered, FDIC-insured community bank headquartered in Frederick, Maryland.ACNB'sACNB’s unconsolidated expenses consist principally of losses from low-income housing investments. investments. Dividends that ACNB pays to stockholders consist of dividends declared and paid to ACNB by the subsidiary bank.New WindsorJuly 1, 2017,January 11, 2020, ACNB completed itsthe acquisition of New WindsorFrederick County Bancorp, Inc. (New Windsor)(FCBI), a bank holding company based in Taneytown,Frederick, Maryland. In addition, New Windsor StateFrederick County Bank, a Maryland state-chartered bank and New Windsor'sFCBI’s wholly-owned subsidiary, merged with and into ACNB Bank. The acquisition was valued at $33.3$57.9 million and resulted in ACNB issuing $4.5 million in cash and 938,3601,590,547 shares of common stock to New WindsorFCBI shareholders.Bank'sBank’s principal market areas include Adams County, Pennsylvania, and its environs in southcentral Pennsylvania, as well as Carroll County and Frederick County, Maryland, in northern Maryland. This geographic area depends on agriculture, industry, tourism, education and healthcare to provide employment for its residents. No single sector dominates the area'sarea’s economy. At December 31, 2018,2020, ACNB Bank had total assets of $1,634,000,000,$2,541,000,000, total gross loans of $1,302,000,000,$1,638,000,000, total deposits of $1,356,000,000,$2,193,000,000, and total equity capital of $157,000,000.$252,000,000. In October 2010, the Bank converted from a national banking association to a Pennsylvania state-chartered bank and trust company.2018,2020, the Bank has 13a total of 20 community banking offices in Pennsylvania, including 13 offices in Adams County, five community banking offices in York County, one community banking office in Cumberland County, and two community banking officesone office in Franklin County. There isare also a loan production officeoffices situated in Lancaster and York, County, Pennsylvania, as well as another loan production office inand Hunt Valley, Maryland. In Maryland, ACNB Bank operates seven community banking offices in Carroll County branded as NWSB Bank, a division of ACNB Bank.Bank, serves its local marketplace via a network of seven community banking offices located in Carroll County, Maryland. FCB Bank, a division of ACNB Bank, serves its marketplace via a network of five community banking offices located in Frederick County, Maryland. The Bank'sBank’s service delivery channels for its customers also include the ATM network, Customer Contact Center, and Online, Telephone and Mobile Banking. The Bank is subject to regulation and periodic examination by the Pennsylvania Department of Banking and Securities and the Federal Deposit Insurance Corporation (FDIC). The FDIC, as provided by law, insures the Bank'sBank’s deposits.$232,000,000$277,000,000 at December 31, 2018.ACNBthe Bank offers retail brokerage services through a third-party provider as a result of the acquisition of New Windsor State Bank effective2018,2020, total assets under management with the broker/dealer were $110,000,000.Corporation'sCorporation’s wholly-owned subsidiary, Russell Insurance Group, Inc. (RIG), is a full-service insurance agency that offers a broad range of property, and casualty, health, life and healthdisability insurance to both commercial and individualpersonal clients with licenses in 44 states. Based in Westminster, Maryland, RIG has served the needs of its clients since its founding as an independent insurance agency by Frank C. Russell, Jr. in 1978. The agency was purchased by the Corporation in 2005. RIG operates additional locations in Germantown and Jarrettsville, Maryland, and Jarrettsville, Maryland.Gettysburg, Pennsylvania. Total assets of RIG as of December 31, 2018,2020, were $12,974,000.S—"SegmentS — “Segment and Related Information"Information”.Corporation'sCorporation’s major operations are in the more rural areas of the Harrisburg-Carlisle MSA and the York-Hanover MSA in Pennsylvania, along with all of Adams County, Pennsylvania, parts ofbank'sbank’s market recently, and historically, have been better than those for Pennsylvania and similar to the United States. Per capita and household incomes are generally under Pennsylvania averages. The unemployment rate during 2020 averaged 3.32%4.82% in the subsidiary bank's five-countybank’s six-county marketplace, while it was 4.20%6.70% overall in Pennsylvania and 3.90%6.70% in the United States.ACNB'sACNB’s market area is highly competitive, including competition for similar products and services from commercial banks, thrifts, credit unions, finance and mortgage companies, and other nonbank providers of financial services. Several of ACNB'sACNB’s competitors have legal lending limits that exceed those of ACNB'sACNB’s subsidiary bank, as well as funding sources in the capital markets that exceed ACNB'sACNB’s availability. The high level of competition has resulted from changes in the legal and regulatory environment, as well as from the economic climate, customer expectations, and service alternatives via the internet. There are 9386 publicly-traded banks in Pennsylvania and Maryland, 2317 have greater market share than ACNB. In addition, there are 1510 thrift institutions and numerous credit unions in Pennsylvania and Maryland, some with greater market share.1956—1956 — ACNB is a financial holding company and is subject to the regulations of the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956. Bank holding companies are required to file periodic reports with and are subject to examination by the Federal Reserve.ACNB'sACNB’s nonbanking activities to those that are determined by the Federal Reserve Board to be financial in nature, incidental to such financial activity, or complementary to a financial activity. The Bank Holding Company Act does not place territorial restrictions on the activities of nonbanking subsidiaries of financial holding companies.W—W — Transactions between a bank and its "affiliates"“affiliates” are quantitatively and qualitatively restricted under the Federal Reserve Act. The Federal Deposit Insurance Act applies Sections 23A and 23B to insured nonmember banks in the same manner and to the same extent as if they were members of the Federal Reserve System. The Federal Reserve has also issued Regulation W, which codifies prior regulations under Sections 23A and 23B of the Federal Reserve Act, and interpretative guidance with respect to affiliate transactions. Regulation W incorporates the exemption from the affiliate transaction rules, but expands the exemption to cover the purchase of any type of loan or extension of credit from an affiliate. Affiliates of a bank include, among other entities, the bank'sbank’s holding company and companies that are under common control with the bank. ACNB Corporation and Russell Insurance Group, Inc. are considered to be affiliates of ACNB Bank.enforcement'senforcement’s and the intelligence communities'communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The impact of the USA PATRIOT Act on financial institutions of all kinds is significant and wide ranging. The USA PATRIOT Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying customer identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.issuer'sissuer’s securities by directors and senior officers in the twelve-month period following initial publication of any financial statements that later require restatement;"time"time” filing of periodic reports;ACT—ACT — On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Among other changes, the Tax Cuts and Jobs Act reducesreduced the federal corporate tax rate from 35% to 21% effective January 1, 2018. ACNB anticipates that this tax rate change should reduce its federal income tax liability in future years, beginning withas it did in 2018. However, the Corporation did recognize certain effects of the tax law changes in 2017. U.S. generally accepted accounting principles require companies to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment. Since the enactment took place in December 2017, the Corporation revalued its net deferred tax assets in the fourth quarter of 2017, resulting in an approximately $1.7 million reduction to earnings in 2017.2004—2004 — In 2004, the American Jobs Creation Act was enacted as the first major corporate tax act in years. The act addresses a number of areas of corporate taxation including executive deferred compensation restrictions. The impact of the act on ACNB is not material."shell banks"“shell banks” and persons from jurisdictions of particular concern. The primary federal banking agencies and the Secretary of the Treasury have adopted regulations to implement several of these provisions. must complybegan compliance with the new Customer Due Diligence Rule, which clarified and strengthened the existing obligations for identifying new and existing customers and includes risk-based procedures for conducting ongoing customer due diligence. All financial institutions are also required to establish internal anti-money laundering programs. The effectiveness of a financial institution in combating money laundering activities is a factor to be considered in any application submitted by the financial institution under the Bank Merger Act. The Corporation'sCorporation’s banking subsidiary has a BSA and USA PATRIOT Act compliance program commensurate with its risk profile and appetite.ACNB'sACNB’s business operations as its provisions take effect. It is expected that, as various implementing rules and regulations are released, they will increase ACNB'sBank'sBank’s interest expense. Among the provisions that are likely to affect ACNB are the following:Management'sManagement’s Discussion and Analysis.broadensbroadened the base for FDIC insurance assessments. Assessments are now based on the average consolidated total assets less tangible equity capital of a financial institution. Dodd-Frank requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds. Dodd-Frank also eliminated the federal statutory prohibition against the payment of interest on business checking accounts."golden parachute"“golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on byborrower'sborrower’s ability to repay. In addition, Dodd-Frank allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a "qualified mortgage"“qualified mortgage” as defined by the CFPB. Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.RULE—RULE — Pursuant to Dodd-Frank as highlighted above, the CFPB issued a final rule on January 10, 2013 (effective on January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine the consumer'sconsumer’s ability to repay in one of two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit decision: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and, (8) credit history. Alternatively, the mortgage lender can originate "qualified mortgages"“qualified mortgages”, which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a "qualified mortgage"“qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Loans which meet these criteria will be considered qualified mortgages and, as a result, generally protect lenders from fines or litigation in the event of foreclosure. Qualified mortgages that are "higher-priced"“higher-priced” (e.g., subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not "higher-priced"“higher-priced” (e.g., prime loans) are given a safe harbor of compliance. The impact of the final rule, and the subsequent amendments thereto, on the Corporation'sCorporation’s lending activities and the Corporation'sCorporation’s statements of income or condition has had little or no impact; however, management will continue to monitor the implementation of the rule for any potential effects on the Corporation'sCorporation’s business.RULE—RULE — In 2015, the U.S. Department of Defense issued a final rule which restricts pricing and terms of certain credit extended to active duty military personnel and their families. This rule, which was implemented effective October 3, 2016, caps the interest rate on certain credit extensions to an annual percentage rate of 36% and restricts other fees. The rule requires financial institutions to verify whether customers are military personnel subject to the rule. The impact of this final rule, and any subsequent amendments thereto, on the Corporation'sCorporation’s lending activities and the Corporation'sCorporation’s statements of income or condition has had little or no impact; however, management will continue to monitor the implementation of the rule for any potential effects on the Corporation'sCorporation’s business.1991—1991 — Under the Federal Deposit Insurance Corporation Act of 1991, any depository institution, including the subsidiary bank, is prohibited from paying any dividends, making other distributions or paying any management fees if, after such payment, it would fail to satisfy the minimum capital requirement.ACT—ACT — A subsidiary bank of a bank holding company is subject to certain restrictions and reporting requirements imposed by the Federal Reserve Act, including:bank'sbank’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods. This evaluation includes a descriptive rating like "outstanding"“outstanding”, "satisfactory"“satisfactory”, "needs“needs to improve"improve” or "substantial noncompliance"“substantial noncompliance” and a statement describing the basis for the rating. These ratings are publicly disclosed.TotalRisk-BasedRatioTier 1Risk-BasedRatioTier 1LeverageRatioUnder aCapitalOrder orDirectiveCapital CategoryWell capitalizedTotal
Risk-Based
Ratio³10.0Tier 1
Risk-Based
Ratio%Tier 1
Leverage
Ratio³6.0%³5.0%NOUnder a
Capital
Order or
DirectiveAdequately capitalized³8.0%³4.0%³4.0%*Undercapitalized≥10.0 % <8.0%≥6.0 % <4.0%≥5.0 % <4.0%*NO Significantly undercapitalized≥8.0 % <6.0%≥4.0 % <3.0%≥4.0 %* <3.0%<8.0 % <4.0 % <4.0 %* Significantly undercapitalized <6.0 % <3.0 % <3.0 % Critically undercapitalized <2.0 % <2.0%institution'sinstitution’s capital deteriorates to the undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including the institution of a capital restoration plan and a guarantee of the plan by a parent institution and the placement of a hold on increases in assets, number of branches, or lines of business. If capital reaches the significantly or critically undercapitalized levels, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management, and, in critically undercapitalized situations, appointment of a receiver. For well capitalized institutions, FDICIA provides authority for regulatory intervention when the institution is deemed to be engaging in unsafe or unsound practices or receives a less than satisfactory examination report rating for asset quality, management, earnings or liquidity. All but well capitalized institutions are prohibited from accepting brokered deposits without prior regulatory approval. Under FDICIA, financial institutions are subject to increased regulatory scrutiny and must comply with certain operational, managerial and compensation standards established by Federal Reserve Board regulations.7—Management's7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations."crowd funding"“crowd funding” to raise up to $1 million in any 12-month period, subject to certain conditions; and,"Emerging“Emerging Growth Company"Company”, for companies with less than $1 billion in annual gross revenue, which will benefit from certain changes that reduce the cost and burden of carrying out an equity initial public offering (IPO) and complying with public company reporting obligations for up to five years.ACNB'sACNB’s revenues, on a parent company only basis, result primarily from dividends paid to the Corporation by its subsidiaries. Federal and state laws regulate the payment of dividends by ACNB'sACNB’s subsidiary bank. For further information, please refer toRegulation of Bank below.bank'sbank’s operations are also subject to regulations of the Pennsylvania Department of Banking and Securities, Federal Reserve, and FDIC.bank'sbank’s depositors rather than ACNB'sACNB’s shareholders. The subsidiary bank must file quarterly and annual reports to the Federal Financial Institutions Examination Council, or FFIEC.Corporation'sCorporation’s significant accounting policies is included in Note A—"SummaryA — “Summary of Significant Accounting Policies"Policies” in the Notes to Consolidated Financial Statements. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions to be made by management. Additional information is contained in Management'sManagement’s Discussion and Analysis for the most sensitive of these issues, including the provision and allowance for loan losses which is located in Note D—"LoansD — “Loans and Allowance for Loan Losses"Losses” in the Notes to Consolidated Financial Statements.Management'sManagement’s Discussion and Analysis, Item 7 hereof, and are incorporated by reference in this Item 1:Corporation'sCorporation’s reports, proxy statements, and other information are available for inspection and copying at the SEC Office of Investor Education and Advocacy at 100 F Street, NE, Washington, DC 20549, at prescribed rates. The public may obtain information from the Office of Investor Education and Advocacy by calling the Commission at 1-800-SEC-0330. The Corporation is an electronic filer with the Commission. The Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the Commission. The address of the Commission'sCommission’s website to access this information is https://www.sec.gov.shareholder'sshareholder’s written request, a copy of the Corporation'sCorporation’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as required to be filed with the SEC pursuant to Securities Exchange Act Rule 13a-1, may be obtained, without charge, from Lynda L. Glass, Executive Vice President/Secretary & Chief Governance Officer, ACNB Corporation, 16 Lincoln Square, P.O. Box 3129, Gettysburg, PA 17325, or visit our website at https://www.acnb.com and click on "Investor Relations".2018,2020, ACNB had 361396 full-time equivalent employees. None of these employees are represented by a collective bargaining agreement, and ACNB believes it enjoys good relations with its personnel.ACQUISITIONexperienced stable organic growth. In addition, onpursued inorganic growth opportunities. On July 1, 2017, ACNB completed its acquisition of New Windsor Bancorp, Inc. (New Windsor), a bank holding company based in Taneytown, Maryland. Immediately thereafter, New Windsor State Bank, a Maryland state-chartered bank and New Windsor’s wholly-owned subsidiary, merged with and into ACNB Bank. ACNB Bank operates in the Carroll County, Maryland, market as “NWSBacquiredvalued at $33.3 million and resulted in ACNB issuing $4.5 million in cash and 938,360 shares of common stock to New Windsor shareholders.discussed further“FCB Bank, A Division of ACNB Bank”.this Form 10-K. ACNB'sACNB'sACNB’s control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, could influence not only the amount of interest ACNB receives on loans and securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) ACNB'sACNB’s ability to originate loans and obtain deposits, (ii) the fair value of ACNB'sACNB’s financial assets and liabilities, and (iii) the average duration of ACNB'sACNB’s mortgage-backed securities portfolio. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, ACNB'sACNB’s net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.ACNB'sACNB’s results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on ACNB'sACNB’s financial condition and results of operations.2018,2020, approximately 57%68% of ACNB'sACNB’s loan portfolio consisted of commercial and industrial, construction, and commercial real estate loans. These types of loans are generally viewed as having more risk of default than residential real estate loans or consumer loans. These types of loans are also typically larger than residential real estate loans and consumer loans. Because ACNB'sACNB’s loan portfolio contains a significant number of commercial and industrial, construction, and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in non-performing loans. An increase in non-performing loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses, and an increase in loan charge-offs, all of which could have a material adverse effect on ACNB'sACNB’s financial condition and results of operations.ACNB'Smanagement'smanagement’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management'smanagement’s continuing evaluation of the following: industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and, unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires ACNB to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of ACNB'sACNB’s control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review ACNB'sACNB’s allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offscharge-ACNB'sACNB’s financial condition and results of operations.ACNB'SACNB’S PROFITABILITY. ACNB'sCorporation'sCorporation’s net income by decreasing the number and size of loans that its banking subsidiary originates and the interest rates it may charge on these loans.ACNB'sACNB’s competitors enjoy advantages, including greater financial resources, wider geographic presence, more aggressive marketing campaigns, better brand recognition, more branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, and lower originationsubsidiary'ssubsidiary’s ability to generate the funds necessary for lending operations. As a result, it may need to seek other sources of funds that may be more expensive to obtain and could increase its cost of funds. ACNB'sACNB'sACNB’s banking operations. As a result, such nonbank competitors may have advantages over ACNB'sACNB’s banking subsidiary in providing certain products and services. This competition may reduce or limit ACNB'sACNB’s margins on banking services, reduce its market share, and adversely affect its earnings and financial condition.ACNB'SACNB’S PROFITABILITY.Corporation'sCorporation’s business risk profile prior to final implementation of the Basel III standards. If ACNB and the subsidiary bank are required to maintain higher levels of capital, ACNB and the subsidiary bank may have fewer opportunities to invest capital into interest-earning assets, which could limit the profitable business operations available to ACNB and the subsidiary bank and adversely impact ACNB'sACNB’s financial condition and results of operations.CORPORATION'SCORPORATION’S OPERATIONS OF ITS BUSINESS, INCLUDING ITS TRANSACTIONS WITH CUSTOMERS, ARE INCREASINGLY DONE VIA ELECTRONIC MEANS, AND THIS HAS INCREASED ITS RISKS RELATED TO CYBERSECURITY.ACNB'sACNB’s business and customers resulting in the loss of customers and businessACNB'SACNB'sACNB’s internal controls, disclosure controls, and procedures, as well as corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of ACNB'sACNB’s controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on ACNB'sACNB’s business, financial condition, and results of operations.ACNB'SACNB'sACNB’s failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock.ACNB'S ACNB'sACNB'sACNB’s products and services, as well as the ability of ACNB'sACNB’s customers to repay loans, the value of the collateral securing the loans, and the stability of ACNB'sACNB’s deposit funding sources. A significant decline in general economic conditions caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets, or other factors could impact these local economic conditions and, in turn, have a material adverse effect on ACNB'sACNB’s financial condition and results of operations. ACNB'sACNB'sACNB’s control. Deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values, and a decrease in demand for ACNB'sACNB’s products and services, amongACNB'sACNB’s financial condition and results of operations.ACNB'sACNB’s current business operations depends on the specific regulatory reforms and interpretations, many of which have yet to be released or finalized, it is clear that the reforms, both under Dodd-Frank and otherwise, will have a significant effect on the entire industry. Although Dodd-Frank and other reforms will affect a number of the areas in which ACNB does business, it is not clear at this time the full extent of the adjustments that will be required and the extent to which ACNB will be able to adjust its businesses in response to the requirements. Although it is difficult to predict the magnitude and extent of these effects at this stage, ACNB believes compliance with Dodd-Frank and implementing its regulations and initiatives will negatively impact revenue and increase the cost of doing business, both in terms of transition expenses and on an ongoing basis, and it may also limit ACNB'sACNB’s ability to pursue certain business opportunities.NEW LINES OF BUSINESS OR NEW PRODUCTS AND SERVICES MAY SUBJECT ACNB TO ADDITIONAL RISKS. From time to time, ACNB may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, ACNB may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of ACNB's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and new products or services could have a material adverse effect on ACNB's business, financial condition, and results of operations.ACNB MAY NOT BE ABLE TO ATTRACT AND RETAIN SKILLED PEOPLE. ACNB's success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities engaged in by ACNB can be intense, and ACNB may not be able to hire people or to retain them. The unexpected loss of services of one or more of ACNB's key personnel could have a material adverse impact on ACNB's business because the Corporation would no longer have the benefit of their skills, knowledge of ACNB's market, as well as years of industry experience, and it would be difficult to promptly find qualified replacement personnel. ACNB and/or one of its subsidiaries currently has employment agreements, including covenants not to compete, with the following named executive officers: its President & Chief Executive Officer; Executive Vice President/Secretary & Chief Governance Officer; Executive Vice President/Treasurer & Chief Financial Officer; and, the Executive Vice President/Chief Lending & Revenue Officer of ACNB Bank.ACNB IS SUBJECT TO CLAIMS AND LITIGATION PERTAINING TO FIDUCIARY RESPONSIBILITY. From time to time, customers make claims and take legal action pertaining to ACNB's performance of its fiduciary responsibilities. Whether customer claims and legal action related to ACNB's performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to ACNB, they may result in significant financial liability and/or adversely affect the market perception of ACNB and its products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on ACNB's business, which, in turn, could have a material adverse effect on ACNB's financial condition and results of operations.ACNB'SACNB’S COMMON STOCK IS LESS THAN THAT OF OTHER LARGER FINANCIAL SERVICES COMPANIES. ACNB'sACNB'sACNB’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which ACNB has no control. Given the lower trading volume of ACNB'sACNB’s common stock, significant sales of ACNB'sACNB’s common stock, and theACNB'sACNB’s stock price to fall.ACNB'sACNB’s powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on its financial condition and results of operations. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by banks and bank and financial holding companies in the performance of their supervisory and enforcement duties. The exercise of regulatory authority may have a negative impact on ACNB'sACNB’s financial condition and results of operations.ACNB'sACNB’s credit risk may be exacerbated when the collateral held by ACNB cannot be realized upon or isACNB'sACNB’s financial condition and results of operations.ACNB'SACNB’S LIQUIDITY AND FINANCIAL CONDITION.issuers'issuers’ underlying financial strength. If the market disruption and volatility returns, there can be no assurance that ACNB will not experience adverse effects, which may be material, on its liquidity, financial condition and results of operations. ACNB'sACNB'sACNB’s stock price. New investors may also have rights, preferences and privileges senior to ACNB'sACNB’s current shareholders, which may adversely impact its current shareholders. ACNB'sACNB’s ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside its control, and on its financial performance. Accordingly, ACNB cannot be assured of its ability to raise additional capital on terms and/or in time frames acceptable to it, or to raise additional capital at all. If ACNB cannot raise additional capital in sufficient amounts when needed, its ability to comply with regulatory capital requirements could be materially impaired. Additionally, the inability to raise capital in sufficient amounts may adversely affect ACNB'sACNB’s operations, financial condition, and results of operations.ACNB'Sinvestors'investors’ ownership interest in ACNB. Future business acquisitions could be material to ACNB, and the degree of success achieved in acquiring and integrating these businesses into ACNB could have a material effect on the value of ACNB'sACNB'SACNB’S ARTICLES AND BYLAWS COULD IMPEDE THE TAKEOVER OF ACNB.IF ACNB CONCLUDES THAT THE DECLINE IN VALUE OF ANY OF ITS INVESTMENT SECURITIES IS AN OTHER-THAN-TEMPORARY IMPAIRMENT, ACNB IS REQUIRED TO WRITE DOWN THE VALUE OF THAT SECURITY THROUGH A CHARGE TO EARNINGS. ACNB reviews its investment securities portfolio at each quarter-end to determine whether the fair value is below the current carrying value. When the fair value of any of its investment securities has declined below its carrying value, ACNB is required to assess whether the decline is an other-than-temporary impairment. If ACNB determines that the decline is an other-than-temporary impairment, it is required to write down the value of that security through a charge to earnings for credit related impairment. Non-credit related reductions in the value of a security do not require a write down of the value through earnings unless ACNB intends to, or is required to, sell the security. Changes in the expected cash flows related to the credit related piece of the investment of a security in ACNB's investment portfolio or a prolonged price decline may result in ACNB's conclusion in future periods that an impairment is other than temporary, which would require a charge to earnings to write down the security to fair value. Due to the complexity of the calculations and assumptions used in determining whether an asset has an impairment that is other than temporary, the impairment disclosed may not accurately reflect the actual impairment in the future.ACNB IS SUBJECT TO POTENTIAL IMPAIRMENT OF GOODWILL AND INTANGIBLES. ACNB has certain long-lived assets including purchased intangible assets subject to amortization and associated goodwill assets which are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the statement of condition and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. Goodwill, which has an indefinite useful life, is evaluated pursuant to ASC Topic 350,Intangibles—Goodwill and Other, for impairment annually and is evaluated for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset's fair value. The goodwill impairment analysis currently used by the Corporation is a two-step test. The first step, used to identify potential impairment, involves comparing the reporting unit's estimated fair value to its carrying value including goodwill. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. If required, the second step involves calculating an implied fair value of goodwill for the reporting unit for which the first step indicated potential impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit to a group of likely buyers whose cash flow estimates could differ from those of the reporting entity, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to the reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. Subsequent reversal of goodwill impairment losses is not permitted. ACNB performs an annual evaluation to determine if there is goodwill impairment. Further, a new FASB update eliminates the second step test, thus basing impairment on the estimated fair value to the carrying value including goodwill.ACNB IS SUBJECT TO ENVIRONMENTAL LIABILITY RISK ASSOCIATED WITH LENDING ACTIVITIES. A significant portion of ACNB's banking subsidiary loan portfolio is secured by real property. During the ordinary course of business, ACNB may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, ACNB may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require ACNB to incur substantial expense and may materially reduce the affected property's value or limit ACNB's ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase ACNB's exposure to environmental liability. Although ACNB has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on ACNB's financial condition and results of operations.SUBSIDIARY'SSUBSIDIARY’S LOAN PORTFOLIO COULD IMPACT THE LEVEL OF LOAN CHARGE-OFFS AND THE PROVISION FOR LOAN LOSSES AND MAY AFFECT ACNB'SACNB’S NET INCOME OR LOSS.ACNB'sACNB’s business through its banking subsidiary. However, every loan that ACNB makes carries a certain risk of non-payment. ACNB cannot assure that its allowance for loan losses will be sufficient to absorb actual loan losses. ACNB also cannot assure that it will not experience significant losses in its loan portfolio that may require significant increases to the allowance for loan losses in the future.ACNB'sACNB’s borrowers.ACNB'sACNB’s regulators;Corporation'sCorporation’s earnings and, consequently, its financial condition because:ACNB'sACNB’s loans to borrowers may decline; and/or,ACNB'sACNB’s loan portfolio may decline.ACNB'SACNB’S BANKING SUBSIDIARY LOANS THAT ARE SECURED BY REAL ESTATE.ACNB'sACNB’s banking subsidiary loan portfolio consists of residential and commercial mortgages, as well as consumer loans, secured by real estate. These properties are concentrated in Adams County, Pennsylvania. Real estate values and real estate markets generally are affected by, among other things, changes in national, regional or local economic conditions, fluctuations in interest rates, the availability of loans to potential purchasers, changes in the tax laws and other government statutes, regulations and policies, and acts of nature. If real estate prices decline, particularly in ACNB'sACNB’s market area, the value of the real estate collateral securing ACNB'sACNB’s loans could be reduced. This reduction in the value of the collateral could increase the number of non-performing loans and could have a material adverse impact on ACNB'sACNB’s financial condition and results of operations.ACNB'S INFORMATION SYSTEMS MAY EXPERIENCE AN INTERRUPTION OR BREACH IN SECURITY. ACNB relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in ACNB's customer relationship management, general ledger, deposit, loan and other systems. While ACNB has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Although ACNB maintains insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. The occurrence of any failures, interruptions or security breaches of ACNB's information systems could damage ACNB's reputation adversely affecting customer or investor confidence, result in a loss of customer business, subject ACNB to additional regulatory scrutiny and possible regulatory penalties, or expose ACNB to civil litigation and possible financial liability, any of which could have a material adverse effect on ACNB's financial condition and results of operations.ACNB'sACNB’s future success depends, in part, upon its ability to address the needs of its customers by usingACNB'sACNB’s operations. Many of ACNB'sACNB’s competitors have substantially greater resources to invest in technological improvements. ACNB may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on ACNB'sACNB’s business and, in turn, ACNB'sACNB’s financial condition and results of operations.ACNB'sACNB’s business and, in turn, ACNB'sACNB’s financial condition and results of operations."disintermediation"“disintermediation”, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on ACNB'sACNB’s financial condition and results of operations.ACNB'sACNB’s secondary sources of liquidity.ACNB'SACNB’S BUSINESS.ACNB'sACNB’s ability to conduct business. If any of its financial, accounting, network or other information processing systems fail or have other significant shortcomings due to external events, ACNB could be materially adversely affected. Third parties with which ACNB does business could also be sources of operational riskparties'parties’ own network and information processing systems could fail. Any of these occurrences could materially diminish ACNB'sACNB’s ability to operate one or more of theCorporation's Corporation’s businesses, or result in potential liability to customers, reputational damage, and regulatory intervention, any of which could materially adversely affect ACNB. Such events could affect the stability of ACNB'sACNB’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, impair ACNB'sACNB’s liquidity, cause significant property damage, result in loss of revenue, and/or cause ACNB to incur additional expenses.ACNB'sACNB’s control, which may include, for example, computer viruses, electrical or telecommunications outages, natural disasters, disease pandemics, damage to property or physical assets, or terrorist acts. ACNB has developed a comprehensive business continuity plan which includes plans to maintain or resume operations in the event of an emergency, such as a power outage or disease pandemic, and contingency plans in the event that operations or systems cannot be resumed or restored. The business continuity plan is updated as needed, periodically reviewed, and components are regularly tested. ACNB also reviews and evaluates the business continuity plans of critical third-party service providers. While ACNB believes its business continuity plan and efforts to evaluate the business continuity plans of critical third-party service providers help mitigate risks, disruptions or failures affecting any of these systems may cause interruptions in service to customers, damage to ACNB'sACNB’s reputation, and loss or liability to the Corporation.Corporation'sCorporation’s business, financial condition, and results of operations. In addition, as a result of past difficulties of the federal government to reach agreement over federal debt and issues connected with the debt ceiling, certain rating agencies placed the United States government'sgovernment’s long-term sovereign debt rating on their equivalent of negative watch and announced the possibility of a rating downgrade. The rating agencies, due to constraints related to the rating of the United States, also placed government-sponsored enterprises in which the Corporation invests and receives lines of credit on negative watch, and a downgrade of the Unites States government'sgovernment’s credit rating would trigger a similar downgrade in the credit rating of these government-sponsored enterprises. Furthermore, the credit rating of other entities, such as state and local governments, may also be downgraded should the United States government'sgovernment’s credit rating be downgraded. The impact that a credit rating downgrade may have on the national and local economy could have an adverse effect on ACNB'sACNB’s financial condition and results of operations.ACNB'SACNB'sACNB’s financial condition and results of operations.ACNB'SACNB’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On December 22,President of the United States signed into law H.R. 1, originally known as the "Tax“Tax Cuts and Jobs Act".Act” was enacted. The Tax Cuts and Jobs Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. There are also provisions that may partially offset the benefit of such rate reduction. Financial statement impacts include adjustments for, among other things, the remeasurement of deferred tax assets and liabilities. While there are benefits, there is also substantial uncertainty regarding the details of U.S. Tax Reform. The long-term intended and unintended consequences of the Tax Cuts and Jobs Act on the Corporation'sCorporation’s business and on holders of ACNB common shares is uncertain and could be adverse. ACNB anticipates that the impact of the Tax Cuts and Jobs Act may be material to its business, financial condition, and results of operations.ACNB'SACNB’S BUSINESS.ACNB'sACNB’s business. Consumers value readily-available information concerning businesses and their goods and services, and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to ACNB'sACNB’s interests and/or may be inaccurate. The dissemination of information online could harm ACNB'sACNB’s business, prospects, financial condition, and results of operations, regardless of the information'sinformation’s accuracy. The harm may be immediate without affording ACNB an opportunity for redress or correction.ACNB'sACNB’s business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees and customers. The inappropriate use of social media by ACNB'sACNB’s employees or customers could result in negative consequences such as remediation costs including training for employees, additional regulatory scrutiny, and possible regulatory penalties, litigation, or negative publicity that could damage ACNB'sACNB’s reputation adversely affecting customer or investor confidence.THEITS ALLOWANCE FOR LOAN LOSSES AND MAY HAVE A MATERIAL ADVERSE EFFECT ON ACNB'SACNB’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.ACNB'ACNB’ s financial condition or results of operations.Instruments—Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current "incurred loss"“incurred loss” model for recognizing credit losses with an "expected loss"“expected loss” model referred to as the Current Expected Credit Loss (CECL) model. Under the CECL model, ACNB will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The"incurred loss"“incurred loss” model required under current generally accepted accounting principles (GAAP), which delays recognition until it is probable a loss has been incurred. Accordingly, ACNB expects that the adoption of the CECL model will materially affect how ACNB determines the allowance for loan losses and could require ACNB to significantly increase the allowance. Moreover, the CECL model may create more volatility in the level of ACNB'sACNB’s allowance for loan losses. If ACNB is required to materially increase the level of allowance for loan losses for any reason, such increase could adversely affect ACNB'sACNB’s business, financial condition and results of operations. Thewillwas expected to become effective for ACNB on January 1, 2020, and for interim periods within that year. In October 2019, FASB voted to delay implementation of the new CECL standard for certain companies, including those companies that qualify as a smaller reporting company under SEC rules, until January 1, 2023. ACNB is currently evaluatingexpects to continue to qualify as a smaller reporting company, based upon the current SEC definition, and as a result will likely be able to defer implementation of the new CECL standard for a period of time. Nevertheless, ACNB continues to evaluate the impact the CECL model will have on the accounting for credit losses, but ACNB expects to recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. ACNB cannot yet determine the magnitude of any such one-time cumulativecumulative-effect adjustment or of the overall impact of the new standard on ACNB'sACNB’s business, financial condition and results of operations.RISKS RELATING TO THE ACQUISITION OF NEW WINDSOR BANCORP, INC. (NEW WINDSOR) BY ACNB CORPORATIONTHE ACQUISITION MAY DISTRACT ACNB'S MANAGEMENT TEAM FROM THEIR OTHER RESPONSIBILITIES. Continuing acquisition-related matters could cause the management of ACNB to focus their time and energies on matters related to the acquisition that otherwise would be directed to the Corporation's business and operations. Any such distraction on the part of management, if significant, could affect management's ability to service existing business, develop new business, and adversely affect the combined company's post-acquisition business and earnings.POST-ACQUISITION INTEGRATION AND CHANGE OF ACNB'S HISTORICAL BUSINESS MODEL MAY FAIL TO ACHIEVE EXPECTED RESULTS. The success of the transaction depends heavily on a smooth integration and post-acquisition operations of ACNB. Benefits of the transaction to shareholders may not be realized if the post-acquisition integration is not well executed or well received by each company's historical customers.ACNB MAY FAIL TO REALIZE THE COST SAVINGS IT EXPECTED TO ACHIEVE FROM THE ACQUISITION. The success of the acquisition depends, in part, on ACNB's ability to realize the estimated cost savings from combining the businesses of ACNB and New Windsor. While ACNB believes that the cost savings estimates are achievable, it is possible that the potential cost savings could be more difficult to achieve than ACNB anticipated. ACNB's cost savings estimates also depend on its ability to combine the businesses of ACNB and New Windsor in a manner that permits those cost savings to be realized. If ACNB's estimates are incorrect or it is unable to combine the two successfully, the anticipated cost savings may not be realized fully or at all, or may take longer to realize than expected.THE ACNB'SACNB’S BUSINESS AND DILUTE SHAREHOLDER VALUE.ACNB'sACNB’s operating results and financial condition, including short- and long-term liquidity and capital structure. ACNB'sACNB’s acquisition activities could be material to ACNB. For example, ACNB could issue additional shares of common stock in a purchase transaction, which could dilute current shareholders'shareholders’ ownership interest. These activities could require ACNB to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with ACNB'sACNB’s prior or potential future acquisitions were determined to be impaired, then ACNB would be required to recognize a charge against its earnings, which could materially and adversely affect ACNB'sACNB’s results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill would not impact cash flow, tangible capital or liquidity but would decrease shareholders'shareholders’ equity. ACNB'sACNB'sACNB’s results of operations; and,ACNB'sACNB’s inability to overcome these risks could have an adverse effect on ACNB'sACNB’s ability to achieve its business strategy and maintain its market value.RISKS RELATEDTHE DECLINE.INDUSTRIESACNB'SACNB’S WEALTH MANAGEMENT BUSINESS MAY BE ADVERSELY AFFECTED BY ANY REDUCTION IN ASSETS UNDER MANAGEMENT AND SUPERVISION AS A RESULT OF EITHER A DECLINE IN MARKET VALUE OF SUCH ASSETS OR NET OUTFLOWS, WHICH COULD REDUCE TRUST, INVESTMENT ADVISORY AND BROKERAGE, AND OTHER SERVICING FEES EARNED.ACNB'sACNB’s profitability.ACNB'SACNB’S WEALTH MANAGEMENT BUSINESS COULD DECREASE ACNB'SACNB’S REVENUES AND PROFITABILITY.segment'ssegment’s operating results and financial condition. ACNB may also be adversely affected as a result of new or revised legislation or regulations. Regulatory changes have imposed and may continue to impose additional costs, which may adversely impact ACNB'sACNB’s profitability.ACNB'SACNB’S INSURANCE BUSINESS MAY BE ADVERSELY AFFECTED BY MARKET CONDITIONS, WHICH COULD REDUCE INSURANCE COMMISSIONS AND FEES EARNED.ACNB'sACNB’s fee-based insurance business are derived primarily from commissions from the sale of insurance policies, which commissions are generally calculated as a percentage of the policy premium. These insurance policy commissions can fluctuate as insurance carriers from time to time increase or decrease the premiums on the insurance products sold. Due to the cyclical nature of the insurance market and the impact of other market and macroeconomic conditions on insurance premiums, commission levels may vary. The reduction of these commission rates, along with general volatility and/or declines in premiums, may adversely impact ACNB'sACNB’s profitability.2832 offices in Pennsylvania and Maryland at December 31, 2018.2020. Including the main office, 14 community banking offices are located in Adams County, one is located in Cumberland County, two areone is located in Franklin County, and five are located in York County, Pennsylvania. There isare also a loan production officeoffices situated in Lancaster and York County,Counties, Pennsylvania, as well as another loan production office in Hunt Valley, Maryland. In Maryland, there are seven community banking offices located in Carroll County, all branded as NWSB Bank, a division of ACNB Bank, and five community banking offices located in Frederick County, all branded as FCB Bank, a division of ACNB Bank. Bank offices at 1923 locations are owned, while 1213 are leased. All real estate owned by the subsidiary bank is free and clear of encumbrances. RIG owns offices, free and clear of encumbrances, located in Carroll County and Harford County, Maryland, and leases an officeoffices in Montgomery County, Maryland.2018,2020, there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which ACNB or its subsidiaries are a party or by which any of their assets are the subject, which could have a material adverse effect on ACNB or its subsidiaries or their results of operations. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation or its subsidiaries by governmental authorities.REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESCorporation'sCorporation’s common stock trades on NASDAQ under the symbol ACNB. At December 31, 20182020 and 2017,2019, there were 20,000,000 shares of common stock authorized, 7,108,6208,771,993 and 7,086,2587,141,959 shares issued, respectively, and 7,046,0208,709,393 and 7,023,6587,079,359 shares outstanding, respectively. As of December 31, 2018,2020, ACNB had approximately 2,289 stockholders2,604 shareholders of record. At December 31, 20182020 and 2017,2019, there were 62,600 shares of treasury stock purchased by the Corporation through the common stock repurchase program approved in October 2008. There have been no shares purchased during the most recent quarter, and as of December 31, 2020, 57,400 shares can still be purchased under the program. ACNB is restricted as to the amount of dividends that it can pay to stockholdersshareholders by virtue of the restrictions on the banking subsidiary'ssubsidiary’s ability to pay dividends to ACNB under the Pennsylvania Banking Code, the Federal Deposit Insurance Corporation Act, and the regulations of the FDIC. For further information, please refer to Note J—"RegulatoryJ — “Regulatory Restrictions on Dividends"Dividends” and Note N—"Stockholders'N — “Stockholders’ Equity and Regulatory Matters"Matters” in the Notes to Consolidated Financial Statements.stockholdersshareholders approved and ratified the ACNB Corporation 2009 Restricted Stock Plan, effective as of February 24, 2009, in which awards shall not exceed, in the aggregate, 200,000 shares of common stock. As of December 31, 2018,2020, there were 26,04525,945 shares of common stock granted as restricted stock awards to employees of the subsidiary bank and 173,955 shares available for grant.bank. The restricted stock plan expired by its own terms after 10 years on February 24, 2019, and no further shares may be issued under the plan. The Corporation'sCorporation’s Registration Statement under the Securities Act of 1933 on Form S-8 for the ACNB Corporation 2009 Restricted Stock Plan was filed with the Securities and Exchange Commission on January 4, 2013.stockholdersshareholders approved and adopted the amendment to the Articles of Incorporation of ACNB Corporation to authorize up to 20,000,000 shares of preferred stock, par value $2.50 per share. As of December 31, 2018,2020, there were no issued or outstanding shares of preferred stock.stockholdersshareholders of record. This plan 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. As of December 31, 2018,2020, there were 153,272190,611 shares of common stock issued through the ACNB Corporation Dividend Reinvestment and Stock Purchase Plan.stockholdersshareholders 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 are authorized, but not issued, under the ACNB Corporation 2009 Restricted Stock Plan.20182020 or 2017.2019. For the Year Ended December 31, Dollars in thousands, except per share data 2020 2019 2018 2017 2016 INCOME STATEMENT DATA Interest income $ 85,290 $ 69,558 $ 64,494 $ 51,785 $ 40,500 Interest expense 12,222 10,140 7,399 5,433 3,934 Net interest income 73,068 59,418 57,095 46,352 36,566 Provision for loan losses 9,140 600 1,620 — — Net interest income after provision for loan losses 63,928 58,818 55,475 46,352 36,566 Other income 19,934 18,169 15,948 14,149 13,208 Other expenses 61,160 47,621 44,703 44,079 35,137 Income before income taxes 22,702 29,366 26,720 16,422 14,637 Provision for income taxes 4,308 5,645 4,972 6,634 3,768 Net income $ 18,394 $ 23,721 $ 21,748 $ 9,788 $ 10,869 BALANCE SHEET DATA (AT YEAR-END) Assets $ 2,555,362 $ 1,720,253 $ 1,647,724 $ 1,595,432 $ 1,206,320 Securities $ 350,182 $ 212,177 $ 190,835 $ 203,880 $ 198,558 Loans, net $ 1,617,558 $ 1,258,766 $ 1,288,501 $ 1,230,194 $ 893,716 Deposits $ 2,185,525 $ 1,412,260 $ 1,348,092 $ 1,298,492 $ 967,621 Borrowings $ 92,209 $ 99,731 $ 118,164 $ 131,508 $ 108,840 Stockholders’ equity $ 257,972 $ 189,516 $ 168,137 $ 153,966 $ 120,061 COMMON SHARE DATA Earnings per share — basic $ 2.13 $ 3.36 $ 3.09 $ 1.50 $ 1.80 Cash dividends declared $ 1.00 $ 0.98 $ 0.89 $ 0.80 $ 0.80 Book value per share $ 29.62 $ 26.77 $ 23.86 $ 21.92 $ 19.80 Weighted average number of common shares 8,638,654 7,061,524 7,035,818 6,543,756 6,051,579 Dividend payout ratio 47.22 % 29.17 % 28.79 % 53.46 % 44.53 % PROFITABILITY RATIOS AND CONDITION Return on average assets 0.78 % 1.40 % 1.34 % 0.69 % 0.93 % Return on average equity 7.39 % 13.33 % 13.62 % 7.12 % 9.17 % Average stockholders’ equity to average assets 10.53 % 10.54 % 9.85 % 9.69 % 10.10 % SELECTED ASSET QUALITY RATIOS Non-performing loans to total loans 0.48 % 0.40 % 0.52 % 0.63 % 0.64 % Net charge-offs to average loans outstanding 0.16 % 0.06 % 0.13 % 0.02 % 0.06 % Allowance for loan losses to total loans 1.23 % 1.09 % 1.07 % 1.12 % 1.56 % Allowance for loan losses to non-performing loans 256.16 % 269.27 % 206.51 % 177.77 % 242.76 % For the Year Ended December 31, Dollars in thousands, except per share data 2018 2017 2016 2015 2014 $ 64,494 $ 51,785 $ 40,500 $ 39,464 $ 37,526 7,399 5,433 3,934 3,858 3,646 57,095 46,352 36,566 35,606 33,880 1,620 — — — 150 55,475 46,352 36,566 35,606 33,730 15,948 14,149 13,208 12,406 11,904 44,703 44,079 35,137 33,234 32,264 26,720 16,422 14,637 14,778 13,370 4,972 6,634 3,768 3,761 3,080 $ 21,748 $ 9,788 $ 10,869 $ 11,017 $ 10,290 $ 1,647,724 $ 1,595,432 $ 1,206,320 $ 1,147,925 $ 1,089,808 $ 190,835 $ 203,880 $ 198,558 $ 197,235 $ 191,346 $ 1,288,501 $ 1,230,194 $ 893,716 $ 838,213 $ 784,100 $ 1,348,092 $ 1,298,492 $ 967,621 $ 912,980 $ 844,876 $ 118,164 $ 131,508 $ 108,840 $ 111,702 $ 126,636 $ 168,137 $ 153,966 $ 120,061 $ 114,715 $ 110,022 $ 3.09 $ 1.50 $ 1.80 $ 1.83 $ 1.71 $ 0.89 $ 0.80 $ 0.80 $ 0.80 $ 0.77 $ 23.86 $ 21.92 $ 19.80 $ 18.99 $ 18.29 7,035,818 6,543,756 6,051,579 6,026,224 6,002,240 28.79 % 53.46 % 44.53 % 43.75 % 44.92 % 1.34 % 0.69 % 0.93 % 0.99 % 0.97 % 13.62 % 7.12 % 9.17 % 9.77 % 9.32 % 9.85 % 9.69 % 10.10 % 10.10 % 10.43 % 0.52 % 0.63 % 0.64 % 0.68 % 1.04 % 0.13 % 0.02 % 0.06 % 0.05 % 0.14 % 1.07 % 1.12 % 1.56 % 1.73 % 1.90 % 206.51 % 177.77 % 242.76 % 252.91 % 183.15 % MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSmanagement'smanagement’s discussion and analysis of the significant changes in the financial condition, results of operations, comprehensive income, capital resources, and liquidity presented in its accompanying consolidated financial statements for ACNB Corporation (the Corporation or ACNB), a financial holding company. Please read this discussion in conjunction with the consolidated financial statements and disclosures included herein. Current performance does not guarantee, assure or indicate similar performance in the future.Corporation'sCorporation’s management deems to be most important to the portrayal of its financial condition and results of operations, and that require management'smanagement’s most difficult, subjective or complex judgment, often result in the need to make estimates about the effect of such matters which are inherently uncertain. The following policies are deemed to be critical accounting policies by management:management'smanagement’s estimate of probable losses inherent in the loan portfolio. Management makes numerous assumptions, estimates and adjustments in determining an adequate allowance. The Corporation assesses the level of potential loss associated with its loan portfolio and provides for that exposure through an allowance for loan losses. The allowance is established through a provision for loan losses charged to earnings. The allowance is an estimate of the losses inherent in the loan portfolio as of the end of each reporting period. The Corporation assesses the adequacy of its allowance on a quarterly basis. The specific methodologies applied on a consistent basis are discussed in greater detail under the caption,Allowance for Loan Losses, in a subsequent section of this Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.Corporation'sCorporation’s intent to sell, or requirement to sell, the security before recovery of its value. Declines in fair value that are determined to be other than temporary are charged against earnings.Intangibles—Intangibles — Goodwill and Other, requires that goodwill is not amortized to expense, but rather that it be assessed or tested for impairment at least annually. Impairment write-downs are charged to results of operations in the period in which the impairment is determined. The Corporation did not identify any impairment on RIG'sRIG’s outstanding goodwill from its most recent testing, which was performed as of October 1, 2018. A2020. The Corporation did not identify any impairment on the Bank’s outstanding goodwill from its most recent qualitative assessment, on the Bank's outstanding goodwill, resulting from the 2017 New Windsor acquisition,which was performed on the anniversary datecompleted as of the merger which showed no impairment. Subsequent to that evaluation, ACNB concluded that it would be preferable to evaluate goodwill in the fourth quarter at year-end. This date was preferable from the anniversary date measurement as events happening nearer to year-end could be factored in if necessary. The second evaluation again revealed no impairment and it was agreed to continue to evaluate goodwill for the Bank at or near year-end.December 31, 2020. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. Other acquired intangible assets that have finite lives, such as core deposit intangibles, customer relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment testing. Core deposit intangibles are primarily amortized over ten years using accelerated methods. The year 2018 was the first full year that the Corporation benefited from the combination of our two local banks.acquisition wasacquisitions were part of ACNB Corporation'sCorporation’s long-term strategic plan to enhance shareholder value by systematically and methodically expanding into new geographic markets and growing our customer base. NonrecurringThe $6.0 million in expenses normally associated with the acquisition amounted to $3.0 million net of the corresponding tax impact at the marginal tax rate. The acquisition added to top line revenue and, after giving effect to the nonrecurring merger-related expenses accounted for under GAAP, the acquisition positively impacted and accreted to the Corporation's bottom line and earnings per share.acquire FCBI were anticipated. A second nonrecurring 2020 event that caused 2017 additional expense, but producedwas the onset and continuation of negative economic effects of the COVID-19 pandemic. The pandemic had immediate unanticipated financial impacts in 2020 and uncertain future negative financial impacts. As a subsequent immediate positiveresult of both events, 2020 net income effect, was federal tax legislation known as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made broad and complex changes to the U.S. tax code, including a reduction in the base federal corporate tax rate from the prior existing statutory rate, which was 35% forreduced $5.3 million after 2019 experienced record net income. Even with reduced income ACNB Corporation, to 21%. As with most banking companies, the Tax Act resulted in a one-time, noncash charge against 2017 net income of approximately $1.7 million for the Corporation, due to the write-down of the Corporation's net deferred tax assets.Dollars in thousands, except per share data For the Years Ended December 31, INCOME STATEMENT DATA 2020 2019 Interest income $ 85,290 $ 69,558 Interest expense 12,222 10,140 Net interest income 73,068 59,418 Provision for loan losses 9,140 600 Net interest income after provision for loan losses 63,928 58,818 Other income 19,934 18,169 Merger-related expenses 5,965 769 Other expenses 55,195 46,852 Income before income taxes 22,702 29,366 Provision for income taxes 4,308 5,645 Net income $ 18,394 $ 23,721 Basic earnings per share $ 2.13 $ 3.36 NON-GAAP MEASURES INCOME STATEMENT DATA Net Income $ 18,394 $ 23,721 Merger-related expenses, net of income taxes 4,639 595 Net income without nonrecurring items (non-GAAP) $ 23,033 $ 24,316 Basic earnings per share (non-GAAP) $ 2.67 $ 3.44 For the Years Ended
December 31, Dollars in thousands, except per share data 2018 2017 $ 64,494 $ 51,785 7,399 5,433 57,095 46,352 1,620 — 55,475 46,352 15,948 14,149 — 4,728 44,703 39,351 26,720 16,422 — 1,700 4,972 4,934 $ 21,748 $ 9,788 $ 3.09 $ 1.50 $ 21,748 $ 9,788 — 3,010 — 1,700 $ 21,748 $ 14,498 $ 3.09 $ 2.22 20182020 net income figure of $21,748,000$18,394,000 represents a 122.2% increase22.5% decrease over the net income results for the year ended December 31, 2017.2019. Basic earnings per share in 2018 increased 106.0%2020 decreased 36.6% over the earnings per share for 2017.Corporation'sCorporation’s revenues is net interest income derived from interest earned on loans and investments, less deposit and borrowing funding costs. Revenues are influenced by general economic factors, including market interest rates, the economy of the markets served, stock market conditions, as well as competitive forces within the markets.Corporation'sCorporation’s overall strategy is to increase loan growth in local markets, while maintaining a reasonable funding base by offering competitive deposit products and services. The year 2018 continued to be2020 was especially challenging for financial institutions with new expensive compliance regulations, slowly recovering housing markets, lingering wage stagnation,COVID-19 both slowing economic activity and slow uneven growth. ACNBFOMC slashing interest rates. ACNB continued to be profitable, and well capitalized exercising its strategic plan and operationally sound despite these challenges. In alignment with the Corporation's strategic plan for long-term geographic expansion, ACNB acquired New Windsor Bancorp, Inc. of Taneytown, Maryland, and its subsidiary bank, New Windsor State Bank. Banking operations in the new south region includes seven community banking offices located in Carroll County, Maryland, and branded as NWSB Bank, a Division of ACNB Bank. The operating results of this new division are included with ACNB's other operations as of July 1, 2017. Before and after the acquisition, ACNB incurred $5,200,000 in expenses for the two years ended December 31, 2017. Higher net interest income and improved fee income was offset by much higher Provision for Loan Losses and increasedincreaseddecreased income before income taxes $26,720,000$22,702,000 in 2018,2020, compared to $16,422,000$29,366,000 in 2017. In addition, the Tax Cuts2019. State and Jobs Act resulted in a charge against 2017 net income of approximately $1,700,000 due to the write-down of net deferred tax assets. The resulting reduced tax rate however increasedFederal taxes decreased net income to $21,748,000,$18,394,000, or $3.09$2.13 per share, in 2018,2020, compared to $9,788,000,$23,721,000, or $1.50$3.36 per share, in 2017.2019. Returns on average equity were 13.62%7.39% and 7.12%13.33% in 20182020 and 2017,2019, respectively.2018,2020, the Corporation'sCorporation’s net interest margin increasedwas reduced to 3.81%3.35%, compared to 3.51%3.81% in 2017.2019. Net interest income was $57,095,000$73,068,000 in 2018,2020, as compared to $46,352,000$59,418,000 in 2017.$15,948,000$19,934,000 and $14,149,000$18,169,000 in 20182020 and 2017,2019, respectively. The largest source of other income is commissions from insurance sales attributable to Russell Insurance Group, Inc. (RIG). Commissions from insurance sales increaseddecreased by 10.5%3.4% in 20182020 to $5,550,000, boosted by higher personal lines insurance volume and$6,125,000, because of lower contingent commissions as a result of specific actionspractices of the insurance carriers. In 2018, an $85,000 gain was recognized onThere were no sales of securities compared to $0 in 2017.2020 or 2019. A $296,000$193,000 net loss (fair value change, none were sold) was recognized on local bank and CRA-related equity securities in 20182020 due to the adoption of ASU 2016-01 on January 1, 2018.frequent market changes in publicly-traded stocks, compared to a $267,000 net gain in 2019. Income from fiduciary, investment management and brokerage activities, which includes fees from both institutional and personal trust, investment management services, estate settlement and brokerage services, totaled $2,364,000$2,672,000 for 2018,2020, as compared to $2,012,000$2,469,000 for 2017. This2019, an 8.2% net increase as a net result of higher fee volume from increased assets under management, higher sporadic estate fee income, increased from new account relationships and increased market values in accounts.35% higher fees on brokerageincreased 13.9%decreased 14.0% to $3,350,000$3,355,000 for 20182020, due to significantly reduced consumer spending that creates the business combinationBank’s fees. Fee volume varies with balance levels, account transaction activity, and customer-driven events such as of July 1, 2017, as well as concerted management of this fee source; while revenueoverdrawing account balances. Revenue from ATM and debit card transactions increased 34.8%20.5% to $2,375,000$2,946,000 due to increased combined customer volume.$44,703,000,$61,160,000, or by 1.4%28.4%, in 2018,2020, as compared to $44,079,000$47,621,000 in 2017.2019. The largest component of other expenses is salaries and employee benefits, which increased 8.4%22.5% to $26,734,000$35,278,000 in 2018,2020, compared to $24,654,000$28,798,000 in 2017,2019, due to an increase in combinedmerger-combined organization employees, annual merit increases, and the increased cost of benefits despite lower pension expense.benefits. Compared to 2017,2019, occupancy expense increased 23.6%19.0% in 20182020 mostly due to the seven additional community banking office locations in Marylandhigher net lease expense and normal repair and maintenance variations,merger-acquired locations; and equipment expense rose 32.0% from maintenance of technology assets.increased 14.1% due to expenses related to merger-acquired locations. Professional services expense increased 29.5%decreased 20.0% from increasingsporadic risk, loan, legal and corporate governance engagements.engagements, and for prior year one-time consulting fee for selecting a new core banking system. Marketing and corporate relations expense increased by 30.5%0.4% due to muted specific campaigns and brand awareness activities. FDIC and regulatory expense increased by 6.8%41.3% based on these agencies' formulas.agencies’ formulas and credits and COVID-19 related high balance sheet growth . In 2018,2020, foreclosed real estate expenses increased $36,000,decreased $168,000, or 38.7%1,400.0%, resulting from variationresulting varying expenses and recoveries in carrying cost.each year. Merger-related expenses were $0$5,965,000 in 2018,2020, compared to $4,728,000$769,000 in 2017, as the2019, due to majority of FCBI acquisition of New Windsor was finalizedexpenses occurring in 2017.2020. A more thorough discussion of the Corporation'sCorporation’s results of operations is included in the following pages.ACNB'sACNB’s traditional banking revenue is net interest income, which represents the difference between interest income on earning assets and interest expense on liabilities used to fund those assets. Earning assets include loans, securities, and interest bearing deposits with banks. Interest bearing liabilities include deposits and borrowings."interest“interest rate spread"spread” and "net“net interest margin"margin” are two common statistics related to changes in net interest income. The interest rate spread represents the difference between the yields earned on interest earning assets and the rates paid for interest bearing liabilities. The net interest margin is defined as the percentage of net interest income to average earning assets, which also considers the Corporation'sCorporation’s net non-interest bearingstockholders'stockholders’ equity.1—1 — Average Balances, Rates and Interest Income and Expense 2020 2019 Dollars in thousands Average
BalanceInterest Yield/
RateAverage
BalanceInterest Yield/
RateINTEREST EARNING ASSETS Loans $ 1,671,428 $ 78,967 4.72 % $ 1,288,653 $ 63,653 4.94 % Taxable securities 268,667 4,927 1.83 % 195,531 4,183 2.14 % Tax-exempt securities 26,079 470 1.80 % 8,462 140 1.65 % Total Securities 294,746 5,397 1.83 % 203,993 4,323 2.12 % Other 215,318 926 0.43 % 68,349 1,582 2.31 % Total Interest Earning Assets 2,181,492 85,290 3.91 % 1,560,995 69,558 4.46 % Cash and due from banks 22,644 18,734 Premises and equipment 30,206 25,450 Other assets 147,394 97,489 Allowance for loan losses (17,076) (13,984) Total Assets $ 2,364,660 $ 1,688,684 LIABILITIES AND STOCKHOLDERS’ EQUITY INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 673,981 $ 964 0.14 % $ 270,015 $ 517 0.19 % Savings deposits 297,134 1,207 0.41 % 405,649 804 0.20 % Time deposits 514,303 8,147 1.58 % 399,937 6,808 1.70 % Total Interest Bearing Deposits 1,485,418 10,318 0.69 % 1,075,601 8,129 0.76 % Short-term borrowings 37,185 59 0.16 % 30,843 94 0.30 % Long-term borrowings 58,498 1,845 3.15 % 87,019 1,917 2.20 % Total Interest Bearing Liabilities 1,581,101 12,222 0.77 % 1,193,463 10,140 0.85 % Non-interest bearing demand deposits 499,100 308,386 Other liabilities 35,462 8,919 Stockholders’ equity 248,997 177,916 Total Liabilities and Stockholders’ Equity $ 2,364,660 $ 1,688,684 NET INTEREST INCOME $ 73,068 $ 59,418 INTEREST RATE SPREAD 3.14 % 3.61 % NET INTEREST MARGIN 3.35 % 3.81 % 2018 2017 Dollars in thousands Average
Balance Interest Yield/
Rate Average
Balance Interest Yield/
Rate $ 1,258,011 $ 59,593 4.74 % $ 1,096,631 $ 47,522 4.33 % 191,225 3,735 1.95 % 184,655 3,389 1.84 % 11,073 219 1.98 % 17,918 428 2.39 % 202,298 3,954 1.95 % 202,573 3,817 1.88 % 37,340 947 2.54 % 19,537 446 2.28 % 1,497,649 64,494 4.31 % 1,318,741 51,785 3.93 % 18,353 16,312 26,315 19,675 91,567 78,224 (13,453 ) (14,837 ) $ 1,620,431 $ 1,418,115 $ 271,205 $ 384 0.14 % $ 252,673 $ 306 0.12 % 411,418 580 0.14 % 359,336 383 0.11 % 359,581 4,289 1.19 % 302,499 2,858 0.94 % 1,042,204 5,253 0.50 % 914,508 3,547 0.39 % 33,514 59 0.18 % 35,832 83 0.23 % 89,936 2,087 2.32 % 91,126 1,803 1.98 % 1,165,654 7,399 0.63 % 1,041,466 5,433 0.52 % 288,268 231,803 6,875 7,405 159,634 137,441 $ 1,620,431 $ 1,418,115 $ 57,095 $ 46,352 3.68 % 3.41 % 3.81 % 3.51 % $146,000$3,391,000 and $(48,000) as$317,000 as of December 31, 20182020 and 2017,2019, respectively, are included in interest income. Yields on tax-exempt securities and loans are not tax effected.20182020 and 2017.2019. Table 2 analyzes the relative impact on net interest income for changes in the volume of interest earning assets and interest bearing liabilities and changes in rates earned and paid by the Corporation on such assets and liabilities.$57,095,000 in 2018, as$73,068,000 for the year ended December 31, 2020, compared to $46,352,000$59,418,000 for the same period in 2017. During 2018, net2019, an increase of $13,650,000, or 23.0%. Net interest income increased due to an increase in interest income to a greater extent than an increase in interest expense. Interest income increased $15,732,000, or 22.6%, due to the acquisition of FCBI increasing average earning assets, in addition to volume from organic growth (including the SBA Paycheck Protection Program (PPP)) and increased purchase accounting adjustments net of decreased rates due to market events. The increase in interest expense resulted from FCBI related additions and organic deposit growth net of deposit rate decreases. Increased loans outstanding was a result of active participation in the PPP enacted in response to the COVID-19 crisis, the acquisition of FCBI, and a concerted effort by management to offset the recent year trend of the market area’s heightened competition and declines in the U.S. Treasury yields and other market driver interest rates. The year 2020 saw much lower market yields and the difference between longer term rates and shorter term rates was modest. These driver rates affect new loan originations and are indexed to a portion of the loan portfolio in that a change in the driver rates changes the yield on new loans and on existing loans at subsequent interest rate reset dates. From these changes, interest income yield was negatively affected as new loansvolume (including acquired loans)growth and rebalancing the composition of earning assets to commercial loans.positive rate variances in earning assets from the acquired loans and from purchase accounting adjustments. Funding costs increased from higher volume (including acquired funding) and from higher rates paid. The net interest margin during 2018 was 3.81% compared to 3.51% during 2017. The margin increased as a result of purchased accounting adjustments which added 20 basis point to the margin, and acquiring and originating loans at the current market rate in order to increase loan volume and attempt to maintain total net interest income net of purchasingmore lower yielding investments to properly collateralize local government accounts and repurchase agreements. The Federal Open Market Committee repeatedly decreased the federal funds rate from September 2007 to December 2008 and had maintained it at 0% to 0.25% until mid-December 2015 when this rate was increased in stages to its current range of 2.25% to 2.50%. In addition, the Federal Reserve Bank embarked on various programs referred to as Quantitative Easing which, in effect, attempted to lower rates on longer term portions of the yield curve. These decreases allowed interest rate reductions on lower-cost transactional deposit products and higher-cost certificates of deposit (CD's) over the intervening years; however, economic progress allowed the Federal Reserve to end new Quantitative Easing and to signal rates they control would increase, which they have. ACNB took steps to ameliorate the effect of rising rates including promoting longer term CD's however interest in low cost transaction accounts increased; the result was a 0.11% increase in funding costs in 2018. In addition to the higher cost of funds in 2018, earning asset yields continued up, increasing 0.38% from purchase accounting adjustments and a higher mix of lending. The increase earning asset yields in 2017 were 0.22% compared to funding cost increases of 0.07%. Maintaining the net interest margin going forward will be challenged by the fact that substantial amounts of deposits rates are increasing, while loans rate increases are restrained due to competition and from margin compression resulting from the longer term indices are not moving up in step with shorter term indices. The cost and availability of wholesale funding could also be affected by a variety of internal and external factors resulting from interest rate market factors and the creditworthiness of the Corporation and the credit providers.$1,497,649,000$2,181,492,000 in 2018,2020, an increase of 13.6%$620,497,000, or 39.8%, from the average balance of $1,318,741,000$1,560,995,000 in 2017. Loan growth and the $263,450,000 New Windsor loans acquired,2019. Liquidity assets represented the largest increase in average assets in 2018 and 2017,2020, while increased lending represented the largest increase in conjunction with changes2019. Changes in the investment portfolio in thoseboth years were made to balance liquidity needs and to collateralize eligible deposits. Average interest bearing liabilities were $1,165,654,000$1,581,101,000 in 2018,2020, up from $1,041,466,000$1,193,463,000 in 2017.2019. Average non-interest bearing demand deposits increased 24.4%61.8% in 2018,2020, continuing the upward trend from 2017. This increase2019. All increases were in deposits was attributedlarge part due to retained relationships from the New Windsor acquisition of FCBI and to the value placed on stability and FDIC insurance by depositors.COVID-19 related effect of money parked in the banking system during government-mandated shutdowns. On average, deposits (including non-interest bearing) were up 16.1%43.4%, while borrowings decreased by 2.8%18.8% due to principal paybacks. Lower-cost transaction and savings deposits increasedwere relatively stable in 2018 as a result of the New Windsor acquisition.2020. The increase in time depositdeposits was a result of the New Windsor acquisition and an effortin part from existing customers moving to retain funding by offering higher rates available from time deposit rates due to competitive pricing.20182020 was due to loan volume increases and rate increasesdecreases in earning asset offsetting rate and volume increases in funding cost. Earning asset yields increaseddecreased due to New Windsor acquired assets, purchase accounting adjustments andmuch lower market rate increases.rates. Interest expense increased due to higher deposit volumes and rates and the acquired subordinated debt.rates.2—2 — Rate/Volume Analysis 2020 versus 2019 Due to Changes in In thousands Volume Rate Total INTEREST EARNING ASSETS Loans $ 18,189 $ (2,875) $ 15,314 Taxable securities 1,453 (397) 1,056 Tax-exempt securities 316 14 330 Total Securities 1,769 (383) 1,386 Other 1,283 (2,250) (967) Total $ 21,241 $ (5,508) $ 15,733 INTEREST BEARING LIABILITIES Interest bearing demand deposits $ 606 $ (159) $ 447 Savings deposits (261) 664 403 Time deposits 1,838 (499) 1,339 Short-term borrowings 17 (52) (35) Long-term borrowings (745) 673 (72) Total 1,455 627 2,082 Change in Net Interest Income $ 19,786 $ (6,135) $ 13,651 2018 versus 2017 Due to Changes in In thousands Volume Rate Total $ 7,392 $ 4,679 $ 12,071 123 223 346 (144 ) (65 ) (209 ) (21 ) 158 137 447 54 501 $ 7,818 $ 4,891 $ 12,709 $ 24 $ 54 $ 78 61 136 197 599 832 1,431 (5 ) (19 ) (24 ) (24 ) 308 284 655 1,311 1,966 $ 7,163 $ 3,580 $ 10,743 $1,620,000$9,140,000 in 20182020 and $0$600,000 in 2017.2019. The determination of a need for a provision was a result of the analysis of the adequacy of the allowance for loan losses calculation. The allowance for loan and lease losses generally does not include the loans acquired from the FCBI or New Windsor acquisition which were recorded at fair value as of the acquisition date. Each quarter, the Corporation assesses risk in the loan portfolio compared with the balance in the allowance for loan losses and the current evaluation factors. Managementfactors. The 2020 provision was calculated to be much higher due to higher charge-offs including a first quarter charge off of a $2,000,000 loan after the death of the borrower and a third quarter COVID-19 related $675,000 charge-off based on principal forgiveness to achieve a projected fourth quarter loan payoff. The second cause for the large increase was a quantitative factor developed that attempts to measure the impact of the COVID-19 pandemic related closure of and impact of restrictions on many of the Bank’s business customers for an undetermined time period. This customer base includes businesses in the hospitality/tourism industry, restaurants and related businesses and lessors of commercial real estate properties. The estimation of the qualitative factor for this event was approximately $4,100,000 for a total of $9,140,000 in provision expense. The remainder was due to the above-mentioned charge-offs, increase in economic qualitative factors, and adjustment to the New Windsor acquired portfolio. Otherwise, management concluded that before the COVID-19 pandemic and the unanticipated deficiencies in the unsecured loans, the loan portfolio exhibited continued general improvement in quantitative and qualitative credit quality measurements as shown in the tables and narrative in this Management'sManagement’s Discussion and Analysis and the Notes to the Consolidated Financial Statements. This assessment concludedStatements, despite the potential for credit problems resulting from the 2020 shutting down of major business and consumer economic sections. In light of that credit problem potential, it was assessed that credit quality was stable, charge offsthe majority charge-offs were lownot COVID-19 related and past due loans manageable. The increase in provision expense related to the measurement of latent current losses developed by various economic metric used to measure COVID-19 credit quality potential damage and changes in anchoring metrics that drive qualitative factors. This same analysis concluded that the unallocated allowance should be in the samea higher percentage range in 20182020 compared with the prior period.Management'sManagement’s Discussion and Analysis. ACNB charges confirmed loan losses to the allowance and credits the allowance2018,2020, the Corporation had net charge-offs of $1,632,000$2,749,000 as compared to net charge-offs of $218,000$729,000 for 2017.$15,948,000$19,934,000 for the year ended December 31, 2018,2020, a $1,799,000,$1,765,000, or 12.7%9.7%, increase from 2017.2019. The largest source of other income is commissions from insurance sales from RIG,increased 10.5%decreased 3.4% to $5,550,000$6,125,000 in 2018. The increases2020. T higher contingent commission payments and an increase in personal lines commission income.income from new insurance books of business acquired offset by a larger decrease in contingent commission payments. The contingent, or extra, commissions is at the discretion of various insurance carriers in accordance with applicable insurance regulations. Heightened pressure on commissions is expected to continue in this business line. In 2018, an $85,000 gain was recognizedsoldsales of securities in 2020 or merged securities compared to a gain of $0 in 2017.2019. A $296,000$193,000 net loss (fair value derived) was recognized on local bank and CRA-related equity securities during 20182020 due to the adoptionfrequent market value changes in publicly-traded stocks and decreased market values for financial equities in particular, compared to a net gain of ASU 2016-01 on January 1, 2018.$267,000 in 2019. Income from fiduciary, investment management and brokerage activities, which includes fees from both institutional and personal trust, investment management services, estate settlement and brokerage services, totaled $2,364,000$2,672,000 for the year ended December 31, 2018,2020, as compared to $2,012,000$2,469,000 for 2017.2019. At December 31, 2018,2020, ACNB had total assets under administration of approximately $342,000,000,$436,700,000, compared to $327,000,000$389,000,000 at the end of 2017. $103,000,000 in brokerage relationships were brought over in the New Windsor acquisition.2019. The variations in income were in due to morerevenue increase was a net result of higher fee volume from increased assets under management, offsetting lowerhigher sporadic estate settlement income which varies with specific activity.increased 13.9%decreased 14.0% to $3,350,000,$3,355,000, due to the acquired New Windsor deposit baseCOVID-19 related slow economic conditions that reduced fee generating activity. Fee volume varies with balance levels, account transaction activity, and based upon varying customer actions that affect the volume of fees.customer-driven events such as overdrawing account balances. Further, certainvarious specific government regulations and policies effective since 2010 limited service charge increases and makeeffectively limit fee assessments related to deposit accounts, making future revenue levels uncertain. Revenue from ATM and debit card transactions increased 34.8%20.5% to $2,375,000$2,946,000 due to highervariations in volume and mix, including the acquired New Windsor deposit base. new FCBI market and COVID-19 related higher volume. The longer term trend of increased fees resultedhad been increases resulting from consumer desire to use more electronic delivery channels;channels (Internet and mobile applications); however, regulations or legal challenges for large financial institutions may impact industry pricing for such transactions and fees in connection therewith in future periods, the effect of which cannot be currently quantified. Another threatA more immediate challenge to this revenue source is the general COVID-19 event and related impact caused decrease in retail activity and the retail system-wide security breaches in the merchant base that canare negatively affecting consumer confidence in the debit card channel. Income from sold mortgages, included in other income, increased by $37,000,$1,634,000, or 7.3%234.4%, to $542,000$2,331,000 in 2018 2020 as customer demand movedfor refinancing in the low rate environment led to origination of mortgage types that can bewere sold in the secondary market. This revenue source is subject to wide divergence due to national and local economic trends.asset'sasset’s fair value. Accounting rules permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The goodwill impairment analysis involves comparing the reporting unit'sunit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value of goodwill assigned to the reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. Subsequent reversal of goodwill impairment losses is not permitted.up 10.5%down 3.4% in 2018,2020, and RIG'sRIG’s stand alone net income increased 44%decreased 38.2% in 20182020 compared to 2017 (exclusive of income from deferred tax liability revaluing in conjunction with the Tax Act).2019. The testing for potential impairment involves methods that include both current and projected income amounts, and RIG'sRIG’s fair value remained above the carrying value as of the most recent annual impairment test date. Thus, the results of the annual evaluations determined that there was no impairment of RIG'sRIG’s goodwill, including the2018.2020. However, declines in RIG'sRIG’s net income or changes in external market factors, including likely buyers that are assumed in impairment testing, may require an impairment charge to goodwill. A qualitative assessmentThe Corporation did not identify any impairment on the Bank'sBank’s outstanding goodwill resulting from the 2017 New Windsor acquisition, was performed on the anniversary date of the mergerits most recent qualitative and quantitative assessments, which showed no impairment. Subsequent to that evaluation, ACNB concluded that it would be preferable to evaluate goodwill in the fourth quarter at or near year-end. This date was preferable from the anniversary date measurement as events happening nearer to year-end could be factored in if necessary. The second evaluationwere completed as of December 31, 2018, again revealed no impairment and it was agreed to continue to evaluate goodwill for the Bank at or near year-end.2020. Should it be determined in a future period that the goodwill has been impaired, then a charge to earnings will be recorded in the period that such a determination is made.1.4%28.4% to $44,703,000$61,160,000 for the year ended December 31, 2018.2020. The largest component of other expenses is salaries and employee benefits, which increased 8.4%22.5% in 20182020 to $26,734,000$35,278,000 compared to $24,654,000$28,798,000 in 2017.2019. The reasons for the increase in salaries and employee benefits expenses include the following:retaininginthrough the NWSB Bank marketsCOVID-19 event due to retain key loan and deposit relationships;higherhigherincreases related todecreased rates (decreasing the liabilities for future obligations).Corporation'sCorporation’s overall pension plan investment strategy is to achieve a mix of investments to meet the long-term rate of return assumption and near-term pension obligations with a diversification of asset types, fund strategies, and fund managers. The mix of investments is adjusted periodically by retaining an advisory firm to recommend appropriate allocations after reviewing the Corporation'sCorporation’s risk tolerance on contribution levels, funded status, plan expense, as well as any applicable regulatory requirements. However, the determination of future benefit expense is also dependent on the fair value of assets and the discount rate on the year-end measurement date, which in recent years has experienced fair value volatility and low discount rates. TheAlthough 2020 reflected negative expense (income benefit), the expense will be higher in 20182021 due to the low plan return in 2018 and latevolatility in the year decreasediscount rates at the latest measurement date, varying plan returns, and change indiscount rates. mortality tables utilized. The expense will be vary in future years due to these variables. 23.6%19.0% at $2,971,000$3,681,000 in 20182020 and $2,403,000$3,094,000 in 2017.2019. Equipment expense totaled $4,959,000$5,442,000 during 2018,2020, as compared to $3,757,000$4,771,000 during 2017.2019. Occupancy expense was up in 2018 mostly2020 due to seven moreadditional offices fromas a part of the New WindsorFCBI acquisition and equipment expense increased in 2018 due to ongoing support and maintenancetech equipment expenditures including those for the FCBI market in 2020. In addition, increased outsourced processing costs were associated with more use of financial systems applications and security technology.electronic banking channels. Equipment expense is subject to ever-increasing technology demands and the need for system upgrades for electronic delivery, security and reliability purposes.$1,468,000$1,417,000 for 2018,2020, as compared to $1,134,000$1,772,000 for 2017.2019. The variation in expense from year to year included varying legal costs associated with problem loans and corporate governance, as well as the expense of heightened compliance monitoring on existing regulations and the expense of implementing new regulations.regulations. In addition, ACNB paid $591,000 in one time consulting costs to negotiate a core system contract that replaces a contract that expired in 2019. Other tax expense increased $111,000$122,000 or 14.0%11.2% in 20182020 compared to 20172019 due to higher Pennsylvania Bank Shares Tax. The Pennsylvania Bank Shares Tax is a rateshareholders’ equity-based tax and is subject to increases based on state government parameters and the level of the shareholders’ equity base that increased with the retained earnings equity increase and the addition of the equity increase from the New Windsor acquisition.higher rate. Supplies and postage expense increaseddecreased in 20182020 compared to the prior year due to new offices and postage for the customer basevariation in timing of the NWSB Bank division.30.5%0.4% from 20172019 to 2018.2020. Marketing expense varies with the timing and amount of planned advertising production and media expenditures, typically related to the promotion of certain in-market banking and trust products.20182020 was $688,000,$616,000, an increase of $44,000$180,000 from $644,000$436,000 in 2017. 2019 based on FDIC variations in asset base and rate in credits received in the two periods based on the FDIC fund reaching a particular funding ratio. This credit does not necessarily repeat in future periods depending on the change in the funding ratio. FDIC expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.$129,000$(156,000) and $93,000$12,000 for the years ended December 31, 20182020 and 2017,2019, respectively. Expenses increaseddecreased in 2018 2020 due to higher carrying cost (maintenance, taxes, etc.) of the fewsettlements on properties held. written down in prior years. Values are written down based upon updated appraisals less selling costs (which in the often extended marketing periods can create multiple year expenses) and other fair value adjustments, or in some cases properties are written down based on sales agreements that do not subsequently close. In all, the historically high costs of all years consisted of these write-downs and other costs to carry and was due to the increased number and varying mix of commercial and residential collateral for which such carrying costs include insurance, property maintenance, unpaid and ongoing property taxes, and deferred maintenance required upon acquisition. Foreclosed real estate expenses will vary in 20192021 depending on the successful sales on some existing properties and the unknown expenses related to any new properties acquired.38.7% from the core deposit intangible in the New Windsor acquisition and103.5% due to a lesser extent from insurance books purchased.of business and calculated amortization on the bank acquisition intangible. Other operating expense increased $602,000$183,000 or 14.4%3.7% in 20182020 as a result of a varietyvariety of increases including various datadelivery channels cost, corporate governance and risk management (including training) expenditures. Acquisitioncosts related to the New Windsor acquisition totaled $0of FCBI in 2018 compared to $4,728,000 in 2017.2020. Merger expenses included legal and consulting expenses to effect the legal merger, investment banking and preparing purchase accounting adjustments.adjustments. Integration expenses included certain severance payments to New WindsorFCBI staff separated by the merger, consultant costs to integrate New Windsor bankFCBI systems into ACNB's,ACNB’s systems and the cost to terminate all New WindsorFCBI core banking and electronic technology systems contracts. These costs were all necessary to provide requisite internal controls and cost effective core banking technology systems going forward. The costs ofacquisitionmerger viability and ongoing system integrity and quality.$4,972,000,$4,308,000, or 18.6%19.0% of pretax income, during 2018,2020, as compared to $6,634,000,$5,645,000, or 40.4%19.2%, during 2017.2019. The variances from the federal statutory rate of 21% in the respective periods are generally due to tax-exempt income from investments in and loans to state and local units of government at below-market rates (an indirect form of taxation), investment in bank-owned life insurance, and investments in low-income housing partnerships (which qualify for federal tax credits). On December 22, 2017, the United States government enacted comprehensive tax legislation, known as the Tax Cuts and Jobs Act (the "Tax Act"). Tax Act made broad and complex changes to the U.S. tax code, including a reduction in the base corporate tax rate from the prior existing statutory rate, which was 35% for ACNB, to 21%. Based on estimates and current accounting guidance, the Corporation estimated that the Tax Act resulted in a charge against 2017 net income of approximately $1.7 million, due to the write down of ACNB's net deferred tax assets due to the Tax Act's reduction in the base corporate tax rate to 21%. This estimate was based on a review and analysis of the Corporation's net deferred tax assets at December 31, 2017, as well as adjustments to various deferred tax assets and deferred tax liabilities in the fourth quarter, including those accounted for in accumulated other comprehensive income. Otherwise, the increasingvarying effective tax rate during 20182020 and 20172019 was a result of increasingvarying pretax income in relationship to expiration of tax credits, and lowervarying levels of tax-exempt investments.investments and allocation between states.increaseddecreased due to internal growth offset by merger and the New Windsor acquisition.provision for loan loss expenses. At December 31, 2018,2020, net deferred tax assets amounted to $2,842,000.$3,928,000. Deferred tax assets are realizable primarily through future reversal of existing taxable temporary differences and future earnings. Management currently anticipates timing difference reversals will be adequate to utilize deferred tax assets. Accordingly, no valuation allowance has been established for deferred tax assets at December 31, 2018.20182020 to $1,497,649,000,$2,181,492,000, or by 13.6%39.8%, from $1,318,741,000$1,560,995,000 in 2017. ACNB's2019. Loans increased from the PPP program and loans acquired from FCBI. Besides deposits acquired from FCBI, deposit increases were largely due to consumers and businesses seeking the safety and security of banks, as well as cash infusions from federal stimulus programs. ACNB’s overnight interest bearing deposits increased in 20182020 on average, as more funds were allocated into liquid assets. On average, investments were maintainedincreased in 20182020 and 20172019 to properly collateralize public deposits. Average loans increased 14.7%29.7% and 25.9%2.4% on average in 20182020 and 2017,2019, respectively. Besides $263,450,000 in loans acquired from New Windsor, growth in loans wasLoans were funded by increased deposits, investment cash flow and term FHLB borrowings. Average deposits increased 16.1%43.4% in 20182020 to $1,330,472,000$1,984,518,000 from $1,146,311,000$1,383,987,000 in 2017.2019. Deposit growth was the result of those acquired in the New Windsor acquisitionFCBI merger and organic marketing efforts.increased balances due to the lack of economic activity in the COVID-19 environment. Average borrowings decreased in 20182020 to $123,450,000$95,683,000 from $126,958,000$117,862,000 in 2017. Fluctuations2019. Term borrowings were in borrowings are term borrowing to fundanticipation of loan demand and variationsmaturing amounts were paid off from liquidity in local customer repurchase accounts, which are akin to deposits.20182020 were mainly to provide proper collateral for public deposits. Investing into investment security portfolio assets over the past several years was made more challenging due to the Federal Reserve Bank'sBank’s program commonly called Quantitative Easing in which, by the Federal Reserve'sReserve’s open market purchases, the yields were maintained at a lower level than would otherwise be the case. Fair value of $21,264,000 was acquired through the New Windsor acquisition. These securities were similar to the portfolio mix of ACNB. The investment portfolio is comprised of U.S. Government agency,2018,2020, the securities balance included a net unrealized lossgain on available for sale securities of $1,651,000,$4,645,000, net of taxes, on amortized cost of $163,862,000$331,745,000 versus a net unrealized lossgain of $957,000,$1,261,000, net of taxes, on amortized cost of $158,599,000$189,208,000 at December 31, 2017.2019. The change in fair value of available for sale securities during 20182020 was a result of the securities acquired from New Windsor and the higher amount of investments in the available for sale portfolio offset in partand by a decreasean increase in fair value from an increasea decrease in the U.S. Treasury yield curve rates and the spread from this yield curve required by investors on the types of investment securities that ACNB owns. The Federal Reserve ceasedreinstituted their rate-decreasing Quantitative Easing program in 2014the COVID-19 crisis; and increasedafter increasing the fed funds rate in mid-December 2015 through 2018, along with anthe Federal Reserve decreased the target rate to 0% to 0.25% in the ongoing COVID-19 crisis; both actions causing the U.S. presidential election result that, at least to date, has caused the U. S. Treasury yield curve to increasedecrease in the time terms relevant to the investment securities in the Corporation'sCorporation’s portfolio. Previously, after a prolonged period of inaction by the Federal Reserve after lowering rates on the yield curve most conducive to stimulating the housing market and to boost employment and consumption was augmented by a combination of weak domestic and international economic conditions, leading to generally lower rates on the yield curve. However, fair values were volatile on any given day in 20182020 and such volatility will continue.2018,2020, the securities balance included held to maturity securities with an amortized cost of $27,266,000$10,294,000 and a fair value of $26,911,000,$10,768,000, as compared to an amortized cost of $44,829,000$19,234,000 and a fair value of $44,549,000$19,281,000 at December 31, 2017.2019. The held to maturity securities are U.S. government agency debentures and pass-through mortgage-backed securities in which the full payment of principal and interest is guaranteed; however, they were not classified as available for sale because these securities are generally used as required collateral for certain eligible government accounts or repurchase agreements. They are also held for possible pledging to access additional liquidity for banking subsidiary needs in the form of FHLB borrowings. Due to changes in accounting rules, no held to maturity securities were added in past several years. No held to maturity securities were acquired from New Windsor.security'ssecurity’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing. Please refer to Note C—"Securities"C — “Securities” in the Notes to Consolidated Financial Statements for more information on the security portfolio and Note L—"FairL — “Fair Value Measurements"Measurements” in the Notes to Consolidated Financial Statements for more information about fair value.3—3 — Investment SecuritiesIn thousands 2020 2019 AVAILABLE FOR SALE SECURITIES AT FAIR VALUE U.S. Government and agencies $ 183,603 $ 114,249 Mortgage-backed securities 108,822 65,592 State and municipal 36,484 10,996 Corporate bonds 8,809 — $ 337,718 $ 190,837 HELD TO MATURITY SECURITIES AT AMORTIZED COST U.S. Government and agencies $ 4,000 Mortgage-backed securities 10,294 15,234 $ 10,294 $ 19,234 EQUITY SECURITIES WITH READILY DETERMINABLE FAIR VALUES CRA Mutual Fund $ 1,065 $ 1,045 Stock in other Banks 1,105 1,061 $ 2,170 $ 2,106 In thousands 2018 2017 $ 118,413 $ 104,083 33,811 34,833 9,506 13,294 — 5,057 $ 161,730 $ 157,267 $ 7,000 $ 19,000 20,266 25,829 $ 27,266 $ 44,829 $ 1,012 $ 1,035 827 749 $ 1,839 $ 1,784 2018.2020. Many securities have call features that make their redemption possible before the stated maturity date.4—4 — Securities Maturity Schedule 1 Year or Less Over 1 - 5 Years Over 5 - 10 Years Over 10 Years
or No MaturityTotal Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield U.S. Government and agencies $ 60,401 2.23 % $ 35,994 2.03 % $ 68,705 1.38 % $ 16,604 2.46 % $ 181,704 1.89 % Mortgage-backed securities 14 3.08 4,853 2.83 19,559 2.35 91,195 2.21 115,621 2.26 State and municipal 1,557 3.81 1,354 3.59 6,978 1.86 26,041 2.38 35,930 2.32 Corporate bonds — — 540 4.50 6,244 5.11 2,000 5.25 8,784 5.10 $ 61,972 2.27 % $ 42,741 2.14 % $ 101,486 1.83 % $ 135,840 2.28 % $ 342,039 2.13 % 1 Year or Less Over 1-5 Years Over 5-10 Years Over 10 Years
or No Maturity Total Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield $ 9,502 1.49 % $ 117,918 2.24 % $ — — % $ — — % $ 127,420 2.18 % 30 5 7,869 2.48 28,079 2.51 18,248 2.80 54,226 2.60 1,981 3.11 7,302 3.12 199 2.38 — — 9,482 3.11 $ 11,513 1.78 % $ 133,089 2.30 % $ 28,278 2.51 % $ 18,248 2.55 % $ 191,128 2.33 % �� 1 Year or Less Over 1 - 5 Years Over 5 - 10 Years Over 10 Years
or No MaturityTotal Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield CRA Mutual Fund $ — — % $ — — % $ — — % $ 1,065 — % $ 1,065 — % Stock in other Banks — — — — — — 1,105 — 1,105 — $ — — % $ — — % $ — — % $ 2,170 — % $ 2,170 — % 1 Year or Less Over 1-5 Years Over 5-10
Years Over 10 Years
or No Maturity Total Dollars in thousands Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield $ — — % $ — — % $ — — % $ 1,044 — % $ 1,044 — % — — — — — — 749 — 749 — $ — — % $ — — % $ — — % $ 1,793 — % $ 1,793 — % Loans$58,295,000,$365,183,000, or 4.7%28.7%, in 2018,2020, as compared to 2017.2019. The increase wasis primarily from a net increase of new loansattributable the FCBI acquisition and active participation in the Paycheck Protection Program (PPP), net of payoffselling most newly originated residential mortgages and paydowns.early payoffs of other loans (resulting from the COVID-19 caused lowering of interest rates). Both years demonstrated the determinedfocused efforts by management to lend to creditworthy borrowers subject to the Corporation'sCorporation’s disciplined underwriting standards, despite the generally slow economic conditionsslower local commercial activity and intense competition. Within the portfolio higher, growth was centered in increased commercial purpose loans/commercial construction loans, while lower growth was in local market residential mortgages. Themortgages declined. Also growing were loans to Pennsylvania school districts, municipalities (including townships) and essential purpose authorities, as a result the net commercial purpose segments increased $49,255,000,$375,904,000, or 7.1%50.6%, during 2018,2020, spread among diverse categories that include farmland secured, loans to local government units, and other types of commercial lending. Residential real estate mortgage lending, which includes smaller commercial purpose loans secured by the owner'sowner’s home, increaseddecreased by $10,977,000,$10,434,000, or 2.1%2.0%, to local borrowers who preferred loan types that would not be sold into the secondary mortgage market. Included in the mortgage increasemortgages were $2,429,000 $134,419,000 in residential mortgage loans secured by junior liens or home equity loans, which are also in many cases 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. Generally, foreclosure actions could become more prevalent if the real estate market weakens, property values deteriorate, or rates increase sharply. Included in commercial purpose were real estate construction loans down $15,262,000,up $27,486,000, or 42.9%104.1% in 2018,2020, as a result of lower market demand anddespite continued conservative underwriting on this loan type due to the category'scategory’s credit attributes. mostly tax-free interest income treatment for federal income taxes. These loans totaled $92,949,000 $68,772,000 in 2018,2020, an increase of 5.0% over $88,484,000 held7.2% from $64,137,000 held at the end of 2017.In thousands 2020 2019 Commercial, financial and agricultural $ 320,154 $ 149,315 Real estate: Commercial 744,627 567,048 Construction 53,902 26,416 Residential 505,950 516,384 Consumer 13,151 13,438 Total Loans $ 1,637,784 $ 1,272,601 In thousands 2018 2017 $ 174,182 $ 165,829 548,923 492,759 20,298 35,560 544,662 533,685 14,400 16,337 $ 1,302,465 $ 1,244,170 2018,2020, and the amounts of loans with predetermined and fixed rates are presented in the tables below:6—6 — Loan SensitivitiesIn thousands Less than
1 Year1-5 Years Over
5 YearsTotal Commercial, financial and agricultural $ 31,882 $ 215,041 $ 73,231 $ 320,154 Real estate: Commercial 46,340 269,149 429,138 744,627 Construction 11,797 18,617 23,488 53,902 Residential 39,830 150,046 316,074 505,950 Total $ 129,849 $ 652,853 $ 841,931 $ 1,624,633 In thousands Less than
1 Year 1-5 Years Over
5 Years Total $ 22,066 $ 75,827 $ 76,289 $ 174,182 26,664 207,022 315,237 548,923 5,847 6,025 8,426 20,298 56,738 131,411 356,513 544,662 $ 111,315 $ 420,285 $ 756,465 $ 1,288,065 In thousands Less than
1 Year1-5 Years Over
5 YearsTotal Commercial, financial and agricultural $ 35,359 $ 224,008 $ 60,787 $ 320,154 Real estate: Commercial 102,126 411,282 231,219 744,627 Construction 13,171 20,254 20,477 53,902 Residential 85,836 148,606 271,508 505,950 Total $ 236,492 $ 804,150 $ 583,991 $ 1,624,633 Loans with a fixed interest rate $ 65,826 $ 375,905 $ 488,123 $ 929,854 Loans with a variable interest rate 170,666 428,245 95,868 694,779 Total $ 236,492 $ 804,150 $ 583,991 $ 1,624,633 In thousands Less than
1 Year 1-5 Years Over
5 Years Total $ 47,780 $ 67,993 $ 58,409 $ 174,182 125,276 311,159 112,488 548,923 8,353 5,144 6,801 20,298 145,876 116,039 282,747 544,662 $ 327,285 $ 500,335 $ 460,445 $ 1,288,065 $ 12,697 $ 83,789 $ 376,127 $ 472,613 314,588 416,546 84,318 815,452 $ 327,285 $ 500,335 $ 460,445 $ 1,288,065 Corporation'sCorporation’s lending activities are with customers located within southcentral Pennsylvania and in the northern Maryland area. This region currently and historically has lower unemployment rates than the U.S. as a whole. Included in commercial real estate loans are loans made to lessors of non-residential properties that total $287,030,000,$358,663,000, or 22.0%21.9% of total loans, at December 31, 2018.2020. These borrowers are geographically dispersed throughout ACNB'sACNB’s marketplace and are leasing commercial properties to a varied group of tenants including medical offices, retail space, and other commercial purpose facilities. Because of the varied nature of the tenants, in aggregate, management believes that these loans present an acceptable risk when compared to commercial loans in general. ACNB does not originate or hold Alt-A or subprime mortgages in its loan portfolio.ACNB'sACNB’s credit risk. ACNB'sACNB'sACNB’s loans are located in this area, a substantial portion of the debtor'sdebtor’s ability to honor the obligation may be affected by the level of economic activity in the market area.ACNB'sACNB’s market area remained below the state and national average during 2018.2020. Additionally, competitive lending rates, a less volatile local economy, and minimal inflation continued to provide some support to the economic conditions in the area. During 2018, continued2020, continued low activity in new residential real estate development/construction and general muted economic activity lingered from the 2007 to 2009 major recession,was a result of COVID-19 , challenging the Corporation'sCorporation’s marketplace commercial activity. Slower growth areas such as ACNB'sACNB’s marketplace generally do not retract in economic recessions as quickly and as low as other areas of the country, however the recovery from low economic cycles are also generally slower.borrower'sborrower’s financial difficulties.Corporation'sCorporation’s non-performing assets as of the end of the years indicated:7—7 — Non-Performing AssetsDollars in thousands 2020 2019 Nonaccrual loans, including TDRs $ 7,041 $ 3,919 Accruing loans 90 days past due 855 1,219 Total Non-Performing Loans 7,896 5,138 Foreclosed assets — 364 Total Non-Performing Assets $ 7,896 $ 5,502 Total Accruing Troubled Debt Restructurings $ 3,680 $ 3,783 Ratios: Non-performing loans to total loans 0.48 % 0.40 % Non-performing assets to total assets 0.31 % 0.32 % Allowance for loan losses to non-performing loans 256.16 % 269.27 % Dollars in thousands 2018 2017 $ 3,417 $ 6,355 3,345 1,507 6,762 7,862 155 436 $ 6,917 $ 8,298 $ 3,883 $ 3,982 0.52 % 0.63 % 0.42 % 0.52 % 206.51 % 177.77 % $269,000$379,000 in 20182020 and $437,000$249,000 in 2017.2019. The decreaseincrease in nonaccrual loans from 20172019 to 20182020 is discussed further below.20182020 and 2017,2019, totaled $7,300,000$10,721,000 and $10,337,000,$7,702,000, respectively. At December 31, 20182020 and 2017,2019, the Corporation had nonaccruing and accruing troubled debt restructurings of $6,226,000$3,807,000 and $7,387,000,$3,974,000, respectively. $2,343,000$127,000 and $3,405,000,$191,000, respectively, of the impaired loans were troubled debt restructured loans, which were also classified as nonaccrual. $3,883,000$3,680,000 and $3,982,000$3,783,000 of the impaired loans were accruing troubled debt restructured loans at December 31, 20182020 and 2017,2019, respectively. Loans whose terms are modified are classified as troubled debt restructurings if the borrowers have been granted concessions and it is deemed that thoseloan'sloan’s stated maturity date. Nonaccrual troubled debt restructurings are restored to accrual status if principal and interest payments, under the modified terms, are current for six consecutive months$0$1,382,000 and $1,229,000$42,000 at December 31, 20182020 and 2017, respectively.2019, respectively. The decrease in accruing troubled debt restructurings was a result of payment made in accordance with loan terms. The decreaseincrease in nonaccrual loans was a result of additional loans added to this category net of paydowns and payoffs made by the customers on these loans.loans. Potential problem loans are defined as performing loans that have characteristics that cause management to have doubts as to the ability of the borrower to perform under present loan repayment terms and which may result in the reporting of these loans as non-performing loans in the future. Total additional potential problem loans approximated $1,158,000approximated $2,607,000 at December 31, 2018,2020, compared to $1,064,000$2,943,000 at December 31, 2017.consistsconsist of the fair value of real estate acquired through foreclosure on real estate loan collateral or the acceptance of ownership of such real estate in lieu of the foreclosure process. Fair values are based on appraisals that consider the salesales prices of similar properties in the proximate vicinity less estimated selling costs. Foreclosed assets held for resale totaled $155,000$0 at December 31, 2018. One construction2020. In addition to three properties acquired in 2019, one rental real estate property was brought into foreclosed real estate in 20152020 with an aggregate fair value of $63,000. In addition, the fair value of $92,000 for foreclosed real estate at December 31, 2018, represented one$118,000. Two residential real estate single family homes, which was takenproperties were brought into foreclosed real estate in 2020 (including one acquired from FCBI) with an aggregate fair value of $481,000. At December 201. These31, 2020, all properties were being actively marketed and subsequently sold.had been settled. The total of $436,000$364,000 in foreclosed real estate at December 31, 2017,2019, represented the one constructiontwo commercial purpose real estate property,properties and one business, and tworesidential real estate single family homes.Management'sManagement’s analysis considers:borrower'sborrower’s ability to repay;management'smanagement’s assessment of national, regional, and local economic conditions; and,time.20182020 and the resulting allowance at December 31, 2018,2020, are appropriate given the continuing level of risk in the loan portfolio. Further, management believes the unallocated allowance is appropriate, because even though the impaired loans added since 20172019 demonstrate generally low risk due to adequate real estate collateral, the value of such collateral can decrease; plus, the growth in the loan portfolio is centered around commercial real estate which continues to have little increase in value and low liquidity. In addition, there are certain loans that, although they did not meet the criteria for impairment, management believes there was a strong possibility that these loans represented potential losses at December 31, 2018.2020. The amount of unallocated decreasedportion of the allowance increased at December 31, 20182020, as management concluded that the loan portfolio exhibited continued general improvementwould probably be impacted by a late 2020 resurgence of the COVID-19 virus that was not reflected in quantitative and qualitative measurements. Thismetrics used in the evaluation. Otherwise the assessment concluded that credit quality was stable, COVID-19 related charge offs were relatively low and past due loans manageable.portfolio.portfolio, but the large unanticipated charge-offs ($2,665,000) with increased risk form the impact of the COVID-19 crisis (an additional 20182020 was $1,620,000,$9,140,000, compared to $0$600,000 for 2017.2019. The decreaseincrease in the allowance for loan losses toas a percentage of total loans of 1.12%1.09% at December 31, 20172019 to 1.07%1.23% at December 31, 2018, is2020 was primarily related to the increased risk from the impact of the COVID-19 crisis and even with the decrease in non-acquired loans; such reduction did not necessarily reduce the risk in the portfolio in direct proportion. More specifically, as total loans increased from year-end 2019 and the provision expense increased year over year, the allowance for loan losses was derived with data that most existing impaired loans and specific allocations on those loans.Corporation'sCorporation’s allowance for loan losses and may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management'smanagement’s comprehensive analysis of the loan portfolio and economic conditions, management believes the current level of the allowance for loan losses is adequate.8—8 — Analysis of AllowanceAllowance for Loan Losses Years Ended December 31, Dollars in thousands 2020 2019 Beginning balance $ 13,835 $ 13,964 Provision for loan losses 9,140 600 Loans charged-off: Commercial, financial and agricultural 2,107 163 Commercial real estate and construction 675 78 Residential mortgage — 474 Consumer 205 202 Total Loans Charged-Off 2,987 917 Recoveries: Commercial, financial and agricultural 83 66 Commercial real estate and construction 96 10 Residential mortgage 30 49 Consumer 29 63 Total Recoveries 238 188 Net charge-offs 2,749 729 Ending balance $ 20,226 $ 13,835 Ratios: Net charge-offs to average loans 0.16 % 0.06 % Allowance for loan losses to total loans 1.23 % 1.09 % Years Ended
December 31, Dollars in thousands 2018 2017 $ 13,976 $ 14,194 1,620 — 934 181 33 — 678 141 165 139 1,810 461 36 21 103 141 32 62 7 19 178 243 1,632 218 $ 13,964 $ 13,976 0.13 % 0.02 % 1.07 % 1.12 % Table 9—9 — Allocation of the Allowance for Loan Losses 2020 2019 Dollars in thousands Amount Percent of Loan
Type to Total LoansAmount Percent of Loan
Type to Total LoansCommercial, financial and agricultural $ 4,037 19.5 % $ 2,400 11.7 % Real estate: Commercial 9,569 45.5 6,693 44.5 Construction 503 3.3 298 2.1 Residential 4,088 30.9 3,174 40.6 Consumer 648 0.8 650 1.1 Unallocated 1,381 N/A 620 N/A Total $ 20,226 100.0 % $ 13,835 100.0 % 2018 2017 Dollars in thousands Amount Percent of
Loan Type
to Total
Loans Amount Percent of
Loan Type
to Total
Loans $ 2,597 13.4 % $ 3,219 13.3 % 6,208 42.1 5,228 39.6 203 1.6 126 2.9 3,425 41.8 3,838 42.9 692 1.1 749 1.3 839 N/A 816 N/A $ 13,964 100.0 % $ 13,976 100.0 % 2018,2020, was $13,964,000,$20,226,000, or 1.07%1.23% of loans, as compared to $13,976,000,$13,835,000, or 1.12%1.09% of loans, at December 31, 2017.2019. The ratio of non-performing loans plus foreclosed assets to total assets was 0.42%0.31% at December 31, 2018,2020, as compared to 0.52%0.32% at December 31, 2017.$3,345,000$855,000 and nonaccrual loans were $3,417,000$7,041,000 as of December 31, 2018.2020. Loans past due 90 days and still accruing were $1,507,000$1,219,000 at December 31, 2017,2019, while nonaccruals were $6,355,000.Type of Loans Number of Loans Deferral Period Balance Percentage of Capital Commercial Purpose 38 Up to 6 months $ 35,464,419 13.75 % Consumer Purpose 10 Up to 6 months 658,736 0.26 48 $ 36,123,155 20182020 and 2017,2019, is as follows:Dollars in thousands Number of
Credit
RelationshipsBalance Current Specific
Loss AllocationsCurrent Year
Charge-OffsLocation Originated December 31, 2020 Owner occupied commercial real estate 9 $ 4,601 $ 124 $ — In market 2008-2019 Investment/rental residential real estate 3 410 34 — In market 2009-2016 Commercial and industrial 2 2,030 1,224 — In market 2008-2019 Total 14 $ 7,041 $ 1,382 $ — December 31, 2019 Owner occupied commercial real estate 6 $ 1,845 $ — $ — In market 2007-2014 Investment/rental residential real estate 3 2,009 — — In market 2009-2015 Commercial and industrial 1 65 42 — In market 2012 Total 10 $ 3,919 $ 42 $ — Dollars in thousands Number of
Credit
Relationships Balance Current Specific
Loss Allocations Current Year
Charge-Offs Location Originated 5 2,879 — 33 In market 1995-2011 2 538 — 376 In market 2008-2011 — — — 809 In market 2006-2015 7 $ 3,417 $ — $ 1,218
9 4,378 60 — In market 1995-2012 2 478 377 — In market 2003-2011 3 1,499 792 — In market 2006-2015 14 $ 6,355 $ 1,229 $ — informationdetail on the loans.northern Maryland. All nonaccrual impaired loans were originated by ACNB'sACNB’s banking subsidiary, except for onethree acquired loans and two participation loanloans discussed below, for purposes listed in the classifications in the table above.2018.and construction includes fivenine unrelated loan relationships, allrelationships. A $1,025,000 relationship in food service that was performing when acquired in 2017 was added in the first quarter of 2020 after becoming 90 days past due earlyexcept for a $2,088,000subsequently paid off the loan after forgiving and charging off $675,000. An $802,000 merger-acquired loan relationship for a retreatlight manufacturing enterprise which was performing when acquired is making payments post-bankruptcy filing. An unrelated $392,000 credit was added to this category in the second quarter of 2020 when ACNB was notified that property was scheduled for tax sale which has been suspended. The other loans in this category have balances of less than $422,000$249,000 each, for which the real estate is collateral and is used in connection with a business enterprise that is suffering economic stress or is out of business. The retreat property loan originated in 2008 was added to nonaccrual in the second quarter of 2017; it is current with modified terms and is supported by adequate collateral. One of two improved parcels is being actively marketed for sale. Another unrelated property loan added in the second quarter of 2017 is a $421,000 loan with modified terms and conditions originated in 2011 secured by historic real estate on which regular payments continue. The other loans in this category were originated between 19952008 and 20122014 and are business loans impacted by specific borrower credit situations. Most loans in this category are making principal payments.payments, one loan paid off in the fourth quarter. Collection efforts will continue unless it is deemed in the best interest of the Corporation to initiate foreclosure procedures. Loans that were removed2018 were the resultsthird quarter 2020) was added in the fourth quarter of customer payoffs2019 and one final settlements withhas been assigned a $33,000 loss that had been given a$118,000 specific allocation of $60,000 in 2017.twothree loan relationships totaling $538,000$410,000 for which the real estate is collateral and the purpose of which is for speculation, rental, or other non-owner occupied uses. One $437,000 loan in the process of foreclosure was added in the third quarter of 2018 and is considered adequately collateralized based on a current appraisal. One unrelated loan for approximately $100,000, in this category at April 2015, was stayed from further foreclosure action by a bankruptcy filing. A lending relationship removed in 2018 was the result of final bankruptcy court settlements with a $376,000 loss which was the specific allocation. All impaired commercial and industrial loans were settled by December 31, 2018. Previously included in impaired commercial and industrial loans was a participationsecond loan with standard terms and conditions including repayment from conversion of trade assets for a business in southcentral Pennsylvania in Chapter 11 bankruptcy that had a workout principal balance of $1.7 million, which was fully paid in 2018 after workout commencedadded in the third quarter of 2014.2019 involves settling an estate, there appears to be adequate collateral. An unrelated $868,000 commercial loan relationship in this category was a business affected by COVID-19, but continues to finance a subcontractmake payments.change ordersindustrial loan was settledadded in 2018the fourth quarter of 2020 after ceasing operations. Liquidation plans are underway with a $442,000 loss versus a $517,000 specific allocation madeof $1,207,000. A related $441,000 owner occupied real estate loan is also in 2017. A thirdnonaccrual. An unrelated commercial and industrial loan was settled by the bankruptcy courtat December 31, 2020 with a $367,000 loss versusbalance of $40,000 and a $274,000 specific allocation made in 2017 based on court-appointed appraisal of business assets.loan'sloan’s collateral fair value and expected cash flow. A watch list of loans is identified for evaluation based on internal and external loan grading and reviews. Loans other than those determined to be impaired are grouped into pools of loans with similar credit risk characteristics. These loans are evaluated as groups with allocations made to the allowance based on historical loss experience adjusted for current trends in delinquencies, trends in underwriting and oversight, concentrations of credit, and general economic conditions within the Corporation'sCorporation’s trading area. The provision expense was based on the loans discussed above, as well as current trends in the watch list and the local economy as a whole. The charge-offs discussed elsewhere in this Management'sManagement’s Discussion and Analysis create the recent loss history experience and result in the qualitative adjustment which, in turn, affects the calculation of losses inherent in the portfolio. The provision for loan losses of $1,620,000$9,140,000 for 20182020 and the lack of provision for loan losses of $600,000 for 2017,2019, was a result of the measurement of the adequacy of the allowance for loan losses at each period. The acquisition of NewWindsor loans at fair value did not require a provision expense. More specifically, with the manageable level of nonaccrual loans and with substandard loans decreasing in 2018, The $1,620,0002020, the $9,140,000 provision addition to the allowance was necessary in proportion to loan portfolio growth, net charge-offs and estimated loss from nonaccrual and substandard loans in accordance with management'smanagement’s belief that adequate collateralization generally exists for these loans in accordance with GAAP. Each quarter, the Corporation assesses risk in the loan portfolio compared with the balance in the allowance for loan losses and the current evaluation factors.2018.2020. A reduction of lease expense of $70,000 was recognized in 2017.2019. ACNB valued six buildings acquired from New Windsor at $8,624,000 at July 1, 2017.$155,000$0 on two at December 31, 2018, compared to $436,000 on fourno properties at December 31, 2017.2020, compared to $364,000 on three properties at December 31, 2019, which were sold in 2020. The decrease was mainly due to all three properties that were sold in 2018. An additional property was added in the fourth quarter 2018. Both properties owned at December 31, 2018 were subsequently sold.2020 being sold before year-end. All properties are actively marketed. The Corporation expects to obtain and market additional foreclosed assets in 2019;2021; however, the total amount and timing is currently not certain.decreased $1,354,000,increased $844,000, or 5.7%3.6%, in 20182020 compared to 2017,2019, in part due to the FCBI acquisition and normal variations in a number of non earning asset accounts.16.1%43.4%, or $184,161,000,$600,531,000, during 2018,2020, as compared to a 22.4%4.0% increase during 2017.2019 which was organic growth totaling $293,333,000. Deposits acquired from New WindsorFCBI totaled $293,333,000$374,058,000 on July 1, 2017. ACNB'sJanuary 11, 2020. Deposits increased after the first quarter of 2020 from PPP proceeds deposited to customer’s accounts and from increased balances in a broad base of accounts from lack of economic activity due to the COVID-19 event. Otherwise, deposits vary between quarters mostly reflecting different levels held by local government and school districts during different times of the year. ACNB’s deposit pricing function employs a disciplined pricing approach based upon alternative funding rates, but also strives to price deposits to be competitive with relevant local competition, including a local government investment trust, credit unions and larger regional banks. The 20182020 average deposit increase in part wasmainly due to FCBI acquisition and the COVID-19 event, but also local individual and business depositors continued to be attracted to strategically designed stable community bank time and non-interest bearing products. During 2020 deposit growth mix experienced a full year with New Windsor deposits. Products,shift to transaction accounts as customers put more value in liquidity and FDIC insurance. Previously products, such as money market accounts and interest-bearing transaction accounts were subject to heightened competition from larger banks. Year-end 20172019 to year-end 20182020 recorded an increase in deposits of $49,600,000,$773,265,000, or 3.8%54.8%, which was an indicator of organic growth. With heightened competition, ACNB'sACNB’s ability to maintain and add to its deposit base may be impacted by the reluctance of consumers to accept community banks'banks’ lower rates (as compared to Internet-based competition) and by larger competition willing to pay above market rates to attract market share. If rates rise rapidly, or when the equity markets are high, funds could leave the Corporation or be priced higher to maintain deposits.Table 10—10 — Time Deposits2018,2020, are summarized as follows:In thousands Three months or less $ 73,574 Over three through six months 14,650 Over six through twelve months 96,907 Over twelve months 54,431 Total $ 239,562 In thousands $ 25,236 15,707 62,088 63,090 $ 166,121 Borrowings2018,2020, short-term borrowings were $34,648,000, a decrease$38,464,000, an increase of $2,260,000,$5,029,000, or 6.1%15.0%, from the December 31, 2017,2019, balance of $36,908,000.$33,435,000. Agreements to repurchase accounts are within the commercial and local government customer base and have attributes similar to core deposits. Investment securities are pledged in sufficient amounts to collateralize these agreements. Compared to year-end 2017,2019, repurchase agreement balances were downup due to fluctuations in the business activitiesliquid assets of ACNB'sACNB’s commercial and local government customer base. At December 31, 2018,2020, there were $32,000$0 in short-term FHLB borrowings, as compared to $0 at December 31, 2019, this account is used or not used due to daily fluctuation in deposits and loans. Short-term FHLB borrowings are used to even out funding from seasonal and daily fluctuations in the deposit base. Long-term borrowings consist of longer-term advances from the FHLB that provides term funding of loan assets, and Corporate borrowings that were acquired or originated in regards to the acquisition of New Windsor.acquisitions. Long-term borrowings totaled $83,516,000$53,745,000 at December 31, 2018,2020, versus $94,600,000$66,296,000 at December 31, 2017.2019. The Corporation decreased long-term borrowings 11.7%18.9% from December 31, 2017.2019. A $2.3$4.6 million paymentloan was madepaid down to $1.3 million outstanding balance on a borrowing from a local bank wasthat had been made to fund the cash payment to shareholders of the New Windsor acquisition. $8.8RIG borrowed $1.0 million from a local bank at the end of the third quarter of 2018 to fund a book of business purchase. The balance of this loan was paid down to $0 at December 31, 2020. $16.5 million FHLB borrowings matured and were not renewed to balance earning assets and deposit changes. Laddered FHLB fixed-rate term advances were taken in 2018prior years to mature from 2021 to 20222023 to reduce netbalance liability sensitivity. In addition, $5 million and $8.7 million was subordinatedCorporation debt acquired from New Windsor.Windsor and FCBI, respectively. Further borrowings will be used when necessary for a variety of risk management and funding purposes. Please refer to theLiquidity discussion below for more information on the Corporation'sCorporation’s ability to borrow.Corporation'sCorporation’s short-term borrowings as of the dates indicated:In thousands 2020 2019 Short-term borrowings outstanding at end of year: FHLB overnight advance — — Securities sold under repurchase agreements 38,464 33,435 Total $ 38,464 $ 33,435 In thousands 2018 2017 32 — 34,616 36,908 $ 34,648 $ 36,908 Dollars in thousands 2020 2019 Average interest rate at year-end 0.12 % 0.12 % Maximum amount outstanding at any month-end $ 52,721 $ 41,509 Average amount outstanding $ 37,185 $ 31,229 Weighted average interest rate 0.12 % 0.15 % Dollars in thousands 2018 2017 0.12 % 0.12 % $ 45,785 $ 68,655 $ 33,944 $ 35,832 0.14 % 0.23 % Capital ACNB'sACNB’s capital management strategies have been developed to provide an appropriate rate of return, in the opinion of management, to stockholders,shareholders, while maintaining its "well capitalized"“well capitalized” regulatory position in relationship to its risk exposure. Total stockholders'shareholders’ equity was $168,137,000$257,972,000 at December 31, 2018,2020, compared to $153,966,000$189,516,000 at December 31, 2017. Stockholders'2019. Shareholders’ equity increased during 2018, a net result2020, primarily due to the equity consideration and issuance of earnings retained in capital during 2018, and new shares issued primarily from dividend reinvestment. In 2017 the FCBI acquisition.$28,620,000.$2,125,000 increase$215,000 decrease in accumulated other comprehensivecomprehensive loss waswas a result of a net decreaseincrease in the fair value of the investment portfolio and changes in the net funded position of the defined benefit pension plan.plan. Other comprehensive income or loss is mainly caused by fixed-rate investment securities gaining or losing value in different interest rate environments and changes in the net funded position of the defined benefit pension plan.2018,2020, ACNB retained $15,487,000,$9,709,000, or 71.2%52.8%, of its net income, as compared to $4,555,000,$16,801,000, or 46.5%70.8%, in 2017.2018, 153,2722020, 190,611 shares were issued under this plan. Proceeds are used for general corporate purposes.To date, 26,045As of December 31, 2020, there were 25,945 shares wereof common stock granted as restricted stock awards to employees of the subsidiary bank. The restricted stock plan expired by its own terms after 10 years on February 24, 2019, and no further shares may be issued under thisthe plan. Proceeds are used for general corporate purposes.20182020 and 2017,2019, that ACNB'sACNB’s banking subsidiary met all minimum capital adequacy requirements to which it is subject and is categorized as "well capitalized"“well capitalized” for regulatory purposes. There are no subsequent conditions or events that management believes have changed the banking subsidiary'ssubsidiary’s category.organization'sorganization’s common equity Tier 1 capital. The final rules allow community banks to make a one-time election not to include these additional components of AOCI in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. The opt-out election must be made in the first call report or FR Y-9 series report that is filed after the financial institution becomes subject to the final rule. The Corporation elected to opt-out. ACNB Corporation does not have trust preferred securities or cumulative perpetual preferred stock with no plans to add these to the capital structure.has assessed the impact of these changes to thecalculated regulatory capital ratios as of the CorporationDecember 31, 2020, and ACNB Bankconfirmed no material impact on the capital, operations, liquidity and earnings of the Corporation and ACNB Bank, and concluded that the new rules will not have a material negative effect.banking subsidiary from the changes in the regulations.11—11 — Risk-Based Capitalsubsidiary'ssubsidiary’s capital ratios are as follows:2020 2019 To be Well
Capitalized under
Prompt Corrective
Action RegulationsTier 1 leverage ratio (to average assets) 9.01 % 9.44 % 5.00 % Common Tier 1 capital (to risk-weighted assets) 13.86 % 12.89 % 6.50 % Tier 1 risk-based capital ratio (to risk-weighted assets) 13.86 % 12.89 % 8.00 % Total risk-based capital ratio 15.10 % 14.07 % 10.00 % 2018 2017 To be Well
Capitalized under
Prompt
Corrective
Action Regulations 9.44 % 8.70 % 5.00 % 12.89 % 12.34 % 6.50 % 12.89 % 12.34 % 8.00 % 14.07 % 13.58 % 10.00 % N—"N — “Stockholders’ Equity and Regulatory Matters"Matters” in the Notes to Consolidated Financial Statements. ACNB's2018, ACNB2020, ACNB’s banking subsidiary could borrow approximately $685,765,000$847,881,000 from the FHLB of which $588,734,000$791,915,000 was available. Because of various restrictions and requirements on utilizing the available balance, ACNB considers $417,000,000$580,000,000 to be the practicable additional borrowing capacity, which is considered to be sufficient for operational needs. The FHLB system is self-capitalizing, member-owned, and its member banks'banks’ stock is not publicly traded. ACNB creates its borrowing capacity with the FHLB by granting a security interest in certain loan assets with requisite credit quality. ACNB has reviewed information on the FHLB system and the FHLB of Pittsburgh, and has concluded that they have the capacity and intent to continue to provide both operational and contingency liquidity. The FHLB of Pittsburgh instituted a requirement that a member'smember’s investment securities must be moved into a safekeeping account under FHLB control to be considered in the calculation of maximum borrowing capacity. The Corporation currently has securities in safekeeping at the FHLB of Pittsburgh; however, the safekeeping account is under the Corporation'sCorporation’s control. As better contingent liquidity is maintained by keeping the securities under the Corporation'sCorporation’s control, the Corporation has not moved the securities which, in effect, lowered the Corporation'sCorporation’s maximum borrowing capacity. However, there is no practical reduction in borrowing capacity as the securities can be moved into the FHLB-controlled account promptly if they are needed for borrowing purposes.ACNB'sACNB’s banking subsidiary totaling $34,616,000$38,464,000 and $36,908,000$33,435,000 at December 31, 20182020 and 2017,2019, respectively. These agreements vary in balance according to the cash flow needs of customers and competing accounts at other financial organizations.company'scompany’s cash outflows consist principally of dividends to stockholdersshareholders 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 subsidiaryACNB'sACNB’s dividend restrictions, please refer to Item 1—"Business"1 — “Business” and Note J—"RegulatoryJ — “Regulatory Restrictions on Dividends"Dividends” in the Notes to Consolidated Financial Statements.2018,2020, the Corporation had unfunded outstanding commitments to extend credit of $279,729,000$367,561,000 and outstanding standby letters of credit of $3,909,000.$8,105,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. Please refer to Note O—"FinancialO — “Financial Instruments with Off-balance Sheet Risk"Risk” in the Notes to Consolidated Financial Statements for a discussion of the nature, business purpose, and importance of the Corporation'sCorporation’s off-balance sheet arrangements.A—"SummaryA — “Summary of Significant Accounting Policies"Policies” in the Notes to Consolidated Financial Statements for a summary of these new accounting pronouncements not yet adopted.PagePage consolidated statementstatements of condition of ACNB Corporation and Subsidiaries (the Company) as of December 31, 2018,2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders'stockholders’ equity and cash flows for the yearyears then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ACNB Corporation and Subsidiariesthe Company as of December 31, 2018,2020 and 2019, and the results of theirits operations and theirits cash flows for the yearyears then ended, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 8, 2019 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.auditaudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion./s/ RSM US LLPBlue Bell,8, 20195, 2021Report of Independent Registered Public Accounting FirmStockholders and Board of DirectorsACNB CorporationGettysburg, PennsylvaniaOpinion on the Consolidated Financial Statements We have audited the accompanying consolidated statement of condition of ACNB Corporation (the Corporation) as of December 31, 2017, the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.Basis for Opinion These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the Corporation's consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risk of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion./s/ BDO USA, LLPWe served as the Corporation's auditor from 2013 to 2018.Harrisburg, PennsylvaniaMarch 9, 2018 December 31, Dollars in thousands,
except per share data2020 2019 ASSETS Cash and due from banks $ 23,739 $ 16,878 Interest bearing deposits with banks 375,613 97,478 Total Cash and Cash Equivalents 399,352 114,356 Equity securities with readily determinable fair values 2,170 2,106 Debt securities available for sale 337,718 190,837 Securities held to maturity, fair value $10,768; $19,281 10,294 19,234 Loans held for sale 11,034 2,406 Loans, net of allowance for loan losses $20,226; $13,835 1,617,558 1,258,766 Premises and equipment 33,013 25,724 Right of use assets 3,145 3,502 Restricted investment in bank stocks 2,942 3,644 Investment in bank-owned life insurance 63,401 50,663 Investments in low-income housing partnerships 1,380 1,506 Goodwill 42,108 19,580 Intangible assets 7,265 4,427 Foreclosed assets held for resale 0 364 Other assets 23,982 23,138 Total Assets $ 2,555,362 $ 1,720,253 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits: Non-interest bearing $ 556,666 $ 314,377 Interest bearing 1,628,859 1,097,883 Total Deposits 2,185,525 1,412,260 Short-term borrowings 38,464 33,435 Long-term borrowings 53,745 66,296 Lease liabilities 3,138 3,502 Other liabilities 16,518 15,244 Total Liabilities 2,297,390 1,530,737 STOCKHOLDERS’ EQUITY Preferred stock, $2.50 par value; 20,000,000 shares authorized; 0 shares outstanding 0 0 Common stock, $2.50 par value; 20,000,000 shares authorized; 8,771,993 and 7,141,959 shares issued; 8,709,393 and 7,079,359 shares outstanding 21,918 17,855 Treasury stock, at cost (62,600 shares) (728) (728) Additional paid-in capital 94,048 39,579 Retained earnings 148,372 138,663 Accumulated other comprehensive loss (5,638) (5,853) Total Stockholders’ Equity 257,972 189,516 Total Liabilities and Stockholders’ Equity $ 2,555,362 $ 1,720,253 December 31, Dollars in thousands,
except per share data 2018 2017 $ 20,105 $ 19,304 20,800 15,137 40,905 34,441 1,839 1,784 161,730 157,267 27,266 44,829 408 1,736 1,288,501 1,230,194 26,409 26,774 4,336 4,773 48,003 44,935 1,871 2,446 19,580 19,580 4,407 2,569 155 436 22,314 23,668 $ 1,647,724 $ 1,595,432
$ 302,394 $ 279,413 1,045,698 1,019,079 1,348,092 1,298,492 34,648 36,908 83,516 94,600 13,331 11,466 1,479,587 1,441,466 — — 17,772 17,716 (728 ) (728 ) 38,448 37,777 121,862 106,293 (9,217 ) (7,092 ) 168,137 153,966 $ 1,647,724 $ 1,595,432 Years Ended December 31, Dollars in thousands,
except per share data2020 2019 INTEREST AND DIVIDEND INCOME Loans, including fees $ 78,967 $ 63,653 Securities: Taxable 4,927 4,183 Tax-exempt 470 140 Dividends 311 328 Other 615 1,254 Total Interest Income 85,290 69,558 INTEREST EXPENSE Deposits 10,318 8,129 Short-term borrowings 59 94 Long-term borrowings 1,845 1,917 Total Interest Expense 12,222 10,140 Net Interest Income 73,068 59,418 PROVISION FOR LOAN LOSSES 9,140 600 Net Interest Income after Provision for Loan Losses 63,928 58,818 OTHER INCOME Commissions from insurance sales 6,125 6,339 Service charges on deposit accounts 3,355 3,903 Income from fiduciary, investment management and brokerage activities 2,672 2,469 Income from mortgage loans held for sale 2,331 697 Earnings on investment in bank-owned life insurance 1,442 1,160 Net (losses) gains on equity securities (193) 267 Service charges on ATM and debit card transactions 2,946 2,444 Other 1,256 890 Total Other Income 19,934 18,169 OTHER EXPENSES Salaries and employee benefits 35,278 28,798 Net occupancy 3,681 3,094 Equipment 5,442 4,771 Other tax 1,208 1,086 Professional services 1,417 1,772 Supplies and postage 745 747 Marketing and corporate relations 561 559 FDIC and regulatory 616 436 Merger related expenses 5,965 769 Intangible assets amortization 1,264 621 Foreclosed real estate expenses (156) 12 Other operating 5,139 4,956 Total Other Expenses 61,160 47,621 Income Before Income Taxes 22,702 29,366 PROVISION FOR INCOME TAXES 4,308 5,645 Net Income $ 18,394 $ 23,721 PER SHARE DATA Basic earnings $ 2.13 $ 3.36 Cash dividends declared $ 1.00 $ 0.98 Years Ended
December 31, Dollars in thousands,
except per share data 2018 2017 $ 59,593 $ 47,522 3,735 3,389 219 428 299 252 648 194 64,494 51,785 5,253 3,547 59 83 2,087 1,803 7,399 5,433 57,095 46,352 1,620 — 55,475 46,352 3,350 2,940 2,364 2,012 1,068 1,075 52 — 85 — (296 ) — 2,375 1,762 5,550 5,024 1,400 1,336 15,948 14,149 26,734 24,654 2,971 2,403 4,959 3,757 902 791 1,468 1,134 766 731 565 433 688 644 — 4,728 745 537 129 93 4,776 4,174 44,703 44,079 26,720 16,422 4,972 6,634 $ 21,748 $ 9,788 $ 3.09 $ 1.50 $ 0.89 $ 0.80 Years Ended
December 31, In thousands 2018 2017 $ 21,748 $ 9,788
(537
)
(609
)
(157
)
—
400
440
(1,831
)
284 (2,125 ) 115 $ 19,623 $ 9,903 Years Ended December 31, In thousands 2020 2019 NET INCOME $ 18,394 $ 23,721 OTHER COMPREHENSIVE INCOME (LOSS) SECURITIES Unrealized gains arising during the period, net of income taxes of $960 and $849, respectively 3,384 2,912 Reclassification adjustment for net gains included in net income, net of income taxes of $0 and $0, respectively (A) (C) 0 0 PENSION Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $151 and $155, respectively (B) (C) 524 657 Unrecognized net loss, net of income taxes of $(1,055) and $(19), respectively (C) (3,693) (205) TOTAL OTHER COMPREHENSIVE INCOME 215 3,364 TOTAL COMPREHENSIVE INCOME $ 18,609 $ 27,085 STOCKHOLDERS'STOCKHOLDERS’ EQUITY20182020 and 2017Dollars in thousands Common
StockTreasury
StockAdditional
Paid-in
CapitalRetained
EarningsAccumulated
Other
Comprehensive
Income (Loss)Total
Stockholders’
EquityBALANCE—January 1, 2019 $ 17,772 $ (728) $ 38,448 $ 121,862 $ (9,217) $ 168,137 Net income — — — 23,721 — 23,721 Other comprehensive income, net of taxes — — — — 3,364 3,364 Common stock shares issued (17,324 shares) 44 — 457 — — 501 Restricted stock grants (16,115 shares) 39 — 352 — — 391 Restricted stock compensation expense — — 322 — — 322 Cash dividends declared — — — (6,920) — (6,920) BALANCE—December 31, 2019 17,855 (728) 39,579 138,663 (5,853) 189,516 Net income — — — 18,394 — 18,394 Other comprehensive income, net of taxes — — — — 215 215 Common stock shares issued (1,610,562 shares) 4,014 — 53,759 — — 57,773 Restricted stock grants (19,472 shares) 49 — 282 — — 331 Restricted stock compensation expense — — 428 — — 428 Cash dividends declared — — — (8,685) — (8,685) BALANCE—December 31, 2020 $ 21,918 $ (728) $ 94,048 $ 148,372 $ (5,638) $ 257,972 Dollars in thousands Common
Stock Treasury
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Stockholders'
Equity $ 15,317 $ (728 ) $ 10,941 $ 100,555 $ (6,024 ) $ 120,061 — — — 9,788 — 9,788 — — — — 115 115 — — — 1,183 (1,183 ) — 2,384 — 26,598 — — 28,982 15 — 105 — — 120 — — 133 — — 133 — — — (5,233 ) — (5,233 ) 17,716 (728 ) 37,777 106,293 (7,092 ) 153,966 — — — 21,748 — 21,748 — — — — (2,043 ) (2,043 ) — — — 82 (82 ) — 39 — 489 — — 528 17 — (4 ) — — 13 — — 186 — — 186 — — — (6,261 ) — (6,261 ) $ 17,772 $ (728 ) $ 38,448 $ 121,862 $ (9,217 ) $ 168,137 Years Ended December 31, In thousands 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 18,394 $ 23,721 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sales of loans originated for sale (2,331) (697) Gain on sales of foreclosed assets held for resale, including writedowns (55) (87) Earnings on investment in bank-owned life insurance (1,442) (1,160) Loss (gain) on equity securities 193 (267) Restricted stock compensation expense 428 322 Depreciation and amortization 3,651 2,696 Provision for loan losses 9,140 600 Net amortization of investment securities premiums 931 339 (Increase) decrease in accrued interest receivable (1,624) 177 (Decrease) increase in accrued interest payable (1,381) 1,312 Mortgage loans originated for sale (139,055) (41,389) Proceeds from sales of loans originated for sale 136,808 40,088 Decrease (increase) in other assets 7,270 (1,280) (Increase) decrease in deferred tax expense (1,038) 120 (Decrease) increase in other liabilities (4,419) 1,228 Net Cash Provided by Operating Activities 25,470 25,723 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities held to maturity 8,940 8,032 Proceeds from maturities of investment securities available for sale 96,474 19,152 Purchase of investment securities available for sale (218,032) (44,837) Purchase of equity securities 0 (500) Redemption of restricted investment in bank stocks 1,843 692 Net (increase) decrease in loans (38,755) 28,723 Purchase of bank-owned life insurance (400) (1,500) Bank acquisition, net of cash acquired 35,262 0 Insurance book- acquisition (542) (640) Capital expenditures (1,048) (1,424) Proceeds from sale of premises and equipment 392 33 Proceeds from sale of foreclosed real estate 1,018 290 Net Cash (Used in) Provided by Investing Activities (114,848) 8,021 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits 138,797 11,983 Net increase in time certificates of deposits and interest bearing deposits 260,410 52,185 Net increase (decrease) in short-term borrowings 5,029 (1,213) Proceeds from long-term borrowings 0 7,000 Repayments on long-term borrowings (22,001) (24,220) Dividends paid (8,685) (6,920) Common stock issued 824 892 Net Cash Provided by Financing Activities 374,374 39,707 Net Increase in Cash and Cash Equivalents 284,996 73,451 CASH AND CASH EQUIVALENTS — BEGINNING 114,356 40,905 CASH AND CASH EQUIVALENTS — ENDING $ 399,352 $ 114,356 Supplemental disclosures of cash flow information Interest paid $ 13,603 $ 8,828 Income taxes paid $ 5,900 $ 5,200 Loans transferred to foreclosed assets held for resale and other foreclosed transactions $ 135 $ 412 Transactions related to acquisition Increase in assets and liabilities: Securities $ (22,167) $ 0 Loans (333,362) 0 Premises and equipment (10,959) 0 Investment in bank-owned life insurance (10,896) 0 Restricted investments in bank stocks (1,141) 0 Foreclosed assets held for resale (464) 0 Goodwill (22,528) 0 Core deposit intangible assets (3,560) 0 Other assets (3,086) 0 Non-interest bearing deposits 103,492 0 Interest bearing deposits 270,566 0 Trust preferred debentures 6,000 0 Long term borrowings 3,450 0 Other liabilities 2,637 0 Common shares issued 57 0 Years Ended
December 31, In thousands 2018 2017 $ 21,748 $ 9,788 (542 ) (506 ) 1 (28 ) (1,068 ) (1,075 ) (85 ) — 296 — 186 133 2,853 2,292 1,620 — 465 518 (875 ) (512 ) 201 326 (32,436 ) (27,426 ) 34,306 27,965 2,502 3,014 557 1,711 (185 ) 807 29,544 17,007 17,558 10,680 17,925 34,404 15,566 — (39,129 ) (30,136 ) 437 (88 ) (60,254 ) (71,830 ) (2,000 ) — — 6,444 (2,583 ) — (1,743 ) (1,757 ) — 6 607 324 (53,616 ) (51,953 ) 22,981 18,814 26,619 18,725 (2,260 ) 2,318 17,716 29,600 (28,800 ) (14,250 ) (6,261 ) (5,233 ) 541 482 30,536 50,456 6,464 15,510 34,441 18,931 $ 40,905 $ 34,441 $ 7,198 $ 5,107 $ 4,600 $ 3,850 $ 327 $ 265 $ — $ (21,624 ) — (264,913 ) — (8,624 ) — (3,118 ) — (336 ) — (211 ) — (13,272 ) — (2,418 ) — (7,463 ) — 80,006 — 213,327 — 4,688 — 1,782 A—A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIEStwenty-twoNaN community banking office locations in Adams, Cumberland, Franklin, and York Counties, Pennsylvania. There isare also a loan production officeoffices situated in Lancaster and York, County, Pennsylvania, as well as another loan production office inand Hunt Valley, Maryland.effective July 25, 2018."NWSB“NWSB Bank, A Division of ACNB Bank"Bank” and serves its marketplace with banking and wealth management services via a network of seven7 community banking offices located in Carroll County, Maryland. RIG isfull-service insurance agency basedwholly-owned subsidiary of ACNB Corporation immediately followed by the merger of Frederick County Bank with and into ACNB Bank. ACNB Bank now operates in Westminster,the Frederick County, Maryland, market as “FCB Bank, A Division of ACNB Bank” and serves its marketplace with additional locationsbanking and wealth management services via a network of 5 community banking offices located in Germantown, Maryland, and Jarrettsville,Frederick County, Maryland. Further discussion of the risk factors involved with the merger of FCBI into the Corporation can be found in Part I, Item 1A–Risk Factors.agency offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients. The Corporation'sCorporation’s primary sourcesources of revenue isare interest income on loans and investment securities and fee income on its products and services. Expenses consist of interest expense on deposits and borrowed funds, provisions for loan losses, and other operating expenses.Corporation'sCorporation’s Wealth Management Department, including trust and retail brokerage, in an agency, fiduciary or retail brokerage capacity for its customers are excluded from the consolidated financial statements since they do not constitute assets of the Corporation. Assets held by the Wealth Management Department amounted to $342,000,000$436,700,000 and $327,000,000$389,000,000 at December 31, 20182020 and 2017,2019, respectively. Income from fiduciary, investment management and brokerage activities are included in other income.2018,2020, 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.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s activities are with customers located within southcentral Pennsylvania and northern Maryland. Note C discusses the types of securities in which the Corporation invests. Note D discusses the types of lending in which the Corporation engages. Included in commercial real estate loans are loans made to lessors of non-residential dwellings that total $287,030,000,$358,663,000, or 22.0%21.9%, of total loans at December 31, 2018.2020. These borrowers are geographically disbursed throughout ACNB'sACNB’s marketplace and are leasing commercial properties to a varied group of tenants including medical offices, retail space and recreational facilities. Because of the varied nature of the tenants in aggregate, management believes that these loans do not present any greater risk than commercial loans in general."held“held to maturity"maturity” and recorded at amortized cost. Debt securities not classified as held to maturity or trading are classified as "available“available for sale"sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in other comprehensive income (loss). As of January 1, 2018, equityEquity securities with readily determined fair values are recorded at fair value with changes in fair value recognized in net income. Prior to 2018, fair value changes were reported, net of tax, in other comprehensive income (loss).management'smanagement’s intention and ability to hold the securities until recovery of unrealized losses. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s debtors to honor their contracts is dependent upon the real estate values and general economic conditions in this area."allowance"“allowance”) is established as losses are estimated to occur through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The reserve for unfunded lending commitments represents management'smanagement’s estimate of losses inherent in its unfunded loan commitments and is recorded in other liabilities on the consolidated statement of condition. The amount of the reserve for unfunded lending commitments is not material to the consolidated financial statements.management'smanagement’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower'sborrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)management'smanagement’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.management'smanagement’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. It covers risks that are inherently difficult to quantify including, but not limited to, collateral risk, information risk, and historical charge-off risk.borrower'sborrower’s prior payment record, and theloan'sloan’s effective interest rate, the loan'sloan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s impaired loans are measured based on the estimated fair value of the loan'sloan’s collateral or the discounted cash flows method.borrower'sborrower’s financial statements, inventory reports, accounts receivable aging reports, equipment appraisals, or invoices. Indications of value from these sources are generally discounted based on the age of the financial information or the quality of the assets.loan'sloan’s stated maturity date. Nonaccrual troubled debt restructurings may be restored to accrual status if principal and interest payments, under the modified terms, are current for a sustained period of time and, based on a well-documented credit evaluation of the borrower'sborrower’s financial condition, there is reasonable assurance of repayment. Loans classified as troubled debt restructurings are generally designated as impaired.borrower'sborrower’s overall financial condition, repayment sources, guarantors, and value of collateral, if appropriate, are generally evaluated annually for commercial loans or when credit deficiencies arise, such as delinquent loan payments.management'smanagement’s close attention. If uncorrected, the potential weaknesses may result in deterioration ofNOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s allowance for loan losses and may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management. Based on management'smanagement’s comprehensive analysis of the loan portfolio and economic conditions, management believes the current level of the allowance for loan losses is adequate.borrower'sborrower’s character and capacity to repay the loan, the adequacy of the borrower'sborrower’s capital and collateral, as well as the conditions affecting the borrower. Evaluation of the borrower'sborrower’s past, present and future cash flows is also an important aspect of the Corporation'sCorporation’s analysis.Corporation'sCorporation’s commercial loan portfolio is secured primarily by commercial retail space, office buildings, and hotels. Generally, commercial real estate loans have terms that do not exceed 20 years, have loan-to-value ratios of up to 80% of the appraised value of the property, and are typically secured by personal guarantees of the borrowers.borrower'sborrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Corporation are performed by independent appraisers.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s commercial real estate construction lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.Corporation'sCorporation’s commercial real estate construction loans are generally secured with the subject property. Terms of construction loans depend on the specifics of the project, such as estimated absorption rates, estimated time to complete, etc.borrower'sborrower’s credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate construction loans originated by the Corporation are performed by independent appraisers.Corporation'sCorporation’s marketing efforts, its present customers, walk-in customers, and referrals. These loans originate primarily within the Corporation'sCorporation’s market area or with customers primarily from the market area.Corporation'sCorporation’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas. The majority of the Corporation'sCorporation’s residential mortgage loans originate with a loan-to-value of 80% or less. Loans in excess of 80% are required to have private mortgage insurance.borrower'sborrower’s financial ability to repay the loan as agreed and the value of the property securing the loan. Properties securing real estate loans made by the Corporation are appraised by independent appraisers. The Corporation generally requires borrowers to obtain an attorney'sattorney’s title opinion or title insurance, as well as fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan. The Corporation has not engaged in subprime residential mortgage originations.Corporation'sCorporation’s market area or with customers primarily from the market area. Home equity lines of credit are generated by the Corporation'sCorporation’s marketing efforts, its present customers, walk-in customers, and referrals.borrower'sborrower’s primary residence with a maximum loan-to-value of 90% and a maximum term of 20 years. In underwriting home equity lines of credit, the Corporation evaluates both the value of the property securing the loan and the borrower'sborrower’s financial ability to repay the loan as agreed. The ability to repay is determined by the borrower'sborrower’s employment history, current financial condition, and credit background.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)are subject topresent a moderate level of risk due primarily to general economic conditions, as well as a continued weak housing market.Corporation'sCorporation’s market area or with customers primarily from the market area.borrower'sborrower’s financial ability to repay the loan as agreed is performed. The ability to repay is determined by the borrower'sborrower’s employment history, current financial condition, and credit background.borrower'sborrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s senior lending management reviewed the accounting seller'sseller’s loan portfolio on a loan by loan basis to determine if any loans met the two-part definition of an impaired loan as defined by ASC 310-30: 1) Credit deterioration on the loan from its inception until the acquisition date, and 2) It is probable that not all of the contractual cash flows will be collected on the loan.loan'sloan’s acquisition date fair value and will be recognized over the life of the loan on a level-yield basis as a component of interest income.loan'sloan’s remaining life.$731,000.$4.5$5.9 million was determined. Both the interest rate and credit fair value adjustments relate to loans acquired with evidence of credit quality deterioration will be substantially recognized as interest income on a level yield amortization method over the expected life of the loans.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)assets'assets’ estimated useful lives. Normally, a buildings useful life is 40 years, except for building remodels and additions, which are depreciated over fifteen years. Bank equipment, including furniture and fixtures, is normally depreciated over five-fifteenfive - fifteen years depending upon the nature of the purchase. Maintenance and normal repairs are charged to expense when incurred while major additions and improvements are capitalized. Gains and losses on disposals are reflected in current operations. Amortization of leasehold improvements is computed by straight line over the shorter of the assets'assets’ useful life or the related lease term.20182020 and 2017,2019, and consists of common stock in the Atlantic Central Bankers Bank, Maryland Financial Bank, Community Bankers Bank and Federal Home Loan Bank (FHLB). Management's Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the correspondent bank as compared to the capital stock amount for the correspondent bank and the length of time this situation has persisted, (2) commitments by the correspondent bank to make payments required by law or regulation and the level of such payments in relation to the operating performance of the correspondent bank, (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the correspondent bank, and (4) the liquidity position of the correspondent bank.20182020 or 2017.2019. However, security impairment analysis is completed quarterly, and the determination that no impairment has occurred during those years is no assurance that impairment may not occur in future periods.Corporation'sCorporation’s banking subsidiary maintains nonqualified compensation plans for selected senior officers. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the nonqualified retirement plans. Investment in bank-owned life insurance policies was used to finance the nonqualified compensation plans and provide tax-exempt income to the Corporation.participants'participants’ employment or retirement. The required accrued liability is based on either the post-employment benefit cost for continuing life insurance or based on the future death benefit depending on the contractual terms of the underlying agreement. The Corporation'sCorporation’s liability is based on the post-employment benefit cost for continuing life insurance. The Corporation incurred approximately $95,000$139,000 and $96,000$161,000 of expense in 20182020 and 2017,2019, respectively, related to these benefits.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Corporation'sCorporation’s investments in low-income housing partnerships are accounted for using the "equity method"“equity method” prescribed by ASC Topic 323,Investments—Investments — Equity Method. In accordance with ASC Topic 740,Income Taxes, tax credits are recognized as they become available. Any residual loss is amortized as the tax credits are received.RIG'sRIG’s outstanding goodwill from its most recent testing, which was performed as of October 1, 2018. A2020. The Corporation did not identify any impairment on the Bank’s outstanding goodwill from its most recent qualitative assessment, on the Bank's outstanding goodwill, resulting from the 2017 New Windsor acquisition,which was performed on June 30th which showed no impairment. Subsequent to that evaluation, ACNB concluded that it would be preferable to evaluate goodwill at December 31st. This date was preferable from the June 30th measurement as events happening nearer to year-end could be factored in if necessary. The second evaluation completed as of December 31, 2018, again revealed no impairment and it was agreed to continue to evaluate goodwill for the Bank at December 31st.2020. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. Other acquired intangible assets that have finite lives, such as core deposit intangibles, customer relationship intangibles and renewal lists, are amortized over their estimated useful lives and subject to periodic impairment testing. Core deposit intangibles are primarily amortized over ten years using accelerated methods. Customer renewal lists are amortized using the straight line method over their estimated useful lives which range from eight to fifteen years.$92,000$83,000 of the $155,000$364,000 outstanding foreclosed asset balance held at December 31, 20182019 represent residential real estate properties.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)management'smanagement’s judgment.employee'semployee’s pension benefit is recognized on the projected unit credit method over the employee'semployee’s approximate service period. The aggregate cost method is utilized for funding purposes.has a2009 Restricted Stock plan availableexpired by its own terms after 10 years on February 24, 2019. The purpose of this plan was to selected officersprovide employees and employeesdirectors of the Bank to advance the best interest of ACNB Corporation and its shareholders. The plan provides those persons who have responsibility for its growth with additional incentiveincentives by allowing them to acquire an ownership in ACNBthe Corporation and, thereby, encouraging them to contribute to the success of the Corporation. As of December 31, 2020, 25,945 shares were issued under the plan and all shares are fully vested. No further shares may be issued under this restricted stock plan. The Corporation’s Registration Statement under the Securities Act of 1933 on Form S-8 for the ACNB Corporation 2009 Restricted Stock Plan was filed with the Securities and Exchange Commission on January 4, 2013. Post-Effective Amendment No. 1 to this Form S-8 was filed with the Commission on March 8, 2019, effectively transferring the 174,055 authorized, but not issued, shares under the ACNB Corporation 2009 Restricted Stock Plan to the ACNB Corporation 2018 Omnibus Stock Incentive Plan.the plan. To date, 26,045 shares were issued under this plan, which resulted in $186,000both plans. $517,000 and $133,000$495,000 of compensation expenseexpenses related to the grants were recognized for the years ended December 31, 20182020 and 2017,2019, respectively. Of the 26,045 shares issued under the plan, 19,485 shares are fully vested and 6,560 will vest over the next two years.7,035,8188,638,654 and 6,543,7567,061,524 weighted average shares of common stock outstanding for 20182020 and 2017,2019, respectively. All outstanding unvested restricted stock awards that contain rights to nonforfeitable dividends are considered participating for this calculation.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)In thousands Unrealized Gains on
SecuritiesPension
LiabilityAccumulated
Other
Comprehensive
LossBALANCE — DECEMBER 31, 2020 $ 4,645 $ (10,283) $ (5,638) BALANCE — DECEMBER 31, 2019 $ 1,261 $ (7,114) $ (5,853) In thousands Unrealized
Losses on
Securities Pension
Liability Accumulated
Other
Comprehensive
Loss $ (1,651 ) $ (7,566 ) $ (9,217 ) $ (957 ) $ (6,135 ) $ (7,092 ) S—"SegmentS — “Segment and Related Information"Information” for a discussion of insurance operations.2018,2019, the Corporation adopted ASU 2014-09,Revenue from Contracts with Customers,2016-02, Leases, and all subsequent amendments to the ASU (collectively "ASC 606"“Topic 842”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation's revenue comes from interest income, including loansNOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)and securities, that are outside the scope of ASC 606. The Corporation's services that fall within the scope of ASC 606 are presented within other income on the consolidated statement of income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposit accounts, service charges on ATM and debit card transactions, income from fiduciary, investment management and brokerage activities and commissions from insurance sales. ASC 606 did not result in a change to the accounting for any in-scope revenue streams; as such, no cumulative effect adjustment was recorded. On January 1, 2018, the Corporation adopted ASU 2016-01,Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amended the guidance on the classification and measurement of financial instruments. Upon adoption of ASU 2016-01, the Corporation recognized the equity securities fair value change in net income. Previously, the fair value changes were recognized, net of tax, in other comprehensive income (loss). The adoption of this ASU did not have a material effect on the Corporation's consolidated financial condition or results of operations. The Corporation early adopted ASU 2017-04,Simplifying the Test for Goodwill Impairment. The ASU eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Impairment losses on goodwill cannot be reversed once recognized. An entity may still perform the option qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. However, the ASU eliminates the requirement to perform a qualitative assessment for any reporting unit with a zero or negative carrying amount. Therefore, the same one-step impairment assessment will apply to all reporting units. However, for a reporting unit with a zero or negative carrying amount, the ASU adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included. The amendments in this ASU would be effective with their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this ASU did not have a material effect on the Corporation's consolidated financial condition or results of operations.ASU 2016-02, ASU 2018-10 and ASU 2018-11 In February 2016, the FASB issued ASU 2016-02,Leases.lessee'slessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will beare classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn't convey risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ANOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued ASU 2018-10,Codification Improvements to Topic 842, Leases. In this ASU, FASB corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the leases standard. The amendment targets 16 issues:•residual value guarantees;•rate implicit in the lease;•lessee reassessment of lease classification;•lessor reassessment of lease term and purchase option;•variable lease payments that depend on an index or a rate;•investment tax credits;•lease term and purchase option;•transition guidance for amounts previously recognized in business combinations;•recognition of certain transition adjustments in earnings rather than equity;•transition guidance for leases previously classified as capital leases under Topic 840;•transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840;•transition guidance for sale and leaseback transactions;•impairment of net investment in the lease;•unguaranteed residual asset;•effect of initial direct costs on rate implicit in the lease; and,•failed sale and leaseback transaction. The effective date and transition requirements are consistent with ASU 2016-02. For entities that have early adopted Topic 842 issued in ASU 2016-02, the amendments are effective upon issuance. In July 2018, the FASB issued ASU 2018-11,Leases (Topic 842): Targeted Improvements. The ASU provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflectreflects the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will beare reported under the previous guidance in Topic 840. Also, The Corporation recorded a $4 million right-of-use asset and lease liability, which represents all of its operating lease commitments, based on the present value of committed lease payments. The ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02,lessorsthe Corporation to elect, by class of underlying asset, to not separate nonlease components from the associated lease component when specified conditions are met. Examples of nonlease components include equipment maintenance services, common area maintenance services in real estate, or other goods or servicesNOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The effective date and transition requirements for lessors electing the practical expedient for separating components of a contract are the same as the requirements for Topic 842 issued in ASU 2016-02. For entities that have early adopted Topic 842, the ASU provides specific transition guidance for lessors electing the practical expedient. The Corporation intends on adopting the ASU under the optional transition method, where only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840. The Corporation estimates recording a $4 million right-of-use asset and lease liability, which represents all of its operating lease commitments, based on the present value of committed lease payments as of the adoption date. The effect on operations and capital adequacy iswas not expected to be material.ASU 2016-13 In June 2016,FASB issued ASU 2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination ("PCD assets"), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above. Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis. The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations. Management has developed a committee to address CECL and the committee is currently evaluating options to comply with the ASU in a timely manner. In March 2017, the FASB issued ASU 2017-08, 2017-08 shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization), rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Corporation has evaluated the provision ofthis ASU 2017-08 to determine the potential impact of the new standard and has determined that it isdid not expected to have a significant impactmaterial effect on itsthe Corporation’s consolidated financial condition or results of operations, as the Corporation holds one security that this ASU would impact.ASU 2017-04 In January 2017, the FASB issued ASU 2017-04,Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Impairment losses on goodwill cannot be reversed once recognized. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. However, the ASU eliminates the requirement to perform a qualitative assessment for any reporting unit with a zero or negative carrying amount. Therefore, the same one-step impairment assessment will apply to all reporting units. However, for a reporting unit with a zero or negative carrying amount, the ASU adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included. For public business entities that are SEC filers, the amendments are effective with their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Corporation has evaluated the provision of ASU 2017-04 to determine the potential impact of the new standard and has determined that it is not expected to have an impact on its consolidated financial condition or results of operations based on the current circumstances.ASU 2018-09 In July 2018, the FASB issued ASU 2018-09,Codification Improvements.NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) For year-end public business entities, the improvements are effective upon issuance, which was July 2018. The Corporation has evaluated the improvementsadoption of this ASU 2018-09 and determined that the ASU willdid not impact itsthe Corporation’s consolidated financial condition or results of operations since the Corporation already discloses capital requirements withwithin the Management'sManagement’s Discussion and Analysis section of thethis Form 10-Q. In August 2018, the FASB issued ASU 2018-13,following are removed:•transfers between Level 1 and Level 2 of the fair value hierarchy;•the policy for determining when transfers between any of the three levels have occurred; and,•the valuation processes used for Level 3 measurements. The following are modified:•a clarification that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date. The following are new:•for public entities, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the balance sheet date; and,•for public entities, the range and weighted average of significant unobservable inputs used for Level 3 measurements. For certain unobservable inputs, an option to disclose other quantitative information in place of the weighted average is available to the extent that itASU would be a more reasonable and rational method to reflect the distribution of unobservable inputs. The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods, which is first effective for calendar year entities in the March 31, 2020, interim financial statements. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date.Corporation is currently evaluating the impactadoption of this ASU willdid not have a material effect on itsthe Corporation’s consolidated financial condition or results of operations. In August 2018, the FASB issued ASU 2018-14,NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)B—B — RESTRICTIONS ON CASH AND DUE FROM BANKS20182020 and 2017,2019, compensating balances approximated $1,880,000$0 and $1,769,000,$2,276,000, respectively. During 20182020 and 2017,2019, average compensating balances approximated $2,073,000$850,000 and $1,992,000,$2,228,000, respectively. All compensating balances are met by vault cash.C—C — SECURITIES20182020 and 2017,2019, were as follows:In thousands Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair
ValueSECURITIES AVAILABLE FOR SALE December 31, 2020 U.S. Government and agencies $ 181,704 $ 2,117 $ 218 $ 183,603 Mortgage-backed securities, residential 105,327 3,529 34 108,822 State and municipal 35,930 561 7 36,484 Corporate bonds 8,784 41 16 8,809 $ 331,745 $ 6,248 $ 275 $ 337,718 December 31, 2019 U.S. Government and agencies $ 113,569 $ 849 $ 169 $ 114,249 Mortgage-backed securities, residential 64,699 980 87 65,592 State and municipal 10,940 70 14 10,996 $ 189,208 $ 1,899 $ 270 $ 190,837 SECURITIES HELD TO MATURITY December 31, 2020 Mortgage-backed securities, residential $ 10,294 $ 474 $ 0 $ 10,768 $ 10,294 $ 474 $ 0 $ 10,768 December 31, 2019 U.S. Government and agencies $ 4,000 $ 8 $ 0 $ 4,008 Mortgage-backed securities, residential 15,234 76 37 15,273 $ 19,234 $ 84 $ 37 $ 19,281 In thousands Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value $ 120,420 $ 142 $ 2,149 $ 118,413 33,960 194 343 33,811 9,482 60 36 9,506 $ 163,862 $ 396 $ 2,528 $ 161,730 $ 105,899 $ 2 $ 1,818 $ 104,083 34,473 461 101 34,833 13,227 109 42 13,294 5,000 57 — 5,057 $ 158,599 $ 629 $ 1,961 $ 157,267 $ 7,000 $ — $ 69 $ 6,931 20,266 4 290 19,980 $ 27,266 $ 4 $ 359 $ 26,911 $ 19,000 $ 2 $ 99 $ 18,903 25,829 55 238 25,646 $ 44,829 $ 57 $ 337 $ 44,549 Corporation adoptedfair value disclosures required by ASU 2016-01,Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilitieseffective January 1, 2018. Upon the adoption of ASU 2016-01 as of January 1, 2018, these investments were reclassified from available for sale securities category and the presentation of these equity securities as of December 31, 2017 is conformed accordingly. The required fair value disclosures are as follows:In thousands Fair Value at January 1, 2020 Unrealized
GainsUnrealized
LossesFair Value at December 31, 2020 December 31, 2020 CRA Mutual Fund $ 1,045 $ 25 $ 5 $ 1,065 Stock in other banks 1,318 0 213 1,105 $ 2,363 $ 25 $ 218 $ 2,170 In thousands Fair Value at January 1, 2019 Unrealized
GainsUnrealized
LossesFair Value at December 31, 2019 December 31, 2019 CRA Mutual Fund $ 1,012 $ 33 $ 0 $ 1,045 Stock in other banks 827 234 0 1,061 $ 1,839 $ 267 $ 0 $ 2,106 Fair Value at
January 1, 2018 Unrealized
Gains Unrealized
Losses Fair Value at
December 31, 2018 $ 1,044 $ — $ 32 $ 1,012 749 247 169 827 $ 1,793 $ 247 $ 201 $ 1,839 NOTE C—SECURITIES (Continued) Amortized cost and fair value disclosures of equity securities prior to ASU 2016-01 implementation are as follows: Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair
Value $ 1,044 $ — $ 9 $ 1,035 647 102 — 749 $ 1,691 $ 102 $ 9 $ 1,784 Corporation's investments'Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 20182020 and 2017: Less than 12 Months 12 Months or More Total In thousands Fair
ValueUnrealized
LossesFair
ValueUnrealized
LossesFair
ValueUnrealized
LossesSECURITIES AVAILABLE FOR SALE December 31, 2020 U.S. Government and agencies $ 32,629 $ 218 $ 0 $ 0 $ 32,629 $ 218 Mortgage-backed securities, residential 10,458 34 0 0 10,458 34 State and municipal 2,148 7 0 0 2,148 7 Corporate bonds 1,514 16 0 0 1,514 16 $ 46,749 $ 275 $ 0 $ 0 $ 46,749 $ 275 December 31, 2019 U.S. Government and agencies $ 0 $ 0 $ 47,425 $ 169 $ 47,425 $ 169 Mortgage-backed securities, residential 16,208 82 1,424 5 17,632 87 State and municipal 3,233 13 502 1 3,735 14 $ 19,441 $ 95 $ 49,351 $ 175 $ 68,792 $ 270 SECURITIES HELD TO MATURITY December 31, 2020 U.S. Government and agencies $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Mortgage-backed securities, residential 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 December 31, 2019 Mortgage-backed security, residential $ 6,587 $ 24 $ 3,161 $ 13 $ 9,748 $ 37 $ 6,587 $ 24 $ 3,161 $ 13 $ 9,748 $ 37 Less than 12 Months 12 Months or More Total In thousands Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses $ 1,997 $ 5 $ 87,216 $ 2,144 $ 89,213 $ 2,149 9,410 134 8,586 209 17,996 343 — — 2,696 36 2,696 36 $ 11,407 $ 139 $ 98,498 $ 2,389 $ 109,905 $ 2,528 $ 42,775 $ 445 $ 58,279 $ 1,373 $ 101,054 $ 1,818 7,228 56 2,845 45 10,073 101 1,042 8 1,950 34 2,992 42 — — 1,035 9 1,035 9 $ 51,045 $ 509 $ 64,109 $ 1,461 $ 115,154 $ 1,970 $ 2,975 $ 25 $ 3,956 $ 44 $ 6,931 $ 69 5,408 59 12,636 231 18,044 290 $ 8,383 $ 84 $ 16,592 $ 275 $ 24,975 $ 359 $ 4,985 $ 15 $ 10,916 $ 84 $ 15,901 $ 99 4,946 29 11,070 209 16,016 238 $ 9,931 $ 44 $ 21,986 $ 293 $ 31,917 $ 337 NOTE C—SECURITIES (Continued)2018, fifty-one2020, 14 available for sale U.S. Government and agency securities had unrealized losses that individually did not exceed 5%3% of amortized cost. FiftyNaN of these securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.2018, twenty-eight2020, 9 available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 4%1% of amortized cost. TwelveNaN of these securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.2018, ten2020, 3 available for sale state and municipal securities had unrealized losses that individually did not exceed 3%2% of amortized cost. AllNaN of these securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.2018, five held to maturity U.S. Government and agency securities2020, 2 corporate bonds had unrealized losses that individually did not exceed 2%3% of amortized cost. Three of theseThese securities have not been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities. At December 31, 2018, thirty held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 3% of amortized cost. Twenty of these securities have been in a continuous loss position for 12 months or more. These unrealized losses relate principally to changes in interest rates subsequent to the acquisition of the specific securities.issuer'sissuer’s financial condition, management considers industry analysts'analysts’ reports, financial performance, and projected target prices of investment analysts within a one-year time frame. Based on the above information, management has determined that none of these investments are other-than-temporarily impaired.security'ssecurity’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing.2018,2020, management had not identified any securities with an unrealized loss that it intends to sell or will be required to sell. In estimating other-than-temporary impairment losses on debt securities, management considers (1) whether management intends to sell the security, or (2) if it is more likely than not that management will be required to sell the security before recovery, or (3) if management does not expect to recover the entire amortized cost basis. In assessing potential other-than-temporary impairment for equity securities, consideration is given to management'smanagement’s intention and ability to hold the securities until recovery of unrealized losses.NOTE C—SECURITIES (Continued)2018,2020, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties. Available for Sale Held to Maturity In thousands Amortized
CostFair
ValueAmortized
CostFair
Value1 year or less $ 61,958 $ 62,546 $ 0 $ 0 Over 1 year through 5 years 37,888 39,080 0 0 Over 5 years through 10 years 81,927 82,132 0 0 Over 10 years 44,645 45,138 0 0 Mortgage-backed securities, residential 105,327 108,822 10,294 10,768 $ 331,745 $ 337,718 $ 10,294 $ 10,768 Available for Sale Held to Maturity In thousands Amortized
Cost Fair
Value Amortized
Cost Fair
Value $ 8,483 $ 8,439 $ 3,000 $ 2,970 121,220 119,284 4,000 3,961 199 196 — — — — — — 33,960 33,811 20,266 19,980 $ 163,862 $ 161,730 $ 27,266 $ 26,911 realized gross gains of $288,000 during 2018 and $0 during 2017, and gross losses of $203,000 during 2018 and $0 during 2017 on sales ofdid not sell any securities available for sale.20182020 and 2017,2019, securities with a carrying value of $165,792,000$301,201,000 and $157,601,000,$162,946,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.D—D — LOANS AND ALLOWANCE FOR LOAN LOSSESdebtors'debtors’ ability to honor their contracts is influenced by the region'sregion’s economy.NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)Corporation'sCorporation’s internal risk rating system as of December 31, 20182020 and 2017:2019:In thousands Pass Special
MentionSubstandard Doubtful Total December 31, 2020 Originated Loans Commercial and industrial $ 270,047 $ 5,168 $ 2,688 $ 0 $ 277,903 Commercial real estate 414,538 54,122 10,463 0 479,123 Commercial real estate construction 39,462 1,746 0 0 41,208 Residential mortgage 332,632 4,327 178 0 337,137 Home equity lines of credit 80,560 346 0 0 80,906 Consumer 11,819 0 0 0 11,819 Total Originated Loans 1,149,058 65,709 13,329 0 1,228,096 Acquired Loans Commercial and industrial 38,882 1,893 1,476 0 42,251 Commercial real estate 245,597 16,706 3,201 0 265,504 Commercial real estate construction 10,300 2,394 0 0 12,694 Residential mortgage 58,787 3,535 1,881 0 64,203 Home equity lines of credit 23,165 97 442 0 23,704 Consumer 1,330 0 2 0 1,332 Total Acquired Loans 378,061 24,625 7,002 0 409,688 Total Loans Commercial and industrial 308,929 7,061 4,164 0 320,154 Commercial real estate 660,135 70,828 13,664 0 744,627 Commercial real estate construction 49,762 4,140 0 0 53,902 Residential mortgage 391,419 7,862 2,059 0 401,340 Home equity lines of credit 103,725 443 442 0 104,610 Consumer 13,149 0 2 0 13,151 Total Loans $ 1,527,119 $ 90,334 $ 20,331 $ 0 $ 1,637,784 In thousands Pass Special
Mention Substandard Doubtful Total $ 166,035 $ 2,902 $ 161 $ — $ 169,098 393,987 18,079 7,899 — 419,965 15,471 835 — — 16,306 381,525 6,492 733 — 388,750 90,941 334 — — 91,275 14,174 — — — 14,174 1,062,133 28,642 8,793 — 1,099,568 4,803 134 147 — 5,084 120,321 5,112 3,525 — 128,958 3,276 716 — — 3,992 41,193 1,896 2,460 — 45,549 18,614 88 386 — 19,088 226 — — — 226 188,433 7,946 6,518 — 202,897 170,838 3,036 308 — 174,182 514,308 23,191 11,424 — 548,923 18,747 1,551 — — 20,298 422,718 8,388 3,193 — 434,299 109,555 422 386 — 110,363 14,400 — — — 14,400 $ 1,250,566 $ 36,588 $ 15,311 $ — $ 1,302,465 NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)In thousands Pass Special
Mention Substandard Doubtful Total In thousands Pass Special
MentionSubstandard Doubtful Total December 31, 2019 December 31, 2019 Originated Loans $ 154,177 $ 3,466 $ 1,812 $ — $ 159,455 Commercial and industrial $ 132,791 $ 12,249 $ 716 $ 0 $ 145,756 325,002 17,666 9,277 — 351,945 Commercial real estate 414,077 28,264 9,595 0 451,936 27,413 767 250 — 28,430 Commercial real estate construction 22,905 1,272 0 0 24,177 363,195 3,251 478 — 366,924 Residential mortgage 364,814 6,279 251 0 371,344 81,976 360 — — 82,336 Home equity lines of credit 92,372 627 83 0 93,082 14,454 — — — 14,454 Consumer 13,331 0 0 0 13,331 966,217 25,510 11,817 — 1,003,544 Total Originated Loans 1,040,290 48,691 10,645 0 1,099,626 Acquired Loans 6,120 244 10 — 6,374 Commercial and industrial 3,007 374 178 0 3,559 124,852 12,734 3,228 — 140,814 Commercial real estate 100,199 11,537 3,376 0 115,112 6,742 388 — — 7,130 Commercial real estate construction 1,542 697 0 0 2,239 52,959 2,762 3,248 — 58,969 Residential mortgage 33,349 2,089 1,555 0 36,993 24,990 88 378 — 25,456 Home equity lines of credit 14,603 45 317 0 14,965 1,525 358 — — 1,883 Consumer 107 0 0 0 107 217,188 16,574 6,864 — 240,626 Total Acquired Loans 152,807 14,742 5,426 0 172,975 Total Loans 160,297 3,710 1,822 $ — 165,829 Commercial and industrial 135,798 12,623 894 0 149,315 449,854 30,400 12,505 — 492,759 Commercial real estate 514,276 39,801 12,971 0 567,048 34,155 1,155 250 — 35,560 Commercial real estate construction 24,447 1,969 0 0 26,416 416,154 6,013 3,726 — 425,893 Residential mortgage 398,163 8,368 1,806 0 408,337 106,966 448 378 — 107,792 Home equity lines of credit 106,975 672 400 0 108,047 15,979 358 — — 16,337 Consumer 13,438 0 0 0 13,438 $ 1,183,405 $ 42,084 $ 18,681 $ — $ 1,244,170 Total Loans $ 1,193,097 $ 63,433 $ 16,071 $ 0 $ 1,272,601 In thousands Year Ended December 31, 2020 Year Ended December 31, 2019 Balance at beginning of period $ 642 $ 891 Acquisitions of impaired loans 354 0 Reclassification from non-accretable differences 311 492 Accretion to loan interest income (711) (741) Balance at end of period $ 596 $ 642 Year Ended
December 31, 2018 $ 1,234 — 402 (745 ) $ 891 NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)20182020 and 2017: Impaired Loans with Allowance Impaired Loans with
No AllowanceIn thousands Recorded
InvestmentUnpaid
Principal
BalanceRelated
AllowanceRecorded
InvestmentUnpaid
Principal
BalanceDecember 31, 2020 Commercial and industrial $ 2,031 $ 2,031 $ 1,224 $ 0 $ 0 Commercial real estate 2,728 2,728 158 5,861 5,861 Commercial real estate construction 0 0 0 0 0 Residential mortgage 0 0 0 101 101 Home equity lines of credit 0 0 0 0 0 Total $ 4,759 $ 4,759 $ 1,382 $ 5,962 $ 5,962 December 31, 2019 Commercial and industrial $ 65 $ 65 $ 42 $ 0 $ 0 Commercial real estate 0 0 0 7,383 7,383 Commercial real estate construction 0 0 0 0 0 Residential mortgage 0 0 0 171 171 Home equity lines of credit 0 0 0 83 83 Total $ 65 $ 65 $ 42 $ 7,637 $ 7,637 Impaired Loans with
Allowance Impaired Loans with
No Allowance In thousands Recorded
Investment Unpaid
Principal
Balance Related
Allowance Recorded
Investment Unpaid
Principal
Balance $ — $ — $ — $ — $ — — — — 6,763 6,763 — — — — — — — — 537 537 — — — — — $ — $ — $ — $ 7,300 $ 7,300 $ 1,311 $ 1,311 $ 792 $ 188 $ 188 832 832 60 7,528 7,528 — — — — — 377 377 377 101 101 $ 2,520 $ 2,520 $ 1,229 $ 7,817 $ 7,817 Impaired Loans with
AllowanceImpaired Loans with
No AllowanceIn thousands Average
Recorded
InvestmentInterest
IncomeAverage
Recorded
InvestmentInterest
IncomeDecember 31, 2020 Commercial and industrial $ 441 $ 0 $ 9 $ 0 Commercial real estate 1,642 0 6,513 184 Commercial real estate construction 0 0 495 109 Residential mortgage 0 0 114 7 Home equity lines of credit 0 0 39 3 Total $ 2,083 $ 0 $ 7,170 $ 303 December 31, 2019 Commercial and industrial $ 27 $ 0 $ 0 $ 0 Commercial real estate 0 0 6,625 612 Commercial real estate construction 0 0 0 0 Residential mortgage 0 0 422 8 Home equity lines of credit 0 0 35 0 Total $ 27 $ 0 $ 7,082 $ 620 Impaired Loans with
Allowance Impaired Loans with
No Allowance In thousands Average
Recorded
Investment Interest
Income Average
Recorded
Investment Interest
Income $ 436 $ — $ 73 $ 44 — — 7,372 216 — — — — 75 — 275 — 30 — — — $ 541 $ — $ 7,720 $ 260 $ 1,184 $ — $ 785 $ — 499 — 8,030 330 — — 60 25 377 — 210 15 $ 2,060 $ — $ 9,085 $ 370 NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)$269,000$379,000 in 20182020 and $437,000$249,000 in 2017.20182020 and 2017,2019, the table below excludes $6.9$6.0 million in purchase credit impaired loans, net of unamortized fair value adjustments:In thousands 2020 2019 Commercial and industrial $ 2,031 $ 65 Commercial real estate 4,909 3,600 Commercial real estate construction 0 0 Residential mortgage 101 171 Home equity lines of credit 0 83 Total $ 7,041 $ 3,919 In thousands 2018 2017 $ — $ 1,499 2,880 4,378 — — 537 478 — — $ 3,417 $ 6,355 �� There were no loans whose terms have been modified resulting in a troubled debt restructuring during the years ended December 31, 20182020 and 2017.2019. The Corporation classifies certain loans as troubled debt restructurings when credit terms to a borrower in financial difficulty are modified. The modifications may include a reduction in rate, an extension in term and/or the restructuring of scheduled principal payments. The Corporation had pre-existing nonaccruing and accruing troubled debt restructurings of $6,226,000$3,807,000 and $7,387,000$3,974,000 at December 31, 20182020 and 2017,2019, respectively. All of the Corporation'sCorporation’s troubled debt restructured loans are also impaired loans, of which some have resulted in a specific allocation and, subsequently, a charge-off as appropriate. Included in the non-accrual loan total at December 31, 20182020 and 2017,2019, were $2,343,000$127,000 and $3,405,000,$191,000, respectively, of troubled debt restructurings. In addition to the troubled debt restructurings included in non-accrual loans, the Corporation also has loans classified as accruing troubled debt restructurings at December 31, 20182020 and 2017,2019, which total $3,883,000$3,680,000 and $3,982,000,$3,783,000, respectively. There were no defaulted troubled debt restructured loans as of December 31, 20182020 and 2017, however two borrowers advised that further payments were unlikely, therefore they were moved to nonaccrual status in the second quarter of 2017.2019. There were no charge-offs on any of the troubled debt restructured loans for the years ended December 31, 20182020 and 2017.2019. There waswere no specific allocationallocations on any troubled debt restructured loans for the yearyears ended December 31, 2018. One troubled debt restructured loan had a specific allocation in the amount of $60,000 at December 31, 2017. One2020 and 2019. NaN troubled debt restructured loan paid off during 20182019 in the amount of $832,000 and one troubled debt restructured loan paid off during 2017 in the amount of $283,000.$2,198,000. All other troubled debt restructured loans were current as of December 31, 2020, with respect to their associated forbearance agreement, except for one1 loan which has had periodic late payments. As of December 31, 2018, one of the loans classified as a troubled debt restructured loan has an2020, there are no active forbearance agreement. The loan was negotiated during 2016.agreements. All other forbearance agreements have expired or the loans have paid off.20182020 and 2017,2019, totaled $661,000$391,000 and $848,000,$822,000, respectively.NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)20182020 and 2017:2019:In thousands 30-59 Days
Past Due60-89 Days
Past Due>90 Days Past Due Total Past Due Current Total Loans
ReceivableLoans
Receivable
>90 Days and
AccruingDecember 31, 2020 Originated Loans Commercial and industrial $ 1,432 $ 0 $ 0 $ 1,432 $ 276,471 $ 277,903 $ 0 Commercial real estate 133 2,463 1,631 4,227 474,896 479,123 0 Commercial real estate construction 0 76 0 76 41,132 41,208 0 Residential mortgage 1,382 335 623 2,340 334,797 337,137 522 Home equity lines of credit 54 60 58 172 80,734 80,906 58 Consumer 98 51 0 149 11,670 11,819 0 Total originated loans 3,099 2,985 2,312 8,396 1,219,700 1,228,096 580 Acquired Loans Commercial and industrial 122 231 0 353 41,898 42,251 0 Commercial real estate 319 220 0 539 264,965 265,504 0 Commercial real estate construction 42 0 97 139 12,555 12,694 97 Residential mortgage 834 349 146 1,329 62,874 64,203 146 Home equity lines of credit 196 0 32 228 23,476 23,704 32 Consumer 0 16 0 16 1,316 1,332 0 Total acquired loans 1,513 816 275 2,604 407,084 409,688 275 Total Loans Commercial and industrial 1,554 231 0 1,785 318,369 320,154 0 Commercial real estate 452 2,683 1,631 4,766 739,861 744,627 0 Commercial real estate construction 42 76 97 215 53,687 53,902 97 Residential mortgage 2,216 684 769 3,669 397,671 401,340 668 Home equity lines of credit 250 60 90 400 104,210 104,610 90 Consumer 98 67 0 165 12,986 13,151 0 Total Loans $ 4,612 $ 3,801 $ 2,587 $ 11,000 $ 1,626,784 $ 1,637,784 $ 855 In thousands 30-59 Days
Past Due 60-89 Days
Past Due >90 Days
Past Due Total
Past Due Current Total Loans
Receivable Loans
Receivable
>90 Days and
Accruing $ 49 $ 49 $ 4 $ 102 $ 168,996 $ 169,098 $ 4 775 550 114 1,439 418,526 419,965 — — — — — 16,306 16,306 — 1,783 529 2,361 4,673 384,077 388,750 1,824 16 38 375 429 90,846 91,275 375 36 14 — 50 14,124 14,174 — 2,659 1,180 2,854 6,693 1,092,875 1,099,568 2,203 27 — — 27 5,057 5,084 — 64 — 851 915 128,043 128,958 851 343 — 77 420 3,572 3,992 77 1,235 251 907 2,393 43,156 45,549 125 227 — 89 316 18,772 19,088 89 — 7 — 7 219 226 — 1,896 258 1,924 4,078 198,819 202,897 1,142 76 49 4 129 174,053 174,182 4 839 550 965 2,354 546,569 548,923 851 343 — 77 420 19,878 20,298 77 3,018 780 3,268 7,066 427,233 434,299 1,949 243 38 464 745 109,618 110,363 464 36 21 — 57 14,343 14,400 — $ 4,555 $ 1,438 $ 4,778 $ 10,771 $ 1,291,694 $ 1,302,465 $ 3,345 NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)In thousands 30-59 Days
Past Due60-89 Days
Past Due>90 Days Past Due Total Past Due Current Total Loans
ReceivableLoans
Receivable
>90 Days and
AccruingDecember 31, 2019 Originated Loans Commercial and industrial $ 16 $ 0 $ 4 $ 20 $ 145,736 $ 145,756 $ 4 Commercial real estate 325 2,247 1,286 3,858 448,078 451,936 0 Commercial real estate construction 78 0 0 78 24,099 24,177 0 Residential mortgage 1,625 949 1,232 3,806 367,538 371,344 1,061 Home equity lines of credit 141 77 0 218 92,864 93,082 0 Consumer 38 8 19 65 13,266 13,331 19 Total originated loans 2,223 3,281 2,541 8,045 1,091,581 1,099,626 1,084 Acquired Loans Commercial and industrial 0 23 0 23 3,536 3,559 0 Commercial real estate 1,063 0 0 1,063 114,049 115,112 0 Commercial real estate construction 0 0 0 0 2,239 2,239 0 Residential mortgage 293 257 120 670 36,323 36,993 120 Home equity lines of credit 236 93 15 344 14,621 14,965 15 Consumer 0 0 0 0 107 107 0 Total acquired loans 1,592 373 135 2,100 170,875 172,975 135 Total Loans Commercial and industrial 16 23 4 43 149,272 149,315 4 Commercial real estate 1,388 2,247 1,286 4,921 562,127 567,048 0 Commercial real estate construction 78 0 0 78 26,338 26,416 0 Residential mortgage 1,918 1,206 1,352 4,476 403,861 408,337 1,181 Home equity lines of credit 377 170 15 562 107,485 108,047 15 Consumer 38 8 19 65 13,373 13,438 19 Total Loans $ 3,815 $ 3,654 $ 2,676 $ 10,145 $ 1,262,456 $ 1,272,601 $ 1,219 In thousands 30-59 Days
Past Due 60-89 Days
Past Due >90 Days
Past Due Total
Past Due Current Total Loans
Receivable Loans
Receivable
>90 Days and
Accruing $ 55 $ 76 $ 1,503 $ 1,634 $ 157,821 $ 159,455 $ 4 436 317 1,400 2,153 349,792 351,945 88 252 — — 252 28,178 28,430 — 3,006 646 1,500 5,152 361,772 366,924 1,022 254 29 183 466 81,870 82,336 183 72 26 3 101 14,353 14,454 3 4,075 1,094 4,589 9,758 993,786 1,003,544 1,300 83 — — 83 6,291 6,374 — 916 — — 916 139,898 140,814 — — — — — 7,130 7,130 — 930 304 137 1,371 57,598 58,969 137 83 — 70 153 25,303 25,456 70 — — — — 1,883 1,883 — 2,012 304 207 2,523 238,103 240,626 207 $ 138 $ 76 $ 1,503 $ 1,717 $ 164,112 $ 165,829 $ 4 1,352 317 1,400 3,069 489,690 492,759 88 252 — — 252 35,308 35,560 — 3,936 950 1,637 6,523 419,370 425,893 1,159 337 29 253 619 107,173 107,792 253 72 26 3 101 16,236 16,337 3 $ 6,087 $ 1,398 $ 4,796 $ 12,281 $ 1,231,889 $ 1,244,170 $ 1,507 NOTE D—LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)In thousands Commercial
and IndustrialCommercial
Real EstateCommercial
Real Estate
ConstructionResidential
MortgageHome Equity
Lines of CreditConsumer Unallocated Total December 31, 2020 Allowance for loan losses Beginning balance- January 1, 2020 $ 2,400 $ 6,693 $ 298 $ 2,555 $ 619 $ 650 $ 620 $ 13,835 Charge-offs (2,107) (675) 0 — 0 (205) 0 (2,987) Recoveries 83 96 0 1 29 29 0 238 Provisions 3,661 3,455 205 839 45 174 761 9,140 Ending balance- December 31, 2020 $ 4,037 $ 9,569 $ 503 $ 3,395 $ 693 $ 648 $ 1,381 $ 20,226 Ending balance: individually evaluated for impairment $ 1,224 $ 158 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,382 Ending balance: collectively evaluated for impairment $ 2,813 $ 9,411 $ 503 $ 3,395 $ 693 $ 648 $ 1,381 $ 18,844 Loans receivables Ending balance $ 320,154 $ 744,627 $ 53,902 $ 401,340 $ 104,610 $ 13,151 $ 0 $ 1,637,784 Ending balance: individually evaluated for impairment $ 2,031 $ 8,589 $ 0 $ 101 $ 0 $ 0 $ 0 $ 10,721 Ending balance: collectively evaluated for impairment $ 318,123 $ 736,038 $ 53,902 $ 401,239 $ 104,610 $ 13,151 $ 0 $ 1,627,063 December 31, 2019 Allowance for loan losses Beginning balance- January 1, 2019 $ 2,597 $ 6,208 $ 203 $ 2,814 $ 611 $ 692 $ 839 $ 13,964 Charge-offs (163) (78) 0 (173) (301) (202) 0 (917) Recoveries 66 10 0 37 12 63 0 188 Provisions (100) 553 95 (123) 297 97 (219) 600 Ending balance- December 31, 2019 $ 2,400 $ 6,693 $ 298 $ 2,555 $ 619 $ 650 $ 620 $ 13,835 Ending balance: individually evaluated for impairment $ 42 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 42 Ending balance: collectively evaluated for impairment $ 2,358 $ 6,693 $ 298 $ 2,555 $ 619 $ 650 $ 620 $ 13,793 Loans receivables Ending balance $ 149,315 $ 567,048 $ 26,416 $ 408,337 $ 108,047 $ 13,438 $ 0 $ 1,272,601 Ending balance: individually evaluated for impairment $ 65 $ 7,383 $ 0 $ 171 $ 83 $ 0 $ 0 $ 7,702 Ending balance: collectively evaluated for impairment $ 149,250 $ 559,665 $ 26,416 $ 408,166 $ 107,964 $ 13,438 $ 0 $ 1,264,899 In thousands Commercial
and
Industrial Commercial
Real Estate Commercial
Real Estate
Construction Residential
Mortgage Home
Equity
Lines of
Credit Consumer Unallocated Total $ 3,219 $ 5,228 $ 126 $ 3,226 $ 612 $ 749 $ 816 $ 13,976 (934 ) (33 ) — (530 ) (148 ) (165 ) — (1,810 ) 36 — 103 32 — 7 — 178 276 1,013 (26 ) 86 147 101 23 1,620 $ 2,597 $ 6,208 $ 203 $ 2,814 $ 611 $ 692 $ 839 $ 13,964 $ — $ — $ — $ — $ — $ — $ — $ — $ 2,597 $ 6,208 $ 203 $ 2,814 $ 611 $ 692 $ 839 $ 13,964 �� $ 174,182 $ 548,923 $ 20,298 $ 434,299 $ 110,363 $ 14,400 $ — $ 1,302,465 $ — $ 6,763 $ — $ 537 $ — $ — $ — $ 7,300 $ 174,182 $ 542,160 $ 20,298 $ 433,762 $ 110,363 $ 14,400 $ — $ 1,295,165 $ 3,055 $ 4,968 $ 147 $ 3,478 $ 648 $ 923 $ 975 $ 14,194 (181 ) — — (132 ) (9 ) (139 ) — (461 ) 21 61 80 62 — 19 — 243 324 199 (101 ) (182 ) (27 ) (54 ) (159 ) — $ 3,219 $ 5,228 $ 126 $ 3,226 $ 612 $ 749 $ 816 $ 13,976 $ 792 $ 60 $ — $ 377 $ — $ — $ — $ 1,229 $ 2,427 $ 5,168 $ 126 $ 2,849 $ 612 $ 749 $ 816 $ 12,747 $ 165,829 $ 492,759 $ 35,560 $ 425,893 $ 107,792 $ 16,337 $ — $ 1,244,170 $ 1,499 $ 8,360 $ — $ 478 $ — $ — $ — $ 10,337 $ 164,330 $ 484,399 $ 35,560 $ 425,415 $ 107,792 $ 16,337 $ — $ 1,233,833 $5,858,000$5,215,000 and $5,703,000$5,016,000 at December 31, 20182020 and 2017,2019, respectively. During 2018, $600,0002020, $710,000 new loans or advances were extended and repayments totaled $445,000.$511,000. None of these loans were past due, in nonaccrual status, or restructured at December 31, 2018.
Loan Modifications/Troubled Debt Restructurings/COVID-19Type of Loans Number of Loans Deferral Period Balance Percentage of Capital Commercial Purpose 38 Up to 6 months $ 35,464,419 13.75 % Consumer Purpose 10 Up to 6 months 658,736 0.26 48 $ 36,123,155 Type of Loans Number of Loans Balance Percentage of Total Loan Portfolio Percentage of Capital Lessors of Commercial Real Estate 7 $ 7,165,485 0.44 % 2.78 % Lessors of Residential Real Estate 1 18,066 0.00 0.01 Hospitality Industry (Hotels/Bed & Breakfast) 7 18,394,377 1.12 7.13 Food Services Industry 3 4,535,983 0.28 1.76 Other 20 5,350,508 0.33 2.07 38 $ 35,464,419 2.17 % 13.75 % E—E — PREMISES AND EQUIPMENTIn thousands 2020 2019 Land $ 8,104 $ 5,050 Buildings and improvements 33,485 27,915 Furniture and equipment 16,466 14,562 Construction in process 25 928 58,080 48,455 Accumulated depreciation (25,067) (22,731) $ 33,013 $ 25,724 In thousands 2018 2017 $ 5,050 $ 5,050 27,509 25,881 14,111 14,856 460 182 47,130 45,969 (20,721 ) (19,195 ) $ 26,409 $ 26,774 $2,108,000$2,387,000 and $1,755,000$2,076,000 for the years ended December 31, 20182020 and 2017,2019, respectively.F—F — INVESTMENTS IN LOW-INCOME HOUSING PARTNERSHIPSthree3 partnerships, whose purpose is to develop, manage and operate residential low-income properties. At December 31, 20182020 and 2017,2019, the carrying value of these investments was approximately $1,871,000$1,380,000 and $2,446,000,$1,506,000, respectively.G—G — DEPOSITSIn thousands 2020 2019 Non-interest bearing demand $ 556,666 $ 314,377 Interest bearing demand 291,271 152,275 Savings 860,930 537,755 Time certificates of deposit of $250,000 or less 376,488 339,876 Time certificates of deposit greater than $250,000 100,170 67,977 $ 2,185,525 $ 1,412,260 In thousands 2018 2017 $ 302,394 $ 279,413 160,718 163,278 516,872 501,710 307,407 295,279 60,701 58,812 $ 1,348,092 $ 1,298,492 2018,2020, were as follows:Years Ending In thousands 2021 $ 364,184 2022 76,924 2023 14,527 2024 10,685 2025 10,338 $ 476,658 Years Ending In thousands $ 213,669 74,837 62,171 12,216 5,215 $ 368,108 NOTE H—LEASE COMMITMENTSbranch officeslease arrangements contain clauses requiring increasing rental payments over the lease term, which are generally contractually stipulated. Many of these lease arrangements provide the Corporation with the option to renew the lease arrangement after the initial lease term. These options are included in determining the lease term used to establish the right-of-use assets and equipmentlease liabilities when it is reasonably certain the Corporation will exercise its renewal option. As most of the Corporation’s leases do not have a readily determinable implicit rate, the incremental borrowing rate is primarily used to determine the discount rate for purposes of measuring the right-of-use assets and lease liabilities. The Corporation’s lease arrangements do not contain any material residual value guarantees or material restrictive covenants.leased under agreements which expire at varying dates through 2029. Mostreported within the consolidated statements of condition as follows:In thousands December 31, 2020 Operating Leases: Right of use assets $ 3,145 Lease liabilities 3,138 In thousands December 31, 2019 Operating Leases: Right of use assets $ 3,502 Lease liabilities 3,502 contain renewal provisionswas as follows for the year ended December 31, 2020:Operating Leases: Weighted average remaining lease term 7.0 years Weighted average discount rate 5.63 % Years Ending In thousands 2021 $ 805 2022 646 2023 560 2024 540 2025 518 Thereafter 1,260 Total minimum lease payments 4,329 Less: Amount representing interest (1) 1,191 Present value of net minimum lease payments $ 3,138 Corporation's option.Corporation’s incremental borrowing rate.rentalrent expense for all operating leases was $890,000$1,024,000 and $642,000$883,000 for the years ended December 31, 20182020 and 2017,2019, respectively.NOTE H—LEASE COMMITMENTS (Continued) The following is a schedule by year of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31:Years Ending In thousands $ 811 710 617 528 507 2,186 $ 5,359 leasesleased space at several of its owned offices to other unrelated organizations. Total rental income for these properties was $131,000$84,000 and $60,000$94,000 for the years ended December 31, 20182020 and 2017,2019, respectively.I—I — BORROWINGS 2020 2019 Dollars in thousands Amount Rate Amount Rate FHLB overnight advance $ 0 0 % $ 0 0 % Securities sold under repurchase agreements 38,464 0.12 33,435 0.12 $ 38,464 0.12 % $ 33,435 0.12 % 2018 2017 Dollars in thousands Amount Rate Amount Rate $ 32 2.62 % $ — — % 34,616 0.12 36,908 0.12 $ 34,648 0.12 % $ 36,908 0.12 % $4,067,300$2,529,000 at December 31, 2018.2020. The Corporation also has lines of credit that total $29,000,000 with correspondent banks for overnight federal funds borrowings. There were no advances on these lines at December 31, 20182020 and 2017.Corporation'sCorporation’s consolidated statements of condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. In other words, there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Corporation does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.NOTE I—BORROWINGS (Continued)counterparty'scounterparty’s custodial account. The counterparty has the right to sell or repledge the investment securities. For government entity repurchase agreements, the collateral is held by the Corporation in a segregated custodial account under a tri-party agreement.20182020 and 2017: Gross Amounts
Not Offset in the
Statements of
Condition Net Amounts
of Liabilities
Presented in
the Statements
of Condition Gross
Amounts of
Recognized
Liabilities Gross Amounts
Offset in the
Statements of
Condition Financial
Instruments Cash
Collateral
Pledged Net Amount $ 34,616 $ — $ 34,616 $ (34,616 ) $ — $ —
$ 36,908 $ — $ 36,908 $ (36,908 ) $ — $ — Gross Amounts Not Offset in the Statements of Condition Dollars in thousands Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Condition Net Amounts of Liabilities Presented in the Statements of Condition Financial Instruments Cash Collateral Pledged Net Amount December 31, 2020 Repurchase agreements Commercial customers and government entities (a) $ 38,464 $ 0 $ 38,464 $ (38,464) $ 0 $ 0 December 31, 2019 Repurchase agreements Commercial customers and government entities (a) $ 33,435 $ 0 $ 33,435 $ (33,435) $ 0 $ 0 20182020 and 2017,2019, the fair value of securities pledged in connection with repurchase agreements was $39,788,000$54,680,000 and $42,397,000,$34,582,000, respectively. 2020 2019 Dollars in thousands Amount Rate Amount Rate FHLB fixed-rate advances maturing: 2020 $ — — % $ 20,000 1.87 % 2021 22,716 2.10 % 22,716 2.10 % 2022 11,000 2.69 % 11,000 2.69 % 2023 5,000 2.60 % 5,000 2.60 % Loan payable to local bank 1,329 5.51 % 1,830 4.50 % Loan payable to local bank 0 0 % 750 4.50 % Loan payable variable rate 2,700 3.22 % 0 0 % Trust preferred subordinated debt 5,000 6.39 % 5,000 6.39 % Trust preferred subordinated debt 6,000 1.69 % 0 0 % $ 53,745 2.76 % $ 66,296 2.58 % 2018 2017 Dollars in thousands Amount Rate Amount Rate $ — — % $ 25,500 1.87 % 23,500 1.73 % 23,500 1.73 % 20,000 1.87 % 20,000 1.87 % 22,716 2.10 % 16,000 2.01 % 9,000 2.70 % — — % 2,300 4.50 % 4,600 1.53 % 1,000 5.25 % — — % 5,000 6.39 % 5,000 6.39 % $ 83,516 2.47 % $ 94,600 2.06 % $685,765,000$847,881,000 from the FHLB, of which $588,734,000$791,915,000 was available at December 31, 2018.NOTE I—BORROWINGS (Continued)4.5%4.50% for the first five years and a variable rate of interest with Prime Rate thereafter to final maturity in June 2028. The principal balance of this note may be prepaid at any time without penalty., 5.25% at December 31, 2018. Principal shall be. The loan payable whenbalance was reduced to $0 in 2020.amounts demanded byterms agreements. Under the Bank. Thecurrent change in terms agreement, the maturity date of the note is April 10, 2021 with the rate of interest accruing on the principal balance of this3.25% per year. The note may be prepaid at anytime without penalty.J—J — REGULATORY RESTRICTIONS ON DIVIDENDS"accumulated“accumulated net earnings"earnings” (generally, retained earnings). The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions. As of December 31, 2018, $26,090,0002020, $42,296,000 of undistributed earnings of the Bank, included in consolidated retained earnings, was available for distribution to the Corporation as dividends without prior regulatory approval. Additionally,Bank'sBank’s capital to be reduced below applicable minimum capital requirements.K—K — INCOME TAXES20182020 and 2017,2019, are as follows:In thousands 2020 2019 Federal: Current $ 4,672 $ 5,169 Deferred (1,121) 122 3,551 5,291 State: Current 805 338 Deferred (48) 16 757 354 $ 4,308 $ 5,645 In thousands 2018 2017 $ 4,036 $ 4,767 388 1,413 4,424 6,180 479 156 69 298 548 454 $ 4,972 $ 6,634 NOTE K—INCOME TAXES (Continued)20182020 and 2017,2019, are as follows: Percentage of Income
before Income Taxes 2020 2019 Federal income tax at statutory rate 21.0 % 21.0 % State income taxes, net of federal benefit 2.6 % 1.0 % Tax-exempt income (2.0) % (1.5) % Earnings on investment in bank-owned life insurance (1.3) % (0.8) % Rehabilitation and low-income housing credits (1.1) % (1.0) % Reduction of federal tax rate 0 % 0 % Other (0.1) % 0.5 % 19.1 % 19.2 % Percentage of
Income before
Income Taxes 2018 2017 21.0 % 35.0 % 1.6 % 1.8 % (1.7 )% (5.0 )% (0.9 )% (2.3 )% (1.1 )% (1.7 )% — % 10.2 % (0.3 )% 2.4 % 18.6 % 40.4 % The provision for federal income taxes includes $46,000 and $0 of income taxes related to net gains on sales of securities in 2018 and 2017, respectively. Rehabilitation and low-income housing income tax credits were $287,000,$259,000 and $281,000, during 2018 and 2017, respectively. Projected credits are $287,000 in 2019 and 2020 and $589,000 thereafter.In thousands 2020 2019 Deferred tax assets: Allowance for loan losses $ 4,367 $ 2,995 Available for sale securities 0 0 Accrued deferred compensation 1,053 941 Pension 2,939 2,033 Deferred loan fees 634 0 Other-than-temporary impairment 43 43 Nonaccrual interest 359 194 Deferred director fees 766 664 Acquisition accounting (501) 377 Other 1,747 604 11,407 7,851 Deferred tax liabilities: Deferred loan fees 0 94 Available for sale securities 1,328 391 Prepaid pension benefit cost 4,207 4,154 Prepaid expenses 130 129 Accumulated depreciation 555 221 Goodwill/intangibles 1,259 1,181 7,479 6,170 Net Deferred Tax Asset included in Other Assets $ 3,928 $ 1,681 In thousands 2018 2017 $ 3,054 $ 3,052 409 282 884 852 2,207 1,789 43 43 192 171 589 520 785 1,357 602 521 8,765 8,587 101 114 — — 4,289 4,248 130 132 347 426 1,056 928 5,923 5,848 $ 2,842 $ 2,739 NOTE K—INCOME TAXES (Continued)20182020 and 2017.2019. The Corporation'sCorporation’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income.20152017 through 2018.December 22, 2017,March 27, 2020, the United States government enacted comprehensive tax legislation, known as the Tax CutsCoronavirus Aid, Relief, and JobsEconomic Security (CARES) Act (the "Tax Act"). The Tax Act made broad and complexwas signed into law making several changes to the U.S.Internal Revenue Code. The changes include, but are not limited to: increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income.code, including a reductionlaw changes in the base corporateCARES Act did not have a material impact on the Corporation’s income tax rate from the prior existing statutory rate, which was 35% for ACNB, to 21%. Based on estimates and current accounting guidance, the Corporation estimated that the Tax Act resulted in a charge against 2017 net income of approximately $1.7 million, due to the write down of ACNB's net deferred tax assets due to the Tax Act's reduction in the base corporate tax rate to 21%. This estimate was based on a review and analysis of the Corporation's net deferred tax assets at December 31, 2017, as well as adjustments to various deferred tax assets and deferred tax liabilities in the fourth quarter, including those accounted for in accumulated other comprehensive income.L—L — FAIR VALUE MEASUREMENTSCorporation'sCorporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period end.NOTE L—FAIR VALUE MEASUREMENTS (Continued)liability'sliability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.20182020 and 2017,2019, are as follows: Fair Value Measurements at December 31, 2020 In thousands Basis Total Level 1 Level 2 Level 3 U.S. Government and agencies $ 183,603 $ 0 $ 183,603 $ 0 Mortgage-backed securities, residential 108,822 0 108,822 0 State and municipal 36,484 0 36,484 0 Corporate bonds 8,809 0 8,809 0 Total securities available for sale Recurring $ 337,718 $ 0 $ 337,718 $ 0 Equity securities with readily determinable fair values Recurring $ 2,170 $ 2,170 $ 0 $ 0 Collateral dependent impaired loans Non-recurring $ 7,498 $ 0 $ 0 $ 7,498 Fair Value Measurements at December 31, 2019 In thousands Basis Total Level 1 Level 2 Level 3 U.S. Government and agencies $ 114,249 $ 0 $ 114,249 $ 0 Mortgage-backed securities, residential 65,592 0 65,592 0 State and municipal 10,996 0 10,996 0 Total securities available for sale Recurring $ 190,837 $ 0 $ 190,837 $ 0 Equity securities with readily determinable fair values Recurring $ 2,106 $ 2,106 $ 0 $ 0 Collateral dependent impaired loans Non-recurring $ 3,806 $ 0 $ 0 $ 3,806 Fair Value Measurements at December 31, 2018 In thousands Basis Total Level 1 Level 2 Level 3 $ 118,413 $ — $ 118,413 $ — 33,811 — 33,811 — 9,506 — 9,506 — Recurring $ 161,730 $ — $ 161,730 $ — Recurring $ 1,839 $ 1,839 $ — $ — Non-recurring $ 3,883 $ — $ — $ 3,883 ��� Fair Value Measurements at December 31, 2017 In thousands Basis Total Level 1 Level 2 Level 3 $ 104,083 $ — $ 104,083 $ — 34,833 — 34,833 — 13,294 — 13,294 — 5,057 — 5,057 — Recurring $ 157,267 $ — $ 157,267 $ — Recurring $ 1,784 $ 1,784 $ — $ — Non-recurring $ 5,426 $ — $ — $ 5,426 NOTE L—FAIR VALUE MEASUREMENTS (Continued)Quantitative Information about Level 3 Fair Value Measurements Dollars in thousands Fair Value Estimate Valuation Technique Unobservable Input Range Weighted Average December 31, 2020 Impaired loans $ 7,498 Appraisal of collateral(1) Appraisal adjustments(2) (10) – (50)% (52) % December 31, 2019 Impaired loans $ 3,806 Appraisal of collateral(1) Appraisal adjustments(2) (10) – (50)% (15) % Quantitative Information about Level 3 Fair Value Measurements Dollars in thousands Fair Value
Estimate Valuation Technique Unobservable Input Range Weighted
Average $ 3,883 Appraisal of collateral(1) Appraisal adjustments(2) (10) - (50)% (16 )% $ 5,426 Appraisal of collateral(1) Appraisal adjustments(2) (10) - (50)% (36 )% management'smanagement’s estimate or independent third-party appraisals of the underlying collateral, which generally includes various Level 3 inputs which are not observable.(3)Includes qualitative adjustments by management and estimated liquidation expenses.Corporation'sCorporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation'sCorporation’s disclosures and those of other companies may not be meaningful.NOTE L—FAIR VALUE MEASUREMENTS (Continued) The following presents the carrying amount, exit pricing concept fair value, and placement in the fair value hierarchy of the Corporation's financial instruments at December 31, 2018: December 31, 2018 In thousands Carrying
Amount Fair Value Level 1 Level 2 Level 3 $ 20,105 $ 20,105 $ 8,190 $ 11,915 $ — 20,800 20,800 20,800 — — 1,839 1,839 1,839 — — 161,730 161,730 — 161,730 — 27,266 26,911 — 26,911 — 408 408 — 408 — 1,288,501 1,272,393 — — 1,272,393 3,670 3,670 — 3,670 — 4,336 4,336 — 4,336 — 979,964 979,964 — 979,964 — 368,128 364,093 — 364,093 — 34,648 34,648 — 34,648 — 78,516 78,545 — 78,545 — 5,000 4,701 — 4,701 — 1,163 1,163 — 1,163 —
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— NOTE L—FAIR VALUE MEASUREMENTS (Continued)Corporation'sCorporation’s financial instruments at December 31, 2017:December 31, 2020 In thousands Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 23,739 $ 23,739 $ 12,436 $ 11,303 $ 0 Interest-bearing deposits in banks 375,613 375,613 375,613 0 0 Equity securities available for sale 2,170 2,170 2,170 0 0 Investment securities available for sale 337,718 337,718 0 337,718 0 Investment securities held to maturity 10,294 10,768 0 10,768 0 Loans held for sale 11,034 11,034 0 11,034 0 Loans, less allowance for loan losses 1,617,558 1,662,342 0 0 1,662,342 Accrued interest receivable 6,950 6,950 0 6,950 0 Restricted investment in bank stocks 2,942 2,942 0 2,942 0 Financial liabilities: Demand deposits and savings 1,708,868 1,708,868 0 1,708,868 0 Time deposits 476,657 481,138 0 481,138 0 Short-term borrowings 38,464 38,464 0 38,464 0 Long-term borrowings 42,745 43,669 0 43,669 0 Trust preferred subordinated debt 11,000 9,902 0 9,902 0 Accrued interest payable 1,434 1,434 0 1,434 0 Off-balance sheet financial instruments 0 0 0 0 0 December 31, 2019 In thousands Carrying Amount Fair Value Level 1 Level 2 Level 3 Financial assets: Cash and due from banks $ 16,878 $ 16,878 $ 9,542 $ 7,336 $ 0 Interest-bearing deposits in banks 97,478 97,478 97,478 0 0 Equity securities available for sale 2,106 2,106 2,106 0 0 Investment securities available for sale 190,837 190,837 0 190,837 0 Investment securities held to maturity 19,234 19,281 0 19,281 0 Loans held for sale 2,406 2,406 0 2,406 0 Loans, less allowance for loan losses 1,258,766 1,263,014 0 0 1,263,014 Accrued interest receivable 4,368 4,368 0 4,368 0 Restricted investment in bank stocks 3,644 3,644 0 3,644 0 Financial liabilities: Demand deposits and savings 1,004,407 1,004,407 0 1,004,407 0 Time deposits 407,853 409,426 0 409,426 0 Short-term borrowings 33,435 33,435 0 33,435 0 Long-term borrowings 61,296 61,965 0 61,965 0 Trust preferred subordinated debt 5,000 4,711 0 4,711 0 Accrued interest payable 2,676 2,676 0 2,676 0 Off-balance sheet financial instruments 0 0 0 0 0 December 31, 2017 In thousands Carrying
Amount Fair Value Level 1 Level 2 Level 3 $ 19,304 $ 19,304 $ 8,313 $ 10,991 $ — 15,137 15,137 15,137 — — 1,784 1,784 1,784 — — 157,267 157,267 — 157,267 — 44,829 44,549 — 44,549 — 1,736 1,736 — 1,736 — 1,230,194 1,213,932 — — 1,213,932 3,670 3,670 — 3,670 — 4,773 4,773 — 4,773 — 944,401 944,401 — 944,401 — 354,091 351,055 — 351,055 — 36,908 36,908 — 36,908 — 89,600 89,571 — 89,571 — 5,000 4,692 — 4,692 — 1,163 1,163 — 1,163 —
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— M—M — RETIREMENT PLANSCorporation'sCorporation’s banking subsidiary has a non-contributory, defined benefit pension plan. Retirement benefits are a function of both years of service and compensation. The funding policy is to contribute annually the amount that is sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act.20182020 and 2017.NOTE M—RETIREMENT PLANS (Continued)In thousands 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 34,534 $ 30,338 Service cost 751 696 Interest cost 1,080 1,213 Actuarial loss 4,405 3,603 Benefits paid (1,358) (1,316) Projected benefit obligation at end of year 39,412 34,534 Change in plan assets: Fair value of plan assets at beginning of year 44,292 39,680 Actual return on plan assets 2,403 5,928 Employer contribution 0 0 Benefits paid (1,358) (1,316) Fair value of plan assets at end of year 45,337 44,292 Funded Status, included in other assets $ 5,925 $ 9,758 Amounts recognized in accumulated other comprehensive loss: Total net actuarial loss $ 13,221 $ 9,147 Prior service cost 0 0 Total included in accumulated other comprehensive loss (pretax) $ 13,221 $ 9,147 In thousands 2018 2017 $ 31,547 $ 28,625 860 839 1,096 1,135 (1,944 ) 2,040 (1,221 ) (1,092 ) 30,338 31,547 42,439 38,715 (1,538 ) 4,816 — — (1,221 ) (1,092 ) 39,680 42,439 $ 9,342 $ 10,892 $ 9,773 $ 7,924 — — $ 9,773 $ 7,924 The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost during the next fiscal year are as follows:In thousands $ 850 — $ 850 The accumulated benefit obligation totaled $29,115,000 and $30,228,000 at December 31, 2018 and 2017, respectively.20182020 and 20172019, the mortality assumptions were derived usingused to determine the mortality rates from RP-2006 (underlying baseline table from SOA RP-2014 study based on experience data for private pension plans of 2006, the central year of experience data 2004-2008).2020 2019 Discount rate 2.45 % 3.20 % Rate of compensation increase 3.50 % 3.50 % NOTE M—RETIREMENT PLANS (Continued)costscost related to the non-contributory, defined benefit pension plan for the years ended December 31 are as follows:In thousands 2020 2019 Components of net periodic benefit cost (income): Service cost $ 751 $ 696 Interest cost 1,080 1,213 Expected return on plan assets (2,746) (2,549) Recognized net actuarial loss 675 850 Amortization of prior service cost 0 0 Net Periodic Benefit (Income) Cost (240) 210 Net loss 4,749 224 Amortization of net loss (675) (850) Amortization of prior service cost 0 0 Total recognized in other comprehensive loss (income) $ 4,074 $ (626) Total recognized in net periodic benefit cost (income) and other comprehensive (income) loss $ 3,834 $ (416) In thousands 2018 2017 $ 860 $ 839 1,096 1,135 (2,770 ) (2,518 ) 515 676 — — (299 ) 132 2,365 (259 ) (515 ) (676 ) — — $ 1,850 $ (935 ) $ 1,551 $ (803 ) 20182020 and 2017, the assumptions used to determine the benefit obligation are as follows: 2018 2017 4.10 % 3.55 % 3.50 % 3.50 % For the years ended December 31, 2018 and 2017,2019, the assumptions used to determine the net periodic benefit cost (income) cost are as follows:2020 2019 Discount rate 3.20 % 4.10 % Expected long-term rate of return on plan assets 6.75 % 6.75 % Rate of compensation increase 3.50 % 3.50 % 2018 2017 3.55 % 4.05 % 6.75 % 6.75 % 3.50 % 3.50 % Corporation's pension plan weighted-average assets' allocations at December 31, 2018 and 2017, are as follows: 2018 2017 63 % 50 % 34 % 44 % — % — % 3 % 6 % 100 % 100 % The Corporation's overall investment strategy isCorporation’s comparison of obligations to achieve a mix of investments to meet the long-term rate of return assumption and near-term pension obligations with a diversification of assets types, fund strategies and fund managers. The mix of investments is adjusted periodically by retaining an advisory firm to recommend appropriate allocations after reviewing the Corporation's risk tolerance on contribution levels, funded status and plan expense, and any applicable regulatory requirements. TheNOTE M—RETIREMENT PLANS (Continued)weighted-average assets' allocation in the above table represents the Corporation's conclusion on the appropriate mix of investments. The specific investment vehicles are institutional separate accounts from a variety of fund managers which are regularly reviewed by the Corporation for acceptable performance. Equity securities included Corporation common stock in amounts of $2,882,000, or 7% of total plan assets, and $2,114,000, or 5% of total plan assets at December 31, 20182020 and 2017, respectively. Fair value measurements at December 31, 2018,2019 are as follows:In thousands 2020 2019 Projected benefit obligation $ 39,412 $ 34,534 Accumulated benefit obligation 37,522 33,080 Fair value of plan assets at measurement date 45,337 44,292 In thousands Total Level 1 Level 2 Level 3 $ 25,150 $ 2,882 $ 22,268 $ — 13,376 — 13,376 — 1,154 — 1,154 — Fair value measurements at December 31, 2017, are as follows:In thousands Total Level 1 Level 2 Level 3 $ 21,423 $ 2,114 $ 19,309 $ — 18,668 — 18,668 — 2,348 — 2,348 — 2019.2021. ACNB does not anticipate any refunds from the postretirement Plan. The Corporation reduced the future benefit accruals for the defined benefit pension plan effective January 1, 2010, in order to manage total benefit expense. The new formula is the earned benefit as of December 31, 2009, plus 0.75% of a participant'sparticipant’s average monthly pay multiplied by years of benefit service earned on and after January 1, 2010, but not more than 25 years. The benefit formula percentage and maximum years of benefit service were both reduced. 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. As of the last annual census, ACNB Bank had a combined 353347 active, vested terminated, and retired persons in the Plan.Years Ending In thousands 2021 $ 1,730 2022 1,720 2023 1,840 2024 1,890 2025 1,920 2026 - 2030 9,800 In thousands $ 1,500 1,520 1,650 1,670 1,790 9,360 Corporation'sCorporation’s pension plan weighted-average assets’ allocations at December 31, 2020 and 2019, are as follows:2020 2019 Equity securities 45 % 45 % Debt securities 42 % 42 % Real estate 13 % 13 % 100 % 100 % In thousands Total Level 1 Level 2 Level 3 Equity securities $ 24,542 $ 1,963 $ 22,579 $ 0 Debt securities 14,568 0 14,568 0 Real estate 6,227 0 6,227 0 In thousands Total Level 1 Level 2 Level 3 Equity securities $ 20,098 $ 2,854 $ 17,244 $ 0 Debt securities 18,516 0 18,516 0 Real estate 5,678 0 5,678 0 upequal to 100% of the first 4% of an employee'semployee’s compensation contributed to the plan.plan up to 3% of an employee’s pay, plus 50% of an employee’s compensation contributed to the plan on the next 2% of their pay for the payroll period. Matching contributions vest immediately to the employee. Bank contributions to and expenses for the plan were $664,000$887,000 and $626,000$709,000 for 20182020 and 2017,2019, respectively.NOTE M—RETIREMENT PLANS (Continued)RIG'sRIG’s contributions to and expenses for the plan were $97,000$126,000 and $86,000$123,000 for 20182020 and 2017,2019, respectively.Corporation'sCorporation’s banking subsidiary maintains nonqualified compensation plans for selected senior officers. The estimated present value of future benefits is accrued over the period from the effective date of the agreements until the expected retirement dates of the individuals. The balance accrued for these plans included in other liabilities as of December 31, 20182020 and 2017,2019, totaled $2,932,000$3,491,000 and $2,803,000,$3,196,000, respectively. The annual expense included in salaries and benefits expense$463,000$524,000 and $279,000$493,000 during the years ended December 31, 20182020 and 2017,2019, respectively. To fund the benefits under these plans, the Bank is the owner of single premium life insurance policies on participants in the nonqualified retirement plans.N—STOCKHOLDERS'N — STOCKHOLDERS’ EQUITY AND REGULATORY MATTERSstockholdersshareholders the opportunity to participate in the ACNB Corporation Dividend Reinvestment and Stock Purchase Plan. The plan 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 2018, 15,6182020, 20,015 shares were issued under this plan with proceeds in the amount of $528,000.$493,000. During 2017, 14,9672019, 17,324 shares were issued under this plan with proceeds in the amount of $362,000.$501,000. Proceeds are used for general corporate purposes. On May 5, 2009, stockholders approved and ratified the200,000400,000 shares of common stock.stock plus any shares that are authorized, but not issued, under the ACNB Corporation 2009 Restricted Stock Plan. The plan is availablepurpose of the plans were to provide employees and directors of the Bank to advance the best interests of ACNB Corporation and its shareholders. The plan provides those persons who have responsibility for its growth with additional incentive by allowing them to acquire an ownership in ACNBthe Corporation and thereby encouraging them to contribute to the success of the Corporation. To date, 26,045In 2020 and 2019, 19,472 and 16,115 shares, respectively, were issued under this plan.Corporation'sCorporation’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 off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.NOTE N—STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (Continued)1.875%2.5% at December 31, 2018.2018,2020, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.2018,2020, the most recent notification from the federal banking regulators categorized the Bank as "well capitalized"“well capitalized” under the regulatory framework for prompt corrective action. There are no subsequent conditions or events that management believes have changed the Bank'sBank’s category.NOTE N—STOCKHOLDERS' EQUITY AND REGULATORY MATTERS (Continued) Actual For Capital Adequacy
Purposes To be Well
Capitalized
under Prompt
Corrective Action
Provisions Dollars in thousands Amount Ratio Amount(1) Ratio(1) Amount Ratio �� $ 158,404 9.66 % $ ³65,568 ³4.0 % N/A N/A 158,404 13.19 ³54,026 ³4.5 N/A N/A 158,404 13.19 ³72,034 ³6.0 N/A N/A 172,449 14.36 ³96,046 ³8.0 N/A N/A $ 144,376 9.04 % $ ³63,871 ³4.0 % N/A N/A 144,376 12.79 ³50,796 ³4.5 N/A N/A 144,376 12.79 ³67,728 ³6.0 N/A N/A 158,479 14.04 ³90,304 ³8.0 N/A N/A $ 154,215 9.44 % $ ³65,348 ³4.0 % $ ³81,686 ³5.0 % 154,215 12.89 ³53,826 ³4.5 ³77,748 ³6.5 154,215 12.89 ³71,768 ³6.0 ³95,690 ³8.0 168,260 14.07 ³95,690 ³8.0 ³119,613 ³10.0 $ 138,811 8.70 % $ ³68,857 ³4.0 % $ ³79,822 ³5.0 % 138,811 12.34 ³50,639 ³4.5 ³73,145 ³6.5 138,811 12.34 ³67,519 ³6.0 ³90,025 ³8.0 152,868 13.58 ³90,025 ³8.0 ³112,532 ³10.0 Actual For Capital Adequacy
PurposesTo be Well
Capitalized
under Prompt
Corrective Action
ProvisionsDollars in thousands Amount Ratio Amount (1) Ratio (1) Amount Ratio CORPORATION As of December 31, 2020 Tier 1 leverage ratio (to average assets) $ 224,605 8.90 % $ ≥100,892 ≥4.0% N/A N/A Common Tier 1 risk-based capital ratio (to risk-weighted assets) 224,605 13.68 ≥73,873 ≥4.5 N/A N/A Tier 1 risk-based capital ratio (to risk-weighted assets) 224,605 13.68 ≥98,498 ≥6.0 N/A N/A Total risk-based capital ratio (to risk-weighted assets) 244,831 14.91 ≥131,330 ≥8.0 N/A N/A As of December 31, 2019 Tier 1 leverage ratio (to average assets) $ 176,403 10.19 % $ ≥69,239 ≥4.0% N/A N/A Common Tier 1 risk-based capital ratio (to risk-weighted assets) 176,403 14.50 ≥54,759 ≥4.5 N/A N/A Tier 1 risk-based capital ratio (to risk-weighted assets) 176,403 14.50 ≥73,012 ≥6.0 N/A N/A Total risk-based capital ratio (to risk-weighted assets) 190,319 15.64 ≥97,349 ≥8.0 N/A N/A BANK As of December 31, 2020 Tier 1 leverage ratio (to average assets) $ 226,800 9.01 % $ ≥100,654 ≥4.0% $ ≥ 125,818 ≥5.0 % Common Tier 1 risk-based capital ratio (to risk-weighted assets) 226,800 13.86 ≥73,638 ≥4.5 106,366 ≥6.5 Tier 1 risk-based capital ratio (to risk-weighted assets) 226,800 13.86 ≥98,184 ≥6.0 130,912 ≥8.0 Total risk-based capital ratio (to risk-weighted assets) 247,119 15.10 ≥130,912 ≥8.0 163,640 ≥10.0 As of December 31, 2019 Tier 1 leverage ratio (to average assets) $ 171,179 9.93 % $ ≥68,982 ≥4.0% $ ≥86,228 ≥5.0 % Common Tier 1 risk-based capital ratio (to risk-weighted assets) 171,179 14.13 ≥54,514 ≥4.5 ≥78,742 ≥6.5 Tier 1 risk-based capital ratio (to risk-weighted assets) 171,179 14.13 ≥72,685 ≥6.0 ≥96,913 ≥8.0 Total risk-based capital ratio (to risk-weighted assets) 185,095 15.28 ≥96,913 ≥8.0 ≥121,142 ≥10.0 O—O — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKCorporation'sCorporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments. The Corporation does not anticipate any material losses from these commitments.customer'scustomer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extensions of credit, is based on management'smanagement’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property and equipment and income-producing commercial properties. On loans secured by real estate, the Corporation generally requires loan to value ratios of no greater than 80%.20182020 and 2017,2019, for guarantees under standby letters of credit issued is not material.of $1,000,000taken was takenreduced to $0 in 2020 on this commercial line of credit since its inception. The liability is recorded for the net drawn amount of this line, no further liability is recorded for the remaining line as to the guarantor'sguarantor’s obligation as the guarantor would have full recourse from all assets of its wholly-owned subsidiary.Corporation'sCorporation’s commitments at December 31 were as follows:In thousands 2020 2019 Commitments to extend credit $ 367,561 $ 319,681 Standby letters of credit 8,105 6,584 In thousands 2018 2017 $ 279,729 $ 264,368 3,909 6,362 NOTE P—CONTINGENCIESQ—Q — ACNB CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION December 31, In thousands 2020 2019 ASSETS Cash $ 6,397 $ 6,828 Investment in banking subsidiary 252,107 176,689 Investment in other subsidiaries 11,141 10,473 Securities and other assets 2,203 1,558 Receivable from banking subsidiary 1,251 812 Total Assets $ 273,099 $ 196,360 LIABILITIES AND STOCKHOLDERS’ EQUITY Long-term debt $ 15,029 $ 6,830 Other liabilities 98 14 Stockholders’ equity 257,972 189,516 Total Liabilities and Stockholders’ Equity $ 273,099 $ 196,360 December 31, In thousands 2018 2017 $ 7,391 $ 9,440 156,651 143,288 9,389 8,517 240 689 1,271 1,548 518 118 $ 175,460 $ 163,600 $ 7,300 $ 9,600 23 34 168,137 153,966 $ 175,460 $ 163,600 Years Ended December 31, In thousands 2020 2019 Dividends from banking subsidiary $ 8,685 $ 6,920 Other income 83 282 8,768 7,202 Expenses 1,845 1,739 6,923 5,463 Income tax benefit 587 501 7,510 5,964 Equity in undistributed earnings of subsidiaries 10,884 17,757 Net Income $ 18,394 $ 23,721 Comprehensive Income $ 18,609 $ 27,085 Years Ended
December 31, In thousands 2018 2017 $ 6,261 $ 5,233 47 — 35 31 6,343 5,264 1,421 1,572 4,922 3,692 547 507 5,469 4,199 16,279 5,589 $ 21,748 $ 9,788 $ 19,623 $ 9,903 NOTE Q—ACNB CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION (Continued) Years Ended December 31, In thousands 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 18,394 $ 23,721 Equity in undistributed earnings of subsidiaries (10,884) (17,757) Increase in receivable from banking subsidiary (439) (294) Gain on equity securities 213 0 Other 647 (57) Net Cash Provided by Operating Activities 7,931 5,613 CASH FLOWS FROM INVESTING ACTIVITIES — — Net Cash Used in Investing Activities 0 0 CASH FLOWS USED IN FINANCING ACTIVITIES Repayments on long-term debt (501) (470) Proceeds from issuance of common stock 824 1,214 Dividends paid (8,685) (6,920) Net Cash Used in Financing Activities (8,362) (6,176) Net Decrease in Cash and Cash Equivalents (431) (563) CASH AND CASH EQUIVALENTS — BEGINNING 6,828 7,391 CASH AND CASH EQUIVALENTS — ENDING $ 6,397 $ 6,828 Transactions related to acquisition Increase in assets and liabilities: Securities $ (257) $ 0 Other assets (733) 0 Trust preferred debentures 6,000 0 Long term borrowings 2,700 0 Common shares issued 57,280 0 Years Ended
December 31, In thousands 2018 2017 $ 21,748 $ 9,788 (16,279 ) (5,589 ) (400 ) 12 47 — 669 129 5,785 4,340 — 1,000 — (4,445 ) — (3,445 ) — 4,600 (2,300 ) — 727 615 (6,261 ) (5,233 ) (7,834 ) (18 ) (2,049 ) 877 9,440 8,563 $ 7,391 $ 9,440 R—R — GOODWILL AND OTHER INTANGIBLES Combining goodwill resulting from this transaction with existing goodwill from the 2005 RIG purchase of $6,308,000, total goodwill included in the Corporation's consolidated statement of condition is $19,580,000. Goodwill is not deductible for federal income tax purposes. Goodwill, which has anNOTE R—GOODWILL AND OTHER INTANGIBLES (Continued)indefinite useful life, is evaluated for impairment annually and is evaluated for impairment more frequently if events and circumstances indicate that the asset might be impaired. The Corporation did not identify any impairment on RIG's or the Bank's outstanding goodwill from its most recent testing. There are no impairment losses associated with goodwill as of December 31, 2018 and 2017. Additionally, there are no accumulated impairment losses associated with goodwill as of December 31, 2018 and 2017. No change occurred during the year with RIG's goodwill, $6,308,000, or the Bank's goodwill of $13,272,000.(RIG customer lists and New Windsor core deposit intangibles)intangibles are as follows:2020 2019 Dollars in thousands Gross
Carrying
AmountAccumulated Amortization Gross
Carrying
AmountAccumulated Amortization RIG amortized intangible assets $ 10,428 $ 7,152 $ 9,890 $ 6,869 New Windsor core deposit intangibles 2,418 1,341 2,418 1,012 FCBI core deposit intangibles 3,560 648 0 0 $ 16,406 $ 9,141 $ 12,308 $ 7,881 2018 2017 Dollars in thousands Gross
Carrying
Amount Accumulated
Amortization Gross
Carrying
Amount Accumulated
Amortization $ 3,282 $ 3,282 $ 3,282 $ 3,282 637 637 637 637 1,165 1,165 1,165 1,101 1,300 1,300 1,300 1,170 33 30 33 26 77 39 77 31 173 67 173 49 2,583 90 — — RIG amortized intangible assets 9,250 6,623 6,667 6,296 New Windsor core deposit intangibles 2,418 638 2,418 220 $ 11,668 $ 7,261 $ 9,085 $ 6,516 $745,000$1,264,000 and $537,000$621,000 for the years ended December 31, 20182020 and 2017,2019, respectively.2018,2020, is expected to be as follows:Years Ending In thousands 2021 $ 1,164 2022 1,056 2023 947 2024 830 2025 707 Thereafter 2,561 $ 7,265 In thousands $ 683 635 591 547 503 1,448 S—S — SEGMENT AND RELATED INFORMATIONtwo2 reporting segments, the Bank and RIG. RIG is managed separately from the banking segment, which includes the Bank and related financial services that the Corporation offers through its banking subsidiary. RIG offers a broad range of property and casualty, life and health insurance to both commercial and individual clients.NOTE S—SEGMENT AND RELATED INFORMATION (Continued)20182020 and 20172019 is as follows:In thousands Banking Insurance Total 2020 Net interest income and other income from external customers $ 87,244 $ 5,758 $ 93,002 Income before income taxes 21,778 924 22,702 Total assets 2,541,559 13,803 2,555,362 Capital expenditures 1,018 30 1,048 2019 Net interest income and other income from external customers $ 71,713 $ 5,874 $ 77,587 Income before income taxes 27,870 1,496 29,366 Total assets 1,707,653 12,600 1,720,253 Capital expenditures 1,367 57 1,424 In thousands Banking Insurance Total $ 67,654 $ 5,389 $ 73,043 25,515 1,205 26,720 1,634,750 12,974 1,647,724 1,341 402 1,743 $ 55,763 $ 4,738 $ 60,501 15,585 837 16,422 1,586,064 9,368 1,595,432 1,727 30 1,757 NOTE T—NEW WINDSOR ACQUISITIONJuly 1, 2017,January 11, 2020, ACNB completed its previously announced acquisition of New WindsorFrederick County Bancorp, Inc. (New Windsor)(FCBI) of Taneytown,Frederick, Maryland. New WindsorFCBI was a locally owned and managed institution with seven5 locations in north central MarylandFrederick County, Maryland.complemented, enhancedis adjacent to the Corporation’s current footprint in southcentral Pennsylvania and expanded ACNB's physical presence in north central Maryland. ACNB transacted the acquisitionmerger to enhance its competitivecomplement the Corporation’s existing operations, while consistent with the Corporation’s strategic position, potential prospective business opportunities, operations, management, prospective financial condition, future earnings and business prospects. Specifically, ACNB believes that the acquisition will enhance its business opportunities in Northern Maryland due to the combined company having a greater market share, market presence and the ability to offer more diverse (i.e. Trust Services) and more profitable products, as well as a broader based and geographically diversified branch system to enhance deposit collection and potentially improve funding costs.plan of enhancing long-term shareholder value. The fair value of total assets acquired as a result of the acquisitionmerger totaled $319.8$443.4 million, loans totaled $263.5$329.3 million and deposits totaled $293.3$374.1 million.acquisitionmerger was $13.3$22.5 million. In accordance with the terms of the Reorganization Agreement, dated November 21, 2016, as amended, New Windsor shareholders received, in aggregate, $4.5 million in cash and 938,360each share of FCBI common stock was converted into the right to receive 0.9900 shares of ACNB common stock or approximately 13%stock. As a result of the post transaction outstandingmerger, ACNB issued 1,590,547 shares of its common stock and cash in exchange for fractional shares based upon $36.43, the Corporation's common stock. The transaction was valued at $33.3 million based on the Corporation's June 30, 2017 closingdetermined market price of $30.50 as quoted on NASDAQ.ACNB common stock in accordance with the Reorganization Agreement. The results of the combined entity'sentity’s operations are included in the Corporation'sCorporation’s Consolidated Financial Statements from the date of acquisition.New WindsorFCBI is being accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition.NOTE T—NEW WINDSOR ACQUISITION (Continued)New WindsorFCBI and the fair value of assets acquired and liabilities assumed as of the acquisition date:FCBI shares outstanding 1,601,764 Shares paid in cash for fractional shares 150.88 Cash consideration (per share) $ 36.43 Cash portion of purchase price (cash payout of stock options and cash in lieu of fractional shares) $ 100,798 FCBI shares outstanding 1,601,764 Shares paid stock consideration 1,601,613 Exchange ratio 0.9900 Total ACNB shares issued 1,585,597 ACNB’s share price for purposes of calculation $ 36.34 Equity portion of purchase price $ 57,620,595 Cost of shares owned by buyer $ 187,200 Total consideration paid $ 57,908,593 1,003,703 150,555 $ 30.00 $ 4,519,995 1,003,703 853,148 1.10 938,360 $ 30.50 $ 28,619,980 $ 150,000 $ 33,289,975 Allocation of Purchase Price In thousands Total Purchase Price $ 57,909 Fair Value of Assets Acquired Cash and cash equivalents 35,262 Investment securities 22,167 Loans held for sale 4,050 Loans 329,312 Restricted stock 1,141 Premises and equipment 10,959 Core deposit intangible asset 3,560 Other assets 14,446 Total assets 420,897 Fair Value of Liabilities Assumed Non-interest bearing deposits 103,492 Interest bearing deposits 270,566 Subordinated debt 6,000 Long term borrowings 3,450 Other liabilities 2,008 Total liabilities 385,516 Net Assets Acquired 35,381 Goodwill Recorded in Acquisition $ 22,528 In thousands $ 33,290
10,964 21,624 1,463 263,450 486 8,624 2,418 10,792 319,821
80,006 213,327 4,688 1,782 299,803
20,018 $ 13,272 New Windsor.FCBI. ASC 820 defines fair value as "the“the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Goodwill”intangibles are allocated tointangible and the banking business segment.deferred income tax assets resulting from the acquisition.NOTE T—NEW WINDSOR ACQUISITION (Continued)Corporation'sCorporation’s independent pricing service utilized matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific security but rather relying on the security'ssecurity’s relationship to other benchmark quoted prices. Management reviewed the data and assumptions used in pricing the securities.New Windsor'sFCBI’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $272,646,000.$339,577,000. The table below illustrates the fair value adjustments made to the amortized cost basis in order to present a fair value of the loans acquired. The credit adjustment on purchased credit impaired loans is derived in accordance with ASC 310-30 and represents the portion of the loan balances that has been deemed uncollectible based on the Corporation'sCorporation’s expectations of future cash flows for each respective loan. $ 272,646 (731 ) (4,501 ) (3,964 ) $ 263,450 In thousands Gross amortized cost basis at January 11, 2020 $ 339,577 Interest rate fair value adjustment on pools of homogeneous loans (2,632) Credit fair value adjustment on pools of homogeneous loans (5,931) Credit fair value adjustment on purchased credit impaired loans (1,702) Fair value of acquired loans at January 11, 2020 $ 329,312 $731,000.NOTE T—NEW WINDSOR ACQUISITION (Continued)NWSBFCBI and peer banks. ACNB also estimated an environmental factor to apply to each loan type. The environmental factor represents potential discount which may arise due to general credit and economic factors. A credit fair value discount of $4.5$5.3 million was determined. Both the interest rate and credit fair value adjustments relate to loans acquired withoutwith evidence of credit quality deterioration will be substantially recognized as interest income on a level yield amortization method over the expected life of the loans. $ 13,439 (5,651 ) 7,788 (1,458 ) $ 6,330 In thousands Contractual principal and interest at acquisition $ 4,289 Nonaccretable difference (2,361) Expected cash flows at acquisition 1,928 Accretable yield (354) Fair value of purchased impaired loans $ 1,574 Premises and Equipmentseven5 branches from New Windsor.of FCBI. The fair value of New Windsor'sFCBI’s premises, including land, buildings, and improvements, was determined based upon independent third-party appraisals and other dataperformed by licensed appraisers in the market in which the premises are located. The Corporation prepared an internal analysis to compare the lease contract obligations to comparable market rental rates. The Corporation believed that the leased contract rates were in a reasonable range of market rental rates and concluded that no fair market value adjustment related to leasehold interest was necessary.discountpremium of approximately $847,500$255,000 is being amortized into income on a level yield amortization method over the contractual life of the deposits.acquisition.merger. The fair value of the trust preferred subordinated debt was determined based upon an estimated fair value from an independent brokerage firm.using a discounted cash flow method using a market participant discount rate for similar instruments. The trust preferred capital note was valued at discount ofNOTE T—NEW WINDSOR ACQUISITION (Continued)$312,500, $854,000, which is being amortized into income on a level yield amortization method based upon the assumed market rate, and the term of the trust preferred subordinated debt instrument.In thousands For the Nine Months Ended September 30, 2019 Total revenues (net interest income plus non-interest income) $ 72,281 Net Income 22,138 U—U — REVENUE RECOGNITION disclosed in Note A, as of January 1, 2018, the Corporation adopted ASU 2014-09,Revenue from Contracts with Customers (Topic 606), as well as subsequent ASUs that modified ASC 606. The Company has elected to apply the ASU and all related ASUs using the cumulative effect approach. The implementation of the guidance had no material impact on the measurement or recognition of revenue of prior periods. The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.Corporation'sCorporation’s largest sources of noninterest income within the consolidated statements of income that are subject to ASC 606 are as follows:— - ACNB Bank'sBank’s Trust & Investment Services, under the umbrella of ACNB Wealth Management, provides a wide range of financial services, including trust services for individuals, businesses and retirement funds. Other services include, but are not limited to, those related to testamentary trusts, life insurance trusts, charitable remainder trusts, guardianships, power of attorney, custodial accounts and investment management and advisor accounts. In addition, ACNB'sACNB’s Wealth Management Department offers retail brokerage-services through a third party provider. Wealth Management clients are located primarily within the Corporation'sCorporation’s geographic markets. Assets held by the Corporation'sCorporation’s Wealth Management Department, including trust and retail brokerage, in an agency, fiduciary or retail brokerage capacity for its customers are excluded from the consolidated financial statement since they do not constitute assets of the Corporation. Assets held by the Wealth Management Department amounted to $342,000,000$436,700,000 and $327,000,000$389,000,000 at December 31, 20182020 and 2017,2019, respectively. Income from fiduciary, investment management and brokerage activities are included in other income.— - Deposits are included as liabilities in the consolidated balance sheets. Service charges on deposit accounts include: overdraft fees, which are charged when customers overdraw their accounts beyond available funds; automated teller machine (ATM) fees charged for withdrawals by deposit customers from other financial institutions'institutions’ ATMs; and a variety of other monthly or transactional fees for services provided to retail and business customers, mainly associated with checking accounts. All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers. Incremental costs of obtaining deposit contracts are not significantNOTE U—REVENUE RECOGNITION (Continued)— - The Corporation issues debit cards to consumer and business customers with checking, savings or money market deposit accounts. Debit card and ATM transactions are processed via electronic systems that involve several parties. The Corporation'sCorporation’s debit card and ATM transaction processing is executed via contractual arrangements with payment processing networks, a processor and a settlement bank. As described above, all deposit liabilities are considered to have one-day terms and therefore interchange revenue from customers'customers’ use of their debit cards to initiate transactions are recognized in income at the time when the services are provided and related fees received in the Corporation'sCorporation’s deposit account with the settlement bank. Incremental costs associated with ATM and interchange processing are recognized as expense when incurred within noninterest expense in the consolidated statements of income.Corporation'sCorporation’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.Corporation'sCorporation’s disclosure controls and procedures were effective as of December 31, 2018.2020. The Corporation believes that the accompanying consolidated financial statements fairly present the financial condition and results of operations for the fiscal years presented in this report on Form 10-K.Corporation'sCorporation’s internal control over financial reporting in connection with the fourth quarter evaluation that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.management'smanagement’s best estimates and judgments. ACNB'smanagement'smanagement’s actions for internal control, accounting and financial reporting matters. The internal auditors and independent registered public accounting firm have direct and confidential access to the Audit Committee to discuss the results of their examinations.ACNB'sACNB’s internal control over financial reporting as of December 31, 2018.2020. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in itsInternal Control—Integrated Framework (2013). Based on our assessment, management concluded that as of December 31, 2018, ACNB's2020, ACNB’s internal control over financial reporting is effective and meets the criteria of theInternal Control—Integrated Framework (2013). ACNB's independent registered public accounting firm, RSM US LLP, has issued an attestation report on ACNB's internal control over financial reporting. This report appears on the following page./s/ JAMES P. HELT /s/ DAVID W. CATHELL James P. Helt
President & Chief Executive Officer/s/ DAVID W. CATHELL
David W. Cathell
Executive Vice President/Treasurer &
Chief Financial OfficerReport of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of ACNB Corporation and SubsidiariesOpinion on the Internal Control Over Financial Reporting We have audited ACNB Corporation and Subsidiaries (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of the Company and our report dated March 8, 2019 expressed an unqualified opinion.Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
ITEM 9B—OTHER INFORMATION Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ RSM US LLPBlue Bell, PennsylvaniaMarch 8, 2019 None."Information“Information as to Nominees and Directors"Directors”, "Executive“Executive Officers of ACNB Corporation"Corporation”, "Meetings“Meetings and Committees of the Board of Directors"Directors”, "Audit“Audit Committee Report"Report” and "Section“Section 16(a) Beneficial Ownership Reporting Compliance"Compliance” of ACNB Corporation'sCorporation’s definitive Proxy Statement to be used in connection with the 20192021 Annual Meeting of Shareholders, which pages are incorporated herein by reference.revised andmost recently approved by the Corporation'sCorporation’s Board of Directors on February 26, 2019,23, 2021, is available under the Governance Documents section of the Corporation’s Investor Relations page of ACNB Bank's website at www.acnb.com.investor.acnb.com. A request for the Corporation'sCorporation’s Code of Ethics can be made either in writing to Lynda L. Glass, Executive Vice President/Secretary & Chief Governance Officer, ACNB Corporation, 16 Lincoln Square, P.O. Box 3129, Gettysburg, Pennsylvania 17325 or by telephone at 717-334-3161.stockholdersshareholders may recommend nominees to the Corporation'sCorporation’s Board of Directors."Compensation“Executive Compensation” and Plan Information", "Executive Compensation and Employee Benefits" and "Potential“Potential Payments Upon Termination or Change In Control"Control” in ACNB Corporation's 2019Corporation’s 2021 definitive Proxy Statement."Share Ownership"“Share Ownership” in ACNB Corporation's 2019Corporation’s 2021 definitive Proxy Statement.Corporation'sCorporation’s stock that may be issued under existing equity compensation plans as of December 31, 2018:Plan Category Number of securities to be
issued upon exercise of
outstanding options,
warrants and rightsWeighted-average
exercise price of
outstanding
options,
warrants
and rightsNumber of securities
remaining available
for future issuance
under equity
compensation plans— —$ — 573,955538,468— —— —— —Total — $ — 538,468Total—$—573,955 "Transactions“Transactions with Directors and Executive Officers"Officers” and "Governance“Governance of the Corporation"Corporation” in ACNB Corporation's 2019Corporation’s 2021 definitive Proxy Statement."Independent Auditors"“Independent Auditors” in ACNB Corporation's 2019Corporation’s 2021 definitive Proxy Statement.ReportsFirmsStockholders'Stockholders’ EquityExhibit 2.2 Exhibit 2.3 Exhibit 3(i) Exhibit 3(ii) Exhibit 10.2 Exhibit 10.3 Exhibit 10.4 Exhibit 10.5 Exhibit 10.6 Exhibit 10.7 Exhibit 10.810.9Exhibit 10.1010.910.11Exhibit 10.1210.11Exhibit 10.1310.12Exhibit 10.1410.13Exhibit 10.1510.14Exhibit 10.1610.15Exhibit 10.1710.16Exhibit 10.1810.17Exhibit 10.1910.18Exhibit 10.2010.19Exhibit 10.2110.2010.22Exhibit 10.2310.24Exhibit 10.23 Exhibit 10.24 Exhibit 10.25 Exhibit 10.26 Exhibit 10.27 Exhibit 10.28 Exhibit 10.29 Exhibit 18 Exhibit 21 Exhibit 23.1 Exhibit 23.2Exhibit 31.2 Exhibit 32.1 Exhibit 32.2 Exhibit 101.LAB Exhibit 101.PRE Exhibit 101.INS Document.Exhibit 101.SCH Exhibit 101.CAL Exhibit 101.DEF Exhibit 104 Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). ACNB CORPORATION (Registrant)March 8, 2019DateBy:ACNB CORPORATIONMarch 5, 2021 (Registrant) Date By: /s/ JAMES P. HELT James P. Helt
President & Chief Executive Officer8, 2019,5, 2021, by the following persons in the capacities indicated./s/ DAVID W. CATHELL /s/ JAMES P. HELT David W. Cathell
Executive Vice President/
Treasurer & Chief Financial Officer
(Principal Financial Officer)/s/ JAMES P. HELT
James P. Helt
Director and President & Chief Executive
Officer
/s/ RICHARD L. ALLOWAY IIRichard L. Alloway IIDirectorKIMBERLY S. CHANEY
/s/ DANIEL W. POTTSDaniel W. PottsDirectorTHOMAS A. RITTER
Kimberly S. Chaney DirectorThomas A. Ritter Director /s/ FRANK ELSNER, III /s/ MARIAN B. SCHULTZ Frank Elsner, III
Director and Chairman of the Board/s/ THOMAS A. RITTERThomas A. Ritter
Marian B. Schultz
Director
/s/ TODD L. HERRINGTodd L. HerringDirector/s/ MARIAN B. SCHULTZMarian B. SchultzDirector/s/ SCOTT L. KELLEYScott L. KelleyDirector
/s/ D. ARTHUR SEIBEL, JR.D. Arthur Seibel, Jr.Director/s/ JAMES J. LOTTJames J. LottDirector/s/ DAVIDTodd L. SITESDavid L. SitesDirector/s/ DONNA M. NEWELLDonna M. NewellDirector/s/ ALAN J. STOCKAlan J. Stock
Herring Director and Vice Chairman of the BoardD. Arthur Seibel, Jr. Director
/s/ SCOTT L. KELLEY/s/ DAVID L. SITES Scott L. Kelley
DirectorDavid L. Sites
Director/s/ JAMES J. EMMETT PATTERSON
LOTT/s/ ALAN J. Emmett Patterson
STOCKJames J. Lott
Director
Alan J. Stock
Director and Chairman of the Board/s/ DONNA M. NEWELL /s/ JAMES E. WILLIAMS Donna M. Newell
DirectorJames E. Williams
Director/s/ DANIEL W. POTTS Daniel W. Potts
Director