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

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

[ ]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 August 1, 2022, the registrant had 5,610,570 shares of $0.10 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

June 30, 2022


Part I – FINANCIAL INFORMATION
Item 1.Financial Statements
Consolidated Balance Sheets at June 30, 2022 and 2021, and December 31, 2021 (Unaudited)	3
Consolidated Statements of Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	4
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	5
Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	6
Consolidated Statements of Cash Flows for the Six Months Ended June 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	31-53

Item 3. Quantitative and Qualitative Disclosures about Market Risk	54-56

Item 4. Controls and Procedures	57



Part II – OTHER INFORMATION	58

Item 1. Legal Proceedings	58

Item 1A. Risk Factors	58

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3. Defaults upon Senior Securities	58

Item 4. Mine Safety Disclosures	58

Item 5. Other Information	58

Item 6. Exhibits	59


SIGNATURE PAGE	60

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ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	June 30,			December 31,			June 30,
	2022			2021			2021
	$			$			$
ASSETS
Cash and due from banks		22,571			19,930			19,033
Interest-bearing deposits in other banks		32,041			138,519			36,358
Total cash and cash equivalents		54,612			158,449			55,391
Securities available for sale (at fair value)		579,018			558,093			583,623
Equity securities (at fair value)		8,895			8,982			8,505
Loans held for sale		4,763			3,194			1,323
Loans (net of unearned income)		1,041,440			920,904			869,755
Less: Allowance for loan losses		13,606			12,931			12,703
Net loans		1,027,834			907,973			857,052
Premises and equipment		24,340			24,476			24,729
Regulatory stock		6,145			5,380			5,867
Bank owned life insurance		35,780			35,414			30,006
Other assets		28,958			15,269			12,288
Total assets		1,770,345			1,717,230			1,578,784

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing		678,472			686,278			582,747
Interest-bearing		899,808			825,935			786,137
Total deposits		1,578,280			1,512,213			1,368,884
Short-term borrowings		20,000			—			—
Long-term debt		44,206			44,206			50,204
Subordinated debt		19,720			19,680			19,640
Other liabilities		6,738			3,843			4,115
Total liabilities		1,668,944			1,579,942			1,442,843
Stockholders' equity:
Common stock, par value $0.10
Shares: Authorized 24,000,000
Issued 5,739,114 and Outstanding 5,610,571 as of 6/30/22, 5,583,956 as of 12/31/21, and 5,569,978 as of 6/30/21		574			574			574
Capital surplus		4,502			4,520			4,480
Retained earnings		135,705			131,856			126,891
Accumulated other comprehensive (loss) income		(36,816	)		3,441			7,362
Less: Treasury stock cost on 128,544 shares as of 6/30/22, 155,158 as of 12/31/21, and 169,137 as of 6/30/21		(2,564	)		(3,103	)		(3,366	)
Total stockholders' equity		101,401			137,288			135,941
Total liabilities and stockholders' equity		1,770,345			1,717,230			1,578,784

See Notes to the Unaudited Consolidated Interim Financial Statements

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ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

	Three Months ended June 30,						Six Months ended June 30,
	2022			2021			2022			2021
	$			$			$			$
Interest and dividend income:
Interest and fees on loans		9,520			8,170			18,335			16,555
Interest on securities available for sale
Taxable		2,007			1,231			3,436			2,311
Tax-exempt		1,079			1,010			2,108			1,962
Interest on deposits at other banks		47			20			84			42
Dividend income		106			106			200			197

Total interest and dividend income		12,759			10,537			24,163			21,067

Interest expense:
Interest on deposits		308			285			560			599
Interest on borrowings		477			521			908			1,058

Total interest expense		785			806			1,468			1,657

Net interest income		11,974			9,731			22,695			19,410

Provision for loan losses		650			-			750			375

Net interest income after provision for loan losses		11,324			9,731			21,945			19,035

Other income:
Trust and investment services income		628			537			1,299			1,207
Service fees		684			684			1,272			1,298
Commissions		952			952			1,821			1,816
Gains on the sale of debt securities, net		-			274			139			362
(Losses) gains on equity securities, net		(130	)		(24	)		(138	)		223
Gains on sale of mortgages		328			1,245			1,063			3,175
Earnings on bank-owned life insurance		235			202			425			418
Other income		322			207			814			896

Total other income		3,019			4,077			6,695			9,395

Operating expenses:
Salaries and employee benefits		6,707			5,959			13,219			11,658
Occupancy		694			635			1,412			1,318
Equipment		336			285			601			552
Advertising & marketing		295			245			574			435
Computer software & data processing		1,386			1,102			2,524			2,200
Shares tax		351			275			702			555
Professional services		633			598			1,263			1,036
Other expense		1,075			597			1,790			1,129

Total operating expenses		11,477			9,696			22,085			18,883

Income before income taxes		2,866			4,112			6,555			9,547

Provision for federal income taxes		308			561			806			1,492

Net income		2,558			3,551			5,749			8,055

Earnings per share of common stock		0.46			0.64			1.03			1.45

Cash dividends paid per share		0.17			0.17			0.34			0.33

Weighted average shares outstanding		5,595,728			5,564,712			5,590,196			5,563,420

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 June 30,						Six Months ended June 30,
	2022			2021			2022			2021
	$			$			$			$

Net income		2,558			3,551			5,749			8,055

Other comprehensive (loss) income, net of tax:
Securities available for sale not other-than-temporarily impaired:

Unrealized (losses) gains arising during the period		(20,909	)		5,892			(50,819	)		(391	)
Income tax effect		4,391			(1,238	)		10,672			81
		(16,518	)		4,654			(40,147	)		(310	)

Gains recognized in earnings		-			(274	)		(139	)		(362	)
Income tax effect		-			58			29			76
		-			(216	)		(110	)		(286	)

Other comprehensive (loss) income, net of tax		(16,518	)		4,438			(40,257	)		(596	)

Comprehensive (Loss) Income		(13,960	)		7,989			(34,508	)		7,459

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


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

See Notes to the Unaudited Consolidated Interim Financial Statements

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ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

	Six Months Ended June 30,
	2022			2021
	$			$
Cash flows from operating activities:
Net income		5,749			8,055
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		2,539			2,095
Amortization of operating leases right-of-use assets		132			92
Increase in interest receivable		(1,066	)		(1,058	)
Increase (decrease) in interest payable		61			(43	)
Provision for loan losses		750			375
Gains on the sale of debt securities, net		(139	)		(362	)
Losses (gains) on equity securities, net		138			(223	)
Gains on sale of mortgages		(1,063	)		(3,175	)
Loans originated for sale		(23,563	)		(50,168	)
Proceeds from sales of loans		23,057			55,049
Earnings on bank-owned life insurance		(425	)		(418	)
Depreciation of premises and equipment and amortization of software		791			765
Deferred income tax		(117	)		(2	)
Amortization of deferred fees on subordinated debt		40			39
Other assets and other liabilities, net		934			(2,519	)
Net cash provided by operating activities		7,818			8,502

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		24,816			39,554
Proceeds from sales		8,576			59,303
Purchases		(107,711	)		(208,913	)
Equity securities
Proceeds from sales		150			428
Purchases		(201	)		(1,605	)
Purchase of regulatory bank stock		(974	)		(512	)
Redemptions of regulatory bank stock		209			752
Net increase in loans		(120,573	)		(46,010	)
Purchases of premises and equipment, net		(512	)		(639	)
Purchase of computer software		(123	)		(161	)
Net cash used for investing activities		(196,343	)		(157,803	)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		66,369			118,093
Net decrease in time deposits		(302	)		(2,020	)
Proceeds from short-term borrowings		20,000			—
Repayments of long-term debt		—			(4,586	)
Dividends paid		(1,900	)		(1,834	)
Proceeds from sale of treasury stock		574			404
Treasury stock purchased		(53	)		(304	)
Net cash provided by financing activities		84,688			109,753
Decrease in cash and cash equivalents		(103,837	)		(39,548	)
Cash and cash equivalents at beginning of period		158,449			94,939
Cash and cash equivalents at end of period		54,612			55,391

Supplemental disclosures of cash flow information:
Interest paid		1,408			1,700
Income taxes paid		950			2,000
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale		(50,958	)		753
Recognition of lease operating right-of-use assets		2,811			—
Recognition of operating lease liabilities		2,811			—

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 second 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 six months ended June 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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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 June 30, 2022, and December 31, 2021, are as follows:

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
June 30, 2022
U.S. treasuries		35,701		—		(2,093	)		33,608
U.S. government agencies		27,607		2		(2,148	)		25,461
U.S. agency mortgage-backed securities		53,607		—		(3,608	)		49,999
U.S. agency collateralized mortgage obligations		33,129		3		(1,942	)		31,190
Non-agency MBS/CMO		42,368		—		(1,446	)		40,922
Asset-backed securities		89,119		31		(1,920	)		87,230
Corporate bonds		81,997		3		(5,122	)		76,878
Obligations of states and political subdivisions		262,092		147		(28,509	)		233,730
Total securities available for sale		625,620		186		(46,788	)		579,018

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 June 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		26,828		26,096
Due after one year through five years		144,017		137,407
Due after five years through ten years		151,385		140,451
Due after ten years		303,390		275,064
Total debt securities		625,620		579,018

Securities available for sale with a par value of $102,441,000 and $94,283,000 at June 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 $97,516,000 at June 30, 2022, and $96,521,000 at December 31, 2021.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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.

	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022		2021
	$		$			$		$
Proceeds from sales		—		8,962			8,575		59,303
Gross realized gains		—		280			139		422
Gross realized losses		—		(6	)		—		(60	)

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 six months of 2022 or 2021.

Information pertaining to securities with gross unrealized losses at June 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:

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 June 30, 2022
U.S. Treasuries		33,608		(2,093	)		—		—			33,608		(2,093	)
U.S. government agencies		1,980		(29	)		22,281		(2,119	)		24,261		(2,148	)
U.S. agency mortgage-backed securities		38,675		(2,154	)		11,324		(1,454	)		49,999		(3,608	)
U.S. agency collateralized mortgage obligations		28,065		(1,910	)		2,372		(32	)		30,437		(1,942	)
Non-Agency MBS/CMO		37,042		(1,446	)		—		—			37,042		(1,446	)
Asset-backed securities		68,838		(1,604	)		13,730		(316	)		82,568		(1,920	)
Corporate bonds		73,873		(5,122	)		—		—			73,873		(5,122	)
Obligations of states & political subdivisions		206,651		(25,157	)		15,279		(3,352	)		221,930		(28,509	)

Total temporarily impaired securities		488,732		(39,515	)		64,986		(7,273	)		553,718		(46,788	)


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 374 positions carrying unrealized losses as of June 30, 2022. There were no instruments considered to be other-than-temporarily impaired at June 30, 2022.

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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.

3. Equity Securities

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

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
June 30, 2022
CRA-qualified mutual funds		7,276		-		-			7,276
Bank stocks		1,635		69		(85	)		1,619
Total equity securities		8,911		69		(85	)		8,895

			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 six months ended June 30, 2022 and 2021, and the portion of unrealized gains and losses for the period that relates to equity investments held as of June 30, 2022 and 2021.

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
	$			$			$			$

Net (losses) gains recognized in equity securities during the period		(130	)		(24	)		(138	)		223

Less: Net gains realized on the sale of equity securities during the period		-			-			51			95

Unrealized gains (losses) recognized in equity securities held at reporting date		(130	)		(24	)		(189	)		128

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 June 30, 2022, and December 31, 2021:

LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)

	June 30,			December 31,
	2022			2021
	$			$
Commercial real estate
Commercial mortgages		191,249			177,396
Agriculture mortgages		205,680			203,725
Construction		82,289			19,639
Total commercial real estate		479,218			400,760

Consumer real estate (a)
1-4 family residential mortgages		317,214			317,037
Home equity loans		13,711			11,181
Home equity lines of credit		87,251			75,698
Total consumer real estate		418,176			403,916

Commercial and industrial
Commercial and industrial		81,612			65,615
Tax-free loans		23,517			23,009
Agriculture loans		31,355			20,717
Total commercial and industrial		136,484			109,341

Consumer		5,376			5,132

Gross loans prior to deferred fees		1,039,254			919,149

Deferred loan costs, net		2,186			1,755
Allowance for credit losses		(13,606	)		(12,931	)
Total net loans		1,027,834			907,973


(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $304,841,000 and $289,263,000 as of June 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 June 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.

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
June 30, 2022	Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		188,948		196,174		79,230		72,930		23,517		31,002		591,801
Special Mention		—		4,472		3,059		5,765		—		73		13,369
Substandard		2,301		5,034		—		2,917		—		280		10,532
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—

Total		191,249		205,680		82,289		81,612		23,517		31,355		615,702

							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

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 June 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
June 30, 2022	Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		316,940		13,711		87,212		5,375		423,238
Non-performing		274		—		39		1		314

Total		317,214		13,711		87,251		5,376		423,552

	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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of June 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
June 30, 2022	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		—		—		975		975		190,274		191,249		—
Agriculture mortgages		—		—		3,940		3,940		201,740		205,680		499
Construction		—		—		—		—		82,289		82,289		—
Consumer real estate
1-4 family residential mortgages		330		—		274		604		316,610		317,214		274
Home equity loans		18		—		—		18		13,693		13,711		—
Home equity lines of credit		36		—		39		75		87,176		87,251		39
Commercial and industrial
Commercial and industrial		—		—		211		211		81,401		81,612		—
Tax-free loans		—		—		—		—		23,517		23,517		—
Agriculture loans		—		—		39		39		31,316		31,355		—
Consumer		11		21		1		33		5,343		5,376		1
Total		395		21		5,479		5,895		1,033,359		1,039,254		813

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)

	June 30,		December 31,
	2022		2021
	$		$

Commercial real estate
Commercial mortgages		975		184
Agriculture mortgages		3,441		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		211		385
Tax-free loans		—		—
Agriculture loans		39		110
Consumer		—		—
Total		4,666		2,556

As of June 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 six months ended June 30, 2022 and June 30, 2021, is as follows:

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	$		$		$		$

Average recorded balance of impaired loans		4,179		5,457		3,533		5,597
Interest income recognized on impaired loans		5		80		13		138

No loan modifications were made during the first six 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 $469,000 as of June 30, 2022. This TDR is not non-accrual.

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 June 30, 2022 and December 31, 2021:

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)

			Unpaid
	Recorded		Principal		Related
June 30, 2022	Investment		Balance		Allowance
	$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		975		1,021		—
Agriculture mortgages		3,377		3,428		—
Construction		—		—		—
Total commercial real estate		4,352		4,449		—

Commercial and industrial
Commercial and industrial		—		—		—
Tax-free loans		—		—		—
Agriculture loans		—		—		—
Total commercial and industrial		—		—		—

Total with no related allowance		4,352		4,449		—

With an allowance recorded:
Commercial real estate
Commercial mortgages		—		—		—
Agriculture mortgages		533		548		18
Construction		—		—		—
Total commercial real estate		533		548		18

Commercial and industrial
Commercial and industrial		211		214		17
Tax-free loans		—		—		—
Agriculture loans		39		39		39
Total commercial and industrial		250		253		56

Total with a related allowance		783		801		74

Total by loan class:
Commercial real estate
Commercial mortgages		975		1,021		—
Agriculture mortgages		3,910		3,976		18
Construction		—		—		—
Total commercial real estate		4,885		4,997		18

Commercial and industrial
Commercial and industrial		211		214		17
Tax-free loans		—		—		—
Agriculture loans		39		39		39
Total commercial and industrial		250		253		56

Total		5,135		5,250		74

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

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 six months ended June 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

During the six months ended June 30, 2022, management charged off $107,000 in loans while recovering $32,000 and added $750,000 to the provision. The unallocated portion of the allowance decreased from 4.9% of total reserves as of December 31, 2021, to 3.2% as of June 30, 2022. Management monitors the unallocated portion of the allowance with a desire to maintain it at approximately 5% over the long term, with a requirement of it not to exceed 10%.

During the six months ended June 30, 2022, net provision expense was recorded for the consumer real estate and commercial and industrial sectors while the commercial real estate and consumer sectors recorded a credit provision. The provision expense recorded for consumer real estate and commercial and industrial loans was primarily related to growth in those sectors of the loan portfolio through June 30, 2022 while the credit provision in commercial real estate and consumer was primarily related to declining qualitative factors in several areas at June 30, 2022.

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.

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 three and six months ended June 30, 2021:

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, 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

During the six months ended June 30, 2021, management charged off $23,000 in loans while recovering $24,000 and added $375,000 to the provision. The unallocated portion of the allowance increased from 4.3% of total reserves as of December 31, 2020, to 4.7% as of June 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 six months ended June 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.

Table of Contents

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 June 30, 2022 and December 31, 2021:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)


	Commercial		Consumer		Commercial
As of June 30, 2022:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		18		—		56		—		—		74
Ending balance: collectively evaluated for impairment		5,853		4,715		2,485		44		435		13,532

Loans receivable:
Ending balance		479,218		418,176		136,484		5,376				1,039,254
Ending balance: individually evaluated for impairment		4,885		—		250		—				5,135
Ending balance: collectively evaluated for impairment		474,333		418,176		136,234		5,376				1,034,119


	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.

Table of Contents

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 June 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)

	June 30, 2022
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. treasuries		—		33,608		—		33,608
U.S. government agencies		—		25,461		—		25,461
U.S. agency mortgage-backed securities		—		49,999		—		49,999
U.S. agency collateralized mortgage obligations		—		31,190		—		31,190
Non-agency MBS/CMO		—		40,922		—		40,922
Asset-backed securities		—		87,230		—		87,230
Corporate bonds		—		76,878		—		76,878
Obligations of states & political subdivisions		—		233,730		—		233,730
Equity securities		8,895		—		—		8,895

Total securities		8,895		579,018		—		587,913

On June 30, 2022, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments 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 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 June 30, 2022, the CRA fund investments had a $7,276,000 book and fair market value and the bank stock portfolio had a book value of $1,635,000, and fair market value of $1,619,000.

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.

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		8,982		558,093		—		567,075

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

On December 31, 2021, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments 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 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 June 30, 2022 and December 31, 2021, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(DOLLARS IN THOUSANDS)

	June 30, 2022
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Impaired Loans	$	—	$	—	$	5,061	$	5,061
Total	$	—	$	—	$	5,061	$	5,061

	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 $5,135,000 of impaired loans as of June 30, 2022, with $74,000 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)

	June 30, 2022
	Fair Value		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Avg)

Impaired loans		5,061		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.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021:

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

(DOLLARS IN THOUSANDS)

	June 30, 2022
					Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		54,612		54,612		54,612		—		—
Regulatory stock		6,145		6,145		6,145		—		—
Loans held for sale		4,763		4,763		4,763		—		—
Loans, net of allowance		1,027,834		999,129		—		—		999,129
Mortgage servicing assets		2,012		2,803		—		—		2,803
Accrued interest receivable		6,219		6,219		6,219		—		—
Bank owned life insurance		35,780		35,780		35,780		—		—

Financial Liabilities:
Demand deposits		678,472		678,472		678,472		—		—
Interest-bearing demand deposits		69,711		69,711		69,711		—		—
NOW accounts		127,622		127,622		127,622		—		—
Money market deposit accounts		215,781		215,781		215,781		—		—
Savings accounts		373,060		373,060		373,060		—		—
Time deposits		113,634		110,956		—		—		110,956
Total deposits		1,578,280		1,575,602		1,464,646		—		110,956

Long-term debt		44,206		44,205		—		—		44,205
Short-term borrowings		20,000		20,000
Subordinated debt		19,720		18,800		—		—		18,800
Accrued interest payable		316		316		316		—		—

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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 I)		(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 June 30, 2022, firm loan commitments were $103.4 million, unused lines of credit were $430.1 million, and open letters of credit were $11.2 million. The total of these commitments was $544.7 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 six months ended June 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	)

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

(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 June 30,
	2022		2021			Affected Line Item in the
	$		$			Consolidated Statements of Income
Securities available-for-sale:
Net securities gains, reclassified into earnings		—		274		Gains on the sale of debt securities, net
Related income tax expense		—		(58	)	Provision for federal income taxes
Net effect on accumulated other comprehensive income (loss) for the period		—		216

(1) Amounts in parentheses indicate debits.

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Six Months
	Ended June 30,
	2022			2021			Affected Line Item in the
	$			$			Consolidated Statements of Income
Securities available-for-sale:
Net securities gains (losses), reclassified into earnings		139			362		Gains on the sale of debt securities, net
Related income tax expense		(29	)		(76	)	Provision for federal income taxes
Net effect on accumulated other comprehensive income for the period		110			286

(1) Amounts in parentheses indicate debits.

8. Subsequent Events

Subsequent to June 30, 2022, but prior to the filing of this report, on July 22, 2022, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20 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. 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.

9.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.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim 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.

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.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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.

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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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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 half of 2022 was 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 half 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 half 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 $2,558,000 for the three-month period ended June 30, 2022, a $993,000, or 28.0% decrease from the three months ended June 30, 2021. Net income for the six-month period was $5,749,000, a $2,306,000, or 28.6% decrease from earnings in the six-month period ended June 30, 2021. The earnings per share, basic and diluted, were $0.46 for the three months ended June 30, 2022, compared to $0.64 for the same period in 2021, and for the year-to-date period, earnings per share were $1.03 compared to $1.45 in 2021.

The Corporation’s net interest income (NII) increased by $2,243,000, or 23.1%, and $3,285,000, or 16.9%, for the three and six months ended June 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 $1,350,000, or 16.5%, and $1,780,000, or 10.8%, for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. Additionally, interest on securities available for sale increased by $845,000, or 37.7%, for the three-month period ended June 30, 2022, and $1,271,000, or 29.7%, for the six-month period ended June 30, 2022, compared to the three and six months ended June 30, 2021. In addition, interest expense on deposits and borrowings decreased by $21,000, or 2.6%, and $189,000, or 11.4%, for the three and six months ended June 30, 2022, compared to the same periods in the prior year.

The Corporation recorded a $650,000 provision for loan losses in the second quarter of 2022, and $750,000 for the year-to-date period, compared to no provision expense recorded in the second quarter of 2021 and a year-to-date provision of $375,000 through June 30, 2021. The higher provision in 2022 was primarily caused by lower classified loans but a significantly higher 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 $328,000 for the three months ended June 30, 2022, compared to gains of $1,245,000 for the three months ended June 30, 2021, a decrease of $917,000, or 73.7%. For the six-month period, gains were $1,063,000, a decrease of $2,112,000, or 66.5%, from the six months ended June 30, 2021. The decrease in mortgage gains can be primarily attributed to the rapid rise in mortgage rates during the first half 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. Gains/losses on securities in total decreased by $380,000, for the three months ended June 30, 2022, and $584,000, for the six months ended June 30, 2022, compared to the same periods in the prior year. Outside of mortgage and security gains, other non-interest income increased by $239,000, or 9.3%, and decreased by $4,000, or 0.1%, for the three and six months ended June 30, 2022. Operating expenses increased by $1,781,000, or 18.4%, and $3,202,000, or 17.0%, for the three and six months ended June 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.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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 latter measurement typically receives more attention from shareholders. The ROA and ROE decreased for the quarter-to-date period and the year-to-date period ended June 30, 2022, compared to the same period in the prior year, due to lower earnings in 2022.

Key Ratios	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

Return on Average Assets		0.60%		0.92%		0.68%		1.07%
Return on Average Equity		9.55%		10.86%		9.70%		12.43%

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. In the first six months of 2022, NII generated 77.2% of the Corporation’s revenue stream, which consists of NII and non-interest income, compared to 67.4% in the first six months of 2021. This increase is a result of higher levels of NII in the first six 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 $317,000 for the three months ended June 30, 2022, and $621,000 for the six months ended June 30, 2022, compared to $289,000 and $556,000 for the same periods in 2021.

NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	$		$		$		$
Total interest income		12,759		10,537		24,163		21,067
Total interest expense		785		806		1,468		1,657

Net interest income		11,974		9,731		22,695		19,410
Tax equivalent adjustment		317		289		621		556

Net interest income (fully taxable equivalent)		12,291		10,020		23,316		19,966

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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 six months of 2022, interest rates increased much more dramatically in anticipation of a Federal Reserve rate movement which happened in mid-March. The two through five year Treasury securities experienced the most rate increases, with the longer term rates increasing less. Management believes that higher market rates should help the net interest margin (NIM) moving forward.

As a result of a larger balance sheet in the first half of 2022, even with low asset yields, the Corporation’s NII on a tax equivalent basis increased and the Corporation’s margin increased to 2.96% for the quarter and 2.85% for the six months ended June 30, 2022, compared to 2.72% in the second quarter of 2021 and 2.79% for the year-to-date period. The Corporation’s NII for the three and six months ended June 30, 2022, increased over the same period in 2021 by $2,243,000, or 23.1% and $3,285,000, or 16.9%, respectively. Management’s asset liability sensitivity shows a small benefit to both margin and NII given Federal Reserve rate increases. Actual results over the past two years have confirmed the asset sensitivity of the Corporation’s balance sheet, however there was some decline in this asset sensitivity throughout 2021 and through the first half of 2022. In a down-rate environment, the margin and NII would 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, security yields have increased and have helped to increase NII during the first half of 2022.

The Corporation’s overall cost of funds, including non-interest bearing funds, was 18 basis points through the first half of 2022. Core deposit interest rates are at historic lows and time deposit rates are not much higher than core deposit rates resulting in maturing time deposits repricing at lower levels or moving into core deposit products. The average balance of borrowings was slightly lower in the first six months of 2022 than 2021, resulting in the total cost of borrowings decreasing by $150,000.

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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ENB FINANCIAL CORP

Management’s Discussion and Analysis

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

	Three Months Ended June 30,									Six Months Ended June 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		(11	)		39			28			4			39			43

Securities available for sale:
Taxable		196			587			783			473			670			1,143
Tax-exempt		124			(37	)		87			285			(97	)		188
Total securities		320			550			870			758			573			1,331

Loans		1,324			35			1,359			2,210			(409	)		1,801
Regulatory stock		(3	)		(4	)		(7	)		(10	)		(4	)		(14	)

Total interest income		1,630			620			2,250			2,962			199			3,161

INTEREST EXPENSE

Deposits:
Demand deposits		7			70			77			13			75			88
Savings deposits		3			—			3			6			—			6
Time deposits		(7	)		(50	)		(57	)		(18	)		(115	)		(133	)
Total deposits		3			20			23			1			(40	)		(39	)

Borrowings:
Total borrowings		13			(57	)		(44	)		(62	)		(88	)		(150	)

Total interest expense		16			(37	)		(21	)		(61	)		(128	)		(189	)

NET INTEREST INCOME		1,614			657			2,271			3,023			327			3,350

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.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Three Months Ended June 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		29,899		48		0.65		49,710		20		0.16

Securities available for sale:
Taxable		426,130		2,042		1.92		373,610		1,259		1.35
Tax-exempt		207,379		1,349		2.60		188,390		1,262		2.68
Total securities (d)		633,509		3,391		2.14		562,000		2,521		1.79

Loans (a)		996,100		9,566		3.86		858,183		8,207		3.83

Regulatory stock		5,776		71		4.90		6,054		78		5.15

Total interest earning assets		1,665,284		13,076		3.15		1,475,947		10,826		2.94

Non-interest earning assets (d)		57,983						80,235

Total assets		1,723,267						1,556,182

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		388,334		117		0.12		338,060		40		0.05
Savings deposits		368,095		18		0.02		312,504		15		0.02
Time deposits		114,026		173		0.62		117,887		230		0.78
Borrowed funds		74,011		477		2.61		72,235		521		2.89
Total interest bearing liabilities		944,466		785		0.34		840,686		806		0.39

Non-interest bearing liabilities:

Demand deposits		664,435						579,007
Other		6,940						5,379

Total liabilities		1,615,841						1,425,072

Stockholders' equity		107,426						131,110

Total liabilities & stockholders' equity		1,723,267						1,556,182

Net interest income (FTE)				12,291						10,020

Net interest spread (b)						2.81						2.55
Effect of non-interest
bearing deposits						0.15						0.17
Net yield on interest earning assets (c)						2.96						2.72

(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 $2,111,000 as of June 30, 2022, and $435,000 as of June 30, 2021. Such fees and costs recognized through income and included in the interest amounts totaled $52,000 in 2022, and $36,000 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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ENB FINANCIAL CORP

Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Six Months Ended June 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		58,307		85		0.29		53,820		42		0.16

Securities available for sale:
Taxable		409,125		3,505		1.70		346,417		2,362		1.36
Tax-exempt		202,298		2,639		2.61		180,622		2,451		2.72
Total securities (d)		611,423		6,144		2.01		527,039		4,813		1.82

Loans (a)		963,808		18,424		3.83		848,622		16,623		3.93

Regulatory stock		5,594		131		4.67		6,043		145		4.80

Total interest earning assets		1,639,132		24,784		3.03		1,435,524		21,623		3.02

Non-interest earning assets (d)		72,762						80,066

Total assets		1,711,894						1,515,590

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		379,971		165		0.09		331,207		77		0.05
Savings deposits		361,471		36		0.02		299,719		30		0.02
Time deposits		113,965		359		0.63		118,594		492		0.84
Borrowed funds		68,982		908		2.66		73,317		1,058		2.91
Total interest bearing liabilities		924,389		1,468		0.32		822,837		1,657		0.41

Non-interest bearing liabilities:

Demand deposits		661,746						556,878
Other		6,204						5,204

Total liabilities		1,592,339						1,384,919

Stockholders' equity		119,555						130,671

Total liabilities & stockholders' equity		1,711,894						1,515,590

Net interest income (FTE)				23,316						19,966

Net interest spread (b)						2.71						2.61
Effect of non-interest
bearing deposits						0.14						0.18
Net yield on interest earning assets (c)						2.85						2.79

(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 $1,972,000 as of June 30, 2022, and $815,000 as of June 30, 2021. Such fees and costs recognized through income and included in the interest amounts totaled $38,000 in 2022, and $374,000 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 $71.5 million, or 12.7%, for the three months ended June 30, 2022, and $84.4 million, or 16.0%, for the six months ended June 30, 2022, compared to the same periods in 2021. The tax equivalent yield on investments increased by 35 basis points for the quarter-to-date period and 19 basis points for the year-to-date period when comparing both years. Interest income on securities increased due to the volume growth which was caused by an excess of liquidity in 2021 and 2022 as a result of the low-rate environment that caused a large influx of deposits.

Average balances on loans increased by $137.9 million, or 16.1%, for the three months ended June 30, 2022, and $115.2 million, or 13.6%, for the six months ended June 30, 2022, compared to the same periods in the prior year. Loan yields increased by 3 basis points for the quarter, but declined by 10 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 $1,359,000, or 16.6%, and the year-to-date increase was $1,801,000, or 10.8%.

The average balance of interest-bearing deposit accounts increased by $102.0 million, or 13.3%, and $105.9 million, or 14.1%, for the three and six months ended June 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 marginally 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 $23,000, or 8.1% for the three months ended June 30, 2022, and a decrease in interest expense of $39,000, or 6.5%, for the six months ended June 30, 2022, compared to the same periods in 2021.

The Corporation’s average balance on borrowed funds increased by $1.8 million, or 2.5%, for the three months ended June 30, 2022, but decreased by $4.3 million, or 5.9%, for the six months ended June 30, 2022, compared to the same periods in 2021. The Corporation’s borrowed funds consist of FHLB advances as well as subordinated debt issued in December of 2020 which was used to support capital growth for the Corporation. The increase in borrowed funds for the quarter-to-date period is due to $20 million of short-term advances initiated in the second quarter of 2022 to support loan growth. The decrease for the year-to-date period is a result of paying off FHLB advances in the prior year to take advantage of the low rate environment. The rate paid on borrowed funds decreased by 28 basis points for the three months ended June 30, 2022, and 25 basis points for the six months ended June 30, 2022, compared to the same periods in the prior year. This decrease in rate can be attributed to the pay off of higher-rate FHLB advances in 2021 as well as the issuance of lower-rate short-term advances in 2022.

For the three months ended June 30, 2022, the net interest spread increased by twenty-six basis points to 2.81%, compared to 2.55% for the three months ended June 30, 2021. For the six months ended June 30, 2022, the net interest spread increased by 10 basis points to 2.71%, compared to 2.61% for the six months ended June 30, 2022. The effect of non-interest bearing funds decreased to 15 basis points from 17 basis points for the three months ended June 30, 2022, and decreased to 14 basis points from 18 basis points for the six months ended June 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 NIM for the second quarter of 2022 was 2.96%, compared to 2.72% for the second quarter of 2021. For the year-to-date period, the Corporation’s NIM was 2.85%, compared to 2.79% 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 $650,000 for the second quarter of 2022, compared to no provision expense recorded for the second quarter of 2021. For the year-to-date period, the Corporation recorded

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

provision expense of $750,000 compared to $375,000 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 June 30, 2022, the allowance as a percentage of total loans was 1.31%, compared to 1.46% at June 30, 2021. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

Other Income

Other income for the second quarter of 2022 was $3,019,000, a decrease of $1,058,000, or 26.0%, compared to the $4,077,000 earned during the second quarter of 2021. For the year-to-date period ended June 30, 2022, other income totaled $6,695,000, a decrease of $2,700,000, or 28.7%, compared to the same period in 2021. The following table details the categories that comprise other income.

OTHER INCOME
(DOLLARS IN THOUSANDS)
	Three Months Ended June 30,
	2022			2021		Increase (Decrease)
	$			$		$			%

Trust and investment services		628			537		91			16.9
Service charges on deposit accounts		334			246		88			35.8
Other fees		350			438		(88	)		(20.1	)
Commissions		952			952		—			—
Net gains (losses) on debt and equity securities		(130	)		250		(380	)		(152.0	)
Gains on sale of mortgages		328			1,245		(917	)		(73.7	)
Earnings on bank owned life insurance		235			202		33			16.3
Other miscellaneous income		322			207		115			55.6

Total other income		3,019			4,077		(1,058	)		(26.0	)

OTHER INCOME
(DOLLARS IN THOUSANDS)
	Six Months Ended June 30,				Increase (Decrease)
	2022		2021
	$		$		$			%

Trust and investment services		1,299		1,207		92			7.6
Service charges on deposit accounts		627		494		133			26.9
Other fees		645		804		(159	)		(19.8	)
Commissions		1,821		1,816		5			0.3
Net gains (losses) on debt and equity securities		1		585		(584	)		(99.8	)
Gains on sale of mortgages		1,063		3,175		(2,112	)		(66.5	)
Earnings on bank owned life insurance		425		418		7			1.7
Other miscellaneous income		814		896		(82	)		(9.2	)

Total other income		6,695		9,395		(2,700	)		(28.7	)

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 35.8% for the quarter and 26.9% 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 decreased by 20.1% and 19.8%, respectively, for the three and six months ended June 30, 2022, driven by lower loan-related fees. 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 $917,000, or 73.7%, and $2,112,000, or 66.5%, in the second quarter and for the first half of 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 but lower for the year-to-date period in 2022 as a result of non-recurring income items that impacted the second quarter of 2022 as well as the first quarter of 2021.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Operating Expenses

Operating expenses for the second quarter of 2022 were $11,477,000, an increase of $1,781,000, or 18.4%, compared to the $9,696,000 for the second quarter of 2021. For the year-to-date period ended June 30, 2022, operating expenses totaled $22,085,000, an increase of $3,202,000, or 17.0%, compared to the same period in 2021. The following table provides details of the Corporation’s operating expenses for the three and six-month periods ended June 30, 2022, compared to the same periods in 2021.

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Three Months Ended June 30,
	2022		2021		Increase (Decrease)
	$		$		$		%
Salaries and employee benefits		6,707		5,959		748		12.6
Occupancy expenses		694		635		59		9.3
Equipment expenses		336		285		51		17.9
Advertising & marketing expenses		295		245		50		20.4
Computer software & data processing expenses		1,386		1,102		284		25.8
Shares tax		351		275		76		27.6
Professional services		633		598		35		5.9
Other operating expenses		1,075		597		478		80.1
Total Operating Expenses		11,477		9,696		1,781		18.4

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Six Months Ended June 30,
	2022		2021		Increase (Decrease)
	$		$		$		%
Salaries and employee benefits		13,219		11,658		1,561		13.4
Occupancy expenses		1,412		1,318		94		7.1
Equipment expenses		601		552		49		8.9
Advertising & marketing expenses		574		435		139		32.0
Computer software & data processing expenses		2,524		2,200		324		14.7
Bank shares tax		702		555		147		26.5
Professional services		1,263		1,036		227		21.9
Other operating expenses		1,790		1,129		661		58.5
Total Operating Expenses		22,085		18,883		3,202		17.0

Salaries and employee benefits are the largest category of operating expenses. For the three months ended June 30, 2022, salaries and benefits increased $748,000, or 12.6%, compared to 2021. For the six months ended June 30, 2022, salaries and benefits increased by $1,561,000, or 13.4%, 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 20.4%, and 32.0%, respectively, for the quarter and year-to-date periods, 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 Corpration and increased volumes due to a larger customer base. Shares tax expense is based on the Corporation’s level of shareholders’ equity and has grown substantially, commensurate with the growth in shareholders’ equity. Professional services expenses increased in the second quarter and the first half of 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.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Income Taxes

Federal income tax expense was $308,000 for the second quarter of 2022 compared to $561,000 for the same period in 2021. For the six months ended June 30, 2022, the Corporation recorded Federal income tax expense of $806,000, compared to $1,492,000 for the six months ended June 30, 2021. The effective tax rate for the Corporation was 12.3% for the six months ended June 30, 2022, and 15.6% for the six months ended June 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 half 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 June 30, 2022, the Corporation had $579 million of securities available for sale, which accounted for 32.7% of assets, compared to 32.5% as of December 31, 2021, and 37.0% as of June 30, 2021. Based on ending balances, the securities portfolio decreased 0.9% from June 30, 2021, and increased 3.7% from December 31, 2021.

The debt securities portfolio was showing a net unrealized loss of $46,602,000 as of June 30, 2022, compared to an unrealized gain of $4,356,000 as of December 31, 2021, and $9,319,000 as of June 30, 2021. The valuation of the Corporation’s securities portfolio, predominately debt securities, is impacted by both the U.S. Treasury rates and the perceived forward direction of interest rates.

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 June 30, 2022, December 31, 2021 and June 30, 2021.

AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD
(DOLLARS IN THOUSANDS)
			Net
	Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value
	$		$			$
June 30, 2022
U.S. treasuries		35,701		(2,093	)		33,608
U.S. government agencies		27,607		(2,146	)		25,461
U.S. agency mortgage-backed securities		53,607		(3,608	)		49,999
U.S. agency collateralized mortgage obligations		33,129		(1,939	)		31,190
Non-agency MBS/CMO		42,368		(1,446	)		40,922
Asset-backed securities		89,119		(1,889	)		87,230
Corporate bonds		81,997		(5,119	)		76,878
Obligations of states and political subdivisions		262,092		(28,362	)		233,730
Total debt securities, available for sale		625,620		(46,602	)		579,018
Equity securities		8,911		(16	)		8,895
Total securities		634,531		(46,618	)		587,913

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
	$		$			$
June 30, 2021
U.S. treasuries		4,981		43			5,024
U.S. government agencies		29,620		(261	)		29,359
U.S. agency mortgage-backed securities		62,258		649			62,907
U.S. agency collateralized mortgage obligations		36,911		617			37,528
Asset-backed securities		100,202		801			101,003
Corporate bonds		84,052		1,015			85,067
Obligations of states and political subdivisions		256,280		6,455			262,735
Total debt securities, available for sale		574,304		9,319			583,623
Equity securities		8,430		75			8,505
Total securities		582,734		9,394			592,128

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 $18.8 million during the first half of 2022, resulting in a 126.9% 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 $3.6 million, or 12.3%, since December 31, 2021. Management has purchased Non-agency MBS and CMO securities since December 31, 2021 which has brought the portfolio to $41 million as of June 30, 2022, or 7% 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 slightly since December 31, 2021, with MBS decreasing $2 million, or 3.8%, and CMOs staying relatively flat at $31 million. 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. The combined effect of all of these instruments paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow of approximately $2.0 - $3.0 million per month. 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 $14 million, or 13.8%, from December 31, 2021, to June 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

As of June 30, 2022, the fair value of the Corporation’s corporate bonds decreased by $5.6 million, or 6.8%, 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 39.8% of the securities portfolio as of June 30, 2022, compared to 43.6% as of December 31, 2021.

Loans

Net loans outstanding increased by 19.9%, to $1,027.8 million at June 30, 2022, from $857.1 million at June 30, 2021. Net loans increased by 13.2%, an annualized rate of 26.4%, from $908.0 million at December 31, 2021. The following table shows the composition of the loan portfolio as of June 30, 2022, December 31, 2021, and June 30, 2021.

LOANS BY MAJOR CATEGORY
(DOLLARS IN THOUSANDS)
	June 30,					December 31,					June 30,
	2022					2021					2021
	$			%		$			%		$			%

Commercial real estate
Commercial mortgages		191,249			18.4		177,396			19.3		156,022			17.9
Agriculture mortgages		205,680			19.8		203,725			22.2		178,573			20.5
Construction		82,289			7.9		19,639			2.1		21,347			2.5
Total commercial real estate		479,218			46.1		400,760			43.6		355,942			40.9

Consumer real estate (a)
1-4 family residential mortgages		317,214			30.5		317,037			34.5		288,301			33.2
Home equity loans		13,711			1.3		11,181			1.2		11,525			1.3
Home equity lines of credit		87,251			8.4		75,698			8.2		71,694			8.2
Total consumer real estate		418,176			40.2		403,916			43.9		371,520			42.7

Commercial and industrial
Commercial and industrial		81,612			7.9		65,615			7.1		102,533			11.8
Tax-free loans		23,517			2.3		23,009			2.5		16,268			1.9
Agriculture loans		31,355			3.0		20,717			2.3		17,824			2.1
Total commercial and industrial		136,484			13.2		109,341			11.9		136,625			15.8

Consumer		5,376			0.5		5,132			0.6		5,133			0.6

Total loans		1,039,254			100.0		919,149			100.0		869,220			100.0
Less:
Deferred loan fees (costs), net		2,186					1,755					535
Allowance for credit losses		(13,606	)				(12,931	)				(12,703	)
Total net loans		1,027,834					907,973					857,052

(a)	Residential real estate loans do not include mortgage loans serviced for others which totaled $304,841,000 as of June 30, 2022, $289,263,000 as of December 31, 2021, and $263,005,000 as of June 30, 2021.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

There was significant growth in the loan portfolio since June 30, 2021 and December 31, 2021. Most major loan categories showed an increase in balances from both time periods with the exception of the commercial and industrial loans which showed an increase since December 31, 2021, but a decline since June 30, 2021, due to the forgiveness of PPP loans since June 30, 2021.

The commercial real estate category represents the largest group of loans for the Corporation. Commercial real estate makes up 46.1% of total loans as of June 30, 2022, compared to 40.9% of total loans as of June 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 half of 2022. The Corporation’s commercial construction loan balances increased by $60.9 million, or 285.5%, from June 30, 2021 to June 30, 2022. Commercial construction loans were 7.9% of the total loan portfolio as of June 30, 2022, and 2.5% as of June 30, 2021.

Commercial mortgages increased $35.2 million, or 22.6%, from balances at June 30, 2021. Commercial mortgages as a percentage of the total loan portfolio increased to 18.4% as of June 30, 2022, compared to 17.9% at June 30, 2021. Agricultural mortgages increased by $27.1 million, or 15.2%, from $178.6 million as of June 30, 2021, to $205.7 million as of June 30, 2022. Agricultural mortgages were 19.8% of the portfolio as of June 30, 2022, compared to 20.5% as of June 30, 2021.

The consumer residential real estate category of total loans increased from $371.5 million on June 30, 2021, to $418.2 million on June 30, 2022, a 12.6% 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 June 30, 2021, this percentage was 42.7%, and as of June 30, 2022, it decreased to 40.2%. 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 half 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 $28.9 million, or 10.0%, from June 30, 2021, to June 30, 2022. These first lien 1-4 family loans made up 77.6% of the residential real estate total as of June 30, 2021, and 75.9% as of June 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 second quarter of 2022, mortgage production increased 9% from the previous quarter but was down 13% from the second quarter of 2021. Purchase money origination constituted 82% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up 58% of that mix. With the continued higher volume of new construction business in combination with a rising interest rate environment, the percentage of mortgage originations being added into the Corporation’s held-for-investment mortgage portfolio increased quarter-over-quarter. In the second quarter of 2022, 78% of all mortgage originations were held in the mortgage portfolio, 52% of which were adjustable rate mortgages. As of June 30, 2022, ARM balances were $159.5 million, representing 50.3% 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 June 30, 2022, the remainder of the residential real estate loans consisted of $13.7 million of fixed rate junior lien home equity loans, and $87.3 million of variable rate home equity lines of credit (HELOCs). This compares to $11.5 million of fixed rate junior lien home equity loans, and $71.7 million of HELOCs as of June 30, 2021. Therefore, combined, these two types of home equity loans increased from $83.2 million to $101.0 million, an increase of 21.4%.

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 13.2% of total loans as of June 30, 2022, a decline from the 15.8% at June 30, 2021. The balance of total commercial and industrial loans remained stable from June 30, 2021 to June 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 June 30, 2022 and June 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 $47.0 million, or 96.1% from June 30, 2021, and represents $1.9 million as of June 30, 2022.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The consumer loan portfolio increased slightly from $5.1 million at June 30, 2021, to $5.4 million at June 30, 2022, a 5.9% 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)
	June 30		December 31,		June 30
	2022		2021		2021
	$		$		$

Nonaccrual loans		4,666		2,556		651
Loans past due 90 days or more and still accruing		813		325		287
Troubled debt restructurings, non-performing		—		—		—
Total non-performing loans		5,479		2,881		938

Other real estate owned		—		—		—

Total non-performing assets		5,479		2,881		938

Non-performing assets to net loans		0.53%		0.31%		0.11%

The total balance of non-performing assets increased by $4.5 million, or 484.1% from balances at June 30, 2021, and increased by $2.6 million, or 90.2%, from balances at December 31, 2021. There were no non-performing TDR loans in any of the periods presented. A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally granted in order to improve the financial position of the borrower and improve the likelihood of full collection by the lender. Non-accrual loans increased by $4.0 million, or 616.9%, since June 30, 2021, and increased $2.1 million, or 82.6% since December 31, 2021. The increase that occurred between December 31, 2021 and June 30, 2022 was primarily due to three agricultural relationships, a business loan, a commercial real estate loan, and a business mortgage of unrelated borrowers all added to non-accrual in the first half of 2022. Loans past due 90 days or more and still accruing were up $488,000 from the prior year period, and $526,000, since December 31, 2021, as a result of an agriculture mortgage and two residential real estate loans that entered the category during the first half of 2022.

There was no other real estate owned (OREO) as of June 30, 2022, December 31, 2021, or June 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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ENB FINANCIAL CORP

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 June 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		41			—
Consumer		1			23
Total loans charged-off		107			23

Recoveries of loans previously charged-off
Commercial real estate		2			—
Consumer real estate		6			—
Commercial and industrial		22			17
Consumer		2			7
Total recoveries		32			24

Net charge-offs (recoveries)
Commercial real estate		63			—
Consumer real estate		(6	)		—
Commercial and industrial		19			(17	)
Consumer		(1	)		16
Total net charge-offs (recoveries)		75			(1	)

Average loans outstanding
Commercial real estate		411,996			346,396
Consumer real estate		375,747			312,491
Commercial and industrial		170,335			184,341
Consumer		5,730			5,394
Total average loans outstanding		963,808			848,622

Net charge-offs (recoveries) as a % of average loans outstanding
Commercial real estate		0.02%			0.00%
Consumer real estate		0.00%			0.00%
Commercial and industrial		0.01%			-0.01%
Consumer		-0.02%			0.30%
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 June 30, 2022, net charge-offs were $75,000, representing a net charge off position of 0.01% of average loans outstanding as reflected above. As of June 30, 2021, net recoveries were $1,000, 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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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s level of classified loans was $14.0 million on June 30, 2022, compared to $23.4 million on June 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 $74,000 of specifically allocated allowance against the classified loans as of June 30, 2022, $147,000 of specific allocation as of December 31, 2021, and $1.1 million of specific allocation as of June 30, 2021. The higher specific allocation at June 30, 2021, was related to a commercial customer with ongoing business concerns. This loan paid off during the third quarter of 2021, resulting in a decline in the provision for loan losses.

The allowance as a percentage of total loans was 1.31% as of June 30, 2022, and 1.46% as of June 30, 2021. It is typical for the allowance for credit losses to contain a small amount of excess reserves. Over the long term, management targets an excess reserve at approximately 5%-10% knowing that the reserve can fluctuate. The excess reserve stood at 3.2% as of June 30, 2022.

Premises and Equipment

Premises and equipment, net of accumulated depreciation, decreased by $0.4 million, or 1.6%, to $24.3 million as of June 30, 2022, from $24.7 million as of June 30, 2021. As of June 30, 2022, $380,000 was classified as construction in process compared to $379,000 as of June 30, 2021. Fixed assets declined as a result of depreciation outpacing new purchases year over year.

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 Federal Home Loan Bank (FHLB) and Atlantic Community Bankers Bank (ACBB). The Corporation’s $6.1 million of regulatory stock holdings as of June 30, 2022, consisted of $5.4 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 June 30, 2022, increased by $66.1 million, or 4.4%, and by $209.4 million, or 15.3%, from December 31, 2021, and June 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 June 30, 2021, with the changes being a $95.7 million, or 16.4% increase in non-interest bearing demand deposit accounts, a $14.3 million, or 25.8% increase in interest bearing demand balances, a $3.5 million, or 2.7% decrease in NOW balances, a $53.5 million, or 33.0% increase in money market account balances, a $52.8 million, or 16.5% increase in savings account balances, and a $3.4 million, or 2.9% decrease in time deposit balances.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

DEPOSITS BY MAJOR CLASSIFICATION
(DOLLARS IN THOUSANDS)

	June 30,		December 31,		June 30,
	2022		2021		2021
	$		$		$

Non-interest bearing demand		678,472		686,278		582,747
Interest bearing demand		69,711		63,015		55,419
NOW accounts		127,622		139,366		131,151
Money market deposit accounts		215,781		168,327		162,247
Savings accounts		373,060		341,291		320,252
Time deposits		113,634		113,936		117,068
Total deposits		1,578,280		1,512,213		1,368,884

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. As of June 30, 2022, time deposit balances had decreased $3.4 million, or 2.9%, from June 30, 2021, and $0.3 million, or 0.3% from December 31, 2021. 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. The low rate environment has caused this shift due to the small variance in rates between time deposits and other deposit products resulting in a change in customer behavior.

Borrowings

Total borrowings were $83.9 million, $63.9 million, and $69.8 million as of June 30, 2022, December 31, 2021, and June 30, 2021, respectively. There was $20.0 million of short-term funds outstanding at June 30, 2022, and no short-term funds outstanding at December 31, 2021, or June 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 $20.0 million of short-term borrowings at June 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 June 30, 2022, $44.2 million as of December 31, 2021, and $50.2 million as of June 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 June 30, 2021, can be attributed to management taking advantage of declining rates by prepaying FHLB advances and incurring penalties in order to save on interest expense in future years.

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Management’s Discussion and Analysis

The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently $518.6 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 June 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.

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.

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Management’s Discussion and Analysis

REGULATORY CAPITAL RATIOS:
			Regulatory Requirements
			Adequately	Well
As of June 30, 2022		Capital Ratios	Capitalized	Capitalized
Total Capital to Risk-Weighted Assets
	Consolidated	13.8%	N/A	N/A
	Bank	13.4%	8.0%	10.0%

Tier 1 Capital to Risk-Weighted Assets
	Consolidated	11.0%	N/A	N/A
	Bank	12.3%	6.0%	8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
	Consolidated	11.0%	N/A	N/A
	Bank	12.3%	4.5%	6.5%

Tier 1 Capital to Average Assets
	Consolidated	7.8%	N/A	N/A
	Bank	8.7%	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 June 30, 2021
Total Capital to Risk-Weighted Assets
	Consolidated	16.1%	N/A	N/A
	Bank	15.6%	8.0%	10.0%

Tier 1 Capital to Risk-Weighted Assets
	Consolidated	12.9%	N/A	N/A
	Bank	14.3%	6.0%	8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
	Consolidated	12.9%	N/A	N/A
	Bank	14.3%	4.5%	6.5%

Tier 1 Capital to Average Assets
	Consolidated	8.3%	N/A	N/A
	Bank	9.2%	4.0%	5.0%

As of June 30, 2022 the Bank’s Tier 1 Leverage Ratio stood at 8.7% while the Corporation’s Tier 1 Leverage Ratio was 7.8%. 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 $20 million subordinated debt issue. Most of the marked improvement in capital ratios from 2020 to 2021 occurred at the Bank level. 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.

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Management’s Discussion and Analysis

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 June 30, 2022.

OFF-BALANCE SHEET ARRANGEMENTS
(DOLLARS IN THOUSANDS)

	June 30,
	2022
	$
Commitments to extend credit:
		173,740
Construction loans		53,139
Real estate loans		92,400
Business loans		207,262
Consumer loans		1,404
Other		5,582
Standby letters of credit		11,185

Total		544,712

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.

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.

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Management’s Discussion and Analysis

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

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

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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 June 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 more net interest income in the up-100, 200, and 300 basis point scenarios and less net interest income in the up-400 and the down-rate scenarios. This is due to the ability of the Corporation to immediately achieve higher interest earnings on interest-earning assets while having the ability to limit the amount of increase in interest-bearing liabilities based on the timing of deposit rate changes. This generally results in an increase in net interest income in the rising rate scenarios, but a decline in net interest income in the declining rate scenarios.

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As of June 30, 2022, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios. The majority of up-rate scenarios show a positive impact to net interest income largely due to the variable rate securities and loans held on the Corporation’s balance sheet. On the liability side, when interest rates do increase, it is typical for management to react more slowly in increasing deposit rates so deposit rates move at a fraction of the full overnight rate movement. Loans that are Prime-based will increase by the full amount of the market rate movement while deposit rates will only increase at a fraction of the market rate increase.

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 June 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 value of the core deposits also decreases resulting in exposure to fair value loss in the down-rate scenarios.

The analysis does show a valuation loss in the down-100 and 200 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 45%. 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 making a down-200 rate scenario unlikely. 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 June 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 June 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

June 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 June 30, 2022.

Issuer Purchase of Equity Securites

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 *

April 2022

—

167,100

May 2022

—

167,100

June 2022

3,000

17.75

3,000

164,100

Total

3,000

* 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 June 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: August 12, 2022	By:	/s/ Jeffrey S. Stauffer
		Jeffrey S. Stauffer
		Chairman of the Board
		Chief Executive Officer and President
		Principal Executive Officer


Dated: August 12, 2022	By:	/s/ Rachel G. Bitner
		Rachel G. Bitner
		Treasurer
		Principal Financial Officer