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ENB Financial Corp - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from _________________ to _________________

ENB Financial Corp

(Exact name of registrant as specified in its charter)

Pennsylvania

000-53297

51-0661129

(State or Other Jurisdiction of Incorporation)

(Commission File Number)

(IRS Employer Identification No)

31 E. Main St., Ephrata, PA

 

17522-0457

 

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code     (717)733-4181   

Former name, former address, and former fiscal year, if changed since last report    Not Applicable   

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None.

N/A

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 and post such files.)

Yes   No ☐

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

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of

November 1, 2022, the registrant had 5,625,145 shares of $0.10 (par) Common Stock outstanding.


ENB FINANCIAL CORP

INDEX TO FORM 10-Q

September 30, 2022

Part I – FINANCIAL INFORMATION

Item 1.Financial Statements

Consolidated Balance Sheets at September 30, 2022 and 2021, and December 31, 2021 (Unaudited)

3

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

4

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)

5

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended
September 30, 2022 and 2021 (Unaudited)

6

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited)

7

Notes to the Unaudited Consolidated Interim Financial Statements

8-30

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31-52
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 53-55
   
Item 4. Controls and Procedures 56
   
   
   
Part II – OTHER INFORMATION 57
   
Item 1. Legal Proceedings 57
   
Item 1A. Risk Factors 57
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57
   
Item 3. Defaults upon Senior Securities 57
   
Item 4. Mine Safety Disclosures 57
   
Item 5. Other Information 57
   
Item 6. Exhibits 58
   
   
SIGNATURE PAGE 59

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Table of Contents

 

ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

September 30,

December 31,

September 30,

2022

2021

2021

$

$

$

ASSETS

Cash and due from banks

27,623

19,930

16,100

 

Interest-bearing deposits in other banks

22,953

138,519

62,720

 

Total cash and cash equivalents

50,576

158,449

78,820

 

Securities available for sale (at fair value)

559,646

558,093

561,587

 

Equity securities (at fair value)

8,951

8,982

8,844

 

Loans held for sale

5,131

3,194

3,174

 

Loans (net of unearned income)

1,114,504

920,904

880,261

 

Less: Allowance for loan losses

14,150

12,931

12,454

 

Net loans

1,100,354

907,973

867,807

 

Premises and equipment

24,598

24,476

24,507

 

Regulatory stock

5,897

5,380

5,635

 

Bank owned life insurance

35,995

35,414

35,200

 

Other assets

33,156

15,269

12,478

 

Total assets

1,824,304

1,717,230

1,598,052

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

Liabilities:

 

 

Deposits:

 

 

Noninterest-bearing

670,563

686,278

591,333

 

Interest-bearing

961,286

825,935

800,169

 

Total deposits

1,631,849

1,512,213

1,391,502

 

Short-term borrowings

15,000

-

-

Long-term debt

44,206

44,206

46,706

 

Subordinated debt

39,356

19,680

19,660

 

Other liabilities

7,738

3,843

3,967

 

Total liabilities

1,738,149

1,579,942

1,461,835

 

Stockholders' equity:

 

 

Common stock, par value $0.10

 

 

Shares: Authorized 24,000,000

 

 

Issued 5,739,114 and Outstanding 5,625,146 as of 9/30/22, 5,583,956 as of 12/31/21, and 5,575,452 as of 9/30/21

574

574

574

 

Capital surplus

4,475

4,520

4,498

 

Retained earnings

138,760

131,856

130,082

 

Accumulated other comprehensive (loss) income

(55,381

)

3,441

4,326

 

Less: Treasury stock cost on 113,969 shares as of 9/30/22, 155,158 as of 12/31/21, and 163,663 as of 9/30/21

(2,273

)

(3,103

)

(3,263

)

Total stockholders' equity

86,155

137,288

136,217

 

 

Total liabilities and stockholders' equity

1,824,304

1,717,230

1,598,052

 

See Notes to the Unaudited Consolidated Interim Financial Statements

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Table of Contents

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Three Months ended

September 30,

Nine Months ended

September 30,

2022

2021

2022

2021

$

$

$

$

Interest and dividend income:

Interest and fees on loans

11,022

8,986

29,357

25,541

Interest on securities available for sale

Taxable

2,654

1,301

6,090

3,611

Tax-exempt

1,074

1,015

3,182

2,977

Interest on deposits at other banks

55

17

139

59

Dividend income

167

98

367

295

 

Total interest and dividend income

14,972

11,417

39,135

32,483

 

Interest expense:

Interest on deposits

608

278

1,168

877

Interest on borrowings

775

511

1,683

1,569

 

Total interest expense

1,383

789

2,851

2,446

 

Net interest income

13,589

10,628

36,284

30,037

 

Provision (credit) for loan losses

550

(250

)

1,300

125

 

Net interest income after provision (credit) for loan losses

13,039

10,878

34,984

29,912

 

Other income:

Trust and investment services income

680

540

1,979

1,746

Service fees

791

618

2,063

1,917

Commissions

941

945

2,762

2,761

Gains on the sale of debt securities, net

-

350

139

711

Gains (losses) on equity securities, net

9

32

(129

)

256

Gains on sale of mortgages

186

1,206

1,249

4,381

Earnings on bank-owned life insurance

242

218

667

636

Other income

331

230

1,145

1,126

 

Total other income

3,180

4,139

9,875

13,534

 

Operating expenses:

Salaries and employee benefits

6,607

6,142

19,826

17,800

Occupancy

713

654

2,125

1,972

Equipment

312

255

913

806

Advertising & marketing

259

282

833

717

Computer software & data processing

1,727

1,097

4,251

3,297

Shares tax

351

322

1,053

876

Professional services

720

535

1,983

1,572

Other expense

824

831

2,614

1,961

 

Total operating expenses

11,513

10,118

33,598

29,001

 

Income before income taxes

4,706

4,899

11,261

14,445

 

Provision for federal income taxes

697

760

1,503

2,251

 

Net income

4,009

4,139

9,758

12,194

 

Earnings per share of common stock

0.71

0.74

1.74

2.19

 

Cash dividends paid per share

0.17

0.17

0.51

0.50

 

Weighted average shares outstanding

5,611,279

5,570,416

5,597,301

5,565,777

See Notes to the Unaudited Consolidated Interim Financial Statements

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ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(DOLLARS IN THOUSANDS)

Three Months ended

September 30,

Nine Months ended

September 30,

2022

2021

2022

2021

$

$

$

$

 

Net income

4,009

4,139

9,758

12,194

 

Other comprehensive loss, net of tax:

Securities available for sale not other-than-temporarily impaired:

 

Unrealized losses arising during the period

(23,500

)

(3,492

)

(74,319

)

(3,884

)

Income tax effect

4,935

733

15,607

814

(18,565

)

(2,759

)

(58,712

)

(3,070

)

 

Gains recognized in earnings

-

(350

)

(139

)

(711

)

Income tax effect

-

73

29

149

-

(277

)

(110

)

(562

)

 

Other comprehensive loss, net of tax

(18,565

)

(3,036

)

(58,822

)

(3,632

)

 

Comprehensive (Loss) Income

(14,556

)

1,103

(49,064

) 

8,562

See Notes to the Unaudited Consolidated Interim Financial Statements

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ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Accumulated

Other

Total

Common

Capital

Retained

Comprehensive

Treasury

Stockholders'

Stock

Surplus

Earnings

Income (Loss)

Stock

Equity

$

$

$

$

$

$

 

Balances, December 31, 2020

574

4,444

120,670

7,958

(3,430

)

130,216

 

Net income

-

-

4,504

-

-

4,504

 

Other comprehensive loss net of tax

-

-

-

(5,034

)

-

(5,034

)

Treasury stock purchased - 7,600 shares

-

-

-

-

(149

)

(149

)

Treasury stock issued - 7,936 shares

-

16

-

-

157

173

 

Cash dividends paid, $0.16 per share

-

-

(889

)

-

-

(889

)

Balances, March 31, 2021

574

4,460

124,285

2,924

(3,422

)

128,821

 

Net income

-

-

3,551

-

-

3,551

Other comprehensive income net of tax

-

-

-

4,438

-

4,438

Treasury stock purchased - 7,200 shares

-

-

-

-

(155

)

(155

)

Treasury stock issued - 10,611 shares

-

20

-

-

211

231

Cash dividends paid, $0.17 per share

-

-

(945

)

-

-

(945

)

Balances, June 30, 2021

574

4,480

126,891

7,362

(3,366

)

135,941

Net income

-

-

4,139

-

-

4,139

Other comprehensive loss net of tax

-

-

-

(3,036

)

-

(3,036

)

Treasury stock purchased - 3,100 shares

-

-

-

-

(68

)

(68

)

Treasury stock issued - 8,574 shares

-

18

-

 

-

171

 

189

Cash dividends paid, $0.17 per share

-

-

(948

)

-

-

 

(948

)

Balances, September 30, 2021

574

4,498

 

130,082

 

4,326

(3,263

)

136,217

 

 

 

 

 

Balances, December 31, 2021

574

4,520

131,856

3,441

(3,103

)

137,288

 

Net income

-

-

3,191

-

-

3,191

 

Other comprehensive loss net of tax

-

-

-

(23,739

)

-

(23,739

)

Treasury stock issued - 11,196 shares

-

24

-

-

224

248

 

Cash dividends paid, $0.17 per share

-

-

(949

)

-

-

(949

)

Balances, March 31, 2022

574

4,544

134,098

(20,298

)

(2,879

)

116,039

Net income

-

-

2,558

-

-

2,558

 

Other comprehensive loss net of tax

-

-

-

(16,518

)

-

(16,518

)

Treasury stock purchased - 3,000shares

-

-

-

-

(53

)

(53

)

Treasury stock issued - 18,418 shares

-

(42

)

-

-

368

326

 

Cash dividends paid, $0.17 per share

-

-

(951

)

-

-

(951

)

Balances, June 30, 2022

574

4,502

135,705

(36,816

)

(2,564

)

101,401

 

Net income

-

-

4,009

-

-

4,009

 

Other comprehensive loss net of tax

-

-

-

(18,565

)

-

(18,565

)

Treasury stock issued - 14,575 shares

-

(27

)

-

-

291

264

 

Cash dividends paid, $0.17 per share

-

-

(954

)

-

-

(954

)

Balances, September 30, 2022

574

4,475

138,760

(55,381

)

(2,273

)

86,155

 

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ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(DOLLARS IN THOUSANDS)

Nine Months Ended September 30,

2022

2021

$

$

Cash flows from operating activities:

Net income

9,758

12,194

Adjustments to reconcile net income to net cash provided by operating activities:

Net amortization of securities premiums and discounts and loan fees

3,854

2,851

Amortization of operating leases right-of-use assets

132

60

Increase in interest receivable

(1,254

)

(958

)

Increase in interest payable

526

146

Provision for loan losses

1,300

125

Gains on the sale of debt securities, net

(139

)

(711

)

Losses (gains) on equity securities, net

129

(256

)

Gains on sale of mortgages

(1,249

)

(4,381

)

Loans originated for sale

(28,164

)

(71,607

)

Proceeds from sales of loans

27,476

75,843

Earnings on bank-owned life insurance

(667

)

(636

)

Depreciation of premises and equipment and amortization of software

1,207

1,164

Deferred income tax

(83

)

164

Amortization of deferred fees on subordinated debt

76

59

Other assets and other liabilities, net

2,327

(2,292

)

Net cash provided by operating activities

15,229

11,765

 

Cash flows from investing activities:

Securities available for sale:

Proceeds from maturities, calls, and repayments

35,605

58,837

Proceeds from sales

8,575

77,259

Purchases

(123,852

)

(228,981

)

Equity securities

Proceeds from sales

151

460

Purchases

(249

)

(1,945

)

Purchase of regulatory bank stock

(974

)

(524

)

Redemptions of regulatory bank stock

457

996

Purchase of bank-owned life insurance

-

(4,918

)

Net increase in loans

(193,735

)

(55,899

)

Purchases of premises and equipment, net

(1,106

)

(745

)

Purchase of computer software

(141

)

(471

)

Net cash used for investing activities

(275,269

)

(155,930

)

 

Cash flows from financing activities:

Net increase in demand, NOW, and savings accounts

123,598

141,428

Net decrease in time deposits

(3,962

)

(2,737

)

Net increase in short-term borrowings

15,000

-

Repayments of long-term debt

-

(8,084

)

Proceeds from issuance of subordinated debt

19,600

-

Dividends paid

(2,854

)

(2,782

)

Proceeds from sale of treasury stock

838

593

Treasury stock purchased

(53

)

(372

)

Net cash provided by financing activities

152,167

128,046

Decrease in cash and cash equivalents

(107,873

)

(16,119

)

Cash and cash equivalents at beginning of period

158,449

94,939

Cash and cash equivalents at end of period

50,576

78,820

 

Supplemental disclosures of cash flow information:

Interest paid

2,325

2,300

Income taxes paid

1,200

2,200

Supplemental disclosure of non-cash investing and financing activities:

Fair value adjustments for securities available for sale

(74,458

)

4,595

Recognition of lease operating right-of-use assets

2,811

80

Recognition of operating lease liabilities

2,811

80

See Notes to the Unaudited Consolidated Interim Financial Statements

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

1.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and to general practices within the banking industry. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all significant adjustments considered necessary for fair presentation have been included. Certain items previously reported have been reclassified to conform to the current period’s reporting format. Such reclassifications did not affect net income or stockholders’ equity.

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). Ephrata National Bank has one wholly-owned subsidiary, ENB Insurance, LLC which is consolidated into its financial statements. This Form 10-Q, for the third quarter of 2022, is reporting on the results of operations and financial condition of ENB Financial Corp on a consolidated basis.

Operating results for the nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, 2021.

Revenue from Contracts with Customers

The Company records revenue from contracts with customers in accordance with Accounting Standards Topic 606, Revenue from Contracts with Customers (Topic 606). Under Topic 606, the Corporation must identify contracts with customers, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when the Corporation satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods.

The Corporation’s primary sources of revenue are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of Topic 606. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. The Corporation generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

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Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

2.Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of securities held at September 30, 2022, and December 31, 2021, are as follows:

Gross

Gross

(DOLLARS IN THOUSANDS)

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

$

$

$

$

September 30, 2022

U.S. treasuries

35,719

-

(3,287

)

32,432

U.S. government agencies

27,606

1

(2,972

)

24,635

U.S. agency mortgage-backed securities

51,655

-

(5,354

)

46,301

U.S. agency collateralized mortgage obligations

32,309

-

(2,855

)

29,454

Non-agency MBS/CMO

55,370

-

(3,496

)

51,874

Asset-backed securities

84,110

-

(2,362

)

81,748

Corporate bonds

81,829

6

(7,479

)

74,356

Obligations of states and political subdivisions

261,150

1

(42,305

)

218,846

Total securities available for sale

629,748

8

(70,110

)

559,646

 

December 31, 2021

U.S. Treasuries

14,821

14

(22

)

14,813

U.S. government agencies

29,613

50

(642

)

29,021

U.S. agency mortgage-backed securities

51,964

502

(478

)

51,988

U.S. agency collateralized mortgage obligations

30,917

241

(81

)

31,077

Asset-backed securities

100,998

605

(384

)

101,219

Corporate bonds

82,617

420

(528

)

82,509

Obligations of states and political subdivisions

242,807

5,848

(1,189

)

247,466

Total securities available for sale

553,737

7,680

(3,324

)

558,093

The amortized cost and fair value of securities available for sale at September 30, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.

CONTRACTUAL MATURITY OF DEBT SECURITIES

(DOLLARS IN THOUSANDS)

Amortized

Cost

Fair Value

$

$

Due in one year or less

11,209

11,201

Due after one year through five years

106,611

98,455

Due after five years through ten years

112,689

98,684

Due after ten years

399,239

351,306

Total debt securities

629,748

559,646

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Securities available for sale with a par value of $108,799,000 and $94,283,000 at September 30, 2022, and December 31, 2021, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was $99,284,000 at September 30, 2022, and $96,521,000 at December 31, 2021.

Proceeds from active sales of securities available for sale, along with the associated gross realized gains and gross realized losses, are shown below. Realized gains and losses are computed on the basis of specific identification.

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2022

2021

2022

2021

$

$

$

$

Proceeds from sales

-

17,957

8,575

77,259

Gross realized gains

-

369

139

791

Gross realized losses

-

(19

)

-

(80

Management evaluates all of the Corporation’s securities for other-than-temporary impairment (OTTI) on a periodic basis. No securities in the portfolio had other-than-temporary impairment recorded in the first nine months of 2022 or 2021.

Information pertaining to securities with gross unrealized losses at September 30, 2022, and December 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

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Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

TEMPORARY IMPAIRMENTS OF SECURITIES

(DOLLARS IN THOUSANDS)

Less than 12 months

More than 12 months

Total

Gross

Gross

Gross

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

$

$

$

$

$

$

As of September 30, 2022

U.S. Treasuries

28,119

(2,616

)

4,313

(671

)

32,432

(3,287

)

U.S. government agencies

1,954

(53

)

21,480

(2,919

)

23,434

(2,972

)

U.S. agency mortgage-backed securities

26,500

(2,248

)

19,801

(3,106

)

46,301

(5,354

)

U.S. agency collateralized mortgage obligations

18,841

(1,433

)

10,553

(1,422

)

29,394

(2,855

)

Non-Agency MBS/CMO

51,874

(3,496

)

-

-

51,874

(3,496

)

Asset-backed securities

55,024

(1,414

)

26,724

(948

)

81,748

(2,362

)

Corporate bonds

39,611

(2,961

)

28,734

(4,518

)

68,345

(7,479

)

Obligations of states & political subdivisions

161,641

(25,872

)

56,674

(16,433

)

218,315

(42,305

)

 

Total temporarily impaired securities

383,564

(40,093

)

168,279

(30,017

)

551,843

(70,110

)

 

 

As of December 31, 2021

U.S. Treasuries

4,959

(22

)

-

-

4,959

(22

)

U.S. government agencies

16,386

(519

)

7,375

(123

)

23,761

(642

)

U.S. agency mortgage-backed securities

24,090

(468

)

2,458

(10

)

26,548

(478

)

U.S. agency collateralized mortgage obligations

14,206

(66

)

2,965

(15

)

17,171

(81

)

Asset-backed securities

50,466

(338

)

2,826

(46

)

53,292

(384

)

Corporate bonds

44,907

(528

)

-

-

44,907

(528

)

Obligations of states & political subdivisions

70,021

(1,043

)

6,023

(146

)

76,044

(1,189

)

 

Total temporarily impaired securities

225,035

(2,984

)

21,647

(340

)

246,682

(3,324

)

In the debt security portfolio there were 396 positions carrying unrealized losses as of September 30, 2022. There were no instruments considered to be other-than-temporarily impaired at September 30, 2022.

The Corporation evaluates fixed maturity positions for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluation. U.S. generally accepted accounting principles provide for the bifurcation of OTTI into two categories: (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security (the credit loss), which is recognized in earnings, and (b) the amount of total OTTI related to all other factors, which is recognized, net of taxes, as a component of accumulated other comprehensive income.

11


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

3.Equity Securities

The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of equity securities held at September 30, 2022 and December 31, 2021.

Gross

Gross

(DOLLARS IN THOUSANDS)

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

$

$

$

$

September 30, 2022

CRA-qualified mutual funds

7,299

-

-

7,299

Bank stocks

1,660

73

(81

)

1,652

Total equity securities

8,959

73

(81

)

8,951

Gross

Gross

(DOLLARS IN THOUSANDS)

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

$

$

$

$

December 31, 2021

CRA-qualified mutual funds

7,240

-

-

7,240

Bank stocks

1,570

184

(12

)

1,742

Total equity securities

8,810

184

(12

)

8,982

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the three and nine months ended September 30, 2022 and 2021, and the portion of unrealized gains and losses for the period that relates to equity investments held as of September 30, 2022 and 2021.

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2022

2021

2022

2021

$

$

$

$

 

Net (losses) gains recognized in equity securities during the period

9

32

(129

)

256

 

Less: Net gains realized on the sale of equity securities during the period

-

3

51

99

 

Unrealized gains (losses) recognized in equity securities held at reporting date

9

29

(180

)

157

12


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

4.Loans and Allowance for Credit Losses

The following table presents the Corporation’s loan portfolio by category of loans as of September 30, 2022, and December 31, 2021:

LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)

September 30,

December 31,

2022

2021

$

$

Commercial real estate

Commercial mortgages

207,480

177,396

Agriculture mortgages

212,351

203,725

Construction

80,008

19,639

Total commercial real estate

499,839

400,760

 

Consumer real estate (a)

1-4 family residential mortgages

366,534

317,037

Home equity loans

13,268

11,181

Home equity lines of credit

93,704

75,698

Total consumer real estate

473,506

403,916

 

Commercial and industrial

Commercial and industrial

80,964

65,615

Tax-free loans

26,398

23,009

Agriculture loans

25,520

20,717

Total commercial and industrial

132,882

109,341

 

Consumer

5,755

5,132

 

Gross loans prior to deferred fees

1,111,982

919,149

 

Deferred loan costs, net

2,522

1,755

Allowance for credit losses

(14,150

)

(12,931

)

Total net loans

1,100,354

907,973

 

(a)

Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $304,479,000 and $289,263,000 as of September 30, 2022 and December 31, 2021, respectively.

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of September 30, 2022 and December 31, 2021. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

13


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The Corporation's internally assigned grades for commercial credits are as follows:

Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem, if not corrected.

Substandard – loans that have a well-defined weakness based on objective evidence and characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.

Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted.

COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

(DOLLARS IN THOUSANDS)

Commercial

Commercial

Agriculture

and

Tax-free

Agriculture

September 30, 2022

Mortgages

Mortgages

Construction

Industrial

Loans

Loans

Total

$

$

$

$

$

$

$

Grade:

Pass

205,221

202,861

76,962

72,960

26,398

25,222

609,624

Special Mention

-

4,576

3,046

5,328

-

43

12,993

Substandard

2,259

4,914

-

2,676

-

255

10,104

Doubtful

-

-

-

-

-

-

-

Loss

-

-

-

-

-

-

-

 

Total

207,480

212,351

80,008

80,964

26,398

25,520

632,721

Commercial

Commercial

Agriculture

and

Tax-free

Agriculture

December 31, 2021

Mortgages

Mortgages

Construction

Industrial

Loans

Loans

Total

$

$

$

$

$

$

$

Grade:

Pass

172,540

192,943

13,544

57,214

23,009

19,980

479,230

Special Mention

2,443

2,542

6,095

4,657

-

90

15,827

Substandard

2,413

8,240

-

3,744

-

647

15,044

Doubtful

-

-

-

-

-

-

-

Loss

-

-

-

-

-

-

-

 

Total

177,396

203,725

19,639

65,615

23,009

20,717

510,101

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Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of September 30, 2022 and December 31, 2021:

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)

1-4 Family

Home Equity

Residential

Home Equity

Lines of

September 30, 2022

Mortgages

Loans

Credit

Consumer

Total

Payment performance:

$

$

$

$

$

 

Performing

366,363

12,918

93,704

5,747

478,732

Non-performing

-

-

-

8

8

 

Total

366,363

12,918

93,704

5,755

478,740

1-4 Family

Home Equity

Residential

Home Equity

Lines of

December 31, 2021

Mortgages

Loans

Credit

Consumer

Total

Payment performance:

$

$

$

$

$

 

Performing

316,722

11,181

75,659

5,132

408,694

Non-performing

315

-

39

-

354

 

Total

317,037

11,181

75,698

5,132

409,048

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of September 30, 2022 and December 31, 2021:

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

Loans

Greater

Receivable > 90 Days

30-59 Days

60-89 Days

than 90

Total Past

Total Loans

and

September 30, 2022

Past Due

Past Due

Days

Due

Current

Receivable

Accruing

$

$

$

$

$

$

$

Commercial real estate

Commercial mortgages

-

-

1,087

1,087

206,914

208,001

140

Agriculture mortgages

-

22

3,355

3,377

208,974

212,351

-

Construction

-

-

-

-

80,008

80,008

-

Consumer real estate

1-4 family residential mortgages

502

-

-

502

365,861

366,363

-

Home equity loans

17

12

-

29

12,889

12,918

-

Home equity lines of credit

73

-

-

73

93,631

93,704

-

Commercial and industrial

Commercial and industrial

7

6

203

216

80,748

80,964

-

Tax-free loans

-

-

-

-

26,398

26,398

-

Agriculture loans

-

-

-

-

25,520

25,520

-

Consumer

29

1

8

38

5,717

5,755

8

Total

628

41

4,653

5,322

1,106,660

1,111,982

148

15


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

Loans

Receivable

Greater

> 90 Days

30-59 Days

60-89 Days

than 90

Total Past

Total Loans

and

December 31, 2021

Past Due

Past Due

Days

Due

Current

Receivable

Accruing

$

$

$

$

$

$

$

Commercial real estate

Commercial mortgages

22

-

184

206

177,190

177,396

-

Agriculture mortgages

232

-

1,838

2,070

201,655

203,725

-

Construction

-

-

-

-

19,639

19,639

-

Consumer real estate

1-4 family residential mortgages

1,464

68

315

1,847

315,190

317,037

276

Home equity loans

19

-

-

19

11,162

11,181

-

Home equity lines of credit

-

-

39

39

75,659

75,698

39

Commercial and industrial

Commercial and industrial

43

-

395

438

65,177

65,615

10

Tax-free loans

-

-

-

-

23,009

23,009

-

Agriculture loans

-

9

110

119

20,598

20,717

-

Consumer

22

-

-

22

5,110

5,132

-

Total

1,802

77

2,881

4,760

914,389

919,149

325

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2022 and December 31, 2021:

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)

September 30,

December 31,

2022

2021

$

$

 

Commercial real estate

Commercial mortgages

948

184

Agriculture mortgages

3,355

1,838

Construction

-

-

Consumer real estate

1-4 family residential mortgages

-

39

Home equity loans

-

-

Home equity lines of credit

-

-

Commercial and industrial

Commercial and industrial

203

385

Tax-free loans

-

-

Agriculture loans

-

110

Consumer

-

-

Total

4,506

2,556

16


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

As of September 30, 2022 and December 31, 2021, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and nine months ended September 30, 2022 and September 30, 2021, is as follows:

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2022

2021

2022

2021

$

$

$

$

 

Average recorded balance of impaired loans

5,028

2,012

4,012

4,392

Interest income recognized on impaired loans

5

38

19

176

No loan modifications were made during the first nine months of 2022 or 2021 that would be considered a troubled debt restructuring (TDR). A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments. Included in the impaired loan portfolio is one loan to a commercial borrower that is being reported as a TDR. The balance of this TDR loan was $456,000 as of September 30, 2022. This TDR is not non-accrual.

17


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information regarding impaired loans by loan portfolio class as of September 30, 2022 and December 31, 2021:

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)

Unpaid

Recorded

Principal

Related

September 30, 2022

Investment

Balance

Allowance

$

$

$

 

With no related allowance recorded:

Commercial real estate

Commercial mortgages

948

1,006

-

Agriculture mortgages

3,811

3,923

-

Construction

-

-

-

Total commercial real estate

4,759

4,929

-

 

Commercial and industrial

Commercial and industrial

194

199

-

Tax-free loans

-

-

-

Agriculture loans

-

-

-

Total commercial and industrial

194

199

-

 

Total with no related allowance

4,953

5,128

-

 

With an allowance recorded:

Commercial real estate

Commercial mortgages

-

-

-

Agriculture mortgages

-

-

-

Construction

-

-

-

Total commercial real estate

-

-

-

 

Commercial and industrial

Commercial and industrial

9

9

9

Tax-free loans

-

-

-

Agriculture loans

-

-

-

Total commercial and industrial

9

9

9

 

Total with a related allowance

9

9

9

 

Total by loan class:

Commercial real estate

Commercial mortgages

948

1,006

-

Agriculture mortgages

3,811

3,923

-

Construction

-

-

-

Total commercial real estate

4,759

4,929

-

 

Commercial and industrial

Commercial and industrial

203

208

9

Tax-free loans

-

-

-

Agriculture loans

-

-

-

Total commercial and industrial

203

208

9

 

Total

4,962

5,137

9

18


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)

Unpaid

Recorded

Principal

Related

December 31, 2021

Investment

Balance

Allowance

$

$

$

 

With no related allowance recorded:

Commercial real estate

Commercial mortgages

223

263

-

Agriculture mortgages

2,055

2,066

-

Construction

-

-

-

Total commercial real estate

2,278

2,329

-

 

Commercial and industrial

Commercial and industrial

385

438

-

Tax-free loans

-

-

-

Agriculture loans

-

-

-

Total commercial and industrial

385

438

-

 

Total with no related allowance

2,663

2,767

-

 

With an allowance recorded:

Commercial real estate

Commercial mortgages

-

-

-

Agriculture mortgages

551

559

37

Construction

-

-

-

Total commercial real estate

551

559

37

 

Commercial and industrial

Commercial and industrial

-

-

-

Tax-free loans

-

-

-

Agriculture loans

110

111

110

Total commercial and industrial

110

111

110

 

Total with a related allowance

661

670

147

 

Total by loan class:

Commercial real estate

Commercial mortgages

223

263

-

Agriculture mortgages

2,606

2,625

37

Construction

-

-

-

Total commercial real estate

2,829

2,888

37

 

Commercial and industrial

Commercial and industrial

385

438

-

Tax-free loans

-

-

-

Agriculture loans

110

111

110

Total commercial and industrial

495

549

110

 

Total

3,324

3,437

147

19


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2022:

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

Commercial

Consumer

Commercial

Real Estate

Real Estate

and Industrial

Consumer

Unallocated

Total

$

$

$

$

$

$

Allowance for credit losses:

Beginning balance - December 31, 2021

6,263

3,834

2,112

87

635

12,931

 

Charge-offs

(65

)

-

-

(1

)

-

(66

)

Recoveries

-

3

10

1

-

14

Provision

(90

)

41

193

(16

)

(28

)

100

 

Balance - March 31, 2022

6,108

3,878

2,315

71

607

12,979

 

Charge-offs

-

-

(41

)

-

-

(41

)

Recoveries

2

3

12

1

-

18

Provision

(239

)

834

255

(28

)

(172

)

650

 

Balance - June 30, 2022

5,871

4,715

2,541

44

435

13,606

 

Charge-offs

-

-

(18

)

(15

)

-

(33

)

Recoveries

10

3

13

1

-

27

Provision

529

108

(109

)

34

(12

)

550

 

Balance - September 30, 2022

6,410

4,826

2,427

64

423

14,150

During the nine months ended September 30, 2022, management charged off $140,000 in loans while recovering $59,000 and added $1,300,000 to the provision. The unallocated portion of the allowance decreased from 4.9% of total reserves as of December 31, 2021, to 3.0% as of September 30, 2022.

During the nine months ended September 30, 2022, net provision expense was recorded for all sectors except the consumer sector where a small credit provision was recorded. The provision expense for the commercial real estate, consumer real estate, and commercial and industrial sectors was primarily related to growth in those sectors of the loan portfolio through September 30, 2022, while the credit provision in the consumer sector was primarily related to declining qualitative factors in several areas since September 30, 2021.

Management continues to utilize nine qualitative factors to continually refine the potential credit risks across the Corporation’s various loan types. In addition, the loan portfolio is sectored out into nine different categories to evaluate these qualitative factors. A total score of the qualitative factors for each loan sector is calculated to utilize in the allowance for loan loss calculation.

20


Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2021:

Commercial

Consumer

Commercial

Real Estate

Real Estate

and Industrial

Consumer

Unallocated

Total

$

$

$

$

$

$

Allowance for credit losses:

Beginning balance - December 31, 2020

6,329

3,449

1,972

52

525

12,327

 

Charge-offs

-

-

-

(14

)

-

(14

)

Recoveries

-

-

1

1

-

2

Provision

173

(41

)

(15

)

20

238

375

 

Balance - March 31, 2021

6,502

3,408

1,958

59

763

12,690

 

Charge-offs

-

-

-

(9

)

-

(9

)

Recoveries

-

-

16

6

-

22

Provision

48

83

19

10

(160

)

-

 

Balance - June 30, 2021

6,550

3,491

1,993

66

603

12,703

 

Charge-offs

-

-

-

(7

)

-

(7

)

Recoveries

-

-

2

6

-

8

Provision

(909

)

216

81

(3

)

365

(250

)

 

Balance - September 30, 2021

5,641

3,707

2,076

62

968

12,454

During the nine months ended September 30, 2021, management charged off $30,000 in loans while recovering $32,000 and added $125,000 to the provision. The unallocated portion of the allowance increased from 4.3% of total reserves as of December 31, 2020, to 7.8% as of September 30, 2021. Net provision expense was recorded for all loan sectors. The higher provision in the commercial real estate sector was due to growth in this portfolio of loans since December 31, 2020, as well as an increase in the qualitative factor related to the trends in the nature and volume of this sector. There were minimal charge-offs and recoveries recorded during the nine months ended September 30, 2021, so the provision expense was primarily related to an increase in loan balances as well as slightly higher unallocated portion of the allowance.

21


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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of September 30, 2022 and December 31, 2021:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

Commercial

Consumer

Commercial

As of September 30, 2022:

Real Estate

Real Estate

and Industrial

Consumer

Unallocated

Total

$

$

$

$

$

$

Allowance for credit losses:

Ending balance: individually evaluated for impairment

-

-

9

-

-

9

Ending balance: collectively evaluated for impairment

6,410

4,826

2,418

64

423

14,141

 

Loans receivable:

Ending balance

499,839

473,506

132,882

5,755

1,111,982

Ending balance: individually evaluated for impairment

4,759

-

203

-

4,962

Ending balance: collectively evaluated for impairment

495,080

473,506

132,679

5,755

1,107,020

Commercial

Consumer

Commercial

As of December 31, 2021:

Real Estate

Real Estate

and Industrial

Consumer

Unallocated

Total

$

$

$

$

$

$

Allowance for credit losses:

Ending balance: individually evaluated for impairment

37

-

110

-

-

147

Ending balance: collectively evaluated for impairment

6,226

3,834

2,002

87

635

12,784

 

Loans receivable:

Ending balance

400,760

403,916

109,341

5,132

919,149

Ending balance: individually evaluated for impairment

2,829

-

495

-

3,324

Ending balance: collectively evaluated for impairment

397,931

403,916

108,846

5,132

915,825

5.Fair Value Presentation

U.S. generally accepted accounting principles establish a hierarchal disclosure framework associated with the level of observable pricing utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

Level I:    

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

 

 

Level II:    

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

 

Level III:    

Assets and liabilities that have little to no observable pricing as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

September 30, 2022

Level I

Level II

Level III

Total

$

$

$

$

 

U.S. treasuries

32,432

-

-

32,432

U.S. government agencies

-

24,635

-

24,635

U.S. agency mortgage-backed securities

-

46,301

-

46,301

U.S. agency collateralized mortgage obligations

-

29,454

-

29,454

Non-agency MBS/CMO

-

51,874

-

51,874

Asset-backed securities

-

81,748

-

81,748

Corporate bonds

-

74,356

-

74,356

Obligations of states & political subdivisions

-

218,846

-

218,846

Equity securities

8,951

-

-

8,951

 

Total securities

41,383

527,214

-

568,597

On September 30, 2022, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments excluding U. S. Treasuries were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s U.S. Treasuries, CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of September 30, 2022, the CRA fund investments had a $7,299,000 book and fair market value and the bank stock portfolio had a book value of $1,660,000, and fair market value of $1,652,000.

Financial instruments are considered level III when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

December 31, 2021

Level I

Level II

Level III

Total

$

$

$

$

 

U.S. Treasuries

14,813

-

14,813

U.S. government agencies

-

29,021

-

29,021

U.S. agency mortgage-backed securities

-

51,988

-

51,988

U.S. agency collateralized mortgage obligations

-

31,077

-

31,077

Asset-backed securities

-

101,219

-

101,219

Corporate bonds

-

82,509

-

82,509

Obligations of states & political subdivisions

-

247,466

-

247,466

Equity securities

8,982

-

-

8,982

 

Total securities

23,795

543,280

-

567,075

On December 31, 2021, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued excluding U.S. Treasuries using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s U.S. Treasuries, CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, 2021, the CRA fund investments had a $7,240,000 book and market value and the bank stocks had a book value of $1,570,000 and a market value of $1,742,000.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(DOLLARS IN THOUSANDS)

September 30, 2022

Level I

Level II

Level III

Total

$

$

$

$

Assets:

Impaired Loans

$

-

$

-

$

4,953

$

4,953

Total

$

-

$

-

$

4,953

$

4,953

December 31, 2021

Level I

Level II

Level III

Total

$

$

$

$

Assets:

Impaired Loans

$

-

$

-

$

3,177

$

3,177

Total

$

-

$

-

$

3,177

$

3,177

The Corporation had a total of $4,962,000 of impaired loans as of September 30, 2022, with $9,000 of specific allocation against these loans and $3,324,000 of impaired loans as of December 31, 2021, with $147,000 of specific allocation against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)

September 30, 2022

Fair Value

Valuation

Unobservable

Range

Estimate

Techniques

Input

(Weighted Avg)

 

Impaired loans

$

4,953

Appraisal of collateral (1)

Appraisal

adjustments (2)

0% to -20% (-20%)

Liquidation

expenses (2)

0% to -10% (-10%)

December 31, 2021

Fair Value

Valuation

Unobservable

Range

Estimate

Techniques

Input

(Weighted Avg)

 

Impaired loans

$

3,177

Appraisal of collateral (1)

Appraisal

adjustments (2)

0% to -20% (-20%)

Liquidation

expenses (2)

0% to -10% (-10%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level III inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

FINANCIAL INSTRUMENTS NOT REQUIRED TO BE MEASURED OR REPORTED AT FAIR VALUE

(DOLLARS IN THOUSANDS)

September 30, 2022

Quoted Prices in

Active Markets

Significant Other

Significant

for Identical

Observable

Unobservable

Carrying

Assets

Inputs

Inputs

Amount

Fair Value

(Level 1)

(Level II)

(Level III)

$

$

$

$

$

Financial Assets:

Cash and cash equivalents

50,576

50,576

50,576

-

-

Regulatory stock

5,897

5,897

5,897

-

-

Loans held for sale

5,131

5,131

5,131

-

-

Loans, net of allowance

1,100,354

1,040,658

-

-

1,040,658

Mortgage servicing assets

2,043

2,828

-

-

2,828

Accrued interest receivable

6,407

6,407

6,407

-

-

Bank owned life insurance

35,995

35,995

35,995

-

-

 

Financial Liabilities:

Demand deposits

670,563

670,563

670,563

-

-

Interest-bearing demand deposits

81,855

81,855

81,855

-

-

NOW accounts

129,390

129,390

129,390

-

-

Money market deposit accounts

260,141

260,141

260,141

-

-

Savings accounts

369,230

369,230

369,230

-

-

Time deposits

120,670

116,598

-

-

116,598

Total deposits

1,631,849

1,627,777

1,511,179

-

116,598

 

Long-term debt

44,206

44,206

-

-

44,206

Short-term borrowings

15,000

15,000

Subordinated debt

39,356

36,745

-

-

36,745

Accrued interest payable

781

781

781

-

-

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

FINANCIAL INSTRUMENTS NOT REQUIRED TO BE MEASURED OR REPORTED AT FAIR VALUE

(DOLLARS IN THOUSANDS)

December 31, 2021

Quoted Prices in

Active Markets

Significant Other

Significant

for Identical

Observable

Unobservable

Carrying

Assets

Inputs

Inputs

Amount

Fair Value

(Level 1)

(Level II)

(Level III)

$

$

$

$

$

Financial Assets:

Cash and cash equivalents

158,449

158,449

158,449

-

-

Regulatory stock

5,380

5,380

5,380

-

-

Loans held for sale

3,194

3,194

3,194

-

-

Loans, net of allowance

907,973

914,251

-

-

914,251

Mortgage servicing assets

1,768

2,129

-

-

2,129

Accrued interest receivable

5,152

5,152

5,152

-

-

Bank owned life insurance

35,414

35,414

35,414

-

-

 

Financial Liabilities:

Demand deposits

686,278

686,278

686,278

-

-

Interest-bearing demand deposits

63,015

63,015

63,015

-

-

NOW accounts

139,366

139,366

139,366

-

-

Money market deposit accounts

168,327

168,327

168,327

-

-

Savings accounts

341,291

341,291

341,291

-

-

Time deposits

113,936

113,919

-

-

113,919

Total deposits

1,512,213

1,512,196

1,398,277

-

113,919

 

Long-term debt

44,206

43,060

-

-

43,060

Subordinated debt

19,680

19,088

-

-

19,680

Accrued interest payable

255

255

255

-

-

6.Commitments and Contingent Liabilities

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of September 30, 2022, firm loan commitments were $98.1 million, unused lines of credit were $449.5 million, and open letters of credit were $10.4 million. The total of these commitments was $558.0 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

7.Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021 is as follows:

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1) (2)

(DOLLARS IN THOUSANDS)

Unrealized

Gains (Losses)

on Securities

Available-for-Sale

$

Balance at December 31, 2021

3,441

 

Other comprehensive loss before reclassifications

(23,629

)

Amount reclassified from accumulated other comprehensive income (loss)

(110

)

Period change

(23,739

)

 

 

Balance at March 31, 2022

(20,298

)

 

Other comprehensive loss before reclassifications

(16,518

)

Amount reclassified from accumulated other comprehensive income (loss)

-

Period change

(16,518

)

 

 

Balance at June 30, 2022

(36,816

)

 

Other comprehensive loss before reclassifications

(18,565

)

Amount reclassified from accumulated other comprehensive income (loss)

-

Period change

(18,565

)

 

 

Balance at September 30, 2022

(55,381

)

 

 

Balance at December 31, 2020

7,958

 

Other comprehensive loss before reclassifications

(4,964

)

Amount reclassified from accumulated other comprehensive income (loss)

(70

)

Period change

(5,034

)

 

 

Balance at March 31, 2021

2,924

 

 

Other comprehensive loss before reclassifications

4,654

Amount reclassified from accumulated other comprehensive income (loss)

(216

)

Period change

4,438

 

 

Balance at June 30, 2021

7,362

 

 

Other comprehensive loss before reclassifications

(2,759

)

Amount reclassified from accumulated other comprehensive income (loss)

(277

)

Period change

(3,036

)

 

 

Balance at September 30, 2021

4,326

 

(1) All amounts are net of tax. Related income tax expense or benefit is calculated using a Federal income tax rate of 21%.

(2) Amounts in parentheses indicate debits.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

DETAILS ABOUT ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMPONENTS (1)

(DOLLARS IN THOUSANDS)

Amount Reclassified from

Accumulated Other Comprehensive

Income (Loss)

For the Three Months

Ended September 30,

2022

2021

Affected Line Item in the

$

$

Consolidated Statements of Income

Securities available-for-sale:

Net securities gains, reclassified into earnings

-

350

Gains on the sale of debt securities, net

Related income tax expense

-

(73

)

Provision for federal income taxes

Net effect on accumulated other comprehensive

income (loss) for the period

-

277

(1) Amounts in parentheses indicate debits.

Amount Reclassified from

Accumulated Other Comprehensive

Income (Loss)

For the Nine Months

Ended September 30,

2022

2021

Affected Line Item in the

$

$

Consolidated Statements of Income

Securities available-for-sale:

Net securities gains (losses), reclassified into earnings

139

711

Gains on the sale of debt securities, net

Related income tax expense

(29

)

(149

)

Provision for federal income taxes

Net effect on accumulated other comprehensive

income for the period

110

562

(1) Amounts in parentheses indicate debits.

8.Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments ‒ Credit Losses, which, in addition to addressing other matters, ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. The effective date and transition requirements for ASU 2018-19 are the same as those in ASU 2016-13. This Update is not expected to have a significant impact on the Corporation’s financial statements.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses (Topic 326), which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the credit losses standard, the ASU is effective when they implement the credit losses standard. For entities that already have adopted the credit losses standard, the ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Corporation qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, to clarify its new credit impairment guidance in ASC 326, based on implementation issues raised by stakeholders. This Update clarified, among other things, that expected recoveries are to be included in the allowance for credit losses for these financial assets; an accounting policy election can be made to adjust the effective interest rate for existing troubled debt restructurings based on the prepayment assumptions instead of the prepayment assumptions applicable immediately prior to the restructuring event; and extends the practical expedient to exclude accrued interest receivable from all additional relevant disclosures involving amortized cost basis. The effective dates in this Update are the same as those applicable for ASU 2019-10. The Corporation qualifies as a smaller reporting company and does not expect to early adopt these ASUs.

In March 2020, the FASB issued ASU 2020-03, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

In January 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Corporation’s financial statements.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The amendments in this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (ASC 815): Fair Value Hedging - Portfolio Layer Method. ASC 815 currently permits only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in a last-of-layer closed portfolio. The amendments in this Update allow non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedges. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for entities that have adopted the amendments in Update 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption using prospective application, including adoption in an interim period where the guidance should be applied as of the beginning of the fiscal year. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the 2021 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

 

Forward-Looking Statements

 

The U.S. Private Securities Litigation Reform Act of 1995 provides safe harbor in regards to the inclusion of forward-looking statements in this document and documents incorporated by reference. Forward-looking statements pertain to possible or assumed future results that are made using current information. These forward-looking statements are generally identified when terms such as: “believe,” “estimate,” “anticipate,” “expect,” “project,” “forecast,” and other similar wordings are used. The readers of this report should take into consideration that these forward-looking statements represent management’s expectations as to future forecasts of financial performance, or the likelihood that certain events will or will not occur. Due to the very nature of estimates or predications, these forward-looking statements should not be construed to be indicative of actual future results. Additionally, management may change estimates of future performance, or the likelihood of future events, as additional information is obtained. This document may also address targets, guidelines, or strategic goals that management is striving to reach but may not be indicative of actual results.

 

Readers should note that many factors affect this forward-looking information, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference into this document. These factors include, but are not limited to, the following:

 

· National and local economic conditions
· Interest rate and monetary policies of the Federal Reserve Board
· Inflation and monetary fluctuations and volatility
· Volatility of the securities markets including the valuation of securities
· Effects of economic conditions particularly with regard to the negative impact of severe, wide-ranging and continuing disruptions caused by the spread of coronavirus (COVID-19) and any other pandemic, epidemic, or health-related crisis and government and business responses thereto, specifically the effect on loan customers to repay loans
· Health of the housing market
· Real estate valuations and its impact on the loan portfolio
· Future actions or inactions of the United States government, including a failure to increase the government debt limit, a prolonged shutdown of the federal government, increase in taxes or regulations, or increasing debt balances
· Political changes and their impact on new laws and regulations
· Competitive forces
· Impact of mergers and acquisition activity in the local market and the effects thereof
· Potential impact from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses
· Changes in customer behavior impacting deposit levels and loan demand
· Changes in accounting principles, policies, or guidelines as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standards setters
· Ineffective business strategy due to current or future market and competitive conditions
· Management’s ability to manage credit risk, liquidity risk, interest rate risk, and fair value risk
· Operation, legal, and reputation risk
· Results of the regulatory examination and supervision process
· The impact of new laws and regulations
· Possible changes to the capital and liquidity requirements and other regulatory pronouncements, regulations and rules
· Large scale global disruptions such as pandemics, terrorism, trade wars, and armed conflict.
· Local disruptions due to flooding, severe weather, or other natural disasters

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· The risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful
· Business and competitive disruptions caused by new market and industry entrants

 

Readers should be aware if any of the above factors change significantly, the statements regarding future performance could also change materially. The safe harbor provision provides that the Corporation is not required to publicly update or revise forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should review any changes in risk factors in documents filed by the Corporation periodically with the Securities and Exchange Commission, including Item 1A of Part II of this Quarterly Report on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K.

 

Results of Operations

 

Overview

 

The first nine months of 2022 were positively impacted by a number of items resulting in solid financial results, but in comparison to the prior year, the results were not as strong due to a number of non-recurring income items in the first nine months of 2021. The prior year was positively impacted by greater amounts of Paycheck Protection Program (PPP) fees on forgiven loans as well as record mortgage gains due to increased refinance activity stemming from the low interest rate environment. The first nine months of 2022 experienced a sharp increase in market interest rates, less income earned from PPP fees, and a slowing of mortgage gains.

 

The Corporation recorded net income of $4,009,000 for the three-month period ended September 30, 2022, a $130,000, or 3.1% decrease from the three months ended September 30, 2021. Net income for the nine-month period was $9,758,000, a $2,436,000, or 20.0% decrease from earnings in the nine-month period ended September 30, 2021. The earnings per share, basic and diluted, were $0.71 for the three months ended September 30, 2022, compared to $0.74 for the same period in 2021, and for the year-to-date period, earnings per share were $1.74 compared to $2.19 in 2021.

 

The Corporation’s net interest income (NII) increased by $2,961,000, or 27.9%, and $6,247,000, or 20.8%, for the three and nine months ended September 30, 2022, compared to the same periods in 2021. The increase in NII primarily resulted from an increase in interest and fees on loans of $2,036,000, or 22.7%, and $3,816,000, or 14.9%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. Additionally, interest on securities available for sale increased by $1,412,000, or 61.0%, for the three-month period ended September 30, 2022, and $2,684,000, or 40.7%, for the nine-month period ended September 30, 2022, compared to the three and nine months ended September 30, 2021. In addition, interest expense on deposits and borrowings increased by $594,000, or 75.3%, and $405,000, or 16.6%, for the three and nine months ended September 30, 2022, compared to the same periods in the prior year.

 

The Corporation recorded a $550,000 provision for loan losses in the third quarter of 2022, and $1,300,000 for the year-to-date period, compared to a credit provision of $250,000 in the third quarter of 2021, and a year-to-date provision of $125,000 through September 30, 2021. The higher provision in 2022 was primarily caused by a significantly greater amount of loan growth.

 

Other income was lower in 2022 compared to the prior year primarily as a result of lower levels of mortgage and security gains. The gains from the sale of mortgages were $186,000 for the three months ended September 30, 2022, compared to gains of $1,206,000 for the three months ended September 30, 2021, a decrease of $1,020,000, or 84.6%. For the nine-month period, gains were $1,249,000, compared to $4,381,000 for the nine months ended September 30, 2021, a decrease of $3,132,000, or 71.5%. The decrease in mortgage gains can be primarily attributed to the rapid rise in mortgage rates during the first nine months of 2022 which has caused customer activity to shift from fixed-rate mortgages that were sold on the secondary market, to adjustable rate mortgages held on the Corporation’s balance sheet. Similarly, gains on securities in total decreased by $373,000, or 97.6%, for the three months ended September 30, 2022, and $957,000, or 99.0%, for the nine months ended September 30, 2022, compared to the same periods in the prior year. Outside of mortgage and security gains, other non-interest income increased by $434,000, or 17.0%, and $430,000, or 5.3%, for the three and nine months ended September 30, 2022. Operating expenses increased by $1,395,000, or 13.8%, and $4,597,000, or 15.9%, for the three and nine months ended September 30, 2022, compared to the same periods in the prior year. This increase can be primarily attributed to the rising cost of salaries and employee benefits as well as higher computer software and data processing expenses.

 

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The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The ROA decreased for the quarter-to-date and year-to-date periods ended September 30, 2022, compared to the same periods in the prior year, due to lower earnings in 2022 and higher average assets in 2022. The ROE increased for the quarter-to-quarter period due to the decline in average equity as a result of the fair value adjustment on debt securities. The ROE for the year-to-date period declined slightly due to lower income in 2022.

 

Key Ratios   Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2022   2021   2022   2021
                 
Return on Average Assets     0.89%       1.03%       0.75%       1.06%  
Return on Average Equity     15.63%       11.91%       11.49%       12.25%  

 

The results of the Corporation’s operations are best explained by addressing, in further detail, the five major sections of the income statement, which are as follows:

 

· Net interest income
· Provision for loan losses
· Other income
· Operating expenses
· Provision for income taxes

 

The following discussion analyzes each of these five components.

 

Net Interest Income (NII)

 

NII represents the largest portion of the Corporation’s operating income. During the nine months ended September 30, 2022, NII generated 78.6% of the Corporation’s revenue stream, which consists of NII and non-interest income, compared to 68.8% in the first nine months of 2021. This increase is a result of higher levels of NII in the first nine months of 2022 as well as lower non-interest income compared to 2021. The overall performance of the Corporation is highly dependent on the changes in NII since it comprises such a significant portion of operating income.

 

The following table shows a summary analysis of NII on a fully taxable equivalent (FTE) basis. For analytical purposes and throughout this discussion, yields, rates, and measurements such as NII, net interest spread, and net yield on interest earning assets are presented on an FTE basis. The FTE NII shown in both tables below will exceed the NII reported on the consolidated statements of income, which is not shown on an FTE basis. The amount of FTE adjustment totaled $314,000 for the three months ended September 30, 2022, and $934,000 for the nine months ended September 30, 2022, compared to $291,000 and $848,000 for the same periods in 2021.

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NET INTEREST INCOME                        
(DOLLARS IN THOUSANDS)                        
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2022     2021     2022     2021  
    $     $     $     $  
Total interest income     14,972       11,417       39,135       32,483  
Total interest expense     1,383       789       2,851       2,446  
                                 
Net interest income     13,589       10,628       36,284       30,037  
Tax equivalent adjustment     314       291       934       848  
                                 
Net interest income (fully taxable equivalent)     13,903       10,919       37,218       30,885  

 

NII is the difference between interest income earned on assets and interest expense incurred on liabilities. Accordingly, two factors affect NII:

 

· The rates earned on interest earning assets and paid on interest bearing liabilities
· The average balance of interest earning assets and interest bearing liabilities

 

NII is impacted by yields earned on assets and rates paid on liabilities. During 2021, longer-term U.S. Treasury rates increased adding some slope to the yield curve, but asset yields were still constrained. In the first nine months of 2022, interest rates increased much more dramatically in anticipation of the first Federal Reserve rate movement which happened in mid-March. The Fed subsequently increased rates four additional times through September 30, 2022. The overnight rate started the year at 0.25% and stood at 3.25% as of September 30, 2022.

 

As a result of a larger balance sheet in the first nine months of 2022, even with low asset yields, the Corporation’s NII on a tax equivalent basis increased and the Corporation’s margin increased to 3.19% for the quarter and 2.96% for the nine months ended September 30, 2022, compared to 2.89% in the third quarter of 2021 and 2.82% for the year-to-date period ended September 30, 2021. The Corporation’s NII for the three and nine months ended September 30, 2022, increased over the same periods in 2021 by $2,985,000, or 27.3% and $6,333,000, or 20.5%, respectively. Management’s asset liability sensitivity shows a decline to both margin and NII given Federal Reserve rate increases. Actual results over the past two years have shown higher NII with interest rate increases, but the current cost of funds would increase dramatically should the Federal Reserve rate increases continue at the same levels. In a down-rate environment, the margin and NII would also suffer unless balance sheet growth is enough to offset lower asset yields.

 

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With lower Treasury rates in 2021, security reinvestment had generally been occurring at lower yields. With higher Treasury rates in 2022, variable-rate security yields have increased and the increase in balances has helped to increase NII during the first nine months of 2022.

 

The following table provides an analysis of year-to-date changes in NII on a FTE basis by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases.

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RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

 

    Three Months Ended September 30,   Nine Months Ended September 30,
    2022 vs. 2021   2022 vs. 2021
    Increase (Decrease)   Increase (Decrease)
    Due To Change In   Due To Change In
            Net           Net
    Average   Interest   Increase   Average   Interest   Increase
    Balances   Rates   (Decrease)   Balances   Rates   (Decrease)
    $   $   $   $   $   $
INTEREST INCOME                                                
                                                 
Interest on deposits at other banks     (18 )     56       38       (7 )     87       80  
                                                 
Securities available for sale:                                                
Taxable     190       1,197       1,387       670       1,859       2,529  
Tax-exempt     90       (23 )     67       374       (119 )     255  
Total securities     280       1,174       1,454       1,044       1,740       2,784  
                                                 
Loans     2,044       7       2,051       4,226       (374 )     3,852  
Regulatory stock     2       34       36       (8 )     30       22  
                                                 
Total interest income     2,308       1,271       3,579       5,255       1,483       6,738  
                                                 
INTEREST EXPENSE                                                
                                                 
Deposits:                                                
Demand deposits     12       364       376       25       441       466  
Savings deposits     3             3       9             9  
Time deposits     (9 )     (40 )     (49 )     (28 )     (156 )     (184 )
Total deposits     6       324       330       6       285       291  
                                                 
Borrowings:                                                
Total borrowings     246       18       264       170       (56 )     114  
                                                 
Total interest expense     252       342       594       176       229       405  
                                                 
NET INTEREST INCOME     2,056       929       2,985       5,079       1,254       6,333  

 

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The following tables show a more detailed analysis of NII on a FTE basis with all the major elements of the Corporation’s balance sheet, which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities.

 

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

 

    For the Three Months Ended September 30,
    2022   2021
            (c)           (c)
    Average       Annualized   Average       Annualized
    Balance   Interest   Yield/Rate   Balance   Interest   Yield/Rate
    $   $   %   $   $   %
ASSETS                                                
Interest earning assets:                                                
Federal funds sold and interest                                                
on deposits at other banks     15,294       55       1.42       44,259       17       0.15  
                                                 
Securities available for sale:                                                
Taxable     434,872       2,720       2.50       385,330       1,333       1.38  
Tax-exempt     206,493       1,336       2.59       192,614       1,269       2.64  
Total securities (d)     641,365       4,056       2.53       577,944       2,602       1.80  
                                                 
Loans (a)     1,078,955       11,074       4.10       879,836       9,023       4.09  
                                                 
Regulatory stock     6,032       101       6.71       5,807       65       4.45  
                                                 
Total interest earning assets     1,741,646       15,286       3.51       1,507,846       11,707       3.10  
                                                 
Non-interest earning assets (d)     52,736                       86,494                  
                                                 
Total assets     1,794,382                       1,594,340                  
                                                 
LIABILITIES &                                                
STOCKHOLDERS' EQUITY                                                
Interest bearing liabilities:                                                
Demand deposits     431,947       420       0.39       352,448       44       0.05  
Savings deposits     371,063       19       0.02       325,018       16       0.02  
Time deposits     112,188       169       0.60       117,041       218       0.74  
Borrowed funds     101,450       775       3.03       69,247       511       2.93  
Total interest bearing liabilities     1,016,648       1,383       0.54       863,754       789       0.39  
                                                 
Non-interest bearing liabilities:                                                
                                                 
Demand deposits     668,287                       588,125                  
Other     7,690                       4,616                  
                                                 
Total liabilities     1,692,625                       1,456,495                  
                                                 
Stockholders' equity     101,757                       137,845                  
                                                 
Total liabilities & stockholders' equity     1,794,382                       1,594,340                  
                                                 
Net interest income (FTE)             13,903                       10,918          
                                                 
Net interest spread (b)                     2.97                       2.71  
Effect of non-interest                                                
     bearing deposits                     0.22                       0.18  
Net yield on interest earning assets (c)                     3.19                       2.89  

 

(a) Includes balances of nonaccrual loans and the recognition of any related interest income.  The quarter-to-date average balances include net deferred loan costs of $2,360,000 as of September 30, 2022, and $872,000 as of September 30, 2021.  Such fees and costs recognized through income and included in the interest amounts totaled $92,000 in 2022, and $617,000 in 2021.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing NII (FTE) by total interest earning assets.

(d) Securities recorded at amortized cost.  Unrealized holding gains and losses are included in non-interest earning assets.  

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COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

 

    For the Nine Months Ended September 30,
    2022   2021
            (c)           (c)
    Average       Annualized   Average       Annualized
    Balance   Interest   Yield/Rate   Balance   Interest   Yield/Rate
    $   $   %   $   $   %
ASSETS                                                
Interest earning assets:                                                
Federal funds sold and interest                                                
on deposits at other banks     45,260       139       0.41       50,598       59       0.16  
                                                 
Securities available for sale:                                                
Taxable     417,802       6,225       1.98       359,530       3,696       1.38  
Tax-exempt     203,711       3,975       2.60       184,663       3,720       2.69  
Total securities (d)     621,513       10,200       2.19       544,193       7,416       1.82  
                                                 
Loans (a)     1,002,612       29,498       3.93       859,141       25,646       3.98  
                                                 
Regulatory stock     5,742       232       5.38       5,964       210       4.69  
                                                 
Total interest earning assets     1,675,127       40,069       3.19       1,459,896       33,331       3.02  
                                                 
Non-interest earning assets (d)     64,565                       82,233                  
                                                 
Total assets     1,739,692                       1,542,129                  
                                                 
LIABILITIES &                                                
STOCKHOLDERS' EQUITY                                                
Interest bearing liabilities:                                                
Demand deposits     397,487       586       0.20       338,365       120       0.05  
Savings deposits     364,704       55       0.02       308,245       46       0.02  
Time deposits     113,366       527       0.62       118,071       711       0.81  
Borrowed funds     79,923       1,683       2.82       71,945       1,569       2.92  
Total interest bearing liabilities     955,480       2,851       0.40       836,626       2,446       0.39  
                                                 
Non-interest bearing liabilities:                                                
                                                 
Demand deposits     663,950                       567,408                  
Other     6,705                       5,006                  
                                                 
Total liabilities     1,626,135                       1,409,040                  
                                                 
Stockholders' equity     113,557                       133,089                  
                                                 
Total liabilities & stockholders' equity     1,739,692                       1,542,129                  
                                                 
Net interest income (FTE)             37,218                       30,885          
                                                 
Net interest spread (b)                     2.79                       2.63  
Effect of non-interest                                                
     bearing deposits                     0.17                       0.19  
Net yield on interest earning assets (c)                     2.96                       2.82  

 

(a) Includes balances of nonaccrual loans and the recognition of any related interest income.  The year-to-date average balances include net deferred loan costs of $2,238,000 as of September 30, 2022, and $834,000 as of September 30, 2021.  Such fees and costs recognized through income and included in the interest amounts totaled $54,000 in 2022, and $990,000 in 2021.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing net interest income (FTE) by total interest earning assets.

(d) Securities recorded at amortized cost.  Unrealized holding gains and losses are included in non-interest earning assets.    

 

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s average balances on securities increased by $63.4 million, or 11.0%, for the three months ended September 30, 2022, and $77.3 million, or 14.2%, for the nine months ended September 30, 2022, compared to the same periods in 2021. The tax equivalent yield on investments increased by 73 basis points for the quarter-to-date period and 37 basis points for the year-to-date period when comparing both years. Interest income on securities increased due to this yield increase as well as volume growth which was caused by an excess of liquidity in 2021 and early 2022 as a result of the low-rate environment that caused a large influx of deposits.

 

Average balances on loans increased by $199.1 million, or 22.6%, for the three months ended September 30, 2022, and $143.5 million, or 16.7%, for the nine months ended September 30, 2022, compared to the same periods in the prior year. This loan growth was primarily driven by a strategic desire to increase earning assets with a renewed focus on internal sales culture. Loan yields increased by one basis point for the quarter, but declined by five basis points for the year-to-date period and loan interest income increased for both time frames due to the increase in loan balances. The quarter-to-date increase in loan interest income was $2,051,000, or 22.7%, and the year-to-date increase was $3,852,000, or 15.0%.

 

The average balance of interest-bearing deposit accounts increased by $120.7 million, or 15.2%, and $110.9 million, or 14.5%, for the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year. While the average balance of time deposits did decrease for both the quarter and year-to-date time periods, the average balance on demand and savings accounts increased significantly and more than offset the decline in time deposits. The interest rate paid on demand deposits increased for both of these time periods, while the interest rate on savings accounts remained the same and the rate on time deposits declined. The combination of these changes resulted in an increase in interest expense of $330,000, or 118.7%, for the three months ended September 30, 2022, and an increase in interest expense of $291,000, or 33.2%, for the nine months ended September 30, 2022, compared to the same periods in 2021.

 

The Corporation’s average balance on borrowed funds increased by $32.2 million, or 46.5%, for the three months ended September 30, 2022, and $8.0 million, or 11.1%, for the nine months ended September 30, 2022, compared to the same periods in 2021. The Corporation’s borrowed funds consist of Federal Home Loan Bank (FHLB) advances and subordinated debt issued in December of 2020 and July 2022, which was used to support capital growth for the Bank. The increase in borrowed funds for the quarter-to-date period is due to $20.0 million of short-term advances initiated in the second quarter of 2022 to support loan growth. Additionally, the Corporation issued $20.0 million of subordinated debt in July of 2022. The rate paid on borrowed funds increased by 10 basis points for the three months ended September 30, 2022, and decreased 10 basis points for the nine months ended September 30, 2022, compared to the same periods in the prior year. This increase in rate can be attributed to the new issuance of subordinated debt.

 

For the three months ended September 30, 2022, the net interest spread increased by twenty-six basis points to 2.97%, compared to 2.71% for the three months ended September 30, 2021. For the nine months ended September 30, 2022, the net interest spread increased by 16 basis points to 2.79%, compared to 2.63% for the nine months ended September 30, 2022. The effect of non-interest bearing funds increased to 22 basis points from 18 basis points for the three months ended September 30, 2022, and decreased to 17 basis points from 19 basis points for the nine months ended September 30, 2022, compared to the same periods in 2021. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go higher, the benefit of non-interest bearing deposits increases because there is more difference between non-interest bearing funds and interest bearing liabilities. The Corporation’s net interest margin (NIM) for the third quarter of 2022 was 3.19%, compared to 2.89% for the third quarter of 2021. For the year-to-date period, the Corporation’s NIM was 2.96%, compared to 2.82% for the same period in 2021.

 

The Asset Liability Committee (ALCO) carefully monitors the NIM because it indicates trends in NII, the Corporation’s largest source of revenue. For more information on the plans and strategies in place to protect the NIM and moderate the impact of changes in rates, refer to Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

 

Provision for Loan Losses

 

The allowance for credit losses (ACL) provides for losses inherent in the loan portfolio as determined by a quarterly analysis and calculation of various factors related to the loan portfolio. The amount of the provision reflects the adjustment management determines necessary to ensure the ACL is adequate to cover any losses inherent in the loan portfolio. The Corporation recorded a provision expense of $550,000 for the third quarter of 2022, compared to a $250,000 credit provision recorded for the third quarter of 2021. For the year-to-date period, the Corporation recorded provision expense of $1,300,000 compared to $125,000 in 2021. The provision expense was higher in both time periods due to loan growth partially offset by a lower balance of classified loans. As of September 30, 2022, the allowance as a percentage of total loans was 1.27%, compared to 1.41% at September 30, 2021. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Other Income

 

Other income for the third quarter of 2022 was $3,180,000, a decrease of $959,000, or 23.2%, compared to the $4,139,000 earned during the third quarter of 2021. For the year-to-date period ended September 30, 2022, other income totaled $9,875,000, a decrease of $3,659,000, or 27.0%, compared to the same period in 2021. The following tables detail the categories that comprise other income.

 

OTHER INCOME                        
(DOLLARS IN THOUSANDS)                        
    Three Months Ended September 30,              
    2022     2021     Increase (Decrease)  
    $     $     $     %  
                         
Trust and investment services     680       540       140       25.9  
Service charges on deposit accounts     361       282       79       28.0  
Other fees     430       336       94       28.0  
Commissions     941       945       (4 )     (0.4 )
Net gains (losses) on debt and equity securities     9       382       (373 )     (97.6 )
Gains on sale of mortgages     186       1,206       (1,020 )     (84.6 )
Earnings on bank owned life insurance     242       218       24       11.0  
Other miscellaneous income     331       230       101       43.9  
                                 
Total other income     3,180       4,139       (959 )     (23.2 )

 

OTHER INCOME                        
(DOLLARS IN THOUSANDS)                        
    Nine Months Ended September 30,     Increase (Decrease)  
    2022     2021              
    $     $     $     %  
                                 
Trust and investment services     1,979       1,746       233       13.3  
Service charges on deposit accounts     987       776       211       27.2  
Other fees     1,076       1,141       (65 )     (5.7 )
Commissions     2,762       2,761       1       0.0  
Net gains (losses) on debt and equity securities     10       967       (957 )     (99.0 )
Gains on sale of mortgages     1,249       4,381       (3,132 )     (71.5 )
Earnings on bank owned life insurance     667       636       31       4.9  
Other miscellaneous income     1,145       1,126       19       1.7  
                                 
Total other income     9,875       13,534       (3,659 )     (27.0 )

 

Trust and investment services income increased for both time periods primarily as a result of higher fees on trust accounts partially offset by lower income related to the investment services area. Service charges on deposit accounts increased by 28.0% for the quarter and 27.2% for the year-to-date period, primarily as a result of higher overdraft charges and higher excess transaction charges in both time periods. Other fees increased by 28.0% for the quarter and decreased by 5.7% for the year-to-date period. Gains and losses on debt and equity securities were lower in 2022 driven by higher interest rates which has resulted in fewer opportunities to sell investment securities at gains. Mortgage gains declined by $1,020,000, or 84.6%, and $3,132,000, or 71.5%, in the third quarter and for the nine months ended September 30, 2022, compared to the same periods in the prior year. This was primarily a result of the rapid increase in interest rates during 2022 that resulted in very low margins on mortgages sold and fewer mortgages sold on the secondary market as customers turned to adjustable rate mortgages in 2022. Earnings on bank-owned life insurance increased as a result of the purchase of additional BOLI policies. The miscellaneous income category was higher for the quarter and for the year-to-date period in 2022 primarily as a result of higher mortgage servicing income.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Operating Expenses

 

Operating expenses for the third quarter of 2022 were $11,513,000, an increase of $1,395,000, or 13.8%, compared to the $10,118,000 for the third quarter of 2021. For the year-to-date period ended September 30, 2022, operating expenses totaled $33,598,000, an increase of $4,597,000, or 15.9%, compared to the same period in 2021. The following tables provide details of the Corporation’s operating expenses for the three and nine-month periods ended September 30, 2022, compared to the same periods in 2021.

 

OPERATING EXPENSES                        
(DOLLARS IN THOUSANDS)                        
                         
    Three Months Ended September 30,              
    2022     2021     Increase (Decrease)  
    $     $     $     %  
Salaries and employee benefits     6,607       6,142       465       7.6  
Occupancy expenses     713       654       59       9.0  
Equipment expenses     312       255       57       22.4  
Advertising & marketing expenses     259       282       (23 )     (8.2 )
Computer software & data processing expenses     1,727       1,097       630       57.4  
Shares tax     351       322       29       9.0  
Professional services     720       535       185       34.6  
Other operating expenses     824       831       (7 )     (0.8 )
     Total Operating Expenses     11,513       10,118       1,395       13.8  

 

OPERATING EXPENSES                        
(DOLLARS IN THOUSANDS)                        
                         
    Nine Months Ended September 30,              
    2022     2021     Increase (Decrease)  
    $     $     $     %  
Salaries and employee benefits     19,826       17,800       2,026       11.4  
Occupancy expenses     2,125       1,972       153       7.8  
Equipment expenses     913       806       107       13.3  
Advertising & marketing expenses     833       717       116       16.2  
Computer software & data processing expenses     4,251       3,297       954       28.9  
Bank shares tax     1,053       876       177       20.2  
Professional services     1,983       1,572       411       26.1  
Other operating expenses     2,614       1,961       653       33.3  
     Total Operating Expenses     33,598       29,001       4,597       15.9  

 

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Salaries and employee benefits are the largest category of operating expenses. For the three months ended September 30, 2022, salaries and benefits increased $465,000, or 7.6%, compared to 2021. For the nine months ended September 30, 2022, salaries and benefits increased $2,026,000, or 11.4%, from the year-to-date period in the prior year. This was primarily due to higher costs to replace employees who retired or left the organization due to nationwide, regional, and local staffing challenges, a realignment of salaries company-wide with market norms, and an accrual for the Corporation’s bank-wide incentive program. Occupancy and equipment expenses are higher than the prior year primarily due to the addition of a community lending office as well as a full service branch office. Advertising and marketing expenses increased by 16.2%, for the year-to-date period, due to promoting new market areas as well as new products and services. Computer software and data processing expenses increased as a result of higher technology costs as new systems are implemented to support the ongoing growth and efficiency of the Corporation and increased volumes due to a larger customer base. Shares tax expense is based on the Corporation’s level of stockholders’ equity and has grown substantially, commensurate with the growth in stockholders’ equity. Professional services expenses increased in the third quarter and the nine months ended September 30, 2022, compared to the prior year driven by higher legal fees and other outside services. Other operating expenses increased over the prior year primarily as a result of higher FDIC and OCC assessment costs, higher fraud-related charges-offs, higher travel costs, and miscellaneous other operating costs that are increasing to a lesser degree.

 

 

Income Taxes

 

Federal income tax expense was $697,000 for the third quarter of 2022 compared to $760,000 for the same period in 2021. For the nine months ended September 30, 2022, the Corporation recorded Federal income tax expense of $1,503,000, compared to $2,251,000 for the nine months ended September 30, 2021. The effective tax rate for the Corporation was 13.3% for the nine months ended September 30, 2022, and 15.6% for the nine months ended September 30, 2021. Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and Bank Owned Life Insurance (BOLI) income; therefore, the effective income tax rate for the Corporation is lower than the stated tax rate and the effective tax rate for the first nine months of 2022 was lower than the prior year due to an increased level of tax-free assets.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Financial Condition

 

Investment Securities

 

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of September 30, 2022, the Corporation had $560 million of securities available for sale, which accounted for 30.7% of assets, compared to 32.5% as of December 31, 2021, and 35.1% as of September 30, 2021. Based on ending balances, the securities portfolio decreased 0.3% from September 30, 2021, and increased 0.3% from December 31, 2021.

 

The debt securities portfolio was showing a net unrealized loss of $70,102,000 as of September 30, 2022, compared to an unrealized gain of $4,356,000 as of December 31, 2021, and $5,477,000 as of September 30, 2021. The valuation of the Corporation’s debt securities portfolio is impacted by both the U.S. Treasury rates and the perceived forward direction of interest rates. With the dramatic increase in rates during the nine months ended September 30, 2022, the valuation of the bond portfolio decreased rapidly. Because the bonds are recorded at market value on the Corporation’s balance sheet, the unrealized losses, net of deferred taxes, are recorded as accumulated other comprehensive loss in the stockholders’ equity section of the balance sheet. Earnings, net of dividends paid, positively impacted the Corporation’s stockholders’ equity levels through September 30, 2022, but the accumulated other comprehensive loss on the bond portfolio had a negative impact.

 

The table below summarizes the Corporation’s amortized cost, unrealized gain or loss position, and fair value for each sector of the securities portfolio for the periods ended September 30, 2022, December 31, 2021 and September 30, 2021.

 

AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD            
(DOLLARS IN THOUSANDS)                  
          Net        
    Amortized     Unrealized     Fair  
    Cost     Gains (Losses)     Value  
    $     $     $  
September 30, 2022                  
U.S. treasuries     35,719       (3,287 )     32,432  
U.S. government agencies     27,606       (2,971 )     24,635  
U.S. agency mortgage-backed securities     51,655       (5,354 )     46,301  
U.S. agency collateralized mortgage obligations     32,309       (2,855 )     29,454  
Non-agency MBS/CMO     55,370       (3,496 )     51,874  
Asset-backed securities     84,110       (2,362 )     81,748  
Corporate bonds     81,829       (7,473 )     74,356  
Obligations of states and political subdivisions     261,150       (42,304 )     218,846  
Total debt securities, available for sale     629,748       (70,102 )     559,646  
Equity securities     8,959       (8 )     8,951  
Total securities     638,707       (70,110 )     568,597  
                         
December 31, 2021                        
U.S. Treasuries     14,821       (8 )     14,813  
U.S. government agencies     29,613       (592 )     29,021  
U.S. agency mortgage-backed securities     51,964       24       51,988  
U.S. agency collateralized mortgage obligations     30,917       160       31,077  
Asset-backed securities     100,998       221       101,219  
Corporate bonds     82,617       (108 )     82,509  
Obligations of states and political subdivisions     242,807       4,659       247,466  
Total debt securities     553,737       4,356       558,093  
Equity securities     8,810       172       8,982  
Total securities     562,547       4,528       567,075  

 

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

                   
          Net        
    Amortized     Unrealized     Fair  
    Cost     Gains (Losses)     Value  
    $     $     $  
September 30, 2021                        
U.S. treasuries     4,981       17       4,998  
U.S. government agencies     29,616       (335 )     29,281  
U.S. agency mortgage-backed securities     56,941       521       57,462  
U.S. agency collateralized mortgage obligations     33,173       420       33,593  
Asset-backed securities     100,722       721       101,443  
Corporate bonds     84,264       710       84,974  
Obligations of states and political subdivisions     246,413       3,423       249,836  
Total debt securities, available for sale     556,110       5,477       561,587  
Equity securities     8,740       104       8,844  
Total securities     564,850       5,581       570,431  

 

Each quarter, management sets portfolio allocation guidelines and adjusts the security portfolio strategy generally based on the following factors:

 

· ALCO positions as to liquidity, credit risk, interest rate risk, and fair value risk
· Growth of the loan portfolio
· Slope of the U.S. Treasury curve
· Relative performance of the various instruments, including spread to U.S. Treasuries
· Duration and average length of the portfolio
· Volatility of the portfolio
· Direction of interest rates
· Economic factors impacting debt securities

 

The investment policy of the Corporation establishes guidelines to promote diversification within the portfolio. The diversity specifications provide opportunities to shorten or lengthen duration, maximize yield, and mitigate credit risk.

 

The Corporation’s U.S. Treasury sector increased $17.6 million during the first nine months of 2022, resulting in a 119.0% increase in this sector. This sector represents a safe credit at a market-appropriate yield which added some diversity to the portfolio. The Corporation’s U.S. government agency sector decreased by $4.4 million, or 15.1%, since December 31, 2021. Management has purchased Non-agency mortgage backed securities (MBS) and collateralized mortgage obligation (CMO) securities since December 31, 2021 which has brought the portfolio to $51.9 million as of September 30, 2022, or 9.1% of the total portfolio. This sector will better structure the portfolio to achieve higher yields and shorten the duration while also protecting in a rates-up environment.

 

The Corporation’s U.S. agency MBS and CMO sectors have decreased since December 31, 2021, with MBS decreasing $5.7 million, or 10.9%, and CMOs decreasing $1.6 million, or 5.2%. These two security types both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain a substantial amount of MBS and CMOs in order to assist in adding to and maintaining a stable five-year ladder of cash flows, which is important in providing stable liquidity and interest rate risk positions. U.S. agency MBS and CMO securities pay contractual monthly principal and interest, but are also subject to additional prepayment of principal. Cash flows coming off of MBS and CMOs do slow down and speed up as interest rates increase or decrease, which has an impact on the portfolio’s length and yield.

 

The Corporation’s asset-backed securities declined by $19.5 million, or 19.2%, from December 31, 2021, to September 30, 2022. Many of the bonds in this sector receive regular monthly principal payments which caused the value to decline. Additionally, some asset-backed securities were sold at gains in the first quarter of 2022 to support the Corporation’s earnings and liquidity position.

 

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The combined effect of all of the amortizing bonds paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow of approximately $2.0 - $3.0 million per month.

 

As of September 30, 2022, the fair value of the Corporation’s corporate bonds decreased by $8.2 million, or 9.9%, from balances at December 31, 2021. Like any security, corporate bonds have both positive and negative qualities and management must evaluate these securities on a risk versus reward basis. Corporate bonds add diversity to the portfolio and provide strong yields for short maturities; however, by their very nature, corporate bonds carry a high level of credit risk should the entity experience financial difficulties. As a result of the higher level of credit risk taken by purchasing a corporate bond, management has in place procedures to closely analyze the financial health of the company as well as policy guidelines. The guidelines include both maximum investment by issuer and minimal credit ratings that must be met in order for management to purchase a corporate bond. Financial analysis is conducted prior to every corporate bond purchase with ongoing monitoring performed on all securities held.

 

Obligations of states and political subdivisions, or municipal bonds, consist of both tax-free and taxable securities. They carry the longest duration on average of any instrument in the securities portfolio. Municipal tax-equivalent yields generally start well above other taxable bonds. These instruments also experience significant fair market value gains and losses when interest rates decrease and increase. Municipal securities were purchased throughout 2020 and 2021 due to market conditions that led to favorable yields on some instruments. Municipal bonds represented 38.5% of the securities portfolio as of September 30, 2022, compared to 43.6% as of December 31, 2021.

 

Loans

 

Net loans outstanding increased by 26.8%, to $1.1 billion at September 30, 2022, from $867.8 million at September 30, 2021. Net loans increased by 21.2%, an annualized rate of 28.3%, from $908.0 million at December 31, 2021. The following table shows the composition of the loan portfolio as of September 30, 2022, December 31, 2021, and September 30, 2021.

 

LOANS BY MAJOR CATEGORY                        
(DOLLARS IN THOUSANDS)                            
    September 30,   December 31,   September 30,
    2022   2021   2021
    $   %   $   %   $   %
                         
Commercial real estate                                                
Commercial mortgages     207,480       18.6       177,396       19.3       166,741       19.0  
Agriculture mortgages     212,351       19.1       203,725       22.2       188,455       21.4  
Construction     80,008       7.2       19,639       2.1       18,786       2.1  
Total commercial real estate     499,839       44.9       400,760       43.6       373,982       42.5  
                                                 
Consumer real estate (a)                                                
1-4 family residential mortgages     366,534       33.0       317,037       34.5       302,670       34.4  
Home equity loans     13,268       1.2       11,181       1.2       11,889       1.4  
Home equity lines of credit     93,704       8.4       75,698       8.2       74,919       8.5  
Total consumer real estate     473,506       42.6       403,916       43.9       389,478       44.3  
                                                 
Commercial and industrial                                                
Commercial and industrial     80,964       7.3       65,615       7.1       73,695       8.4  
Tax-free loans     26,398       2.4       23,009       2.5       17,279       2.0  
Agriculture loans     25,520       2.3       20,717       2.3       19,180       2.2  
Total commercial and industrial     132,882       12.0       109,341       11.9       110,154       12.6  
                                                 
Consumer     5,755       0.5       5,132       0.6       5,211       0.6  
                                                 
Total loans     1,111,982       100.0       919,149       100.0       878,825       100.0  
Less:                                                
Deferred loan costs (fees), net     2,522               1,755               (1,436 )        
Allowance for credit losses     (14,150 )             (12,931 )             12,454          
Total net loans     1,100,354               907,973               867,807          

 

(a) Residential real estate loans do not include mortgage loans serviced for others which totaled $304,479,000 as of September 30, 2022, $289,263,000 as of December 31, 2021, and $274,892,000 as of September 30, 2021.

 

There was significant growth in the loan portfolio since September 30, 2021 and December 31, 2021. This loan growth was primarily driven by a strategic desire to increase earning assets with a renewed focus on internal sales culture. All major loan categories showed an increase in balances from both time periods.

 

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The commercial real estate category represents the largest group of loans for the Corporation. Commercial real estate makes up 44.9% of total loans as of September 30, 2022, compared to 42.5% of total loans as of September 30, 2021. Within the commercial real estate segment, the increase has primarily been construction loans which was a direct result of reclassification from 1-4 family residential loans in the first nine months of 2022. The Corporation’s commercial construction loan balances increased by $61.2 million, or 325.9%, from September 30, 2021 to September 30, 2022. Commercial construction loans were 7.2% of the total loan portfolio as of September 30, 2022, and 2.1% as of September 30, 2021.

 

Commercial mortgages increased $40.7 million, or 24.4%, from balances at September 30, 2021. Commercial mortgages as a percentage of the total loan portfolio decreased to 18.6% as of September 30, 2022, compared to 19.0% at September 30, 2021. Agricultural mortgages increased by $23.9 million, or 12.7%, from $188.5 million as of September 30, 2021, to $212.4 million as of September 30, 2022. Agricultural mortgages were 19.1% of the portfolio as of September 30, 2022, compared to 21.4% as of September 30, 2021.

 

The consumer residential real estate category of total loans increased from $389.5 million on September 30, 2021, to $473.5 million on September 30, 2022, a 21.6% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans secured by 1-4 family residential properties, including first and junior liens, and floating rate home equity loans. The 1-4 family residential mortgages account for the vast majority of residential real estate loans with fixed and floating home equity loans making up the remainder. Historically, the entire consumer residential real estate component of the loan portfolio has averaged close to 40% of total loans. As of September 30, 2021, this percentage was 44.3%, and as of September 30, 2022, it decreased to 42.6%. Although economic conditions for consumers had deteriorated with the COVID-19 pandemic, increased unemployment, and decreased consumer spending, the mortgage market was relatively strong as consumers refinanced existing debt to lower rates throughout 2021. During the first nine months of 2022, mortgage activity remained strong with the majority of consumers choosing adjustable rate mortgages which remain in the Corporation’s loan portfolio as opposed to the 30-year fixed rate mortgages that were being generated in the past couple of years and sold on the secondary market.

 

The first lien 1-4 family mortgages increased by $63.9 million, or 21.1%, from September 30, 2021, to September 30, 2022. These first lien 1-4 family loans made up 77.7% of the residential real estate total as of September 30, 2021, and 77.4% as of September 30, 2022. The vast majority of the first lien 1-4 family closed end loans consist of single family personal first lien residential mortgages and home equity loans, with the remainder consisting of 1-4 family residential non-owner-occupied mortgages. In the third quarter of 2022, mortgage production decreased 11% from the previous quarter and was down 7% from the third quarter of 2021.  Purchase money origination constituted 87% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up 41% of that mix.  The percentage of mortgage originations being added into the Corporation’s held-for-investment mortgage portfolio increased quarter-over-quarter driven primarily by the continued increase in agency-eligible secondary market fixed mortgage rates.  In the third quarter of 2022, 90% of all mortgage originations were held in the mortgage portfolio, 82% of which were adjustable rate mortgages.  As of September 30, 2022, ARM balances were $187.1 million, representing 53.5% of the 1-4 family residential loan portfolio of the Corporation.  With a continued decline in dollar volume of loans being delivered into the secondary market along with a continued increase in mortgage rates, the gains on the sale of mortgages declined quarter-over-quarter. 

 

As of September 30, 2022, the remainder of the residential real estate loans consisted of $13.3 million of fixed rate junior lien home equity loans, and $93.7 million of variable rate home equity lines of credit (HELOCs). This compares to $11.9 million of fixed rate junior lien home equity loans, and $74.9 million of HELOCs as of September 30, 2021. Therefore, combined, these two types of home equity loans increased from $86.8 million to $107.0 million, an increase of 23.3%.

 

The other area of commercial lending is non-real estate secured commercial lending, referred to as commercial and industrial lending. Commercial and industrial loans not secured by real estate accounted for 12.0% of total loans as of September 30, 2022, a decline from the 12.6% at September 30, 2021. The balance of total commercial and industrial loans increased by $22.7 million, or 20.6%, from September 30, 2021 to September 30, 2022. This category of loans generally includes unsecured lines of credit, truck, equipment, and receivable and inventory loans, in addition to tax-free loans to municipalities. The balance at September 30, 2022 and September 30, 2021, also includes the PPP loans, which have declined rapidly as these loans are forgiven by the SBA after businesses prove they used the funds for qualified expenses. The total balance of PPP loans declined by $22.7 million, or 97.9% from September 30, 2021, to September 30, 2022 and represents balances of only $486,000 as of September 30, 2022.

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Management’s Discussion and Analysis

The consumer loan portfolio increased slightly from $5.2 million at September 30, 2021, to $5.8 million at September 30, 2022, an 11.5% increase. The consumer loan portfolio represents 0.5% of total loans. The long-term trend over the past decade has seen homeowners turning to the equity in their homes to finance cars and education rather than traditional consumer loans that are generally unsecured. Demand for unsecured credit is being matched by principal payments on existing loans resulting in stable balances.

 

Non-Performing Assets

 

Non-performing assets include:

 

· Nonaccrual loans
· Loans past due 90 days or more and still accruing
· Non-performing troubled debt restructurings
· Other real estate owned

 

NON-PERFORMING ASSETS            
(DOLLARS IN THOUSANDS)            
    September 30   December 31,   September 30
    2022   2021   2021
    $   $   $
             
Nonaccrual loans     4,505       2,556       2,236  
Loans past due 90 days or more and still accruing     147       325       183  
Troubled debt restructurings, non-performing                  
Total non-performing loans     4,652       2,881       2,419  
                         
Other real estate owned                  
                         
Total non-performing assets     4,652       2,881       2,419  
                         
Non-performing assets to net loans     0.42%       0.31%       0.28%  

 

The total balance of non-performing assets increased by $2.2 million, or 92.3% from balances at September 30, 2021, and increased by $1.8 million, or 61.5%, from balances at December 31, 2021. There were no non-performing troubled debt restructuring (TDR) loans in any of the periods presented. Non-accrual loans increased by $2.3 million, or 101.5%, since September 30, 2021, and increased $1.9 million, or 76.3% since December 31, 2021. The increase that occurred for both time periods was primarily due to three agricultural relationships, a business loan, a commercial real estate loan, and a business mortgage to unrelated borrowers which all added to non-accrual loans in the first nine months of 2022. Loans past due 90 days or more and still accruing were down $36,000 from the prior year period, and $178,000, since December 31, 2021.

 

There was no other real estate owned (OREO) as of September 30, 2022, December 31, 2021, or September 30, 2021.

 

Allowance for Credit Losses

 

The allowance for credit losses is established to cover any losses inherent in the loan portfolio. Management reviews the adequacy of the allowance each quarter based upon a detailed analysis and calculation of the allowance for credit losses. This calculation is based upon a systematic methodology for determining the allowance for credit losses in accordance with generally accepted accounting principles. The calculation includes estimates and is based upon losses inherent in the loan portfolio. The allowance calculation includes specific provisions for under-performing loans and general allocations to cover anticipated losses on all loan types based on historical losses. The calculation is also influenced by nine qualitative factors that are adjusted on a quarterly basis as needed. Based on the quarterly credit loss calculation, management will adjust the allowance for credit losses through the provision as necessary. Changes to the allowance for credit losses during the year are primarily affected by five main factors:

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Management’s Discussion and Analysis

· Historical loan losses
· Qualitative factor adjustments including levels of delinquent and non-performing loans
· Growth trends of the loan portfolio
· Recovery of loans previously charged off
· Provision for loan losses

 

Strong credit and collateral policies have been instrumental in producing a favorable history of loan losses for the Corporation. The Net Charge-Off table below shows the net charge-offs as a percentage of average loans outstanding for each segment of the Corporation’s loan portfolio as of September 30, 2022 and 2021.

 

Net Charge-Offs        
(DOLLARS IN THOUSANDS)        
     
    2022   2021
    $   $
         
Loans charged-off:                
Commercial real estate     65        
Consumer real estate            
Commercial and industrial     59        
Consumer     16       30  
Total loans charged-off     140       30  
                 
Recoveries of loans previously charged-off                
Commercial real estate     12        
Consumer real estate     9        
Commercial and industrial     35       19  
Consumer     3       13  
Total recoveries     59       32  
                 
Net charge-offs (recoveries)                
Commercial real estate     53        
Consumer real estate     (9 )      
Commercial and industrial     24       (19 )
Consumer     13       17  
Total net charge-offs (recoveries)     81       (2 )
                 
Average loans outstanding                
Commercial real estate     422,933       351,320  
Consumer real estate     395,182       320,275  
Commercial and industrial     178,664       182,016  
Consumer     5,834       5,531  
Total average loans outstanding     1,002,613       859,142  
                 
Net charge-offs (recoveries) as a % of average loans outstanding                
Commercial real estate     0.01%       0.00%  
Consumer real estate     0.00%       0.00%  
Commercial and industrial     0.01%       -0.01%  
Consumer     0.22%       0.31%  
Total net charge-offs (recoveries) as a % of average loans outstanding     0.01%       0.00%  

 

The net charge-offs as a percentage of average total loans outstanding indicates the percentage of the Corporation’s total loan portfolio that has been charged off during the period. The Corporation has historically experienced very low net charge-off percentages due to conservative credit practices. As of September 30, 2022, net charge-offs were $81,000, representing a net charge off position of 0.01% of average loans outstanding as reflected above. As of September 30, 2021, net recoveries were $2,000, resulting in a net charge-off as a percentage of average loans of 0.00% for the year-to-date period.

 

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Management’s Discussion and Analysis

The Corporation’s level of classified loans was $12.9 million on September 30, 2022, compared to $17.9 million on September 30, 2021. Total classified loans have decreased from the prior year. Having more loans in a classified status could result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans. In addition to this impact, management performs a specific allocation test on these classified loans. There was $9,000 of specifically allocated allowance against the classified loans as of September 30, 2022, $147,000 of specific allocation as of December 31, 2021, and $0.2 million of specific allocation as of September 30, 2021.

The allowance as a percentage of total loans was 1.27% as of September 30, 2022, and 1.41% as of September 30, 2021. It is typical for the allowance for credit losses to contain a small amount of excess reserves.

 

Premises and Equipment

 

Premises and equipment, net of accumulated depreciation, increased by $0.1 million, or 0.4%, to $24.6 million as of September 30, 2022, from $24.5 million as of September 30, 2021. As of September 30, 2022, $664,000 was classified as construction in process compared to $261,000 as of September 30, 2021.

 

Regulatory Stock

 

The Corporation owns multiple forms of regulatory stock that is required in order to be a member of the Federal Reserve Bank (FRB) and members of banks such as the FHLB of Pittsburgh and Atlantic Community Bankers Bank (ACBB). The Corporation’s $5.9 million of regulatory stock holdings as of September 30, 2022, consisted of $5.2 million of FHLB of Pittsburgh stock, $631,000 of FRB stock, and $37,000 of Atlantic Community Bancshares, Inc. stock, the Bank Holding Company of ACBB. All of these stocks are valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the investment is carried at book value and there is no fair market value adjustment.

 

Deposits

 

The Corporation’s total ending deposits at September 30, 2022, increased by $119.6 million, or 7.9%, and by $240.3 million, or 17.3%, from December 31, 2021, and September 30, 2021, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. In the past few years, the economic concerns and volatility of the equity markets continued to lead customers to banks for safe places to invest money, despite historically low interest rates. The mix of the Corporation’s deposit categories has changed moderately since September 30, 2021, with the changes being a $79.2 million, or 13.4% increase in non-interest bearing demand deposit accounts, a $23.4 million, or 40.1% increase in interest bearing demand balances, a $4.1 million, or 3.0% decrease in NOW balances, a $98.1 million, or 60.5% increase in money market account balances, a $39.3 million, or 11.9% increase in savings account balances, and a $4.3 million, or 3.7% increase in time deposit balances.

 

The Deposits by Major Classification table, shown below, provides the balances of each category for September 30, 2022, December 31, 2021, and September 30, 2021.

 

DEPOSITS BY MAJOR CLASSIFICATION                  
(DOLLARS IN THOUSANDS)                  
                   
    September 30,     December 31,     September 30,  
    2022     2021     2021  
    $     $     $  
                   
Non-interest bearing demand     670,563       686,278       591,333  
Interest bearing demand     81,855       63,015       58,425  
NOW accounts     129,390       139,366       133,443  
Money market deposit accounts     260,141       168,327       162,050  
Savings accounts     369,229       341,291       329,900  
Time deposits     120,671       113,936       116,351  
Total deposits     1,631,849       1,512,213       1,391,502  

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Management’s Discussion and Analysis

The growth and mix of deposits is often driven by several factors including:

 

· Convenience and service provided
· Current rates paid on deposits relative to competitor rates
· Level of and perceived direction of interest rates
· Financial condition and perceived safety of the institution
· Possible risks associated with other investment opportunities
· Level of fees on deposit products

 

Time deposits are typically a more rate-sensitive product, making them a source of funding that is prone to balance variations depending on the interest rate environment and how the Corporation’s time deposit rates compare with the local market rates. Time deposits fluctuate as consumers search for the best rates in the market, with less allegiance to any particular financial institution. The Corporation has experienced a slow and steady shift in deposit trends over the past five years as customers have moved money from time deposits into core checking and savings accounts although with increased rates in the 2nd half of 2022, there is a shift back into time deposits resulting in the increase in balances since September 30, 2021, and December 31, 2021.

 

Borrowings

 

Total borrowings were $98.6 million, $63.9 million, and $66.4 million as of September 30, 2022, December 31, 2021, and September 30, 2021, respectively. There was $15.0 million of short-term funds outstanding at September 30, 2022, and no short-term funds outstanding at December 31, 2021, or September 30, 2021. Short-term funds are used for immediate liquidity needs and are not typically part of an ongoing liquidity or interest rate risk strategy; therefore, they fluctuate more rapidly. When short-term funds are used, they are purchased through correspondent and member bank relationships as overnight borrowings or through the FHLB for terms less than one year. The $15.0 million of short-term borrowings at September 30, 2022, consisted entirely of short-term FHLB advances.

 

Total long-term borrowings, borrowings initiated for terms longer than one year, were $44.2 million as of September 30, 2022, $44.2 million as of December 31, 2021, and $46.7 million as of September 30, 2021. The long-term borrowings for the Corporation were made up entirely of FHLB long-term advances. FHLB advances are used as a secondary source of funding and to mitigate interest rate risk. These long-term funding instruments are typically a more effective funding instrument in terms of selecting the exact amount, rate, and term of funding rather than trying to source the same through deposits. In this manner, management can efficiently meet known liquidity and interest rate risk needs. The decrease in long-term FHLB borrowings since September 30, 2021, can be attributed to management taking advantage of declining rates in 2021 by prepaying FHLB advances and incurring penalties in order to save on interest expense in future years.

 

The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently $529.8 million. The Corporation’s internal policy limits are far more restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.

 

In addition to the long-term advances funded through the FHLB, on December 30, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of December 30, 2030. These notes are non-callable for 5 years and carry a fixed interest rate of 4.00% per year for 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of September 30, 2022, $16.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

 

On July 22, 2022, the Corporation completed the sale of an additional subordinated debt note offering.  The Corporation sold $20.0 million of subordinated debt notes with a maturity date of September 30, 2032.  These notes are all non-callable for 5 years and carry a fixed interest rate of 5.75% per year for the 5 years and then convert to a floating rate for the remainder of the term.  The notes can be redeemed at par beginning 5 years prior to maturity.  The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank.  As of September 30, 2022, $15.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis. 

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Management’s Discussion and Analysis

Stockholders’ Equity

 

Federal regulatory authorities require banks to meet minimum capital levels. The Corporation, as well as the Bank, as the solely owned subsidiary of the Corporation, maintains capital ratios well above those minimum levels. The risk-weighted capital ratios are calculated by dividing capital by total risk-weighted assets. Regulatory guidelines determine the risk-weighted assets by assigning assets to specific risk-weighted categories. The calculation of tier I capital to risk-weighted average assets does not include an add-back to capital for the amount of the allowance for credit losses, thereby making this ratio lower than the total capital to risk-weighted assets ratio.

 

The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may disclose capital amounts and ratios. The Corporation has elected to disclose those amounts and ratios.

 

The following tables reflect the capital ratios for the Corporation and Bank compared to the regulatory capital requirements.

 

REGULATORY CAPITAL RATIOS:            
          Regulatory Requirements
          Adequately   Well
As of September 30, 2022   Capital Ratios   Capitalized   Capitalized
Total Capital to Risk-Weighted Assets            
  Consolidated   15.1%   N/A   N/A
  Bank   14.4%   8.0%   10.0%
               
Tier 1 Capital to Risk-Weighted Assets            
  Consolidated   10.9%   N/A   N/A
  Bank   13.2%   6.0%   8.0%
               
Common Equity Tier 1 Capital to Risk-Weighted Assets        
  Consolidated   10.9%   N/A   N/A
  Bank   13.2%   4.5%   6.5%
               
Tier 1 Capital to Average Assets            
  Consolidated   7.7%   N/A   N/A
  Bank   9.3%   4.0%   5.0%
               
As of December 31, 2021            
Total Capital to Risk-Weighted Assets            
  Consolidated   15.6%   N/A   N/A
  Bank   14.9%   8.0%   10.0%
               
Tier I Capital to Risk-Weighted Assets            
  Consolidated   12.5%   N/A   N/A
  Bank   13.6%   6.0%   8.0%
               
Common Equity Tier I Capital to Risk-Weighted Assets        
  Consolidated   12.5%   N/A   N/A
  Bank   13.6%   4.5%   6.5%
               
Tier I Capital to Average Assets            
  Consolidated   8.2%   N/A   N/A
  Bank   9.1%   4.0%   5.0%
               
               
As of September 30, 2021            
Total Capital to Risk-Weighted Assets            
  Consolidated   15.9%   N/A   N/A
  Bank   15.4%   8.0%   10.0%
               
Tier 1 Capital to Risk-Weighted Assets            
  Consolidated   12.8%   N/A   N/A
  Bank   14.1%   6.0%   8.0%
               
Common Equity Tier 1 Capital to Risk-Weighted Assets        
  Consolidated   12.8%   N/A   N/A
  Bank   14.1%   4.5%   6.5%
               
Tier 1 Capital to Average Assets            
  Consolidated   8.3%   N/A   N/A
  Bank   9.2%   4.0%   5.0%

 

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Management’s Discussion and Analysis

As of September 30, 2022 the Bank’s Tier 1 Leverage Ratio stood at 9.3% while the Corporation’s Tier 1 Leverage Ratio was 7.7%. Tier 1 Capital levels at the Corporation level were not impacted by the subordinated debt issue since subordinated debt only qualifies as Tier 2 Capital at the corporate level. As such, in terms of the Corporation’s regulatory capital ratios, only the Total Capital to Risk-Weighted Assets ratio was enhanced as a result of the $40 million subordinated debt issues. In 2022, the Corporation’s earnings, net of dividends paid, positively impacted the level of stockholders’ equity, but a devaluation of the investment portfolio, resulted in a higher level of unrealized losses, and a negative impact.

 

Off-Balance Sheet Arrangements

 

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of September 30, 2022.

 

OFF-BALANCE SHEET ARRANGEMENTS      
(DOLLARS IN THOUSANDS)      
       
    September 30,  
    2022  
    $  
Commitments to extend credit:        
Revolving home equity     187,371  
Construction loans     46,585  
Real estate loans     92,296  
Business loans     214,489  
Consumer loans     1,250  
Other     5,657  
Standby letters of credit     10,411  
         
Total     558,059  

 

Significant Legislation

 

Dodd-Frank Wall Street Reform and Consumer Protection Act

 

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law. Dodd-Frank is intended to affect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank creates a new 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 creates a new independent federal regulator to administer federal consumer protection laws. Among the provisions that have already or are likely to affect the Corporation 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 will be excluded from tier I capital unless such securities were issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets. Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, are consistent with safety and soundness.

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Management’s Discussion and Analysis

Deposit Insurance

Dodd-Frank permanently increased the maximum deposit insurance amount for banks, savings institutions, and credit unions to $250,000 per depositor. Additionally, on February 7, 2011, the Board of Directors of the FDIC approved a final rule based on the Dodd-Frank Act that revises the assessment base from one based on domestic deposits to one based on assets. This change, which was effective in April 2011, saved the Corporation a significant amount of FDIC insurance premiums from the significantly higher FDIC insurance premiums placed into effect after the financial crisis.

 

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 shareholders. The SEC has finalized the rules implementing these requirements which took effect on January 21, 2011. The Corporation was exempt from these requirements until January 21, 2013, due to its status as a smaller reporting company.

 

Consumer Financial Protection Bureau

Dodd-Frank created 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, the 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 will be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB will have 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 will allow 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.

 

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 will be 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.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a financial institution, the Corporation is subject to three primary risks:

 

· Credit risk
· Liquidity risk
· Interest rate risk

 

The Board of Directors has established an Asset Liability Management Committee (ALCO) to measure, monitor, and manage these primary market risks. The Asset Liability Policy has instituted guidelines for all of these primary risks, as well as other financial performance measurements with target ranges. The Asset Liability goals and guidelines are consistent with the Strategic Plan goals related to financial performance.

 

Credit Risk

For discussion on credit risk refer to the sections in Item 2. Management’s Discussion and Analysis, on securities, non-performing assets, and allowance for credit losses.

 

Liquidity Risk

Liquidity refers to having an adequate supply of cash available to meet business needs. Financial institutions must ensure that there is adequate liquidity to meet a variety of funding needs, at a minimal cost. Funding new loans and covering deposit withdrawals are the primary liquidity needs of the Corporation. The Corporation uses a variety of funding sources to meet liquidity needs, such as deposits, loan repayments, cash flows from securities, borrowings, and current earnings.

 

As noted in the discussion on deposits, customers have historically provided the Corporation with a reliable and steadily increasing source of funds liquidity. The Corporation also has in place relationships with other banking institutions for the purpose of buying and selling Federal funds. The lines of credit with these institutions provide immediate sources of additional liquidity. The Corporation currently has unsecured lines of credit totaling $32 million. This does not include amounts available from member banks such as the Federal Reserve Discount Window or the FHLB of Pittsburgh.

 

The Corporation regularly reviews its liquidity position by measuring its projected net cash flows at a 30 and 90-day interval. The Bank stresses the measurements by assuming a level of deposit out-flows that have not historically been realized. In addition to this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary. The objective of this measurement is to identify the amount of cash that could be raised quickly without the need to liquidate assets. The Bank also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit flows in its local market, reduce access to wholesale funding and limit access of funds available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the potential cash surplus/deficit over a variety of time horizons to ensure the Bank has adequate funding resources. Assumptions used for liquidity stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Corporation believes it can meet all anticipated liquidity demands.

 

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, securities that are unencumbered can be used as collateral for borrowings and are an additional source of readily available liquidity.

 

The Corporation analyzes the following additional liquidity measurements in an effort to monitor and mitigate liquidity risk:

 

· On-hand Liquidity/Total Liabilities – Net liquid assets as a percentage of total liabilities
· Non-Core Funding Dependence – Non-core liabilities minus short-term investments as a percentage of long-term assets
· Reliance on Wholesale Funding – Wholesale funding as a percentage of total funding
· Net Short-term Liabilities/Total Assets – Short-term liabilities minus short-term assets as a percentage of total assets

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· Loan to Deposit Ratio – Total loans as a percentage of total deposits

 

These measurements are designed to prevent undue reliance on outside sources of funding and to ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity sources. As of September 30, 2022, the Corporation was within guidelines for all of the above measurements.

 

The Corporation’s liquidity measurements are tracked and reported quarterly by management to both observe trends and ensure the measurements stay within desired ranges. Management is confident that a sufficient amount of internal and external liquidity exists to provide for significant unanticipated liquidity needs.

 

Interest Rate Risk

Interest rate risk is measured using two analytical tools:

 

· Changes in net interest income
· Changes in net portfolio value

 

Financial modeling is used to forecast net interest income and earnings, as well as net portfolio value, also referred to as fair value. The modeling is generally conducted under seven different interest rate scenarios that can vary according to the present level of interest rates. The scenarios consist of a projection of net interest income if rates remain flat, increase 100, 200, 300, or 400 basis points, or decrease 100 or 200 basis points.

 

The results obtained through the use of forecasting models are based on a variety of factors. Both the net interest income and fair value forecasts make use of the maturity and repricing schedules to determine the changes to the balance sheet over the course of time. Additionally, there are many assumptions that factor into the results. These assumptions include, but are not limited to, the following:

 

· Projected forward interest rates
· Slope of the U.S. Treasury curve
· Spreads available on securities over the U.S. Treasury curve
· Prepayment speeds on loans held and mortgage-backed securities
· Anticipated calls on securities with call options
· Deposit and loan balance fluctuations
· Competitive pressures affecting loan and deposit rates
· Economic conditions
· Consumer reaction to interest rate changes

 

As a result of the many assumptions, this information should not be relied upon to predict future results. Additionally, both of the analyses discussed below do not consider any action that management could take to minimize or offset the negative effect of changes in interest rates. These tools are used to assist management in identifying possible areas of risk in order to address them before a greater risk is posed. Back testing of the model is completed to compare actual results to projections to ensure the validity of the assumptions in the model. The back testing analyses indicate that the model assumptions are reliable.

 

Changes in Net Interest Income

 

The change in net interest income measures the amount of net interest income fluctuation that would be experienced over one year, assuming interest rates change immediately and remain the same for one year. This is considered to be a short-term view of interest rate risk. The analysis of changes in net interest income due to changes in interest rates is commonly referred to as interest rate sensitivity. The Corporation’s interest rate sensitivity analysis indicates that if interest rates were to go up immediately, the Corporation would realize less net interest income in all up and down rate scenarios. In past quarters, the Corporation was generally showing asset sensitivity meaning in a rates-up environment, assets would reprice faster than liabilities resulting in higher net interest income. As of the third quarter 2022, this increase in net interest income shifted to a decline primarily due to the increased impact from a higher cost of funds as rates continue to rise. While the Corporation would recognize higher interest income on its variable-rate assets, it would also now be repricing liabilities at a much faster pace resulting in increased interest expense that would offset the rise in interest income.

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The third quarter of 2022 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon. As of September 30, 2022, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios.

 

The assumptions and analysis of interest rate risk are based on historical experience during varied economic cycles. Management believes these assumptions to be appropriate; however, actual results could vary significantly. Management uses this analysis to identify trends in interest rate sensitivity and determine if action is necessary to mitigate asset liability risk.

 

Changes in Net Portfolio Value

 

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same seven scenarios mentioned above. As of September 30, 2022, the Corporation was within guidelines for all rate scenarios except the down-200 basis point scenario. The Corporation shows a favorable benefit to net portfolio value in the rising rate scenarios, due primarily to the large amount of core deposits on the Corporation’s balance sheet. The non-interest bearing demand deposit accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet. However, as interest rates decrease, the discount rate used to value the Corporation’s interest bearing accounts decreases, causing a higher net present value for these interest-bearing deposits.

 

The analysis shows a valuation loss in the down rate scenarios. Policy allows for a valuation decline of 25% for the down-200 basis point scenario and actual projected results show a valuation decline of 30%. While this loss is outside of policy guidelines, the Federal Reserve has signaled that their preferred course of action is to have several additional rate hikes in 2022. The Corporation will continue to monitor these measurements in the down-rate scenarios and adjust balance sheet structure as necessary to prepare for future potential lower rates.

 

The weakness with the net portfolio value analysis is that it assumes liquidation of the Corporation rather than as a going concern. For that reason, it is considered a secondary measurement of interest rate risk to “Changes in Net Interest Income” discussed above. However, the net portfolio value analysis is a more important tool to measure the impact of interest rate changes to capital. In the current regulatory climate, the focus is on ensuring adequate asset liability modeling is being done to project the impact of very large interest rate increases on capital. The asset liability modeling currently in place measures the impact of such a rate change on the valuation of the Corporation’s loans, securities, deposits, and borrowings, and the resulting impact to capital. Management continues to analyze additional scenario testing to model “worst case” scenarios to adequately plan for the possible severe impact of such events.

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Item 4. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures.

 

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer (Principal Executive Officer) along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of September 30, 2022, are effective to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

 

(b) Changes in Internal Controls.

 

There have been no changes in the Corporation’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II – OTHER INFORMATION

September 30, 2022

 

Item 1. Legal Proceedings

 

Management is not aware of any litigation that would have a material adverse effect on the consolidated financial position or results of operations of the Corporation or its subsidiaries taken as a whole. There are no proceedings pending other than ordinary routine litigation incident to the business of the Corporation. In addition, no material proceedings are pending, are known to be threatened, or contemplated against the Corporation by governmental authorities.

 

Item 1A. Risk Factors

 

The Corporation continually monitors the risks related to the Corporation’s business, other events, the Corporation’s Common Stock, and the Corporation’s industry. Management has not identified any new risk factors since the December 31, 2021 Form 10-K filing.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases

 

The following table details the Corporation’s purchase of its own common stock during the three months ended September 30, 2022.

 

Issuer Purchase of Equity Securities
                         
                Total Number of     Maximum Number  
    Total Number     Average     Shares Purchased     of Shares that May  
    of Shares     Price Paid     as Part of Publicly     Yet be Purchased  
Period   Purchased     Per Share     Announced Plans *     Under the Plan *  
                         
July 2022                       164,100  
August 2022                       164,100  
September 2022                       164,100  
                                 
Total                              

 

* On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase, in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. The first purchase of common stock under this plan occurred on October 28, 2020. By September 30, 2022, a total of 35,900 shares were repurchased at a total cost of $723,000 for an average cost per share of $20.14.

 

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:

 

 

Exhibit No.

 

 

Description

3(i) Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K  filed with the SEC on June 7, 2019)
3 (ii) By-Laws of the Registrant, as amended. (Incorporated herein by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on July 21, 2021.)
10.1 Form of Deferred Income Agreement.  (Incorporated herein by reference to Exhibit 10.1 of the Corporation’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2008.)
10.2 2022 Employee Stock Purchase Plan (Incorporated herein by reference to Appendix A to the Corporation’s Definitive Proxy Statement filed with the SEC on April 4, 2022.)
10.3 2020 Non-Employee Directors’ Stock Plan.  (Incorporated herein by reference to Exhibit 99.1 of the Corporation’s Form S-8 filed with the SEC on June 3, 2020.)
31.1 Section 302 Chief Executive Officer Certification (Required by Rule 13a-14(a)).
31.2 Section 302 Principal Financial Officer Certification (Required by Rule 13a-14(a)).
32.1 Section 1350 Chief Executive Officer Certification (Required by Rule 13a-14(b)).
32.2 Section 1350 Principal Financial Officer Certification (Required by Rule 13a-14(b)).

 

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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.

 

 

 

  ENB Financial Corp
        (Registrant)
     
     
Dated:  November 14, 2022 By: /s/  Jeffrey S. Stauffer
    Jeffrey S. Stauffer
    Chairman of the Board
    Chief Executive Officer and President
    Principal Executive Officer
     
     
Dated: November 14, 2022 By: /s/  Rachel G. Bitner
    Rachel G. Bitner
    Treasurer
    Principal Financial Officer

 

 

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