10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2018

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

Title of each class	Name of each exchange on which registered
Common Stock, $2.50 par value per share	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 x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 x No o

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 o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company x
Emerging growth company o

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. o

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

The number of shares of the Registrant’s Common Stock outstanding on November 1, 2018, was 7,042,224.

PART I - FINANCIAL INFORMATION

ACNB CORPORATION

ITEM 1 - FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)

Dollars in thousands, except per share data	September 30, 2018			September 30, 2017			December 31, 2017
ASSETS
Cash and due from banks	$	18,145		$	17,882		$	19,304
Interest bearing deposits with banks	45,551			31,609			15,137
Total Cash and Cash Equivalents	63,696			49,491			34,441
Equity securities with readily determinable fair values	1,743			—			—
Debt securities available for sale	162,957			158,392			159,051
Securities held to maturity, fair value $32,767; $47,373; $44,549	33,517			47,369			44,829
Loans held for sale	1,112			1,873			1,736
Loans, net of allowance for loan losses $13,414; $14,105; $13,976	1,259,032			1,222,265			1,230,194
Premises and equipment	26,097			26,590			26,774
Restricted investment in bank stocks	4,529			4,821			4,773
Investment in bank-owned life insurance	46,242			44,666			44,935
Investments in low-income housing partnerships	2,096			2,587			2,446
Goodwill	19,580			19,580			19,580
Intangible assets	2,628			2,752			2,569
Foreclosed assets held for resale	63			275			436
Other assets	24,507			26,974			23,668
Total Assets	$	1,647,799		$	1,607,635		$	1,595,432
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing	$	292,389		$	273,853		$	279,413
Interest bearing	1,054,854			1,038,031			1,019,079
Total Deposits	1,347,243			1,311,884			1,298,492
Short-term borrowings	38,525			33,806			36,908
Long-term borrowings	84,725			96,850			94,600
Other liabilities	12,794			11,839			11,466
Total Liabilities	1,483,287			1,454,379			1,441,466
STOCKHOLDERS’ EQUITY
Preferred stock, $2.50 par value; 20,000,000 shares authorized; no shares outstanding	—			—			—
Common stock, $2.50 par value; 20,000,000 shares authorized; 7,104,824, 7,082,245 and 7,086,258 shares issued; 7,042,224, 7,019,645 and 7,023,658 shares outstanding	17,762			17,705			17,716
Treasury stock, at cost (62,600 shares)	(728		)	(728		)	(728		)
Additional paid-in capital	38,321			37,671			37,777
Retained earnings	118,192			103,997			106,293
Accumulated other comprehensive loss	(9,035		)	(5,389		)	(7,092		)
Total Stockholders’ Equity	164,512			153,256			153,966
Total Liabilities and Stockholders’ Equity	$	1,647,799		$	1,607,635		$	1,595,432

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

2

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended September 30,					Nine Months Ended September 30,
Dollars in thousands, except per share data	2018			2017		2018			2017
INTEREST AND DIVIDEND INCOME
Loans, including fees	$	14,966		$	13,990	$	43,746		$	33,484
Securities:
Taxable	929			890		2,761			2,474
Tax-exempt	51			85		175			352
Dividends	77			61		229			174
Other	259			83		490			120
Total Interest Income	16,282			15,109		47,401			36,604
INTEREST EXPENSE
Deposits	1,341			1,080		3,681			2,402
Short-term borrowings	2			9		29			69
Long-term borrowings	526			458		1,625			1,274
Total Interest Expense	1,869			1,547		5,335			3,745
Net Interest Income	14,413			13,562		42,066			32,859
PROVISION FOR LOAN LOSSES	200			—		770			—
Net Interest Income after Provision for Loan Losses	14,213			13,562		41,296			32,859
OTHER INCOME
Service charges on deposit accounts	839			870		2,465			2,057
Income from fiduciary, investment management and brokerage activities	632			489		1,762			1,409
Earnings on investment in bank-owned life insurance	269			276		807			807
Gain on life insurance proceeds	—			—		52			—
Net gains on sales of securities	31			—		44			—
Net losses on equity securities	(23		)	—		(50		)	—
Service charges on ATM and debit card transactions	609			490		1,753			1,229
Commissions from insurance sales	1,450			1,313		4,358			4,031
Other	318			492		963			1,007
Total Other Income	4,125			3,930		12,154			10,540
OTHER EXPENSES
Salaries and employee benefits	6,560			6,715		19,870			18,397
Net occupancy	700			677		2,199			1,710
Equipment	1,276			1,039		3,759			2,666
Other tax	243			197		684			576
Professional services	371			224		1,084			807
Supplies and postage	183			187		575			524
Marketing and corporate relations	98			119		366			321
FDIC and regulatory	173			170		521			449
Merger related expenses	—			4,305		—			4,675
Intangible assets amortization	175			193		541			355
Foreclosed real estate (income) expenses	(27		)	35		105			51
Other operating	1,104			1,006		3,389			2,970
Total Other Expenses	10,856			14,867		33,093			33,501
Income before Income Taxes	7,482			2,625		20,357			9,898
PROVISION FOR INCOME TAXES	1,443			713		3,898			2,627
Net Income	$	6,039		$	1,912	$	16,459		$	7,271
PER SHARE DATA
Basic earnings	$	0.86		$	0.27	$	2.34		$	1.14
Cash dividends declared	$	0.23		$	0.20	$	0.66		$	0.60

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

3

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended September 30,					Nine Months Ended September 30,
Dollars in thousands	2018			2017		2018			2017
NET INCOME	$	6,039		$	1,912	$	16,459		$	7,271
OTHER COMPREHENSIVE (LOSS) INCOME
SECURITIES
Unrealized (losses) gains arising during the period, net of income taxes of $(139), $28, $(742) and $159, respectively	(476		)	54		(2,195		)	306
Reclassification adjustment for net gains included in net income, net of income taxes of $7, $0, $10 and $0, respectively (A) (C)	24			—		34			—
PENSION
Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $29, $60, $87 and $178, respectively (B) (C)	100			109		300			329
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME	(352		)	163		(1,861		)	635
TOTAL COMPREHENSIVE INCOME	$	5,687		$	2,075	$	14,598		$	7,906

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.

(C) Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.

4

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Nine Months Ended September 30, 2018 and 2017

Dollars in thousands	Common Stock		Treasury Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
BALANCE — JANUARY 1, 2017	$	15,317	$	(728	)	$	10,941		$	100,555		$	(6,024	)	$	120,061
Net income	—		—			—			7,271			—			7,271
Other comprehensive income, net of taxes	—		—			—			—			635			635
Common stock shares issued (949,314 shares)	2,373		—			26,505			—			—			28,878
Restricted stock grants (6,193 shares)	15		—			105			—			—			120
Restricted stock compensation expense	—		—			120			—			—			120
Cash dividends declared	—		—			—			(3,829		)	—			(3,829		)
BALANCE — SEPTEMBER 30, 2017	$	17,705	$	(728	)	$	37,671		$	103,997		$	(5,389	)	$	153,256
BALANCE — JANUARY 1, 2018	$	17,716	$	(728	)	$	37,777		$	106,293		$	(7,092	)	$	153,966
Net income	—		—			—			16,459			—			16,459
Other comprehensive loss, net of taxes	—		—			—			—			(1,861		)	(1,861		)
Reclassification of certain income tax effects from AOCI (1)	—		—			—			82			(82		)	—
Common stock shares issued (11,822 shares)	29		—			362			—			—			391
Restricted stock grants (6,744 shares)	17		—			(4		)	—			—			13
Restricted stock compensation expense	—		—			186			—			—			186
Cash dividends declared	—		—			—			(4,642		)	—			(4,642		)
BALANCE — SEPTEMBER 30, 2018	$	17,762	$	(728	)	$	38,321		$	118,192		$	(9,035	)	$	164,512

(1) In January 2018, the Corporation adopted ASU 2018-02, as a result, the Corporation made a policy election to release income tax effects, as a result of the Tax Act, from AOCI to retained earnings.

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

5

ACNB CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
Dollars in thousands	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	16,459		$	7,271
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of loans originated for sale	(404		)	(398		)
Loss (gain) on sales of foreclosed assets held for resale, including writedowns	1			(36		)
Earnings on investment in bank-owned life insurance	(807		)	(807		)
Gain on sales or calls of securities	(44		)	—
Loss on equity securities	50			—
Restricted stock compensation expense	186			120
Depreciation and amortization	2,122			1,622
Provision for loan losses	770			—
Net amortization of investment securities premiums	357			396
Increase in accrued interest receivable	(1,067		)	(637		)
Increase in accrued interest payable	243			235
Mortgage loans originated for sale	(25,244		)	(21,344		)
Proceeds from sales of loans originated for sale	26,272			21,639
Decrease in other assets	724			4,394
Decrease (increase) in deferred tax expense	398			(3,343		)
Increase in other liabilities	1,471			843
Net Cash Provided by Operating Activities	21,487			9,955
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity	11,307			8,148
Proceeds from maturities of investment securities available for sale	12,471			18,486
Proceeds from sales of investment securities available for sale	6,477			—
Purchase of investment securities available for sale	(27,746		)	(12,144		)
Redemption (purchase) of restricted investment in bank stocks	244			(136		)
Net increase in loans	(29,843		)	(63,636		)
Purchase of bank-owned life insurance	(500		)	—
Bank acquisition, net of cash acquired	—			6,444
Insurance book- acquisition	(600		)	—
Capital expenditures	(904		)	(1,087		)
Proceeds from sales of premises and equipment	—			6
Proceeds from sales of foreclosed real estate	607			228
Net Cash Used in Investing Activities	(28,487		)	(43,691		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits	12,976			13,254
Net increase in time certificates of deposits and interest bearing deposits	35,775			37,677
Net increase (decrease) in short-term borrowings	1,617			(784		)
Proceeds from long-term borrowings	9,716			24,600
Repayments on long-term borrowings	(19,591		)	(7,000		)
Dividends paid	(4,642		)	(3,829		)
Common stock issued	404			378
Net Cash Provided by Financing Activities	36,255			64,296
Net Increase in Cash and Cash Equivalents	29,255			30,560
CASH AND CASH EQUIVALENTS — BEGINNING	34,441			18,931
CASH AND CASH EQUIVALENTS — ENDING	$	63,696		$	49,491
Supplemental disclosures of cash flow information
Interest paid	$	5,092		$	3,510
Income taxes paid	$	3,150		$	2,850
Loans transferred to foreclosed assets held for resale and other foreclosed transactions	$	235		$	—

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

6

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 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 twenty-two community banking office locations in Adams, Cumberland, Franklin and York Counties, Pennsylvania. There is also a loan production office situated in York County, Pennsylvania, as well as another loan production office in Hunt Valley, Maryland, effective July 25, 2018.

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 Maryland market as “NWSB Bank, A Division of ACNB Bank” and serves this marketplace with banking and wealth management services via a network of seven community banking offices located in Carroll County, Maryland.

RIG is a full-service insurance agency based in Westminster, Maryland, with a second location in Germantown, Maryland. The agency offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients.

The Corporation’s primary source of revenue is 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 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 2017 ACNB Corporation Annual Report on Form 10-K, filed with the SEC on March 9, 2018. 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 ended September 30, 2018, are not necessarily indicative of the results to be expected for the full year.

On January 1, 2018, the Corporation adopted ASU 2014-09, Revenue from Contracts with Customers, and all subsequent amendments to the ASU (collectively “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation’s revenue comes from interest income, including loans and securities, that are outside the scope of ASC 606. The Corporation’s services that fall within the scope of ASC 606 are presented within other income on the consolidated statement of income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposit accounts, service charges on ATM and debit card transactions, income from fiduciary, investment management and brokerage activities and commissions from insurance sales. ASC 606 did not result in a change to the accounting for any in-scope revenue streams; as such, no cumulative effect adjustment was recorded.

On January 1, 2018, the Corporation adopted ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amended the guidance on the classification and measurement of financial instruments. Upon adoption of ASU 2016-01, the Corporation recognized the equity securities fair value change in net income. Previously, the fair value changes were recognized, net of tax, in other comprehensive income (loss). The adoption of this ASU did not have a material effect on the Corporation’s consolidated financial condition or results of operations.

7

The Corporation early adopted ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU required a reclassification from accumulated other comprehensive income to retained earnings for tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate. The amendments in this ASU would be effective for the Corporation for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. 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, 2018, 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 New Windsor Bancorp, Inc.

On July 1, 2017, ACNB completed its acquisition of New Windsor Bancorp Inc. (New Windsor) of Taneytown, Maryland. New Windsor was a locally owned and managed institution with seven locations in north central Maryland that complemented, enhanced and expanded ACNB’s physical presence in north central Maryland. ACNB transacted the acquisition to enhance its competitive strategic position, potential prospective business opportunities, operations, management, prospective financial condition, future earnings and business prospects. Specifically, ACNB believes that the acquisition will enhance its business opportunities in Northern Maryland due to the combined company having a greater market share, market presence and the ability to offer more diverse (i.e. Trust Services) and more profitable products, as well as a broader based and geographically diversified branch system to enhance deposit collection and potentially improve funding costs. The fair value of total assets acquired as a result of the acquisition totaled $319.8 million, loans totaled $263.5 million and deposits totaled $293.3 million. Goodwill recorded in the acquisition was $13.3 million. In accordance with the terms of the Reorganization Agreement, dated November 21, 2016, as amended, New Windsor shareholders received, in aggregate, $4.5 million in cash and 938,360 shares or approximately 13% of the post transaction outstanding shares of the Corporation’s common stock. The transaction was valued at $33.3 million based on the Corporation’s June 30, 2017 closing price of $30.50 as quoted on NASDAQ. 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 New Windsor 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.

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

Purchase Price Consideration in Common Stock

New Windsor shares outstanding	1,003,703
Shares paid cash consideration	150,555
Cash consideration (per New Windsor share)	$	30.00
Cash portion of purchase price	$	4,519,995
New Windsor shares outstanding	1,003,703
Shares paid stock consideration	853,148
Exchange ratio	1.10
Total ACNB shares issued	938,360
ACNB’s share price for purposes of calculation	$	30.50
Equity portion of purchase price	$	28,619,980
Cost of shares owned by buyer	$	150,000
Total consideration paid	$	33,289,975

8

	In thousands
Allocation of Purchase Price
Total Purchase Price		$	33,290
Fair Value of Assets Acquired
Cash and cash equivalents	10,964
Investment securities	21,624
Loans held for sale	1,463
Loans	263,450
Restricted stock	486
Premises and equipment	8,624
Core deposit intangible asset	2,418
Other assets	10,792
Total assets	319,821
Fair Value of Liabilities Assumed
Non-interest bearing deposits	80,006
Interest bearing deposits	213,327
Subordinated debt	4,688
Other liabilities	1,782
Total liabilities	299,803
Net Assets Acquired		20,018
Goodwill Recorded in Acquisition		$	13,272

Pursuant to the accounting requirements, the Corporation assigned a fair value to the assets acquired and liabilities assumed of New Windsor. 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.”

Goodwill and core deposit intangibles are allocated to the banking business segment.

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.

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 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 New Windsor’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $272,646,000. 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. 

9

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 July 1, 2017	$	272,646
Interest rate fair value adjustment on pools of homogeneous loans	(731		)
Credit fair value adjustment on pools of homogeneous loans	(4,501		)
Credit fair value adjustment on purchased credit impaired loans	(3,964		)
Fair value of acquired loans at July 1, 2017	$	263,450

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 $731,000.

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, NWSB and peer banks. ACNB also estimated an environmental factor to apply to each loan type. The environmental factor represents a potential discount which may arise due to general credit and economic factors. A credit fair value discount of $4.5 million was determined. Both the interest rate and credit fair value adjustments relate to loans acquired without 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	$	13,439
Nonaccretable difference	(5,651		)
Expected cash flows at acquisition	7,788
Accretable yield	(1,458		)
Fair value of purchased impaired loans	$	6,330

Premises and Equipment

The Corporation acquired seven branches from New Windsor. The fair value of New Windsor’s premises, including land, buildings, and improvements, was determined based upon independent third-party appraisals and other data 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 discount of approximately $847,500 is being amortized into income on a level yield amortization method over the contractual life of the deposits.

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Long-term Borrowings

The Corporation assumed a trust preferred subordinated debt in connection with the acquisition. The fair value of the trust preferred subordinated debt was determined based upon an estimated fair value from an independent brokerage firm. The trust preferred capital note was valued at a discount of $312,500, 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.

3.Earnings Per Share and Restricted Stock Plan

The Corporation has a simple capital structure. Basic earnings per share of common stock is computed based on 7,033,437 and 6,383,149 weighted average shares of common stock outstanding for the nine months ended September 30, 2018 and 2017, respectively, and 7,038,768 and 7,004,346 for the three months ended September 30, 2018 and 2017, respectively. All outstanding unvested restricted stock awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.

The Corporation has a restricted stock plan available to selected employees and directors of the Corporation and the Bank to advance the best interests of the Corporation and its stockholders. The plan provides those persons 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 success of the Corporation and the Bank. Plan expense is recognized over the vesting period of the stock issued under the plan. As of September 30, 2018, 26,045 shares were issued to employees under this plan, of which 19,485 were fully vested, no shares vested during the quarter, and the remaining 6,560 will vest over the next two years. $42,000 and $0 of compensation expenses related to the grants were recognized during the three months ended September 30, 2018 and 2017, respectively. $159,000 and $120,000 of compensation expenses related to the grants were recognized during the nine months ended September 30, 2018 and 2017, respectively.

4.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 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30
In thousands	2018			2017			2018			2017
Service cost	$	215		$	210		$	645		$	630
Interest cost	274			284			822			852
Expected return on plan assets	(693		)	(630		)	(2,077		)	(1,890		)
Amortization of net loss	129			169			386			507
Net Periodic Benefit Expense	$	(75	)	$	33		$	(224	)	$	99

The Corporation previously disclosed in its consolidated financial statements for the year ended December 31, 2017, that it had not yet determined the amount the Bank planned on contributing to the defined benefit plan in 2018. As of September 30, 2018, 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 353 active, vested, terminated and retired persons in the plan.

5.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. 

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The Corporation generally holds collateral and/or personal guarantees supporting these commitments. The Corporation had $4,479,000 in standby letters of credit as of September 30, 2018. 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, 2018, for guarantees under standby letters of credit issued is not material.

6.Accumulated Other Comprehensive Loss

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

In thousands	Unrealized (Losses) Gains on Securities			Pension Liability			Accumulated Other Comprehensive Loss
BALANCE — SEPTEMBER 30, 2018	$	(3,199	)	$	(5,836	)	$	(9,035	)
BALANCE — DECEMBER 31, 2017	$	(957	)	$	(6,135	)	$	(7,092	)
BALANCE — SEPTEMBER 30, 2017	$	40		$	(5,429	)	$	(5,389	)

7.Segment Reporting

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

Segment information for the nine month periods ended September 30, 2018 and 2017, is as follows:

In thousands	Banking		Insurance		Total
2018
Net interest income and other income from external customers	$	50,015	$	4,205	$	54,220
Income before income taxes	19,146		1,211		20,357
Total assets	1,635,033		12,766		1,647,799
Capital expenditures	847		57		904
2017
Net interest income and other income from external customers	$	39,536	$	3,863	$	43,399
Income before income taxes	9,099		799		9,898
Total assets	1,598,331		9,304		1,607,635
Capital expenditures	1,087		—		1,087

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Segment information for the three month periods ended September 30, 2018 and 2017, is as follows:

In thousands	Banking		Insurance		Total
2018
Net interest income and other income from external customers	$	17,235	$	1,303	$	18,538
Income before income taxes	7,115		367		7,482
Total assets	1,635,033		12,766		1,647,799
Capital expenditures	233		16		249
2017
Net interest income and other income from external customers	$	16,321	$	1,171	$	17,492
Income before income taxes	2,424		201		2,625
Total assets	1,598,331		9,304		1,607,635
Capital expenditures	284		—		284

Customer renewal lists are amortized over their estimated useful lives which range from eight to thirteen years. Core deposit intangible assets are primarily amortized over 10 years using accelerated methods. Goodwill is not amortized, but rather is analyzed annually for impairment. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. Tax amortization of goodwill and the intangible assets is deductible for tax purposes. Tax amortization of the goodwill associated with the New Windsor acquisition is not deductible for federal income tax purposes.

8.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). As of January 1, 2018, equity securities with readily determined fair values are recorded at fair value with changes in fair value recognized in net income. Prior to 2018, fair value changes were reported, net of tax, in other comprehensive income (loss).

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.

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Amortized cost and fair value of securities at September 30, 2018, and December 31, 2017, were as follows:

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, 2018
U.S. Government and agencies	$	125,594	$	—	$	3,518	$	122,076
Mortgage-backed securities, residential	31,676		107		692		31,091
State and municipal	9,819		54		83		9,790
	$	167,089	$	161	$	4,293	$	162,957
DECEMBER 31, 2017
U.S. Government and agencies	$	105,899	$	2	$	1,818	$	104,083
Mortgage-backed securities, residential	34,473		461		101		34,833
State and municipal	13,227		109		42		13,294
Corporate bonds	5,000		57		—		5,057
CRA mutual fund	1,044		—		9		1,035
Stock in other banks	647		102		—		749
	$	160,290	$	731	$	1,970	$	159,051
SECURITIES HELD TO MATURITY
SEPTEMBER 30, 2018
U.S. Government and agencies	$	12,000	$	—	$	117	$	11,883
Mortgage-backed securities, residential	21,517		—		633		20,884
	$	33,517	$	—	$	750	$	32,767
DECEMBER 31, 2017
U.S. Government and agencies	$	19,000	$	2	$	99	$	18,903
Mortgage-backed securities, residential	25,829		55		238		25,646
	$	44,829	$	57	$	337	$	44,549

The Corporation adopted ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities effective January 1, 2018. The required fair value disclosures are as follows:

In thousands	Fair Value at January 1, 2018		Unrealized Gains		Unrealized Losses		Fair Value at September 30, 2018
SEPTEMBER 30, 2018
Equity securities with a readily determinable fair value	$	1,793	$	31	$	81	$	1,743

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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, 2018, and December 31, 2017:

	Less than 12 Months				12 Months or More				Total
In thousands	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, 2018
U.S. Government and agencies	$	44,842	$	771	$	76,734	$	2,747	$	121,576	$	3,518
Mortgage-backed securities, residential	20,998		493		4,517		199		25,515		692
State and municipal	1,397		19		1,911		64		3,308		83
	$	67,237	$	1,283	$	83,162	$	3,010	$	150,399	$	4,293
DECEMBER 31, 2017
U.S. Government and agencies	$	42,775	$	445	$	58,279	$	1,373	$	101,054	$	1,818
Mortgage-backed securities, residential	7,228		56		2,845		45		10,073		101
State and municipal	1,042		8		1,950		34		2,992		42
CRA Mutual Fund	—		—		1,035		9		1,035		9
	$	51,045	$	509	$	64,109	$	1,461	$	115,154	$	1,970
SECURITIES HELD TO MATURITY
SEPTEMBER 30, 2018
U.S. Government and agencies	$	2,955	$	45	$	8,928	$	72	$	11,883	$	117
Mortgage-backed securities, residential	11,386		243		9,498		390		20,884		633
	$	14,341	$	288	$	18,426	$	462	$	32,767	$	750
DECEMBER 31, 2017
U.S. Government and agencies	$	4,985	$	15	$	10,916	$	84	$	15,901	$	99
Mortgage-backed securities, residential	4,946		29		11,070		209		16,016		238
	$	9,931	$	44	$	21,986	$	293	$	31,917	$	337

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, 2018, seventy-four available for sale U.S. Government and agency securities had unrealized losses that individually did not exceed 7% of amortized cost. Fifty 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, 2018, thirty-eight available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 5% of amortized cost. Seven 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, 2018, twelve available for sale state and municipal securities had unrealized losses that individually did not exceed 6% of amortized cost. Eight 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.

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At September 30, 2018, seven held to maturity U.S. Government and agency securities had unrealized losses that individually did not exceed 2% of amortized cost. Five 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, 2018, thirty-four held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 5% of amortized cost. Thirteen 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, 2018, 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, 2018, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.

	Available for Sale				Held to Maturity
In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	10,050	$	10,013	$	6,000	$	5,980
Over 1 year through 5 years	121,477		118,020		6,000		5,903
Over 5 years through 10 years	3,886		3,833		—		—
Over 10 years	—		—		—		—
Mortgage-backed securities, residential	31,676		31,091		21,517		20,884
	$	167,089	$	162,957	$	33,517	$	32,767

The Corporation realized $31,000 and $44,000 gross gains on sales of securities available for sale during the three and nine month periods ended September 30, 2018, respectively. The corporation did not realize any gross gains or losses on sales of securities during the three and nine month period ended September 30, 2017.

At September 30, 2018, and December 31, 2017, securities with a carrying value of $181,820,000 and $157,601,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.

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9.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 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;

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·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. Management believes that the Corporation’s market area is not as volatile as other areas throughout the United States, therefore valuations are ordered 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.

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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.

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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 present a moderate level of risk due primarily to general economic conditions, as well as a continued weak housing market.

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 weak housing market.

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 weak and property values deteriorate.

20

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.

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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 we can reasonably estimate the timing and amount of expected cash flows on such loans. Accordingly, we do not consider acquired contractually delinquent loans to be non-accruing and continue to recognize interest income on these loans using the accretion model.

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, 2018, and December 31, 2017:

In thousands	Pass		Special Mention		Substandard			Doubtful		Total
SEPTEMBER 30, 2018
Originated Loans
Commercial and industrial	$	167,353	$	3,094	$	171		$	—	$	170,618
Commercial real estate	363,982		18,218		8,421			—		390,621
Commercial real estate construction	13,520		1,005		249			—		14,774
Residential mortgage	378,301		6,909		649			—		385,859
Home equity lines of credit	87,180		235		148			—		87,563
Consumer	14,337		—		—			—		14,337
Total Originated Loans	1,024,673		29,461		9,638			—		1,063,772
Acquired Loans
Commercial and industrial	5,336		123		(4		)	—		5,455
Commercial real estate	120,035		8,616		3,562			—		132,213
Commercial real estate construction	3,223		723		—			—		3,946
Residential mortgage	42,522		2,293		2,861			—		47,676
Home equity lines of credit	18,635		88		393			—		19,116
Consumer	268		—		—			—		268
Total Acquired Loans	190,019		11,843		6,812			—		208,674
Total Loans
Commercial and industrial	172,689		3,217		167			—		176,073
Commercial real estate	484,017		26,834		11,983			—		522,834
Commercial real estate construction	16,743		1,728		249			—		18,720
Residential mortgage	420,823		9,202		3,510			—		433,535
Home equity lines of credit	105,815		323		541			—		106,679
Consumer	14,605		—		—			—		14,605
Total Loans	$	1,214,692	$	41,304	$	16,450		$	—	$	1,272,446

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In thousands	Pass		Special Mention		Substandard		Doubtful		Total
DECEMBER 31, 2017
Originated Loans
Commercial and industrial	$	154,177	$	3,466	$	1,812	$	—	$	159,455
Commercial real estate	325,002		17,666		9,277		—		351,945
Commercial real estate construction	27,413		767		250		—		28,430
Residential mortgage	363,195		3,251		478		—		366,924
Home equity lines of credit	81,976		360		—		—		82,336
Consumer	14,454		—		—		—		14,454
Total Originated Loans	966,217		25,510		11,817		—		1,003,544
Acquired Loans
Commercial and industrial	6,120		244		10		—		6,374
Commercial real estate	124,852		12,734		3,228		—		140,814
Commercial real estate construction	6,742		388		—		—		7,130
Residential mortgage	52,959		2,762		3,248		—		58,969
Home equity lines of credit	24,990		88		378		—		25,456
Consumer	1,525		358		—		—		1,883
Total Acquired Loans	217,188		16,574		6,864		—		240,626
Total Loans
Commercial and industrial	160,297		3,710		1,822		—		165,829
Commercial real estate	449,854		30,400		12,505		—		492,759
Commercial real estate construction	34,155		1,155		250		—		35,560
Residential mortgage	416,154		6,013		3,726		—		425,893
Home equity lines of credit	106,966		448		378		—		107,792
Consumer	15,979		358		—		—		16,337
Total Loans	$	1,183,405	$	42,084	$	18,681	$	—	$	1,244,170

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	Nine Months Ended September 30, 2018
Balance at beginning of period	$	1,234
Acquisitions of impaired loans	—
Reclassification from non-accretable differences	288
Accretion to loan interest income	(490		)
Balance at end of period	$	1,032

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.

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The following table summarizes information relative to impaired loans by loan portfolio class as of September 30, 2018, and December 31, 2017:

	Impaired Loans with  Allowance						Impaired Loans with No Allowance
In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
SEPTEMBER 30, 2018
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Commercial real estate	—		—		—		7,188		7,188
Commercial real estate construction	—		—		—		—		—
Residential mortgage	—		—		—		533		533
Home equity lines of credit	148		148		148		—		—
	$	148	$	148	$	148	$	7,721	$	7,721
DECEMBER 31, 2017
Commercial and industrial	$	1,311	$	1,311	$	792	$	188	$	188
Commercial real estate	832		832		60		7,528		7,528
Commercial real estate construction	—		—		—		—		—
Residential mortgage	377		377		377		101		101
	$	2,520	$	2,520	$	1,229	$	7,817	$	7,817

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, 2018 and 2017:

	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2018
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	—		—		7,215		36
Commercial real estate construction	—		—		—		—
Residential mortgage	—		—		317		—
Home equity lines of credit	74		—		—		—
	$	74	$	—	$	7,532	$	36
SEPTEMBER 30, 2017
Commercial and industrial	$	1,360	$	—	$	734	$	—
Commercial real estate	832		—		7,626		80
Commercial real estate construction	—		—		—		—
Residential mortgage	378		—		101		—
	$	2,570	$	—	$	8,461	$	80

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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, 2018 and 2017:

	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2018
Commercial and industrial	$	545	$	—	$	92	$	44
Commercial real estate	—		—		7,525		118
Commercial real estate construction	—		—		—		—
Residential mortgage	94		—		209		—
Home equity lines of credit	37		—		—		—
	$	676	$	—	$	7,826	$	162
SEPTEMBER 30, 2017
Commercial and industrial	$	1,152	$	—	$	934	$	—
Commercial real estate	416		—		8,155		293
Commercial real estate construction	—		—		75		25
Residential mortgage	377		—		238		15
	$	1,945	$	—	$	9,402	$	333

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, 2018, and December 31, 2017, the table below excludes $6.9 million in purchase credit impaired loans, net of unamortized fair value adjustments:

In thousands	September 30, 2018		December 31, 2017
Commercial and industrial	$	—	$	1,499
Commercial real estate	3,281		4,378
Commercial real estate construction	—		—
Residential mortgage	533		478
Home equity lines of credit	148		—
	$	3,962	$	6,355

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. 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, 2018 and December 31, 2017, were $2,500,000 and $3,400,000, respectively, of troubled debt restructurings. In addition to the troubled debt restructurings included in non-accrual loans, the Corporation also has loans classified as accruing troubled debt restructurings at September 30, 2018 and December 31, 2017, which total $3,900,000 and $4,000,000, respectively. As of September 30, 2018 and 2017, 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, 2018 and 2017. One troubled debt restructured loan paid off during 2018 in the amount of $832,000 and one paid off during 2017 in the amount of $283,000. All other troubled debt restructured loans were current as of September 30, 2018, with respect to their associated forbearance agreement, except for one loan which has had periodic late payments. As of September 30, 2018, no loans classified as a troubled debt restructured loan have active forbearance agreements. The forbearance agreements have expired or the loans have paid off.

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There were no loans whose terms have been modified resulting in troubled debt restructurings during the three and nine months ended September 30, 2018 and 2017.

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2018 and December 31, 2017, totaled $800,000 and $848,000, 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, 2018, and December 31, 2017:

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, 2018
Originated Loans
Commercial and industrial	$	69	$	—	$	4	$	73	$	170,545	$	170,618	$	4
Commercial real estate	186		569		2,575		3,330		387,291		390,621		—
Commercial real estate construction	—		—		—		—		14,774		14,774		—
Residential mortgage	298		1,254		1,535		3,087		382,772		385,859		1,001
Home equity lines of credit	364		—		323		687		86,876		87,563		175
Consumer	51		24		33		108		14,229		14,337		33
Total originated loans	968		1,847		4,470		7,285		1,056,487		1,063,772		1,213
Acquired Loans
Commercial and industrial	—		—		—		—		5,455		5,455		—
Commercial real estate	218		—		857		1,075		131,138		132,213		857
Commercial real estate construction	—		—		77		77		3,869		3,946		77
Residential mortgage	16		3		125		144		47,532		47,676		125
Home equity lines of credit	641		63		70		774		18,342		19,116		70
Consumer	—		—		—		—		268		268		—
Total acquired loans	875		66		1,129		2,070		206,604		208,674		1,129
Total Loans
Commercial and industrial	69		—		4		73		176,000		176,073		4
Commercial real estate	404		569		3,432		4,405		518,429		522,834		857
Commercial real estate construction	—		—		77		77		18,643		18,720		77
Residential mortgage	314		1,257		1,660		3,231		430,304		433,535		1,126
Home equity lines of credit	1,005		63		393		1,461		105,218		106,679		245
Consumer	51		24		33		108		14,497		14,605		33
Total Loans	$	1,843	$	1,913	$	5,599	$	9,355	$	1,263,091	$	1,272,446	$	2,342

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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, 2017
Originated Loans
Commercial and industrial	$	55	$	76	$	1,503	$	1,634	$	157,821	$	159,455	$	4
Commercial real estate	436		317		1,400		2,153		349,792		351,945		88
Commercial real estate construction	252		—		—		252		28,178		28,430		—
Residential mortgage	3,006		646		1,500		5,152		361,772		366,924		1,022
Home equity lines of credit	254		29		183		466		81,870		82,336		183
Consumer	72		26		3		101		14,353		14,454		3
Total originated loans	4,075		1,094		4,589		9,758		993,786		1,003,544		1,300
Acquired Loans
Commercial and industrial	83		—		—		83		6,291		6,374		—
Commercial real estate	916		—		—		916		139,898		140,814		—
Commercial real estate construction	—		—		—		—		7,130		7,130		—
Residential mortgage	930		304		137		1,371		57,598		58,969		137
Home equity lines of credit	83		—		70		153		25,303		25,456		70
Consumer	—		—		—		—		1,883		1,883		—
Total acquired loans	2,012		304		207		2,523		238,103		240,626		207
Total Loans
Commercial and industrial	138		76		1,503		1,717		164,112		165,829		4
Commercial real estate	1,352		317		1,400		3,069		489,690		492,759		88
Commercial real estate construction	252		—		—		252		35,308		35,560		—
Residential mortgage	3,936		950		1,637		6,523		419,370		425,893		1,159
Home equity lines of credit	337		29		253		619		107,173		107,792		253
Consumer	72		26		3		101		16,236		16,337		3
Total Loans	$	6,087	$	1,398	$	4,796	$	12,281	$	1,231,889	$	1,244,170	$	1,507

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

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, 2018
Allowance for Loan Losses
Beginning balance - July 1, 2018	$	2,433		$	5,721		$	146		$	2,840		$	564		$	673		$	766		$	13,143
Charge-offs	(33		)	—			—			—			—			(29		)	—			(62		)
Recoveries	22			—			103			8			—			—			—			133
Provisions	185			123			(50		)	(95		)	131			(9		)	(85		)	200
Ending balance - September 30, 2018	$	2,607		$	5,844		$	199		$	2,753		$	695		$	635		$	681		$	13,414
Beginning balance - January 1, 2018	$	3,219		$	5,228		$	126		$	3,226		$	612		$	749		$	816		$	13,976
Charge-offs	(911		)	(33		)	—			(489		)	—			(66		)	—			(1,499		)
Recoveries	33			—			103			30			—			1			—			167
Provisions	266			649			(30		)	(14		)	83			(49		)	(135		)	770
Ending balance - September 30, 2018	$	2,607		$	5,844		$	199		$	2,753		$	695		$	635		$	681		$	13,414
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	148		$	—		$	—		$	148
Ending balance: collectively evaluated for impairment	$	2,607		$	5,844		$	199		$	2,753		$	547		$	635		$	681		$	13,266
Loans Receivable
Ending balance	$	176,073		$	522,834		$	18,720		$	433,535		$	106,679		$	14,605		$	—		$	1,272,446
Ending balance: individually evaluated for impairment	$	—		$	7,188		$	—		$	533		$	148		$	—		$	—		$	7,869
Ending balance: collectively evaluated for impairment	$	176,073		$	515,646		$	18,720		$	433,002		$	106,531		$	14,605		$	—		$	1,264,577
AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2017
Allowance for Loan Losses
Beginning Balance - July 1, 2017	$	3,246		$	5,210		$	135		$	3,368		$	607		$	815		$	767		$	14,148
Charge-offs	(60		)	—			—			(15		)	(9		)	(18		)	—			(102		)
Recoveries	8			—			40			10			—			1			—			59
Provisions	73			195			(31		)	(101		)	29			12			(177		)	—
Ending balance - September 30, 2017	$	3,267		$	5,405		$	144		$	3,262		$	627		$	810		$	590		$	14,105
Beginning Balance - January 1, 2017	$	3,055		$	4,968		$	147		$	3,478		$	648		$	923		$	975		$	14,194
Charge-offs	(129		)	—			—			(32		)	(9		)	(102		)	—			(272		)
Recoveries	17			61			40			52			—			13			—			183
Provisions	324			376			(43		)	(236		)	(12		)	(24		)	(385		)	—
Ending balance - September 30, 2017	$	3,267		$	5,405		$	144		$	3,262		$	627		$	810		$	590		$	14,105
Ending balance: individually evaluated for impairment	$	698		$	117		$	—		$	377		$	—		$	—		$	—		$	1,192
Ending balance: collectively evaluated for impairment	$	2,569		$	5,288		$	144		$	2,885		$	627		$	810		$	590		$	12,913
Loans Receivable
Ending balance	$	169,037		$	483,673		$	39,779		$	421,732		$	105,113		$	17,036		$	—		$	1,236,370
Ending balance: individually evaluated for impairment	$	1,743		$	8,413		$	—		$	478		$	—		$	—		$	—		$	10,634
Ending balance: collectively evaluated for impairment	$	167,294		$	475,260		$	39,779		$	421,254		$	105,113		$	17,036		$	—		$	1,225,736

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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, 2017
Allowance for Loan Losses
Ending balance	$	3,219	$	5,228	$	126	$	3,226	$	612	$	749	$	816	$	13,976
Ending balance: individually evaluated for impairment	$	792	$	60	$	—	$	377	$	—	$	—	$	—	$	1,229
Ending balance: collectively evaluated for impairment	$	2,427	$	5,168	$	126	$	2,849	$	612	$	749	$	816	$	12,747
Loans Receivable
Ending balance	$	165,829	$	492,759	$	35,560	$	425,893	$	107,792	$	16,337	$	—	$	1,244,170
Ending balance: individually evaluated for impairment	$	1,499	$	8,360	$	—	$	478	$	—	$	—	$	—	$	10,337
Ending balance: collectively evaluated for impairment	$	164,330	$	484,399	$	35,560	$	425,415	$	107,792	$	16,337	$	—	$	1,233,833

10.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).

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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, 2018, and December 31, 2017, are as follows:

		September 30, 2018
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	122,076	$	—	$	122,076	$	—
Mortgage-backed securities, residential		31,091		—		31,091		—
State and municipal		9,790		—		9,790		—
Total securities available for sale	Recurring	$	162,957	$	—	$	162,957	$	—
Equity securities with readily determinable fair values	Recurring	$	1,743	$	1,743	$	—	$	—
Collateral dependent impaired loans	Nonrecurring	$	3,907	$	—	$	—	$	3,907

		December 31, 2017
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	104,083	$	—	$	104,083	$	—
Mortgage-backed securities, residential		34,833		—		34,833		—
State and municipal		13,294		—		13,294		—
Corporate bonds		5,057		—		5,057		—
CRA mutual fund		1,035		1,035		—		—
Stock in other banks		749		749		—		—
Total securities available for sale	Recurring	$	159,051	$	1,784	$	157,267	$	—
Collateral dependent impaired loans	Nonrecurring	$	5,426	$	—	$	—	$	5,426

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
September 30, 2018
Impaired loans	$	3,907	Appraisal of collateral	(a)	Appraisal adjustments	(b)	(10) - (50)%	(28	)%
December 31, 2017
Impaired loans	$	5,426	Appraisal of collateral	(a)	Appraisal adjustments	(b)	(10) - (50)%	(36	)%

(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. The following methods and assumptions were used to estimate the fair values of certain Corporation financial instruments at September 30, 2018, and December 31, 2017:

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Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the consolidated statement of condition for cash and short-term instruments approximate those assets’ fair value. U.S. currency is Level 1 and cash equivalents are Level 2.

Securities

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 security but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses an independent service provider to provide matrix pricing, and uses the valuation of another provider to compare for reasonableness.

Loans Held for Sale (Carried at Lower of Cost or Fair Value)

The fair values of mortgage loans held for sale are determined based on amounts to be received at settlement by establishing the respective buyer requirement or market interest rates.

Loans (Carried at Cost)

The fair values of non-impaired loans are estimated using discounted cash flow analyses with the exit pricing concept, as well as using market rates at the balance sheet date that reflect the credit and interest rate risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments, and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired Loans (Generally Carried at Fair Value)

Loans for which the Corporation has measured impairment are generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less the valuation allowance and/or charge-offs.

Foreclosed Assets Held for Resale

The fair value of real estate acquired through foreclosure is based on independent third-party appraisals of the properties. These assets are included as Level 3 fair values, based upon appraisals that consider the sales prices of similar properties in the proximate vicinity.

It is the policy of the Corporation to have the initial market value of a foreclosed asset held for resale determined by an independent third-party valuation. If the Corporation already has a valid appraisal on file for the property and that appraisal has been completed within the previous 12 months, another appraisal shall not be required when the Corporation acquires ownership of that real estate. Further, the Corporation shall update the market value of each foreclosed asset with an independent third-party valuation at least every 18 months, or more frequently if management believes that there is an indication that the fair value has declined. These valuations may be adjusted downward to account for specialized use of the property, change in the condition of the real estate, change in local market and economic conditions, and other specific factors involving the collateral.

Restricted Investment in Bank Stock (Carried at Cost)

The carrying amount of required and restricted investment in correspondent bank stock approximates fair value, and considers the limited marketability of such securities.

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Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest receivable and accrued interest payable approximate their fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (e.g., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Borrowings (Carried at Cost)

The fair values of long-term borrowings are estimated using discounted cash flow analysis with the exit pricing concept, based on quoted prices for new borrowings with similar credit risk characteristics, terms, and remaining maturity. The prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. The fair value of the trust preferred subordinated debt, included in long-term borrowings, was determined based upon an estimated fair value from an independent brokerage firm.

Off-Balance Sheet Credit-Related Instruments

The fair values for the Corporation’s off-balance sheet financial instruments (specifically, lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

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The following presents the carrying amount, exit pricing concept fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of September 30, 2018:

	September 30, 2018
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	18,145	$	18,145	$	7,981	$	10,164	$	—
Interest-bearing deposits in banks	45,551		45,551		45,551		—		—
Equity securities with readily determinable fair value	1,743		1,743		1,743		—		—
Investment securities available for sale	162,957		162,957		—		162,957		—
Investment securities held to maturity	33,517		32,767		—		32,767		—
Loans held for sale	1,112		1,112		—		1,112		—
Loans, less allowance for loan losses	1,259,032		1,218,667		—		—		1,218,667
Accrued interest receivable	4,737		4,737		—		4,737		—
Restricted investment in bank stocks	4,529		4,529		—		4,529		—
Financial liabilities:
Demand deposits and savings	984,704		984,704		—		984,704		—
Time deposits	362,539		357,603		—		357,603		—
Short-term borrowings	38,525		38,525		—		38,525		—
Long-term borrowings	79,725		79,383		—		79,383		—
Trust preferred subordinated debt	5,000		4,699		—		4,699		—
Accrued interest payable	1,406		1,406		—		1,406		—
Off-balance sheet financial instruments	—		—		—		—		—

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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, 2017:

	December 31, 2017
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,304	$	19,304	$	8,313	$	10,991	$	—
Interest-bearing deposits in banks	15,137		15,137		15,137		—		—
Investment securities available for sale	159,051		159,051		1,784		157,267		—
Investment securities held to maturity	44,829		44,549		—		44,549		—
Loans held for sale	1,736		1,736		—		1,736		—
Loans, less allowance for loan losses	1,230,194		1,213,932		—		—		1,213,932
Accrued interest receivable	3,670		3,670		—		3,670		—
Restricted investment in bank stocks	4,773		4,773		—		4,773		—
Financial liabilities:
Demand deposits and savings	944,399		944,399		—		944,399		—
Time deposits	354,093		351,057		—		351,057		—
Short-term borrowings	36,908		36,908		—		36,908		—
Long-term borrowings	89,600		89,571		—		89,571		—
Trust preferred subordinated debt	5,000		4,692		—		4,692		—
Accrued interest payable	1,163		1,163		—		1,163		—
Off-balance sheet financial instruments	—		—		—		—		—

11.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.

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The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreement as of September 30, 2018, and December 31, 2017:

						Net Amounts		Gross Amounts Not Offset
				Gross		of Liabilities		in the Statements of
				Amounts		Presented in		Condition
In thousands		Gross Amounts of Recognized Liabilities		Offset in the Statements of Condition		the Statements of Condition		Financial Instruments			Cash Collateral Pledged		Net Amount
September 30, 2018
Repurchase agreements
Commercial customers and government entities	(a)	$	38,525	$	—	$	38,525	$	(38,525	)	$	—	$	—
December 31, 2017
Repurchase agreements
Commercial customers and government entities	(a)	$	36,908	$	—	$	36,908	$	(36,908	)	$	—	$	—

(a) As of September 30, 2018, and December 31, 2017, the fair value of securities pledged in connection with repurchase agreements was $43,541,000 and $42,397,000, respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2018:

	Remaining Contractual Maturity of the Agreements
In thousands	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater than 90 Days		Total
Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	$	38,525	$	—	$	—	$	—	$	38,525
Total	$	38,525	$	—	$	—	$	—	$	38,525

12.Borrowings

The Corporation had long-term debt outstanding as follows:

In thousands	September 30, 2018		December 31, 2017
FHLB advances	$	74,216	$	85,000
Loan payable to local bank	4,509		4,600
Loan payable to local bank	1,000		—
Trust preferred subordinated debt	5,000		5,000
	$	84,725	$	94,600

The FHLB advances are collateralized by the assets defined in the security agreement and FHLB capital stock. FHLB advances have maturity dates from 2018 to 2022 with a weighted average rate of 2.35%.

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 in June 2028. The principal balance of this note may be prepaid at any time without penalty.

The loan payable to a local bank is a commercial revolving line of credit which has a variable rate equal to the Wall Street Journal Prime Rate, 5.25% at September 30, 2018. Principal shall be payable when and in amounts demanded by the Bank. The line has an initial expiration date of May 1, 2019.

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The 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.

13.Goodwill and Other Intangible Assets

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 thirteen years.

This acquisition of New Windsor resulted in goodwill of approximately $13,272,000 and generated $2,418,000 in core deposit intangibles.

Combining goodwill resulting from this transaction with existing goodwill from the 2005 RIG purchase of $6,308,000, total goodwill included in the Corporation’s consolidated statement of condition is $19,580,000. Goodwill is not deductible for federal income tax purposes. Goodwill, which has 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 carrying value and accumulated amortization of the intangible assets (RIG customer lists and New Windsor core deposit intangibles) are as follows:

In thousands	Gross carrying amount		Accumulated amortization
RIG amortized intangible assets	$	7,263	$	6,514
New Windsor core deposit intangibles	2,418		539

The RIG intangible assets are being amortized over 10 years on a straight line basis. The New Windsor core deposit intangible is being amortized using a sum of the year’s method over a 10-year period.

Goodwill is subject to impairment testing at the reporting unit level, which must be conducted at least annually. The Corporation performs impairment testing during the fourth quarter of each year, or more frequently if impairment indicators exist. We also continue to monitor other intangibles for impairment and to evaluate carrying amounts, as necessary.

14.New Accounting Pronouncements

ASU 2016-02, ASU 2018-10 and ASU 2018-11

In February 2016, the FASB issued ASU 2016-02, Leases.

From the lessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

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The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. In this ASU, FASB corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the leases standard. The amendment targets 16 issues:

·residual value guarantees;

·rate implicit in the lease;

·lessee reassessment of lease classification;

·lessor reassessment of lease term and purchase option;

·variable lease payments that depend on an index or a rate;

·investment tax credits;

·lease term and purchase option;

·transition guidance for amounts previously recognized in business combinations;

·recognition of certain transition adjustments in earnings rather than equity;

·transition guidance for leases previously classified as capital leases under Topic 840;

·transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840;

·transition guidance for sale and leaseback transactions;

·impairment of net investment in the lease;

·unguaranteed residual asset;

·effect of initial direct costs on rate implicit in the lease; and,

·failed sale and leaseback transaction.

The effective date and transition requirements are consistent with ASU 2016-02. For entities that have early adopted Topic 842 issued in ASU 2016-02, the amendments are effective upon issuance.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The ASU provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840.

Also, the ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02, Leases (Topic 842). The new practical expedient will allow lessors to elect, by class of underlying asset, to not separate nonlease components from the associated lease component when specified conditions are met. Examples of nonlease components include equipment maintenance services, common area maintenance services in real estate, or other goods or services provided to the lessee apart from the right to use the underlying asset.

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The practical expedient must be applied consistently for all lease contracts.

The effective date and transition requirements for lessors electing the practical expedient for separating components of a contract are the same as the requirements for Topic 842 issued in ASU 2016-02. For entities that have early adopted Topic 842, the ASU provides specific transition guidance for lessors electing the practical expedient.

While the Corporation is currently evaluating the timing and impact of adopting ASU 2016-02, ASU 2018-10 and ASU 2018-11, the ultimate impact of adopting ASU 2016-02, ASU 2018-10 and ASU 2018-11 will depend on the Corporation’s lease portfolio as of the adoption date and interest rates at that time. The Corporation expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of committed lease payments as of the date of adoption. The effect on operations and capital adequacy is not expected to be material.

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. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within the fiscal year. For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations. Management has developed a committee to address CECL and the committee is currently evaluating options to comply with the ASU in a timely manner.

ASU 2017-08

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities.

ASU 2017-08 shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization), rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans, not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

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The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

The Corporation has evaluated the provision of ASU 2017-08 to determine the potential impact of the new standard and has determined that it is not expected to have a significant impact on its consolidated financial condition or results of operations, as the Corporation holds one security that this ASU would impact.

ASU 2017-04

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.

ASU 2017-04 eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Impairment losses on goodwill cannot be reversed once recognized.

An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. However, the ASU eliminates the requirement to perform a qualitative assessment for any reporting unit with a zero or negative carrying amount. Therefore, the same one-step impairment assessment will apply to all reporting units. However, for a reporting unit with a zero or negative carrying amount, the ASU adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included.

For public business entities that are SEC filers, the amendments are effective with their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Corporation has evaluated the provision of ASU 2017-04 to determine the potential impact of the new standard and has determined that it is not expected to have an impact on its consolidated financial condition or results of operations based on the current circumstances.

ASU 2018-09

In July 2018, the FASB issued ASU 2018-09, Codification Improvements.

The ASU contains various improvements to various topics in the codification, including clarification that an entity must disclose the required and actual amounts of regulatory capital for each measure of regulatory capital for which the entity must comply.

For year-end public business entities, the improvements are effective upon issuance, which was July 2018. The Corporation has evaluated the improvements of ASU 2018-09 and determined that the ASU will not impact its consolidated financial condition or results of operations since the Corporation already discloses capital requirements with the Management’s Discussion and Analysis section of the Form 10-Q.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.

This ASU removes, modifies, and adds to existing fair value measurement disclosure requirements. The following are removed:

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·transfers between Level 1 and Level 2 of the fair value hierarchy;

·the policy for determining when transfers between any of the three levels have occurred; and,

·the valuation processes used for Level 3 measurements.

The following are modified:

·a clarification that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date.

The following are new:

·for public entities, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the balance sheet date; and,

·for public entities, the range and weighted average of significant unobservable inputs used for Level 3 measurements. For certain unobservable inputs, an option to disclose other quantitative information in place of the weighted average is available to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs.

The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods, which is first effective for calendar year entities in the March 31, 2020, interim financial statements. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

ASU 2018-14

In August 2018, the FASB issued 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 is effective for public business entities in fiscal years ending after December 15, 2020. Early adoption is permitted.

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The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

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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 forward-looking statements. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management or the Board of Directors, and (c) statements of assumptions, such as economic conditions in the Corporation’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: the effects of governmental and fiscal policies, as well as legislative and regulatory changes; the effects of new laws and regulations, specifically the impact of the Tax Cuts and Jobs Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act; impacts of the new 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 on 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 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 area; the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities; acts of war or terrorism; disruption of credit and equity markets; the ability to manage current levels of impaired assets; the loss of certain key officers; the ability to maintain the value and image of the Corporation’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 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 any Current Reports on Form 8-K.

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:

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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 outstanding goodwill from its most recent testing, which was performed as of October 1, 2017. 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 months ended September 30, 2018. ACNB plans on testing New Windsor goodwill during 2018. Other acquired intangible assets with finite lives, such as customer lists, are required to be amortized over the estimated lives. These intangibles are generally amortized using the straight line method over estimated useful lives of ten years.

RESULTS OF OPERATIONS

Quarter ended September 30, 2018, compared to Quarter ended September 30, 2017

Executive Summary

Net income for the three months ended September 30, 2018, was $6,039,000, compared to $1,912,000 for the same quarter in 2017, an increase of $4,127,000 or 215.8%. Basic earnings per share was $0.86 in 2018 and $0.27 in 2017. The higher net income in the third quarter of 2018 was primarily a result of merger expenses incurred in the third quarter of 2017, the additional revenue and cost efficiencies of the acquisition of New Windsor on July 1, 2017, as well as organic net revenue growth. In addition, net income was aided by a lower effective tax rate due to the Tax Cuts and Jobs Act effective on January 1, 2018. Net interest income for the quarter ended September 30, 2018 increased $851,000, or 6.3%, as increases in total interest income were greater than increases in total interest expense including net interest income earned on the acquired earning asset and paying liabilities acquired from New Windsor. Provision for loan losses was $200,000 for the quarter ended September 30, 2018, compared to $0 for the same quarter in 2017, based on the adequacy analysis of the allowance for loan losses calculation at the end of each period, resulting in an allowance to total loans of 1.05% at September 30, 2018. Other income increased $195,000, or 5.0%, due in part to increases from the New Windsor sources (brokerage, investment, and trust) and insurance agency revenue. Other expenses decreased $4,011,000, or 27.0%, due to $4,305,000 in merger-related expenses incurred in the third quarter 2017; otherwise increased expenses included technology costs and expenses related to the operation of the new southern market, NWSB Bank, A Division of ACNB Bank.

Net Interest Income

Net interest income totaled $14,413,000 for the three months ended September 30, 2018, compared to $13,562,000 for the same period in 2017, an increase of $851,000, or 6.3%. Net interest income increased due to an increase in interest income to a greater extent than an increase in interest expense. Interest income increased $1,173,000, or 7.8%, due to a 1.6% increase in average earning asset volume from organic growth and increased rates due to market increases and due to purchase accounting adjustments. The increase in interest expense resulted from deposit rate increases in addition to organic deposit growth. Increased lending, average volume was up 0.6%, was a result of a concerted effort by management to offset the recent year trend of interest income decreases due to the market area’s heightened competition and declines in the U.S. Treasury yields and other market driver interest rates. Only in recent quarters has this trend reversed to higher yields although the difference between longer term rates and shorter term rates is compressed. 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.

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In this manner, interest income yield was negatively affected as new loans replace paydowns on existing loans and variable rate loans reset to new lower rates in recent years. Interest income increased on investment securities due to higher market rates. An appropriate amount of earning assets remained in short-term, low-rate money market type accounts during the third quarter of 2018; and there exists ample ability to borrow for liquidity needs. The ability to increase lending is contingent on the effects of intense competition that has reduced new loans and may result in the payoff of existing loans, as well as economic conditions in the Corporation’s marketplace. 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. However, during the third quarter of 2018, several of the core deposit rates continued at rate levels in response to continued low rates on earning assets. Interest expense increased $322,000, or 20.8%, due to higher rates on transaction deposits, certificate of deposit rate increases and use of higher cost borrowings. This trend of higher rates is expected to continue due to higher rates at competing banks due to liquidity needs in conjunction with the Federal Reserve FOMC raising short-term rates starting in mid-December 2015 and continuing through 2018. For more information about interest rate risk, please refer to Item 7A — “Quantitative and Qualitative Disclosures about Market Risk” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and filed with the SEC on March 9, 2018. 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.

The net interest spread for the third quarter of 2018 was 3.64% compared to 3.50% during the same period in 2017. Also comparing the third quarter of 2018 to 2017, the yield on interest earning assets increased by 0.24% and the cost of interest bearing liabilities increased by 0.10%. The net interest margin was 3.78% for the third quarter of 2018 and 3.62% for the third quarter of 2017. The net interest margin increase was partly a result of purchase accounting adjustments which added 16 basis points, and acquiring and originating loans at the current market rate in order to increase loan volume and attempt to maintain total net interest income net of purchasing lower yielding investments to properly collateralize local government accounts and repurchase agreements.

Average earning assets were $1,512,000,000 during the third quarter of 2018, an increase of $24,000,000 from the average for the third quarter of 2017. Average interest bearing liabilities were $1,172,000,000 in the third quarter of 2018, an increase of $19,000,000 from the same period in 2017. Non-interest demand deposits increased $13,000,000 on average.

Provision for Loan Losses

The provision for loan losses was $200,000 in the third quarter of 2018 and $0 in the third quarter of 2017. The determination of a need for a provision was a result of the analysis of the adequacy of the allowance for loan losses calculation. The allowance for loan and lease losses does not include the loans acquired from the New Windsor acquisition which were recorded at fair value as of the acquisition date. Without the New Windsor loans, total impaired loans at September 30, 2018 were 24.0% lower compared to December 31, 2017. Nonaccrual loans decreased by 37.7%, or $2,393,000, since December 31, 2017; all substandard loans decreased by 11.9% 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. Management concluded that the loan portfolio exhibited continued general improvement 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. This assessment concluded that credit quality was stable, charge offs were low, and past due loans manageable. This same analysis concluded that the unallocated allowance should be in the same range in 2018 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 quarter of 2018, the Corporation had a net recovery of $71,000, as compared to net charge-offs of $43,000 for the third quarter of 2017.

Other Income

Total other income was $4,125,000 for the three months ended September 30, 2018, up $195,000, or 5.0%, from the third quarter of 2017. Fees from deposit accounts decreased by $31,000, or 3.6%, due to variations in volume. 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. Revenue from ATM and debit card transactions increased by $119,000 or 24.3%, to $609,000 due to variations in volume and mix. The longer term trend had been increases resulting from consumer desire to use more electronic delivery channels; however, regulations or legal challenges for large financial institutions may impact industry pricing for such transactions and fees in connection therewith in future periods, the effect of which cannot be currently quantified.

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A more immediate challenge to this revenue source is 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 $632,000 for the three months ended September 30, 2018, as compared to $489,000 for the third quarter of 2017, a 29.2% net increase as a net result of higher fee volume from increased assets under management, higher sporadic estate fee income and higher fees on brokerage relationships brought over in the New Windsor acquisition. Earnings on bank-owned life insurance decreased by $7,000, or 2.5%, as a result of varying crediting rates. At the Corporation’s wholly-owned insurance subsidiary, Russell Insurance Group, Inc. (RIG), revenue was up by $137,000, or 10.4%, to $1,450,000 during the period due to higher direct bill volume. 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. Heightened pressure on commissions is expected to continue in this business line from insurance company actions. There was a $31,000 net gain on sales of securities during the third quarter of 2018 and no gains or losses on sales of securities during the third quarter of 2017. A $23,000 net loss was recognized on local bank and CRA-related equity securities during the third quarter of 2018 due to the adoption of ASU 2016-01 on January 1, 2018. Other income in the three months ended September 30, 2018, was down by $174,000, or 35.4%, to $318,000 due to lower sales of residential mortgages and the timing of an annual printed check incentive receipt, partially offset by various other fee income increases, mostly volume related.

Other Expenses

Other expenses for the quarter ended September 30, 2018 were $10,856,000, a decrease of $4,011,000 or 27.0%. Acquisition and integration costs related to the New Windsor acquisition totaled $0 for the third quarter of 2018 compared to $4,305,000 for the third quarter of 2017. Merger expenses in all of 2017 included legal and consulting expenses to effect the legal merger, investment banking and preparing purchase accounting adjustments. Integration expenses included certain severance payments to New Windsor staff separated by the merger, consultant costs to integrate New Windsor bank systems into ACNB’s, and the cost to terminate all New Windsor 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, ongoing system integrity and realization of cost reductions.

The largest component of other expenses is salaries and employee benefits, which decreased by $155,000, or 2.3%, when comparing the third quarter of 2018 to the same period a year ago. Overall, the decrease in salaries and employee benefits was the result of increases and decreases as follows:

·turnover and delays in replacing customer-facing staff due to a competitive labor market;

·increased 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 performance-based commissions and incentives;

·efficiencies garnered 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 down by $108,000, or (327.3)%, when comparing the three months ended September 30, 2018, to the three months ended September 30, 2017, 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. The ACNB plan has maintained a well-funded status under ERISA rules.

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Net occupancy expense increased by $23,000, or 3.4%, mostly due higher net lease expense and depreciation. Equipment expense increased by $237,000, or 22.8%, due to cost of instituting technologies for upcoming accounting-related changes as well as ongoing support and maintenance of financial systems applications and security technology. Equipment expense is subject to ever-increasing technology demands and the need for system upgrades for security and reliability purposes. In addition, debit card processing increased due to more volume.

Professional services expense totaled $371,000 during the third quarter of 2018, as compared to $224,000 for the same period in 2017, a change of $147,000, or 65.6%. 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.

Marketing and corporate relations expenses were $98,000 for the third quarter of 2018, or 17.6% lower, as compared to the same period of 2017. 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 estate expense was $27,000 and $35,000 for the three months ended September 30, 2018 and 2017, 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 lower expense in 2018 was related to a better final disposition recovery on one property. Foreclosed assets held for resale expenses or recoveries will vary in the remainder of 2018 depending on the successful closing of sales agreements on some existing properties and the unknown expenses related to new properties acquired.

Other tax expense increased by $46,000, or 23.4%, comparing the three months ended September 30, 2018 and 2017, due to 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 budget proposals and the level of the stockholders’ equity base that increased with the New Windsor merger. Supplies and postage expense decreased by 2.1% due to variation in timing of sporadic refills. FDIC and regulatory expense increased 1.8% based on higher net asset base offset by FDIC rate decreases and state regulatory rate increases. Intangible amortization decreased 9.3% due to fully amortized insurance books of business. Other operating expenses increased by $98,000, or 9.7%, in the third quarter of 2018, as compared to the third quarter of 2017. Increases included increases for increased insurance, retail product improvement and corporate governance expense. Losses, which include the expense of reimbursing debit card customers for unauthorized transactions to their accounts resulting from various merchant database breaches and other third-party fraudulent use, added approximately $19,000 to other expenses in the third quarter of 2018 compared to $11,000 in the third quarter of 2017. 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. The expense related to reimbursements is unpredictable and varying, but ACNB has policies and procedures to limit exposure.

Provision for Income Taxes

The Corporation recognized income taxes of $1,443,000, or 19.3% of pretax income, during the third quarter of 2018, as compared to $713,000, or 27.2% of pretax income, during the same period in 2017. The variances from the federal statutory rate of 21% and 35% 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, 2018 includes Maryland corporation income taxes. Low-income housing tax credits were $72,000 for the three months ended September 30, 2018 and 2017, respectively.

Nine Months ended September 30, 2018, compared to Nine Months ended September 30, 2017

Executive Summary

Net income for the nine months ended September 30, 2018, was $16,459,000, compared to $7,271,000 for the same nine months in 2017, an increase of $9,188,000 or 126.4%. Basic earnings per share was $2.34 in 2018 and $1.14 in 2017. The higher net income was a result of the additional revenues and cost efficiencies of the acquisition of New Windsor on July 1, 2017, as well as organic net revenue growth. In addition, net income was aided by a lower effective tax rate due to the Tax Cuts and Jobs Act effective on January 1, 2018.

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Net interest income for the nine months ended September 30, 2018 increased $9,207,000, or 28.0%, as increases in total interest income were greater than increases in total interest expense including net interest income earned on the acquired earning asset and paying liabilities acquired from New Windsor. Provision for loan losses was $770,000 for the nine months ended September 30, 2018, compared to $0 for the same nine months in 2017, based on the adequacy analysis of the allowance for loan losses calculation at the end of each period, resulting in an allowance to total loans of 1.05% at September 30, 2018. Other income increased $1,614,000, or 15.3%, due in part to increases from the New Windsor sources, primarily deposit fees along with insurance commissions and trust fee increases. Other expenses decreased $408,000, or 1.2%, due to $4,675,000 merger-related expenses incurred in 2017 mostly offset by higher expenses related to the operation of the new southern market, NWSB Bank, A Division of ACNB Bank along with increasing technology and corporate governance costs.

Net Interest Income

Net interest income totaled $42,066,000 for the nine months ended September 30, 2018, compared to $32,859,000 for the same period in 2017, an increase of $9,207,000, or 28.0%. Net interest income increased due to an increase in interest income to a greater extent than an increase in interest expense. Interest income increased $10,797,000, or 29.5%, due to a 20.1% increase in average earning asset volume from organic growth and the July 1, 2017, addition of New Windsor assets and increased rates based on purchase accounting adjustments. The increase in interest expense resulted from deposit rate increases in addition to organic deposit growth and the addition of New Windsor deposits. Increased lending was a result of the New Windsor acquisition and a concerted effort by management to offset the recent years’ trend of interest income decreases due to the market area’s heightened competition and declines in the U.S. Treasury yields and other market driver interest rates. Only in recent quarters has this trend reversed to somewhat higher yields although the difference between longer term rates and shorter term rates is compressed. 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. In this manner, interest income yield was negatively affected as new loans replace paydowns on existing loans and variable rate loans reset to new lower rates in recent years. Interest income increased on investment securities with the investments acquired from New Windsor and due to higher market rates. An appropriate amount of earning assets remained in short-term, low-rate money market type accounts during the first nine months of 2018; and there exists ample ability to borrow for liquidity needs. The ability to increase lending is contingent on the effects of intense competition that can reduce new loans and may result in the payoff of existing loans, as well as economic conditions in the Corporation’s marketplace. 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. However, during the first nine months of 2018, several of the core deposit rates continued at appropriate rates in response to continued low rates on earning assets. Interest expense increased $1,590,000, or 42.5%, due to increased volume for the New Windsor acquired deposits and due to higher rates on transaction deposits, certificate of deposit rate increases and use of higher cost borrowings. This trend of higher rates is expected to continue due to higher rates at competing banks due to liquidity needs in conjunction with the Federal Reserve FOMC raising short-term rates starting in mid-December 2015 and continuing into 2018. For more information about interest rate risk, please refer to Item 7A — “Quantitative and Qualitative Disclosures about Market Risk” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017, and filed with the SEC on March 9, 2018. 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.

The net interest spread for the first nine months of 2018 was 3.65% compared to 3.45% during the same period in 2017. Also comparing the first nine months of 2018 to 2017, the yield on interest earning assets increased by 0.31% and the cost of interest bearing liabilities increased by 0.11%. The net interest margin was 3.78% for the first nine months of 2018 and 3.55% for the first nine months of 2017. The net interest margin increase was mainly a result of purchase accounting adjustments which added 19 basis points and acquiring and originating loans at the current market rate in order to increase loan volume and attempt to maintain total net interest income net of purchasing lower yielding investments to properly collateralize local government accounts and repurchase agreements.

Average earning assets were $1,488,000,000 during the first nine months of 2018, an increase of $249,000,000 from the average for the first nine months of 2017. Average interest bearing liabilities were $1,161,000,000 in the first nine months of 2018, an increase of $166,000,000 from the same period in 2017. Non-interest demand deposits increased $75,000,000 on average.

Provision for Loan Losses

The provision for loan losses was $770,000 in the first nine months of 2018 and $0 in the first nine months of 2017. The determination of a need for a provision was a result of the analysis of the adequacy of the allowance for loan losses calculation.

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The allowance for loan and lease losses does not include the loans acquired from the New Windsor acquisition which were recorded at fair value as of the acquisition date. Without the New Windsor loans, total impaired loans at September 30, 2018 were 24.0% lower compared to December 31, 2017. Nonaccrual loans decreased by 37.7%, or $2,393,000, since December 31, 2017; all substandard loans decreased by 11.9% 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. Management concluded that the loan portfolio exhibited continued general improvement 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. This assessment concluded that credit quality was stable, charge offs were low, and past due loans manageable. This same analysis concluded that the unallocated allowance should be in the same range in 2018 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 2018, the Corporation had net charge-offs of $1,332,000, as compared to net charge-offs of $89,000 for the first nine months of 2017.

Other Income

Total other income was $12,154,000 for the nine months ended September 30, 2018, up $1,614,000, or 15.3%, from the first nine months of 2017. Fees from deposit accounts increased by $408,000, or 19.8%, due to variations in volume from organic growth and the New Windsor acquisition. 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. Revenue from ATM and debit card transactions increased by $524,000 or 42.6%, to $1,753,000 due to variations in volume and mix including volume from New Windsor customers. The longer term trend had been increases resulting from consumer desire to use more electronic delivery channels; however, regulations or legal challenges for large financial institutions may impact industry pricing for such transactions and fees in connection therewith in future periods, the effect of which cannot be currently quantified. A more immediate challenge to this revenue source is 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 $1,762,000 for the nine months ended September 30, 2018, as compared to $1,409,000 for the first nine months of 2017, a 25.1% net increase as a net result of higher fee volume from increased assets under management, higher sporadic estate fee income and fees on brokerage relationships brought over in the New Windsor acquisition. Earnings on bank-owned life insurance decreased by $0, or 0.0%, as a result of offsetting crediting rates and volume, an additional $52,000 was received on a death claim. At the Corporation’s wholly-owned insurance subsidiary, Russell Insurance Group, Inc. (RIG), revenue was up by $327,000, or 8.1%, to $4,358,000 during the period due to higher contingent commission and direct bill commissions. 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. Heightened pressure on commissions is expected to continue in this business line from insurance company actions to lower commissions. There was $44,000 in gains on odd lot sale of MBS security tails and a corporate bond during the first nine months of 2018 and no gains or losses on sales of securities during the first nine months of 2017, however a $50,000 net loss was recognized on local bank and CRA-related equity securities since the adoption of ASU 2016-01 on January 1, 2018. Other income in the nine months ended September 30, 2018, was down by $44,000, or 4.4%, to $963,000 due to higher sales of residential mortgages offset by the timing of an annual printed check incentive receipt.

Impairment Testing

RIG has certain long-lived assets, including purchased intangible assets subject to amortization, such as insurance books of business, and associated goodwill assets, which are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the statement of condition and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated.

Goodwill, which has an indefinite useful life, is evaluated for impairment annually and is evaluated for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Accounting rules permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The goodwill impairment analysis currently used by the Corporation is a two-step test. The first step, used to identify potential impairment, involves comparing the reporting unit’s estimated fair value to its carrying value, including goodwill.

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If the estimated fair value of the reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds the estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. If required, the second step involves calculating an implied fair value of goodwill for the reporting unit for which the first step indicated potential impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit to a group of likely buyers whose cash flow estimates could differ from those of the reporting entity, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. Subsequent reversal of goodwill impairment losses is not permitted. Further, a new FASB update eliminates the second step test, thus basing impairment on the estimated fair value to the carrying value including goodwill.

The testing for potential impairment involves methods that include both current and projected income amounts, and RIG’s fair value remained above the carrying value as of the most recent annual impairment test date. Thus, the results of the annual evaluations determined that there was no impairment of RIG’s goodwill, including the testing at October 1, 2017. However, declines in RIG’s net income or changes in external market factors, including likely buyers that are assumed in impairment testing, may require an impairment charge to goodwill. The Corporation has not identified any such events, and, accordingly, has not tested goodwill resulting from the acquisition of New Windsor for impairment during the nine months ended June 30, 2018. ACNB plans on testing New Windsor goodwill during 2018. Should it be determined in a future period that the goodwill has been impaired, then a charge to earnings will be recorded in the period that such a determination is made.

Other Expenses

Other expenses for the nine months ended September 30, 2018 were $33,093,000, a decrease of $408,000 or 1.2%. Acquisition and integration costs related to the New Windsor acquisition totaled $0 for the first nine months of 2018 compared to $4,675,000 for the first nine months of 2017. Merger expenses in all of 2017 included legal and consulting expenses to effect the legal merger, investment banking and preparing purchase accounting adjustments. Integration expenses included certain severance payments to New Windsor staff separated by the merger, consultant costs to integrate New Windsor bank systems into ACNB’s, and the cost to terminate all New Windsor 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, ongoing system integrity, and realization of cost reductions.

The largest component of other expenses is salaries and employee benefits, which increased by $1,473,000, or 8.0%, when comparing the first nine months of 2018 to the same period a year ago. Overall, the increase in salaries and employee benefits was the result of:

·retaining customer-facing staff in a competitive labor market;

·increased 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 performance-based commissions and incentives;

·higher employee benefit plan costs, including health insurance;

·increases related to 401(k) plan and non-qualified retirement plan benefits; and,

·defined benefit pension expense, which was down by $323,000, or (326.3)%, when comparing the nine months ended September 30, 2018, to the nine months ended September 30, 2017, 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.

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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. The ACNB plan has maintained a well-funded status under ERISA rules.

Net occupancy expense increased by $489,000, or 28.6%, mostly due to seven more offices from the New Windsor acquisition. Equipment expense increased by $1,093,000, or 41.0% due to instituting technologies for upcoming accounting-related changes as well as ongoing support and maintenance of financial systems applications and security technology. Equipment expense is subject to ever-increasing technology demands and the need for system upgrades for security and reliability purposes. In addition, debit card processing increased due to more volume.

Professional services, not including merger expense, totaled $1,084,000 during the first nine months of 2018, as compared to $807,000 for the same period in 2017, an increase of $277,000, or 34.3%. 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.

Marketing and corporate relations expenses were $366,000 for the first nine months of 2018, or 14.0% higher, as compared to the same period of 2017. 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 estate expense was $105,000 and $51,000 for the nine months ended September 30, 2018 and 2017, 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 higher expense in 2018 is related to properties with high remediation and carrying costs. Foreclosed assets held for resale expenses or recoveries will vary in the remainder of 2018 depending on the successful closing of sales agreements on some existing properties and the unknown expenses related to new properties acquired.

Other tax expense increased by $108,000, or 18.8%, comparing the nine months ended September 30, 2018 and 2017, due to 2017 recoveries on a sales tax challenge received partially offsetting 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 budget proposals. Supplies and postage expense increased by 9.7% due to variation in timing of sporadic refills and increased New Windsor volume. FDIC and regulatory expense increased 16.0% based on higher net asset base offset by FDIC rate decreases and state regulatory rate increases. Intangible amortization increased 52.4% due to amortization of core deposit intangible from the New Windsor acquisition. Other operating expenses increased by $419,000, or 14.1%, in the first nine months of 2018, as compared to the first nine months of 2017. Increases included increases for electronic delivery and telecommunications for the expanded New Windsor customer base and offices and increased corporate governance expense. Losses, which include the expense of reimbursing debit card customers for unauthorized transactions to their accounts resulting from various merchant database breaches and other third-party fraudulent use, added approximately $90,000 to other expenses in the first nine months of 2018 compared to $70,000 in the first nine months of 2017. 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. The expense related to reimbursements is unpredictable and varying, but ACNB has policies and procedures to limit exposure.

Provision for Income Taxes

The Corporation recognized income taxes of $3,898,000, or 19.1% of pretax income, during the first nine months of 2018, as compared to $2,627,000, or 26.5% of pretax income, during the same period in 2017. A change of tax law statutory rates under the Tax Cuts and Jobs Act lowered the effective tax rate. The variances from the federal statutory rate of 21% and 35% 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, 2018 includes Maryland corporation income taxes. Low-income housing tax credits were $215,000 for the nine months ended September 30, 2018 and 2017, respectively.

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FINANCIAL CONDITION

Assets totaled $1,647,799,000 at September 30, 2018, compared to $1,595,432,000 at December 31, 2017, and $1,607,635,000 at September 30, 2017. Average earning assets during the nine months ended September 30, 2018, increased to $1,487,560,000 from $1,262,000,000 during the same period in 2017. Average interest bearing liabilities increased in 2018 to $1,160,675,000 from $1,002,000,000 in 2017, while average non-interest bearing deposits increased by $74,730,000.

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 from the New Windsor acquisition (available for sale fair value at acquisition of $21,624,000) net of purchases and matured securities to provide proper collateral for public deposits. Investing into investment security portfolio assets over the last 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 are 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, 2018, the securities balance included a net unrealized loss on available for sale securities of $3,199,000, net of taxes, on amortized cost of $167,089,000 versus a net unrealized loss of $957,000, net of taxes, on amortized cost of $160,290,000 at December 31, 2017, and a net unrealized gain of $40,000, net of taxes, on amortized cost of $158,330,000 at September 30, 2017. The change in fair value of available for sale securities during 2018 was a result of the securities acquired from New Windsor and the higher amount of investments in the available for sale portfolio, offset by a decrease in fair value from an increase in the U.S. Treasury yield curve rates and the spread from this yield curve required by investors on the types of investment securities that ACNB owns. The Federal Reserve ceased their rate-decreasing Quantitative Easing program in 2014 and increased the fed funds rate in mid-December 2015 through 2018 that has caused the U.S. Treasury yield curve to increase in the time relevant to the investment securities in the Corporation’s portfolio as of September 30, 2018. Previously, after a prolonged period of inaction by the Federal Reserve after lowering rates on the yield curve most conducive to stimulating the housing market and to boost employment and consumption was augmented by a combination of weak domestic and international economic conditions, leading to generally lower rates on the yield curve. However, fair values were volatile on any given day in all periods presented and such volatility will continue.

At September 30, 2018, the securities balance included held to maturity securities with an amortized cost of $33,517,000 and a fair value of $32,767,000, as compared to an amortized cost of $44,829,000 and a fair value of $44,549,000 at December 31, 2017, and an amortized cost of $47,369,000 and a fair value of $47,373,000 at September 30, 2017. The held to maturity securities are U.S. government agency debentures and pass-through mortgage-backed securities in which the full payment of principal and interest is guaranteed; however, they were not classified as available for sale because these securities are generally used as required collateral for certain eligible government accounts or repurchase agreements. They are also held for possible pledging to access additional liquidity for banking subsidiary needs in the form of FHLB borrowings. No held to maturity securities were acquired from New Windsor.

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 8 — “Securities” in the Notes to Consolidated Financial Statements for more information on the security portfolio and Note 10 — “Fair Value Measurements” in the Notes to Consolidated Financial Statements for more information about fair value.

Loans

Loans outstanding increased by $36,076,000, or 2.9%, from September 30, 2017, to September 30, 2018, and increased by $28,276,000, or 2.3%, from December 31, 2017, to September 30, 2018. The low growth year to date is attributable to intense competition and early payoffs. The year over year increase in loan volume was primarily from the fair value acquired from New Windsor of $263,450,000 at July 1, 2017 and the balance was a net increase of new loans net of payoff and paydowns.

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These results came from the determined efforts by management to lend to creditworthy borrowers subject to the Corporation’s disciplined underwriting standards, despite intense competition. In all periods, residential real estate lending and refinance activity was slow and commercial loans were subject to refinancing to competition for different rates or terms. As a normal course of business, more payoffs are anticipated in the remainder of 2018 from either customers’ cash reserves or refinancing at competing banks. Nonetheless, during the first nine months of 2018, total commercial purpose loans slightly increased while local market portfolio residential mortgages increased but to a lesser extent. Total commercial purpose segments increased $23,479,000, or 3.4%, as compared to December 31, 2017. 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 bank qualified for mostly tax free interest income treatment for federal income taxes. These loans totaled $89,119,000 at September 30, 2018, an increase of 1% from $88,484,000 held at the end of 2017 as these loans are especially subject to refinancing. Residential real estate mortgage lending, which includes smaller commercial purpose loans secured by the owner’s home, increased by $6,529,000, or 1.2%, as compared to December 31, 2017. These loans are to local borrowers who preferred loan types that would not be sold into the secondary mortgage market. Of the $540,214,000 total in residential mortgage loans at September 30, 2018, $142,320,000 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 comprise 1.1% of the portfolio, with automobile-secured loans representing 0.0% of the portfolio.

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 $278,767,000, or 21.9% of total loans, at September 30, 2018. 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 not impaired, a specific reserve allocation is not required. Management then places the loan 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;

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·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;

·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.

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.

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 2018 and the resulting allowance at September 30, 2018, 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 decreased since 2017 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, 2018. The amount of unallocated portion of the allowance was decreased at September 30, 2018 as management concluded that the loan portfolio exhibited continued general improvement in quantitative and qualitative measurements. This assessment concluded that credit quality was stable, charge offs were low, and past due loans manageable.

Management believes the above methodology accurately 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 improvement in the credit quality in the loan portfolio. The provision for year-to-date September 30, 2018 and 2017, was $770,000 and $0, respectively. More specifically, even though total loans increased and the provision expense increased, the allowance for loan losses was derived with data that most 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).

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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.

The allowance for loan losses at September 30, 2018, was $13,414,000, or 1.05% of loans, as compared to $14,105,000, or 1.14% of loans, at September 30, 2017, and $13,976,000, or 1.12% of loans, at December 31, 2017. The decrease from prior periods resulted from charge-offs exceeding recoveries and provisions, as shown in the table below. In the following discussion, acquired loans from 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 9 — “Loans” in the Notes to Consolidated Financial Statements.

Changes in the allowance for loan losses were as follows:

In thousands	Nine Months Ended September 30, 2018			Year Ended December 31, 2017			Nine Months Ended September 30, 2017
Beginning balance - January 1	$	13,976		$	14,194		$	14,194
Provisions charged to operations	770			—			—
Recoveries on charged-off loans	167			243			183
Loans charged-off	(1,499		)	(461		)	(272		)
Ending balance	$	13,414		$	13,976		$	14,105

Loans past due 90 days and still accruing were $2,342,000 and nonaccrual loans were $3,962,000 as of September 30, 2018. $2,527,000 of the nonaccrual balance at September 30, 2018, were in troubled debt restructured loans. $3,907,000 of the impaired loans were accruing troubled debt restructured loans. Loans past due 90 days and still accruing were $1,626,000 at September 30, 2017, while nonaccruals were $6,695,000. $3,434,000 of the nonaccrual balance at September 30, 2017, was in troubled debt restructured loans. $3,939,000 of the impaired loans were accruing troubled debt restructured loans. Loans past due 90 days and still accruing were $1,507,000 at December 31, 2017, while nonaccruals were $6,355,000. $3,405,000 of the nonaccrual balance at December 31, 2017, were in troubled debt restructured loans. $3,982,000 of the impaired loans were accruing troubled debt restructured loans. Total additional loans classified as substandard (potential problem loans) at September 30, 2018, September 30, 2017, and December 31, 2017, were approximately $1,406,000, $8,029,000 and $1,064,000, respectively.

The acquisition of New Windsor loans at fair value did not require a provision expense. More specifically, even with the manageable level of nonaccrual loans and with substandard loans in the third quarter of 2018, a $200,000 provision addition to the allowance was necessary due to the level of charge-offs making the total provision for the year to date of $770,000. 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.

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Information on nonaccrual loans, by collateral type rather than loan class, at September 30, 2018, as compared to December 31, 2017, is as follows:

Dollars in thousands	Number of Credit Relationships	Balance		Specific Loss Allocations		Current Year Charge-Offs		Location	Originated
September 30, 2018
Owner occupied commercial real estate	7	$	3,281	$	—	$	33	In market	1995 - 2012
Investment/rental residential real estate	1	533		—		376		In market	2003 - 2011
Commercial and industrial	—	—		—		809		In market	2006 - 2015
Total	8	$	3,814	$	—	$	1,218
December 31, 2017
Owner occupied commercial real estate	9	4,378		60		—		In market	1995 - 2012
Investment/rental residential real estate	2	478		377		—		In market	2003 - 2011
Commercial and industrial	3	1,499		792		—		In market	2006 - 2015
Total	14	$	6,355	$	1,229	$	—

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 areas of northern Maryland. All nonaccrual impaired loans were originated by ACNB’s banking subsidiary, except for one participation loan discussed below, between 1995 and 2015 for purposes listed in the classifications in the table above.

Owner occupied commercial real estate and construction at September 30, 2018, includes seven unrelated loan relationships, all of which, except for a $2,256,000 loan relationship for a retreat property, have balances of less than $431,000 each, for which the real estate is collateral and is used in connection with a business enterprise that is suffering economic stress or is out of business. The retreat property loan originated in 2008 was added to nonaccrual in the second quarter of 2017 and is supported by adequate collateral. One of two improved parcels is being actively marketed for sale. Another property added in the second quarter of 2017 is an $832,000 loan with modified terms and conditions originated in 2011 secured by a tourism related lodging real estate that was assigned $60,000 in specific allocation based on a sales contract. The property was sold in 2018 at a smaller loss. A third property added in the second quarter 2017 was a $597,000 loan relationship ($444,000 in commercial and industrial and $153,000 in owner occupied commercial real estate) with normal terms and conditions secured by a construction business assets that was charged off in 2018 with a $367,000 loss. The other loans in this category were originated between 1995 and 2012 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.

Investment/rental residential real estate at September 30, 2018, includes one loan relationships totaling $533,000 for which the real estate is collateral and the purpose of which is for speculation, rental, or other non-owner occupied uses. One loan with multiple separate rental houses was added in the second quarter of 2016 and the $376,000 specific loss allocation was charged off in 2018. One unrelated loan for approximately $101,000 in this category at April 2015, was stayed from further foreclosure action by a bankruptcy filing.

All impaired commercial and industrial loans at September 30, 2018 were settled, one participation loan with standard terms and conditions including repayment from conversion of trade assets for a business in southcentral Pennsylvania in Chapter 11 bankruptcy that has a balance of $0 after $1,717,000 in principal payments since it was moved to nonaccrual in the third quarter of 2014 after becoming delinquent. An unrelated $868,000 commercial loan relationship to finance a subcontract and change orders was moved to nonaccrual in the fourth quarter of 2016 with a $517,000 specific allocation when part of the amount due to the subcontractor to perform on the loan was in dispute with the contractor and continues to be litigated.

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The loan was settled in the second quarter of 2018 with a $442,000 charge off.

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 (or lack thereof) for 2018 and 2017 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 of $53,000 was recognized in the first nine months of 2018. A reduction of lease expense of $53,000 was recognized in the first nine months of 2017. ACNB valued six buildings acquired from New Windsor at $8,624,000 at July 1, 2017.

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 $63,000 for one property and borrower at September 30, 2018, compared to $436,000 for three unrelated properties and borrowers at December 31, 2017. The decrease in the carrying value was due to the properties sold in 2018. All properties are being actively marketed. The Corporation expects to obtain and market additional foreclosed assets through the remainder of 2018; 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 $1,347,243,000 as of September 30, 2018. Deposits increased by $35,359,000, or 2.7%, from September 30, 2017, to September 30, 2018, and increased by $48,751,000, or 3.8%, from December 31, 2017, to September 30, 2018. Deposits acquired from New Windsor totaled $293,333,000 on July 1, 2017. Deposits vary between quarters mostly reflecting different levels held by local government and school districts during different times of the year. ACNB’s deposit pricing function employs a disciplined pricing approach based upon alternative funding rates, but also strives to price deposits to be competitive with relevant local competition, including a local government investment trust, credit unions and larger regional banks. During the recession and subsequent slow recovery, deposit growth mix experienced a shift to transaction accounts as customers put more value in liquidity and FDIC insurance. Products, such as money market accounts and interest-bearing transaction accounts that had suffered declines in past years, continued with recovered balances; however, more recent trends suggest a return to more normal, lower balances. ACNB’s ability to maintain and add to its deposit base may be impacted by the reluctance of consumers to accept low rates and by competition willing to pay above market rates to attract market share. Alternatively, if rates rise rapidly and the equity markets recover, funds could leave the Corporation or be priced higher to maintain deposits.

Borrowings

Short-term borrowings are comprised primarily of securities sold under agreements to repurchase and short-term borrowings from the FHLB. As of September 30, 2018, short-term borrowings were $38,525,000, as compared to $36,908,000 at December 31, 2017, and $33,806,000 at September 30, 2017. 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 2017, repurchase agreement balances were up $1,617,000, or 4.4%, due to changes in the cash flow position of ACNB’s commercial and local government customer base and competition from non-bank sources. There were no short-term FHLB borrowings at September 30, 2018, December 31, 2017, and September 30, 2017.

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Short-term FHLB borrowings are used to even out funding from seasonal and daily fluctuations in the deposit base. Long-term borrowings consist of longer-term advances from the FHLB that provides term funding of loan assets, and Corporate borrowings that were acquired or originated in regards to the acquisition of New Windsor. Long-term borrowings totaled $84,725,000 at September 30, 2018, versus $94,600,000 at December 31, 2017, and $96,850,000 at September 30, 2017. The Corporation decreased long-term borrowings 12.5% from September 30, 2017. A $4.6 million borrowing from a local bank was made to fund cash payment to shareholders of the New Windsor acquisition and Russell Insurance Group, Inc. borrowed $1,000,000 from a local bank at the end of the third quarter 2018 to fund an impending book of business purchase. $11.0 million was the net decrease to FHLB borrowings to balance loan demand and deposit growth. Laddered FHLB fixed-rate term advances were taken in 2018 to mature from 2021 to 2022 to reduce net liability sensitivity. In addition, $5 million was subordinated debt acquired from New Windsor. 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 stockholders, while maintaining its “well-capitalized” regulatory position in relationship to its risk exposure. Total stockholders’ equity was $164,512,000 at September 30, 2018, compared to $153,966,000 at December 31, 2017, and $153,256,000 at September 30, 2017. Stockholders’ equity increased in the first nine months of 2018 by $10,546,000 due to $11,899,000 in earnings retained in capital.

The acquisition of New Windsor resulted in 938,360 new ACNB shares issued to the New Windsor shareholders valued at $28,620,000 in 2017.

A $1,943,000 increase in accumulated other comprehensive loss was a result of a net increase in the fair value of the investment portfolio and 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.

The primary source of additional capital to ACNB is earnings retention, which represents net income less dividends declared. During the first nine months of 2018, ACNB earned $16,459,000 and paid dividends of $4,642,000 for a dividend payout ratio of 28.2%. During the first nine months of 2017, ACNB earned $7,271,000 and paid dividends of $3,829,000 for a dividend payout ratio of 52.7%.

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, 2018, 11,822 shares were issued under this plan with proceeds in the amount of $391,000. Year-to-date September 30, 2017, 10,954 shares were issued under this plan with proceeds in the amount of $258,000. Proceeds are 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. To date, 26,045 shares were issued under this plan. Proceeds are used for general corporate purposes.

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, 2018, and December 31, 2017, 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.

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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, 2018, 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.

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Risk-Based Capital

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

The banking subsidiary’s capital ratios are as follows:

	September 30, 2018		December 31, 2017		To Be Well Capitalized Under Prompt Corrective Action Regulations
Tier 1 leverage ratio (to average assets)	9.29	%	8.70	%	5.00	%
Common Tier 1 capital ratio (to risk-weighted assets)	12.75	%	12.34	%	6.50	%
Tier 1 risk-based capital ratio (to risk-weighted assets)	12.75	%	12.34	%	8.00	%
Total risk-based capital ratio	13.90	%	13.58	%	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, 2018, ACNB’s banking subsidiary had a borrowing capacity of approximately $678,883,000 from the FHLB, of which $582,427,000 was available. Because of various restrictions and requirements on utilizing the available balance, ACNB considers $413,000,000 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 $38,525,000 and $36,908,000 at September 30, 2018, and December 31, 2017, 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 stockholders 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.

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, 2018, the Corporation had unfunded outstanding commitments to extend credit of approximately $289,190,000 and outstanding standby letters of credit of approximately $4,479,000. 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.

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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.

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 must comply 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 reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018. ACNB anticipates that this tax rate change should reduce its federal income tax liability in future years beginning with 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.

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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 broadens 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.

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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.

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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 2017. For further discussion of year-end information, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

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, 2018, 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, 2018, 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, 2017. There are no material changes in the risk factors as previously disclosed in the Form 10-K.

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

On November 3, 2008, the Corporation announced a plan to purchase up to 120,000 shares of its outstanding common stock. There were no treasury shares purchased under this plan during the quarter ended September 30, 2018. The maximum number of shares that may yet be purchased under this stock repurchase plan is 57,400.

On May 5, 2009, stockholders 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, 2018, there were 26,045 shares of common stock granted as restricted stock awards to employees of the subsidiary bank. The maximum number of shares that may yet be granted under the restricted stock plan is 173,955. 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.

On May 5, 2009, stockholders 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, 2018, 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 stockholders 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, 2018, there were 149,476 shares of common stock issued through the ACNB Corporation Dividend Reinvestment and Stock Purchase Plan.

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 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 May 7, 2018.)
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 Thomas A. Ritter, James P. Helt, David W. Cathell, Lynda L. Glass and Douglas A. Seibel. (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 Richard L. Alloway II, Frank Elsner, III, Todd L. Herring, Scott L. Kelley, James J. Lott, Donna M. Newell, J. Emmett Patterson, 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 Richard L. Alloway II, Frank Elsner, III, Todd L. Herring, Scott L. Kelley, James J. Lott, Donna M. Newell, J. Emmett Patterson, Marian B. Schultz, David L. Sites, 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 Thomas A. Ritter dated as of December 31, 2008. (Incorporated by reference to Exhibit 10.9 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.)

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Exhibit 10.8	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 10.9	Employment Agreement between ACNB Corporation, Russell Insurance Group, Inc. and Frank C. Russell, Jr. dated as of January 13, 2011. (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K, filed with the Commission on January 19, 2011.)
Exhibit 10.10	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 10.11	2009 Restricted Stock Plan. (Incorporated by reference to Appendix C of the Registrant’s Proxy Statement on Schedule 14A, filed with the Commission on March 25, 2009.)
Exhibit 10.12	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 10.13	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 10.14	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 10.15	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 10.16	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 10.17	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 10.18	ACNB Bank Variable Compensation Plan effective January 1, 2014, as amended. (Incorporated by reference to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Commission on March 9, 2018.)
Exhibit 10.19	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 10.20	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 10.21	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.)

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Exhibit 10.22	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 10.23	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 10.24	Employment Agreement by and between ACNB Bank and Douglas A. Seibel dated as of November 15, 2016. (Incorporated by reference to Exhibit 10.28 of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Commission on March 9, 2018.)
Exhibit 10.25	Amended and Restated Employment Agreement by and between ACNB Corporation, ACNB Bank and James P. Helt dated as of August 14, 2018.
Exhibit 11	Statement re Computation of Earnings. (Incorporated by reference to page 11 of this Form 10-Q.)
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.
Exhibit 101.SCH	XBRL Taxonomy Extension Schema.
Exhibit 101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase.

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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 2, 2018	/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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EX-10.25

Exhibit 10.25

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”) is made as of the 14th day of August, 2018, between ACNB Corporation (“Corporation”), a Pennsylvania business corporation having a principle place of business at 16 Lincoln Square, Gettysburg, Pennsylvania, 17325, ACNB BANK (“Bank”), a Pennsylvania state-chartered bank having a principle place of business at 16 Lincoln Square, Gettysburg, Pennsylvania, 17325, and James P. Helt (“Executive”), an individual residing in Pennsylvania.

WITNESSETH:

WHEREAS, the Bank is a subsidiary of the Corporation;

WHEREAS, on April 15, 2009, Executive entered into an employment agreement with the Bank, which was amended on December 27, 2016 (“2009 Employment Agreement”);

WHEREAS, in addition to previously being named President of the Bank, effective May 5, 2017, Executive was also appointed President and Chief Executive Officer of the Corporation and Chief Executive Officer of the Bank; and

WHEREAS, the parties would like to enter into an amended and restated employment agreement to reflect the change in Executive’s position, at which time the 2009 Employment Agreement and any amendments thereto will be null and void and without further effect.

AGREEMENT:

NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:

1.Employment.

The Bank hereby employs Executive and Executive hereby accepts employment with the Bank, under the terms and conditions set forth in this Agreement.

2.Duties of Executive.  Executive shall serve as the President and Chief Executive Officer of the Corporation and the Bank reporting only to the Board of Directors.  Executive shall have such other duties and hold such other titles as may be given to him from time to time by the Board of Directors provided that such duties are consistent with the Executive’s position as President and Chief Executive Officer.

3.Engagement in Other Employment.  Executive shall devote all of his working time, ability and attention to the business of the Bank and/or its subsidiaries or affiliates during the term of this Agreement.  The Executive shall notify the Board of Directors of the Bank in writing before the Executive engages in any other business or commercial duties or pursuits, including but not limited to, directorships of other companies.  Under no circumstances may the Executive engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of the Corporation, the Bank and/or any of their subsidiaries or affiliates, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with the Corporation, the Bank and/or any of their subsidiaries or affiliates.

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Executive shall not be precluded, however, upon written notification to the Board of Directors, from engaging in voluntary or philanthropic endeavors, from engaging in activities designed to maintain and improve his professional skills, or from engaging in activities incident or necessary to personal investments, so long as they are, in the Board’s reasonable opinion, not in conflict with or detrimental to the Executive’s rendition of services on behalf of the Corporation, the Bank and/or any of their subsidiaries or affiliates.

4.Term of Agreement.

(a)This Agreement shall be for a three (3) year period (the “Employment Period”) beginning on the date first written above, and if not previously terminated pursuant to the terms of this Agreement, the Employment Period shall end three (3) years later (the “Initial Term”).  The Employment Period shall be extended automatically for one (1) additional year on the first annual anniversary date of the commencement of the Initial Term (the date first above written), and then on each anniversary date of this Agreement thereafter, unless the Bank or Executive gives contrary written notice to the other not less than one hundred eighty (180) days before any such anniversary date so that upon the anniversary date if notice had not been previously given as provided in this Section 4(a), the Employment Period shall be and continue for a three (3) year period thereafter.  References in the Agreement to “Employment Period” shall refer to the Initial Term of this Agreement and any extensions to the Initial Term of this Agreement.  It is the intention of the parties that this Agreement be “Evergreen” unless (i) either party gives written notice to the other party of his or its intention not to renew this Agreement as provided above or (ii) this Agreement is terminated pursuant to Section 4(b) hereof.

(b)Notwithstanding the provisions of Section 4(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein) upon written notice from the Board of Directors of the Bank to Executive.  As used in this Agreement, “Cause” shall mean any of the following:

(i)Executive’s conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of twenty (20) consecutive days or more;

(ii)Executive’s failure to follow the good faith lawful instructions of the Board of Directors of the Bank with respect to its operations, after written notice from the Bank and a failure to cure such violation within thirty (30) days of said written notice;

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(iii)Executive’s willful failure to substantially perform Executive’s duties to the Bank, other than a failure resulting from Executive’s incapacity because of physical or mental illness, as provided in subsection (d) of this Section 4, after written notice from the Bank and a failure to cure such violation within thirty (30) days of said written notice;

(iv)Executive’s intentional violation of the provisions of this Agreement, after written notice from the Bank and a failure to cure such violation within thirty (30) days of said written notice;

(v)dishonesty or gross negligence of the Executive in the performance of his duties;

(vi)Executive’s removal or prohibition from being an institutional-affiliated party by a final order of an appropriate federal banking agency pursuant to Section 8(e) or 8(g) of the Federal Deposit Insurance Act or by an appropriate banking regulatory agency;

(vii)conduct by the Executive as determined by an affirmative vote of seventy-five percent (75%) of the disinterested members of the Board of Directors of the Bank which brings public discredit to the Corporation or the Bank and which results or may be reasonably expected to result in material financial or other harm to the Corporation or the Bank;

(viii)Executive’s breach of fiduciary duty involving personal profit;

(ix)unlawful harassment by the Executive against employees, customers, business associates, contractors, or vendors of the Corporation or the Bank which results or may be reasonably expected to result in material liability to the Corporation or the Bank, as determined by an affirmative vote of seventy-five percent (75%) of the disinterested independent members of the Board of Directors of the Bank, following an investigation of the claims by a third party unrelated to the Corporation or Bank chosen by the Executive, the Corporation and the Bank.  If the Executive, the Corporation and the Bank do not agree on said third party, then as chosen by an affirmative vote of seventy-five percent (75%) of the disinterested independent members of the Board of Directors of the Corporation;

(x)the willful violation by the Executive of the provisions of Section 9, 10, or 11 hereof, after written notice from the Bank and a failure to cure such violation within thirty (30) days of said written notice;

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(xi)the willful violation of any law, rule or regulation governing banks or bank officers or any final cease and desist order issued by a bank regulatory authority;

(xii)theft or abuse by Executive of the Corporation’s or the Bank’s property or the property of the Corporation’s or the Bank’s customers, employees, contractors, vendors, or business associates;

(xiii)any act of fraud, misappropriation or personal dishonesty;

(xiv)insubordination as determined by an affirmative vote of seventy-five percent (75%) of the Board of Directors of the Bank, after written notice from the Bank and a failure to cure such violation within thirty (30) days of said written notice; or,

(xv)the existence of any material conflict between the interests of the Corporation or the Bank and the Executive that is not disclosed in writing by the Executive to the Corporation and the Bank and approved in writing by the Boards of Directors of the Corporation and the Bank.

(xvi)Before taking any vote under subparagraphs (vii), (ix) or (xiv) above, all which require notice, Executive shall be entitled to appear before the Board and present Executive’s position as to any issues about which Executive has been notified by the Board in writing.  Such appearance shall be within a reasonable period of time following written notice to Executive of the issues but in no event longer than thirty (30) days after the date of said written notice.

If this Agreement is terminated for Cause, all of Executive’s rights under this Agreement shall cease as of the effective date of such termination, except for the rights under Paragraph 19 hereof with respect to arbitration.

(c)Notwithstanding the provisions of Section 4(a) of this Agreement, this Agreement shall terminate automatically upon Executive’s voluntary termination of employment (other than in accordance with Section 6 of this Agreement) for Good Reason.  The term “Good Reason” shall mean unless agreed to in writing by the Executive (i) the assignment of duties and responsibilities inconsistent with Executive’s status as President and Chief Executive Officer, (ii) a reassignment which requires Executive to move his principal residence or his office more than fifty (50) miles from the Bank’s principal executive office immediately prior to this Agreement, (iii) any removal of the Executive from office or any adverse change in the terms and conditions of the Executive’s employment, except for any termination of the Executive’s employment, (iv) any reduction in the Executive’s Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time, or (v) any failure of the Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive during the Employment Period under any of the pension, life insurance, medical, health and accident, disability or other employee plans of the Bank, or the taking of any action that would materially reduce any of such benefits unless such reduction is part of a reduction applicable to all employees.

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Executive shall, within ninety (90) days of the occurrence of any of the foregoing events, provide notice to the Bank of the existence of the condition and provide the Bank thirty (30) days in which to cure such condition.  In the event that the Bank does not cure the condition within thirty (30) days of such notice, Executive may resign from employment for Good Reason by delivering written notice to the Corporation and the Bank.

If such termination occurs for Good Reason, then the Bank shall pay Executive an amount equal to and no greater than 2.99 times the Executive’s Agreed Compensation as defined in subsection (g) of Section 4, and shall be payable in thirty-six (36) equal monthly installments and shall be subject to federal, state and local tax withholdings.  In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if the Bank cannot provide such benefits because Executive is no longer an employee, the Bank shall reimburse Executive in an amount equal to the monthly premium paid by him to obtain substantially similar employee benefits which he enjoyed prior to termination, subject to Code Section 409A if applicable.  However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, the Bank will pay to Executive an additional cash payment (“Gross-up Payment”) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or excise tax on such Gross-up Payment) will be equal to the amount of the excise tax.

Notwithstanding any other provision, in the event that Executive is determined to be a specified employee as that term is defined in Section 409A of the Code, no payment that is determined to be deferred compensation subject to Section 409A of the Code shall be made until one (1) day following six (6) months from the date of separation of service as that term is defined in Section 409A of the Code.

(d)Notwithstanding the provisions of Section 4(a) of this Agreement, this Agreement shall terminate automatically upon Executive’s Disability and Executive’s rights under this Agreement shall cease as of the date of such termination; provided, however, that Executive shall nevertheless be entitled to receive an amount equal to and no greater than seventy-five percent (75%) of the Executive’s Agreed Compensation as defined in subsection (g) of this Section 4, less amounts payable under any disability plan of the Bank, until the earliest of (i) Executive’s return to employment, (ii) his attainment of age sixty-five (65), (iii) his death, or (iv) the end of the then existing Employment Period.

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In addition, Executive shall receive for such period a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his disability, or, if the Bank cannot provide such benefits because Executive is no longer an employee, the Bank shall reimburse Executive in an amount equal to the monthly premium paid by him to obtain substantially similar employee benefits which he enjoyed prior to termination, subject to Code Section 409A if applicable.  For purposes of this Agreement, the Executive shall have a Disability if, the Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or the Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Bank.  The Executive shall have no duty to mitigate any payment provided for in this Section 4(d) by seeking other employment.

(e)In the event that Executive terminates his employment without Good Reason as defined in Section 4(c), all of Executive’s rights under this Agreement shall cease as of the effective date of such termination, except for the rights under Paragraph 19 hereof with respect to arbitration.

(f)Executive agrees that in the event his employment under this Agreement is terminated, Executive shall resign as a director of the Corporation or the Bank, or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities.

(g)The term “Agreed Compensation” shall equal the sum of (i) the Executive’s highest Annual Base Salary under the Agreement, and (ii) the average of the Executive’s annual bonuses with respect to the three (3) calendar years immediately preceding the Executive’s termination.

5.Employment Period Compensation.

(a)Annual Base Salary.  For services performed by Executive under this Agreement, the Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of $400,000 per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of the Bank.  The Bank may, from time to time, increase Executive’s Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 5(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of the Bank or any committee of such Board in the resolutions authorizing such increases.

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(b)Bonus.  For services performed by Executive under this Agreement, the Bank may, from time to time, pay a bonus or bonuses to Executive as the Bank or an affiliate thereof, in its sole discretion, deems appropriate.  The payment of any such bonuses shall not reduce or otherwise affect any other obligation of the Bank to Executive provided for in this Agreement.

(c)Paid Time-off.  During the term of this Agreement, Executive shall be entitled to paid time-off in accordance with the manner and amount provided under the paid time-off plan currently in effect.  Executive shall be able to accumulate unused paid time-off from one (1) year to the next not to exceed forty-five (45) days in total. However, Executive shall not be entitled to receive any additional compensation from the Bank for failure to take a vacation, except to the extent authorized by the Board of Directors of the Bank.

(d)Employee Benefit Plans.  During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at the Bank, subject to the terms of said plan, until such time that the Board of Directors of the Bank authorize a change in such benefits.  The Bank shall not make any changes in such plans or benefits which would adversely affect Executive’s rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to Executive as compared with any other executive officer of the Bank.  Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 5(a) hereof.

(e)Business Expenses.  During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Board of Directors of the Bank for its executive officers.

6.Termination of Employment Following Change in Control.

(a)If a Change in Control (as defined in Section 6(b) of this Agreement) shall occur and (1) Executive is involuntarily terminated without Cause or (2) at the option of Executive, exercisable by Executive within one hundred eighty (180) days of the Change in Control, the Executive terminates employment and gives notice of the intention to collect benefits under this Agreement by delivering written notice (the “Notice of Termination”) to the Bank, then the provisions of Section 7 of this Agreement shall apply.

7

(b)As used in this Agreement, “Change in Control” shall mean the occurrence of any of the following, provided the event constitutes a change in control within the meaning of Code Section 409A and the rules, regulations, and guidance promulgated thereunder:

(i)  (A) a merger, consolidation or division involving the Corporation or the Bank, (B) a sale, exchange, transfer or other disposition of substantially all of the assets of the Corporation or the Bank, or (C) a purchase by the Corporation or the Bank of substantially all of the assets of another entity, unless after such merger, consolidation, division, sale, exchange, transfer, purchase or disposition a majority of the members of the Board of Directors of the legal entity resulting from or existing after any such transaction (and of the Board of Directors of such entity’s parent corporation, if any,) are former members of the Board of Directors of the Corporation or the Bank; or,

(ii)   any “person” (as such term is defined in Code Section 409A and any Revenue Guidance or Treasury Regulations issued thereunder), other than the Corporation or the Bank or any “person” who on the date hereof is a director or officer of the Corporation or the Bank, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation or the Bank representing thirty (30%) percent or more of the total voting power of the Corporation’s or the Bank’s then outstanding securities; or,

(iii)  during any period of one (1) year during the Employment Period, individuals who at the beginning of such period constitute the Board of Directors of the Corporation or the Bank cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two-thirds (2/3) of the directors then in office who were directors at the beginning of the period.

7.   Rights in Event of Termination Following a Change in Control.

(a)In the event that Executive delivers a Notice of Termination (as defined in Section 6(a) of this Agreement) to the Bank or Executive is involuntarily terminated without Cause after a Change in Control (as defined in Section 6(b) of this Agreement), Executive shall be entitled to receive the compensation and benefits set forth below:

The Bank shall pay Executive a lump sum amount equal to and no greater than 2.99 times the Executive’s Agreed Compensation as defined in subsection (g) of Section 4, minus applicable taxes and withholdings. In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if the Bank cannot provide such benefits because Executive is no longer an employee, the Bank shall reimburse Executive in an amount equal to the monthly premium paid by him to obtain substantially similar employee benefits which he enjoyed prior to termination, subject to Code Section 409A if applicable.

8

However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, the Bank will pay to Executive an additional cash payment (“Gross-up Payment”) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or excise tax on such Gross-up Payment) will be equal to the amount of the excise tax.

Notwithstanding any other provision, in the event that Executive is determined to be a specified employee as that term is defined in Section 409A of the Code, no payment that is determined to be deferred compensation subject to Section 409A of the Code shall be made until one (1) day following six (6) months from the date of separation of service as that term is defined in Section 409A of the Code.

(b)Executive shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise.  Unless otherwise agreed to in writing, the amount of payment or the benefit provided for in this Section 7 shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executive’s receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise.

8.  Rights in Event of Termination of Employment Absent Change in Control.

(a)       In the event that Executive’s employment is involuntarily terminated by the Bank without Cause and no Change in Control shall have occurred at the date of such termination, the Bank shall pay Executive an amount equal to and no greater than 2.99 times the Executive’s Agreed Compensation as defined in subsection (g) of Section 4, and shall be payable in thirty-six (36) equal monthly installments and shall be subject to federal, state and local tax withholdings.  In addition, for a period of two (2) years from the date of termination of employment, or until Executive secures substantially similar benefits through other employment, whichever shall first occur, Executive shall receive a continuation of all life, disability, medical insurance and other normal health and welfare benefits in effect with respect to Executive during the two (2) years prior to his termination of employment, or, if the Bank cannot provide such benefits because Executive is no longer an employee, the Bank shall reimburse Executive in an amount equal to the monthly premium paid by him to obtain substantially similar employee benefits which he enjoyed prior to termination, subject to Code Section 409A if applicable.

9

However, in the event the payment described herein, when added to all other amounts or benefits provided to or on behalf of the Executive in connection with his termination of employment, would result in the imposition of an excise tax under Section 4999 of the Code, the Bank will pay to Executive an additional cash payment (“Gross-up Payment”) in an amount such that the after-tax proceeds of such Gross-up Payment (including any income tax or excise tax on such Gross-up Payment) will be equal to the amount of the excise tax.

Notwithstanding any other provision, in the event that Executive is determined to be a specified employee as that term is defined in Section 409A of the Code, no payment that is determined to be deferred compensation subject to Section 409A of the Code shall be made until one (1) day following six (6) months from the date of separation of service as that term is defined in Section 409A of the Code.

(b)Executive shall not be required to mitigate the amount of any payment provided for in this Section 8 by seeking other employment or otherwise.  Unless otherwise agreed to in writing, the amount of payment or the benefit provided for in this Section 8 shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executive’s receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise.

9.  Covenant Not to Compete.

(a)Executive hereby acknowledges and recognizes the highly competitive nature of the business of the Corporation and the Bank and accordingly agrees that, during and for the applicable period set forth in Section 9(c) hereof, Executive shall not, except as otherwise permitted in writing by the Bank:

(i)  be engaged, directly or indirectly, either for his own account or as agent, consultant, employee, partner, officer, director, proprietor, investor (except as an investor owning less than 5% of the stock of a publicly owned company) or otherwise of any person, firm, corporation or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which the Corporation or the Bank or any of their subsidiaries are engaged during the Employment Period, and remain so engaged at the end of the Employment Period, within a fifty (50) mile radius of the Bank’s principal place of business at 16 Lincoln Square, Gettysburg, Pennsylvania (the “Non-Competition Area”);

(ii) provide financial or other assistance to any person, firm, corporation, or enterprise engaged in (1) the banking (including bank holding company) or financial services industry, or (2) any other activity in which the Corporation or the Bank or any of their subsidiaries are engaged during the Employment Period, in the Non-Competition Area;

10

(iii)  directly or indirectly solicit persons or entities who were customers or referral sources of the Corporation, the Bank or their subsidiaries within six (6) months of Executive’s termination of employment, to become a customer or referral source of a person or entity other than the Corporation, the Bank or their subsidiaries; or,

(iv)   directly or indirectly solicit employees of the Corporation, the Bank or their subsidiaries who were employed within two (2) years of Executive’s termination of employment to work for anyone other than the Corporation, the Bank or their subsidiaries.

(b)It is expressly understood and agreed that, although Executive and the Corporation and the Bank consider the restrictions contained in Section 9(a) hereof reasonable for the purpose of preserving for the Corporation and the Bank and their subsidiaries their goodwill and other proprietary rights, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in Section 9(a) hereof is an unreasonable or otherwise unenforceable restriction against Executive, the provisions of Section 9(a) hereof shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable.

(c)The provisions of this Section 9 shall be applicable, commencing on the date of this Agreement and ending on one of the following dates as applicable:

(i)   if Executive voluntarily terminates his employment in accordance with the provisions of Section 4(e) of this Agreement (relating to termination without Good Reason), the first anniversary date of the effective date of termination of employment;

(ii)  if Executive’s employment terminates in accordance with the provisions of Section 4(b) of this Agreement (relating to termination for Cause), the first anniversary date of the effective date of termination of employment;

(iii)  if the Executive voluntarily terminates his employment in accordance with the provisions of Section 4(c) of this Agreement (relating to termination by Executive for Good Reason), the second anniversary date of the effective date of termination of employment;

(iv)  if the Executive’s employment is involuntarily terminated in accordance with the provisions of Section 6 of this Agreement (relating to involuntary termination without Cause following a Change in Control), the second anniversary date of the effective date of termination of employment; or,

11

(v)  if the Executive’s employment is involuntarily terminated in accordance with the provisions of Section 8 of this Agreement (relating to involuntary termination without Cause absent a Change in Control), the second anniversary date of the effective date of termination of employment.

10.Unauthorized Disclosure.  During the Employment Period, or at any later time, the Executive shall not, without the written consent of the Board of Directors of the Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of the Corporation or the Bank or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Bank, any material confidential information obtained by him while in the employ of the Bank with respect to any of the Corporation’s and the Bank’s services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be damaging to the Corporation or the Bank; provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Corporation and the Bank or any information that must be disclosed as required by law.

11.Work Made for Hire.  Any work performed by the Executive under this Agreement should be considered a “Work Made for Hire” as the phrase is defined by the U.S. copyright laws and shall be owned by and for the express benefit of the Bank and its affiliates and subsidiaries.  In the event it should be established that such work does not qualify as a Work Made for Hire, the Executive agrees to and does hereby assign to the Bank, and its affiliates and subsidiaries, all of his rights, title, and/or interest in such work product, including, but not limited to, all copyrights, patents, trademarks, and propriety rights.

12.Return of Company Property and Documents.  The Executive agrees that, at the time of termination of his employment, regardless of the reason for termination, he will deliver to the Bank and its affiliates and subsidiaries, any and all company property, including, but not limited to, keys, security codes or passes, mobile telephones, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, software programs, equipment, other documents or property, or reproductions of any of the aforementioned items developed or obtained by the Executive during the course of his employment.

13.Liability Insurance.  The Bank shall obtain liability insurance coverage for the Executive under an insurance policy with similar terms as that which is currently covering officers and directors of the Bank against lawsuits, arbitrations or other legal or regulatory proceedings.

12

14.Notices.  Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and if mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive’s residence, in the case of notices to Executive, and to the principal executive office of the Corporation and Bank, in the case of notices to the Corporation and the Bank.

15.Waiver.  No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Board of Directors of the Corporation and the Bank.  No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

16.Assignment.  This Agreement shall not be assignable by any party, except by the Corporation or the Bank to any successor in interest to its business.

17.Entire Agreement.  This Agreement supersedes any and all agreements, either oral or in writing, between the parties with respect to the employment of the Executive by the Bank and/or the Corporation and this Agreement contains all the covenants and agreements between the parties with respect to employment. This Agreement specifically releases all parties of any rights and obligations under the Executive Employment Agreement of April 15, 2009, and all amendments thereto, and said agreement and amendments are hereafter null and void.

18.Successors; Binding Agreement.

(a)The Corporation or the Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of the Corporation and the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession had taken place.  Failure by the Corporation and the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 7 of this Agreement shall apply.  As used in this Agreement, “Corporation” and “Bank” shall mean the Corporation and the Bank, as defined previously and any successor to their respective businesses and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

(b)This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees.  If Executive should die after a Notice of Termination is delivered by Executive, after a Change in Control, or following termination of Executive’s employment without Cause or for Good Reason, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee, or, if there is no such designee, to Executive’s estate.

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19.Arbitration.  The Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time. Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement (except for any enforcement sought with respect to Sections 9, 10, 11 or 12 which may be litigated in court, including an action for injunction or other relief) are to be submitted for resolution, in Gettysburg, Pennsylvania, to the American Arbitration Association (the “Association”) in accordance with the Association’s National Rules for the Resolution of Employment Disputes or other applicable rules then in effect (“Rules”).  The Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules.  The Bank and Executive may, as a matter of right, mutually agree on the appointment of a particular arbitrator from the Association’s pool.  The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement.  The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction.  Following written notice of a request for arbitration, the Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein or any enforcement sought with respect to Sections 9, 10, 11 or 12 of this Agreement, including an action for injunction or other relief.

20.Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

21.Applicable Law.  This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles.

22.Headings.  The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.

14

IN WITNESS WHEREOF, the Parties, intending to be legally bound hereby, have caused this Amended and Restated Employment Agreement to be duly executed in their respective names and, in the case of the Corporation and the Bank, by its authorized representative, effective on the day and year first above written.

ATTEST:	ACNB CORPORATION
/s/ Lynda L. Glass	By	/s/ Frank Elsner III
		Frank Elsner III
		Chairman of the Board
	ACNB BANK
/s/ Lynda L. Glass	By	/s/ Frank Elsner III
		Frank Elsner III
		Chairman of the Board
WITNESS:	EXECUTIVE
/s/ Frank Elsner III	/s/ James P. Helt
	James P. Helt

15

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, James P. Helt, certify that:

1.I have reviewed this report on Form 10-Q of ACNB Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and,

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and,

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and,

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 2, 2018	By:	/s/ James P. Helt
			James P. Helt
			President & Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, David W. Cathell, certify that:

1.I have reviewed this report on Form 10-Q of ACNB Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and,

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and,

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and,

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 2, 2018	By:	/s/ David W. Cathell
			David W. Cathell
			Executive Vice President/Treasurer & Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of ACNB Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, James P. Helt, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and,

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

		By:	/s/ James P. Helt
			James P. Helt
			President & Chief Executive Officer
Date:	November 2, 2018

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Quarterly Report of ACNB Corporation (the “Company”) on Form 10-Q for the period ending September 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, David W. Cathell, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and,

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

		By:	/s/ David W. Cathell
			David W. Cathell
			Executive Vice President/Treasurer & Chief Financial Officer (Principal Financial Officer)
Date:	November 2, 2018

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 01, 2018
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Entity Emerging Growth Company	false
Entity Small Business	true
Document Period End Date	Sep. 30, 2018
Entity Registrant Name	ACNB CORP
Entity Central Index Key	0000715579
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,042,224
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
ASSETS
Cash and due from banks	$ 18,145	$ 19,304	$ 17,882
Interest bearing deposits with banks	45,551	15,137	31,609
Total Cash and Cash Equivalents	63,696	34,441	49,491
Equity securities with readily determinable fair values	1,743	0	0
Debt securities available for sale	162,957	159,051	158,392
Securities held to maturity, fair value $32,767; $47,373; $44,549	33,517	44,829	47,369
Loans held for sale	1,112	1,736	1,873
Loans, net of allowance for loan losses $13,414; $14,105; $13,976	1,259,032	1,230,194	1,222,265
Premises and equipment	26,097	26,774	26,590
Restricted investment in bank stocks	4,529	4,773	4,821
Investment in bank-owned life insurance	46,242	44,935	44,666
Investments in low-income housing partnerships	2,096	2,446	2,587
Goodwill	19,580	19,580	19,580
Intangible assets	2,628	2,569	2,752
Foreclosed assets held for resale	63	436	275
Other assets	24,507	23,668	26,974
Total Assets	1,647,799	1,595,432	1,607,635
Deposits:
Non-interest bearing	292,389	279,413	273,853
Interest bearing	1,054,854	1,019,079	1,038,031
Total Deposits	1,347,243	1,298,492	1,311,884
Short-term borrowings	38,525	36,908	33,806
Long-term borrowings	84,725	94,600	96,850
Other liabilities	12,794	11,466	11,839
Total Liabilities	1,483,287	1,441,466	1,454,379
STOCKHOLDERS’ EQUITY
Preferred stock, $2.50 par value; 20,000,000 shares authorized; no shares outstanding	0	0	0
Common stock, $2.50 par value; 20,000,000 shares authorized; 7,104,824, 7,082,245 and 7,086,258 shares issued; 7,042,224, 7,019,645 and 7,023,658 shares outstanding	17,762	17,716	17,705
Treasury stock, at cost (62,600 shares)	(728)	(728)	(728)
Additional paid-in capital	38,321	37,777	37,671
Retained earnings	118,192	106,293	103,997
Accumulated other comprehensive loss	(9,035)	(7,092)	(5,389)
Total Stockholders’ Equity	164,512	153,966	153,256
Total Liabilities and Stockholders’ Equity	$ 1,647,799	$ 1,595,432	$ 1,607,635

XML

CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Statement of Financial Position [Abstract]
Securities held to maturity, fair value	$ 32,767	$ 44,549	$ 47,373
Allowance for loan losses	$ 13,414	$ 13,976	$ 14,105
Preferred stock, par value (in dollars per share)	$ 2.50	$ 2.50	$ 2.50
Preferred stock, shares authorized	20,000,000	20,000,000	20,000,000
Preferred stock, shares outstanding	0	0	0
Common stock, par value (in dollars per share)	$ 2.50	$ 2.50	$ 2.50
Common stock, shares authorized	20,000,000	20,000,000	20,000,000
Common stock, shares issued	7,104,824	7,086,258	7,082,245
Common stock, shares outstanding	7,042,224	7,023,658	7,019,645
Treasury stock, shares	62,600	62,600	62,600

XML

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
INTEREST AND DIVIDEND INCOME
Loans, including fees	$ 14,966	$ 13,990	$ 43,746	$ 33,484
Securities:
Taxable	929	890	2,761	2,474
Tax-exempt	51	85	175	352
Dividends	77	61	229	174
Other	259	83	490	120
Total Interest Income	16,282	15,109	47,401	36,604
INTEREST EXPENSE
Deposits	1,341	1,080	3,681	2,402
Short-term borrowings	2	9	29	69
Long-term borrowings	526	458	1,625	1,274
Total Interest Expense	1,869	1,547	5,335	3,745
Net Interest Income	14,413	13,562	42,066	32,859
PROVISION FOR LOAN LOSSES	200	0	770	0
Net Interest Income after Provision for Loan Losses	14,213	13,562	41,296	32,859
OTHER INCOME
Earnings on investment in bank-owned life insurance	269	276	807	807
Gain on life insurance proceeds	0	0	52	0
Net gains on sales of securities	31	0	44	0
Net losses on equity securities	(23)	0	(50)	0
Commissions from insurance sales	1,450	1,313	4,358	4,031
Other	318	492	963	1,007
Total Other Income	4,125	3,930	12,154	10,540
OTHER EXPENSES
Salaries and employee benefits	6,560	6,715	19,870	18,397
Net occupancy	700	677	2,199	1,710
Equipment	1,276	1,039	3,759	2,666
Other tax	243	197	684	576
Professional services	371	224	1,084	807
Supplies and postage	183	187	575	524
Marketing and corporate relations	98	119	366	321
FDIC and regulatory	173	170	521	449
Merger related expenses	0	4,305	0	4,675
Intangible assets amortization	175	193	541	355
Foreclosed real estate (income) expenses	(27)	35	105	51
Other operating	1,104	1,006	3,389	2,970
Total Other Expenses	10,856	14,867	33,093	33,501
Income before Income Taxes	7,482	2,625	20,357	9,898
PROVISION FOR INCOME TAXES	1,443	713	3,898	2,627
Net Income	$ 6,039	$ 1,912	$ 16,459	$ 7,271
PER SHARE DATA
Basic earnings (in dollars per share)	$ 0.86	$ 0.27	$ 2.34	$ 1.14
Cash dividends declared (in dollars per share)	$ 0.23	$ 0.20	$ 0.66	$ 0.60
Service charges on deposit accounts
OTHER INCOME
Revenue from contract with customer, excluding assessed tax	$ 839	$ 870	$ 2,465	$ 2,057
Income from fiduciary, investment management and brokerage activities
OTHER INCOME
Revenue from contract with customer, excluding assessed tax	632	489	1,762	1,409
Service charges on ATM and debit card transactions
OTHER INCOME
Revenue from contract with customer, excluding assessed tax	$ 609	$ 490	$ 1,753	$ 1,229

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
NET INCOME		$ 6,039	$ 1,912	$ 16,459	$ 7,271
SECURITIES
Unrealized (losses) gains arising during the period, net of income taxes of $(139), $28, $(742) and $159, respectively		(476)	54	(2,195)	306
Reclassification adjustment for net gains included in net income, net of income taxes of $7, $0, $10 and $0, respectively (A) (C)	[1],[2]	24	0	34	0
PENSION
Amortization of pension net loss, transition liability, and prior service cost, net of income taxes of $29, $60, $87 and $178, respectively (B) (C)	[2],[3]	100	109	300	329
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME		(352)	163	(1,861)	635
TOTAL COMPREHENSIVE INCOME		$ 5,687	$ 2,075	$ 14,598	$ 7,906

[1] Gross amounts are included in net gains on sales or calls of securities on the Consolidated Statements of Income in total other income.

[2] Income tax amounts are included in the provision for income taxes on the Consolidated Statements of Income.

[3] 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.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Statement of Comprehensive Income [Abstract]
SECURITIES: Unrealized (losses) gains arising during the period, income taxes	$ (139)	$ 28	$ (742)	$ 159
SECURITIES: Reclassification adjustment for net gains included in net income, income taxes	7	0	10	0
PENSION: Amortization of pension net loss, transition liability, and prior service cost, tax	$ 29	$ 60	$ 87	$ 178

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands		Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Beginning Balance at Dec. 31, 2016		$ 120,061	$ 15,317	$ (728)	$ 10,941	$ 100,555	$ (6,024)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		7,271				7,271
Other comprehensive income (loss), net of taxes		635					635
Common stock shares issued		28,878	2,373		26,505
Restricted stock grants		120	15		105
Restricted stock compensation expense		120			120
Cash dividends declared		(3,829)				(3,829)
Ending Balance at Sep. 30, 2017		153,256	17,705	(728)	37,671	103,997	(5,389)
Beginning Balance at Dec. 31, 2017		153,966	17,716	(728)	37,777	106,293	(7,092)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income		16,459				16,459
Other comprehensive income (loss), net of taxes		(1,861)					(1,861)
Reclassification of certain income tax effects from AOCI	[1]	0				82	(82)
Common stock shares issued		391	29		362
Restricted stock grants		13	17		(4)
Restricted stock compensation expense		186			186
Cash dividends declared		(4,642)				(4,642)
Ending Balance at Sep. 30, 2018		$ 164,512	$ 17,762	$ (728)	$ 38,321	$ 118,192	$ (9,035)

[1] In January 2018, the Corporation adopted ASU 2018-02, as a result, the Corporation made a policy election to release income tax effects, as a result of the Tax Act, from AOCI to retained earnings.

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Statement of Stockholders' Equity [Abstract]
Common stock shares issued (in shares)	11,822	949,314
Restricted stock grants, shares issued (in shares)	6,744	6,193

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 16,459	$ 7,271
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sales of loans originated for sale	(404)	(398)
Loss (gain) on sales of foreclosed assets held for resale, including writedowns	1	(36)
Earnings on investment in bank-owned life insurance	(807)	(807)
Gain on sales or calls of securities	(44)	0
Loss on equity securities	50	0
Restricted stock compensation expense	186	120
Depreciation and amortization	2,122	1,622
Provision for loan losses	770	0
Net amortization of investment securities premiums	357	396
Increase in accrued interest receivable	(1,067)	(637)
Increase in accrued interest payable	243	235
Mortgage loans originated for sale	(25,244)	(21,344)
Proceeds from sales of loans originated for sale	26,272	21,639
Decrease in other assets	724	4,394
Decrease (increase) in deferred tax expense	398	(3,343)
Increase in other liabilities	1,471	843
Net Cash Provided by Operating Activities	21,487	9,955
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investment securities held to maturity	11,307	8,148
Proceeds from maturities of investment securities available for sale	12,471	18,486
Proceeds from sales of investment securities available for sale	6,477	0
Purchase of investment securities available for sale	(27,746)	(12,144)
Redemption (purchase) of restricted investment in bank stocks	244	(136)
Net increase in loans	(29,843)	(63,636)
Purchase of bank-owned life insurance	(500)	0
Bank acquisition, net of cash acquired	0	(6,444)
Insurance book- acquisition	(600)	0
Capital expenditures	(904)	(1,087)
Proceeds from sales of premises and equipment	0	6
Proceeds from sales of foreclosed real estate	607	228
Net Cash Used in Investing Activities	(28,487)	(43,691)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits	12,976	13,254
Net increase in time certificates of deposits and interest bearing deposits	35,775	37,677
Net increase (decrease) in short-term borrowings	1,617	(784)
Proceeds from long-term borrowings	9,716	24,600
Repayments on long-term borrowings	(19,591)	(7,000)
Dividends paid	(4,642)	(3,829)
Common stock issued	404	378
Net Cash Provided by Financing Activities	36,255	64,296
Net Increase in Cash and Cash Equivalents	29,255	30,560
CASH AND CASH EQUIVALENTS — BEGINNING	34,441	18,931
CASH AND CASH EQUIVALENTS — ENDING	63,696	49,491
Supplemental disclosures of cash flow information
Interest paid	5,092	3,510
Income taxes paid	3,150	2,850
Loans transferred to foreclosed assets held for resale and other foreclosed transactions	$ 235	$ 0

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Basis of Presentation and Nature of Operations

9 Months Ended

Sep. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Nature of Operations

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 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 twenty-two community banking office locations in Adams, Cumberland, Franklin and York Counties, Pennsylvania. There is also a loan production office situated in York County, Pennsylvania, as well as another loan production office in Hunt Valley, Maryland, effective July 25, 2018.

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 Maryland market as “NWSB Bank, A Division of ACNB Bank” and serves this marketplace with banking and wealth management services via a network of seven community banking offices located in Carroll County, Maryland.

RIG is a full-service insurance agency based in Westminster, Maryland, with a second location in Germantown, Maryland. The agency offers a broad range of property and casualty, life, and health insurance to both commercial and individual clients.

The Corporation’s primary source of revenue is 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 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 2017 ACNB Corporation Annual Report on Form 10-K, filed with the SEC on March 9, 2018. 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 ended September 30, 2018, are not necessarily indicative of the results to be expected for the full year.

On January 1, 2018, the Corporation adopted ASU 2014-09, Revenue from Contracts with Customers, and all subsequent amendments to the ASU (collectively “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation’s revenue comes from interest income, including loans and securities, that are outside the scope of ASC 606. The Corporation’s services that fall within the scope of ASC 606 are presented within other income on the consolidated statement of income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposit accounts, service charges on ATM and debit card transactions, income from fiduciary, investment management and brokerage activities and commissions from insurance sales. ASC 606 did not result in a change to the accounting for any in-scope revenue streams; as such, no cumulative effect adjustment was recorded.

On January 1, 2018, the Corporation adopted ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which amended the guidance on the classification and measurement of financial instruments. Upon adoption of ASU 2016-01, the Corporation recognized the equity securities fair value change in net income. Previously, the fair value changes were recognized, net of tax, in other comprehensive income (loss). The adoption of this ASU did not have a material effect on the Corporation’s consolidated financial condition or results of operations.

The Corporation early adopted ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU required a reclassification from accumulated other comprehensive income to retained earnings for tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21% corporate income tax rate. The amendments in this ASU would be effective for the Corporation for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. 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, 2018, 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.

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Acquisition of New Windsor Bancorp, Inc.

9 Months Ended

Sep. 30, 2018

Business Combinations [Abstract]

Acquisition of New Windsor Bancorp, Inc.

Acquisition of New Windsor Bancorp, Inc.

On July 1, 2017, ACNB completed its acquisition of New Windsor Bancorp Inc. (New Windsor) of Taneytown, Maryland. New Windsor was a locally owned and managed institution with seven locations in north central Maryland that complemented, enhanced and expanded ACNB’s physical presence in north central Maryland. ACNB transacted the acquisition to enhance its competitive strategic position, potential prospective business opportunities, operations, management, prospective financial condition, future earnings and business prospects. Specifically, ACNB believes that the acquisition will enhance its business opportunities in Northern Maryland due to the combined company having a greater market share, market presence and the ability to offer more diverse (i.e. Trust Services) and more profitable products, as well as a broader based and geographically diversified branch system to enhance deposit collection and potentially improve funding costs. The fair value of total assets acquired as a result of the acquisition totaled $319.8 million, loans totaled $263.5 million and deposits totaled $293.3 million. Goodwill recorded in the acquisition was $13.3 million. In accordance with the terms of the Reorganization Agreement, dated November 21, 2016, as amended, New Windsor shareholders received, in aggregate, $4.5 million in cash and 938,360 shares or approximately 13% of the post transaction outstanding shares of the Corporation’s common stock. The transaction was valued at $33.3 million based on the Corporation’s June 30, 2017 closing price of $30.50 as quoted on NASDAQ. 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 New Windsor 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.

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

Purchase Price Consideration in Common Stock

New Windsor shares outstanding	1,003,703
Shares paid cash consideration	150,555
Cash consideration (per New Windsor share)	$	30.00
Cash portion of purchase price	$	4,519,995
New Windsor shares outstanding	1,003,703
Shares paid stock consideration	853,148
Exchange ratio	1.10
Total ACNB shares issued	938,360
ACNB’s share price for purposes of calculation	$	30.50
Equity portion of purchase price	$	28,619,980
Cost of shares owned by buyer	$	150,000
Total consideration paid	$	33,289,975

Allocation of Purchase Price	In thousands
Total Purchase Price		$	33,290
Fair Value of Assets Acquired
Cash and cash equivalents	10,964
Investment securities	21,624
Loans held for sale	1,463
Loans	263,450
Restricted stock	486
Premises and equipment	8,624
Core deposit intangible asset	2,418
Other assets	10,792
Total assets	319,821
Fair Value of Liabilities Assumed
Non-interest bearing deposits	80,006
Interest bearing deposits	213,327
Subordinated debt	4,688
Other liabilities	1,782
Total liabilities	299,803
Net Assets Acquired		20,018
Goodwill Recorded in Acquisition		$	13,272

Pursuant to the accounting requirements, the Corporation assigned a fair value to the assets acquired and liabilities assumed of New Windsor. 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.”

Goodwill and core deposit intangibles are allocated to the banking business segment.

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.

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 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 New Windsor’s previously established allowance for loan losses. The fair value of the financial assets acquired included loans receivable with a gross amortized cost basis of $272,646,000. 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 July 1, 2017	$	272,646
Interest rate fair value adjustment on pools of homogeneous loans	(731		)
Credit fair value adjustment on pools of homogeneous loans	(4,501		)
Credit fair value adjustment on purchased credit impaired loans	(3,964		)
Fair value of acquired loans at July 1, 2017	$	263,450

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 $731,000.

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, NWSB and peer banks. ACNB also estimated an environmental factor to apply to each loan type. The environmental factor represents a potential discount which may arise due to general credit and economic factors. A credit fair value discount of $4.5 million was determined. Both the interest rate and credit fair value adjustments relate to loans acquired without 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	$	13,439
Nonaccretable difference	(5,651		)
Expected cash flows at acquisition	7,788
Accretable yield	(1,458		)
Fair value of purchased impaired loans	$	6,330

Premises and Equipment

The Corporation acquired seven branches from New Windsor. The fair value of New Windsor’s premises, including land, buildings, and improvements, was determined based upon independent third-party appraisals and other data 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 discount of approximately $847,500 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 acquisition. The fair value of the trust preferred subordinated debt was determined based upon an estimated fair value from an independent brokerage firm. The trust preferred capital note was valued at a discount of $312,500, 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.

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Earnings Per Share and Restricted Stock Plan

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share and Restricted Stock Plan

Earnings Per Share and Restricted Stock Plan

The Corporation has a simple capital structure. Basic earnings per share of common stock is computed based on 7,033,437 and 6,383,149 weighted average shares of common stock outstanding for the nine months ended September 30, 2018 and 2017, respectively, and 7,038,768 and 7,004,346 for the three months ended September 30, 2018 and 2017, respectively. All outstanding unvested restricted stock awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.

The Corporation has a restricted stock plan available to selected employees and directors of the Corporation and the Bank to advance the best interests of the Corporation and its stockholders. The plan provides those persons 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 success of the Corporation and the Bank. Plan expense is recognized over the vesting period of the stock issued under the plan. As of September 30, 2018, 26,045 shares were issued to employees under this plan, of which 19,485 were fully vested, no shares vested during the quarter, and the remaining 6,560 will vest over the next two years. $42,000 and $0 of compensation expenses related to the grants were recognized during the three months ended September 30, 2018 and 2017, respectively. $159,000 and $120,000 of compensation expenses related to the grants were recognized during the nine months ended September 30, 2018 and 2017, respectively.

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Retirement Benefits

9 Months Ended

Sep. 30, 2018

Postemployment Benefits [Abstract]

Retirement Benefits

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 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30
In thousands	2018			2017			2018			2017
Service cost	$	215		$	210		$	645		$	630
Interest cost	274			284			822			852
Expected return on plan assets	(693		)	(630		)	(2,077		)	(1,890		)
Amortization of net loss	129			169			386			507
Net Periodic Benefit Expense	$	(75	)	$	33		$	(224	)	$	99

The Corporation previously disclosed in its consolidated financial statements for the year ended December 31, 2017, that it had not yet determined the amount the Bank planned on contributing to the defined benefit plan in 2018. As of September 30, 2018, 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 353 active, vested, terminated and retired persons in the plan.

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Guarantees

9 Months Ended

Sep. 30, 2018

Guarantees [Abstract]

Guarantees

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 $4,479,000 in standby letters of credit as of September 30, 2018. 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, 2018, for guarantees under standby letters of credit issued is not material.

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Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2018

Stockholders' Equity Note [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

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

In thousands	Unrealized (Losses) Gains on Securities			Pension Liability			Accumulated Other Comprehensive Loss
BALANCE — SEPTEMBER 30, 2018	$	(3,199	)	$	(5,836	)	$	(9,035	)
BALANCE — DECEMBER 31, 2017	$	(957	)	$	(6,135	)	$	(7,092	)
BALANCE — SEPTEMBER 30, 2017	$	40		$	(5,429	)	$	(5,389	)

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Segment Reporting

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

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

Segment information for the nine month periods ended September 30, 2018 and 2017, is as follows:

In thousands	Banking		Insurance		Total
2018
Net interest income and other income from external customers	$	50,015	$	4,205	$	54,220
Income before income taxes	19,146		1,211		20,357
Total assets	1,635,033		12,766		1,647,799
Capital expenditures	847		57		904
2017
Net interest income and other income from external customers	$	39,536	$	3,863	$	43,399
Income before income taxes	9,099		799		9,898
Total assets	1,598,331		9,304		1,607,635
Capital expenditures	1,087		—		1,087

Segment information for the three month periods ended September 30, 2018 and 2017, is as follows:

In thousands	Banking		Insurance		Total
2018
Net interest income and other income from external customers	$	17,235	$	1,303	$	18,538
Income before income taxes	7,115		367		7,482
Total assets	1,635,033		12,766		1,647,799
Capital expenditures	233		16		249
2017
Net interest income and other income from external customers	$	16,321	$	1,171	$	17,492
Income before income taxes	2,424		201		2,625
Total assets	1,598,331		9,304		1,607,635
Capital expenditures	284		—		284

Customer renewal lists are amortized over their estimated useful lives which range from eight to thirteen years. Core deposit intangible assets are primarily amortized over 10 years using accelerated methods. Goodwill is not amortized, but rather is analyzed annually for impairment. If certain events occur which might indicate goodwill has been impaired, the goodwill is tested for impairment when such events occur. Tax amortization of goodwill and the intangible assets is deductible for tax purposes. Tax amortization of the goodwill associated with the New Windsor acquisition is not deductible for federal income tax purposes.

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Securities

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Securities

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). As of January 1, 2018, equity securities with readily determined fair values are recorded at fair value with changes in fair value recognized in net income. Prior to 2018, fair value changes were reported, net of tax, in other comprehensive income (loss).

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, 2018, and December 31, 2017, were as follows:

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, 2018
U.S. Government and agencies	$	125,594	$	—	$	3,518	$	122,076
Mortgage-backed securities, residential	31,676		107		692		31,091
State and municipal	9,819		54		83		9,790
	$	167,089	$	161	$	4,293	$	162,957
DECEMBER 31, 2017
U.S. Government and agencies	$	105,899	$	2	$	1,818	$	104,083
Mortgage-backed securities, residential	34,473		461		101		34,833
State and municipal	13,227		109		42		13,294
Corporate bonds	5,000		57		—		5,057
CRA mutual fund	1,044		—		9		1,035
Stock in other banks	647		102		—		749
	$	160,290	$	731	$	1,970	$	159,051
SECURITIES HELD TO MATURITY
SEPTEMBER 30, 2018
U.S. Government and agencies	$	12,000	$	—	$	117	$	11,883
Mortgage-backed securities, residential	21,517		—		633		20,884
	$	33,517	$	—	$	750	$	32,767
DECEMBER 31, 2017
U.S. Government and agencies	$	19,000	$	2	$	99	$	18,903
Mortgage-backed securities, residential	25,829		55		238		25,646
	$	44,829	$	57	$	337	$	44,549

The Corporation adopted ASU 2016-01, Financial Instruments—Overall (Topic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities effective January 1, 2018. The required fair value disclosures are as follows:

In thousands	Fair Value at January 1, 2018		Unrealized Gains		Unrealized Losses		Fair Value at September 30, 2018
SEPTEMBER 30, 2018
Equity securities with a readily determinable fair value	$	1,793	$	31	$	81	$	1,743

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, 2018, and December 31, 2017:

	Less than 12 Months				12 Months or More				Total
In thousands	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, 2018
U.S. Government and agencies	$	44,842	$	771	$	76,734	$	2,747	$	121,576	$	3,518
Mortgage-backed securities, residential	20,998		493		4,517		199		25,515		692
State and municipal	1,397		19		1,911		64		3,308		83
	$	67,237	$	1,283	$	83,162	$	3,010	$	150,399	$	4,293
DECEMBER 31, 2017
U.S. Government and agencies	$	42,775	$	445	$	58,279	$	1,373	$	101,054	$	1,818
Mortgage-backed securities, residential	7,228		56		2,845		45		10,073		101
State and municipal	1,042		8		1,950		34		2,992		42
CRA Mutual Fund	—		—		1,035		9		1,035		9
	$	51,045	$	509	$	64,109	$	1,461	$	115,154	$	1,970
SECURITIES HELD TO MATURITY
SEPTEMBER 30, 2018
U.S. Government and agencies	$	2,955	$	45	$	8,928	$	72	$	11,883	$	117
Mortgage-backed securities, residential	11,386		243		9,498		390		20,884		633
	$	14,341	$	288	$	18,426	$	462	$	32,767	$	750
DECEMBER 31, 2017
U.S. Government and agencies	$	4,985	$	15	$	10,916	$	84	$	15,901	$	99
Mortgage-backed securities, residential	4,946		29		11,070		209		16,016		238
	$	9,931	$	44	$	21,986	$	293	$	31,917	$	337

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, 2018, seventy-four available for sale U.S. Government and agency securities had unrealized losses that individually did not exceed 7% of amortized cost. Fifty 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, 2018, thirty-eight available for sale residential mortgage-backed securities had unrealized losses that individually did not exceed 5% of amortized cost. Seven 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, 2018, twelve available for sale state and municipal securities had unrealized losses that individually did not exceed 6% of amortized cost. Eight 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, 2018, seven held to maturity U.S. Government and agency securities had unrealized losses that individually did not exceed 2% of amortized cost. Five 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, 2018, thirty-four held to maturity residential mortgage-backed securities had unrealized losses that individually did not exceed 5% of amortized cost. Thirteen 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, 2018, 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, 2018, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.

	Available for Sale				Held to Maturity
In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	10,050	$	10,013	$	6,000	$	5,980
Over 1 year through 5 years	121,477		118,020		6,000		5,903
Over 5 years through 10 years	3,886		3,833		—		—
Over 10 years	—		—		—		—
Mortgage-backed securities, residential	31,676		31,091		21,517		20,884
	$	167,089	$	162,957	$	33,517	$	32,767

The Corporation realized$31,000and$44,000gross gains onsales of securities available for sale during the three and nine month periods ended September 30, 2018, respectively. The corporation did not realize any gross gains or losses on sales of securities during the three and nine month period ended September 30, 2017.

At September 30, 2018, and December 31, 2017, securities with a carrying value of $181,820,000 and $157,601,000, respectively, were pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes.

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Loans

9 Months Ended

Sep. 30, 2018

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Loans

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 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. Management believes that the Corporation’s market area is not as volatile as other areas throughout the United States, therefore valuations are ordered 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 present a moderate level of risk due primarily to general economic conditions, as well as a continued weak housing market.

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 weak housing market.

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 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 we can reasonably estimate the timing and amount of expected cash flows on such loans. Accordingly, we do not consider acquired contractually delinquent loans to be non-accruing and continue to recognize interest income on these loans using the accretion model.

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, 2018, and December 31, 2017:

In thousands	Pass		Special Mention		Substandard			Doubtful		Total
SEPTEMBER 30, 2018
Originated Loans
Commercial and industrial	$	167,353	$	3,094	$	171		$	—	$	170,618
Commercial real estate	363,982		18,218		8,421			—		390,621
Commercial real estate construction	13,520		1,005		249			—		14,774
Residential mortgage	378,301		6,909		649			—		385,859
Home equity lines of credit	87,180		235		148			—		87,563
Consumer	14,337		—		—			—		14,337
Total Originated Loans	1,024,673		29,461		9,638			—		1,063,772
Acquired Loans
Commercial and industrial	5,336		123		(4		)	—		5,455
Commercial real estate	120,035		8,616		3,562			—		132,213
Commercial real estate construction	3,223		723		—			—		3,946
Residential mortgage	42,522		2,293		2,861			—		47,676
Home equity lines of credit	18,635		88		393			—		19,116
Consumer	268		—		—			—		268
Total Acquired Loans	190,019		11,843		6,812			—		208,674
Total Loans
Commercial and industrial	172,689		3,217		167			—		176,073
Commercial real estate	484,017		26,834		11,983			—		522,834
Commercial real estate construction	16,743		1,728		249			—		18,720
Residential mortgage	420,823		9,202		3,510			—		433,535
Home equity lines of credit	105,815		323		541			—		106,679
Consumer	14,605		—		—			—		14,605
Total Loans	$	1,214,692	$	41,304	$	16,450		$	—	$	1,272,446

In thousands	Pass		Special Mention		Substandard		Doubtful		Total
DECEMBER 31, 2017
Originated Loans
Commercial and industrial	$	154,177	$	3,466	$	1,812	$	—	$	159,455
Commercial real estate	325,002		17,666		9,277		—		351,945
Commercial real estate construction	27,413		767		250		—		28,430
Residential mortgage	363,195		3,251		478		—		366,924
Home equity lines of credit	81,976		360		—		—		82,336
Consumer	14,454		—		—		—		14,454
Total Originated Loans	966,217		25,510		11,817		—		1,003,544
Acquired Loans
Commercial and industrial	6,120		244		10		—		6,374
Commercial real estate	124,852		12,734		3,228		—		140,814
Commercial real estate construction	6,742		388		—		—		7,130
Residential mortgage	52,959		2,762		3,248		—		58,969
Home equity lines of credit	24,990		88		378		—		25,456
Consumer	1,525		358		—		—		1,883
Total Acquired Loans	217,188		16,574		6,864		—		240,626
Total Loans
Commercial and industrial	160,297		3,710		1,822		—		165,829
Commercial real estate	449,854		30,400		12,505		—		492,759
Commercial real estate construction	34,155		1,155		250		—		35,560
Residential mortgage	416,154		6,013		3,726		—		425,893
Home equity lines of credit	106,966		448		378		—		107,792
Consumer	15,979		358		—		—		16,337
Total Loans	$	1,183,405	$	42,084	$	18,681	$	—	$	1,244,170

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	Nine Months Ended September 30, 2018
Balance at beginning of period	$	1,234
Acquisitions of impaired loans	—
Reclassification from non-accretable differences	288
Accretion to loan interest income	(490		)
Balance at end of period	$	1,032

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.

The following table summarizes information relative to impaired loans by loan portfolio class as of September 30, 2018, and December 31, 2017:

	Impaired Loans with  Allowance						Impaired Loans with No Allowance
In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
SEPTEMBER 30, 2018
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Commercial real estate	—		—		—		7,188		7,188
Commercial real estate construction	—		—		—		—		—
Residential mortgage	—		—		—		533		533
Home equity lines of credit	148		148		148		—		—
	$	148	$	148	$	148	$	7,721	$	7,721
DECEMBER 31, 2017
Commercial and industrial	$	1,311	$	1,311	$	792	$	188	$	188
Commercial real estate	832		832		60		7,528		7,528
Commercial real estate construction	—		—		—		—		—
Residential mortgage	377		377		377		101		101
	$	2,520	$	2,520	$	1,229	$	7,817	$	7,817

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, 2018 and 2017:

	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2018
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	—		—		7,215		36
Commercial real estate construction	—		—		—		—
Residential mortgage	—		—		317		—
Home equity lines of credit	74		—		—		—
	$	74	$	—	$	7,532	$	36
SEPTEMBER 30, 2017
Commercial and industrial	$	1,360	$	—	$	734	$	—
Commercial real estate	832		—		7,626		80
Commercial real estate construction	—		—		—		—
Residential mortgage	378		—		101		—
	$	2,570	$	—	$	8,461	$	80

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, 2018 and 2017:

	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2018
Commercial and industrial	$	545	$	—	$	92	$	44
Commercial real estate	—		—		7,525		118
Commercial real estate construction	—		—		—		—
Residential mortgage	94		—		209		—
Home equity lines of credit	37		—		—		—
	$	676	$	—	$	7,826	$	162
SEPTEMBER 30, 2017
Commercial and industrial	$	1,152	$	—	$	934	$	—
Commercial real estate	416		—		8,155		293
Commercial real estate construction	—		—		75		25
Residential mortgage	377		—		238		15
	$	1,945	$	—	$	9,402	$	333

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, 2018, and December 31, 2017, the table below excludes $6.9 million in purchase credit impaired loans, net of unamortized fair value adjustments: 

In thousands	September 30, 2018		December 31, 2017
Commercial and industrial	$	—	$	1,499
Commercial real estate	3,281		4,378
Commercial real estate construction	—		—
Residential mortgage	533		478
Home equity lines of credit	148		—
	$	3,962	$	6,355

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. 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, 2018 and December 31, 2017, were $2,500,000 and $3,400,000, respectively, of troubled debt restructurings. In addition to the troubled debt restructurings included in non-accrual loans, the Corporation also has loans classified as accruing troubled debt restructurings at September 30, 2018 and December 31, 2017, which total $3,900,000 and $4,000,000, respectively. As of September 30, 2018 and 2017, 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, 2018 and 2017. One troubled debt restructured loan paid off during 2018 in the amount of $832,000 and one paid off during 2017 in the amount of $283,000. All other troubled debt restructured loans were current as of September 30, 2018, with respect to their associated forbearance agreement, except for one loan which has had periodic late payments. As of September 30, 2018, no loans classified as a troubled debt restructured loan have active forbearance agreements. The forbearance agreements have expired or the loans have paid off.

There were no loans whose terms have been modified resulting in troubled debt restructurings during the three and nine months ended September 30, 2018 and 2017.

Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process at September 30, 2018 and December 31, 2017, totaled $800,000 and $848,000, 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, 2018, and December 31, 2017:

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, 2018
Originated Loans
Commercial and industrial	$	69	$	—	$	4	$	73	$	170,545	$	170,618	$	4
Commercial real estate	186		569		2,575		3,330		387,291		390,621		—
Commercial real estate construction	—		—		—		—		14,774		14,774		—
Residential mortgage	298		1,254		1,535		3,087		382,772		385,859		1,001
Home equity lines of credit	364		—		323		687		86,876		87,563		175
Consumer	51		24		33		108		14,229		14,337		33
Total originated loans	968		1,847		4,470		7,285		1,056,487		1,063,772		1,213
Acquired Loans
Commercial and industrial	—		—		—		—		5,455		5,455		—
Commercial real estate	218		—		857		1,075		131,138		132,213		857
Commercial real estate construction	—		—		77		77		3,869		3,946		77
Residential mortgage	16		3		125		144		47,532		47,676		125
Home equity lines of credit	641		63		70		774		18,342		19,116		70
Consumer	—		—		—		—		268		268		—
Total acquired loans	875		66		1,129		2,070		206,604		208,674		1,129
Total Loans
Commercial and industrial	69		—		4		73		176,000		176,073		4
Commercial real estate	404		569		3,432		4,405		518,429		522,834		857
Commercial real estate construction	—		—		77		77		18,643		18,720		77
Residential mortgage	314		1,257		1,660		3,231		430,304		433,535		1,126
Home equity lines of credit	1,005		63		393		1,461		105,218		106,679		245
Consumer	51		24		33		108		14,497		14,605		33
Total Loans	$	1,843	$	1,913	$	5,599	$	9,355	$	1,263,091	$	1,272,446	$	2,342

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, 2017
Originated Loans
Commercial and industrial	$	55	$	76	$	1,503	$	1,634	$	157,821	$	159,455	$	4
Commercial real estate	436		317		1,400		2,153		349,792		351,945		88
Commercial real estate construction	252		—		—		252		28,178		28,430		—
Residential mortgage	3,006		646		1,500		5,152		361,772		366,924		1,022
Home equity lines of credit	254		29		183		466		81,870		82,336		183
Consumer	72		26		3		101		14,353		14,454		3
Total originated loans	4,075		1,094		4,589		9,758		993,786		1,003,544		1,300
Acquired Loans
Commercial and industrial	83		—		—		83		6,291		6,374		—
Commercial real estate	916		—		—		916		139,898		140,814		—
Commercial real estate construction	—		—		—		—		7,130		7,130		—
Residential mortgage	930		304		137		1,371		57,598		58,969		137
Home equity lines of credit	83		—		70		153		25,303		25,456		70
Consumer	—		—		—		—		1,883		1,883		—
Total acquired loans	2,012		304		207		2,523		238,103		240,626		207
Total Loans
Commercial and industrial	138		76		1,503		1,717		164,112		165,829		4
Commercial real estate	1,352		317		1,400		3,069		489,690		492,759		88
Commercial real estate construction	252		—		—		252		35,308		35,560		—
Residential mortgage	3,936		950		1,637		6,523		419,370		425,893		1,159
Home equity lines of credit	337		29		253		619		107,173		107,792		253
Consumer	72		26		3		101		16,236		16,337		3
Total Loans	$	6,087	$	1,398	$	4,796	$	12,281	$	1,231,889	$	1,244,170	$	1,507

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

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, 2018
Allowance for Loan Losses
Beginning balance - July 1, 2018	$	2,433		$	5,721		$	146		$	2,840		$	564		$	673		$	766		$	13,143
Charge-offs	(33		)	—			—			—			—			(29		)	—			(62		)
Recoveries	22			—			103			8			—			—			—			133
Provisions	185			123			(50		)	(95		)	131			(9		)	(85		)	200
Ending balance - September 30, 2018	$	2,607		$	5,844		$	199		$	2,753		$	695		$	635		$	681		$	13,414
Beginning balance - January 1, 2018	$	3,219		$	5,228		$	126		$	3,226		$	612		$	749		$	816		$	13,976
Charge-offs	(911		)	(33		)	—			(489		)	—			(66		)	—			(1,499		)
Recoveries	33			—			103			30			—			1			—			167
Provisions	266			649			(30		)	(14		)	83			(49		)	(135		)	770
Ending balance - September 30, 2018	$	2,607		$	5,844		$	199		$	2,753		$	695		$	635		$	681		$	13,414
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	148		$	—		$	—		$	148
Ending balance: collectively evaluated for impairment	$	2,607		$	5,844		$	199		$	2,753		$	547		$	635		$	681		$	13,266
Loans Receivable
Ending balance	$	176,073		$	522,834		$	18,720		$	433,535		$	106,679		$	14,605		$	—		$	1,272,446
Ending balance: individually evaluated for impairment	$	—		$	7,188		$	—		$	533		$	148		$	—		$	—		$	7,869
Ending balance: collectively evaluated for impairment	$	176,073		$	515,646		$	18,720		$	433,002		$	106,531		$	14,605		$	—		$	1,264,577
AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2017
Allowance for Loan Losses
Beginning Balance - July 1, 2017	$	3,246		$	5,210		$	135		$	3,368		$	607		$	815		$	767		$	14,148
Charge-offs	(60		)	—			—			(15		)	(9		)	(18		)	—			(102		)
Recoveries	8			—			40			10			—			1			—			59
Provisions	73			195			(31		)	(101		)	29			12			(177		)	—
Ending balance - September 30, 2017	$	3,267		$	5,405		$	144		$	3,262		$	627		$	810		$	590		$	14,105
Beginning Balance - January 1, 2017	$	3,055		$	4,968		$	147		$	3,478		$	648		$	923		$	975		$	14,194
Charge-offs	(129		)	—			—			(32		)	(9		)	(102		)	—			(272		)
Recoveries	17			61			40			52			—			13			—			183
Provisions	324			376			(43		)	(236		)	(12		)	(24		)	(385		)	—
Ending balance - September 30, 2017	$	3,267		$	5,405		$	144		$	3,262		$	627		$	810		$	590		$	14,105
Ending balance: individually evaluated for impairment	$	698		$	117		$	—		$	377		$	—		$	—		$	—		$	1,192
Ending balance: collectively evaluated for impairment	$	2,569		$	5,288		$	144		$	2,885		$	627		$	810		$	590		$	12,913
Loans Receivable
Ending balance	$	169,037		$	483,673		$	39,779		$	421,732		$	105,113		$	17,036		$	—		$	1,236,370
Ending balance: individually evaluated for impairment	$	1,743		$	8,413		$	—		$	478		$	—		$	—		$	—		$	10,634
Ending balance: collectively evaluated for impairment	$	167,294		$	475,260		$	39,779		$	421,254		$	105,113		$	17,036		$	—		$	1,225,736

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, 2017
Allowance for Loan Losses
Ending balance	$	3,219	$	5,228	$	126	$	3,226	$	612	$	749	$	816	$	13,976
Ending balance: individually evaluated for impairment	$	792	$	60	$	—	$	377	$	—	$	—	$	—	$	1,229
Ending balance: collectively evaluated for impairment	$	2,427	$	5,168	$	126	$	2,849	$	612	$	749	$	816	$	12,747
Loans Receivable
Ending balance	$	165,829	$	492,759	$	35,560	$	425,893	$	107,792	$	16,337	$	—	$	1,244,170
Ending balance: individually evaluated for impairment	$	1,499	$	8,360	$	—	$	478	$	—	$	—	$	—	$	10,337
Ending balance: collectively evaluated for impairment	$	164,330	$	484,399	$	35,560	$	425,415	$	107,792	$	16,337	$	—	$	1,233,833

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Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

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, 2018, and December 31, 2017, are as follows:

		September 30, 2018
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	122,076	$	—	$	122,076	$	—
Mortgage-backed securities, residential		31,091		—		31,091		—
State and municipal		9,790		—		9,790		—
Total securities available for sale	Recurring	$	162,957	$	—	$	162,957	$	—
Equity securities with readily determinable fair values	Recurring	$	1,743	$	1,743	$	—	$	—
Collateral dependent impaired loans	Nonrecurring	$	3,907	$	—	$	—	$	3,907

		December 31, 2017
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	104,083	$	—	$	104,083	$	—
Mortgage-backed securities, residential		34,833		—		34,833		—
State and municipal		13,294		—		13,294		—
Corporate bonds		5,057		—		5,057		—
CRA mutual fund		1,035		1,035		—		—
Stock in other banks		749		749		—		—
Total securities available for sale	Recurring	$	159,051	$	1,784	$	157,267	$	—
Collateral dependent impaired loans	Nonrecurring	$	5,426	$	—	$	—	$	5,426

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
September 30, 2018
Impaired loans	$	3,907	Appraisal of collateral	(a)	Appraisal adjustments	(b)	(10) - (50)%	(28)%
December 31, 2017
Impaired loans	$	5,426	Appraisal of collateral	(a)	Appraisal adjustments	(b)	(10) - (50)%	(36)%

(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. The following methods and assumptions were used to estimate the fair values of certain Corporation financial instruments at September 30, 2018, and December 31, 2017:

Cash and Cash Equivalents (Carried at Cost)

The carrying amounts reported in the consolidated statement of condition for cash and short-term instruments approximate those assets’ fair value. U.S. currency is Level 1 and cash equivalents are Level 2.

Securities

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 security but rather by relying on the security’s relationship to other benchmark quoted prices. The Corporation uses an independent service provider to provide matrix pricing, and uses the valuation of another provider to compare for reasonableness.

Loans Held for Sale (Carried at Lower of Cost or Fair Value)

The fair values of mortgage loans held for sale are determined based on amounts to be received at settlement by establishing the respective buyer requirement or market interest rates.

Loans (Carried at Cost)

The fair values of non-impaired loans are estimated using discounted cash flow analyses with the exit pricing concept, as well as using market rates at the balance sheet date that reflect the credit and interest rate risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments, and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

Impaired Loans (Generally Carried at Fair Value)

Loans for which the Corporation has measured impairment are generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances less the valuation allowance and/or charge-offs.

Foreclosed Assets Held for Resale

The fair value of real estate acquired through foreclosure is based on independent third-party appraisals of the properties. These assets are included as Level 3 fair values, based upon appraisals that consider the sales prices of similar properties in the proximate vicinity.

It is the policy of the Corporation to have the initial market value of a foreclosed asset held for resale determined by an independent third-party valuation. If the Corporation already has a valid appraisal on file for the property and that appraisal has been completed within the previous 12 months, another appraisal shall not be required when the Corporation acquires ownership of that real estate. Further, the Corporation shall update the market value of each foreclosed asset with an independent third-party valuation at least every 18 months, or more frequently if management believes that there is an indication that the fair value has declined. These valuations may be adjusted downward to account for specialized use of the property, change in the condition of the real estate, change in local market and economic conditions, and other specific factors involving the collateral.

Restricted Investment in Bank Stock (Carried at Cost)

The carrying amount of required and restricted investment in correspondent bank stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amounts of accrued interest receivable and accrued interest payable approximate their fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (e.g., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings (Carried at Cost)

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Borrowings (Carried at Cost)

The fair values of long-term borrowings are estimated using discounted cash flow analysis with the exit pricing concept, based on quoted prices for new borrowings with similar credit risk characteristics, terms, and remaining maturity. The prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party. The fair value of the trust preferred subordinated debt, included in long-term borrowings, was determined based upon an estimated fair value from an independent brokerage firm.

Off-Balance Sheet Credit-Related Instruments

The fair values for the Corporation’s off-balance sheet financial instruments (specifically, lending commitments and letters of credit) are based on fees currently charged in the market to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.

The following presents the carrying amount, exit pricing concept fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of September 30, 2018:

	September 30, 2018
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	18,145	$	18,145	$	7,981	$	10,164	$	—
Interest-bearing deposits in banks	45,551		45,551		45,551		—		—
Equity securities with readily determinable fair value	1,743		1,743		1,743		—		—
Investment securities available for sale	162,957		162,957		—		162,957		—
Investment securities held to maturity	33,517		32,767		—		32,767		—
Loans held for sale	1,112		1,112		—		1,112		—
Loans, less allowance for loan losses	1,259,032		1,218,667		—		—		1,218,667
Accrued interest receivable	4,737		4,737		—		4,737		—
Restricted investment in bank stocks	4,529		4,529		—		4,529		—
Financial liabilities:
Demand deposits and savings	984,704		984,704		—		984,704		—
Time deposits	362,539		357,603		—		357,603		—
Short-term borrowings	38,525		38,525		—		38,525		—
Long-term borrowings	79,725		79,383		—		79,383		—
Trust preferred subordinated debt	5,000		4,699		—		4,699		—
Accrued interest payable	1,406		1,406		—		1,406		—
Off-balance sheet financial instruments	—		—		—		—		—

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, 2017:

	December 31, 2017
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,304	$	19,304	$	8,313	$	10,991	$	—
Interest-bearing deposits in banks	15,137		15,137		15,137		—		—
Investment securities available for sale	159,051		159,051		1,784		157,267		—
Investment securities held to maturity	44,829		44,549		—		44,549		—
Loans held for sale	1,736		1,736		—		1,736		—
Loans, less allowance for loan losses	1,230,194		1,213,932		—		—		1,213,932
Accrued interest receivable	3,670		3,670		—		3,670		—
Restricted investment in bank stocks	4,773		4,773		—		4,773		—
Financial liabilities:
Demand deposits and savings	944,399		944,399		—		944,399		—
Time deposits	354,093		351,057		—		351,057		—
Short-term borrowings	36,908		36,908		—		36,908		—
Long-term borrowings	89,600		89,571		—		89,571		—
Trust preferred subordinated debt	5,000		4,692		—		4,692		—
Accrued interest payable	1,163		1,163		—		1,163		—
Off-balance sheet financial instruments	—		—		—		—		—

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Securities Sold Under Agreements to Repurchase (Repurchase Agreements)

9 Months Ended

Sep. 30, 2018

Disclosure of Repurchase Agreements [Abstract]

Securities Sold Under Agreements to Repurchase (Repurchase Agreements)

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.

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreement as of September 30, 2018, and December 31, 2017:

								Gross Amounts Not Offset in the Statements of Condition
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, 2018
Repurchase agreements
Commercial customers and government entities	(a)	$	38,525	$	—	$	38,525	$	(38,525	)	$	—	$	—
December 31, 2017
Repurchase agreements
Commercial customers and government entities	(a)	$	36,908	$	—	$	36,908	$	(36,908	)	$	—	$	—

(a) As of September 30, 2018, and December 31, 2017, the fair value of securities pledged in connection with repurchase agreements was $43,541,000 and $42,397,000, respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2018:

	Remaining Contractual Maturity of the Agreements
In thousands	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater than 90 Days		Total
Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	$	38,525	$	—	$	—	$	—	$	38,525
Total	$	38,525	$	—	$	—	$	—	$	38,525

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Borrowings

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Borrowings

Borrowings

The Corporation had long-term debt outstanding as follows:

In thousands	September 30, 2018		December 31, 2017
FHLB advances	$	74,216	$	85,000
Loan payable to local bank	4,509		4,600
Loan payable to local bank	1,000		—
Trust preferred subordinated debt	5,000		5,000
	$	84,725	$	94,600

The FHLB advances are collateralized by the assets defined in the security agreement and FHLB capital stock. FHLB advances have maturity dates from 2018 to 2022 with a weighted average rate of 2.35%.

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 in June 2028. The principal balance of this note may be prepaid at any time without penalty.

The loan payable to a local bank is a commercial revolving line of credit which has a variable rate equal to the Wall Street Journal Prime Rate, 5.25% at September 30, 2018. Principal shall be payable when and in amounts demanded by the Bank. The line has an initial expiration date of May 1, 2019.

The 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.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

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 thirteen years.

This acquisition of New Windsor resulted in goodwill of approximately $13,272,000 and generated $2,418,000 in core deposit intangibles.

Combining goodwill resulting from this transaction with existing goodwill from the 2005 RIG purchase of $6,308,000, total goodwill included in the Corporation’s consolidated statement of condition is $19,580,000. Goodwill is not deductible for federal income tax purposes. Goodwill, which has 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 carrying value and accumulated amortization of the intangible assets (RIG customer lists and New Windsor core deposit intangibles) are as follows:

In thousands	Gross carrying amount		Accumulated amortization
RIG amortized intangible assets	$	7,263	$	6,514
New Windsor core deposit intangibles	2,418		539

The RIG intangible assets are being amortized over 10 years on a straight line basis. The New Windsor core deposit intangible is being amortized using a sum of the year’s method over a 10-year period.

Goodwill is subject to impairment testing at the reporting unit level, which must be conducted at least annually. The Corporation performs impairment testing during the fourth quarter of each year, or more frequently if impairment indicators exist. We also continue to monitor other intangibles for impairment and to evaluate carrying amounts, as necessary.

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New Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements

New Accounting Pronouncements

ASU 2016-02, ASU 2018-10 and ASU 2018-11

In February 2016, the FASB issued ASU 2016-02, Leases.

From the lessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. In this ASU, FASB corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the leases standard. The amendment targets 16 issues:

•residual value guarantees;

•rate implicit in the lease;

•lessee reassessment of lease classification;

•lessor reassessment of lease term and purchase option;

•variable lease payments that depend on an index or a rate;

•investment tax credits;

•lease term and purchase option;

•transition guidance for amounts previously recognized in business combinations;

•recognition of certain transition adjustments in earnings rather than equity;

•transition guidance for leases previously classified as capital leases under Topic 840;

• transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840;

•transition guidance for sale and leaseback transactions;

•impairment of net investment in the lease;

•unguaranteed residual asset;

•effect of initial direct costs on rate implicit in the lease; and,

•failed sale and leaseback transaction.

The effective date and transition requirements are consistent with ASU 2016-02. For entities that have early adopted Topic 842 issued in ASU 2016-02, the amendments are effective upon issuance.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The ASU provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840.

Also, the ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02, Leases (Topic 842). The new practical expedient will allow lessors to elect, by class of underlying asset, to not separate nonlease components from the associated lease component when specified conditions are met. Examples of nonlease components include equipment maintenance services, common area maintenance services in real estate, or other goods or services provided to the lessee apart from the right to use the underlying asset. The practical expedient must be applied consistently for all lease contracts.

The effective date and transition requirements for lessors electing the practical expedient for separating components of a contract are the same as the requirements for Topic 842 issued in ASU 2016-02. For entities that have early adopted Topic 842, the ASU provides specific transition guidance for lessors electing the practical expedient.

While the Corporation is currently evaluating the timing and impact of adopting ASU 2016-02, ASU 2018-10 and ASU 2018-11, the ultimate impact of adopting ASU 2016-02, ASU 2018-10 and ASU 2018-11 will depend on the Corporation’s lease portfolio as of the adoption date and interest rates at that time. The Corporation expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of committed lease payments as of the date of adoption. The effect on operations and capital adequacy is not expected to be material.

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. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within the fiscal year. For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations. Management has developed a committee to address CECL and the committee is currently evaluating options to comply with the ASU in a timely manner.

ASU 2017-08

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities.

ASU 2017-08 shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization), rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans, not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

The Corporation has evaluated the provision of ASU 2017-08 to determine the potential impact of the new standard and has determined that it is not expected to have a significant impact on its consolidated financial condition or results of operations, as the Corporation holds one security that this ASU would impact.

ASU 2017-04

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.

ASU 2017-04 eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Impairment losses on goodwill cannot be reversed once recognized.

An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. However, the ASU eliminates the requirement to perform a qualitative assessment for any reporting unit with a zero or negative carrying amount. Therefore, the same one-step impairment assessment will apply to all reporting units. However, for a reporting unit with a zero or negative carrying amount, the ASU adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included.

For public business entities that are SEC filers, the amendments are effective with their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Corporation has evaluated the provision of ASU 2017-04 to determine the potential impact of the new standard and has determined that it is not expected to have an impact on its consolidated financial condition or results of operations based on the current circumstances.

ASU 2018-09

In July 2018, the FASB issued ASU 2018-09, Codification Improvements.

The ASU contains various improvements to various topics in the codification, including clarification that an entity must disclose the required and actual amounts of regulatory capital for each measure of regulatory capital for which the entity must comply.

For year-end public business entities, the improvements are effective upon issuance, which was July 2018. The Corporation has evaluated the improvements of ASU 2018-09 and determined that the ASU will not impact its consolidated financial condition or results of operations since the Corporation already discloses capital requirements with the Management’s Discussion and Analysis section of the Form 10-Q.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.

This ASU removes, modifies, and adds to existing fair value measurement disclosure requirements. The following are removed:

•transfers between Level 1 and Level 2 of the fair value hierarchy;

•the policy for determining when transfers between any of the three levels have occurred; and,

•the valuation processes used for Level 3 measurements.

The following are modified:

• a clarification that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date.

The following are new:

• for public entities, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the balance sheet date; and,

• for public entities, the range and weighted average of significant unobservable inputs used for Level 3 measurements. For certain unobservable inputs, an option to disclose other quantitative information in place of the weighted average is available to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs.

The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods, which is first effective for calendar year entities in the March 31, 2020, interim financial statements. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

ASU 2018-14

In August 2018, the FASB issued 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 is effective for public business entities in fiscal years ending after December 15, 2020. Early adoption is permitted.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

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New Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2018

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements

New Accounting Pronouncements

ASU 2016-02, ASU 2018-10 and ASU 2018-11

In February 2016, the FASB issued ASU 2016-02, Leases.

From the lessee’s perspective, the new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases. In this ASU, FASB corrects inconsistencies in the guidance and clarifies how to apply certain provisions of the leases standard. The amendment targets 16 issues:

•residual value guarantees;

•rate implicit in the lease;

•lessee reassessment of lease classification;

•lessor reassessment of lease term and purchase option;

•variable lease payments that depend on an index or a rate;

•investment tax credits;

•lease term and purchase option;

•transition guidance for amounts previously recognized in business combinations;

•recognition of certain transition adjustments in earnings rather than equity;

•transition guidance for leases previously classified as capital leases under Topic 840;

• transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840;

•transition guidance for sale and leaseback transactions;

•impairment of net investment in the lease;

•unguaranteed residual asset;

•effect of initial direct costs on rate implicit in the lease; and,

•failed sale and leaseback transaction.

The effective date and transition requirements are consistent with ASU 2016-02. For entities that have early adopted Topic 842 issued in ASU 2016-02, the amendments are effective upon issuance.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The ASU provides an optional transition method for adopting the new leases guidance in Topic 842 that will eliminate comparative period reporting under the new guidance in the year of adoption. This option addresses preparer feedback about the related costs of presenting comparative periods under Topic 842. Under the optional transition method, only the most recent period presented will reflect the adoption of Topic 842 with a cumulative-effect adjustment to the opening balance of retained earnings, and the comparative prior periods will be reported under the previous guidance in Topic 840.

Also, the ASU offers lessors a practical expedient that mirrors the practical expedient already provided to lessees in ASU 2016-02, Leases (Topic 842). The new practical expedient will allow lessors to elect, by class of underlying asset, to not separate nonlease components from the associated lease component when specified conditions are met. Examples of nonlease components include equipment maintenance services, common area maintenance services in real estate, or other goods or services provided to the lessee apart from the right to use the underlying asset. The practical expedient must be applied consistently for all lease contracts.

The effective date and transition requirements for lessors electing the practical expedient for separating components of a contract are the same as the requirements for Topic 842 issued in ASU 2016-02. For entities that have early adopted Topic 842, the ASU provides specific transition guidance for lessors electing the practical expedient.

While the Corporation is currently evaluating the timing and impact of adopting ASU 2016-02, ASU 2018-10 and ASU 2018-11, the ultimate impact of adopting ASU 2016-02, ASU 2018-10 and ASU 2018-11 will depend on the Corporation’s lease portfolio as of the adoption date and interest rates at that time. The Corporation expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of committed lease payments as of the date of adoption. The effect on operations and capital adequacy is not expected to be material.

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. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within the fiscal year. For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations. Management has developed a committee to address CECL and the committee is currently evaluating options to comply with the ASU in a timely manner.

ASU 2017-08

In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities.

ASU 2017-08 shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization), rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans, not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.

The Corporation has evaluated the provision of ASU 2017-08 to determine the potential impact of the new standard and has determined that it is not expected to have a significant impact on its consolidated financial condition or results of operations, as the Corporation holds one security that this ASU would impact.

ASU 2017-04

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment.

ASU 2017-04 eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Impairment losses on goodwill cannot be reversed once recognized.

An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. However, the ASU eliminates the requirement to perform a qualitative assessment for any reporting unit with a zero or negative carrying amount. Therefore, the same one-step impairment assessment will apply to all reporting units. However, for a reporting unit with a zero or negative carrying amount, the ASU adds a requirement to disclose the amount of goodwill allocated to it and the reportable segment in which it is included.

For public business entities that are SEC filers, the amendments are effective with their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Corporation has evaluated the provision of ASU 2017-04 to determine the potential impact of the new standard and has determined that it is not expected to have an impact on its consolidated financial condition or results of operations based on the current circumstances.

ASU 2018-09

In July 2018, the FASB issued ASU 2018-09, Codification Improvements.

The ASU contains various improvements to various topics in the codification, including clarification that an entity must disclose the required and actual amounts of regulatory capital for each measure of regulatory capital for which the entity must comply.

For year-end public business entities, the improvements are effective upon issuance, which was July 2018. The Corporation has evaluated the improvements of ASU 2018-09 and determined that the ASU will not impact its consolidated financial condition or results of operations since the Corporation already discloses capital requirements with the Management’s Discussion and Analysis section of the Form 10-Q.

ASU 2018-13

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.

This ASU removes, modifies, and adds to existing fair value measurement disclosure requirements. The following are removed:

•transfers between Level 1 and Level 2 of the fair value hierarchy;

•the policy for determining when transfers between any of the three levels have occurred; and,

•the valuation processes used for Level 3 measurements.

The following are modified:

• a clarification that the Level 3 measurement uncertainty disclosure should communicate information about the uncertainty at the balance sheet date.

The following are new:

• for public entities, the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 instruments held at the balance sheet date; and,

• for public entities, the range and weighted average of significant unobservable inputs used for Level 3 measurements. For certain unobservable inputs, an option to disclose other quantitative information in place of the weighted average is available to the extent that it would be a more reasonable and rational method to reflect the distribution of unobservable inputs.

The ASU is effective for all entities in fiscal years beginning after December 15, 2019, including interim periods, which is first effective for calendar year entities in the March 31, 2020, interim financial statements. Early adoption is permitted. In addition, an entity may early adopt any of the removed or modified disclosures immediately and delay adoption of the new disclosures until the effective date.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

ASU 2018-14

In August 2018, the FASB issued 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 is effective for public business entities in fiscal years ending after December 15, 2020. Early adoption is permitted.

The Corporation is currently evaluating the impact this ASU will have on its consolidated financial condition or results of operations.

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Acquisition of New Windsor Bancorp, Inc. (Tables)

9 Months Ended

Sep. 30, 2018

Business Combinations [Abstract]

Purchase price consideration in common stock

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

Purchase Price Consideration in Common Stock

New Windsor shares outstanding	1,003,703
Shares paid cash consideration	150,555
Cash consideration (per New Windsor share)	$	30.00
Cash portion of purchase price	$	4,519,995
New Windsor shares outstanding	1,003,703
Shares paid stock consideration	853,148
Exchange ratio	1.10
Total ACNB shares issued	938,360
ACNB’s share price for purposes of calculation	$	30.50
Equity portion of purchase price	$	28,619,980
Cost of shares owned by buyer	$	150,000
Total consideration paid	$	33,289,975

Allocation of Purchase Price	In thousands
Total Purchase Price		$	33,290
Fair Value of Assets Acquired
Cash and cash equivalents	10,964
Investment securities	21,624
Loans held for sale	1,463
Loans	263,450
Restricted stock	486
Premises and equipment	8,624
Core deposit intangible asset	2,418
Other assets	10,792
Total assets	319,821
Fair Value of Liabilities Assumed
Non-interest bearing deposits	80,006
Interest bearing deposits	213,327
Subordinated debt	4,688
Other liabilities	1,782
Total liabilities	299,803
Net Assets Acquired		20,018
Goodwill Recorded in Acquisition		$	13,272

Fair value adjustments

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 July 1, 2017	$	272,646
Interest rate fair value adjustment on pools of homogeneous loans	(731		)
Credit fair value adjustment on pools of homogeneous loans	(4,501		)
Credit fair value adjustment on purchased credit impaired loans	(3,964		)
Fair value of acquired loans at July 1, 2017	$	263,450

Acquired purchased credit impaired loans receivable

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

In thousands
Contractual principal and interest at acquisition	$	13,439
Nonaccretable difference	(5,651		)
Expected cash flows at acquisition	7,788
Accretable yield	(1,458		)
Fair value of purchased impaired loans	$	6,330

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Retirement Benefits (Tables)

9 Months Ended

Sep. 30, 2018

Postemployment Benefits [Abstract]

Schedule of net periodic benefit expense (income)

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 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30
In thousands	2018			2017			2018			2017
Service cost	$	215		$	210		$	645		$	630
Interest cost	274			284			822			852
Expected return on plan assets	(693		)	(630		)	(2,077		)	(1,890		)
Amortization of net loss	129			169			386			507
Net Periodic Benefit Expense	$	(75	)	$	33		$	(224	)	$	99

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2018

Stockholders' Equity Note [Abstract]

Schedule of accumulated other comprehensive loss

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

In thousands	Unrealized (Losses) Gains on Securities			Pension Liability			Accumulated Other Comprehensive Loss
BALANCE — SEPTEMBER 30, 2018	$	(3,199	)	$	(5,836	)	$	(9,035	)
BALANCE — DECEMBER 31, 2017	$	(957	)	$	(6,135	)	$	(7,092	)
BALANCE — SEPTEMBER 30, 2017	$	40		$	(5,429	)	$	(5,389	)

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2018

Segment Reporting [Abstract]

Schedule of segment information

Segment information for the nine month periods ended September 30, 2018 and 2017, is as follows:

In thousands	Banking		Insurance		Total
2018
Net interest income and other income from external customers	$	50,015	$	4,205	$	54,220
Income before income taxes	19,146		1,211		20,357
Total assets	1,635,033		12,766		1,647,799
Capital expenditures	847		57		904
2017
Net interest income and other income from external customers	$	39,536	$	3,863	$	43,399
Income before income taxes	9,099		799		9,898
Total assets	1,598,331		9,304		1,607,635
Capital expenditures	1,087		—		1,087

Segment information for the three month periods ended September 30, 2018 and 2017, is as follows:

In thousands	Banking		Insurance		Total
2018
Net interest income and other income from external customers	$	17,235	$	1,303	$	18,538
Income before income taxes	7,115		367		7,482
Total assets	1,635,033		12,766		1,647,799
Capital expenditures	233		16		249
2017
Net interest income and other income from external customers	$	16,321	$	1,171	$	17,492
Income before income taxes	2,424		201		2,625
Total assets	1,598,331		9,304		1,607,635
Capital expenditures	284		—		284

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Securities (Tables)

9 Months Ended

Sep. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Schedule of amortized cost and fair value of securities

Amortized cost and fair value of securities at September 30, 2018, and December 31, 2017, were as follows:

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, 2018
U.S. Government and agencies	$	125,594	$	—	$	3,518	$	122,076
Mortgage-backed securities, residential	31,676		107		692		31,091
State and municipal	9,819		54		83		9,790
	$	167,089	$	161	$	4,293	$	162,957
DECEMBER 31, 2017
U.S. Government and agencies	$	105,899	$	2	$	1,818	$	104,083
Mortgage-backed securities, residential	34,473		461		101		34,833
State and municipal	13,227		109		42		13,294
Corporate bonds	5,000		57		—		5,057
CRA mutual fund	1,044		—		9		1,035
Stock in other banks	647		102		—		749
	$	160,290	$	731	$	1,970	$	159,051
SECURITIES HELD TO MATURITY
SEPTEMBER 30, 2018
U.S. Government and agencies	$	12,000	$	—	$	117	$	11,883
Mortgage-backed securities, residential	21,517		—		633		20,884
	$	33,517	$	—	$	750	$	32,767
DECEMBER 31, 2017
U.S. Government and agencies	$	19,000	$	2	$	99	$	18,903
Mortgage-backed securities, residential	25,829		55		238		25,646
	$	44,829	$	57	$	337	$	44,549

The required fair value disclosures are as follows:

In thousands	Fair Value at January 1, 2018		Unrealized Gains		Unrealized Losses		Fair Value at September 30, 2018
SEPTEMBER 30, 2018
Equity securities with a readily determinable fair value	$	1,793	$	31	$	81	$	1,743

Schedule of unrealized losses and fair value

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, 2018, and December 31, 2017:

	Less than 12 Months				12 Months or More				Total
In thousands	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
SECURITIES AVAILABLE FOR SALE
SEPTEMBER 30, 2018
U.S. Government and agencies	$	44,842	$	771	$	76,734	$	2,747	$	121,576	$	3,518
Mortgage-backed securities, residential	20,998		493		4,517		199		25,515		692
State and municipal	1,397		19		1,911		64		3,308		83
	$	67,237	$	1,283	$	83,162	$	3,010	$	150,399	$	4,293
DECEMBER 31, 2017
U.S. Government and agencies	$	42,775	$	445	$	58,279	$	1,373	$	101,054	$	1,818
Mortgage-backed securities, residential	7,228		56		2,845		45		10,073		101
State and municipal	1,042		8		1,950		34		2,992		42
CRA Mutual Fund	—		—		1,035		9		1,035		9
	$	51,045	$	509	$	64,109	$	1,461	$	115,154	$	1,970
SECURITIES HELD TO MATURITY
SEPTEMBER 30, 2018
U.S. Government and agencies	$	2,955	$	45	$	8,928	$	72	$	11,883	$	117
Mortgage-backed securities, residential	11,386		243		9,498		390		20,884		633
	$	14,341	$	288	$	18,426	$	462	$	32,767	$	750
DECEMBER 31, 2017
U.S. Government and agencies	$	4,985	$	15	$	10,916	$	84	$	15,901	$	99
Mortgage-backed securities, residential	4,946		29		11,070		209		16,016		238
	$	9,931	$	44	$	21,986	$	293	$	31,917	$	337

Schedule of amortized cost and fair value by contractual maturity

Amortized cost and fair value at September 30, 2018, by contractual maturity, where applicable, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay with or without penalties.

	Available for Sale				Held to Maturity
In thousands	Amortized Cost		Fair Value		Amortized Cost		Fair Value
1 year or less	$	10,050	$	10,013	$	6,000	$	5,980
Over 1 year through 5 years	121,477		118,020		6,000		5,903
Over 5 years through 10 years	3,886		3,833		—		—
Over 10 years	—		—		—		—
Mortgage-backed securities, residential	31,676		31,091		21,517		20,884
	$	167,089	$	162,957	$	33,517	$	32,767

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Loans (Tables)

9 Months Ended

Sep. 30, 2018

Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]

Schedule of classes of loan portfolio summarized by the aggregate risk rating

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, 2018, and December 31, 2017:

In thousands	Pass		Special Mention		Substandard			Doubtful		Total
SEPTEMBER 30, 2018
Originated Loans
Commercial and industrial	$	167,353	$	3,094	$	171		$	—	$	170,618
Commercial real estate	363,982		18,218		8,421			—		390,621
Commercial real estate construction	13,520		1,005		249			—		14,774
Residential mortgage	378,301		6,909		649			—		385,859
Home equity lines of credit	87,180		235		148			—		87,563
Consumer	14,337		—		—			—		14,337
Total Originated Loans	1,024,673		29,461		9,638			—		1,063,772
Acquired Loans
Commercial and industrial	5,336		123		(4		)	—		5,455
Commercial real estate	120,035		8,616		3,562			—		132,213
Commercial real estate construction	3,223		723		—			—		3,946
Residential mortgage	42,522		2,293		2,861			—		47,676
Home equity lines of credit	18,635		88		393			—		19,116
Consumer	268		—		—			—		268
Total Acquired Loans	190,019		11,843		6,812			—		208,674
Total Loans
Commercial and industrial	172,689		3,217		167			—		176,073
Commercial real estate	484,017		26,834		11,983			—		522,834
Commercial real estate construction	16,743		1,728		249			—		18,720
Residential mortgage	420,823		9,202		3,510			—		433,535
Home equity lines of credit	105,815		323		541			—		106,679
Consumer	14,605		—		—			—		14,605
Total Loans	$	1,214,692	$	41,304	$	16,450		$	—	$	1,272,446

In thousands	Pass		Special Mention		Substandard		Doubtful		Total
DECEMBER 31, 2017
Originated Loans
Commercial and industrial	$	154,177	$	3,466	$	1,812	$	—	$	159,455
Commercial real estate	325,002		17,666		9,277		—		351,945
Commercial real estate construction	27,413		767		250		—		28,430
Residential mortgage	363,195		3,251		478		—		366,924
Home equity lines of credit	81,976		360		—		—		82,336
Consumer	14,454		—		—		—		14,454
Total Originated Loans	966,217		25,510		11,817		—		1,003,544
Acquired Loans
Commercial and industrial	6,120		244		10		—		6,374
Commercial real estate	124,852		12,734		3,228		—		140,814
Commercial real estate construction	6,742		388		—		—		7,130
Residential mortgage	52,959		2,762		3,248		—		58,969
Home equity lines of credit	24,990		88		378		—		25,456
Consumer	1,525		358		—		—		1,883
Total Acquired Loans	217,188		16,574		6,864		—		240,626
Total Loans
Commercial and industrial	160,297		3,710		1,822		—		165,829
Commercial real estate	449,854		30,400		12,505		—		492,759
Commercial real estate construction	34,155		1,155		250		—		35,560
Residential mortgage	416,154		6,013		3,726		—		425,893
Home equity lines of credit	106,966		448		378		—		107,792
Consumer	15,979		358		—		—		16,337
Total Loans	$	1,183,405	$	42,084	$	18,681	$	—	$	1,244,170

Schedule of changes In accretable yields of acquired loans

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	Nine Months Ended September 30, 2018
Balance at beginning of period	$	1,234
Acquisitions of impaired loans	—
Reclassification from non-accretable differences	288
Accretion to loan interest income	(490		)
Balance at end of period	$	1,032

Summary of information relative to impaired loans by loan portfolio class

The following table summarizes information relative to impaired loans by loan portfolio class as of September 30, 2018, and December 31, 2017:

	Impaired Loans with  Allowance						Impaired Loans with No Allowance
In thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance
SEPTEMBER 30, 2018
Commercial and industrial	$	—	$	—	$	—	$	—	$	—
Commercial real estate	—		—		—		7,188		7,188
Commercial real estate construction	—		—		—		—		—
Residential mortgage	—		—		—		533		533
Home equity lines of credit	148		148		148		—		—
	$	148	$	148	$	148	$	7,721	$	7,721
DECEMBER 31, 2017
Commercial and industrial	$	1,311	$	1,311	$	792	$	188	$	188
Commercial real estate	832		832		60		7,528		7,528
Commercial real estate construction	—		—		—		—		—
Residential mortgage	377		377		377		101		101
	$	2,520	$	2,520	$	1,229	$	7,817	$	7,817

Summary of information in regards to the average of impaired loans and related income by loan portfolio class

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, 2018 and 2017:

	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2018
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	—		—		7,215		36
Commercial real estate construction	—		—		—		—
Residential mortgage	—		—		317		—
Home equity lines of credit	74		—		—		—
	$	74	$	—	$	7,532	$	36
SEPTEMBER 30, 2017
Commercial and industrial	$	1,360	$	—	$	734	$	—
Commercial real estate	832		—		7,626		80
Commercial real estate construction	—		—		—		—
Residential mortgage	378		—		101		—
	$	2,570	$	—	$	8,461	$	80

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, 2018 and 2017:

	Impaired Loans with Allowance				Impaired Loans with No Allowance
In thousands	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
SEPTEMBER 30, 2018
Commercial and industrial	$	545	$	—	$	92	$	44
Commercial real estate	—		—		7,525		118
Commercial real estate construction	—		—		—		—
Residential mortgage	94		—		209		—
Home equity lines of credit	37		—		—		—
	$	676	$	—	$	7,826	$	162
SEPTEMBER 30, 2017
Commercial and industrial	$	1,152	$	—	$	934	$	—
Commercial real estate	416		—		8,155		293
Commercial real estate construction	—		—		75		25
Residential mortgage	377		—		238		15
	$	1,945	$	—	$	9,402	$	333

Schedule of nonaccrual loans by loan portfolio class

The following table presents nonaccrual loans by loan portfolio class as of September 30, 2018, and December 31, 2017, the table below excludes $6.9 million in purchase credit impaired loans, net of unamortized fair value adjustments: 

In thousands	September 30, 2018		December 31, 2017
Commercial and industrial	$	—	$	1,499
Commercial real estate	3,281		4,378
Commercial real estate construction	—		—
Residential mortgage	533		478
Home equity lines of credit	148		—
	$	3,962	$	6,355

Schedule of classes of loan portfolio summarized by the past due status

The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2018, and December 31, 2017:

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, 2018
Originated Loans
Commercial and industrial	$	69	$	—	$	4	$	73	$	170,545	$	170,618	$	4
Commercial real estate	186		569		2,575		3,330		387,291		390,621		—
Commercial real estate construction	—		—		—		—		14,774		14,774		—
Residential mortgage	298		1,254		1,535		3,087		382,772		385,859		1,001
Home equity lines of credit	364		—		323		687		86,876		87,563		175
Consumer	51		24		33		108		14,229		14,337		33
Total originated loans	968		1,847		4,470		7,285		1,056,487		1,063,772		1,213
Acquired Loans
Commercial and industrial	—		—		—		—		5,455		5,455		—
Commercial real estate	218		—		857		1,075		131,138		132,213		857
Commercial real estate construction	—		—		77		77		3,869		3,946		77
Residential mortgage	16		3		125		144		47,532		47,676		125
Home equity lines of credit	641		63		70		774		18,342		19,116		70
Consumer	—		—		—		—		268		268		—
Total acquired loans	875		66		1,129		2,070		206,604		208,674		1,129
Total Loans
Commercial and industrial	69		—		4		73		176,000		176,073		4
Commercial real estate	404		569		3,432		4,405		518,429		522,834		857
Commercial real estate construction	—		—		77		77		18,643		18,720		77
Residential mortgage	314		1,257		1,660		3,231		430,304		433,535		1,126
Home equity lines of credit	1,005		63		393		1,461		105,218		106,679		245
Consumer	51		24		33		108		14,497		14,605		33
Total Loans	$	1,843	$	1,913	$	5,599	$	9,355	$	1,263,091	$	1,272,446	$	2,342

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, 2017
Originated Loans
Commercial and industrial	$	55	$	76	$	1,503	$	1,634	$	157,821	$	159,455	$	4
Commercial real estate	436		317		1,400		2,153		349,792		351,945		88
Commercial real estate construction	252		—		—		252		28,178		28,430		—
Residential mortgage	3,006		646		1,500		5,152		361,772		366,924		1,022
Home equity lines of credit	254		29		183		466		81,870		82,336		183
Consumer	72		26		3		101		14,353		14,454		3
Total originated loans	4,075		1,094		4,589		9,758		993,786		1,003,544		1,300
Acquired Loans
Commercial and industrial	83		—		—		83		6,291		6,374		—
Commercial real estate	916		—		—		916		139,898		140,814		—
Commercial real estate construction	—		—		—		—		7,130		7,130		—
Residential mortgage	930		304		137		1,371		57,598		58,969		137
Home equity lines of credit	83		—		70		153		25,303		25,456		70
Consumer	—		—		—		—		1,883		1,883		—
Total acquired loans	2,012		304		207		2,523		238,103		240,626		207
Total Loans
Commercial and industrial	138		76		1,503		1,717		164,112		165,829		4
Commercial real estate	1,352		317		1,400		3,069		489,690		492,759		88
Commercial real estate construction	252		—		—		252		35,308		35,560		—
Residential mortgage	3,936		950		1,637		6,523		419,370		425,893		1,159
Home equity lines of credit	337		29		253		619		107,173		107,792		253
Consumer	72		26		3		101		16,236		16,337		3
Total Loans	$	6,087	$	1,398	$	4,796	$	12,281	$	1,231,889	$	1,244,170	$	1,507

Summary of allowance for loan losses and recorded investment in loans receivable

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

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, 2018
Allowance for Loan Losses
Beginning balance - July 1, 2018	$	2,433		$	5,721		$	146		$	2,840		$	564		$	673		$	766		$	13,143
Charge-offs	(33		)	—			—			—			—			(29		)	—			(62		)
Recoveries	22			—			103			8			—			—			—			133
Provisions	185			123			(50		)	(95		)	131			(9		)	(85		)	200
Ending balance - September 30, 2018	$	2,607		$	5,844		$	199		$	2,753		$	695		$	635		$	681		$	13,414
Beginning balance - January 1, 2018	$	3,219		$	5,228		$	126		$	3,226		$	612		$	749		$	816		$	13,976
Charge-offs	(911		)	(33		)	—			(489		)	—			(66		)	—			(1,499		)
Recoveries	33			—			103			30			—			1			—			167
Provisions	266			649			(30		)	(14		)	83			(49		)	(135		)	770
Ending balance - September 30, 2018	$	2,607		$	5,844		$	199		$	2,753		$	695		$	635		$	681		$	13,414
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	148		$	—		$	—		$	148
Ending balance: collectively evaluated for impairment	$	2,607		$	5,844		$	199		$	2,753		$	547		$	635		$	681		$	13,266
Loans Receivable
Ending balance	$	176,073		$	522,834		$	18,720		$	433,535		$	106,679		$	14,605		$	—		$	1,272,446
Ending balance: individually evaluated for impairment	$	—		$	7,188		$	—		$	533		$	148		$	—		$	—		$	7,869
Ending balance: collectively evaluated for impairment	$	176,073		$	515,646		$	18,720		$	433,002		$	106,531		$	14,605		$	—		$	1,264,577
AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 2017
Allowance for Loan Losses
Beginning Balance - July 1, 2017	$	3,246		$	5,210		$	135		$	3,368		$	607		$	815		$	767		$	14,148
Charge-offs	(60		)	—			—			(15		)	(9		)	(18		)	—			(102		)
Recoveries	8			—			40			10			—			1			—			59
Provisions	73			195			(31		)	(101		)	29			12			(177		)	—
Ending balance - September 30, 2017	$	3,267		$	5,405		$	144		$	3,262		$	627		$	810		$	590		$	14,105
Beginning Balance - January 1, 2017	$	3,055		$	4,968		$	147		$	3,478		$	648		$	923		$	975		$	14,194
Charge-offs	(129		)	—			—			(32		)	(9		)	(102		)	—			(272		)
Recoveries	17			61			40			52			—			13			—			183
Provisions	324			376			(43		)	(236		)	(12		)	(24		)	(385		)	—
Ending balance - September 30, 2017	$	3,267		$	5,405		$	144		$	3,262		$	627		$	810		$	590		$	14,105
Ending balance: individually evaluated for impairment	$	698		$	117		$	—		$	377		$	—		$	—		$	—		$	1,192
Ending balance: collectively evaluated for impairment	$	2,569		$	5,288		$	144		$	2,885		$	627		$	810		$	590		$	12,913
Loans Receivable
Ending balance	$	169,037		$	483,673		$	39,779		$	421,732		$	105,113		$	17,036		$	—		$	1,236,370
Ending balance: individually evaluated for impairment	$	1,743		$	8,413		$	—		$	478		$	—		$	—		$	—		$	10,634
Ending balance: collectively evaluated for impairment	$	167,294		$	475,260		$	39,779		$	421,254		$	105,113		$	17,036		$	—		$	1,225,736

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, 2017
Allowance for Loan Losses
Ending balance	$	3,219	$	5,228	$	126	$	3,226	$	612	$	749	$	816	$	13,976
Ending balance: individually evaluated for impairment	$	792	$	60	$	—	$	377	$	—	$	—	$	—	$	1,229
Ending balance: collectively evaluated for impairment	$	2,427	$	5,168	$	126	$	2,849	$	612	$	749	$	816	$	12,747
Loans Receivable
Ending balance	$	165,829	$	492,759	$	35,560	$	425,893	$	107,792	$	16,337	$	—	$	1,244,170
Ending balance: individually evaluated for impairment	$	1,499	$	8,360	$	—	$	478	$	—	$	—	$	—	$	10,337
Ending balance: collectively evaluated for impairment	$	164,330	$	484,399	$	35,560	$	425,415	$	107,792	$	16,337	$	—	$	1,233,833

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Disclosures [Abstract]

Schedule of fair value measurements by level within the fair value hierarchy and the basis of measurement used

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, 2018, and December 31, 2017, are as follows:

		September 30, 2018
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	122,076	$	—	$	122,076	$	—
Mortgage-backed securities, residential		31,091		—		31,091		—
State and municipal		9,790		—		9,790		—
Total securities available for sale	Recurring	$	162,957	$	—	$	162,957	$	—
Equity securities with readily determinable fair values	Recurring	$	1,743	$	1,743	$	—	$	—
Collateral dependent impaired loans	Nonrecurring	$	3,907	$	—	$	—	$	3,907

		December 31, 2017
In thousands	Basis	Total		Level 1		Level 2		Level 3
U.S. Government and agencies		$	104,083	$	—	$	104,083	$	—
Mortgage-backed securities, residential		34,833		—		34,833		—
State and municipal		13,294		—		13,294		—
Corporate bonds		5,057		—		5,057		—
CRA mutual fund		1,035		1,035		—		—
Stock in other banks		749		749		—		—
Total securities available for sale	Recurring	$	159,051	$	1,784	$	157,267	$	—
Collateral dependent impaired loans	Nonrecurring	$	5,426	$	—	$	—	$	5,426

Schedule of additional quantitative information about assets measured at fair value on a nonrecurring basis

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
September 30, 2018
Impaired loans	$	3,907	Appraisal of collateral	(a)	Appraisal adjustments	(b)	(10) - (50)%	(28)%
December 31, 2017
Impaired loans	$	5,426	Appraisal of collateral	(a)	Appraisal adjustments	(b)	(10) - (50)%	(36)%

(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.

Schedule of carrying amount, exit pricing concept fair value and placement in the fair value hierarchy

The following presents the carrying amount, exit pricing concept fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of September 30, 2018:

	September 30, 2018
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	18,145	$	18,145	$	7,981	$	10,164	$	—
Interest-bearing deposits in banks	45,551		45,551		45,551		—		—
Equity securities with readily determinable fair value	1,743		1,743		1,743		—		—
Investment securities available for sale	162,957		162,957		—		162,957		—
Investment securities held to maturity	33,517		32,767		—		32,767		—
Loans held for sale	1,112		1,112		—		1,112		—
Loans, less allowance for loan losses	1,259,032		1,218,667		—		—		1,218,667
Accrued interest receivable	4,737		4,737		—		4,737		—
Restricted investment in bank stocks	4,529		4,529		—		4,529		—
Financial liabilities:
Demand deposits and savings	984,704		984,704		—		984,704		—
Time deposits	362,539		357,603		—		357,603		—
Short-term borrowings	38,525		38,525		—		38,525		—
Long-term borrowings	79,725		79,383		—		79,383		—
Trust preferred subordinated debt	5,000		4,699		—		4,699		—
Accrued interest payable	1,406		1,406		—		1,406		—
Off-balance sheet financial instruments	—		—		—		—		—

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, 2017:

	December 31, 2017
In thousands	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	19,304	$	19,304	$	8,313	$	10,991	$	—
Interest-bearing deposits in banks	15,137		15,137		15,137		—		—
Investment securities available for sale	159,051		159,051		1,784		157,267		—
Investment securities held to maturity	44,829		44,549		—		44,549		—
Loans held for sale	1,736		1,736		—		1,736		—
Loans, less allowance for loan losses	1,230,194		1,213,932		—		—		1,213,932
Accrued interest receivable	3,670		3,670		—		3,670		—
Restricted investment in bank stocks	4,773		4,773		—		4,773		—
Financial liabilities:
Demand deposits and savings	944,399		944,399		—		944,399		—
Time deposits	354,093		351,057		—		351,057		—
Short-term borrowings	36,908		36,908		—		36,908		—
Long-term borrowings	89,600		89,571		—		89,571		—
Trust preferred subordinated debt	5,000		4,692		—		4,692		—
Accrued interest payable	1,163		1,163		—		1,163		—
Off-balance sheet financial instruments	—		—		—		—		—

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Securities Sold Under Agreements to Repurchase (Repurchase Agreements) (Tables)

9 Months Ended

Sep. 30, 2018

Disclosure of Repurchase Agreements [Abstract]

Schedule of short-term borrowings subject to an enforceable master netting arrangement or repurchase agreement

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreement as of September 30, 2018, and December 31, 2017:

								Gross Amounts Not Offset in the Statements of Condition
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, 2018
Repurchase agreements
Commercial customers and government entities	(a)	$	38,525	$	—	$	38,525	$	(38,525	)	$	—	$	—
December 31, 2017
Repurchase agreements
Commercial customers and government entities	(a)	$	36,908	$	—	$	36,908	$	(36,908	)	$	—	$	—

(a) As of September 30, 2018, and December 31, 2017, the fair value of securities pledged in connection with repurchase agreements was $43,541,000 and $42,397,000, respectively.

Schedule of remaining contractual maturity of the master netting arrangement or repurchase agreements

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2018:

	Remaining Contractual Maturity of the Agreements
In thousands	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater than 90 Days		Total
Repurchase agreements and repurchase-to-maturity transactions
U.S. Treasury and agency securities	$	38,525	$	—	$	—	$	—	$	38,525
Total	$	38,525	$	—	$	—	$	—	$	38,525

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Borrowings (Tables)

9 Months Ended

Sep. 30, 2018

Debt Disclosure [Abstract]

Schedule of long-term debt outstanding

The Corporation had long-term debt outstanding as follows:

In thousands	September 30, 2018		December 31, 2017
FHLB advances	$	74,216	$	85,000
Loan payable to local bank	4,509		4,600
Loan payable to local bank	1,000		—
Trust preferred subordinated debt	5,000		5,000
	$	84,725	$	94,600

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of finite-lived intangible assets

The carrying value and accumulated amortization of the intangible assets (RIG customer lists and New Windsor core deposit intangibles) are as follows:

In thousands	Gross carrying amount		Accumulated amortization
RIG amortized intangible assets	$	7,263	$	6,514
New Windsor core deposit intangibles	2,418		539

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Basis of Presentation and Nature of Operations (Details)	9 Months Ended
	Sep. 30, 2018 bank
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of community banking office locations, ACNB	22
Number of community banking office locations, NWSB	7

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Acquisition of New Windsor Bancorp, Inc. - Narrative (Details)		3 Months Ended		9 Months Ended
	Jul. 01, 2017 USD ($) bank $ / shares shares	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) bank	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Jun. 30, 2017 $ / shares
Business Acquisition [Line Items]
Number of community banking office locations, NWSB | bank				7
Goodwill		$ 19,580,000	$ 19,580,000	$ 19,580,000	$ 19,580,000	$ 19,580,000
Merger related expenses		0	$ 4,305,000	$ 0	$ 4,675,000
Core deposit intangibles
Business Acquisition [Line Items]
Amortization period				10 years
New Windsor
Business Acquisition [Line Items]
Number of community banking office locations, NWSB | bank	7
Fair Value of total assets acquired	$ 319,821,000
Fair value of total loans acquired	263,450,000
Fair value of total deposits acquired	293,300,000
Goodwill	13,272,000	$ 13,272,000		$ 13,272,000
Cash portion of purchase price	$ 4,519,995
Percent of post transaction outstanding shares of the Corporation's common stock issued in merger	13.00%
Total consideration paid	$ 33,289,975
ACNB’s share price for purposes of calculation (in dollars per share) | $ / shares	$ 30.50						$ 30.50
Loans receivable, gross amortized cost basis	$ 272,646,000
Interest rate fair value discount	731,000
Credit fair value discount	4,501,000
New Windsor | Long-term Borrowings
Business Acquisition [Line Items]
Liabilities, fair value discount	$ 312,500
New Windsor | Core deposit intangibles
Business Acquisition [Line Items]
Amortization period	10 years			10 years
New Windsor | Time Deposits
Business Acquisition [Line Items]
Assets, fair value premium (discount)	$ 847,500
New Windsor | Common Stock
Business Acquisition [Line Items]
Shares of common stock issued in merger (in shares) | shares	938,360

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Acquisition of New Windsor Bancorp, Inc. - Purchase Price Consideration in Common Stock (Details) - USD ($)	Jul. 01, 2017	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Jun. 30, 2017
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Shares outstanding		7,042,224	7,023,658	7,019,645
Fair Value of Liabilities Assumed
Goodwill Recorded in Acquisition		$ 19,580,000	$ 19,580,000	$ 19,580,000
NW Bancorp
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Cash consideration (per New Windsor share) (in dollars per share)	$ 30.00
Cash portion of purchase price	$ 4,519,995
ACNB’s share price for purposes of calculation (in dollars per share)	$ 30.50				$ 30.50
Equity portion of purchase price	$ 28,619,980
Cost of shares owned by buyer	150,000
Total consideration paid	33,289,975
Fair Value of Assets Acquired
Cash and cash equivalents	10,964,000
Investment securities	21,624,000
Loans held for sale	1,463,000
Loans	263,450,000
Restricted stock	486,000
Premises and equipment	8,624,000
Core deposit intangible asset	2,418,000
Other assets	10,792,000
Total assets	319,821,000
Fair Value of Liabilities Assumed
Non-interest bearing deposits	80,006,000
Interest bearing deposits	213,327,000
Subordinated debt	4,688,000
Other liabilities	1,782,000
Total liabilities	299,803,000
Net Assets Acquired	20,018,000
Goodwill Recorded in Acquisition	$ 13,272,000	$ 13,272,000
NW Bancorp | Common Stock
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Exchange ratio	1.10
Total ACNB shares issued	938,360
NW Bancorp | NW Bancorp
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Shares outstanding	1,003,703
Shares paid cash consideration	150,555
Shares paid stock consideration	853,148

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Acquisition of New Windsor Bancorp, Inc. - Fair Value Adjustments (Details) - New Windsor $ in Thousands	Jul. 01, 2017 USD ($)
Business Acquisition [Line Items]
Gross amortized cost basis at July 1, 2017	$ 272,646
Interest rate fair value adjustment on pools of homogeneous loans	(731)
Credit fair value adjustment on pools of homogeneous loans	(4,501)
Fair value of acquired loans at July 1, 2017	263,450
Purchased credit impaired loans
Business Acquisition [Line Items]
Credit fair value adjustment on pools of homogeneous loans	$ (3,964)

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Acquisition of New Windsor Bancorp, Inc. - Acquired Purchased Credit Impaired Loans Receivable (Details) - New Windsor $ in Thousands	Jul. 01, 2017 USD ($)
Business Acquisition [Line Items]
Contractual principal and interest at acquisition	$ 13,439
Nonaccretable difference	(5,651)
Expected cash flows at acquisition	7,788
Accretable yield	(1,458)
Fair value of purchased impaired loans	$ 6,330

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Earnings Per Share and Restricted Stock Plan (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings Per Share [Abstract]
Weighted average shares of common stock outstanding (in shares)	7,038,768	7,004,346	7,033,437	6,383,149
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued under plan (in shares)	26,045		26,045
Shares fully vested (in shares)	19,485		19,485
Shares expected to vest over next two years (in shares)	6,560		6,560
Vesting period (in years)			2 years
Compensation expense	$ 42,000	$ 0	$ 159,000	$ 120,000

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Retirement Benefits (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($) person	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) person	Sep. 30, 2017 USD ($)
Postemployment Benefits [Abstract]
Service cost	$ 215	$ 210	$ 645	$ 630
Interest cost	274	284	822	852
Expected return on plan assets	(693)	(630)	(2,077)	(1,890)
Amortization of net loss	129	169	386	507
Net Periodic Benefit Expense	$ (75)	$ 33	$ (224)	$ 99
Number of active, vested, terminated and retired persons in the Plan | person	353		353

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Guarantees (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Guarantor Obligations [Line Items]
Line of credit facility expiration period	1 year
Standby Letters of Credit
Guarantor Obligations [Line Items]
Guarantees amount	$ 4,479

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Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Accumulated Other Comprehensive Income (Loss) [Line Items]
Components of accumulated other comprehensive loss	$ 164,512	$ 153,966	$ 153,256	$ 120,061
Unrealized (Losses) Gains on Securities
Accumulated Other Comprehensive Income (Loss) [Line Items]
Components of accumulated other comprehensive loss	(3,199)	(957)	40
Pension Liability
Accumulated Other Comprehensive Income (Loss) [Line Items]
Components of accumulated other comprehensive loss	(5,836)	(6,135)	(5,429)
Accumulated Other Comprehensive Loss
Accumulated Other Comprehensive Income (Loss) [Line Items]
Components of accumulated other comprehensive loss	$ (9,035)	$ (7,092)	$ (5,389)	$ (6,024)

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Segment Reporting (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) segment	Sep. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Segment Reporting [Abstract]
Number of reporting segments | segment			2
Segment Reporting Information [Line Items]
Net interest income and other income from external customers	$ 18,538	$ 17,492	$ 54,220	$ 43,399
Income before income taxes	7,482	2,625	20,357	9,898
Total assets	1,647,799	1,607,635	1,647,799	1,607,635	$ 1,595,432
Capital expenditures	249	284	$ 904	1,087
Core deposit intangibles
Segment Reporting Information [Line Items]
Amortization period			10 years
Minimum | Customer lists
Segment Reporting Information [Line Items]
Amortization period			8 years
Maximum | Customer lists
Segment Reporting Information [Line Items]
Amortization period			13 years
Banking
Segment Reporting Information [Line Items]
Net interest income and other income from external customers	17,235	16,321	$ 50,015	39,536
Income before income taxes	7,115	2,424	19,146	9,099
Total assets	1,635,033	1,598,331	1,635,033	1,598,331
Capital expenditures	233	284	847	1,087
Insurance
Segment Reporting Information [Line Items]
Net interest income and other income from external customers	1,303	1,171	4,205	3,863
Income before income taxes	367	201	1,211	799
Total assets	12,766	9,304	12,766	9,304
Capital expenditures	$ 16	$ 0	$ 57	$ 0

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Securities - Schedule of Amortized Cost and Fair Value of Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
SECURITIES AVAILABLE FOR SALE
Amortized Cost	$ 167,089	$ 160,290
Gross Unrealized Gains	161	731
Gross Unrealized Losses	4,293	1,970
Fair Value	162,957	159,051
SECURITIES HELD TO MATURITY
Amortized Cost	33,517	44,829	$ 47,369
Gross Unrealized Gains	0	57
Gross Unrealized Losses	750	337
Fair Value	32,767	44,549	$ 47,373
U.S. Government and agencies
SECURITIES AVAILABLE FOR SALE
Amortized Cost	125,594	105,899
Gross Unrealized Gains	0	2
Gross Unrealized Losses	3,518	1,818
Fair Value	122,076	104,083
SECURITIES HELD TO MATURITY
Amortized Cost	12,000	19,000
Gross Unrealized Gains	0	2
Gross Unrealized Losses	117	99
Fair Value	11,883	18,903
Mortgage-backed securities, residential
SECURITIES AVAILABLE FOR SALE
Amortized Cost	31,676	34,473
Gross Unrealized Gains	107	461
Gross Unrealized Losses	692	101
Fair Value	31,091	34,833
SECURITIES HELD TO MATURITY
Amortized Cost	21,517	25,829
Gross Unrealized Gains	0	55
Gross Unrealized Losses	633	238
Fair Value	20,884	25,646
State and municipal
SECURITIES AVAILABLE FOR SALE
Amortized Cost	9,819	13,227
Gross Unrealized Gains	54	109
Gross Unrealized Losses	83	42
Fair Value	$ 9,790	13,294
Corporate bonds
SECURITIES AVAILABLE FOR SALE
Amortized Cost		5,000
Gross Unrealized Gains		57
Gross Unrealized Losses		0
Fair Value		5,057
CRA mutual fund
SECURITIES AVAILABLE FOR SALE
Amortized Cost		1,044
Gross Unrealized Gains		0
Gross Unrealized Losses		9
Fair Value		1,035
Stock in other banks
SECURITIES AVAILABLE FOR SALE
Amortized Cost		647
Gross Unrealized Gains		102
Gross Unrealized Losses		0
Fair Value		$ 749

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Securities - Schedule of Required Fair Value Disclosures for Equity Securities (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Equity Securities, FV-NI, Realized Gain (Loss) [Roll Forward]
Fair Value at January 1, 2018	$ 0
Fair Value at September 30, 2018	1,743
Accounting Standards Update 2016-01
Equity Securities, FV-NI, Realized Gain (Loss) [Roll Forward]
Fair Value at January 1, 2018	1,793
Unrealized Gains	31
Unrealized Losses	81
Fair Value at September 30, 2018	$ 1,743

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Securities - Schedule of Unrealized Losses and Fair Value (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
SECURITIES AVAILABLE FOR SALE
Fair Value, Less than 12 Months	$ 67,237	$ 51,045
Unrealized Losses, Less than 12 Months	1,283	509
Fair Value, 12 Months or More	83,162	64,109
Unrealized Losses, 12 Months or More	3,010	1,461
Total Fair Value	150,399	115,154
Total Unrealized Losses	4,293	1,970
SECURITIES HELD TO MATURITY
Fair Value, Less than 12 Months	14,341	9,931
Unrealized Losses, Less than 12 Months	288	44
Fair Value, 12 Months or More	18,426	21,986
Unrealized Losses, 12 Months or More	462	293
Total Fair Value	32,767	31,917
Total Unrealized Losses	750	337
U.S. Government and agencies
SECURITIES AVAILABLE FOR SALE
Fair Value, Less than 12 Months	44,842	42,775
Unrealized Losses, Less than 12 Months	771	445
Fair Value, 12 Months or More	76,734	58,279
Unrealized Losses, 12 Months or More	2,747	1,373
Total Fair Value	121,576	101,054
Total Unrealized Losses	3,518	1,818
SECURITIES HELD TO MATURITY
Fair Value, Less than 12 Months	2,955	4,985
Unrealized Losses, Less than 12 Months	45	15
Fair Value, 12 Months or More	8,928	10,916
Unrealized Losses, 12 Months or More	72	84
Total Fair Value	11,883	15,901
Total Unrealized Losses	117	99
Mortgage-backed securities, residential
SECURITIES AVAILABLE FOR SALE
Fair Value, Less than 12 Months	20,998	7,228
Unrealized Losses, Less than 12 Months	493	56
Fair Value, 12 Months or More	4,517	2,845
Unrealized Losses, 12 Months or More	199	45
Total Fair Value	25,515	10,073
Total Unrealized Losses	692	101
SECURITIES HELD TO MATURITY
Fair Value, Less than 12 Months	11,386	4,946
Unrealized Losses, Less than 12 Months	243	29
Fair Value, 12 Months or More	9,498	11,070
Unrealized Losses, 12 Months or More	390	209
Total Fair Value	20,884	16,016
Total Unrealized Losses	633	238
State and municipal
SECURITIES AVAILABLE FOR SALE
Fair Value, Less than 12 Months	1,397	1,042
Unrealized Losses, Less than 12 Months	19	8
Fair Value, 12 Months or More	1,911	1,950
Unrealized Losses, 12 Months or More	64	34
Total Fair Value	3,308	2,992
Total Unrealized Losses	$ 83	42
CRA Mutual Fund
SECURITIES AVAILABLE FOR SALE
Fair Value, Less than 12 Months		0
Unrealized Losses, Less than 12 Months		0
Fair Value, 12 Months or More		1,035
Unrealized Losses, 12 Months or More		9
Total Fair Value		1,035
Total Unrealized Losses		$ 9

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Securities - Narrative (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($) Security	Sep. 30, 2018 USD ($) Security	Dec. 31, 2017 USD ($)
Debt Securities, Available-for-sale [Line Items]
Gross gains on sales of securities available for sale | $	$ 31,000	$ 44,000
Carrying value of securities pledged as collateral as required by law on public and trust deposits, repurchase agreements, and for other purposes | $	$ 181,820,000	$ 181,820,000	$ 157,601,000
U.S. Government and agencies
Debt Securities, Available-for-sale [Line Items]
Available for sale securities in unrealized loss positions	74	74
Available for sale securities in unrealized loss positions, percentage of amortized cost (individually did not exceed)	7.00%	7.00%
Available for sale securities in unrealized loss positions for 12 months or more	50	50
Schedule of Held-to-maturity Securities [Line Items]
Held to maturity securities in unrealized loss positions	7	7
Held to maturity securities in unrealized loss positions, percentage of amortized cost (individually did not exceed)	2.00%	2.00%
Held to maturity securities in unrealized loss positions for 12 months or more	5	5
Mortgage-backed securities, residential
Debt Securities, Available-for-sale [Line Items]
Available for sale securities in unrealized loss positions	38	38
Available for sale securities in unrealized loss positions, percentage of amortized cost (individually did not exceed)	5.00%	5.00%
Available for sale securities in unrealized loss positions for 12 months or more	7	7
Schedule of Held-to-maturity Securities [Line Items]
Held to maturity securities in unrealized loss positions	34	34
Held to maturity securities in unrealized loss positions, percentage of amortized cost (individually did not exceed)	5.00%	5.00%
Held to maturity securities in unrealized loss positions for 12 months or more	13	13
State and municipal
Debt Securities, Available-for-sale [Line Items]
Available for sale securities in unrealized loss positions	12	12
Available for sale securities in unrealized loss positions, percentage of amortized cost (individually did not exceed)	6.00%	6.00%
Available for sale securities in unrealized loss positions for 12 months or more	8	8

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Securities - Schedule of Amortized Cost and Fair Value by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Available for Sale Amortized Cost
1 year or less	$ 10,050
Over 1 year through 5 years	121,477
Over 5 years through 10 years	3,886
Over 10 years	0
Total amortized cost	167,089	$ 160,290
Available for Sale Fair Value
1 year or less	10,013
Over 1 year through 5 years	118,020
Over 5 years through 10 years	3,833
Over 10 years	0
Total securities available for sale	162,957	159,051
Held-to-Maturity Amortized Cost
1 year or less	6,000
Over 1 year through 5 years	6,000
Over 5 years through 10 years	0
Over 10 years	0
Total amortized costs	33,517	44,829	$ 47,369
Held-to-Maturity Fair Value
1 year or less	5,980
Over 1 year through 5 years	5,903
Over 5 years through 10 years	0
Over 10 years	0
Securities held to maturity, fair value	32,767	44,549	$ 47,373
Mortgage-backed securities, residential
Available for Sale Amortized Cost
Without single maturity date	31,676
Total amortized cost	31,676	34,473
Available for Sale Fair Value
Without single maturity date	31,091
Total securities available for sale	31,091	34,833
Held-to-Maturity Amortized Cost
Without single maturity date	21,517
Total amortized costs	21,517	25,829
Held-to-Maturity Fair Value
Without single maturity date	20,884
Securities held to maturity, fair value	$ 20,884	$ 25,646

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Loans - Narrative (Details) $ in Thousands		9 Months Ended	12 Months Ended
	Jul. 01, 2017 USD ($)	Sep. 30, 2018 USD ($) Contract	Dec. 31, 2017 USD ($) Contract
Accounts, Notes, Loans and Financing Receivable [Line Items]
Period for order of valuations (at least)		18 months
Number of troubled debt restructured loan paid off | Contract		1	1
Number of loans which has periodic late payments | Contract		1
Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process		$ 800	$ 848
Residential mortgage and commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Threshold period past due to discontinue accrual interest on financing receivable		90 days
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Threshold period past due for write-off of financing receivable (no later than)		120 days
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Period of financing receivable, updated valuation on real estate secured loans, 90 days past due		90 days
Number of previous months with no updated valuation completed for corporation to update valuation		12 months
Impaired financing receivable, valuation on real estate collateralized loans		30 days
Entity Loan Modification Program
Accounts, Notes, Loans and Financing Receivable [Line Items]
Proceeds from paid off troubled debt restructured loans		$ 832	283
New Windsor
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest rate fair value discount	$ 731
Credit fair value discount	$ 4,501
Maximum | Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable term		20 years
Loan-to-value ratio (no greater than)		80.00%
Maximum | Residential mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable term		30 years
Loan-to-value ratio (no greater than)		80.00%
Loan-to-value ratio that requires private mortgage insurance (in excess of)		80.00%
Maximum | Home equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing receivable term		20 years
Loan-to-value ratio (no greater than)		90.00%
Nonaccrual
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Modifications, Recorded Investment		$ 2,500	3,400
Accrual
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable, Modifications, Recorded Investment		$ 3,900	$ 4,000

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Loans - Schedule of Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 1,272,446	$ 1,244,170	$ 1,236,370
Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	1,214,692	1,183,405
Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	41,304	42,084
Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	16,450	18,681
Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	176,073	165,829	169,037
Commercial and industrial | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	172,689	160,297
Commercial and industrial | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	3,217	3,710
Commercial and industrial | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	167	1,822
Commercial and industrial | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	522,834	492,759	483,673
Commercial real estate | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	484,017	449,854
Commercial real estate | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	26,834	30,400
Commercial real estate | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	11,983	12,505
Commercial real estate | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Commercial real estate construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	18,720	35,560	39,779
Commercial real estate construction | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	16,743	34,155
Commercial real estate construction | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	1,728	1,155
Commercial real estate construction | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	249	250
Commercial real estate construction | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Residential mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	433,535	425,893	421,732
Residential mortgage | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	420,823	416,154
Residential mortgage | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	9,202	6,013
Residential mortgage | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	3,510	3,726
Residential mortgage | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Home equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	106,679	107,792	105,113
Home equity lines of credit | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	105,815	106,966
Home equity lines of credit | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	323	448
Home equity lines of credit | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	541	378
Home equity lines of credit | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	14,605	16,337	$ 17,036
Consumer | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	14,605	15,979
Consumer | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	358
Consumer | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Consumer | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	1,063,772	1,003,544
Originated Loans | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	1,024,673	966,217
Originated Loans | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	29,461	25,510
Originated Loans | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	9,638	11,817
Originated Loans | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	170,618	159,455
Originated Loans | Commercial and industrial | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	167,353	154,177
Originated Loans | Commercial and industrial | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	3,094	3,466
Originated Loans | Commercial and industrial | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	171	1,812
Originated Loans | Commercial and industrial | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	390,621	351,945
Originated Loans | Commercial real estate | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	363,982	325,002
Originated Loans | Commercial real estate | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	18,218	17,666
Originated Loans | Commercial real estate | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	8,421	9,277
Originated Loans | Commercial real estate | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Commercial real estate construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	14,774	28,430
Originated Loans | Commercial real estate construction | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	13,520	27,413
Originated Loans | Commercial real estate construction | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	1,005	767
Originated Loans | Commercial real estate construction | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	249	250
Originated Loans | Commercial real estate construction | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Residential mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	385,859	366,924
Originated Loans | Residential mortgage | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	378,301	363,195
Originated Loans | Residential mortgage | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	6,909	3,251
Originated Loans | Residential mortgage | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	649	478
Originated Loans | Residential mortgage | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Home equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	87,563	82,336
Originated Loans | Home equity lines of credit | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	87,180	81,976
Originated Loans | Home equity lines of credit | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	235	360
Originated Loans | Home equity lines of credit | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	148	0
Originated Loans | Home equity lines of credit | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	14,337	14,454
Originated Loans | Consumer | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	14,337	14,454
Originated Loans | Consumer | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Consumer | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Originated Loans | Consumer | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	208,674	240,626
Acquired Loans | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	190,019	217,188
Acquired Loans | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	11,843	16,574
Acquired Loans | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	6,812	6,864
Acquired Loans | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	5,455	6,374
Acquired Loans | Commercial and industrial | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	5,336	6,120
Acquired Loans | Commercial and industrial | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	123	244
Acquired Loans | Commercial and industrial | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	(4)	10
Acquired Loans | Commercial and industrial | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	132,213	140,814
Acquired Loans | Commercial real estate | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	120,035	124,852
Acquired Loans | Commercial real estate | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	8,616	12,734
Acquired Loans | Commercial real estate | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	3,562	3,228
Acquired Loans | Commercial real estate | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Commercial real estate construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	3,946	7,130
Acquired Loans | Commercial real estate construction | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	3,223	6,742
Acquired Loans | Commercial real estate construction | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	723	388
Acquired Loans | Commercial real estate construction | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Commercial real estate construction | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Residential mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	47,676	58,969
Acquired Loans | Residential mortgage | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	42,522	52,959
Acquired Loans | Residential mortgage | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	2,293	2,762
Acquired Loans | Residential mortgage | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	2,861	3,248
Acquired Loans | Residential mortgage | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Home equity lines of credit
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	19,116	25,456
Acquired Loans | Home equity lines of credit | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	18,635	24,990
Acquired Loans | Home equity lines of credit | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	88	88
Acquired Loans | Home equity lines of credit | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	393	378
Acquired Loans | Home equity lines of credit | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	268	1,883
Acquired Loans | Consumer | Pass
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	268	1,525
Acquired Loans | Consumer | Special Mention
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	358
Acquired Loans | Consumer | Substandard
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	0	0
Acquired Loans | Consumer | Doubtful
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 0	$ 0

XML

Loans - Schedule of Change in Accretable Yields of Acquired Loans (Details) - Acquired Loans Accounted For Under ASC 310-30 $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Balance at beginning of period	$ 1,234
Acquisitions of impaired loans	0
Reclassification from non-accretable differences	288
Accretion to loan interest income	(490)
Balance at end of period	$ 1,032

XML

Loans - Summary of Impaired Loans by Loan Portfolio Class (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	$ 148	$ 2,520
Impaired Loans with Allowance: Unpaid Principal Balance	148	2,520
Impaired Loans with Allowance: Related Allowance	148	1,229
Impaired Loans with No Allowance: Recorded Investment	7,721	7,817
Impaired Loans with No Allowance: Unpaid Principal Balance	7,721	7,817
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	0	1,311
Impaired Loans with Allowance: Unpaid Principal Balance	0	1,311
Impaired Loans with Allowance: Related Allowance	0	792
Impaired Loans with No Allowance: Recorded Investment	0	188
Impaired Loans with No Allowance: Unpaid Principal Balance	0	188
Commercial real estate
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	0	832
Impaired Loans with Allowance: Unpaid Principal Balance	0	832
Impaired Loans with Allowance: Related Allowance	0	60
Impaired Loans with No Allowance: Recorded Investment	7,188	7,528
Impaired Loans with No Allowance: Unpaid Principal Balance	7,188	7,528
Commercial real estate construction
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	0	0
Impaired Loans with Allowance: Unpaid Principal Balance	0	0
Impaired Loans with Allowance: Related Allowance	0	0
Impaired Loans with No Allowance: Recorded Investment	0	0
Impaired Loans with No Allowance: Unpaid Principal Balance	0	0
Residential mortgage
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	0	377
Impaired Loans with Allowance: Unpaid Principal Balance	0	377
Impaired Loans with Allowance: Related Allowance	0	377
Impaired Loans with No Allowance: Recorded Investment	533	101
Impaired Loans with No Allowance: Unpaid Principal Balance	533	$ 101
Home equity lines of credit
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Recorded Investment	148
Impaired Loans with Allowance: Unpaid Principal Balance	148
Impaired Loans with Allowance: Related Allowance	148
Impaired Loans with No Allowance: Recorded Investment	0
Impaired Loans with No Allowance: Unpaid Principal Balance	$ 0

XML

Loans - Summary of Average of Impaired Loans and Related Interest Income by Loan Portfolio Class (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Average Recorded Investment	$ 74	$ 2,570	$ 676	$ 1,945
Impaired Loans with Allowance: Interest Income	0	0	0	0
Impaired Loans with No Allowance: Average Recorded Investment	7,532	8,461	7,826	9,402
Impaired Loans with No Allowance: Interest Income	36	80	162	333
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Average Recorded Investment	0	1,360	545	1,152
Impaired Loans with Allowance: Interest Income	0	0	0	0
Impaired Loans with No Allowance: Average Recorded Investment	0	734	92	934
Impaired Loans with No Allowance: Interest Income	0	0	44	0
Commercial real estate
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Average Recorded Investment	0	832	0	416
Impaired Loans with Allowance: Interest Income	0	0	0	0
Impaired Loans with No Allowance: Average Recorded Investment	7,215	7,626	7,525	8,155
Impaired Loans with No Allowance: Interest Income	36	80	118	293
Commercial real estate construction
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Average Recorded Investment	0	0	0	0
Impaired Loans with Allowance: Interest Income	0	0	0	0
Impaired Loans with No Allowance: Average Recorded Investment	0	0	0	75
Impaired Loans with No Allowance: Interest Income	0	0	0	25
Residential mortgage
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Average Recorded Investment	0	378	94	377
Impaired Loans with Allowance: Interest Income	0	0	0	0
Impaired Loans with No Allowance: Average Recorded Investment	317	101	209	238
Impaired Loans with No Allowance: Interest Income	0	$ 0	0	$ 15
Home equity lines of credit
Financing Receivable, Impaired [Line Items]
Impaired Loans with Allowance: Average Recorded Investment	74		37
Impaired Loans with Allowance: Interest Income	0		0
Impaired Loans with No Allowance: Average Recorded Investment	0		0
Impaired Loans with No Allowance: Interest Income	$ 0		$ 0

XML

Loans - Schedule of Nonaccrual Loans by Classes of the Loan Portfolio (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Purchase credit impaired loans, net of unamortized fair value adjustments	$ 6,900
Total nonaccrual loans	3,962	$ 6,355
Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total nonaccrual loans	0	1,499
Commercial real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total nonaccrual loans	3,281	4,378
Commercial real estate construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total nonaccrual loans	0	0
Residential mortgage
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total nonaccrual loans	533	478
Home equity lines of credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total nonaccrual loans	$ 148	$ 0

XML

Loans - Schedule of Loan Portfolio Summarized by the Past Due Status (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 9,355	$ 12,281
Current	1,263,091	1,231,889
Total Loans Receivable	1,272,446	1,244,170	$ 1,236,370
Loans Receivable greater than 90 Days and Accruing	2,342	1,507
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,843	6,087
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,913	1,398
Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,599	4,796
Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	73	1,717
Current	176,000	164,112
Total Loans Receivable	176,073	165,829	169,037
Loans Receivable greater than 90 Days and Accruing	4	4
Commercial and industrial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	69	138
Commercial and industrial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	76
Commercial and industrial | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	4	1,503
Commercial real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	4,405	3,069
Current	518,429	489,690
Total Loans Receivable	522,834	492,759	483,673
Loans Receivable greater than 90 Days and Accruing	857	88
Commercial real estate | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	404	1,352
Commercial real estate | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	569	317
Commercial real estate | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,432	1,400
Commercial real estate construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	77	252
Current	18,643	35,308
Total Loans Receivable	18,720	35,560	39,779
Loans Receivable greater than 90 Days and Accruing	77	0
Commercial real estate construction | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	252
Commercial real estate construction | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Commercial real estate construction | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	77	0
Residential mortgage
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,231	6,523
Current	430,304	419,370
Total Loans Receivable	433,535	425,893	421,732
Loans Receivable greater than 90 Days and Accruing	1,126	1,159
Residential mortgage | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	314	3,936
Residential mortgage | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,257	950
Residential mortgage | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,660	1,637
Home equity lines of credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,461	619
Current	105,218	107,173
Total Loans Receivable	106,679	107,792	105,113
Loans Receivable greater than 90 Days and Accruing	245	253
Home equity lines of credit | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,005	337
Home equity lines of credit | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	63	29
Home equity lines of credit | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	393	253
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	108	101
Current	14,497	16,236
Total Loans Receivable	14,605	16,337	$ 17,036
Loans Receivable greater than 90 Days and Accruing	33	3
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	51	72
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	24	26
Consumer | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	33	3
Originated Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	7,285	9,758
Current	1,056,487	993,786
Total Loans Receivable	1,063,772	1,003,544
Loans Receivable greater than 90 Days and Accruing	1,213	1,300
Originated Loans | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	968	4,075
Originated Loans | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,847	1,094
Originated Loans | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	4,470	4,589
Originated Loans | Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	73	1,634
Current	170,545	157,821
Total Loans Receivable	170,618	159,455
Loans Receivable greater than 90 Days and Accruing	4	4
Originated Loans | Commercial and industrial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	69	55
Originated Loans | Commercial and industrial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	76
Originated Loans | Commercial and industrial | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	4	1,503
Originated Loans | Commercial real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,330	2,153
Current	387,291	349,792
Total Loans Receivable	390,621	351,945
Loans Receivable greater than 90 Days and Accruing	0	88
Originated Loans | Commercial real estate | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	186	436
Originated Loans | Commercial real estate | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	569	317
Originated Loans | Commercial real estate | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,575	1,400
Originated Loans | Commercial real estate construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	252
Current	14,774	28,178
Total Loans Receivable	14,774	28,430
Loans Receivable greater than 90 Days and Accruing	0	0
Originated Loans | Commercial real estate construction | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	252
Originated Loans | Commercial real estate construction | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Originated Loans | Commercial real estate construction | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Originated Loans | Residential mortgage
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,087	5,152
Current	382,772	361,772
Total Loans Receivable	385,859	366,924
Loans Receivable greater than 90 Days and Accruing	1,001	1,022
Originated Loans | Residential mortgage | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	298	3,006
Originated Loans | Residential mortgage | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,254	646
Originated Loans | Residential mortgage | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,535	1,500
Originated Loans | Home equity lines of credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	687	466
Current	86,876	81,870
Total Loans Receivable	87,563	82,336
Loans Receivable greater than 90 Days and Accruing	175	183
Originated Loans | Home equity lines of credit | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	364	254
Originated Loans | Home equity lines of credit | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	29
Originated Loans | Home equity lines of credit | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	323	183
Originated Loans | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	108	101
Current	14,229	14,353
Total Loans Receivable	14,337	14,454
Loans Receivable greater than 90 Days and Accruing	33	3
Originated Loans | Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	51	72
Originated Loans | Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	24	26
Originated Loans | Consumer | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	33	3
Acquired Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,070	2,523
Current	206,604	238,103
Total Loans Receivable	208,674	240,626
Loans Receivable greater than 90 Days and Accruing	1,129	207
Acquired Loans | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	875	2,012
Acquired Loans | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	66	304
Acquired Loans | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,129	207
Acquired Loans | Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	83
Current	5,455	6,291
Total Loans Receivable	5,455	6,374
Loans Receivable greater than 90 Days and Accruing	0	0
Acquired Loans | Commercial and industrial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	83
Acquired Loans | Commercial and industrial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Commercial and industrial | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Commercial real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,075	916
Current	131,138	139,898
Total Loans Receivable	132,213	140,814
Loans Receivable greater than 90 Days and Accruing	857	0
Acquired Loans | Commercial real estate | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	218	916
Acquired Loans | Commercial real estate | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Commercial real estate | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	857	0
Acquired Loans | Commercial real estate construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	77	0
Current	3,869	7,130
Total Loans Receivable	3,946	7,130
Loans Receivable greater than 90 Days and Accruing	77	0
Acquired Loans | Commercial real estate construction | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Commercial real estate construction | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Commercial real estate construction | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	77	0
Acquired Loans | Residential mortgage
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	144	1,371
Current	47,532	57,598
Total Loans Receivable	47,676	58,969
Loans Receivable greater than 90 Days and Accruing	125	137
Acquired Loans | Residential mortgage | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	16	930
Acquired Loans | Residential mortgage | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3	304
Acquired Loans | Residential mortgage | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	125	137
Acquired Loans | Home equity lines of credit
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	774	153
Current	18,342	25,303
Total Loans Receivable	19,116	25,456
Loans Receivable greater than 90 Days and Accruing	70	70
Acquired Loans | Home equity lines of credit | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	641	83
Acquired Loans | Home equity lines of credit | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	63	0
Acquired Loans | Home equity lines of credit | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	70	70
Acquired Loans | Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Current	268	1,883
Total Loans Receivable	268	1,883
Loans Receivable greater than 90 Days and Accruing	0	0
Acquired Loans | Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0
Acquired Loans | Consumer | Greater than 90 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 0

XML

Loans - Schedule of Allowance for Loan Losses and Recorded Investment in Financing Receivables (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	$ 13,143	$ 14,148	$ 13,976	$ 14,194
Charge-offs	(62)	(102)	(1,499)	(272)
Recoveries	133	59	167	183
Provisions	200	0	770	0
Allowance for Loan Losses, Ending Balance	13,414	14,105	13,414	14,105
Allowance for Loan Losses, Ending Balance	13,143	14,148	13,976	14,194	$ 13,414	$ 13,976	$ 14,105
Allowance for loan losses: Ending balance: individually evaluated for impairment					148	1,229	1,192
Allowance for loan losses: Ending balance: collectively evaluated for impairment					13,266	12,747	12,913
Total Loans Receivable					1,272,446	1,244,170	1,236,370
Loans receivables: Ending balance: individually evaluated for impairment					7,869	10,337	10,634
Loans Receivable: Ending balance: collectively evaluated for impairment					1,264,577	1,233,833	1,225,736
Commercial and Industrial
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	2,433	3,246	3,219	3,055
Charge-offs	(33)	(60)	(911)	(129)
Recoveries	22	8	33	17
Provisions	185	73	266	324
Allowance for Loan Losses, Ending Balance	2,607	3,267	2,607	3,267
Allowance for Loan Losses, Ending Balance	2,433	3,246	3,219	3,055	2,607	3,219	3,267
Allowance for loan losses: Ending balance: individually evaluated for impairment					0	792	698
Allowance for loan losses: Ending balance: collectively evaluated for impairment					2,607	2,427	2,569
Total Loans Receivable					176,073	165,829	169,037
Loans receivables: Ending balance: individually evaluated for impairment					0	1,499	1,743
Loans Receivable: Ending balance: collectively evaluated for impairment					176,073	164,330	167,294
Commercial Real Estate
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	5,721	5,210	5,228	4,968
Charge-offs	0	0	(33)	0
Recoveries	0	0	0	61
Provisions	123	195	649	376
Allowance for Loan Losses, Ending Balance	5,844	5,405	5,844	5,405
Allowance for Loan Losses, Ending Balance	5,721	5,210	5,228	4,968	5,844	5,228	5,405
Allowance for loan losses: Ending balance: individually evaluated for impairment					0	60	117
Allowance for loan losses: Ending balance: collectively evaluated for impairment					5,844	5,168	5,288
Total Loans Receivable					522,834	492,759	483,673
Loans receivables: Ending balance: individually evaluated for impairment					7,188	8,360	8,413
Loans Receivable: Ending balance: collectively evaluated for impairment					515,646	484,399	475,260
Commercial Real Estate Construction
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	146	135	126	147
Charge-offs	0	0	0	0
Recoveries	103	40	103	40
Provisions	(50)	(31)	(30)	(43)
Allowance for Loan Losses, Ending Balance	199	144	199	144
Allowance for Loan Losses, Ending Balance	146	135	126	147	199	126	144
Allowance for loan losses: Ending balance: individually evaluated for impairment					0	0	0
Allowance for loan losses: Ending balance: collectively evaluated for impairment					199	126	144
Total Loans Receivable					18,720	35,560	39,779
Loans receivables: Ending balance: individually evaluated for impairment					0	0	0
Loans Receivable: Ending balance: collectively evaluated for impairment					18,720	35,560	39,779
Residential Mortgage
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	2,840	3,368	3,226	3,478
Charge-offs	0	(15)	(489)	(32)
Recoveries	8	10	30	52
Provisions	(95)	(101)	(14)	(236)
Allowance for Loan Losses, Ending Balance	2,753	3,262	2,753	3,262
Allowance for Loan Losses, Ending Balance	2,840	3,368	3,226	3,478	2,753	3,226	3,262
Allowance for loan losses: Ending balance: individually evaluated for impairment					0	377	377
Allowance for loan losses: Ending balance: collectively evaluated for impairment					2,753	2,849	2,885
Total Loans Receivable					433,535	425,893	421,732
Loans receivables: Ending balance: individually evaluated for impairment					533	478	478
Loans Receivable: Ending balance: collectively evaluated for impairment					433,002	425,415	421,254
Home Equity Lines of Credit
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	564	607	612	648
Charge-offs	0	(9)	0	(9)
Recoveries	0	0	0	0
Provisions	131	29	83	(12)
Allowance for Loan Losses, Ending Balance	695	627	695	627
Allowance for Loan Losses, Ending Balance	564	607	612	648	695	612	627
Allowance for loan losses: Ending balance: individually evaluated for impairment					148	0	0
Allowance for loan losses: Ending balance: collectively evaluated for impairment					547	612	627
Total Loans Receivable					106,679	107,792	105,113
Loans receivables: Ending balance: individually evaluated for impairment					148	0	0
Loans Receivable: Ending balance: collectively evaluated for impairment					106,531	107,792	105,113
Consumer
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	673	815	749	923
Charge-offs	(29)	(18)	(66)	(102)
Recoveries	0	1	1	13
Provisions	(9)	12	(49)	(24)
Allowance for Loan Losses, Ending Balance	635	810	635	810
Allowance for Loan Losses, Ending Balance	673	815	749	923	635	749	810
Allowance for loan losses: Ending balance: individually evaluated for impairment					0	0	0
Allowance for loan losses: Ending balance: collectively evaluated for impairment					635	749	810
Total Loans Receivable					14,605	16,337	17,036
Loans receivables: Ending balance: individually evaluated for impairment					0	0	0
Loans Receivable: Ending balance: collectively evaluated for impairment					14,605	16,337	17,036
Unallocated
Allowance for Loan Losses [Roll Forward]
Allowance for Loan Losses, Beginning Balance	766	767	816	975
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	(85)	(177)	(135)	(385)
Allowance for Loan Losses, Ending Balance	681	590	681	590
Allowance for Loan Losses, Ending Balance	$ 766	$ 767	$ 816	$ 975	681	816	590
Allowance for loan losses: Ending balance: individually evaluated for impairment					0	0	0
Allowance for loan losses: Ending balance: collectively evaluated for impairment					681	816	590
Total Loans Receivable					0	0	0
Loans receivables: Ending balance: individually evaluated for impairment					0	0	0
Loans Receivable: Ending balance: collectively evaluated for impairment					$ 0	$ 0	$ 0

XML

Fair Value Measurements - Schedule of Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	$ 162,957	$ 159,051	$ 158,392
Equity securities with readily determinable fair values	1,743	0	$ 0
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	1,784
Equity securities with readily determinable fair values	1,743
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	162,957	157,267
Equity securities with readily determinable fair values	0
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Equity securities with readily determinable fair values	0
Recurring | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	1,784
Equity securities with readily determinable fair values	1,743
Recurring | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	162,957	157,267
Equity securities with readily determinable fair values	0
Recurring | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Equity securities with readily determinable fair values	0
Recurring | U.S. Government and agencies | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Recurring | U.S. Government and agencies | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	122,076	104,083
Recurring | U.S. Government and agencies | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Recurring | Mortgage-backed securities, residential | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Recurring | Mortgage-backed securities, residential | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	31,091	34,833
Recurring | Mortgage-backed securities, residential | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Recurring | State and municipal | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Recurring | State and municipal | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	9,790	13,294
Recurring | State and municipal | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	0	0
Recurring | Corporate bonds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		0
Recurring | Corporate bonds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		5,057
Recurring | Corporate bonds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		0
Recurring | CRA mutual fund | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		1,035
Recurring | CRA mutual fund | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		0
Recurring | CRA mutual fund | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		0
Recurring | Stock in other banks | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		749
Recurring | Stock in other banks | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		0
Recurring | Stock in other banks | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		0
Nonrecurring | Collateral dependent impaired loans | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Nonrecurring | Collateral dependent impaired loans | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Nonrecurring | Collateral dependent impaired loans | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	3,907	5,426
Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	162,957	159,051
Equity securities with readily determinable fair values	1,743
Fair Value | Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	162,957	159,051
Equity securities with readily determinable fair values	1,743
Fair Value | Recurring | U.S. Government and agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	122,076	104,083
Fair Value | Recurring | Mortgage-backed securities, residential
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	31,091	34,833
Fair Value | Recurring | State and municipal
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale	9,790	13,294
Fair Value | Recurring | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		5,057
Fair Value | Recurring | CRA mutual fund
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		1,035
Fair Value | Recurring | Stock in other banks
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Debt securities available for sale		749
Fair Value | Nonrecurring | Collateral dependent impaired loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 3,907	$ 5,426

XML

Fair Value Measurements - Schedule of Additional Quantitative Information (Details) - Nonrecurring - Collateral dependent impaired loans - Level 3 $ in Thousands	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Estimate	$ 3,907	$ 5,426
Measurement Input, Discount Rate
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Weighted Average	0.28	0.36
Measurement Input, Discount Rate | Minimum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Weighted Average	0.10	0.10
Measurement Input, Discount Rate | Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Weighted Average	0.50	0.50

XML

Fair Value Measurements - Narrative (Details)	9 Months Ended
	Sep. 30, 2018
Fair Value Disclosures [Abstract]
Period for order of valuations (at least)	18 months

XML

Fair Value Measurements - Schedule of Carrying Amount, Fair Value and Placement in Fair Value Hierarchy (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Financial assets:
Interest-bearing deposits in banks	$ 45,551	$ 15,137	$ 31,609
Equity securities with readily determinable fair values	1,743	0	0
Debt securities available for sale	162,957	159,051	158,392
Investment securities held to maturity	32,767	44,549	47,373
Restricted investment in bank stocks	4,529	4,773	$ 4,821
Level 1
Financial assets:
Cash and due from banks	7,981	8,313
Interest-bearing deposits in banks	45,551	15,137
Equity securities with readily determinable fair values	1,743
Debt securities available for sale	0	1,784
Investment securities held to maturity	0	0
Loans held for sale	0	0
Loans, less allowance for loan losses	0	0
Accrued interest receivable	0	0
Restricted investment in bank stocks	0	0
Financial liabilities:
Demand deposits and savings	0	0
Time deposits	0	0
Short-term borrowings	0	0
Long-term borrowings	0	0
Trust preferred subordinated debt	0	0
Accrued interest payable	0	0
Off-balance sheet financial instruments	0	0
Level 2
Financial assets:
Cash and due from banks	10,164	10,991
Interest-bearing deposits in banks	0	0
Equity securities with readily determinable fair values	0
Debt securities available for sale	162,957	157,267
Investment securities held to maturity	32,767	44,549
Loans held for sale	1,112	1,736
Loans, less allowance for loan losses	0	0
Accrued interest receivable	4,737	3,670
Restricted investment in bank stocks	4,529	4,773
Financial liabilities:
Demand deposits and savings	984,704	944,399
Time deposits	357,603	351,057
Short-term borrowings	38,525	36,908
Long-term borrowings	79,383	89,571
Trust preferred subordinated debt	4,699	4,692
Accrued interest payable	1,406	1,163
Off-balance sheet financial instruments	0	0
Level 3
Financial assets:
Cash and due from banks	0	0
Interest-bearing deposits in banks	0	0
Equity securities with readily determinable fair values	0
Debt securities available for sale	0	0
Investment securities held to maturity	0	0
Loans held for sale	0	0
Loans, less allowance for loan losses	1,218,667	1,213,932
Accrued interest receivable	0	0
Restricted investment in bank stocks	0	0
Financial liabilities:
Demand deposits and savings	0	0
Time deposits	0	0
Short-term borrowings	0	0
Long-term borrowings	0	0
Trust preferred subordinated debt	0	0
Accrued interest payable	0	0
Off-balance sheet financial instruments	0	0
Carrying Amount
Financial assets:
Cash and due from banks	18,145	19,304
Interest-bearing deposits in banks	45,551	15,137
Equity securities with readily determinable fair values	1,743
Debt securities available for sale	162,957	159,051
Investment securities held to maturity	33,517	44,829
Loans held for sale	1,112	1,736
Loans, less allowance for loan losses	1,259,032	1,230,194
Accrued interest receivable	4,737	3,670
Restricted investment in bank stocks	4,529	4,773
Financial liabilities:
Demand deposits and savings	984,704	944,399
Time deposits	362,539	354,093
Short-term borrowings	38,525	36,908
Long-term borrowings	79,725	89,600
Trust preferred subordinated debt	5,000	5,000
Accrued interest payable	1,406	1,163
Off-balance sheet financial instruments	0	0
Fair Value
Financial assets:
Cash and due from banks	18,145	19,304
Interest-bearing deposits in banks	45,551	15,137
Equity securities with readily determinable fair values	1,743
Debt securities available for sale	162,957	159,051
Investment securities held to maturity	32,767	44,549
Loans held for sale	1,112	1,736
Loans, less allowance for loan losses	1,218,667	1,213,932
Accrued interest receivable	4,737	3,670
Restricted investment in bank stocks	4,529	4,773
Financial liabilities:
Demand deposits and savings	984,704	944,399
Time deposits	357,603	351,057
Short-term borrowings	38,525	36,908
Long-term borrowings	79,383	89,571
Trust preferred subordinated debt	4,699	4,692
Accrued interest payable	1,406	1,163
Off-balance sheet financial instruments	$ 0	$ 0

XML

Securities Sold Under Agreements to Repurchase (Repurchase Agreements) (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Gross Amounts of Recognized Liabilities	$ 38,525	$ 36,908
Gross Amounts Offset in the Statements of Condition	0	0
Net Amounts of Liabilities Presented in the Statements of Condition	38,525	36,908
Financial Instruments	(38,525)	(36,908)
Cash Collateral Pledged	0	0
Net Amount	0	0
Fair value of securities pledged in connection with repurchase agreements	43,541	$ 42,397
Total	38,525
U.S. Treasury and agency securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	38,525
Overnight and Continuous
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	38,525
Overnight and Continuous | U.S. Treasury and agency securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	38,525
Up to 30 Days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	0
Up to 30 Days | U.S. Treasury and agency securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	0
30 - 90 Days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	0
30 - 90 Days | U.S. Treasury and agency securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	0
Greater than 90 Days
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	0
Greater than 90 Days | U.S. Treasury and agency securities
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total	$ 0

XML

Borrowings (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Debt Instrument [Line Items]
Long-term debt outstanding	$ 84,725	$ 94,600	$ 96,850
FHLB Advances
Debt Instrument [Line Items]
Long-term debt outstanding	$ 74,216	85,000
Weighted average rate percentage	2.35%
Trust preferred subordinated debt
Debt Instrument [Line Items]
Long-term debt outstanding	$ 5,000	5,000
Interest rate percentage	6.39%
Trust preferred subordinated debt issued	$ 5,000
Loan payable to local bank, 4.5% | Loan payable to local bank
Debt Instrument [Line Items]
Long-term debt outstanding	$ 4,509	4,600
Interest rate percentage	4.50%
Period of fixed interest rate	5 years
Loan payable to local bank, 5.25% | Loan payable to local bank
Debt Instrument [Line Items]
Long-term debt outstanding	$ 1,000	$ 0
Loan payable to local bank, 5.25% | Loan payable to local bank | Wall Street Journal Prime Rate
Debt Instrument [Line Items]
Interest rate percentage	5.30%

XML

Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands		9 Months Ended
	Jul. 01, 2017	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017
Finite-Lived Intangible Assets [Line Items]
Goodwill		$ 19,580	$ 19,580	$ 19,580
RIG
Finite-Lived Intangible Assets [Line Items]
Goodwill		6,308
New Windsor
Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 13,272	$ 13,272
Customer lists | RIG
Finite-Lived Intangible Assets [Line Items]
Amortization period		10 years
Gross carrying amount of intangible asset		$ 7,263
Accumulated amortization of intangible asset		$ 6,514
Customer lists | Minimum
Finite-Lived Intangible Assets [Line Items]
Amortization period		8 years
Customer lists | Maximum
Finite-Lived Intangible Assets [Line Items]
Amortization period		13 years
Core deposit intangibles
Finite-Lived Intangible Assets [Line Items]
Amortization period		10 years
Core deposit intangibles | New Windsor
Finite-Lived Intangible Assets [Line Items]
Amortization period	10 years	10 years
Gross carrying amount of intangible asset		$ 2,418
Accumulated amortization of intangible asset		$ 539