Business Combination

3 Months Ended

Mar. 31, 2025

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Effective February 1, 2025, ACNB Corporation completed its acquisition of Traditions Bancorp, Inc., holding company for Traditions Bank, York, Pennsylvania. Traditions was merged with and into a wholly-owned subsidiary of ACNB Corporation immediately followed by the merger of Traditions Bank with and into ACNB Bank. ACNB Bank is operating the former Traditions Bank offices as “Traditions Bank, A Division of ACNB Bank”. In connection with the close of the Acquisition, Traditions stockholders received 0.7300 shares of ACNB Corporation common stock for each share of Traditions common stock that they owned as of the closing date, with cash paid in lieu of fractional shares. ACNB issued 2,035,246 shares of its common stock, and cash in exchange for fractional shares based on $41.10 per whole share of ACNB common stock. The transaction is valued at $83.8 million.

Traditions’ results of operations were included in the ACNB’s results of operations beginning on February 1, 2025. Net interest income and income before income taxes for Traditions were estimated to be $5.9 million and $2.1 million, respectively, since the date of acquisition through March 31, 2025 and is included in the Corporation’s Consolidated Statements of (Loss) Income. ACNB’s financial results for any periods ended prior to February 1, 2025 reflect ACNB on a standalone basis. As a result, ACNB’s financial results for the three months ended March 31, 2025 may not be directly comparable to prior reported periods. Merger-related costs totaled $8.0 million for the three months ended March 31, 2025.

The acquisition method of accounting, in accordance with the provisions of FASB ASC Topic 805, Business Combinations, was used to account for the Acquisition. ACNB recorded the assets and liabilities of Traditions at their respective fair values as of February 1, 2025. Under the acquisition method of accounting, the total merger consideration is allocated to the acquired tangible and intangible assets and assumed liabilities of Traditions based on their estimated fair value as of the acquisition date of the merger. The excess of the merger consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. ACNB recorded goodwill of $20.3 million in connection with the Acquisition, which is not amortized for financial reporting purposes, but is subject to annual impairment testing.

The total merger consideration of $83.8 million is allocated to Traditions’ tangible and intangible assets and liabilities based on their fair values as follows:


(In thousands)	Traditions Bancorp, Inc. Book Value 1/31/2025		Acquisition Accounting Adjustments		Traditions Bancorp, Inc. Fair Value 1/31/2025
Consideration
Common stock					$	83,649
Cash consideration					157
Fair value of total consideration transferred					$	83,806

Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	36,363	$	—	$	36,363
Investment securities, available for sale	98,484		(818)		97,666
Loans held for sale	12,512		—		12,512
Total loans	673,805		(25,343)		648,462
Less: Allowance for credit losses	(4,045)		2,581		(1,464)
Loans, net	669,760		(22,762)		646,998
Premises and equipment, net	7,235		(362)		6,873
Right of use asset	2,932		—		2,932
Restricted investment in bank stocks	3,323		—		3,323
Investment in bank-owned life insurance	16,384		—		16,384
Core deposit intangibles	—		18,854		18,854
Other assets	14,147		1,398		15,545
Total assets acquired	$	861,140	$	(3,690)	$	857,450

Deposits	$	741,723	$	(215)	$	741,508
Borrowings	40,000		188		40,188
Lease liability	3,125		—		3,125
Allowance for unfunded commitments	118		852		970
Other liabilities	8,158		(41)		8,117
Total liabilities assumed	$	793,124	$	784	$	793,908

Total identifiable net assets	$	68,016	$	(4,474)	$	63,542

Goodwill					$	20,264

ACNB used an independent valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities. As permitted under GAAP, the Corporation has up to twelve months following the date of the Acquisition to finalize the fair values of the acquired assets and assumed liabilities related to the Acquisition. During this measurement period, ACNB may record subsequent adjustments to goodwill for provisional amounts recorded at the Acquisition date, with provisional merger-related tax adjustments.

ACNB completed, shortly following the Acquisition date, the sale of approximately $98.0 million of Traditions’ investment securities with a yield of 5.03%. With the proceeds from the sale, ACNB paid off $40.2 million of FHLB borrowings with a cost of 4.73% and invested the remainder of the proceeds into investment securities with a yield of 5.07%. The acquisition accounting adjustment on the AFS securities represents the difference between the fair value of the AFS securities as of January

31, 2025 and the final proceeds received as a result of the sales. For the fair value policy see Note 10 – “Fair Value Measurements” in the Notes to Consolidated Financial Statements under Part I, Item I.

ACNB evaluated and classified the acquired loans between non-PCD or PCD. ACNB’s senior credit management team reviewed Traditions’ loan portfolio on a loan-by-loan basis to determine which loans met the definition of an ASC 326-20 PCD loan. PCD loans include loans which experienced more-than-insignificant credit deterioration since origination. PCD loans included loans on nonaccrual status, loans risk-rated pass/watch or worse, COVID-19 loan deferrals, loans more than 90 days past due and still accruing, accruing loans but were more than 60 days past due in the past, accruing loans but were more than 30 days past due more than 3 times in the past and other loans evaluated. The acquisition accounting adjustments for non-PCD loans and PCD loans were $21.6 million and $4.4 million, respectively, on the Acquisition date. Included in the acquisition accounting adjustment for loans was $635 thousand of net deferred income that served to decrease the acquisition accounting adjustment of the loans acquired.

ACNB recorded an allowance for credit losses of $6.9 million at the Acquisition date, comprised of $5.5 million for non-PCD loans, which was recognized through the provision for credit losses, and $1.5 million for accruing PCD loans, which was recognized as an acquisition accounting adjustment to the amortized cost basis of the acquired loans. The following table presents details related to the fair value of acquired PCD loans at the Acquisition date:


(In thousands)	Unpaid Principal Balance		Total Premium/(Discount)		Gross Up for PCD Allowance for Credit Losses		Fair Value of PCD Loans
PCD Accruing	$	140,053	$	(5,359)	$	1,464	$	136,158
PCD Non-Accruing	2,962		(528)		—		2,434
Total PCD Loans	$	143,015	$	(5,887)	$	1,464	$	138,592

The acquisition accounting adjustment for premises and equipment was $362 thousand at the Acquisition date as a result of updated independent market-based appraisals on real estate and the write-off of obsolete fixed assets.

Pursuant to customer-related intangible assets ASC 805-20-55-13(b), ACNB, with the assistance of an independent valuation specialist, completed a core deposit intangible asset valuation that resulted in a core deposit intangible asset of $18.9 million at the Acquisition date. To establish the core deposit intangible asset, ACNB used a present value analysis that calculated the expected after-tax cash flow benefits of each acquired core deposit type versus the cost of obtaining an alternative source of funding (brokered deposits) over the expected life of each acquired core deposit type, discounted at a long-term market oriented after-tax rate of return. The core deposit intangible asset is amortized based on the sum-of-the-years digits method over the expected life of 10 years.

The acquisition accounting adjustment for other assets was $1.4 million at the Acquisition date driven primarily by a net deferred tax position for each acquisition accounting adjustment. The acquisition accounting adjustment for deposits was $215 thousand at the Acquisition date as a result of acquisition accounting adjustments on certificates of deposits using a present value approach that represents the present value of the certificates’ expected contractual payments discounted by market rates for similar certificates of deposits. The acquisition accounting adjustment for the allowance for unfunded commitments was $852 thousand as a result of applying ACNB’s existing policies, procedures and methodologies in calculating the allowance for Traditions’ unfunded commitments. The acquisition accounting adjustment for other liabilities was $41 thousand at the Acquisition date as a result of the write-off of unearned letter of credit fees.

The following table presents supplemental pro forma information for the three months ended March 31, 2025 and 2024 as if the acquisition had occurred January 1, 2024. The unaudited proforma information includes adjustments for interest income on loans acquired, amortization of core deposit intangibles arising from the transaction, depreciation expense on property acquired, interest expense of deposits acquired, and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates. In addition, the unaudited proforma information excludes merger-related expenses and the provision for credit losses on PCD loans at the Acquisition date, and does not reflect management’s estimate of any revenue-enhancing opportunities or anticipated cost savings as a result of the integration:


	Three months ended March 31,
(In thousands)	2025		2024
Net interest income	$	31,148	$	28,752
Net income	$	11,430	$	9,257