UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

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

For the transition period from _______ to _______

Commission file number 1-35015

ACNB CORPORATION

(Exact name of Registrant as specified in its charter)


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


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

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $2.50 par value per share

ACNB

The NASDAQ Stock Market, LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

Large accelerated filer ☐

Accelerated filer

☐☒

Non-accelerated filer

☒☐

Smaller reporting company

☒

Emerging growth company

☐

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

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

The number of shares of the Registrant’s Common Stock outstanding on ~~October 26, 2021,~~April 29, 2022, was ~~8,695,071.~~8,707,028.

PART I - FINANCIAL INFORMATION

ACNB CORPORATION

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

Dollars in thousands, except per share data September 30,
2021 September 30,
2020 December 31,
2020
ASSETS
Cash and due from banks $ 22,479 $ 21,163 $ 23,739
Interest bearing deposits with banks 700,303 278,490 375,613
Total Cash and Cash Equivalents 722,782 299,653 399,352
Equity securities with readily determinable fair values 2,547 1,880 2,170
Debt securities available for sale 411,676 313,671 337,718
Securities held to maturity, fair value $7,482; $14,110; $10,768 7,220 13,606 10,294
Loans held for sale 3,935 10,043 11,034
Loans, net of allowance for loan losses $19,141; $19,200; $20,226 1,467,745 1,681,683 1,617,558
Premises and equipment, net 31,667 33,180 33,013
Right of use assets 3,416 3,306 3,145
Restricted investment in bank stocks 2,368 3,022 2,942
Investment in bank-owned life insurance 64,467 63,049 63,401
Investments in low-income housing partnerships 1,286 1,411 1,380
Goodwill 42,108 42,108 42,108
Intangible assets, net 6,387 7,578 7,265
Foreclosed assets held for resale — 680 —
Other assets 25,188 28,179 23,982
Total Assets $ 2,792,792 $ 2,503,049 $ 2,555,362
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 610,765 $ 544,332 $ 556,666
Interest bearing 1,806,796 1,571,244 1,628,859
Total Deposits 2,417,561 2,115,576 2,185,525
Short-term borrowings 44,605 52,721 38,464
Long-term borrowings 41,700 57,113 53,745
Lease liabilities 3,416 3,292 3,138
Other liabilities 15,670 17,624 16,518
Total Liabilities 2,522,952 2,246,326 2,297,390
STOCKHOLDERS’ EQUITY
Preferred stock, $2.50 par value; 20,000,000 shares authorized; no shares outstanding — — —
Common stock, $2.50 par value; 20,000,000 shares authorized; 8,789,890, 8,765,913 and 8,771,993 shares issued; 8,712,189, 8,703,313 and 8,709,393 shares outstanding 21,963 21,903 21,918
Treasury stock, at cost; 77,701, 62,600 and 62,600 shares (1,148) (728) (728)
Additional paid-in capital 94,527 93,895 94,048
Retained earnings 165,001 143,499 148,372
Accumulated other comprehensive loss (10,503) (1,846) (5,638)
Total Stockholders’ Equity 269,840 256,723 257,972
Total Liabilities and Stockholders’ Equity $ 2,792,792 $ 2,503,049 $ 2,555,362


Dollars in thousands, except per share data	March 31, 2022		March 31, 2021		December 31, 2021

ASSETS

Cash and due from banks	$	23,388	$	24,305	$	14,912
Interest bearing deposits with banks	454,232		482,453		695,219

Total Cash and Cash Equivalents	477,620		506,758		710,131

Equity securities with readily determinable fair values	2,500		2,535		2,609
Debt securities available for sale	576,360		355,008		437,098
Securities held to maturity, fair value $27,679; $9,451; $6,652	28,019		9,155		6,454
Loans held for sale	1,123		12,000		2,193
Loans, net of allowance for loan losses $18,963; $20,237; $19,033	1,465,363		1,590,481		1,449,394
Assets held for sale	—		—		1,093
Premises and equipment, net	30,740		32,491		30,980
Right of use assets	3,181		2,984		3,270
Restricted investment in bank stocks	1,855		2,798		2,303
Investment in bank-owned life insurance	64,588		63,739		64,261
Investments in low-income housing partnerships	1,223		1,349		1,254
Goodwill	44,184		42,108		42,108
Intangible assets, net	11,516		6,969		6,101

Other assets	37,884		26,242		27,738

Total Assets	$	2,746,156	$	2,654,617	$	2,786,987

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Deposits:
Non-interest bearing	$	633,119	$	589,045	$	623,360
Interest bearing	1,777,642		1,689,577		1,803,029

Total Deposits	2,410,761		2,278,622		2,426,389

Short-term borrowings	30,028		31,282		35,202
Long-term borrowings	30,200		65,616		34,700
Lease liabilities	3,181		2,984		3,270
Other liabilities	15,977		18,501		15,312

Total Liabilities	2,490,147		2,397,005		2,514,873

STOCKHOLDERS’ EQUITY
Preferred stock, $2.50 par value; 20,000,000 shares authorized; no shares outstanding	—		—		—
Common stock, $2.50 par value; 20,000,000 shares authorized; 8,823,699, 8,777,620 and 8,795,877 shares issued; 8,707,028, 8,715,020 and 8,679,206 shares outstanding	22,048		21,932		21,978
Treasury stock, at cost; 116,671, 62,600 and 116,671 shares	(2,245)		(728)		(2,245)
Additional paid-in capital	95,530		94,215		94,688
Retained earnings	171,580		153,666		167,238
Accumulated other comprehensive loss	(30,904)		(11,473)		(9,545)

Total Stockholders’ Equity	256,009		257,612		272,114

Total Liabilities and Stockholders’ Equity	$	2,746,156	$	2,654,617	$	2,786,987

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Dollars in thousands, except per share data	Dollars in thousands, except per share data	2021		2020		2021		2020		Dollars in thousands, except per share data	2022		2021

INTEREST AND DIVIDEND INCOME	INTEREST AND DIVIDEND INCOME									INTEREST AND DIVIDEND INCOME
Loans, including fees	Loans, including fees	$	17,689	$	19,861	$	54,435	$	59,076	Loans, including fees	$	16,090	$	17,798
Securities:	Securities:									Securities:
Taxable	Taxable	1,366		1,198		4,033		3,676		Taxable	1,550		1,284
Tax-exempt	Tax-exempt	138		129		402		341		Tax-exempt	140		135
Dividends	Dividends	34		60		137		205		Dividends	35		61
Other	Other	255		76		478		520		Other	262		92
Total Interest Income	Total Interest Income	19,482		21,324		59,485		63,818		Total Interest Income	18,077		19,370
INTEREST EXPENSE	INTEREST EXPENSE									INTEREST EXPENSE
Deposits	Deposits	1,084		2,498		4,028		8,166		Deposits	738		1,654
Short-term borrowings	Short-term borrowings	11		15		28		44		Short-term borrowings	17		10
Long-term borrowings	Long-term borrowings	387		445		1,535		1,442		Long-term borrowings	269		381
Total Interest Expense	Total Interest Expense	1,482		2,958		5,591		9,652		Total Interest Expense	1,024		2,045
Net Interest Income	Net Interest Income	18,000		18,366		53,894		54,166		Net Interest Income	17,053		17,325

PROVISION FOR LOAN LOSSES	PROVISION FOR LOAN LOSSES	—		1,550		50		8,100		PROVISION FOR LOAN LOSSES	—		50

Net Interest Income after Provision for Loan Losses	Net Interest Income after Provision for Loan Losses	18,000		16,816		53,844		46,066		Net Interest Income after Provision for Loan Losses	17,053		17,275
OTHER INCOME	OTHER INCOME									OTHER INCOME
Commissions from insurance sales	Commissions from insurance sales	1,715		1,688		4,951		4,745		Commissions from insurance sales	1,200		1,383
Service charges on deposit accounts	Service charges on deposit accounts	900		827		2,428		2,460		Service charges on deposit accounts	958		774
Income from fiduciary, investment management and brokerage activities	Income from fiduciary, investment management and brokerage activities	837		659		2,363		1,982		Income from fiduciary, investment management and brokerage activities	810		703
Income from mortgage loans held for sale	Income from mortgage loans held for sale	300		427		2,497		1,279		Income from mortgage loans held for sale	281		1,283
Earnings on investment in bank-owned life insurance	Earnings on investment in bank-owned life insurance	356		365		1,066		1,090		Earnings on investment in bank-owned life insurance	327		338

Net gains (losses) on equity securities	Net gains (losses) on equity securities	—		(82)		377		(483)		Net gains (losses) on equity securities	(109)		365

Service charges on ATM and debit card transactions	Service charges on ATM and debit card transactions	862		809		2,536		2,161		Service charges on ATM and debit card transactions	753		778
Other	Other	304		319		925		837		Other	239		289
Total Other Income	Total Other Income	5,274		5,012		17,143		14,071		Total Other Income	4,459		5,913
OTHER EXPENSES	OTHER EXPENSES									OTHER EXPENSES
Salaries and employee benefits	Salaries and employee benefits	8,921		8,625		26,259		25,731		Salaries and employee benefits	7,559		8,668
Net occupancy	Net occupancy	974		857		3,046		2,709		Net occupancy	1,159		1,167
Equipment	Equipment	1,181		1,284		3,783		4,039		Equipment	1,518		1,291
Other tax	Other tax	393		321		1,177		967		Other tax	416		393
Professional services	Professional services	422		265		890		921		Professional services	309		224
Supplies and postage	Supplies and postage	198		145		539		554		Supplies and postage	181		163
Marketing and corporate relations	Marketing and corporate relations	81		101		220		442		Marketing and corporate relations	103		77
FDIC and regulatory	FDIC and regulatory	247		211		705		397		FDIC and regulatory	271		232
Merger related expenses		—		—		—		5,965

Intangible assets amortization	Intangible assets amortization	285		313		878		951		Intangible assets amortization	309		296
Foreclosed real estate income	Foreclosed real estate income	(88)		(89)		(90)		(182)		Foreclosed real estate income	—		(1)
Other operating	Other operating	1,362		1,277		4,087		3,728		Other operating	1,457		1,277
Total Other Expenses	Total Other Expenses	13,976		13,310		41,494		46,222		Total Other Expenses	13,282		13,787
Income before Income Taxes	Income before Income Taxes	9,298		8,518		29,493		13,915		Income before Income Taxes	8,230		9,401
PROVISION FOR INCOME TAXES	PROVISION FOR INCOME TAXES	1,938		1,747		6,154		2,570		PROVISION FOR INCOME TAXES	1,631		1,930
Net Income	Net Income	$	7,360	$	6,771	$	23,339	$	11,345	Net Income	$	6,599	$	7,471
PER SHARE DATA	PER SHARE DATA									PER SHARE DATA
Basic earnings	Basic earnings	$	0.84	$	0.79	$	2.67	$	1.32	Basic earnings	$	0.76	$	0.86
Cash dividends declared	Cash dividends declared	$	0.25	$	0.25	$	0.77	$	0.75	Cash dividends declared	$	0.26	$	0.25

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Dollars in thousands	Dollars in thousands	2021		2020		2021		2020		Dollars in thousands	2022		2021

NET INCOME	NET INCOME	$	7,360	$	6,771	$	23,339	$	11,345	NET INCOME	$	6,599	$	7,471

OTHER COMPREHENSIVE INCOME	OTHER COMPREHENSIVE INCOME									OTHER COMPREHENSIVE INCOME

SECURITIES	SECURITIES									SECURITIES

Unrealized gains (losses) arising during the period, net of income taxes of $(484), $(102), $(1,600) and $1,025, respectively		(1,695)		(358)		(5,598)		3,613
Unrealized losses arising during the period, net of income taxes of $(6,128) and $(1,738), respectively										Unrealized losses arising during the period, net of income taxes of $(6,128) and $(1,738), respectively	(21,438)		(6,079)

Reclassification adjustment for net gains included in net income, net of income taxes of $0, $0, $0 and $0, respectively (A) (C)		—		—		—		—
Reclassification adjustment for net gains included in net income, net of income taxes of $0 and $0, respectively (A) (C)										Reclassification adjustment for net gains included in net income, net of income taxes of $0 and $0, respectively (A) (C)	—		—

PENSION	PENSION									PENSION

Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $69, $37, $208 and $113, respectively (B) (C)		245		132		733		394
Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $23 and $69, respectively (B) (C)										Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $23 and $69, respectively (B) (C)	79		244

TOTAL OTHER COMPREHENSIVE INCOME (LOSS)		(1,450)		(226)		(4,865)		4,007
TOTAL OTHER COMPREHENSIVE LOSS										TOTAL OTHER COMPREHENSIVE LOSS	(21,359)		(5,835)

TOTAL COMPREHENSIVE INCOME		$	5,910	$	6,545	$	18,474	$	15,352
TOTAL COMPREHENSIVE (LOSS) INCOME										TOTAL COMPREHENSIVE (LOSS) INCOME	$	(14,760)	$	1,636

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

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

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~


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

BALANCE – JANUARY 1, 2021		$	21,918	$	(728)	$	94,048	$	148,372	$	(5,638)	$	257,972
BALANCE – JANUARY 1, 2022														BALANCE – JANUARY 1, 2022	$	21,978	$	(2,245)	$	94,688	$	167,238	$	(9,545)	$	272,114
Net income	Net income	—		—		—		7,471		—		7,471		Net income	—		—		—		6,599		—		6,599
Other comprehensive loss, net of taxes	Other comprehensive loss, net of taxes	—		—		—		—		(5,835)		(5,835)		Other comprehensive loss, net of taxes	—		—		—		—		(21,359)		(21,359)
Common stock shares issued (5,627 shares)		14		—		(195)		—		—		(181)

Common stock shares issued (5,587 shares)														Common stock shares issued (5,587 shares)	14		—		169		—		—		183
Restricted stock grants (22,235 shares)														Restricted stock grants (22,235 shares)	56		—		430		—		—		486
Restricted stock compensation expense	Restricted stock compensation expense	—		—		362		—		—		362		Restricted stock compensation expense	—		—		243		—		—		243
Cash dividends declared	Cash dividends declared	—		—		—		(2,177)		—		(2,177)		Cash dividends declared	—		—		—		(2,257)		—		(2,257)
BALANCE – MARCH 31, 2021		21,932		(728)		94,215		153,666		(11,473)		257,612
Net income		—		—		—		8,508		—		8,508
Other comprehensive income, net of taxes		—		—		—		—		2,420		2,420
Common stock shares issued (6,328 shares)		16		—		163		—		—		179
BALANCE – MARCH 31, 2022														BALANCE – MARCH 31, 2022	22,048		(2,245)		95,530		171,580		(30,904)		256,009

Cash dividends declared		—		—		—		(2,353)		—		(2,353)
BALANCE – JUNE 30, 2021		21,948		(728)		94,378		159,821		(9,053)		266,366
Net income		—		—		—		7,360		—		7,360
Other comprehensive loss, net of taxes		—		—		—		—		(1,450)		(1,450)
Common stock shares issued (5,942 shares)		15		—		149		—		—		164
Repurchased shares (15,101 shares)		—		(420)		—		—		—		(420)

Cash dividends declared		—		—		—		(2,180)		—		(2,180)
BALANCE- SEPTEMBER 30, 2021		$	21,963	$	(1,148)	$	94,527	$	165,001	$	(10,503)	$	269,840

Dollars in thousands Common Stock Treasury Stock Additional Paid-in Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Stockholders’
Equity
BALANCE – JANUARY 1, 2020 $ 17,855 $ (728) $ 39,579 $ 138,663 $ (5,853) $ 189,516
Net loss — — — (1,223) — (1,223)
Other comprehensive income, net of taxes — — — — 3,333 3,333
Common stock shares issued (1,590,547 shares) 3,964 — 53,309 — — 57,273
Restricted stock compensation expense — — 262 — — 262
Cash dividends declared — — — (2,167) — (2,167)
BALANCE – MARCH 31, 2020 21,819 (728) 93,150 135,273 (2,520) 246,994
Net income — — — 5,797 — 5,797
Other comprehensive income, net of taxes — — — — 900 900
Common stock shares issued (6,461 shares) 16 — 154 — — 170
Restricted stock grants (19,472 shares) 49 — 282 — — 331
Restricted stock compensation expense — — 166 — — 166
Cash dividends declared — — — (2,168) — (2,168)
BALANCE – JUNE 30, 2020 21,884 (728) 93,752 138,902 (1,620) 252,190
Net income — — — 6,771 — 6,771
Other comprehensive loss, net of taxes — — — — (226) (226)
Common stock shares issued (7,474 shares) 19 — 143 — — 162
Cash dividends declared — — (2,174) — (2,174)
BALANCE- SEPTEMBER 30, 2020 $ 21,903 $ (728) $ 93,895 $ 143,499 $ (1,846) $ 256,723


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

BALANCE – JANUARY 1, 2021	$	21,918	$	(728)	$	94,048	$	148,372	$	(5,638)	$	257,972
Net income	—		—		—		7,471		—		7,471
Other comprehensive loss, net of taxes	—		—		—		—		(5,835)		(5,835)
Common stock shares issued (5,627 shares)	14		—		(195)		—		—		(181)

Restricted stock compensation expense	—		—		362		—		—		362
Cash dividends declared	—		—		—		(2,177)		—		(2,177)
BALANCE – MARCH 31, 2021	21,932		(728)		94,215		153,666		(11,473)		257,612

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

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Nine Months Ended September 30,					Three Months Ended March 31,
Dollars in thousands	Dollars in thousands	2021		2020		Dollars in thousands	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES	CASH FLOWS FROM OPERATING ACTIVITIES					CASH FLOWS FROM OPERATING ACTIVITIES
Net income	Net income	$	23,339	$	11,345	Net income	$	6,599	$	7,471
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of loans originated for sale	Gain on sales of loans originated for sale	(2,497)		(1,279)		Gain on sales of loans originated for sale	(281)		(1,283)
Gain on sales of foreclosed assets held for resale, including writedowns	Gain on sales of foreclosed assets held for resale, including writedowns	(88)		(80)		Gain on sales of foreclosed assets held for resale, including writedowns	—		—
Gain on sale of premises and equipment		(41)		—

Earnings on investment in bank-owned life insurance	Earnings on investment in bank-owned life insurance	(1,066)		(1,090)		Earnings on investment in bank-owned life insurance	(327)		(338)

(Gain) Loss on equity securities		(377)		483
Gain (Loss) on equity securities						Gain (Loss) on equity securities	109		(365)
Restricted stock compensation expense	Restricted stock compensation expense	362		428		Restricted stock compensation expense	673		362

Depreciation and amortization	Depreciation and amortization	2,582		2,745		Depreciation and amortization	879		866
Provision for loan losses	Provision for loan losses	50		8,100		Provision for loan losses	—		50
Net amortization of investment securities premiums	Net amortization of investment securities premiums	1,458		597		Net amortization of investment securities premiums	1,231		410
Decrease (Increase) in accrued interest receivable		1,204		(1,991)
(Increase) Decrease in accrued interest receivable						(Increase) Decrease in accrued interest receivable	(750)		183
Decrease in accrued interest payable	Decrease in accrued interest payable	(1,017)		(896)		Decrease in accrued interest payable	(34)		(612)
Mortgage loans originated for sale	Mortgage loans originated for sale	(89,285)		(92,681)		Mortgage loans originated for sale	(13,550)		(46,670)
Proceeds from sales of loans originated for sale	Proceeds from sales of loans originated for sale	98,881		90,373		Proceeds from sales of loans originated for sale	14,901		46,987
(Increase) Decrease in other assets		(1,416)		2,763
Increase in other assets						Increase in other assets	(3,208)		(184)
Decrease (Increase) in deferred tax expense	Decrease (Increase) in deferred tax expense	221		(1,635)		Decrease (Increase) in deferred tax expense	37		(398)
Increase in other liabilities	Increase in other liabilities	1,505		936		Increase in other liabilities	882		2,559
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	33,815		18,118		Net Cash Provided by Operating Activities	7,161		9,038
CASH FLOWS FROM INVESTING ACTIVITIES	CASH FLOWS FROM INVESTING ACTIVITIES					CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity	Proceeds from maturities of investment securities held to maturity	3,074		5,628		Proceeds from maturities of investment securities held to maturity	—		1,139
Proceeds from maturities of investment securities available for sale	Proceeds from maturities of investment securities available for sale	81,260		39,056		Proceeds from maturities of investment securities available for sale	9,628		26,693

Purchase of investment securities available for sale	Purchase of investment securities available for sale	(163,874)		(135,939)		Purchase of investment securities available for sale	(177,048)		(52,210)
Purchase of investment securities held to maturity						Purchase of investment securities held to maturity	(22,204)		—

Redemption of restricted investment in bank stocks						Redemption of restricted investment in bank stocks	448		144
Net (increase) decrease in loans						Net (increase) decrease in loans	(15,969)		27,027

Redemption of restricted investment in bank stocks		574		1,763
Net decrease (increase) in loans		149,662		(101,840)

Purchase of bank-owned life insurance		—		(400)

Bank acquisition, net of cash acquired		—		35,262
Insurance book- acquisition	Insurance book- acquisition	—		(542)		Insurance book- acquisition	(7,800)		—
Capital expenditures	Capital expenditures	(530)		(622)		Capital expenditures	(331)		(76)

Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	213��		392		Proceeds from sales of premises and equipment	1,093		28
Proceeds from sales of foreclosed real estate		189		363
Net Cash Provided by (Used in) Investing Activities		70,568		(156,879)

Net Cash (Used in) Provided by Investing Activities						Net Cash (Used in) Provided by Investing Activities	(212,183)		2,745
CASH FLOWS FROM FINANCING ACTIVITIES	CASH FLOWS FROM FINANCING ACTIVITIES					CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits	Net increase in demand deposits	54,099		126,463		Net increase in demand deposits	9,759		32,379
Net increase in time certificates of deposits and interest bearing deposits		177,937		202,795
Net (decrease) increase in short-term borrowings		6,141		19,286
Net (decrease) increase in time certificates of deposits and interest bearing deposits						Net (decrease) increase in time certificates of deposits and interest bearing deposits	(25,387)		60,718
Net decrease in short-term borrowings						Net decrease in short-term borrowings	(5,174)		(7,182)
Proceeds from long-term borrowings	Proceeds from long-term borrowings	15,000		—		Proceeds from long-term borrowings	1,500		15,000
Repayments on long-term borrowings	Repayments on long-term borrowings	(27,045)		(18,633)		Repayments on long-term borrowings	(6,000)		(3,129)
Dividends paid	Dividends paid	(6,710)		(6,509)		Dividends paid	(2,257)		(2,177)
Common stock repurchased		(420)		—

Common stock issued	Common stock issued	45		656		Common stock issued	70		14
Net Cash Provided by Financing Activities		219,047		324,058
Net Increase in Cash and Cash Equivalents		323,430		185,297
Net Cash (Used in) Provided by Financing Activities						Net Cash (Used in) Provided by Financing Activities	(27,489)		95,623
Net (Decrease) Increase in Cash and Cash Equivalents						Net (Decrease) Increase in Cash and Cash Equivalents	(232,511)		107,406
CASH AND CASH EQUIVALENTS — BEGINNING	CASH AND CASH EQUIVALENTS — BEGINNING	399,352		114,356		CASH AND CASH EQUIVALENTS — BEGINNING	710,131		399,352
CASH AND CASH EQUIVALENTS — ENDING	CASH AND CASH EQUIVALENTS — ENDING	$	722,782	$	299,653	CASH AND CASH EQUIVALENTS — ENDING	$	477,620	$	506,758
Supplemental disclosures of cash flow information	Supplemental disclosures of cash flow information					Supplemental disclosures of cash flow information
Interest paid	Interest paid	$	6,608	$	10,548	Interest paid	$	1,058	$	2,657
Income taxes paid	Income taxes paid	$	6,200	$	4,150	Income taxes paid	$	—	$	—
Loans transferred to foreclosed assets held for resale and other foreclosed transactions	Loans transferred to foreclosed assets held for resale and other foreclosed transactions	$	101	$	135	Loans transferred to foreclosed assets held for resale and other foreclosed transactions	$	—	$	—

Transactions related to acquisition
Increase in assets and liabilities:
Securities		$	—	$	(22,167)
Loans		—		(333,362)
Premises and equipment		—		(10,959)
Investment in bank-owned life insurance		—		(10,896)
Restricted investments in bank stocks		—		(1,141)
Foreclosed assets held for resale		—		(464)
Goodwill		—		(22,528)
Core deposit intangible assets		—		(3,560)
Other assets		—		(3,086)
Non-interest bearing deposits		—		103,492
Interest bearing deposits		—		270,566
Trust preferred debentures		—		6,000
Long term borrowings		—		3,450
Other liabilities		—		2,637
Common shares issued		—		57,280

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

ACNB CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Nature of Operations

ACNB Corporation (the Corporation or ACNB), headquartered in Gettysburg, Pennsylvania, provides banking, insurance, and financial services to businesses and consumers through its wholly-owned subsidiaries, ACNB Bank (Bank) and ACNB Insurance Services, Inc., formerly Russell Insurance Group, Inc. ~~(RIG).~~ The Bank engages in full-service commercial and consumer banking and wealth management services, including trust and retail brokerage, through its NaN community banking offices, including 20 community banking office locations in Adams, Cumberland, Franklin and York Counties, Pennsylvania, and 11 community banking office locations in Carroll and Frederick Counties, Maryland. There are also loan production offices situated in Lancaster and York, Pennsylvania, and Hunt Valley, Maryland.

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

On January 11, 2020, ACNB completed the acquisition of Frederick County Bancorp, Inc. (FCBI), a bank holding company based in Frederick, Maryland. In addition, Frederick County Bank, a Maryland state-chartered bank and FCBI’s wholly-owned subsidiary, merged with and into ACNB Bank. ACNB Bank now operates in the Frederick County, Maryland, market as “FCB Bank, A Division of ACNB Bank” and serves its marketplace with banking and wealth management services via the network of 5 community banking offices located in Frederick County, Maryland.

On July 1, 2017, ACNB completed its acquisition of New Windsor Bancorp, Inc. (New Windsor) of Taneytown, Maryland. At the effective time of the acquisition, New Windsor merged with and into a wholly-owned subsidiary of ACNB, immediately followed by the merger of New Windsor State Bank (NWSB) with and into ACNB Bank. ACNB Bank now operates in the Carroll County, Maryland market as “NWSB Bank, A Division of ACNB Bank” and serves its marketplace with banking and wealth management services via the network of 6 community banking offices located in Carroll County, Maryland.

The Corporation’s primary sources of revenue are interest income on loans and investment securities and fee income on its products and services. Expenses consist of interest expense on deposits and borrowed funds, provisions for loan losses, and other operating expenses.

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

The accounting policies followed by the Corporation are set forth in Note A to the Corporation’s consolidated financial statements in the ~~2020~~2021 ACNB Corporation Annual Report on Form 10-K, filed with the SEC on March ~~5, 2021.~~14, 2022. It is suggested that the consolidated financial statements contained herein be read in conjunction with the consolidated financial statements and notes included in the Corporation’s Annual Report on Form 10-K. The results of operations for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2021,~~March 31, 2022, are not necessarily indicative of the results to be expected for the full year.

~~The Corporation adopted ASU 2018-14,~~ ~~Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.~~ The ASU removes the following disclosures: the amounts in accumulated other comprehensive income that the entity expects to recognize in net periodic benefit cost during the next fiscal year; the amount and timing of plan assets expected to be returned to the employer; and, certain related party disclosures. The ASU clarifies the following disclosure requirements: the projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets must be disclosed; and, the accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets must be disclosed. The ASU adds the following disclosure requirements: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates;

and, an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The ASU was effective for public business entities in fiscal years ending after December 15, 2020. The Corporation adopted this ASU on December 31, 2020 and the adoption of this ASU did not have a material effect on the Corporation’s consolidated financial condition or results of operations.

The Corporation has evaluated events and transactions occurring subsequent to the balance sheet date of ~~September 30, 2021,~~March 31, 2022, 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.

2. ~~Acquisition of Frederick County Bancorp, Inc.~~

On January 11, 2020, ACNB completed its previously announced acquisition of Frederick County Bancorp, Inc. (FCBI) of Frederick, Maryland. FCBI was a locally owned and managed institution with 5 locations in Frederick County, Maryland. The acquisition positioned ACNB Corporation for continual and profitable growth in a desirable market that is adjacent to the Corporation’s current footprint in southcentral Pennsylvania and central Maryland. ACNB transacted the merger to complement the Corporation’s existing operations, while consistent with the Corporation’s strategic plan of enhancing long-term shareholder value. The fair value of total assets acquired as a result of the merger totaled $443.4 million, loans totaled $329.3 million and deposits totaled $374.1 million.

Goodwill recorded in the merger was $22.5 million. In accordance with the terms of the Reorganization Agreement, each share of FCBI common stock was converted into the right to receive 0.9900 share of ACNB common stock. As a result of the merger, ACNB issued 1,590,547 shares of its common stock and cash in exchange for fractional shares based upon $36.43, the determined market price of ACNB common stock in accordance with the Reorganization Agreement. The results of the combined entity’s operations are included in the Corporation’s Consolidated Financial Statements from the date of acquisition.

The acquisition of FCBI 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.

~~The following table summarizes the consideration paid for FCBI and the fair value of assets acquired and liabilities assumed as of the acquisition date:~~

~~Purchase Price Consideration in Common Stock~~


~~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~~

~~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~~

Pursuant to the accounting requirements, the Corporation assigned a fair value to the assets acquired and liabilities assumed of FCBI. ASC 820 defines fair value as “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.”

The assets acquired and liabilities assumed in the acquisition of FCBI were recorded at their estimated fair values based on management’s best estimates using information available at the date of the acquisition and are subject to adjustment for up to one year after the closing date of the acquisition. While the fair values are not expected to be materially different from the estimates, any material adjustments to the estimates will be reflected, retroactively, as of the date of the acquisition. The items most susceptible to adjustment are the fair value adjustments on loans, core deposit intangible and the deferred income tax assets resulting from the acquisition.

~~Fair values of the major categories of assets acquired and liabilities assumed were determined as follows:~~

~~Investment securities available-for-sale~~

The estimated fair values of the investment securities available for sale, primarily comprised of U.S. Government agency mortgage-backed securities, U.S. government agencies and municipal bonds, were determined using Level 2 inputs in the fair value hierarchy. The fair values were determined using independent pricing services. The Corporation’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’s relationship to other benchmark quoted prices. Management reviewed the data and assumptions used in pricing the securities. 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.

~~Loans~~

credit risk, expected life time losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Corporation has prepared three separate loan fair value adjustments that it believed a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three-separate fair valuation methodology employed are: 1) an interest rate loan fair value adjustment, 2) a general credit fair value adjustment, and 3) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310-30 procedures. The acquired loans were recorded at fair value at the acquisition date without carryover of FCBI’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 $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’s expectations of future cash flows for each respective loan.


~~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~~

For loans acquired without evidence of credit quality deterioration, ACNB prepared the interest rate loan fair value and credit fair value adjustments. Loans were grouped into homogeneous pools by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various internal and external data sources and reviewed by management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value discount of $2.6 million.

Additionally for loans acquired without credit deterioration, a credit fair value adjustment was calculated using a two-part credit fair value analysis: 1) expected lifetime credit migration losses; and 2) estimated fair value adjustment for certain qualitative factors. The expected lifetime losses were calculated using historical losses observed at the Bank, FCBI 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 $5.3 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.

~~The following table presents the acquired purchased credit impaired loans receivable at the Acquisition Date:~~


~~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~~

The Corporation acquired 5 branches of FCBI. The fair value of FCBI’s premises, including land, buildings, and improvements, was determined based upon independent third-party appraisals performed 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.

~~Core Deposit Intangible~~

The fair value of the core deposit intangible was determined based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available

through national brokered CD offering rates. The projected cash flows were developed using projected deposit attrition rates. The core deposit intangible will be amortized over ten years using the sum-of-years digits method.

~~Time Deposits~~

The fair value adjustment for time deposits represents a discount from the value of the contractual repayments of fixed-maturity deposits using prevailing market interest rates for similar-term time deposits. The time deposit premium of approximately $255,000 is being amortized into income on a level yield amortization method over the contractual life of the deposits.

~~Long-term Borrowings~~

The Corporation assumed a trust preferred subordinated debt in connection with the merger. The fair value of the trust preferred subordinated debt was determined using a discounted cash flow method using a market participant discount rate for similar instruments. The trust preferred capital note was valued at discount of $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.

The following table presents certain pro forma information as if FCBI had been acquired on September 30, 2019. These results combine the historical results of the Corporation in the Corporation’s Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on September 30, 2019. In particular, no adjustments have been made to eliminate the amount of FCBI’s provision for loan losses that would not have been necessary had the acquired loans been recorded at fair value as of September 30, 2019. The Corporation expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts below:


~~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~~

Acquisition-related expenses associated with the acquisition of FCBI were $6.0 million for the three months ended March 31, 2020. Such costs include legal and accounting fees, lease and contract termination expenses, system conversion, operations integration, and employee severances, which have been expensed as incurred.

3.2. Earnings Per Share and Restricted Stock

The Corporation has a simple capital structure. Basic earnings per share of common stock is computed based on ~~8,715,767~~8,684,152 and ~~8,616,588~~8,710,393 weighted average shares of common stock outstanding for the ~~nine months ended September 30, 2021 and 2020, respectively, and 8,720,732 and 8,694,620 for the~~ three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. All outstanding unvested restricted stock awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation. The Corporation has no instruments that would create dilutive earnings per share.

The ACNB Corporation 2009 Restricted Stock Plan expired by its own terms after 10 years on February 24, 2019. The purpose of this plan was to provide employees and directors of the Bank who have responsibility for its growth with additional incentives by allowing them to acquire ownership in the Corporation and, thereby, encouraging them to contribute to the organization’s success. As of ~~September 30, 2021,~~March 31, 2022, 25,945 shares were issued under this plan and all shares were 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.

plus any shares that are authorized, but not issued, under the ACNB Corporation 2009 Restricted Stock Plan. As of ~~September 30, 2021, 35,587~~March 31, 2022, 57,822 shares were issued under this plan, of which ~~29,041~~29,432 were fully vested, ~~none~~13,567 vested during the quarter, and the remaining ~~6,546~~14,823 will vest over the next ~~year.~~two years. 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.

Plan expense is recognized over the vesting period of the stock issued under both plans. ~~$28,000~~$243,000 and ~~$143,000~~$28,000 of compensation expenses related to the grants were recognized during the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively. $83,000 and $374,000 of compensation expenses related to the grants were recognized during the nine months ended September 30, 2021 and 2020,~~ respectively.

4.3. Retirement Benefits

The components of net periodic benefit expense related to the non-contributory, defined benefit pension plan for the three ~~and nine~~ month periods ended ~~September 30~~March 31 were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30					Three Months Ended March 31,
In thousands	In thousands	2021		2020		2021		2020		In thousands	2022		2021
Service cost	Service cost	$	220	$	188	$	660	$	564	Service cost	$	194	$	220
Interest cost	Interest cost	236		270		708		810		Interest cost	263		236
Expected return on plan assets	Expected return on plan assets	(704)		(687)		(2,112)		(2,061)		Expected return on plan assets	(784)		(704)
Amortization of net loss	Amortization of net loss	314		169		942		507		Amortization of net loss	102		314

Net Periodic Benefit Expense (Income)		$	66	$	(60)	$	198	$	(180)
Net Periodic Benefit (Income) Expense										Net Periodic Benefit (Income) Expense	$	(225)	$	66

The Corporation previously disclosed in its consolidated financial statements for the year ended December 31, ~~2020,~~2021, that it had not yet determined the amount the Bank planned on contributing to the defined benefit plan in ~~2021.~~2022. As of ~~September 30, 2021,~~March 31, 2022, this contribution amount had still not been determined. 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 ~~347~~346 active, vested, terminated and retired persons in the plan.

5.4. Guarantees

The Corporation does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit. Standby letters of credit are written conditional commitments issued by the Corporation to

guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued, have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Corporation generally holds collateral and/or personal guarantees supporting these commitments. The Corporation had ~~$9,588,000~~$9,672,000 in standby letters of credit as of ~~September 30, 2021.~~March 31, 2022. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees. The current amount of the liability, as of ~~September 30, 2021,~~March 31, 2022, for guarantees under standby letters of credit issued is not material.

6.5. Accumulated Other Comprehensive Loss

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

In thousands Unrealized Gains on
Securities Pension
Liability Accumulated Other
Comprehensive Loss
BALANCE — SEPTEMBER 30, 2021 $ (953) $ (9,550) $ (10,503)
BALANCE — DECEMBER 31, 2020
$ 4,645 $ (10,283) $ (5,638)
BALANCE — SEPTEMBER 30, 2020 $ 4,874 $ (6,720) $ (1,846)


In thousands	Unrealized Gains on Securities		Pension Liability		Accumulated Other Comprehensive Loss
BALANCE — MARCH 31, 2022	$	(24,912)	$	(5,992)	$	(30,904)
BALANCE — DECEMBER 31, 2021	$	(3,474)	$	(6,071)	$	(9,545)
BALANCE — MARCH 31, 2021	$	(1,434)	$	(10,039)	$	(11,473)

7.6. Segment Reporting

The Corporation has 2 reporting segments, the Bank and ~~RIG. RIG~~ACNB Insurance Services, Inc. ACNB Insurance Services, Inc., is managed separately from the banking segment, which includes the Bank and related financial services that the Corporation offers through its banking subsidiary. ~~RIG~~ACNB Insurance Services, Inc., offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients.

Segment information for the ~~nine month periods ended September 30, 2021 and 2020, is as follows:~~

In thousands Banking Insurance Total
2021
Net interest income and other income from external customers $ 66,309 $ 4,728 $ 71,037
Income before income taxes 28,416 1,077 29,493
Total assets 2,780,109 12,683 2,792,792
Capital expenditures 530 — 530
2020
Net interest income and other income from external customers $ 63,696 $ 4,541 $ 68,237
Income before income taxes 12,993 922 13,915
Total assets 2,490,031 13,018 2,503,049
Capital expenditures 595 27 622

~~Segment information for the~~ three month periods ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ is as follows:


In thousands	In thousands	Banking		Insurance		Total		In thousands	Banking		Insurance		Total
2022								2022
Net interest income and other income from external customers								Net interest income and other income from external customers	$	20,312	$	1,200	$	21,512
Income (loss) before income taxes								Income (loss) before income taxes	8,356		(126)		8,230
Total assets								Total assets	2,725,844		20,312		2,746,156
Capital expenditures								Capital expenditures	320		11		331

2021	2021							2021
Net interest income and other income from external customers	Net interest income and other income from external customers	$	21,755	$	1,519	$	23,274	Net interest income and other income from external customers	$	21,866	$	1,372	$	23,238
Income before income taxes	Income before income taxes	8,989		309		9,298		Income before income taxes	9,185		216		9,401
Total assets	Total assets	2,780,109		12,683		2,792,792		Total assets	2,641,782		12,835		2,654,617
Capital expenditures	Capital expenditures	277		—		277		Capital expenditures	76		—		76

2020
Net interest income and other income from external customers		$	21,879	$	1,499	$	23,378
Income before income taxes		8,204		314		8,518
Total assets		2,490,031		13,018		2,503,049
Capital expenditures		17		19		36

8.7. Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Debt securities not classified as held to maturity or trading are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported,

net of tax, in other comprehensive income (loss). Equity securities with readily determinable fair values are recorded at fair value with changes in fair value recognized in net income.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. 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’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.

Amortized cost and fair value of securities at ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, were as follows:


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

SECURITIES AVAILABLE FOR SALE	SECURITIES AVAILABLE FOR SALE									SECURITIES AVAILABLE FOR SALE

SEPTEMBER 30, 2021
MARCH 31, 2022										MARCH 31, 2022
U.S. Government and agencies	U.S. Government and agencies	$	225,315	$	825	$	2,971	$	223,169	U.S. Government and agencies	$	258,526	$	126	$	17,118	$	241,534
Mortgage-backed securities, residential		132,074		2,124		1,199		132,999
Mortgage-backed securities										Mortgage-backed securities	288,512		111		9,898		278,725
State and municipal	State and municipal	42,891		259		440		42,710		State and municipal	44,505		2		4,825		39,682
Corporate bonds	Corporate bonds	12,621		198		21		12,798		Corporate bonds	16,850		23		454		16,419
		$	412,901	$	3,406	$	4,631	$	411,676		$	608,393	$	262	$	32,295	$	576,360

DECEMBER 31, 2020
DECEMBER 31, 2021										DECEMBER 31, 2021
U.S. Government and agencies	U.S. Government and agencies	$	181,704	$	2,117	$	218	$	183,603	U.S. Government and agencies	$	249,463	$	503	$	4,925	$	245,041
Mortgage-backed securities, residential	Mortgage-backed securities, residential	105,327		3,529		34		108,822		Mortgage-backed securities, residential	133,697		1,562		1,763		133,496
State and municipal	State and municipal	35,930		561		7		36,484		State and municipal	44,547		315		251		44,611
Corporate bonds	Corporate bonds	8,784		41		16		8,809		Corporate bonds	13,858		164		72		13,950
		$	331,745	$	6,248	$	275	$	337,718		$	441,565	$	2,544	$	7,011	$	437,098

SECURITIES HELD TO MATURITY	SECURITIES HELD TO MATURITY									SECURITIES HELD TO MATURITY

SEPTEMBER 30, 2021
MARCH 31, 2022										MARCH 31, 2022
State and municipal										State and municipal	$	22,202	$	7	$	252	$	21,957
Mortgage-backed securities										Mortgage-backed securities	$	5,817	$	17	$	112	$	5,722
											$	28,019	$	24	$	364	$	27,679
DECEMBER 31, 2021										DECEMBER 31, 2021
U.S. Government and agencies										U.S. Government and agencies	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	7,220	$	262	$	—	$	7,482	Mortgage-backed securities, residential	$	6,454	$	198	$	—	$	6,652
		$	7,220	$	262	$	—	$	7,482		$	6,454	$	198	$	—	$	6,652
DECEMBER 31, 2020

Mortgage-backed securities, residential		$	10,294	$	474	$	—	$	10,768
		$	10,294	$	474	$	—	$	10,768

1410

Fair value of equity securities with readily determinable fair values at ~~September 30,~~March 31, 2022, March 31, 2021, ~~September 30, 2020,~~ and December 31, ~~2020,~~2021, are as follows:


In thousands	In thousands	Fair Value at January 1, 2021		Unrealized Gains		Unrealized Losses		Fair Value at September 30, 2021		In thousands	Fair Value at January 1, 2022		Unrealized Gains		Unrealized Losses		Fair Value at March 31, 2022
SEPTEMBER 30, 2021
MARCH 31, 2022										MARCH 31, 2022
CRA Mutual Fund	CRA Mutual Fund	$	1,065	$	—	$	20	$	1,045	CRA Mutual Fund	$	1,036	$	—	$	49	$	987
Stock in other banks	Stock in other banks	1,105		397		—		1,502		Stock in other banks	1,573		—		60		1,513
		$	2,170	$	397	$	20	$	2,547		$	2,609	$	—	$	109	$	2,500


In thousands	In thousands	Fair Value at January 1, 2020		Unrealized Gains		Unrealized Losses		Fair Value at September 30, 2020		In thousands	Fair Value at January 1, 2021		Unrealized Gains		Unrealized Losses		Fair Value at March 31, 2021
SEPTEMBER 30, 2020
MARCH 31, 2021										MARCH 31, 2021
CRA Mutual Fund	CRA Mutual Fund	$	1,045	$	25	$	—	$	1,070	CRA Mutual Fund	$	1,065	$	—	$	17	$	1,048
Stock in other banks	Stock in other banks	1,318		—		508		810		Stock in other banks	1,105		382		—		1,487
		$	2,363	$	25	$	508	$	1,880		$	2,170	$	382	$	17	$	2,535


In thousands	In thousands	Fair Value at January 1, 2020		Unrealized Gains		Unrealized Losses		Fair Value at December 31, 2020		In thousands	Fair Value at January 1, 2021		Unrealized Gains		Unrealized Losses		Fair Value at December 31, 2021
DECEMBER 31, 2020
DECEMBER 31, 2021										DECEMBER 31, 2021
CRA Mutual Fund	CRA Mutual Fund	$	1,045	$	25	$	5	$	1,065	CRA Mutual Fund	$	1,065	$	—	$	29	$	1,036
Stock in other banks	Stock in other banks	1,318		—		213		1,105		Stock in other banks	1,105		468		—		1,573
		$	2,363	$	25	$	218	$	2,170		$	2,170	$	468	$	29	$	2,609

1511

The following table shows the 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 ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020:~~2021:


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

SECURITIES AVAILABLE FOR SALE	SECURITIES AVAILABLE FOR SALE													SECURITIES AVAILABLE FOR SALE

SEPTEMBER 30, 2021
MARCH 31, 2022														MARCH 31, 2022
U.S. Government and agencies	U.S. Government and agencies	$	148,047	$	2,469	$	15,014	$	502	$	163,061	$	2,971	U.S. Government and agencies	$	126,133	$	7,552	$	90,763	$	9,566	$	216,896	$	17,118
Mortgage-backed securities, residential		75,394		1,144		2,713		55		78,107		1,199
Mortgage-backed securities														Mortgage-backed securities	238,855		6,526		33,005		3,372		271,860		9,898
State and municipal	State and municipal	22,384		415		901		25		23,285		440		State and municipal	33,037		4,086		5,522		739		38,559		4,825
Corporate bond	Corporate bond	4,344		21		—		—		4,344		21		Corporate bond	13,646		454		—		—		13,646		454
		$	250,169	$	4,049	$	18,628	$	582	$	268,797	$	4,631		$	411,671	$	18,618	$	129,290	$	13,677	$	540,961	$	32,295

DECEMBER 31, 2020
DECEMBER 31, 2021														DECEMBER 31, 2021
U.S. Government and agencies	U.S. Government and agencies	$	32,629	$	218	$	—	$	—	$	32,629	$	218	U.S. Government and agencies	$	177,107	$	3,537	$	34,297	$	1,388	$	211,404	$	4,925
Mortgage-backed securities, residential	Mortgage-backed securities, residential	10,458		34		—		—		10,458		34		Mortgage-backed securities, residential	77,969		1,495		7,727		268		85,696		1,763
State and municipal	State and municipal	2,148		7		—		—		2,148		7		State and municipal	20,289		224		2,123		27		22,412		251
Corporate bond	Corporate bond	1,514		16		—		—		1,514		16		Corporate bond	5,790		72		—		—		5,790		72
		$	46,749	$	275	$	—	$	—	$	46,749	$	275		$	281,155	$	5,328	$	44,147	$	1,683	$	325,302	$	7,011

SECURITIES HELD TO MATURITY	SECURITIES HELD TO MATURITY													SECURITIES HELD TO MATURITY

SEPTEMBER 30, 2021
MARCH 31, 2022														MARCH 31, 2022
State and municipal														State and municipal	$	18,609	$	252	0		0		$	18,609	$	252
Mortgage-backed securities														Mortgage-backed securities	$	5,273	$	112	$	—	$	—	$	5,273	$	112
															$	23,882	$	364	$	—	$	—	$	23,882	$	364

DECEMBER 31, 2021														DECEMBER 31, 2021
U.S. Government and agencies														U.S. Government and agencies									$	—	$	—
Mortgage-backed securities, residential	Mortgage-backed securities, residential	$	—	$	—	$	—	$	—	$	—	$	—	Mortgage-backed securities, residential	$	6,454	$	—	$	198	$	—	$	6,652	$	—
		$	—	$	—	$	—	$	—	$	—	$	—		$	6,454	$	—	$	198	$	—	$	6,652	$	—

DECEMBER 31, 2020

Mortgage-backed securities, 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.

At ~~September 30, 2021,~~March 31, 2022, NaN available for sale U.S. Government and agency securities had unrealized losses that individually did not exceed 6%14% of amortized cost. NaN 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.

At ~~September 30, 2021,~~March 31, 2022, NaN available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 12% of amortized cost. NaN 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.

At March 31, 2022, 28 held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 5% of amortized cost. None 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.

At March 31, 2022, NaN available for sale state and municipal securities had unrealized losses that individually did not exceed 23% of amortized cost. NaN 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.

At ~~September 30, 2021, NaN available for sale~~March 31, 2022, 10 held to maturity state and municipal securities had unrealized losses that individually did not exceed 6%3 of amortized cost. NaN 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.

At ~~September 30, 2021, 5~~March 31, 2022, 14 corporate bonds had unrealized losses that individually did not exceed 2%16% of amortized cost. None 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.

In analyzing the issuer’s financial condition, management considers industry 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.

The fair values of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2) which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing.

Management routinely sells securities from its available for sale portfolio in an effort to manage and allocate the portfolio. At ~~September 30, 2021,~~March 31, 2022, 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’s intention and ability to hold the securities until recovery of unrealized losses.

Amortized cost and fair value at ~~September 30, 2021,~~March 31, 2022, 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					Available for Sale				Held to Maturity
In thousands	In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value		In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value

1 year or less	1 year or less	$	29,292	$	29,505	$	—	$	—	1 year or less	$	20,346	$	20,436	$	—	$	—
Over 1 year through 5 years	Over 1 year through 5 years	67,854		68,105		—		—		Over 1 year through 5 years	120,382		114,052		—		—
Over 5 years through 10 years	Over 5 years through 10 years	136,154		134,047		—		—		Over 5 years through 10 years	133,082		122,161		5,612		5,606
Over 10 years	Over 10 years	47,527		47,020		—		—		Over 10 years	46,071		40,986		16,590		16,361
Mortgage-backed securities, residential		132,074		132,999		7,220		7,482
Mortgage-backed securities										Mortgage-backed securities	288,512		278,725		5,817		5,712
		$	412,901	$	411,676	$	7,220	$	7,482		$	608,393	$	576,360	$	28,019	$	27,679

The Corporation did not sell any securities available for sale during ~~2021~~2022 or ~~2020.~~2021.

At ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, securities with a carrying value of ~~$362,378,000~~$328,619,000 and ~~$301,201,000,~~$353,989,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.

9.8. Loans

The Corporation grants commercial, residential, and consumer loans to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout southcentral Pennsylvania and northern Maryland. The ability of the Corporation’s debtors to honor their contracts is dependent upon the real estate values and general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan

losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

The loans receivable portfolio is segmented into commercial, residential mortgage, home equity lines of credit, and consumer loans. Commercial loans consist of the following classes: commercial and industrial, commercial real estate, and commercial real estate construction.

The accrual of interest on residential mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Consumer loans (consisting of home equity lines of credit and consumer loan classes) are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued, but not collected, for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Credit Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses (the “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’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.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the ~~collectibility~~collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’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.

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 the previous twelve quarters for each of these categories of loans, adjusted for qualitative risk factors. These qualitative risk factors include:

•lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices;

•national, regional and local economic and business conditions, as well as the condition of various market segments, including the impact on the value of underlying collateral for collateral dependent loans;

•the nature and volume of the portfolio and terms of loans;

•the experience, ability and depth of lending management and staff;

•the volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications; and,

•the existence and effect of any concentrations of credit and changes in the level of such concentrations.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’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.

The unallocated component of the allowance is maintained to cover uncertainties that could affect management’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.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and/or interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

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 Corporation’s impaired loans are measured based on the estimated fair value of the loan’s collateral or the discounted cash flows method.

It is the policy of the Corporation to order an updated valuation on all real estate secured loans when the loan becomes 90 days past due and there has not been an updated valuation completed within the previous 12 months. In addition, the Corporation orders third-party valuations on all impaired real estate collateralized loans within 30 days of the loan being classified as impaired. Until the valuations are completed, the Corporation utilizes the most recent independent third-party real estate valuation to estimate the need for a specific allocation to be assigned to the loan. These existing valuations are discounted downward to account for such things as the age of the existing collateral valuation, change in the condition of the real estate, change in local market and economic conditions, and other specific factors involving the collateral. Once the updated valuation is completed, the collateral value is updated accordingly.

For commercial and industrial loans secured by non-real estate collateral, such as accounts receivable, inventory and equipment, estimated fair values are determined based on the borrower’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.

The Corporation actively monitors the values of collateral as well as the age of the valuation of impaired loans. The Corporation orders valuations at least every 18 months, or more frequently if management believes that there is an indication that the fair value has declined.

For impaired loans secured by collateral other than real estate, the Corporation considers the net book value of the collateral, as recorded in the most recent financial statements of the borrower, and determines fair value based on estimates made by management.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a troubled debt restructure.

Loans whose terms are modified are classified as troubled debt restructured loans if the Corporation grants such borrowers concessions that it would not otherwise consider and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a troubled debt restructuring generally involve a temporary reduction in interest rate, a below market interest rate given the risk associated with the loan, or an extension of a loan’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’s financial condition, there is reasonable assurance of repayment. Loans classified as troubled debt restructurings are generally designated as impaired.

The allowance calculation methodology includes further segregation of loan classes into credit quality rating categories. The borrower’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.

Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful, and loss. Loans classified special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of 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.

In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Corporation’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’s comprehensive analysis of the loan portfolio and economic conditions, management believes the current level of the allowance for loan losses is adequate.

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

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

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

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

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

In underwriting these loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan. Appraisals on properties securing commercial real estate loans originated by the Corporation are performed by independent appraisers.

Commercial real estate loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral.

Commercial Real Estate Construction Lending — The Corporation engages in commercial real estate construction lending in its primary market area and surrounding areas. The Corporation’s commercial real estate construction

lending consists of commercial and residential site development loans, as well as commercial building construction and residential housing construction loans.

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

In underwriting commercial real estate construction loans, the Corporation performs a thorough analysis of the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the project using feasibility studies, market data, etc. Appraisals on properties securing commercial real estate construction loans originated by the Corporation are performed by independent appraisers.

Commercial real estate construction loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the uncertainties surrounding total construction costs.

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

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

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

Residential mortgage loans are subject to risk due primarily to general economic conditions, as well as ~~a continued~~periods of weak housing ~~market.~~markets.

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

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

Home equity lines of credit generally present a moderate level of risk due primarily to general economic conditions, as well as ~~a continued~~periods of weak housing ~~market.~~markets.

Junior liens inherently have more credit risk by virtue of the fact that another financial institution may have a higher security position in the case of foreclosure liquidation of collateral to extinguish the debt. Generally, foreclosure actions could become more prevalent if the real estate ~~market continues to be~~markets are weak and property values deteriorate.

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

Consumer loan terms vary according to the type and value of collateral and the creditworthiness of the borrower. In underwriting consumer loans, a thorough analysis of the borrower’s financial ability to repay the loan as agreed is

performed. The ability to repay is determined by the borrower’s employment history, current financial condition, and credit background.

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

Acquired Loans

Acquired loans (impaired and non-impaired) are initially recorded at their acquisition-date fair values using Level 3 inputs. Fair values are based on a discounted cash flow methodology that involves assumptions and judgments as to credit risk, expected lifetime losses, environmental factors, collateral values, discount rates, expected payments and expected prepayments. Specifically, the Corporation has prepared three separate loan fair value adjustments that it believed a market participant might employ in estimating the entire fair value adjustment necessary under ASC 820-10 for the acquired loan portfolio. The three-separate fair valuation methodology employed are: 1) an interest rate loan fair value adjustment, 2) a general credit fair value adjustment, and 3) a specific credit fair value adjustment for purchased credit impaired loans subject to ASC 310-30 procedures.

The carryover of allowance for loan losses related to acquired loans is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. The allowance for loan losses on acquired loans reflects only those losses incurred after acquisition and represents the present value of cash flows expected at acquisition that is no longer expected to be collected. Acquired loans are marked to fair value on the date of acquisition. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan losses, the Corporation performs an analysis on acquired loans to determine whether or not there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Corporation will include these loans in the calculation of the allowance for loan losses after the initial valuation, and provide accordingly.

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 Corporation’s senior lending management reviewed the accounting seller’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.

Acquired ASC 310-20 loans, which are loans that did not meet the criteria above, were pooled into groups of similar loans based on various factors including borrower type, loan purpose, and collateral type. For these pools, the Corporation used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average margin, and weighted average interest rate along with estimated prepayment rates, expected lifetime losses, environment factors to estimate the expected cash flow for each loan pool. With regards to ASC 310-30 loans, for external disclosure purposes, the aggregate contractual cash flows less the aggregate expected cash flows resulted in a credit related non-accretable yield amount. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount. The accretable yield reflects the contractual cash flows management expects to collect above the loan’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.

Over the life of the acquired ASC 310-30 loan, the Corporation continues to estimate cash flows expected to be collected. Decreases in expected cash flows, other than from prepayments or rate adjustments, are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for credit losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized on a prospective basis over the loan’s remaining life.

Acquired ASC 310-30 loans that met the criteria for non-accrual of interest prior to acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Corporation can reasonably estimate the timing and amount of expected cash flows on such loans. Accordingly, the Corporation does not consider acquired contractually delinquent loans to be non-accruing and continue to recognize interest income on these loans using the accretion model.

Corporation used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average margin, and weighted average interest rate along with estimated prepayment rates, expected lifetime losses, environment factors to estimate the expected cash flow for each loan pool.

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard, and doubtful within the Corporation’s internal risk rating system as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020:~~2021:


In thousands	In thousands	Pass		Special Mention		Substandard		Doubtful		Total		In thousands	Pass		Special Mention		Substandard		Doubtful		Total
SEPTEMBER 30, 2021
MARCH 31, 2022												MARCH 31, 2022
Originated Loans	Originated Loans											Originated Loans
Commercial and industrial	Commercial and industrial	$	154,999	$	4,941	$	2,120	$	—	$	162,060	Commercial and industrial	$	150,964	$	3,896	$	1,485	$	—	$	156,345
Commercial real estate	Commercial real estate	484,915		55,952		9,374		—		550,241		Commercial real estate	540,339		42,290		7,648		—		590,277
Commercial real estate construction	Commercial real estate construction	33,549		1,380		—		—		34,929		Commercial real estate construction	45,857		2,331		—		—		48,188
Residential mortgage	Residential mortgage	302,905		5,735		75		—		308,715		Residential mortgage	294,728		3,960		75		—		298,763
Home equity lines of credit	Home equity lines of credit	75,666		921		—		—		76,587		Home equity lines of credit	70,387		792		—		—		71,179
Consumer	Consumer	10,502		—		—		—		10,502		Consumer	10,646		—		—		—		10,646
Total Originated Loans	Total Originated Loans	1,062,536		68,929		11,569		—		1,143,034		Total Originated Loans	1,112,921		53,269		9,208		—		1,175,398
Acquired Loans	Acquired Loans											Acquired Loans
Commercial and industrial	Commercial and industrial	30,950		1,518		317		—		32,785		Commercial and industrial	29,943		1,476		368		—		31,787
Commercial real estate	Commercial real estate	218,966		11,657		4,343		—		234,966		Commercial real estate	197,397		9,557		3,046		—		210,000
Commercial real estate construction	Commercial real estate construction	6,653		2,225		—		—		8,878		Commercial real estate construction	4,018		2,160		—		—		6,178
Residential mortgage	Residential mortgage	42,160		4,429		1,578		—		48,167		Residential mortgage	37,722		4,193		852		—		42,767
Home equity lines of credit	Home equity lines of credit	17,384		37		596		—		18,017		Home equity lines of credit	16,592		37		548		—		17,177
Consumer	Consumer	1,039		—		—		—		1,039		Consumer	1,019		—		—		—		1,019
Total Acquired Loans	Total Acquired Loans	317,152		19,866		6,834		—		343,852		Total Acquired Loans	286,691		17,423		4,814		—		308,928
Total Loans	Total Loans											Total Loans
Commercial and industrial	Commercial and industrial	185,949		6,459		2,437		—		194,845		Commercial and industrial	180,907		5,372		1,853		—		188,132
Commercial real estate	Commercial real estate	703,881		67,609		13,717		—		785,207		Commercial real estate	737,736		51,847		10,694		—		800,277
Commercial real estate construction	Commercial real estate construction	40,202		3,605		—		—		43,807		Commercial real estate construction	49,875		4,491		—		—		54,366
Residential mortgage	Residential mortgage	345,065		10,164		1,653		—		356,882		Residential mortgage	332,450		8,153		927		—		341,530
Home equity lines of credit	Home equity lines of credit	93,050		958		596		—		94,604		Home equity lines of credit	86,979		829		548		—		88,356
Consumer	Consumer	11,541		—		—		—		11,541		Consumer	11,665		—		—		—		11,665
Total Loans	Total Loans	$	1,379,688	$	88,795	$	18,403	$	—	$	1,486,886	Total Loans	$	1,399,612	$	70,692	$	14,022	$	—	$	1,484,326

2319


In thousands	In thousands	Pass		Special Mention		Substandard		Doubtful		Total		In thousands	Pass		Special Mention		Substandard		Doubtful		Total
DECEMBER 31, 2020
DECEMBER 31, 2021												DECEMBER 31, 2021
Originated Loans	Originated Loans											Originated Loans
Commercial and industrial	Commercial and industrial	$	270,047	$	5,168	$	2,688	$	—	$	277,903	Commercial and industrial	$	139,908	$	5,549	$	2,056	$	—	$	147,513
Commercial real estate	Commercial real estate	414,538		54,122		10,463		—		479,123		Commercial real estate	500,978		56,462		8,658		—		566,098
Commercial real estate construction	Commercial real estate construction	39,462		1,746		—		—		41,208		Commercial real estate construction	41,002		1,659		—		—		42,661
Residential mortgage	Residential mortgage	332,632		4,327		178		—		337,137		Residential mortgage	299,041		4,961		75		—		304,077
Home equity lines of credit	Home equity lines of credit	80,560		346		—		—		80,906		Home equity lines of credit	74,094		883		—		—		74,977
Consumer	Consumer	11,819		—		—		—		11,819		Consumer	9,708		—		—		—		9,708
Total Originated Loans	Total Originated Loans	1,149,058		65,709		13,329		—		1,228,096		Total Originated Loans	1,064,731		69,514		10,789		—		1,145,034
Acquired Loans	Acquired Loans											Acquired Loans
Commercial and industrial	Commercial and industrial	38,882		1,893		1,476		—		42,251		Commercial and industrial	29,728		1,555		771		—		32,054
Commercial real estate	Commercial real estate	245,597		16,706		3,201		—		265,504		Commercial real estate	207,937		11,596		624		—		220,157
Commercial real estate construction	Commercial real estate construction	10,300		2,394		—		—		12,694		Commercial real estate construction	5,228		2,111		—		—		7,339
Residential mortgage	Residential mortgage	58,787		3,535		1,881		—		64,203		Residential mortgage	39,378		4,175		1,495		—		45,048
Home equity lines of credit	Home equity lines of credit	23,165		97		442		—		23,704		Home equity lines of credit	17,491		37		257		—		17,785
Consumer	Consumer	1,330		—		2		—		1,332		Consumer	997		—		13		—		1,010
Total Acquired Loans	Total Acquired Loans	378,061		24,625		7,002		—		409,688		Total Acquired Loans	300,759		19,474		3,160		—		323,393
Total Loans	Total Loans											Total Loans
Commercial and industrial	Commercial and industrial	308,929		7,061		4,164		—		320,154		Commercial and industrial	169,636		7,104		2,827		—		179,567
Commercial real estate	Commercial real estate	660,135		70,828		13,664		—		744,627		Commercial real estate	708,915		68,058		9,282		—		786,255
Commercial real estate construction	Commercial real estate construction	49,762		4,140		—		—		53,902		Commercial real estate construction	46,230		3,770		—		—		50,000
Residential mortgage	Residential mortgage	391,419		7,862		2,059		—		401,340		Residential mortgage	338,419		9,136		1,570		—		349,125
Home equity lines of credit	Home equity lines of credit	103,725		443		442		—		104,610		Home equity lines of credit	91,585		920		257		—		92,762
Consumer	Consumer	13,149		—		2		—		13,151		Consumer	10,705		—		13		—		10,718
Total Loans	Total Loans	$	1,527,119	$	90,334	$	20,331	$	—	$	1,637,784	Total Loans	$	1,365,490	$	88,988	$	13,949	$	—	$	1,468,427

The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table.


In thousands	In thousands	Nine Months Ended September 30, 2021		Nine Months Ended September 30, 2020		In thousands	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Balance at beginning of period	Balance at beginning of period	$	596	$	642	Balance at beginning of period	$	435	$	596
Acquisitions of impaired loans	Acquisitions of impaired loans	—		354		Acquisitions of impaired loans	—		—
Reclassification from non-accretable differences	Reclassification from non-accretable differences	44		258		Reclassification from non-accretable differences	—		—
Accretion to loan interest income	Accretion to loan interest income	(305)		(495)		Accretion to loan interest income	(103)		(98)
Balance at end of period	Balance at end of period	$	335	$	759	Balance at end of period	$	332	$	498

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.

2420

The following table summarizes information relative to impaired loans by loan portfolio class as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020:~~2021:


		Impaired Loans with Allowance						Impaired Loans with No Allowance					Impaired Loans with Allowance						Impaired Loans with No Allowance
In thousands	In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
SEPTEMBER 30, 2021
MARCH 31, 2022												MARCH 31, 2022
Commercial and industrial	Commercial and industrial	$	1,032	$	1,032	$	883	$	491	$	1,461	Commercial and industrial	$	953	$	953	$	802	$	11	$	11
Commercial real estate	Commercial real estate	1,311		1,311		457		6,384		6,384		Commercial real estate	1,311		1,311		836		5,813		5,813
Commercial real estate construction	Commercial real estate construction	—		—		—		—		—		Commercial real estate construction	—		—		—		—		—
Residential mortgage	Residential mortgage	—		—		—		—		—		Residential mortgage	—		—		—		—		—
Home equity lines of credit	Home equity lines of credit	—		—		—		—		—		Home equity lines of credit	—		—		—		—		—
		$	2,343	$	2,343	$	1,340	$	6,875	$	7,845		$	2,264	$	2,264	$	1,638	$	5,824	$	5,824

DECEMBER 31, 2020
DECEMBER 31, 2021												DECEMBER 31, 2021
Commercial and industrial	Commercial and industrial	$	2,031	$	2,031	$	1,224	$	—	$	—	Commercial and industrial	$	1,005	$	1,005	$	855	$	482	$	1,452
Commercial real estate	Commercial real estate	2,728		2,728		158		5,861		5,861		Commercial real estate	1,311		1,311		600		6,265		6,265
Commercial real estate construction	Commercial real estate construction	—		—		—		—		—		Commercial real estate construction	—		—		—		—		—
Residential mortgage	Residential mortgage	—		—		—		101		101		Residential mortgage	—		—		—		—		—
Home equity lines of credit	Home equity lines of credit	—		—		—		—		—		Home equity lines of credit	—		—		—		—		—
		$	4,759	$	4,759	$	1,382	$	5,962	$	5,962		$	2,316	$	2,316	$	1,455	$	6,747	$	7,717

The following table summarizes information in regards to the average of impaired loans and related interest income by loan portfolio class for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Impaired Loans with
Allowance Impaired Loans with
No Allowance
In thousands Average
Recorded
Investment Interest
Income Average
Recorded
Investment Interest
Income
SEPTEMBER 30, 2021
Commercial and industrial $ 1,833 $ — $ 11 $ —
Commercial real estate 1,311 — 6,654 46
Commercial real estate construction — — 123 —
Residential mortgage — — 50 —
Home equity lines of credit — — — —
$ 3,144 $ — $ 6,838 $ 46
SEPTEMBER 30, 2020
Commercial and industrial $ 26 $ — $ 23 $ —
Commercial real estate 2,210 — 6,075 42
Commercial real estate construction — — 1,173 —
Residential mortgage — — 101 —
Home equity lines of credit — — 22 3
$ 2,236 $ — $ 7,394 $ 45

~~The following table summarizes information in regards to the average of impaired loans and related interest income by loan portfolio class for the nine months ended September 30, 2021 and 2020:~~


		Impaired Loans with Allowance				Impaired Loans with No Allowance					Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income		In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2021
MARCH 31, 2022										MARCH 31, 2022
Commercial and industrial	Commercial and industrial	$	2,109	$	—	$	5	$	—	Commercial and industrial	$	1,220	$	—	$	6	$	—
Commercial real estate	Commercial real estate	1,507		20		6,685		140		Commercial real estate	1,311		—		5,927		52
Commercial real estate construction	Commercial real estate construction	—		—		126		—		Commercial real estate construction	—		—		111		—
Residential mortgage	Residential mortgage	—		—		76		—		Residential mortgage	—		—		—		—
Home equity lines of credit	Home equity lines of credit	—		—		—		—		Home equity lines of credit	—		—		—		—
		$	3,616	$	20	$	6,892	$	140		$	2,531	$	—	$	6,044	$	52

SEPTEMBER 30, 2020
MARCH 31, 2021										MARCH 31, 2021
Commercial and industrial	Commercial and industrial	$	44	$	—	$	12	$	—	Commercial and industrial	$	2,385	$	—	$	—	$	—
Commercial real estate	Commercial real estate	1,370		—		6,707		157		Commercial real estate	1,703		—		6,716		54
Commercial real estate construction	Commercial real estate construction	—		—		586		—		Commercial real estate construction	—		—		128		—
Residential mortgage	Residential mortgage	—		—		118		7		Residential mortgage	—		—		101		—
Home equity lines of credit	Home equity lines of credit	—		—		49		3		Home equity lines of credit	—		—		—		—
		$	1,414	$	—	$	7,472	$	167		$	4,088	$	—	$	6,945	$	54

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

The following table presents nonaccrual loans by loan portfolio class as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, the table below excludes ~~$5.0~~$3.9 million in purchase credit impaired loans, net of unamortized fair value adjustments:


In thousands	In thousands	September 30, 2021		December 31, 2020		In thousands	March 31, 2022		December 31, 2021
Commercial and industrial	Commercial and industrial	$	1,523	$	2,031	Commercial and industrial	$	964	$	1,487
Commercial real estate	Commercial real estate	4,095		4,909		Commercial real estate	3,579		4,002
Commercial real estate construction	Commercial real estate construction	—		—		Commercial real estate construction	—		—
Residential mortgage	Residential mortgage	—		101		Residential mortgage	—		—
Home equity lines of credit	Home equity lines of credit	—		—		Home equity lines of credit	—		—
		$	5,618	$	7,041		$	4,543	$	5,489

There were no loans whose terms have been modified thereby resulting in a troubled debt restructuring during the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. 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 ~~$3,679,000~~$3,592,000 and ~~$3,850,000~~$3,764,000 at ~~September 30,~~March 31, 2022 and March 31, 2021, ~~and September 30, 2020,~~ respectively. All of the Corporation’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 ~~September 30,~~March 31, 2022 and March 31, 2021, ~~and September 30, 2020,~~ were $~~79,000~~47,000 and ~~$143,000,~~$111,000, respectively, of troubled debt restructurings. In addition to the troubled debt restructurings included in non-accrual loans, the Corporation also has a loan classified as an accruing troubled debt restructuring at ~~September 30,~~March 31, 2022 and March 31, 2021, ~~and September 30, 2020,~~ which totaled $~~3,600,000~~3,545,000 and ~~$3,707,000,~~$3,653,000, respectively. As of ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ there were no defaulted troubled debt restructured loans. There were no charge-offs or specific allocation on any of the troubled debt restructured loans for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021. All other troubled debt restructured loans were current as of ~~September 30, 2021,~~March 31, 2022, with respect to their associated forbearance agreement, except for 1 loan which has had periodic late payments. As of ~~September 30, 2021,~~March 31, 2022, there are no active forbearance agreements. All forbearance agreements have expired or the loans have paid off.

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, totaled ~~$527,000~~$767,000 and ~~$391,000,~~$399,000, respectively.

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.

The following table presents the classes of the loan portfolio summarized by the past due status as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020:~~2021:


In thousands	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		In thousands	30–59 Days Past Due		60–89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
SEPTEMBER 30, 2021
MARCH 31, 2022																MARCH 31, 2022
Originated Loans	Originated Loans															Originated Loans
Commercial and industrial	Commercial and industrial	$	211	$	921	$	639	$	1,771	$	160,289	$	162,060	$	—	Commercial and industrial	$	114	$	—	$	170	$	284	$	156,061	$	156,345	$	—
Commercial real estate	Commercial real estate	114		1,368		2,514		3,996		546,245		550,241		—		Commercial real estate	2,711		—		2,118		4,829		585,448		590,277		—
Commercial real estate construction	Commercial real estate construction	—		—		—		—		34,929		34,929		—		Commercial real estate construction	—		—		—		—		48,188		48,188		—
Residential mortgage	Residential mortgage	28		237		371		636		308,079		308,715		371		Residential mortgage	1,351		105		557		2,013		296,750		298,763		557
Home equity lines of credit	Home equity lines of credit	560		—		59		619		75,968		76,587		59		Home equity lines of credit	234		63		252		549		70,630		71,179		252
Consumer	Consumer	82		3		—		85		10,417		10,502		—		Consumer	78		4		—		82		10,564		10,646		—
Total originated loans	Total originated loans	995		2,529		3,583		7,107		1,135,927		1,143,034		430		Total originated loans	4,488		172		3,097		7,757		1,167,641		1,175,398		809
Acquired Loans	Acquired Loans															Acquired Loans
Commercial and industrial	Commercial and industrial	—		—		—		—		32,785		32,785		—		Commercial and industrial	—		—		—		—		31,787		31,787		—
Commercial real estate	Commercial real estate	350		—		—		350		234,616		234,966		—		Commercial real estate	—		—		—		—		210,000		210,000		—
Commercial real estate construction	Commercial real estate construction	—		—		—		—		8,878		8,878		—		Commercial real estate construction	—		—		—		—		6,178		6,178		—
Residential mortgage	Residential mortgage	1		170		—		171		47,996		48,167		—		Residential mortgage	690		100		—		790		41,977		42,767		—
Home equity lines of credit	Home equity lines of credit	372		—		—		372		17,645		18,017		—		Home equity lines of credit	—		91		155		246		16,931		17,177		155
Consumer	Consumer	2		1		—		3		1,036		1,039		—		Consumer	—		—		—		—		1,019		1,019		—
Total acquired loans	Total acquired loans	725		171		—		896		342,956		343,852		—		Total acquired loans	690		191		155		1,036		307,892		308,928		155
Total Loans	Total Loans															Total Loans
Commercial and industrial	Commercial and industrial	211		921		639		1,771		193,074		194,845		—		Commercial and industrial	114		—		170		284		187,848		188,132		—
Commercial real estate	Commercial real estate	464		1,368		2,514		4,346		780,861		785,207		—		Commercial real estate	2,711		—		2,118		4,829		795,448		800,277		—
Commercial real estate construction	Commercial real estate construction	—		—		—		—		43,807		43,807		—		Commercial real estate construction	—		—		—		—		54,366		54,366		—
Residential mortgage	Residential mortgage	29		407		371		807		356,075		356,882		371		Residential mortgage	2,041		205		557		2,803		338,727		341,530		557
Home equity lines of credit	Home equity lines of credit	932		—		59		991		93,613		94,604		59		Home equity lines of credit	234		154		407		795		87,561		88,356		407
Consumer	Consumer	84		4		—		88		11,453		11,541		—		Consumer	78		4		—		82		11,583		11,665		—
Total Loans	Total Loans	$	1,720	$	2,700	$	3,583	$	8,003	$	1,478,883	$	1,486,886	$	430	Total Loans	$	5,178	$	363	$	3,252	$	8,793	$	1,475,533	$	1,484,326	$	964

2723


In thousands	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		In thousands	30–59 Days Past Due		60–89 Days Past Due		>90 Days Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable >90 Days and Accruing
DECEMBER 31, 2020
DECEMBER 31, 2021																DECEMBER 31, 2021
Originated Loans	Originated Loans															Originated Loans
Commercial and industrial	Commercial and industrial	$	1,432	$	—	$	—	$	1,432	$	276,471	$	277,903	$	—	Commercial and industrial	$	20	$	64	$	1,397	$	1,481	$	146,032	$	147,513	$	—
Commercial real estate	Commercial real estate	133		2,463		1,631		4,227		474,896		479,123		—		Commercial real estate	—		—		2,483		2,483		563,615		566,098		—
Commercial real estate construction	Commercial real estate construction	—		76		—		76		41,132		41,208		—		Commercial real estate construction	—		—		—		—		42,661		42,661		—
Residential mortgage	Residential mortgage	1,382		335		623		2,340		334,797		337,137		522		Residential mortgage	970		140		475		1,585		302,492		304,077		475
Home equity lines of credit	Home equity lines of credit	54		60		58		172		80,734		80,906		58		Home equity lines of credit	239		42		255		536		74,441		74,977		255
Consumer	Consumer	98		51		—		149		11,670		11,819		—		Consumer	84		58		—		142		9,566		9,708		—
Total originated loans	Total originated loans	3,099		2,985		2,312		8,396		1,219,700		1,228,096		580		Total originated loans	1,313		304		4,610		6,227		1,138,807		1,145,034		730
Acquired Loans	Acquired Loans															Acquired Loans
Commercial and industrial	Commercial and industrial	122		231		—		353		41,898		42,251		—		Commercial and industrial	—		—		—		—		32,054		32,054		—
Commercial real estate	Commercial real estate	319		220		—		539		264,965		265,504		—		Commercial real estate	—		270		—		270		219,887		220,157		—
Commercial real estate construction	Commercial real estate construction	42		—		97		139		12,555		12,694		97		Commercial real estate construction	—		—		—		—		7,339		7,339		—
Residential mortgage	Residential mortgage	834		349		146		1,329		62,874		64,203		146		Residential mortgage	210		950		—		1,160		43,888		45,048		—
Home equity lines of credit	Home equity lines of credit	196		—		32		228		23,476		23,704		32		Home equity lines of credit	1,156		—		—		1,156		16,629		17,785		—
Consumer	Consumer	—		16		—		16		1,316		1,332		—		Consumer	—		—		—		—		1,010		1,010		—
Total acquired loans	Total acquired loans	1,513		816		275		2,604		407,084		409,688		275		Total acquired loans	1,366		1,220		—		2,586		320,807		323,393		—
Total Loans	Total Loans															Total Loans
Commercial and industrial	Commercial and industrial	1,554		231		—		1,785		318,369		320,154		—		Commercial and industrial	20		64		1,397		1,481		178,086		179,567		—
Commercial real estate	Commercial real estate	452		2,683		1,631		4,766		739,861		744,627		—		Commercial real estate	—		270		2,483		2,753		783,502		786,255		—
Commercial real estate construction	Commercial real estate construction	42		76		97		215		53,687		53,902		97		Commercial real estate construction	—		—		—		—		50,000		50,000		—
Residential mortgage	Residential mortgage	2,216		684		769		3,669		397,671		401,340		668		Residential mortgage	1,180		1,090		475		2,745		346,380		349,125		475
Home equity lines of credit	Home equity lines of credit	250		60		90		400		104,210		104,610		90		Home equity lines of credit	1,395		42		255		1,692		91,070		92,762		255
Consumer	Consumer	98		67		—		165		12,986		13,151		—		Consumer	84		58		—		142		10,576		10,718		—
Total Loans	Total Loans	$	4,612	$	3,801	$	2,587	$	11,000	$	1,626,784	$	1,637,784	$	855	Total Loans	$	2,679	$	1,524	$	4,610	$	8,813	$	1,459,614	$	1,468,427	$	730

2824

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


In thousands	In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total		In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total
AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2021
AS OF AND FOR THE PERIOD ENDED MARCH 31, 2022																		AS OF AND FOR THE PERIOD ENDED MARCH 31, 2022
Allowance for Loan Losses	Allowance for Loan Losses																	Allowance for Loan Losses
Beginning balance - July 1, 2021		$	4,630	$	10,127	$	457	$	2,976	$	573	$	461	$	983	$	20,207

Beginning balance - January 1, 2022																		Beginning balance - January 1, 2022	$	3,176	$	10,716	$	616	$	3,235	$	501	$	408	$	381	$	19,033
Charge-offs	Charge-offs	(1,073)		—		—		—		(22)		(2)		—		(1,097)		Charge-offs	(63)		—		—		—		—		(19)		—		(82)
Recoveries	Recoveries	14		—		—		—		—		17		—		31		Recoveries	10		—		—		—		—		2		—		12
Provisions (credits)	Provisions (credits)	(422)		457		54		391		50		(19)		(511)		—		Provisions (credits)	157		(91)		50		(153)		(75)		(6)		118		—
Ending balance - September 30, 2021		$	3,149	$	10,584	$	511	$	3,367	$	601	$	457	$	472	$	19,141

Beginning balance - January 1, 2021		$	4,037	$	9,569	$	503	$	3,395	$	693	$	648	$	1,381	$	20,226
Charge-offs		(1,105)		—		—		—		(22)		(65)		—		(1,192)
Recoveries		30		—		—		—		—		27		—		57
Provisions (credits)		187		1,015		8		(28)		(70)		(153)		(909)		50
Ending balance - September 30, 2021		$	3,149	$	10,584	$	511	$	3,367	$	601	$	457	$	472	$	19,141
Ending balance - March 31, 2022																		Ending balance - March 31, 2022	$	3,280	$	10,625	$	666	$	3,082	$	426	$	385	$	499	$	18,963
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	883	$	457	$	—	$	—	$	—	$	—	$	—	$	1,340	Ending balance: individually evaluated for impairment	$	802	$	836	$	—	$	—	$	—	$	—	$	—	$	1,638
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	2,266	$	10,127	$	511	$	3,367	$	601	$	457	$	472	$	17,801	Ending balance: collectively evaluated for impairment	$	2,478	$	9,789	$	666	$	3,082	$	426	$	385	$	499	$	17,325

Loans Receivable	Loans Receivable																	Loans Receivable
Ending balance	Ending balance	$	194,845	$	785,207	$	43,807	$	356,882	$	94,604	$	11,541	$	—	$	1,486,886	Ending balance	$	188,132	$	800,277	$	54,366	$	341,530	$	88,356	$	11,665	$	—	$	1,484,326
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	1,523	$	7,695	$	—	$	—	$	—	$	—	$	—	$	9,218	Ending balance: individually evaluated for impairment	$	964	$	7,124	$	—	$	—	$	—	$	—	$	—	$	8,088
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	193,322	$	777,512	$	43,807	$	356,882	$	94,604	$	11,541	$	—	$	1,477,668	Ending balance: collectively evaluated for impairment	$	187,168	$	793,153	$	54,366	$	341,530	$	88,356	$	11,665	$	—	$	1,476,238

AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2020
AS OF AND FOR THE PERIOD ENDED MARCH 31, 2021																		AS OF AND FOR THE PERIOD ENDED MARCH 31, 2021
Allowance for Loan Losses	Allowance for Loan Losses																	Allowance for Loan Losses
Beginning balance - July 1, 2020		$	2,656	$	8,135	$	251	$	3,074	$	661	$	661	$	2,915	$	18,353
Charge-offs		(14)		(675)		—		—		—		(63)		—		(752)
Recoveries		3		—		—		—		28		18		—		49
Provisions		430		2,272		222		504		58		134		(2,070)		1,550
Ending balance - September 30, 2020		$	3,075	$	9,732	$	473	$	3,578	$	747	$	750	$	845	$	19,200

Beginning balance - January 1, 2020		$	2,400	$	6,693	$	298	$	2,555	$	619	$	650	$	620	$	13,835

Beginning balance - January 1, 2021																		Beginning balance - January 1, 2021	$	4,037	$	9,569	$	503	$	3,395	$	693	$	648	$	1,381	$	20,226
Charge-offs	Charge-offs	(2,048)		(675)		—		—		—		(153)		—		(2,876)		Charge-offs	(18)		—		—		—		—		(37)		—		(55)
Recoveries	Recoveries	78		6		—		—		29		28		—		141		Recoveries	8		—		—		—		—		8		—		16
Provisions (credits)	Provisions (credits)	2,645		3,708		175		1,023		99		225		225		8,100		Provisions (credits)	476		(29)		40		(29)		(64)		(11)		(333)		50
Ending balance - September 30, 2020		$	3,075	$	9,732	$	473	$	3,578	$	747	$	750	$	845	$	19,200
Ending balance - March 31, 2021																		Ending balance - March 31, 2021	$	4,503	$	9,540	$	543	$	3,366	$	629	$	608	$	1,048	$	20,237
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	23	$	213	$	—	$	—	$	—	$	—	$	—	$	236	Ending balance: individually evaluated for impairment	$	1,954	$	152	$	—	$	—	$	—	$	—	$	—	$	2,106
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	3,052	$	9,519	$	473	$	3,578	$	747	$	750	$	845	$	18,964	Ending balance: collectively evaluated for impairment	$	2,549	$	9,388	$	543	$	3,366	$	629	$	608	$	1,048	$	18,131

Loans Receivable	Loans Receivable																	Loans Receivable
Ending balance	Ending balance	$	345,011	$	754,074	$	50,367	$	428,480	$	109,293	$	13,658	$	—	$	1,700,883	Ending balance	$	315,710	$	759,335	$	50,132	$	375,941	$	97,258	$	12,342	$	—	$	1,610,718
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	46	$	10,445	$	—	$	101	$	—	$	—	$	—	$	10,592	Ending balance: individually evaluated for impairment	$	2,739	$	8,505	$	—	$	101	$	—	$	—	$	—	$	11,345
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	344,965	$	743,629	$	50,367	$	428,379	$	109,293	$	13,658	$	—	$	1,690,291	Ending balance: collectively evaluated for impairment	$	312,971	$	750,830	$	50,132	$	375,840	$	97,258	$	12,342	$	—	$	1,599,373

2925


In thousands	In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total		In thousands	Commercial and Industrial		Commercial Real Estate		Commercial Real Estate Construction		Residential Mortgage		Home Equity Lines of Credit		Consumer		Unallocated		Total
AS OF DECEMBER 31, 2020
AS OF DECEMBER 31, 2021																		AS OF DECEMBER 31, 2021
Allowance for Loan Losses	Allowance for Loan Losses																	Allowance for Loan Losses
Ending balance	Ending balance	$	4,037	$	9,569	$	503	$	3,395	$	693	$	648	$	1,381	$	20,226	Ending balance	$	3,176	$	10,716	$	616	$	3,235	$	501	$	408	$	381	$	19,033
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	1,224	$	158	$	—	$	—	$	—	$	—	$	—	$	1,382	Ending balance: individually evaluated for impairment	$	855	$	600	$	—	$	—	$	—	$	—	$	—	$	1,455
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	2,813	$	9,411	$	503	$	3,395	$	693	$	648	$	1,381	$	18,844	Ending balance: collectively evaluated for impairment	$	2,321	$	10,116	$	616	$	3,235	$	501	$	408	$	381	$	17,578

Loans Receivable	Loans Receivable																	Loans Receivable
Ending balance	Ending balance	$	320,154	$	744,627	$	53,902	$	401,340	$	104,610	$	13,151	$	—	$	1,637,784	Ending balance	$	179,567	$	786,255	$	50,000	$	349,125	$	92,762	$	10,718	$	—	$	1,468,427
Ending balance: individually evaluated for impairment	Ending balance: individually evaluated for impairment	$	2,031	$	8,589	$	—	$	101	$	—	$	—	$	—	$	10,721	Ending balance: individually evaluated for impairment	$	1,487	$	7,576	$	—	$	—	$	—	$	—	$	—	$	9,063
Ending balance: collectively evaluated for impairment	Ending balance: collectively evaluated for impairment	$	318,123	$	736,038	$	53,902	$	401,239	$	104,610	$	13,151	$	—	$	1,627,063	Ending balance: collectively evaluated for impairment	$	178,080	$	778,679	$	50,000	$	349,125	$	92,762	$	10,718	$	—	$	1,459,364

Loan Modifications/Troubled Debt Restructurings/COVID-19

The Corporation ~~has received a significant number of requests~~implemented numerous initiatives to ~~modify loan terms and/or defer principal and/or interest payments,~~support and ~~has agreed to many such deferrals or are in~~protect employees and customers during the ~~process of doing so. Under Section 4013 of the Coronavirus Aid, Relief,~~COVID-19 pandemic. These efforts continue with current information and Economic Security (CARES) Act, loans less than 30 days past due as of December 31, 2019, will be considered current for COVID-19 modifications. A financial institution can then use FASB agreed upon temporary changes to US GAAP for loan modificationsguidelines related to ongoing COVID-19 that would otherwise be categorized as a troubled debt restructuring (TDR), and suspend any determination of a loan modified as a result of COVID-19 being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, FASB has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

~~The global pandemic referred to as COVID-19 has created many barriers to~~ loan ~~production relative to~~modifications or deferrals for either commercial or consumer customers, furthering the ~~measures taken to slow~~positive trend of improvement in 2021. In comparison, at March 31, 2021, the ~~spread. These measures have put a large strain on a wide variety of industries within the global economy generally,~~Corporation had outstanding approvals for temporary loan modifications and ~~ACNB’s market specifically. The overall economic impact and effect~~deferrals for 30 loans totaling $23,720,360 in principal balances, representing 1.6% of the measures is yet to be fully understood as its effects will most likely lag timewise behind while businesses and governments inject resources to help lessen the impact. Despite efforts to lessen the impact, it is the Corporation’s current belief that the pandemic will temporarily, or in some cases permanently, damage our borrower’s ability to repay loans and comply with terms.

~~The Corporation’s Commercial~~total loan ~~portfolio previously had loans affected by COVID-19; however at September 30, 2021 there were no loans that are expected to suffer greater losses as a result of COVID-19.~~

~~Paycheck Protection Program~~

portfolio. The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Corporation was automatically authorized to originate PPP loans.

On December 27, 2020, President Trump signed H.R. 133, the Consolidated Appropriations Act, 2021, into law (Economic Aid Act). Congress appropriated approximately $285 billion to the SBA to reopen the PPP for first-time and second-time borrowers. The Economic Aid Act reopened the PPP for first-time borrowers (First Draw PPP Loan) and allows for a second draw of PPP funds (Second Draw PPP Loan) for small businesses with 300 or fewer employees that have sustained a 25% drop in revenue in any quarter of 2020 when compared to the same quarter in 2019. To receive a second draw PPP loan, a business must use or have used the full amount of their first PPP loan. The

maximum second-draw loan amount is $2 million. Second Draw PPP Loans will have: (a) an interest rate of 1.0%, (b) a five-year loan term to maturity; and (c) principal and interest payments deferred until ten months following the last day of the covered period.

An eligible business can apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly payroll costs, or (2) $10.0 million. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year or five-year loan term to maturity; and (c) principal and interest payments deferred until ten months following the last day of the covered period. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrowers’ PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP, so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses.

As of ~~September 30, 2021,~~March 31, 2022, the Corporation had ~~originated approximately~~closed and funded 2,217 ~~applications for~~PPP loans totaling $223,036,703, ~~of loans under the PPP. Fee income was~~resulting in approximately $9.5 million ~~before costs. The Corporation recognized $1,281,000 and $4,411,000 of PPP~~in total fee income. Of this fee income ~~through~~amount, $2,875,000, before costs, was recognized in 2020 and another $5,627,000, before costs, was recognized in 2021 as an adjustment to interest income yield, and $468,000, before costs, was recognized during the three ~~and nine~~ months ended ~~September 30, 2021, respectively. The remaining amount will~~March 31, 2022, with the remainder to be recognized in future ~~quarters. The~~quarters as an adjustment to interest income yield. At March 31, 2022, there was an outstanding balance of $9,844,452 in PPP loans as a result of forgiveness and repayments to date. Currently the Corporation ~~recognized $741,000 and $1,417,000~~is assisting the remainder of PPP ~~fee income~~customers with the processing of applications for loan forgiveness through the ~~three and nine months ended September 30, 2020.~~SBA.

~~10.~~9. Fair Value Measurements

Management uses its best judgment in estimating the fair value of the Corporation’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Corporation could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective reporting dates and have not been reevaluated or updated for purposes of these consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period end.

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

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

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

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

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

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

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

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

For assets measured at fair value, the fair value measurements by level within the fair value hierarchy, and the basis of measurement used at ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, are as follows:


			September 30, 2021										March 31, 2022
In thousands	In thousands	Basis	Total		Level 1		Level 2		Level 3		In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies	U.S. Government and agencies		$	223,169	$	—	$	223,169	$	—	U.S. Government and agencies		$	241,534	$	—	$	241,534	$	—
Mortgage-backed securities, residential	Mortgage-backed securities, residential		132,999		—		132,999		—		Mortgage-backed securities, residential		278,725		—		278,725		—
State and municipal	State and municipal		42,710		—		42,710		—		State and municipal		39,682		—		39,682		—
Corporate bonds	Corporate bonds		12,798		—		12,798		—		Corporate bonds		16,419		—		16,419		—

Total securities available for sale	Total securities available for sale	Recurring	$	411,676	$	—	$	411,676	$	—	Total securities available for sale	Recurring	$	576,360	$	—	$	576,360	$	—
Equity securities with readily determinable fair values	Equity securities with readily determinable fair values	Recurring	$	2,547	$	2,547	$	—	$	—	Equity securities with readily determinable fair values	Recurring	$	2,500	$	2,500	$	—	$	—
Collateral dependent impaired loans	Collateral dependent impaired loans	Nonrecurring	$	5,474	$	—	$	—	$	5,474	Collateral dependent impaired loans	Nonrecurring	$	4,170	$	—	$	—	$	4,170


			December 31, 2020										December 31, 2021
In thousands	In thousands	Basis	Total		Level 1		Level 2		Level 3		In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies	U.S. Government and agencies		$	183,603	$	—	$	183,603	$	—	U.S. Government and agencies		$	245,041	$	—	$	245,041	$	—
Mortgage-backed securities, residential	Mortgage-backed securities, residential		108,822		—		108,822		—		Mortgage-backed securities, residential		133,496		—		133,496		—
State and municipal	State and municipal		36,484		—		36,484		—		State and municipal		44,611		—		44,611		—
Corporate bonds	Corporate bonds		8,809		—		8,809		—		Corporate bonds		13,950		—		13,950		—

Total securities available for sale	Total securities available for sale	Recurring	$	337,718	$	—	$	337,718	$	—	Total securities available for sale	Recurring	$	437,098	$	—	$	437,098	$	—
Equity securities with readily determinable fair values	Equity securities with readily determinable fair values	Recurring	$	2,170	$	2,170	$	—	$	—	Equity securities with readily determinable fair values	Recurring	$	2,609	$	2,609	$	—	$	—
Collateral dependent impaired loans	Collateral dependent impaired loans	Nonrecurring	$	7,498	$	—	$	—	$	7,498	Collateral dependent impaired loans	Nonrecurring	$	5,275	$	—	$	—	$	5,275

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

Quantitative Information about Level 3 Fair Value Measurements

Dollars in thousands

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

Dollars in thousands

Fair Value Estimate

Valuation Technique

Unobservable Input

Range

Weighted Average

September 30, 2021

March 31, 2022

Impaired loans

5,474

Appraisal of collateral

(a)

Appraisal adjustments

(b)

(10) – (50)%

(51)%

Impaired loans

4,170

Appraisal of collateral

(a)

Appraisal adjustments

(b)

(10) – (50)%

55%

December 31, 2020

December 31, 2021

Impaired loans

7,498

Appraisal of collateral

(a)

Appraisal adjustments

(b)

(10) – (50)%

(52)%

Impaired loans

5,275

Appraisal of collateral

(a)

Appraisal adjustments

(b)

(10) – (50)%

(50)%

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

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

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

3228

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of ~~September 30, 2021:~~March 31, 2022:


		September 30, 2021											March 31, 2022
In thousands	In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and due from banks	Cash and due from banks	$	22,479	$	22,479	$	9,400	$	13,079	$	—	Cash and due from banks	$	23,388	$	23,388	$	8,472	$	14,916	$	—
Interest-bearing deposits in banks	Interest-bearing deposits in banks	700,303		700,303		700,303		—		—		Interest-bearing deposits in banks	454,232		454,232		454,232		—		—
Equity securities available for sale	Equity securities available for sale	2,547		2,547		2,547		—		—		Equity securities available for sale	2,500		2,500		2,500		—		—
Investment securities available for sale	Investment securities available for sale	411,676		411,676		—		411,676		—		Investment securities available for sale	576,360		576,360		—		576,360		—
Investment securities held to maturity	Investment securities held to maturity	7,220		7,482		—		7,482		—		Investment securities held to maturity	28,019		27,679		—		27,679		—
Loans held for sale	Loans held for sale	3,935		3,935		—		3,935		—		Loans held for sale	1,123		1,123		—		1,123		—
Loans, less allowance for loan losses	Loans, less allowance for loan losses	1,467,745		1,490,133		—		—		1,490,133		Loans, less allowance for loan losses	1,465,363		1,414,132		—		—		1,414,132
Accrued interest receivable	Accrued interest receivable	5,746		5,746		—		5,746		—		Accrued interest receivable	6,270		6,270		—		6,270		—
Restricted investment in bank stocks	Restricted investment in bank stocks	2,368		2,368		—		2,368		—		Restricted investment in bank stocks	1,855		1,855		—		1,855		—

Financial liabilities:	Financial liabilities:											Financial liabilities:
Demand deposits and savings	Demand deposits and savings	1,966,499		1,966,499		—		1,966,499		—		Demand deposits and savings	2,029,017		2,029,017		—		2,029,017		—
Time deposits	Time deposits	451,062		453,159		—		453,159		—		Time deposits	381,744		372,763		—		372,763		—
Short-term borrowings	Short-term borrowings	44,605		44,605		—		44,605		—		Short-term borrowings	30,028		30,028		—		30,028		—
Long-term borrowings	Long-term borrowings	20,700		21,027		—		21,027		—		Long-term borrowings	9,200		9,211		—		9,211		—
Trust preferred subordinated debt	Trust preferred subordinated debt	21,000		20,132		—		20,132		—		Trust preferred subordinated debt	21,000		19,460		—		19,460		—
Accrued interest payable	Accrued interest payable	417		417		—		417		—		Accrued interest payable	75		75		—		75		—

Off-balance sheet financial instruments	Off-balance sheet financial instruments	—		—		—		—		—		Off-balance sheet financial instruments	—		—		—		—		—

3329

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of December 31, ~~2020:~~2021:


		December 31, 2020											December 31, 2021
In thousands	In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3		In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and due from banks	Cash and due from banks	$	23,739	$	23,739	$	12,436	$	11,303	$	—	Cash and due from banks	$	14,912	$	14,912	$	7,992	$	6,920	$	—
Interest-bearing deposits in banks	Interest-bearing deposits in banks	375,613		375,613		375,613		—		—		Interest-bearing deposits in banks	695,219		695,219		695,219		—		—
Equity securities available for sale	Equity securities available for sale	2,170		2,170		2,170		—		—		Equity securities available for sale	2,609		2,609		2,609		—		—
Investment securities available for sale	Investment securities available for sale	337,718		337,718		—		337,718		—		Investment securities available for sale	437,098		437,098		—		437,098		—
Investment securities held to maturity	Investment securities held to maturity	10,294		10,768		—		10,768		—		Investment securities held to maturity	6,454		6,652		—		6,652		—
Loans held for sale	Loans held for sale	11,034		11,034		—		11,034		—		Loans held for sale	2,193		2,193		—		2,193		—
Loans, less allowance for loan losses	Loans, less allowance for loan losses	1,617,558		1,662,342		—		—		1,662,342		Loans, less allowance for loan losses	1,449,394		1,459,900		—		—		1,459,900
Accrued interest receivable	Accrued interest receivable	6,950		6,950		—		6,950		—		Accrued interest receivable	5,520		5,520		—		5,520		—
Restricted investment in bank stocks	Restricted investment in bank stocks	2,942		2,942		—		2,942		—		Restricted investment in bank stocks	2,303		2,303		—		2,303		—

Financial liabilities:	Financial liabilities:											Financial liabilities:
Demand deposits and savings	Demand deposits and savings	1,708,868		1,708,868		—		1,708,868		—		Demand deposits and savings	1,996,337		1,996,337		—		1,996,337		—
Time deposits	Time deposits	476,657		481,138		—		481,138		—		Time deposits	430,052		428,718		—		428,718		—
Short-term borrowings	Short-term borrowings	38,464		38,464		—		38,464		—		Short-term borrowings	35,202		35,202		—		35,202		—
Long-term borrowings	Long-term borrowings	42,745		43,669		—		43,669		—		Long-term borrowings	13,700		13,764		—		13,764		—
Trust preferred subordinated debt	Trust preferred subordinated debt	11,000		9,902		—		9,902		—		Trust preferred subordinated debt	21,000		19,991		—		19,991		—
Accrued interest payable	Accrued interest payable	1,434		1,434		—		1,434		—		Accrued interest payable	109		109		—		109		—

Off-balance sheet financial instruments	Off-balance sheet financial instruments	—		—		—		—		—		Off-balance sheet financial instruments	—		—		—		—		—

~~11.~~10. Securities Sold Under Agreements to Repurchase (Repurchase Agreements)

The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing agreements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Corporation’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.

The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be 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 counterparty’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.

3430

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreement as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020:~~2021:


									Gross Amounts Not Offset in the Statements of Condition														Gross Amounts Not Offset in the Statements of Condition
In thousands	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		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
September 30, 2021
March 31, 2022															March 31, 2022
Repurchase agreements	Repurchase agreements														Repurchase agreements
Commercial customers and government entities	Commercial customers and government entities	(a)	$	44,605	$	—	$	44,605	$	(44,605)	$	—	$	—	Commercial customers and government entities	(a)	$	30,028	$	—	$	30,028	$	(30,028)	$	—	$	—

December 31, 2020
December 31, 2021															December 31, 2021
Repurchase agreements	Repurchase agreements														Repurchase agreements
Commercial customers and government entities	Commercial customers and government entities	(a)	$	38,464	$	—	$	38,464	$	(38,464)	$	—	$	—	Commercial customers and government entities	(a)	$	35,202	$	—	$	35,202	$	(35,202)	$	—	$	—

(a) As of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, the fair value of securities pledged in connection with repurchase agreements was ~~$48,058,000~~$42,465,000 and ~~$54,680,000,~~$46,160,000, respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of ~~September 30, 2021:~~March 31, 2022:


		Remaining Contractual Maturity of the Agreements											Remaining Contractual Maturity of the Agreements
In thousands	In thousands	Overnight and Continuous		Up to 30 Days		30 – 90 Days		Greater than 90 Days		Total		In thousands	Overnight and Continuous		Up to 30 Days		30 – 90 Days		Greater than 90 Days		Total
Repurchase agreements and repurchase-to-maturity transactions	Repurchase agreements and repurchase-to-maturity transactions											Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	U.S. Treasury and agency securities	$	44,605	$	—	$	—	$	—	$	44,605	U.S. Treasury and agency securities	$	30,028	$	—	$	—	$	—	$	30,028
Total	Total	$	44,605	$	—	$	—	$	—	$	44,605	Total	$	30,028	$	—	$	—	$	—	$	30,028

~~12.~~11. Borrowings

The Corporation had long-term debt outstanding as follows:


In thousands	In thousands	September 30, 2021		December 31, 2020		In thousands	March 31, 2022		December 31, 2021
FHLB advances	FHLB advances	$	18,000	$	38,716	FHLB advances	$	5,000	$	11,000

Loan payable to local bank	Loan payable to local bank	—		1,329		Loan payable to local bank	1,500		—
Loan payable variable rate						Loan payable variable rate	2,700		2,700

Loan payable variable rate		2,700		2,700
Trust preferred subordinated debt		—		5,000
Trust preferred subordinated debt	Trust preferred subordinated debt	6,000		6,000		Trust preferred subordinated debt	6,000		6,000
Subordinated debt	Subordinated debt	15,000		—		Subordinated debt	15,000		15,000
		$	41,700	$	53,745		$	30,200	$	34,700

The FHLB advances are collateralized by the assets defined in the security agreement and FHLB capital stock. FHLB ~~advances have maturity dates from 2021 to 2023 with~~advance matures in 2022 and has a weighted average rate of ~~2.67%~~2.75%.

The loan payable to a local bank has a ~~fixed rate of 4.5% for the first five years and a~~ variable rate of interest with Prime Rate, ~~thereafter to final maturity~~3.25% at March 31, 2022, The loan matures in ~~June 2028.~~December 2049. The principal balance of this note may be prepaid at any time without penalty. ~~This loan payable was paid off during the second quarter of 2021.~~

The loan payable variable rate represents a promissory note (note) issued by FCBI in July 2011 and assumed by

ACNB Corporation through the acquisition. The note has been amended from time to time through change in terms agreements. Under the current change in terms agreement, the maturity date of the note is ~~October 6, 2021,~~July 10, 2022, with the rate of interest accruing on the principal balance of 3.25% per year. The note is unsecured.

The first trust preferred subordinated debt is comprised of debt securities issued by New Windsor in June 2005 and assumed by ACNB Corporation through the acquisition. New Windsor issued $5,000,000 of 6.39% fixed rate capital securities to institutional investors in a private pooled transaction. The proceeds were transferred to New Windsor as trust preferred subordinated debt under the same terms and conditions. The Corporation then contributed the full amount to the Bank in the form of Tier 1 capital. The Corporation has, through various contractual arrangements, fully and unconditionally guaranteed all of the trust obligations with respect to the capital securities. The trust preferred security was paid off during the second quarter of 2021.

The ~~second~~ trust preferred subordinated debt is comprised of debt securities issued by FCBI in December 2006 and assumed by ACNB Corporation through the acquisition. FCBI completed the private placement of an aggregate of $6,000,000 of trust preferred securities. The interest rate on the subordinated debentures is currently adjusted quarterly to 163 basis points over three-month LIBOR. The debenture has a provision if LIBOR is no longer available. On ~~September 30, 2021,~~March 15, 2022, the most recent interest rate reset date, the interest rate was adjusted to ~~1.74600%~~2.45600% for the period ending ~~September 13, 2021.~~June 14, 2022. The trust preferred securities mature on December 15, 2036, and may be redeemed at par, at the Corporation’s option, on any interest payment date. The proceeds were transferred to FCBI as trust preferred subordinated debt under the same terms and conditions. The Corporation then contributed the full amount to the Bank in the form of Tier 1 capital. The Corporation has, through various contractual agreements, fully and unconditionally guaranteed all of the trust obligations with respect to the capital securities.

On March 30, 2021, ACNB Corporation (the Company) entered into Subordinated Note Purchase Agreements (Purchase Agreements) with certain institutional accredited investors and qualified institutional buyers (the Purchasers) pursuant to which the Company sold and issued $15.0 million in aggregate principal amount of its 4.00% fixed-to-floating rate subordinated notes due March 31, 2031 (the Notes). The Notes were issued by the Company to the Purchasers at a price equal to 100% of their face amount. The Company intends to use the net proceeds it received from the sale of the Notes to retire outstanding debt of the Company, repurchase issued and outstanding shares of the Company, support general corporate purposes, underwrite growth opportunities, create an interest reserve for the Notes, and downstream proceeds to ACNB Bank (the Bank), to be used by the Bank to continue to meet regulatory capital requirements, increase the regulatory lending ability of the Bank, and support the Bank’s organic growth initiatives. The Notes have a stated maturity of March 31, 2031, are redeemable by the Company at its option, in whole or in part, on or after March 30, 2026, and at any time upon the occurrences of certain events.

~~13.~~12. Goodwill and Other Intangible Assets

On January 5, 2005, ACNB Corporation completed its acquisition of Russell Insurance Group, Inc. (now ACNB Insurance Services, Inc.) of Westminster, Maryland. The acquisition of ~~RIG~~ACNB Insurance Services, Inc. resulted in goodwill of approximately $6,308,000.

On July 1, 2017, the Corporation completed its acquisition of New Windsor Bancorp, Inc. of Taneytown, Maryland. The acquisition of New Windsor resulted in goodwill of approximately $13,272,000 and generated $2,418,000 in core deposit intangibles.

On January 11, 2020, the Corporation completed its acquisition of Frederick County Bancorp, Inc. of Frederick, Maryland. The acquisition of FCBI resulted in goodwill of approximately $22,528,000 and generated $3,560,000 in core deposit intangibles.

On February 28, 2022, ACNB Insurance Services, Inc. completed its acquisition of Hockley & O'Donnell Insurance Agency, LLC of Gettysburg, Pennsylvania. The acquisition of Hockley & O'Donnell resulted in goodwill of approximately $2,077,000 and generated $5,835,000 in book of business and covenant not to compete intangibles.

Combined goodwill included in the Corporation’s consolidated statement of condition is ~~$42,108,000.~~44,184,000. Goodwill, which has an 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 goodwill impairment on ~~RIG~~ACNB Insurance Services, Inc. or the Bank’s outstanding goodwill from its most recent testing.

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. 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 over their estimated useful lives which range from eight to fifteen

years. ACNB continues to evaluate long lived assets to determine if there are events or conditions that require an impairment test.

The carrying value and accumulated amortization of the intangible assets and core deposit intangibles are as follows:


In thousands	In thousands	Gross carrying amount		Accumulated amortization		In thousands	Gross carrying amount		Accumulated amortization
RIG amortized intangible assets		$	10,428	$	7,374
ACNB Insurance Services, Inc. amortized intangible assets						ACNB Insurance Services, Inc. amortized intangible assets	$	16,151	$	7,562
New Windsor core deposit intangibles	New Windsor core deposit intangibles	2,418		1,561		New Windsor core deposit intangibles	2,418		1,692
FCBI core deposit intangibles	FCBI core deposit intangibles	3,560		1,084		FCBI core deposit intangibles	3,560		1,359

The Corporation completes a goodwill analysis at least on an annual basis or more often if events and circumstances indicate that there may be impairment. The Corporation also completes an impairment test for other intangible assets on an annual basis or more often if events and circumstances indicate a possible impairment. The annual analysis is scheduled to occur within the fourth quarter of ~~2021.~~2022. At ~~September 30, 2021,~~March 31, 2022, ACNB cannot project the outcome of the annual analysis, however there are no events or circumstances indicating impairment.

~~14.~~13. Revenue Recognition

As of January 1, 2018, the Corporation adopted ~~ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~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.

Additional disclosures related to the Corporation’s largest sources of non-interest income within the consolidated statements of income that are subject to ASC 606 are as follows:

Income from fiduciary, investment management and brokerage activities – ACNB Bank’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’s Wealth Management Department offers retail brokerage-services through a third party provider. Wealth Management clients are located primarily within the Corporation’s geographic markets. Assets held by the Corporation’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 ~~$496,780,000~~$516,455,000 and ~~$399,544,000~~$468,340,000 at ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Income from fiduciary, investment management and brokerage activities are included in other income.

The majority of trust services revenue is earned and collected monthly, with the amount determined based on the investment funds in each trust multiplied by a fee schedule for type of trust. Each trust has one integrated set of performance obligations so no allocation is required. The performance obligation is met by performing the identified fiduciary service. Successful performance is confirmed by ongoing internal and regulatory control, measurement is by valuing the trust assets at a monthly date to which a fee schedule is applied. Wealth management fees are contractually agreed with each customer, and fee levels vary based mainly on the size of assets under management. The costs of acquiring trust customers are incremental and recognized within non-interest expense in the consolidated statements of income.

Service charges on deposit accounts – 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’ 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~~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 significant and are recognized as expense when incurred within non-interest expense in the consolidated statements of income.

Interchange revenue from debit card transactions - 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’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’ 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’s deposit account with the settlement bank. Incremental costs associated with ATM and interchange processing are recognized as expense when incurred within non-interest expense in the consolidated statements of income.

~~15.~~14. New Accounting Pronouncements

ASU 2016-13

In June 2016, the 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.

Certain incremental disclosures are required. Until recently, the new CECL standard was expected to become effective for the Corporation 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. The Corporation currently expects 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. The Corporation will not early adopt as of January 1, 2020, but will continue to review factors that might indicate that the full deferral time period should not be used. The Corporation continues to evaluate the impact the CECL model will have on the accounting for credit losses, but the Corporation 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. The Corporation cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard 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.

~~ASU 2019-12~~

~~In December 2019, the FASB issued ASU 2019-12,~~

~~Income Taxes (Topic 740)~~

, an update to simplify accounting for income taxes by removing certain exceptions in Topic 740. In addition, ASU 2019-12 improves consistent application of other areas of guidance within Topic 740 by clarifying and amending existing guidance. The new guidance is

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effective for fiscal years beginning after December 15, 2020. The adoption of the new guidance is not expected to have a material effect on the Corporation’s consolidated financial condition or results of operations.

ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this Update provide optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

ASU 2022-02

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.

ASU 2022-02 made certain targeted amendments specific to troubled debt restructurings (TDRs) by creditors and vintage disclosure related to gross write-offs. Upon adoption, the Corporation will be required to apply the loan and refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan, rather than applying the recognition and measurement guidance for TDRs.

The ASU also requires companies to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within scope of Subtopic 326-20.

ASU 2022-02 is effective March 31, 2023, for entities that have adopted ASU 2016-13, otherwise effective date is the same as ASU 2016-13. The Corporations current plan is to adopt ASU 2016-13 January 1, 2023 and will simultaneously implement ASU 2022-02.

ACNB CORPORATION

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION AND FORWARD-LOOKING STATEMENTS

Introduction

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

Forward-Looking Statements

In addition to historical information, this Form 10-Q ~~contains~~may contain forward-looking statements. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of ~~management~~Management or the Board of Directors, and (c) statements of assumptions, such as economic conditions in the Corporation’s market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “intends”, “will”, “should”, “anticipates”, or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy. Forward-looking statements are subject to certain risks and uncertainties such as local economic conditions, competitive factors, and regulatory limitations. Actual results may differ materially from those projected in the forward-looking statements. Such risks, uncertainties and other factors that could cause actual results and experience to differ from those projected include, but are not limited to, the following: short- and long-term effects of inflation and rising costs on the Corporation, customers and economy; effects of governmental and fiscal policies, as well as legislative and regulatory changes; ~~the~~ effects of new laws and regulations ~~specifically~~(including laws and regulations concerning taxes, banking, securities and insurance) and their application with which the ~~impact of the Coronavirus Response~~Corporation 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;~~its subsidiaries must comply; 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 any other pandemic, epidemic or health-related crisis and the responses thereto on the operations of the Corporation and current customers, specifically the effect of the economy on loan customers’ ability to repay loans; ~~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~~inflation, securities market and monetary fluctuations; risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and interest rate protection agreements, as well as interest rate risks; difficulties in acquisitions and integrating and operating acquired business operations, including information technology difficulties; challenges in establishing and maintaining operations in new markets; ~~the~~ effects of technology changes; ~~volatilities in the securities markets; the~~ effect of general economic conditions and more specifically in the Corporation’s market 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;~~terrorism or geopolitical instability; 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’s brand and protect the Corporation’s intellectual property rights; continued relationships with major customers; and, potential impacts to the Corporation from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses. We caution readers not to place undue reliance on these forward-looking statements. They only reflect ~~management’s~~Management’s analysis as of this date. The Corporation does not revise or update these forward-looking statements to reflect events or changed circumstances. Please carefully review the risk factors described in other documents the Corporation files from time to time with the Securities and Exchange Commission, including the Annual Reports on Form 10-K, Quarterly Reports on Form ~~10-Q, and~~10-Q. Please also carefully review any Current Reports on Form ~~8-K.~~8-K filed by the Corporation with the Securities and Exchange Commission.

CRITICAL ACCOUNTING POLICIES

The accounting policies that the Corporation’s management deems to be most important to the portrayal of its financial condition and results of operations, and that require management’s most difficult, subjective or complex judgment, often result

in the need to make estimates about the effect of such matters which are inherently uncertain. The following policies are deemed to be critical accounting policies by management:

The allowance for loan losses represents management’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’s Discussion and Analysis of Financial Condition and Results of Operations.

The evaluation of securities for other-than-temporary impairment requires a significant amount of judgment. In estimating other-than-temporary impairment losses, management considers various factors including the length of time the fair value has been below cost, the financial condition of the issuer, and the Corporation’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.

Accounting Standard Codification (ASC) Topic 350, 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’s~~ACNB Insurance Services, Inc.’s outstanding goodwill from its most recent testing, which was performed as of October 1, ~~2020.~~2021. A qualitative assessment on the Bank’s outstanding goodwill, resulting from the 2017 New Windsor acquisition, was performed on the anniversary date 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. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. The Corporation has not identified any such events and, accordingly, has not tested goodwill resulting from the acquisition of New Windsor Bancorp, Inc. (New Windsor) for impairment during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. 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.

RESULTS OF OPERATIONS

Quarter ended ~~September 30, 2021,~~March 31, 2022, compared to Quarter ended ~~September 30, 2020~~March 31, 2021

Executive Summary

Net income for the three months ended ~~September 30, 2021,~~March 31, 2022, was $~~7,360,000,~~6,599,000, compared to a net income of ~~$6,771,000~~$7,471,000 for the ~~same~~first quarter in ~~2020, an increase~~2021, a decrease of ~~$589,000~~$872,000 or ~~8.7%~~11.7%. Basic earnings per share for the three month period March 31, 2022 and 2021 was ~~$0.84 in 2021~~$0.76 and ~~$0.79 i~~$0.86~~n 2020, or a 6.3% increase. The~~, respectively, an 11.6% decrease. ~~higher~~The lower net income for the ~~third~~first quarter of ~~2021~~2022 was primarily a result o~~f higher~~of lessor fee income, ~~and less loan loss provision~~as compared to the ~~third~~first quarter of ~~2020~~2021 in which there was a significantly higher volume of residential mortgage loans sold to the ~~Pandemic caused higher provision expense.~~secondary market as consumers refinances and purchased homes in the low interest rate environment. Net interest income for the quarter ended ~~September 30, 2021~~March 31, 2022 decreased ~~$366,000,~~$272,000, or ~~2.0%~~1.6%, as decreases in total interest income were more than decreases in total interest expense. Provision for loan losses was $0 for the quarter ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$1,550,000~~$50,000 for the same quarter in ~~2020,~~2021, based on the adequacy analysis ~~including estimation of 2020 COVID-19 related losses (that even though not realized were believed to be embedded in the loan portfolio in the~~ ~~third quarter~~ ~~of 2020)~~, resulting in an allowance to total loans of ~~1.29% (1.67%~~1.28% (1.61% of non-acquired loans) at ~~September 30, 2021.~~March 31, 2022. Other income ~~increased $262,000,~~decreased $1,454,000, or ~~5.2%~~24.6%, due ~~in part~~ to ~~increases in fees from fiduciary and investment activities and increases in most other categories while~~decreased fees from selling mortgages into the secondary market ~~decreased.~~while fees from fiduciary activities and deposits increased. Other expenses ~~increased $666,000,~~decreased $505,000, or ~~5.0%~~3.7%, due in part to ~~normal~~adjustment of year end personnel ~~occupancy~~incentive accrual due to issuance of restricted stock instead of cash and ~~regulatory expenses. During~~higher expense structure of the ~~third quarter of 2021, there were $0 in merger/system conversion related expenses for the acquisition of Frederick County Bancorp, Inc. (FCBI) that was effective on January 11, 2020. Although~~new core system. While continuing to be profitable, ~~ACNB was profoundly impacted by the COVID-19 events, as were most community banks.~~

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ACNB was materially impacted by Pandemic events that carried over lower than desired loans outstanding and resulting excess liquidity, affecting interest income.

Net Interest Income

Net interest income totaled ~~$18,000,000~~$17,053,000 for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$18,366,000~~$17,325,000 for the same period in ~~2020,~~2021, a decrease of ~~$366,000,~~$272,000, or ~~2.0%~~1.6%. Net interest income decreased due to a decrease in interest income in a greater amount than the decrease in interest expenses. Interest income decreased ~~$1,842,000,~~$1,293,000, or ~~8.6%~~6.7%, due to the change in mix of average earning assets, in addition to decreased rates outstanding due to market ~~events.~~events in 2020 and 2021. The decrease in interest expense resulted from deposit rate decreases in addition to a favorable change in deposit mix (as discussed below). Loans outstanding ~~was a result of active participation in the SBA Payroll Protection Program (PPP) offset by~~on average decreased year over year due to 2021 loan paydowns and payoffs ~~( including the~~(including PPP loans) despite concerted effort by management to counteract the recent year trend of the market area’s heightened competition and the COVID-19 related slow economic conditions. ~~Loan~~Active participation in the SBA Payroll Protection Program (PPP) were largely paid off by the first quarter of 2022. Earning asset yields in 2020 and 2021 were negatively impacted by declines in the U.S. Treasury yields and other market driver interest ~~rates.~~rates which carried over to the first quarter as continued low yields on the existing balance sheet even as market rates experience a massive increase in terms relevant to lending and investing during the quarter. The ~~third quarter saw continued lower market yields and the~~ difference between longer term rates and shorter term rates was ~~generally modest.~~ flat to inverted by the end of the quarter. These current driver rates will affect new loan originations and are indexed to a portion of the loan portfolio in that a change in the driver rates changes the yield on new loans and on existing loans at subsequent interest rate reset dates. From these changes in prior quarters, interest income yield was negatively affected as new loans replace paydowns on existing loans and variable rate loans reset to new current rates in these years. Partially offsetting lower yields in the first quarter were ~~FCBI~~ purchase accounting adjustments ($~~642,000)~~590,000) and PPP fees ($~~1,281,000)~~468,000) recognized that increased yield. Both fees were lower than the amounts in the first quarter of 2021(purchase accounting $885,000 and PPP fees $949,000), are finite in amount and nonrecurring in nature, especially the PPP fees, that will not repeat in this magnitude in upcoming periods. Interest income ~~increased~~decreased on investment securities due to increased new purchases during 2021 at rates lower than rates on maturing investments. An elevated amount of earning assets remained in short-term, low-rate money market type accounts during the ~~third~~first quarter of ~~2021~~;2022; and there exists ample ability to borrow for liquidity needs. The ability to increase lending is contingent on the lingering effects of COVID-19 on current and potential customers even with intense competition that has reduced new loans and may result in the payoff of existing loans, allowing economic conditions in the Corporation’s marketplace to eventually return to its previous stable state. As to funding costs, interest rates on alternative funding sources, such as the FHLB, and other market driver rates are factors in rates the Corporation and the local market pay for ~~deposits.~~deposits. However, ~~after COVID-19,~~ Federal Open Market Committee (FOMC) actions, rates on transaction, savings and time deposits were sharply reduced in order to match sharply reduced market earning asset yields. Interest expense decreased ~~$1,476,000,~~$1,021,000, or 49.9%,due to lower rates offsetting higher volume on transaction deposits, certificate of deposit rate decreases and lower volume, and by less use of higher cost borrowings. The medical need to stop the spread of COVID-19 caused government officials to close or restrict operations of many businesses and their workers. One of the responses was for the Federal Reserve to decrease rates to 0% to 0.25% ~~at which they remain.~~and the massive injection of liquidity into markets. The resulting inflation was cause for a reversal of course with rates increased and the expectation for further increases that were anticipated and built into terms of two years through five years and longer terms to a lesser extent. The effects of these rate actions and a host of other responses currently cannot be ~~predicted currently.~~predicted. Over the longer term, the Corporation continues its strategic direction to increase asset yield and interest income by means of loan growth and rebalancing the composition of earning assets to commercial loans.

The net interest spread for the ~~third~~first quarter of ~~2021~~2022 was ~~2.70%~~2.61% compared to ~~3.07%~~2.81% during the same period in ~~2020.~~2021. Also comparing the ~~third~~first quarter of ~~2021~~2022 to ~~2020,~~2021, the yield on interest earning assets decreased by ~~0.70%~~0.46% and the cost of interest bearing liabilities decreased by ~~0.34%~~0.26%. The net interest margin was ~~2.79%~~2.67% for the ~~third~~first quarter of ~~2021~~2022 and ~~3.21%~~2.94% for the ~~third~~first quarter of ~~2020.~~2021. The net interest margin decrease ~~was net of~~included lower purchase accounting adjustments which decreased 119 basis points, but was more impacted by sharp market rate decreases (including PPP loans fees) and less loans as a percentage in the earning asset mix and more lower yielding investments assets. The Corporation's ALCO processes continually measure and ~~liquidity assets.~~assess possible FOMC rate actions and prepare appropriate response strategies.

Average earning assets were ~~$2,560,000,000~~$2,593,000,000 during the ~~third~~first quarter of ~~2021,~~2022, an increase of ~~$287,000,000~~$206,000,000 from the average for the ~~third~~first quarter of ~~2020.~~2021. Average interest bearing liabilities were ~~$1,861,000,000~~$1,870,000,000 in the ~~third~~first quarter of ~~2021,~~2022, an increase of ~~$72,000,000~~$149,000,000 from the same period in ~~2020.~~2021. Non-interest demand deposits increased ~~$69,000,000~~$65,000,000 on average over the same period in ~~2020.~~2021. All increases were a result of COVID-19 related slow economic activity that tend to concentrate increased liquidity into the banking system, including PPP loan proceeds.

Unrealized losses on available for sale investment securities were $21.4 million net of taxes at March 31, 2022 an increase from $3.5 million loss net of taxes at December 31, 2021. The credit quality of the portfolio was high for all periods and the interest rate risk position was appropriate for a community bank and within investment policy guidelines; the increase in the other

comprehensive loss was due to changes in interest rates relevant to the terms of the individual investments, such market rates averaged a 150 basis point increase, the highest quarterly increase in decades. This other comprehensive loss increase had no impact on regulatory capital ratios, which remain well capitalized. Nor did the increase have an effect on net income as the investments were not impaired and the losses were unrealized. Liquidity remains high and the Corporation has not traditionally sold investments for liquidity nor does it currently envision a need to do so.

Since the onset of COVID-19, deposit growth has outpaced loan growth resulting in an excess liquidity position at the Corporation. Late in the quarter ended March 31, 2022, the Corporation deployed excess liquidity by moving approximately $185,000,000 from cash into higher-yielding securities with a tax equivalent yield of approximately 2.80%. These new purchases were consistent with the current investment portfolio, but with higher yields to enhance the net interest margin and net interest income in future quarters.

Provision for Loan Losses

The provision for loan losses was $0 in the ~~third~~first quarter of ~~2021~~2022 and ~~$1,550,000~~$50,000 in the ~~third~~first quarter of ~~2020.~~2021. The determination of the 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~~Frederick County Bancorp, Inc. acquisition completed in 2020 (FCBI) or the New Windsor Bancorp, Inc. acquisition completed in 2017 (New Windsor), which were recorded at fair value as of the acquisition dates. Total impaired loans at ~~September 30, 2021~~March 31, 2022 were ~~(14.0)%~~10.8% lower when compared to December 31, ~~2020.~~2021. Nonaccrual loans decreased by ~~20.2%~~17.2%, or ~~$1,423,000,~~$946,000, since December 31, ~~2020;~~2021; all substandard loans ~~decreased~~increased by ~~9.5%~~0.5% in that period. 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. As a result of stable loan risk metrics, combined with low credit losses in the portfolio, the provision for loan losses for t~~The~~he ~~third~~first quarter of ~~2021~~2022 ~~provision~~ was ~~calculated to be much lower due to the intervening provisioning for the impact of the COVID-19 pandemic and the continued reduction in modifications made in prior periods because of COVID-19.~~$0. This customer base includes businesses in the hospitality/tourism industry, restaurants and related businesses and lessors of commercial real estate properties. The qualitative factor for this event and a related factor on commercial and industrial loan collateral was

~~stable~~. decreased. The lack of the provision in the ~~third~~first quarter of ~~2021,~~2022, was despite loss incurred in ~~2021~~year to date 2022 charge-offs as allowance for the losses were calculated in prior periods. Otherwise, Management concluded that the loan portfolio exhibited continued general stability in quantitative and qualitative measurements as shown in the tables and narrative in this Management’s Discussion and Analysis and the Notes to the Consolidated Financial Statements. The long term effect of the ~~ongoing COVID-19 event~~various Pandemic and geopolitical events cannot be currently estimated other than the calculation that resulted in the above mentioned special qualitative factors. This same analysis concluded that the unallocated allowance should be in the ~~same~~same range in ~~the third quarter of 2021~~2022 compared with the previous quarter. For more information, please refer to Allowance for Loan Losses in the following Financial Condition section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. ACNB charges confirmed loan losses to the allowance and credits the allowance for recoveries of previous loan charge-offs. For the ~~third~~first quarter of ~~2021,~~2022, the Corporation had net charge-offs of ~~$1,066,000,~~$70,000, as compared to net charge-offs of ~~$703,000~~$39,000 for the ~~third~~first quarter of ~~2020.~~2021.

Other Income

Total other income was ~~$5,274,000~~$4,459,000 for the three months ended ~~September 30, 2021, up $262,000,~~March 31, 2022, down $1,454,000, or ~~5.2%~~24.6%, from the ~~third~~first quarter of ~~2020.~~2021. Fees from deposit accounts increased by ~~$73,000,~~$184,000, or ~~8.8%~~23.8%, due to partial resumption of economic activity that produces fee generating activity. FeeFee volume varies with balance levels, ~~account~~account transaction activity, and customer-driven events such as overdrawing account balances. Various specific government regulations effectively limit fee assessments related to deposit accounts, making future revenue levels uncertain. Revenue from ATM and debit card transactions ~~increased~~decreased by ~~$53,000~~$25,000 or ~~6.6%~~3.2%, to ~~$862,000~~$753,000 due to variations in volume and mix, including prior period COVID-19 related higher online volume. The longer term trend had been increases resulting from consumer desire to use more electronic delivery channels ~~(Internet~~(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 effects of which cannot be currently quantified. The retail system-wide security breaches in the merchant base ~~that~~ are negatively affecting consumer confidence in the debit card channel. 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 ~~$837,000~~$810,000 for the three months ended ~~September 30, 2021,~~March 31, 2022, as compared to ~~$659,000~~$703,000 for the ~~third~~first quarter of ~~2020,~~2021, a ~~27.0%~~15.2% net increase as anet result of higher fee volume from increased assets under management, ~~lower~~higher sporadic estate fee income and varying fees on brokerage relationship transactions. Earnings on bank-owned life insurance decreased by ~~$9,000,~~$11,000, or ~~2.5%~~3.3%, as a net result of varying crediting rates and administrate cost. At the Corporation’s wholly-owned insurance subsidiary, ~~Russell~~ACNB Insurance ~~Group, Inc. (RIG)~~Services, Inc., revenue was updown by ~~$27,000,~~$183,000, or ~~1.6%~~13.2%, to ~~$1,715,000~~$1,200,000 during the three month period due to ~~increases~~decreases in commission on recurring books of business due to economic activity ~~factors.~~factors or loss of commission through nonrenewal. A continuing risk to ~~RIG~~ACNB Insurance Service, Inc.’s revenue is nonrenewal of large commercial accounts and actions by insurance carriers to reduce commissions paid to agencies such as ~~RIG~~ACNB Insurance Services, Inc. Contingent or extra commission payments from insurance carriers are received in the second quarter of each year. Contingent commissions vary

from prior periods, due to specific claims at ~~RIG~~ACNB Insurance Services, Inc. and trends in the entire insurance marketplace in general. Heightened pressure on commissions is expected to continue in this business line from insurance company actions. Estimation of upcoming contingent commissions is ~~not calculable~~estimated at ~~September 30,~~March 31, 2022 to be materially higher than 2021. See Note 12 for discussion of the insurance book of business purchase on February 28,2022. Income for sold mortgages included in other income, decreased by ~~$127,000~~$1,002,000 or ~~(29.7)%~~ 78.1% due to less demand for refinancing in the current much higher rate environment; such demand is rate dependent and therefore volatile. There were no gains or losses on sales of securities during the ~~third~~first quarter of ~~2021~~2022 and ~~2020.~~2021. A $0$109,000 net fair value loss was recognized on local bank and CRA-related equity securities during the ~~third~~first quarter of ~~2021~~2022 due to normal variations in market value on publicly-traded local bank stocks, compared to a ~~$82,000~~$365,000 net fair value ~~loss~~gain during the ~~third~~first quarter of ~~2020~~ 2021 when these stocks ~~were volatile~~recovered from ~~economic events.~~Pandemic lows. No equity securities were sold in either period. Other income in the three months ended ~~September 30, 2021,~~March 31, 2022, was down by ~~$15,000,~~$50,000, or ~~4.7%~~17.3%, to ~~$304,000~~$239,000 due to a variety of other fee income variances, mostly volume related.

~~Other Expenses~~

Other expenses for the quarter ended September 30, 2021 were $13,976,000, an increase of $666,000 or 5.0%, most of which was the result of managing expenditures in the current low economic activity period.

~~The largest component of other expenses is salaries and employee benefits, which~~ ~~moderately~~ increased by $296,000, or 3.4%, when comparing the third quarter of 2021 to the same period a year ago. Overall, the limited increase in salaries and employee benefits was the result of factors as follows:

•~~challenges in replacing and maintaining customer-facing staff due to a competitive labor market;~~

•~~variations in back-office staff due to high demand for employees;~~

•~~increased organic growth initiatives at RIG;~~

•~~maintaining staff in support functions and higher skilled mix of employees necessitated by regulations and growth;~~

•~~normal merit increases to employees and associated payroll taxes;~~

•~~varying and timing on performance-based commissions, restricted stock grants and incentives;~~

•~~market changes in actively managing employee benefit plan costs, including health insurance;~~

•~~varying cost of 401(k) plan and non-qualified retirement plan benefits; and,~~

•~~defined benefit pension expense, which was up by $126,000, or 210.0%, when comparing the three months ended September 30, 2021, to the three months ended September 30, 2020,~~resulting from the change in discount rates which increases or decreases the future pension obligations (creating volatility in the expense), return on assets at the latest annual evaluation date due to market conditions and changes in actuarial assumptions reflecting increased longevity.

The Corporation’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’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. The expense could also be higher in future years due to volatility in the discount rates at the latest measurement date, lower plan returns, and change in mortality tables utilized.

~~Net occupancy expense increased by $117,000, or~~ ~~13.7%~~ ~~during the period, mostly due to deferred maintenance acceleration. Equipment expense decreased by $103,000, or 8.0%, due to tech equipment expenditures which vary due to specific projects.~~ Equipment expense is subject to ever-increasing technology demands and the need for system upgrades for security and reliability purposes. ACNB Bank executed a third quarter core system conversion that will change various expense components (the future expense cannot be fully estimated) when complete as part of its Digital Transformation strategy. Technology investments and training allowing staff to work from home continues to prove invaluable in keeping the Bank operational during the resurging pandemic.

Professional services expense totaled $422,000 during the third quarter of 2021, as compared to $265,000 for the same period in 2020, an increase of $157,000, or 59.2%. This category includes expenses related to legal corporate governance, risk, compliance management and audit engagements, and legal counsel matters in connection with loans. It varies with specific engagements that occur at different times of each year, such as loan and compliance reviews.

Marketing and corporate relations expenses were $81,000 for the third quarter of 2021, or 19.8% lower, as compared to the same period of 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.

Foreclosed assets held for resale consist of the fair value of real estate acquired through foreclosure on real estate loan collateral or the acceptance of ownership of real estate in lieu of the foreclosure process. Fair values are based on appraisals that consider the sales prices of similar properties in the proximate vicinity less estimated selling costs. Foreclosed real estat~~e expense recovery (from prior year l~~osses) was $88,000 and $89,000 for the three months ended September 30, 2021 and 2020, respectively. The expense varies based upon the number and mix of commercial and residential real estate properties, unpaid property taxes, and deferred maintenance required upon acquisition. In addition, some properties suffer decreases in value after acquisition, requiring write-downs to fair value during the prolonged marketing cycles for these distressed properties. ~~The net recoveries in 2021 and 2020 were related to final liquidation on unrelated properties which incurred expenses in prior periods.~~ Foreclosed assets held for resale expenses or recoveries will vary in the remainder of 2021 depending on the unknown expenses related to new properties acquired. Foreclosure actions could be delayed in the COVID-19 environment.

Other tax expense increased by $72,000, or 22.4%, mostly due to the FCB acquisition comparing the three months ended September 30, 2021 and 2020, including higher Pennsylvania Bank Shares Tax. The Pennsylvania Bank Shares Tax is a shareholders’ equity-based tax and is subject to increases based on state government parameters and the level of the stockholders’ equity base that increased due to retained earnings equity and acquisitions. Supplies and postage expense increased by 36.6% ~~due to variation in the timing of necessary replenishments.~~ ~~FDIC and regulatory expense increased 17.1% due to prior period use of credits that did not repeat in the current period.~~ ~~Intangible amortization decreased 8.9% on bank acquisition calculations while RIG was stable on books of business purchases.~~ ~~Other operating expenses increased by $85,000,~~

~~or 6.7%, in the third quarter of 2021, as compared to the third quarter of 2020.~~ ~~Increases included electronic banking and telecommunication related costs~~. In addition, other expenses include the expense of reimbursing checking and debit card customers for unauthorized transactions to their accounts and other third-party fraudulent use, which added approximatel~~y $37,000 to~~ other expenses in the third quarter of 2021 compared to $47,000 in the third quarter of 2020. The expense related to reimbursements is unpredictable and varying, but ACNB has policies and procedures to limit exposure recognizing the value of electronic and other banking channels to customers and the significant revenue generated especially in the debit card arena.

~~Provision for Income Taxes~~

The Corporation recognized income taxes of $1,938,000, or 20.8% of pretax income, during the third quarter of 2021, as compared to $1,747,000, or 20.5% of pretax income, during the same period in 2020. 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). In addition, both years include Maryland corporation income taxes. Low-income housing ~~tax credits were $70,000 and $66,000 for the three months ended September 30, 2021 and 2020, respectively.~~

~~Nine Months ended September 30, 2021, compared to Nine Months ended September 30, 2020~~

~~Executive Summary~~

~~Net income for the nine months ended September 30, 2021, was~~$23,339,000, compared to $11,345,000 for the same nine months in 2020, an increase of $11,994,000 or 105.7%. Basic earnings per share for the nine month period was $2.67 in 2021 and $1.32 in 2020 or a 102.3% increase over the prior period. The higher net income for the first three quarters of 2021 was primarily a result of ~~less loan loss provision compared to the first three quarters of 2020, one-time merger expenses in the first quarter of 2020, and higher fee income.~~ ~~Net interest income for the nine months ended September 30, 2021 decreased $272,000, or 0.5%,~~ ~~as decreases in total interest income were more than decreases in total interest expense.~~ ~~Provision for loan losses was $50,000 for the nine months ended September 30, 2021, compared to $8,100,000 for the same nine months in 2020,~~ ~~based on the adequacy analysis including estimation of 2020 COVID-19 related losses (that even though not realized were believed to be embedded in the loan portfolio in the first half of 2020),~~ ~~resulting in an allowance to total loans of 1.29% (1.67% of non-acquired loans) at September 30, 2021. Other income increased $3,072,000, or 21.8%, due~~ ~~in part to earlier in the year increases in bank fees from selling mortgages into the secondary market and change in equity securities fair value.~~ ~~Other expenses decreased $4,728,000, or 10.2%, due mostly~~ ~~to merger-related expenses in 2020 in connection with the acquisition of FCBI.~~ During the nine months ended September 30, 2021, there were $0 in merger/system conversion related expenses for the acquisition of FCBI that was effective on January 11, 2020. Although continuing to be profitable, ACNB was profoundly impacted by the COVID-19 events, as were most community banks.

~~Net Interest Income~~

Net interest income totaled $53,894,000 for the nine months ended September 30, 2021, compared to $54,166,000 for the same period in 2020, a decrease of $272,000, or 0.5%. Net interest income decreased ~~due to a decrease in interest income to a greater extent than a decrease in interest expense. Interest income decreased $4,333,000, or 6.8%, due to~~ the change in mix of average earning assets, in addition to decreased rates due to market events. The decrease in interest expense resulted from deposit rate decreases in addition to a favorable change in deposit mix (as discussed below). Decreased loans outstanding was a result of active participation in the short term PPP loans and their subsequent paydown, despite concerted effort by management to offset the recent year trend of the market area’s heightened competition and the COVID-19 related slow economic conditions. Loan yields were negatively impacted by declines in the U.S. Treasury yields and other market driver interest rates. The first three quarters of 2021 saw continued lower market yields and the difference between longer term rates and shorter term rates was generally 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 loans replace paydowns on existing loans and variable rate loans reset to new current rates in these years. Partially offsetting lower yields were FCBI purchase accounting adjustments that increased yield. Interest income ~~increased on investment securities due to new purchases despite lower rates than rates on maturing investments. An elevated amount of earning assets remained in~~short-term, low-rate money market type accounts during the first nine months of 2021; and there exists ample ability to borrow for liquidity needs. The ability to increase lending is contingent on the effects of COVID-19 on current and potential customers even with intense competition that has reduced new loans and may result in the payoff of existing loans, as economic conditions in the Corporation’s marketplace eventually return to its previous stable state. As to funding costs, interest rates on alternative funding sources, such as the FHLB, and other market driver rates are factors in and influence the rates the Corporation and the local market pay for deposits. However, after

COVID-19 FOMC actions, rates on transaction, savings and time deposits were sharply reduced in order to match sharply reduced market earning asset yields. Interest expense decreased $4,061,000, or 42.1%, ~~due to lower rates offsetting higher volume on transaction deposits, certificate of deposit rate decreases and lower volume, and by less use of higher cost borrowings in the first~~ ~~three quarters~~ ~~of 2021~~. The medical need to stop the spread of COVID-19 caused government officials to close or restrict operations of many businesses and their workers. One of the responses was for the Federal Reserve to decrease rates to 0% to 0.25%. Over the longer term, the Corporation continues its strategic direction to increase asset yield and interest income by means of loan growth and rebalancing the composition of earning assets to commercial loans.

~~The net interest spread for the first nine months of 2021 was 2.78% compared to 3.33%~~ ~~during the same period in 2020. Also comparing the first nine months of 2021 to 2020, the yield on interest earning a~~ssets decreased by 0.98% and the cost of interest bearing liabilities decreased by 0.43%. The net interest margin was 2.90% for the first nine months of 2021 and 3.42% for the first nine months of 2020. The net interest margin decrease was net of lower purchase accounting adjustments which decreased 11 basis points, but was more impacted by sharp market rate decreases (including PPP loans) and less loans as a percentage in the earning asset mix and more lower yielding investments and liquidity assets. PPP fees recognized year to date 2021 were $4,411,000 and purchase accounting added another $2,384,000 to interest income. Both are finite in amount and duration, especially the PPP fees, and will not repeat at this magnitude in future periods. $2,205,000 in PPP deferred fees remain at September 30th.

~~Average earning assets wer~~e $2,483,000,000 during the first nine months of 2021, an increase of $443,000,000 from the average for the first nine months of 2020. Average interest bearing liabilities were $1,786,000,000 in the first nine months of 2021, an increase of $299,000,000 from the same period in 2020. Non-interest demand deposits increased $128,000,000 on average. All increases were a result of COVID-19 related slow economic activity that tend to concentrate increased liquidity into the banking system.

~~Provision for Loan Losses~~

The provision for loan losses was $50,000 in the first nine months of 2021 and $8,100,000 in the first nine months of 2020. The determination of the 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 acquisition or the New Windsor acquisition, which were recorded at fair value as of the acquisition dates. Total impaired loans at September 30, 2021 were 14.0% lower compared to December 31, 2020. Nonaccrual loans decreased by 20.2%, or $1,423,000, since December 31, 2020; all substandard loans decreased by 9.5% in that period. Each quarter, the Corporation assesses risk in the loan portfolio and reserve required compared with the balance in the allowance for loan losses and the current evaluation factors. The first nine months of 2021 provision was calculated to be much lower due to the intervening provisioning for the impact of the COVID-19 pandemic and the continued reduction in modifications made in prior periods because of COVID-19. This customer base includes businesses in the hospitality/tourism industry, restaurants and related businesses and lessors of commercial real estate properties. The qualitative factor for this event and a related factor on commercial and industrial loan collateral was stable. The ~~$50,000 in provision expense was due to limited loss incurred in 2021 charge-offs~~. Otherwise, Management concluded that the loan portfolio exhibited continued general stability in quantitative and qualitative measurements as shown in the tables and narrative in this Management’s Discussion and Analysis and the Notes to the Consolidated Financial Statements. The long term effect of the ongoing COVID-19 event cannot be currently estimated other than the calculation that resulted in the above mentioned special qualitative factors. This same analysis concluded that the unallocated allowance should be in the same range in 2021 compared with the previous quarter. For more information, please refer to ~~Allowance for Loan Losses~~ in the following Financial Condition section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations. ACNB charges confirmed loan losses to the allowance and credits the allowance for recoveries of previous loan charge-offs. For the first nine months of 2021, the Corporation had net charge-offs of $1,135,000, as compared to net charge-offs of $2,735,000 for the first nine months of 2020.

~~Other Income~~

Total other income was $17,143,000 for the nine months ended September 30, 2021, up $3,072,000, or 21.8%, from the first nine months of 2020. At the Corporation’s wholly-owned insurance subsidiary, Russell Insurance Group, Inc. (RIG), revenue was up by $206,000, ~~or 4.3%, to $4,951,000 during the period due to increases in contingent commission volume, net of lower commission on recurring books of business due to economic activity factors.~~ A continuing risk to RIG revenue is nonrenewal of large commercial accounts and actions by insurance carriers to reduce commissions paid to agencies such as RIG. Contingent or extra commission payments from insurance carriers are received in the second quarter of each year. ~~Contingent commissions were higher than the prior year, due to specific claims at RIG and trends in the entire insurance marketplace in general in prior periods~~. Heightened pressure on commissions is expected to continue in this business line from insurance company actions. Estimation of upcoming contingent commission is not calculable at September 30, 2021. Revenue from ATM and debit card

~~transactions increased by $375,000 or 17.4%, to $2,536,000 due~~ ~~to variations in volume and mix, including COVID-19 related higher online volume.~~ The longer term trend had been increases resulting from consumer desire to use more electronic delivery 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 effects of which cannot be currently quantified. Another 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 are negatively affecting consumer confidence in the debit card channel. ~~Income for sold mortgages included in other income, increased earlier in the year by $1,218,000 or 95.2% due to demand for refinancing in the low rate environment; such demand is rate dependent and therefore volatile. Fees from deposit accounts decreased by $32,000, or 1.3%, due to COVID-19 related decrease in economic activity that reduced fee generating activity.~~ Fee volume varies with balance levels, account transaction activity, and customer-driven events such as overdrawing account balances. Various specific government regulations effectively limit fee assessments related to deposit accounts, making future revenue levels uncertain. 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 $2,363,000 for the nine months ended September 30, 2021, as compared to $1,982,000 for the first nine months of 2020, a 19.2% net increase ~~as a net result of higher fee volume from increased assets under management, lower sporadic estate fee income and varying fees on brokerage relationship transactions.~~ ~~Earnings on bank-owned life insurance decreased by $24,000, or 2.2%, as a~~ ~~net result of varying crediting rates and administrative cost.~~ ~~Other income in the nine months ended September 30, 2021, was up by $88,000, or 10.5%, to $925,000 due to a~~ ~~variety of other fee income variances, mostly volume related.~~ ~~A $377,000 net fair value gain was recognized on local bank and CRA-related equity securities during the first nine months of 2021 due to~~ ~~less concern on COVID-19 related negative market value effect on publicly-traded stocks, compared to a $483,000 net fair value loss during the first nine months of 2020~~ ~~when such concerns were high. No equity securities were sold in either quarter.~~ ~~There~~ ~~were no gains or losses on sales of securities during the first nine months of 2021 and 2020.~~

Other Expenses

Other expenses for the ~~nine months~~quarter ended ~~September 30, 2021~~March 31, 2022 were ~~$41,494,000,~~$13,282,000, a decrease of ~~$4,728,000~~$505,000 or ~~10.2%~~3.7%,, most of which was the result of ~~the first quarter of 2020 merger expenses of $5,965,000. Merger expenses included legal~~changes in salaries and consulting expenses to effect the legal merger, investment banking fees and preparing purchase accounting adjustments. Integration expenses included severance payments to FCBI staff separated by the merger, consultant costs to integrate FCBI systems into ACNB’s and the cost to terminate all FCBI 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 of integrating all systems into one system was important to the merger viability and ongoing system integrity and quality.benefits.

The largest component of other expenses is salaries and employee benefits, which~~moderately~~ ~~increased~~decreased by ~~$528,000,~~$1,109,000, or ~~2.1%~~12.8%, when comparing the first ~~nine months~~quarter of ~~2021~~2022 to the same period a year ago. Overall, the ~~increase~~ decrease in salaries and employee benefits was the result of ~~increases~~factors as follows:

•challenges and cost in replacing and maintaining customer-facing staff due to a competitive labor market;

•~~variations~~partial reversal of prior year end 2021 incentive compensation accrual as $750,000 in restricted stock was issued in lieu of accrued cash awards. Restricted stock is accounted for in a prospective expense based on vesting;

•costs in back-office staff due to the marketplace high demand for employees;

•increased organic and inorganic growth initiatives at ~~RIG;~~ACNB Insurance Services, Inc.;

•maintaining staff in support functions and higher skilled mix of employees necessitated by regulations and growth;

•normal merit increases to employees and associated payroll taxes;

•varying and timing on other performance-based commissions ~~restricted stock grants~~ and incentives;

•market changes in actively managing employee benefit plan costs, including health insurance;

•varying cost of 401(k) plan and non-qualified retirement plan benefits; and,

•defined benefit pension expense, which ~~was up~~was down by ~~$378,000,~~$291,000, or ~~210.0%~~440.9%, when comparing the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, to the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, resulting from the change in discount rates which increases or decreases the future pension obligations (creating volatility in the expense), return on assets at the latest annual evaluation date due to market conditions and changes in actuarial assumptions reflecting increased longevity.

Net occupancy expense decreased by $8,000, or 0.7% during the period, mostly due to lower winter season expense. Equipment expense increased by ~~$337,000,~~$227,000, or ~~12.4% during the period,~~ ~~mostly~~17.6%, due to ~~higher first quarter seasonal expense and deferred and periodic maintenance expenditures~~a September 2021 upgrade to a new core application system that was a major step in the corporation's Digital Transformation Strategy. ~~. Equipment expense decreased by $256,000, or 6.3%, due to~~ ~~tech equipment expenditures which vary due to specific projects~~. Equipment expense is subject to ever-increasing technology demands and the need for system upgrades for security and reliability purposes. ~~ACNB Bank executed a third quarter core system~~This conversion ~~that~~ will change various expense components ~~(which~~(the future expense cannot be fully estimated) when ~~complete as part of its Digital Transformation strategy. Technology~~complete. Technology investments and training allowing staff

to work from home continues to prove invaluable in ~~keeping~~ the ~~Bank operational during the pandemic.~~pandemic, but also in attracting a broader talent pool.

Professional services expense totaled ~~$890,000~~$309,000 during the first ~~nine months~~quarter of ~~2021,~~2022, as compared to ~~$921,000~~$224,000 for the same period in ~~2020, a decrease~~2021, an increase of ~~$31,000,~~$85,000, or ~~3.4%~~37.9%. This category includes expenses related to legal corporate governance, risk, compliance management and audit engagements, and legal counsel matters in connection with loans. It varies with specific engagements that ~~are not on a regular recurring basis.~~occur at different times of each year, such as loan and compliance reviews.

Marketing and corporate relations expenses were ~~$220,000~~$103,000 for the first ~~nine months~~quarter of ~~2021,~~2022, or ~~50.2% lower,~~33.8% higher, as compared to the same period of ~~2020.~~2021. 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.~~products.

Foreclosed assets held for resale consist of the fair value of real estate acquired through foreclosure on real estate loan collateral or the acceptance of ownership of real estate in lieu of the foreclosure process. Fair values are based on appraisals that consider the sales prices of similar properties in the proximate vicinity less estimated selling costs. Foreclosed real estate expense ~~recovery (from prior year losses)~~ was $90,000 and $182,000 for the nine months ended September 30, 2021 and 2020, respectively. The expense varies based upon the number and mix of commercial and residential real estate properties, unpaid property taxes, and deferred maintenance required upon acquisition. In addition, some properties suffer decreases in value after acquisition, requiring write-downs to fair value during the prolonged marketing cycles for these distressed properties. Th~~e higher net expense recovery in 2020 was related to final liquidation on unrelated properties which incurred expenses in prior periods.~~ Foreclosed assets held for resale expenses or recoveries will vary in the remainder of 2021 depending on the unknown expenses related to new properties acquired and final disposition. Foreclosure actions could be delayed in the COVID-19 environment.

Other tax expense increased by ~~$210,000,~~$23,000, or ~~21.7%~~5.9%, comparing the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ ~~mostly due to~~including higher Pennsylvania Bank Shares ~~Tax~~.Tax. The Pennsylvania Bank Shares Tax is a shareholders’ equity-based tax and is subject to increases based on state government parameters and the level of the stockholders’ equity base that increased due to retained earnings ~~equity (including such amount acquired in the 2020 merger).~~equity. Supplies and postage expense ~~decreased~~increased by ~~2.7%~~ 11.0% due to variation in the timing of necessary ~~replenishments and with more use of electronic delivery.~~replenishments. FDIC and regulatory expense increased ~~77.6%~~16.8% due ~~to prior period use of~~ to increase in the net asset base and credits that ~~did~~do not repeat ~~in the current period.~~ regularly.Intangible amortization ~~decreased 7.7%~~increased 4.4% on ~~due to~~ bank acquisition ~~calculation net~~calculations while ACNB Insurance Services, Inc. increased on the books of ~~higher RIG amortization on new book purchases.~~business purchase. Other operating expenses increased by ~~$359,000,~~$180,000, or ~~9.6%~~14.1%, in the first ~~nine months~~quarter of ~~2021,~~2022, as compared to the first ~~nine months~~quarter of ~~2020.~~ 2021. Increases included corporate governance, electronic banking and ~~telecommunication~~consulting related costs. ~~Other~~In addition, other expenses ~~including~~include the expense of reimbursing checking and debit card customers for unauthorized transactions to their accounts and other third-party fraudulent use, which added ~~approximately~~ ~~$131,000 t~~approximately $30,000 too other expenses in the first ~~nine months~~quarter of ~~2021~~2022 compared to ~~$91,000~~$77,000 in the first ~~nine months~~quarter of 2020. Third-party breaches also cause additional card inventory and processing costs to the Corporation, none of which is expected to be recovered from the third-party merchants or other parties where the breaches occur. The debit card electronic delivery channel is valued by customers and provides significant revenue to the Corporation.2021. The expense related to reimbursements is unpredictable and varying, but ACNB has policies and procedures ~~in place~~ to limit ~~exposure.~~exposure recognizing the value of electronic and other banking channels to customers and the significant revenue generated especially in the debit card arena.

Provision for Income Taxes

The Corporation recognized income taxes of ~~$6,154,000,~~$1,631,000, or ~~20.9%~~19.8% of pretax income, during the first ~~nine months~~quarter of ~~2021,~~2022, as compared to ~~$2,570,000,~~$1,930,000, or ~~18.5%~~20.5% of pretax income, during the same period in ~~2020.~~2021. 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). In addition, both years include Maryland corporation income taxes. Low-income housing tax credits were $70,000 and $70 ~~$211,000 and $193,000~~,000 for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

FINANCIAL CONDITION

Assets totaled ~~$2,792,792,000~~$2,746,156,000 at ~~September 30, 2021,~~March 31, 2022, compared to ~~$2,555,362,000~~$2,786,987,000 at December 31, ~~2020,~~2021, and ~~$2,503,049,000~~$2,654,617,000 at ~~September 30, 2020.~~March 31, 2021. Average earning assets during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022, increased to ~~$2,483,000,000~~$2,593,000,000 from ~~$2,040,000,000~~$2,387,000,000 during the same period in ~~2020.~~2021. Average interest bearing liabilities increased in ~~2021~~2022 to ~~$1,786,000,000~~$1,870,000,000 from ~~$1,4871,000,000~~$1,721,000,000 in ~~2020.~~2021.

Investment Securities

ACNB uses investment securities to generate interest and dividend income, manage interest rate risk, provide collateral for certain funding products, and provide liquidity. The changes in the securities portfolio were the net result of purchases and matured securities 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’s program commonly called Quantitative Easing in which, by the Federal Reserve’s open market purchases, the yields were maintained at a lower level than would otherwise be the case. The investment portfolio is comprised of U.S. Government agency, municipal, and corporate securities. These securities provide the appropriate characteristics with respect to credit quality, yield and maturity relative to the management of the overall balance sheet.

At ~~September 30, 2021,~~March 31, 2022, the securities balance included a net unrealized loss on available for sale securities of ~~$953,000,~~$24,912,000, net of taxes, on amortized cost of ~~$412,901,000~~$608,393,000 versus a net unrealized ~~gain~~loss of ~~$4,645,000,~~$3,474,000, net of taxes, on amortized cost of ~~$331,745,000~~$441,565,000 at December 31, ~~2020,~~2021, and a net unrealized ~~gain~~loss of ~~$4,874,000,~~$1,434,000, net of taxes, on amortized cost of ~~$307,404,000~~$356,852,000 at ~~September 30, 2020.~~ March 31, 2021. The change in fair value of available for sale securities during ~~2021~~2022 was a result of the higher amount of investments in the available for sale portfolio and by an decrease in fair value from an ~~late in the~~unprecedented (in recent decades) first quarter increase in the U.S. Treasury yield curve rates (which varies daily with volatility) and the spread from this yield curve

required by investors on the types of investment securities that ACNB owns. The Federal Reserve had reinstituted their rate-decreasing Quantitative Easing program in the COVID-19 crisis; and after increasing the fed funds rate in mid-December 2015 through December 2018 the Federal Reserve decreased the target rate to 0% to 0.25% in the ongoing COVID-19 crisis; both actions causing the U.S. Treasury yield curve to decrease in ~~2020.~~2020 through most of 2021 when banks including ACNB Bank increased investment holding due to the lack of loan demand from massive government stimulus.. However, the bond market sensed that government stimulus would lead to inflation and the yield curve increased in terms relevant to the investment securities in the Corporation’s portfolio which occurred as predicted as of ~~September 30, 2021,~~the quarter ended March 31, 2022, leading to fair value ~~decreases~~decreases. ~~. However, fair~~Fair values were volatile on any given day in all periods presented and such volatility will continue. The changes in value are deemed to be related solely to changes in interest rates as the credit quality of the portfolio is high.

At ~~September 30, 2021,~~March 31, 2022, the securities balance included held to maturity securities with an amortized cost of ~~$7,220,000~~$28,019,000 and a fair value of ~~$7,482,000,~~$27,679,000, as compared to an amortized cost of ~~$10,294,000~~$6,454,000 and a fair value of ~~$10,768,000~~$6,652,000 at December 31, ~~2020,~~2021, and an amortized cost of ~~$13,606,000~~$9,155,000 and a fair value of ~~$14,110,000~~$9,451,000 at ~~September 30, 2020.~~March 31, 2021. The held to maturity securities ~~are~~were U.S. government 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~~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 the past several years.~~borrowings.. No held to maturity securities were acquired from FCBI. In addition, $22.1 million in newly purchased municipal securities were added to held to maturity in the first quarter of 2022 as a part of a liquidity utilization purchase.

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

The fair values of securities available for sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1) or by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific security but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses independent service providers to provide matrix pricing. Please refer to Note 87 — “Securities” in the Notes to Consolidated Financial Statements for more information on the security portfolio and Note 109 — “Fair Value Measurements” in the Notes to Consolidated Financial Statements for more information about fair value.

Unrealized losses on available for sale investment securities were $24.9 million net of taxes at March 31, 2022 an increase from $3.5 million loss net of taxes at December 31, 2021. The credit quality of the portfolio was high for all periods and the interest rate risk position was appropriate for a community bank and within investment policy guidelines; the increase in the other comprehensive loss was due to changes in interest rates relevant to the terms of the individual investments, such market rates averaged a 150 basis point increase, the highest quarterly increase in decades. This other comprehensive loss increase had no impact on regulatory capital ratios, which remain well capitalized. Nor did the increase have an effect on net income as the investments were not impaired and the losses were unrealized. Liquidity remains high and the Corporation has not traditionally sold investments for liquidity nor does it currently envision a need to do so.

49Since the onset of COVID-19, deposit growth has outpaced loan growth resulting in an excess liquidity position at the Corporation. Late in the quarter ended March 31, 2022, the Corporation deployed excess liquidity by moving approximately $185,000,000 from cash into higher-yielding securities with a tax equivalent yield of approximately 2.80%. These new purchases were consistent with the current investment portfolio, but with higher yields to enhance the net interest margin and net interest income in future quarters. Purchases were primarily in government sponsored enterprise (GSE) pass-through instruments issued by the Federal National Mortgage Association (FNMA), Government National Mortgage Association (GNMA) or Federal Home Loam Mortgage Corporation (FHLMC), which guarantee the timely payment of principal on these investments.

Loans

Loans outstanding decreased by ~~$213,997,000,~~$126,392,000, or ~~12.6%~~7.8%, at ~~September 30,~~March 31, 2022 from March 31, 2021, ~~from September 30, 2020,~~ and ~~decreased~~increased by ~~$150,898,000,~~$15,899,000, or ~~9.2%~~1.1%, from December 31, ~~2020,~~2021, to ~~September 30, 2021. The~~March 31, 2022. Th ~~decrease~~e increase in loans year to date is largely attributable to the ~~sale~~reduced sales of ~~most new~~ residential mortgages, PPP loan payoffs slowing, and the ~~payoff~~origination of loans in the ~~residential mortgage,~~commercial, consumer, and government lending portfolios. Year over year, organic loan declines iswas primarily a result of active participation and subsequent payoffs in the Paycheck Protection Program (PPP) as well as the ~~other factors mentioned above.~~sale of refinanced residential mortgages. Despite the intense competition in the Corporation’s market areas, there is a continued focus internally on asset quality and disciplined underwriting standards in the loan origination process. In all periods, ~~residential~~residential real estate lending and refinance activity was sold to the secondary market and commercial loans were subject to refinancing to competition for different rates or terms. In the

normal course of business, more payoffs were anticipated in the remainder of ~~2021~~2022 from either customers’ cash reserves or refinancing at competing banks and markets, and currently lending actions are continuing while ~~dealing with modifications and the ongoing work involved with~~wrapping up the PPP Small Business Administration (SBA) guaranteed loans. During the first ~~nine~~three months of ~~2021,~~2022, total commercial purpose loans ~~decreased and~~increased while local market portfolio residential mortgages decreased, largely from ~~active participation~~concerted origination efforts and ~~subsequent~~lower PPP payoffs ~~in the PPP program.~~. Total commercial purpose segments ~~decreased $94,824,000,~~increased $26,953,000, or ~~8.5%~~2.7%, as compared to December 31, ~~2020. $98,000,000~~2021. The first quarter 2022 growth was net of ~~this decrease was~~$8,697,000 of PPP loans ~~written in 2020 and subsequently~~ paid off ~~net of new 2021 PPP loans to existing ACNB commercial customer base.~~in 2022. Otherwise these loans are spread among diverse categories that include municipal governments/school districts, commercial real estate, commercial real estate construction, and commercial and industrial. Included in the commercial, financial and agricultural category are loans to Pennsylvania school districts, municipalities (including townships) and essential purpose authorities. In most cases, these loans are backed by the general obligation of the local government body. In many cases, these loans are obtained through a bid process with other local and regional banks. The loans are predominantly bank qualified for mostly tax-free interest income treatment for federal income taxes. These loans ~~totaled~~totaled $78,767,000 at March 31, 2022, ~~$52,290,000~~ ~~at September 30, 2021,~~ a ~~decrease~~increase of ~~24.0%~~25.0% from ~~$68,772,000~~$62,823,000 held at the end of ~~2020;~~2021; these loans are especially subject to refinancing in ~~a low~~certain rate ~~environment.~~environments. Residential real estate mortgage lending, which includes smaller commercial purpose loans secured by the owner’s home, decreased by ~~$54,464,000,~~$12,001,000, or ~~10.8%~~2.7%, as compared to December 31, ~~2020.~~2021. These loans are to local borrowers who preferred loan types that would not be sold into the secondary mortgage market. Of the ~~$451,486,000~~$429,886,000 total in residential mortgage loans at ~~September 30, 2021,~~March 31, 2022 ~~$118,375,000~~, $112,312,000 were 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. Non-real estate secured consumer loans ~~compri~~compserise 0.8% of the portfolio, with automobile-secured loans representing less than 0.1% of the portfolio.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020, and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the SBA to temporarily guarantee loans under a new 7(a) loan program called the PPP. As a qualified SBA lender, the Corporation was automatically authorized to originate PPP loans. As of ~~September 30, 2021,~~March 31, 2022, the Corporation had an outstanding balance of ~~$40,798,000 u~~$~~nder~~9,844,452 under the PPP program, net of repayments and forgiveness to date. ~~Gross fees collected totaled $9,491,000. Of this~~As of March 31, 2022, the Corporation had originated an aggregate total of 2,217 loans in the amount of $223,036,703 under the PPP. Deferred fee income ~~recognized~~ was approximately ~~$2,875,000,~~$9.5 million, before ~~costs in 2020. $4,407,000 was rec~~costs. The Corporation recognized ~~ognized as adjustment to interest~~$2,875,000 of PPP fee income ~~yield~~during 2020, $5,627,000 during 2021, and $468,000 during the ~~balance~~three months ended March 31, 2022. The remaining amount will be recognized in future quarters as an adjustment of interest income yield.

Most of the Corporation’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 ~~$390,607,000,~~$412,942,000, or ~~26.3%~~27.8% of total loans, at ~~September 30, 2021.~~March 31, 2022. These borrowers are geographically dispersed throughout ACNB’s marketplace and are leasing commercial properties to a varied group of tenants including medical offices, retail space, and other commercial purpose facilities. Because of the varied nature of the tenants, in aggregate, management believes that these loans present an acceptable risk when compared to commercial loans in general. ACNB does not originate or hold Alt-A or subprime mortgages in its loan portfolio.

Allowance for Loan Losses

ACNB maintains the allowance for loan losses at a level believed to be adequate by management to absorb probable losses in the loan portfolio, and it is funded through a provision for loan losses charged to earnings. On a quarterly basis, ACNB utilizes a defined methodology in determining the adequacy of the allowance for loan losses, which considers specific credit reviews, past loan losses, historical experience, and qualitative factors. This methodology results in an allowance that is considered appropriate in light of the high degree of judgment required and that is prudent and conservative, but not excessive.

Management assigns internal risk ratings for each commercial lending relationship. Utilizing historical loss experience, adjusted for changes in trends, conditions, and other relevant factors, management derives estimated losses for non-rated and non-classified loans. When management identifies impaired loans with uncertain collectibility of principal and interest, it evaluates a specific reserve on a quarterly basis in order to estimate potential losses. Management’s analysis considers:

•adverse situations that may affect the borrower’s ability to repay;

•the current estimated fair value of underlying collateral; and,

•prevailing market conditions.

~~If management determines a loan is~~

Loans not ~~impaired,~~tested for impairment do not require a specific reserve ~~allocation is not required.~~allocation. Management ~~then~~ places ~~the loan~~these loans in a pool of loans with similar risk factors and assigns the general loss factor to determine the reserve. For homogeneous loan types, such as consumer and residential mortgage loans, management bases specific allocations on the average loss ratio for the previous twelve quarters for each specific loan pool. Additionally, management adjusts projected loss ratios for other factors, including the following:

•lending policies and procedures, including underwriting standards and collection, charge-off and recovery practices;

•nature and volume of the portfolio and terms of loans;

•experience, ability and depth of lending management and staff;

•volume and severity of past due, classified and nonaccrual loans, as well as other loan modifications; ~~and,~~

•existence and effect of any concentrations of credit and changes in the level of such ~~concentrations.~~concentrations; and,

•For 2020 a special allowance was developed to quantify a current expected incurred loss as a result of the COVID-19 crisis. The factor considered the loan mix effects of businesses likely to be harder hit by quarantine closure orders, the relative amount of COVID-19 related modifications requested to date, the estimated regional infection stage and geopolitical factors. A large unknown in this factor is the expected duration of the quarantine period.

Management determines the unallocated portion of the allowance for loan losses, which represents the difference between the reported allowance for loan losses and the calculated allowance for loan losses, based on the following criteria:

•the risk of imprecision in the specific and general reserve allocations;

•the perceived level of consumer and small business loans with demonstrated weaknesses for which it is not practicable to develop specific allocations;

•other potential exposure in the loan portfolio;

•variances in management’s assessment of national, regional and local economic conditions; and,

•other internal or external factors that management believes appropriate at that time, such as COVID-19.

The unallocated portion of the allowance is deemed to be appropriate as it reflects an uncertainty that remains in the loan portfolio; specifically reserves where the Corporation believes that tertiary losses are probable above the loss amount derived using appraisal-based loss estimation, where such additional loss estimates are in accordance with regulatory and GAAP guidance. Appraisal-based loss derivation does not fully develop the loss present in certain unique, ultimately bank-owned collateral. The Corporation has determined that the amount of provision in ~~2021~~2022 and the resulting allowance at ~~September 30, 2021,~~March 31, 2022, 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 ~~2020~~2021 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 ~~September 30, 2021.~~March 31, 2022. The amount of the unallocated portion of the ~~allowance wa~~allowanc~~s $472,000~~e was $499,000 at March 31, 2022~~September 30, 2021. Before the COVID-19 event,~~, as management concluded that the loan portfolio ~~exhibited continued general improvement~~was better reflected in ~~quantitative~~metrics used in the allocated evaluation. Otherwise, the assessment concluded that credit quality was stable, COVID-19 related charge-offs were relatively low and ~~qualitative measurements.~~past due loans manageable.

Management believes the above methodology materially reflects losses inherent in the portfolio. Management charges actual loan losses to the allowance for loan losses. Management periodically updates the methodology and the assumptions discussed above.

Management bases the provision for loan losses, or lack of provision, on the overall analysis taking into account the

methodology discussed above, which is consistent with recent quarters’ improvement in the credit quality in the loan portfolio, bandut with ~~increased~~lessened risk from the impact of the COVID-19 crisis. The acquisition of FCBI and New Windsor loans at fair value did not require a provision expense. The provision for year-to-date ~~September 30,~~March 31, 2022 and 2021, was $0 and ~~2020,~~$50,000, respectively. The increase in the allowance for loan losses as a percentage of total loans of 1.26% at March 31, 2021 to 1.28% at March 31, 2022 was ~~$50,000 and $8,100,000, respectively.~~primarily related to 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 decreased from year-end ~~2020~~2021 and the provision expense decreased year over year, the allowance for loan losses was derived with data that most existing impaired credits were, in the opinion of management, adequately collateralized.

Federal and state regulatory agencies, as an integral part of their examination process, periodically review the Corporation’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’s comprehensive analysis of the loan portfolio and economic conditions, management believes the current level of the allowance for loan losses is adequate.

In June 2016, the 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. Upon adoption, the change in this accounting guidance could result in an increase in the Corporation’s allowance for loan losses and require the Corporation to record loan losses more rapidly. In October 2019, FASB voted to delay implementation of the CECL standard for certain companies, including those companies that qualify as a smaller reporting company under SEC rules until January 1, 2023. As a result ACNB ~~will likely be able~~used the deferral period to ~~defer implementation of~~develop the ~~CECL standard~~proper procedure, data sources and testing for ~~a period of time.~~implementation..

The allowance for loan losses at ~~September 30, 2021,~~March 31, 2022, was ~~$19,141,000,~~$18,963,000, or ~~1.29%~~1.28% of total loans ~~(1.67%~~(1.61% of non-acquired loans), as compared to ~~$19,200,000,~~$20,237,000, or ~~1.13%~~1.26% of loans, at ~~September 30, 2020,~~March 31, 2021, and ~~$20,226,000,~~$19,033,000, or ~~1.23%~~1.30% of loans, at December 31, ~~2020.~~2021. The decrease from year-end resulted from charge-offs of ~~$1,135,000~~$70,000 net of recoveries and ~~$50,000~~$0 in provisions, as shown in the table below. In the following discussion, acquired loans from FCBI and New Windsor were recorded at fair value at the acquisition date and are not included in the tables and information below, see more information in Note 98 — “Loans” in the Notes to Consolidated Financial Statements.

Changes in the allowance for loan losses were as follows:


In thousands	In thousands	Nine Months Ended September 30, 2021		Year Ended December 31, 2020		Nine Months Ended September 30, 2020		In thousands	Three Months Ended March 31, 2022		Year Ended December 31, 2021		Three Months Ended March 31, 2021
Beginning balance – January 1	Beginning balance – January 1	$	20,226	$	13,835	$	13,835	Beginning balance – January 1	$	19,033	$	20,226	$	20,226
Provisions charged to operations	Provisions charged to operations	50		9,140		8,100		Provisions charged to operations	—		50		50
Recoveries on charged-off loans	Recoveries on charged-off loans	57		238		141		Recoveries on charged-off loans	12		75		16
Loans charged-off	Loans charged-off	(1,192)		(2,987)		(2,876)		Loans charged-off	(82)		(1,318)		(55)
Ending balance	Ending balance	$	19,141	$	20,226	$	19,200	Ending balance	$	18,963	$	19,033	$	20,237

Loans past due 90 days and still accruing were ~~$430,000~~$964,000 and nonaccrual loans were ~~$5,618,000~~$4,543,000 as of ~~September 30, 2021. $79,000~~March 31, 2022. $47,000 of the nonaccrual balance at ~~September 30, 2021,~~March 31, 2022, were in troubled debt restructured loans. ~~$3,600,000~~$3,545,000 of the impaired loans were accruing troubled debt restructured loans. Loans past due 90 days and still accruing were ~~$1,743,000~~$675,000 at ~~September 30, 2020,~~March 31, 2021, while nonaccruals were ~~$6,885,000. $143,000~~$7,692,000. $111,000 of the nonaccrual balance at ~~September 30, 2020,~~March 31, 2021, was in troubled debt restructured loans. ~~$3,707,000~~$3,653,000 of the impaired loans were accruing troubled debt restructured loans. Loans past due 90 days and still accruing were ~~$855,000~~$730,000 at December 31, ~~2020,~~2021, while nonaccruals were ~~$7,041,000. $127,000~~$5,489,000. $63,000 of the nonaccrual balance at December 31, ~~2020,~~2021, were in troubled debt restructured loans. ~~$3,680,000~~$3,574,000 of the impaired loans were accruing troubled debt restructured loans. Total additional loans classified as substandard (potential problem loans) at

~~September 30,~~ March 31, 2022, March 31, 2021, ~~September 30, 2020,~~ and December 31, ~~2020,~~2021, were ~~approximately~~ approximat~~$2,351,000~~ely $1,120,000, $2,470,000 and $1,725,000, respec, ~~$5,181,000 and $2,607,000,~~ ~~respectively.~~tively.

Because of the manageable level of nonaccrual loans and with substandard loans in the ~~third~~first quarter of ~~2021,~~2022, a ~~$50,000~~$0 provision addition to the allowance was necessary ~~due to~~even with net charge-offs of ~~$1,135,000.~~$70,000.

The Corporation implemented numerous initiatives to support and protect employees and customers during the ~~first two quarters of 2020, the Corporation had received significant numbers of requests to modify loan terms and/or defer principal and/or interest payments,~~COVID-19 pandemic. These efforts continue with current information and had agreed to appropriate deferrals or are in the process of doing so. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019, will be considered current for COVID-19 related modifications. A financial institution can then use FASB agreed upon temporary changes to GAAP for loan modificationsguidelines related to ongoing COVID-19 that would otherwise be categorized as a troubled debt restructuring (TDR), and suspend any determination of a loan modified as a result of COVID-19 being a TDR, including the requirement to determine impairment for accounting purposes. Similarly, FASB has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

Beginning the week of March 16, 2020, the Corporation began receiving requests for temporary modifications to the repayment structure for borrower loans. The modifications are grouped into deferred payments of no more than six months, interest only, lines of credit only and other.initiatives. As of September 30, 2021, the Corporation no longer had noany temporary ~~modifications.~~loan modifications or deferrals for either commercial or consumer customers, furthering the positive trend of improvement in 2021. In comparison, as of March 31, 2021, the Corporation had 30 temporary modifications with principal balances totaling $23,720,360.

As to nonaccrual and substandard loans, management believes 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.

Information on nonaccrual loans, by collateral type rather than loan class, at ~~September 30, 2021,~~March 31, 2022, as compared to December 31, ~~2020,~~2021, is as follows:


Dollars in thousands	Dollars in thousands	Number of Credit Relationships	Balance		Specific Loss Allocations		Current Year Charge-Offs		Location	Originated	Dollars in thousands	Number of Credit Relationships	Balance		Specific Loss Allocations		Current Year Charge-Offs		Location	Originated
September 30, 2021
March 31, 2022											March 31, 2022

Owner occupied commercial real estate	Owner occupied commercial real estate	8	$	3,980	$	457	$	—	In market	2008 - 2019	Owner occupied commercial real estate	6	$	3,469	$	836	$	—	In market	2008 - 2017
Investment/rental residential real estate	Investment/rental residential real estate	1	115		—		—		In market	2016	Investment/rental residential real estate	1	110		—		—		In market	2016
Commercial and industrial	Commercial and industrial	3	1,523		883		970		In market	2008 - 2019	Commercial and industrial	3	964		802		—		In market	2008 - 2019
Total	Total	12	$	5,618	$	1,340	$	970			Total	10	$	4,543	$	1,638	$	—

December 31, 2020
December 31, 2021											December 31, 2021

Owner occupied commercial real estate	Owner occupied commercial real estate	9	$	4,601	$	124	$	—	In market	2008 - 2019	Owner occupied commercial real estate	7	$	3,890	$	599	$	—	In market	2008 - 2019
Investment/rental residential real estate	Investment/rental residential real estate	3	410		34		—		In market	2009 - 2016	Investment/rental residential real estate	1	112		—		—		In market	2016
Commercial and industrial	Commercial and industrial	2	2,030		1,224		—		In market	2008 - 2019	Commercial and industrial	3	1,487		856		970		In market	2008 - 2019
Total	Total	14	$	7,041	$	1,382	$	—��			Total	11	$	5,489	$	1,455	$	970

Management deemed it appropriate to provide this type of more detailed information by collateral type in order to provide additional detail on the loans.

All nonaccrual impaired loans are to borrowers located within the market area served by the Corporation in southcentral Pennsylvania and nearby market areas of Maryland. All nonaccrual impaired loans were originated by ACNB’s banking subsidiary, except for one participation loan discussed below, for purposes listed in the classifications in the table above.

The Corporation had no impaired and nonaccrual loans included in commercial real estate construction at ~~September 30, 2021.~~March 31, 2022.

Owner occupied commercial real estate at ~~September 30, 2021,~~March 31, 2022, includes seven unrelated loan relationships. A ~~$957,000~~$913,000 relationship in food service that was performing when acquired was added in the first quarter of 2020 after becoming 90 days past due early in the year, subsequent payments have been ~~received under a forbearance agreement. An $802,000 merger-~~

~~acquired~~received. Collateral valuation resulted in no specific allocations. Another $807,000 merger-acquired loan relationship for a light manufacturing enterprise which was performing when acquired is working through ~~bankruptcy.~~bankruptcy and has no specific allocation. The other unrelated loans in this category have balances of less than ~~$228,000~~$197,000 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 loans in this category were originated between 2008 and ~~2014~~2019 and are business loans impacted by specific borrower credit situations. Most loans in this category are making principal payments. Collection efforts will continue unless it is deemed in the best interest of the Corporation to initiate foreclosure procedures.

A $1,311,000 ~~2017-acquired commercial real estate participation loan~~ (after partial payoff in the third quarter of 2020) 2017-acquired commercial real estate participation loan was added in the fourth quarter of 2019 and has been currently assigned a ~~$457,000~~$836,000 specific allocation at ~~September 30, 2021.~~March 31, 2022.

Investment/rental residential real estate at ~~September 30, 2021,~~March 31, 2022, includes one ~~(after two unrelated loans paid off without loss in the third quarter of 2021)~~loan relationship (which is deemed to be adequately collateralized) totaling ~~$115,000~~$110,000 for which the real estate is collateral and the purpose of which is for speculation, rental, or other non-owner occupied ~~uses. The remaining loan~~uses; this relationship ~~in this category was a business affected by COVID-19 but has made payments.~~is making principal reductions.

A $1,795,000 commercial and industrial loan was added in the fourth quarter of 2020 after ceasing operations, with a current balance of ~~$640,000.~~$170,000. Liquidation is ~~underway~~mostly complete with a specific allocation of ~~$21,000~~$19,000 after a $970,000 third quarter of 2021 charge-off. A related $441,000 owner occupied real estate loan iswas also in ~~nonaccrual.~~nonaccrual but settled in the first quarter. An unrelated commercial and industrial loan at ~~September 30, 2021~~March 31, 2022 with a balance of ~~$22,000~~$11,000 (after numerous principal payments) is currently continuing making payments. A third unrelated loan relationship was added in the first quarter 2021 with an outstanding balance of ~~$862,000~~$783,000 and a specific allocation ~~$862,000~~$783,000 due to concerns on collateralization and liens.

The Corporation utilizes a systematic review of its loan portfolio on a quarterly basis in order to determine the adequacy of the allowance for loan losses. In addition, ACNB engages the services of an outside independent loan review function and sets the timing and coverage of loan reviews during the year. The results of this independent loan review are included in the systematic review of the loan portfolio. The allowance for loan losses consists of a component for individual loan impairment, primarily based on the loan’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’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’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 for ~~2021~~2022 and ~~2020~~2021 was a result of the measurement of the adequacy of the allowance for loan losses at each period.

Premises and Equipment

During the quarter ended June 30, 2016, a building was sold and the Corporation is leasing back a portion of that building. In connection with these transactions, a gain of $1,147,000 was realized, of which $447,000 was recognized in the quarter ended June 30, 2016 and the remaining $700,000 deferred for future recognition over the lease back term. A reduction of lease expense o~~f $53,000~~ ~~was recognized in the first nine months of 2021 and 2020, respectively.~~ ACNB valued six buildings acquired from New Windsor at $8,624,000 at July 1, 2017 and five properties acquired from FCBI at $7,514,000 at January 11, 2020. ~~Two~~As a part of an ongoing delivery system optimization strategy, two community offices closed in the second quarter of 2021 resulted in a small net ~~gain.~~gain in 2021. On January 12, 2022, ACNB Bank announced plans to build a full-service community banking office to serve the Upper Adams area of Adams County, PA. Upon completion of construction of the Upper Adams Office in Fall 2022, the plan is to consolidate operations of the three current ACNB Bank offices in the Upper Adams geography as part of the Bank’s branch optimization strategy and continued endeavors to enhance operational efficiencies.

Foreclosed Assets Held for Resale

Foreclosed assets held for resale consists of the fair value of real estate acquired through foreclosure on real estate loan collateral or the acceptance of ownership of real estate in lieu of the foreclosure process. These fair values, less estimated costs to sell, become the Corporation’s new cost basis. Fair values are based on appraisals that consider the sales prices of similar properties in the proximate vicinity less estimated selling costs. ~~The carrying value of real estate acquired through foreclosure totaled $0 with~~ no ~~properties at September 30, 2021, compared to $0 with no properties and borrowers at December 31, 2020. The decrease in the carrying value was due to all properties sold in 2020. A~~ll properties after acquisition are actively marketed. The Corporation expects to obtain and market additional foreclosed assets through the remainder of 2021; however, the total amount and timing is currently not certain.

Deposits

ACNB relies on deposits as a primary source of funds for lending activities with total deposits of ~~$2,417,561,000~~$2,410,761,000 as of

~~September 30, 2021.~~ March 31, 2022. Deposits increased by ~~$301,985,000,~~$132,139,000, or ~~14.3%~~5.8%, from ~~September 30, 2020,~~March 31, 2021, to ~~September 30, 2021,~~March 31, 2022, and ~~increased~~decreased by ~~$232,036,000,~~$15,628,000, or ~~10.6%~~0.6%, from December 31, ~~2020,~~2021, to ~~September 30, 2021.~~March 31, 2022. Deposits increased in the ~~third~~first quarter of ~~2021~~2022 from same quarter prior year due to increased balances in a broad base of accounts from lack of economic activity continuing from the COVID-19 ~~event.~~event and effects. Even with this increase in volume, deposit interest expense decreased ~~56.6%~~ 55.4%due to lower rates. 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,~~trusts, credit unions and larger regional banks. During the ~~recession and subsequent slow recovery,~~multiple periods of low rates, deposit growth mix experienced a shift to transaction accounts as customers put more value in liquidity and FDIC insurance. ~~Products,~~Products, such as money market accounts and interest-bearing transaction accounts that had suffered declines in past years, continued with recovered balances; however, it is expected that a return to more normal, lower balances ~~will~~could occur when the economy improves. With heightened competition, ACNB’s ability to maintain and add to its deposit base may be impacted by the reluctance of consumers to accept community banks’ lower rates (as compared to Internet-based competition) and by larger competition willing to pay above market rates to attract market share. IfContinued periods where rates rise rapidly, or when the equity markets are high, funds could leave the Corporation or be priced higher to maintain deposits.

Borrowings

Short-term Bank borrowings are comprised primarily of securities sold under agreements to repurchase and short-term borrowings from the FHLB. As of ~~September 30, 2021,~~March 31, 2022, short-term Bank borrowings were ~~$44,605,000,~~$30,028,000, as compared to ~~$38,464,000~~$35,202,000 at December 31, ~~2020,~~2021, and ~~$52,721,000~~$31,282,000 at ~~September 30, 2020.~~March 31, 2021. 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. In comparison to year-end ~~2020,~~2021, repurchase agreement balances were ~~up $6,141,000,~~down $5,174,000, or ~~16.0%~~14.7%, due to changes in the cash flow position of ACNB’s commercial and local government customer base and lack of competition from non-bank sources. There were no short-term FHLB borrowings at ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ or December 31, ~~2020.~~2021. Short-term FHLB borrowings are used to even out Bank funding from seasonal and daily fluctuations in the deposit base. Long-term borrowings consist of longer-term advances from the FHLB that provides term funding of loan assets, and Corporate borrowings that were acquired or originated in regards to the ~~acquisitions.~~acquisitions and to refund or extend such Corporation borrowings. Long-term borrowings totaled ~~$41,700,000~~$30,200,000 at ~~September 30, 2021,~~March 31, 2022, versus ~~$53,745,000~~$34,700,000 at December 31, ~~2020,~~2021, and ~~$57,113,000~~$65,616,000 at ~~September 30, 2020.~~March 31, 2021. Long-term borrowings decreased ~~27.0%~~54.0% from ~~September 30, 2020. $23.7~~March 31, 2021. $30.7 million was the net decrease to FHLB term Bank borrowings made to balance loan demand and deposit growth. FHLB fixed-rate term Bank advances that matured after the first quarter of 2019 were not renewed ~~due~~and another $5.0 million was prepaid in 2021 to ~~adequate~~utilize liquidity from earning assets and deposit ~~funding sources.~~ changes. A second quarter of 2017 $4.6 million Corporation loan was paid off during the second quarter of ~~2021 on a borrowing from a local bank that had been made to fund the cash payment to shareholders of the New Windsor acquisition.~~ ~~RIG~~2021. ACNB Insurance Services, Inc. borrowed ~~$1.0~~$1.5 million from a local bank atin the ~~end of the third~~first quarter of ~~2018~~2022 to fund a book of business purchase. ~~The balance of this loan was paid down to $0 at March 31, 2021.~~ In addition, $5 million and $8.7 million was Corporation debt acquired from New Windsor and FCBI, respectively. The $5 million New Windsor acquired debt was paid off with proceeds from the subordinated debt proceeds in June 2021. On March 30, 2021, ACNB Corporation issued $15,000,000 in Fixed-to-Floating Rate subordinated debt due March 31, 2031. The terms are five year 4% fixed rate and thereafter callable at 100% or a floating rate. The potential use of the net proceeds include retiring outstanding debt of the Corporation, repurchasing issued and outstanding shares of the Corporation, supporting general corporate purposes, underwriting growth opportunities, creating an interest reserve for the notes issued, and downstreaming proceeds to ACNB Bank to continue to meet regulatory capital requirements, increase the regulatory lending ability of the Bank, and support the Bank’s organic growth initiatives. Please refer to the Liquidity discussion below for more information on the Corporation’s ability to borrow.

Capital

ACNB’s capital management strategies have been developed to provide an appropriate rate of return, in the opinion of management, to shareholders, while maintaining its “well-capitalized” regulatory position in relationship to its risk exposure. Total shareholders’ equity was ~~$269,840,000~~$256,009,000 at ~~September 30, 2021,~~March 31, 2022, compared to ~~$257,972,000~~$272,114,000 at December 31, ~~2020,~~2021, and ~~$256,723,000~~$257,612,000 at ~~September 30, 2020.~~March 31, 2021. Shareholders’ equity ~~increased~~decreased in the first ~~nine~~three months of ~~2021~~2022 by ~~$11,868,000~~$16,105,000 primarily due to ~~$16,629,000~~$4,342,000 in retained earnings from ~~2021~~2022 earnings net of dividends paid to date, ~~and~~net of the increase in accumulated other comprehensive loss from change in investment market value. There were no first quarter share repurchases.

The acquisition of New Windsor resulted in 938,360 new ACNB shares of common stock issued to the New Windsor shareholders valued at $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.

Since year end ~~2020~~2021 a ~~$4,865,000~~$21,359,000 increase in accumulated other comprehensive loss was primarily a result of a net decrease in the fair

value of the investment portfolio from the ~~near~~first quarter ~~end~~ increase in market rates and to a much lesser extent changes in the net funded position of the defined benefit pension 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. There was no cash losses taken and changes in market value do not affect regulatory capital or net income.

The primary source of additional capital to ACNB is earnings retention, which represents net income less dividends declared.

During the first ~~nine~~three months of ~~2021,~~2022, ACNB earned ~~$23,339,000~~$6,599,000 and paid dividends of ~~$6,710,000~~$2,257,000 for a dividend payout ratio of ~~28.8%~~34.2%. During the first ~~nine~~three months of ~~2020,~~2021, ACNB earned ~~$11,345,000~~$7,471,000 and paid dividends of ~~$6,509,000~~$2,177,000 for a dividend payout ratio of ~~57.4%~~29.1%.

ACNB Corporation has a Dividend Reinvestment and Stock Purchase Plan that provides registered holders of ACNB Corporation common stock with a convenient way to purchase additional shares of common stock by permitting participants in the plan to automatically reinvest cash dividends on all or a portion of the shares owned and to make quarterly voluntary cash payments under the terms of the plan. Participation in the plan is voluntary, and there are eligibility requirements to participate in the plan. Year-to-date ~~September 30, 2021, 17,897~~March 31, 2022, 5,587 shares were issued under this plan with proceeds in the amount of ~~$162,000.~~ $183,000.

Year-to-date ~~September 30, 2020, 13,935~~March 31, 2021, 5,627 shares were issued under this plan with proceeds in the amount of ~~$332,000.~~$(181,000). Proceeds were used for general corporate purposes.

ACNB Corporation has a Restricted Stock plan available to selected officers and employees 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 incentive by allowing them to acquire an ownership in ACNB Corporation and thereby encouraging them to contribute to the success of the Corporation. As of ~~September 30, 2021,~~March 31, 2022, there were 25,945 shares of 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 the plan. Proceeds are used for general corporate purposes.

On May 1, 2018, stockholders 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 2009 Restricted Stock Plan. As of ~~September 30, 2021, 35,587~~March 31, 2022, 57,822 shares were issued under this plan and ~~538,468~~516,233 shares were available for grant. Proceeds are used for general corporate purposes.

On February 25, 2021, the Corporation announced that the Board of Directors approved on February 23, 2021, a plan to repurchase, in open market and privately negotiated transactions, up to 261,000, or approximately 3%, of the outstanding shares of the Corporation’s common stock. This new stock repurchase program replaces and supersedes any and all earlier announced repurchase plans. There were ~~15,101~~54,071 shares ~~repurchased~~purchased under this plan as of December 31, 2021. There were no shares purchased under the plan during the quarter ended ~~September 30, 2021.~~March 31, 2022.

On September 30, 2021, the Corporation entered into an issuer stock repurchase agreement with an independent third-party broker under which the broker is authorized to repurchase the Corporation’s common stock on behalf of the Corporation during the period from the close of business on September 30, 2021 through March 31, 2022, subject to certain price, market and volume constraints specified in the agreement. The agreement was established in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (Exchange Act). The shares will be purchased pursuant to the Corporation’s previously announced stock repurchase program and in a manner consistent with applicable laws and regulations, including the provisions of the safe harbor contained in Rule 10b-18 under the Exchange Act.

ACNB is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on ACNB. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, ACNB must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and reclassifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require ACNB to maintain minimum amounts and ratios of total and Tier 1 capital to average assets. Management believes, as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, that ACNB’s banking subsidiary met all minimum capital adequacy requirements to which it is subject and is categorized as “well capitalized” for regulatory purposes. There are no subsequent conditions or events that management believes have changed the banking subsidiary’s category.

Regulatory Capital Changes

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

•a minimum ratio of common Tier 1 capital to risk-weighted assets of 4.5%;

•a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%;

•a minimum ratio of total capital to risk-weighted assets of 8.0%; and,

•a minimum leverage ratio of 4.0%.

In addition, the final rules establish a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments. The phase-in period for the capital conservation and countercyclical capital buffers for all banking organizations began on January 1, 2016.

Under the initially proposed rules, accumulated other comprehensive income (AOCI) would have been included in a banking organization’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.

The rules permanently grandfather non-qualifying capital instruments (such as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010, for inclusion in the Tier 1 capital of banking organizations with total consolidated assets of less than $15 billion as of December 31, 2009, and banking organizations that were mutual holding companies as of May 19, 2010.

The proposed rules would have modified the risk-weight framework applicable to residential mortgage exposures to require banking organizations to divide residential mortgage exposures into two categories in order to determine the applicable risk weight. In response to commenter concerns about the burden of calculating the risk weights and the potential negative effect on credit availability, the final rules do not adopt the proposed risk weights, but retain the current risk weights for mortgage exposures under the general risk-based capital rules.

Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-up approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250 percent risk weight.

Under the new rules, mortgage servicing assets and certain deferred tax assets are subject to stricter limitations than those applicable under the current general risk-based capital rule. The new rules also increase the risk weights for past due loans, certain commercial real estate loans, and some equity exposures, and makes selected other changes in risk weights and credit conversion factors.

The Corporation calculated regulatory ratios as of ~~September 30, 2021,~~March 31, 2022, and confirmed no material impact on the capital, operations, liquidity, and earnings of the Corporation and the banking subsidiary from the changes in the regulations.

Risk-Based Capital

ACNB Corporation considers the capital ratios of the banking subsidiary to be the relevant measurement of capital adequacy.

In 2019, the federal banking agencies issued a final rule to provide an optional simplified measure of capital adequacy for qualifying community banking organizations, including the community bank leverage ratio (CBLR) framework. Generally, under the CBLR framework, qualifying community banking organizations with total assets of less than $10 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% (subsequently reduced to 8% as a COVID-19 relief measure). Qualifying community banking organizations that elect to be subject to the CBLR framework and continue to meet all requirements under the framework would not be subject to risk-based or other leverage capital requirements and, in the case of an insured depository institution, would be considered to have met the well capitalized ratio requirements for purposes of the FDIC’s Prompt Corrective Action framework. The CBLR framework was available for banks to use in their March 31, 2020 Call Report. The Corporation has performed changes to capital adequacy and reporting requirements within the quarterly Call Report, and it opted out of the CBLR framework on ~~June~~March 31, ~~2021.~~2022.

The banking subsidiary’s capital ratios are as follows:


		September 30, 2021		December 31, 2020		To Be Well Capitalized Under Prompt Corrective Action Regulations			March 31, 2022		December 31, 2021		To Be Well Capitalized Under Prompt Corrective Action Regulations
Tier 1 leverage ratio (to average assets)	Tier 1 leverage ratio (to average assets)	9.04	%	9.01	%	5.00	%	Tier 1 leverage ratio (to average assets)	9.20	%	8.81	%	5.00	%
Common Tier 1 capital ratio (to risk-weighted assets)	Common Tier 1 capital ratio (to risk-weighted assets)	15.82	%	13.86	%	6.50	%	Common Tier 1 capital ratio (to risk-weighted assets)	15.98	%	16.32	%	6.50	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	Tier 1 risk-based capital ratio (to risk-weighted assets)	15.82	%	13.86	%	8.00	%	Tier 1 risk-based capital ratio (to risk-weighted assets)	15.98	%	16.32	%	8.00	%
Total risk-based capital ratio	Total risk-based capital ratio	17.07	%	15.10	%	10.00	%	Total risk-based capital ratio	17.20	%	17.57	%	10.00	%

Liquidity

Effective liquidity management ensures the cash flow requirements of depositors and borrowers, as well as the operating cash needs of ACNB, are met.

ACNB’s funds are available from a variety of sources, including assets that are readily convertible such as interest bearing deposits with banks, maturities and repayments from the securities portfolio, scheduled repayments of loans receivable, the core deposit base, and the ability to borrow from the FHLB. At ~~September 30, 2021,~~March 31, 2022, ACNB’s banking subsidiary had a borrowing capacity of approximately ~~$796,110,000~~$799,000,000 from the FHLB, of which ~~$760,860,000~~$776,000,000 was available. Because of various restrictions and requirements on utilizing the available balance, ACNB considers ~~$562,000,000~~$576,000,000 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’ 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’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’s control. As better contingent liquidity is maintained by keeping the securities under the Corporation’s control, the Corporation has not moved the securities which, in effect, lowered the Corporation’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.

Another source of liquidity is securities sold under repurchase agreements to customers of ACNB’s banking subsidiary totaling approximately ~~$44,605,000~~$30,028,000 and ~~$38,464,000~~$35,202,000 at ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, respectively. These agreements vary in balance according to the cash flow needs of customers and competing accounts at other financial organizations.

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

ACNB manages liquidity by monitoring projected cash inflows and outflows on a daily basis, and believes it has sufficient funding sources to maintain sufficient liquidity under varying degrees of business ~~conditions.~~conditions for liquidity and capital resource requirements for all material short- and long-term cash requirements from known contractual and other obligations.

On March 30, 2021, the Corporation issued $15 million of subordinated debt in order to pay off existing higher rate debt, to potentially repurchase ACNB common stock and to use for inorganic growth opportunities. Otherwise, the $15 million of subordinated debt qualifies as Tier 2 capital at the Holding Company level, but can be transferred to the Bank where it qualifies as Tier 1 Capital. The debt has a 4.00% fixed-to-floating rate and a stated maturity of March 31, 2031. The debt is redeemable

by the Corporation at its option, in whole or in part, on or after March 30, 2026, and at any time upon occurrences of certain unlikely events such as receivership insolvency or liquidation of ACNB or ACNB Bank.

Off-Balance Sheet Arrangements

The Corporation is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and, to a lesser extent, standby letters of credit. At ~~September 30, 2021,~~March 31, 2022, the Corporation had unfunded outstanding commitments to extend credit of

approximately ~~$384,645,000~~$431,938,000 and outstanding standby letters of credit of approximately ~~$9,588,000.~~$9,672,000. 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.

Market Risks

Financial institutions can be exposed to several market risks that may impact the value or future earnings capacity of the organization. These risks involve interest rate risk, foreign currency exchange risk, commodity price risk, and equity market price risk. ACNB’s primary market risk is interest rate risk. Interest rate risk is inherent because, as a financial institution, ACNB derives a significant amount of its operating revenue from “purchasing” funds (customer deposits and wholesale borrowings) at various terms and rates. These funds are then invested into earning assets (primarily loans and investments) at various terms and rates.

Acquisition of Frederick County Bancorp, Inc.

ACNB Corporation, the parent financial holding company of ACNB Bank, a Pennsylvania state-chartered, FDIC-insured community bank, headquartered in Gettysburg, Pennsylvania, completed the acquisition of Frederick County Bancorp, Inc. (FCBI) and its wholly-owned subsidiary, Frederick County Bank, headquartered in Frederick, Maryland, effective January 11, 2020. FCBI was merged with and into a wholly-owned subsidiary of ACNB Corporation immediately followed by the merger of Frederick County Bank with and into ACNB Bank. ACNB Bank operates in the Frederick County, Maryland, market as “FCB Bank, A Division of ACNB Bank”.

Under the terms of the Reorganization Agreement, FCBI stockholders received 0.9900 share of ACNB Corporation common stock for each share of FCBI common stock that they owned as of the closing date. As a result, ACNB Corporation issued 1,590,547 shares of its common stock and cash in exchange for fractional shares based upon $36.43, the determined market share price of ACNB Corporation common stock in accordance with the Reorganization Agreement.

With the combination of the two organizations, ACNB Corporation, on a consolidated basis, has approximately $2.7 billion in assets, ~~$2.3~~$2.4 billion in deposits, and ~~$1.6~~$1.5 billion in loans with 31 community banking offices and three loan offices located in the counties of Adams, Cumberland, Franklin, Lancaster and York in Pennsylvania and the counties of Baltimore, Carroll and Frederick in ~~Maryland, as of July 1, 2021.~~Maryland. Further discussion of the risk factors involved with the merger of FCBI into the Corporation can be found in Part II, Item 1A – Risk Factors.

RECENT DEVELOPMENTS

BANK SECRECY ACT (BSA) – The Bank Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), imposes obligations on U.S. financial institutions, including banks and broker-dealer subsidiaries, to implement policies, procedures and controls which are reasonably designed to detect and report instances of money laundering and the financing of terrorism. Financial institutions also are required to respond to requests for information from federal banking agencies and law enforcement agencies. Information sharing among financial institutions for the above purposes is encouraged by an exemption granted to complying financial institutions from the privacy provisions of the Gramm-Leach-Bliley Act and other privacy laws. Financial institutions that hold correspondent accounts for foreign banks or 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 “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. Effective May 11, 2018, the Bank began 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’s banking

subsidiary has a BSA and USA PATRIOT Act compliance program commensurate with its risk profile and appetite.

TAX CUTS AND JOBS ACT – On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Among other changes, the Tax Cuts and Jobs Act reduced 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, as 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.

DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT (DODD-FRANK) – In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. Dodd-Frank was intended to effect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank created the Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. Dodd-Frank additionally created a new independent federal regulator to administer federal consumer protection laws. Dodd-Frank has had and will continue to have a significant impact on ACNB’s business operations as its provisions take effect. It is expected that, as various implementing rules and regulations are released, they will increase ACNB’s operating and compliance costs and could increase the banking subsidiary’s interest expense. Among the provisions that are likely to affect ACNB are the following:

Holding Company Capital Requirements

Dodd-Frank requires the Federal Reserve to apply consolidated capital requirements to bank holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities are excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets as of December 31, 2009. Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion, consistent with safety and soundness.

Deposit Insurance

Dodd-Frank permanently increased the maximum deposit insurance amount for banks, savings institutions, and credit unions to $250,000 per depositor. Dodd-Frank also broadened 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.

Corporate Governance

Dodd-Frank requires publicly-traded companies to give stockholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by the 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.

Prohibition Against Charter Conversions of Troubled Institutions

Dodd-Frank prohibits a depository institution from converting from a state to a federal charter, or vice versa, while it is the subject of a cease and desist order or other formal enforcement action or a memorandum of understanding with respect to a significant supervisory matter unless the appropriate federal banking agency gives notice of the conversion to the federal or state authority that issued the enforcement action and that agency does not object within 30 days. The notice must include a plan to address the significant supervisory matter. The converting institution must also file a copy of the conversion application with its current federal regulator, which must notify the resulting federal regulator of any ongoing supervisory or investigative proceedings that are likely to result in an enforcement action and provide access to all supervisory and investigative information relating thereto.

Interstate Branching

Dodd-Frank authorizes national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks are able to enter new markets more freely.

Limits on Interstate Acquisitions and Mergers

Dodd-Frank precludes a bank holding company from engaging in an interstate acquisition — the acquisition of a bank outside its home state — unless the bank holding company is both well capitalized and well managed. Furthermore, a bank may not engage in an interstate merger with another bank headquartered in another state unless the surviving institution will be well capitalized and well managed. The previous standard in both cases was adequately capitalized and adequately managed.

Limits on Interchange Fees

Dodd-Frank amended the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

Consumer Financial Protection Bureau

Dodd-Frank created the independent federal agency called the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB, but continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. Dodd-Frank authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’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” 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.

ABILITY-TO-REPAY AND QUALIFIED MORTGAGE 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’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”, which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “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” (e.g., subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “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’s lending activities and the Corporation’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’s business.

DEPARTMENT OF DEFENSE MILITARY LENDING 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’s lending activities and the Corporation’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’s business.

SUPERVISION AND REGULATION

Dividends

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

Regulation of Bank

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

The Pennsylvania Department of Banking and Securities, which has primary supervisory authority over banks chartered in Pennsylvania, regularly examines banks in such areas as reserves, loans, investments, management practices, and other aspects of operations. The subsidiary bank is also subject to examination by the FDIC for safety and soundness, as well as consumer compliance. These examinations are designed for the protection of the subsidiary bank’s depositors rather than ACNB’s shareholders. The subsidiary bank must file quarterly and annual reports to the Federal Financial Institutions Examination Council, or FFIEC.

Monetary and Fiscal Policy

ACNB and its subsidiary bank are affected by the monetary and fiscal policies of government agencies, including the Federal Reserve and FDIC. Through open market securities transactions and changes in its discount rate and reserve requirements, the Board of Governors of the Federal Reserve exerts considerable influence over the cost and availability of funds for lending and investment. The nature and impact of monetary and fiscal policies on future business and earnings of ACNB cannot be predicted at this time. From time to time, various federal and state legislation is proposed that could result in additional regulation of, and restrictions on, the business of ACNB and the subsidiary bank, or otherwise change the business environment. Management cannot predict whether any of this legislation will have a material effect on the business of ACNB.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management monitors and evaluates changes in market conditions on a regular basis. Based upon the most recent review, management has determined that there have been no material changes in market risks since year-end ~~2020.~~2021. For further discussion of year-end information, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

ITEM 4 – CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

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

There were no changes in the Corporation’s internal control over financial reporting during the quarterly period ended ~~September 30, 2021,~~March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting.

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PART II – OTHER INFORMATION

ACNB CORPORATION

ITEM 1 – LEGAL PROCEEDINGS

As of ~~September 30, 2021,~~March 31, 2022, there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which ACNB or its subsidiaries are a party or by which any of their assets are the subject, which could have a material adverse effect on ACNB or its subsidiaries or their results of operations. In addition, no material proceedings are pending or are known to be threatened or contemplated against the Corporation or its subsidiaries by governmental authorities.

ITEM 1A – RISK FACTORS

Management has reviewed the risk factors that were previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. There are no material changes in risk factors as previously disclosed in the Form 10-K.

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

On May 5, 2009, shareholders 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 ~~September 30, 2021,~~March 31, 2022, there were 25,945 shares of common stock granted as restricted stock awards under this plan 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 the 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.

On May 5, 2009, shareholders approved and adopted the amendment to the Articles of Incorporation of ACNB Corporation to authorize up to 20,000,000 shares of preferred stock, par value $2.50 per share. As of ~~September 30, 2021,~~March 31, 2022, there were no issued or outstanding shares of preferred stock.

On January 24, 2011, the ACNB Corporation Dividend Reinvestment and Stock Purchase Plan was introduced for shareholders 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 ~~September 30, 2021,~~March 31, 2022, there were ~~208,508~~220,082 shares of common stock issued through the ACNB Corporation Dividend Reinvestment and Stock Purchase Plan.

On May 1, 2018, shareholders approved and ratified the ACNB Corporation 2018 Omnibus Stock Incentive Plan, effective as of March 20, 2018, in which awards shall not exceed, in the aggregate, 400,000 shares of common stock, plus any shares that are authorized, but not issued, under the ACNB Corporation 2009 Restricted Stock Plan. As of ~~September 30, 2021,~~March 31, 2022, there were ~~35,587~~57,822 shares issued under this plan. The maximum number of shares that may yet be granted under this plan is ~~538,468.~~516,233. The Corporation’s Registration Statement under the Securities Act of 1933 on Form S-8 for the ACNB Corporation 2018 Omnibus Stock Incentive Plan was filed with the Securities and Exchange Commission on March 8, 2019. In addition, on March 8, 2019, the Corporation filed Post-Effective Amendment No. 1 to the Registration Statement on Form S-8 for the ACNB Corporation 2009 Restricted Stock Plan to add the ACNB Corporation 2018 Omnibus Stock Incentive Plan to the registration statement.

On February 25, 2021, the Corporation announced that the Board of Directors approved on February 23, 2021, a plan to repurchase, in open market and privately negotiated transactions, up to 261,000, or approximately 3%, of the outstanding shares of the Corporation’s common stock. This new stock repurchase program replaces and supersedes any and all earlier announced repurchase plans. There were ~~15,101~~54,071 treasury shares purchased under this plan during the quarter ended ~~September 30, 2021.~~March 31, 2022.

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

ITEM 4 – MINE SAFETY DISCLOSURES – NOT APPLICABLE.

ITEM 5 – OTHER INFORMATION – NOTHING TO REPORT.

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ITEM 6 – EXHIBITS

The following exhibits are included in this report:


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

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

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

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

Exhibit 3(ii)						Amended and Restated Bylaws of ACNB Corporation. (Incorporated by reference to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 27, 2020.)

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

Exhibit ~~10.1~~						ACNB Corporation, ACNB Acquisition Subsidiary LLC, and Russell Insurance Group, Inc. Stock Purchase Agreement. (Incorporated by reference to Exhibit 10.2 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, filed with the Commission on March 15, 2005.)

~~Exhibit~~ 10.2						Amended and Restated Executive Supplemental Life Insurance Plan — Applicable to James P. Helt, David W. Cathell and Lynda L. Glass. (Incorporated by reference to Exhibit 10.3 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Commission on March 6, 2015.)

Exhibit 10.3						Amended and Restated Director Supplemental Life Insurance Plan — Applicable to Kimberly S. Chaney, Frank Elsner, III, Todd L. Herring, Scott L. Kelley, James J. Lott, Donna M. Newell, Daniel W. Potts, Marian B. Schultz, D. Arthur Seibel, Jr., David L. Sites, Alan J. Stock and James E. Williams. (Incorporated by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Commission on March 6, 2015.)

Exhibit 10.4						Amended and Restated Director Deferred Fee Plan — Applicable to Frank Elsner, III, Todd L. Herring, Scott L. Kelley, James J. Lott, Marian B. Schultz, Alan J. Stock and James E. Williams. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on January 6, 2012.)

Exhibit 10.5						ACNB Bank Salary Savings Plan. (Incorporated by reference to Exhibit 10.6 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Commission on March 12, 2010.)



Exhibit 10.6						Group Pension Plan for Employees of ACNB Bank. (Incorporated by reference to Exhibit 10.7 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed with the Commission on May 4, 2012.)



Exhibit 10.7						Amended and Restated Employment Agreement between ACNB Corporation, Adams County National Bank and Lynda L. Glass dated as of December 31, 2008. (Incorporated by reference to Exhibit 10.10 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Commission on March 13, 2009.)

Exhibit 10.8						Employment Agreement between ACNB Corporation, Adams County National Bank and David W. Cathell dated as of April 17, 2009. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 23, 2009.)

Exhibit 10.9						2009 Restricted Stock Plan. (Incorporated by reference to Appendix C of the Registrant’s Definitive Proxy Statement on Schedule 14A, filed with the Commission on March 25, 2009.)

Exhibit ~~10.10~~						Salary Continuation Agreement by and between ACNB Bank and Thomas A. Ritter dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

~~Exhibit~~ 10.11						Salary Continuation Agreement by and between ACNB Bank and Lynda L. Glass dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

Exhibit 10.12						Salary Continuation Agreement by and between ACNB Bank and David W. Cathell dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.3 ~~of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)~~

~~Exhibit 10.13~~						~~Amended and Restated 2001 Salary Continuation Agreement by and between ACNB Bank and Thomas A. Ritter dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.4~~ of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

Exhibit 10.14						Amended and Restated 1996 Salary Continuation Agreement by and between ACNB Bank and Lynda L. Glass dated as of March 28, 2012. (Incorporated by reference to Exhibit 99.5 of the Registrant’s Current Report on Form 8-K, filed with the Commission on April 3, 2012.)

Exhibit 10.15						Salary Continuation Agreement by and between ACNB Bank and James P. Helt dated as of March 28, 2012. (Incorporated by reference to Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Commission on March 7, 2014.)

Exhibit 10.16						ACNB Bank Variable Compensation Plan effective January 1, 2014, as amended. (Incorporated by reference to Exhibit 10.16 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the Commission on March ~~5, 2021.~~14, 2022.)

~~Exhibit 10.17~~						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement dated as of June 22, 2015. (Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K, filed with the Commission on June 25, 2015.)

~~Exhibit 10.18~~						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement dated as of June 15, 2016. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on June 21, 2016.)

Exhibit 10.19

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

Exhibit 10.20

First Amendment to Employment Agreement by and between ACNB Corporation, ACNB Bank and David W. Cathell dated as of December 27, 2016. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on December 28, 2016.)

~~Exhibit 10.21~~

Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement dated as of June 15, 2017. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on June 21, 2017.)

Exhibit 10.22

Amended and Restated Employment Agreement between ACNB Corporation, ACNB Bank and James P. Helt dated as of August 14, 2018. (Incorporated by reference to Exhibit 10.25 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, filed with the Commission on November 2, 2018.)

Exhibit 10.23

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

Exhibit 10.24

Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Employees dated as of ~~June 14, 2019.~~March 15, 2020 . (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on ~~June 20, 2019.~~March 21, 2022 .)

Exhibit 10.25

Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Non-Employee Directors dated as of ~~June 14, 2019.~~March 15, 2022 . (Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the Commission on ~~June 20, 2019.~~March 21, 2022 .)



Exhibit 10.26						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Employees dated as of June 15, 2020. (Incorporated by reference to Exhibit 99.3 of the Registrant’s Current Report on Form 8-K, filed with the Commission on June 19, 2020.)

Exhibit 10.27						Form of ACNB Bank Variable Compensation Plan Restricted Stock Agreement for Non-Employee Directors dated as of June 15, 2020. (Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the Commission on June 19, 2020.)

Exhibit 10.28						Form of Exhibit B Split Dollar Policy Endorsement to the Amended and Restated Director Supplemental Life Insurance Plan dated November 27, 2018. (Incorporated by reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2018.)

Exhibit 10.29						Salary Continuation Agreement by and between ACNB Bank and James P. Helt dated as of November 27, 2018. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on November 28, 2018.)

Exhibit 10.30						Form of Subordinated Note Purchase Agreement dated March 30, 2021, by and among ACNB Corporation and the Purchasers. (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on March 30, 2021.)

Exhibit 10.31						Employment Agreement by and among ACNB Corporation, ACNB Bank and Jason H. Weber dated as of January 31, 2022. (Incorporated by reference to Exhibit 99.1 of the Registrant's Current Report on Form 8-K, filed with the Commission on February 4 , 2022. )

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

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

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



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

Exhibit 32.2						Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Exhibit 101.LAB						XBRL Taxonomy Extension Label Linkbase.

Exhibit 101.PRE						XBRL Taxonomy Extension Presentation Linkbase.

Exhibit 101.INS						XBRL Instance Document – The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH						XBRL Taxonomy Extension Schema.

Exhibit 101.CAL						XBRL Taxonomy Extension Calculation Linkbase.

Exhibit 101.DEF						XBRL Taxonomy Extension Definition Linkbase.

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		ACNB CORPORATION (Registrant)

Date:	~~November 3, 2021~~April 29, 2022	/s/ James P. Helt
		James P. Helt
		President & Chief Executive Officer

		/s/ David W. Cathell
		David W. Cathell
		Executive Vice President/Treasurer &
		Chief Financial Officer (Principal Financial Officer)

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Dollars in thousands, except per share data	September 30, 2021		September 30, 2020		December 31, 2020

ASSETS

Cash and due from banks	$	22,479	$	21,163	$	23,739
Interest bearing deposits with banks	700,303		278,490		375,613

Total Cash and Cash Equivalents	722,782		299,653		399,352

Equity securities with readily determinable fair values	2,547		1,880		2,170
Debt securities available for sale	411,676		313,671		337,718
Securities held to maturity, fair value $7,482; $14,110; $10,768	7,220		13,606		10,294
Loans held for sale	3,935		10,043		11,034
Loans, net of allowance for loan losses $19,141; $19,200; $20,226	1,467,745		1,681,683		1,617,558

Premises and equipment, net	31,667		33,180		33,013
Right of use assets	3,416		3,306		3,145
Restricted investment in bank stocks	2,368		3,022		2,942
Investment in bank-owned life insurance	64,467		63,049		63,401
Investments in low-income housing partnerships	1,286		1,411		1,380
Goodwill	42,108		42,108		42,108
Intangible assets, net	6,387		7,578		7,265
Foreclosed assets held for resale	—		680		—
Other assets	25,188		28,179		23,982

Total Assets	$	2,792,792	$	2,503,049	$	2,555,362

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Deposits:
Non-interest bearing	$	610,765	$	544,332	$	556,666
Interest bearing	1,806,796		1,571,244		1,628,859

Total Deposits	2,417,561		2,115,576		2,185,525

Short-term borrowings	44,605		52,721		38,464
Long-term borrowings	41,700		57,113		53,745
Lease liabilities	3,416		3,292		3,138
Other liabilities	15,670		17,624		16,518

Total Liabilities	2,522,952		2,246,326		2,297,390

STOCKHOLDERS’ EQUITY
Preferred stock, $2.50 par value; 20,000,000 shares authorized; no shares outstanding	—		—		—
Common stock, $2.50 par value; 20,000,000 shares authorized; 8,789,890, 8,765,913 and 8,771,993 shares issued; 8,712,189, 8,703,313 and 8,709,393 shares outstanding	21,963		21,903		21,918
Treasury stock, at cost; 77,701, 62,600 and 62,600 shares	(1,148)		(728)		(728)
Additional paid-in capital	94,527		93,895		94,048
Retained earnings	165,001		143,499		148,372
Accumulated other comprehensive loss	(10,503)		(1,846)		(5,638)

Total Stockholders’ Equity	269,840		256,723		257,972

Total Liabilities and Stockholders’ Equity	$	2,792,792	$	2,503,049	$	2,555,362