Executive Overview

ACNB Corporation is the financial holding company for ACNB Bank and ACNB Insurance Services. ACNB Bank provides retail and commercial banking services in Pennsylvania and Maryland, while ACNB Insurance Services offers a range of insurance products and services. The company’s primary revenue comes from net interest income, which is the difference between interest earned on loans and investments and the cost of deposits and borrowings. Revenues are influenced by economic factors, market interest rates, and competition.

In February 2025, ACNB closed the acquisition of Traditions, which contributed $877.7 million in assets, $648.5 million in loans, and $741.5 million in deposits. This acquisition had a significant impact on ACNB’s financial results for the first quarter of 2025.

Summary Financial Results

• Net Loss/Income - ACNB reported a net loss of $272,000 for the first quarter of 2025, compared to net income of $6.8 million in the same period of 2024. This decrease was primarily due to costs related to the Traditions acquisition.

• Net Interest Income - Net interest income increased by $6.5 million to $27.1 million, driven by the Traditions acquisition. The net interest margin increased from 3.77% to 4.07%.

• Asset Quality - The provision for credit losses increased to $6.0 million, and the allowance for credit losses grew to $24.6 million, or 1.06% of total loans. This increase was largely due to the Traditions acquisition.

• Noninterest Income - Noninterest income increased by $1.5 million to $7.2 million, primarily due to the Traditions acquisition, higher wealth management income, and life insurance proceeds.

• Noninterest Expenses - Noninterest expenses increased by $11.7 million to $29.3 million, again driven by the Traditions acquisition.

Critical Accounting Policies

The most critical accounting estimate for ACNB is the allowance for credit losses (ACL), which represents management’s judgment of the expected credit losses in the loan portfolio. The ACL is reviewed quarterly and adjusted as necessary based on changes in the loan portfolio, economic conditions, and other factors.

Results of Operations

The net loss for the first quarter of 2025 was primarily due to two items related to the Traditions acquisition: a $4.2 million provision for credit losses on non-PCD loans and $6.2 million in merger-related expenses.

Net interest income increased due to the Traditions acquisition, which added $648.5 million in loans and $741.5 million in deposits. The net interest margin improved from 3.77% to 4.07%, partly due to the accretion of acquisition accounting adjustments on loans and deposits.

The provision for credit losses increased significantly, driven by the initial allowance for credit losses on the Traditions loan portfolio. Nonperforming loans also increased due to the acquisition.

Noninterest income grew, mainly from the Traditions acquisition, higher wealth management income, and life insurance proceeds. Noninterest expenses rose substantially, primarily from higher salaries, equipment costs, occupancy expenses, and merger-related costs associated with the Traditions acquisition.

Financial Condition

Assets totaled $3.27 billion at March 31, 2025, up from $2.39 billion at the end of 2024, due to the Traditions acquisition. Investment securities increased by 13.5% to $521.3 million, as ACNB sold some Traditions securities and reinvested the proceeds.

Loans, net of unearned income, grew by 38.0% to $2.32 billion, driven by the Traditions acquisition. The commercial real estate portfolio, which includes farmland, multifamily, and non-owner-occupied commercial real estate, grew the most, up 29.4%.

The allowance for credit losses increased to $24.6 million, or 1.06% of total loans, primarily due to the initial allowance recorded for the Traditions loan portfolio.

Deposits grew by 41.7% to $2.54 billion, again due to the Traditions acquisition. Time deposits increased the most, up 74.8%, including a rise in brokered deposits.

Stockholders’ equity increased to $386.9 million, mainly from the issuance of 2.04 million shares of common stock to acquire Traditions.

Regulatory Capital

ACNB and its bank subsidiary remain well-capitalized, with capital ratios well above regulatory minimums. At March 31, 2025, the Tier 1 leverage ratio was 11.81% for the corporation and 11.50% for the bank, the Common Equity Tier 1 ratio was 13.65% and 13.58%, respectively, and the Total capital ratio was 15.45% and 14.57%.

Liquidity

ACNB maintains strong liquidity, with available borrowing capacity of $950.9 million from the FHLB, $61.4 million from the Federal Reserve Discount Window, and $192.0 million in unsecured Fed Funds lines. The company also has access to brokered deposits and securities sold under repurchase agreements to manage liquidity as needed.

Interest Rate Risk

ACNB uses simulation analysis to assess its exposure to changes in interest rates. At March 31, 2025, the model projects a 0.9% decrease in net interest income if rates fall 200 basis points, and a 0.3% increase if rates rise 100 basis points. This indicates ACNB is modestly asset-sensitive, meaning its interest-earning assets are expected to reprice faster than its interest-bearing liabilities.

Overall, ACNB’s financial performance in the first quarter of 2025 was significantly impacted by the Traditions acquisition, which added substantial assets, loans, deposits, and expenses. While the acquisition contributed to higher net interest income and noninterest income, it also led to increased credit costs and merger-related expenses, resulting in a net loss for the quarter. Going forward, ACNB will need to successfully integrate Traditions’ operations and continue managing its interest rate risk and asset quality to return to profitability.