ACNB Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023 unless noted. ACNB is a Pennsylvania-based financial holding company operating ACNB Bank and ACNB Insurance Services in Pennsylvania and Maryland.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net interest income | $20.6 million | $23.1 million | Down 10.8% |
| Net interest margin, FTE | 3.77% | 4.22% | Down 45 bps |
| Noninterest income | $5.7 million | $5.0 million | Up 13.7% |
| Noninterest expense | $17.7 million | $16.3 million | Up 8.5% |
| Net income | $6.8 million | $9.0 million | Down 25.0% |
| Diluted EPS | $0.80 | $1.06 | Down 24.5% |
Interest income increased 8.5% to $26.0 million, but interest expense rose to $5.4 million from $0.8 million, mainly because of higher deposit rates and increased long-term borrowing. The average yield on earning assets rose to 4.74% from 4.37%; the cost of funds increased to 1.02% from 0.15%. The effective tax rate was 20.6%, versus 21.0%.
Operating cash flow was $10.8 million, compared with $14.9 million. Investing activities used $14.5 million, while financing activities used $9.1 million. Cash and cash equivalents declined $12.8 million during the quarter to $53.1 million.
Financial position, liquidity and capital
- Total assets were $2.414 billion, approximately flat from $2.419 billion at year-end. Net loans were $1.645 billion, up $36.8 million; gross loans increased 2.3%, led by commercial real estate and construction lending.
- Deposits declined $26.6 million, or 1.4%, to $1.835 billion. Demand and savings deposits fell $51.7 million, partly offset by a $25.1 million increase in time deposits. Management attributed the decline primarily to municipal deposit outflows and customers seeking higher-yield alternatives.
- Total borrowings were $272.6 million, up $20.4 million. Long-term borrowings increased $60.0 million after the Bank obtained FHLB advances at a 4.31% weighted-average fixed rate; short-term borrowings fell $39.6 million.
- Management reported $647.1 million of available FHLB capacity, $66.0 million of available Discount Window capacity and $192.0 million of available correspondent-bank Fed Funds lines. Cash, unencumbered securities and collateralized borrowing capacity equaled 325.3% of uninsured and non-collateralized deposits. The loan-to-deposit ratio was 90.72%.
- Stockholders’ equity was $279.9 million. ACNB Bank’s regulatory capital ratios included 15.09% common equity Tier 1 and 16.24% total capital; the Bank met the stated “well-capitalized” thresholds.
- Quarterly dividends declared were $0.30 per share, versus $0.28 a year earlier. The company repurchased 4,200 shares for $147,000.
Material changes and notable items
- Earnings declined chiefly because higher funding costs more than offset loan growth and improved interest-earning asset yields. Average loans grew $106.7 million year over year; average interest-bearing and noninterest-bearing deposits fell $222.0 million and $70.9 million, respectively.
- Noninterest income improved with higher insurance commissions and wealth-management income, and a $69,000 securities gain versus a $193,000 loss in Q1 2023. Expenses rose primarily from salaries and benefits, professional services, FDIC and regulatory costs, and equipment.
- The allowance for credit losses was $20.2 million, or 1.21% of loans, versus $20.0 million, or 1.23%, at year-end. Nonperforming loans totaled $3.9 million, compared with $4.2 million at year-end; net charge-offs were $60,000.
- Available-for-sale securities had a $53.0 million gross unrealized loss at quarter-end; the after-tax AOCI loss on securities was $42.9 million. Management attributed the decline primarily to higher market interest rates and stated the portfolio’s credit quality remained strong. Held-to-maturity securities had a $58.1 million fair value against $64.6 million amortized cost.
- Commercial real estate was $930.1 million. Non-owner-occupied commercial real estate, construction and multifamily exposure together equaled 213.3% of Bank capital. Management described lending as geographically dispersed and underwriting as disciplined.
Outlook, risks and contingencies
The filing provides no specific earnings or financial guidance. Management says results depend on interest rates, funding mix, local and broader economic conditions, credit performance and execution of its strategy. ACNB described the Bank as modestly asset-sensitive; its model projects lower net interest income in falling-rate scenarios and modest increases in rising-rate scenarios. These model results depend on assumptions and do not reflect future management actions.
Risks highlighted include deposit competition and stability, funding costs, interest-rate and securities-value changes, borrower repayment and collateral values, commercial real estate exposure, inflation, regulation, cybersecurity and technology risks, and broader economic or banking-system disruption. The company reported $391.2 million of commitments to extend credit and $17.9 million of standby letters of credit, and said it does not anticipate material losses from these commitments. Management stated ordinary-course litigation is not expected to have a material adverse effect; no material legal proceedings were reported. No material changes to previously disclosed risk factors were noted.
Most important facts for investors to verify
- Whether deposit outflows persist and how much the Bank must rely on higher-cost deposits or borrowings.
- Whether net interest margin stabilizes as asset yields, deposit pricing and borrowing costs reset.
- Trends in commercial real estate and other loan credit quality, criticized assets, charge-offs and the adequacy of the credit-loss allowance.
- Potential liquidity or capital effects if deposit conditions worsen or securities must be sold while unrealized losses remain.
- Actual performance versus management’s interest-rate sensitivity assumptions and the risks described in the company’s latest filings.