UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended~~September~~June 30, ~~2017~~2019

o¨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.

Yesx Noo¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive ~~Date~~Data File required to be submitted ~~and posted~~ 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.)

Yesx Noo¨

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	o¨	Accelerated filer	o¨
Non-accelerated filer	o	~~(Do not check if a smaller reporting company)~~
	¨	Smaller reporting company	x
		Emerging growth company	o¨

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

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

Yeso¨ Nox

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of~~November 5, 2017,~~August 1, 2019,the registrant had~~2,845,679~~5,692,384shares of ~~$0.20~~$0.10 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

~~September~~June 30, ~~2017~~

2019


Part I – FINANCIAL INFORMATION

	Item 1.	Financial Statements

			Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018, and December 31, ~~2016~~2018 (Unaudited)	3

			Consolidated Statements of Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	4

			Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)	5

Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2019 and 2018 (Unaudited)		6

Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)		67

			Notes to the Unaudited Consolidated Interim Financial Statements	~~7-33~~8-32

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~34-70~~33-68

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~71-75~~69-74

	Item 4.	Controls and Procedures	7675


Part II – OTHER INFORMATION		76

~~Part II – OTHER INFORMATION~~Item 1.	77Legal Proceedings	76

	Item 1.1A.	~~Legal Proceedings~~Risk Factors	7776

	~~Item 1A.~~	~~Risk Factors~~	77

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7776

	Item 3.	Defaults ~~Upon~~upon Senior Securities	7776

	Item 4.	Mine Safety Disclosures	7776

	Item 5.	Other Information	7776

	Item 6.	Exhibits	7877


SIGNATURE PAGE		79
			78

Index

~~ENB FINANCIAL CORP~~

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	September 30,			December 31,			September 30,			June 30,			December 31,			June 30,
	2017			2016			2016			2019			2018			2018
	$			$			$			$			$			$
ASSETS
Cash and due from banks		18,426			19,852			16,055			17,210			26,675			20,016
Interest-bearing deposits in other banks		25,814			25,780			33,812			34,460			14,690			24,083

Total cash and cash equivalents		44,240			45,632			49,867			51,670			41,365			44,099

Securities available for sale (at fair value)		320,695			308,111			298,139			290,927			294,065			307,253
Equity securities (at fair value)											6,231			5,934			5,737

Loans held for sale		3,809			2,552			4,525			3,473			1,429			2,436

Loans (net of unearned income)		584,077			571,567			565,968			718,356			694,073			628,218

Less: Allowance for loan losses		8,028			7,562			7,435			8,957			8,666			8,171

Net loans		576,049			564,005			558,533			709,399			685,407			620,047

Premises and equipment		24,402			22,568			22,776			25,339			25,551			25,814
Regulatory stock		6,139			5,372			5,218			6,959			6,348			6,263
Bank owned life insurance		25,161			24,687			24,489			28,429			28,085			27,693
Other assets		9,583			11,326			7,140			9,218			9,658			10,544

Total assets		1,010,078			984,253			970,687			1,131,645			1,097,842			1,049,886

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
Noninterest-bearing		301,978			280,543			260,873			345,483			369,081			326,296
Interest-bearing		536,847			536,948			531,787			596,123			550,653			551,773

Total deposits		838,825			817,491			792,660			941,606			919,734			878,069

Short-term borrowings		—			8,329			12,053			—			7,870			2,738
Long-term debt		68,350			61,257			63,757			74,628			65,386			68,361
Other liabilities		2,036			2,237			2,264			2,897			2,050			1,975

Total liabilities		909,211			889,314			870,734			1,019,131			995,040			951,143

Stockholders' equity:
Common stock, par value $0.20;
Shares: Authorized 12,000,000
Issued 2,869,557 and Outstanding 2,848,679
(Issued 2,869,557 and Outstanding 2,850,382 as of 12/31/16)
(Issued 2,869,557 and Outstanding 2,851,338 as of 9/30/16)		574			574			574
Common stock, par value $0.10 as of 6/30/19; $0.20 as of 12/31/18 and 6/30/18
Shares: Authorized 24,000,000 as of 6/30/19; 12,000,000 as of 12/31/18 and 6/30/18
Issued 5,739,114 and Outstanding 5,698,384 as of 6/30/19
Issued 2,869,557 and Outstanding 2,852,532 as of 12/31/18
Issued 2,869,557 and Outstanding 2,857,704 as of 6/30/18											574			574			574
Capital surplus		4,413			4,403			4,398			4,454			4,435			4,424
Retained earnings		98,815			95,475			94,353			108,024			104,067			100,922
Accumulated other comprehensive income (loss) net of tax		(2,232	)		(4,885	)		1,221			298			(5,678	)		(6,778	)
Less: Treasury stock cost on 20,878 shares (19,175 shares
as of 12/31/16 and 18,219 shares as of 9/30/16)		(703	)		(628	)		(593	)
Less: Treasury stock cost on 46,730 shares as of 6/30/19
17,025 shares as of 12/31/18 and 11,853 shares as of 6/30/18											(836	)		(596	)		(399	)

Total stockholders' equity		100,867			94,939			99,953			112,514			102,802			98,743

Total liabilities and stockholders' equity		1,010,078			984,253			970,687			1,131,645			1,097,842			1,049,886

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

~~ENB FINANCIAL CORP~~

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

	Three Months ended September 30,				Nine Months ended September 30,				Three Months ended June 30,					Six Months ended June 30,
	2017		2016		2017		2016		2019		2018			2019		2018
	$		$		$		$		$		$			$		$
Interest and dividend income:
Interest and fees on loans		6,180		5,721		17,996		16,716		8,309		6,704			16,332		13,102
Interest on securities available for sale
Taxable		997		581		2,818		729		1,242		1,186			2,517		2,287
Tax-exempt		1,051		966		3,281		2,788		608		736			1,255		1,495
Interest on deposits at other banks		111		38		257		94		119		135			166		247
Dividend income		105		87		287		246		184		136			354		290

Total interest and dividend income		8,444		7,393		24,639		20,573		10,462		8,897			20,624		17,421

Interest expense:
Interest on deposits		489		509		1,438		1,568		913		512			1,737		991
Interest on borrowings		265		242		749		751		391		330			746		625

Total interest expense		754		751		2,187		2,319		1,304		842			2,483		1,616

Net interest income		7,690		6,642		22,452		18,254		9,158		8,055			18,141		15,805

Provision for loan losses		240		200		450		200		30		90			210		280

Net interest income after provision for loan losses		7,450		6,442		22,002		18,054		9,128		7,965			17,931		15,525

Other income:
Trust and investment services income		427		344		1,335		1,104		505		474			1,042		1,028
Service fees		648		589		1,894		1,644		693		837			1,323		1,498
Commissions		583		552		1,714		1,611		756		657			1,411		1,241
Gains on securities transactions, net		170		464		417		2,130
Gains (losses) on the sale of debt securities, net										106		(62	)		187		(28	)
Gains on equity securities, net										27		16			44		47
Gains on sale of mortgages		510		557		1,302		1,109		415		352			764		587
Earnings on bank-owned life insurance		170		210		514		604		179		192			357		1,291
Other income		114		112		370		364		81		162			178		344

Total other income		2,622		2,828		7,546		8,566		2,762		2,628			5,306		6,008

Operating expenses:
Salaries and employee benefits		4,840		4,219		14,370		12,230		5,105		5,221			10,293		10,181
Occupancy		624		555		1,828		1,584		590		602			1,220		1,265
Equipment		299		276		878		811		287		291			574		579
Advertising & marketing		143		120		539		422		166		205			416		437
Computer software & data processing		575		471		1,654		1,345		609		574			1,266		1,118
Shares tax		215		227		644		680		232		229			465		443
Professional services		377		380		1,260		1,207		556		505			1,031		938
Other expense		574		500		1,707		1,663		672		540			1,234		1,090

Total operating expenses		7,647		6,748		22,880		19,942		8,217		8,167			16,499		16,051

Income before income taxes		2,425		2,522		6,668		6,678		3,673		2,426			6,738		5,482

Provision for federal income taxes		391		445		935		1,045		584		300			1,046		535

Net income		2,034		2,077		5,733		5,633		3,089		2,126			5,692		4,947

Earnings per share of common stock		0.71		0.73		2.01		1.98		0.54		0.37			1.00		0.87

Cash dividends paid per share		0.28		0.27		0.84		0.81		0.155		0.145			0.305		0.285

Weighted average shares outstanding		2,848,504		2,851,939		2,849,849		2,851,184		5,692,506		5,707,590			5,693,418		5,703,962

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

~~ENB FINANCIAL CORP~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months ended September 30,						Nine Months ended September 30,						Three Months ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
	$			$			$			$			$			$			$			$

Net income		2,034			2,077			5,733			5,633			3,089			2,126			5,692			4,947

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

Unrealized gains (losses) arising during the period		(406	)		(650	)		4,437			4,362			4,520			(362	)		7,751			(3,730	)
Income tax effect		138			221			(1,509	)		(1,483	)		(949	)		76			(1,627	)		759
		(268	)		(429	)		2,928			2,879			3,571			(286	)		6,124			(2,971	)

Gains recognized in earnings		(170	)		(464	)		(417	)		(2,130	)
(Gains) losses recognized in earnings														(106	)		62			(187	)		28
Income tax effect		58			158			142			724			22			(13	)		39			(6	)
		(112	)		(306	)		(275	)		(1,406	)		(84	)		49			(148	)		22

Other comprehensive income (loss), net of tax		(380	)		(735	)		2,653			1,473			3,487			(237	)		5,976			(2,949	)

Comprehensive Income		1,654			1,342			8,386			7,106			6,576			1,889			11,668			1,998

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

~~ENB FINANCIAL CORP~~

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) Nine Months Ended September 30,
2017 2016
$ $
Cash flows from operating activities:
Net income 5,733 5,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of securities premiums and discounts and loan fees 2,936 5,393
Decrease in interest receivable 359 452
Increase (decrease) in interest payable 7 (41 )
Provision for loan losses 450 200
Gains on securities transactions, net (417 ) (2,130 )
Gains on sale of mortgages (1,302 ) (1,109 )
Loans originated for sale (34,064 ) (36,127 )
Proceeds from sales of loans 34,109 33,837
Earnings on bank-owned life insurance (514 ) (604 )
Depreciation of premises and equipment and amortization of software 1,229 1,209
Net increase in deferred income tax (159 ) (314 )
Other assets and other liabilities, net (71 ) 29
Net cash provided by operating activities 8,296 6,428

Cash flows from investing activities:
Securities available for sale:
   Proceeds from maturities, calls, and repayments 14,855 51,739
   Proceeds from sales 60,404 142,095
   Purchases (86,007 ) (203,307 )
Purchase of regulatory bank stock (2,537 ) (1,894 )
Redemptions of regulatory bank stock 1,770 990
Net increase in loans (12,829 ) (45,803 )
Purchases of premises and equipment, net (2,882 ) (2,136 )
Purchase of computer software (102 ) (295 )
Net cash used for investing activities (27,328 ) (58,611 )

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts 30,680 68,433
Net decrease in time deposits (9,346 ) (15,835 )
Net increase (decrease) in short-term borrowings (8,329 ) 3,317
Proceeds from long-term debt 17,093 17,163
Repayments of long-term debt (10,000 ) (13,000 )
Dividends paid (2,393 ) (2,309 )
Proceeds from sale of treasury stock 403 368
Treasury stock purchased (468 ) (314 )
Net cash provided by financing activities 17,640 57,823
Increase (decrease) in cash and cash equivalents (1,392 ) 5,640
Cash and cash equivalents at beginning of period 45,632 44,227
Cash and cash equivalents at end of period 44,240 49,867

Supplemental disclosures of cash flow information:
    Interest paid 2,180 2,360
    Income taxes paid 1,175 1,340

Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale (4,020 ) (2,231 )

(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, 2017		574		4,415		98,629			(3,195	)		(664	)		99,759

Net income		—		—		2,821			—			—			2,821
Other comprehensive loss net of tax		—		—		—			(2,712	)		—			(2,712	)
Change in accounting principal for
adoption of ASU 2017-08		—		—		(1,663	)		—			—			(1,663	)
Reclassification of certain income tax
effects from accumulated other
comprehensive loss		—		—		634			(634	)		—			—
Treasury stock issued - 3,656 shares		—		4		—			—			123			127
Cash dividends paid, $0.28 per share		—		—		(798	)		—			—			(798	)

Balances, March 31, 2018		574		4,419		99,623			(6,541	)		(541	)		97,534

Net income		—		—		2,126			—			—			2,126
Other comprehensive income net of tax		—		—		—			(237	)		—			(237	)
Treasury stock issued - 4,225 shares		—		5		—			—			142			147
Cash dividends paid, $0.29 per share		—		—		(827	)		—			—			(827	)

Balances, June 30, 2018		574		4,424		100,922			(6,778	)		(399	)		98,743


Balances, December 31, 2018		574		4,435		104,067			(5,678	)		(596	)		102,802

Net income		—		—		2,603			—			—			2,603
Other comprehensive income net of tax		—		—		—			2,489			—			2,489
Treasury stock purchased - 18,800 shares		—		—		—			—			(330	)		(330	)
Treasury stock issued - 8,188 shares		—		3		—			—			143			146
Cash dividends paid, $0.15 per share		—		—		(852	)		—			—			(852	)

Balances, March 31, 2019		574		4,438		105,818			(3,189	)		(783	)		106,858

Net income		—		—		3,089			—			—			3,089
Other comprehensive income net of tax		—		—		—			3,487			—			3,487
Treasury stock purchased - 29,366 shares		—		—		—			—			(204	)		(204	)
Treasury stock issued - 16,686 shares		—		16		—			—			151			167
Cash dividends paid, $0.155 per share		—		—		(883	)		—			—			(883	)

Balances, June 30, 2019		574		4,454		108,024			298			(836	)		112,514

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(DOLLARS IN THOUSANDS)	Six Months Ended June 30,
	2019			2018
	$			$
Cash flows from operating activities:
Net income		5,692			4,947
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		1,692			2,050
Amortization of operating leases right-of-use assets		87			—
Increase in interest receivable		(343	)		(36	)
Increase in interest payable		96			26
Provision for loan losses		210			280
(Gain) loss on sale of debt securities, net		(187	)		28
Gain on equity securities, net		(44	)		(47	)
Gains on sale of mortgages		(764	)		(587	)
Loans originated for sale		(20,210	)		(16,557	)
Proceeds from sales of loans		18,930			17,600
Earnings on bank-owned life insurance		(357	)		(1,291	)
Depreciation of premises and equipment and amortization of software		783			816
Deferred income tax		(274	)		(21	)
Other assets and other liabilities, net		123			1,482
Net cash provided by operating activities		5,434			8,690

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		10,813			8,946
Proceeds from sales		28,648			32,082
Purchases		(30,115	)		(41,477	)
Equity securities
Proceeds from sales		—			153
Purchases		(153	)		(225	)
Purchase of regulatory bank stock		(1,102	)		(1,398	)
Redemptions of regulatory bank stock		491			929
Net increase in loans		(24,451	)		(31,250	)
Purchases of premises and equipment, net		(517	)		(857	)
Purchase of computer software		(31	)		(57	)
Net cash used for investing activities		(16,417	)		(33,154	)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		18,222			18,857
Net increase (decrease) in time deposits		3,650			(7,265	)
Net (decrease) increase in short-term borrowings		(7,870	)		2,738
Proceeds from long-term debt		16,212			11,661
Repayments of long-term debt		(6,970	)		(9,150	)
Dividends paid		(1,735	)		(1,625	)
Proceeds from sale of treasury stock		313			274
Treasury stock purchased		(534	)		—
Net cash provided by (used in) financing activities		21,288			15,490
Increase (decrease) in cash and cash equivalents		10,305			(8,974	)
Cash and cash equivalents at beginning of period		41,365			53,073
Cash and cash equivalents at end of period		51,670			44,099

Supplemental disclosures of cash flow information:
Interest paid		2,387			1,590
Income taxes paid		800			250

Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale		(7,564	)		3,730
Initial recognition of operating right-of-use assets		1,075			—
Initial recognition of operating lease liabilities		1,075			—

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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”). This Form 10-Q, for the ~~third~~second quarter of ~~2017,~~2019, is reporting on the results of operations and financial condition of ENB Financial Corp.

Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2017.~~2019. 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, ~~2016.~~2018.

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.

Leases

ASU 2016-02, “Leases (Topic 842).” ASU 2016-02, among other things, requires lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model andASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 became effective for the Corporation on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11,“Leases (Topic 842) - Targeted Improvements,” which, among other things, provided an additional transition method that allowed entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issuedASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,”which provided for certain policy elections and changed lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, the Corporation recognized right-of-use assets and related lease liabilities of $1,075,000.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

2. Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of securities held at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, are as follows:

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
September 30, 2017
June 30, 2019
U.S. government agencies		29,107		3		(463	)		28,647		31,186		28		(183	)		31,031
U.S. agency mortgage-backed securities		54,181		36		(634	)		53,583		46,899		65		(872	)		46,092
U.S. agency collateralized mortgage obligations		54,503		117		(582	)		54,038		54,906		291		(289	)		54,908
Asset-backed securities											13,926		—		(67	)		13,859
Corporate bonds		57,384		64		(312	)		57,136		52,680		80		(262	)		52,498
Obligations of states and political subdivisions		123,344		505		(2,176	)		121,673		90,953		1,639		(53	)		92,539
Total debt securities		318,519		725		(4,167	)		315,077
Marketable equity securities		5,557		61		—			5,618
Total securities available for sale		324,076		786		(4,167	)		320,695		290,550		2,103		(1,726	)		290,927

December 31, 2016
December 31, 2018
U.S. government agencies		33,124		—		(863	)		32,261		31,025		5		(910	)		30,120
U.S. agency mortgage-backed securities		56,826		22		(979	)		55,869		46,363		2		(1,726	)		44,639
U.S. agency collateralized mortgage obligations		38,737		41		(842	)		37,936		55,182		74		(1,166	)		54,090
Asset-backed securities											11,440		—		(41	)		11,399
Corporate bonds		52,928		8		(845	)		52,091		61,085		—		(1,893	)		59,192
Obligations of states and political subdivisions		128,428		346		(4,344	)		124,430		96,157		69		(1,601	)		94,625
Total debt securities		310,043		417		(7,873	)		302,587
Marketable equity securities		5,469		55		—			5,524
Total securities available for sale		315,512		472		(7,873	)		308,111		301,252		150		(7,337	)		294,065

~~Index~~

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~

The amortized cost and fair value of ~~debt~~ securities available for sale at ~~September~~June 30, ~~2017,~~2019, 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 17,425 17,322
Due after one year through five years 127,834 126,947
Due after five years through ten years 54,502 53,703
Due after ten years 118,758 117,105
Total debt securities 318,519 315,077

CONTRACTUAL MATURITY OF DEBT SECURITIES

(DOLLARS IN THOUSANDS)

	Amortized
	Cost		Fair Value
	$		$
Due in one year or less		25,499		25,363
Due after one year through five years		133,326		132,587
Due after five years through ten years		24,363		24,257
Due after ten years		107,362		108,720
Total debt securities		290,550		290,927

Securities available for sale with a par value of ~~$63,286,000~~$63,191,000 and ~~$63,726,000~~$58,668,000 at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was ~~$65,495,000~~$64,686,000 at ~~September~~June 30, ~~2017,~~2019, and ~~$65,770,000~~$58,914,000 at December 31, ~~2016.~~2018.

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.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018
	$		$		$		$		$		$		$		$
Proceeds from sales		20,319		38,592		60,404		142,095		18,401		23,660		28,648		32,235
Gross realized gains		243		468		631		2,186		122		58		218		109
Gross realized losses		73		4		214		56		16		120		31		137

Management evaluates all of the Corporation’s securities for other than temporary impairment (OTTI) on a periodic basis. No securities in the portfolio had other-than-temporary impairment recorded in the first ~~nine~~six months of ~~2017~~2019 or ~~2016.~~2018.

Information pertaining to securities with gross unrealized losses at ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

~~Index~~TEMPORARY IMPAIRMENTS OF SECURITIES

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~(DOLLARS IN THOUSANDS)

TEMPORARY IMPAIRMENTS OF SECURITIES
(DOLLARS IN THOUSANDS)
	Less than 12 months					More than 12 months					Total					Less than 12 months							More than 12 months						Total
			Gross					Gross					Gross						Gross							Gross						Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair			Unrealized				Fair			Unrealized			Fair			Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value			Losses				Value			Losses			Value			Losses
	$		$			$		$			$		$			$			$				$			$			$			$
As of September 30, 2017
As of June 30, 2019
U.S. government agencies		10,925		(111	)		15,718		(352	)		26,643		(463	)		—			—				20,813			(183	)		20,813			(183	)
U.S. agency mortgage-backed securities		29,092		(267	)		15,140		(367	)		44,232		(634	)		1,983			(47	)			37,732			(825	)		39,715			(872	)
U.S. agency collateralized mortgage obligations		23,804		(277	)		11,438		(305	)		35,242		(582	)		2,607			(6	)			33,763			(283	)		36,370			(289	)
Asset-backed securities																		11,294			(67	)			—			—			11,294			(67	)
Corporate bonds		17,539		(69	)		18,513		(243	)		36,052		(312	)		3,989			(31	)			30,210			(231	)		34,199			(262	)
Obligations of states & political subdivisions		35,033		(595	)		50,271		(1,581	)		85,304		(2,176	)		—			—				10,363			(53	)		10,363			(53	)

Total debt securities		116,393		(1,319	)		111,080		(2,848	)		227,473		(4,167	)

Marketable equity securities		—		—			—		—			—		—

Total temporarily impaired securities		116,393		(1,319	)		111,080		(2,848	)		227,473		(4,167	)		19,873			(151	)			132,881			(1,575	)		152,754			(1,726	)

As of December 31, 2016

As of December 31, 2018
U.S. government agencies		32,261		(863	)		—		—			32,261		(863	)		—			—				28,116			(910	)		28,116			(910	)
U.S. agency mortgage-backed securities		47,418		(856	)		3,989		(123	)		51,407		(979	)		—			—				42,041			(1,726	)		42,041			(1,726	)
U.S. agency collateralized mortgage obligations		33,206		(842	)		—		—			33,206		(842	)		8,055			(85	)			40,735			(1,081	)		48,790			(1,166	)
Asset-backed securities																		5,563			(41	)			—			—			5,563			(41	)
Corporate bonds		45,335		(830	)		2,002		(15	)		47,337		(845	)		20,228			(455	)			38,964			(1,438	)		59,192			(1,893	)
Obligations of states & political subdivisions		101,229		(4,063	)		8,041		(281	)		109,270		(4,344	)		12,367			(104	)			68,982			(1,497	)		81,349			(1,601	)

Total debt securities		259,449		(7,454	)		14,032		(419	)		273,481		(7,873	)

Marketable equity securities		—		—			—		—			—		—

Total temporarily impaired securities		259,449		(7,454	)		14,032		(419	)		273,481		(7,873	)		46,213			(685	)			218,838			(6,652	)		265,051			(7,337	)

In the debt security portfolio there were ~~162~~82 positions that were carrying unrealized losses as of ~~September~~June 30, ~~2017.~~2019. There were no instruments considered to be other-than-temporarily impaired at ~~September~~June 30, ~~2017.~~2019.

The Corporation evaluates ~~both equity and~~ 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.

As part of management’s normal monthly securities review, instruments are examined for known or expected calls that would impact the value of the bonds by causing accelerated amortization. If a security was purchased at a high premium, or dollar price above par, the remaining premium has to be amortized on a straight line basis to the known call date. Calls can occur in a majority of the securities the Corporation purchases but they are dependent on the structure of the instrument, and can also be dependent on certain conditions.

On March 15, 2016, management was made aware of a regulatory call provision on a CoBank bond held by the Corporation. CoBank is a sub-U.S. agency and cooperative of the Farm Credit Association (FCA), a U.S. government sponsored enterprise (GSE). The bond is classified as a corporate bond for disclosure purposes. The regulatory call was not anticipated and the high coupon bond was purchased at a high premium. The call required accelerated amortization to the April 15, 2016 call date, resulting in an additional $479,000 of amortization through September 30, 2016. This regulatory call specifically involved the CoBank issue maturing on April 16, 2018.

910

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

~~On April 26, 2016, management became aware of an AgriBank bond call. AgriBank is another cooperative of~~3. Equity Securities

The following table summarizes the ~~FCA. The Corporation owned $6.4 million par of the AgriBank issue maturing on July 15, 2019, with a book~~amortized cost, gross unrealized gains and losses, and fair value of ~~$6.6 million~~equity securities held at June 30, 2019 and December 31, 2018.

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
June 30, 2019
CRA-qualified mutual funds		5,488		—		—			5,488
Bank stocks		754		21		(32	)		743
Total equity securities		6,242		21		(32	)		6,231

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
December 31, 2018
CRA-qualified mutual funds		5,410		—		—			5,410
Bank stocks		591		—		(67	)		524
Total equity securities		6,001		—		(67	)		5,934

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the year-to-date period ended June 30, 2019 and 2018, and the portion of unrealized gains and losses for the period that relates to equity investments held as of June 30, 2016. AgriBank went public with this call, stating they intended to call the bonds on July 15, 2016. As a result of this par call notice, management accelerated the amortization of the remaining premium on the AgriBank bond, beginning in April2019 and running until the call date of July 15, 2016. As of September 30, 2016, $1,202,000 of accelerated amortization was recorded on this bond. After July 15, 2016, the Corporation no longer held any sub-U.S. Agency debt of FCA or any other U.S. GSE.2018.

In both the CoBank and AgriBank matters investors, including the Corporation, have contested the ability of both CoBank and AgriBank to conduct these regulatory calls. Presently, the Corporation is listed on a complaint filed in the U.S District Court for the Southern District of New York against CoBank by over 30 previous holders of CoBank bonds. The complaint has gone through initial mediation phases and the discovery stage which concluded on September 29, 2017. The parties are presently engaged in expert discovery, with the matter proceeding toward trial. Management anticipates going through a similar process with AgriBank, however that litigation is taking the form of a class action lawsuit with a plaintiff representing the class. The Corporation, as a member of the class, initially waited for the court to issue a ruling on AgriBank’s motion to dismiss. The District Court Judge issued an opinion in mid-September 2017, denying AgriBank’s motion to dismiss. The District Court recently entered a discovery schedule that establishes mid-May 2018 as the deadline to complete fact discovery, and mid-August 2018 as the deadline for expert discovery. In both litigation efforts management is contesting the process that was undertaken to exercise these regulatory calls. Management cannot make any prediction or draw any conclusion as to the outcome of any negotiations and/or litigation in connection with these matters.

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)

	Three Months Ended					Six Months Ended
	June 30, 2019		June 30, 2018			June 30, 2019		June 30, 2018
	$		$			$		$

Net gains (losses) recognized in equity securities during the period		27		(14	)		44		17

Less: Net gains (losses) realized on the sale of equity securities during the period		—		30			—		30

Unrealized gains (losses) recognized in equity securities held at reporting date		27		16			44		47

1011

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

4. Loans and Allowance for Loan Losses

The following table presents the Corporation’s loan portfolio by category of loans as of ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016:~~2018:

~~LOAN PORTFOLIO~~

~~(DOLLARS IN THOUSANDS)~~

LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
	September 30,			December 31,			June 30,			December 31,
	2017			2016			2019			2018
	$			$			$			$
Commercial real estate
Commercial mortgages		90,468			86,434			104,418			101,419
Agriculture mortgages		150,269			163,753			168,726			165,926
Construction		18,762			24,880			18,151			18,092
Total commercial real estate		259,499			275,067			291,295			285,437

Consumer real estate (a)
1-4 family residential mortgages		168,984			150,253			241,134			219,037
Home equity loans		11,457			10,391			10,536			10,271
Home equity lines of credit		57,991			53,127			66,535			64,413
Total consumer real estate		238,432			213,771			318,205			293,721

Commercial and industrial
Commercial and industrial		41,724			42,471			61,298			61,043
Tax-free loans		19,632			13,091			16,815			22,567
Agriculture loans		18,487			21,630			20,641			20,512
Total commercial and industrial		79,843			77,192			98,754			104,122

Consumer		5,166			4,537			8,397			9,197

Gross loans prior to deferred fees		582,940			570,567			716,651			692,477
Less:
Deferred loan costs, net		1,137			1,000			1,705			1,596
Allowance for loan losses		(8,028	)		(7,562	)		(8,957	)		(8,666	)
Total net loans		576,049			564,005			709,399			685,407

(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled ~~$90,123,000~~$138,468,000 and ~~$66,767,000~~$126,916,000 as of ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016.~~2018. 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.

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.

1112

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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)

September 30, 2017	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
June 30, 2019															Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		84,614		139,458		17,762		37,900		19,422		17,490		316,646		102,033		156,264		17,300		55,245		16,618		18,745		366,205
Special Mention		373		5,095		—		795		210		229		6,702		170		3,197		851		4,252		197		1,128		9,795
Substandard		5,481		5,716		1,000		3,029		—		768		15,994		2,215		9,265		—		1,801		—		768		14,049
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Total		90,468		150,269		18,762		41,724		19,632		18,487		339,342		104,418		168,726		18,151		61,298		16,815		20,641		390,049

December 31, 2016	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
December 31, 2018															Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		78,367		155,820		23,880		36,887		13,091		20,245		328,290		99,013		154,132		17,567		59,348		22,367		19,487		371,914
Special Mention		4,860		5,360		—		1,955		—		653		12,828		176		3,478		525		518		200		453		5,350
Substandard		3,207		2,573		1,000		3,629		—		732		11,141		2,230		8,316		—		1,177		—		572		12,295
Doubtful		—		—		—		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Total		86,434		163,753		24,880		42,471		13,091		21,630		352,259		101,419		165,926		18,092		61,043		22,567		20,512		389,559

The largest movement in credit risk profile from December 31, 2018 to June 30, 2019 was a $3.9 million commercial and industrial (C&I) relationship that was downgraded from pass to special mention. This larger relationship, which provides a wide complement of leased equipment, accounted for the $3.7 million increase in commercial and industrial special mention loans since year end, and the majority of the increase in special mention loans for all commercial loan categories. This loan is current and has performed on a timely basis since origination. Agricultural loans not secured by real estate experienced a $675,000 increase in special mention loans from year end. This was primarily the result of a downgrading of one farmer with $920,000 of C&I balance, who has a mix of operations.

1213

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)

September 30, 2017 1-4 Family
Residential
Mortgages Home Equity
Loans Home Equity
Lines of
Credit Consumer Total
Payment performance: $ $ $ $ $

Performing 168,863 11,457 57,991 5,160 243,471
Non-performing 121 — — 6 127

Total 168,984 11,457 57,991 5,166 243,598

December 31, 2016	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
June 30, 2019											1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$		$		$		$		$		$

Performing		149,873		10,388		53,127		4,536		217,924		240,900		10,536		66,535		8,389		326,360
Non-performing		380		3		—		1		384		234		—		—		8		242

Total		150,253		10,391		53,127		4,537		218,308		241,134		10,536		66,535		8,397		326,602

December 31, 2018	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		218,641		10,271		64,413		9,196		302,521
Non-performing		396		—		—		1		397

Total		219,037		10,271		64,413		9,197		302,918

1314

Index

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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

Loans
Greater Receivable >
30-59 Days 60-89 Days than 90 Total Past Total Loans 90 Days and
September 30, 2017 Past Due Past Due Days Due Current Receivable Accruing
$ $ $ $ $ $ $
Commercial real estate
   Commercial mortgages 248 110 418 776 89,692 90,468 —
   Agriculture mortgages — — — — 150,269 150,269 —
   Construction — — — — 18,762 18,762 —
Consumer real estate
   1-4 family residential mortgages 1,310 124 121 1,555 167,429 168,984 57
   Home equity loans 9 — — 9 11,448 11,457 —
   Home equity lines of credit — 30 — 30 57,961 57,991 —
Commercial and industrial
   Commercial and industrial — — 266 266 41,458 41,724 191
   Tax-free loans — — — — 19,632 19,632 —
   Agriculture loans — — — — 18,487 18,487 —
Consumer 9 8 6 23 5,143 5,166 6
       Total 1,576 272 811 2,659 580,281 582,940 254

																											Loans
													Loans						Greater								Receivable >
					Greater								Receivable >		30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and
December 31, 2016	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
June 30, 2019															Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		—		419		417		836		85,598		86,434		—		—		—		993		993		103,425		104,418		—
Agriculture mortgages		165		—		—		165		163,588		163,753		—		—		377		816		1,193		167,533		168,726		—
Construction		—		—		—		—		24,880		24,880		—		—		—		—		—		18,151		18,151		—
Consumer real estate
1-4 family residential mortgages		565		662		380		1,607		148,646		150,253		380		274		184		234		692		240,442		241,134		234
Home equity loans		178		—		3		181		10,210		10,391		3		32		24		—		56		10,480		10,536		—
Home equity lines of credit		—		—		—		—		53,127		53,127		—		30		—		—		30		66,505		66,535		—
Commercial and industrial
Commercial and industrial		266		—		75		341		42,130		42,471		—		2		—		—		2		61,296		61,298		—
Tax-free loans		—		—		—		—		13,091		13,091		—		—		—		—		—		16,815		16,815		—
Agriculture loans		—		—		—		—		21,630		21,630		—		648		—		—		648		19,993		20,641		—
Consumer		16		4		1		21		4,516		4,537		1		1		—		8		9		8,388		8,397		8
Total		1,190		1,085		876		3,151		567,416		570,567		384		987		585		2,051		3,623		713,028		716,651		242

													Loans
					Greater								Receivable >
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and
December 31, 2018	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		—		—		237		237		101,182		101,419		—
Agriculture mortgages		326		—		816		1,142		164,784		165,926		—
Construction		—		—		—		—		18,092		18,092		—
Consumer real estate
1-4 family residential mortgages		455		201		396		1,052		217,985		219,037		396
Home equity loans		62		35		—		97		10,174		10,271		—
Home equity lines of credit		95		—		—		95		64,318		64,413		—
Commercial and industrial
Commercial and industrial		24		—		—		24		61,019		61,043		—
Tax-free loans		—		—		—		—		22,567		22,567		—
Agriculture loans		118		—		—		118		20,394		20,512		—
Consumer		10		15		1		26		9,171		9,197		1
Total		1,090		251		1,450		2,791		689,686		692,477		397

1415

Index

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 ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

NONACCRUAL LOANS BY LOAN CLASS
(DOLLARS IN THOUSANDS)
September 30, December 31,
2017 2016
$ $

Commercial real estate
  Commercial mortgages 528 646
  Agriculture mortgages — —
  Construction — —
Consumer real estate
  1-4 family residential mortgages 64 —
  Home equity loans — —
  Home equity lines of credit — —
Commercial and industrial
  Commercial and industrial 75 75
  Tax-free loans — —
  Agriculture loans — —
Consumer 20 —
             Total 687 721

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)

	June 30,		December 31,
	2019		2018
	$		$

Commercial real estate
Commercial mortgages		993		1,017
Agriculture mortgages		816		816
Construction		—		—
Consumer real estate
1-4 family residential mortgages		—		—
Home equity loans		—		—
Home equity lines of credit		—		—
Commercial and industrial
Commercial and industrial		—		—
Tax-free loans		—		—
Agriculture loans		—		—
Consumer		—		—
Total		1,809		1,833

As of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~September~~June 30, ~~2016,~~2018, is as follows:

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)

	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018
	$		$		$		$		$		$		$		$

Average recorded balance of impaired loans		2,152		1,830		2,394		1,894		3,412		2,201		3,057		2,045
Interest income recognized on impaired loans		17		14		49		42		11		15		22		31

~~During~~There were no loan modifications made during the ~~nine~~three or six months ended ~~September~~June 30, ~~2017 there was one loan modification made~~2019 or 2018 causing a loan to be considered a troubled debt restructuring (TDR). A TDR is a loan where management has granted a concession 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. The loan classified as a TDR during the nine months ended September 30, 2017, was an agricultural loan with a principal balance at September 30, 2017, of $263,000. The concession granted to the borrower was an interest-only period initially running for three months to March 31, 2017. However, in April 2017, that deferral period was extended for an additional three months, causing management to classify the loan as a TDR. The concession period ended June 30, 2017. Subsequent to June 30, 2017, the borrower resumed normal principal and interest payments as of July 2017. There were no loans classified as a TDR during the nine months ended September 30, 2016.

1516

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information ~~in regards to~~regarding impaired loans by loan portfolio class as of ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016, and September 30, 2016:~~2018:

IMPAIRED LOAN ANALYSIS

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
September 30, 2017 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
$ $ $ $ $

With no related allowance recorded:
Commercial real estate
    Commercial mortgages 195 292 — 281 4
    Agriculture mortgages 1,193 1,193 — 1,220 40
    Construction — — — — —
Total commercial real estate 1,388 1,485 — 1,501 44

Commercial and industrial
    Commercial and industrial 75 75 — 75 —
    Tax-free loans — — — — —
    Agriculture loans 263 263 — 400 5
Total commercial and industrial 338 338 — 475 5

Total with no related allowance 1,726 1,823 — 1,976 49

With an allowance recorded:
Commercial real estate
    Commercial mortgages 418 418 98 418 —
    Agriculture mortgages — — — — —
    Construction — — — — —
Total commercial real estate 418 418 98 418 —

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

Total with a related allowance 418 418 98 418 —

Total by loan class:
Commercial real estate
    Commercial mortgages 613 710 98 699 4
    Agriculture mortgages 1,193 1,193 — 1,220 40
    Construction — — — — —
Total commercial real estate 1,806 1,903 98 1,919 44

Commercial and industrial
    Commercial and industrial 75 75 — 75 —
    Tax-free loans — — — — —
    Agriculture loans 263 263 — 400 5
Total commercial and industrial 338 338 — 475 5

Total 2,144 2,241 98 2,394 49

(DOLLARS IN THOUSANDS)

June 30, 2019	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		737		772		—		743		—
Agriculture mortgages		2,393		2,393		—		2,054		22
Construction		—		—		—		—		—
Total commercial real estate		3,130		3,165		—		2,797		22

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

Total with no related allowance		3,130		3,165		—		2,797		22

With an allowance recorded:
Commercial real estate
Commercial mortgages		256		274		106		260		—
Agriculture mortgages		—		—		—		—		—
Construction		—		—		—		—		—
Total commercial real estate		256		274		106		260		—

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

Total with a related allowance		256		274		106		260		—

Total by loan class:
Commercial real estate
Commercial mortgages		993		1,046		106		1,003		—
Agriculture mortgages		2,393		2,393		—		2,054		22
Construction		—		—		—		—		—
Total commercial real estate		3,386		3,439		106		3,057		22
										��
Commercial and industrial
Commercial and industrial		—		—		—		—		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		—		—		—		—		—

Total		3,386		3,439		106		3,057		22

1617

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
December 31, 2016 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
$ $ $ $ $

With no related allowance recorded:
Commercial real estate
    Commercial mortgages 646 743 — 768 2
    Agriculture mortgages 1,248 1,248 — 1,285 55
    Construction — — — — —
Total commercial real estate 1,894 1,991 — 2,053 57

Commercial and industrial
    Commercial and industrial 75 75 — 76 —
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 75 75 — 76 —

Total with no related allowance 1,969 2,066 — 2,129 57

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

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

Total with a related allowance — — — — —

Total by loan class:
Commercial real estate
    Commercial mortgages 646 743 — 768 2
    Agriculture mortgages 1,248 1,248 — 1,285 55
    Construction — — — — —
Total commercial real estate 1,894 1,991 — 2,053 57

Commercial and industrial
    Commercial and industrial 75 75 — 76 —
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 75 75 — 76 —

Total 1,969 2,066 — 2,129 57

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)

December 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		370		901		—		396		—
Agriculture mortgages		1,692		1,692		—		1,063		45
Construction		—		—		—		—		—
Total commercial real estate		2,062		2,593		—		1,459		45

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

Total with no related allowance		2,062		2,593		—		1,459		45

With an allowance recorded:
Commercial real estate
Commercial mortgages		647		694		132		484		—
Agriculture mortgages		—		—		—		—		—
Construction		—		—		—		—		—
Total commercial real estate		647		694		132		484		—

Commercial and industrial
Commercial and industrial		—		—		—		—		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		124		6
Total commercial and industrial		—		—		—		124		6

Total with a related allowance		647		694		132		608		6

Total by loan class:
Commercial real estate
Commercial mortgages		1,017		1,595		132		880		—
Agriculture mortgages		1,692		1,692		—		1,063		45
Construction		—		—		—		—		—
Total commercial real estate		2,709		3,287		132		1,943		45

Commercial and industrial
Commercial and industrial		—		—		—		—		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		124		6
Total commercial and industrial		—		—		—		124		6

Total		2,709		3,287		132		2,067		51

1718

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
September 30, 2016 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
$ $ $ $ $

With no related allowance recorded:
Commercial real estate
    Commercial mortgages 730 827 — 561 —
    Agriculture mortgages 1,267 1,267 — 1,295 42
    Construction — — — — —
Total commercial real estate 1,997 2,094 — 1,856 42

Commercial and industrial
    Commercial and industrial 75 75 — 38 —
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 75 75 — 38 —
��
Total with no related allowance 2,072 2,169 — 1,894 42

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

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

Total with a related allowance — — — — —

Total by loan class:
Commercial real estate
    Commercial mortgages 730 827 — 561 —
    Agriculture mortgages 1,267 1,267 — 1,295 42
    Construction — — — — —
Total commercial real estate 1,997 2,094 — 1,856 42

Commercial and industrial
    Commercial and industrial 75 75 — 38 —
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 75 75 — 38 —

Total 2,072 2,169 — 1,894 42

~~Index~~

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~

The following table details activity in the allowance for loan losses by portfolio segment for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2019:

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

Commercial
Real Estate Consumer
Real Estate Commercial
and Industrial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Beginning balance - December 31, 2016 3,795 1,652 1,552 82 481 7,562

    Charge-offs — — (7 ) (4 ) — (11 )
    Recoveries — 20 9 2 — 31
    Provision (275 ) 163 95 3 104 90

Balance - March 31, 2017 3,520 1,835 1,649 83 585 7,672

    Charge-offs — — — (3 ) — (3 )
    Recoveries — — 10 3 — 13
    Provision 208 83 (42 ) 36 (165 ) 120

Ending Balance - June 30, 2017 3,728 1,918 1,617 119 420 7,802

    Charge-offs — — (7 ) (9 ) — (16 )
    Recoveries — — 2 — — 2
    Provision 31 (16 ) 201 (18 ) 42 240

Ending Balance - September 30, 2017 3,759 1,902 1,813 92 462 8,028

	Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Unallocated		Total
	$			$			$			$			$		$
Allowance for credit losses:
Beginning balance - December 31, 2018		4,296			2,408			1,428			102			432		8,666

Charge-offs		—			—			—			(17	)		—		(17	)
Recoveries		44			—			13			—			—		57
Provision		148			(140	)		128			16			28		180

Balance - March 31, 2019		4,488			2,268			1,569			101			460		8,886

Charge-offs		—			—			—			(6	)		—		(6	)
Recoveries		43			—			1			3			—		47
Provision		(114	)		122			(204	)		(22	)		248		30

Ending Balance - June 30, 2019		4,417			2,390			1,366			76			708		8,957

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, management charged off $23,000 in loans while recovering $104,000 and added $210,000 to the provision. The unallocated portion of the allowance did increase from 5.3% as of December 31, 2018, and 5.5% as of March 31, 2019, to 8.6% as of June 30, 2019. Management monitors the unallocated portion of the allowance and has guidelines for maintaining any unallocated allowance between 5.0% and 10.0% of the calculated required allowance for credit losses.

During the six-months ended June 30, 2019, net provision ~~expenses~~expense was recorded for the commercial real estate segment, while net credit provisions were recorded ~~for~~in the consumer real estate, commercial and industrial, and consumer segments. This was due to continued very low historical loss experience for these three segments. In the past two quarters, management has adjusted the qualitative factors across the loan ~~segments, with~~portfolio to better reflect the forward risk in each loan segment. This has resulted in a ~~credit provision recorded in the commercial real estate loan category. The decrease in the amount of~~slightly larger allowance for ~~loan losses allocated to commercial real estate was primarily due to a material drop in~~ commercial real estate loans ~~over the first nine months of 2017. As of December 31, 2016, 50.2% of the Corporation’s allowance~~and slightly lower allowances for ~~loan losses was allocated to~~consumer real estate, commercial real estate ~~loans, which consisted of 48.2% of all loans. As of September 30, 2017, 46.8 %~~and consumer, while the unallocated portion of the allowance ~~was allocated to~~increased. The Corporation’s commercial real estate ~~loans which consisted of 44.5% of total loans.~~

~~Delinquency rates among the Corporation’s loan pools remain very low. Additionally, there have been no charge-offs~~allocation for ~~three of our loan pools over the past three years. However, classified loans experienced a large increase~~credit losses was reduced by $114,000 in the first nine months of 2017. The Corporation’s classified loans were relatively low and stable throughout 2016 but in the first quarter of 2017 increased by $7.4 million, from $14.2 million to $21.6 million. Two large loan relationships, one consisting of business loans and mortgages, and the other agriculture mortgages were classified as substandard in the first quarter. In the second quarter of ~~2017, classified loans increased another $4.0 million,~~2019, influenced by a reduction in real estate secured agricultural delinquencies that declined materially since March 31, 2019. The allowance for credit losses on consumer real estate grew in the second quarter of 2019 relative to ~~$25.6 million. This increase~~the sharper growth in this segment offset partially by lower delinquencies than March 31, 2019 but unchanged from the prior June 30, 2019. The Commercial and industrial allocation for credit losses was ~~primarily caused~~reduced by ~~four loan customers being classified~~$204,000 in the second quarter of 2019 as ~~substandard, two being~~delinquencies declined significantly.

The Corporation’s commercial and ~~two agricultural-related. However,~~industrial loans continue to experience lower levels of delinquency than both commercial and agricultural mortgage loans. As of June 30, 2019 the commercial and industrial loan delinquencies were running at a fourth of the level of business mortgage delinquencies. The commercial and industrial delinquencies on June 30, 2019 were only one third of the level of delinquencies as of December 31, 2018. Therefore, the provision for commercial and industrial loans was lowered by $204,000 for the three-month period ended June 30, 2019. The provision for consumer loans was reduced by $22,000 in the ~~third~~second quarter of ~~2017, classified~~2019 as a result of the reductions in consumer credit lines and loan delinquencies from March 31, 2019 to June 30, 2019.

As of June 30, 2019, the 0.44% delinquency rate for all of the Corporation’s loans ~~decreased by $4.6 million, bringing~~was down slightly from 0.46% as of December 31, 2018 levels, but was down moderately from 0.59% as of March 31, 2019. Charge-offs for the ~~outstanding balance~~three and six months ended June 30, 2019, were very low at $5,000 and $22,000 compared to ~~$21.0 million. Currently,~~$8,000 and $360,000 for the same periods of 2018.

The agricultural lending sector ~~remains~~has generally been under stress over the past several years due to lower commodity prices within certain agricultural industries. The Corporation’s agricultural portfolio is highly affected by volatility in the protein sector; particularly dairy and broiler prices. These are the two commodity price indicators that have the most immediate impact to the majority of the Corporation’s agricultural borrowers. Due to abundant supplies of eggs forecasted through 2019, egg prices will continue to exhibit downward pressures on producers. Broiler prices have slightly increased in 2019 but are forecasted to show continued stress due to expected weak domestic demand for the second half of 2019. Slaughter levels have increased slightly year over year, but with slow growth in meat demand, poultry integrators are taking active measures to control production. Milk prices remain historically low and have not broken out of a historical low three-year range. The average milk ~~and egg prices impacting farmers. Outside~~price for the first half of 2019 slightly exceeded the ~~commercial loan relationships noted above,~~average for the ~~health~~first half of ~~the Corporation’s commercial real estate and commercial and industrial borrowers is generally stable~~2018, but income over feed costs remain low. The local dairy industry continues to undergo consolidation as it deals with no material trends related to certain types of industries. Commercial borrowers that have exposure to agriculture are subject to more financial stress in the current environment. Qualitative factors regarding trends in the loan portfolio as well as national and local economic conditions were increased for several loan pools in the third quarter of 2017. The increases in classified loans along with higher qualitative factors, caused management to record provision expense of $450,000 through September 30, 2017 despite the continuation of very low levels of delinquencies and charge-offs.overcapacity.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

These agricultural challenges did not adversely impact the Corporation’s agricultural loans until the end of 2018 when total agricultural delinquencies rose to $1.4 million, from zero at the end of 2017. As of June 30, 2019, total agricultural mortgage delinquencies rose to $1.9 million, but had declined from the recent high of $2.3 million as of March 31, 2019. The reduction since March 31, 2019 is consistent with slightly improved milk and poultry prices that began to improve in early 2019.

Agricultural mortgages over 90 days delinquent remained unchanged at $816,000 from December 31, 2018 to June 30, 2019. The agricultural mortgages over 90 days delinquent are made up of two loans to one dairy farmer, with the largest loan of $766,000 backed by a 90% FSA guarantee. Both of the loans were placed on non-accrual at the end of the fourth quarter of 2018. The borrower has been trying to sell the property since mid-2018. As of June 30, 2019, the Bank was proceeding on foreclosure proceedings on this loan. Management does not anticipate any charge-off on this loan due to the sufficiency of collateral and the FSA guarantee. Outside of this relationship, it was the 60-89 days past due delinquencies that were primarily responsible for the increase in total agricultural mortgage delinquencies. Management will continue to closely monitor the level of agricultural mortgage delinquencies for trends like declining borrower performance.

Outside of the above measurements and indicators, management continues to utilize nine qualitative factors to continually refine the potential credit risks across the Corporation’s various loan types. The majority of the qualitative factors had little change during the first half of 2019. Minor adjustments to the qualitative factors covering changes in lending policies and procedures, trends in the nature and volume of the loan portfolio, and levels of and trends in delinquency, non-accruals, and charge-offs were made throughout the first half of 2019 as these levels increased or decreased. The other qualitative factors remained consistent since December 31, 2018, requiring no adjustments to the allowance.

The following table details activity in the allowance for loan losses by portfolio segment for the ~~nine~~six months ended ~~September~~June 30, ~~2016:~~2018:

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

Commercial
Real Estate Consumer
Real Estate Commercial
and Industrial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Beginning balance - December 31, 2015 3,831 1,403 1,314 62 468 7,078

    Charge-offs — — (4 ) (12 ) — (16 )
    Recoveries — 10 16 2 — 28
    Provision (303 ) (45 ) 47 15 236 (50 )

Balance - March 31, 2016 3,528 1,368 1,373 67 704 7,040

    Charge-offs — — — (2 ) — (2 )
    Recoveries — — 159 — — 159
    Provision 255 105 (271 ) 6 (45 ) 50

Ending Balance - June 30, 2016 3,783 1,473 1,261 71 659 7,247

    Charge-offs — — (19 ) (10 ) — (29 )
    Recoveries — 1 9 7 — 17
    Provision 95 95 101 20 (111 ) 200

Ending Balance - September 30, 2016 3,878 1,569 1,352 88 548 7,435

	Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Unallocated		Total
	$			$			$			$			$		$
Allowance for credit losses:
Beginning balance - December 31, 2017		3,863			2,052			1,829			98			398		8,240

Charge-offs		(224	)		—			(110	)		(18	)		—		(352	)
Recoveries		—			—			4			1			—		5
Provision		408			137			(422	)		(9	)		76		190

Balance - March 31, 2018		4,047			2,189			1,301			72			474		8,083

Charge-offs		—			—			—			(8	)		—		(8	)
Recoveries		—			—			2			4			—		6
Provision		(43	)		(7	)		(21	)		63			98		90

Balance - June 30, 2018		4,004			2,182			1,282			131			572		8,171

During the nine months ended September 30, 2016, a credit provision was recorded for the commercial and industrial segment with provision expense recorded in all other loan categories. For the entire portfolio, $200,000 of additional provision expense was needed for the first nine months of 2016. Delinquency rates among most loan pools remained very low with the total amount of delinquent loans lower on September 30, 2016 than on December 31, 2015, even with larger loan balances. The Corporation received $157,000 more recoveries than charge-offs for the nine months ended September 30, 2016. These favorable results acted to offset higher levels of classified loans and non-accruals resulting in $200,000 of additional provision being sufficient to cover the growth in the loan portfolio. Changes in qualitative factors were minimal during the third quarter and the provision expense recorded was mostly to account for significant loan growth during the year-to-date period.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

During the six months ended June 30, 2018, provision expenses were recorded for the commercial real estate, consumer real estate, and consumer segments with a credit provision recorded for the commercial and industrial segment. The increase in the allowance for commercial real estate loans was primarily a result of higher levels of charge-offs in the first six months of 2018. The increase in the amount of the allowance for loan losses allocated to the consumer real estate and consumer segment was primarily a result of growth in these portfolios during the six months ended June 30, 2018. The decrease in commercial and industrial loans from December 31, 2017 to June 30, 2018 was caused by a qualitative factor change across the portfolio and also by the declining level of substandard commercial and industrial loans. The qualitative factors were adjusted across the loan portfolio to better reflect the forward risk in each portfolio. Commercial and consumer real estate carried heavier risk factors, while commercial and industrial was adjusted down. While commercial and industrial did have charge-offs in the first quarter of 2018 they were relative to the size of the allowance and sufficiently covered with prior provisions. There was no commercial and industrial charge-offs in the second quarter of 2018, as well as the commercial and consumer real estate areas. Meanwhile the amount of commercial and industrial loans rated substandard, declined from $3.2 million on December 31, 2017, to $2.8 million as of March 31, 2018, and to $2.0 million as of June 30, 2018. While the balances of commercial and industrial loans increased moderately from December 31, 2017 to June 30, 2018, the required allowance and related provision for these loans is influenced more heavily by the amount of classified loans.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

As of September 30, 2017: Commercial
Real Estate Consumer
Real Estate Commercial
and Industrial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Ending balance: individually evaluated
  for impairment 98 — — — — 98
Ending balance: collectively evaluated
  for impairment 3,661 1,902 1,813 92 462 7,930

Loans receivable:
Ending balance 259,499 238,432 79,843 5,166 582,940
Ending balance: individually evaluated
  for impairment 1,806 — 338 — 2,144
Ending balance: collectively evaluated
  for impairment 257,693 238,432 79,505 5,166 580,796

As of December 31, 2016:	Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
As of June 30, 2019:													Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$		$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated
for impairment		—		—		—		—		—		—		106		—		—		—		—		106
Ending balance: collectively evaluated
for impairment		3,795		1,652		1,552		82		481		7,562		4,311		2,390		1,366		76		708		8,851

Loans receivable:
Ending balance		275,067		213,771		77,192		4,537				570,567		291,295		318,205		98,754		8,397				716,651
Ending balance: individually evaluated
for impairment		1,894		—		75		—				1,969		3,386		—		—		—				3,386
Ending balance: collectively evaluated
for impairment		273,173		213,771		77,117		4,537				568,598		287,909		318,205		98,754		8,397				713,265

As of December 31, 2018:	Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated
for impairment		132		—		—		—		—		132
Ending balance: collectively evaluated
for impairment		4,164		2,408		1,428		102		432		8,534

Loans receivable:
Ending balance		285,437		293,721		104,122		9,197				692,477
Ending balance: individually evaluated
for impairment		2,709		—		—		—				2,709
Ending balance: collectively evaluated
for impairment		282,728		293,721		104,122		9,197				689,768

2122

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

4.5. 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.

The following tables ~~present~~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 at their fair value~~Consolidated Balance Sheets as of ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, 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.

~~Fair Value Measurements:~~ASSETS MEASURED ON A RECURRING BASIS

ASSETS MEASURED ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
September 30, 2017
Level I Level II Level III Total
$ $ $ $

U.S. government agencies — 28,647 — 28,647
U.S. agency mortgage-backed securities — 53,583 — 53,583
U.S. agency collateralized mortgage obligations — 54,038 — 54,038
Corporate bonds — 57,136 — 57,136
Obligations of states & political subdivisions — 121,673 — 121,673
Marketable equity securities 5,618 — — 5,618

Total securities 5,618 315,077 — 320,695

(DOLLARS IN THOUSANDS)

	June 30, 2019
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. government agencies		—		31,031		—		31,031
U.S. agency mortgage-backed securities		—		46,092		—		46,092
U.S. agency collateralized mortgage obligations		—		54,908		—		54,908
Asset-backed securities		—		13,859		—		13,859
Corporate bonds		—		52,498		—		52,498
Obligations of states & political subdivisions		—		92,539		—		92,539
Equity securities		6,231		—		—		6,231

Total securities		6,231		290,927		—		297,158

On ~~September~~June 30, ~~2017,~~2019, 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 ~~September~~June 30, ~~2017,~~2019, the CRA fund investments had a ~~$5,250,000~~$5,488,000 book and fair market value and the bank stock portfolio had a book value of ~~$307,000,~~$754,000, and fair market value of ~~$368,000.~~

~~Index~~

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~

~~Fair Value Measurements:~~

ASSETS MEASURED ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
December 31, 2016
Level I Level II Level III Total
$ $ $ $

U.S. government agencies — 32,261 — 32,261
U.S. agency mortgage-backed securities — 55,869 — 55,869
U.S. agency collateralized mortgage obligations — 37,936 — 37,936
Corporate bonds — 52,091 — 52,091
Obligations of states & political subdivisions — 124,430 — 124,430
Marketable equity securities 5,524 — — 5,524

Total securities 5,524 302,587 — 308,111

On December 31, 2016, 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. As of December 31, 2016, the Corporation’s CRA fund investments had a book and fair market value of $5,250,000 and the bank stock portfolio had a book value of $219,000 and a market value of $274,000 utilizing level I pricing.$743,000.

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. ~~There were~~

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

	December 31, 2018
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. government agencies		—		30,120		—		30,120
U.S. agency mortgage-backed securities		—		44,639		—		44,639
U.S. agency collateralized mortgage obligations		—		54,090		—		54,090
Asset-backed securities		—		11,399		—		11,399
Corporate bonds		—		59,192		—		59,192
Obligations of states & political subdivisions		—		94,625		—		94,625
Equity securities		5,934		—		—		5,934

Total securities		5,934		294,065		—		299,999

On December 31, 2018, 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 astraded 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 ~~September 30, 2017 or~~ December 31, ~~2016.~~2018, the CRA fund investments had a $5,410,000 book and market value and the bank stocks had a book value of $591,000 and a market value of $524,000.

The following tables ~~present~~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 ~~at their fair value~~ as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(Dollars in Thousands)

									June 30, 2019
	September 30, 2017								Level I		Level II		Level III		Total
	Level I $		Level II $		Level III $		Total $		$		$		$		$
Assets:
Impaired Loans		—		—		2,046		2,046	$	—	$	—	$	3,280	$	3,280
Total		—		—		2,046		2,046	$	—	$	—	$	3,280	$	3,280

									December 31, 2018
	December 31, 2016								Level I		Level II		Level III		Total
	Level I $		Level II $		Level III $		Total $		$		$		$		$
Assets:
Impaired Loans		—		—		1,969		1,969	$	—	$	—	$	2,577	$	2,577
Total		—		—		1,969		1,969	$	—	$	—	$	2,577	$	2,577

The Corporation had a total of ~~$2,144,000~~$3,386,000 of impaired loans as of ~~September~~June 30, ~~2017,~~2019, with ~~$98,000~~$106,000 of specific allocation against these loans and ~~$1,969,000~~$2,709,000 of impaired loans as of December 31, ~~2016,~~2018, with no$132,000 of specific allocation against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral. ~~The Corporation had no OREO (Other Real Estate Owned) assets as of December 31, 2016 and September 30, 2017.~~

2324

Index

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)

~~QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS~~
~~(DOLLARS IN THOUSANDS)~~
	~~September~~June 30, ~~2017~~2019
	Fair Value	Valuation	Unobservable	Range
	Estimate	Techniques	Input	(Weighted Avg)

Impaired loans	~~2,046~~3,280	Appraisal of	Appraisal	-20% (-20%)
		collateral (1)	adjustments (2)
			Liquidation	-10% (-10%)
			expenses (2)

	December 31, ~~2016~~2018
	Fair Value	Valuation	Unobservable	Range
	Estimate	Techniques	Input	(Weighted Avg)

Impaired loans	~~1,969~~2,577	Appraisal of	Appraisal	-20% (-20%)
		collateral (1)	adjustments (2)
			Liquidation	-10% (-10%)
			expenses (2)

(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.

2425

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

~~Interim Disclosures about Fair Value of Financial Instruments~~

The following ~~methods and assumptions were used to estimate~~table provides the ~~fair value of~~carrying amount for each class of ~~financial instrument:~~

~~Cash~~assets and ~~Cash Equivalents~~

~~For these short-term instruments, the carrying amount is a reasonable estimate of fair value.~~

~~Securities Available for Sale~~

Management utilizes quoted market pricing for the fair value of the Corporation's securities that are available for sale, if available. If a quoted market rate is not available, fair value is estimated using quoted market prices for similar securities.

~~Regulatory Stock~~

~~Regulatory stock is valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the carrying amount is a reasonable estimate of fair value.~~

~~Loans Held for Sale~~

~~Loans held for sale are individual loans for which the Corporation has a firm sales commitment; therefore, the carrying value is a reasonable estimate of the fair value.~~

~~Loans~~

The fair value of fixed and variable rate loans is estimated by discounting back the scheduled future cash flows of the particular loan product, using the market interest rates of comparable loan products in the Corporation’s greater market area, with the same general structure, comparable credit ratings, and for the same remaining maturities.

~~Mortgage Servicing Assets~~

~~The fair value of mortgage servicing assets is based on the present value of estimated future cash flows and estimates the price at which a portfolio would prospectively be sold.~~

~~Accrued Interest Receivable~~

~~The carrying amount of accrued interest receivable is a reasonable estimate of fair value.~~

~~Bank Owned Life Insurance~~

~~Fair value is equal to the cash surrender value of the life insurance policies.~~

~~Deposits~~

The fair value of non-interest bearing demand deposit accounts and interest bearing demand, savings, and money market deposit accounts is based on the amount payable on demand at the reporting date. The fair value of fixed-maturity time deposits is estimated by discounting back the expected cash flows of the time deposit using market interest rates from the Corporation’s greater market area currently offered for similar time deposits with similar remaining maturities.

~~Borrowings~~

The carrying amount of short-term borrowing is a reasonable estimate of fair value. The fair value of long-term borrowing is estimated by comparing the rate currently offered for the same type of borrowing instrument with a matching remaining term.

~~Accrued Interest Payable~~

~~The carrying amount of accrued interest payable is a reasonable estimate of fair value.~~

~~Firm Commitments to Extend Credit, Lines of Credit, and Open Letters of Credit~~

These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit,liabilities and the fair value ~~determined by discounting~~for certain financial instruments that are not required to be measured or reported at fair value on the ~~remaining contractual fee over the term~~Consolidated Balance Sheets as of the commitment, using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure purposes. The contractual amounts of unfunded commitments are presented in Note 6.June 30, 2019 and December 31, 2018:

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

(DOLLARS IN THOUSANDS)

	June 30, 2019
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		51,670		51,670		51,670		—		—
Regulatory stock		6,959		6,959		6,959		—		—
Loans held for sale		3,473		3,473		3,473		—		—
Loans, net of allowance		709,399		712,886		—		—		712,886
Mortgage servicing assets		806		828		—		—		828
Accrued interest receivable		4,097		4,097		4,097		—		—
Bank owned life insurance		28,429		28,429		28,429		—		—

Financial Liabilities:
Demand deposits		345,483		345,483		345,483		—		—
Interest-bearing demand deposits		21,982		21,982		21,982		—		—
NOW accounts		92,578		92,578		92,578		—		—
Money market deposit accounts		138,793		138,793		138,793		—		—
Savings accounts		205,902		205,902		205,902		—		—
Time deposits		136,868		137,833		—		—		137,833
Total deposits		941,606		942,571		804,738		—		137,833

Long-term debt		74,628		73,671		—		—		73,671
Accrued interest payable		493		493		493		—		—

2526

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

~~Fair Value of Financial Instruments~~

~~The carrying amounts and estimated fair values of the Corporation's financial instruments at September 30, 2017 and December 31, 2016, are summarized as follows:~~

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

(DOLLARS IN THOUSANDS)

	December 31, 2018
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		41,365		41,365		41,365		—		—
Regulatory stock		6,348		6,348		6,348		—		—
Loans held for sale		1,429		1,429		1,429		—		—
Loans, net of allowance		685,407		687,844		—		—		687,844
Mortgage servicing assets		905		997		—		—		997
Accrued interest receivable		3,754		3,754		3,754		—		—
Bank owned life insurance		28,085		28,085		28,085		—		—

Financial Liabilities:
Demand deposits		369,081		369,081		369,081		—		—
Interest-bearing demand deposits		20,104		20,104		20,104		—		—
NOW accounts		89,072		89,072		89,072		—		—
Money market deposit accounts		108,594		108,594		108,594		—		—
Savings accounts		199,665		199,665		199,665		—		—
Time deposits		133,218		132,351		—		—		132,351
Total deposits		919,734		918,867		786,516		—		132,351

Short-term borrowings		7,870		7,870		7,870		—		—
Long-term debt		65,386		65,286		—		—		65,286
Accrued interest payable		397		397		397		—		—

September 30, 2017
Quoted Prices in
Active Markets Significant Other Significant
for Identical Observable Unobservable
Carrying Assets Inputs Inputs
Amount Fair Value (Level 1) (Level II) (Level III)
$ $ $ $ $
Financial Assets:
Cash and cash equivalents 44,240 44,240 44,240 — —
Securities available for sale 320,695 320,695 5,618 315,077 —
Regulatory stock 6,139 6,139 6,139 — —
Loans held for sale 3,809 3,809 3,809 — —
Loans, net of allowance 576,049 573,681 — — 573,681
Mortgage servicing assets 592 678 — — 678
Accrued interest receivable 3,391 3,391 3,391 — —
Bank owned life insurance 25,161 25,161 25,161 — —

Financial Liabilities:
Demand deposits 301,978 301,978 301,978 — —
Interest-bearing demand deposits 19,279 19,279 19,279 — —
NOW accounts 78,061 78,061 78,061 — —
Money market deposit accounts 99,235 99,235 99,235 — —
Savings accounts 188,015 188,015 188,015 — —
Time deposits 152,257 153,163 — — 153,163
Total deposits 838,825 839,731 686,568 — 153,163

Long-term debt 68,350 68,429 — — 68,429
Accrued interest payable 391 391 391 — —

~~Index~~

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

~~(DOLLARS IN THOUSANDS)~~

December 31, 2016
Quoted Prices in
Active Markets Significant Other Significant
for Identical Observable Unobservable
Carrying Assets Inputs Inputs
Amount Fair Value (Level 1) (Level II) (Level III)
$ $ $ $ $
Financial Assets:
Cash and cash equivalents 45,632 45,632 45,632 — —
Securities available for sale 308,111 308,111 5,524 302,587 —
Regulatory stock 5,372 5,372 5,372 — —
Loans held for sale 2,552 2,552 2,552 — —
Loans, net of allowance 564,005 563,418 — — 563,418
Mortgage servicing assets 410 531 — — 531
Accrued interest receivable 3,750 3,750 3,750 — —
Bank owned life insurance 24,687 24,687 24,687 — —

Financial Liabilities:
Demand deposits 280,543 280,543 280,543 — —
Interest-bearing demand deposits 20,108 20,108 20,108 — —
NOW accounts 85,540 85,540 85,540 — —
Money market deposit accounts 93,943 93,943 93,943 — —
Savings accounts 175,753 175,753 175,753 — —
Time deposits 161,604 163,464 — — 163,464
Total deposits 817,491 819,351 655,887 — 163,464

Short-term borrowings 8,329 8,329 8,329 — —
Long-term debt 61,257 61,372 — — 61,372
Accrued interest payable 384 384 384 — —

6.7. Commitments and Contingent Liabilities

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of ~~September~~June 30, ~~2017,~~2019, firm loan commitments were ~~$40.5~~$56.3 million, unused lines of credit were ~~$209.3~~$256.3 million, and open letters of credit were ~~$11.1~~$10.0 million. The total of these commitments was ~~$260.9~~$322.6 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.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

7.8. Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 is as follows:

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

(DOLLARS IN THOUSANDS)

~~ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1) (2)~~
~~(DOLLARS IN THOUSANDS)~~
	Unrealized
	Gains (Losses)
	on Securities
	Available-for-Sale
	$
Balance at December 31, ~~2016~~2018		(~~4,885~~5,678	)
Other comprehensive income before reclassifications		~~418~~2,553
Amount reclassified from accumulated other comprehensive ~~income~~loss		(9264	)
Period change		~~326~~2,489

Balance at March 31, ~~2017~~2019		(~~4,559~~3,189	)
Other comprehensive income before reclassifications		~~2,778~~3,571
Amount reclassified from accumulated other comprehensive income		(7184	)
Period change		~~2,707~~3,487

Balance at June 30, 2019		298

Balance at December 31, 2017		(~~1,852~~3,195	)
Other comprehensive loss before reclassifications		(~~268~~2,685	)
Amount reclassified from accumulated other comprehensive loss		(~~112~~27	)
Reclassification of certain income tax effects from accumulated other comprehensive loss		(634	)
Period change		(~~380~~3,346	)

~~Balance at September 30, 2017~~		~~(2,232~~	)

~~Balance at December 31, 2015~~		~~(252~~	)
~~Other comprehensive income before reclassifications~~		~~1,050~~
~~Amount reclassified from accumulated other comprehensive income~~		~~(480~~	)
~~Period change~~		~~570~~

Balance at March 31, ~~2016~~2018		~~318~~(6,541	)
Other comprehensive ~~income~~loss before reclassifications		~~2,258~~(286	)
Amount reclassified from accumulated other comprehensive ~~income~~loss		~~(620~~49	)
Period change		~~1,638~~(237	)

Balance at June 30, ~~2016~~		~~1,956~~
~~Other comprehensive loss before reclassifications~~2018		(~~429~~6,778	)
~~Amount reclassified from accumulated other comprehensive loss~~		~~(306~~	)
~~Period change~~		~~(735~~	)

~~Balance at September 30, 2016~~		~~1,221~~

(1) All amounts are net of tax. Related income tax expense or benefit is calculated using a Federal income tax rate of ~~34%~~21%.

(2) Amounts in parentheses indicate debits.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

(DOLLARS IN THOUSANDS)

Amount Reclassified from
Accumulated Other Comprehensive
Income (Loss)
For the Three Months
Ended September 30,
2017 2016 Affected Line Item in the
$ $ Consolidated Statements of Income
Securities available-for-sale:
  Net securities gains reclassified into earnings 170 464 Gains on securities transactions, net
     Related income tax expense (58 ) (158 ) Provision for federal income taxes
  Net effect on accumulated other comprehensive
     income for the period 112 306

~~(1) Amounts in parentheses indicate debits.~~

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Three Months
	Ended June 30,
	2019	2018	Affected Line Item in the
	$	$	Consolidated Statements of Income
Securities available-for-sale:
Net securities gains,	106	(62)	Gains (losses) on the sale of
reclassified into earnings			debt securities, net
Related income tax expense	(22)	13	Provision for federal income taxes
Net effect on accumulated other comprehensive
income for the period	84	(49)

(1) Amounts in parentheses indicate debits.

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

~~(DOLLARS IN THOUSANDS)~~

Amount Reclassified from
Accumulated Other Comprehensive
Income (Loss)
For the Nine Months
Ended September 30,
2017 2016 Affected Line Item in the
$ $ Consolidated Statements of Income
Securities available-for-sale:
  Net securities gains reclassified into earnings 417 2,130 Gains on securities transactions, net
     Related income tax expense (142 ) (724 ) Provision for federal income taxes
  Net effect on accumulated other comprehensive
     income for the period 275 1,406

~~(1) Amounts in parentheses indicate debits.~~

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Six Months
	Ended June 30,
	2019	2018	Affected Line Item in the
	$	$	Consolidated Statements of Income
Securities available-for-sale:
Net securities gains,	187	(28)	Gains (losses) on the sale of
reclassified into earnings			debt securities, net
Related income tax expense	(39)	6	Provision for federal income taxes
Net effect on accumulated other comprehensive
income for the period	148	(22)

(1) Amounts in parentheses indicate debits.

~~8. Recently Issued Accounting Standards~~9. Leases

~~In May 2014,~~A lease is defined as a contract, or part of a contract, that conveys the ~~FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that~~right to control the use of identified property, plant or equipment for a ~~company will recognize revenue to depict the transfer~~period of ~~goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled~~time in exchange for ~~those goods or services. In addition, this Update specifies~~consideration. On January 1, 2019, the Corporation adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Corporation, Topic 842 primarily affected the accounting treatment for ~~certain costs to obtain or fulfill a contract~~operating lease agreements in which the Corporation is the lessee.

All of these leases in which the Corporation is the lessee are comprised of real estate property for branches and office space with ~~a customer and expands disclosure requirements for revenue recognition. Subsequently, the FASB issued ASU 2015-14,~~~~Revenue from Contracts with Customers (Topic 606)~~. The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.terms extending through 2026. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities, we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Corporation’s ~~financial instruments~~leases are classified as operating leases, and therefore, were previously not ~~within~~recognized on the ~~scope~~Corporation’s Consolidated Balance Sheets. With the adoption of Topic ~~606. However, we do expect that~~842, operating lease agreements are required to be recognized on the ~~standard will result in new disclosure requirements, which are currently being evaluated.~~Consolidated Balance Sheets as a right-of use (“ROU”) asset and a corresponding lease liability.

The following table represents the Consolidated Balance Sheet classification of the Corporation’s ROU assets and lease liabilities.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

Lease Consolidated Balance Sheets Classification
(Dollars in Thousands)	Classification	June 30, 2019
Lease Right-of-Use Assets

Operating lease right-of use assets	Other Assets	$	996

Lease Liabilities
Operating lease liabilties	Other Liabilities	$	1,002

~~In January 2016, the FASB issued ASU 2016-01,~~~~Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidationThe calculated amount of the ~~investee)~~ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to determine the present value of the minimum lease payments. The Corporation’s lease agreements often include one or more options to renew at the Corporation’s discretion. If at lease inception, the Corporation considers the exercising of a renewal option to be ~~measured at fair value with changes~~reasonably certain, the Corporation will include the extended term in ~~fair value recognized in net income; (b) simplifies~~ the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires an entity to present separately in other comprehensive income the portioncalculation of the ~~total change~~ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the ~~fair value of a liability resulting from a change in~~lease whenever this rate is readily determinable. As the ~~instrument-specific credit risk when~~rate is rarely determinable, the ~~entity has elected to measure the liability~~Corporation utilizes its incremental borrowing rate at fair value in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowancelease inception, on a ~~deferred tax asset related~~collateralized basis, over a similar term. For operating leases existing prior to ~~available-for-sale securities~~January 1 2019, the rate for the remaining lease term as of January 1, 2019 was used.

	June 30, 2019
Weighted-average remaining lease term
Operating leases		5.7 years
Weighted-average discount rate
Operating leases		3.09%

The following table represents lease costs and other lease information. As the Corporation elected, for all classes of underlying assets, not to separate lease and non-lease components and instead to account for them as a single lease component, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2019 were as follows:

Lease Payment Schedule
(Dollars in Thousands)	Operating Leases
Twelve Months Ended:
June 30, 2020	$	199
June 30, 2021		199
June 30, 2022		195
June 30, 2023		150
June 30, 2024		155
Thereafter		190
Total Future Minimum Lease Payments		1,088
Amounts Representing Interests		(86	)
Present Value of Net Future Minimum Lease Payments	$	1,002

10. Change in ~~combination with~~Capital Structure

On April 17, 2019 ENB Financial Corp announced the ~~entity’s other deferred tax assets. For public business entities,~~Board of Directors declared a two-for-one stock split of the ~~amendments in this Update are effective~~Corporation’s issued and outstanding common stock pursuant to which one (1) additional share of common stock was issued for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scopeeach share of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earliercommon stock held by shareholders of record as of the ~~fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within~~close of business on May 31, 2019. The additional shares were issued on June 28, 2019. The stock split was effected pursuant to articles of amendment to the ~~scope~~articles of ~~Topics 960 through 965 on plan accounting,~~incorporation to reduce the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier aspar value of the ~~fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Corporation is currently evaluating~~common stock from $0.20 to $0.10 and increase the ~~impact the adoption~~authorized shares of ~~the standard will have~~common stock proportionately from 12,000,000 to 24,000,000. Per share data reflected on the Corporation’s ~~financial position or results~~consolidated statements of ~~operations.~~

~~In February 2016,~~income are restated as if the ~~FASB issued ASU 2016-02,~~~~Leases (Topic 842)~~. The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments should be appliedstock split had occurred at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Corporation is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact on the financial statements. Based on the Corporation’s preliminary analysis of its current portfolio, the impact to the Corporation’s balance sheet is estimated to result in less than a one percent increase in assets and liabilities. The Corporation also anticipates additional disclosures to be provided at adoption.

~~In March 2016, the FASB issued ASU 2016-06,~~~~Derivatives and Hedging (Topic 815)~~. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities otherthan public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Corporation’s financial statements.presented.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

~~In March 2016, the FASB issued ASU 2016-08,~~~~Revenue from Contracts with Customers (Topic 606).~~ The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09,~~Revenue from Contracts with Customers (Topic 606),~~ which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14,~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,~~defers the effective date of Update 2014-09 by one year. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

~~In April 2016, the FASB issued ASU 2016-10,~~~~Revenue from Contracts with Customers (Topic 606).~~ The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09,~~Revenue from Contracts with Customers (Topic 606)~~, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,~~Revenue from Contracts with Customers (Topic 606)~~:~~Deferral of the Effective Date~~, defers the effective date of Update 2014-09 by one year. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

~~In May 2016, the FASB issued ASU 2016-12,~~~~Revenue from Contracts with Customers (Topic 606)~~, which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09,~~Revenue from Contracts with Customers (Topic 606)~~, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date~~~~, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Corporation’s financial statements~~11. Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13,Financial ~~Instruments-Credit~~Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments~~(“ASU 2016-13”)~~, which changes the impairment model for most financial assets. This ~~ASU~~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 ~~ASU~~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. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. 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. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan 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.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~

In August ~~2016,~~2018, the FASB issued ASU ~~2016-15,~~2018-13,~~Statement~~Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of ~~Cash Flows~~and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In March 2019, the FASB issued ASU 2019-01,Leases (Topic ~~230)~~842): ~~Classification~~Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of ~~Certain Cash Receipts~~the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and ~~Cash Payments~~captive finance companies), ~~which addresses eight specific~~and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow ~~issues with~~statement. The ASU also exempts both lessees and lessors from having to provide the ~~objective of reducing diversity~~interim disclosures required by ASC 250-10-50-3 in ~~practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from~~ the ~~settlement of insurance claims should be classified on~~fiscal year in which a company adopts the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.new leases standard. The amendments ~~in this Update~~addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, ~~2017,~~2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In April 2019, the FASB issued ASU 2019-04,Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021.Topic 815, Derivatives and Hedgingamendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, ~~2018,~~2019, and interim periods ~~within fiscal years~~ beginning after December 15, ~~2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts~~2020. For entities that have adopted the amendments in ~~an interim period, any adjustments should be reflected~~Update 2017-12, the effective date is as of the beginning of the ~~fiscal year that includes that interim period. An entity that elects early adoption must adopt all~~first annual period beginning after the issuance of ~~the amendments in the same period. The amendments in~~ this ~~Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the~~ Update.Topic 825, Financial Instrumentsamendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s statement of cash flows.

~~In October 2016, the FASB issued ASU 2016-16,~~~~Income Taxes (Topic 740)~~, which requires recognition of current and deferred income taxes resulting from an intra-entity transfer of any asset (excluding inventory) when the transfer occurs. Consequently, the amendments in this Update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this Update are effective ~~for public business entities~~ for fiscal years beginning after December 15, ~~2017,~~2019, and interim periods within fiscal years. This Update is not expected to have a significant impact on the Corporation’s financial statements.

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

In May 2019, the FASB issued ASU 2019-05,Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the 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 ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual periods beginning after December 15, 2019.fiscal years. Early adoption is permitted ~~for all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not~~once ASU 2016-13 has been issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim financial statements. The amendments in this Update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.adopted. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In ~~October 2016,~~May 2019, the FASB issued ASU ~~2016-18,~~2019-06,~~Statement of Cash Flows~~Intangibles – Goodwill and Other (Topic ~~230)~~350), Business Combinations (Topic 805), and Not-for-Profit Entities (Topic 958): Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities, which ~~requires~~extend the scope of the goodwill accounting alternative provided in ASU 2014-02 and the intangible asset accounting alternative provided in ASU 2014-18 to not-for-profit entities. Instead of testing goodwill for impairment annually at the reporting unit level, a not-for-profit entity may now elect the goodwill accounting alternative to (a) amortize goodwill on a straight-line basis over 10 years or less than 10 years if the entity demonstrates that another useful life is more appropriate, (b) make a ~~statement~~policy election to test goodwill for impairment at either the entity level or the reporting unit level, and (c) test goodwill for impairment only when a triggering event occurs that indicates that the fair value of ~~cash flows explains the change during the period in the total~~an entity (or a reporting unit) may be below its carrying amount. Furthermore, for identifiable intangible assets, instead of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shownseparately recognizing most intangible assets at fair value on the ~~statement~~transaction date, a not-for-profit entity may now elect the intangible asset accounting alternative to subsume the following intangible assets into goodwill: (a) customer-related intangible assets that aren’t capable of ~~cash flows.~~being sold or licensed independently from the other assets of the business, and (b) noncompetition agreements acquired in an acquisition. The ~~amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities,~~goodwill accounting alternative must be elected if the intangible asset accounting alternative is elected. However, the goodwill accounting alternative may be elected without electing the intangible asset accounting alternative. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s statement of cash flows.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Notes to the Unaudited Consolidated Interim Financial Statements~~

~~In September 2017, the FASB issued ASU 2017-13,~~~~Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842~~):~~Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.~~The SEC Observer said that the SEC staff would not object if entities that are considered public business entities only because their financial statements or financial information is required to be included in another entity’s SEC filing use the effective dates for private companies when they adopt ASC 606,~~Revenue from Contracts with Customers~~~~, and ASC 842,~~~~Leases~~~~. The Update also supersedes certain SEC paragraphs in the Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption of ASC 606 or ASC 842.~~immediately. This Update isdid not ~~expected to~~ have a significant impact on the Corporation’s financial statements.

In July 2019, the FASB issued ASU 2019-07,Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates.This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532,Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442,Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

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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 ~~2016~~2018 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

Effects of slow economic conditions or prolonged economic weakness, specifically the effect on loan customers to repay loans

Health of the housing market

Real estate valuations and its impact on the loan portfolio

Interest rate and monetary policies of the Federal Reserve Board

Volatility of the securities markets including the valuation of securities

Future actions or inactions of the United States government, including a failure to increase the government debt limit or a prolonged shutdown of the federal government

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, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the regulations issued thereunder

Possible ~~impacts of~~changes to the capital and liquidity requirements of the current Basel III standards and other regulatory pronouncements, regulations and rules

Disruptions due to flooding, severe weather, or other natural disasters

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

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ENB FINANCIAL CORP
Management’s Discussion and Analysis

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 Corporation recorded net income of ~~$2,034,000~~$3,089,000 and $5,692,000 for the ~~third quarter of 2017,~~three and six-month periods ended June 30, 2019, a ~~2.1% decrease~~45.3% and 15.1% increase respectively, from the ~~$2,077,000~~$2,126,000 and $4,947,000 earned during the same periods in 2018. The earnings per share, basic and diluted, were $0.54 and $1.00 for the three and six months ended June 30, 2019, compared to $0.37 and $0.87 for the same periods in 2018. The increase in the third quarter of 2016, while for the nine-month period ended September 30, 2017, the Corporation recorded $5,733,000 of net income, a 1.8% increase over the same period in 2016. The Corporation experienced strong levels ofCorporation’s 2019 earnings was caused primarily by growth in net interest income (NII) ~~for both the three and nine month periods ended September 30, 2017, which were largely offset by decreases in other income and~~, as well as limited increases in interest expense. For the third quarter of 2017, the increase in operating expenses and reduction in other income outweighed the increase in NII. For the nine-month period, the Corporation’s NII improvement was more significant relative to the decrease in other income and increase in operating expenses, resulting in ~~higher net income. Earnings per share, basic and diluted, were $0.71 and $2.01 for the three and nine months ended September 30, 2017, compared to $0.73 and $1.98 for the same periods in 2016.~~improved efficiency.

The Corporation’s NII has grown each successive quarter since the third quarter of 2016 due to three Federal Reserve interest rate increases and $1,681,000 of non-recurring amortization on U.S. sub-agency bonds recorded in the first nine months of 2016. The Corporation’s NII increased by ~~$1,048,000,~~$1,103,000, or ~~15.8%~~13.7%, and ~~$4,198,000,~~$2,336,000, or ~~23.0%~~14.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018. The increase in NII primarily resulted from an increase in interest and fees on ~~securities and dividend income~~loans of ~~$519,000,~~$1,605,000, or ~~31.8%~~23.9%, and ~~$2,623,000,~~$3,230,000, or ~~69.7%~~24.7%, for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017.~~2019. The ~~portion of the~~ increase ~~that~~in NII was ~~caused~~partially offset by non-recurring amortization was $170,000 for the three-month period and $1,681,000 for the nine-month period ended September 30, 2017. The Corporation’s NII also benefited from a $459,000, or 8.0%, and $1,280,000, or 7.7%an increase in interest expense. The Corporation’s interest expense on deposits and ~~fees on loans~~borrowings increased by $462,000, or 54.9%, and $867,000, or 53.7%, for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017,~~2019, compared to ~~2016. The Corporation’s interest expense was relatively flat for the three months ended September 30, 2017, but declined by $132,000, or 5.7%, for the nine-month period ended September 30, 2017.~~2018.

The Corporation recorded ~~$240,000 of~~$60,000 less provision expense in the ~~third~~second quarter of ~~2017,~~2019 compared to ~~$200,000~~the same quarter of 2018, with $30,000 of provision compared to $90,000 of provision for the ~~third~~second quarter of ~~2016, and~~2018. For the six-month period ended June 30, 2019, the Corporation recorded $70,000 less provision expense, with $210,000 of ~~$450,000 for the nine months ended September 30, 2017,~~provision expense compared to ~~$200,000 for~~$280,000 in the same period ~~in 2016, representing a $250,000 decrease in income in 2017 compared to 2016. The increase in provision expense was largely driven by higher levels~~ of ~~classified loans, which required more provision expense in 2017, as well as a specific allocation of $98,000 for an impaired loan in the third quarter of 2017.~~2018. The gains from the sale of debt securities were ~~$170,000 and $417,000~~$106,000 for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2019, and $187,000 for the six months ended June 30, 2019, compared to ~~$464,000~~losses of $62,000 and ~~$2,130,000~~$28,000 for the same periods in ~~2016, representing decreases of $294,000, or 63.4%, and $1,713,000, or 80.4%, respectively.~~2018. Market interest rates were lower in ~~2016,~~2019, making it more conducive to achieving gains from the sale of securities. The gain on the sale of mortgages ~~decreased~~increased by ~~$47,000,~~$63,000, or ~~8.4%~~17.9%, and ~~increased by $193,000,~~$177,000, or ~~17.4%~~30.2%, for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017,~~2019, compared to the prior year’s periods. ~~Both mortgage production and margins realized on~~The volume of mortgages sold ~~mortgages were~~was higher during the first six months of 2019 compared to the same period in the ~~first nine months of 2017 compared to 2016.~~prior year. Total operating expenses increased ~~$899,000,~~marginally by $50,000, or ~~13.3%~~0.6%, and ~~$2,938,000,~~$448,000, or ~~14.7%~~2.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018.

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 increased for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same ~~period~~periods in the prior year due primarily to higher earnings. The ROA decreased for the nine months ended September 30, 2017, compared to the prior year due to a faster asset growth rate that outpaced the increase in earnings. However, ROE increased for the nine-month period as equity did not increase at a rapid pace allowing the growth in earnings to positively impact ROE.

Key Ratios	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2017		2016		2017		2016		2019		2018		2019		2018

Return on Average Assets		0.80%		0.87%		0.77%		0.81%		1.11%		0.82%		1.04%		0.97%
Return on Average Equity		8.06%		8.31%		7.86%		7.71%		11.48%		8.80%		10.87%		10.25%

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

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

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Provision for loan losses

Other income

Operating expenses

Provision for income taxes

The following discussion analyzes each of these five components.

Net Interest Income

~~Net interest income (NII)~~NII represents the largest portion of the Corporation’s operating income. In the first ~~nine~~six months of ~~2017,~~2019, NII generated ~~74.8%~~77.4% of the Corporation’s gross revenue stream, which consists of net interest income and non-interest income, compared to ~~68.1%~~72.5% in the first ~~nine~~six months of 2016. The higher NII as a percentage of gross revenue was primarily caused by a combination of the last three Federal Reserve interest rate increases as well as non-recurring accelerated amortization expense in 2016.2018. The overall performance of the Corporation is highly dependent on the changes in net interest income since it comprises such a significant portion of operating income. ~~Without the impact of the accelerated amortization on the U.S. Sub-Agency bonds, the Corporation’s NII would have accounted for 69.9% of the gross revenue stream for the first nine months of 2016.~~

The following table shows a summary analysis of net interest income 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 net interest income 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 ~~$582,000~~$190,000 and ~~$1,793,000~~$392,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~$524,000~~$223,000 and ~~$1,570,000~~$452,000 for the same periods in ~~2016.~~2018.

NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30 , September 30,
2017 2016 2017 2016
$ $ $ $
Total interest income 8,444 7,393 24,639 20,573
Total interest expense 754 751 2,187 2,319

Net interest income 7,690 6,642 22,452 18,254
Tax equivalent adjustment 582 524 1,793 1,570

Net interest income (fully taxable equivalent) 8,272 7,166 24,245 19,824

NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	$		$		$		$
Total interest income		10,462		8,897		20,624		17,421
Total interest expense		1,304		842		2,483		1,616

Net interest income		9,158		8,055		18,141		15,805
Tax equivalent adjustment		190		223		392		452

Net interest income (fully taxable equivalent)		9,348		8,278		18,533		16,257

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

The rates earned on interest earning assets and paid on interest bearing liabilities

The average balance of interest earning assets and interest bearing liabilities

The Federal funds rate, the Prime rate, the shape of the U.S. Treasury curve, and other wholesale funding curves, all affect NII. The Federal Reserve controls the Federal funds rate, which is one of a number of tools available to the Federal Reserve to conduct monetary policy. The Federal funds rate, and guidance on when the rate might be changed, is often the focal point of discussion regarding the direction of interest rates. Until December 16, 2015, the Federal funds rate had not changed since December 16, ~~2008. On~~2008, a period of seven years. Since December 16, 2015, a period over three and a half years, the Federal funds rate was increased 25 basis points to 0.50%, from 0.25%. On December 14, 2016, the Federal funds rate was increased 25 basis points to 0.75%. On March 15, 2017 and on June 14, 2017, the Federal funds rate was again increased 25 basis points so the rate since June 14, 2017, has been ~~1.25%~~increased nine (9) times from 0.25% to 2.50%. ~~Prior to~~Four of those rate increases occurred in 2018, with the final increase on December 15, 2018. In the first half of 2015, the period of seven years with extremely low and unchanged overnight rates was the lowest and longest in U.S. history. The impact has been a lower net interest margin to the Corporation and generally across the financial industry. The increase in December of 2015 and 2016, as well as the increases in March and June of 2017 resulted in higher short-term U.S. Treasury rates, but the long-term rates initially decreased, resulting in a flattening of the yield curve. Long-term rates like the ten-year U.S. Treasury were 192 basis points under the 4.25% Prime rate as of September 30, 2017. It appears that the general conditions of a flatter yield curve with low long-term U.S. Treasury rates, significantly below the Prime rate, will continue for the remainder of 2017. Management anticipates the next 0.25%2019, no Federal Reserve rate ~~increase could occur in~~actions took place, however on July 31, 2019, the ~~fourth quarter~~Federal Reserve lowered the Federal Funds rate by 0.25% from 2.50% to 2.25%. This was done out of ~~2017.~~concern of a slowing economy.

At the time this report was being prepared, the expectations were for the Federal Reserve to decrease rates on July 31, 2019, and one more time during 2019. It ~~remains to~~should be ~~seen whether mid and long-term U.S. Treasury rates will also increase to the same degree~~noted that it was ten years ago that the Federal Reserve last decreased rates in July of 2009 after concern of economic slowdown after the great recession. Management anticpates a reduction in interest income in the third quarter of 2019 as a result of the recent Federal Reserve rate decrease. All of the Corporation’s prime-based floating rate loans will ~~move the overnight Federal funds rate. If they do not, the yield curve would further flatten making it harder for the Corporation~~reset lower by 0.25%. These decreases will begin to ~~increase asset yield.~~occur in August of 2019.

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Management’s Discussion and Analysis

The shape of the U.S. Treasury curve also directly impacts the Corporation’s net interest income. During the first half of 2019, the U.S. Treasury curve has been very flat. This is generally not beneficial to banks as funding sources are typically shorter terms than the assets invested in. A sharper yield curve is beneficial to financial institutions as a larger spread can be made on the asset versus the liability utilized. Throughout most of the first half of 2019, the spread between the 2-year and 10-year U.S. Treasury averaged around 20 basis points. This is a very low spread in terms of historical performance. Additionally, the yield curve has been very flat betwee the 2-year and 5-year terms. There has also been an inversion on the U.S. Treasury curve as the 3-month U.S. Treasury yields have been higher than the 2-year U.S. Treasury yields. This is indicating the market anticipates the overnight and short-term rates will likely be coming down, which has now started to occur.

The combination of lower overnight rates, an inverted yield curve on the short end, and a generally flat yield curve out to longer rates, makes it more difficult for the Corporation to generate higher net interest income. It is likely the Corporation’s net interest margin will decline in the third quarter and any increase in net interest income will need to come from growth of interest earning assets.

The Prime rate is generally used by commercial banks to extend variable rate loans to business and commercial customers. For many years, the Prime rate has been set at 300 basis points, or 3.00% higher, than the Federal funds rate and typically moves when the Federal funds rate changes. As such, the Prime rate ~~increased from 3.25%~~was 5.50% as of June 30, 2019. As of August 1, 2019, the Prime rate changed to ~~3.50% on December 16, 2015, from 3.50% to 3.75% on December 14, 2016, from 3.75% to 4.00% on March 15, 2017, and from 4.00% to 4.25% on June 14, 2017.~~5.25%. The Corporation’s Prime-based loans, including home equity lines of credit and some variable rate commercial loans, reprice a day after the Federal Reserve rate movement.

As a result of the prior Federal Reserve rate increases and the significant growth of the loan portfolio, the Corporation’s NII on a tax equivalent basis ~~began to increase~~has been increasing significantly. The Corporation’s margin decreased in ~~2017 with~~the beginning of 2018 primarily as a result of lower tax-equivalent yields on the Corporation’s municipal securities, which were negatively impacted by the lower corporate tax rate. Subsequent to the tax rate change, the Corporation’s net interest margin began increasing ~~to 3.46%~~again. The net interest margin for the ~~year-to-date period ended September 30, 2017, compared~~first quarter of 2019 was 3.59% and declined slightly to ~~3.04%~~3.56% for the ~~nine months ended September 30, 2016.~~second quarter of 2019 due to higher costs on the interest expense side. The Corporation’s NII on a tax-equivalent basis increased for the ~~first nine~~three months ~~of 2017 increased substantially~~ended June 30, 2019, by $1,070,000, or 12.9%, and for the six months ended June 30, 2019, by $2,276,000, or 14.0%, over the same ~~period~~periods in 2016, by $4,421,000, or 22.3%, with the margin increasing to 3.46%. However, there was non-recurring security amortization of $1,681,000 recorded in the first nine months of 2016, which had a negative impact on NII and margin. Without this impact, NII would have increased by $2,740,000, or 12.7%, in 2017 compared to 2016.2018. Management’s asset liability sensitivity measurements continue to show a benefit to both margin and NII given ~~further~~ Federal Reserve rate increases. Actual results over the past ~~nine quarters~~two years have confirmed the asset sensitivity of the Corporation’s balance sheet. Management expects that any ~~additional~~ Federal Reserve rate ~~increases~~decreases in ~~2017~~2019 would ~~further improve~~have a negative impact on both margin and NII. Any improvements in NII although to a limited degree because the rate change would likely only affect the last half of December. However, a fourth quarter Federal Reserve rate increase would have a positive impact on 2018 NII and margin.will be driven primarily by loan growth.

The extended extremely low Federal funds rate ~~has~~had enabled management to reduce the average cost of funds ~~on overnight~~over a period of years. However, in 2018, this trend reversed with slight increases in both deposit and borrowings interest expense as the cost to replace maturing borrowings increased and ~~allowed lower interest~~ rates paid on deposits ~~reducing~~increased slightly. The cost of funds increased even further in the ~~Corporation’s interest expense. It was only after the third 25-basis point Fed rate increase~~first half of 2019 due to a change in ~~March~~classification of ~~2017 that the Corporation raised some deposit~~a cash management product and as a result of higher rates ~~minimally.~~paid on time deposits and long-term borrowings. While the low Prime rate reduced the average yield on the Corporation’s loans for many years, the rate increases ~~through September of 2017~~in 2018, did act to ~~boost~~enhance interest ~~income and help improve the Corporation’s margin.~~income. With a ~~higher~~lower Prime rate ~~and elevated Treasury rates, higher asset yields should be possible~~projected throughout the remainder of ~~2017. Due~~2019, the Corporation’s asset yields will see a decrease, but helping to offset this decline could be a stabilization of costs on the ~~increasing number~~interest expense side. The potential of Federal Reserve rate decreases acts to lower the Corporation’s NII and net interest margin (NIM) because of the variable rate ~~loans in~~portion of the ~~Corporation’s~~ loan portfolio, ~~the 25 basis point increase in~~which resets every time the Prime rate at the end of 2015, 2016, and in March and June of 2017, did cause NII to increase progressively. The full impact of all of these increases was experienced in the third quarter of 2017. Any additional Federal Reserve rate increase in the fourth quarter of 2017 would increase NII but the full impact would not be seen until the first quarter of 2018.changes.

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With ~~higher~~lower Treasury rates in the first ~~nine months~~half of ~~2017~~2019 compared to the same period in ~~2016,~~2018, security reinvestment has been occurring at ~~slightly~~lower levels as cash flows from the securities portfolio are generally being reallocated into loan portfolio growth. Because of the lower market interest rates and very flat yield curve, it is difficult to achieve substantially higher yields ~~and amortization has slowed resulting~~ in ~~higher yields.~~ the investment portfolio.

The Corporation’s loan portfolio yield has ~~begun to increase~~increased over prior years’ periods as the variable rate portion of the loan portfolio ~~is repricing~~repriced higher with each Federal Reserve rate movement. The vast majority of the Corporation’s commercial Prime-based loans ~~are~~were priced at the Prime rate, ~~currently at 4.25%.~~which was 5.50%, throughout the first six months of 2019. The pricing for the most typical five-year fixed rate commercial loans is currently very similar to the Prime rate. ~~Previously, any increases in~~With the July 31, 2019 Federal Reserve 0.25% rate reduction and the potential for more rate decreases, adding variable rate loans ~~acted to bring down overall loan yield. Now with the rates being very similar it is much more beneficial~~ to the ~~Corporation to grow~~portfolio means they will immediately reprice down when the ~~variable rate loans in a period of rising~~Fed lowers rates. ~~An element~~There are elements of the Corporation’s Prime-based commercial loans is priced above the Prime rate based on the level of credit risk of the borrower. Management does price a portion of consumer variable rate loans above the Prime rate, which also helps to improve loan yield. Both commercial and consumer Prime-based pricing continues to be ~~driven largely~~influenced by local competition.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Mid-term and long-term interest rates on average were ~~higher~~lower in ~~2017~~2019 compared to ~~2016.~~2018. The average rate of the 10-year U.S. Treasury was ~~2.32%~~2.49% in the first ~~nine months~~half of ~~2017~~2019 compared to ~~1.74%~~2.84% in the first ~~nine months~~half of ~~2016,~~2018, and it stood at ~~2.33%~~2.00% on ~~September~~June 30, ~~2017,~~2019, compared to ~~1.60% at September~~2.85% on June 30, ~~2016.~~2018. The slope of the yield curve has been compressed throughout ~~most of 2016~~2018 and even inverted through the first ~~nine~~six months of ~~2017,~~2019, with ~~a difference of 108 basis points between the Fed Funds rate of 1.25% and~~ the 10-year U.S. Treasury asrate lower than the overnight Fed funds rate by 50 basis points. As of ~~September~~June 30, ~~2017, compared to 110~~2018, the 10-year U.S. Treasury rate was 85 basis points ~~as of September 30, 2016.~~higher than the Fed funds rate. The slope of the yield curve has fluctuated many times in the past two years with the 10-year U.S. Treasury yield as high as ~~2.25%~~2.79% in ~~2016~~the first half 2019 and ~~2.62%~~3.11 % in ~~2017,~~the first half of 2018, and as low as ~~1.37%~~2.00% in ~~2016~~2019, and ~~2.05%~~2.44% in 2017. Because the yield curve is still relatively flat, management was not able to increase loan rates to improve yield, but security yields have improved as a result of slightly higher investment rates and lower amortization on existing bonds. The non-recurring sub-agency amortization of $1,681,000 for the year-to-date period ended September 30, 2016, negatively affected security yield resulting in artificially low yields during 2016 and higher yields during 2017. With higher long-term rates in 2017 and the likelihood of further Fed rate increases, the Corporation’s asset yield is projected to increase throughout the remainder of 2017 and during 2018.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

While ~~it is becoming increasingly difficult to achieve savings on~~ the Corporation’s overall cost of funds remains low, there were increases in 2018 and through the ~~Corporation has been able~~first half of 2019 due to ~~maintain relatively low offering rates~~higher interest expense on ~~longer-term time deposits. These~~both deposits and borrowings. Core deposit interest rates are still ~~below~~very low and have not been increased significantly, although time deposit rates have increased for two odd-month CD specials that were initiated in the fourth quarter of 2018. The Corporation increased interest rates ~~that existed four or five years ago. Rollover of these longer time deposits to lower rates has caused a decrease in interest expense. Generally, it was~~marginally on the longer-term time deposits repricing at lower rates that helped to achieve interest expense reductions on total deposits, as the savings account rate has not changed, and there were limited rate increases for select interest bearing demand deposit accounts. It is anticipated that interest rates onCorporation’s interest bearing core ~~deposits can be held at the current levels for the remainder of 2017. If the Federal Reserve does act to raise interest rates during the fourth quarter, deposit interest~~accounts. Further rate increases ~~may need to be implemented beginning in 2018. Management selectively repriced some time deposit rates higher after~~are not as likely given the ~~March~~expectations for possible further Federal Reserve rate ~~increase, but~~decreases throughout 2019. Typically, financial institutions will make small systematic moves on core interest bearing accounts while making larger rate increases in the pricing of new or reissued time ~~deposits repricing to lower rates offset any increased interest expense for those that were selectively priced higher.~~deposits. Borrowing costs, and the wholesale borrowing curves that they are based on, generally follow the direction and slope of the U.S. Treasury curve. However, these curves can be quicker to rise and slower to fall as the providers of these funds seek to protect themselves from rate movements. The Corporation ~~was able to refinance some~~refinanced the majority of borrowings at ~~lower~~higher rates in ~~2016 but~~2018 and 2019 as lower-priced borrowings matured ~~in 2017~~ with no ability to refinance at lower rates, so the ~~yield~~interest rates on borrowings increased ~~slightly~~ during ~~2017~~2018 and ~~will likely continue to do so moving into 2018.~~during the first half of 2019.

Management currently anticipates that the overnight interest rate and Prime rate will ~~remain at~~be reduced throughout the ~~current levels until December~~remainder of ~~2017 with the possibility of one more 0.25% rate increase by year-end.~~2019. It is likely that mid and long-term U.S. Treasury rates will ~~increase slowly~~remain relatively suppressed throughout the ~~fourth quarter~~remainder of ~~2017 as~~ the ~~market anticipates an additional Federal Reserve rate movement.~~year. This would allow management to achieve higher earnings on new higher yielding securities and allow for the ability to price new loans at higher market rates. However, it is also possible that even after a Federal Reserve rate increase, theflat yield curve ~~could flatten, making~~makes it more difficult for management to lend out or reinvest at higher interest rates out further on the yield curve. ~~Additionally, any additional Federal Reserve rate increases would have a greater effect on~~However, the ~~repricing~~anticipation of declining rates provides some ability to hold deposit rates at current levels to control the ~~Corporation’s liabilities as the cost of money increases and more marketplace competition returns. Management anticipates that more deposit rate increases will need to be made to remain competitive~~increase in ~~the market while maturing borrowings would also likely reprice to higher rates.~~interest expense.

The following table provides an analysis of year-to-date changes in net interest income 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.

3837

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,									Nine Months Ended September 30,									Six Months Ended June 30									Six Months Ended June 30,
	2017 vs. 2016									2016 vs. 2015									2019 vs. 2018									2018 vs. 2017
	Increase (Decrease)									Increase (Decrease)									Increase (Decrease)									Increase (Decrease)
	Due To Change In									Due To Change In									Due To Change In									Due To Change In
				Net									Net												Net									Net
	Average			Interest			Increase			Average			Interest			Increase			Average			Interest			Increase			Average			Interest			Increase
	Balances			Rates			(Decrease)			Balances			Rates			(Decrease)			Balances			Rates			(Decrease)			Balances			Rates			(Decrease)
	$			$			$			$			$			$			$			$			$			$			$			$
INTEREST INCOME

Interest on deposits at other banks		27			136			163			—			43			43			(54	)		(27	)		(81	)		(32	)		133			101

Securities available for sale:
Taxable		44			2,059			2,103			(212	)		(1,610	)		(1,822	)		(29	)		280			251			213			270			483
Tax-exempt		766			(49	)		717			466			92			558			(315	)		5			(310	)		(422	)		(1,041	)		(1,463	)
Total securities		810			2,010			2,820			254			(1,518	)		(1,264	)		(344	)		285			(59	)		(209	)		(771	)		(980	)

Loans		938			340			1,278			1,982			(292	)		1,690			2,270			970			3,240			780			475			1,255
Regulatory stock		31			(3	)		28			44			(100	)		(56	)		21			22			43			15			76			91

Total interest income		1,806			2,483			4,289			2,280			(1,867	)		413			1,893			1,250			3,143			554			(87	)		467

INTEREST EXPENSE

Deposits:
Demand deposits		19			32			51			32			(41	)		(9	)		54			594			648			9			57			66
Savings deposits		10			(1	)		9			8			(2	)		6			2			—			2			3			—			3
Time deposits		(93	)		(97	)		(190	)		(204	)		(123	)		(327	)		(52	)		148			96			(58	)		31			(27	)
Total deposits		(64	)		(66	)		(130	)		(164	)		(166	)		(330	)		4			742			746			(46	)		88			42

Borrowings:
Total borrowings		(25	)		23			(2	)		17			(261	)		(244	)		5			116			121			1			140			141

Total interest expense		(89	)		(43	)		(132	)		(147	)		(427	)		(574	)		9			858			867			(45	)		228			183

NET INTEREST INCOME		1,895			2,526			4,421			2,427			(1,440	)		987			1,884			392			2,276			599			(315	)		284

During the first ~~nine~~six months of ~~2017,~~2019, the Corporation’s NII on an FTE basis increased by ~~$4,421,000, a 22.3% increase~~$2,276,000, or 14.0%, over the same period in ~~2016.~~2018. Total interest income on an FTE basis for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, increased ~~$4,289,000,~~$3,143,000, or ~~19.4%~~17.6%, from ~~2016,~~2018, while interest expense ~~decreased $132,000,~~increased $867,000, or ~~5.7%~~53.7%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same period in ~~2016.~~2018. The FTE interest income from the securities portfolio ~~increased~~decreased by ~~$2,820,000,~~$59,000, or ~~56.7%~~1.4%, while loan interest income increased ~~$1,278,000,~~$3,240,000, or ~~7.6%~~24.6%. During ~~2017,~~the first six months of 2019, additional loan volume caused by loan growth added ~~$938,000~~$2,270,000 to net interest income, and the ~~slightly~~ higher yields caused a ~~$340,000~~$970,000 increase, resulting in a total increase of ~~$1,278,000. Higher~~$3,240,000. Lower balances in the securities portfolio caused ~~an increase~~a decrease of ~~$810,000~~$344,000 in ~~net interest income,~~NII, while higher yields on securities caused a ~~$2,010,000~~$285,000 increase, resulting in a ~~total increase~~net decrease of ~~$2,820,000.~~$59,000. The Corporation ~~recorded $1,681,000~~sold a number of municipal bonds throughout 2018 and 2019 due to the reduction in ~~non-recurring accelerated amortization on U.S. sub-agency~~the Federal Corporate tax rate as well as a desire to sell some longer securities ~~during the nine months ended September 30, 2016, which was responsible for the lower yields on securities in 2016.~~and replace with shorter ones.

The average balance of interest bearing liabilities increased by ~~4.5%~~6.4% during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the prior year driven by ~~the~~ growth in deposit balances. The ~~shift between time~~higher cost on deposit ~~balances and demand and savings~~ accounts resulted in ~~a more favorable net~~an increase in interest ~~income. Lower balances of higher cost deposits contributed to savings of $64,000 on deposit costs while lower~~expense. Higher interest rates on all deposit groups except savings deposits caused ~~$66,000~~a $742,000 increase in interest expense while slightly higher balances of demand and savings deposits caused an increase in expense of $4,000 resulting in a total ~~savings~~increase of ~~$130,000.~~$746,000.

Out of all the Corporation’s deposit types, interest-bearing demand deposits reprice the most rapidly, as nearly all accounts are immediately affected by rate changes. Time deposit balances decreased resulting in a ~~$93,000~~$52,000 reduction to expense, and time deposits repricing to ~~lower~~higher interest rates ~~reduced~~increased interest expense by ~~an additional $97,000,~~$148,000, causing a net total ~~reduction~~increase of ~~$190,000~~$96,000 in time deposit interest expense. Even with the low rate environment, the Corporation was successful in increasing balances of other deposit types.

3938

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The average balance of outstanding borrowings ~~decreased by $3.1 million, or 4.2%,~~did not change materially from ~~September 30, 2016, to September 30, 2017. The decrease~~the prior year and resulted in ~~total borrowings reduced~~an increase in interest expense ~~by $25,000.~~of $5,000. The ~~increase in~~higher market interest rates increased interest expense on the Corporation’s borrowings by ~~$23,000,~~$116,000, as ~~some~~ long-term borrowings at lower interest rates matured and were replaced with new advances at ~~marginally~~ higher rates. The aggregate of these amounts was ~~a decrease~~an increase in interest expense of ~~$2,000~~$121,000 related to total borrowings.

The following ~~tables show~~table shows a more detailed analysis of net interest income on an 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. Additionally, the analysis provides the net interest spread and the net yield on interest earning assets. The net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities. The net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets. For this reason, management emphasizes the net yield on interest earning assets, also referred to as the ~~net interest margin (NIM).~~NIM. The NIM is calculated by dividing net interest income on an FTE basis into total average interest earning assets. The NIM is generally the benchmark used by analysts to measure how efficiently a bank generates NII.

4039

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Three Months Ended September 30,												For the Three Months Ended June 30,
	2017						2016						2019						2018
					(c)						(c)						(c)						(c)
	Average				Annualized		Average				Annualized		Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%		$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		29,497		112		1.51		25,973		39		0.60		22,292		119		2.14		21,091		134		2.55

Securities available for sale:
Taxable		200,043		1,030		2.06		183,607		608		1.32		211,520		1,289		2.44		215,702		1,224		2.27
Tax-exempt		124,262		1,566		5.04		113,566		1,444		5.09		89,831		753		3.35		108,699		917		3.38
Total securities (d)		324,305		2,596		3.20		297,173		2,052		2.76		301,351		2,042		2.71		324,401		2,141		2.64

Loans (a)		583,592		6,246		4.28		560,576		5,766		4.11		721,770		8,354		4.64		619,199		6,747		4.36

Regulatory stock		5,723		72		5.03		4,936		60		4.86		6,859		137		7.99		6,190		98		6.37

Total interest earning assets		943,117		9,026		3.83		888,658		7,917		3.56		1,052,272		10,652		4.05		970,881		9,120		3.76

Non-interest earning assets (d)		64,845						64,291						68,746						65,108

Total assets		1,007,962						952,949						1,121,018						1,035,989

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		199,001		93		0.19		192,147		72		0.15		260,750		449		0.69		211,174		128		0.24
Savings deposits		189,863		24		0.05		166,111		21		0.05		202,415		26		0.05		198,033		25		0.05
Time deposits		153,710		372		0.96		165,638		416		1.01		136,721		439		1.29		143,717		359		1.00
Borrowed funds		69,629		265		1.51		73,411		242		1.32		75,160		390		2.08		73,322		330		1.81
Total interest bearing liabilities		612,203		754		0.49		597,307		751		0.50		675,046		1,304		0.77		626,246		842		0.54

Non-interest bearing liabilities:

Demand deposits		293,124						253,527						334,287						309,727
Other		2,570						2,683						3,777						3,062

Total liabilities		907,897						853,517						1,013,110						939,035

Stockholders' equity		100,065						99,432						107,908						96,954

Total liabilities & stockholders' equity		1,007,962						952,949						1,121,018						1,035,989

Net interest income (FTE)				8,272						7,166						9,348						8,278

Net interest spread (b)						3.34						3.06						3.28						3.22
Effect of non-interest
bearing deposits						0.16						0.16						0.28						0.19
Net yield on interest earning assets (c)						3.50						3.22						3.56						3.41

(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 ~~$1,122,000~~$1,669,000 as of ~~September~~June 30, ~~2017,~~2019, and ~~$863,000~~$1,365,000 as of ~~September~~June 30, ~~2016.~~2018. Such fees and costs recognized through income and included in the interest amounts totaled ($~~112,000)~~129,000) in ~~2017,~~2019, and ($~~99,000)~~122,000) in ~~2016.~~2018.

(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.

4140

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Nine Months Ended September 30,												For the Six Months Ended June 30,
	2017						2016						2019						2018
					(c)						(c)						(c)						(c)
	Average				Annualized		Average				Annualized		Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%		$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		28,086		257		1.22		22,635		94		0.55		16,846		166		1.99		22,149		247		2.25

Securities available for sale:
Taxable		195,093		2,904		1.98		185,399		802		0.58		210,622		2,608		2.48		213,249		2,357		2.21
Tax-exempt		127,520		4,894		5.12		107,556		4,176		5.18		92,269		1,555		3.37		110,966		1,866		3.36
Total securities (d)		322,613		7,798		3.22		292,955		4,978		2.27		302,891		4,163		2.75		324,215		4,223		2.61

Loans (a)		578,496		18,176		4.19		548,492		16,898		4.11		713,243		16,424		4.62		612,691		13,185		4.31

Regulatory stock		5,581		201		4.80		4,724		173		4.88		6,680		263		7.86		6,111		219		7.18

Total interest earning assets		934,776		26,432		3.77		868,806		22,143		3.40		1,039,660		21,016		4.05		965,166		17,874		3.71

Non-interest earning assets (d)		62,695						62,200						66,595						65,574

Total assets		997,471						931,006						1,106,255						1,030,740

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		200,471		256		0.17		183,852		204		0.15		254,536		878		0.70		212,042		230		0.22
Savings deposits		186,339		71		0.05		160,506		62		0.05		201,972		51		0.05		194,795		49		0.05
Time deposits		156,860		1,111		0.95		169,478		1,302		1.03		135,999		808		1.20		146,202		712		0.98
Borrowed funds		71,973		749		1.39		75,090		751		1.34		73,487		746		2.02		72,978		626		1.73
Total interest bearing liabilities		615,643		2,187		0.47		588,926		2,319		0.53		665,994		2,483		0.75		626,017		1,617		0.52

Non-interest bearing liabilities:

Demand deposits		281,620						241,786						331,319						304,661
Other		2,671						2,700						3,352						2,768

Total liabilities		899,934						833,412						1,000,665						933,446

Stockholders' equity		97,537						97,594						105,590						97,294

Total liabilities & stockholders' equity		997,471						931,006						1,106,255						1,030,740

Net interest income (FTE)				24,245						19,824						18,533						16,257

Net interest spread (b)						3.30						2.87						3.30						3.19
Effect of non-interest
bearing deposits						0.16						0.17						0.27						0.18
Net yield on interest earning assets (c)						3.46						3.04						3.57						3.37

(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 ~~$1,066,000~~$1,639,000 as of ~~September~~June 30, ~~2017,~~2019, and ~~$796,000~~$1,319,000 as of ~~September~~June 30, ~~2016.~~2018. Such fees and costs recognized through income and included in the interest amounts totaled ($~~335,000)~~248,000) in ~~2017,~~2019, and ($~~275,000)~~236,000) in ~~2016.~~2018.

(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,~~NIM, is computed by dividing ~~net interest income~~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.

4241

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The Corporation’s interest income increased ~~at a faster pace~~ primarily due to ~~non-recurring security amortization in the first nine months of 2016,~~increased interest income on loans, resulting in a higher NIM of ~~3.50%~~3.56% for the ~~third~~second quarter of ~~2017,~~2019, compared to ~~3.22%~~3.41% for the ~~third~~second quarter of ~~2016~~2018 and ~~3.46%~~3.57% for the ~~nine months ended September 30, 2017,~~year-to-date period in 2019, compared to ~~3.04%~~3.37% for the same period in ~~2016.~~2018. The yield earned on assets increased by 2734 basis points ~~for~~during the ~~quarter and 37 basis points for the year-to-date period~~six months ended June 30, 2019, while the rate paid on liabilities ~~dropped one~~increased by 23 basis ~~point for the quarter and six basis~~ points ~~for the year-to-date period~~ when comparing both years. This resulted in an eleven basis point increase in interest spread, and the effect of non-interest bearing deposits increased by nine basis points during the six months ended June 30, 2019, compared to the prior year, resulting in the increase in NIM of 20 basis points. Management ~~does anticipate further improvements in~~anticipates challenges improving NIM during the remainder of ~~2017~~2019 as the Federal Reserve will likely decrease rates putting pressure on the Corporation’s asset yields. Loan yields increased significantly during 2018 and throughout the first half of 2019 with the ~~possibility of another~~higher Prime rate ~~increase in the fourth quarter. Loan~~and higher yields were at historically low levels during 2016 and the first nine months of 2017 due to the extended low-rate environment as well as extremely competitive pricing for the loan opportunities in the market. It is anticipated that these yields will remain relatively unchanged during the remainder of 2017 with increases occurring during 2018 as the economy improves and loan demand increases, reducing pricing pressures and intense competition foron fixed-rate loans. The increase in the Prime rate has helped to increase loan yields on variable rate consumer and commercial loans. Growth in the loan portfolio coupled with better yields on variable rate loans caused loan interest income to ~~increase.~~increase through June 30, 2019. The Corporation’s loan yield increased 1731 basis points in the ~~third quarter~~first half of ~~2017~~2019 compared to the ~~third quarter~~first half of ~~2016 and 8 basis points when comparing the year-to-date periods in both years.~~2018. Loan interest income increased ~~$480,000,~~$3,239,000, or ~~8.3%, and $1,278,000, or 7.6%~~24.6%, for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same ~~periods~~period in ~~2016.~~2018.

Loan pricing was challenging in ~~2016, and continues to be in 2017~~early 2018 as a result of ~~intense~~ competition resulting in fixed-rate loans being priced at very low levels and variable-rate loans priced at the Prime rate or below. Pricing improved during the last half of 2018 and into the frist half of 2019 with much more significant loan growth. The current Prime rate of ~~4.25%~~5.50% is generally slightly higher than the typical business or commercial five-year fixed rates being extended. The commercial or business fixed rates do increase with longer fixed terms or lower ~~than most fixed-rate business and commercial~~credit quality. In terms of the variable rate pricing, nearly all variable rate loans ~~which typically range between 4.00% and 6.00%, depending on term and credit risk.~~offered are Prime-based. Management is able to price loan customers with higher levels of credit risk at Prime plus pricing, such as Prime plus 0.75%, currently ~~5.00%~~6.25%. However, there are relatively few of these higher rate loans in the commercial and agricultural portfolios due to the strong credit quality of the Corporation’s ~~borrowers.~~borrowers and market competition. Competition in the immediate market area ishas been pricing select shorter-term fixed-rate commercial and agricultural lending rates ~~below 4.00%~~close to 4.50% for the strongest loan credits. This current market environment has largely prevented the Corporation from gaining yield on fixed rate commercial and agricultural loans. The Asset Liability Committee (ALCO) carefully monitors the NIM because it indicates trends in net interest income, 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 rising rates, please refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

~~Earnings and~~Tax equivalent yields on the Corporation’s securities increased by 4414 basis points for the ~~three~~six months ended ~~September~~June 30, ~~2017, and 95 basis points for the nine months ended September 30, 2017,~~2019, compared to the same ~~periods~~period in ~~2016.~~2018. The Corporation’s securities portfolio consists of nearly all fixed income debt ~~instruments.~~instruments, however, the variable rate percentage of the portfolio was 13.3% as of June 30, 2019. The Corporation’s taxable securities experienced a 7427 basis-point increase in yield for the ~~three~~six months ended ~~September~~June 30, ~~2017, and a 140 basis-point increase in yield for the nine months ended September 30, 2017,~~2019, compared to the same ~~periods~~period in ~~2016. This was largely due to accelerated amortization that caused significantly lower interest income for the first nine months of 2016. Additionally, some security~~2018. Security reinvestment in the first ~~nine~~six months of ~~2017~~2019 has been occurring at higher rates even with increased amortization on mortgage-backed and ~~regular~~collateralized mortgage obligation securities. The Corporation’s U.S. agency mortgage-backed securities and collateralized mortgage obligations experience faster principal prepayments as market rates decrease, causing the amortization ~~has been lower due to the slightly higher interest rate environment. These variables have caused taxable security yields~~of premium to increase, ~~significantly.~~ effectively decreasing the yield.

The yield on tax-exempt securities ~~decreased minimally~~increased by ~~five~~one basis ~~points and six basis points~~point for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, compared~~2019. For the Corporation, these bonds consist entirely of tax-free municipal bonds. The tax equivalent yield on this portion of the portfolio declined in 2018 due to the ~~same periods~~tax law changes. The yields on municipal bonds are not as attractive as they once were. Management was generally able to sell some of these bonds without taking net losses on this sector by taking advantage of improved bond pricing. Management desired to reduce the municipal bond sector due to three primary reasons. The first reason was to lower portfolio duration as a result of the continued Federal Reserve rate increases that were occurring in ~~2016.~~2018. The municipal bonds typically have the longest duration out of all the Corporation’s securities. Secondly, the tax equivalent yield of all of these tax-free instruments was effectively reduced by approximately 16% as a result of the decrease in the Federal corporate tax rate from 34% to 21% at the end of 2017. Lastly, the Corporation’s loan growth increased sharply in the second half of 2018 and the first quarter of 2019, making it appropriate to partially fund this asset growth from the largest segment of the securities portfolio.

~~Prior~~The Corporation’s average deposits increased $66.1 million, or 7.7%, with all types of interest-bearing deposits increasing $39.5 millon, or 7.1%, while non-interest bearing demand deposits increased $26.7 million, or 8.8%. In years prior to ~~2017,~~2019 and 2018, with short-term rates ~~extremely~~ low and with small rate differences for longer-term deposits, the consumer generally elected to stay short and maintain funds in accessible deposit instruments. ~~During the first nine months of 2017,~~Even with higher ~~short-term~~market rates ~~but still low longer-term rates,~~available, it appears the customer still prefers keeping balances in both non-interest and interest bearing checking products and savings accounts. In addition to the consumer staying liquid with their available funds, there has been a general trend of funds flowing from time deposit accounts into ~~both~~ non-interest checking, NOW and savings accounts. The average balance of the Corporation’s interest bearing liabilities increased during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017.~~2019. The average balance of time deposits declined during ~~these~~this same ~~periods~~period compared to ~~2016,~~2018, but the other areas of NOW, MMDA, and savings grew sufficiently enough to compensate for the decline in time deposits, causing total interest bearing funds to increase. However, with ~~more of the interest bearing funds in the form of~~slightly higher rates on NOW, MMDA, and ~~savings accounts the average interest rate paid on these instruments is significantly less than what is paid on~~ time deposits, ~~resulting~~the Corporation incurred more interest expense. Time deposit balances have been growing more recently due to the odd-month CD promotions currently available and management expects these time deposit balances will continue to grow throughout the remainder of 2019, which will result in ~~less~~higher interest ~~expense.~~expense, but also provides needed liquidity to fund the continued loan growth.

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ENB FINANCIAL CORP
Management’s Discussion and Analysis

Interest expense on deposits ~~declined~~increased by ~~$20,000,~~$746,000, or ~~3.9%, and $130,000, or 8.3%~~75.3%, for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same ~~periods~~period in ~~2016.~~2018. Demand and savings deposits reprice in their entirety whenever the offering rates are ~~changed. This allows~~changed, therefore management ~~to reduce~~is cautious in terms of increasing portfolio interest ~~costs rapidly; however, it becomes difficult to continue to gain cost savings once offering~~rates. Interest rates ~~decline to these historically low levels.~~on interest checking and money market accounts were increased slightly in the fourth quarter of 2018. No core deposit rates were changed in the first half of 2019. For the ~~third quarter of 2017 and the nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the average balances of interest bearing demand deposits increased by ~~$6.9~~$42.5 million, or ~~3.6%, and $16.6 million, or 9.0%~~20.0%, over the same ~~periods~~period in ~~2016,~~2018, while the average balance of savings accounts increased by ~~$23.8~~$7.2 million, or ~~14.3%, and $25.8 million, or 16.1%, respectively. This increase in balances of lower cost accounts has helped to reduce the Corporation’s overall interest expense in 2017 compared to 2016.~~3.7%.

Time deposits reprice over time according to their maturity schedule. This enables management to both reduce and increase rates slowly over time. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, time deposit balances decreased compared to balances at ~~September~~June 30, ~~2016.~~2018. The decrease can be attributed to the ~~lowest~~low rates paid ~~historically~~ on time deposits, which has caused the differential between time deposit rates and rates on non-maturity deposits to be ~~minimal.~~minimal, as well as more competitive time deposit rates being offered by other financial institutions in the local market area. As a result, customers have elected to keep more of their funds in non-maturity deposits and less funds in time deposits. Because time deposits are the most expensive deposit product for the Corporation and the largest dollar expense from a funding standpoint, the reduction in time deposits, along with the increases in interest-bearing checking, savings, and non-interest bearing checking, has allowed the Corporation to achieve a ~~lower cost and~~ more balanced deposit funding ~~position.~~position and maintain a lower cost of funds. However, beginning in the fourth quarter of 2018 and continuing into the first half of 2019, time deposit balances began to increase once again with the offering of two odd-month term time deposit specials. Management expects this trend to continue throughout the remainder of 2019. The ~~Corporation was able to reduce~~Corporation’s interest expense on time deposits increased by ~~$44,000,~~$96,000, or ~~10.6%~~13.5%, for the ~~third quarter~~first six months of ~~2017,~~2019, compared to the same period in ~~2016, and by $191,000, or 14.7%, for~~2018, despite the ~~nine months ended September 30, 2017, compared~~decrease in average balance. This growth in interest expense was due to the ~~same period~~higher promotional rates that were offered beginning in the ~~prior year.~~fourth quarter of 2018. Average balances of time deposits decreased by ~~$11.9~~$10.2 million, or ~~7.2%, and $12.6 million, or 7.4%~~7.0%, for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same ~~periods~~period in ~~2016.~~2018. The average annualized interest rate paid on time deposits ~~decreased~~increased by ~~five~~22 basis points for the ~~three-month period and eight basis points for the nine-month~~six-month period when comparing both years.

The Corporation historically uses both short-term and long-term borrowings to supplement liquidity generated by deposit growth. Average short-term advances of ~~$2,709,000 and $9,714,000~~$2,506,000 were utilized in the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2019, while average short-term advances of ~~$10,052,000 and $11,131,000~~$6,525,000 were utilized in the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2018. Management has used long-term borrowings as part of an asset liability strategy to lengthen liabilities rather than as a source of liquidity. Average total borrowings ~~decreased~~increased by ~~$3,782,000,~~$509,000, or ~~5.2%, and $3,117,000, or 4.2%~~0.7%, for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same ~~periods~~period in ~~2016.~~2018. Interest expense on borrowed funds was ~~$23,000,~~$120,000, or ~~9.5%~~19.2% higher, ~~and $2,000, or 0.3% lower,~~ for the ~~three and nine-month periods~~six-month period when comparing ~~2017~~2019 to ~~2016.~~2018.

For the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2019, the net interest spread increased ~~28 basis points to 3.34%, from 3.06% for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the net interest spread increased 43~~by eleven basis points to 3.30%, ~~from 2.87%~~compared to 3.19% for the ~~same period in 2016.~~six months ended June 30, 2018. The effect of non-interest bearing funds ~~stayed the same~~increased by nine basis points for the ~~three-month period and dropped by one basis point for the nine-month~~six-month period compared to the same ~~periods~~period in the prior year. 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 ~~lower,~~higher, the benefit of non-interest bearing deposits ~~is reduced~~increases because there is ~~less~~more difference between non-interest bearing funds and interest bearing liabilities. For example, if an interest checking account with $10,000 earns 1%, the benefit for $10,000 of non-interest bearing deposits is equivalent to $100; but if the interest-checking rate is ~~reduced~~increased to ~~0.20%~~1.50%, then the benefit of the non-interest bearing funds is ~~only $20.~~$150. This assumes dollar-for-dollar replacement, which is not realistic, but demonstrates the way the ~~lower~~higher cost of funds affects the benefit to non-interest bearing deposits.

The Asset Liability Committee (ALCO) carefully monitors the NIM because it indicates trends in net interest income, 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 rising rates, refer to Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Provision for Loan Losses

The allowance for loan losses (ALLL) 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 ALLL is adequate to cover any losses inherent in the loan portfolio. The Corporation recorded a provision expense of ~~$240,000~~$30,000 for the three months ended ~~September~~June 30, ~~2017,~~2019, and ~~$450,000~~$210,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~a provision expense of $200,000~~$90,000 and $280,000 for the three and six months ended ~~September~~June 30, ~~2016, and $200,000 for the nine months ended September 30, 2016.~~2018, respectively. The analysis of the ALLL takes into consideration, among other things, the following factors:

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~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

levels and trends in delinquencies, nonaccruals, charge-offs and recoveries,

trends within the loan portfolio,

changes in lending policies and procedures,

experience of lending personnel and management oversight,

national and local economic trends,

concentrations of credit,

external factors such as legal and regulatory requirements,

changes in the quality of loan review and board oversight, and

changes in the value of underlying collateral.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the Corporation recorded provision expense of ~~$450,000~~$210,000 primarily due to ~~higher balances of classified loans and a specific allocation of $98,000 related to an impaired loan. During~~growth in the ~~first nine months of 2016, the Corporation recorded $200,000 of provision expense.~~loan portfolio. Management closely tracks delinquent, non-performing, and classified loans as a percentage of capital and of the loan portfolio.

As of ~~September~~June 30, ~~2017,~~2019, total delinquencies represented ~~0.46%~~0.44% of total loans, compared to ~~0.45%~~0.35% as of ~~September~~June 30, ~~2016.~~2018. These ratios are extremely low compared to local and national peer groups. The vast majority of the Corporation’s loan customers have remained very steadfast in making their loan payments and avoiding delinquency, even during challenging economic conditions. The delinquency ratios speak to the long-term health, conservative nature, and, importantly, the character of the Corporation’s customers and lending practices. Classified loans are primarily determined by loan-to-value and debt-to-income ratios. The ~~prolonged economic downturn, including devaluation~~level of ~~residential and commercial real estate, had stressed these ratios in past periods and the addition~~classified loans has increased slightly from June 30, 2018 to June 30, 2019, from 14.2% of ~~a commercial loan relationship in the first quarter~~regulatory capital to 14.8% of ~~2017 had caused an increase in these levels. However, a classified loan relationship that paid off helped to reduce the total classified balances during the third quarter of 2017.~~regulatory capital. The delinquency and classified loan information is utilized in the quarterly ALLL calculation, which directly affects the provision expense. A sharp increase or decrease in delinquencies and/or classified loans during the quarter would be cause for management to increase or decrease the provision expense. The level of actual charge-offs relative to the amount of recoveries can also have a significant impact on the provision. Management had recoveries that exceeded charge-offs by ~~$16,000~~$81,000 in the first ~~nine~~six months of ~~2017.~~2019.

Generally, management will evaluate and adjust, if necessary, the provision expense each quarter based upon completion of the quarterly ALLL calculation. Future provision amounts will generally depend on the amount of loan growth achieved versus levels of delinquent, non-performing, and classified loans, as well as charge-offs and recoveries.

In addition to the above, provision expense is impacted by three major components that are all included in the quarterly calculation of the ALLL. First, specific allocations are made for any loans where management has determined an exposure that needs to be provided for. These specific allocations are reviewed each quarter to determine if adjustments need to be made. It is common for specific allocations to be reduced as additional principal payments are made, so while some specific allocations are being added, others are being reduced. ~~Secondly,~~Second, management provides for estimated losses on pools of similar loans based on historical loss experience. Finally, management utilizes qualitative factors every quarter to adjust historical loss experience to take into consideration the current trends in loan volume, delinquencies, charge-offs, changes in lending practices, and the quality of the Corporation’s underwriting, credit analysis, lending staff, and Board oversight.National and local economic trends and conditions are also helpful to determine the amount of loan loss allowance the Corporation should be carrying on the various types of loans. Management evaluates and adjusts, if necessary, the qualitative factors on a quarterly basis.

In the first ~~nine~~six months of ~~2017,~~2019, qualitative factors were adjusted based on current information regarding delinquency, economic conditions, and other factors.Changes in qualitative factors were unchanged for ~~two~~one loan ~~pools, while they~~pool, increased for ~~four pools~~one loan pool, and declined for ~~three.~~the other seven loan pools. Adjustments to the qualitative factors were minor in nature with most changes being only five or ten basis points of adjustment, the lowest amount of adjustment that management will make. The four pools with factor increases were agricultural dairy, credit lines, personal loans, and residential real estate. These increases were due to changes in the trending of those pools including balances, delinquencies, concentrations of credit, and the personnel that handle those loans. Out of these four pools, the two containing the largest balances are agricultural dairy and residential real estate. The dairy industry continues to be impacted by lower milk prices, which lowers the profit margin for these farmers and has impacted delinquencies. Residential real estate balances have grown significantly, especially adjustable rate mortgages, resulting in a higher concentration of residential mortgages.

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ENB FINANCIAL CORP
Management’s Discussion and Analysis

Management also monitors the allowance as a percentage of total loans. The percentage of the allowance to total loans has ~~increased~~decreased since ~~September~~June 30, ~~2016 and December 31, 2016, and~~2018, but remains ~~comparable with~~higher than the Bank’s national peer ~~group.~~group from the Uniform Bank Performance Reports. As of ~~September~~June 30, ~~2017,~~2019, the allowance as a percentage of total loans was ~~1.37%~~1.25%, updown from ~~1.32%~~1.30% at June 30, 2018, but maintaining the same level as December 31, ~~2016, and 1.31% at September 30, 2016.~~2018. Management continues to evaluate the ~~allowance for loan losses~~ALLL in relation to the size of the loan portfolio and changes to the segments within the loan portfolio and their associated credit risk. Management believes the ~~allowance for loan losses~~ALLL is adequate to provide for future loan losses based on the current portfolio and the current economic environment. More detail is provided under Allowance for Loan Losses in the Financial Condition section that follows.

Other Income

Other income for the ~~third~~second quarter of ~~2017~~2019 was ~~$2,622,000, a decrease~~$2,762,000, an increase of ~~$206,000,~~$134,000, or ~~7.3%~~5.1%, compared to the ~~$2,828,000~~$2,628,000 earned during the ~~third~~second quarter of ~~2016.~~2018. For the year-to-date period ended ~~September~~June 30, ~~2017,~~2019, other income totaled ~~$7,546,000,~~$5,306,000, a decrease of ~~$1,020,000,~~$702,000, or ~~11.9%~~11.7%, compared to the same period in ~~2016.~~2018. The following tables detail the categories that comprise other income.

OTHER INCOME
(DOLLARS IN THOUSANDS)
Three Months Ended September 30, Increase (Decrease)
2017 2016
$ $ $ %

Trust and investment services 427 344 83 24.1
Service charges on deposit accounts 320 285 35 12.3
Other service charges and fees 328 304 24 7.9
Commissions 583 552 31 5.6
Gains on securities transactions, net 170 464 (294 ) (63.4 )
Gains on sale of mortgages 510 557 (47 ) (8.4 )
Earnings on bank owned life insurance 170 210 (40 ) (19.0 )
Other miscellaneous income 114 112 2 1.8

Total other income 2,622 2,828 (206 ) (7.3 )

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

OTHER INCOME

(DOLLARS IN THOUSANDS

	Three Months Ended June 30,
	2019		2018			Increase (Decrease)
	$		$			$			%

Trust and investment services		505		474			31			6.5
Service charges on deposit accounts		355		343			12			3.5
Other service charges and fees		338		494			(156	)		(31.6	)
Commissions		756		657			99			15.1
Gains/(losses) on securities transactions, net		106		(62	)		168			(271.0	)
Gains on equity securities, net		27		16			11			68.8
Gains on sale of mortgages		415		352			63			17.9
Earnings on bank owned life insurance		179		192			(13	)		(6.8	)
Other miscellaneous income		81		162			(81	)		(50.0	)

Total other income		2,762		2,628			134			5.1

OTHER INCOME
(DOLLARS IN THOUSANDS)
Nine Months Ended September 30, Increase (Decrease)
2017 2016
$ $ $ %

Trust and investment services 1,335 1,104 231 20.9
Service charges on deposit accounts 908 820 88 10.7
Other service charges and fees 986 824 162 19.7
Commissions 1,714 1,611 103 6.4
Gains on securities transactions, net 417 2,130 (1,713 ) (80.4 )
Gains on sale of mortgages 1,302 1,109 193 17.4
Earnings on bank owned life insurance 514 604 (90 ) (14.9 )
Other miscellaneous income 370 364 6 1.6

Total other income 7,546 8,566 (1,020 ) (11.9 )

OTHER INCOME

(DOLLARS IN THOUSANDS)

	Six Months Ended June 30,
	2019		2018			Increase (Decrease)
	$		$			$			%

Trust and investment services		1,042		1,028			14			1.4
Service charges on deposit accounts		677		666			11			1.7
Other service charges and fees		646		832			(186	)		(22.4	)
Commissions		1,411		1,241			170			13.7
Gains (losses) on securities transactions, net		187		(28	)		215			(767.9	)
Gains on equity securities, net		44		47			(3	)		(6.4	)
Gains on sale of mortgages		764		587			177			30.2
Earnings on bank owned life insurance		357		1,291			(934	)		(72.3	)
Other miscellaneous income		178		344			(166	)		(48.3	)

Total other income		5,306		6,008			(702	)		(11.7	)

Trust and investment services income increased ~~$83,000,~~$31,000, or ~~24.1%~~6.5%, and ~~$231,000,~~$14,000, or ~~20.9%~~1.4%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods last year. This revenue consists of income from traditional trust services and income from alternative investment services provided through a third party. In the ~~third~~second quarter of ~~2017,~~2019, traditional trust income increased by ~~$42,000,~~$7,000, or ~~17.5%~~2.5%, while income from alternative investments increased by ~~$41,000,~~$24,000, or ~~39.7%~~11.8%, compared to the ~~third~~second quarter of ~~2016.~~2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, traditional trust services income increased by ~~$158,000,~~$11,000, or ~~21.2%~~1.7%, while income from alternative investment services increased by ~~$73,000,~~$3,000, or ~~20.4%~~0.8%, compared to the same period in ~~2016. Trust income was up~~2018. The trust and investment services area continues to be an area of strategic focus for ~~both periods as a result of new~~the Corporation. Management believes there continues to be great need for retirement, estate, small business ~~higher fees,~~succession planning, and ~~higher trust valuations. Several new trust accounts were opened~~personal investment services in the ~~fourth quarter~~Corporation’s service area. Management also sees these services as being a necessary part of ~~2016 adding revenue beginning in 2017. A new trust fee schedule was implemented in March~~a comprehensive line of 2016, which resulted in more first quarter and year-to-date income in 2017. Trust income was also elevated due to increases in unscheduled executor fee income over both periods of 2016. Lastly, equity markets were up since December 31, 2016, and have continued to increase throughout 2017, which has increased trust valuations andfinancial solutions across the ~~fees generated from their fair market values.~~

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~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

Service charges on deposit accounts increased by $35,000, or 12.3%, and $88,000, or 10.7%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Overdraft service charges are the largest component of this category and comprised approximately 80% of the total deposit service charges for the three and nine months ended September 30, 2017. Total overdraft fees increased by $29,000, or 12.8%, and $77,000, or 11.8%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Management attributes higher overdraft fee income primarily to the growth in deposit accounts and new customers. No changes to Bank fees or policies have occurred. Most of the other service charge areas showed minimal increases or decreases from the prior year.organization.

Other service charges and fees ~~increased~~decreased by ~~$24,000,~~$156,000, or ~~7.9%~~31.6%, and ~~$162,000,~~$186,000, or ~~19.7%~~22.4%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018. The ~~quarterly and year-to-date increase~~decrease is primarily due to ~~an increase~~a decrease in loan administration fees that were ~~higher~~lower by ~~$40,000,~~$148,000, or ~~37.7%~~71.9%, and $226,000, or 63.3%, for the ~~three-month period~~three and six months ended ~~September~~June 30, ~~2017,~~2019, respectively, compared to the same periods in 2018. Additionally, mortgage origination fees were lower by $138,000 and ~~$133,000,~~$192,000, or ~~47.8%~~100.0%, for both the ~~nine-month period ended September 30, 2017,~~quarter and year-to-date periods in 2019 compared to the same periods in the prior year. A significant increase in mortgage volume is being generated through the mortgage expansion and was the primary reason for these increased fees. Account analysis fees increased by $6,000, or 53.9%, and $23,000, or 86.3%, for the quarter and year-to-date periods ended September 30, 2017, compared to the same periods in the previous year primarily as a result of increased focus on cash management customers and assessing proper fees for the services provided. Partially offsetting these ~~increases,~~decreases, fees ~~for 30-year mortgage originations decreased by $23,000, or 30.5%,~~on an off-balance sheet cash management product were $103,000 in the second quarter of 2019, and ~~$11,000, or 6.0%,~~$187,000 for the ~~three~~year-to-date period in 2019, and ~~nine months ended September 30, 2017, compared to the same periods~~are now being recorded in ~~2016. The~~ other service charges ~~and~~whereas in the prior year, the fees ~~area is expected to continue to grow at a faster pace than other elements of the Corporation’s fees but the percentage increase will decline going forward.~~were included in interest income. Various other fee income categories increased or decreased to lesser degrees making up the remainder of the variance compared to the prior year.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Commissions increased by ~~$31,000,~~$99,000, or ~~5.6%~~15.1%, and ~~$103,000,~~$170,000, or ~~6.4%~~13.7%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018. This was primarily caused by debit card interchange income, which increased by ~~$23,000,~~$86,000, or ~~4.8%~~15.2%, and ~~$90,000,~~$159,000, or ~~6.4%~~14.7%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018. The interchange income is a direct result of the volume of debit card transactions processed and this income increases as customer accounts increase or as customers utilize their debit cards to a higher degree. Additionally, insurance commissions from Banker’s Settlement Services increased by $7,000, or 30.0%, and $14,000, or 22.6%, for the three and nine months ended September 30, 2017, compared to the same periods in the prior year. The vast majority of the insurance commissions were from residential mortgage transactions.

For the three and six months ended ~~September~~June 30, ~~2017, $170,000~~2019, $106,000 and $187,000 of gains on securities transactions were recorded, respectively, compared to ~~$464,000~~losses of $62,000 and $28,000, respectively, for the same ~~period~~periods in 2016, a $294,000, or 63.4% decrease. For the nine months ended September 30, 2017, $417,000 of gains on securities transactions were recorded compared to $2,130,000 for the nine months ended September 30, 2016, a $1,713,000, or 80.4% decrease.2018. Gains or losses on securities transactions fluctuate based on market opportunities to take gains and reposition the securities portfolio to improve long-term earnings, or as part of management’s asset liability goals to improve liquidity or reduce interest rate risk or fair value risk. The gains or losses recorded by the Corporation depend heavily on market pricing and the volume of security sales. Generally, the lower U.S. Treasury yields go, the more management will be motivated to pursue taking gains from the sale of securities. However, these market opportunities are evaluated subject to the Corporation’s other asset liability measurements and goals. The yield curve in the first ~~nine~~six months of ~~2016~~2019 provided ~~greater~~better opportunities to take ~~significant~~ gains out of the portfolio than during the first ~~nine~~six months of 2017. Management also executed more gains in the first nine months of 2016 to offset the non-recurring Sub-U.S. Agency amortization of $1,681,000. Market timing was favorable as the bond market was stronger and loan growth was also strong so management did not have to reinvest a significant amount of the proceeds from the sale of securities.2018.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

Gains on the sale of mortgages were ~~$510,000~~$415,000 for the three-month period ended ~~September~~June 30, ~~2017,~~2019, compared to ~~$557,000~~$352,000 for the same period in ~~2016,~~2018, a ~~$47,000,~~$63,000, or ~~8.4% decrease. Gains on~~17.9% increase. For the ~~sale of mortgages for the nine months~~six-month period ended ~~September~~June 30, ~~2017, increased by $193,000, or 17.4%,~~2019, mortgage gains amounted to $764,000, compared to $587,000 for the same period in ~~2016. Secondary mortgage financing~~2018, a $177,000, or 30.2% increase. Mortgage activity ~~drives the gains on the sale of mortgages, and the activity~~was higher in the first ~~nine months~~half of ~~2017 was at increased levels due~~2019 compared to the ~~greater marketing efforts~~prior year as a result of lower interest rates as mortgage rates are generally priced off the ~~Corporation’s mortgage area, a slightly improved local economy, as well as attractive mortgage rates.~~10-year U.S. Treasury, which declined even though short-term rates were increasing. Management anticipates that gains ~~should continue at these higher levels~~ throughout the remainder of ~~2017, with~~2019 may continue at a higher level compared to the ~~continued increased focus~~prior year due to ~~grow~~ the ~~Corporation’s mortgage origination activity, continued low mortgage rates,~~favorable rate environment and ~~expanded adjustable rate mortgage offerings. Most of~~reasonable margins received on the ~~Corporation’s recent held for investment mortgage growth has come in the form of 5/1 and 7/1 year adjustable rate mortgages.~~mortgages that are being sold.

For the three months ended ~~September~~June 30, ~~2017,~~2019, earnings on bank-owned life insurance (BOLI) decreased by ~~$40,000,~~$13,000, or ~~19.0%~~6.8%, and for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, earnings on BOLI decreased by ~~$90,000,~~$934,000, or ~~14.9%~~72.3%, compared to the same periods in ~~2016.~~2018. The large year-to-date decrease in BOLI income was ~~primarily due to declining performance on~~caused by $913,000 of insurance proceeds received in the grandfathered directors’ life insurance policies, which were initiated prior to 1995 in connection with a previous Directors Deferred Compensation Plan. These director-related policies are not generating as much incomefirst quarter of 2018 due to the ~~age~~death of ~~the directors and structure of the policies. The lower levels of return on these policies will likely continue throughout the remainder of 2017 and into 2018.~~a participant. The amount of BOLI income is generally dependent upon the actual return of the policies, the insurance cost components, and any benefits paid upon death that exceed the policy’s cash surrender value. Increases in cash surrender value are a function of the return of the policy net of all expenses.

The miscellaneous income category decreased by $81,000, or 50.0%, for the three months ended June 30, 2019, and $166,000, or 48.3%, for the six months ended June 30, 2019, compared to the same periods in 2018. The primary reason for the decrease in miscellaneous income was a decrease in net mortgage servicing income which declined by $56,000 for the quarter-to-date period and $148,000 for the year-to-date period in 2019 compared to 2018, due to the interest rate environment that resulted in faster amortization of existing mortgage servicing assets.

Operating Expenses

Operating expenses for the ~~third~~second quarter of ~~2017~~2019 were ~~$7,647,000,~~$8,217,000, an increase of ~~$899,000,~~$50,000, or ~~13.3%~~0.6%, compared to the ~~$6,748,000~~$8,167,000 for the ~~third~~second quarter of ~~2016.~~2018. For the year-to-date period ended ~~September~~June 30, ~~2017,~~2019, operating expenses totaled ~~$22,880,000,~~$16,499,000, an increase of ~~$2,938,000,~~$448,000, or ~~14.7%~~2.8%, compared to the same period in ~~2016.~~2018. The following tables provide details of the Corporation’s operating expenses for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018.

4847

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

OPERATING EXPENSES

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

Three Months Ended September 30, Increase (Decrease)
2017 2016
$ $ $ %
Salaries and employee benefits 4,840 4,219 621 14.7
Occupancy expenses 624 555 69 12.4
Equipment expenses 299 276 23 8.3
Advertising & marketing expenses 143 120 23 19.2
Computer software & data processing expenses 575 471 104 22.1
Bank shares tax 215 227 (12 ) (5.3 )
Professional services 377 380 (3 ) (0.8 )
Other operating expenses 574 500 74 14.8
Total Operating Expenses 7,647 6,748 899 13.3

(DOLLARS IN THOUSANDS)

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,				Increase (Decrease)						Three Months Ended June 30,
	2017		2016								2019		2018		Increase (Decrease)
	$		$		$			%			$		$		$			%
Salaries and employee benefits		14,370		12,230		2,140			17.5			5,105		5,221		(116	)		(2.2	)
Occupancy expenses		1,828		1,584		244			15.4			590		602		(12	)		(2.0	)
Equipment expenses		878		811		67			8.3			287		291		(4	)		(1.4	)
Advertising & marketing expenses		539		422		117			27.7			166		205		(39	)		(19.0	)
Computer software & data processing expenses		1,654		1,345		309			23.0			609		574		35			6.1
Bank shares tax		644		680		(36	)		(5.3	)		232		229		3			1.3
Professional services		1,260		1,207		53			4.4			556		505		51			10.1
Other operating expenses		1,707		1,663		44			2.6			672		540		132			24.4
Total Operating Expenses		22,880		19,942		2,938			14.7			8,217		8,167		50			0.6

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

	Six Months Ended June 30,
	2019		2018		Increase (Decrease)
	$		$		$			%
Salaries and employee benefits		10,293		10,181		112			1.1
Occupancy expenses		1,220		1,265		(45	)		(3.6	)
Equipment expenses		574		579		(5	)		(0.9	)
Advertising & marketing expenses		416		437		(21	)		(4.8	)
Computer software & data processing expenses		1,266		1,118		148			13.2
Bank shares tax		465		443		22			5.0
Professional services		1,031		938		93			9.9
Other operating expenses		1,234		1,090		144			13.2
Total Operating Expenses		16,499		16,051		448			2.8

Salaries and employee benefits are the largest category of operating expenses. In general, they comprise ~~63%~~approximately 62% of the Corporation’s total operating expenses. For the three months ended ~~September~~June 30, ~~2017,~~2019, salaries and benefits ~~increased $621,000,~~decreased $116,000, or ~~14.7%~~2.2%, from the same period in ~~2016.~~2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, salaries and benefits increased ~~$2,140,000,~~$112,000, or ~~17.5%~~1.1%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018. Salaries ~~increased~~decreased by ~~$459,000,~~$226,000, or ~~14.3%~~5.7%, and employee benefits increased by ~~$162,000,~~$110,000, or ~~15.9%~~8.6%, for the three months ended ~~September~~June 30, ~~2017,~~2019, compared to the same period in ~~2016.~~2018. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, salary expense ~~increased~~decreased by ~~$1,528,000,~~$172,000, or ~~16.9%~~2.2%, while employee benefits increased by ~~$611,000,~~$284,000, or ~~19.3%~~11.1%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018. Salary ~~and benefit expenses have grown significantly primarily~~costs were lower due to higher deferred costs on loan originations which are recorded as a contra salary expense. Employee benefits expense was at a higher level for the quarter and year-to-date periods in 2019 due to higher health insurance costs which increased by $51,000, or 8.3%, and $170,000, or 14.1%, for the three ~~new branch locations added~~and six months ended June 30, 2019, compared to the same periods in ~~2016, but also as a result of additional operational positions to support the growth of the Corporation.~~2018.

Occupancy expenses consist of the following:

Depreciation of bank buildings

Real estate taxes and property insurance

Building lease expense

Utilities

Building repair and maintenance

Occupancy expenses ~~increased $69,000,~~decreased $12,000, or ~~12.4%~~2.0%, and ~~$244,000,~~$45,000, or ~~15.4%~~3.6%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in the prior year. ~~Building repair and maintenance~~Utilities costs ~~increased~~decreased by ~~$18,000,~~$25,000, or ~~41.8%~~13.3%, and ~~$85,000,~~$71,000, or ~~84.7%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Utilities costs increased by $10,000, or 5.9%, and $68,000, or 15.1%~~17.6%, when comparing the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, to the same periods in the prior year. ~~Lease~~These savings were primarily driven by lower telephone and electric costs. Various other occupancy expense categories increased or decreased by ~~$22,000, or 61.5%, and $59,000, or 63.6%, for~~smaller amounts making up the three and nine-month periods in 2017 compared to 2016. Cleaning services increased by $10,000, or 35.0%, and $28,000, or 35.8%, for the three and nine months ended September 30, 2017, compared to the same periods in the prior year. Occupancy expenses were higher for bothremainder of the quarter and year-to-date ~~periods as a result of projects at existing locations and the expense associated with the three new branch locations and leased office space added during the last half of 2016.~~variance.

4948

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

~~Equipment~~Advertising and marketing expenses ~~increased~~decreased by ~~$23,000,~~$39,000, or ~~8.3%~~19.0%, and ~~$67,000,~~$21,000, or ~~8.3%~~4.8%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in 2016. Equipment service contract expenses increased by $16,000, or 24.7%, and $38,000, or 22.2%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Equipment repair and maintenance costs did not change for the quarterly period in both years, but increased by $15,000, or 48.5%, for the nine months ended September 30, 2017, compared to the same period in the prior year. Other miscellaneous equipment expenses increased by $4,000, or 23.5%, and $27,000, or 74.0%, for the three and nine months ended September 30, 2017, compared to 2016. Partially offsetting these increases, depreciation on furniture and equipment decreased by $3,000, or 1.6%, and $14,000, or 2.6% for the three and nine-month periods in 2017 compared to 2016. In general, furniture and equipment expenses are increasing as a result of the expanded branch and office network.

Advertising and marketing expenses increased by $23,000, or 19.2%, for the three months ended September 30, 2017, compared to the same period in 2016, and increased by $117,000, or 27.7%, for the nine months ended September 30, 2017, compared to the same period in 2016.2018. These expenses can be further broken down into two categories, marketing expenses and public relations. The marketing expenses ~~remained the same~~decreased by $46,000, or 27.5%, for the ~~quarter ended September 30, 2017, compared to the third quarter of 2016, but for the nine months ended September 30, 2017, these expenses~~quarter-to-date period, and increased by ~~$84,000,~~$12,000, or ~~31.7%~~4.4%, ~~compared to~~for the year-to-date period ~~in 2016. Public relations expenses increased by $23,000, or 72.1%, for the three months~~ ended ~~September~~June 30, ~~2017, and $34,000, or 21.7%, for the nine months ended September 30, 2017,~~2019, compared to the same periods in ~~2016.~~the prior year. Public relations expenses increasd by $7,000, or 18.1%, and decreased by $32,000, or 18.6%, for the three and six months ended June 30, 2019, compared to the same periods in 2018. Marketing expenses support the overall business strategies of the Corporation; therefore, the timing of these expenses is highly dependent upon the execution of those strategies.

Computer software and data processing expenses increased by ~~$104,000,~~$35,000, or ~~22.1%~~6.1%, for the ~~third~~second quarter of ~~2017,~~2019 compared to 2018, and ~~$309,000,~~$148,000, or ~~23.0%~~13.2%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same ~~periods~~period in ~~2016.~~2018. Software-related expenses were ~~up $78,000,~~down by $19,000, or ~~30.3%, and $242,000, or 33.4%~~5.6%, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2019, and up by $54,000, or 8.2%, for the six months ended June 30, 2019, compared to the same periods in the prior ~~year,~~year. The year-to-date increase was primarily ~~as a result~~because of increased amortization on existing software as well as purchases of new software platforms to support the strategic initiatives of the Corporation. Software expenses are likely to continue to increase in 2019, but the actual increase will be dependent on how quickly new software platforms are identified, analyzed, approved and placed into service. Data processing fees were up ~~$27,000,~~$55,000, or ~~12.3%~~24.3%, and ~~$68,000,~~$94,000, or ~~10.9%~~20.6%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in ~~2016.~~2018. These fees are likely to ~~continue to~~ increase throughout ~~the remainder of 2017~~2019 as ~~new software platforms are installed and the cost of annual maintenance contracts increases and~~ data processing fees increase with the increase in customer transactions.

~~The Pennsylvania~~ Bank ~~Shares Tax~~shares tax expense ~~decreased $12,000, or 5.3%, and $36,000, or 5.3%,~~was $232,000 for the ~~three and nine months ended September 30, 2017,~~second quarter of 2019, an increase of $3,000, or 1.3%, from the second quarter of 2018. For the year-to-date period, shares tax increased by $22,000, or 5.0%, compared to the ~~same periods in 2016. Three~~prior year. Two main factors determine the amount of bank shares tax: the ending value of shareholders’ equity and the ending value of tax-exempt U.S. ~~obligations, and the actual tax rate.~~obligations. The shares tax calculation ~~in 2014 changed to using~~uses a ~~year-end~~period-end balance of shareholders’ equity ~~less tax-exempt U.S. obligations multiplied by~~and a tax rate of ~~0.89%~~0.95%. ~~In 2016, as part~~The increase in 2019 can be primarily attributed to the Corporation’s growing value of the State of Pennsylvania Budget discussions, the Governor proposed a Bank Shares Tax rate increase to 1.25%. Later proposals were 0.99%, and the 0.95% tax rate that was approved. As a result of these budget discussions, in the beginning of 2016 management was accruing for a higher level of PA Bank Shares Tax, which caused the expense for both the three and nine-month periods ended September 30, 2016 to be elevated. Once it was known the Pennsylvania Bank Shares Tax rate was approved at 0.95% for the 2016 PA Bank Shares Tax year, the amount of expense was reduced in the second half of 2016 and throughout 2017.shareholders’ equity.

~~Other operating expenses~~Professional services expense increased ~~by $74,000,~~$51,000, or ~~14.8%~~10.1%, and ~~by $44,000,~~$93,000, or ~~2.6%~~9.9%, for the three and ~~nine months~~six-month periods ended ~~September~~June 30, ~~2017 respectively,~~2019, compared to the same periods in ~~2016. Loan-related expenses~~2018. These services include accounting and auditing fees, legal fees, and fees for other third-party services. Other outside service fees increased by $95,000 for the quarter and by $100,000 for the year-to-date periods when comparing 2017 to 2016. The primary reason for this increase was the implementation of a third party origination loan program which generates revenue from loans referred by another financial institution, with a commission paid to that institution which runs through this other operating expense category. Additionally, fraud-related charge-offs increased by $14,000,$36,000, or ~~63.4%~~20.5%, and ~~$45,000,~~$77,000, or ~~50.7%~~22.5%, for the three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to the same periods in 2018. Trust department processing fees were higher by $29,000, or 51.2%, and $14,000, or 14.6%, for the ~~prior year.~~

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion~~three and ~~Analysis~~

six months ended June 30, 2019, compared to the same periods in 2018. Several other professional services expenses increased or decreased slightly making up the remainder of the variance.

Income Taxes

~~The~~Prior to 2018, the majority of the Corporation’s income iswas taxed at a corporate rate of 34% for Federal income tax purposes. In December of 2017, the Tax Cuts and Jobs Act lowered the corporate tax rate from 34% to 21% effective for 2018 and years going forward. For the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the Corporation recorded Federal income tax expense of ~~$391,000 and $935,000,~~$1,046,000, compared to ~~tax expense of $445,000 and $1,045,000~~$535,000 for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2018. The effective tax rate for the Corporation was ~~16.1%~~15.5% for the ~~three~~six months ended ~~September~~June 30, ~~2017, and 14.0% for the nine months ended September 30, 2017,~~2019, compared to ~~17.6% and 15.6%~~9.8% for the same ~~periods~~period in ~~2016.~~2018. The Corporation’s effective tax rate has historically been maintained at low levels primarily due to a relatively high level of tax-free municipal bonds held in the securities portfolio. The fluctuation of the effective tax rate will occur as a result of total tax-free revenue as a percentage of total revenue. The lower effective tax rate for the year-to-date period in ~~2017~~2018 was primarily caused by ~~an increase~~the lower Federal corporate tax rate as well as a higher percentage of tax-free income that was elevated by $913,000 of BOLI death benefit recognized in the ~~Corporation’s tax-free municipal bond portfolio.~~first quarter of 2018.

Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and BOLI income; therefore, the effective income tax rate for the Corporation is lower than the stated tax rate. The effective tax rate is calculated by dividing the Corporation’s provision for Federal income taxes on the Consolidated Statements of Income by the income before income taxes for the applicable period.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The Corporation is also subject to Pennsylvania Corporate Net Income Tax; however, the Corporation’s Holding Company has very limited taxable corporate net income activities. The Corporation’s wholly owned subsidiary, Ephrata National Bank, is subject to Pennsylvania Bank Shares Tax. Like Federal Corporate income tax, the Pennsylvania Bank Shares Tax is a significant expense for the Corporation, amounting to ~~$215,000~~$465,000 in the ~~third quarter~~first half of ~~2017 and $644,000 for the nine months ended September 30, 2017,~~2019 compared to ~~$227,000 and $680,000 for the same periods~~$443,000 in ~~2016.~~2018. The Bank Shares Tax expense appears on the Corporation’s Consolidated Statements of Income, under operating expenses.

5150

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Financial Condition

Investment Securities ~~Available for Sale~~

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of ~~September~~June 30, ~~2017,~~2019, the Corporation had ~~$320.7~~$290.9 million of securities available for sale, which accounted for ~~31.7%~~25.7% of assets, compared to ~~31.3%~~26.8% as of December 31, ~~2016,~~2018, and ~~30.7%~~29.3% as of ~~September~~June 30, ~~2016.~~2018. Based on ending balances, the securities portfolio ~~increased 7.6%~~decreased 5.3% from ~~September~~June 30, ~~2016,~~2018, and ~~4.1%~~1.1% from December 31, ~~2016.~~2018.

The securities portfolio was showing a net unrealized ~~loss~~gain of ~~$3,381,000~~$366,000 as of ~~September~~June 30, ~~2017,~~2019, compared to an unrealized loss of ~~$7,401,000~~$7,254,000 as of December 31, ~~2016,~~2018, and an unrealized ~~gain~~loss of ~~$1,850,000~~$8,552,000 as of ~~September~~June 30, ~~2016.~~2018. 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 10-year U.S. Treasury yield was ~~1.60%~~2.85% as of ~~September~~June 30, ~~2016, 2.45%~~2018, 2.69% as of December 31, ~~2016,~~2018, and ~~2.33%~~2.00% as of ~~September~~June 30, ~~2017.~~2019. The lower Treasury rates since December 31, ~~2016~~2018 have caused an ~~improvement~~increase in market valuation, which has resulted in the ~~smaller~~small amount of unrealized ~~loss~~gains recorded at ~~September~~June 30, ~~2017~~2019, compared to ~~the significant unrealized~~ losses recorded at December 31, ~~2016.~~2018, and June 30, 2018.

The table below summarizes the Corporation’s amortized cost, unrealized gain or loss position, and fair value for each sector of the securities ~~available for sale~~ portfolio for the periods ended ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016.~~2018.

AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD

(DOLLARS IN THOUSANDS)

Net
Amortized Unrealized Fair
Cost Gains (Losses) Value
$ $ $
September 30, 2017
U.S. government agencies 29,107 (460 ) 28,647
U.S. agency mortgage-backed securities 54,181 (598 ) 53,583
U.S. agency collateralized mortgage obligations 54,503 (465 ) 54,038
Corporate bonds 57,384 (248 ) 57,136
Obligations of states and political subdivisions 123,344 (1,671 ) 121,673
Total debt securities 318,519 (3,442 ) 315,077
Marketable equity securities 5,557 61 5,618
Total securities available for sale 324,076 (3,381 ) 320,695

December 31, 2016
U.S. government agencies 33,124 (863 ) 32,261
U.S. agency mortgage-backed securities 56,826 (957 ) 55,869
U.S. agency collateralized mortgage obligations 38,737 (801 ) 37,936
Corporate bonds 52,928 (837 ) 52,091
Obligations of states and political subdivisions 128,428 (3,998 ) 124,430
Total debt securities 310,043 (7,456 ) 302,587
Marketable equity securities 5,469 55 5,524
Total securities available for sale 315,512 (7,401 ) 308,111

			Net
	Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value
	$		$			$
June 30, 2019
U.S. government agencies		31,186		(155	)		31,031
U.S. agency mortgage-backed securities		46,899		(807	)		46,092
U.S. agency collateralized mortgage obligations		54,906		2			54,908
Asset-backed securities		13,926		(67	)		13,859
Corporate bonds		52,680		(182	)		52,498
Obligations of states and political subdivisions		90,953		1,586			92,539
Total debt securities, available for sale		290,550		377			290,927
Equity securities		6,242		(11	)		6,231
Total securities		296,792		366			297,158

December 31, 2018
U.S. government agencies		31,025		(905	)		30,120
U.S. agency mortgage-backed securities		46,363		(1,724	)		44,639
U.S. agency collateralized mortgage obligations		55,182		(1,092	)		54,090
Asset-backed securities		11,440		(41	)		11,399
Corporate bonds		61,085		(1,893	)		59,192
Obligations of states and political subdivisions		96,157		(1,532	)		94,625
Total debt securities		301,252		(7,187	)		294,065
Equity securities		6,001		(67	)		5,934
Total securities		307,253		(7,254	)		299,999

5251

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

			Net							Net
	Amortized		Unrealized			Fair		Amortized		Unrealized			Fair
	Cost		Gains (Losses)			Value		Cost		Gains (Losses)			Value
	$		$			$		$		$			$
September 30, 2016
June 30, 2018
U.S. government agencies		33,088		(11	)		33,077		35,089		(1,390	)		33,699
U.S. agency mortgage-backed securities		50,160		31			50,191		48,039		(1,936	)		46,103
U.S. agency collateralized mortgage obligations		34,940		98			35,038		58,120		(1,849	)		56,271
Asset-backed securities									7,768		(32	)		7,736
Corporate bonds		53,751		158			53,909		62,929		(1,577	)		61,352
Obligations of states and political subdivisions		118,515		1,452			119,967		103,888		(1,796	)		102,092
Total debt securities		290,454		1,728			292,182		315,833		(8,580	)		307,253
Marketable equity securities		5,835		122			5,957
Equity securities									5,709		28			5,737
Total securities available for sale		296,289		1,850			298,139		321,542		(8,552	)		312,990

Interest rate changes and the perceived forward direction of interest rates generally have a close relationship to the valuation of the Corporation’s fixed income securities portfolio. There are also a number of other market factors that impact bond prices. ~~It is likely~~During 2018, the Federal Reserve ~~will act to~~increased short-term rates four times, but mid and long-term U.S. Treasury rates did not increase ~~rates one more time during 2017. During 2016,~~at the same speed, so there was ~~increased foreign market turmoil with several major European countries experiencing negative yields for mid and longer term notes. This resulted~~a general flattening of the yield curve throughout 2018. With lower long-term rates in ~~foreign investors seeking~~the first half of 2019, the yield curve is even flatter resulting in the higher valuation of the securities portfolio. The 10-year U.S. Treasury ~~debt as~~reached a ~~safe haven and drove U.S. Treasury yields to new record lows~~low of 2.44% in early ~~in the third quarter of 2016. Treasury rates increased significantly during the third and fourth quarters of 2016. The Treasury rates~~2018 then ran up to a ~~2017~~2018 high of 3.24% in ~~March~~November and ~~then~~ slowly retreated until hitting ~~lows in early September. Since then~~2.69% at the end of the year. In the first half of 2019, the 10-year U.S. Treasury rate slowly decreased to a June low of 2.00% where it finished the quarter. Management believes that U.S. Treasury rates ~~have slowly increased and are likely to increase~~will remain stagnant throughout the ~~fourth quarter in anticipation~~remainder of ~~a December~~2019 or could decrease with anticipated Federal Reserve rate ~~increase. The trend of the U.S. leading economic indicators is more supportive of a Federal Reserve rate increase than they were earlier in the year.~~decreases. Beyond interest rate movements, there are also a number of other factors that influence bond pricing including regulatory changes, financial performance of issuers, changes to credit rating of insurers of bonds, changes in market perception of certain classes of securities, and many more. Management monitors the changes in interest rates and other market influences to assist in management of the securities portfolio.

Any material increase in market interest rates would have a negative impact on the market value of the Corporation’s fixed income debt securities. As of June 30, 2019, approximately 86.7% of the Corporation’s debt securities were fixed rate securities with the other 13.3% variable rate. The variable rate instruments generally experience very little impact to valuation based on a change in rates, whereas the impact of a change in market interest rates will vary on the fixed rate securities according to ~~the~~type of bond, length and structure of each sector. The Federal Reserve increased the Fed funds rate by 25 basis points in December of 2015, December of 2016, March of 2017, and June of 2017, with the likelihood of an additional increase in December of 2017. While management is planning for mid-term and long-term interest rates to increase throughout the remainder of 2017, it is possible they would not increase to the same magnitude that short-term rates will increase resulting in an even flatter yield curve.instrument. The municipal bond sector is the largest of the portfolio and, as a result, management will closely monitor the 10-year U.S. Treasury yield due to its impact on these securities. The other sectors of the portfolio have shorter lives and duration and would be more influenced by the 2-year and 5-year U.S. Treasury rates. It is anticipated that the current unrealized ~~losses~~gains could ~~grow~~improve even further if market rates ~~do increase~~remain stagnant or decrease during the remainder of the ~~year, either in anticipation of a Federal Reserve rate move, or after the next rate move.~~year.

~~After four consecutive quarters of declines ending on September 30, 2016, the~~The Corporation’s effective duration increased in the final two quarters of 2016 and first quarter of 2017 due primarily to a higher level of municipal bonds in the securities portfolio. However, due to selective sales of longer duration securities, the duration did declinedecreased in the second ~~and third quarters~~quarter of ~~2017.~~2019, from 3.0 as of December 31, 2018, to 2.3 as of June 30, 2019. Effective duration is a measurement of the length of the securities portfolio with a higher level indicating more length and more exposure to an increase in interest rates. The securities portfolio base case effective duration was ~~as low as 2.8 as of September 30, 2016. Since then it has increased to~~ 3.3 as of ~~September~~June 30, ~~2017.~~2018, and decreased to 3.0 as of December 31, 2018, with a further decline to 2.3 as of June 30, 2019. Duration is expected to remain stable or decline slightly throughout the remainder of ~~2017. It will be more difficult~~2019. The Corporation was able to reduce effective duration ~~materially since management has increased the percentage~~by purchasing more variable rate securities throughout 2018. Additionally, with declining rates, pass-through structures of ~~municipal holdings~~MBS and CMO instruments typically shorten in ~~the portfolio. While the percentage of longer~~ duration municipal bonds has grown, the types of new municipal bond instruments being purchased generally have better rates-up performance than those municipal bonds being sold. Therefore, the same duration can be maintained despite a higher element of municipal securities. Management also continues to utilize a large cash position outside of the portfolio, as ~~well as lower duration corporate bonds to offset the duration of the longer municipal bonds.~~principal payments increase.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

Management’s actions to maintain reasonable effective duration of the securities portfolio are part of a broader asset liability plan to continually work to mitigate future interest rate risk and fair value risk to the Corporation. Part of that strategy is to retain higher levels of cash and cash equivalents to increase liquidity and provide an immediate hedge against higher interest rates and fair value risk. However, despite taking actions to mitigate the Corporation’s future risk, these risks are inherent to the banking model. Unrealized gains and losses on securities will vary significantly according to market forces. Management’s focus will continue to be on the long-term performance of these securities. While management has and will continue to take gains from the portfolio when opportunities exist, the broader securities strategy remains to buy and hold debt securities until maturity. Because market interest rates were ~~generally rising since September 30, 2016,~~declining in the first half of 2019, there was some opportunity to realize gains from the sales of securities. As a result, gains from the sales of securities ~~did decline significantly.~~were up for the six months ended June 30, 2019, compared to the prior year’s period.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The Corporation typically invests excess liquidity into securities, primarily fixed-income bonds. The securities portfolio provides interest and dividend income to supplement the interest income on loans. Additionally, the securities portfolio assists in the management of both liquidity risk and interest rate risk. In order to provide maximum flexibility for management of liquidity and interest rate risk, the securities portfolio is classified as available for sale and reported at fair value. Management adjusts the value of all the Corporation’s securities on a monthly basis to fair market value as determined in accordance with U.S. generally accepted accounting principles. Management has the ability and intent to hold all debt securities until maturity, and does not generally record impairment on bonds that are currently valued below book value. In addition to the ~~fixed-income~~fixed and variable rate bonds, the Corporation’s equity holdings consist of a small CRA-qualified mutual fund with a book and fair market value of ~~$5.3~~$5.5 million. The CRA fund is a Small Business Association (SBA) variable rate fund with a stable dollar price. The Corporation also has a small portfolio of bank stocks with a book value of ~~$307,000~~$754,000 and fair market value of ~~$368,000~~$743,000 as of ~~September~~June 30, ~~2017.~~2019. The equity holdings make up ~~1.8%~~2.1% of the Corporation’s securities available for sale.

All securities, bonds, and equity holdings are evaluated for impairment on a quarterly basis. Should any impairment occur, management would write down the security to a fair market value in accordance with U.S. generally accepted accounting principles, with the amount of the write down recorded as a loss on securities.

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 imposes guidelines to ensure diversification within the portfolio. The diversity specifications provide opportunities to shorten or lengthen duration, maximize yield, and mitigate credit risk. The composition of the securities portfolio based on fair market value is shown in the following table.

SECURITIES PORTFOLIO

(DOLLARS IN THOUSANDS)

	Period Ending												Period Ending
	September 30, 2017				December 31, 2016				September 30, 2016				June 30, 2019				December 31, 2018				June 30, 2018
	$		%		$		%		$		%		$		%		$		%		$		%

U.S. government agencies		28,647		8.9		32,261		10.5		33,077		11.1		31,031		10.4		30,120		10.0		33,699		10.8
U.S. agency mortgage-backed securities		53,583		16.7		55,869		18.1		50,191		16.8		46,092		15.5		44,639		14.9		46,103		14.7
U.S. agency collateralized mortgage obligations		54,038		16.9		37,936		12.3		35,038		11.8		54,908		18.5		54,090		18.0		56,271		18.0
Asset-backed securities														13,859		4.7		11,399		3.8		7,736		2.5
Corporate debt securities		57,136		17.8		52,091		16.9		53,909		18.1		52,498		17.7		59,192		19.7		61,352		19.6
Obligations of states and political subdivisions		121,673		37.9		124,430		40.4		119,967		40.2		92,539		31.1		94,625		31.6		102,092		32.6
Equity securities		5,618		1.8		5,524		1.8		5,957		2.0
Total debt securities, available for sale														290,927		97.9		294,065		98.0		307,253		98.2

Marketable equity securities (a)														6,231		2.1		5,934		2.0		5,737		1.8

Total securities		320,695		100.0		308,111		100.0		298,139		100.0		297,158		100.0		299,999		100.0		312,990		100.0

The largest movements within the securities portfolio were shaped by market factors, such as:

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

slope of the U.S. Treasury curve and projected forward rates

interest spread versus U.S. Treasury rates on the various securities

pricing of the instruments, including supply and demand for the product

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

structure of the instruments, including duration and average life

portfolio weightings versus policy guidelines

prepayment speeds on mortgage-backed securities and collateralized mortgage obligations

credit risk of each instrument and risk-based capital considerations

Federal income tax considerations with regard to obligations of tax-free states and political subdivisions.

Since September of 2016, the most significant change occurring within the Corporation’s securities portfolio was an increase in U.S. agency collateralized mortgage obligations (CMOs), and a decrease in U.S. government agency securities.

The Corporation’s U.S. government agency sector decreased by ~~$4.4~~$2.7 million, or ~~13.4%~~7.9%, since ~~September~~June 30, ~~2016,~~2018, with the weighting decreased from ~~11.1%~~10.8% of the portfolio to ~~8.9%~~10.4%. In the past, management’s goal was to maintain agency securities at approximately 15% of the securities portfolio. In the current rate environment, management is comfortable maintaining agencies at a level of approximately 10% of the portfolio. This sector is also important in maintaining adequate risk weightings of the portfolio, to ensure sufficient U.S. government securities for pledging purposes, and importantly to ladder out a schedule of agency and corporate maturities over the next 5 years to avoid any concentration of maturities. Next to U.S. Treasuries, U.S. agencies are viewed as the safest instruments and are considered by management as a foundational portion of the portfolio.

The Corporation’s U.S. agency MBS and CMO sectors have ~~increased~~remained relatively unchanged in total since ~~September~~June 30, ~~2016, and the weightings have changed with significantly more CMOs and only slightly more MBS as of September 30, 2017, compared to September 30, 2016.~~2018. The Corporation’s CMO portfolio has ~~increased~~decreased by ~~$19.0~~$1.4 million, or ~~54.2%~~2.4%, while MBS balances ~~have only increased by $3.4 million, or 6.8%,~~did not materially change when comparing ~~September~~June 30, ~~2017,~~2019, to balances at ~~September~~June 30, ~~2016.~~2018. 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. Unlike the typical U.S. agency paper, corporate bonds, and obligations of states and political subdivisions, which only pay principal at final maturity, the 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 ~~significant and~~ reasonably stable base cash ~~flow.~~flow of approximately $2.0 million. 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. As interest rates decline, prepayment of principal on securities increases, the duration of the security shortens, and the yield declines as more amortization is required on premium bonds. When interest rates increase, the opposite of this occurs. Despite the fluctuations that occur in terms of monthly cash flow as a result of changing prepayment speeds, the monthly cash flow generated by U.S. agency MBS and CMO securities is reasonably stable and as a group is ~~significant,~~material, and helps to soften or smooth out the Corporation’s total monthly cash flow from all securities.

Management invested in asset-backed securities in 2018 in the form of floating rate student loan pools in an effort to provide an instrument that will perform well in a rates-up environment and offset the interest rate risk of the longer fixed-rate municipal bonds. These securities provide a variable rate return materially above the overnight Federal funds rate in a safe investment with a risk rating very similar to that of U.S. Agency bonds. The asset-backed securities generally provide monthly principal and interest payments to complement the Corporation’s ongoing cash flow. Asset-backed securities were $13.9 million as of June 30, 2019, compared to $11.4 million as of December 31, 2018, and $7.7 million as of June 30, 2018.

As of ~~September~~June 30, ~~2017,~~2019, the fair value of the Corporation’s corporate bonds ~~increased~~decreased by ~~$3.2~~$8.9 million, or ~~6.0%~~14.4%, from balances at ~~September~~June 30, ~~2016.~~2018. 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. Management stands to possibly lose the entire principal amount if the entity that issued the corporate paper fails. 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, are tax-free securities that generally provide the highest yield in the securities portfolio. They also carry the longest duration on average of any instrument in the securities portfolio. In the prolonged period of historically low interest rates, the municipal bond sector has ~~far~~ outperformed all other sectors of the 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. However, due to the decrease in the Federal tax rate as enacted by the Tax Cuts and Jobs Act, municipal yields do not outperform the other segments of the securities portfolio to the same degree as years prior to 2018. While the tax-equivalent yields are still good, the benefit of the tax-free income was impacted resulting in the sales of a number of municipal bonds in the fourth quarter of 2017. Additional municipal securities were sold throughout 2018 to help provide needed liquidity and to reposition the portfolio for better rates-up performance. Due to ~~purchases,~~these sales, the fair market value of municipal holdings has ~~increased~~decreased by ~~$1.7~~$9.6 million, or ~~1.4%~~9.4%, from ~~September~~June 30, ~~2016~~2018 to ~~September~~June 30, ~~2017.~~2019. Municipal bonds represented ~~37.9%~~31.1% of the securities portfolio as of ~~September~~June 30, ~~2017,~~2019, compared to ~~40.2%~~32.6% as of ~~September~~June 30, ~~2016.~~2018. The Corporation’s investment policy limits municipal holdings to 125% of Tier 2 capital. As of ~~September~~June 30, ~~2017,~~2019, municipal holdings amounted to ~~109%~~76% of Tier 2 capital.

5554

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

By policy, management is to identify and recommend whether to hold or sell securities with credit ratings that have fallen below minimum policy credit ratings required at the time of purchase, or below investment grade. Management monitors the security ratings on a monthly basis and reviews quarterly with the Board of Directors. Management, with Board approval, determines whether it is in the Corporation’s best interest to continue to hold any security that has fallen below policy guidelines or below investment grade based on the expectation of recovery of market value or improved performance. At this time management has elected, and the Board has approved, holding all securities that have fallen below initial policy guidelines. As of ~~September~~June 30, ~~2017,~~2019, no securities have fallen below investment grade.

As of ~~September~~June 30, ~~2017, nineteen~~2019, seventeen of the ~~thirty-three~~twenty-eight corporate securities held by the Corporation showed an unrealized holding loss. These securities with unrealized holding losses were valued at ~~99.1%~~99.7% of book value. The Corporation’s investment policy requires that corporate bonds have a minimum credit rating of A3 by Moody’s or A- by S&P or Fitch at the time of purchase, or an average or composite rating of A-. As of ~~September~~June 30, ~~2017,~~2019, all but ~~three~~two of the corporate bonds had at least one A3 or A- rating by one of the two predominate credit rating services, Moody’s and S&P. ~~The three unrelated~~These two corporate bonds ~~with~~were from the same issuer and had a total book value of ~~$6.7~~$3.0 million, and did not have an A3 or A- rating as of ~~September~~June 30, ~~2017.~~2019. These bonds were ~~all~~ rated Moody’s Baa1 and S&P BBB+, which are two levels above the minimum required to be considered investment grade. Management conducts ongoing monitoring of these bonds and has chosen to continue to hold these bonds with Board approval. In addition, there are ~~twelve~~thirteen corporate bond instruments that have split ratings with the highest rating within the Corporation’s initial purchase policy guidelines and the lower rating outside of management guidelines, but all are still investment grade. The ~~twelve~~thirteen bonds have a book value of ~~$20.0~~$22.8 million with a ~~$57,000~~$32,000 unrealized loss, or 0.1% decline, as of ~~September~~June 30, ~~2017.~~2019. Management conducts ongoing monitoring of these bonds with the Board approving holding these securities on a quarterly basis. Currently, there are no indications that any of these bonds would discontinue contractual payments.

The Corporation’s investment policy requires that municipal bonds not carrying insurance have a minimum credit rating of A3 by Moody’s or A- by S&P or Fitch at the time of purchase. As of ~~September~~June 30, ~~2017,~~2019, no municipal bonds carried a credit rating under these levels.

As a result of the fallout of the financial crisis, the major rating services have tightened their credit underwriting standards and are quicker to downgrade municipalities when financial conditions deteriorate. Additionally, the prolonged weak economy has reduced revenue streams for many municipalities and has called into question the basic premise that municipalities have unlimited power to tax, i.e. the ability to raise taxes to compensate for revenue shortfalls. As a result of this environment, managementManagement utilizes several municipal surveillance reports and engages an independent non-brokerage service third party to perform enhanced municipal credit evaluation. Management will typically sell municipal securities if negative trends in financial performance are found and/or ratings have declined to levels deemed unacceptable. As a result of the above monitoring and actions taken to proactively sell weaker municipal credits, the Corporation’s entire municipal bond portfolio consists of investment grade credits.

The entire securities portfolio is reviewed monthly for credit risk and evaluated quarterly for possible impairment. The Corporation’s municipal and corporate bonds present the largest credit risk and highest likelihood for any possible impairment. Due to the ability for corporate credit situations to change rapidly and ongoing nationwide concerns of pension obligations impacting municipalities, management iscontinues to closely ~~monitoring~~monitor all corporate and municipal securities.

Loans

Net loans outstanding increased by ~~3.1%~~14.4%, to ~~$576.0~~$709.4 million at ~~September~~June 30, ~~2017,~~2019, from ~~$558.5~~$620.0 million at ~~September~~June 30, ~~2016.~~2018. Net loans increased by ~~2.1%~~3.5%, an annualized rate of ~~2.8%~~7.0%, from ~~$564.0~~$685.4 million at December 31, ~~2016.~~2018. The following table shows the composition of the loan portfolio as of ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016.~~2018.

5655

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)

	September 30,					December 31,					September 30,					June 30,					December 31,					June 30,
	2017					2016					2016					2019					2018					2018
	$			%		$			%		$			%		$			%		$			%		$			%

Commercial real estate
Commercial mortgages		90,468			15.5		86,434			15.2		87,676			15.5		104,418			14.6		101,419			14.6		91,556			14.6
Agriculture mortgages		150,269			25.8		163,753			28.7		167,531			29.7		168,726			23.5		165,926			24.0		153,034			24.4
Construction		18,762			3.2		24,880			4.4		28,796			5.1		18,151			2.5		18,092			2.6		18,217			2.9
Total commercial real estate		259,499			44.5		275,067			48.3		284,003			50.3		291,295			40.6		285,437			41.2		262,807			41.9

Consumer real estate (a)
1-4 family residential mortgages		168,984			29.0		150,253			26.3		143,066			25.3		241,134			33.6		219,037			31.6		193,154			30.9
Home equity loans		11,457			2.0		10,391			1.8		10,537			1.9		10,536			1.5		10,271			1.5		10,184			1.6
Home equity lines of credit		57,991			9.9		53,127			9.3		50,251			8.9		66,535			9.3		64,413			9.3		62,936			10.0
Total consumer real estate		238,432			40.9		213,771			37.4		203,854			36.1		318,205			44.4		293,721			42.4		266,274			42.5

Commercial and industrial
Commercial and industrial		41,724			7.1		42,471			7.4		41,705			7.4		61,298			8.6		61,043			8.8		47,517			7.6
Tax-free loans		19,632			3.4		13,091			2.3		11,485			2.0		16,815			2.3		22,567			3.3		21,770			3.5
Agriculture loans		18,487			3.2		21,630			3.8		19,363			3.4		20,641			2.9		20,512			3.0		18,209			2.9
Total commercial and industrial		79,843			13.7		77,192			13.5		72,553			12.8		98,754			13.8		104,122			15.1		87,496			14.0

Consumer		5,166			0.9		4,537			0.8		4,663			0.8		8,397			1.2		9,197			1.3		10,215			1.6

Total loans		582,940			100.0		570,567			100.0		565,073			100.0		716,651			100.0		692,477			100.0		626,792			100.0
Less:
Deferred loan fees (costs), net		(1,137	)				(1,000	)				(895	)				(1,705	)				(1,596	)				(1,426	)
Allowance for loan losses		8,028					7,562					7,435					8,957					8,666					8,171
Total net loans		576,049					564,005					558,533					709,399					685,407					620,047

(a)	Residential real estate loans do not include mortgage loans serviced for others which totaled ~~$90,123,000~~$138,468,000 as of ~~September~~June 30, ~~2017, $66,767,000~~2019, $126,916,000 as of December 31, ~~2016,~~2018, and ~~$59,506,000~~$108,907,000 as of ~~September~~June 30 ~~2016.~~2018.

There was ~~moderate~~significant growth in the loan portfolio since ~~September~~June 30, ~~2016,~~2018, and December 31, ~~2016. A decline~~2018. All major loan categories showed an increase in ~~agricultural mortgages~~balances from June 30, 2018 and ~~construction lending secured by~~all categories outside of commercial and industrial and consumer loans showed an increase in balances from December 31, 2018. Loan growth was significant in 2018 and continued with strong growth in the first half of 2019.

The consumer residential real estate ~~between December 31, 2016 and September~~category represents the largest group of loans for the Corporation. The consumer residential real estate category of total loans increased from $266.3 million on June 30, ~~2017 offset~~2018, to $318.2 million on June 30, 2019, a ~~large portion of the growth occurring in other areas of the portfolio, resulting in somewhat slower growth. Commercial~~19.5% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans ~~saw a decline in balances with increases in consumer real estate loans~~secured by 1-4 family residential properties, including first and ~~commercial~~junior liens, and ~~industrial loans more than offsetting this decrease.~~floating rate home equity loans. The biggest decline in the commercial real estate sector has been in agricultural mortgages, which declined due to a reorganization of the Bank’s agricultural lending team, increased competitive pressures, including new market entrants, and headwinds in the agricultural marketplace impacting dairy farmers and poultry producers. In the consumer real estate sector, 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, 2018, this percentage was 42.5%, and as of June 30, 2019, it increased to 44.4%. Management expects the consumer residential real estate category to increase at a similar pace throughout the remainder of 2019 due to a continued effort to increase mortgage volume and lower interest rates, which should continue to motivate home buyers and those refinancing. The economic conditions for consumers have also improved slightly going into 2019. Consumer disposable income is higher and home valuations have increased, which has increased the ~~expansion~~equity available in their homes. These favorable conditions to originate mortgages are subject to market conditions that can change rather quickly. Mortgage volume would slow should interest rates reverse course and home valuations decline later in 2019.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The first lien 1-4 family mortgages increased by $48.0 million, or 24.8%, from June 30, 2018, to June 30, 2019. These first lien 1-4 family loans made up 73% of the residential real estate total as of June 30, 2018, and 76% as of June 30, 2019. 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 first six months of 2019, purchase money origination constituted 67% of the Corporation’s mortgage ~~division~~originations with construction-only and ~~successful efforts~~construction-permanent loans making up 30% of that. Total production increased by 16% over the previous quarter and year-to-date originations were up by 20% compared to ~~expand~~ the same period in 2018. The growth in the Corporation’s held-for-investment portfolio continued to be concentrated in its ARM products. As of June 30, 2019, ARM balances were $110.3 million, 15.3% higher compared to December 31, 2018. During the first half of 2019, 23% of all ARMs booked were 10/1 ARMs, 47% were 7/1 ARMs, and 30% were 5/1 ARMs. The ARM product ~~line and increase~~is beneficial to the ~~sales force~~Corporation as it limits the interest rate risk to ~~capture~~ a ~~greater share~~much shorter time period. As of the ~~local mortgage market. Home~~end of the quarter, 60% of the residential loan portfolio of the Corporation was adjustable rate mortgages. Market conditions were favorable in the second quarter and combined with an increase in overall production, the gains on the sale of mortgages increased by 19% quarter-over-quarter and by 18% over the prior year’s second quarter.

As of June 30, 2019, the remainder of the residential real estate loans consisted of $10.5 million of fixed rate junior lien home equity loans, and $66.5 million of variable rate home equity lines of credit ~~have grown~~(HELOCs). This compares to $10.2 million of fixed rate junior lien home equity loans, and $62.9 million of HELOCs as of June 30, 2018. Therefore, combined, these two types of home equity loans increased from $73.1 million to $77.0 million, an increase of 5.3%. The Prime rate had remained at a very low level of 3.25% for seven years beginning in ~~response~~December of 2008 and increased by 25 basis points to 3.50% in December of 2015 and another 25 basis points to 3.75% in December of 2016 before increasing three more times in 2017 and 4 times in 2018 ending the year at a rate of 5.50%. The majority of borrowers chose variable-rate HELOC products throughout 2018 instead of fixed-rate home equity loans. In addition, multiple HELOC specials with a low ~~interest~~introductory rate ~~environment encouraging~~were offered in 2018, which encouraged more HELOC activity resulting in the increase in this category of loans since the prior year. While 2018 did not see a significant shift away from the variable-rate HELOC product, more consumers did move to a fixed rate product in the first half of 2019 as rates had increased several times throughout the past number of years. However, with the Federal Reserve rate decrease in the third quarter of 2019, it is likely customers may move back to ~~utilize~~more variable rate ~~consumer borrowings in conjunction with an attractive six-month introductory rate of 1.99%, which the Corporation has offered for all of 2016 and~~product. Management expects HELOC activity to increase during the ~~first nine months~~remainder of ~~2017.~~2019 as customers may elect to borrow more funds on their lines with lower interest rates.

~~In terms of all loans secured by~~Commercial real estate ~~the total~~consists of ~~all categories of real estate loans comprises 85.4%~~40.6% of total loans as of ~~September~~June 30, ~~2017. At $259.5 million,~~2019, compared to 41.9% of total loans as of June 30, 2018. Within the commercial real estate ~~is the largest category of the loan portfolio, consisting of 44.5% of total loans. This category includes~~segment there has been an increase in agricultural mortgages and commercial mortgages ~~agriculture~~over the past year, with construction based mortgages ~~and construction loans. Commercial real estate loans decreased~~remaining steady. Agricultural mortgages increased $15.7 million, or 10.3%, from ~~$284.0~~$153.0 million as of ~~September~~June 30, ~~2016,~~2018, to ~~$259.5~~$168.7 million as of ~~September~~June 30, ~~2017, a $24.5 million, or 8.6% decrease.~~

2019. The ~~decline in commercial real estate loans has primarily been in those secured by farmland as well as a decline in construction loans partially offset by a small~~ increase ~~in commercial mortgages. Agricultural mortgages decreased $17.2 million, or 10.3% from $167.5 million as of September 30, 2016, to $150.3 million as of September 30, 2017. The decline~~ in agricultural mortgages was caused by an increase in the pipeline of agricultural projects throughout 2018. These loans are now closing as some farmers are moving ahead with projects that may have been on hold for a ~~combination~~period of ~~new agricultural~~time. Dairy lending ~~competition~~remains constrained with milk prices at three-year lows and it does not appear pricing will improve materially in ~~Lancaster County and weaker~~the immediate future. There have been overcapacity issues with some consolidation of the area’s larger milk ~~and egg pricing for farmers. Low~~producers. Several dairy ~~egg, and poultry~~farmers have left the industry or are in the process of doing so. Egg prices ~~are constraining local farmers from expanding operations presently.~~improved in 2018, with average prices materially above the 2017 average. Approximately 45% of the Corporation’s agricultural purpose loans support dairy operations while another 25% are either broiler or egg producers. ~~The pipeline for new agricultural mortgages slowed in the second half of 2016 and did not pick up over the winter months leading into the spring of 2017.~~ Management believes the ~~present~~ level of agricultural mortgages will ~~remain flat until~~steadily increase aided by the Corporation’s renewed focus on the agricultural community and a full staff ready to meet agriculture lending needs but challenged by the declining economic conditions ~~improve~~ for farmers in the local market ~~area and pricing pressures from additional market entrants subside.~~area.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion~~Commercial real estate loans increased to $291.3 million at June 30, 2019, from $262.8 million at June 30, 2018, a 10.8% increase. The increase in commercial real estate occurred in the agriculture and ~~Analysis~~commercial mortgages. Agriculture mortgages increased by $15.7 million, or 10.3%, and commercial mortgages increased by $12.8 million, or 14.0%, from June 30, 2018, to June 30, 2019. The agricultural mortgages, along with agricultural loans not secured by real estate, accounted for 26.4% of the entire loan portfolio as of June 30, 2019, compared to 27.3% as of June 30, 2018. Management expects agricultural and commercial loans to increase in 2019. Management believes as economic conditions improve further in 2019, other elements of the local diversified economy outside of the agriculture industry will expand and cause commercial mortgages to continue to grow as well.

Commercial mortgages ~~were the most stable sector within~~increased $12.8 million, or 14.0% from balances at June 30, 2018. Although balances have increased, the commercial ~~real estate area with~~mortgages as a ~~small~~ percentage ~~increase from~~of the ~~prior year period. Commercial mortgages increased by $2.8 million, or 3.2%, from September 30, 2016 to September 30, 2017, with new~~total loan portfolio stayed the same at 14.6%. New loan production in this segment is currently outpacing normal principal payments, ~~and paydowns~~pay downs, and payoffs. The commercial real estate market environment is showing slow growth in the Corporation’s market area but more competition is vying for this business. Management ~~would expect~~expects commercial real estate loans to remain stable as a percentage of the Corporation’s loans ~~as we move through~~for the ~~last quarter~~remainder of ~~2017.~~2019.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The ~~Corporation experienced declines in~~Corporation’s commercial construction asloan balances remained very stable from June 30, 2018 to June 30, 2019 with no growth or decline in balances. This is a result of a number of construction projects completed and ~~were~~ converted into permanent ~~financing. The Corporation did not originate any new large construction contracts to replace~~financing matching those that rolled off. Management was experiencing some demand for smaller residential builds like construction on existing lots but no new large scale projects. Commercial construction loans ~~decreased by $10.0 million, or 34.8%, from September 30, 2016 to September 30, 2017.~~

~~Consumer real estate loans make up 40.9%~~were 2.9% of the total loan portfolio ~~with balances of $238.4 million~~ as of ~~September~~June 30, ~~2017, a marked increase from 36.1% of the portfolio~~2018, compared to 2.5% as of ~~September~~June 30, 2017. These loans include 1-4 family residential mortgages, home equity term loans, and home equity lines of credit. Personal residential mortgages account for 70.9% of total residential real estate loans and 29.0% of total loans, up from 70.2% and 25.3% respectively, as of September 30, 2016. Traditional 10 to 20-year personal mortgages originated from and held by the Corporation have consistently been the largest single product of the Corporation’s loan portfolio. During 2016 and through the first nine months of 2017, the Corporation experienced significant increases in both portfolio and secondary market production. The volume of residential mortgage production since September 30, 2016, led to an 18.1% increase in 1-4 family residential mortgage balances along with a significant shift from fixed rate loans to interim adjustable rate mortgages (ARMs), climbing from 26% of the residential loan portfolio as of September 30, 2016, to 36% at September 30, 2017. This shift in production has decreased the Bank’s interest rate risk profile and this trend is expected to continue throughout the remainder of 2017. Total personal residential mortgage balances increased by $25.9 million, or 18.1%, from September 30, 2016 to September 30, 2017, and $18.7 million, or 12.5%, from December 31, 2016 to September 30, 2017.2019.

The Corporation generally only holds 10 to 20-year fixed rate mortgages, or mortgages with an initial fixed rate period of 10 years or less (adjustable rate mortgages), and will sell any mortgage originated over a 20-year fixed rate term. The majority of the fixed rate mortgages are sold with servicing retained. In the first nine months of 2017, purchase money origination constituted 66% of the Corporation’s mortgage originations with construction-only and construction-permanent loans making up 34% of that. The growth of the Corporation’s held-for-investment portfolio continued to be concentrated in its ARM products; ARM balances were $18.0 million, or 42.2% higher compared to December 31, 2016, while the fixed rate balances dropped by $5.7 million, or 7.5%, during the same time period for net growth of $12.3 million in the residential portfolio. Similar in nature to 2016 trends, 68% of all ARMs booked were 7/1 ARMs, 28% were 5/1 ARMs, and 4% were 3/1 ARMs. The ARM product is beneficial to the Corporation as it limits the interest rate risk to a much shorter time period. The ARM loans have continued to grow rapidly as a percentage of the portfolio, amounting to over 46% of the total personal mortgages held by the Corporation as of September 30, 2017. As of September 30, 2017, the Corporation had $60.5 million of ARMs held in the portfolio. Management expects internal mortgage loan production to continue to develop throughout the remainder of 2017 as the Corporation focuses on strategically growing thisother area of ~~the portfolio.~~

~~Second mortgages~~commercial lending is non-real estate secured commercial lending, referred to as commercial and ~~home equity loans, fixed or variable rate, make up the remainder of the Corporation’s residential real estate loans. The purposes of these loans can vary but for this analysis the loan type~~industrial lending. Commercial and form of lien and collateral govern the placement of these loans under home equity loans. Requests for fixed-rate home equity loans have been very light during this prolonged period of historically low rates, while home equity lines of credit, which float on the Prime rate, have been the preferred home equity financing. The growth of the Corporation’s home equity lines of credit accelerated during 2016 and in the first nine months of 2017 as a result of an attractive HomeLine product with a low introductory rate of 1.99% for six months. After that period, the home equity line would revert to Prime or Prime plus a margin depending on the strength of the borrower. Home equity lines of credit increased from $50.3 million on September 30, 2016, to $58.0 million on September 30, 2017, a $7.7 million, or 15.3% increase.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

The Corporation continues to offer the low 1.99% six-month introductory rate on the HomeLine product and expects similar growth to occur throughout the remainder of 2017. This trend is likely to slow down if the Prime rate continues to increase over time. It is expected that when the Federal Reserve acts to increase the overnight rate again, and the Prime rate increases, the reaction will be that floating rate loans will become less attractive to borrowers who will act to protect themselves against further rate increases by converting to a fixed rate loan. Since September 30, 2016, the fixed rate home equity loans have increased by $0.9 million, or 8.7%, and are expected to increase slightly throughout the remainder of 2017 given the likelihood of one more Federal Reserve rate increase. Management anticipates moderate growth in the residential real estate area throughout the remainder of 2017 as longer term rates have remained lower than anticipated and management continues to add resources in an effort to further expand the mortgage department, which remains an area of strategic focus for the Corporation.

~~Commercial~~industrial loans not secured by real estate ~~are~~accounted for 13.8% of total loans as of June 30, 2019, compared to 14.0% as of June 30, 2018. In scope, the commercial and industrial loan sector, at 13.8% of total loans, is significantly smaller than the ~~Corporation’s~~ commercial real estate sector at 40.6% of total loans. This is consistent with management’s credit preference for obtaining real estate collateral when making commercial loans. The balance of total commercial and industrial loans increased from $87.5 million at June 30, 2018, to $98.8 million at June 30, 2019, a 12.9% increase. 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. Based on current levels of demand for these types of loans and the higher level of commercial and industrial expertise that the Corporation now has, management anticipates that these loans will experience moderate growth in 2019.

The Corporation provides credit to many small and medium-sized businesses. Much of this credit is in the form of Prime-based lines of credit to local businesses where the line may not be secured by real estate, ~~portfolio. These commercial and industrial loans, referred to as C&I loans, are generally extended~~but is based on the health of the borrower with other security interests on accounts receivable, inventory, equipment, or through personal guarantees. Commercial and industrial loans increased to $61.3 million at June 30, 2019, a $13.8 million, or 29.1% increase, from the $47.5 million at June 30, 2018. The commercial ~~borrower. They include both fixed rate~~and industrial agricultural loans grew by $2.4 million, or 13.2%, and ~~Prime-based variable rate loans. The variable rate~~the tax-free loans ~~are generally in~~declined by $5.0 million, or 22.9%, from balances at June 30, 2018, primarily due to the ~~form~~payoff of a ~~business line of credit. The Corporation’s security position as~~loan relationship to these loans can be further strengthened by obtaining the personal guarantees of the owners. This is a preferred approach to commercial accounts as it allows the Corporation to pursue assets of the owner in addition to assets of the commercial entity. Management can also obtain additional collateral by securing the inventory of the business. The portfolio of all types of C&I loans showed an increase of $7.3 million, or 10.0%, from September 30, 2016 to September 30, 2017. As of September 30, 2017, this category of commercial loans was made up of $41.7 million of C&I loans (outside of tax-free and agricultural loans), $19.6 million of tax-free loans, and $18.5 million of agriculture loans. In the case of the Corporation, all of the $19.6 million of tax-free loans are toone local municipalities. C&I loans remained unchanged since September 30, 2016, tax-free loans increased by $8.1 million, or 70.9%, and agriculture loans decreased by $0.9 million, or 4.5%, compared to balances at September 30, 2016. The increase in tax-free loans occurred as a result of scheduled draws on tax-free loans to several municipalities originated in 2016.municipality.

The consumer loan portfolio ~~increased~~decreased to ~~$5.2~~$8.4 million at ~~September~~June 30, ~~2017,~~2019, from ~~$4.7~~$10.2 million at ~~September~~June 30, ~~2016.~~2018. Consumer loans made up ~~0.9%~~1.2% of total loans on ~~September~~June 30, ~~2017,~~2019, and ~~0.8%~~1.6% on June 30, 2018. The decrease in consumer loans since June 30, 2018, was primarily due to a $5.0 million consumer purpose loan made to a high net worth customer in the second quarter of ~~loans on September 30, 2016.~~2018 that has paid down a portion of the balance since that time. 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 ~~for those expenditures.~~that are generally unsecured. The new $5.0 million consumer loan was secured. Slightly higher demand for unsecured credit is ~~just slightly outpacing~~being outpaced by principal payments on existing loans resulting in the ~~small increase~~decrease in balances. Management anticipates that the Corporation’s level of consumer loans will likely remain stable as a percentage of the portfolio, as the need for additional unsecured credit is generally offset by those borrowers wishing to reduce debt levels and move away from the higher cost of unsecured financing relative to other forms of real estate secured financing.

Non-Performing Assets

Non-performing assets include:

Nonaccrual loans

Loans past due 90 days or more and still accruing

Troubled debt restructurings

Other real estate owned

5958

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)

	September 30,		December 31,		September 30,		June 30,		December 31,		June 30,
	2017		2016		2016		2019		2018		2018
	$		$		$		$		$		$

Nonaccrual loans		687		721		805		1,809		1,833		1,063
Loans past due 90 days or more and still accruing		254		384		666		242		397		349
Troubled debt restructurings		263		—		—		—		—		209
Total non-performing loans		1,204		1,105		1,471		2,051		2,230		1,621

Other real estate owned		—		—		—		—		—		—

Total non-performing assets		1,204		1,105		1,471		2,051		2,230		1,621

Non-performing assets to net loans		0.21%		0.20%		0.26%		0.29%		0.32%		0.26%

The total balance of non-performing assets increased by $428,000, or 26.4%, from June 30, 2018 to June 30, 2019, but decreased by ~~$267,000,~~$181,000, or ~~18.2%, from September 30, 2016 to September 30, 2017, and increased by $99,000, or 9.0%~~8.1%, from December 31, ~~2016~~2018 to ~~September~~June 30, ~~2017.~~2019. The ~~decrease~~increase from the prior year was ~~primarily~~ due to higher levels of nonaccrual loans partially offset by lower levels of non-accrual loans and loans past due 90 days or more partially offset by the addition of one agriculture loan restructured in the second quarter of 2017 that is now considered a troubled debt restructuring (TDR). The loan is considered a TDR because the borrower was granted a six-month interest-only period on this loan. The decrease in non-accrual loans was due to pay downs received on a business mortgage causing a reduction in outstanding balance on this loan. Additionally, loans past due 90 days or more and ~~still accruing decreased by $412,000 primarily due to loans that were previously past due being brought current due to payments received.~~troubled debt restructurings. Management continues to monitor delinquency trends and the level of non-performing loans closely. At this time, management believes that the potential for material losses related to non-performing loans is increasing with the level of ~~classified loans increasing from the lower levels~~delinquencies slightly higher than those experienced in ~~2016.~~2018.

There was no other real estate owned (OREO) as of ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, or ~~September~~June 30, ~~2016.~~2018.

Allowance for Loan Losses

The allowance for loan 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 loan losses. This calculation is based upon a systematic methodology for determining the allowance for loan 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 loan loss calculation, management will adjust the allowance for loan losses through the provision as necessary. Changes to the allowance for loan losses during the year are primarily affected by five main factors:

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 Allowance for Loan Losses table below shows the activity in the allowance for loan losses for the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2019 and ~~September~~June 30, ~~2016.~~2018. At the bottom of the table, two benchmark percentages are shown. The first is net charge-offs as a percentage of average loans outstanding for the year. The second is the total allowance for loan losses as a percentage of total loans.

6059

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

ALLOWANCE FOR LOAN LOSSES

(DOLLARS IN THOUSANDS)

	Six Months Ended
	June 30,
	2019			2018
	$			$

Balance at January 1,		8,666			8,240
Loans charged off:
Real estate		—			224
Commercial and industrial		—			110
Consumer		23			26
Total charged off		23			360

Recoveries of loans previously charged off:
Real estate		(87	)		—
Commercial and industrial		(14	)		(6	)
Consumer		(3	)		(5	)
Total recovered		(104	)		(11	)
Net loans charged-off (recovered)		(81	)		349

Provision charged to operating expense		210			280

Balance at June 30,		8,957			8,171

Net charge-offs (recoveries) as a % of average total loans outstanding		(0.01%	)		0.06%

Allowance at end of period as a % of total loans		1.25%			1.30%

Nine Months Ended
September 30,
2017 2016 ��
$ $

Balance at January 1, 7,562 7,078
Loans charged off:
Real estate — —
Commercial and industrial 14 23
Consumer 16 24
Total charged off 30 47

Recoveries of loans previously charged off:
Real estate (20 ) (10 )
Commercial and industrial (21 ) (185 )
Consumer (5 ) (9 )
Total recovered (46 ) (204 )
Net loans recovered (16 ) (157 )

Provision charged to operating expense 450 200

Balance at September 30, 8,028 7,435

Net recoveries as a % of average total loans outstanding (0.00% ) (0.03% )

Allowance at end of period as a % of total loans 1.37% 1.31%

Charge-offs for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, were ~~$30,000,~~$23,000, compared to ~~$47,000~~$360,000 for the same period in ~~2016.~~2018. Management typically charges off unsecured debt over 90 days delinquent with little likelihood of recovery. In the first ~~nine~~six months of ~~2017~~2019, the Corporation charged off $23,000 related to several small consumer loans. Recoveries were higher in the first six months of 2019 as the Corporation recovered $44,000 related to one commercial loan relationship and ~~2016, only small loans classified as~~smaller amounts related to other loans. Recoveries exceeded charges-offs in the six months ended June 30, 2019. In the first six months of 2018, a large commercial ~~and industrial loans~~loan relationship was charged off as well as several small consumer loans were charged off. Recoveries exceeded charge-offs in the nine months ended September 30, 2017, as well as 2016. In 2017, several recoveries on commercial and industrial loans as well as consumer loans were received and in the nine months ended September 30, 2016, a large commercial and industrial recovery was received as well as small real estate and consumer recoveries resulting in the net recovery position for the year-to-date periods.loans.

The allowance as a percentage of total loans represents the portion of the total loan portfolio for which an allowance has been provided. Management regularly reviews the overall risk profile of the loan portfolio and the impact that current economic trends have on the Corporation’s loans. The financial industry typically evaluates the quality of loans on a scale with “unclassified” representing healthy loans, “special mention” being the first indication of credit concern, and several successive classified ratings indicating further credit declines of “substandard,” “doubtful,” and, ultimately, “loss.”

The Corporation’s level of classified loans was $17.8 million on ~~September~~June 30, ~~2017, was up $7.1~~2019, compared to $16.0 million ~~or 51.1%, from the balance as of September~~on June 30, 2016. The Corporation’s total classified loans based on outstanding balances were $21.0 million as of September 30, 2017, $14.2 million as of December 31, 2016, and $13.9 million as of September 30, 2016.2018. Total classified loans ~~did not materially increase until~~have increased during the first ~~quarter~~half of ~~2017 when a large business relationship~~2019 primarily related to the downgrade of an agricultural customer with ~~over $5~~$1.4 million ~~of loan balances was classified as substandard. In addition, a $2 million agricultural relationship was also placed on substandard~~ in March 2017. These two reclassifications were responsible for a $7 million increase in classified loans from December 31, 2016 to March 31, 2017. In April of 2017, the Corporation received a $1.7 million payoff on the $2 million substandard agricultural relationship. Classified loans grew further in the second quarter as two agricultural relationships with balances of $3.3 million were classified as substandard, along with two business customers with $2 million of loanoutstanding balances. ~~During the third quarter of 2017, payoffs were received on two classified loan relationships resulting in a decline in classified loans between June 30, 2017, and September 30, 2017.~~

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 ~~$98,000~~$106,000 of specifically allocated allowance against the classified loans as of ~~September~~June 30, ~~2017, and no~~2019, $132,000 of specific allocation as of December 31, ~~2016, or September~~2018, and $79,000 of specific allocation as of June 30, ~~2016. Classified loans could require larger provision amounts due to a higher potential risk of loss, so~~2018. Typically, as the classified loan balances fluctuate, the associated specific allowance applied to them fluctuates, resulting in a lower or higher required allowance.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

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, after reducing charge-offs by recoveries. The Corporation continues to experience ~~very~~ low net charge-off percentages due to strong credit practices. ~~For the first nine months of 2017 and 2016, there were more recoveries than charge-offs resulting in a net recovery position.~~ Management continually monitors delinquencies, classified loans, and non-performing loans closely in regard to how they may impact charge-offs in the future. Management ~~does anticipate charging~~is currently monitoring several business loans to one borrower for possible charge off. Future action will be dependent on the timing and amounts of payments being made on these loans. It is typical for several smaller consumer loans to be charged off ~~one commercial loan~~each quarter. The actual charge offs have been running at very low levels, therefore it is likely charge offs in the ~~fourth quarter~~second half of ~~2017 that was on non-accrual status as of September 30, 2017. Management anticipates that charge-off to~~2019 would be ~~approximately $275,000. The particular business has not been operating since 2016 and the property is expected to go to sheriff sale~~higher than those experienced in the first ~~quarter~~half of ~~2018. Management is not aware of any other significant charge-offs that could occur in the fourth quarter of 2017.~~2019. Management practices are in place to reduce the number and severity of losses. In regard to severely delinquent loans, management attempts to improve the Corporation’s collateral or credit position and, in the case of a loan workout, intervene to minimize additional charge-offs.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The allowance as a percentage of total loans was ~~1.37%~~1.25% as of ~~September~~June 30, ~~2017, 1.32%~~2019, 1.25% as of December 31, ~~2016,~~2018, and ~~1.31%~~1.30% as of ~~September~~June 30, ~~2016.~~2018. Management anticipates that the allowance percentage will remain fairly stable during the remainder of ~~2017,~~2019, as the allowance balance is increased with additional provision expense to account for loan growth throughout the year. It is typical for the allowance for loan losses to contain a small amount of excess reserves. Management desires that the amount of excess reserve in the allowance for loan losses be maintained between 5% and 10%. The excess reserve stood at ~~5.8%~~7.9% as of ~~September~~June 30, ~~2017.~~2019.

Premises and Equipment

Premises and equipment, net of accumulated depreciation, ~~increased~~decreased by ~~$1.6~~$0.5 million, or ~~7.0%~~1.9%, to ~~$24.4~~$25.3 million as of ~~September~~June 30, ~~2017,~~2019, from ~~$22.8~~$25.8 million as of ~~September~~June 30, ~~2016.~~2018. As of ~~September~~June 30, ~~2017, $1,285,000~~2019, $104,000 was classified as construction in process compared to ~~$156,000~~$315,000 as of ~~September~~June 30, ~~2016.~~2018. Fixed assets ~~increased~~declined as a result of ~~the Corporation’s eleventh full-service branch office opened~~depreciation outpacing new purchases in Morgantown, PA and the limited-service location opened in Georgetown, PA, both in the third quarter of 2016. Additionally, fixed assets increased due to assets deployed at a temporary location opened in Strasburg, PA, and the land purchased to build the permanent location also in Strasburg, PA, both in the first quarter of 2017. Premises and equipment, specifically construction in process, will continue to grow during 2017 as construction proceeds on the Corporation’s new Strasburg, PA branch office.

2019.

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~~$7.0 million of regulatory stock holdings as of ~~September~~June 30, ~~2017,~~2019, consisted of ~~$5.9~~$6.8 million of FHLB of Pittsburgh stock, $151,000 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.

The Corporation’s investment in FHLB stock is required for membership in the organization. The amount of stock required is dependent upon the relative size of outstanding FHLB borrowings and mortgage activity. Excess stock is typically repurchased from the Corporation at par if the borrowings decline to a predetermined level. The Corporation’s FHLB stock position was ~~$5.9~~$6.8 million on ~~September~~June 30, ~~2017, $5.2~~2019, $6.2 million on December 31, ~~2016,~~2018, and ~~$5.0~~$6.1 million on ~~September~~June 30, ~~2016,~~2018, with no excess capital stock position. Any future stock repurchases would be the result of lower borrowing balances. Stock repurchases by the FHLB occur every quarter.

The ~~FHLB of Pittsburgh has paid a quarterly~~2018 and 2019 dividend since the resumption of their dividend in the first quarter of 2012. In the first two quarters of 2016, FHLB dividend yield was 5.00% annualized on activity stock and 3.00% annualized on membership stock. The stock declarations made on FHLB stock by FHLB of Pittsburgh ~~in the third and fourth quarters of 2016 and the first, second, and third quarters of 2017, is~~were at a ~~5.00%~~6.75% annualized yield on activity stock and ~~2.00%~~3.50% annualized yield on membership stock. Most of the Corporation’s dividend is based on the activity stock, which is based on the amount of borrowings and mortgage activity with FHLB. ~~Management continues to monitor the financial condition of the FHLB quarterly to assess its ability to continue to regularly repurchase excess capital stock and pay a dividend.~~

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

Management believes that the FHLB will continue to be a primary source of wholesale liquidity for both short-term and long-term funding. Management’s strategy in terms of future use of FHLB borrowings is addressed under the Borrowings section of this Management’s Discussion and Analysis.

Deposits

The Corporation’s total ending deposits at June 30, 2019, increased by ~~$21.3~~$21.9 million, or ~~2.6%~~2.4%, and ~~$46.2~~by $63.5 million, or ~~5.8%~~7.2%, from December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016,~~2018, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. In the past few years, the economic concerns and volatility of the equity markets continued to lead customers to banks for safe places to invest money, despite historically low interest rates. The mix of the Corporation’s deposit categories has changed moderately since ~~September~~June 30, ~~2016,~~2018, with the changes being a ~~$41.1~~$19.2 million, or ~~15.8%~~5.9% increase in non-interest bearing demand deposit accounts, a ~~$2.5~~$2.9 million, or ~~11.6% decrease~~15.3% increase in interest bearing demand accounts, a ~~$13.7~~$5.0 million, or ~~14.9% decrease~~5.7% increase in NOW balances, a ~~$13.1~~$36.4 million, or ~~15.3%~~35.5% increase in money market balances, a ~~$21.1~~$5.4 million, or ~~12.6%~~2.7% increase in savings account balances, ~~and~~ a ~~$9.8~~$1.5 million, or ~~6.2%~~1.1% decrease in time deposit balances, and a $3.7 million, or 100.0% decrease in brokered CD balances.

The ~~significant~~ growth across most categories of core deposit accounts is a direct result of the ~~local market disruption caused by two large mergers, which impacted~~opening of new branch offices as well as the ~~three counties the Corporation primarily serves.~~expansion of business at existing branch offices. The Corporation has gained many new customers as a result of being a long-standing safe community bank known for offering understandable financial products and services with lower fees. ~~The~~While the prolonged historically low interest rates ~~also continue to aid~~helped the Corporation in growing core deposits ~~as a result of very little difference between~~in 2016 and prior years, this has slowed down in recent years due to the ~~core deposit rates and short-term time deposit rates. Customers~~Federal Reserve rate increases that have given customers more bank-related options in the market. While customers still view demand deposit, money market and savings accounts as the safest, most convenient place to maintain funds for maximum ~~flexibility.~~flexibility, there are more opportunities to invest in other funds outside of banks that can now compete with higher interest rates. Management believes ~~these~~ deposit ~~account types~~balances will ~~continue~~grow through the remainder of 2019 at an annualized pace similar to ~~hold higher balances until short-term~~the first six months of 2019, as interest rates potentially decline further due to Federal Reserve rate actions.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

While non-interest bearing demand deposits increased from June 30, 2018, there was a decrease of $23.6 million, or 6.4%, from December 31, 2018. Similarly, money market accounts increased by $30.2 million, or 27.8%, for the same time period. This shift between non-interest bearing accounts and money market accounts was caused by the reclassification of a pool of deposits held on balance sheet related to a cash management sweep account. These deposits, totaling $30.0 million, were reclassified as money market deposits in 2019 to better reflect the nature of the product. This recategorization caused a decline of $30 million in non-interest bearing demand accounts with an offsetting increase ~~further.~~in money market deposit accounts.

The Deposits by Major Classification table, shown below, provides the balances of each category for ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016.~~2018.

DEPOSITS BY MAJOR CLASSIFICATION

(DOLLARS IN THOUSANDS)

	September 30,		December 31,		September 30,		June 30,		December 31,		June 30,
	2017		2016		2016		2019		2018		2018
	$		$		$		$		$		$

Non-interest bearing demand		301,978		280,543		260,873		345,483		369,081		326,296
Interest bearing demand		19,279		20,108		21,799		21,982		20,104		19,068
NOW accounts		78,061		85,540		91,719		92,578		89,072		87,611
Money market deposit accounts		99,235		93,943		86,096		138,793		108,594		102,418
Savings accounts		188,015		175,753		166,904		205,902		199,665		200,532
Time deposits		148,513		156,381		158,300		136,868		130,719		138,396
Brokered time deposits		3,744		5,223		6,969		—		2,499		3,748
Total deposits		838,825		817,491		792,660		941,606		919,734		878,069

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

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

The Corporation has been a stable presence in the local market area that has experienced several large bank ~~mergers.~~mergers over the past several years. Three new convenient locations were added since 2016, significantly expanding the Corporation’s footprint, with a presence in three counties with a total of thirteen branch locations. The Corporation has a history of offering ~~very~~ competitive interest rates and fair and understandable service fees ~~as well as attractive interest rates~~ because of a strong commitment to the customers and the communities that it serves. Management has always priced products and services in a manner that makes them affordable for all customers. This in turn creates a high degree of customer loyalty and a stable deposit base. Additionally, as financial institutions have come under increased scrutiny from both regulators and customers, the Corporation has maintained an outstanding reputation. Management believes the Corporation’s deposit base has benefited as a result of a growing desire by customers to seek a longstanding, reliable financial institution as a partner to meet their financial needs.

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 ~~September~~June 30, ~~2017,~~2019, time deposit balances, excluding brokered deposits, had decreased ~~$7.9~~$1.5 million, or ~~5.0%~~1.1%, ~~and $9.8~~from June 30, 2018, but increased $6.1 million, or ~~6.2%~~4.7%, from December 31, ~~2016 and September 30, 2016, respectively.~~2018. 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. With minimal differences between shorter term CD rates and interest bearing non-maturity deposits, customers are more inclined to accumulate their funds in a liquid account that can be accessed at any time. This has resulted in declining time deposit balances and more significant growth in the core deposit areas. ~~Management anticipates~~However, in the fourth quarter of 2018, the Corporation began offering two odd-term CD products with more attractive rates that encouraged customers to invest. These promotional CD products have been effective in growing the ~~recent declines in~~ time ~~deposits will likely continue until interest rates increase~~deposit balances since December 31, 2018, and ~~cause more of a separation between longer-term rates and overnight rates.~~management expects continued growth throughout 2019.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Time deposits have FDIC insurance coverage insuring no loss of principal up to $250,000 per account, based on certain account structures. As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the $250,000 FDIC insurance coverage on all deposit accounts was made permanent. This has caused an increase in the percentage of time deposits over $100,000 held by the Corporation. While total time deposits continue to decline in the present environment, the percentage of time deposits over $100,000 compared to total time deposits has increased and is expected to remain at these higher percentages due to the FDIC coverage.

Borrowings

Total borrowings were ~~$68.4~~$74.6 million, ~~$69.6~~$73.3 million, and ~~$75.8~~$71.1 million as of ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016,~~2018, respectively. Of these amounts, ~~$8.3~~$7.9 million and ~~$12.1~~$2.7 million reflect short-term funds ~~for~~as of December 31, ~~2016,~~2018 and ~~September~~June 30, ~~2016,~~2018, respectively, with no short-term funds outstanding as of ~~September~~June 30, ~~2017.~~2019. 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.

Total long-term borrowings, borrowings initiated for terms longer than one year, were ~~$68.4~~$74.6 million as of ~~September~~June 30, ~~2017, $61.3~~2019, $65.4 million as of December 31, ~~2016,~~2018, and ~~$63.8~~$68.4 million as of ~~September~~June 30, ~~2016.~~2018. The long-term borrowings for the Corporation were made up entirely of FHLB long-term advances at ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016.~~2018. 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. Over the course of the past few years, the Corporation has minimally changed the ladder of long-term FHLB borrowings, by replacing maturing advances with new long-term advances typically at rate savings. ~~More recently, with~~After nine Federal Reserve rate increases and a higher but flatter U.S. Treasury curve, new borrowings in 2019 were being initiated at higher interest rates. Market interest rates ~~rising, it is becoming increasingly difficult~~have declined significantly, after June 30, 2019 prior to ~~fund~~the filing of this report. As a result, management anticipates obtaining new FHLB long-term borrowings in the second half of 2019 at lower interest rates ~~lower~~ than ~~the maturing borrowings.~~those advances that are maturing. Management will continue to analyze and compare the costs and benefits of borrowing versus obtaining funding from deposits.

In order to limit the Corporation’s exposure and reliance to a single funding source, the Corporation’s Asset Liability Policy sets a goal of maintaining the amount of borrowings from the FHLB to 15% of asset size. As of ~~September~~June 30, ~~2017,~~2019, the Corporation was significantly under this policy guideline at ~~6.8%~~6.6% of asset size with ~~$68.4~~$74.6 million of total FHLB borrowings. The Corporation also has a policy that limits total borrowings from all sources to 150% of the Corporation’s capital. As of ~~September~~June 30, ~~2017,~~2019, the Corporation was significantly under this policy guideline at ~~67.8%~~66.3% of capital with ~~$68.4~~$74.6 million total borrowings from all sources. The Corporation has maintained FHLB borrowings and total borrowings well within these policy guidelines throughout all of ~~2016~~2018 and through the first ~~nine~~six months of ~~2017.~~2019.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently ~~$349.8~~$427.5 million. The Corporation’s two internal policy limits mentioned above are far more restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Stockholders’ Equity

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

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

6564

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

REGULATORY CAPITAL RATIOS:

REGULATORY CAPITAL RATIOS:
			Regulatory Requirements							Regulatory Requirements
			Adequately		Well					Adequately		Well
As of September 30, 2017	Capital Ratios		Capitalized		Capitalized
As of June 30, 2019							Capital Ratios			Capitalized		Capitalized
Total Capital to Risk-Weighted Assets
Consolidated		15.4%		8.0%		10.0%		14.7%			8.0%		10.0%
Bank		15.2%		8.0%		10.0%		14.6%			8.0%		10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated		14.2%		6.0%		8.0%		13.6%			6.0%		8.0%
Bank		14.0%		6.0%		8.0%		13.4%			6.0%		8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated		14.2%		4.5%		6.5%		13.6%			4.5%		6.5%
Bank		14.0%		4.5%		6.5%		13.4%			4.5%		6.5%

Tier 1 Capital to Average Assets
Consolidated		10.2%		4.0%		5.0%		10.0%			4.0%		5.0%
Bank		10.1%		4.0%		5.0%		9.9%			4.0%		5.0%

As of December 31, 2016
As of December 31, 2018
Total Capital to Risk-Weighted Assets
Consolidated		15.2%		8.0%		10.0%		14.3%			8.0%		10.0%
Bank		15.0%		8.0%		10.0%		14.1%			8.0%		10.0%

Tier I Capital to Risk-Weighted Assets
Consolidated		14.1%		6.0%		8.0%		13.2%			6.0%		8.0%
Bank		13.9%		6.0%		8.0%		13.0%			6.0%		8.0%

Common Equity Tier I Capital to Risk-Weighted Assets
Consolidated		14.1%		4.5%		6.5%		13.2%			4.5%		6.5%
Bank		13.9%		4.5%		6.5%		13.0%			4.5%		6.5%

Tier I Capital to Average Assets
Consolidated		10.2%		4.0%		5.0%		10.0%			4.0%		5.0%
Bank		10.1%		4.0%		5.0%		9.8%			4.0%		5.0%


As of September 30, 2016
As of June 30, 2018
Total Capital to Risk-Weighted Assets
Consolidated		15.3%		8.0%		10.0%		14.9%			8.0%		10.0%
Bank		15.1%		8.0%		10.0%		14.6%			8.0%		10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated		14.2%		6.0%		8.0%		13.8%			6.0%		8.0%
Bank		14.0%		6.0%		8.0%		13.5%			6.0%		8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated		14.2%		4.5%		6.5%		13.8%			4.5%		6.5%
Bank		14.0%		4.5%		6.5%		13.5%			4.5%		6.5%

Tier 1 Capital to Average Assets
Consolidated		10.4%		4.0%		5.0%		10.1%	��		4.0%		5.0%
Bank		10.2%		4.0%		5.0%		9.9%			4.0%		5.0%

6665

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

Dividends play a vital role in the management of capital levels of the Corporation. Management seeks a balance between maintaining a sufficient cushion of excess capital above regulatory limits versus the payment of dividends to the shareholders as a direct return of their investment. Due to a constant stream of stable earnings, the payment of a dividend is needed to maintain capital at acceptable levels in order to provide an adequate return of equity to the shareholders.

The Corporation’s dividends per share for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, were ~~$0.84, 3.7% higher than~~$0.305, a 7.0% increase over the ~~$0.81 per share dividend~~$0.285 paid out in the first ~~nine~~six months of ~~2016.~~2018. Dividends are paid from current earnings and available retained earnings. The Corporation’s current capital plan calls for management to maintain tier I capital to average assets between 10.0% and 12.0%. The Corporation’s current tier I capital ratio is ~~10.2%~~10.0%. As a secondary measurement, the capital plan also targets a long-term dividend payout ratio in the range of 35% to 40%. This ratio will vary according to income, but over the long term, the Corporation’s goal is to maintain and target a payout ratio within this range. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, the payout ratio was ~~41.8%~~30.5%. Management’s goal is to maintain all regulatory capital ratios at current levels. Future dividend payout ratios are dependent on the future level of earnings and other factors that impact the level of capital.

The amount of unrealized gain or loss on the securities portfolio is reflected, net of tax, as an adjustment to capital, as required by U.S. generally accepted accounting principles. This is recorded as accumulated other comprehensive income or loss in the capital section of the consolidated balance sheet. An unrealized gain increases capital, while an unrealized loss reduces capital. This requirement takes the position that, if the Corporation liquidated the securities portfolio at the end of each period, the current unrealized gain or loss on the securities portfolio would directly impact the Corporation’s capital. As of ~~September~~June 30, ~~2017,~~2019, the Corporation showed an unrealized ~~loss,~~gain, net of tax, of ~~$2,232,000,~~$298,000, compared to an unrealized loss of ~~$4,885,000~~$5,678,000 at December 31, ~~2016,~~2018, and an unrealized ~~gain~~loss of ~~$1,221,000~~$6,778,000 as of ~~September~~June 30, ~~2016.~~2018. These unrealized gains and losses, net of tax are excluded from capital when calculating the tier I capital to average assets numbers above. The amount of unrealized gain or loss on the securities portfolio, shown net of tax, as an adjustment to capital, does not include any actual impairment taken on securities, which is shown as a reduction to income on the Corporation’s Consolidated Statements of Income. No impairment was recorded in the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, or in the same prior year period. The changes in unrealized gains and losses are due to normal changes in market valuations of the Corporation’s securities as a result of interest rate movements.

Regulatory Capital Changes

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations began January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began compliance on January 1, 2014. The final rules call for the following capital requirements:

A minimum ratio of common equity tier I capital to risk-weighted assets of 4.5%.

A minimum ratio of tier I capital to risk-weighted assets of 6%.

A minimum ratio of total capital to risk-weighted assets of 8%.

A minimum leverage ratio of 4%.

In addition, the final rules established a common equity tier I capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments. The phase-in period for the capital conservation and countercyclical capital buffers for all banking organizations began on January 1, 2016.

Under the initially proposed rules, accumulated other comprehensive income (AOCI) would have been included in a banking organization’s common equity tier I capital. The final rule allows community banks to make a one-time election not to include these additional components of AOCI in regulatory capital and instead use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital. The opt-out election was made by the Corporation with the filing of the first quarter Call Report as of March 31, 2015.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

The final rules permanently grandfather non-qualifying capital instruments (such as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in the tier I capital of banking organizations with total consolidated assets less than $15 billion as of December 31, 2009, and banking organizations that were mutual holding companies as of May 19, 2010. The Corporation does not have trust preferred securities or cumulative perpetual preferred stock with no plans to add these to the capital structure.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The proposed rules would have also modified the risk-weight framework applicable to residential mortgage exposures to require banking organizations to divide residential mortgage exposures into two categories in order to determine the applicable risk weight. In response to commenter concerns about the burden of calculating the risk weights and the potential negative effect on credit availability, the final rules do not adopt the proposed risk weights but retain the current risk weights for mortgage exposures under the general risk-based capital rules.

Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures, which was based on external credit ratings, with the simplified supervisory formula approach in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-up approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250 percent risk weight. The Corporation does not securitize assets and has no plans to do so.

Under the ~~new~~ rules, mortgage servicing assets (MSAs) and certain deferred tax assets (DTAs) are subject to stricter limitations than those applicable under the previous general risk-based capital rule. The ~~new~~ rules also increased the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and made selected other changes in risk weights and credit conversion factors.

Management has evaluated the impact of the above rules on levels of the Corporation’s capital. The final rulings were more favorable in terms of the items that would have a more significant impact to the Corporation and community banks in general. Specifically, the AOCI final ruling, which would have had the greatest negative impact to capital, provided the Corporation with an opt-out provision. The final ruling on the risk weightings of mortgages was favorable and did not have a material negative impact. The rulings as to trust preferred securities, preferred stock, and securitization of assets are not applicable to the Corporation, and presently the revised treatment of MSAs is not material to capital. The remaining changes to risk weightings on several items mentioned above such as past-due loans and certain commercial real estate loans do not have a material impact to capital presently, but could change as these levels change.

Off-Balance Sheet Arrangements

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of ~~September~~June 30, ~~2017.~~2019.

OFF-BALANCE SHEET ARRANGEMENTS

(DOLLARS IN THOUSANDS)

	~~September~~June 30,
	~~2017~~2019
	$
Commitments to extend credit:
Revolving home equity		~~75,381~~98,838
Construction loans		~~16,283~~30,279
Real estate loans		~~51,194~~56,308
Business loans		~~101,488~~116,012
Consumer loans		~~1,080~~1,457
Other		~~4,404~~9,712
Standby letters of credit		~~11,086~~9,966

Total		~~260,916~~322,572

6867

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

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. Dodd-Frank is expected to have a significant impact on the Corporation’s business operations as its provisions take effect. It is difficult to predict at this time what specific cumulative impact Dodd-Frank and the yet-to-be-written implementing rules and regulations will have on community banks. However, it is expected that, at a minimum, they will increase the Corporation’s operating and compliance costs and could increase interest expense. 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.

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. Additionally, Dodd-Frank directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded. Dodd-Frank also gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

Limits on Interchange Fees

Dodd-Frank amended the Electronic Fund Transfer Act to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

Consumer Financial Protection Bureau

Dodd-Frank created the 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.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

Prohibition Against Charter Conversions of Troubled Institutions

Dodd-Frank prohibits a depository institution from converting from a state to federal charter or vice versa while it is the subject of a cease and desist order or other formal enforcement action or a memorandum of understanding with respect to a significant supervisory matter unless the appropriate federal banking agency gives notice of the conversion to the federal or state authority that issued the enforcement action and that agency does not object within 30 days. The notice must include a plan to address the significant supervisory matter. The converting institution must also file a copy of the conversion application with its current federal regulator which must notify the resulting federal regulator of any ongoing supervisory or investigative proceedings that are likely to result in an enforcement action and provide access to all supervisory and investigative information relating thereto.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

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.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

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 loan 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. Minimal cost is an important component of liquidity. If a financial institution is required to take significant action to obtain funding, and is forced to utilize an expensive source, it has not properly planned for its liquidity needs. 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

Maturities and sales of securities

Borrowings from correspondent and member banks

Brokered deposits

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.

Management uses a cumulative maturity gap analysis to measure the amount of assets maturing within various periods versus liabilities maturing in those same periods. A gap ratio of 100% represents an equal amount of assets and liabilities maturing in the same stated period. Management monitors six-month, one-year, three-year, and five-year cumulative gaps to assist in determining liquidity risk. ~~The~~As of June 30, 2019, the six-month, ~~and~~ one-year, ~~gap ratios were within guidelines at September 30, 2017, and the three~~three-year, and five-year gap ratios were higher than corporate policy guidelines due ~~primarily~~ to ~~higher cash levels~~a larger amount of loans and ~~faster loan prepayment speeds resulting~~securities now maturing in ~~more assets maturing within the stated timeframes.~~less than five years. The ~~three-year~~six-month gap ratio was ~~143.1%, and five-year was 142.1%~~204.2%, compared to an upper guideline of 155%; one-year gap ratio was 148.1%, compared to an upper policy ~~guidelines~~guideline of 140%; the three-year gap ratio was 147.8%, compared to an upper guideline of 125%; and ~~115%~~the five-year gap ratio was 148.9%, ~~respectively.~~compared to an upper guideline of 115%. All of the gap ratios are higher than the ratios as of December 31, ~~2016. Given the fact that we are already in~~2018. In a rising interest rate cycle with the likelihood of higher rates, ~~in both the near and long term forecasts, the elevated~~higher gap ratios would be more beneficial to the Corporation. ~~Management believes~~However, in an environment where further rate increases are unlikely, management will focus on managing the ~~current~~balance sheet in a way to reduce gap ratios ~~are appropriate~~ and ~~will continue to monitor all~~position for flat or declining interest rates. Management would prefer lower gap ratios to ~~ensure proper positioning~~prepare for ~~future interest~~the possibility of rate ~~cycles.~~declines in the near future. As a result, management has the flexibility of investing in longer-term assets to gain more yield in the current rate environment.

~~Management has~~Gap ratios have been ~~maintaining higher~~increasing for the Corporation throughout 2018 and through the second quarter of 2019. The Corporation’s assets are moderately long, but the length of the securities portfolio and the loan portfolio is more than offset by the length of the Corporation’s core deposit liabilities in conjunction with holding relatively high levels of cash and cash ~~equivalents~~equivalents. Beyond the non-maturity deposits, management is able to ~~assist in offsetting~~utilize the ~~Corporation’s relatively long securities portfolio, which has helped~~length of wholesale funding instruments to ~~increase~~offset the gap ratios. The strategy of maintaining higher cash levels to improve gap ratios and act as an immediate hedge against liquidity risk and interest rate risk is expected to continue until the securities portfolio is materially shorter in duration. The Corporation’s securities portfolio measurements of duration and price volatility had been increasing between the third quarter of 2016 and the first quarter of 2017 due to the natural extension of MBS and CMO securities as interest rates rise, and the higher levels of long municipal securities held in the portfolio. However, the securities duration and price volatility did decline during the second and third quarters of 2017, and are expected to decline further, due to selective sales of longer duration securities and natural agingdeclining length of the ~~portfolio. Since June 30, 2017 management has been selling longer duration municipal bonds and U.S. agencies, while purchasing~~CD portfolio as customers invest in shorter ~~duration taxable securities including some floating rate instruments to better position the Corporation for~~terms in anticipation of higher interest rates.

7169

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

ItThe size and length of the Corporation’s core deposit liabilities provide the most extension in terms of lengthening the liabilities on the balance sheet. The length of the core deposits is ~~likely~~significantly longer than the Corporation’s longest term deposits and wholesale borrowings. The mix of the Corporation’s liabilities alone would be sufficient to offset the Corporation’s longer assets and to maintain gap ratios within management’s guidelines.

Deposit growth has been relatively strong throughout the first six months of 2019. Management believes that ~~short term~~the uncertainty about future Federal Reserve rate decreases coupled with two CD promotional rates offered since the fourth quarter of 2018, have resulted in higher deposit balances in 2019 compared to first half of 2018. Management desires to control the cost of funds and improve the loan-to-deposit ratio and does have a large securities portfolio to draw liquidity from in the event deposit growth slows down. Throughout the first half of 2019, management did sell some securities in an effort to fund the loan growth that was occurring. With gap ratios that are already sufficiently high, management can put more of the available cash to work earning higher returns. Additionally, cash balances are high enough now that additional loan growth can be funded directly from overnight cash.

Higher gap ratios are beneficial in providing financial flexibility for the Corporation. Higher gap ratios often are an indication that there are more short-term assets on the balance sheet, providing more available liquidity. The quickest way to elevate gap ratios is to retain higher levels of cash on the balance sheet. Management may desire to have higher gap ratios when factoring in future loan growth or other funding changes to the balance sheet. Management may be active in trying to increase gap ratios with the knowledge that once longer-term assets like loans are funded, the gap ratios will decline. Since late 2018, management has been actively working to increase ~~further during~~the Corporation’s loan-to-deposit ratio. As the loan-to-deposit ratio increases and more loans go onto the Corporation’s balance sheet, the asset mix will generally lengthen and the gap ratios will decline. Management does anticipate that more progress will be made on the loan-to-deposit ratio throughout the remainder of ~~2017, so management’s current position is to maintain high maturity gap percentages in preparation for higher rates, with a goal of reducing the 3 year~~2019, and ~~5 year~~would also anticipate that gap ratios ~~once several additional~~will decline.

Management’s desired gap levels will also change due to the direction of interest rates. In December of 2018, the Federal Reserve last increased overnight interest rates. Since then, U.S. Treasury interest rates across the yield curve have declined significantly with the yield curve flattening and even becoming inverted on the short end. On July 31, 2019, prior to the filing of this 10-Q report, the Federal Reserve cut the overnight interest rate for the first time in ten years. Cash and other short term assets were directly impacted by this change in overnight rates. If the Corporation’s liquid assets cannot be deployed into higher yielding longer term assets, then management will reduce the amount of cash and short-term assets to reduce the exposure to future decreases in the overnight rate. Prior to the July 31, 2019 Federal Reserve rate ~~increases occur. Ideally, management would like to have all gap ratios back within guidelines when~~action, the ~~approximate midpoint of~~overnight rate was higher than long-term rates such as the rates up cycle is reached. While higher gap ratios help the Corporation when interest rates do rise, the risk in maintaining high gap percentages is that, should interest rates not rise, management will have excess liquidity at lower short term rates.10-year U.S. Treasury. This is ~~referred to as opportunity risk, whereby lower levels~~often an indication of ~~income are being achieved than desired. Carrying high gap ratios~~a weaker economy, with a possible need for further rate cuts. Management believes the overnight Federal Funds rate will likely decline one additional time in ~~the current environment could also bring on an increased level of repricing risk should interest rates decrease, which could negatively impact the Corporation’s interest income and margin.~~2019, with further declines possible in 2020.

The risk of liabilities repricing at higher interest rates is ~~increasing slightly~~decreasing in the present environment as the Corporation ~~has begun~~does not foresee the need to ~~increase some~~raise deposit interest rates ~~minimally.~~with potential further Federal Reserve rate decreases possible. A number of the Corporation’s maturing time deposits have already repriced to higher rates by taking advantage of the promotional CD rates. However, a large portion of the Corporation’s deposits are core deposits with little ~~or no~~ repricing expected to occur in the near future. The ~~remainder of the~~ Corporation’s maturing ~~liabilities made up of~~ time deposits and borrowings are generally repricing to slightly higher interest rates. The Corporation’s average cost of funds was 3453 basis points as of ~~September~~June 30, ~~2017,~~2019, which is ~~very~~ low from an historic ~~perspective. However, this~~perspective but higher than the previous quarter and previous year. This cost of funds will likely ~~begin~~continue to slowly increase ~~slightly~~ throughout the remainder of ~~2017.~~2019. The average cost of funds includes the benefit of non-interest bearing demand deposit accounts. The Corporation’s cost of funds was 3336 basis points as of December 31, ~~2016,~~2018 and ~~35 basis points as of September~~June 30, 2016. The cost of funds savings slowed during 2017, with the low of 31 basis points reached in March 2017. Since then the cost of funds has increased 3 basis points to 34 basis points. Given a higher level of liabilities repricing now management would expect the cost of funds to increase at a slightly faster pace going forward.2018.

Deposits ~~have~~had not been very rate sensitive for a number of years as a result of the limited desirable rates available to the deposit customer. However, ~~should~~as market interest rates continued to rise ~~further~~ in ~~the remainder of 2017 and during~~ 2018, customer behavior patterns ~~would change~~changed and deposits ~~would be~~became more rate sensitive, with a portion ~~potentially~~ leaving the Corporation. The Corporation ~~has~~had experienced a steady growth in both non-interest bearing and interest bearing funds during this last prolonged and historically low interest rate ~~environment~~cycle, but in 2018 and ~~this trend continued throughout~~ the first ~~nine months~~half of ~~2017. This trend can partially be attributed to the market disruption that occurred~~2019, deposit growth has been slower than in ~~2016 as a result of recent large local bank mergers that greatly impacted the Corporation’s market area.~~prior years.

The performance of the equity markets also has a bearing on how much of the current deposits will remain at the Corporation. It is management’s observation that since the financial crisis, an element of the Corporation’s deposit customers has been reluctant to redeploy funds presently at banks back into the equity market. Investors have grown weary of the volatility of the equity markets. Negative events, primarily overseas, have caused multiple cycles of sharp equity declines followed by recoveries. ~~With~~The equity markets ~~beginning to improve~~performed very well in 2017 ~~there has been~~and were stabilized after large expected correction. This caused a resurgence of customers pulling funds from deposit accounts to reinvest in the equity markets. ~~This trend could cause~~But later in 2018, there had been renewed volatility in the equity market with significant declines in December of 2018 that erased the equity gains realized in earlier 2018. These events are still fresh in the investors’ minds. It remains to be seen whether this recent volatility will slow the reaction of deposit ~~growth~~customers to ~~slow or decline throughout~~higher market interest rates. So far in 2019, the ~~remainder of 2017.~~equity markets have had very strong gains, which to date have not adversely impacted the Corporation’s deposit levels.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The Corporation’s net interest margin is ~~improving~~down slightly from levels in the previous ~~quarter, primarily as a result of the Federal Reserve rate increase in March and June of 2017.~~quarter. Management’s future asset liability decisions will be dependent upon improvements in asset yield as well as the expected timing of further short-term rate ~~increases.~~increases or decreases. Management expects that the gap ratios will remain within or above the established guidelines throughout the remainder of ~~2017.~~2019.

It is important to stress that the gap ratios are a static measurement of the Corporation’s asset liability position. It is only one of many asset liability analysis tools management utilizes to measure, monitor, and manage both liquidity and interest rate risk. The deficiencies with the gap analysis are that it makes no provision for changes to the balance sheet out into the future and would not factor in changes that management would very likely make to mitigate future interest rate risk.

In addition to the cumulative maturity gap analysis discussed above, management utilizes a number of liquidity measurements that management believes has advantages over and gives better clarity to the Corporation’s present and projected liquidity than the static gap analysis offers.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

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

Core Deposit Ratio – Core deposits as a percentage of assets

Funding Concentration Analysis – Alternative funding sources outside of core deposits as a percentage of assets

Short-term Funds Availability – Readily available short-term funds as a percentage of assets

Securities Portfolio Liquidity – Cash flows maturing in one year or less as a percentage of assets and securities

Readily Available Unencumbered Securities and Cash – Unencumbered securities as a percentage of the securities portfolio and as a percentage of total assets

Borrowing Limits – Internal borrowing limits in terms of both FHLB and total borrowings

Three, Six, and Twelve-month Projected Sources and Uses of Funds – Projection of future liquidity positions

These measurements are designed to prevent undue reliance on outside sources of funding and to ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity sources. As of ~~September~~June 30, ~~2017,~~2019, the Corporation was within guidelines for all of the above measurements except the securities portfolio liquidity as a percentage of the portfolio and as a percentage of total assets. The policy calls for the Corporation to maintain securities portfolio cash flows maturing in one year or less between 15% and 25% of the total portfolio and between 4% and 8% of total assets and as of September 30, 2017, these cash flows represented 5.7% of the portfolio, and 1.8% of total assets, under the lower guidelines. When factoring in available overnight cash, the Corporation’s securities portfolio liquidity represented 13.5% of the portfolio, slightly under the policy guideline of 15% - 25%, and 4.3% of total assets, also below the policy guideline of 6% - 10%.measurements.

~~It is~~Throughout 2018 it was important for the Corporation to ~~prepare~~be prepared for a continued rates-up environment ~~and having~~with more liquidity ~~is advantageous as~~available so funds ~~can~~could be reinvested in higher yielding ~~assets faster when sufficient liquidity exists.~~assets. Now moving into the second half of 2019, it appears the Federal Reserve is pausing on increasing short-term rates as it gauges whether the economy will continue growing or slow down. Management ~~carried~~had been carrying an average of approximately $30 million to $40 million of cash and cash equivalents on a daily basis throughout ~~the first nine months~~most of ~~2017,~~2018. Management anticipates continuing to carry similar levels of cash. However, with ~~an ending balance of $44.2 million on September 30, 2017, and expects this will continue~~lower overnight rates, going forward, Management intends to utilize more cash, in ~~the near future. All~~order to fund loans.

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. The scenarios consist of a projection of net interest income if rates remain flat, increase 100, 200, ~~300,~~ or ~~400~~300 basis points, or decrease 50, 100, or ~~100~~150 basis points. ~~Rates-down~~Currently, the rates down scenarios seem more likely for the remainder of 2019 and into 2020, however, with the Federal funds rate at 2.50% as of June 30, 2019, and 2.25% as of July 31, 2019, the likelihood of the Federal funds rate being reduced by another 200 basis points is remote. For that reason, management believes it appropriate to model rates down 50, 100, and 150 basis points to most adequately cover all the reasonably possible declining rate scenarios that the Corporation could face, while continuing to model rates up scenarios of 100, 200, and 300 basis points. While management has more recently turned its focus to rates-down scenarios, with each Federal Reserve rate reduction, the ability to further reduce interest rates diminishes and the exposure to higher interest rates increases. The overnight Federal funds rate and the current U.S. Treasury rates are ~~unlikely~~presently at low historical levels. Because of this ~~point so~~historical perspective, if management would take a neutral position in terms of the direction of forward interest rates, there is clearly more ~~focused~~long term risk of rates going up than down. So while in the near term it is likely we may see additional Federal Reserve rate decreases, management remains guarded about the impact of higher interest rates and continues to prepare for rate increases on ~~the rates-up scenarios.~~ a larger scale than decreases.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

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

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

For the interest rate sensitivity analysis and net portfolio value analysis discussed below, results are based on a static balance sheet reflecting no projected growth from balances as of ~~September~~June 30, ~~2017.~~2019. While it is unlikely that the balance sheet will not grow at all, management considers a static analysis to be the most conservative and most accurate means to evaluate fair value and future interest rate risk. The static balance sheet approach is used to reduce the number of variables in calculating the model’s accuracy in predicting future net interest income. It is appropriate to pull out various balance sheet growth scenarios which could be utilized to compensate for a declining margin. By testing the model using a base model assuming no growth, this variable is eliminated and management can focus on predicted net interest income based on the current existing balance sheet. Management does run additional scenarios with expected growth rates through the asset liability model to most accurately predict future financial performance. This is done separately and apart from the static balance sheet approach discussed above to test fair value and future interest rate risk.

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. Personnel perform an in-depth annual validation and a quarterly review of the settings and assumptions used in the model to ensure reliability of the forecast results. In addition to the annual validation review, management also engages a third party every three years to obtain a complete external review of the model. That review was completed in the third quarter of 2017. The purpose was to conduct a comprehensive evaluation of the model input, assumptions, and output and this study concluded that the model is managed appropriately and generating acceptable results. Back testing of the model to actual results is performed quarterly to ensure the validity of the assumptions in the model. The internal and external validations as well as the back testing 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. 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 results in an increase in net interest income in the ~~up-rate~~rising rate scenarios, but a decline in net interest income in the ~~down-rate~~declining rate scenarios.

The ~~third~~second quarter ~~2017~~2019 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon. As of ~~September~~June 30, ~~2017,~~2019, the Corporation was well within guidelines for the maximum amount of net interest income change in all ~~rate~~up-rate scenarios and was only slightly outside of guidelines in the down -100 and -150 basis point scenarios. All up-rate scenarios show a positive impact to net interest ~~income although significant improvements are not reflected until rates increase 200, 300, or 400 basis points.~~income. The increase in net interest income in the up-rate scenarios is largely due to the increase in variable rate loans ~~that has occurred during the past several years~~ and the ~~higher~~recent purchases of variable rate securities and the cash balances 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. 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. Additionally, deposit rates may level off more when market rates increase by ~~300~~200 or ~~400~~300 basis points where variable loan rates will still increase by the same amount as the Prime rate. ~~The increases in net interest income in the up-rate scenarios are very similar to the increases reflected at December 31, 2016. It is unlikely that interest rates will go down, but in~~In the event ~~that they would go~~of lower interest rates, the Corporation would have exposure to all maturing fixed-rate loans and securities, which would reprice lower while most of the Corporation’s interest-bearing deposits could not be repriced any lower. This would result in a decline in net interest income in any down-rate scenario. ~~However, even in~~In the ~~highly~~ unlikely ~~down-rate scenarios,~~down -100 and -150 scenario, the Corporation’s exposure to declining net interest income is ~~still within~~just minimally outside of policy guidelines.

Index

ENB FINANCIAL CORP
Management’s ~~primary focus remains on the most likely scenario of higher interest rates.~~ Discussion and Analysis

For the rates-up 100 basis point scenario, net interest income increases by ~~2.7%~~1.4% compared to the rates unchanged scenario. In the remaining rates-up scenarios, the net interest income increases slightly more substantially reflecting the sizable amount of the Corporation’s interest-earning assets that reprice immediately by the full amount of the Fed increase versus the limited amount of deposit increases that management would approve on the Corporation’s interest-bearing deposits. The higher interest rates go, the greater the likelihood that the proportionality of the Corporation’s deposit rate changes decreases as a percentage of the Federal Reserve’s action. For the rates-up 200 ~~300,~~ and ~~400~~300 basis point scenarios, net interest income increases by ~~7.6%, 13.6%,~~3.8% and ~~19.6%~~7.3%, respectively, compared to the rates unchanged scenario. Management’s maximum permitted net interest income declines by policy are -5%, -10%, and -15%, ~~and -20%~~ for the ~~rates up~~rates-up 100, 200, ~~300,~~ and ~~400~~300 basis point scenarios, respectively.

~~Index~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~

The positive impact of ~~significantly~~ higher rates is primarily due to the favorable impact of all of the Corporation’s variable rate loans repricing by the full amount of the Federal rate change, assisted by the Corporation’s relatively high interest earning cash balances and that component of the loans and securities portfolios that reprice in less than one year. This more than offsets the increase in interest expense caused by repricing deposits, ~~and borrowings,~~ where they are only repricing by a fraction of the rate change. The Corporation’s borrowings do price up faster than deposits, generally equivalent to the U.S. Treasury market. However, borrowings only make up approximately 7.3% of the total funding provided by deposits and borrowings. The more aggressive rates-up scenarios also benefit from known historical experience of deposit rate increases lagging and a slowing in the pace of the actual rate increase as interest rates continue to rise. This allows management the ability to benefit from higher rates by controlling the amount of the increase on large amounts of liabilities that ~~are repricing.~~could reprice.

The negative impact of lower interest rates is primarily due to the negative impact of lower loan yields when the Prime rate changes. All variable rate loan instruments immediately reprice down while the same savings cannot be achieved on the liability side. In the down -50 basis point scenario, net interest income decreases by 1.6% compared to the rates unchanged scenario and compared to a policy guideline of -5.0%. In the more aggressive rates-down scenarios of -100 and -150 basis points, net interest income decreases by 5.1% and 7.9%, respectively, compared to policy guidelines of -5.0% and -7.5%. Management does not expect the Corporation’s exposure to interest rate changes to increase or change significantly during the remainder of ~~2017.~~2019.

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

Changes in Net Portfolio Value

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same seven scenarios mentioned above. As of ~~September~~June 30, ~~2017,~~2019, the Corporation was within guidelines for all rising rate scenarios. However, the down scenarios show more significant exposure and are outside of our guidelines for down 50, 100 and 150 basis points. The trend over the past year has been lessening risk in the ~~up-rate~~rising rate scenarios with increasing cash balances and core deposit balances with the current quarter showing ~~a slightly smaller~~an even larger benefit in all ~~up-rate~~rising rate scenarios than the quarter ended ~~June 30, 2017.~~December 31, 2018. The strong ~~GAP~~gap ratios played a large role in improving the Corporation’s net portfolio value profile. 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.

Index

ENB FINANCIAL CORP
Management’s Discussion and Analysis

The results as of ~~September~~June 30, ~~2017,~~2019, indicate that the Corporation’s net portfolio value would experience valuation gains of ~~8.3%~~14.2%, ~~8.4%, 7.5%~~20.5%, and ~~5.2%,~~21.1% in the rates-up 100, 200, ~~300,~~ and ~~400~~300 basis point scenarios. Management’s maximum permitted declines in net portfolio value by policy are -5% for rates-up 100 basis points, graduating up to ~~-20%~~-15% for rates-up ~~400~~300 basis points. A valuation loss would indicate that the value of the Corporation’s assets is declining at a faster pace than the decrease in the value of the Corporation’s liabilities. ~~While the down-rate scenarios that are modeled are unlikely, the~~The analysis does show a valuation loss in the down 50, 100, and ~~down 100~~150 basis point ~~scenarios.~~scenarios of -11.1%, -20.3%, and -24.1%, respectively, compared to policy guidelines of -7.5%, -15.0%, and -22.5%. The Corporation’s expected valuation loss was outside of guideline for all rates-down scenarios and gets progressively worse with lower interest rates. Management now has a bias that rates will begin to move down slightly with a likely third quarter Fed rate action. The exposure to valuation changes could change going forward if the behavior of the Corporation’s deposits changes due to higher interest rates. Based on five past decay rate studies on the Corporation’s core deposits, management ~~does~~did not expect a material decline in core deposit accounts, including the non-interest bearing accounts, ~~when~~as short term interest rates docontinue to increase. ~~The~~Up to this point, the Corporation’s core deposits have been stable through a number of rate cycles.

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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ENB FINANCIAL CORP

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 and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2017,~~2019, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2019, 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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ENB FINANCIAL CORP

PART II – OTHER INFORMATION

~~September~~June 30, ~~2017~~2019

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, ~~2016~~2018 Form 10-K filing.

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

Purchases

The following table details the Corporation’s purchase of its own common stock during the three months ended ~~September~~June 30, ~~2017.~~2019.

Issuer Purchase of Equity Securites

					Total Number of		Maximum Number						Total Number of		Maximum Number
	Total Number		Average		Shares Purchased		of Shares that May		Total Number		Average		Shares Purchased		of Shares that May
	of Shares		Price Paid		as Part of Publicly		Yet be Purchased		of Shares		Price Paid		as Part of Publicly		Yet be Purchased
Period	Purchased		Per Share		Announced Plans *		Under the Plan *		Purchased		Per Share		Announced Plans *		Under the Plan *

July 2017		—		—		—		108,865
August 2017		8,500	$	34.14		8,500		100,365
September 2017		—		—		—		100,365
April 2019										—		—		—		200,000
May 2019										4,566		18.55		4,566		195,434
June 2019										6,000		19.98		6,000		189,434

Total		8,500								10,566

* On ~~June 17, 2015,~~February 20, 2019, the Board of Directors of ~~ENB Financial Corp announced~~ the ~~approval of~~Corporation approved a plan to ~~purchase,~~repurchase, in the open market and privately ~~negotiated~~renegotiated transactions, up to ~~140,000~~100,000 shares of its outstanding common stock. ~~Shares repurchased are being held as treasury shares to be utilized in connection with~~This plan replaces the ~~Corporation’s three stock purchase plans.~~2015 plan. The first purchase of common stock under this plan occurred on ~~July 31, 2015.~~May 13, 2019. By ~~September~~June 30, ~~2017,~~2019, a total of ~~39,635~~5,283 shares were repurchased at a total cost of ~~$1,330,000,~~$205,000, for an average cost per share of ~~$33.56. Management may choose~~$38.80. The total number of shares authorized to ~~repurchase additional shares in 2017~~be repurchased under ~~this plan.~~the plan was increased to 200,000 pursuant to the 2-for-1 stock split, which became effective on June 28, 2019.

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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ENB FINANCIAL CORP

Item 6. Exhibits:

Exhibit
No.

Description

3(i)

Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit ~~3(i)~~3.1 of the Corporation’s Form ~~10-Q~~8-K filed with the SEC on ~~August 11, 2016.)~~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 January 15, 2010.)

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

2011 Employee Stock Purchase Plan (Incorporated herein by reference to Exhibit 10.2 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 29, 2012.)

10.3

2010 Non-Employee Directors’ Stock Plan. (Incorporated herein by reference to Exhibit 10 of the Corporation’s Form S-8 filed with the SEC on June 4, 2010.)

1131.1

~~Statement re: Computation of Earnings Per Share as found on page 4 of Form 10-Q, which is included herein.~~

~~31.1~~

Section 302 Chief Executive Officer Certification (Required by Rule 13a-14(a)).

~~31.2~~

31.2

Section 302 Principal Financial Officer Certification (Required by Rule 13a-14(a)).

~~32.1~~

32.1

Section 1350 Chief Executive Officer Certification (Required by Rule 13a-14(b)).

~~32.2~~

32.2

Section 1350 Principal Financial Officer Certification (Required by Rule 13a-14(b)).

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ENB FINANCIAL CORP

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ENB Financial Corp
	(Registrant)


Dated: ~~November~~August 14, ~~2017~~2019	By:	~~/s/~~/s/ Aaron L. Groff, Jr.
		Aaron L. Groff, Jr.
		Chairman of the Board,
		Chief Executive Officer and President


Dated: ~~November~~August 14, ~~2017~~2019	By:	~~/s/~~/s/ Scott E. Lied
		Scott E. Lied, CPA
		Treasurer
		Principal Financial Officer


As of September 30, 2017:	Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated
for impairment		98		—		—		—		—		98
Ending balance: collectively evaluated
for impairment		3,661		1,902		1,813		92		462		7,930

Loans receivable:
Ending balance		259,499		238,432		79,843		5,166				582,940
Ending balance: individually evaluated
for impairment		1,806		—		338		—				2,144
Ending balance: collectively evaluated
for impairment		257,693		238,432		79,505		5,166				580,796